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STRATEGIC MANAGEMENT

A CONCEPT ON STRATEGIC THINKING AND MODUS OPERANDI FOR SURVIVAL IN 21st CENTURY By Dr. JANAK V. SHELAT

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WHY STRATEGIC THINKING?
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Companies are operating in age of discontinuing change - an age of creative & constructive destruction. Business, technology and product life is shrinking. Demographic shift in terms of consumer preference and requirements. A direct promotion from Agricultural economy to service or Hi-tech economy in the new growth economy. A concept from liberalization, privatization & Globalization (LPG) to regionalization. Shift from controlled economy to market driven economy. Rich countries adopt deindustrialization. Emergence of new Global Socio – economic system and world orders. Self-leadership is in, command and control out Networks are replacing hierarchies Wanted - employees with Emotional Intelligence.

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Forcing company transformation Market access & branding changing – disintermediation of traditional distribution channels Balance of power shift to consumer Competition changing Pace of business increasing Internet purchasing beyond traditional boundaries Knowledge key asset – source of competitive advantage. It is replacing Infrastructure

Other Current Trends –
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Increasing environmental awareness Growing health consciousness Expanding seniors market Impact of the Generation Y boom let Declining mass market Changing pace and location of life Changing household composition Increasing diversity of workforce & market

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BASIC CONCEPTS

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

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Strategic Competitiveness Achieved when a firm successfully formulates and implements a value-creating strategy Sustained Competitive Advantage Occurs when a firm develops a strategy that competitors are not simultaneously implementing Provides benefits which current and potential competitors are unable to duplicate Above-Average Returns Returns in excess of what an investor expects to earn from other investments with similar risk 4 .

WHAT IS BUSINESS? PRODUCT MARKET FUNCTION What Business the Firm is in? Why the Firm is in the Business? What should be Firm’s Business? 5 .

GAP OUT PUT VISION VALUE SYSTEM FIRM/BUSINESS MISSION PURPOSE BASIC INFRASTRUCTURE AND FRAME WORK OF A FIRM 6 OBJECTIVES .

MISSION & GOALS OF A COMPANY  VISION: It is a vividly descriptive image of what you what to be or what you want to be known for. philosophy and grand design of the firm. It is a process of legitimization of corporate existence of business. It is To make Profit for today and forever To satisfy Customers today and forever To satisfy Employees today and forever 7 . MISSION : It a statement of intent of “what a firm wants to create and through which line of Business”. Vision is an art for seeing invisibles. To pursue the Creation of Value to all Stakeholders in the Business. It is an answer to question – “What business are we in?”      GOALS / OBJECTIVES : End to be achieved. It defines the culture.

Strategic Planning 8 .

. 44. businesses failed Competitive success is transient. companies at the start of the 20th century are still identifiable today! In a recent year.Challenge of Strategic Management Only 16 of the 100 largest U.S..367 businesses filed for bankruptcy and many more U.unless care is taken to preserve competitive position 9 .S.

Three Big Strategic Questions  Where Are We Now? Where Do we Want to Go? How Will We Get There?   10 .

HOW to respond to changing industry and competitive conditions HOW to defend against threats to the company’s well-being HOW to pursue attractive opportunities 11 .Crafting a Strategy     HOW to out compete rivals and win a competitive advantage.

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

Strategic Management Basic model Options on Competitive Positioning Learning points from deviations Four Basic Elements Strategic management is the process of moving where you are to where you want to be in future – through sustainable competitive advantages 13 .

VISION GAP VALUE MISSION FIRM GOAL MACRO ENVIRO APPRAISAL BASIC STRATEGIES STRATEGIC IMPLEMEMTATION ORGANISATION DESIGN STRATEGIC ALTERNATIVES FUNCTIONALLEVEL STRATEGIES & RESOURCES ALLOCATION MICRO ENVIRO APPRAISAL OF INDUSTRIES BUSINESS LEVEL STRATEGIES MICRO ENVIRO APPRAISAL OF FIRM DEVELOPMENT OF CONTROL STRATEGIC SELECTION Is Strategy Working? STRATEGIC PLANNING DESIGN AND IMPLEMENTATION PROCESS 14 .

The Five Task of Strategic Planning      Developing a Vision and a Mission Setting Objectives Crafting a Strategy Implementing and Executing Strategy Evaluating Performance. Reviewing the Situation and Initiating Corrective Action 15 .

perfecting the current strategy.Characteristic of the Strategic Management Process      An ongoing exercise Boundaries among the tasks are blurry rather than clear-cut Doing the 5 task is not isolated from other managerial responsibilities and activities. The time required to do the tasks of strategic management comes in lumps and spurts rather than being constant and regular. 16 . Involves pushing to get the best strategy supportive performance from each employee.

ENVIRONMENTAL APPRAISAL ENVIRONMENTAL ANALYSIS O T ETOP SAP OFPP ENVIRONMENTA L DIAGNOSIS S W VALUATION PROCESS OF SWOT ANALYSI 17 .

Components of the General Environment
Economic Demographic Industry Environment Political/ Legal Competitive Environment Sociocultural

Global

Technological
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ENVIRONMENTAL FACTORS

GOVERNMENTAL ECONOMICAL POLITICAL /LEGAL

TECHNOLOGICAL FIRM/BUSINESS
DEMOGRAPHIC

GLOBAL

SOCIOCULTURAL

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Components of the General Environment

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Variables in Societal Environment 21 .

International Societal Environments 22 .

Industry Analysis 23 .

