Lecture : 02 - Introduction and Concept - II
Summary
TLDRThis lecture delves into the intricacies of strategic management, contrasting operational and strategic decisions, and elucidating the differences between long-range and strategic planning. It outlines the comprehensive strategic management model, encompassing vision, mission, and strategic objectives, and discusses the hierarchical levels of strategy within an organization. The lecture also explores various strategy types, emphasizing the significance of clear vision and mission statements for organizational growth, using examples from renowned companies.
Takeaways
- 📈 Strategic decisions are conceptual and often not immediately measurable, unlike operational decisions which are day-to-day and can be effective or ineffective.
- 🔍 The clarity of strategic decisions and the effectiveness of operational decisions determine the past and future success of a strategy.
- 📊 Long-range plans focus on current business with short-term profit and less risk, while strategic plans aim for future growth and sustained profit with higher risk.
- 🛠 The strategic management process involves vision and mission statements, situational analysis, long-term objectives, strategy formulation, implementation, and performance evaluation.
- 🌟 A vision statement outlines what an organization aspires to be in the distant future, serving as a guiding light for long-term goals.
- 📜 A mission statement defines why the company exists, its role in society, and how it contributes to the welfare of the country and its alignment with societal needs.
- 🎯 Strategic objectives operationalize the mission statement, providing specific, measurable goals that align with the broader vision and mission.
- 🏢 The hierarchy of strategy includes corporate-level, business-level, functional, and operational-level strategies, each with varying degrees of conceptualization and measurability.
- 🔑 Corporate-level strategies are high-risk and innovative, requiring significant cooperation from stakeholders, while functional and operational strategies are more routine and measurable.
- 🚀 Examples of strategies include growth strategies like mergers and acquisitions, and retracement strategies such as divestiture and liquidation.
- 🌍 Companies like Tesla, Nike, and Amazon have vision and mission statements that reflect their aspirations for the future and their contributions to society and the world.
Q & A
What is the primary focus of strategic decisions compared to operating decisions?
-Strategic decisions are generally conceptual, focused on higher levels, and may be clear or unclear, not always measurable. They are about the long-term direction and growth of the organization. Operating decisions, on the other hand, are day-to-day functional level decisions that can be effective or ineffective and are more immediate and measurable.
How does the clarity and effectiveness of strategic and operating decisions impact an organization's success?
-If strategic decisions are clear and operating decisions are effective, the strategy has worked in the past and is likely to succeed in the future. Unclear strategic decisions and ineffective operating decisions indicate past failures and future challenges. Unclear strategic decisions with effective operating decisions may have led to past success but do not guarantee future success, while clear strategic decisions with ineffective operating decisions might have brought short-term success but are doubtful for the future.
What is the difference between a long-range plan and a strategic plan?
-A long-range plan focuses on the current or present business, emphasizing annual, short-term profit and is generally less risky. A strategic plan, however, focuses on growth and future profit, which may not be immediately profitable but aims for sustained profit over time. Strategic plans are associated with a higher degree of risk and long-term vision.
What are the key components of a comprehensive strategic management model?
-A comprehensive strategic management model includes vision and mission statements, situational analysis (external and internal environmental analysis), development of long-term strategic objectives, formulation of strategy (generating alternatives, evaluating, and selecting), implementation of strategy (allocating resources, structure, leadership skills, and functional policies), and evaluation of performance (monitoring, feedback, and course corrections).
What is the role of vision and mission statements in guiding an organization's strategic plan?
-Vision and mission statements are provided by top management and serve as a top-down guide for the organization. They help in determining the direction and purpose of the organization, ensuring that all strategic plans align with the overall aspirations and goals.
How does the strategic decision-making process relate to the mission statement?
-The strategic decision-making process starts with determining the mission statement, which is then followed by an external environmental assessment to identify opportunities and threats, and an internal organization analysis to understand strengths and weaknesses. Based on this, long-term objectives are specified, and a strategy is formulated and implemented, with continuous monitoring and feedback for adjustments.
What are the four levels of strategy in an organization?
-The four levels of strategy in an organization are corporate level, business level, functional level, and operational level. Corporate level strategy is the responsibility of top management and provides overall directions. Business level strategy is managed by general managers or business unit heads. Functional strategies are managed by functional heads, and operational strategies are the day-to-day work managed by line functions.
