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CONCEPT OF STRATEGY

&
STRATEGIC MANAGEMENT
STRATEGY
• GREEK WORD STRATEGOS – Science of guiding & Directing

• COMPLEX PROCESS OF DETERMINING LONG TERM GOALS &


COURSE OF ACTIONS NEEDED TO BE CARRIED OUT,
ALLOCATION OF RESOURCES FOR CARRYING OUT THESE GOALS.
MOVING FROM WHERE YOU ARE TO WHERE YOU WANT TO BE IN
NEAR FUTURE THROUGH A SERIES OF DECISIONS AND ACTIONS.

• PRE DETERMINED COURCE OF ACTION

• HAS DEFINITE DIRECTION

• COMPETITIVE ADVANTAGE: Delivering superior value to target customer


at the same cost or delivering equal customer value at lower cost relative to
your competitor, on a continuing basis.
Simply…
• Strategy means putting things in place
carefully, and with a great deal of thought.
It is the opposite of just waiting for things
to happen.
What is Strategy?

• Large-scale, future-oriented plan for


interacting with the competitive
environment to achieve objectives
• Company’s “game plan”
• Framework for managerial decisions
Strategic Decision Making
• Decision making process
• Focused on achieving Goals and
objectives
• Decision making for strategic task
• Difficult, Complicated and dynamic
Process
Dimensions of Strategic Decisions

• Strategic issues
• Require top-management decisions
• Require large amounts of the firm’s resources
• Often affect the firm’s long-term prosperity
• Are future oriented
• Usually have multifunctional or multibusiness
consequences
• Require considering the firm’s external
environment
STRATEGIC DECISION MAKING
–ISSUES
• SETTING REALISTIC GOALS: Challenging but achievable

• RATIONALITY: Exercising best choice among alternatives

• CREATIVITY: Decision creative and original through brainstorming

• VARIABILITY : Every situation is unique

• DEMOGAFIC FACTORS: Age. Education, Intelligence, Values


Cognition. risk taking and creativity

• GROUP DECISION MAKING: Participation


Levels at which Strategy operates
• For many companies, a single strategy is
not enough.
• There is a need for multiple strategies at
different levels.
• Many companies are organized on the
basis of operating divisions.
• These divisions are known as “Strategic
business units” or profit centers.
Strategy at different levels

Corporate office

SBU SBU SBU


A B C

Finance Marketing Operations Personnel


Strategy at different levels.
• Corporate office : Corporate strategies.

• S B U’s : Business level strategies.

• Functional : Functional level strategies.


Corporate level strategies.
• It is a plan of action, covering the various
functions performed by different SBU’s.

• The plan deals with the objectives of the


company, allocation of resources and
coordination of the S B U’s for optimal
performance.
SBU Level strategy.
• SBU strategies is a comprehensive plan
providing objectives for SBU’s, allocation
of resources among functional areas, and
coordination between them for making an
optimal contribution to the achievement of
corporate level objectives.
Functional Strategies
• Functional level strategies deal with a
relatively restricted plan providing
objectives for a specific function, allocation
of resources among different operations
within that functional area, and
coordination between them for optimal
contribution to the achievement of SBU
and corporate level objectives.
Other strategy levels
• Societal strategies: These strategies are
at a level higher than the Corporate level.
• Based on the mission statement a societal
strategy is a generalized view of how the
corporation relates itself to society in
terms of a particular need or a set of
needs that it strives to fulfill.
Other strategy levels.
• Some strategies are also needed to be set
at lower levels, one step below the
functional level. – Operating level strategy
• E.g. A functional strategy at the marketing
level could be sub divided into sales,
distribution, pricing, product and
advertising.
HIERARCHY OF STRATEGY

CORPORATE STRATEGY

BUSINESS STRATEGY

FUNCTIONAL
STRATEGY
Mintzberg's 5 Ps for Strategy
• The word "strategy" has been used implicitly in
different ways even if it has traditionally been
defined in only one. Mintzberg provides five
definitions of strategy:
• Plan
• Ploy
• Pattern
• Position
• Perspective.
Some Useful
Some Useful Definitions
Definitions of
of
Strategy
Strategy
❶ Strategy as the determinant of the long-
term goals of the enterprise. - Chandler
❷ Strategy as the pattern of objectives,
purposes, or goals and plans for achieving
these goals. - Andrews
❸ Strategy as the common thread among a
firm’s activities. - Ansoff
The Five
The Five P’s
P’s
Plan
The Five
The Five P’s
P’s

Plan Ploy
The Five
The Five P’s
P’s

Plan Ploy

Pattern
The Five
The Five P’s
P’s

Plan Ploy

Pattern
Position
The Five
The Five P’s
P’s

Plan Ploy

Perspective Pattern
Position
Plan

• Strategy is a plan - some sort of consciously


intended course of action, a guideline (or set of
guidelines) to deal with a situation. By this
definition strategies have two essential
characteristics: they are made in advance of
the actions to which they apply, and they are
developed consciously and purposefully.
Ploy
• As plan, a strategy can be a ploy too, really just
a specific manoeuvre intended to outwit an
opponent or competitor.
Pattern
• If strategies can be intended (whether as
general plans or specific ploys), they can also
be realized. In other words, defining strategy as
plan is not sufficient; we also need a definition
that encompasses the resulting behavior:
Strategy is a pattern - specifically, a pattern in a
stream of actions. Strategy is consistency in
behavior, whether or not intended. The
definitions of strategy as plan and pattern can
be quite independent of one another: plans
may go unrealized, while patterns may appear
without preconception.
Position
• Strategy is a position - specifically a mean of
locating an organization in an "environment".
By this definition strategy becomes the
mediating force, or "match", between
organization and environment, that is, between
the internal and the external context.
Perspective
• Strategy is a perspective - its content consisting
not just of a chosen position, but of an
ingrained way of perceiving the world. Strategy
in this respect is to the organisation what
personality is to the individual. What is of key
importance is that strategy is a perspective
shared by members of an organisation, through
their intentions and / or by their actions.
What is Strategic Management?

