Strategic Mgt 2003

8/2/2019 Strategic Mgt 2003

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CONCEPT OF STRATEGY

&

STRATEGIC MANAGEMENT



SOME FUNDAMENTALQUESTIONS

• Does the senior management have a clearunderstanding of how the industry may bedifferent in the next 10 years?

• Is it regularly defining new ways of doing

business, building new capabilities andsetting new standards of customersatisfaction?

• Is management aware of the threats posedby new rivals?

• Do senior executives have a sense of urgency about the need to reinvent thecurrent business model?

• Is my company pursuing growth and new

business development?



STRATEGY

• GREEK WORD STRATEGOS – Science of guiding &

Directing

• COMPLEX PROCESS OF DETERMINING LONG TERM GOALS &COURSE OF ACTIONS NEEDED TO BE CARRIED OUT, ALLOCATIONOF RESOURCES FOR CARRYING OUT THESE GOALS.

• MOVING FROM WHERE YOU ARE TO WHERE YOU WANT TO BE INNEAR FUTURE THROUGH A SERIES OF DECISIONS AND ACTIONS.

• PRE DETERMINED COURCE OF ACTION

• HAS DEFINITE DIRECTION

• COMPETITIVE ADVANTAGE: Delivering superior value to targetcustomer at the same cost or delivering equal customer value at

lower cost relative to your competitor, on a continuing basis.



Simply…

• Strategy means putting things inplace carefully, and with a great dealof thought. It is the opposite of just

waiting for things to happen.



What is Strategy?

• Large-scale, future-oriented planfor interacting with the

competitive environment toachieve objectives

• Company’s “game plan”

• Framework for managerialdecisions



Strategic Decision Making

• Decision making process

• Focused on achieving Goals andobjectives

• Decision making for strategic task

• Difficult, Complicated and dynamic

Process



Dimensions of Strategic Decisions

• Strategic issues

• Require top-management decisions

• Require large amounts of the firm’sresources

• Often affect the firm’s long-termprosperity

• Are future oriented

• Usually have multifunctional ormultibusiness consequences

• Require considering the firm’s external

environment



STRATEGIC DECISION MAKING–ISSUES

• SETTING REALISTIC GOALS: Challenging but achievable

• RATIONALITY: Exercising best choice among alternatives

• CREATIVITY: Decision creative and original throughbrainstorming

• VARIABILITY : Every situation is unique

• DEMOGRAFHIC FACTORS: Age. Education, Intelligence,Values

Cognition. risk taking andcreativity

• GROUP DECISION MAKING: Partici ation



STRATEGIC MANAGEMENT

• Art and science of formulating,implementing and evaluating crossfunctional decisions that will enable

an organisation to achieve its goals.

• Three stages:

– Formulation

– Implementing

– Evaluating



STRATEGIC MANAGEMENT(contd.)

• According to HOFER,“ The processwhich deals with the fundamentalorganisational renewal and growth

with the development of strategies,structure and systems necessary toachieve such renewal and growth,

and with the organisational systemsneeded to effectively manage thestrategy formulation and

implementation process.”



Levels at which Strategyoperates

• For many companies, a single strategy isnot enough.

• There is a need for multiple strategies atdifferent levels.

• Many companies are organized on thebasis of operating divisions.

• These divisions are known as “Strategic

business units” or profit centers.• SBU – Any part of a businessorganisation which is treated separatelyfor strategic purpose.



Strategy at different levels

Corporate office

SBU

A

SBU

B

SBU

C

Finance Marketing Operations Personnel



Strategy at different levels.

• Corporate office : Corporate levelstrategies.

• S B U’s : Business level strategies.

• Functional : Functional levelstrategies.



Corporate level strategies.

• It is a plan of action, covering thevarious functions performed bydifferent SBU’s.

• The plan deals with the objectives of the company, allocation of resourcesand coordination of the S B U’s foroptimal performance.



SBU Level strategy.

• SBU strategies is a comprehensiveplan providing objectives for SBU’s,allocation of resources among

functional areas, and coordinationbetween them for making an optimalcontribution to the achievement of

corporate level objectives.



Functional Strategies

• Functional level strategies deal witha relatively restricted plan providingobjectives for a specific function,

allocation of resources amongdifferent operations within thatfunctional area, and coordination

between them for optimalcontribution to the achievement of SBU and corporate level objectives.



Other strategy levels

• Societal strategies: These strategiesare at a level higher than theCorporate level.

• Based on the mission statement asocietal strategy is a generalizedview of how the corporation relates

itself to society in terms of aparticular need or a set of needs thatit strives to fulfill.



Other strategy levels.

• Some strategies are also needed tobe set at lower levels, one step belowthe functional level. – Operating level

strategy

• E.g. A functional strategy at themarketing level could be sub divided

into sales, distribution, pricing,product and advertising.



HIERARCHY OF STRATEGY

CORPORATE STRATEGY

BUSINESS STRATEGY

FUNCTIONALS TRATEGY



Mintzberg's 5 Ps forStrategy

• The word "strategy" has been usedimplicitly in different ways even if it hastraditionally been defined in only one.

Mintzberg provides five definitions of strategy:

– Plan

– Ploy

– Pattern

– Position

– Perspective.



