STRATEGIC

MANAGEMENT
 INTRODUCTION

STRATEGIC MANAGEMENT MODEL

 COMPANY MISSION

EXTERNAL
COMPANY PROFILE ENVIRONMENT-
operating, industry and
multinational analysis

STRATEGIC ANALYSIS AND CHOICE

LONG TERM GRAND STRATEGY

OBJECTIVES

ANNUAL FUNCTIONAL POLICIES

OBJECTIVES STRATEGIES

INSTITUTIONALISING THE
STRATEGY

CONTROL AND EVALUATION

 DEFINITION

“ The set of decisions and actions resulting in

formulation and implementation of strategies
designed to achieve the objectives of an
organization”
 FOCUS OF STRATEGIC
MANAGEMENT
Determining the mission of the company including broad
statements about its purpose, philosophy and goals.

Developing a company profile that reflects internal conditions

and capabilities.

Assessment of the company’s external environment in terms

of both competitive and contextual factors.

Analysis of possible options uncovered in the matching of the

company profile with the external environment.
 Cont…..
Identifying the designated options uncovered when
possibilities are considered in light of the company
mission.

Strategic choice of a particular set of long term

objectives and grand strategies needed to achieve
the desired options.

Development of annual objectives and short term

strategies compatible with long term objectives and
grand strategies.
 Cont….
Implementing strategic choice decisions
based on budgeted resource allocations
and emphasizing the matching of tasks,
people, structures, technologies and
reward systems.

Review and evaluation of the success of

strategic process to act as a basis for
control and as an input for future decision
making.
By Strategy managers mean “Their large
scale , future oriented plans for interacting
with the competitive environment to
optimize the achievement of organization
objectives.”
Thus Strategy represents a firm’s “GAME
PLAN”
 DIMENSIONS OF STRATEGIC
DECISIONS
Strategic issues have 6 identifiable
dimensions :
They require top management decisions.
They are likely to have a significant impact
on the long term prosperity of the firm.
They involve the allocation of large
amount of company resources.
 Cont…..
They are future oriented.
They usually have major multifunctional or
multibusiness consequences.
They necessitate considering factors in the firm’s
external environment.
3 LEVELS OF STRATEGIES
 Corporate level
 Business level
 Functional level
 Corporate and business level
managers focus their planning on ‘Doing
the right things’. The Functional level
managers focus on ‘Doing things right’.
 CHARACTERISTICS OF STRATEGIC MANAGEMENT DECISIONS
AT DIFFERENT LEVELS

LEVELS OF STRATEGY
CHARACTERISTICS
CORPORATE BUSINESS FUNCTIONAL
Type Conceptual Mixed Operational
Usually
Measurability Value judgment dominant Semi quantifiable Quantifiable
Periodic or
Frequency Periodic or sporadic sporadic Periodic
Adaptability Low Medium High
Relation to present
activities Innovative Mixed Supplementary
Risk Wide range Moderate Low
Profit Potential Large Medium Small
Cost Major Medium Modest
Time Horizon Long range Medium range Short range
Flexibility High Medium Low
Cooperation Required Considerable Moderate Little
 EXAMPLES
 Corporate level Decisions
Choice of Business, dividend policies, Sources
of long term financing, priorities for growth etc….
 Business level Decisions
Plant location, Marketing segmentation and
geographic coverage and Distribution channel
 Functional level Decisions
Generic versus brand name labeling, Basic
versus applied R&D, High versus low inventory
levels, General versus specific purpose production
equipment, Close versus loose supervision.
 FORMALITY IN STRATEGIC
MANAGEMENT
Formality refers to the degree to which
membership, responsibilities, authority and
discretion in decision making are specified.
The degree of formality is positively correlated
with the cost, comprehensiveness, accuracy
and success of planning. Formality is
basically associated with two factors – Size
and Stage of development of the company.
The three different models are :
Entrepreneurial : Usually smaller firms. They are
basically under the control of a single individual and
produce a limited number of products or services.
Planning Mode : Used by large firms like GE where
there is a comprehensive, formalized, multilevel
strategic planning system
Adaptive Mode : (In the middle of the spectrum)
This is found in medium sized firms in relatively
stable environments
Sometimes even within a firm, different modes
may be adopted, maybe for different business,
SBUS.
Some companies also follow combined modes of
strategy making like adaptive entrepreneur, adaptive
mode combined with planning mode etc….
 HIERARCHY OF OBJECTIVES AND
STRATEGIES
Strategic
Ends (What is to be Means (How it is to be Decision
achieved) achieved) makers

Board of Corporate Business Functional

Directors Managers Manager Managers

Mission including goals

and philosophy ** ** *

Long term objectives Grand Strategy * ** **

Short term strategic

Annual Objectives policies * ** **

Functional Objectives Tactics * **

* = Secondary ** = Principal
Responsibility Responsibility
 BENEFITS OF STRATEGIC
MANAGEMENT
Studies have revealed that changes in the
company’s strategic direction can lead to significant
improvements in its profitability. The PIMS (Profit
impact of market Studies) which studied the effects of
strategic planning on a firm’s ROI revealed that ROI
was most significantly affected by market share,
investment intensity and corporate diversity.
The strategic management approach
emphasizes interaction by managers at all levels of
the organizational hierarchy in planning and
implementation. This participative decision making
leads to certain behavioral effects that can improve
the welfare of the firm.
 BENEFITS OF STRATEGIC
MANAGEMENT
Strategy formulation activities should enhance the problem
prevention capabilities of the firm.
Group based strategic decisions are most likely to reflect the
best available alternatives.
Employee motivation should improve as employees better
appreciate the productivity- reward relationships inherent in
every strategic plan.
Gaps and overlaps in activities among diverse individuals and
groups should be reduced as strategy formulation leads to a
clarification of role differentiations.
Resistance to change should be reduced.
 RISKS OF STRATEGIC
MANAGEMENT
Costly in terms of hours spent by managers in the
planning exercise, also the division’s/department's
productivity may be affected due to the absence of
senior managers.
If formulators of strategy are not intimately involved
in implementation, individual responsibility for input
to the decision process and subsequent results can
be affected.
Strategic managers must be trained to anticipate,
minimize or constructively respond when
participating subordinates become disappointed or
frustrated over unattained expectations.
 STRATEGIC PLANNING : A
CONSTITUENT OF CORPORATE
PLANNING
Corporate planning is a comprehensive
planning process which involves continued
formulation of objectives and the guidance of the
affairs towards their attainment. The objective of
corporate planning is to identify new areas of
business and marketing. Initiating new projects, new
courses of action and analyzing past experiences
are the subject matter of corporate planning. The
comprehensive nature of corporate planning implies
that operational planning, project planning and
strategic planning are its constituents.
 Cont…..
In as much as strategic planning
determines the future of a company, corporate
planning is essentially based on strategic planning
and at the same time takes care of project planning
and operational planning. Corporate planning may
encompass both short periods as well as long
periods. The time span depends on how far ahead
the company wants to forecast and to plan which in
turn depends upon the nature of business that the
company wants to be in and the commitment of
resources required for it.
 EXAMPLE
In a modern Heavy Engineering industry,
commitment of resources is generally required for a fairly long
period- 10-15 years whereas in a ready-made garment
industry, resource commitment is for a short period, generally
1 year so that operations may be adapted to changing
fashions and tastes.
Therefore corporate planning in the Engineering
industry will involve long term considerations regarding
market demand, technology etc…
Long Range Planning : planning with a long time
horizon in view, generally 5 years and more.
 Cont…..

Corporate planning in capital intensive

industries is always associated with LRP.
Corporate planning is concerned with
existing products in existing market and new
products in new markets, whereas LRP essentially
takes care of only existing products in existing
markets.
 MCKENSEY’S 7-S
FRAMEWORK
A framework for strategic management
which has received considerable attention of
management consultants and strategists is
Mckensey’s 7-s framework developed in the late
70’s by Mckensey company.
The framework rests on the proposition
that effective organizational change is best
understood in terms of the complex relationship
between the 7-s’s…..
 7-s’s
S

S S
 Strategy
 Structure
S
 Systems
S
 Style S

 Skills S

 Staff
 Shared values (Super-ordinate goods)
 Cont…..

