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Notes: Strategic Management MBA 2008-09

Notes: Strategic Management MBA 2008-09

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MBA Strategic Management Notes 2008-09
MBA Strategic Management Notes 2008-09

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12/23/2015

SVKM’s NMIMS UNIVERSITY

MBA 2008-09

STRATEGIC MANAGEMENT
Dr AMIT RANGNEKAR

Strategic Management- Dr Amit Rangnekar Topic Strategic Management Sub Topic • Concepts • SM Process • SWOT • Vision, Mission • General Environment • PEST • Industry Environment • Porters 5 Forces • How to analyse industry • Components • Resources, Capabilities, Competence • Competitive Advantage • Value Chain Analysis • Customers, Segments, Markets, • Cost Leadership, Differentiation, Focus, • Dynamics, • Rivalry, • Response • Diversification, • Integration • M&A, Restructuring • • • • • • • • • • • National Advantage Multi-domestic Global Transnational International Entry Modes Strategic Alliances, JV Page No 1

External Environmental Analysis

6

Internal Environmental Analysis

10

Business Level Strategy

15

Competitive Rivalry & Competitive Dynamics Corporate Level Strategy Acquisition & Restructuring Strategies International Strategy

20

23 25 27

Cooperative Strategy Business Tactics Takeover Defense Strategies Strategic Options / Strategic Focus Distinctive Capability Development Goals & Measures

29 36 37 38 39 40

NMIMS 2007-08

Strategic Management

Strategic Management
Objectives- Help understand concepts, tools, processes & applications of strategic management. Provide insights into the business environment, competitive analysis and the practice of strategic management through theory and case studies. Concepts • Strategy- Directing action towards desired outcome • Corporate strategy- business/es you should be in • Business strategy- tactics to beat the competition • Functional strategy- operational methods to implement the tactics • Enterprise strategy- matching internal capabilities with external environment • Strategic Competitiveness- Firm successfully formulates & implements a valuecreating strategy • Strategic Management Process- Full set of commitments, decisions, & actions required for a firm to achieve strategic competitiveness & earn above-average returns • Risk- Investor’s uncertainty of economic gains/ losses resulting from particular investment • Average Returns- Returns equal to investor earnings expectations from other investments with similar amount of risk • Above-average Returns- Returns in excess of what an investor expects to earn from other investments with a similar amount of risk • Strategic flexibility: Capabilities to respond to demands & opportunities in dynamic & uncertain competitive environments Strategic management- Process by which organizations analyze & learn from stakeholders inside & outside the firm, establish strategic direction, create strategies to help achieve established goals & execute strategies to satisfy key organizational stakeholders Strategic Management Process • Study the external and internal environments • Identify marketplace opportunities and threats • Determine how to use core competencies • Use strategic intent to leverage resources, capabilities & core competencies to win competitive battles • Integrate formulation and implementation of strategies • Seek feedback to improve strategies

Dr Amit Rangnekar

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amitrangnekar@gmail.com

NMIMS 2007-08

Strategic Management

Current Competitive Landscape • Perilous business world, global operations, M&A abound, hyper competition • Pricing pressures, constant technology change & innovation, huge investments • Emerging markets, growing importance of services, changing demographics • Globalisation, outsourcing, geography is history, regulatory threats Global Economy • Global Economy- Goods, people, skills & ideas move freely across borders • Globalization- "Producing where it is most cost effective, sourcing capital from where it's cheapest and selling it where it is most profitable" Narayana Murthy • Increased economic interdependence among countries- flow of goods & services, finance & knowledge across country borders leading to increased opportunities • Technology- Technology change, perpetual / disruptive innovation, design • Information- Converting information to knowledge, competitive advantage Industry- strong influence on the firm’s performance, properties include • economies of scale • barriers to market entry • diversification • product differentiation • degree of concentration of firms in the industry

Dr Amit Rangnekar

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amitrangnekar@gmail.com

NMIMS 2007-08

Strategic Management

SWOT Analysis- Used to assess a new business venture or proposition. Quadrants contain criteria (not exhaustive or exclusive) used to analyse either SWOT Strengths (Internal) USP's, capabilities, competitive advantage, resources, experience, knowledge, data, financials, marketing, reach, communication, service, innovation, location, geography, price, value, quality, accreditations, processes, systems, IT, culture, values, behaviour, management, reputation, legacy Opportunities (External) Market / business / product developments, industry potential, competitors' vulnerabilities, industry, demographics or lifestyle trends, technology, innovation, global influences, new markets, industry verticals / horizontals, niches, geographies, surprise, new contracts, information and research, partnerships, distribution, volumes, production, economies, season, influences Weaknesses (Internal) Disadvantages of proposition, capabilities gaps, lack of presence & strength, lack of reputation, presence and reach, financials, own known vulnerabilities, timescales, deadlines and pressures, supply chain, morale, commitment, leadership, processes & systems, management, attrition Threats (External) PEST, competitive intentions, market demand, contracts and partners, sustaining capacities, finances & capabilities, obstacles, insurmountable weaknesses, industry cycles, seasonality

Vision & Mission- To energize employees to work towards corporate goals, visions & missions. Should be internalised by executives & constantly communicated to employees. Many companies use vision & mission statements only in annual report or reception.. Vision • A short, succinct, and inspiring statement of what an organization intends to become and achieve, in the future, often stated in competitive terms • Refers to the category of broad, all-intrusive and forward-thinking intentions • Image of a business goal before the organization sets out to reach them • Describes future aspirations, without specifying the means used to achieve them Mission Statement • An organization's vision translated into a written form • Concretises a leader's view of the direction and purpose of the organization • Vital element for corporate leaders to motivate employees & instill sense of priority Setting Goals • Major outcome of strategic road-mapping and strategic planning, based on the vision and mission statement • Long-range, specific and realistic goals set through strategic planning, translated into activities that will ensure reaching the goal through operational planning. Dr Amit Rangnekar 3 amitrangnekar@gmail.com

NMIMS 2007-08

Strategic Management

Industrial Organisation (I/O) model of above average returns External environment imposes pressures & constraints that determine strategies leading to above-average returns Area The external environment Attractive industry Strategy formulation Assets & skills Strategy implementation Superior returns Activity Study Locate Identify Develop or acquire Use Earn Action General , industry, competitor Structural characteristics suggest above average returns Strategy to earn above average returns To implement chosen strategy Effective implementation Earn above average returns

Resource-Based Model of Above-Average Returns Assumes that the organization is a collection of unique resources & capabilities, which provide the basis for its strategy, which is the primary source of its returns Area Resources Firm’s capabilities Competitive advantage Attractive industry Strategy Superior returns Activity Identify Determine Potential of Locate Select Earn Action Inputs in a firms production process Integrated set of resources required to perform, in an integrative manner Ability to outperform rivals To exploit opportunities To earn above average return Earn above average returns

