53971378 Strategic Management

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STRATEGIC MANAGEMENT

Atm Prakash Rai



INTRODUCTION

BUSINESS?

POLICY?

TACTICS?





Definitions of STRATEGY

Acc to Chandler: “ Strategy is thedeterminator of the basic long-term goals ofan enterprise, and the adoption of courses of

action and the allocation of resourcesnecessary for carrying out these goals.”

Acc to Mintzberg: “ Strategy is a mediatingforce between the organization and itsenvironment: consistent patterns in streamsof organization decisions to deal with theenvironment”



Characteristics of Strategy

The decisions are concerned with or effect theLong term direction of an organization.

Strategic decisions are normally about trying to

achieve some advantage for the organization. Matching the activities of an organization to the

environment in which it operates.

The decision has major financial and resource

implications. Major impact outside the organization.

The decision entails significant risks to thebusiness.



Strategy concepts

Distinctive Competence:-The special skills,capabilities, or resources that enable a firm to standout from its competitors; what a firm can doespecially well to compete or serve its customers.

Example- McDonald’s core business is hamburger(quality food and reasonable price).

Terrain:- The environment in which competition

occurs. In a military sense, terrain is the type ofenvironment or ground on which a battle takesplace. From a business sense, terrain refers tomarkets, segments, and products used to win overcustomers.



Strategy vs tactics

Aspects Strategy Tactics

Scale of Objectives Grand Limited

Scope of Action Broad and General Narrowly Focused

Guidance Provided General and Ongoing Specific and Situational

Degree of Flexibility Adaptable, but nothastily changed

Fluid, quick to adjust andadapt in minor or majorways.

Timing in Relation toAction

Before Action During Action

Focus of ResourceUtilization

Deployment Employment



UNIT 1

Business policy and strategic management



What is strategic management?

Definition:- “Strategic management is a streamof decisions and actions that lead to thedevelopment of an effective strategy orstrategies to help achieve corporateobjectives.” – By Glueck.



Strategic management

Where we are today (current position)?

Where we want to go (Vision)?

What actions should we take to go there (develop a plan or strategy)?

How can we bring out these actions (Implement strategy)?



Six Ingredients of Strategy

Strategy

Value Creation

Global

Awareness

Vision

LeveragingTechnology

Planning and

administration

Stakeholders



Value Creation

Value Proposition The products and servicesthat meet customer needs at a price thatgenerates a positive economic return.

Customer Focus right customer + rightproduct/services= Economic return.

Competitor focus Understanding thecompetitors.



Planning and Administration

Activity Fit Do we have all resources to performactivities?

Corporate Fit How to make our all business units to work

together?

Alliance Fit Are we have right partners and whether theirstrategies are compatible with us?

People Fit Are our people are trained and skilled?

Communication Fit Do we promote clear and honestcommunication among our people?



Strategic management model

Goal Setting

Strategymonitoring

StrategyImplementation

Strategy Formulation

Analysis



Strategic Management Process

The steps by which management converts afirm’s values, mission, and goals/objectivesinto a workable strategy.

It consists of FOUR stages: analysis,formulation, implementation, and

adjustment/evaluation.



Strategy Management Process

AnalysisExternal Environment Opportunities, Threats

Internal Environment Strengths, Weakness

Formulation Mission Customers to be servedCapabilities to bedeveloped.

Policies Goals, guidelines formajor activities.

ImplementationOrganization structure,systems, culture, etc.

Adjustment/ Evaluation (Cycle to earlier steps)



VMGS

VISION provides clear view of what firm is trying toachieve for its customers. It provides a direction of what theorganization seeks to do or acquire.

MISSION who we are and what we do.

GOALS are high level statements that provide overallcontext for what the project is trying to achieve and shouldalign to business goals. This is non-measurable.

OBJECTIVES What is to be accomplish? Time in which toaccomplish it. Quantified when possible.



Nature of Strategic Management

SM related to formal and organized sector, especially incorporate sectors.

Very comprehensive and covers all the areas of the corporate

business.

It is not specific but a holistic in nature.

Provides guidelines to all other functional areas.

Focuses into long-term goals, relatively broad.

SM is concerned to whole organization whereas operationmanagement is related to any specific functional area.



Importance of SM approach

Asks the manager about the goals of the organization and thestrategy to fulfill it.

Future cannot be controlled but it can be anticipated.

Each of the external environment shall either constrain orfacilitate an organization as it seeks to implement policy.

Managers must be sensitive to the needs and respond to

demands of constituents over whom they have little or nocontrol.

Concentrates on assuring a good fit between the environmentand the organization.



Strategy Levels In organization

Corporate Strategy Market definition Diversification into new product of geographicmarkets.

Business Strategy Market Navigation Attemptsto secure competitive advantage in existing productof geographic markets.

Functional Strategy Support of Corporate strategyand Business Strategy Information systems,human resource practices and production processesthat facilitate achievement of corporate andbusiness strategy.



Different types of

StrategiesCorporate Strategy Business Strategy Functional Strategy

Comes within ambit ofMultibusinessEnvironment

Comes within ambit ofsingle-businessenvironment.

Comes within the ambitof Concerneddepartment

What set of business orindustries should theorganization operate?

