Strategic Management

Stakeholders
Internal Stakeholders
• Shareholders
• Employees
• Management Representatives

External Stakeholders
• Customers
• Suppliers
• Creditors
• Government
Role of Stakeholders in Strategic Mgt.
➢Decision Making

➢Managing Key Positions

➢Responsibility towards Society

➢Project Planning
 Entry Barriers
➢Economies of Scale

➢Brand Image

➢Capital Requirement

➢Other Barriers

➢ Lack of Cost Advantage

➢ Reaction of Establishes Firms

➢ Limited access of Distribution Channels

➢ Government Intervention
Exit Barriers
➢Employee Lay-Off

➢Customer Loyalty

➢Disengagement Costs

➢Shared Costs

➢Non-Economic Barriers
Strategic Groups
➢Defenders - limited resources, few product lines

➢Prospectors – innovation in products, capture potential market

➢Analysers – most of them have 2 segments of business – 1. stable 2. dynamic

➢Reactors - don’t have a uniform strategy

Strategic Group Analysis
Strategic Group is a group of firms in an industry following same or similar strategy – Michael
Porter
How do we conduct Strategic Group analysis
Strategic Advantage Profile
Strategic Advantage Profile
 Generic Competitive Strategies
Cost Leadership Strategy

When?

➢Basis of competition is price

➢Industry sells standardised products

➢Differentiation in product possible in limited ways

➢Buyers not seeking customised

➢Buyers are looking for only best price

➢Target market in big, bargaining power of buyer is high

Cost Leadership Strategy
Efficient Resource Utilisation & Resource Sharing
Capacity Utilisation
Operating Decisions/ Technology

Advantages : Disadvantages :
Risk Avoidance Less Skill due to lack of research
Creating Entry Barriers Easy to imitate
Increase Market Share Expensive
Differentiation Strategy
When?

➢Other competitors have differentiation strategy established

➢Market is large enough for differentiated products

➢Customers have diverse needs

Differentiation Strategy
➢Products / Services

➢Packaging

➢Innovation

➢Channel Differentiation
Differentiation Strategy
Advantages: Disadvantages:

➢Brand Loyalty ➢Barrier to enter

➢Creates Value ➢Expense

➢Non-price Competition ➢Sustainability

➢No perceived substitute ➢Tough to create Differentiation

Focus Strategy
When?

➢Niche markets
➢Industry Competition is low
➢Specialised Suppliers
➢Investment in Technology
➢Activities that don’t add value can be removed
➢Customised needs of the Customers
➢Target Market is defined
Focus Strategy
Advantages: Disadvantages:

➢Better customer satisfaction ➢Difficulty to reduce costs

➢Competitive advantage ➢Attracts Competition

➢Highly Profitable ➢Limited expansion

Features Cost Leadership Differentiation Focus

Market Coverage Broad Broad Narrow

Basis of competitive Out-price the Different/ unique market Unique products to

advantage competitors offering small markets

Product line Standardised product Wide product range with Tailored products
many variants

Production Emphasis Bring down costs Innovative methods to Customised Products

add value

Marketing Emphasis Low cost Generate returns Highlight capability of

through promotion & customisation
advertising

Sustaining the Strategy Continuous efforts to Highlight how products Device means to serve
bring down costs are superior than other the targeted market
products
Grand Strategies - Expansion
Diversification Strategies

1. Concentric Diversification – related to existing Business (Eg. Reliance Jio)

2. Conglomerate Diversification – unrelated to current business ( Eg. Reliance into retail

business)

◦ Minimise risk by spreading over several businesses

◦ Existing business might be blocked due to environmental / regulatory reasons

Integration Strategies
Vertical Integration
Backward – become your own supplier
Forward – moves closer to the customer (Eg. Titan start their own retail store )

Horizontal Integration – It is the process of a company increasing production of goods or services

at the same part of the supply chain. A company may do this via internal expansion, acquisition
or merger.
Mergers
Merger – combination of two businesses further sharing the assets & liabilities

