STRATEGIC MANAGEMENT
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Lecture 1
Strategic Management Definition & Basics
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Strategic Management is all about identification and description of the strategies that managers can carry so as to achieve better performance and a competitive advantage for their organization.
- An organization is said to have competitive advantage if its profitability is higher than the average profitability for all companies in its industry
- Strategic management can also be defined as a bundle of decisions and acts which a manager undertakes and which decides the result of the firms performance.
STRATEGY-IN-PRACTICE
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REALITY OF THE NEW BUSINESS CONTEXT
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Customers are not just demanding but they also haveinfinite options
Competition is not just intensifying but there are also newsources of competition
Resources are not just limited but they are also migratingall the time
Investors are not just dissatisfied with the level of returnsthey got in the past but they are also becoming impatient
Both huge opportunities and risks are existingsimultaneously
WE NEED TO HAVE A STRATEGIC PERSPECTIVE IN EVERYTHING WE DO
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We and our organization must think and actDIFFERENTLY AND SMARTLY in order to facethe NEW ENVIRONMENTAL CONTEXT
Strategy makes our business and organization lookand perform DIFFERENTLY
CHARACTERISTICS OF STRATEGIC DECISIONS
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CONTEXT-SPECIFIC INDICATES LONG TERM DIRECTION OF AN
ORGANIZATION DEFINES CONTEXT SPECIFIC COMPETITIVE
ADVANTAGE DETERMINES SCOPE OF THE ORGANIZATION STRATEGIC FIT BETWEEN RESOURCES AND
ACTIVITIES AND ENVIRONMENTALCONTINGENCIES
CHARACTERISTICS OF STRATEGIC DECISIONS[Contd]
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EXPLOITS EXISTING RESOURCES ANDCAPABILITIES OR EXPLORES NEW OPPORTUNITIESUSING COMPETENCIES
MAJOR RESOURCE COMMITMENT, IRREVERSIBLE INTHE SHORT RUN
AFFECTS ORGANIZATIONAL DECISIONS SHAPED BY VALUES AND EXPECTATIONS OF KEY
STAKEHOLDERS
Key implications of strategic decisions
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They are complex in nature Requires a Point of View on the FUTURE since
future is uncertain and has not yet happened Demands integrated approach to managing an
organization Requires management of relationships and
networks outside the organization Involves change within the organization
DIFFERENT TYPES OF STRATEGY
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Corporate: Portfolio selection, considering synergy and risk-return criterion Resource Allocation organizational, financial and people across businesses Core capability development used by more than one business
Business Core business Strategy Growth strategy Internationalization strategy
Functional Strategies and programs at functional level to operationalize the overall
strategy [corporate or business as relevant], aligned to each other
Operational Actions plans and programs at the frontline where strategy gets operational
DIFFERENT TYPES OF STRATEGY
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CORPORATE STRATEGY dealing with CONTEXT-SPECIFIC strategic choices ref
Portfolio of distinct businesses [distinct in terms of market mission, customer segments and competition and capabilities]
Portfolio of geographical markets [more relevant for global cos.] Role of the corporate office to support value creation at business
level [corporate parenting role] Resource allocation Development of enterprise wide capabilities Talent scouting and development
BUSINESS STRATEGY dealing with CONTEXT-SPECIFIC strategic choices for achieving sustainable competitive advantages at business level
DIFFERENT TYPES OF STRATEGY
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FUNCTIONAL STRATEGY dealing with CONTEXT-SPECIFICstrategic choices made at individual functional level[manufacturing, R&D, marketing , sales , Finance, HR, SCMetc] thereby contributing to business level strategies forachieving sustainable competitive advantages
OPERATIONAL STRATEGY dealing with CONTEXT-SPECIFIC[at branch, department or unit level] actions and programsunder each functional areas and their cross functionalalignments for achieving sustainable competitive advantageat the business level.
NOTE: There must be a clear LINE OF SIGHT among all 4levels of strategies and POV the firm has
CORPORATE STRATEGY
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Portfolio of distinct businesses [distinct in terms of market mission, customer segments and competition and capabilities]
Portfolio of geographical markets [more relevant for global cos.]