How do we buildcompetitive advantagefor this particularbusiness?

How to managedepartmental resourcesin an effective way.

PepsiCo owned KFC,Taco Bell, Pizza Hut.PepsiCo’s allocation ofresources andmanagement of therestaurant chain

HP joint venture withCompaq

Advertisement andPromotion, Right Sizing,IPO’s, Employee Benefit,etc

Tata Motors acquiring

Land Rover



Business and Corporate strategy

Multibusiness firm or Diversified firm General Electric in power generation, medicalequipment, plastic, lighting, water treatment,

financial services, home appliances, andtransportation industries, etc.

Single-business firm or undiversified firm

Afirm that operates only one business in one

industry or market. Example is Domino’s Pizza and Papa John’s International.



Corporate and StrategicPlanning

UNIT 2



Content

PLANNING

NATURE OF PLANNING

SCOPE OF PLANNING TYPES OF PLANNING

PROCESS OF PLANNING

STRATEGIC PLANNING DECISION MAKING



Planning

ACCORDING TO WILL IAM KING :

“ Planning is the process of thinkingthrough and making explicit the strategy,actions and relationships necessary toaccomplish an overall objectives or purpose.”



NATURE OF PLANNING

PLANNING IS GOAL-ORIENTED:

Planning is made to achieve the desired objectivesof the business.

PRIMACY OF PLANNING: Planning pervades all managerial activity,it is the

function of every manager.It facilitatesorganising,staffing,directing,and controlling .

PLANNING IS AN INTELLECTUAL PROCESS:

Planning is an intellectual process and the qualityof planning will vary according to the quality of the mindof the managers



SCOPE OF PLANNING

Management is basically concerned with

achieving the objectives of the business by

utilising the available resources and human

resources of the enterprise,by making optimumutilisation of resources.Attaining maximum results

with the minimum resources and the least wastage

is the ultimate end of every business,in order to

achieve the goal of the organisation.



TYPES OF PLANNING

STRATEGIC PLANNING: A strategic planning is a

framework for strategic thinking that he helps a school

stay competitive, live into its core value, ward off threats

and take advantage of opportunities.

OPERATIONAL PLANNING: To operationalize the vision

and mission of the school through specific workplace that

lead to shared responsibility and accountability of specific

goal.



FORMAL AND INFORMAL PLANNING: A planning in BLACK

and WHITE is known as formal planning. Informal planningis only thinking about it and nothing more.

CORPORATE PLANNING: The process of establishing

corporate objective and formulating the policies, strategies andresource allocation that will best achieve these objectives.

FUNCTIONAL PLANNING: FP is segmental, and it is

undertaken for each major function of the organisation likeProduction, Marketing, Finance, Human resource,etc.



SHORT TERM AND LONG RANGE

PLANNING: STP relates to a period of less than one year,MTP covers a period of over one year but less than three year.A planning between three to five years is known as long termplanning.

PROACTIVE PLANNING: PP involves designing suitablecourse of action in anticipation of likely changes in the relevantenvironment. In India, co’s like Reliance Industries, Hindustanlever,etc have adopted this kind of approach.

REACTIVE PLANNING: In RP, organisations’s response comeafter the environmental changes have taken place.After thechanges take place,organisations start planning.



PROCESS OF PLANNING

Collectingand analyzinginformation

Definingobjective

Setting theobjective

Determiningplanningpremises

Examining

and choicemakingDetermining

derivativeplan

Budgeting

Evaluateand followup



STRATEGIC PLANNING

Is a systematic effort to produce fundamentaldecisions and actions that shape and guide whata business organization is, what it does and why

it does it. The objective of strategic planning is todevelop a chart by which to manage anorganization’s positioning.

It requires significant amount of time and can be

quite frustrating . But if done properly, it can enable a firm to

recognize its most effective position within itsindustry.



BENEFITS OF STRATEGIC PLANNING

Defines the purpose, goals, objectives andtime frame.

Communication of goals and objectives totheir stakeholders.

Develop a sense of ownership.

Emphasis on the effective use of theresources.

Provides a base to measure the progress.



DECISION MAKING

ACCORDING TO R.S.DAVAR..

“Decision making may be defined as the

selection based on some criteria of one behavioralternative from two or more possible alternatives. To

decide means ‘to cut off’ or in practical content, ‘to

come’ to a conclusion.



CHARACTERISTICS OF A DECISION

Decision is the choice of the best course amongalternatives.

Decision is the end process preceded bydeliberation and reasoning.

Decision making is a mental process because thefinal selection is made after thoughtfulconsideration.

Decision is aimed at achieving the objectives of theorganisation.

Decision relates the means to the end.



DIFFICULTIES IN DECISION-MAKING

INCOMPLETE INFORMATION: Lack of information in decision-making, makes the process incomplete

.

INEFFECTIVE COMMUNICATION: IC makes implementationdifficult. The manager should therefore care to communicate alldecisions to the employees in clear, precise and simple language.

INCORRECT TIMING: If the decision is correct but the time isinopportune, it will not serve any purpose.

UN-SUPPORTING ENVIRONMENT: If there is all round goodwilland trust, the manager is encouraged to take decisions, On the otherhand, under the opposite circumstances he avoids decision-making.