The set of decisions and actions that result


in the formulation and implementation of
plans designed to achieve a company’s
objectives.
STRATEGIC MANAGEMENT PROCESS
ESTABLISHMENT OF VISION & MISSION statements, Business Definition
STRAT. INTENTS Adopting Business Model, Setting Goals & Objectives

Environmental Scanning and internal analysis, Conducting


FORMULATION OF SWOT, Formulating CORPORATE & BUSINESS LEVEL
STATEGIES Strategies, Strategic Analysis, Strategic Choice, Strategic
Plan.

IMPLEMENTATION Activating Strategies, Designing Structure, Systems&


OFSTRATEGIES Processes, Behavioral & Functional implementation
And Operationalising strategies

REVIEW,EVALUATION
Performing Strategic Evaluation, Exercising Strategic
CONTROL Control and Reformulating Strategies
Strategic Management Process
1)Establishing the hierarchy of strategic
intent:
• Creating and communicating a vision.
• Designing a mission statement.
• Defining the business.
• Setting objectives.
Strategic management process
2) Formulation of strategies:
• Performing environmental appraisal.
• Doing organizational appraisal.
• Considering corporate level strategies.
• Considering business level strategies.
• Strategic analysis.
• Formulating strategies.
• Preparing strategic plan.
Strategic management process.
3) Implementation of strategies:
• Activating strategies.
• Designing structures and systems.
• Managing behavioral implementation.
• Managing functional implementation.
• Operationalizing strategies.
Strategic management process
4) Performing strategic evaluation and
control:

• Performing strategic evaluation.


• Exercising strategic control.
• Reformulating strategies.
Strategists and their role in
Strategic Management.
• Strategists are individuals or groups who
are primarily involved in the formulation,
implementation and evaluation of strategy.
• So all managers are strategists in a limited
sense.
• Persons outside the organization are also
involved in strategic management. They
are also strategists – Consultants.
Various strategists
• Board of Directors: Is responsible for the
governance of the organization.
• As directors, the members of the board
are responsible for providing guidance
and establishing the directives according
to which the managers of the organization
can operate.
Various strategists.
• The Chief Executive Officer: Is the most
important strategist who is responsible for
all the aspects of strategic management,
right from formulation to the evaluation of
strategy.
• He plays a very important role in strategic
decision making.
Various strategists
• Entrepreneurs: are persons who always
searches for change, responds to it and
exploits it as an opportunity.
• They play a very important and a proactive
role in strategic management. They
provide a sense of direction to the
organization and set objectives and
formulate strategies to achieve them.
Various strategists
• Senior Management: When assigned with
specific responsibilities senior managers look
after modernization, technology up gradation,
diversification and expansion, plan
implementation and new product development.
• Senior managers perform a variety of roles by
assisting the board and the CEO in formulation,
implementation and evaluation of strategies.
Various strategists
• SBU level executives: The idea for
organizing to SBU is to manage a
diversified company as a portfolio of
businesses.
• SBU level heads are also known as profit
center heads are considered as CEO’s of
a defined business unit for the purpose of
strategic management.
Various strategists
• Consultants: The main advantage of hiring
consultants is getting unbiased and
objective opinion from a knowledgeable
outsider and availability of specialist’s
skills.
• Some Consulting co’s are, Mc Kinsey and
company, Accenture, AF Ferguson,
KPMG, Boston consulting, S B Billimoria
etc.
Hierarchy of

STRATEGIC INTENT
STRATEGIC INTENT

• To achieve success, organizations have to primarily


focus on hierarchy of strategic intents – Vision, Mission, Business Definition,
Goals and Objectives

• ASPIRATIONS of the company – can be out of proportion to their resources.

• Framework within which organization operate and adopt a predetermined


direction

• Where it want to go and what organization stands for.

• Purposes the organizations strive for.


CONCEPT OF STRETCH,LEVERAGE
& FIT
STRETCH : Misfit between Resources & Aspirations

LEVERAGE : Refers to concentrating, accumulating,


conserving. contemplating and utilizing precious &
scarce resources in such a manner that these are
stretched to meet the aspirations of a company.

FIT : Positioning the firm by matching its organizational


resources to its environment.
VISION

• Future aspirations that lead to an inspiration


• Basic & at the top of hierarchy of strategic
intents
• Is what a person or an organization would
ultimately like to attain in the near future.
• A vision is generally more dreamt than it is
articulated
• By its nature it may be as good as a dream, yet
it is a powerful motivator for actions.
GOOD VISION STATEMENTS
• Inspiring & exhilarating
• Help in the creation of a common identity and a shared
sense of purpose.
• Competitive, original and unique.
• Make sense as these are practical.
• Foster risk- taking and experimentation.
• Foster long term thinking.
• Truly genuine, represent integrity and are meant to
benefit stakeholders.
ENVISIONING PROCESS

A Well conceived vision has 2 major


components

1. Core Ideology : Defines enduring character of


an organization that remains unchangeable . It
rests on core values & core purposes.

