UNIT II

Strategic Intent

Strategic management :- a strategy is a unified,

comprehensive & integrated plan that relates the strategic advantages of the firm to the challenges of the environment. Strategic management is defined as a set of decisions & actions resulting in formulation & implementation of strategies designed to achieve the objectives of an organization

Includes following areas

Determining a mission including statement of its purpose Developing a company profile that reflects internal

conditions & capabilities Assessments of companys external environment Identifying the desired options and analyzing them Strategic choice of a particular set long term objectives & grand strategies needed to achieve desired options. Implementation of strategic choice. Review or evaluation of the success of strategic process.

SM involves 3 types of decisions

Definitional decisions;- defining business,

identifying customer groups, functions & technologies. Goalistic decisions: - defining corporate & functional objectives & policies. Optimal decisions:- strategies action programs & tactics

Strategy of an organization Comprises of Business vision Mission Objectives and goals Business definition

vision
Vision articulates the position that the firm would

like to attain in the distinct future. A vision is more dreamt of than it is articulated . Tata steel says about its mission :- tata steel enters the new millennium with the confidence of learning, knowledge based happy organization. By its nature vision could be vague as a dream that one experienced last night & is not able to perfectly recall it. It acts as a powerful motivation to action.

definition
Vision is a description of something (an organization

corporate culture , business ,a technology an activity in future) Benefits of having a good vision:Are inspiring , exhilarating & motivating. Represents discontinuity , a jump ahead Helps in creation of common identity and shared sense of purpose. Should be competitive, original & unique. Fosters risk taking & experimentation Represent integrity , are truly genuine & can be used for the benefit of the people.

Vision could be divided into two

Core ideology:- it defines the enduring character of an

organization that remains unchangeable as it passes the changing environment It rests on the core values , mission & purposes.
Envisioned future:- a 10- 30 year extremly confident goal. Descrition of what it will be like to achieve these goals. Encouraging & supporting goals Description of the future.

Effects of vision
Learning acquiring knowledge & information Leads to commitment & motivation Emphasizing not only on profit makig but

producing useful products & services. Innovation encouraging Improving health & wealth of an organization.

Difficulties in creation of vision

Culture & attitude within an oraganization Uncertain & unstable environment Restricted resources Resistance to change

An enriching and inspirational vision must

Contain memorable language Clearly maps the company Challenges & motivated the workforce Provokes emotions

Mission (WHY WE EXIST) CORE VALUES (WHAT WE BELIEVE IN) VISION (WHAT WE WANT TO BE ) STRATEGY (GAME PLAN) STRATEGIC IMPERATIVES(WHAT I MEAN TO

DO ) PERSONAL OBJECTIVES STARTEGIC OUTCOME

mission
Mission is a statement that defines the role that an

organization plays in the society. Purpose is anything that organization strives for. Mission is essential purpose of the organization , concerning particularly why it is in existence., the nature of business. E.g. of mission statement Maruti: building trust worldwide Modiluft : miles & smiles HCL: world class competitor

Elements of mission
Clearly articulated Relevant Current Written with a positive tone/motivating Unique Adapted to target audience Feasible Precise Clear Indicate major components of strategy Indicate how objectives are to be achieved

Objectives & goals

Objectives are open ended attributes that denote the future states

or outcomes. Refer to the operational side of business Goals are the close ended attributes& are prcised & expressed in specific terms. Objectives are the ends which state how the goals will be achieved. An organization tries to its purpose into long term objectives & short term goals. Different objectives are pursued like continuity of profits, efficiency, product quality, employee satisfaction etc.

Goals are qualitative ,objectives are mainly quantitative Thus objectives are measurable & comparable. An organization may pursue multiple objectives. Importance of objectives:Justify the organization Provide direction Basis for management by objectives Helps in strategic planning & management Helps coordination Provides standards for assessment & control Helps decentralization

Characteristics of ideal objectives

Formulation should involve participation They should be clear Realistic Flexibility Consistency Ranking (assigning priorities) Verifiability Balance Understandable Concrete & specific Challenging Should be in the constraints

What objectives are set

Profit Employee welfare Marketing Growth Quality products & services Power Social responsibility of business

Economic & social:Survival

classification of objectives

Return on investment Growth Market share Welfare of society Protect consumer rights Interest of workers Primary :Extension, development & improvement Paying fair dividends to share holders. Payment of fair wages Reduction of prices

Secondary:Provide bonus for workers Promote education R&D in techniques Long run & short run:Official & operative:-

Formulation of the environment

Forces in the environment Value system of top executives Awareness of management.

Business definition
Dimensions of business:Customer functions:-what is being satisfied;

freshness, germs fight, protection Customer groups:- who is being satisfied; oral care, dental protection Alternative strategies:- how the need is being satisfied, paste powder, foam

Business policy
It involves all member of organization Explicit or implicit Decision making process Formulated for frequent happenings Pyramids of policies policies procedures ,

standard operating plans all guide to act but differ in the degree of guidance

Features of business policy

Credibility Acceptability Feasibility Clear and consistent Proper communication Flexible Relative to objectives Policies should not be the result of

opportunistic decisions

Determinants of business policy

Internal factors Mission Objectives Strength and weakness Management value orientation External factors Market structure Nature of industry Economic and government policies Technological social and political situation

