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Meet the needs of stakeholders Buy inputs – raw materials, labour, machinery and equipment, land Produce outputs – goods and services Focus on efficient use of resources Generate profit/surplus
• Who are the stakeholders? – Anyone who has an interest in the success of a business
An organization’s strategy shows what the organization wants to achieve and how will it achieve it.
It includes : The purpose (reason) of the organization Goals and objectives Plans and methods to achieve these goals and objectives
Strategy involves: The determination of basic long term goals and objectives of the organization The adoption of methods and course of action The allocation of resources necessary to achieve the goals
Definition of strategy
" ..the determination of the basic long-term goals and the objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals."
(Chandler, 1962, Strategy and Structures: Chapters in the History of the Industrial Enterprise, MIT Press, Cambridge) .
• Organization has a limited set of resources (e.g. time, people, money, physical resources) and they must decide how to use those resources.
• Example: You have the following resources:
– – – – Rs 50, 000,000 A building 10 employees A patent on new invention
Strategy is deciding what the organization is going to do and how it will use its resources
Examples of Strategy
• Strategy 1: manufacture equipment with the money and use the building and the people to manufacture gadgets. • Strategy 2: Outsource the production of widgets and use the people and building to be widget distributor or perhaps a gadget store. • Strategy 3: Sell the patent to a larger firm, sell the building, fire the employees and retire!
• What makes strategy difficult is that most business environments are competitive. • Competitive advantage: Factors which sets the firm apart from the rest of its competitors. • Basis for competition: cost, speed, quality, variety, level of service,...
Goal: An observable and measurable end result having one or more objectives to be achieved within a more or less fixed timeframe. Goals should be tied to an organization’s strategy or strategic plan. It simply follows the organization’s vision. Example: 1. Reduce overall budget costs by 10% by 2010. 2. Increase market share by 5% by 2011. 3. Increase revenues by 20% by 2012
Objective: A target that can be reasonably achieved within an expected timeframe and with available resources. Example:
Reduce overall budget costs by 10% by 2010.
Goals and objectives should be SMART and quantifiable.
Goal: I will lose 6 kilograms starting September 19th by cutting out desserts and snacks and by controlling my portion sizes in three months. Is it Specific? Is it Measureable? Is it Attainable? Is it Realistic? Is it Timely?
Is it Specific? Yes – losing 6 kilograms is very specific. If you had said that you just want to lose “some weight” in three months it would not be specific enough to target. Is it Measureable? Yes – whether or not you lose 6 kilograms in three months period is the measure. Is it Attainable? Yes – by changing your diet and portion sizes it is very attainable. If you didn’t specify “how” you were going to lose the weight it may not be attainable. Is it Realistic? Yes – if you had a goal to lose 6 kilograms in two weeks that would not be realistic. Is it Timely? Yes – If the goal to start the diet was before the summer holidays, it may not be good timing for the diet. But since it begins in September, it is very timely.
The purpose and unique services or products which an organization is offering. The reason for existence.
To refresh the world - in mind, body and spirit, to inspire moments of optimism - through our brands and actions and to create value and make a difference everywhere we engage. (Coca-Cola) To explore the Universe and search for life and to inspire the next generation of explorers. (NASA)
A vision statement is called a picture of your company in the future. Your vision statement is your inspiration and it answers the question, “Where do we want to go?” What you want the organization to be?
Toyota will lead the way to the future of mobility, enriching lives around the world with the safest and most responsible ways of moving people. (Toyota) To be led by a globally diverse workforce that consistently delivers outstanding business results, understands the various cultural demands of a global marketplace, is passionate about technology and the promise it holds to utilise human potential, and thrives in a corporate culture. (Microsoft) To become most successful premium manufacturer in the car industry.(BMW)
Long term plans designed to achieve the mission and the objectives. A conceptualization of how the goal could be achieved
Get feedback from the subscribers (Goal: Increase magazine sale) Eat less, exercise more (Goal: lose weight) Sell stuff in online store (Goal: Make money from my hobby)
Short term plans for implementing strategies. The methods and actions taken to accomplish strategies. How you will achieve your strategy ? A tactic is an action you take to execute the strategy
Provide surveys to get subscriber feedback. Encourage replies to emails to get subscriber feedback
Join weight watchers & get a gym membership
Decide whether to use Ebay or Shopify
Strategy vs. Tactics
Long term Major commitment of resources Difficult to reverse Made by senior managers Decisions are complex and non-routine
Short term Less resources committed Easier to reverse Usually made by junior managers Simpler and more routine decisions
The three big questions
The starting point for devising a strategy is to consider the following questions. Where are we now? Where do we want to go? How are we to get there?
