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STRATEGIC MANAGEMENT

COURSE MATERIAL (CM) 1. Peter Fitzroy et al, „Strategic Management – the Challenge of Creating Value‟; Routledge, Francis and Taylor Group

EVALUATION SCHEME
• EXAMINATION & QUIZZES (50 Marks): • -- End – term Examination ----- 30 marks • -- Three Quizzes ----- 20 marks • • • • INTERNAL ASSESSMENT (50 MARKS): -- Attendance & Participation ----- 10 marks -- Class Presentations & Discussions – 20 marks -- Projects-Presentations & Written ----- 20 marks Submissions

STRATEGY

WHAT IS STRATEGY? Derived from Greek 'Strategia', which connotes General‟s art & science of planning & conducting war. Strategy is a unified, comprehensive & integrated plan of the enterprise to meet challenges of the environment; and designed for achievement of its objectives, through proper implementation process (& use of Strat. Advs.).

STRATEGY-DEFINITIONS
• Strategy can be defined as a long-term blueprint and game plan of an organisation's desired direction & destination - of what it wants to be, what it wants to do & where it wants to go. • Strategy is a higher level unified, comprehensive and integrated plan of courses of actions, which is of vital importance to the organisation as a whole. It may be aimed at maintaining or improving its position in the competitive

al.” • Thompson & Strickland .“A company's strategy consists of the combination of competitive moves and business approaches that managers employ to please customers. compete successfully. – “Strategy is the direction & scope of an organisation over the long term.DEFINITIONS (contd.) • Johnson et. and achieve . which achieves advantage in a changing environment through its configuration of resources and competences with the aim of fulfilling stakeholder expectations.

. Yale Univ. Kami • Important for attaining / maintaining competitive business or market advantage of the organisation. in a dynamic.IMPORTANCE OF STRATEGY • “ Strategy means making clear-cut choices about how to compete” – Jack Welch (ex CEO GE) • “Strategy is a commitment to undertake one set of actions rather than another” – Sharon Oster (Prof.Joel Ross & M. uncertain & changing environment. .) • “Without a strategy the organization is like a ship without a rudder”.

uncertain & changing environment. Kami • Important for attaining / maintaining competitive business or market advantage of the organisation.) • “Without a strategy the organization is like a ship without a rudder”. . Yale Univ. in a dynamic..IMPORTANCE OF STRATEGY • “ Strategy means making clear-cut choices about how to compete” – Jack Welch (ex CEO GE) • “Strategy is a commitment to undertake one set of actions rather than another” – Sharon Oster (Prof.Joel Ross & M.

competitive capabilities. • Resulting in better company performance – gain in profitability & financial strength. . the better is the strategy. industry. and gain in competitive strength & market standing. • How well it is helping company achieve sustainable competitive advantage – the bigger and more durable competitive edge. competition.WHAT MAKES THE STRATEGY A WINNER • How well it fits the company's situation – well matched to external environment. competencies. weaknesses. and internal situation of strengths. market opportunities etc.

• Strategic Management involves leadership skills. In the world with complex interactions & uncertainty. & competitive environment of organisation. . their people asset.STRATEGIC MANAGEMENT • Strategic Management is first & foremost about creating organisations. Twofold demand of value creation – excellent execution of current activities. matter. The organisations. that create value. analysis and planning. value creation requires continuous innovation. intellect. and developing capabilities for tomorrow. intuitive judgement.

integrity. rational remunerations of CEOs. creativity. processes. systems. • Creating & Managing Change – must change as fast or faster than environment (turbulence. fairness. Involves designing organisational structure. uncertainty). proactivity. higher revenue than the costs. integrity. values. . developing people – leadership. risk taking etc.Characteristics of Strategic Management • Creating the Organisation – that both responds to and introduces change. continually and not just in the present. greater sharing of information within organisation. • Creating Value – organisations are economic entities & must generate value. • Ethics – personal values. culture. vision. transparency.

