IV Trimester – MBA0941Strategic Management

Unit-I

Strategy and Process

Strategic ManagementIntroduction

Concept of Strategy

STRATEGY: It is Unified, Comprehensive, and Integrated long term plan that relates to the strategic advantages of the firm to the challenges of the environment.

STRATEGIC MANAGEMENT: It is a stream of decisions and actions which leads to the development of an effective strategy to help achieve the corporate objective. It is a continuous, iterative, & Cross functional process of matching firm with its environment.

COMPETITIVE ADVANTAGE: is delivering superior value advantage to your target customers relative to your competitors. Or delivering equivalent customer value to your target customers relative to your competitors , but at a lower cost.

Strategic Management

Strategy is is a set of related actions that managers take to increase their company’s performance.

Strategic leadership is about how to most effectively manage a company’s strategy making process to create competitive advantage.

The strategy making process is the process by which managers select and then implement a set of strategies that aim to achieve a competitive advantage.

Strategy formulation is the task of selecting strategies where as strategy implementation is the task of putting strategies into action, which includes designing, delivering and supporting products improving the efficiency and effectiveness of operations and designing a company’s organisation structure, control system and culture

Strategic ManagementCompetitive advantage

A company is said to have a competitive advantage over its rivals, when its profitability is greater than the average profitability of all other companies competing for the same set of customers.

Business model

A business model is managers conception of how the set of strategies their company pursues should mesh together into a congruent whole, enabling the company to gain a competitive advantage and achieve superior profitability and profit growth.

A business unit is a self-contained division that provides a product or service for a particular market.

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FIRM/BUSINESS

GAP OUT PUT

VALUE SYSTEMVISION

MISSION

PURPOSE

OBJECTIVES

BASIC INFRASTRUCTURE AND FRAME WORK OF A FIRM

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MISSION & GOALS OF A MISSION & GOALS OF A COMPANYCOMPANY

VISION: It is a vividly descriptive image of what you what to be or what you want to be known for. Vision is an art for seeing invisibles.

MISSION : It a statement of intent of “what a firm wants to create and through which line of Business”. It is a process of legitimization of corporate existence of business. It defines the culture, philosophy and grand design of the firm. To pursue the Creation of Value to all Stakeholders in the Business. It is an answer to question – “What business are we in?”

GOALS / OBJECTIVES : End to be achieved. It is To make Profit for today and forever To satisfy Customers today and forever To satisfy Employees today and forever

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Three Big Strategic Questions

• Where Are We Now?

• Where Do we Want to Go?

• How Will We Get There?

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The Five Task of Strategic Planning

• Developing a Vision and a Mission

• Setting Objectives

• Crafting a Strategy

• Implementing and Executing Strategy

• Evaluating Performance, Reviewing the Situation and Initiating Corrective Action

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An organization’s MISSION

• reflects management’s vision of what the organization seeks to do and to become

• sets forth a meaningful direction for the organization

• indicates an intent to stake out a particular business position

• outline “Who we are, What we do, and Where we are headed”.

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Setting Objectives

• The purpose is to convert the mission into Specific Performance Targets

• Serve as yardsticks for tacking company progress and performance.

• Should be set at levels that require stretch and disciplined effort.

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What is a Strategic Plan?

• A strategic plan specifies where a company is headed and HOW management intends to achieve the targeted levels of performance.

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Strategic Management Basic model

Four Basic Elements

Strategic management is the process of moving where you are to where you want to be in future – through

sustainable competitive advantages

Options onCompetitive Positioning

Learning points from deviations

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FIRM

MACRO ENVIROAPPRAISAL

MICRO ENVIROAPPRAISAL OFINDUSTRIES

MICRO ENVIROAPPRAISAL OF

FIRM

BASIC STRATEGIES

STRATEGICALTERNATIVES

BUSINESS LEVEL STRATEGIES

STRATEGIC SELECTION

STRATEGIC IMPLEMEMTATION

ORGANISATION DESIGN

FUNCTIONALLEVEL STRATEGIES &RESOURCES ALLOCATION

DEVELOPMENT OF

CONTROL

IsStrategyWorking?

STRATEGIC PLANNING DESIGN AND IMPLEMENTATION PROCESS

GAPVISION

MISSION

VALUE

GOAL

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Characteristic of the Strategic Management Process

• An ongoing exercise• Boundaries among the tasks are blurry rather than clear-

cut• Doing the 5 task is not isolated from other managerial

responsibilities and activities.• The time required to do the tasks of strategic

management comes in lumps and spurts rather than being constant and regular.

• Involves pushing to get the best strategy supportive performance from each employee, perfecting the current strategy.

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ENVIRONMENTAL APPRAISAL

ENVIRONMENTAL ANALYSIS

ENVIRONMENTAL DIAGNOSIS

O

T

S

WETOPSAP

OFPP

EVALUATION PROCESS OF SWOT ANALYSIS

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Impact Of Environment Business

ENVIRONMENTAL FACTORS

ECONOMICAL

TECHNOLOGICALPOLITICAL

LEGAL

CULTURAL

SOCIETAL

FIRM/BUSINESS

GOVERNMENTAL INTERNATIONAL

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What is a Business level strategy

• Business level strategies are firm-specific business model that will allow a company to gain a competitive advantage over its rivals in a market or industry.

• It aims at improving the effectiveness of a company’s operations and thus its ability to attend superior efficiency, quality, innovation and customer responsiveness .

• Its ability to improve company’s operations helps in achieving cost leadership or helps the company in differentiating its product from the rival company.

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Stake holders in Business

• A stakeholder is any individual or organisation that is affected by the activities of a business. They may have a direct or indirect interest in the business, and may be in contact with the business on a daily basis, or may just occasionally.

• Person, group, or organization that has direct or indirect stake in an organization because it can affect or be affected by the organization's actions, objectives, and policies. Key stakeholders in a business organization include creditors, customers, directors, employees, government (and its agencies), owners (shareholders), suppliers, unions, and the community from which the business draws its resources.

The main stakeholders are:Shareholders (not for a sole trader or partnership though) – they will be interested in their dividends and capital growth of their shares.Management and employees – they may also be shareholders – they will be interested in their job security, prospects and pay.Customers and suppliers.Banks and other financial organisations lending money to the business.Government – especially the Inland Revenue and the Customs and Excise who will be collecting tax from them.Trade Unions – who will represent the interests of the workers.Pressure Groups – who are interested in whether the business is acting appropriately towards their area of interest.

Stakeholders versus ShareholdersIt is important to distinguish between a STAKEHOLDER and a SHAREHOLDER. They sound the same – but the difference is crucial!Shareholders hold shares in the company – that is they own part of it.Stakeholders have an interest in the company but do not own it (unless they are shareholders).Often the aims and objectives of the stakeholders are not the same as shareholders and they come into conflict.The conflict often arises because while shareholders want short-term profits, the other stakeholders’ desires tend to cost money and reduce profits. The owners often have to balance their own wishes against those of the other stakeholders or risk losing their ability to generate future profits (e.g. the workers may go on strike or the customers refuse to buy the company’s products).

Social ResponsibilitySocial responsibility is the duty and obligation of a business to other stakeholders. Social responsibility for one group can conflict with other groups, especially between shareholders and stakeholders

Stakeholder Example of responsibility to that stakeholder

Shareholder Good return on investment

Employee Fair pay and working conditions Supplier Regular business and prompt payment Customer Fair price and safe product Local community

Jobs and minimum disruption

Government Employment for local community

Environment Less pollution

Stakeholders Examples of interests

Owners private/shareholders Profit, Performance, Direction

Government Taxation, VAT, Legislation, Low unemployment

Senior Management staff Performance, Targets, Growth

Non-Managerial staff Rates of pay, Job security

Trade Unions Working conditions, Minimum wage, Legal requirements

Customers Value, Quality, Customer Care, Ethical products

SuppliersProviders of products and services used in the end product for the Customer.