Importance of business policy

For learning the course Integrates knowledge Deals with constraint and complexity of real life business Broad perspective Make study and practice of management more meaningful For understanding business environment Formulation of policies Makes management receptive Reduces feeling of isolation For understanding the organization Presents a basic frame work for understanding decision making Brings the knowledge in strategic decision making Importance of job performance For personal development Career choice Offers unique perspective to employees

Purpose of business policy

Integrate the knowledge in various

functional areas of management Generalist approach (problem solving) Understand complex linkage with the operating system

Formulation of business policy

Goal specification and priorities Identification of policy alternatives Evaluation of policy alternatives Check the acceptability Choice of policy Impact of external and internal

environment

Function of business policy

Policy establishes indirect control over

independent actions Policy promotes uniform handling of similar activities Ensures quicker decision Institutionalize basic aspect of organization Reduces uncertainty Counter act resistance Mechanism of avoiding hasty and ill decisions

Types of business policy

Production policy purchasing policy ,

quality of RM used , choice of material , size of purchase Production process choice of technology , extent of automation , size of decentralization , extent of division labor Production capacity sales forecast , policy decision , equipment utilization Marketing and replacement Marketing policy Product mix Product differentiation Pricing policy

 Distribution policy Geographical location Selection of customer Size of customer Channel design Choice of middle man Promotion policy Financial polity financial control Lease of buy Risk User of assets HR policy R and D

It consists of both external & internal environments Aggregate of all conditions , events, influences that

Business environment

surround & effect it. Internal are controllable aspects External uncontrollable Success depends on the ability to design the internal variable to take advantage of the opportunities & threats.

Internal appraisal
It provides the organization with its capabilities to

capitalize an opportunity for protecting itself from threats present in the environment. Determine distant competencies What makes it unique What are its capabilities in future, competent in specific areas.

Frame work for development of strategic advantage

Strategic advantage Organization capability Competencies Synergistic effect Strength & weaknesses Organization resources & organization behavior

Organization resources:- tangible, Intangible, assets &

capabilities, information & knowledge. Organization behavior:- forces & influences operating in internal environment, values, culture, leadership, power & politics. S&W:-inherent capability, inherent limitation or constraint. Synergistic effect:- S&W combine Competencies:- special qualities possessed by organization that make them stand pressure of competition, a distinctive competence Strategic advantage:- outcome of organizations capabilities, result of activities leading to reward, profits market share , reputation

Internal factors to be analyzed:FINANCIAL & ACCOUNTING:Financial resources & strength, liquidity cash flow Cost of capital Relations with owners & stock holders. Tax conditions Financial planning MARKETING & DISTRIBUTUIN FACTORS:Product related: variety, differentiation Price related Place: logistics, channels of distribution Promotion: advertising, sales promotion, PR Integrative system: market research, packaging of product

 PRODUCTION & OPERATION FACTORS; Use of RM Production system, capacity Location Service design Operation & control Product planning Material supply Quality control Lower cost, inventory Capacity utilization PERSONNEL CAPABILIY FCTORS: Use of HR skills Safety welfare, security appraisal Satisfaction morale, compensation, climate , structure, trade unionism

 INFORMATION CAPABILITY: Flow of information. Outside & within DBMS, use of information Speed & IT infrastructure GENERAL MANAGEMENT; Strategic analysis & intent formulation Rewards & incentives Goals & competence CSR Organization climate & regulations. R & D & ENGINEERING: New improved production Material , processes Cost advantage Research capability

Approaches to Internal Appraisal

Systematic approach:Proactive measure to organizational formal

planning Ad hoc:Reactive to response to a crisis

SOURCES OF INFORMATION:Internal Employee opinion Company files & documents Financial statements MIS Annual reports Functional area profile External Comparative appraisal Company reports &

magazine Through consultants

Methods & techniques

Quantitative

Financial analysis: ratio analysis Nonfinancial analysis employee turn over, inventory units, absenteeism Qualitative: Corporate culture Knowledge Moral

Comparative:- strength & weakness & distinctive competencies Historical Industry norms Bench marking: a point for purpose of meeting best practices

performances, process. Comprehensive Balanced score card Key factor rating market : product, service , price Financial: source of funds, usage & management operations: production system, operation & control personnel: IR , employee characteristics information management; acquisition, synthesis & processing, usage general management; OC general management system

Structuring organization appraisal

Organization capability profile Capability factors Weakness

normal strength -5 0 +5 preparing strategic advantage profile Capability factors competitive strengths or weakness

Criteria for determining S & W

Historical: past performance Normative: what ought to be Competition party: Critical factors for success

External appraisal
Monitoring of economic, government, legal, market/

competitive , supplier/technological, geographic & social setting to determine opportunities & threats. Macro factors:International Economic Political Regulatory Demographic Socio cultural

Micro Suppliers Customers Competitor Inter mediaries Market Public Environment analysis is the process of identifying O & T

facing in an organization for the purpose of strategic formulation

Characteristics of environment: Complex Dynamic Multi faceted Far reaching impact Market factors: client needs,

preferences Environmental sectors Product factors: image, demand, price PLC Market intermediaries: middle man, distribution channel Competitor related: entry exit barriers, nature of competition

Various types of markets could be Consumer Industrial International Reseller Technological environment factors:Knowledge of goods & services, future inventions Sources of technology Tech. development, stages, rate of change Impact of tech on humans Availability of tech. Foreign technology collaboration Strict rules & regulations

