Part 1: Strategic Analysis

Chapter 1
Strategic Management: Creating Competitive Advantage

Strategic Management:
competitive advantages

creating

Vision What organization want to become in future. Mission What is the purpose of the existence of the organization. Objectives Objectives are the targets towards which management is directed. Strategy The process of determining appropriate courses of action for achieving organizational objectives

Infosys‘-VISION-MISSION

Infosys' Vision: "To be a globally respected corporation that provides best-of-breed business solutions, leveraging technology, delivered by best-in-class people." Infosys' Mission Statement : "To achieve our objectives in an environment of fairness, honesty, and courtesy towards our clients, employees, vendors and society at large."

Three Components of the mission statement

* the needs to be served by the  company  * the targeted customer group  * how the company will provide  the product/service

Reason for Being
This is the soul-searching activity, where the organisation tries to answer the critical questions like `why are we here' and 'where are we today'?

A mission statement concerns what an  organization is all about.  A vision statement is what the  organization wants to become. 

A mission statement answers three key questions:
  

What do we do?  For whom do we do it?  What is the benefit? 

Centers for Disease Control
Mission To promote health and quality of life by preventing and controlling disease, injury, and disability Healthy People in a Healthy World To protect, maintain and improve the health of all Minnesotans Keeping All Minnesotans Healthy

Vision Mission Vision

Centers for Disease Control

A vision statement, on the other hand, describes how the future will look if the organization achieves its mission. A mission statement gives the overall purpose of an organization,

while a vision statement describes a picture of the "preferred future." A mission statement explains what the organization does, for whom and the benefit. A vision statement, on the other hand, describes how the future will look if the organization achieves its mission.

VISION, MISSION,VALUES AND OBJECTIVES

BEL

  VISION - To be a world-class enterprise in professional electronics.    MISSION

- To be a customer focused, globally competitive company in defence electronics and in other chosen areas of professional electronics, through quality, technology and innovation.

VALUES 
- Putting customers first. - Working with transparency, honesty & integrity. - Trusting and respecting individuals. - Fostering team work. - Striving to achieve high employee satisfaction. - Encouraging flexibility & innovation. - Endeavouring to fulfill social responsibilities. - Proud of being a part of the organization.

OBJECTIVES 

- To be a customer focussed company providing state-of-the-art products & solutions at competitive prices, meeting the demands of quality, delivery & service. - To generate internal resources for profitable growth. - To attain technological leadership in defence electronics through in-house R&D, partnership with defence/research laboratories &

academic institutions. - To give thrust to exports. - To create a facilitating environment for people to realise their full potential through continuous learning & team work. - To give value for money to customers & create wealth for shareholders. - To constantly benchmark company’s performance with best-in-class internationally. - To raise marketing abilities to global standards. - To strive for self-reliance through indigenisation

BSNL-VISION  

To become the largest telecom Service Provider in Asia.   MISSION  To provide world class State-of-art technology telecom services to its customers on demand at competitive prices. To Provide world class telecom infrastructure in its area of operation and to contribute to the growth of the country's economy.

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OBJECTIVES  
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To be the Lead Telecom Services Provider. To provide quality and reliable fixed telecom service to our customer and there by increase customer's confidence. To provide mobile telephone service of high quality and become no. 1 GSM operator in its area of operation. To provide point of interconnection to other service provider as per their requirement promptly.

  

To facilitate R & D activity in the country. Contribute towards: National Plan Target of 500 million subscriber base for India by 2010. Broadband customers base of 20 million in India by 2010 as per Broadband Policy 2004. Providing telephone connection in villages as per government policy. Implementation of Triple play as a regular commercial proposition.

 

Corporate vision is a short, inspiring statement of what the organization intends to become and to achieve at some point in the future, often stated in competitive terms. Vision refers to the category of intentions that are broad, all-inclusive and forward-thinking.

It is the image that a business must have of its goals before it sets out to reach them. It describes aspirations for the future, without specifying the means that will be used to achieve those desired ends. The Ford Motor Company vision is 'to

become the world's leading consumer company for automotive products and services'.

