STRATEGIC MANAGEMENT

RAHUL PRATAP SINGH KAURAV

MBA
401
(Core)
LECTURE I [CASE STUDY]
Orange Mobile Company
STRATEGIC ANALYSIS IN ORANGE MOBILE
COMPANY
The evolution of mobile phones industry is rapidly growing to invent
credit card size phones from old brick size phones. The changing
trend in the market has made the companies to invent high-end
technology phones that most of the teenagers enjoy.
Orange mobile company, one of the mobile industries was established
in April 1994. The aim of the company was to become the top mobile
provider by making communication instinctive and easily accessible
part of daily life.
The top level management in the company applied strategy analysis
for analysing the market competitor across the glob in order to
conceptualise a profitable plan.
STRATEGIC ANALYSIS IN ORANGE MOBILE
COMPANY
After analysis the various competitors, the company decide to make
strategic alliance with worlds leading suppliers and operators. It also
considered the current scenario of the company resources in terms of
employees, equipment finance and others.
This made the company attract more customers and outlook
businesses in all areas of telecommunication. Therefore, an increase
demand of services led to the increase in sales. The next aim of the
company was to expand globally; hence it introduced strategic
planning based on marketing.
STRATEGIC ANALYSIS IN ORANGE MOBILE
COMPANY
Considering the global market scenario, the company emphasized
strategic planning and later strategic analysis was enhanced to make
the process effective. This process involved segmenting the market,
profiling market segments, and developing marketing strategy to each
of the market segments.
Thus the company benefited in gaining profits by systematically
analysing the market scenario and expanded globally.
Questions to discuss:
Why do you think the company introduced strategic analysis as the key concept
in gaining profits?
How did the company benefit through strategic analysis?
INTERNAL AND EXTERNAL ANALYSIS | UNIT
II
LECTURE II
[ENVIRONMENTAL
APPRAISAL]
WHAT ENVIRONMENT REFERS?
INTERNAL
Resources and behavior
Strengths and weaknesses
Synergistic efforts
Competencies
It is the way of avoiding external
threats to protect the organization.
EXTERNAL
Social
Political
Economical
Legal
Technological
It helps an organization to think
what it might choose to do.

WHY ENVIRONMENTAL APPRAISAL (EA)?
EA finds the sources of any
opportunity or threat

EA helps management to decide
the strategy for implementation and
predict the discovered future
opportunities or threats
CONCEPT OF EA
EA is the planning process that helps:
In monitoring economic conditions,
Government rules,
Technology issues,
Market settings,
EA is important for the evaluation of the present
strategy, setting objectives, for planning for future.
EA PROCESS
EFFECT OF CHANGING ENVIRONMENT
Dynamic social and economical conditions,
Problem of increased competition,
Obsolescence of machines and equipment,
Inference of Govt., and
Increasing costs and prices.
NEED FOR EA
Know the threats,
New resources,
Competitors,
Know the policies of other companies.
OBJECTIVES OF EA
Detecting important economic, social, cultural, technological
and political issues
Potential opportunities and threats for the organisation due
to environmental variables
Accurate understanding of organisations strengths and
limitations
Providing a basis for analysis of future programme
investments
COMPONENTS OF EA
Analysis of environmental
variables
(PLEST)
Communit
y Analysis
Market
Analysis
Competito
r Analysis
Supplier
Analysis
Selection of strategic factors
opportunities and threats
ENVIRONMENTAL SCANNING TECHNIQUES
ETOP (Environmental threats and
opportunities)
QUEST (Quick env. scanning technique)
SWOT
EFE (External factor evaluation) matrix
CPM (Competitive Profile Matrix)
ENVIRONMENTAL THREAT AND
OPPORTUNITY PROFILE(ETOP)
ETOP was developed by GLUECK, is that of preparing
Environmental Threat and Opportunity Profile(ETOP) for an
organization.
The preparation of ETOP involves the following steps:
i. Dividing the environment into different sectors.
ii. Analyzing the impact of each sector on the organization.
iii. Analyzing the impact of each sub-factor on the organization in
the form of a statement.
iv. Preparing a summary to show major factors.
IMPORTANCE OF ETOP:
It provides clear picture to strategists, which
sectors has a favorable impact on
organization.
It helps an organization in being aware about
where it stands with respect to its
environment.
It helps an organization in formulating an
appropriate strategy.
ETOP PRESENTED IN TWO FORMS:
Matrix Form : In matrix form , importance and
impact of various environmental factors are
presented in tabular form and are often
quantified
Descriptive Form: In descriptive form impact
of various factors is described in terms their
being positive or negative.
M
A
T
R
I
X

