Amity School of Business

Business Policy and Strategic Management
Vivek Ahuja BBA Batch 2008-11 Semester VI

Amity School of Business

Module 1

Introduction


• • • •

Introduction to Strategy and Planning
Evolution of Strategic Management Concepts of Corporate Strategy Patterns of Strategy Development Phases in Strategic Management Process.

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Strategy…
The word ‘strategy’ has entered in the field of management from military where it refers to apply the forces against an enemy to win a war. Originally, the word strategy has been derived from Greek

word ‘strategos’ which means generalship. The word was used
first time around 400 BC.

The word strategy means the art of the general to fight in war.

Amity School of Business

…Strategy
The dictionary meaning of strategy is, “the art of so moving or disposing

the instrument of warfare as to impose upon
enemy, the place time and conditions for fighting

by one self.”

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Strategy in Management…
In management, the concept of strategy is taken in more broader terms. “Strategy is the unified, comprehensive and integrated plan that relates

the strategic advantage of the firm to the challenges of the environment
and is designed to ensure that basic objectives of the enterprise are achieved through proper implementation process.”

comprehensive and integrated plan. • Proper implementation ensures achievement of basic objectives.Amity School of Business …Strategy in Management It lays stress on the following: • Unified. . • Strategic advantage is related to challenges of environment.

Strategy helps the organization to meet its uncertain situations with due diligence. the future is always dark and hence. more are the chances of business failure. the organization is like a ship without a rudder. Without a strategy. which has no particular destination to go to.Amity School of Business Importance of Strategy An organization is considered efficient and operationally effective if it is characterized by coordination between objectives and strategies. . It is like a tramp. Without an appropriate strategy effectively implemented.

and when to take action. and other related elements.Amity School of Business Planning • What is Planning? Planning as a process involves the determination of future course of action. These “why. how. that is why an action. procedures. and when” are related with different aspects of planning process. ‘Why’ of action reveals that action has some objectives or the end result which an organization wants to achieve ‘What’ of action specifies the activities to be undertaken ‘How’ and ‘When’ generate various policies. how to take action. programs. what action. . what.

” .Amity School of Business “ Planning is the selection and relating of facts and making and using of assumptions regarding the future in the visualization and formalization of proposed activities believed necessary to achieve desired result.

Amity School of Business AOL/Time Warner. • The merger clearly changed the direction of the business.the world’s first Internet Powered media and communications company • In Jan 2001. its intended long-term position in the industry and had far-ranging implications on most parts of the business in terms of priorities and how the organization would function. the world’s largest ISP. . with Time Warner – the media and entertainment empire. the Federal Communications Commission in the USA approved a $105 billion merger of AOL.

telecommunications. and AOL's Steve Case .Amity School of Business • As business analysts said. media and entertainment were converging and would impact greatly the competitors in these sectors and their customers and potential consumers. left. the merger was a significant proof of the rate at which the sectors of computing. Time Warner's Gerald Levin.

customers sought for value providers who can provide a range of services through complementary channels and this opportunity was clearly optimized upon by AOL Time Warner merger. • Competitive advantage – The AOL / Time Warner merger was justified in terms of providing ‘content’ to an Internet Service Provider and giving a new ‘distribution route’ to the content provider.term direction – The AOL / Time Warner merger set the new company on the path as a multimedia giant. broadening the scope of activities was a major reason behind merger. • Strategic fit – It is developing strategy by identifying opportunities in the business environment and adapting resources and competences so as to take advantage of these. . • Scope of an organization’s activities – In the AOL / Time Warner case. – In the fast moving media and IT world.Amity School of Business Nature of Strategy • Long.

. it was constrained by regulatory authorities and lobby groups (including performers)-both in US and Europe. and the ability to persuade both the sets of shareholders that the deal made commercial sense. • Affect operational decisions – The merger required a whole set of decisions at the operational level. human resource policies and practices. setting up of new structures and management controls. • Strategy gets affected by stakeholders – The strategy also gets affected by values and expectations of those who have power in and around the organization. – In the merger though AOL could control everything. • Require major resource changes – AOL/ Time Warner had to redraft their resource allocation to enter markets with no tradition of subscription and where ‘piracy’ is prevalent.Amity School of Business Nature of Strategy • Strategy development by ‘stretch’ – Stretch is the leverage of the resources and competences of an organization to provide competitive advantage and / or yield new opportunities.

