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Strategic Management
Preface
The development, evaluation, and implementation of business strategies are
essential to successful management. The key is a management system that will
help managers
Provide vision to their business.
Monitor and understand a dynamic environment.
Generate visionary and creative strategy options that will be responsive
to changes facing a business.
Develop strategies based on sustainable competitive advantages.
The concept of strategic management is an aid to the top management to deal
with the problems and intricacies being posed by an increasingly complex and
competitive environment. Strategic management may be viewed as a set of
managerial decisions and actions that determine the long term performance of a
company. It includes environmental scanning both external and internal,
strategy formulation, strategy implementation, and evaluation and control.
Therefore, the study of strategic management emphasizes the monitoring and
evaluation of opportunities and threats in light of organizations strengths and
weaknesses.
To be very precise strategic management is concerned with making and
implementing decisions about organizations future direction. It is the
conscious and rational management exercise which involves defining and
achieving organizations objectives and implementing its missions. It can also
be viewed as the pattern of organizations response to its external environment
over time. Strategic manager cannot afford to forget business opportunities that
ultimately decide the future prospects of the organization. Strategic planning is
necessary to see that there is maximum output at minimum cost.
This book is concerned with helping managers identify, select, and implement
strategies. The intent is to provide decision makers with concepts, methods, and
procedures by which they can improve the quality of their decision making.
This book is divided into five parts/modules. The first part structures the book
by introducing concepts, method, and strategies and by providing an overview
of strategic management based on comprehensive model. The second part,
drawing heavily from marketing and economics, covers strategic analysis.
Strategic analysis involves both external analysis (the analysis of the customer,
market, and environment). The third part discusses various models like
portfolio analysis and generic strategies differentiation strategies, strategies
based on low cost, focus, or preemptive move. The fourth part focuses on
global competition, and competition in hostile and declining industries. The
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Module I: Introduction - The Basics of Planning and Strategic
Management
Concept of Planning ,Definition and meaning of strategy, Evolution of
Strategic Management, Corporate Strategy, Patterns of Strategy Development,
Levels of Strategy, Competitive scope and value chain
Module II: Strategic Analysis
Mission, Vision and Business Definition, Environmental Threat and
Opportunity Profile (ETOP), Industry Analysis, Strategic Advantage Profile
(SAP), Competitor analysis, market analysis, environmental analysis and
dealing with uncertainty, scenario analysis and SWOT Analysis.
Module III: Strategic Choice
Traditional Approach - Strategic Alternatives, Various models like BCG, GE
Nine Cell Matrix, Hofers Model, Stricklands Grand Strategy Selection
Matrix, Basis of Choice; Michael Porters Approach Generic competitive
strategies, Cost advantage, differentiation, technology and competitive
advantage, substitution, competitor, complementary products and competitive
advantage, strategic vision vs. strategic opportunism, Coevolving and Patching.
Module IV: Offensive and Defensive Competitive Strategies
Industry Scenarios, Advantages and disadvantages of defensive strategies,
Advantages and disadvantages of offensive strategies
Module V: Strategic Implementation
Strategic control, Balanced Scorecard- concepts and application in strategy
implementation, case studies
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Index
Chapter
no.
Particulars
Page no.
Introduction
Strategic Analysis
42
Strategic Choice
82
113
117
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Contents in Brief
Part I: Introduction
1.
2.
3.
4.
5.
6.
7.
6
17
23
27
30
31
33
41
52
57
59
64
67
69
71
73
112
113
Strategic Control
Balanced Scorecard Concepts and applications in strategy implementation
Case Studies ITC, ICICI Bank, Berger Paints
Industry Scenarios
117
120
127
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MODULE I
1.1 Evolution of Strategic Management
1.2 Concept of Planning
1.3 Levels of Strategy
1.4 Corporate Strategy
1.5 Patterns of Strategy Development
1.6 Competitive Scope
1.7 Value chain Analysis
Chapter 1 Introduction to Strategic Management
1.0
Introduction
Learning Outcomes
Upon Completion of this chapter, you will be able to answer the following
questions: How do networks impact our daily lives?
1.
2.
3.
4.
5.
Strategic planning has evolved from and encompasses budgeting longrange planning, and strategic planning.
6.
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a plan or
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Basic Model of
Strategic Management
Four Basic Elements
Ronaldo Parente
Chapter 1
Wheelen & Hunger 10ed
1. Environmental Scanning
Ronaldo Parente
Chapter 1
Wheelen & Hunger 10ed
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2. Strategy Formulation
Mission Statement
Ronaldo Parente
Chapter 1
Wheelen & Hunger 10ed
2. Strategy Formulation
Selecting Strategy
Corporate strategy (Stability, Growth,
Retrenchment)
Business strategy (Competitive,
Cooperative)
Functional strategy (Technological
Leadership, Technological Followership)
Defining Policies
Guidelines for decision making that links
formulation to implementation
Ronaldo Parente
Chapter 1
Wheelen & Hunger 10ed
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3. Strategy Implementation
Programs
Strategy
Implementation
Budgets
Procedures
Chapter 1
Wheelen & Hunger 10ed
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External
Internal
STRATEGY
FORMULATIO
N
Missions
Objectives
Strategies
policies
STRATEGY
IMPLEMENTATIO
N
Programs
Budgets
Procedures
EVALUATION
CONTROL
Performance
Feedback / Learning
STRATEGY FORMULATION
Mission
Reason for
existence
Objectives
What results
to accomplish
when
Strategies
Plan to achieve
the mission &
objective
Policies
Broad
guidelines BACK
for decision
making
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Implementation
Once the plan is created it needs to be implemented or else it will remain a plan
only. It therefore requires the execution of the steps described in the plan.
STRATEGY IMPLEMENTATION
Programs
Activities needed
to accomplish a
plan
Budgets
Cost of the
Program
Procedures
Sequence of
steps needed
to do the job
Strategic Management
SUMMARY
Doing strategic management correctly:
Leads to better guidance for the business
Leads to making managers more alert to new opportunities and threats It
helps to align all members to pursue the same goals
It helps to make management become more proactive rather than
reactive
it challenges the economic model of the business to ensure sustained
profits It facilitates the decision-making process of allocating resources
Strategic management is an ongoing process of planning (formulation),
executing (doing) and reviewing (control).
There is a lot of analysis to be done as homework before one can
formulate the right strategies.
It should not be done once off but regularly.
There is a lot of analysis to be done as homework before one can
formulate the right strategies.
It should not be done once off but regularly.
CHECK AGAINST LEARNING OUTCOMES
I completely understand the following outcomes and will be able to
apply them in the work environment:
No.
Outcome
1.
2.
3.
16
Yes
No
Strategic Management
Dwight S. Eisenhower
Strategic Planning
Strategic planning the emergence of which is associated with the 1960s,
1970s, and 1980s is concerned with changing strategic thrusts and
capabilities. The basic assumption is that the past extrapolations are important
are inadequate and discontinuities from past projections and new trends will
require strategic adjustments. An adjustment is strategic thrust or direction
could involve moving into a new product market. The enhancement of research
and development could represent an adjustment in strategic capability.
Strategic planning focuses on market environment facing the firm. Thus,
emphasis is not only on an in-depth understanding of the market environment,
particularly the competitors and customers. The hope is not only to gain insight
into current conditions, but also to be able to anticipate changes that have
strategic implications.
One characteristic that strategic planning shares with budgeting and long range
planning management system is that it is largely based on periodic planning
system, usually an annual system. Typically, an organization will develop a
strategic plan in the spring and summer and then, during fall, will use that plan
as a base for developing the annual operating plans and budgets for the next
year. The periodic planning cycle does provide a time in which managers must
address strategic questions. Without such device, artificial though it may be,
even managers who realize the importance of strategic thinking might find their
time absorbed by day-to-day operations and crises.