Some Useful Definitions of Strategy

Some Useful Definitions of Strategy

Strategy as the determinant of thelong-term goals of the enterprise. -Chandler

Strategy as the pattern of objectives, purposes, or goals andplans for achieving these goals. -

Andrews

Strategy as the common threadamong a firm’s activities. - Ansoff



The Five P’s The Five P’s

Plan



The Five P’sThe Five P’sThe Five P’sThe Five P’s

PloyPlan




PloyPlan

Pattern




PloyPlan

PatternPosition




PloyPlan

PatternPosition

Perspective



Plan

• Strategy is a plan - some sort of consciously intended course of action, a

guideline (or set of guidelines) to dealwith a situation. By this definitionstrategies have two essentialcharacteristics: they are made in advanceof the actions to which they apply, andthey are developed consciously andpurposefully.



Ploy

• As plan, a strategy can be a ploy too,really just a specific manoeuvre intended

to outwit an opponent or competitor.



Pattern

• If strategies can be intended (whether asgeneral plans or specific ploys), they canalso be realized. In other words, definingstrategy as plan is not sufficient; we alsoneed a definition that encompasses theresulting behavior: Strategy is a pattern -specifically, a pattern in a stream of

actions. Strategy is consistency inbehavior, whether or not intended. Thedefinitions of strategy as plan and patterncan be quite independent of one another:

plans may go unrealized, while patterns



PATTERN

• Realised pattern: Consistency in behaviourover time – Looking at past behaviour

• Intended strategy – Deliberate strategy (80%)

– Unrealised strategy (20%)

• Unrealised strategy – which can’t be or is not

accomplished• Emergent strategy – emerges due to the pastpatterns

• DELIBERATE STRATEGY + EMERGENT

STRATEGY = REALISED STRATEGY



Position

• Strategy is a position - specifically amean of locating an organization in an"environment". By this definition strategy

becomes the mediating force, or "match",between organization and environment,that is, between the internal and the

external context.



Perspective

• Strategy is a perspective - its contentconsisting not just of a chosen position,but of an ingrained way of perceiving theworld. Strategy in this respect is to the

organisation what personality is to theindividual. What is of key importance isthat strategy is a perspective shared bymembers of an organisation, through

their intentions and / or by their actions.• Organisations fundamental way of doing.• Changing position within the same

perspective is easy rather than changing

perspective in the same position.



What is Strategic Management?

The set of decisions and actions that result

in the formulation and implementation of

plans designed to achieve a company’s

objectives.



STRATEGIC MANAGEMENT PROCESS

ESTABLISHMENT OF

STRAT. INTENTS

FORMULATION OF

STATEGIES

IMPLEMENTATION

OFSTRATEGIES

REVIEW,EVALUATION

CONTROL

VISION & MISSION statements, Business Definition

Adopting Business Model, Setting Goals & Objectives

Environmental Scanning and internal analysis,Conducting SWOT, Formulating CORPORATE &BUSINESS LEVEL Strategies, Strategic Analysis,

Strategic Choice, Strategic Plan.

Activating Strategies, Designing Structure, Systems&Processes, Behavioral & Functional implementationAnd Operationalising strategies

Performing Strategic Evaluation, Exercising StrategicControl and Reformulating Strategies



Strategic ManagementProcess

1)Establishing the hierarchy of strategic intent:

• Creating and communicating avision.

• Designing a mission statement.

• Defining the business.

• Setting objectives.



Strategic managementprocess

2) Formulation of strategies:

• Performing environmental appraisal.

• Doing organizational appraisal.

• Considering corporate levelstrategies.

• Considering business level

strategies.• Strategic analysis.

• Formulating strategies.

• Preparing strategic plan.



Strategic managementprocess.

3) Implementation of strategies:

• Activating strategies.

• Designing structures and systems.• Managing behavioral

implementation.

• Managing functional implementation.• Operationalizing strategies.



Strategic managementprocess

4) Performing strategic evaluation andcontrol:

• Performing strategic evaluation.

• Exercising strategic control.

• Reformulating strategies.



Strategists and their role inStrategic Management.

• Strategists are individuals or groupswho are primarily involved in theformulation, implementation and

evaluation of strategy.• So all managers are strategists in a

limited sense.

• Persons outside the organization arealso involved in strategicmanagement. They are also

strategists – Consultants.



Various strategists

• Board of Directors: Is responsible forthe governance of the organization.

• As directors, the members of theboard are responsible for providingguidance and establishing thedirectives according to which the

managers of the organization canoperate.



Various strategists.

• The Chief Executive Officer: Is themost important strategist who isresponsible for all the aspects of

strategic management, right fromformulation to the evaluation of strategy.

• He plays a very important role instrategic decision making.



Various strategists

• Entrepreneurs: are persons whoalways searches for change,responds to it and exploits it as an

opportunity.• They play a very important and a

proactive role in strategic

management. They provide a senseof direction to the organization andset objectives and formulate

strategies to achieve them.



Various strategists

• Senior Management: When assigned withspecific responsibilities senior managerslook after modernization, technology up

gradation, diversification and expansion,plan implementation and new productdevelopment.

• Senior managers perform a variety of

roles by assisting the board and the CEOin formulation, implementation andevaluation of strategies.



Various strategists

• SBU level executives: The idea fororganizing to SBU is to manage adiversified company as a portfolio of

businesses.• SBU level heads are also known as

profit center heads are considered as

CEO’s of a defined business unit forthe purpose of strategicmanagement.



Various strategists

• Consultants: The main advantage of hiring consultants is getting unbiasedand objective opinion from a

knowledgeable outsider andavailability of specialist’s skills.

• Some Consulting co’s are, Mc Kinseyand company, KPMG, Bostonconsulting, etc.



Hierarchy of

STRATEGIC INTENT



STRATEGIC INTENT

• To achieve success, organizations have toprimarilyfocus on hierarchy of strategic intents – Vision,Mission, Business Definition, Goals andObjectives

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

• Framework within which organization operate

and adopt a predetermined direction

• Where it want to go and what organizationstands for.