Porter’s Approach to Industry Analysis Threat of Substitute Products or Services Power of Buyers Power of Suppliers Bargaining Bargaining Relative Rivalry Power of Other Stakeholders Among Firm in an Industry 24 .

 25 .DETERMINENT OF BUYER’S POWER Bargaining Leverage (a) Buyer’s Concentration (b) Buyer’s Volume (c) Buyer’s Switching Cost  Price Sensitivity (a) Price / Total Purchase (b) Impact on Quantity/ Performance (c) Buyer’s Profit.

Porter’s Approach to Industry Analysis Threat of New Entrants – Economies of scale Proprietary Product differentiation Capital requirements Switching costs Access to distribution channels Cost disadvantages Government policy Proprietary Low Cost Design Stage in Learning/ Experience Curve 26 .

Porter’s Approach to Industry Analysis Rivalry Among Existing Firms – Number of competitors Rate of industry growth (Slow) Product or service characteristics Amount of fixed costs Lack of differentiation or Switching Cost Capacity augmentation in large increament Height of exit barriers Diversity of rivals High strategic Stakes 27 .

IFAS 28 .

EFAS 29 .

SFAS Matrix 30 .

and threats.SWOT analysis of strengths. weaknesses. 31 . opportunities.

TOWS Matrix 32 .

CREATING STRATEGIC MIND SET 33 .

Corporate Strategy Three Key Issues:    Firm’s directional (CORPORATE) strategy Firm’s portfolio (BUSINESS LEVEL) strategy Firm’s parenting (FUNCTIONAL LEVEL) strategy 34 .

Initiation of Strategy •New CEO •External intervention Triggering event •Threat of change in ownership •Performance gap •Strategic inflection point Stimulus for change in strategy 35 .

Corporate Strategy Directional Strategy – Orientation Expansion. status quo Concentration or diversification Internal development or acquisitions. mergers. or alliances 3 Grand Strategies Growth strategies Stability strategies Retrenchment strategies 36 . toward growth contraction.

Corporate Directional Strategies COMBINATION STRATEGIES DERIVED STRATEGIES 37 .

merger.        INTERNAL: Add new product. Entrepreneurial development. functions. HORIZONTAL: Supplementary/ Complementary Expansion. VERTICAL: Integration. product line. UNRELATED: Non – synergic diversification. 38 STRATEGIC VARIATIONS EXPANSION . PASSIVE: Imitation. RELATED : Synergic diversification. ACTIVE: R & D. EXTERNAL : Take over. adoption & adaptation. acquisition. market. redefine/ reposition of product – market.

McGraw Hill. UPGRADES NEW 39 MARKETS / CUSTOMERS EXISTING NEW Existing Share of Business EXISTING Increase Market Share SALES MGMT.IGOR ANSOFF’S BUSINESS GROWTH MODEL NEW CUSTOMERS FOR EXISTING LINES OF PRODUCTS MARKET DEVELOPMENT EXISTING PRODUCTS IN EXISTING MARKETS New products /New Markets CO Unrelated RP BU Businesses SIN ORA T ES S D E PL E A Related VELO NNI N Businesses – PME G NT NEW PRODUCTS FOR EXISTING CUSTOMERS NEW PRODUCT DEVELOPMENT. Ansoff. I. PRODUCTS * Corporate Strategy. USA Products . Jan 1965.

Corporate Strategy Growth Strategies -External mechanisms Mergers Acquisitions Strategic alliances 40 .

EXTERNAL GROWTH STRATEGIES  TAKE OVER.} •TAKE OVER •ACQUISION •MERGER 41 . AQUISION & MERGER SELLING FIRM BUYING FIRM •Acquire Controlling interest} •Acquire Assets and liabilities} of selling Firm} •Acquire & merge of Assets } liabilities of both the firms.

To improve the firm’s earnings & stability. To diversify the owner’s holding. To increase the efficiency and profitability. 42 . To balance or fill out the product line. To increase the growth rate of the firm.            WHY THE FIRM PURSURE EXTERNAL EXPANSION To increase the firm’s stock. To make good investments. To acquire the needed resources. To diversified the product line in mature state.. For Tax purpose. To deal with top management problems. To reduce the competition.

CRITICAL ISSUES RELATED TO M & A          STRATEGIC ISSUES: It relates to the commonality of strategic interest. 43 . FINANCIAL ISSUES: These are related to (a) Valuation of selling firms based on assets. society. Strength of one firm may be weakness of the other firm and vice versa. LEGAL ISSUES: It is related to various issues of legal provisions such as Chapter V of the Companies Act. OTHER ISSUES: It relates to Political. (b) Sources of financing for merger. the MRTP Act. market standing. Economic. earning potential etc. and section 72A (I) of the Income Tax Act OR Anti Trust Act. share prices. Sherman’s Act. Environmental factors. The firms can create Synergy and complementing business situation. LABOUR ISSUES: It relates to continuation of old staff and subsequent relations. MANAGERIAL ISSUES: It relates to professional compatibility and acceptance of managerial system of selling company. CULTURAL ISSUES: It relates to the cultural compatibility of the organization. market etc. SOCIETAL ISSUES: It relates to the benefits of society and Social compatibility.

Assuming that a growing market or product will be out standing in market.REASONS FOR FAILUR OF EXTERNAL GROWTH        Paying too much for the acquired firm. Trying to merge disparate corporate cultures. Leaping into merger without carefully studying the consequences. Counting on key personnel staying after the merger. 44 . Diversifying in to areas in which the firm had too little knowledge. Buying too large a firm and thus incurring an excessively large debt.

