Strategic Management Full

Strategic Management
By Prasad Kulkarni
23 July 2013
(c) Prof. Prasad Kulkarni
Objectives of the course

To study the meaning and nature of strategic management. To understand the method of strategy formulation To assess the impact of companys external environment. To analyze companys resources and competitive position
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To apply generic competitive strategies. To formulate long term and great strategies. To implement the strategy in the organization To review and audit the strategy implemented.
Module 1
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Meaning of strategic Management

Managements action plan for running the business and conducting operations.
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Strategy answers.
How management intends to grow the business. How it will build loyal clientele. How each functional piece of business will be operated. How performance will be boosted
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The AMUL way

On Amuls future plans, RS Sodhi, chief general manager, GCMMF said: "We are expanding our processing and packaging capacity to meet growing demands. For starters, we are setting up additional processing facilities in Delhi and Mumbai. Currently, we lead the pack with the production of 50 lakh liters per day."
AMUL strategy
Simultaneous development of suppliers and customers. Cost leadership Focus on core activities. Managing the third party service providers. Financially self reliant.
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Discussion 1
WHAT HAPPENS IF AMUL STARTS SELLING ITS MILK IN KARNATAKA?

Strategy may focus on

Low cost or superior product Virgin Mobile versus Airtel High end or mid segment or low end BMW v/s Toyota Etios v/s Maruti 800 Wide product line v/s narrow product line. Hindustan unilever v/s Cavin care.
Regional V/s national V/s global Mysore sandal V/s Medimix V/s Dove. One industry or multiple industries Marico v/s ITC.
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Discussion 2
WHO WILL WIN THE BATTLE BETWEEN COLGATE SENSITIVE VERSUS SENSODYNE?
Nature of strategic management

Formulate the companys mission Internal analysis External environment analysis Matching companys resources with external environment Setting long term objectives and grand strategies. Developing annual objectives and short term strategies. Strategy implementations and auditing.
Importance of Strategic Management

1. It results in higher organizational performance. 2. It requires that managers examine and adapt to business environment changes.
3. It coordinates diverse organizational units, helping them focus on organizational goals.

4. It is very much involved in the managerial decision-making process.
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Relevance of Strategic Management
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Characteristics of strategic Management

1. Strategic decisions are likely to affect the longterm direction of an organisation. 2. Strategic decisions are normally about trying to achieve some advantage for the organisation. 3. Strategic decisions are likely to be concerned with the scope of an organisations activities
4. Strategy is to do with the matching of the activities of an organisation to the environment in which it operates.
5. Strategy can also be seen as 'stretching' an organization's resources and competences to create opportunities or capitalize on them. 6. Strategic decisions therefore often have major resource implications for an organisation.
7. Strategic decisions are therefore likely to affect operational decisions, to set off waves of lesser decisions.
8. The strategy of an organisation will be affected not only by environmental forces and resource availability, but also by the values and expectations of those who have power in and around the organisation
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Dell Business model
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Lenovo Business Model
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The relationship between a companys strategy and its business model

A companys business model explains the rationale for why its business approach and strategy will be a money maker A companys business model explains why its business approach and strategy will generate ample revenue to cover costs and capture a profit.
Relationship Between Strategy and Business Model

Strategy - Deals with a companys competitive initiatives and business approaches Business Model -Concerns whether revenues and costs flowing from the strategy demonstrate the business can be amply profitable and viable
Discussion 3
DISCUSS THE BUSINESS MODEL OF ANY ONE MOVIE THEATER OF BELGAUM

Module 2
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Strategic Management process
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Developing a strategic vision

Managers must decide what directional path the company should take. Factors deciding the one directional path versus another. 1. Changing market conditions 2. Opportunity of new markets and customers. 3. Market viability analysis
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Strategy on retrenchment of market or products. Companys growth path. Will company sustain and improve its position in the future? Can company extend its brand strength for further business? Technology savvy of the company.
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Strategic vision is: 1. Providing panoramic view of where we are going? 2. Provides rationale behind good business sense for the company. 3. It provides direction for the future. 4. It gives the identity to the organization. 5. A clearly articulated strategic vision communicates managements aspirations to stakeholders.
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ACC
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A good vision always needs to be a bit beyond a companys reach, but progress toward the vision is what unifies the efforts of company personnel.
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Characteristics of good vision statement 1. Directional 2. Focused 3. Flexible 4. Feasible 5. Easy to communicate 6. graphical
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Analyze the Jindal steels vision

