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Strategic Intent
UNIT II
Strategic management :- a strategy is a unified, comprehensive & integrated plan that relates the strategic advantages of the firm to the challenges of the environment.
Strategic management is defined as a set of decisions & actions resulting in formulation & implementation of strategies designed to achieve the objectives of an organization
Includes following areasDetermining a mission including statement of its purposeDeveloping a company profile that reflects internal
conditions & capabilitiesAssessments of company’s external environmentIdentifying the desired options and analyzing themStrategic choice of a particular set long term objectives &
grand strategies needed to achieve desired options.Implementation of strategic choice.Review or evaluation of the success of strategic process.
SM involves 3 types of decisionsDefinitional decisions;- defining business,
identifying customer groups, functions & technologies.
Goalistic decisions: - defining corporate & functional objectives & policies.
Optimal decisions:- strategies action programs & tactics
Strategy of an organization Comprises of Business visionMissionObjectives and goalsBusiness definition
visionVision articulates the position that the firm would
like to attain in the distinct future.A vision is more dreamt of than it is articulated .Tata steel says about its mission :- “ tata steel
enters the new millennium with the confidence of learning, knowledge based happy organization.
By its nature vision could be vague as a dream that one experienced last night & is not able to perfectly recall it.
It acts as a powerful motivation to action.
definition
Vision is a description of something (an organization corporate culture , business ,a technology an activity in future)
Benefits of having a good vision:-Are inspiring , exhilarating & motivating.Represents discontinuity , a jump aheadHelps in creation of common identity and shared sense of
purpose.Should be competitive, original & unique.Fosters risk taking & experimentationRepresent integrity , are truly genuine & can be used for the
benefit of the people.
Vision could be divided into two
Core ideology:- it defines the enduring character of an organization that remains unchangeable as it passes the changing environment
It rests on the core values , mission & purposes.
Envisioned future:- a 10- 30 year extremly confident goal.Descrition of what it will be like to achieve these goals.Encouraging & supporting goalsDescription of the future.
Effects of visionLearning acquiring knowledge & informationLeads to commitment & motivationEmphasizing not only on profit makig but
producing useful products & services.Innovation encouragingImproving health & wealth of an organization.
Difficulties in creation of visionCulture & attitude within an oraganizationUncertain & unstable environmentRestricted resources Resistance to change
An enriching and inspirational vision mustContain memorable languageClearly maps the companyChallenges & motivated the workforceProvokes emotions
Mission (WHY WE EXIST)CORE VALUES (WHAT WE BELIEVE IN)VISION (WHAT WE WANT TO BE )STRATEGY (GAME PLAN)STRATEGIC IMPERATIVES(WHAT I MEAN TO
DO )PERSONAL OBJECTIVES STARTEGIC OUTCOME
missionMission is a statement that defines the role that an
organization plays in the society. Purpose is anything that organization strives for.
Mission is essential purpose of the organization , concerning particularly why it is in existence., the nature of business.
E.g. of mission statement Maruti: building trust worldwideModiluft : miles & smilesHCL: world class competitor
Elements of mission
Clearly articulated Relevant CurrentWritten with a positive tone/motivatingUniqueAdapted to target audienceFeasiblePreciseClear Indicate major components of strategyIndicate how objectives are to be achieved
Objectives & goalsObjectives are open ended attributes that denote the future states
or outcomes.Refer to the operational side of businessGoals are the close ended attributes& are précised & expressed
in specific terms.Objectives are the ends which state how the goals will be
achieved.An organization tries to its purpose into long term objectives &
short term goals.Different objectives are pursued like continuity of profits,
efficiency, product quality, employee satisfaction etc.
Goals are qualitative ,objectives are mainly quantitativeThus objectives are measurable & comparable.An organization may pursue multiple objectives.
Importance of objectives:-Justify the organizationProvide directionBasis for management by objectivesHelps in strategic planning & managementHelps coordinationProvides standards for assessment & controlHelps decentralization
Characteristics of ideal objectives
Formulation should involve participationThey should be clear RealisticFlexibilityConsistencyRanking (assigning priorities)VerifiabilityBalanceUnderstandableConcrete & specificChallengingShould be in the constraints
What objectives are setProfitEmployee welfareMarketing GrowthQuality products & servicesPowerSocial responsibility of business
classification of objectivesEconomic & social:-SurvivalReturn on investmentGrowthMarket shareWelfare of societyProtect consumer rightsInterest of workersPrimary :-Extension, development & improvement Paying fair dividends to share holders.Payment of fair wagesReduction of prices
Secondary:-Provide bonus for workersPromote educationR&D in techniquesLong run & short run:-Official & operative:-
Formulation of the environmentForces in the environmentValue system of top executivesAwareness of management.