Resources and Capabilities (R&C) Resources- Inputs into a firm’s production process- Capital equipment, employee skills, patents, finances, talent Capabilities- Capacity of a set of resources required to perform, in an integrative manner. A capability should not be highly imitable but should be manageable and controllable Key Criteria of Resources and Capabilities • Valuable- R&C are valuable when they allow a firm to take advantage of opportunities or neutralize threats in external environment • Rare- R&C are rare if possessed by few, if any, current and potential competitors • Costly to Imitate- R&C are costly to imitate when other firms either cannot obtain them or are at a cost disadvantage in obtaining them • Nonsubstitutable- R&C are nonsubstitutable when they have no structural equivalents Core Competencies When the 4 key criteria of R&C are met, they become core competencies, and serve as a source of competitive advantage. Managerial competencies are especially important

Dr Amit Rangnekar

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amitrangnekar@gmail.com

NMIMS 2007-08

Strategic Management

Strategic Intent • Company's vision of what it wants to achieve in the long term • Must convey a significant stretch for the company, a sense of direction, discovery, and opportunity that can be communicated as worthwhile to employees • Should focus so on tomorrow's opportunities than on today's problems Strategic Mission • Statement of firm’s unique purpose • Describes scope of operations in product & market terms • Externally focused, inspiring and relevant to all stakeholders Stakeholders Individuals and groups affected by the firm’s performance and who have claims on it’s performance. Stakeholder Groups Capital Market Stakeholders • Shareholders, banks & lenders expect firm to enhance the wealth entrusted • Returns should be commensurate with the degree of risk to the shareholder Product Market Stakeholders • Customers- Demand reliable products at low prices • Suppliers- Seek loyal customers willing to pay highest prices for goods and services • Host communities- Want companies willing to be long-term employers and providers of tax revenues while minimizing demands on public support services • Union officials- Want secure jobs and desirable working conditions Organizational Stakeholders • Employees & managers- Expect a stimulating and rewarding work environment, satisfied by a company that grows and actively develops their skills Strategic Leaders People responsible for the design and execution of strategic management processes (Top management). They will decide how resources will be developed or acquired, at what price resources will be obtained, and how resources will be used Organizational Culture The complex set of ideologies, symbols and core values, shared throughout the firm, that influence how the firm conducts business

Dr Amit Rangnekar

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amitrangnekar@gmail.com

NMIMS 2007-08

Strategic Management

External Environmental Analysis
Components of the External Environmental Analysis Identifying early signals of environmental changes & trends Scanning Monitoring Analysing and observing environmental changes & trends Forecasting Developing projections of anticipated outcomes Determining environmental trends for firms’ strategic management Assessing The external business environment may be divided into 2 sectors: Broad & task Broad Environment- forms the context within which the firm and its task environment exist. Consists of domestic and global forces • political trends (e.g. open markets) • economic trends (e.g. growing economy) • socio-cultural trends (e.g. demographics) • technological trends (e.g. internet) Task Environment- The task environment consists of external stakeholders- groups or individuals outside the organization that are significantly influenced by or have a major impact on the organization, like: • Customers • Suppliers • Competitors General environment (PEST- DG)

Dimensions in the broader society that influence industry and the firms within it

Dr Amit Rangnekar

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NMIMS 2007-08

Strategic Management

PEST analysis Quadrants below contain criteria (not exhaustive or exclusive) used to analyse either PEST Political Economic Ecological/environmental issues Domestic / International economy Legislations / regulatory / policy Taxes, levies, FDI, interests Government term and change Stock markets and exchange rates Funding, grants and initiatives Seasonality/weather issues Lobbies / pressure groups Market and trade cycles Wars and conflict Industry Specific factors Social Technological Lifestyle trends Competing & emerging technologies Demographics R&D Psychographics Technology/solutions maturity Consumer attitudes and opinions Manufacturing costs / capacity Law changes affecting social factors Information and communication Consumption & buying patterns Innovation Events and influences Licensing, patents, IPR issues Ethnic / ethical / religious factors Disruptive innovation Industry Environment Analysis 5 Forces of competition (Porter) 1) Threat of New Entrants: Entry Barriers • Economies of scale- Marginal efficiency improvements, firm experiences as it incrementally increases its size. Advantages and disadvantages of large-scale and small-scale entry • Product differentiation- Unique products, Customer loyalty, competitive prices • Capital requirements- Physical facilities, Inventories, Marketing activities, Availability of capital • Switching Costs-One-time costs customers incur when buying from different supplier. Costs of new equipment or retraining employees Access to Distribution Channels- Stocking or shelf space, price breaks, cooperative advertising allowances Cost Disadvantages- Independent of Scale- proprietary product technology, favorable access to raw materials, desirable locations Government policy- Licensing and permit requirements, deregulation of industries

• • •

Dr Amit Rangnekar

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NMIMS 2007-08

Strategic Management

Expected retaliation- Responses by existing competitors may depend on a firm’s present stake in the industry (available business options) 2) Bargaining Power of Suppliers • Supplier power increases when: • Suppliers are large and few in number • Suitable substitute products are not available • Individual buyers are not large customers of suppliers and there are many of them • Suppliers’ goods are critical to buyers’ marketplace success • Suppliers’ products create high switching costs. • Suppliers pose a threat to integrate forward into buyers’ industry 3) Bargaining Power of Buyers • Buyer power increase when: • Buyers are large and few in number • Buyers purchase a large portion of an industry’s total output • Buyers’ purchases are a significant portion of a supplier’s annual revenues • Buyers can switch to another product without incurring high switching costs • Buyers pose threat to integrate backward into the sellers’ industry 4) Threat of Substitute Products • The threat of substitute products increases when: • Buyers face few switching costs • The substitute product’s price is lower • Substitute product’s quality and performance are equal to or greater than the existing product • Differentiated industry products, valued by customers, reduce this threat 5) Intensity of Rivalry Among Competitors • Industry rivalry increases when: • There are numerous or equally balanced competitors • Industry growth slows or declines • There are high fixed costs or high storage costs • There is a lack of differentiation opportunities or low switching costs • When the strategic stakes are high • When high exit barriers prevent competitors from leaving the industry Unattractive industry (Low profit potential) Low entry barriers Suppliers and buyers have strong positions Strong threats from substitute products Intense rivalry among competitors Attractive industry (High profit potential) High entry barriers Suppliers and buyers have weak positions Few threats from substitute products Moderate rivalry among competitors