Amity School of Business The leading edge of strategy: fit or stretch ASPECT OF STRATEGY Underlying basis of strategy ENVIRONMENT-LED ‘FIT’ Strategic fit between market opportunities and organization’s resources ‘Correct’ positioning Differentiation directed by market need Find and defend a niche RESOURCE-LED ‘STRETCH’ Leverage of resources to improve value for money Differentiation based on competences suited to or creating market need Change the ‘rules of the game’ Portfolio of competences Competitive advantage through… How small players survive… Risk-reduction through… Portfolio of products/businesses Corporate centre invests Strategies of business in… units or subsidiaries Core competences 14 .

Amity School of Business Picture of the DAY Strategic Advantage .

Amity School of Business STRATEGIC MANAGEMENT .

Amity School of Business Strategic Management • The top management of an organization is concerned with selection of a course of action from among different alternatives to meet the organizational objectives. The process by which objectives are formulated and achieved is known as Strategic Management and Strategy acts as the means to achieve the objective. Strategy is the grand design or an overall ‘plan’ which an organization chooses in order to move or react towards the set objectives by using its resources. .

Amity School of Business Evolution of Strategic Management Four Paradigm shifts (Hofer) First phase – mid 1930’s Second phase – 1930’s and 1940’s Third phase – 1960’s – 1980’s – present Fourth phase .

rested on the paradigm of ad-hoc policy making. The need for policy making arose due to the nature of American business firms in that period. .Amity School of Business First Phase The first phase that can be traced back to the mid 1930’s. who later assumed the role of senior management. which commenced operations with a single product line catering to a unique set of customers in a limited geographical area expanded in one or all of these three dimensions. Policy making became the prime responsibility of erstwhile entrepreneurs. The firms.

Based on this second paradigm.S. planned policy formulation replaced ad-hoc policy making. ..Amity School of Business Second Phase Due to the increasing environmental changes in the 1930’s and 1940’s in the U. the emphasis shifted to the integration of functional areas in a rapidly changing environment.

there was a demand for a critical look at the basic concept of business and its relationship with the environment. based on strategy paradigm.Amity School of Business Third Phase Increasingly complexity and accelerating changes in the environment made the planned policy paradigm irrelevant since the needs of the businesses could no longer be served by policy-making and functional area integration alone. . By the 1960’s. The concept of Strategy satisfied this requirement and the third phase. emerged in the early sixties.

Amity School of Business Fourth Paradigm The current thinking – that emerged in the eighties – is based on the fourth paradigm of strategic management. . The initial focus of Strategic Management was on the intersection of two broad fields of enquiry: the strategic process of business firms and the responsibilities of the general management.

Amity School of Business The Risk of Strategic Drift Environmental change Strategic change 5 Amount of Change 3 2 1 4 Time Phase 1 Incremental Change Phase 2 Flux Phase 3 / 4 Transformational Change or Demise .

Amity School of Business Patters of Strategy Development • Incremental • Flux • Transformational • Demise .

Amity School of Business Strategy Development in Environmental Contexts Environmental conditions Simple Static •Historical Analysis •Forecasting Decentralized Planning Complex Experience & Learning Scenario Planning Dynamic .

Amity School of Business Strategic Planning in Practice • For strategic planning to work. managers need to take not of current & future competitive environment • To forecast how the future may look like Scenario Planning can be used • Operating managers can be involved (Decentralized Planning) .

organizations might pursue one dominant strategy.Amity School of Business Scenario Planning • Involves formulating plans for “what if” scenarios about the future • Some scenarios are Optimistic & some are Pessimistic • Managers are asked to prepare strategies to cope up with each scenario • A set of indicators is chosen. thinking strategically & generating strategic options • Pushes managers to think “outside the box” . and the indicators are used as “signposts” to track trends and identify the probability that any particular scenario will come to pass • As a result of scenario planning. but make investments that will payoff of other scenarios come to fore • Helps managers understand the environment.

