1 STRATEGIC MANAGEMENT A CONCEPT ON STRATEGIC THINKING AND MODUS OPERANDI FOR SURVIVAL IN 21 st...

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STRATEGIC MANAGEMENT

AACONCEPT ON STRATEGIC THINKING

AND MODUS OPERANDI FOR SURVIVAL IN 21st CENTURY

Alokesh Banerjee

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WHY STRATEGIC THINKING?WHY STRATEGIC THINKING? Companies are operating in age of discontinuing change - an age of creative &

constructive destruction. Business, technology and product life is shrinking. Demographic shift in terms of consumer preference and requirements. A direct promotion from Agricultural economy to service or Hi-tech economy in

the new growth economy. A concept from liberalization, privatization & Globalization (LPG) to

regionalization. Shift from controlled economy to market driven economy. Rich countries adopt deindustrialization. Emergence of new Global Socio – economic system and world orders. Knowledge is replacing Infrastructure Self-leadership is in, command and control out Networks are replacing hierarchies Wanted - employees with Emotional Intelligence.

Current Trends –Current Trends –

Increasing environmental awarenessIncreasing environmental awareness Growing health consciousnessGrowing health consciousness Expanding seniors marketExpanding seniors market Impact of the Generation Y boom letImpact of the Generation Y boom let Declining mass marketDeclining mass market Changing pace and location of lifeChanging pace and location of life Changing household compositionChanging household composition Increasing diversity of workforce & marketIncreasing diversity of workforce & market

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Competitive success is transient...unless care is taken to preserve competitive positionCompetitive success is transient...unless care is taken to preserve competitive position

Only 16 of the 100 largest U.S. companies at the start of the 20th century are still identifiable today!

Only 16 of the 100 largest U.S. companies at the start of the 20th century are still identifiable today!

In a recent year, 44,367 businesses filed for bankruptcy and many more U.S. businesses failedIn a recent year, 44,367 businesses filed for bankruptcy and many more U.S. businesses failed

Challenge of Strategic ManagementChallenge of Strategic Management

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Challenge of Strategic ManagementChallenge of Strategic Management

The goals of achieving The goals of achieving strategic competitiveness strategic competitiveness and earning above-and earning above-average returns are average returns are challenging challenging

The performance of The performance of some companies more some companies more than meets strategic than meets strategic management's management's challenge challenge

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• Rapid technological changes• Rapid technological changes

• Rapid technology diffusions• Rapid technology diffusions

• Dramatic changes in information and communication technologies

• Dramatic changes in information and communication technologies

• Increasing importance of knowledge

• Increasing importance of knowledge

Fundamental nature of competition is changingFundamental nature of competition is changing

The pace of change is relentless....and increasing

The pace of change is relentless....and increasing

Traditional industry boundaries are blurring, such as...

Traditional industry boundaries are blurring, such as...

• Computers• Telecommunications• Computers• Telecommunications

21st Century Competitive Landscape21st Century Competitive Landscape

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The global economy is changingThe global economy is changing

• People, goods, services and ideas move freely across geographic boundaries

• New opportunities emerge in multiple global markets

• Markets and industries become more internationalized

• People, goods, services and ideas move freely across geographic boundaries

• New opportunities emerge in multiple global markets

• Markets and industries become more internationalized

Traditional sources of competitive advantage no longer guarantee success

Traditional sources of competitive advantage no longer guarantee success

New keys to success include:New keys to success include:

• Flexibility• Innovation• Speed• Integration

• Flexibility• Innovation• Speed• Integration


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1999 1998 Country CompetitivenessIndex 1999

CompetitivenessIndex 1998

1 1 Singapore 2.12 2.162 3 United States 1.58 1.413 2 Hong Kong 1.41 1.914 6 Taiwan 1.38 1.195 5 Canada 1.33 1.276 8 Switzerland 1.27 1.107 10 Luxembourg 1.25 1.058 4 United Kingdom 1.17 1.299 7 Netherlands 1.13 1.13

10 11 Ireland 1.11 1.0511 15 Finland 1.11 0.7012 14 Australia 1.04 0.7913 13 New Zealand 10.1 0.8414 12 Japan 1.00 0.9715 9 Norway 0.92 1.0916 17 Malaysia 0.86 0.5917 16 Denmark 0.85 0.6118 30 Iceland 0.59 -0.1819 23 Sweden 0.58 0.2520 20 Austria 0.37 0.3721 18 Chile 0.57 0.5722 19 Korea 0.46 0.3923 22 France 0.44 0.2524 27 Belgium 0.39 -0.0325 24 Germany 0.37 0.1526 25 Spain 0.16 0.02

Country Competitiveness RankingsCountry Competitiveness RankingsA country’s A country’s competitiveness is competitiveness is achieved through the achieved through the accumulation of accumulation of individual firms’ individual firms’ strategic strategic competitiveness in competitiveness in the global economythe global economy

Achieving improved Achieving improved competitiveness competitiveness allows a country's allows a country's citizens to have a citizens to have a higher standard of higher standard of living living


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Changing Corporations

Old Organizational Format New Organizational Format

One large corporation Mini-business units & cooperative relationships

Vertical communication Horizontal communication

Centralized top-down decision making Decentralized participative decision making

Vertical integration Outsourcing & Virtual Organizations

Work/quality teams Autonomous work teams

Functional work teams Cross-functional work teams

Minimal training Extensive training

Specialized job design focused on individual Value-chain team-focused job design

Stability & Structured & Gradual Change & Flexibility & Speedy, Fast

Mass Production Mass Customization

* Business Week, 28 August, 2000

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FOUR MAJOR THRUST AREAS OF FOUR MAJOR THRUST AREAS OF BUSINESSBUSINESS

Managing Competition- Aggressive Marketing – Market Share – Go

Global- Superior Quality of Products / Services- Cost Reduction / Lowering Prices - Faster Deliveries / Response Time- Innovations / Productivity Improvements

Developing Leadership Skills for Vision and Change.

To focus on People besides Products, Process, Profits. Today, every person is a Profit Center.

Using IT based tsunami of information, ideas and tools for managing the business – E Business

Making ours a Learning Organization

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PRODUCT

MARKET FUNCTION

What Business the Firm is in?Why the Firm is in the Business?What should be Firm’s Business?

WHAT IS BUSINESS?

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Strategic Management

Creating & Sustaining Competitive Advantages, Globally

Why? To ensure Growth with Profits in the long-run!

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which are required for firms to achieve:which are required for firms to achieve:

Above-Average ReturnsAbove-Average Returns

Strategic CompetitivenessStrategic Competitiveness

Sustained Competitive AdvantageSustained Competitive Advantage

The Strategic Management SystemThe Strategic Management System

Involves the full set of:Involves the full set of:

ActionsActionsCommitmentsCommitments DecisionsDecisions

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Sustained Competitive AdvantageSustained Competitive Advantage

Above-Average ReturnsAbove-Average ReturnsReturns in excess of what an investor expects to Returns in excess of what an investor expects to earn from other investments with similar riskearn from other investments with similar risk

Occurs when a firm develops a strategy that Occurs when a firm develops a strategy that competitors are not simultaneously implementingcompetitors are not simultaneously implementing

Provides benefits which current and potential Provides benefits which current and potential competitors are unable to duplicatecompetitors are unable to duplicate

Strategic CompetitivenessStrategic CompetitivenessAchieved when a firm successfully formulates Achieved when a firm successfully formulates and implements a value-creating strategyand implements a value-creating strategy

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BASIC CONCEPTS

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.

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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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Strategic Strategic PlanningPlanning

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Three Big Strategic Three Big Strategic QuestionsQuestions

Where Are We Where Are We Now?Now?

Where Do we Want Where Do we Want to Go?to Go?

How Will We Get How Will We Get There?There?

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The Five Task of Strategic The Five Task of Strategic PlanningPlanning

Developing a Vision and a MissionDeveloping a Vision and a Mission Setting ObjectivesSetting Objectives Crafting a StrategyCrafting a Strategy Implementing and Executing StrategyImplementing and Executing Strategy Evaluating Performance, Reviewing Evaluating Performance, Reviewing

the Situation and Initiating Corrective the Situation and Initiating Corrective ActionAction

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An organization’s MISSIONAn organization’s MISSION

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

sets forth a meaningful direction for the sets forth a meaningful direction for the organizationorganization

indicates an intent to stake out a indicates an intent to stake out a particular business positionparticular business position

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

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Setting ObjectivesSetting Objectives

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

Serve as yardsticks for Serve as yardsticks for tacking company tacking company progress and progress and performance.performance.

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

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Two Types of Objectives Two Types of Objectives are Neededare Needed

FINANCIAL FINANCIAL OBJECTIVESOBJECTIVES

STRATEGIC STRATEGIC OBJECTIVESOBJECTIVES

Short-RunShort-Run Long-RunLong-Run

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Crafting a StrategyCrafting a Strategy

HOW to out compete rivals and win a HOW to out compete rivals and win a competitive advantage.competitive advantage.

HOW to respond to changing industry HOW to respond to changing industry and competitive conditions and competitive conditions

HOW to defend against threats to the HOW to defend against threats to the company’s well-beingcompany’s well-being

HOW to pursue attractive HOW to pursue attractive opportunitiesopportunities

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Crafting Strategy is an Crafting Strategy is an Exercise in Exercise in

EntrepreneurshipEntrepreneurship Risk-taking and Risk-taking and

venture someone'sventure someone's Innovation and Innovation and

business creativity· business creativity· A keen eye for A keen eye for

spotting emerging spotting emerging market market opportunities· opportunities·

Choosing among Choosing among alternativesalternatives

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Why Good Management of Strategy MattersWhy Good Management of Strategy Matters

Powerful execution of a powerful strategy is Powerful execution of a powerful strategy is a proven recipe for success.a proven recipe for success.

Crafting and implementing a strategy are Crafting and implementing a strategy are CORE management functions.CORE management functions.

To qualify as WELL-MANAGED, a company To qualify as WELL-MANAGED, a company should · Have an attractive strategyshould · Have an attractive strategy

A good strategy builds a position that is A good strategy builds a position that is strong enough to overpower rivals and strong enough to overpower rivals and flexible enough to overcome unexpected flexible enough to overcome unexpected obstaclesobstacles..

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Why is a Company’s Why is a Company’s Strategy Constantly Strategy Constantly

Evolving?Evolving? Changing market conditions· Changing market conditions· Moves of competitors· Moves of competitors· New technologies and production New technologies and production

capabilities· capabilities· Evolving buyer needs and preferences· Evolving buyer needs and preferences· Political and regulatory factors·Political and regulatory factors· New windows of opportunity·New windows of opportunity· Fresh ideas to improve the current strategy· Fresh ideas to improve the current strategy· A crisis situationA crisis situation

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What is a Strategic Plan?What is a Strategic Plan?

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

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Strategic Management Basic model

Four Basic ElementsFour 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 Characteristic of the Strategic Management Strategic Management

ProcessProcess An ongoing exerciseAn ongoing exercise Boundaries among the tasks are blurry rather than Boundaries among the tasks are blurry rather than

clear-cutclear-cut Doing the 5 task is not isolated from other Doing the 5 task is not isolated from other

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

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

Involves pushing to get the best strategy Involves pushing to get the best strategy supportive performance from each employee, supportive performance from each employee, perfecting the current strategy.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 BusinessImpact Of Environment Business

ENVIRONMENTAL FACTORSENVIRONMENTAL FACTORS

ECONOMICAL

TECHNOLOGICALPOLITICAL

LEGAL

CULTURAL

SOCIETAL

FIRM/BUSINESS

GOVERNMENTAL INTERNATIONAL

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Variables in Societal Environment

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International Societal Environments

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Industry AnalysisIndustry Analysis

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Porter’s Approach to Industry Analysis

Threat of Substitute Products or ServicesThreat of Substitute Products or Services

Bargaining Power of BuyersBargaining Power of Buyers

Bargaining Power of SuppliersBargaining Power of Suppliers

Relative Power of Other StakeholdersRelative Power of Other Stakeholders

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Threat of New EntrantsThreat of New Entrants – –Economies of scaleEconomies of scaleProduct differentiationProduct differentiationCapital requirementsCapital requirementsSwitching costsSwitching costsAccess to distribution channelsAccess to distribution channelsCost disadvantagesCost disadvantagesGovernment policyGovernment policy

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Rivalry Among Existing Firms –Rivalry Among Existing Firms –

Number of competitorsNumber of competitorsRate of industry growthRate of industry growthProduct or service characteristicsProduct or service characteristicsAmount of fixed costsAmount of fixed costsCapacityCapacityHeight of exit barriersHeight of exit barriersDiversity of rivalsDiversity of rivals

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SWOT analysis of strengths, SWOT analysis of strengths, weaknesses, opportunities,and threats.weaknesses, opportunities,and threats.

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TOWS MatrixTOWS Matrix

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CREATING STRATEGIC CREATING STRATEGIC MIND SETMIND SET

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Corporate Strategy

Three Key Issues: Firm’s directional (CORPORATE)

strategy Firm’s portfolio (BUSINESS LEVEL)

strategy Firm’s parenting (FUNCTIONAL

LEVEL) strategy

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Initiation of StrategyInitiation of Strategy

Triggeringevent

•New CEO

•External intervention

•Threat of change inownership

•Performance gap

•Strategic inflection point

Stimulusfor change

instrategy

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Corporate Directional Corporate Directional StrategiesStrategies

COMBINATION STRATEGIES

DERIVED STRATEGIES

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STRATEGIC VARIATIONS - EXPANSIONSTRATEGIC VARIATIONS - EXPANSION INTERNAL: Add new product, product line, market,

functions, redefine/ reposition of product – market. EXTERNAL : Take over, acquisition, merger. RELATED : Synergic diversification. UNRELATED: Non – synergic diversification. HORIZONTAL: Supplementary/ Complementary

Expansion. VERTICAL: Integration. ACTIVE: R & D, Entrepreneurial development. PASSIVE: Imitation, adoption & adaptation.

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IGOR ANSOFF’S BUSINESS GROWTH MODELIGOR ANSOFF’S BUSINESS GROWTH MODEL

PRODUCTS

EXISTING NEW

MA

RK

ETS

/ C

US

TO

ME

RS

EX

ISTIN

GN

EW

Existing Share of Business

EXISTING PRODUCTS IN EXISTING MARKETS

Increase Market Share

SALES MGMT.

NEW PRODUCTS FOR EXISTING CUSTOMERS

NEW PRODUCT DEVELOPMENT, UPGRADES

NEW CUSTOMERS FOR EXISTING LINES OF PRODUCTS

MARKET DEVELOPMENT

BUSINESS DEVELOPMENT

RelatedBusinesses –

CORPORATE PLANNING

Unrelated Businesses

New products /New Markets

Products* Corporate Strategy, I. Ansoff, Jan 1965, McGraw Hill, USA

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SPIN OUTCreating New Business

MANAGING PROJECT

As an external Ventures

ALLIANCE

Joint VenturesVenture Acquisition, Partnering

EXTERNAL INVESTMENTS In

Acquisition of Product, Market,Technology,

or Management control

INTERNAL VENTURESTRATEGY

Managing new products/ services, development projects as

in company Ventures

EXTERNAL VENTURES STRATEGY

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EXTERNAL GROWTH EXTERNAL GROWTH STRATEGIESSTRATEGIES

TAKE OVER, AQUISION & MERGER

BUYING FIRM SELLING FIRM

•Acquire Controlling interest}•Acquire Assets and liabilities} of selling Firm}•Acquire & merge of Assets } liabilities of both the firms.}

•TAKE OVER

•ACQUISION

•MERGER

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WHY THE FIRM PURSURE EXTERNAL EXPANSIONWHY THE FIRM PURSURE EXTERNAL EXPANSION To increase the firm’s stock.. To increase the growth rate of the firm. To make good investments. To improve the firm’s earnings & stability. To balance or fill out the product line. To diversified the product line in mature state. To reduce the competition. To acquire the needed resources. For Tax purpose. To increase the efficiency and profitability. To diversify the owner’s holding. To deal with top management problems..

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CRITICAL ISSUES RELATED TO M & ACRITICAL ISSUES RELATED TO M & A STRATEGIC ISSUES: It relates to the commonality of strategic interest. Strength of one firm may be

weakness of the other firm and vice versa. The firms can create Synergy and complementing business situation.

FINANCIAL ISSUES: These are related to (a) Valuation of selling firms based on assets, market

standing, share prices, earning potential etc. (b) Sources of financing for merger. MANAGERIAL ISSUES: It relates to professional compatibility and acceptance of managerial system of

selling company. LEGAL ISSUES: It is related to various issues of legal provisions such as Chapter V of the

Companies Act, the MRTP Act, and section 72A (I) of the Income Tax Act OR Anti Trust Act, Sherman’s Act.

CULTURAL ISSUES: It relates to the cultural compatibility of the organization, society, market etc. LABOUR ISSUES: It relates to continuation of old staff and subsequent relations. SOCIETAL ISSUES: It relates to the benefits of society and Social compatibility. OTHER ISSUES: It relates to Political, Economic, Environmental factors.

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REASONS FOR FAILUR OF REASONS FOR FAILUR OF EXTERNAL GROWTHEXTERNAL GROWTH

Paying too much for the acquired firm.Paying too much for the acquired firm. Assuming that a growing market or product will be out Assuming that a growing market or product will be out

standing in market.standing in market. Leaping into merger without carefully studying the Leaping into merger without carefully studying the

consequences.consequences. Diversifying in to areas in which the firm had too little Diversifying in to areas in which the firm had too little

knowledge. knowledge. Buying too large a firm and thus incurring an Buying too large a firm and thus incurring an

excessively large debt.excessively large debt. Trying to merge disparate corporate cultures.Trying to merge disparate corporate cultures. Counting on key personnel staying after the merger. Counting on key personnel staying after the merger.

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OFFENSIVE DEFFENSIVE CO-OPERATIVE

DERIVED BUSINESS STRATEGIES

•FRONTAL ASSAULT•FLANKING MANEUVER•BYPASS ATTACK•ENCIRCLEMENT•GUERRILLA WARFARE

•RAISE STRUCTURAL BARRIER•INCREASE EXPECTED RETALIATION•LOWER INDUCEMENT FOR ATTACK

•SYNDICATING (COLLUSION) •STRATEGIC ALLIANCES•MUTUAL CONSORTIA•JOINT VENTURE•LICENSING ARRANGEMENT•VALUE CHAIN PARTNERSHIP

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CO-OPERATIVE STRATEGIESCO-OPERATIVE STRATEGIESCOLLUSION (SYNDICATING):COLLUSION (SYNDICATING):

It is an active cooperation of firm for their individual and collectiveadvantages within an industry to reduce out-put and raise price in order to thenormal economic law of supply & Demand. Collusion may be Explicit, in which firms co operate through direct communication and

negotiation, or Tacit in which firms cooperate indirectly through an informal system of

signals.Explicit is illegal under MRTP/ Anti trust Acts.

It can be successful if:

(1) There are small number of identifiable competitors.(2) Cost are similar among firms.(3) One firm tends to act as price leader or market leader.(4) There is common industrial culture that accepts the cooperation.(5) Sales are characterized by high frequency of small orders.(6) There are high entry barriers to new competitors. (Exp: Economic Scale of operation, Switching cost, Capital, Capacity, Regulations, market

accessibility, stage in learning curve, Brand loyalties etc )

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MUTUAL CONSORTIA – Complemented Grouping:

It is a partnership of similar companies in similar industries who pool their competency & resources to gain benefits that are too

expensive to develop/ deploy alone, such as access to advance technology or capturing the market.

It is fairly weak and fragile alliances. There is very little interaction or communication among the partners.

LICENSING ARRANGEMENT: It is an agreement in which the licensing firm (licensor) grants rights to

another firm( licensee) in another country or market to produce and/or sell a product or services. The licensee pays compensation (Royalties, profit sharing, or lump sum payment) to the licensing firm in return for technical expertise.

It is useful strategy if the trademark or brand name is well known. It is also useful when there is Entry barrier for a MNC.

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STRATEGIC ALLIANCE STRATEGIC ALLIANCE (Partnering):(Partnering): It is a partnership of two or more corporations or business units to achieve

strategically significant objectives which can be mutually beneficial. Some alliance are short term till the product is established, while the others are longer lasting, resulting in merger.

The reasons for alliance are:

(a) To obtain technological, management and/or manufacturing capabilities.(b) To enter into specific markets.(c) To reduce financial risk. (d) To reduce political and economic risk.(e) To achieve or ensure competitive advantages in new businesses or markets (f) It plays vital role in today’s market condition and environment to solve some complicated

issues.(g) It provides vital role in providing the firms synergic strength.(h) It helps to develop product, process, market & share the investment outlay jointly.(i) It facilitates the development of unique technological capabilities to meet the challenges of

technological revolution.(j) It create a compulsion for alliance to enter in the local market through JV.(k) Building brand image in local market is mostly possible through alliance.

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SPECIFIC ALLIANCESPECIFIC ALLIANCE Production Alliance:Production Alliance: Two or more companies share the Two or more companies share the

common manufacturing facilities, existing or new facilities.common manufacturing facilities, existing or new facilities.

Marketing Alliance:Marketing Alliance: Two or more companies share Two or more companies share marketing services expertise and facilities.marketing services expertise and facilities.

Financial Alliance:Financial Alliance: Companies joint together in order to Companies joint together in order to reduce financial risks associated with the activities & share the reduce financial risks associated with the activities & share the profit in proportion to financial contribution.profit in proportion to financial contribution.

Research & Development Alliances:Research & Development Alliances: Fast Fast changing technology, high cost of R & D and need of being ahead changing technology, high cost of R & D and need of being ahead of changes, force companies to form alliance in R & D area. of changes, force companies to form alliance in R & D area.

Human Resources AllianceHuman Resources Alliance: Alliance for outsourcing: Alliance for outsourcing

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BREAK – UP OF ALLIANCE:BREAK – UP OF ALLIANCE: Incompatibility between/among

partners in management style, financial position, culture, business interest.

Access to information. Distribution of Income. Change in business environment. Acquiring the strength of partner: The

companies over a period of alliance, acquire the strengths of the partner and starts new operations in competitions.

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STRATEGIC JOINT VENTURESTRATEGIC JOINT VENTURE Joint ventures (JV) are partnership in which two or more firms carry

out a specific project or business in a selected area of industry in a form of new venture. Ownership of the original firms remains unchanged. Actually, corporate partnership are formed with specific and time bound objectives which, once achieved, leaves little reasons for the alliance to continue. Joint venture can be temporary or it can be long term. JV that last longer do so because their objectives have been redesigned.

Every JV:1. Has a scheduled life – cycle, which will end sooner or later

(5 to 10 years)2. Has to be dissolved when it has outlived its life – cycle.3. Change in environment forces joint venture to be redesigned

regularly4. Translations seek to absorb their partner’s competencies. 5. It is a contractual obligation on fragile platform.

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Strategic reasons for Formation of JVStrategic reasons for Formation of JV1.1. Foreign firms are allowed to operate only if they enter into a JV with local Foreign firms are allowed to operate only if they enter into a JV with local

partner.partner.2.2. Size of the project may be very large and one company accomplish it.Size of the project may be very large and one company accomplish it.3.3. Some projects require multidimensional technology that no one firm Some projects require multidimensional technology that no one firm

possesses. Firm with different, but compatible technology may join possesses. Firm with different, but compatible technology may join together.together.

4.4. One firm with technology competence and another with managerial One firm with technology competence and another with managerial competence join together.competence join together.

5.5. A foreign firm with technology competence joins with a domestic firm with A foreign firm with technology competence joins with a domestic firm with marketing competence.marketing competence.

6.6. While setting up of an organization requires surmounting hurdles such as While setting up of an organization requires surmounting hurdles such as import quota, tariffs, nationalistic political interest and cultural road block, import quota, tariffs, nationalistic political interest and cultural road block, Government’s support for the JV. Government’s support for the JV.

7. JV are undertaken for a variety of reasons like political, economic or technological

TYPES OF JV:TYPES OF JV: ((A) SPIDER WEB A) SPIDER WEB (B) GO-TOGATHER & SPLIT(B) GO-TOGATHER & SPLIT (C) SUCCESSIVE INTEGRATION(C) SUCCESSIVE INTEGRATION

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Building Competitive Advantage Through Business

Level Strategy

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Corporate Value Chain

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Porter’s Generic Competitive Strategies

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What is a Business level strategyWhat is a Business level strategy

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

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

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

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Distinctive Competencies…Distinctive Competencies…

They are firm specific strengths that allow a They are firm specific strengths that allow a company to company to differentiatedifferentiate its products and/or its products and/or achieve substantially achieve substantially lower costslower costs than its rivals than its rivals and thus gain a competitive advantage.and thus gain a competitive advantage.

E.g. Toyota…E.g. Toyota…They arise from two sources:They arise from two sources:1)1) ResourcesResources2)2) CapabilitiesCapabilities

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RESOURCES

DISTINCTIVECOMPETENCIES

CAPABILITIES

BUSINESS STRATEGIESSuperior:•Efficiency•Quality•Innovation•Customer responsiveness

Differentiation

Low cost

Value creatio

n

profitability

Build

Build

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Product/Market/Distinctive-Competency Choices and Generic Competitive

StrategiesCost Cost

LeadershipLeadership DifferentiationDifferentiation FocusFocus

Product Product DifferentiationDifferentiation

Low Low (Principally by (Principally by

Price)Price)

High (Principally High (Principally by Uniqueness)by Uniqueness)

Low to High Low to High (Price or (Price or

Uniqueness)Uniqueness)

Market Market SegmentationSegmentation

Low (Mass Low (Mass Market)Market)

High (Many High (Many Market Market

Segments)Segments)

Low (One or a Low (One or a few Segments)few Segments)

Distinctive Distinctive CompetencyCompetency

Manufacturing Manufacturing and Materials and Materials ManagementManagement

Research & Research & Development, Development,

Sales & Sales & MarketingMarketing

Any kind of Any kind of Distinctive Distinctive

CompetencyCompetency

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Cost LeadershipCost Leadership

It is based on the intent to outperform competitors by It is based on the intent to outperform competitors by doing every thing to establish a cost structure that allows it doing every thing to establish a cost structure that allows it to produce or provide goods or services at a lower unit to produce or provide goods or services at a lower unit cost. cost.

Cost leader chooses a low to moderate level of product Cost leader chooses a low to moderate level of product differentiation relative to its competitors.differentiation relative to its competitors.

Aims for a differentiation not markedly inferior to that of Aims for a differentiation not markedly inferior to that of the differentiator but a level obtainable at a low cost.the differentiator but a level obtainable at a low cost.

Frequently ignores the many different market segments in Frequently ignores the many different market segments in industry to appeal the average customers.industry to appeal the average customers.

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Advantages and DisadvantagesAdvantages and Disadvantages

AdvantagesAdvantages DisadvantagesDisadvantages

Protected from industry Protected from industry competitorscompetitors

Less affected by Less affected by competitors price change competitors price change

Requires a big market share Requires a big market share so they purchases in so they purchases in relatively large quantitiesrelatively large quantities

Barrier to entry.Barrier to entry.

Cost leadership approach Cost leadership approach lurk in competitors’ ability lurk in competitors’ ability to find ways to lower their to find ways to lower their cost structurecost structure

Ability to imitate cost Ability to imitate cost leader’s methods easilyleader’s methods easily

The single minded desire The single minded desire to reduce costs might to reduce costs might drastically affect the drastically affect the demanddemand

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ImplicationsImplications

To pursue a full blown cost-leadership, strategic To pursue a full blown cost-leadership, strategic managers need to devote enormous efforts to incorporate managers need to devote enormous efforts to incorporate all the latest information, materials, management, and all the latest information, materials, management, and manufacturing technology into their operations to find manufacturing technology into their operations to find new ways to reduce costs.new ways to reduce costs.

A differentiator cannot let a cost leader get too great a A differentiator cannot let a cost leader get too great a cost advantage because the leader might then be able to cost advantage because the leader might then be able to use its high profits to invest more in product use its high profits to invest more in product differentiation and beat leaders.differentiation and beat leaders.

Must respond to the strategic moves of its differential Must respond to the strategic moves of its differential competitors and increase the quality and features of its competitors and increase the quality and features of its products if it is to prosper in the long runproducts if it is to prosper in the long run

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Differentiation Strategy Differentiation Strategy

The objective of the differentiation strategy is to achieve a The objective of the differentiation strategy is to achieve a competitive advantage by creating a product that consumers competitive advantage by creating a product that consumers perceive as different or distinct in some important way.perceive as different or distinct in some important way.

Product differentiation can be achieved in three ways Product differentiation can be achieved in three ways QualityQuality InnovationInnovation Responsiveness to customersResponsiveness to customers

Generally, a differentiator chooses to segment its market Generally, a differentiator chooses to segment its market into many segments and nichesinto many segments and niches

A differentiated company concentrates on the A differentiated company concentrates on the organizational functions that provide the source of its organizational functions that provide the source of its differentiation advantage. differentiation advantage.

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Advantages and DisadvantagesAdvantages and DisadvantagesAdvantagesAdvantages Differentiation safeguards a Differentiation safeguards a

company against competitors to company against competitors to the degree that customers develop the degree that customers develop brand loyalty for its productbrand loyalty for its product

Suppliers are rarely a problem as Suppliers are rarely a problem as company’s strategy is geared company’s strategy is geared more toward the price it can more toward the price it can charge than toward costscharge than toward costs

Distinct product solves the Distinct product solves the problem of strong buyersproblem of strong buyers

The threat of substitutes depends The threat of substitutes depends on the ability of the competitors’ on the ability of the competitors’ product. product.

DisadvantagesDisadvantages

Strategic manager’s long Strategic manager’s long term ability to maintain a term ability to maintain a product’s perceived product’s perceived distinctness in customers’ distinctness in customers’ eyes.eyes.

The ease with which The ease with which competitors imitate the competitors imitate the differentiator’s product differentiator’s product

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Focus StrategiesFocus Strategies

Focus Strategies position a company to Focus Strategies position a company to compete for customers in a particular market compete for customers in a particular market segment, which can be defined segment, which can be defined geographically, by type of customers, or by geographically, by type of customers, or by region or even by locality.region or even by locality.

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Focus StrategiesFocus Strategies

Focused Cost Leadership Strategy :Focused Cost Leadership Strategy :

If a company uses a focused low – cost approach, it If a company uses a focused low – cost approach, it competes against the cost leader in the market competes against the cost leader in the market segment in which it has no cost disadvantage.segment in which it has no cost disadvantage.

Focused Differentiation Strategy :Focused Differentiation Strategy :

If a company uses a focused differentiation If a company uses a focused differentiation approach, then all the means of differentiation that approach, then all the means of differentiation that are open to the differentiator are available to the are open to the differentiator are available to the focused company.focused company.

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AdvantagesAdvantages A focused company’s competitive advantage stem A focused company’s competitive advantage stem

from the source of its distinctive competency: from the source of its distinctive competency: efficiency, quality, innovation, or responsiveness to efficiency, quality, innovation, or responsiveness to customers.customers.

The company is protected from rivals to the extent The company is protected from rivals to the extent that it can provide a product or service they cannot.that it can provide a product or service they cannot.

This ability also gives the focuser power over its This ability also gives the focuser power over its buyers because they cannot get the same things buyers because they cannot get the same things from anyone else.from anyone else.

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DisadvantagesDisadvantages

Powerful suppliersPowerful suppliers The focuser’s niche can suddenly disappear The focuser’s niche can suddenly disappear

because of technological change or change in because of technological change or change in customer’s tastes.customer’s tastes.

The focuser is vulnerable and has to defend its The focuser is vulnerable and has to defend its niche constantly.niche constantly.

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Competitive positioning and Competitive positioning and business – level strategybusiness – level strategy

Strategic group Analysis Strategic group Analysis

Investment AnalysisInvestment Analysis

Game TheoryGame Theory

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Strategic group AnalysisStrategic group Analysis

Strategic group analysis helps a company identify the Strategic group analysis helps a company identify the strategies that its industry rivals are pursuing.strategies that its industry rivals are pursuing.

It allows managers to uncover the most important basis It allows managers to uncover the most important basis of competition in an industry and identify products and of competition in an industry and identify products and market segments where they can compete most market segments where they can compete most successfully for customers.successfully for customers.

Such analysis also helps to reveal what competencies are Such analysis also helps to reveal what competencies are likely to be most valuable in the future so that companies likely to be most valuable in the future so that companies can make the right investment decision.can make the right investment decision.

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Investment AnalysisInvestment Analysis

An Investment Strategy sets the amount and type An Investment Strategy sets the amount and type of resources – human, financial and functional – of resources – human, financial and functional – that must be invested to maximize a company’s that must be invested to maximize a company’s profitability over time.profitability over time.

Two factors are crucial in choosing an investment Two factors are crucial in choosing an investment strategy:strategy: The strength of a company’s position in an industry relative The strength of a company’s position in an industry relative

to its competitors.to its competitors. The stage of the industry’s life cycle in which the company The stage of the industry’s life cycle in which the company

is competing.is competing.

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Game TheoryGame Theory

Game such as chess, player move in turn, and Game such as chess, player move in turn, and one player can select a strategy to pursue after one player can select a strategy to pursue after considering its rival’s choice of strategies or considering its rival’s choice of strategies or the players act at the same time, in ignorance the players act at the same time, in ignorance of their rival’s current action.of their rival’s current action.

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Business Level Strategies Help To Business Level Strategies Help To ImproveImprove 1.1.EfficiencyEfficiency2.2.QualityQuality3.3.InnovationInnovation4.4.Customer responsiveness Customer responsiveness

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IndustryIndustryForceForce

Generic StrategiesGeneric Strategies

Cost LeadershipCost Leadership DifferentiationDifferentiation FocusFocus

EntryEntryBarriersBarriers

Ability to cut price in retaliation deters Ability to cut price in retaliation deters potential entrants. potential entrants.

Customer loyalty can discourage Customer loyalty can discourage potential entrants. potential entrants.

Focusing develops core Focusing develops core competencies that can act as an competencies that can act as an entry barrier. entry barrier.

BuyerBuyerPowerPower

Ability to offer lower price to powerful Ability to offer lower price to powerful buyers. Large buyers have less power to buyers. Large buyers have less power to negotiate because of few close alternatives. negotiate because of few close alternatives. Large buyers have less power to negotiate Large buyers have less power to negotiate because of few alternatives.because of few alternatives.

Ability to offer lower price to powerful Ability to offer lower price to powerful buyers. Large buyers have less buyers. Large buyers have less power to negotiate because of few power to negotiate because of few close alternatives. Large buyers have close alternatives. Large buyers have less power to negotiate because of less power to negotiate because of few alternatives.few alternatives.

Ability to offer lower price to Ability to offer lower price to powerful buyers. Large buyers powerful buyers. Large buyers have less power to negotiate have less power to negotiate because of few close alternatives. because of few close alternatives. Large buyers have less power to Large buyers have less power to negotiate because of few negotiate because of few alternatives.alternatives.

SupplierSupplierPowerPower

Better insulated from powerful suppliers. Better insulated from powerful suppliers. Better able to pass on supplier price Better able to pass on supplier price increases to customers. Suppliers have increases to customers. Suppliers have power because of low volumes, but a power because of low volumes, but a differentiation-focused firm is better able to differentiation-focused firm is better able to pass on supplier price increases.pass on supplier price increases.

Better insulated from powerful Better insulated from powerful suppliers. Better able to pass on suppliers. Better able to pass on supplier price increases to supplier price increases to customers. Suppliers have power customers. Suppliers have power because of low volumes, but a because of low volumes, but a differentiation-focused firm is better differentiation-focused firm is better able to pass on supplier price able to pass on supplier price increases.increases.

Better insulated from powerful Better insulated from powerful suppliers. Better able to pass on suppliers. Better able to pass on supplier price increases to supplier price increases to customers. Suppliers have power customers. Suppliers have power because of low volumes, but a because of low volumes, but a differentiation-focused firm is differentiation-focused firm is better able to pass on supplier better able to pass on supplier price increases.price increases.

Threat ofThreat ofSubstitutSubstituteses

Can use low price to defend against Can use low price to defend against substitutes. Customer's become attached to substitutes. Customer's become attached to differentiating attributes, reducing threat of differentiating attributes, reducing threat of substitutes. Specialized products & core substitutes. Specialized products & core competency protect against substitutes.competency protect against substitutes.

Can use low price to defend against Can use low price to defend against substitutes. Customer's become substitutes. Customer's become attached to differentiating attributes, attached to differentiating attributes, reducing threat of substitutes. reducing threat of substitutes. Specialized products & core Specialized products & core competency protect against competency protect against substitutes.substitutes.

Can use low price to defend Can use low price to defend against substitutes. Customer's against substitutes. Customer's become attached to differentiating become attached to differentiating attributes, reducing threat of attributes, reducing threat of substitutes. Specialized products & substitutes. Specialized products & core competency protect against core competency protect against substitutes.substitutes.

RivalryRivalry Better able to compete on price.Brand Better able to compete on price.Brand loyalty to keep customers from rivals.Rivals loyalty to keep customers from rivals.Rivals cannot meet differentiation-focused cannot meet differentiation-focused customer needs.customer needs.

Better able to compete on Better able to compete on price.Brand loyalty to keep price.Brand loyalty to keep customers from rivals.Rivals cannot customers from rivals.Rivals cannot meet differentiation-focused meet differentiation-focused customer needs.customer needs.

Better able to compete on Better able to compete on price.Brand loyalty to keep price.Brand loyalty to keep customers from rivals.Rivals customers from rivals.Rivals cannot meet differentiation-cannot meet differentiation-focused customer needs.focused customer needs.

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RETRENCHMENT STRATEGYCommon Retrenchment Strategies: Turnaround, restructuring, Divesting, Bankruptcy, Liquidation WHY FIRM GO FOR RETRENCHMENT: Prevalence of poor economic conditions. Competitive pressure may also cause firms to curtail their

operations. The comp. is not doing well or perceive itself as doing poorly. The comp. has not met its objectives and there is pressure

from shareholders, customers, or others to improve performance.

The external environment poses threats and internal strengths are insufficient to face the threats.

Better opportunities in the environments are perceived else where were firms strength can be utilized.

Inability to implement latest technology cause by tech. revolution.

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International StrategyInternational StrategyInternational StrategyInternational Strategy

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International Strategy Opportunities and OutcomesInternational Strategy Opportunities and Outcomes

Identify Identify InternatiodgdInternatiodgd

gnal gnal OpportunitiesOpportunities

ExploreExploreResources and Resources and

CapabilitiesCapabilities

Use Core Use Core CompetenceCompetence

StrategicStrategicCompetitivenessCompetitiveness

OutcomesOutcomes

International International StrategiesStrategies

Modes of Modes of EntryEntry

IncreasedIncreasedMarket SizeMarket Size

Return on Return on InvestmentInvestment

Economies of Economies of Scale and Scale and LearningLearning

Location Location AdvantageAdvantage

InternationalInternationalBusiness-LevelBusiness-LevelStrategyStrategy

Multidomestic Multidomestic StrategyStrategy

GlobalGlobalStrategyStrategy

Transnational Transnational StrategyStrategy

ExportingExporting

Establishment of Establishment of New SubsidiaryNew Subsidiary

ExportingExporting

StrategicStrategicAlliancesAlliances

AcquisitionAcquisition

Management Management Problems Problems and Riskand Risk

Management Management Problems Problems and Riskand Risk

Higher Higher Performance Performance

ReturnsReturns

InnovationInnovation

IncreasedIncreasedMarket SizeMarket Size

Return on Return on InvestmentInvestment

Economies of Economies of Scale and Scale and LearningLearning

Location Location AdvantageAdvantage

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Selling Products or Services Outside a Firm’s Domestic MarketSelling Products or Services Outside a Firm’s Domestic MarketInternational Strategy LifecycleInternational Strategy LifecycleInternational Strategy LifecycleInternational Strategy Lifecycle

Firm Introduces Firm Introduces Innovation in Innovation in

Domestic MarketDomestic Market

11

Product Demand Product Demand Develops and Develops and Firm Exports Firm Exports

ProductsProducts

22

Foreign Foreign CompetitionCompetition

Begins ProductionBegins Production

33

Firm Begins Firm Begins Production AbroadProduction Abroad

44Production Becomes Production Becomes Standardized and is Standardized and is

Relocated to Low Cost Relocated to Low Cost CountriesCountries

55

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Example: Example: Aircraft manufacturers Boeing or AirbusAircraft manufacturers Boeing or Airbus

Example: Example: Japanese electronics or Japanese electronics or automobile manufacturersautomobile manufacturers

Motivations for International ExpansionMotivations for International ExpansionMotivations for International ExpansionMotivations for International Expansion

Increase Market ShareIncrease Market ShareDomestic market may lack the size to support efficient Domestic market may lack the size to support efficient scale manufacturing facilitiesscale manufacturing facilities

Large investment projects may require global markets to Large investment projects may require global markets to justify the capital outlaysjustify the capital outlays

Weak patent protection in some countries implies that firms Weak patent protection in some countries implies that firms should expand overseas rapidly in order to preempt imitatorsshould expand overseas rapidly in order to preempt imitators

Return on InvestmentReturn on InvestmentReturn on InvestmentReturn on Investment

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Motivations for International ExpansionMotivations for International ExpansionMotivations for International ExpansionMotivations for International Expansion

Economies of Scale or LearningEconomies of Scale or LearningExpanding size or scope of markets helps to achieve Expanding size or scope of markets helps to achieve economies of scale in manufacturing as well as marketing, economies of scale in manufacturing as well as marketing, R & D or distributionR & D or distribution

- Can spread costs over a larger sales base- Can spread costs over a larger sales base

- Increase profit per unit- Increase profit per unit

May achieve better access to:May achieve better access to:- Raw materials- Raw materials- Lower cost labor- Lower cost labor

- Key suppliers- Key suppliers

- Key customers- Key customers- Energy- Energy

- Natural resources- Natural resources

Location AdvantagesLocation AdvantagesLow cost markets may aid in developing Low cost markets may aid in developing competitive advantagecompetitive advantage

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Factor ConditionsFactor Conditions

Basic FactorsBasic Factors- Land, labor- Land, labor

Advanced FactorsAdvanced Factors- Highly educated workers- Highly educated workers- Digital communications- Digital communications

Generalized FactorsGeneralized Factors- Capital, infrastructure- Capital, infrastructure

Specialized FactorsSpecialized Factors- Skilled personnel- Skilled personnel

Demand Demand ConditionsConditions

Home country may Home country may support scale efficient support scale efficient operations by itselfoperations by itself

Related & Supporting Related & Supporting IndustriesIndustries

- Japanese cameras & copiers- Japanese cameras & copiers- Italian shoes & leather- Italian shoes & leather

Firm Strategy, Structure & Firm Strategy, Structure & RivalryRivalry

Firm Strategy, Structure & Firm Strategy, Structure & RivalryRivalry

Intense rivalry fosters Intense rivalry fosters industry competitionindustry competitionIntense rivalry fosters Intense rivalry fosters industry competitionindustry competition

Porter’s Determinants of National AdvantagePorter’s Determinants of National AdvantageHome Country Home Country of Origin Is Crucial to International Successof Origin Is Crucial to International Success

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International DifferentiationInternational DifferentiationCountries with advanced or specialized factor Countries with advanced or specialized factor conditions most likely to use this strategyconditions most likely to use this strategy

Example:Example: Japan, Germany, U.S. Japan, Germany, U.S.

International Low CostInternational Low CostUsually located in home countryUsually located in home country

Export to international marketsExport to international markets

Low value added operations in foreign countriesLow value added operations in foreign countries

High value added operations in home countryHigh value added operations in home country

Business-Level International StrategiesBusiness-Level International StrategiesBusiness-Level International StrategiesBusiness-Level International Strategies

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International Focus StrategiesInternational Focus Strategies

International Integrated Low Cost/DifferentiationInternational Integrated Low Cost/DifferentiationCan be most effective in dealing with diverse marketsCan be most effective in dealing with diverse markets

Often relies upon flexible manufacturing, total quality Often relies upon flexible manufacturing, total quality management or rapid communication networksmanagement or rapid communication networks

Technologically advanced firms follow focused Technologically advanced firms follow focused low cost strategylow cost strategy

Focused differentiation firms compete on the Focused differentiation firms compete on the basis of image & designbasis of image & design

Third group competes on low price by imitatingThird group competes on low price by imitating

Business-Level International StrategiesBusiness-Level International StrategiesBusiness-Level International StrategiesBusiness-Level International Strategies

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Three Three Corporate Corporate StrategiesStrategies

Global StrategyGlobal Strategy

Transnational StrategyTransnational Strategy

Multi-Domestic StrategyMulti-Domestic Strategy

Corporate-Level International StrategiesCorporate-Level International StrategiesCorporate-Level International StrategiesCorporate-Level International Strategies

Type of Corporate Strategy selected will have an Type of Corporate Strategy selected will have an impact on the selection and implementation of the impact on the selection and implementation of the business-level strategiesbusiness-level strategies

Some Corporate strategies provide individual country Some Corporate strategies provide individual country units with flexibility to choose their own strategiesunits with flexibility to choose their own strategies

Others dictate business-level strategies from the home Others dictate business-level strategies from the home office and coordinate resource sharing across unitsoffice and coordinate resource sharing across units

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Multi-Domestic StrategyMulti-Domestic Strategy

Business units in each country are independent Business units in each country are independent of each other of each other

Assumes markets differ by country or regionsAssumes markets differ by country or regions

Focus on competition in each marketFocus on competition in each market

Prominent strategy among European firms due to Prominent strategy among European firms due to broad variety of cultures and markets in Europebroad variety of cultures and markets in Europe

Strategy and operating decisions are decentralized Strategy and operating decisions are decentralized to strategic business units (SBU) in each countryto strategic business units (SBU) in each country

Products and services are tailored to local marketsProducts and services are tailored to local markets


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Products are standardized across national marketsProducts are standardized across national markets

Decisions regarding business-level strategies are Decisions regarding business-level strategies are centralized in the home officecentralized in the home office

Strategic business units (SBU) are assumed to be Strategic business units (SBU) are assumed to be interdependentinterdependent

Emphasizes economies of scaleEmphasizes economies of scale

Often lacks responsiveness to local marketsOften lacks responsiveness to local markets

Requires resource sharing and coordination across Requires resource sharing and coordination across borders (which also makes it difficult to manage)borders (which also makes it difficult to manage)

Global StrategyGlobal Strategy


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Seeks to achieve both global efficiency and local Seeks to achieve both global efficiency and local responsivenessresponsiveness

Difficult to achieve because of simultaneous Difficult to achieve because of simultaneous requirements for strong central control and requirements for strong central control and coordination to achieve efficiency and local coordination to achieve efficiency and local flexibility and decentralization to achieve local flexibility and decentralization to achieve local market responsivenessmarket responsiveness

Must pursue organizational learning to achieve Must pursue organizational learning to achieve competitive advantagecompetitive advantage

Transnational StrategyTransnational Strategy


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Need for Need for Global Global

IntegrationIntegration

Need for Local Market ResponsivenessNeed for Local Market Responsiveness

Low

High

Low High

Multi-Multi-DomesticDomestic

International Corporate StrategyInternational Corporate StrategyWhen is each strategy appropriate?When is each strategy appropriate?

International Corporate StrategyInternational Corporate StrategyWhen is each strategy appropriate?When is each strategy appropriate?

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International Corporate StrategyInternational Corporate StrategyInternational Corporate StrategyInternational Corporate StrategyWhen is each strategy appropriate?When is each strategy appropriate?

Need for Need for Global Global

IntegrationIntegration

Need for Local Market ResponsivenessNeed for Local Market Responsiveness

Low

High

Low High

Multi-Multi-DomesticDomestic

GlobalGlobalStrategyStrategy

Trans-Trans-nationalnational

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Common way to enter new international marketsCommon way to enter new international markets

No need to establish operations in other countriesNo need to establish operations in other countries

May have high transportation costsMay have high transportation costs

May have less control on marketing and distributionMay have less control on marketing and distribution

May encounter high import tariffsMay encounter high import tariffs

Difficult to customize productsDifficult to customize products

Establish distribution channels through contractual Establish distribution channels through contractual relationshipsrelationships

Choice of International Entry ModeChoice of International Entry ModeChoice of International Entry ModeChoice of International Entry Mode

ExportingExportingExportingExporting

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LicensingLicensingLicensingLicensing

Firm authorizes another firm to manufacture and Firm authorizes another firm to manufacture and sell its productssell its products

Licensing firm is paid a royalty on each unit Licensing firm is paid a royalty on each unit produced and soldproduced and sold

Licensee takes risks in manufacturing investmentsLicensee takes risks in manufacturing investments

Least risky way to enter a foreign marketLeast risky way to enter a foreign market

Licensing firm loses control over product quality Licensing firm loses control over product quality and distributionand distribution

Relatively low profit potentialRelatively low profit potential

A significant risk is that licensor learns technology A significant risk is that licensor learns technology and competes when license expiresand competes when license expires

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Strategic AlliancesStrategic AlliancesStrategic AlliancesStrategic Alliances

Enable firms to shares risks and resources to expand into Enable firms to shares risks and resources to expand into international venturesinternational ventures

Most joint ventures (JVs) involve a foreign company Most joint ventures (JVs) involve a foreign company with a new product or technology and a host company with a new product or technology and a host company with access to distribution or knowledge of local with access to distribution or knowledge of local customs, norms or politics customs, norms or politics

May experience difficulties in merging disparate May experience difficulties in merging disparate culturescultures

May not understand the strategic intent of partners or May not understand the strategic intent of partners or experience divergent goalsexperience divergent goals

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AcquisitionsAcquisitionsAcquisitionsAcquisitions

Enable firms to make most rapid international Enable firms to make most rapid international expansionexpansion

Can be very costlyCan be very costly

Legal and regulatory requirements may present Legal and regulatory requirements may present barriers to foreign ownershipbarriers to foreign ownership

Usually require complex and costly negotiationsUsually require complex and costly negotiations

Potentially disparate corporate culturesPotentially disparate corporate cultures

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New Wholly-Owned SubsidiaryNew Wholly-Owned Subsidiary


Most costly and complex of entry alternativesMost costly and complex of entry alternatives

Achieves greatest degree of controlAchieves greatest degree of control

Potentially most profitable, if successfulPotentially most profitable, if successful

Maintain control over technology, marketing Maintain control over technology, marketing and distributionand distribution

May need to acquire expertise and knowledge May need to acquire expertise and knowledge that is relevant to host countrythat is relevant to host country

Could require hiring host country Could require hiring host country nationals or consultants at high costnationals or consultants at high cost

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Strategic Competitiveness OutcomesStrategic Competitiveness OutcomesStrategic Competitiveness OutcomesStrategic Competitiveness Outcomes

International diversification facilitates innovation in International diversification facilitates innovation in the firmthe firm

Provides larger market to gain more and faster returns Provides larger market to gain more and faster returns form investments in innovationform investments in innovation

May generate resources necessary to sustain a large-May generate resources necessary to sustain a large-scale R&D programscale R&D program

Generally related to above-average returns, assuming Generally related to above-average returns, assuming effective implementation and management of effective implementation and management of international operationsinternational operations

International diversification provides greater International diversification provides greater economies of scope and learningeconomies of scope and learning

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Political RiskPolitical Risk

Major Risks of International DiversificationMajor Risks of International DiversificationMajor Risks of International DiversificationMajor Risks of International Diversification

Rebel fighting in Chechnya (Russia) and Rebel fighting in Chechnya (Russia) and Liberia (Africa)Liberia (Africa)

Continual warfare among Middle Eastern nationsContinual warfare among Middle Eastern nations

Potential renationalization of privatized enterprises Potential renationalization of privatized enterprises in Russiain Russia

Failure of European Community in quest for Failure of European Community in quest for economic superpower status because of intercountry economic superpower status because of intercountry disagreementsdisagreements

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Economic RiskEconomic Risk

Major Risks of International DiversificationMajor Risks of International DiversificationMajor Risks of International DiversificationMajor Risks of International Diversification

Mexico’s effect on world trade with low wages and high Mexico’s effect on world trade with low wages and high quality but strong currency risksquality but strong currency risks

China’s difficulty in enforcing intellectual property rights China’s difficulty in enforcing intellectual property rights on CDs, software, etc. on CDs, software, etc.

Germany’s struggle with high unemployment, high Germany’s struggle with high unemployment, high interest rates, sagging competitiveness, and cuts in social interest rates, sagging competitiveness, and cuts in social programsprograms

China’s trade policies. $44 billion trade surplus with China’s trade policies. $44 billion trade surplus with United States in 1977. China’s overall trade surplus United States in 1977. China’s overall trade surplus increased twentyfold in first half of 1997.increased twentyfold in first half of 1997.

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Management ProblemsManagement Problems

Limits To International ExpansionLimits To International ExpansionLimits To International ExpansionLimits To International Expansion

Cost of Coordination across diverse geographical business units

Institutional and cultural barriers

Understanding strategic intent of competitors

The overall complexity of competition

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PORTFOLIO PORTFOLIO ANALYSISANALYSIS

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Stages of the Industry Life CycleStages of the Industry Life Cycle

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PRODUCT LIFE CYCLEPRODUCT LIFE CYCLE Most product sales observed over long periods can be

portrayed as bell shaped curves – Product life cycle curves which can be typically divided into four stages: Introduction, Growth, Maturity and Decline.

Product Life Cycle asserts four things. 1. Products have limited life. 2. Product Sales pass through distinct stages, each posing

different challenges, opportunities and problems to the seller.

3. Profits rise and fall through different stages of the life cycle.

4. Products require different marketing, financial, manufacturing, purchasing and H.R. strategies in each life cycle stage.

Growth-Slump-Maturity pattern (small kitchen appliances) Cycle Recycle Pattern Scalloped Pattern (succession of PLC’s; eg: Nylon)

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INTRODUCTIONINTRODUCTION - STRATEGIES- STRATEGIES

PR

ICE

Hi

LoPROMOTION

Hi

SLOW SKIMMING

SLOW PENETRATION

RAPID SKIMMING

RAPID PENETRATION

•Sales growth tends to be slow - Delays in production capacity expansion /technical problems; Distribution/retail chains being put up; sales expensive as conversion rates are lower (innovators).

•Promotion at the highest ratio to sales – inform customers, induce trial and secure distribution in retail outlets.

•Prices tend to be high as costs are higher.

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PLC - GROWTH STAGEPLC - GROWTH STAGE

Introduction is followed by a Introduction is followed by a stage marked by rapid climb in stage marked by rapid climb in sales. Companies starts to eye for market share.sales. Companies starts to eye for market share.

Growth is a period of rapid market acceptance & Growth is a period of rapid market acceptance & substantial substantial profit improvement.profit improvement.

Innovators, early adaptors like the product and continue to Innovators, early adaptors like the product and continue to buy the product while buy the product while middle majoritymiddle majority starts trying. starts trying.

New competitionNew competition as sales and profits are growing. The stage as sales and profits are growing. The stage where we see entry of competition in large numbers.where we see entry of competition in large numbers.

Prices remain where they are or fall slightlyPrices remain where they are or fall slightly to allow better to allow better penetration or for entry into other segments.penetration or for entry into other segments.

Time noted for the Time noted for the introduction of variants/ brand extensionsintroduction of variants/ brand extensions.. Companies maintain Companies maintain promotion at same or higher levelpromotion at same or higher level. .

Profits increase even with higher promotion costs as it gets Profits increase even with higher promotion costs as it gets spread over higher sales volume. spread over higher sales volume.

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PLC - GROWTH STAGEPLC - GROWTH STAGE

MARKETING STRATEGIESMARKETING STRATEGIES Firm Firm improves product quality and adds new features and improves product quality and adds new features and

models.models. Enters Enters new market segmentsnew market segments.. Enters Enters new distribution channelnew distribution channel.. Advertising focus shifts from awareness / knowledgeAdvertising focus shifts from awareness / knowledge to to

Interest/desire/conviction.Interest/desire/conviction. Prices should be reduced (or low priced variants launched) Prices should be reduced (or low priced variants launched)

at the right timeat the right time to attract the next level of price sensitive to attract the next level of price sensitive customers.customers.

Faces Faces tradeoff between high market share to high current tradeoff between high market share to high current profit. profit.

Firm that pursues market expansion strategy will improve its Firm that pursues market expansion strategy will improve its competitive positioncompetitive position. .

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PLC - MATURITY STAGEPLC - MATURITY STAGE Many products which we see around us are in the maturity Many products which we see around us are in the maturity

stage of PLC.stage of PLC. A stage characterized by the slow down in the growth rate.A stage characterized by the slow down in the growth rate. Most of practical Marketing management deals with a Most of practical Marketing management deals with a

mature product. Hence the mature product. Hence the most important phase in PLC.most important phase in PLC. Three PhasesThree Phases 1. Growth Maturity1. Growth Maturity:: Sales growth starts to fall due to Sales growth starts to fall due to

distribution saturation. Growth predominantly due to trial by distribution saturation. Growth predominantly due to trial by laggards.laggards.

2. Stable Maturity2. Stable Maturity:: Most potential customers have tried the Most potential customers have tried the product. Future sales governed by population growth and product. Future sales governed by population growth and replacement demand.replacement demand.

3. Decaying Maturity3. Decaying Maturity:: Absolute level of sales decline. Absolute level of sales decline. Slow down in sales growth causes over-capacity ----- Slow down in sales growth causes over-capacity -----

Intensified competition ----- price wars ---- profit Erosion---- Intensified competition ----- price wars ---- profit Erosion---- weak exit.weak exit.

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MATURITY STAGE STRATEGIESMATURITY STAGE STRATEGIES R&D spends are increased to find better versions.R&D spends are increased to find better versions. Increased advertising spends.Increased advertising spends. More Consumer / Dealer cutsMore Consumer / Dealer cuts.. Three types of interventions are taken up by MarketersThree types of interventions are taken up by Marketers.. 1. Market Modification1. Market Modification: : Company should not try to conserve but should try & Company should not try to conserve but should try &

expand market for its Brand. expand market for its Brand. Sales vol. = No. of users X usage rate.Sales vol. = No. of users X usage rate. Try expand the no. of Brand Users by:Try expand the no. of Brand Users by: Convert non usersConvert non users:: Attempts to convert non coffee drinkers Attempts to convert non coffee drinkers

to try coffee.to try coffee. Enter new market segmentsEnter new market segments: Johnson & Johnson baby : Johnson & Johnson baby

shampoo for adults, Cerelac adapted for the senile. shampoo for adults, Cerelac adapted for the senile. Win competitors customersWin competitors customers:: Pepsi/Coke, NIIT/Apple. Pepsi/Coke, NIIT/Apple.

114114

MATURITY STAGE STRATEGIESMATURITY STAGE STRATEGIES

Volume can also be increased by focusing on the Current Volume can also be increased by focusing on the Current Users – Users – convincing them to use moreconvincing them to use more..

More frequent useMore frequent use:: Biscuits an all time snack, Coke instead Biscuits an all time snack, Coke instead of coffee/tea, clinic shampoo, variety of SKU, vending of coffee/tea, clinic shampoo, variety of SKU, vending machines.machines.

More usage per OccasionMore usage per Occasion:: Shampoo giving better results in Shampoo giving better results in two rinsing, more SKU’s.two rinsing, more SKU’s.

New more varied uses:New more varied uses: Recipe route tried out by microwave Recipe route tried out by microwave oven manufacturers, Sachets by shampoo manufacturers oven manufacturers, Sachets by shampoo manufacturers for travelers, Arm & Hammer Baking soda as a refrigerator for travelers, Arm & Hammer Baking soda as a refrigerator deodorant.deodorant.

2. PRODUCT MODIFICATION2. PRODUCT MODIFICATION Stimulate sales by modifying the product’s characteristics Stimulate sales by modifying the product’s characteristics

by improvements in by improvements in quality, feature and stylequality, feature and style..

115115

STRATEGIES FOR MATURE STAGESTRATEGIES FOR MATURE STAGE

2. PRODUCT MODIFICATION2. PRODUCT MODIFICATION Quality Improvement:Quality Improvement: Functional performance improved- for cars, TV, white Functional performance improved- for cars, TV, white

goods - New Improved eg: Santro Xing, Indica V2. goods - New Improved eg: Santro Xing, Indica V2. Plus launch - from FMCG manufacturers --------- stronger, Plus launch - from FMCG manufacturers --------- stronger,

bigger, better,– Lifebuoy Plus.bigger, better,– Lifebuoy Plus. Aimed at triggering Brand switchingAimed at triggering Brand switching Style Improvement:Style Improvement: Aimed at increasing aesthetic appeal. Aimed at increasing aesthetic appeal. Periodic intro of color variants by auto manufacturers.Periodic intro of color variants by auto manufacturers. Consumer/packaged food bringing packaging /color Consumer/packaged food bringing packaging /color

variants. variants. Advantages: Unique identity / can secure loyal customers.Advantages: Unique identity / can secure loyal customers. Major disadvantage arises from the fact that it is difficult to Major disadvantage arises from the fact that it is difficult to

judge customer preferences --- risk of losing those who judge customer preferences --- risk of losing those who liked earlier versionliked earlier version

116116

STRATEGIES FOR MATURE STAGE (contd.)STRATEGIES FOR MATURE STAGE (contd.)

Advantages of feature improvementsAdvantages of feature improvements Build progressive and leadership image for co. (Maruti)Build progressive and leadership image for co. (Maruti) New features can be made optional (adapted or dropped New features can be made optional (adapted or dropped

easily).easily). Helps to win loyalty of some segments.Helps to win loyalty of some segments. Cost effective publicity. Cost effective publicity. Can generate enthusiasm for sales force and dealers.Can generate enthusiasm for sales force and dealers. Main disadvantage is that many of these can be easily Main disadvantage is that many of these can be easily

imitated.imitated. 3. Marketing Mix Modifications:3. Marketing Mix Modifications: Product Manager should also try to stimulate sales by Product Manager should also try to stimulate sales by

modifying Mktg. Mix.modifying Mktg. Mix. Price:Price: Decision whether a price cut will attract new Decision whether a price cut will attract new

customers.customers. Trying price specials, early bird discounts, easier credit Trying price specials, early bird discounts, easier credit

terms to retain loyal customers..terms to retain loyal customers..

117117

MATURITY STAGE STRATEGIESMATURITY STAGE STRATEGIES 3. Marketing Mix Modifications:3. Marketing Mix Modifications: Advertising:Advertising: Change message- copy, media- vehicle mix, Change message- copy, media- vehicle mix,

timing/frequency, to target new audience. timing/frequency, to target new audience. Build new brand identity / image.Build new brand identity / image. Direct comparison Ads about competition.Direct comparison Ads about competition. Sales Promotion:Sales Promotion: Step up trade discount Step up trade discount Price offs, Rebates, warranties, festival offers, gifts etc.Price offs, Rebates, warranties, festival offers, gifts etc. Personal selling:Personal selling: should the quality of sales people or their should the quality of sales people or their

area of specialization need to be changed. area of specialization need to be changed. Questions on territory revisions; incentive plans; planning of Questions on territory revisions; incentive plans; planning of

sales call etc.sales call etc. Services:Services: can the company speed up delivery. Extending can the company speed up delivery. Extending

technical services.technical services. Disadvantages: can be easily copied. Mass distribution and Disadvantages: can be easily copied. Mass distribution and

penetration efforts may not help – can lead to profit erosion. penetration efforts may not help – can lead to profit erosion.

118118

STRATEGIES FOR DECLINE STAGESTRATEGIES FOR DECLINE STAGE Sales of most products/brands eventually decline –. Sales of most products/brands eventually decline –. 1. Technological advancements in the product category. 1. Technological advancements in the product category. 2. Consumer shifts in taste & perception.2. Consumer shifts in taste & perception. 3. Increased domestic & foreign competition------ 3. Increased domestic & foreign competition------ price cutting/ over capacity/ profit erosion.price cutting/ over capacity/ profit erosion.

Sales may plunge to zero or gradually fall for a long period.Sales may plunge to zero or gradually fall for a long period. As sales decline, profits fall. Some of the weaker firms As sales decline, profits fall. Some of the weaker firms

withdraw. withdraw. Those remaining drop smaller market segments & marginal Those remaining drop smaller market segments & marginal

trade channels to conserve profits.trade channels to conserve profits. They may cut their promotion budgets and may reduce They may cut their promotion budgets and may reduce

prices further.prices further. Unless strong reasons for retention exist, carrying a weak Unless strong reasons for retention exist, carrying a weak

product is very costly to the firm. product is very costly to the firm. It can delay aggressive search for alternatives/replacement.It can delay aggressive search for alternatives/replacement.

119119

STRATEGIES FOR DECLINE STAGESTRATEGIES FOR DECLINE STAGE MARKETING STRATEGIESMARKETING STRATEGIES:: 1. Increase firms investment (Dominate the market or to 1. Increase firms investment (Dominate the market or to

strengthen its competitive position)strengthen its competitive position) 2. Hold investment level until uncertainties about the 2. Hold investment level until uncertainties about the

industry are resolved.industry are resolved. 3. Decreasing investment selectively. (Unprofitable target 3. Decreasing investment selectively. (Unprofitable target

groups/ markets/ products will have to be identified and groups/ markets/ products will have to be identified and instead look for strong niche’s.)instead look for strong niche’s.)

4. Harvesting: milking to recover cash quickly (Brands with 4. Harvesting: milking to recover cash quickly (Brands with high loyalty can continue longer without any investments).high loyalty can continue longer without any investments).

5. Divest the business quickly by disposing off its assets 5. Divest the business quickly by disposing off its assets as advantageously as possibleas advantageously as possible..

Drop DecisionDrop Decision:: Sell/transfer to someone Sell/transfer to someone Should drop slowly or fast.Should drop slowly or fast. Inventory/service level to be maintained. Inventory/service level to be maintained.

120120

P.L.C WEAKNESSESP.L.C WEAKNESSES No Uniform ShapeNo Uniform Shape:: An ‘S’ shaped curve describes only shape of PLC while most An ‘S’ shaped curve describes only shape of PLC while most

of them vary or are unique.of them vary or are unique. Unpredictable Turning Points:Unpredictable Turning Points: While most products do peak and then fall there is no While most products do peak and then fall there is no

specific turning point. specific turning point. Difficult to Decide the StagesDifficult to Decide the Stages:: A dormant sales (flat) pattern may denote the product has A dormant sales (flat) pattern may denote the product has

reached maturity while it may be just that the product has reached maturity while it may be just that the product has touched a plateau before another growth period. touched a plateau before another growth period.

Tendency to drop a product due to such readings can turn Tendency to drop a product due to such readings can turn out to be fatal due to the risks involved in new product out to be fatal due to the risks involved in new product development.development.

121121

P.L.C WEAKNESSESP.L.C WEAKNESSES

Unclear ImplicationsUnclear Implications:: Growth Growth phase may or may not be associated with high profit phase may or may not be associated with high profit margin. margin.

Rapid growth can be associated with low profits and Rapid growth can be associated with low profits and decline can be very profitable.decline can be very profitable.

Product OrientedProduct Oriented: : Fails to understand the changes in the requirement Fails to understand the changes in the requirement

of customers / strategies of competitors, of customers / strategies of competitors, attractiveness of new market to competitors/ attractiveness of new market to competitors/ Emergence of technologies etc.Emergence of technologies etc.

Technologies, needs/ demands, product categories Technologies, needs/ demands, product categories have different driving forces.have different driving forces.

122122

P.L.C WEAKNESSESP.L.C WEAKNESSES No Uniform ShapeNo Uniform Shape: An s shaped curve describes only shape : An s shaped curve describes only shape

of PLC while most of them vary or are unique.of PLC while most of them vary or are unique. Unpredictable Turning Points: Unpredictable Turning Points: While most products do peak While most products do peak

and then fall there is no specific turning point. and then fall there is no specific turning point. Difficult to Decide the StagesDifficult to Decide the Stages: A dormant sales (flat) : A dormant sales (flat)

pattern may denote the product has reached maturity while it pattern may denote the product has reached maturity while it may be just that the product has touched a plateau before may be just that the product has touched a plateau before another growth period. Tendency to drop a product due to another growth period. Tendency to drop a product due to such readings can turn out to be fatal due to the risks such readings can turn out to be fatal due to the risks involved in new product developmentinvolved in new product development

Unclear ImplicationsUnclear Implications: Growth phase may or may not be : Growth phase may or may not be associated with high profit margin. Say rapid growth can be associated with high profit margin. Say rapid growth can be associated with low profits and decline can be very profitable.associated with low profits and decline can be very profitable.

Product OrientedProduct Oriented: Fails to understand the changing : Fails to understand the changing requirement of customers / strategies of competitors, requirement of customers / strategies of competitors, attractiveness of new market to competitor-ors / Emergence attractiveness of new market to competitor-ors / Emergence of technologies etc.of technologies etc.

Technologies, needs/ demands, product categories have Technologies, needs/ demands, product categories have different driving forces.different driving forces.

123123

MARKET SHARE DOMINANCE

HIGH LOW

MA

RK

ET

GR

OW

TH

RA

TE

LO

W

H

IGH

High growth

Market leaders Require cash

Large profits

Low growth

High market shareHigh cash flow

Low growthLow market shareMinimal cash flow

High growth

Low market shareNeed cash

Poor profit margins

$$$$

BCG Portfolio MatrixBCG Portfolio Matrix

124124

BCG MatrixBCG MatrixRelative Market Share Position

Indu

stry

Sal

es G

row

th R

ate

High 1.0

Medium

Low

High

Low

Med

Stars IV

Question Marks III

Cash Cows I

Dogs II

125125

BCG MatrixBCG Matrix

126126

BCG Portfolio Matrix BCG Portfolio Matrix ExampleExample

Sub-Notebooks and Hand-Held

Computer

Integrated phone/Palm

devices

Laptop and Personal

Computers

MainframeComputer

MA

RK

ET

GR

OW

TH

RA

TE

LO

W

H

IGH

MARKET SHARE DOMINANCE

HIGH LOW

STAR PROBLEM

CHILD

CASH COW DOG

127127

Boston Consulting Group Boston Consulting Group (BCG) Matrix(BCG) Matrix

When a firm’s divisions compete in When a firm’s divisions compete in different industries, a separate strategy different industries, a separate strategy often must be developed for each often must be developed for each business.business.

To enhance and formulate strategies.To enhance and formulate strategies. To manage its portfolio of businessesTo manage its portfolio of businesses Focuses on Focuses on relative market sharerelative market share

position and the position and the industry growth rateindustry growth rate..

128128

BCG MatrixBCG Matrix

Pie Chart corresponds to corporate Pie Chart corresponds to corporate revenue generated by that business unit.revenue generated by that business unit.

The pie slice indicates the proportion of The pie slice indicates the proportion of division’s profit.division’s profit.

Divisions located Divisions located Quadrant I is called Quadrant I is called Cash CowsCash Cows, , Quadrant II is called Quadrant II is called DogsDogs.. Quadrant III is called Quadrant III is called Question MarksQuestion Marks,, Quadrant IV is called Quadrant IV is called StarsStars,,

129129

Cash CowsCash Cows

High relative market share but compete in High relative market share but compete in a low-growth industrya low-growth industry Generate cash in excess of their needsGenerate cash in excess of their needs Milked i.e. cash for other purposesMilked i.e. cash for other purposes

Manages to maintain strong position as Manages to maintain strong position as long as possiblelong as possible Product developmentProduct development Concentric diversificationConcentric diversification Retrenchment or divestiture if the division Retrenchment or divestiture if the division

becomes weakbecomes weak

130130

DogsDogs Low relative market share and Low relative market share and

compete in a slow- or no-growth compete in a slow- or no-growth industryindustry

Weak internal and external positionWeak internal and external position LiquidationLiquidation DivestitureDivestiture RetrenchmentRetrenchment

131131

Question MarksQuestion Marks Low relative market share—compete Low relative market share—compete

in a high growth industryin a high growth industry Cash needs are highCash needs are high Cash generation is lowCash generation is low

Decision: strengthen by pursuing an Decision: strengthen by pursuing an intensive strategy, e.g. to sell them.intensive strategy, e.g. to sell them.

132132

StarsStars High relative market share and a High relative market share and a

high industry growth ratehigh industry growth rate Represent the organization’s best Represent the organization’s best

long-run opportunities for growth long-run opportunities for growth and profitability.and profitability.

Substantial investment to maintain Substantial investment to maintain or strengthen their dominant or strengthen their dominant position.position. Integration strategiesIntegration strategies Intensive strategiesIntensive strategies Joint venturesJoint ventures

133133

BCG Matrix & BenefitBCG Matrix & Benefit

Setting the path for growthSetting the path for growth Knowing dead investmentsKnowing dead investments Draws attention to the cash flow,Draws attention to the cash flow, Investment characteristics Investment characteristics Needs of an organization’s various Needs of an organization’s various

divisions.divisions. To achieve a portfolio of divisions To achieve a portfolio of divisions

that are Stars.that are Stars.

134134

BCG Matrix LimitationsBCG Matrix Limitations

Viewing every business as a star, cash cow, Viewing every business as a star, cash cow, dog, or question mark is overly simplistic.dog, or question mark is overly simplistic.

Middle of the BCG matrix is not easily Middle of the BCG matrix is not easily classified.classified.

The BCG matrix does not reflect whether or not The BCG matrix does not reflect whether or not various divisions or their industries are growing various divisions or their industries are growing over time.over time.

Other variables besides relative market share Other variables besides relative market share position and industry growth rate in sales are position and industry growth rate in sales are important in making strategic decisions about important in making strategic decisions about various divisions.various divisions.

135135

G.E Strategic Planning Model

Strong Average Weak Business StrengthBusiness Strength

Industry Attractiveness

High

Medium

Low

Business Strength Index Industry Attractiveness Index

* Market Share * Market size * Price Competitiveness * Market Growth * Product Quality * Industry Profit Margin * Customer Knowledge * Amount of Competition * Sales Force and Effectiveness * Seasonality * Geographic Advantage * Cost Structure * Others * Etc.

136136

Strategies for Resource Strategies for Resource AllocationAllocation

BuildBuild

HoldHold

HarvestHarvest

DivestDivest

Provide financial resources if SBU (Problem Child) has potential to be a Star.

Preserve market share if SBU is a successful Cash Cow. Use cash flow for other SBUs.

Increase short-term cash return. Appropriate for all SBUs except Stars.

Get rid of SBUs with low shares in low-growth markets.

137137

Parenting-Fit Matrix

Edge of Heartland

Heartland

Alien Territory

Low

High

HighLow

FIT between parenting opportunities and parenting characteristics

MIS

FIT b

etw

een c

riti

cal su

ccess

fa

ctors

and p

are

nti

ng c

hara

cteri

stic

s

Ballast

Value Trap

138138

McKinsey’s 7 S ModelMcKinsey’s 7 S Model

Strategy

Structure Systems

Style

Staff

Skills

Super Ordinate Goals- Shared Values

139139

Implementation of a Implementation of a strategystrategy

140140

Strategy ImplementationStrategy Implementation

Sum total of the activities and choices required for the execution of a strategic plan.

Process by which strategies and policies are put into action through programs, budgets, and procedures.

The toughest phase in Strategy Management

141141

Strategy ImplementationStrategy Implementation

Problems in Implementing

Strategic plans

•More time than planned•Unanticipated problems•Activities ineffectively coordinated•Crises deferred attention away•Employees w/o capabilities•Inadequate employee training•Uncontrollable external factors•Inadequate leadership•Poorly defined tasks•Inadequate information systems

142142

DESIGN OF OBJECTIVES& COMMUNICATE TO

CONCERNED

TASK BREAK DOWN

ORGANISATION DESIGN& DEVELOPMENT

DELEGATION OF TASK & AUTHORITIES &

RESPOSIBILITIES

RESOURCES MOBILISATION &

ALLOCATIONDESIGN OF PERFORMANCE

STANDARD

DESIGN OF SIS /MIS

TRAINING & DEVELOPMENT OF

MANAGERS

EVALUATION OF OUT COME

IS STRATEGY FUNCTIONAL?

STRATEGIC IMPLEMENTATION

& CONTROLPROCESS

143143

The greatest strategy will be failed if it’s The greatest strategy will be failed if it’s implemented badly.implemented badly.

Successful strategy formulation does not guarantee Successful strategy formulation does not guarantee successful strategy implementation. successful strategy implementation.

Less than 10% of strategies formulated are Less than 10% of strategies formulated are successfully implemented!successfully implemented!

The Nature of Strategy Implementation

144144

Failing to segment markets appropriatelyFailing to segment markets appropriately Paying too much for a new acquisitionPaying too much for a new acquisition Falling behind competition in R&DFalling behind competition in R&D Not recognizing benefit of computers in Not recognizing benefit of computers in

managing informationmanaging information


Strategy Implementation can have a low success rate

• Implementation may fail due to:

145145

Market goods & services wellMarket goods & services well Raise needed working capitalRaise needed working capital Produce technologically sound goodsProduce technologically sound goods Sound information systemsSound information systems


Successful Strategy Implementation

146146

Formulation vs. Implementation

Formulation focuses on effectivenessFormulation focuses on effectiveness Implementation focuses on efficiencyImplementation focuses on efficiency

• Formulation is primarily an intellectual process• Implementation is primarily an operational process

• Formulation requires good intuitive & analytical skills• Implementation requires special motivational &

leadership skills

• Formulation requires coordination among a few individuals

• Implementation requires coordination among many individuals

147147

Varies among different types & sizes of Varies among different types & sizes of organizationsorganizations

Nature of Strategy Implementation

Strategy Implementation

148148

Altering sales territoriesAltering sales territories Adding new departmentsAdding new departments Hiring new employeesHiring new employees Cost-control proceduresCost-control procedures Modifying advertising strategiesModifying advertising strategies Building new facilitiesBuilding new facilities


Implementation Activities

149149

Shift in responsibilityShift in responsibility


Management Perspectives

Division or FunctionalManagers

Strategists

150150

Management IssuesManagement Issues

ManagementIssues

ResourcesResources

Organizational structureOrganizational structure

RestructuringRestructuring

Annual ObjectivesAnnual Objectives

151151

Management Issues Management Issues (cont’d)(cont’d)

ManagementIssues Production/OperationsProduction/Operations

Resistance to ChangeResistance to Change

152152

Management Issues

Purpose of Annual Objectives --

Basis for resource allocation

Mechanism for management (e.g. IT management) evaluation

Metric for gauging progress on long-term objectives

Establish priorities (organizational, division, & departmental)

153153

Management Issues

Resource Allocation

-- Central management activity that allows for the execution of strategy

enables resources to be allocated according to priorities established by annual objectives.

154154

Management Issues

1. Financial resources

2. Physical resources

3. Human resources

4. Technological resources

4 Types of Resources

155155

Management Issues

Matching Structure w/ Strategy

-- Changes in strategy = Changes in structure

Structure dictates how objectives & policies will be established and how resources will be allocated; e.g. is structure based on location or based on the product…

156156

New administrativeproblems emerge

New strategyIs formulated

Organizationalperformance

declines

Organizational performance

improves

New organizationalstructure is established

Structure should be designed to facilitate the strategic pursuit of a firm

157157

Management Issues

Restructuring

-- Reducing the size of the firm – # of employees, divisions and/or units, # of hierarchical levels; e.g. The Internet is ushering in a new wave of business transformations…

158158

Management Issues

Reengineering

In reengineering, a firm uses information technology to break down functional barriers and create a work system based on business processes… Reconfiguring or redesigning work, jobs, & processes to improve cost, quality… (alteration of Scott Morton’s value chain) Think of an example.

159159

Management Issues

Resistance to Change -- Single greatest threat to successful strategy implementation

Raises anxiety; fear concerning: economic loss, Inconvenience or Uncertainty

Force Change Strategy

Educative Change Strategy

Rational or Self-Interest Change Strategy

160160

Management Issues

Production/Operations Concerns

Production processes typically constitute more than 70% of firm’s total assets

Decisions concern e.g. :

Plant size

Quality control

Technological innovation

161161

Marketing Issues

Marketing variables affect Marketing variables affect success/failure of strategy success/failure of strategy implementationimplementation

1. Market segmentation

2. Product positioning

162162

Marketing Issues

Market Segmentation: Subdividing of a market into distinct subsets of customers according to needs and buying habits

Market segmentation variables:Market segmentation variables: ProductProduct PlacePlace PromotionPromotion PricePrice

163163163

Marketing Mix – Component FactorsMarketing Mix – Component Factors

Service level

Warranty

Transportation carriers

Product line

Inventory levels/locations

Packaging

PublicitySales territoriesBrand name

Payment termsSales promotionOutlet locationStyle

Discounts & allowances

Personal sellingDistribution coverage

Features

LevelAdvertisingDistribution channels

Quality

PricePromotionPlaceProduct

164164

Marketing Issues

Schematic representations that reflect how Schematic representations that reflect how products/services compare to competitors’ on products/services compare to competitors’ on dimensions most important to success in the dimensions most important to success in the industry; I.e. according to customer wants and industry; I.e. according to customer wants and customer needscustomer needs

Product Positioning

165165

Acquiring needed capitalAcquiring needed capital Developing projected financial statementsDeveloping projected financial statements Preparing financial budgetsPreparing financial budgets Evaluating worth of a businessEvaluating worth of a business

Finance/Accounting Issues

Essential for implementation

166166

Research & Development Issues

New products and improvement of New products and improvement of existing products that allow for existing products that allow for effective strategy implementation effective strategy implementation

Use an R&D strategy that ties Use an R&D strategy that ties external opportunities to internal external opportunities to internal strengths and is linked with strengths and is linked with objectives.objectives.

167167

1.1. 11stst firm to market new technological firm to market new technological productsproducts

2.2. Innovative imitator of successful Innovative imitator of successful productsproducts

3.3. Low-cost producer of similar but less Low-cost producer of similar but less expensive productsexpensive products

Research & Development Issues

3 Major R&D approaches to implementing strategies

168168

Management Information Systems (MIS) Issues

Information is the basis for Information is the basis for understanding the firm. One of the understanding the firm. One of the most important factors differentiating most important factors differentiating successful from unsuccessful firmssuccessful from unsuccessful firms

• MIS used to : • Information collection, retrieval, & storage• Keeping managers informed• Coordination of activities among divisions• Allow firm to reduce costs

169169

Stages of the Industry Life Stages of the Industry Life CycleCycle

Generic strategies

Differentiation DifferentiationDifferentiation Overall cost

Overall cost leadershipleadership Focus

Market growth rate

Low Very large Low to Negativemoderate

Number of segments

Very few Some Many Few

Intensity of competition

Low Increasing Very intense Changing

Emphasis on product design

Very high High Low to Lowmoderate

Stage Introduction Growth Maturity DeclineFacto

r

170170

Stages of the Industry Life CycleStages of the Industry Life Cycle

Emphasis on process design

Low Low to High Lowmoderate

Major functional area(s) of concern

Research and Sales and Production GeneralDevelopment marketingmanagement

and finance

Overall objective

Increase Create DefendConsolidate,market share consumer market sharemaintain, awareness demand and extend harvest, or

product life exitcycles

StageFacto

r

Introduction Growth Maturity Decline

171171

Evaluation and ControlEvaluation and Control

Traditional Financial Measures

Return on Investment

(ROI)

Earnings perShare(EPS)

Return onEquity(ROE)

172172

THANK YOU.

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