Concept of Strategy
The word ‘strategy’ comes from the Greek word ‘ strategos’
which means generalship and combines stratos (the army) and
ago (to lead).
A strategy is the means to achieve objectives.
Coordination between objectives and strategy.
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Strategy Definition
• ‘Strategy is a process of adapting the firm to its environment.’
• ‘Strategy is how the firm achieves its objectives by applying
its resources to cope with its environment.’
• Strategy outlines how management plans to achieve its
objectives.
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Strategy Definition
“A plan of action designed to achieve a long-
term or overall aim”.
“The art of planning and directing overall military operations and
movements in a war or battle”.
Source: Oxford Dictionary
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Strategy 5 Ps
1. Strategy As Plan: Planning is an essential part of the strategy
formulation process (SWOT Analysis, PEST Analysis,
Brainstorm)
2. Strategy As a Ploy: A specific strategy intended to disrupt,
dissuade, and discourage a competitor.
3. Strategy As a Pattern: Past organizational behavior.
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Strategy 5 Ps
4. Strategy As a Position: Niche market and differentiator
5. Strategy as a Perspective: How an organization is perceived
by its employees, customers and investors will impact the
strategy formulation.
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Importance of Strategy
1. Strategy is Significant because it is not possible to foresee the
future. (proactive)
2. Strategy is created to take into account the probable behavior
of customers and competitors.
3. Defines Accountabilities.
4. Strategy is a blend of internal and external factors of the
organization.
5. Strategy provides overall framework for guiding
organizational thinking and action.
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Difference Between Policy & Strategy
1. Strategies deal with external environmental factors. On the
other hand, Policies are made for the internal environment of
business.
2. Strategies often contain methodologies used to achieve the set
target. In contrast, Policies determine what is to be done and
what should not be done in specific circumstances.
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Difference Between Policy & Strategy
3. The policy is a set of common rules and regulations, which
forms as a base to take the day to day decisions whereas strategy
is a course of action.
4. Business policy is an overall guide/path of action that sets the
limits and the direction of managerial action; while a strategy is
deployed to mobilize the available resources.
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The Genesis of Strategic Management
In 1911, Harvard Business School introduced an integrative
course in management based on case studies aimed at creation
of management capability.
Gordon and Howell report sponsored by the Ford Foundation
recommended a capstone (integrative) course of business
policy.
The Pierson report sponsored by the Carnegie Foundation
recommended a capstone (integrative) course of business
policy
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Evolution of Strategic Management
Phase 1: Ad Hoc Policy-Making: Policy making as per the
requirements of business and current business environment.
Phase 2: Planned Policy: Fixed planning for a certain time
period.
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Evolution of Strategic Management
Phase 3: Strategy Paradigm: Rapid changes in business
environment made the fixed planned policy irrelevant.
Phase 4: Intersection of two broad field of enquiry: strategic
processes of business firms and responsibilities of general
management.
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Levels of Strategy
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Levels of Strategy
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Corporate Level Strategy
Corporate strategy describes a company’s overall direction in
terms of its general attitude toward growth and the management
of its various businesses and product lines. Corporate strategies
typically fit within the three main categories of stability, growth
and retrenchment.
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Corporate Level Strategy
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Definition of Strategic Management
Strategic Management can be described as the identification of
the purpose of the organisation and the plans and actions to
achieve that [Link] management is a continuous process
that involves attempts to match or fit the organization with its changing
environment in the most advantageous way possible (Lester A.
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Purpose of Business
1. Relative position in market.
2. Innovation:
3. Productivity (Input Vs. Output): It is a measure of efficiency.
4. To have physical and financial resources:
5. Earning Profit:
6. Workers performance and attitude:
7. Social responsibility
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Importance of Strategic Management
1. To shape the Future of business
2. Environmental awareness
3. Mangers and employers are innovative and creative
4. Creating long term objectives
5. Its helps to increase the productivity
6. To ensure discipline
7. To Make control
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Scope of Strategic Management
1. Management process. Management process are related to
how strategies are created and changed.
2. Management decisions. The decisions must relate clearly to a
solution of perceived problems (how to avoid a threat; how to
capitalize on an opportunity).
