Introduction to

Strategic Management

Dimensions of Strategic Decisions

• Strategy is likely to be concerned with the long-term direction of an organization.

• Strategic decisions are likely to be concerned with the cope of an organization’s activities.

• Strategic decisions are normally about trying to achieve some advantage for the organization over competition.

Dimensions of Strategic Decisions

• Strategy can be seen as the search for strategic fit with the business environment.

• Strategy can also be seen as creating opportunities by building on an organization’s resources and competencies.

• Strategy of an organization is affected not only by environmental forces and strategic capability, but also by the values and expectations of those who have power in and around the organization.

Evolution of Strategic Thinking

• In 1942 Peter Drucker wrote the book, Concept of the Corporation, a scrutiny of GM's multidivisional structure. In this book Drucker had suggested that the auto giant might want to re-examine a host of long-standing policies on customer relations, dealer relations, employee relations and more.

Views of Eminent Thinkers

• In the 1980’s Michael Porter and later in the 1990’s Gary Hamel and CK Prahalad also have had major influences in the evolution of our understanding of strategy.

Strategic Management Process

• Includes understanding the strategic position of an organization, strategic choices for the future and turning strategy into action.

Components of Strategic Management Model

• Strategic Position• Is concerned with the impact on strategy of

the external environment, an organization’s strategic capability (resources and competencies) and the expectations and influence of stakeholders.

• Strategic Choices• Involve understanding the underlying bases

for future strategy at both the business unit and corporate levels and the options for developing strategy in terms of both the directions and methods of development.

Components of Strategic Management Model

• Strategy into Action• Is concerned with ensuring that strategies are

working in practice.

Components of Strategic Management Model

Levels of Strategy (Corporate, Business, Functional)

• Corporate Level Strategy• Is concerned with the overall purpose and

scope of an organization and how value will be added to the different parts (business units) of the organization.

• Business Level Strategy• Is about how to compete successfully in

particular markets.

Levels of Strategy (Corporate, Business, Functional)

• Operational Strategies• Are concerned with how the component parts

of an organization deliver effectively the corporate and business level strategies in terms of resources, processes and people.

Levels of Strategy (Corporate, Business, Functional)

ACHIEVING BUSINESS EXCELLENCE THROUGH TBEM

• Implementing Tata Business Excellence Model in Tata Steel

ACHIEVING BUSINESS EXCELLENCE THROUGH TBEM

• According to a report by World Steel Dynamics (WSD) in April 2001, Tata Steel[2] (TISCO) was ranked as the world’s lowest cost producer of steel (Refer Exhibit I). TISCO’s operating cost at the ‘hot metal’ (liquid) stage was $75 per tonne.

• The company’s cost per tonne of finished steel stood at $152 in the financial year 2001.

• The ranking was based on several factors including low operating costs, special company culture, good profitability, skilled and productive workforce, high quality and niche products and proactive and experienced management.

• According to the media reports,[3] TISCO’s achievement of becoming the lowest cost producer of steel in the world was mainly attributed to the company’s successful implementation of the Tata Business Excellence Model (TBEM).

• The objective of TBEM was to facilitate every Tata group company achieve business excellence and establish themselves as leaders in their respective industries.

• Earlier, organizations focused on a single aspect to improve quality, for example, improving product and process, or systems quality.

• However, focusing only on a single aspect was considered insufficient in improving the overall organizational performance.

• Peters and Waterman proposed that there was a need for a broad-based business excellence model for businesses that should focus on an organization-wide thrust to improve quality.

• However, the management felt that the attitudes and perceptions of people had to be changed first before a major change could be brought about in the functioning of the organization.

4A approach

• Assurance: A company planning to implement TBEM had to form a core team, comprising the company’s CEO and the heads of all departments.

• Next, the company had to set goals, prepare the vision document and the plan of action to be adopted to achieve the vision.

• They also had to study the industry benchmarks in every operation of the company.

• The role of TQMS was to assist the companies in all the above tasks.

