Amity School of Business

Business Policy and Strategic Management

Vivek Ahuja BBA Batch 2008-11 Semester VI

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Module 1

Introduction

Introduction to Strategy and Planning

Evolution of Strategic Management Concepts of Corporate Strategy Patterns of Strategy Development Phases in Strategic Management Process.

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Strategy
The word strategy has entered in the field of management from military where it refers to apply the forces against an enemy to win a war. Originally, the word strategy has been derived from Greek

word strategos which means generalship. The word was used

first time around 400 BC.

The word strategy means the art of the general to fight in war.

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Strategy
The dictionary meaning of strategy is, the art of so moving or disposing

the instrument of warfare as to impose upon

enemy, the place time and conditions for fighting

by one self.

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Strategy in Management
In management, the concept of strategy is taken in more broader terms. Strategy is the unified, comprehensive and integrated plan that relates

the strategic advantage of the firm to the challenges of the environment

and is designed to ensure that basic objectives of the enterprise are achieved through proper implementation process.

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Strategy in Management
It lays stress on the following: Unified, comprehensive and integrated plan.

Strategic advantage is related to challenges of environment.

Proper implementation ensures achievement of basic objectives.

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Importance of Strategy
An organization is considered efficient and operationally effective if it is characterized by coordination between objectives and strategies. Strategy helps the organization to meet its uncertain situations with due diligence. Without a strategy, the organization is like a ship without a rudder. It is like a

tramp, which has no particular destination to go to. Without an appropriate

strategy effectively implemented, the future is always dark and hence, more are the chances of business

failure.

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Planning
What is Planning?
Planning as a process involves the determination of future course of action, that is why an action, what action, how to take action, and when to take action. These why, what, how, and when are related with different aspects of planning process.

Why of action reveals that action has some objectives or the end
result which an organization wants to achieve What of action specifies the activities to be undertaken How and When generate various policies, programs, procedures, and other related elements.

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Planning is the selection and relating of facts and making and using of assumptions regarding the future in the visualization and formalization of proposed activities believed necessary to achieve desired result.

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AOL/Time Warner- the worlds first Internet Powered media and communications company

In Jan 2001, the Federal Communications Commission in the USA

approved a $105 billion merger of AOL, the worlds largest ISP, with Time
Warner the media and entertainment empire. The merger clearly changed the direction of the business, its intended

long-term position in the industry and had far-ranging implications on

most parts of the business in terms of priorities and how the organization would function.

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As business analysts said, the merger was a significant proof of the rate at which the sectors of computing, telecommunications, media and entertainment were converging and would impact greatly the competitors in these sectors and their customers and potential consumers.

Time Warner's Gerald Levin, left, and AOL's Steve Case

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Nature of Strategy
Long- term direction The AOL / Time Warner merger set the new company on the path as a multimedia giant. Competitive advantage The AOL / Time Warner merger was justified in terms of providing content to an Internet Service Provider and giving a new distribution route to the content provider. Scope of an organizations activities In the AOL / Time Warner case, broadening the scope of activities was a major reason behind merger. Strategic fit It is developing strategy by identifying opportunities in the business environment and adapting resources and competences so as to take advantage of these. In the fast moving media and IT world, customers sought for value providers who can provide a range of services through complementary channels and this opportunity was clearly optimized upon by AOL Time Warner merger.

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Nature of Strategy
Strategy development by stretch Stretch is the leverage of the resources and competences of an organization to provide competitive advantage and / or yield new opportunities. Require major resource changes AOL/ Time Warner had to redraft their resource allocation to enter markets with no tradition of subscription and where piracy is prevalent. Affect operational decisions The merger required a whole set of decisions at the operational level, setting up of new structures and management controls, human resource policies and practices. Strategy gets affected by stakeholders The strategy also gets affected by values and expectations of those who have power in and around the organization. In the merger though AOL could control everything, it was constrained by regulatory authorities and lobby groups (including performers)-both in US and Europe, and the ability to persuade both the sets of shareholders that the deal made commercial sense.

