CONCEPT OF STRATEGY & STRATEGIC MANAGEMENT

SOME FUNDAMENTAL QUESTIONS

Does the senior management have a clear understanding of how the industry may be different in the next 10 years? Is it regularly defining new ways of doing business, building new capabilities and setting new standards of customer satisfaction? Is management aware of the threats posed by new rivals? Do senior executives have a sense of urgency about the need to reinvent the current business model? Is my company pursuing growth and new business development?

STRATEGY
GREEK WORD STRATEGOS Science of guiding & Directing
COMPLEX PROCESS OF DETERMINING LONG TERM GOALS & COURSE OF ACTIONS NEEDED TO BE CARRIED OUT, ALLOCATION OF RESOURCES FOR CARRYING OUT THESE GOALS. MOVING FROM WHERE YOU ARE TO WHERE YOU WANT TO BE IN NEAR FUTURE THROUGH A SERIES OF DECISIONS AND ACTIONS. PRE DETERMINED COURCE OF ACTION HAS DEFINITE DIRECTION COMPETITIVE ADVANTAGE: Delivering superior value to target customer at the same cost or delivering equal customer value at lower cost relative to your competitor, on a continuing basis.

Simply
Strategy means putting things in place carefully, and with a great deal of thought. It is the opposite of just waiting for things to happen.

What is Strategy?

Large-scale, future-oriented plan for interacting with the competitive environment to achieve objectives Companys game plan Framework for managerial decisions

Strategic Decision Making

Decision making process Focused on achieving Goals and objectives Decision making for strategic task Difficult, Complicated and dynamic Process

Dimensions of Strategic Decisions

Strategic issues
Require top-management decisions Require large amounts of the firms resources Often affect the firms long-term prosperity Are future oriented Usually have multifunctional or multibusiness consequences Require considering the firms external environment

STRATEGIC DECISION MAKING ISSUES

SETTING REALISTIC GOALS: Challenging but achievable RATIONALITY: Exercising best choice among alternatives CREATIVITY: Decision creative and original through brainstorming VARIABILITY : Every situation is unique DEMOGRAFHIC FACTORS: Age. Education, Intelligence, Values Cognition. risk taking and creativity GROUP DECISION MAKING: Participation

STRATEGIC MANAGEMENT
Art and science of formulating, implementing and evaluating cross functional decisions that will enable an organisation to achieve its goals. Three stages:
Formulation Implementing Evaluating

STRATEGIC MANAGEMENT (contd.)

According to HOFER, The process which deals with the fundamental organisational renewal and growth with the development of strategies, structure and systems necessary to achieve such renewal and growth, and with the organisational systems needed to effectively manage the strategy formulation and implementation process.

Levels at which Strategy operates

For many companies, a single strategy is not enough. There is a need for multiple strategies at different levels. Many companies are organized on the basis of operating divisions. These divisions are known as Strategic business units or profit centers. SBU Any part of a business organisation which is treated separately for strategic purpose.

Strategy at different levels

Corporate office

SBU A

SBU B

SBU C

Finance

Marketing

Operations

Personnel

Strategy at different levels.

Corporate office : Corporate level strategies. S B Us : Business level strategies. Functional : Functional level strategies.

Corporate level strategies.

It is a plan of action, covering the various functions performed by different SBUs. The plan deals with the objectives of the company, allocation of resources and coordination of the S B Us for optimal performance.

SBU Level strategy.

SBU strategies is a comprehensive plan providing objectives for SBUs, allocation of resources among functional areas, and coordination between them for making an optimal contribution to the achievement of corporate level objectives.

Functional Strategies
Functional level strategies deal with a relatively restricted plan providing objectives for a specific function, allocation of resources among different operations within that functional area, and coordination between them for optimal contribution to the achievement of SBU and corporate level objectives.

Other strategy levels

Societal strategies: These strategies are at a level higher than the Corporate level. Based on the mission statement a societal strategy is a generalized view of how the corporation relates itself to society in terms of a particular need or a set of needs that it strives to fulfill.

Other strategy levels.

Some strategies are also needed to be set at lower levels, one step below the functional level. Operating level strategy E.g. A functional strategy at the marketing level could be sub divided into sales, distribution, pricing, product and advertising.