What are the characteristics of corporate-level strategies?
-Corporate-level strategies are more conceptual, non-measurable, have a longer time horizon, are innovative in nature, and carry a high degree of risk. They also require high cooperation from different stakeholders.
What is the difference between a blue ocean strategy and a red ocean strategy?
-A blue ocean strategy involves entering unexplored markets or segments or creating innovative products, aiming to avoid competition. A red ocean strategy, on the other hand, focuses on competing in existing, fiercely competitive markets, where market share and profitability are achieved at the expense of competitors.
What are the essential elements of a mission statement?
-A mission statement should explain why the company exists, how it fits into society, how it contributes to societal welfare, what business it is in, and whether this business is compatible with societal needs. It should be precise, terse, unambiguous, and understandable by all concerned.
How do vision, mission, and strategic objectives relate to each other?
-The vision statement is at the top, outlining what the organization aspires to be in the distant future. The mission statement explains why the company exists and how it fits into society. Strategic objectives operationalize the mission statement, making them more specific and focused on shorter-term goals.
Outlines
📈 Introduction to Strategic Decisions and Management
This paragraph introduces the lecture's focus on strategic decisions and management. It discusses the dimensions of strategic decisions, types of strategies, levels of strategy, and the strategic management process. The comparison between operating and strategic decisions is highlighted, emphasizing the conceptual nature and potential lack of measurability in strategic decisions versus the day-to-day, functional nature of operating decisions. The success of a strategy is linked to the clarity of strategic decisions and the effectiveness of operating decisions. The paragraph also differentiates between long-range plans, which focus on current business and short-term profits with lower risk, and strategic plans, which aim for future growth and sustained profits with higher risk.
📚 Strategic Management Model and Decision-Making Process
The second paragraph delves into the comprehensive strategic management model, starting with the vision and mission statement provided by top management. It outlines the process of strategic planning, which includes situational analysis, development of long-term strategic objectives, formulation of strategy, and implementation. The importance of resources, organizational structure, leadership skills, and functional policies in strategy implementation is discussed. The paragraph also covers the evaluation of strategy performance, monitoring, and feedback for course corrections, highlighting the cyclical nature of the strategic management process.
🏢 Hierarchy of Strategy Levels in an Organization
This paragraph explores the hierarchy of strategy levels within an organization, detailing the corporate, business, functional, and operational levels. Corporate strategy, driven by top management, provides overall direction and is long-term and high-risk. Business-level strategy, managed by general managers, focuses on competitive positioning and is a mix of conceptual and operational elements. Functional strategies, overseen by functional heads, are purely operational and measurable, with annual targets and incentives. Operational strategies are the day-to-day work, managed at a regional or district level, and form the foundation for higher-level strategies.
🌐 Types of Strategies and Their Characteristics
The fourth paragraph discusses various types of strategies, including stability, growth, retracement, generic, dependency reduction, blue ocean, and red ocean strategies. It explains that these strategies are not exhaustive but indicative, and will be further discussed in future modules. The paragraph also emphasizes the importance of understanding the different types of strategies and their applications in various business scenarios.
🌟 Vision, Mission, and Strategic Objectives
This paragraph focuses on the concepts of vision, mission, and strategic objectives. It defines vision as an organization's aspiration for the distant future and mission as a statement explaining why the company exists and its role in society. Strategic objectives are described as the operationalization of the mission statement. The relationship between these elements is outlined, with vision at the top, followed by mission and strategic objectives. Examples of vision and mission statements from major oil companies, Johnson and Johnson, Tesla, and Nike are provided to illustrate these concepts.
🚀 Examples of Vision and Mission Statements from Reputed Companies
The sixth paragraph provides examples of vision and mission statements from various reputed companies across different sectors. It includes Microsoft, Amazon, and others, highlighting how these statements reflect the companies' aspirations, business focus, and societal contributions. The importance of simplicity, precision, and clarity in vision and mission statements is reiterated, emphasizing their role in guiding organizational growth and strategy.
📚 Summary of Lecture on Strategic Planning and Management
The final paragraph summarizes the lecture, covering the strategic planning process, the stimulus for strategy, and the triggering points for change in strategy. It also reviews the characteristics of different levels of strategies, such as corporate, business, functional, and operational levels. The importance of vision, mission, and strategic objectives for organizational growth is highlighted, and reference books for further study are recommended.