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The leading edge of strategy: fit or stretch

ASPECT OF STRATEGY Underlying basis of strategy ENVIRONMENT-LED FIT Strategic fit between market opportunities and organizations resources Correct positioning Differentiation directed by market need Find and defend a niche RESOURCE-LED STRETCH Leverage of resources to improve value for money Differentiation based on competences suited to or creating market need Change the rules of the game Portfolio of competences

Competitive advantage through How small players survive

Risk-reduction through Portfolio of products/businesses

Corporate centre invests Strategies of business in units or subsidiaries

Core competences
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Picture of the DAY

Strategic Advantage

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STRATEGIC MANAGEMENT

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Strategic Management
The top management of an organization is concerned with selection of a course of action from among different alternatives to meet the

organizational objectives. The process by which objectives are formulated

and achieved is known as Strategic Management and Strategy acts as

the means to achieve the objective. Strategy is the grand design or an overall plan which an organization chooses in order to move or react towards the set objectives by using its resources.

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Evolution of Strategic Management

Four Paradigm shifts (Hofer)

First phase mid 1930s

Second phase 1930s and 1940s Third phase 1960s 1980s present

Fourth phase

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First Phase
The first phase that can be traced back to the mid 1930s, rested on the paradigm of ad-hoc policy making. The need for policy making arose due to the nature of American business firms in that period. The firms, which commenced operations with a single product line catering to a unique set of customers in a limited geographical area expanded in one or all of these three dimensions. Policy making became the prime responsibility of erstwhile entrepreneurs, who later assumed the role of senior management.

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Second Phase
Due to the increasing environmental changes in the 1930s and 1940s in the U.S., planned policy formulation replaced ad-hoc policy making. Based on this second paradigm, the emphasis shifted to the integration of functional areas in a rapidly changing environment.

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Third Phase
Increasingly complexity and accelerating changes in the environment made the planned policy paradigm irrelevant since the needs of the businesses could no longer be served by policy-making and functional area integration alone. By the 1960s, there was a demand for a critical look at the basic concept of business and its relationship with the environment. The concept of Strategy satisfied this requirement and the third phase, based on strategy paradigm, emerged in the early sixties.

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Fourth Paradigm
The current thinking that emerged in the eighties is based on the fourth paradigm of strategic management. The initial focus of Strategic Management was on the intersection of two broad fields of enquiry: the strategic process of business firms and the responsibilities of the general management.

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The Risk of Strategic Drift

Environmental change

Strategic change
5 Amount of Change 3

Time Phase 1 Incremental Change Phase 2 Flux Phase 3 / 4 Transformational Change or Demise

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Patters of Strategy Development Incremental Flux Transformational

Demise

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Strategy Development in Environmental Contexts Environmental conditions

Simple Static Historical Analysis Forecasting Decentralized Planning Complex

Experience & Learning

Scenario Planning Dynamic

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Strategic Planning in Practice For strategic planning to work, managers need to take not of current & future competitive environment To forecast how the future may look like Scenario Planning can be used Operating managers can be involved (Decentralized Planning)

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Scenario Planning
Involves formulating plans for what if scenarios about the future Some scenarios are Optimistic & some are Pessimistic Managers are asked to prepare strategies to cope up with each scenario A set of indicators is chosen, and the indicators are used as signposts to track trends and identify the probability that any particular scenario will come to pass As a result of scenario planning, organizations might pursue one dominant strategy, but make investments that will payoff of other scenarios come to fore Helps managers understand the environment, thinking strategically & generating strategic options Pushes managers to think outside the box

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Scenario Planning
Identify Different Possible Futures Formulate Plans to Deal with those Futures Invest in one Plan, but

Switch strategy if Tracking of signposts Shows alternative Scenarios becoming More likely

Hedge your bets by Preparing for Other scenarios And..

