Module 2..FINAL

MODULE 2

STRATEGICANALYSIS

Strategic Intent

Hierarchy of objectives

Vision

A strategic vision is a roadmap showing the route a company intends to take in

developing and strengthening its business. It paints a picture of a company’s

destination and provides a rationale for going there. The vision statement answers

the question, “where are we going and why?”

Elements of a vision statement

• Envisioned future : future business scope

• Core values: the beliefs, business principles, and practices that guide the conduct of its business, and the behavior of company personnel.

Why Vision?

• Breaks the firm out of boundary thinking.

• Provides continuity for new product – market scopes

• Communicates purpose to stakeholders

• Promotes interest and commitment

• Nurtures a creative environment

• Encourages and builds confidence

Characteristics of an effectively worded Vision statement

• Graphic

• Directional

• Focused

• Flexible

• Feasible

• Desirable for long term interest of stakeholders.

• Easy to communicate.

Common shortcoming in Company Vision statements

• Incomplete- short on desired destination

• Vague in terms of product/market/customer/technology focus

• Bland- lack motivational power

• Not Distinct

• Too generic

• Too reliant on ornamental superlatives.

Communicating Vision internally and externally

• Internally vision is expected to motivate and generate enthusiasm. Normally companies summarize the vision statement in a powerful slogan for internal circulation.

• Externally vision is meant to establish credibility , trust and pride in its stakeholders.

Exelon’sStrategic Vision

One Company, One Vision.Exelon strives to build exceptional value - by

becoming the best and most consistently profitable electricity and gas company in the United States.

To succeed, we must . . .

Live up to our commitments . . .

Perform at world-class levels . . .

Invest in our consolidating industry . . .

Examples of Strategic Visions

Red Hat LinuxTo extend our position as the most trusted Linux and open

source provider to the enterprise. We intend to grow the market for Linux through a complete range of enterprise Red

Hat Linux software, a powerful Internet management platform, and associated support and services.

Wells FargoWe want to satisfy all of our customers’ financial needs,

help them success financially, be the premier provider

of financial services in every one of our markets, and

be known as one of America’s great companies.


WyethOur vision is to lead the way to a healthier world. By

carrying out this vision at every level of our organization,we will be recognized by our employees, customers, and

shareholders as the best pharmaceutical company in the world, resulting in value for all. We will achieve this by:

• Leading the world in innovation by linking pharmaceutical, biotech, and vaccines technologies

• Making quality, integrity, and excellence hallmarksof the way we do business

• Attracting, developing, and motivating the best people• Continually growing improving our business


Dental Products Division of 3M Corporation

Become THE supplier of choice to the global dental professional markets, providing world-class quality and innovative products.

[All employees of the division wear badges bearing these words, and whenever a new product or business procedure is being considered, management asks “Is this representative of

THE leading dental company?”]

NikeTo bring innovation inspiration to every athlete in the world.


IntelOur vision: Getting to a billion connected computers

worldwide, millions of servers, and trillions of dollars of e-commerce. Intel’s core mission is being the

building block supplier to the Internet economy and spurring efforts to make the Internet more useful. Being connected is now at the center of people’s

computing experience. We are helping to expand the capabilities of the PC platform and the Internet . . . We

have seen only the early stages of deployment of digital technologies.


HeinzOur vision, quite simply, is to be the world’s premier food company,

offering nutritious, superior tasting foods to people everywhere. Being the premier food company does not mean being the

biggest but it does mean being the best in terms of consumer value, customer service, employee talent, and consistent and

predictable growth.

General ElectricWe will become number one or number two in every market we

serve, and revolutionize this company to havethe speed and agility of a small enterprise.

Mission

Raison de etre ( reason for existence) :

Also known as socio economic purpose. Tends to establish what it wants to do for

the customers and how. Element of philanthropy and stakeholder

orientation got added with the adoption of social responsibility concept.

3-dimensions to mission statements

• Served customer groups: categories of customers

• Served customer functions: customer needs

• Technologies utilized: ways of serving needs.

Key Elements ofa Mission Statement

• Three factors to consider

– Customer needs –What is being satisfied

– Customer groups –Who is being satisfied

– Technologies/resources/business approaches used and activities performed –How customer needs are satisfied

Why mission?

• Enables management to identify the boundary between what to do and what not.

• Crystallizes top management’s view of the firm’s long term direction

• Helps mangers to keep the firm in right track.

• Identifies a common path of action

• Provides for a yardstick to measure performance against aspirations.

Vision vs. Mission

• Vision is about future business scope whereas mission is about present business scope and purpose.

• Vision is destination focused whereas mission is activity oriented.

METHODS & TECHNIQUES USED FOR STRATEGIC ANALYSIS …

SWOT, BCG, GE Matrix , McKinsey 7S

Balanced Scorecard

Competitive Advantage Profile

Strategic Advantage profile

Internal Factor Analysis Summary

ENVIRONMENTAL SCANNING

• Environmental scanning is a process of gathering, analyzing, and dispensing information for tactical or strategic purposes.

TECHNIQUES OF ENVIRONMENT SCANNING

SWOT ETOP

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

ETOP

• It is a process of dividing the environment into different sectors and then analyzing the impact of each sector on the organization.

ETOP (contd..)

• Divide the environment into a number of sectors

• Analyze the impact of each sector on the organization.

• Each sector may have a number of factors.

• The impact of each (factor in a) sector on the organization is given in a statement form.

• This will lead to identification of opportunities and threats for the organization.

ETOP (contd..)

• Environmental analysis method– Environmental threat and opportunity profile for an

organization

– Divide the environment into different sectors and then analyzing the impact of each sector on the organization.

• Economic• Market• International• Political• Regulatory• Social• Supplier• Technological

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 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

ENVIRONMENTAL ANALYSIS

Environment:-

• Aggregate of all conditions, events and influences that surround and affect an organization

Shape the future of the organization

CHARACTERISTICS OF ENVIRONMENT

• UNCERTAIN

• COMPLEX

• DYNAMIC

• MANY-SIDED

• WIDE RANGING INFLUENCE

ENVIRONMENTAL SCANNING

• Monitoring, Evaluating and disseminating of information from the external and internal environments to key people within the organization.

• Done to avoid strategic surprise and maintain long term corporate health.

• Positive relationship is demonstrated between environmental scanning and profits

• EXTERNAL ENVIRONMENT:

Surrounding Factors outside an organization which give rise to opportunities and threats for the organization.

• INTERNAL ENVIRONMENT

Surrounding Factors inside an organization that give rise to strengths and weaknesses of an organization to manage the opportunities and threats posed by the external environments.

Opportunity:

Favorable position in the external environment that consolidates and strengthens its position.

Threat:

Unfavorable position in the external environment that may cause damage and risk to the organization.

Strength:

Inherent capacity within an organization that helps it to gain some sort of strategic advantage.

Weakness:

inbuilt constraint or limitation of the organization that can cause strategic disadvantage.

• IS ENVIRONMENTAL SCANNING NECESSARY?

NEED FOR ENVIRONMENTAL APPRAISAL

• To learn about events and trends in the environment and project the future position in each factor of the environment.

• To identify the favorable and unfavorable factors of the environment from the firm’s view

• To find the opportunities and threats embedded in the environmental events and trends.

• To assess the scope of various opportunities and identify the ones having the potential of becoming good businesses

• To draw up the attractiveness profile of these opportunities

• To draw an opportunity threat profile

• To identify those opportunities that will help in reducing the strategic gap

CURRENT

STRATEGY

DESIRED PERFORMANCE

EXPECTED PERFORMANCE OF CURRENT STRATEGY

THREAT

NEED GAPTO BE BRIDGED

SEARCH FOR OPPORTUNITY

THE NEED GAPTHE NEED GAP

RELEVANT EXTERNAL ENVIRONMENT

• Part of general environment, having strategic significance for the organization.

• Will include those factors that are highly related to the mission, vision, objectives and strategies of the company.

EXTERNAL ENVIRONMENT• MACRO ENVIRONMENT

(Societal environment)

General forces that do not directly affect the short run activities of the organization but can have an influence on the long run decisions of the organization. (political, laws and regulations etc.)

• MICRO ENVIRONMENT(Task environment)

Elements or groups that directly affect the company and in turn are affected by it.(Issues directly related to business-unions etc.)

CONSTITUENTS OF MACRO ENVIRONMENT

• Demographic environment• Socio – cultural environment• Economic environment• Political environment• Natural environment• Technology environment• Legal environment• Government policies

Demographic environment

CHARACTERISTICS OF POPULATION• Size • Growth rate• Age distribution• Religious composition• Literacy levels• Composition of workforce• Household patterns• Regional characteristics• Population shifts

Socio – cultural environment

FORCES THAT REGULATE THE VALUES,MORALS AND CUSTOMS OF THESOCIETY• Culture• Social class• Traditions• Beliefs • Values• Attitudes• Life styles

Economic environment

Factors related to means of production anddistribution of wealth and affect the

organization’s business• Economic structure• Stage of economic development• GDP/ GNP trends• Per capita income• Real disposable income• Monetary, fiscal and industrial policies• Infrastructural factors• Unemployment level• Wage levels• Membership in regional economic associations

Political environment

Factors affecting the management of public affairs and having an impact on the business of an organization

• Form of government• Political ideology• Tax laws• Stability of governments• Government’s attitude towards business• Strength of opposition groups.• Terrorist activities• Protectionist sentiment

Natural environment

Natural forces having an impact on

organizations

• Ecology

• Endowment of natural resources; raw materials, energy, gas

• Climate

• Pollution levels

Technological environment

• Forces that generate problem solving inventions

• Total government and industry spending on R&D

• New developments in technology

• Rules related to technology transfer

• Energy availability and cost

• Patent – trademark laws

Legal environment

• Laws and legislations related to business• Corporate affairs• Consumer protection• Employee protection• Sectoral protection• Corporate protection • Protection of society• Regulations on products, prices and distribution• Protection of national firms against foreign firms.• Any Other Government policies that may affect business

organizations.

CONCERNS TO BE TAKEN INTO ACCOUNT FOR ENVIRONMENTAL

SCANNING• EVENTS: important and specific occurrences

within each environmental sector

• TRENDS: tendencies or course of actions along the events

• ISSUES: specific factors related to the events and trends

• EXPECTATIONS: demands made by related stakeholders on certain issues

• Environmental scanning is necessary for the strategy formulation (in the SM process). Organizations develop their own approaches for environmental scanning.

IDENTIFYING STRATEGIC EXTERNAL FACTORS

• External environment is vast and companies respond differently to the very same factors

• Personal values of a corporation’s manager and the success of current strategy may bias their perception of what to monitor in the external environment and how to interpret the changes

INDUSTRY ANALYSIS

• INDUSTRY: a group of firms producing similar products or services.

• INDUSTRY ANALYSIS: examination of important group of stakeholders, related closely to the business.

• Any organization is most concerned about the intensity of competition in its business / industry.

• The degree of this intensity of competition determines the profit potential of the company in the long run (return on investment capital)

DETERMINANTS OF INTENSITY OF COMPETITION

Industry competition

Rivalry amongst firms

Potential entrants

Buyers Buyers

Substitutes

Suppliers

Bargaining power of buyers

Bargaining power of suppliers

Threat of substitute products or services

Threat of new entrants

• The individual strength of each of the force will contribute to the intensity of competition.

• A stronger one will be a threat and a weaker one an opportunity

• It is still possible for the company to convert its threat into an opportunity in the long run.

• By analyzing each of these force an organization can determine the amount of competition it will have to face .

Threat of new entrants

Bring new capacity, desire to gain market share and resources.Possible Entry Barriers leading to low threat of new entrants.

• Economies of scale • Product differentiation• Capital requirements• Switching Costs• Access to distribution channels• Government policies

Rivalry amongst firms

Intense rivalry is related to a number of factors• Number of competitors• Rate of growth of industry competitors• Product or service characteristics• Capacity• Height of exit barriers• Diversity of rivals

Threat of substitute products or services

All those products or services that appear to

be different but can satisfy the same need

Threat is high when:

• Differentiation is not unique.

• Effect is large if switching costs are low

Bargaining power of buyers

Effect:

• Can ask for bringing down prices

• Demand Increase in quality

• Demand Increase or diversity in number of services

• Has the ability to play the competitors against each other.

A buyer or group of buyers may be considered powerful

• If they buy huge proportion of a firm’s products or services

• Has the ability to integrate backward

• Alternative suppliers are plenty

• Changing supplier cost is low

• The purchased product accounts for a majority of the buyers cost

• The purchased product makes little difference to his ultimate use

Bargaining power of suppliers

Can affect the industry by raising pricesReducing quality

Suppliers may become powerful when

• Less no. of suppliers present but supply to many companies

• Unique products and services with high switching costs

• Ready substitutes not available

• Suppliers can integrate forward

• Buyer is not important for the supplier

Competitor Analysis

• Study for each company and not industry wise as the case was in industry analysis

• Competitor analysis build on 4 components

– Future goals of a competitor

– Its current strategy

– The key assumptions that the competitor makes

about itself

– capabilities of competitor in terms of strengths and weakness

• Sizing up strategies and competitive strengths and weaknesses of rivals involves assessing

Which rival has the best strategy? Which rivals appear to have weak strategies?

Which firms are poised to gain market share, and which onesseen destined to lose ground?

Which rivals are likely to rank among the industry leaders five years from now? Do any up-and-coming rivals have strategies and the resources to overtake the current industry leader?

Considerations Involved inPredicting Moves of Rivals

• Which rivals need to increase their unit sales and market share? What strategies are rivals most likely to pursue?

• Which rivals have a strong incentive, along with resources, to make major strategic changes?

• Which rivals are good candidates to be acquired? Which rivals have the resources to acquire others?

• Which rivals are likely to enter new geographic markets?

• Which rivals are likely to expand their product offerings and enter new product segments?

Q #6: What Are the Key Factors for Competitive Success?

• KSFs are those competitive factors most affecting everyindustry member’s ability to prosper. They concern

– Specific strategy elements

– Product attributes

– Resources

– Competencies

– Competitive capabilities

that a company needs to have to be competitively successful

• KSFs are attributes that spell the difference between

– Profit and loss

– Competitive success or failure

Identifying IndustryKey Success Factors

• Pinpointing KSFs involves determining

– On what basis do customers choosebetween competing brands of sellers?

– What resources and competitive capabilities does a seller need to have to be competitively successful?

– What does it take for sellers to achieve a sustainable competitive advantage?

• KSFs consist of the 3 - 5 major determinantsof financial and competitive success

Example: KSFs forBeer Industry

• Full utilization of brewing capacity –to keep manufacturing costs low

• Strong network of wholesale distributors –to gain access to retail outlets

• Clever advertising –to induce beer drinkers tobuy a particular brand

Example: KSFs for Apparel Manufacturing Industry

• Appealing designs andcolor combinations –to create buyer appeal

• Low-cost manufacturingefficiency – to keep sellingprices competitive

Example: KSFs for Tin andAluminum Can Industry

• Locating plants close to end-use customers –to keep costs of shipping empty cans low

• Ability to market plant output withineconomical shipping distances

Q #7: Does the Outlook for the Industry Present an Attractive

Opportunity?• Involves assessing whether the industry

and competitive environment is attractiveor unattractive for earning good profits

• Under certain circumstances, a firm uniquelywell-situated in an otherwise unattractive industrycan still earn unusually good profits

– Attractiveness is relative, not absolute

– Conclusions have to be drawn from theperspective of a particular company

Factors to Consider inAssessing Industry Attractiveness

• Industry’s market size and growth potential• Whether competitive forces are conducive to rising/falling

industry profitability• Whether industry profitability will be favorably or

unfavorably impacted by driving forces• Degree of risk and uncertainty in industry’s future• Severity of problems facing industry• Firm’s competitive position in industry vis-à-vis rivals• Firm’s potential to capitalize on

vulnerabilities of weaker rivals• Whether firm has sufficient resources to

defend against unattractive industry factors

Assessing Industry Attractiveness

The degree to which an industry is attractive or unattractive is often not

the same for all industry participantsor potential entrants.

The opportunities an industrypresents depend partly on a

company’s ability to capture them.

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.

Objectives

• Tangible benchmarks to achieve.

• Quantitative

• Relatively short term

• Directional

• Multiplicity

• Performance measures.

Setting Objectives

• Purpose of setting objectives– Converts vision into specific performance targets

– Creates yardsticks to track performance

– Pushes firm to be inventive, intentional, andfocused in its actions

• Setting challenging, achievableobjectives guards against– Complacency

– Internal confusion

Characteristics of Objectives• Represent commitment to achieve

specific performance targets

• Spell-out how much of what kindof performance by when

• Well-stated objectives are– Quantifiable

– Measurable

– Contain a deadline for achievement

Establishing objectives converts thevision into concrete performance outcomes!

Areas where objectives may be set

• Profitability

• Efficiency

• Growth

• Shareholder wealth

• Resource utilization

• Contribution to employees and society

• Technological leadership

Using balanced scorecard for objective setting

The Balanced Scorecard is a management system (not only a measurement system) that enables organizations to clarify their vision and strategy and translate them into action..

Using balanced scorecard for objective setting(contd..)

It provides feedback around both the internal business processes and external outcomes in order to continuously improve strategic performance and results. When fully deployed, the balanced scorecard transforms strategic planning from an academic exercise into the nerve center of an enterprise

BALANCED SCORECARD- KAPLAN & NORTON

4 performance measures• Customer perspective• Internal business perspective• Innovation & learning perspective• Financial perspective

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 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.



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.



3. Some non-financial measures are drivers of financial outcome measures which give managers more control to take corrective actions quickly.


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 PerspectiveHow do our

customers look at us?

Learning and Growth

PerspectiveHow can we continue

to improve?

Internal Business PerspectiveWhat we must

excel at?

Casual link between the measuresCasual link between the measures

Linking BSC and StrategyLinking BSC and Strategy

Strategic Strategic InitiativesInitiatives

Learning & GrowthLearning & GrowthDrivers Drivers Outcomes Outcomes

Internal ProcessInternal ProcessDrivers Drivers Outcomes Outcomes

Customer PerspectiveCustomer PerspectiveDrivers Drivers Outcomes Outcomes

Financial Financial GoalsGoals

The BS covers four important perspectives in a business:

• Financial: is the company attractive to shareholders?

• Customer: Does the company provide value to its customers?

• Internal Business: What does the company excel at?

• Innovation & learning: Is the company improving and innovating continually?

Steps in a building a balanced scorecard

LEARNING AND GROWTH- Access to Strategic Information- Employee Satisfaction- Organization Structured for Continuous Improvement- Quality Workforce

FINANCIAL- Optimum Cost Efficiency of Purchasing Operations

MISSIONVISION

STRATEGY

CUSTOMER- Customer Satisfaction- Effective Service/Partnership

INTERNAL BUSINESS PROCESSES- Acquisition Excellence- Most Effective Use of Contracting Approaches- Streamlined Processes- On-Time Delivery- Supplier Satisfaction- Socioeconomics

BALANCED SCORECARDPerspectives with hypothetical metrics

Market Analysis

Tools of Market Analysis

Market Structure

Market Structure

• Nature of the market structure determines marketing strategy:– Pricing strategy– Branding?– Product Differentiation?– Market Penetration?– Market Skimming?– Direct Selling?

Market Position

Market Position

• Market Niche – small part of an existing market

• Market Leader – maintain dominant position in the market? Egs: P&G, HLL, Reliance, Ranbaxy, Nokia, Sony

• Market Follower – Follow the market leader – pricing, product development, etc. Egs.: Retail outlets

• Market Challenger –adopt market leader’s position. Egs HP (Encirclement attack), Sony’s Bypass attack to Nintendo, Vodaphone

Market Objectives

Market Segments

Which Segment?

Which Segment?

• Mass Markets – high volume, low margin goods – confectionary, cars, clothing, food stuffs

• Multiple Segments (cross) – appealing to wider range of groups - town, country, gender, lifestyle, social class?

• Single Segment – often a specialised product, e.g. machinery, exclusive goods

Scenario analysis

Scenario analysis

• Scenario analysis is a process of analyzing possible future events by considering alternative possible outcomes (scenarios)

• For example, in economics and finance, a financial institution might attempt to forecast several possible scenarios for the economy (e.g. rapid growth, moderate growth, slow growth) and it might also attempt to forecast financial market returns (for bonds, stocks and cash) in each of those scenarios. It might consider sub-sets of each of the possibilities. It might further seek to determine correlations and assign probabilities to the scenarios (and sub-sets if any)

Use of scenario planning by managers

• The basic concepts of the process are relatively simple. In terms of the overall approach to forecasting, they can be divided into three main groups of activities (which are, generally speaking, common to all long range forecasting processes):

• Environmental analysis • Scenario planning • Corporate strategy

• The first of these groups quite simply comprises the normal . This is almost exactly the same as that which should be undertaken as the first stage of any serious long-range planning. However, the quality of this analysis is especially important in the context of scenario planning.

• The central part represents the specific techniques - covered here - which differentiate the scenario forecasting process from the others in long-range planning.

• The final group represents all the subsequent processes which go towards producing the corporate strategy and plans. Again, the requirements are slightly different but in general they follow all the rules of sound long-range planning.

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

Process for scenario planning

• The ACTUAL STEPS USED BY Shell, is a six step process:– Decide drivers for change/assumptions

• Brainstorming• Important and uncertain

– Bring drivers together into a viable framework– Produce 7-9 initial mini-scenarios

• Complementary scenarios • Testing

– Reduce to 2-3 scenarios – Draft the scenarios – Identify the issues arising

Use of scenarios

• Containers for the drivers/event strings

• Tests for consistency

• Positive perspectives

THANK YOU

Documents

Module 2..FINAL