0 MEANING & DEFINITION Strategic Management can be defined as “the art and science of formulating, implem enting and evaluating cross-functional decisions that enable an organization to achieve its objective.” • Definition: “The on-going process of formulating, implementi ng and controlling broad plans guide the organization in achieving the strategic goods given its internal and external environment”. 2

STRATEGIC MANAGEMENT • Globalization: The survival for business • E-Commerce: A business tool • Earth envir onment has become a major strategic issue • Strategic management – A route to succes s 0 3

MODEL FOR STRATEGY FORMULATION Scenario’s Visions, Missions,Values External Analys is Functional Level Strategies Business Level Strategies Strategy Implementation Structure Match Structure & Controls Manage Strategic Change Controls Internal Analysis


0 STAGES OF SM • The strategic management process consists of three stages: • Strategy Formulation (strategy planning) • Strategy Implementations • Strategy Evaluation 6

we are concerned with broa d decisions about the total organization s scope and direction.THREE ASPECTS OF STRATEGIC FORMULATION 0 • Corporate Level Strategy: In this aspect of strategy. • It is useful to think of three components of corporate level strategy: (a) growth or directional strategy (b) portfolio strategy (c) parenting strategy 7   .

0 Global Corporate Strategies High • Treats world as a single global market • Standardizes global products/advertising strategies Globalization Strategy Transnational Strategy • Seeks to balance global efficiencies and local responsiveness • Combines standardi zation and customization for product/advertising strategies Multi-domestic Strat egy • Handles markets independently for each country • Adapts product/advertising to local tastes and needs Need for Global Integration Export Strategy •Domestically focused •Exports a few domestically produced products to selected coun tries Low 8 Low Need for National Responsiveness High .

0 Global Strategy • Globalization = product design and advertising strategies are standardized aroun d the world • Multi-domestic = adapt product and promotion for each country • Transn ational = combine both globalization and national responsiveness 9 .

10 . • Functional Strategy: These more localized and shorter-hori zon strategies deal with how each functional area and unit will carry out its fu nctional activities to be effective and maximize resource productivity.0 • Competitive Strategy (often called Business Level Strategy): This involves decid ing how the company will compete within each line of business (LOB) or strategic business unit (SBU).

Tools for Putting Strategy into Action Environment Organization Leadership Persuasion Motivation Structural Design Culture/values Human Resource s Organization Chart Teams Recruitment/selection Centralization Transfers/promot ions Decentralization. reward system Budget allocations Information systems Rules/procedures 11 0 Strategy Performance . Training Facilities. task design Layoffs/recalls Informati on and Control Systems Pay.

0 Portfolio Strategy • Mix of business units and product lines that fit together in a logical way to pr ovide synergy and competitive advantage BCG Matrix Exhibit 8.5 12 .

Business. Synergy. Functional 0 SWOT Identify Strategic Factors – Strengths. Structure. Weaknesses Implement Strategy via Changes in: Leadership culture. Threats Define new Mission Goals. Value Creation Identi fy Strategic Factors – Opportunities. Informatio n & control systems 13 .Strategic Management Process Scan External Environment – National. Stra tegies Scan Internal Environment – Core Competence. HR. Goals. Grand Stra tegy Formulate Strategy – Corporate. Global Evaluate Current Mission.

0 conclusion • In order to formulate Business functions strategy is to be formulated as well as implemented with the right approach • Management is basically managing the strate gies and making them function. • Strategic management of an organization leads to the benefits as well as growth of the organization. 14 .

. • Strategic planning provides the road map and ensures that the enterprise keeps moving in the right direction. in turn. resulting in a discontinuity with the past. • Ma rketing environment keeps changing fast. Practically everything outside the four walls of the firm is changing fast.Strategic Planning: • Strategic planning is concerned with the growth and future of a business enterpr ise. help the firm achieve its growth objectives. • The pro cess involves a thorough self-appraisal by the corporation. including an apprais al of the business it is engaged in and the environment in which it operates. • It consists of a stream of decisions and actions that lead to effective str ategies and which.

the business it will pursue and the m arkets it will serve.) Starting from the corporation’s mission and philosophy. . Strategic planning has the burden of equipping a corporation with the relevant competitive advantages in its fight for survival and growth. down to choice of business es and strategies. all decisions of h igh significance and consequence to a corporation are taken through the strategi c planning process. It is through strategic planning that the corporati on takes decisions concerning its mission. In other words. Strategic planning ensures that these resources are put to o ptimum and best possible use. all vital aspects in the governance of business are chartered through strategic planning. Strategic planning helps the firm acquire the best of a lead time for all its crucial decisions and actions. it is through strategic planning that it lays down its gro wth objectives and formulates its strategies. as it helps the firm anticipate trends.Strategic Planning (contd.

not day-to-day tasks. Corporate strategy – creating long-term. extent. Creation of core competencies and competitive advantages. sustainable organizatio nal capability. Growth – direction. the fit between the enterprise and its enviro nment. Its concern is strategy – no t routine operational activities – growth priorities. pace and timing of growth. choice of corporate strategy and choice of business level/competitive strategy are its concern. Environment.Basket of businesses the firm should have – changes/ad ditions/deletions to the firm’s product-market posture. is its concern. Integration of all ma nagement functions – not a particular function. It views the organization/business in its totality. This equips the or ganization with capabilities needed to face uncertainties. Business portfolio . .Objectives of Strategic Planning: Strategic Planning is concerned with the a) b) c) d) e) f) g) h) Future or longterm dynamics of the firm.

. 4.Components of Strategic Planning: 1. Clarifying the mission of the corporation Defining the busines s Surveying the environment Internal appraisal of the firm Setting the corporate objectives Formulating the corporate strategy. 3. 5. 6. 2.

1. It subtly indicates the business th e firm will pursue and the customer needs it will seek to satisfy. Clarifying the mission of the corporation • The mission is the expression of the corporate intent telling insiders and outsi ders what the corporation stands for. The mission i s shaped by the capabilities and vision of the corporation’s leaders. The mission directs the entire planning endeavou r of a corporation. It brings the corporate purpose or the long-term obje ctive of the firm into focus. • • • • • • . The mission is a reference point and the guiding spirit for the growth plan of a firm. The business philosophy of the founder and present leaders of the corporation gets expressed through the mission statement. The mission carries the grand design of th e firm and communicates what it wants to be.

products and custome r preference. • Defining one’s business has become an exacting exercise today because o f the fast changes taking place in the areas of technology. Defining the business • A business definition is a pithy.2. Eve n to understand what constitutes its relevant environment and to make the enviro nmental search effective. • Defining the business correctly is the pre-requisite for selecting the right opportunities and steering the firm on the correct path. understanding and defining one’s business becomes very difficult. when different produc t categories of yesteryears blend and merge. clear-cut statement of the business or busines ses the firm is engaged in or is planning to purse. . and when new and substitute product s keep invading the market altering existing business boundaries. • When product-market boundaries get extended. the firm must have a proper definition of the business it is in. It prescribes the boundaries of the firm’s business.

the firm studies the emerging trends in the industry. It also studies the market an d the customer closely. Surveying the environment • Today strategic planning occupies the central stage in management purely because a great deal of change is taking place in the environment. It examines alternative technologies that are emerging. because both opportunit ies and threats can emerge from many difference sources. • In environmental sur vey. the structure of the industry and the nature of the competition. the firm does not confine the study to the existing business but looks beyond it. Under the macro factors. • Th e significant point is that under environmental study. and the scope for invasion by substitutes. the legal environment and the government policies cover ing various areas. socio-cultural and economic scene. • As for the environmental factors that are more specific to th e business. the fir m studies the demographic.3. It also studies th e political environment. It analyses the macro environmental factors as well as the environmental facto rs that are specific to the business concerned. . their relative cost-effectiveness. basically a firm gathers all relevant information and analyses it in detail .

in order to tap these opportunities. – assessment of the firm’s c ompetitive advantage and core competence. – appraisal of the health of individual businesses. • Internal appraisal has three distinct parts: – assessment of the strengths and weaknesses of the firm in different functional a reas. Internal appraisal of the firm • While environmental survey helps to identify areas of opportunities and threats in the areas of interest. For this an internal appraisal is undertaken. . it is necessary t o find out whether the firm has the requisite capabilities.4.

and corporate image. the firm wants to achieve. p rofits.5. asset formation. In setting o bjectives. Usually. productivity. market share. . its achievable lev el over the planning period. The firm examines the present level of performance. Balancing the opportuni ties with the organization’s capabilities and ambitions. Setting the corporate objectives • The main task here is to decide the extent of business growth. the firm figures out its growth objective. sales. the firm integrates its growth ambition with the findings it has made with its environment survey and internal appraisal. like. firms set objectives in all key areas. and its aspirational level. • Object ives have to be stated clear-cut in a measurable time-bound manner.

are the other major parameters in deciding the bas ket of businesses and the productmarket posture. and the re sources available for growth. . And it is from this statement that eac h business of the corporation –existing and new ones – derives its growth targets. Formulating the corporate strategy Product-market scope. Findings from the environment survey/opportun ity-threat profile.6. Corporate strategy has to speci fy through which businesses and through what kind of product-market posture is t he growth objective going to be achieved. competitive advantage and synergy are the c onstituents of corporate strategy. d irection and priority. growth vector. the competitive advantages and synergies enjoyed.

the business unit leve l and the product level. in the matter of bringing to the fore what needs to b e done with the different businesses. without committing much further investment and which businesses it should phase out. the Division level.Formulating the corporate strategy (contd. Standard analytical models can be of help to the strategic planner. .) • Business appraisal and choice of strategy go hand in hand. which ones are to be given mere maintenance. The firm decides whic h businesses are to be cultivated through fresh investment and care. • Most large companies consist of four organ izational levels – the corporate level.

as well as which business to start or eliminate.) • Corporate headquarters is responsible for designing a corporate strategic plan t o guide the whole enterprise.Formulating the corporate strategy (contd. • Each product level (product line. bra nd) within a business unit develops a marketing plan for achieving its objective s in its product market. it makes decisions on the amount of resources to a llocate to each division. • Each Business Unit develops a strategic plan to carry th at business unit into a profitable future. • Each Division establishes a plan covering the allocation of funds to each business un it within the division. .


implem enting and evaluating cross-functional decisions that enable an organization to achieve its objective. 28 . implementi ng and controlling broad plans guide the organization in achieving the strategic goods given its internal and external environment”.0 MEANING & DEFINITION • Strategic Management can be defined as “the art and science of formulating.” • Definition: “The on-going process of formulating.

