Developing Strategic Focus

S Jena/ AME
Session road map...

•Strategy Vocabulary
•Strategy vrs operational efficiency
•Issues in Strategy formulation
Why business organizations
need strategy?
Free market economics says….

“Every business firms have to justify

their existence”
 Therefore, firms cannot forget..
“To earn return on the capital employed that is at
least equal to the cost of capital”

Otherwise threat to survival from:

–Bankruptcy
–Hostile takeover bids
Resource flow diagram for a Business Organisation

Used in

Accrued Direct Fixed

Used in Labour and Operating
Production materials expenses
Process
Used to
purchase
Generates Working
Capital
Cash and
Inventory Marketable
Securities Used to
Collection purchase
Customers process
Fixed
Financing Assets

Accounts
receivable
Suppliers of Capital
Resource flow diagram for a Business Organisation

Used in

Accrued Direct Fixed

Used in Labour and Operating
Production materials expenses
Process
Used to
purchase
Generates Working
Capital
Cash and
Inventory Marketable
Securities Used to
Collection purchase
Customers process
Fixed
Financing Assets
Return on Capital
Accounts
receivable
Suppliers of Capital
 Global Steel Potential Surplus
2500
2248

2000
1659
1500
Capacity
1036 Demand
1000 Surplus
740
589
500
296
91 76
15
0
China India World

Increasing Global Surplus will keep driving prices downwards 10

 EBIDTA per Tonne of Sales
2013-14 2014-15 2015-16
SAIL 4629 4776 -2522
3.2% -152.8%
JSW 7405 7374 4718
-0.4% -36.0%
TATA Steel 15043 11439 7559
-24.0% -33.9%
20000

15000

10000

5000

0
2013-14 2014-15 2015-16
-5000
SAIL JSW TATA Steel
 Realizations Decline Per Tonne of Sales
2013-14 2014-15 2015-16
SAIL 40066 39943 32783
-0.3% -17.9%
JSW 39068 39103 31395
0.1% -19.7%
TATA Steel 45409 46107 38044
1.5% -17.5%

50000
The Realizations in
45000
case of Tata Steel
includes
40000
realizations from
Bearing,
35000
Agricultural
Implements, Tubes,
30000 Wire divisions etc
2013-14 2014-15 2015-16 also.
SAIL JSW TATA Steel
 Cost of Raw Material per Tonne of sales
2013-14 2014-15 2015-16
SAIL 15927 15832 14174
-0.6% -10.5%
JSW 22518 22732 15720
0.9% -30.8%
TATA Steel 11358 13347 10168
17.5% -23.8%
25000

20000

15000

10000
2013-14 2014-15 2015-16
SAIL JSW TATA Steel
 Total Cost/Expenditure per Tonne of sales
2013-14 2014-15 2015-16
SAIL 35437 35167 35305
-0.8% 0.4%
JSW 30788 30936 25544
0.5% -17.4%
TATA Steel 33913 36316 32493
7.1% -10.5%
40000

35000

30000

25000

20000
2013-14 2014-15 2015-16
SAIL JSW TATA Steel
1. What answer comes to your mind?

A bat and a ball cost $1.10

The bat costs $1 dollar more than
the ball
How much does the ball cost?
Ans:
 What is Strategy
In strategy it is important to see
distant things as if they were
close and to take a distanced view
of close things.
 Business Leadership
Strategic Orientation
Definition:
Understand implications of multiple factors on Long term and
short term strategy of the organization and undertake
necessary actions

Key behaviors:

•Understands internal and external Business Environment and

Draws business insights
•Balances and Aligns short-term benefits with long term goals
•Recognizes strategic opportunities for success and capitalizes
on them by linking initiatives to organizational goals and
objectives
23
Strategy Vocabulary
A crossword Puzzle
 SAIL
VISION:

To be a respected world- class corporation and leader in Indian

steel business in quality, productivity, profitability and customer
satisfaction
CREDO:

• We build lasting relationships with customers based on trust and mutual

benefit
• We uphold highest ethical standards in conduct of our business
• We create and nurture a culture that supports flexibility, learning and is pro-
active to change
• We chart a challenging career for employees with opportunities for
advancement and rewards
• We value the opportunity and responsibility to make a meaningful difference
in people’s lives
32
 Where we are wrt our Vision
 Our leadership position in the Indian Steel
Industry is under serious threat
 We are no longer the market leader by market share. JSW Group
with 14 % market share has overtaken our market share of 13%
(2015-16).
 We have made operating losses in 2015-16.
 Our labor productivity of 302 TCS/Man/Yr lags behind our key
competitors like Tata Steel (400), JSW (700 ) and JSPL (800). Our
TE parameters are behind global benchmarks.
 At times quality of our products is also a matter of concern leading
to high levels of NCO and Inventory.
33
 the sail story
vision statements

• “Achieve market leadership and prosper in

business through satisfaction of customer needs
by continual improvement in quality, cost and
delivery of products and services.”
M R R Nair, 1993

• “..respected world-class corporation…”

A Pandey, 2001
 Strategic Planning in SAIL

• Corporate Plan -2000, May 1987- up to 2000

AD

• Corporate Plan - 2005, Feb. 1992 - up to 2005

AD

• Turnaround Plan - August 1998, up to 2003 AD

• Corporate Plan – 2012, July 2004, up to 2012

AD

• SAIL Vision 2025, Currently under approval?

Strategy vrs operational efficiency
Strategy and inferior choices
C’ C

B’
A
 What is the difference ?
• HUL decides to continue
with “Wheel” despite the
fact that the division is
making losses
• Despite sustained losses,
Kellogg's Chairman says
he will not exit, has a long
term perspective for India
• HoD, decides to take
down the coke ovens for
major repairs, in spite of
not meeting APP targets
• HUL decides to close down
“wheel on the basis of
division profitability and
cash flows
• Kellogg's decides to close
down Indian operations
after making losses in the
3rd year
• HoD decides to postpone
the repairs for next year to
meet the Annual Production
targets
Strategy development involves three
principal questions:

• Where is the business today?

• Where do we want the business to go?
• How are we going to get there?
 General Environment
• Dimensions in the broader society that influence an
industry and the firms within it
– Economic
– Sociocultural
– Global
– Technological
– Political/legal
– Demographic
 Start with the environment: Industry Structure
Porter’s Five Forces

Bargaining
Power of Buyers

Threat of new Industry Threat of

Entrants Profitability Substitute

Rivalry among
Bargaining Power Existing
of Suppliers Competitors
 Key Underlying Issues

• Backward and forward integration by buyers and

suppliers
• Concentration of buyers and suppliers
• Switching cost
• Cost of failure
• Product differentiation/commodity characteristics
• Economies of scale
• Proprietary products, patents
• Incidence of fixed cost (Cost structure)
• Concentration of competitors
Superior performance is achieved
in two ways:

• Low costs (Cost Leadership)

• Premium prices (Differentiation)

IIMI / SAIL MDP / April 2008 45
 Cost of Medicine Film
• What is the trend in pharma industry that
can affect your profitability?
• What would be your strategic response?
 Strategy and the environment
• Strategy is environment specific

• Managers need to understand the

environment

• Managers need to leverage the environment

Who is responsible for creating
competitive advantage?

50
Components of Strategic Thinking

–Traits: Curiosity, Flexibility, Future Focus,

Positive Outlook, Openness
–Behaviors and Attitudes: Seek others opinion,
challenge assumption, identify forces that drive
performance, self learning
–Cognitive capacities: Objectively analyze
situation, abstract to coherent picture, understand
and link cause effect relationship
Thank You