Creditors Credit score, New contracts, Liquidity

Community Jobs, Involvement, Environmental issues, Shares

Examples of a company's stakeholders

Types of stakeholders

Internal Stakeholders - Market (or Primary) Stakeholders are those that engage in economic transactions with the business. (For example stockholders, customers, suppliers, creditors, and employees)External Stakeholders - NonMarket (or Secondary) Stakeholders are those who - although they do not engage in direct economic exchange with the business - are affected by or can affect its actions. (For example the general public, communities,activist groups, business support groups, and the media)

VisionThe Vision of a company lays out some desired future state; it articulates often in bold terms, what the company would like to achieve.

For ex: To become the world’s leading consumer company for automatic products and services.•A vision statement is sometimes called a picture of your company in the future but it’s so much more than that. Your vision statement is your inspiration, the framework for all your strategic planning.•A vision statement may apply to an entire company or to a single division of that company. Whether for all or part of an organization, the vision statement answers the question, “Where do we want to go?”

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MissionA company’s mission describes what it is that the company

does. For ex: the mission of kodak is to provide “customers with the solution they need to capture, store, process, output and communicate image-anywhere, anytime”.

It is the first component of the strategic management process which provides frame work or context within which strategies are formulated. It includes four main components mission, vision, value and major goals.

• A mission statement is a brief description of a company's fundamental purpose. A mission statement answers the question, "Why do we exist?"

• The mission statement articulates the company's purpose both for those in the organization and for the public.

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PurposeThat which a person sets before himself as an object to be reached or accomplished; the end or aim to which the view is directed in any plan, measure, or exertion; view; aim; design; intention; plan.

General objectives of a firm, as listed in its articles of incorporation or memorandum of association. It is also a mission statement.

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Business Definition• Economic system in which goods and services

are exchanged for one another or money, on the basis of their perceived worth. Every business requires some form of investment and a sufficient number of customers to whom its output can be sold at profit on a consistent basis.

• A commercial activity engaged in as a means of livelihood or profit, or an entity which engages in such activities.

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Business • A business is an enterprise or entity that

provides products or services to customers. Business is doing commercially viable and profitable work. Commerce is buying and selling products or services.

• A business: A legally recognized organization or enterprise that operates with the objective of earning a profit from the sale of goods or services

• Business: The activity in which you participate in order to earn money (i.e. "I'm in the computer business.")

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Objectives and GoalsDefinition

Objectives and goals are used interchangeably in Management literature but the recent strategic literature shows a suitable distinction between these two terms.

Objective is the end, which the organisation tries to achieve through its operations. Goal is an open ended statement, which does not qualify what needs to be achieved and the time frame for completion.

So growth is a goal where as an objective is to increase growth by 10% in terms of market share and sales over last year.

Long term goals and short term objectives are derived from mission.

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Objectives and GoalsObjectives form the basis for all other functional decisions such as finance, manufacturing, marketing and human resource. It is split into business wise and functional targets and performance targets. Objectives indicate the organisational performance to be realised and expected over a period of time.

Areas where Objectives are set

•Growth

•Profitability

•Market share

•Productivity

•Technology

•R&D and Innovation

•Corporate Social Responsibility, Image, employee satisfaction

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Objectives and GoalsCharacteristics of Objectives

Objective setting is a complex Process. It has certain characteristics

•Specific

•Time Bound

•Measurable

•Challenging

•Objectives form a hierarchy

•Constraints

•Verifiable

•Time frame- Long term and short term

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Objectives and GoalsFormulation of Objectives

It is a complex Process.

•The forces in the environment

•Realities of firm’s resources and power relationship

•The values of top management

•Past strategies

Objectives are important for strategic management for the following reasons:

•Objectives help to relate the organisation in the environmental context. It helps to attract people.

•Objectives help to coordinate decisions. All of them aware of company’s objective to coordinate

•Objectives serve as standards of appraising organisational performance and evaluate the success and failure of Orgn.

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Corporate Governance &Social Responsibility

Corporate GovernanceCorporate governance is the set of processes, customs,

policies, laws, and institutions affecting the way a corporation (or company) is directed, administered or controlled. Corporate governance also includes the relationships among the many stakeholders involved and the goals for which the corporation is governed. The principal stakeholders are the shareholders, the board of directors, employees, customers, creditors, suppliers, and the community at large. Sound corporate governance is reliant on external marketplace commitment and legislation, plus a healthy board culture which safeguards policies and processes.

Corporate Governance

The basic objective of Corporate The basic objective of Corporate Governance would be "enhancement of Governance would be "enhancement of the long-term shareholders value while at the long-term shareholders value while at the same time protecting the interests of the same time protecting the interests of other stakeholders." other stakeholders." •3 3 key constituents of Corporate Governance arekey constituents of Corporate Governance are : :

1.1.the Shareholders, the Shareholders,

2.2.the Board of Directors and the Board of Directors and

3.3.the Management. the Management.

Dr.S.Sundararajan

What, Why and How of Good Governance?

– Good governance: balance or match between the culture (mutual expectations) and self-interest of the participants

– Why Good Governance? To make all participants better off

– Elements of Good Governance: balance among regulation, market forces, and social norms

Dr.S.Sundararajan

Dr.S.Sundararajan 36

Objectives of good corporate governance

1. Strengthen management oversight functions and accountability

2. Balance skills, experience and independence on the board appropriate to

the nature and extent of company operations

3. Establish a code to ensure integrity

4. Safeguard the integrity of company reporting

5. Risk management and internal control

6. Disclosure of all relevant and material matters

7. Recognition and preservation of needs of shareholders

Principles of Corporate Governance

Commonly accepted principles of corporate governance include:

•Rights and equitable treatment of shareholders,

•Interests of other stakeholders,

•Role and responsibilities of the board, •Integrity and ethical behaviour,

•Disclosure and transparency.

Internal corporate governance controlsMonitoring by the board of directors, Internal control procedures and internal auditors, Balance of power and Remuneration.External corporate governance controls encompass the controls external stakeholders exercise over the organisation. Examples include:•competition•debt covenants•demand for and assessment of performance information (especially financial statements)•government regulations•managerial labour market•media pressure•takeovers

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Corporate Governance &Social Responsibility

Corporate Social Responsibility

CSR has become an integral part of corporate strategy. It

means open and transparent business practices that are based

on ethical values and respect for employees, community and

natural environment. It is designed to deliver sustainable

value to society at large as well as to shareholders. Some of

the benefits of being socially responsible is that they can

attract good employees who prefer working for a responsible

firm

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Corporate Governance &Social ResponsibilityTheories of Corporate Social Responsibility

• The instrumentation theories

• Political Theories

• Integrative theories

• Ethical Theories

Wealth creation is main aim of CSR

Areas of Social Responsibility

Pollution Control, Health and hygiene, Training selfhelp and

Philanthropic activities

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Unit IICompetitive Advantage

Competitive advantage is delivering superior value advantage to your target customers relative to your competitors. Or delivering equivalent customer value to your target customers relative to your competitors , but at a lower cost.

It has four dimensions namely efficiency, quality, innovation and customer responsiveness. These are developed by building competencies, resources and capabilities. Three critical issues are relevant in this regard i.e. 1) What are the factors influence CA? 2) Why do successful companies lose their CA? 3) How can companies avoid failures and CA over time.

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Unit IICompetitive Advantage

Generic Building blocks of Competitive advantage

Efficiency, quality, innovation and customer responsiveness are four basic ways for lowering costs and achieving differentiation. The four factors are interrelated in the sense, superior quality leads to superior efficiency and innovation will increase efficiency and innovation will increase efficiency, quality and customer responsiveness.

Efficiency

Quality

Innovation

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Unit IICompetitive Advantage

Distinctive Competence: It is a unique strength that allows a company to achieve superior efficiency, quality, innovation and customer responsiveness.

Sources of Distinctive Competencies

1.Resources and

2.Capabilities

1. Resources is an asset, competency, process, skill or knowledge. It may be tangible like land, building, plant, machinery and intangible like brand names, reputation, patents, know-how and R&D. It should satisfy three conditions i.e. value, Unique, Extendibility.

