BPCS-Slides 17mar2010 3

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STRATEGIC MANAGEMENT

•DEFINITION

•A UNIFIED

•COMPREHENSIVE and•INTEGRATED PLAN

The above relates to the strategic

advantages of the firm to thechallenges of the Environment.



ESSENTIAL ELEMENTS

• Most important objectives to be achieved

• Most Significant policies guiding or limitingaction and

• Major action sequences that are toaccomplish the defined goals within thelimits set.



CRITERIA – EFFECTIVESTRATEGIES

• CLEAR OBJECTIVES

• MAINTAINING THE INITIATIVE

• CONCENTRATION

• FLEXIBILITY

• CO-ORDINATED AND COMMITTEDLEADERSHIP

• SURPRISE – ( Speed, Secrecy and intellignece)• SECURITY – ( Develop resources required)



NEED FOR STRATEGY

• GUIDE FOR NEW OPPORTUNITIES

• HIGH QUALITY PROJECT DECISIONS

• TO MEASURE A PARTICULAR OPPORTUNITY

• ASSURANCE ON FIRM’S RESOURNCE ALLOCATION

• DEVELOP INTERNAL ABILITY• SAVE TIME, MONEY AND EXECUTIVE TALENT ( E.G PAPER –

RECYCLE)

• To IDENTIFY, DEVELOP AND EXPLOIT POTENTIALOPPORTUNITIES.

• TO UTILIZE THE DELAY PRINCIPLE THAT IS DELAY THECOMMITMENT UNTIL AN OPPORTUNITY IS ON HAND.



MANAGER CONSIDER THE KEY AREASIN DEVELOPING A STRATEGY

• THE TYPE OF GOODS AND SERVICES

• MODE OF PRODUCING GOODS ANDRENDERING SERVICES

• FIND – WHO ARE WILL BE FIRM’SCUSTOMER

• THE METHODS OF FINANCING THE

VARIOUS OPERATION OF THE FIRM• METHOD OF IMPLEMENTING THE

STRTEGY.



STRATEGIC MANAGEMENT

• DEFINITION

• SET OF DECISIONS AND ACTIONS

• RESULTING IN FORMULATION ANDIMPLEMENTATION OF

• DESIGNED STRATEGIES TO ACHIEVE

THE OBJECTIVES OF ANORGANIZATION.



HIERARCHY OF STRATEGICINTENT

• VISION• A DESCRIPTIVE IMAGE OF WHAT A COMPANY WANTS TO BE

OR WANTS TO BE KNOWN FOR IN FUTURE.• EXAMPLE : BHEL - A World Class innovative, competitive and

Profitable engineering enterprise providing total business solution.• MISSION• MISSION REVEALS THE LONG TERM VISION OF AN

ORGANIZATION IN TERMS OF WHAT IT WANTS TO BE, WHEREEXACTLY IT WANTS TO GO , AND WHOM IT WANTS TO GO,AND WHOM IT WANTS TO SERVE.

• EXAMPLE : ONGC - To stimulate, Continue and accelerate effortsto develop and maximize the contribution of the energy sector to the

economy of the country.,



STRATEGIC PLANNING

• NECESSITY FOR PLANNING

• OPERATE

• SURVIVE and• PROGRESS in a highly dynamic

environment where change is the rule, not

the exception.



LEVELS OF STRTEGIES

CORPORATE OFFICE

SBU - 1 SBU - 2 SBU - 3

PRODUCTION MARKETING FINANCE PERSONNEL



LEVELS OF STRATEGIES

• CORPORATE LEVEL – SP• Strategy at this level is typically developed by top

management• ( Board of Directors, CEO etc)

• BUSINESS LEVEL – SP• At this level are aimed at deciding the competitiveadvantage, market situations, allocation of resources

and coordinating functional level

• FUNCTIONAL LEVEL - SP• Process of determining policies and procedures for

different functions of an enterprise.