COMPARISON STRATEGIC Long range 3 or more yrs Top mgt Broad objectives Focus on planning & forecastin g TACTICAL Intermediate 2-3 yrs Middle Integration of departments On co-ordination OPERATIONAL Short range One yr Lower Day to day working On control .

.Benefits of Strategic Planning • • • • • Roadmap to firms Utilization of resources Respond to environmental changes Minim izes chances of mistakes Creates framework of internal communication.

Levels of Strategic Planning Corporate –Level Business-Level Functional -Level .

Elements of a Strategy Goals Scope Competitive Advantage Logic .


BUSINESS POLICY Business policy provides a basic framework defining fundamental issues of a comp any. Overall Guide Focus on strategic allocation of scarce resources   . mission and broad business objectives and a set of guideline g overning the company s conduct of business within its total perspective. its purpose.

Types of Policies MAJOR POLICIES: Lines of business Code of ethics SECONDARY POLICIES: f geographic area Identification of major customers Major products Selection o .

Discipline& discharge Welfare Adm Safety & health Sal .Types of Policies FUNCTIONAL POLICIES: Production Marketing Finance Personnel Research RULES: ry & wage Adm.

Types of Policies • PROCEDURES & STANDARD OP. PLANS: Handling & processing of orders reign locations Servicing customer complaints Shipments of fo .

requires top mgt involvement. Once formulated can be delegated to lower leve ls .Strategy Vs Policy STRATEGY Strategic decisions POLICY Guidelines Putting a policy into effect General course of action Deals with crucial decisio ns.


Vision formulation which leads to the statement of the Mission.STRATEGIC MANAGEMENT PROCESS (SMP) 1. To achieve objectives you dev elop Strategies 4. Evaluation of performance . The missio n is then converted into performance Objectives 3. 2. Strategy Implementation 5.

Diagram (Strategic mgt by VSP Rao and V Hari Krishna) .


It reflects a distinct competitive advantage l ike superior research. .. development etc.• CORE COMPETENCE: An org’s core competence is something it does exceptionally well in comparison to its competitors.

SYNERGY: Two or more sub systems working together to produce more than the total of what might they produce working alone. 1+1=3 .

• VALUE CREATION: Exploiting core competencies and achieving synergy help organiza tions create value for customers. Value is the sum total of benefits received an d cost paid by the customer. .

Mission.Objectives • External Analysis • Internal analysis DETAILED IN (Strat egic mgt by VSP Rao and V Hari Krishna) .Steps in SMP • Vision.

STRATEGY FORMULATION • CORPORATE LEVEL STRATEGIES: Growth/Expansion Strategy Stability Strategy trategy Retrenchment Strategy Combination S .

• • • • • • FUNCTIONAL LEVEL STRATEGY: R & D Strategy Operations Strategy Financial Strategy Marketing Strategy Human Resource Strategy .

STRATEGY FORMULATION & IMPLEMENTATION • Detail & Diagram : (Strategic mgt by VSP R ao and V Hari Krishna) .

Motivational Techniques To Implement Strategy • • • • • • • MBO Incentives Performance appraisal Salary Administration Recruiting & termi ion Security Power & Influence .

STRATEGIC INTENT: Vision.Mission.Objectives .

VISION MISSION OBJECTIVES GOALS PLANS .• Strategic intent is about clarity. focus and inspiration.

all-in clusive and forward-thinking. It describes aspirations for the future. without specifying the means that will be used to achieve those desired ends .VISION • Corporate vision is a short and inspiring statement of what the organization int ends to become and to achieve at some point in the future. often stated in compe titive terms. Vision refers to the category of intentions that are broad. It is the image that a business must have of its g oals before it sets out to reach them. .

As s uch. for example.” Your mission statement must “work” not only today but or the intended life of your strategic plan of which your mission statement is a part. . you develop a mission statement which you believe will “work” for the next five years. • Developing mission statement is the step which moves your strategic p lanning process from the present to the future. it captures the very essence of your enterprise .its relationship with its customer. It depicts the mission statement connects “today” with the “future.Mission • Mission Statement describes what business you’re in and who your customer is. If you’re developing a five year strategic plan.

Values • For any statement. it Values describe what your manageme What “makes ‘em tick. whether mission or vision. What it holds dear. to be embraced and acted upon. must reflect the values of your organization.” How would your quality and profit? That’s really . managers respond to a trade-off between product a question of value. • nt team really cares about.

5.Corporate Goals & Objectives • 1. Role of Objectives: Legitimacy Direction Coordination Benchmarks for success motivation . 4. 2. 3.

Characteristics of obj. • • • • Obj. form a HIRERACY Network Multiplicity of Obj Long and short-range obj .


& legal. and financial intermediaries . physical distribution fi rms.. Govt. 1) Micro Environment 2) Macro Environm ent • Micro Environment1) Supplier 2) Customers-industrial. socio cultu ral. may be defined as the set of external factors such as economic. Govt. demographic. retailers. marketing service agencies.• Env. wholesalers . which are uncontrollable in nature & affect the business decisions of a firm or company.middlemen. foreigners 3) Market intermediates.

/P. Product form competition./washing machine/ investment Generic competition-among alternatives which satisfied particular category of desire.• • CompetitorsDesire competitions – limited disposable income many unsatisfied desire s T.I. semi/ automotive Brand competition .O.T.Washing machine./Bank/Any othe r.V.Investment in U.videocon/godrej Public – media citizen action public local public .

Conditions. eco planning. control on price & wages. size of domestic Market & its dynamic effect Eco. trade & transpor t policy. Macro Environment-uncontrollable Economic Environment Eco. . growth of economy.• cycle. size of national income.e. import & export regulations .budgets. industrial policy. capitalist socialist communist mixed . industrial regulations. business laws. Poli cies. demand & supply of various goods Economic Sys tem—of a country free enterprise i.

2. Environment.decide particularly course of act ion • Executive -implementation • Judiciary -to see above both working public intere st. . Political & Govt. • Legislature.

Natural Environment. ethical issues. religion & education.geographical & ecological factors. marriage. topographical factors. locational a spects. social responsibilities of busi ness 4. role of family. weather & climatic conditions. port facilities .3. Socio Cultural Environment.natural resource s endowments.people attitude to work & health.

6. caste religion e tc. Demographic Environment. Technological Environmentmarketing. . innovation. R & D 7.5. family size.Size growth age composition of population. educational level. International En vironment-liberation force of view global perspectives . economic stratification of population.

• Environmental Scanning: helps every mgt in attaining maximum profits and growth and the same time helps in minimization of future threats. bring fresh views . Environment analysis has 3 basic objectives • Under taking of current & potential changes • Should provid e inputs for strategic decision making • Rich source of idea & understanding of th e context.

Assessment involves identifying & evaluate how & why current & p rojected env.outputs of above 3 steps are assessed to determine implementation. Detect env. Identification of trends 3. Changes affect strategic Mgt. trends 2 . Of the organization . Three outcomes emerges in monitoring 1. Identification of areas of further scans Forecasti ng -scanning & monitoring provide a picture of what is happening strategic decis ion Making requires future orientation. Trends sequences of events or stream of activities. Forecasting is developing future project ions of changes Assessment . Factors & their i nteraction in order 1. Chang es underway Monitoring -. A specific description of env. Study of Indicators.tracking the env. to identify early signals of change.Environmental AnalysisScanning – general supervision of all env. 2. assemble data to discern emerging patterns.

Casual Methods. opportunities.regression model. leading indicators. life cycle analysis. assessing impact factor combining importance & impact factor. It is a structured way. historical analogy. writing of scenario. econometric model . . market research. Assessing I mportance of environmental factors. anticipation surveys. exponential smoothing boo k Jenkins. diffusion index. trend projection. weakness. establishing past behavior of indicators. Qualitative Method-Delphi method. input output model. & threats. Preparation of ETOP-environmental threat & opportunity pr ofile is a summary of environmental factors. selection of critical indicators.preparatio n of background. panel c onsensus. strengths.Techniques of Environment Analysis • • • • • • • SWOT Analysis. visionary forecast. verification of potential future events. Forecasting met s Time services analysis & projection-moving averages. forecasting the indicators . Scenario technique.

Environmental Scanning & Monitoring Environmental scanning is a concept from business management by which businesses gather information from the environment. . to better achieve a sustainable competitive advantage. To sustain competitive a dvantage the company must also respond to the information gathered from environm ental scanning by altering its strategies and plans when the need arises.