Mindmap
Keywords
💡Strategic Decisions
💡Operating Decisions
💡Long-Range Plan
💡Strategic Plan
💡Situational Analysis
💡Strategy Formulation
💡Implementation
💡Evaluation
💡Strategy Hierarchy
💡Vision Statement
💡Mission Statement
💡Strategic Objectives
Highlights
Strategic decisions are generally conceptual and may be clear or unclear, measurable or not, compared to operating decisions which are day-to-day functional level decisions that may be effective or ineffective.
Clear strategic decisions and effective operating decisions indicate past success and预示 future success.
Unclear strategic decisions and ineffective operating decisions mean the plan has not succeeded in the past and is unlikely to succeed in the future.
If strategic decisions are unclear but operating decisions are effective, past success does not ensure future success, making it doubtful.
Clear strategic decisions with ineffective operating decisions may have led to short-term success in the past, but future success is doubtful.
Long-range plans focus on current business and short-term profits with lower risk, while strategic plans focus on future growth and sustained profits with higher risk.
The comprehensive strategic management model includes vision and mission statements, situational analysis, long-term objectives, strategy formulation, implementation, and performance evaluation.
Vision statements guide how an organization proceeds to make strategic plans, coming from top management.
Situational analysis involves external and internal environmental analysis to identify opportunities, threats, strengths, and weaknesses.
Strategy formulation includes generating alternatives, evaluating them, and selecting an appropriate strategy.
Implementation of strategy requires allocating resources, having an appropriate organizational structure, leadership skills, and developing functional policies.
Performance evaluation after strategy implementation involves tracking, monitoring, and getting feedback for course corrections.
The strategic decision-making process involves determining mission, conducting environmental assessments, specifying long-term objectives, formulating and implementing strategies, and taking feedback for adjustments.
There are four levels in the strategy hierarchy: corporate level, business level, functional level, and operating level, each with different responsibilities and characteristics.
Corporate-level strategies are conceptual, long-term, innovative, and high-risk, while business-level strategies are a mix of conceptual and operational with moderate risk and measurability.
Functional-level strategies are purely operational, measurable, and have lower risk, profitability, and cost compared to corporate and business levels.
Different types of strategies include stability, growth (e.g., mergers, joint ventures, expansion), retracement (e.g., turnaround, divestiture), generic strategies, dependency reduction, blue ocean, and red ocean strategies.
A vision statement describes what an organization aspires to be in the distant future, while a mission statement explains why the company exists, how it fits into society, and what business it is in.
Strategic objectives operationalize the mission statement, becoming more specific and shorter-term as you go down from the vision and mission.
Examples of vision and mission statements from major companies like a major oil company, Johnson and Johnson, Tesla, Nike, Microsoft, and Amazon illustrate the integration of vision, mission, and strategic objectives.
Vision and mission statements should be simple, precise, unambiguous, and understandable by all, as demonstrated by the examples provided.
Transcripts
Welcome to
lecture number 2 of Introduction and Concepts. In the last class, we talked about
the genesis of the strategy and the evolution of strategic management.
In this lecture, we will start with the dimensions of strategic decisions and different
types of strategies, the levels of strategy, strategic management process, strategic vision,
mission and strategic objectives. All these things we will be covering in this lecture.
So, we will now be talking about, what is the comparison between the operating and the strategic
decisions? What is the difference between operations decisions and strategic decisions?
If you see this diagram, you will see that strategic decisions
are generally conceptual. Since it is at the higher levels, it may be clear or unclear, and not
always measurable. Whereas the operating decisions are said to be the day-to-day functional level
decisions and may be effective or ineffective. Now, if your strategic decisions are clear,
and operating decisions are effective, it means that your strategy has worked in the past and
has given you the results and even in the future, it will succeed.
So, now, if your strategic decisions are unclear, and operating decisions are also ineffective, it
means that your plan has not succeeded in the past and it will not succeed in the future either.
Then, if your strategic decisions are unclear, but operating decisions are
effective, it means that your plan might have succeeded in the past, but that does not ensure
that it will be succeeding in the future. It is doubtful that it will succeed.