.Amity School of Business Scenario Planning Identify Different Possible Futures Formulate Plans to Deal with those Futures Invest in one Plan.. but… Switch strategy if Tracking of signposts Shows alternative Scenarios becoming More likely Hedge your bets by Preparing for Other scenarios And.

and it is carefully tracking technological and market trends for signs of which scenario is becoming more likely over time .Amity School of Business Scenario Planning • Example: Royal Dutch Shell – Using scenario planning since the 1980s – Today it uses two main scenarios to refine its strategic planning • “Dynamics as usual” – gradual shift from carbon fuels to renewable energy • “The spirit of the coming age” – looks at the possibility that a technological revolution will lead to a rapid shift to new energy sources – Shell is making investments that will ensure profitability of whichever scenario comes to pass.

Amity School of Business Decentralized Planning • Strategic planning process is generally top management’s responsibility in companies • They may not have understanding of the operating realities .

Amity School of Business Levels of Strategy .

• • A Company’s Strategy Making Hierarchy Overall strategy Amity School of Business A collection of strategic initiatives and actions devised by the managers and key employees up and down the whole organizational hierarchy Crafting a strategy involves answers to the following how’s: – How to out compete rivals – How to respond to changing market conditions – How to develop needed competencies – How to achieve strategic and financial objectives In a diversified multi-business companies strategy making involves levels of strategy involving different facets of company’s overall strategy • .

A Company’s Strategy Making Hierarchy • Corporate Strategy consisting of – Initiatives company use to establish in different businesses Amity School of Business – Approaches that are pursued to boost the combined performance – Usually reviewed and approved by Board of Directors .

A Company’s Strategy Making Hierarchy • Business Strategy Amity School of Business – Actions and approaches crafted to produce success in a specific line of business – Crafting response to changing environment – Responsibility of Business Head • Seeing that lower level strategies are well matched with overall business strategy • Getting major business level strategic moves approved by Corporate level officers .

approaches and practices employed to manage key activities within a business – Strategic initiatives for key operating units (plants. supply chain related activities) – Add detail and completeness to functional and overall business strategies .A Company’s Strategy Making Hierarchy • Functional – area Strategy & Operating Strategies Amity School of Business – Actions. distribution centers. geographic units) – Specific operating activities with strategic significance (advertising campaigns.

Amity School of Business Example of Jet Airways • Entry of low cost carriers changed the face of industry • Jet Airways started facing stiff competition from Air Deccan. Spice Jet & Kingfisher • Market share went down from 57% to 32% • Set up a new Corporate strategy: “Regaining and expanding its market share by entering and operating in the LOW COST and a VALUE BASED CARRIER arena as well” .

Amity School of Business Example of Jet Airways • In order to give a definite shape to the corporate strategy. a business level strategy was implemented: “the TAKEOVER of Air Sahara by Jet Airways and renaming it to form JETLITE” .

Amity School of Business Example of Jet Airways • Jet’s management made various changes in the operation strategies of the airline – No tickets at throw away prices – Jetlite was to take on Tier II and Tier III cities – New schedule for other tier II cities – Cost cutting – by slashing employee numbers and better negotiation with suppliers – Single cabin carriers – Improvement in aircraft utilization hours .

Amity School of Business Example of Vodafone • Corporate Level Strategy: Focus: – Deliver High performance in controlled businesses – Maximize shareholder returns in affiliates – Leverage measurable synergy benefits from scale and scope – Outperform acquisition business cases • Vodafone wanted to enter the Indian market in 2006-2007 – Gartner had figured that customer base in India would double by 2010 .

Amity School of Business Example of Vodafone • Business Unit Strategy – Acquired Hutchison Essar Limited and divested in Bharti Airtel .

Amity School of Business Example of Vodafone • Operational & Functional Strategies: – Investing in Rural India by network sharing with other providers – Cutting costs through: • Infrastructure sharing deal with Idea and Bharti • Creation of “Indus Towers” – – – – – – Redefining the logo High level of cost and time discipline Customer value enhancement Target areas: Mobile data. Employment . Enterprise and Broadband Technology upgradation CSR • Group Supply chain. Group Marketing.

Amity School of Business Intended & Emergent Strategies .

Amity School of Business Strategy As An Emergent Process • Criticism of Formal Planning: – Unpredictability of Real World – Autonomous Action: Strategy making by lower level managers – Serendipity and Strategy .

Mintzberg’s Model of Strategy Development Emergent and Deliberate Strategies Deliberate Strategy Planned Strategy Realized Strategy Amity School of Business Unpredicted Change Unrealized Strategy Emergent Strategy Unplanned Shift by Top Level Managers Serendipity Autonomous Action by Lower Level by Managers .