DIMENSIONS OF STRATEGICDECISIONS

• TOP MANAGEMENT INVOLVEMENT

• ALLOCATION OF MORE RESOURCES

• EFFECT AN LONG – TERMPROSPERITY OF THE FIRM

• FUTURE ORIENTED

• MULTI-FUNCTIONAL OR MULTIBUSINESS CONSEQUENCES

• FOCUS ON EXTERNAL GROUPS



ELEMENTS OF STRTEGICMANAGEMENT PROCESS

• DEFINING THE VISION OF THE COMPANY

• DEFINING THE MISSION OF THE COMPANY

• DETERMINING THE PURPOSE OR GOALS

• DEFINING THE OBJECTIVES

• ENVIRONMENT SCANNING• Carrying out corporate appraisal

• Developing Strategic alternatives

• Selecting a Strategy

• Formulating detailed strategy

• Preparing a Plan• Implementing a Strategies

• Evaluating a Strategy



STRATEGIC PLANNINGPROCESS

• Clarifying the Mission of the Corporation

• Defining the business

• Surveying the Environment• Internal appraisal of the firm

• Setting the Corporate Objectives

• Formulating the Corporate Strategy• Monitoring the Strtegy



Merits – Corporate StrategicPlanning

• Clear Road Map

• Shows the way for achieving targets

• Optimal utilization of resources• Respond to Environment changes in a

better way

• Utilizing the Opportunities• Avoiding Costly mistakes in Investment

decisions



Merits – Corporate StrategicPlanning

• Organizations control on activities

• Frame work for internal communication

• Integrate the behaviour into a total effort

• Encouragement towards forward thinking

• Encourages a favourable attitude towardschange

• CSP provides a co-operative , integratedand enthusiastic approach for handlingproblems and realizing opportunities.



Demerits – Corporate StrategicPlanning

• More Time Consuming

• CSP – More Expensive

• More than the adequate resources are taken

• Often changes will be taken place

• Proximity of miscommunication

• Certain Individual behaviour not suit for CSP

• Lack of Co-Operation



Organization’s Environment

• COMPONENTS OF EXTERNALENVIRONMENT

• Economic Environment (@ interest, Savings & Income

Distribution)• Social and Culture Environment ( Attitude, beliefslifestyle)

Demographic factor – Population, age, literacy level

Social factor – beliefs, rituals

• Political Environment

• Legal Environment



COMPONENTS OF EXTERNALENVIRONMENT

• Technology Environment

• National Environment – (Geographicalarea)

• International Environment ( china Product)



COMPONENTS OF INTERN`ALENVIRONMENT

• Organisational Aspects

• Marketing Aspects

• Financial Aspects• Personnel Aspects

• Production Aspects

• Managerial Aspects



General Environment Scanning

• Environmental analysis or scanning is aprocess by which organizations monitortheir internal and external environment to

spot opportunities and threats affectingtheir business.

• The basic purpose is to help management

determine the future direction of theorganization.



General Environment Scanning

Environmental scanning include the following

• Internal Sources

World Development report – World Economic Survey – Statistical Year Book etc.

• Government SourcesCensus of India – Five Year Plan – Indian Year Book – Economic Survey

RBI Bulletins – Indian Trade Journal

• Other Sources

BSE – Kothari Industrial Directory – Economic Times – CRISIL Research Report



STRENGTHS AND WEAKNESSESANALYSIS

• Organizational analysis requires data andinformation about the internalEnvironment.

• A SWOT analysis consists of evaluating acompany’s internal strength and weakness

and its external opportunities and threats.



STRENGTHS AND WEAKNESSESANALYSIS

• Identifying Strengths and

Weakness

• Distinctive / Core Competencies• Identifying Opportunities and

Threats• Strategic Cost Analysis



PORTFOLIO ANALYSIS

• THE CORE AIM OF MANAGEMENT ISDEPOLOYING RESOURCES IN THEIRBEST COMBINATION TO CREATE

PROFITS AND TO ACCOMPLISH A SETOF OBJECTIVES.

• THE STRATEGY MANAGER IS ALWAYSIN SEARCH OF WAYS AND MEANS FOROPTIMISING DEPLOYMENT OFVARIOUS RESOURCES



THE JOB OF THE STRATEGY

MANAGER IS TO DRAW APICTURE OF ALL HAPPENINGS

FOR BETTER COMPREHENSION,AND UNDERSTANDING VARIOUSOPERATIONAL EQUATIONS OF

CASH FLOW , FINANCIALREQUIREMENTS, ETC



WHEN A COMPANY HAS VERY COMPLEX AND

MULTITUDES OF OPERATIONS, THE PROBLEMBECOMES MULTIDIMENSIONAL AND THERE ARE

COMPELLING NEEDS TO ACCOUNT FOR VARIOUSDIMENSIONS AND TAKE DECISIONS ON RESOURCES,

CASH FLOW, FINANCIAL REQUIREMENTS ETC. THEAPPROACH ESSENTIALLY HAS TO BE HOLISTIC

RATHER THAN CONCENTRATING INDIVIDUALLY ONEACH BUSINESS. THIS MULTIPRONGED ( POINTED

PARTS OF A FORK) APPROACH IS CALLED

PORTFOLIO ANALYSIS.



KEEPING RATE OF RETURNS ON

INVESTMENTS ARE IN THE FORM OFRESOURCES, THE OBJECTIVE OF A

MANAGER IS TO ANALYSE THE

CORPORATION AS A WHOLE,CONSIDERING DIFFERENT BUSINESS INWHICH IT IS INVOLVED TO MAKE BEST

USE OF RESOURCES TO DERIVE DESIREDBENEFITS. THIS KIND OF ANALYSIS IS

CALLED AS PORTFOLIO ANALYSIS



PORFOLIO ANALYSIS IS DONE TO MAXMISE THE RATEOF RETURN BY ANALYSING THE PRESENT RESOURCE

ALLOCATION AND CONTINUAL EVALUATION FORFUTURE IMPLICATION AND TAKING DECISIONS ON

PRODUCTS AND OPERATIONS THAT REQUIREEXPANSION, CLOSURE, OR CURTAILMENT.