Dr Amit Rangnekar

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amitrangnekar@gmail.com

NMIMS 2007-08

Strategic Management

How to analyse Industry - (Michael Porter, HBR-Jan, 2008) • Good industry analysis looks at average profitability over a period • 3-5 year period can distinguish temporary/ cyclical changes from structural changes • Industry analysis should not declare an industry attractive or unattractive but help understand the underpinnings of competition and the root causes of profitability • Analyse industry structure quantitatively, than qualitatively with lists of factors • Quantify the 5 forces: %age of buyer's total cost accounted for by industry's product (to understand buyer price sensitivity); %age of industry sales required to fill a plant or operate logistical network of efficient scale (to assess barriers to entry); buyer's switching cost (to determine inducement an entrant or rival must offer customers). • Define relevant industry: Products, exclusive/ indirect industry, scope, competition • Identify & segment participants- buyers, suppliers, competitors, substitutes & potential entrants • Assess drivers of each competitive force- determine which are strong & weak- Why • Determine overall industry structure & consistency- profitability levels & reasons, controlling factors; are more profitable players better positioned wrt the 5 forces • Analyse future changes (+/-) in each force • Aspects of industry structure, influenced by company, competitors or new entrants Common Pitfalls • Defining industry- too broadly or too narrowly. • Paying equal attention to all forces than focusing on the most important ones. • Confusing effect (price sensitivity) with cause (buyer economics). • Using static analysis that ignores industry trends. • Confusing cyclical or transient changes with true structural changes. • Framework used to declare industry - attractive/ unattractive, than use it for strategic choices Strategic Groups A set of firms emphasizing similar strategic dimensions and using similar strategies Internal competition between strategic group firms is greater than between firms outside that strategic group. More heterogeneity in performance of firms within strategic groups Strategic Dimensions Extent of technological leadership, product quality, pricing policy, distribution channels customer service Competitor Analysis Competitor Intelligence- Gather information & data to understand and better anticipate: • Competitor’s direction (future objectives) • Competitor’s capabilities and intentions (current strategy) • Competitor’s beliefs about the industry (assumptions) • Competitors (capabilities)

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amitrangnekar@gmail.com

NMIMS 2007-08

Strategic Management

The internal environment
Outcomes of internal and external environmental analyses Internal- Firms determine what they can do- unique resources, capabilities & competencies (sustainable competitive advantage) External- Firms determine what they may choose to do Internal Environmental Analysis • Involves analyzing and evaluating internal stakeholders (managers, employees, owners and the BOD) & an organization’s resources and capabilities • Purpose of internal analysis is to determine strengths & opportunities for competitive advantage and weaknesses & organizational vulnerabilities to be corrected Creating Value • By exploiting core competencies or competitive advantages, firms create value • Value is measured by a product’s performance characteristics and its attributes for which customers are willing to pay • Firms create value by innovatively bundling & leveraging their resources & capabilities Components of internal analysis

Conditions affecting decisions wrt resources, capabilities & core competencies • Uncertainty- regarding characteristics of the general and the industry environments, competitor’s actions, and customers preferences • Complexity- regarding interrelated causes shaping a firm’s environment and perception of the environment • Intraorganisational conflicts- among people making decisions and those affected by them

Dr Amit Rangnekar

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amitrangnekar@gmail.com

NMIMS 2007-08

Strategic Management

Resources • Inputs into a firm’s production process- Capital equipment, employee skills, patents, finances, talent • Organization is made up of resources: financial, physical, human, general organizational (structure, systems, culture, reputation, stakeholder relationships • Source of a firm’s capabilities & assets, including people & value of its brand name • Broad in scope, cover a spectrum of individual, social & organizational phenomena • Represent inputs into a firm’s production process, such as: Capital equipment, skills of employees, brand names, financial resources, and talented managers • Tangible - Seen & quantified- financial, physical, production resources • Intangible - Deep roots in firms history- trust, innovation, knowledge, reputation • Effective development or acquisition of organizational resources may be the most important reason that some organizations are more successful than others Capabilities • Capacity of a set of resources to perform, in an integrative manner. Capability should not be highly imitable but should be manageable & controllable • Firm’s capacity to deploy resources, integrated to achieve a desired end state • Emerge over time by complex interactions among tangible & intangible resources • Often based on developing, carrying and exchanging information and knowledge through the firm’s human capital • The foundation of many capabilities lie in unique skills and knowledge of firm’s employees, and functional expertise Function Distribution HR MIS Marketing R&D Management Manufacturing Capability Effective logistics Training / Retaining Effective & efficient inventory control Branding/Promotion/Customer service Innovation/Technology/Sophistication Diverse industries Volumes / Economies Firm ITC, HUL Eureka Forbes / AV Birla Big Bazaar Paras/ Hutch/ Maruti Apple / Gillette / Bose Tata / Reliance/ Videocon Chinese / Nokia

Key Criteria of Resources and Capabilities (R&C) • Valuable- R&C valuable when they allow a firm to take advantage of opportunities or neutralize threats in external environment • Rare- R&C rare if possessed by few, if any, current and potential competitors • Costly to Imitate- R&C costly to imitate when other firms either cannot obtain them or are at a cost disadvantage in obtaining them • Nonsubstitutable- R&C nonsubstitutable when they have no structural equivalents Dr Amit Rangnekar 11 amitrangnekar@gmail.com

NMIMS 2007-08

Strategic Management

Core Competencies When the 4 key criteria of R&C are met, they become core competencies, and serve as a source of competitive advantage. Managerial competencies are especially important • Resources & capabilities that serve as a source of a firm’s competitive advantage: • Activities, a firm performs especially well compared to competitors, and through which the firm adds unique value to its goods or services over a long period of time • Emerge over time through an organizational process of accumulating and learning how to deploy different resources and capabilities Competitive Advantage • Firms achieve strategic competitiveness and earn above-average returns when their core competencies are effectively- acquired, bundled or leveraged • Over time, competitors may duplicate benefits of any value-creating strategy Sustainable Competitive Advantage- when competitors are unable to duplicate firm’s value-creating strategy. Comes from a resource that is valuable in the market, possessed by only a small number of firms (rare), and costly or difficult to imitate in the short term. Four Criteria of Sustainable Competitive Advantage Capabilities Advantage Help a firm neutralize threats or exploit opportunities Valuable Are not possessed by many others Rare Costly to imitate Historical: Unique & valuable organizational culture/ brand Ambiguous cause: Causes & uses of a competence unclear Social complexity: Interpersonal relationships, trust, and friendship Nonsubstitutable No strategic equivalent Creating competitive advantage • Core competencies, in combination with product-market positions, are the firm’s most important sources of competitive advantage • Core competencies of a firm, in addition to its analysis of its general, industry, and competitor environments, should drive its selection of strategies Outcomes of combinations of criteria of Sustainable Competitive Advantage
Capability valuable No Yes Yes Capability Rare No No Yes Capability costly to imitate No No No Capability Nonsubstitutable No Yes/No Yes/No Competitive consequences Competitive disadvantage Competitive parity Temporary competitive advantage Sustainable competitive advantage Performance implications Below average returns Average returns Average to above-average returns Above-average returns

