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Hierarchy of Goals
Vision
Mission
Goals
Objectives
Plans
NMBA041 (STRATEGIC MANAGEMENT) 14
Vision
Vision Failure
• Defining Mission
Goals Objectives
1. General Specific
Organizational
Decision making
Analyse
External
Environment
Analyse
Internal
Environment
Environmental
scanning
Environmental
Forecasts
monitoring
Environmental
intelligence
Environmental scanning…..
Environmental monitoring : tracks the trends sequence
of events , difference b/w scanning &monitoring is
scanning makes aware of the trends & monitoring
enables firms to evaluate how trends are
changing…………….
Environmental intelligence: also call competitive
intelligence help to provide critical information on
competitor’s move
Mega Environment /
macro
environment/PESTEL
factors
Relevant
Environment/operating
environment
Micro Environment
/industry environment.
internal Environment
• Political, gov, legal factors: form of govt, political stability, party, attitude towards
foreign companies, laws on various economic matters
• Economic factors: GDP, interest rate , unemployment rate, inflation, money supply
etc….
• Socio –cultural factors :
• Demographic graphic factors; size, growth rate, age group, sex composition , family
size etc…………
• Technological factors: adoption to new technique ,new products, new ways of
managing & connecting etc……can create competitive advantage or not adjusting
to modern technology can bring downfall
Eg : of new technology are: bio- technology, Robotics, Genetic engineering etc……
• Ecological factors:
• Global factors: economic conditions in host country, cultural factors, laws of host
country, political stability material &manpower in the host country.
Markets:
Marketing Types and
Competition
Intermediaries Demand
Suppliers
E-commerce
THE MICROENVIRONMENT
Skill Level of
Workforce
Industrial
Financial Regulatory Relations
Institutions Provisions Climate
NMBA041 (STRATEGIC MANAGEMENT) 70
1. Suppliers: imp to have good relation with suppliers and firm should find is
suppliers price reasonable, what discount is supplier giving, shipping
charges, dependence of supplier etc……
2. Customers: to know & fulfill consumer need is main concern of org. , to
evaluated market trend, make profile of past& present customers
3. Competitors: skills, facilities, managerial talent, image etc…..
4. Creditors: what creditor thinks, terms of credit
5. Labour market: presence of skilled labour, image of company
6. Distributors& retailers: they ensure firm product reaches to end user
7. Legal environment; at local state national level ……………..
1. Industry environment
2. Competitive environment
Industry
features
Industry
Industry
prospects for
boundaries
future
Industry Industry
practices environment
Industry
performance
The analytical techniques that managers generally use to assess their competitive
environment are:
• Porter’s Five-forces Model The Five Forces model developed by Michnal E. Porter
has been the most commonly used analytical tool for examining competitive
environment. According to this model, the intensity of competition in an industry
depends on five basic forces. These five forces are:
1. Threat of new entrants
2. Intensity of rivalry among industry competitors
3. Bargaining power of buyers
4. Bargaining power of suppliers
5. Threat of substitute products and services.
• Economics of scale: these are cost advantage related with large scale production ,
cost of product per unit decreases as the production increases, this discourage
new entry.
• Product differentiation; loyalty of customer towards established company.
• Capital requirement; large scale investment can act barrier for new entry mainly
when capital is needed for some unrecoverable purpose
• Switching cost; are one time cost that consumer has to bear to switch from one
product to another product higher the switching cost more the barriers.
• Access to the distribution channel; new entry need to secure distribution channel
such as retailer/whole sale
• Cost disadvantages independent of size i.e. some existing companies may have
some adv other than economics of scale like; easy access to raw material, govt
subsidies . Favorable geog, conditions, estab. Brand identities etc.
• Govt policy; it can allow or put restrictions /disallow like in Indian eco. Before LPG
1. Investment in specialized assets like plant and machinery are of little or no value,
and cannot be put to alternative use. So, they have to be continued.
2. High costs of exit such as retrenchment benefits, etc. that have to be paid to
the redundant workers when a company ceases to operate.
3. Emotional attachment to an industry keep owners or employees unwilling to
exit from an industry for sentimental reasons.
4. Economic dependence on the industry when the firm depends on a single
industry for revenue and profit.
5. Government and social pressures discourage exit of industries out of
concern for job loss.
6. Strategic interrelationships between business units and others prevent exit
because of shared facilities, image………………………
• Bargaining power of buyers refers to the ability of buyers to bring down prices
charged by firms in the industry or increase the costs of the firm by demanding
better product quality and service.