Now, if your strategic decisions are clear, but operating decisions are ineffective, it means you
might have tasted success for a short period in the past, but success in the future is doubtful.
So, these give you comparisons of strategic decisions and your operating decisions.
Now, we will be talking about what is the difference between a long-range plan
and a strategic plan. In the long-range plan, your focus is on the current or the present
business, your focus is mostly on the annual, short-term profit and is generally less risky.
And under the strategic plan, the focus is on growth i.e., future profit. It may not
be profitable today, but it will give you profit after some time and it will be a sustained profit.
Naturally, the strategic plan is associated with a high degree of long-range plan. So,
these are the difference you will find between a long-range plan and a strategic plan.
Now, this diagram shows you a comprehensive strategic management model.
This is the strategic planning one wants to do. This is the process one has to follow, first,
there is a vision and mission statement, this is top-down and given by the apex body - it comes
from the top management. Vision and mission statement guide the organization - how you
proceed to make your strategic plan. First, you do a situational analysis.
That is, you do the external environment analysis and internal environmental analysis; we will
talk about this in the subsequent modules. Then based on these you develop your long-term
strategic objectives for the organization, then you formulate your strategy. Formulating
a strategy are of few steps. You generate many strategic alternatives, then evaluate those
alternatives and choose an appropriate strategy - that is, selection of strategy; these two boxes
are the formulation. Then after you formulate, what you do to implement the strategy? Under the
implementation of strategy, what is required? Inputs are required or your resources.
So, after you allocate resources, you need a conducive structure i.e., an appropriate
structure of the organization to implement that strategy. So, the structure is also important,
then you require leadership skills because these strategy implementations also require handling
different groups, handling different people, and functional policies have to be developed.
So, these are the implementation stages. After implementing you evaluate your performance,
how the strategy is working, and evaluate the performance of the organizations, KPMs and
all. You track, monitor and get feedback for the course corrections. It goes this way of having
a strategic planning process; this is called a comprehensive strategic management model. So,
we will cover each of these boxes in subsequent modules. So, this will be very useful.
So, this strategic decision-making process is similar to the determination of the mission
i.e., top-down, based on that, you do an external environmental assessment
to find out the opportunities and threats, and an internal organization analysis to know your
strength and weakness. This is the situational analysis based on which you specify your long-term
objectives, and based on this long-term objective you formulate a strategy.
After formulating a strategy, you implement your strategic plan.
Then monitor, evaluate and take feedback for adjustment or revision of mission statement,
revision of specific objectives, formulation of strategy and implementation of the strategy. These
are the strategic decision-making process. Next, we will be talking about the various
levels of strategy. This is called the hierarchy of strategy. Under this strategy hierarchy,
there are four levels; one is the corporate level, which is the corporate strategy.
This is responsibility of the top management, i.e., the CEO and board of directors.
So, what does it do, it gives overall directions
to the organization i.e., how the organization will move, and it is generally long-term.
So, then, the next level is the business-level strategy. Business level strategy is the
responsibility of business units or products or services. It is the general managers or the
business unit heads who carry out these business-level strategies. This is done
for keeping your organization in a particular competitive position. You aim for business to get
a particular competitive positioning. It is being done through business strategy.
There are functional strategies like (each group) manufacturing, marketing strategy,
finance strategy, human resource strategy, and supply chain management strategy, all these are
the responsibilities of the functional heads. So, these are the functional strategies.
Then at the lowest level, it is the operating strategy. Like under the functions they may be
distributed over the region or over the districts, and there may be a different department within the
functional strategies. So, these are the various levels of strategy in an organization.
To discuss more on this, we will be showing what we found at the corporate level, business
level, and functional level. Under the functional level, there is the operational level, which is
the day-to-day work, line functions and all. So, here at the corporate level, the strategies
are more conceptual, non-measurable, and is having a longer time horizon. Again, it is more
innovative in nature and the degree of risk is very high. Profitability and cost for
corporate-level strategies are also very high. So, the cooperation required from the different
stakeholders is also very high for the corporate-level strategy. Under the Business level
strategy, some part is conceptual, but others are the business part, which is operational.
