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Corporate Level Strategies

STRATEGIC CHOICE PROCESS

Strategic
Intent
Chosen Strategy
Context

Strategic Available
Assessment Options
Strategy Formulation : Corporate
Strategies- Choice of Direction to the Firm
 Allocating resources among different
businesses in a firm
 Transferring resources from one set of
businesses to the other
 Managing and nurturing a portfolio of
businesses.
Diversified Firms

 Multi business firms have interests in serving


a diverse base of customer groups, customer
functions and alternative technologies that
the firm is involved with
Strategic Alternatives

 Whether to continue or change the business


the enterprise is currently in or improve the
efficiency and effectiveness with which the
firm achieves its corporate objectives in its
chosen business sector
Strategic Alternatives

Expansion
Business Definition
Market
Penetration Stability
Mkt Dev Retrenchment
Cooperation
Innovation. Incremental Divestment
Growth Turnaround
Joint Ventures
Diversification Profit Liquidation
Horizontal Sustained Growth Bankruptcy
Strategic
Concentric Pause Strategy
Alliances
Conglomerate
Vertical Consortia
Forward
Backward
Strategic Alternatives -Grand Strategies

 Expansion
 Stability
 Retrenchment
 Combination of any of above three
Grand Strategies
 Expansion -Is followed when an organisation aims
at high growth
 Stability – when it attempts at incremental
expansion of its functional performance
 Retrenchment – when it aims at contraction of its
activities
 Combination – adopting a mixture of expansion
stability or retrenchment either at the same time or
in different businesses or at different times in the
same business to improve performance
Expansion

 Concentration –converging resources into


one or more firms businesses in terms of
customer needs, customer functions,or
alternative technologies either singly or jointly
in such a manner that expansion result
 market penetration (more to same),
 market development ( same to new),
 Product development (new to same)
Expansion

Cooperation

Concentration Merger & Internation


Diversification Acquisition
alisation
Horizontal
Market Vertical
Integration International Digitalisation
Penetration Concentric Concentric
Conglomerate Multidomestic
Market (related) Global
Development Vertical Marketing Transnational
Joint
Product Horizontal Technology Venture
Development Marketing& Strategic
Alliances
Technology
Pro
Competitive
Conglomerate/ Non Competitive
Unrelated Competive
Precompetitive
Concentration

 Idea to get more milk out of same cow


 Specialise in a few areas and gain rich
experience
 With predictable conditions market forces
manageable
 Growth and survival through time tested
technologies proven products and familiar
markets
Conditions – Concentrated growth

 resistant to major technological


advancements,
 when firm’s target markets are not saturated,
 firms products are differentiated,
 market is stable
More to Same

 Combine toothbrush with toothpaste


 Woo customers from others (offer below
competitors price Santro over Maruti),
convert non users into users (soap,
toothpaste),
 LCD TV, in rural areas and sell Tata Max to
rural customers over RTV with Safari for
urban
Product Present New
Products Products
Market

Present Market Product


penetration development
Markets

New Market Diversification


Markets Development

Ansoff’s Product Market Expansion Matrix


D
I FORWARD
V
E VERTICAL
R
BACKWARD
S
I
F
I
CONCENTRIC
C
A
HORIZONTAL
T
I CONGLOMERATE
O
n

TYPES OF DIVERSIFICATION STRATEGIES


Tata Tea – Increase Sales
 Cut prices
 Increase advertising
 Get product into more stores
 Better store displays
 Point of purchase merchandising
 Increase usage by current customers and
attract customers from other brands by
providing similar but additional flavours or
advantages
Expansion
 Manageable  For Survival
 Meet environmental  For economies of scale
demands- legal limits  To stimulate talent
 Natural Choice among  Reach higher targets
alternatives
 Minimal growth or
optimal growth
 Internal preparation
Reasons for Diversification

 Several
 Concentration (core competence)
 Focus
 All Carry risk
Integration
 Integration – combining activities related to
the present activity of the firm- done on the
basis of value chain – horizontal and vertical
 Horizontal – same type of products at the
same level of production or marketing
process ,it is said to horizontally integrate.
 Vertical – can be forward or backward.
Backward means integrating the source of
raw materials and forward moves it ahead
towards the ultimate customer
Diversification

 Involves a substantial change in business


definition singly or jointly in terms of
customer functions, customer groups or
alternate technologies of one or more of
firm’s businesses
Reasons for Diversification

 Minimise risk
 Capitalise on capabilities and Biz model to
maximise org strengths and minimise
weaknesses.
 If growth in existing business is blocked by
regulatory and environmental factors.
When?
 Expansion within existing product market not meet
objectives
 High retained cash exceeds needs for expansion
 Greater profit opportunities than in present product
market
 If information available does not permit clear choice
between expansion and diversification
 Risk spreading-avoid dependence on one
product /market, greater use of existing distribution
and acquire technology
Horizontal Integration

 Firms expand by acquiring other companies


in the same line of business or services to the
existing product line – eliminate competitors,
provide new markets
 Mergers and Acquisitions
 Concentric - Related (through product
,market or technologies) but distinct business
e.g Philips electronics producer into cell
phones
Horizontal

 Conglomerate – when co diversifies into


unrelated to current business - tech change ,
risk diversification, volatile market
 Buying high, buying cash
 Matching complementary business cycles
 Debt free co if fin. poor
Concentric (Related but Distinct)
Diversification
 Transaction costs saving – financial synergies
 Increased market power – marketing synergies
 Economies of scale (size of operations) and
economies of scope ( using common base of
resources and capabilities for varied but related
businesses) - operational synergies
 Optimising HR utilisation common skill sets and
competencies- Personnel synergies
Concentric

 Using common databases and information


sources – Information synergy
 Using common admin skill and experience-
managerial synergies
 IBM – Main frames to PC to communication
equipment,
 Procter and Gamble -use common networks for
distribution
Conglomerate or Unrelated
Diversification
 Spreading risk over different ,unrelated business
instead of synergy creation.
 Stress is on financial matters (to spread risk) instead
of operational matters( benefits of synergy)
 Maximising returns by investing in profitable biz and
selling out unprofitable ones.
 Stabilising returns through ups and down on biz
cycles
 Taking advantages of emerging opportunities
 Migrating from biz under threat.
 Personal choice of owners to create industrial
umpires
ANSOFF’s MATRIX FOR DIVERSIFICATION STRATEGIES

New Products

Related Unrelated Technology


Technology

New Functions

Firm its own Vertical Integration


customer

Same Type of Horizontal


Product Diversification
Similar type of Marketing and Marketing related
Product technology concentric
Related diversification diversification
New Type of Product Technology-related Conglomerate
concentric Diversification
diverisifcation
Position in 1998

Back ward Forward


RIL

Export

Oil /Gas Oil Product Retail


Expolaration Pipelines Refining
Production pipelines Petro pumps

Position in 2009

Integration Strategies based on Value Chain


Horizontal Integration
 Taking up same type of products at the same level
of production or marketing process
 E.g taking over a rival company manufacturing the

same product (acquisition or merger)


 Results in bigger size with con commitment benefits

of stronger competitive position.