To be a globally admired organization that enhances the quality of life of all stakeholders through sustainable industrial and business development.
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Mission statement
Usually deals with the companys present business scope and purpose. A companys mission statement is defined by the buyer needs it seeks to satisfy the customer groups and market segments it is endeavoring to serve and the resources and technologies that it is deploying in trying to please its customers.
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Reliance communication
We will create world-class benchmarks by: Meeting and exceeding Customer expectations with a segmented approach Establishing, re-engineering and automating Processes to make them customer centric, efficient and effective Incessant offering of Products and Services that are value for money and excite customers Providing a Network experience that is best in the industry Building Reliance into an iconic Brand which is benchmarked by others and leads industry in Intention to Purchase and Loyalty Developing a professional Leadership team that inspires, nurtures talent and propagates RCOM Values by personal example
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Provides brief overview of the companys present business. Mission tells about the present products and services of the company. Profit should not be the part of the mission statement.
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Shortcomings in company vision statements

Incomplete Vague Not distinctive Too generic Too broad.
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Linking the vision with company values ( Example JSW)
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Company values
A company's values are the beliefs , business principles and practices that guide the conduct of its business the pursuit of its strategic vision and the behavior of company personnel
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Company managers connect values to the strategic vision in two ways 1. in traditional organization shows the compatibility of vision with values. 2. In new companies managers derive value those drive vision. A number of companies combine their vision and values into a single statement or document that is provided to all company personnel and often posed on the company web page.
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Analyze the Jindal steels vision

To be a globally admired organization that enhances the quality of life of all stakeholders through sustainable industrial and business development.
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Step 3: Crafting A strategy

Strategy making hierarchy OR The strategy making pyramid.
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Corporate strategy
Initiatives the company uses to establish business position in different industries. The approaches corporate executives pursue to boost the combined performance of the set of businesses the company has diversified into and the means of capturing business synergies and turning them into competitive advantage.
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Business strategy: 1. Concerns the actions and the approaches crafted to produce successful performance in one specific line of business.
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Functional area strategy 1. Concerns the actions and practices to be employed in managing the particular functions or business processes or key activities within a business. 2. Functional strategies aim at establishing or strengthening a business units competencies and capabilities in performing strategy critical activities so as to enhance the businesss market position and standing with customers.
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Operational level strategies: Concerns the relatively narrow strategic initiatives and approaches for managing key operating units and specific operating activities with strategic significance .
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Strategic plan
Vision Objectives Direction in short and long range performance targets. Competitive moves Internal action approaches.
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Implementing and executing the strategy
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Initiating corrective adjustments phase 5:

Evaluate the companys progress Assessing the impact of new external developments Making corrective adjustments regarding vision, mission , objectives and etc Balancing the external environment and company strategy.
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Assignment 1
Discuss the strategic management process of any one foundry company. This assignment carries 3 marks.
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Setting objective
Provide direction: the direction for the functioning of the organization. When objectives are clear the aims of the activities of different people in the organization converges for achievement of common purpose. Justify the organization: indicates the purpose and aim and by the social justification for the existence of the organization.
Objective definition
The desired or needed result to be achieved by a specific time. An objective is broader than a goal and one objective can be broken down into a number of specific goals.
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Financial objectives
The primary objective is concerned with the return to shareholder. A satisfactory return for a company must be sufficient to reward shareholders adequately in the long run for the risks they take. The reward will take the form of profits which can lead to dividends or in increase in the market value.
The size of the return which is adequate for ordinary shareholders will vary according to the risk involved. There are different ways of expressing a financial objectives in quantitative terms. Financial objective would include the following
1. Profitability: it is just not the profit for every year. The investment must provide future appreciation of worth and increased profits in future. 2. Return on investment: the return on investment must be on increase year after year.
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Low risk: high risk projects might promise a high return but it may be safer to opt for a project with a lower return but a greater guarantee of success. Share price, earnings, dividends and market value: EPS or dividend payments are measures which recognize that company is owned by its shareholders. Lesser the EPS, shareholders are likely to sell the shares.
Market capitalization: Total value of business shares on the stock market. When the earnings and dividends are low, the market value of the shares also drops. Price/ earnings ratio: The relationship between EPS and the price at which the shares are traded. It is the market value divided by EPS. This should not come down
Balanced score card

