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MANUFACTURING STRATEGY
Centre for Engineering Management
M.S.Ramaiah School of Advanced Studies, Bangalore
Module Leader at MSRSAS
V.G.S.MANI
January 2010
Postgraduate Engineering Programmes
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MODULE AIMS & SUMMARY
Aims and summary
This postgraduate module is designed to pursuethe linkages between manufacturing strategy and acompanys corporate strategy. Increasinglycompanies in global markets are competingthrough manufacturing, and to do this theirstrategies for manufacturing must support thecompanys marketing objectives and be able to
provide a competitive advantage in the marketplace.
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MODULE AIMS & SUMMARY
This module helps a) manufacturing management to
understand the strategic aspect of their role inrealizing their organizations business b) emphasis
the manufacturings strategic role in supporting and
realizing companys business c) corporatemanagement to better understand the complexity &
interaction among the issues / challenges faced by
manufacturing management
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MODULE AIMS & SUMMARY
The module equips participants with an
understanding of corporate andmanufacturing strategy, and prepares them
for taking a strategic role in a
manufacturing organisation
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Module Syllabus
Nature and Objectives of Strategy: Corporate strategy concepts, theories,
models and tools of analysis;
Product Life Cycles: BCG Matrix, Analysis of corporate strategy case
studies. Manufacturing Strategy: Links between manufacturing strategy and
company strategy, Contribution of manufacturing strategy to business
performance and competitive advantage, Manufacturing strategy theories
Market Qualifying and Order Winning Criteria: Quality, Delivery, Leadtime, Flexibility, Innovativeness, Performance as order winners;
Process choice, Study of Manufacturing Systems & their
Characteristics: Fit between manufacturing systems and PLC; Product
profiling, Manufacturing focus , Manufacturing infrastructure; Case studies
Framework for Developing and Analysing Manufacturing Strategy:
Study of product/ volume, Layout/ flow (PV/LF), Manufacturing levers,
Levels of Manufacturing Capability, Competitive Analysis, Selection of
appropriate Manufacturing systems, Supporting methodology for the design
of a manufacturing strategy
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Module Syllabus
Change Management: Strategy Implementation
Business Economics, Costing and Budgetary Analysis
Strategy Performance Measurement: ERP as a tool for evaluation Workshop to analyse and present a few manufacturing strategy
case studies
Laboratory Practice
ERP (IC soft / SAP ERP) - Review of modules like Sales,Purchase, Manufacturing, Quality control and Maintenance
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Teaching and Learning Methods
Lecture Sessions
Class Presentation
Lab sessions on ERP (IcSoft)
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Evaluation
Assignment: 100% Weightage
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Software and Manuals
IcSoft ERP
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Module Delivery
Theory
V G S Mani & VijayKumar Laboratory
Vijay Kumar
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Module Resources
1. Lecture Notes on Manufacturing Strategy, MSRSAS2. Strategic Management Theory - Charles W. Hill & Gareth Jones, All
India Publishers & Distributors, Chennai, 1998
3. Manufacturing Strategy, Texts & Cases - Terry Hill, Palgrave,U.S.A., 20000
4. Manufacturing Strategy - John Miltenburg, Productivity Press,U.S.A., 1995
5. Radical Change: What Indian Companies must do to become
world class - Ghosal, Piramal, Bartlett - Penguin Books of India,2000
6. Count Your Chickens Before They Hatch - Arindam Choudhuri,Vikas Publishing, 2001
7. Reinventing the Factory II , Managing World Class Factory - Roy
Harmon, The Free Press, Canada, 19928. Contemporary Strategy Analysis - Robert Grant, Blackwell
Publishers, 19989. Manufacturing The Future : Strategic Resonance for Enlightened
manufacturing - Steve Brown, Financial Times/ Prentice Hall, 2000
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Module Resources
10. Analysis of Manufacturing Enterprise: An Approach to Leveraging
Value Delivery Process for Competitive Advantage - N. Viswanadham,
Kluwer Academic Publishers, 200011. MIT: Manufacturing Strategy Concepts - http:// ocw.mit.edu/
index.html
12. Strategic Management - Text & Cases - V.S.P. Rao, V. Hari Krishna -
Excel Books, New Delhi , 200313. Modern Competitive Strategy Gordon Walker Tata McGraw-Hill
Publishing Co. New Delhi, 2008
14. http://www.tatapeoplescar.com/tatamotors
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1. INTRODUCTION
V G S Mani
Centre for Engg. Management
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SESSION OBJECTIVES
This session provides an introduction to
contemporary industrial scenario especially with
respect to Indian situation
Students are also exposed to the role of
manufacturing and its contribution to the growthof a Nation
Concepts regarding how industries are classified
and types of manufacturing technology are alsocovered
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INTRODUCTION TO
MANUFACTURING STRATEGY
Market forces are so powerful and strong
that it will mercilessly punish unwise
investment and weak enterprises.
Manufacturing must allow companies to
exploit market opportunities withoutbecoming a constraint.
Many nations, who were industrial powers,
have declined (e.g. Japan), while many newindustrialized nations have emerged (e.g.
China & South Korea)
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INTRODUCTION TO
MANUFACTURING STRATEGY
New issues are emergingEnvironment,
Removal of trade barriers, growth of world
trade at a higher rate than global gdp, increased
automation vs the need for higher employment,
Newer technologies like cad, cam, cim,robotics,
Innovations such as CD, VCD, DVD, mobile
phones etc.
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MANUFACTURING CHARACTERISTICS
AT VARIOUS PERIODS
Period Characterized By Terminology
1940-50 Shortages PRODUCTIONERA
1950-65 National Excess Capacity MARKETING ERA
1965-80 Concentrated Earnings FINANCE ERA
1980-90 International Competition QUALITY ERA
1990- Global Excess Capacity PARTNERSHIP
ERA
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INTRODUCTION TO
MANUFACTURING STRATEGY
Late 80s and early 90s brought a new
dimension to the industries competition.
Struggle to survive has become a way of
life
Time has become another extremely criticalfactor. A delay of 6 months in launching a
consumer product can reduce lifecycle
profit by 33%, whereas overspending ondevelopment by 50% will reduce profit by
only 3%.
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INTRODUCTION TO
MANUFACTURING STRATEGY
Enterprises have to tackle all these issuesand yet be successful. For e.g. In the same
business, some companies fail while someothers do extremely well. Companies thatwere successful earlier, have fallen by the
way side (TWA, PAN AM AIRLINES,DEC,HMT, NGEF etc).
It is the responsibility of the company to
integrate industry specific and nationspecific factors with companys resources,capabilities & strategies in order to enhance
companys performance.
