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Strategic Management- Dr Amit Rangnekar

Topic Sub Topic


Strategic Management • Concepts
• SM Process
• SWOT
• Vision, Mission
External Environmental • General Environment
Analysis • PEST
• Industry Environment
• Porters 5 Forces
• How to analyse industry
Internal Environmental • Components
Analysis • Resources, Capabilities, Competence
• Competitive Advantage
• Value Chain Analysis
Business Level Strategy • Customers, Segments, Markets,
• Cost Leadership, Differentiation, Focus,
Competitive Rivalry & • Dynamics,
Competitive Dynamics • Rivalry,
• Response
Corporate Level Strategy • Diversification,
• Integration
Acquisition & Restructuring • M&A, Restructuring
Strategies
International Strategy • National Advantage
• Multi-domestic
• Global
• Transnational
• International Entry Modes
Cooperative Strategy • Strategic Alliances, JV
Business Tactics •
Takeover Defense Strategies •
Strategic Management‐ MBA Notes‐ Dr Amit Rangnekar 

Strategic Management
Objectives- Help understand concepts, tools, processes & applications of strategic
management. Provide insights into the business environment, competitive analysis and
the practice of strategic management through theory and case studies.

Concepts
• Strategy- Directing action towards desired outcome
• Corporate strategy- business/es you should be in
• Business strategy- tactics to beat the competition
• Functional strategy- operational methods to
implement the tactics
• Enterprise strategy- matching internal capabilities
with external environment
• Strategic Competitiveness- Firm successfully formulates & implements a value-
creating strategy
• Strategic Management Process- Full set of commitments, decisions & actions
required for a firm to achieve strategic competitiveness & earn above-average
returns
• Risk- Investor’s uncertainty of economic gains/ losses resulting from particular
investment
• Average Returns- Returns equal to investor earnings expectations from other
investments with similar amount of risk
• Above-average Returns- Returns in excess of what an investor expects to earn
from other investments with a similar amount of risk
• Strategic flexibility: Capabilities to respond to demands & opportunities in
dynamic & uncertain competitive environments
• Scale

Strategic management- Process by which organizations analyze & learn from


stakeholders inside & outside the firm, establish strategic direction, create strategies to
help achieve established goals & execute strategies to satisfy key organizational
stakeholders

Strategic Management Process


• Study the external and internal environments
• Identify marketplace opportunities and threats
• Determine how to use core competencies
• Use strategic intent to leverage resources, capabilities & core competencies to win
competitive battles
• Integrate formulation and implementation of strategies
• Seek feedback to improve strategies

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Strategic Management‐ MBA Notes‐ Dr Amit Rangnekar 

Adding Value at the Corporate Level- Key issue for Top Management (Prof Hax,
MIT)

1. Environmental scan at corporate level: Assess external forces impacting the firm
2. Mission of the firm: Choose competitive domains and the way to compete
3. Business segmentation: Select planning and organizational focus
4. Horizontal strategy: Pursue synergistic linkages across business units
5. Vertical integration: Define boundaries of the firm
6. Corporate philosophy: Define relation between firm and stakeholders
7. Strategic posture of the firm: Identify strategic thrust- corporate, business &
functional planning challenges and corporate performance objectives
8. Portfolio management: Assigning priorities for resource allocation and identifying
opportunities for diversification and divestment
9. Organization & managerial infrastructure: Align organization structures, managerial
processes & systems, in consonance with firm culture to facilitate strategy
implementation
10. HRM of key personnel: Selection, development, appraisal, reward & promotion

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Strategic Management‐ MBA Notes‐ Dr Amit Rangnekar 

Analysing market opportunities


Strategic gap analysis

Intensive Growth Strategies


Ansoff’s Product-Market Expansion Grid- Case- Maruti Suzuki

Current Products New Products


Current Market Penetration Product Development
Markets Launch 800, grabbed market share New models Van, Zen, Esteem,
on styling, fuel economy, affordability Wagon R, Baleno, Swift, SX4

New Market Development Diversification


Markets Launch in class II-IV towns, easy Training schools, Auto insurance,
loans, higher payback periods True Value cars,

Integrative growth- Vertical-Backward (Reliance- Polyesters), forward (Videocon-


Next), Horizontal- M&A (HLL-Lakme)
Diversification growth- Reliance Retail

Current Competitive Landscape


• Perilous business world, global operations, M&A abound, hyper competition
• Pricing pressures, constant technology change & innovation, huge investments
• Emerging markets, growing importance of services, changing demographics
• Globalisation, outsourcing, geography is history, regulatory threats

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Strategic Management‐ MBA Notes‐ Dr Amit Rangnekar 

Global Economy
• Global Economy- Goods, people, skills & ideas move freely across borders
• Globalization- "Producing where it is most cost effective, sourcing capital from
where it's cheapest and selling it where it is most profitable" Narayana Murthy
• Increased economic interdependence among countries- flow of goods & services,
finance & knowledge across country borders leading to increased opportunities
• Technology- Technology change, perpetual / disruptive innovation, design
• Information- Converting information to knowledge, competitive advantage

Industry- strong influence on the firm’s performance, properties include


• economies of scale
• barriers to market entry
• diversification
• product differentiation
• degree of concentration of firms in the industry

SWOT Analysis- Used to assess a new business venture or proposition.


Quadrants contain criteria (not exhaustive or exclusive) used to analyse either SWOT

Strengths (Internal) Weaknesses (Internal)


USP's, capabilities, competitive advantage, Disadvantages of proposition, capabilities
resources, experience, knowledge, data, gaps, lack of presence & strength, lack of
financials, marketing, reach, communication, reputation, presence and reach,
service, innovation, location, geography, financials,
price, value, quality, accreditations, own known vulnerabilities, timescales,
processes, systems, IT, culture, values, deadlines and pressures, supply chain,
behaviour, management, reputation, legacy morale, commitment, leadership,
processes & systems, management,
attrition
Opportunities (External) Threats (External)
Market / business / product developments, PEST, competitive intentions, market
industry potential, competitors' demand,
vulnerabilities, industry, demographics or contracts and partners, sustaining
lifestyle trends, technology, innovation, capacities, finances & capabilities,
global influences, new markets, industry obstacles, insurmountable weaknesses,
verticals / horizontals, niches, geographies, industry cycles,
surprise, new contracts, seasonality
information and research, partnerships,
distribution, volumes, production,
economies, season, influences

Vision & Mission- To energize employees to work towards corporate goals, visions &
missions. Should be internalised by executives & constantly communicated to employees.
Many companies use vision & mission statements only in annual report or reception..

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Strategic Management‐ MBA Notes‐ Dr Amit Rangnekar 

Vision- A short, succinct, and inspiring statement of what an organization intends to


become and achieve, in the future, often stated in competitive terms
• Refers to the category of broad, all-intrusive and forward-thinking intentions
• Image of a business goal before the organization sets out to reach them
• Describes future aspirations, without specifying the means used to achieve them

Mission- An organization's vision translated into a written form


• Concretises a leader's view of the direction and purpose of the organization
• Vital element for corporate leaders to motivate employees & instill sense of
priority

Now Future
Product Scope
Market Scope
Geographical Scope
Unique Competencies

Setting Goals
• Major outcome of strategic road-mapping and strategic planning, based on the
vision and mission statement
• Long-range, specific and realistic goals set through strategic planning, translated
into activities that will ensure reaching the goal through operational planning.