 Geographical expansion, increase market share

 In value chain keeps company at same level

e.g Bank takeover


Benefits of Horizontal Integration

 Economies of scale ( Spreading fixed cost


over larger numbers)
 Increased product differentiation
 Economies of scope (same resource base for
variety of products)
 Increased market power
 Replicating a successful biz model
 Reduction in industry rivalry
Risk

 Demands very high level of managerial,


operational and financial competence.
 Demands wide variety of skills
 Decreasing commitment to old businesses.
 May not result in promised rewards
 Increases the administrative costs of
managing integrating and controlling a wide
portfolio of businesses
Concentric Diversification

 When organisation takes up an activity in


such manner that it is related to the existing
business definition of one or more of a firms’
business either in terms of customer groups,
customer functions or alternate technologies
Conglomerate Diversification

 When an organisation adopts a strategy


which requires taking up activities unrelated
to its to its existing business definition in any
of its businesses, either in terms of their
respective customer groups, functions or
alternate technologies
Strategic Alternatives

Retrenchment
Stability
Expansion No longer wish Combination
Less risky, less changes to remain In biz Organisation large
Increase pace of Comfort Envrironment and faces complex
Activity Environement is threatening Environment
Prospects of growth Stable Stability ensured by Comprses
Increased size more Expansion percieved as Reallocating different biz
Control overmarket Threatening Resources from each lying in different
Expernce curve and Consolidation Unprofitable Industries
Scale of operations after to profitable Requiring different
expansion businesses responses
Stability
Strategy

No change Pause /Proceed


Profit
Strategies with caution
Strategies
Strategies
Stability Strategies

 Maintaining status quo or growing in a slow


manner.
 Resources put into existing operations
 Focus on current products current markets
and functions maintaining same level of effort
Why?
 Not rock the boat
 Stop for a while
 Why swallow risk? -If growth low hold on to market
share after stretched period of growth
 Resource crunch – for new products new markets or
changing organisation ,resources required
 Works only if firm doing well and environment is not
volatile or in niche market
 Cannot be eld for along time as shareholder will
want improved profits.
Retrenchment
Strategies

Turnaround Divestment Liquidation


Strategies Strateges Strategies
Types
 Retrenchment – defensive when rival performance
is good and its own disappointing or survival at
stake
 Eco recession, production inefficiencies and
innovative breakthroughs by competitors
 Chosen if firm not competitive enough to beat leader
or make fast changes
 Address weakness and restore
 Arvind Mills (Denim) and Xerox did address their
weakness and came out stronger
Divestment
 Divestment –Sale of units or parts of unit that no
longer contribute to or fit the firm’s distinctive
competence
 Outright sale
 Leveraged Buy Out
 Spin Off - create new company and distribute
shares to present shareholders
 Focus on core business

 ACC, Raymond, ITC Classic Fin Services, Parle –


Thums Up
Divestment Strategy -Reasons

 Strong focus,
 Unlock critical funds,
 Invest in emerging tech,
 exit non dominant ventures,
 turn red to black,
 exit unviable projects
Turnaround Strategy

 Turnaround – Reverse a negative trend and


bring organisation back to normal health and
profitability.
 Rid of unprofitable products, leaner firm,
more efficiency, reduce distribution outlets.
Turnaround –Danger signals
 Continuous cash flow problems
 Declining profits-lower margins
 Dwindling market share
 High employee turnover
 Low morale of employees
 Under utilisation of capacity
 Raw materials supply problem
 Rising input prices
 Strikes lockouts
 Increased competition, recession, Mismanagement
Action Plan
 Change the leader
 Change the prices
 Focus on specific customer and producers
 Extend product life thru improvements
 Replace old products with new
 Focus on power brands that are valued
 Liqiudate assets for generating cash
 Better internal coordination
 Emphasis on selling advertising
 Cut employees, interest and fixed costs
Ashok Leyland

 1998-99 –
 Sales and valuations hit rock bottom
 balance sheet dismal picture,
 recession
Strategy
 Vendor consolidation – from 1400 suppliers brought
down to 500 in 2002 with reduction in ordering
monitoring costs
 J-I-T inventories Reduced from 23 days to 7 days
 Demand and Forecasting MIS –reduced product
inventory form 90 days to 50 days reducing
marketing overheads by Rs 10000 per truck
 Financial re-engineering – Switched Rs 90 crs form
high to low cost loans and raised Rs 100 cr CP at
9.5 % bringing average cost of debt by 2% over 2
years to 9.6%
Liquidation
 Selling of disposing of all or part of an
organisation’s assets
 When future is bleak –sales ,profitability
 Unamanageable accumulated losses
 Someone willing to buy to avail tax benefits
 Not possible to revive with existing resources
 Difficult in labour surplus, cash hungry country like
India as unions will oppose
 Govt, FIs may oppose
 By selling avoid bankruptcy and protect
shareholders interests
Liquidation

 Compulsory winding up under the order of a


court
 Voluntary winding up
 Voluntary winding up under the supervision of
a court
 Companies Act 1956 provides for a liquidator
who takes control of the company ,sell its
assets, pays its debt, and distributes the
surplus if any to its equity shareholders
Bankruptcy

 Means whereby an organisation is unable to


pay its debts and can see court protection
from creditors and from certain contract
obligations while it tries to regain financial
health and stability( reorganisation
bankruptcy)
Combination Strategies

Combination of
Simultaneous
Sequential Simultaneous
Combination
Combination And
Sequential
Combination Strategies
 Joint ventures - pool resources to accomplish
tasks not done independently way of
implementing strategy –spreads risk. Firms
take equity in one another
 Strategic Alliance – Partners Contribute skills
and expertise to a cooperatively conceived
and executed project for a specific period
 Consortia – Interlocking relationship between
business of an industry -Japanese upto 50
firms – Airbus an example
BHEL -Case

 Shift from concentration to include integration


or diversification
 What areas to diversify if it decides to
Expansion –
Internationalisation,
Cooperation and Digitalisation
Internationalisation

 Type of expansion that requires market for


their product or service overseas
 Evaluate international environment, own
capabilities, devise strategies to enter
 Improvements in communication and
transportation, investment climate, lowering
of barriers
PORTER’s DIAMOND OF NATIONAL ADVANTAGE

Government
Firm Strategy,
Structure
And Rivalry

Demand
conditions
Factor
Conditions

Related and
Supporting
Industries Chance
Diamond Determinants (Porter’s Model)

 Factor Conditions
 Demand conditions
 Related and Supported Industries
 Firm strategy, structure and rivalry
Factors Impinging on Firms’
Internationalisation Strategies
 Cost Pressure- minimise unit cost
 Pressures for local Responsiveness-
strategies to respond to national level
differences in terms of variables like
customer preferences and tastes, policies
and biz practices
International Entry Modes

 Export entry mode


 Contractual entry mode
 Investment Entry mode
 Born Global firms
Strategic Alliances

 Two or more firms unite to pursue agreed


upon goals but remain independent
 Partner firms share the benefits of an alliance
and control over the performance of assigned
tasks.
 Partner firms contribute on a continuing basis
in one or more key strategic areas –
technology, product and so forth
Reasons for Strategic Alliances

 Entering new market


 Reducing manufacturing costs
 Developing and diffusing technology
Strategic Decisions in
Internationalisation
 Which International markets to enter?
 Timing of entry into international markets?
 Scale of entry into international markets?
Advantages and Disadvantages of
Expansion through Internationalisation
 Economies of scale  Higher risks
 Economies of scope  Difficulty in managing
 Expansion and cultural diversity
extension of markets  High bureaucratic costs
 Realising location  Higher distribution
economies costs
 Access to resources  Trade barriers
and markets overseas
Regionalisation Strategies

 Home base
 Portfolio
 Hub
 Platform
 Mandate
Strategies for the Base of the
Pyramid
 Easy payments in instalments
 Dramatic cost cutting
 Offering products in small packages
 Charge prices by pay by use
 Direct distribution by avoiding costly
intermediaries
Strategy Options for Local Companies in Competing
Against Global Companies

High Dodge rivals by Contend on a


shifting to new global level
Industry business model or
Pressure
To
market niche
Globalise
Defend by using Transfer company
home –field expertise to cross
Low advantages border markets

Tailored for Transferable to Other


Home Market Countries

Resources and Competitive Capabilities


Types of Global Strategies
Global Transnational Strategy (low
Strategy ( standardised cost and high local
products /services low cost responsiveness)
Pressures approach to get benefits of
experience and location for
For cost manuf. And sell in diff
Reduction countries)