Economic factors:Economic conditions: level of income Economic policies: restrictive & liberalized Eco system Inflating deflating rates Monitory policy Eco structure Eco planning Regulatory factors:Constitutional framework, fundamental principles Policies related to licensing, foreign investements Imports & exports policy Public sector , small scale

Political & government: Philosophy of govt. Structure , goals Election, budget Subsidies, protect unfair trade Socio cultural:Society, beliefs, traditions, education, pace of urbanization International factors:Global eco policies, global HR, global village

Secure sources of funds Competitors Opposition from host country Political, social & eco risk Natural factors:Geographical location, natural resources ,weather , climate

Suppliers:-

micro

Cost ,reliability, availability factors. Continuity of supply Customers:Individual govt. other commercial establishment Competitors:Same product Same market Market intermediaries:Promoting, selling & distributing agents Vital link between consumer & company Public:Media, citizens, local public

Environmental scanning
Environment is changing, so it is needed to be

monitored Factors analyzed to determine conditions of threat & opportunities. Factors in external environment: Events: specific occurrences Trends: general tendencies & courses of Action Issues: concerns that arise Expectations: demands made

Approaches to scanning
Systematic scanning:Information collected systematically & continuously to

monitor changes & take relevant factor into consideration. Ad Hoc :Special surveys & studies to deal with specific environment issues from time to time. Processed form approach:Uses information in processed form, available from different sources, highly systematic & formal procedure Proactive measure for the anticipated change

Techniques used for environmental scanning

MIS:- formulize line & staff , gathering of information desired by

strategists Develop strategic management system: by relying on responses by customers, suppliers, comptitors, environment condition Spying:-determine trade secrets Formal forecasting:-corporate plans, consultants , futurists. Quest:- quick environmental scanning technique 4 step process Observation about major events & trends Speculate on wide variety of issues Quest director prepares report & summarizes major issues & implications Reports & scenarios are reviewed or redesigned to develop strategies

Scenario writing Simulation Game theory Cross impact analysis

Description of ES
Strategies more concerned with economic factors than

the others Does not give significant time Psychologically unprepared for change

Appraising the environment

Be aware of the factors affecting the process of

environmental appraisal(strategies, org. environment) Identify environmental factors Structuring the result of environmental appraisal Prepare an ETOP

ETOP
Evnt. sector

nature of impact

impact on each

sector Market Tech. Suppliers Economic Regulatory Socio-cultural political

unstructured demand up gradation

Grand level strategies

Environmental & internal appraisal lead to the

generation of strategic alternatives. the grand strategic alternatives are Stability Retrenchment Expansion Diversification Integration

Dimensions of grand strategies

Internal/external;When an organization adopts strategy independent to other its

internal In association with other entity its external Related/unrelated;Related or unrelated to existing business. Horizontal/vertical:Serving additional CG or CF, Expansion or contraction of existing business startegy.AS Active/passive:Offensive strategy in anticipation of environmental threat Defensive strategy as a reaction to the environment

Strategies are
Stability: No change Pause/proceed with caution Profit strategies Expansion: Through concentration Through integration Through diversification Through cooperation Through internationalization Retrenchment: Turnaround Divestment liquidation Combination; Simultaneous Sequential Combination of both

Stability strategy
It is adopted by organization when it attempts at an incremental

improvements of its functional performance by marginally changing one or more of its business in terms of their respective customer group customer function and alternative technologies. The company stays with the current business & products , markets Maintains existing level of efforts Is satisfied with incremental growth

Major reasons for adopting stability are

Less risky Fewer changes Environment faced is relatively stable Expansion may be perceived as threatening Better deployment & utilization of resources Not redefining business Safety oriented No fresh investments Does not nil growth, but it is incremental

Conditions under which stability is adopted

Enjoys comfortable position Future is ensured Growth ambitions are modest Niche's prefer mostly E.g.: Copier machine provides better after sales service to its

existing customer to improve its company image

No change strategy:Continues with the same business definition The environment is predictable & certain No opportunities & threats in environment No major strength & weakness No new competitors No obvious threat of substitute

Profit strategy
No firm can identically continue with no change. Sometimes things do change & the firm has to face

situation where it has to do something. When there occur temporary changes or problems the firm tries to maintain the profits The problems could be: economic recession, govt. attitude, industry downturn, competitive pressure. These problems are short run only If problem continues has to adopt another strategy

Pause/proceed with caution

Firms which wish too test the ground before moving ahead with

full fledged strategy. Or may have had a blistering phase of expansion & now wish to rest for a while before moving ahead. Purposes to let the strategic changes seep down the organization levels, allow structural changes to take place, and let the systems adopt new strategies. While profit strategies are enforced choices aimed at sustaining profitability Pause/proceed are deliberate and conscious attempt to adjourn major strategic changes to a more opportune time, or when the firm is ready to move on with rapid strides again

Expansion strategy
Conditions:Expansion becomes imperative when envt. Demands increase

in the pace of activity. Increasing size may lead to more control over the market Advantages from experience curve & economies of scale High risk Redefinition of business Fresh investments new business/ product/ market Highly versatile strategy

Through concentration:Converging resources in one or more firm s

business 1st preferred strategy. Involves investment of resources in product line for an identified market. market Market ExistingMarket penetration development new market Existing product Product diversification
development

New product

Applies to situation where the firm finds expansion

worth while. Its the 1st preferred strategy Entering into known business Advantages:Involve minimal org. change so there is less threatening Managers comfortable with present business enables the firm to master in business by the depth of the knowledge. Can develop competitive advantage. Past experience is valuable.

