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CONCEPT OF STRATEGY
&
STRATEGIC MANAGEMENT
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SOME FUNDAMENTALQUESTIONS
• Does the senior management have a clearunderstanding of how the industry may bedifferent in the next 10 years?
• Is it regularly defining new ways of doing
business, building new capabilities andsetting new standards of customersatisfaction?
• Is management aware of the threats posedby new rivals?
• Do senior executives have a sense of urgency about the need to reinvent thecurrent business model?
• Is my company pursuing growth and new
business development?
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STRATEGY
• GREEK WORD STRATEGOS – Science of guiding &
Directing
• COMPLEX PROCESS OF DETERMINING LONG TERM GOALS &COURSE OF ACTIONS NEEDED TO BE CARRIED OUT, ALLOCATIONOF RESOURCES FOR CARRYING OUT THESE GOALS.
• MOVING FROM WHERE YOU ARE TO WHERE YOU WANT TO BE INNEAR FUTURE THROUGH A SERIES OF DECISIONS AND ACTIONS.
• PRE DETERMINED COURCE OF ACTION
• HAS DEFINITE DIRECTION
• COMPETITIVE ADVANTAGE: Delivering superior value to targetcustomer at the same cost or delivering equal customer value at
lower cost relative to your competitor, on a continuing basis.
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Simply…
• Strategy means putting things inplace carefully, and with a great dealof thought. It is the opposite of just
waiting for things to happen.
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What is Strategy?
• Large-scale, future-oriented planfor interacting with the
competitive environment toachieve objectives
• Company’s “game plan”
• Framework for managerialdecisions
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Strategic Decision Making
• Decision making process
• Focused on achieving Goals andobjectives
• Decision making for strategic task
• Difficult, Complicated and dynamic
Process
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Dimensions of Strategic Decisions
• Strategic issues
• Require top-management decisions
• Require large amounts of the firm’sresources
• Often affect the firm’s long-termprosperity
• Are future oriented
• Usually have multifunctional ormultibusiness consequences
• Require considering the firm’s external
environment
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STRATEGIC DECISION MAKING–ISSUES
• SETTING REALISTIC GOALS: Challenging but achievable
• RATIONALITY: Exercising best choice among alternatives
• CREATIVITY: Decision creative and original throughbrainstorming
• VARIABILITY : Every situation is unique
• DEMOGRAFHIC FACTORS: Age. Education, Intelligence,Values
Cognition. risk taking andcreativity
• GROUP DECISION MAKING: Partici ation
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STRATEGIC MANAGEMENT
• Art and science of formulating,implementing and evaluating crossfunctional decisions that will enable
an organisation to achieve its goals.
• Three stages:
– Formulation
– Implementing
– Evaluating
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STRATEGIC MANAGEMENT(contd.)
• According to HOFER,“ The processwhich deals with the fundamentalorganisational renewal and growth
with the development of strategies,structure and systems necessary toachieve such renewal and growth,
and with the organisational systemsneeded to effectively manage thestrategy formulation and
implementation process.”
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Levels at which Strategyoperates
• For many companies, a single strategy isnot enough.
• There is a need for multiple strategies atdifferent levels.
• Many companies are organized on thebasis of operating divisions.
• These divisions are known as “Strategic
business units” or profit centers.• SBU – Any part of a businessorganisation which is treated separatelyfor strategic purpose.
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Strategy at different levels
Corporate office
SBU
A
SBU
B
SBU
C
Finance Marketing Operations Personnel
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Strategy at different levels.
• Corporate office : Corporate levelstrategies.
• S B U’s : Business level strategies.
• Functional : Functional levelstrategies.
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Corporate level strategies.
• It is a plan of action, covering thevarious functions performed bydifferent SBU’s.
• The plan deals with the objectives of the company, allocation of resourcesand coordination of the S B U’s foroptimal performance.
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SBU Level strategy.
• SBU strategies is a comprehensiveplan providing objectives for SBU’s,allocation of resources among
functional areas, and coordinationbetween them for making an optimalcontribution to the achievement of
corporate level objectives.
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Functional Strategies
• Functional level strategies deal witha relatively restricted plan providingobjectives for a specific function,
allocation of resources amongdifferent operations within thatfunctional area, and coordination
between them for optimalcontribution to the achievement of SBU and corporate level objectives.
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Other strategy levels
• Societal strategies: These strategiesare at a level higher than theCorporate level.
• Based on the mission statement asocietal strategy is a generalizedview of how the corporation relates
itself to society in terms of aparticular need or a set of needs thatit strives to fulfill.
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Other strategy levels.
• Some strategies are also needed tobe set at lower levels, one step belowthe functional level. – Operating level
strategy
• E.g. A functional strategy at themarketing level could be sub divided
into sales, distribution, pricing,product and advertising.
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HIERARCHY OF STRATEGY
CORPORATE STRATEGY
BUSINESS STRATEGY
FUNCTIONALS TRATEGY
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Mintzberg's 5 Ps forStrategy
• The word "strategy" has been usedimplicitly in different ways even if it hastraditionally been defined in only one.
Mintzberg provides five definitions of strategy:
– Plan
– Ploy
– Pattern
– Position
– Perspective.
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Some Useful Definitions of Strategy
Some Useful Definitions of Strategy
Strategy as the determinant of thelong-term goals of the enterprise. -Chandler
Strategy as the pattern of objectives, purposes, or goals andplans for achieving these goals. -
Andrews
Strategy as the common threadamong a firm’s activities. - Ansoff
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The Five P’s The Five P’s
Plan
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The Five P’sThe Five P’sThe Five P’sThe Five P’s
PloyPlan
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The Five P’sThe Five P’sThe Five P’sThe Five P’s
PloyPlan
Pattern
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The Five P’sThe Five P’sThe Five P’sThe Five P’s
PloyPlan
PatternPosition
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The Five P’sThe Five P’sThe Five P’sThe Five P’s
PloyPlan
PatternPosition
Perspective
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Plan
• Strategy is a plan - some sort of consciously intended course of action, a
guideline (or set of guidelines) to dealwith a situation. By this definitionstrategies have two essentialcharacteristics: they are made in advanceof the actions to which they apply, andthey are developed consciously andpurposefully.