HIERARCHY OF STRATEGY
CORPORATE STRATEGY

BUSINESS STRATEGY

FUNCTIONALSTR ATEGY

Mintzberg's 5 Ps for Strategy

The word "strategy" has been used implicitly in different ways even if it has traditionally been defined in only one. Mintzberg provides five definitions of strategy:
Plan Ploy Pattern Position Perspective.

Some Useful Definitions of Strategy

Strategy as the determinant of the longterm goals of the enterprise. - Chandler Strategy as the pattern of objectives, purposes, or goals and plans for achieving these goals. - Andrews Strategy as the common thread among a firms activities. - Ansoff

The Five Ps
Plan

The Five Ps
Plan Ploy

The Five Ps
Plan Ploy

Pattern

The Five Ps
Plan Ploy

Position

Pattern

The Five Ps
Plan Ploy

Perspective

Position

Pattern

Plan
Strategy is a plan - some sort of consciously intended course of action, a guideline (or set of guidelines) to deal with a situation. By this definition strategies have two essential characteristics: they are made in advance of the actions to which they apply, and they are developed consciously and purposefully.

Ploy
As plan, a strategy can be a ploy too, really just a specific manoeuvre intended to outwit an opponent or competitor.

Pattern
If strategies can be intended (whether as general plans or specific ploys), they can also be realized. In other words, defining strategy as plan is not sufficient; we also need a definition that encompasses the resulting behavior: Strategy is a pattern - specifically, a pattern in a stream of actions. Strategy is consistency in behavior, whether or not intended. The definitions of strategy as plan and pattern can be quite independent of one another: plans may go unrealized, while patterns may appear without preconception.

PATTERN
Realised pattern: Consistency in behaviour over time
Looking at past behaviour

Intended strategy
Deliberate strategy (80%) Unrealised strategy (20%)

Unrealised strategy which cant be or is not accomplished Emergent strategy emerges due to the past patterns DELIBERATE STRATEGY + EMERGENT STRATEGY = REALISED STRATEGY

Position
Strategy is a position - specifically a mean of locating an organization in an "environment". By this definition strategy becomes the mediating force, or "match", between organization and environment, that is, between the internal and the external context.

Perspective
Strategy is a perspective - its content consisting not just of a chosen position, but of an ingrained way of perceiving the world. Strategy in this respect is to the organisation what personality is to the individual. What is of key importance is that strategy is a perspective shared by members of an organisation, through their intentions and / or by their actions. Organisations fundamental way of doing. Changing position within the same perspective is easy rather than changing perspective in the same position.

What is Strategic Management?

The set of decisions and actions that result in the formulation and implementation of plans designed to achieve a companys objectives.

STRATEGIC MANAGEMENT PROCESS

ESTABLISHMENT OF STRAT. INTENTS VISION & MISSION statements, Business Definition Adopting Business Model, Setting Goals & Objectives

FORMULATION OF STATEGIES

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

IMPLEMENTATION OFSTRATEGIES

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

REVIEW,EVALUATION CONTROL

Performing Strategic Evaluation, Exercising Strategic Control and Reformulating Strategies

Strategic Management Process

1)Establishing the hierarchy of strategic intent: Creating and communicating a vision. Designing a mission statement. Defining the business. Setting objectives.

Strategic management process

2) Formulation of strategies: Performing environmental appraisal. Doing organizational appraisal. Considering corporate level strategies. Considering business level strategies. Strategic analysis. Formulating strategies. Preparing strategic plan.

Strategic management process.

3) Implementation of strategies: Activating strategies. Designing structures and systems. Managing behavioral implementation. Managing functional implementation. Operationalizing strategies.

Strategic management process

4) Performing strategic evaluation and control: Performing strategic evaluation. Exercising strategic control. Reformulating strategies.

Strategists and their role in Strategic Management.

Strategists are individuals or groups who are primarily involved in the formulation, implementation and evaluation of strategy. So all managers are strategists in a limited sense. Persons outside the organization are also involved in strategic management. They are also strategists Consultants.

Various strategists
Board of Directors: Is responsible for the governance of the organization. As directors, the members of the board are responsible for providing guidance and establishing the directives according to which the managers of the organization can operate.

Various strategists.
The Chief Executive Officer: Is the most important strategist who is responsible for all the aspects of strategic management, right from formulation to the evaluation of strategy. He plays a very important role in strategic decision making.