3. Time scales. The strategic time horizon is long. However, it
depends on a company in real trouble can be very short.
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Scope of Strategic Management
4. Structure of the organization. An organization is managed
by people within a structure.
5. Activities of the organization. This is a potentially limitless
area of study and we normally shall center upon all activities
which affect the organization.
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Strategic Decision Making
Strategic decisions deal with the long-run future of an entire
organization.
As organizations grow larger and more complex, with more
uncertain environments, decisions become increasingly
complicated and difficult to make.
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Characteristics of Strategic Decision
Making
1. Rare: unusual decision and typically have no precedent to
follow.
2. Consequential: Substantial resources and demand a great deal
of commitment from people at all levels.
3. Directive: Future actions throughout an organization
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Mintzberg’s Modes of Strategic
Decision Making
1. Entrepreneurial Mode: Strategy is made by one powerful
individual. Strategy is guided by the founder’s vision with
bold decisions. (Amazon)
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Mintzberg’s Modes of Strategic Decision
Making
2. Adaptive Mode: Reactive solutions to existing problems,
rather than a proactive search for new opportunities. (Digital
marketing, DCs)
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Mintzberg’s Modes of Strategic Decision
Making
3. Planning Mode: Systematic gathering of information,
generation of alternative and select right strategy.
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Mintzberg’s Modes of Strategic Decision
Making
4. Logical Incrementalism: A synthesis of the planning, adaptive
and entrepreneurial modes.
An organization probes the future, experiments and learn from a
series of partial (incremental) commitment. It is useful when
environment is changing.
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Strategic Decision Making Process
1. Evaluate current performance results: ROI, Revenue, Current
mission and objectives.
2. Review corporate governance: Performance of board of
directors and top management
3. Scan and assess the external environment: Strategic factors
that pose opportunities and threats
4. Scan and assess the internal corporate environment: Strategic
factors that are strength, core competencies, weakness
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Strategic Decision Making Process
5. Analyze SWOT factors: Review and revise corporate mission
and objectives
6. Generate, evaluate and select best alternative strategy
7. Implement selected strategies: via programs, budgets and
procedures
8. Evaluate implemented strategies: Feedback, minimum
deviation
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Strategic Intent
Strategic intent refers to the aspirations/obsession that an
organization aspire to achieve in the future through their vision,
mission and values, through defining their business and setting
their business model.
•Ranbaxy: Research based
•Tata steel: Low cost steel producer
•Adani Green
•NTPC
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Concept of Stretch
Stretch is a misfit between resources and aspirations.
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Concept of Leverage
Leverage refers to concentrating your resources to your strategic
intent.
Leverage means enhancing the firm resources and capabilities to
increase its competitive advantage.
Leverage refers to concentrating, accumulating, complementing,
conserving and recovering resources in such a manner that the
meager resource base is stretched to meet the aspirations that an
organization dares to have.
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Concept of Fit
Positioning the firm by matching its organizational resources to
its environment.
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Strategic Intent
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Hierarchy of Strategic Intent
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Vision
Vision articulates the position that a firm would like to attain
in the distant future.
Airtel: Our vision is to enrich the lives of our customers. Our obsession is
to win customers for life through an exceptional experience.
Dabur: Dedicated to the health and well being of every household
NTPC: To be the world’s leading power company, energizing India’s
growth.
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Process of Envisioning
Core Ideology: Enduring organization character that remains
unchangeable
Envisioned future: Long Term audacious goals and vivid
description of achievement.
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Mission
Mission is what an organization is and why it exists.
Organizations relate their existence to satisfying a particular need
of the society.
Airtel: Hunger to win customers for life
NTPC: Provide reliable power and related solutions in an
economically efficient and environment friendly manner, driven
by innovation and agility.
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Business Definition
What is our business? What will it be? What should it be?
‘Watches’
‘ATM’
‘Mobile’
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Abells three dimension of Business Definition
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Business Model
How does the organization make money
Dell Computers: Internet Based
Amazon : Virtual book seller
Wal-Mart: Every day low price
Budget Airlines: No Frills Service
Subscription Vs. Advertising Model
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Goals and Objectives
A goal is an open ended statement of what one wants to
accomplish with no quantification of what is to be achieved and
no time criteria for completion. While objectives are specific and
measurable.