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Ploy
• As plan, a strategy can be a ploy too,really just a specific manoeuvre intended
to outwit an opponent or competitor.
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Pattern
• If strategies can be intended (whether asgeneral plans or specific ploys), they canalso be realized. In other words, definingstrategy as plan is not sufficient; we alsoneed a definition that encompasses theresulting behavior: Strategy is a pattern -specifically, a pattern in a stream of
actions. Strategy is consistency inbehavior, whether or not intended. Thedefinitions of strategy as plan and patterncan be quite independent of one another:
plans may go unrealized, while patterns
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PATTERN
• Realised pattern: Consistency in behaviourover time – Looking at past behaviour
• Intended strategy – Deliberate strategy (80%)
– Unrealised strategy (20%)
• Unrealised strategy – which can’t be or is not
accomplished• Emergent strategy – emerges due to the pastpatterns
• DELIBERATE STRATEGY + EMERGENT
STRATEGY = REALISED STRATEGY
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Position
• Strategy is a position - specifically amean of locating an organization in an"environment". By this definition strategy
becomes the mediating force, or "match",between organization and environment,that is, between the internal and the
external context.
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Perspective
• Strategy is a perspective - its contentconsisting not just of a chosen position,but of an ingrained way of perceiving theworld. Strategy in this respect is to the
organisation what personality is to theindividual. What is of key importance isthat strategy is a perspective shared bymembers of an organisation, through
their intentions and / or by their actions.• Organisations fundamental way of doing.• Changing position within the same
perspective is easy rather than changing
perspective in the same position.
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What is Strategic Management?
The set of decisions and actions that result
in the formulation and implementation of
plans designed to achieve a company’s
objectives.
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STRATEGIC MANAGEMENT PROCESS
ESTABLISHMENT OF
STRAT. INTENTS
FORMULATION OF
STATEGIES
IMPLEMENTATION
OFSTRATEGIES
REVIEW,EVALUATION
CONTROL
VISION & MISSION statements, Business Definition
Adopting Business Model, Setting Goals & Objectives
Environmental Scanning and internal analysis,Conducting SWOT, Formulating CORPORATE &BUSINESS LEVEL Strategies, Strategic Analysis,
Strategic Choice, Strategic Plan.
Activating Strategies, Designing Structure, Systems&Processes, Behavioral & Functional implementationAnd Operationalising strategies
Performing Strategic Evaluation, Exercising StrategicControl and Reformulating Strategies
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Strategic ManagementProcess
1)Establishing the hierarchy of strategic intent:
• Creating and communicating avision.
• Designing a mission statement.
• Defining the business.
• Setting objectives.
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Strategic managementprocess
2) Formulation of strategies:
• Performing environmental appraisal.
• Doing organizational appraisal.
• Considering corporate levelstrategies.
• Considering business level
strategies.• Strategic analysis.
• Formulating strategies.
• Preparing strategic plan.
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Strategic managementprocess.
3) Implementation of strategies:
• Activating strategies.
• Designing structures and systems.• Managing behavioral
implementation.
• Managing functional implementation.• Operationalizing strategies.
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Strategic managementprocess
4) Performing strategic evaluation andcontrol:
• Performing strategic evaluation.
• Exercising strategic control.
• Reformulating strategies.
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Strategists and their role inStrategic Management.
• Strategists are individuals or groupswho are primarily involved in theformulation, implementation and
evaluation of strategy.• So all managers are strategists in a
limited sense.
• Persons outside the organization arealso involved in strategicmanagement. They are also
strategists – Consultants.
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Various strategists
• Board of Directors: Is responsible forthe governance of the organization.
• As directors, the members of theboard are responsible for providingguidance and establishing thedirectives according to which the
managers of the organization canoperate.
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Various strategists.
• The Chief Executive Officer: Is themost important strategist who isresponsible for all the aspects of
strategic management, right fromformulation to the evaluation of strategy.
• He plays a very important role instrategic decision making.
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Various strategists
• Entrepreneurs: are persons whoalways searches for change,responds to it and exploits it as an
opportunity.• They play a very important and a
proactive role in strategic
management. They provide a senseof direction to the organization andset objectives and formulate
strategies to achieve them.
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Various strategists
• Senior Management: When assigned withspecific responsibilities senior managerslook after modernization, technology up
gradation, diversification and expansion,plan implementation and new productdevelopment.
• Senior managers perform a variety of
roles by assisting the board and the CEOin formulation, implementation andevaluation of strategies.
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Various strategists
• SBU level executives: The idea fororganizing to SBU is to manage adiversified company as a portfolio of
businesses.• SBU level heads are also known as
profit center heads are considered as
CEO’s of a defined business unit forthe purpose of strategicmanagement.
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Various strategists
• Consultants: The main advantage of hiring consultants is getting unbiasedand objective opinion from a
knowledgeable outsider andavailability of specialist’s skills.
• Some Consulting co’s are, Mc Kinseyand company, KPMG, Bostonconsulting, etc.
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Hierarchy of
STRATEGIC INTENT
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STRATEGIC INTENT
• To achieve success, organizations have toprimarilyfocus on hierarchy of strategic intents – Vision,Mission, Business Definition, Goals andObjectives
• ASPIRATIONS of the company – can be out of proportion to their resources.
• Framework within which organization operate
and adopt a predetermined direction
• Where it want to go and what organizationstands for.
• Purposes the organizations strive for.