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ENVIRONMENTAL ISSUES
INFLUECING BUSINESS
Globalization
Time Compression
Technology Integration
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ENVIRONMENTAL ISSUES
INFLUECING BUSINESS
Over a 1-2 year period, company
performance is affected by industry related
factors
But over a 6-7 year period, industry factors
play only a small part. Rest is managementfactors
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WHY COMPANIES FAIL - INABILITY
TO ESCAPE THE PAST
Track record of
success
No gap between
expectations &
performance Satisfied with
current
performance
Accumulation of
abundant resources
Attitude that
resources will win
out Resources
substitute for
creativity
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WHY COMPANIES FAIL - INABILITY
TO INVENT THE FUTURE
Optimized business
systems
Deeply etched
practices
Vulnerability
Success confirms
practices
Momentum is
mistaken for
leadership Failure to reinvent
leadership
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CONTRIBUTION OF MANUFACTURING
STRATEGY
Manufacturing contributes to wealth creation
activity of a nation. Roughly 35 % of GDP is
contributed through industries in newly
developing countries
Many nations such as China, Japan, Korea,Germany and Italy have gained competitive
advantage and high value additions through
manufacturing route during the last decade andwhich was a key factor in their economic success
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Initially, focus was on higher efficiencies through
improvements in fits and tolerances, assembly linetechniques, reduction in product variety to reduce costs,
work force training to achieve single specialized skill,
SPM, transfer lines etc.
Later, in response to competitive market forces,
developments such as FMS, cellular manufacturing, JITand agile manufacturing etc were developed. These
developments have cut down inventories and work in
progress
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Unfortunately, there is little appreciation of the
strategic role of manufacturing in corporate strategies.
Many companies treat manufacturing function as an
inevitable nuisance! It soaks up capital in facilities andinventories, it resists changes in products and
schedules, its quality is never as good as it should be,
its people are unsophisticated, tedious, detail orientedand unexciting.
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CONTRIBUTION OF
MANUFACTURING STRATEGY
As a result, manufacturinghas focused on day-to-day, short-term issues
has a reactive approach to long term strategicplanning
has focused exclusively on efficiency; it has hindered
it from visualizing the big picture. (Icarussyndrome)
is simply not geared to companys corporate
objectives is not designed to meet companys needs, in spite of
having good facilities.
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At best, has remained a neutral force or quite often, it
pulls in the opposite direction!
As a consequence, top management has focused on
improvements through non-manufacturing decisions suchas outsourcing, M & A, take over, J.V. etc.
This anomaly requires to be bridged; Manufacturing canoffer strategic strength to its organization in the following
ways.
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A. Provide manufacturing processes (including design
of new products) that gives the business a distinctadvantage in the market place.
B. Provide coordinated manufacturing output andsupport which provides competitive advantage &
enables the organization to win orders in the market
place (cost, quality and performance, delivery,flexibility and innovativeness)
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Indian industry must cease to operate the way it has
been doing for the last 50 years
The country must move to a new manufacturing ethos
that is benchmarked to world size and class.
C SS COS O O G S SS
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EXCESS COST OF DOING BUSINESS IN
INDIA
High cost of materials
Low productivity
High interest costs
Technological obsolescence
Complex , irrational & multiple levels of taxes Complex regulations/ procedures
Time delays/ corruption
Nitpicking culture
Poor managerial competence
(Ref - Vision 2020 Prof. Indiresan, ICFAI)
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INDIA & CHINA A COMPARISON
INDIA CHINA
FOR THE YEAR 2003 (% of GDP) (% of GDP)
Agriculture 22.2 14.6
Industry 26.6 52.3
(Manufacturing) (16.3) (39.3)
Services 51.2 33.1
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INDIA & CHINA A COMPARISON
China
2003
India
2003
India
2009
India
2020
% GDP % GDP % GDP % GDP
Agriculture 14.6 22.2 17.0 12.0
Industry 52.3 26.6 20.0 17.0
(Manufacturing) (39.3) (16.3)
Services 33.1 51.2 63.0 71.0
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CLASSIFICATION OF INDUSTRIES
Industries are dominated by different types of
competitive resources capacity, customers &
knowledge
Capacity driven industries
Physical Capital Investment is high in relation tocost or value addition
Competition takes place mainly on price
Pace of productivity improvement is modestRegister low profitability
Examples Steel, Textiles, Paper
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CLASSIFICATION OF INDUSTRIES
Customer driven industries
Investments in brands/ customer relations account for a
large part of cost/ value addition
Companies compete across a number of non price
aspects such as logistics, product positioning, publicity
etc
Advantages gained by these aspects are only temporary
these are easily imitated
Generally, these industries tend to be less mature &
fragmented
Examples household goods, food, beverages etc.
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CLASSIFICATION OF INDUSTRIES
Knowledge Driven Industries
Highly investment driven especially in R & D,
which accounts for a large part of its cost
Industries excel in innovation
Examples are Software, Electronics,Pharmaceuticals etc
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MANUFACTURING TECHNOLOGY TYPES
Process Technology pertains to the
techniques of producing and marketing
goods and services
It also includes work methods, equipment,
distribution and logistics It is fully embedded in a firms value chain
Improvements are designed to produce and
market goods & services faster, more
efficiently and in greater volumes
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MANUFACTURING TECHNOLOGY TYPES
Product Technology pertains to technology
that is built into the product/ services
Changes in product technology add new
features or provide new substitutes for
existing products Process Technology refers to the way the
firm is doing its business; Product
Technology refers to the output of anorganization
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SESSION SUMMARY
Following concepts have been covered during this
session
Contribution of manufacturing to economies of Nations
Environmental issues influencing businessReasons why companies fail
Manufacturing technologies
Classification of Industries
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2. STRATEGY & ITS FORMULATION
V G S Mani
Centre for Engg. Management
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SESSION OBJECTIVES
In this session, participants are taught the
following concepts
Definition & characteristics of Strategy
Role, Features and levels of strategy in an
organization
Intended and Emergent strategy
Strategy Formulation
Strategic ChoiceMissions and Goals
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STRATEGY DEFINITION
Strategy is the pattern or plan that integrates anorganisations major goals, policies and action
sequences into a cohesive whole Managements plans to attain outcomes
consistent with the organizations mission &
Goals A well formed strategy helps to marshal and
allocate an organisations resources into a
unique and viable posture based on its relativecompetences and shortcomings, anticipatedchanges in the environment, and contingent
moves by intelligent opponents.
STRATEGY ADDITIONAL
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STRATEGY - ADDITIONAL
DEFINITIONS
Science and art of military commands as applied to
overall planning and conduct of large-scale combat
operations
Determination of the basic long term goals and objectivesof an enterprise and the adoption of courses of action and
the allocation of resources necessary for carrying out the
goals
The pattern or plan that integrates an organizations major
goals, policies and action sequences into cohesive whole
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Strategy Additional Definitions
An unified, comprehensive and integrated plan which is
designed to ensure that basic objectives of the enterpriseare achieved
Pattern in a stream of decisions or actions
A sequence of decisions that, over a period of time,enables a business to achieve a desired (market related)
manufacturing structure (process choice), infrastructure
and a set of specific capabilities Moving from where you are to where you want to be in
future through sustainable competitive advantage
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CHARACTERISTICS OF STRATEGY
RequiresRequires
concentration of effortconcentration of effort
Impact on the wholeImpact on the whole
organisationorganisation
Associated withAssociated with
major issuesmajor issues
Long termLong term
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CHARACTERISTICS OF STRATEGY
It is high level It is general
Time span is long range
Affects the whole organization
Developed from the ground upwards
Covers a wide range of activities Exploits a particular concept
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Strategic And Operations Planning
Strategic
Planning
Tactical Planning Operational
Planning
Long Range Plans3+ yrs
IntermediateRange 2 3 yrs
Short range < 1 yr
Top Management
Responsibility
Mid level
management
Junior level
Broad Objectives Departmental
objectives
Internal day to day
activities
Focus on planning
& forecasting
Coordination Controls
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WHY HAVE A STRATEGY?