Various strategists
Entrepreneurs: are persons who always searches for change, responds to it and exploits it as an opportunity. They play a very important and a proactive role in strategic management. They provide a sense of direction to the organization and set objectives and formulate strategies to achieve them.

Various strategists
Senior Management: When assigned with specific responsibilities senior managers look after modernization, technology up gradation, diversification and expansion, plan implementation and new product development. Senior managers perform a variety of roles by assisting the board and the CEO in formulation, implementation and evaluation of strategies.

Various strategists
SBU level executives: The idea for organizing to SBU is to manage a diversified company as a portfolio of businesses. SBU level heads are also known as profit center heads are considered as CEOs of a defined business unit for the purpose of strategic management.

Various strategists
Consultants: The main advantage of hiring consultants is getting unbiased and objective opinion from a knowledgeable outsider and availability of specialists skills. Some Consulting cos are, Mc Kinsey and company, KPMG, Boston consulting, etc.

Hierarchy of

STRATEGIC INTENT

STRATEGIC INTENT
To achieve success, organizations have to primarily focus on hierarchy of strategic intents Vision, Mission, Business Definition, Goals and Objectives ASPIRATIONS of the company can be out of proportion to their resources. Framework within which organization operate and adopt a predetermined direction Where it want to go and what organization stands for. Purposes the organizations strive for.

CONCEPT OF STRETCH,LEVERAGE & FIT

STRETCH : Misfit between Resources & Aspirations LEVERAGE : Refers to concentrating, accumulating, conserving. contemplating and utilizing precious & scarce resources in such a manner that these are stretched to meet the aspirations of a company. FIT : Positioning the firm by matching its organizational resources to its environment.

VISION
Future aspirations that lead to an inspiration Basic & at the top of hierarchy of strategic intents Is what a person or an organization would ultimately like to attain in the near future. A vision is generally more dreamt than it is articulated By its nature it may be as good as a dream, yet it is a powerful motivator for actions.

GOOD VISION STATEMENTS

Inspiring & exhilarating Help in the creation of a common identity and a shared sense of purpose. Competitive, original and unique. Make sense as these are practical. Foster risk- taking and experimentation. Foster long term thinking. Truly genuine, represent integrity and are meant to benefit stakeholders.

ENVISIONING PROCESS
A Well conceived vision has 2 major components 1. Core Ideology : Defines enduring character of an organization that remains unchangeable . It rests on core values & core purposes. 2. Envisioned Future : A long term, time bound goal and vivid description of achievements

WHAT A VISION SHOULD AND SHOULDNT BE A VISION SHOULD BE: An organization charter of core values & principles The ultimate source of our priorities, plans and goals A puller into the future A reflection of what makes an organization unique Inspire & motivate

A VISION SHOULD NOT BE: - A high concept statement or an advertising slogan - A history of proud past - A soft business issue - Passionless

A FEW VISION STATEMENTS

VISION OF CANARA BANK To emerge as the best bank in customer service, profitability , productivity and innovations. VISION OF IOC Indian Oil aims to achieve international standards of excellence in all aspects of energy and diversified business with focus on Customer delight through quality products & services

MISSION
It is purpose / reason behind existence of any organization Derived from VISION and reflects the corporations philosophy , identity, character and image which helps to achieve the vision. When defined explicitly, provides enlightenment to insiders and outsiders on what the organization stands for. Many strategists/consultants contribute to the building up of mission statements. Mission relates to the need of society. Eg- information need - Publisher

CHARACTERISTICS OF A MISSION SATEMENTS

FEASIBLE- realistic and achievable PRECISE- not too narrow nor too broad CLEAR- not for publicity MOTIVATING DISTINCTIVE INDICATES MAJOR COMPONENTS OF STRATEGY

MISSION
HOW MISSION STATEMENTS ARE FORMULATED Executive committee is setup to formally discuss Help of consultants also taken for an in-depth analysis of an organization and to suggest an appropriate Mission statement A Mission statement once formulated should serve an organization for many years As the organization grows with time and goes on adding new products, services, technologies and markets, there may even be a need for revising its Mission statement.

