Strategic Mangmt

Strategic Management
Main Text: Strategic Management & Business Policy: Wheelen , Hunger & Rangarajan
(Prentice Hall)
Course Facilitator: Bijoy S Guha
Dec 2010
Strategic Management:
11
Case Studies:
1. Encyclopaedia Britannica (A, B & C) Case 2-1, 2-2,2-3 Management Control System 12 edn 2. The Road Ahead for Shanghai VW International Case: Pg.116+117, Essentials of Management 7 edn. (Tata McGraw Hill) 3. T.I. & H.P.
Case 13-3; Management Control Systems 12 edn Strategic Management: 22
Dec 2010
Who am I ?
Joined Philips India as a Management Trainee (1969) w After O-J-T of 18 months, became a Section Incharge in a factory w 18 months later, become Shop In-charge w 24 months later, took over as I/C Engineering & Customer Support w 18 months later, Project 2nd I/C for new Factory w 18 months later, Manager Quality Control w 42months later, Manager Innovation Group w 42 months later seconded to Philips Germany w 24 months later returned as Factory Manager, Luminaire Centre/Calcutta w 36 months later took over as Plant Manager, Kalwa Lamp Factories/ Thane the largest Philips Production complex first Indian Manager w 54 months later took over as SBU head- Professional Lighting/India w 36 months later took over as Head, Corporate Purchasing/India for 12 months; w Started (1998) up a joint-venture between Tata Dec 2010 Strategic Management: 33
w
Basic Concepts:
Strategic Management & Business Policy
Syllabus Topic: 1) Introduction to Strategic Management
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Defined: Set of managerial decisions and actions that determines the long-run performance of a firm.
The primary role of corporate management is finding the future ... Strategic Management: Al Reis 55 Strategic Management:
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B S Guha
Business Policy
Defined: General management orientation that looks inward for properly integrating the firms functional activities.
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Strategic Management: B S Guha Strategic Management:
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Four Phases towards Strategic Management

Basic financial planning: serious planning

for next years budget limited horizon; Forecast-based planning: many programs run beyond a year; managers look at longer time horizons, typically 5 years, but much ad-hocism in forecasts;
Externally-oriented planning (strategic):

accent on reliable forecasts and centralized formulation of strategic actions; Strategic management: inclusion of implementation and control in strategic actions; involvement of all levels for realism and buy-in.
Strategic Management: B S Guha Management: Strategic 77
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Highly Rated Benefits:
Clearer sense of strategic vision for the firm Sharper focus on what is strategically important Improved understanding of a rapidly changing
Not always a formal process:

environment
Where is the organization now? (Not where do we hope it is!) If no changes are made, where will the organization be in 1 year, 2 years, 5 years, 10 years? What specific actions should management undertake? What are the risks and payoffs involved?
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H
Strategic grid
High Intuitive based strategy High Logic , High Intuition strategy
Intuiti on
Compromis e strategy
Negligible strategy
High Logic based strategy
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Logi Strategic Management: c
99
Challenges to Strategic Management

Globalization
Internationalization of markets and corporations

Global (worldwide) markets rather than
national markets
Electronic Commerce
Use
of the Internet to conduct business transactions

Basis for competition on a more strategic
level rather than traditional focus on product features and costs

Dec 2010
E-Commerce
7 Trends:
forcing companies to transform themselves Market access and branding are changing, causing disintermediation of traditional distribution channels Balance of power shifting to the increasingly savvy consumer Competition is changing (convergence!) Pace of business increasing drastically Internet purchasing corporations out of their traditional boundaries Knowledge becoming a key asset and Strategic Management: 1111 source ofStrategic Management: competitive advantage B S Guha Dec 2010
Internet
Strategic flexibility:
Demands
Adaptation to Changing Environmental Conditions

a long-term commitment to the development and nurturing of critical resources that the firm become a learning organization
Demands
Dec 2010
Defined: An organization skilled at creating, acquiring, and transferring knowledge and at modifying its behavior to reflect Four Main Activities: insights. new knowledge and

Learning Organizations
Solving problems systematically Experimenting with new approaches Learning from their won experiences and that of others Transferring knowledge quickly and efficiently throughout the organization
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Basic Model of Strategic Management

Four Basic Elements
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Environmental Scanning
Defined: The monitoring, evaluating, and disseminating of information from the external and internal environments to key people within the firm.
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Identify strategic factors
SWOT Analysis Strengths, Weaknesses Opportunities, Threats Internal Environment
Strengths & Weaknesses Within the organization but not subject to shortrun control of management
External
Environment
Opportunities & Threats External to the organization but not subject to short-run control of management
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Strategy Formulation
Defined: Development of long-range plans for the effective management of environmental opportunities and threats in light of corporate strengths and weaknesses.
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Mission Statement
Purpose
or reason for the organizations existence Promotes shared expectations among employees Communicates public image important to stakeholders Who we are, what we do, what wed like to become
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A goal is an open-ended The end results of planned activity of statement What is to be accomplished what one wants Time in which to accomplish to accomplish it with no Quantified when possible quantification of Corporate goals and objectives be what is to achieved and no include: time criteria for Profitability (net profits) completion.
Objectives
Growth
(increase in total assets, etc.) Utilization of resources (ROE or ROI) Market leadership (market share)
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Strategies
Defined: A strategy of a corporation forms a comprehensive master plan stating how the corporation will achieve its mission and objectives. It maximizes competitive advantage and minimizes competitive disadvantage.
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Policies
Defined: Broad guidelines for decision making that link the formulation of strategy with its implementation.
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Strategy Implementation
Programs Strategy Implementati on Budgets
Procedu res
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Strategic Management Model
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Initiation of Strategy
New CEO
External intervention
Trigger ing event
Threat of change in ownership

Performance gap
Strategic inflection point
Stimul us for chang e in strate gy

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Strategic Management: B S Guha Management: Strategic
Business Life-cycle
The four phases of Business:
Starts with the introduction of a product/service, Obtains a market position through R&D/ Range extensions/
Improvements, Establishes dominance through Customer Satisfaction/ Technology/ positioning strategies, Shrinks with influx of innovations/changing Customer needs/ environmental conditions. Dynamics of Strategy
Steel Automotive Telecom. Bio-Tech.
Point of Inflection
+ Clothing
Textile
Dec 2010
Introduction
Growth
Maturity
Decline
2626
Business Life-cycle & Strategy

?
Automobiles Performanc e Trucks, Buses & Constr. Equip.
Locomotive Product/Technology led Points of Inflection
Initiation/ Start-up
TELCO
Tata Motors
Tim e Tata
The S-Curve of a Firms life e.g.

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Motors
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Strategy: Types & Hierarchy
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Strategic Decision Making

Strategic Decisions Rare: seldom have precedents Consequential: commit great deal of resources and demand high degree of commitment from Strategic Management: 2929 Dec 2010 people Strategic Management: B S Guha

Mintzbergs Modes
Entrepreneurial mode: made by a powerful individual, with opportunities as the primary focus and problems secondary. Characterized by founders vision and bold, large decisions for growth. Adaptive mode: characterized by reactive, fragmented solutions to existing problems more than proactive search for opportunities. Planning mode: characterized by data-collection, analysis and logical selection. It is both proactive & reactive. Logical incrementalism: combines all the above and is both intraprenureal and top-led, allowing for both vision and experimentation to thrive.
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Birth of strategic management
Strategic management as a discipline originated in the 1950s and 60s; the most influential pioneers were Alfred D. Chandler, Philip Selznick, Igor Ansoff, and Peter Drucker.
Chandler showed that a long-term coordinated strategy was
necessary to give a company structure, direction, and focus. He says it concisely, structure follows strategy. In 1957, Selznick introduced the idea of matching the organization's internal factors with external environmental circumstances. This core idea was developed into what we now call SWOT analysis. Ansoff added a range of strategic concepts and invented a whole new vocabulary! He developed the gap analysis still used today in which we must understand the gap between where we are currently and where we would like to be, then develop what he called gap reducing actions.
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Strategic Management ctd

Birth of strategic management
Drucker was a prolific strategy theorist, author of twenty-
two of management books, with a career spanning five decades. His contributions to strategic management were many but two are most important.
Firstly, he stressed the importance of objectives. As early as 1954 he gave the theory of management by objectives (MBO). His other contribution was in predicting the importance intellectual capital. He predicted the rise of what he called the knowledge worker and explained the consequences of this for management.
He said that knowledge work is non-hierarchical. Work would be carried out in teams with the person most knowledgeable in the task at hand being the temporary leader.
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Strategic Management ctd

In 1985, Ellen-Earle Chafee summarized what she thought were the main elements of strategic management theory of the 1970s:
Strategic
management involves adapting the organization to its business environment. Strategic management is fluid and complex. Change creates novel combinations of circumstances requiring unstructured non-repetitive responses. Strategic management affects the entire organization by providing direction; is done at several levels: overall corporate strategy, and individual business strategies. Strategic management is partially planned and partially unplanned; involves both conceptual and analytical thought processes. Strategic management is both strategy formation (content) and also strategy implementation (process).
Case Study: Encyclopaedia Britannica (A, B & C)