Limitations:Putting all eggs in one basket has his

own problem Heavily dependent on industry If industry goes into recession firm finds difficult to save itself Its crowded with competitors its attractiveness decreases. Factors like product obsolescence, merging of new technologies are threats to firm.

Works in present set of CF & CG but the AS

Through integration

dimension of business undergoes a change Integration is combining activities on the basis of value chain A set of interlinked activities performed by firm right from procurement of basic raw material to marketing of finished products. Widening the scope of business. Petrochemicals steel hydrocarbons industry. Cost economics Forward or backward integration

diversification
Diversification may involve all dimensions of

strategic alternatives Internal external, related unrelated, horizontal vertical. Involves a substantial change in business definition. Different types are :concentric diversification:Related to existing business definition either in

terms of CG, CF or AS ,is called concentric diversification. May be of three types:

Marketing related:-similar type of product is offered with help of unrelated

technology . sewing machines produces diversify into kitchenware & house hold appliances, sold to housewives through a chain of retail stores.

Conglomerate:Unrelated to existing business definition. ITC Essar (shipping, marine construction, oil

support services)

Why are diversification strategies adopted;To minimize risk by spreading it over

several business Capitalize organizations strength & minimize weakness. Only way out if growth is blocked because of environmental or regulatory factors.

Advantages:Enables firm to attain synergy by exchange of

resources & skills. Avail economies of scale Reduction in risk by spreading risk Disadvantages:Increase risk & commitment Diversion of resources & concentration to other areas.

Through cooperation
Mergers Take overs Joint ventures Strategic alliances Merger: Combination of 2 or more than 2 entities involved in which

one acquires the assets & liabilities of other in exchange of cash or shares . Or both the organizations are dissolved assets & liabilities combined & new stock is issued. Objectives of the firms are matched

Types of mergers
Horizontal :- same business Vertical mergers:-complementary in terms

of input or output Concentric:-related CF,CG, AS Conglomerate;- unrelated.

Reasons for mergers

Increase value of firms stock Increase growth rate & make a good investment Improve stability of earning sales To balance, complete & diversify product lines. Reduce competition Take advantages of synergy

Takeover/ acquisition
How t takes place:Spell objective Indicate how they will be achieved Assess managerial quality Check compatibility of business style Anticipate & solve problems early Treat people with dignity & concern

 Quick growth

reasons

Reducing competition Increasing market share Creating goodwill Friendly & hostile Pros & cons: Growth Mobility of resources Sick units betterment Stress strain

Joint venture
2or more firm consolidation for temporary partnership Conditions for JV One cant do alone Risk is to be shared Competitive advantage of both can be brought together. Advantages: Foreign technology Govt. Policy & support New fields Synergistic effect Disadvantages: Coordination lacking Foreign regulations Cultural & behavioral differences

Strategic alliance
2 or more firms unite to pursue a set of agreed upon goals but

remain independent. Win win strategy Share strength Lend power to enterprise Pooling of resources Risk is mutual E.g. TVs Suzuki, Mahindra ford, bpl SANYO, Videocon Suzuki.

Types of strategic alliance

Pro active (low interaction/low conflict) Inter industry, vertical value chain integration Non competitive(high interaction/low conflict) Intra industry , non competitive firms Competitive: (high interaction/high conflict) Rival firms to cooperation , inert/ intra industry Pre competitive: (low interaction high conflict) Unrelated industries, new product development.

reasons
Entering new markets Reducing manufacturing costs Developing & diffusing strategy

Diversification through internationalization

Competitive advantage of nations Factor conditions Demand conditions Related & supporting industries Firm strategy, structure & rivalry Beyond domestic market Asses environment Evaluate capabilities Devise strategy. Motives: Expansion Market potential Govt. policies resources

Global strategy

Transactional strategy

International strategy

Multi domestic strategy

International:Where the products are not available like MCD,, coca cola,

IBM, Kellogg's Multi domestic:Matching products to national conditions. Customize products. Global;Standardized products , Economies of scale Undifferentiated product Competitive price

Export entry mode

Direct Indirect

Entry modes

Contractual:Licensing Franchising Other forms (tech.)

Investment
JV, strategic alliance Independent ventures

Advantages:Sales profit Expansion Above average returns Disadvantages: Risk Uncertainty of economic & political environment Cultural diversity Trade barriers

retrenchment
Reducing scope of activity Demand saturation Govt. policies adverse Substitutes emerged Changing needs & preferences Poor managt Wrong strategies Poor quality

4 types of situation
Realistic non recoverable Temporary recovery Sustained survival Sustained recovery

Turn around
Negative cash flow Profits Mismanagement Declining market share Uncompetitive products High turnover Approaches:Surgical Non surgical

Divestment/cutback
Sale or liquidation of portion of business . Liquidation strategies:Closing down a firm & selling its assets Termination of employees Loss of employer Serious consequences.

combination
Mixture of all either applied simultaneously or

sequentially

management
Establishing strategic intent:Vision, mission, business definition & objectives

Formulation of strategies:Environment & organizational appraisal Swot analysis Corporate level strategies Business level strategies Strategic choice Strategic plan