The balanced score card provides executives with comprehensive framework that translates a companys vision and strategy into a coherent set of performance measures Kaplan and Norton.
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Balanced scorecard process
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A balanced score card is a management and measurement system whose purpose to A. translate strategy into A set of measures that Uniquely communicate Your vision to the organization
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Balanced scorecard addresses four basic questions

People: how can we develop our people and their capabilities? Business process: what must we excel at to meet customer needs? Customers: how do customers see us and values our services? Financial: How are we faring with shareholder returns?
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Need of balanced scorecard

Focus on traditional financial accounting measures such as ROA, ROE, EPS gives misleading signals to executives with regards to quality and innovation. It is important to look at the means used to achieve outcomes such as ROA, not just focus on the outcomes themselves.
Executive performance needs to be judged on success at meeting a mix of both financial and non-financial measures to effectively operate a business. Some non-financial measures are drivers of financial outcome measures which give managers more control to take corrective actions quickly.
Too many measures, such as hundreds of possible cost accounting index measures, can confuse and distract an executive from focusing on important strategic priorities.The balanced scorecard disciplines an executive to focus on several important measures that drive the strategy.
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Company goal
Three economic goals guide the strategic direction of almost every business organization. They are Survival Growth Profitability
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Company goal
Any company needs solid goals in order to grow the business and reach full potential. If you are looking to set a few company goals to inspire your employees and make your business more successful, then you are going to need the full cooperation of all the employees involved. With the help of everyone at your company, you can set and subsequently reach goals that are made to make your business more successful and your employees more satisfied and productive.
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Call a meeting together with some of your top employees, sales associates and anyone else who should be a part of your company goal-setting. Send out a memo detailing the time and place of a goal setting meeting. Begin the meeting by explaining why you believe your company should be setting goals, and what those goals should ultimately achieve, such as better productivity, better customer satisfaction or better inter-office relationships.
Ask for ideas for goals that the company could try to meet. Write all the ideas on a large piece of poster board or white board. Discuss how each goal could potentially be met. Choose three goals from the brainstorming session that you are going to commit to keeping as a company. Strategize on how the goals will be met, what you expect to get out of setting that goal, and a timeline for those changes to take place. Be specific and write down all the ways you can achieve the goals you've chosen. Write about the the goals in a memo to send out to everyone in the company, so everyone knows what was discussed in the meeting. Post the goals in prominent places around the office, so they are constantly fresh in all of the employees' minds.
Company Philosophy
It reflects or specifies the basic beliefs, values, aspirations and philosophical priorities to which strategic decision makers are committed in managing the company.
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How to write company philosophy?

Determine the purpose of your service, business or role as an employee. Define the business entity or your role as an employee in a statement of purpose, describing how you will perform, how you will evaluate success and how you will spur growth and expand your role within the company or business. Express a value for performance and growth. Outline the performance value and growth value that is necessary for success. For example, "Create high-quality jewelry to increase quarterly revenue by 10 percent.
Define your role within the business. How do you measure the importance of the role within the business structure? What is your objective within the role? What inspires you within the role? Define your definition of excellence and offer a vision for the future. Generally, that vision uses such phrases as "industry leader," "the best" or "change [a particular sector of the market]. Use approximately 25 words to inspire, motivate and define the overall philosophy and the way a business will function. Create an expectation and accountability.
Googles Philosophy
Focus on User and all else will follow Its best to do one thing really, really well. Fast is better than slow Democracy on the web works You dont need to be at your desk to need an answer You can make money without doing evil
Theres always more information out there The need for information crosses all borders You can be serious without a suit great just isnt good enough.
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Volvo - Philosophy
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Strategic intent
Strategic Intent is the leveraging of a firms internal resources capabilities and core competencies to accomplish the firms vision, mission and objectives in a competitive environment. It is all about winning competitive battles and gaining leadership position by putting organizational resources to best use.
Strategic intent is said to exist when all employees and levels of a firm are committed to the pursuit of a specific but significant performance target. strategic intent tries to establish the parameters that shape the values motives and actions of people throughout their organization.
The hierarchy of strategic intent