Yes

Yes

Yes

Yes

Dr Amit Rangnekar

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amitrangnekar@gmail.com

NMIMS 2007-08

Strategic Management

Value Chain Analysis: Template that allows firm to understand parts of its operations that create value & those that do not • Understand their cost position • Identify means to facilitate implementation of a chosen business-level strategy • Primary activities involved with: A product’s physical creation, a product’s sale and distribution to buyers, the product’s service after the sale • Support activities- provide support necessary for primary activities to take place • Shows how a product moves from raw-material stage to the final customer • To be a source of competitive advantage, a resource or capability must allow the firm: To perform an activity in a manner superior to the way competitors perform it, or to perform a value-creating activity that competitors cannot complete The Value-Creating Potential of Primary Activities • Inbound logistics- Store & disseminate inputs (materials, inventory) • Operations- Convert inputs from inbound logistics to final product form (machining, packaging, assembly, etc.) • Outbound logistics- Collecting, storing & physically distributing product to customers (goods warehousing, order processing) • Marketing and sales- Providing means and inducing customers to purchase products (advertising, promotion, distribution channels, etc.) • Service- Enhancing or maintain a product’s value (repair, training, adjustment) • Procurement- inputs to produce firm’s products (raw materials & supplies) • Technological developmentImproving firm’s product & processes in manufacturing (process equipment, basic research, product design, etc) • HR management- Recruiting, training and compensating personnel • Firm infrastructure- Supporting the work of the entire value chain (management, planning, finance, accounting, legal, government relations, etc.) • Effectively and consistently identify external opportunities and threats • Identify resources and capabilities, support core competencies Examine each activity wrt competitors’ abilities & rate as superior, equivalent or inferior

Dr Amit Rangnekar

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amitrangnekar@gmail.com

NMIMS 2007-08

Strategic Management

The Challenge of Internal Analysis Significantly influence firm’s ability to earn above-average returns To develop and use core competencies, managers must have • Courage, self-confidence, integrity, capacity to deal with uncertainty & complexity • Willingness to hold people (and themselves) accountable for their work Outsourcing- The purchase of a value-creating activity from an external supplier • Few organizations possess resources and capabilities required to achieve competitive superiority in all primary and support activities • By focusing on fewer capabilities firm can concentrate on creating value • Specialty suppliers can perform outsourced capabilities more efficiently Outsourcing Rationale Business focus Access to world-class capabilities Accelerate business reengineering benefits Flexibility Outsourcing Issues Outsource to firms possessing core competence of performing primary or supporting outsourced activity Evaluate activities where firm itself can create & capture value Risky to outsource primary & support activities used to neutralize environmental threats Outsource critical capabilities or activities that stimulate development of new capabilities & competencies

Cautions and Reminders • Core competencies will not continue to provide a source of competitive advantage • Core competencies may become core rigidities, generate inertia & stifle innovation • Determining what the firm can do through continuous and effective analyses of its internal environment increase the likelihood of long-term competitive success

Dr Amit Rangnekar

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amitrangnekar@gmail.com

NMIMS 2007-08

Strategic Management

Business level strategy
Integrated & coordinated set of commitments & actions, firm uses to gain competitive advantage by exploiting core competencies in specific product markets • Intended to create differences between firm’s position relative to rivals • Positioning- Decide whether to • Perform activities differently- lower overall costs, cheaper process) or • Perform different (valuable) activitiescapability to differentiate product /service and command premium price Business-Level Strategic Issues Customers are the foundation of successful business-level strategy • Who will be served by the strategy? • What needs those target customers have that the strategy will satisfy? • How those needs will be satisfied by the strategy? Customers: Who, What, Where
Cons ume r Markets Customers Industrial Markets

Firms must manage all aspects of their customer relationship with

• • •

Reach: firm’s success and connection to customers Richness: depth & detail of 2-way information flow between firm & the customer Affiliation: facilitation of useful interactions with customers

Basis for Customer Segmentation Consumer Markets • Demographic factors (age, income, sex, etc.) • Socioeconomic factors (social, religion, FLC stage) • Geographic factors (cultural, regional, urban, rural) • Psychological factors (lifestyle, personality traits) • Consumption patterns (heavy, moderate, light users) • Perceptual factors (benefit segmentation, perceptual map) • • • • • Industrial Markets End-use segments Product segments (technology, production economics) Geographic segments (country, regional differences) Common buyer segments (product market & geographic segments) Customer size segments

Dr Amit Rangnekar

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amitrangnekar@gmail.com

NMIMS 2007-08 Customer Needs to Satisfy What • Related to a product’s benefits and features • Representing desires in terms of features and performance capabilities

Strategic Management

How • • •

Determine core competencies necessary to satisfy customer needs Use core competencies to implement value creating strategies that satisfy customers’ needs Firms with capacity to continuously improve, innovate & upgrade competencies can expect to meet /exceed customer expectations across time

Competitive scope Scope- Dimensions, including product groups, customer segments & geographic markets • Broad scope- firm competes in many customer segments • Narrow scope- firm selects a segment / group of segments in the industry and tailors its strategy to serving them at the exclusion of others Five Business-Level Strategies (Porter) Competitive advantage Cost Uniqueness Cost leadership Differentiation Integrated Cost leadership / Differentiation Focused cost leadership Focused differentiation

Broad Target Competitive Narrow Target scope

Cost Leadership Strategy • Integrated set of actions taken to produce relatively standardized goods/services with features acceptable to many customers, at lowest competitive cost Cost saving actions required are: • Building efficient scale, manufacturing facilities, simplifying production processes • Tightly controlling/minimising production/ sales/R&D and service costs • Monitoring costs of activities provided by outsiders How to obtain a Cost Advantage Cost Drivers Alter production process Change in automation New distribution channel New advertising media Direct sales in place of indirect sales Strategy- Determine and control

Value Chain New raw material Forward integration Backward integration Change location relative to suppliers or buyers Strategy -Reconfigure, if needed

Dr Amit Rangnekar

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NMIMS 2007-08

Strategic Management

Examples of Value-Creating Activities Associated with the Cost Leadership Strategy

