Evolution of Strategic Management
Global considerations impact virtually all strategic decisions.
± Geographical boundaries no longer define the limits of our imaginations. ± The survival of businesses hinges on the perception of others about your business. ± The success of St. Mgt depends upon the manager¶s degree of understanding of competitors, markets, prices, suppliers, distributors, governments, creditors, shareholders, and consumers on worldwide basis.

Evolution of Strategic Management
Technological Changes Electronic Commerce (e-commerce) has become a vital St. Mgt tool.
± Companies getting competitive advantage by using internet for direct selling and comm. with suppliers, customers, creditors, partners/shareholders, clients and competitors dispersed globally. ± E- Commerce allows firms to sell products, advertise, purchase supplies bypassing intermediaries, track inventory, eliminate paperwork and share information. ± E-commerce is reducing expense, time, distance and space in doing business thus giving better customer service, greater efficiency improved product and higher profitability.

may lead to regulation on consumers in future. ± It has transferred power from businesses to individuals .Evolution of Strategic Management Internet and PCs are changing our lifestyle the way we interact with our families. ± Buyers can get best price and service by quickly scanning hundreds of vendor offerings. friends neighbors etc. . ± It promotes endless comparison shopping thus enabling consumers worldwide to band together to demand discounts.

± Business to Business e-commerce is five time greater than consumer e-commerce. . e-mail and e-toys have become integral part of everyday life worldwide. ± According to seventy four percent Americans in a survey. ± Slogans and company¶s like e-Bay. e-Trade.Evolution of Strategic Management Internet has changed the economics of business in every single industry worldwide. the Internet will change society more than telephone and television combined. e-commerce.

production /operations. marketing. ‡ It focuses on integrating management. finance/ accounting. . research and development.Strategic Management Definition The art and science of formulating implementing and evaluating cross-functional decisions that enable an organization to achieve it¶s objectives. and computer information systems to achieve organizational objectives. ‡ The purpose of strategic management is to exploit and create new and different opportunities for tomorrow.

logical. generating alternative strategies and choosing particular strategy to pursue. systematic approach for making major decisions in an organization. Strategy Formulation Developing a vision and mission. Three stages of Strategic Management Process. determining internal strengths and weaknesses. establishing long term objectives.Strategic Management Process Strategic Management Process It is an objective. identifying an organization¶s external opportunities and threats. ± Strategy evaluation. ± Strategy implementation. . It attempts to organize qualitative and quantitative information in a way that allows effective decision making under uncertainty. ± Strategy formulation.

and being the best is what Atlanta Web pledges to work hard at being ± every day. . ³ To be the first choice in the printed communication business. ³ Our vision is to take care of your vision´ A vision statement of Atlanta Web Printers. The first choice is the best choice.Strategic Management Process Vision Statement What do we want to become? A vision statement of an eye clinic.

.Strategic Management Process Mission Statement An enduring statement of purpose that distinguishes one organization from other similar is a declaration of an organization¶s ³ reason for being ³answering the pivotal question ³ what is our business´. . A clear mission statement is essential for effectively establishing objectives and formulating strategies.

Establish a general tone or organizational climate. for allocating organizational resources. ‡ Specify organization¶s purpose and then translate these into objectives in such a way that cost. . Facilitate the translation of objectives in to work structure involving the assignment of tasks to responsible elements in organization. Provide a basis. time and performance parameters can be assessed and controlled. or standard.Strategic Management Process Importance of Vision and Mission Statements ‡ ‡ ‡ ‡ Ensure unanimity of purpose within the organization.

demographic. Firms to formulate strategies to take advantage of external opportunities and to avoid/reduce the impact of external threats. . cultural.Strategic Management Process External Opportunities and Threats The trends and events that could significantly benefit or harm an organization in the future are referred to external opportunities and threats like economic. technological or competitive trends. governmental. social. political. environmental. They are largely beyond the control of a single organization-thus the word external. legal.

production/ operations. marketing. ‡ They arise in the management. ‡ Organizations strive to pursue strategies that capitalize on Internal strengths and eliminate internal weaknesses. research and development and management information system activities of a business.Strategic Management Process Internal Strengths and weaknesses An organization¶s controllable activities that are performed especially well or poorly. finance/accounting. .

Strategic Management Process ‡ Strengths and weaknesses are determined relative to competitors. . ‡ Strengths and weaknesses can be determined relative to a firm¶s own objectives. measuring performance and comparing to past periods and industry averages. ‡ Internal factors can be determined by computing ratios. ‡ Strengths and weaknesses can be determined by elements of being rather than performance. advertising effectiveness and customer loyalty. ‡ Survey method could be used to determine employee morale. production efficiency.

reveal priorities. . Objectives should be challenging. measurable. organizing. Objectives state direction. aid in evaluation. reasonable and clear. consistent. focus coordination and provide a basis for effective planning.Strategic Management Process Long Term Objectives Specific results that an organization seeks to achieve in pursuing its basic mission during a period of more than one year. create synergy. motivating and controlling activities.

Strategic Management Process
It is the means by which long-term objectives can be achieved. Business strategies may include geographic expansion, diversification, acquisition, product development, market penetration, retrenchment, liquidation and joint venture. Strategies are potential actions thus future- oriented having multifunctional or multidivisional consequences for the organization.

Strategic Management Process
Strategy formulation issues
‡ ‡ ‡ ‡ ‡ ‡ ‡ Deciding what new business to enter What businesses to close. How to allocate resources. Whether to expand operations or diversify. Whether to enter international market. Whether to merge or form a joint venture How to avoid a hostile takeover.

Strategic Management Process
Types of Plans
Single use plan A plan designed to fit one-time situation. The plan becomes obsolete when its one-time goals have been achieved. Two common types of single-use plans are programs and projects. Program A complex single-use plan consisting of a set of interrelated actions aimed at achieving a one-time major goal. To develop a program, managers; ± 1. Divide the course of action into steps. ± 2. Determine the logical sequence of steps. ± 3. Decide who will be responsible for each step. ± 4. Establish and provide the sources necessary to complete each step.

Strategic Management Process -5. and ± 6. Project A single-use plan that is narrower in scope than a program and aimed at achieving a specific one-time goal. Prepare a schedule for implementation.Policy ± a standing plan that provides broad guidelines for directing managerial activities in pursuit of organizational goals . Projects integrate fewer activities and resources than programs and are often developed as subunits of programs. and rules. Gauge the time needed to finish each step. Bhasha Dam project in the national program of provision of electricity to the whole country. procedures. . for example. Three commonly used types of standing plans are policies. Standing plans A plan for guiding management decisions and activities in situations that recur repeatedly.

Contingency Plans Alternative courses of actions to be followed if unforeseen environmental shifts occur.Strategic Management Process ± Procedure ± a standing plan encompassing a series of detailed steps to be followed in particular recurring situation. . ± Rule ± a standing plan specifying the circumstances in which certain activities can or cannot be performed.

3 years Operational Plans .1 year .5 years Tactical Plans .Strategic Management Process Levels of Planning Strategic Tactical Operational General Time Period Considered for Plans Strategic Plans .

The Managerial Pyramid Mission Strategic Goals/ Plans (organization as a whole) Tactical Goals/ Plans (major divisions. functions) Operational Goals/ Plans (departments and units) .

and refine the company¶s plan. challenge. ± Current: ‡ Planning is decentralized and includes the firms¶ product and divisional managers.Strategic Management Process Who Does the Planning? Small businesses: ± Entrepreneurs do most of the planning. Large firms: ± Traditional: ‡ A central corporate planning group works with top management and each division to solicit. aided by small headquarters advisory groups. .

Determine the procedures. 2. Evaluate the situation.Strategic Management Process How to Develop a Plan 1. 6. 5. Set a timetable. 4. 3. Assign responsibility. Set an objective. Check the plan for feasibility and cost .

Strategic Management Process WELL CONCEIVED PLANS MUST HAVE 1.Methods 3.Measurement .Deadlines 8.Stop points 9.Location 7.Sequence 5.Tasks 4.Resources 2.Individuals 6.

Provides a basis for clarifying individual responsibilities. Allows more effective allocation of time and resources to identified opportunities. Encourages forward thinking. avoiding piecemeal decision making. Directs decision making to support established objectives. Helps integrate the behavior of individuals into a total effort. and provides a unifying framework. Presents a framework for improved coordination and control of activities. Facilitates managerial control through setting of standards for monitoring and measuring performance. . prioritization and exploitation of opportunities.Strategic Management Process Benefits of Strategic Planning Allows for identification. Creates a framework for internal communication among personnel.

Strategic Management Process
Reasons For No Strategic Planning By Firms
Poor reward structure ± often fail to reward success but ready to punish for failure. Fire-fighting ± busy in crisis management and not finding time to plan. Waste of time ± see planning as waste of time since no marketable product is produced. ( time spent on planning is investment). Too Expensive ± culturally opposed to spending resources. Laziness ± may not want to put effort needed for planning. Content with success ± they think no need to plan because things are fine as they stand.