New Economy (RICE)- Apple iPod (Walker 2e)


• 2001- Apple launched iPod
• Apple did not invent MP3 , nor was iPod the 1st MP3 player
• Idea for iPod did not originate at Apple
• Concept of player + online music source- suggested by an independent consultant
• Apple hired him, built design team around him, coordinated with a suite of
vendors
• CPU- PortalPlayer, HDD- Toshiba, Memory Chip- Samsung, Assembly-
Inventec
• Apple only designs and markets iPod, manages value chain of partners
• iPod – smaller, lighter, more songs, more expensive, cool design, 1.8” hard drive,
scroll wheel, download music from multiple online sources
• Expanded range at various price points, sleeker models, link to Mac & Windows
OS, improved scroll wheel & battery life
• Targeted high end market, emphasized value not price, focused on look & feel,
large storage capacity, complementary products
• 2004- iPod contributed 46% of Apple’s revenues

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Strategic Management‐ MBA Notes‐ Dr Amit Rangnekar 

Industrial Organisation (I/O) model of above average returns (AAR)


Pressures & constraints from external environment determine strategies leading to AAR
Area Activity Action
External environment Study General , industry, competitor
Attractive industry Locate Structural characteristics suggest AAR
Strategy formulation Identify Strategy to earn AAR
Assets & skills Develop / acquire To implement chosen strategy
Strategy Use Effective implementation
implementation
Superior returns Earn Earn above average returns

Resource-Based Model of Above-Average Returns (AAR)


Assumes that the organization is a collection of unique resources & capabilities, which
provide the basis for its strategy, which is the primary source of its returns

Area Activity Action


Resources Identify Inputs in a firms production process
Firm’s capabilities Determine Integrated set of resources required to perform, in
an integrative manner
Competitive Potential Ability to outperform rivals
advantage of
Attractive industry Locate To exploit opportunities
Strategy Select To earn above average return
Superior returns Earn Earn above average returns

Strategic Intent- Company's vision of what it wants to achieve in the long term
• Must convey a significant stretch for the company, a sense of direction, discovery, and
opportunity that can be communicated as worthwhile to employees
• Should focus so on tomorrow's opportunities than on today's problems

Strategic Mission- Statement of firm’s unique purpose


• Describes scope of operations in product & market terms
• Externally focused, inspiring and relevant to all stakeholders

Stakeholders- Individuals and groups affected by the firm’s performance and who have
claims on it’s performance. 3 Stakeholder Groups

Capital Market Stakeholders


• Shareholders, banks & lenders expect firm to enhance the wealth entrusted
• Returns should be commensurate with the degree of risk to the shareholder

Product Market Stakeholders


• Customers- Demand reliable products at low prices
• Suppliers- Seek loyal customers willing to pay highest prices for goods and services

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Strategic Management‐ MBA Notes‐ Dr Amit Rangnekar 

• Host communities- Want companies willing to be long-term employers and providers


of tax revenues while minimizing demands on public support services
• Union officials- Want secure jobs and desirable working conditions

Organizational Stakeholders
• Employees & managers- Expect a stimulating and rewarding work environment,
satisfied by a company that grows and actively develops their skills

Strategic Leaders- People responsible for design and execution of strategic management
processes (Top management). They will decide how resources will be developed or
acquired, at what price resources will be obtained, and how resources will be used

Organizational Culture- The complex set of ideologies, symbols and core values,
shared throughout the firm, that influence how the firm conducts business

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Strategic Management‐ MBA Notes‐ Dr Amit Rangnekar 

External Environmental Analysis


Environmental scan formalizes the process of understanding external forces impacting
the firm. There are three different types of analyses to support this process: economic
overview, primary industrial sectors, and basic external factors.

Components of the External Environmental Analysis


Scanning Identify early signals of environmental changes & trends
Monitoring Analyse and observe environmental changes & trends
Forecasting Develop projections of anticipated outcomes
Assessing Determine environmental trends for firms’ strategic management

The external business environment may be divided into 2 sectors: Broad & task
Broad Environment- context within which firm and its task environment exist. Consists
of domestic and global forces
• political trends (e.g. open markets)
• economic trends (e.g. growing economy)
• socio-cultural trends (e.g. demographics)
• technological trends (e.g. internet)

Task Environment- consists of external stakeholders- groups / individuals outside the


organization but significantly influenced by or have a major impact on the organization:
• Customers
• Suppliers
• Competitors

General environment (PEST- DG)

Dimensions in the broader society that influence industry and the firms within it
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Strategic Management‐ MBA Notes‐ Dr Amit Rangnekar 

PEST analysis
Quadrants contain criteria (not exhaustive or exclusive) used to analyse either PEST
Political Economic
Ecological/environmental issues Domestic / International economy
Legislations / regulatory / policy Taxes, levies, FDI, interests
Government term and change Stock markets and exchange rates
Funding, grants and initiatives Seasonality/weather issues
Lobbies / pressure groups Market and trade cycles
Wars and conflict Industry Specific factors
Sociocultural Technological
Lifestyle trends Competing & emerging technologies
Demographics R&D
Psychographics Technology/solutions maturity
Consumer attitudes and opinions Manufacturing costs / capacity
Law changes affecting social factors Information and communication
Consumption & buying patterns Innovation
Events and influences Licensing, patents, IPR issues
Ethnic / ethical / religious factors Disruptive innovation

How to analyse Industry - (Michael Porter, HBR-Jan, 2008)


• Good industry analysis looks at average profitability over a period
• 3-5 year period can distinguish temporary/ cyclical changes from structural changes
• Industry analysis should not declare an industry attractive or unattractive but help
understand the underpinnings of competition and the root causes of profitability
• Analyse industry structure quantitatively, than qualitatively with lists of factors
• Quantify the 5 forces: % age of buyer's total cost accounted for by industry's product
(to understand buyer price sensitivity); %age of industry sales required to fill a plant
or operate logistical network of efficient scale (to assess barriers to entry); buyer's
switching cost (to determine inducement an entrant or rival must offer customers).
• Define relevant industry: Products, exclusive/ indirect industry, scope, competition
• Identify & segment participants- buyers, suppliers, competitors, substitutes &
potential entrants
• Assess drivers of each competitive force- determine which are strong & weak- Why
• Determine overall industry structure & consistency- profitability levels & reasons,
controlling factors; are more profitable players better positioned wrt the 5 forces
• Analyse future changes (+/-) in each force
• Aspects of industry structure, influenced by company, competitors or new entrants

Common Pitfalls
• Defining industry- too broadly or too narrowly.
• Paying equal attention to all forces than focusing on the most important ones.
• Confusing effect (price sensitivity) with cause (buyer economics).
• Using static analysis that ignores industry trends.
• Confusing cyclical or transient changes with true structural changes.
• Use framework for strategic choices than declare industry - attractive/ unattractive

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Strategic Management‐ MBA Notes‐ Dr Amit Rangnekar 

