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IV Trimester – MBA0941

Strategic Management
Unit-I
Strategy and Process
Strategic Management
Introduction
Concept of Strategy
STRATEGY: It is Unified, Comprehensive, and Integrated
long term plan that relates to the strategic advantages of the
firm to the challenges of the environment.
STRATEGIC MANAGEMENT: It is a stream of decisions and
actions which leads to the development of an effective
strategy to help achieve the corporate objective. It is a
continuous, iterative, & Cross functional process of matching
firm with its environment.
COMPETITIVE ADVANTAGE: is delivering superior value
advantage to your target customers relative to your
competitors. Or delivering equivalent customer value to your
target customers relative to your competitors , but at a lower
cost.
Strategic Management

Strategy is is a set of related actions that managers take to


increase their company’s performance.
Strategic leadership is about how to most effectively manage
a company’s strategy making process to create competitive
advantage.
The strategy making process is the process by which
managers select and then implement a set of strategies that
aim to achieve a competitive advantage.
Strategy formulation is the task of selecting strategies where
as strategy implementation is the task of putting strategies into
action, which includes designing, delivering and supporting
products improving the efficiency and effectiveness of
operations and designing a company’s organisation structure,
control system and culture
Strategic Management
Competitive advantage
A company is said to have a competitive advantage over its
rivals, when its profitability is greater than the average
profitability of all other companies competing for the same set
of customers.
Business model
A business model is managers conception of how the set of
strategies their company pursues should mesh together into a
congruent whole, enabling the company to gain a competitive
advantage and achieve superior profitability and profit growth.
A business unit is a self-contained division that provides a
product or service for a particular market.
GAP OUT PUT

VISION VALUE SYSTEM

FIRM/BUSINESS
MISSION
OBJECTIVES

PURPOSE

BASIC INFRASTRUCTURE AND FRAME WORK OF A FIRM


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MISSION & GOALS OF A COMPANY
 VISION: It is a vividly descriptive image of what you
what to be or what you want to be known for. Vision
is an art for seeing invisibles.
 MISSION : It a statement of intent of “what a firm wants
to create and through which line of Business”. It is a
process of legitimization of corporate existence of
business. It defines the culture, philosophy and grand
design of the firm. To pursue the Creation of Value to all
Stakeholders in the Business. It is an answer to question –
“What business are we in?”
 GOALS / OBJECTIVES : End to be achieved. It is
 To make Profit for today and forever
 To satisfy Customers today and forever
 To satisfy Employees today and forever 6
Three Big Strategic Questions
• Where Are We Now?

• Where Do we Want to Go?

• How Will We Get There?

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The Five Task of Strategic Planning
• Developing a Vision and a Mission
• Setting Objectives
• Crafting a Strategy
• Implementing and Executing Strategy
• Evaluating Performance, Reviewing the
Situation and Initiating Corrective Action

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An organization’s MISSION
• reflects management’s vision of what the
organization seeks to do and to become
• sets forth a meaningful direction for the
organization
• indicates an intent to stake out a particular
business position
• outline “Who we are, What we do, and Where
we are headed”.

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Setting Objectives
• The purpose is to convert the mission into Specific
Performance Targets

• Serve as yardsticks for tacking company progress


and performance.

• Should be set at levels that require stretch and


disciplined effort.

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What is a Strategic Plan?
• A strategic plan specifies where a
company is headed and HOW
management intends to achieve the
targeted levels of performance.

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Strategic Management Basic model
Options on
Learning
Competitive
points from
Positioning
deviations
Four Basic Elements

Strategic management is the process of moving where you are


to where you want to be in future – through
sustainable competitive advantages 12
VISION GAP
VALUE
STRATEGIC
IMPLEMEMTATION
BASIC
MISSION FIRM STRATEGIES
GOAL ORGANISATION
DESIGN
MACRO ENVIRO STRATEGIC
APPRAISAL ALTERNATIVES
FUNCTIONALLEVEL
STRATEGIES &
RESOURCES
MICRO ENVIRO ALLOCATION
APPRAISAL OF BUSINESS LEVEL
INDUSTRIES STRATEGIES
DEVELOPMENT
OF
MICRO ENVIRO CONTROL
APPRAISAL OF STRATEGIC
FIRM SELECTION
Is
Strategy
Working?

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STRATEGIC PLANNING DESIGN AND IMPLEMENTATION PROCESS
Characteristic of the Strategic
Management Process
• An ongoing exercise
• Boundaries among the tasks are blurry rather than clear-
cut
• Doing the 5 task is not isolated from other managerial
responsibilities and activities.
• The time required to do the tasks of strategic
management comes in lumps and spurts rather than
being constant and regular.
• Involves pushing to get the best strategy supportive
performance from each employee, perfecting the current
strategy.
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ENVIRONMENTAL APPRAISAL

ENVIRONMENTAL ENVIRONMENTAL
ANALYSIS DIAGNOSIS
O S

T W
ETOP
SAP
OFPP

VALUATION PROCESS OF SWOT ANALYSI


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Impact Of Environment Business

ENVIRONMENTAL FACTORS
GOVERNMENTAL INTERNATIONAL
ECONOMICAL

POLITICAL
TECHNOLOGICAL

FIRM/BUSINESS
LEGAL
SOCIETAL

CULTURAL

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What is a Business level strategy

• Business level strategies are firm-specific business model


that will allow a company to gain a competitive advantage
over its rivals in a market or industry.
• It aims at improving the effectiveness of a company’s
operations and thus its ability to attend superior efficiency,
quality, innovation and customer responsiveness .
• Its ability to improve company’s operations helps in
achieving cost leadership or helps the company in
differentiating its product from the rival company.

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Stake holders in Business
• A stakeholder is any individual or organisation that
is affected by the activities of a business. They
may have a direct or indirect interest in the
business, and may be in contact with the business
on a daily basis, or may just occasionally.
• Person, group, or organization that has direct or indirect
stake in an organization because it can affect or be
affected by the organization's actions, objectives, and
policies. Key stakeholders in a business organization
include creditors, customers, directors, employees,
government (and its agencies), owners (shareholders),
suppliers, unions, and the community from which the
business draws its resources.
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The main stakeholders are:
Shareholders (not for a sole trader or partnership though) –
they will be interested in their dividends and capital growth of
their shares.
Management and employees – they may also be
shareholders – they will be interested in their job security,
prospects and pay.
Customers and suppliers.
Banks and other financial organisations lending money to
the business.
Government – especially the Inland Revenue and the
Customs and Excise who will be collecting tax from them.
Trade Unions – who will represent the interests of the
workers.
Pressure Groups – who are interested in whether the
business is acting appropriately towards their area of interest.
Stakeholders versus Shareholders
It is important to distinguish between a STAKEHOLDER and
a SHAREHOLDER. They sound the same – but the
difference is crucial!
Shareholders hold shares in the company – that is they
own part of it.
Stakeholders have an interest in the company but do not
own it (unless they are shareholders).
Often the aims and objectives of the stakeholders are not the
same as shareholders and they come into conflict.
The conflict often arises because while shareholders want
short-term profits, the other stakeholders’ desires tend to
cost money and reduce profits. The owners often have to
balance their own wishes against those of the other
stakeholders or risk losing their ability to generate future
profits (e.g. the workers may go on strike or the customers
refuse to buy the company’s products).
Social Responsibility
Social responsibility is the duty and obligation of a
business to other stakeholders. Social responsibility for
one group can conflict with other groups, especially
between shareholders and stakeholders

Stakeholder Example of responsibility to that stakeholder

Shareholder Good return on investment

Employee Fair pay and working conditions


Supplier Regular business and prompt payment
Customer Fair price and safe product
Local Jobs and minimum disruption
community
Government Employment for local community

Environment Less pollution


Examples of a company's stakeholders
Stakeholders Examples of interests
Owners private/shareholders Profit, Performance, Direction
Government Taxation, VAT, Legislation, Low unemployment
Senior Management staff Performance, Targets, Growth
Non-Managerial staff Rates of pay, Job security
Trade Unions Working conditions, Minimum wage, Legal requirements

