strategic Management

Definition:

What is strategic Management?

Strategic management is a set of managerial decision and actions which consists of the decisions, analysis, and actions which helps the organisation in achieving competitive advantage through being different from its competitors by offering a unique value added service to the consumer and by having a vast knowledge about the market which helps them in positing their products uniquely from their competitors in their industry.

Directions for Strategy development

· Protect and build on current position

a) Consolidation

It helps the firms in protecting and strengthening their position in their present time markets with present time products by reshaping and innovating the products and services which improves the value of the organisations against their competitors.

b) Market penetration

It is where an organisation achieve market share. It depends on the nature of the market-whether it is growing or declining

Example:

It becomes very easy for small organisation with a small market share to gain share and even new entrants in the market can also gain share if the whole market is growing.

· Product development

It is where organizations deliver changed or new products to present time markets.

Example:

By introducing new products lines, retailers comes to know what are changing needs of their customers

· Market development

It is where available products are offered in new markets where resource and market considerations might play an important role in driving an organizations development into new markets

Example:

Development of new uses for available products

Manufacturers of stainless steel have found new applications for products which were used for cutlery and tableware can now be also used for aerospace, automobile exhausts and many more applications in the chemical manufacturing industry.

· Diversification

It is where an organisation moves away from its products, current markets or competences.

Example: The psychology department of a hospital may be able to give a service to defence lawyers in the courts for preparing a psychological reports on offenders.

Strategic choices

· Suitability

It is concerned with whether a strategy gives information about the situation in which the organisation is operating.

This is important because:

a. It avoids threats and exploits opportunities in the environment

b. Capitalises on an organisations strengths and avoids weakness

c. Addresses expectations

· Acceptability

It is related to three issues

a. The expected return from a strategy

b. The level of risk and

c. The likely reaction of stakeholders

There is not any absolute standard for what makes a good or poor return or what kind of level of risk can be accepted because it is not similar between countries, industries and also between different stakeholders.

· Feasibility

To deliver a strategy it is necessary for organisation to have the resources and competences. It is important to evaluate the organisations capability for delivering strategy-in terms of all the resources and competences needed to succeed.

Importance of Strategic Management

Strategic Management is very important due to the following reasons:

* Globalization is necessary for survival of business

Strategic management helps the managers in understanding of its competitors, prices, markets, suppliers, distributors, governments, creditors, shareholders, and customers worldwide. It is important that the price and quality of an organization's products and services should be competitive not only just on local basis but also on worldwide basis. Although if there is political boundaries but in order to succeed in business it is important to give attention on the globalization.

· E-commerce act as a business tool

By using the internet a large number of companies are gaining competitive advantage which they use it for direct selling and for communication with suppliers, customers, creditors, partners, shareholders, clients, and competitors who may be scattered in different directions globally. E-commerce helps the organisation in selling the products, advertising, purchasing supplies, tracking inventory, eliminating paperwork, and sharing information which minimizes the expense as well as saves time and distance, which results in improving customer service, greater efficiency, products improvement and higher profitability. Buyers faced the problems in getting the best prices and services because of less time and limited data to compare with others products, but now buyers can scan quickly hundreds of vendors' offerings or they can take the help of Web sites such as CompareNet.com where they can view all the detailed information about the products and can compare their prices with other consumer products. The Internet has changed the very nature and core of buying and selling in nearly all industries.

· Earth environment has become a major strategic issue

The resources are insufficient to meet the demands of the world whereas the wants are unlimited therefore to meet these wants of the world, the resources should be efficiently utilized.

SWOT Analysis

SWOT Analysis is the first stage of planning which helps the marketers to concentrate on main issues. It stands for strengths, weakness, opportunities and threats. It can be divided into two factors which are internal and external. Internal factors include strengths and weakness and external factors includes opportunities and threats.

It plays an important role in matching the companie's resources and capabilities which makes it to be competitive in the environment where it operates by providing information.

Example:

EA Games

Strength

a. Electronic arts (EA) game is a global brand which design games for Sony playstation 3, Microsoft Xbox 360, PSP. It distributes its game in over 35 countries.

b. It has four segments: EA Games, EA Sports, The Sims, and EA Casual Entertainment.

Weakness

a. In December 2008,Electronic arts closed nine of its studios and publishing locations.

b. In 2008, EA has created a digital scrabble game which had failed due to its problem in software parts.

Opportunities

a. Use of high density –foam balls which would help kids in develop their skills at an early age

b. Interactive training tools which features voice commands and instructional coaching.

Threats

Software piracy has become a serious problem which cuts its profits

PEST Analysis

Kotler (1998) claims that PEST analysis is a usefulstrategic toolfor understanding market growth or decline, business position, potential and direction foroperations.

It helps in scanning the external macro environment in which the organisation operates and it can also be used for describing the framework for the analysis of macro environment . It consists of following factors they are:

· Political

· Economic

· Social

· Technological

Example:

Starbucks Coffee

· Political

a. It has maintained relationship between Coffee producing nation and US

b. State and local government controls

· Economic

a. There is continuous demand for food and beverages

b. Change in disposable income could affect the purchasing power

· Social

Consumers may prefer other beverages instead of Coffee

· Technological

By using technology starbucks can improve operational efficiencies

Porters Five Forces

Michael Porters five forces help the organisation in developing a competitive edge over its competitors by better understanding the market context in which the organisation operates.

This model identifies and analyses five competitive forces which helps in shaping the organisation and also helps in determining the organisations strengths and weakness. The five forces of Porters are:

· Power of Supplier

· Power of Buyer

· Barriers to Entry

· Threat of Substitute

· Degree of Rivalry

Example:

Marks and Spencer

· Power of supplier

The support from British suppliers makes Marks and Spencer's dependent

· Power of Buyer

Marks and Spencer preferred in using British suppliers alone. It became dependent on its Suppliers

· Barriers to entry

Marks and Spencer has now become expert in its field therefore it is unlikely for new entrants to enter in this area because it has been there in this field for a long time, which has a long time developed focus that has acted as an entry barrier.

· Threat of Substitute

When customers switch to alternatives then it reduces the demand of that particular class of the substitute product. The alternatives are mostly from Tesco and Sainsbury as they provided value added foods and these alternatives provided threat to Mark and Spencer.

· Degree of Rivalry

Under Competitive rivalry Marks and Spencer faced a threat because the other companies which entered into the market with the same quality goods have the cheaper price and also have up-to-date fashion. In this area Mark and Spencer lacked behind from its competitors and the firm was unable to fight the current competition.

Ansoff Matrix

Ansoff Matrix is a marketing tool and it was first published in the article "Strategies for Diversification" in the Harvard Business Review (1957).

The matrix helps the organisation in deciding whether what kind of action should be taken with the help of the current performance of the organisation.

It offers strategic choices which help the organisation in achieving its desired results. It can be divided into four main categories they are:

· Market Penetration

· Product Development

· Market Development

· Diversification

Example:

Waitrose

· Market Penetration

a. To improve service and quality

b. To Reposition

c. To Withdraw

· Product Development

a. To expand its brand labels

b. To introduce new products in the market

c. To expand its business into non food sector

· Market Development

a. To become an international brand

b. To Expand its business to north-west of UK

c. To provide the facility of online shopping

· Diversification

a. Through conglomerate

b. Through acquisition

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