1) a broad vision of what the organizations should be. 2) The organizations mission. 3) The strategies objectives and specific goals to be pursued relentlessly 4) The plans that are develop to accomplished the intentions of management in a concrete 5) The plans that are developed to accomplish the intentions of management in a concrete way.
Merging the strategic vision, objectives and strategy into a strategic plan
A strategic plan lays out the companys future direction, performance targets and strategy The strategic plan usually ends up as a written document that is circulated to most managers and perhaps selected employees. This is also explicitly written in the annual report.
Strategic plan Template
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Module 3: Analyzing companys external environment
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External environment analysis

By Prasad Kulkarni
Industry
It is a group of companies offering products or services that are close substitutes for each other- that is products or services that satisfy the same basic customer needs.
Sector
Groups of closely related industries Example Telecommunication sector telecommunication equipment industry telecommunication service industry Market segments: These are different group of customers within a market that can be differentiated from each other on the basis of homogeneity
Industry dominant economic traits.

Market size and growth rate Scope of competitive rivalry Number of rivals Buyer needs and requirements Production capacity Pace of technological change Vertical integration Product innovation Degree of product differentiation Economies of scale Learning and experience curve effects
Michel Porters five force model

By Prasad Kulkarni
MICHEL PORTERS FIVE FORCES MODEL.
Force 1: Rivalry among competing sellers

Rivalry intensifies when competing sellers are active in launching fresh actions to boost their market standing and business performance Example: head and shoulders, Pantene versus clinic plus, clear
Whether industry members are racing to differentiate their products from rivals by a. offering better performance features b. higher quality c. improved customer service d. wider product selections
Rivals resort to a. Special promotions b. Heavy advertising c. Rebates d. Low interest finance
How actively industry members are pursuing efforts to build stronger dealer networks. How hard companies are striving to gain market edge over rivals by developing valuable expertise and capabilities that rivals are hard presses to match
Rivalry intensifies as the number of competitors increases and as competitors become more equal in size and capability Rivalry is usually stronger in slow growing markets and weaker in fast growing markets.
Rivalry is usually weaker in industries comprised of so many rivals that the impact of any one companys action is spread thin across all industry members; likewise it is often weak when there are fewer than five competitors.
Rivalry increases when buyer demand falls and sellers find themselves with excess capacity/inventory. Rivalry increases as it becomes less costly for buyers to switch brands. Rivalry is more intense when industry conditions tempt competitors to use price cuts or other competitive weapons to boost unit volume.
Rivalry increases when one or more competitors dissatisfied with their market position. Rivalry becomes more volatile and unpredictable as the diversity of competitors increases in terms of visions objectives, strategies and resources.
Rivalry increases when strong companies outside the industry acquire weak firms in the industry and launches aggressive well funded moves. A powerful successful competitive strategy employed by 1 company greatly intensify the competitive pressure on its rivals to develop effective strategic responses
Threat of entry of new companies

