4.

1 STRATEGIC MANAGEMENT :
Indian & Global context
Gems B School 2018

By G. Subramanian

1
 Ten commandments
• Full attendance ???
• Mobiles - Switch off / Silent mode
• Attend to mobiles / responses during break
• Participate – Engage in discussions, share experience, challenge
hypothesis
• Learn & Let Learn
• Respect others point of view – Help each other understand better
• There are no stupid questions
• Don’t argue but express your views with the sole purpose of finding
a solution / Have better understanding
• Keep the session “LIVE”
• ENJOY

2
Objectives : Students are expected to integrate their knowledge gained in various functional areas to make
business decisions, from the general manager's point of view in the global and Indian context.
Teaching and Examination: Students are expected to keep abreast of the contemporary business practices by
reading the business practices by reading the business magazines and management journals.
Case studies, application project Seminars and group exercises will supplement the class lectures.
Unit I
Corporate Strategic Planning - Mission - Vision of the firm - Development, maintenance and the role of leader
- Hierarchal levels of planning - Strategic planning process. Strategic management Practice in India. Competitive
advantage of Nations and its implication on Indian Business.
Unit II
Environment Analysis & Internal Analysis of Firm:
General environment scanning, competitive & environment analysis - to identify opportunities & threat -
Assessing internal environment through functional approach and value chain - identifying critical success factors
- to identify the strength & weakness - SWOT audit - core competence - Stockholders' expectations, Scenario-
planning - industry analysis.

3
Unit III
Strategy Formulation
Generic strategies - Grand strategies - Strategies of leading Indian companies - The role of
diversification - limits - means and forms. Strategic management for small organisations, non-
profit organisations and large multi product and multiple market organisations.
Unit IV
Tools of Strategy : Planning and evaluation :
Competitive cost dynamics - experience curve - BCG approach - cash flow implication -IA-BS
matrix - A.D.Littles Life-cycle approach to strategic planning - Business portfolio balancing -
Assessment of economic contribution of strategy - Strategic funds programming.
Unit V
Strategy implication & Control :
Various approaches to implementation of strategy - Matching organisation structure with
strategy - 7S model - Strategic control process - Du Pont's control model and other
Quantitative and Qualitative tools - Balanced score card - M.Porter's approach for
Globalisation - Future of Strategic Management.
4
Session Plan Vs. Actual – as of 03rd Mar, ‘19
Session # Date Unit # Actual
1 3 Mar 1 start
2 10 Mar 1
3 17 Mar 1 Ugadi
4 24-Mar 2
5 31-Mar 2
12 19-May 5
13 26-May 5
Qt Papers
03-Jun Exams

Normally, for 5 Units, need 20 sessions, whereas I may get

only 15 sessions this time in 2019 ; all above are tentative
only

5
 Contents
Unit Topic Slide
No No.’s

I Corporate Strategic Planning 4 - 47

II Environment Analysis & Internal Analysis of a Firm

3 Strategy Formulation

4 Tools of Strategy

5 Strategy Implication & Control

6 Review and Feedback

6
History of Strategy

• Strategos--An ancient Greek word translates literally as "the General's

art". From the ancient Greek, through military to modern business
usage, the word retains much of its original meaning--
• Decisions and actions with long-term and wide-ranging
consequences.
• Pinpointing vulnerabilities in the competitors' position.
• Exploiting resources and deployment relative to competitors.
• Using topography, and technology for advantage.
• Finding niches in the marketplace.

7
2 Basic Principles for a Strategy

• The first principle is: act with the utmost concentration [trace the
ultimate substance of enemy strength to the fewest possible sources;
compress the attack on these sources to the fewest possible actions;
and subordinate minor actions as much as possible].ie. Identify the
enemy's centre of gravity.
• The second principle is: act with the utmost speed [every unnecessary
expenditure of time and every unnecessary detour is a waste of
strength; take the shortest possible road to the goal]."

8
Definition of Strategy by Michael Porter

Michael Porter defined strategy in 1980 as the "...broad formula for

how a business is going to compete, what its goals should be, and what
policies will be needed to carry out those goals" and the
"...combination of the ends (goals) for which the firm is striving and the
means (policies) by which it is seeking to get there."
He continued that: "The essence of formulating competitive strategy is
relating a company to its environment."."[17]

9
Strategic management involves the formulation and implementation of the
major goals and initiatives taken by a company's top management on behalf
of Stakeholders, based on consideration of resources and an assessment of
the internal and external environments in which the organization competes.
Thus Strategy = Plan Formulations + Implementation of those
Plans, after assessing the gap between the state where you are now to
where you want to be, say in next 5/10/15 years……..

The apathy seen in many places (Companies or Govts alike) are :

lofty plans are made & announced with lot of pomp & show, but sadly never
gets implemented or looses its steam somewhere later, either due to lack of
clarity in how they plan to implement & "make it stick" or more so with
continuity issues, like a change of guard at the top or like Baskin Robins
"flavour of the month" style. 10
 Strategic Management Process
1. Mission and objectives identification
2. Analysis of business environment
3. Internal business audit
4. Environmental Scanning
5. Review of Strategic Opportunities
6. Comparison of Strategic Options
7. Strategy implementation
8. Evaluation and control
11
 Study of Strategic Management

Study of strategic management emphasizes

monitoring and evaluating of external opportunities
and threats in the light of the enterprise’s strengths
and weaknesses. The study includes……………

12
Four Phases of Strategic Management Evolution

1. Basic Financial Planning

2. Forecast Based Planning

3. External oriented Planning

4. Strategic Management

13
14
 Benefits from Strategic Management

• Provides long term high performance sustenance

• Gives better ability to face changing global challenges

• Provides a clear sense of strategic vision

• Sharper focus on issues that are strategically important

15
Basic Elements of Strategic Management Process
• Environmental Scanning

• Strategy Formulation

• Strategy Implementation

• Evaluation and Control

Environmental Strategy Strategy Evaluation &
Scanning Formulation Implementation Control

16
17
18
3 Types of Strategies

1. Corporate Strategy : provides overall direction of the

organisation in terms of its general attitude towards growth &
management of business. Typically they fit into 3 main categories of
stability, growth & retrenchment.
2. Business Strategy : followed at the business unit or product level.
Aims at improving the competitive position in the market served
3. Functional Strategy : refers to the approach in a functional area
to achieve the above 2 objectives.

19
Hierarchy of Strategy

20
Corporate Level Strategy

• What businesses are we in? What businesses

should we be in?
• Four areas of focus
• Diversification management (acquisitions and
divestitures)
• Synergy between units
• Investment priorities
• Business level strategy approval (but not crafting)

21
 Corporate-Level Strategies

Valuable
strengths Concentric Diversification
Corporate (Economies
growth of Scope)
strategies
Conglomerate Corporate
Firm Diversification stability
Status (Risk Mgt.) strategies

Corporate
retrenchment
strategies
Can still go for business-level
Critical growth (economies of scale)
weaknesses
Abundant Critical
environmental Environmental Status environmental 22
opportunities threats
The BCG “Portfolio” Matrix
Market Share
High Low
Stars Question Marks

High
? ? ?
?
Anticipated
Growth
Rate Cash Cows Dogs

Low

23
Business Level Strategy
• How do we support the corporate strategy?
• How do we compete in a specific business arena?
• Three types of business level strategies:
• Low cost producer
• Differentiator
• Focus
• Four areas of focus
• Generate sustainable competitive advantages
• Develop and nurture (potentially) valuable capabilities
• Respond to environmental changes
• Approval of functional level strategies

24
Average cost of 1 GB of mobile data post Jio

25
Apple has a multi-faceted differentiation strategy
• They are innovators who constantly push the limits of products and
services, a strategy that is hugely successful.
• In addition, they are relentless in the pursuit of excellent customer service.
• Finally, they capitalize on the brand itself, which has become a part of the
culture through their advertising campaigns and product placement.
• One of the most successful drivers of Apple’s strategy is the creation of
their own ‘ecosystem’. The Apple line is designed to integrate among other
Apple products, seamlessly sharing media across devices. This ecosystem
provides users with the ability to share their music files from their iPod to
their iPhone to their iPad to their Mac or Apple TV. Leaving the ecosystem
would not only be costly for the customer, it would be cumbersome to try
to assimilate the same seamless ease of use – a fact that Apple uses to
their advantage. Once an i…..always an i…..this or i….that in the hands of
customers!! Hooked you forever! Put you on icloud…..”Cloud 9” feel!
26
Functional / Operational Level Strategy

• Functional: How do we • An example.

support the business • Business L.S.: Become
level strategy? the low cost producer of
• Operational: How do tools
we support the • Functional L.S. (Mfg.):
functional level Reduce manufacturing
strategy? costs by 10%
• Operational (Plant #1):
Increase worker
productivity by 15%

27
 Strategic Direction
It is the process of Identifying the Organisations’ purpose, aims,
objectives and goals.

For example, (Toyota’s Strategic Direction, 2006) the management decisions

have been taken to improve the quality of the parts of vehicles that Toyota is
devising. There is a need for the company to focus on two strategies that
could worsen the conditions of the brand if not taken care of
• Quality management
• Efficiency

28
Components of Strategy

1. Purpose & Mission

2. Objectives & Goals
3. Policies & Programme Strategies.

29
Key Issues:

2)The Interested Parties

3)The Method of Communication
1)The Message

30
The Message:

• Why does the firm exist?

• What is its aim and objectives?
• How will it achieve these?
• What strategies?
• How will its performance be measured?
• Which benchmarks?

31
The Method of Communicating the purpose of
the firm
• Mission and Vision Statements
• A visionary statement concerning the (long term) future
direction of the firms, its products, markets and values.
• Essential purpose of the organisation

32
Mission Statements

• Often summarises the firms reason for existing

• The starting point for recognising the future direction
of the firm and therefore the required strategic
developments.
• Should be:
• Simple, Easily Remembered, Impactful
• Positive, visionary & motivating
• Should outline
• Firm’s role
• What it wishes to achieve

33
 1. Mission
« An overriding purpose in line with the values and expectations of
stakeholders ». Johnson & Scholes
Personal example: Be healthy and fit.

2. Vision (or strategic intent)

A strong aspiration; Desired future state
An aspiration around which to focus the attention and energies of
members of the organization
Helps thinks creatively about how to prepare a company for the future
Personal example: « To run the London marathon »
34
 3. Aim
A broadly-worded, general statement of goal or purpose.
Personal example: « To lose weight and gain muscle ».

4. Strategic Objective
A quantification of that goal.
Personal example: « To lose 10 kg in 12 months».

35
Four Elements in the Mission Statement [1]
1)Purpose
• Why the firm exists and what it exists to do.
• What would happen if the firm did not exist?
2)Strategy
• How the firm will achieve its aspirations.
• What is it offering?
• To whom?
• Why should people buy it?
• What are its competitive advantages?

36
Four Elements in the Mission Statement [2]

3)Values
• What the firm believes in
• Why the world will better if the firm succeeds?
4)Behaviour standards
• The routines, procedures and policies the firm
adopt to fulfil its values
• What is the firm willing to do/not do in order to
succeed?
• How low will it go?
37
What are Toyota's Mission and Vision
Statements?
• The Toyota Motor Sales U.S.A., Inc. Mission and Vision
Statements are as follows:
• Mission Statement: "To attract and attain customers with high-
valued products and services and the most satisfying ownership
experience in America."
• Vision Statement: "To be the most successful and respected
car company in America."

38
What is Toyota Motor Corporation’s generic
strategy ?
• is a combination of the cost leadership generic strategy and the
broad differentiation generic strategy.
• Cost leadership entails minimizing cost of operations and selling
prices.
• On the other hand, the broad differentiation generic strategy
requires developing business and product uniqueness to ensure
Toyota’s competitive advantage.
• The combination of these generic strategies supports Toyota’s global
reach in all market segments.

39
What is Toyota's Strategic Goal?

• A strategic goal corresponding to Toyota's generic strategy is to

minimize production costs to attain cost leadership. The company
does so through the just-in-time (JIT) manufacturing method, which is
also known as the Toyota Production System (TPS).

40
Some Mission Statements
Disneyland Paris: To turn the dreams of the young and
young at heart into reality

• TUI Nordic: Most satisfied customers and best

profitabilty in the business
•
Hilton International: To always exceed customer
expectations by delivering quality service through
exceptional teamwork"

McDonald's Corporation: Quality food products; efficient, friendly

service; and restaurants renowned
for the cleanliness and value they provide (Sufi & Lyons
2003)

41
 Some More…
Otis: To provide any customers means of moving people and things up,
down, and sideways over short distances with higher reliability than any
similar enterprise in the world

Avis: Our mission is total customer satisfaction

BA: Be the best and most successful company in the airline business

Easyjet:To provide our customers with safe, low-cost, good value, point-
to-point air services. To offer a consistent and reliable product at fares
appealing to leisure and business markets from our bases to a range of
domestic and European destinations. To achieve this we will develop our
people and establish lasting partnerships with our suppliers
Kodak: To be the world’s best in chemical and electronic imaging
42
Shangri la Hotels
• Our Vision
• The first choice for customers, employees, shareholders and business partners
• Our Mission
• Delighting customers each and every time
• Our Guiding Principles (Core Values)
• We will ensure leadership drives for results.
• We will make customer loyalty a key driver of our business.
• We will enable decision making at customer contact point.
• We will be committed to the financial success
of our own unit and of our company.
• We will create an environment where our colleagues
may achieve their personal and career goals.
• We will demonstrate honesty, care and integrity
in all our relationships.
• We will ensure our policies and processes are customer
and employee friendly.
• We will be environmentally conscientious and provide
safety and security for our customers and our colleagues.
43
Some Visions - Examples
Tui Nordic = Making holiday dreams come
true

Nike (1960s): Crush Adidas

Giro Sport Design (1986): Become the Nike of the cycling
industry

44
Organisational Objectives [1]

• ‘Is an organisation a single period profit

maximiser?’
Johnson & Scholes

• ‘An organisation's objectives tend to emerge

as the wishes of the most dominant coalition.’
based on R M Cyert & J G March's 'Behavioral
Theory of the Firm' (1996)

45
Organisational Objectives [2]

• Generally ‘SMART’:
• Specific
• Measurable
• Achievable
• Realistic
• Timely
• Consistent with the Mission and Aim.
• One direction, avoid dissonance!!!

46
Objectives - Examples
• A larger market share
• Quicker design-to-market times than rivals
• Higher product quality than rivals
• Lower costs relative to key competitors
• Broader / more attractive product line than rivals
• A stronger reputation with customers than rivals
• Superior customer service
• Recognition as a leader in technology and/or product
innovation
• Wider geographic coverage than rivals

47
Objectives - Financial

• Increased growth in revenues / earnings/ dividends per

share
• Wider profit margins
• Attractive ROI
• Strong credit ratings
• Positive cash flows
• Recognition as a blue chip company
• Stable earnings during periods of recession
• A more diversified revenue base
• A rising stock price

48
Some Statements of Objectives
McDonalds: To achieve 100% total customer satisfaction
everyday in every restaurant, for every customer
To provide our shareholders with superior returns by
achieving double-digit annual earnings per share growth,
increasing dividends consistent with earnings growth,
repurchasing shares when the opportunity is right,
pursuing profitable international beer expansions, and
generating quality earnings and cash flow returns
To become the most competitive enterprise in the world by
being No.1 or No.2 in market share in every business the
company is in
30% of the company’s sales must come from products fewer
than 4 years old

49
Stakeholders - Definition

“Stakeholders are groups or individuals who

have a stake in, or expectation of, the
organisation’s performance .....”