Industry Environment Analysis

5 Forces of competition (Porter)

1) Threat of New Entrants: Entry


Barriers
• Economies of scale- Marginal
efficiency improvements, firm
experiences as it incrementally
increases its size. Advantages and
disadvantages of large-scale and small-
scale entry
• Product differentiation- Unique
products, Customer loyalty,
competitive prices
• Capital requirements- Physical
facilities, Inventories, Marketing
activities, Availability of capital
• Switching Costs-One-time costs customers incur when buying from different
supplier. Costs of new equipment or retraining employees
• Access to Distribution Channels- Stocking or shelf space, price breaks, cooperative
advertising allowances
• Cost Disadvantages- Independent of Scale- proprietary product technology,
favorable access to raw materials, desirable locations
• Government policy- Licensing and permit requirements, deregulation of industries

Expected retaliation- Responses by existing competitors may depend on a firm’s present


stake in the industry (available business options)

2) Bargaining Power of Suppliers


• Supplier power increases when:
• Suppliers are large and few in number
• Suitable substitute products are not available
• Individual buyers are not large customers of suppliers and there are many of them
• Suppliers’ goods are critical to buyers’ marketplace success
• Suppliers’ products create high switching costs.
• Suppliers pose a threat to integrate forward into buyers’ industry

3) Bargaining Power of Buyers


• Buyer power increase when:
• Buyers are large and few in number
• Buyers purchase a large portion of an industry’s total output
• Buyers’ purchases are a significant portion of a supplier’s annual revenues
• Buyers can switch to another product without incurring high switching costs
• Buyers pose threat to integrate backward into the sellers’ industry

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Strategic Management‐ MBA Notes‐ Dr Amit Rangnekar 

4) Threat of Substitute Products


• The threat of substitute products increases when:
• Buyers face few switching costs
• The substitute product’s price is lower
• Substitute product’s quality and performance are equal to or greater than the
existing product
• Differentiated industry products, valued by customers, reduce this threat

5) Intensity of Rivalry among Competitors


• Industry rivalry increases when:
• There are numerous or equally balanced competitors
• Industry growth slows or declines
• There are high fixed costs or high storage costs
• There is a lack of differentiation opportunities or low switching costs
• When the strategic stakes are high
• When high exit barriers prevent competitors from leaving the industry

Unattractive industry Attractive industry


(Low profit potential) (High profit potential)
Low entry barriers High entry barriers
Suppliers and buyers have strong positions Suppliers and buyers have weak positions
Strong threats from substitute products Few threats from substitute products
Intense rivalry among competitors Moderate rivalry among competitors

Strategic Groups- Set of firms emphasizing similar strategic dimensions & using similar
strategies. Intra strategic group firm competition greater than between firms outside that
strategic group. More heterogeneity in performance of firms within strategic groups. Eg
Cars, PC, Airlines, segmented by sensitivity to price, quality, technology & service

Strategic Dimensions- Extent of technological leadership, product quality, pricing


policy, distribution channels, customer service

Competitor Analysis
Competitor Intelligence- Gather information & data to understand and better anticipate:
• Competitor’s direction (future objectives)
• Competitor’s capabilities and intentions (current strategy)
• Competitor’s beliefs about the industry (assumptions)
• Competitors (capabilities)

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Strategic Management‐ MBA Notes‐ Dr Amit Rangnekar 

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Strategic Management‐ MBA Notes‐ Dr Amit Rangnekar 

The 5 Forces (Drive Industry Profits Down)

The Value Net (Drive Industry Profits Up)- Brandenberger & Nalebuff
• Complementary products- (Telecom Towers improve mobile signal, HD Plasma TV)
• Cooperation with buyers & suppliers
• Coordination among competitors

Effect of Industry Forces on Value, Cost & Price (P82Walker 2e)


Effect on
Industry force Value Cost Price
Stronger Raise value to compete Increase cost associated Lower price to
rivalry with higher value compete
Stronger Raise value to compete Lower price to
buyers compete
Stronger Lower value Raise costs
suppliers
Lower entry Lower price to keep
costs new entrants out
More powerful Raise value to compete Lower price to
substitues compete
Industry cooperation
Between firm Raise value to buyers Lower firm costs
& buyers without comparable without comparable
rise in supplier costs drop in buyer value
Between firm Raise value to firm Lower supplier costs
& suppliers without comparable without comparable
rise in supplier costs drop in firm value
Between firm Raise value to industry Lower costs in industry Raise potential
& competitors buyers without without comparable price necessary to
comparable rise in drop in value to compete
industry costs (shared industry buyers (shared (cooperative
innovation) innovation) pricing)
Complements
Effective Raise value to industry
complements buyers without
comparable rise in
industry costs

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Strategic Management‐ MBA Notes‐ Dr Amit Rangnekar 

The internal environment


Outcomes of internal and external environmental analyses
Internal- Firms determine what they can do- unique resources, capabilities &
competencies (sustainable competitive advantage)
External- Firms determine what they may choose to do

Internal Environmental Analysis


• Involves analyzing and evaluating internal stakeholders (managers, employees, owners
and the BOD) & an organization’s resources and capabilities
• Purpose of internal analysis is to determine strengths & opportunities for competitive
advantage and weaknesses & organizational vulnerabilities to be corrected

Creating Value
• By exploiting core competencies or competitive advantages, firms create value
• Value is measured by a product’s performance characteristics and its attributes for
which customers are willing to pay
• Firms create value by innovatively bundling & leveraging their resources & capabilities

Components of internal analysis

Conditions affecting decisions wrt resources, capabilities & core competencies


• Uncertainty- regarding characteristics of the general and the industry
environments, competitor’s actions, and customers preferences
• Complexity- regarding interrelated causes shaping a firm’s environment and
perception of the environment
• Intraorganisational conflicts- among people making decisions and those
affected by them

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Strategic Management‐ MBA Notes‐ Dr Amit Rangnekar 

Core Competencies
When the 4 key criteria of R&C are met, they become core competencies, and serve as a
source of competitive advantage. Managerial competencies are especially important

Resources
• Inputs into a firm’s production process- Capital equipment, employee skills,
patents, finances, talent, brands, financial resources, and talented managers
• Organization is made up of resources: financial, physical, human, general
organizational (structure, systems, culture, reputation, stakeholder relationships
• Source of a firm’s capabilities & assets, including people & value of its brand
name
• Broad in scope, cover a spectrum of individual, social & organizational
phenomena
• Tangible - Seen & quantified- financial, physical, production resources
• Intangible - Deep roots in firms history- trust, innovation, knowledge, reputation
• Effective development or acquisition of organizational resources may be the most
important reason that some organizations are more successful than others

Capabilities
• Capacity of a set of resources to perform, in an integrative manner.
Capability should not be highly imitable but should be manageable &
controllable
• Firm’s capacity to deploy resources, integrated to achieve a desired end state
• Emerge over time by complex interactions among tangible & intangible resources
• By developing, carrying, exchanging information & knowledge through firm’s
HR
• Foundation in unique skills, knowledge of firm’s employees & functional
expertise

Function Capability Firm


Distribution Effective logistics ITC, HUL
HR Training / Retaining Eureka Forbes / AV Birla
MIS Effective & efficient inventory control Big Bazaar
Marketing Branding/Promotion/Customer service Paras/ Hutch/ Maruti
R&D Innovation/Technology/Sophistication Apple / Gillette / Bose
Management Diverse industries Tata / Reliance/ Videocon
Manufacturing Volumes / Economies Chinese / Nokia

