Strategy

BYNAYANA N P

M.TECH (HRD)FIRST YEAR

STRATEGIC MANAGEMENT

STRATEGIC PLANNING

It’s a long-term perspective of management. Strategic management can be used to

determine mission, vision, values, goals, objectives, roles and responsibilities, timelines, etc.

StrategiesThe decisions and actions that determine

the long-run performance of an organization

Standard definitions of strategy

Thompson & Strickland “A company’s strategy consists of the combination of

competitive moves and business approaches that managers employ to please customers and compete successfully and achieve organizational objectives.”

Pearce II & Robinson Jr. “Strategy reflects a Company’s awareness of law, where and when it should compete; against whom it

should compete and for what purpose it should compete.”

Bryson“A pattern of purposes, policies, programs, actions,

decisions, or resource allocations that define what an organization is, what it does, and why it does it.”

Standard definitions of strategy(contd…)

Mintzberg“A mediating force between the organization and

environment: consistent patterns in streams of organizational decisions to deal with the

environment.”Andrews“Pattern of objectives, purposes, or goals stated in such

a way so as to define what business the company is in or is to be in and the kind of company it is or to be”

Chandler “Strategy is the determination of the basic long term goals of an enterprise and the adoption of courses of action and the allocation of resources necessary for

carrying out these goals.”

EVOLUTION OF THE CONCEPT “STRATEGY”

Derived from Greek word “strategia” the art or science of being a general.

Effective generals had to determine the right lines of supply, decide when to fight and when not to fight, and manage army's relation with citizens

Strategy= planning component+ decision making + action component

FATHER OF STRATEGIC MANAGEMENT

Russian American, applied mathematician and business manager

Professionally, Ansoff is known worldwide for his research in three specific areas: The concept of environmental

turbulence; The contingent strategic success

paradigm, a concept that has been validated by numerous doctoral dissertations;

Real-time strategic managementH. Igor Ansoff

(December 12, 1918 – July 14, 2002)

strategy plan

Normally focused on objectives and long term goals and vision.

Includes detailed course of action and tactics to be used.

STRATEGY Vs PLAN

STRATEGY VS PLAN

Characteristics of strategic management

Strategic decisions are complex in nature.Strategic decisions are at the top most level, are uncertain

as they deal with the future, and involve a lot of risk. Strategic decisions have major resource propositions for

an organization. These decisions may be concerned with possessing new resources, organizing others or reallocating others.

Strategic decisions deal with harmonizing organizational resource capabilities with the threats and opportunities.

Strategic decisions deal with the range of organizational activities. It is all about what they want the organization to be like and to be about.

Strategic decisions involve a change of major kind since an organization operates in ever-changing environment.

Levels of strategy

CORPORATESTRATEGY

Division A

R & D

Personnel

Finance

Production

Marketing/Sales

Division B

R & D

Personnel

Finance

Production

Marketing/Sales

CORPORATEHEAD OFFICE

BUSINESSSTRATEGY

FUNCTIONALSTRATEGIES

Levels of strategy

Corporate strategy... defines the scope of the business in terms of the industries and markets in which it competes. includes decisions about diversification, acquisitions, new

ventures, investments, allocation of scarce resources between business units.

Example:1.Dell acquires appleDell and apple both make PC- horizontal integrationDell makes PC. Apple makes operating systems for PC.-

diversification

Levels of strategy

Business strategy... Is concerned with how the firm competes within a particular

industry or market... To win a business unit must adopt a strategy that

establishes a competitive advantage over its rivals. Eg: advertisements

Functional strategy... The detailed deployment of resources at the operational

level. Eg: strategy adopted to buy goods will not be same when

the firm is selling its goods.

Strategic business unit

It becomes very cumbersome for an organization having multi-products and multi-businesses, to have separate planning treatment of each of its products/businesses.

To have better strategic planning, business products can be grouped into strategically-related business units known as SBU, so that they are manageable.

The concept of strategic business unit (SBU):

A scientific grouping of the businesses of a multi-business corporation which helps the firm in strategic planning.

Products/businesses within an SBU receive same strategic planning treatment and priorities.

The task consists of analyzing and segregating the assortment of business aspects and regrouping them into a few, well-defined, distinct, scientifically demarcated business units.

Grouping the businesses on SBU lines facilitates correct relative priorities and resources to the various businesses.