International Multi domestic


Strategy ( transferring Strategy (modify product and
standard product and services to foreign conditions)
services to foreign markets)

Pressures for Local responsiveness


Response of Local Firms to MNC’s

 Using Home Field Advantages


 Transferring the Co’s expertise to Cross
Border Markets
 Shifting to New Business Model or Market
Niche
 Contending on a global scale
Patterns of Indian Co Response
 Moving from position of comparative advantage to
position of competitive advantage
 Reaching a point of having global advantages,
pushing towards global markets pulled by change of
India’s perception in the world
 Three strategies –

1.outsourcing (small markets),


2.internationalised firms (market expansion/balance biz
risks),
3. multinational firms (creating sustainable competitive
position in several regions)
Patterns of Response

 Different requirements of retail ( JV feasible


for retail) and institutional customers (no JVs)
 Require different type of organising and
capability building
 Conviction laden leadership – focused on
business fundamentals, international
orientation and ready for long tem
engagements
Cooperative Strategies
 Mergers ( combination, consolidation (if both
organisations dissolve identity to create a new
organisation ) or
 integration (in which one acquires the assets
and liabilities of the other in exchange for
shares or cash ))or
 both the organisations are dissolved and
assets and liabilities combined and new stock
is issued
 .
Cooperative Strategy

 Here the objective of buyer and seller firm


matched and
 Acquisitions or takeover (surprise attempt to
acquire or take control of ownership against its
wishes or shareholders)
 Joint Ventures
 Strategic Alliances – resources capabilities
and core competencies are combined to
pursue mutual interests
Types of Mergers

 Horizontal Mergers –same business


 Vertical Mergers- combination to create
complementarities in the same business
 Concentric Mergers – same biz definition
 Conglomerate mergers – Unrelated
combinations of biz definition
Reasons for Merger

 Increase value of stock


 Increase growth rate and investment
 Improve stability of earnings and savings
 Balance, complete, or diversify product line
 Reduce competition
 Acquire needed resources quickly
 Avail tax concessions and benefits
 Advantages of synergy
Sellers Reasons to merge

 Increase value of owner’s stock and


investment
 Increase growth rate
 Acquire resources to stabilise operations
 Benefit from tax legislation
 Deal with top management succession plans
Important Issues

 Strategic Issues – commonality of strategic


interests between buyer and seller.
 Valuation of business and shares of target
firm, sources of financing for mergers and
taxation matters after merger.
 Managerial Issues – problem of managing
firms after merger.
 Legal Issues – Sec 391 to 395 of Companies
Act.
Digitalisation

 Digital coding of information and the growing


productivity gains in processing and
transmission it enables
Comparison of Digital Strategy and Traditional Strategy

Type of Strategy Digital Strategy Traditional Strategy

Method Experiment and Predict and plan


respond

Time frame Monthly, revised Three to five year


continously ,revised annually

Owner Everyone in CEO’s ,strategists


Organisation
Competitive threat New forces of Porter’s Five Forces
digitalisation Model
,globalisation and
deregulation
Role of IT Disrupter Enabler

Output Killer Applications Plan


Digitalisation and Value Chain
 Deconstruction – deliverables may not be
products but components of value
 Disintermediation – removal of some processes
 Reintermediation – processes are supplemented
 Industry Mapping- transforming traditional
boundaries by morphing –providing goods and
services in different ways
Digitalisation and Value Chain(2)

 Cannibalisation – set of activities in a value


chain are replaced by new activities, like eating
away parts of the value chain
 Techno intensification – intensive use of
technology
 Rechanneling – Breaking value chain into
parts and divesting or outsourcing
Use of Web Site

 Disseminate product information only


 Minor distribution channel for direct selling
 Major distribution channel to access
customers
 Primary distribution channel to access buyers
 Exclusive channel to transact sales with
customers
Leveraging Internet

 New means of generating synergies


 Enhancing revenue among elements of a
diverse firm
 Linking sources of supply more efficiently
 Streamline distribution
 Dealing with suppliers more efficiently
Digitilisation Strategies
 Phases – Choosing among e-biz patterns, ebiz
models, e biz designs, e governance
 Patterns-
1. E-Channel pattern –E chaupal
2. Click and Brick pattern - HDFC Life
3. E- Portal pattern - IR, SRL labs (Stick , view more
join)
4. E –market maker or Net Market pattern –developer
of a B2B site.
5. Pure e –digital products pattern
Types of Sites

 Vanity – Self expression


 Billboard – information brochure
 Advertising – funding of programming and
content
 Subscriptions – niche individuals
 Storefront – electronic version of catalog,
promotions, shopping cart
 One time purchase with no future obligations
Strategic Framework of an Organisation
Introduction
 Evolution
 Genesis
 Managerial practices based evolution
 Historical perspective and pointers to the future
 Business Policy
 Understanding Strategy
 Concept of Strategy and levels of operation
 Strategic Decision making
 Schools of thought in Strategy formulation –
Prescriptive, Descriptive
Conceptual Introduction of Organisation
Mission
 Mission and Purpose
 Business Definitions –Dimensions
 Company Objectives and Goals
Environmental Appraisal

 Introduction
 Characteristics of Environment
 Impact of Environmental Changes
 Major Environmental Components
 Environmental scanning
 Techniques used for environmental scanning
Strategic Alternatives

 Grand strategies
 Types of Principal/Grand/ Major strategies
Strategic Choice
 Introduction
 Strategic Analysis at the corporate level
 Techniques used for corporate portfolio analysis
 Industry competitor and SWOT analysis
 Behaviour/Subjective factors affecting strategic
choices
 Contingencies approach to strategic choices
 Strategic plan
Rationalising the Strategy

 Desired qualities of Annual Objectives


 Benefits offered by annual objectives
 Linkages between strategy formulation and
implementation
 Project implementation
 Procedural Implementation
 Resource Allocation
Structural Implementation
 Structure Definition
 Types of Structure
 Selection of Structure
 Organisation Culture
 Content of Culture
 Influence of culture on organisational life
 The Strategy –Culture relationship
 Organisational Systems
Behaviour Implementation

 Introduction
 Leadership and Implementation of Skills
 Leadership and Strategy Skills
 Political aspects, power and strategy
 Personal values, ethics and strategies
 Social responsibility
Strategic Evaluation Control

 Introduction
 Strategic Control
 Operational Control
 Evaluation Techniques for Strategic Control
 Evaluation Techniques for operational control
New Business Models and Strategies for
the internet Economy
 Introduction
 Strategy shaping characteristics of E-
commerce Environment
 E-Commerce Business Models and
strategies
 Internet strategies for traditional business
 Key success factors in e-commerce
Restructuring

 Redesigning an organisation structure with


the intent of emphasizing and enabling
activities most critical to a firms’ strategy to
function at maximum effectiveness
Why

 Reduce unnecessary control


 Focus on enhancing core competencies
 Reducing costs
 Opening organisations more fully to outside
involvement and influence
 Globalisation
 Speed
 internet
Core Competencies

 Special qualities possessed by an


organisation that make them withstand the
pressures of competition in the market place
 Net result of strategic advantages and
disadvantages
 When a specific ability is possesed by a
organisation exclusively or relatively in large
measure it is called distinctive competence
Restructuring

 Revamping
 Regrouping
 Rationalisation
 Consolidation
Corporate Restructuring
 Corporate or business level restructuring –
composition of organisation set of
businesses for more profits
 Financial restructuring – equity pattern
,holdings ,debt servicing schedule ,cross
holding
 Organisational restructuring –changes in
structure, reducing hierarchies, downsizing,
redesignating positions, altering reporting
relationships
Why Restructuring?

 Ways of working of organisations.