• According to Porter, buyers are most powerful under the following conditions:
i. There are few buyers
ii. The products are standard or undifferentiated, he can find alternative source of
supply
iii. The buyer faces low switching costs
iv. The buyer earns low profits, if he is under pressure to reduce its purchasing costs
then he bargains more
v. The quality of buyer’s products if it is little affected by industry product buyers
are more price sensitive.
Threat of
new entrants
Bargaining power
Industry
of suppliers Bargaining power
competitors
of buyers
Suppliers
Buyers
Rivalry among
existing firms
Threat of
substitute products
or services
Substitutes
• Like firms, industries develop and evolve over time. Not only the
group of competitors within a firm’s industry might change
constantly, but also the nature and structure of the industry can
also change as it matures and its markets become better defined.
An industry’s developmental stage influences the nature of
competition and profitability among competitors (Hofer, 1975).
Personnel Capability
Apollo tyres - Industrial relations problem
1. Competitive structure and market share: To what extent has the firm
established a strong mark share in the total market or its key sub
markets?
2. Efficient and effective market research system
3. The product&service mix: quality of products and services.
4. Product-service line: completeness of product-service line and
product-service mix; phase of life-cycle the main products
and services are in.
6. Patent protection (or equivalent legal protection for services)
7. Positive feelings about the firm and its products and services on the
part of the ultimate consumer.
8. Efficient and effective packaging of products (or the equivalent for
services).
Firm infrastructure
HRM
Technology Development
Procurement
• Value drivers are similar to cost drivers, but they relate to other
features (other than low price) valued by buyers. Identifying value
derivers comes from understanding customer requirements, which
may include:
• Strengths • Weaknesses
• Strong brand image • Weak distribution network
• High quality products • Narrow product lines
• Latest technology • Rising costs
• High intellectual capital • Poor marketing plan
• Cordial industrial relations
• Opportunities • Threats
• New markets • Increase in competition
• Profitable new acquisitions • Barriers to entry
• R&D skills in new areas • Change in consumer tastes
• New businesses • New or substitute products
• Threat of takeover
1. It is simple.
A)Intensive strategies:
1. Market penetration
2. Market development
3. Product development
B ) Diversification strategies:
1. Concentric diversification
2. Conglomerate Diversification
These strategies are also called retrenchment strategies. They are the last resort
strategies.
i. Turnaround
ii. Divestment
iii. Bankruptcy
iv. Liquidation
NMBA041 (STRATEGIC MANAGEMENT) 156
• Turnaround: process of recovering the firm from severe cash problem is
called recovery it includes three phases:
diagnosis of problem.
Involves analyzing the cause of sickness
Implementation of change process & its monitoring.
• Divestment: part of org. is sell to raise capital for further investment for
unprofitable business ,requiring too much of capital, does not suit with
other activities o f org.
Bankruptcy :filing a petition in court for legal protection in case firm not
in a position to repay its debt
Liquidation : when entire company is dissolved & its assets are sold it is
a last option
NMBA041 (STRATEGIC MANAGEMENT) 157
Combination Strategy
Heartland
Ballast
Edge of
Heartland
Alien
Territory
Value Trap
High
Low High
2.Edge-of Heartland
Some parenting characteristics fit the business, but others do not
Parent may not really understand all of the strategic factors
Such business units are likely to consume much of the parent’s
attention
Parents need to know when to interfere in business unit
activities and strategies and when to keep at arm’s
3.Ballast business
• Identify Industries
• Select Sectors
• Choose Companies
• Evaluate Cost of Acquisition and Returns
• Rank the Candidates
• Identify good candidates
• Decide the extent of acquisition/retention
• Merger implementation
• Post-Merger Integration
Negative Synergies
Is Timing Appropriate?
Definition 2:
Definition 3:
• Intention:
• Communication:
• Conflict Resolution:
• Exit Strategy:
• Outsourcing
• Distributors: Recruiingt distributors, where each one has its own geographical
area or type of product. This ensures that each distributor’s success can be
easily measured against other distributors.
• .
• Portfolio analysis is an analytical tool which views a corporation as a basket or portfolio of products
or business units to be managed for the best possible returns.
i. To analyze its current business portfolio and decide which business should receive more or less
investment.
ii. To develop growth strategies for adding new businesses to the portfolio.
• The BCG matrix reflects the contribution of the products or business units to its
cash flow. Based on this analysis, the products or business units are classified as:
Stars (high growth, high market share) represent most favorable growth &
investment opportunities. As such resources should be allocated to them
Cash cows (low growth/ mature industries, high market share) need less in terms
of resource allocation
Question Marks (High Growth, Low Market Share) also known as problem child,
increase market share / disinvest.