Techniques SWOT PEST Techniques QUEST Industry Analysis Competitor Analysis .Environmental Scanning & Monitoring.

SWOT (Strength-Weakness-Opportunity-Threat) Identification of threats and Opportunities in the environment (External) and st rengths and Weaknesses of the firm (Internal) is the cornerstone of business pol icy formulation. it is these factors which determine the course of action to ens ure the survival and growth of the firm. .

What is “PEST”? .

and Technolo gical factors of the external macroenvironment.T. is an acronym for the Political.   . Economic. changes in the external environment also create new opportunities. • P.PEST Analysis – The Meaning • A PEST analysis is an analysis of the external macroenvironment that affects all firms. Social. • However .E.S. • Such external factors usually ar e beyond the firm s control and sometimes present themselves as threats.

Study of the structure and characteristics of an Industry C. Profit Potential of Industry (Porter Model) . Industry Life Cycle Analysis B.Industry Analysis: Three sections Industry Analysis: Three sections A.

A. Industry Life Cycle Analysis Four Stages: • Pioneering Stage • Rapid Growth Stage • Maturity and Stabilization Stag e • Decline Stage . Industry Life Cycle Analysis A.

Nature and Prospectus of the demand 3. Cost. Study of the structure and characteristics of a n Industry characteristics of an Industry 1.B. Structure of the Industry and nature of Competition 2. Technology and Research . Efficiency and Profitability 4. Study of the structure and B.

3. 4. 5. Profit Potential of Industry (Porter Model) Model) Michael Porter has argued that the profit potential of an industry depends on th e combined strength of the: Threat of new entrant Rivalry among existing firms P ressure from substitute products Bargaining power of buyers Bargaining power of sellers 1. Profit Potential of Industry (Porter 3. 2. . 3.


• • • • • • SWOT analysis Value chain Analysis Financial Analysis Key factor rating Function al area profile Strategic advantage profile .

firms can develop valuecreating strategies superior to their competitors.Internal Analysis Resource-Based View Firms have heterogeneous resources and capabilities. Valuable Costly to imitate Rare Non-substitutable . By exploiting core competencies. Four criteria must be met for a sustained competitive advantage.

Internal Analysis Resources • Tangible • Intangible • Brand Equity Components of the ResourceBased View Capabilities Core Competencies Competitive Advantage Above-Average Returns .

Internal Analysis Resources and Capabilities: Resources • • • Represent what the firm has to work with. Types: • Tangible • Intangible • Brand Equity . Resources must be combined to establis h a capability.

Brand name .Human resources (experience.Financial r esources (borrowing capacity) .Resources for innovation (technical employees. . locations) . touched or quantified.Org anizational structure (reporting structures) . facilities) .Reputation Brand Equity .Physical Resources (facilities.Technological (patents) Intangibl e Resources .maint aining brand equity (Mercedes example – value/performance and Japanese automakers) .Internal Analysis Tangible Resources – Assets that can be seen. training) .

It portrays activities required to crate value for customer for a given product. .VALUE CHAIN ANALYSIS • A value chain identifies and isolates the various economic value adding activiti es that occur in every firm.

  . Porter calls this se ries of value chains the value system.The Value Chain System • A firm s value chain is part of a larger system that includes the value chains o f upstream suppliers and downstream channels and customers.

Porter s Generic Value Chain Porter s Generic Value Chain M Inbound Logistics Operations Outbound Logistics Marketing & Sales Service A R G I > > > > > N Firm Infrastructure HR Management Technology Development Procurement     .

The primary value chain activities are: • Inbound Logistics: the receiving and warehousing of raw materials. • . • Operations: the processes of tr ansforming inputs into finished products and services. • Outbound Logistics: the w arehousing and distribution of finished goods. and their dis tribution to manufacturing as they are required.

• Service: the support of customers after the products and services are sold to them.The primary value chain activities are: • Marketing & Sales: the identification of customer needs and the generation of sa les. .

These primary activities are supported by: • The infrastructure of the firm: organizational structure. control systems. compa ny culture. etc. hiring. • Human resource management: employee recruiting. . development. trainin g. and compensation.

These primary activities are supported by: • Technology development: technologies to support value-creating activities. and equipment. supplies. . • Procu rement: purchasing inputs such as materials.

Cost Advantage and the Value Chain • Porter identified 10 cost drivers related to value chain activities: • Economies o f scale • Learning • Capacity utilization • Linkages among activities • Interrelationshi ps among business units .

10 cost drivers related to value chain activities: • • • • • Degree of vertical integration Timing of market entry Firm s policy of cost or d ifferentiation Geographic location Institutional factors (regulation. etc.)   . union acti vity. taxes.

Differentiation and the Value Chain • • • • • Policies and decisions Linkages among activities Timing Location Interrelationsh ips .

Differentiation and the Value Chain • Learning • Integration • Scale (e.g. better service as a result of large scale) • Inst itutional factors .

Technology and the Value Chain • • • • • • • Inbound Logistics Technologies Transportation Material handling Material stor Communications Testing Information systems .

Operations Technologies • • • • • Process Materials Machine tools Material handling Packaging .

Operations Technologies • • • • Maintenance Testing Building design & operation Information systems .

Outbound Logistics Technologies • • • • • Transportation Material handling Packaging Communications Information systems .

Marketing & Sales Technologies • • • • Media Audio/video Communications Information systems .

Service Technologies • Testing • Communications • Information systems .

Rather. one value chai n activity often affects the cost or performance of other ones. . Linkages may exi st between primary activities and also between primary and support activities.Linkages Between Value Chain Activities • Value chain activities are not isolated from one another.

Suppose that inadvertently the new product design results increased service costs.Linkages Between Value Chain Activities • Consider the case in which the design of a product is changed in order to reduce manufacturing costs. the cost reduction could be less than anticipated and e ven worse. . there could be a net cost increase.

• Whether th e activity is one of the firm s core competencies from which stems a cost advant age or product differentiation.Outsourcing Value Chain Activities • Whether the activity can be performed cheaper or better by suppliers.   .

it may be a dvantageous to outsource the activity in order to maintain flexibility and avoid the risk of investing in specialized assets. .Outsourcing Value Chain Activities • The risk of performing the activity inhouse. If the activity relies on fast chan ging technology or the product is sold in a rapidly-changing market.

etc. .Outsourcing Value Chain Activities • Whether the outsourcing of an activity can result in business process improvemen ts such as reduced lead time. reduced inventory. higher flexibility.

sector an d all firms . industry.Financial Analysis • Assessment of the firm’s past. present and future financial conditions • Done to fin d firm’s financial strengths and weaknesses • Primary Tools: – Financial Statements – Comparison of financial ratios to past.

Types of Ratios • Financial Ratios: – Liquidity Ratios • Assess ability to cover current obligations – Leverage Ratios • Assess ability to cover long term debt obligations • Operational Ratios: – Activity (Turnover) Ratios • Assess amount of activity relative to amount of resources used – Profitability Ratios • Valuation Ratios: • Assess profits relative to amount of resources used • Assess market price relative to assets or earnings .

Quick Ratio= CA-Inventory/CL .LIQUIDITY RATIO: Current Ratio= Current Assets/Current Liabilities.

LEVERAGE RATIO • Debt-Equity Ratio: Total long term debt/Shareholder’s funds • • • Interest coverage ratio: EBIT/shareholder’s funds Proprietary ratio: Shareho lder’s funds/total assets Debt to assets ratio: Total Debts/total assets .

C. • Fixed Assets TO ratio = Sales (Net)/Net fixed Assets .Activity Ratio • Asset Turnover = Sales turnover / assets employed • Stock turnover = Cost of goods sold / stock expressed as times per year • Working Capital ratio = Sales (net)/W.

ratio=GP/Net Sales • N.P.Profitability ratio • G.P. Cost/Net sal es .ratio=NP/Net sales • Operating ratio = Op.

Operating Profitability Ratios EBIT Sales EBIT × = Sales Total Assets Total Assets EBIT Interest Expense Net Befo re Tax − = Total Assets Total Assets Total Assets .

Answers are being closely examined with respect to key factors. . The impact of each key factor is examined. Info regarding key factors is colle cted.KEY FACTOR RATING • The key factors that affect org functioning.

• First. technique requires preparation of matrix of functional area with common f eatures.FUNCTIONAL AREA PROFILE & RESOURCE DEVELOPMENT MATRIX • To make a comparative analysis of a firm’s own resource deployment position and fo cus of efforts with those of competitors. • Secondly matrix is prepared showing deployment and focus of efforts ove r a period of time. .

.STRATEGIC ADVANTAGE PROFILE • SAP tries to find out the org strengths and weaknesses with relation to some CSF .

environment & temporal factors ¡ .• • • • • Critical Success Factor Analysis Developed – John Rockart Satisfactory performance – required – for organization – achieve goals Identify – tasks & requirements – for succe ss CSFs – means to achieve goals Sources of CSF industry.

• Characteristics of CSF Analysis – Internal – External – Monitor – Develop • Process of CSF Analysis – Identify – CSF – Critical information – internal & external – Critical assumption set – Critical de cisions .

• Benefits of CSF Analysis – Results –needs – enterprise – clearly – Measure success – prioritize goals – Needs of end ers & enterprise are met .