4A approach

• Assessment: TQMS trained executives to assess the progress of the company towards the desired goal.

• When a company had achieved 450 points on the TBEM scale, it was assessed directly by TQMS.

4A approach

• Assistance: TQMS also provided training to employees in Tata Group that planned to implement TBEM.

• It promoted an environment which enhanced organizational learning and sharing of information between group companies.

• TQMS offered them constant support through suggestions and review programs.

• It offered them consultancy services for different programs initiated by TQMS, like the balanced scorecard system,[12] as well as in other fields related to TBEM.

4A approach

• Award: On scoring 600 points out of the maximum of 1000 points on the TBEM scale, a company was considered to have achieved the level of business excellence.

• To reward this spirit of excellence, the companies that achieved 600 points or more and were given the JRD QV award.

TBEM

• TBEM comprised core values like customer-driven excellence, focus on future, organization agility, management by fact, managing for innovation, valuing employees and partners, visionary leadership, among others.

• It was broadly classified into two sections – ‘strategy development and deployment’ and ‘business performance/results.’

• Strategy development and deployment was further classified into six key management areas, such as customer and market focus, human resources, information and analysis, leadership, process management and strategic planning.

• Strategy development and deployment had been allotted 550 points, which was distributed among six areas of management, while 450 points were allotted for excellence in business performance and results.

TBEM Weightage

• Customer and Market focus: This area was given a weightage of 85 points.

• It examined an organization’s ability to assess and fulfil the needs and preferences of customers.

• It also examined how an organization established a healthy and long-term relationship with its customers and enhanced their satisfaction levels.

TBEM Weightage

• Human Resources: This assessed an organization’s ability to utilize the potential of the available human resources to their fullest extent, in accordance with the organizational goals.

• It also examined the organization’s initiatives to create a work conducive environment for employees, which fostered excellence and growth.

• It was accorded a weightage of 85 points.

TBEM Weightage

• Information Management and Analysis: Using this, an organization’s performance measurement system was examined.

• It evaluated how effectively an organization used and analyzed data and information to support its key processes.

• This area was given a weightage of 85 points.

TBEM Weightage

• Leadership: This was given the highest weightage - 125 points.

• It studied the top management’s ability to comply with the organization’s values and performance expectations.

• It also assessed the management’s focus on stakeholders, innovation, empowerment and organizational learning, and how they fulfilled their responsibilities towards the society and practiced good citizenship.

TBEM Weightage

• Process Management: This examined the important aspects of the organization’s process management - customer-oriented design, service and product delivery, and supply chain processes.

• This area was given a weightage of 85 points.

TBEM Weightage

• Strategic Planning: This was accorded a weightage of 85 points.

• It examined how an organization developed its strategies, how the strategic objectives of an organization were determined, how the key action plans were implemented, and so on.

• This area examined the organization’s human resource strategies as well.

• It also reviewed the performance of the organization after the implementation of strategic plans.

TBEM Weightage

• Business Performance: This measured the overall organizational performance in important areas including customer satisfaction, service and product performance, operational and financial performance, cost leadership, human resources, human capital and performance of supply chain partners.

• The performance of the company was also evaluated vis-à-vis that of the rival companies.

TBEM

• Twelve companies in the Tata Group were following TBEM when it was initially introduced in 1996.

TISCO

• TISCO was the first and only company to score more than 600 points on the TBEM scale and bag the JRD QV award in 2000.

• Analysts felt that TISCO’s approach in considering several areas of TBEM – continued focus on improving work processes and reducing costs – had enabled the company to clinch the coveted award.

• They also appreciated TISCO’s focus on customers, its act of fulfilling social responsibilities, and practicing good citizenship.

TISCO

• TISCO had made efforts to implement it.• • TISCO had laid stress on adopting all the seven areas of

management in TBEM.

• As an integral part of implementing TBEM, TISCO gave major thrust on improving the quality of product and processes.