A COMPANY THAT OPERATES IN AN INVIRONMENT ISFACED BY COMPETITIVE STRATEGIES OF OTHER

COMPANIES AND HENCE PORTFOLIO ANALYIS ALSOTAKES INTO ACCOUNT THE COMPANY’S CORE

COMPETENCIES, RESOURCE ALLOCATION ANDSPECTRUM OF CHARACTERSTICS OF THE INDUSTRY



BALANCING OF CORPORATIONPORTFOLIO

Portfolio analysis is done with a view to

balance the investment of a

corporation in different products,business or industries.

When there is a lot of diversification in

investments in limited markets it isfound to be very useful.



The balancing is to be done withregard to three basic aspects

• 1. CASH FLOW REQUIREMENTS

• - The cash flow patterns in variousbusiness is different in different stages andportfolio analysis attempts to balance the

cash flow in each business



2. DEVELOPMENT

• INNOVATION AND PRODUCT DEVELOPMENTARE A NECESSITY FOR A COMPANY FORITS SURVIVAL, GROWTH, AND PROFITS

GENERATION. A COMPANY FOLLOW APRODUCT LIFE CYCLE i.e. A PRODUCT ISCREATED TO SATISFY A NEED OF ACUSTOMER, IT MATURES AND FINNALLY

DECLINES. COMPANY INVESTMENTREFQUIRED BASED ON EACH CATEGROYAND RETURNS ARE BALANCED.



3. RISK INVOLVED

• ONE CANNOT OPERATE IN A TOTALLY RISKYENVIRONMENT OR IN A TOTALLY SAFEENVIRONMENT AS BOTH THESE EXTREMES AREONLY THEORETICAL IN NATURE. COMPLETE

ELIMINATION OF RISKS MAY BE QUITE EXPENSIVEAND NOT DESIRABLE AND SAME TIME OPERATINGIN A TOTALLY RISK FRE ENVIRONMENT MAY LEADTO LOWER RETURN THAN EXPECTED. A COMPANYTRIES TO BALANCE INVESTMENTS AND

ADDITIONAL CASH FLOWS IN DIFFERENTBUSINESS SUCH THAT RISKS ARE REDUCED ANDBALANCED IN DIFFERENT PRODUCTS ANDSERVIECS.





BCG MATRIX

• HIGH GROWTH – LOW MARKET SHARE

• HIGH GROWTH – HIGH MARKETSHARE

• LOW GROWTH – HIGH MAREKT SHARE

• LOW GROWTH – LOW MARKET SHARE



GENERIC STRATEGIES

• THE COMPETITIVE STRATEGY INCLUDES ALL THEMOVES AND APPROACHES.

• THE MAIN REASON FOR TAKING COMPETITIVESTRATEGY IS

• TO ATTRACT BUYERS

• TO WITHSTAND COMPETITIVE PRESSURES

• TO IMPROVE MARKET POSITION



GENERIC STRATEGIES

• GS STRATEGIES CAN BE BROADLY DIVIDED INTOTHE FOLLOWING THREE CATEGORIES.

• STRIVING TO BE THE OVERALL LOW-COSTPRODUCER IN THE INDUSTRY ( Low Cost leadershipstrategy)

• SEEKING TO DIFFERENTIDATE ONE’S PRODUCT ( A

differentiation strategy)

• Focusing on a narrow portion of the market rather thanthe whole market ( a focus or niche strategy)



A LOW COST LEADRSHIPSTRATEGY

• The low cost strategy is a powerfulapproach in markets where most of thecustomers based on price.

• The main purpose• To fix the price at lower level compared to competitors

• To gain maximum market share

• To earn high profit margin and thus maximize the profits

• WAYS TO ACHIEVE COST ADVANTATE

• Managing rivals on efficiency and cost control

• Finding creative ways to cut cost in Production process



A LOW COST LEADRSHIPSTRATEGY

• STEPS IN MINIMIZE COST

• PROPER APPRAISAL OF PRODUCTION

FACTORS• FIND CONTROLLABLE & UNCONTROLLABLE

COST AND POST POND COST.

• RE-ENGINEERING PROCESS• VENDOR ANALYSIS TO MINIMIZE THE COST



DIFFERENTITAION STRATEGIES

• Customer needs, taste and preferencesvary from one customer to the anothercustomer.

• Producer to satisfy the diversified needs ofthe customer by a standardized product.The producer to make this strategysuccessful should study the differentneeds, tastes and preferences of variousclasses of customers.