UNIT 3

CORPORATE STRATEGY and ENVIRONMENTAL

ANALYSIS



In the half-century after the Second World War,the business corporation has brilliantly proveditself as an economic organization, i.e. acreator of wealth and jobs. In the next society,the biggest challenge for the large company – especially the multinational – will be its social

legitimacy; its values, its mission, its vision.—PETER DRUCKER



CONTENT

FORMULATION OF STRATEGY CORPORATE STRATEGY

FACTORS RESPONSIBLE FOR SHAPING THE

STRATEGY DIFFERENT TYPES OF STRATEGIES

ENVIRONMENTAL ANALYSIS

INTERNAL AND EXTERNAL ENVIRONMENT

TECHNIQUES FOR ENVIRONMENTALANALYSIS

ENVIRONMENTAL THREATS ANDOPPORTUNITY PROFILE.



Formulation of Strategy

1. Evaluate current Performance Results. Examine andEvaluate the Current :Mission, Objectives,Strategies, Policies.

2. Review Corporate Governance

3. Scan the external environment. Analyze Externalfactors: opportunities and threats.

4. Scan Internal environment. Analyze Internalfactors: strengths, weakness.

5. Select strategic factors in light of current situation.Review and revise as necessary.

6. Generate and evaluate strategic alternatives. Selectand recommend best alternatives.



Environment

All external forces, factors, or conditions that exertsome degree of impact on the strategies, decisions,and actions taken by the firm.

Types of Environment

• Macro or External environment :- The broadcollection of forces or conditions that affect everyfirm or organization in every industry (also known asgeneral environment).

•

Micro or Internal Environment:- PricingCompetition, Demand and supply scenario. Dealswith a particular business and CorporateGovernance.



Macro Environment

Aging Workforce

Health Consciousness

Changing cost of Capital or Interest rates

Technological Advancement

Declining Birthrates

Impact of Terrorism Foreign Competition



Types of Macro Environment

The Demographic Environment

Endowment Factors

The Political Environment

Gujrat and China political willingness

The Social/ Cultural Environment

Heterogeneous Workforce ManagementAnapoorna and Sandwich Generations in US.



Types of Macro Environment

The Technological Environment

3G vs 4G

IT revolution

IBM using ocean current to operate DataCenter.

The Global EnvironmentDuPont

UN conventions CTBT, Nuclear disarmament



Environmental Analysis

External or Macro Environment Analysis

PESTEL Analysis

Porter’s Diamond Model for Analysis

Industries and Sectors Analysis (Internal or microenvironment)

Porter’s 5 forces Analysis

Competitors and Markets analysis

Strategic Groups

Market Segments

Strategic Customers

Critical Success factors



PESTEL Analysis or STEEP

analysis

TheOrganization

Legal

Political EconomicFactors

Ecological

Technological

Socio-CulturalFactors



Some Important variables in the

Societal EnvironmentEconomic Technological Political-Legal Sociocultural

GDP trends Govt. R&Dspending

Antitrustregulations.

Lifestyle changes

Interest rates Total industryspending

Environmentalprotection laws

Careerexpectations

Money supply Focus oftechnologicalefforts

Global warminglegislation

Consumeractivism

Inflation rates Patentprotection

Immigration laws Rate of familyformulation

Unemploymentlevels

New products Tax laws Growth rate ofpopulation

Wage/pricecontrol

New technologydevelopmentfrom lab

Foreign traderegulation

Level ofeducation.

Disposable and Tecomm. Stability of Govt Birthrates.



Porter’s Diamond Model

Given by Michael Porter in his book “TheCompetitive Advantage of Nations”.

Suggests that there are inherent reasons whysome nations are more competitive thanothers, and why some industries within

nations are more competitive than others.




FirmStrategy,Structure

and Rivalry

FactorConditions

DemandConditions

Related andSupportingIndustries




Factor Condition:- In India there is availableendowment for BPO & KPO.

Demand Conditions:- Global demand

available. Related and Supporting Industries:- Plenty

software and IT cos existing in India.

Firm Strategy, Industry Structure andRivalry:- Rivalry from Infosys, TCS etc.

Scenario:-detailed and plausible view forfuture.



Corporate strategy

Plans and actions that firms need to formulateand implement when managing a portfolio ofbusinesses; an especially critical issue when

firms seek to diversify from their initialactivities or operations into new areas.Corporate strategy issues are key to extending

the firm’s competitive advantage from onebusiness to another.



Characteristics of Environment

Complexity (relatively easier to understand inparts but difficult to grasp in its totality).

Dynamic

Multi-faceted

Far-reaching Impact



Techniques to Monitor the

Environment

Environment Scanning (Porters’ model,SWOT, etc.)

Competitor intelligence gathering- how theservices differ, managers visiting competitorshotels to assess the difference in services

provides to the customer.



UNIT 4

CORPORATE APPRAISAL



CORPORATE APPRAISAL

To Identify opportunities and to neutralizethreats in the external environment, mangersmust thoroughly evaluate their firm’s

potential capability to compete.

We need to identify the firms capabilities andinternal analysis of strength and weakness.

Value Chain Analysis, Capability Driversanalysis and financial analysis.



The Value Chain



Primary Activities

Inbound Logistics : SCM major source to directcost. (warehousing, storage, and control of rawmaterials).

