You are on page 1of 191

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 company’s 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 précised & 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
classification of objectives
Economic & social:-
Survival
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
Business environment
It consists of both external & internal environments
Aggregate of all conditions , events, influences that
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 organization’s
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 External
Employee opinion Comparative appraisal
Company files & documents Company reports &
Financial statements magazine
MIS Through consultants
Annual reports
Functional area profile
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
micro
Suppliers:-
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 unstructured demand
Tech. up gradation
Suppliers
Economic
Regulatory
Socio-cultural
political
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 ExistingMarket
market

new market
penetration development

Existing product
Product diversification
development

New product
Applies to situation where the firm finds expansion
worth while.
It’s 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.
Through integration
Works in present set of CF & CG but the AS
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 firm’s 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
reasons
 Quick growth
 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
Entry modes
Export entry mode
Direct
Indirect

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 Focused


leadership differentiation
Narrow target

low cost products/services differentiated products


o 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
Focus business strategy
These strategies rely on either cost leadership or differentiation
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
Gap analysis
Strategies to be followed

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. Hofer’s 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 Question
Growth stage marks/problem children
High Modest cash flow Large negative cash flow
Expansion strategy Retrenchment/expansion
Scooter for Bajaj, activa Holiday resorts, light
for Honda commercial vehicle
Fast food, telecom,
electronics
Cash cows dogs
Market growth
Mature stage Late maturity & decline
Rate Stability Retrenchment
Large cash flow Modest cash flow
Colgate, decorative paint Cotton, jute textile shipping
for Asian paints

Low
high relative market share
low
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
yellow

Medium
red

Low
o strong avg weak
o business strength/competitive position
Advantages of GE9
Intermediate classification of medium & avg.
Large no. of variables

Disadvantages
Provides broad strategic prescription than specifying the
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
Hofer’s product/market evolution matrix
15 cell matrix
Considers the stages of development
And competitive position
Growth
Development
Shake out
Maturity
decline
Directional policy matrix
Company’s 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 suppliers-
Suppliers 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
Strategic plan
 A clear statement of strategic intent
 Results of environmental appraisal, major opportunities and threats,
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
Internal sources
Retained earning
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 SUB’s , 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. SBU’s 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
SBU’s 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