2. Envisioned Future : A long term, time bound


goal and vivid description of achievements
WHAT A VISION SHOULD AND SHOULDN’T BE
• A VISION SHOULD BE:
- An organization charter of core values & principles
- The ultimate source of our priorities, plans and goals
- A puller into the future
- A reflection of what makes an organization unique
- Inspire & motivate

A VISION SHOULD NOT BE:


- A ‘ high concept statement’ or an advertising slogan
- A history of proud past
- A soft business issue
- Passionless
A FEW VISION STATEMENTS
VISION OF CANARA BANK
To emerge as the best bank in customer service,
profitability , productivity and innovations.

VISION OF IOC
Indian Oil aims to achieve international standards of
excellence in all aspects of energy and diversified
business with focus on Customer delight through
quality products & services
MISSION
• It is purpose / reason behind existence of any organization
• Derived from VISION and reflects the corporation’s philosophy , identity,
character and image which helps to achieve the vision.
• When defined explicitly, provides enlightenment to insiders and outsiders
on what the organization stands for.
• Many strategists/consultants contribute to the building up of mission
statements.
• Mission relates to the need of society. Eg- information need - Publisher

CHARACTERISTICS OF A MISSION SATEMENTS

• FEASIBLE- realistic and achievable


• PRECISE- not too narrow nor too broad
• CLEAR- not for publicity
• MOTIVATING
• DISTINCTIVE
• INDICATES MAJOR COMPONENTS OF STRATEGY
MISSION
HOW MISSION STATEMENTS ARE FORMULATED

• Executive committee is setup to formally discuss


• Help of consultants also taken for an in-depth analysis of
an organization and to suggest an appropriate Mission
statement
• A Mission statement once formulated should serve an
organization for many years
• As the organization grows with time and goes on adding
new products, services, technologies and markets, there
may even be a need for revising its Mission statement.
FEW MISSION STATEMENTS

• BHEL
To be a leading engineering enterprise providing quality
systems goods and services in the field of Energy,
Transportation , Industry, Infrastructure and other
potential areas
• RANBAXY
To become research based International pharma
company
• UTI
To keep the common man in sharper focus to encourage
savings and investment habits among them.
BUSINESS DEFINITION
• Defined along 3 parameters
CUSTOMER GROUPS: WHO is being satisfied
CUSTOMER FUNCTIONS: WHAT is being satisfied
ALTERNATIVE TECHNOLOGIES: HOW the need is being satisfied

• Provides powerful insights into understanding and defining business


• Helpful in Strat. Mgmt in many ways Indicates choice of objectives
and helps exercising best choice.
• A single business firm has simple Business Definition. Company
with several businesses has separate BD for each of its business.
• 3 dimensions provide scope for further activities and facilitates
understanding of company’s performance areas
• At corporate level ,BD concerns itself with a wider meaning of 3 dimensions.
• Each division of highly diversified co. can have more accurate BD at SBU
level
EXAMPLES
EX: Time Keeping Business:

Customer Groups: ‘Individual customers” & Industrial


Customers”

Customer Functions: Finding time, Recording time, Using


watches as fashionable accessories and gift items.

Alternative Technologies: Mechanical. Quartz digital,


Quartz Analog
GOALS & OBJECTIVES
GOALS:
• What an org. hopes to achieve/accomplish in a future period of time. Represent future state
or outcome of an effort put in now.

OBJECTIVES:
• Are the ends that state how the goals shall be achieved
• Help org to achieve VISION & MISSION;
• Provide basis for Strategic Decision making;
• Provides standards for performance appraisals,

• OBJECTIVES: GOALS
- Concrete & specific Generalized
Make goals operational

-Quantitative, measurable Qualitative


& comparable

- Short Term Long Term( Org. translates its purpose


into long term goals )
OBJECTIVE SETTING

• Understandable
• Concrete & Specific ( Say 10% increase in sales )
• Periodicity :Related to time frame. (Say 10% increase in sales in one year)
• Measurable & Controllable
• Challenging – motivating but not unrealistic
• Diff. Objectives must correlate with each other
• Should be set within constraints – internal and external

EX

Profit: ROI, Net profit as % of sales, Return on shareholders capital.


Marketing: Sales volume, Market segment, Customer service, Promotion
Growth: Output, Sales T/O, Investment
HR: Training, Welfare IR
Social Responsibility: Environment, Community Service, Rural Development etc..
What is a “Balanced” Scorecard

• A strategic and operational tool


• Financial and Non-Financial Perspectives
• Shared by everyone
• Approach for performance Management
• First the development of strategic Intent
• Then designing BS by identifying specific
measure related to four perspective
Kaplan and Norton model

Customer

Balanced Business
Financials Scorecard Processes

Learning
& growth
A strategic tool
• Starts with strategy
• Continuous process
• Needs to become
culturally embedded
The story of a scorecard

To be successful for our shareholders, we must be (position in market),


which means that we must return superior financial results in .......

Our customers are the people who will secure these results for us so we must
offer our customers superior value by .........

To deliver this superior value we must excel in the way we manage the
processes for .......