Dogs (Low Growth, Low Market Share) so less resources should be allocated
option is to disinvest.
• so, main strategy should be to maintain the position of cows. The cash
from cows can be used to consolidate the position the position of stars .
• Any surplus remaining then can be used to question marks
S.No. Business Type Cash Source Cash Use Net Cash
Balance
1 Cow More Less Funds
available, so
milk and
deploy
• Merits:
1. It is easy to use
2. It is quantifiable
3. It draws attention to the cash flows
4. It draws attention to the investment needs
Demerits:
1. It is too simplistic.
2. Link between market share and profitability is not strong.
3. Growth rate is only one aspect of industry attractiveness.
4. It is not always clear how markets should be defined.
5. Market share is considered as the only aspect of overall competitive
position.
6. Many products or business units fall right in the middle of the matrix,
and cannot easily be classified
GE’s nine cell matrix
This matrix was developed in
Business strength
1970s by the General Electric Strong Average Weak
Company with the assistance
of the consulting firm,
McKinsey & Co., USA. This is High
A C
also called GE Multifactor
attractiveness
Portfolio matrix. Industry
Medium B D
Low
• This matrix based on two variables
-business strength
-industry attractiveness
• business strength based on relative market share, profit margins,
knowledge of market & customer, technological capacity, strength of
management
• Industry attractiveness based on market size, profit margin of industry,
technology, social, environmental aspects
STOPLIGHT STRATEGY
• Zone
• Green business strength is strong& industry
earn /select
Manage for
Build Selectively Harvest
Medium Earnings
Protect &
Harvest Divest
Low Refocus
Competitive Strength
[More Comprehensive than RMS]
GE 9 Cell Matrix for PepsiCo
High
Competitive Strengths Low
High
Snack Foods
Attractiveness
Soft Drinks
Low
Difference between BCG and GE
matrices
BCG Matrix GE Matrix
1. BCG matrix consists of four cells 1. GE matrix consists of nine cells
2. The business unit is rated against the 2. The business unit is rated against the
following two criteria following criteria
i. relative market share i. business strength
ii. industry growth rate. ii. industry attractiveness.
3. The matrix uses single measures to 3. The matrix uses multiple measures to
assess growth and market share. assess business strength and
industry attractiveness
4. The matrix uses two types of 4. The matrix uses three types of
classification i.e. high and low classification (high/medium/low and
strong /average /weak).
i. Factor conditions
1 2
Factor Demand
Conditions Conditions
3
Related &
Supporting
Industries
• the good old factors of production in economics – land,
labor, capital
Firm & natural resources
Strategy,
• A nation which &
Structure is richly endowed with one or more
factors obviously
Rivalry gains a competitive advantage
• America & Agricultural Produce
1 • India & Spices, Brazil & Coffee
• South Africa & Diamonds
• But Sustained Growth is not achieved by depending
Factor only on inherited factor endowments. Demand
Cultivated
Conditions Resources / Capabilities are equally important.
Conditions
• Only cultivated theory can explain growth of countries
like Singapore, Hong Kong, Taiwan and even JAPAN.
• Human Resources [English speaking skills for
BPO, tech skills for IT, hands on skills for
fabrication]
• Knowledge Resources [Academic & Tacit]
• Related &
Infrastructure [Professional / Social, Quality
Supporting
Vs. Cost]
• Add toIndustries
all this factors like time commonality/difference,
cultural adaptability etc – The Factor part is complete
• The second broad determinant of national competitive
advantage in an industry isFirm
“Home Demand
Strategy,
Conditions” for the industry’s product /&service.
Structure
• Home demand can be split into two – Quantity &
Quality
Rivalry
• The quantity of home demand ensures economies of
scale and critical mass production
2
• But it is the quality of home demand that establishes
global competitive advantage
• sophisticated
Factor domestic customers will drive both quality Demand
and innovation
Conditions Conditions
• Japanese passion for recording events / travels – Hence
Camera
• British are renowned for their gardens / gardening –
hence Lawnmowers
• Italy & its passion for fashion – Hence High End
Apparels
Related &
• Porter Diamond concurs that Supporting
this home demand will
slowly get internationalized Industries
• Competitive advantage for nations occurs when RELATED AND
SUPPORTING INDUSTRIES start emerging around the key industry –
Firm Strategy,
particularly in “industry clusters”
Structure &
• These supplier industries - who by themselves are internationally
competitive sub-industries – Rivalry
eventually create a national advantage for the
Original “Downstream” industry.