F
O
R
M

Sr.
NO
.
ENVIRO.FACTOR
S
DEGREE OF
IMPORTANCE
DEGREE OF
IMPACT
High
3
Medium
2
Low1 + - (3) +-(2) +-(1)
1. Economic
components
2. Socio-cultural
components
3. Competitive
components
4. Technological
components
D
E
S
C
R
I
P
T
I
V
E

F
O
R
M
:

ENVIRONMENTAL FACTORS IMPACT
(+)opportunity (-) threats
Socio-economic

(+)Continued emphasis on
infrastructure development
including power supply for
industry, transport and domestic
consumption
(-) severe resource constraints
Supplier (-)Increasing scarcity of
technology
Government (+) liberalization of technology
import
Technological (+) higher growth in industrial
production and technology up-
gradation
ETOP PREPARED FOR MOTOR CAR
MANUFACTURE
ENVIRONMENT
AL FACTORS
IMPACT (+) Opportunity(-) Threats
Technology (+)Niche market for high end market
(+) free import from cheaper markets
(+) vast, growing, educating youth preferring fuel efficient
and sleek models
Economic (+) rising income levels
(-) price competition from local as well as international
brands
(-) poor transportation services
Social (+) buyer preferences for sporty, fashionable and durable
models
(-) high transport accidents forcing people to opt for safer
modes of transportation
LECTURE III
[EXTERNAL APPRAISALS]
QUICK ENVIRONMENTAL SCANNING
TECHNIQUE (QUEST)
It was proposed by B NANUS. It is a four steps
process uses scenario-writing for scanning the
environment and identified strategic options
i. Strategists make observation about major events and
trends in the industry
ii. Strategists speculate on a wide range of important
issues
iii. The QUEST director prepares a report
iv. Identify feasible strategic options
EXTERNAL FACTOR EVALUATION (EFE)
MATRIX
An External Factor Evaluation (EFE)Matrix allows
strategists to summarize and evaluate economic,
social, cultural, demographic, environmental,
political, governmental, legal, technological, and
competitive information.

CPM
The Competitive Profile Matrix (CPM) identifies a firms major
competitors and its particular strengths and weaknesses. The
weights and total weighted scores in both a CPM and an EFE
have the same meaning.
The critical success factors in a CPM are not grouped into
opportunities and threats as they are in an EFE. In a CPM, the
ratings and total weighted scores for rival firms can be compared
to the sample firm. This comparative analysis provides important
internal strategic information.

ORGANIZATIONAL APPRAISAL
Internal Environment - strength & weakness in different functional areas
Organization capability
- Capacity & ability to use distinctive competencies to excel in a
particular field
- Ability to use its S & W to exploit O & face T in its
external environment
Organization resources
- Physical & human
- cost, availability - strength / weakness
ORGANIZATIONAL APPRAISAL

Identity & character of an organization leadership, Mgt.
Philosophy, values, culture, quality of work environment,
Organization climate, organization politics etc.