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CONCEPT OF STRETCH,LEVERAGE& FIT
STRETCH : Misfit between Resources & Aspirations
LEVERAGE : Refers to concentrating,accumulating,
conserving. contemplating and utilizing precious &
scarce resources in such a manner that these are
stretched to meet the aspirations of a company.
FIT : Positioning the firm by matching itsorganizational
resources to its environment.
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VISION
• Future aspirations that lead to aninspiration
• Basic & at the top of hierarchy of strategic
intents• Is what a person or an organization would
ultimately like to attain in the near future.
• A vision is generally more dreamt than it is
articulated
• By its nature it may be as good as adream, yet it is a powerful motivator for
actions.
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GOOD VISION STATEMENTS
• Inspiring & exhilarating
• Help in the creation of a common identity and ashared sense of purpose.
• Competitive, original and unique.
• Make sense as these are practical.
• Foster risk- taking and experimentation.
• Foster long term thinking.
• Truly genuine, represent integrity and are meantto benefit stakeholders.
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ENVISIONING PROCESS
A Well conceived vision has 2 majorcomponents
1. Core Ideology : Defines enduringcharacter of an organization that remainsunchangeable . It rests on core values &core purposes.
2. Envisioned Future : A long term, timebound goal and vivid description of
achievements
WHAT A VISION SHOULD AND SHOULDN’T BE
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WHAT A VISION SHOULD AND SHOULDN’T BE
• A VISION SHOULD BE:
- An organization charter of core values & principles
- The ultimate source of our priorities, plans andgoals
- A puller into the future
- A reflection of what makes an organization unique
- Inspire & motivate
A VISION SHOULD NOT BE:
- A ‘ high concept statement’ or an advertisingslogan
- A history of proud past
- A soft business issue
- Passionless
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A FEW VISION STATEMENTS
VISION OF CANARA BANK To emerge as the best bank in customerservice, profitability , productivity andinnovations.
VISION OF IOCIndian Oil aims to achieve internationalstandards of excellence in all aspects of
energy and diversified business with focuson Customer delight through qualityproducts & services
MISSION
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MISSION
• It is purpose / reason behind existence of any organization
• Derived from VISION and reflects the corporation’s philosophy ,identity,character and image which helps to achieve the vision.
• When defined explicitly, provides enlightenment to insiders andoutsiderson what the organization stands for.
• Many strategists/consultants contribute to the building up of mission statements.
• Mission relates to the need of society. Eg- information need -Publisher
CHARACTERISTICS OF A MISSION SATEMENTS
• FEASIBLE- realistic and achievable• PRECISE- not too narrow nor too broad• CLEAR- not for publicity• MOTIVATING
• DISTINCTIVE
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MISSION
HOW MISSION STATEMENTS ARE FORMULATED
• Executive committee is setup to formally discuss
• Help of consultants also taken for an in-depth
analysis of an organization and to suggest anappropriate Mission statement
• A Mission statement once formulated should servean organization for many years
• As the organization grows with time and goes onadding new products, services, technologies andmarkets, there may even be a need for revising itsMission statement.
FEW MISSION STATEMENTS
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FEW MISSION STATEMENTS
• BHEL
To be a leading engineering enterprise providingquality systems goods and services in the field of Energy,
Transportation , Industry, Infrastructure and otherpotential areas
• RANBAXY
To become research based International pharmacompany
• UTI
To keep the common man in sharper focus toencourage
savings and investment habits among them.
BUSINESS DEFINITION
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BUSINESS DEFINITION
• Defined along 3 parameters
CUSTOMER GROUPS: WHO is being satisfied
CUSTOMER FUNCTIONS: WHAT is being satisfied
ALTERNATIVE TECHNOLOGIES: HOW the need is being satisfied
• Provides powerful insights into understanding and defining
business• Helpful in Strat. Mgmt in many ways Indicates choice of objectives
and helps exercising best choice.
• A single business firm has simple Business Definition. Company
with several businesses has separate BD for each of its business.
• 3 dimensions provide scope for further activities and facilitatesunderstanding of company’s performance areas
• At corporate level ,BD concerns itself with a wider meaning of 3dimensions.
• Each division of highly diversified co. can have more accurate BD
at SBU level
EXAMPLES
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EXAMPLES
EX: Time Keeping Business:
Customer Groups: ‘Individual customers” &Industrial Customers”
Customer Functions: Finding time, Recordingtime, Using watches as fashionableaccessories and gift items.
Alternative Technologies: Mechanical,Quartz digital, Quartz Analog
GOALS & OBJECTIVES
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GOALS & OBJECTIVESGOALS: • What an org. hopes to achieve/accomplish in a future period of time. Represent
future state or outcome of an effort put in now.
OBJECTIVES:• Are the ends that state how the goals shall be achieved• Help org to achieve VISION & MISSION;• Provide basis for Strategic Decision making;• Provides standards for performance appraisals,
• OBJECTIVES: GOALS- Concrete & specific GeneralizedMake goals operational
-Quantitative, measurable Qualitative
& comparable
- Short Term Long Term( Org. translates its purposeinto long term goals )
OBJECTIVE SETTING
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OBJECTIVE SETTING
• Understandable• Concrete & Specific ( Say 10% increase in sales )• Periodicity :Related to time frame. (Say 10% increase in sales in
one year)• Measurable & Controllable• Challenging – motivating but not unrealistic
• Diff. Objectives must correlate with each other• Should be set within constraints – internal and external
EX
Profit: ROI, Net profit as % of sales, Return on shareholderscapital. Marketing: Sales volume, Market segment, Customer service,
Promotion Growth: Output, Sales T/O, Investment HR: Training, Welfare IR
Social Responsibility: Environment, Community Service, Rural
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ENVIRONMENTALSCANNING
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Environmental Appraisal
• The environment of any organizationis “the sum of all conditions,events and influences that
surround and affect it”• It is therefore crucial for any
organization to understand the
environmental influences on itsbusiness.