Mckensey’s 7-s framework is essentially

a multivariate model of organizational change.
Interconnections having critical significance for
effecting organizational change. Effective
implementation of strategy is thus shown to be
conditioned by the ability of management to bring all
the 7-s’s into harmony.
 THE COMPANY MISSION

The company mission is defined as

“The fundamental, unique purpose that sets a
business apart from other firms of its type and
identifies the scope of its operations in product
and market terms.”
It describes the product, market and
technological areas of emphasis for the business
in a way that reflects the value and priorities of
strategic decision makers.
 Cont…..
The company mission is designed to accomplish the
following :
 To ensure unity of purpose within the organization.
 To provide a basis for motivating the use of the
organization’s resources.
 To develop a basis or standard for allocating
organization’s resources.
 To establish a general tone or organizational climate
to suggest a business like operation.
 Cont…..
 To serve as a focal point for those who can identify
with the organization’s purpose and direction and to
deter those who cannot from participating further in
the organization’s activities.
 To facilitate the translation of objectives and goals
into a work structure involving assignment of tasks
and responsibilities within the organization.
 To specify organizational purpose and the
translation of this purpose into goals in such a way
that cost, time and performance parameters can be
assessed and controlled.
 FORMULATING A MISSION
The mission statement embodies the following
elements :

 The basic product or service to be offered, the

primary markets or customer groups to be served
and the technology to be used in production or
delivery.
 The fundamental concern for survival through
sustained growth and profitability.
 The managerial philosophy (company philosophy) in
terms of basic beliefs, values, aspirations and
philosophical priorities (what the company stands
for)
 Cont…..

The public image to be sought and

The self-concept that people affiliated should have
of the firm, which may include management style
and work ethic.
EXAMPLE
 We are responsible for the communities in which we
live and work and to the world community as well.
(Johnson & Johnson)
 Cont…..
 We are dedicated to the total success of Corning
glass works as a world wide competitor. (Corning
Glass)
 To stimulate, continue and accelerate efforts to
develop and maximize the contribution of the energy
sector to the economy of the country. (ONGC)
 Dayton-Hudson corporation is a diversified retailing
company whose business is to serve the American
consumer through the retailing of fashion oriented
quality merchandise.
 Cont…..
When a specific business attempts to
define its mission so as to incorporate the interests
of various claimant groups, 4 steps must be taken :
o Identification of claimants.
o Understanding claimants’ specific demands vis-à-vis
the company.
o Reconciliation and prioritisation of the claims.
o Coordination of claims with other elements of the
mission.
 INPUTS TO THE COMPANY
MISSION

INSIDE CLAIMANTS OUTSIDE CLAIMANTS

Executive Customers
Officers Suppliers
Board of Directors Govt
Stock Holders Company Unions
Employees Mission Competitors
Local Committees
General Public
 CORPORATE OBJECTIVES
Once the organization mission has been determined, its
objectives, desired future positions or destination that it
wishes to reach, should be identified. Organizational
objectives are defined as ends which the organization seeks
to achieve by its existence and operation.

Objectives may be classified into 2 categories :

 EXTERNAL INSTITUTIONAL OBJECTIVES

Define the impact of the organization on its environment.
Eg: To develop a high degree of customer confidence by
sustaining high standards of excellence in product quality.
 Cont…..

 INTERNAL INSTITUTIONAL OBJECTIVES

Define how much is expected to be achieved
with the resources that the organization commands.
Eg: To raise the average ROI to 15% per annum.
 THE ORGANIZATIONAL
OBJECTIVES :
Define the future state of affairs which the
organization strives to realize.
Are the the rationale of what the organization does.
Govern the behavior of employees by directing their
attention to desirable conduct and behavior.
Govern decision making and reduce conflict by
providing a frame of reference.
Provide the ultimate standards against with the
success of the organization can be measured.
 GOALS
Goals are the specific, time based point of
measurement. Thus goals are to be stated
specifically and as quantitatively as possible while
objectives may be stated in quantitative or
qualitative terms.
SETTING GOALS AND OBJECTIVES
Setting goals and objectives is the first
step in the strategic planning process. It involves
defining the desired relationship between the
organization and its environment. As changes occur
in the organization, the environment or both, there is
a need for redefinition of goals.
FACTORS TO BE CONSIRED
WHILE FORMULATING GOALS

The external environment.

The top management’s relationship with other
individuals and groups in the organization.
The ability of the management to cope with the
environmental risks and threats.
Values and preferences of the executives – attitude
towards risk taking, innovation, towards people, social
issues, ethics etc…
 GOALS
Goal setting involves a process of reconciliation
of diverse needs of various interest groups.
Sometimes change of objectives may be
necessary due to :
 Change in aspiration level of management.
 Demand for change by coalition groups.
 Change in the normal life cycle of organizations.
 Effects of crisis situation.
 CRITICAL SUCCESS FACTORS
When framing organizational objectives, the
strategists must identify the key factors that must be
kept in view to ensure the success of organization.
They are termed as Critical Success Factors (CSFs)
or Strategic Factors or Key Success Factors (KSFs).
STEPS INVOLVED IN CSFs AND GOAL SETTING
• Generate the CSFs .
• Refine the CSFs into objectives.
• Identify the measures of performance.
These steps involve considering various factors
that can influence the performance and their priorities
and what to focus on.
ENVIRONMENTAL
ANALYSIS
AN OVERVIEW
CONCEPT OF ENVIRONMENT
Characteristics Of Environment

External and Internal Environment

SWOT Analysis

General v/s Relevant Environment

 COMPONENTS OF
ENVIRONMENT
Social Environment
Political Environment
Economic Environment
Regulatory Environment
Market Environment
Supplier Environment
Technological Environment
ENVIRONMENTAL SCANNING
Factors to be considered

Approaches

Source of information

Methods and techniques used

 APPRAISING THE
ENVIRONMENT

Factors affecting environmental appraisal

Identifying the environmental factors

Structuring environmental appraisal

CONCEPT OF ENVIRONMENT
 CHARACTERISTICS OF
ENVIRONMENT
Environment is complex
Environment is dynamic
Environment is multi-faceted
Environment has far-reaching impact
 EXTERNAL AND INTERNAL
ENVIRONMENT
The environment in which an organization
exists can be described in terms of the
opportunities and threats operating in the
external environment apart from the
strengths and weaknesses existing in the
internal environment.
A systematic approach to understanding
the environment is SWOT analysis
 GENERAL V/S RELEVENT
ENVIRONMENT
A wider perception of the entire external
environment can be called the general
environment whereas that part of the
environment which is of high strategic
relevance to the organization is called the
Relevant Environment
ENVIRONMENTAL SCANNING
FACTORS TO BE CONSIDERED
Events
Trends
Issues
Expectations of different interest groups
 APPROACHES
Systematic
Ad-hoc
Processed-form
 SOURCE OF INFORMATION FOR
ENVIRONMENTAL SCANNING
There could be formal and informal sources,
written and verbal sources and the sources could be
external and internal. Some of the important types of
sources are :
 Documentary or secondary sources of information
 Mass media
 Internal sources
 External agencies (customers, marketing
intermediaries, suppliers, Govt agencies)
 Formal studies (by employees, M R agencies,
consultants and educational institutions)
 Spying and surveillance
METHODS AND TECHNIQUES USED
FOR ENVIRONMENTAL SCANNING

Various authors have mentioned

several methods and techniques from
which the strategists can choose what is
relevant to them
LE-BELL AND WRASHER-9 GROUPS
OF TECHNIQUES
 Single-variable Extrapolation
 Theoretical Limit Envelopes
 Dynamic Modes
 Mapping
 Multivariable Interaction Analysis
 Unstructured Expert Opinion
 Structured Expert Opinion
 Unstructured expert Speculation
FALEY, HING AND NARAYANAN – 10
TECHNIQUES
Scenario-writing
Simulation
Morphological analysis
PPBS
Graph theory
Cross impact analysis
Field Analogy relation
Multi echelon co ordination & Other
forecasting techniques
 QUEST (Quick Environmental
Scanning Techniques) proposed by
B.Namus
4 step process using scenario writing
Strategists make observations about the major events and
trends in their industry
Then they speculate on a wide range of important issues that
might affect the future of their organization by scanning the
environment broadly and comprehensively
The QUEST director prepares a report summarizing the major
issues and their implications and 3-5 scenarios incorporating
the major themes of the discussion
The report and scenarios are reviewed by the group of
strategists who identify feasible strategic options to deal with
the evolving environment . The options are ranked and teams
are designated to develop strategies
APPRAISING THE
ENVIRONMENT
 FACTORS AFFECTING
ENVIRONMENTAL APPRAISAL
3 CATEGORIES

STRATEGIST RELATED

ORGANISATION RELATED

ENVIRONMENT RELATED
IDENTIFYING THE ENVIRONMENTAL
FACTORS
THE ENVIRONMENTAL FACTORS ARE :

Events

Trends

Issues

Expectations of different interest groups

STRUCTURING ENVIRONMENTAL
APPRAISAL

There are several techniques – a popular

technique is Glueck’s – environmental
threats and opportunity profile (ETOP)
 Eg : ETOP FOR A BICYCLE
ENVIRONMENTAL COMPANY
IMPACT OF EACH
FACTORS SECTOR
Social Customer preference for sports
↑ cycles which are fashionable,
easy to ride and durable
No significant factor
Political
Growing affluence among
→ urban customers ; exports
Economic potential high
↑ Bicycle industry a thrust area
for exports
Regulatory Industry growth rate is 7-8%
↑ per year, for sports cycles
growth rate is 30% per year;
largely unsaturated demand
Market
↑
ENVIRONMENTAL IMPACT OF EACH
FACTORS SECTOR