Johnson ,Scholes & Whittington

Exploring Corporate Strategy

50
Interest Groups
Shareholders /
Board

Senior Middle Managers

Management / Operating Core

Government /
Technostructure
Professional Interest Groups
/ Support staff
associations

Customers /
Suppliers
Competitors

Contract Staff /
Special Interest
Groups

51
Competitive advantage of Nations [1]

According to Porter, 4 decisive elements contribute to differences

among nations in product/services. They are :
1. Availability of strengths in certain narrow, technical fields.
2. High demand in the home country.
3. Related & supporting industries in the home country.
4. Strong domestic rivals – local rivalry.

52
Competitive advantage of Nations [2]

Porter also refers to this as the “National Diamond”. According to him,

for a country :
• Devaluation is bad for competitiveness.
• Relaxing antitrust is bad.
• Relaxing product safety & environmental regulation is bad.
• Deregulation is good.
• Increasing defence contracts are bad.

53
It’s implication on Indian Business

• “The World is Flat” by Thomas L Friedman

• The economic liberalisation in India refers to ongoing economic
reforms in India that started on 24 July 1991. After Independence in
1947, India adhered to socialist policies. In the 1980s, Prime Minister
Rajiv Gandhi initiated some reforms.
• In 1991, after India faced a balance of payments crisis, it had to sell
67 tons of gold to the International Monetary Fund (IMF) as part of a
bailout deal, and promise economic restructuring.
• The government of P. V. Narasimha Rao and his finance minister
Manmohan Singh started breakthrough reforms.
54
Globalisation impact in India

• The new neo-liberal policies included opening for international trade

and investment, deregulation, initiation of privatization, tax reforms,
and inflation-controlling measures.
• The main objective of the government was to transform the economic
system from socialism to capitalism so as to achieve high economic
growth and industrialize the nation for the well-being of Indian
citizens. Today India is mainly characterized as a market economy.

55
What has the Liberalisation delivered? [1]

Certain positive results, for instance :

• Economic growth rate of about 5% annually post – 1991
• Improved global ranking
• Emergence of IT cluster as a global competitor.

56
What has the Liberalisation delivered? [2]

At the same time, there is an apprehension that the 1991 reforms are
reaching the limits of their effectiveness. This is evident from :
• The falling growth trend
• Slowing of total factor productivity growth
• Weakening fiscal position of PSEs
• International market success dominated more by IT cluster which
could be seen as a weakness in India’s overall business environment.

57
 Contents
Unit Topic Slide
No No.’s

I Corporate Strategic Planning 4 - 47

II
Environment Analysis & Internal 49 -
142
Analysis of a Firm
3 Strategy Formulation

4 Tools of Strategy

5 Strategy Implication & Control

6 Review and Feedback

58
Contents under Unit 2 – Environmental
Analysis & Internal Analysis of a Firm
Sl. # Sub Topics Slide No.’s

1 General environment scanning - Competitive & Environment Analysis 50 -

2 Identify opportunities & threat
3 Assessing internal environment thro’ functional approach & value chain
4 Identifying critical success factors
5 To identify the strength & weakness
6 SWOT audit
7 Core Competence
8 Stockholders’ expectations, Scenario-planning – industry analysis

59
Environmental Scanning - Definition
• the study and interpretation of the political, economic, social and
technological (PEST) events and trends which influence a business, an
industry or even a total market.
• the process of gathering, analysing & dispensing information for
tactical or strategic purposes.
• the process entails both factual & subjective information on the
business environments in which the company is operating or
considering entering.
• A study of those external forces, factors & institutions that are
beyond the control, but affects the organisation.
• One of the main concerns in environment analysis is coping with
uncertainty. Thus it is important to understand how uncertain the
environment is and why ?
60
Environmental Scanning - Blocks

External Environment can be subdivided broadly into Macro

environment & Micro environment factors for our study.
61
1. Political factors

• Taxation Policy
• Trade regulations
• Governmental stability
• Unemployment Policy, etc.
• Foreign policy
• Terrorism
• Attitude towards foreign companies

62
2. Economical factors

• Interest rate
• Inflation rate
• Growth in spending power
• Rate of people in a pensionable age
• Recession or Boom
• Customer liquidations
• Balances of Sharing

63
3. Socio-cultural

• Values, beliefs
• language
• religion
• education
• literacy
• time orientation
• Age distribution
• Health & life expectancy

64
4. Technological factors

• Internet
• E-commerce
• Social Media
• Electronic Media
• Research and Development
• Rate of technological change

65
5. Environmental factors

• Competitive advantage
• Waste disposal
• Energy consumption
• Pollution monitoring, etc.

66
6. Legal or Regulatory factors

• employment law
• Health and safety
• Product safety
• Advertising regulations
• Product labeling
• labor laws etc.

67
Micro environment Constituents

68
Micro environment

consists of the factors close to the company that affect its ability to
serve its customers -- the company, suppliers, marketing
intermediaries, customer markets, competitors, and publics…….
Suppliers:
• Refers to supplies of raw material – components, parts, expert
services etc. which are the basic inputs for any goods & services
production
• Suppliers help to create and deliver customer value.
• Treat suppliers as partners.
• However, dependence solely on one source can pose threats.

69
Marketing Intermediaries

• Marketing intermediaries help to sell, promote, and distribute goods.

• Intermediaries take
many forms.
• Resellers
• Physical distribution firms
• Marketing services agencies
• Financial intermediaries

70
Market types & Demand

• Customer markets must be studied.

• Market types
• Consumer
• Business
• Government
• Reseller
• International

71
Industrial Climate

• Regulatory environment varies from industry to industry & location to

location.
• Special incentives offer attractive opportunities to set up industries in
particular areas. Eg . HP, Uttarkhand, North East
• Some of these could be abolition of sales tax, octroi & tax rebates.
• Peaceful industrial climate can be a major opportunity. (compare
states like W.Bengal & Kerala with other states like Guj, Maha, TN)
• Availability of skilled manpower is critical to the development of an
industry. Eg., Bangalore

72
 Assessing the Impact of Threats
HIGH LOW
S
e 1 2
r HIGH Major Threat Moderate Threat
i
o
u
s
3 4
n
LOW Moderate Threat Minor Threat
e
s
s
Probability of Occurrence

The Threat Matrix

73
Threat Matrix
• This table shows the seriousness of the threat & the probability of
occurrence.
• Suppose the seriousness of the threat & the probability of occurrence
are both high, then that threat will cause a major damage, if ignored.
• For eg., availability of uninterrupted power supply is crucial for heavy
industries as well as in IT/ITES. Frequent interruptions in power
supply, can adversely affect the production or the delivery of IT
services, which in turn can have several catalytic effects to the
disadvantage of the organisation in a competitive market. So either
the company has to find a way to generate power by alternate ways
or relocate to a stable state with committed power supply like
Gujarat.
74
 Assessing the Impact of Opportunities

A HIGH LOW
T
T 1 2
R HIGH Very Attractive Moderately Attractive
A
T
I
V
E 3 4
N LOW Moderately Attractive Least Attractive
E
S
S
Probability of Occurrence

The Opportunities Matrix

75
Opportunities Matrix

• This table shows the attractiveness of the opportunity & the

probability of occurrence.
• When the probability of occurrence & the attractiveness are both
high, the organisation should cash in on the opportunity.
• To cite a few examples, several IT firms are making a foray into newer
fields like WAP (Wireless Application Protocol), Big Data Analyticals
etc., as they present attractive business opportunities.
• So also HCG entering into overall PET scan facilities moving from
reactive to proactive screening in India too.

76
Assessment of the Matrix

• Likert developed a 5-point scale by which the opportunities & threats

can be assessed.
• The scale is from extremely favourable to extremely unfavourable.
The pattern may be as follows:
1. +2 is extremely favourable
2. +1 is moderately favourable
3. 0 is no impact
4. -1 is moderately unfavourable
5. -2 is extremely unfavourable

77
Impact Matrix – Understanding Likert’s 5 point
scale
• Using this scale, we can assess the impact on different strategies
which an organisation can adopt. The impact can be related to
different functional areas like marketing & production.
Trends Probability Strategy Impact
Strategy 1 Strategy 2 Strategy 3 Strategy 4

T1
T2
T3

• This lends objectivity to the whole exercise of assessing the

opportunities & threats. And can be tried in any organisation as an
invaluable tool operating in the current competitive market.
78
Internal Corporate Analysis-an introduction [1]

• Earlier we discussed on the environment which a firm has to face &

the opportunities & threats that arise from it.
• However, a firm can exploit its opportunities successfully, depending
on its corporate strengths.
• Therefore the corporate capabilities of the firm becomes the focal
point for its performance & survival.
• Thus they play a crucial role, both in identifying the strategy & its
success.

79
Internal Corporate Analysis-an introduction [2]

• Corporate responsibilities go beyond sales, profit & net worth.

• It is concerned with the state of mind & the outlook of the firm.
• In other words, it is a matter of entrepreneurial interpretation.
• Corporate strategy ultimately means a matching game between
environmental opportunities & organisational strengths to gain
competitive advantage.
• This assessment of organisation’s strengths & weaknesses is also
known as organisational audit.
• This thus forms internal corporate analysis.

80
Meaning of Strengths & Weaknesses
• Corporate strengths & weaknesses are a matter of interpretation.
• For eg., a company like Infosys, not owning a fleet of buses may be
considered as a weakness.
• But when looked from the point of view of buses being available at
economic rentals, including personnel, fuel & maintenance, may no
longer be a weakness.
• Corporate strength can be looked upon as a competitive advantage &
other distinctive competencies, which a firm can exert in the market.
• Corporate strength can be looked upon as the constraints, which a
firm face, resulting in hindrance to its movement in the desired
direction & inhibit it from gaining competitive advantage.
81
Determining Strengths & Weaknesses Criteria

• Four criteria can be used to classify an element into strength or

weakness :
1. Historical
2. Normative
3. Competitive parity &
4. Critical factors for success.

These criteria are explained below.

82
1. Historical

• Past performances of the organisation like sales, PAT, capacity

utilisation, etc., are considered.
• The present performance under the same heads are compared.
• An improvement may be seen as strength while a decline as
weakness.
• Caution : before arriving at a decision on using the historical criterion,
always check how far the past can be repeated in the future.

83
2. Normative
• This makes use of judgement.
• “what ought to be the level of performance to classify an element as
a strength or a weakness?”
• “norms” can be developed based on industrial practices & personal
opinions.
• like for eg., a thermal power plant with 80% capacity utilisation may
have 80% & above as strength & below 80% as weakness.

84
3. Competitive Parity

• This uses the action of successful competitors or potential ones.

• The premise is that, the firm, at the minimum, must meet the actions
of its competitors.
• For eg., if 60 days credit is the industry norm, and the firm does not
follow it, it may be considered as a weakness.
• But all practices may not be optimum & cannot be generalised for all
firms eg. Product – market scope based.
• Hence, identify the dimensions of USPs & other competitive criteria,
before classifying it as strength or weakness.

85
4. Critical Factors for Success (CSF)

• Each business is unique & has a set of minimum performance

standards.
• These are termed as CSF or key factors for success.
• This can help to examine strength or weakness w.r.t. the minimum
requirements for achieving success.
• For eg., a firm in FMCG must advertise strongly. However, if it cannot
afford it, it may be considered as a weakness.
• But one criterion isn’t sufficient to evaluate the total firm.
• In short, a multiple criteria method is required to cover all the facets
of corporate capabilities & weaknesses.

86
Measuring Strengths & Weaknesses

3 measures can be used for judging the degree of strength or weakness

of an organisation :
1. Attribute measures : statements without a unit of measurement like
“our key weakness is our large workforce”.
2. Effectiveness measures: statement that identifies the capability or
strength of an organisation & so also weakness, like “our morning
fitness exercise has helped in making our employees maintain high
energy levels” or a weakness like “the distance between our plant &
the market is high, leading to an increase in product cost”.
3. Efficiency measures : helps in measuring & improving the
productivity of the organisation. “10% rejection rate is a big loss”.
87
How do you do an internal analysis?

Step 1 Prepare current product-market profile.

Identify sources of competitive

Step 2 advantage and disadvantage in
the main product-market segments.

Step 3 Describe all the organizational

capabilities and competencies.

Sort the core capabilities and

Step 4 competencies according to
strategic importance.

Identify and agree on

Step 5 the key capabilities
and competencies.
88
 Core
competences

Core
activities

Value
chain

Configuration Co-ordination

Internal External
Concentration Dispersion
co-ordination co-ordination
Internal External
Internal linkages linkages
activities
Value-adding Suppliers Channels
External activities Customers
activities
Value system

Managing the value system 89

The Road to Competitive Advantage

Performance Results

Competitive Advantage

DistinctiveOrganizational
Capabilities

Organizational Organizational Core

Resources Capabilities Competencies

Financial assets Organizational processes

Physical assets and routines
Human resources Accumulated knowledge
Intangible assets Actual work activities
Structural-cultural assets 90
The road to distinctive organizational capabilities

Distinctive Organizational
Capabilities

Organizational Core
Capabilities Competencies

Organizational Capabilities
Resources • Fundamental building block for
Tangible developing core competencies
Intangible •Organizational processes and
routines to get the work done
91
Core Competencies, Distinctive Competencies
& Critical Success Factors
Core Competencies
• Things a corporation can do exceedingly well that may provide a
competitive edge.
Distinctive Competencies
• Core competencies that are superior to those of competitors
• Gives a winning approach to running your business
Critical Success Factors
• These are the factors which, if you aren’t successful in overcoming
threat or exploiting opportunities, strategies won’t be successful

92
 Criteria to evaluate Core Competences
• Complexity: How elaborate is the bundle of resources and
capabilities which comprise the core competence?
• Identifiability: How difficult is it to identify?
• Imitability: How difficult is it to imitate?
• Durability: How long does it be replaced by an alternative
competences?
• Superiority: Is it clearly superior to the competences of
other organizations?
• Adaptability: How easily can the competence be leveraged
or adapted?
• Customer orientation: How is the competence perceived by
customers and how far is it linked to their needs?
93
Examples of Core Competencies

• After-sales service capability (Maruti)

• Skills in manufacturing a high quality product (BMW)

• System to fill customer orders accurately and swiftly (Amazon

Flipkart)

94
Distinctive Capability – some examples

• Expertise in petrol engine technology is HONDA and

• Expertise in small engine design is Suzuki
• P & G - Superb marketing-distribution skills and R&D capabilities in
five core technologies - fats, oils, skin chemistry, surfactants,
emulsifiers

95
Capabilities vs. Core Competencies
vs. Distinctive Capabilities
• A company capability is the product of
organizational learning and experience and
represents real proficiency in performing an
internal activity
• A core competence is a well-performed internal
activity that is central (not peripheral or
incidental) to a company’s competitiveness and
profitability
• A distinctive Capability is a competitively valuable
activity that a company performs better than its
rivals
96
Determining Distinctive Competencies

1. Values (Does it provide competitive edge?)

2. Rareness (Do other competitors NOT posses it?)
3. Imitability (Is it costly for others to imitate?)
4. Organization (Is the Firm organized to exploit the
resource?)

If answers are “YES”, you have a distinctive

competence which indicates a strength.