Business definitionDimensions of business:-Customer functions:-what is being satisfied;
freshness, germs fight, protectionCustomer groups:- who is being satisfied; oral
care, dental protection Alternative strategies:- how the need is being
satisfied, paste powder, foam
Business policyIt involves all member of organization Explicit or implicit Decision making process Formulated for frequent happenings Pyramids of policies – policies procedures ,
standard operating plans all guide to act but differ in the degree of guidance
Features of business policy Credibility AcceptabilityFeasibilityClear and consistent Proper communicationFlexibleRelative to objectivesPolicies should not be the result of
opportunistic decisions
Determinants of business policyInternal factors -Mission ObjectivesStrength and weaknessManagement value orientationExternal factors -Market structure Nature of industryEconomic and government policiesTechnological social and political situation
Importance of business policy For learning the course – Integrates knowledge Deals with constraint and complexity of real life business Broad perspective Make study and practice of management more meaningful For understanding business environment – Formulation of policies Makes management receptive Reduces feeling of isolation For understanding the organization Presents a basic frame work for understanding decision making Brings the knowledge in strategic decision making Importance of job performance For personal development – Career choice Offers unique perspective to employees
Purpose of business policyIntegrate the knowledge in various
functional areas of management Generalist approach (problem solving)Understand complex linkage with the
operating system
Formulation of business policyGoal specification and priorities Identification of policy alternatives Evaluation of policy alternativesCheck the acceptability Choice of policyImpact of external and internal
environment
Function of business policyPolicy establishes indirect control over
independent actionsPolicy promotes uniform handling of similar
activities Ensures quicker decision Institutionalize basic aspect of organizationReduces uncertainty Counter act resistance Mechanism of avoiding hasty and ill
decisions
Types of business policyProduction policy – purchasing policy , quality of
RM used , choice of material , size of purchaseProduction process – choice of technology ,
extent of automation , size of decentralization , extent of division labor
Production capacity – sales forecast , policy decision , equipment utilization
Marketing and replacement Marketing policy – Product mix Product differentiation Pricing policy
Distribution policyGeographical locationSelection of customerSize of customer Channel designChoice of middle manPromotion policyFinancial polity – financial control Lease of buyRiskUser of assets HR policy R and D
Business environmentIt consists of both external & internal environmentsAggregate of all conditions , events, influences that
surround & effect it.Internal are controllable aspectsExternal uncontrollableSuccess depends on the ability to design the internal
variable to take advantage of the opportunities & threats.
Internal appraisalIt provides the organization with its capabilities to
capitalize an opportunity for protecting itself from threats present in the environment.
Determine distant competenciesWhat makes it uniqueWhat are its capabilities in future, competent in
specific areas.
Frame work for development of strategic advantage
Strategic advantage
Organization capability
Competencies
Synergistic effect
Strength & weaknesses
Organization resources & organization behavior
Organization resources:- tangible, Intangible, assets & capabilities, information & knowledge.
Organization behavior:- forces & influences operating in internal environment, values, culture, leadership, power & politics.
S&W:-inherent capability, inherent limitation or constraint.
Synergistic effect:- S&W combineCompetencies:- special qualities possessed by
organization that make them stand pressure of competition, a distinctive competence
Strategic advantage:- outcome of organization’s capabilities, result of activities leading to reward, profits market share , reputation
Internal factors to be analyzed:-FINANCIAL & ACCOUNTING:- Financial resources & strength, liquidity cash flowCost of capitalRelations with owners & stock holders.Tax conditionsFinancial planningMARKETING & DISTRIBUTUIN FACTORS:-Product related: variety, differentiationPrice relatedPlace: logistics, channels of distributionPromotion: advertising, sales promotion, PRIntegrative system: market research, packaging of product
PRODUCTION & OPERATION FACTORS;-Use of RMProduction system, capacityLocationService designOperation & controlProduct planningMaterial supplyQuality controlLower cost, inventoryCapacity utilizationPERSONNEL CAPABILIY FCTORS:-Use of HR skills Safety welfare, security appraisalSatisfaction morale, compensation, climate , structure, trade unionism
INFORMATION CAPABILITY:-Flow of information. Outside & withinDBMS, use of informationSpeed & IT infrastructureGENERAL MANAGEMENT;-Strategic analysis & intent formulationRewards & incentivesGoals & competenceCSROrganization climate & regulations.R & D & ENGINEERING:New improved productionMaterial , processesCost advantageResearch capability
Approaches to Internal AppraisalSystematic approach:-Proactive measure to organizational formal
planningAd hoc:-Reactive to response to a crisis
SOURCES OF INFORMATION:-InternalEmployee opinionCompany files & documentsFinancial statementsMISAnnual reportsFunctional area profile
ExternalComparative appraisalCompany reports &
magazineThrough consultants
Methods & techniques
QuantitativeFinancial analysis:
ratio analysisNonfinancial analysis
employee turn over, inventory units, absenteeismQualitative:
Corporate cultureKnowledgeMoral
Comparative:- strength & weakness & distinctive competenciesHistoricalIndustry normsBench marking: a point for purpose of meeting best practices
performances, process.Comprehensive
Balanced score cardKey factor rating
market : product, service , priceFinancial: source of funds, usage & managementoperations: production system, operation & controlpersonnel: IR , employee characteristicsinformation management; acquisition, synthesis & processing, usagegeneral management; OC general management system
Structuring organization appraisal
Organization capability profileCapability factorsWeakness normal strength-5 0 +5preparing strategic advantage profileCapability factors competitive strengths or
weakness
Criteria for determining S & WHistorical: past performanceNormative: what ought to beCompetition party: Critical factors for success
External appraisalMonitoring of economic, government, legal, market/
competitive , supplier/technological, geographic & social setting to determine opportunities & threats.