Supplier Mostly ancillaries and

↑ associated companies
supply parts and
components; easy
availability of imported
raw materials
Technological up
Technological gradation of industry in
↑ progress; import of
machinery under OGL list
is permitted

(↑ Indicates favorable impact, ↓ unfavorable impact, →

indicates a neutral impact)
 BHEL:ETOP
ENVIRONMENTAL SECTOR IMPACT(+)OPPORTUNITIES (-)
THREATS

Socio-economic (+) Continued emphasis on

infrastructural
development which
includes power supply for
industry, transport and
domestic consumption
(-) Severe resource
constrains
(+) High growth engaged in
Technological industrial production and
technology up gradation
(-) Source of technology will
become scarce due to
Supplier formation of technology
cartels
 (+) Liberalization of
Government technology import policy
(-)Customers will become
more discerning in their
Competition requirements due to the
increasing role of power
plant consultants
(-)Public sector will find it
increasingly difficult to
retain specialists and
highly qualified
personnel
INTERNAL ANALYSIS OF THE FIRM:
THE COMPANY PROFILE
Internal analysis must identify the
strategically important strengths and
weaknesses on which a firm should
ultimately base its strategy. This is
achieved by first identifying key internal
factors (Eg: distribution channels, cash
flow, location , technology, organization
structure ,etc ) and second by evaluating
these factors
DEVELOPING THE COMPANY
PROFILE
IDENTIFICATION OF STRATEGIC
INTERNAL FACTORS

A FUNCTIONAL APPROACH:
 Strategic internal factors are a firm’s basic
capabilities, limitations and characteristics.
Typical factors in various functional areas can
be listed , some of which would be the focus
of internal analysis in most firms
 Cont…..
Analysis of past trends in sales, cost and
profitability is of major importance in identifying strategic
internal factors. Detailed investigation of the firm’s
history helps isolate internal factors influencing sales,
costs, profitability and their inter relationship. These
factors are of major importance to future strategy
decisions. Identifying strategic factors also requires an
external focus. Information on industry conditions /trends
and comparisons with competitors also provide insight.
Changing industry conditions can lead to the need to
reexamine the internal strengths and weaknesses in light
of the newly emerging determinants of success in the
industry. Strategic internal factors are often chosen for in
depth evaluation because firms are contemplating on
expansion/ diversification etc.
 THE VALUE CHAIN APPROACH
(DEVELOPED BY MICHAEL PORTER IN HIS
BOOK COMPETITIVE ADVANTAGE)

A value chain is a systematic way of

viewing the series of activities a firm performs to
provide a product or service to customers. A firm
gains competitive advantage by performing
strategically important activities- the key internal
factors more cheaply or better than its competitors
 2 BASIC CATOGARIES OF
ACTIVITIES
PRIMARY SUPPORT ACTIVITIES
In bound logistics Procurement
Operations Technology development
Out bound logistics HRM
Marketing and sales firm infrastructure
Services
 Cont…..
By systematically disaggregating a firm into
its distinct value activities across the 9
activity categories, we can identify key
internal factors for further examination as
potential source of competitive advantage.
Then the next step is to compare the firm’s
status with meaningful standards to
determine which value activities are
strengths or weaknesses .
 EVALUATION OF STRATEGIC
INTERNAL FACTORS
Though identification and evaluation of key
internal factors are separated for discussion ,
they are not separate, distinct in practice
A factor is considered a strength if it is a distinct
competency or competitive advantage- it is
some thing the firm does( or has the future
capacity to do) particularly well relative to
activities of existing or potential competitors
A factor is considered a weakness if it is some
thing the firm does poorly or doesn’t have the
capacity to do although key rivals have the
capacity
 Cont…..
Evalution of key internal factors and value activities as
strengths or weaknesses is done through 4 basic
perspectives
1) Comparison with the firm’s past performances
2) Stage of product / market evolution
3)Comparison with competitors and
4)Comparison with key success factors in the firm’s industry

Quantitative and qualitative methods can be used for

evaluation. Some of the methods of analyzing and
Diagnosing corporate capabilities are :
1)Functional area profile and resource deployment matrix
2)Organizational Capability Profile (O C P)
3)Strategic Advantage Profile (S A P )
FORMULATING LONG TERM
OBJECTIVES AND GRAND
STRATEGIES
 LONG TERM OBJECTIVES
To achieve long term prosperity, strategic
planners commonly establish long term
objectives in 7 areas
Profitability
Productivity
Competitive position
Employee development
Employee relations
Technological leadership
Public responsibility
 QUALITIES OF LONG TERM
OBJECTIVES
There are 7 criteria that should be used in
preparing long term objectives so that they have
good chance of being achieved. They are
Acceptable
Flexible
Measurable
Motivating
Suitable
Understandable
Achievable
 GRAND STRATEGIES
Grand strategies, also called as
Master or Business Strategies are
intended to provide basic direction for
strategic action. They are the basis of
coordinated and sustained efforts directed
toward achieving long term business
objectives
Following are the two limitations to the
use of this approach in practice
1) decision makers often do not recognize
the range of alternative grand strategies
available. They tend to build incrementally
from status quo which limits their search
for ways to improve corporate
performance
2) strategic decision makers may generate
list of promising grand strategies but lack a
logical and systematic approach to
selecting an alternative
The following 12 principal Grand strategies could
serve as the basis for achieving major long term
objectives of a business
Concentration
Market development
Product development
Innovation
Horizontal integration
Vertical integration
Joint venture
Concentric diversification
Conglomerate diversification
Retrenchment / turnaround
Divestiture
Liquidation

When a company is involved in multiple industries,

businesses, product lines and cultural groups , then several
grand strategies can be considered
 SELECTION OF LONG TERM
OBJECTIVES AND GRAND
STRATEGY SETS
Strategic choice is the simultaneous
selection of long-range objectives and
grand strategy, they are inter dependent
STRATEGIC ANALYSIS AND
CHOICE
The search for alternative strategies is both
creative and incremental. Systematic
comparison of external and internal factors is
often used to search for alternative strategies.
The search for multiple alternatives depends
on systematic comparison of the strengths,
risks, and trade offs of each alternative. The
evaluation of alternative strategies is quite the
same whether new or old strategies are
considered - the focus is on the future
 STRATEGIC ANALYSIS AT THE
CORPORATE LEVEL
Portfolio approach
The B C G- Growth/Share Matrix
The G E Nine – cell planning Grid (also called
stoplight model– different combinations are
denoted with different colors ( green, yellow, red) )
GRAND STRATEGY SELECTION AT
THE BUSINESS LEVEL
SWOT Analysis
The grand strategy selection matrix
Model of grand strategy clusters
BEHAVIOURAL CONSIDERATIONS
AFFECTING STRATEGIC CHOICE
Role of past strategy
Degree of the firm’s external dependence
Attitude toward risk
Internal political consideration and the
CEO
Timing
Competitive reaction
 INDUSTRY ANALYSIS
The nature and degree of
competition in an industry hinge on 5
forces;
 Threat of new entrants
 The bargaining power of customers
The bargaining power of suppliers
The threat of substitute products or
services
The rivalry among existing competitors
 THREAT OF ENTRY
The 6 major forces of barriers to entry are:
Economies of scale
Product differentiation
Capital requirement
Cost disadvantages independent of size
Access to distribution channel
Government policies
 INTENSE RIVALRY AMONG
COMPETITORS IS DUE TO :
Competitors are numerous or are Largely
equal in size and power
Industry growth is slow
The product or service lacks differentiation or
switching cost
Fixed cost are high or the product is
perishable
Capacity is normally augmented in large
increments
Exit barriers are high
The rivals are diverse in strategies
Having done the industry analysis and
the SWOT the strategist may decide a
plan of action which may include
Positioning the company so that its capabilities
provide the best defense against the competitive
force, and/or
Influencing the balance of the forces through
strategic moves thereby improving the company’s
position, and/or
Anticipating shifts in the factors underlying the
force and responding to them by choosing a
strategy appropriate for the new competitive
balance
OPERATIONALISING THE STRATEGY:
ANNUAL OBJECTIVES, FUNCTIONAL
STRATEGIES
AND BUSINESS POLICIES
 ANNUAL OBJECTIVES:

These are specific, measurable statements of

what an organization subunit is expected to
achieve in contributing to the accomplishment
of the business’ grand strategy.
To maximize the contribution to these objectives, they must have
certain basic qualities:
Linkage to long-term objectives:
I. Time frame
II. Focus
III. Specificity
IV. Measurement

