Strategic Management

Strategic Management.

Strategic management is the process of large scale, future oriented plans for interacting with the competitive environment to optimize achievement of an organization's objectives.

 According to L.L. Byars, L.L Rue, Strategic management is the process by which top management determines the long-run direction and performance of the organization by ensuring that carefully formulation effective implementation and continuous evaluation of the strategy take place.

Stoner says that, Strategic Management is the process of boarding program for defining and achieving an organizational objective, the organization response to its environment over time.

Weihrich and Kooiztz says, Strategic management is the process of determining of the purpose and the basic long term objectives of an enterprise and the adoption of courses of action and allocation of resources necessary to achieve these aims.

Strategic management is defined as the set of decisions and actions that result in the for­mulation and implementation of plans designed to achieve a company's objectives. It com­prises nine critical tasks:

I . Formulate the company's mission, including broad statements about its purpose, phi­losophy, and goals.

2. Conduct an analysis that reflects the company's internal conditions and capabilities.

3. Assess the company's external environment, including both the competitive and the general contextual factors.

4. Analyze the company's options by matching its resources with the external environment.

5. Identify the most desirable options by evaluating each option in light of the company's mission.

6. Select a set of long-term objectives and grand strategies that will achieve the most de­sirable options.

7. Develop annual objectives and short-term strategies that are compatible with the se­lected set of long-term objectives and grand strategies.

8. Implement the strategic choices by means of budgeted resource allocations in which the matching of tasks, people, structures, technologies, and reward systems is emphasized.

9. Evaluate the success of the strategic process as an input for future decision making.

The above discussion bring to the conclusion that, Strategic management is the art science and craft of  formulating, implementing and evaluating cross-functional decisions that will enable an organization to achieve its long term objectives.

The three steps of Strategic Management.

The strategic management process consists of three steps are Strategic formulation, Strategic implementation and Strategic evaluation.

Strategic Formulation: Strategic formulation includes developing a vision and mission, identifying an organization's external opportunities and threat, determining internal strengths and weakness, establishing long term objectives, generating alternative strategies and choosing particular strategies to pursue.

Strategy-formulation issues include deciding what new businesses to enter, what businesses to abandon, how to allocate resources, whether to expand operations or diversify, whether to enter international markets, whether to merge or form a joint venture, and how to avoid a hostile takeover.

Strategic implementation: Strategic implementation requires a firm to establish annual objectives, devise polices, motivate employees, and allocate resources so that formulated strategies can be executed. Strategy implementation includes developing a strategy-supportive cul­ture, creating an effective organizational structure, redirecting marketing efforts, preparing budgets, developing and utilizing information systems, and linking employee compensation to organizational performance.

Strategy implementation often is called the "action stage" of strategic manage­ment. Implementing strategy means mobilizing employees and managers to put formulated strategies into action. Often considered to be the most difficult stage in strategic management, strategy implementation requires personal discipline, com­mitment, and sacrifice. Successful strategy implementation hinges upon managers' ability to motivate employees, which is more an art and a science.

Strategic evaluation: Strategic evaluation is the final stage in strategic management. Strategic evaluation is the primary means for obtaining this information. All strategies are subject to future modification because external and internal factors are constantly changing. Fundamental strategy-evaluation activities are

a)        Define parameter to be measured.

b)       Define target value for those parameters.

c)        Perform measurements.

d)       Compare measured results to the pre-defined standard.

e)        Make necessary change.

It's extremely important to conduct a SOWT analysis to figure out the strengths, weakness, threat and opportunities of entity in question.

Portfolio Management

Discuss the different phrase in portfolio Management.

Portfolio Management is complex process, which tries to make investment activity more regarding and less risk. In a word we can say Portfolio Management is provides how to maximum returns without minimum risk. Portfolio Management comprises all the processes involved in the creation and maintenance of an investment portfolio. Five phases can be identified in this process. As following-

• Security analysis: Security analysis is the initial phases of the portfolio management process. This step consists of examining the risk-return characteristics of individual securities. 
• Portfolio analysis: Portfolio analysis phase of portfolio management consists of identifying the range of possible portfolios that can be constituted form a given set of securities and calculation their return and risk for further analysis.
• Portfolio selection: Portfolio selection phase of portfolio management consists of the goal of portfolio construction that provides the highest returns at a given level of risk. By this set of efficient portfolios, the optimal portfolio has to be selected for investment.
• Portfolio revision: Portfolio revision is an important in the entire process of portfolio management. Some investor-related changes such as availability of additional funds, change in risk attitude, need of cash for other alternative uses.
• Portfolio evaluation: Portfolio evaluation is useful in yet another way. It provides a mechanism for identifying weaknesses in the investment process and for improving these deficient areas. It provides a feedback mechanism for improving the entire portfolio management process.