Customers Value, Quality, Customer Care, Ethical products


Suppliers Providers of products and services used in the end product
for the Customer.
Creditors Credit score, New contracts, Liquidity
Community Jobs, Involvement, Environmental issues, Shares
Types of stakeholders

Internal Stakeholders - Market (or Primary) Stakeholders are


those that engage in economic transactions with the business.
(For example stockholders, customers, suppliers, creditors, and
employees)
External Stakeholders - NonMarket (or Secondary)
Stakeholders are those who - although they do not engage in
direct economic exchange with the business - are affected by
or can affect its actions. (For example the general public,
communities,activist groups, business support groups, and the
media)
Vision
The Vision of a company lays out some desired future state; it
articulates often in bold terms, what the company would like to
achieve.
For ex: To become the world’s leading consumer company for
automatic products and services.
•A vision statement is sometimes called a picture of your
company in the future but it’s so much more than that. Your
vision statement is your inspiration, the framework for all your
strategic planning.
•A vision statement may apply to an entire company or to a
single division of that company. Whether for all or part of an
organization, the vision statement answers the question, “Where
do we want to go?”
Mission
A company’s mission describes what it is that the company
does. For ex: the mission of kodak is to provide
“customers with the solution they need to capture, store,
process, output and communicate image-anywhere,
anytime”.
It is the first component of the strategic management process
which provides frame work or context within which
strategies are formulated. It includes four main
components mission, vision, value and major goals.
• A mission statement is a brief description of a
company's fundamental purpose. A mission statement
answers the question, "Why do we exist?"
• The mission statement articulates the company's purpose
both for those in the organization and for the public. 25
Purpose
That which a person sets before himself as an
object to be reached or accomplished; the end or
aim to which the view is directed in any plan,
measure, or exertion; view; aim; design; intention;
plan.
General objectives of a firm, as listed in its
articles of incorporation or
memorandum of association. It is also a
mission statement.

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Business
Definition
• Economic system in which goods and services
are exchanged for one another or money, on the
basis of their perceived worth. Every business
requires some form of investment and a
sufficient number of customers to whom its
output can be sold at profit on a consistent basis.
• A commercial activity engaged in as a means of
livelihood or profit, or an entity which engages in
such activities.
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Business
• A business is an enterprise or entity that provides
products or services to customers. Business is doing
commercially viable and profitable work. Commerce
is buying and selling products or services.
• A business: A legally recognized organization or
enterprise that operates with the objective of earning
a profit from the sale of goods or services
• Business: The activity in which you participate in
order to earn money (i.e. "I'm in the computer
business.")

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Objectives and Goals
Definition
Objectives and goals are used interchangeably in
Management literature but the recent strategic literature
shows a suitable distinction between these two terms.
Objective is the end, which the organisation tries to achieve
through its operations. Goal is an open ended statement,
which does not qualify what needs to be achieved and the
time frame for completion.
So growth is a goal where as an objective is to increase
growth by 10% in terms of market share and sales over
last year.
Long term goals and short term objectives are derived from mission.
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Objectives and Goals
Objectives form the basis for all other functional decisions such as
finance, manufacturing, marketing and human resource. It is split
into business wise and functional targets and performance targets.
Objectives indicate the organisational performance to be realised and
expected over a period of time.
Areas where Objectives are set
•Growth
•Profitability
•Market share
•Productivity
•Technology
•R&D and Innovation
•Corporate Social Responsibility, Image, employee satisfaction
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Objectives and Goals
Characteristics of Objectives
Objective setting is a complex Process. It has certain
characteristics
•Specific
•Time Bound
•Measurable
•Challenging
•Objectives form a hierarchy
•Constraints
•Verifiable
•Time frame- Long term and short term

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Objectives and Goals
Formulation of Objectives
It is a complex Process.
•The forces in the environment
•Realities of firm’s resources and power relationship
•The values of top management
•Past strategies
Objectives are important for strategic management for the
following reasons:
•Objectives help to relate the organisation in the environmental
context. It helps to attract people.
•Objectives help to coordinate decisions. All of them aware of
company’s objective to coordinate
•Objectives serve as standards of appraising organisational
performance and evaluate the success and failure of Orgn. 32
Corporate Governance &Social Responsibility
Corporate Governance
Corporate governance is the set of processes, customs,
policies, laws, and institutions affecting the way a
corporation (or company) is directed, administered or
controlled. Corporate governance also includes the
relationships among the many stakeholders involved
and the goals for which the corporation is governed. The
principal stakeholders are the shareholders, the
board of directors, employees, customers, creditors,
suppliers, and the community at large. Sound corporate
governance is reliant on external marketplace
commitment and legislation, plus a healthy board culture
which safeguards policies and processes.
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Corporate Governance
The basic objective of Corporate
Governance would be "enhancement of the
long-term shareholders value while at the
same time protecting the interests of other
stakeholders."
•3 key constituents of Corporate Governance are :

1. the Shareholders,
2. the Board of Directors and
3. the Management.

Dr.S.Sundararajan
What, Why and How of Good Governance?
– Good governance: balance or match between the culture
(mutual expectations) and self-interest of the participants
– Why Good Governance? To make all participants better
off
– Elements of Good Governance: balance among
regulation, market forces, and social norms

Dr.S.Sundararajan
Objectives of good corporate
governance
1. Strengthen management oversight functions and accountability
2. Balance skills, experience and independence on the board appropriate to
the nature and extent of company operations
3. Establish a code to ensure integrity
4. Safeguard the integrity of company reporting
5. Risk management and internal control
6. Disclosure of all relevant and material matters
7. Recognition and preservation of needs of shareholders

Dr.S.Sundararajan 36
Principles of Corporate Governance

Commonly accepted principles of corporate


governance include:

•Rights and equitable treatment of shareholders,

•Interests of other stakeholders,

•Role and responsibilities of the board,

•Integrity and ethical behaviour,

•Disclosure and transparency.


Internal corporate governance controls
Monitoring by the board of directors, Internal control
procedures and internal auditors, Balance of power and
Remuneration.
External corporate governance controls encompass
the controls external stakeholders exercise over the
organisation.
Examples include:
•competition
•debt covenants
•demand for and assessment of performance information
(especially financial statements)
•government regulations
•managerial labour market
•media pressure
•takeovers
Corporate Governance &Social Responsibility
Corporate Social Responsibility
CSR has become an integral part of corporate strategy. It means open
and transparent business practices that are based on ethical values and
respect for employees, community and natural environment. It is
designed to deliver sustainable value to society at large as well as to
shareholders. Some of the benefits of being socially responsible is that
they can attract good employees who prefer working for a responsible
firm

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Corporate Governance &Social Responsibility
Theories of Corporate Social Responsibility
• The instrumentation theories

• Political Theories

• Integrative theories

• Ethical Theories
 Wealth creation is main aim of CSR

Areas of Social Responsibility

Pollution Control, Health and hygiene, Training selfhelp and Philanthropic


activities

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Unit II
Competitive Advantage
Competitive advantage is delivering superior value advantage to
your target customers relative to your competitors. Or delivering
equivalent customer value to your target customers relative to
your competitors , but at a lower cost.
It has four dimensions namely efficiency, quality, innovation and
customer responsiveness. These are developed by building
competencies, resources and capabilities. Three critical issues are
relevant in this regard i.e. 1) What are the factors influence CA?
2) Why do successful companies lose their CA? 3) How can
companies avoid failures and CA over time.