A reduction in inventory and storage costs overtime can have a major positive impact on a firm’scost position.

Ex: Hospitals, Restaurants, etc. need timely

supply of inputs. Internet based software to coordinate the supply

of inputs as to reduce cost to inventory.



Operations

The activities and procedure that transform rawmaterials, components and other inputs intofinished end products.

Specific task activities include stamping, machining,testing, fabrication, and assembling inmanufacturing based settings.

In telecomm firms operations are managing networkof routers, switches, and other gear that is breakdown of communication and the internet. USX’s USsteel unit and AK steel , Nucor built up a significantcompetitive position in steel industry by focusing onminimills- less cost and better quality.



Outbound Logistics

Transfer of finished end products to thedistribution channels.

Activities include Inventory control,

Warehouse, storage, and transport offinished products.

P&G has accelerated the timely delivery ofgoods that the retailers have troublestocking- use of bar coding they balance theflow of inventory and checks the demand ofthe product.(RFID is also advantageous.)



Marketing and Sales

Include advertising, promotion, product mix,pricing, specific distribution channels,working with wholesalers, and sales force

issues.

Example:- Coca-cola, McDonald’s, PepsiCohave effective marketing activities.



Service

Value is more often defined in the eyes of thecustomer rather than by what the firm thinksit has created.

Warranty, repair, installation, customerssupport, products adjustment andmodification, and immediate response tocustomer needs.

FedEx and UPS allow customers to track thestatus of their package online.

Telecos providing customer care number.



Support Activities

Procurement: Economies of Scale, Bargainingpower over suppliers.

Technology Development: Product andProcess Development

HRM: Training, job satisfaction, efficiency andquality. Hotel industry employee are trained

to be customer sensitive. Firm Infrastructure: Finance ,legal, location

etc.



Capability Drivers

The basic economic and strategic means bywhich a firm builds an underlying source ofcompetitive advantage.

1. First-moves Advantage

2. Economies of Scale

3. Interrelationships (Pepsi and Lays

advertisement )



First Mover Advantage

Patents: Xerox corporation

License: Walt Disney, McDonald’s provide for the toymanufacturing.

Location: New movie theatre near an existingcollege.

Channel access: Canned foods, beverages, breakfastcereal, diapers are distributed through supermarketswhich in turn give priorities to well known or first

come brands. Supply Access: Kellogg, Pillsbury are large purchaserof wheat and corn.

Reputation : Brand Image



Economies of Scale

Greater volume allows to take costadvantage.

a) Specialization

b) Fixed-cost Spreading: more units, decliningper unit cost.

c) Purchase discount

d) Vertical Integration



Interrelationships

Resource Transfer: Personnel in soft drink andother beverages businesses are highly skilledin activities such as market research, market

segmentation, consumer promotion, and TVadvertising can be used for snack food unit.

Activity Sharing: Multiple product with same

advertisement



Strategy and Competitive

Advantage

Low-cost leadership strategy: A competitivestrategy based on the firm’s ability to provideproducts or services at lower cost than its rivals.

Example: Whirlpool in washers and dyers, Wal-Mart in retailing, Gillette in razor blades.

Cost Drivers : An economical or technologicalfactors that determines the cost of performing

some activity. Cost drivers which shape low costleadership strategy are 1. Economies of Scale 2.Experience in the field 3. degree of VerticalIntegration 4. location of activity performed.



Strategy and Competitive

Advantage

Differentiation: Competitive strategy basedon providing buyers with something specialor unique that makes the firm’s product or

service distinctive. It is based on providingbuyers with something that is different orunique, that makes the company’s product or

service distinct from that of its competitors. Example: BMW and Mercedes in

automobiles, Sony in Consumer electronics.



Matching Strategies

Corporate

Strategy

Business

Strategy

FunctionalStrategy

OperationalStrategy



Functional Strategy

Is an approach a functional area takes toachieve corporate and business unit objectiveor SBU objective.

Strategic Business Unit (SBU): A division orgroup of divisions composed of independentproduct-market segments that are given

primary authority for the management oftheir own functions.



Functional Strategy

Marketing Strategy

• Market Development: Capturing larger sharemarket through marketsaturation/Penetration. Example: IDBI,Corporation Bank, IOB looking for MOU withTVS, L&T as to stop rural customers from

taking loan from the money lenders.• Line Extension

• Push and Pull Strategy



Functional Strategy

Financial Strategy: Financial implications ofcorporate and business level strategicoptions. It attempts to maximize the financial

value of the firm and aims to get competitiveadvantage through lower cost.

• Buyback: By Reliance Energy Ltd.(REL) in2007 for Rs 2000cr valued share @ Rs1600

per share.• Leveraged Buyout

• Debt-to-Equity ratio and Reverse Stock Splits



Functional Strategy

R&D strategy: Deals with product andprocess innovation and improvement.

• Technological Leader: focuses on new

technology, options open for lower cost.Example: NIKE spends more than most of thecompany in the industry on R&D todifferentiate the performance of its athletic

shoes.• Technological Follower: Same standard

produced but at lower cost.



Functional Strategy

HR strategy: Whether to hire large no. of lowskilled employees who receive low pay,perform repetitive jobs, and most likely quit

after short time (McDonald’s restaurantstrategy).