• Internal and External
Characteristics of
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Characteristics of Environment.
• It is complex – No. of factors, events,conditions.
• It is dynamic – Constantly changing.
• It is multi-faceted – Perception of observer – Different as per differentobserver.
• It has a far-reaching impact – Affect
directly and Indirectly.
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PEST FACTORS
POLITICAL TECHNOLOGICAL
ECONOMIC SOCIAL
PESTLE MATRIX
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POLITICAL
CURRENT/FUTURE LEGISLATION
SOCIAL
LIFESTYLE TRENDS
DEMOGAPHICS
COMPANY ATTITUDES & OPINIONSBRAND,COMPANY ,TECHNOLOGYIMAGE
CONSUMER BUYING PATTERNS
ETHNIC/RELIGIOUS FACTORS
TECHNOLOGICAL
TECHNOLOGY ACCESS,LICENSING,PATENTS
MATURITY OF TECHNOLOGY
REPLACEMENT TECHNOLOGY / SOLUTIONSINNOVATION POTENTIAL
MANUFACTURING MATURITY & CAPACITY
LEGAL
INTERNATIONAL LAW
EMPLOYMENT LAW
COMPETITION LAW
HEALTH & SAFETY LAW
REGIONAL LEGISLATION
ENVIRONMENTAL
ENVIRONMENTAL IMPACT
ENVIRONMENTAL LEGISLATION
ENERGY CONSUMPTION
WASTE DISPOSAL
ECONOMIC
REGULATORY BODIESGOVT. POLICIESGOVT. TERM & CHANGE
ECONOMY SITUATION & TRENDS TAXATION
INTEREST & EXCHANGE RATESMARKET & TRADE CYCLE
Various environmental
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Various environmentalcomponents.
1)1) Market environmentMarket environment: Client’s needs,preferences, perceptions, attitudes,values, buying behavior,
satisfaction.Product factors like demand, image,
features, utility, design, life cycle,
price, promotion, distribution,differentiation etc
Competitor factors like different types
of competitors, nature of
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Components contd..
2) Technological Environment Technological Environment:• Rate of change of technology , easy
technology Transfer.
• Technological development, R&D,cost of technology.
• Effects of technology on
environment, human beings.• LED and 3d TV’s – change in strategy
by TV manufacturers
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Components contd..
3) Supplier environmentSupplier environment:
• Cost, availability, and continuity of supply of raw material, components,
parts.
• Infrastructural support and ease of availability of the different factors of
production.
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Components contd..
4) Economic environmentEconomic environment::• Business Cycle
• GDP, Interest rate, exchange rate,
Inflation etc.• Economic policies, industrial, fiscal,
monetary.
• Per capita income, balance of payments, Exports imports etc.
• Infra-Structural Investments
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Components contd..
5) Regulatory environmentRegulatory environment::
• Policies related licensing,monopolies, FDI,
• Policies related to distribution andpricing.
• Policies related to sick industries,public sector, backward areas,consumer protection etc.
• Regulation and laws
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Components contd..
6) Political environment:• The political system and its features,
ideological forces, coalition
compulsions.• Political stability.
• Political funding of elections.
• Government’s role in business.• Government AttitudeGovernment Attitude
• Subsidies & ProtectionSubsidies & Protection
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Components contd..
7) Socio-cultural environment:• Demographics like population, its
density and distribution, age
composition, inter state migration,income distribution etc.
• Socio-cultural concerns likeenvironmental pollution, corruptionetc.
• Society expectations, beliefs, ritualsand attitude, lifestyle etc.
• Literac LevelsLiterac Levels
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Components contd..
8) International environment:• Globalization process.
• Global economic forces.
• Global trade and commerce.• Global financial system.
• Global markets and competitiveness.
• Global communication• Global technology and quality
systems.
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SWOT Analysis.
• S: Strengths.
• W: Weaknesses.
• O: Opportunities.
• T: Threats
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Strength
• It is an inherent capacity which anorganization can use to gainstrategic advantage.
• E.g. superior r&d skills which can beused for new product development.
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Weakness
• It is an inherent limitation orconstraint which creates strategicdisadvantage.
• E.g. over dependence on a singleproduct line, which could be risky incrisis.
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Opportunity
• It is a favorable condition in theorganization’s environment whichhelps it to consolidate and
strengthen its position.
• E.g. growing demand for the
products or services that a companyprovides.
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SOURCES OF OPPORTUNITIESSOURCES OF OPPORTUNITIES
• Delicensing of Industries – Eg. Telecom.Delicensing of Industries – Eg. Telecom.
• Import relaxations – Eg. Hardware &Import relaxations – Eg. Hardware &Software.Software.
• Growing population – Eg. Middle-classGrowing population – Eg. Middle-classbuying power.buying power.
• Globalisation – Eg. GDR’s, ECB’sGlobalisation – Eg. GDR’s, ECB’s
• Exit Policy – Eg. VRSExit Policy – Eg. VRS
• Collaborations, Joint Ventures, Tie UpsCollaborations, Joint Ventures, Tie Ups
h
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Threats
• It is unfavorable situation in theorganization’s environment whichcreates risk for, or causes damage
to, the organization.• E.g. emergence of strong new
competitors who are offering stiff
competition.
E i l i
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Environmental scanning
• Monitoring relevant environment toidentify opportunities and threat affectingbusiness for strategic decision making.
• General environment (Overall Env. )• Relevant environment (Directly Impacting)
E i t l i
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Environmental scanning
• Sources of Information
- Documents, Mass media, Internal,External agencies, Formal studies,
spying etc.
• Factor affecting environmentalappraisal
- Strategist related (Age, exp., qual.Etc.)