Long term Mission & Goals • Mission – short /long term activity – to achieve vision • Mission statement – statement that communicates – total essence – organization • Gives – what an organization is today and what it should be • Focus and guide internal decision making


• Characteristics of mission statement – Feasible, – Precise – Clear – Motivating – Should give the means to achieve objectives

• Characteristics of successful strategic planning – Will lead to action – Builds a shared vision which is value based – Will be a partic ipative process – Accepts accountability – Externally focused to organization’s enviro nment – Will be relying on quality data – Will require openness to questioning

Contingency Planning • Contingency planning – approach – identify – what if – something wrong happens • Planning strategies – cope up – contingency events • Objective – make – to think – possible continge cies and its responses

• Process of contingency planning – Identifying Identify events when plan is to be invoked and who will be respons ible for implementing it – Assessing Assess the value of the resources and corre late them with their functions to identify the critical elements – Prevention Pr eventative measures for critical resources – Developing – build the plan – simple & st raight forward – step by step workflows an checklists – Communicate and rehearse




• Benefits of contingency planning – Strengthens the organization – cope up with unexpected developments – Reduces stress – reduce delay & indecisiveness – Respond sensibly & wisely – Focus on issues and ide ntify constraints – Clarifies roles and responsibilities • Barriers – Maintaining comm itment & participation – Keeping the process on going – Updating and reviewing the p rocess


BALANCED SCORECARD FRAMEWORK Financial perspective Vision & Strategy Internal Business process Customer’s Perspective Learning & growth .

how will we look to our shareho lders Customer Perspective “To achieve my vision. how must we look to our customer s? Internal Perspective “To satisfy my customer. at which processes must I excel?” O rganization Learning “To achieve my vision. how must my organization learn and imp rove?’’ A Strat Set of o f egy Is A Hypoth eses About C ause & Effect .Translate Strategy to Operational terms The Strategy Financial Perspective “If we succeed.

60% of organization s don’t link strategy & budgets 85% of management Strategic teams spend less Learning Loop than one hour per mon th on strategy BALANCED issues SCORECAR D STRATEGY .

A good Balanced scorecard describes the Organizational Strategy Strategy Balanced Scorecard .

somewhat judgmental performance drivers •Lagging and leading indic ators •Short term and long term objectives •Stakeholders ¡ ¡ . easily quantified outcome measures and subjective.Measures are Balanced between • Outcome measures ( results from past efforts)and t he measures that drive performance •Objective.

•BSC ‘s are more than just a somewhat adhoc collection of financial & non financial performance measures •BSC is a Top –down process driven by the mission and strategy ¡ .

What does BSC do? •Clarify and translate vision and strategy •Communicate and link s trategic objectives and measures •Plan .set targets. and align strategic initiativ es •Enhance strategic feedback and learning .

What does BSC do? •Clarify and gain consensus about strategy •Communicate strategy t hroughout the organization •Align departmental and personal goals to strategy •Link strategic objectives to long term targets and annual budgets •Perform periodic and systematic strategic reviews •Obtain feedback to learn about and improve strategy .

•Re turn on capital employed •EVA •Growth •Cash flow e tiv we c pe will rs s er ow lde l P . h ho a ci eed are (ROCE) an cc sh n Fi s u our we k t o “If loo ¡ ¡ ¡ .Financial perspective Indicate whether company’s strategy implementation and execu tion are contributing to bottom line improvement •Profitability •Operating income.

Financial perspective Increase EVA to +2% e tiv we c pe will rs s er ow lde P al d. h reho ci ee a n h na ucc ur s Fi s e to o w If ok “ lo Revenue Growth Strategy Productivity Strategy New Products High end products Cost Productivity .

ho e markets sp ion ur er vis o P er my k to ? m to eve loo ers us hi we m C c t a us usto o c “T m ¡ ¡ .Customer Perspective Customer & Market segment in which the unit is competing e •P erformance in the targeted •Customer satisfaction •Customer retention •New customer ac quisition •Customer profitability •Specific measures of value propositions short le ad time or on time delivery •New approaches to satisfy emerging needs w iv ct .

Customer Perspective Differentiators On time delivery Relation ship Technical support Win win Relatio ns with Channel partners Survey Assistance •Basic Requirement •Clean •Quality •Variability within specified limits ¡ .

Internal –Business process perspective Critical internal process in which organiza tion must excel Deliver value proposition Satisfy shareholders expectations e . at iv ct er I e m t sp sto us er cu m P s al my se n er sfy ces l?” t In ati p ro xce s e o ich “T wh Internal – Process Identify entirely new process at which organization must excel to meet customer & financial objectives ¡ .

at iv ct er I e m t sp sto us er cu m P s al my se n er sfy ces l?” t In ati p ro xce s e o ich “T wh Achieve Operational excellence ¡ .Internal –Business process perspective Customer Value Proposition lowest cost producer e .

Learning and growth perspective Infrastructure that organization must build to c reate long term growth and improvement •People based measures •ESI •Competencies •Skill Mix •Systems (Technology) “T o or ac Org ga hie a ni ve niz za a tio my tio n n le visi Le ar on ar n an . h o ning d w im m pr us ov t m e? y ’’ ¡ .

Learning and growth perspective Motivated and prepared workforce Climate for action •ESI Competencies IT Technology .

Cause and Effect Relationship ROCE Customer Loyalty On line delivery Process Quality Employee Competency Proce ss Cycle Time ¡ .

Question : Is it vital for success of business unit’s strategy? ¡ Four perspectives: Are they sufficient •Community perspective ity •Suppliers perspective Social responsibil .

The Balanced Scorecard Effectively Communicates How Well the MSO Is Achieving Th eir Massachusetts Special Olympics Mission Statement Mission Objectives Positive Image Community Involvement Athlete Outreach / Program Expan sion Measures # of new programs / # athletes Volunteer retention / recruitment ew donors Donor feedback # athletes in outreach program Objectives Measures Training & Competition # athlete able to find a team Control led Cost Cities wit registered athletes Quality Programs Fee incre Community For Family feedback Athletes # of acti outside of competit Financial Donor N Objectives Measures Organization and Administration % Plans distributed team Pub lic Relations meetings # area management team $ raised Training # training class es offered outreach # first time athletes Objectives Knowledge of MSO and Manage ment time Database Management Recognition Measures Volunteers trained in MSO spo rts Registration forms in one Program guide distribution Volunteers in database Advanced coaches’ training/ coaches’/ meetings Internal Operations Internal Operations Customer / Athlete .

families and primary care physicians with the best. most compassionate care possible and to excel at communications Customer Patient • % Satisfied • % would Recommend • % Parents Could Articulate Care Plan • Disch arge Timeliness Primary Care Physician • % Satisfied with Communication • % Parents Could Identify DCH Physician • Cost per Case Financial • Operating Margin • Revenue from Neonatal Care Internal Processes Wait Time • Admissions • Discharge Quality • Infection Rates • Blood Culture Contaminate Rate • Use of Clinical Pathways (Top 10) Productivity • Length of Stay • Readmission Rate • Daily Staffing vs.Balanced Scorecard Example Vision To provide patients. Occupancy ¡ ¡ ¡ ¡ Learning & Growth • Incentive Plan Use Awareness Implementation • Strategic Database Availability .

it’s a “change” process.A successful Balanced Scorecard program starts with a recognition that it is not a metrics” project. .

Competition) Volume Growth Rate vs. Industry Premium Rat io Non Gasoline Revenue and Margin Financial Customer Delight the Customer C1 Continually Delight the Targeted Consumer C2 Build Win Win Relations with Dea ler Win Win Dealer Relationship Share of Segment in Selected Key Markets Mystery Shopper Rating Dealer Gross Pro fit Growth Dealer Survey ¡ ¡ ¡ . Competition) Full Cost pe r Gallon Delivered (Vs.A Good Balanced Scorecard Describes the Organization Strategy. Financially Strong Financially Strong Strategic Objectives F1 Return on Capital Employed F2 Existing Asset Utilization F3 Profitablity F4 Industry Cost Leader F 5 Profitable Growth Strategic Measures ROCE Cash Flow Net Margin Rank (vs.

Build the Franchise A Good Balanced Scorecard Describes the Organization Strategy. vs. Competition Perfe ct Orders Number of Environmental Incidents Days Away from Work Rate Employee Su rvey Personal BSC (%) Strategic Competency Availability Strategic Information Av ailability Internal ¡ ¡ ¡ ¡ . I1 Innovative products and services I2 Best in class Franchise Teams I3 Refinery Performance I4 Inventory Management I5 Industry Cost Leader I6 On Spec On Time I7 Improve EHS Increase Customer Value Operational Excellence Good Neighbor Learning & growth Motivated and Prepared Workforce L1 Climate for Action L2 Core Competencies and Skills L3 Access to Strategic Inf ormation New Product ROI New Product Acceptance Rate Dealer Quality Score Yield Gap Unpla nned Downtime Inventory Levels Run out Rate Activity Cost.

MAKE STRATEGY EVERYONE’S JOB CORP Top Down “Bridging Process” To Share the Strategy & Align the Workforce SBU • EDU CATION • PERSONAL GOAL ALIGNMENT • BALANCED PAYCHECKS Bottom Up Process to Internali ze & Execute the Strategy The Strategy Focused Workforce ¡ ¡ .