A five-component approach to promote successful organizational performance

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1. Vision formulation which leads to the statement of the Mission. 2. The mission is then converted into performance Objectives 3. To achieve objectives you develop Strategies 4. Strategy Implementation 5. Evaluation of performance

Mission Statement & its Purpose
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Sense of Purpose & Aspiration Company Image Statement of Company Values, Culture and Ethics Role as a Guide for the Strategy Process

Model of Strategic Management:  Mission & goals  Environmental analysis  Strategic formulation  Strategy implementation  Strategy evaluation

Strategic Management

Strategic management is the study of why some firms outperform others

How to compete in order to create competitive advantages in the marketplace How to create competitive advantages in the market place
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Unique and valuable Difficult for competitors to copy or substitute

Strategic Management

Analysis
 

Strategic goals (vision, mission, strategic objectives) Internal and external environment of the firm What industries should we compete in? How should we compete in those industries? Allocate necessary resources Design the organization to bring intended strategies to reality

Strategic decisions
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Actions
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Mission Statement
    

Business Definition Major Goals of the Firm Philosophies Guiding Principles Considerations of stakeholders

1.The vision formulation which leads to the statement of the Mission Mission * what is business? * what will be the business? * it established long-term direction * it needs to use simple terminology * it needs to be inspirational buy in * recognition of threats & opportunities * entrepreneurial spirit

      

2. The mission is then converted into performance
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objectives

* measurable statements * specified performance * specified time * short-range objectives * long-range objectives * top-down rather than bottom-up

Strategic Management:

A continuous activity that requires a  constant adjustment of three major  interdependent poles: the values of senior management, the environment, the resources available.

Strategic Management

Strategic Management Concepts management consists of the analysis, Definition: Strategic

decisions, and actions an organization undertakes in order to create and sustain competitive advantages. Key attributes of strategic management  Directs the organization toward overall goals and objectives.  Includes multiple stakeholders in decision making  Needs to incorporate short-term and long-term perspectives  Recognizes trade-offs between efficiency and effectiveness

Strategy:
A specific pattern of  decisions and actions  undertaken by the upper  echelon of the organization    in order to accomplish  performance goals.

CHARACTERISTICS OF STRATEGIC MANAGEMENT DECISIONS.
The characteristics of strategic management strategic management decisions vary with the level of strategic activity considered. These levels are: Corporate level  Business level  functional level

CORPORATE LEVEL

These decisions are tend to be value oriented, conceptual, and less concrete than those at the business or functional level of strategy formulation and implementation. Corporate level decisions are also characterized by greater risk, cost and profit potential as well as by longer time horizons and greater needs for flexibility. Examples of corporate level decisions include the choice of business, dividend policies, sources of long term financing, and priorities for growth.

FUNCTIONAL LEVEL

These functional decisions principally involve action oriented operational issues. These decisions are made periodically and lead directly to implementation of some part of the overall strategy formulated at the corporate and business levels. There fore functionallevel decisions are relatively short range and involve low risk and modest costs because they are dependent on available resources. Some of examples are high inventory versus low inventory levels, general versus specific purpose production equipment.

BUSINESS LEVEL

bridging corporate and functional level decisions are those made at the business level. Business level Descriptions of strategic decisions fall between those two other levels. Business level decisions are less costly, risky and potentially profitable than corporate level decisions, but they are more costly, risky and potentially profitable than functional level decision. For example of business level decisions involve plant location,, marketing segmentation and geographic coverage and distribution channel.