Integrated and co-ordinated objectives

 Consistency in annual objectives (each objective must clearly
state what is to be accomplished, when it will be done and how
accomplishment will be measured)
Measurable
Other qualities that apply to effective L.T
objectives viz., acceptable, flexible, suitable,
motivating, understandable, and achievable
also apply to annual objectives
Priorities (relative priorities of annual
objectives)
FUNCTIONAL STRATEGIES:
A functional strategy is the short term game plan
for a key functional area within a company.
Functional strategies are developed in the key
areas of
 Marketing
 Finance
 Production
 R&D
 Personnel
They must be consistent with L.T objectives and
grand strategy.
They help in implementation of grand strategy
by organizing and activating specific sub units.
They translate thought(grand strategy) to action
designed to accomplish specific annual
objectives.
The functional strategies are differentiated from
grand strategies in terms of :
 Time horizon covered
 Specifics
 Participation in the development
 FUNCTIONAL STRATEGIES IN
PERSONNEL

Employee recruitment, selection and

orientation
Career development and counseling,
performance evaluation, and training &
development
Compensation
Labour/union relations
Discipline, control and evaluation
 POLICIES:
• These guide and control decisions by operating
managers and their subordinates.
• They are directives designed to guide the thinking,
decisions and actions of managers and their
subordinates in implementing an organization’s
strategy
• Policies ( also referred to as “ standard operating
procedures ”) serve to increase managerial
effectiveness by standardizing many routine
decisions and controlling the discretion of managers
 THE PURPOSE OF POLICIES:
 Establish indirect control over independent action
 Promote uniform handling of similar activities
 Ensure quicker decisions
 Help institutionalize basic aspects of organization behavior
 Reduce uncertainty in repetitive and day-to-day decision making
 Can counteract resistance to or rejection of chosen strategies by
organization members
 Offer a predetermined answer to routine problems
 Afford managers a mechanism for avoiding hasty and ill conceived
decisions in changing operations
 INSTITUTIONALISING THE STRATEGY:
STRUCTURE, LEADERSHIP AND CULTURE

STRUCTURE:
• It is the division of tasks for efficiency and clarity of purpose and
coordination between the interdependent parts of the organization to ensure
organizational effectiveness.
• It balances the need for specialization with the need for integration
• It also provides a formal means of decentralizing and centralizing
consistent with the organizational and control needs of the strategy
• It is through structure that strategists attempt to balance internal efficiency
and overall effectiveness within a broader environment
The 5 basic types of organization structures
currently used by most business firms are;
I. Simple
II. Functional
III. Divisional
IV. Strategic business unit
V. Matrix
According to Chandler “ structure follows
strategy.” structure must be closely aligned with
the needs/demands of the firm’s strategy.
 LEADERSHIP
This is an essential element of effective
strategy implementation. The two issues which
are of fundamental importance here are
The role of the CEO
The assignment of key managers
 CEO’S ROLE
• Symbolic and substantive in strategy implementation
(Ex: lee Iacocca’s highly visible role in early 80’s as
spokesperson for the “New Chrysler Corporation” on
TV)
• The firm’s mission, strategy and key L.T objectives
are strongly influenced by the personal goals and
values of its CEO.
• Major changes in strategy are often preceded or
quickly followed by a change in CEO
 ASSIGNMENT OF KEY
MANAGERS
• Confidence in the individuals occupying pivotal
managerial positions is directly and positively
correlated with top management expectation that a
strategy can be successfully executed.
• This confidence is based on the answers to two
fundamental issues :
I.Who holds current leadership positions that are
especially critical to strategy execution?
II.Do they have the right characteristics to ensure that
the strategy will be effectively implemented?
The important characteristics are probably

Ability and education

Previous track record and experience
Personality and temperament

Also gut feeling and top managers’ confidence in

the individual.
 ORGANISATIONAL
CULTURE

• It is the set of important assumptions (often unstated)

that members of an organization share in common.
• The two principal types of assumptions are
Beliefs
Values.
Shared assumptions:
• Internalized beliefs and values that
organizational members hold in common.
• Culture influences organizational life through
the 5 basic processes that lie at the heart of any
organization
Cooperation
Decision making
Control
Communication
Commitment
Culture gives employees a sense of how to
behave, what they should do and where to
place priorities in getting the job done, culture
helps employees to fill in the gaps between
what is formally expected and what actually
takes place.
It is of critical importance in the
implementation of strategy. A co’s culture can
be a major strength when it is consistent with
strategy and thus can be a powerful driving
force in implementation.
 STRATEGY- CULTURE
RELATIONSHIP

The 4 basic situations a co. may face are:

Link to mission
Maximize synergy
Manage around the culture
Reformulate
If the culture must be changed several basic
management actions must be considered;
 Chief executive’s role
 Who is hired and promoted

 Change the reward structure

 Clarify desired behavior

 Foster consistency between desired changes and

rewards
Changing organizational culture takes time
may be up to 10-15 years, it is often an
incremental process.
 STRATEGIC CONTROL
GUIDING AND EVALUATING STRATEGY
• Strategic control is concerned with tracking the strategy as it is being
implemented, detecting problems or changes in underlying conditions,
controlling and guiding efforts on behalf of the strategy as action is taking
place and while the end result is still many years into the future.
• Managers responsible for successful implantation of the strategy are
concerned with 2 sets of Qs:

i) Are we moving in the proper direction? Are key things falling into place?
Are our assumptions about major trends and changes correct? Are the
critical things we need to do being done? Do we need to adjust or abort this
strategy?
ii) How are we performing? Are we meeting objectives and schedules? How
are costs, revenues, and cash flows matching projections? Do we need to
make operational changes?
• Strategic controls, augmented by certain operational
controls help us to answer these Qs.
• Essentially strategic controls are of the “steering
control” forms.
The 4 basic types of strategic control are:
 Premise control
 Implementation control
 Strategic surveillance
 Special alert controls
 PREMISE CONTROL
• Every strategy is based on certain planning
premises.
• Premise control is designed to check systematically
and continuously whether or not the premises set
during the planning and implementation process are
still valid.
• If a vital premise is no longer valid, then the
strategy may have to be changed.
• Premises are concerned with two types of factors;
ENVIRONMENTAL:
Inflation, technology, interest rates, regulation,
demographic/social changes
INDUSTRY:
Competitors, suppliers, substitutes, barriers to entry
Though premises are made about numerous environmental and
industry variables all these cannot and need not be tracked.
So, the managers must select only those premises and variables
that are likely to change and have a major impact on the company
and its strategy if they did.
• The key premises should be identified during the planning
process, recorded and assigned to persons/depts that are qualified
to get the info.
Ex:
Sales force  to monitor the pricing policy of major competitors
Finance dept. to monitor interest rate trends etc.

• Then premises should be updated based on latest info.

• Key areas in their co. or key aspects of the strategy that the
predicted changes may significantly impact should be pre
identified and necessary adjustments made.
 IMPLEMENTATION
CONTROL
This is designed to assess whether the overall strategy
should be changed in light of unfolding events and
results associated with incremental steps and actions
that implement the overall strategy.

The 2 basic types of implementation control are

 Monitoring strategic thrusts

 Milestone reviews
 THRUSTS: (NEW OR KEY
STRATEGIC PROGRAMS)

There are 2 approaches

To agree early in the planning process on

which thrusts or phases of those thrusts are
critical factors in the success of the strategy or
of that thrust
To use stop/go assessments linked to a series
of meaningful thresholds( time, costs, R&D,
 MILESTONE REVIEWS;

Milestones may be critical events, major resources

allocation or just passage of line.

A milestone review usually involves a full-scale

reassessment of the strategy and the advisability of
continuing or refocusing the direction of the co.
 STRATEGIC SURVEILANCE:
This is designed to monitor a broad range of events
inside and outside the corporation that are likely to
threaten the course of the firm’s strategy.
It is kept unfocused and is a loose “environmental
scanning” activity. Trade/business magazines, trade
conferences, conversations and intended/unintended
observations are all sources of strategic surveillance.
It provides as on-going broad based vigilance in all
daily operations to uncover information that may be
relevant to the firm’s strategy.
 SPECIAL ALERT CONTROL:
This is the need to thoroughly, and often rapidly
reconsider the firm’s basic strategy based on a
hidden, unexpected event.

Many firms have crisis teams to handle these

unforeseen occurrences that have an immediate
effect on the firm’s strategy.
 OPERATIONAL CONTROL
SYSTEMS:
• Operating control systems guide, monitor and evaluate progress
in meeting annual objectives.
• They provide post actions evaluation and control over short time
periods usually from one month to one year.