Satyam’s Rs 200000 bonds from the freshers.



UNIT 5

STRATEGY IMPLEMENTATION




The sum total activities and choices requiredfor the execution of a strategic plan.

It is the process by which objectives,strategies, and policies are put into actionthrough the development of programs,budgets, and procedures.

Poor implementation has been blamed for anumber of strategic failure.




To begin the implementation process,strategy makers must consider thesequestions:

WHO

WHAT

HOW

Implementation Vs Formulation



Implementation Vs Formulation

Strategy Formulation Strategy Implementation

Deals with locating the forces beforethe action takes place

Deals with the management of forcesduring the action.

Based on Effectiveness Based on Efficiency

Intellectual Process Operational Process

Requires good intuitive and analyticalskills.

Requires special motivation andleadership skills

Coordination among a few individuals. Coordination with many persons.



Prerequisite FOR STRATEGIC

IMPLEMENTATION

Developing Programs, Budgets, AndProcedures

Program: To make a strategy action oriented.Example: Six Sigma introduced by Motorola.One Sigma= 690000 defects per million. 6sigma reduces to 3.4 per million.

BudgetsProcedures



Organizational structure and

strategy implementation

Structure follow strategy (Structure InfluenceStrategy)

New strategy created

New administrative problems emerge Economic performance declines

New appropriate structure is invented

Profit returns to its previous level.

Example: In 1920 GM was restructured as“Centralized policy determination coupled withdecentralized operation management (max.freedom for product development)



Stages to organizational

structure Simple Structure: Little formal structure; the

entrepreneur directly supervise the activities ofevery employee; flexibility and dynamism are itsgreatest strength. Example Co-founderLawrence Ellision of Oracle

Functional Structure : Delegation of authorityrequired, specialized managers needed.

Divisional structure: Corporation using diverseproduct need this structure. CentralHeadquarters and decentralized operatingdivisions. Includes SBU. Example: GE and GM

i i l



Stages to organizational

structure Beyond SBUs:

Matrix Structure: Used by Philips, Boeing

Network Structure: Many activities areoutsourced. Nike, Reebok are example ofNetwork structure.

Cellular / Modular Structure: Is composed of

cells(self-managing teams, autonomousbusiness units, etc.)

St t i l t ti th h



Strategy implementation through

staffing Selection and use of employees to meet the

organizational goals.

Implementation of new strategies and policies callsfor new HRM priorities and a different use of

personnel. When a corporate follows a growth through

acquisition strategy, it may find that it needs toreplace several managers in the acquired company.

In a study of 40 mergers, 90% of the acquiring cos inthe 15 successful mergers identified key employeesand targeted them for retention within 30 days afterthe announcement. In contrast, this task was carriedout in one-third of the acquisitions.

di h



Leading the strategy

implementation Implementation also involves leading

through coaching people to use their abilitiesand skills most effectively to achieve

organizational objectives. Without direction,people tend to do their work according totheir personal view of what task should be

done, how, and in what order. Managing the corporate culture(Integration,

Assimilation, Seperation, Deculturation)

St t i l t ti d



Strategy implementyation and

culture ‘Culture is most commonly used in three basic

senses1) The set of shared attitudes, values goals and

practices that characterizes an institution,

Organization or group.2) An integrated patterns of human knowledge,beliefs and behavious that depends up on thecapacity for Symbolic thought and social learning.

3) Excellence of taste in the fine arts and

humanities. “An ordered system of meaning and of symbols interms of which social interaction take place” (CliffordGeertz 1973).

St t i l t ti d



Strategy implementation and

organizational culture

In today’s dynamic business world, strategiesare dynamic. Hence, it is but logical that yourorganizational culture has to be dynamic too.

It needs to adapt to the demands ofbusiness. In such cultures, all employees haveconfidence in the teams ability to meet any

challenge.

P t li A l i



Portolio Analysis

The business portfolio is the collection ofbusinesses and products that make up the company.The best business portfolio is one that fits thecompany's strengths and helps exploit the most

attractive opportunities.The company must:

(1) Analyse its current business portfolio and decidewhich businesses should receive more or lessinvestment, and

(2) Develop growth strategies for adding new productsand businesses to the portfolio, whilst at the sametime deciding when products and businesses shouldno longer be retained.

P tf li A l i



Portfolio Analysis

The two best-known portfolio planning methodsare the Boston Consulting Group PortfolioMatrix and the McKinsey / General ElectricMatrix . In both methods, the first step is to

identify the various Strategic Business Units("SBU's") in a company portfolio. An SBU is a unitof the company that has a separate mission andobjectives and that can be plannedindependently from the other businesses. AnSBU can be a company division, a product line oreven individual brands - it all depends on howthe company is organised.

B i Mi f ITC Ltd

http://tutor2u.net/business/strategy/bcg_box.htm








Business Mix of ITC Ltd.

FMCG

• Cigar ettes

• Foods

•Lifestyle Retailing

• Greeting, Gifting &Stationery

•Safety Matches

• Agar battis

Paperboards & Packaging

•Paperboards &Specialty Papers

•Packaging



Agri - Business

• Agri-Exports

• e- Choupal

•Leaf Tobacco

Hotels

Group Companies• ITC Infotech; etc.