• Purposes the organizations strive for.



CONCEPT OF STRETCH,LEVERAGE& FIT

STRETCH : Misfit between Resources & Aspirations

LEVERAGE : Refers to concentrating,accumulating,

conserving. contemplating and utilizing precious &

scarce resources in such a manner that these are

stretched to meet the aspirations of a company.

FIT : Positioning the firm by matching itsorganizational

resources to its environment.



VISION

• Future aspirations that lead to aninspiration

• Basic & at the top of hierarchy of strategic

intents• Is what a person or an organization would

ultimately like to attain in the near future.

• A vision is generally more dreamt than it is

articulated

• By its nature it may be as good as adream, yet it is a powerful motivator for

actions.



GOOD VISION STATEMENTS

• Inspiring & exhilarating

• Help in the creation of a common identity and ashared sense of purpose.

• Competitive, original and unique.

• Make sense as these are practical.

• Foster risk- taking and experimentation.

• Foster long term thinking.

• Truly genuine, represent integrity and are meantto benefit stakeholders.



ENVISIONING PROCESS

A Well conceived vision has 2 majorcomponents

1. Core Ideology : Defines enduringcharacter of an organization that remainsunchangeable . It rests on core values &core purposes.

2. Envisioned Future : A long term, timebound goal and vivid description of

achievements

WHAT A VISION SHOULD AND SHOULDN’T BE



WHAT A VISION SHOULD AND SHOULDN’T BE

• A VISION SHOULD BE:

- An organization charter of core values & principles

- The ultimate source of our priorities, plans andgoals

- A puller into the future

- A reflection of what makes an organization unique

- Inspire & motivate

A VISION SHOULD NOT BE:

- A ‘ high concept statement’ or an advertisingslogan

- A history of proud past

- A soft business issue

- Passionless



A FEW VISION STATEMENTS

VISION OF CANARA BANK To emerge as the best bank in customerservice, profitability , productivity andinnovations.

VISION OF IOCIndian Oil aims to achieve internationalstandards of excellence in all aspects of

energy and diversified business with focuson Customer delight through qualityproducts & services

MISSION



MISSION

• It is purpose / reason behind existence of any organization

• Derived from VISION and reflects the corporation’s philosophy ,identity,character and image which helps to achieve the vision.

• When defined explicitly, provides enlightenment to insiders andoutsiderson what the organization stands for.

• Many strategists/consultants contribute to the building up of mission statements.

• Mission relates to the need of society. Eg- information need -Publisher

CHARACTERISTICS OF A MISSION SATEMENTS

• FEASIBLE- realistic and achievable• PRECISE- not too narrow nor too broad• CLEAR- not for publicity• MOTIVATING

• DISTINCTIVE



MISSION

HOW MISSION STATEMENTS ARE FORMULATED

• Executive committee is setup to formally discuss

• Help of consultants also taken for an in-depth

analysis of an organization and to suggest anappropriate Mission statement

• A Mission statement once formulated should servean organization for many years

• As the organization grows with time and goes onadding new products, services, technologies andmarkets, there may even be a need for revising itsMission statement.

FEW MISSION STATEMENTS



FEW MISSION STATEMENTS

• BHEL

To be a leading engineering enterprise providingquality systems goods and services in the field of Energy,

Transportation , Industry, Infrastructure and otherpotential areas

• RANBAXY

To become research based International pharmacompany

• UTI

To keep the common man in sharper focus toencourage

savings and investment habits among them.

BUSINESS DEFINITION



BUSINESS DEFINITION

• Defined along 3 parameters

CUSTOMER GROUPS: WHO is being satisfied

CUSTOMER FUNCTIONS: WHAT is being satisfied

ALTERNATIVE TECHNOLOGIES: HOW the need is being satisfied

• Provides powerful insights into understanding and defining

business• Helpful in Strat. Mgmt in many ways Indicates choice of objectives

and helps exercising best choice.

• A single business firm has simple Business Definition. Company

with several businesses has separate BD for each of its business.

• 3 dimensions provide scope for further activities and facilitatesunderstanding of company’s performance areas

• At corporate level ,BD concerns itself with a wider meaning of 3dimensions.

• Each division of highly diversified co. can have more accurate BD

at SBU level

EXAMPLES



EXAMPLES

EX: Time Keeping Business:

Customer Groups: ‘Individual customers” &Industrial Customers”

Customer Functions: Finding time, Recordingtime, Using watches as fashionableaccessories and gift items.

Alternative Technologies: Mechanical,Quartz digital, Quartz Analog

GOALS & OBJECTIVES



GOALS & OBJECTIVESGOALS: • What an org. hopes to achieve/accomplish in a future period of time. Represent

future state or outcome of an effort put in now.

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

• OBJECTIVES: GOALS- Concrete & specific GeneralizedMake goals operational

-Quantitative, measurable Qualitative

& comparable

- Short Term Long Term( Org. translates its purposeinto long term goals )

OBJECTIVE SETTING



OBJECTIVE SETTING

• Understandable• Concrete & Specific ( Say 10% increase in sales )• Periodicity :Related to time frame. (Say 10% increase in sales in

one year)• Measurable & Controllable• Challenging – motivating but not unrealistic

• Diff. Objectives must correlate with each other• Should be set within constraints – internal and external

EX

Profit: ROI, Net profit as % of sales, Return on shareholderscapital. Marketing: Sales volume, Market segment, Customer service,

Promotion Growth: Output, Sales T/O, Investment HR: Training, Welfare IR

Social Responsibility: Environment, Community Service, Rural



ENVIRONMENTALSCANNING



Environmental Appraisal

• The environment of any organizationis “the sum of all conditions,events and influences that

surround and affect it”• It is therefore crucial for any

organization to understand the

environmental influences on itsbusiness.