FEW MISSION STATEMENTS

BHEL To be a leading engineering enterprise providing quality systems goods and services in the field of Energy, Transportation , Industry, Infrastructure and other potential areas RANBAXY To become research based International pharma company UTI To keep the common man in sharper focus to encourage savings and investment habits among them.

BUSINESS DEFINITION
Defined along 3 parameters CUSTOMER GROUPS: WHO is being satisfied CUSTOMER FUNCTIONS: WHAT is being satisfied ALTERNATIVE TECHNOLOGIES: HOW the need is being satisfied
Provides powerful insights into understanding and defining business Helpful in Strat. Mgmt in many ways Indicates choice of objectives and helps exercising best choice. A single business firm has simple Business Definition. Company with several businesses has separate BD for each of its business. 3 dimensions provide scope for further activities and facilitates understanding of companys performance areas At corporate level ,BD concerns itself with a wider meaning of 3 dimensions. Each division of highly diversified co. can have more accurate BD at SBU level

EXAMPLES
EX: Time Keeping Business:

Customer Groups: Individual customers & Industrial Customers

Customer Functions: Finding time, Recording time, Using watches as fashionable accessories and gift items.

Alternative Technologies: Mechanical, Quartz digital, Quartz Analog

GOALS & OBJECTIVES

GOALS: What an org. hopes to achieve/accomplish in a future period of time. Represent future state or outcome of an effort put in now. OBJECTIVES: Are the ends that state how the goals shall be achieved Help org to achieve VISION & MISSION; Provide basis for Strategic Decision making; Provides standards for performance appraisals,

OBJECTIVES: - Concrete & specific Make goals operational

-Quantitative, measurable & comparable - Short Term

GOALS Generalized

Qualitative

Long Term( Org. translates its purpose into long term goals )

OBJECTIVE SETTING
EX Profit: ROI, Net profit as % of sales, Return on shareholders capital. Marketing: Sales volume, Market segment, Customer service, Promotion Growth: Output, Sales T/O, Investment HR: Training, Welfare IR Social Responsibility: Environment, Community Service, Rural Development etc.. Understandable Concrete & Specific ( Say 10% increase in sales ) Periodicity :Related to time frame. (Say 10% increase in sales in one year) Measurable & Controllable Challenging motivating but not unrealistic Diff. Objectives must correlate with each other Should be set within constraints internal and external

ENVIRONMENTAL SCANNING

Environmental Appraisal
The environment of any organization is the sum of all conditions, events and influences that surround and affect it It is therefore crucial for any organization to understand the environmental influences on its business. Internal and External

Characteristics of Environment.
It is complex No. of factors, events, conditions. It is dynamic Constantly changing.

It is multi-faceted Perception of observer Different as per different observer. It has a far-reaching impact Affect directly and Indirectly.

PEST FACTORS

POLITICAL

TECHNOLOGICAL

ECONOMIC

SOCIAL

PESTLE MATRIX
POLITICAL
CURRENT/FUTURE LEGISLATION REGULATORY BODIES GOVT. POLICIES GOVT. TERM & CHANGE

ECONOMIC
ECONOMY SITUATION & TRENDS TAXATION INTEREST & EXCHANGE RATES MARKET & TRADE CYCLE

SOCIAL
LIFESTYLE TRENDS DEMOGAPHICS COMPANY ATTITUDES & OPINIONS BRAND,COMPANY ,TECHNOLOGYIMAGE CONSUMER BUYING PATTERNS ETHNIC/RELIGIOUS FACTORS

TECHNOLOGICAL
TECHNOLOGY ACCESS,LICENSING,PATENTS MATURITY OF TECHNOLOGY REPLACEMENT TECHNOLOGY / SOLUTIONS INNOVATION POTENTIAL MANUFACTURING MATURITY & CAPACITY

LEGAL
INTERNATIONAL LAW EMPLOYMENT LAW COMPETITION LAW HEALTH & SAFETY LAW REGIONAL LEGISLATION

ENVIRONMENTAL
ENVIRONMENTAL IMPACT ENVIRONMENTAL LEGISLATION ENERGY CONSUMPTION WASTE DISPOSAL

Various environmental components.

1) Market environment: Clients needs, preferences, perceptions, attitudes, values, buying behavior, satisfaction. Product factors like demand, image, features, utility, design, life cycle, price, promotion, distribution, differentiation etc Competitor factors like different types of competitors, nature of competition.