The difficulty with the periodic planning process is that the need for strategic
analysis and decision making does not always occur on an annual basis. The
environment and technology may change so rapidly that environmental shocks
may occur so unexpectedly that being tied to planning cycle can be
disadvantageous or even disastrous. If the planning process is allowed to
suppress strategic response outside the planning cycle, performance can suffer,
particularly in dynamic industries.
Management Concepts The Four Functions of Management
Any organization, whether new or old, whether small or big need to run
smoothly and achieve the goals and objectives which it has set forth. For this
they had developed and implemented their own management concepts. There
are basically four management concepts that allow any organization to handle
the tactical, planned and set decisions. The four basic functions of the
management are just to have a controlled plan over the preventive measure.
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PLANNING HORIZON
Planning Horizons
Short-range plans
Job assignments
Ordering
Job scheduling
Dispatching
Responsible:
Operations
managers,
supervisors,
foremen
Today
Responsible:
Operations
managers
Intermediate-range plans
Sales planning
Production planning and
budgeting
Setting employment, inventory,
subcontracting levels
Analyzing operating plans
3 Months
Responsible:
Top executives
Long-range plans
R&D
New product plans
Capital expenses
Facility location, expansion
1 year
5 years
Planning Horizon
PowerPoint presentation to accompany Operations
Management, 6E (Heizer & Render)
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INTERMEDIATE PLANS
TYPES OF PLANS
Strategic planning
Analogous to top-level, long-range planning.
Covers a relatively long period.
Applied at the highest levels of the organization and affecting many parts of
the organization.
Strategic
Operations or tactical planning
Short-range planning.
Done primarily by middle- to lower-level managers.
Concentrates on the formulation of functional plans.
Contingency plans
Address the what-ifs of the managers job.
Gets the manager in the habit of being prepared and knowing what to do if
something does go wrong.
Most needed in rapidly changing environments.
Strategic Planning
The Main
Components of
the Strategic
Planning Process
FIGURE 1.1
Copyright 2001 Houghton Mifflin Company. All rights reserved.
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Tasks/Responsibility
We try to explain the planning concept with the help of its application in
marketing management.
How would you define a strategic business plan and a strategic marketing plan?
A strategic business plan describes the overall direction an organization will
pursue within its environment and also guides the allocation of resources. It
provides the logic that integrates the perspectives of functional departments and
operating units, and points them all in the same direction.
A strategic marketing plan outlines the actions necessary, which is responsible,
when and where they will be completed, and how they will be coordinated. A
marketing plan is carried out within the context of a firms broader strategic
business plan.
In most large corporations, strategic planning takes place at four levels.
The Corporate Level
The Division Level
The Business Level
The Product Level
Now, can any of you try to guess what would be the steps in the strategic
planning process?
The strategic planning process consists of the seven interrelated steps shown in
Figure and described below.
This process is applicable for small and large firms, consumer and industrial
firms, goods and services-based firms, domestic and international firms, and
profit-oriented and non-profit-oriented organizations.
The Strategic Planning Process
The Strategic Planning, Implementation and Control Process
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2. Strategy Formulation
Selecting Strategy
Corporate strategy (Stability, Growth,
Retrenchment)
Business strategy (Competitive,
Cooperative)
Functional strategy (Technological
Leadership, Technological Followership)
Defining Policies
Guidelines for decision making that links
formulation to implementation
Ronaldo Parente
Chapter 1
Wheelen & Hunger 10ed
DIVERSIFIED COMPANY
3 LEVELS OF STRATEGY
Corporate-Level Strategy
Business-Level Strategy
Division/business unit/product level
Functional-Level Strategy
support corporate & business level strategy
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FIGURE 1.2
Copyright 2001 Houghton Mifflin Company. All rights reserved.
1-16
Business-Level Strategies
Cost leadership
Attaining, then using the lowest total cost basis as a
competitive advantage.
Differentiation
Using product features or services to distinguish the
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Functional-Level Strategies
Focus is on improving the effectiveness of
operations within a company.
Manufacturing
Marketing
Materials management
Research and development
Human resources
1-10
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Textile producer
Shirt manufacturer
Shirt manufacturer
Clothing store
Clothing store
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Competitive Advantage can arise due to two factors: lower cost and
differentiation.
Cooperative Scope can be in terms of two factors: broad and narrow target.
In order to understand competitive positioning, we can visualize situation in
which affirm has to compete in the market with other rival firms. One type of
positioning approach may be of offering mass-produced products, distributed
through mass-marketing, thereby resulting in lower cost per unit. The other
type of positioning approach could be relatively higher-priced products of a
limited variety, but intensely focused on identified customer groups who are
willing to pay the higher price. These are produced through batch production
and marketed through a specialized distribution channels. What the firm does is
to differentiate its products or services on some tangible basis from what its
rivals have to offer so that the customer purchases the product even at a
premium.
What these above approaches show is that there is an overall approach to
competing within an industry, adopted consciously by an organization. These
approaches are termed as the two generic type s of competitive advantage that
an organization could plan for: the lower-cost approach and the differentiation
approach. According to Porter, lower-cost is based on the competence of an
organization to design, produce and market a comparable product, more
efficiently than its competitors. Differentiation is the competence of the firm to
provide unique and superior value to the buyer in terms of product quality,
special features or after-sale service.
Other Characteristics of Competitive Advantage
Substantiality
Is it substantial enough to make a difference?
Sustainability
Can it be neutralized by competitors quickly?
Ability to be leveraged into visible business attributes that will
influence customers
(Source: Strategic Marketing Management, Aakers)
Competitive Scope
Apart from competitive advantage, the other factor competitive Scope which
Porter defines as the breadth of an organizations target within its industry. By
the breadth of an organizations target is meant the range of the products,
distribution channels, types of buyers, the geographic areas served and the array
of related industries in which the firm would also compete. The basic reason
why competitive scope is important is that industries are segmented, have
differing needs and that require different sets of competencies and strategies to
satisfy the needs of the customers.
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activities.
1.7.3 Importance of value chain analysis is that it provides a frame-work for
identifying or developing a distinctive competence.
1.7.4 Explanation
Two Basic Strategies:
To be a lower-cost producer than competitors
To differentiate products and services from competitors
Each of the activities can be considered as adding value to an
organisations products.
For example: the activity of operations in a car assembly plant. While the
separate components do have a value in that they can be sold and bought as
individual items, as engines, wheels, etc., but when they are assembled into a
complete vehicle then they have added value to customers far in excess of the
individual parts. The value chain can best be described by use of a diagram as
follows:
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Marketing
and Sales:
Include promoting
and selling the firms
products
Operations: Transforms
Inputs into finished
products
Outbound
Logistics:
Storing and
Distributing finished
products
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Infrastructure
Technology
Human
Resources
Purchasing
Technology:
Improving products and
Production process
Human
Resources: employee
Recruitment, hiring
And, training
Purchasing: Purchasing
inputs
Strategic Management
Suppliers
Value Chain
Companys
Value Chain
Distribution
Systems
Value Chain
Buyers
Value Chain
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(b) Growth
(c) Maturity
(d) Decline
Q.7 Strategy implementation and formulation is a challenging,
on-going process. To be effective, it should involve
(a) The board of directors, CEO, and CFO.
(b) Line and staff managers
(c) The CEO and the board of directors.
(d) All of the above.
Q.8 An independent group of suppliers, such as farmers,
gather to form a cooperative in order to sell their products to
buyers directly, replacing their previous distributor. This is an
example of
(a) Forward integration.
(b) Backward integration.
(c) Threat of substitute products.
(d) Threat of entry.