Strategy implementation:Project, procedural, resource allocation, structural, behavioral

functional & operational

Strategic evaluation Strategic control

Business level strategies

Business strategies are those courses of action adopted by a

firm for each of its business separately to serve identified CG, provide value to the customers by a satisfaction of their need.
Porter says that factors that determine the choice of a

competitive strategy are two: Industry structure Positioning of a firm

Industry structure is determined by 5 competitive forces:Threat of new entrants Threat of substitutes products or services Bargaining power of suppliers Bargaining power of buyers Rivalry among exiting competitors in an industry. They vary from industry to industry & they determine long

term profitability. Positioning of the firm:Firms overall approach to competing, designed to gin sustainable strategic advantage. Two variables:- competitive advatgae Lower cost & differentiation

Competitive scope:Broad target & narrow target Offers mass product distributed through mass marketing High priced products of a limited variety but intensely

focused.
Lower cost is based on the competence of a firm to design,

produce & market a comparable product more efficiently than its competitors. Differentiation is the competence of a firm to provide unique & superior value to the buyers in terms of quality, special features or after sales services

Competitive scope:Range of products , distribution channels, types of buyers,

geographical area served & related industry. Industries are segmented having different needs and require different sets of competencies & strategies to satisfy the needs of customers. Broad target approach:Full range of products/services Narrow target :Offers a limited product or area When the two factors are combined it results in a set of generic business level strategy

Porters generic business strategy:Competitive scope

Cost leadership Differentiation

Broad target
Focused cost leadership Focused differentiation

Narrow target
low cost products/services differentiated products Competitive advantage

Cost leadership in business strategy

CA of a firm lies in the lower cost of product/services High profit l\flexibility to lower price if market becomes stiff E.g. Gujarat cooperative milk marketing federation Amul branded ice cream market lower cost platform by

backing of 180 diaries High quality Supply chain management Moser Baer manufactures CDs at lower cost, lower raw material cost & lower labor costs

Achieving cost leadership

Costs are spread over entire value chain activities to reduce

the cumulative cost , analyze cost drivers && identify areas of optimization of costs. Accurate demand forecasting High capacity utilization Attaining economies of scale leads to lower cost/unit High level of standardization & uniform services, packaging Investments in cost saving techniques Withholding differentiation till it becomes necessary

Conditions under which cost leadership is used

Price based competition is vigorous making cost an

imp. Factor Products are standardized Lesser customer loyalty cost of switching is low Few ways available for differentiation Buyers are price sensitive.

benefits
Best insurance against industry competition , protects against the

ill effects of competition Less effected by the price increase by the suppliers. Can offer prices reduction to the buyers Threat of cheaper substitute if off set Effective entry barrier
Risks:Does not sustain for long time as can be copied Not a market friendly approach Can limit experimentation Technological shifts ,cheaper process & technologies may be

used by competitors

Differentiation business strategy

Special features incorporated in product/service which is

demanded by customers who are willing to pay . The strategy which is then adopted is called differentiation strategy. Special features & attributes A premium price is charged, customers gain additional value & command customer loyalty Profit comes from difference in premium price But may fail if customers are not longer interested in differentiated products

E.g.:Orient fans offers premium ceiling fans based on product

innovation & superior technology. Extra wide blades, heavy duty motor Low voltage, high velocity & maximum coverage area.
Brand salt industry DCW home products made captain

cook for quality conscious salt users, free flow, iodine content. Frooti tetra pack

Achieving differentiation
To create value to customer that is unmatched by competitors Offer utility for customers & match their tastes & preferences Incorporate features that can lower the cost Which can raise the performance Increase buyer satisfaction Promise high quality Enhance status & prestige Full range of products is offered to satisfy

Conditions under which differentiation is used

Market is too large to be catered by few firms offering

standardized products Customer needs & preferences are too diversified to be satisfied by standardized products Is possible to change premium price Brand loyalty is possible to generate & sustain Ample scope for increasing sales on basis of differentiated features

benefits
Lessoning competitive rivalry Customer brand loyalty acts as a safe guard Customers are generally less prices sensitive, can

absorb price increases Powerful buyers do not negotiate price , special features & attributes New entrants are not normally in a condition to offer similar differentiation Substitute products pose a negligible threat

risks
Difficult to sustain, first mover advantage associated Distinctiveness is gradually lessoned & ultimately lost Failed if unnecessary features are added Price premiums too have a limit

These strategies rely on either cost leadership or differentiation

Focus business strategy

but cater to an narrow segment of the local market. Used for identifying customer groups on the basis of demographic characteristics, geographic segmentation.
Price is an imp consideration in piracy ridden industry T series offered cheap cassette of Hindi film songs while Sony

music & mega sound cater to the upper end niches Philips India launched flat TV plasma tech that enables distortion free pictures Dolby sound in the niche market of sophisticated tech. driven audience.

Achieving focus
Identifying a narrow target in terms of market &

customers. Locate a niche in the market Cost leader & differentiators in an attempt to cover broad target tend to leave out segments which require special attention . E.g. truck tyres , airplane tyres A small no of buyers willing to pay higher price to get some king of special treatment . Automobiles for physically handicapped persons, specialized medical treatment for well to do persons.

Choosing specific niche by identifying gaps not

covered by cost leader & differentiates . Creating superior skills for catering niche market . Creating superior efficiency Developing innovative ways to manage the value chain

Condition under which focus strategies are used

Some types of uniqueness in the segment may be

geographic demographic or based on life style . Specialized requirement Niche market is big enough to be profitable for the firm Promising potential for growth Major players are not interested in the niche market Necessary skills & expertise to serve the niche segment.