 Changes in the environment
Business level Strategies
Strategy Levels and Focus
Strategy level Focus

Corporate Level Market Definition and


Resource allocation
,Competition and
alliances(cash,HR
equipment)
Business level Market navigation

Functional level Organisation function


Integrated support of
business and corporate
level strategies
Business Level Strategies

 Are courses of action by an organisation for


each of its businesses separately, to serve
identified customer groups and provide value
to the customer by satisfaction of their needs
 In the process the organisation uses its
competencies to gain, sustain and enhance
its strategic or competitive advantage.
SBU
 A group of related business /divisions each
responsible to corporate head quarters for its own
profits and losses
 Each SBU has its own competitior and own unique
strategy
 Focus on a particular product or service line
 Business level strategies involve decsions regarding
these individual products within this service line
 One product may contribute by huge cash flow for
corporate level strategy while another rproduct uses
the cash to increase sales and market share of
existing biz.
Businss level Strategies Concerned with

 Coordinating and integrating unit activities to


conform to organisational strategy
 Developing distinctive competencies and
competitive advantage in each unit
 Identifying product or service market niches
and developing strategies for competing in
each
 Monitoring product or service market so that
strategies conform to market needs at the
current stage of evolution
Porter’s Generic Strategies

 Overall cost leadership – focus on cost not


price (give s alternatives for pricing)
 Differentiation – uniqueness of product –
warranty ,brand image,technology, service
,dealer networks
 Focus on a particular market niche –
concentrate on a product line,area, channel,
stage in production process,or market niche-
serve a limited segment
Business Strategies Why?

 Direction for business in designing incentive


systems
 Control procedures
 Operations
 Interaction with buyers and suppliers
 Making product decisions
Business Level Strategies -

 Industry Structure
 Positioning of the Firm
 Competitive Advantage
 Competitive Scope –breadth of
organisation’s target within an industry
Basis for Business level Strategies

 Industry Structure – determined by Porter


five forces model which vary from industry to
industry which determines long term
profitability of the firm
 Positioning of the firm within the industry –
overall approach of the firm towards
competing and designed to gain a
sustainable competitive advantage
Breadth of Organisation
 Range of products
 Distribution channels
 Types of buyers
 Geographic areas
 Array of industries in which firm competes.
 Broad (full range of products to wide
customer groups) target or narrow ( limited
range of products to few groups in restricted
area )target approach
Sustainable Competitive Advantage

 Competitive Advantage (lower cost and


differentiation)
 Competitive scope (broad target and narrow
target
Competitive Advantage -Low Cost

 Low Cost – mass produced goods,


distributed through mass marketing thereby
resulting in lower cost per unit.
 Based on competence of the organisation to
design ,produce and market a comparable
product more efficiently than its competitors
Differentiation

 Differentiation - Marketing relatively higher


priced product of a limited variety but
intensely focussed on identified customer
groups who are willing to pay the higher
price.

 Produced by batch production and marketed


through specialised distribution networks
Differentiation

 Competence of the firm to provide unique


and superior value to the buyer in terms of
product quality ,special features and after
sales service
Broad
Cost Leadership Differentiation
Target

Competitive
Scope

Focussed Cost Focussed


Narrow leadership Differntiation
Target

Differentiated Products/Services
Low Cost Product/Services

Competitive Advantage
Porter’s Generic Business Strategies
Porter Classification –Business
Strategies
 Cost Leadership (lower cost/ broad target –
same utility/comparable price). Higher profit
by volumes and lower margins. Competition
stiff. Achieved by ensuring cumulative value
chain costs are lower than competitors by
analysing cost drivers)
 Differentiation (differentiation/broad target)
 Focus (lower cost or differentiation/narrow
target)
Cost Leadership

Lower cost/ broad target


same utility/comparable price).
Higher profit by volumes and lower margins.
Competition stiff.
Achieved by ensuring cumulative value chain costs are
lower than competitors by analysing cost drivers
Standard products and uniform service packages
Economies of scale
Demand forecasting and high capacity utilisation
Investing in cost saving technologies
Differentiation
 Competitive advantage through special features
incorporated into the product/ service which is
demanded by customers and who are willing to pay
for it.
 Outperform competitor through special features in its
product or service
 Customer value the utility of special features and
are willing to pay more
 Product or service stand apart in the market and is
recognised by its customer
 Higher profits from premium vs additional cost of
features
Focus

 Relies on cost leadership or differentiation


 Caters to a narrow segment of the total
market
 Also called niche strategies
 Based on identifying customer groups on
demographics (age, gender, income
occupation), geographic (rural urban,
North/South India or lifestyle (traditional
/modern)
Focus

 Locate a niche where cost leaders and


differentiators are not operating as they leave
out segments which require special attention
or superior skills or efficiency in handling the
segment
 For identified market segment adopt focus
based in cost leadership or differentiation
 Music, jewellery, healthcare,
BPOs,TV,biscuits.
Tactics

 A sub strategy
 A specific operating plan detailing how a
strategy is to be implemented ain tems of
when ( timing) and where (market location) it
is to be put into action
 Narrower in scope
 Shorter in time horizon
Timing tactics
 Strategy of low cost , dfferentiation or focus may be
right move only if it is made at the right time –
targets for managers by time
 Timing based strategy means attacking the
competitor indirectly through surprise and gaining
market share at reduced cost
 Low labour cost by JIT
 Time based manufacturing , time based sales and
distribution
 First Mover and Late Mover
Market location

 Where to compete –target market.


 Role organisation plays in in the target market
and the type of business tactics they adopt to
play such a role.
 Industry has no of organisations offering
products services to make market shares.
 One organisation has largest market share,
other differing in magnitude

Market Role
 Role can be Leader (expanding total, defending
existing, expanding by enhancements)
 Challenger (try to gain market share by objectives and
opponents, general and specific attack strategy
choices ,
 Follower (imitate market leaders but not upset balance
of competition),
 Nichers ( carve out distinct segment left out by others
or of no interest to them by creating, expanding and
protecting niches).
Business Strategies for Different
Industry Conditions- Factors
 Investment,
 returns
 capital
 Timing
 Technology
 demand
 business models
 risks
 market shares
 growth
 products
Stages in Industry Cycle

 Embryonic Stage
 Growth stage
 Maturity stage
 Decline stage
Strategic Analysis and
Choice
Overview

 Process of Strategic choice


 Strategic Analysis –tools and techniques
 Subjective factors
 Contingency Strategies
 Strategic plan
Strategic Analysis

 Investigation of objective factors being


considered in strategic choice ?
 Which markets to enter ?
 Which industries to leave ?
 Which business to create/ acquire/ divest ?
 Which products and markets to retain
/grow/divest ?
Corporate Growth Strategies –Choices
(Corporate parent –biz units children)

 Firms Orientation towards growth stability


and retrenchment (Directional Strategy)
 Industries or Markets in which the firm
competes (Portfolio strategies)
 Manner in which it management coordinates
activities and transfers resources and
cultivates capabilities among product lines
and business units (parenting strategy)
Desired Performance

Performance Gap
Present
Performance
Performance

T1 T2 Time

GAP ANALYSIS FOR FOCUSSING ON STRATEGIC ALTERNATIVES


Tools and Techniques
 Clark Study (1997) -80 tools and techniques
 Hussey(1992) – 57 techniques
 Most popular – 25 relevant topical and measurable
 2007 Tool– Strategic planning
 Techniques – CRM, customer segmentation, bench
marking, vision and mission statement
 Scenario and contingency planning, strategic
alliances, balanced scorecard,growth strategy tools
 Less popular – M&A, Six sigma, offshoring,
consumer ethnography, corporate blogs
Strategic Analysis Tools

 SWOT
 Portfolio Analysis BCG Matrix
 GE/ McKinsey Nine Cell matrix
 Financial Ratios
 Brainstorming
 Delphi Techniques
 CSF
 Market Opportunity Analysis
Strategic Analysis Tools

 Process mapping
 Focus groups
 Competitor Analysis
 Porter Five Forces Model
 Stakeholder Analysis
 Budgeting and Value Chain Analysis
 Factor Analysis
 McKinseys 7 S
 PEST Analysis
Corporate Portfolio Analysis