• Internal and External

Characteristics of



Characteristics of Environment.

• It is complex – No. of factors, events,conditions.

• It is dynamic – Constantly changing.

• It is multi-faceted – Perception of observer – Different as per differentobserver.

• It has a far-reaching impact – Affect

directly and Indirectly.



PEST FACTORS

POLITICAL TECHNOLOGICAL

ECONOMIC SOCIAL

PESTLE MATRIX



POLITICAL

CURRENT/FUTURE LEGISLATION

SOCIAL

LIFESTYLE TRENDS

DEMOGAPHICS

COMPANY ATTITUDES & OPINIONSBRAND,COMPANY ,TECHNOLOGYIMAGE

CONSUMER BUYING PATTERNS

ETHNIC/RELIGIOUS FACTORS

TECHNOLOGICAL

TECHNOLOGY ACCESS,LICENSING,PATENTS

MATURITY OF TECHNOLOGY

REPLACEMENT TECHNOLOGY / SOLUTIONSINNOVATION POTENTIAL

MANUFACTURING MATURITY & CAPACITY

LEGAL

INTERNATIONAL LAW

EMPLOYMENT LAW

COMPETITION LAW

HEALTH & SAFETY LAW

REGIONAL LEGISLATION

ENVIRONMENTAL

ENVIRONMENTAL IMPACT

ENVIRONMENTAL LEGISLATION

ENERGY CONSUMPTION

WASTE DISPOSAL

ECONOMIC

REGULATORY BODIESGOVT. POLICIESGOVT. TERM & CHANGE

ECONOMY SITUATION & TRENDS TAXATION

INTEREST & EXCHANGE RATESMARKET & TRADE CYCLE

Various environmental



Various environmentalcomponents.

1)1) Market environmentMarket environment: Client’s needs,preferences, perceptions, attitudes,values, buying behavior,

satisfaction.Product factors like demand, image,

features, utility, design, life cycle,

price, promotion, distribution,differentiation etc

Competitor factors like different types

of competitors, nature of



Components contd..

2) Technological Environment Technological Environment:• Rate of change of technology , easy

technology Transfer.

• Technological development, R&D,cost of technology.

• Effects of technology on

environment, human beings.• LED and 3d TV’s – change in strategy

by TV manufacturers



Components contd..

3) Supplier environmentSupplier environment:

• Cost, availability, and continuity of supply of raw material, components,

parts.

• Infrastructural support and ease of availability of the different factors of

production.



Components contd..

4) Economic environmentEconomic environment::• Business Cycle

• GDP, Interest rate, exchange rate,

Inflation etc.• Economic policies, industrial, fiscal,

monetary.

• Per capita income, balance of payments, Exports imports etc.

• Infra-Structural Investments



Components contd..

5) Regulatory environmentRegulatory environment::

• Policies related licensing,monopolies, FDI,

• Policies related to distribution andpricing.

• Policies related to sick industries,public sector, backward areas,consumer protection etc.

• Regulation and laws



Components contd..

6) Political environment:• The political system and its features,

ideological forces, coalition

compulsions.• Political stability.

• Political funding of elections.

• Government’s role in business.• Government AttitudeGovernment Attitude

• Subsidies & ProtectionSubsidies & Protection



Components contd..

7) Socio-cultural environment:• Demographics like population, its

density and distribution, age

composition, inter state migration,income distribution etc.

• Socio-cultural concerns likeenvironmental pollution, corruptionetc.

• Society expectations, beliefs, ritualsand attitude, lifestyle etc.

• Literac LevelsLiterac Levels



Components contd..

8) International environment:• Globalization process.

• Global economic forces.

• Global trade and commerce.• Global financial system.

• Global markets and competitiveness.

• Global communication• Global technology and quality

systems.



SWOT Analysis.

• S: Strengths.

• W: Weaknesses.

• O: Opportunities.

• T: Threats



Strength

• It is an inherent capacity which anorganization can use to gainstrategic advantage.

• E.g. superior r&d skills which can beused for new product development.



Weakness

• It is an inherent limitation orconstraint which creates strategicdisadvantage.

• E.g. over dependence on a singleproduct line, which could be risky incrisis.



Opportunity

• It is a favorable condition in theorganization’s environment whichhelps it to consolidate and

strengthen its position.

• E.g. growing demand for the

products or services that a companyprovides.



SOURCES OF OPPORTUNITIESSOURCES OF OPPORTUNITIES

• Delicensing of Industries – Eg. Telecom.Delicensing of Industries – Eg. Telecom.

• Import relaxations – Eg. Hardware &Import relaxations – Eg. Hardware &Software.Software.

• Growing population – Eg. Middle-classGrowing population – Eg. Middle-classbuying power.buying power.

• Globalisation – Eg. GDR’s, ECB’sGlobalisation – Eg. GDR’s, ECB’s

• Exit Policy – Eg. VRSExit Policy – Eg. VRS

• Collaborations, Joint Ventures, Tie UpsCollaborations, Joint Ventures, Tie Ups

h



Threats

• It is unfavorable situation in theorganization’s environment whichcreates risk for, or causes damage

to, the organization.• E.g. emergence of strong new

competitors who are offering stiff

competition.

E i l i



Environmental scanning

• Monitoring relevant environment toidentify opportunities and threat affectingbusiness for strategic decision making.