So, it is a mixture of conceptual and operational. These are moderately measurable and moderately
non-measurable. Some parts that are conceptual are non-measurable, but the operational parts
are measurable and it happens periodically. The business level strategy basically tries to keep
your organization’s product or business in a competitive position. It is periodic in nature
and is action-oriented. Again, the risk, profit and cost are moderate between the corporate
level and functional level. Then the functional level strategies
are purely operational and are measurable. It is measured annually, i.e., it has an annual plan,
annual target, annual incentives and all these are based on this functional level and operational
level strategy. This is action-oriented, and the risk, profitability and cost
are lower than the business level and corporate level. The cooperation required is also
lower than the corporate level and business level. This functional level or operations level is the
basic building block for the business level and corporate level strategy. So,
these are the characteristics of different levels of planning.
Next, we will be discussing on what are the different types of strategy. So,
these are just a few indicative ones, we will show. There may be a stability strategy; we will
discuss it in future lectures. There may be growth strategies, what are growth strategies? It may be
merger and acquisition, joint ventures, growth through expansion like Greenfield expansion or
brownfield expansion, growth through outsourcing, franchising or vertical integration.
Then there may be a retracement strategy i.e., reducing your activity. It may be
turnaround strategies, divestiture and liquidation strategies. So, there is something called
generic strategy, which are of five types. Then there may be a dependency reduction strategy.
Suppose you have only one (single) vendor, who supplies a very strategic material for your
organization, and depending on one (unreliable) vendor is very risky for your organization,
for this dependency reduction strategy is adopted. Then there may be a blue ocean
strategy, a red ocean strategy. The Blue Ocean strategy is you go to an unexplored market
or the unexplored segment or you create a product which is innovative. So, you have your
new market, new segment, and new product. The red ocean strategy is that you are in the
fiercely competitive, existing market and your market share and profitability are at the cost of
the competitors. So, all these are different types of strategies, these are not exhaustive - but
indicative. Many of these strategies we will be discussing in the future modules.
Now, coming to an important topic, you have heard about the mission, vision, strategic objectives
of an organization. So, what is a vision? What do you understand by vision of an organization?
A vision is, what an organization or a company aspires to be in the distant future,
what an organization wants to be in the distant future, what is its dream, and what
it aspires for. These are the vision of the organization (statement).
Then comes the mission statement, what is the mission statement? And what are its purposes and
features? A mission statement is one which tells you why the company exist, how it fits in society,
how it contributes to society, how it contributes to the country's welfare, what business is it in,
and is this business compatible with the societal needs or not. A mission statement must address
all these issues and a mission statement usually should be very precise, very terse, and
unambiguous and should be distinct. The mission statement should be very simple and understandable
by all concerned (persons). These are some basic needs for developing a mission statement.
Then comes, what is a strategic objective? The strategic objective is to operationalize
the mission statement. So, if we draw, the relationships come out like this, the
vision statement is at the top followed by the mission statement. Vision is
what the organization aspires for in the distant future and the mission is,
why does the company exist? How does it fit into society? What business is it in?
Strategic objectives are for operationalizing the mission statement. So, if you see in the top,
it is more general and as you go down strategic objectives and all will be more specific.
Similarly, the time horizon - it is a long term, as you come down - it is of shorter term. So,
these are the relationships between the vision, mission and strategic objectives.
Now, I will show you vision, mission statement of a major oil company
just to give you an idea (illustration). You can just see - you can go through the vision
and mission statement of that organization. Vision statement: to be a world-class oil and gas
company integrated into the energy business and dominant Indian leadership. You can see
it is a world-class integrated energy business, the dominant Indian leadership. This is how you
become a world-class company these are given in your mission statement, dedicated to excellence by
leveraging competitive advantage in R&D and technology with involved people,
imbibe high standards of business ethics and organizational values. So, these are the
ways how to become world-class. In order to become integrated into the energy
business; focus on domestic and international oil and gas E&P business (exploration and
production business) opportunities, then how do you become the dominant Indian leaderships? You
retain a dominant position in the Indian petroleum sector and enhance India’s energy availability.
So, you can see - this is just an illustrative one, you can go through many large and reputed
companies’ vision and mission statements, and it will be much clearer to you.