Q.9 When a firm's corporate office helps subsidiaries make
wise choices in their own acquisitions, divestures, and new
ventures, it is called___________
(a) Restructuring
(b) Leveraging core competencies
(c) Uncreasing market power
(d) Parenting
Q.10 Value chain analysis is an effective tool for ________
(a) External Analysis
(b) Internal Analysis
(c) Near shore Analysis
(d) Outshore Analysis
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MODULE II
2.1 Vision, Mission and Business Definition
2.2 Environmental Threat and Opportunity Profile (ETOP)
2.3 Strategic Advantage Profile (SAP)
2.4 Industry Analysis
2.5 Competitor Analysis
2.6 Market Analysis
2.7 Environmental Analysis and Dealing with Uncertainty
2.8 Scenario Analysis
2.9 SWOT Analysis
Introduction
Learning Outcomes
Upon Completion of this chapter, you will be able to answer the following
questions: How do business environment in view of uncertainties impact our
daily lives?
1.
2.
3.
4.
5.
Market trends will affect both the profitability of strategies and key
success factors.
6.
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2.1.1 VISION
2.1.2 MISSION
2.1.3 BUSINESS DEFINITION
LEARNING OUTCOMES
By the end of this learning unit you will be able to apply your
understanding of the following concepts:
The definitions of a vision, mission
and strategic intent, the roles of
vision and mission for the venture
How each influences the strategies chosen
1.
What Is A Vision?
Vision refers to the picture (in the mind) of the future state of affairs of the
venture. It answers the question of what results should be there in say 5 years
from now.
Vision helps to guide the venture as it gives direction for where to go. It could
include hard issues (like an automated production line) or soft issues (like well
trained artisans) for the company. Vision should be results oriented. Vision is
also sometimes referred to as the end goal of the venture as it gives direction
to where the focus must be.
VISION
Mental picture of a
A strategic vision is a
Markets to be pursued
Kind of company
management is trying to
create
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CORPORATE VISION
Corporate vision is a short, succinct, and inspiring statement of what the
organization intends to become and to achieve at some point in the future, often
stated in competitive terms. Vision refers to the category of intentions that are
broad, all-inclusive and forward-thinking. It is the image that a business must
have of its goals before it sets out to reach them. It describes aspirations for the
future, without specifying the means that will be used to achieve those desired
ends.
Warren Bennis, a noted writer on leadership, says: "To choose a direction, an
executive must have developed a mental image of the possible and desirable
future state of the organization.
This image, which we call a vision, may be as vague as a dream or as precise as
a goal or a mission statement."
Broad category of long term intentions
All inclusive, and futuristic
Aspirations that the organisation holds for future
THE NATURE OF VISION
Vision is dreamt of more than it is articulated. This is the reason why it
is difficult to say what vision an organization has unless it is stated
explicitly. Sometimes, it is not even evident to the entrepreneur who
usually thinks of the vision. By nature it could be hazy and vague, like a
dream that one experienced the previous night and is not able to
perfectly recall in a broad daylight. Yet it is a powerful motivator to
action.
Often, it is from the actions that the vision could be derived. Henry Ford
wished to democratize the automobile when he visualised thatn affordable
vehicle must be available for the masses. Jamshetji Tata dreamt of a self-reliant
India in steel making. Narayana Murthy wants to demonstrate that running a
business is legally and ethically possible in India through entrepreneurship.
The first step to be accomplished following the profile phase is to articulate the
Vision or dream for a company. Questions to be addressed include:
What kind of company do we want to be?
What culture and values do we want to foster?
What share of the market and industry position should we achieve?
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A VISION STATEMENT
Vision of ITC: Sustain ITCs position as one of Indias most valuable
corporations through world class performance, creating growing value
for the Indian economy and the Companys stakeholders.
A Vision statement outlines what the organization wants to be, or how it
wants the world in which it operates to be. It concentrates on the future.
It is a source of inspiration. It provides clear decision-making criteria
What a vision should be and shouldnt be
A vision should be:
An organizational charter of core values and principles.
The ultimate source of our priorities
The puller (not pusher) into the future
A determination and publication of what makes us unique
A declaration of independence
A vision shouldnt be:
A high concept statement, motto, or literature or an advertising solution
A strategy or plan and view from the top
A history of our proud past
A soft business issue
Passionless
Source: Adopted from Lucas, J.R., Anatomy of a vision statement
Management Review Feb 1998
2.1.2 Mission
Mission Statement
Ronaldo Parente
Chapter 1
Wheelen & Hunger 10ed
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What Is A Mission?
Mission is a part of strategy formulation.
Mission answers the question to why you are pursuing the business. To
make a profit is not good enough reason (as a mission statement) as all
ventures have it as a goal and therefore it does not distinguish your venture
from that of the competition.
Can anyone describe the business mission?
A mission statement is a formal description of the mission of a business.
Organizational mission refers to a long-term commitment to a type of business
and a place in the market.
1. It can be expressed in terms of the customer group(s) served, the goods
and services offered, the functions performed, and/or the technologies
utilized.
2. It is considered implicitly when a company seeks a new customer group
or abandons an existing one, introduces a new product category or
deletes an old one, acquires another company or sells one of its own
businesses, performs more (or fewer) marketing functions, or shifts its
technological focus.
Definition of the organizational mission refers to a long-term commitment to a
type of business and a place in the market. It describes the scope of the firm
and its dominant emphasis and values, based on a firms history, current
management preferences, resources, and distinctive competence, and on
environmental factors.
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MISSION
What we do?
Reasons for
existence
(purpose)
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Mission of Coca-Cola
Coca-Colas mission is to maximize shareholder value over time. It
creates value by a strategy guided by six beliefs:
Consumer demand drives everything it does.
Brand Coca-Cola is the core of its business
It will serve consumers a broad selection of non-alcoholic ready-todrink beverages
It will do excellent job marketing
It will think and act locally
It will lead as a model corporate citizen.
Mission of Holiday break plc
Holiday break is the UKs leading operator of specialist holiday businesses.
Group companies retain a distinctive identity whilst sharing expertise and
exploiting opportunities in areas of common interest. Our aim is to achieve
continuing profitable growth by developing our existing businesses and market
leading brands in the UK and European holiday markets and through
acquisitions within the travel sector.
Mission of Motorola
The purpose of our Motorola is to honourably serve the needs of the
community by providing products and services of superior quality at a fair price
to our customers; to do this so as to earn an adequate profit which is required
for the total enterprise to grow; and by so doing provide the opportunity for our
employees and shareholders to achieve their reasonable personal objectives
Mission of Avis car hire mission was simply we try harder
Mission of ONGC Ltd to be a world-class Oil and Gas company integrated
in energy business with dominant Indian leadership and global presence.
Mission of Nirma Ltd Indian FMCG Company Nirma is customer-focused
company, committed to consistently offer better quality products and services
that maximize value to the customer.
Mission of Maytag Corporation To improve the quality of home life by
designing, building, marketing, and servicing the best appliances in the world.
NOTE:
Over time the mission may change, to take advantage of new opportunities or
to respond to new market conditions. Example: Amazon.com changed its
mission from being the worlds largest online bookstore to become worlds
largest online store. eBay changed its mission from running online auctions for
collectors to running online auctions covering all kinds of goods.
GOOD MISSION HARACTERISTICS
Three major characteristics:
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Customer Functions
What need is
being satisfied?
Customer Groups
Who is being satisfied?
Group
Lady
Function Fashionable
Alternate Technologies
Accessory
How the need
Alt. Tech Quartz
Is krishnamoorthy
satisfied?
Digital
Bala
Management Practice MBA 2007Shreekant Limaye
Industrial
Recording
Time
Mechanical
2009
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Summary
Once you understand the environment you have to:
Create a vision of where you want to go
Understand why you would like to go there (purpose)
Find the key things you must do right to successfully reach your vision
CHECK AGAINST LEARNING OUTCOMES
I completely understand the following outcomes and will be able to apply
them in the work environment:
No.
