You are on page 1of 41

INTERNATIONAL

STRATEGIC MANAGEMENT

CONCEPT OF STRATEGY
&
STRATEGIC MANAGEMENT

STRATEGY
GREEK WORD STRATEGIA Science of guiding & Directing
COMPLEX PROCESSOF DETERMINING LONG TERM GOALS &
COURSE OF ACTIONS NEEDED TO BE CARRIED OUT, ALLOCATION
OF RESOURCES FOR CARRYING OUT THESE GOALS.
MOVING FROM WHERE YOU ARE TO WHERE YOU WANT TO BE IN
NEAR FUTURE THROUGH A SERIES OF DECISIONS AND ACTIONS.
PRE DETERMINED COURCE OF ACTION

HAS DEFINITE DIRECTION

SUSTAINABLE COMPETITIVE ADVANTAGE: Delivering superior value to


target customer at the same cost or delivering equal customer
value at lower cost relative to your competitor, on a continuing basis.

STRATEGIC DECISION MAKING


SETTING REALISTIC GOALS: Challenging but achievable
RATIONALITY: Exercising best choice among alternatives
CREATIVITY: Decision creative and original through brainstorming
VARIABILITY : Every situation is unique

DEMOGAFIC FACTORS: Age. Education, Intelligence, Values


Cognition. risk taking and creativity

GROUP DECISION MAKING: Participation

CONCERNS OF STATEGIC PLANNING

FUTURE
Long term dynamics is its concern not day-to-day tasks
GROWTH
Direction, extent, pace and timing of growth
ENVIRONMENT
The fit between business and its environment
PORTFOLIOS OF BUSINESSES
Product-market scope and postures
STRATEGY
Strategy is its concern ; not the operational activities
INTEGRATION
Integration is its concern ; not a particular function
CREATING CORE COMPETENCIES / COMPETITIVE ADVANTAGE
Creating long term , sustainable organizational capability
CORPORATE STRATEGY
In one word corporate strategy is its concern

STRATEGIC MANAGEMENT
ESTABLISHMENT OF VISION & MISSION statements, Business Definition
STRAT. INTENTS
Adopting Business Model, Setting Goals & Objectives

FORMULATION of
STATEGIES

IMPLEMENTATION
OFSTRATEGIES

Conducting SWOT, Formulating CORPORATE &


BUSINESS LEVEL Strategies, Strategic Analysis
Strategic Choice, Strategic Plan.

Activating Strategies, Designing Structure, Systems&


Processes, Behavioral & Functional implementation
And Operationalising strategies

REVIEW,EVALUATION
Performing Strategic Evaluation, Exercising Strategic
CONTROL
Control and Reformulating Strategies

STRATEGIC MANAGEMENT
ENVIRONMENT
SCANNING

EXTERNAL
SOCIETAL

TASK
ENVIRONMETAL

INTERNAL
STRENGTS

WEAKNESSES
structure
Culture ( Beliefs,
xpectations,Values )
Resourses, Skills,

STRATEGY
FORMATION

STRATEGY
IMPLEMENTATION

EVALUATION
& CONTROL

MISSION
(Reason for existence)
OBJECTIVES
(What results to
accomplish & by
when )
STRATEGIES
(Plan to achieve
Mission&Objectives)

POLICIES
(Broad guidelines
for decision

PROGRMS
Activities needed
To accomplish plans

Making)
BUDGETS
Cost of
programs

ompetencies,Knowledge

PROCEDURE
Sequence of
steps needed
to do the job

FEEDBACK / LEARNING

PERFORMANCE
Actual results

NATURE OF
INTERNATIONAL STRATEGIC MANAGEMENT

4
LEVELS OF STRATEGY
&
EVOLUTION
OF
STRATEGIC MANAGEMENT

HIERARCHY OF STRATEGY
CORPORATE STRATEGY

BUSINESS STRATEGY

FUNCTIONAL
STRATEGY

STRATEGY AT DIFFERENT LEVELS


CORPORATE STRATEGY

COMPETITIVE STRATEGY

OPERATIONAL

PURPOSE OR MISSION
SHAREHOLDER VALUE ?
STAKEHOLDER INTEREST?
ASPIRATIONAL ?