 Competitive analysis and strategic planning


in multi product and multi business firms
 Resources targeted at those businesses that
possess the greatest potential for creating
competitive advantage
Tools

 Corporate Portfolio Analysis


 Corporate Parenting Analysis
 SWOT Analysis -ETOP and SAP combined
 Experience Curve Analysis
 Life Cycle Analysis
 Industry Analysis –Porter Five Forces model
Corporate Portfolio Analysis

 BCG
 GE’s Nine cell Matrix (McKinsey & Co)
 Hofer’s Product- market Evolution
 Directional policy
 Strategic position and Action Evaluation
Matrices
Corporate Parenting Analysis

 Role of corporate headquarters in managing


and nurturing a set of business in a portfolio
 Effective use of resources and capabilities,
build individual businesses and creating
synergies .
Corporate Parenting Analysis

 Two key questions are :-


 What business should a diversified
corporation own and why?
 What organisation structure, management
processes and philosophy will foster superior
performance from the corporation’s individual
business units ?
 Better than portfolio as it more than just
financial aspect of the business.
GE’ S Nine Cell Matrix
Industry
Attractiveness

High
Invest
expand

Medium Harvest /
Divest

Profit
Low

Strong Average Weak


Industry Attractiveness Business
Strength  Relative market share
 Market size  Profit margins relative to
 Growth rate
competition
 Industry profit margin
 Global opportunities
 Ability to compete on price and
 Competitive intensity/rivalry quality
 Seasonality/Demand growth  Knowledge of customer and
rate market
 Cyclicality  Distribution channel access
 Economies of scale  Competitive strengths and
 PEST ( Political Technology, weaknesses -production
Economic
capacity
Social, environmental )
 Legal  Technological capability
 Human Impact  Calibre of management
 Brand equity
Difference –Nine Cell and BCG
 In nine cell ,Industry attraciveness and business
strength vs industry growth rate and market share
 Nine vs four cells
 Industry attractivess and business strength criteria
are first identified , then given a value and then
multiplied by weightage factor.
 Result is a quantitative measure of industry
attractiveness and business units relative
importance in the industry
 Not consider interactions among units and neglects
core competencieslaeding to value creation
Plotting

 Market size represented by size of circle


 Market share by pie in the circle
 Expected future position of circle by means of
an arrow
Strategic Implications –resource
allocations recommendations
 Grow – strong business units in attractive
industries, average business units in
attractive industries, and strong business
units in average industries
 Hold – average BUs in average industries,
Strong BUs in weak industries,weak business
in attractive industrues
 Harvest- weak Bus in unattractive industries,
average BUs in unattractive industries, weak
Bus in average industries
Hofer- Life Cycle Product Market
Evolution Matrix Stage of Industry vs
Biz Strength/Company Position
 Early development  Strong
 Rapid growth/Take off  Average
 Shake out  Weak
 Maturity /Saturation
 Decline/Stagnation
Force Field Analysis

 Understanding the pressures for and against


change or a decision- specialised method of
weighing pros and cons
 By analysis trying to strengthen forces for
change and reduce impact of opposition
Problem

 Problem – A firm is considering upgrading a


factor with new manufacturing equipment.
 List and prioritise the forces for and against
change
Analysis
 Customers want new  Loss of staff overtime
products (4) (3)
 Improve speed of  Staff frightened of new
production(2) technology (3)
 Raise volume of  Environment impact of
output(3) new technology (1)
 Control rising  Cost (3)
maintenance costs (1)  Disruption (1)
FORCES FOR FORCES AGAINST
CHANGE CHANGE

4 3
Plan for
Upgrading
2 factory with 3
new
manufacturing 1
3 equipment
3
1
1

Total 10 Total 11
Action
 Train staff (increase cost by 1) eliminate fear of
technology (reduce fear by 2)
 Show stafff change is necessary for business
survival (new force in favor +2)
 Staff shown new machines could add interest and
variety to jobs (new force + 1)
 Raise wges to to reflect new productivity(cost+1,loss
of overtime -2)
 Slightly different machines with filters to eliminate
pollution (environmental impact -1)
 Total For 13 Total against 8
Strategic Groups
 Cluster of firms based on technological
leadership ,degree of product quality, pricing
policies, choice of distribution channels and degree
of customer service.
 Indian Pharma –Exploiters (Neuland labs),
Explorers (CIPLA), Outsourcers (Dishman Pharma),
emerging globals(e.g Dr Reddy’s) and globals (e.g
Ranbaxy).
 Restaurant industry – fast food, fine dining based on
preparation time, pricing and presentation
Other Analysis -Strategic Groups
 Strategic Groups – are dynamic collections of
companies that compete simultaneously fo
customers and capital
 conceptually defined clusters that share
 similar strategies and
 business models and therefore
 compete more directly with one another than with
other firms in the same industry.
 Firms which appear homogenous form one
strategic group.
 Similar groups that compete for customers and
capital.
Bench marking
 Comparing your organisation or part of your
services with others
 Why are others better?
 How are others better
 What can we learn?
 How can we catch up?
 How can we become the best in our sector?
 Which are the right organisations to compare with?
–Direct competitors (domestic), International,
indirect competitor (providing related product or
service, other successful companies
Steps in Benchmarking

 Identify Product / service to be benchmarked


 Identify comparable institutions
 Collect data
 Identify performance gap
 Estimate performance potential
 Communicate and get acceptance
 Establish targets
 Develop action plans
 Act according to targets and monitor the process
 Adjust process according to monitoring results
 Continue the cycle from step !
Stakeholders Analysis
 Describes a process where all individuals or groups
that are likely to be affected by a proposed action
are identified and then sorted according to how
much they can affect the action and how much the
action can affect them
 Primary-ultimately affected
 Secondary -intermediates or indirectly affected
 Key stakeholders – significant influence or
importance in organisation
Focus Groups

 A form of qualitative research in which a


group of people are asked about their
perceptions, opinions, beliefs and attitudes
towards a concept product service idea
,advertisement or packaging
 Acquires feedback, test marketing, test new
product before being made available to
public
Competitor’s Analysis

 Actions and reactions of individual firms


within and industry or strategic groups.
 Determine each competitor’s reaction to
industry and environmental changes
 Anticipate response of each competitor to the
strategic moves by other firms
 Develop a profile of the nature and success
of the possible strategic changes each
competitor might undertake
Components of Competitor Analysis

 Future goals of competitor – Comparison


with own
 Current strategy of competitor – How are we
currently competing
 Key assumptions made by competitor of
future –volatile ,status quo. Competitor’s
assumptions
 Capabilities of competitor(SW vs competitors)
Business Process Mapping
 Activity involved in defining exactly what business
entity does, who is responsible,to what standard a
process should be completed and how the success
of a business process can be determined.
 Once done no uncertainty as to the requirements of
every business
 To meet ISO 9000 standard requires a process
approach and business process maps help in
assisting the same Then the process becomes
effective and efficient.
 Visually depict s the sequence of events to build a
product or produce an outcome.
Business Process mapping
 Biz Process – Acollection of interrelated tasks
which accomplishes a particular goal
 Three types – management – operational,
supporting
 Begins with acustomer need and ends when
that need is satisfied
 Increases effctiveness (add cusomer value)
and increases efficiency (save time/money)
 If a step does not add value why do it
BP Mapping
 Identify all your processes
 Identify the person responsible for that process
 Break down each process into individual steps from
start to finish –document
 Physically map out the steps on computer,
whiteboard
 Start with the most ineffective or inefficeient
processes – customer/staff dissatisfaction, staff time
Tactics
 Position Defence
 Flank Defence
 Counter offensive defence
 Mobile defence
 Contraction defence
 Frontal Attack
 Flank Attack
 Encirclement Attack
 Bypass attack
 Guerilla Attack
 Couterfeiter
 Cloner
 Imitator
 Adapter
Subjective Factors in Strategic
Choice
 Govt Policy
 Perception of CSF and distinctive
competencies
 Commitment to past strategic actions
 Strategist’s decision style and attitude to risk
 Internal political considerations
 Timing and competitor analysis
Strategic plan