97
From Distinctive capabilities to competitive advantage

•Contributes to
Superior Customer
Value

•Is Difficult
Distinctive
for Competitors
•Can Be Used Organizational to Imitate
in a Variety Capabilities
of Ways

98
Internal analysis
Analysis of the
global business

Global value chain Resources,

Cultural and
analysis: configuration capabilities and
structural analysis
and co-ordination core competences

Global products and performance

99
 Resources: Capabilities: Core competence
human, financial, Industry-specific Distinctive and superior
physical, skills, relationships, skills, technology Perceived
technological, + organizational = relationships, customer
legal, informational knowledge knowledge and benefits/value
Intangible reputation of the firm added
Tangible and and invisible Unique, and
visible assets assets difficult to copy

Inputs to Integration of
the firm’s resources into
processes value-adding
activities
Not all capabilities are core Denotes feedback
competences – only those loop
that add greater value than denotes core competence
those of competitors development

The relationships between resources, capabilities and core competence

100
Resources
• Resources are assets employed in the activities and
processes of the organization.
• They can be tangible or intangible.
• They can be obtained externally (organization-addressable)
or internally generated (organization-specific).
• They can be specific and non-specific:
Specific resources can only be used for highly specialized
purposes and are very important to the organization in
adding value to goods and services.
Assets that are less specific are less important in adding
value, but are more flexible.

101
Resources fall within several categories:
Human
Financial
Physical
Technological
Informational

An audit of resources would be likely to include an

evaluation of resources in terms of availability, quantity and
quality, extent of employment, sources, control systems and
performance.

102
From Value Chain Analysis to Competitive
Advantage

Sustainable competitive advantage can be created by :

1.Managing value chain activities better than rivals and/or

2.Developing distinctive value chain capabilities to serve customers!

103
 Global Value Chain Analysis
Competitive advantage depends on the ability of the
organization to organize its resources and value-adding
activities in a way that is superior to its competitors.

Value chain analysis is a technique developed by Porter

(1985) for understanding an organization’s value-adding
activities and relationship between them.

104
• Value can be added in two ways:
By producing products at a lower cost than
competitors
By producing products of greater perceived value
than those of competitors.

• Porter extended value chain analysis to the value

system, analysis of the relationship between the
organization, its suppliers, distribution channels and
customers.

105
I. Typical Value Chain for a Manufactured
Product

Raw Primary Fabrication Product Distributor Retailer

Materials Manufacturing Producer

106
The Value Chain
• The value chain is the chain of activities which results in
the final value of a business’s products.
• Value refers to the amount that a customer is willing to
pay for the firm provides them. (perceived value)
• Value added, or margin is indicated by sales revenue
minus costs.
• This must be the goal of any strategy.

• Porter divided internal parts of organization into

primary and support activities.

107
Primary activities are those that directly contribute to
production of good or services and organization’s
provision to customer.

Support activities are those that aid primary activities,

but do not themselves add value.

108
 Corporate Value Chain
Firm Infrastructure
(general management, accounting, finance, strategic planning)

Human Resource Management

(recruiting, training, development)
Support
Activities
Technology Development
(R&D, product and process improvement)
Profit
Procurement Margin
(purchasing of raw materials, machines, supplies)

Inbound Operations Outbound Marketing Service

Logistics (machining, Logistics and Sales (installation,
(raw assembling, (warehousing (advertising, repair, parts)
materials testing) and promotion,
handling and distribution pricing,
warehousing) of finished channel
product) relations)

Primary Activities
109
Using Value Chain Analysis

• Examine your value chain

• Determine how you reduce non-value work
• Determine how to link work together (salesperson’s inspect)
• Gain economies of scope by sharing functions between products
• Helps in make or buy decisions leading to Outsourcing.

110
II. Functional Resources Scanning

A. Management and organizing for strategies

B. Organizational Culture
C. Organizational Resources
Functional Approach
A. Management and Organizational Structure
-- See next slide for changes you need to make in
organizational structure to match some strategy
changes
111
A. Basic Structures of Corporations: Simple and
Functional

I. Simple Structure

Owner-Manager

Workers

II. Functional Structure

Top Management

Manufacturing Sales Finance Personnel

112
B. Basic Structures of Corporations: Divisional

III. Divisional Structure*

Top Management

Product Division A Geographic

Manufacturing Finance Manufacturing Finance

Sales Personnel Sales Personnel

*Conglomerate structure is a variant of the division structure.

113
Other types of Internal Analysis

• Internal audit / SWOT Audit

Look at all functional areas and see which are performing well

• Capabilities assessment profile

Analyze capabilities to identify potential sources of competitive
advantage

114
Appeal of Outsourcing

Outsourcing non-critical activities allows a firm to

concentrate its energies and resources on those
value-chain activities where it
• Can create unique value
• Can be best in the industry
Advantages to outsourcing
• Decrease internal bureaucracies
• Flatten organization structure
• Provide firm with heightened strategic focus
115
Drivers of Cost Advantage

ECONOMIES OF SCALE • Indivisiblities

• Specialization and division of labor

ECONOMIES OF LEARNING • Increased dexterity

• Improved organizational routines

• Process innovation
PRODUCTION TECHNIQUES • Reengineering business processes

PRODUCT DESIGN • Standardizing designs & components

• Design for manufacture

• Location advantages
INPUT COSTS • Ownership of low-cost inputs
• Non-union labor
• Bargaining power

CAPACITY UTILIZATION • Ratio of fixed to variable costs

• Speed of capacity adjustment

RESIDUAL EFFICIENCY • Organizational slack; Motivation &

culture; Managerial efficiency 116
The Structural Determinants of Competition
SUPPLIER POWER
• Supplier concentration
• Relative bargaining
power

THREAT OF ENTRY INDUSTRY RIVALRY SUBSTITUTE

•Capital requirements •Concentration COMPETITION
•Economies of scale •Diversity of
•Absolute cost advantage competitors • Buyers’ propensity
to substitute
•Product differentiation •Product differentiation
• Relative prices &
•Access to distribution •Excess capacity &
channels exit barriers performance of
substitutes
•Legal/ regulatory barriers •Cost conditions
•Retaliation

BUYER POWER
• Buyers’ price sensitivity
• Relative bargaining
Porter’s 5 Force Model
power 117
118
Applying Porter’s Five-Forces Analysis

Forecasting Industry Profitability

• Past profitability a poor indicator of future
profitability.
• If we can forecast changes in industry structure we
can predict likely impact on competition and
profitability.

Strategies to Improve Industry Profitability

• What structural variables are depressing profitability
• Which of these variables can be changed by
individual or collective strategies?

119
Neutralizing The Five Competitive Forces

Force Method for Neutralizing Force

Entry Erecting barriers (isolating
mechanisms) create & exploit economies of
scale, aggressive deterrence, design in switching costs,
etc.

Rivalry Compete on non-price dimensions:

cost leadership, differentiation, cooperation, etc.
Improve attractiveness compared to
Substitutes substitutes: better service, more features, etc..
Reduce buyer uniqueness: forward
Buyers integrate, differentiate product, new customers, etc..
Reduce supplier uniqueness: backward
integrate, obtain minority position, second source, etc..
Suppliers
120
Identify Strategy-Critical Activities
Which activities are strategy-critical depends
• Particulars of a firm’s strategy
• Value-chain make-up
• Competitive requirements
• External market conditions
Identify strategy-critical activities
• What business processes have to be performed
extra well or in timely fashion to achieve
competitive advantage?
• In what value-chain activities would poor work
performance impair strategic success?
121
Difficulty in developing competencies

• Because these competencies are in people

• Hard to develop
• Hard to identify
• Hard to change / improve
• Also hard to “steal”
Social Complexity
Historical
Casually ambiguous

122
SWOT Audit
Past Performance Trends Comparison Against Competitors

Are organizational
resources and capabilities
strengths or weaknesses?

Specific Goals or Targets Personal Opinions of Strategic

Decision Makers or Consultants

123
SWOT ANALYSIS
• STRENGTH – INTERNAL

• WEAKNESS – INTERNAL

• OPPORTUNITIES –EXTERNAL

• THREATS -EXTERNAL

124
SWOT - FAQs
• SWOT analysis diagram Strengths • What does your organisation do better
than others? • What are your unique selling points? • What do you
competitors and customers in your market perceive as your strengths? •
What is your organisations competitive edge? Opportunities • What
political, economic, social-cultural, or technology (PEST) changes are taking
place that could be favourable to you? • Where are there currently gaps in
the market or unfulfilled demand? • What new innovation could your
organisation bring to the market? Weakness • What do other organisations
do better than you? • What elements of your business add little or no
value? • What do competitors and customers in your market perceive as
your weakness? Threats • What political, economic, social-cultural, or
technology (PEST) changes are taking place that could be unfavourable to
you? • What restraints to you face? • What is your competition doing that
could negatively impact you?

125
Identifying Resource Strengths and Competitive
Capabilities
• A strength is something a firm does well or a
characteristic that enhances its competitiveness
• Valuable competencies or know-how
• Valuable physical assets
• Valuable human assets
• Valuable organizational assets
• Valuable intangible assets
• Important competitive capabilities
• An attribute that places a company in
a position of market advantage
• Alliances or cooperative ventures
126
Identifying Resource Weaknesses
and Competitive Deficiencies

• A weakness is something a firm lacks, does

poorly, or a condition placing it at a
disadvantage
• Resource weaknesses relate to
• Deficiencies in know-how or expertise or
competencies
• Lack of important physical, organizational,
or intangible assets
• Missing capabilities in key areas
127
Identifying External Threats
• Emergence of cheaper/better technologies
• Introduction of better products by rivals
• Intensifying competitive pressures
• Onerous regulations
• A rise in interest rates
• Potential of a hostile takeover
• Unfavorable demographic shifts
• Adverse shifts in foreign exchange rates
• Political upheaval in a country

128
Role of SWOT Analysis in
Crafting a Better Strategy
• Developing a clear understanding of a company’s
• Resource strengths
• Resource weaknesses
• Best opportunities
• External threats
• Drawing conclusions
about how best to deploy
resources in light of the company’s internal
and external situation
• Thinking strategically about how to strengthen the
company’s resource base for the future
129
SWOT Analysis -- What to Look For
Potential Resource Potential Resource Potential Company Potential External
Strengths Weaknesses Opportunities Threats

• Powerful strategy • No clear strategic • Serving additional • Entry of potent new

• Strong financial direction customer groups competitors
condition • Obsolete facilities • Expanding to new • Loss of sales to
• Strong brand name • Weak balance sheet; geographic areas substitutes
image/reputation excess debt • Expanding product • Slowing market
• Widely recognized • Higher overall costs line growth
market leader than rivals • Transferring skills to • Adverse shifts in
• Proprietary • Missing some key new products exchange rates & trade
technology skills/competencies • Vertical integration policies
• Cost advantages • Subpar profits . . . • Openings to take MS • Costly new
from rivals regulations
• Strong advertising • Internal operating
problems . . . • Acquisition of rivals • Vulnerability to
• Product innovation business cycle
skills • Falling behind in R&D • Alliances or JVs to
expand coverage • Growing leverage of
• Good customer • Too narrow product customers or suppliers
service line • Openings to exploit
new technologies • Shift in buyer needs
• Better product quality • Weak marketing skills for product
•Alliances or JVs • Openings to extend
brand name/image • Demographic changes

130
Take Aways from SWOT
• Internal Analysis tells what a firm CAN do
• Goal is to create core competencies and distinctive
capabilities
• Without them, you will not be in business long
• Creating distinctive capabilities takes time
• Very hard to do…Even harder to “steal”
• Value chain analysis a way to
• Understand where the competencies lie
• Think about outsourcing

131
Interest Groups
Shareholders /
Board

Senior Middle Managers

Management / Operating Core

Government /
Technostructure
Professional Interest Groups
/ Support staff
associations

Customers /
Suppliers
Competitors

Contract Staff /
Special Interest
Groups

132
Stakeholders

Definition:

“Stakeholders are groups or individuals

who have a stake in, or expectation of, the
organisation’s performance .....”

Johnson ,Scholes & Whittington

Exploring Corporate Strategy

133
Frames of Reference

Functional/
divisional

Professional Organisational
(or
institutional) The
individual

National Industrial/
(or regional) sector
(recipe)

134
Stakeholder Mapping: Power/ Predictability

LOW
Few Unpredictable
Problems but
Manageable
Power
Powerful Greatest
but Danger or
HIGH Predictable Opportunities

HIGH LOW
Predictability
135
JUDGEMENTS on Stakeholder Power/Predictability Matrix

• Likelihood of each stakeholder group impressing their

expectations

• Whether they have the means to impress:

Power of Stakeholder

• Effect of stakeholder expectations on future

strategies....

136
Stakeholder Mapping: Power/ Interest
LOW Minimal Keep
Effort Informed

Power

Keep Key
HIGH Satisfied Players

LOW HIGH
Levels of Interest
137
 Sub-group Possible objectives
EMPLOYEES Higher wages
Job satisfaction
Security of employment
Better working conditions
SHAREHOLDERS Dividends
Capital growth
LOAN FINANCIERS Interest
Prompt repayment of loan
instalments
SOCIETY No pollution
Clean image
No unsavoury relations
MANAGERS Status
Power
Perks
Challenging tasks
Opportunities for development
CONSUMERS Safe, affordable product
Quality Service

138
Conclusion

• Direction priorities will be influenced by key stakeholders

• May vary depending on size and complexity of organisations
• Small lifestyle businesses may not seek growth
• Large complex organisations must be accountable to external
owners/shareholders
• Corporate social responsibility may be a factor in shaping direction
• Managerialism which focuses on return on capital employed/
investment dominates, it is a legal obligation to meet needs of
shareholders

139
Preparing for the Future : The Role of Scenario
Analysis in Adapting to Industry Change
• Stages in undertaking multiple Scenario Analysis:

• Identify major forces driving industry change

• Predict possible impacts of each force on the industry environment

• Identify interactions between different external forces

• Among range of outcomes, identify 2-4 most likely/ most interesting scenarios:
configurations of changes and outcomes

• Consider implications of each scenario for the company

• Identify key signposts pointing toward the emergence of each scenario

• Prepare contingency plan 140

Gary Hamel: Shaking the Foundations
OLD BRICK NEW BRICK
Top management is responsible Everyone is responsible
for setting strategy for setting strategy

Getting better, getting faster Rule-busting innovation

is the way to win is the way to win

IT creates competitive advantage Unconventional business concepts

create competitive advantage

Being revolutionary is high risk More of the same is high risk

We can merge our way to There’s no correlation between

competitiveness size and competitiveness

Innovation equals new products Innovation equals entirely new

and new technology business concepts

Strategy is the easy part, Strategy is the easy only if you’re

Implementation the hard part content to be an imitator

Change starts at the top Change starts with activists

Our real problem is execution Our real problem is innovation

Big companies can’t innovate Big companies can become gray-haired

revolutionaries
141
 Industry Analysis – India looking ahead
• Influx of multicultural talent can help Indian firms to gain competitive
advantage in the global market.
• Firms have to develop distinctive competence (hard to imitate & is durable) ;
just having competitive advantage will not help in standing up against hyper
competition which is the reality.
• As technology changes are rapid, durability has little value. Indian companies
will have to outsource a number of activities to reduce costs.
• In order to take advantage of core competence, Indian firms should move
towards a decentralised structure.
• We have a distinct corporate culture which is our strength in the market place
unlike new products or technology which can be copied.
• Indian firms should encourage autonomous work teams to gain higher
efficiencies & greater effectiveness. This can also help integrate functional142
specialisations.
 Contents
Unit Topic Slide
No No.’s

I Corporate Strategic Planning 4 - 47

49 -
II Environment Analysis & Internal Analysis of a Firm
133
135 -
III Strategy Formulation 168

IV Tools of Strategy

V Strategy Implication & Control

VI Review and Feedback

143
Contents under Unit 3 – Strategy Formulation

Sl. # Sub Topics Slide No.’s

1 Generic Strategies 135 -

2 Grand Strategies
3 Strategies of leading Indian Companies
4 Role of diversification – limits, means & forms
5 Strategic Management for small organisations
6 For NPO – non profit organisations
7 For Large Multiproduct organisations
8 And Multiple Market organisations

144
Porter's Generic Strategies

• A firm positions itself by leveraging its strengths

• Michael Porter has argued that a firm's strengths ultimately fall into
one of two headings: cost advantage and differentiation.