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Analyze internal environment

Analyze externalenvironment

Vision/Mission

Strategic Goals

Formulate Strategy

Strategic Competitivenessand Above-Average Returns

FeedbackFeedback Implement Strategy

Evaluate Strategy

Strategic Management Framework

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The Strategic Management Process

1. Internal and external analysis is done2. The strategic management actually

process begins with the strategist’s vision3. Next, long-term or corporate goals define

specific outcomes that an organization seeks to achieve in order to realize its mission

4. Strategy formulation specifies the strategies for achieving an organization’s objectives

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5. Strategy implementation takes place through the basic organizational architecture that makes things happen

6. The final phase, strategy evaluation, involves comparing expected outcomes with actual results after the implementation phase

Strategic management process (contd…)

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Analyzing the environment Involves being able to identify and interpret

emerging trends before they become evident to everyone else

It is essential to learn and understand:– The concerns of customers– The availability and bargaining power of suppliers

and customers– The actions of competitors– Market trends– Economic conditions– Government policies– Technological advances


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Analyzing the environment (cont.) Knowing what competitors are doing and how to

respond is clearly important to a firm’s survival Analyzing the internal environment focuses on

assessing an organization’s:– Market strength– Financial position– Capabilities– Core competencies– Culture– Structure


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Analyzing the environment (cont.) The combined analysis of the external

environment and internal environment is commonly referred to as SWOT (Strengths, Weaknesses, Opportunities, and Threats),

Accurate interpretation of both types of environments requires considerable analytical and cognitive skills, and plays a large part in the future actions and the continuing effectiveness of an organization


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Vision statement Is an ambitious view of the future that everyone in the

organization can believe in and that is not readily attainable, yet offers a future that is better in important ways than what now exists

A clear and inspiring vision serves a number of important functions:– Facilitates decision making– Inspires followers– Links the present to the past– Gives meaning to work, not just what, but why– Establishes a standard of excellence– Lays the foundation for the development of a mission

statement


Vision statement of the National Thermal Power Corporation (NTPC), India:

“To be one of the world’s largest and best power utilities, powering India’s growth”

Vision statement of TATA Power “To be the most admired and responsible

Integrated Power Company with international footprint, delivering sustainable value to all

stakeholders.”

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Mission statement Is an unique statement of purpose that

distinguishes one organization from other similar enterprises

Is the organization’s core purpose and reasons for existence

Features two components:– Core values– Core purpose


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Mission statement (cont.) Should be both broad and specific Can provide many benefits to an organization:

– Providing direction and focus– Forming the basis for objectives and strategies– Inspiring positive emotions about the organization– Helping resolve divergent views among employees


MISSION VISION

A Mission statement talks about HOW you will get to where you want to be. Defines the purpose and primary objectives related to your customer needs and team values.

What do we do today? For whom do we do it? What is the benefit? In other words, Why we do what we do? What, For Whom and Why?

A Vision statement outlines WHERE you want to be. Communicates both the purpose and values of your

business.

Where do we want to be going forward? When do we want to reach that stage? How do we want to do it?

DIFFERENCE BETWEEN VISION AND MISSION

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Corporate-level goals Are the desired long-term outcomes that an

organization seeks to achieve Include both financial and strategic goals Are essential because they help focus everyone

in the same direction Are the targets against which actual

performance is compared for strategy evaluation Create synergy


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Corporate-level goals (cont.) Are the means by which organizations reveal

their priorities Are the basis for effective planning, organizing,

leading, and controlling activities Organizations must take time to establish

“SMART” goals– Specific– Measurable– Achievable– Results-Based– Time-Specific


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Strategy formulation A strategy is an integrated plan of how an

organization will achieve its objectives A good strategy focuses on exploiting

opportunities in the organization’s external environment that match the organization’s strengths.

A good strategy must also reflect the core mission and objectives of the organization


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Strategy formulation (cont.) To maintain a competitive edge over rivals,

develop strategies that:– Enhance value to the customers

Value is the ratio of benefits received to the cost incurred by the customer

– Create synergistic opportunities– Build on the company’s core competence

A core competence is a capability that allows an organization to perform extremely well in comparison to competitors


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Strategy formulation (cont.) Core competencies are a source of competitive

advantage when they:– Are rare– Are hard to imitate– Are not easily substitutable– Create value for the firm

A knowledge-based competitive advantage is hard to imitate or copy by rivals because it resides in people, not physical assets


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Strategy implementation Effective strategy implementation means that

objectives have a greater chance of being met and thus results in better firm performance

Requires galvanizing the organization’s employees and managers at all levels to turn formulated strategies into action

Obstacles to effective strategy implementation– Lack of resources– Time


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Strategy implementation (cont.) Is considered the most difficult stage of the

strategic management process– Involves dealing with people who come with

varying levels of motivation, commitment, and dedication

Without appropriate implementation, the best of strategies can fail– Must be integrated into all organizational systems

including structure, culture, pay and reward systems, budget allocation, and organizational rules, policies, and procedures


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Strategy evaluation Is the primary means of determining the effectiveness

of the strategic management process Has three fundamental activities:

– Review internal and external factors– Measure performance against objectives– Corrective action

A popular tool used to measure the effectiveness of the strategic management process is the balance scorecard.