Integrate
sub-strategiesholistically
Optimisestructural
decisions
Proactivelyplan for future
changes
Align capabilty
to marketneeds
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STRATEGIC DIMENSIONS
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STRATEGIC DIMENSIONS
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THE LEVELS OF STRATEGY
Strategy
Corporate Defines the business in which the organisation will
compete, determines the long term objectives andidentifies the courses of action and allocation of resources.
Business Focuses on how to compete in a given business, determinesthe competitive approach and the strategies for each
business unit of a multi-product organisation. It is usual
for a Strategic Business Unit to be treated as semi-
autonomous and therefore free to set their own strategy
under the corporate umbrella. Focus often on cost leadership.
Functional Aim of the functional strategy is to obtain the maximumproductivity from resources. Given the constraints set by
the corporate and business strategies, functional departments
must develop strategies in which their activities and skillsare harnessed for the improvement of performance.
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THE BUSINESS CONTEXT
Small Business
- Entrepreneurial vision
- Management of growth
Multinational
- Central vs local control
- Complexity- Multi layer management
- Aligning operations with
strategy
- Communications
Public sector
- Political dimension
- Slowness of decisionmaking
- Survival despite failure
Professional practice
- Regional markets
- Traditional structures andmindsets
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STRATEGIC PRESSURES
THE BUSINESS UNIT
Smaller business unit Strong collaboration
with suppliers
Customers who demand
more sophisticated
products and services
The emergence and
availability of new
technical solutions
There is a need to
optimise resource bases
Time-to-market fornew products is becoming
ever more critical
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STRATEGIC MANAGEMENT MODEL
External analysis
Establish Formulate Identifymission objectives strategy
Internal analysis
Organisation control Functional policies
Structure Production
Leadership Marketing
Rewards HR, etc.
Measure and evaluate performance
Corrective action
Contingency planning
Formulation
Implementation
Evaluation
Feedback
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INTENDED Vs. EMERGENT STRATYEGY
Planning assumes strategy as an outcome of
rational planning Ignores that strategy can emerge as
response to unforeseen circumstances e.g.
Haeber process for ammonia production Intended strategy deliberate strategy
realized strategy
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INTENDED Vs. EMERGENT STRATEGY
Unrealized strategy emergent strategy realized strategy Example of realized strategy- missiles
development in India;
Example of of emergent strategy - Sale of50 cc Honda bike in USA; MTR ready
made food in Bangalore
Emergent strategy is generally successful; Most companies follow a combination of
intended and emergent strategies
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DIFFERING PLANNING STYLES
Planning for a
period ofstability and
growth
Planning for
business underattack
Planning for
cutback andrationalization
Planning for
growth, globalconsequences
Long term forecast
Detailed planning
Five year budgets
Strategies for
growth
Divisionalisation
Exploratory
forecasting
Planning for change
Top management in
charge of strategy
Attempt to manage
strategic change
Visible leadership
Staff involvement
Investment in new
technology
Manpower planning
Gap analysisProduct-market
matrix
Environmental
impactSensitivity and risk
analysis
Explicit business
philosophy andobjectives
Resource portfolios
Company wide
quality improvementBenchmarking
Training
Inflexible
Over optimistic
Alternatives not
considered
Too centralized
No business linkage
Too elaborate
analysis
Short-term views
Employee backlash
Heavy staff demands
Difficult integration
Funding for new
investments
Eleme
nts
Techniq
ues
Prob
lems
1960s 1970s Early 1980s Late1980s
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DIFFERING PLANNING STYLES
1990's
Setting strategic direction in anuncertain environment
Current Issues
Environmental awareness
Crisis and recovery: managingturnaround situations Customer satisfaction
Transforming cultures Emerging markets
Achieving excellence Cost out initiatives
Responding to deregulation and
privatisation Legislation
ELEMENTS OF STRATEGY & ITS
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ELEMENTS OF STRATEGY & ITS
FORMULATION
Definitions missions, goals, objectives,
strategy
Mission statement
Is a framework for strategy formulation
Identifies interrelationship between
mission, stakeholders & strategies
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Mission statement must includeDefinition of business
State objectivesAttempt to satisfy both external and internalclaimants, resolve conflicts
Identify stake holders, identify their interests andconcerns , likely claim on the business bystakeholders
Identify critical strategic issues reject strategiesconflicting with the needs of critical stakeholders.
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MISSION CRITERIA
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MISSION CRITERIA
Focused more on customer need sat isfact ionthan on product character ist ics
Specific enough to have im pact on behaviour
of organisat ion
Able to reflect essent ial skills
At tainable
Flexible
GOALS
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GOALS
Goals specify how a company intends to go
about attaining strategic intent.
Usually companies mention increasing share
holders wealth as a goal but it can lead to
short term practices. This can be rectified by
having secondary goals such as market share,
innovation, measure of financial resources,social and employee issues.
GOALS
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GOALS
An example can be leader in the business
segment G.E. wants to be No.1 or 2 in their
line of business
Hard goals - traditional financial measures
Soft goals role of S.B.U. as a social entity.
(Caution making unrealistic statements &targets)
DEFINITION OF BUSINESS
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DEFINITION OF BUSINESS
What is our business, what will it be, what should
it be?
(e.g. I.B.M. successfully transited from
calculators/ typewriters to computers, but was not
successful in transiting from main frame to P.C.)
Consumer oriented rather than product oriented
DEFINITION OF BUSINESS
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DEFINITION OF BUSINESS
Multi-product company cannot just aggregate
the individual businesses; Must identify the
synergy & the reasons why business units are
better off as a part of the multi-product
company.
e.g. identify vertical integration, commonality in
marketing/ servicing etc.
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TERMINOLOGY
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TERMINOLOGY
TERM DEFINITION PERSONAL
EXAMPLE
BRITISH
AIRWAYS
Mission Value andexpectation of all
Be healthy and look
good
To be the best and
most successful.