ATTAIN SUSTAINABLE
COMPETITIVE ADVANTAGE
BY:

FUNCTIONAL
LEVELSTRATEGY
HR,FINANCE,PRODUCTN
MARKETING,QUALITY
Etc.

MEANS :
. GOOD PARENTING
. SELECT PORTFOLIO
. GUARD REPUTATION

. LEVERAGING RESOURSES
. DEVELOPING CAPABILITIES
AND
. COMPETING ON COST,OR
DIFFERENTIATING OR
OCCUPYING A NICHE

Functional Level Managers


are responsible for:
developing annual objectives
& short term implementation
Plans.

HOW HAS STRATEGIC MANAGEMENT


EVOLVED

PHASE I: BASIC FINANCIAL PLANNING : Seeking better operational control


by trying to meet budget

. PHASE II : FORECAST BASED PLANNING : Seeking more effective planning


for growth by trying to predict the future beyond next year.
. PHASE III : EXTERNALLY ORIENTED PLANNING ( STRATEGIC PLANNING )
: Seeking increased responsiveness to markets and competition by trying to think
strategically.
. PHASE IV : STRATEGIC MANAGEMENT : Seeking a competitive advantage by
considering implementation and evaluation and control when formulating strategy.
. PHASE V : INTERNATIONAL / GLOBAL STRATEGIC MANAGEMENT : Managing
a worldwide competitive advantage

STRATEGIC MANAGEMENT
PROCESS
IV
INTERNAL
ANALYSIS
.STENGTHS
.WEAKNESSES

I
IORG.
. MISSION
. OBJECTIVES
.STRATEGIES
. POLICIES

II
ORG.
CURRENT
PERFORM
- ANCE.

III
REVIEW
BOARD OF
DIRECTORS
&
TOP. MGMT

V
SELECTION
OF
STRATEGIC
FACTORS

IV
EXT. ENV.
ANALYSIS
. OPP.
. THREATS

VI
REVIEW
REDEFINE
. MISSION
.OBJECTIVES

VII
GENERATION
&
EVALUATION
OF
STRATEGIC
ALTERNATIVES

VIII

IMPLEMENT
BEST
ALTERNATIVE

REWORK AS
NEEDED

IX
MONITORING

7
A CORPORATE VALUE CHAIN
FIRM INFRASTRUCTURE
( Gen.Mgmt,Accounting,Finance, Plg)
SUPPORT
ACTIVITIES

HUMAN RESOURCE DEVELOPMENT


( Recruitment, Training, development )

TECHNOLOGY DEVELOPMENT

PROFIT
MARGIN

( R&D,Process & Product Development0

PROCUREMENT

( Purchasing of Raw Materials, Machines,Supplies)


INBOUND
LOGISTICS
(RAW MAT)

OPERATIONS
( Machining,
( Assembly,
Testing )

OUTBOUND
LOGISTICS
( Distribution )

PRIMARY ACTIVITIES

MARKETING
& SALES
( Advt. Prom
- otion )

SERVICES
( Installation,
Repair )

VALUE CHAIN ANALYSIS

Value Chain: Linked set of value creating activities, beginning with


basic Raw materials coming from suppliers to a series of value added
activities involved in producing and marketing a product,
ending with distributor getting the final goods into the hands of
ultimate customer
Focus of value chain: To examine corporation in the context of overall
chain of value creating activities of which firm may only be a small part.
INDUSTRY VALUE CHAIN ANALYSIS: 2 segments
i) Upstream Activities: Petroleum Industry- Oil exploration, drilling and
moving crude oil to refinery.
ii) Downstream activities: Refining the oil, Transporting and marketing of
Gasoline and Refined Oil to distributors and gas station retailers
Ex: British Petroleum: Dominant in upstream activities like exploration.
AMCO: Great expertise in downstream activities like marketing and
retailing. Merger combined their core competencies
In analyzing value chain a firm operates up and down the entire chain but
usually has area of prime expertise called centre of gravity
Differences among competitors value chain are key sources of competitive
advantage
Backward & Forward integration
One of the strategic moves: Moving forward or backwards along the value
chain in order to reduce costs, guarantee access to key raw materials (
Backward Int.) or to guarantee cost effective and proper distribution (
Forward Int. )