Strategic Management Process
Fear of failure ± not doing anything, no risk of failure. However whenever something worthwhile is attempted, there is some risk of failure. Overconfidence ± as individuals amass experience, they may rely less on formal planning. However, being overconfident or overestimating experience can bring failure Prior bad experience ± plans have been long, cumbersome, impractical, or inflexible. Planning, like anything else, can also be done badly. Self-interest ± when some one has achieved status, or privilege through effectively using old system, he/she sees anew plan as threat. Fear of Unknown ± uncertain of abilities to learn new skills, of aptitude with new system or of their ability to take on new roles. Honest difference of opinion ± sincerely believe the plan is wrong as they are watching the situation from different viewpoing.

Strategic Management Process
Strategy Implementation

Establishing annual objectives, devising policies, motivating employees, allocating resources for strategy implementation, developing a strategy - supportive culture, creating effective organizational structure, redirecting marketing efforts, preparing budgets, developing and utilizing information systems and linking employee compensation to organizational performance.

Preparing budget. Redirecting marketing efforts. motivate employees. Strategy Implementation includes. and Linking employee compensation to organizational performance . Developing a strategy-supporting culture Creating an effective organizational structure. devise policies. Developing and utilizing information systems. It entails establishment of annual objectives. and allocate resources so that formulated strategies can be executed.Strategic Management Process Strategy Implementation It is also called ³the action stage of strategic management´.

Three fundamental strategy evaluation activities are.Strategic Management Process Strategy Evaluation It is the means for management to determine whether the strategy is working or otherwise. ± Measuring performance. ± Review external and internal environment factors which are bases for current strategies. Strategy evaluation is necessary because success today is no guarantee of success tomorrow . ± Taking corrective actions. All strategies are subject to future modifications because of persistent changes in the external and internal environment of an organization.

It is not the strongest of the species that survive. but the one most responsive to the Change . the most basic tenet of a successful manager is how he reflects the change in environment. . in his strategy to ensure the survival of his business concern.Strategic Management Process ENVIRONMENTAL ANALYSIS The permanence in the universe is only to the change. nor the mostintelligent one. In the business environment also.

The organizational environment consists of the internal environment and the external environment.Strategic Management Process The Organizational Environment All forces with potential to influence the organization and its performance is known as organizational environment. Within the external environment are the forces of the general environment or macro environment and the forces of the task environment or industry environment .

The macro-environment Industry
Operating Envrnmt

Internal Environment The organization

Task Environment

Strategic Management Process
Environmental Scanning Scan external environment to identify possible opportunities and threats. Scan Internal environment to ascertain strengths and weaknesses Monitor, evaluate and disseminate information from external and internal environment to the management. Thus, It is a tool used by corporations to avoid strategic surprise and to ensure long-term health


External Environment Analysis
Key External Forces:
± ± ± ± ± Economic forces. Social, cultural, demographic and environmental forces. Political, governmental and legal forces. Technological forces. Competitive forces.

Organization¶s Operating Environment:
Competitors, Suppliers, Distributors, Creditors, Customers, Employees, Communities, Managers, Stockholders, Labor Unions, Governments, Trade Associations, Special interest groups, products, Services, Markets and Natural Environment.

.External Environment Analysis The effects/influences of external environment on organizations operating environments give rise to opportunities and threats for the organization. ± The choice of businesses to acquire or sell. External opportunities /threats enable organizations to develop clear missions and strategies to achieve their objectives. ± The nature of positioning and market segmentation strategies. Changes in external forces is reflected into: ± Changes in consumer demand for both industrial and consumer products and services. External forces directly effect both suppliers and distributors.

to identify key external factors which are. ± Hierarchical effecting overall company and functional/ divisional areas. human resources and internet. Evaluate and assimilate the info. ± Important for achieving long-term and annual objectives. List of key external factors be communicated to all in the organization. ± Applicable to all competing firms.How To Conduct External Audit? Get the participation of max. Gather competitive intelligence about key external force¶s trends by using print/electronic media. ± Measurable. . number of managers and employees.

NAFTA. ± ± ± ± ± ± ± General availability of credit. .Key External Forces Economic Forces The Nature and direction of economy in which firm operates. etc. Interest rates. The firm must consider. Low/ high value of dollar Gross domestic product trend Right sizing/ downsizing or derecruiting Deregulation of Industries to restrain inflation Emergence of economic blocs/ organizations like EEC. The level of disposable income. OPEC. stock prices. Consumption patterns are effected by the relative affluence of various market segments-the firm to consider economic trends in the segments that affect its industry.

Key External Forces Social. services. cultural. Demographic and Environmental forces. . Cultural. Changes in social. and all industries are challenged by the opportunities and threats arising from these changes. demographic and environmental factors have impact on virtually all products. markets and customers and all sorts of organizations.

(Golden hand shake) under Govt.Key External Forces Political. rules for laying off employees . Governmental and Legal Forces Federal. Political. governmental and legal factors can represent key opportunities or threats for both small and large organizations. employers and customers of organizations. Companies have to pay heavy penalty in shape of expensive severance packages. state. subsidizers. local and foreign governments are major regulators.

companies relying only on domestic market may find it difficult to survive. special tariffs can affect firms significantly.Key External Forces Political forecast is vital part of external audit for industries/ firms depending on Govt. Mass communication and high technology is creating similar patterns of consumption in diverse cultures world wide. import duty on raw materials. facilities. contracts. or markets for their products. Changes in tax rates. Political forecasts is critical for multinational firms that depend on foreign countries for natural resources. subsidies. .

. Internet is saving companies billions of dollars in distribution and transaction from direct sales. erasing limitations of traditional geographical markets. It is changing the nature of opportunities and threats by altering the life cycle of products.Key External Forces Technological Forces Technological advances have brought revolution in business operations. New positions of CIO and CTO are being introduced in companies to effectively capitalize on e-commerce. increasing speed of distribution . altering economies of scale and changing entry barriers.

marketing practices and competitive position. Technological breakthroughs can dramatically affect. manufacturing processes. ± Render existing products and services obsolete. ± Products. distributors.Key External Forces Technological forces represent major opportunities and threats which should be taken care of while formulating strategies. managers and customers. ± Change values and expectations of employees. customers. suppliers. . ± Create shortage in technical skills. ± Create new more powerful competitive advantage. operations. markets. ± Create shorter production runs. services. ± Change the relative cost position in an industry.

± People make a difference. Characteristics of a competitive firm. ± Acquisition is essential to growth. opportunities. ± Market share. The most-successful purchases are in niches that add technology or a related market. ± There is no substitute for quality and no greater threat than failing to be cost-effective on a global basis.Key External Forces Competitive Forces It is imperative in external audit to identify rival firms and determine their strengths. threats. ± Understanding and remembering precisely what is your business. tired of hearing it? Too bad. ± Innovate or evaporate. ± Bringing improvement. Nothing quite recedes like success. weaknesses. not just in product but the whole company. . objectives and strategies. capabilities.

Good competitive intelligence in business is one of the key to success. . lower costs and better decision making. Competitive intelligence is equally applicable for strategy formulation. Benefits of corporate spying include increased revenues.Key External Forces Competitive Intelligence A systematic and ethical process for gathering and analyzing info about competitors activities and general business trends to further a business¶ own goals. Major competitor¶s weakness can represent external opportunity and major strength may represent key threat. implementation and evaluation decisions.

managers. distributors. wiretapping. customers. .Key External Forces Objectives of Competitive Intelligence (CI) To provide general understanding of an industry and its competitors. Identify areas in which competitors are vulnerable and assess the impact strategic actions would have on competitors. and computer break-ins should not be used in CI. trade journals. Cooperation Among Competitors Unethical tactics like bribery. creditors. Sources of CI Internet. suppliers. want ads. Identify competitors potential moves that might endanger a firm¶s position in the market. online interviews with celebrities and government filings. newspaper articles. Employees.

Potential entry of new competitors. Bargaining Power of consumers. . the nature of competitiveness in a given industry can be viewed as a composite of five forces.Industry Environment Competitive Analysis: Porter¶s Five-Forces Model. Bargaining power of suppliers. Potential development of substitute products. According to Model. ± ± ± ± ± Rivalry among competing firms. A widely used approach for developing strategies in many industries.