Cost Leadership Strategy of incumbents for New Entrants frighten off by economies of scale & time to scale the learning curve mitigate suppliers’ power by absorbing cost increase due to low cost Suppliers position or by ability to make very large purchases mitigate buyers’ power by driving prices far below competitors, causing Buyers them to exit, thus shifting power with buyers back to the firm well positioned to invest to create substitutes, or buy patents developed Substitutes by potential substitutes, or lower prices to maintain value position due to cost leader’s advantageous position, rivals hesitate to compete on Competitors basis of price, lack of price competition leads to greater profits Competitive Risks of cost leadership strategy • Obsolescence of good/services producing processes due to competitors’ innovations • Focus on cost reductions at expense of customers’ perceptions of differentiation • Competitors may use own core competencies to imitate the cost leader’s strategy Differentiation An integrated set of actions taken to produce goods or services (at an acceptable cost) that customers perceive as being different in ways that are important to them • Nonstandardised products • Customers value differentiated features more than they value low cost Dr Amit Rangnekar 17 amitrangnekar@gmail.com

NMIMS 2007-08

Strategic Management

How to Obtain a Differentiation Advantage

Differentiation Strategy of incumbents for Defend by offering new products with equal performance but lower price New entrants Mitigate by absorbing price increase due to higher margins, pass on Suppliers higher supplier prices to buyers loyal to differentiated brand power Buyers power Mitigate buyers’ power as well differentiated products reduce customer sensitivity to price increases Well positioned relative to substitutes, brand loyalty to differentiated Substitutes product may deter customers trying new products or switching brands threat Defends against competitors because brand loyalty to differentiated Competitors product offsets price competition Focus strategies An integrated set of actions taken to produce goods or services that serve the needs of a particular competitive segment (buyer group) or different segment of a product line or different geographic markets Factors That Drive Focused Strategies • Large firms may overlook small niches • A firm may lack the resources needed to compete in the broader market • Firm can serve a narrow market segment more effectively than larger competitors

Dr Amit Rangnekar

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NMIMS 2007-08 •

Strategic Management

Firm can direct resources to value chain activities to build competitive advantage

Integrated Cost Leadership/ Differentiation Strategy Firm using an integrated cost leadership/differentiation strategy in a better position to: • Adapt quickly to environmental changes • Learn new skills and technologies more quickly • Effectively leverage its core competencies while competing against its rivals

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NMIMS 2007-08

Strategic Management

Competitive Rivalry & Competitive Dynamics
Competitors- Firms operating in the same market, offering similar products and targeting similar customers Competitive Dynamics- Ongoing actions and responses taking place between all firms competing within a market for advantageous positions Competitive behavior- The set of competitive actions & competitive responses the firm takes to build or defend its competitive advantages and to improve its market position Competitive dynamics- The total set of actions and responses taken by all firms competing within a market Multimarket competition- Firms competing against each other in several product or geographic markets Competitive Dynamics

A Model of Competitive Rivalry Firm’s competitive actions have noticeable effects on competitors & elicit competitive responses. Market success is a function of individual strategies & consequences of their use

Dr Amit Rangnekar

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NMIMS 2007-08

Strategic Management

Competitor analysis • Understand competitors future objectives, current strategies, assumptions & capabilities • Predict competitor behaviour, anticipate response, form competitive actions & responses • Market commonality & resource similarity with competitors Competitive rivalry- Ongoing actions and responses taking place between an individual firm and its competitors for an advantageous market position Strategic action or response- A market-based move that involves a significant commitment of organizational resources and is difficult to implement and reverse Tactical action or response- A market-based move taken to fine-tune a strategy. Usually involves fewer resources and is relatively easy to implement and reverse Competitive action- A strategic or tactical action the firm takes to build or defend its competitive advantages or improve its market position Competitive response- A strategic or tactical action the firm takes to counter the effects of a competitor’s competitive action Factors Affecting Likelihood of Attack First mover Allocate funds for product innovation, aggressive advertising, R&D Can gain loyalty of customers committed to the firm’s goods or services Difficult for competitors to take market share Responds typically through imitation Second Studies customer reactions to innovation, avoids mistakes & huge spends mover May develop more efficient processes and technologies Responds to competitive action after considerable time has elapsed Late mover Slow to succeed, lesser share & average returns than first & second movers Small firms More likely to launch quicker competitive actions, rely on speed and surprise to defend competitive advantages or develop new ones Large firms Likely to initiate more competitive and strategic actions over a period Quality exists when firm’s goods or services meet or exceed customers’ expectations Product Quality Dimensions • Performance—Operating characteristics • Features—Important special characteristics • Flexibility—Meeting operating specifications over some period of time • Durability—Amount of use before performance deteriorates • Conformance—Match with preestablished standards • Serviceability—Ease and speed of repair • Aesthetics—How a product looks and feels • Perceived quality—Subjective assessment of characteristics (product image)

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NMIMS 2007-08

Strategic Management

Service Quality Dimensions • Timeliness—Performed in the promised period of time • Courtesy—Performed cheerfully • Consistency—Giving all customers similar experiences each time • Convenience—Accessibility to customers • Completeness—Fully serviced, as required • Accuracy—Performed correctly each time Competitive dynamics Slow cycle market Competitive advantage Sustainability Imitation Strategy Shielded from imitation for long periods of time High Costly Concentrate on competitive actions & responses to protect, maintain & extend proprietary advantage

Fast cycle market Not shielded from imitation Low Quick & inexpensive Competitors reverse engineer to quickly imitate or improve on firm’s products Non-proprietary technology diffused rapidly

Standard cycle market Moderately shielded from Partial moderate Upgrade quality is continuously Firms seek large market shares Firms gain customer loyalty through brand names Firms carefully control operations HUL, P&G

Industry

Pharma R&D patents Reverse engineering Disney characters firms- Indian pharma PC makers

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NMIMS 2007-08

Strategic Management

Corporate level strategy
Corporate-level Strategy (Companywide) Specifies actions taken by a firm to gain a competitive advantage by selecting & managing a group of different businesses competing in several industries and product markets Business-level Strategy (Competitive) Each business unit in a diversified firm chooses a business-level strategy as its means of competing in individual product markets Diversification When a firm chooses to diversify beyond a single industry and operate businesses in several industries. Firm creates value by productively using excess resources. Product diversification concerns scope of the industries and markets in which the firm competes and how managers buy, create and sell different businesses to match skills and strengths with opportunities presented to the firm Diversification levels Single business Low Dominant business Moderate Related constrained to High

Related linked

Very High

Unrelated

>95% revenue from single business 70-95% revenue from single business <70% revenue from dominant business and all businesses share product, technological & distribution linkages <70% revenue from dominant business and limited linkages between businesses <70% revenue from dominant business and no linkages between businesses

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Diversifying to Enhance Competitiveness Related Diversification- Firm creates value by building upon or extending its resources, capabilities and core competencies • Economies of scope- Cost savings that occur when a firm transfers capabilities and competencies developed in one of its businesses to another of its businesses • Sharing activities • Transferring core competencies • Market power- when firm can sell its products above the existing competitive level and/or reduce the costs of its primary & support activities below competitive level • Vertical integration• Backward integration—a firm produces its own inputs • Forward integration- firm operates own distribution system to deliver its outputs Dr Amit Rangnekar 23 amitrangnekar@gmail.com