Outcome
1.
2.
3.
Yes
No
Strategic Management
An
Organizations
External
Environment
Figure 3-4
Substitute
Products
Economic
Specific Environment
Industry-Competitors
Organization
Bargaining
Power of
Suppliers Bargaining
Political-Legal
Power of
Buyers
Current
Rivalry
Potential
Entrants
Demographic
Sociocultural
End Show
3 - 10
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and affecting to the business. In this context, a strategist has to scan the
environmental trend to select only the most affecting environmental factors from
the information overload. This step paves the way of environment analysis and
forecasting.
Defining Variables for Analysis
Selected environmental factors are to be further specified into the variables. A
concept can be interpreted into different variables. For example, political
situation can be measured using few variables such as instability,
reliability, and long-term effect. Economic environment might cover many
variables such as Per Capita, GDP, and Economic policies that can be further
classified into many other variables. Variables are the basis of measurement in
environmental analysis process. Variables can be compared, grouped,
correlated, and predicted to find the clearer picture of the broader concept. It is,
therefore, necessary to define the variables first in any kind of analysis
including the environmental analysis.
Using Different Methods, Techniques, and Tools
Different types of methods, tools, and techniques are used for analysis. Some
of the major methods of analysis can be Scenario Building, Benchmarking, and
Network methods. Scenario presents overall picture of its total system with
affecting factors. Benchmarking is to find the best standard in an industry and
to compare the ones strengths and weakness with the standard. Network
method is to assess organizational systems and its outside environment to find
the strength and weakness, opportunity and threats of an organization.
Some of the techniques of primary information collection can be Delphi,
Brainstorming, Survey, and Historical enquiry.
Analysis tools can be statistical such general descriptive tools as mean, median,
mode, frequency. Tools can be inferential as ANOVA, correlation, regression,
factor, cluster, and multiple regression analysis. There are many tools of
analyzing functional areas. Finance and accounting use mostly profitability,
leverage, fund flow and other similar accounting and financial tools for
analysis.
Forecasting Environmental Factors
Collecting relevant information from the selected areas and to identify
the variables in such areas are the basics of analysis. Analyzing the past
information to predict the future is the main objective of this step. As discussed
earlier, use of different methods, techniques, and tools comes under the
analysis process. It is, therefore, a comprehensive process that analyzes
collected information using different tools and techniques.
Designing Profiles
After analyzing the environmental factors they are recorded into the profiles.
Such profiles record each component or variables into left side and their
positive, negative, or neutral indicators including their statement in the
right side. Internal areas are recorded in Strategic Advantages Profile (SAP)
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There are generally five functional areas in most of the organizations. These
areas are Production or Operation, Finance or Accounting, Marketing or
Distribution, Human Resource & Corporate Planning, and Research &
Development. These functional areas are listed to identify their relative
strength and weakness in SAP. Very similar to the ETOP, positive, neutral,
and negative signs are denoted and brief description is written in SAP profile.
Each functional area is very broad having many components inside.
All these above described profiles provide a clear picture to understand
the strategic position of an organization.
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2.
What competitive forces are at work in the industry and how strong are
they?
3.
What are the forces of change in the industry and what impact will they
have?
4.
5.
6.
7.
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Size
Scope
Growth rate
Growth cycle
Distribution channels
Structure
Forward Integration
Backward Integration
Product
Differentiation
Learning effects
Technological change
Q2. What competitive forces are at work in the industry and how strong
are they?
Porters Five Forces.
advantage:
Q2. What competitive forces are at work in the industry and how strong
are they?
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Q2. What competitive forces are at work in the industry and how strong
are they?
Potential new entrants
Barriers to entry
Economies of scale
Learning curve effects
Customer loyalty / brand preferences
Resource / investment
Access to distribution
Regulation
Patents, proprietary technology
Q2. What competitive forces are at work in the industry and how strong
are they?
The relative power of suppliers
Importance of component
Switching costs
Substitutes
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# of suppliers
Product standardization
Q2. What competitive forces are at work in the industry and how strong
are they?
Substitute products
Q3. What are the forces of change in the industry and what impact will
they have?
The most dominant forces the cause the industry to change are called
driving forces
Task 1 - identify the driving forces
Task 2 - assessing their impact on the industry (few are important,
generally)
Common Driving Forces
Changes in long term industry growth rate
Changes in who buy the products and for what reason
Product innovation
Technological change
Marketing innovation
Increasing globalization
Regulatory changes
Changing societal concerns, attitudes and lifestyles
Environmental scanning
Q4. Which companies are in the strongest/weakest competitive position?
Using the strategic group mapping: two dimensional representation
according to the competitive characteristics of the competitors in the
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industry
Axes should not be correlated
Size of circles proportional to combined sales
The closer the circles, the stronger the rivalry
See http://i.i.com.com/cnwk.1d/html/b/305,1,Competitive
and http://www.quickmba.com/strategy/pest/ for more information.
Q5. Whos likely to make what competitive moves next?
In order to outmaneuver your competition you have to evaluate the
competitors future moves.
Identify competitors strategies
Evaluate who are the major players-- now
Who will be the major players
Evaluate what the major players are going to do
Q6. What key factors will determine success or failure?
Key success factors (KSF) are crucial elements that lead to success.
What are they now? What will they be?
In beer production KSF can be brewing skills
In retail apparel KSF can be low cost, superior service, superior design
In your industry, KSF=????
Q7. How attractive is the industry in terms of its prospects for above
average profitability?
Growth potential
Driving forces
Entry/exit
Stability of demand
Competitive forces
Risk and uncertainty
Competition and its impact on the industrys future
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7 Questions
1. What are the industry dominant economic traits?
2. What competitive forces are at work in the industry and how strong
are they?
3. What are the forces of change in the industry and what impact will
they have?
4. Which companies are in the strongest/weakest competitive position?
5. Who is likely to make what competitive moves next?
6. What key factors will determine success or failure?
7. How attractive is the industry in terms of its prospects for above
average profitability?
2.5 COMPETITOR ANALYSIS
Competitive analysis is the practice of analyzing the competitive environment
in which your business operates (or wishes to operate), including strengths and
weaknesses of the businesses with which you compete, strengths and
weaknesses of your own company, demographics and desires of marketplace
customers, strategies that can improve your position in the marketplace,
impediments that prevent you from entering new markets, and barriers that you
can erect to prevent others from eroding your own place in the market.
While industry analysis and strategic group analysis focus on the industry as a
whole or on subsets of firms within an industry, competitor analysis focuses on
each company with which a firm competes directly. Competitor analysis,
therefore deals with actions and reactions of individual firms within an industry
of strategic group. It becomes especially important in the oligopolistic
industries where there are a few powerful competitors and each needs to keep
track of strategic move of others.
According to Porter, the purpose of conducting competitor analysis:
Determine each competitors probable reaction to the industry and
environmental changes
Anticipate responses of each competitor to the likely strategic moves by
other firms; and
Develop a profile of the nature and success of the possible strategic
changes each competitor might undertake.
Competitive analysis starts with the identification of competitors, current and
potential. Some competitors compete more in tensely than others.
PowerBar makes an energy bar that competes most intensely with other energy
snacks (for example, Balance). However, it also competes with energy drinks
and other snacks such as candy. Although intense competitors should be
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competitors. Abrams cautioned that many small business owners are tempted to
place undue weight on the quality of the product or service they offer (or plan
to offer, in the case of new businesses). This may be a comforting thought,
admitted Abrams, but it betrays a fundamental misunderstanding of how
business works: "The objective features of your product or service may be a
relatively small part of the competitive picture. In fact, all the components of
customer preference, including price, service, and location, are only half of the
competitive analysis. The other half of the equation is examining the internal
strength of your competitors' companies. In the long run, companies with
significant financial resources, highly motivated or creative personnel, and
other operational assets will prove to be tough, enduring competition."