Role of the corporate office to support value creation at business level [corporate parenting role]
Resource allocation Development of enterprise wide capabilities Talent scouting and development
Business Strategy
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Strategy of a business is its proactive & deliberate move, comprising aset of integrated cross functional decisions, that helps the business
POSITION itself DISTINCTLY AND UNIQUELY
ensuring
DIFFERENCE SMARTNESS
in the way the business is proposed to be conducted given the
CONTEXT in which the strategist and his/her business is in andwill be in
Business Strategy
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Such a DISTINCT and UNIQUE POSITIONING should be
SUSTAINABLE in the eyes of the CUSTOMERS and vis--vis COMPETITION
WEALTH CREATING for key stakeholders
Business Strategy thus helps in achieving SUSTAINABLECOMPETITIVE ADVANTAGE and is encapsulated in theBUSINESS MODEL
KEY WORDS
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POSITIONING based on DIFFERENCE in terms of Competitive Advantage sought
based on market selection [WHERE TO COMPETE?]and core value propositions (HOW TO COMPETE?] [cost based and/or product and process based in the areas of product, solutions and experience] (P+S+E)
SMARTNESS in the design of value delivery model[optimized resource deployment assets, manning andnetwork]
SUSTAINABILITY at least in short and medium term tillinvestments made upfront are recovered and till thenext set of competitive advantages is put in place
WEALTH CREATION for customers, employees andinvestors and also society/community at large
BUSINESS MODEL is the business strategy
KEY WORDS:BUSINESS MODEL
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BUSINESS MODEL for a product or service are choicesmade in respect of :
Revenue Model market selection [be different]
customer groups being targeted competition being targeted
core value propositions relative to price and target competition [be different]
Value delivery model [VDM] [be smart]
Success of a Business Model depends on: how DISTINCT and UNIQUE is the model vis--vis those of other
leading players along each of the 3 dimensions stated above quality of execution]
CORE VALUE PROPOSITIONS (CVP) AT BUSINESS LEVEL: VARIOUS TYPES OF DIFFERENCES
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PRICE BASED DIFFERENCES [LOW COST STRATEGY]
No frills which combines low price, low perceived product/service benefits and a focus on price sensitive markets
Products are commodity type Price sensitive customers Buyers have high power and/or low switching cost Competitors have equal market power and imitation is easy
and thus price is a key competitive weapon Low price segment is an opportunity for smaller players to
avoid the major competitors who concentrate on higher price points
CORE VALUE PROPOSITIONS (CVP) AT BUSINESS LEVEL: VARIOUS TYPES OF DIFFERENCES
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BENEFIT BASED DIFFERENCES [DIFFERENTIATIONSTRATEGY]
Provide products or services that offer benefits different from thoseof competition and that are widely valued by customers
Normally a combination of differences in product, solutions [refproblems faced by target customers in acquiring and consumingthe product/services] and experience
Key requirements for success: market selection [ viz. rightidentification of customer and its decision maker andcompetitors who are also trying to create differentiation]
Sustainable competitive advantages will accrue only if theproposed differences are created through a set of firm-specificdistinctive capabilities that customers value and competitioncannot imitate easily
CORE VALUE PROPOSITIONS AT BUSINESS LEVEL: VARIOUS TYPES OF DIFFERENCES
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HYBRID seeking to achieve simultaneously DIFFERENTIATION and PRICE based DIFFERENCES [Hybrid strategy]- particularly useful when;
It is felt that much greater volume can be achieved vs. competition implying higher margin due to lower per unit cost structure
the firm is clear about the areas where it has capabilities to create differentiation and, except those, it is able to reduce cost in other areas
the firm is intending to enter a new market segments where there are already established competitors whose competitive advantage in such segments are not strong
CORE VALUE PROPOSITIONS AT BUSINESS LEVEL: VARIOUS TYPES OF DIFFERENCES
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NICHE STRATEGY - FOCUSSED DIFFERENTIATION fora select segment that seeks to provide high perceivedproduct/service benefits justifying a substantial pricepremium which large companies followingdifferentiation strategy find unattractive to pursue
NICHE STRATEGY - COST/LOW PRICE FOCUSSED fora select segment that seeks to provide standardproduct/services at lowest price which largecompanies following cost leadership strategy findunattractive to pursue
Thank You
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STRATEGIC MANAGEMENTStrategic Management Definition & BasicsSTRATEGY-IN-PRACTICEREALITY OF THE NEW BUSINESS CONTEXTWE NEED TO HAVE A STRATEGIC PERSPECTIVE IN EVERYTHING WE DOCHARACTERISTICS OF STRATEGIC DECISIONSCHARACTERISTICS OF STRATEGIC DECISIONS[Contd]Key implications of strategic decisionsDIFFERENT TYPES OF STRATEGYDIFFERENT TYPES OF STRATEGYDIFFERENT TYPES OF STRATEGYCORPORATE STRATEGYBusiness StrategyBusiness Strategy KEY WORDSKEY WORDS:BUSINESS MODELCORE VALUE PROPOSITIONS (CVP) AT BUSINESS LEVEL: VARIOUS TYPES OF DIFFERENCES CORE VALUE PROPOSITIONS (CVP) AT BUSINESS LEVEL: VARIOUS TYPES OF DIFFERENCES CORE VALUE PROPOSITIONS AT BUSINESS LEVEL: VARIOUS TYPES OF DIFFERENCES CORE VALUE PROPOSITIONS AT BUSINESS LEVEL: VARIOUS TYPES OF DIFFERENCES Slide Number 21