• It also adopted several innovative programs to improve its business performance and focused on reducing costs significantly.

TISCO

• External customer focus concentrated on the customers’ requirement and their perceptions towards TISCO.

• The company benchmarked all its key processes and operations including product development, market intelligence, complaint handling and determination of customer satisfaction with the best industry standards.

TISCO

• TISCO took several steps to reduce costs. Between 1996 and 2000, TISCO reduced its workforce from 78,000 to 40,000, due to which its manpower costs were reduced by almost 50 percent.

TISCO

• In 1999, the company formed a small cross-functional in-house team consisting of consultants from Arthur D Little and IBM Global Services.

• The team was responsible for re-designing two core business processes – order generation and fulfilment, and market development.

TISCO

• The SAP R/3 enterprise resource planning solution enabled the company to monitor its dispatches better and offer special credit facilities to selected customers.

TISCO

• We have also adopted a system where our main customer rates us against every competitor.

• As a result of these initiatives, our customer satisfaction score, which has been constantly superior to competitors, has gone to an all time high.”

TISCO

• Through efficient management of resources, the raw material costs came down from more than US $200 per tonne in 1998 to about US $140 per tonne in 2000.

• There was also a significant reduction in the cost of carrying inventory from Rs 190 per tonne in 1999 to Rs 155 per tonne by 2000.

TISCO

• Performance Ethic Program (PEP)

• The objective of the program was to attract valuable human resources into the company, and develop and retain them.

TISCO• PEP had two core elements.

• Firstly, it focused on an organizational structure, which was expected to foster growth in business, introduce more flexibility in the decision-making process, transparent accountability, and encourage teamwork among the managers and the workforce.

• Secondly, PEP proposed to introduce a Performance Management System (PMS).

• PMS would identify and reward strong performers, and also offer development opportunities to each employee.

• It would also ensure that every employee’s job profile was clearly defined. • By introducing PMS, TISCO aimed at making performance appraisals

transparent and fair, and rewarding good performers.

TISCO

• The implementation of TBEM in the operations of TISCO, integrated with ISO 14001 in all its units, helped not only in improving the business performance of the company, but also in bringing about a cultural transformation in the way business was conducted.

TISCO

• TISCO reaped many benefits by implementing TBEM, including significant reduction in raw material consumption, elimination of the use of petroleum products, reduction in operational costs, increase in savings by strategic sourcing and increased utilization of plant wastes.

TBEM – THE FUTURE

• By January 2002, out of the 80 companies in the Tata Group, around 50 had signed the BEBP agreement.

• TBEM had not only benefited TISCO, but several other companies in the Tata Group

TBEM – THE FUTURE

• Moreover, the average score of the Tata Group companies implementing TBEM increased from 290 to 450 on the 1000-point TBEM scale between 2000 and 2002.

TBEM – THE FUTURE

• “It is just the process that will set the house in order.

• The bigger task is to turn Tata into a learning organization where the knowledge and best practices across companies are disseminated throughout the group.”

TBEM – THE FUTURE

• The changes involved the inclusion of new guidelines for evaluating strategy planning and business results, major focus on customer-orientation, relationships with supply chain partners, and redesigning of work systems and processes

QUESTIONS FOR DISCUSSION:

• The Tata Group has adopted a broad-based excellence model called TBEM.

• Explain how the model addresses the need for excellence in all areas of management, including its key components.

QUESTIONS FOR DISCUSSION:

• Explain in detail the method of implementation of TBEM at Tata Steel. What benefits did the company reap after the implementation of TBEM?

QUESTIONS FOR DISCUSSION:

• The TBEM was modified slightly in 2002. Explain the rationale behind these changes, and give your opinion on how effective these changes would be to meet the core objectives of TBEM.

QUESTIONS FOR DISCUSSION:

• ‘TBEM is not necessarily a panacea for all ills in a corporation, nor can it replace judgement and intuition’.

• In the light of the above statement, briefly explain the limitations of TBEM.