Entry is stronger when a. The pool of entry candidate is large and some of the candidates have resources that would make them formidable market contenders Example : entry of pure it in water purifier market
b. Entry barriers are low or can be readily hurdled by the likely entry candidates ( ex: Entry of Prestige into induction cooker market) c. When existing industry members are looking to expand their market reach by entering product segments or geographical areas when they currently do not have presence Ex: chandrika soap with glycerin and Mysore sandal in North India
New comers can expect to earn attractive profits Example: entry of Go air in the airline segment Buyer demand is growing rapidly Example: Android phones Industry members are unable to strongly contest the entry of new comers ( Idea- spice Karnataka)
Entry threats are weaker when a. Pool of entry candidates are small example: Uninor, virgin etc b. Entry barriers are high example: Insurance sector pay upfront 100 crore c. Existing competitors are struggling to earn high profitts Example: Usha Martin
d. The industry outlook is risky or uncertain Example: telecom equipment company e. Buyer demand is growing slowly or stagnant Example: color television f. Industry members will strongly contest the efforts of new entrants to gain a market foot hold Example: Jiva versus Medimix
Threat of substitutes
Threat of substitutes are stronger when a. Good substitutes are readily available or new ones are emerging example: Digital pen versus pen b. Substitutes are attractively priced example: china silk versus kanchi silk.
Substitutes have comparable or better performance features example : windows versus Google chrome. End users have low costs in switching to substitutes example: carbonated drinks versus fruit beverages.
Substitutes are weaker when 1. Good substitutes are not readily available or dont exist example: Music CD versus USB 2. Substitutes are highly priced relative to the performance they deliver Example: Hair oil versus almond oils
End users have high costs in switching to substitutes Example: Digital greetings versus Archie's
Signs that competition from substitutes is strong when a. Sales of substitutes are growing faster than sales of the industry being analyzed ( Pureit versus aquagueard) b. Profits of the producers of substitutes are on the rise( tubeless tyres versus tyres.
Threat of suppliers
The power of Microsoft and Intel on PC makers. Supplier bargaining power is higher when a. Industry members incurs high costs in switching their purchase to alternative suppliers. Example: company procuring steel from Tata steel world cheapest producer of Iron.
Needed inputs are short in supply Example; Indian oil depends OPEC decisions Sellers product enhances the image of the product Seagate and Intel in the PCs. There are only few suppliers of a particular input Example: Airbus and boeing
Some suppliers threaten to integrate forward into the business of industry members and perhaps become powerful rival example: ITC transformation from commodity business leader to FMCG maker.
Supplier bargaining power is weaker when a. Commodity readily available from many suppliers example: fertilizers b. Sellers switching cost alternatives are low Example: Namadhari seeds, seed teck, parrys Mahyco
Good substitute inputs exists or new ones emerge Example : BT brinjal There is a surge of suppliers Ex: Anchor, haevell, surya, ABB etc.. Industry member is biggest purchaser of the product Example: Maruti versus Gabriel shock observers.
Industry members are a threat to integrate backward into the business of suppliers and to self manufacture their own requirement. Ex: Hindustan lever chemicals and seeds.
Threat of Buyers
Buyer switching costs to competing brands or substitute products are low Ex: Switch in the FMCG product Buyers are large and can demand concessions when purchasing large quantities Ex: Jain irrigation can bargain more with steel manufacturers.
Large volume purchases by buyers are important to sellers Ex: KPTCL and ABB. There are few buyers Ex: Electricity manufacturers in Karnataka Identity of buyer adds prestige to sellers list of customers Ex: JK tyres and automobile manufactures
Buyer have the ability to postpone purchases until later if they do not like the present deals being offered by sellers Ex: BSNL postponed telecom equipment procurement.
Bargaining power is weaker when A. Buyer purchases in small quantity B. Buyer switching cost to competitor is high ( Sony Explod to other music players) C. There is a surge in buyer demand that creates seller market( Real estate)
d. A seller brand reputation is important to buyers Ex: IFB washing machine whirlpool refrigerator. 5. Buyer collaboration or partnering with selected sellers provides attractive Win win opportunities CEAT and two wheeler manufacturer
Strategic implications of five forces

Competitive environment is unattractive from the standpoint of earning good profits when
Rivalry is vigorous Entry barriers are low and entry is likely
Competition from substitutes is strong

Suppliers and customers have considerable bargaining power
Competitive environment is ideal from a profit-making standpoint when

Rivalry is moderate Entry barriers are high and no firm is likely to enter
Good substitutes do not exist

Suppliers and customers are in a weak bargaining position
Understanding the industry driving forces

Internet and e-commerce opportunities Increasing globalization of industry Changes in long-term industry growth rate Changes in who buys the product and how they use it Product innovation Technological change/process innovation Marketing innovation
Entry or exit of major firms Diffusion of technical knowledge Changes in cost and efficiency Consumer preferences shift from standardized to differentiated products (or vice versa) Changes in degree of uncertainty and risk
Regulatory policies / government legislation

Changing societal concerns, attitudes, and lifestyles
Industry Driving Forces

By Prasad Kulkarni
definition
Industry driving forces are those that have the biggest influence on what kinds of changes will take place in the industry structure and competitive environment Driving forces analysis has two steps a. Identifying what the driving forces are b. Assessing the impact they will have on the industry
Identifying an industrys driving forces Growing use of internet and emerging new internet technology applications - Internet is working as new distribution channel - Due to internet rivalry among competitor is increasing - Helps in better supplier coordination - Squeeze out the costs of internal operation.
Increasing globalization - Seeking customers in foreign countries - Outsourcing the production operations changes in long term industry growth rate - Shifts in industry growth up or down are driving force for industry change affecting the balance between industry supply and buyer demand entry and exit and the character and strength of competition.
- Higher the demand greater the activities of existing and new companies in the segment. changes in who buys the product and how they use it - Shift in buyer demographics and new ways of using the products.(c d) product innovation - New products brings new customers create new product differentiation among sellers. - Innovation in the products strengthens the market position( digital camera, toys and drugs)
technological change and manufacturing process innovations - New technology- lower cost-opening up whole new industry frontiers. - Technology developments has effects on a. Capital requirements b. Minimum efficient plant sizes c. Distribution channels and logistics d. Learning curve effects
Marketing innovations - Internet marketing - Rural models entry or exit of major firms - Entry of foreign firms - Entry of established firm from another segment Diffusion of technical know how across more companies and more countries.
Changes in cost and efficiency : widening and shrinking in the costs among key competitors tend to dramatically alter the state of competition.( email and fax effect on postal servie) growing buyer preferences for differentiated products instead of a commodity product. - Buyer varieties and consumer switching - Buyer sometimes needs fixed product ( example : online trading)
reductions in uncertainty and business risks. - Emerging industry- risk taking enterprises - Once the emerging industry more number of companies will enter the businesses. Regulatory influences and government policy changes - Deregulations - Protecting the domestic companies
changing societal concerns, attitudes and lifestyles - Anti smoking - terrorism
Assessing the impact of the driving forces