Resource Behaviour

Distinctive competence
METHODS & TECHNIQUES USED FOR
ORGANIZATIONAL APPRAISAL
Financial Analysis - Ratio Analysis, EVA, ABC
Key factor rating - Rating of different factors through
different questions
Value chain analysis
VRIO framework
METHODS & TECHNIQUES USED FOR
ORGANIZATIONAL APPRAISAL

BCG, GE 9 cell Matrix , PIMS, McKinsey 7S
Balanced Scorecard
Strategic Advantage profile
Internal Factor Analysis Summary
EXAMPLES OF ORGANIZATIONAL
CAPABILITY PROFILE
Financial Capability
Bajaj - Cash Management
LIC - Centralized payment, decentralized collection
Reliance - high investor confidence

Marketing Capability
Hindustan Lever - Distribution Channel
IDBI/ICICI Bank - Wide variety of products
EXAMPLES OF ORGANIZATIONAL
CAPABILITY PROFILE
Operations Capability
Lakshmi machine works - absorb imported technology
Balmer & Lawrie - R&D - New specialty chemicals

Personnel Capability
Apollo Tyres - Industrial relations problem
LECTURE IV
[INTERNAL APPRAISALS]
VRIO FRAMEWORK
Value : Does it provide competitive advantage?
Rarity: Do other competitors possess it?
Imitability: Is it costly for others to imitate?
Organisation : Is the firm organised to exploit the resource?
BALANCED SCORECARD- KAPLAN & NORTON
4 performance measures
Customer perspective
Internal business perspective
Innovation & learning perspective
Financial perspective
Balanced Scorecard
Balanced Scorecard A model integrating
financial and non financial measures. (Kaplan &
Norton 1996)

Causal link between outcomes and performance
drivers of such outcomes

Translates the vision and strategy of a business
unit into objectives and measures in 4 distinct
areas
Financial
Customer
Internal Business process
Learning and growth

THE BALANCED SCORECARD
Purpose of Balanced Scorecard:

A method of implementing a business strategy by translating it into
a set of performance measures derived from strategic goals that
allocate rewards to executives and managers based on their
success at meeting or exceeding the performance measures.
Financial Perspective
How do we look to
our Shareholders?
Customer
Perspective
How do our customers
look at us?
Learning and Growth
Perspective
How can we continue to
improve?
Internal Business
Perspective
What we must excel
at?
Casual link between the measures
PORTFOLIO ANALYSIS
27% of fortune 500 companies use it in strategy
formulation
Top management views its product lines and business
units as a series of investment return
Product lines/Business units - a portfolio of
investment - company constantly juggle - to get yield

STRATEGIC ADVANTAGE PROFILE (SAP)
A picture of the more critical areas which can have a relationship
of the strategic posture of the firm in the future.
Capability Factor Competitive strengths / Weakness

Finance High cost of capital, reserves & surplus

Marketing Fierce competition, company position
secure

Operational P&M - excellent - parts & components
available
STRATEGIC ADVANTAGE PROFILE (SAP)
Capability Factor Competitive strengths / Weakness

Personnel Quality of management & personnel
par with competition

General High Quality experienced top
management - take proactive stance

BCG GROWTH - SHARE MATRIX
Matrix of
- Growth rate of the industry - % of increase in sales
- Market share
Relative market share of a firm = Market share in
industry/market share of the largest other competitor
> 1 indicates market leader
Assumption: Other things equal - growing market is
attractive
BCG GROWTH - SHARE MATRIX