Michael Porter¶s Model POTENTIAL ENTRANTS Threat of new entrants INDUSTRY COMPETITORS Bargaining power of suppliers SUPPLIERS Bargaining power of customers CUSTOMS Rivalry Among Existing Firms Threat of substitute products or services SUBSTITUTES .

adding features. Change in strategy by one firm may be met with retaliating countermoves like lowering of prices. providing services. extending warranties or increasing advertising. ± By becoming more equal in size and capability. enhancing quality. A successful strategy giving competitive advantage to a firm can be pursued by rival firms. The intensity of rivalry increases. . ± with the increase in number of competitors.Industry Environment Rivalry among Competing firms The most powerful of five Competitive forces.

. ± when product is perishable. _ Consumers can switch brands easily. ± The industry becomes Inherently unattractive. ± When fixed costs are high. ± When mergers and acquisitions are common in the industry. ± Barriers to leaving the market are high.Industry Environment -With decrease in demand of industry¶s products. ± Industry¶s profits decline. As rivalry among competing firms intensifies.

Govt.Industry Environment Potential Entry of New Competitors Easy entry of a firm in an industry. possession of patents. increases the intensity of competitiveness among the firms. large capital requirement. undesirable locations. Barriers to entry include. counterattack by entrenched firms or potential saturation of the market: . lack of access to raw materials. sophisticated technology and know how. strong customer loyalty. regulatory policies. Economy of scale. strong brand preference.

their strategies. ± Substantial market resources. ± High quality products. .Industry Environment New firms enter the industry with. Strategist must identify new entrants. ± lower prices. plan counter attack if required and capitalize on existing strengths and weaknesses.

Or the firms plane for increased capacity and market penetration. like plastic container producer competing with glass paperboard or aluminum can producer. Competitive strength of the substitute product could be measured by its market share. Presence of substitute put ceiling on the price of a product. competitive pressure arise when price of the substitute product decreases or consumer¶s snitching cost decreases. .Industry Environment Potential Development of Substitute Products Firms are in close competition with producers of substitute products.

. Firms may pursue a backward integration strategy to gain control or ownership of suppliers. This strategy is effective when suppliers are unreliable. ± There is large number of suppliers. ± There are only few substitute raw materials.Industry Environment Bargaining Power of Suppliers It affects the intensity of competition in industry when. too costly or not capable of meeting a firm¶s demand on consist-ant bases. ± When cost of switching raw materials is high.

. ± Consumers are concentrated or large. ± Buy in volume. Consumers can negotiate selling price. warranty coverage.Industry Environment Bargaining Power of Consumers Intensity of competition in an industry increases by the bargaining power of consumers if. and accessory packages. ± Products being purchased are standard or undifferentiated. Rival firms offer extended warranties or special services to gain consumer loyalty.

.3 The Internal Environment: Resources. and Core Competencies. ± The importance of Internal analysis. ± Building core competencies.Week . capabilities and core competencies. Capabilities. ± Resources. . ± Outsourcing.

Internal Environment Analysis The Importance of Internal Analysis Internal strengths/ weaknesses coupled with external opportunities/threats and a clear statement of mission. ± Strategy to place realistic requirements on the firm¶s resources. provide the basis for establishing objectives and strategies. Three critical ingredients of a successful strategy. ± Strategy be carefully executed. ± Strategy be consistent with conditions in competitive environment. Involvement of representatives of managers and employees from throughout the firm to determine firm¶s internal strengths and weaknesses .

Easiest to identify and often found in firm¶s balance sheet. Tangible Assets They are the physical and financial means a company uses to provide value to it¶s customers. . organizational morale. patents and trademarks and accumulated experience within organization. like brand names.Internal Environment Analysis Three Basic Resources: Tangible. assets. financial resources. raw materials. real estate and computers. production facilities. like. technical knowledge. company reputation. Intangible Assets The assets which cannot be touched or seen but are often critical in creating competitive advantage. Intangible assets and Organizational capabilities.

Core Competence A capability or skill running through a firm¶s businesses and that once identified. either with greater efficiency in the processes or greater quality in the output or both. and processes that a company uses to transform inputs into outputs. Finely developed capabilities can be a source of sustained competitive advantage. abilities and ways of combining assets. becomes the basis for lasting competitive advantage.Internal Environment Analysis Organizational Abilities The skills. nurtured and deployed throughout the firm. . They enable the firm to take the same input factors as rivals and convert them into products and services. people.

. ± Cash. competitors will match or better any resource sooner than later. ± Commodities. ± capacity preemption.Internal Environment Analysis What Makes a Resource valuable? Competitive Superiority : Does the resource help fulfill a customer¶s needs better than those of the firm¶s competitors? Resource scarcity: Is the resource in short supply? Inimitability: Is the resource easily copied or acquired? Inimitability doesn¶t last for ever. Easy to imitate. Can be imitated (but may not be).

Economy of scale Difficult to Imitate ± Brand loyalty. ± Unique locations. ± Reputation for fairness.Internal Environment Analysis . . ± Unique assets (mineral rights). ± Patents. ± Employee Satisfaction. Cannot be Imitated.

Path-dependent resources. Casual ambiguity. Economic deterrence. Durability: How rapidly will the resource depreciate? Substitutability: Are other alternatives available? .Internal Environment Analysis Isolating Mechanism-To make resources difficult to imitate.. Physically unique resources.

Look at organizational processes and combinations of resources and not only at isolated assets or capabilities. Utilize a functional perspective.Internal Environment Analysis Using Resource. Use value chain approach to identify capabilities. Methods to identify resources with strategic value. Involves identifying and evaluating firm¶s resources that possess strategic value and can provide basis for future competitive advantage. activities and processes having potential competitive advantage. . Separating tangible and intangible assets as well as organizational capabilities can uncover value-building resources and activities. Disaggregate resources: Break them into more specific competencies rather than stay with broad categorizations.Based View in Internal Analysis.

± Door Positioning and style. window decorations ± Table layout ‡ Table materials . ‡ Theme. Providing ease of access ± Parking (where appropriate). floor materials. color scheme. ± External Signs/ welcome Offering a delightful ambiance ± Floor design. ± Bar positioning. ± Features/décor.Internal Environment Analysis Disaggregating a Restaurant¶s Customer Service Resource.

Internal Environment Analysis Providing a Special welcome ± ± ± ± Host greeting Welcome drinks/ eats Menu introduction Table decoration Ensuing waiting time at the table is´ as expected´ and as enjoyable as possible. ± Visible queuing system. ± Marketing literature. ± Entertainment for queuers. .

Internal Environment Analysis Providing a customer with delightful service Developing a special relationship between waiter/ waitress and table ± Waiter selection ± waiter training/ development ‡ Personality training ‡ Assessing customers ‡ Handling disasters ‡ Coping with pressures. ± System of gaining waiter¶s attention . ‡ Daily Meetings. ‡ Job experience Motivation awards. coaching process ‡ Discipline system. ‡ Menu training.

. ± Kitchen queuing system ± Service standards Reducing the pain of paying the bill. ± ± ± ± Size of Menu Material Menus made off Menu dishes Menu layout Providing speed of service appropriate to the occasion.Internal Environment Analysis Ensuring that Menu is fun to use and caters to the diners¶ needs.

4 Business level Strategy Customers Types of business level strategy .Week .

Market research and Industry surveys can help a firm to avoid relying on illusive assumptions. ± To allocate resources to support forecast shifts in demand patterns. ± Anticipate changes in size of markets. .Business Level Strategy Customer Profile Developing a profile of a present and prospective customers improves the ability of its managers to. psychographic and buyer behavior information Assessing customer behavior is key element in process of satisfying target market needs. Customer profile is constructed from geographic. demographic. ± Plan strategic operations.

Customer will agree with our presentation that the product is ³ great´. The product will sell itself.Business Level Strategy Some Dangerous Implicit Assumptions about Customer Behavior Customers will buy our product because we think it is a good one. . Customers will buy our product because it¶s technically superior. Customers run no risk in buying from us instead of continuing to buy from their past suppliers. Distributors are desperate to stock and service the product.

Competitions will respond rationally. We can insulate our product from competition.Business Level Strategy Some Dangerous Implicit Assumptions about Customer Behavior (contd) We can develop the product on time and on budget. we will have no trouble attracting the right staff. The rest of our company will gladly support our strategy and provide help as needed. . we will be able to hold down prices while gaining share rapidly.

Business Level Strategy Customer Profile Based on Customer Segmentation Geography Every product or service has some quality that makes it variably attractive to buyers from different locations. and occupations) is the minimum basis for a customer profile. Demographic Demographic variables (e. sex. .g. marital status. age. income.. .

g.. .Business Level Strategy Psychographic Personality and life style variables often are better predictors of customer purchasing behavior than geographic or demographic variables. Buyer Behavior Information on buyer behaviors (e. usage rate. benefit sought and brand loyally can provide significant help in design of more accurate and profitable strategies.

Types of Strategies Integration Strategies Intensive Strategies Diversification Strategies Defensive Strategies Michael Porter¶s Generic Strategies .