There are two main questions that cut to the heart of this element of
competitive analysis: What key advantages do the competing businesses
possess in the realms of production management, marketing, service reputation,
and other aspects of business operation? What key vulnerabilities or
weaknesses do the competing firms have in these same areas?
Of course, examination of a competitor's strengths and weaknesses also
requires separating important advantages (intense customer loyalty, for
instance) and disadvantages (reputation as a polluter) from less important
advantages (a larger parking lot, perhaps) and disadvantages (older forklift
machinery). Writing in his book Developing Business Strategies, David Aaker
suggested that business owners should concentrate their analysis efforts in four
major areas:
Studying the reasons behind the successesand failuresof competitive firms
Major issues that motivate customers
Major component costs
Barriers to mobility within the industry
ANALYSIS OF INTERNAL STRENGTHS AND WEAKNESSESS
Another important element of competitive analysis is determining what your
own company's strengths and weaknesses are. What aspects of the company's
operation convey an advantage in the marketplace? Is your sales force
composed of bright, ambitious individuals? Does your company have an
advanced inventory management system in place? Do you have an employee
with a talent for advertising and/or marketing? Once a company has determined
its strengths, it can go about the process of utilizing those strengths to improve
its position in the marketplace. Conversely, an examination of internal
weaknesses (uninspired product presentation, recalcitrant work force, bad
physical location, etc.) should spur initiatives designed to address those
shortcomings.
2.6 Market Analysis
The goal of a market analysis is to determine the attractiveness of a market and
to understand its evolving opportunities and threats as they relate to the
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Buyer power
Supplier power
Barriers to entry
Threat of substitute products
Rivalry among firms in the industry
Industry Cost Structure
The cost structure is important for identifying key factors for success. To this
end, Porter's value chain model is useful for determining where value is added
and for isolating the costs.
Distribution Channels
The following aspects of the distribution system are useful in a market
analysis:
Existing distribution channels - can be described by how direct they are to the
customer.
Trends and emerging channels - new channels can offer the opportunity to
develop a competitive advantage.
Access to essential unique resources
Ability to achieve economies of scale
Access to distribution channels
Technological progress
It is important to consider that key success factors may change over time,
especially as the product progresses through its life cycle.
Market Trends
Trends within the market can affect current or future strategies and assessments
of market profitability. For example, an important trend in luxury hotels is
business suites that include host of amenities, such as living room/den with a
library of books and VCR movies, internet access, well-stocked refrigerator,
and elegant furnishings.
2.7
ENVIRONMENTAL
UNCERTAINTY
ANALYSIS
AND
DEALING
WITH
Learning Outcomes:
Impact analysis involves assessing systematically the impact and
immediacy of the trends and events that underlie each strategy
uncertainty.
Scenario analysis, a vehicle to explore different assumptions about the
future, involves the creation of two to three plausible scenarios, the
development of strategy appropriate to each, the assessment of scenario
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At the same time, pursuing scenario analysis with a great deal of verifiable
detail can help make it possible to accurately project future market yields,
increase profits, and make the total returns from the project higher than they
would have been otherwise.
STEPS IN SCENARIO ANALYSIS
Identify Scenarios
It is useful to generate scenarios based on probable outcomes; optimistic,
pessimistic, and most likely.
Develop Scenarios strategies
After scenarios have been identified, the next step is to relate them to strategies
both existing strategies and new options.
Estimate Scenario Probabilities
To evaluate alternative strategies, it is useful to determine the scenario
probabilities.
Perform Regret Analysis
The final step is to compare the expected outcomes of each strategy if the
wrong scenario emerges. The expected value of each scenario can be
determined simply multiply each scenario outcome by the probability and
then add up the result.
2.9 SWOT Strength, Weakness, Opportunity, Threat Analysis
LEARNING OUTCOMES
By the end of this learning unit, you will be able to apply your
The elements of SWOT Analysis
How to apply basic SWOT Analysis
How to derive three Core strategies from the outcome
Business Environment Analysis
Identify & classify firms resources-S&W
Combine firms strength into specific capabilities
capability-may be distinctive competence
Corporate
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No.
Outcome
1.
2.
3.
Yes
No
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Michael Porter has proposed three generic strategies that provide good starting
point for strategic thinking:
Overall-cost leadership
Differentiation
Focus
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Although many types of marketing strategies are available, Michael Porter has
condensed them into three generic types that provide a good starting point for
strategic thinking: overall cost leadership, differentiation, or focus.
Business-Level Strategies: Generic Strategies
Overall cost leadership: Attaining, then using the lowest total cost
basis as a competitive advantage.
Here the business works to achieve the lowest production and distribution
costs so that it can price lower than competitors and win more market share.
Firms pursuing this strategy must be good at engineering, purchasing,
manufacturing, and physical distribution; they need less skill in marketing.
Texas Instruments uses this strategy. The problem is that rivals may emerge
with still lower costs, hurting a firm that has rested its whole future on cost
leadership.
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Thompson and Strickland suggest that the firm's mission and objectives
combine to define "What is our business and what will it be?" and "what to
do now" to achieve organization's goals. How the objectives will be achieved
refers to the strategy of firm. In general, this model highlights the relationships
between the organization's mission, its long- and short-range objectives, and its
strategy.
3.3 Boston Consulting Group (BCG) Matrix
The BCG Matrix, named after the Boston Consulting Group (BCG), is perhaps
the most famous 2x2 matrix. The matrix measures a companys relative market
share on the horizontal axis and its growth rate on the vertical axis.
Stars
Question marks
?2
Dogs
Cash cow
6
10x
7
4x
2x 1.5x
1x
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THE GROWTH SHARE MATRIX- the market growth rate on the vertical axis
indicates the annual growth rate of the market in which the business operates. It
ranges from 0 to 20 percent. A market growth rate above 10 percent is
considered high. Relative market share, which is measured on the horizontal
axis, refers to the SBUs market share relative to that of its largest competitor in
the segment. A relative market share of 0.1 means that the companys sales
volume is only 10 percent of the leaders; a relative share of 10 means that the
companys SBU is the leader and has 10 times the sales of the next-strongest
competitor in the market.
The growth share matrix is divided into four cells, each indicating a different
type of business:
1. Question Mark (Problem Child) Businesses that operate in high-growth
markets but have low relative market shares. A question mark requires a lot of
cash because the company has to spend money on plant, equipment and
personnel to keep up with the fast-growing market, and because it wants to
overtake the market leader. The company has to decide whether to keep
pouring money into the business or not.
2. Stars The market leaders in the high growth market. A star does not
necessarily produce a positive cash flow for the company. The company must
spend substantial funds to keep up with the high market growth and to fight off
competitors attacks.
3. Cash Cows Stars with falling growth rates that still has the largest relative
market share and produce a lot of cash for the company. The company does not
have to finance expansion because the markets growth rate has slowed.
Because the business is the market leader, it enjoys economies of scale and
higher profit margins. The company uses its cash cows to pay bills and support
other businesses. If the cash cow starts losing relative market share, the
company will have to pump money back into it to maintain market leadership.
4. Dogs Businesses that have weak market share in low growth markets. A
dog may not require substantial cash, but it ties up capital that could better be
deployed elsewhere. The company should consider whether it is holding on to
these businesses for good reasons or not.
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Stars
These are products that are in high growth markets with a relatively high share
of that market. Stars tend to generate high amounts of income. Keep and build
your stars.
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equilibrium. The funds generated by your Cash Cows are used to turn problem
children into Stars, which may eventually become Cash Cows. Some of the
Problem Children will become Dogs, and this means that you will need a larger
contribution from the successful products to compensate for the failures.