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Unit II
Competitive Advantage
Generic Building blocks of Competitive advantage
Efficiency, quality, innovation and customer responsiveness
are four basic ways for lowering costs and achieving
differentiation. The four factors are interrelated in the sense,
superior quality leads to superior efficiency and innovation
will increase efficiency and innovation will increase
efficiency, quality and customer responsiveness.
Efficiency
Quality
Innovation
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Unit II
Competitive Advantage
Distinctive Competence: It is a unique strength that allows a
company to achieve superior efficiency, quality, innovation
and customer responsiveness.
Sources of Distinctive Competencies
1.Resources and
2.Capabilities
1. Resources is an asset, competency, process, skill or
knowledge. It may be tangible like land, building, plant,
machinery and intangible like brand names, reputation,
patents, know-how and R&D. It should satisfy three
conditions i.e. value, Unique, Extendibility. 43
Unit II
Competitive Advantage
2. Capabilities
Capabilities are skills, which bring together and put
them to purpose use. The organisation’s structure and
control system gives rise to capabilities, which are
intangible.
Capability drivers are patents, licenses, favorable location,
established distribution networks, process improvement, and
interrelationship.
Ex: HLL. HPCL, Sony, Hitachi, Toshiba, Sanyo, ICICI,
HDFC
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Distinctive Competence

Distinctive Competencies is a unique strength that allows a


company to achieve
•Superior Efficiency
•Superior Quality
•Superior Innovation
•Superior Customer Responsiveness
Durability of Competitive advantage
It refers to the rate at which the firms capabilities and
resource depreciate or become obsolete. Durability depends
on three factors: Barriers to imitation, Capability of
Competitors and Dynamism. 45
Avoiding Failure and Sustaining competitive Advantage
•Usually imbalance between various dimension of
competitive advantage such as efficiency, quality,
innovation and customer responsiveness are considered to
be the main reason for failure of many firms.
•Bench marking will facilitate organisations to build
distinctive competencies. Bench marking involves
identification of best practices adopted in other companies.
•Most significant step in avoiding failure is identification of
barriers to change and overcoming such barriers.
•Need for new organisational structure and control systems
in response to the Changed environment.
•Appropriate leadership style, prudential use of power helps
to maintaining Competitive advantage. 46
External Environment
Environmental factors can be classified as
•Macro environmental factors and
•Factors which are specific to the given business i.e. task
environment
•International Environment
•Economic Forces
•Socio cultural forces
•Legal Environment
•Political forces
•Technological forces
•Industry, suppliers, Government, Customers, Competitors
•Internal Environment: Resource, structure, Culture. 47
External Environment
Macro Environmental factors
•Demographic Environment
•Technological Environment
•Socio Cultural Environment
•Economic environment
•Political environment
•Regulatory environment
•International enviornment

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External Environment
Factors Relevant to Specific Business
•Market environment
•Supplier environment
•Environmental Scanning
•Task Environment

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Porter’s Five Forces Model and Strategic Group

Five Forces
1.Threat of New entrants
2.Bargaining power of Suppliers
3.Bargaining Power of Buyers
4.Threats of Substitutes
5.Rivalry among Existing Firms

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Porter’s Five Forces Model and Strategic Group

Threat of New entrants


Sources of possible barriers to entry
1.Economies of scale
2.Product Differentiation
3.Cost Advantage
4.Capital Requirements
5.Access to Distribution Channels
6.Government Policy
7.Brand Identity

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Porter’s Five Forces Model and Strategic Group

2. Bargaining power of Suppliers


Conditions prevail for Powerful supplier
•The supplier industry is dominated by a few companies
selling (petroleum industry)
•The product of service is differentiated, unique (software)
•Substitutes are not easily available (electricity)
•Suppliers can threaten with forward integration and
compete directly with the existing firm.
•A purchasing firm buys a small quantity of the supplier’s
goods and services and it is unimportant to the supplier.
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Porter’s Five Forces Model and Strategic Group

3. Bargaining Power of Buyers


Buyers are powerful in the following circumstances
•The suppliers are more in number but the buyers are few
•The buyers buy in large quantity
•More no. of alternative suppliers and their undifferentiated products
•The cost of changing supplier is not much
•The supplier depends on the buyer
•The purchased items is not important to the final quality/price
•The buyers has the potential to integrate backward by producing
product
•The buyers can use the threat of vertical integration for price
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Porter’s Five Forces Model and Strategic Group

4. Threats of Substitutes
•Tea is a substitute of a coffee
•Water is considered a substitute of soft drinks
•Saccharine is substitute for sugar
Availability of few substitute provides opportunity for the
company to raise the price and get higher profit
5. Rivalry among Existing Firms
Reasons for intensity of rivalry among established players
Industry competitive structure (ICICI vsSBI)
Demand conditions
The height of Exit Barriers in the industry. 54
Industry Analysis

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External Environment
Factors Relevant to Specific Business
•Market factors: Market size, growth rate, seasonality, Profitability,
captive markets, Product differentiation
•Technological factors: Maturity, Complexity, patents, Process
and product R&D requirements
•Social Factors: Ecological impact, Work ethics, consumer
protection,Demographicchanges,unionisation,Personnel adaptability
•Competitive factors: Competitive Intensity, Degree of
concentration, Barriers to entry, Barriers to exit, Share volatility,
Degree of integration, availability of substitutes, Capacity utilization
•Economic and Govt.factors: Inflation, Wage level Foreign
Exchange Impact, Manpower supply, Legislation/protection,
Regulations, Taxation
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Strategic Groups
Within an Industry a strategic Group refers to a set of
Business units which pursue similar strategies with similar
resources. In a strategic group, each member company
almost follows the same basic strategy as other companies in
the group.
For ex. Mc Donald, Burgar King and Domino are the
restaurant industry and have many things in common.
Haldiram, though in the same restaurant industry, has
different mission, objective, strategies and in different
strategic group.
A company’s close competitors are members of the same
strategic group.
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Strategic Groups
Since the companies in a strategic group follow similar strategy
the product of such companies are viewed by consumers as
substitutes for each other.
Members of the strategic group mainly threaten a company’s
profitability.
Strategic group in an industry can be mapped by two
dimensional graph by selecting two variables.
Three major strategic group emanate from the mapping such as
i)mini steel plants,
ii)integrate steel plants
iii)specially steel and cheap import

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Limitations of Strategic Group model
1. The two models provide a static picture of competition which
overlooks the possibility of innovation in business.
2. Critics of five forces model are of the view that innovation brings in
new products, process and enormous profits.
3.No attention to individual differences of companies but they
overemphasize the importance of industry and strategic group
structure.
4. Very weak evidence of a link between strategic group membership
and company profit rates.
5. 5-forces model assumes a clear recognisable industry
6. The issues like partnerships are not addressed in this model
7. 5-forces model does not consider the possibility of industry
structure being altered.
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Strategic Types
Different Strategic types
• Defenders
• Prospectors
• Analysers and
• Reactors

Competitive Changes During Industry Evolution


Growth, Maturity, and Decline, these stages and give rise to opportunity and
threat for an industry. A strategist should be aware of these development during
strategy formulation and anticipate them in advance.

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Strategic Types
The industry life cycle model is used for analysing the effect of industry
evolution on competitive forces
Based on the industry life cycle model, industry environment could be
identified i.e.
•Embryonic industry environment
•Growth industry environment
•Shakeout environment
•Mature industry environment and
•Declining industry environment

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Globalisation and Industry Structure
In conventional economic system, national markets are separate entities
separated by trade barriers of distance, time and culture.
With globalisation, markets are moving towards a huge global market
place. The tastes and preference of customers of different countries are
converging on common global norms.
The world economy has undergone a fundamental change.
Globalisation of production and global markets are taking place.
The increasing globalisation of markets and production has two
underlying reasons. Trade barriers got decrease and free flow of goods,
capital and services has been set in motion.

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Globalisation and Industry Structure
The revolution that took place in communication, information and
transportation technologies enabled companies to reduced cost of
information processing, to establish worldwide communication
network and to link together worldwide operations.
Technological innovations have revolutionalised globalisation of
markets. Channel televisions such as HBO, CNN, MTV are
received and watched in many countries.
For example US auto market was swept by Japanese auto giant all
of sudden.
The intense rivalry forces all firms to maximise their efficiency,
quality innovative power and customer satisfaction.