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Goals and Objectives
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Strategic Management Process
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Core Competency
Core competency is a factor which gives you competitive advantage over
others.
(Interpersonal skills, Communication skills, Handling a situation)
Honda: Engine
Apple and Google: Innovation
Nike: Design
R&D:
Walmart: Supply Chain
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How to Check Core Competency
1. Competitor Differentiation (Imitation):
2. Customer value
3. Application of Competencies to other market/products
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Importance of Core Competency
1. Sustainable Competitive Advantage: Enables to survive in
competition
2. Can be applied in a wide variety of markets:
3. Difficult to imitate:
4. Outsourcing is difficult:
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Core Competency and Competitive
Advantage
1. A competitive advantage is gained when a company achieves a favorable
position in terms of quality, profits, etc. over its rivals.
2. Core competence is a particular set of skills or knowledge that is unique to
a company.
3. Rivals can also adopt the same methods to achieve a competitive
advantage so it is only a short term measure to gain success.
4. A company’s core competence is marked by its uniqueness and is difficult
to imitate so it is a long term measure to gain success.
5. Core competencies can be used to create sustained competitive advantage.
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Link Between Core Competency and
Competitive Advantage
1. It delivers superior value and extended benefits to customer.
2. It assists in unique differentiation of products/services which
is inimitable by competitors.
3. It explores and provides access to a wide range of markets.
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Michael Eugene Porter
Michael Eugene Porter is an American academic known for his
theories on economics, business strategy, and social causes.
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Competitive Structure of Industries
Michael Porter said that a corporation is most concerned with the
intensity of competition within its industry.
Intensity of competition determines the profit potential of an
industry/long term return on invested capital.
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Porter’s Five Forces
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Threat of New Entrants
An entry barrier is an obstruction that makes it difficult for a
company to enter in an industry.
New entrants are threat to established players.
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Threat of New Entrants
1. Government Policy (Licensing)
2. Economies of Scale
3. Product Differentiation
4. Monopoly Elements
5. Capital Requirements (Boeing and Airbus)
6. Switching Costs
7. Access to Distribution Channel
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Rivalry Among Existing Competitors
Competitive moves of a firm usually affects others and may be
retaliated like price changes, customer service, new product etc.
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Rivalry Among Existing Competitors
1. Number of Competitors
2. Rate of Industry Growth
3. Fixed Costs
4. Product Standardization & switching costs
5. Exit Barrier
6. Diverse Competitors
7. Capacity
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Threat of Substitute
Substitute products are those products that appear to be
different but can satisfy the same need as another product.
When switching cost is low, substitutes may have a strong
effect on an industry.
Substitutes limit the potential returns of an industry.
Petrol Vs Diesel
Coffee Vs Tea
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Bargaining Power of Buyers
1. Buyers compete with the industry by forcing down prices,
bargaining for higher quality or more services.
2. Extent of buyer’s information.
3. Potential of backward integration by buyer.
4. Switching costs.
5. Standardization & differentiation of the product. (Similar
products)
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Bargaining Power of Suppliers’
Suppliers can affect an industry through their ability to raise
prices or reduce the quality of purchased goods & services.
[Link] of the product to the buyer
[Link] of the buyer to the supplier
[Link] of substitutability of the product
[Link] for forward integration by suppliers.
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A Resource Based Approach to
Organizational Analysis
Organizational analysis is concerned with identifying and
developing an organization’s resources and competencies.
•PVR
•Netflix
Asset Light Strategy
Resources should be Valuable, Rare, Imperfectly Imitable and
Non-substitutable.
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VIRO Framework to Evaluate Firm’s
Competencies
Value: Does it provide competitive advantage? Enable strategies,
exploit opportunities or mitigate threats, improve efficiency
and effectiveness.
Rareness: Do other competitors possess it?
Imitability: Is it costly for others to imitate?
Organization: Is the firm organized to exploit the resource?
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Unit 2