Three components of Strategic Management Process. al. -. al.” – Peter Fitzroy et.” –Johnson et.Strategy Formulation -.STRATEGIC MANAGEMENT • “The challenge of Strategic Management is to be able to understand complex issues facing organisations and develop the capability for long-term organisational success.Strategic Implementation • • • • • .Strategic Decision -. “Strategic Management is the managerial process of creating organisations that generate value in a turbulent world over an extended period of time.

social. • b) Strategic Capability – made up of its resources & competences. Strategy Formulation . environmental. ethics.STRATEGIC MANAGEMENT PROCESS • Strategic Management Process – the three components: • 1. .Understanding strategic position of the organisation. & legal. corporate governance. resulting in strengths & weaknesses of an organisation. values. economic. and • c) Expectations from & purpose of the organisation – influenced by CEO‟s vision. which includes. giving rise to Opportunities & Threats. organisation‟s culture and stake holders. • Contd. technological. • a) The Environment – political.

people. • 3. Turning strategy into action . cultural.STRATEGIC MANAGEMENT PROCESS (contd. based on own competitive advantages. relationships etc) within organisation.e. & study of markets. Strategic choices/decisions for the future – the choices in terms of how the organisation may seek to compete both at the corporate and business unit levels. roles. information. or through separate resource pool i. finance. which need to be managed • . customers & strategic capabilities.implementation: a) Structuring the Organisation – organisational structures. technology • c) Managing of Change – strategic management often involves „changes‟ (of structures. processes and relationships • b) Enabling Success – either through existing resources & competences.) • 2.

CHANGES AFFECTING STRATEGIC MANAGEMENT • • • • • GLOBALISATION INCREASED COMPETITION TECHNOLOGY CHANGE KNOWLEDGE INTENSITY CORPORATE SOCIAL RESPONSIBILITY & SUSTAINABILITY • DEREGULATION & PRIVATISATION • ECONOMIC DOWN-TURN (CURRENT) .

managing current activities for higher value – continuous improvement through exploitation of current advantages • REVOLUTIONARY / RADICAL STRATEGY.TYPES OF STRATEGY • INCREMENTAL STRATEGY. but the gap may be made-up through the . creating major changes for quantum jump in the market position through new innovative exploration • Note. ‘Strategic Drift’ takes place when the corporate strategy lags behind the changing environment – more likely to happen in the former.

Its development involves both. values & expectations of CEO and other influential stake holders. and experimentation & adaptation from actual experiences.analysis by senior management. Crafting Strategy is an on-going work. • • .Nature of Strategy • • • It is partly Proactive & partly Reactive. A company's Strategy evolves & emerges over time. Often influenced by vision. not one time event.

g. boundaries Seeks to use or create advantage over competition & environmental challenges Creation & deployment of resources. competences Decisions are complex. partnership. joint ventures. comprehensive & integrated plan Concerned with organisation‟s scope. acquisitions. franchise Seeks „strategic fit‟ by correct „positioning‟ with „business environment‟ – build & support identified market needs Affects operational decisions – to be in line & reap strategic advantage .CHARACTERISTICS OF STRATEGY • • • • • • • • • Provides overall game plan & direction of organisation. Long-term/futuristic direction of an organisation Unified. on merger. & usually involve changes in organisation e. consortiums.

for success in its geographical or product/services and market areas. scope i.g. components.e. marketing. for Business & Corporate level strategies‟ success e.THREE LEVELS OF STRATEGY • CORPORATE LEVEL STRATEGY – for corporate as a whole. geographical coverage. HR etc. production units of organisation. • OPERATIONAL/FUNCTIONAL LEVEL STRATEGY.e. • BUSINESS LEVEL STRATEGY – at Strategic Business Unit (SBU) level i. allocation of resources to different parts & business units of the firm/organisation. diversity of products/services & business units.for component parts of organisation to effectively deliver resources. processes and people. .

” contd. HMT's “To be a leading Global Engineering Conglomerate focused on customer delight in our fields of endeavour. e.VISION. OBJECTIVE & GOALS • VISION: Strategic vision is “where we are going and why”. MISSION. • .g. It is the “strategic intent & directional road map” of where the company intends to head in its strengths & in businesses.

any time.: “Empower people through great software .Developing Strategic Vision • Levi Strauss: “We will clothe the world by marketing the most appealing & widely worn casual clothing in the world.” • Greenpeace: “To halt environmental abuse and promote environmental solutions.” • Microsoft Corp. any place.” . and on any device.