Key Criteria of Resources and Capabilities

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Strategic Management‐ MBA Notes‐ Dr Amit Rangnekar 

• Valuable- When they allow firm to take advantage of opportunities or neutralize


threats in external environment
• Rare- R&C rare if possessed by few, if any, current and potential competitors
• Costly to Imitate- When other firms cannot obtain them / at a cost disadvantage in
obtaining them
• Nonsubstitutable- R&C are nonsubstitutable when they have no strategic equivalents
Core Competencies
When the 4 key criteria of R&C are met, they become core competencies, and serve as a
source of competitive advantage. Managerial competencies are especially important
• Resources & capabilities that serve as a source of a firm’s competitive advantage:
• Activities, a firm performs especially well compared to competitors, and through
which the firm adds unique value to its goods or services over a long period of time
• Emerge over time through an organizational process of accumulating and learning how
to deploy different resources and capabilities

Competitive Advantage
• Firms achieve strategic competitiveness and earn above-average returns when their
core competencies are effectively- acquired, bundled or leveraged
• Over time, competitors may duplicate benefits of any value-creating strategy

Creating competitive advantage


• Core competencies + product-market positions- source of competitive advantage
• Core competencies + environmental analysis (general, industry & competitor) drive
strategy selection

Sustainable Competitive Advantage- competitors unable to duplicate firm’s value-


creating strategy. Comes from a resource that is valuable in the market, possessed by only
a small number of firms (rare), and costly or difficult to imitate in the short term.

Four Criteria of Sustainable Competitive Advantage


Capabilities Advantage
Valuable Help a firm neutralize threats or exploit opportunities
Rare Not possessed by many others
Costly Historical: Unique & valuable organizational culture/ brand
to imitate Ambiguous cause: Causes & uses of a competence unclear
Social complexity: Interpersonal relationships, trust, and friendship
Nonsubstitutable No strategic equivalent

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Strategic Management‐ MBA Notes‐ Dr Amit Rangnekar 

Outcomes of combinations of criteria of Sustainable Competitive Advantage


Capability Capability Capability Capability Competitive Performance
valuable Rare costly to Non- consequences implications
imitate substitutable
No No No No Competitive Below average
disadvantage returns
Yes No No Yes/No Competitive Average
parity returns
Yes Yes No Yes/No Temporary Average to
competitive above-average
advantage returns
Yes Yes Yes Yes Sustainable Above-average
competitive returns
advantage

Value Chain Analysis: Template that allows firm to understand parts of its operations
that create value & those that do not
• Understand cost position
• Identify means to
facilitate implementation
of a chosen business-level
strategy
• Primary activities
involved with: product’s
physical creation,
product’s sale &
distribution to buyers,
product’s after sales
service
• Support activities-
provide necessary support
to enable primary
activities
• Shows how a product
moves from raw-material
stage to the final customer
• To be source of
competitive advantage, R/C must allow firm: To perform an activity in a superior
manner wrt how competitors perform it, or perform a value-creating activity that
competitors cannot complete

The Value-Creating Potential of Primary Activities


• Inbound logistics- Store & disseminate inputs (materials, inventory)
• Operations- Convert inputs from inbound logistics to final product form (machining,
packaging, assembly, etc.)
• Outbound logistics- Collecting, storing & physically distributing product to customers
(goods warehousing, order processing)
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Strategic Management‐ MBA Notes‐ Dr Amit Rangnekar 

• Marketing and sales- Providing means and inducing customers to purchase products
(advertising, promotion, distribution channels, etc.)
• Service- Enhancing or maintain a product’s value (repair, training, adjustment)
• Procurement- inputs to produce firm’s products (raw materials & supplies)
• Technological development- Improving firm’s product & processes in manufacturing
(process equipment, basic research, product design, etc)
• HR management- Recruiting, training and compensating personnel
• Firm infrastructure- Supporting the work of the entire value chain (management,
planning, finance, accounting, legal, government relations, etc.)
• Effectively and consistently identify external opportunities and threats
• Identify resources and capabilities, support core competencies

Examine each activity wrt competitors’ abilities & rate as superior, equivalent or inferior

The Challenge of Internal Analysis


Significantly influence firm’s ability to earn above-average returns
To develop and use core competencies, managers must have
• Courage, self-confidence, integrity, capacity to deal with uncertainty &
complexity
• Willingness to hold people (and themselves) accountable for their work

Outsourcing- The purchase of a value-creating activity from an external supplier


• Few organizations possess resources and capabilities required to achieve
competitive superiority in all primary and support activities
• By focusing on fewer capabilities firm can concentrate on creating value
• Specialty suppliers can perform outsourced capabilities more efficiently

Outsourcing Rationale Outsourcing Issues


Business focus Outsource to firms possessing core competence of performing primary
or supporting outsourced activity
Access to world-class Evaluate activities where firm itself can create & capture value
capabilities
Accelerate business re- Risky to outsource primary & support activities used to neutralize
engineering benefits environmental threats
Flexibility Outsource critical capabilities or activities that stimulate development
of new capabilities & competencies

Cautions and Reminders


• Core competencies will not continue to provide a source of competitive advantage
• Core competencies may become core rigidities, generate inertia & stifle
innovation
• Determining what the firm can do through continuous and effective analyses of its
internal environment increase the likelihood of long-term competitive success

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Strategic Management‐ MBA Notes‐ Dr Amit Rangnekar 

Business level strategy


• Integrated & coordinated set of
commitments & actions, firm uses to gain
competitive advantage by exploiting core
competencies in specific product markets
• Intended to create differences between
firm’s position relative to rivals
• Positioning- Decide whether to
• Perform activities differently- lower
overall costs, cheaper process) or
• Perform different (valuable) activities-
capability to differentiate product /service and command premium price

Business-Level Strategic Issues


Customers are the foundation of successful business-level strategy
• Who will be served by the strategy?
• What needs those target customers have that the strategy will satisfy?
• How those needs will be satisfied by the strategy?

Customers: Who, What, Where


Firms must manage all aspects
Consumer Customers Industrial of their customer relationship
Markets Markets with

• Reach: firm’s success and connection to customers


• Richness: depth & detail of 2-way information flow between firm & the customer
• Affiliation: facilitation of useful interactions with customers
Basis for Customer Segmentation
Consumer Markets
• Demographic factors (age, income, sex, etc.)
• Socioeconomic factors (social, religion, FLC stage)
• Geographic factors (cultural, regional, urban, rural)
• Psychological factors (lifestyle, personality traits)
• Consumption patterns (heavy, moderate, light users)
• Perceptual factors (benefit segmentation, perceptual map)

Industrial Markets
• End-use segments
• Product segments (technology, production economics)
• Geographic segments (country, regional differences)
• Common buyer segments (product market &
geographic segments)
• Customer size segments

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Strategic Management‐ MBA Notes‐ Dr Amit Rangnekar 

Customer Needs to Satisfy


What How
• Related to a product’s • Determine core competencies necessary to
benefits and features satisfy customer needs
• Representing desires • Use core competencies to implement value
in terms of features creating strategies that satisfy customers’ needs
and performance • Firms with capacity to continuously improve,
capabilities innovate & upgrade competencies can expect to
meet /exceed customer expectations across time