• By applying these strengths in either a broad or narrow scope, three

generic strategies result: cost leadership, differentiation, and focus

145
Cost Leadership Strategy
• This generic strategy calls for being the low cost producer in an industry for a
given level of quality.

• The firm sells its products either at average industry prices to earn a profit
higher than that of rivals, or below the average industry prices to gain market
share.

• In the event of a price war, the firm can maintain some profitability while the
competition suffers losses

• Even without a price war, as the industry matures and prices decline, the firms
that can produce more cheaply will remain profitable for a longer period of
time

• The cost leadership strategy always targets a broad market.

146
Firms that succeed in cost leadership often
have the following internal strengths:
Access to the capital required to make a significant investment in
production assets; this investment represents a barrier to entry that
many firms may not overcome.
Skill in designing products for efficient manufacturing.
High level of expertise in manufacturing process engineering.
Efficient distribution channels

147
Risks Involved in Cost Leadership Strategy

• Other firms may be able to lower their costs as well.

• As technology improves, the competition may be able to leapfrog the
production capabilities, thus eliminating the competitive advantage.

• Several firms following a focus strategy and targeting various narrow

markets may be able to achieve an even lower cost within their
segments and as a group gain significant market share.

148
• A leading cost strategy for McDonalds is the ability to purchase the
land and buildings of its restaurants
• McDonalds also developed a strong division of labor for its
production processes, tight management control and product
development strategy. Creating a strong top-down style of
management is another leading cost strategy for McDonalds
• Using fewer in-store managers allows the company to hire lower-
wage workers to complete tasks.

149
• After nearing complete bankruptcy in the 1980s, Apple clawed its way
back into the personal electronic industry through smart business
practices and highly desirable consumer goods.
• Apple uses low-cost direct materials to develop the cheapest
consumer goods possible.
• Creating long-standing business agreements with companies like
AT&T for web hosting and other applications helps Apple stay focused
on developing products rather than Internet hosting or access

150
Differentiation Strategy

• A differentiation strategy calls for the development of a product or

service that offers unique attributes that are valued by customers and
that customers perceive to be better than or different from the
products of the competition.

• The value added by the uniqueness of the product may allow the firm
to charge a premium price for it. The firm hopes that the higher price
will more than cover the extra costs incurred in offering the unique
product.

151
Firms that succeed in a differentiation strategy
often have the following internal strengths:
Access to leading scientific research.

Highly skilled and creative product development team.

Strong sales team with the ability to successfully communicate the

perceived strengths of the product.

Corporate reputation for quality and innovation.

152
Risks Involved in Differentiation Strategy

• Imitation by competitors and changes in customer tastes

• Various firms pursuing focus strategies may be able to achieve even

greater differentiation in their market segments.

153
• Medimix herbal soap differentiated itself on the herbal plank two
decades back when there were only synthetic soaps.
• A new brand of herbal soap launched in today’s context has to
probably define the herbal qualities through an enhanced mix of
ingredients to convey the differentiation because `herbal’ is the
proposition of several brands both new and old.
• The established Medimix brand is currently running a campaign,
which conveys the brand benefits through appropriate imagery.

154
Focus Strategy
• The focus strategy concentrates on a narrow segment and within that
segment attempts to achieve either a cost advantage or
differentiation.
• The premise is that the needs of the group can be better serviced by
focusing entirely on it.
• A firm using a focus strategy often enjoys a high degree of customer
loyalty, and this entrenched loyalty discourages other firms from
competing directly.
• Because of their narrow market focus, firms pursuing a focus strategy
have lower volumes and therefore less bargaining power with their
suppliers.
• However, firms pursuing a differentiation-focused strategy may be
able to pass higher costs on to customers since close substitute
products do not exist.
155
Firms that succeed in a Focus Strategy often
have the following internal strengths:

The firm is able to tailor a broad range of product development

strengths to a relatively narrow market segment that they know very
well.

156
Risks Involved in Focus Strategy

Imitation and changes in the target segments

It may be fairly easy for a broad-market cost leader to adapt its
product in order to compete directly

Other focusers may be able to carve out sub-segments that they can
serve even better.

157
By successfully adopting the 'focus' strategy since 1997, PepsiCo has
emerged as the second largest consumer packaged goods company

The company has significantly strengthened its competitive position

in the beverages segment.

By acquiring leading beverages' company like Tropicana products

(July 1998), South Beach Beverage Company (October 2000) and
Quaker Oats (December 2000) & further moved to Fritto Lays.

158
Industry Cost Differentiation Focus
Force Leadership
Entry Ability to cut price Customer loyalty can Focusing develops core
Barriers in retaliation deters discourage potential competencies that can act
potential entrants. entrants as an entry barrier.
Buyer Ability to offer Large buyers have less Large buyers have less power
lower price to power to negotiate because to negotiate because of few
Power powerful buyers. of few close alternatives. alternatives.

Supplier Better insulated Better able to pass on Suppliers have power

from powerful through suppliers, price because of low volumes
Power suppliers. increases to customers.

Threat of Can use low price
Substitute to defend against
substitutes.
Customer's become Specialized products &
attached to differentiating
attributes, reducing threat
core competency protect
against substitutes.
of substitutes.

Rivalry Better able to Brand loyalty to keep Rivals cannot meet

compete on price. customers from rivals. differentiation-focused
customer needs. 159
Grand Strategy
General plan of action to achieve long-term objectives :
1. Growth :
Can be promoted internally by investing in expansion or externally by
acquiring additional business divisions.

2. Stability :
Remain same size or grow steadily and in a controlled fashion.

3. Retrenchment :
Forced decline by either shrinking current business units or selling off
or liquidating entire businesses.

160
15 Types of Grand Strategies
Concentrated Growth Conglomerate Diversification

Market Development Turnaround

Product Development Divestiture

Innovation Liquidation

Horizontal Integration Bankruptcy

Vertical Integration Joint Ventures

Concentric Diversification Strategic Alliances

Consortia
161
The Basic Issues in Diversification Decisions

Superior profit derives from two sources:

INDUSTRY
ATTRACTIVENESS
RATE OF PROFIT
> COST OF CAPITAL
COMPETITIVE
ADVANTAGE

Diversification decisions involve these same two issues:

• How attractive is the sector to be entered?
•Can the firm achieve a competitive advantage?
162
Diversification Strategies
• Concentric diversification
• Involves acquisition of businesses related to acquiring
firm in terms of technology, markets, or products
• Conglomerate diversification
• Involves acquisition of a business because it represents a
promising investment opportunity
• Primary motivation is profit pattern of venture

Difference between the approaches

• Concentric diversification emphasizes commonality,
whereas conglomerate diversification emphasizes profits
for each individual unit
163
Motivations Related to Diversification
Strategies
• Increase firm’s stock value
• Increase growth rate of firm
• Investment is better use of funds than using them for internal growth
• Improve stability of earnings and sales
• Balance or fill out product line
• Diversify product line
• Acquire a needed resource quickly
• Achieve tax savings
• Increase efficiency and profitability

164
Motives for Diversification
GROWTH --The desire to escape stagnant or declining industries
is a powerful motive for diversification (e.g. tobacco,
oil, newspapers).
--But, growth satisfies managers not shareholders.
--Growth strategies (esp. by acquisition), tend to
destroy shareholder value

RISK --Diversification reduces variance of profit flows

SPREADING --But, doesn’t create value for shareholders—they can
hold diversified portfolios of securities.
--Capital Asset Pricing Model shows that diversification
lowers unsystematic risk not systematic risk.

PROFIT --For diversification to create shareholder value, then

bringing together of different businesses under
common ownership & must somehow increase
their profitability.
165
 Diversification and Shareholder Value:
Porter’s Three Essential Tests
If diversification is to create shareholder value, it must meet three tests:

1. The Attractiveness Test: diversification must be directed towards

attractive industries (or have the potential to become attractive).

2. The Cost of Entry Test: the cost of entry must not capitalize all future
profits.

3. The Better-Off Test: either the new unit must gain competitive advantage
from its link with the company, or vice-versa. (i.e. some form of “synergy”
must be present)
166
Competitive Advantage from Diversification

• Sharing tangible resources (research labs, distribution

systems) across multiple businesses
• Sharing intangible resources (brands, technology) across
ECONOMIES multiple businesses
OF • Transferring functional capabilities (marketing, product
SCOPE development) across businesses
• Applying general management capabilities to multiple
businesses

• Economies of scope not a sufficient basis for

ECONOMIES diversification ----must be supported by transaction costs
FROM • Diversification firm can avoid transaction costs by
INTERNALIZING
TRANSACTIONS
operating internal capital and labor markets
• Key advantage of diversified firm over external markets---
superior access to information

167
Relatedness in Diversification

Economies of scope in diversification derive from two

types of relatedness:
• Operational Relatedness-- synergies from sharing
resources across businesses (common distribution
facilities, brands, joint R&D)
• Strategic Relatedness-- synergies at the corporate
level deriving from the ability to apply common
management capabilities to different businesses.
Caution:
Problem of operational relatedness:- the benefits in
terms of economies of scope may be dwarfed by the
administrative costs involved in their exploitation.

168
Forms and Means of Diversification

Diversification typically takes one of three forms:

• Vertical integration - along your value chain
• Horizontal diversification - moving into new industry
• Geographical diversification - to open up new markets
• Means of achieving diversification include internal
development, acquisitions, strategic alliances, and joint ventures. As
each route has its own set of issues, benefits, and limitations, various
forms and means of diversification can be mixed and matched to
create a range of options.

169
3 Forms of Diversification

• Vertical Integration - integrating business along your value chain,

both upstream and downstream, so that one efficiently feeds the
other
• Horizontal Diversification - moving into more than one industry; the
new business usually somehow relates to the existing one, although a
few conglomerates instead pursue a strategy of unrelated
diversification
• Geographical Diversification - moving into new geographical area to
overcome limited growth opportunities in the local market and/or to
gain global leadership positions

170
Disadvantages of Diversification
3 principal reasons why a business model based on diversification may
lead to a loss of competitive advantage:
1. Changes in the industry or inside a company that occur over a
period of time.
2. Diversification pursued for the wrong reasons, and
3. Excessive diversification that results in increasing bureaucratic
costs.

171
Limits of Diversification

(i) Adequate funds are required for diversification. The internal savings
of the business may not be sufficient to finance growth.

(ii) Diversification may involve new technology and new markets. The
existing staff may experience problems in adapting to this growth
pattern.

(iii) The tasks and responsibilities of top executives increase because of

need to handle new product, technology and markets.

172
Strategic Management for Small Businesses

• Global definition of a Small business is which employs <500 people

with an annual turnover of 20 million $ (Rs. 13 Cr) while, in the Indian
context, a Small & Medium Enterprise (SME) employs <200 people
with an annual turnover of Rs. 5 Cr (7.7 mio $).
• SMEs are typically independently owned & fear innovation.
• The misconception amongst SMEs in India is that Strategic Planning is
confined to large – scale enterprises.
• SMEs in India start with just one product. Those oriented toward
growth immediately starts looking for another one.

173
Critical Success Factors for SMEs Strategies

4 such important characteristics which are key to these firms are :

1. Ability to identify potential opportunities better.
2. A sense of urgency making them action oriented.
3. Knowledge of key to success in the industry &
4. Supplementing through outside help, skills, knowledge & ability.

174
Strategic Management for Non-Profit Organisations
• Examples are police, philanthropic & community service organisations etc.
• Corporate philanthropy being at its early stages, necessitates the need for
strategic planning.
• NPOs, through strategic planning exercise, can think of alliances to enhance their
capacity to serve their clients.
• Can also look at reaching a geographically wider area.
• Means of effective communication.
• Do an environmental scanning by SWOT & identify gaps to act on them.
• On measures to acquire resources.
• Steps to maximise stakeholders benefits in a transparent manner.
• Mergers can also be thought of when resources become scarce.
• And be a choice NPO for most.

175
Factors influencing choice of an NPO

Choice of an NPO by Corporates or individual donors are influenced by

its :
1. Responsiveness
2. Credibility
3. Capability
4. Confidence
5. Communication
6. Channel references
7. Tangibility
8. Top Management

176
 Contents
Unit Topic Slide
No No.’s

I Corporate Strategic Planning 4 - 47

49 -
II Environment Analysis & Internal Analysis of a Firm
133
135 -
III Strategy Formulation
168

IV Tools of Strategy 171 -

V Strategy Implication & Control

VI Review and Feedback

177
Contents under Unit 4 – Tools of Strategy
Sl. # Sub Topics Slide No.’s

1 Planning and evaluation 171 -

2 Competitive cost dynamics
3 Experience curve
4 BCG approach
5 Cash flow implication
6 IA-BS Matrix
7 A.D. Little’s Life-cycle
8 Approach to Strategic planning
9 Business portfolio balancing
10 Assessment of economic contribution of strategy
11 Strategic funds programming
178
Taj Workshop with Mr. Masai[1]

• The Taj hotel group had invited Mr. Masai Imai from Japan to hold a
workshop for its staff. The staff were very skeptical- the hotel is doing
excellent business, this person from Japan has no exposure to hotel
industry- what exactly is he going to teach?
• But everybody as planned gathered for the workshop in the
conference hall sharp at 9 am. Mr. Masai was introduced to them- a
not so impressive personality, nor the English all that good; spoke as if
he was first formulating each sentence in Japanese and then
translating it into rather clumsy English.

179
• "Good morning! Let's start work. I am told this is a workshop; but I
see neither work nor shop. So let's proceed where work is happening.
Let's start with the first room on the first floor." Mr. Masai, followed
by the senior management, the participants, the video camera crew
trouped out of the conference room and proceeded to the
destination. That happened to be the laundry room of the hotel. Mr.
Masai entered the room and stood at the window, "beautiful view!"
he said. The staff knew it; they need not invite a Japanese consultant
to tell them this!
• "A room with such a beautiful view is being wasted as a laundry
room.
Shift the laundry to the basement and convert this into a guest
room."
Aa Haa! now nobody had ever thought about that! The manager said,
"Yes, it can be done."

180
• "Then let's do it.", Mr. Masai said.
• "Yes sir, I will make a note of this and we will include it in the report on the
workshop that will be prepared." Manager
• "Excuse me, but there is nothing to note down in this. Let's just do it, just
now." Mr. Masai.
• "Just now?" Manager
"Yes, decide on a room on the ground floor/basement and shift the stuff
out of this room right away. It should take a couple of hours, right?" Mr.
Masai.
• "Yes." Manager.
• "Let's come back here just before lunch. By then all this stuff will have got
shifted out and the room must be ready with the carpets, furniture etc and
from today you can start earning the few thousand that you charge your
customers for a room night."
"Ok, Sir." The manager had no option.

181
• The next destination was the pantry. The group entered. At the
entrance were two huge sinks full of plates to be washed. Mr. Masai
removed his jacket and started washing the plates.
"Sir, Please, what are you doing?" the manager didn't know what to
say and what to do.
"Why, I am washing the plates", Mr. Masai.
"But sir, there is staff here to do that." Manager
• Mr. Masai continued washing, "I think sink is for washing plates, there
are stands here to keep the plates and the plates should go into the
stands."
• All the officials wondered - did they require a consultant to tell them
this?