Horizontal Mergers – firms in same business (Eg. Jet Airlines & Air Sahara)
Vertical Merger – firms engaged in complementary activities ( Eg. Ruston & Hornsby – engine
manufacturers & Greaves ltd – marketing of engines)

Concentric Mergers – firms related to each other in terms of customer groups ( Eg. Citibank ith
Traveller's Insurance)

Conglomerate Merger – firms unrelated to each other

◦ Pure Conglomerate – completely unrelated
◦ Mixed Conglomerate - firms looking for product/ market extension ( Eg. PepsiCo & Pizza hut)
Merger Motives
Motives of Buyer –
Motives of Seller –
➢Increase value of shares
➢Increase value of stocks
➢Growth
➢Growth
➢Balance Product line

➢Get resources
➢New products

➢Eliminate compitetors
➢Save from bankruptcies
Advantages of Mergers

➢Increase Geographical territories

➢Diversify

➢Revive a sick unit

➢Share Financial & Human Resources

➢Tax benefits
Acquisition / Takeover
Change in Ownership

➢Friendly Takeover – Acceptable financial offer to the company (Eg. Tata Tea takes over Tetley

tea)

➢Hostile Takeovers - Buyer Company called Raider pounces on the company to take control over

its called Victim Company ( Eg. Tata Steel Took over Nat Steel )
Advantages of Takeovers
➢Elimination of Competitors

➢Ensure Management Accountability

➢Easy Growth

➢Low priced shares become valuable

Strategic Alliances & Collaborative
Partnerships
Two or more entities come together for mutual benefits. They are interdependent for these
goals, otherwise independent

Important:

➢Clearly define a strategy & assign responsibilities

➢Blend the cultures

➢Provide an Exit Strategy

Retrenchment Strategies
An organization aims at contraction of its activities through substantial reduction or elimination of the
scope of one or more businesses in order to improve its overall performance .

➢Non recoverable situation – no change survival of the company

➢Temporary viability – limited recovery for limited time

➢Survival is possible but little potential for future growth exists, industry is in process of slow decline

➢Good and long term recovery is possible only with new product development or Market positioning
Examples
IBM was essentially making servers for computers
Introduced new range of computers as well,
They sold manufacturing arm of computers when market was not good
Sold it to Lenovo and focussed on their core business

L&T - Business in Engineering

Sold its cement manufacturing arm – Ultratech Cement to Grasim , a flagship company of Aditya
Birla Group
Turnaround Strategies
- Company making marginal profit but trend is towards losses , or
- Company may already be in losses and you have to turn it around to profit

Symptoms of industrial sickness

◦ Negative profit
◦ Overall losses
◦ Drastic change in market share
◦ Uncompetitive products / services
◦ Rapid deterioration in physical facilities
◦ Low morale, low productivity, high rejection and high labour turnover
◦ Changes in Govt. policy
Turnaround Strategies
➢Drastic changes in Top management

➢Neutralising the External Pressure

➢Quick cost reduction activities

➢Asset liquidation for generation of cash

➢Better internal control

Divestment Strategies
Strategy involves the sale or liquidation of the portion of business. It is usually a part of rehabilitation or restructuring

plan and is adopted as a last resort.

Divestment Strategies = turnaround strategies + sale of assets

➢Reasons:
➢Mismatch in the Business acquired
➢Inability to cope up with the competition
➢Selling a part of the company is the only way to save the whole company
➢Profit Making Strategy
➢Reshuffle
Liquidation Strategies
Liquidation is the most unattractive strategy amongst the Retrenchment Strategies.
Leads to-
➢Loss of employment
➢Termination of opportunities
➢Stigma of failure of management

Last Resort, due to all stakeholders involved:

➢Govt
➢Employees
➢Trade Unions
➢Suppliers
➢Banks