GoalGeneral statement of
aim or purpose
Lose weight Significant presence
globally
Objective Quantification ofgoal
Lose 5 kgs by 31st
December
Take advantage of
global expansion
StrategiesAction to achieve
objectives
Diet and exercise Create market
alliances
Action Task Implementation steps Eliminate desserts,swim every day
Acquire 70% stake
in Sabena
Reward
Payoff for reaching
objective
Buy a new suit Profit sharing
scheme
STRATEGY FORMULATION
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STRATEGY FORMULATION
DRIVERS CAPABILITIES GAP ANALYSIS PROVIDERS
RESPONSIVENESS
COMPETENCY
FLEXIBILITY
SPEED
PracticesMethods
Tools
ORGANISATION
TECHNOLOGY
PEOPLEINNOVATION
INFORMATION INFORM
ATIONIN
FORMATION
INFORMATION
Need
strategic intent
Companys
weaknesses
STRATEGY FORMULATION
STRATEGY FORMULATION
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STRATEGY FORMULATION
External analysis
Identify opportunities
and threats
Internal analysis
Identify strengths and
weaknesses
Establish
mission
Formulateobjectives
Identifyand selectstrategy
STRATEGIC CHOICE
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STRATEGIC CHOICE
Object ives
Strategy
selection
In terna lanalysis
Com pat ib il it y
w i th t o ler ance
Externa lanalysis
Mission
FORMULATING OBJECTIVES
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FORMULATING OBJECTIVES
Objectives
NonFinancialFinancial
Measurable Communicable Realistic
Provide direction
Aid in evaluation
Allow co-ordination
SETTING GOALS
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SETTING GOALS
Attainable Met with reasonable effort under the prevailing conditions
Economic Cost of setting and administering should be low in relation to activity
Applicable Fit the condition under which they to be used
Consistent Unify communication and operations throughout the company
Understandable Expressed in simple, clear term to avoid misinterpretation
Measurable Communicate with precision
Stable Long enough life to provide predictability and to amortise effort
Adaptable Designed so that elements can be added and brought up to date
Legitimate Officially approved
Equitable Accepted as a fair basis for comparison
Customer focused Address areas important to the customer (internal/external)
SESSION SUMMARY
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SESSION SUMMARY
Following concepts have been covered during
this session
Various definitions of Strategy
Why have a strategy?
Strategic Pressures & Models
Strategy formulation Methodology
Establishing Missions & Objective
Mission Criteria
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SESSION OBJECTIVES
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SESSION OBJECTIVES
In this session, participants are taught the
following concepts
Broad /Macro Environment - P.E.S.T. factors
Competitive Environment Porters 5 F Model
Limitations of PEST & 5 F theories
EXTERNAL ANALYSIS
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EXTERNAL ANALYSIS
Broad / Macro environment
Competitive environment
P.E.S.T.
Porter 5 force modelPolitical
Technological
Economic
Social
Newentrants
Substitutes
Supplier
power
Competitors
Customer
power
MACRO ENVIRONMENT (P E S T )
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MACRO ENVIRONMENT (P.E.S.T.)
Technological trendsReplacements for steel
Development of public transport
Information technology
Communications
Economic trendsMonetary union
Exchange ratesInflation
Shift of financial power
Social trendsSkill shortage
Emergence of 'anti-growth' values
Increase in home working
Boom in leisure industries
Political trendsChange of governments
Tougher legislationResurgence of trade unions
Conflict/Unification
PORTERS 5 FORCE MODEL
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PORTER S 5 FORCE MODEL
Industry
competitors
Intensity of
rivalry
New
entrants
Suppliers Customers
Substitutes
Bargaining power of buyers
Threat of substitutes
Bargaining power of suppliers
Threat of new entrants
PORTERS 5 FORCE MODEL
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Economies of scale
Brand identity
Switching costs
Capital requirements
Access to distributionAbsolute cost advantages
Government policy
Expected retaliation
Differentiation of inputs
Switching costs
Presence of substitute inputs
Supplier concentration
Importance if volume to supplierCost relative to total purchases
Impact of inputs on cost differentiation
Threat of forward integration
Bargaining leverage
Ability to backward integrate
Substitute products
Impact on quality/performance
Brand identityProduct differences
Price sensitivity
Relative price performance as substitutes
Switching costs
Buyer propensity to substitute
EntryBarriers
Determ
inantsof
supplierpower
Determinantsof
buyer
power
Determ
inantsof
Substitutionthreat
Industry Growth Switching costs Concentration and balance
Fixed costs/value added Brand identity Diversity of competitorsIntermittent over capacity Product differences Exit barriers
Rivalry determinants
PORTER S 5 FORCE MODEL
EXTERNAL ANALYSIS
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EXTERNAL ANALYSIS
Some companies do well because of
external environment or country where they
operate
Others do badly because external
environment is hostile
E.G.- Indian professionals working abroad,inspectors harassment for indian industries
EXTERNAL ANALYSIS
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EXTERNAL ANALYSIS
Strategy must fit in with the environment or
reshape the environment to ensure fit
between intent and environment
Opportunities & threats constitute external
factors. Opportunities arise when
environment tends to create a competitive
advantage to the company; Threats arisewhen the environment endangers the
integrity of the company.
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FIVE FORCES MODEL
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FIVE FORCES MODEL
Five forces shape competition within theindustry
Stronger that any of these forces work(alone or in combination), more limited isthe ability of the companies to raise prices
and be more profitable; Hence they can beconstrued as threats.
Weaker that the forces are, the more it is an
opportunity for the company. Impact of 5 F change through time. Company may alter the impact of 5 F
through its choice of strategy
POTENTIAL COMPETITORS
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POTENTIAL COMPETITORS
These are companies, which are notcompeting, but can do so if they chose.
Ability to enter business is a function ofentry barriers (costs, technology, brand
loyalty, marketing infrastructure,economics of scale)
Companies discourage potentialcompetitors by raising entry barriers andthrough disinformation.
RIVALRY AMONG ESTABLISHED
COMPANIES
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COMPANIES
Price wars may result from intense rivalry
Extent of rivalry is determined by 3 factorsviz.
competitive structuredemand condition &
height of exit barriers
COMPETITIVE STRUCTURE
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COMPETITIVE STRUCTURE
Refers to the number and size distribution
of companies in an industry i.e. It can be
fragmented or consolidated
single dominant company is called
monopoly while a few dominant companies
is called oligopoly
FRAGMENTED INDUSTRY
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FRAGMENTED INDUSTRY
Fragmented industry structure combined with low
entry barrier results in boom & bust cycles -
(strong demand entrants hoping to cash in creation of excess capacityprice war somecompanies are forced out industry capacity
matches demand
price stability)
Low entry barrier + fragmented structure
represents a threat
Cost minimization & survival during bust cycle is
the most apt strategy
CONSOLIDATED INDUSTRIES
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CONSO N US S
In consolidated industrial situation, companies
are interdependent.
Competitive action of one company affects thebusiness of its rivals.
Can lead to dangerous competitive price spiral
Between 1990&92, airlines in america lost more
money than what they had made in the previous
50 years!
CONSOLIDATED INDUSTRIES
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Since price war constitutes a threat,
companies try to follow the price lead set
by dominant company by tacitunderstanding
Do you accept that market sets the price? But this arrangement can be unilaterally
abrogated by one or more company during
very adverse economic condition.
CONSOLIDATED INDUSTRIES
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Companies try to minimize the threat by
highlighting non price issues such as
quality/ special features and by buildingbrand loyalty.
However, it may be difficult to distinguish
between service providers e.g. Air travel,
Cable TV
Price is also used as a tool to increasedemand
DEMAND CONDITION
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Growing demand (addition of new
customers or more purchase by existingcustomers) tends to moderate competition
In this situation, companies can increase
business and revenue without takingbusiness away from competitors.
When demand is declining, company can
grow/ sustain only by taking business awayfrom competitors.