VISION. e.g.”. The purpose & result of present activities.g. by reducing waste”.” • OBJECTIVE: Commonly such as “make profit for share holders while selling cars to customers”. MISSION. “Our mission is to give our customers the best food & beverage values that they can find. May be quantified.) • MISSION: It is “What business are we in? Who we are. “to improve market position of orgn. It is different from company's objective. . OBJECTIVE & GOALS (contd. what we do. • GOAL: General qualitative statement of aim or purpose e. “to enhance wealth creation for stake holders. and why we are here – a brief overview of company's present business purpose”.

cost structures and profit margins. Dell vs. printer cartridge costs. HP PC selling.g. .STRATEGY AND BUSINESS MODEL • Business Model • A company's Business Model deals with revenue-costprofit economics of its Strategy – i. • Strategy • The Strategy relates to competitive initiatives & business approaches irrespective of financial outcomes. its plan of profit making. as outcome of its strategy of product lines. and Value Capture for business unit. car finance. whereas business model deals with flow of cost & revenue and business viability as outcome of the strategy. e. competitive approaches.e. Its important components are Value Creation for customers.

.g. environmental & legal world – creating opportunities or threats. revenue & profit of the organisation. The organisation‟s external environment. services. economic. component supply & product manufacture to distributor and retail. • BUSINESS MODEL – Describes structure and flow of products. technological. • ENVIRONMENT – Organisation‟s context of complex political. demographic. social. costs.ASSOCIATED VOCABULARY • STRATEGIC CAPABILITY – Unique Resources and Core Competences of organisation that impart it strategic advantage over competitors. • STRATEGIC CONTROL – Monitoring outcome of organisation‟s strategy and suggesting corrective actions / revision of objectives. & role of each participant e. information. if required.

Positioning of organisation through rational. What is organisational culture? • STRATEGY AS IDEA – Based on emphasis on innovation. structured & directive process. variety & diversity in organisation – emerging from within. analytic. • In practice the above three may be complementary for STRATEGY DEVELOPMENT APPROACHES “THE THREE STRATEGY LENSES” . & not so much as supplanted by top management. through analytic & evaluative techniques. • STRATEGY AS EXPERIENCE – Future strategies are based on past adaptations & influenced by experiences of managers & others in the organisation. Factors of „individual experiences & biases‟& „collective experience & organisational culture‟ influence strategy crafting.• STRATEGY AS DESIGN – Logical process. High technology businesses require innovation & speed of change. usually seen as topmanagement‟s responsibility.

top management / CEO / owner in full picture of customers. need for balanced resources allocation. ITS BUSINESS AND CIRCUMSTANCES: • SMALL BUSINESS CONTEXT – Small market/s. corporate and regional head offices. subsidiaries. and hence formulates & implements competitive strategy within that space. • MULTINATIONAL CORPORATION – Diverse range of products and geographical markets. small range of products. large logistics etc require complex strategic management and planning. finance etc. Some of its SBUs may . and Strategic Business Units. competition. coordination. spread out manufacturing units. marketplace.STRATEGIC MANAGEMENT IN DIFFERENT CONTEXTS • MAY TAKE MANY FORMS DEPENDING ON TYPE OF ORGANISATION. suppliers. and small geographical spread. requiring many divisions.

strategies are crafted accordingly. Competitive strategy is required . Devoid of competition. churches etc are run as per underlying values & ideologies of promoters & donors. NGOs. competition on services provided – insurance. Brand image & competitive advantage are important. „ambiance of office‟ and „promptness of service‟. Customers value less tangible features of „soundness of advice‟. consultancy & professional services.STRATEGIC MANAGEMENT IN DIFFERENT CONTEXTS (contd. through grants/donations.) • SERVICE ORGANISATIONS – No physical product. • VOLUNTARY & NOT-FOR-PROFIT SECTOR – Such as charities. unless privatised./Federal organisations. Strategy more driven by political considerations/decisions. • PUBLIC UTILITY SECTOR – Generally run by Govt. foundations. duly financed by taxation revenues and/or consumption charges. „attitude of staff‟.