Macro factors:-InternationalEconomicPoliticalRegulatoryDemographicSocio cultural
MicroSuppliersCustomersCompetitorInter mediariesMarketPublicEnvironment analysis is the process of identifying O & T
facing in an organization for the purpose of strategic formulation
Characteristics of environment:ComplexDynamicMulti facetedFar reaching impact Market factors: client needs,
preferencesEnvironmental sectorsProduct factors: image, demand, price PLCMarket intermediaries: middle man, distribution
channelCompetitor related: entry exit barriers, nature of
competition
Various types of markets could beConsumerIndustrialInternationalResellerTechnological environment factors:-Knowledge of goods & services, future inventionsSources of technologyTech. development, stages, rate of changeImpact of tech on humansAvailability of tech.Foreign technology collaborationStrict rules & regulations
Economic factors:-Economic conditions: level of incomeEconomic policies: restrictive & liberalizedEco systemInflating deflating ratesMonitory policyEco structure Eco planningRegulatory factors:-Constitutional framework, fundamental principlesPolicies related to licensing, foreign investementsImports & exports policyPublic sector , small scale
Political & government:Philosophy of govt.Structure , goalsElection, budgetSubsidies, protect unfair tradeSocio cultural:-Society, beliefs, traditions, education, pace of urbanizationInternational factors:-Global eco policies, global HR, global villageSecure sources of fundsCompetitorsOpposition from host countryPolitical, social & eco riskNatural factors:-Geographical location, natural resources ,weather , climate
microSuppliers:-Cost ,reliability, availability factors.Continuity of supplyCustomers:-Individual govt. other commercial establishmentCompetitors:-Same productSame marketMarket intermediaries:-Promoting, selling & distributing agentsVital link between consumer & company Public:-Media, citizens, local public
Environmental scanningEnvironment is changing, so it is needed to be
monitoredFactors analyzed to determine conditions of threat &
opportunities.Factors in external environment:Events: specific occurrencesTrends: general tendencies & courses of ActionIssues: concerns that ariseExpectations: demands made
Approaches to scanningSystematic scanning:-Information collected systematically & continuously to
monitor changes & take relevant factor into consideration.Ad Hoc :-Special surveys & studies to deal with specific
environment issues from time to time.Processed form approach:-Uses information in processed form, available from different sources, highly systematic & formal procedure Proactive measure for the anticipated change
Techniques used for environmental scanning
MIS:- formulize line & staff , gathering of information desired by strategists
Develop strategic management system:- by relying on responses by customers, suppliers, comptitors,
environment conditionSpying:-determine trade secretsFormal forecasting:-corporate plans, consultants , futurists.Quest:- quick environmental scanning technique4 step processObservation about major events & trendsSpeculate on wide variety of issuesQuest director prepares report & summarizes major issues &
implicationsReports & scenarios are reviewed or redesigned to develop strategies
Scenario writingSimulationGame theoryCross impact analysis
Description of ESStrategies more concerned with economic factors than
the othersDoes not give significant timePsychologically unprepared for change
Appraising the environment
Be aware of the factors affecting the process of environmental appraisal(strategies, org. environment)
Identify environmental factorsStructuring the result of environmental appraisalPrepare an ETOP
ETOPEvnt. sector nature of impact impact on each sectorMarket unstructured demandTech. up gradationSuppliersEconomicRegulatorySocio-culturalpolitical
Grand level strategiesEnvironmental & internal appraisal lead to the
generation of strategic alternatives.the grand strategic alternatives areStabilityRetrenchmentExpansionDiversificationIntegration
Dimensions of grand strategies
Internal/external;-When an organization adopts strategy independent to other its
internalIn association with other entity its externalRelated/unrelated;-Related or unrelated to existing business.Horizontal/vertical:-Serving additional CG or CF,Expansion or contraction of existing business startegy.AS Active/passive:-Offensive strategy in anticipation of environmental threat Defensive strategy as a reaction to the environment
Strategies are Stability:-
No change Pause/proceed with caution Profit strategies
Expansion:- Through concentration Through integration Through diversification Through cooperation Through internationalization
Retrenchment:- Turnaround Divestment liquidation
Combination;- Simultaneous Sequential Combination of both
Stability strategyIt is adopted by organization when it attempts at an incremental
improvements of its functional performance by marginally changing one or more of its business in terms of their respective
customer groupcustomer function and alternative technologies.The company stays with the current business & products ,
markets Maintains existing level of effortsIs satisfied with incremental growth
Major reasons for adopting stability areLess riskyFewer changesEnvironment faced is relatively stableExpansion may be perceived as threateningBetter deployment & utilization of resourcesNot redefining businessSafety orientedNo fresh investmentsDoes not nil growth, but it is incremental
Conditions under which stability is adopted
Enjoys comfortable positionFuture is ensuredGrowth ambitions are modestNiche's prefer mostly
E.g.:Copier machine provides better after sales service to its
existing customer to improve its company image
No change strategy:-Continues with the same business definitionThe environment is predictable & certainNo opportunities & threats in environmentNo major strength & weaknessNo new competitorsNo obvious threat of substitute
Profit strategyNo firm can identically continue with no change.Sometimes things do change & the firm has to face
situation where it has to do something.When there occur temporary changes or problems the firm
tries to maintain the profitsThe problems could be: economic recession, govt. attitude,
industry downturn, competitive pressure.These problems are short run onlyIf problem continues has to adopt another strategy
Pause/proceed with cautionFirms which wish too test the ground before moving ahead with
full fledged strategy.Or may have had a blistering phase of expansion & now wish to
rest for a while before moving ahead.Purposes to let the strategic changes seep down the organization
levels, allow structural changes to take place, and let the systems adopt new strategies.
While profit strategies are enforced choices aimed at sustaining profitability
Pause/proceed are deliberate and conscious attempt to adjourn major strategic changes to a more opportune time, or when the firm is ready to move on with rapid strides again
Expansion strategyConditions:-Expansion becomes imperative when envt. Demands increase
in the pace of activity.Increasing size may lead to more control over the marketAdvantages from experience curve & economies of scaleHigh riskRedefinition of businessFresh investments new business/ product/ marketHighly versatile strategy
Through concentration:-Converging resources in one or more firm’ s
business1st preferred strategy.Involves investment of resources in product
line for an identified market. Existing market
new marketExisting product
New product
Market penetration
Market development
Product development
diversification
Applies to situation where the firm finds expansion worth while.