Advantages on Differentiationstrategies

• The product commands a Premium Price

• More number of Units are sold toadditional customers.

• Products creates its quality brand

• Profitability when the cost of differentiationis less than the extra price of the product.



APPROACHES TODIFFERENTIATION

• A Different taste• Special Features• Superior Service• Spare Parts availability

• Overall value to the customer• Engineering design and performance• Product reliability• Quality Manufacture• Technological Leadership• A full range of service• Complete lines of Products• Image and reputation.



Achieving Differentiation

• Raise the Product’s

Performance

• Make the Product MoreEconomical to use

• Enhance customer satisfactionin tangible or intangible ways



FOCUS/SPECIALISATIONSTRTEGIES

• FOCUSING BEGINS BYCHOOSING A MARKET

NICHE WHERE CUSTOMERSHAVE DISTINCITIVE

PREFERENCES ORREQUIREMENTS.

S O OC S



SITUATION WHERE THE FOCUSSTRATEGY IS EFFICIENT

• The Market segment is large enough to be profitable.

• The Market segment is large enough to be profitable.

• The Market segment is not significant to the success ofmajor competitors.

• Thr’ skills and resources to serve the segment efficiently. • Producer can defend against challengers

• Difficult to the competitors to meet the specializedneeds

• No other competitor is attempting to specialize• Focuser to select an attractive segment based on his

strength and capabilities.



Advantages of Focus Strategies

• Specialised skills of a producer

• The focused company’s competence in serving

the market niche creates entry barriers for new

firms.• A hurdle to the producer of substitute products to

enter in niche market.

• The niche strategy combined with low-cost anddifferentiation strategies will enable the producerto enhance market share and profitabilities

GRAND STRATEGIES/



GRAND STRATEGIES/ STRATEGIC ALTERNATIVES

• GS IS THE GENERAL PLAN OF MAJOR ACTION BYWHICH A FIRM INTENDS TO ACHIEVE ITS LONGTERM GOALS. IT PROVIDES BASIC DIRECTION FORTHE STRATEGIC ACTIONS OF A FIRM.

• Grand Strategies fall into four general categories.

• A. GROWTH / EXPANSION

• i. Intensification ii. Diversification

• B.STABILITY• C.RETRENCHMENT AND

• D. COMBINATION.



A. GROWTH / EXPANSION

• In an Organization generally seek growthin sales, market share or some othermeasure as a primary objective.

• INTENSIFICATION1. Market Penetration : It is the strategy of a firm that directs

its resources to the profitable growth of a single product in a singlemarket with a single dominant technology.

e.g. Increasing sales to Existing Customers ( buy toothpaste andtake tooth brush free offer)

Convert non-users into users ( that is tooth paste in ruralsegment)




• 2. MARKET DEVELOPMENT : It consistsof marketing existing products in newmarkets. The firm tries to achieve growth

by finding new uses for the existingproducts and tap new customers.

• E.g. Hindusthan Lever’s offerings in toilet

soap, detergent powder segment similarlyNIRMA




• 3. PRODUCT DEVELOPMENT : Productdevelopment strategy tries to achievegrowth through new products in existing

markets. The new products in this caseare not essentially new products, butimproved version of an existing product.

• E.g Quality Improvement ( Stronger/bigger/better)

• Feature Improvement ( Convenience/Change size)

• Style Improvement ( New Models / New package)




• 4. INNOVATION : An Organization tries todevelop new products or services andthere by makes similar existing products

obsolete. There could be radicalinnovations where the company tries toreplace existing products or technologies

in an industry.• CD – Pen Drive Disk




• DIVERSIFICATION

• (I) Horizontal Integration : HorizontalIntegration take place when some firms expand

by acquiring other companies in the some line ofbusiness. It come through mergers andacquisitions. The purchase of one firms byanother firm of approxmately the same size is

called a merger. An acquisition when one of theorganisation involved is considerably larger thanthe other is called an acquisition.




• DIVERSIFICATION

• (I) Horizontal Integration :

a. Concentric Diversification : It occurs

when an organization diversifies into a related,but distinct business with concentricdiversification, the new business can be relatedto existing business thr products, markets ortechnology (e.g) Philip’s the Electronic major decided to diversify into related business suchas cellar Phones , Telecommunicationequipments etc.




• DIVERSIFICATION

• (I) Horizontal Integration :

b. Conglomerate : It takes placewhen an organization diversifies into areasthat are unrelated to its current business.E.g. ITC’s diversified into edible oil, hotels,

financial services, food and textiles.




• DIVERSIFICATION

• (II) Vertical Integration : It allows the firm toenlarge its scope of operations within the same

overall industry. It takes place when one firmacquires another that is involved either in anearlier stage of the production process (backward or upstream) or a later stage of the

Production process ( forward or Down streams)



B.STABILITY STRATEGY

• A Stability strategy involves maintainingthe status quo or growing in a methodical,but slow manner. The firm follows a

safety-oriented, status quo type strategywithout effecting any major changes in itspresent operations. The resources are put

on existing operations to achievemoderate, incremental growth.