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National Context and Competitive Advantage
In globalisation successful companies in certain industries are found in specific
countries.
Japan- consumer electronics company in the world
German – Chemical and engineering companies in the world
US – computer and bio technology
India – raw material resources and food industry sector

Intensity of rivalry

Factor National Competitive Local demand


conditions
Determinants of Competitive Advantage advantage conditions

Competitiveness of related
and supporting industries 64
Globalisation and Industry Structure
Hyper Competition
It occurs in any industry due to intense environmental
uncertainty, which makes competitive advantage superficial
and temporary.
Market stability is threatened by short product life cycles,
short product design cycles new technologies frequent entry
by unexoected outsiders, repositioning by incumbents and
tactical redefinitions of market boundaries as diverse
industries merge.
So companies try to imitate the market leader to sustain the
competitive advantage and try to establish good relationship
with supplier to reduce cost, improve quality and gain latest
technology. 65
Motivation No.1: Strategic Management
1.What is strategy? Define Strategic management and write the elements of
strategic management.
2.Mention the objectives and benefits of strategic management.
3. Discuss the steps involved in strategic Management Process.
4.Name the components of external environment and explain any two of them.
5. How do companies formulate mission statement that contribute to Strategic
Management ? illustrate with example.
6.Discuss Competitive Advantage of Textile industries in India with help often
illustration
7.What do you mean by CSR illustrates with examples how Indian companies
pursue CSR.
8. Explain the Environmental analysis in Strategic Management process. Write
the steps involved in this process.
9.Explain the Strategic Groups and Limitations.
10.Briefly Explain the Capabilities and Competencies in Strategic Management.

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Assignment No.1: Strategic Management
Case Study on Strategic Management
Kindly refer the page Number 73&74
Strategic Management An Integrated Approach
Author: Charles W.L.Hill Gareth R.Jones
2009 Edition

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Unit-III
Strategies
Corporate Strategy
Approach to future that involves (1) examination of the
current and anticipated factors associated with
customers and competitors (external environment) and
the firm itself (internal environment), (2) envisioning a
new or effective role for the firm in a creative manner,
and (3) aligning policies, practices, and resources to
realize that vision.

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Unit-III
Strategies
Corporate Strategy
Corporate Strategy will ask you to answer
fundamental questions such as "Why are you in
business?" and "Why are you in this particular
business?". This may appear to be a strange starting
point but unless you can answer these type
of questions you cannot produce vision statements
and mission statements that have any real meaning.
Corporate coaching may produce a business plan as a
summary document but that is almost incidental.

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DIRECTIONAL STRATEGIES

Growth Stability Retrenchme


nt
Concentration Cautiously Turnaround
Vertical Growth proceed Divest/Sale
Horizontal Maintain Liquidation
Growth Profit
Diversification
Concentric
Conglomerate
STRATEGIC ALTERNATIVES
Generic or grand or basic strategies

•Stability -better after sales service, modernize plant,


bulk discount, Improve performance to sustain
•Expansion -Change in customer group, function,
Technology
•Retrenchment -Withdrawal -Customer group,function,
technology (unprofitable)

•Combination
E.g. Wide variety of services to customers (stability)
-New products in product range (expansion)S
STRATEGIC ALTERNATIVES
Michael Porter -Three type of generic strategies
(Business Level Strategies)

1.Overall cost leadership strategy

2.Differentiation strategy

3.Focus on niche market


1.Overall cost leadership strategy
This is a generic business level strategy in which a large
business produces at the low cost possible, no frills products
and services for a large market with a relatively elastic demand.
Cost leadership strategy try to produce goods/services at a
lower cost than other players and try to out perform others.
1.The cost leadership can charge lower price than immediate
competitors and achieve higher profit than competitors.
2.When rivalry increase in the industry at a later stage with price
competition, the cost leader can survive and with stand the
competitive force and make above average profits.

Low cost strategy implies tight production controls and rigorous


use of budgets to control production process. Cost leader is
relatively safe as long as he maintains cost advantage.
The cost advantage arises from different factors like
•Efficient scale economies
•Benefits of early entry
•A large market share
•Locational advantage
•Synergy between functions
•Experience curve effects
•Dropping unprofitable customers
•Minimum R&D expenses
•Just-in-time inventory

The cost leadership strategy have some of advantages


and some disadvantages.
2.Differentiation Strategy
This is a generic business level strategy wherein a larger
business products and markets to the entire industry products
that can be readily distinguished from those of companies.
Companies which pursue differentiation strategy create product
which are perceived as unique by customers, and they charge
premium price, which is above industry average.
Example. Mercedes Benz cars Roles watches
Procter and Gamble, IBM and Dell Computers differentiation
their products through high product quality and reliability of
trained force.
A differentiator often divides the market into segments and
niches. Sometimes a differentiator creates products for each
market segment and proves to be a broad differentiator. Sony
makes 24 models of colour television sets to suit the needs of
different market segments.
Differentiation Strategy
A venues of differentiation are as follows
•Brand image
•Channel clout
•Competent structure
•Unique process
•Advanced R&D setup and
•Product Innovation
Differentiation has more advantages instead disadvantages.
Focus Strategy
This is the strategy is pursued to serve the needs of a limited
customer groups or segment. A focused company pays
attention to serve a particular market niche, which may be
defined geographically, by type of customer or by segment of
product line. A geographic niche is defined by a locality. It is a
specialised differentiator or cost leader. It also get some
advantages and disadvantages.
Business Level Strategy
While choosing a business level strategy in terms of
product/market/distinctive competency, the choice of investment
strategy to support the chosen business level strategy is crucial
in order to gain a competitive advantage.
An investment strategy involves deployment of human and
financial resources to gain a competitive advantage.
Differentiation strategy requires massive investment in functions
such as research and development, sales and marketing to
develop distinctive competencies
In investment strategy two aspects deserve a strategist’s
attention
1.Competitive Position – based on market share and distinctive
competencies (strong/weak)
2.Life cycle Effects – embryonic, growth, shakeout, matirity and
decline stages
Competitive tactics- timing tactics- Market Location Tactics
Business Level Strategy
Functional Strategy
•Out Sourcing
•Marketing Strategy-product development, advertising and promotion,
distribution and pricing
•Financial Strategy
•Operations Strategy
•Human Resource Strategy
•Research and Development Strategy
•Information System Strategy
•Management Attitude to risk
•Culture
Strategy in Global Environment
Global Expansion
In international business operations, business enterprises
pursue global expansion to support generic business level
strategies such as cost leadership and differentiation.
Companies expand their operations globally in order to increase
their profitability. They perform the following activities:
•Transferring their distinctive competencies
•Dispersing various value creation activities to favorable location
•Exploiting experience curve effects

Competitive Pressures
1.Pressure for cost reduction and
2.Pressure for local responsiveness-
Differences in consumer tastes and preferences
Differences in infrastructure and traditional practices
Differences in distribution channel and Host GovernmentDemands
Strategic Choice
In international Business, companies pursue four
Strategies such as
1.International strategy
2. Multi domestic strategy
3. Global Strategy
4. Transnational strategy.
Unit-III
Corporate Strategies
Vertical Integration

The degree to which a firm owns its upstream suppliers and its downstream
buyers is referred to as vertical integration. Because it can have a
significant impact on a business unit's position in its industry with respect to
cost, differentiation, and other strategic issues, the vertical scope of the firm
is an important consideration in corporate strategy.
• Expansion of activities downstream is referred to as forward integration, and
expansion upstream is referred to as backward integration.
• The concept of vertical integration can be visualized using the value chain.
Consider a firm whose products are made via an assembly process.

81
Benefits of Vertical Integration
Vertical integration potentially offers the following
advantages:
•Reduce transportation costs if common ownership results
in closer geographic proximity.
•Improve supply chain coordination.
•Provide more opportunities to differentiate by means of
increased control over inputs.
•Capture upstream or downstream profit margins.
•Increase entry barriers to potential competitors, for
example, if the firm can gain sole access to a scarce
resource.
•Gain access to downstream distribution channels that
otherwise would be inaccessible.
•Facilitate investment in highly specialized assets in which
upstream or downstream players may be reluctant to invest
and *Lead to expansion of core competencies.
Drawbacks of Vertical Integration
While some of the benefits of vertical integration can be quite
attractive to the firm, the drawbacks may negate any potential
gains. Vertical integration potentially has the following
disadvantages:
•Capacity balancing issues. For example, the firm may need to
build excess upstream capacity to ensure that its downstream
operations have sufficient supply under all demand conditions.
•Potentially higher costs due to low efficiencies resulting from
lack of supplier competition.
•Decreased flexibility due to previous upstream or downstream
investments. (Note however, that flexibility to coordinate
vertically-related activities may increase.)
•Decreased ability to increase product variety if significant in-
house development is required.
•Developing new core competencies may compromise existing
competencies.
•Increased bureaucratic costs.
Factors Favoring Vertical Integration
The following situational factors tend to favor vertical integration:
•Taxes and regulations on market transactions
•Obstacles to the formulation and monitoring of contracts.
•Strategic similarity between the vertically-related activities.
•Sufficiently large production quantities so that the firm can benefit from economies of
scale.
•Reluctance of other firms to make investments specific to the transaction.