Competitive scope
Scope- Dimensions, including product groups, customer segments & geographic markets
• Broad scope- firm competes in many customer segments
• Narrow scope- firm selects a segment / group of segments in the industry and
tailors its strategy to serving them at the exclusion of others

Five Business-Level Strategies (Porter)


Competitive advantage
Cost Uniqueness
Broad Cost leadership Differentiation
Target
Integrated Cost leadership
/ Differentiation
Competitive Narrow
scope Target
Focused cost leadership Focused differentiation

Cost Leadership Strategy


• Integrated set of actions taken to produce relatively standardized goods/services
with features acceptable to many customers, at lowest competitive cost

Cost saving actions required are:


• Building efficient scale, manufacturing facilities, simplifying production processes
• Tightly controlling/minimising production/ sales/R&D and service costs
• Monitoring costs of activities provided by outsiders

How to obtain a Cost Advantage


Cost Drivers Value Chain
Alter production process New raw material
Change in automation Forward integration
New distribution channel Backward integration
New advertising media Change location relative to suppliers or buyers
Direct sales in place of indirect sales
Strategy- Determine and control Strategy -Reconfigure, if needed

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Eg- Value-Creating Activities Associated with the Cost Leadership Strategy

Cost Leadership Strategy of incumbents for


New Entrants frighten off by economies of scale & time to scale the learning curve
Suppliers mitigate suppliers’ power by absorbing cost increase due to low cost
position or by ability to make very large purchases
Buyers mitigate buyers’ power by driving prices far below competitors,
causing them to exit, thus shifting power with buyers back to the firm
Substitutes well positioned to invest to create substitutes, or buy patents developed
by potential substitutes, or lower prices to maintain value position
Competitors due to cost leader’s advantageous position, rivals hesitate to compete
on basis of price, lack of price competition leads to greater profits

Competitive Risks of cost leadership strategy


• Obsolescence of good/services producing processes due to competitors’ innovations
• Focus on cost reductions at expense of customers’ perceptions of differentiation
• Competitors may use own core competencies to imitate the cost leader’s strategy

Differentiation
An integrated set of actions taken to produce goods or services (at an acceptable cost)
that customers perceive as being different in ways that are important to them
• Nonstandardised products
• Customers value differentiated features more than they value low cost

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Strategic Management‐ MBA Notes‐ Dr Amit Rangnekar 

How to Obtain a Differentiation Advantage

Differentiation Strategy of incumbents for


New entrants Defend by offering new products with equal performance but lower
price
Suppliers Mitigate by absorbing price increase due to higher margins, pass on
power higher supplier prices to buyers loyal to differentiated brand
Buyers Mitigate buyers’ power as well differentiated products reduce customer
power sensitivity to price increases
Substitutes Well positioned relative to substitutes, brand loyalty to differentiated
threat product may deter customers trying new products or switching brands
Competitors Defends against competitors because brand loyalty to differentiated
product offsets price competition

Focus strategies- Integrated set of actions that produce goods / services to serve a
particular competitive segment (buyer group) / different segment of a product line /
different geographic markets

Factors That Drive Focused Strategies


• Large firms may overlook small niches
• A firm may lack the resources needed to compete in the broader market
• Firm can serve a narrow market segment more effectively than larger competitors
• Firm can direct resources to value chain activities to build competitive advantage

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Strategic Management‐ MBA Notes‐ Dr Amit Rangnekar 

Integrated Cost Leadership/ Differentiation Strategy


Firm using an integrated cost leadership/differentiation strategy in a better position to:
• Adapt quickly to environmental changes
• Learn new skills and technologies more quickly
• Effectively leverage its core competencies while competing against its rivals

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Competitive Rivalry & Competitive Dynamics


Competitors- Firms operating in the same market, offering similar products and
targeting similar customers
Competitive Dynamics- Ongoing actions and responses taking place between all firms
competing within a market for advantageous positions
Competitive behavior- The set of competitive actions & competitive responses the firm
takes to build or defend its competitive advantages and to improve its market position
Competitive dynamics- The total set of actions and responses taken by all firms
competing within a market
Multimarket competition- Firms competing against each other in several product or
geographic markets

Competitive Dynamics

A Model of Competitive Rivalry


Firm’s competitive actions have noticeable effects on competitors & elicit competitive
responses. Market success is a function of individual strategies & consequences of their
use

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Competitor analysis
• Understand competitors future objectives, current strategies, assumptions & capabilities
• Predict competitor behaviour, anticipate response, form competitive actions &
responses
• Market commonality & resource similarity with competitors

Competitive rivalry- Ongoing actions and responses taking place between an individual
firm and its competitors for an advantageous market position

Strategic action or response- A market-based move that involves a significant


commitment of organizational resources and is difficult to implement and reverse

Tactical action or response- A market-based move taken to fine-tune a strategy.


Usually involves fewer resources and is relatively easy to implement and reverse

Competitive action- A strategic or tactical action the firm takes to build or defend its
competitive advantages or improve its market position

Competitive response- A strategic or tactical action the firm takes to counter the effects
of a competitor’s competitive action

Factors Affecting Likelihood of Attack


First mover Allocate funds for product innovation, aggressive advertising, R&D
Can gain loyalty of customers committed to the firm’s goods or services
Difficult for competitors to take market share
Second Responds typically through imitation
mover Studies customer reactions to innovation, avoids mistakes & huge spends
May develop more efficient processes and technologies
Late mover Responds to competitive action after considerable time has elapsed
Slow to succeed, lesser share & average returns than first & second
movers
Small firms More likely to launch quicker competitive actions, rely on speed and
surprise to defend competitive advantages or develop new ones
Large firms Likely to initiate more competitive and strategic actions over a period

Quality exists when firm’s goods or services meet or exceed customers’ expectations
Product Quality Dimensions
• Performance—Operating characteristics
• Features—Important special characteristics
• Flexibility—Meeting operating specifications over some period of time
• Durability—Amount of use before performance deteriorates
• Conformance—Match with preestablished standards
• Serviceability—Ease and speed of repair
• Aesthetics—How a product looks and feels
• Perceived quality—Subjective assessment of characteristics (product image)

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Service Quality Dimensions


• Timeliness—Performed in the promised period of time
• Courtesy—Performed cheerfully
• Consistency—Giving all customers similar experiences each time
• Convenience—Accessibility to customers
• Completeness—Fully serviced, as required
• Accuracy—Performed correctly each time

Competitive dynamics
Slow cycle market Fast cycle market Standard cycle
market
Competitive Shielded from Not shielded from Moderately shielded
advantage imitation for long imitation from
periods of time
Sustainability High Low Partial
Imitation Costly Quick & inexpensive moderate
Strategy Concentrate on Competitors reverse Upgrade quality is
competitive actions engineer to quickly continuously
& responses to imitate or improve on Firms seek large
protect, maintain & firm’s products market shares
extend proprietary Non-proprietary Firms gain customer
advantage technology diffused loyalty through brand
rapidly names
Firms carefully control
operations
Industry Pharma R&D patents Reverse engineering HUL, P&G
Disney characters firms- Indian pharma
PC makers

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Strategic Management‐ MBA Notes‐ Dr Amit Rangnekar 

Corporate level strategy


Corporate-level Strategy (Companywide)
Specifies actions taken by a firm to gain competitive advantage by selecting & managing
a group of different businesses competing in several industries and product markets

Business-level Strategy (Competitive)


Each business unit in a diversified firm chooses a business-level strategy as its means of
competing in individual product markets

Diversification
When a firm chooses to diversify beyond a single industry and operate businesses in
several industries. Firm creates value by productively using excess resources.