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THE BARGAINING POWER OF
BUYERS
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BUYERS
Buyers represent a competitive threat, when
their demand increases withoutcommensurate price increase (e.g. Increasein credit period, reduction in price, increasein quality etc)
Raising of demands on suppliers by buyers,entirely depends on their power relative tothe suppliers. Buyers are powerful, when
buyers are large and few while suppliers aresmall and many (e.g. Auto components)
THE BARGAINING POWER OF
BUYERS
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BUYERS
Buyers purchase in large quantities
Supplier depends on the buyer for a large
percentage of his business Buyers can switch easily between suppliers
When inputs can be purchased from several
buyers at the same time
When buyers can vertically integrate and
supply their own needs
THE BARGAINING POWER OF
SUPPLIERS
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SUPPLIERS
When supplier can force the buyer to
increase the price of inputs, they represent athreat.
Suppliers are powerful, when
Suppliers product has no substitute & is critical to thecompany
Buyer is not an important customer to the company
It is difficult for the buyer to switch to another supplier
When supplier can vertically integrate and compete withthe buyer
When the buyer cannot vertically integrate backwards
and meet their own requirements
THE THREAT OF SUBSTITUTE
PRODUCT
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PRODUCT
The existence of close substitute product
presents a competitive threat to the supplierindustry e.g. Coffee can be substituted by
tea.
This restricts the price that the company cancharge its customers.
MACROENVIRONMENT (P.E.S.T.)
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Industries are embedded in a wider
macroenvironment of Politcal, Economic,
Social &Technological factors. Demographic factors also play a role. These
factors determine the health of a nation and
its economy.
MACROENVIRONMENT (P.E.S.T.)
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Economic improvement of economyensures growing business volumes and
reduces competitive pressures; Converse isalso true. Other factors such as interestrates, currency value also contribute to the
competitive factors and may pose a threat/opportunity to the company. Inflation canslow down the economy and make
prediction of future that much moredifficult. (Misery index = inflation +unemployment)
MACROENVIRONMENT (P.E.S.T.)
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Technological- can make existing products
obsolete and create demand for new
products; As such, represents both anopportunity and a threat. This is called a
perennial gale of creative destruction.
This factor also emphasizes the need for
speedy product development and its
introduction in the market.
MACROENVIRONMENT (P.E.S.T.)
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Social this also creates opportunities andthreats. E.G. Health consciousness resulted
in opening health clubs & reduction ofdemand for cigarettes.
Political political factors also createopportunities and threats. E.G.Liberalization of imports has created
opportunities for traders but has threatenedthe industries. Similarly environmentalconcern has had its favourable/ adverse
effects.
MACROENVIRONMENT (P.E.S.T.)
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Demographic changing composition of
population has created opportunities and
threats. Likes and dislikes of younger grouphas created its own demands (soft drinks,
pizza) and reduced demand for other
products (formal clothes)
MACROENVIRONMENT (P.E.S.T.)
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There is a criticism that the two theories
represent a static model in a dynamic world!
Innovation gives companies an opportunity to
reduce costs & revolutionize the industrystructure. Hence the industry undergoes a
transition, when the theories are not applicable.
Convergence of PEST Factors
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P1 E
P2
S1 T S2
System 1 System 2
Why are E & T factors becoming common?
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SESSION SUMMARY
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Following concepts have been covered
during this session
Macro & Competitive environment PEST &
5F theories; their limitations
Elements of 5 Forces Supplier Power,
Bargaining power of suppliers, Threat ofsubstitute product, entry and exit barriers,
Fragmented and consolidated Industrial
Structure
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4. INTERNAL ANALYSIS
V G S Mani
Centre for Engg. Management
SESSION OBJECTIVES
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In this session, participants are taught the
following concepts
Analyzing the internal organization
Structures and Systems, Structural Changes
Control Systems
Culture, Style & Value
Skills & Resources
Resources Capability
ANALYZING THE INTERNAL
ORGANISATION
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Structure and systems
Culture, style
and values
Skills andresources
ORGANISATION
STRATEGY
ANALYSING THE INTERNAL
ORGANISATION
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ORGANISATION
The strategy of a firm is influenced and constrainedby the existing;
Awareness of these is essential to develop aninsight into the reality of our organisation and thushow we ought to look in the future.
StructureCulture
Values
Resources
STRUCTURE AND SYSTEMS
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Structure refers to the way in which a
company is organised in terms of
Authority
Communication
Work flow
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FUNCTIONAL STRUCTURE
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Manufacturing FinanceEngineeringSales and
Marketing
ManagingDirector
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MATRIX STRUCTURE
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Manufacturing
Sales
Etc
Product /
Centre A
Product /
Centre B
Product /
Centre C
Customer
MATRIX STRUCTURE
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A matrix is a system that indicates not only
a multiple reporting structure, but also
aligned processes and an associatedorganisational culture and behaviour
pattern.
Focus on optimising customer relationships
Communication happens both vertically
and horizontally
Intersections mean dedicated functional
resources to product / centre
Better focus on product for customer
EMERGING STRUCTURES
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Communication problems
Conflicting priotitiesLack of co-ordination
Functional
Little specialisation
Emergance of specialistsFunctional goals not linked
Expansion
Functional Expansion
EMERGINGSTRUCTURES
CO-ORDINATIONACROSS THEORGANISATION
ACHIEVING CO-ORDINATION
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Create
small
units
Formalise
roles
in a matrix
structure
Co-ordinate
activities
across
functions
Co-ordination
across the
organisation
STRUCTURAL CHANGE
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Generalmanagement
avoidance
Consequence
Uncertainty
Anxiety
Resentment
Confusion
Retain histor icalstructures
Reorganisationdelayed
STRUCTURAL CHANGE
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Systems hinderstrategic
implementation
Management
approval
Job
descriptions
Used
defensively
Avoidance of
new problems
Avoid taking
responsibility
Uncomfortable
in using init iative
CONTROL SYSTEMS
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Do the control
systems measurewhat is important ?
Do they measure only
the things you can count ?
Do they identify
staff priorities ?
Is action identified tomeet the required level
of performance ?