Case 2-1, 2-2,2-3 Management Control System 12 edn
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Environmental Scanning & Business Strategy

Syllabus Topics: (6) Process of Strategy Formulation (2) Competitive Strategy , (5a) Recent advances: core competencies (7a)Analytical framework for strategy formulation: Input stage matrices
Environments
Environmental uncertainty: The degree of complexity plus the degree of change existing in an organizations external environment.
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Environments
Environmental scanning: The monitoring, evaluating, and disseminating of information from the external and internal environments to key people within the corporation to avoid strategic surprise and ensure the long-term health of the firm.
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ExternalEnvironmental Variables: Environment External

Societal environment: General forces that do not directly touch on the short-run activities but often influence its long-run decisions.
Task environment: Those elements or groups that directly affect the corporation and, in turn, are affected by it. The task environment is the industry within which that firm operates.
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External Environment
.T s .S s i .E y P al n A
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Issues Priority Matrix
Probable Impact on Corporation Hig h Mediu m Lo w Mediu m Priori ty
Hig h Priori ty
Hig h Priori ty
Probability of Occurrence
Hig h
Mediu m
Hig h Priori ty
Mediu m Priori ty
Lo Priori w ty
Mediu Priori m ty
Lo Priori w ty
Lo Priori w ty
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Lo w
4343
Environmental Scanning: External

Critical changes induce a change in a firms strategy: Reactive, Proactive or both. The approach often used is the Issue Prioritization matrix to better assess the impact and timing of the of an event followed by the development of an appropriate response strategy.
Somehow the management must determine the probability of their occurrence and the degree of impact (profitability/ market share etc..) of each event.
An Example: (Trends for a Telecom Company)
Dec 2010
1. Wireless communication technology will make networks based on fiber and conductor redundant. 2.Technology will enable storage and accessing of vast quantity of data at affordable cost; Strategic Management: 4444
Environmental Scanning: External

This example contains 4 events, worthy of concern in the first decade of 2000. The probability of each occurring by the year 2010 was rated, as was the impact on the company in terms of market-share and profitability.
Occurrence by 2010
Hig h Telephone firms &
Hig h
Lo w
Technology will Prices of large-screen provide cheap TVs will drop Lo data storage & Management: by 50% Dec 2010 Strategic 4545 handling.
Impac t
systems operators will emerge as the dominant force.
Wireless technology will make fibers & conductors redundant
External Strategic Factors
Defined: Key environmental trends that are judged to have both a medium to high probability of occurrence and a medium to high probability of impact on the corporation.
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Societal Environment Important Variables
Political-Legal
Antitrust regulations Environmental protection laws Tax laws Special incentives Foreign trade regulations Attitudes toward foreign companies
Economic
GDP trends Interest rates Money supply Inflation rates Unemployment levels Wage/price controls Devaluation/rev aluation Energy availability and cost Disposable and discretionary income Dec 2010
Technological
Total government spending for R&D Total industry spending for R&D Focus of technological efforts Patent protection New products
Socio-cultural
Lifestyle changes Career expectations Consumer activism Rate of family formation Growth rate of population Age distribution of population Regional shifts in population Life expectancies
Laws on hiring New and promotion developments Stability of in technology government transfer from Strategic Management: lab to
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Societal Environment Strategists must monitor the major forces and their interactive effects, for their opportunity and threat potential:
Example of interactive effects: explosive population growth (demo-graphic) leads to more resource depletion and pollution (natural) which, in-turn, leads consumers to call for more preventive laws (political-legal). This could stimulate new solutions and products (technological), which if they are affordable (economic) may actually change attitudes and behaviours (socio-cultural).
External Strategic Factors
Factors influencing the choice:
Personal values of managers Functional experience of managers Success of current strategies Strategic myopia
Willingness to reject unfamiliar as well as
negative information
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Industry analysis: An in-depth examination of key factors within a corporations task environment.
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Industry Analysis
Industry
A group of firms producing a similar product or service, such as soft drinks, Automobiles or financial services.
w
The principal determinant of the Task Environment is the Industry Analysis:

What is the structure of the industry in
which the business unit operates? How should the business unit exploit the industry structure? What will be the basis of the business units competitive advantage? Dec 2010 Strategic Management: 5151
Industry Analysis
Porters approach: Assess the six forces - Threat of new entrants Rivalry among existing firms Threat of substitute products Bargaining power of buyers Bargaining power of suppliers Relative power of other stakeholders
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Industry Analysis
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Industry Analysis
Threat of New Entrants -Barriers to entry:
Economies of Scale Product Differentiation Capital Requirements Switching Costs Access to Distribution Channels Cost Disadvantages Independent of Size Government Policy
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Industry Analysis
Rivalry Among Existing Firms -Intense rivalry related to:
Number of competitors Rate of Industry Growth Produce or Service Characteristics Amount of Fixed Costs Capacity Height of Exit Barriers Diversity of Rivals
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Industry Analysis
Threat of Substitute Products/Services
Substitute Products: Those products that appear to be different but can satisfy the same need as another product. To the extent that switching costs are low, substitutes can have a strong effect on an industry. E.g. Entertainment Industry: T20 vs. Movies
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Industry Analysis
Bargaining Power of Buyers -Buyer is powerful when:
Buyer purchases large proportion of sellers products Buyer has the potential to integrate backward Alternative suppliers are plentiful Changing suppliers costs very little Purchased product represents a high percentage of a
buyers costs Buyer earns low profits Purchased product is unimportant to the final quality or price of a buyers products
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Industry Analysis
Bargaining Power of Suppliers -Supplier is powerful when:
Supplier industry is dominated by a few companies
but sells to many Its product is unique and/or has high switching costs Substitutes are not readily available Suppliers are able to integrate forward and compete directly with present customers Purchasing industry buys only a small portion of the suppliers goods.
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Industry Analysis
Industry Evolution
Fragmented Industry
No firm has large market share and each firm serves only a small piece of the total market in competition with others.
Consolidated Industry
Dominated by a few large firms, each of which struggles to differentiate its products from the competition.
Multi-domestic/International Global
Industry Analysis Continuum of International Industries

Multi-domestic Global
Industry in which Industry in which companies companies tailor their manufacture and sell products to the specific the same products, needs of consumers in a with only minor particular country. adjustments made for Retailing Industry primarily multi-domesticindividual countries or primarily global Insurance based around the world. Banking on: Pressure for coordination Automobiles Tires Within the multinationals in thatTelevision sets industry
Pressure for local responsiveness
Individual country markets
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Industry Analysis Strategic Groups

Defined: A set of business units or firms that pursue similar strategies with similar resources.
Strategic Types
Defined: Category of firms based on a common strategic orientation and a combination of structure, culture, and processes consistent with that strategy.
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Industry Analysis
Strategic groups
Can be mapped by selecting broad characteristics that differentiate companies in an industry and plotting them on two lowly correlated dimensions to understand strategic Hig Restaura (competitive) issues and in 5business models. Another h nts
Pric e
star Hotels Speciali ty Restaur ant Multicusine Restaur ant
KFC McDona lds etc.
Lo w
Tapris , Etc. Sma Product-line ll
dimension e.g. Service quality can be added to convert this into a 3-D plot.
Larg e
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breadth Management: Strategic
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Industry Analysis
Strategic Types
Defenders: Companies with a limited product line; focus on improving efficiency of current operations Prospectors: Companies with fairly broad product lines; focus on product innovation and market opportunities. Analyzers: Corporations that operate in at least two different product-market areas one stable/ other variable. Reactors: Corporations that lack a consistent strategy-structure-culture relationship.
Industry Analysis ctd.
Custo mer
Relation ship
Compa ny
Bmark ing Partner ing
Competi tor
Suppli er
Key Analytical Information: - Position w.r.t major Customers

Dec 2010
- Key Success Factors (of Competitors) Strategic Management: - leverage-able strengths of suppliers
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Industry Analysis
Industry Matrix: Understanding Key Success Factors
Key Success Factors 1 Weig ht 2 Company A Rating 3 Company A Weighted Score 4 Company B Rating 5 Company B Weighted Score 6
Competitive Intelligence!
Tot al
1.0 0
Source:T. L. Wheelen and J. D. Hunger, Industry Matrix. Copyright 2001 by Wheelen and Hunger Dec Reprinted by permission. Strategic Management: 6565 Associates. 2010
Industry Analysis
Forecasting Techniques:

Extrapolation Brainstorming Expert opinion Statistical modeling Scenario writing
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External Factor Analysis Summary External Factor Analysis Summary (EFAS)

Extern al Factor s Opportunities Weig ht Ratin g Weighte d Score Commen ts
8 to Threats 10, prior itize Total Weightedd