SWOT AnalysisS

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PORT FOLIO MATRIX

BOSTON CONSULTING GROUP (BCG) MATRIX is

developed by BRUCE HENDERSON of the BOSTON

CONSULTING GROUP IN THE EARLY 1970’s.

According to this technique, businesses or

products are classified as low or high performers

depending upon their market growth rate and

relative market share.

INTRODUCTION

• Market share is the percentage of the total market that is being

serviced by your company, measured either in revenue terms or

unit volume terms.

• Relative Market Share = Business unit sales this year

Leading rival sales this year

• The higher your market share, the higher proportion of the

market you control.

MARKET SHARE AND RELATIVE MARKET SHARE

MARKET GROWTH RATE

Market growth is used as a measure of a market’s

attractiveness.

MGR = Individual sales - individual sales

this year last year

Individual sales last year

Markets experiencing high growth are ones

where the total market share available is expanding, and

there’s plenty of opportunity for everyone to make money.

WHY BCG MATRIX ?

To assess :

Profiles of products/businesses

The cash demands of products

The development cycles of products

Resource allocation and divestment decisions

THE BCG GROWTH-SHARE MATRIX

It is a portfolio planning model which is based on

the observation that a company’s business units can

be classified in to four categories:

Stars

Question marks

Cash cows

Dogs

It is based on the combination of market growth

and market share relative to the next best

competitor.

STARS -High growth, High market share

Stars are leaders in business.

They also require heavy investment, to

maintain its large market share.

It leads to large amount of cash consumption

and cash generation.

Attempts should be made to hold the market

share otherwise the star will become a CASH

COW.

CASH COWS -Low growth , High market share

They are foundation of the company and often

the stars of yesterday.

They generate more cash than required.

They extract the profits by investing as little

cash as possible

They are located in an industry that is mature,

not growing or declining.

DOGSLow growth, Low market share

Dogs are the cash traps.

Dogs do not have potential to bring in much

cash.

Number of dogs in the company should be

minimized.

Business is situated at a declining stage.

QUESTION MARKS-High growth , Low market share

Most businesses start of as question marks.

They will absorb great amounts of cash if the

market share remains unchanged, (low).

Why question marks?

Question marks have potential to become star

and eventually cash cow but can also become a

dog.

Investments should be high for question marks.

MAIN STEPS OF BCG MATRIX

1. Identifying and dividing a company into SBU.

2. Assessing and comparing the prospects of each

SBU according to two criteria :

1. SBU’S relative market share.

2. Growth rate OF SBU’S industry.

3. Classifying the SBU’S on the basis of BCG matrix.

4. Developing strategic objectives for each SBU.

BCG matrix for ITC ltd.

ITC is formally known as Indian Tobacco

company.

Company is in to diverse business portfolio like

Hotels, Greetings, Cigarettes, Agarbatti,

Specialty papers, Agricultural business, Cloths,

Sports wear and InfoTech business.

STARHotels, papers, Agri business

? ? ?Agarbatti, Cloths

Cash CowCigarettes, FMCG

Dogs InfoTech

Low

LowHigh

High

MarketGrowthRate

Relative Market Share

Cash Usage

Cash Generation

BCG matrix for ITC ltd.

BCG matrix for MARUTI SUZUKI

Models available: Swift, Zen estillo, Swift Desire, sx4, grand vitara, A STAR, ALTO, 800, Wagon R, Versa, Baleno, Omni

STARSWIFT, ZEN ESTILO, DESIRE

? ? ?SX4, GRAND VITARA, A STAR

Cash Cow800, ALTO, WAGON R

Dogs BALENO, VERSA, OMNI

Low

LowHigh

High

MarketGrowthRate

Relative Market Share

Cash Usage

Cash Generation

BENEFITS

BCG MATRIX is simple and easy to understand.

It helps you to quickly and simply screen the opportunities open to you, and helps you think about how you can make the most of them.

It is used to identify how corporate cash resources can best be used to maximize a company’s future growth and profitability.

LIMITATIONS

BCG MATRIX uses only two dimensions, Relative market share and market growth rate.

Problems of getting data on market share and market growth.

THANK YOU