These processes are operated by our people. We must provide our people
with ....... to achieve excellent performance.
Strategy Map
Max.
Inc. Profit Reduce
Financial Rev. Cost
Perspective Inc. rev New Inc. rev per
Cust Cust
Cust Cust
Customer Acquisition Satisfaction
Perspective
On-time Fast Product
Delivery Service Quality

Internal Process Cust Mgt. Logistic Production


Perspective Process Process Process

Learning & Motivated Skill Excellent


Growth Culture Personnel IT/IS
BSC – KAPLAN & NORTON

• Firms more often have problems, because they have


too many. At the very onset managers must learn to
distinguish between operational and strategic ones.
• A BSC helps a manager to track and communicate the
different elements of company’s strategy. It has four
dimensions –
– How do customers see us?
– What must we excel at?
– Can we continue to improve and create value?
– How do we look to shareholders?
• The authors view that performance is organisational
and not people centric.
ENVIRONMENTAL
SCANNING
Environmental Appraisal
• The environment of any organization is
“the sum of all conditions, events and
influences that surround and affect it”
• It is therefore crucial for any organization
to understand the environmental
influences on its business.
• Internal and External
Characteristics of Environment.
• It is complex – No. of factors, events,
conditions.

• It is dynamic – Constantly changing.

• It is multi-faceted – Perception of observer –


Different as per different observer.

• It has a far-reaching impact – Affect directly


and Indirectly.
PEST FACTORS

POLITICAL TECHNOLOGICAL

ECONOMIC SOCIAL
PESTLE MATRIX
POLITICAL
ECONOMIC
CURRENT/FUTURE LEGISLATION
ECONOMY SITUATION & TRENDS
REGULATORY BODIES
TAXATION
GOVT. POLICIES
INTEREST & EXCHANGE RATES
GOVT. TERM & CHANGE
MARKET & TRADE CYCLE

SOCIAL TECHNOLOGICAL
LIFESTYLE TRENDS TECHNOLOGY ACCESS,LICENSING,PATENTS
DEMOGAPHICS MATURITY OF TECHNOLOGY
COMPANY ATTITUDES & OPINIONS REPLACEMENT TECHNOLOGY / SOLUTIONS
BRAND,COMPANY ,TECHNOLOGYIMAGE INNOVATION POTENTIAL
CONSUMER BUYING PATTERNS MANUFACTURING MATURITY & CAPACITY
ETHNIC/RELIGIOUS FACTORS

LEGAL ENVIRONMENTAL
INTERNATIONAL LAW ENVIRONMENTAL IMPACT
EMPLOYMENT LAW ENVIRONMENTAL LEGISLATION
COMPETITIOM LAW ENERGY CONSUMPTION
HEALTH & SAFETY LAW WASTE DISPOSAL
REGIONAL LEGISLATION
Various environmental
components.
1) Market environment: Client’s needs,
preferences, perceptions, attitudes, values,
buying behavior, satisfaction.
Product factors like demand, image, features,
utility, design, life cycle, price, promotion,
distribution, differentiation etc
Competitor factors like different types of
competitors, nature of competition.
Components contd..
2) Technological Environment:
• Rate of change of technology , easy
technology Transfer.
• Technological development, R&D, cost of
technology.
• Effects of technology on environment,
human beings.
• LED and 3d TV’s – change in strategy by
TV manufacturers
Components contd..
3) Supplier environment:
• Cost, availability, and continuity of supply
of raw material, components, parts.
• Infrastructural support and ease of
availability of the different factors of
production.
Components contd..
4) Economic environment:
• Business Cycle
• GDP, Interest rate, exchange rate, Inflation
etc.
• Economic policies, industrial, fiscal,
monetary.
• Per capita income, balance of payments,
Exports imports etc.
• Infra-Structural Investments
Components contd..
5) Regulatory environment:
• Policies related licensing, monopolies,
FDI,
• Policies related to distribution and pricing.
• Policies related to sick industries, public
sector, backward areas, consumer
protection etc.
• Regulation and laws
Components contd..
6) Political environment:
• The political system and its features,
ideological forces, coalition compulsions.
• Political stability.
• Political funding of elections.
• Government’s role in business.
• Government Attitude
• Subsidies & Protection
Components contd..
7) Socio-cultural environment:
• Demographics like population, its density and distribution,
age composition, inter state migration, income distribution
etc.
• Socio-cultural concerns like environmental pollution,
corruption etc.
• Society expectations, beliefs, rituals and attitude, lifestyle etc.
• Literacy Levels
Components contd..
8) International environment:
• Globalization process.
• Global economic forces.
• Global trade and commerce.
• Global financial system.
• Global markets and competitiveness.
• Global communication
• Global technology and quality systems.
SWOT Analysis.
• S: Strengths.

• W: Weaknesses.

• O: Opportunities.

• T: Threats
Strength
• It is an inherent capacity which an
organization can use to gain strategic
advantage.
• E.g. superior r&d skills which can be used
for new product development.
SOURCES OF STRENGTH

• Strong brand identity – Eg. Tata.