NMIMS 2007-08

Strategic Management

Unrelated Diversification • Financial economies- cost savings through improved allocations of financial resources, create value through efficient internal capital allocations, purchase other corporations & restructure their assets • Efficient internal capital allocation- Corporate office distributes capital to SBU to create overall value • Business restructuring• Creates value by buying & selling other firms’ assets in external market • Focus on mature, low-technology businesses, not reliant on a client orientation Reasons for Diversification Incentives and Resources with Neutral Effects on Strategic Competitiveness: • Antitrust regulation, Tax laws • Low performance, Uncertain future cash flows • Risk reduction for firm • Tangible resources, Intangible resources Managerial Motives (Value Reduction) • Diversifying managerial employment risk • Increasing managerial compensation Strategic Motives • Economies of scope (related diversification) Sharing activities Transferring core competencies • Market power (related diversification) Blocking competitors through multipoint competition Vertical integration • Financial economies (unrelated diversification) Efficient internal capital allocation Business restructuring Diversification Methods- Internal Ventures, M&A, JV

Dr Amit Rangnekar

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NMIMS 2007-08

Strategic Management

Acquisition & Restructuring Strategies
Internal Ventures Internal ventures make use of the R&D programs of the organization • Advantages- Control over the venture, information not shared, profits retained • Disadvantages- High failure risk, lot of time to execute, Internal resources locked Mergers and Acquisitions (M&A) Mergers & acquisitions sometimes undertaken to “buy” innovation than produce in-house • Add scale • Fast way to enter new markets and geographies • Acquire new products / services / technologies / knowledge and skills • Vertically integrate • Fill needs in the corporate portfolio • • • • Merger- when 2 firms agree to integrate operations on a relatively co-equal basis Acquisition- strategy where a firm buys a controlling, or 100% interest in another firm, to make the acquired firm a subsidiary business within its portfolio Takeover- A special type of acquisition when the target firm did not solicit the acquiring firm’s bid for outright ownership Most research indicates that mergers and acquisitions perform poorly

Horizontal acquisition •Acquisition in the same industry increases firm’s market power by exploiting cost-based and revenue-based synergies •Acquisitions with similar characteristics result in higher performance than those with dissimilar characteristics Vertical acquisitions •Acquisition of a supplier or distributor of one or more of the firm’s goods or services •Increases a firm’s market power by controlling additional parts of the value chain Related acquisitions •Acquisition of a company in a highly related industry •Difficulty in implementing synergy, make related acquisitions difficult to implement Reasons for acquisitions Increased market power Overcoming entry barriers Low risk compared to NPD Develop new capabilities Competition Diversification Faster to market than NPD Problems with acquisitions Overestimation of synergies Recovering deal premium Integration Inadequate target evaluation Managing size Too much diversification Complacency

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NMIMS 2007-08

Strategic Management

Why Mergers Don’t Work • Large or extraordinary debt • Overconfident or incompetent management • Ethical concerns • Changes in top management team and/or organizational • Inadequate analysis (due diligence) • Diversification away from the firm’s core

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Why Mergers Work Strong relatedness Friendly negotiations Low-to-moderate debt Continued focus on core strengths Careful selection of & negotiations with target firm Strong cash or debt position Similar firm cultures & management styles Sharing resources across companies

Restructuring • A strategy through which a firm changes its set of businesses or financial structure • Failure of an acquisition strategy often precedes a restructuring strategy • Due to changes in the external or internal environments Restructuring strategies: Strategy What happens Down Reduction in number of sizing employees/operating units Down Divestment / spin-off to scoping eliminate non core businesses & refocus Leveraged A party buys the firm’s buyouts assets to take it private Can correct managerial mistakes, facilitate entrepreneurial growth

Short term outcomes Reduced labour costs More efficient operations Reduced debt costs Strategic controls emphasis Strategic controls emphasis High debt costs

Long term outcomes Loss of human capital Lower performance Higher performance

Higher risk

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NMIMS 2007-08

Strategic Management

International Strategy
Strategy where a firm sells its goods or services, outside its domestic market. Determinants of National Advantage • Factors of production: the inputs necessary to compete in any industry- Labour, land, natural resources, capital, infrastructure and an educated workforce • Demand conditions: nature and size of domestic buyers’ needs can lead to scale-efficient facilities, efficiency can lead to domination in own / other countries Related & supporting industries: supporting services, facilities, suppliers especially for support in design and distribution Firm strategy, structure and rivalry: Cooperative and competitive systems •

Reasons for pursuing an international strategy range from • New opportunities, market expansion, product life cycle extension • Higher potential for product demand and better value realisation • IPR opportunities, access to technology or R&D or distribution channels • Economies of scale or learning • Location advantage- access to raw materials, low cost labour, key customers and energy sources Multidomestic strategy- Strategy and operating decisions are decentralized to strategic business units (SBU) in each country • Products & services tailored to local markets • SBUs independent across countries • Assumes markets differ by country or regions • Competition focus in each market • Common strategy of EU firms due to variety of cultures & markets Global strategy- Products are standardized across national markets • Business-level strategy decisions

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NMIMS 2007-08

Strategic Management

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are centralized in the home office SBU assumed to be interdependent Emphasizes economies of scale Lack local market responsiveness Requires resource sharing and coordination across borders (hard to manage)

Transnational strategy- Seeks to achieve both global efficiency and local responsiveness • Difficult to achieve because of simultaneous requirements • Strong central control and coordination to achieve efficiency • Decentralization to achieve local market responsiveness • Must pursue organizational learning to achieve competitive advantage Choice of International Entry Mode Type of Entry Characteristics High cost, low control Exporting

Licensing

Low cost, low risk, little control, low returns Shared costs, shared resources, shared risks, problems of integration Quick access to new market, high cost, complex negotiations, problems of merging with domestic operations Complex, often costly, time consuming, high risk, maximum control, potential above-average returns

Strategic alliances Acquisition

Dynamics The firm has no foreign manufacturing expertise and requires investment only in distribution. The firm needs to facilitate the product improvements necessary to enter foreign markets. The firm needs to connect with an experienced partner already in the targeted market. The firm needs to reduce its risk through the sharing of costs.

New wholly owned subsidiary

The firm’s intellectual property rights in an emerging economy are not well protected, the number of firms in the industry is growing fast, and the need for global integration is high.