• unplanned strategic shift by top level managers when environment changes • Sometimes emergent strategies are more successful than the planned ones .Intended & Amity School of Business Emergent Strategies • A company’s realized strategy is the product – Planned strategies that are actually put into action and – Any unplanned strategies • Many Planned strategies not implemented because of unpredicted changes in the environment • Emergent strategies are unplanned responses to unforeseen circumstances – Arise from: • Autonomous action by individual managers. • fateful discoveries.

Amity School of Business Strategy Making in an Unpredictable World • Environment is uncertain. complex & ambiguous • Small changes may have large & unpredictable impact rendering strategic planning useless • Premium on being able to respond quickly & alter strategies .

Amity School of Business Strategy Making in an Unpredictable World • Example: – Dramatic rise of Google (pay per click model) disrupted the online advertising industry – Microsoft’s MSN network & Yahoo had to change their strategies rapidly – Both came out with their search engines .

Autonomous Action:Amity School of Business Strategy making by lower level managers • Too much importance to Top level management – Many important strategic decisions are initiated by lower level managers – Out of their own initiatives lower level managers come up with newer strategies and then lobby top managers for resources • Helpful for established companies in responding to paradigm shifts in industry • Top-level management sometimes have inertia .

a stores manager started bring his own music compilations • He started getting requests from customers for copies of those CDs • Jones suggested the CEO. where customers can burn their CDs while in the store . Howard Schultz that Starbucks should sell its own music – Since then. Starbucks has also moved into music downloading.• Example #1 Autonomous Action:Amity School of Business Strategy making by lower level managers – Original prototype of Microsoft’s Xbox was prepared by four lower level engineering employees on their own initiative – They convinced top level managers for the commercialization of the Xbox • Example #2 – Starbucks also sells music CDs at many of its outlets – Sales of those outlets with CDs are generally higher • Idea came into being when Tim Jones.

Serendipity & Strategy Amity School of Business • Examples of accidental events abound that help push companies in new & profitable directions • Some companies miss these opportunities because serendipitous discoveries do not fall in line with their prior strategies .

Drew invented one of the most practical items to be found in any home or office: transparent adhesive tape in 3M – Initially it had adhesives only along the edges – Was used in painting cars with two tones – During the Great Depression.Serendipity & Strategy • Example #1 Amity School of Business – Richard G. the telegraph company turned down an opportunity to purchase rights to the invention on Alexander Graham Bell! . people became creative with it and found hundreds of its use • Example #2 – A century ago.

Intended & Amity School of Business Emergent Strategies • Example: – Entry of Honda into US motorcycle market in 1959 – Honda executives (from Japan) focused on selling 250-cc & 350-cc machines – Sales were sluggish – Honda executives themselves were using 50-cc bikes & were attracting attention – They got a call from Sears & other stores – Honda launched those bikes – By 1964 one out of two motorcycles sold in US was a Honda .

ability to judge the worth – Whether emergent strategies fits companies needs & capabilities – Emergent strategies are a function of corporate culture & controls put in place .) – Credit should be given to Honda for recognizing the strength of the emergent strategy & for pursuing it • Management need to recognize: – Strategies can take root wherever people have the capacity to learn – Process of emergence.Intended & Amity School of Business Emergent Strategies • Example (Contd.

Amity School of Business Phases in Strategic Management Process .

PLANS & ADMINISTRATION EVALUATION & CONTROL FEEDBACK 55 Choice Implementation .Amity School of Business Strategic Management To determine mission. goals and values of firm and key decision makers MISSION & OBJECTIVES GENERAL ENVIRONMENT INDUSTRY & INTERNATIONAL ENVIRONMENT INTERNAL FACTORS Analysis & Diagnosis O&T S&W GENERIC STRATEGY ALTERNATIVES STRATEGY VARIATIONS STRATEGY CHOICE RESOURCE STRUCTURE POLICY.

reengineering.Model of Strategic Management Process Company Mission and Social Responsibility External Environment Remote / Industry / Operating Feedback Possible? Desired? Strategic Analysis and Choice Long Term Objectives Short-term objectives. and refocusing the organization Strategic control and continuous improvement . reward system Functional tactics Generic and grand strategies Policies that empower action Feedback Internal Analysis Restructuring.

Amity School of Business Thank You .