• Types of Stability Strategies

• 1. Incremental Growth : This strategyconcentrates on one product line at a time,growing steadily. It is a low risk, low-marketshare and also very comfortable with theirpresent line of business.

• 2. Profit / harvesting strategy : This is followedwhen the primary goal of the firm or any of itsstrategic business into is to generate cash so asto ensure a steady growth of business.




• Types of Stability Strategies• 3. Sustainable Growth Strategy: This strategy is

followed when the firm perceives that the externalenvironment is not favourble due to certain criticalresource constraints like financial resources or raw

materials, Import/Export restrictions, Govt. Policychanges etc. In this situation the firm to stay on courseand seek only sustainable growth.

• 4. Stability as a pause strategy: After organisation haveundergone a turbulent period of rapid growth, managers

often pause for a while to integrate strategic businessunits, consolidates their position, improve operationalefficiency R& D marketing etc, pause for a while andprepare themselves for another big leap(jump) forward.



C.RETRENCHMENT STRATEGIS

• The third major class of strategicalternatives available to a firm isretrenchment strategies. Growth

strategies and stability strategies aregenerally adopted by firms that are insatisfactory competitive positions. But

when a firm’s position is disappointingthen retrenchment strategies may beappropriate.




• 1. Divestment Strategy : Divestment is another form ofretrenchment strategy. Company sells or “Spins Off” one of its business units under the divestment strategy.Divestment strategy is usually adopted when thecompany is performing poorly or when it no longer fitsthe company’s strategic profile.

• 2. Turnaround Strategy : Improving Internal efficiencycan be done by adopting turnaround strategy. The aim ofturnaround strategy is to transform the organisation into

more effective business. Turnaround means reverse thenegative trend.




• 3. Liquidation Strategy : The liquidation strategyis generally considered the most extremeretrenchment strategy. This strategy involvesclosing down a business organization and

selling its assets. This is the last alternativestrategy as its consequences are severe.

• 4. Bankruptcy. It is a means whereby anorganisation that is unable to pay its debts can

seek court protections from creditors and fromcertain contract obligation while it tries to regainfinancial health and stability.



D. COMBINATION STRATEGIES

• Large dieversified organizations generally usea mixture of stability expansion or retrenchmentstrategies eithr simultaneously or sequentially.

For e.g growth could be achieved by anorganisation through acquisition of new businessor divesting itself of unprofitable ventures.Depending on situational demands, therefore,

an organisation can employ various strategies tosurvive, grow and remain profitable.



D. COMBINATION STRATEGIES

• 1. Joint Venture : When two or morefirms pool the resources to accomplish atask that a firm could not accomplish, but it

can be done more effectively by joining.Like a meger or acquisition, a joint ventureis not a strategy but a way of implementing

a strategy. It helps a firm to undertakegiant projects by spreading risks moreefficiently. Eg. Maruthi udyog & suzuki



Non-Profit Organization

• All Organizations formulate the “MOST” (Mission, Objective, Strategies and Tactics) andanalyse their environments like Internal and

External , formulate strategies, analyze andselect the appropriate strategies, implement thestrategies and evaluate and Control thestrategies.

• There are distinct differences between profit andnon-profit organisations.



Non-Profit Organization

• The Public Organisations like CentralGovernment, State Government and localgovernments are also included under non-

profit organizations, like same the termnon-profit includes Private non-profitorganizations such as hospitals, Private

universities, Private colleges, recreationalsocieties etc.



Types of Non-Profit Organisation

• Private Educational Institutions like private universities,colleges and Schools

• Charities• Social Service Organisations• Health Service Organisations like Institute of Medical

Scie• Foundations (Dr. Swaminathan Research Foundation)• Cultural Organisations• Religions Organisations

• Religions organisations like Tirumala TirupathiDevasthaanam• Social Organizations

Sources of Revenue for Non Profit



Sources of Revenue for Non-ProfitOrganisations

• Revenue depends on• Membership dues

• Assessments and Donations

• Fund from Sponsor Agencies,

• Subscription to the Periodicals Publishedby the Organisation.

• Note: Strategic Mangement point of view ,it is applicable for both profit-makingorganizations and non-profit organizations.



Mission – Non- Profit Organisation

• The Non-Profit Organisations while formulatingthe mission should consider the followingquestions.

• What is our business?

• What are our activities?

• Who is the customer?

• Who are our Client?

• What does our customer consider the value.• The Corporate goals and Operating objectives

flow from Mission.