Score
Ranke d Max: 5 on how well the company is currently dealing with factor
1.0 0
Notes: 1. List opportunities and threats (510) in column 1. 2. Weight each factor from 1.0 (Most Important) to 0.0 (Not Important) in Column 2 based on that factors probable impact on the companys strategic position. The total weights must sum to 1.00. 3. Rate each factor from 5 (Outstanding) to 1 (Poor) in Column 3 based on the companys response to that factor. 4. Multiply each factors weight times its rating to obtain each factors weighted score in Column 4. 5. Use Column 5 (comments) for rationale used for each factor. 6. Add the weighted scores to obtain the total weighted score for the company in Column 4. This tells how well the company is responding to the strategic factors in its external environment. Source:T.2010 Dec L. Wheelen and J. D. Hunger, External Strategic Factors Analysis Summary (EFAS). Copyright Strategic Management: 6767 1991 by Wheelen and Hunger Associates. Reprinted by permission.
External Factor Analysis Summary (EFAS) Maytag Example
External Factors Opportunities

Economic integration of European Community Demographics favor quality appliances Economic development of Asia Opening of Eastern Europe Trend to Super Stores
Weig ht
.20 .10 .05 .05 .10 .10 .10 .15 .05 .10 1.0
Ratin g
4 5 1 2 2 4 4 3 1 2
Weighte d Score
.80 .50 .05 .10 .20 .40 .40 .45 .05 .20 3.1
Commen ts
Acquisition of Hoover Maytag quality
Threats Increasing government

regulations Strong U.S. competition Whirlpool and Electrolux strong globally New product advances Japanese appliance companies
Low Maytag presence Will take time Maytag weak in this channel Well positioned Well positioned Hoover weak globally Questionable Only Asian presence is Australia
Total Scores
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Internal (organization) Analysis

Internal Strategic Factors: Critical Strengths and Weaknesses that are likely to determine if the firm will be able to take advantage of opportunities while avoiding threats. Resources: A resource is an asset, competency, process, skill or knowledge controlled by the corporation. A resource is:

a strength if it provides a firm with competitive advantage; a weakness if it is something the company is not sufficiently endowed with respect to the competitors
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Barneys VRIO framework for evaluating a firms key resources:
Value: does it provide competitive advantage? Rareness: do other competitors posses it? Imitability: is it costly for others to imitate? Organization: is the firm organized to exploit the resource? An answer yes for a particular resource indicates a strength and a distinct competence. Analysis is derived from:
Companys past performance Companys key competitors The industry as a whole


Using resources to gain competitive advantage is a 5step process:
1. 2.
3. 4. 5.
Identification & classification of a firms resources as strengths & weaknesses; Combining the firms strengths into specific capabilities. Corp. capabilities (Competencies) are things that the firm does exceedingly well. Appraisal of the Profit Potential, in terms of sustainable competitive advantage, of these resources. Selection of the strategy that best exploits the firms capabilities in relation to the (external) opportunities. Identification of resource-gaps and investment in upgrading weaknesses
Dec 2010

Sustainability is characterized by:
Durability:
the rate at which the firms capabilities (competencies) depreciate or become obsolete; Imitabilty: the rate at which the firms capabilities (competencies) can be duplicated by others. The Corp. Competencies can be imitated to the extent that they are:
Transparent: the speed with which other firms can understand
the relationship between resources and capabilities and their exploitation; Transferable: the ability of the competitors to gather the resources and generate capability; Replicable: the ability of competitors to use the duplicated resources to imitate the champions success.
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Level of Resource Hard to Easy to Sustainability imitate imitate Slow Cycle Std. Cycle Fast Cycle Resources Resources Resources Mass Strongly Easily Production shielded duplicated Scale, Patents, idea driven complex Brands e.g. SONY process e.g. Gillette Walkman e.g. DTSI Sensorcompetency is a specific factor that a A core Engine
business sees as being central to the way it, or its employees work. It fulfils three key criteria: It provides consumer benefits It is not easy for competitors to imitate It can be leveraged widely to many Dec 2010 productsStrategic Management: 7373 and markets.
Competencies are easy to acquire if they come from explicit knowledge:
Since readily articulated and communicated, this knowledge is easily acquired by commercial intelligence;
Core Competencies come from tacit knowledge (or knowing):

Not
easily communicated or imitable since they come from shared knowledge i.e. deeply rooted in experiences and corporations culture; Often they are not very formalized or are derived from a complex web of elements which cannot be distinctly defined by the management; Top management are very reluctant to intervene! (dont fix it if it aint broke)
Core Competence
Prahalad & Hamel introduced this term in their paper The Core Competence of the Corporation (HBR, 1990). In highlight:
CC
represents the collective learning and coordination capabilities/skills behind the firms manifest product lines CC leads to the development of core products which in turn spawn a host of end-user products/services The core products are not traded and thus lead to sustainable competitive advantage. Business Units tap into the core to deliver the market-beating end products The intersection of market opportunities with the CC forms the basis of launching new products Without CC, a corporation is just a collection of discreet businesses It is not necessarily expensive to develop CC since it is more about coordination rather than elaborate R&D, vertical integration etc.
Core Competence ctd
To be world-class, a company must identify and build on a few core competencies, precisely, what is it?
Honda, for example, has a core competence in small engine design and manufacturing (core product): manifest in multiple products; Sony has a core competence in miniaturization (core process), leading to many firsts e.g. Transistor Radio; Walmart has a core competence in logistics & SCM (core service) leading to outstanding variety on offer at lowest cost. Typically, a core competence refers to a set of skills or experience in some activity, rather than physical or financial assets.
Core Competence ctd

Strong core competencies:
are
well-organized special skills, technologies, processes, knowledge, expertise, or abilities. are typically achieved by long-term development processes and experiences. create customer value because they are considered by your customers to be unique and distinguishable, and they are not equally accessible to all competitors. are extremely difficult for other companies to imitate, if they can at all. can be transferred to other markets
Core Competence ctd

A world-class company develops new core competencies as well as expanding existing ones in order to enter new and future markets.
Such
companies recognizes the needs and wants of customers in new and future markets and develops the competencies necessary to meet those needs and wants.
Nokia, which started with paper & pulp went on to
rubber then Consumer Electronics, developed new core competencies, ventured out, and now produces mobile phones. SM Consulting, an IT consulting firm that has grown 625% in the past five years compared with an industry growth rate of only 31%. What is SM Consulting core competence?
Heinze, the President, says that it is the time invested in research. SM Consulting sales staff members are required to know as much as possible about a prospect before they even pick up the phone.

The Business Organization Model: Value Chain (Porter,1985)
Firm Infrastructur Humane Resource Management Technology Development Procure ment
Support Activities
ar M n gi
Inboun d Logisti cs
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Primary Strategic Management: Activities
M a in rg
Operati ons
Outbou nd Logisti cs
Marke ting & Sales
Servi ce
7979
Value Chain Analysis:

Examination of each product/service lines core competencies and core deficiencies Examination of the linkages between the valueelements: the value/cost trade-offs and interactive effects
E.g. using Brand Ambassadors may improve marketing
but make a dent in the budget allocation for technological development initiatives in e-marketing.
Finding
synergies across product-lines and businesses to gain Economies of Scope

E.g. use of common distribution channel by Unilever for the
wide variety of product/business lines: Personal care, Hygiene & Cookery

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Activities in the value are formally grouped into departments in and arranged to show reporting relationships i.e. Organization Entreprene Structure. The most common types are: ur/Owner
w
Simple Structure (Stage I)
Entrepreneur

Sr. Decision making tightly controlled Manager
Jr. Manager 8181
Little formal structure PlanningStrategic Management: short range/reactive
Dec 2010
Functional Structure (Stage II)
Management team Functional specialization Delegation decision making Concentration/specialization in industry
Divisional Structure (Stage III)

Dec 2010
Diverse product lines Strategic Management: Decentralized decision making
8282

Functional Structure Divisional Structure
C.E.O Manag ing Direct or C.O.O C.O.O C.O.O Operat Marke Financ Publis Fin. Export ions ting e hing Serv. s Direct Direct Direct or or or Operat Techni Sales Produc ions cal Manag tion Manag Manag er Manag er er er Financ Marke Logisti Materi e ting cs als Manag Manag Manag Manag Dec 2010 8383 er er Strategic Management:er er

Divisional Structure: Matrixed
C.E.O
C.O.O Publishi ng Technic al Manage r Marketi ng Manage r
C.O.O Fin. Serv.
C.O.O Exports C.F.O Finance Manage Manager Fin r Control Manager Treasury
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Finance Manage r
Dec 2010
Operati ons Manage r Finance Manage r
The evolving Value Chain

Corporate Support Activities Mkt & In Logs. Manf. Out
In Logs. Manf.