± Opening company¶s stores.Types of Strategies Integration Strategies Forward integration Backwind integration Horizontal integration Forward Integration Gaining ownership or increased control over distributors or retailers by. retail outlets .. ± Franchising .costs and opportunities are spread across many individuals. ± Establishing websites to sell products directly to consumers.

organizations can increase the predictability of the demand through forward integration. . firms having forward integration are availing competitive advantage. When profit margins for distributors or retailers are high. Organizations present distributors are expensive. When organization has both the capital and human resources. Advantages of stable productions are high. When the industry is growing and expected to continue growing.Types of Strategies Situations when forward integration may be an effective strategy. Availability of quality distributors is limited. forward integration reduces organization¶s ability to diversify if it¶s basic industry falters. unreliable or incapable of meeting the firms distribution needs.

.Types of Strategies Backward Integration A strategy of seeking ownership or increased control of a firm¶s suppliers particularly in situations when firm¶s suppliers are unreliable. Firms increasingly use websites on backward integration opportunities. too costly or cannot meet firm¶s requirements Firms having global sources of supply opt for deintegration. Global competition is prompting firm¶s to reduce number of suppliers and to demand higher level of service and quality from selected ones.

When an organization has both capital and human resources to manage the new business of supplying its own raw material.Types of Strategies Situations when backward integration may be an effective strategy When present suppliers are expensive. when the number of suppliers is small and the number of competitors is large. unreliable. . When an organization competes in an industry that is growing rapidly. or incapable of meeting the firms needs.

as organization can stabilize the cost of its raw materials and associated products through backward integration. When an organization needs to acquire a needed resource quickly. tempting to invest into the venture. . When present supplies have high profit margin.Types of Strategies Situations when backward integration may be an effective strategy (contd) When the advantages of stable prices are particularly important.

acquisitions and takeovers among competitors allow for increased economies of scale and enhanced transfer of resources and competencies.Types of Strategies Horizontal Integration A strategy of seeking ownership of or increased control over a firm¶s competitors. It is increasingly being used by the firms as growth strategy. Mergers. . Mergers between direct competitors create efficiencies because of potential for eliminating duplicate facilities.

When the firm has the necessary resources of capital and human talent to manage the expanded organization.Types of Strategies Situations when horizontal integration may be an effective strategy When an organization can gain a monopolistic characteristics without being challenged by the law (secp). when competitors are faltering due to lack of managerial expertise or a need for particular resources that an organization possesses. when a firm competes in a growing industry. . When increased economies of scale provide major competitive advantage.

.Types of Strategies Intensive Strategies Requires intensive effort from the firm to improve it¶s competitive position with existing products. advertising expenditure. Market Penetration Market Development Product Development Market Penetration This strategy seeks to increase market share for present product or services in present markets through greater marketing efforts. publicity efforts or offering extensive sales promotion items. Market penetrations includes increasing number of salespersons.

The correlation between dollar sales and dollar marketing expediture has been high. The usage rate of present customers could be increased significantly. .Types of Strategies Situations when market penetration may be an effective strategy Current markets are not saturated with a particular product or service. Market shares of major competitors have been declining while total industry sales have been increasing. Increased economies of scale provide major competitive advantage.

New untapped or unsaturated markets exist. reliable. Organization is very successful at what it does. Organization has excess production capacity. inexpensive and good quality channels of distribution are available.Types of Strategies Market Development It involves introducing present products or services into new geographic areas. . Organization¶s basic industry is becoming global. Situations when market development may be an effective strategy New. Organization has the necessary resources to expand operations.

Organization competes in an industry that is characterized by rapid technological development. Organization has strong research and development capabilities. Major competitors offer better -quality products at comparable prices. It normally entails large R & D expenditure. . Situations when Product development may be an effective strategy Organization¶s successful product has reached the maturity stage and organization wants its customers to try it¶s new or improved product.Types of Strategies Product Development A strategy that seeks increased sales by improving or modifying present products or services. Organization competes in a high-growth industry.

There are three types of diversification strategies. Concentric Diversification Acquiring new. . products or services. Concentric. especially when the company is competing in an un attractive industry.Types of Strategies Diversification Strategies Diversification strategy is followed to avoid dependence on any single industry. but related. Horizontal and conglomerate.

When new related products have seasonal sales levels that counterbalance a company¶s existing peaks and lows. . When new related products could be offered at highly competitive prices. When the company¶s products are in the declining stage of the product¶s life cycle. When an organization has strong management team. When adding new but related products would significantly enhance the sales of current products.Types of Strategies Situations when Concentric diversification may be an effective strategy When an organization competes in a no-growth/ slowgrowth industry.

Revenue of the organization would increase significantly. Organization¶s present marketing channels can be used to market new products to current customers. The new product has countercyclical sales patterns compared to an organization¶s present products. unrelated products or services for present customers. Organization competes in a highly competitive and / or a no growth industry yielding low returns and profit margins. Situation when Horizontal Diversifications may be an effective strategy. .Types of Strategies Horizontal Diversification Adding new.

Antitrust action could be charged against an organization that. . Organization has the opportunity to purchase unrelated business providing an attractive investment opportunity. The existing markets for company¶s present products are saturated. Has concentrated on a single industry. Organization¶s basic industry is experiencing decline in sales / profits. There exists financial synergy between the acquired and acquiring firms.Types of Strategies Conglomerate Diversification Adding new. unrelated products or services. Organization has the capital and managerial talent to successfully compete in a new industry. Situations when conglomerate diversification may be an effective strategy.

pruning product lines. automating processes. Bankruptcy can be an effective type of retrenchment strategy. reducing the number of employees and controlling expenses.Types of Strategies Defensive Strategies Retrenchment. closing obsolete factories. . Also called a turnaround or reorganization strategy. Entails selling off land and buildings to raise needed cash. Divestiture and Liquidation are defensive strategies.. is designed to fortify an organization¶s basic distinctive competence. Retrenchment An organization regroups through cost and asset reduction to reverse declining sales and profits. allowing A firm to avoid major debt obligations and to void union contracts. closing marginal businesses.

Organization has grown so large so quickly that major internal reorganization is needed. . minimize external threats. low profitability. could not capitalize on external opportunities. The organization¶s strategic managers have failed. The organization is a weaker competitor in the industry. An organization has failed to meet it¶s objectives and goals repeatedly overtime. take advantage of internal strengths and overcome internal weaknesses overtime. poor employee morale.Types of Strategies Situations when retrenchment may be an effective strategy. and pressure from stakeholders to improve performance. The organization is plagued by inefficiency.

that require too much capital.Types of Strategies Divestiture Selling a division or part of an organization. or that do not fit well with the firm¶s other activities. . The strategy is used to raise capital for further strategic acquisition or investments. Divestiture can be apart of an overall retrenchment strategy to rid an organization of businesses that are unprofitable.

managers. employees. values or needs. may be due to different markets. A division is responsible for an organization¶s overall poor performance. Government antitrust action threatens an organization . The organization has pursued a retrenchment strategy but failed to accomplish needed improvements.Types of Strategies Situations when Divestiture may be an effective strategy. A large amount of cash is required quickly and cannot be obtained from other sources. A division needs more resources to be competitive than the company can provide. customers. A division is misfit with the rest of an organization.

Organization has pursued both a retrenchment strategy and divestiture strategy and both have failed. When only alternative left is bankruptcy. than liquidation is the only way to orderly get max cash from firm¶s assets. When stockholders of a firm can minimize their losses by selling the organization¶s assets. Situations when liquidation may be an effective strategy to pursue. can be an emotionally difficult strategy. . Liquidities is a recognition of defeat and therefore. in parts. It is better to cease operating than to continue loosing large sums of money.Types of Strategies Liquidation Selling all of a company¶s assets. for their tangible worth is called liquidation.

Strategies allow organizations to gain competitive advantage from three different bases. cost leadership. Differentiation strategy aims at producing unique products for relatively price sensitive consumers and focus means producing products & services to fulfill the needs of small groups of consumers. These strategies imply different organizational arrangements. control procedures and incentive systems. . Differentiation and focus. Cost leadership emphasis on producing standardized products at a very low per unit cost for price sensitive consumers. Large firms with greater resources compete on a cost leadership and or differentiation basis while small firms often compete on focus basis.Types of Strategies Michael Porter¶s Generic Strategies.

. Implies high efficiency. Competitors imitation of strategy may result in lowering overall Industry profits. Perform cost-benefit analysis to evaluate sharing opportunities of resources and knowledge within organization. lower overheads. backward and horizontal integration is to gain cost leadership. buyer are not bothered about brands and there are large no. Pursue cost leadership in conjunction with differentiation. limited perks.Types of Strategies Cost Leadership Strategy Reason for forward. rewards linked with cost containment. intolerance of waste. It is an effective strategy in situations where customers are price sensitive. technology break through make strategy ineffective. buyer¶s interest switching to other differentiating features beside price. of buyers with significant bargaining power. there is few ways of achieving product differentiation.

engineering design. Special features could be superior service. spare parts availability. .Types of Strategies Differentiation Strategy. Strategy requires strong coordination between R&D and marketing functions Will allow a firm to charge high price. gas mileage or ease of use. product performance. gain customer loyalty. Follow a strategy after careful study of buyers needs and preferences to determine and incorporation of one or more differentiations features. useful life.