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Unit IICompetitive Advantage

2. Capabilities

Capabilities are skills, which bring together and put them to purpose use. The organisation’s structure and control system gives rise to capabilities, which are intangible.

Capability drivers are patents, licenses, favorable location, established distribution networks, process improvement, and interrelationship.

Ex: HLL. HPCL, Sony, Hitachi, Toshiba, Sanyo, ICICI, HDFC

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Distinctive Competence

Distinctive Competencies is a unique strength that allows a company to achieve•Superior Efficiency•Superior Quality•Superior Innovation•Superior Customer Responsiveness

Durability of Competitive advantage

It refers to the rate at which the firms capabilities and resource depreciate or become obsolete. Durability depends on three factors: Barriers to imitation, Capability of Competitors and Dynamism.

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Avoiding Failure and Sustaining competitive Advantage

•Usually imbalance between various dimension of competitive advantage such as efficiency, quality, innovation and customer responsiveness are considered to be the main reason for failure of many firms.

•Bench marking will facilitate organisations to build distinctive competencies. Bench marking involves identification of best practices adopted in other companies.

•Most significant step in avoiding failure is identification of barriers to change and overcoming such barriers.

•Need for new organisational structure and control systems in response to the Changed environment.

•Appropriate leadership style, prudential use of power helps to maintaining Competitive advantage.

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External EnvironmentEnvironmental factors can be classified as •Macro environmental factors and •Factors which are specific to the given business i.e. task environment•International Environment•Economic Forces•Socio cultural forces•Legal Environment•Political forces•Technological forces•Industry, suppliers, Government, Customers, Competitors•Internal Environment: Resource, structure, Culture.

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External EnvironmentMacro Environmental factors•Demographic Environment•Technological Environment•Socio Cultural Environment•Economic environment•Political environment•Regulatory environment•International enviornment

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External EnvironmentFactors Relevant to Specific Business•Market environment•Supplier environment•Environmental Scanning•Task Environment

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Porter’s Five Forces Model and Strategic Group

Five Forces

1.Threat of New entrants

2.Bargaining power of Suppliers

3.Bargaining Power of Buyers

4.Threats of Substitutes

5.Rivalry among Existing Firms

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Porter’s Five Forces Model and Strategic Group

Threat of New entrants

Sources of possible barriers to entry

1.Economies of scale

2.Product Differentiation

3.Cost Advantage

4.Capital Requirements

5.Access to Distribution Channels

6.Government Policy

7.Brand Identity

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Porter’s Five Forces Model and Strategic Group

2. Bargaining power of Suppliers

Conditions prevail for Powerful supplier•The supplier industry is dominated by a few companies selling (petroleum industry)•The product of service is differentiated, unique (software)•Substitutes are not easily available (electricity)•Suppliers can threaten with forward integration and compete directly with the existing firm.•A purchasing firm buys a small quantity of the supplier’s goods and services and it is unimportant to the supplier.

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Porter’s Five Forces Model and Strategic Group

3. Bargaining Power of Buyers

Buyers are powerful in the following circumstances•The suppliers are more in number but the buyers are few

•The buyers buy in large quantity

•More no. of alternative suppliers and their undifferentiated products

•The cost of changing supplier is not much

•The supplier depends on the buyer

•The purchased items is not important to the final quality/price

•The buyers has the potential to integrate backward by producing product

•The buyers can use the threat of vertical integration for price

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Porter’s Five Forces Model and Strategic Group

4. Threats of Substitutes•Tea is a substitute of a coffee•Water is considered a substitute of soft drinks•Saccharine is substitute for sugar

Availability of few substitute provides opportunity for the company to raise the price and get higher profit

5. Rivalry among Existing Firms

Reasons for intensity of rivalry among established players

Industry competitive structure (ICICI vsSBI)

Demand conditions

The height of Exit Barriers in the industry.

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Industry Analysis

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External EnvironmentFactors Relevant to Specific Business•Market factors: Market size, growth rate, seasonality, Profitability, captive markets, Product differentiation

•Technological factors: Maturity, Complexity, patents, Process and product R&D requirements

•Social Factors: Ecological impact, Work ethics, consumer protection,Demographicchanges,unionisation,Personnel adaptability

•Competitive factors: Competitive Intensity, Degree of concentration, Barriers to entry, Barriers to exit, Share volatility, Degree of integration, availability of substitutes, Capacity utilization

•Economic and Govt.factors: Inflation, Wage level Foreign Exchange Impact, Manpower supply, Legislation/protection, Regulations, Taxation

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Strategic GroupsWithin an Industry a strategic Group refers to a set of Business units which pursue similar strategies with similar resources. In a strategic group, each member company almost follows the same basic strategy as other companies in the group.

For ex. Mc Donald, Burgar King and Domino are the restaurant industry and have many things in common. Haldiram, though in the same restaurant industry, has different mission, objective, strategies and in different strategic group.

A company’s close competitors are members of the same strategic group.

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Strategic GroupsSince the companies in a strategic group follow similar strategy the product of such companies are viewed by consumers as substitutes for each other.

Members of the strategic group mainly threaten a company’s profitability.

Strategic group in an industry can be mapped by two dimensional graph by selecting two variables.

Three major strategic group emanate from the mapping such as

i)mini steel plants,

ii)integrate steel plants

iii)specially steel and cheap import

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Limitations of Strategic Group model1. The two models provide a static picture of competition which overlooks the possibility of innovation in business.

2. Critics of five forces model are of the view that innovation brings in new products, process and enormous profits.

3.No attention to individual differences of companies but they overemphasize the importance of industry and strategic group structure.

4. Very weak evidence of a link between strategic group membership and company profit rates.

5. 5-forces model assumes a clear recognisable industry

6. The issues like partnerships are not addressed in this model

7. 5-forces model does not consider the possibility of industry structure being altered.

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Strategic TypesDifferent Strategic types• Defenders• Prospectors• Analysers and• Reactors

Competitive Changes During Industry Evolution

Growth, Maturity, and Decline, these stages and give rise to opportunity and threat for an industry. A strategist should be aware of these development during strategy formulation and anticipate them in advance.

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Strategic TypesThe industry life cycle model is used for analysing the effect of industry evolution on competitive forces

Based on the industry life cycle model, industry environment could be identified i.e. •Embryonic industry environment•Growth industry environment•Shakeout environment•Mature industry environment and •Declining industry environment

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Globalisation and Industry StructureIn conventional economic system, national markets are separate entities separated by trade barriers of distance, time and culture.

With globalisation, markets are moving towards a huge global market place. The tastes and preference of customers of different countries are converging on common global norms.

The world economy has undergone a fundamental change. Globalisation of production and global markets are taking place.

The increasing globalisation of markets and production has two underlying reasons. Trade barriers got decrease and free flow of goods, capital and services has been set in motion.

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Globalisation and Industry StructureThe revolution that took place in communication, information and transportation technologies enabled companies to reduced cost of information processing, to establish worldwide communication network and to link together worldwide operations.

Technological innovations have revolutionalised globalisation of markets. Channel televisions such as HBO, CNN, MTV are received and watched in many countries.

For example US auto market was swept by Japanese auto giant all of sudden.

The intense rivalry forces all firms to maximise their efficiency, quality innovative power and customer satisfaction.

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National Context and Competitive AdvantageIn globalisation successful companies in certain industries are found in specific countries.

Japan- consumer electronics company in the world

German – Chemical and engineering companies in the world

US – computer and bio technology

India – raw material resources and food industry sector

Determinants of Competitive Advantage

Intensity of rivalry

National Competitive advantage

Competitiveness of related and supporting industries

Local demand conditions

Factor conditions

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Globalisation and Industry StructureHyper Competition

It occurs in any industry due to intense environmental uncertainty, which makes competitive advantage superficial and temporary.

Market stability is threatened by short product life cycles, short product design cycles new technologies frequent entry by unexoected outsiders, repositioning by incumbents and tactical redefinitions of market boundaries as diverse industries merge.

So companies try to imitate the market leader to sustain the competitive advantage and try to establish good relationship with supplier to reduce cost, improve quality and gain latest technology.

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Motivation No.1: Strategic Management

1.What is strategy? Define Strategic management and write the elements of strategic management.

2.Mention the objectives and benefits of strategic management.

3. Discuss the steps involved in strategic Management Process.

4.Name the components of external environment and explain any two of them.

5. How do companies formulate mission statement that contribute to Strategic Management ? illustrate with example.

6.Discuss Competitive Advantage of Textile industries in India with help often illustration

7.What do you mean by CSR illustrates with examples how Indian companies pursue CSR.

8. Explain the Environmental analysis in Strategic Management process. Write the steps involved in this process.

9.Explain the Strategic Groups and Limitations.

10.Briefly Explain the Capabilities and Competencies in Strategic Management.

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Assignment No.1: Strategic Management

Case Study on Strategic Management

Kindly refer the page Number 73&74

Strategic Management An Integrated Approach

Author: Charles W.L.Hill Gareth R.Jones

2009 Edition

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Unit-III

StrategiesCorporate Strategy

Approach to future that involves (1) examination of the current and anticipated factors associated with customers and competitors (external environment) and the firm itself (internal environment), (2) envisioning a new or effective role for the firm in a creative manner, and (3) aligning policies, practices, and resources to realize that vision.

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Unit-III

StrategiesCorporate Strategy

Corporate Strategy will ask you to answer fundamental questions such as "Why are you in business?" and "Why are you in this particular business?". This may appear to be a strange starting point but unless you can answer these type of questions you cannot produce vision statements and mission statements that have any real meaning. Corporate coaching may produce a business plan as a summary document but that is almost incidental.

Growth Stability Retrenchment

ConcentrationVertical GrowthHorizontal GrowthDiversificationConcentricConglomerate

Cautiously proceedMaintainProfit

TurnaroundDivest/SaleLiquidation

DIRECTIONAL STRATEGIES

STRATEGIC ALTERNATIVES

Generic or grand or basic strategies

•Stability -better after sales service, modernize plant, bulk discount, Improve performance to sustain

•Expansion -Change in customer group, function, Technology

•Retrenchment -Withdrawal -Customer group,function, technology (unprofitable)

•CombinationE.g. Wide variety of services to customers (stability)-New products in product range (expansion)S

STRATEGIC ALTERNATIVES

Michael Porter -Three type of generic strategies (Business Level Strategies)

1.Overall cost leadership strategy

2.Differentiation strategy

3.Focus on niche market

1.Overall cost leadership strategy

This is a generic business level strategy in which a large business produces at the low cost possible, no frills products and services for a large market with a relatively elastic demand.Cost leadership strategy try to produce goods/services at a lower cost than other players and try to out perform others.1.The cost leadership can charge lower price than immediate competitors and achieve higher profit than competitors.2.When rivalry increase in the industry at a later stage with price competition, the cost leader can survive and with stand the competitive force and make above average profits.

Low cost strategy implies tight production controls and rigorous use of budgets to control production process. Cost leader is relatively safe as long as he maintains cost advantage.

The cost advantage arises from different factors like•Efficient scale economies•Benefits of early entry•A large market share•Locational advantage•Synergy between functions•Experience curve effects•Dropping unprofitable customers•Minimum R&D expenses•Just-in-time inventory

The cost leadership strategy have some of advantages and some disadvantages.

2.Differentiation StrategyThis is a generic business level strategy wherein a larger business products and markets to the entire industry products that can be readily distinguished from those of companies. Companies which pursue differentiation strategy create product which are perceived as unique by customers, and they charge premium price, which is above industry average.Example. Mercedes Benz cars Roles watchesProcter and Gamble, IBM and Dell Computers differentiation their products through high product quality and reliability of trained force.A differentiator often divides the market into segments and niches. Sometimes a differentiator creates products for each market segment and proves to be a broad differentiator. Sony makes 24 models of colour television sets to suit the needs of different market segments.

Differentiation StrategyA venues of differentiation are as follows•Brand image •Channel clout•Competent structure•Unique process•Advanced R&D setup and•Product Innovation Differentiation has more advantages instead disadvantages.

Focus StrategyThis is the strategy is pursued to serve the needs of a limited customer groups or segment. A focused company pays attention to serve a particular market niche, which may be defined geographically, by type of customer or by segment of product line. A geographic niche is defined by a locality. It is a specialised differentiator or cost leader. It also get some advantages and disadvantages.

Business Level StrategyWhile choosing a business level strategy in terms of product/market/distinctive competency, the choice of investment strategy to support the chosen business level strategy is crucial in order to gain a competitive advantage.An investment strategy involves deployment of human and financial resources to gain a competitive advantage. Differentiation strategy requires massive investment in functions such as research and development, sales and marketing to develop distinctive competenciesIn investment strategy two aspects deserve a strategist’s attention1.Competitive Position – based on market share and distinctive competencies (strong/weak)2.Life cycle Effects – embryonic, growth, shakeout, matirity and decline stagesCompetitive tactics- timing tactics- Market Location Tactics

Business Level StrategyFunctional Strategy•Out Sourcing•Marketing Strategy-product development, advertising and promotion, distribution and pricing•Financial Strategy•Operations Strategy•Human Resource Strategy•Research and Development Strategy•Information System Strategy•Management Attitude to risk•Culture

Strategy in Global EnvironmentGlobal ExpansionIn international business operations, business enterprises pursue global expansion to support generic business level strategies such as cost leadership and differentiation. Companies expand their operations globally in order to increase their profitability. They perform the following activities:•Transferring their distinctive competencies

•Dispersing various value creation activities to favorable location

•Exploiting experience curve effects

Competitive Pressures

1.Pressure for cost reduction and

2.Pressure for local responsiveness-

Differences in consumer tastes and preferences

Differences in infrastructure and traditional practices

Differences in distribution channel and Host GovernmentDemands

Strategic ChoiceIn international Business, companies pursue four Strategies such as 1.International strategy2. Multi domestic strategy3. Global Strategy4. Transnational strategy.

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Unit-III

Corporate StrategiesVertical Integration

The degree to which a firm owns its upstream suppliers and its downstream buyers is referred to as vertical integration. Because it can have a significant impact on a business unit's position in its industry with respect to cost, differentiation, and other strategic issues, the vertical scope of the firm is an important consideration in corporate strategy.

• Expansion of activities downstream is referred to as forward integration, and expansion upstream is referred to as backward integration.

• The concept of vertical integration can be visualized using the value chain. Consider a firm whose products are made via an assembly process.

Benefits of Vertical IntegrationVertical integration potentially offers the following advantages:•Reduce transportation costs if common ownership results in closer geographic proximity.•Improve supply chain coordination.•Provide more opportunities to differentiate by means of increased control over inputs.•Capture upstream or downstream profit margins.•Increase entry barriers to potential competitors, for example, if the firm can gain sole access to a scarce resource.•Gain access to downstream distribution channels that otherwise would be inaccessible.•Facilitate investment in highly specialized assets in which upstream or downstream players may be reluctant to invest and *Lead to expansion of core competencies.

Drawbacks of Vertical IntegrationWhile some of the benefits of vertical integration can be quite attractive to the firm, the drawbacks may negate any potential gains. Vertical integration potentially has the following disadvantages:•Capacity balancing issues. For example, the firm may need to build excess upstream capacity to ensure that its downstream operations have sufficient supply under all demand conditions.•Potentially higher costs due to low efficiencies resulting from lack of supplier competition.•Decreased flexibility due to previous upstream or downstream investments. (Note however, that flexibility to coordinate vertically-related activities may increase.)•Decreased ability to increase product variety if significant in-house development is required.•Developing new core competencies may compromise existing competencies.•Increased bureaucratic costs.

Factors Favoring Vertical IntegrationThe following situational factors tend to favor vertical integration:•Taxes and regulations on market transactions•Obstacles to the formulation and monitoring of contracts.•Strategic similarity between the vertically-related activities.•Sufficiently large production quantities so that the firm can benefit from economies of scale.•Reluctance of other firms to make investments specific to the transaction.

Factors Against Vertical IntegrationThe following situational factors tend to make vertical integration less attractive:•The quantity required from a supplier is much less than the minimum efficient scale for producing the product.•The product is a widely available commodity and its production cost decreases significantly as cumulative quantity increases.•The core competencies between the activities are very different.•The vertically adjacent activities are in very different types of industries. For example, manufacturing is very different from retailing.•The addition of the new activity places the firm in competition with another player with which it needs to cooperate. The firm then may be viewed as a competitor rather than a partner

Alternatives to Vertical Integration

There are alternatives to vertical integration that may provide some of the same benefits with fewer drawbacks. The following are a few of these alternatives for relationships between vertically-related organizations:

•long-term explicit contracts

•franchise agreements

•joint ventures

•co-location of facilities

•implicit contracts (relying on firms' reputation)

Global Strategic AllianceA strategic alliance is a cooperative agreement between companies who are competitors from different companies. It may take the form of formal joint venture or short-term contractual agreement with equity participation or issue-based participation.Reasons for strategic Alliance•To gain access to foreign market•To reduce financial risk•To bring complementary skills•To reduce political risks•To achieve competitive advantage•To set technological standards

How to make strategic Alliance work?•Alliance structure•Managing the alliance

STRATEGIC ALTERNATIVESDIMENSIONS OF GRAND/GENERIC STRATEGIES

I.Internal/External

- Independent of any other entity- Association with other entity

II. Related /Unrelated

- To existing customer groups, existing customer, function, technologies

STRATEGIC ALTERNATIVESDIMENSIONS OF GRAND/GENERIC STRATEGIES

III. Horizontal/Vertical

-Serving additional customer groups-consolidating backward/forward

IV. Active/Passive

Active -offensive strategyPassive -Defensive strategy4 grand strategies ×4 dimensions ×2 types of each dimensions ×3 dimensions of each business definition = 96 Mixed strategies

STRATEGIC ALTERNATIVESMODERNIZATION STRATEGIESDeveloping new technology strategy i.e. technological up gradation as a strategy.

- Increased production, lower cost, improve efficiency and productivity

- Extensively used by Indian organization - stability -prior to expansion & diversification

If pace of modernization is low - internal stability strategy, high -internal expansion strategy

Merge with another company -for modern - external expansion strategy

STRATEGIC ALTERNATIVESDIVERSIFICATION AND INTEGRATION STRATEGIES

1. Vertical Integration -make new products to serve its own needs-backward/forward integration

2. Horizontal Integration-Same product -more customer group-merger similar companies -Spartek Ceramics takeover of Neycer Ceramics

STRATEGIC ALTERNATIVESDIVERSIFICATION AND INTEGRATION STRATEGIES

3. Concentric diversification•Marketing & technology related -rain coat manufacturer -rubber based items - gloves, shoes•Technology related- leasing company -hire purchase•Marketing related - Unrelated technology (cosmetic & sewing machines -women)

4. Conglomerate diversification- Unrelated to customer groups, function, technology•ITC -Cigarette & Hotel•TTK group -Chemicals, hosiery, contraceptives

STRATEGIC ALTERNATIVESMERGER, TAKEOVER AND JOINT VENTURE STRATEGIES

•Diversification & Integration•Merger ( Amalgamation)•A acquires B -B merged with A•A & BC -Consolidated•Horizontal Concentric•Vertical Conglomerate

JOINT VENTURE

•2 firms in one industry•2 firms across different industries•Indian & foreign firm in India•Indian & foreign firm in foreign country•Indian & foreign firm in third country•Last two types are on increase now

TURNAROUND STRATEGIES•Reversing a negative trend•Retrenchment -internal/external –improve internal efficiency -Divestment/liquidation

Danger signs:

•Persistent negative cash flows•Negative profits•Declining market share•Deterioration in physical facilities•High turnover, low morale, Mismanagement•Uncompetitive products, sick company

MANAGING TURNAROUND

•Existing team -support external consultant -if C.E credibility –rare•Existing team -withdraws temporarily -turnaround specialist –employed•Replace existing team / C.E

Approaches:- Surgical - Human approach

ACTION PLAN FOR TURNAROUND

•Analysis of product, market, production process, competition, market segment positioning•Clear thinking -market place &production logic•Implementation of plans-target - setting, feedback, remedial action

DIVESTMENTDivestment-(divestiture or cutback) -sale of or liquidation of a portion of business-SBU or profit center

1. Spinning it off -financially and managerially independent company with stakeventure2. Sell a unit outrightKelvinator India -spin-off -Avanti scooters -high production cost

LIQUIDATION•Rarely -large companies liquidate•Buyers rare for purchase of assets•Court, voluntary, subject to supervision of court•Combination strategies –popular Criteria for strategic choice•Does strategy exploit the opportunities present in the environment?•Is it consistent with the resources of the firm, its competitive advantage & core competence?•Is the chosen level of risk feasible?•Is it appropriate to the values & aspirations of the firm?

Gap AnalysisIn Gap Analysis the strategist examines what the organisation wants to achieve (desired performance) and what it has really achieved (actual performance). The gap between the two positions constitutes the background for various alternatives and diagnosis. •Focusing on the strategic alternatives•Evaluating strategic alternatives•Consider the Selection/decision factor•Criteria for evaluation alternatives (Objective &subjective factors)•Make choice of strategyThe gap between what is desired and what is achieved widens as the time passes if no strategy is adopted. 

Factors affecting strategic choice

•Nature of environment –stable?•Firm’s internal realities•Ambition of CEO / owners•Company culture•Firm’s capacity to execute the strategy.•Resource allocations

Strategic Implementation

•Evolve a systematic procedure to implement the strategy chosen

–Procedural implementation plan–Proper resource allocation plan–Structural implementation plan–Functional implementation plan–Behavioural implementation plan

•Evaluate and control through strategic and operational control measures

•Success of a strategy is very much dependent on how the strategy is execute

Environmental Threat and Opportunity Profile(ETOP)

Environment means the surroundings, external objects, influences or

circumstances under which someone or some thing exits. Environmental

scanning is a process of gathering, analyzing, and dispensing information for

tactical or strategic purposes.

TECHNIQUES OF ENVIRONMENT SCANNING

SWOT

ETOP

ETOP: It is a process of dividing the environment into different sectors and

then analyzing the impact of each sector on the organization. ETOP provides

a clear picture to the strategists about which sectors & different factors in

each sector, have a favorable impact on the organization.

ETOP FOR BICYCLE COMPANY

Environmental sectors Nature of impact Impact of each sector

Economic Growing affluence among urban consumers, rising disposable incomes & living standards.

Market Organized sector a virtual oligopoly with 4 major manufacturers, buyers critical & better informed, overall industry growth rate not encouraging, growth rate for niche market like sports, trekking etc is high.

International Global imports growing but India’s share shrinking, major importers are the US & EU but India exports mainly to Africa.

Political Bicycle principal mode of transport for low & middle income, Industry too small

to draw attention.

Regulatory Parts & components reserved for SSI, bicycle industry a thrust area for exports,

Social Environment & health friendly transport option, wide usage, as recreation, convenient in traffic, customers preference

Supplier Mostly ancillaries in small-scale sector supply parts & components, rising steel prices, industrial concentration in Punjab & Tamilnadu.

Technological Up gradation in progress, import of machinery simple, product innovations ongoing like battery operated & lightweight foldable cycles

ORGANIZATIONAL APPRAISAL

•Internal Environment - strength & weakness in different functional areas

Organization capability

- Capacity & ability to use distinctive competencies to excel in a particular field

- Abilty to use its ‘S’ & ‘W’ to exploit ‘O’ & face ‘T’ in its external environment

Organization resources

- Physical & human

cost, availability - strength / weakness

METHODS & TECHNIQUES USED FOR ORGANIZATIONAL

APPRAISAL

Comprehensive, long term

Financial Analysis - Ratio Analysis, EVA, ABC

Key factor rating - Rating of different factors through different questions

Value chain analysis

VRIO framework

METHODS & TECHNIQUES USED FOR ORGANIZATIONAL APPRAISAL …

BCG, GE Matrix , PIMS, McKinsey 7S

Balanced Scorecard

Competitive Advantage Profile

Strategic Advantage profile

Internal Factor Analysis Summary

SWOT ANALYSIS

• Identify & classify firm’s resources-S&W• Combine firm’s strength into specific capabilities –

Corporate capability- may be distinctive competence• Strategy that best exploits the firms resources• Identify resource gaps & Invest in upgrading

ORGANIZATIONAL APPRAISAL

Organizational Capability Profile (OCP) - Weakness(-5), Normal(0), Strength(5)

Financial Capability Profile

(a) Sources of funds

(b) Usage of funds

(c) Management of funds

Marketing Capability Profile

(a) Product related

(b) Price related

(c) Promotion related

(d) Integrative & Systematic

ORGANIZATIONAL APPRAISAL

Operations Capability Factor(a) Production system(b) Operation & Control system(c) R&D systemPersonnel Capability Factor(a) Personnel system(b) Organization & employee characteristics(c) Industrial RelationsGeneral Management Capability(a) General Management Systems(b) External Relations (c) Organization climate

EXAMPLES OF ORGANIZATIONAL

CAPABILITY PROFILE

Financial Capability Bajaj - Cash Management LIC - Centralized payment, decentralized collection Reliance - high investor confidence Escorts - Amicable relation with Ford Marketing Capability Hindustan Lever - Distribution Channel IDBI/ICICI Bank - Wide variety of products Tata - Company / Product Image

EXAMPLES OF ORGANIZATIONAL CAPABILITY PROFILE

Operations Capability

Lakshmi machine works - absorb imported technology

Balmer & Lawrie - R&D - New specialty chemicals

Personnel Capability

Apollo tyres - Industrial relations problem

EXAMPLES OF ORGANIZATIONAL CAPABILITY PROFILE

General management capability

Malayalam Manaroma - largest selling newspaper

Unchallenged leadership - Unified, stable

Best edited & most professionally produced

STRATEGIC ADVANTAGE PROFILE (SAP)

A picture of the more critical areas which can have a relationship of the strategic posture of the firm in the future.

Capability Factor Competitive strengths / Weakness

•Finance High cost of capital, reserves & surplus

•Marketing Fierce competition, company position secure

•Operational P&M - excellent - parts & components available

STRATEGIC ADVANTAGE PROFILE (SAP)

Capability Factor Competitive strengths / Weakness

•Personnel Quality of management & personnel par with competition

•General High Quality experienced top management - take proactive stance

SWOT Analysis

GAP Analysis

MCKINSEY’S 7S FRAMEWORK

THE HARD S’s

Strategy: the direction and scope of the company over the long term.

Structure: the basic organization of the company, its departments, reporting lines, areas of expertise and responsibility (and how they inter-relate).

Systems: formal and informal procedures that govern everyday activity, covering everything from management information systems, through to the systems at the point of contact with the customer (retail systems, call center systems, online systems, etc).

THE SOFT S’sSkills: the capabilities and competencies that exist within the company. What it does best.

Shared values: the values and beliefs of the company. Ultimately they guide employees towards 'valued' behavior.

Staff: the company's people resources and how the are developed, trained and motivated.

Style: the leadership approach of top management and the company's overall operating approach.

MCKINSEY’S APPROACH TO PROBLEM-SOLVING

• The problem is not always the problem

• Create structure through “M.E.C.E.” (Mutually Exclusive, Collectively Exhaustive –grouping principle)

• Don’t reinvent the wheel

• Every client is unique (no cookie cutter solutions)

• Don’t make the facts fit your solution

• Make sure your solution fits your client

• Sometimes let the solution come to you

• No problem is too tough to solve

GE Nine-Cell Matrix

Low

High

Medium

AverageStrong Weak

• Market Size• Growth Rate• Profit Margin• Intensity of Competition• Seasonality• Cyclicality• Resource Requirements• Social Impact• Regulation• Environment• Opportunities & Threats• Relative Market Share• Reputation/ Image• Bargaining Leverage• Ability to Match Quality/Service

• Relative Costs• Profit Margins• Fit with KSFs

IndustryAttractiveness

Rating Scale: 1 = Weak ; 10 = Strong

6.7

3.3

10.0

1.0

1.03.36.7

Strategy Implications of Attractiveness/Strength Matrix

• Businesses in upper left corner

– Accorded top investment priority– Strategic prescription is grow and build

• Businesses in three diagonal cells

– Given medium investment priority– Invest to maintain position

• Businesses in lower right corner

– Candidates for harvesting or divestiture– May be candidates for an overhaul and reposition

strategy

The Attractiveness/Strength Matrix

• Allows for intermediate rankings between high and low and between strong and weak

• Incorporates a wide variety of strategically relevant variables

• Stresses allocating corporate resources to businesses with greatest potential for

– Competitive advantage and

– Superior performance

Competitive StrengthsA

ttra

ctiv

enes

s

Invest Grow

Low

High

LowHigh

HarvestDivest

Hold

GE 9 Cell Matrix

Competitive StrengthsA

ttra

ctiv

enes

s

Low

High

LowHigh

GE 9 Cell Matrix for Pepsico

Soft Drinks

Snack Foods

• A distinctive competence is a competitively valuable activity that a company performs better than its competitors

• A distinctive competence is a competitively potent resource source because it

– Gives a company a competitively valuablecapability unmatched by rivals

– Can underpin and add real punchto a company’s strategy

– Is a basis for sustainable competitive advantage

# 1

Distinctive Competence –A Competitively Superior Resource

Examples: Distinctive Competencies

ToyotaLow-cost, high-quality

manufacturing of motor vehicles

StarbucksInnovative coffee drinks

and store ambience

THE BCG MATRIX

STAR

DOG

QUESTION MARK

CASH COW

MARKET SHARE

MARKET GROWTH

Balanced ScorecardBalanced Scorecard

Balanced Scorecard – A model integrating financial and non financial measures. (Kaplan & Norton 1996)

Causal link between outcomes and performance drivers of such outcomes

Translates the vision and strategy of a business unit into objectives and measures in 4 distinct areas Financial Customer Internal Business process Learning and growth

The Balanced Scorecard

Purpose of Balanced Scorecard:

A method of implementing a business strategy by translating it into a set of performance measures derived from strategic goals that allocate rewards to executives and managers based on their success at meeting or exceeding the performance measures.

The Balanced Scorecard(Source: Kaplan & Norton, 1996)

Reasons for the Need of a Balanced Scorecard

1. Focus on traditional financial accounting measures such as ROA, ROE, EPS gives misleading signals to executives with regards to quality and innovation. It is important to look at the means used to achieve outcomes such as ROA, not just focus on the outcomes themselves.

The Balanced Scorecard(Source: Kaplan & Norton, 1996)

Reasons for the Need of a Balanced Scorecard

2. Executive performance needs to be judged on success at meeting a mix of both financial and non-financial measures to effectively operate a business.

The Balanced Scorecard(Source: Kaplan & Norton, 1996)

Reasons for the Need of a Balanced Scorecard

3. Some non-financial measures are drivers of financial outcome measures which give managers more control to take corrective actions quickly. (Example: controls in jet cockpit for pilot)

Reasons for the Need of a Balanced Scorecard

4. Too many measures, such as hundreds of possible cost accounting index measures, can confuse and distract an executive from focusing on important strategic priorities. The balanced scorecard disciplines an executive to focus on several important measures that drive the strategy.

The Balanced Scorecard

(Source: Kaplan & Norton, 1996)

Financial Perspective

How do we look to our Shareholders?

Customer Perspective

How do our customers look at us?

Learning and Growth Perspective

How can we continue to improve?

Internal Business Perspective

What we must excel at?

Casual link between the measuresCasual link between the measures

BSC: Causal RelationshipsBSC: Causal Relationships

Internal ProcessInternal Process

CustomerCustomer

StrategyStrategy

FinancialFinancial

LearningLearning

Unit IV-Strategy ImplementationStrategy implementation is essential part of strategic management process.•Evolve a systematic procedure to implement the strategy chosen•Procedural implementation plan•Proper resource allocation plan•Structural implementation plan•Functional implementation plan•Behavioural implementation plan•Evaluate and control through strategic and operational control measures•Success of a strategy is very much dependent on how the strategy is execute

Strategy ImplementationProblems while implementing Strategy•Implementation takes longer time than required•Unanticipated major problems crop up•Ineffective coordination of activities•Crisis management took lot of time•Employees have less than required capabilities•Inadequate training of lower level employees•Problems arising from uncontrolled external environment•Inadequate leadership on the part of departmental environment•Lack of precise definition of implementation of tasks and activities•Inadequate monitoring of activities through information system.

Strategy ImplementationStrategy implementation process requires •Development of programmes•Budgets•Procedures•Strategy is implemented through appropriate structure•Control system•Corporate strategy leads to changes in organisationstructure•i.e. Creation of new strategy•Emergence of administrative problems•Economic performance declines•Invention of new appropriate structure•Profits return to its previous level.

Strategy ImplementationBasis of designing Structure

1.Differentiation (vertical and Horzontal)and

2.Integration

Vertical Differentiation

1.Flat structure

2.Tall structure

Problems with tall structure

1.Coordianation

2.Information distoration

3.Motivational problems

4.Number of middle managers.

5.Centralisation/ Decentralisation

Strategy ImplementationHorizontal Differentiation•Simple structure•Functional Structure•Multidivisional structure

Advantages and Disadvantages of Multidivisional structure

1.Distortion of information

2.Competition of resources

3.Transfer pricing

4.R&D

5.Bureaucratic Costs•Matrix structure •Product team structure•Geographic structure, •Network structure

Strategy ImplementationIntegration and control

Staffing

Staffing and strategy

Matching Managers to strategy

Executive succession and strategy

Issues in Downsizing

International issues in staffing

Strategy ImplementationDesigning strategic Control system

Strategy control is the process by which suitable control systems are established at the corporate business and functional levels in a company in order to evaluate whether a firm is able to achieve superior efficiency, quality, innovation and customer responsiveness.

Four steps involved in strategic control system

1.Establish standards and targets

2.Create measuring and monitoring systems

3.Compare actual with targets

4.Evaluate and take corrective actions.

Strategy Implementation1. Establish targets or standards•Physical standards•Cost standards•Capital standards•Revenue standards•Program standards•Strategic plan as control points

2. Develop a measuring systems

3. Comparison of actual performance against the target

4. Initial corrective actions in the wake of deviations

Characteristics of Good System

Flexible enough to respond to unforeseen events

Give accurate information about the company

Provide information in a timely manner in such a way to avoid financial loss.

Strategy ImplementationLevels of Control•Corporate level Managers (set controls, which provide context for)

•Divisional level Managers (set controls, which provide context for)

•Functional level Managers (set controls, which provide context for)

•First level or Individual level managers

Types of Control system

There are four types of control system

1.Market Control

2.Output Control

3.Bureaucratic Control

4.Organisational culture

Strategy ImplementationMatching Structure and Control to strategy

1.Structure and Control at functional level•Manufacturing Function•Sales function•R&D function

2.Structure and control at the business level

3.Cost leadership strategy and structure

4.Differentiation Strategy and structure

5.Focus strategy and structure

6.Designing a Global structure•Multi domestic Strategy•International Strategy•Global Strategy•Transnational strategy

Strategy ImplementationMatching Structure and Control to strategy

7. Structure at corporate level•Unrelated diversification•Vertical Integration and •Related Diversification

Performance MeasurementPerformance Measurement is a significant part of evaluation and control.•ROI•EPS•RE•EVA•MVA and Financial Ratios

Strategy ImplementationImplementing Strategic Change:

Politics, Power and change conflict

1.Organisational Power and Politics

Sources of Power1.Ability to cope up with uncertainity

2.Centrality

3.Control over information

4.Non Substitutability

5.Control over contingencies

6.Control over resources

Organisational conflict

Sources of Conflict•Differentiation•Task relationship•Scarcity of resources

Strategy ImplementationOrganisation’s conflict Process1.Latent conflict

2.Perceived conflict

3.Felt conflict

4.Manifest conflict

5.Conflict aftermath

Managing Conflict Strategically

1. Conflict resolution Strategies•Changing task relationship-•Changing controls-•Changing leadership-•Changing strategy- •Changing organisation•Unfreezing Refreezing, Movement.

Strategy ImplementationSteps in Changing Process1.Determining the need for change

2.Determining the obstacles to change

3.Implementing change and

4.Evaluating Change

Techniques of Strategic Evaluation and Control•Strategic Control: There are four types of Strategic Control

1.Premise control

2.Implementation Control

3.Strategic Surveillance and

4.Special Alert Control

Unit V Strategic issues

Strategic issues in Managing Technology and innovation

1. Role of Management

2. Environmental Scanning

3. Time to market issues

4. Strategy formulation

5. Strategy iplementation

6. Innovative culture

7. Corporate entrepreneurship

8. Organisational design

Unit V Strategic issues

8. Organisational design1. Direct integration

2. New product Business Department

3. Micro New venture Department

4. New Venture division

5. Independent Business Units

6. Special Business Units

7. Nurturing and Contracting

8. Contracting

9. Complete spin-off

9.Evaluation and control

Unit V Strategic issues

Strategic Issues in Non Profit Organisation

Non Profit Organisation may be classified as

1. Private hospitals, private educational institutions and charities

2. Public Governmental agencies such as universities, libraries and museums

Application of Strategic Management concepts

1. SWOT analysis

2. Stake holder analysis

3. Corporate governance

4. Industry analysis

5. Competitor analysis

Unit V Strategic issues

Strategic Issues in Non Profit Organisation

Constraints on Strategic Management

1. Service is intangible and difficult to measure

2. Beneficiary’s influence may be weak

3. Sponsors and government interference

4. Strong employees are more committed to their profession

5. Reward punishment system is under severe restraints.

Unit V Strategic issues

Strategic Issues in Non Profit Organisation

1. Issues in Strategy formulation1.Goal conflict

2. Shift from results to resources

3. Goal Displacement and internal politics.

4. Professionalism Vs Rigidity

2. Issues in Strategy Implementation1. Decentralisation

2. Linking pin become important

3. Job enlargement and professionalism

3. Issues in Evaluation and control1. Rewards/punishment are not related to performance

2. Inputs rather than outputs

Unit V Strategic issues

Popular Strategies of Non Profit Organisation

1. Strategic Piggy backing

2. Venture Capital

3. Mergers

4. Strategic Alliance

NEW BUSINESS MODELS AND STRATEGIES NEW BUSINESS MODELS AND STRATEGIES

FOR THE INTERNET ECONOMYFOR THE INTERNET ECONOMY

“If you are going to be in E-commerce, you have to

build a business that destroys the old brick-and-

mortar model.”

“If you are going to be in E-commerce, you have to

build a business that destroys the old brick-and-

mortar model.”

NEW BUSINESS MODELS AND STRATEGIES NEW BUSINESS MODELS AND STRATEGIES FOR THE INTERNET ECONOMY FOR THE INTERNET ECONOMY

• Internet Technology and Market Structure

• Strategy-Shaping Characteristics of the E-Commerce Environment

• E-Commerce Business Models and Strategies

• Internet Strategies for Traditional Businesses

• Innovative Business Models and Fast-Evolving Strategies are KSFs in E-Commerce

Impact of the Internet and E-Commerce

• Impact on external industry environment– Changes character of the market and

competitive environment– Creates new driving forces and

key success factors– Breeds formation of new strategic groups

• Impact on internal company environment– Having, or not having, e-commerce capabilities tilts

the scales toward valuable resource strengths or threatening weaknesses

– Creatively reconfiguring the value chain will affect a firm’s competitiveness vis-à-vis rivals

Characteristics of InternetMarket Structure

• Internet is composed of– Integrated network of users’ connected

computers

– Banks of servers and high-speed computers

– Digital switches and routers

– Telecommunications equipment and lines

Supply Side of the Internet Economy

• Major groups of Internet and e-commerce firms comprising the supply side include– Makers of specialized communications

components and equipment– Providers of communications services– Suppliers of computer components and

hardware– Developers of specialized software– E-commerce enterprises

• Business-to-business merchants• Business-to-consumer merchants• Media companies• Content providers

Strategy-Shaping Characteristicsof the E-Commerce Environment

• Internet makes it feasible for companies everywhere to compete in global markets

• Competition in an industry is greatly intensified by new e-commerce strategic initiatives of existing rivals and by entry of new, enterprising e-commerce rivals

• Entry barriers into e-commerce world are relatively low

• On-line buyers gain bargaining power

Strategy-Shaping Characteristics of theE-Commerce Environment (continued)

• Internet makes it feasible for firms to reach beyond their borders to find the best suppliers and, further, to collaborate closely with them to achieve efficiency gains and cost-savings

• Internet and PC technologies are advancing rapidly, often in uncertain and unexpected directions

• Internet results in much faster diffusion of new technology and new ideas across the world

• E-commerce environment demands that firms move swiftly - “at Internet speed”

Strategy-Shaping Characteristics of theE-Commerce Environment (continued)

• Internet and e-commerce technology open up a host of opportunities for reconfiguring industry and company value chains

• Internet can be an economical means of delivering customer service

• Capital for funding potentially profitable e-commerce businesses is readily available

• Needed e-commerce resource in short supply is human talent, in the form of both technological expertise and managerial know-how

Effects of the Internet and E-Commerce

• Can produce important shifts in an industry’s competitive forces

• Alters industry value chains, spawning substantial opportunities for increasing efficiency and reducing costs

• Affects a company’s resource strengths and weaknesses

• Rapid pace of technological change with an often uncertain direction

Overview of E-CommerceBusiness Models and Strategies

• Provide new opportunities to put a globally-connected Internet infrastructure in place

– Build out telecommunications system

– Install millions of servers

– Provide high-speed Internet connections to billions of businesses and households

– Develop software and networks to create a wired global economy

• Offer potential to exploit business opportunities in a globally wired e-commerce environment

– Business-to-business sales

– E-procurement

– Business-to-consumer sales

– E-retailing

– Provide content

– Provide services to users

Business Models: Suppliers of Communications Equipment

• Traditional business model of a manufacturer is being used by most firms to make money– Sell products to customers at prices above costs– Produce a good return on investment

• Strategic issues facing equipment makers – Several competing technologies for various

components of the Internet infrastructure exist– Competing technologies may

• Have different performance pluses and minuses

• Be incompatible

Strategy Options for Suppliers of Communications Equipment

• Invest aggressively in R&D to win the technological race against rivals

• Form strategic alliances to build consensus for favored technological approaches

• Acquire other companies with complementary technological expertise

• Hedge firm’s bets by investing sufficient resources in mastering one or more of the competing technologies

Business Models: Suppliers of Communications Services

• Business models are based on profitably selling services for a fee based on a flat rate per month or volume of use

• Firms must invest heavily in extending lines and installing equipment to have capacity to– Provide desired point-to-point service and– Handle traffic load

• Investment requirements are particularly heavy for backbone providers, creating sizable up-front expenditures and heavy fixed costs– Key to success - Establish networks ahead of

rivals to get in position to sign up customers

Business Models: Suppliers of Communications Services (continued)

• Fierce competition has emerged among “last mile” providers selling high-speed Internet access

• Strategic options– Provide high-speed (broadband) Internet

connections using new digital signal line technology– Provide wireless broadband services or

cable Internet service– Bundle local telephone service, long distance

service, cable TV service and Internet access into a single package for a single monthly fee

• Key strategic weapons for last mile providers - Name recognition and advertising

Business Models: Suppliers ofComputer Components and Hardware

• Traditional business model is used - Make money by selling products at prices above costs

• Strategic approaches– Stay on cutting edge of technology– Invest in R&D– Move quickly to imitate technological advances

and product innovations of rivals

• Key to success - Stay with or ahead of rivals in introducing next-generation products

• Competitive advantage will most likely be based on strategies keyed to low-cost

Business Models: Developers of Specialized E-Commerce Software

• Business model involves – Investments in designing and developing

specialized software

– Marketing and selling software to other firms

• Profitability hinges on volume

• Strategic approaches– Sell software at a set price per copy

– Collect a fee for every transaction provided by the software

– Rent or lease the software

Business Models: E-Commerce Retailers

• Sell products at or below cost and make money by selling advertising to other merchandisers

• Use traditional model of

– Purchasing goods from manufacturers and distributors

– Marketing items at a Web store

– Filling orders from inventory at a warehouse

• Operate Web site to market and sell product/service and outsource manufacturing, distribution and delivery activities to specialists

Strategic Approaches:E-Commerce Retailers

• Spend heavily on advertising to build widespread brand awareness, draw traffic, and start process of developing customer loyalty

• Add new product offerings to help attract traffic to firm’s Web site

• Be a first-mover or at worst an early mover

• Pay consideration attention to Web site attractiveness to generate “buzz” about the site among surfers

• Keep Web site innovative, fresh, and entertaining

Business Models: Suppliers ofE-Commerce Services

• Key strategic issue for e-commerce retailers - Handling warehousing and delivery activities

• Firms are using services of “Internet middlemen” to efficiently sort all the supplier choices

• Firms are using focus strategies to zero in on specific niches, pursuing competitive advantage based on– First-mover mastery of a particular technology– Product superiority– Unique product attributes– Convenience and ease of use– Speed– More value for the money

Internet Strategies forTraditional Businesses

• Use Internet technology to communicate and collaborate closely with suppliers and distribution channel allies

• Reengineer company and industry value chains to revamp how certain activities are performed and to eliminate or bypass others

• Make greater use of build-to-order manufacturing and assembly

• Build systems to pick and pack products that are shipped individually

Internet Strategies forTraditional Businesses (continued)

• Use Internet to give both existing and potential customers another choice of how to interact with the company

• Adopt Internet as an integral distribution channel for accessing new buyers and geographic markets

• Gather real-time data on customer tastes and buying habits, doing real-time market research, and use results to respond more precisely to customer needs and wants

Key Success Factors: Competing inthe E-Commerce Environment

• Employ an innovative business model• Develop capability to quickly adjust business model

and strategy to respond to changing conditions• Focus on a limited number of competencies and

perform a relatively specialized number of value chain activities

• Stay on the cutting edge of technology• Use innovative marketing techniques that

are efficient in reaching the targeted audience and effective in stimulating purchases

• Engineer an electronic value chain that enables differentiation or lower costs or better value for the money

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Motivation No.2: Strategic Management1.What are the generic building blocks of competitive advantage?

2. Elaborate the impact of strategy implementation

3. Describe and evaluate alternative expansion stratergies.

4. Discus some major business policies

5.Explain BCG MATRIX &GE Matrix

6.What is a strategic planning

7. How does socio –economic factor influence the strategic management.

8. Write briefly about strategic alliance

9. What is cost leadership? Explain the Advantages and disadvantages of cost leadership.

10.Explain value chain and exit barrier

11.What is bench marking? Explain differentiation strategy.

12. Explain the different types of stability strategy with example.

13. What is SWOT analysis