What according to you may be the problems with the Boston Matrix?
There is an assumption that higher rates of profit are directly related to
high rates of market share. This may not always be the case. When
Boeing launches a new jet, it may gain a high market share quickly but
it still has to cover very high development costs.
It is normally applied to Strategic Business Units (SBUs). These are
areas of the business rather than products. For example, for LG in India,
IT products have a separate focus and hence are an SBU and not just a
basket of products.
There is another assumption that SBUs will cooperate. This is not
always the case.
The main problem is that it oversimplifies a complex set of decision. Be
careful. Use the Matrix as a planning tool and always rely on your gut
feeling.
What do you think are the strategies, which companies can make, based on
BCG matrix?
STRATEGIC BUSINESS UNITS STRATEGIES
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A
c
t
2
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Stars
Hotels
Paperboards/
Packaging.
Agri business.
Cows
FMCG-Cigarettes
?
FMCG- Others
Dogs
Maybe ITC
Infotech.
SUMMARY
The BCG matrix method is based on the product life cycle theory that can be
used to determine what priorities should be given in the product portfolio of a
business unit. To ensure long-term value creation, a company should have a
portfolio of products that contains both high-growth products in need of cash
inputs and low-growth products that generate a lot of cash. It has 2 dimensions:
market share and market growth. The basic idea behind it is that the bigger the
market share a product has or the faster the product's market grows the better it
is for the company
3.4 GE PORTFOLIO MATRIX
Industry attractiveness
Companys business strengths/Competitive position
An SBUs appropriate objective cannot be determined solely by its position in
the growth-share matrix. If additional factors are considered, the growth-share
matrix can be seen as a special case of a multifactor portfolio matrix that
General Electric (GE) pioneered. In this model, each business is rated in terms
of two major dimensions market attractiveness and business strength
These two factors make excellent marketing sense for rating a business.
Companies are successful to the extent that they enter attractive markets and
possess the required business strengths to succeed in those markets. If one of
these factors is missing, the business will not produce outstanding results.
Neither a strong company operating in an unattractive market nor a weak
company operating in an attractive market will do ll. Using these two
dimensions, the GE matrix is divided into nine cells, as shown in the Figure
3.3.6
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MARKET ATTRACTIVENESS
Low Medium High
BUSINESS STRENGTH
Medium
5.00
5.00
3.67
2.33
Weak
Aerospace
fittings
Hydraulic
pumps
3.67
Clutches
2.33
Flexible
diaphragms
Fuel
pumps
Relief
valve
1.00
Invest/grow
Selectivity/earnings
Harvest/divest
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1.00
Joints
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The block with the Lateral Zone consists of the three cells in the upper left
corner. If the enterprise falls in this zone the business is in a favorable position
with relatively attractive growth opportunities. This indicates a green light to
invest in this product/service.
The blocks with plain Zone consists of the three diagonal cells from the lower
left to the upper right. A position in the yellow zone is viewed as having
medium attractiveness. Organisation must therefore exercise caution when
making additional investments in this product/service. The suggested strategy is
to seek to maintain share rather than growing or reducing share.
The blocks with a Diagonal Zone consist of the three cells in the lower right
corner. A position in the red zone is not attractive. The suggested strategy is
that management should begin to make plans to exit the industry.
FACTORS UNDERLYING MARKET ATTRACTIVENESS AND BUSINESS
STRENGTH IN GE MULTIFACTOR PORTFOLIO MODEL
1. MARKET ATTRACTIVENESS
Overall market size
Annual market growth rate
Historical profit margin
Competitive intensity
Technological requirements
Inflationary vulnerability
Energy requirements
Environmental impact
Social-political legal
2. BUSINESS STRENGTH
Market share
Share growth
Product quality
Brand reputation
Distribution network
Promotional effectiveness
Productive capacity
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Productive efficiency
Unit costs
Material supplies
R & D performance
Managerial personnel
The GE matrix is divided into nine cells. The three cells in the upper-left corner
indicate strong SBUs in which the company should invest or grow. The
diagonal cells stretching from the lower left to the upper right indicate SBUs
that are medium in overall attractiveness. The three cells in the lower-right
corner indicate SBUs that are low in overall attractiveness.
3.5 PORTERS Five Forces - Competitor Analysis
Michael Porter's Five Forces
What is it?
Porters model is model to help understand the competitive environment in
which a company operates.
Michael Porter's five forces is a model used to explore the environment in
which a product or company operates.
Five forces analysis looks at five key areas mainly the threat of entry, the power
of buyers, the power of suppliers, the threat of substitutes, and competitive
rivalry.
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New Entrants
Industry
Suppliers competitors and Buyers
extent of rivalry
Substitutes
Introduction
The model of the Five Competitive Forces was developed by Michael E. Porter
in his book Competitive Strategy: Techniques for Analysing Industries and
Competitors in 1980. Since that time the 'five forces tool' has become an
important method for analysing an organizations industry structure in strategic
processes.
Porters model is based on the insight that a corporate strategy should meet the
opportunities and threats in the organizations external environment. Especially,
competitive strategy should base on an understanding of industry structures and
the way they change.
Porter has identified five competitive forces that shape every industry and every
market. These forces determine the intensity of competition and hence the
profitability and attractiveness of an industry. The objective of corporate
strategy should be to modify these competitive forces in a way that improves
the position of the organization. Porters model supports analysis of the driving
forces in an industry. Based on the information derived from the Five Forces
Analysis, management can decide how to influence or to exploit particular
characteristics of their industry.
The Original Five Factor:
Threat of New Entrants
The easier it is for new companies to enter the industry, the more cut-throat
competition there will be. Factors that can limit the threat of new entrants are
known as barriers to entry. Some examples include:
Existing loyalty to major brands
Incentives for using a particular buyer (such as frequent shopper
programs)
High fixed costs
Scarcity of resources
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Competitive Rivalry
And last but not least, this describes the intensity of competition between
existing firms in an industry. Highly competitive industries generally earn low
returns because the cost of competition is high. A highly competitive market
might result from:
Many players of about the same size, no dominant firm.
Little differentiation between competitors products and services.
A mature industry with very little growth.
Companies can only grow by stealing customers away from competitors
For many industries, this is the major determinant of the competitiveness of the
industry. Sometimes rivals compete aggressively and sometimes rivals compete
in non-price dimensions such as innovation, marketing, etc.
Number of competitors
Rate of industry growth
Intermittent industry overcapacity
Exit barriers
Diversity of competitors
Informational complexity and asymmetry
Fixed cost allocation per value added
Level of advertising expense
Use of the Information from Five Forces Analysis:
Five Forces Analysis can provide valuable information for three aspects of
corporate planning:
Statistical Analysis:
The Five Forces Analysis allows determining the attractiveness of an
industry.
Dynamical Analysis:
In combination with a PESTLE Analysis, which reveals drivers for
change in an industry, Five Forces Analysis can reveal insights about
the potential future attractiveness of the industry. Expected Political,
Economical, Socio-demographical, Technological, Legal and
Environmental changes can influence the five competitive forces and
thus have impact on industry structures.
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SUMMARY
Use of the Five Forces model
The Five Forces tool is a simple but powerful tool for understanding where
power lies in a given business situation. This is important, as it helps you
understand both the strength of your current competitive position, and the
strength of a position youre looking to move into.
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With a clear understanding of where power lies, you can take fair advantage of
a situation of strength, improve a situation of weakness, and avoid taking
wrong steps. This makes it an important part of your business planning toolkit.
3.6 Competitor, Complementary Products and competitive Advantage
Technology and Competitive Advantage, Substitution
These subjects are dealt with in Porters five forces Model. However, we
shall deal with Competitive Advantage in the below Section.