R&D
(Swn)
C o . Mkt. Logs
I.T.
(TelCo)
Logs.
Out Logs.
Mkt & Serv. Sales
Sales
Serv.
Engg.
(India)
Customers
Manf. (L/Co) Sales*

(Vam)
cloned Multi-location Activities
Serv*.
* O/sourced in major Mkts
Typical multi-domestic Organization: 20th Century Overseas operations characterized by rigid business systems with equity links. Dec 2010
Typical Global Organization: 21st Century Networked functions/activities, outsourced with key control levers in hand: partnerships/ service level agreements Strategic Management: 8585

Network Structure
Packagers Designers Corporate Headquarters (Broker) Manufacturers Promotion/ Advertising Agencies Distributors Suppliers
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Impact of Corporate Culture :
Definition is the collection of beliefs, expectations and values learned and shared its members, transmitted from one generation of employees to another
This is who we are, what we do and what we stand for
Has
two attributes, shaping behaviours and influencing strategy:

Intensity: degree of acceptance of norms, manifest in
acceptance of sub-cultures within each unit the depth of culture: leading to shared value e.g. Tata Motors Integration: commonality across the lines of business/units, manifest in an all-pervasive culture the breadth of culture: leading to consistent behaviours e.g. Army
Corporate Culture fulfills several important functions in an organization:

Conveys a sense of identity for employees Helps generate employee commitment to something
greater than themselves Adds to the stability of the organization as a social system Serves as a frame of reference for employees to use to make sense out of organizational activities As a guide to appropriate behaviour
Culture strongly influences behaviour and can significantly affect a firms ability to shift its strategic direction.
Dec 2010
Internal (functions) Analysis

Marketing: Primary link to Customers & Competition
Positioning: Who are our Customers? Segmentation: Niches, new products & USPs? Marketing Mix:
4Ps to use to for gaining competitive advantage Links & leverages vis--vis costs Product Life-cycle considerations Strategic Management:
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Dec 2010
Financial: Funds - Source, Use & Control?
Capital Structure:
Leverage (debt/asset ratio)? High is good with
upswings, low under recession & downswings

Capital
Budgeting:
Return on Capital: Shareholders value Hurdle rates for Project Pay-back and Profitability
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Research & Development: apt technology to support Objectives & Mission i.e. short & long terms
R&D
Intensity: R&D Spend as %age revenue to keep abreast/ahead of the industry

Risks: appraisal and mitigation Make or Buy? Technology transfer issues
R&D
Mix: Fundamental Research, Product & Process Development

Adjusted to a products position in the life-cycle Technological Discontinuity: S-Curves
From incremental improvements to Factoring in major break-throughs
Dec 2010
9191

Operations: must meet/better the Q-C-T requirements of business, consistently:
Set-ups
& systems: geared to the nature of demand: High-volume/Low variety Or Low-volume/High variety Curve: Costs decrease with cumulative units made industry norms Customization: combining economies of scope and scale
CAD/CAM Flexible manufacturing systems Estimating/cost-projections for start-ups Guideline for target setting Intermittent systems, e.g. Job-shops Continuous systems, e.g. robotized assembly lines
Experience
Mass
Lean manufacturing JIT, TPM and allied systems SCM

Dec 2010
9292

H.R.M: towards flexibility and dynamism to support
the business needs
Teams: with mature and knowledgeable workforce Self-managed teams Cellular, cross-functional groups Concurrent Engineering Flexi-time & Work from home Currency: to keep-up with skill/knowledge demands Contracting, Part-time & job-sharing, restructuring T & D of core staff :Employability Diversity: fairness, equal opportunity employment, culture Quality of Work-life Retention environment, reward & recognition Participative problem solving

M.I.S: enabling improved decision making and information flow
Rapid
changes in IT: life-cycle cost issues in B2B & B2C
Developments
Inter-organizational integration: supplier-partners Emphasis on knowledge development

Virtualization
of organization
Flatter structures with increased coordination needs Increasing employee independence & participation in
Dec 2010
decision making
9494
Internal Factor Analysis Summary - IFAS
Dec 2010
9595
Internal Factor Analysis Summary - IFAS

Internal Factors Strengths
Weig ht
Ratin g
Weighte d Score
Commen ts
Industry 0. Experienced top 2. 0. 05 management knowledge 5 13 Vertical Integration Component 0. 2. 0. Current Asset 05 manufacture 0 10 Inventory control 0. Management 4. 0. Distribution 15 system Weaknesses Network 0 60 0.5 Global 0. 3. International 0. Dedicated dealers Brand name 3. 0. 3 15 5 Growing supply Positioning 10 Orientation unattractive 5 35 0.6 Product 0. 4. Domestic segment 0. SE Asia 3. 0. 0 15 0 Portfolio 15 focus 5 52 0.1 Employee 0. 2. Health & safety 3 05 5 1.0 relations Total Weighted concerns 0.2 0 Manf. facilities 0. 2. Score 1. List strengths and weaknesses (510) in column 1. 2. Weight each factor from 1.0 (Most Important) to 0.0 (Not m/cs Old plant & Notes: 0 R&D Important) in Column 2 based on that factors probable impact on the companys strategic position. The total weights must sum to 1.00. 10 0 Speed 3. Rate each factor from 5 (Outstanding) to 1 (Poor) in Column 3 based on the companys response to that factor. 4. Multiply each 0.1 5 (comments) for rationale used for 0. 2. factors weight times its rating to obtain each factors weighted score in Column 4. 5. Use Column each factor. 6. Add the weighted scores to obtain the total weighted score for the company in Column 4. This tells how well the 0 0 company is responding to the strategic factors in05 its internal environment. Source:T. L. Wheelen and J. D. Hunger, Internal Strategic Factors Analysis Summary (IFAS). Copyright 1991 by Wheelen and 3.2 Hunger Associates. Reprinted by permission. Dec 2010 Strategic Management: 66 9696
Environment al Scanning Extern al

Societ al Environme nt General Forces Tas k Environme nt Industry Analysis
Reason for existenc
Missio n
Strate Formulati gy on
Objectiv es What results to get & when
Structur e Chain of Command Cultur e Beliefs, Expectations, Value s Resource s Assets, Skills Competencie s,Knowledg e
Intern al
Plan to achieve the mission & objectiv es
Strategi es Policie s Broad guide to decision making
Dec 2010
9797

Situational Strategy formulation:
Analysis
Strategic planning or long-range planning: develops mission, objectives, strategies and policies of finding a strategic fit between external opportunities and internal strengths while working around external threats and internal weaknesses.
Situational Analysis:
Process
Dec 2010
S W O T analysis is the most common and enduring tool to determine the fit arising from the current situation.
Must identify the distinctive competencies that can be used to make best use of opportunities Also identify the lack of resources leading to under exploitation of the opportunities
Broadly speaking, Strategic Alternative is the ratio Opportunity divided by (Strength minus Weakness). Important issue: Should one invest more in strengths to make them more robust or improve on weaknesses to at least competitive levels?
Dec 2010
S W O T analysis does not provide a complete answer or direction:

It
can generate a lengthy list not assign priorities language which can be ambiguous or interpretative based difficult to substantiate or verify
Does Uses
Opinion The
same factor might show up two categories of supportive analysis for action plans is no logical link to strategy implementation
Lack
There
Dec 2010

Strategic Factor Analysis Summary (SFAS)
1 2 3 4 5
Strategic Factors
(Select the most important opportunities/threats from EFAS Table & the most important strengths and weaknesses from IFAS Table )
Dura tion
SH OR T INTERMEDI ATE
Weig ht
Ratin g
Weighte d Score
Commen ts
Dec 2010 Total Score
L O N G
101

Strategic Factor Analysis Summary (SFAS): Maytag as Example
Duration
SH OR T INTERMEDI ATE
Strategic Factors
(Select the most important opportunities/threats from EFAS, Table and the most important strengths and weaknesses from IFAS, Table) S1 Quality Maytag culture (S) S3 Hoovers international orientation (S) W3 Financial position (W) W4 Global positioning (W) O1 Economic integration of European Community (O) O2 Demographics favor quality (O) O5 Trend to super stores (O + T) T3 Whirlpool and Electrolux (T) T5 Japanese appliance companies (T)
Weig ht
.10 .10 .10 .15
Ratin g 5
3 2 2
Weighte d Score
.50 . 30 . 20 . 30
X X X
Quality key to success Name recognition High debt Only in N.A., U.K., and Australia
Commen ts
.10 .10 .10 .15
4 5 2 3 2
X X Acquisition of Hoover Maytag quality Weak in this channel X Dominate industry Asian presence X
. 40 .50
1.0 0
.10
3.0 . 5 20
. 45 .
Total Score
Dec 2010
Strategic Management: X
L O N G
102

SWOT analysis & TOWS Matrix
Dec 2010
103

Situational Analysis
Niche:
A need in the marketplace that is currently unsatisfied.
Goal for the Corporation

Find a propitious niche An extremely favorable niche Strategic window Unique market opportunity available for a limited time
Dec 2010
104
Business Strategy:

Focuses on improving the competitive position of a companys or business units products or services within the specific industry or market segment that the firm serves.
Dec 2010

Porters Competitive Competitive Strategy: Low Strategies cost? Differentiation? Compete head to head in large market? Focus on niche?
Dec 2010
106
Porters Competitive Strategies Generic Competitive

Strategies: Lower cost strategy
Design, produce, market more efficiently than competitors Differentiation strategy Unique and superior value in terms of product quality, features, service
Dec 2010
107
Porters Competitive Strategies

Generic Competitive Strategies
Dec 2010
108
Porters Competitive Strategies Cost Leadership:

Low-cost
competitive strategy Aimed at broad mass market Aggressive construction of efficient-scale facilities Cost reductions Cost minimization
Dec 2010
109
Porters Competitive Strategies Differentiation:

Broad
mass market Unique product or service Charge premiums Lower customer sensitivity to price
Dec 2010
110
Porters Competitive Strategies Cost focus:

Low
cost competitive strategy Focus on particular buyer group or market Niche focused Seek cost advantage in target market
Dec 2010
111
Porters Competitive Strategies Differentiation focus:

Focus
on particular group or geographic market Seek differentiation in targeted market segment Serve special needs of narrow target market
Dec 2010
112
Porters Competitive Strategies Stuck in the middle:

No
competitive advantage Below-average performance
Dec 2010
113

Requirements for Generic Competitive strategy Strategy
Cost Leadership
Skills & Resources

Access to capital for sustained investment Process Engineering High supervision Design for assembly Low distribution cost
Organizational Requirements
Tight cost control Frequent, detailed reporting Structured organization & jobs Target based incentive plans
Differentiatio Strong Marketing High coordination within n skill depts. Product Subjective measurements Dec 2010 Strategic Management: 114

Risks of Generic Competitive Strategies Risks of Focus Risks of Cost Risks of
Leadership Cost leadership is not sustained: Competitors imitate. Technology changes. Other bases for cost leadership erode. Proximity in differentiation is lost. Cost focusers achieve even lower cost in segments. Dec 2010 The focus strategy is Differentiation is not imitated: sustained: The target segment Competitors becomes structurally imitate. unattractive: Bases for Structure erodes. differentiation Demand disappears. become less The segments important to differences from other buyers. segments narrow. Cost proximity is lost. The advantages of a Differentiation broad line increase. focusers achieve even New focusers subgreater differentiation segment the industry. in segments. Strategic Management: 115 Differentiation
Influence of Industry Structure

Fragmented Industry
Many small and medium-sized local companies compete for small shares of total market Focus strategies predominate
116
Consolidated Industry
Mature industry dominated by a few large companies Cost Leadership or Differentiation predominate
Dec 2010

Strategic rollup: developed in the 90s to quickly consolidate fragmented industry
Money from venture capital Entrepreneur acquires hundreds of owner-
operated firms Creates large firm with economies of scale & scope, brings in higher managerial proficeiency Differ from Conventional M &As

Dec 2010
Large number of firms Owner-operated firms Goal to reinvent entire industry Strategic Management:
117

Generic Strategy Dynamics
The current mantra And Jack Welch: No1 or No2 in chosen line of Business Lowest Cost
Lowest Price every day WALMART
Lowest Cost
Its a SONY
Past: Single dimensional Current: Multi dimensional

Car for every purpose, pocket, person GM
Features/Differentiation Dec 2010
Differentiation
Customization/Focus Strategic Management:
Customization 118

Briefly, the predominant strategy drivers over the last 50 years are: 60s: Efficiency Service 70s: (Efficiency) + Quality 80s: (Efficiency + Quality) + Flexibility 90s: (Efficiency + Quality + Flexibility) + Speed 00s: All the above + Sustainability Impact of From the hard , tangible measures towards a IT Hard-soft balanced, dynamic approach. The dominant symbol is +(i.e. and)!! Globa From share of market to share of mind! l Governance & Social Responsibility for continuity
Porters Competitive Strategies HyperCompetitive Strategy:

competition
It is becoming increasingly difficult to sustain competitive advantage for very long :

Stability threatened by short product life
cycles New Technologies Convergence:

Dec 2010
Frequent entry of outsiders Repositioning by incumbents Redefinitions (tactical) of market boundaries 120 Strategic Management:
Competitive Tactics
Tactic: Specific operating plan detailing how a strategy is to be implemented in terms of when and where it is to be put into action.
Timing tactics Market location tactics
Dec 2010
121
Competitive Tactics
Timing Tactics: First mover (pioneer)
the industry Late mover
Reputation as industry leader High profits Sets standards for subsequent products in
Able to imitate technological
advances of others
Keeps R&D costs down Keeps risks down
Dec 2010
122
Competitive Tactics
Market Location Tactics: Offensive Tactics
Frontal assault Flanking maneuver Bypass attack Encirclement Guerrilla warfare
Dec 2010
123
Competitive Tactics
Market Location Tactics: Defensive Tactics
Raise structural barriers Increase expected retaliation Lower the inducement for attack
Dec 2010
124
Cooperative Tactics
Used to gain competitive advantage within an industry by working with other firms e.g. Star Alliance (airlines) Friendly competition can raise the industry standard and provide a barrier for entry e.g. Japanese auto firms (70s & 80s)
Cooperative Tactics
Collusion:
Active cooperation of firms to

Explicit (e.g. OPEC) Tacit (e.g. cartels) Strategic Alliance:
reduce output and raise prices
Partnership of two or more corporations or business units to achieve strategically significant objectives that are mutually beneficial.
Dec 2010
Cooperative Tactics
Obtain technology Access to markets Reduce financial risk Reduce political risk Achieve competitive advantage
Strate gic Allianc e
Continuum of Strategic Alliances
Cooperative Tactics
Mutual Consorti Service a
Joint Venture Licensing Arrangement
ValuePartnershi Chain p
Weak and Distant
Source:Suggested by R. M. Kanter, Collaborative Advantage: The Art of Alliances, Harvard Business Review (July-August 1994), pp. 96108.
Strong and Close
Dec 2010
128

Igor Ansoffs Product-Market Matrix
Is the classical business growth strategy, advocating the sticking to the knitting principle to grow profitably. It is more prescriptive, than analytical. Assumes growth is strategy driven and minimally, if at all, influenced by market forces and business cycles; Profitability is ensured by the learning curve principle. However:
Links
with the core-competence proposition, through core-product principle e.g. Honda For single-industry firms e.g. Coca-Cola, there is relevance in the concentration prescription.
Ansoffs Product-Market Matrix

PRODUCT/ MARKET Existing
Market Penetration Product Development
Existing
New
New
Market Diversification Development
Dec 2010
130
Ansoffs Product-Market Matrix Diversification

Revenue
Product Developme nt
Market Developme nt Market Penetratio n
Time
Corporate Strategy
Syllabus Topics: Click to edit Master subtitle style 3) Corporate Strategy, 5) Recent advances, 7b) Analytical framework for strategy formulation: Matching stages
Dec 2010
132
Hierarchy of Strategy
Corporate Strategy
What mix of businesses should we be Corporate Strategy in?
Business (Division Level) Strategy
Functional Strategy
How do we ensure profitable growth? How do we support the Growth & Profit objectives?
133
Dec 2010
Corporate Strategy
Three Key Issues:

Firms directional strategy Firms portfolio strategy Firms parenting strategy
What route? What lines of Business? What to synergize ?
Dec 2010
Prentice Hall, 2004
Chapter 6 Wheelen/Hunger Strategic Management:
134
134
Directional Strategy: Corporate Strategy Three Grand Strategies:

Growth strategies Stability strategies Retrenchment strategies
Orientation toward growth

Expand, cut back, status quo? Concentrate within current industry,
diversify into other industries? Growth and expansion through internal development or acquisitions, mergers, or strategic alliances?
Dec 2010 Strategic Management:
135
Corporate Directional Strategies
Dec 2010
136
Corporate Strategy
Growth Strategies:
Most
widely pursued strategies External mechanisms:

Mergers
Transaction involving two or more firms in which stock is exchanged but only one firm survives.
Acquisition
Purchase of a firm that is absorbed as an operating subsidiary of the acquiring firm.
Strategic Alliance
Partnership of two or more firms to achieve strategically significant objectives that are mutually beneficial. Strategic Management: 137
Dec 2010
Corporate Strategy
2 Basic Growth Strategies:
Concentration
Current product line in one industry Vertical Growth Horizontal Growth
Diversification
Into other product lines in other
industries
Dec 2010
138
Corporate Strategy Concentration

Vertical growth
Vertical
Backward Integration: Full integration assuming a Taper integration function Quasi-integration previously provided by a supplier. Backward integration Forward Horizontal GrowthIntegration: assuming a Forward integration Horizontal integration function previously provided by a Strategic Management: distributor
integration
Expansion to other geographical locations and/or increasing range of Dec 2010 offerings
139
Corporate Strategy Concentration
Dec 2010
140
Corporate Strategy Diversification

Concentric Diversification Growth into related industry Search for relatedness Conglomerate Diversification Growth into unrelated industry Concern with financial considerations
Dec 2010
141
Corporate Strategy Diversification