PEST FACTORS

POLITICAL

ECONOMIC

TECHNOLOGICAL

SOCIAL

PESTLE MATRIX
POLITICAL
CURRENT/FUTURE LEGISLATION
REGULATORY BODIES
GOVT. POLICIES
GOVT. TERM & CHANGE

SOCIAL

ECONOMIC
ECONOMY SITUATION & TRENDS
TAXATION
INTEREST & EXCHANGE RATES
MARKET & TRADE CYCLE

TECHNOLOGICAL

LIFESTYLE TRENDS

TECHNOLOGY ACCESS,LICENSING,PATENTS

DEMOGAPHICS
COMPANY ATTITUDES & OPINIONS
BRAND,COMPANY ,TECHNOLOGYIMAGE
CONSUMER BUYING PATTERNS
ETHNIC/RELIGIOUS FACTORS

MATURITY OF TECHNOLOGY
REPLACEMENT TECHNOLOGY / SOLUTIONS
INNOVATION POTENTIAL
MANUFACTURING MATURITY & CAPACITY

LEGAL

ENVIRONMENTAL

INTERNATIONAL LAW

ENVIRONMENTAL IMPACT

EMPLOYMENT LAW
COMPETITIOM LAW
HEALTH & SAFETY LAW
REGIONAL LEGISLATION

ENVIRONMENTAL LEGISLATION
ENERGY CONSUMPTION
WASTE DISPOSAL

A SWOT CHECKLIST
INTERNAL STRENGTHS:
MANY PRODUCT LINES?
BROAD MARKET COVERAGE?
MANUFACTURING COMPETENCE?
GOOD MARKETING SKILLS?
GOOD INVENTORY MANAGEMENT?
R&D?
INFORMATION SYSTEM?
GOOD HUMAN RESOURCES?
BRAND EQUITY?
COST ADVANTAGE?
APPROPRIATE ORG. STRUCTURE?
APPROPRIATE CONTROL SYSTEMS?
ABILITY TO MANAGE STRAT. CHANGE
Etc

INTERNAL WEAKNESSES:
NARROW PRODUCT LINES?
RISING MANUFACTURING COST?
POOR MARKETING PLAN?
POOR MATERIAL MANAGEMENT?
INADEQUATE HUMAN RESOURCES
LOSS OF BRAND NAME?LACK OF
CORPORATE DIRECTION?
LACK OF CORPORATE CONTROL
POOR FINANCIAL MANAGEMENT
INAPPROPRIATE ORG. STRUCTURE
& CONTROL SYSTEMS
HIGH CONFLICTS, POLITICS? Etc

MACKENZIES 7S MODEL
STRUCTURE
STRATEGY

SYSTEMS

SHARED
VISION

STYLE

SKILLS

STAFF

CONCEPT OF STRETCH,LEVERAGE
& FIT
STRETCH : Misfit between Resources & Aspirations
LEVERAGE : Refers to concentrating, accumulating,
conserving. contemplating and utilizing precious &
scarce resources in such a manner that these are
stretched to meet the aspirations of a company.
FIT : Positioning the firm by matching its organizational
resources to its environment.

VISION
Future aspirations that lead to an inspiration
Basic & at the top of hierarchy of strategic intents
Aspirations expressed as strategic intent should lead to
an end.
This is what a person or an organization would
ultimately like to attain in the near future.
A vision is generally more dreamt than it is articulated
By its nature it may be as good as a dream, yet it is a
powerful motivator to action.

A FEW VISION STATEMENTS


VISION 2001 0F BHEL
A world-class , innovative , competitive and profitable
Engineering enterprise providing total business solutions.
VISION OF CANARA BANK
To emerge as the best bank in customer service,
profitability , productivity and innovations.
VISION OF IOC
Indian Oil aims to achieve international standards of excellence
in all aspects of energy and diversified business with focus on
Customer delight through quality products & services