CULTURE, STYLE AND VALUES
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Culture is the pattern of beliefs,expectations and values shared by the
organisations employees Norms of behaviour will emerge, to which
managerial hierarchy and the employees
will follow Shared values and expectations will
establish the degrees of individual
Responsibility Initiative
Innovation
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CULTURE, STYLE AND VALUES
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Strategy making process influenced
by management views
Customers, reported performance,
ex-employees, other managers,
industry rumours
Competition are formally rubbishedCollective inferiority complex
OBJECTIVE INFORMATION
IGNORED OR DOWNGRADED IFIT DOES NOT FIT THE
PREVAILING VIEW OF
THE WORLD
CULTURE, STYLE AND VALUES
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There is safety
in being big
Views that keep the
company doing what ithas done in the past, and
is doing now
Loyalty brings
promotion
Managers know
what they are
doing
We are trained to
avoid risks atall costs
CULTURE, STYLE AND VALUES
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Where Management is harmful to good
decision making
Believed wrong or bad form to criticiseManagement
Doubters are seen as not being Team
Players
Plain fear can prevent people from
speaking their minds
This predominant management style gets reinforced where
Companys generally promote from within
CULTURE, STYLE AND VALUES
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Country club management
Attention to needs ofpeople, friendly atmosphere
Team management
People commitment leadingto trust and respect
Middle of the road management
Balancing necessity to get workout and maintaining morale
Impoverished managementExertion of minimum effort to
get required work done
Authority-ComplianceMinimum interference
through procedures
Low
High
High
Low
Concernforpeople
Concern for production1 2 3 4 5 6 7 8
1
2
3
4
5
6
7
8
CULTURE, STYLE AND VALUES
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Gives group
freedom to
define
problem &decide
Presents
problem &
boundaries
groupdecides
Presents
problem
asks for
ideas &decides
Consults
group &
decides
Announces
decisions
& permits
questions
Sells to
group
Tells
Use of authorityby leader
Area of freedom
Fast Slow
Autocratic Democratic
AUTOCRATIC STYLE
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Production-oriented leadership
Effective when
-time is limited
- individuals/group lack
skill and knowledge
-group does not knoweach other
Ineffective when
-members have a certain degree of
skills-knowledge
-group wants an element of
spontaneity in their work
-developing a strong sense of team is
the goal
DEMOCRATIC STYLE
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Employee-oriented leadership
Effective when
-time is available-group is well motivated
-a sense of team exists
-there is some degree ofskills or knowledge among
the members of the group
Ineffective when
-group is unmotivated
-no skills or knowledge is in members-high degree of conflict is present
CULTURE, STYLE AND VALUES
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Even when you believe democratic to be
the correct style, pressure exists from
Colleagues
you would be considered as weak
Bosses
youre not in control
Staffwe dont know how to respond to this
unfamiliar approach
SKILLS AND RESOURCES
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Resources are those assets that form the
input for the production of an organisations
goods and services. Personnel and managerial expertise
Financial assets
Physical plant and facilities
RESOURCE CAPABILITY
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Value Chain AnalysisResource audit
Measures of resource utilisation (effectiveness and efficiency)
Measure of resource control
Value Chain AnalysisResource audit
Measures of resource utilisation (effectiveness and efficiency)
Measure of resource control
Drawing ComparisonsHistorical analysis
Industry norms
Experience curve
Drawing ComparisonsHistorical analysisIndustry norms
Experience curve
Assessing BalanceProduct portfolio analysis
Skills analysis
Flexibility analysis
Assessing BalanceProduct portfolio analysisSkills analysis
Flexibility analysis
Identification of Key IssuesStrengths and weaknesses analysis
Distinctive competence
Identification of Key IssuesStrengths and weaknesses analysis
Distinctive competence
SKILLS AND RESOURCES
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ORGANISATION
Functional
audit
Organisational
capabilityaudit
Inability to meet customer needs
Distinctive competence
=
Competitive advantage
SKILLS AND RESOURCES
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Distinctive
competence;
Audit
considerations
Economies of scale
Learning and experience
Response timeLinkages
SKILLS AND RESOURCES
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Economies of
scale
Learning and
experience
Linkages Response
time
Can accrue in
production,
purchasing and
distribution.
Need to assess
where
competitors are
exploiting scale
economies more
effectively.
Do we
communicate
ideas and
suggestions
effectively? Do
we thoroughly
document
changes and
improvement?
Cost and
performance of
one activity is
often affected
by how other
activities are
performed. Eg
Higher quality
components can
reduce
production
costs.
How rapidly can
we respond to an
order? How long
does it take us to
develop a new
product? How
soon can we
deliver?
Critical in
creating
competitiveadvantage.
SKILLS AND RESOURCES
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Production R&D Marketing Finance Personnel
Is themanufacturing
process meeting
current
competition?
Is it flexible tomeet future
competition?
Is the plant and
equipment
appropriate?
Does it embody
the latest
technology?
Are R&D effortswell planned,
directed and
controlled?
Is the R&D effort
based oncustomer needs
as revealed by
market research?
Have enough new
products been
generated by the
R&D process?
What is the extentof the marketing
effort?
To what degree is
the firm
marketingoriented?
How capable is
the marketing in
identifying new
opportunities?
What is thefinancial standing
of the company
and what is the
quality of
financialmanagement?
Is the company
investing to
create
competitive
advantage?
Does thecompany have
the right people
with the right
skills in the right
place?Does the firm
offer competitive
rates of pay and
conditions of
employment?
Is the workforce
informed about
company
developments?
Internal Functional Areas Audit
SKILLS AND RESOURCES
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EFFECTIVE
Doing the
right
thing
Deployed
in the
best way
EFFICIENT
Doing the
thing
right
Utilised
in the
best way
RESOURCES
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5. STRATEGY DEVELOPMENT
V G S Mani
Centre for Engg. Management
SESSION OBJECTIVES
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In this session, participants are taught the
following concepts
Combining External & Internal Analysis
Developing SWOT / TWOS matrix
Types of Strategies Growth, Stability and
Retrenchment Strategies
Generic Strategy and associated risks
Product Life Cycles
Product Portfolio BCG Matrix
COMBINING THE INTERNAL AND
EXTERNAL ANALYSIS
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Strategy should arise from matching
company strengths to environmental
opportunities, while combating threats andremoving its weak links
STRENGTHS WEAKNESSES
THREATS OPPORTUNITIES
SWOT Analysis
SWOT ANALYSIS
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Many product lines
Broad market coverage
Manufacturing competence
Good marketing skillsGood materials management systems
R&D skills
Information system competences
Brand name reputationPortfolio management skills
Cost or differentiation advantage
New venture management expertise
Appropriate management styleAppropriate organisational structure
Appropriate control systems
Ability to manage strategic change
Well developed corporate strategyGood financial management
SWOT ANALYSIS
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Obsolete, narrow product lines
Rising manufacturing costs
Decline in R&D innovations
Poor marketing planPoor materials management systems
Loss of customer goodwill
Inadequate information systems
Inadequate human resourcesLoss of brand name capital
Growth without direction
Bad portfolio management
Loss of corporate directionInfighting amongst divisions
Loss of corporate control
Inappropriate organisational structure / control
High conflict and politicsPoor financial management
SWOT ANALYSIS
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Expand core business
Exploit new market segments
Widen product range
Extend cost of differentiation advantage
Diversity into new growth businesses
Expand into foreign markets
Apply R&D skills in new areas
Enter new related businessesEnlarge corporate portfolio