Corporate Strategy

Growth Strategies - Related
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Basic forms
Concentration Diversification

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Corporate Strategy

Basic Concentration Strategies -Vertical

growth growth

Horizontal

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Corporate Strategy

Vertical Growth -Vertical
Full

integration

integration Taper integration Quasi-integration Long-term contract
Backward Forward

integration

integration

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Corporate Strategy Concentration -Horizontal Growth integration Horizontal 48 .

Corporate Strategy Basic Diversification Strategies -Concentric Diversification Diversification Conglomerate 49 .

Corporate Strategy Concentric Diversification -Growth into related industry Search for synergies 50 .

Corporate Strategy Conglomerate diversification -Growth into unrelated industry Concern with financial considerations 51 .

DERIVED BUSINESS STRATEGIES OFFENSIVE DEFFENSIVE CO-OPERATIVE •RAISE STRUCTURAL •FRONTAL ASSAULT BARRIER •FLANKING MANEUVER •INCREASE EXPECTED •BYPASS ATTACK RETALIATION •ENCIRCLEMENT •LOWER INDUCEMENT •GUERRILLA WARFARE ATTACK •SYNDICATING (COLLUSION •STRATEGIC ALLIANCES •MUTUAL CONSORTIA •JOINT VENTURE FOR •LICENSING ARRANGEMENT •VALUE CHAIN PARTNERSH 52 .

 achieve strategically significant objectives which can be mutually beneficial. Building brand image in local market is mostly possible through alliance. It helps to develop product. while the others are longer lasting. It provides vital role in providing the firms synergic strength. The reasons for alliance are: (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k) STRATEGIC ALLIANCE (Partnering): or more corporations or business units to It is a partnership of two To obtain technological. To reduce political and economic risk. market & share the investment outlay jointly. Some alliance are short term till the product is established. It facilitates the development of unique technological capabilities to meet the challenges of technological revolution. 53 . resulting in merger. management and/or manufacturing capabilities. It create a compulsion for alliance to enter in the local market through JV. To enter into specific markets. To reduce financial risk. process. To achieve or ensure competitive advantages in new businesses or markets It plays vital role in today’s market condition and environment to solve some complicated issues.

Financial Alliance: Companies joint together in order to reduce financial risks associated with the activities & share the profit in proportion to financial contribution. high cost of R & D and need of being ahead of changes.SPECIFIC ALLIANCE  Production Alliance: Two or more companies share the common manufacturing facilities. force companies to form alliance in R & D area. existing or new facilities. Research & Development Alliances: Fast changing technology. Human Resources Alliance: Alliance for outsourcing     54 . Marketing Alliance: Two or more companies share marketing services expertise and facilities.

culture. Distribution of Income. business interest. Access to information. 55 . acquire the strengths of the partner and starts new operations in competitions. financial position. Change in business environment. Acquiring the strength of partner: The companies over a period of alliance.BREAK – UP OF ALLIANCE:      Incompatibility between/among partners in management style.

corporate partnership are formed with specific and time bound objectives which. It is a contractual obligation on fragile platform. Joint venture can be temporary or it can be long term. leaves little reasons for the alliance to continue. 3. Every JV: 1. 5. Change in environment forces joint venture to be redesigned regularly 4.  56 . Translations seek to absorb their partner’s competencies. Has a scheduled life – cycle. JV that last longer do so because their objectives have been redesigned. which will end sooner or later (5 to 10 years) 2. Actually. Has to be dissolved when it has outlived its life – cycle. Ownership of the original firms remains unchanged.STRATEGIC JOINT VENTURE Joint ventures (JV) are partnership in which two or more firms carry out a specific project or business in a selected area of industry in a form of new venture. once achieved.

Corporate Strategy Stability Strategies -Pause/proceed No with caution change strategies Profit 57 .

Corporate Strategy Retrenchment Strategies -Turnaround Captive Company Strategy Selling out Bankruptcy Liquidation 58 .

Bankruptcy. 59 . The comp.RETRENCHMENT STRATEGY Common Retrenchment Strategies: Turnaround. Competitive pressure may also cause firms to curtail their operations. or others to improve performance. Inability to implement latest technology cause by tech. revolution. restructuring. Divesting. has not met its objectives and there is pressure from shareholders. Better opportunities in the environments are perceived else where were firms strength can be utilized. Liquidation WHY FIRM GO FOR RETRENCHMENT:        Prevalence of poor economic conditions. The comp. customers. is not doing well or perceive itself as doing poorly. The external environment poses threats and internal strengths are insufficient to face the threats.

economic or technological (A) SPIDER WEB (B) GO-TOGATHER & SPLIT (C) SUCCESSIVE INTEGRATION TYPES OF JV: 60 . 2. tariffs. Government’s support for the JV. Size of the project may be very large and one company accomplish it. 4. While setting up of an organization requires surmounting hurdles such as import quota. 7. 6. 5.Strategic reasons for Formation of JV 1. Foreign firms are allowed to operate only if they enter into a JV with local partner. One firm with technology competence and another with managerial competence join together. but compatible technology may join together. Firm with different. JV are undertaken for a variety of reasons like political. A foreign firm with technology competence joins with a domestic firm with marketing competence. nationalistic political interest and cultural road block. Some projects require multidimensional technology that no one firm possesses. 3.

Business Level Strategy 61 .

Value-Chain Analysis Linked set of value-creating activities beginning with basic raw material and ending with distributors getting final goods into hands of customers 62 .