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Scenario Planning
Example: Royal Dutch Shell
Using scenario planning since the 1980s Today it uses two main scenarios to refine its strategic planning
Dynamics as usual gradual shift from carbon fuels to renewable energy The spirit of the coming age looks at the possibility that a technological revolution will lead to a rapid shift to new energy sources

Shell is making investments that will ensure profitability of whichever scenario comes to pass, and it is carefully tracking technological and market trends for signs of which scenario is becoming more likely over time

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Decentralized Planning
Strategic planning process is generally top managements responsibility in companies They may not have understanding of the operating realities

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Levels of Strategy

A Companys Strategy Making Hierarchy Overall strategy

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A collection of strategic initiatives and actions devised by the managers and key employees up and down the whole organizational hierarchy
Crafting a strategy involves answers to the following hows: How to out compete rivals How to respond to changing market conditions How to develop needed competencies How to achieve strategic and financial objectives In a diversified multi-business companies strategy making involves levels of strategy involving different facets of companys overall strategy

A Companys Strategy Making Hierarchy

Corporate Strategy consisting of
Initiatives company use to establish in different businesses

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Approaches that are pursued to boost the combined performance Usually reviewed and approved by Board of Directors

A Companys Strategy Making Hierarchy

Business Strategy

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Actions and approaches crafted to produce success in a specific line of business Crafting response to changing environment Responsibility of Business Head
Seeing that lower level strategies are well matched with overall business strategy Getting major business level strategic moves approved by Corporate level officers

A Companys Strategy Making Hierarchy

Functional area Strategy & Operating Strategies

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Actions, approaches and practices employed to manage key activities within a business Strategic initiatives for key operating units (plants, distribution centers, geographic units) Specific operating activities with strategic significance (advertising campaigns, supply chain related activities) Add detail and completeness to functional and overall business strategies

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Example of Jet Airways

Entry of low cost carriers changed the face of industry

Jet Airways started facing stiff competition from Air Deccan, Spice Jet &
Kingfisher Market share went down from 57% to 32%

Set up a new Corporate strategy: Regaining and expanding its market share by entering and operating in the LOW COST and a VALUE BASED CARRIER arena as well

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Example of Jet Airways

In order to give a definite shape to the corporate strategy, a business level

strategy was implemented:

the TAKEOVER of Air Sahara by Jet Airways and renaming it to form JETLITE

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Example of Jet Airways

Jets management made various changes in the operation strategies of

the airline
No tickets at throw away prices Jetlite was to take on Tier II and Tier III cities New schedule for other tier II cities Cost cutting by slashing employee numbers and better negotiation with suppliers Single cabin carriers Improvement in aircraft utilization hours

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Example of Vodafone
Corporate Level Strategy:
Focus: Deliver High performance in controlled businesses Maximize shareholder returns in affiliates Leverage measurable synergy benefits from scale and scope Outperform acquisition business cases

Vodafone wanted to enter the Indian market in 2006-2007

Gartner had figured that customer base in India would double by 2010

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Example of Vodafone
Business Unit Strategy
Acquired Hutchison Essar Limited and divested in Bharti Airtel

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Example of Vodafone
Operational & Functional Strategies:
Investing in Rural India by network sharing with other providers Cutting costs through:
Infrastructure sharing deal with Idea and Bharti Creation of Indus Towers

Redefining the logo High level of cost and time discipline Customer value enhancement Target areas: Mobile data, Enterprise and Broadband Technology upgradation CSR
Group Supply chain, Group Marketing, Employment

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Intended & Emergent Strategies

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Strategy As An Emergent Process

Criticism of Formal Planning:
Unpredictability of Real World Autonomous Action: Strategy making by lower level managers Serendipity and Strategy

Mintzbergs Model of Strategy Development Emergent and Deliberate Strategies

Deliberate Strategy Planned Strategy Realized Strategy
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Unpredicted Change

Unrealized Strategy

Emergent Strategy

Unplanned Shift by Top Level Managers

Serendipity

Autonomous Action by Lower Level by Managers

Intended & Amity School of Business Emergent Strategies

A companys realized strategy is the product
Planned strategies that are actually put into action and Any unplanned strategies