Factors Against Vertical Integration


The following situational factors tend to make vertical integration less attractive:
•The quantity required from a supplier is much less than the minimum efficient scale
for producing the product.
•The product is a widely available commodity and its production cost decreases
significantly as cumulative quantity increases.
•The core competencies between the activities are very different.
•The vertically adjacent activities are in very different types of industries. For
example, manufacturing is very different from retailing.
•The addition of the new activity places the firm in competition with another player
with which it needs to cooperate. The firm then may be viewed as a competitor rather
than a partner
Alternatives to Vertical Integration
There are alternatives to vertical integration that may provide some of the same
benefits with fewer drawbacks. The following are a few of these alternatives for
relationships between vertically-related organizations:
•long-term explicit contracts
•franchise agreements
•joint ventures
•co-location of facilities
•implicit contracts (relying on firms' reputation)
Global Strategic Alliance
A strategic alliance is a cooperative agreement between
companies who are competitors from different companies. It
may take the form of formal joint venture or short-term
contractual agreement with equity participation or issue-based
participation.
Reasons for strategic Alliance
•To gain access to foreign market
•To reduce financial risk
•To bring complementary skills
•To reduce political risks
•To achieve competitive advantage
•To set technological standards

How to make strategic Alliance work?


•Alliance structure
•Managing the alliance
STRATEGIC ALTERNATIVES
DIMENSIONS OF GRAND/GENERIC STRATEGIES

I.Internal/External

- Independent of any other entity


- Association with other entity

II. Related /Unrelated

- To existing customer groups, existing customer,


function, technologies
STRATEGIC ALTERNATIVES
DIMENSIONS OF GRAND/GENERIC STRATEGIES

III. Horizontal/Vertical

-Serving additional customer groups


-consolidating backward/forward

IV. Active/Passive

Active -offensive strategy


Passive -Defensive strategy
4 grand strategies ×4 dimensions ×2 types of
each dimensions ×3 dimensions of each business
definition = 96 Mixed strategies
STRATEGIC ALTERNATIVES
MODERNIZATION STRATEGIES
Developing new technology strategy i.e. technological up
gradation as a strategy.

- Increased production, lower cost, improve efficiency and


productivity

- Extensively used by Indian organization - stability -prior to


expansion & diversification

If pace of modernization is low - internal stability strategy, high


-internal expansion strategy

Merge with another company -for modern - external expansion


strategy
STRATEGIC ALTERNATIVES
DIVERSIFICATION AND INTEGRATION STRATEGIES

1. Vertical Integration
-make new products to serve its own needs
-backward/forward integration

2. Horizontal Integration
-Same product -more customer group
-merger similar companies
-Spartek Ceramics takeover of Neycer Ceramics
STRATEGIC ALTERNATIVES
DIVERSIFICATION AND INTEGRATION STRATEGIES

3. Concentric diversification
•Marketing & technology related -rain coat manufacturer -rubber
based items - gloves, shoes
•Technology related- leasing company -hire purchase
•Marketing related - Unrelated technology (cosmetic & sewing
machines -women)

4. Conglomerate diversification
- Unrelated to customer groups, function, technology
•ITC -Cigarette & Hotel
•TTK group -Chemicals, hosiery, contraceptives
STRATEGIC ALTERNATIVES
MERGER, TAKEOVER AND JOINT VENTURE STRATEGIES

•Diversification & Integration


•Merger ( Amalgamation)
•A acquires B -B merged with A
•A & BC -Consolidated
•Horizontal Concentric
•Vertical Conglomerate
JOINT VENTURE

•2 firms in one industry


•2 firms across different industries
•Indian & foreign firm in India
•Indian & foreign firm in foreign country
•Indian & foreign firm in third country
•Last two types are on increase now
TURNAROUND STRATEGIES
•Reversing a negative trend
•Retrenchment -internal/external –improve internal
efficiency -Divestment/liquidation

Danger signs:

•Persistent negative cash flows


•Negative profits
•Declining market share
•Deterioration in physical facilities
•High turnover, low morale, Mismanagement
•Uncompetitive products, sick company
MANAGING TURNAROUND

•Existing team -support external consultant -if C.E


credibility –rare
•Existing team -withdraws temporarily -turnaround
specialist –employed
•Replace existing team / C.E

Approaches:
- Surgical
- Human approach
ACTION PLAN FOR TURNAROUND

•Analysis of product, market, production process,


competition, market segment positioning
•Clear thinking -market place &production logic
•Implementation of plans-target - setting, feedback,
remedial action
DIVESTMENT
Divestment
-(divestiture or cutback) -sale of or liquidation of a
portion of business
-SBU or profit center

1. Spinning it off -financially and managerially


independent company with stake
venture
2. Sell a unit outright
Kelvinator India -spin-off -Avanti scooters -high
production cost
LIQUIDATION
•Rarely -large companies liquidate
•Buyers rare for purchase of assets
•Court, voluntary, subject to supervision of court
•Combination strategies –popular

Criteria for strategic choice


•Does strategy exploit the opportunities present in the
environment?
•Is it consistent with the resources of the firm, its
competitive advantage & core competence?
•Is the chosen level of risk feasible?
•Is it appropriate to the values & aspirations of the
firm?
Gap Analysis
In Gap Analysis the strategist examines what the
organisation wants to achieve (desired performance)
and what it has really achieved (actual performance).
The gap between the two positions constitutes the
background for various alternatives and diagnosis.
•Focusing on the strategic alternatives
•Evaluating strategic alternatives
•Consider the Selection/decision factor
•Criteria for evaluation alternatives (Objective
&subjective factors)
•Make choice of strategy
The gap between what is desired and what is achieved
widens as the time passes if no strategy is adopted.
Factors affecting strategic choice

•Nature of environment –stable?


•Firm’s internal realities
•Ambition of CEO / owners
•Company culture
•Firm’s capacity to execute the strategy.
•Resource allocations
Strategic Implementation

•Evolve a systematic procedure to implement the


strategy chosen
–Procedural implementation plan
–Proper resource allocation plan
–Structural implementation plan
–Functional implementation plan
–Behavioural implementation plan
•Evaluate and control through strategic and
operational control measures
•Success of a strategy is very much dependent on
how the strategy is execute
Environmental Threat and Opportunity Profile(ETOP)
Environment means the surroundings, external objects, influences or
circumstances under which someone or some thing exits. Environmental
scanning is a process of gathering, analyzing, and dispensing information for
tactical or strategic purposes.

TECHNIQUES OF ENVIRONMENT SCANNING

SWOT

ETOP

ETOP: It is a process of dividing the environment into different sectors and


then analyzing the impact of each sector on the organization. ETOP provides
a clear picture to the strategists about which sectors & different factors in
each sector, have a favorable impact on the organization.
Environmental sectors Nature of impact Impact of each sector

Economic
ETOP FOR BICYCLE COMPANY
Growing affluence among
urban consumers, rising
disposable incomes & living
standards.

Market Organized sector a virtual


oligopoly with 4 major
manufacturers, buyers critical
& better informed, overall
industry growth rate not
encouraging, growth rate for
niche market like sports,
trekking etc is high.

International Global imports growing but


India’s share shrinking, major
importers are the US & EU
but India exports mainly to
Africa.
Political Bicycle principal mode of
transport for low & middle
income, Industry too small to
draw attention.

Regulatory Parts & components


reserved for SSI, bicycle
industry a thrust area for
exports,

Social Environment & health


friendly transport option,
wide usage, as recreation,
convenient in traffic,
customers preference
Supplier Mostly ancillaries in small-
scale sector supply parts &
components, rising steel
prices, industrial
concentration in Punjab &
Tamilnadu.