• USA leads the world in Computer manufacturing because all key supplier
industries are again US [Semiconductor – Intel, O/S – Microsoft, Apple,
Factor
Applications – Oracle etc] Demand
• Conditions Conditions
Italy is successful in footwear because it is equally & independently strong
in Leather Processing
• Back home, Chennai is developing as the Detroit of India with Hyundai,
Ford, Chrysler & Mahindra setting up shop because it is equally strong as
an auto ancillary vendor. TVS group, Rane Group, Visteon, MRF etc are
strong auto ancillary vendors – all operating mainly out of Chennai
Related &
Supporting 3
Industries
Firm Strategy,
4 Structure &
Rivalry
of strategy .
Structure
Strategy Systems
Super -
Ordinate
Goals
Style
Skills
Staff
Mc Kinsey’s 7-S model
1. Super Ordinate Goals; means the goals of a higher order which
express the values vision and mission that senior management
brings to organization
2. Structure means ;the organizational structure of the company
3. Systems ;means the procedures that make the organization works
4. Style; means the company conducts its business .Top managers in
organization can use style to bring about change
5. Staff: refers to those people who need to be developed challenged
and encouraged
6. skills ;it is most important capability of an organization
7. Strategy: direction ,scope of organization or the route company
chosen to achieve competitive success
229
Strategic Information Systems
• IT can be used
- to build a customer focused business
- to reengineer business processes
- to improve quality
- to become an agile company
- to form a virtual company
- To build a knowledge-creating company
Customer focused business
• Develop a focus on the customer
– Customer value
• Best value
• Understand customer preferences
• Track market trends
• Supply products, services, & information anytime,
anywhere
• Tailored customer service
Reengineering the processes
• Business Process Reengineering (BPR)
– Rethinking & redesign of business processes
– Combines innovation and process improvement
– There are risks involved.
Improving quality
• Total Quality Management (TQM)
– Quality from customer’s perspective
– Meeting or exceeding customer expectations
– Commitment to:
• Higher quality
• Quicker response
• Greater flexibility
• Lower cost
• IT can help firms to achieve quality goals by helping
them simplify products or processes, make improvements
based on customer demands, reduce cycle time and
increase the quality of design and production.
Agile company
• Old businesses: Low cost, low price, mass
production, economy of scale.
• New businesses: Global competition, sophisticated
customers, customized production.
• An agile company can offer customized production,
product variety, bring products to market rapidly and
cost effectively. Ex: Dell Computers is an agile
competitor.
• It heavily depends on IT. Ex: Flexible
Manufacturing Systems (FMS) help companies
become an agile competitor.
• A business can use IT to become an agile company.
Virtual company
• IT makes the virtual corporation possible.
• A virtual company is an organization that uses IT to link
people, assets, and ideas to create and distribute products and
services without being limited to physical locations or
traditional boundaries.
Virtual company
• Major attributes of VC:
• Each partner brings its core competency so an-
all star winning team is created.
• No single company can match what the VC
can achieve.
• Resources of the business partners can be put
to use more profitably.
• It is difficult to identify the boundaries of a
VC.
Turnstone
Subcontracted Third-party
sells its products
Carriers ship Company designs
through catalogs
the products to and prints catalogs
customers
1. Product cost determination under activity-based costing is more accurate and reliable
because it focuses on the cause and effect linkage of costs and activities in the context of
producing goods.
2. Fixation of selling price for multi-products under activity-based costing is fair and correct
because overheads are allocated on the basis of relevant cost drivers.
3. Control of overheads consisting of fixed and variable becomes possible by controlling and
monitoring activities. Linkage between cost and activities are clearly identified in activity-
based costing and thus provides opportunities to control overhead costs.
4. Sufficient information can be obtained to make decisions about the profitability of different
product lines.
5. Fair allocation of overheads occupy a considerable portion in the total cost components.
i. Internal consistency
ii. Consistency with the environment
iii. Appropriateness of the strategy in the light of available resources
iv. Acceptability of the degree of risk involved in the strategy
v. Appropriateness of the time horizon of the strategy
vi. Workability of the strategy.
• Strategic Controls
1. Premise control
2. Strategic surveillance
4. Implementation control
Ethics refers to the moral principles and values that govern the behaviour of
a person or group. Ethics helps us in deciding what is good or bad, moral or
immoral, fair or unfair in conduct and decision-making. In other words, ethics
serve as a “moral compass” to guide our actions.
There are many sources for an individual’s ethics. These include family
background, religious beliefs, community standards and expectations.