It’s the 1st preferred strategyEntering into known businessAdvantages:-Involve minimal org. change so there is less
threateningManagers comfortable with present businessenables the firm to master in business by the depth of
the knowledge.Can develop competitive advantage.Past experience is valuable.
Limitations:-Putting all eggs in one basket has his own
problemHeavily dependent on industryIf industry goes into recession firm finds
difficult to save itselfIts crowded with competitors its
attractiveness decreases.Factors like product obsolescence, merging
of new technologies are threats to firm.Lead to cash flow problems
Through integrationWorks in present set of CF & CG but the AS
dimension of business undergoes a changeIntegration is combining activities on the
basis of value chain A set of interlinked activities performed by
firm right from procurement of basic raw material to marketing of finished products.
Widening the scope of business.Petrochemicals steel hydrocarbons industry.Cost economicsForward or backward integration
diversificationDiversification may involve all dimensions of
strategic alternativesInternal – external, related – unrelated, horizontal –
vertical.Involves a substantial change in business
definition.Different types are :-
concentric diversification:-Related to existing business definition either in terms
of CG, CF or AS ,is called concentric diversification.May be of three types:
Marketing related:-similar type of product is offered with help of unrelated technology . sewing machines produces diversify into kitchenware & house hold appliances, sold to housewives through a chain of retail stores.
Technology related:- a leasing firm provides hire- purchase services.
Conglomerate:-Unrelated to existing business definition.ITC Essar (shipping, marine construction, oil support
services)
Why are diversification strategies adopted;-To minimize risk by spreading it over several
businessCapitalize organizations strength & minimize
weakness.Only way out if growth is blocked because of
environmental or regulatory factors.
Advantages:-Enables firm to attain synergy by exchange of
resources & skills.Avail economies of scale Reduction in risk by spreading riskDisadvantages:-Increase risk & commitmentDiversion of resources & concentration to other
areas.
Through cooperationMergersTake oversJoint venturesStrategic alliances
Merger:-Combination of 2 or more than 2 entities involved in which
one acquires the assets & liabilities of other in exchange of cash or shares .
Or both the organizations are dissolved assets & liabilities combined & new stock is issued.
Objectives of the firms are matched
Types of mergersHorizontal :- same businessVertical mergers:-complementary in terms
of input or outputConcentric:-related CF,CG, ASConglomerate;- unrelated.
Reasons for mergersIncrease value of firm’s stockIncrease growth rate & make a good investmentImprove stability of earning salesTo balance, complete & diversify product lines.Reduce competitionTake advantages of synergy
Takeover/ acquisitionHow t takes place:-Spell objectiveIndicate how they will be achievedAssess managerial qualityCheck compatibility of business styleAnticipate & solve problems earlyTreat people with dignity & concern
reasonsQuick growthReducing competitionIncreasing market shareCreating goodwill
Friendly & hostile
Pros & cons:-GrowthMobility of resourcesSick units bettermentStress strain
Joint venture2or more firm consolidation for temporary partnership
Conditions for JVOne cant do aloneRisk is to be sharedCompetitive advantage of both can be brought together.
Advantages:-Foreign technologyGovt. Policy & supportNew fieldsSynergistic effectDisadvantages:-Coordination lackingForeign regulationsCultural & behavioral differences
Strategic alliance2 or more firms unite to pursue a set of agreed upon goals but
remain independent.Win win strategyShare strengthLend power to enterprisePooling of resourcesRisk is mutualE.g. TVs Suzuki, Mahindra ford, bpl SANYO, Videocon Suzuki.
Types of strategic alliancePro active (low interaction/low conflict)Inter industry, vertical value chain integrationNon competitive(high interaction/low conflict)Intra industry , non competitive firmsCompetitive: (high interaction/high conflict)Rival firms to cooperation , inert/ intra industryPre competitive: (low interaction high conflict)Unrelated industries, new product development.
reasonsEntering new marketsReducing manufacturing costsDeveloping & diffusing strategy
Diversification through internationalizationCompetitive advantage of nationsFactor conditionsDemand conditionsRelated & supporting industriesFirm strategy, structure & rivalryBeyond domestic marketAsses environmentEvaluate capabilitiesDevise strategy.
Motives:-ExpansionMarket potentialGovt. policiesresources
Global strategy Transactional strategy
International strategy Multi domestic strategy
International:-Where the products are not available like MCD,, coca cola,
IBM, Kellogg'sMulti domestic:-Matching products to national conditions. Customize products.Global;-Standardized products , Economies of scaleUndifferentiated product Competitive price
Entry modesExport entry mode
DirectIndirect
Contractual:-LicensingFranchisingOther forms (tech.)
InvestmentJV, strategic allianceIndependent ventures
Advantages:-Sales profitExpansionAbove average returns
Disadvantages:RiskUncertainty of economic & political environmentCultural diversityTrade barriers
retrenchmentReducing scope of activityDemand saturationGovt. policies adverseSubstitutes emergedChanging needs & preferencesPoor managtWrong strategiesPoor quality
4 types of situationRealistic non recoverableTemporary recoverySustained survivalSustained recovery
Turn aroundNegative cash flowProfitsMismanagementDeclining market shareUncompetitive productsHigh turnover
Approaches:-SurgicalNon surgical
Divestment/cutbackSale or liquidation of portion of business .
Liquidation strategies:-Closing down a firm & selling its assetsTermination of employeesLoss of employerSerious consequences.
combinationMixture of all either applied simultaneously or
sequentially
Process of strategic management
Establishing strategic intent:-Vision, mission, business definition & objectives
Formulation of strategies:-Environment & organizational appraisalSwot analysisCorporate level strategiesBusiness level strategiesStrategic choiceStrategic plan
Strategy implementation:-Project, procedural, resource allocation, structural, behavioral
functional & operationalStrategic evaluationStrategic control
Business level strategiesBusiness strategies are those courses of action adopted by a
firm for each of its business separately to serve identified CG, provide value to the customers by a satisfaction of their need.