Goals and Objectives Non profit



Goals and Objectives – Non profitOrganisation

• Formulation of Objectives and

Goals will help the Organization

to have a clear direction. The nonprofit organisations may formulateobjectives and goals by

considering the interest of all thestakeholders. piggybacks

Popular Strategies of Non-Profit



Popular Strategies of Non-ProfitOrganization

• Strategic Piggybacks : The term refers to thedevelopment of a new activities for non – Profitorganizations for the purpose of generating

funds needed to make – up the deficits in thebudget.

• E.g something to sell, Trustee suport

• Inter Organization linkage ( e.g hospital to

hospital)

• Linkage with a profit – making organisations.

STRATEGY FORMULATION AND



STRATEGY FORMULATION ANDIMPLEMENTATION

• Constraints on Strategic Management

• Service is often intangible and hard tomeasure

• Payment by customers may be a verysmall source of funds.

• There is no employee commitment

• Resource Contribution





• Constraints on Strategic Management

• Service is often intangible and hard tomeasure

• Payment by customers may be a verysmall source of funds.

• There is no employee commitment

• Resource Contribution





• Impact of Constraints on Strategy Formulation• Goal conflicts interfere with rational Planning ( Different

interests of the sponsors may prevent the mgt fromformulating the goals)

• An integrated planning focus tends to shift from results toresources. Planning is concerned with the resource inputthan the service outcomes)

• Ambiguous operating objectives create opportunities forinternal politics and goal displacement.

• Professionalisation simplifies detailing planning but addsrigidity ( not flexible)





• Impact of Constraints on StrategyImplementation.

• Decentralization is complicated

• Linking pins for external – internalintegration become important

• Job enrichment and executivedevelopment

STRTEGY EVALUATION AND



STRTEGY EVALUATION ANDCONTROL

• Two major problems caused by the constraints• a. Rewards and penalties have little or no

relations to performance.

• Control the inputs heavily rather than output.

• Measures to control the Constraints.

• Select a Dynamic and forceful leader

• Generate Rules and Regulations

• Appointment of a strong Board• Establishment of Performance based budgets.



COMPETITIVE COST DYNAMICS

• Business success built on cost

leadership requires the business

to be able to provide its product orservice at a cost below what itscompetitors can achieve and it

must be a sustainable costadvantage.



COMPETITIVE COST DYNAMICS

• LOW-COST ADVANTAGE THAT REDUCE THE PROPABLY OF

PRICING PRESSURE FROM BUYERS

• TRULY SUSTAINED LOW-COST ADVANTAGE MAY PUSHRIVALS INTO OTHER AREAS.

• LOW-COST ADVANTAGES SHOULD MAKELESS THEATTRACTIVENESS OF SUBSTITUTE PRODUCTS.

• HIGHER MARGIN ALLOW LOW –COST PRODUCERS TOWITHSTAND SUPPLIER COST INCREASES

• MANY COST – SAVING ACTIVITIES ARE EASILY DUPLICATED (QUICKLY ADOPTED BY OTHER COPMTETIRORS)

• COST CUTTING CAN SHRINK OTHER COMPETITIVEADVANTAGES INVOLVING KEY PRODUCT ATTRIBUTES.

• COST DIFFERENCES OFTEN DECLINE OVER TIME

EVALUATING DIFFERENTIATION



EVALUATING DIFFERENTIATIONOPPORTUNITIES

• A SUCCESSFUL DIFFERENTIATION STRATEGYALLOWS THE BUSINESS TO PROVIDE A PRODUCTOR SERIVCE OF PERCEIVED HIGHER VALUE TOBUYERS AT A “ DIFFERENTIATIN COST” BELOW THE“ VALUE PREMIUM” TO THE BUYERS.

• COMPETITIORS WILL REDUCED WHEN A BUSINESSSUCCESSFULLY DIFFERENTIATES ITSELF.• BUYERS ARE LESS SENSITIVE TO PRICES FOR

EFFECTIVELY DIFFERENTIATED PRODUCTS• BRAND LOYALITY IS HARD FOR NEW ENTRANTS TO

OVER COME.• TECHNOLOGICAL CHANGES THAT NULLIFY PAST

INVESTMENT.

EVALUATING DIFFERENTIATION



EVALUATING DIFFERENTIATIONOPPORTUNITIES

• EVALUATING SPEED AS A COMPETITIVEADVANTAGE

1. CUSTOMER RESPONSIVENESS

2. PRODUCT DEVELOPMENT CYCLES3. PRDOUCT OR SERVICE IMPROVEMENT

4. SPEED IN DELIVERY OR DISTRIBUTION

5. INFORMATION SHARING ANDTECHNOLOGY.

C C S S



EXPERIENCE CURVE ANALYSIS

• As firms produce, they grow more efficient as experienceteaches better way of doing things. Repetition helps afirm gain mastery over the task, speed up the operationsand develop new and improved ways of doing a job at alower cost. This is cost of performing an activity often

declines on a per unit basis this is known as experiencecurve effects.