Market Penetration and Market Development strategies offer substantial focusing advantages. ± Rival firms are not attempting to specialize in the same target market. . ± Consumers have distinctive preferences or requirements. Focus Strategies are most effective when. Medium to large firms can pursue focus strategies only in conjunction with differentiation or cost leadership-based strategies. geographic market.Types of Strategies Focus Strategies To concentrate on a particular group of customers. or on a particular product-line segments in order to serve a well defined but narrow market better than competitors who serve a broader market.

.Types of Strategies Focus Strategies (contd) Risks of pursuing Focus Strategies. The possibility of many competitors recognizing the successful focus strategy and copying it. The consumer preferences drifting towards the product attributes desired by the market as a whole.

significant moves taken by a firm that are designed to gain a competitive advantage in a market. .series of competitive actions and responses among firms in the same industry.Competitive Dynamics Competitive Rivalry and Competitive Dynamics Competitive Dynamics . Competitive Actions .

Single and dominant businesses are more likely to respond. Actor¶s Reputation Actions by market leaders are more likely to lead to responses by competitors than actions by small firms in the industry. Actions initiated by firms with a previous history of success will be more likely to result in quick reactions and imitation.what determines that a competitor would respond? Market Dependence High concentration in or dependence on an industry increases likelihood of a response. Lack of resources may provide an incentive to seek partners to mount an effective response. . Competitor Resources Small firms are more likely to respond to tactical as opposed to strategic actions (because tactical require fewer resources).Competitive Dynamics Likelihood of Response.

respond to the first mover¶s competitive actions Evaluate customer¶s reactions to first mover action. evaluate first mover¶s successes and failures. Performance usually suffers because of this. Late Movers ± firms that respond but only after considerable time. Second Movers. Gain customer loyalty and develop barriers to entry.Competitive Dynamics Timing of Actions and Responses First Movers.firms that take initial competitive action Earn above normal profits until competitors respond effectively. . Avoid market development costs( paid by first mover). Less risky. Gain a sustainable competitive advantage.

significant commitment of specific and distinctive resources ± AT&T¶s World Serve (global telecommunicates) ± Schumpeterian innovations and pre-emptive strategies. Tactical. ± Frontal assaults. ± Price increase or decrease. multipoint competition etc. guerilla offensives.Competitive Dynamics Type of action Strategic Vs Tactical and Offensive Vs Defensive Strategic Vs Tactical Strategic. ± KFC¶s expansion of menu items to counter Boston chicken coupled with extensive advertising in those regions. .fine tuning of business level strategy using general resources.

service. Frontal Assault ± Outcome determined by who has greater resources. ± Match rival¶s product (imitate it) than lower price. gaps in product line ± Attacks on rival¶s weaknesses have a higher success rate than frontal assaults.Competitive Dynamics Type of action Strategic Vs Tactical and Offensive Vs Defensive Offensive Vs Defensive Offensive. Attack on Lines of Weakness ± Geographic regions( Walmart) ± Neglected market ± Neglected quality.significant commitment of specific and distinctive resources. ± Cost related strategies are usually best for frontal assaults. ± Never try to imitate too closely (specially strategy). .

Competitive Dynamics Guerilla Offensives ± Good for small firms who lock resources (book buyers). . ± Requires good coordination and quick reaction time. Multifrontal Competition ± Requires large amount of resources (usually 3x that of rivals). ± Innovator usually becomes the dominant firm or market leader. ± Selective attacks (timing and stealth are crucial). ± Essentially buying market share with expenditure of resources. you develop the next generation of products. Bypass offensives ± Radical or Schumpeterian innovations ± Disrupts industry as a whole. In essence.

Tie up raw materials from rivals.Competitive Dynamics Type of action Strategic Vs Tactical and Offensive Vs Defensive Pre-emptive Strategies Expand production capacity (create over capacity). Bundling of resources. Use of contracts ( long term). .

Competitive Dynamics Type of action Strategic Vs Tactical and Offensive Vs Defensive Defensive Lowers risk of being attacked. ± Avoid suppliers that serve competitors. increase services on products. Available Options ± Broaden product line. Usually does not enhance competitive advantage. ± Harvest strategies Necessity of credible deterrents. ± Exclusive agreements (similar to bundling) with buyers and suppliers. ± Retrenchment strategies. Goal: lower inducement to rivals to launch offensive or for new entry. . Good strategy for turbulent times (industry shakes-up. economic downturn). lower prices on products that rival can duplicate. purchase excess supplies.

These controls stifle competitiveness and the ability to innovate. the greater the firm¶s market power. Speed of Actions Time to market and speed of response are becoming increasingly important in the global marketplace. . Size and lack of innovation make it difficult to be first movers of respond quickly to competitive moves. Vs Japan (autos) ( 4-5 Vs 2-3 years development time). U.Competitive Dynamics Moderators of Competitive Actions.S. Firm Size The larger the firm. Larger firms tend to adopt bureaucratic controls.

± Develop proprietary technology and deny competitors access or share technology to establish industry standards.Competitive Dynamics Moderators of Competitive Actions. firm¶s dominance in major industries has been linked to a decrease in innovation. manufacturing. followed steps: R&D.S. . design. engineering. Innovations. ± Decline in U. marketing etc. Cross-functional Teams. ± Managers un-willing to bear the risk associated with innovation. ± Historically.Members from different functions combine efforts.

larger firms that emphasize fewer products and focus in efficiency. ± Non-fragmented industries-innovation and rapid time-to-market are key competitive weapons. . ± Fragmented industry-no dominant firm (fast food industry) generally leads to standardized facilities and low costs.Competitive Dynamics Competition and Industry Life Cycle Emergent Industries ± Develop reputation and create brand loyalty. ± Establish a niche or a form of market dominance. establish relationships with suppliers. Increased likelihood of international expansion. Growth Industries Survivors of emergent battles often use the same strategies. Mature Industries Fewer.

Acquisition and Restructuring Strategies The increasing use of mergers and acquisition strategies. Effective restructuring Restructuring .

If the acquisition is desired by both firms. Friendly Merger . Acquisition.when a large organization purchases (acquires) a smaller firm. . or vice versa.Mergers and Acquisitions Merger ± When two organizations of about equal size unite to form one enterprise.When a merger or acquisition is not desired by both parties. Takeover/Hostile Takeover .

Not all mergers are effective and successful ± about half produced negative returns to shareholders (Wall Street Journal studies) .Mergers and Acquisitions Forces driving Mergers/ Acquisitions Technological Change Excess capacity Deregulation Inability to boost profits through price increases A depressed stock market Need to gain economies of scale Bargains galore as companies struggle and while stock prices are low.

The proliferation of mergers is fueled by the firm¶s drive for market share. A LBO takes a corporation private.Mergers and Acquisitions Too-high purchase price for the stock of an excellent company can undo the effects of a subsequent decade of favorable business developments ± a merger between two firms can yield great benefits. The volume of mergers completed annually worldwide is growing dramatically and exceeds $1 trillion. . efficiency and pricing power as well as by globalization. provided the price and reasoning is right. To avoid hostile takeover a leveraged buyout (LB0) is done .corporation¶s shareholders are bought (hence buyout) by the company¶s management and other private investors using borrowed funds (hence leverage).

To reduce managerial staff. products and creditors. To reduce tax obligations. To make better use of the existing sales force. distributors. To gain economies of scale To smooth out seasonal trends in sales.Mergers and Acquisitions Reasons for Mergers and Acquisitions To provide improved capacity utilization. customers. . To gain new technology. To gain access to new suppliers.

Involves selling off portions of the company and making severe staff reductions. Restricting is often done as part of a bankruptcy or a takeover by another firm. It may be done by a new CEO hired specificity to make the difficult and controversial decisions required to save or reposition the company. . An act of partially dismantling or otherwise reorganizing a company for the purpose of making it more efficient and therefore more profitable. Restructuring is also done in a leveraged buyout by a private equity firm.Restructuring A corporate management term.

Reorganization of functions such as sales. . such as patent¶s or brands. Moving of operations such as manufacturing to lower cost locations. Refinancing of corporate debt to reduce interest payments. Forfeiture of all or part of the ownership share by pre. Outsourcing of operations such as payroll and technical support to a more efficient third party.Restructuring Characteristics Sale of underutilized assets. marketing and distribution. Reorganization of labor contracts to reduce overhead. A major public relations campaign to reposition the company with consumers.restructuring stock holders ( if the remainder represents only a fraction of the original).