- Organization related (Age, size,
nature of business etc.
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ETOPETOP
• Acronym for Environment – Threat – OpportunityAcronym for Environment – Threat – Opportunity
– Profile. It represents a summary picture of the– Profile. It represents a summary picture of the
environmental factors and their likely impact onenvironmental factors and their likely impact on
the organisation. Stages in ETOP analysis –the organisation. Stages in ETOP analysis –
– List the different aspects of the environmentList the different aspects of the environment
that has a bearing on the organisation.that has a bearing on the organisation.
– Assess the nature and extent of impact of theAssess the nature and extent of impact of the
factors.factors.
– Holistic view – Prepare a complete overallHolistic view – Prepare a complete overall
picture.picture.
– Forecasting – Predict the future (i.e. timeForecasting – Predict the future (i.e. time
series, delphi's technique, data modeling.series, delphi's technique, data modeling.
O i ti l A i l
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Organizational Appraisal
• It deals with the internal environmentof the organization.
• Internal environment constitutes of
behavior, strengths, weaknesses,synergy and competencies, all theseput together determine the “
Organizational capability”
O i ti l i l
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Organizational appraisal
• Organizational Resources
Physical
Financial
Human
Tangible and intangible
O i ti l b h i
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Organizational behavior
• It is the manifestation of variousforces and influences operating inthe internal environment of an
organization that create the abilityfor, or place constraints in the usageof resources.
• It leads to the development of aspecial identity and character of anorganization.
F t i fl i O B h
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Factors influencing Org.Beh.
• Quality of leadership.
• Management philosophy.
• Shared values.
• Culture
• Quality of work environment.
• Organizational politics.
S i ti ff t
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Synergistic effects
• Synergy is the idea that the whole isgreater or lesser than the sum of itsparts.
• E.g. In marketing dept. synergisticeffect can be achieved when
product, promotion, distribution,advertising support each other.
C t i
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Competencies
• Competencies are special qualitiespossessed by an organization thatmake them withstand pressures of
competition in the market place.• When a specific ability is possessed
by a particular organization
exclusively or in a large measure it iscalled as distinctive competence.
O i ti l bilit
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Organizational capability
• It is the inherent capacity or potentialof an organization to use itsstrengths and overcome its
weaknesses in order to exploitopportunities and face threats in anexternal environment.
Strategic ad antage
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Strategic advantage
• These are the outcome of organizational capabilities. They arethe result of organizational activities
leading to rewards in terms of financial parameters.
Functional capabilities
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Functional capabilities.
Strengths supporting Financialcapability.
• Access to financial resources.
• Good relationship with financialinstitutions.
• High level of credit- worthiness.
• Low cost of capital compared torivals.
• High level of share holder’s
Marketing capabilities
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Marketing capabilities
• Wide variety of products.
• Better quality of products.
• Sharply-focused positioning.
• Effective distribution system.
• Effective sales promotion.
• Effective MKIS.
Operations capabilities
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Operations capabilities
• High level of capacity utilization.
• Favorable plant location.
• Reliable sources of supply.
• Effective control of operational costs.
• Good inventory control system.
• High caliber R&D people.• Technical collaborations.
General management
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gcapability.
• Effective system for corporateplanning.
• Reward and incentives for top
managers.• Risk taking.
• Favorable corporate image.
• Effective management of organizational change.
GRAND STRATEGIES –
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GRAND STRATEGIES Corporate Level
• Provide guidance for major actions for meeting long termobjectives
and basic direction for strategic action
• Blueprints for action. Use of single or combination of 2 or
more depends upon multiplicity and complexities of business.
• Corporate level strategies indicating the choice of directiona firm adopts for achieving its vision.
• Corp. Strategies Also tell about decisions relating to
allocation of resources among different businesses,managing & nurturing diff. businesses in portfolio.
• Grand strategies revolve around one basic question :Whether to continue or change business, to improveefficiency and effectiveness.
Grand strategies
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Grand strategies
• Types of Grand strategies:
• Stability strategy.
• Expansion strategy.
• Retrenchment strategy.
• Combination strategy.
GRAND STRATEGIESGRAND STRATEGIES
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9797
GRAND STRATEGIESGRAND STRATEGIES
Corporate Strategy
GrowthStability Divestment Combination
Intensification Diversification
Market Penetration
Conglomerate / Unrelated
Market Development Product Development
Concentric / Related
Integration
Horizontal Vertical
EXPANSION STRATEGIESMost popular corp. strategies as growth is the way of life. All progressive
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p p p g g y p gorganizations plan for substantial growth due to increasing economy, markets &customer needs. Followed when companies aim at high growth, broadening thescope of its business for improving overall performance.
.
CONCENTRATION STRATEGIES
• Simple 1st level expansion strategy,
• Focus on Intensification /Specialization
• Rely on where you are best at i.efocusing on limited areas
• Creating a separate niche/ identityin selective areas by investingmoney, time, energy & effort in
specific areas
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9999
GROWTH - ANSOFF’S MODELGROWTH - ANSOFF’S MODEL
Existing Market New Market
E x i s t i n g P r o d u c t
N e w
P r o d
u c t
Market
Penetration (+)
Market
Development (++)
Product
Development (++)
Diversification(+++)
Note: (+) indicates type of growth and risk involved.
MARKET PENETRATIONMARKET PENETRATION
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MARKET PENETRATIONMARKET PENETRATION
• It is a strategy where a firm directs itsIt is a strategy where a firm directs its
entire resources to the growth of a singleentire resources to the growth of a single
product, within a well defined market.product, within a well defined market.
Market penetration can be achieved byMarket penetration can be achieved by ––
increasing sales to current customers,increasing sales to current customers,convert competitors customers, directconvert competitors customers, direct
non-users to users.non-users to users.
• Suitable for industries where scopeSuitable for industries where scope
for technological break-through isfor technological break-through is
limited.limited.