Risk in the International Environment • Political: Political instability, civil & international war, nationalization of resources • Economic- Interdependent with political & include fluctuations in forex rates, wage rates, enforcing property rights and unemployment • Cultural- local customs, traditions and language

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NMIMS 2007-08

Strategic Management

Cooperative Strategy
Strategy in which firms work together to achieve a shared objective to create customer value and establish a favorable position relative to competitors Strategic Alliance Combine resources and capabilities of firms to create a mutually competitive advantage. To co-develop, co-market or distribute goods and services. Competitive advantage developed through a cooperative strategy is called a collaborative or relational advantage. Types • Joint Venture- 2 or more firms create an independent firm by sharing some of their resources and capabilities • Equity Strategic Alliance- Partners own different equity shares in separate company • Non-equity Strategic Alliance- 2 or more firms develop a contractual relationship to share some of their unique resources and capabilities International Cooperative Strategies • Cross-border Strategic Alliance- firms across nations combine R&C to create a competitive advantage, in either domestic / international markets • Synergistic Strategic Alliance- Allows risk sharing by reducing financial investment • Host partner knows local market and customs • Difficult to manage differences in styles, cultures or regulatory constraints • Risk of partner gaining technology access and becoming a competitor Reasons for Strategic Alliances Market Reason Slow Cycle •Gain access to a restricted market (Insurance JVs in India) •Establish a franchise in a new market •Maintain market stability (e.g., establishing standards) Fast Cycle •Speed up development of new goods or service (Dell) •Speed up new market entry •Maintain market leadership •Form an industry technology standard •Share risky R&D expenses, overcome uncertainty Standard Cycle •Gain market power (reduce industry overcapacity) •Gain access to complementary resources •Establish economies of scale •Overcome trade barriers •Meet competitive challenges from other competitors •Pool resources for very large capital projects •Learn new business techniques

Dr Amit Rangnekar

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NMIMS 2007-08

Strategic Management

Business-Level Cooperative Strategies • Complementary strategic alliances- Vertical, Horizontal • Competition response strategy • Uncertainty reducing strategy • Competition reducing strategy • Complementary Alliances- Combine partner firms’ assets in complementary ways to create new value. Include distribution, supplier or outsourcing alliances where firms rely on upstream or downstream partners to build competitive advantage • Franchising- Spreads risks and uses resources, capabilities, and competencies without merger or acquisition. A contractual relationship • Alternative to growth through M&A International Cooperative Strategies • Cross-border Strategic Alliance- Firms with headquarters in different nations combine resources and capabilities to create a competitive advantage • Synergistic Strategic Alliance- Allows risk sharing by reducing financial investment. • Network Cooperative Strategy • Several firms agree to form multiple partnerships to achieve shared objectives Competitive Risks of Cooperative Strategies • Partners may act opportunistically or misrepresent competencies • Partners fail to make committed resources & capabilities available to partners • One partner may make investments specific to the alliance while its partner does not Strategic Alliances and Joint Ventures • Resource sharing--marketing, technology, raw materials and components, financial, managerial, political • Speed of entry • Spread risk of failure • Increase strategic flexibility • Learn from venture partners Problems with Strategic Alliances and Joint Ventures • Only partial control and shared profitability • High administrative costs • Possible lack of fit • Risk of opportunism • Foreign joint ventures are even more risky due to potential for miscommunications, misunderstandings and lack of shared knowledge about the constraints of the external environment

Strategic Direction

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NMIMS 2007-08

Strategic Management

• Setting long-term goals and objectives, like- mission & vision • Defines the purposes for which an organization exists & operates
Strategy Formulation • Strategy is an organizational plan of action intended to accomplish goals. • Corporate strategy formulation refers to domain definition, or the choice of business areas. Usually decided by the CEO and the BOD. • Business strategy formulation involves domain direction and navigation, or how to compete in a given area. Usually decided by SBU heads & managers. • Functional strategy formulation contains the details of how the functional areas such as marketing, operations, finance, and research should work together to achieve the business-level strategy. Strategy Implementation and Control • Strategy implementation involves creating the functional strategies, systems, structures, and processes needed by the organization in achieving strategic ends. • Strategic control refers to the processes that lead to adjustments in strategic direction, strategies, or the implementation plan when necessary. • Strategic restructuring involves a renewed emphasis on what an organization does well, combined with a variety of tactics to revitalize the organization and strengthen its competitive position. Alternative Perspectives on Strategy Development Traditional Strategic Management Process • Situation Analysis--Strengths, Weaknesses, Opportunities and Threats (SWOT) • Strategies should take advantage of strengths and opportunities or neutralize or overcome weaknesses and threats • Environmental Determinism--the best strategy involves adapting to environmental, technical and human forces • Strategy is deliberate (always planned and intended by management)

Business Level strategies Business-Level Strategy Formulation Responsibilities

• Direction setting—Mission, vision, ethics, goals • Situation analysis—Compilation and assessment of information • Selection of strategies—Generic strategy (cost leadership, differentiation, best cost,
focus) and strategic posture (specific strategies) • Management of resources—Acquisition and/or development of resources leading to competitive advantage Business-Level Strategies- Growth & Competitive Strategies Growth Strategies

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NMIMS 2007-08

Strategic Management

• Investment in resources to achieve growth in sales (assuming the industry is attractive) • Investments over time may involve a redefinition/expansion of organizational scope • Concerns: Activities and resources to invest in, implications for scope and complexity,
and the timing relative to competitors Growth Strategies Internal Strategies • Market penetration • Market development • Applications development • Product development

External Strategies • Horizontal integration • Alliance formation

Rate at Which Firms Introduce New Products or Enter New Markets Prospectors- First mover Analyzers- Follow the first mover when opportunity is proven Defenders- Defensive strategy Reactors- No distinct strategy Competitive Strategies-Value propositions associated with generic competitive strategies Differentiation: Offer value to customers by providing them preferred product / service Cost leadership: Offer value to customers by providing them with a standard product or service produced at lower cost (and typically offered at a lower price) Best cost: A combination of the first two options. Note: these strategies assume that the firm is seeking a broad customer base. If the firm is pursuing a particular market segment it is using a “focus” strategy. Differentiation Create Value Through Uniqueness • Superior Quality • Innovations and Research • Speed and Flexibility • Reputation and Brand Name • Creative advertising Customers Must Be Willing to Pay More for Uniqueness • Added costs vs. incremental price Cost Leadership • Accurate Demand Forecasting and High Capacity Utilization • Economies of Scale • Technological Advances • Learning/Experience Effects Typical Learning/Experience Curve Best Cost Dr Amit Rangnekar 32 amitrangnekar@gmail.com