Porter says that factors that determine the choice of a competitive strategy are two:
Industry structurePositioning of a firm
Industry structure is determined by 5 competitive forces:-Threat of new entrantsThreat of substitutes products or servicesBargaining power of suppliersBargaining power of buyersRivalry among exiting competitors in an industry.They vary from industry to industry & they determine long
term profitability.Positioning of the firm:-Firms overall approach to competing, designed to gin
sustainable strategic advantage.Two variables:- competitive advatgaeLower cost & differentiation
Competitive scope:-Broad target & narrow targetOffers mass product distributed through mass marketingHigh priced products of a limited variety but intensely
focused.
Lower cost is based on the competence of a firm to design, produce & market a comparable product more efficiently than its competitors.
Differentiation is the competence of a firm to provide unique & superior value to the buyers in terms of quality, special features or after sales services
Competitive scope:-Range of products , distribution channels, types of buyers,
geographical area served & related industry.Industries are segmented having different needs and require
different sets of competencies & strategies to satisfy the needs of customers.
Broad target approach:-Full range of products/servicesNarrow target :-Offers a limited product or areaWhen the two factors are combined it results in a set of
generic business level strategy
Porters generic business strategy:-
Competitive scope
Broad target
Narrow target
low cost products/services differentiated productso Competitive advantage
Cost leadership Differentiation
Focused cost leadership
Focused differentiation
Cost leadership in business strategyCA of a firm lies in the lower cost of product/servicesHigh profitl\flexibility to lower price if market becomes stiffE.g.Gujarat cooperative milk marketing federationAmul branded ice cream market lower cost platform by
backing of 180 diariesHigh quality Supply chain managementMoser Baer manufactures CDs at lower cost, lower raw
material cost & lower labor costs
Achieving cost leadershipCosts are spread over entire value chain activities to reduce
the cumulative cost , analyze cost drivers && identify areas of optimization of costs.
Accurate demand forecasting High capacity utilizationAttaining economies of scale leads to lower cost/unitHigh level of standardization & uniform services, packagingInvestments in cost saving techniquesWithholding differentiation till it becomes necessary
Conditions under which cost leadership is used
Price based competition is vigorous making cost an imp. Factor
Products are standardized Lesser customer loyalty cost of switching is lowFew ways available for differentiationBuyers are price sensitive.
benefitsBest insurance against industry competition , protects against the
ill effects of competitionLess effected by the price increase by the suppliers.Can offer prices reduction to the buyers Threat of cheaper substitute if off setEffective entry barrier
Risks:-Does not sustain for long time as can be copiedNot a market friendly approachCan limit experimentationTechnological shifts ,cheaper process & technologies may be
used by competitors
Differentiation business strategy
Special features incorporated in product/service which is demanded by customers who are willing to pay .
The strategy which is then adopted is called differentiation strategy.
Special features & attributesA premium price is charged, customers gain additional value &
command customer loyaltyProfit comes from difference in premium priceBut may fail if customers are not longer interested in
differentiated products
E.g.:-Orient fans offers premium ceiling fans based on product
innovation & superior technology.Extra wide blades, heavy duty motorLow voltage, high velocity & maximum coverage area.
Brand salt industry DCW home products made captain cook for quality conscious salt users, free flow, iodine content.
Frooti tetra pack
Achieving differentiationTo create value to customer that is unmatched by competitors
Offer utility for customers & match their tastes & preferencesIncorporate features that can lower the costWhich can raise the performanceIncrease buyer satisfactionPromise high qualityEnhance status & prestigeFull range of products is offered to satisfy
Conditions under which differentiation is used
Market is too large to be catered by few firms offering standardized products
Customer needs & preferences are too diversified to be satisfied by standardized products
Is possible to change premium priceBrand loyalty is possible to generate & sustainAmple scope for increasing sales on basis of
differentiated features
benefitsLessoning competitive rivalryCustomer brand loyalty acts as a safe guardCustomers are generally less prices sensitive, can
absorb price increasesPowerful buyers do not negotiate price , special
features & attributesNew entrants are not normally in a condition to offer
similar differentiationSubstitute products pose a negligible threat
risksDifficult to sustain, first mover advantage associatedDistinctiveness is gradually lessoned & ultimately lostFailed if unnecessary features are addedPrice premiums too have a limit
Focus business strategyThese strategies rely on either cost leadership or differentiation
but cater to an narrow segment of the local market.Used for identifying customer groups on the basis of
demographic characteristics, geographic segmentation.
Price is an imp consideration in piracy ridden industryT series offered cheap cassette of Hindi film songs while Sony
music & mega sound cater to the upper end nichesPhilips India launched flat TV plasma tech that enables
distortion free pictures Dolby sound in the niche market of sophisticated tech. driven audience.
Achieving focusIdentifying a narrow target in terms of market &
customers. Locate a niche in the marketCost leader & differentiators in an attempt to cover
broad target tend to leave out segments which require special attention .
E.g. truck tyres , airplane tyresA small no of buyers willing to pay higher price to get
some king of special treatment .Automobiles for physically handicapped persons,
specialized medical treatment for well to do persons.
Choosing specific niche by identifying gaps not covered by cost leader & differentiates .
Creating superior skills for catering niche market .Creating superior efficiencyDeveloping innovative ways to manage the value
chain
Condition under which focus strategies are usedSome types of uniqueness in the segment may be
geographic demographic or based on life style .Specialized requirementNiche market is big enough to be profitable for the
firmPromising potential for growthMajor players are not interested in the niche marketNecessary skills & expertise to serve the niche
segment.