Build STRATEGY FOCUSED ORGANIZATIONS 1 Mobilize Change through Executive Leadership • Mobilization • Governance Processes • Strategic Management 5 2 Translate the Strategy to Operational Terms • Strategy Mape • Balanced Scorecards Make Strategy a Continual process STRATEG Y • Link Budgets & Strategy • Strategic Learning • Analysis & Information System 4 3 Align the Organization to the Strategy • Corporate Role • Business Unit Synergic • Support Unit Synergic Make Strategy Everyone’s Job • Strategic Awareness • Personal Scorecard • Balanced Paychecks ¡ .

Describing Strategy : Strategy Is a Step in a Continuum MISSION Why we exist VALUES What we believe In VISION What we want to be STRATEG Y Our game plan BALANCED SOCRECARD Implementation & Focus STRATEGIC INITIATIVES What we need to do PERSONAL OBJECTIVES What I need to do STRATEGIC OUTCOMES Satisfied SHAREHOLDERS Delighted CUSTOMERS Satisfied PROCESSES Motivated & Prepared WORKFORCE .

What Is A Good Balanced Scorecard? #1. Executive Involvement Strategic decision makers must validate the strategy a nd related measures Cause and Effect Relationships Every objective selected shou ld be part of a chain of cause and effect that represents the strategy Performan ce Drivers A balance of outcome measures and leading measures facilitates antici patory management Linked to Budget/Financials Every measure selected can ultimat ely be supported/enabled by Budgetary Funds Change Initiatives Aligned Strategic Initiatives that change the behavior of the organization #2 #3 #4 #5 ¡ ¡ .


Types of CLS • • • • Growth/expansion Stability Retrenchment combination .

Growth/Expansion A) INTENSIFICATION Market penetration Market development Product development Innovation B) DIVERSIFICATION Concentric Conglomerate Forward Backward .

etc . Example: Philips into Cellular phones. new businesses can be related to existing businesses through prod ucts. markets or technology. With concentric di versification.Concentric Diversification(RELATED) • When an org diversifies into a related but distinct business.

CONGLOMERATE(UNRELATED) • An org diversifies into an area that are unrelated to its business. . The decision is taken due to technological change.

they may decide to use a stability strategy. . and see no need to make the psychological a nd financial investment that would be required to undertake a growth strategy.STABILITY STRATEGY • When firms are satisfied with their current rate of growth and profits. Such strategies are typically found in industries havin g relatively stable environments. This strategy is essentially a continuation of existing strategies. The firm is often making a comfortable income operating a business that they know.

which also generally necessitates a reduction in number of employees.   . and in the most extreme cases . liquidation of the firm.RETRENCHMENT STRATEGIES • Retrenchment strategies involve a reduction in the scope of a corporation s acti vities. sa le of assets associated with discontinued product or service lines. possible res tructuring of debt through bankruptcy proceedings.

Typically.DIVESTMENT STRATEGY • A divestment decision occurs when a firm elects to sell one or more of the busin esses in its corporate portfolio. . a poorly performing unit is sold to another company and the money is reinvested in another business within the port folio that has greater potential.


In contrast to corporate level strategy. Business units represen t individual entities oriented toward a particular industry. however.• Business level strategies are similar to corporate strategies in that they focus on overall performance. or market ¡ ¡ ¡ . product. they focus on only one rather than a portfolio of businesses.

There are also str ategies regarding relationships between products.• A common focus of business level strategies are sometimes on a particular produc t or service line and business level strategies commonly involve decisions regar ding individual products within this product or service line. ¡ ¡ .

: Cost leaders hip Strategy Differentiation Strategy Focus Strategy   ¡ .ANALYSIS OF BUSINESS LEVEL STRATEGIES • PORTER S GENERIC STRATEGIES.

but consider how this fine grained de finition places emphases on controlling costs while giving firms alternatives wh en it comes to pricing (thus ultimately influencing total revenues). This may at firs t appear to be only a semantic difference. Note h ere that the focus is on cost leadership.COST LEADERSHIP • Cost leadership strategies require firms to develop policies aimed at becoming a nd remaining the lowest cost producer and/or distributor in the industry. ¡ ¡ . not price leadership.

non differentiated product. customers must perceive the product as having desirable features not commonly found in competing products. The customers also must be relatively price insensitive. Adding product features means that the pr oduction or distribution costs of a differentiated product will be somewhat high er than the price of a generic.DIFFERENTIATION STRATEGY • Differentiation strategies require a firm to create something about its product that is perceived as unique within its market. Customers must be wi lling to pay more than the marginal cost of adding the differentiating feature i f a differentiation strategy is to succeed. ¡ ¡ . or just in the mind of the customer. Whether the features are real.

channel of distribution. or market niche. the third generic strategy.FOCUS STRATEGY • Focus. Firms using a focus strategy simply apply a cos t leader or differentiation strategy to a segment of the larger market. geographical area. involves concentrating on a particular custom er. stage in the produ ction process. product line. The underlying premise of the focus strategy is that the firm is better able to serve its limited segment than competitors servi ng a broader range of customers. • ¡ . Firms ma y thus be able to differentiate themselves based on meeting customer needs throu gh differentiation or through low costs and competitive pricing for specialty go ods.

such as high grade ores or inexpensive power. Th ese attributes can include access to natural resources. New technologies such as robotics and information technology either to be included as a part of the product. or to assist making it. The term competiti ve advantage is the ability gained through attributes and resources to perform a t a higher level than others in the same industry or market . or access to highly trained and skilled personnel human re sources.COMPETITIVE ADVANTAGE • Competitive advantage occurs when a organization acquires or develops an attribu te or combination of attributes that allows it to outperform its competitors.

How to build/acquire CA? • • • • • • • Innovation Integration Alliances/mergers/acquisitions R&D Entry Barriers Benc rking Value chain approach .

How to build/acquire CORE COMPETENCE? • Focus on two or more skills • Low cost strategies • Benefits of cost leadership .


STRATEGY CHOICE • How effective has the existing strategy been? • How effective will that strategy b e in the future? • What will be the effectiveness of selected strategies? .

the strategy which will best meet the enterpris e’s objectives”.STRATEGY CHOICE • Strategists collect and evaluate information to assess strengths and weaknesses of the internal environment and opportunities and threats of the external enviro nment. “the decision to select among the grand strategies considered.   . Such an assessment presents a list of possible strategic alternatives. • It determines the characteristics and forms of an organization s strategic direction.Fro m among those alternatives. choices are made.

¡ ¡ .GAP Analysis • Gap analysis is a tool that helps a company to compare its actual performance wi th its potential performance. • It simply answer two questions where are we now? and where do we want to be? . • The difference between the two is the GAP this is how you are going to get there.

Tools of Determining Strategic Choice • • • • • • BCG Portfolio GE Multifactor Portfolio Ma rix Hofer’s Product Market Evolution Matrix Shell Direction Policy Industry’s level policy Porter’s five forces model ¡ .

Portfolio Analysis And BCG Matrix .

. which are required for future growth. • It analyses the impact of investing resources in different SBUs on the corporate’s future earnings and cash flow.The Growth Share Matrix • It evaluates the strength of a firm from the portfolio of businesses or products the firm has in different stages of PLC.

SBUs are evaluated from two ways 1. Industry attractiveness (market growth) And 2. Competitive strength (relative market share) .

.The Growth Share Matrix A Matrix is created considering the market growth and relative market share of a ll the businesses in their respective industries and businesses are placed in th at matrix for analysis and evaluation.

.The Growth Share Matrix • The market growth rate on the vertical axis is the proxy measure for the industr y Attractiveness. • The relative market share is proxy for its competitive strengt h in the industry.

BCG Growth Share Matrix In BCG approach. “cash cow”. the company classifies all its SBUs into 4 types as “star”. “question mark” and “dog” according to their market growth and relative market share. ¡ .

66.” Adapted by permission from Th e Boston Consulting Group. Inc. “The Product Portfolio. No. 1970. ..The BCG Matrix High Market growth rate Stars Question marks Cash cows Dogs Low High Relative market share Low Source: Perspectives.

BCG Matrix Stars Problem Child Market growth rate ? $ Cash Cows Dogs Relative market share .

BCG Matrix Stars Problem Child Revenue Expenses _ Net + ___ ___ Market growth rate Revenue +++ + Expenses _ _ _ Net + Revenue + + + ++ Expenses _ Net +++ + Cash Cows Revenue + + Expenses _ _ _ _ Net ___ Dogs Relative market share .


BCG Market Share/Market Growth Matrix .

BCG Matrix • Dogs are businesses that have a very small share of a market that is not expecte d to grow. . • Question marks are businesses that have only a small share of a quickly growing market. • Stars are businesses that have the l argest share of a rapidly growing market. • Cash cows are businesses that have a large share of a market that is not expected to grow substantially.

¡ ¡ . high share businesses or products. and they will turn into cash cows. their growth will slow. they may not be producing a posit ive cash flow. They often need heavy invest ment to finance their rapid growth. The business strategy will generally be for growth fueled by exte rnally acquired capital. Therefore. Eventually.Stars are high growth.

high share businesses or products.Cash cows are low growth. They are either milked for investment in stars or question marks or harvested if there is little optimi sm for a stable future. They produce a lot of cash to be used for other business units of the company. These established and success ful SBUs need less investment to keep their market share. ¡ ¡ .

they can not ge nerate enough cash themselves.Question marks sometimes called problem children. Management must decide which question mark it sho uld build into stars and which should phase out. They need a lot of cash to keep and increase their share. are lowshare business units in high growth ma rkets. ¡ .