Value-Chain Analysis Typical Value Chain for a Manufactured Product 63 .

Corporate Value Chain 64 .

Porter’s Generic Competitive Strategies 65 .

Its ability to improve company’s operations helps in achieving cost leadership or helps the company in differentiating its product from the rival company.What is a Business level strategy • • • Business level strategies are firm-specific business model that will allow a company to gain a competitive advantage over its rivals in a market or industry. quality. 66 . It aims at improving the effectiveness of a company’s operations and thus its ability to attend superior efficiency. innovation and customer responsiveness .

Distinctive Competencies… They are firm specific strengths that allow a company to differentiate its products and/or achieve substantially lower costs than its rivals and thus gain a competitive advantage. Toyota… They arise from two sources: 1) Resources 2) Capabilities 67 .g. E.

Cost Leadership     It is based on the intent to outperform competitors by doing every thing to establish a cost structure that allows it to produce or provide goods or services at a lower unit cost. Frequently ignores the many different market segments in industry to appeal the average customers. Aims for a differentiation not markedly inferior to that of the differentiator but a level obtainable at a low cost. 68 . Cost leader chooses a low to moderate level of product differentiation relative to its competitors.

Advantages and Disadvantages Advantages  Disadvantages     Protected from industry competitors Less affected by competitors price change Requires a big market share so they purchases in relatively large quantities Barrier to entry.   Cost leadership approach lurk in competitors’ ability to find ways to lower their cost structure Ability to imitate cost leader’s methods easily The single minded desire to reduce costs might drastically affect the demand 69 .

and manufacturing technology into their operations to find new ways to reduce costs. strategic managers need to devote enormous efforts to incorporate all the latest information. management. A differentiator cannot let a cost leader get too great a cost advantage because the leader might then be able to use its high profits to invest more in product differentiation and beat leaders. materials. Must respond to the strategic moves of its differential competitors and increase the quality and features of its products if it is to prosper in the long run 70 .Implications    To pursue a full blown cost-leadership.

Product differentiation can be achieved in three ways    Quality Innovation Responsiveness to customers   Generally. a differentiator chooses to segment its market into many segments and niches A differentiated company concentrates on the organizational functions that provide the source of its differentiation advantage.Differentiation Strategy   The objective of the differentiation strategy is to achieve a competitive advantage by creating a product that consumers perceive as different or distinct in some important way. 71 .

 Strategic manager’s long term ability to maintain a product’s perceived distinctness in customers’ eyes.Advantages and Disadvantages Advantages  Disadvantages     Differentiation safeguards a company against competitors to the degree that customers develop brand loyalty for its product Suppliers are rarely a problem as company’s strategy is geared more toward the price it can charge than toward costs Distinct product solves the problem of strong buyers The threat of substitutes depends on the ability of the competitors’ product. The ease with which competitors imitate the differentiator’s product 72 .

Focus Strategies  Focus Strategies position a company to compete for customers in a particular market segment. by type of customers. or by region or even by locality. which can be defined geographically. 73 .

then all the means of differentiation that are open to the differentiator are available to the focused company. 74 . Focused Differentiation Strategy : If a company uses a focused differentiation approach. it competes against the cost leader in the market segment in which it has no cost disadvantage.Focus Strategies   Focused Cost Leadership Strategy : If a company uses a focused low – cost approach.

or responsiveness to customers. 75 .Advantages    A focused company’s competitive advantage stem from the source of its distinctive competency: efficiency. This ability also gives the focuser power over its buyers because they cannot get the same things from anyone else. The company is protected from rivals to the extent that it can provide a product or service they cannot. innovation. quality.

76 .Disadvantages    Powerful suppliers The focuser’s niche can suddenly disappear because of technological change or change in customer’s tastes. The focuser is vulnerable and has to defend its niche constantly.

Risks of Generic Strategies Risks of Cost Leadership Risks of Cost Leadership Cost leadership is not Cost leadership is not sustained: • sustained: imitate. • The advantages of a •broad advantages of a The line increase. the industry. Proximity in differentiation is Proximity in differentiation is lost. other segments narrow. lost. • Demand disappears. even lower cost in segments. Other bases for cost • Other bases for cost leadership erode. • Structure erodes. Broadly targeted competitors Broadly targeted competitors overwhelm the segment: • overwhelm the segment: The segment’s • The segment’sother differences from differences from segments narrow. Newbroad linesubsegment focusers increase. • Bases for differentiation • Bases less important to become for differentiation become buyers. Cost focusers achieve even Cost focusers achieve lower cost in segments. Risks of Differentiation Risks of Differentiation Differentiation is not Differentiation is not sustained: • sustained: imitate. Cost proximity is lost. Competitors • Competitors imitate. leadership erode. Risks of Focus Risks of Focus The focus strategy is The focus strategy is imitated: imitated: The target segment becomes The target segment becomes structurally unattractive: • structurally unattractive: Structure erodes. • Technology changes. Cost proximity is lost. • Demand disappears. less important to buyers. Differentiation focusers Differentiation focusers achieve even greater achieve even segments. Competitors • Competitors imitate. 77 . • • Technology changes. New focusers subsegment the industry. differentiation ingreater differentiation in segments.