Benefits Protected from competition or they provide which
would not be profitable for others to providePrice increase can be absorbed Powerful buyer may not shiftSpecialization in niche market acts as a barrier
RisksRequires development of distinctive competencies ,
difficult process Being focused means committed to a narrow market,
difficult to cater other segmentsShift in customers need may make the niche disappearBecome attractive enough for big players to shift .
Tactics for business strategyTiming tactic : first mover in mineral water is parley with
biseleri. Late movers icici pru,max new York , hdfc standard life :- LIC
Advantages of first movers Market leaders Benefits of learning curveCost advantages Customer loyaltyDisadvantages Becomes costlier (create awareness ) More risksLate movers can imitate technological advances and skills
Market location tactics Market leaders Market challengersMarket followersMarker nichers
Process of strategic choiceFocusing on alternatives:-Narrow down a choice to a manageable number of
feasible strategies.Start with business definitionCG :- cosmetic segment, fluoride segmentCF:- foam, freshness, flavor, dental careAS:- paste, powder, diff. base material, diff.
packaging, diff. flavoring material, addictives
Gap analysisStrategies to be followed
Performance desired performance
o performance gap
Present performance
time
How wide or narrow is the gap.Where gap is narrow , stability strategy would
seem to be betterGap is large due to expected environment
opportunities expansion is feasibleIf due to past & expected bad performance,
retrenchment strategies may be suitable
Considering the selection factorsDetermine the criteria on which evaluation of
strategic alternative can be used.2 groups:-Objective:- based on analytical techniques & are
hard facts or data used to facilitate strategic choice called ration/ normative/ prescriptive factors
Subjective:- based on personal judgments / collective or descriptive factors.
Evaluation of strategic alternativesBring together the results of analysis.
Making the strategic choice:-Most suitable choice under existing conditionsBlue print has to be made..
Objective factors are divided into two partsCorporate level strategic analysisBusiness level strategic analysis
Corporate level analysisTreats corporate entity as a portfolio of business under a corporate
umbrellaRelevant in case of diversified business.In which analysis of a company as a collection of different business
with a view to identify the status & potential of the various business with regard to resource use & resource generation
Corporate portfolio analysis
1. Bcg matrix
2. Ge9 cell matrix
3. Hofer’s product / market evolution matrix
4. Directional policy matrix
5. Strategic position & action evaluation
BCG matrixGrowth share matrix2 variables ;- rate of growth of product / marketMarket share of the firm relative to its competitorsMarket growth indicates attractiveness of the firmMarket share indicated the strength of the firm.
Matrix
High
Market growth Rate
Lowhigh relative market share
low
StarsGrowth stageModest cash flowExpansion strategyScooter for Bajaj, activa for HondaFast food, telecom, electronics
Question marks/problem childrenLarge negative cash flowRetrenchment/expansionHoliday resorts, light commercial vehicle
Cash cowsMature stageStability Large cash flowColgate, decorative paint for Asian paints
dogsLate maturity & declineRetrenchmentModest cash flowCotton, jute textile shipping
GE 9 cell matrixMckinsey & groupVertical axis 8 different factorsIndustry attractiveness
1. Market size
2. Growth rate
3. Industry profit margin
4. Competitive intensity
5. Seasonality
6. Cyclicality
7. Economies of scale
8. Tech, & social , legal & human aspects
Horizontal axis;-
1. Business strength
2. Relative market share
3. Profit margins
4. Ability to compete on price & quality
5. Knowledge of customer & market
6. Competitive S&W
7. Tech\ Capability & ability of the firm
Zone
Industry attractivenessHigh
Medium
Lowo strong avg weako business strength/competitive position
Green:- investment/expand
Yellow:- select / earn
Red:-Harvest/ divest
green
yellow
red
Advantages of GE9 Intermediate classification of medium & avg.Large no. of variables
DisadvantagesProvides broad strategic prescription than specifying the
business strategy.Limitation of BCG:-Predicting profitability from growth rate of market share is
difficult.Difficulty in determining market shareNo consideration to experience curveDisregard for human aspect
Hofer’s product/market evolution matrix15 cell matrixConsiders the stages of developmentAnd competitive positionGrowth DevelopmentShake outMaturitydecline
Directional policy matrix Company’s competitive abilitiesStrong avg. weakBusiness sector prospectsUnattractive avg attractive
Corporate parenting analysisFit between parenting opp. & parenting characteristics
x axisMisfit between CSF & parenting characteristics. Y axisFocuses on fit of business with the corporate parentHeartland business:-expansion strategyEdge of heartland:- expansion strategy may suit by
investingBallast:- like cash cowsAlien territory;- retrenchmentValue trap:- retrenchment
SWOT analysis
Business level analysisExperience curve analysisLife cycle analysisIndustry analysis:-Michael porter 5 forces modelThreat of new entrants:-Higher entry barriersEconomies of scaleCapital requirementsSwitching costsProduct differentiationAccess to distribution channelCost disadvantagesGovt policies
Rivalry among competitors:-Competitive structureDemand conditionsExit barriers
Bargaining power of buyers:-Buyers are few in noBuyers place k\large ordersAlternatives suppliers are present and supply at lower ratesSwitching cost of buyers is lowSensitive to price increasesHas the ability to integrate backwards
Bargaining power of suppliers-Suppliers are few & buyers are moreProduct is uniqueSubstitutes are not availableSwitching cost of supplier is highBuyers buys in small quantityHas the ability to integrate forwardly
Threat of substitutes:-Level of price charged is reasonable
Strategic groups analysisClusters of competitors that share similar strategies &
therefore compete with one another directly.Homogeneous & heterogeneous because of their
strategiesIcici aimed at becoming a universal bank through
attaining a large sizeHDFC at optimum revenue generation.