Environmental Scan & Organisational Analyses • 3. Implementation of Strategy • 6. Choice of sound Strategy & Business Model • 5.STRATEGIC MANAGEMENT PROCESS • Authors differently divide/club the steps in the Process of Strategic Management. .Develop Strategic Vision of future product-customer-market-technology focus • 2. Evaluation. Strategic Intent . Identification of Strategic Alternatives • 4. Monitoring & Control • contd. with same essential elements: • 1.

e. as these get divided & sub-divided amongst various units. STRATEGIC INTENT • Setting of organisation‟s Vision. and what it stands for. sub-units & individuals – each one contributing to achievement of objectives & mission of SBU and the organisation as a whole. sections.STRATEGIC MANAGEMENT PROCESS (contd. but for mission and objective there is hierarchy. Mission and Objective i. . is the first step in strategy formulation – it defines what the organisation strives for. • contd. Strategic Intent.) • 1. The vision states what the organisation wishes to achieve in the long run.

Consider both. • Strategy &strategic decisions are realized only in the future. changes of high probability – major impact. • Contd. and even low probability but major impact on organisation. ENVIRONMENTAL SCAN .Select Key variables >> Forecast Changes >> Estimate Impact of Change >> Strategy • Selection of Key variables – It is undertaken by senior managers – with judgement. regression analysis etc. Difficulty level depends on nature of variable and product/industry e.g. • Estimate Impact of Change – Need to estimate impact of those changes on the organisation. • Forecast Changes – Need to forecast the nature & pace of changes. not in the present. . knowledge. fast innovations in mobile phones applications. of their occurrence. In some cases use of forecasting techniques – time-series. analysis & intuition to select relevant variables. Keep in view probability – high or low.STRATEGIC MANAGEMENT PROCESS ENVIRONMENTAL SCAN & ORGANISATIONAL ANALYSIS • 2. internet use difficult but population growth easy.

industry regulations. GDP growth. nuclear. Social-cultural – Distinct customs. information technology. carbon-emissions.. trade practices. role of NGOs. interest rates. technological. Political . influence strategy of firms. web-sites. outlook and way of life of the people. computation.Political multi-national agreements.microelectronics. environmental and legal (PESTEL) in which the firm competes. capital movement. robotics.STRATEGIC MANAGEMENT PROCESS ENVIRONMENTAL SCAN & ORGANISATIONAL ANALYSIS (CONTD. . competition policy. These may effect a number of industries. taxation policy. bio-technology. Legal – Country‟s legal framework for M & A. economic. attitudes etc of society affect strategy.g. digital technology. values. disposable income. industrial & labour laws. Environmental – Numerous environmental variables at play in strategy making eg environmental legislations. etc Economic – Country‟s economy & numerous variables e. inflation. culture. aesthetics. It is global in nature & exerts powerful influence on strategy. medical science. consumer protection. CSR and sustainability.) • • • • • • • • Levels of Environmental Scanning (three) The External environment faced by a firm/corporate/business is here analysed at three levels: Remote Environment – political. socio-cultural. internet. Technology – Pace of technology change is fast & accelerating. savings rate etc.

statuary requirements. All firms in the industry are likely to be affected to different extent. An Industry & Business Unit level analysis.Suppliers. Porter (2008). Deals with changes /policies that may affect all competitors in an industry e. . Buyers. Substitutes & Rivals/Competitors.) • Industry Environmental Scanning– Exploring environmental characteristics of the industry in which the business competes. have been adopted in this model for environmental scanning of industry: • .g. Usually carried out by corporate for either M & A. • Industry Structure model “The Five Forces Model”. Entrants. or for setting performance standards for business unit. contd. technology shift etc.STRATEGIC MANAGEMENT PROCESS ENVIRONMENTAL SCAN & ORGANISATIONAL ANALYSIS (CONTD. entry barriers. the industry‟s structural factors grouped into five categories .

cotton vs. e) Buyers / Customers – with large immediate customers it is their relative bargaining power that dictates profits. economy of scales etc. technology. Porter (2008) a) Competitive Intensity – Intense rivalry.. • • .g. with low barriers – high competition and low profits. cell phone-cum. synthetic fabric. affecting competitive advantages & superiority of Supply Chain of the main firm. c) Substitutes / Indirect Competitors – different products meeting the same customer needs as own business e. d) Suppliers – Firm & Supplier dynamics depend on their relative strengths and positions. camera vs. volumes. Note: This model neglects the dynamics of “Industry Value Chain” – the linked set of firms and the activities undertaken by them. distribution channels. importance of the firm for supplier and visa versa. economy of scale etc.camera.STRATEGIC MANAGEMENT PROCESS ENVIRONMENTAL SCAN & ORGANISATIONAL ANALYSIS (CONTD.) • • • • • • • Industry Structure “The Five Forces Model”. b) Barriers to Entry to Industry – barriers of financial requirements. price competition results in low profits.