Ability to offer lower price to powerful Ability to offer lower price to buyers. Can use low price to defend against substitutes. Large buyers have less power to negotiate because of few close alternatives. supplier price increases to power because of low volumes. but a Suppliers have power because of low customers. Specialized products & core competency protect against substitutes. Large buyers have less power powerful buyers. Specialized products & core competency protect against substitutes.Rivals cannot differentiation-focused customer meet differentiation-focused needs. Can use low price to defend against substitutes. 78 . Customer's become attached to differentiating attributes. Focus Focusing develops core competencies that can act as an entry barrier. Threat of Substitute s Rivalry Better able to compete on price.BrandBetter able to compete on loyalty to keep customers from price. but a differentiation-focused because of low volumes. Customer's become attached to differentiating attributes. Customer's become attached to differentiating attributes. Better able to pass on suppliers. Ability to offer lower price to powerful buyers. Large buyers have to negotiate because of few close less power to negotiate because of alternatives. Better able to pass on increases to customers. Specialized products & core competency protect against substitutes. Better able to compete on price.Rivals cannot meet customers from rivals.Rivals cannot meet differentiation-focused customer needs.Brand loyalty to keep customers from rivals. Large buyers have less few close alternatives. reducing threat of substitutes. reducing threat of substitutes. Large power to negotiate because of few buyers have less power to alternatives. Suppliers have power differentiation-focused firm is better able to volumes. Large buyers have less power to negotiate because of few alternatives. but a pass on supplier price increases. reducing threat of substitutes. Supplier Power Better insulated from powerful suppliers. firm is better able to pass on supplier differentiation-focused firm is price increases. Can use low price to defend against substitutes. customer needs.Brand loyalty to keep rivals. negotiate because of few alternatives. Suppliers have supplier price increases to customers. Differentiation Customer loyalty can discourage potential entrants. Better insulated from powerful Better insulated from powerful Better able to pass on supplier price suppliers. better able to pass on supplier price increases.Industry Force Entry Barriers Buyer Power Generic Strategies Cost Leadership Ability to cut price in retaliation deters potential entrants.

Functional Strategy The approach a functional area takes to achieve corporate and business unit objectives and strategies by maximizing resource productivity 79 .

Marketing Strategy – FRONTAL ASSAULT FLANKING MANEUVER BYPASS ATTACK ENCIRCLEMENT GUERRILLA WARFARE Pricing Functional Strategy pricing Penetration pricing Dynamic pricing Selling Distribution Product development Line extension Advertising and promotion Push strategy Pull strategy Skim 80 .

Functional Strategy Financial Strategy – Leveraged buyout Reversed stock split Tracking stock 81 .

Functional Strategy R&D Strategy – Technological leader Technological follower Open innovation 82 .

Functional Strategy Operations Strategy – Job shop Connected line batch flow Flexible manufacturing systems Dedicated transfer lines Mass production Continuous improvement system Modular manufacturing 83 .

Functional Strategy Purchasing Strategy – Multiple sourcing Sole sourcing Just-in-time (JIT) Parallel sourcing 84 .

Functional Strategy Logistics Strategy – Centralization Outsourcing Internet 85 .

Functional Strategy HRM Strategy – 360 degree appraisal 86 .

Functional Strategy Outsourcing errors – Activities that should not be outsourced Wrong vendor selection Writing poor contract Overlooking personnel issues Hidden costs of outsourcing Failing to plan exit strategy 87 .

Proposed Outsourcing Matrix 88 .

Functional Strategy Strategies to Avoid – 3 Follow the leader Hit another home run Arms race Do everything Losing hand 89 .

Functional Strategy Subjective Factors Affecting Decisions -Management’s attitude toward risk Pressures from stakeholders Pressures from corporate culture Needs and desires of key managers 90 .

Strategic Choice Evaluation of Strategic Alternatives -Mutual exclusivity Success Completeness Internal consistency 91 .

PORTFOLIO ANALYSIS 92 .

Corporate Strategy Portfolio Analysis -Resource commitment on best products to ensure continued success Resource commitment on new costly products high risk 93 .

Stages of the Industry Life Cycle 94 .

Products have limited life. each posing different challenges. Product Sales pass through distinct stages. 3. eg: Nylon) 95 . 2. Product Life Cycle asserts four things. financial. Profits rise and fall through different stages of the life cycle. Growth-Slump-Maturity pattern (small kitchen appliances) Cycle Recycle Pattern Scalloped Pattern (succession of PLC’s. Maturity and Decline.PRODUCT LIFE CYCLE          Most product sales observed over long periods can be portrayed as bell shaped curves – Product life cycle curves which can be typically divided into four stages: Introduction. purchasing and H. 1. manufacturing. Growth.R. 4. strategies in each life cycle stage. Products require different marketing. opportunities and problems to the seller.

•Prices tend to be high as costs are higher. Hi PRICE SLOW SKIMMING SLOW PENETRATION RAPID SKIMMING RAPID PENETRATION Lo Hi 96 PROMOTION . induce trial and secure distribution in retail outlets. sales expensive as conversion rates are lower (innovators).INTRODUCTION . •Promotion at the highest ratio to sales – inform customers.Delays in production capacity expansion /technical problems.STRATEGIES •Sales growth tends to be slow . Distribution/retail chains being put up.

New competition as sales and profits are growing. 97 97 . Prices remain where they are or fall slightly to allow better penetration or for entry into other segments. Profits increase even with higher promotion costs as it gets spread over higher sales volume. Time noted for the introduction of variants/ brand extensions. Innovators. early adaptors like the product and continue to buy the product while middle majority starts trying. The stage where we see entry of competition in large numbers.GROWTH STAGE        Introduction is followed by a stage marked by rapid climb in sales.PLC . Growth is a period of rapid market acceptance & substantial profit improvement. Companies starts to eye for market share. Companies maintain promotion at same or higher level.