Each phase is an integral part of the whole process and the success of portfolio management depends upon the efficiency in carrying out each of these phases.

Objectives of investment

What do you mean by investment?

Investment is a financial activity that involves risk. It is the commitment of funds for a return expected to be realized in the future. Investment may be made in financial assets or physical assets. The objectives of investors can be stated as:

(i)                 Maximization of return 

(ii)               Minimization of risk

(iii)             Hedge against inflation

Or, Objectives of investment:

1.      To have some extra money

2.      To lead a better life

3.      To set a hedge against inflation

4.      To contribute in the economic development

Industry life cycle

Discus the different stages in the industry life cycle.

Concept of Industry: We may define an industry “as a group of firms producing reasonably similar products which serve the same needs of a common set of buyers”. An industry is generally described as a homogenous group of companies and traditionally classified on the basis of products.

When an investor ultimately invests his money in the securities of one or more specific companies than he took assume an industry analysis to study the fundamental factors affecting the performance of different industries. Industry analysis refers to an evaluation of the relative strengths and weakness of particular industries.

Marketing experts believes that each product has a life cycle.  They have identified four stages in the life of a product, namely-

• Introduction stage
• Growth stage
• Maturity stage
• Decline stage

In the other way, according to Julius Grodinsky industry life cycle theory-the life of an industry can be segregated into the-

• Pioneering Stage
• Expansion Stage
• Stagnation Stage
• Decay Stage

Introduction stage/ Pioneering Stage: This is the first stage in the industrial life cycle of a new industry where the technology as well as the product are relatively new and have not reached a state of perfection. The pioneering stage is characterized by rapid growth in demand for the output of industry. As a result, there is a great opportunity for profit & highly risk. It’s also called sunrises industries. For example, ‘a leasing industry’ Computer Software & information technology etc.

Growth stage /Expansion Stage: This is second stage of expansion or growth and survived the pioneering stage. The stage of an industry are quite attractive for investment purposes. Investors cab get high returns at low  risk because demand exceeds supply in the this stage. Companies will earn increasing amounts of profits and pay attractive dividends.

Maturity stage/Stagnation Stage: This is the third stage in the industry life cycle. In this stage, the growth of the industry stabilizes. The ability of the industry to grow appears to have been lost. sales may be increasing but at a slower rate than that experienced by competitive industries or by the overall economy.  For example, Black and white television industry in India. 

Decline stage/ Decay Stage: From the stagnation sage the industry passes to the decay stage. This occurs when the products of the industry are no longer in demand. New products and new technologies have come to the market. Customers have change their habits, style and liking. As a result, the industry becomes obsolete and gradually ceases to exist. Thus, changes in social habits, changes in technology and declining demand are the causes of decay of an industry.

The industry life cycle approach has important implications for the investor. It gives an insight into the apparent of investment in given industry a t a given time. In fact, each development stage is unique and exhibits different characteristic.

COMPANY ANALYSIS

COMPANY ANALYSIS:

Company analysis is the final stage of fundamental analysis. The economy analysis provides the investor a broad outline of the prospects of growth in the economy. Company analysis deals with the estimation of return and risk of individual shares. This calls for information.

Many pieces of information influence investment decisions. Information regarding. Companies can be broadly classified into two broad groups:-

·         Internal Information: Internal information consists of data and events made public by companies concerning their operations. The internal information sources include annual reports to shareholders, public and private statements of officers of the company, the company’s financial statements, etc.

·         External Information: External sources of information are those generated independently outside the company.These are prepared by investment services and the financial press.

In company analysis, the analyst tries to forecast the future earnings of the company because there is strong evidence that earnings have a direct and powerful effect upon share prices. The level, trend and stability of earnings of a company, however, depend upon a number of factors concerning the operations of the company.

Financial Statement

Financial Statement

The financial statements published by a company periodically help us to assess the profitability and financial health of the company. The two basic financial statements provided by a company are-

• Balance sheet Statement: The balance sheet gives the list of assets and liabilities of a company on a specific date or at first gives us a picture of the company’s assets and liabilities. The major categories of assets are fixed assets and current assets. Fixed assets are those assets which are intended to be used up over a period of several years. Current assets are those assets which are intended to be converted into cash in the near future (within one year). The major categories of liabilities are outside liabilities and liability towards share holders. The outside liabilities are categorized as short-term liabilities. The short-term liabilities which are expected to be paid off within the next one year are known as current liabilities. The balance sheet indicates the financial position of a company on a particular date, namely the last day of the accounting year.

Profit and loss Statement: It’s gives us a picture of its earnings. The profit and loss account, also called income statement, reveals the revenue earned, the cost incurred and the resulting profit or loss of the company for one accounting year. The profit-and-loss account summaries the activities of a company during an accounting year.