• General environment (Overall Env. )• Relevant environment (Directly Impacting)

E i t l i



Environmental scanning

• Sources of Information

- Documents, Mass media, Internal,External agencies, Formal studies,

spying etc.

• Factor affecting environmentalappraisal

- Strategist related (Age, exp., qual.Etc.)

- Organization related (Age, size,

nature of business etc.



ETOPETOP

• Acronym for Environment – Threat – OpportunityAcronym for Environment – Threat – Opportunity

– Profile. It represents a summary picture of the– Profile. It represents a summary picture of the

environmental factors and their likely impact onenvironmental factors and their likely impact on

the organisation. Stages in ETOP analysis –the organisation. Stages in ETOP analysis –

– List the different aspects of the environmentList the different aspects of the environment

that has a bearing on the organisation.that has a bearing on the organisation.

– Assess the nature and extent of impact of theAssess the nature and extent of impact of the

factors.factors.

– Holistic view – Prepare a complete overallHolistic view – Prepare a complete overall

picture.picture.

– Forecasting – Predict the future (i.e. timeForecasting – Predict the future (i.e. time

series, delphi's technique, data modeling.series, delphi's technique, data modeling.

O i ti l A i l



Organizational Appraisal

• It deals with the internal environmentof the organization.

• Internal environment constitutes of

behavior, strengths, weaknesses,synergy and competencies, all theseput together determine the “

Organizational capability”

O i ti l i l



Organizational appraisal

• Organizational Resources

Physical

Financial

Human

Tangible and intangible

O i ti l b h i



Organizational behavior

• It is the manifestation of variousforces and influences operating inthe internal environment of an

organization that create the abilityfor, or place constraints in the usageof resources.

• It leads to the development of aspecial identity and character of anorganization.

F t i fl i O B h



Factors influencing Org.Beh.

• Quality of leadership.

• Management philosophy.

• Shared values.

• Culture

• Quality of work environment.

• Organizational politics.

S i ti ff t



Synergistic effects

• Synergy is the idea that the whole isgreater or lesser than the sum of itsparts.

• E.g. In marketing dept. synergisticeffect can be achieved when

product, promotion, distribution,advertising support each other.

C t i



Competencies

• Competencies are special qualitiespossessed by an organization thatmake them withstand pressures of

competition in the market place.• When a specific ability is possessed

by a particular organization

exclusively or in a large measure it iscalled as distinctive competence.

O i ti l bilit



Organizational capability

• It is the inherent capacity or potentialof an organization to use itsstrengths and overcome its

weaknesses in order to exploitopportunities and face threats in anexternal environment.

Strategic ad antage



Strategic advantage

• These are the outcome of organizational capabilities. They arethe result of organizational activities

leading to rewards in terms of financial parameters.

Functional capabilities



Functional capabilities.

Strengths supporting Financialcapability.

• Access to financial resources.

• Good relationship with financialinstitutions.

• High level of credit- worthiness.

• Low cost of capital compared torivals.

• High level of share holder’s

Marketing capabilities



Marketing capabilities

• Wide variety of products.

• Better quality of products.

• Sharply-focused positioning.

• Effective distribution system.

• Effective sales promotion.

• Effective MKIS.

Operations capabilities



Operations capabilities

• High level of capacity utilization.

• Favorable plant location.

• Reliable sources of supply.

• Effective control of operational costs.

• Good inventory control system.

• High caliber R&D people.• Technical collaborations.

General management



gcapability.

• Effective system for corporateplanning.

• Reward and incentives for top

managers.• Risk taking.

• Favorable corporate image.

• Effective management of organizational change.

GRAND STRATEGIES –



GRAND STRATEGIES Corporate Level

• Provide guidance for major actions for meeting long termobjectives

and basic direction for strategic action

• Blueprints for action. Use of single or combination of 2 or

more depends upon multiplicity and complexities of business.

• Corporate level strategies indicating the choice of directiona firm adopts for achieving its vision.

• Corp. Strategies Also tell about decisions relating to

allocation of resources among different businesses,managing & nurturing diff. businesses in portfolio.

• Grand strategies revolve around one basic question :Whether to continue or change business, to improveefficiency and effectiveness.

Grand strategies



Grand strategies

• Types of Grand strategies:

• Stability strategy.

• Expansion strategy.

• Retrenchment strategy.

• Combination strategy.

GRAND STRATEGIESGRAND STRATEGIES



9797

GRAND STRATEGIESGRAND STRATEGIES

Corporate Strategy

GrowthStability Divestment Combination

Intensification Diversification

Market Penetration

Conglomerate / Unrelated

Market Development Product Development

Concentric / Related

Integration

Horizontal Vertical

EXPANSION STRATEGIESMost popular corp. strategies as growth is the way of life. All progressive



p p p g g y p gorganizations plan for substantial growth due to increasing economy, markets &customer needs. Followed when companies aim at high growth, broadening thescope of its business for improving overall performance.

.

CONCENTRATION STRATEGIES

• Simple 1st level expansion strategy,

• Focus on Intensification /Specialization

• Rely on where you are best at i.efocusing on limited areas

• Creating a separate niche/ identityin selective areas by investingmoney, time, energy & effort in

specific areas



9999

GROWTH - ANSOFF’S MODELGROWTH - ANSOFF’S MODEL

Existing Market New Market

E x i s t i n g P r o d u c t

N e w

P r o d

u c t

Market

Penetration (+)

Market

Development (++)

Product

Development (++)

Diversification(+++)

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

MARKET PENETRATIONMARKET PENETRATION



MARKET PENETRATIONMARKET PENETRATION

• It is a strategy where a firm directs itsIt is a strategy where a firm directs its

entire resources to the growth of a singleentire resources to the growth of a single

product, within a well defined market.product, within a well defined market.