Enters new distribution channel. Firm that pursues market expansion strategy will improve its competitive position. Faces tradeoff between high market share to high current profit.GROWTH STAGE         MARKETING STRATEGIES Firm improves product quality and adds new features and models.PLC . 98 98 . Prices should be reduced (or low priced variants launched) at the right time to attract the next level of price sensitive customers. Enters new market segments. Advertising focus shifts from awareness / knowledge to Interest/desire/conviction.

Stable Maturity: Most potential customers have tried the product. Growth predominantly due to trial by laggards. Growth Maturity: Sales growth starts to fall due to distribution saturation. 99 . Hence the most important phase in PLC. 3. A stage characterized by the slow down in the growth rate. Most of practical Marketing management deals with a mature product. Decaying Maturity: Absolute level of sales decline. Future sales governed by population growth and replacement demand.MATURITY STAGE         Many products which we see around us are in the maturity stage of PLC. Three Phases 1.profit Erosion---weak exit. Slow down in sales growth causes over-capacity ----Intensified competition ----. 2.PLC .price wars ---.

Try expand the no. NIIT/Apple. of Brand Users by: Convert non users: Attempts to convert non coffee drinkers to try coffee. Increased advertising spends. = No. More Consumer / Dealer cuts.MATURITY STAGE STRATEGIES            R&D spends are increased to find better versions. Win competitors customers: Pepsi/Coke. Three types of interventions are taken up by Marketers. Cerelac adapted for the senile. Sales vol. of users X usage rate. Market Modification: Company should not try to conserve but should try & expand market for its Brand. Enter new market segments: Johnson & Johnson baby shampoo for adults. 1. 100 .

New more varied uses: Recipe route tried out by microwave oven manufacturers. 101 . More usage per Occasion: Shampoo giving better results in two rinsing. Sachets by shampoo manufacturers for travelers. clinic shampoo. more SKU’s. 2.MATURITY STAGE STRATEGIES       Volume can also be increased by focusing on the Current Users – convincing them to use more. vending machines. PRODUCT MODIFICATION Stimulate sales by modifying the product’s characteristics by improvements in quality. feature and style. More frequent use: Biscuits an all time snack. Arm & Hammer Baking soda as a refrigerator deodorant. Coke instead of coffee/tea. variety of SKU.

Indica V2.from FMCG manufacturers --------. PRODUCT MODIFICATION Quality Improvement: Functional performance improved. Aimed at triggering Brand switching Style Improvement: Aimed at increasing aesthetic appeal. better.for cars.– Lifebuoy Plus.risk of losing those who liked earlier version 102 . bigger.New Improved eg: Santro Xing. Advantages: Unique identity / can secure loyal customers. Consumer/packaged food bringing packaging /color variants.STRATEGIES FOR MATURE STAGE            2. white goods . Major disadvantage arises from the fact that it is difficult to judge customer preferences --. Periodic intro of color variants by auto manufacturers.stronger. Plus launch . TV.

Helps to win loyalty of some segments.. 103 . Trying price specials. early bird discounts.STRATEGIES FOR MATURE STAGE (contd. Marketing Mix Modifications: Product Manager should also try to stimulate sales by modifying Mktg. Can generate enthusiasm for sales force and dealers. 3. easier credit terms to retain loyal customers.)            Advantages of feature improvements Build progressive and leadership image for co. Price: Decision whether a price cut will attract new customers. (Maruti) New features can be made optional (adapted or dropped easily). Mix. Cost effective publicity. Main disadvantage is that many of these can be easily imitated.

Sales Promotion: Step up trade discount Price offs. Questions on territory revisions. Marketing Mix Modifications: Advertising: Change message. Rebates. Build new brand identity / image. Mass distribution and penetration efforts may not help – can lead to profit erosion. warranties.vehicle mix. incentive plans.copy. Personal selling: should the quality of sales people or their area of specialization need to be changed.MATURITY STAGE STRATEGIES           3. Disadvantages: can be easily copied. to target new audience. planning of sales call etc. media. gifts etc. 104 . Direct comparison Ads about competition. Extending technical services. timing/frequency. festival offers. Services: can the company speed up delivery.

As sales decline. Sales may plunge to zero or gradually fall for a long period. 105       . profits fall.STRATEGIES FOR DECLINE STAGE      Sales of most products/brands eventually decline –. 3. 2. It can delay aggressive search for alternatives/replacement. Technological advancements in the product category. Increased domestic & foreign competition-----price cutting/ over capacity/ profit erosion. Those remaining drop smaller market segments & marginal trade channels to conserve profits. Consumer shifts in taste & perception. They may cut their promotion budgets and may reduce prices further. carrying a weak product is very costly to the firm. 1. Some of the weaker firms withdraw. Unless strong reasons for retention exist.

    106 .) 4. Hold investment level until uncertainties about the industry are resolved. Decreasing investment selectively. Inventory/service level to be maintained.STRATEGIES FOR DECLINE STAGE       MARKETING STRATEGIES: 1. Increase firms investment (Dominate the market or to strengthen its competitive position) 2. (Unprofitable target groups/ markets/ products will have to be identified and instead look for strong niche’s. Divest the business quickly by disposing off its assets as advantageously as possible. 3. 5. Harvesting: milking to recover cash quickly (Brands with high loyalty can continue longer without any investments). Drop Decision: Sell/transfer to someone Should drop slowly or fast.