Vision & Mission statements

Vision: Sustain ITC’s position as one of India’smost valuable corporations through world class

performance, creating growing value for theIndian economy and the Company’sstakeholders.

Mission: To enhance the wealth generatingcapability of the enterprise in a globalizingenvironment, delivering superior andsustainable stakeholder

C d i 2005 2008



Cagr during 2005-2008

Category CAGR Growth Parameters

Cigarettes 10.9% Pricing Power

Hotel 22.7% Inward traffic, Occupancy

Paper 17.2% Capacity Utilization,

Value Added ProductsAgri-business 34.3% E-choupal, Choupal sugar

FMCG 60.2% Fast track, decent share

M k t h f it ltd



Market share of itc ltd.

Outstanding market leaderCigarettes,Hotels, Paperboards, Packaging and Agri-Exports.

Gaining market shareNascent businessesof Packaged Foods & Confectionery, BrandedApparel and Greeting Cards



Segment Dominance Revenue % PBIT %

Cigarettes 70% share 77.0% 87.7%

Hotels Rank no.2 4.3% 5.4%

Papers Packaging board

no.1 in Asia

7.3% 10.7%

Agri-Business 1 among thelargest exportersin India

7% 3.7%

FMCG Aashirvaad Atta

no.1 in brandedsegment

4.4% -7.5%



BCG matrix itc ltd



BCG matrix-itc ltd.

•Hotels•Paper & Packaging•Agri-Business

•FMCG

•Cigarettes ITC infotech

The McKinsey / General Electric



The McKinsey / General Electric

Matrix

The McKinsey/GE Matrix overcomes a number ofthe disadvantages of the BCG Box.

Firstly, market attractiveness replaces market

growth as the dimension of industryattractiveness, and includes a broader range of

factors other than just the market growth rate.

Secondly, competitive strength

replaces market share as the dimension bywhich the competitive position of each SBU is

assessed.

Factors that Affect Market



Factors that Affect Market

Attractiveness Whilst any assessment of market attractiveness is

necessarily subjective, there are several factorswhich can help determine attractiveness. These arelisted below:

- Market Size- Market growth- Market profitability- Pricing trends- Competitive intensity / rivalry

- Overall risk of returns in the industry- Opportunity to differentiate products and services- Segmentation- Distribution structure (e.g. retail, direct, wholesale

Factors that Affect Competitive



Factors that Affect Competitive

Strength

Factors to consider include:

- Strength of assets and competencies- Relative brand strength

- Market share- Customer loyalty- Relative cost position (cost structure comparedwith competitors)- Distribution strength- Record of technological or other innovation- Access to financial and other investmentresources



Strategic implications




Plot the information



Plot the information-

mckinsey Market size is represented by the size of the

circle.

Market share is shown by using the circle as

the pie chart

The expected future position is portrayed bythe arrow.





Grow-Strong business unit in attractiveindustries, average business unit in attractiveindustries, and strong business unit in averageindustries.

Hold-Average business in average industries,strong business in weak industries and weakbusiness in strong industries.

Harvest-weak business in unattractiveindustries, average business in unattractiveindustries, and weak business unit in averageindustries.



Advantages of portfolio



Advantages of portfolio

analysis It encourages top management to evaluate each

of the corporation’s businesses individually and

to set objectives and allocate resources for each.

It stimulates the use of externally oriented datato supplement management’s judgment.

It raises the issue of cash-flow availability for use

in expansion and growth.

It graphic depiction facilitates communications.

Limitations of portfolio



Limitations of portfolio

analysis Defining product/market segments are

difficult.

It suggests the use of standard strategies that

can miss opportunities or be impractical. It provides an illusion of scientific rigor when

in reality positions are based on subjective judgments.

It is not always clear what makes an industryattractive or where a product is in its lifecycle.



Business strategy



Business strategy

Porter’s Competitive Strategy: The firm’scompetitive advantage in an industry isdetermined by its Competitive Scope- the

breadth of the business unit’s or company’starget market. Before choosing the below 2strategies the firm must choose the range ofproduct varieties it will produce.

• Lower Cost strategy

• Differentiation Strategy

Business Unit Strategy



Business Unit Strategy

Cooperative Strategy: A company can gaincompetitive advantage within an industry byworking with other firms. The 2 general types

of Cooperative strategy are :1. Collusion

2. Strategic Alliance

Collusion



Collusion

A non-competitive agreementbetween rivals that attemptsto disrupt the market'sequilibrium. By collaboratingwith each other, rival firms lookto alter the price of a good to

their advantage. The parties may collectively

choose to restrict the supply of agood, and/or agree to increaseits price in order to maximizeprofits. Groups may also collude

by sharing private information,allowing them to benefit frominsider knowledge.

Collusion



Collusion…

Indian wholesale grain market ischaracterized by large numbers of sellers andrelatively small numbers of buyers. This

imbalance provide ample opportunities formanipulation of the otherwise transparentprice formation process.