• High quality products – Eg. Sony, Toyota.
• Excellent networking – Eg. HLL, ITC.
• Strong R&D base – Eg. Dr. Reddy’s, Ranbaxy.
• Economies of scale – Eg. Reliance.
• Good credit rating – Eg. Infosys.
• Motivated employees & cordial industrial relations –
Eg. Tisco.
• Large resource pool – Eg. Hindalco.
• Strong after sales & service network – Eg. Caterpillar.
80
Weakness
• It is an inherent limitation or constraint
which creates strategic disadvantage.
• E.g. over dependence on a single product
line, which could be risky in crisis.
SOURCES OF WEAKNESSES

• Outdated technology – Eg. Hindustan Motors.


• Poor working capital management – Eg. Kirloskars.
• Excess manpower – Eg. SAIL.
• Narrow product base – Eg. Procter & Gamble.
• Inefficient top management – Eg. Ballarpur Inds.
Opportunity
• It is a favorable condition in the
organization’s environment which helps it
to consolidate and strengthen its position.

• E.g. growing demand for the products or


services that a company provides.
SOURCES OF OPPORTUNITIES

• Delicensing of Industries – Eg. Telecom.


• Import relaxations – Eg. Hardware &
Software.
• Growing population – Eg. Middle-class
buying power.
• Globalisation – Eg. GDR’s, ECB’s
• Free pricing – Eg. Fertilisers, Insurance
• Exit Policy – Eg. VRS
• Collaborations, Joint Ventures, Tie Ups –
Bharti – WalMart.
Threats
• It is unfavorable situation in the
organization’s environment which creates
risk for, or causes damage to, the
organization.
• E.g. emergence of strong new competitors
who are offering stiff competition.
SOURCES OF THREATS

• Political instability
• Social activism – Eg. TATA Nano
• Terrorist attacks – Eg. 9/11.
• Import liberalisation – Eg. Dumping from China.
• Foreign Direct Investment (FDI) – Eg. Onida.
• Economic recession – Eg. (2008).
• Natural disaster – Eg. Tsunami, Earth Quake.
• Hostile take-over – Eg. Bajoria – Bombay Dyeing
• Group disintegration – Eg. Reliance.
Environmental scanning
• Monitoring relevant environment to identify
opportunities and threat affecting business for
strategic decision making.
• General environment (Overall Env. )
• Relevant environment (Directly Impacting)
• Approaches to scan
- Systematic
- Ad Hoc
- Processed form
Environmental scanning
• Sources of Information
- Documents, Mass media, Internal, External
agencies, Formal studies, spying etc.
• Factor affecting environmental appraisal
- Strategist related (Age, exp., qual. Etc.)
- Organization related (Age, size, nature of
business etc.)
- Environment itself – A constraint
ETOP

• Acronym for Environment – Threat – Opportunity –


Profile. It represents a summary picture of the
environmental factors and their likely impact on the
organisation. Stages in ETOP analysis –
– List the different aspects of the environment that
has a bearing on the organisation.
– Assess the nature and extent of impact of the
factors.
– Holistic view – Prepare a complete overall picture.
– Forecasting – Predict the future (i.e. time series,
delphi's technique, data modeling.
Organizational Appraisal
• It deals with the internal environment of
the organization.
• Internal environment constitutes of
behavior, strengths, weaknesses, synergy
and competencies, all these put together
determine the “ Organizational capability”
Organizational appraisal
• Organizational Resources
Physical
Financial
Human
Tangible and intangible
Organizational behavior
• It is the manifestation of various forces
and influences operating in the internal
environment of an organization that create
the ability for, or place constraints in the
usage of resources.
• It leads to the development of a special
identity and character of an organization.
Factors influencing Org.Beh.
• Quality of leadership.
• Management philosophy.
• Shared values.
• Culture
• Quality of work environment.
• Organizational politics.
Strengths & Weaknesses.
• Strength: It is an inherent capability which
an organization can use to gain strategic
advantage.

• Weakness: A weakness is an inherent


limitation or constraint which creates a
strategic disadvantage for an organization.
Synergistic effects
• Synergy is the idea that the whole is
greater or lesser than the sum of its parts.

• E.g. In marketing dept. synergistic effect


can be achieved when product, promotion,
distribution, advertising support each
other.
Competencies
• Competencies are special qualities
possessed by an organization that make
them withstand pressures of competition
in the market place.
• When a specific ability is possessed by a
particular organization exclusively or in a
large measure it is called as distinctive
competence.
Organizational capability
• It is the inherent capacity or potential of an
organization to use its strengths and
overcome its weaknesses in order to
exploit opportunities and face threats in an
external environment.
Strategic advantage
• These are the outcome of organizational
capabilities. They are the result of
organizational activities leading to rewards
in terms of financial parameters.
Functional capabilities.
Strengths supporting Financial capability.
• Access to financial resources.
• Good relationship with financial
institutions.
• High level of credit- worthiness.
• Low cost of capital compared to rivals.
• High level of share holder’s confidence.
Marketing capabilities
• Wide variety of products.
• Better quality of products.
• Sharply-focused positioning.
• Effective distribution system.
• Effective sales promotion.
• Effective MKIS.
Operations capabilities
• High level of capacity utilization.
• Favorable plant location.
• Reliable sources of supply.
• Effective control of operational costs.
• Good inventory control system.
• High caliber R&D people.
• Technical collaborations.
General management capability.
• Effective system for corporate planning.
• Reward and incentives for top managers.
• Risk taking.
• Favorable corporate image.
• Effective management of organizational
change.
GRAND STRATEGIES – Corporate
Level
• Provide guidance for major actions for meeting long term objectives
and basic direction for strategic action
• Blueprints for action. Use of single or combination of 2 or more
depends upon multiplicity and complexities of business.
• Corporate level strategies indicating the choice of direction a firm
adopts for achieving its vision.
• Corp. Strategies Also tell about decisions relating to allocation of
resources among different businesses, managing & nurturing diff.
businesses in portfolio.
• Grand strategies revolve around one basic question : Whether to
continue or change business, to improve efficiency and
effectiveness.
Grand strategies
• Types of Grand strategies:

• Stability strategy.
• Expansion strategy.
• Retrenchment strategy.
• Combination strategy.
GRAND STRATEGIES

Corporate Strategy

Stability Growth Divestmen Combinatio


t n

Intensificatio Diversification Integration


n

Market Penetration Market Development Product Development

Concentric / Related Conglomerate / Unrelated

Horizonta Vertical105
l
EXPANSION STRATEGIES
Most popular corp. strategies as growth is the way of life. All progressive
organizations plan for substantial growth due to increasing economy, markets &
customer needs. Followed when companies aim at high growth, broadening the
scope of its business for improving overall performance.
.
CONCENTRATION STRATEGIES
• Simple 1st level expansion strategy,
• Focus on Intensification / Specialization
• Rely on where you are best at i.e focusing on
limited areas
• Creating a separate niche/ identity in selective
areas by investing money, time, energy & effort
in specific areas
GROWTH - ANSOFF’S MODEL

Existing Market New Market


New Product Existing Product

Market Market
Penetration Development
(+) (++)

Product Diversificatio
Development n (+++)
(++)

Note: (+) indicates type of growth and risk involved.


107
MARKET PENETRATION
• It is a strategy where a firm directs its entire resources
to the growth of a single product, within a well defined
market. Market penetration can be achieved by –
increasing sales to current customers, convert
competitors customers, direct non-users to users.

• Suitable for industries where scope for


technological break-through is limited.
– Helps firms which are not comfortable with
unfamiliar terrain.
MARKET DEVELOPMENT
• It is a strategy where a firm tries to achieve growth
by finding new uses for existing products or its
close variants and tap a new potential customer
base altogether. (Eg. Du Pont – nylon: parachutes,
socks & stockings, fabrics, tyres, carpets,……).
– The firm should be creative and innovative –
thinking out of the box.
– Unconventional and flexible channels of
distribution.
– Move across geographical boundaries.
PRODUCT DEVELOPMENT
• It is a strategy where a firm tries to achieve growth
through a new product or an improved version of an
existing product or its variant to repeatedly enter the
same market. (Eg. Honda – bikes, cars).
– Leverage on customer loyalty.
– Areas of product improvement – quality, features,
styling.
– Ensure high reach through advertising and
promotion.
– Product development with related technologies
DIVERSIFICATION

• It marks the entry of a firm into newer markets with


new products, thereby creating a new business. The
new business is distinct from the existing business in
terms of – inputs – technologies – markets. More
importantly they are strategically dissimilar.
• Concentric/Related and Conglomerate/Unrelated
• Why do firms diversify?
– Risk reduction.
– Maximizing returns
– Emerging opportunity in environment
– Migrating from business under threat
– Only way for growth and expansion
– Capitalize on capabilities
CONGLOMERATE DIVERSIFICATION

• It relates to businesses which are distinct in terms of


businesses as well as strategically unrelated.
Companies usually engage in conglomerate
diversification when industry characteristics are very
attractive. Drawbacks of unrelated diversification –
– Cost of ignorance.
– Cost of failure (i.e. lack of foresight)
– Cost of neglect (i.e. core business).
– Cost of dysynergy (i.e. synergies pulling in
opposite directions).
CONGLOMERATE DIVERSIFICATION - ITC

Paper & Packaging

Edible Oils Tobacco Hotels

Food & Confectionary


INTEGRATION STRATEGIES

• Combining activities relating to present activities of


firm
• Widening scope of business

Vertical Integration : Going up & down the value


chain Going for forward or backward integration or
both at a time.
Horizontal integration : Same type of products
Expansion through
Internationalization and
Cooperation

Internationalization
- Beyond domestic boundaries
- Factor leading it - Globalization
INTERNATIONAL STRATEGIES

GLOBAL TRANSNATIONAL
PRESSURES STRATEGY STRATEGY
FOR
COST REDUCTION ( LOW COST - OFFERING (Creative approach to
STANDARDISED manage cost and Localization)
PRODUCTS / SERVICES)

INTERNATIONAL MULTIDOMESTIC
STRATEGY STRATEGY
(Std. product for UNDER
DEVELOPED ( SUITING TO NATIONAL
COUNTRIES WHERE CONDITIONS WITH
PRODUCT/SERVICES HIGH COST )
NOT AVAILABLE )

PRESSURES FOR LOCAL RESPONSIVENESS


MODES OF ENTRY

LOW EXPORTING
( Firm produces in home country & markets overseas)
LICENSING
( International co. transfers knowledge, technology
Patent for a limited period of time to an overseas co,
PERCEIVED in return for some form of payment)
RISK FRANCHISING
(Right to use a business format,
usually Brand Name- exchange
programme )
INTERNATIONAL JOINT
VENTURE
WHOLLY
OWNED
HIGH

HIGH
LOW

CONTROL
International strategy
• Which Market to enter?
• Timing of entry?
• Scale of entry?