Reduce rivalry among competitors
Make profitable new acquisitions
Apply brand name capital in new areasSeek fast market growth
SWOT ANALYSIS
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Attack on core business
Increases in domestic competition
Increases in foreign competition
Change in consumer tastes
Entry barriers
Rise in new or substitute products
Increase in industrial rivalry
New forms of industry competitionPotential for takeover
Existence of corporate raiders
Changes in demographic factors
Changes in economic factorsDownturn in economy
Rising production costs
Slower market growth
SWOT/ TOWS MATRIX
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Strength Weakness
Opportunities S-O Strategies W-O Strategies
Threats S-T Strategies W-T Strategies
SWOT/ TOWS MATRIX
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S-O Strategies pursue opportunities that are
a good fit to companys strengths
W-O Strategies overcome weakness topursue opportunities
S-T Strategies identify the ways that thefirm can use its strengths to reduce its
vulnerability to external threats
W-T Strategies establish a defensive plan toprevent the firms weaknesses from making
it highly susceptible to external threats
IDENTIFYING AND SELECTING
STRATEGY
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An organisations strategy describes its
method for achieving strategic objectives
Corporate strategy alternatives can beclassified as being concerned with
Growth
Stability
Retrenchment
GROWTH VECTOR MATRIX
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Product
MarketPresent New
Present MarketPenetration
ProductDevelopment
NewMarket
DevelopmentDiversification
GROWTH STRATEGIES
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Area How Risk FactorsMarket penetration
Existing markets Winning a larger share with existing Low No investment
Existing products products/taking competitors business in new products
Market developmentNew markets When existing markets offer few High Little knowledge of
Existing products prospects in growth/overcome loyalty market characteristics
Product developmentExisting markets When there is low brand loyalty and/ Low Market knowledge
New products or short product life cycles High New product development
DiversificationNew markets Development beyond present markets High Unknown market and
New products and products; product influences
- related, there is existing connections
- unrelated (conglomerate), outsidethe scope of its existing operations
INTEGRATION STRATEGIES
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Integration strategies are usually considered
as part of related diversification
Backward integration
Control over inputs to its
existing business
Forward integration
Control over distributors
or retailers of its existing
products or services
Horizontal integration
Control over competitors
in the same business
GROWTH STRATEGIES
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ORGANIC
Culture Fast rate
GrowthType
Lowrisk
Immediatemarket
Job
creation
Working
business
ACQUISITION
Growth Strategies
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Horizontal Integration
Horizontal Diversification
Unrelated Diversification
Vertical (Forward/ Backward) Integration
Mergers Strategic Alliances (Partnerships)
STABILITY STRATEGIES
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Holding strategy Company
continues atpresent rate of
development
Retains market
share Growth if the
market grows
Continuation of
functional
strategies
Harvesting
strategy
Dominant marketshare
Cost cutting and/or
price increases to
generate cash forfuture business
expansion
Retrenchment Strategies
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Retrenchment Strategies
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Liquidation Divestment Turnaround
- Withdraw from
a decliningmarket
- Reinvest
resources in newmarket areas
- Selling off a
business unit- Threats
towards the
present position- Conglomerates
shrink back to
their core
business
- Business is
failing andapproaching
bankruptcy
- Part of thesolution being
the liquidation
of assets and/or
divestment
Appropriate to reduce overall scale of an operation, or
withdraw commitment to a particular market
BUSINESS STRATEGIES
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How a Business Unit can most effectively
compete
Results expected Resources required
Adopting a competitive position
Defending itself against the five forces in
the industry environment
GENERIC BUSINESS STRATEGIES
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DIFFERENTIATION
- Unique feature- Charge at premium price
OVERALL COST
LEADERSHIP
- Avoid marginal accounts
- Maximise cost reduction
- Efficient scale facilities
STRATEGIC ADVANTAGE
STRATEGICT
ARGET
Uniqueness perceived
by the customer Low cost position
FOCUS
Industry
wide
Particular
segmentonly - Selects a segment/group in the market place
- These are served to the exclusion of all others
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Competitive Advantage
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Cost Leadership -Toyota
Differentiation General Motors
Cost Focus - Hyundai Differentiation
Focus BMW,Mercedes
Low Cost Differentiation
Broad
Target
NarrowTarget
Competitive
Scope
Competitive Advantage
COMPETENCE CHOICES AND
GENERIC STRATEGIES
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Low (principally
by price)
High(principally by
uniqueness)
Low to High(price or
uniqueness)
Low (mass
market)
High (manymarket
segments)
Low (one or a
few segments)
Manufacturing
and materials
management
R&D
Sales and
marketing
Any kind
Cost Differentiation Focus
leadership
D
istinctive
Market
Product
C
ompetencesegmentation
differentiation
GENERIC STRATEGY RISKS
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Cost Leadership
- Loss of customer focus
- There can only be one cost leader
- Low cost positions can be copied
Differentiation
- Easily imitated
- Specialists targeting one segment
- Costs of differentiating
Focus
- Target segment may disappear
- Price attack
- Excessive unit costs
THE PRODUCT LIFE CYCLE
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It is important that companies are aware of
the stage in the product life cycle that their
various products and services are at; Provides an indication of the most appropriate
competitive and marketing strategies
Important determinant of profitability
Highlights the need for new products or
services
It is not predictive but increases awareness
and can indicate the need for change
THE LIFE CYCLE MODEL
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Development Growth Shakeout Maturity Decline
Few: trial of
early adopters
Few competitors
Growing
adopters: trial ofproduct
Entry of
competitors
Attempt toachieve trial
Fight for share
Undifferentiated
products
Growing
selectivity ofpurchase
May be many
Likely price
cutting forvolume
Shake-out of
weakest
competitors
Saturation of
usersRepeat purchase
reliance
Fight to
maintain share
Difficulties ingaining/taking
share
Emphasis on
efficiency / lowcost
Drop-off in
usage
Exit of some
competitors
Selective
distributionCompetitive
conditions
Users/
Buye
rs
Salesde
mand/
Competition
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THE PRODUCT LIFE CYCLE
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The length of the life cycle is decreasing for an
increasing number of products
Technological changes in materials and processesChanging tastes of customers
Competitive activity aimed at increasing market share in
order to gain greater benefit from the experience effect
In evaluating product/service significance
Evaluate the current position
Establish future priorities and needs
Evaluate future potential opportunities
PRODUCT STRATEGIES
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Introduction Growth Saturation Future
Pioneering:
Organisations who
pioneer need defence
ie patent, cost
advantage or
differentiation.
Choice is in pricinghigh or low and the
profitability effect.
Imitation:
Large numbers of
products fail in thedevelopment stage.
Stepping in after a
competitor has
stimulated early can
prove successful.
Growth strategies
require that new users
and new uses are
found for the product,
or that existing users
are persuaded to
increase theirconsumption. These
strategies are
necessary during the
growth phase and for
extending the life-cycle once growth
slows down
Once demand for a
product has reached
saturation stage the
appropriate strategy is
to milk it by reducing
expenditure on
development and
promotion and using
the profits to fund the
development of
replacements.
Expenditure on
research and
development should
be aimed at having
new replacement
products available at
the appropriate time.
This requires constant
awareness of
competitor activity
and changes in
consumer tastes andinsight into the new
technological
opportunities which
might be available.