182
• After finishing the job, Mr. Masai asked, "how many plates do you
have?'
"Plenty, so that there should never be any shortage." Manager.
• Mr. Masai said, "We have a word in Japanese-'Muda'. Muda means
delay, muda means unnecessary spending. One lesson to be learned
in this workshop is to avoid both. If you have plenty of plates, there
will be delay in cleaning them up. The first step to correct this
situation is to remove all the excess plates."
• "Yes, we will say this in the report." Manager.
"No, wasting our time in writing the report is again an instance of
'muda'. We must pack the extra plates in a box right away and send
these to whichever other section of Taj require these. Throughout the
workshop now we will find out where all we find this 'muda' hidden."

183
• And then at every spot and session, the staff eagerly awaited to find
out muda and learn how to avoid it.

• On the last day, Mr. Masai told a story.

• "A Japanese and an American, both fond of hunting, entered a jungle
with guns. In the pursuit of game they entered deep jungle and
suddenly realized that they had run out of bullets. Just then they
heard a lion roaring. Both started running. But the Japanese took a
short break to put on his sports shoes. The American said, "What are
you doing? We must first get to the car."
The Japanese said, "No. I only have to ensure that I remain ahead of
you." All the participants engrossed in listening to the story, realized
suddenly that the lion would stop after getting his victim!

184
Taj Workshop with Mr. Masai[7]

• "The lesson is competition in today's world is so fierce, that it is

important to stay ahead of other even by just a couple of steps. And
you have such a huge and naturally well endowed country. If you
remember to curtail your production expenditure and give the best
quality always, you will be miles ahead as compared to so many other
countries in the world.", concluded Mr. Masai

185
 Sources of Superior Performance

Above Normal
Profits
(in Excess of the Competitive Level)

Avoid Be Better Than

Competitors Competition
Attractive Attractive Attractive
Industry Strategic Niche Cost Differentiation
Group Advantage Advantage
Entry Mobility Isolating
Barriers Barriers Mechanisms
186
Sources of Competitive Advantage

COST
ADVANTAGE

COMPETITIVE
ADVANTAGE

DIFFERENTIATION
ADVANTAGE

187
Drivers of Cost Advantage

ECONOMIES OF SCALE • Indivisibli\ties

• Specialization and division of labor

ECONOMIES OF LEARNING • Increased dexterity

• Improved organizational routines

• Process innovation
PRODUCTION TECHNIQUES • Reengineering business processes

PRODUCT DESIGN • Standardizing designs & components

• Design for manufacture

• Location advantages
INPUT COSTS • Ownership of low-cost inputs
• Non-union labor
• Bargaining power

CAPACITY UTILIZATION • Ratio of fixed to variable costs

• Speed of capacity adjustment

RESIDUAL EFFICIENCY • Organizational slack; Motivation &

culture; Managerial efficiency 188
Competitive Cost Dynamics & Experience
Curve
• In the 1960's, management consultants at The Boston Consulting
Group observed a consistent relationship between the cost of
production and the cumulative production quantity (total quantity
produced from the first unit to the last).
• Data revealed that the real value-added production cost declined by
20 to 30 percent for each doubling of cumulative production quantity:
• It is common for the terms experience curve and learning curve to be
used interchangeably. They do, however, have different meanings .

189
 The Experience Curve

The “Law of Experience”

1992 The unit cost value added to a standard product
declines by a constant % (typically 20-30%) each
time cumulative output doubles.
1994
Cost per
unit of
output (in 1996
real Rs)
1998
2000
2002 2004

Cumulative Output 190

Thousands
of $
6 85% slope
5
4
1909
3
1910 1913 1914
1915
2 1911
1912 1920
1923
1918
1 1921
.8
10,000 100,000 1,000,000

Cumulative units produced

1909: 1923:
18,000 units 8,000,000 units
$3,300 $950

Price of Model T, 1909-1923

(in 1958 dollars)
191
Experience Curve Vs. Learning Curve

• Experience Curve
• The term experience curve is more of a macro concept
• All cost and effects are reflected by experience curve
• Learning curve
• The term learning curve is a micro concept.
• learning curve relates to labour hours and hence labour cost as
consequence, reduction in cost due to learning curve is much lower.

192
Uses of Experience Curve

• There are three general areas for the application and use of
experience curves; strategic, internal, and external to the
organization.
• Strategic uses include determining volume-cost changes, estimating
new product start-up costs, and pricing of new products.
• Internal applications include developing labor standards, scheduling,
budgeting, and make-or-buy decisions.
• External uses are supplier scheduling, cash flow budgeting, and
estimating purchase costs.

193
Dangers of Relying on the Experience Curve

• Pricing based on the experience curve

• Loss of proprietary knowledge
• Technical innovation
• Globalization

194
Learning Curve Concepts

• Predicts reduction in manufacturing costs or direct labor hours as

cumulative production increases

• Based on empirical evidence rather than theory

195
Forces behind the Learning curve

1. Increased labor efficiency

2. Process innovations and methods improvements
3. Substitution effects
4. Product redesign
5. Standardization
6. Economies of scale
7. Shared experience

196
Estimating learning curve parameters[1]

• The concept applies to an aggregation rather than to

individual operations
• First unit hours rarely known in time to develop curve – must
estimate far in advance
• Slope can be estimated by least-squares regression
• Comparisons should always be made to similar
products/processes – industry data usually available
• Extensive pre-production planning should result in lower,
flatter curve

197
Estimating learning curve parameters[2]

Little planning

Man-hrs. / unit
Extensive planning

Cumulative units

198
Manufacturing strategy and the learning curve
• Capacity expands automatically
• Break-even points reduced automatically
• Worker compensation plans should account for
learning effects
• The learning curve is a strategic, not a tactical concept
– cannot be used as a short-range operating control
• A learning curve strategy can reduce the ability to
innovate
• At some point, the learning curve will “plateau”

199
Learning Curve Applications
• Production planning / EOQ planning
• Price forecasting
Petrochemicals
Consumer durable goods
• Competitive bidding
• Income reporting in accounting
• Planning warranty maintenance
Washers / dryers
Televisions
• Forecasting industrial accidents
Petroleum industry
Mining
• Forecasting automobile accidents on new roadways
200
Production and Efficiency

• Economies of scale
• Lower unit costs due to large
scale production volumes.
• Learning effects
• Cost reductions due to
learning by doing.
• The experience curve
• Systematic unit-cost reductions that are the result of accumulated output.

201
Production and Efficiency:
Economies of Scale
• A typical long-run
unit-cost curve:

202
Production and Efficiency:
Learning Effects
• Economies of scale
and learning
effects:

203
 Production and Efficiency:
The Experience Curve
• A typical experience curve:

204
Production and Efficiency: The
Experience Curve

• Unit production costs in an

integrated steel mill and a minimill.
205
 Production and Efficiency:
Manufacturing and Mass Customization
• Flexible manufacturing technology (lean
production)
• Reduced setup times
• Increased machine utilization
• Improved quality control
• Lower inventory levels
• Mass customization
• Low cost and product customization
• Flexible machine cells
• Increased variety of operations

206
Production and Efficiency: Flexible
Manufacturing

• The tradeoff between

costs and product variety
207
Marketing and Efficiency

• Marketing strategy:
• Product design
• Advertising
• Promotion
• Pricing
• Distribution

208
The Relationship Between Average
Unit Costs and Customer
Defection Rates

209
The Relationship Between Customer
Loyalty and Profit
per Customer

210
Materials Management, JIT, and Efficiency
• Materials management
• Getting materials into and through
the production process and out
through the distribution system
to the end user.
• Just-In-Time (JIT)
• Reduce inventory holding costs by having
materials arrive JIT to enter the production
process.
• JIT risk: There are no buffer stocks for non-
delivery or unanticipated increases in demand.
211
R&D Strategy and Efficiency

• Design easy-to-manufacture products

• Reduce numbers of parts per unit.
• Reduce assembly time.
• Closely coordinate R&D
and production activities.
• Pioneer process innovations
• Innovations create competitive
advantage through gains in process efficiencies.

212
Human Resource Strategy and
Efficiency
• Ways to increase employee productivity and lower
unit costs:
• Provide training that upgrades employee skills.
• Establish self-managing teams
to gain a more flexible work force
and increased productivity.
• Use pay-for-performance
incentives for teams to encourage
meeting productivity and
quality goals.

213
 Infrastructure and Efficiency

• Achieving superior efficiency requires a company-

wide commitment built through top management
leadership in:
• Articulating the vision.
• Facilitating cross-
functional cooperation.

214
 Portfolio Analysis

BCG Tool for Analyzing

Opportunities & Ability to Compete
(Cash Flow Implication)

215
Types of Portfolio Analysis
A. Growth Share Matrix (Boston Consulting Group)
B. Industry Attractiveness/Business Position Matrix (General Electric)
C. Arthur D. Little’s Life-cycle Competitive Strength Matrix

We shall deal with each of the above in the following slides :

216
 A. Growth Share Matrix (Boston
Consulting Group)

• Classification of SBUs/products into four cell matrix

based on
• Market Attractiveness
• Indicator – Industry’s annual growth rate
• 10% traditional cutoff
• Business Strength
• Indicator – Company’s Market Share Relative to
Largest Competitor

217
 High

Growth Rate
Business
Relative Position
High

Low
(Market Share)

Low
219
Star Strategies

• Leader expanding industry

• Generates large profits
• Requires substantial investments
to sustain growth
• Farthest down on experience
curve relative to competition
• Increase sales – e.g. new markets,
new channels of distribution
• Increase market share

220
Problem Child or ?

• Low market share in

expanding industry
• Needs substantial cash
to improve its position
• Slow progress on
experience curve
• Increase sales (limit to
niche or increase market
share (limit to niche)
• Leave market
221
Cash Cow
• Leader in mature or declining
industry
• Can generate funds for other SBUs
• Maintain market share e.g. ensure
quality, build customer loyalty,
develop substitute brands
• Maximize Cash Flow e.g. increase
usage rate, rate of replacement,
modify expense structure, raise
prices

222
Dogs

• Low market share in a mature or

declining industry
• Slow progress on experience
curve
• Cost disadvantages and few
growth opportunities
• Harvest or Divest
• Concentrate on niches requiring
limited effort

223
Strategy Implications BCG[1]

• Star – Leader in Expanding Industry

• BUILD - Continue to increase market share – if necessary at
expense of short-term earnings
• Problem Child – Low market share in Expanding Industry
• HARVEST if weak, BUILD if strong.
• Assess chances of dominating segment. If good, go after share. If
bad, redefine business or withdraw.

224
Strategy Implications BCG[2]

• Cash Cow – Leader in mature or declining industry

• HOLD - Maintain share and cost leadership until further investment becomes
marginal
• Maximize cash flow
• Dogs – Low market share in a mature or declining industry
• DIVEST Plan an orderly withdrawal so as to maximize cash flow or concentrate
on niches that require limited effort

225
Assumptions of Growth /Share Matrix
• High market share generates cash revenues ?
• High Market growth uses more cash resources ?

226
Issues with Growth/Share Matrix[1]

• Market growth is not the only factor related to

cash usage.
• Market growth is not necessarily related to cash
usage.
• Market share is not necessarily related cash
generation.
• Multiple factors lead to profitability.
• Cash is not the only factor in evaluating a portfolio.

227
Issues With Growth/Share Matrix[2]
• Limited to industries where experience curve is relevant
• Appropriate for volume industries
• Overlooks perils of growth
• Measurement problems
• Product-market definition problems
• Difficult to implement strategies

228
Business Portfolio Balancing

• To be successful, a company should have a portfolio of products with

different growth rates and different market shares.
• The portfolio composition is a function of the balance between cash
flows.
• High growth products require cash inputs to grow.
• Low growth products should generate excess cash.
• Both kinds are needed simultaneously.

229
B. Industry Attractiveness –
Business Strength (IA-BS)
MATRIX

230
B. The Business Strength-Industry
Attractiveness Matrix
• To eliminate some of the limitations of the BCG
growth/share matrix, a more complete matrix analysis
was developed by the General Electric planners and
mostly used by McKinsey & Co - a management
consulting firm.
• The primary improvement of BS/IA matrix is that it
allows for the analysis of multiple variables (rather
than only market share and growth) depending on
the context.
• And, rather than focusing on cash flow , it concerns
potential future return on investment.
231
Business Strength and Industry Attractiveness
Dimensions
 Horizontal axis – market
attractiveness;
 Vertical axis – business strength;
• Size
• Size
• Growth
• Growth
• Share of segment
• Customer satisfaction levels
• Customer loyalty
• Competition; quantity, types,
effectiveness, commitment • Margins
• Price levels • Distribution
• Profitability • Technology skills
• Technology • Patents
• Government regulations • Marketing
• Sensitivity to economic • Flexibility
trends • Organization
232
 Industry Attractiveness-Business
Strength Matrix

Description of Dimensions

Industry Attractiveness Business Strength

Subjective assessment Subjective assessment
based on broadest of how strong a
possible range of competitive advantage is
external opportunities & created by a broad range
threats beyond the strict of the firm’s internal
control strengths & weaknesses
of management
233
Weight, Rating, Value?

In BS/IA matrix, each of the key variables used must be given a

weight, rating and value.
• The weight will be based on its importance to the company, relative
to other selected variables. The total point must equal 10. the
weights can be determined by management or, when possible, by
customer surveys.
• A rating (or grade) will be given for each business strength variable.
E.g. a strength would receive a high score, a weakness would receive
a low score.

234
• The rating for each variable is then multiplied by its
weight to obtain the variable’s value.
• The values are individual summed for total value for
business strength for that particular business.
• For industry attractiveness, influencing variables will
be given a weight based on their importance to the
business, and a rating based on favorable or
unfavorable conditions in the environment
(opportunity or threat?).
• The total value for industry attractiveness is calculated
in the same manner as for business strength.
• The two scores for each business unit are then used to
position the business on the matrix.
235
Business Strength Weight Rating Value
(importance (performance; (Weight
to the firm: 1=poor, 10= × Rating)
must add up excellent)
to 10)

Profit 3 8 24
Prod/ser qual. 3 8 24
Man. Skills 2 7 14
Location 1 6 6
Atmosphere 1 5 5
Total value for business strength 73

236
Industry Weight Rating Value
Attractiveness (importance (present trend;
to the firm: 1=not attractive
must add up 10=very attractive)
to 10)

Growth 2.5 5 12.5

Profit margins 3.5 7 24.5
Comp. intensity 3 5 15
Remote env. 1 7 7
Total value for industry attractiveness 59

237
 Industry Attractiveness

High Medium Low

Premium Selective Protective 100
invest / grow invest / grow selectivity /
High
earnings
Business
Strength Challenge Prime Restructure 67
Medium invest / grow selectivity / harvest /
earnings divest

33
Opportunistic Opportunity Harvest /
Low selectivity / harvest / divest
earnings divest

100 67 33 0
238
Strategy Implications[1]
The position on the matrix (determined according to
the weight, rating and value) will indicate the
appropriate strategy (as in the BCG matrix).
• Green cells define the businesses that will receive the
resources to grow; the so called “green light”
businesses. The market is high or medium in
attractiveness and the organization has high or
enough skills and resources to take advantage of the
market.

239
Strategy Implications[2]

• Red cells define the businesses that lack opportunity in terms of

market and or company capabilities; the so called “red light”
businesses. They are managed to harvest their resources or are just
divested.
• Yellow cells define businesses that are to receive selective
investment, and where caution (the yellow light) is the operating
style.