3.6 COMPETITIVE ADVANTAGE
LEARNING OUTCOMES
By the end of this learning unit, you will apply your understanding of the
following concepts in order to apply it to ones own venture.
The positioning of a venture in the market
Competitive advantage
1. What Is Positioning?
Very few people seem to grasp the notion of positioning. Positioning, like
competitive advantage, originates from the key success factors.
Perhaps we should start by looking at an example to introduce the idea of
concept positioning. Take three well-known food franchises in SA that all sell
chicken as their main line namely KFC, Nandos and Chicken Licken. How do
they position their concept offerings? Studying their advertisements, set-ups,
pricing strategies, apparent target groups and what their managers say. We can
learn the following about each ones positioning. The concept of KFC seems to
be positioned as convenience that is also fun while being priced for the
average family or individual with medium income. They even have drive
through facilities for more convenience. The pieces make it ideal for feeding
the family of the busy parent. They focus on take-away but sometimes also
have some very basic sit-down facilities. Their marketing often involves
promotions with toys and user-coupons.
Nandos, on the other hand, focus on giving people a lasting experience for
which they will come back time after time. Their product is higher priced larger
portions prepared more healthy for the higher income groups. The taste of
Portugal and open fire preparation brings an added experience component.
They have better sit-down facilities as part of the experience.
Chicken Licken on the other hand positions their product as a basically good
food that makes up a fair sized meal at a cheap price. They normally have no
sit-down but only take away facilities. Nothing that can increase costs is
tolerated. They focus on the lower income group.
As you will now realise, positioning takes place in the mind of the consumer. It
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is how they see your product (their perception). It is what you believe the
customers will value. Think how differently a normal loaf of bread and garlic
bread is positioned. Bread is widely distributed, low priced, never advertised
(basic food) while garlic bread is highly priced, exclusively distributed and
promoted (upper class luxury item). Obviously they are aimed at different
target markets.
As you will now realise, positioning takes place in the mind of the consumer. It
is how they see your product (their perception). It is what you believe the
customers will value. Think how differently a normal loaf of bread and garlic
bread is positioned. Bread is widely distributed, low priced, never advertised
(basic food) while garlic bread is highly priced, exclusively distributed and
promoted (upper class luxury item). Obviously they are aimed at different
target markets.
2. What Is Competitive Advantage?
Competitive advantage is a key concept for business. If you can answer the
question of why people will buy from you and not your competition, and you
can find a significant reason, then you are on the way to competitive advantage.
Competitive advantage refers to a benefit that exists when a company has a
product or service that is seen by its target market as better than those of the
competitors. It is found in the resources or can be a capacity / competency that
allow it to be perceived as having an advantage.
Low price can never be seen a competitive advantage as it is not sustainable
and any competitor can beat your price (even at a loss). To be a competitive
advantage it must be sustainable and hard to imitate. There are several places
to seek for a competitive advantage. Remember is not automatic to have a
competitive advantage. One spends a lot of resources to create and maintain
competitive advantage. Think about some brand images (names) that have
become competitive advantages like Coke, BMW, Vodacom and others.
2. Summary
Competitive advantage is key for long-term survival. If you cannot find a
competitive advantage that differentiates you from the competition, you may
survive for a short time only.
3.7 STRATEGIC ALTERNATIVES
There are three ways to identify strategic alternatives. The first is selecting the
product markets in which the firm will operate and deciding how much
investment should be allocated to each; the second is developing the functional
area strategies; and the third is determining the basis of sustainable competitive
advantage in those product markets.
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Provides the rationale for investment that may require years to payoff.
Strategic Opportunism
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is the best way to tackle this crucial task. Restitching business portfolio according to changes in market requirements allows corporate managers to focus
on the best market opportunities. By dynamically adjusted businesses in order
to match changing market opportunities, managers are directed toward highpotential businesses, activities or products, uncovering the profit levers that
drive effective strategy of those businesses, and creating economic value for the
corporate enterprise.
Restructuring can take the form of combining, adding, splitting, exiting, or
transferring the businesses (but, also, business activities, and elements of
product assortment). One of the efficient form is to split the enterprise into
several parts (segments, units), focusing on target markets and occasionally
make new splitting, according to the changes on target markets. An efficient
form could be addition of new units to the existing portfolio, taking welldefined market of products in assortment of enterprise. An efficient way is,
also, to create a flexible mix of related products, on the basis of core products,
knowledge, and experience. Internal transfer of knowledge and products from
one unit to another enables better use of knowledge and capabilities of
enterprise and optimal scale of product. Combining products inside the product
assortment leads to creation of their critical mass and increase cash flow in
order to drive new growth.
DETERMINANTS OF STRATEGIC PROCESS OF COEVOLVING
Creating cross-business synergy in corporate enterprise is at the heart of
corporate strategy and a prime rationale for the existence of the multibusiness
corporation. As the ability of two or more business units to generate greater
value working together than they could working apart, synergy has its sources
in shared resources, knowledge and skills, coordinated strategies, vertical
integration or establishing internal alliances in enterprise The right choice of
source of corporate synergy enables efficient structuring business portfolio and
creating corporate advantage on target markets. An efficient way of achieving
corporate synergy is creating the web of collaborative links and relationships
among the enterprise and business units everything starting from exchanging
information on shared assets to creating the corporate strategy. It is realized
through managing a corporate strategic process called coevolving, based on the
principle of natural laws of shared survival and development of individual
related species.
Coevolving is a subtle strategic process in successful corporate enterprises,
including creation of flexible business portfolio with both collaborative and
competitive units and a superior corporate strategy based on cross-business
synergies in performing business activities. The process of coevolving turns the
corporate enterprise into an ecosystem with corporate strategy in the hands of
business-unit managers.
It emphasizes the importance of multibusiness teams at the corporate level the
group of business-unit managers that oversees synergies among the units. The
teams primary task is to manage the shifting collaborative web among the
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(a) Y-axis.
(b) X-axis
Q.5 In BCG Matrix four quadrants are:
(a) Stars
(b) .
(c) Cash cows
(d) Dogs
Q.6 GE Matrix Market size is represented by:
(a) Square
(b) Rectangle
(c) Circle
(d) Triangle
(d) Decline
Q.7 Porters five force Model comprises of.
(a) Bargaining power of buyers
(b) Competitive rivalry
(c) Bargaining power of suppliers
(d) Threat of entry
(e)..
Q.8 Expand PEST analysis
(a) P.
(b) E.
(c) S..
(d) T..
Q.9 Fourth strategies in Growth share Model is___________
(a) Hold
(b) Build
(c) .
(d) Divest
Q.10 Michael porters generic strategies are: ________,
________, ________
(a).
(b).
(c)..
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MODULE IV
4.0 Offensive and Defensive Competitive Strategies
4.1 Advantages and disadvantages of offensive strategies
4.2 Advantages and disadvantages of defensive strategies
4.3 Industry scenarios
LEARNING OUTCOMES
Upon Completion of this chapter, you will be able to apply your understanding
of the following concepts: Strategies in declining/hostile markets.
Offensive and Defensive Strategies
There are therefore two broad strategies to be considered:
Defensive strategies where the venture identifies the threats and defends
itself against them.
Defensive Strategies
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4. End-run offensives
5. Guerrilla offensives
6. Preemptive strikes
6-11
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Force
them
to
resources to defend their position
use
substantial
A challenger with superior resources can overpower weaker rivals by outcompeting them across-the-board long enough to become a market leader!