• Advantages – Economy of scale-scope,


resources overseas, Expansions and profit
• Disadvantages – Risk, Cultural Diversity, Trade
restriction, bureaucracy
Cooperative Strategies

• Merger and {Acquisition (?)}


• Joint Ventures
• Strategic Alliance
Stability strategy
• Is adopted by an organization when it
attempts at an incremental improvement
of its functional performance.
• Good strategy in certain and predictable
environment.
• E.g. A copier machine company provides
better after sales service to improve its
image and product image too.
STABILITY STRATEGIES

1. NO CHANGE STRATEGY: Conscious decision to do


nothing new. Continue with present business. Taking
No decision is also a decision.

2 PROFIT STRATEGY: Reduce investments, cut costs ,


Increase productivity wrt external factors like:
Economic recession, Govt’s attitude, Industry
downturn and competitive pressures for sustaining
profitability by whatever means till situation improves.

2 PAUSE/ PROCEED WITH CAUTION : Consolidation


before a firm goes for expansion.
STABILITY
• It involves maintaining status-quo or growing in a
slow and selective manner. The size and scale of
present operations remains almost intact. Stability
however, does not relate to do-nothing. It still has
to adopt a strategy to sustain current performance
levels. The reasons for stability strategy –
– Lack of attractive opportunities.
– The firm may not be willing to take additional
risk associated with new projects.
– To stop for a while and assess past records.
– Why disturb the existing equilibrium set up?
– Limited resource position.
Retrenchment strategy
• This is followed when a company aims at
contraction of its activities through
substantial reduction or elimination of its
business.
• E.g. A pharmaceutical company may
withdraw from its retail operations so that
it can focus on institutional sales.
DIVESTMENT
• Divestment is a defensive strategy involving the
sale of a business to an independent entity. It is
usually taken into account when performance is
disappointing and survival is at stake and nor
does the firm have the resources to fend off
competitive forces.

• It may also be a pro-active strategy, where a


company simply exits because the business no
longer contribute to or fit its dominant logic.
Combination strategy
• This is followed when a company adopts a
mixture of all the strategies either at the
same time in its different businesses, or at
different times in the same business with
the aim of improving its performance.
COMBINATION STRATEGY
• It is a mixture of stability, growth, and
retrenchment strategies applied
simultaneously or sequentially for a
portfolio of businesses (i.e. business
group).
• It is usually pursued by a business group
with diverse interests.
• There can be no ideal strategy for every
business. Because every business has its
own unique business and economic cycle.
Business Level Strategies
PORTERS MODEL OF GENERIC STRATEGY

Competitive Advantage
Cost Leadership Product Differentiation
Broad

Differentiation
Cost Leadership
Scope
Narrow

Cost Focus Differentiation


Focus
GENERIC STRATEGIES
• Below Corporate Level Strategies, the strategies to be used by individual businesses

HOW GENERIC STRATEGIES EMERGE


• As humans function with their limbs; corporations operate through their business strategies .
• Corporate strategies lay down the framework in which business strategies operate.

COST LEADERSHIP
• Vigorous cost reduction programmes and make all possible attempts to achieve the lowest
cost.
• Achieve efficiency at all levels for lowering costs.
• Cumulative cost across the value chain is lower than competitor
• Analyze cost drivers and optimization of costs
• Other initiatives: Accurate Demand Forecasting, Capacity utilization
Economies of scale, Cost saving technologies.

BENEFITS
Threat of cheaper substitutes offset to some extent by lowering price, Effective entry
barrier for potential entrants

RISKS
Competitors imitate cost reduction quickly, Not a market friendly approach if customers
interest is ignored Low cost leadership doesn’t always work;
FOCUS BUSINESS STRATEGY

• Attempt is to serve narrow strategic target effectively and efficiently


• Relies on either cost leadership or differentiation but cater to narrow
segment of total market. Or customer.
• Firms seeking to adopt Focus Strategy has to locate a niche in the
market where Cost Leaders and Differentiators are not operating
• Identifying gaps not covered by Cost Leaders and Differentiators
• Uniqueness in the segment. Niche marker big enough to be profitable
and has potential for growth.
• Major players not interested in niche

BENEFITS
Protected from competition from other firms who do not have ability to
cater to niche markets, builds up brand loyalty, specialization- powerful
barrier to new entrants and substitutes.
Industry Analysis
EMERGING INDUSTRY
• Emerging Industry – An industry characterized by
radical environmental changes, technological
innovations, ending in a different cost economics. Eg.
Bio Informatics, Digital photography and printing.
Reasons for emerging –
– Unproven technology.
– High initial costs, followed by steep cost reduction.
– First-time buyers.
– Excessive turbulence in the environment.
– Unknown customer and market profile.
– Business uncertainty is high
GENERIC STRATEGY

• Rapid industry changes - strategic uncertainty.


Shaping industry structure.
• Be a market leader, not market follower.
• Strictly differentiation, not standardization.
• Flexible supplier and distribution channels.
FRAGMENTED INDUSTRY – Growth stage

• Fragmented / Growing Industry – An industry


where no firm has a significant market share.
Many players enters seeing growth. EX- Mobile,
IT, retail etc. Reasons for fragmentation –
– Low entry barriers.
– Absence of economies of scale.
– Local regulations.
– Diverse customer needs.
With Growth-returns increases, customer
gains info, demand increases
GENERIC STRATEGY

• Conduct industry wide analysis.