The four steps involved in any post action control are,

Set standards of performance
Measure actual performance
Identify deviations from standards
Initiate corrective action or adjustments
 The 3 types of operational control systems are:

 Budgets
 Schedules
 Key success factors

Budgets:

 Revenue budgets, capital budgets, expenditure budgets, cash budget

and budgeted b/s.
 Budgetary control involves setting standards and meeting actual.
Acceptable ranges of deviation are set so that corrective actions need
to be taken only if deviations are outside this range.
 Some companies use trigger points for monitoring key success factors
especially. The trigger point level of derivation that management
thinks represents either a major threat or an unusual opportunity.
 If that point is reached, then the management is “triggered” to consider
necessary changes. Some companies prepare in advance contingency
plans to be implemented once predetermined trigger points are
reached.
 REWARD SYSTEMS:
 Motivation for execution and control
 Bonuses linked to profits (but this is essentially short –
term)
 We must also devise plans that reward potential future
performances.
 Incentive systems that reward long- term (strategic) as
well as short-term thinking use strategic budgets.
 Cont…..
 The strategic budget specifies resources and targets for key
programs or activities linked to major initiatives that are
integral to the long-term strategy.
A suitable incentive plan based on strategic budgets
involves the following steps:
I. Measure progress toward strategic targets separately from
results of established operations
II. Determine incentive awards separately for established
operations and for progress towards strategic targets.
III. Devise a long-term, stock option equivalent to encourage
decisions of strategy and entrepreneurial risk taking.
 EVALUATING THE
MULTINATIONAL ENVIRONMENT:
Steps to be taken prior to internationalization:
Scan the international situation
Make connections with academic and research organizations.
Increase the company’s international visibility
Undertake co-operative research projects.
External and internal assessments may be conducted before a
firm enters international markets
External assessment – careful examination of critical
international environmental features such as the host nation’s
economic progress ,political control and nationalism.
Economic progress – expansion of industrial
facilities, BoP, improvements in technological
capabilities.
Multinational strategic planning is more complex
due to the following factors;
The MNC faces multiple political, economic, legal,
social, and cultural environments as well as various
rates of change within each of them.
Interactions between the national and foreign
environments are complex because of national
sovereignty issues and widely differing economic
and social conditions
Communication between HQs and the overseas
affiliates is difficult because of geographical
separation, cultural and national differences
and variations in business practices
MNCs face extreme competition because of
differences in industry structure
MNCs are confronted by various international
organizations that restrict a firm’s selection of
its competitive strategies.
 CONTROL PROBLEMS FOR THE
MULTINATIONAL FIRM
The financial policies of the multinational are typically designed
to meet the goals of the parent company with very little attention
paid to the goal of host country subsidiary. This bias creates
conflict between the different parts of the organization etc.
Different financial environments also pose problems in
disposition of earnings, sources of finance, capital structure etc.
so, the performance of multinational divisions becomes difficult
to measure.
Differences in accounting conventions, attitudes about work
measurement disclosures of information required by govts etc.
make it difficult to adopt consistent approaches to planning for t
the entire organization as also review and evaluation.
MULTINATIONAL STRATEGIC
PLANNING:

 It aids in coordinating and integrating the company’s future

direction, objectives and policies around the world.

 It enables the companies to anticipate and better prepare for

change, deal with worldwide development and greater
involvement of the affiliates.
 MULTIDOMESTIC INDUSTRIES AND
GLOBAL INDUSTRIES:

Multidomestic industry – the competition within the industry

is essentially segmented from country of country. Here
competition occurs independent of competition in other
countries Ex: retailing, insurance, consumer finance.

Thus in a multidomestic industry, the subsidiaries of the MNC

should be managed as distinct entities having autonomy and
the independent decision making authority to respond to local
market conditions.

In a multidomestic industry the international strategy actually

becomes the sum of the strategies developed by subsidiaries
operating in different countries.
 GLOBAL INDUSTRY
The competition within the industry crosses national holders.
A firm’s strategic moves in one country can be significantly
affected by its competitive position in another country. The
competition occurs on a world basis.
Ex: commercial aircraft, automobiles, mainframe computers,
consumer electronics etc.,
In such industries, a multinational firm must link its
subsidiaries together, maximizing its capabilities through a
worldwide strategy.
There is a higher degree of centralized decision making in
corporate HQs so that trade-off decisions across subsidiaries
can be made.
However a MNC operating in a global industry must also be
 MULTINATIONALISATION OF THE
CORPORATE MISSION:
Because multinationalization mandates change in strategic decision
making ,corporate direction, and strategic alternatives, the content of
each mission component must be revised to incorporate multinational
contingencies,.

Each basic component needs to be analyzed in light of specific

consideration that serve to multinationalise the corporate mission

 Product or service market ad technology

 Company goals: survival growth and profitability
 Company philosophy
 Self concept
 Public image
 SELECTION OF A GENERIC STRATAGY

Michael Porter has advocated 3 major Generic Strategies:

 COST LEADERSHIP
Can be sustained only if the firm is able to achieve lower
costs than any of its competitors. It represents the essence of
exploring the experience curve effects.
 PRODUCT DIFFERENTITATION
Attempting to position in a given business in a particular
way that provides a distinct thrust over a firm’s competitors
aimed at achieving a prominence in the overall industry.
 TARGETING
Targeting a particular market segment where the firm can
develop a distinctive strategy.
Strategy is basically aimed at securing a long term
sustainable advantage in a competitive market.
 PORTFOLIO STRATEGY OF INDIAN
COMPANIES
Many Indian companies and business groups
favored a diversified portfolio in the past:
 Being in many businesses was regarded as
providing bases for fast growth and very prestigious.
 A diversified portfolio was believed to spread
business risks and provide stability.
Mr.N.J.Jhaveri, corporate Advisor, referring to
the past diversification strategy of the Birla Group
said: ”Because of the MRTP Act in its original form
and the size of the market, you had to diversify if
you had to grow beyond a particular size”
 Cont…..
The liberalization policy which substantially dismantled the
restrictions on growth, expansion and competition has
dramatically changed the business environment compelling
many companies to change their portfolio. In 1997,Kumar
Mangalam Birla, the young CEO of the AV Birla group was
seriously considering if he should continue in all the
businesses he had inherited or get out of some of them and
refocus on core competencies.
An important trend has been to focus on the core business
and withdraw from the businesses where the company does
not have competitive strength.
Eg: Glaxo India withdraw from Dempo Diary, Hindustan Foods
 Cont…..
ICL sold its fertilizer and PFY business.
Voltas had decided to concentrate on 4 broad categories:
Consumer durables, Industrial Products, Textile
Manufacturing and agro chemicals and to withdraw from the
rest.
Portfolio restructuring, involving divestment, have
become common in India. Some businessmen who sought to
expand their business domain in the past by M&A, later sold
many of them due to various reasons
Modi Xerox has repositioned itself by transforming from a
photocopier company to a document company reflecting the
redefinition of its business.
BPL Videocon etc… have also diversified their portfolios.
 Cont…..

Commercial Banks and Finance companies also

diversified getting into housing finance, Merchant
Banking, Leasing etc...ICICI has entered commercial
banking, retail finance and insurance business.
Following the grant of more autonomy to the
Navarathnas – The 9 PSU’s that are performing well-
BHEL,BPCL,IOC,NTPC,ONGC,IPCL,SAIL and VSNL
have started strategic planning including diversification
of business.
Thus Liberalization has greatly impacted the
portfolio strategies of Indian Companies.
GENERIC COMPETITIVE STRATEGIES

Michael Porter in his landmark book ‘Competitive

strategy’ has identified at the broadest level, 3
internally consistent generic strategies (which can
be used singly or in combination) for creating a
defendable position in the long run and
outperforming competitors in an industry.
 Cont….
The strategy of cost leadership is to become the lowest cost
producer in the industry by:
 Aggressive construction of efficient scale facilities.
 Vigorous pursuit of cost reduction from experience.
 Tight cost and overhead control.
 Avoidance of marginal customer accounts.
 Cost minimization in areas like R&D, Services, Sales force,
advertising and so on.
Porter observes that the low cost firm “has a broad scope and
serves many industry segments, and may even operate in
related industries- the firm’s breadth is often important to its
cost advantage”
Eg: Reliance industries being the low cost producer enables the
firm to defend it against each of the 5 competitive forces.
 RISKS OF COST LEADERSHIP
Other firms may imitate the cost leader so that the cost
leadership is lost.
Technology changes may result in the firm losing its cost
leadership.
Cost focusers may achieve even lower cost in segments.
Competition on bases other than cost may become more
important.
Low cost is the most important competitive advantage
enjoyed by all of India’s 5 companies among the Asia’s top 20
most competitive ones-(Reliance, Ranbaxy, Sundaram
Fasteners, Aravind Mills and Bajaj Auto)
 DIFFERENTIATION STRATEGIES
“A firm seeks to be unique in its industry along some
dimensions that are widely valued by key buyers. It chooses
one or more attributes that many buyers in an industry
perceive as important and uniquely positions itself to meet the
needs. It is rewarded for its uniqueness with a premium price”.
Differentiation Strategy requires:
o Creative Flair
o Engineering skills
o R&D capabilities
o Innovative marketing capabilities
o Motivation for innovation
o Corporate reputation for quality or technical capabilities
 RISKS IN DIFFERENTIATION
STRATEGIES
 Imitation
 If the price difference is too high, then demand will be low.
 Changes in consumer tastes/needs may make the differentiating
factor less significant.
 Differentiation focusers may achieve even greater
differentiations in segments.
Eg: Reliance has successfully leveraged its strengths- its ability to
offer an entire range, a strategic advantage which it enjoys over
the competitors.
That is one of the purpose of vertical integration strategy. It
manufactures several products along the value added chain
like- polymers and chemicals, textiles and ultimately branded
ready mades
Bajaj Auto’s USP is “Value For Money”
 FOCUS STRATEGY
Focus strategy rests on the choice of a narrow competitive
scope within an industry which the focuser can serve better
than the competitors.
Focus may be on a particular consumer segment, a segment of
the product line, a geographic area etc…
2 VARIANTS
 Cost Focus : The firm seeks a cost advantage in its target
segments.
 Differentiation Focus : The firms seeks differentiation in its
target segment.
The entire focus strategy is built around serving a particular
target very well and is able to serve its narrow strategic target
more effectively or efficiently than competitors who are
competing more broadly.
4 ROUTES TO STRATEGIC ADVANTAGE