They often have poor pro fitability.Dogs are low growth. Therefore. low share businesses and products. but occasionally to hold for possible strategic repositioning as a question mark or cash cow. the business strategy for a dog is most often to divest. ¡ ¡ .

Increase the short term return without impacting long run prospects. DIVEST Is it appropriate to dump SBU’s with low growth potenti al? Four Portfolio Strategies ¡ ¡ ¡ .Portfolio Strategies BUILD Does the SBU have the potential to be a star? HOLD Can you maintain and pr eserve market share? HARVEST .

. Market Growth rate is an inadequate descriptor of overall industry a ttractiveness. The analysis is highly sensitive to how growth and share are measured. 3. The model implicitly assumes that business units are independent or on e another except for the flow of cash. 4. It provide little guidance on how best to implement the investment st rategies. 2. Relative market share is inadequate as a descriptor of overall co mpetitive strength. 5.Limitations of the BCG Matrix 1.

How to Identify SBUs? • It is the basic competitive unit of a company. • It can be me asured as an independent entity in terms of profit and loss. • It has specific and identifiable competitors. . • It has a specific and identifiabl e group of customers. • Therefore. it may r equire a separate marketing strategy.

four c     GE / McKinsey Matrix • In consulting engagements with General y developed a nine cell portfolio matrix folio of strategic business units (SBU).Electric in the 1970 s. • ¡ . e GE/McKinsey Matrix and is shown below: ells in the BCG matrix. McKinsey & Compan as a tool for screening GE s large port This business screen became known as th • The GE matrix has nine cells vs.

The GE matrix however. attempts to improve upon the BCG matrix in the following two ways: The GE matrix generalizes the axes as "Industry ∀• Attractiv eness and Business Unit Strength whereas the BCG matrix uses the market growt h rate as a proxy for industry attractiveness and relative market share as a pro xy for the strength of the business unit.• The GE / McKinsey matrix is similar to the BCG growth share matrix in that it ma ps strategic business units on a grid of the industry and the SBU s position in the industry.   ¡ ¢ ¢ ¢ .

which is determined by factors such as the following: Market growth rate Market size D emand variability Industry profitability Industry rivalry Global opportunities M acroenvironmental factors (PEST) .Industry Attractiveness • The vertical axis of the GE / McKinsey matrix is industry attractiveness.

The in dustry attractiveness then is calculated as follows: .Each factor is assigned a weighting that is appropriate for the industry.

Business The Unit Strength horizontal axis of the GE / McKinsey matrix is the strength of the business unit . as done for industry attractiveness.   . Some factors that can be used to determine business unit strength include: Market Growth Brand share in market share channel access equity capacity Distribution Production The Profit margins relative to competitors business unit strength index can be calculated by multiplying the estimated valu e of each factor by the factor s weighting.

. determining the value of each parameter in the criteria. and mu ltiplying that value by a weighting factor. The result is a quantitative measure of industry attractiveness and the business unit s relative performance in that industry Industry attractiveness = factor value1 x factor weighting1 + factor value x factor weighting +…   . Industry attractiveness and business unit strength are calculated by first identifying cr iteria for each.GE MATRIX contd.

share is shown by using the circl e as a pie chart. . expected future position of the circle is portrayed by means o f an arrow.Plotting the Information Each business unit can be portrayed as a circle plotted on the matrix. with the infor mation conveyed as follows: Market Market The size is represented by the size of the circle.

. and that the business u nit is in an industry that is projected to become more attractive. The tip of th e arrow indicates the future position of the center point of the circle. The arrow in the upward left direction indicates that the business uni t is projected to gain strength relative to competitors.The following is an example of such a representation: The shading of the above circle indicates a 38% market share for the strategic busin ess unit.

Strategic Implications Resource allocation recommendations can be made to grow, hold, or harvest a stra tegic business unit based on its position on the matrix as follows: • Grow strong business units in attractive industries, average business units in attractive in dustries, and strong business units in average industries. • Hold average business es in average industries, strong businesses in weak industries, and weak busines s in attractive industries.

Harvest weak business units in unattractive industries, average business units i n unattractive industries, and weak business units in average industries. There are strategy variations within these three groups. For example, within the harve st group the firm would be inclined to quickly divest itself of a weak business in an unattractive industry, whereas it might perform a phased harvest of an ave rage business unit in the same industry.

LIMITATION GE • While the GE business screen represents an improvement over the more simple BCG growthshare matrix, it still presents a somewhat limited view by not considering interactions among the business units and by neglecting to address the core com petencies leading to value creation. Rather than serving as the primary tool for resource allocation, portfolio matrices are better suited to displaying a quick synopsis of the strategic business units.


Hofer’s product Market evolution • According to Hofer and Schendel, The Principal difficulty with GE Business Scre en is that it does not depict as affectively at it might the positions of new bu sinesses that are just starting to grow in new industries.


• Major changes in basic competitive position occur in the stages of development, shakeout and decline because in these stages the basic nature of competition cha nges. It is more difficult to make changes to competitive position in the other stages of growth, maturation and saturation as the bases for competition are usu ally well established.

consistent in cremental advantages over a long period of time .• Market shifts during these stages of the market evolution do happen however and can be caused by: a major blunder by the industry leader a major investment program by a well posi tioned follower through the acquisition and effective integration of another fir m within the industry through a sustained effort to produce small. .

Stages of Product-market evolution .

• Each dimension is further divid ed into three degress:business sector prospects into attratctive.unattractive an d average and company s competitive capabilities into strong. average and weak.Direction Policy Matrix • It uses two dimensions-business sector prospects and company’s competitive capabil ities-in order to choose appropriate strategies.   . The combination of two dimensions further sliced into three compartments gives a nine cell matrix.


SBU .• • • • • • • • Leader – Top position. New additional resources t op strengthen their position. Double or quit – Business prospects are attractive b ut company’s own resources are weak. Cash Generator – strong capabilities but unattractive prospects .May continue for satisfactory profits.s running in losses with uncertain cash flows. Phased withdrawal – Average to weak position. Try harder – Averag e capabilities but operating in attractive prospects. major resources are focused upon the SBU. Divest – Business Capabilities are weak here.grow the market by focusing on R&D.. l ittle chance of generating cash. .. Custodial – Average posit ion in both the cases bear with the situation with little help from other produc t divisions.innovations. Not likely o improve in future. Two possibilities either INVEST MORE or QUIT Growth .

Business-Level Strategic Analysis • • • • • Industry analysis Strategic Group analysis Competitor analysis Life cycle analys is SWOT Analysis .

Subjective Factors influencing Strategic Choice • • • • • • • Commitment of past strategies Attitudes towards risk Degree of firms’ externa endence Internal political considerations Time constraints Competitive reactions Corporate culture. .


• “Implementation of strategies is concerned with the design and management of syste ms to achieve the best integration of people.structures.processes and resources in reaching organizational purpose”. .


RESOURCE ALLOCATION • While implementing c) resources need to be allocated carefully. • In top -down approach resources are allocated thro ugh a process of segregation down to operating levels. .physical.human. In this regard. top -down and bottom-up approach. • In the bottom-up approach resources are distributed after a process of aggregation from the operating lev el . one can follow. the scarce resources (financial.

Means of resource allocation • • • • • • • Strategic Budget Capital budget Performance budget ZBB Decision package Ranki Resource allocation .

sales. marketing.Structural Issues • FUNCTIONAL STRUCTURE:A company organized with a functional structure groups peop le together into functional departments such as purchasing. production . These departments would normally have functional heads who m ay be called managers or directors depending on whether the function is represen ted at board level. accounts. .


Advantages • • • • • • Clarity Economies of scale Specialization Coordination In-depth skill developme t Suitability .

Limitations • Effort Focus • Poor decision-making • Sub-unit conflicts • Managerial vacuum .

• The disadvantage i s that the product managers need to coordinate each other for the resource shari ng which becomes a difficult process because of lesser communication between the product divisions. However this kind of structure works best in the bi g organizations which have lots of products in their product portfolio. products of the same company start competing with each other which re sults in snatching one s division profit from other division leaving behind net profit for the company zero.   . • Sometimes.PRODUCT DEPARTMENTATION • The purpose of product departmentation is that every product is handled by separ ate management team and the problems faced in the development of a product are c arried out by single group of employees working in that unit.


Disadvantage : Sometimes the managers and employees do not meet the requirement of other depa rtment which is somewhere related to their particular department because they ar e working in their department and there is no more communication between the oth er departments .• Advantage: The manager can aware about their particular activity in the firm abo ut the activities which are related to the manufacturing a product.


These teams will be created of projects rather than a specific project and will Often the team will only exist for the duration of ctures are usually deployed to develop new products people created from various se for the purposes of variety be led by a project manager. the projects and matrix stru and services . .MATRIX ORGNAISATION STRUCTURE • A Matrix structure organisation contains teams of ctions of the business.

The advantages of a matrix include • Individuals can be chosen according to the needs of the project. • The use of a pr oject team which is dynamic and able to view problems in a different way as spec ialists have been brought together in a new environment. • Project managers are di rectly responsible for completing the project within a specific deadline and bud get. .

the disadvantages include • A conflict of loyalty between line managers and project managers over the alloca tion of resources. • Costs can be increased if more managers (ie project managers) are created th rough the use of project teams . • If teams have a lot of independence can be difficult to monit or.