Collusion are of 2 types: 1.) Explicit Collusion2.) Tacit Collusion

Explicit collusion



Explicit collusion

A formal, usually secret, collusion agreementamong competing firms (mostly oligopolistic

firms) in an industry designed to control the

market, raise the market price, and otherwise actlike a monopoly. Also termed overt collusion, the

distinguishing feature of explicit collusion is a

formal agreement. This should be contrasted

with implicit or tacit collusion that does notinvolve a formal, explicit agreement.

Strategic Alliance



Strategic Alliance

One of the fastest growing trends forbusiness today is the increasing number ofstrategic alliances.

For small businesses, strategic alliances are away to work together with others towards acommon goal while not losing theirindividuality. Alliances are a way of reaping

the rewards of team effort - and the gainsfrom forming strategic alliances appear to besubstantial.

Strategic alliance



Strategic alliance

Mutual Service Consortium- Fairly weak anddistance alliance- appropriate for partnersthat wish to work together but not share their

core competencies. Example: IBMestablished a research alliances with sonyElectronics and Toshiba to build ‘cell’ chip, amicroprocessor running at 256 gigaflops.There is little interaction or communicationamong the partners.

Strategic Alliance



Strategic Alliance

Joint Venture: An independent business entity iscreated from the separate organizations for thestrategic purpose. Example: Maruti udyog ltdand Suzuki Motor Corporation in 1982.

Licensing Arrangements- Yum!brands successfully used franchising and licensing toestablish its KFC, Pizza Hut, Taco Bell, etc.

A value-chain partnership- To improve the

quality of parts it purchases, companies in theU.S auto industry , for example, have decided towork more closely with fewer suppliers and toinvolve them more in product design decisions.

Strategic Alternative



Unit 6

Strategic Alternative

Strategic alternative (TOWS



Strategic alternative (TOWS

matrix)

InternalFactors

External factors

Strengths (S)List 5-10 internalstrengths here

Weakness (W)List 5-10 internalweakness here

Opportunities (o)List 5-10 externalopportunities here

SO strategiesGenerate strategies herethat use Strengths totake advantage ofOpportunities.

WO strategiesGenerate strategies herethat take advantage ofOpportunities byovercoming Weakness.

Threats (T)List 5-10 external threatshere

ST strategiesGenerates strategieshere that use Strengthsto avoid Threats.

WT strategiesGenerate strategies herethat minimize Weaknessand avoid Threats.

Stability strategy



Stability strategy

A corporate may choose stability over growthby continuing its current activities withoutany significant change in direction.

They are very popular with small businessowners who have found a niche and arehappy with their success and the manageable

size of the firms. It can be very useful in short run, but they can

be dangerous if followed for too long,

Stability strategy



Stability strategy

1. A pause/proceed with caution strategy- DELL followedthis strategy after achieving 285% growth in 2 years.

2. No change strategy-a choice to continue currentoperations and policies in foreseeable future. The relativestability created by the firm’s modest competitive positionin an industry facing little or no growth encourages thecompany to continue on its current course, making onlysmall adjustments for inflation in its sales and profitsobjectives.

3. The profit strategy is an attempt to artificially supportprofits when a company’s sales are declining by reducinginvestment and short term discretionary expenditure.

Retrenchment startegy



Retrenchment startegy

Retrenchment is a corporate-level strategy that seeks toreduce the size or diversity of an organization's operations.Retrenchment is also a reduction of expenditures in orderto become financially stable.

Retrenchment is a pullback or a withdrawal from offering

some current products or serving some markets. Retrenchment is often a strategy employed prior to or as

part of a Turnaround strategy.

The Retrenchment strategies can further be classified intoTurnaround Strategy, Captive Company Strategy, Sell-

out/Divestment Strategy and Bankruptcy/Liquidationstrategy.

Turnaround strategy



Turnaround strategy

The overall goal of turnaround strategy is toreturn an underperforming or distressed

company to normal in terms of acceptable levels

of profitability, solvency, liquidity and cash flow. To achieve its objectives, turnaround strategy

must reverse causes of distress, resolve the

financial crisis, achieve a rapid improvement in

financial performance, regain stakeholdersupport, and overcome internal constraints and

unfavourable industry characteristics.

Turnaround strategy



Turnaround strategy

Contraction is the initial effort to quickly “stopthe bleeding” with a general, across the board

cutback in size and costs. Example : Howard

Stringer, CEO, Sony Corporation in 2005eliminated 10,000 jobs , closed 11 of 65 plants

and divesting many unprofitable businesses.

Consolidation implements a program to

stabilize the now-leaner corporation. Plans aredeveloped to reduce unnecessary overhead and

to make functional activities cost-justified.

Captive Company strategy



p p y gy

Involves giving up independence in exchange forsecurity. A cos with a weak competitive positionmay not be able to engage in a full-blownturnaround strategy.

Example: To become the sole suppliers of anauto part to GM , Simpson Industries ofBirmingham, Michigan, agreed to let a specialteam from GM inspect its engine parts facilitiesand books and interview its employees . Inreturn, nearly 80% of the company productionwas sold to GM through long term contracts.

Sell-out/divestment strategy



/ gy

Sell-Out strategy- makes sense if managementcan still obtain a good price for its shareholdersand the employees can keep their jobs by sellingthe entire company to another firm. Example :

Marginal performance in a troubled industry wasone reason Northwest airlines was willing to beacquired by Delta Airlines in 2008.