Product diversification concerns scope of the industries and markets in which the firm
competes and how managers buy, create and sell different businesses to match skills and
strengths with opportunities presented to the firm

Diversification levels
Low Single >95% revenue from single business 1
business
Dominant 70-95% revenue from single business 1 2
business
Moderate Related <70% revenue from dominant
to High constrained business & all businesses share 1
product, technological & distribution 2 3
linkages
Related <70% revenue from dominant
linked business and limited linkages between 1 2 3
businesses
Very Unrelated <70% revenue from dominant
High business and no linkages between 1 2 3
businesses

Diversifying to Enhance Competitiveness


Related Diversification- Firm creates value by building upon or extending its resources,
capabilities and core competencies
• Economies of scope- Cost savings that occur when a firm transfers capabilities
and competencies developed in one of its businesses to another of its businesses
• Sharing activities
• Transferring core competencies
• Market power- when firm can sell its products above existing competitive level
and/or reduce the costs of its primary & support activities below competitive level
• Vertical integration-
• Backward integration—a firm produces its own inputs
• Forward integration- firm operates own distribution system to deliver its outputs

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Unrelated Diversification
• Financial economies- cost savings through improved allocations of financial
resources, create value through efficient internal capital allocations, purchase
other corporations & restructure their assets
• Efficient internal capital allocation- Corporate office distributes capital to SBU to
create overall value
• Business restructuring-
• Creates value by buying & selling other firms’ assets in external market
• Focus on mature, low-technology businesses, not reliant on a client orientation

Reasons for Diversification


Incentives and Resources with Neutral Effects on Strategic Competitiveness:
• Antitrust regulation, Tax laws
• Low performance, Uncertain future cash flows
• Risk reduction for firm
• Tangible resources, Intangible resources

Managerial Motives (Value Reduction)


• Diversifying managerial employment risk
• Increasing managerial compensation

Strategic Motives
• Economies of scope (related diversification)
Sharing activities
Transferring core competencies
• Market power (related diversification)
Blocking competitors through multipoint competition
Vertical integration
• Financial economies (unrelated diversification)
Efficient internal capital allocation
Business restructuring

Diversification Methods- Internal Ventures, M&A, JV

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Strategic Management‐ MBA Notes‐ Dr Amit Rangnekar 

Acquisition & Restructuring Strategies

Internal Ventures
Internal ventures make use of the R&D programs of the organization
• Advantages- Control over the venture, information not shared, profits retained
• Disadvantages- High failure risk, lot of time to execute, Internal resources locked
Mergers and Acquisitions (M&A)
Mergers & acquisitions also undertaken to “buy” innovation than produce in-house
• Add scale
• Fast way to enter new markets and geographies
• Acquire new products / services / technologies / knowledge and skills
• Vertically integrate
• Fill needs in the corporate portfolio

• Merger- when 2 firms agree to integrate operations on a relatively co-equal basis


• Acquisition- strategy where a firm buys a controlling, or 100% interest in another
firm, to make the acquired firm a subsidiary business within its portfolio
• Takeover- A special type of acquisition when the target firm did not solicit the
acquiring firm’s bid for outright ownership
• Most research indicates that mergers and acquisitions perform poorly

Horizontal acquisition
•Acquisition in the same industry increases firm’s market power by exploiting
cost-based and revenue-based synergies
•Acquisitions with similar characteristics result in higher performance than those with
dissimilar characteristics

Vertical acquisitions
•Acquisition of a supplier or distributor of one or more of the firm’s goods or services
•Increases a firm’s market power by controlling additional parts of the value chain
Related acquisitions
•Acquisition of a company in a highly related industry
•Difficulty in implementing synergy, make related acquisitions difficult to implement

Reasons for acquisitions Problems with acquisitions


Increased market power Overestimation of synergies
Overcoming entry barriers Recovering deal premium
Low risk compared to NPD Integration
Develop new capabilities Inadequate target evaluation
Competition Managing size
Diversification Too much diversification
Faster to market than NPD Complacency

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Strategic Management‐ MBA Notes‐ Dr Amit Rangnekar 

Why Mergers Don’t Work Why Mergers Work


• Large or extraordinary debt • Strong relatedness
• Overconfident or incompetent • Friendly negotiations
management • Low-to-moderate debt
• Ethical concerns
• Changes in top management team
• Continued focus on core strengths
and/or organizational • Careful selection of & negotiations with
• Inadequate analysis (due diligence) target firm
• Diversification away from the firm’s • Strong cash or debt position
core • Similar firm cultures & management
styles
• Sharing resources across companies

Restructuring
• A strategy through which a firm changes its set of businesses or financial structure
• Failure of an acquisition strategy often precedes a restructuring strategy
• Due to changes in the external or internal environments

Restructuring strategies:
Strategy What happens Short term outcomes Long term
outcomes
Down Reduction in number of Reduced labour costs Loss of human
sizing employees/operating More efficient operations capital
units Lower performance
Down Divestment / spin-off to Reduced debt costs Higher performance
scoping eliminate non core Strategic controls emphasis
businesses & refocus
Leveraged A party buys the firm’s Strategic controls emphasis Higher risk
buyouts assets to take it private High debt costs
Can correct managerial
mistakes, facilitate
entrepreneurial growth

Concentration
Concentration ratio
Consolidation

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Strategic Management‐ MBA Notes‐ Dr Amit Rangnekar 

International Strategy
Strategy where a firm sells its goods or services, outside its domestic market.

Determinants of National Advantage


• Factors of production: the inputs necessary to compete in any industry- Labour,
land, natural resources,
capital, infrastructure and
an educated workforce
• Demand conditions:
nature and size of
domestic buyers’ needs
can lead to scale-efficient
facilities, efficiency can
lead to domination in own
/ other countries

• Related & supporting


industries: supporting
services, facilities, suppliers especially for support in design and distribution
• Firm strategy, structure and rivalry: Cooperative and competitive systems

Reasons for pursuing an international strategy range from


• New opportunities, market expansion, product life cycle extension
• Higher potential for product demand and better value realisation
• IPR opportunities, access to technology or R&D or distribution channels
• Economies of scale or learning
• Location advantage- access to raw materials, low cost labour, key customers and
energy sources

Multidomestic strategy- Strategy and operating decisions are decentralized to strategic


business units (SBU) in each country
• Products & services tailored to local
markets
• SBUs independent across countries
• Assumes markets differ by country or
regions
• Competition focus in each market
• Common strategy of EU firms due to
variety of cultures & markets

Global strategy- Products are standardized


across national markets
• Business-level strategy decisions are
centralized in the home office
• SBU assumed to be interdependent

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• Emphasizes economies of scale


• Lack local market responsiveness
• Requires resource sharing and coordination across borders (hard to manage)

Transnational strategy- Seeks to achieve both global efficiency and local


responsiveness
• Difficult to achieve because of simultaneous requirements
• Strong central control and coordination to achieve efficiency
• Decentralization to achieve local market responsiveness
• Must pursue organizational learning to achieve competitive advantage

Choice of International Entry Mode


Type of Entry Characteristics Dynamics
Exporting High cost, low control The firm has no foreign
manufacturing expertise and requires
investment only in distribution.
Licensing Low cost, low risk, little control, The firm needs to facilitate the
low returns product improvements necessary to
enter foreign markets.
Strategic Shared costs, shared resources, The firm needs to connect with an
alliances shared risks, problems of experienced partner already in the
integration targeted market.
Acquisition Quick access to new market, The firm needs to reduce its risk
high cost, complex negotiations, through the sharing of costs.
problems of merging with
domestic operations
New wholly Complex, often costly, time The firm’s intellectual property
owned consuming, high risk, maximum rights in an emerging economy are
subsidiary control, potential above-average not well protected, the number of
returns firms in the industry is growing fast,
and the need for global integration is
high.