The five “hows”
After setting the goals, the senior managers need to address the following questions How to grow? How to please the customers? How to compete with rivals? How to respond to changing markets? How to achieve the objectives?
Hierarchy of Strategy
The strategy has four major tiers: Corporate strategy Business strategy Functional strategies
(R&D, Marketing & Sales, Manufacturing, Human Resource, Finance)
(Regions, Plants, Departments within Functional areas)
Hierarchy of Strategy
Corporate strategy What set of business should we be in? Business strategy How should we compete in given business? Functional strategy How can this function contribute to the competitive advantage of the business?
Hierarchy of Strategy
Factors to consider when deciding strategy
Strategic planning and management Skills and resources Goals and objectives Risk involved Stakeholders needs and preferences Expected return
Why a strategy might fail
Unrealistic objectives Conflicting objectives Poor planning Poor execution of the plan Problem of business culture: resistance to change
The beliefs and values shared by people who work in an organisation How people behave with each other How people behave with customers/clients How people view their relationship with other stakeholders People’s responses to energy use, community involvement, absence, work ethic, etc. How the organisation behaves to its employees training, professional development, pay increments, work-load balance etc.
Dimensions of Organizational Culture
The basic factor which can affect the organization culture is the "Change". 1. Change of Management. 2. Change of Strategies. 3. Change of Business. 4. Change of Geographical location. 5. Change of Employees.
Types of Corporate Culture
Common corporate cultures are:
1. Vitalized Culture. 2. Bureaucratic Culture. 3. Stagnant Culture.
1. Members are encouraged and emphasized on innovation. They are not afraid of failures and even attempt trials even when they are risky. Example: Sony Corporation At Canon, a large scale new product development failed after a large investment in a plant in 1970. No one was punished and the president remarked himself as “foolish”. This event contributed to the cultivation of risk taking culture at Canon, Sony Corporation.
2. There is less social distance between members and their seniors and their colleagues than in other companies. Free communication flow among members, decisions are made as a team.
3. There are prompt responses to opportunities which result in frequent successful new product development. Members are willing to work for their life time, work hard and do not hesitate to report errors to their seniors.
1. In companies with this culture, rules and standards increase, the behavior of members are bound by these rules and members do not try to take risk. Deviation from the rules and standard is not allowed. 2. Hierarchy is important. The vertical social distance is large. 3. Implementation of new ideas is slow and imperfect. There are many discussions but little implementation occurs. Commitment to the organization is high but commitment to the job is low.
1. Members show no interest in new experiences. Individuals
are important. 2. Little generation of new ideas occurs. It is more preferable to stay close to what is known and familiar than to risk evaluation of things that might go wrong. 3. Rare to try new ventures, low productivity is the norm. 4. The stagnant type of corporate companies cannot survive competition.
Types of Strategies
1. 2. 3. 4. 5. 6. Integration Strategies Intensive Strategies Diversification Strategies Defensive Strategies Acquisitions, Mergers and Leveraged Buyouts Michael Porter’s Generic Strategies
Forward integration, backward integration, and horizontal integration are sometimes collectively referred to as vertical integration strategies. Forward Integration: It involves gaining ownership or increased control over distributors or retailers. Example: when a farmer sells his / her crops at the local market rather than to a distribution center.
Backward Integration: It is a strategy of seeking ownership or increased control of a firm’s suppliers. Example: If a bakery business bought a wheat farm in order to reduce the risk associated with the dependency on flour.
Horizontal Integration: When a company expands its business into different products that are similar to current lines. Example: A hot dog vendor expanding into selling burgers and club sandwiches would be an example of horizontal integration.
Market penetration, market development, and product development are referred to as intensive strategies. Market Penetration: A market penetration strategy seeks to increase market share for present products or services in present markets through greater marketing efforts (increasing the number of salespersons, offering extensive sales promotion items etc) Example: If there are 100 million people in a country and 60 million of those people have cell phones then the market penetration of cell phones would be approximately 60%. This would mean in theory there are still 40 million more potential customers for cell phones, which may be a good sign of growth for cell phone makers.