Single Industry: (Wrigley, Coca Cola)
Degree of Relatedne ss
Conglomerates: (Tata, GE, Mitsubishi)
Related Diversified: (Unilever, Sony)
Extent of Diversification
Corporate Strategy
Exporting Licensing Franchising Joint Ventures Acquisitions Green-Field Production Sharing Turnkey Operations BOT Concept Management
143
Intern ationa l Entry Option s
Dec 2010
Corporate Strategy
Stability Strategies: Pause/proceed with caution
Period of stabilization following (rapid) growth Consolidating before the next wave of meaningful opportunities
No change A stable period in the business cycle with the firm having found a comfortable niche. No threats from new entrants Profit strategies Restructuring generate profit by sweeping (often harsh) internal changes; temporary oneshot in nature Reengineering a new approach (even sectored) Dec 2010 to business; temporary and may be in sequenced Strategic Management: 144
Corporate Strategy
Retrenchment Strategies:
Turnaround Characterized by rapid return to profitability, usually in contraction (i.e. cutback in size and costs), followed by consolidation (i.e. stabilization of leaner organization )phases. Usually not sustainable nor desirable for along period of time. Sets the tone for a more radical change e.g. Restructuring and/or Reengineering. Captive Company Strategy is giving up independence for security; become a supplier to a more dominant company. Usually resorted by poorly competitive and fund-strapped firms. Allows for cost cutting (activity) and better cash Dec 2010 flows Strategic Management: 145
Corporate Strategy
Selling out Resorted to under uncompetitive and no-fund conditions, but with a buyer in place e.g. Sellout of Tata Oil Mills (TOMCo) to Hindustan Levers (HLL). In selling out lines of businesses with poor fit or low growth potential, this act is termed Divestment e.g. sell out of Dalda and related brands worldwide (hydrogenated Oil) by Unilever to American Bunge Co. Bankruptcy/Liquidation Bankruptcy means giving up management of the firm to court appointed receivers for settling obligations and extend the life of the firm e.g. General Motors Liquidation implies the termination of a firms the Dec 2010 activity, wherein assets are sold off to meet 146 Strategic Management:
Corporate Strategy
An approach to work out an appropriate strategic intent (choice) Strategic Position & ACtion Evaluation Analysis (SPACE):
Market Share Product Quality Product Life Cycle(position) Customer Loyalty Competitions capacity utilizn. Technology, know-how Industry Strength Vertical Integration Growth potential
Competitive Advantage
Return on Investment Leverage Liquidity Capital required/ capital available Cash flow Ease of exit from market Risk involved in business
Financial Strength
Technology Changes Profit potential Rate of Inflation Financial stability Demand variability Resource Utilization Price range of competing Capacity Intensity products Ease of entry into the Barriers to entry into market market Competitive pressure Productivity, capacity Price elasticity of demand Dec 2010 Strategic Management: 147 utilzation
Environmental Stability
Corporate Strategy
Leading to the Strategic Postures in a matrix:
Financial 6 Strength
FOCUS Conservativ e Competitive advantage

6 0
COST LEADERSHIP Aggressive
Industrial Strength
GAMESMANSHIP Defensive
DIFFERENTIATION Competitive
Arrows indicate increasing Values for the dimension.
Dec 2010
Stability Strategic Management:
Environmental 6
148
Corporate Strategy
And associated actions:
Status Quo
Financial Strength Related
Diversification
Conglomerate FOCUS Diversification Conservative Diversification
COST LEADERSHIP Concentration Aggressive
Industrial Strength
Competitive advantage
Vertical Integration
GAMESMANSHIP Defensive Liquidation

Retrenchme nt
Divestment
Mergers/acquisiti ons DIFFERENTIATION (related)
Competitive
Arrows indicate increasing Values for the dimension.
Mergers/acquisiti ons (unrelated) 149
Dec 2010
Turnaround Environmental Strategic Management: Strategic Management: Stability
e.g. SPACE matrix for a Bank: Competitive Financial Strength

Data processing for > 450 Customers, c/wide - 2 Rapid entry of foreign banks/institutions -5 Large, old Cust. Base 2 Industry 9 - Strength Dergln. Advantages +4 Dergln. Competitive disadvantage +2 Laws for Acquisition + 4
Advantage
Depressed condition of maj. customer industries 5 Destabilization of banking indus. due deregulation -4 +10 - 13 ES average is 13/3 = -4.33; IS average is +10/3 = 3.33; CA average is 9/3 = -3.00; FS average is + 9/4 = 2.25 & directional vector coordinate are X-axis: -3.00 + 3.33 = + 0.33 Y-axis: -4.33 + Dec 2010 Strategic Management: 2.25 = - 2.08 150
Primary Capital Ratio 7.23%, >6% avg. +1 RoA 0.77, <+0.7 avg. +1 Net Inc. $190B, -9%L.yr +3 Rev. increase 7%, $3.5B +4 Environmental Stability +9 U/Dev country situation -4
e.g. SPACE matrix for a Bank:

Financial Strength FOCUS Conservative Competitive advantage COST LEADERSHIP Aggressive
Industrial Strength
GAMESMANSHIP Defensive
DIFFERENTIATION X Competitive
Directional Vector
The bank Dec 2010 Strategy.
Environmental Stability should follow Competitive

151
Corporate Strategy
Portfolio Analysis
How much of our time and money should we spend on our best products to ensure that they continue to be successful? much of our time and money should we spend developing new costly products, most of which may never be successful?
How
Dec 2010
152
Corporate Strategy
Portfolio Analysis
BCG (Boston Consulting Group) Matrix
Product life cycle and funding decisions
GE
Question marks Stars Long-term industry attractiveness Cash cows Business Screen Business strength/competitive position Dogs
Dec 2010
153
BCG Matrix
Demarcat es Dominanc e Identifies businesses and their relative size
Demarcat es Leaders
Dec 2010
154
BCG Matrix
H i
Cash Source STAR H i Market Growth rate ??? Build
L o
H i
Hold
Cash Use
Cash Cow Harvest
DOGS Divest
L o
Dec 2010 Dec 2010
H i
Relative Market StrategicShare Management:
L o
L o
155
BCG Matrix
BUILD: The mission implies
An increase of market share, a possible decrease in short-term earnings & cash-flows. e.g. Tata Motors
HOLD: The mission is geared to
Protection of Market Share Retain competitive position under aggressive challenge. e.g. HLL Detergents
HARVEST: The mission aims at
Maximizing short-term earnings & cash-flow, Possible market-share sacrifice, e.g. Tata Steel
DIVEST: The mission is to
Withdraw from the business through sale or slow liquidation. e.g. HLL Vanaspati Business (Dalda).
BCG Matrix
BCG matrix singles out Market Share as the primary strategy variable:
Based on the experience curve i.e. cost per unit decrease predictably with the number of units produced (cumulative)
The Market-share leader would have the greatest
accumulated experience; Thus they should have the lowest cost; resulting in highest profit in the industry. Empirically supported by PIMS (Profit Impact of Marketing Strategies) data base.
Concept
applies well to relatively mature and lowly differentiated products. For these products, becoming a low cost player is critical.
Dec 2010
BCG Matrix
Firms
pursuing uniqueness (niche players) could have high profits with low overall market share e.g. Harley Davidson, Porsche. could be many drivers of cost, apart from experience e.g. Technology breakthroughs can provide significant reduction in per unit costs, not available through cumulative experience, e.g. Internet marketing vis--vis direct selling via salesmen. focus/dependence on experience curve leads to loss of flexibility in the Market: with shifts in wants/ demands (emerging technologies and/or lifestyles) e.g. Bajaj Scooters.
There
Over
Dec 2010
Portfolio Analysis
General Electrics Business Screen
Business Unit Identity Industry/
Winner s A Winner s B C Questio nMark s D Hig h
Market Size Sha re

Industry Attractiveness
Winner s E Mediu m
Averag Businesse e s F Loser s Loser s G H
Lo w
Prof Producer it s
Loser s
Dec 2010
Stron Averag Wea g e k Business Strength/Competitive Position
159
Portfolio Analysis
The GE Business Screen is an improvement over the BCG Matrix:
Based
on many more variables than the simplistic uni-dimensional measure

Industry attractiveness is assessed more completely
(than just growth rate in BCG): Market growth rate,

Industry profitability, Size, Pricing practices, Possible Opportunities (& Threats)
Business Strength/Competitive Position is
determined by: Market Share, distribution strengths, engineering capabilities and other factors giving competitive edge.
But
suffers from lacking hard measures many judgemental elements for assessing the major parameters.
Dec 2010
International Portfolio Analysis

2 Factors:
Countrys attractiveness
Market size, rate of growth, regulation
Competitive strength
Market share, product fit, contribution margin, market support
Dec 2010
161
Portfolio Matrix for Plotting Products by Country Competitive Strengths

Hig h Lo w
Invest/Gro w
Dominate/Divest Joint Venture
Country Attractiveness
Hig h
Selective Strategies
Lo w
Harvest/Divest Combine/License
Dec 2010
162
Portfolio Analysis
Advantages:
Top
Disadvantages:
Difficult
management evaluates each of firms businesses individually Use of externallyoriented data to supplement management judgment Raises issue of cash flow availability Facilitates communication
Dec 2010
to define product/market segments strategies can miss opportunities of scientific rigor though subjective terms
163
Standard
Illusion
Value-laden
Corporate Strategy
Corporate Parenting:
Views the corporation in terms of resources and capabilities that can be used to build business unit value as well as generate synergies across business units.
Dec 2010
164
Corporate Strategy
Corporate Parenting: Strategic factors
Those
elements of a company that determine its Strategic success or failure Performance improvement
Analyze fit: Parenting-Fit Matrix

Summarizes
the various judgments regarding corporate/business unit fit for the corporation as a whole. 2 Dimensions Positive contributions parent can make Negative effects parent can have Dec 2010 Strategic Management: 165
Corporate Strategy Parenting-Fit Matrix

MISFIT between critical success and factors parenting characteristics
Lo w
Ballas t
Heartlan d Edge Heartlan of
d
Alie n Territor y
Hig h Lo w
Value Trap
FIT between parenting opportunities and parenting characteristics Strategic Management:
Hig h
Dec 2010
166
Corporate Strategy
Horizontal Strategy: Corporate strategy that cuts across business unit boundaries to build synergy across business units to improve the competitive position of one or more business units
Corporate Strategy
Horizontal Strategy: When used to leverage synergy, e.g. distribution strength of Unilever, this is Corporate Parenting;
When
used to improve the competitive position of a business with the support of others, it is forms a part of the Corporate competitive strategy
Dec 2010
Multipoint Competition when large conglomerates compete in different businesses in different markets using corporate assistance, e.g. Pricing (subsidised) for new products, crossholding for investment purposes etc. Strategic Management: 168
Case Study: T.I. & H.P.