Competitor analysisIt focuses on competitors directlyDeals with actions & reactions of individual firm Components of competitor analysis;-Future goals of competitor;- how our goall are
compaed with others ?what is the attitude towards risk?
Current strategy of competitor:- does it suppoat changes?
Key assumptions made by the competitor;- Capabilities of competitor:-
Subjective factor in strategic choiceConsiderations for govt. policyPerception of CFF & distinctive competenciesCommitment to past strategic plansStrategic decisions style & attitude to riskInternal political considerationsTiming & competitors consideration.Management philosophyCorporate ethics Social responsibility
Contingency strategiesStrategic choice is made on certain conditions, assumptions
& premises. When conditions change strategy becomes partly irrelevant , if changes are drastic, strategies have to be modified continuously. strategies are formulated in advance to deal with certain conditions.
Most changes occur in environment social, market , regulatory, international, where it occurs suddenly
Eg FMCG, power, telecom, IT Insurance3 scenario model Pessimisticmost likelyoptimistic
Contingency planning processIdentify the contingent eventEstablishing the trigger points Developing strategies & tactics
Strategic planA clear statement of strategic intentResults of environmental appraisal, major opportunities and threats,
CSFResults of organization appraisal, major strength & weakness & core
competencies.Strategies chosen & the assumptions under which strategies would be
relevant . Contingent strategies to be used for different conditions.Strategic budget for the purpose of resource allocation for
implementing strategies & schedule for implementation.Proposed organizational structure & major organizations systemFunctional strategies & mode of their implementationMeasure to be used to evalaute performance & assess the success of
strategy implementation
Strategy implementationpyramid of strategy
implementation
Project implementation strategies lead to plans, programs, projects.Knowledge related to projects is covered under
project managementA project is a one shot goal limited, time limited ,
major undertaking , requiring the commitment of various skills & resources.
Goals are derived from plans & programs
Phases of project Conception phaseDefinition phasePlanning & organizing phaseImplementation phaseClean up phase
Procedural implementationFormulation of a companyLicensing proceduresSecurities & exchange board of indiaMonopolies & restrictive trade practices MRTPForeign collaboration procedureForeign exchange management act FEMAImport & export requirementsPatenting & trademarks requirementLabor legislation requirementEnvironment protection & pollution controlConsumer protection requirementsIncentives & facilities benefits
Resource allocationdeals with the procurement & commitment of financial ,
physical & HR to strategic tasks for the achievement of org. objectives.
Both one time & continuous processNew project requiresWhat sources are tappedWhat factors affectWhat approaches adopted How it takes placeWhat are the difficulties
Procurement of resourcesDifferent types of resources are FinancialPhysicalHuman
Finance considered as primary source & is used for creation & maintenance of other resources.
2 types of financesLong term;- creation of capital assetsShort term:- working capitalBoth can be rocured froom internal & external sources
Internal sourcesRetained earning Depreciation provisionDevelopment rebateInvestment allowances reserve
External sourcesCapital market sourcesEquity & loansMoney market sourcesBank credit, Trade creditFixed depositsBoth have pros & cons but company prefers internal sources
1st task is to distribute the resources within the org. to different SUB’s , divisions, departments.
Approaches to RA:-Top- down approach:- a process of segregation down
to the operating level adopted (ceo , management) in entrepreneul modes
Bottom approach:-Allocated after aggregation from operating levelMix of both
Means of RAUsed as planning budgeting coordination & control deviceBCG based budgeting;- SBU identified as stars, cash cows.Plc based:- stages of product or SBU may attract more
resources, diverted from high yielding products at maturity.Capital budgeting:- in case of restructuring or modernizationZero based budgeting:- justify RA demand , on zero grounds,
fresh cost calculationParta system:- indigenous for of control device, exercising
control to access daily net cash inflow from operations, tax & dividends, daily budgeting & reporting system
Factors affecting RAObjectives of orgPreference of dominant strategiesInternal policiesExternal influences
Difficulties Scarcity of resources
Financial resourcesPhysical assets , land , machineryHuman resource
Restriction on generating resources for newer unitsOver statement of needs
Structural implementationWhat is structure?Is the way in which the tasks & sub tasks required to implement
a strategy.Structures for strategy:-Entrepreneur structure:-
Advantages of entrepreneurial structure
Quick decision makingTimely response to environmental changesInformal & simple org systems
Disadvantages:-Excessive reliance on the manager – owner & proves
demandingMay divert the attention of owner to day to day activities.Inadequate for future if business expands
Functional structureSpecialized skills &delegation of authority
Advantages:-Efficient distribution of work through specializationDelegation of day to day operational functionsProviding time for top management to focus on the
strategic decisions.
Disadvantages:-Difficulty in coordinationSpecialization at the cost of overall benefit of org.Functional , line & staff conflicts
Divisional structureWork divided on the basis of product lines, type of
customers served, or geographic area covered.
Advantages :-Enables grouping of functions related to a division.Generates quick response to environmental changes
affecting the different divisions.Enables top management to focus on startegeis.
Disadvantages:-Problem in resource allocation, corporate overhead
costs.Inconsistency from the sharing of authority between
corporate & divisional levelsPolicy inconsistency between the different divisions
SBUAny part of business org which is treated
separately for strategic management purposes.
Advantages:-Establishing coordination between divisions having
common strategic interests.Facilitates strategic management & control of large,
diverse org.