• For instance, any firm trying to enter the integrated – circuit business faces a tremendous challenge to learn

how to be cost competitive in a market whereexperienced players are clearly having a competitiveedge-because they are already producing millions ofpieces.

MATCHING ORGANIZATION



MATCHING ORGANIZATIONSTRUCTURE WITH STRATEGY

• THERE ARE SEVERAL TYPES OFSTRUCTURS THAT ARE FOUND INORGANISATIONS. HERE, SOME MAJORTYPES OF “PURE” STRUCTURES ARE

DESCRIBED, WITH A SPECIAL EMPHASIS ONTHEIR APPROPRITENESS FOR THEDIFFERENT TYPES OF STRTEGIES. In

Practice, the actual organizaitonal structure maybe a combination of these pure structures.

1 ENTREPRENEURIAL



1.ENTREPRENEURIALSTRUCTURE

OWNER-MANAGER

EMPLOYEES

2 FUNCTIONAL STRUCTURE



2. FUNCTIONAL STRUCTURE

CEO

Public Relations ************** Legal

Finance Marketing Personnel Production

3 DIVISIONAL STRUCTURE



3. DIVISIONAL STRUCTURE

CEO

Corporate Finance Corporate Legal/PR

General Manager General Manager

Division - A

Marketing Operations

Personnel

Division – B

Marketing Operations

Personnel

4 STRATEGIC BUSINESS UNIT



4. STRATEGIC BUSINESS UNIT

CEO

GROUP HEAD – SBU 1 GROUP HEAD – SBU 2 GROUP HEAD – SBU 3

DivisionsA B C

DIVISIONSD E F

DIVISIONSG H I

5. MATRIC ORGANISATIONAL



5. MATRIC ORGANISATIONALSTRUCTURE

CEO

FINANCE MARKETING PERSONNEL OPERATIONS

Project Mgr - A

Project Mgr - B FUNCTIONAL

SPEACIALISTS

Project Mgr - C

6. NETWORK STRUCTURE



6. NETWORK STRUCTURE( SPIDER’S WEB STRUCTURE)

REGION – A PROJECTGROUP – M

FUNCTION - X

CORPORATE

HEADQUARTERS

REGION – B

PROJECTGROUP N

FUNCTION – Y



STRATEGIC CONTROL



S G C CO OPROCESS

• ONCE THE STRATEGY IS FORMULATED ANDIMPLEMENTED, THERE IS NO GUARANTEE THATTHE STRATEGY IS IMPLEMENTED AS IT ISDESIGNED AND THE STRATEGY GENERATES THERESULTS AS AIMED AT. THEREFORE, THE

STRATEGIST HAS TO EVALUATE THE STRATEGYAND ITS PROGRAMME TO ASSESS WHETHER THEIMPLEMENTATION OF THE STRATEGY IS AS PERTHE STRATEGIC PLAN. FURTHER, A NUMBER OFDEVIATIONS EITHER IN THE EXTERNALENVIRONMENT OR IN ORGANISATIONAL

ENVIRONMENT MAY TAKE PLACE. THESEDEVIATIONS, MAY NECESSITATE A CHANGE IN THESTRATEGY. THESE CHANGES ALSO REQUIRE ASTRATEGIC EVALUATION AND CONTROL.

CONTROL FUNCTIONS



CONTROL FUNCTIONS

• THE CONTROL FUNCTIONS INCLUDETHREE PROCEDURES

• Measuring actual Performance

• Comparing Actual Performance toStandard

• Taking Corrective Action to ensurethat planned events are taken place.

Strategic Control Process



g(Controlling Begins)

Measure ofPerformance

Compare withStandards

Performance r = StdsPerformance

different fr Stds

C.A.Plan

New wok situation Begins

No C.A.Necessary

Work Continues

Process of Strategic Control



Process of Strategic Control

1. Key areas to be Monitored

2. Establishing Standards

3. Measuring Performance

4. Compare Performance with Standards(Profitability – Market position – productivity – product leadership – HR standards)

5. NO action taken ( if performance is in Harmonywith Standards)

6. Take Corrective Action Plan ( if Necessary)

Porter five forces analysis



y

PORTER’S FIVE FORCES



PORTER’S FIVE FORCES

• Three of Porter's five forces refer to competition fromexternal sources. The remainder are internal threats. It isuseful to use Porter's five forces in conjunction withSWOT analysis (Strengths, Weaknesses, Opportunities,and Threats).

• Porter's five forces include - three forces from 'horizontal'competition: threat of substitute products, the threat ofestablished rivals, and the threat of new entrants; andtwo forces from 'vertical' competition: the bargaining

power of suppliers and the bargaining power ofcustomers.

DU PONT’S MODEL

http://en.wikipedia.org/wiki/SWOT_analysis

http://en.wikipedia.org/wiki/SWOT_analysis



DU PONT S MODEL

• THE DUPONT MODEL IS A TECHNIQUETHAT CAN BE USED TO ANALYSE THEPROFITABILITY OF A COMPANY USING

TRADITIONAL PERFORMANCEMANAGEMENT TOOLS. TO ENABLETHIS, THE DUPONT MODEL

INTEGRATES ELEMENTS OF THEINCOME STATEMENT WITH THOSE OFTHE BALANCE SHEET.

USAGE OF THE DE PONT



FRAME WORK ANALAYSIS

• The model can be used by the PurchasingDepartment or by the sales Department toexamine or demonstrate why a given ROA wasearned.

• Compare a firm with its other firms• Analyze changes over time

• Teach people a basic understanding how theycan have an impact on the company results.

• Show the impact of professionalizing thepurchasing funtions

STEPS IN THE DUPONT



METHOD PROCESS

1. collect the business numbers ( details (FROM Finance Dept)

2. Calculate ( Use of Spread Sheet)

3. Draw Conclusions

4. If the Conclusions seen unrealistic checkthe numbers and recalculate.

Strengths Du pont Model



Strengths – Du pont Model

• Simplicity. Good tool to teach people abasic understanding how they can have animpact on results.

• Can be easily linked to compensationschemes.

• Can be used to convince Managementthat certain steps have to be taken toprofessionalize the Purchasing or Salesfunctions.

Limitations : Du Pont Model



Limitations : Du Pont Model

1. Based on accountingnumbers, which are basically

not reliable.2. Does not include the cost of

Capital3. Garbage in , Garbage out.

TOWS MATRIX



TOWS MATRIX

• THE TOWS MATRIX , PROFOUNDED BYHEINZ WEIHRICH, IS AN IMPORTANTSTRATEGY FORMULATION MATCHING

TOOLL.

• THE TOWS MATRIX POSTULATES THE

FOLLOWING FOUR ALTERNATIVESTRATEGIES.



INTERNAL Factors ---

EXTERNAL Factors

|

vM

Internal

Strengths

(S)

Internal

Weaknesses

(W)

ExternalOpportunities

(O)

SO = Maxi MaxiStrategy

Maximize S & O

WO = Mini MaxiStrategy

Minimise W &Maximise-O

ExternalThreats

(T)

ST= Maxi Mini

Strategy

Maximize S and

Minimize Threats

WT = Mini Mini

Strategy

Minimise W &

Threats

Balanced Score Card



Balanced Score Card

• For the past decade, organizations have reaped thebenefit of the Balanced Scorecard (BSC) that hasbecome a key tool to manage and implement strategy.Now, organizations are developing scorecards across allfunctional areas to support an executive decision-makingmethodology. They will inevitably lead to implementingbalanced scorecards for a growing number of functionsin organizations across the world. When BSCs aredeveloped to achieve functional excellence, they canmake strategy operational by translating strategy intoperformance measures and targets. They also help to

measure and focus on the functions of the entireorganization, which results in creating breakthroughperformance.

Balanced Score Card Model



Balanced Score Card-Model



Balanced Score Card



Balanced Score Card

• BSCt also maintains the balance betweenthe long term and short term aims of theorganization, between the financial and

non- financial measures, betweendeveloping and leading indicators andbetween external and internal task

perspectives.

McKinsey’s model of 7S

http://b4tea.com/tags/model/model




McKinsey s model of 7S

• 7S model was created by McKinsey andcompany in 1980. Seven factors areincluded in this model. The model alsoincludes practical guidance for thestudents. The 7S model was dividing inthinking about organizational efficiency. Inprevious the manager focus was on

organization because organization grew insize and complicated questions were alsoraised.

McKinsey’s model of 7S







McKinsey s model of 7S

• The seven elements are categorized as either“hard” or “soft” elements. “Hard” elements are

easy to define and the other hand “Soft”

elements are more difficult. If one wants to makeorganization successful then they should thinkthat both elements are equally important. In hardelements Strategy, structure and Systems are

included. In soft elements Shared Values, Skills,style, and Staff are included.

McKinsey’s model of 7S is given below:







McKinsey’s model of 7S is given below:

Explanation of each element in

http://3.bp.blogspot.com/_WXShsNH9K2w/Swu_cTjUBXI/AAAAAAAAACE/E6gJVcUZIos/s1600/7S-McKinsey-model.jpg









7s

• Strategy: Strategy is created to maintain and make competitivebenefit over the competition.• Structure: Structure is the way the organization is constructed

and who reports to whom.• Systems: In systems the daily activities and events that staff

members join in to get the job done.

• Shared values: Shared values are also called “super ordinategoals”. These values are the center values of the company thatare evidenced in the corporate culture and the general work.

• Style: you have to adopt the style of leadership.• Staff: In staff employees and their general capabilities are

included.

• Skills: Skills are the actual skills of the employees who areworking for the company.































Documents

BPCS-Slides 17mar2010 3