NMIMS 2007-08

Strategic Management

• Combination of cost leadership and differentiation • May actually be the dominant strategy among the most successful companies Today • Either: • The same resources/activities that allow cost reductions also allow differentiation.
(e.g., automation that lowers costs and improves speed and service). • Profits from cost reductions are used to invest in differentiating features, and vice versa. International Expansion Tactics • Exporting • Licensing • Franchising • Joint Venture • Greenfield Venture Global Product/Market Strategy • Multidomestic Product/Market Strategy • Global Product/Market Strategy • Transnational Product/Market Strategy Corporate Strategies • Concentration • Vertical Integration • Unrelated Diversification • Related Diversification Advantages of Concentration • Allows a firm to master one business • In-depth knowledge • Easier to achieve competitive advantage • Organizational resources under less strain • Prevents proliferation of management levels and staff functions • Sometimes found more profitable than other strategies (dependent on industry, of course) Disadvantages of Concentration • Risky in unstable environments • Product obsolescence and industry maturity • Cash flow problems The Vertical Supply Chain When to Vertically Integrate Common reasons for vertical integration • Increased control over quality of supplies or the way the product is marketed

Dr Amit Rangnekar

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NMIMS 2007-08

Strategic Management

• Better information about supplies or markets • Greater opportunities for differentiation through coordinated effort • Opportunity to make greater profits by performing another function in vertical supply

chain Transactions Costs and Vertical Integration Basic Proposition: Firms should buy what they need from the market as long as transactions costs are low. • Transactions costs are reflected by the time and resources needed to create and enforce a contract to purchase goods and services. • If transactions costs are high, the market fails to provide the best deal • Transactions costs are high (the market fails) if: Highly uncertain future One or small number of suppliers One party to a transaction has more knowledge about the transaction than the other An organization has to invest in an asset that can only be used to produce a specific good or service (asset specificity) Unrelated Diversification • Large, highly diversified firms are called conglomerates • Not a high performing strategy for most firms (with a few notable exceptions) in industrialized nations like the U.S. • Difficult for a top manager to understand and appreciate the core technologies, key success factors and special requirements of each business area Related Diversification • Based on tangible and intangible relatedness • In theory, can lead to synergy (but synergy is often illusive) • Often a higher performing strategy than unrelated diversification (lower risk and higher profitability) • Can lead to corporate-level distinctive competencies Requirements for Synergy Creation Relatedness • Tangible--same physical resources for multiple purposes • Intangible--capabilities developed in one area can be used elsewhere • Fit • Strategic-matching of organizational capabilities-complementary resources & skills • Organizational--similar processes, cultures, systems and structures • Managerial actions to share resources and skills • Benefits must outweigh costs of integration

Portfolio Models

Dr Amit Rangnekar

34

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NMIMS 2007-08

Strategic Management

Strategy Implementation Learning Objectives To understand: • the role of leadership in successful execution of strategies • how culture and organizational energy influence the success of strategy implementation • functional strategies and their importance to strategy implementation • the stages firms encounter as they execute global strategies • basic organizational structures, and their strengths and weaknesses • the various roles played by foreign subsidiaries Four Primary Responsibilities of Leaders • Design organizational purpose, vision and core values • Develop policies, strategies and structure • Create an environment for organizational learning • Serve as a steward for the organization Situational Leadership • Leadership style should fit the situation • Effective leaders can employ range of styles- coercive to coaching to consensus-building • Most successful leaders exhibit a high degree of emotional intelligence Organizational Culture An organization’s culture, the system of shared values that guides employee beliefs and behavior, influences the success of strategy implementation. • Often reflects the values and leadership styles of top executives • Human resource management practices can influence culture – recruitment, training, performance evaluation Challenge of the Future • Technological advancements, including communications and the Internet • Globalization • Blended cultures, diverse and mobile labor pools • New companies from emerging markets • More educated, demanding customers • Increased concern about governance and social responsibility Challenges for managers: • retaining valuable employees • creating and preserving competitive advantage • holding back new entrants

Dr Amit Rangnekar

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NMIMS 2007-08

Strategic Management

• serving increasingly demanding customers • choosing and timing technology investments at a time when change is so rapid • major shocks associated with terrorism, new diseases and wars
Business Tactics (Strategic Management, Alex Miller) Anticipatory Engagement Preemption Attack Offensive • Pioneer • Frontal • Attack • Flank • Intimidate • Guerilla • Capture • Siege Deterrence Response Defensive • Raise structural barriers • Counter attack • Expect retaliation • Fast follow • Retrenchment • Discourage attack • Diplomatic peacekeeping • Withdrawal Scenario: An internally consistent view of what the future might turn out to be – not a forecast, but one possible future outcome (Porter). Scenarios help us to understand today better by imagining tomorrow, increasing the breadth of vision and enabling us to spot change earlier … Effective future thinking brings a reduction in the level of crisis management and improves management capability, particularly change management. Growth Strategies The different routes to growth fall broadly into 5 options, but, they are not mutually exclusive and can overlap. They maybe limited by available resources, but require a clear focus on objectives and a sustained level of commitment. • • • • • Organic growth Mergers and acquisitions Integration Diversification Specialisation

Business level growth strategies: New products, new markets, new geographies

Takeover defense strategies

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NMIMS 2007-08

Strategic Management

Crown Jewels A defense against a takeover in which a company sells its most precious assets to a friendly buyer. The suitor then disappears since the target of its pursuit has gone elsewhere and the company rebuys its assets from its friend. Pac-man defense A takeover, in which the target bites back, and makes an offer to take over the shares of the suitor. The name is derived from a once popular video game. Poison Pill A range of devices designed to make a takeover unpalatable to the swallower (acquirer). Eg accompany might borrow a large sum of money in order to distribute it immediately as dividends to the company’s shareholders; or it might make an issue of preferred stock that gives shareholders the right to redeem it at a hefty premium after a takeover Scorched Earth Shark Repellant A smell put out by a company to deter potential suitors. Eg A leaked announcement about a ‘secret’ contract to pay millions to existing managers should the company be taken over. Scorched Earth defense A defense against a takeover that involves destroying (or selling) large parts of the business, or atleast ensuring that they will be destroyed should the company that owns them be taken over. It is a somewhat drastic defense that also involves an awkward irony; what should you do if it succeeds, and the suitor is deterred? How do you make grass grow again on the scorched earth? White Knight A firm that comes to the rescue of a company that is in the throes of an unwelcome takeover. Dawn Raid An early morning purchase on the stock market, of a large block of a company’s shares, by an investor who has an eye on taking over the company. Aimed at pre-empting any other potential raider from gaining a similar stranglehold on the takeover target.

Dr Amit Rangnekar

37

amitrangnekar@gmail.com

NMIMS 2007-08

Strategic Management

Dr Amit Rangnekar

38

amitrangnekar@gmail.com

NMIMS 2007-08

Strategic Management

Dr Amit Rangnekar

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NMIMS 2007-08

Strategic Management

Dr Amit Rangnekar

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