Factors affecting Organizational structure • Size • Technology • Environment • People .

identifying tasks and how goals will be achieved. and determining budgets and timelines for completion.PROJECT MANAGEMENT • Project management is a carefully planned and organized effort to accomplish a s pecific (and usually) one-time objective. construct a building or i mplement a major new computer system. • for example.. which includes defining and confirming the project goals and object ives. . • Project management includes developing a p roject plan. quantifying the resource s needed.

Projects usually follow major phases or stages (wi th various titles for these).         . evaluation and support/maintenance. including feasibility. project plannin g.• It also includes managing the implementation of the project plan. and the mechanisms to implement reco very actions where necessary. implementation. definition. along with ope rating regular controls to ensure that there is accurate and objective informa tion on performance relative to the plan.

Benefits of Project Mgt. Increase in Quality: . Better Flexibility: Increased risk assessment:. • • • • • • • • • Better efficiency in delivering services Improved/increased/enhanced cust tisfaction Enhanced effectiveness in delivering services Improved growth and dev elopment within your team Greater standing and competitive edge Opportunities to expand your services:.


. so is the fre edom to express our opinions. is a value. for example. Caring for others.. .VALUES Values are those things that really matter to each of us . the ideas and belie fs we hold as special.

such as a field. and products considered with respect t o a particular category. traits. and all other products of human work and thought. • These patterns. or population: • These patterns. beliefs. subject. arts. a nd products considered as the expression of a particular period. or mode of expression: . communit y.CULTURE • The totality of socially transmitted behavior patterns. traits. class. instituti ons.

with respect to the rightness and wrongness of certain actio ns and to the goodness and badness of the motives and ends of such actions. culture. .(usually u sed with a singular verb ) that branch of philosophy dealing with values relatin g to human conduct.ETHICS • a system of moral principles • the rules of conduct recognized in respect to a par ticular class of human actions or a particular group.: • . etc.

. technical.BUSINESS ETHICS • Business ethics (also known as Corporate ethics) is a form of applied ethics tha t examines ethical principles and moral or ethical problems that arise in a busi ness environment. It applies to all aspects of business conduct and is relevant to the conduct of individuals and business organizations as a whole. Applied eth ics is a field of ethics that deals with ethical questions in many fields such a s medical. legal and business ethics.

Factors influencing business ethics • Legislation • Government rules & regulations • Social pressures • Conflicts between pe rsonal values and needs of the firms. .

meaning there is a re sponsibility to act beneficently”. This responsibility can be negative .SOCIAL RESPONSIBILITY • Social responsibility is an ethical or ideological theory that an entity whether it is a government. meaning there is e xemption from blame or liability. organization or individual has a responsibilit y to society at large. ¢ ¢ ¢ ¢ . corporation. or it can be positive.

Ideally. . ethical standards. Business would embrace responsibilit y for the impact of their activities on the environment. c ommunities. CSR policy would function as a built-in. self-regulat ing mechanism whereby business would monitor and ensure their adherence to law.• corporate responsibility is a form of corporate self-regulation integrated into a business model. stockholders and all other members of the public sphere. and international norms. employees. consumers.

and also dealing with suppliers who do the same. It means behaving responsibly.• Corporate social responsibility (CSR) isn t just about doing the right thing. It also offers direct business benefits.   .

• CSR helps ensure you comply with regulat ory requirements. • Activities such as involvement with the local community are id eal opportunities to generate positive press coverage. . reducing the costs and disruption of recruitment and retraining. • Employees ar e better motivated and more productive. • Employees may stay longe r.BENEFITS OF CSR • A good reputation makes it easier to recruit employees.

• CSR ca n make you more competitive and reduces the risk of sudden damage to your reputa tion (and sales).• Good relationships with local authorities make doing business easier. See the pa ge in this guide on how to work with the local community. Investors recognize this and are more willing . • Understanding the wide r impact of your business can help you develop new products and services.


Leadership The ability to influence a group toward the achievement of goals .

formal classes. and do. And when things go wrong. Analyze the si tuation. and move on to the next challenge   .In order to know yourself. and interacting with others. they always do sooner or later -. Seeking self-improvement means co ntinually strengthening your attributes.Principles of Leadership • Know yourself and seek self-improvement . This can be accomplished through self-s tudy. know. you must know your job and have a solid familiarity with your employees tasks . • Seek responsibility and take responsibility for your ac tions Search for ways to guide your organization to new heights. attributes. reflection. take corrective action. • Be technically pr oficient . you have to understand your be.As a not blame others.

Be a good role model for your employees.Know how to communicate with not only them. decision making. . They must not only hear what they are expected to do. • Set the example . We must become t he change we want to see . but also seniors and other key people.Principles of Leadership • Make sound and timely decisions .Mahatma Gandhi • Know your people and look out for thei r well-being Know human nature and the importance of sincerely caring for your w orkers. • Keep your workers informed . and planning tools. but also see.Use good problem solving.

you will be able to employ your organization. section. de partment. a team.Principles of Leadership • Develop a sense of responsibility in your workers -. • Use the full capabilities of your organization .Communication is the key to this responsib ility. • Ensure that tasks are under stood..By developing a team spirit.. • Train as a team . and accomplished . supervised. etc. to its fullest capabilities . they are not really teams. department. section.Although many so called leaders call their organization .they are just a group of people doing their jobs. etc.

Factors of leadership

Factors of leadership • Follower • Leader • Situation • communication

types of leaders • • • • Authoritarian Team Leader Country Club Impoverished

• Authoritarian Leader (high task, low relationship) : • People who get this rating are very much task oriented and are hard on their workers (autocratic). There is little or no allowance for cooperation or collaboration. Heavily task oriented people display these characteristics: they are very strong on schedules; they ex pect people to do what they are told without question or debate; when something goes wrong they tend to focus on who is to blame rather than concentrate on exac tly what is wrong and how to prevent it; they are intolerant of what they see as dissent (it may just be someone s creativity),


• Team Leader (high task, high relationship) This type of person leads by positive example and endeavors to foster a team environment in which all team members ca n reach their highest potential, both as team members and as people. They encour age the team to reach team goals as effectively as possible, while also working tirelessly to strengthen the bonds among the various members. They normally form and lead some of the most productive teams.

• Country Club Leader (low task, high relationship) This person uses predominantly reward power to maintain discipline and to encourage the team to accomplish its goals. Conversely, they are almost incapable of employing the more punitive coe rcive and legitimate powers. This inability results from fear that using such po wers could jeopardize relationships with the other team members.

Since they are not committed to either task acco mplishment or maintenance.• Impoverished Leader (low task. they essentially allow their team to do whatever it w ishes and prefer to detach themselves from the team process by allowing the team to suffer from a series of power struggles ¢ ¢ . low relationship) A leader who uses a delegate a nd disappear management style.

Share the glory with your followers hearts. share your vision in words that ca n be understood by your followers.First. while keeping the pains within your own. • Encourage the heart .Give them the tools an d methods to solve the problem. • Enable others to act .The Process of Great Leadership • Challenge the process .Next. get your hands dirty.When the process gets tough. A boss tells others what to do. find a process that you believe needs to be impro ved the most.   . a leader shows that it can be done. • Inspire a shared vision . • Model the way .

Managers Vs Leaders Manager Characteristics • Administers • A copy • Maintains • Focuses on systems and stru ctures • Relies on control • Short range view • Asks how and when • Eye on bottom line • I mitates • Accepts the status quo • Classic good soldiers • Does things right Leader Ch aracteristics • Innovates • An original • Develops • Focuses on people • Inspires trust • L ng range perspective • Asks what and why • Eye on horizon • Originates • Challenges the status quo • Own person • Does the right thing .

3. 2. incur high costs. Behavior that is out of the ordina ry.These leaders are able to make realist ic assessments of the environmental constraints and resources needed to bring ab out change. 6. Stron g convictions about vision.Those with charisma engage in behavior that is perceived as being novel.They have complete confidence in their judgment and abili ty. When successful .Charismatic Leadership Key Characteristics of Charismatic leaders 1. A vision. Environmental sensitivity. these behaviors evoke surpr ise and admiration in followers.This is an idealized goal that proposes a future better than the s tatus quo.Charismatic leaders are perceived as being strongly committed. and counter to norms. . 7. and willing to take on high personal risk.Charismatic leaders are perceived as agents of radical change rather than as caretakers of t he status quo. 4. Self Confidence. the more likely that followers will attribute extraordinary vision to the leader . Perceived as being a change agent.They are able to clarify and state the visio n in terms that are understandable to others. and enga ge in self-sacrifice to achieve their vision. The greater the disparity between idealized goal and the status quo. Ability to articulate the vision. unc onventional. This articulation demonstrates an understanding of the followers’ needs and. 5. hence acts as a motivating force.

rationality. expresses important purposes in simple ways. instills pride. takes corrective a ction.Transactional vs Transformational leaders Characteristics of Transactional and transformational leaders Transactional Leaders • • • • Contingent Reward: Contracts exchange of rewards for effort. uses symbols to focus efforts . Inspiration: Communicates high expectations. Individualized consid eration: Gives personal attention. and careful problem solving. Intellectual Stimulations: Promot es intelligence. promises rewards fo r good performance. Management by exception (passive): Intervenes only if standards are not m et Laissez faire: Abdicates responsibilities. treats each employee individually. coaches. . avoids making decisions Transformational Leaders • • • • Charisma : Provides vision and sense of mission. gains respect t rust. a dvises. recognizes accomplishment Management by exception (active): Watches and searches for deviations from rules and standards.