240
 Issues with Ind. Attractiveness/
Business Strength Cell Matrix

• Takes many strategic variables into account

• Allows for weighting & range of rankings
• Use to prioritize investments & channel funds
• No real guidance on specifics of business strategy
• Doesn’t address strategic coordination issues
• Doesn’t adequately deal with new business in emerging
industry

241
Strategy Implications of Attractiveness/Strength
Matrix
• Businesses in upper left corner
• Accorded top investment priority
• Strategic prescription - grow and build
• Businesses in three diagonal cells
• Given medium investment priority
• Invest to maintain position
• Businesses in lower right corner
• Candidates for harvesting or divestiture
• May, on occasion, be candidates for an overhaul
and reposition strategy

242
Appeal of the
Attractiveness/Strength Matrix
• Incorporates a wide variety of strategically relevant
variables
• Stresses concentrating corporate resources in
businesses that enjoy
• High degree of industry attractiveness and
• High degree of competitive
strength
• The lesson here is emphasize
businesses that are market
leaders or that can contend
for market leadership

243
Limitations of BS/IA Matrix
• Although richer and more broadly applicable than the
BCG growth-share matrix, it can be more subjective in
the selection and weighting of the factors.
• Different business units may involve different factors
which makes the analysis ambiguous.
• As it is the case with the BCG growth-share matrix, the
results are very sensitive to the definition of the
product market. E.g. luxury cars, all cars?

244
 C. Arthur D. LITTLE’s

LIFE CYCLE APPROACH

245
A.D. LITTLE’s LIFE CYCLE APPROACH

• This model of strategic analysis is structured like a matrix with five

rows and four columns (5 x 4) resulting from combining two
performance indicators: industry life-cycle stage and market
competitive position.
• With reference to the specific market characteristics, the present
method, which considers the life cycle stage of a product, points out
that a market, in a certain period of time, may be in one of the
following four stages: introduction, growth, maturity and decline.
Each specific stage within the product life cycle can be identified,
assessed, quantified and characterized by a system of indicators.

246
4 Factors focussed to assess Competitive
position in a given market
1. Supply factors: long-term contracts, labour costs and payment
terms;
2. Production factors: production flexibility and capacity, experience,
technical skills, environmental protection, quality of management,
skill or expertise, labour productivity and production cost;
3. Commercialization factors: the power and quality of distribution
network, credit conditions the image of the product, product range,
market share, sales force and price;
4. Financial factors: profitability, financial stability, cash flow and
technological protection;
247
 5 Factors focussed to assess Industry Life
Cycle stage in a given market
1. Dominant - this position is very rare and most often is due to the posture of
a monopoly company or market dominance exerted strong, from a
technological point of view.
2. Strong - the company has a high level of freedom in terms of strategic
options and can act without its market position to be threatened by
competitors.
3. Favourable - this position is found in fragmented markets, where no
competitor has a very clear market position and the most important
companies have a high degree of freedom.
4. Tenable - companies within this category are generally vulnerable to fierce
competition exerted by organizations with proactive and strong market
positions. However, they survive and are able to justify their existence on the
market.
5. Poor /Weak- the company performance is generally unsatisfactory, even if
market opportunities exist, through which it can be improved.
248
249
The advantages of the ADL matrix

• Unlike other models of product portfolio analysis the ADL matrix is

based on an enhanced applicability because it fits to all situations of
competition encountered in a marketplace.
• Also the ADL matrix can be applied to the fragmented industries,
holding a small competitive advantage but with a large number of
ways of obtaining it (provides multiple ways of differentiation). As
such we can say that the ADL matrix has a high degree of adaptability
to situations of a qualitative nature.

250
 Disadvantages of the ADL Matrix

• A first disadvantage is that the matrix does not take into account a
number of phenomena that can generate long-term involution in the
products life cycle of a company.
• Another weakness is related to the high level of difficulty in terms of
objective evaluation of the ADL model variables. This is often the case for
the competitive position indicator. In other words, the difficulty lies in the
fact that some factors are qualitative in nature and there is a high risk of
bias in their use.

In conclusion, we can say that the ADL matrix provides clearer results as a
company is more diversified and enable synchronization on decisions
relating to competition.
251
Strategic Funds Programming

• Often times organizations seek funding without having an

organizational plan.
• This often leads the organization into challenges around
organizational focus and improper expenditures of funds.
• The following slides will assist individuals and organizations in
developing a strategic plan that will both lay out the
foundation for proper resource development and ensure
confidence in funders on your organization's direction and
stability.

252
Who makes what decisions ?

• Who decides the strategic direction for the organization, and what
degree of input is sought from the board and the staff?
• Known as internal stakeholders, the following 3 are those that should
IMMEDIATELY help decide the strategic direction of the organization:
1. Board – As the base and legal “guardian” of the organization, all
board members should be involved.
2. Executive and Senior Staff – Should be involved in all aspects of
strategic plan, with feedback upon request on board direction.
3. Staff – Opportunities for staff feedback on the direction of the
organization is critical to eventual buy-in of strategic plan. Select
staff members serving on a committee or cross-organizational
dialogue are potential strategies.
253
Should you also involve external stakeholders ? [1]

• The answer is a resounding “YES!”. The following 3, known as

external stakeholders, are those that should help decide the
strategic direction of the organization:
4. Funders and Key Donors
• Funders have made an investment into the organization and
feedback from this important group should be sought. Avenues to
solicit feedback can start with the impersonal (surveys, phone
discussions) to the more formal (feedback lunches).
5. Community Partners
• There are a variety of outside organizations and institutions that
have a hand in the success of your organization. Involving them in
informal and formal feedback outlets will ensure future buy-in but
may also prevent future duplication of services.
254
Should you also involve external stakeholders ? [2]

6. Program Participants :
One of the most forgotten groups in the strategic planning process,
the feedback from participants can be “gold”. Including them in
informal and formal feedback processes can ensure that the
organization is one that they not only receive services but also can
have a hand in it’s direction. This can have immeasurable outcomes
on organizational culture and program delivery.

255
 Contents
Unit Topic Slide
No No.’s

I Corporate Strategic Planning 4 - 47

49 -
II Environment Analysis & Internal Analysis of a Firm
133
135 -
III Strategy Formulation
168
171 -
IV Tools of Strategy
248
251-
V Strategy Implication & Control 356

VI Review and Feedback

256
APPROACHES TO STRATEGY IMPLEMENTATION
(METHODS)

INTRODUCTION
• Effective implementation of a strategy needs a clear and appropriate
approach to implementation.
• Brodwin & Bourgeois have identified 5 fundamental approaches for
strategy implementation.
• These strategies range from asking subordinates to implement the
strategies that have been formulated by the top level management to
empowering subordinates to formulate & implement strategies on
their own.

257
5 fundamental approaches for implementation

1. Commander Approach
2. Organizational change approach
3. Collaborative approach
4. Cultural approach
5. Crescive approach

(Definition of CRESCIVE. : marked by gradual spontaneous

development.)

258
1. COMMANDER APPROACH[1]
• This approach is a top down approach.
• The strategy is developed or formulated by the top level management
and it is passed to the subordinates with instructions how to execute it.
• The top management takes a back seat in strategy implementation but
oversees it.
• The leader does not take an active role in implementing the strategy.
• The strategic leader is primarily a thinker/planner rather than a doer.
• The manager will determine the “best” strategy either alone or with the
help of a group of experts.
• Once the desired strategy is formulated, the manager passes it along to
subordinates who are instructed to execute the strategy.
• In this scenario, the manager does not take an active role in
implementing the strategy, but rather uses power to see that the
strategy is implemented.
259
1. COMMANDER APPROACH[2]
THREE CONDITIONS MUST BE MET
1) Manager must have power
2) Accurate and timely information is available
3) No personal biases should be present
ADVANTAGES
• This is a very common approach, simple and it is used in small
companies within stable industries.
• It works best, when very little change is required.
• Managers focus on strategy formulation only.
DISADVANTAGES
• Those who implement the strategy are not involved in the
formulation of the strategy, thus they become demotivated because
of this.
260
2. ORGANIZATIONAL CHANGE APPROACH[1]
• This approach starts where the commander approach ends. The strategy
formulation resembles the Commander Approach.
• The Organizational Change approach focuses on how to get an organization to
implement a strategy.
• Managers who implement this approach assume that a good strategy has been
formulated and view their task as getting the company moving toward new goals.
• The tools used to accomplish this approach are largely behavioral.
• The Organizational change approach emphasizes on bringing about the required
change in the firm to implement a strategy. The strategic leader again decides
major changes of strategy and the considers the appropriate changes in structure,
personnel, and information and reward systems if the strategy is to be
implemented effectively. The Change Approach is often more effective than the
Commander Approach and can be used to implement more difficult strategies
because of used the several behavioral science techniques.

261
2. ORGANIZATIONAL CHANGE APPROACH[2]
ADVANTAGES
• Focuses on the organization
• Behavioral tools are used
• Includes focusing on the organization’s staffing and structure
• Often more effective than Commander Approach
• Used to implement difficult strategies
DISADVANTAGES
• Managers don’t stay informed of changes occurring within the
environment
• Imposes strategies in a “top-down” format hence motivation
problems.
• Can backfire in rapidly changing industries
262
3. COLLABORATIVE APPROACH[1]
• This approach views strategy development as a collective effort of all
managers.
• All the views of the managers are considered in this vital task.
• Brainstorming sessions are held for strategy formulation and
implementation tactics. This is a very useful and helpful approach.
• The manager in charge of the strategy calls in the rest of the management
team to brainstorm strategy formulation and implementation.
• The role of the manager is that of a coordinator. Other members of the
organization’s management team are encouraged to contribute their points
of view in order to extract whatever group wisdom may be present.
• This approach overcomes two key limitations present in the previous two
approaches. First, by capturing information contributed by managers close
to operations, it can increase the quality and timeliness of the information
incorporated in the strategy. Also, it improves the chances of efficient
implementation to the degree that participation enhances strategy
commitment. However the top level management still retains control over
the entire process.
263
3. COLLABORATIVE APPROACH[2]
ADVANTAGES
• All managers are involved in strategy formulation, they can contribute their ideas
and hence this motivates them.
• The timeliness & quality of information is increased.
• There is effective implementation since the managers were involved in strategy
formulation.
DISADVANTAGES
• It is a time consuming process.
• All managers view points may not be taken into consideration. Hence they may
feel de-motivated and may detach themselves from the strategy.
• A negotiated strategy may sometimes become a compromised strategy and not
the best strategy.
• The dominant members’ strategy may be taken into consideration which may not
be the best strategy.
• The top level management retains control over the entire process.

264
 4. CULTURAL APPROACH[1]
• The Cultural Approach extends the democratic element of the Collaborative approach
further to include the lower levels in the firm. The strategic leader concentrates on
establishing and communicating a clear mission and purpose for the organization and
allowing employees to design their own work activities with this mission. He plays the
role of a coach in giving general direction, but encourages individual decision-making to
determine the operating details of executive the plan.
• These techniques involve implementing strategy by employing the concept of "third-
order control." First-order control is direct supervision; second - order control involves
using rules, procedures, and organizational structure to guide behavior. Third - order
control is potentially more powerful. It consists of influencing behavior through shaping
the norms, values, symbols, and beliefs that managers and employees use in making day-
to-day decisions.
• It partially breaks down the barriers between management and workers since each
member of the organization can be involved to some degree in both the formulation and
implementation of the strategy. It seems to work best in organizations that have
sufficient resources to absorb the cost of building and maintaining a supportive value
system. Often these are high-growth firms in high-technology industries.

265
4. CULTURAL APPROACH[2]
ADVANTAGES

1) More enthusiastic implementation

2) It partially breaks down the barriers between management and
workers since they formulate and implement the strategy.

DISADVANTAGES

1) Workers should be informed and intelligent

2) Consumes large amounts of time
3) Discourages change and innovation
4) People at the lower level may not have the perspective vision,
knowledge & expertise to develop strategies.
266
5. THE CRESCIVE APPROACH[1]

• The Crescive approach addresses strategy formulation and strategy

implementation simultaneously. Crescive means increasing or growing.
• This approach is a bottom-up approach - it moves upwards from the lower
and middle level management to the top level management. Instead of the
top level management taking up the entire responsibility of developing the
strategy, the lower level management is empowered to develop and
implement the strategy. Goals are stated loosely from the top level
management and refined from the bottom. The strategic leader is not
interested in formulating the strategy alone. The subordinates develop and
implement the strategies on their own.
• This approach considers economic, social, political & behavioral factors.
According to Brodwin & Bourgeois, the Crescive approach is suitable for
large, complex, diversified organizations where the CEO cannot know or
understand all the strategic and operating forces that affect each division.
267
5. THE CRESCIVE APPROACH[2]

ADVANTAGES
• Encourages middle & lower management to participate.
• Commitment from the employees for implementation since they
were involved in formulation.
• Increases the motivation & morale of employees.
DISADVANTAGES
• Huge amount of resources are required.
• Strategies that are formulated may not be proper since these are
formulated by the middle & lower management.
268
CONCLUSION

• Thus these are 5 approaches to strategy implementation.

• These methods can be used to successfully implement the strategies
of an organization. The first two strategies are suitable for small
companies where there exist a centralized structure. On the other
hand, the last three strategies are more appropriate for large
decentralized organizations.

269
 STRATEGIC IMPLEMENTATION

Management Perspectives

• Management issues central to strategy implementation include establishing :

1. Annual Objective 2. Devising Policies 3. Allocating Resources 4. Managing Conflict

5. Restructuring and Reengineering 6. Matching Structure with Strategy 7. Strategy-Supportive Culture

8. Managing Resistance to Change 9. Production/operations concerns

270
STRATEGIC IMPLEMENTATION

1.ANNUAL OBJECTIVE
Annual objectives serve as guidelines for action, directing and channeling efforts and activities
of organization members.
Annual objective are essential for strategy implementation because :

1)Represent the basis for allocating resources

2)Primary mechanism for evaluating managers
3)Are the major instrument for monitoring progress forward achieving long-
term objective
4)Establish organizational, divisional and departmental priorities.

271
Example : The STP Aims
LONG-TERM OBJECTIVE
to become a nation that is competent, confident and innovative in
harnessing, utilising and advancing science and technology
towards achieving the goals of
the nation’s Vision 2020.

To achieve a competent work

To increase R&D spending to at
force of at least 60 RSEs
least 1.5 per by the year 2010 in
(researchers, scientists and
an effort to enhance national
engineers) per 10,000 labour
capacity in R&D
force

272
STRATEGIC IMPLEMENTATION

2. POLICIES

• Policy refers to specific guidelines, methods, procedures, rules, forms,

and administrative practices established to support and encourage work
toward stated goals.

• Policies clarify what can and cannot be done in pursuit of an

organization’s objectives

273
STRATEGIC IMPLEMENTATION

National Science and Technology Policy (STP)

1. Strengthening research and technological capacity and capability.

2. Promoting commercialization of research outputs.

3. Developing human resource capacity and capability.

4. Promoting a culture for science, innovation and techno- entrepreneurship.

5. Build competence for specialisation in key emerging technologies

274
3. RESOURCES ALLOCATION[1]
• All organizations have at least four types of resources that can be used
to achieve desired objectives:
1. Financial resources
2. Physical resources
3. Human resources
4. Technological resources.

• Effective resource allocation does not guarantee successful strategy

implementation because programs, personnel, controls, and
commitment must breathe life into the resources provided.

275
3. Resources Allocation[2]
• The science and technology curriculum,
• The pedagogy of science and technology and its assessments,
• The pre-service and in-service education of teachers,
• The provision of laboratories, workshops, equipment, textbooks and
other resources.