MISSION

It is purpose / reason behind existence of any organization


Derived from VISION and reflects the corporations philosophy , identity,
character and image which helps to achieve the vision.
When defined explicitly, provides enlightenment to insiders and outsiders
on what the organization stands for.
Many strategists/consultants contribute to the building up of mission statements.
CHARACTERISTICS OF A MISSION SATEMENTS
FEASIBLE
PRECISE
CLEAR
MOTIVATING
DISTINCTIVE
INDICATES MAJOR COMPONENTS OF STRATEGY
INDICATES HOW OBJECTIVES ARE TO BE ACHIEVED
HOW MISSION STATEMENTS ARE FRMULATED
Derived from particular set of tasks and priorities and reflects corporate philosophy
Executive committee is setup to formally discuss
Help of consultants also taken for an in-depth analysis of an organization and to suggest an
appropriate Mission statement
A Mission statement once formulated should serve an organization for many years
As the organization grows with time and goes on adding new products, services, technologies
and markets, there may even be a need for revising its Mission statements as

FEW MISSION STATEMENTS


BHEL
To be a leading engineering enterprise providing quality
systems goods and services in the field of Energy,
Transportation , Industry, Infrastructure and other
potential areas
RANBAXY
To become research based International pharma
company
UTI
To keep the common man in sharper focus to encourage
savings and investment habits among them.

INTERNATIONAL STRATEGIES

PRESSURES
FOR
COST REDUCTION

GLOBAL
STRATEGY
( OFFERING STANDARDISED
PRODUCTS / SERVICES)

TRANSNATIONAL
STRATEGY
(LOCATED IN A
DEVELOPED COUNTRY)

INTERNATIONAL
STRATEGY

MULTIDOMESTIC
STRATEGY

(UNDER DEVELOPED
COUNTRIES WHERE
PRODUCT/SERVICES
NOT AVAILABLE )

( SUITING TO NATIONAL
CONDITIONS )

PRESSURES FOR LOCAL RESPONSIVENESS

COST
GLOBALISATION DRIVERS
GLOBAL SCALE ECONOMIES CONTINUING PUSH
FOR ECONOMIES OF SCALE

STEEP EXPERIENCE CURVE EFFECT


SOURCING EFFICIENCIES
FAVOURABLE LOGISTICS
DIFFERENCES IN COUNTRY COSTS- WRT
TRANSPORTATION,LABOUR & RAW MATERIAL Etc.
HIGH PRODUCT DEVELOPMENT COST
FAST CHANGING TECHNOLOGY

GOVRNMENT
GLOBALISATION DRIVERS

FAVOURABLE TRADE POLICIES


COMPATIBLE TECHNICAL STANDARDS
COMMON MARKETING REGULATIONS
GOVT. OWNED COMPETITORS AND CUSTOMERS
HOST GOVTS CONCERNS
REDUCTION IN TARRIF & NON TARRIF BARRIERS
DECLINE IN ROLE OF GOVTS AS PRODUCER &
CONSUMERS ie ENCOURAGING PRIVATISATION
SHIFT TO OPEN MARKET ECONOMIES

COMPETITIVE
GLOBALISATION DRIVERS
HIGH EXPORTS AND IMPORTS CONTINUOUS INCREASE
IN THE LEVEL OF WORLD TRADE

COMPETITORS FROM DIFFERENT CONTINENTS


MORE COUNTRIES BECOMING KEY COMPETITIVE BATTLE
GROUNDS

INTERDEPENDENCE OF COUNTRIES GROWTH OF


GLOBAL NETWORKS

COMPETITORS GLOBALISED RISE OF NEW


COMPETITORS INTENT UPON BECOMING GLOBAL
COMPETITOR

INCREASED OWNERSHIP OF CORPORATIONS BY


FOREIGN ACQUIRORS
. INCREASED GLOBAL STRATEGIC ALLIANCES
.

OTHER DRIVERS
REVOLUTION IN INFORMATION &
COMMUNICAION
( PERSONAL COMPUTORS, INTERNET& INTRANET , FSCIMILE
MACHINES )

GLOBALISATION OF FINANCIAL MARKETS


( LISTING OF CORPORATIONS ON MULTIPLE EXCHANGES )

IMPROVEMENTS IN BUSINESS TRAVELS


( RISE OF INTERNATIONAL HOTEL CHAINS )

GLOBAL STRATEGY LEVERS


MARKET PARTICIPATION
( CHOICE OF COUNTRY MARKET IN WHICH TO CONDUCT BUSINESS
AND LEVEL OF ACTIVITY, PARTICULARLY IN TERMS OF MARKET SHARE

