Managing Strategy

& Strategic Planning

Copyright © 2002 by South-Western

2–1

Strategy
A plan for accomplishing organization’s goals.

Strategic Management
A management process aimed at formulating and implementing effective strategies.

Copyright © 2002 by South-Western

2–2

2

The Nature of Strategic Management Component of Strategy Distinctive Competence Scope Resource Deployment Copyright © 2002 by South-Western 2–3 3 .

Product Existing New Existing Market Penetration New Product Development Market New Market Extension Diversification Copyright © 2002 by South-Western 2–4 .Ansoff Growth Matrix….

The Nature of Strategic Management Types of Strategic Alternatives 1 Business-Level Strategy The set of strategic alternatives that an organization chooses from as it conducts business in a particular industry or a particular market. 2 Corporate-Level Strategy The set of strategic alternatives that an organization chooses from as it manages its operations simultaneously across several industries and several markets. Copyright © 2002 by South-Western 2–5 5 .

The Nature of Strategic Management Strategy Formulation and Implementation 1 Strategy Formulation The set of processes involved in creating or determining the organization’s strategies. 2 Strategy Implementation The methods by which strategies are operationalized or executed within the organization. Copyright © 2002 by South-Western 2–6 6 .

Using SWOT Analysis to Formulate Strategy • • • • Strengths Weaknesses Opportunities Threats Copyright © 2002 by South-Western 2–7 7 .

Copyright © 2002 by South-Western 2–8 8 . 1 Common Organizational Strengths A skill or capability held by numerous competing firms 2 Distinctive Competencies Useful for competitive advantage and superior performance.Using SWOT Analysis to Formulate Strategy Evaluating Organization’s Strength Organizational Strength Skills and abilities enabling an organization to conceive of and implement strategies. 3 Sustained Competitive Advantage Occurs when a distinctive competence cannot be easily duplicated and is what remains after all attempts at strategic imitations have ceased.

g. e.Using SWOT Analysis to Formulate Strategy Evaluating Organization’s Weakness A skills and capabilities that do not enable an organization to choose and implement strategies that support its mission. Asian Paints TINTING Machines at Retailer Locations 2 Modification of the organization’s mission e. Way to overcome: 1 Investments to obtain the strengths needed. IBM from Hardware to Software Copyright © 2002 by South-Western 2–9 9 .g.

Using SWOT Analysis to Formulate Strategy Evaluating Organization’s Opportunities Areas in the organization’s environment that may generate high performance. Evaluating Organization’s Threats Areas in the organization’s environment that make it difficult for the organization to achieve high performance Copyright © 2002 by South-Western 2–10 10 .

Bagh-Bakri Chai Chandrika Soap Overall cost leadership Focus Copyright © 2002 by South-Western 2–11 11 . or group of buyers Examples Rolex (watches) Mercedes-Benz (automobiles) Sonata Maruti Ashok Masale. product market.Formulating Business-Level Strategies Porter’s Generic Strategies Strategy Type Differentiation Definition Distinguish product or services Reduce manufacturing and other costs Concentration on specific regional market.

Formulating Business-Level Strategies The Miles and Snow Typology Strategy Type Definition Prospector Innovative and growth oriented Defender Protect current market.com eBay.com IBM Yahoo HMT watches Ambassador 2–12 12 . maintains stable growth Analyzer Maintains current markets and customer satisfaction Reactor Reacts to changes in the environment Copyright © 2002 by South-Western Example Amazon.

Formulating Business-Level Strategies Strategies Based on the Product Life Cycle High Introduction Sales Volume Growth Stages Maturity Decline Low Introduction Growth Time Maturity Decline Copyright © 2002 by South-Western 2–13 13 .

(Sony) ● Accounting and finance control the flow of money. ● Management for reducing cost. (Cello pens) Copyright © 2002 by South-Western 2–14 14 . (Big Bazaar) ● Manufacturing for standard product.Implementing Business –Level Strategies Implementing Porter’s Generic Strategies Differentiation Strategy ● Marketing and sales emphasize high quality. ● Accounting and finance control the flow of money. Overall Cost Leadership Strategy ● Marketing and sales focus on simple product attributes and how they meet customer needs.

(3M) Defender Strategy ● Attempts to protect market from new competitors. Copyright © 2002 by South-Western 2–15 15 . (Apple) ● Encouraging flexibility.Implementing Business –Level Strategies Implementing Miles and Snow’s strategies Prospector Strategy ● Encouraging creativity. (Maruti & LIC) ● Focus on reducing cost. ● Focus on improving performance of products.

● Provide high creativity and low cost. (Mother Dairy) ● Focus on innovation.Implementing Business –Level Strategies Implementing Miles and Snow’s strategies Analyzer Strategy ● Maintain current business. ● Strong accounting and financial control. Copyright © 2002 by South-Western 2–16 16 . ● Provide high flexibility.