Risk in the International Environment


• Political: Political instability, civil & international war, nationalization of resources
• Economic- Interdependent with political & include fluctuations in forex rates, wage
rates, enforcing property rights and unemployment
• Cultural- local customs, traditions and language

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Cooperative Strategy
Strategy in which firms work together to achieve a shared objective to create customer
value and establish a favorable position relative to competitors

Strategic Alliance
Combine resources and capabilities of firms to create a mutually competitive advantage.
To co-develop, co-market or distribute goods and services. Competitive advantage
developed through a cooperative strategy is called a collaborative or relational advantage.

Types
• Joint Venture- 2 or more firms create an independent firm by sharing some of their
resources and capabilities
• Equity Strategic Alliance- Partners own different equity shares in separate company
• Non-equity Strategic Alliance- 2 or more firms develop a contractual relationship to
share some of their unique resources and capabilities

International Cooperative Strategies


• Cross-border Strategic Alliance- firms across nations combine R&C to create a
competitive advantage, in either domestic / international markets
• Synergistic Strategic Alliance- Allows risk sharing by reducing financial investment
• Host partner knows local market and customs
• Difficult to manage differences in styles, cultures or regulatory constraints
• Risk of partner gaining technology access and becoming a competitor

Reasons for Strategic Alliances


Market Reason
Slow Cycle •Gain access to a restricted market (Insurance JVs in India)
•Establish a franchise in a new market
•Maintain market stability (e.g., establishing standards)
Fast Cycle •Speed up development of new goods or service (Dell)
•Speed up new market entry
•Maintain market leadership
•Form an industry technology standard
•Share risky R&D expenses, overcome uncertainty
Standard Cycle •Gain market power (reduce industry overcapacity)
•Gain access to complementary resources
•Establish economies of scale
•Overcome trade barriers
•Meet competitive challenges from other competitors
•Pool resources for very large capital projects
•Learn new business techniques

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Business-Level Cooperative Strategies


• Complementary strategic alliances- Vertical, Horizontal
• Competition response strategy
• Uncertainty reducing strategy
• Competition reducing strategy
• Complementary Alliances- Combine partner firms’ assets in complementary ways
to create new value. Include distribution, supplier or outsourcing alliances where
firms rely on upstream or downstream partners to build competitive advantage
• Franchising- Spreads risks and uses resources, capabilities, and competencies
without merger or acquisition. A contractual relationship
• Alternative to growth through M&A

International Cooperative Strategies


• Cross-border Strategic Alliance- Firms with headquarters in different nations
combine resources and capabilities to create a competitive advantage
• Synergistic Strategic Alliance- Allows risk sharing by reducing financial
investment.
• Network Cooperative Strategy
• Several firms agree to form multiple partnerships to achieve shared objectives

Competitive Risks of Cooperative Strategies


• Partners may act opportunistically or misrepresent competencies
• Partners fail to make committed resources & capabilities available to partners
• One partner may make investments specific to the alliance while its partner does not

Strategic Alliances and Joint Ventures


• Resource sharing--marketing, technology, raw materials and components, financial,
managerial, political
• Speed of entry
• Spread risk of failure
• Increase strategic flexibility
• Learn from venture partners
Problems with Strategic Alliances and Joint Ventures
• Only partial control and shared profitability
• High administrative costs
• Possible lack of fit
• Risk of opportunism
• Foreign JV are even more risky due to potential for miscommunications,
misunderstandings and lack of shared knowledge about the constraints of the external
environment

Strategic Direction
• Setting long-term goals and objectives, like- mission & vision
• Defines the purposes for which an organization exists & operates
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Strategy Formulation
• Strategy is an organizational plan of action intended to accomplish goals.
• Corporate strategy formulation refers to domain definition, or the choice of business
areas. Usually decided by the CEO and the BOD.
• Business strategy formulation involves domain direction and navigation, or how to
compete in a given area. Usually decided by SBU heads & managers.
• Functional strategy formulation contains the details of how the functional areas such
as marketing, operations, finance, and research should work together to achieve the
business-level strategy.

Strategy Implementation and Control


• Strategy implementation involves creating the functional strategies, systems,
structures, and processes needed by the organization in achieving strategic ends.
• Strategic control refers to the processes that lead to adjustments in strategic direction,
strategies, or the implementation plan when necessary.
• Strategic restructuring involves a renewed emphasis on what an organization does
well, combined with a variety of tactics to revitalize the organization and strengthen its
competitive position.

Alternative Perspectives on Strategy Development


Traditional Strategic Management Process
• Situation Analysis--Strengths, Weaknesses, Opportunities and Threats (SWOT)
• Strategies should take advantage of strengths and opportunities or neutralize or
overcome weaknesses and threats
• Environmental Determinism--the best strategy involves adapting to environmental,
technical and human forces
• Strategy is deliberate (always planned and intended by management)
Business Level strategies

Business-Level Strategy Formulation Responsibilities


• Direction setting—Mission, vision, ethics, goals
• Situation analysis—Compilation and assessment of information
• Selection of strategies—Generic strategy (cost leadership, differentiation, best cost,
focus) and strategic posture (specific strategies)
• Management of resources—Acquisition and/or development of resources leading to
competitive advantage

Business-Level Strategies- Growth & Competitive Strategies


Growth Strategies
• Investment in resources to achieve growth in sales (assuming the industry is attractive)
• Investments over time may involve a redefinition/expansion of organizational scope
• Concerns: Activities and resources to invest in, implications for scope and complexity,
and the timing relative to competitors

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Growth Strategies
Internal Strategies External Strategies
• Market penetration • Horizontal integration
• Market development • Alliance formation
• Applications development
• Product development

Rate at Which Firms Introduce New Products or Enter New Markets


Prospectors- First mover Analyzers- Follow first mover when opportunity is proven
Defenders- Defensive strategy Reactors- No distinct strategy

Competitive Strategies-Value propositions associated with generic competitive


strategies
Differentiation: Offer value to customers by providing them preferred product / service
Cost leadership: Offer value to customers by providing them with a standard product or
service produced at lower cost (and typically offered at a lower price)
Best cost: A combination of the first two options.

Note: these strategies assume that the firm is seeking a broad customer base. If the firm is
pursuing a particular market segment it is using a “focus” strategy.