Market penetration can be achieved byMarket penetration can be achieved by ––

increasing sales to current customers,increasing sales to current customers,convert competitors customers, directconvert competitors customers, direct

non-users to users.non-users to users.

• Suitable for industries where scopeSuitable for industries where scope

for technological break-through isfor technological break-through is

limited.limited.

MARKET DEVELOPMENTMARKET DEVELOPMENT



MARKET DEVELOPMENTMARKET DEVELOPMENT

• It is a strategy where a firm tries to achieveIt is a strategy where a firm tries to achieve

growth by finding new uses for existinggrowth by finding new uses for existing

products or its close variants and tap a newproducts or its close variants and tap a new

potential customer base altogether. (Eg. Dupotential customer base altogether. (Eg. Du

Pont – nylon: parachutes, socks & stockings,Pont – nylon: parachutes, socks & stockings,fabrics, tyres, carpets,……).fabrics, tyres, carpets,……).

– The firm should be creative and The firm should be creative and

innovative –thinking out of the box.innovative –thinking out of the box.

– Unconventional and flexible channels of Unconventional and flexible channels of

distribution.distribution.

– Move across geographical boundaries.Move across geographical boundaries.

PRODUCT DEVELOPMENTPRODUCT DEVELOPMENT



PRODUCT DEVELOPMENTPRODUCT DEVELOPMENT

• It is a strategy where a firm tries to achieveIt is a strategy where a firm tries to achieve

growth through a new product or angrowth through a new product or an

improved version of an existing product orimproved version of an existing product or

its variant to repeatedly enter the sameits variant to repeatedly enter the same

market. (Eg. Honda – bikes, cars).market. (Eg. Honda – bikes, cars). – Leverage on customer loyalty.Leverage on customer loyalty.

– Areas of product improvement – quality,Areas of product improvement – quality,

features, styling.features, styling.

– Ensure high reach through advertisingEnsure high reach through advertising

and promotion.and promotion.

– Product development with relatedProduct development with related

technologiestechnologies

DIVERSIFICATIONDIVERSIFICATION



DIVERSIFICATIONDIVERSIFICATION

• It marks the entry of a firm into newer marketsIt marks the entry of a firm into newer marketswith new products, thereby creating a newwith new products, thereby creating a newbusiness. The new business is distinct from thebusiness. The new business is distinct from theexisting business in terms of – inputs –existing business in terms of – inputs –technologies – markets. More importantly theytechnologies – markets. More importantly they

are strategically dissimilar.are strategically dissimilar.• Concentric/Related andConcentric/Related andConglomerate/UnrelatedConglomerate/Unrelated

• Why do firms diversify?Why do firms diversify?

– Risk reduction.Risk reduction.

– Maximizing returnsMaximizing returns

– Emerging opportunity in environmentEmerging opportunity in environment

– Migrating from business under threatMigrating from business under threat

– Only way for growth and expansionOnly way for growth and expansion

–

CONGLOMERATE DIVERSIFICATIONCONGLOMERATE DIVERSIFICATION



CONGLOMERATE DIVERSIFICATIONCONGLOMERATE DIVERSIFICATION

• It relates to businesses which are distinct inIt relates to businesses which are distinct in

terms of businesses as well as strategicallyterms of businesses as well as strategically

unrelated. Companies usually engage inunrelated. Companies usually engage in

conglomerate diversification when industryconglomerate diversification when industry

characteristics are very attractive. Drawbackscharacteristics are very attractive. Drawbacksof unrelated diversification –of unrelated diversification –

– Cost of ignorance.Cost of ignorance.

– Cost of failure (i.e. lack of foresight)Cost of failure (i.e. lack of foresight)

– Cost of neglect (i.e. core business).Cost of neglect (i.e. core business).

– Cost of dysynergy (i.e. synergies pulling inCost of dysynergy (i.e. synergies pulling in

opposite directions).opposite directions).



CONGLOMERATE DIVERSIFICATION - ITCCONGLOMERATE DIVERSIFICATION - ITC

Tobacco

Paper & Packaging

Food & Confectionary

Edible Oils Hotels

INTEGRATION STRATEGIES



INTEGRATION STRATEGIES

• Combining activities relating to presentactivities of firm

• Widening scope of business

Vertical Integration : Going up & down thevalue chain Going for forward or backward

integration or both at a time.Horizontal integration : Same type of

products

Expansion through



p gInternationalization and

Cooperation

Internationalization- Beyond domestic boundaries

- Factor leading it - Globalization

INTERNATIONAL STRATEGIES



INTERNATIONAL STRATEGIES

PRESSURESFOR

COST REDUCTION

PRESSURES FOR LOCAL RESPONSIVENESS

GLOBALSTRATEGY

( LOW COST - OFFERINGSTANDARDISEDPRODUCTS / SERVICES)

TRANSNATIONALSTRATEGY

(Creative approach tomanage cost and Localization)

MULTIDOMESTICSTRATEGY

( SUITING TONATIONAL

CONDITIONS WITH

HIGH COST )

INTERNATIONALSTRATEGY

(Std. product forUNDER DEVELOPEDCOUNTRIES WHEREPRODUCT/SERVICES

NOT AVAILABLE )

MODES OF ENTRY



EXPORTING( Firm produces in home country & markets overseas)

LICENSING( International co. transfers knowledge, technologyPatent for a limited period of time to an overseas co,in return for some form of payment)

FRANCHISING(Right to use a business format,usually Brand Name- exchangeprogramme )

INTERNATIONAL JOINTVENTURE

WHOLLYOWNED

LOWHIGH

HIGH

CONTROL

PERCEIVED

RISK

LOW

International strategy



International strategy

• Which Market to enter?• Timing of entry?

• Scale of entry?

• Advantages – Economy of scale-scope, resources overseas,Expansions and profit

• Disadvantages – Risk, CulturalDiversity, Trade restriction,

Cooperative Strategies



Cooperative Strategies

• Mergers and Acquisitions

• Joint Ventures• Strategic Alliance

Stability strategy



Stability strategy

• Is adopted by an organization when itattempts at an incrementalimprovement of its functional

performance.• Good strategy in certain and

predictable environment.

• E.g. A copier machine companyprovides better after sales service toimprove its image and product image

too

STABILITY STRATEGIES



1. NO CHANGE STRATEGY : Conscious decision to

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

2 PROFIT STRATEGY : Reduce investments, cut

costs , Increase productivity wrt externalfactors like: Economic recession, Govt’s attitude,Industry downturn and competitive pressures forsustaining profitability by whatever means tillsituation improves.

2 PAUSE/ PROCEED WITH CAUTION :Consolidation before a firm goes for expansion.

STABILITYSTABILITY



STABILITYSTABILITY

• It involves maintaining status-quo or growingIt involves maintaining status-quo or growing

in a slow and selective manner. The size andin a slow and selective manner. The size andscale of present operations remains almostscale of present operations remains almostintact. Stability however, does not relate tointact. Stability however, does not relate todo-nothing. It still has to adopt a strategy todo-nothing. It still has to adopt a strategy tosustain current performance levels. Thesustain current performance levels. Thereasons for stability strategy –reasons for stability strategy –

– Lack of attractive opportunities.Lack of attractive opportunities.

– The firm may not be willing to take The firm may not be willing to takeadditional risk associated with newadditional risk associated with new

projects.projects. – To stop for a while and assess past To stop for a while and assess past

records.records.

– Why disturb the existing equilibrium setWhy disturb the existing equilibrium set

up?up?

Retrenchment strategy



Retrenchment strategy

• This is followed when a companyaims at contraction of its activitiesthrough substantial reduction or

elimination of its business.• E.g. A pharmaceutical company may

withdraw from its retail operations so

that it can focus on institutionalsales.

DIVESTMENTDIVESTMENT



DIVESTMENTDIVESTMENT

• Divestment is a defensive strategyDivestment is a defensive strategy

involving the sale of a business to aninvolving the sale of a business to anindependent entity. It is usually taken intoindependent entity. It is usually taken intoaccount when performance is disappointingaccount when performance is disappointingand survival is at stake and nor does theand survival is at stake and nor does the

firm have the resources to fend off firm have the resources to fend off competitive forces.competitive forces.

• It may also be a pro-active strategy, whereIt may also be a pro-active strategy, wherea company simply exits because thea company simply exits because thebusiness no longer contribute to or fit itsbusiness no longer contribute to or fit itsdominant logic.dominant logic.

Combination strategy



Combination strategy

• This is followed when a companyadopts a mixture of all the strategieseither at the same time in its

different businesses, or at differenttimes in the same business with theaim of improving its performance.





Business Level Strategies

PORTERS MODEL OF GENERIC STRATEGYPORTERS MODEL OF GENERIC STRATEGY



PORTERS MODEL OF GENERIC STRATEGYO S O O G C S G

Competitive Advantage

S c o p

e

N a r r o w

B r o a

d

Cost Leadership Product Differentiation

Cost Leadership

DifferentiationFocus

Cost Focus

Differentiation



Industry Analysis

G G S



EMERGING INDUSTRYEMERGING INDUSTRY

• Emerging Industry – An industry characterized byEmerging Industry – An industry characterized byradical environmental changes, technologicalradical environmental changes, technologicalinnovations, ending in a different cost economics.innovations, ending in a different cost economics.Eg. Bio Informatics, Digital photography andEg. Bio Informatics, Digital photography andprinting. Reasons for emerging –printing. Reasons for emerging –

– Unproven technology.Unproven technology.

– High initial costs, followed by steep costHigh initial costs, followed by steep costreduction.reduction.

– First-time buyers.First-time buyers.

– Excessive turbulence in the environment.Excessive turbulence in the environment. – Unknown customer and market profile.Unknown customer and market profile.

– Business uncertainty is highBusiness uncertainty is high

GENERIC STRATEGY



GENERIC STRATEGYGENERIC STRATEGY

• Rapid industry changes - strategicRapid industry changes - strategic

uncertainty. Shaping industry structure.uncertainty. Shaping industry structure.

• Be a market leader, not market follower.Be a market leader, not market follower.

• Strictly differentiation, not standardization.Strictly differentiation, not standardization.• Flexible supplier and distribution channels.Flexible supplier and distribution channels.

FRAGMENTED INDUSTRY – Growth stageFRAGMENTED INDUSTRY – Growth stage



gg

•Fragmented / Growing Industry – AnFragmented / Growing Industry – An

industry where no firm has a significantindustry where no firm has a significant

market share. Many players enters seeingmarket share. Many players enters seeing

growth. EX- Mobile, IT, retail etc. Reasonsgrowth. EX- Mobile, IT, retail etc. Reasons

for fragmentation –for fragmentation – – Low entry barriers.Low entry barriers.

– Absence of economies of scale.Absence of economies of scale.

– Local regulations.Local regulations. – Diverse customer needs.Diverse customer needs.

With Growth-returns increases,With Growth-returns increases,

customer gains info demandcustomer gains info demand




• Conduct industry wide analysis.Conduct industry wide analysis.

• Identify causes of fragmentation.Identify causes of fragmentation.

• Look for ways to overcome fragmentation.Look for ways to overcome fragmentation.

• Assess consequences of overcomingAssess consequences of overcomingfragmentation.fragmentation.

• Locate a defendable position to take advantageLocate a defendable position to take advantage

of industry consolidation.of industry consolidation.

• Primarily concentrate on differentiation, alsoPrimarily concentrate on differentiation, alsofocus on cost advantages.focus on cost advantages.

MATURE INDUSTRYMATURE INDUSTRY



•Mature Industry – An industry characterizedMature Industry – An industry characterized

by imperfect competition leading toby imperfect competition leading to

saturation in growth rates. Eg. FMCG, BPO,saturation in growth rates. Eg. FMCG, BPO,

steel. Reasons for maturing –steel. Reasons for maturing –

– entry barriers.entry barriers. – Lack of innovation.Lack of innovation.

– Exhaustive networks.Exhaustive networks.

– International competition. Eg. Dumping.International competition. Eg. Dumping.Stable demand, technologyStable demand, technology

developments are few, consolidationdevelopments are few, consolidation

of industryof industry




• Sophisticated cost analysis and correctSophisticated cost analysis and correct

pricing.pricing.

• Process innovation and efficient designing.Process innovation and efficient designing.

• Rationalizing the product mix.Rationalizing the product mix.• Increasing scope of existing customers.Increasing scope of existing customers.

• Move beyond geographical boundaries.Move beyond geographical boundaries.

DECLINING INDUSTRYDECLINING INDUSTRY



• Declining Industry – An industryDeclining Industry – An industrywhich has outlived its utility, withwhich has outlived its utility, with

no sign of recovery. Eg.no sign of recovery. Eg.

Typewriters, agriculture. Typewriters, agriculture.

• Returns declineReturns decline

• Investment ceasesInvestment ceases

• Demand shrinksDemand shrinks• Companies starts followingCompanies starts following

retrenchment strategiesretrenchment strategies




• Leadership through takeovers and mergers.Leadership through takeovers and mergers.

• Harvesting –Harvesting –

– Stop to fresh CAPEX.Stop to fresh CAPEX.

– Curtailing working capital exposure.Curtailing working capital exposure.

–Minimising adhoc expenditures.Minimising adhoc expenditures. – Maintain a skeleton structure.Maintain a skeleton structure.

– Reducing product diversity.Reducing product diversity.

– Curtailing distribution channels.Curtailing distribution channels.

• Early divestment – Sell early before it becomesEarly divestment – Sell early before it becomesdead-wood.dead-wood.



COMPETITOR ANALYSIS

FIVE FORCES MODEL PORTERFIVE FORCES MODEL PORTER



FIVE FORCES MODEL - PORTERFIVE FORCES MODEL - PORTER

Threat of New Entrants

Threat of Substitutes

Bargainingpower of Suppliers

Bargainingpower of Suppliers

Bargainingpower of Customers

Competition fromExisting Players

PORTERS FIVE FORCES ANALYSISPORTERS FIVE FORCES ANALYSIS




• Competition from existing players – High whenCompetition from existing players – High when

– Introducing new product range.Introducing new product range.

– Cutting prices of existing product range.Cutting prices of existing product range.

– Offering better packages for existing productOffering better packages for existing productrange.range.

– Enhancing dealer networks.Enhancing dealer networks.

– Stronger market promotion, includingStronger market promotion, including

advertising.advertising. – Backward or forward integration.Backward or forward integration.

– Upgrading technologies.Upgrading technologies.





• Threat of New Entrants – some barriers Threat of New Entrants – some barriers

– Economies of scaleEconomies of scale

– Brand powerBrand power

– Product differentiationProduct differentiation

– Location advantagesLocation advantages

– Distribution channelsDistribution channels

– High switching costsHigh switching costs – RegulationRegulation





• Bargaining power of Customers/buyersBargaining power of Customers/buyers

– High when– High when

– Few buyersFew buyers

– placing large ordersplacing large orders – No. of suppliers/sellers are highNo. of suppliers/sellers are high

– Switching cost for buyer is lowSwitching cost for buyer is low

– Buyer can easily integrate backwardBuyer can easily integrate backward – Substitutes availableSubstitutes available




• Bargaining power of Suppliers – high whenBargaining power of Suppliers – high when

– Many buyers buying small quantityMany buyers buying small quantity

– Suppliers are fewSuppliers are few

– Unique offeringUnique offering

– Substitute not availableSubstitute not available – Supplier can easily integrate forwardSupplier can easily integrate forward

• Threat of Substitutes – Threat of Substitutes –

– Source of latent competitionSource of latent competition – Substitute offering a price advantage and/orSubstitute offering a price advantage and/or

performance improvementperformance improvement



UNDERSTANDING VALUE CHAINUNDERSTANDING VALUE CHAIN



UNDERSTANDING VALUE CHAINUNDERSTANDING VALUE CHAIN

• A value chain segregates a firm intoA value chain segregates a firm intostrategically relevant activities tostrategically relevant activities to

understand its cost behaviour.understand its cost behaviour.

• Competitive advantage arises byCompetitive advantage arises byperforming these activities efficiently andperforming these activities efficiently and

differently.differently.

• The sustainability of the value chain The sustainability of the value chain

depends on the degree of fit between thedepends on the degree of fit between the

activities.activities.



VALUE CHAIN ANALYSIS

• Value Chain: Linked set of value creating activities



Value Chain: Linked set of value creating activities,beginning withbasic Raw materials coming from suppliers to a series of value added activities involved in producing and marketinga product,