4. publishing. whereas in practice they are multi-industry and also competition is at the formal alliance network level. communication. but for the average level management. Industry boundaries are becoming fuzzy e. Automobile industry going through restructuring – vertical restructuring. on relationship with Google). “cosmeceuticals” are emerging! This model assumes that structure of industry has got major impact on profitability of a business unit in the industry. There are dynamics within network. entertainment. Second assumption is that an industry is easily definable – in reality. 2. .) • 1. Nokia competing with News Corporation? Terms such as “edutainment”.good industry environment is needed for profitability. „frenemy‟ or „froe‟ – (Sorrel 2008. CEO WPP. The model fails to convey dynamic nature of most industries. rapidly escalating competition based on price-performance characteristics & competition establishing first-mover advantages in product & market. 3. not so. computing. for leaders & laggards. Limitations of Industry Structure “The Five Forces Model” Works on presumption that firms are single industry & single business entities.g. 4. with each level affecting it. Factors such as rapid changes due to product innovations. A recent study has found that firm-specific factors are more important than the industry.STRATEGIC MANAGEMENT PROCESS ENVIRONMENTAL SCAN & ORGANISATIONAL ANALYSIS (CONTD.

• IVC also permits elimination of a level in the chain. Microsoft & Intel have higher margins than IBM.g.) • Industry Value Chain (IVC) – the linked set of firms & their activities play significant part in ensuring the firm‟s competitive advantage based on superiority of supply chain management. direct marketing. e. for their operating system and microprocessors supplied to latter. .g.g. Dell & Wal-Mart. • Profitability may however vary at different levels of the chain depending on relative bargaining positions. • Changes at any level in the value chain can influence competitiveness of the firm e. e.g. internet booking of airlines tickets. e. aluminium cans for beverages. PET bottles vs.STRATEGIC MANAGEMENT PROCESS ENVIRONMENTAL SCAN & ORGANISATIONAL ANALYSIS (CONTD.

g.STRATEGIC MANAGEMENT PROCESS ENVIRONMENTAL SCAN & ORGANISATIONAL ANALYSIS (CONTD.Customer & Competitor Analyses This component of external environment analysis seeks to assess influence of likely changes on the business unit.Features versus Benefits – Attributes vs. With changing customer needs. are important consideration for customer benefit/value – . segments – Customer Value – needs & dissatisfactions of customers. in relation to own and competitors’ competitive advantages. -. the firm may focus on segments in which it enjoys competitive advantage. Increasing share in a turbulent market is easier than in a stable market. customer plays many roles – gatekeeper.Market Segmentation – grouping of customers and potential customers having similar needs. decision-maker.) • • • • • - The Business Unit Environment Analysis . -. buyer & user. In a purchase process. low cost products being introduced in downturn time (P & G). and in competition. Customer Analysis. influencer. firm must continually identify new segments & opportunities. high price with improved value/quality. Focus is on identifying opportunities & threats emerging from changes in the customers’ requirements. as also the changes taking place e. values. understanding changing customer needs. benefits of product/service offered by the firm.

and also close examination of their value chains • -.STRATEGIC MANAGEMENT PROCESS ENVIRONMENTAL SCAN & ORGANISATIONAL ANALYSIS (CONTD.Competitive moves and actions of the competitors. • -.Identification of competitors – both present & potential competitors. Steps for analysis at both levels are same. that represent threat through competition in meeting customer needs for same product/service as own. good profits attract more firms. technological.financial. focus on those with high threat to own businesses • -. skills.Gathering information & Analysis– Profiling of serious threat identified competitors.) • Competitors Analysis – a proactive & pre-emptive process having two distinct levels of analysis – Business Unit and MultiIndustry. portfolio analysis. and capabilities. and our moves in response . consisting of Network Level & Corporate Level • Business Unit Level Competitors Analysis. • Encompassing present & potential future competitors. through intelligence gathering & analysis of their resources.