Divestment Strategy – If the corporation hasmultiple business lines and it chooses to sell off adivision with low growth potential. Example:Ford sold its Jaguar and Land Rover units to TataMotors in 2008 for $2b.

Bankruptcy/liquidation



p y/ q

strategy Bankruptcy involves giving up management

of the firm to the courts in return for somesettlement of the corporation’s obligations.

Example: Lehman Brothers filed in 2008. Liquidation strategy seeks to convert as

many saleable assets as possible to cash,

which are distributed to the shareholdersafter all obligations are paid.

DIVERSIFICATION STRATEGIES



According to strategist Richard Rumelt,companies begin thinking aboutdiversification when their growth has

plateaued and opportunities for growth in theoriginal business have been depleted.

The two basic diversification strategies are:

1. Concentric (Related) diversification2. Conglomerate(Unrelated) diversification

Concentric diversification



Type of diversification where a firm acquiresor develops new products or services (closelyrelated to its core business or technology) to

enter one or more new markets. Example:passengers cars and sports vehicles

Conglomerate diversification

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Type of diversification whereby a firm enters(through acquisition or merger) an entirelydifferent market that has little or

no synergy with itscore business or technology.

Example: Tata Groups

Strategic choice process

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g p

Strategic choice is the evaluation of alternativestrategies and selection of the best alternative.

Key reasons for blunders:

1. Speedy actions leads to a rush to judgment.

2. They apply failure prone decision makingpractices such as adopting the claim of aninfluential stakeholders,

3. They make poor use of resources by

investigating only one or two options.4. Depended on past experience while devising

strategic alternatives.

Strategic Choice process….



g p

When an organization is facing a dynamicenvironment, the best strategic decisions are notarrived at through consensus.

Two techniques help strategic managers avoid the

consensus traps, are:1. Devil’s Advocate

2. Dialectric Inquiry- requires that two proposalsusing different assumptions be generated for eachalternative strategy under consideration. Advocates

of each position debate the merits of theirarguments, either one or compromised alternativeis selected.

Strategic Intent



g

Strategic intent refers to the purposes theorganization strives for. These may be expressed

in terms of a hierarchy of strategic intent.

The framework within which firms operate,adopt a predetermined direction and attempt to

achieve their goal is provided by a strategic

intent.

The hierarchy of strategic intent covers thevision, mission, business definition, business

model and the goals and objectives.

Strategic choice



What Optionsare available?

g

Options of

method onhow to progress

Options about

products, marketsand services

Options to improve

resources &capabilities

Making the Choice

Choice Criteria-Assessment

-Intent TheoreticalFrameworks for

makingstrategic choice

Who should beinvolved inthe Choice?

Linking into available strategic options

Chosen Strategy

Evaluation and control



process Evaluation and control information consists

of performance data and activity reports.

Performance is the end result of activities

and Processes. Evaluation and control information must be

relevant to what is being monitored.

Performance Evaluation is the basis for theControl.

Performance Indicators



ROI, EPS are appropriate for evaluating acorporation’s or a division’s ability to achievea profitability objective. But it can be

calculated after the profits are totaled for aperiod.

To predict the future profitability, Steering

Controls are used. Example: Airlinescalculate cost per passenger mile.

Types of CONTROL



Input Control- emphasize resources, such asknowledge, skills, abilities, values, and motives ofemployees.

Behavior Control- specify how something is to be

done through policies, rules, standard operatingprocedures, and orders from a superior. Example:Sales call to potential customers.

Output Control- Specify what is to be accomplished

by focusing on the end result of the behaviorsthrough the use of objectives and performancetargets or milestones. Example: Sales Quotas, profitobjectives.

Activity based costing



ABC is a recently developed accountingmethod for allocating indirect and fixed coststo individual products or product lines based

on the value-added activities going into thatproduct.

Strategy in Global environment



UNIT 7

Global strategy



Globalization refers to growth of trade and investment,accompanied by the growth in international businesses,and the integration of economies around the world.

Managers must be conscious that markets, supplies,investors, locations, partners, and competitors can be

anywhere in the world. Successful businesses will takeadvantage of opportunities wherever they are and will beprepared for downfalls.

For example, Japanese electronics and automobiles arecommon in Asia, Europe, and North America, while U.S.

automobiles, entertainment, and financial services are alsocommon in Asia, Europe, and North America.

Global strategy



Companies have become transnational or multinational-that is,they are based in one country but have operations in others.

For example, Japan-based automaker Honda operates the largestsingle factory in the United States, while U.S. based Coca-Colaoperates plants in other countries including France and Belgium—

with about 80 percent of that company's profits come fromoverseas sales.

In developing appropriate global strategies, managers need to takethe benefits and drawbacks of globalization into account. A globalstrategy must be in the context of events around the globe, as well

as those at home.

Differences Between Domestic



and International Strategy Factors Domestic conditions Global conditions

Culture Homogeneous Heterogeneous

Currency Uniform Different exchange rates

Economy Stable and uniform Variable andunpredictable

Government Stable May be unstable

Labor Skilled workers available May be hard to find

Language Generally single Different languages anddialectic

Marketing Many media and fewrestrictions

May be fewer media andmore restrictions

Documents

53971378 Strategic Management