Benefits
Protected from competition or they provide which

would not be profitable for others to provide Price increase can be absorbed Powerful buyer may not shift Specialization in niche market acts as a barrier

Risks
Requires development of distinctive competencies ,

difficult process Being focused means committed to a narrow market, difficult to cater other segments Shift in customers need may make the niche disappear Become attractive enough for big players to shift .

Tactics for business strategy

Timing tactic : first mover in mineral water is parley with

biseleri. Late movers icici pru,max new York , hdfc standard life :- LIC Advantages of first movers Market leaders Benefits of learning curve Cost advantages Customer loyalty Disadvantages Becomes costlier (create awareness ) More risks Late movers can imitate technological advances and skills

Market location tactics

Market leaders Market challengers Market followers Marker nichers

Process of strategic choice

Focusing on alternatives:Narrow down a choice to a manageable number of

feasible strategies. Start with business definition CG :- cosmetic segment, fluoride segment CF:- foam, freshness, flavor, dental care AS:- paste, powder, diff. base material, diff. packaging, diff. flavoring material, addictives

Strategies to be followed

Gap analysis

Performance

desired

performance
o performance gap

Present performance

How wide or narrow is the gap. Where gap is narrow , stability strategy would

seem to be better Gap is large due to expected environment opportunities expansion is feasible If due to past & expected bad performance, retrenchment strategies may be suitable

Considering the selection factors

Determine the criteria on which evaluation of

strategic alternative can be used. 2 groups:Objective:- based on analytical techniques & are hard facts or data used to facilitate strategic choice called ration/ normative/ prescriptive factors Subjective:- based on personal judgments / collective or descriptive factors.

Evaluation of strategic alternatives

Bring together the results of analysis. Making the strategic choice:Most suitable choice under existing conditions Blue print has to be made.. Objective factors are divided into two parts Corporate level strategic analysis Business level strategic analysis

Corporate level analysis

Treats corporate entity as a portfolio of business under a corporate

umbrella Relevant in case of diversified business. In which analysis of a company as a collection of different business with a view to identify the status & potential of the various business with regard to resource use & resource generation Corporate portfolio analysis 5. Bcg matrix 6. Ge9 cell matrix 7. Hofers product / market evolution matrix 8. Directional policy matrix 9. Strategic position & action evaluation

BCG matrix
Growth share matrix 2 variables ;- rate of growth of product / market Market share of the firm relative to its competitors Market growth indicates attractiveness of the firm Market share indicated the strength of the firm.

Matrix
Stars Growth stage Modest cash flow Expansion strategy Scooter for Bajaj, activa for Honda Fast food, telecom, electronics Question marks/problem children Large negative cash flow Retrenchment/expansion Holiday resorts, light commercial vehicle

High

Cash cows Market growth Mature stage Stability Rate

Large cash flow Colgate, decorative paint for Asian paints

dogs Late maturity & decline Retrenchment Modest cash flow Cotton, jute textile shipping

Low high low relative market share

GE 9 cell matrix
Mckinsey & group Vertical axis 8 different factors Industry attractiveness 4. Market size 5. Growth rate 6. Industry profit margin 7. Competitive intensity 8. Seasonality 9. Cyclicality 10.Economies of scale 11.Tech, & social , legal & human aspects

Horizontal axis;2. Business strength 3. Relative market share 4. Profit margins 5. Ability to compete on price & quality 6. Knowledge of customer & market 7. Competitive S&W 8. Tech\ Capability & ability of the firm

Zone
Green:investment/expand Yellow:- select / earn

Red:Harvest/ divest green

Industry attractiveness High Medium

red yellow

Low
o o strong avg weak business strength/competitive position

Intermediate classification of medium & avg. Large no. of variables Disadvantages Provides broad strategic prescription than specifying the

Advantages of GE9

business strategy. Limitation of BCG:Predicting profitability from growth rate of market share is difficult. Difficulty in determining market share No consideration to experience curve Disregard for human aspect

Hofers product/market evolution matrix

15 cell matrix Considers the stages of development And competitive position Growth Development Shake out Maturity decline

Directional policy matrix

Companys competitive abilities Strong avg. weak Business sector prospects Unattractive

avg attractive

Corporate parenting analysis

Fit between parenting opp. & parenting characteristics

x axis Misfit between CSF & parenting characteristics. Y axis Focuses on fit of business with the corporate parent Heartland business:-expansion strategy Edge of heartland:- expansion strategy may suit by investing Ballast:- like cash cows Alien territory;- retrenchment Value trap:- retrenchment

SWOT analysis

Business level analysis

Experience curve analysis Life cycle analysis Industry analysis: Michael porter 5 forces model Threat of new entrants: Higher entry barriers Economies of scale Capital requirements Switching costs Product differentiation Access to distribution channel Cost disadvantages Govt policies

Rivalry among competitors:Competitive structure Demand conditions Exit barriers Bargaining power of buyers:Buyers are few in no Buyers place k\large orders Alternatives suppliers are present and supply at lower rates Switching cost of buyers is low Sensitive to price increases Has the ability to integrate backwards

Bargaining power of suppliersSuppliers are few & buyers are more Product is unique Substitutes are not available Switching cost of supplier is high Buyers buys in small quantity Has the ability to integrate forwardly Threat of substitutes:Level of price charged is reasonable

Strategic groups analysis

Clusters of competitors that share similar strategies &

therefore compete with one another directly. Homogeneous & heterogeneous because of their strategies Icici aimed at becoming a universal bank through attaining a large size HDFC at optimum revenue generation.