g. physical facilities. They are identified by assessing overlap in their business portfolios e. Honda. Close network relationship & cooperation within the network is essential. This typically results in networked relationships with suppliers of quality products/components. VW & Toyota. Corporate-level Competition – This comes into play when corporate with multiple businesses in similar products/services compete with each other. and 2) gathering • .Multi-Industry Level Competition . supply chains of Toyota. increasing costs of business and reduced margins.) • • Analysing Competitors . Worldwide alliances are coming up – e.STRATEGIC MANAGEMENT PROCESS ENVIRONMENTAL SCAN & ORGANISATIONAL ANALYSIS (CONTD. functional strengths & like.g. Factors for analysis are 1) insight into competitors capabilities – financial performance. often for higher standards or for lower cost. Airbus & Boeing etc. have brought the global trend of out-sourcing to specialised sources rather than in-house production of components. Network Competition – Fast changes in product development. knowledge assets. This also results in Supply Chain efficiency. business portfolio. for air travel „Star Alliance‟. and minimising working capital – both important for competitiveness. this may be seen in two parts as follows.

• • • • .Organisational Analysis – Resource View • Strategic position of a firm has got two different views – one based on Structure of Industry and the other on Resources of the firm.Environmental Scan . in a dynamic environment most resources may have limited life. Resource Deployment – how well the firm utilises current resources Resource Generation – How well the firm generates new resources or improves combination of current resources Competitive Advantage – The way a firm utilises its resources & capabilities to generate value-creating strategy. Further Resources per se are important but not sufficient condition for superior performance. as proved by results of different firms operating in the same Industry Structure. e. Tesco vs. e.g. Carrefour retail chains. GM vs. Structural characteristics of Industry (discussed above) are important but are not the sole determinants of firm’s success. while economic profit is relative to capital employed. However. and continuous innovation may be required for sustainability.g. Toyota in the US. which competitors find difficult to imitate. But the firm’s resources are central to building strategy. Measured in relation to competitors. Resource view has that the firm has unique and hard to imitate resources that give it competitive advantage over rivals – thus generating superior financial performance.

processes. Structural & Customer Capital. be it plant. • Tangible Financial Resources . capacity to raise capital & internally generate funds measured by free cash flow etc. • Further. • Resources – Tangible & Intangible.firm‟s capability for future investments.plant.Organisational Analysis . innovations. people. • Tangible Physical Resources . technical & technological assets. and Intangible Resources as Intellectual Capital/Assets. reserve raw material etc.Environmental Scan . the Tangible Resources may be divided into two parts .) • Organisations’ Strategic Capability.Financial & Physical. equipment. consisting of Human. • . acquisitions.Resource View (contd.

ethics. market share. trademark. business processes. philosophy. profitability.Human Capital – Knowledge. skill. creativity. database.) • Intangible Resources – Non-physical in nature such as brandequity. patents.Environmental Scan .Structural Capital – Values. These are not included in firm‟s balance sheet • Intellectual Assets/capital – Knowledge.Human Capital. Structural Capital. skills. ability. further divided into three categories . brand equity. hardware • -. including understanding customers‟ demands & preferences . and Customer Capital • -.Organisational Analysis . experience & expertise used by the firm to create value. motivation • -. culture.Resource View (contd. software.Customer Capital – value of relationship with customers. intelligence. information.

and the combination is then recognised as the firm‟s capability.Resource View (contd. Resources deployment and integration enables firm to excel in processes for delivering quality/value to customers.) • ORGANISATIONAL RESOURCES & CAPABILITIES • A resource by itself. logistics or supply chain management etc.Organisational Analysis . a firm may benchmark itself in comparison to other competitors in the industry for new product development – speed. for each of which it needs to integrate a number of disparate functional groups/departments. towards common objectives. Further. does not accrue strategic capability to a firm – the value is realised in its combination with other resources. Firm‟s capabilities are embedded in its processes – be that development of new products.. product success etc.Environmental Scan . in isolation. resources consumed. brand management. .