Case 13-3; Management Control Systems 12 edn
Dec 2010
Strategic Management: Strategic Management: B S Guha
169
Corporate Strategy
Recent Advances
The Blue Ocean Strategy & The Triple Bottom Line
Sustainability
Dec 2010
170
Corporate Strategy
Blue Ocean Strategy
Promoted by W. Chan Kim & Renee
Mauborgne, the approach suggests that Competition be made redundant by sidestepping it!
You will never ever see competition in quite the same light. Kim & Mauborgne present a compelling case for pursuing strategy with a creative, not combative, approach. Carlos Ghosn, CEO: Nissan
Motor Co.
Our research confirms that there are no permanently excellent companies just as there are no permanently excellent industries. And we have found, we all, like corporations do smart things and not-so-smart things. To improve the quality of our success, we must study what made the difference Dec 2010 Strategic Management: 171 and how to replicate it. Kim & Mauborgne
Corporate Strategy
Blue Ocean Strategy: Basic premises
Red Oceans
Represents
all the industries in existence today: this is the known market space; boundaries are defined and competitive rules of are known; Companies try to outperform their rivals in this space: cut-throat competition turns ocean Red.
Blue Oceans.
Are
defined by the untapped market space, demand creation and highly profitable growth Created beyond existing industry boundaries as well as from within the Red Oceans by expanding the existing boundary.
Corporate Strategy
Blue Ocean Strategy: Basic premises
Value Innovation the corner stone:

Equal emphasis on value & innovation: Value w/o innovation = transient value creation Innovation w/o value = Futuristic or hobbyism Value innovation occurs only when companies align innovation with utility, price & cost positions simultaneously. bleeding-edge technology and/or market pioneering paves way for others. Defies value-cost trade-off: differentiation vs. low-cost; Blue Oceans are created in the AND world!
Dec 2010
173
Corporate Strategy
Blue Ocean Strategy: Quick Comparison
Red Ocean Strategy Compete in existing markets Beat the Competition Blue Ocean Strategy
Create uncontested markets Make the competition irrelevant Exploit existing demand Create & Capture new demand Make the value-cost Break the valuecost trade-off trade-off Align firm to Align systems to both differentiation or Low differentiation and cost low Cost
Corporate Strategy
Blue Ocean Strategy: Case Study
o
Dec 2010
Case in point Strategy Canvas for Southwest Airlines: n Line of business: short-haul passenger transport n Customers trade-offs: speed of airplanes vis--vis the economy and flexibility of cars n Rules of airline business: hub and spoke model, connectivity (un)certainties, multiple flights, schedules with built-in wait , lounges, meals etc. provided, cost high. n Southwests offer: Speed of air-travel, flexibility of schedules via point-to-point routing, friendly but austere service, low cost = unprecedented utility for air travelers and a leap in value for a lowcost model.
Corporate Strategy
The Strategy canvas
+
o X
o o o
Normal Airlines
Cars SWest Airlines
+ X
+ + +
X X
+ Hub connect
X
Low Price
Meals
Lounge
Seat choice
Friendly Service
Speed
Freq. Depart point to Point
Dec 2010
176
Corporate Strategy
Blue Ocean Strategy: Prognosis
Red Oceans will always be a fact of Business. But with Supply outstripping Demand, operating strategies for this while necessary, will not be sufficient for sustainedIf I listened to customers, I high performance; To seize new profit and growth opportunities, Blue Oceans need to be created. Though the term Blue Oceans is new, their existence is not. Business launch profiling (108 companies):
would try to make a faster horse! Henry Ford.
86% were line extensions; accounting for 62% of revenue and 39% of profits; 14% were in blue oceans; 38% of revenues and 61% of profits. Dec 2010 Strategic Management: 177
Corporate Strategy
Sustainability
Earths resources are exhaustible they will run out some day:
How will we run our power-plants, cars and stoves? There are just about 1400 tigers left in India! Human Life expectancies are rising so are newer, deadlier diseases !
Life-forms are disappearing & rapidly:

Recent survey in US, post economic meltdown, shows that >80% wealth is with < 20% people:
People in US polled a 50-50 balance is fair
Is the World and Life-style that we take for granted be there forever i.e. Sustain?
Dec 2010
Corporate Strategy
Sustainability: viewpoints
Sustainability Sustain: DICTIONARY To endure without The most widely yielding: withstand quoted definition is sustainable To keep up or development is maintain development that Synonyms: Aid, meets the needs of Carry, Endure, the present without Keep, Preserve, compromising the Support ability of future Is being used more generations to meet Dec in the sense of 2010 Strategic Management: 179
Corporate Strategy
The definition contains two key concepts:

Needs: in particular the essential needs of the worlds poor to which overriding priority should be given Limitations: imposed by the state of technology and social organizations on the environments ability to meet present and future needs
The definition was extended to Business:

for
a business enterprise, sustainable development means adopting strategies and activities that meet the needs of the firm and its stakeholders today while protecting, sustaining and enhancing the human and natural resources needed for the future.
Dec 2010
Corporate Strategy
Shifting Priorities
Economy
Society
Envmental
Industrial Dec 2010 Age
New Age
181
Corporate Strategy
A universally accepted definition of sustainability is difficult because it is expected to achieve many things:
factual and scientific: a clear statement of a specific destination. The simple definition "sustainability is improving the quality of human life while living within the carrying capacity of supporting eco-systems conveys the idea of sustainability having quantifiable limits. call to action: a task in progress or journey, therefore a political process, so some definitions set out common goals and values e.g.The Earth Charter.
Dec 2010
182
Corporate Strategy

The idea of sustainability is age-old; societies over time have learnt to balance social, environmental and economic concerns. At its core, sustainable development is about creating an interactive and appropriate balance between:
Social Equity: i.e. Human rights, peace, justice, gender equity, cultural diversity etc. Environmental protection: referring to natural environment i.e. Air, water, biodiversity, forests, energy etc. Economic development: understanding the limits and potential of economic growth factoring in poverty reduction, responsible consumption, corporate responsibility, employment and allied themes.
Dec 2010
Dec 2010
Business Sustainability Strategic Management:
183 183
Corporate Strategy
The triple bottom line (abbreviated as "TBL" or "3BL", and also known as "people, planet, profit") captures an expanded spectrum of values and criteria for measuring organizational (and societal) The concept of TBL success. demands that a
company's responsibility lies with Stakeholders not Shareholders. Here, "stakeholders" refers to anyone who is influenced, directly or indirectly, by the actions of the firm. Accordingly, the business entity should be used as a vehicle for coordinating Management: Dec 2010 Strategic
SustainAbi lty 184
TBL contd
Triple bottom line score-card means expanding the traditional reporting framework to take into account ecological and social performance in addition to financial performance. "People, planet and profit" clearly describes the triple bottom lines and the goal:
"People"
(human capital) pertains to fair and beneficial business practices toward labour and the community and region in which a corporation conducts its business. (natural capital) refers to sustainable environmental practices. A TBL endeavor reduces the ecological footprint.
"Planet"
"Profit" is the economic value created by the
organisation after deducting the cost of all inputs, including the cost of the capital tied up.
Dec 2010
Case Study: Hindustan Lever

Case 15-4; Management Control Systems 12 edn.
Dec 2010
Strategic Management: B S Guha Strategic Management:
186
Syllabus Topics 4) Strategy Implementation:
Structure, Systems and People
Dec 2010
187
Strategy Implementation:
Sum total of the activities and choices required for the execution of a strategic plan. by which strategies and policies are put into action through programs, budgets, and procedures.
Process
Dec 2010
188
Implementation Process Questions:
Who
are the people to carry out the strategic plan? must be done to align operations with new direction? is work going to be coordinated?
What
How
Dec 2010
189
McKinsey, in 1977, commissioned task forces to find out answers , with particular concern with the nature of the relationship between Strategy, structure and management effectiveness. Tom Peters and Robert Waterman led the team for management effectiveness ( = implementation). Their research let them to define 7 S Framework for management, addressing the crucial problem of execution and adaptation.
Dec 2010
7-S Framework (McKinsey)