. the parent company will likely resell it at a profit when the restructuring has proven successful. and better focused on its core business. better organized.Restructuring Results A company that has been restructured effectively will generally be leaner. If the restructured firm was a leveraged acquisition. more efficient.

.International Strategy Identifying international opportunities International strategies Environmental trends Strategic competitiveness outcomes Risk in international environment.

. ± Technological change. Forces driving the MNE activities.perception. ± Regional forces.International Strategy MNE and Globalization. ± Changes in consumer expectations. ± Deregulation. Use of Internet for marketing standardized products.

Time taken to do certain job effectively reduces with repetition thus Increase in cumulative volume of production thereby systematic reduction in production cost. . ± Ride down the experience curve ahead of competitors and reduce the cost of value creation. ± Earn a greater return on their distinctive competencies (McDonald¶s in fast food competency). consistent with business level strategies of low cost and differentiation. ± Realize location economies by dispersing individual value creation activities to those locations where they can be performed more efficiently.International Strategy International Expansion and Corporate Profitability Companies that do business internationally can.

steel.similar preferences of consumers of different countries fall in this category like. petroleum.). Pressures for local Responsiveness ± ± ± ± Differences in consumer tastes and preferences. Host government demand. Differences is infrastructure and traditional practices. Differences in distribution channels. .( products serving universal needs.International Strategy Pressures for Cost Reduction and Local Responsiveness Cost Reduction: To respond to these pressures the company may reduce cost of value creation by mass production of standardized product at optimal location in the world in order to realize location and experience-curve economies. sugar etc.

Often have high _ cost structure unable to realize value from experience curve effects and location economies. McDonalds. It involves attempts to transfer products. Tend to set complete set of value creation activities i.Domestic Strategy: achieving maximum local responsiveness and extensive local customization by matching products and services to different national conditions prevalent in the countries they operate in.International Strategy Strategic choice International strategy: transferring valuable skills and products to foreign markets where indigenous competitors fall short of those skills and products (Coca Cola. Kellogg etc. Multi. . Incorporate strategy in industries where cost pressures are high. production. processes or strategies from developed home market to less developed one which results into weakness in both efficiency and flexibility.e. marketing and R&D.).

. ± Reduced learning through centralized R&D. ± Emphasis in efficiency through global economy of scale. ± High transport costs and exchange rate risks.cost approach for increase profitability by reaping benefits of experience-curve effects and location economies.International Strategy Global Strategy: focusing on a low. Global strategy involve.

resources and people into operating units around the world. ± Cross-market capacity to leverage learning on a worldwide basis. In order to µ in international marketplace. and networks. transfer distinctive competencies within the company and at the same time pay attention to pressures for local responsiveness.. Through flexible management processes. ± Global scale efficiency. Transnational companies integrate diverse assets. the companies must exploit experience-based economies and location economies. the companies aim to build three strategic capabilities. ± National level responsibilities and flexibility.International Strategy Transnational Strategy: a combined approach of low-cost and high local responsiveness simultaneously for products and services. .

using export management firm. company¶s own overseas sales office hiring own salespeople. . ± Establishing local assembly line. Exporting ± Indirect exporting: Foreign buyer in local market. ± Direct exporting: Through independent distributor.International Strategy Choice of Entry Mode into International business. ± Establishing local manufacturing plant.

Franchising: A special form of licensing in which the franchiser makes a total marketing program available. technology. including the brand name. The franchise agreement is more comprehensive than angular licensing agreement in as much as the total operation of the franchisee is prescribed. joint venture with minority or majority equity positions . products. trademark. Licensing: Allowing someone else to use something of the company like patent.International Strategy Nonequity Arrangements Doing international business through an arrangement that does not involve any investment. logo. Direct Foreign Investment wholly owned. production process or product in return for the payment of royalty. and methods of operation.

Majority Interest: Having more than 50% ownership.International Strategy Minority Interest: Having less them 50% ownership position. ± when a rapid entry into a market is desired. Vertical Merger: combination of at least two firms in successive stages of production to stabilize supply and production. Joint venture: two companies forming a third company. Product Extension Merger: combination of two firms with noncompeting products. 100%: ownership. exploration of complementary technology and a need to reduce the time taken for an innovation. ± when a company wants to purchase local knowledge and an already established marketing or manufacturing facility. Mergers: Horizontal merger: combination of at-least two firms doing similar businesses at the same market level to generate economy of scale. . Have related products-with the aim to gain access to market. It is normally done in two conditions. Synergy: Two parties having things in common.

Diversified Activity Merger: Combination of at-least two totally unrelated firms.General Mills. Acquiring firm can economically combine its management skills. a US based company marketing breakfast cereals (Kellogg) getting into alliance with Nestle of Switzerland.International Strategy Market Extensions Merger: Combination of at least two firms with similar products in different geographical markets. Barriers To International Trade General Agreement on Tariffs and Trade (GATT) Increasing Protectionist Attitude. Distribution. . Trade Blocs and Free Trade Areas.Base Alliance. To use cash resources of acquired firm to increase shareholder wealth. It is sort of product based alliance.

Organizational Structure and Control Evolutional patterns of strategy and organization structure Organizational structure and control Implementing strategies Evaluation and Control .

centralization/ decentralization. . grouping of activities. supervision. levels of authority. and coordination between the interdependent parts of the organization to ensure organizational effectiveness. sizes of departments. The structure defines the framework within which the activities occur. When structuring a firm . management needs to consider the aspects of departmentalization. specialization. A system for dividing a firm¶s total work into units and allocating these units to people and departments.Organizational Structure and Control Organizational Structures The division of tasks for efficiency and clarity of purpose. extent and nature of delegation etc.

and decline stage. The Organizations follow a life cycle similar to a product life cycle . . As an organization grows in size and diversity it moves from a simple to a complex organizational form. growth.Organizational Structure and Control Need for Structure & Stages of Development Need for organizational structure becomes evident as a business evolves.introduction. maturity.

organizations grow into multi-product. Every division is a separate strategic business linked to the corporate headquarters. The corporate level provides strategic direction and policy guidelines. simple in form.Organization has divisions and plants at different locations. Growth stage . The structure of the organization becomes a complex one. Final Stage .manager manages small. operations and management. multi-business corporations and the structure is divisional.Organizations grow in size and wider in scope of operations and adopt functional form of structure. Maturity Stage .Entrepreneur-owner.Organizational Structure and Control Introduction stage .scale enterprise. characterized by simple objectives. The organization. .

Determine most logical grouping of activities. Analyze internal strengths and weaknesses. Examine external environment. Specify authority and responsibility.Organizational Structure and Control Determination of Organization Structure Establish mission. strategies and key objectives of the enterprise. Develop the organization. .

± Structure dictates how objectives and policies will be established.Organizational Structure and Control Evolution Patterns of Structure with strategy Strategy and structure are interdependent and exercise an influence over each other. the resources will be allocated in that manner. then resources are allocated by functional areas.If an organizational structure is based on customer groups. . Strategy can rarely succeed without an appropriate structure. then objectives and policies are stated in terms of products. If structure is based on product groups in an organization. ± Structures dictate how resources will be allocated . Change in strategy require change in structure because. or if an organization¶s structure is set up according to functional business lines.

The Functional Structure It groups tasks and activities by business functions. and MIS .Organizational Structure and Control Types of Organizational Structures Organizational structures are: functional. such as production/ operations. divisional by customer. divisional by geographical area. marketing. strategic business unit (SBU) and matrix. divisional process. divisional by product. finance/ accounting. research and development.

Organizational Structure and Control
It is simple, inexpensive system which allows rapid decision making When people who perform the task are grouped together, they learn from each other and become more specialized and productive. People while working-together can monitor each other performing their tasks effectively and not shirking their responsibilities. Thus the work process become more efficient, reducing manufacturing costs and minimizes the need for an elaborate control system. Functional structures give managers greater control of activities. As there is only one hierarchy in each functions like in manufacturing, accounting etc, managing become easy when different groups specialize in different organizational tasks and are managed separately.

Organizational Structure and Control
It is difficult to communicate cross functions and to coordinate their activities. Minimizes career development opportunities ± is sometime characterized by low employee morale. Line/staff conflicts, poor delegation of authority, and inadequate planning for products and markets.