THE GROWTH SHARE MATRIX
(THE BOSTON MATRIX)
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Star business Wildcat business
Cash generating business Dog business
HIGH
LOW
HIGH LOWMarketShare
Market
Growth
Movements
of cash
Movements
of business
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SESSION SUMMARY
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Following concepts have been covered
during this session
Macro & Competitive environment PEST &5F theories; their limitations
Elements of 5 Forces Supplier Power,
Bargaining power of suppliers, Threat ofsubstitute product, entry and exit barriers,
Fragmented and consolidated Industrial
Structure
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6. CHANGE MANAGEMENT
V G S Mani
Centre for Engg. Management
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STRATEGY IMPLEMENTATION
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Functional
policies
Organisational
factors
Guidance for decision making
In terms of functional activities
Link formulation with implementation
Structure
Leadership styleMotivation & needs
MOTIVATION AND NEEDS
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Motivators
Achievement
Recognition
The work itself
Responsibility
Advancement
Hygiene factors
Company policy
Administration
Supervision
Salary
Interpersonal
relations
Working conditions
MOTIVATION AND NEEDS
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Need to challenge and develop leading
to capability
Recognition of good performance andthe development of status through
recognition
A requirement for belonging,
acceptance and affiliation
A need for a safe working environment,
job security and other negotiatedbenefits
The need for a basic living salary and
the workspace in which to operate
Self actualisation
Esteem needs
Social needs
Safety needs
Physiological needs Maslows hierarch of needs
MOTIVATIONAL FACTORS
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50% 40% 30% 20% 10% 0% 10% 20% 30% 40% 50%
Recognition
Achievement
Work itself
Responsibility
Advancement
Company policy and administration
Technical quality of supervision
Salary / Wage
Relationship with supervisor
Working conditions
Satisfiersor
Motivators
Dissatisfiers
Or
Hygiene Factors
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CHANGE PHASES
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Chal lenge
peo ple toal ign theirpurpose
Understand
currentsituationIm
plem
ent&
track
results
Enlistothers,
developmass
De
velo
pa
chang
eplan
CHANGE RELATIONSHIP
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Bottleneck Strategic
Non-critical Leverage
HIGH
LOW
LOW HIGH
Difficulty of managing
Strategic importance
FORCE FIELD ANALYSIS
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Pushing
Forces
Resisting
Forces
Present Situation
FORCE FIELD ANALYSIS
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Pushing
Forces
Resisting
Forces
Present Situation
Poor warehousing
Inadequate documentation
Shopfloor attitudes
Low quality reputation
Poor internal
relationships
Customer pressure
Good training programmes
Modern machinery
Proactive management
Motivated supervision
Change Management
Elements of Change Management Result
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VISION SKILLS INCENTIVE RESOURCES ACTIONPLANS
Good
Change
ManagementNotpresent SKILLS INCENTIVE RESOURCES ACTION
PLANS
Confusion
VISION Notpresent INCENTIVE RESOURCES ACTIONPLANS
Anxiety
VISION SKILLS Notpresent RESOURCES ACTIONPLANS
Gradual
Change
VISION SKILLS INCENTIVE Notpresent ACTIONPLANS
Frustration
VISION SKILLS INCENTIVE RESOURCES Notpresent False Starts
When all the 5 elements are fully deployed, there is a successful change management
Elements of Change Management Result
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CHANGE MANAGEMENT PROCESS
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- help people discover
the part they will play
- verify that policies,
procedures and
priorities are consistent
- model desiredattitudes and
behaviours
- reward people for
successfully changing
- dont push for
certainty or closure to
quickly
- encourage
experimentation and
dont punish failure
- step back and reflect
- solicit upward
feedback
- set short range goals
- clarify the necessity
of ending
- identify and
acknowledge losses
- compensate people
for losses
Beginning
Neutral ZoneEnding
STRATEGIC CHANGE ELEMENTS
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SimplificationELEMENTS
Integration
Automation
CommunicationReorganisation
Reexamination
Adaption
STRATEGIC CHANGE APPROACH
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Understand and
measure existingprocesses
Design and build aprototype of the
process
Identify processesto be redesigned
Identify IT levers
Develop business
vision and processobjectives
PROCESS INTEGRITY COMPONENTS
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Review of disasterrecovery requirements
Security policies andprocedures
Problem management procedures Change control procedures
Batch scheduling
procedures
Report distribution
procedures
Operations
procedures
Review of the general control environment
INTEGRITY COMPONENTS
SHARED VALUES
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Top Management
Company Employees
Where to go
How to get there
PRINCIPLES OF COLLABORATIVE
RELATIONSHIPS
Beha io r Attit des
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Collaborative
Partnering
Behaviour Attitudes
Measurements Processes Time
Extended guaranteed life
Single sourcing
High switching costs
Infrequent re-sourcing
Transaction history
Shared design
Open info exchange
Hands onLearning organisation
Team based
Supplier investment
Multi dimensional
Relationship positioning
Self regulationTotal acquisition cost
Process measurement
People involvement
Devolved authority
Covert powerDifferentiated suppliers
Pro-active innovation
Prevention driven
Mutual respect
Committed
Open and sharingTrusting
Focus on group gain
RISK SIGNIFICANCE
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HIGHMEDIUMLOW
PROBABILITY OF
OCCURENCE
LOW
MEDIUM
HIGH
LEVEL
OF
IMPACT
Minor
Significant
Critical
Significant
Critical
Fatal
Critical
Fatal
Fatal
THE COPING CYCLE
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Denial Defence Discarding Adaptation Acceptance
Performance
Self-esteem
UNFREEZE CHANGE FREEZE
EMPLOYEE RESISTANCE
R i b d b
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Resistance can be caused by;
Danger of losing job security
Loss of power
Skill or knowledge requirement Scepticism about results
Functional units interests
Resistance of customers
COLLABORATIVE DECISION MAKING
Separate the PEOPLE from the problem
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Sepa ate t e O o t e p ob e
Invent OPTIONS
for mutual gain
Apply OBJECTIVE
criteria
Consider
ALTERNATIVES
Develop an
AGREEMENT
Focus on INTERESTSbehind positions
REFLECT
on what you
have learnt
COLLABORATIVE DECISION MAKING
Separate the PEOPLE from the problem
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Separate the PEOPLE from the problem Soft on the people, hard on the problem
Put yourself in their shoes Listen before you talk
Involve them from the start
Help them save face Dont blame
Focus on INTERESTS
3 kinds: Shared, Opposed, DifferentAsk why? Why not?
Assert your interests not your position
Formulate shared objectives
COLLABORATIVE DECISION MAKING
I t OPTIONS
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Invent OPTIONS
Invent before you judge
Invent a wide range of options Leverage differences: Different interests,
time value of money, forecasts
Apply OBJECTIVE criteria Criteria: External standards of efficiency
and fairness for deciding among options
Examples: Market value, costs, core
values, efficiency, corporate principles
COLLABORATIVE DECISION MAKING
Consider ALTERNATIVES to agreement
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Consider ALTERNATIVES to agreement What will you do if you dont reach
agreement
Review the costs to you and to them
Develop an AGREEMENT
Aim for a higher level solutionAre there other possibilities?
REFLECT on what you have learnt
What worked / didnt work What would you do differently
Ways to improve agreement
What skills should you work on
EMPOWERMENT
Empowerment is a PROCESS by which
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Empowerment is a PROCESSby whichfreedom and control are balanced so that
supervisors and employees are authorised,enabled, held accountable and recognisedfor their contribution.
Empowerment is a sense of PURPOSEwhich motivates people to stretch, beinnovative and fully utilise their potential.
Empowerment is PERFORMANCE inwhich everyone share responsibility forexceeding expectations.
TEN STEPS TO EMPOWERMENT
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Direction
- Alignment/Outcome- Standards
- Resources
Support
- Coaching- Development
Autonomy
- Delegation
- Freedom- Responsibility
Performance
- Evaluation
- Reward/Recognition
MATRIX FORMULA
Top Management
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Top Management
From; To;- unilateral decision making - shared decision making
- short term decision making - longer term strategic decisions- special interest actions - agreed shared priorities
Functional Management
-part focus - whole focus- competitive - collaborative
- owned resources - shared resources
Product Management- short term focus - longer term focus
- weaker structure - stronger structure