Competitor analysis
It focuses on competitors directly Deals with actions & reactions of individual firm Components of competitor analysis;Future goals of competitor;- how our goall are

compaed with others ?what is the attitude towards risk? Current strategy of competitor:- does it suppoat changes? Key assumptions made by the competitor;Capabilities of competitor:-

Subjective factor in strategic choice

Considerations for govt. policy Perception of CFF & distinctive competencies Commitment to past strategic plans Strategic decisions style & attitude to risk Internal political considerations Timing & competitors consideration. Management philosophy Corporate ethics Social responsibility

Contingency strategies
Strategic choice is made on certain conditions, assumptions

& premises. When conditions change strategy becomes partly irrelevant , if changes are drastic, strategies have to be modified continuously. strategies are formulated in advance to deal with certain conditions. Most changes occur in environment social, market , regulatory, international, where it occurs suddenly Eg FMCG, power, telecom, IT Insurance 3 scenario model Pessimistic most likely optimistic

Contingency planning process

Identify the contingent event Establishing the trigger points Developing strategies & tactics

 A clear statement of strategic intent Results of environmental appraisal, major opportunities and threats,

Strategic plan

CSF Results of organization appraisal, major strength & weakness & core competencies. Strategies chosen & the assumptions under which strategies would be relevant . Contingent strategies to be used for different conditions. Strategic budget for the purpose of resource allocation for implementing strategies & schedule for implementation. Proposed organizational structure & major organizations system Functional strategies & mode of their implementation Measure to be used to evalaute performance & assess the success of strategy implementation

Strategy implementation pyramid of strategy implementation

Project implementation
strategies lead to plans, programs, projects. Knowledge related to projects is covered under

project management A project is a one shot goal limited, time limited , major undertaking , requiring the commitment of various skills & resources. Goals are derived from plans & programs

Phases of project
Conception phase Definition phase Planning & organizing phase Implementation phase Clean up phase

Procedural implementation
Formulation of a company Licensing procedures Securities & exchange board of india Monopolies & restrictive trade practices MRTP Foreign collaboration procedure Foreign exchange management act FEMA Import & export requirements Patenting & trademarks requirement Labor legislation requirement Environment protection & pollution control Consumer protection requirements Incentives & facilities benefits

Resource allocation
deals with the procurement & commitment of financial ,

physical & HR to strategic tasks for the achievement of org. objectives. Both one time & continuous process New project requires What sources are tapped What factors affect What approaches adopted How it takes place What are the difficulties

Procurement of resources
Different types of resources are Financial Physical Human Finance considered as primary source & is used for

creation & maintenance of other resources. 2 types of finances Long term;- creation of capital assets Short term:- working capital Both can be rocured froom internal & external sources

Retained earning

Internal sources

Depreciation provision Development rebate Investment allowances reserve External sources Capital market sources Equity & loans Money market sources Bank credit, Trade credit Fixed deposits Both have pros & cons but company prefers internal sources

1st task is to distribute the resources within the org. to

different SUBs , divisions, departments.

Approaches to RA:Top- down approach:- a process of segregation down

to the operating level adopted (ceo , management) in entrepreneul modes Bottom approach:Allocated after aggregation from operating level Mix of both

Means of RA
Used as planning budgeting coordination & control device BCG based budgeting;- SBU identified as stars, cash cows. Plc based:- stages of product or SBU may attract more resources, diverted from high yielding products at maturity. Capital budgeting:- in case of restructuring or modernization Zero based budgeting:- justify RA demand , on zero grounds, fresh cost calculation Parta system:- indigenous for of control device, exercising control to access daily net cash inflow from operations, tax & dividends, daily budgeting & reporting system

Factors affecting RA
Objectives of org Preference of dominant strategies Internal policies External influences

Difficulties
Scarcity of resources Financial resources Physical assets , land , machinery Human resource Restriction on generating resources for newer units Over statement of needs

Structural implementation
What is structure? Is the way in which the tasks & sub tasks required to implement

a strategy. Structures for strategy:Entrepreneur structure:-

structure
Quick decision making Timely response to environmental changes Informal & simple org systems Disadvantages:Excessive reliance on the manager owner & proves

demanding May divert the attention of owner to day to day activities. Inadequate for future if business expands

Functional structure
Specialized skills &delegation of authority

Advantages:Efficient distribution of work through specialization Delegation of day to day operational functions Providing time for top management to focus on the

strategic decisions.
Disadvantages:Difficulty in coordination Specialization at the cost of overall benefit of org. Functional , line & staff conflicts

Divisional structure
Work divided on the basis of product lines, type of

customers served, or geographic area covered.

Advantages :Enables grouping of functions related to a division. Generates quick response to environmental changes

affecting the different divisions. Enables top management to focus on startegeis.

Disadvantages:Problem in resource allocation, corporate overhead

costs. Inconsistency from the sharing of authority between corporate & divisional levels Policy inconsistency between the different divisions

SBU
Any part of business org which is treated

separately for strategic management purposes.