Organizational Structure and Control
Divisional Structure
The divisional or decentralized structures are used to manage different products and services in different markets. Divisional structures help in motivating employees, control operations and compete The successfully in diverse locations. The divisional structure can be organized by; ± Geographical area, ± Product or service, ± Customer, ± Process With a divisional structure , functional activities are performed both centrally and in each separate division.

managers and employees can see the results of their good or bad performances. Allows new business or products to be added easily.divisional managers can be held responsible for sales and profit-levels. . Allows local control of situations. Advantages Accountability. leads to competitive climate within an organization.Organizational Structure and Control With consumptions patterns becoming similar worldwide. It creates career development opportunities for managers. a by-product structure is becoming more effective than a by. Employee morale is comparatively higher in divisional structure than in a centralized structure. As divisional structure is based on extensive delegation of authority.customer or bygeographic type divisional structures.

services. .Organizational Structure and Control Disadvantages A divisional structure is costly because. Managers must be qualified because the divisional design forces delegation of authority. Duplication of staff. facilities and personnel. products or customer. It requires an elaborate headquarter driven control system.better qualification leads to higher salaries. Certain regions. may sometimes receive special treatment and it may be difficult to maintain consistent companywide practice. Each division requires functional specialists who must be paid.

. A suitable structure for organizations with similar branch facilities located in widely dispersed area. The structure allows local participation in decision making and improved coordination within a region.Organizational Structure and Control Divisional Structure by Geographic Area A structure for organizations whose strategies need to be tailored to satisfy particular needs and characteristics of customers in different geographical areas.

The structure allows strict control over and attention to product lines.Organizational Structure and Control Divisional Structure by Product or Service Most effective structure for implementing strategy when specific product or service need special emphasis. It requires a skilled management force and reduced top management control. . or organization offers only a few products/services or products or services differ substantially.

. It allows an organization to cater effectively to the marinates of clearly defined customer groups.Organizational Structure and Control Divisional Structure by Customer A structure facilitating an effective implementation of strategy when few major customers are of prime importance and where different services are provided to these customers.

.Organizational Structure and Control Divisional Structure by Process Similar to functional structure ± activities are organized according to the way work is actually performed. The structure is effective in achieving objectives when distinct productions processes represent the thrust of competitiveness in an industry. Difference: functional departments are not accountable for profits or revenues whereas divisional process departments are evaluated on these criteria.

It groups similar divisions into strategic business units and delegates authority and responsibility for each unit to a senior executive who reports directly to the chief executive officer. Disadvantages It requires additional layer of management resulting into increase in Salary packages. The structure facilitates strategy implementation by improving coordination between similar divisions and channeling accountability to distinct business units. . The role of vice presided is ambiguous.Organizational Structure and Control Strategic Business Unit (SBU) Structure In a large multidivisional organization an SBU structure greatly facilitate strategy implementation process.

. shared authority. Duel lines of budget authority (violation of unity of command principle). Need for extensive and effective communication system. Dual reporting channels. (Divisional and functional structures depend on vertical flow of authority). Dual sources of reward and punishment. It involves higher overhead because it creates more management positions.Organizational Structure and Control The Matrix Structure The most complex structure involving both vertical and horizontal flows of authority and communication.

Organizational Structure and Control Advantages Project objectives are clear. Pre-requisite for success of Matrix Structure ± ± ± ± ± Participative planning. . Excellent internal communication. Mutual trust and confidence. Shutting down of a project is easy. Clear mutual understanding of roles and responsibilities. Training. Workers can see the visible result of their work. Multiple channels of communication.

corporate staff -to.Organizational Structure and Control Restructuring Firms carryout restructuring when various ratios appear out of line with competitors in benchmarking exercises.operating employees. number of divisions or units and number of hierarchical levels in the firm¶s organizational structure. or spanof. rightsizing or delayering involves reducing the size of the firm in terms of number of employees. The primary benefit sought from restructuring is cost reduction and improvement in both efficiency and effectiveness. Also called downsizing. . Restructuring is primarily concerned with shareholder¶s well. Benchmarking ratios used in rationalizing the need for restructuring are headcount-to.being rather than employees well-being.control figures.sales-volume.

Restructuring in many firms has made manager¶s job an invisible. . thankless role. They are required to be counselors. Hence. They also run the risk of becoming technologically behind in their areas of expertise. restructured arena. financial advisors and psychologists. many people today do not aspire to become managers and many present-day managers are trying to get of the management track. motivators. creativity and innovation. more competitive.Organizational Structure and Control Adverse Effects of Restructuring Uncertainty and trauma associated with pending and actual employee layoffs can cause reduced employee commitment. managerial jobs demand more hours and headaches with fewer financial rewards. In today global.

and information sharing.Organizational Structure and Control Reengineering The companies vertically organized by business functions has led managers and employees to mind-set defined by their particular function rather than over all customer service. unless calmed. or corporate performance. In reengineering the firm breaks down functional barriers and create a work system based on business processes. or output rather than on functions or inputs. which. Benefit The employees can see more clearly how their particular jobs affect the final product or service. Reengineering emphasizes on decentralization. can lead to corporate trauma. reciprocal interdependence. product quality. Drawback lt raises manager and employees anxiety. products. .

Organizational Structure and Control Implementing Strategies Strategy implementation is different than strategy formulation.requires good intuitive and analytical skills Strategy implementation .focuses on effectiveness Strategy implementation . Strategy formulation ± positioning forces before the action Strategy implementation ± managing forces during the action Strategy formulation .focuses on efficiency Strategy formulation ± primarily an intellectual process Strategy implementation ± primarily an operational process strategy formulation .requires special motivation and leadership skills .

large.varies substantially among different types and sizes of organizations .requires coordination among a few individuals Strategy implementation . for profit or nonprofit organizations Strategy implementation .Organizational Structure and Control Strategy formulation .requires coordination among many individuals Strategy formulation .concepts and tools similar for small.

service and government organizations. Developing new employees benefits. Changing organization¶s pricing strategy. Transferring managers among divisions. Developing financial budget.Organizational Structure and Control Implementing strategies require. Building a better MIS These activities differ greatly between manufacturing. Establishing cost. . Altering sales territories. Training new employees.control procedures. Adding new departments. Changing advertising strategies. Closing facilities. Building new facilities. Hiring new employees.

Restructuring and reengineering. . Altering existing organizational structures. Management issues concerning strategy implementation include. Devising policies.Organizational Structure and Control Management Perspective A shift from strategy formulation to strategy implementation requires a shift of responsibility from strategists to divisional and functioned managers. Allocating resources. Establishing annual objectives. Revising award and incentive plans.

Top .down flow of communication is necessary for developing bottom ± up support.supportive culture. Matching managers with strategy. Developing a strategy.Organizational Structure and Control Minimizing resistance to change. actions and performance should be told to everyone in organization. The rational for objectives and strategies should be clear to everyone. plans. Major competitors accomplishments. Developing an effective human resource function and Downsizing ( if required). Firms must develop a competitors focus at all hierarchical level and widely distribute competitive intelligence. . Adapting production/operations processes. and employee should benchmark his efforts against best in-class competition so that challenge becomes personal. products. Managers and employees should equally participate in strategy formulation and strategy implementation.

± Have the firm¶s assets increased? ± Has there been increase in profitability? ± Have sales increased? .Organizational Structure and Control Evaluation and Control Strategic-management process results in decisions that can have long-lasting consequences. Strategy evaluation is vital to an organization¶s well-being: timely evaluations can alert management to problems or potential problems before a situations becomes critical. if not impossible to reverse. Strategy evaluation is an appraisal of how well an organizations has performed. Erroneous strategic decisions can inflict severe penalties and can be exceedingly difficult.

consistency.Organizational Structure and Control Have productivity levels increased? Have profit-margin.per. feasibility. the problems tend to be issue . consonance and advantage.based rather then people ± based. Consistency: A strategy may be inconsistent if . . ± Continuation of managerial problems despite changes in personnel. ROI and earnings. ± Policy problems and issues continue to be brought to the top for resolution. ± Success for one organization department means failure for another department. Consisting and feasibility are based on firm¶s internal assessment while consonance and advantage are based on external assessment.share ratios increased? Richard Rumelt criteria for strategy evaluation.

Organizational Structure and Control Feasibility: can the strategy be attempted within physical. In evaluating strategy it is important to examine whether an organization has in the post demonstrated that it possesses the abilities. skills and talents needed to carry out a given strategy. Advantage: a strategy must provide for the creation and/or maintenance of a competitive advantage in a selected area of activity. . Consonance: a need for the strategy to examine sets of trends as well as individual trends in evaluating strategy. human and financial resources of the enterprise? The financial resources of a business are the easiest to quantify and are normally the first limitations against which strategy is evaluated. competencies. A strategy must represent an adaptive response to the external environment and to the critical changes occurring within it.

. In evaluating strategy.Organizational Structure and Control Competitive advantages are the result of superiority in one of the three areas. Positional advantage once gained is defensible. organizations should examine the nature of positional advantages associated with a given strategy.  Resources  Skills  Position Positioning of one¶s resources can enhance their combined effectiveness and can play a crucial role in an organizational strategy. this is why entrenched firms can be almost impossible to unseat even if their raw skill levels are only average. The principal characteristic of good positions is that it permits the firm to obtain advantage from policies that would not similarly benefit rivals without the same position.