fine optics. • ii) provide basis for entering new markets • Examples. microelectronics & electronic imaging • Toyota – possession of global distribution network. design capability and technology .) • Core Capabilities – Some of firm‟s capabilities are seen as drivers of strategy. Canon‟s – precision mechanics. being more significant than others.Organisational Analysis (contd.Environmental Scan . quality production process. and fundamental to performance for. • i) disproportionate impact on delivering customer satisfaction or efficiency in delivering of value.

brand value etc Sustainable – Capability which competitors would take a long time to imitate. network of relationships in case of financial services.Organisational Analysis (contd. • • • • .Environmental Scan . patents for innovations. such as location site. which in some industry go to customers or employees. Scarce – Capability which is not widely & readily available to competitors. brand value. over what it would be without it.g. or to what extent the firm can appropriate the returns delivered by the capability. Firms prefer the ones that give cost advantage over longer periods. Appropriable – Whether or not. Non-imitable – Not easily replicated by competitors. and supply chain management. e. such as advertising industry. Wal-Mart‟s stores locations.) • • • Capabilities & Competitive Advantages It is important to evaluate the profit-earning potential of a capability – assessed in terms of following properties: Valuable – It is valuable to the extent it allows to reduce costs or increase revenue. Sony‟s miniaturisation of electronics.

this is firm‟s capability & mechanism to build and re-configure its existing capabilities for future success. in response to changing environment of industry – in future.Organisational Analysis (contd. some of them may become less important while some others more. over time. besides deployment of resources for current competition success.Environmental Scan . needs to go through changes.) • Dynamic Capabilities • In dynamic environment. • . “How good is the firm at renewing its capabilities and resource base?” Firm‟s portfolio of capabilities.

economy of scale consideration drives mergers. The ultimate cost & value together. It also includes the linked set of firms. Value Drivers – While cost reduction in value chain. Process of learning – doing things faster. Often. need to be understood for the complete chain. in the value chain. better and with less wastage. Activities key to value creation for customers can not be • • • • . Cost Drivers Economy of Scale – Generally speaking. with fixed overhead costs. increase in scale of production will reduce per unit cost.Environmental Scan . Value Chain provides a useful framework for understanding relative magnitude of costs of various segments. which it has undertaken in order to be able to compete.) • • Value Chain Value Chain is the activities within a firm. no advantage may be achieved. which together create a product or service. the per unit cost of production declines due to greater efficiency. is not beneficial for the firm. and therefore it is important to first familiarise with the context of Cost Drivers. is important but it needs to be analysed in relation to how & where value is added for customers. acquisitions & alliances. Attempt at reduction of costs at the expense of adding value for customer. Experience Effect – This occurs when with experience of the firm in producing a significant numbers of products.Organisational Analysis (contd. If all costs are variable.

Environmental Scan .. of the firm. Knowledge – Information is processed/analysed data.former which can be written down or articulated. Knowledge combined with insight & imagination.) • Knowledge & Intellectual Capital – We are moving towards knowledge based society with firms becoming more knowledge intensive e. on the other hand is deeper & broader. or from ecommerce transactions etc. SAP. The mobile phones have got GPS and many smart systems based on knowledge intensity. Firms are developing products & services in which increasing amount of knowledge and intellectual capital are embedded. leads to innovations & inventions. put in useful & intelligible format to facilitate its user. electronic stability control and fault diagnosis etc. Information vs. such as computers.g. & Apple. braking effort.Organisational Analysis (contd. • . having value much more than the hardware. Google. CRM system. Therefore. skills. not easy to articulate. It may be put in database. automobiles. knowledge & intellectual capital are significant for strategic management of a firm. Cars come fitted with GPS and knowledge systems for management of fuel. Information systems used by firms for inventory management. intuition & perceptions of individuals. It may be Explicit or Tacit knowledge . manuals etc. Information & data may come from ERP system. enterprise resource planning software (ERP) etc are some of the examples. latter which is tied to senses. Knowledge. for ease of transmission to user. but individuals‟ intellectual ability is needed to convert it into knowledge. and it makes data relevant & useful.