Components contd..
2) Technological Environment: Rate of change of technology , easy technology Transfer. Technological development, R&D, cost of technology. Effects of technology on environment, human beings. LED and 3d TVs change in strategy by TV manufacturers

Components contd..
3) Supplier environment: Cost, availability, and continuity of supply of raw material, components, parts. Infrastructural support and ease of availability of the different factors of production.

Components contd..
4) Economic environment: Business Cycle GDP, Interest rate, exchange rate, Inflation etc. Economic policies, industrial, fiscal, monetary. Per capita income, balance of payments, Exports imports etc. Infra-Structural Investments

Components contd..
5) Regulatory environment: Policies related licensing, monopolies, FDI, Policies related to distribution and pricing. Policies related to sick industries, public sector, backward areas, consumer protection etc. Regulation and laws

Components contd..
6) Political environment: The political system and its features, ideological forces, coalition compulsions. Political stability. Political funding of elections. Governments role in business. Government Attitude Subsidies & Protection

Components contd..
7) Socio-cultural environment: Demographics like population, its density and distribution, age composition, inter state migration, income distribution etc. Socio-cultural concerns like environmental pollution, corruption etc. Society expectations, beliefs, rituals and attitude, lifestyle etc. Literacy Levels

Components contd..
8) International environment: Globalization process. Global economic forces. Global trade and commerce. Global financial system. Global markets and competitiveness. Global communication Global technology and quality systems.

SWOT Analysis.
S: Strengths. W: Weaknesses. O: Opportunities. T: Threats

Strength
It is an inherent capacity which an organization can use to gain strategic advantage. E.g. superior r&d skills which can be used for new product development.

Weakness
It is an inherent limitation or constraint which creates strategic disadvantage. E.g. over dependence on a single product line, which could be risky in crisis.

Opportunity
It is a favorable condition in the organizations environment which helps it to consolidate and strengthen its position. E.g. growing demand for the products or services that a company provides.

SOURCES OF OPPORTUNITIES Delicensing of Industries Eg. Telecom. Import relaxations Eg. Hardware & Software. Growing population Eg. Middle-class buying power. Globalisation Eg. GDRs, ECBs Exit Policy Eg. VRS Collaborations, Joint Ventures, Tie Ups

Threats
It is unfavorable situation in the organizations environment which creates risk for, or causes damage to, the organization. E.g. emergence of strong new competitors who are offering stiff competition.

Environmental scanning
Monitoring relevant environment to identify opportunities and threat affecting business for strategic decision making. General environment (Overall Env. ) Relevant environment (Directly Impacting)

Environmental scanning
Sources of Information - Documents, Mass media, Internal, External agencies, Formal studies, spying etc. Factor affecting environmental appraisal - Strategist related (Age, exp., qual. Etc.) - Organization related (Age, size, nature of business etc.) - Environment itself A constraint

ETOP
Acronym for Environment Threat Opportunity Profile. It represents a summary picture of the environmental factors and their likely impact on the organisation. Stages in ETOP analysis List the different aspects of the environment that has a bearing on the organisation. Assess the nature and extent of impact of the factors. Holistic view Prepare a complete overall picture. Forecasting Predict the future (i.e. time series, delphi's technique, data modeling.

Organizational Appraisal
It deals with the internal environment of the organization. Internal environment constitutes of behavior, strengths, weaknesses, synergy and competencies, all these put together determine the Organizational capability

Organizational appraisal
Organizational Resources Physical Financial Human Tangible and intangible

Organizational behavior
It is the manifestation of various forces and influences operating in the internal environment of an organization that create the ability for, or place constraints in the usage of resources. It leads to the development of a special identity and character of an organization.

Factors influencing Org.Beh.

Quality of leadership. Management philosophy. Shared values. Culture Quality of work environment. Organizational politics.

Synergistic effects
Synergy is the idea that the whole is greater or lesser than the sum of its parts. E.g. In marketing dept. synergistic effect can be achieved when product, promotion, distribution, advertising support each other.

Competencies
Competencies are special qualities possessed by an organization that make them withstand pressures of competition in the market place. When a specific ability is possessed by a particular organization exclusively or in a large measure it is called as distinctive competence.