Level of strategy Characteristics Corporate Type Measurability Frequency Adaptability Relation to present activities Risk Cost Time horizon Flexibility Cooperation Conceptual Value judgments dominant Periodic or sporadic Low Innovative Wide range Major Long-range High Considerable Business Mixed Semi quantifiable Periodic or sporadic Medium Mixed Moderate Medium Medium Medium range Medium Moderate Functional Operational Usually quantifiable Periodic High Supplementary Low Small Modest Short range Low Little

Profit potential Large

Dimensions of Strategic decisions

Strategic issues require top management decisions-anticipating broader perspective Strategic issues involve the allocation of large amounts of company resourcesdeployment or commit for longer time Strategic issues are likely to have a significant impact on the long term prosperity of the firm.(5 yrs)

Dimensions of Strategic decisions

Strategic issues are future oriented (proactive-anticipatory) Strategic issues usually have major multifunctional or multi business consequences-SBU-customer mix – competitor-reallocation of resources Strategic issues necessitate considering factors in the firm’s external environment(largely impacted by E E beyond their control)

Corporate level Strategy

Tend to be value oriented, conceptual and  less concrete than functional & business  level strategy. CLS are also characterized by greater risk,  cost, and profit potential as well as long  time horizon Ex-choice of business, dividend policies,  sources of LT financing and priorities of  growth.

Business level Strategy

BLS are less costly, risky, and potentially profitable than CLS. Common BLS plant location, market segmentation, geographic coverage and distribution channels.

Functional level Strategy

    

Principally involve action oriented operational issues. Relatively short range and involve less risk. Requires company wide cooperation. Relatively concrete & quantifiable They receive critical attention Brand name labeling, R&D,inventory level

Corporate Strategy:

Describes  a  corporation’s  overall  direction  in  terms  of  its  general  philosophy  towards  growth  and  the  management of its various business units. WHAT BUSINESS ARE WE IN?

Corporate Strategy:

Establishing  investment  priorities  and  steering resources into the most attractive  business units   Initiating  actions  to  improve  combined  performance of business units   Improving  synergy  between  related  business units to increase performance  Making decisions re diversification

Business-Level Strategy

Business-Level Strategy
Low-cost leadership: To increase market-share by having the lowest unitcost and price compared with competitors. Differentiation strategy: Distinguishing products from competitors by providing  distinctive levels of service or quality - the customer is  prepared to pay a premium price.

The set of decisions and actions that result in the formulation and implementation of plans designed to achieve a company’s objectives.

Characteristics of Strategic Management
Characteristic

Type
Measurability

Level of Strategy Corporate Business Functional Conceptual Mixed Operational Value judgments dominants Periodic or sporadicirregular Semi quantifiable Periodic or sporadicirregular Usually quantifiable Periodic

Frequency

Characteristics of Strategic Management
Characteristic

Level of Strategy Corporate Business Medium Mixed Functional High Supplement ary Low Low Innovative

Adaptability
Relation to present activities

Risk

Wide range

Moderate

Characteristics of Strategic Management
Characteristic

Level of Strategy Corporate Business Medium Medium Medium range Functional Small Modest Short range Large Major Long range

Profit potential
Cost

Time horizon

Characteristics of Strategic Management
Characteristic

Flexibility
Cooperation required

Level of Strategy Corporate Business Functional High Medium Low
Considerable

Moderate

little

Formality in Strategic Management

Definition • Degree to which participants, responsibilities, authority, and discretion in decision making are specified (entrepreneurial) Forces affecting degree of formality • Size of organization • Predominant management styles • Complexity of environment • Production process • Problems • Purpose of planning system

• •

Large-scale, future-oriented plan for interacting with the competitive environment to achieve objectives Company’s “game plan” Framework for managerial decisions

Benefits of Strategic Management
 

Enhances the firm’s ability to prevent problems Emphasizes group-based strategic decisions likely to be based on best available alternatives Improves employees’ understanding of the productivity-reward relationship Reduces gaps/overlaps in activities among employees as their participation clarifies differences in roles Resistance to change is reduced

Risks of Strategic Management

Time involved may negatively impact operational responsibilities of managers Lack of involvement of strategy makers in strategy implementation may result in shirking of responsibility for strategic decisions Potential disappointment of employees over unattained expectations requires managerial time and training

Strategic Management Process

Components of the Strategic Management Model

Company Mission
• • •

• •

Specifies unique purpose of company Identifies scope of operations Describes product, market, and technological areas of emphasis Reflects values and priorities of decision makers Expresses approach to social responsibility efforts