Difficult to Decide the Stages: A dormant sales (flat) pattern may denote the product has reached maturity while it may be just that the product has touched a plateau before another growth period. 107 .P. Unpredictable Turning Points: While most products do peak and then fall there is no specific turning point. Tendency to drop a product due to such readings can turn out to be fatal due to the risks involved in new product development.C WEAKNESSES        No Uniform Shape: An ‘S’ shaped curve describes only shape of PLC while most of them vary or are unique.L.

Rapid growth can be associated with low profits and decline can be very profitable.C WEAKNESSES   Unclear Implications: Growth phase may or may not be associated with high profit margin. Product Oriented: Fails to understand the changes in the requirement of customers / strategies of competitors. product categories have different driving forces.P. 108    . attractiveness of new market to competitors/ Emergence of technologies etc. Technologies.L. needs/ demands.

attractiveness of new market to competitor-ors / Emergence of technologies etc. Technologies.      No Uniform Shape: An s shaped curve describes only shape of PLC while most of them vary or are unique. Product Oriented: Fails to understand the changing requirement of customers / strategies of competitors. Difficult to Decide the Stages : A dormant sales (flat) pattern may denote the product has reached maturity while it may be just that the product has touched a plateau before another growth period. product categories have different driving forces. Unpredictable Turning Points: While most products do peak and then fall there is no specific turning point. 109 P. Say rapid growth can be associated with low profits and decline can be very profitable.L.C WEAKNESSES . Tendency to drop a product due to such readings can turn out to be fatal due to the risks involved in new product development Unclear Implications: Growth phase may or may not be associated with high profit margin. needs/ demands.

To manage its portfolio of businesses Focuses on relative market share position and the industry growth rate. To enhance and formulate strategies. a separate strategy often must be developed for each business. 110 .Boston Consulting Group (BCG) Matrix     When a firm’s divisions compete in different industries.

0 High Medium Low Industry Sales Growth Rate Stars IV Med Question Marks III Cash Cows I Low Dogs II 111 .BCG Matrix Relative Market Share Position High 1.

Divisions located Quadrant I is called Cash Cows. Quadrant IV is called Stars. Quadrant III is called Question Marks.BCG Matrix        Pie Chart corresponds to corporate revenue generated by that business unit. 112 . The pie slice indicates the proportion of division’s profit. Quadrant II is called Dogs.

BCG Portfolio Matrix MARKET SHARE DOMINANCE HIGH LOW MARKET GROWTH RATE High growth Market leaders Require cash Large profits High growth Low market share Need cash Poor profit margins HIGH LOW $ $ Low growth High market share High cash flow Low growth Low market share Minimal cash flow 113 .

Cash Cows  High relative market share but compete in a low-growth industry   Generate cash in excess of their needs Milked i.e. cash for other purposes  Manages to maintain strong position as long as possible    Product development Concentric diversification Retrenchment or divestiture if the division becomes weak 114 .

Dogs   Low relative market share and compete in a slow.or no-growth industry Weak internal and external position    Liquidation Divestiture Retrenchment 115 .

g. 116 .Question Marks  Low relative market share—compete in a high growth industry   Cash needs are high Cash generation is low  Decision: strengthen by pursuing an intensive strategy. to sell them. e.

   Integration strategies Intensive strategies Joint ventures 117 .Stars    High relative market share and a high industry growth rate Represent the organization’s best long-run opportunities for growth and profitability. Substantial investment to maintain or strengthen their dominant position.

BCG Matrix 118 .

BCG Portfolio Matrix Example MARKET SHARE DOMINANCE HIGH LOW Integrated phone/Palm devices PROBLEM CHILD Mainframe Computer MARKET GROWTH RATE HIGH Sub-Notebooks and Hand-Held Computer STAR Laptop and Personal Computers CASH COW LOW DOG 119 .

Investment characteristics Needs of an organization’s various divisions. 120 .BCG Matrix & Benefit       Setting the path for growth Knowing dead investments Draws attention to the cash flow. To achieve a portfolio of divisions that are Stars.

The BCG matrix does not reflect whether or not various divisions or their industries are growing over time.BCG Matrix Limitations     Viewing every business as a star. dog. Middle of the BCG matrix is not easily classified. Other variables besides relative market share position and industry growth rate in sales are important in making strategic decisions about various divisions. 121 . cash cow. or question mark is overly simplistic.

Parenting-Fit Matrix Low Heartland MISFIT between critical success factors and parenting characteristics Ballast Edge of Heartland Alien Territory Value Trap Low FIT between parenting opportunities and parenting characteristics High High 122 .

Corporate Strategy Corporate Parenting Strategy -Strategic factors performance improvement Analyze fit 123 .

McKinsey’s 7 S Model
Strategy

Structure

Super Ordinate GoalsShared Values

Systems

Style
Staff

Skills

124

125

Constructing Corporate Scenarios

126

Implementation of a strategy 127 .

Process by which strategies and policies are put into action through programs. budgets. and procedures. The toughest phase in Strategy Management 128 .Strategy Implementation    Sum total of the activities and choices required for the execution of a strategic plan.

Strategy Implementation •More time than planned •Unanticipated problems •Activities ineffectively coordinated •Crises deferred attention away •Employees w/o capabilities •Inadequate employee training •Uncontrollable external factors •Inadequate leadership •Poorly defined tasks •Inadequate information systems Problems in Implementing Strategic plans 129 .