Technological Up gradation in progress,


import of machinery simple,
product innovations ongoing
like battery operated &
lightweight foldable cycles
ORGANIZATIONAL APPRAISAL
•Internal Environment - strength & weakness in different
functional areas
Organization capability
- Capacity & ability to use distinctive
competencies to excel in a particular field
- Abilty to use its ‘S’ & ‘W’ to exploit ‘O’ &
face ‘T’ in its external environment
Organization resources
- Physical & human
cost, availability - strength / weakness
METHODS & TECHNIQUES USED
FOR ORGANIZATIONAL
APPRAISAL

Comprehensive, long term


Financial Analysis - Ratio Analysis, EVA, ABC
Key factor rating - Rating of different factors through different
questions
Value chain analysis
VRIO framework
METHODS & TECHNIQUES USED FOR
ORGANIZATIONAL APPRAISAL …

BCG, GE Matrix , PIMS, McKinsey 7S


Balanced Scorecard
Competitive Advantage Profile
Strategic Advantage profile
Internal Factor Analysis Summary
SWOT ANALYSIS
• Identify & classify firm’s resources-S&W
• Combine firm’s strength into specific capabilities –
Corporate capability- may be distinctive competence
• Strategy that best exploits the firms resources
• Identify resource gaps & Invest in upgrading
ORGANIZATIONAL APPRAISAL
Organizational Capability Profile (OCP) - Weakness(-5),
Normal(0), Strength(5)
Financial Capability Profile
(a) Sources of funds
(b) Usage of funds
(c) Management of funds
Marketing Capability Profile
(a) Product related
(b) Price related
(c) Promotion related
(d) Integrative & Systematic
ORGANIZATIONAL APPRAISAL

Operations Capability Factor


(a) Production system
(b) Operation & Control system
(c) R&D system
Personnel Capability Factor
(a) Personnel system
(b) Organization & employee characteristics
(c) Industrial Relations
General Management Capability
(a) General Management Systems
(b) External Relations (c) Organization climate
EXAMPLES OF ORGANIZATIONAL
CAPABILITY PROFILE

Financial Capability
Bajaj - Cash Management
LIC - Centralized payment, decentralized collection
Reliance - high investor confidence
Escorts - Amicable relation with Ford
Marketing Capability
Hindustan Lever - Distribution Channel
IDBI/ICICI Bank - Wide variety of products
Tata - Company / Product Image
EXAMPLES OF ORGANIZATIONAL
CAPABILITY PROFILE
Operations Capability
Lakshmi machine works - absorb imported technology
Balmer & Lawrie - R&D - New specialty chemicals

Personnel Capability
Apollo tyres - Industrial relations problem
EXAMPLES OF ORGANIZATIONAL
CAPABILITY PROFILE
General management capability
Malayalam Manaroma - largest selling newspaper
Unchallenged leadership - Unified, stable
Best edited & most professionally produced
STRATEGIC ADVANTAGE PROFILE
(SAP)
A picture of the more critical areas which can have a
relationship of the strategic posture of the firm in the
future.
Capability Factor Competitive strengths / Weakness

•Finance High cost of capital, reserves & surplus

•Marketing Fierce competition, company position


secure

•Operational P&M - excellent - parts & components


available
STRATEGIC ADVANTAGE PROFILE
(SAP)
Capability Factor Competitive strengths / Weakness

•Personnel Quality of management & personnel


par with competition

•General High Quality experienced top


management - take proactive stance
SWOT Analysis
GAP Analysis
MCKINSEY’S 7S FRAMEWORK
THE HARD S’s

Strategy: the direction and scope of the company over the


long term.

Structure: the basic organization of the company, its


departments, reporting lines, areas of expertise and
responsibility (and how they inter-relate).

Systems: formal and informal procedures that govern


everyday activity, covering everything from management
information systems, through to the systems at the point of
contact with the customer (retail systems, call center
systems, online systems, etc).
THE SOFT S’s
Skills: the capabilities and competencies that exist
within the company. What it does best.

Shared values: the values and beliefs of the


company. Ultimately they guide employees towards
'valued' behavior.

Staff: the company's people resources and how the


are developed, trained and motivated.

Style: the leadership approach of top management


and the company's overall operating approach.
MCKINSEY’S APPROACH TO PROBLEM-SOLVING

• The problem is not always the problem


• Create structure through “M.E.C.E.” (Mutually
Exclusive, Collectively Exhaustive –grouping principle)

• Don’t reinvent the wheel


• Every client is unique (no cookie cutter solutions)
• Don’t make the facts fit your solution
• Make sure your solution fits your client
• Sometimes let the solution come to you
• No problem is too tough to solve
GE Nine-Cell Matrix
Industry
Attractiveness • Relative Costs
• Market Size • Profit Margins
• Growth Rate • Fit with KSFs
• Profit Margin
• Intensity of Competition 10.0 Strong 6.7 Average 3.3 Weak 1.0
• Seasonality
• Cyclicality
• Resource Requirements High
• Social Impact
6.7
• Regulation
• Environment Medium
• Opportunities & Threats
• Relative Market Share 3.3
• Reputation/ Image
• Bargaining Leverage Low
• Ability to Match
1.0
Quality/Service
Rating Scale: 1 = Weak ; 10 = Strong
Strategy Implications of
Attractiveness/Strength Matrix
• Businesses in upper left corner
– Accorded top investment priority
– Strategic prescription is grow and build
• Businesses in three diagonal cells
– Given medium investment priority
– Invest to maintain position
• Businesses in lower right corner
– Candidates for harvesting or divestiture
– May be candidates for an overhaul and reposition
strategy
The Attractiveness/Strength
Matrix
• Allows for intermediate rankings between high and
low and between strong and weak
• Incorporates a wide variety of strategically relevant
variables
• Stresses allocating corporate resources to
businesses with greatest potential for
– Competitive advantage and
– Superior performance
GE 9 Cell Matrix
High Competitive Strengths Low

High
Invest
Grow
Attractiveness

Hold

Harvest
Divest

Low
GE 9 Cell Matrix for Pepsico
High Competitive Strengths Low

High
Snack Foods
Attractiveness

Soft Drinks

Low
Distinctive Competence –
A Competitively Superior Resource

• A distinctive competence is a competitively


valuable activity that a company performs
better than its competitors
• A distinctive competence is a competitively
potent resource source because it
– Gives a company a competitively valuable
capability unmatched by rivals
– Can underpin and add real punch
#1
to a company’s strategy
– Is a basis for sustainable competitive advantage
Examples: Distinctive
Competencies
Toyota Starbucks
Low-cost, high-quality Innovative coffee drinks
manufacturing of motor and store ambience
vehicles
THE BCG MATRIX
MARKET SHARE

STAR QUESTION MARK


MARKET
GROWTH

CASH COW DOG


Balanced Scorecard
 Balanced Scorecard – A model integrating financial
and non financial measures. (Kaplan & Norton 1996)

 Causal link between outcomes and performance


drivers of such outcomes

 Translates the vision and strategy of a business unit


into objectives and measures in 4 distinct areas
 Financial
 Customer
 Internal Business process
 Learning and growth
The Balanced Scorecard
Purpose of Balanced Scorecard:

A method of implementing a business strategy by


translating it into a set of performance measures
derived from strategic goals that allocate rewards to
executives and managers based on their success at
meeting or exceeding the performance measures.
The Balanced Scorecard
(Source: Kaplan & Norton, 1996)
Reasons for the Need of a Balanced
Scorecard
1. Focus on traditional financial accounting
measures such as ROA, ROE, EPS gives
misleading signals to executives with regards to
quality and innovation. It is important to look at
the means used to achieve outcomes such as
ROA, not just focus on the outcomes
themselves.
The Balanced Scorecard
(Source: Kaplan & Norton, 1996)
Reasons for the Need of a Balanced
Scorecard
2. Executive performance needs to be judged on
success at meeting a mix of both financial and
non-financial measures to effectively operate a
business.
The Balanced Scorecard
(Source: Kaplan & Norton, 1996)

Reasons for the Need of a Balanced


Scorecard
3. Some non-financial measures are drivers of
financial outcome measures which give
managers more control to take corrective actions
quickly.
(Example: controls in jet cockpit for pilot)
The Balanced Scorecard
(Source: Kaplan & Norton, 1996)
Reasons for the Need of a Balanced
Scorecard
4. Too many measures, such as hundreds of
possible cost accounting index measures, can
confuse and distract an executive from focusing
on important strategic priorities. The balanced
scorecard disciplines an executive to focus on
several important measures that drive the
strategy.
Casual link between the measures

Financial Perspective
How do we look to
our Shareholders?