PRODUCT / SERVICE
( EXTENT TO WHICH A WORLDWIDE BUSINESS OFFERS THE SAME OR DIFFERENT
PRODUCTS IN DIFFERENT COUNTRIES

LOCATION OF VALUE ADDING ACTIVITIES


( WHERE TO LOCATE ACTIVITIES THAT COMPRISE ENTIRE VALUE
ADDED CHAIN FROM RESEARCH TO PRODUCTION TO AFTER
SALE SERVICE

MARKETING
( EXTENT TO WHICH WORLDWIDE BUSINESS USES SAME BRAND
NAMES,ADVERTISING,AND OTHER MARKETING ELEMENTS IN DIFFERENT COUNTRIES )

COMPETITIVE MOVES
( EXTENT OF COMPETITIVE MOVES IN DIFFERENT COUNTRIES )

I
N
C
R
E
A
S
I
N
G

I
N
T
E
R
N
A
T
I
O
N
A
L
I
S
A
T
I
O
N

TYPE OF CUSTOMERS
BUY IN
FOREIGN
MARKRTS
FROM
FOREIGN
SUPPLIER

FOREIGN
CUSTOMER

GLOBAL CUSTOMER

BUY IN
DOMESTIC
MARKET
FROM
FOREIGN
SUPPLIER
BUY IN
DOMESTIC
MARKETS
FROM
DOMESTIC
SUPPLIER

INTERNATIO
NAL
CUSTOMER

CONTROLL
ED
LOCAL
CUSTOMER

FREE
LOCAL
CUSTOMER

NO HQ
INVOLVEME
NT

HQ RECOMMENDS
STANDARDS?
PRODUCTS

HQ MANDATES
STANDARDS/
PRODUCTS

HQ DOES THE
PURCHASING

INCREASIBG GLOBALISATION OF PURCHASING

BUSINESS GROWTH / COMPETITIVE


SRENGTH MATRIX
STAR
COUNTRIES

HI
GROWTH
POTENTIAL
OF
BUSINESS
IN
COUNTRY

LO

DOG
COUNTRIES
LO

CASH COW
COUNTRIES
HI

COMPETITIVE STRENGTH OF BUSINESS IN COUNTRY

GLOBALISATION

Concerned with degree of standardization of products and practices


plus high level of co-ordination and integration of activities in the companys
value chain.
Offers extensive opportunities for worldwide development and getting
integrated to global economy.
For developing countries, it offers prospects of integration with
rest of developed economy.
In economic terms , Its the process of integration of world into one huge
market.
It is a process not an event. It has no beginning or end.
It is fast becoming imperative for modern businessdue to:
1) crumbling trade barriers 2) global flow of capital & technology
3)Information explosion 4) Intensity of global market competition
5) Changing life styles and demand for innovative products etc
It offers free flow of information, goods, capital & people across political and
economic boundaries and is a process by which enterprises become
interdependent and interlinked globally.

GLOBALISATION
BENEFITS:
Cost benefits: Economies of scale due to standardization & Logistics
management
Timing benefits: Coordinated approach in product launching and
implementation strategies
Learning benefits: Coordinated transfer of information, best practices and
people across subsidiaries.
Arbitrage benefits: using resources in one country for the benefit
of another country.
SOCIAL BENEFITS
Creates overall wealth for all nations as specialization increases trade.
Reduces inflation due to cost efficiencies
Benefits customers: quality products at competitive price.
Better allocation of financial ,material and Human resources
Reduces corruption due to free market trade.
OTHER BENEFITS:
Leads to economic integration and globalized economy.
Transition from multinational to global competitiveness

PORTERS MODEL
BARGAINING
POWER

POTENTIAL ENTRANTS
Economies of scale
Absolute cost
advantage
Switching cost
Access to distribution
Govt. policy
THREAT OF NEW ENTRANTS

SUPPLIERS
Supp.concentration
No. of buyers
Switching cost
Substitute raw mat.
Threat of forward
integration

BARGAINING
POWER OF COMPETITIVE

SUPPLIERS

OTHER
STAKEHOLDERS
(RELATIVE POWER OF
UNIONS, GOVT)

BARGAINING
POWER OF

RIVALARY
( INDUSTRY
SUPPLIERS
COMPETITORS )

THREAT OF SUBSTITUTE PRODUCTS

SUBSTITUTES
Functional similarity
Price/Performance
trend
Product identity

BUYERS
Buyers
concentration
No of suppliers
Switching cost
Substitute products
Threat of backward
Integration