Organizational capability
It is the inherent capacity or potential of an organization to use its strengths and overcome its weaknesses in order to exploit opportunities and face threats in an external environment.

Strategic advantage
These are the outcome of organizational capabilities. They are the result of organizational activities leading to rewards in terms of financial parameters.

Functional capabilities.
Strengths supporting Financial capability. Access to financial resources. Good relationship with financial institutions. High level of credit- worthiness. Low cost of capital compared to rivals. High level of share holders confidence.

Marketing capabilities
Wide variety of products. Better quality of products. Sharply-focused positioning. Effective distribution system. Effective sales promotion. Effective MKIS.

Operations capabilities
High level of capacity utilization. Favorable plant location. Reliable sources of supply. Effective control of operational costs. Good inventory control system. High caliber R&D people. Technical collaborations.

General management capability.

Effective system for corporate planning. Reward and incentives for top managers. Risk taking. Favorable corporate image. Effective management of organizational change.

GRAND STRATEGIES Corporate Level

Provide guidance for major actions for meeting long term objectives and basic direction for strategic action Blueprints for action. Use of single or combination of 2 or more depends upon multiplicity and complexities of business. Corporate level strategies indicating the choice of direction a firm adopts for achieving its vision. Corp. Strategies Also tell about decisions relating to allocation of resources among different businesses, managing & nurturing diff. businesses in portfolio. Grand strategies revolve around one basic question : Whether to continue or change business, to improve efficiency and effectiveness.

Grand strategies
Types of Grand strategies: Stability strategy. Expansion strategy. Retrenchment strategy. Combination strategy.

GRAND STRATEGIES
Corporate Strategy

Stability

Growth

Divestment

Combination

Intensification
Market Penetration

Diversification
Market Development

Integration

Product Development

Concentric / Related

Conglomerate / Unrelated Horizontal Vertical

97

EXPANSION STRATEGIES
Most popular corp. strategies as growth is the way of life. All progressive organizations plan for substantial growth due to increasing economy, markets & customer needs. Followed when companies aim at high growth, broadening the scope of its business for improving overall performance. .

CONCENTRATION STRATEGIES Simple 1st level expansion strategy, Focus on Intensification / Specialization Rely on where you are best at i.e focusing on limited areas Creating a separate niche/ identity in selective areas by investing money, time, energy & effort in specific areas

GROWTH - ANSOFFS MODEL

Existing Product Existing Market Market Penetration (+) New Market Market Development (++)

New Product

Product Development (++)

Diversification (+++)

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

99

MARKET PENETRATION It is a strategy where a firm directs its entire resources to the growth of a single product, within a well defined market. Market penetration can be achieved by increasing sales to current customers, convert competitors customers, direct non-users to users.

Suitable for industries where scope for technological break-through is limited.

MARKET DEVELOPMENT It is a strategy where a firm tries to achieve growth by finding new uses for existing products or its close variants and tap a new potential customer base altogether. (Eg. Du Pont nylon: parachutes, socks & stockings, fabrics, tyres, carpets,). The firm should be creative and innovative thinking out of the box. Unconventional and flexible channels of distribution. Move across geographical boundaries.

PRODUCT DEVELOPMENT It is a strategy where a firm tries to achieve growth through a new product or an improved version of an existing product or its variant to repeatedly enter the same market. (Eg. Honda bikes, cars). Leverage on customer loyalty. Areas of product improvement quality, features, styling. Ensure high reach through advertising and promotion. Product development with related technologies

DIVERSIFICATION
It marks the entry of a firm into newer markets with new products, thereby creating a new business. The new business is distinct from the existing business in terms of inputs technologies markets. More importantly they are strategically dissimilar. Concentric/Related and Conglomerate/Unrelated Why do firms diversify? Risk reduction. Maximizing returns Emerging opportunity in environment Migrating from business under threat Only way for growth and expansion Capitalize on capabilities

CONGLOMERATE DIVERSIFICATION
It relates to businesses which are distinct in terms of businesses as well as strategically unrelated. Companies usually engage in conglomerate diversification when industry characteristics are very attractive. Drawbacks of unrelated diversification Cost of ignorance. Cost of failure (i.e. lack of foresight) Cost of neglect (i.e. core business). Cost of dysynergy (i.e. synergies pulling in opposite directions).