Customer Internal Business


Perspective Perspective
How do our customers What we must excel
look at us? at?

Learning and Growth


Perspective
How can we continue to
improve?
BSC: Causal Relationships

Strategy

Customer Financial

Internal Process

Learning
Unit IV-Strategy Implementation
Strategy implementation is essential part of strategic
management process.
•Evolve a systematic procedure to implement the strategy
chosen
•Procedural implementation plan
•Proper resource allocation plan
•Structural implementation plan
•Functional implementation plan
•Behavioural implementation plan
•Evaluate and control through strategic and operational control
measures
•Success of a strategy is very much dependent on how the
strategy is execute
Strategy Implementation
Problems while implementing Strategy
•Implementation takes longer time than required
•Unanticipated major problems crop up
•Ineffective coordination of activities
•Crisis management took lot of time
•Employees have less than required capabilities
•Inadequate training of lower level employees
•Problems arising from uncontrolled external environment
•Inadequate leadership on the part of departmental
environment
•Lack of precise definition of implementation of tasks and
activities
•Inadequate monitoring of activities through information
system.
Strategy Implementation
Strategy implementation process requires
•Development of programmes
•Budgets
•Procedures
•Strategy is implemented through appropriate structure
•Control system
•Corporate strategy leads to changes in organisationstructure
•i.e. Creation of new strategy
•Emergence of administrative problems
•Economic performance declines
•Invention of new appropriate structure
•Profits return to its previous level.
Strategy Implementation
Basis of designing Structure
1.Differentiation (vertical and Horzontal)and
2.Integration

Vertical Differentiation
1.Flat structure
2.Tall structure
Problems with tall structure
1.Coordianation
2.Information distoration
3.Motivational problems
4.Number of middle managers.
5.Centralisation/ Decentralisation
Strategy Implementation
Horizontal Differentiation
•Simple structure
•Functional Structure
•Multidivisional structure
Advantages and Disadvantages of Multidivisional structure
1.Distortion of information
2.Competition of resources
3.Transfer pricing
4.R&D
5.Bureaucratic Costs
•Matrix structure
•Product team structure
•Geographic structure,
•Network structure
Strategy Implementation
Integration and control
Staffing
Staffing and strategy
Matching Managers to strategy
Executive succession and strategy
Issues in Downsizing
International issues in staffing
Strategy Implementation
Designing strategic Control system
Strategy control is the process by which suitable control
systems are established at the corporate business and
functional levels in a company in order to evaluate whether a
firm is able to achieve superior efficiency, quality, innovation
and customer responsiveness.
Four steps involved in strategic control system
1.Establish standards and targets
2.Create measuring and monitoring systems
3.Compare actual with targets
4.Evaluate and take corrective actions.
Strategy Implementation
1. Establish targets or standards
•Physical standards
•Cost standards
•Capital standards
•Revenue standards
•Program standards
•Strategic plan as control points
2. Develop a measuring systems
3. Comparison of actual performance against the target
4. Initial corrective actions in the wake of deviations

Characteristics of Good System


Flexible enough to respond to unforeseen events
Give accurate information about the company
Provide information in a timely manner in such a way to avoid
Strategy Implementation
Levels of Control
•Corporate level Managers (set controls, which provide context for)
•Divisional level Managers (set controls, which provide context for)
•Functional level Managers (set controls, which provide context for)
•First level or Individual level managers

Types of Control system


There are four types of control system
1.Market Control
2.Output Control
3.Bureaucratic Control
4.Organisational culture
Strategy Implementation
Matching Structure and Control to strategy
1.Structure and Control at functional level
•Manufacturing Function
•Sales function
•R&D function
2.Structure and control at the business level
3.Cost leadership strategy and structure
4.Differentiation Strategy and structure
5.Focus strategy and structure
6.Designing a Global structure
•Multi domestic Strategy
•International Strategy
•Global Strategy
•Transnational strategy
Strategy Implementation
Matching Structure and Control to strategy
7. Structure at corporate level
•Unrelated diversification
•Vertical Integration and
•Related Diversification

Performance Measurement
Performance Measurement is a significant part of evaluation and control.
•ROI
•EPS
•RE
•EVA
•MVA and Financial Ratios
Strategy Implementation
Implementing Strategic Change:
Politics, Power and change conflict
1.Organisational Power and Politics
Sources of Power
1.Ability to cope up with uncertainity
2.Centrality
3.Control over information
4.Non Substitutability
5.Control over contingencies
6.Control over resources
Organisational conflict
Sources of Conflict
•Differentiation
•Task relationship
•Scarcity of resources
Strategy Implementation
Organisation’s conflict Process
1.Latent conflict
2.Perceived conflict
3.Felt conflict
4.Manifest conflict
5.Conflict aftermath
Managing Conflict Strategically
1. Conflict resolution Strategies
•Changing task relationship-
•Changing controls-
•Changing leadership-
•Changing strategy-
•Changing organisation
•Unfreezing Refreezing, Movement.
Strategy Implementation
Steps in Changing Process
1.Determining the need for change
2.Determining the obstacles to change
3.Implementing change and
4.Evaluating Change

Techniques of Strategic Evaluation and Control


•Strategic Control: There are four types of Strategic Control
1.Premise control
2.Implementation Control
3.Strategic Surveillance and
4.Special Alert Control
Unit V
Strategic issues
Strategic issues in Managing Technology and innovation
1. Role of Management
2. Environmental Scanning
3. Time to market issues
4. Strategy formulation
5. Strategy iplementation
6. Innovative culture
7. Corporate entrepreneurship
8. Organisational design
Unit V
Strategic issues
8. Organisational design
1. Direct integration
2. New product Business Department
3. Micro New venture Department
4. New Venture division
5. Independent Business Units
6. Special Business Units
7. Nurturing and Contracting
8. Contracting
9. Complete spin-off

9.Evaluation and control


Unit V
Strategic issues
Strategic Issues in Non Profit Organisation
Non Profit Organisation may be classified as
1. Private hospitals, private educational institutions and
charities
2. Public Governmental agencies such as universities,
libraries and museums
Application of Strategic Management concepts
1. SWOT analysis
2. Stake holder analysis
3. Corporate governance
4. Industry analysis
5. Competitor analysis
Unit V
Strategic issues
Strategic Issues in Non Profit Organisation
Constraints on Strategic Management
1. Service is intangible and difficult to measure
2. Beneficiary’s influence may be weak
3. Sponsors and government interference
4. Strong employees are more committed to their profession
5. Reward punishment system is under severe restraints.
Unit V
Strategic issues
Strategic Issues in Non Profit Organisation
1. Issues in Strategy formulation
1.Goal conflict
2. Shift from results to resources
3. Goal Displacement and internal politics.
4. Professionalism Vs Rigidity

2. Issues in Strategy Implementation


1. Decentralisation
2. Linking pin become important
3. Job enlargement and professionalism

3. Issues in Evaluation and control


1. Rewards/punishment are not related to performance
2. Inputs rather than outputs
Unit V
Strategic issues
Popular Strategies of Non Profit Organisation
1. Strategic Piggy backing
2. Venture Capital
3. Mergers
4. Strategic Alliance
NEW BUSINESS MODELS AND STRATEGIES
FOR THE INTERNET ECONOMY