(Pedagogy is the method and practice of teaching, especially as an

academic subject or theoretical concept.)

276
STRATEGIC IMPLEMENTATION

4. MANAGING CONFLICT
Conflict can be defined as a disagreement between two or more parties on
one or more issues.

Establishing annual objectives can lead to conflict because individuals have

different expectations and perceptions, schedules create pressure,
personalities are incompatible, and misunderstandings between line
managers and staff managers occurs.

Various approaches for managing and resolving conflict can be classified

into three categories: avoidance, defusion, and confrontation.

277
STRATEGIC IMPLEMENTATION

6. MATCHING STRUCTURE WITH STRATEGY[1]

• The Functional Structure

• The Divisional Structure

• The Strategic Business Unit (SBU) Structure

• The Matrix Structure

278
STRATEGIC IMPLEMENTATION
6. MATCHING STRUCTURE WITH STRATEGY[2]
• The functional structure
the most widely used because this structure is the simplest and least expensive.
A functional structure by major function such as academic affairs student services,
alumni relations, athletics, maintenance, and accounting.

• The divisional structure

The second most common type used by U.S business. It can be organized into 4 ways
:
1) by geographic area
2) by product or service
3) by customer
4) by process
279
7. CREATING A STRATEGY-SUPPORTIVE
CULTURE[1]
• Before the implementation, the existing culture sometime
need to alter to fit with the new strategy.
• Numerous technique are available to alter an organization's
culture including :
recruitment, training, transfer, promotion, restructure of an
organization's design and positive reinforcement.

280
7. CREATING A STRATEGY-SUPPORTIVE CULTURE[2]
Promote the culture for science, innovation, and techno-
entrepreneurship through:
• Programme to intensify creative thinking and problem-solving skills in
primary education
• Research grants to schools
• Redesigning of syllabi to achieve a balance of science and technology,
the arts and humanities
• Increasing the vocational and technical skills content in secondary
schools
• Intensifying efforts to increase science and technology language
competence to facilitate the flow of information

281
STRATEGIC IMPLEMENTATION

8. MANAGING RESISTANCE TO CHANGE[1]

• The single greatest threat to successful strategy implementation.

• Resistance to change can emerge at any stage of the strategy

implementation process.

282
8. MANAGING RESISTANCE TO CHANGE[2]
There are approaches for implementing change:

1) A force change strategy

 Giving orders and enforcing those order.

2) The educative change strategy

 Presents the information to convince people of the need for
change.

3) Self-Interest change strategy

 Attempts to convince the individual that the change is to their
personal advantage

283
Leadership and Strategic Implementation
• Businesses today face change on all fronts– economic, regulatory, competitive,
customer, and access to resources. Consequently, every company is adjusting its
strategy and that implies change. The success of your strategy depends on your
people – will they be able to implement the strategy and achieve the goals?
• Strategic leadership provides the vision, direction, the purpose for growth, and
context for the success of the corporation. It also initiates "outside-the-box"
thinking to generate future growth. Strategic leadership is not about
micromanaging business strategies. Rather, it provides the umbrella under which
businesses devise appropriate strategies and create value.
• If you are a leader at any level, your people look to you for guidance on what
needs to be done, and how. The key requirements of leaders are to:
• Set the strategy
• Communicate the strategy
• Implement the strategy through people
• Get results

284
 Roles to Play For Good Strategy Execution
• Staying on top of what is happening, closely monitoring progress, fretting out issues, learning what
obstacle lie in path of good strategic implementation.

• Promoting the culture of Esprit de corps that mobilizes and energizes organizational members to
execute strategy in competent fashion and perform at high level.

• Keeping organizations responsive to changing conditions, alert for new opportunities, innovative ideas,
ahead of rivals in developing competitively valuable competencies and capabilities.

• Exercising ethics leadership and model conduct and Pushing corrective actions to improve strategy
execution and overall performance.

• The role of leader is Introducing Change, Integrating Conflicting Interests, Developing Leadership
Effectiveness of Managers, Developing Appropriate Organizational Climate, Motivational system, Clarity
of goals, Relationships, Involvement, Interest, Monitoring, Change as and when required.

285
 Leadership Role in Implementation
• Strategic leadership entails the ability to anticipate, envision, maintain flexibility, and
empower others to create strategic change as necessary.
• A manager with strategic leadership skills exhibits the ability to guide the company
through the new competitive landscape by influencing the behavior, thoughts, and
feelings of co-workers, managing thought of others and successfully dealing with
rapid, complex change and uncertainty.

• Strategic leaders are CEO, Board of Directors, Top Management Teams, Divisional
General Managers. They must be able to deal with the diverse and cognitive complex
competitive situations that are characteristic of today’s competitive situation.

286
287
288
Responsibilities of Strategic Leaders
• Managing Human Capital
• Effectively managing company’s Operations
• Sustaining High performance over time
• Being willing to make candid, courageous, yet pragmatic decisions.
• Seeking feedback from face to face communication.
• Having decision making responsibility that cannot be delegated.
• Navigator
• Strategist
• Entrepreneur
• Mobilizer
• Talent advocate
• Captivator
• Global thinker
• Change driver
• Enterprise guardian
289
Building A Strategy Supportive Corporate Culture
• “An organization’s capacity to execute its strategy depends on its “hard”
infrastructure--its organization structure and systems--and on its “soft”
infrastructure--its culture and norms.”
• Building a Strategy-Supportive Corporate Culture
• Where Does Corporate Culture Come From?
• Culture and Strategy Execution
• Types of Cultures
• Creating a Fit Between Strategy and Culture
• Establishing Ethical Standards
• Building a Spirit of High Performance
• Exerting Strategic Leadership
• Staying on Top of How Well Things are Going
• Establishing a Strategy-Supportive Culture
• Keeping Internal Organization Innovative
• Exercising Ethics Leadership
• Making Corrective Adjustments

290
 What Makes Up a Company’s Culture?
• Beliefs about how business ought to be conducted
• Values and principles of management
• Work climate and atmosphere
• Patterns of “how we do things around here”
• Oft-told stories illustrating company’s values
• Taboos and political don’ts
• Traditions and Ethical standards
Where Does Corporate Culture Come From?
• Founder or early leader
• Influential individual or work group
• Policies, vision, or strategies
• Traditions, supervisory practices, employee attitudes
• Organizational politics
• Relationships with stakeholders and Internal sociological forces

291
Culture and Strategy Execution: Ally or Obstacle?
• Culture can contribute to -- or hinder -- successful strategy execution.
• Requirements for successful strategy execution may -- or may not -- be
compatible with culture.
• A close match between culture and strategy promotes effective strategy
execution
• Why Culture Matters: Benefits of a Good Culture-Strategy Fit
Strategy-supportive cultures
• Shape mood and temperament of the work force, positively affecting
organizational energy, work habits, and operating practices
• Provide standards, values, informal rules and peer pressures that
nurture and motivate people to do their jobs in ways that promote
good strategy execution
• Strengthen employee identification with the company, its
performance targets, and strategy

292
 Strategy-Supportive cultures

• Stimulate people to take on the challenge of realizing the

company’s vision, do their jobs competently and with enthusiasm,
and collaborate with others to execute the strategy

• Optimal condition: A work environment that Promotes “can do”

attitudes, Accepts change, Breeds needed capabilities.

293
Forces and Factors Causing Culture to Evolve
1. Internal crises

2. Revolutionary technologies

3. New challenges

4. Arrival of new leaders

5. Turnover of key employees

6. Diversification into new businesses

7. Expansion into different geographic areas

8. Rapid growth adding new employees

9. Merger with or acquisition of another company

10. Globalization
294
Creating a Strong Fit Between Strategy
and Culture

Diagnose which facets of present culture are strategy-

Step 1 supportive and which are not

Talk openly about why aspects

Step 2 of present culture need
to be changed

Follow with swift, visible actions to modify culture -

Step 3 include both substantive and symbolic actions

295
Types of Corporate Cultures

Strong vs. Weak Cultures

Unhealthy Cultures

Adaptive Cultures

296
Characteristics of Strong Culture Companies
• Conduct business according to a clear, widely-understood philosophy
• Management spends considerable time communicating and
reinforcing values
• Values are widely shared and deeply rooted
• Typically have a values statement
• Careful screening/selection of new employees to be sure they will “fit
in”
• Visible rewards for those following norms; penalties for those who
don’t
297
How Does a Culture Come to Be Strong?
• Leader who establishes values consistent with
• Customer needs
• Competitive conditions
• Strategic requirements
• A deep, abiding commitment to espoused values and business philosophy
• Practicing what is preached!
• Genuine concern for well-being of
• Customers
• Employees
• Shareholders
298
Characteristics of Weak Culture Companies

• Many subcultures
• Few values and norms widely shared
• Few strong traditions
• Little cohesion among the departments
• Weak employee allegiance to company’s vision and strategy
• No strong sense of company identity

299
Characteristics of Unhealthy or Low
Performance Cultures
• Politicized internal environment

• Issues resolved on basis of turf

• Hostility to change

• Experimentation and efforts to alter status quo discouraged

• Avoid risks and don’t screw up

• Promotion of managers more concerned about process and details than results

• Aversion to look outside for superior practices

• Must-be-invented here syndrome

300
Hallmarks of Adaptive Cultures
• Introduction of new strategies to achieve superior performance

• Strategic agility and fast response to new conditions

• Risk-taking, experimentation, and innovation to satisfy stakeholders

• Proactive approaches to implement workable solutions

• Entrepreneurship encouraged and rewarded

• Top managers exhibit genuine concern for customers, employees,

shareholders, suppliers
301
Types of Culture - Changing Actions
• Revising policies and procedures to help drive cultural change
• Altering incentive compensation to reward desired cultural behavior
• Visibly praising and recognizing people who display new cultural traits
• Hiring new managers and employees who have desired cultural traits
and can serve as role models
• Replacing key executives strongly associated with old culture
• Communicating to all employees the basis for cultural change and its
benefits
302
Symbolic Culture - Changing Actions

• Emphasize frugality

• Eliminate executive perks

• Require executives to spend time talking with customers

• Alter practices identified as cultural hindrances

• Visible awards to honor heroes

• Ceremonial events to praise people and teams who “get with the
program”
303
Substantive Culture - Changing Actions
• Benchmarking and best practices

• Set world-class performance targets

• Bring in new blood, replacing traditional managers

• Shake up the organizational structure

• Change reward structure

• Increase commitment to employee training

• Reallocate budget, downsizing and upsizing

304
McKinsey’s 7S Model or Framework – what is
it?
• Its a management model that describes 7 factors to organize a
company in an holistic & effective way.
• Together these factors determine the way in which a corporation
operates.
• Managers should take into account all 7 of these factors, to be sure of
successful implementation of a strategy.
• Large or small, the strategies are all interdependent, so if you fail to
pay proper attention to one of them, this may effect all others as well.

305
How to use the model?

• The model is based on the theory that, for an organization to perform

well, these seven elements need to be aligned and mutually
reinforcing.
• So, the model can be used to help identify what needs to be realigned
to improve performance, or to maintain alignment (and performance)
during other types of change.
• Whatever the type of change – restructuring, new processes,
organizational merger, new systems, change of leadership, and so on
– the model can be used to understand how the organizational
elements are interrelated, and so ensure that the wider impact of
changes made in one area is taken into consideration.

306
How to use this model?..contd.

• You can use the 7S model to help analyze the current situation (Point
A), a proposed future situation (Point B) and to identify gaps and
inconsistencies between them.
• It's then a question of adjusting and tuning the elements of the 7S
model to ensure that your organization works effectively and well
once you reach the desired endpoint.
• The model is most often used as a tool to assess and monitor changes
in the internal situation of an organization.

307
The 7s Framework

308
Why shared values in the middle of the model?

• Placing Shared Values in the middle of the model emphasizes that

these values are central to the development of all the other critical
elements.
• The company's structure, strategy, systems, style, staff and skills all
stem from why the organization was originally created, and what it
stands for.
• The original vision of the company was formed from the values of the
creators. As the values change, so do all the other elements.

309
The 7s Elements

• The seven interdependent factors are categorized as either "hard" or

"soft" elements.
• Hard Elements: Strategy, Structure & Systems
• Soft Elements: Shared values, Skills, Style & Staff
• "Hard" elements are easier to define or identify Management can
directly influence them. These are
- Strategy
- Structure
- Systems
310
Soft Elements

• "Soft" elements, on the other hand, can be more difficult to describe

• They are less tangible and more influenced by culture.
• These soft elements are as important as the hard elements if the
organization is going to be successful.
• These are:
-Shared Values
-Skills
-Style &
-Staff.

311
7s - 1 – Strategy
The plan devised to maintain and build competitive advantage over the competition.
7s - 2 - Structure
The way the organization is structured and who reports to whom.
7s - 3 – Systems
The daily activities and procedures that staff members engage in to get the job done.
7s - 4 - Shared Values
Called "superordinate goals" when the model was first developed. These are the core
values of the company that are evidenced in the corporate culture and the general work
ethic.
7s - 5 - Style
The style of leadership adopted.
7s - 6 - Staff
The employees and their general capabilities.
7s - 7 - Skills
The actual skills and competencies of the employees working for the company. 312
Where can the 7s model be used?

The 7S model can be used in a wide variety of situations where an

alignment perspective is useful, for example
i. to help you: Improve the performance of a company.
ii. Examine the likely effects of future changes within a company.
iii. Align departments and processes during a merger or acquisition.
iv. Determine how best to implement a proposed strategy.

313
Concluding Remarks on the 7S Framework

• It provides a detailed checklist for the organisation to judge whether

the time is ripe for implementing strategy.
• It can help in diagnosing whether results are fair or “new fits” are
required.
• It is thus more complete in the description of the variables in strategy
changes.
• However, it should be remembered that changing organisational
culture isn’t an easy task.
• But that shouldn’t stop one from striving to bring about change!

314
 Strategic Control[1]
• Control is taking measures that synchronize outcomes as
closely as possible with plans
• Traditionally, has been almost completely based on
financial performance
• Hence, top internal accounting officer became the “In
Charge” official for organization control policies and
procedures
• What do we call the chief accounting officer of an
organization?
• Answer: The Controller
• Financial Information was primary source
• Rewarded Efficiency
• Encouraged Dysfunctional Behavior
315
 Strategic Control[2]
• Strategic Control Methods
• Integrates Quantitative & Qualitative Measures
• Uses Financial and Non-financial information
• Customer (External) focus
• Rewards based upon relative contributions to
organization success
• Encourages desired organizational behavior

Planning Implementing

Control Cycle
Adjusting Measuring

316
Strategic Control[3]

• It takes into account the changing assumptions that determine a

strategy, continually evaluate the strategy as it is being implemented,
and take the necessary steps to adjust the strategy to the new
requirement.
• It is early warning systems and differ from post action controls which
evaluate only after the implementation has been completed.

317
Types of strategic control

1. Premise control
2. Implementation control
3. Strategic surveillance
4. Special alert control
5. Operational control

The basic theme of strategic control is to continually assess the

changing environment to uncover events that may significantly
affect the course of an organization’s strategy.

318
1. Premise Control

• Premise control is necessary to identify the key assumptions, and

keep track of any change in them so as to assess their impact on
strategy and its implementation.
• Premise control serves the purpose of continually testing the
assumptions to find out whether they are still valid or not. It helps in
the strategists to take corrective action at right time.
• Premise control responsibility can be assigned to corporate planning
staff.