STRUC TURE STRAT EGY SYSTE MS
SKILLS
SHAR ED VALUE S STAFF
STYLE
The Happy Atom

Hard Elements: Strategy, Structure & Systems

Definable and/or measureable Can be put down on paper
Soft Elements: Shared Values, Skill, Staff & Style

Can
be felt or sensed but difficult to define or put down on paper. Thus management is more difficult: soft is hard! Explains better why things work (or dont!) in a company.
Real change is a function of these 7 complex elements

Dec 2010
Led to the investigation on management excellence why some (American)companies are so:
Excellent
companies are brilliant on basics Tools do not substitute for thinking Intellect did not overpower wisdom Analysis did not impede action. They listened to people (customers & employees ) They allowed some chaos in return for quick action and regular experimentation Worked hard to keep things simple in a complex world
Further expanded to 8 attributes for excellence

Dec 2010

1. A bias for action: for getting on with it 2. Close to the customer: learning from people they 3. 4. 5. 6. 7. 8.
serve Autonomy & entrepreneurship: fostering many leaders and innovators throughout the organization Productivity through people: rank and file the root source of quality and productivity gains Hands on, Value driven: embodied in the statement walk the talk Stick to the Knitting: stay reasonably close to the business they know Simple form, lean staff: more soldiers than generals Simultaneous loose tight properties: core values are fanatically rigid, operations are flexible
Dec 2010
Strategic Choice
Selecting the Best Strategy:
Most
the
Important criteria
ability of a proposed strategy to deal with the strategic factors developed in the SWOT analysis the ability of each alternative to meet agreed-on objectives with least sacrifice of resources and negative side effects.
Corporate Scenarios Pro forma balance sheets and income
statements that forecast effects of alternatives on return on investment

Dec 2010
195
Strategic Choice
Constructing Corporate Scenarios:

Steps in constructing scenarios Use industry scenarios Develop common-size financial statements Construct detailed pro forma financial
statements for each alternative: Best Case (Optimistic) Worst Case (Pessimistic} Probable case (Most likely)
Dec 2010
196
Scenario Box to Generate Pro Forma Statements

1 Probjections Last Factor GDP CPI Other Sales units Dollars COGS Advertising and marketing Interest expense Plant expansion Dividends Net pr ofits EPS ROI ROE Other Year Historical Average Tr end Analysis O 19 P ML O 19 P ML O 19 P ML Comments
Dec 2010
197
A 'Du-pont" style Report

Sales BalanceSheet Capital Turnover
2.05 12.793
/ Net Assets
6.233
Total Assets
11.497
Interest free Liabilities

5.264
RONA
12.9% 14.8%
Sales
12.793
Operating Income Income before Tax Margin P&L

6.30% 7.20% 809 925 1.103 1.219
Operating expenses
11.690 11.573
Other Costs
5.854
+
Financial Income
-294
+
Purchased materials
5.854 5.728
% Sales
12.793
Dec 2010
198
Strategic Choice
Attitude Toward Risk:

Risk is composed of: Probability of (success) effective strategy Impact of any strategy Amount of assets committed Length of time of asset commitment
Conventionally, risk is quantified in
terms of Net Present Value of any Project - in so far as quantification is possible.

Dec 2010
Strategic Choice
Using NPV to assess risk

the
variability associated with obtaining different results (e.g. NPV)
NPV
200 600 900
Prob.
0.3 0.5 0.2
A measure of the risk is the range i.e.
The weighted NPV works out to: 3 E(NPV) = pi NPVi i=1 = 0.3x200 + 0.5x600 + 0.2x900 = 540
difference between the highest/lowest value i.e. 900 200 = 700

Strategic Choice
The higher the spread the more the variability and
risk
Standard Deviation () of the NPV distribution
quantifies this: = {0.3(200-540)2 + {0.5(600-540)2 + {0.2(900-540)2}

250 =
We can now define a coefficient of variation in
which we relate the to weighted net present value:

CV = /weighted value ; = 250/540 = 0.46 The higher the CV, the higher the risk ranking
Dec 2010
201
Strategic Choice
Process of Strategic Choice:
The evaluation of alternative strategies and selection of the best alternative:
Consensus ? Discussion, disagreement Vision Contradictions Solution Programmed conflict (to avoid consensus trap) Devils Advocate: Identify potential pitfalls and problems with a proposed alternative strategy in a formal presentation. Dec 2010 Dialectic Enquiry: two proposals are 202 Strategic Management:
Strategic Choice
Evaluating strategic alternatives:
Ability to meet four criteria:

Mutual exclusivity: doing one would discard
the other, Success: S.M.A.R.T i.e. must be doable Completeness: taking into account all the foreseen strategic factors Internal consistency: must make sense on its own without contradicting or unduly compromising any key objective/mission/ policy
Dec 2010
203
Strategic Choice
Organizational Life Cycle:
Generic
choices decided by the organizations position in its life-cycle

Stages:
Birth Stage Growth Maturity Decline Death

Birth
Dec 2010
Growth
Maturity
Decline
204
Strategic Choice
Stage I Phase Popular Strategies Likely Structure
Birth
Stage II
Growth
Stage III1
Maturity
Stage IV
Decline
Stage V
Death
Concentration Horizontal Concentric & in a niche and vertical conglomerate growth diversification retrenchment
Profit strategy Liquidation or followed by bankruptcy Dismemberment of structure
Entrepreneur Functional Decentralization Structural dominated management into profit or surgery emphasized investment centers
Note: 1. An organization may enter a Revival Phase either during the Maturity or Decline Stages and thus extend the organizations life.
Dec 2010
205
Strategic Choice
Structural Characteristics of Modern Corporation
Old Organizational Design One large corporation Vertical communication Centralized top-down decision making Vertical integration Work/quality teams Functional work teams Minimal training Specialized job design focused on individual New Organizational Design Mini-business units & cooperative relationships Horizontal communication Decentralized participative decision making Outsourcing & virtual organizations Autonomous work teams Cross-functional work teams Extensive training Value-chain team-focused job design
Dec 2010
206
Matrix Structure:
3 Distinct Phases Temporary cross-functional task forces Product/brand management Mature matrix
Strategic Choice
Network Structure:
non structure elimination of in-house business functions Termed virtual organization Useful in unstable environments Need for innovation and quick response
Cellular Organization:
composed of cells Self-managing teams Autonomous business units
Dec 2010
207
Dec 2010
208

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Strategic Mangmt

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Strategic Management

Course Facilitator: Bijoy S Guha

Strategic Management: B S Guha Strategic Management:

Four Phases towards Strategic Management

Basic financial planning: serious planning

Externally-oriented planning (strategic):

Not always a formal process:

High Logic based strategy

Logi Strategic Management: c

Challenges to Strategic Management

Internationalization of markets and corporations

of the Internet to conduct business transactions

level rather than traditional focus on product features and costs

Adaptation to Changing Environmental Conditions

Strategic Management: Strategic B S Guha Management:

Basic Model of Strategic Management

Strategic Management: Strategic B S Guha Management:

Strategic Management: Strategic B S Guha Management:

Strategic Management: Strategic B S Guha Management:

Strategic Management: Strategic B S Guha Management:

Strategic Management: Strategic B S Guha Management:

Strategic Management: Strategic B S Guha Management:

Strategic Management: Strategic B S Guha Management:

Strategic Management: B S Guha Management: Strategic

Programs Strategy Implementati on Budgets

Strategic Management: B Strategic Management: S Guha

Strategic Management Model

Trigger ing event

Threat of change in ownership

Strategic inflection point

Stimul us for chang e in strate gy

Strategic Management: B S Guha Management: Strategic

Business Life-cycle & Strategy

Locomotive Product/Technology led Points of Inflection

The S-Curve of a Firms life e.g.

Strategy: Types & Hierarchy

Strategic Management: Strategic B S Guha Management:

Strategic Decision Making

Strategic Decision Making

Strategic Management: Strategic Management: B S Guha

Strategic Decision Making

Strategic Management: Strategic B S Guha Management:

Strategic Decision Making

Strategic Management: Strategic B S Guha Management:

Strategic Decision Making

Strategic Management ctd

Strategic Management ctd

Case Study: Encyclopaedia Britannica (A, B & C)

Environmental Scanning & Business Strategy

Strategic Management: Strategic B S Guha Management:

ExternalEnvironmental Variables: Environment External

Strategic Management: Strategic B S Guha Management:

Strategic Management: BStrategic Management: S Guha

Environmental Scanning: External

Environmental Scanning: External

Hig h Telephone firms &

systems operators will emerge as the dominant force.

Wireless technology will make fibers & conductors redundant

Strategic Management: Strategic B S Guha Management:

Willingness to reject unfamiliar as well as

Strategic Management: Strategic B S Guha Management:

Strategic Management: Strategic B S Guha Management:

The principal determinant of the Task Environment is the Industry Analysis: