Business policy & strategic management

Business Policy & Strategic Management

-Prof. Shashank Divekar Pune, India


Business policy is the study of the roles and responsibilities of top- level management, the significant issues affecting organizational success and the decisions affecting organization in the long-run.

Business Policy defines the scope or spheres within which decisions can be taken by the subordinates in an organization.

It permits the lower level management to deal with the problems and issues without consulting top level management every time for decisions.

Business policies are the guidelines developed by an organization to govern its actions. They define the limits (Do’s & Don’t’s) within which decisions must be made.

What is Business Policy ?

Business Policy includes guidelines, rules and procedures established to support efforts to achieve stated objectives.


Policies are guides to decision making and address repetitive or recurring situations.

Policy defines the area in which decisions are to be made, but it does not give the decision.

A policy is a verbal, written, or implied overall guide, setting up boundaries that supply the general limits and direction in which managerial action will take place.


Examples of Business Policies :

HR Policy • Hiring-Firing • Employee profile •Training • Transfers • Promotions • Wages • Incentives & Bonus

Materials Policy • Quality-Quantity • Vendors • Payment terms • Stores & Handling • Documentation

Marketing Policy • What to sell • Where • To Whom • Through Whom • Communication

Quality Policy • Standards • Checks & Controls • Feedbacks • Corrective Measures


What is Corporate Strategy ?

Corporate Strategy is the direction and scope of an organisation, which achieves advantage for the organisation through its configuration of resources within a changing environment and to fulfill stakeholder expectations.

What is Strategic Managemant ?

It is the managerial process that focusses on identifying and building competitive advantage

By

Generating good ideas and implementing them effectively.


The task of corporate strategy is to create a distinctive way ahead for an organisation, using whatever skills and resources it has, against the background of the environment and its constraints.

Corporate Strategy is the pattern of major objectives, purposes or goals and essential policies or plans (for achieving those goals), stated in such a way as to define what business the company is in, or is to be in, and the kind of company it is, or is to be.

- Kenneth Andrews


5 Tasks of Strategic Management

1. Forming a strategic vision – Long term direction, a sense of purposeful action.

2. Setting objectives – Converting the strategic vision into specific performance outcomes for the organisation to achieve.

3. Crafting a strategy to achieve desired results :

• Macroeconomic analysis • Industry Analysis • Game theory • Capabilities-based strategy formulation • Dynamic capabilities & evolutionary thinking

4. Implementation & executing the strategy

5. Evaluating performances, reviews and corrective action


Business Model

A Business Model is a document describing the operations of a business including the components of the business, the functions, and design. It is the plan implemented by a company to generate revenue and make a profit from operations.

Magretta defines Business Model as ‘Stories that explain how enterprises work’.

A Business Model depicts the content, structure and governance of transactions, designed so as to create value through exploitation of business opportunities.

A Business Model is the ‘logic’ of the firm, the way it operates and how it creates value for its stakeholders.


Business Model

A business model is how a company operates and a strategy is how a company competes. Strategies cannot be formulated without first understanding the fundamental elements of a business model.

When the basis of competition changes because a new model changes the economics in the industry, business models need to be adjusted and then the strategy realigned.


RESOURCES Strategy needed

to direct activities of its

people, finance, factories etc.

How corp. strategy links the organisation’s resources with its environment

Economy Growing

Opportunity

Competitors Attacking

Threat

Customers excited about new

products & services

Opportunity

Suppliers becoming more aggressive

Threat

Environment Environment

Environment

Environment


How corp. strategy links the organisation’s resources with its environment

Economy at large

Technology Legislation & Regulation

Societal Values & Lifestyle Population

Demographics

Firm

Suppliers

Rivals Buyers

Substitutes

New Entrants


Environmental Threat & Opportunities Profile (ETOP)

ETOP analysis is a management tool that analyses environmental information and determines the relative impact of threats and opportunities for the systematic evaluation of the environment. Environment scanning is the process of gathering, analysing and dispensing information for tactical or strategic purposes. ETOP process involves dividing the environment into different environmental sectors and then analysing the impact of each sector on the organisation. ETOP gives a clear picture to the strategies about each aspect of the business environment, the various individual factors within each sector which affect the business favourably or otherwise.



ENVIRONMENTAL SECTOR

NATURE OF IMPACT IMPACT OF THE SECTOR

ECONOMIC Burgeoning middle class,

rising disposable incomes, lifestyle changes.

MARKET

Several major players, lots of small players and a large

unorganised sector, margin pressures.

GLOBAL Global slowdown, cheaper imports, US$, crude prices.





POLITICAL Coalition compulsions, lack

of direction, instability.

REGULATORY

Too many controls, inspector raj, documentation and

licensing, reservations for SSI etc.

SOCIAL

Changing attitudes, acceptance of new social

values and norms, new ideas and liberal outlook.





TECHNOLOGY Cheaper technology

development, skilled and trained indigenous talent.

SUPPLIERS

Too few vendors, new suppliers reluctant to enter

the market. Pricing and scheduling issues.


Characteristics of Corporate Strategy

1. Generally long-range in nature but valid for short-range situations also.

2. Action-oriented and more specific than objectives.

3. Multipronged and integrated.

4. Flexible and dynamic

Corporate strategies provide direction when the company enters new economic markets. The strategy determines markets of the firms, customers and competitors.


Characteristics of Corporate Strategy ..Contd.

6. Generally meant to deal with competitive and complex settings

7. Flows out of goals and objectives and is meant to turn them into realities.

8. Is concerned with perceiving opportunities and threats and seizing initiatives to cope with them.

9. Provides unified criteria for managers in function of decision making.

5. Formulated at top management level with inputs from middle and lower level managers


Mintzberg’s 5 Ps of Strategy

Henry Mintzberg first wrote about the 5 Ps of strategy in 1987. According to him different types of strategic thinking and approaches are required as per situations and conditions. These may be inter-related and compatible. Strategy is not just a notion of how to deal with an enemy or a set of competitors or a market. It also involves some of the fundamental issues about organisations as instruments for collective perception and action. Mintzberg argued that there is no point in developing a strategy that ignores the competitor’s reactions or does not take into account the organisation’s culture and capabilities.



Mintzberg presented 5 different approaches or concepts of strategy. These are known as ‘5 Ps’ of strategy.

1. Plan

2. Ploy

3. Pattern

4. Position

5. Perspective



Strategy as a Plan : Planning is something that comes naturally to us. As such, this is the default, automatic approach that is adopted. This involves brainstorming options and planning how to exploit the opportunity.

By this definition, strategy has two essential characteristics :

a) They are made in advance of the actions to which they apply. b) They are developed consciously and purposefully.

As plans, strategies can be general or specific.



Strategy as a Ploy :

A Ploy is a specific ‘maneouvre’ intended to outwit an opponent or competitor. It involves plotting to disrupt, dissuade, discourage or otherwise influence competitors as a part of a strategy.

A major retail store threatening to expand its size and capacity to discourage a competitor from opening a store in the area, a corporation luring away some key employees or distributors of a competitor in order to weaken the operating capability of the competitor are some examples of ‘ploys’.



Strategy as a Pattern :

Strategic plans and ploys are both deliberate exercises. Sometimes, however, strategy emerges from past organizational behavior. Rather than being an intentional choice, a consistent and successful way of doing business can develop into a strategy.

Thus, defining strategy as a plan is not sufficient. We also need a definition which takes into account the resulting behaviour. Thus the definition of strategy as a ‘pattern’ emerges.

By this definition strategy is consistency in behaviour, whether or not intended.



Strategy as a Position :

"Position" is another way to define strategy - that is, how you decide to position yourself in the marketplace.

In this way, strategy helps you explore the fit between your organization and your environment, and it helps you develop a sustainable competitive advantage.

By this definition, strategy becomes a ‘mediating force’ between the organisation and its environment – both internal and external.

A position can be deliberate, intended or may emerge as a pattern of behaviour.



Strategy as a Perspective : This approach is based on the way an organisation views the world around itself – the customers, competitors and the environment. Accordingly the conduct their business and deal with situations.

It is every organisation’s perspective that becomes the basis for all its actions and the way it reacts to situations. Some companies are aggressive marketers, some believe in developing new technologies while there are some who believe in productive efficiency.

The 5 Ps should be seen as a variety of viewpoints that one should consider while developing a robust and successful strategy. While various relationships exist among the different definitions, not any single definition takes precedence over the others. In many ways the definitions compliment each other. Each definition adds important elements to our understanding of strategy, indeed encourages us to address fundamental questions about organisations in general.





As such, there are three points in the strategic planning process where it's particularly helpful to use the 5 Ps:

1. While gathering information and conducting the analysis for strategy development, as a way of ensuring that everything relevant is taken into account.

2. When you've come up with initial ideas, as a way of testing that that they're realistic, practical and robust.

3. As a final check on the strategy that you've developed, to flush out inconsistencies and things that may not have been fully considered.

Using Mintzberg's 5 Ps at these points will highlight problems that would otherwise undermine the implementation of the strategy.

Corporate level strategy

It decides the business you should be in. Is concerned with the overall purpose and scope of an organisation and how value will be added to the different parts (Business units) of an organisation.

Business Unit strategy

Also known as ‘Competitive Strategy’, it decides the tactics to beat/ overcome the competition. Is about how to compete successfully in particular markets. The concerns are about competitors, opportunities and new products or services.


LEVELS OF STRATEGY

Operational strategy

Also called the ‘Go-to-Market Strategy’ or ‘Functional Strategy’, it decides the operational methods to implement the tactics. Are concerned with how the component parts of an organisation deliver effectively the corporate and business-level strategies in terms of resources, processes and people.


LEVELS OF STRATEGY


Corporate Strategy

Business Strategy

Operational Strategy

Business to be in

Tactics to beat the competition

Operational methods to implement the tactics

Overall purpose and scope of business, investor’s expectations, long-term vision.

Challenges of competition, choice of products, exploiting

and creating new opportunities.

How each part of the biz is organised to deliver corporate and BU-level

direction

Core areas of Corporate Strategy :

1. Strategic Analysis : The organisation, its mission and objectives have to be examined and analysed. The top management examines the objectives, the environment and the resources.

2. Strategy Development : The strategy options have to be developed and selected. The strategy has to be built on the particular strengths of the organisation, developing advantages over competition that are sustainable over time.

3. Strategy Implementation : The selected options have to be implemented.


The three core areas of corporate strategy :

Sequential Approach

Strategic Analysis

Strategic Development

Strategic Implementatio

n

Simultaneous Approach


A Comprehensive Strategic Management Model

Vision & Mission

Statements

Measure & Evaluate

Performance

External Audit

Internal Audit

Long-Term

Objectives

Generate, Evaluate &

Select Strategies

Implement Strategies –

Mgnt. Issues

Implement Strategies - Functional

Strategy Formulation Strategy Implementation Strategy Evaluation


Vision Statements and Mission Statements are the inspiring words chosen by successful leaders to clearly and concisely

convey the direction of the organization.

A Mission Statement defines the company's business, its objectives and its approach to reach those objectives.

A Vision Statement describes the desired future position of the company.

Elements of Mission and Vision Statements are often combined to provide a statement of the company's purposes, goals and values.


Vision, Mission & Objectives

The Vision statement communicates both the purpose and values of the organization.

A vision statement is a broad declaration of overall intent to eventually achieve a widely acknowledged state of existence - an aspiration for the future.

Vision refers to the category of intentions that are broad, all-inclusive and forward-thinking. It is the image that a business must have of its goals before it sets out to reach them.




A mission statement defines in a paragraph or so any entity's reason for existence. It embodies its philosophies, goals, ambitions and mores. Any entity that attempts to operate without a mission statement runs the risk of wandering through the world without having the ability to verify that it is on its intended course.

A Mission statement is an organization's vision translated into written form. It makes concrete the leader's view of the direction and purpose of the organization. `


A Mission statement guides the actions of the organisation, spells out its overall goals and provides the framework or context within which the company’s strategies are formulated.

Mission and Vision Statements are commonly used to:

Internally :

• Guide management's thinking on strategic issues, especially during times of significant change;

• Help define performance standards;

• Inspire employees to work more productively by providing focus and common goals;

• Guide employee decision making;

• Help establish a framework for ethical behavior.

A Mission statement should be a short and concise statement of goals and priorities. In turn, goals are specific objectives that relate to specific time periods and are stated in terms of facts.



Mission and Vision Statements are commonly used to:

Externally :

• Enlist external support;

• Create closer linkages and better communication with customers, suppliers and alliance partners; • Serve as a public relations tool.

Vision defines where the organisation wants to be in the future. It reflects the optimistic view of the organisation’s future. It should make all members of the organisation feel proud, excited and part of something bigger than themselves.

Mission defines where the organisation is going now, basically describing its purpose, its primary objectives.




Walmart Vision

“To become the worldwide leader in retailing”.

Walmart Mission

“To help people save money, so they can live better”.

Toyota Vision

Toyota Mission

“Toyota aims to achieve long-term, stable growth in harmony with the environment, the global

economy, the local communities it serves, and its stakeholders”.

“Toyota seeks to create a more prosperous society through automotive manufacturing”.

Sample Vision & Mission Statements



Ford Vision

Ford Mission

“To become the world’s leading consumer company for automotive products and services”

We are a global family with a proud heritage passionately committed to providing personal

mobility for people around the world. We anticipate consumer need and deliver outstanding products and

services that improve people’s lives.

IBM Vision

IBM Mission

“IBM should be first-and-foremost on any new enterprise data center migration short-list”.

“To lead in the invention, development and manufacture of the industry’s most advanced information technologies, including computer

systems, software, storage systems and microelectronics”.



P&G Vision

P&G Mission

“To be the best consumer products and services company in the world.”

“To provide branded products and services of superior quality and value that improve the lives of the world’s

consumers, now and for generations to come”.

Vodafone Vision

“To be the communications leader in an increasingly connected world”.

Vodafone Mission

“To enrich our customer’s lives through the unique power of mobile communication”.



Samsung Vision

"Leading the Digital Convergence Revolution"

Samsung Corporate Philosophy

"We will devote our human resources and technology to create superior products and services, thereby contributing to a better global society."

Samsung Mission

"Digital-∈ Company"

There are two requirements for being "Digital-∈ Company", and the first is clearly about being

"Digital" producing not just digital products, but products that inspire digital integration across our

entire company.

The second part of being a "∈" is to use ∈- Processes connecting R&D, production, and

marketing to customers, partners, and the market-disciplined approach is the way we bring value to every part of our supply chain, including products data and customer relationship through Enterprise

Resource Planning (ERP).


Goals & Objectives

Objectives are open-ended attributes that denote the future states or outcomes.

Goals are close-ended attributes which are precise and expressed in specific terms.

Objectives may be qualitative while goals generally tend to be quantitative.

Objectives are organizations performance targets – the results and outcomes it wants to achieve. They function as yardstick for tracking an organizations performance and progress.


Goals & Objectives

COMMON OBJECTIVES :

• SURVIVAL

• STABILITY

• GROWTH

• EFFICIENCY

• PROFITABILITY

The pursuit of objectives is an unending process such that organizations sustain themselves. They provide meaning and sense of direction to organizational endeavour.


Characteristics of Objectives :

• Objectives help an organization in pursuit of its vision and mission.

• Objectives provide the basis for strategic decision-making

• Objectives should define an organization's relationship with its environment.

• Objectives should provide the standards for performance appraisal.

• Objectives should be concrete and specific.

• Objectives should be measurable, controllable and challenging.

• Objectives should be set within constraints.


ENVIRONMENTAL APPRAISAL

Environment is the sum of various external and some internal forces that affect the functioning of business.

"The environment includes factors outside the firm which can lead to opportunities for, or threats to the firm. Although there are many factors, the most important of the sectors are socio-economic, technological, supplier, competitors, and government. “

- Glueck & Jauch

"Environment factors or constraint are largely if not totally, external and beyond the control of individual industrial enterprises and their managements. These are essentially the 'givers' within which firms and their managements must operate in a specific country and they vary, often greatly, from country to country.“

- Barry M. Richman & Melvyn Copen


ENVIRONMENTAL APPRAISAL

Objectives of Environmental Appraisal :

1. To understand the current and potential changes taking place

2. To obtain necessary inputs for strategic decision making.

3. To facilitate and foster strategic thinking in organisations

Characteristics of Business Environment :

• Environment is complex

• Environment is Dynamic

• Environment is multi-faceted

• Far-reaching impact

• Carries risks, uncertainties & opportunities


Micro Environment

Micro-environment is related to small area or immediate periphery of the organisation. It influences the organisation regularly and directly.

Decisions affected by Micro-Environment

• Employees, their characteristics, attitudes and profiles.

• The customer base

• Methods and sources of finance

• Vendors/ suppliers and the relationships

• The local community

• Direct competition


Macro Environment

Macro Environment consists of broad, indirect factors which affect the overall business environment in a country or region, across all industries.

MACRO ENVIRONMENT

DEMOGRAPHIC

ECONOMIC

LEGAL / REGULATORY

GOVERNMENT

POLITICAL

CULTURAL

TECHNOLOGICAL

GLOBAL

Types of strategies

Forward Integration : Gaining ownership/ increased control over channel partners

Backward Integration : Ownership/ control over suppliers

Horizontal Integration : Ownership/ control over competitors

Market Penetration : Seeking increased market share in existing markets through extra efforts.

Market Development : Introducing existing product (s) into new geographic areas or consumer segments

Product Development : Improving existing products or developing new products

Integration

Intensive


Types of strategies

Related Diversification : Adding new but related products or services

Unrelated Diversification : Adding new, unrelated products

or services

Retrenchment : Regrouping through cost and asset reduction to reverse declining sales/ profits

Divestiture : Selling/ hiving off a division or part of the organisation

Liquidation : Selling all the assets, in parts, for their tangible worth

Diversification

Defensive


Competitive Analysis : Porter’s Five-Forces Model

1. Rivalry among competing firms

2. Potential entry of new competitors

3. Potential development of substitute products

4. Bargaining power of suppliers

5. Bargaining power of consumers


Competitive Analysis : Porter’s 5-Forces Model


Industry Rivalry

Potential Entrants

(Threat of customer mobility)

Product Substitutes

Buyers (Bargaining Power)

Suppliers (Bargaining Power)

The Five-forces model is used in three steps to determine what competition is like in a given industry :

1. Identify the specific competitive pressures/ key elements associated with each of the five forces, that impact the firm.

2. Evaluate how strong are the pressures comprising each of the five forces (Fierce, strong, moderate to normal or weak).

3. Determine whether the collective strength of the five competitive forces is conducive to earning attractive profits.

Competitive Analysis : Porter’s Five-Forces Model


Entry Barriers Ability to cut price - in

retaliation deters

potential entrants

Customer loyalty can

discourage potential

entrants

Develops core

competencies that

can act as entry

barriers

Buyer Power Ability to offer lower

prices to powerful

buyers

Large buyers have

lesser power to

negotiate due to few

close alternatives.

Large buyers have

lesser power to

negotiate due to few

alternatives.

Supplier Power Better insulated from

powerful suppliers

Better able to pass on

increased supplier

costs to the

customers

Despite low volumes,

a differentiation-

focused firm is better

able to pass on

increased supplier

costs to customers.

Substitutes Can use low prices as

defense against

substitutes.

Differentiating

attributes reduce the

threat of substitutes

Specialised products

and core-competency

protect against

substitutes.

Rivalry Better able to

compete on price

Brand loyalty protects

against rivals

Rivals cannot meet

differentiation-

focused customer

needs

Industry Force Cost leadership Differentiation Focus

Generic Strategies



Corporate Social Responsibility as Business Strategy

CSR is a form of corporate self-regulation integrated into a business model.

CSR is about how companies manage the business processes to produce an overall positive impact on society.

CSR involves operating a business in a manner that meets or exceeds the ethical, legal, commercial and public expectations that society has of business.

CSR is a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with the stakeholders on a voluntary basis.


Four Dimensions of CSR • Economic : Responsibility to earn profit for investors • Legal : Responsibility to comply with the law • Ethical : Driven not just by profits but also doing what is right,

just and fair. • Voluntary & Philanthropic : Promoting human welfare, being a

good corporate citizen contributing t the community and the quality of life.

Business Policy & Strategic Managementc

STRATEGIC CHOICE

The decision of strategic choice involves :

• Setting Objectives

• Generating Alternatives

• Choosing one or more alternative (s)

• Implementing the chosen alternative(s)

There are four steps in the process of strategic choice :

1. Focusing on alternative strategies

2. Analysing the alternatives

3. Evaluating the alternatives

4. Choosing from among the alternatives


Business Portfolio Analysis :

A company's portfolio is the sum of its business, assets and products. In portfolio analysis, top management views its product lines and business units as a series of investments from which it expects returns.

The best business portfolio is the one that best fits the company’s strengths and weaknesses to opportunities in the environment.

A perfect portfolio analysis is shaped to meet and suit the company's potency and also enable it to exploit the best opportunities available.

Analysis of a portfolio involves deciding on the relative importance of available business and investment opportunities.


Business Portfolio Analysis : Portfolio analysis can be defined as a set of techniques that help strategists in taking strategic decisions with regard to individual products or business in a company’s portfolio. It is primarily used for competitive analysis and corporate strategic planning in multi-product and multi-business firms. The objective is to help divert resources from its cash-rich businesses to more prospective ones that hold promise of a faster growth so that the company achieves its corporate level objectives in an optimal manner.


Boston Consulting Group (BCG) Growth-Share Matrix

BCG Matrix is considered to be the simplest way to portray a company’s portfolio of investments. It is popularly used for resource allocation in a diversified company.

Using the BCG approach, a company classifies its different businesses on a 2-dimensional growth-share matrix.

• The vertical axis represents the market growth rate and provides a measure of market attractiveness.

• The horizontal axis represents relative market share of the company or the product and serves as a measure of the company’s strength in the market.

• The products are classified n four categories as ‘Stars’, ‘Cash Cows’, ‘Question Marks’ and ‘Dogs’.


The GE 9-Cell Matrix was developed with the intention to overcome certain limitations of the BCG Matrix.

The Matrix was pioneered by General Electric Co., with the aid of Boston Consulting Group and McKinsey & Co.

GE Nine-Cell Strategic Model


The matrix consists of 9 cells (3X3) and Two Key Variables :

• Business Strength • Industry Attractiveness

Business Strengths :

• Product features/ Patents • Market Share • Profit Margins • Price/ Quality Competitiveness • Market Intelligence

Industry Attractiveness :

• Market Size & Growth • Economies of scale • Technology • Social/ environmental aspects • Competitive factors



Industry Attractiveness

Enterprise Strength

High

Medium

Low

High Medium Low

Leader

Try Harder

Growth

Phased Withdrawal

Withdrawal Phased

Withdrawal

Cash Generation

Proceed with care

Improve or Quit

If your enterprise falls in the green zone you are in a favorable position with relatively attractive growth opportunities.

A position in the yellow zone is viewed as having medium attractiveness.



Industry Attractiveness

Enterprise Strength

High

Medium

Low

High Medium Low

Leader

Try Harder

Growth

Phased Withdrawal

Withdrawal Phased

Withdrawal

Cash Generation

Proceed with care

Improve or Quit

A position in the red zone is not attractive. The suggested strategy is that management should begin to make plans to exit the industry.

Strategy Alternatives

Stability Expansion Retrenchment Combination

Intensification Diversification

Market Development

Product Development

Market Penetration

Vertically Integrated

Concentric Diversification

ConglomerateDiversification

Forward Backward


Strategy Implementation

A technically imperfect plan that is implemented well, will achieve more than the perfect plan that never gets off the paper on which it is typed. Change comes through implementation and evaluation and not through the plan.

Strategic-management process does not end when the firm decides what strategies to pursue. There must be a transition of strategic thought into strategic action. Implementing strategy affects an organisation from top to bottom; it affects all the functional and divisional areas of a business.

Strategy execution deals with the managerial exercise of supervising the ongoing pursuit of strategy, making it work, improving the competence with which it is executed and showing measurable progress in achieving the targeted results.


Strategy formulation is fundamentally different from strategy implementation :


Strategy Formulation Strategy Implementation

Positioning forces before the

action Guiding forces during the action

Focuses on effectiveness Focuses on efficiency

Primarily an intellectual process Primarily an operational process

Requires good intuitive and

analytical skills

Requires special motivation and

leadership skills

Requires coordination among

few individuals

Requires coordination among

many individuals

Strategy formulation concepts and tools do not differ greatly for small, large, for-profit or non-profit organisations. However, strategy implementation varies substantially among different types.


Strategy & Corporate Culture Corporate Culture is a system of shared values, assumptions, beliefs, and norms that unite the members of an organisation. Culture functions like an operating system of a computer, thereby providing definite process environment for operability of strategy. “Culture eats Strategy for breakfast”

- Peter Drucker


CORPORATE CULTURE

Team-work

Commu-nication

Org. Structure

Social Connecti

-vity

Control Systems

Beliefs

Values

Rituals & Routines

Hierarchy


McKinsey’s 7 S Framework

Developed in the early 1980s by Tom Peters and Robert Waterman, two consultants working at the McKinsey & Company.

The basic premise of the model is that there are seven internal aspects of an organization that need to be aligned if it is to be successful.

The 7S model can be used in a wide variety of situations where an alignment perspective is useful, for example to help :

Improve the performance of a company. Examine the likely effects of future changes within a company. Align departments and processes during a merger or

acquisition. Determine how best to implement a proposed strategy.





The McKinsey 7S model involves seven interdependent factors which are categorized as either "hard" or "soft" elements:

HARD ELEMENTS SOFT ELEMENTS

STRATEGY SHARED VALUES

STRUCTURE SKILLS

SYSTEMS STYLE

- STAFF

• Strategy: the plan devised to maintain and build competitive advantage over the competition.

• Structure: the way the organization is structured and who reports to whom.

• Systems: the daily activities and procedures that staff members engage in to get the job done.



It is easier for managements to influence ‘hard’ elements, since they are easier to define or identify. They include reporting systems, procedures and IT systems.

‘Soft’ elements, although equally important, are intangible and more related to culture. They are difficult to control or influence.

• Shared Values: these are the core values of the company that are evidenced in the corporate culture and the general work ethic.

• Style: the style of leadership adopted.

• Staff: the employees and their general capabilities.

• Skills: the actual skills and competencies of the employees working for the company.


Strategy & Organisation Structure

Changes in strategy often require changes in the way an organization is structured :

• Structure largely dictates how objectives and policies will be established. The structural format for developing objectives and policies can significantly impact all other strategy-implementation activities.

• Structure dictates how resources will be allocated. Eg. Allocation of resources will be determined by whether structure is based on customer groups or along functional areas

When a firm changes its strategy, the existing organisational structure may become ineffective.

New Strategy is formulated

New administrative problems

Organisational performance

declines

New Organisational

Structure

Improved Organisational Performance

Chandler’s Strategy-Structure Relationship

Chandler found a particular structure sequence to be often repeated as organisations grow and change strategy over time.


When a firm changes its strategy, the existing organisational structure may become ineffective.

Strategy & Organisation Structure


Strategy Evaluation

It is essential for managers to systematically review, evaluate and control the execution of strategies, because even the best-formulated and best-implemented strategies can become obsolete as the internal and external environments change.

Strategy evaluation is essential to ensure that the stated objectives are being achieved.

Strategy evaluation is important because organisations face dynamic environments in which key external and internal factors often change quickly and dramatically.

Strategy evaluation includes three basic activities :

1. Examining the underlying bases of the firm’s strategy

2. Comparing expected results with the actual results

3. Corrective action to ensure performance conforms to plans

Strategy Evaluation

Richard Rumelt lays down four criteria that can be used to evaluate a strategy :

1. Consistency :

2. Consonance :

3. Feasibility :

4. Advantage :

Strategy must be consistent with goals and policies.

A strategy must represent an adaptive response to the external environment and to the critical changes occurring within.

The strategy should be attempted within the physical, human and financial resources of the enterprise.

The strategy must provide for creation and/ or maintenance of a competitive advantage in a selected area of activity (Resource, skill or position).


Strategy Evaluation Process


The process of strategy evaluation consists of the following steps :

1. Fixing benchmarks of performance – qualitative & quantitative

2. Measurement of performance

3. Analysing variance

4. Corrective action

Difficulties in Strategy Evaluation : Strategy evaluation in modern business environment has become a difficult and complicated process because of certain factors :


• Increase in environment complexity • Difficulty in predicting the future accurately • Increasing number of variables • High rate of obsolescence of even the best laid plans • Increase in domestic world events • Decreasing time span for planning certainty

Most common ways to evaluate strategic performance :

• Change in assets • Change in profitability • Change in sales • Change in productivity • Change in profit margins


Balanced Sorecard is a strategy performance management tool that can be used by managers to keep a track of the execution of activities by the staff within their control, and to monitor the consequences arising from these actions.

The concept involves creating a set of measurements for four strategic perspectives. These include :

1. Financial 2. Customer 3. Internal Processes 4. Learning & Growth

As a model of performance, the Balanced Scorecard is effective since "it articulates the links between leading inputs (human and physical), processes, and lagging outcomes, and focuses on the importance of managing these components to achieve the organization's strategic priorities."


Balanced Scorecard lets executives see whether they have improved in one area at the expense of another. Knowing that will protect companies from posting sub-optimal performance. A Balanced Scorecard defines what management means by "performance" and measures whether management is achieving desired results. The characteristic of the balanced scorecard and its derivatives is the presentation of a mixture of financial and non-financial measures each compared to a 'target' value within a single concise report.


What Balanced Scorecards Do : • Articulate the business's vision and strategy

• Identify the performance categories that best link the

business's vision and strategy to its results (e.g., financial performance, operations, innovation, employee performance)

• Establish objectives that support the business's vision and strategy

• Develop effective measures and meaningful standards, establishing both short-term milestones and long-term targets

Contd..


What Balanced Scorecards Do :

• Ensure companywide acceptance of the measures

• Create appropriate budgeting, tracking, communication, and

reward systems

• Collect and analyze performance data and compare actual results with desired performance

• Take action to close unfavorable gaps

Contd..

Balanced Scorecard


The emphasis is on establishing a ‘balance’ between four types of measurements : 1. Short term & Long Term

2. External & Internal (External factors include shareholders and

customers and Internal include critical business processes, innovation, learning and growth)

3. Performance Drivers (Leading indicators) & Outcome measures (Lagging indicators)

4. Objective measures and Subjective measures. (Objective measures are mostly financial while

Subjective measures are mostly non-financial)

BALANCED SCORECARD

FRAMEWORK


VISION & STRATEGY

FINANCIAL How do we appear to the

shareholders?

INTERNAL At which processes should

we excel?

LEARNING & GROWTH What should we learn to

grow & prosper?

CUSTOMER How should our customers

perceive us?

Balanced Scorecard


PERSPECTIVE GENERIC MEASUREMENTS

FINANCIAL Return on capital employed, Economic value added, Sales growth, Cash flow etc.

CUSTOMER Measurement of : Customer satisfaction, Retention, Acquisition, Profitability, Market share etc.

INTERNAL BUSINESS PROCESS

Measurement along internal value chains for: Existing and future technology, measures of quality, cycle time, cost controls, after-sales service, measures of warranty, repairs, customer returns etc.

LEARNING & GROWTH

Measurements for : People (Employee retention, training, skills, morale) Systems (Availability of critical real-time information needed for front-line employees)

Strategy and Balanced Scorecard


MISSION Why we

exist

VISION What we

want to be

VALUES What is

important to us

STRATEGY Our game

plan

STRATEGY MAP :

Translate the strategy

BALANCED SCORECARD :

Measure & Focus

STRATEGIC OUTCOMES

SATISFIED SHAREHOLDERS

DELIGHTED CUSTOMERS

EXCELLENT PROCESSES

MOTIVATED WORKFORCE

Thank You !

Prof. Shashank Divekar

Date post:	17-May-2015
Category:	Business
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