319
2. Implementation control

• The implementation of a strategy results in a series of plans,

programmes, and projects.
• Resource allocation plays important role.
• Implementation control may leads into strategic rethinking.
• Implementation control can be implemented by identifying and
monitoring strategic requirement with respect to market success. It
also helps in determining whether to go for diversification or not.
• It can also be carried out through identifying critical points in terms of
events, substantial resource allocation, or significant end-time.

320
3. Strategic surveillance

• It is generalized aimed at designed to monitor a board range of events

inside and outside the company that are likely to threaten the course
of firm’s strategy.
• It can be done through a broad based, general monitoring on the
basis of selected information sources to uncover that are likely to
affect the strategy of an organization.

321
4. Special Alert Control

• It is based on trigger mechanism for rapid response and immediate

reassessment of strategy in the light of sudden and unexpected
events.
• Crises and critical situations that occur unexpectedly and threaten the
course of a strategy

322
5. Operation Control

• It is aimed at the allocation and use of organizational resources

through an evaluation of the performance of organizational units.
• It is concerned with action or performance.
• The evaluation process for operation control deals with –
a. Setting standards for performance
b. Measurement of performance
c. Analysis variances
d. Taking corrective action

323
DuPont System

• Developed in 1919 by a finance executive at E.I. du Pont de Nemours

and Co
• “The DuPont system is a way of visualizing the information so that
everyone can see it.” (Stephen Jablonsky, Penn State University)
• DuPont analysis “is a good tool for getting people started in
understanding how they can have an impact on results” (Doug
McCallen, Caterpillar Inc.)
• “Number one, it’s simple” (Sam Siegel, CFO)

324
 Du Pont Analysis
• Analysis based on establishing a relevant financial relationship between components of
financial statements.
• A tool to examine a company's Return on Equity (ROE).
• ROE is broken into two parts: ROA and Equity Multiplier
• ROA is further drilled to Margin Ratios and Turnover ratios.
• Higher the RoE, more favourable is the organization.
• Margin Ratios: This ratio, also known as return as sales (ROS), measures the amount of net
profit earned by each dollar of revenue. It is computed as: Profit after Tax / Sales.
• Turnover Ratios: This is a measure of the efficiency with which assets are utilized. It
indicates how many times the assets were turned over in a period. It is computed as:
Sales / Total Assets
• Gearing/Leverage Ratios: This is a measure of profitability from a given level of
investment. It is computed as: Total Assets / Owners Equity
• This method returns a higher ROI because assets are measured at their gross book value
325
DuPont System – What is It?

The system identifies profitability as being impacted by three different

levers:

1. Earnings & efficiency in earnings Earnings

2. Ability of your assets to be turned into profits
3. Financial leverage Turnings
Leverage

326
 Du Pont Analysis

Margin Ratios Turn Over Ratios Leverage Ratios

Net Profit Sales Total Assets

Sales Total Assets Owner’s Equity

Net Profit
Return on Equity =
(ROE) Owner’s Equity
327
DuPont System
Earnings/Efficiency
Operating
Profit Margin
Return On
Income X = Assets (less
Stream interest adj.)
Asset
Turnover Return On
X =
Equity
Turnings/Asset Use

Financial
Investment
Structure
Stream
Leverage
328
DuPont System Ratios
Earnings
Operating
Profit Margin
Return On
Income X = Assets (less
Stream interest adj.)
Asset
Turnover Return On
X =
Equity
Turnings

Financial
Investment
Structure
Stream
Leverage
329
DuPont System - Applications

1. Can be used by purchasing or sales dept. to examine or

demonstrate why a given ROA was earned.
2. Benchmarking
3. Analyze changes over time.
4. Tool to teach people as to have they can impact the company
results.
5. Demonstrate the impact of professionalism in purchasing function.

330
DuPont System - Benefits

1. “DuPont Financial Analysis Model is a rather straightforward

method for assessing the factors that influence a firm’s financial
performance.” (Gunderson, Detre, and Boehlje, AgriMarketing
2005)
2. Can be linked to employee compensation schemes.
3. Helps in looking into ones’ own organization for steps to increasing
turnover etc., rather than looking at takeovers to compensate lack
of profitability etc.

331
DuPont System - Limitations

1. Based on accounting numbers which may not be reliable.

2. Does not include the cost of capital.
3. It’s a short term measurement.
4. All the levers are measured before taxes.
5. Does not link time to value of money.

332
Other Tools of Strategic Control

• Measuring organizational performance is the key to strategy

evaluation process.
• Consists of Quantitative & Qualitative aspects.
• It is therefore essential for strategists to have an idea about these
techniques of control.
• That will then enable them to make a choice from those available
alternatives & to use them.
• Apart from the several traditional techniques, we shall discuss on the
recent 2 Quantitative & Qualitative tools.

333
Quantitative Tools - Financial

• This takes up the financial as well as non-financial quantitative

parameters, such as, physical units of time, to assess the
performance.
• Financial Techniques are as follows :
1. Ratio Analysis
2. EVA – Economic Value Added
3. ABC – Activity Based Costing
4. MVA – Market Value Added

334
Quantitative Tools – Non Financial

Non financial techniques are as follows :

1. Computation of Absenteeism
2. Market Ranking
3. Rate of Advertising Recall
4. Service Call Rate

335
Qualitative Tools

• The qualitative evaluation can be done before activating plans of

change.
• This is a real time process.
• The performance of strategy is monitored & corrective actions are
taken.
• Basically, the qualitative factors constitute human factors.

336
Qualitative Tools - FAQs
1. Is the strategy internally consistent?
2. Is the strategy consistent with the environment?
3. Is the strategy appropriate in view of available resources?
4. Does the strategy involve an acceptable degree of risk?
5. Does the strategy have an appropriate time framework?
6. Is the strategy workable?
7. How good is the firm’s balance of investments between high-risk &
low-risk projects?
8. How good is the firm’s balance of investments between long-term &
short-term projects?
9. To what extent are the firm’s alternative strategies socially
responsible?
337
The Balanced Scorecard

338
Executing Strategy...

Is the greatest challenge for organizations

• Vision
• - only 5% of workforce gets it!
• People
• – 25% of managers have incentives linked to strategy
• Management
• – 85% of executive teams spend less than 1 hour/mo
discussing strategy
• Resource
• – 60% of organizations don’t link budgets to strategy

339
Strategic Execution

Bad execution, not bad strategy is the cause of

70% of CEO failures

Execution is not just tactics—it is a discipline and a

system

Source: Execution: The Discipline of Getting Things Done, by Larry Bossidy, and FORTUNE Magazine, “Why CEOs Fail”

340
The Balanced Scorecard

• A robust tool – but keep it simple!

• Makes strategy tangible –everyone’s job!
• Tracks what’s important – hits and misses
• Measurement-lead management
• Provides feedback for short-term course corrections and long-term
learning

341
Cascading Scorecards to Build Alignment

Organization

Business Business Business

Unit Unit Unit

Teams

Individual Contributors

342
 Sound Long-Term
Financial Fiscal Budgeting Investment
Mgmt Strategy

Relationship Brand
Customer – The Value Product/Services
Partnership Image
Price Selection
Proposition The Value Proposition
Quality Availability Services

Customer Mgmt Innovation Operational Excellence

Deepen Knowledge New learning Admin excellence
about customer Partnerships Network of supplier for
Internal Process Attract Future needs Products & services
Retain Adaptability
Grow Relationship

Climate for Action Competencies

Learning & Growth Personal Growth Functional Excellence
Leadership Skills
Strategic Readiness

343
Scorecard Information

Perspective: Financial / Customer / Internal Process / Learning&Growth

Information Type Are…. Example is…

Strategies High Level Goals Increase Market Share

Objectives Measures of action Increase Customer

plans Satisfaction
Measures Indicates success or Average Customer Rating
failure (scale of 1-10)
Targets Desired level of Achieve 9.9 of 10 Average
performance for a Customer Rating
measure
Initiatives Management actions Train CSR Staff in Problem
taken to achieve target Resolution Skills

344
 Customer The Value Proposition
Excellent Service
Exceptional Customer
Value Product/Services Relationship Brand Customer SatisfactionCustomer Satisfaction Report9.0 SPS Overall Bette Francis
Integrity Beyond
Reproach Innovation Partnership Image Ivoice Available 10 Sites by 11/1/03 MT
Availability Service Communicate value
Customer Profitability

Internal Process Operational Excellence

Excellent Service
Exceptional Customer Manage Manage Customer
Value Operations Relationships Markets
Integrity Beyond Acquire new Enhance external
Reproach Maximize efficiency relationships relationships Competitive Positioning 2 Replace/Qtr CP
Maximize quality of Grow/broaden existing
business processes relationships Designs/Quote 5/Quote-Complex MT
Customer Profitability
Create Awareness

Learning & Growth Sustaining Our Ability to Change & Grow

Value of the Individual
Integrity Beyond Organizational
Reproach Human Capital Readiness Platinum Certification Recertify as Platinum B. Francis
Certify Technical
Technical Expertise Information is Available Knowledge Increase Certifications
Employer of Choice Tools to do the job Make application to EOC Submit 2 applicationsB. Francis
Understand the
strategy and what
needs to be done Live the SPS Values
Great People

345
 Human Resources Mission Statement:
The Human Resources Team will lead by example working to build a culture of high-energy,
committed professionals who understand that continuous improvement and customer service are
primary value competencies integrated into every position while developing SPS as a recognized
employer of choice.

Learning & Growth Sustaining Our Ability to Change & Grow

Value of the Individual
Integrity Beyond Organizational
Reproach Human Capital Readiness Platinum Certification Recertify as Platinum B. Francis
Certify Technical
Technical Expertise Information is Available Knowledge Increase Certifications
Employer of Choice Tools to do the job Make application to EOC Submit 2 applicationsB. Francis N/A
Understand the
strategy and what
needs to be done Live the SPS Values
Great People

Objective Result/Deliverable Target & Lead Initiative

Coordinate BP Certification Platinum Certification Achieved Lead: BF Develop matrix; assign
Process Target: 9/1/03 responsibilities; conduct
regular checkpoints

346
 The TCS Model

Source: Human Capital Vol.9 No.12 May 2006 ‘Redefine the HR Agenda’
347
Vision

• Global Top 10 by 2010 in the IT Industry

Mission
Customer delight by providing best-in-
class consulting, IT solutions & services
and also delivering value and joy to all
stakeholders.
348
 FINANCIAL PERSPECTIVE Shareholder Value

Human Capital Human Resource

Effectiveness Efficiency

CUSTOMER PERSPECTIVE

Customer delight Employee delight

INTERNAL PROCESS PERSPECTIVE

Manage Customer
relationships
Deliver world Manage Operating
class services efficiency

Competencies Cultural Climate Team Integration

Strategic Alignment
Leadership
/Motivation
LEARNING & GROWTH PERSPECTIVE
349
Work Capability
Balanced Scorecard Example
Strategic Theme:
Objectives Measurement Target Initiative
Operating Efficiency
Financial
Profitability • Profitability • Market Value • 30% CAGR
• More • Seat Revenue • 20% CAGR
More Customers
Fewer Planes
Customers • Plane Lease • 5% CAGR
• Fewer planes Cost
Customer • Flight is on - • FAA On Time • #1 • Quality
Flight Lowest time Arrival Rating management
Is on Time Prices • Lowest prices • Customer • #1 • Customer
Ranking (Market loyalty
Survey) program
Internal • Fast ground • On Ground Time • 30 Minutes • Cycle time
Fast Ground turnaround • On-Time • 90% optimization
Turnaround Departure program

Learning • Ground crew • % Ground crew • yr. 1 70% • ESOP

alignment trained yr. 3 90%
Ground Crew yr. 5 100%
• Ground crew
Alignment • % Ground crew training
stockholders

350
Sample HR Measures
Lagging Measures
Impact of Prior Decisions
Budget variance
Employee relationship results
Executive coaching
Employee productivity
Cost per hire by job class
People expense/Revenues
351
Leading Measures
Guide Future Outcomes
Employee strategic focus
Executive retention
Retraining/re-skilling
Internal promotion rate
Exit Rate of “C” Players
Employee relationship factor
The Successful Scorecard…

• Is a dynamic process –
• continues to set higher targets and achieves them –
• Define jobs strategically
• from the perspective of where it fits in with the strategic business goals
• Supports joint decision
• making about what you do/don’t do based on strategic goals

352
Why are companies Adopting BSC?

• Change.

• Growth.

• Implementation.

353
Advantages Of BSC
• It is used to align the business activities
to vision and strategy
• It improves Internal & External
communications
• It is used to monitor organizations
performance
• It provides management with
comprehensive picture of operations
• It provides strategic feed back
• It improves decisions & better solutions
354
Disadvantages of BSC
• It Doesn’t provide Recommendations

• It is not fully Efficient

• It takes time

• It is High Implementation of cost

• It can show low profit

355
M. Porter’s Approach for Globalisation
• Porter relates the competitiveness of nations & regions, directly to
the competitiveness of their home industries.
• He further argues that, in advanced in advanced economies today,
regional clusters of related industries (rather that individual
companies or single industries), are the source of jobs, income &
export growth.
• These clusters of competitive firms do business with each other &
share needs for common talent, technology & infrastructure.
• Therefore, his approach requires, regions, cities or countries, to
identify concentrations of similar or related firms, that drive the
economy, that depends on the available resources in there – like
research universities, airports, skilled workers to cultural attractions.

356
 Michael Porter’s Diamond - determinants
of national advantage

CHANGE Firm strategy,

structure &
rivalry

Factor
Demand
conditions
conditions

Related &
Factors: supporting
•Physical resources industries ROLE OF GOVT
•Knowledge resources
•Capital resources
•Infrastructure resources

357
Future of Strategic Management
1. Transitioning of Strategic Planning to Broader Strategic
Management.
2. Analysis of Strategy in terms of Option Creation.
3. Value of Dynamic Capabilities
Thus, the view in the next 100 yrs will encompass the art or science
debate with a leaning to scientific hypothesis.
3 issues arising for 21st Century are :
i. Formulation based on research data competitive intelligence &
analysis.
ii. Decision whether strategies must be visible or hidden from
stakeholders &
iii. Whether the process should be top-down or bottom-up.

358
1. Transitioning of Strategic Planning to
Broader Strategic Management
• Must involve overall strategic agenda on an ongoing basis.
• Must ensure effective implementation.
• Ultimate goal must be to link Performance Management with
achieving strategic goals & objectives.
• Build a sense of synergy within the organisation that promotes
reciprocating relationship inside all departments, targeted towards
achieving overall performance.

359
2. Analysis of Strategy in terms of Option
Creation
• Business environment is volatile & unpredictable.
• Hence, the value of both projects & firms, depends on option values.
• Option values is creating & managing options.
• Option approach also considers analysis of resources & capabilities.
• For eg., in the design for petrochemical plans, there are less option
potential as compared to the marketing of FMCG, as the former
needs highly specialised capabilities.
• So also, resources that offers opportunities for deployment in
multiple businesses than one, can support alternate strategies which
is an option creation.

360
3. Value of Dynamic Capabilities

• Firm’s ability to integrate, build & re-configure internal & external

competencies, to address the rapidly changing environments.
• Those capabilities are the organisational & strategic routines, by
which firms achieve new resource combinations as markets emerge,
collide, split, evolve & die.
• Eg. 3M , Virgin – this also paves the way for the firms to alter the
resource base.

361
Challenges in the future – some are my personal
views only

1. Orientation for globalisation.

2. Emerging e-commerce & internet culture (IOT)
3. Cut – throat competition.
4. Diversification.
5. Active pressure groups &
6. Motive for CSR & ethics.
7. Impact of AI
8. Climate changes/ impact of environment & its influence on business
9. Philosophical approach – Minimalism?

362