Kenichi Ohmae in his famous book “The mind of

the Strategist” suggests the following 4 ways of
strengthening a company’s position relative to
that of its competitors:
 Based on KFS
 Based on relative superiority
 Based on aggressive initiative
 Based on strategic degrees of freedom
This strategy's success depends on the
successful deployment of innovations.
EXTERNAL GROWTH STRATEGY
Growth by M&A and JVs/Foreign collaborations
M&A was a strategy employed by several
industrialists like R.P.Goeaka, Vijay mallya for
growth.
R.P.G took over Dunlop, Ceat, Philips, Carbon Black,
GramaPhone India and Harrison Malayalam.
HUL uses M&A as an important growth strategy.
 ADVANTAGES OF EXTERNAL
GROWTH STRATEGY OF M & A
Helps the firm to acquire new technology
The company starts the new business with a certain
market share
Company gets the marketing infrastructure of the
acquired or merged company
No gestation period. Immediate access to the market.
Helps to eliminate or reduce competition
Cost of acquiring an existing older unit may be lesser
than setting up of a new unit.
 DIS ADVANTAGES
Indiscriminate acquisition have landed
several companies in financial and other
problems.
Company’s problems are also taken over
The price paid may be too high- wrong
valuation
Managerial competence may not be
available to manage acquired companies.
 FOREIGN COLLABRATION/JVs
These have become very popular the world over fast replacing M&A
ADVANTAGES
 Up gradation of existing technology/obtain new technology.
 With new technology the firm can enter new business.
 Foreign equity participation enables taking up new large projects.
 Foreign collaboration makes it easier to raise capital
 Gain managerial expertise
 Can help pre- empt competition
 Indian firms can export more.
 Helps improve quality, reduce wastage, improve productivity and
reduce cost.
 DIS ADVANTAGES
Foreign technology supplied may not be latest.
Foreign collaborator may overcharge
Tie up of foreign capital, with technology
prevents Indian companies from opting for
another technology even if this is superior
Foreign technology may not be appropriate
May result in loss of or reduction of management
control by indian companies
 M & A’S IN INDIA
1980’s to 1984 (32 merges and 52
takeovers)
1993 alone… 114 M &A s. it has been
increasing in later years
There is a clear trend towards
mergers. This applies to greenfield
enterprises and acquired firms. Brooke
bond and Lipton were merged in 1993.
Later BBLIL merged into HLLin 1996.
 MANAGEMENT OF M&A
4 IMPORTANT PHASES
Determining the strategic purpose of M&A
Screening, evaluation and choice of
candidates for M&A.
Determination of acquisition strategy
Post acquisition integration
STRATEGIC CONSIDERATIONS
Fit with mission and strategy
Fit with portfolio strategy
Competitive impact (greater market share)
Scale economies and synergy
Pre emptive motive
Comparison with establishment of new unit
Long term financial considerations
Tax shields
Strengthening owner ship control and guarding
against Acquisition
 SCREENING, EVALUATION AND
CHOICE
Screening eliminates some firms that do not fit into the
acquisition strategy. Those which are evaluated.
POST MERGER INTEGRATION
 Procedural Integration
 Physical integration
 Managerial and socio cultural integration
PITFALLS IN M&A
 Over pricing
 Means of financing
 Hidden liabilities
 REGULATION OF TAKE OVERS
The SEBI (Substantial Acquisition of Shares and Take-
overs) Regulations, 1994 were formulated to make the
take-over process transparent and protect the interests
of minority share-holders. Its salient features are:
 Mandatory minimum public offer of 20% purchase is
required when the threshold limit of 10% equity holding
is crossed.
 To facilitate consolidation, those in control (holding not
less than 10% of share) can purchase 2% of shares per
annum upto 51% (creeping acquisition). Any acquisition
of a holding more than 51% must be in a transparent
manner through a public tender offer. The minimum
public offer for purchase in such cases shall be 20%
 Cont….
 Pricing of the offer must be based on
parameters such as the negotiated price,
average of the high and low prices for 26 weeks
periods before the date of public announcement,
highest price paid by the acquirer for any
acquisition during the 26 weeks period before
the date of public announcement, and the price
for preferential offers, if any
 Chain principle has been introduced requiring a
public offer to be made to the share holders of
each company when several companies are
acquired through acquisition of one company
 CRITERIA USED FOR
EVALUTION
Earnings potential
Value of company
Market position
Capital requirements
Condition of plant and machinery,
technology etc
Quality of management team
Human resources
 METHOD OF VALUATION
Valuation based primarily on assets and
liabilities
Valuation based on projected earnings of
the company
Gut feeling
 ACQUISITION STRATEGY
Companies like HCL and Ajay Piramal group have strategic
teams scouting for possible acquisition targets in their
industrial sectors. Once a target is identified, a small
working group is set up that investigates the target from
all angles, stalk it relatively, figure out a bid and carry the
take over process to its logical conclusion.
The team includes – CEO, a senior finance executive, legal
expert, investment/merchant banker with take over
experience and of late media experts also.
Sometimes company gets into lease agreements,
management contracts etc with an intention to take over
at a later date
 GLOBALISATION
A truly global corporation views the entire world as a single market. It
does not differentiate between local and foreign markets.
Globalization encompasses the following :
 Doing, or planning to expand, business globally.
 Giving up distinction between the domestic market and foreign
market and developing a global outlook of business.
 Locating the production and other physical facilities on a
consideration of the business dynamics, irrespective of national
considerations.
 Basing product development and production planning on the global
market considerations.
 Global sourcing of factors of production- raw materials, components,
machinery/technology, finance etc are obtained from the best source
anywhere in the world.
 Global orientation of organisational structure and management
culture.
ARVIND MILLS
RENOVISION AND THE ART OF GLOBAL
DOMINANCE
Source raw materials wherever they are
cheapest.
Manufacture wherever in the world is most cost
effective.
Sell in those global markets where prices are
highest.
Raise finance globally.
Forge international strategic alliances.
To manage all these, take on the best talent
from all over the world.
 STAGES OF GLOBALIZATION
Exporting
JVs/Subsidiaries
International firm
Multinational firm
Global corporation
COMPETTITIVE ADVANTAGE OF NATIONS
Michael Porter, in his book “Competitive Advantage of
Nations” says that the achievement of international success
by a nation in a particular industry depends on 4 factors.
 Factor conditions
 Demand conditions
 Related and supporting industries
 Firm strategy, structure and rivalry
 THE NATIONAL DIAMOND
Firm strategy,
Structure & rivalry

Factor Conditions Demand conditions

Related & supporting

industries
 FACTOR CONDITIONS
Competitive advantage from factors depends on how effectively
and efficiently they are employed.
 Advanced Factors
Modern digital data and communication, infrastructure,
highly educated personnel and research institutes in various
disciplines
 Specialized Factors
Infrastructure with specific properties, Skilled Personnel,
knowledge base in particular field
These are more important than basic factors (natural resources,
climate, location, unskilled and semi skilled labors and debt
capital) and Generalised factors (highway system, supply of
debt capital or a pool of well motivated educated employees)
 DEMAND CONDITIONS

3 attributes of home demand influence the competitive

advantage
 Composition (nature of buyer needs)
 Size and pattern of growth
 Mechanisms by which a nation’s domestic demands
are transmitted to foreign markets.
 RELATED AND SUPPORTING
INDUSTRIES
They can offer advantages like supply of the
most cost effective inputs in an efficient
and preferential manner and also in terms
of innovation and upgrading based on
close working relationships.
FIRM STRATEGY, STRUCTURE AND
RIVALRY
Domestic rivalry is the most important of all the points on
the diamond because it has a powerful stimulating effect
on all others.

In additional to the above 4 determinants that shape

competitive advantages of nations, govt. and chance
also play important roles.
GLOBALIZATION OF INDIAN BUSINESS
Since the new economic policy published in 1991, many
Indian firms are expanding their overseas business by
different strategies and globalization has become a buzz
word.
OBSTACLES TO GLOBALIZATION
Govt. policy and procedures
High cost
Poor infrastructure
Obsolescence
Poor quality image
Supply problem
Small size
Lack of experience
Limited R&D and marketing research
Trade barriers
Growing competition
FACTORS FAVOURING GLOBALIZATION

Human resources
Wide base
Growing entrepreneurship
Growing domestic market
Niche markets
Expanding markets
NRIs
Competition
Economic liberalization
 EVALUATING THE MULTINATIONAL
ENVIRONMENT
4 Steps to be taken prior to internationalization
 Scan the international situation
 Make connections with Academic and research
organizations
 Increase the company’s international visibility
 Undertake co-operative research projects
External and internal assessments may be conducted
before a firm enters a international market.
EXTERNAL ASSESSMENT : careful examination of critical
international environmental features such as the host
nation’s economic progress, political control and
nationalism.
 Multinational strategic planning is more
complex due to:
The MNC faces multiple political, economic,
legal, social and cultural environments as well
as various rates of change within each of them.
Interaction between the national and the foreign
environments are complex
Communication between head office and the
overseas affiliates is difficult.
MNCs face extreme competition
MNCs are confronted by various international
organizations that restrict a firm’s selection of its
competitive strategies.
MULTINATIONAL STRATEGIC PLANNING

Aids in coordinating and integrating the

company’s future direction, objectives and
policies around the world. It enables the
company to anticipate and better prepare
for change, deal with world wide
development and greater involvement of
the affiliates.
 Multidomestic Industry
Competition within the industry is essentially
segmented from country to country ,competition
occurs independent of competition in other
countries.
Ex: Retailing, Insurance, consumer finance.
In a multidomestic industry, the subsidiaries of the
MNC must be managed as distinct entities
having the autonomy and the decision making
authority to respond to local market conditions.
The international strategy becomes the sum of
strategies developed by subsidiaries operating
in different countries.
 Global Industry

Competition within the industry crosses

national borders. Competition occurs on a
world basis
Ex: Commercial aircraft, automobiles, main
frame computers…..
Multinationalization of the corporate Mission

The content of each mission component must be

revised to incorporate multinational
contingencies. Each basic component needs to
be analysed in light of specific considerations
that serve to multinationalise the corporate
mission.
 Product or service, market and technology
 Company goals
 Company philosophy
 Self concept
 Public image
 COLLABORATION STRATEGIES

EXPORTING
3 strategies to increase export earnings:
 Increase the average unit value realization
 Increase the quantity of exports
 Export new products
Market niching is the right strategy for many Indian
companies ey.They have successfully used this
strategy in the foreign markets.
 Cont….
FOREIGN INVESTMENT
Foreign investment by Indian companies
has so far been very limited. But with
economic liberalization and growing global
orientation many Indian companies are
setting up manufacturing /assembling /
trading bases abroad, either wholly or in
partnership with foreign firms.
 Cont….
M&A
These are very important market entry as
well as growth strategies. It has several
advantages- Acquiring new technology,
reducing competition, instant access to
markets and distribution network.
 Cont….
JVs
Used by many large firms- Ranbaxy, Core,
Lipton etc… Essar Gujarat has JVs in
Indonesia and Bangladesh to manufacture
cold rolled steel providing an assured
market for its HR steel from mother plant
at Hazira
STRATEGIC ALLIANCE
LICENSING AND PACKAGING
 FACTORS THAT DRIVE
GLOBAL COMPANIES
Global Management Team
Global Strategy
Global operations and products
Global technology and R&D
Global Financing
Global Markrting
 THE SBUs OF HLL ARE

Soaps and detergents, personal products,

fats items ,animal feeds, beverages,
frozen foods, chemicals, agribusiness and
exports.
Conditions under which firms adopt
different generic strategies
Stability strategy
Firms prefer stability strategy under the following conditions or
circumstances.
o When the firm’s assessment indicates that it enjoys a comfortable
position in its present business, that an acceptable level of income
and profits would be forthcoming by staying with the present
business and that its future well being too, would be ensured by
staying with the present business.
o When the firm’s growth ambition are very modest and the firm is
content with incremental growth
o When the industry concerned is mature and the firm is currently in a
comfortable position in the industry.
o When environmental turbulence is minimal and the firm does not
foresee any major threat to itself and the industry concerned as a
whole.
 Cont….
o In general, small firms find it a useful strategy,
as by relying on it, they can reduce their risks
and protect their hard earned positions
o ‘Nichers’, too, may prefer the strategy in most
cases
o Big firms with a large basket of businesses do
not usually depend on the stability strategy as
the main recourse, though they may use under
certain special circumstances. They may also
use it in combination with the other generic
strategies, adopting stability for some business
while pursuing expansion for the others.
 Cont….
o In some cases, firms may use stability strategy
for an interregnum, and change over to other
alternatives there after.
o Often after a spell of rapid growth or
diversification, firms turn to stability strategy as a
means of consolidation before attempting further
expansion.
o Businesses that have just come through turmoil
also usually find stability as the appropriate
stratagy.
 Cont….
EXPANSION STRATEGY
Firms opt for expansion strategy under the
following conditions.
 When the corporate ambitions and objectives
are high and keep raising, i.e when the firm
desires continuous and big growth in assets,
income and profits, expansion becomes the
choice; stability cannot be the route in such case
 When enormous new opportunities are coming
up in the environment and firm is ready and
willing to expand its business scope, it pursues
the expansion strategy
 Cont….
 For fighting competition in a growing business, firms find
expansion through intensification the inevitable route.
The sheer size translates into superior clout relative to
competition.
 When a firm which is a leader or an aggressive
contender in its industry wants to protect its position, it
has to constantly resort to expansion through
intensification; if it stops expanding it may cease to be
the leader.
 To counter the vulnerability of a single business position
or the limitations arising out of PLC of existing
businesses, when they show signs of levelling off,
expansion through diversification may be the option.
 Cont….
 Expansion strategy is chosen by firms when their
industries are volatile. Substantive growth would be
needed to ward off shocks that might arise in such
industries.
 Diversification would be especially useful to firms that
are eager to achieve rapid and big growth; this is quite
natural since diversification involves exploitation of new
opportunities emerging in businesses that are outside
the current field of the firm.
 When the firm has surplus strengths and resources
beyond the requirements of existing businesses it may
find it sensible to intensify using these strengths and
resources
 Cont….
When the environment, especially the
regulatory scenario blocks the growth firm
in its existing businesses, it turns to
diversification for meeting its growth
needs.
When the firm has in its possession the
advantage of synergy for successfully
tapping certain additional opportunities
,opts for intensification.
 Cont….
DIVESTMENT STRATEGY
 A firm considers divestment strategy when it finds that some of its
businesses, have become unattractive, unprofitable and unviable.
 Obsolescence of product/ process can be another setting for divestment.
 High competition can be another setting; firms that are unable to compete
successfully, whatever the reason, may consider divestment.
 When the industry as a whole is in dire straits, firms may consider
divestment ,industry over capacity can be one of the settings in this
category.
 When a business is in the decline stage of the PLC, more attempts at
divestment are usually seen.
 When a firm perceives some environmental threats, it sometimes turns
towards divestment strategy. As a general rule, in times of environmental
flux more moves are seen on divestment.
 In some cases a firm may decide as a matter of policy that it should not be
present in business es where it is not the major player holding the no.1 or
no.2 position.
 When firms see attractive opportunity in some business while its resources
are locked up in certain unprofitable businesses
 Cont….
COMBINATION STRATEGY
Firms turn to combination strategy when
they have to grapple with several
businesses and when no single strategy
can meet the requirements of all these
businesses.
 CORE COMPETENCE
In order to keep succeeding a firm must process some
enduring strength which cannot be easily imitated by the
competitors. Only firms that enjoy such strength which is
very fundamental and unique to the firm, keep winning in
an enduring manner. Such a strength is referred to as
core competence of the firm. It is the fountain head from
which stronger competitive advantages keep spreading.
It is a competency that lies at the root of the business of
the firm. It would be the exclusive preserve of the firm or
it is available in a substantially larger measure to the firm
compared to its competitors. Such a preserve of strength
is core competences.
According to C.k Prahalad the attributes of core
competence are as follows:
# It is a fundamental, unique and inimitable
strength of the firm that
* Provides the firm the access to large variety of
products and markets.
* contributes significantly to customer benefit in
end products.
* is the exclusive preserve of the firm and can’t
be easily imitated by the competitors
# it is largely a technological competence, a
competence at the root technology In particular.
# corporations that enjoy core competence in
the root technology or process expertise keep
gaining lasting advantage, through new products
and high value increment.
# for firms which are keen to play the business
game the product route, core competency is
particularly essential
 # often, command strength over multiple
streams of inter related and over arching
technologies.
Example
Philips – optical media expertise
ITT – electronics
HOW DO FIRMS ACQUIRE CORE
COMPETENCE
Invest heavily in technology and R&D
Develop the human expertise that would use the
technologies as building blocks and work on them.
In – house man ufacture of core products facilitates
acquiring core competence.
Focus – one or two core skills, the company should
develop.
Building a core competence is a conscious and long
term process
For Indian firms, building core competence is the prime
challenge now
 BENCH MARKING
Bench marking is the process of improving
one’s performance by locating benchmarks or
standards and replicating them in one’s own
organization. Analyzing the competitors and
locating the best practices within the given
industry is the prime task involved in bench
marking. Many companies go a step further and
try the best practices across industries, across
countries, gathering higher standards for
imitation and adopting them as the bench mark
to be attained and excelled
 FOUR TYPES OF
BENCHMARKING
INTERNAL
FUNCTIONAL
COMPETITIVE
GENERIC
 VALUE CHAIN
value chain approach can be of great use
in identifying and building competitive
advantage. Analyzing competitors’ value
chain gives useful clues. The modern view
is that, the concept of value chain should
be enlarged so as to cover activities
occuring outside the boundaries of the
firm.
THE MARKET-BOOK VALUE(M/B)
MODEL
The M/B model is the blend of two different
perceptive of the firm, in the numerator the
market value of the firms, shares gives the
investors perceptive and the denominator,
the book value of the firms shares
provides the accountant perceptive.
M/B ratio = expected future payments/ past
resources committed
 If M/B>1: there is a excess return
If M/B=1: there is a fare return
If M/B<1: return is below the bench mark of the market.
The essence of this model is to capture the market
reactions to managerial decisions in a way consistent
with NPV calculations.
The M/B model in its basis form, assumes a firm is in a
situation of stationary growth.
M/B = ROE – g/ kE-g
Thus the firm creates value, only ROE > kE.
M/B model With Stationary growth
over a Finite Horizon
M/B = ROE- g/ kE –g {1-[1+g/1=kE]^n} +
{1+g/1=kE^n}
 STAKE HOLDERS
The modern concept of world class organizations
is that, stake holders are those individuals or
groups, who depend on the organization to fulfill
their own goals and on whom, in turn the
organization depends. In addition to the
shareholders, other stake holders are the
funding organization, the suppliers, the buyers,
the employees, the union of the organization
and the community. All these categories have
stakes in the well being of the organization
Corporate governance has wide ramification and
extends beyond good corporate performance
and financial propriety. The complexity of
corporate governance arises from two main
reasons:
In most countries, there is no separation
between ownership and management control of
the organization
Increasing tendency to make organization more
visibly accountable not only to the owners, but
also to the stake holders groups.
Corporate governance issues have attracted
considerable attraction and debate, and
research world wide, in recent times.
Internationally, corporate governance
norms have been initiated through a
judicious mix of three available routes-
legislation, regulation and self discipline. A
world class, corporate governance system
is where values are as important as rules.
 CORPORATE SOCIAL
RESPONSIBILTY (CSR)
It has a more external focus. CSR is a
legal requirement, there fore, it is the
strategy of the organizations to adopt CSR
because they perceive that it enhances
the long term values of its assets and adds
to stakeholders’ confidence.
 VALUE CHAIN ANALYSIS
 VALUE ANALYSIS
the basic approach is to look at the value and
cost of each product, service and process and
check back whether it is delivering good value
for money being spent on it.
value index (VI) = value/cost = worth/cost =
utility/cost = functions/cost
if VI < 1- not good value for money
VI= 1- Just right value for the money
VI >1- good value for money
COST AND VALUE DRIVERS
Every organization has to take two central strategic
decisions namely
 Which strategic areas will drive the business concept and
impart direction to it?
 What area of excellence it should cultivate to keep the strategy
in good shape?
It has to identify the value drivers which must be sharpened and
enhanced and look for areas which are adding costs more than
what can be justified as their value adding capability, from the
customer point of view.
It is useful to look at the entire value chain within organization and
classify the activities into 3 categories:
• Real value adding
• No value adding
• Business value adding
NVA are cost drivers and should be eliminated
BVA cannot be brought down, so must be
brought down to an irreducible minimum
RVA’s should be performed better by further
sharpening the skills
In strategy planning and management, we identify
value drivers so as to invest further in them and
increase our capabilities and competencies in
performing these activities.
 TOTAL VALUE CHAIN