SWOT MATRIX and STRATEGIES


OPPRTUNITIES

QUADRANT 2
TURNAROUND
STRATEGY

QUADERANT 1
AGGRESSIVE
STRATEGY

QUADERANT 4 QUADERANT 3
DEFENSIVE
STRATEGY

DIVERSIFICATION
STRATEGY

THREATS
WEAKNESSES

STREGTHS

TOWs MATRIX
SAP
ETOP
1
2
3
4
1
2
3
4

1
2
3
4

OW

Turnaround Strategies

1
2
3
4

S
OS

Aggressive Strategies
Take advantage of
(Use strengths to take
(Opportunities by overcoming
advantage Of opportunities)
Weaknesses)

TW
Defensive Strategies
( To minimize weaknesses
& avoid Threats )

TS
Diversification strategies
(Consider corporations
strengths
To avoid threats)

BCG GROWTH SHARE MATRIX

HIGH

20
18

16
STARS

Market
Growth 14
rate
12

QUESTION MARKS

10
8
6
CASH COWS

DOGS

4
2
0

LOW

10

1.5
1
6
4
2
Relative market share

0.8

0.5

0.1

GENERIC STRATEGIES

Below Corporate Level Strategies, the strategies to be used by


individual businesses
HOW GENERIC STRATEGIES EMERGE

As humans function with their limbs; corporations operate through


their business strategies .At business level most competitive interaction occurs; where competitive
advantage is either won or lost.

Corporate strategies lay down the framework in which business strategies operate.
COST LEADERSHIP

Vigorous cost reduction programmers and make all possible attempts to achieve the lowest cost.

Achieve efficiency at all levels for lowering costs.

Cumulative cost across the value chain is lower than competitor

Analyze cost drivers and optimization of costs

Commanding high price by introducing innovative product and by building


brand loyalty.

Other initiatives: Accurate Demand Forecasting, Capacity utilization


Economies of scale, Cost saving technologies.
BENEFITS
Threat of cheaper substitutes offset to some extent by lowering price, Effective entry
barrier for potential entrants, Leas at affected by bargaining power of supplier a firm can adopt
price increase to some extent though operational effectiveness.
RISKS
Competitors imitate cost reduction quickly, Not a market friendly approach if customers interest is
ignored Low cost leadership doesnt always work;

DIFFERENTIATION

Providing unique characteristics/special features to product/service


demanded by customers, who are willing to pay.
Customers prefer differentiated products/services which offers them a utility they
value. Such products and services stand apart in the
market and attract customers due to its special featured attributes.
A differentiated firm can charge a premium price & commands customer loyalty.
Creating value at every point by providing special features and
attributes.
Features that raise performance at lower cost, enhance buyer
satisfaction, maintain/enhance quality.
Innovative ability of firm is important. strong R&D base required
Adopted when customers needs preferences are diversified and
market is too large to be satisfied by standardized products
BENEFITS
Firm can charge a premium price, Reduces competitive rivalry
Creates brand loyal customers, Barrier for new entrants
Risks
Long-term perceived uniqueness difficult to maintain, Several
differentiators adopting similar differentiation, Fails if not valued by
customer.

FOCUS BUSINESS STRATEGY

Attempt is to serve narrow strategic target effectively and efficiently


Relies on either cost leadership or differentiation but cater to narrow segment of
total market. Or customer.

Commonly used as basis for identifying customer groups. based on


Demographic characteristics ( Age, gender, income, occupation )
Geographic segmentation (Rural/urban, Northern/sourthern0 0
Life style ( Traditional / Modern }

Firms seeking to adopt Focus Strategy has to locate a niche in the market where
Cost Leaders and Differentiators are not operating

Identifying gaps not covered by Cost Leaders and Differentiators

Uniqueness in the segment. Niche marker big enough to be profitable


and has potential for growth.

Major players not interested in niche


BENEFITS
Protected from competition from other firms who do not have ability to
cater to niche markets, builds up brand loyalty, specialization- powerful barrier to
new entrants and substitutes.
CONSTRAINTS; Developing distinctive competencies a difficult process,
once committed its difficult to move on to other market segment, higher costs may
cause customers to move low price products cost leaders.