 After strategy formulation next phase is


strategic plan.
 A document which provides information
regarding the different elements of strategic
management and the manner in which the
organisation and its strategists propose to
put strategies into action.
Strategic Plan
 Serve as a framework for decisions for
securing support/approval
 Provide a basis for more detailed planning
 Explain the business to others in order to
inform ,motivate and involve
 Assist benchmarking and performance
monitoring
 Stimulate change and become building
blocks for next plan.
Contents of Strategic Plan
 Statement of Strategic Intent
 Environmental appraisal results
 Organisational Appraisal results
 Strategies chosen and assumptions
 Resource Allocation
 Contingent strategies
 Organisation structure proposed
 Functional Strategies and implementation
 Performance evaluation and assessment of success
Contents of Strategic Plan
 Statement of Strategic Intent – vision ,mission,
business definition, goals and objectives.
 Results of environmental appraisal
 Results of organisational appraisal
 Strategies chosen and the assumptions under which
strategies would be relevant
 Contingent strategies to be used under different
conditions
 .
Contents of Strategic plan
 Strategic budget for the purpose of resource
allocation for implementing strategies and the
schedule for implementation
 Proposed organisation structure and the major
organisational systems for strategy implementation
including the top functionaries and their role and
responsibility
 Functional strategies and the mode of their
implementation
 Measures to be used to evaluate performance and
assess the success of strategy implementation
Contingent Strategies
 Are strategies formulated in advance to deal with
uncertainties, emergencies and disaster
management that are natural part of the business.
 Strategic choices are made on certain conditions,
assumptions and premises which may not turn out
to be valid. These shifts can be sudden with little
time to react.
 Some changes in environment are fast (market
regulatory or international depending on industry)
and others like social change is slow.
Strategic Choice

 Focus
 Analyse
 Evaluate
 Chose
Process of Strategic Choice
 Focus on strategic alternatives
 corporate level (expansion, stability,
retrenchment and combination)
 business level (low cost, differentiated,
focus) based on level of gap by Gap
analysis (3-5 years time frame between
present and desired performance and
working back wards to see if it can reach
through present level of efforts)
Process of Strategic Choice

 Analyse- Strategic Alternatives- Few feasible


alternatives by objective factors( like market
share based on rational objective or
prescriptive factors) or subjective
factors( personal judgement, collective or
descriptive factors like top management
perception).
Strategic Choice (3)

 Evaluate – based on analysis of subjective and


objective factors
 Chose - Clear assessment of choice of which
alternative is most suitable under the existing
conditions by making a blue print and also
looking a t contingency strategies
Kalyani Group

 Motive for Internationalisation


 Type of International Strategy group is
adopting
Strategy Implementation
Strategy Implementation

 Carries out the exercise of putting a freshly


chosen strategy in place
 Characteristics –
1. Action orientation
2. Comprehensive in scope
3. Demanding varied skills
4. Wide ranging involvement
5. Integrated process
Strategy Implementation
 Barriers
 Overcome by adopting clear model of effective
strategy implementation and
 Effective management of change
 Formulation and implementation are iterative
functions and feed upon each other in a two way
relationship through forward and backward
linkages.
 Intended strategies may not get implemented in the
intended way.
Strategy Implementation

 Nature – Action oriented, comprehensive in


scope, varied skills required, wide ranging
involvement, integrated process.

 Linkages between formulation and


Implementation.
 Project Implementation
 Procedural Implementation
 Resource Allocation
Barriers to Strategy Implementation

 Barriers – inability to change, poor strategy,


no guidelines for implementation, poor
information sharing, unclear
responsibility/accountability,
 Adopting clear model of strategy
implementation and effective management of
change in complex situations
Interrelationship between Formulation
and Implementation (action and doing)
 Forward Linkages – managerial task
Changes to structure leadership styles to
operationalise strategy

Strategy Formulation Strategy Implementation

Backward Linkages – strategy implemented in


the past, indented strategy, unrealised strategy
and emergent strategy
MINTZBERG CONCEPTION OF TYPES OF STRATEGY

Formulated Implemented
Strategy Strategy

Deliberate
Intended Strategy
Strategy Realised
Strategy

Influences
Unrealised Emergent
Strategy Strategy Resultant outcome
Simple Model of Strategy
Implementation

Activating Achieving
Strategies Managing Change
Effectiveness
Achieving
Activating Managing change
Effectiveness
Strategies

Project
Implementation Structural
Functional Evaluation
Implementation
Implementation & Control
Leadership
Procedural
Implementation
Implemetation
Behavioural Operational
Strategic Implementation
Plan Implementation
Resource
Allocation

FEEDBACK
Strategy

Plans

Programmes

Projects

Budgets

Policies,Procedures
Rules and Regulations

PYRAMID OF STRATEGY ACTIVATION


Policy
Rules
Strategy Plans Programmes Projects Budgets
Regulations
procedures

Strategy to Project Implementation


STRATEGY IMPLEMENTATION THROUGH PROJECT MANAGMENT

Strategic Management
Process

Strategy Strategy
Implementation Evaluation
And Control

Project Control
Objectives Measures

Initiating Planning Executing Controlling Closing

Project Management Process


Managing Change
 Respond to Dynamic environment –challenges
 Organisation keep internally fit
 Strategy implementation itself requires change
 Innovation and learning
 Triggers set within or outside the organisation
 Identify need, prepare , minimise resistance and
then start change with monitoring
 Degree, timing and Activity areas of change are
important to manage change effectively
Organisational Effectiveness

 Goal Model – how well goals achieved (profitability


growth market share))
 Resource based model – ability of organisation to
obtain resources (finance raw materials)
 Internal process Model – how well are internal
activities working (corporate culture, climate,team
work, communication)
 Conflicting values model – consolidating different
viewpoints, activities and outcomes so diverse
indicators of performance are used (dominant issues
–external or internal,values, stability or change)
Change Management

 Degree of change
 Timing of change
 Activity areas of change
Organisational Effectiveness

 Means the degree to which an organisation is


able to achieve its objectives through the
implementation of strategies.
Project Management

 Key enabler of strategy implementation


within organisations
 Not something that are an appendage to
strategy implementation but need to be part
of overall strategy.
 Supported by the right approach, processes
and tools and techniques
 Must be executed fully inline with the
strategies they support.
Project management
 Awareness of procedural framework within
which plans, programmes and projects have
to be approved by the govt. at the central,
state and local level.
 Project management is for creation of the
infrastructure required to put plans into
action.
 Procedural implementation helps in getting
the go ahead form concerned agencies to
implement projects
Regulatory Requirements
 Formation of a company
 Licensing procedures
 SEBI Requirements
 MTRP/Competition Act Requirements
 Foreign Collaboration procedures
 Import and Export Requirements
 Patenting and trade mark requirements
 Labour legislation requirements
 Environmental protection requirements
 Consumer Protection Requirements
 Incentives and facilities benefit.
Procedural Implementation
 Reacting to regulation
 Conform
 Confront
 Lobbying
 PR
 Existentialist –look for opportunities
 Dynamic– govt. respond to changes
 Anticipate changes


Assistance
 Liaison Formal and Informal – approval, permissions, statutory
benefits
 Corporate Affairs
 Consultants
 Advisors
 CA’s
 Company Secretary
 Legal Experts
 Lawyers
 Political donations and lobbying
 Sickness
 Taxation
 Internationalisation- different countries environment
Resource Allocation

 Procurement, commitment and distribution of


of financial ,human, informational and
physical resources to strategic tasks for
achieving organisational objectives
 Managers guided by strategy
Aligning Resources to Strategy