Differentiation
Create Value Through Uniqueness
• Superior Quality
• Innovations and Research
• Speed and Flexibility
• Reputation and Brand Name
• Creative advertising
Customers Must Be Willing to Pay More for Uniqueness
• Added costs vs. incremental price
Cost Leadership
• Accurate Demand Forecasting and High Capacity Utilization
• Economies of Scale
• Technological Advances
• Learning/Experience Effects
Typical Learning/Experience Curve
Best Cost-Combination of cost leadership and differentiation
• May actually be the dominant strategy among the most successful companies today
Either: The same resources/activities that allow cost reductions also allow
differentiation. (e.g., automation that lowers costs and improves speed and service).
• Profits from cost reductions are used to invest in differentiating features & vice versa.

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Strategic Management‐ MBA Notes‐ Dr Amit Rangnekar 

International Expansion Tactics


• Exporting
• Licensing
• Franchising
• Joint Venture
• Greenfield Venture
Global Product/Market Strategy
• Multidomestic Product/Market Strategy
• Global Product/Market Strategy
• Transnational Product/Market Strategy
Corporate Strategies
• Concentration
• Vertical Integration
• Unrelated Diversification
• Related Diversification
Advantages of Concentration
• Master one business- In-depth knowledge, Easier to achieve competitive advantage
• Organizational resources under less strain
• Prevents proliferation of management levels and staff functions
• Dependent on industry, sometimes more profitable than other strategies
Disadvantages of Concentration
• Risky in unstable environments
• Product obsolescence and industry maturity
• Cash flow problems
The Vertical Supply Chain
When to Vertically Integrate-Common reasons for vertical integration
• Increased control over quality of supplies or the way the product is marketed
• Better information about supplies or markets
• Greater opportunities for differentiation through coordinated effort
• Opportunity to increase profits by performing another function in vertical supply chain

Transactions Costs and Vertical Integration


Basic Proposition: Firms should buy from market as long as transactions costs are low.
• Transactions costs are reflected by the time and resources needed to create and enforce
a contract to purchase goods and services.
• If transactions costs are high, the market fails to provide the best deal
• Transactions costs are high (the market fails) if:
Highly uncertain future

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One or small number of suppliers


One party to a transaction has more knowledge about the transaction than the other
An organization has to invest in an asset that can only be used to produce a specific
good or service (asset specificity)

Unrelated Diversification
• Large, highly diversified firms are called conglomerates
• Not a high performing strategy for most firms (with a few notable exceptions) in
industrialized nations like the U.S.
• Difficult for a top manager to understand and appreciate the core technologies, key
success factors and special requirements of each business area

Related Diversification
• Based on tangible and intangible relatedness
• In theory, can lead to synergy (but synergy is often illusive)
• Often a higher performing strategy than unrelated diversification (lower risk and higher
profitability)
• Can lead to corporate-level distinctive competencies
Requirements for Synergy Creation
Relatedness
• Tangible--same physical resources for multiple purposes
• Intangible--capabilities developed in one area can be used elsewhere
• Fit
• Strategic-matching of organizational capabilities-complementary resources & skills
• Organizational--similar processes, cultures, systems and structures
• Managerial actions to share resources and skills
• Benefits must outweigh costs of integration
Strategy Implementation
• the role of leadership in successful execution of strategies
• how culture and organizational energy influence success of strategy implementation
• functional strategies and their importance to strategy implementation
• the stages firms encounter as they execute global strategies
• basic organizational structures, and their strengths and weaknesses
• the various roles played by foreign subsidiaries

Four Primary Responsibilities of Leaders


• Design organizational purpose, vision and core values
• Develop policies, strategies and structure
• Create an environment for organizational learning
• Serve as a steward for the organization

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Situational Leadership
• Leadership style should fit the situation
• Effective leaders employ range of styles- coercive to coaching to consensus-building
• Most successful leaders exhibit a high degree of emotional intelligence
Organizational Culture
An organization’s culture, the system of shared values that guides employee beliefs and
behavior, influences the success of strategy implementation.
• Often reflects the values and leadership styles of top executives
• HRM practices can influence culture – recruitment, training, performance evaluation
Challenge of the Future
• Technological advancements, including communications and the Internet
• Globalization
• Blended cultures, diverse and mobile labor pools
• New companies from emerging markets
• More educated, demanding customers
• Increased concern about governance and social responsibility
Challenges for managers:
• retaining valuable employees
• creating and preserving competitive advantage
• holding back new entrants
• serving increasingly demanding customers
• choosing and timing technology investments at a time when change is so rapid
• major shocks associated with terrorism, new diseases and wars
Business Tactics (Strategic Management, Alex Miller)
Anticipatory Engagement
Offensive Preemption Attack
• Pioneer • Frontal
• Attack • Flank
• Intimidate • Guerilla
• Capture • Siege
Defensive Deterrence Response
• Raise structural barriers • Counter attack
• Expect retaliation • Fast follow
• Discourage attack • Retrenchment
• Diplomatic peacekeeping • Withdrawal

Scenario: An internally consistent view of what the future might turn out to be – not a
forecast, but one possible future outcome (Porter).

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Strategic Management‐ MBA Notes‐ Dr Amit Rangnekar 

Scenarios help us to understand today better by imagining tomorrow, increasing the


breadth of vision and enabling us to spot change earlier … Effective future thinking
brings a reduction in the level of crisis management and improves management
capability, particularly change management.

Growth Strategies
The different routes to growth fall broadly into 5 options, but, they are not mutually
exclusive and can overlap. They maybe limited by available resources, but require a clear
focus on objectives and a sustained level of commitment.

• Organic growth
• Mergers and acquisitions
• Integration
• Diversification
• Specialisation

Business level growth strategies: New products, new markets, new geographies
(Ansoff’s model)

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Strategic Management‐ MBA Notes‐ Dr Amit Rangnekar 

Takeover defense strategies

Crown Jewels
A defense against a takeover in which a company sells its most precious assets to a
friendly buyer. The suitor then disappears since the target of its pursuit has gone
elsewhere and the company rebuys its assets from its friend.

Pac-man defense
A takeover, in which the target bites back, and makes an offer to take over the shares of
the suitor. The name is derived from a once popular video game.

Poison Pill
A range of devices designed to make a takeover unpalatable to the swallower (acquirer).
Eg accompany might borrow a large sum of money in order to distribute it immediately
as dividends to the company’s shareholders; or it might make an issue of preferred stock
that gives shareholders the right to redeem it at a hefty premium after a takeover
Scorched Earth

Shark Repellant
A smell put out by a company to deter potential suitors. Eg Laked announcement about a
‘secret’ contract to pay millions to existing managers should the company be taken over.

Scorched Earth defense


A defense against a takeover by destroying (or selling) large parts of the business, or
atleast ensuring that they will be destroyed should the company that owns them be taken
over. A somewhat drastic defense that involves an awkward irony; what should you do if
it succeeds, and the suitor is deterred? How do you make grass grow again on the
scorched earth?

White Knight
A firm which rescues a company that is in the throes of an unwelcome takeover.

Dawn Raid
An early morning purchase on the stock market, of a large block of a company’s shares,
by an investor who has an eye on taking over the company. Aimed at pre-empting any
other potential raider from gaining a similar stranglehold on the takeover target.

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