STARS QUESTION
MARKS
BUSINESS 16
GROWTH 12
RATE 8 CASH COWS DOGS
(%) 4
0 10 4 2 1.5 1 0.1
RELATIVE COMPETITIVE
POSITIONING
GE PORTFOLIO MATRIX
Industry attractiveness
Companys business strengths/Competitive position
Industry attractiveness - market growth rate, industry
profitability, size, pricing practices, opportunities/ threats
scale 1 - 5 Very unattractive to very attractive
Business strengths - Market share, technological position,
profitability, size, strengths & weakness
scale 1-5, 1- very weak, 5 - very strong
Product line - a letter, circle - area - (size - scales) pie - market
share Identify performance group - current & projected portfolio
without any change in strategy
LECTURE V
[5-FORCE MODEL & 7-S]
PORTERS FIVE FORCES MODEL
Developed by Michael Porter in 1979/1980
Considered a classic industry analysis tool
Provides a framework for perspective on multiple
competitive factors affecting your company and
industry
Five basic competitive forces whose
collective strength determines the
long-run profit potential of an industry
THE FIVE FORCES
Threat of New
Entrants/ Barriers to
Entry
Bargaining Power
of Customers
Threat of Substitutes
Bargaining
Power of
Suppliers
Rivalry
Among
Existing
Competitors
Sources for this section: Michael E. Porter, Understanding Industry Structure, Revised 2007 and
How Competitive Forces Shape Strategy, Harvard Business Review, 1979
THREAT OF NEW
ENTRANTS/BARRIERS TO ENTRY
Threat of potential entrants determined by:
Attractiveness of industry
Height of entry barriers (e.g., start-up costs, regulation, etc.)
Customer switching costs (high fixed costs involved in switching to
another supplier)
Capital requirements (e.g., very high in gas exploration)
Incumbency advantages independent of size (e.g., proprietary
technology, patents)
Unequal access to distribution channels (how much have existing
competitors tied up distribution channels)
Restrictive government policy
BARGAINING POWER OF SUPPLIERS
Strength of suppliers determined by:
Number of suppliers and their degree of differentiation
Portion of a firms inputs obtained from a particular
supplier
Portion of a suppliers sales sold to a particular firm
Switching costs
Potential for vertical integration

BARGAINING POWER OF SUPPLIERS
A supplier group is powerful if:
It is more concentrated than the industry it
sells to (e.g., Microsoft: near-monopoly in
operating systems, with fragmentation among
PC-making customers)
Industry participants face high switching costs
when changing suppliers
Differentiated products offered by suppliers
No substitutes for what the supplier group
offers
Supplier group does not depend heavily on a
particular industry
POWER OF CUSTOMERS
Power of customers determined by:
Number of buyers
Firms degree of differentiation
Portion of a firms inputs sold to a particular buyer
Portion of a buyers purchases bought from a particular
firm
Switching costs
Potential for vertical integration

THREAT OF SUBSTITUTES
A substitute performs the same function as an
industrys product or service, but by a different means
Determined by the number of potential substitutes, their
closeness in function and relative price
Not just another product: sometimes the substitute is to
do without the product or to do it themselves
Long distance phone service providers vs. VoIP providers (Skype
and Vonage)
Mobile phone as primary phone vs. landline
RIVALRY AMONG EXISTING COMPETITORS
Rivalry determined by number of firms,
relative size, degree of differentiation
between firms, demand conditions and
barriers to exit
Competition among rivals is greatest
when:
There are many competitors, nearly equal
in size or power
Slow industry growth
High barriers to exit
MCKINSEYS 7S FRAMEWORK
TO DIAGNOSE CAUSES OF ORG PROBLEM & FORMULATE PROGRAM










Structure

Superordinate
Goals
Strategy
Skills
System
Style
Staff
MCKINSEYS 7S FRAMEWORK
Style
One of the levers which top management can use
to bring about organization Change

Staff
Update knowledge & skills to keep pace with
change
MCKINSEYS 7S FRAMEWORK
Strategy
Includes purpose, mission, objectives, goal, action plans &
policies

Systems
Procedures & methods framed by organization & followed
by operational personnel in the respective functional area
MCKINSEYS 7S FRAMEWORK
Structure
Relationship between/ among various positions and
activities
Design of structure - critical task for top mgmt.