Internal Analysis

• •

Depicts quantity and quality of company’s financial, human, and physical resources Assesses company’s strengths and weaknesses Contrasts past successes and concerns with current capabilities to identify future capabilities

External Environment

Consists of all conditions and forces affecting firm’s strategic options and define its competitive situation Includes three interactive segments – remote, industry, and operating environments

Strategic Analysis and Choice

Involves simultaneous assessment of external environment and company profile Incorporates screening process based on mission to generate possible and desired opportunities Results in selection of options from which a strategic choice is made

Long-term Objectives
       

Profitability Return on investment Competitive position Technological leadership Productivity Employee relations Public responsibility Employee development

Generic Strategies
• • •

Low cost Differentiation Focus Comprehensive, general plan of major actions through which the firm intends to achieve its longterm objectives in a dynamic environment

Grand Strategies

Action Plans and Short-Term Objectives

Translate generic and grand strategies into “action”

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Identify specific functional tactics to be taken in the near term Establish a clear time frame for completion Creates accountability Specify one or more immediate objectives as outcomes of the action

Functional Tactics

Involve identifying activities unique to the function to help build competitive advantage Specify detailed statements of “means” to be used to achieve short-term objectives Include broad, precedent-setting decisions that substitute for repetitive or time-sensitive decision making Often increase managerial effectiveness by empowering discretion of subordinates in implementing strategies

Policies that Empower Action

Restructuring, Reengineering, and Refocusing the Organization

Involves an internal focus – getting work done efficiently and effectively to make the strategy work Downsizing, restructuring and reengineering reflect the critical stage in strategy implementation wherein managers attempt to recast their organization.

Strategic Control and Continuous Improvement

Control
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Tracks a strategy during implementation Detects problems Involves making necessary adjustments Provides another approach to strategic control Allows an organization to respond more proactively and timely to rapid developments

Continuous improvement
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Strategic Analysis

Starting point in the strategic management process Precedes effective formulation and implementation of strategies

Strategic Analysis (cont.)

Clear goals and objectives permit effective allocation of resources Hierarchy of goals
  

Vision Mission Strategic objectives

Strategic Analysis (cont.)

Managers
 

Scan the environment Analyze competitors

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General environment Industry environment

Strategic Analysis (cont.)

Frameworks for analyzing a firm’s internal environment
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Strengths Weaknesses

Analyzing strengths can uncover potential sources of competitive advantage

Strategic Analysis (cont.)

Intellectual assets are drivers of
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Competitive advantages Wealth creation

Networks and relationships among
   

Employees Customers Suppliers Alliance partners

Strategic Formulation

Successful firms develop bases for competitive advantage
  

Cost leadership Differentiation Focusing on narrow or industry-wide market segments

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Sustainability Industry life cycle

Strategic Formulation (cont.)

Firm’s portfolio or group of businesses

What business(es) should we be in? How can we create synergies among the businesses? Related Unrelated

Diversification
 

Strategic Formulation (cont.)

Appropriate entry strategies Sustain competitive advantage in global markets

Strategic Formulation (cont.)

Digital technologies change the way business is conducted
 

Added value Impact on performance

Digital technologies can enhance
 

Cost leadership Differentiation

Strategic Implementation

Informational control
 

Monitor and scan the environment Respond effectively to threats and opportunities

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Behavioral control Effective corporate governance

Interests of managers and owners of the firm

Strategic Implementation (cont.)
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Organizational structure and design Organizational boundaries
 

Flexible Permeable

Strategic Alliances

Strategic Implementation (cont.)

Develop organization that is committed to
 

Excellence Ethical behavior

Learning organization responsive to

Rapid and unpredictable change in today’s competitive environments

Strategic Implementation (cont.)

Corporate entrepreneurship and innovation
 

New opportunities Enhance innovative capacity Autonomous entrepreneurial behavior Product champions

Strategic Implementation (cont.)