4. End-Run Offensives Objectives
Maneuver around strong competitors
Capture unoccupied or less contested markets
This is useful for firms that have difficulty competing head-to-head against
rivals
5. Guerrilla Offenses Approach
Use principles of surprise and hit-and-run to attack in locations and at times
where conditions are most favorable to initiator
Appeal: Well-suited to small challengers with limited resources and market
visibility
6. Preemptive Strikes Approach
Involves moving first to secure an advantageous position that rivals are
foreclosed or discouraged from duplicating!
Defensive or Retaliatory Strategy Objectives
Firms that are threatened by a potential or actual move into their market may
retaliate. Thus, Microsoft has made several moves (including into the internet
space) in part to protect its software position.
Lessen risk of being attacked
Blunt impact of any attack that occurs
Influence challengers to aim attacks at other rivals
Approaches: Block avenues open to challengers Signal challengers vigorous
retaliation is likely
First-Mover Advantages
When to make a strategic move is often as crucial as what move to
make
First-mover advantages arise when
Pioneering helps build firms image and reputation
Early commitments to new technologies and distribution
channels can produce cost advantage
Loyalty of first time buyers is high
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are
sizable
are
change
and
primitive,
allows
SCENARIOS are perceptions about the likely environment a firm could face in
future. Scenario writing is one of the techniques for analyzing environment.
Its use could be extended to evaluation by enabling organizations to focus their
strategies on the forthcoming developments in the environment.
For several of the above techniques for strategic control - except with the
possible exception of responsibility centres not much evidence is available
about their applications. The fact that these techniques are proposed is an
evidence of expanding body of knowledge in strategic management and
business policy available for applications by organizations.
SCENARIO WRITING FOR ENVIRONMENTAL SCANNING
Foresight and futurology require looking into the future by intelligent
discerning of influences in the present environment and projecting them into
the future. We are interested in foresight and future so as to know what to
expect and not to be overtaken by nasty surprises. Knowing what to expect
prepares us better to face the future. This is the simple principle behind
scenario writing - one of the techniques, other being extrapolation Delphi
surveys for developing foresight and peeping into the future.
We present industry scenario in the case study section.
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MODULE V
5.0 Strategic Implementation
STRATEGIC MANAGEMENT
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Kinds of measures
Efficiency: Level of production costs, number of hours needed to
produce an item, cost of raw materials
Quality: Number of rejects, number of customer returns, level of
product reliability
Innovation: number of new products introduced, time taken to market;
cost of product development
Responsiveness to customers: number of repeat customers; level of
on-time delivery to customers, level of customer service
5.2 BALANCED SCORECARD
LEARNING OUTCOMES
In this learning unit, you will be able to understand the following concepts
Define the measurement of progress
Understand the Balanced Score card
1. Measurement
There is nothing worse than having a strategy but not knowing whether it is
working or not. Every success factor must therefore be converted into several
objectives to be achieved. The word objective suggests that it is able to measure
whether it has been achieved or not.
How do we know the strategy is a good one?
GOODNESS OF FIT TEST
- How well does the strategy fit the companys situation? Judgment
COMPETITIVE ADVANTAGE TEST
- Does strategy lead to sustainable competitive advantage?
PERFORMANCE TEST
- Does strategy boost company performance? Balanced scorecard
One of the ways to do this measurement (developed by Kaplan) is the balanced
scorecard.
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Adapted from Robert S. Kaplan and David P. Norton, Using the Balanced
Scorecard as a Strategic Management System, Harvard Business Review
(January-February 1996): 76.
Balanced Scorecard Basics
The balanced scorecard is a strategic planning and management system that is
used extensively in business and industry, government, and nonprofit
organizations worldwide to align business activities to the vision and strategy
of the organization, improve internal and external communications, and
monitor organization performance against strategic goals. It was originated by
Drs. Robert Kaplan (Harvard Business School) and David Norton as a
performance measurement framework that added strategic non-financial
performance measures to traditional financial metrics to give managers and
executives a more 'balanced' view of organizational performance. While the
phrase balanced scorecard was coined in the early 1990s, the roots of the this
type of approach are deep, and include the pioneering work of General Electric
on performance measurement reporting in the 1950s and the work of French
process engineers (who created the Tableau de Bord literally, a "dashboard"
of performance measures) in the early part of the 20th century.
A balanced scorecard for measuring company performance is optimal; it
entails:
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Summary
Key to everything is the fact that you can only see progress if you measure
regularly. The balanced scorecard is a tool for that.
CHECK AGAINST LEARNING OUTCOMES
I completely understand the following outcomes and will be able to
apply them in the work environment:
No.
Outcome
1.
2.
Yes
No
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INDUSTRY SCENARIO:
An industry scenario is forecasted description of a particular industrys
consistent scenarios.
scenario.
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scenario.
7. Predict competitors behaviour under each scenario.
8. Select the scenarios that are either most likely to occur or most
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CASE STUDY
1. BCG Matrix for ITC Limited
ITC Background:
Governance structure
Strategic supervision
Strategic management
Executive management
Core values
Nation Orientation; Trusteeship; Excellence;
Customer focus; respect for people; Innovation
Vision & Mission statements
Vision: Sustain ITCs position as one of Indias most valuable
corporations through world class performance, creating growing
value for the Indian economy and the Companys stakeholders.
Mission: To enhance the wealth generating capability of the
enterprise in a globalizing environment, delivering superior and
sustainable stakeholder value.
Business Mix of ITC Ltd.
FMCG
Cigarettes
Foods
Lifestyle Retailing
Greeting, Gifting & Stationery
Safety Matches
Agarbattis
Paperboards & Packaging
Paperboards & Specialty Papers
Packaging
Agri - Business
Agri-Exports
e-Choupal
Leaf Tobacco
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Hotels
Group Companies
ITC Infotech; etc.
FMCG-Cigarettes 8.4
10002.54 9230.27
FMCG-Others
85.2
563.39
304.16
Hotels
124.1
577.25
257.53
Agribusiness
4.2
1780.07
1708.77
24.9
1565.31
1253.29
Net revenue
12.99
13349.58 11815.04
CAGR
Growth parameters
Cigarettes 10.9 %
Pricing power
Hotels
22.7%
Paper
17.2 %
Agri
business
FMCGOthers
34.3 %
60.2 %
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Dominance
Cigarettes
70% share
Paper &
Packg.
Contribution %
Revenue
PBIT
77.0%
87.7%
7.3%
10.7%
Agri
1of the largest xporters
business
from India
7.0%
3.7%
Hotels
4.3%
5.4%
FMCG
(Others)
4.4%
-7.5%
A
c
t
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Limitations
Assumes market growth rate. A firm may grow the market.
A Dog may be helping other products.
High market share/Growth is not the only success factor.
Linkage between market share and profitability is questionable.
Stars
Hotels
Paperboards/
Packaging.
Agri business.
Cows
FMCG-Cigarettes
?
FMCG- Others
Dogs
Maybe ITC
Infotech.
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(i) True
(ii) False
Answers to Quiz:
Chapter I: Introduction to Strategic Management
1(a),2(b),3()a,4(b),5(c),6(c),7(d),8(a),9(d),10(b)
Chapter II: Strategic Analysis
1(c),2()a,3(a),4()b,5(a),6(d),7(d),8(d),9(c),10(b)
Chapter III: Strategic Choice
1d, 2a, 3b 4b, 5question marks,6c, 7threat of substitutes,8 political, economic,
social, technological ,9harvest,10 cost leadership, differentiation, focus
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http://www.mhhe.com/business/management/dess1e/student/quiz_mult/ch0
1.mhtml
Video and Power Point Presentations. Strategy Club Strategic Planning
Software ... Dr. Fred R. David is the author of three mainstream strategic
management
www.strategyclub.com/
Other sources of Information: Documentary or secondary sources
- Magazines, newspaper, journals, books, trade &industry Assn. publication,
Govt. Publication, Annual report of Competitor Company
- Mass media
- Internal sources employees, files, documents and MIS
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