Skills
Acquainted with state of the art technology &
improvised methods & practices
MCKINSEYS 7S FRAMEWORK

Superordinate Goals

Fundamental ideas of business
Main values
Broad notions of future directions
TOWS Matrix
Internal

External
(S)
List 5-10
Internal strengths
(W)
List 5-10
Internal
Weakness
(O)
List 5-10
External
Opportunities
(T)
List 5-10
External Threats
SO Strategies
Use S to take
advantage of O
WO Strategies
Take advantage
of O by
overcoming W
ST Strategies
Use S to avoid
T
WT Strategies
Minimize W and
avoid T
- Generate Alternative Strategies
APPLICATION OF GAME THEORY IN
STRATEGY FORMULATION
'Game Theory' is a concept that deals with the
formulation of the correct strategy, when confronted by
a complex challenge, to succeed in addressing that
challenge.
It was developed based on the premise that for
whatever circumstance, or for whatever 'game', there
exists a strategy that will allow one to 'win.
Any business is a game played against competitors, or
even against customers.
APPLICATION OF GAME THEORY IN
STRATEGY FORMULATION
Invented by John von Neumann and Oskar
Morgenstern in 1944.
Game Theory is an important tool in any strategist's
toolbox, especially when dealing with a situation that
involves several entities whose decisions are influenced
by what decisions they expect from other entities.
APPLICATION OF GAME THEORY IN
STRATEGY FORMULATION
Game Theory has several important elements,
some of which are:
1) the agent, which refers to a person or entity who have
their own goals and preferences;
2) the utility, which is an abstract concept that indicates the
amount of satisfaction that an agent derives from an object
or an event;
APPLICATION OF GAME THEORY IN
STRATEGY FORMULATION
3) the game, which pertains to a situation participated in by several
agents (now referred to as 'players', since they're in a game), each of
whom is trying to maximize his utility of the game by anticipating the
actions of the other players and responding to them correctly;
4) the information, which is what a player knows about what has
already happened in the game, and which can be used to come up
with a good strategy;
5) the representation, which characterizes the order of play employed
in the game; and
6) the equilibrium, which is an outcome of or a solution to the game.
APPLICATION OF GAME THEORY IN
STRATEGY FORMULATION
In 1950, Albert Tucker of Princeton University
invented the Prisoner's Dilemma, an imaginary
scenario that is undoubtedly one of the most famous
representations of Game Theory.
PRISONERS DILEMMA
Two suspects arrested for a crime
Prisoners decide whether to confess or not to confess
If both confess, both sentenced to 3 months of jail
If both do not confess, then both will be sentenced to 1 month
of jail
If one confesses and the other does not, then the confessor
gets freed (0 months of jail) and the non-confessor sentenced
to 9 months of jail
What should each prisoner do?
71
BATTLE OF SEXES
A couple deciding how to spend the evening
Wife would like to go for a movie
Husband would like to go for a cricket match
Both however want to spend the time
together
Scope for strategic interaction
GAMES
Normal Form representation Payoff Matrix

Confess Not Confess
Confess -3,-3 0,-9
Not Confess -9,0 -1,-1
Movie Cricket
Movie 2,1 0,0
Cricket 0,0 1,2
Prisoner 1
Prisoner 2
Wife
Husband
NASH EQUILIBRIUM
A new concept related to Game Theory is the Nash equilibrium, which
was developed by John Nash for his PhD thesis. In a game, players
would tend to change strategies from time to time to improve their
respective positions.
The Nash Equilibrium is the point at which no player can improve his
or her position in the game by changing strategy. In the Prisoner's
Dilemma, the Nash Equilibrium is the point at which both prisoners
confess, since whoever changes this strategy will be sent to a long
prison term, instead of an intermediate one.
NASH EQUILIBRIUM
Each players predicted strategy is the best response to the
predicted strategies of other players
No incentive to deviate unilaterally
Strategically stable or self-enforcing


Confess Not Confess
Confess -3,-3 0,-9
Not Confess -9,0 -1,-1
Prisoner 1
Prisoner 2
UNIT III
COMPETITIVE ADVANTAGE