SUPPLIERS FIRM WHOLESALERS RETAILERS

The capability of an individual firm to deliver value is very much

dependent upon its vendors/suppliers, wholesalers and
retailers/dealers.
 MANAGEMENT OF VALUE CHAIN

In recent years, considerable thought and

effort has been devoted to the challenges
of delivering higher and higher value to the
customer. Mathematically,
Value = Quality * service/time * cost
Therefore management of value chain,
involves four aspects
 TIME MANAGEMENT
i. Reduction in lead time
-in design
-in engineering
-in procurement
- in conversion
 Reduction in time to market
-from concept to delivery
-from order booking to delivery
iii. Faster responses
-to changes in market forces
-to seniors, peers and subordinates.
 COST MANAGEMENT

Strategies for reduction in costs in the

following areas:
-design and engineering
-procurement of materials and inventory
-conversion
-quality assurance
-outbound logistics and distribution
-general sales and administration
 QUALITY MANAGEMENT
Customer focus:
-meeting customers requirements
-surprising customers by exceeding their expectation
-caring for the customers
Functional performance:
-appropriate fitness for use
-closer integration with customer operations
-anticipating customers future needs and desires
Reducing process variability:
-Robust designs
-Six sigma techniques
Elimination of waste:
-JIT
-cleaner technologies to reduce pollution
Continuous improvement (KAIZEN):
-in products
-in process
-in procedures
-in policies
 SERVICE MANAGEMENT

-customer support
-product support
-product service
-flexibility in meeting customer demand
-flexibility in meeting changes in the
market
“never promise more than you can deliver;
and then deliver more than you promised.”
 THE SMART FORMULA
The smart formula is a useful method of examining
objectives :
Specific : clearly states what we want to
do/achieve by way of factual description
Measurable : Ensure that the success of your
business objective can be measured against
concrete criteria
Achievable : Is the objective achievable given your
current operational resources and/or
competence/capacity
Realistic : Is the scope of the objective within the
bounds of what is recognisable as a proper
“business fit”
Timely : Include a time scale within which the
objectives should be achieved
 CORPORATE GOVERANCE
The system by which companies are directed and controlled.
It decides whom should be the organisations be there to
secure, and hoe the directions and purposes of the
organisations should be determined .
Corporate governance helps determine the choices the
organisations makes for society and how it ensures that the
choices are faithfully implemented
In today’s world, innovating by continually creating and re-
inventing new markets ,products, services, business models
and original. capabilities are critical for any business
organisations achieve this goal by using classic entreprenurial
capabilities – including a visionary outlook and ability to see
possibilities where others don’t, a passion and drive, problem
solving skills, and confidence about risk taking to continously
re invest the organisations. That’s the role and CG- it leads
the leaders.
 STRATEGIC INTENT
Forming the strategic vision and mission and setting
objectives
Vision, mission, and value statements reflect the
strategic intent of the organisations
Strategic intent is the basis on which the
organisations provide products and services for
consumers, profits for investors, jobs for employees,
taxes for govt,and economic benefits for the society
The goals identified through the strategic intent of
the organisation for the benefit of the stakeholders.
These choices collectively set apart the organization
from others.
 KEY RESULT AREAS (KRAS)
These are sometimes called operational objectives.
They are normally short term objectives that have a
horizon of one to two years, and if necessary, are
renewed from time to time.
These are areas where performance is essential for
the ongoing success of the organisations.
Companies whose managements set objectives for
each KRA, and then aggressively pursue action to
achieve their performance targets, typically out
perform companies whose managers have good
intentions, try hard and hope for success.
 THE BALANCED SCORECARD
Strategic management is a disciplined process that requires both top-down
support and bottom-up participation. For most lower-level employees,
financial performance measures are generally too aggregated and too far
removed from their actions to provide useful guidance of feedback on their
decision. Management needs measures that more directly and accurately
relate to outcomes that they can influence.
The balanced scorecard (BSC) Most beyond rational of income, cash flow
and financial ratios. It adds process performance measurements around
issues like continues improvement, supply chain management and
customer satisfaction. BSC offers two significant improvement over
traditional financial or event non financial measures of performance. It
identifies for related core process that are critical to nearly all organization
and all level with in the organizations:
 Learning and growth capability
 Efficiency of internal process
 Customer value
 Financial return
 Cont….
There is emphasis on leading indicators of future
performance in all four areas, along with the
tracking of past performance, which are often
stated in financial terms. While informative but
not controllable performance measures may be
important, positive motivation requires some
measures should reflect mangers action. For eg,
relative performance evaluation ( eg. Across
similar business unit), which can identify
“influencable” but not completely controllable
outcomes, is an important component