Disadvantages:-There are too many diff. SBU’s to handle effectively in a
large , diverse org.Difficulty in assigning responsibility & defining
autonomy for SBU heads.Addition of another level of management between
corporate & divisional management
Matrix structureIn large org. there is a need to work on projects
& products.This results in requirement of matrix org.Once a project is completed , the team
members revert to their parent departments.
Advantages;-Individual talent to be assigned where talent is neededFosters creativity because of pooling of talentsProvides exposure to specialists
Disadvantages:-Dual accountability creates confusion for individual
team membersRequires high level of vertical & horizontal
combinationShared authority may create communication problems
Network structureSpider web or virtual org.Non hierarchical, highly decentralized & organized around
customer groups.
Advantages:-High level of flexibilityPermits concentration of core competencies of the firmAdaptability to cope with rapid changes
Disadvantages:-Loss of control & lack of coordinationHigh costs as duplication of resources could be there
Other types of structuresProduct based:-Volume of sales is prevalentCustomer based:-Sales volume of individual customer groups justifies the
separate divisions.Geographic structure:-
Org. design & changeSteps:-Identify key activities to be performed to accomplish the
goals & mission grouping of activities similar in nature.Choice of structure that can accommodate group of
activities.Creation of departments , divisionsEstablishing interrelationship between departments.Strategies formulated for Span of managementLine & staff relationshipUse of committees & group decision makingRestructuring, reengineering, delayering, flatter structures
Org. systemsInformation systemControl systemAppraisal systemMotivation systemDevelopment systemPlanning system
Behavioral implementationLeadership implementation:- roles diff. strategists play Theoretical under planning of leadershipPersonality:- traits & qualities, & great personalities.Influence:- relationship between individuals.Behavior :- actions of leadersSituation:- in which the leader operates.Contingency:- Transactional;-role differentiation & social interaction
between the leader & subordinatesAnti – leadership:- absence of real concept of leadership.Culture of entire org
Strategists style & strategy:-Risk takingTechnocracy:-of planning , qualified personnel &
techniques.Organicity:- extent of org, structural flexibilityParticipation:- Coercion;-
Development of strategiesChoice of future strategists, Their career planning & developmentSuccession planning
Corporate culture:-Shared thingsShared sayingsShared actionsShared feeelings
Strategy culture relationship4 approaches:- ignore cultureAdapt strategy implementation to suit corporate culture.Change corporate culture to suit strategic requirements.Too change strategy to fit corporate culture.
Corporate culture & politics:-Power within an org. is derived from 5 sources:-Reward powerCoercive powerLegitimate powerReferent powerExpert power
Strategic use of politicsUnderstand how org. power structure worksBe sensitive alert to political signalsReward org. commitments & penalize indifferent
attitude.Practice principled politics & use openness & honesty.
Personal values & business ethicsCSR
Functional & operational implementation
Functional implementation is carried out through functional plans & policies.
Fit activities & capabilities of an org. with its strategies.Vertical & horizontal fit:-Strategic marketing management:-Strategic financial managementStrategic HR managementStrategic information management
Operational plans & policiesImpact of strategy on operational plans & polices:-
Area of operational effectiveness
Process:-BPRERPBenchmarkingSupply chain managementoutsourcingPeople:-Pace;-Time study Network analysis & activity chartsTime based managementNature of managerial work
Productivity:-Mass productionFlexible manufacturing systemTotal productive management
Strategic evaluation & controlImportance of evaluationNeed for feedbackAppraisal & rewardCheck on validity of e strategic choiceSuccessive culmination of strategic management processCreating inputs for new strategy.
Participants in evaluationBoard of directorsChief executivesSBU’s headsFinancial controller, company secretary , external or
internal auditorAudit & executives committeeMiddle level managers
barriersLimits of control:-Difficulties in measurementResistance to evaluationShort – termismRelying on efficiency ‘doing right things’ over
effectiveness ‘doing the things right’
Requirements for effective evaluation
Control should involve the minimum amount of information:- too much control lead to cluttering up of system & creates confusion
Control should monitor only managerial activitiesShould be timelyBoth long & short term should be used to balanceShould pinpoint the exceptionsReward for meeting or exceeding the standards should
be emphasized
Strategic controlPremise control:- strategy is based on certain factors, some of the
factors are highly significantPremise control is necessary to identify key assumptions & keep
a track of any change.Implementation control:- evaluating whether the plans ,
programs & projects are guiding the organization.May lead to strategic rethinking (PERT /CPM)Strategic surveillance :- more generalized & over reaching.
Designed to monitor a broad range of events inside & outside the company
Special alert control:- based on rapid response & immediate reassessment of strategy in the light of sudden & unexpected events.
Can be exercised by formulation of contingency strategies
Process of evaluationSetting standards of performanceMeasurement of performanceAnalyzing varianceTaking corrective actions
Techniques of evaluationStrategic momentum control:- aims at assuring that the
assumptions on whose basis strategies were formed are still valid.
3 typesResponsibility control centers:- 4 types revenue, expense,
profit & investmentsUnderlying success factors: - focus on CSF Generic strategies:- strategies adopted b a similar firm are
comparable .
Strategic leap control:- when environment is relatively unstable, organizations make startegic leap
4 techniquesStrategic issues management:-Strategic field analysis:-examine the nature & extent of
synergies that exist in org.Systems modeling:- based on computer based models
that simulate essential feature of org.Scenarios:- perception about the likely environment a
firm would face in future.
Evaluation techniques for operational control
Internal analysis:- Value chainQualitativequantitative
Comparative ;-HistoricalIndustry normsbenchmarking
Comprehensive:-Balance score cardKey factor rating
Parta Network techniquesMBOMemorandum of understanding