CONGLOMERATE DIVERSIFICATION - ITC

Paper & Packaging

Edible Oils

Tobacco

Hotels

Food & Confectionary

INTEGRATION STRATEGIES
Combining activities relating to present activities of firm Widening scope of business
Vertical Integration : Going up & down the value chain Going for forward or backward integration or both at a time. Horizontal integration : Same type of products

Expansion through Internationalization and Cooperation

Internationalization - Beyond domestic boundaries - Factor leading it - Globalization

INTERNATIONAL STRATEGIES

PRESSURES FOR COST REDUCTION

GLOBAL STRATEGY
( LOW COST - OFFERING STANDARDISED PRODUCTS / SERVICES)

TRANSNATIONAL STRATEGY
(Creative approach to manage cost and Localization)

INTERNATIONAL STRATEGY
(Std. product for UNDER DEVELOPED COUNTRIES WHERE PRODUCT/SERVICES NOT AVAILABLE )

MULTIDOMESTIC STRATEGY
( SUITING TO NATIONAL CONDITIONS WITH HIGH COST )

PRESSURES FOR LOCAL RESPONSIVENESS

MODES OF ENTRY
LOW

EXPORTING ( Firm produces in home country & markets overseas) LICENSING ( International co. transfers knowledge, technology Patent for a limited period of time to an overseas co, in return for some form of payment) FRANCHISING
(Right to use a business format, usually Brand Name- exchange programme )

PERCEIVED RISK

INTERNATIONAL JOINT VENTURE WHOLLY OWNED

HIGH HIGH

LOW

CONTROL

International strategy
Which Market to enter? Timing of entry? Scale of entry? Advantages Economy of scale-scope, resources overseas, Expansions and profit Disadvantages Risk, Cultural Diversity, Trade restriction, bureaucracy

Cooperative Strategies
Mergers and Acquisitions Joint Ventures Strategic Alliance

Stability strategy
Is adopted by an organization when it attempts at an incremental improvement of its functional performance. Good strategy in certain and predictable environment. E.g. A copier machine company provides better after sales service to improve its image and product image too.

STABILITY STRATEGIES
1. NO CHANGE STRATEGY: Conscious decision to do nothing new. Continue with present business. Taking No decision is also a decision. PROFIT STRATEGY: Reduce investments, cut costs , Increase productivity wrt external factors like: Economic recession, Govts attitude, Industry downturn and competitive pressures for sustaining profitability by whatever means till situation improves.

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

STABILITY
It involves maintaining status-quo or growing in a slow and selective manner. The size and scale of present operations remains almost intact. Stability however, does not relate to do-nothing. It still has to adopt a strategy to sustain current performance levels. The reasons for stability strategy Lack of attractive opportunities. The firm may not be willing to take additional risk associated with new projects. To stop for a while and assess past records. Why disturb the existing equilibrium set up? Limited resource position.

Retrenchment strategy
This is followed when a company aims at contraction of its activities through substantial reduction or elimination of its business. E.g. A pharmaceutical company may withdraw from its retail operations so that it can focus on institutional sales.

DIVESTMENT Divestment is a defensive strategy involving the sale of a business to an independent entity. It is usually taken into account when performance is disappointing and survival is at stake and nor does the firm have the resources to fend off competitive forces. It may also be a pro-active strategy, where a company simply exits because the business no longer contribute to or fit its dominant logic.

Combination strategy
This is followed when a company adopts a mixture of all the strategies either at the same time in its different businesses, or at different times in the same business with the aim of improving its performance.

COMBINATION STRATEGY

It is a mixture of stability, growth, and retrenchment strategies applied simultaneously or sequentially for a portfolio of businesses (i.e. business group). It is usually pursued by a business group with diverse interests. There can be no ideal strategy for every business. Because every business has its own unique business and economic cycle.

Business Level Strategies

PORTERS MODEL OF GENERIC STRATEGY

Competitive Advantage
Cost Leadership

Product Differentiation

Broad

Cost Leadership

Differentiation

Scope

Narrow

Cost Focus

Differentiation Focus

Industry Analysis

EMERGING INDUSTRY
Emerging Industry An industry characterized by radical environmental changes, technological innovations, ending in a different cost economics. Eg. Bio Informatics, Digital photography and printing. Reasons for emerging Unproven technology. High initial costs, followed by steep cost reduction. First-time buyers. Excessive turbulence in the environment. Unknown customer and market profile. Business uncertainty is high

GENERIC STRATEGY
Rapid industry changes - strategic uncertainty. Shaping industry structure. Be a market leader, not market follower. Strictly differentiation, not standardization. Flexible supplier and distribution channels.