IS STRATEGY FUNCTIONAL? DESIGN OF OBJECTIVES & COMMUNICATE TO CONCERNED TASK BREAK DOWN EVALUATION OF OUT COME TRAINING & DEVELOPMENT OF MANAGERS STRATEGIC IMPLEMENTATION & CONTROL PROCESS ORGANISATION DESIGN & DEVELOPMENT DELEGATION OF TASK & AUTHORITIES & RESPOSIBILITIES RESOURCES MOBILISATION & ALLOCATION DESIGN OF SIS /MIS DESIGN OF PERFORMANCE STANDARD 130 .

Successful strategy formulation does not guarantee successful strategy implementation.The Nature of Strategy Implementation The greatest strategy will be failed if it’s implemented badly. Less than 10% of strategies formulated are successfully implemented! 131 .

The Nature of Strategy Implementation Strategy Implementation can have a low success rate • Implementation may fail due to:     Failing to segment markets appropriately Paying too much for a new acquisition Falling behind competition in R&D Not recognizing benefit of computers in managing information 132 .

The Nature of Strategy Implementation Successful Strategy Implementation     Market goods & services well Raise needed working capital Produce technologically sound goods Sound information systems 133 .

Implementation   Formulation focuses on effectiveness Implementation focuses on efficiency • Formulation is primarily an intellectual process • Implementation is primarily an operational process • Formulation requires good intuitive & analytical skills • Implementation requires special motivational & leadership skills • Formulation requires coordination among a few individuals • Implementation requires coordination among many individuals 134 .Formulation vs.

Nature of Strategy Implementation Strategy Implementation Varies among different types & sizes of organizations  135 .

Nature of Strategy Implementation Implementation Activities       Altering sales territories Adding new departments Hiring new employees Cost-control procedures Modifying advertising strategies Building new facilities 136 .

Nature of Strategy Implementation Management Perspectives  Shift in responsibility Strategists Division or Functional Managers 137 .

Management Issues Annual Objectives Management Issues Resources Organizational structure Restructuring 138 .

Management Issues (cont’d) Resistance to Change Management Issues Production/Operations 139 .

Management Issues Purpose of Annual Objectives -Basis for resource allocation Mechanism for management (e. & departmental) 140 .g. division. IT management) evaluation Metric for gauging progress on long-term objectives Establish priorities (organizational.

Management Issues -. 141 .Central management activity that allows for the execution of strategy Resource Allocation enables resources to be allocated according to priorities established by annual objectives.

Financial resources 2. Physical resources 3.Management Issues 4 Types of Resources 1. Human resources 4. Technological resources 142 .

is structure based on location or based on the product… 143 .Changes in strategy = Changes in structure  Structure dictates how objectives & policies will be established and how resources will be allocated.g. e.Management Issues Matching Structure with Strategy -.

Structure should be designed to facilitate the strategic pursuit of a firm New strategy Is formulated New administrative problems emerge Organizational performance declines Organizational performance improves New organizational structure is established 144 .

# of hierarchical levels. e.g. The Internet is ushering in a new wave of business transformations… 145 .Management Issues Restructuring -. divisions and/or units.Reducing the size of the firm – # of employees.

jobs. 146 . & processes to improve cost. a firm uses information technology to break down functional barriers and create a work system based on business processes… Reconfiguring or redesigning work.Management Issues Reengineering In reengineering. quality… (alteration of Scott Morton’s value chain) Think of an example.

Inconvenience or Uncertainty Force Change Strategy Educative Change Strategy Rational or Self-Interest Change Strategy 147 .Single greatest threat to successful strategy implementation Raises anxiety.Management Issues Resistance to Change -. fear concerning: economic loss.

Management Issues Production/Operations Concerns Production processes typically constitute more than 70% of firm’s total assets Decisions concern e. : Plant size Quality control Technological innovation 148 .g.

Product positioning 149 .Marketing Issues Marketing variables affect success/failure of strategy implementation 1. Market segmentation 2.

Marketing Issues
Market Segmentation: Subdividing of a
market into distinct subsets of customers according to needs and buying habits

Market segmentation variables:
   

Product Place Promotion Price

150

Marketing Mix – Component Factors
Product Quality Features Style Brand name Packaging Product line Warranty Service level
151 151

Place Distribution channels Distribution coverage Outlet location Sales territories Inventory levels/locations Transportation carriers

Promotion Advertising Personal selling Sales promotion Publicity

Price Level Discounts & allowances Payment terms

Marketing Issues Product Positioning

Schematic representations that reflect how products/services compare to competitors’ on dimensions most important to success in the industry; I.e. according to customer wants and customer needs

152

Finance/Accounting Issues Essential for implementation     Acquiring needed capital Developing projected financial statements Preparing financial budgets Evaluating worth of a business 153 .

154 .Research & Development Issues New products and improvement of existing products that allow for effective strategy implementation  Use an R&D strategy that ties external opportunities to internal strengths and is linked with objectives.

1st firm to market new technological products Innovative imitator of successful products Low-cost producer of similar but less expensive products 155 . 2. 3.Research & Development Issues 3 Major R&D approaches to implementing strategies 1.

Management Information Systems (MIS) Issues Information is the basis for understanding the firm. & storage Keeping managers informed Coordination of activities among divisions Allow firm to reduce costs 156 . retrieval. One of the most important factors differentiating successful from unsuccessful firms • • • • • MIS used to : Information collection.

Evaluation and Control Return on Investment (ROI) Traditional Financial Measures Earnings per Share (EPS) Return on Equity (ROE) 157 .

SHELAT 158 .THANK YOU. ANY QUESTIONS? …….JANAK V.