MARKET DEVELOPMENTMARKET DEVELOPMENT
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MARKET DEVELOPMENTMARKET DEVELOPMENT
• It is a strategy where a firm tries to achieveIt is a strategy where a firm tries to achieve
growth by finding new uses for existinggrowth by finding new uses for existing
products or its close variants and tap a newproducts or its close variants and tap a new
potential customer base altogether. (Eg. Dupotential customer base altogether. (Eg. Du
Pont – nylon: parachutes, socks & stockings,Pont – nylon: parachutes, socks & stockings,fabrics, tyres, carpets,……).fabrics, tyres, carpets,……).
– The firm should be creative and The firm should be creative and
innovative –thinking out of the box.innovative –thinking out of the box.
– Unconventional and flexible channels of Unconventional and flexible channels of
distribution.distribution.
– Move across geographical boundaries.Move across geographical boundaries.
PRODUCT DEVELOPMENTPRODUCT DEVELOPMENT
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PRODUCT DEVELOPMENTPRODUCT DEVELOPMENT
• It is a strategy where a firm tries to achieveIt is a strategy where a firm tries to achieve
growth through a new product or angrowth through a new product or an
improved version of an existing product orimproved version of an existing product or
its variant to repeatedly enter the sameits variant to repeatedly enter the same
market. (Eg. Honda – bikes, cars).market. (Eg. Honda – bikes, cars). – Leverage on customer loyalty.Leverage on customer loyalty.
– Areas of product improvement – quality,Areas of product improvement – quality,
features, styling.features, styling.
– Ensure high reach through advertisingEnsure high reach through advertising
and promotion.and promotion.
– Product development with relatedProduct development with related
technologiestechnologies
DIVERSIFICATIONDIVERSIFICATION
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DIVERSIFICATIONDIVERSIFICATION
• It marks the entry of a firm into newer marketsIt marks the entry of a firm into newer marketswith new products, thereby creating a newwith new products, thereby creating a newbusiness. The new business is distinct from thebusiness. The new business is distinct from theexisting business in terms of – inputs –existing business in terms of – inputs –technologies – markets. More importantly theytechnologies – markets. More importantly they
are strategically dissimilar.are strategically dissimilar.• Concentric/Related andConcentric/Related andConglomerate/UnrelatedConglomerate/Unrelated
• Why do firms diversify?Why do firms diversify?
– Risk reduction.Risk reduction.
– Maximizing returnsMaximizing returns
– Emerging opportunity in environmentEmerging opportunity in environment
– Migrating from business under threatMigrating from business under threat
– Only way for growth and expansionOnly way for growth and expansion
–
CONGLOMERATE DIVERSIFICATIONCONGLOMERATE DIVERSIFICATION
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CONGLOMERATE DIVERSIFICATIONCONGLOMERATE DIVERSIFICATION
• It relates to businesses which are distinct inIt relates to businesses which are distinct in
terms of businesses as well as strategicallyterms of businesses as well as strategically
unrelated. Companies usually engage inunrelated. Companies usually engage in
conglomerate diversification when industryconglomerate diversification when industry
characteristics are very attractive. Drawbackscharacteristics are very attractive. Drawbacksof unrelated diversification –of unrelated diversification –
– Cost of ignorance.Cost of ignorance.
– Cost of failure (i.e. lack of foresight)Cost of failure (i.e. lack of foresight)
– Cost of neglect (i.e. core business).Cost of neglect (i.e. core business).
– Cost of dysynergy (i.e. synergies pulling inCost of dysynergy (i.e. synergies pulling in
opposite directions).opposite directions).
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CONGLOMERATE DIVERSIFICATION - ITCCONGLOMERATE DIVERSIFICATION - ITC
Tobacco
Paper & Packaging
Food & Confectionary
Edible Oils Hotels
INTEGRATION STRATEGIES
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INTEGRATION STRATEGIES
• Combining activities relating to presentactivities of firm
• Widening scope of business
Vertical Integration : Going up & down thevalue chain Going for forward or backward
integration or both at a time.Horizontal integration : Same type of
products
Expansion through
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p gInternationalization and
Cooperation
Internationalization- Beyond domestic boundaries
- Factor leading it - Globalization
INTERNATIONAL STRATEGIES
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INTERNATIONAL STRATEGIES
PRESSURESFOR
COST REDUCTION
PRESSURES FOR LOCAL RESPONSIVENESS
GLOBALSTRATEGY
( LOW COST - OFFERINGSTANDARDISEDPRODUCTS / SERVICES)
TRANSNATIONALSTRATEGY
(Creative approach tomanage cost and Localization)
MULTIDOMESTICSTRATEGY
( SUITING TONATIONAL
CONDITIONS WITH
HIGH COST )
INTERNATIONALSTRATEGY
(Std. product forUNDER DEVELOPEDCOUNTRIES WHEREPRODUCT/SERVICES
NOT AVAILABLE )
MODES OF ENTRY
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EXPORTING( Firm produces in home country & markets overseas)
LICENSING( International co. transfers knowledge, technologyPatent for a limited period of time to an overseas co,in return for some form of payment)
FRANCHISING(Right to use a business format,usually Brand Name- exchangeprogramme )
INTERNATIONAL JOINTVENTURE
WHOLLYOWNED
LOWHIGH
HIGH
CONTROL
PERCEIVED
RISK
LOW
International strategy
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International strategy
• Which Market to enter?• Timing of entry?
• Scale of entry?
• Advantages – Economy of scale-scope, resources overseas,Expansions and profit
• Disadvantages – Risk, CulturalDiversity, Trade restriction,
Cooperative Strategies
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Cooperative Strategies
• Mergers and Acquisitions
• Joint Ventures• Strategic Alliance
Stability strategy
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Stability strategy
• Is adopted by an organization when itattempts at an incrementalimprovement of its functional
performance.• Good strategy in certain and
predictable environment.