Many Planned strategies not implemented because of unpredicted changes in the environment

Emergent strategies are unplanned responses to unforeseen circumstances

Arise from:
Autonomous action by individual managers, fateful discoveries, unplanned strategic shift by top level managers when environment changes

Sometimes emergent strategies are more successful than the planned ones

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Strategy Making in an Unpredictable World

Environment is uncertain, complex & ambiguous Small changes may have large & unpredictable impact rendering strategic planning useless Premium on being able to respond quickly & alter strategies

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Strategy Making in an Unpredictable World Example:

Dramatic rise of Google (pay per click model) disrupted the online advertising industry Microsofts MSN network & Yahoo had to change their strategies rapidly Both came out with their search engines

Autonomous Action:Amity School of Business Strategy making by lower level managers

Too much importance to Top level management
Many important strategic decisions are initiated by lower level managers Out of their own initiatives lower level managers come up with newer strategies and then lobby top managers for resources

Helpful for established companies in responding to paradigm shifts in industry Top-level management sometimes have inertia

 Example #1

Autonomous Action:Amity School of Business Strategy making by lower level managers

Original prototype of Microsofts Xbox was prepared by four lower level engineering employees on their own initiative They convinced top level managers for the commercialization of the Xbox

Example #2
Starbucks also sells music CDs at many of its outlets Sales of those outlets with CDs are generally higher
Idea came into being when Tim Jones, a stores manager started bring his own music compilations He started getting requests from customers for copies of those CDs Jones suggested the CEO, Howard Schultz that Starbucks should sell its own music

Since then, Starbucks has also moved into music downloading, where customers can burn their CDs while in the store

Serendipity & Strategy

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Examples of accidental events abound that help push companies in new & profitable directions Some companies miss these opportunities because serendipitous discoveries do not fall in line with their prior strategies

Serendipity & Strategy

Example #1

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Richard G. Drew invented one of the most practical items to be found in any home or office: transparent adhesive tape in 3M Initially it had adhesives only along the edges Was used in painting cars with two tones During the Great Depression, people became creative with it and found hundreds of its use

Example #2
A century ago, the telegraph company turned down an opportunity to purchase rights to the invention on Alexander Graham Bell!

Intended & Amity School of Business Emergent Strategies

Example:
Entry of Honda into US motorcycle market in 1959 Honda executives (from Japan) focused on selling 250-cc & 350-cc machines Sales were sluggish Honda executives themselves were using 50-cc bikes & were attracting attention They got a call from Sears & other stores Honda launched those bikes By 1964 one out of two motorcycles sold in US was a Honda

Intended & Amity School of Business Emergent Strategies

Example (Contd.)
Credit should be given to Honda for recognizing the strength of the emergent strategy & for pursuing it

Management need to recognize:

Strategies can take root wherever people have the capacity to learn Process of emergence; ability to judge the worth Whether emergent strategies fits companies needs & capabilities Emergent strategies are a function of corporate culture & controls put in place

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Phases in Strategic Management Process

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Strategic Management
To determine mission, goals and values of firm and key decision makers MISSION & OBJECTIVES

GENERAL ENVIRONMENT
INDUSTRY & INTERNATIONAL ENVIRONMENT INTERNAL FACTORS Analysis & Diagnosis

O&T S&W

GENERIC STRATEGY ALTERNATIVES

STRATEGY VARIATIONS STRATEGY CHOICE
RESOURCE STRUCTURE POLICY, PLANS & ADMINISTRATION EVALUATION & CONTROL FEEDBACK
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Choice

Implementation

Model of Strategic Management Process

Company Mission and Social Responsibility External Environment Remote / Industry / Operating Feedback Possible? Desired? Strategic Analysis and Choice Long Term Objectives Short-term objectives; reward system Functional tactics Generic and grand strategies Policies that empower action Feedback Internal Analysis

Restructuring, reengineering, and refocusing the organization Strategic control and continuous improvement

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Thank You