The Activities of Successful & Effective leaders Type of Activity Description categories Derived from free Observation Exchange Information Routine Communication Handling paperwork Planning Tradition al Management Decision Making Controlling Interacting with outsiders Socializing /Politicking Motivating/Reinforcing Human Resource Management Disciplining/Puni shing Managing conflict staffing Training/Developing Networking .

Solving Problems creatively •Using the rational approach •Using the creative appr oach •Fostering innovation in others •Determining values and priorities •Identifying cognitive style •Assessing attitude to ward change .Developing Self-awareness 3.Managing stress 1.What skills do leaders need? • Personal Skills •Coping with stressors •Managing time •Delegating 2.

Communication supportively 7. Motivating others •Diagnosing poor performance •Identifying causes •Creating a motivating environment •Sel ecting appropriate strategies •Rewarding accomplishment •Resolving confrontations . Management conflict 6. Gaining power and influences •Gaining power •Exercise influence •Empowering others 4.•Interpersonal Skills •Coaching •Counseling •Listening 5.

• Strate gic leaders work in an uncertain environment on highly complex problems that aff ect and are affected by events and organizations outside their own. . and communicate strategic vision. allocate resources.STRATEGIC LEADERSHIP • Strategic leaders are generally responsible for large organizations and may infl uence several thousand to hundreds of thousands of people. They establish organi zational structure.

process information quickly. commit more resources. stra tegic leaders’ decisions affect more people.. assess alternativ es based on incomplete data. and have wider ranging consequences in both space and time than do decisions of organizational and direct leaders. However. like d irect and organizational leaders. and generate support. • Strategic leaders. .• Strategic leaders apply many of the same leadership skills and actions they mast ered as direct and organizational leaders. make decisions. strategic leadership require s others that are more complex and indirectly applied. however.

Features of Strategic Leaders • • • • • • Strategic vision Managing change Governance and management Culture Structure an policies Communications & network .

Strategic Evaluation and Control .

Nature of Strategic Evaluation Evaluate effectiveness of organisational strategy in achieving organisational ob jectives Perform the task of keeping organisation on track .

Importance of Strategic Evaluation The need for feedback Appraisal and reward Check on the validity of strategic ch oice Congruence between decisions and intended strategy Successful culmination o f the strategic management process Creating inputs for new strategic planning Ability to coordinate the tasks performed

Barriers in Evaluation Limits of Controls Difficulties in measurement Resistance to evaluation Short-te rmism Relying on efficiency versus effectiveness

Requirements of Effective Evaluation Control should involve only the minimum amount of information Control should mon itor only managerial activities and results Control should be timely Long term a nd short term control should be used Control should aim at pinpointing exception s Rewards for meeting or exceeding standards should be emphasized

Evaluation Criteria for a Strategy • Qualitative Factors • Quantative Factors

Quantitative Factors • Company’s performance over a period of time, • Company’s performance with the competit or’s • Company’s performance to industry averages.

• Ratio’s play an important role in evaluating the strategy in quantitative terms: R OI ROE Employee turnover Employee satisfaction index Return on capital employed Profit margin Debt to equity EPS Asset growth

Qualitative Factors Consistency Feasibility Advantage .

Strategic Control .

Four Types of Strategic Controls Premise Control Implementation Control Strategic Surveillance Special alert cont rol .

Premises control serves the purpose of continually testing the assumptions to find out whether they are still valid or not. .Premise Control Premises control is necessary to identify the key assumptions and its implementa tion. This enables the strategists t o take corrective action at the right time rather than continuing with a strateg y which is based on erroneous assumptions.

.Implementation Control Implementation control is aimed at evaluating whether the plans. programmes. and projects are actually guiding the organization towards its predetermined object ives or not.

Strategic Surveillance Strategic surveillance aimed at a more generalized and overarching control “design ed to monitor a broad range of events inside and outside the company that are li kely to threaten the course of a firm’s strategy”. .

Special Alert Control Special alert control. which is based on a trigger mechanism for rapid response and immediate reassessment of strategy in the light of sudden and unexpected eve nts .

Operational Control Aimed at the allocation and use of organisational resources Concerned with actio n or performance .

Aim 3. Main Techniques External environment Long. continuo us questioning of the basic direction of strategy future direction Allocation an d use of organisational resources Steering the organization’s Action control 4. Main Concern Strategic Control Operational Control Are we moving in the right How are we performing? direction? Proactive. Focus 5. and MBO .term Environmental scanning.How do Strategic Control and Operational Control Differ Attribute 1.term Budgets. schedules. information gathering. Basic question 2. Time Horizon 6. q uestioning and review Internal organization Short.

Process of Evaluation • Setting standards of performance • Measurement of performance • Analyzing variances • Taking corrective action .

flexibility. and workability . s trategic clarity. risk.bearing capacity.Setting of Standards Quantitative Criteria It has performed as compared to its past achievements ndustry average or that of major competitors Its performance with the i Qualitative Criteria There has to be a special set of qualitative criteria for a subjective assessmen t of the factors like capabilities. core competencies.

to understand how the measuremen t of performance can take place. It is important.Measurement of Performance The evaluation process operates at the performance level as action takes place. however. Standards of performance act as the benchmark against which the actual performan ce is to be compared. .

Broadly.Analyzing Variances The measurement of actual performance and its comparison with standard or budget ed performance leads to an analysis of variances. the following three s ituations may arise: The actual performance matches the budgeted performance The actual performance deviates positively over the budget performance The actual p erformance deviates negatively from the budgeted .

and reformulating strategies. plans.Taking Corrective Actions There are three courses for corrective action: checking of performance. . and objectives. checking of standards.

Techniques of Strategic Evaluation and Control Evaluation Techniques for Strategic Control Evaluation Techniques for Operationa l Control .

while those which face a relatively turbulent environment may find strategic leap con trol more appropriate. The organisation that op erate in a relative stable environment may use strategic momentum control. .Evaluation Techniques for Strategic Control Techniques for strategic control could be classified into two groups on the basi s of the type of environment faced by the organisation.

.Evaluation Techniques for Operational Control Operational control is aimed at the allocation and use of organisational resourc es The evaluation techniques are classified into three parts: Internal analysis Comparative analysis Comprehensive analysis.

What is Strategic control? “…it is the process by which managers monitor the ongoing activities of an organization and it’s members to evaluate whether activities are being performed efficiently and effectively and to take corrective action to im prove performance if they are not…” .

The importance of Strategic Control • The success of a chosen strategy • The impleme ntation compass • Organizational performance • Ensuring competitive advantage .

Strategic Control: • Requires more than re-acting on past performance • Keeps the or ganization on track • Anticipating events that might occur in future • Allows the or ganization to respond to new opportunities that may present itself .

The importance of Strategic Control & quality: : • Efficiency measures how many un its of inputs are being used to produce a single unit of output • Must also measur e how many units are produced • The control system should contain these measures .

The importance of Strategic Control & quality: • Organizational control is importa nt because it determine the quality of goods & services • Can make continuous impr ovements to quality over time and this gives them a competitive advantage • Custom er complaints is the basis for determining the quality of a product or service • T otal Quality Management can be regarded as control system .

The importance of Strategic Control & Innovation: : • Managers must create an environment in which people feel free to experiment an d take risks • Managers are challenged to build control systems that encourage ris k taking • Measures cost reduction. process improvement and improved quality measu res. .

Control and Innovation • Problem: Time wasted due to unavailable parts from centra l store. Electrical workshop not close to central store (Witbank Municipality) • E lectricians designed a innovative solution through simple measures (trips to sto res per electrician per day • Applied 80/20 principle Established decentralized st ore • Major savings .

” . measurement and feedbac k systems that allow strategic managers to evaluate whether the company is achie ving on the four building blocks of a competitive advantage..STRATEGIC CONTROL Strategic Control Systems “… are the formal target setting .

Types of Control systems • Financial controls • Output controls • Behavior controls • Or ganization culture .

STRATEGIC CONTROL Financial controls • Growth • Profitability • ROCE • Share prices( Private sector) Is a favorite control because it is objective .

STRATEGIC CONTROL Types of Control systems • Output controls: It is a system of control in which managers estimate or forecast appropriate performance goals for each division. d epartment and employee and measure achievement against these goals • Divisional Goals • Functional Goals • Individual Goals .

STRATEGIC CONTROL Types of Control systems Divisional Goal Goal: “To be the number 1 or 2 in the ind ustry in terms of market share” .

functions and individuals • Operating budgets • HR rules & regulations • Standard ization .STRATEGIC CONTROL Types of Control systems Behavior controls: “ happens through the establishment of a comprehensive systems of rules and procedures to direct the actions of divisi ons.

STRATEGIC CONTROL Strategic Control Systems Characteristics • Be flexible to allow managers to respo nd as necessary to unexpected events. givin g a true picture of organizational performance. • Should provide information in a timely manner . • Should provide accurate information.

STRATEGIC CONTROL PROCESS Four steps to design an effective control system: 1. Compare actual performance against establ ished targets Initiate corrective action when it is decided that the standards & targets are not being achieved . 3. Establish the standards & targets against which performance is to be evaluated. Create the measuring & monitoring systems that indicate whether the standards & targets are being reached. 4. 2.

cost of raw materials Quality: Number of rejects. cost of product development Responsiveness to customers: number of repeat customers. number of hours needed to produce an item. level of customer service . time taken to market.STRATEGIC CONTROL Kinds of measures Efficiency: Level of production costs. level of on-time delivery to customers. number of customer returns. level of product reliability Innovation: number of new products introduced.

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