• E.g. A copier machine companyprovides better after sales service toimprove its image and product image
too
STABILITY STRATEGIES
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1. NO CHANGE STRATEGY : Conscious decision to
do nothing new. Continue with present business. Taking No decision is also a decision.
2 PROFIT STRATEGY : Reduce investments, cut
costs , Increase productivity wrt externalfactors like: Economic recession, Govt’s attitude,Industry downturn and competitive pressures forsustaining profitability by whatever means tillsituation improves.
2 PAUSE/ PROCEED WITH CAUTION :Consolidation before a firm goes for expansion.
STABILITYSTABILITY
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STABILITYSTABILITY
• It involves maintaining status-quo or growingIt involves maintaining status-quo or growing
in a slow and selective manner. The size andin a slow and selective manner. The size andscale of present operations remains almostscale of present operations remains almostintact. Stability however, does not relate tointact. Stability however, does not relate todo-nothing. It still has to adopt a strategy todo-nothing. It still has to adopt a strategy tosustain current performance levels. Thesustain current performance levels. Thereasons for stability strategy –reasons for stability strategy –
– Lack of attractive opportunities.Lack of attractive opportunities.
– The firm may not be willing to take The firm may not be willing to takeadditional risk associated with newadditional risk associated with new
projects.projects. – To stop for a while and assess past To stop for a while and assess past
records.records.
– Why disturb the existing equilibrium setWhy disturb the existing equilibrium set
up?up?
Retrenchment strategy
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Retrenchment strategy
• This is followed when a companyaims at contraction of its activitiesthrough substantial reduction or
elimination of its business.• E.g. A pharmaceutical company may
withdraw from its retail operations so
that it can focus on institutionalsales.
DIVESTMENTDIVESTMENT
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DIVESTMENTDIVESTMENT
• Divestment is a defensive strategyDivestment is a defensive strategy
involving the sale of a business to aninvolving the sale of a business to anindependent entity. It is usually taken intoindependent entity. It is usually taken intoaccount when performance is disappointingaccount when performance is disappointingand survival is at stake and nor does theand survival is at stake and nor does the
firm have the resources to fend off firm have the resources to fend off competitive forces.competitive forces.
• It may also be a pro-active strategy, whereIt may also be a pro-active strategy, wherea company simply exits because thea company simply exits because thebusiness no longer contribute to or fit itsbusiness no longer contribute to or fit itsdominant logic.dominant logic.
Combination strategy
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Combination strategy
• This is followed when a companyadopts a mixture of all the strategieseither at the same time in its
different businesses, or at differenttimes in the same business with theaim of improving its performance.
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Business Level Strategies
PORTERS MODEL OF GENERIC STRATEGYPORTERS MODEL OF GENERIC STRATEGY
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PORTERS MODEL OF GENERIC STRATEGYO S O O G C S G
Competitive Advantage
S c o p
e
N a r r o w
B r o a
d
Cost Leadership Product Differentiation
Cost Leadership
DifferentiationFocus
Cost Focus
Differentiation
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Industry Analysis
G G S
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EMERGING INDUSTRYEMERGING INDUSTRY
• Emerging Industry – An industry characterized byEmerging Industry – An industry characterized byradical environmental changes, technologicalradical environmental changes, technologicalinnovations, ending in a different cost economics.innovations, ending in a different cost economics.Eg. Bio Informatics, Digital photography andEg. Bio Informatics, Digital photography andprinting. Reasons for emerging –printing. Reasons for emerging –
– Unproven technology.Unproven technology.
– High initial costs, followed by steep costHigh initial costs, followed by steep costreduction.reduction.
– First-time buyers.First-time buyers.
– Excessive turbulence in the environment.Excessive turbulence in the environment. – Unknown customer and market profile.Unknown customer and market profile.
– Business uncertainty is highBusiness uncertainty is high
GENERIC STRATEGY
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GENERIC STRATEGYGENERIC STRATEGY
• Rapid industry changes - strategicRapid industry changes - strategic
uncertainty. Shaping industry structure.uncertainty. Shaping industry structure.
• Be a market leader, not market follower.Be a market leader, not market follower.
• Strictly differentiation, not standardization.Strictly differentiation, not standardization.• Flexible supplier and distribution channels.Flexible supplier and distribution channels.
FRAGMENTED INDUSTRY – Growth stageFRAGMENTED INDUSTRY – Growth stage
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gg
•Fragmented / Growing Industry – AnFragmented / Growing Industry – An
industry where no firm has a significantindustry where no firm has a significant
market share. Many players enters seeingmarket share. Many players enters seeing
growth. EX- Mobile, IT, retail etc. Reasonsgrowth. EX- Mobile, IT, retail etc. Reasons
for fragmentation –for fragmentation – – Low entry barriers.Low entry barriers.
– Absence of economies of scale.Absence of economies of scale.
– Local regulations.Local regulations. – Diverse customer needs.Diverse customer needs.
With Growth-returns increases,With Growth-returns increases,
customer gains info demandcustomer gains info demand
GENERIC STRATEGYGENERIC STRATEGY
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• Conduct industry wide analysis.Conduct industry wide analysis.
• Identify causes of fragmentation.Identify causes of fragmentation.
• Look for ways to overcome fragmentation.Look for ways to overcome fragmentation.
• Assess consequences of overcomingAssess consequences of overcomingfragmentation.fragmentation.
• Locate a defendable position to take advantageLocate a defendable position to take advantage
of industry consolidation.of industry consolidation.
• Primarily concentrate on differentiation, alsoPrimarily concentrate on differentiation, alsofocus on cost advantages.focus on cost advantages.