Further to the vision and mission statements that we have seen in the last slide, that was about a
major oil and gas company. Now, we will show you some more vision and mission statements of some
reputed companies in diversified fields of different sectors. These will give you a broad
perspective of this vision and mission statement. See this is the vision and mission statement of
Johnson and Johnson. The vision of Johnson and Johnson is to help people see better,
connect better and live better. This is a very simple and very powerful one.
It connects with helping people with a better life and all and is a very broad
vision. Then similarly, the mission is to bring science and sense of sight to life, through World
Class innovations and customer experience. So, it clearly says what business they are in and what
they want to be. Its mission is they want to have - world-class innovations and customer experience.
I will talk about it further a little later. This is a pharmaceutical and health care industry.
So, let us see another industry. Tesla as we know is an electrical car vehicle and they are
coming in a big way. Just see their vision is to accelerate the world's transition to
sustainable energy. It is a very powerful vision that they are transitioning to, because they are
now global leaders as they are now going from IC engines to electric vehicles. Its mission is to
create the most compelling Car Company of the 21st century by driving the world's
transition to the electric vehicle. So, it shows what business they are in
and its vision identifies them as what they want to be in the future, and also what purpose they
will be serving for the company and to the world. So, these are embedded in the mission statement.
Anyway, we will talk about some other visions and missions,
then we will be talking further on this. This is the vision and mission statement of
Nike. The vision statement is to bring inspiration and innovation to every athlete in the world. They
want to be the inspiration and bring innovation to every athlete in the world.
And they have defined athletes, the athlete is not very confined to those
who are physically strong and are involved in sport. They defined an athlete as anyone
who has a body. So, they have enlarged the market and the environment.
So, the athlete is for their terms anyone who has a body, they will be requiring their product.
So, this is a powerful vision. And the mission is to create groundbreaking sports innovation,
make our products sustainably, build a creative and diverse global team and make a positive impact
on the communities where we live and work. So, it says, how does it fit in the global
community, not only in one country's community and all. These are the very essence of a mission
statement. The mission statement says how does it fit, why the company exist, and how it fits in
society. So, that way, this satisfies most of the elements of a mission and vision statement.
Now, let us see some other - two from another field. Say,
Microsoft's vision is to help people and businesses throughout the world realizing
their full potential. It is a very powerful vision like throughout the world they are the global
leaders. They are realizing the potential of humanity like the entire citizens of this globe.
So, they want to realize their full potential which is nothing but their vision.
The mission is to empower every person and every organization on the planet to achieve more. So,
they are integrating it with every people in the world, not only a country, every organization
on the globe, on the planet, to achieve more. They are enhancing the entire system, entire global
industries, and global people. So, these are seen naturally as they will fit in the society and
what business they are in are all embedded in this powerful vision and mission statement.
Now, you see Amazon, another area i.e., e-commerce. Its vision is to be Earth's most
customer-centric company. So, it says they are a customer-centric company,
where customers can find and discover anything they might want to buy online.
They have expanded their operations, they expanded what they want to aspire
to be, and this is their aspiration. Then their mission is that “we strive to offer our customers
the lowest possible prices, the best available selection and the utmost convenience.”
So, what purpose do they serve, is one of the ingredients of a mission statement. What
purpose does a company serve for the society are embedded in it. All these companies like Johnson,
Nike, Microsoft, Amazon and Tesla, incorporate all the textbook concepts
of how should the vision and mission statements be integrated.
Moreover, one more thing, vision and mission statement as I told you in the last lecture,
should be simple, precise, unambiguous, and understood by all. As you see, it is so simple,
understood by everyone, very precise. All these you see also satisfies the characteristics of the
vision and mission statement. So, these are
some of the further examples of visions and missions’ statement. So, you can get the idea of
how to develop a vision and mission statement and what are the attributes or characteristics
a vision and mission statement should have. So, to summarize today's lecture, in this
chapter, we have explained how to make a strategic planning process, how to develop a strategic plan,
what are the stimulus for strategy, what are the triggering points for change in strategy in an
organization. Also, the various kinds of strategies that are available
in the strategic management and the characteristics of different level
of strategies such as corporate level strategy, business level, functional level and operational
level strategies. We have also discussed the importance of vision, mission and strategic
objectives of an organization for its growth. So, thank you very much. Before that, I will just
show you the references. These are the reference books you can follow. And these are the best
books in the world. So, it will help you in your growth of knowledge. Thank you very much.
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