FRAGMENTED INDUSTRY Growth stage Fragmented / Growing Industry An industry where no firm has a significant market share. Many players enters seeing growth. EX- Mobile, IT, retail etc. Reasons for fragmentation Low entry barriers. Absence of economies of scale. Local regulations. Diverse customer needs. With Growth-returns increases, customer gains info, demand increases

GENERIC STRATEGY
Conduct industry wide analysis. Identify causes of fragmentation. Look for ways to overcome fragmentation. Assess consequences of overcoming fragmentation. Locate a defendable position to take advantage of industry consolidation. Primarily concentrate on differentiation, also focus on cost advantages.

MATURE INDUSTRY Mature Industry An industry characterized by imperfect competition leading to saturation in growth rates. Eg. FMCG, BPO, steel. Reasons for maturing entry barriers. Lack of innovation. Exhaustive networks. International competition. Eg. Dumping. Stable demand, technology developments are few, consolidation of industry.

GENERIC STRATEGY
Sophisticated cost analysis and correct pricing. Process innovation and efficient designing. Rationalizing the product mix. Increasing scope of existing customers. Move beyond geographical boundaries.

DECLINING INDUSTRY

Declining Industry An industry which has outlived its utility, with no sign of recovery. Eg. Typewriters, agriculture. Returns decline Investment ceases Demand shrinks Companies starts following retrenchment strategies

GENERIC STRATEGY
Leadership through takeovers and mergers. Harvesting Stop to fresh CAPEX. Curtailing working capital exposure. Minimising adhoc expenditures. Maintain a skeleton structure. Reducing product diversity. Curtailing distribution channels. Early divestment Sell early before it becomes deadwood.

COMPETITOR ANALYSIS

FIVE FORCES MODEL - PORTER

Threat of New Entrants

Bargaining power of Suppliers

Competition from Existing Players

Bargaining Bargaining power of power of Suppliers Customers

Threat of Substitutes

PORTERS FIVE FORCES ANALYSIS

Competition from existing players High when Introducing new product range. Cutting prices of existing product range. Offering better packages for existing product range. Enhancing dealer networks. Stronger market promotion, including advertising. Backward or forward integration. Upgrading technologies.

PORTERS FIVE FORCES ANALYSIS Threat of New Entrants some barriers Economies of scale Brand power Product differentiation Location advantages Distribution channels High switching costs Regulation

PORTERS FIVE FORCES ANALYSIS Bargaining power of Customers/buyers High when Few buyers placing large orders No. of suppliers/sellers are high Switching cost for buyer is low Buyer can easily integrate backward Substitutes available

PORTERS FIVE FORCES ANALYSIS

Bargaining power of Suppliers high when Many buyers buying small quantity Suppliers are few Unique offering Substitute not available Supplier can easily integrate forward Threat of Substitutes Source of latent competition Substitute offering a price advantage and/or performance improvement

Competitor Analysis
To Know: Future goals of competitor Current strategy of competitor Key assumptions made by competitor Capabilities of competitor

UNDERSTANDING VALUE CHAIN A value chain segregates a firm into strategically relevant activities to understand its cost behaviour. Competitive advantage arises by performing these activities efficiently and differently. The sustainability of the value chain depends on the degree of fit between the activities.

VALUE-CHAIN ANALYSIS

Infrastructure
Human Resource Management Technology Development Procurement

VALUE CHAIN ANALYSIS

Value Chain: Linked set of value creating activities, beginning with basic Raw materials coming from suppliers to a series of value added activities involved in producing and marketing a product, ending with distribution of the final goods into the hands of ultimate customer Focus of value chain: To examine corporation in the context of overall chain of value creating activities

Backward & Forward integration One of the strategic moves: Moving forward or backwards along the value chain in order to reduce costs, guarantee access to key raw materials ( Backward Int.) or to guarantee cost effective and proper distribution ( Forward Int. )