Market Development: Market development involves introducing present products or services into new geographic areas. Example: If product X is successful in region A why not to introduce it in region B.
Product development: It is a strategy that seeks increased sales by improving or modifying present products or services. Example: A dedicated research and development unit can improve / modify the present products but will entails large expenditures.
Concentric Diversification: Adding new, but related, products or services is widely called concentric diversification. This diversification helps a firm or any business in various ways: 1. Helps in developing new products 2. Provide various advantages while re-engineering existing products 3. Helps in increasing the market share of any firm or business Example: The addition of tomato ketchup and sauce to the existing "Maggi" brand processed items of Food Specialties Ltd. is an example of technological-related concentric diversification. In this type of diversification, the technology no doubt remains the same but various new varieties are added in it in order to make it more beneficial
Horizontal Diversification: Adding new, unrelated products or services is called conglomerate diversification. Example: A company that was making notebooks earlier may also enter the pen market with its new product.
Joint venture: It is a popular strategy that occurs when two or more companies form a temporary partnership or consortium for the purpose of capitalizing on some opportunity. This strategy can be considered defensive only because the firm is not undertaking the project alone. Example: A Used Car Dealer obtained his inventory of used cars from auctions. He made his purchases with money from private investors. These investors were promised a 50/50 share in the profit from selling the cars to the public. This was a wonderful joint venture deal for everyone. The dealer had his inventory financed at no interest; the investors had their investments fully secured by the cars; and they were also able to double their money in a very short time with relatively little risk.
Retrenchment: Retrenchment occurs when an organization regroups through cost and asset reduction to reverse declining sales and profits. Example: Retrenchment can entail selling off land and buildings to raise needed cash, reduce product lines, closing obsolete factories, automating processes, reducing the number of employees etc. Divestiture: Selling a division or part of an organization is called divestiture. Divestiture can be part of an overall retrenchment strategy to rid an organization of businesses that are unprofitable, that require too much capital, or that do not fit well with the firm’s other activities. Liquidation: Selling all of a company’s assets for their tangible worth is called liquidation. Liquidation is recognition of defeat and consequently can be an emotionally difficult strategy. However, it may be better to cease operating than to continue losing large sums of money.
Acquisitions, Mergers and Leveraged Buyouts Strategies
Acquisition: It occurs when a large organization purchases (acquires) a smaller firm, or vice versa. Merger: It occurs when two organizations of about equal size unite to form one enterprise.
Leveraged Buyouts: The acquisition of another company using a significant amount of borrowed money (bonds or loans) to meet the cost of acquisition. Often, the assets of the company being acquired are used as assurance for the loans in addition to the assets of the acquiring company. The purpose of leveraged buyouts is to allow companies to make large acquisitions without having to commit a lot of capital.
Michael Porter’s Generic Strategies
Cost leadership: It is a strategy of producing standardized products at very low per-unit cost for consumers who are price-sensitive. Examples: Tesco, Wall-mart, Dell Computers Differentiation: It is a strategy aimed at producing products and services considered unique industrywide and directed at consumers who are relatively price-insensitive. Successful differentiation can mean greater product flexibility, greater compatibility, lower costs, improved service, less maintenance, greater convenience, or more features. Examples: Federal Express with superior service; Caterpillar with high spare parts availability and 3M Corporation with its emphasis on technology leadership and innovation.
Michael Porter’s Generic Strategies
Focus “Niche”: It is a strategy of producing products and services that fulfill the needs of small group consumers (cultural, economic, political, geographical or age-related groups). This strategy employs either cost focus or differentiation focus within its target region and in this sense it is a narrower application as compared to the other two strategies.
1. A Cost Focus strategy involves a company gaining competitive advantage by being the low cost provider to the target region or audience. An example would be a company that offers a wide range of specialized juices (e.g. organic juice, flavored fruit juices) at low prices.
2. A Differentiation Focus strategy involves companies marketing a distinct or unique product in the target region or audience. Example: Companies specialized in supplying organic juices to certain marketing channels. An example is the Demeter brand of organic juices.