“If you are going to be in E-commerce, you have to


build a business that destroys the old brick-and-
mortar model.”
“If you are going to be in E-commerce, you have to
build a business that destroys the old brick-and-

mortar model. ”
NEW BUSINESS MODELS AND STRATEGIES
FOR THE INTERNET ECONOMY
• Internet Technology and Market Structure
• Strategy-Shaping Characteristics of the E-
Commerce Environment
• E-Commerce Business Models and Strategies
• Internet Strategies for
Traditional Businesses
• Innovative Business Models
and Fast-Evolving Strategies
are KSFs in E-Commerce
Impact of the Internet and E-Commerce
• Impact on external industry environment
– Changes character of the market and
competitive environment
– Creates new driving forces and
key success factors
– Breeds formation of new strategic groups
• Impact on internal company environment
– Having, or not having, e-commerce capabilities tilts
the scales toward valuable resource strengths or
threatening weaknesses
– Creatively reconfiguring the value chain will affect a
firm’s competitiveness vis-à-vis rivals
Characteristics of Internet
Market Structure
• Internet is composed of
– Integrated network of users’ connected computers
– Banks of servers and high-speed computers
– Digital switches and routers
– Telecommunications equipment and lines
Supply Side of the Internet Economy
• Major groups of Internet and e-commerce firms
comprising the supply side include
– Makers of specialized communications
components and equipment
– Providers of communications services
– Suppliers of computer components and hardware
– Developers of specialized software
– E-commerce enterprises
• Business-to-business merchants
• Business-to-consumer merchants
• Media companies
• Content providers
Strategy-Shaping Characteristics
of the E-Commerce Environment
• Internet makes it feasible for companies
everywhere to compete in global markets
• Competition in an industry is greatly intensified by
new e-commerce strategic initiatives of existing
rivals and by entry of new, enterprising e-
commerce rivals
• Entry barriers into e-commerce world are relatively
low
• On-line buyers gain bargaining power
Strategy-Shaping Characteristics of the
E-Commerce Environment (continued)
• Internet makes it feasible for firms to reach
beyond their borders to find the best suppliers
and, further, to collaborate closely with them to
achieve efficiency gains and cost-savings
• Internet and PC technologies are advancing
rapidly, often in uncertain and unexpected
directions
• Internet results in much faster diffusion of new
technology and new ideas across the world
• E-commerce environment demands that firms
move swiftly - “at Internet speed”
Strategy-Shaping Characteristics of the
E-Commerce Environment (continued)
• Internet and e-commerce technology open up a
host of opportunities for reconfiguring industry
and company value chains
• Internet can be an economical means of
delivering customer service
• Capital for funding potentially profitable e-
commerce businesses is readily available
• Needed e-commerce resource in short supply is
human talent, in the form of both technological
expertise and managerial know-how
Effects of the Internet and E-Commerce

• Can produce important shifts in an industry’s


competitive forces
• Alters industry value chains, spawning
substantial opportunities for increasing efficiency
and reducing costs
• Affects a company’s resource strengths
and weaknesses
• Rapid pace of technological change with an
often uncertain direction
Overview of E-Commerce
Business Models and Strategies
• Provide new opportunities to put • Offer potential to exploit
a globally-connected Internet business opportunities in a
infrastructure in place globally wired e-commerce
– Build out environment
telecommunications system – Business-to-business
– Install millions of servers sales
– E-procurement
– Provide high-speed Internet
connections to billions of – Business-to-consumer
businesses and households sales
– Develop software and – E-retailing
networks to create a wired – Provide content
global economy
– Provide services to users
Business Models: Suppliers of
Communications Equipment
• Traditional business model of a manufacturer is
being used by most firms to make money
– Sell products to customers at prices above costs
– Produce a good return on investment
• Strategic issues facing equipment makers
– Several competing technologies for various
components of the Internet infrastructure exist
– Competing technologies may
• Have different performance pluses and
minuses
• Be incompatible
Strategy Options for Suppliers of
Communications Equipment

• Invest aggressively in R&D to win the technological


race against rivals
• Form strategic alliances to build consensus for
favored technological approaches
• Acquire other companies with complementary
technological expertise
• Hedge firm’s bets by investing
sufficient resources in mastering
one or more of the competing
technologies
Business Models: Suppliers of
Communications Services

• Business models are based on profitably selling


services for a fee based on a flat rate per month or
volume of use
• Firms must invest heavily in extending lines and
installing equipment to have capacity to
– Provide desired point-to-point service and
– Handle traffic load
• Investment requirements are particularly heavy
for backbone providers, creating sizable up-front
expenditures and heavy fixed costs
– Key to success - Establish networks ahead of
rivals to get in position to sign up customers
Business Models: Suppliers of
Communications Services (continued)
• Fierce competition has emerged among “last
mile” providers selling high-speed Internet
access
• Strategic options
– Provide high-speed (broadband) Internet connections
using new digital signal line technology
– Provide wireless broadband services or
cable Internet service
– Bundle local telephone service, long distance service,
cable TV service and Internet access into a single
package for a single monthly fee
• Key strategic weapons for last mile providers
- Name recognition and advertising
Business Models: Suppliers of
Computer Components and Hardware
• Traditional business model is used - Make money by
selling products at prices above costs
• Strategic approaches
– Stay on cutting edge of technology
– Invest in R&D
– Move quickly to imitate technological advances and
product innovations of rivals
• Key to success - Stay with or ahead of rivals
in introducing next-generation products
• Competitive advantage will most likely be
based on strategies keyed to low-cost
Business Models: Developers of Specialized
E-Commerce Software
• Business model involves
– Investments in designing and developing
specialized software
– Marketing and selling software to other firms
• Profitability hinges on volume
• Strategic approaches
– Sell software at a set price per copy
– Collect a fee for every transaction provided by the
software
– Rent or lease the software
Business Models: E-Commerce Retailers

• Sell products at or below cost and make money


by selling advertising to other merchandisers
• Use traditional model of
– Purchasing goods from manufacturers and
distributors
– Marketing items at a Web store
– Filling orders from inventory at a warehouse
• Operate Web site to market and sell
product/service and outsource manufacturing,
distribution and delivery activities to specialists
Strategic Approaches:
E-Commerce Retailers
• Spend heavily on advertising to build widespread brand
awareness, draw traffic, and start process of developing
customer loyalty
• Add new product offerings to help attract traffic
to firm’s Web site
• Be a first-mover or at worst an early mover
• Pay consideration attention to Web site attractiveness to
generate “buzz” about the site among surfers
• Keep Web site innovative, fresh, and entertaining
Business Models: Suppliers of
E-Commerce Services
• Key strategic issue for e-commerce retailers - Handling
warehousing and delivery activities
• Firms are using services of “Internet middlemen” to
efficiently sort all the supplier choices
• Firms are using focus strategies to zero in on specific
niches, pursuing competitive advantage based on
– First-mover mastery of a particular technology
– Product superiority
– Unique product attributes
– Convenience and ease of use
– Speed
– More value for the money
Internet Strategies for
Traditional Businesses
• Use Internet technology to communicate and
collaborate closely with suppliers and
distribution channel allies
• Reengineer company and industry value chains
to revamp how certain activities are performed
and to eliminate or bypass others
• Make greater use of build-to-order
manufacturing and assembly
• Build systems to pick and pack products
that are shipped individually
Internet Strategies for
Traditional Businesses (continued)
• Use Internet to give both existing and potential
customers another choice of how to interact with the
company
• Adopt Internet as an integral distribution channel for
accessing new buyers and geographic
markets
• Gather real-time data on customer tastes and buying
habits, doing real-time market research, and use
results to respond more precisely to customer needs
and wants
Key Success Factors: Competing in
the E-Commerce Environment
• Employ an innovative business model
• Develop capability to quickly adjust business model
and strategy to respond to changing conditions
• Focus on a limited number of competencies and
perform a relatively specialized number of value chain
activities
• Stay on the cutting edge of technology
• Use innovative marketing techniques that
are efficient in reaching the targeted audience
and effective in stimulating purchases
• Engineer an electronic value chain
that enables differentiation or lower
costs or better value for the money
Motivation No.2: Strategic Management
1.What are the generic building blocks of competitive advantage?
2. Elaborate the impact of strategy implementation
3. Describe and evaluate alternative expansion stratergies.
4. Discus some major business policies
5.Explain BCG MATRIX &GE Matrix
6.What is a strategic planning
7. How does socio –economic factor influence the strategic management.
8. Write briefly about strategic alliance
9. What is cost leadership? Explain the Advantages and disadvantages of
cost leadership.
10.Explain value chain and exit barrier
11.What is bench marking? Explain differentiation strategy.
12. Explain the different types of stability strategy with example.
13. What is SWOT analysis
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