 Challenge is how to allocate resources to


competitive strategic tasks that lead to the
accomplishments of organisational objectives
and realisation of strategic intent

 Done through strategic budgeting by iterating


strategic decision making between different
levels of management
Ways of Resource Allocation

 Top Down Approach


 Bottoms Up Approach
 Mix of Both (Strategic Budgeting ) –iterative
manner , assumptions made, inputs received
and used prepared by Exec level committee
 Trade offs
STRATEGIC BUDGETING PROCESS
Level of
Management
Resource
Desired long Availability
Corporate Approval
And short run
Top Policy And sanction
goals
Management Guidelines
Strategic
Budget

Minimising gaps
Executive Proposals
Management

Position Papers
Envrt,Core Comp.
Marketing
Operating Past Performance
Management Target/
Implementation
Operational
Plans
Factors in Resource Allocation

 Objectives of the organisation –explicit


&implicit
 Preference of dominant strategists – Decision
maker
 Internal politics – units see it as possession
of power
 External influences – outside govt,
shareholders, FIs, legal requirements,social
responsibilities
Difficulties in Resource Allocation

 Scarcity of resources
 Restrictions on generating resources for
newer units and those with greater potential
for growth
 Overstatement of needs
 Tendency to imitate competitors
Method

 Role of CEO is major


 Participative mode
 Communication of strategic plan to all
executives creates congenial environment for
decisions on resource allocation
Structural Implementation
Structural Implementation

 Is the way in which the tasks and sub tasks


required to implement strategy are arranged.
 Relationship of structure and strategy creates
its own special requirement that should be
met by structure.
Structure

 Identifies formal reporting relationships


-hierarchy levels and span of control
 Grouping into departments and of
departments in the organisation
 Design of system to ensure communication
coordination and integration of efforts across
departments.
7-S Framework McKinsey Model Seven factors for Organising Co

Structure

Strategy Systems

Shared
Values

Skills Style

Staff
McKinsey 7 -S

 Management model describing seven factors


that enable organising a company in a holistic
and effective way.
 Together these factors determine how a
company operates
7 –S Framework
 Shared values - -superordinate goals –what the organisation
stands for and what it believes in
 Strategy – plans for allocation of a firms scarce resources over
time to reach identified goals – envrt ,customers, competition
 Structure – way in which organisation units relate to each other-
centralised ,functional,divisions or decentralised
,matrix,network ,a hoilding co
 Systems – procedures,processes and routines that define how
work is done- fin systems, R&S, P&PA,info system
 Staff – no and types fo employess
 Style – cultural sde of the organisation and how key managers
behave to achieve goals (Management style )
 Skills – distinctive capabilities of personnel or organisation as a
whole .Compar(e :core competencies).

Uses

 Value based Management model


 Diagnostic Tool
 Guides organisational change
 Combines rational and hard elements with
soft and emotional elements
 Managers must act in parallel and all Ss are
interrelated
Structure of Organisations

 Vertical (superior and sub ordinates – division


of labour and specialisation)
 Horizontal (coordination and collaboration
among peers created by integration for team
work and cross function information systems)
 Challenge is to create and manage
organisation requirements and coexistence
of both vertical and horizontal structure at the
same time
Horizontal and Vertical Structures
 Shared tasks  Specialised tasks
 Flexible authority  Hierarchy of authority
 Few rules and  Rules and regulations
regulations  Vertical
 Horizontal communications and
communications formal reporting
 Decentralised decision systems
making  Centralised decision
 Emphasis on learning making
 Emphasis on efficiency
Relationship –Environment, Strategy and Structure

 Changing Environment impacts strategy


 Strategy determines the type of structure to
have
 Strategy and structure affect each other more
on the forward side
 Strategy and structure is spanned by
environment and in one direction and
effectiveness in the other.
Environment Strategy Structure and Effectiveness

Environment

Strategy

Structure

Effectiveness
Structural Implementation


New Imple
Strategic Mentation
Strategies Mismatches
Plan is Of new
Put in
Implemented Strategies
Place

Performance Structure Effectiveness Performance


Improves Is changed Is reduced declines
Life Cycles of Organisations

 Stage I -Small scale enterprises –owner


manager. Simple objectives, operations.
Expansion
 Stage II – Bigger than stage I and wider in
scope of operations. Marked by functional
specialisation and process orientation.
Stability and Expansion.
Stages

 Stage III – large and scattered multi location,


SBUs and Divisions, Stability and Expansion
 Stage IV – complex, multi plant multi product
organisation resulting from related or
unrelated diversification. Divisional
organisation with corp. headquarters.
Corporate and business level strategies
coexist
SBU

 A discrete element of a business serving


specific products-markets with readily
identifiable competitors and for which
strategic planning can be conducted
Types of Organisational Strcture

 Entrepreneurial
 Functional
 Divisional
 SBU
 Matrix
 Network
 Product based
 Customer based
 Process based
 Goegraphic
 Intrapreneurial
Evolving Structures –Horizontal

 Horizontal – based on a structure that


corresponds to the process of providing
products or services to the customer rather
than the functions that the organisations
perform.
 Instead of marketing finance etc forming the
basis of departmentation, it is core processes
managed by cross functional teams used as
basis for structuring.
Evolving Structures –Delaminated
Matrices
 Delaminated matrices are combinations of
horizontal organisations with a functional structure.
 This way retains the process oriented horizontal
teams with functional departments providing the
depth of expertise and capabilities to perform those
functions.
 In this way the functional layer and the process layer
of the traditional matrix organisation is separated
and the workers and staff of the firm are assigned to
either functions or teams but not both.
Organisation Design

 based on key activities derived from mission


and objectives
 Purpose is to create the right structure that
fits the requirement of strategy to be
implemented
 Difficult task to find the right type of structure
to fit and satisfy the requirements of strategy.
Dimensions of Organisation Design
 Structures should match the requirements of
strategy and needs of organisation as it
grows from one stage to the next
 Purpose of organisation design is to create
the right structure.
 Structural Dimensions- describe the internal
characteristics of an organisation
 Contextual Dimensions describe the
organisational setting that influences and
shapes the structural dimensions.
Organisational Design- Structural
Dimensions
 Formalisation- amount of written documentation to
describe procedures, job descriptions, regulations and
policy manuals.
 Specialisation- degree of sub division of tasks
 Hierarchy of authority – reporting relationships and span of
control
 Centralisation – extent of decision making by top authority
 Professionalism – level of effective formal education and
training displayed and practiced
 Personnel Ratios- deployment of people (administrative
ratio, clerical ratio, indirect to direct labour employees
ratios).
Organisation Design – Contextual
Dimensions
 Environment
 Goals and Strategy
 Culture
 Technology
 Size
Steps required for Organisation
Development
 Identifying key activities
 Grouping similar activities that need common skills
 Choice of structure to accommodate different
groups of activities
 Creation of department and divisions to which the
different groups of activities could be assigned
 Establishing interrelationship among departments
and divisions for coordination and communication
TURBULENT
STABLE ENVIRONNMENT
Natural System Design
Mechanical design
Learning Organisation
Efficient Performance

Vertical Horizontal
Structure Structure

Routine Rigid
Tasks Culture
Empowered Adaptive
Roles Culture

Formal Competitive
Systems Strategy Shared Collaborative
Information Strategy

CONTEMPORARY ORGANISATION DESIGN


Traditional Design Emerging Design

 One large firm  Small business having


 Vertical communication cooperative characteristics
 Central top down decision  Horizontal communication
making patterns
 Vertical integration  Decentralised decision
making
 Work quality based teams
 Outsourcing and virtual
 Functional work teams organisations
 Minimum training  Autonomous work teams
 Individual focussed  Cross functional work teams
specialised job design
 Extensive training
 Value chain team focussed
job design
Organisation Design For Business
Strategies Cost vs Differentiation
 Efficiency orientation  Learning orientation
 Strong central authority  Flexible loosely knit
organisation
 Tight cost controls  Stress on horizontal
 Detailed control reports coordination than vertical
control for product
 SOPs development
 Efficient procurement  Strong R&D and marketing
 Close supervision capability
 Creativity and innovation
 Routine tasks encouraged
 Limited or no employee  Rewards for risk taking
empowerment  Broad guidelines for
performance of duties
 Liberal employee
empowerment.
OD for Corporate Strategies

 Concentration- no change but added


emphasis on marketing for marketing
penetration and development/R&D for
product development
 Integration- Horizontal (greater emphasis on
OD and structure to accommodate adjacent
business units) and vertical (extend the
value chain forward and backward and
extend structure accordingly).
OD for Corporate Strategies
 Diversification – Implement through
multidivisional and SBU structures.
Depending on if related or unrelated,
Corproate headquarters may retain some
functions and decentralise others
 Related would create requirement for
retaining linkages among functions and
departments within organisations to maintain
synergies for economies of scope.
 Unrelated through multi division structure
OD Structures for
Internationalisation
 Four types create own requirements for for
OD and change
 Global strategy –global product structure
 International Strategy – international division
structure as part of hybrid structure
 Multidomestic strategy – Global geographic
structure
 Transnational strategy – Global matrix
Structure
Structures for Internationalisation Strategies

Global Strategy Transnational


Strategy
Global Product Global Matrix
Pressures Structure structure
For Cost
Reduction International Multi Domestic
Strategy Strategy
International Global Geographic
Division Structure Structure

Pressures for Global Responsiveness


OD Structures for Cooperatiive and
Network Structures
 Cooperative – Network structure within and
network structure outside for creating and
Project
maintaining Minterorganisational
group relationships
Region A Structure Function X
Structure Structure

Corp
Headquarters
Region B
Structure Function
Y structure
Project Group
N Structure
Structures for Digitalisation
Strategies
 Flexible organisation structure,
 Small decentralised organisation
 Improved coordination
 Processes may be redesigned
 Greater interorganisational relationships
Organisational Change
 Structural change – Modification in structural
relationships of reporting/ changes in depts. etc
 Accompanied by behavioural Change to absorb
impact of organisational changes
 All organisations make changes in their strategy,
structure and administrative procedures from time to
time.
 Change response now moved from increasing
rigid vertical structure to more flexible horizontal
structures by empowering employees, shared
information and adaptive culture
Changes in Organisation Structure
Design
 Restructuring/Reorganisation – changing
organisation structure in line with environmental
changes and strategies
 Reengineering (business process reengineering) –
fundamental rethinking and radical redesign of
business process to improve cost quality and speed
 Delayering or flatter structures- reducing the number
of layers in the organisational hierarchy
 Network structures
 Interorganisational relationships
 Virtual Organisations
Structure for Business level
Strategies
 Cost Leadership – Efficiency approach
 Differentiation – learning approach
 Focus - similar but structure with different
emphasis
Linking Strategies and Structure

 Integration and Diversification – Multi


divisional and SBU
 Internationalisational – Tailored for
requirement
 Cooperative Strategies –Network
 Digitalisation – based on impact on
organisation
Organisational System
 Set of interacting elements devised to accomplish a
process.
 Wheels that make an organisation move
 Transformation process requires a variety of
management and production systems and sub
systems.
 Organisation breaks objectives into tasks and tasks
are performed by groups delegated the
responsibility and discharge with coordination and
communication
 Performance needs to be appraised and desirable
behaviour promoted.
System Processes
 Defining major tasks to implement strategy
 Grouping of tasks on skill required/value chain basis
 Division of responsibility and delegation of authority
 Coordination and divided responsibility
 Design and administration of
1. Information system
2. Appraisal system
3. Motivation System
4. Reward system
5. Development system
6. Planning system
Structural Implementation

 Structural mechanisms are the hardware


 Systems are the software of implementation
 Need to look closely at
1. Information – to complete task and
coordination of activities with others
2. Control –
3. Reward system.
Implementing Information systems

 Policy Stance (strict or flexible)


 Hardware configuration( mainframe,
microcomputers)
 System (transaction processing system,DSS)
Computer Information Systems and Strategies

Generic Stability Growth


Strategies (efficiency (Integration,
Diversification,
Conc(mkt Internationalisation )
/prod devp)
Key Rigid Policy Flexible
Stance policy
(clearly stance(learning
orientation,creativ
defined
e response)
resp.)
Dimensions Mainframe Micro
computers computers
Transaction Decision
processing Support
system System
Control

 Process for ensuring that behaviours and


performance conform to an organisation’s
standards ,including rules procedures and
goals
 Ensures that implementation of strategy
takes place
Control Process

 Establish standards
 Measure actual performance
 Evaluate actual vs Standard
 Determine and apply corrective action
Tailoring Control to Strategy -factors

 Need for control - structure type


 Type of control – preventive corrective,
formal or informal, direct or indirect, social or
individual
 Integrating formal and informal control
Control Systems

Stability/Cost leadership  Diversification/ Intl


1. Formal 1. Informal
2. Traditional 2. Open control
3. Cost control focus 3. Long term controls
4. Specific operating 4. Interactive use of
goals and budget budgets
5. Rigid budget controls 5. Informal
communications
Borderless Structures –Present
Boundaries
 Horizontal Boundaries – depts / functions
 Vertical Boundaries – ops/mgt, corporate and
division
 Geographic Boundaries – physical locations,
countries /regions.
 External Interface boundaries – customers
and company, suppliers, partners, regulators,
competitors
Borderless Structures -

 Outsourcing
 Strategic alliances
 Product –team structures
 Reengineering
 Restructuring
 Through culture and shared values
Reward System -
 Designed to induce Strategically desired behaviour
 Performance evaluation and feed back
 Compensation – salary bonus, stock options
,promotions and perks
 Linked to control and motivation towards desirable
behaviour
 Wage inflation and talent shortage due to growth
 Parity for similar work or responsibility and to
differentiate between unequal grades of employees.
Reward System
 High and differentiated compensation –
Salary,ESOP, Bonus, promotions and perks
 Innovative titles
 Faster career progression
 Training
 Congenial work environment
 More satisfying jobs
 Overseas exposure
 Opportunities to work on cutting edge technologies
 Retention plans
 Referral schemes
Reward and Strategy
Implementation
 Stability strategies – improve efficiency and
have appraisal that use objective short term
criteria
 Expansion - Broad based appraisal and long
range performance appraisal
 Diversification /Internationalisation- Group
rewards and team performance criteria over
individual awards.Company wide incentives
for knowledge sharing

SYSTEM CHARACTERISTICS vs STRATEGIC
CONTINUM AND STRUCTURAL ALTERNATIVES
Nature of Economy Controlled Protected Globalised
Regulated Liberalised
Privatised
Environmental Certain,stable and Unstable volatile
characteristics predictable and bewildering
Stability/controlled
growth
Strategic Continum Stability/Controlled Focused
growth expansion/ selective
divestment

Structural Entrepreneurial Divisional/SBU/Alter


Alternatives Functions nate and new forms
Information Efficiency – Decisional-
System Orientation orientation

Control System Formal –direct Informal –indirect


/mechanistic /organic
Reward System Efficiency –based; Non
monetary.informal monetary,formal
,internal focused External -focused
Managing
 Information ,control and reward (appraisal,
motivation, development) and planning systems and
processes are managed and are the core of any
structure
 These play an important role in strategy
implementation .
 Systems and structure have to change to meet the
requirements of strategy.
 Structural changes also are accompanied by
behavioural changes that affect strategy
impelementation
Organisational Process

 A series of actions undertaken to achieve a


predetermined result
Classification by Contingency Theories

 Mechanistic
 Organic

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