BUSINESS STRATEGY AND POLICY

MODULE - 1
Conceptual Framework of Policy and Strategy

Without a strategy, an organization is like a ship without a rudder, going around in circles. Its like a tramp ; its has no place to go
- Peter Drucker

STRATEGY S T RA T E G Y .

What Is Strategy? Strategy is an overriding goal to achieve superior performance .

‡ Management¶s ³game plan´ to ± Attract and please customers ± Stake out a market position ± Compete successfully ± Grow the business ± Achieve targeted objectives .What Is Strategic Management? ‡ A well thought out systematic plan of action to defend and to defeat competitors.

How will we get there? ± A company s answer to how will we get there? is its strategy . Where do we want to go? ± Business to be in and market positions to stake out ± Buyer needs and groups to serve ± Outcomes to achieve 3. Where are we now? 2.Thinking Strategically: The Three Big Strategic Questions 1.

LEVELS/TYPES AND STAGES OF STRATEGY .

Levels of strategy ‡ Corporate ‡ Business ‡ Functional Business1 Corporate Business 2 Business3 F1 F2 F3 F4 .

Hierarchy of Strategy Corporate Strategy Business Strategy Functional Strategy Prentice Hall. 2004 Chapter 1 Wheelen/Hunger 10 .

quality. innovation and customer responsiveness.Functional Level Strategy They are directed towards improving the efficiency of basic operations within a company by attaining a companywide efficiency. .

.Business Level Strategy It refers to a plan of action that strategic managers adopt to use a companies resources and distinctive competencies to gain competitive advantage over its rivals in a market or industry.

Customers: Their Relationship to Business-Level Strategies Who will be served? Key Issues in BusinessBusiness-level Strategy What needs will be satisfied? How will those needs be satisfied? .

Who: Determining the Customers to Serve All Customers Consumer Markets Industrial Markets .

regional.Basis for Segmentation Consumer Markets Demographic factors (age. and light users) Perceptual factors (benefit segmentation. perceptual mapping) Industrial Markets Product segments (based on technological differences or production economics) Geographic segments (defined by boundaries between countries or by regional differences within them) . etc.) Socioeconomic factors (social class. personality traits) Consumption patterns (heavy. income. stage in the family life cycle) Geographic factors (cultural. sex. and national differences) Psychological factors (lifestyle. moderate.

‡ Customer needs are neither right nor wrong. ‡ Customer needs represent desires in terms of features and performance capabilities. good nor bad. .What: Determining Which Customer Needs to Satisfy ‡ Customer needs are related to a product¶s benefits and features.

‡ Only firms with capacity to continuously improve.How: Determining Core Competencies Necessary to Satisfy Customer Needs ‡ Firms use core competencies to implement value creating strategies that satisfy customers¶ needs. . innovate and upgrade their competencies can expect to meet and/or exceed customer expectations across time.

GENERIC BUSINESS LEVEL STRATEGIES Lower Cost Offers to many Kinds of Cost Leadership customers Offers to one Group of Cost Focus customers Uniqueness Differentiation Differentiation Focus .

Examples Strive to be the industry s low-cost provider ± Wal-Mart Outcompete rivals on a key differentiating feature ± Rolex Top-of-the-line prestige ± Mercedes-Benz Engineering design and performance Focus on a narrow market niche ± eBay Online auctions ± Starbucks Premium coffees and coffee drinks .

Place the following restaurants onto the Generic Strategies matrix. ‡ Chick King (lesser known chicken restaurant). ‡ McDonalds (Global Brand). Consider the global market for restaurants.. ‡ Burger King (global brand).Eg. ‡ Subway (growing 'sub' sandwich brand). ‡ KFC (global brand). .

Answer Lower Cost Offers to many Kinds of customers Offers to one Group of customers Uniqueness McDonalds KFC Burger King Subway Chick King .

.SBU It is an operating unit that groups a distinct set of products/services. which are sold to a set of customers and facing a defined set of competitors.

corporate strategy answers the questions of "which businesses should we be in?" and "how does being in these businesses create synergy and/or add to the competitive advantage of the corporation as a whole?" .Corporate Level Strategy It is concerned with the overall purpose and scope of the business.

BCG MATRIX Market Share HIGH HIGH LOW STARS QUESTION MARKS ?? Market Growth CASH COWS DOGS LOW .

high market share) ± Stars are using large amounts of cash.THE FOUR SEGMENTS OF THE BCG MATRIX Placing products in the BCG matrix provides 4 categories in a portfolio of a company: Stars (high growth. Therefore they should also generate large amounts of cash. Stars are leaders in the business. ± They generate large cash flows internally as they have  Low cost advantage  Economies of scale  They can meet their investment by their internal cash flows .

reinvestment opportunities are low. Because of the low growth. . ± The surplus amount generated by Cash Cows are often used to invest in emerging stars.Cash Cows (low growth. invest in question marks (which can be groomed as future stars). high market share) ± Profits and cash generation are high.

± Dogs must deliver cash. low market share) ± Avoid and minimize the number of Dogs in a company.Dogs (low growth. otherwise they must be liquidated. ± Watch out for expensive rescue plans . .

because they have high cash demands and generate low returns. ± If the market share remains unchanged. or invest nothing and generate any cash that you can.Question Marks (high growth. because of their low market share. Question Marks will simply absorb great amounts of cash. ± Either invest heavily. Increase market share or deliver cash. or sell off. low market share) ± Question Marks have the worst cash characteristics of all. .

Stages in strategic management ‡ Formulation ‡ Implementation ‡ Evaluation .

. objectives. and formulating strategies.Formulation Strategy formulation is the process of establishing the organization's mission.

evaluating the efficiency of the process and making adjustments to the process as necessary. comparing to benchmarks and best practices. . This includes monitoring results.Implementation It involves managing the process.

it's extremely important to conduct a SWOT Analysis.Evaluation To measure the effectiveness of the organizational strategy. Strategic options are evaluated against three key success criteria: ‡ Suitability (would it work?) ‡ Feasibility (can it be made to work?) ‡ Acceptability (will they work it?) .

Why is Strategy Important?  It lends a Methodology and framework  Provide route map to a firm  Ensure speedy decision & direction  Hedge against uncertainty  To understand the external trends in advance  To Ensure the best utilization of resources .