(ITC) Single-Product Strategy Organization manufactures one product and sells it in single geographic market.Formulating Corporate-level Strategies Diversification Describes number of different business and relation among business. (Harvest Gold) Disadvantage: If the product is not accepted then company will suffer. Copyright © 2002 by South-Western 2–17 17 .

Nestle AMUL. or markets that are somehow linked. industries. Boeing HUL. Maggi Airtel Copyright © 2002 by South-Western 2–18 18 .Related Diversification Organization operates in several different businesses. Bases of Relatedness for Implementation Basis of Relatedness Similar technology Common distribution and marketing skills Common name brand and reputation Common customers Examples Phillips.

(ITC) Advantages ●Stable corporate-level performance over time. Disadvantages ● Strategy does not usually lead to high performance. ● Resources can be allocated to areas with the highest return potentials to maximize corporate performance. putting them at a competitive disadvantage to firms with related diversification strategies. ● Firms with unrelated strategies fail to exploit important synergies. Copyright © 2002 by South-Western 2–19 19 .Formulating Corporate-Level Strategies Unrelated Diversification Organization operates multiple businesses that are not logically associated with one another.

Forward Vertical Integration (CCD) Copyright © 2002 by South-Western 2–20 20 . Internal Development of New Products (HONDA) Replacement of Suppliers and Customers Mergers and Acquisitions (Dabur with Balsara) Backward Vertical Integration (Reliance) 2.Implementing Corporate-Level Strategies Becoming Diversified Firm 3 ways: 1. 3.

…helps fill the Strategic Planning Gap Targeted sales 4 3 2 Diversification New Markets New Products Market penetration Do nothing scenario Strategic planning gap Sales 1 0 Copyright © 2002 by South-Western 1 2 2–21 Time (years) .

Two important portfolio management techniques ● The BCG Matrix ● The GE Business Screen Copyright © 2002 by South-Western 2–22 22 . Organization Structure 2.Implementing Corporate-Level Strategies Managing Diversification 1. Portfolio Management Techniques Make decision about ●What businesses to engage in ●How to manage these multiple businesses to maximize corporate performance.

000 crores.BCG Matrix Concept of Relative Market Share Let us suppose the size of the Paint Industry market is Rs.000 50% 25% 15% 10% 100% 2–23 23 . The share of the various companies is as follows: Company Revenue (Rs. Crores) Market Share Asian Paints Nerolac Rajdoot Berger Total Copyright © 2002 by South-Western 5000 2500 1500 1000 10. 10.

BCG Matrix Concept of Relative Market Share and Market Growth Market Share of Asian Paints = Revenue of AP/Total Revenue of the market Market Share = 5000/10000 = 50% Relative Market Share = Revenue of AP/ Revenue of the biggest player (Nerolac in this case) = 5000/2500 = 2 2–24 Copyright © 2002 by South-Western 24 .

5 Copyright © 2002 by South-Western 2–25 25 .BCG Matrix Concept of Relative Market Share and Market Growth Market Share of Nerolac = Revenue of Nerolac/Total Revenue of the market Market Share = 2500/10000 = 25% Relative Market Share = Revenue of Nerolac/ Revenue of the biggest player (Asian Paints in this case) = 2500/5000 = 0.

e In India all companies put together were able to sell Rs. 5000 crores worth of soaps. 5000 crores in 2006 i. And in year 2007 the total market was Rs. Let us say the total market of bathing soaps was Rs.BCG Matrix Concept of Relative Market Share and Market Growth Market growth is the rate at which the market is growing: e.g. 5500 crores which means that the growth of the market is 10% 2–26 Copyright © 2002 by South-Western 26 .

Implementing Corporate-Level Strategies The BCG Matrix Evaluate businesses relative to the growth rate of their market and the organization’s share of the market. High Market growth rate Stars Question marks 10% Cash cows Dogs Low High 1 Relative market share Low Copyright © 2002 by South-Western 2–27 27 .

● Competitive position (strength) of each firm in the portfolio.Market share 2.Competitive Intensity Competitive position 1. High Medium Winner Winner Profit producer Good Winner Average business Loser Loser Medium Question mark Loser Loser Poor Industry growth rate Low Competitive Position Industry Attractiveness 1.Market Size 3.Operating costs Copyright © 2002 by South-Western 2–28 28 .Technological know-how 3.Service network 5.Capital Requirements 4.Price competitiveness 6. each of which contains multiple factors: ● Industry attractiveness.Product quality 4.Market Growth 2.Implementing Corporate-Level Strategies The GE Business Screen Evaluate business in a diversified portfolio along two dimensions.

Capital requirements 4. Product quality 4. Technological know-how 3. Market share 2.Implementing Corporate-Level Strategies The GE Business Screen Competitive position 1. Price competitiveness Industry attractiveness 1. Service network 5. Market size 3. Competitive intensity Copyright © 2002 by South-Western 2–29 29 . Price competitiveness 6. Market growth 2.

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