Changes occurred less frequently. Product development cycles were longer. Product life cycles were longer. ± ± ± ± ± ± ± Domestic and world economies were more stable in years past. There were fewer local/ foreign competitors and There were more regulated industries. Technological advancement was slower. .Organizational Structure and Control Strategy evaluation is becoming increasingly difficult with the passage of time because.

creativity and initiative. It is becoming increasingly difficult for managers to control the employees in light of modern organizational demands for greater flexibility innovation. ± Increase in number of domestic/ world events affecting organizations. ± Decreasing time span for which planning can be done with any degree of certainty. ± Increasing number of variables. It is difficult for manager to ensure that empowered employee acting in an entrepreneurial manner do not put the well-bring of business at risk? . ± Rapid rate of obsolescence of even the best plans. ± Increasing difficulty of predicting the future with accuracy.Organizational Structure and Control Other reasons for difficulty in strategy evaluation are the following trends. ± Dramatic increase in the environment¶s complexity.

Organizational Structure and Control Strategy evaluation includes. finance/ accounting. ± Comparing expected results with actual plans. . Reviewing Basis of Strategy A review should focus on the questions . ± Reviewing underlying bases of a firm¶s strategy. and MIS strength and weaknesses. production/ operations. marketing. ± Taking corrective actions to ensure that performance conforms to plans.  Have major changes occurred in the firm¶s internal strategic position?  Have major changes occurred in the firms external strategic position?  Has the firm progressed satisfactorily towards achieving its stated objective?  What are the recommendations in terms of taking any corrective action or continuing on present strategic course? A revised basis of strategy should focus on changes in the organization¶s management. R&D.

Organizational Structure and Control The analysis could also address questions like How have competitors reacted to our strategies? How have competitor¶s strategies changed? Have major competitors strengths and weaknesses changed? Why competitors are making certain strategic changes ? Why some competitors strategies more successful than others? How satisfied are our competitors with their present market share and profitability? How far the competitors can be pushed before retaliating? How could we cooperate with our competitors more effectively? .

± Too optimistic objectives. when they will change? And in what way?. . Changes in demand. External Factors. Economic changes.Organizational Structure and Control External/ Internal factors that prohibit firms from achieving long/ short term goals. Demographic shifts. Internal Factor. ± ± ± ± ± ± Actions by competitors. Changes in technology. ± Poor implementation. Government actions. External opportunities/ threats and internal strengths/weaknesses should continuously be monitored for change. ± Selection of ineffective strategy.

They are used to make three comparisons. ± Comparing firm¶s performance to industry averages. ± Comparing firm¶s performance to competitors¶. . ± Firm¶s performance over different time periods. Investigating deviating from plans. Examining progress being made toward meeting stated objectives. Quantitative criteria used to evaluate strategies are financial ratios. Evaluating individual performances.Organizational Structure and Control Measuring Organizational Performance ± ± ± ± Comparing expected results with actual results.

High absenteeism and turnover rates Poor production quality and quantity rates. Low employee satisfaction .Organizational Structure and Control Financial ratios useful for strategy evaluation are. Return on investment (ROI) Return on equity (ROE) Profit margin Market share Debt on equity Earning per share Sales growth Asset growth Some of the qualitative criteria used for evaluating strategies are.

± Firm¶s balance of investment among different divisions. ± Firm¶s balance of investment between high-risk and low-risk projects. ± The extent of social responsibility of firm¶s alternate strategies. ± Firm¶s balance of investment between slow.growing markets and fast-growing markets. ± Competitors likely response to particular strategies? .Organizational Structure and Control Some key questions that reveal need for qualitative or intuitive judgments in strategy evaluation. ± Relationships among the firm¶s key internal and external strategic factors. ± Firm¶s balance of Investments between long-term and short-term projects.

Strategy evaluation can lead to strategy. strategyimplementation charges or no charges at all. . Altering an organization¶s structure. Revising a business mission or objectives. Replacing one or more key individuals.formulation charges. Issuing stock to raise capital. Developing new performance incentives.Organizational Structure and Control Taking Corrective Actions Reposition a firm competitively for the future by. Allocating resources differently. Devising new policies. Adding additional sales persons. Selling a division.

.Entrepreneurship Definition Entrepreneurship is a process whereby an individual or a group of individuals use organized efforts to pursue opportunities to create value and grow by fulfilling wants and needs through innovation and uniqueness. no matter what resources the entrepreneur currently has.

willingness to take risks. Doesn¶t emphasize new or Innovative practices. Seeks out new opportunities. Entrepreneurial Venture Innovative practices Goals are profitability and growth. Fewer than 100 employees.Differences Between Small Business and Entrepreneurial Venture Small Business Independently owned. Little Impact on industry. .

or opening a sales office in another country. . ± Strategic issues of international business management. It includes exporting. Importance of international entrepreneurship Global Economy Entrepreneur must know. ± Options of engaging in international business. licensing. ± Difference between managing domestic business and international business.International Entrepreneurship International entrepreneurship is a process of conducting business activities across national boundaries. ± Evaluation of decision of entering into international market.

These factors are economics. . Creating business strategy for a multicountry area involves dealing with different levels of economic development. political. different currency valuations.International Entrepreneurship International Vs Domestic Entrepreneurship. communication systems. Economics. culture and technology. different government regulations. marketing and distribution systems. electricity. The difference in development of such infrastructure as roads. legal systems and business ethics and norms have impact on ability to engage in international business. and different banking. Stages of economic development. Both are concerned with sales. costs and profits but it is the variation in the relative importance of the factors involved in each decision.

With flexible exchange rates. etc. Barter system. a country¶s balance of payment affects the valuation of its currency. third party arrangements. Types of Systems Different systems of governments have affect on the business. The valuation of one country¶s currency affects how businesses of that country do business in other countries. profits. .International Entrepreneurship Balance of Payment. product promotion. marketing. lack of knowledge of western systems regarding business plans. The Difference between the value of country¶s import¶s and exports over time.

Technological Environment ± Technology like culture varies significantly across countries and products are designed keeping in sight the available infrastructure like car designs of Europe Vs USA. ± Laws/ regulations effecting specifications of products like automobiles etc. Cultural Environment ± The impact of culture on entrepreneurs and strategies is significant. ± Product decisions are affected by legal requirements on labeling. marketing.International Entrepreneurship Political-legal Environment ± Laws governing business arrangements vary. . ± Culture of bribes and corruption Vs loosing the business. ingredients and packaging. product design etc.

International Entrepreneurship Strategic Issues The allocation of responsibility between the mother country and foreign operations. ± Centralized decision making ± De-centralize the entire international operation. ± Strategic decision making is retrieved back to mother country and host country operating unit given the responsibility for the tactical implementation of corporate strategy . Reporting and Control System ± Environmental analysis ± Strategic planning Organizational structure Controlling and Marketing program . Planning.

Exporting ± Indirect exporting: Foreign buyer in local market. using export management firm. ± Direct exporting: Through independent distributor. company¶s own overseas sales office hiring own salespeople. ± Establishing local manufacturing plant.International Entrepreneurship Challenges and opportunities in international entrepreneurship Entry into International business. ± Establishing local assembly line. .

Licensing: Allowing someone else to use something of the company like patent. Turn-key projects: Developing and operationalizing something in a foreign country.International Entrepreneurship Nonequity Arrangements Doing international business through an arrangement that does not involve any investment. joint venture with minority or majority equity positions. . Management Contracts: A method for doing a specific international job. trademark. production process or product in return for the payment of royalty. technology. Direct Foreign Investment wholly owned.

International Entrepreneurship Minority Interest: Having less them 50% ownership position. . ± when a rapid entry into a market is desired. Joint venture: two companies forming a third company. Have related products or distribution activities. Product Extension Merger: combination of two firms with noncompeting products. 100%: ownership. Majority Interest: Having more than 50% ownership. Synergy: Two parties having things in common. Vertical Merger: combination of at least two firms in successive stages of production to stabilize supply and production. It is normally done in two conditions. Mergers: Horizontal merger: combination of at-least two firms doing similar businesses at the same market level to generate economy of scale. ± when an entrepreneur wants to purchase local knowledge and an already established marketing or manufacturing facility.

To use cash resources of acquired firm to increase shareholder wealth.International Entrepreneurship Market Extensions Merger: Combination of at least two firms with similar products indifferent geographical markets. Diversified Activity Merger: Combination of at-least two totally unrelated firms. Trade Blocs and Free Trade Areas. Acquiring firm can economically combine its management skills. . Barriers To International Trade General Agreement on Tariffs and Trade (GATT) Increasing Protectionist Attitude.

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