Advantages:Establishing coordination between divisions having

common strategic interests. Facilitates strategic management & control of large, diverse org.
Disadvantages:There are too many diff. SBUs to handle effectively in a

large , diverse org. Difficulty in assigning responsibility & defining autonomy for SBU heads. Addition of another level of management between corporate & divisional management

Matrix structure
In large org. there is a need to work on projects

& products. This results in requirement of matrix org. Once a project is completed , the team members revert to their parent departments.

Advantages;Individual talent to be assigned where talent is needed Fosters creativity because of pooling of talents Provides exposure to specialists Disadvantages:Dual accountability creates confusion for individual

team members Requires high level of vertical & horizontal combination Shared authority may create communication problems

Network structure
Spider web or virtual org. Non hierarchical, highly decentralized & organized around

customer groups.

Advantages:High level of flexibility Permits concentration of core competencies of the firm Adaptability to cope with rapid changes Disadvantages:Loss of control & lack of coordination High costs as duplication of resources could be there

Other types of structures

Product based:Volume of sales is prevalent Customer based:Sales volume of individual customer groups justifies the

separate divisions. Geographic structure:-

Org. design & change

Steps:Identify key activities to be performed to accomplish the

goals & mission grouping of activities similar in nature. Choice of structure that can accommodate group of activities. Creation of departments , divisions Establishing interrelationship between departments. Strategies formulated for Span of management Line & staff relationship Use of committees & group decision making Restructuring, reengineering, delayering, flatter structures

Org. systems
Information system Control system Appraisal system Motivation system Development system Planning system

Behavioral implementation
Leadership implementation:- roles diff. strategists play Theoretical under planning of leadership Personality:- traits & qualities, & great personalities. Influence:- relationship between individuals. Behavior :- actions of leaders Situation:- in which the leader operates. Contingency:Transactional;-role differentiation & social interaction

between the leader & subordinates Anti leadership:- absence of real concept of leadership. Culture of entire org

Strategists style & strategy:Risk taking Technocracy:-of planning , qualified personnel &

techniques. Organicity:- extent of org, structural flexibility Participation:Coercion;-

Development of strategies
Choice of future strategists, Their career planning & development Succession planning Corporate culture:Shared things Shared sayings Shared actions Shared feeelings

Strategy culture relationship

4 approaches:- ignore culture Adapt strategy implementation to suit corporate culture. Change corporate culture to suit strategic requirements. Too change strategy to fit corporate culture. Corporate culture & politics:Power within an org. is derived from 5 sources:Reward power Coercive power Legitimate power Referent power Expert power

Strategic use of politics

Understand how org. power structure works Be sensitive alert to political signals Reward org. commitments & penalize indifferent

attitude. Practice principled politics & use openness & honesty.

Personal values & business ethics CSR

Functional & operational implementation

Functional implementation is carried out through functional

plans & policies. Fit activities & capabilities of an org. with its strategies. Vertical & horizontal fit:Strategic marketing management:Strategic financial management Strategic HR management Strategic information management

Operational plans & policies

Impact of strategy on operational plans & polices:-

Area of operational effectiveness

Process:BPR ERP Benchmarking Supply chain management outsourcing People:Pace;Time study Network analysis & activity charts Time based management Nature of managerial work

Productivity:Mass production Flexible manufacturing system Total productive management

Strategic evaluation & control

Importance of evaluation Need for feedback Appraisal & reward Check on validity of e strategic choice Successive culmination of strategic management process Creating inputs for new strategy.

Participants in evaluation
Board of directors Chief executives SBUs heads Financial controller, company secretary , external or

internal auditor Audit & executives committee Middle level managers

barriers
Limits of control:Difficulties in measurement Resistance to evaluation Short termism Relying on efficiency doing right things over

effectiveness doing the things right

evaluation
Control should involve the minimum amount of

information:- too much control lead to cluttering up of system & creates confusion Control should monitor only managerial activities Should be timely Both long & short term should be used to balance Should pinpoint the exceptions Reward for meeting or exceeding the standards should be emphasized

Strategic control
Premise control:- strategy is based on certain factors, some of the

factors are highly significant Premise control is necessary to identify key assumptions & keep a track of any change. Implementation control:- evaluating whether the plans , programs & projects are guiding the organization. May lead to strategic rethinking (PERT /CPM) Strategic surveillance :- more generalized & over reaching. Designed to monitor a broad range of events inside & outside the company Special alert control:- based on rapid response & immediate reassessment of strategy in the light of sudden & unexpected events. Can be exercised by formulation of contingency strategies

Process of evaluation
Setting standards of performance Measurement of performance Analyzing variance Taking corrective actions

Techniques of evaluation
Strategic momentum control:- aims at assuring that the

assumptions on whose basis strategies were formed are still valid. 3 types Responsibility control centers:- 4 types revenue, expense, profit & investments Underlying success factors: - focus on CSF Generic strategies:- strategies adopted b a similar firm are comparable .

Strategic leap control:- when environment is relatively

unstable, organizations make startegic leap 4 techniques Strategic issues management:Strategic field analysis:-examine the nature & extent of synergies that exist in org. Systems modeling:- based on computer based models that simulate essential feature of org. Scenarios:- perception about the likely environment a firm would face in future.

Evaluation techniques for operational control

Internal analysis:Value chain Qualitative quantitative Comparative ;Historical Industry norms benchmarking Comprehensive:Balance score card Key factor rating

Parta Network techniques MBO Memorandum of understanding