MATURE INDUSTRYMATURE INDUSTRY
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•Mature Industry – An industry characterizedMature Industry – An industry characterized
by imperfect competition leading toby imperfect competition leading to
saturation in growth rates. Eg. FMCG, BPO,saturation in growth rates. Eg. FMCG, BPO,
steel. Reasons for maturing –steel. Reasons for maturing –
– entry barriers.entry barriers. – Lack of innovation.Lack of innovation.
– Exhaustive networks.Exhaustive networks.
– International competition. Eg. Dumping.International competition. Eg. Dumping.Stable demand, technologyStable demand, technology
developments are few, consolidationdevelopments are few, consolidation
of industryof industry
GENERIC STRATEGYGENERIC STRATEGY
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• Sophisticated cost analysis and correctSophisticated cost analysis and correct
pricing.pricing.
• Process innovation and efficient designing.Process innovation and efficient designing.
• Rationalizing the product mix.Rationalizing the product mix.• Increasing scope of existing customers.Increasing scope of existing customers.
• Move beyond geographical boundaries.Move beyond geographical boundaries.
DECLINING INDUSTRYDECLINING INDUSTRY
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• Declining Industry – An industryDeclining Industry – An industrywhich has outlived its utility, withwhich has outlived its utility, with
no sign of recovery. Eg.no sign of recovery. Eg.
Typewriters, agriculture. Typewriters, agriculture.
• Returns declineReturns decline
• Investment ceasesInvestment ceases
• Demand shrinksDemand shrinks• Companies starts followingCompanies starts following
retrenchment strategiesretrenchment strategies
GENERIC STRATEGYGENERIC STRATEGY
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• Leadership through takeovers and mergers.Leadership through takeovers and mergers.
• Harvesting –Harvesting –
– Stop to fresh CAPEX.Stop to fresh CAPEX.
– Curtailing working capital exposure.Curtailing working capital exposure.
–Minimising adhoc expenditures.Minimising adhoc expenditures. – Maintain a skeleton structure.Maintain a skeleton structure.
– Reducing product diversity.Reducing product diversity.
– Curtailing distribution channels.Curtailing distribution channels.
• Early divestment – Sell early before it becomesEarly divestment – Sell early before it becomesdead-wood.dead-wood.
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COMPETITOR ANALYSIS
FIVE FORCES MODEL PORTERFIVE FORCES MODEL PORTER
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FIVE FORCES MODEL - PORTERFIVE FORCES MODEL - PORTER
Threat of New Entrants
Threat of Substitutes
Bargainingpower of Suppliers
Bargainingpower of Suppliers
Bargainingpower of Customers
Competition fromExisting Players
PORTERS FIVE FORCES ANALYSISPORTERS FIVE FORCES ANALYSIS
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PORTERS FIVE FORCES ANALYSISPORTERS FIVE FORCES ANALYSIS
• Competition from existing players – High whenCompetition from existing players – High when
– Introducing new product range.Introducing new product range.
– Cutting prices of existing product range.Cutting prices of existing product range.
– Offering better packages for existing productOffering better packages for existing productrange.range.
– Enhancing dealer networks.Enhancing dealer networks.
– Stronger market promotion, includingStronger market promotion, including
advertising.advertising. – Backward or forward integration.Backward or forward integration.
– Upgrading technologies.Upgrading technologies.
PORTERS FIVE FORCES ANALYSISPORTERS FIVE FORCES ANALYSIS
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PORTERS FIVE FORCES ANALYSISPORTERS FIVE FORCES ANALYSIS
• Threat of New Entrants – some barriers Threat of New Entrants – some barriers
– Economies of scaleEconomies of scale
– Brand powerBrand power
– Product differentiationProduct differentiation
– Location advantagesLocation advantages
– Distribution channelsDistribution channels
– High switching costsHigh switching costs – RegulationRegulation
PORTERS FIVE FORCES ANALYSISPORTERS FIVE FORCES ANALYSIS
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PORTERS FIVE FORCES ANALYSISPORTERS FIVE FORCES ANALYSIS
• Bargaining power of Customers/buyersBargaining power of Customers/buyers
– High when– High when
– Few buyersFew buyers
– placing large ordersplacing large orders – No. of suppliers/sellers are highNo. of suppliers/sellers are high
– Switching cost for buyer is lowSwitching cost for buyer is low
– Buyer can easily integrate backwardBuyer can easily integrate backward – Substitutes availableSubstitutes available
PORTERS FIVE FORCES ANALYSISPORTERS FIVE FORCES ANALYSIS
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• Bargaining power of Suppliers – high whenBargaining power of Suppliers – high when
– Many buyers buying small quantityMany buyers buying small quantity
– Suppliers are fewSuppliers are few
– Unique offeringUnique offering
– Substitute not availableSubstitute not available – Supplier can easily integrate forwardSupplier can easily integrate forward
• Threat of Substitutes – Threat of Substitutes –
– Source of latent competitionSource of latent competition – Substitute offering a price advantage and/orSubstitute offering a price advantage and/or
performance improvementperformance improvement
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UNDERSTANDING VALUE CHAINUNDERSTANDING VALUE CHAIN
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UNDERSTANDING VALUE CHAINUNDERSTANDING VALUE CHAIN
• A value chain segregates a firm intoA value chain segregates a firm intostrategically relevant activities tostrategically relevant activities to
understand its cost behaviour.understand its cost behaviour.
• Competitive advantage arises byCompetitive advantage arises byperforming these activities efficiently andperforming these activities efficiently and
differently.differently.
• The sustainability of the value chain The sustainability of the value chain
depends on the degree of fit between thedepends on the degree of fit between the
activities.activities.
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VALUE CHAIN ANALYSIS
• Value Chain: Linked set of value creating activities
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Value Chain: Linked set of value creating activities,beginning withbasic Raw materials coming from suppliers to a series of value added activities involved in producing and marketinga product,