• Identify causes of fragmentation.
• Look for ways to overcome fragmentation.
• Assess consequences of overcoming fragmentation.
• Locate a defendable position to take advantage of
industry consolidation.
• Primarily concentrate on differentiation, also focus on
cost advantages.
MATURE INDUSTRY

• Mature Industry – An industry characterized by


imperfect competition leading to saturation in growth
rates. Eg. FMCG, BPO, steel. Reasons for maturing

– entry barriers.
– Lack of innovation.
– Exhaustive networks.
– International competition. Eg. Dumping.
Stable demand, technology developments
are few, consolidation of industry.
GENERIC STRATEGY

• Sophisticated cost analysis and correct pricing.


• Process innovation and efficient designing.
• Rationalizing the product mix.
• Increasing scope of existing customers.
• Move beyond geographical boundaries.
DECLINING INDUSTRY

• Declining Industry – An industry which


has outlived its utility, with no sign of
recovery. Eg. Typewriters, agriculture.
• Returns decline
• Investment ceases
• Demand shrinks
• Companies starts following
retrenchment strategies
GENERIC STRATEGY
• Leadership through takeovers and mergers.
• Harvesting –
– Stop to fresh CAPEX.
– Curtailing working capital exposure.
– Minimising adhoc expenditures.
– Maintain a skeleton structure.
– Reducing product diversity.
– Curtailing distribution channels.
• Early divestment – Sell early before it becomes dead-wood.
COMPETETOR ANALYSIS
FIVE FORCES MODEL - PORTER

Threat of New Entrants

Bargainin
Bargainin Competition g Bargainin
power
g power from Existing ofg power
of Players of
Suppliers
Suppliers Customer
s

Threat of Substitutes
PORTERS FIVE FORCES ANALYSIS

• Competition from existing players – High when


– Introducing new product range.
– Cutting prices of existing product range.
– Offering better packages for existing product range.
– Enhancing dealer networks.
– Stronger market promotion, including advertising.
– Backward or forward integration.
– Upgrading technologies.
PORTERS FIVE FORCES ANALYSIS

• Threat of New Entrants – some barriers


– Economies of scale
– Brand power
– Product differentiation
– Location advantages
– Distribution channels
– High switching costs
– Regulation
PORTERS FIVE FORCES ANALYSIS

• Bargaining power of Customers/buyers – High


when
– Few buyers
– placing large orders
– No. of suppliers/sellers are high
– Switching cost for buyer is low
– Buyer can easily integrate backward
– Substitutes available
PORTERS FIVE FORCES ANALYSIS

• Bargaining power of Suppliers – high when


– Many buyers buying small quantity
– Suppliers are few
– Unique offering
– Substitute not available
– Supplier can easily integrate forward

• Threat of Substitutes –
– Source of latent competition
– Substitute offering a price advantage and/or
performance improvement
Competitor Analysis
To Know:

• Future goals of competitor


• Current strategy of competitor
• Key assumptions made by competitor
• Capabilities of competitor
UNDERSTANDING VALUE CHAIN
• A value chain segregates a firm into strategically
relevant activities to understand its cost
behaviour.

• Competitive advantage arises by performing


these activities efficiently and differently.

• The sustainability of the value chain depends on


the degree of fit between the activities.
VALUE-CHAIN ANALYSIS

Infrastructure

Ad
Support

Human Resource Management

va
n
Technology Development

ta
ge
Procurement

e
Out Logistics

Mktg & Sales

Service
Operations

iv
In Logistics
Primary

tit
pe
m
Co
VALUE CHAIN ANALYSIS

• Value Chain: Linked set of value creating activities, beginning with


basic Raw materials coming from suppliers to a series of value added activities involved in producing and marketing
a product,

ending with
distribution of the final goods into the hands of
ultimate customer

• Focus of value chain: To examine corporation in the context of overall chain of value creating activities

Backward & Forward integration


• One of the strategic moves: Moving forward or backwards along the value chain in order to reduce costs, guarantee
access to key raw materials ( Backward Int.) or to guarantee cost effective and proper distribution ( Forward Int. )
STRATEGIC FIT – THE PORTER WAY

• Fit is important because discrete activities


result in negative synergy.
– fit refers to simple consistency between each
activity and the overall strategy.

• Competitive advantage arises from a fit across


the entire system of activities.
Strategic Analysis and Choice
Process:

• Focusing on strategic alternatives


• Analyzing the strategic alternatives
• Evaluating the strategic alternatives
• Choosing from among the strategic
alternatives
BCG GROWTH MODEL

Relative Market Share (%)

High Low

?
Industry Growth
High

Stars Question Mark


(%)
Low

Cash Cow Dogs


GE - MATRIX

Distinctive Capabilities
Strong Medium Weak
High

Diversify (++)Intensify (+) Stability


Attractiveness
Med
Industry

Intensify(+) Stability Harvest(-)


Low

Stability Harvest(-) Divest (- -)


SHELL – DIRECTIONAL POLICY MATRIX (DPM)

Business Sector Prospects


Attractive Average Unattractive
Distinctive Capabilities

Market Generate
Strong Growth
Leadership Cash

Try Phased
Custodial
Average Harder Withdrawal

Double
Phased
Or Expand Divest
Withdrawal
Weak Quit