New ventures and small businesses

Major engine of economic growth Recognize viable opportunities Entrepreneurial leadership skills

Corporate Governance and Stakeholder Management

Corporate governance: the relationship among various participants in determining the direction and performance of corporations
  

Shareholders Management (led by the CEO) Board of directors

Corporate Governance and Stakeholder Management

Board of directors
 

Elected representatives of the owners Ensure interests and motives of management are aligned with those of the owners

The Key Elements of Corporate Governance

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Effective and engaged board of directors Shareholder activism Proper managerial rewards and incentives

Stakeholder Management

Two views of stakeholder management

Zero sum

Stakeholders compete for attention and resources of the organization Gain of one is a loss to the other Stakeholders are dependent upon each other Mutual benefits

Symbiosis
 

Social Responsibility

Social responsibility: the expectation that businesses or individuals will strive to improve the overall welfare of society

 

Managers must take active steps to make society better Socially responsible behavior changes over time Triple bottom line

Strategic Management Perspective
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Integrative view of the organization Assess how functional areas and activities “fit together” to achieve goals and objectives All managers and employees must take and integrative, strategic perspective of issues facing the organization

Strategic Management Perspective
  

Key driving forces increasing the need for strategic perspective and involvement
Globalization Technology Intellectual capital Interrelated Accelerating the rate of change and uncertainty

These forces are
 

Crafting Strategy Is an Exercise in Entrepreneurship

Strategy-making is a market-driven activity that involves
  

 

Studying market trends and competitors’ actions Keen observation of customer needs Scrutinizing business possibilities based on new technologies Building firm’s market position via acquisitions or new product introductions Pursuing ways to strengthen firm’s competitive capabilities Proactively searching out opportunities to
 

Do new things or Do existing things in new or better ways

Linking Strategy With Ethics

Ethical and moral standards go beyond

Prohibitions of law and the language of “thou shalt not”

to issues of

Duty and “right” vs. “wrong”

Ethical and moral standards address “What is the right thing to do?” Two criteria of an ethical strategy:

Does not entail actions and behaviors that cross the line from “can do” to “should not do’ and “unsavory” or “shady” and Allows management to fulfill its ethical duties to all stakeholders

A Firm’s Ethical Responsibilities to Its Stakeholders
Owners/shareholders – Rightfully expect some form of
return on their investment

Employees - Rightfully expect to be treated with dignity
and respect for devoting their energies to the enterprise

Customers - Rightfully expect a seller to provide them
with a reliable, safe product or service

Suppliers - Rightfully expect to have an equitable

relationship with firms they supply and be treated fairly

Community - Rightfully expect businesses to be good
citizens in their community

Enhancing Employee Involvement
Local Line Leaders

Have significant profit and loss responsibility

Enhancing Employee Involvement
Local Line Leaders Executive Leaders
 

Champion and guide ideas Create a learning infrastructure Establish a domain for taking action

Enhancing Employee Involvement
Local Line Leaders Executive Leaders Internal Networkers
 

Have little positional power and formal authority Generate their power through the conviction and clarity of their ideas

Coherence in Strategic Direction
Company vision
    

Massively inspiring Overarching Long-term Driven by and evokes passion Fundamental statement of the organization’s  Values  Aspiration  Goals

Company vision

Hierarchy of Goals

Coherence in Strategic Direction
Mission statements
 

 

Purpose of the company Basis of competition and competitive advantages More specific than vision Focused on the means by which the firm will compete

Company vision Mission statements

Hierarchy of Goals

Coherence in Strategic Direction
Strategic objectives
 

 

Operationalize the mission statement Provide guidance on how the organization can fulfill or move toward the “higher goals” More specific Cover a more well-defined time frame

Company vision Mission statements Strategic objectives

Hierarchy of Goals

Strategic objectives
       

Coherence in Strategic Direction
Measurable Specific Appropriate Realistic Timely Challenging Resolve conflicts that arise Yardstick for rewards and incentives

Company vision Mission statements Strategic objectives

Hierarchy of Goals