Are the driving forces causing demand for the industrys product to increase or decrease? are the driving forces acting to make competition more or less intensive? Will the driving force lead to higher or lower industry profitability?
Key Success Factors

By Prasad Kulkarni
Definition
KSFs are those competitive factors that most affect industry members ability to prosper in the market place the particular strategy elements, product attributes, resources, competencies, competitive capabilities and market achievements that spell the difference between being strong competitor and weak competitor
How well a company product offering resource and capabilities measure up against an industry just how financially and comparatively successful that company will be
KSF for beer industry 1. Full utilization of capacity 2. Strong network of wholesale dealers 3. Clever advertising
KSFs vary from industry to industry and even from time to time within the same industry, as driving forces and competitive conditions change Identifying KSFs for industry 1. Attributes of competitors product offering are casual 2. Resources and competitive capabilities does a company need to have to be competitively successful. 3. Shortcomings those are almost certain to put a company at a significant competitive disadvantage
Correctly diagnosing an industry raises a companys chances of crafting a sound strategy
Module 4
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Analyzing a companys resources and competitive position

By Prasad Kulkarni
Chapter roadmap
Question 1: How Well Is the Companys Present Strategy Working? Question 2: What Are the Companys Resource Strengths and Weaknesses and Its External Opportunities and Threats? Question 3: Are the Companys Prices and Costs Competitive? Question 4: Is the Company Competitively Stronger or Weaker than Key Rivals? Question 5: What Strategic Issues and Problems Merit Front-Burner Managerial Attention?
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How well is the companys present strategy working?

Key issues I. Identify competitive approach Low-cost leadership ( Air Deccan) Differentiation ( Asian Paints) Focus on a particular market niche ( Insurance single premium)
II. Determine competitive scope Geographic market coverage ( chandrika south India) Operating stages in industrys production/distribution chain Examine recent strategic moves( Maruti 800 Phase out) Identify functional strategies ( R&D, marketing, finance, HR, IT of Infosys)
Approaches to Assess How Well the Present Strategy Is Working

Qualitative assessment What is the strategy?
Completeness Internal consistency Rationale Relevance
Quantitative assessment What are the results?

Is company achieving its financial and strategic objectives? Is company an aboveaverage industry performer?
Key Indicators of How Well the Strategy Is Working

Trend in sales and market share ( HUL) Acquiring and/or retaining customers ( General motors free service and guarantee) Trend in profit margins( software company) Trend in net profits, ROI, and EVA
Overall financial strength and credit ranking ( Aravind Mills credit rating by CRISIL) Efforts at continuous improvement activities ( Toyota) Trend in stock price and stockholder value ( Reliance Industries) Image and reputation with customers ( Tata Sons) Leadership role(s) Technology, quality, innovation, e-commerce, etc. ( e bay)
What Are the Companys Strengths, Weaknesses, Opportunities and Threats ?
S W O T represents the first letter in S trengths W eaknesses
O pportunities
T hreat
For a companys strategy to be wellconceived, it must be Matched to its resource strengths and weaknesses (Berger Nicolas) Aimed at capturing its best market opportunities and erecting defenses against external threats to its well-being ( Nirma)
Identifying Resource Strengths and Competitive Capabilities

A strength is something a firm does well or an attribute that enhances its competitiveness Valuable competencies or knowhow ( Pfizer) Valuable physical assets ( Daewoo) Valuable human assets ( Google)
Valuable organizational assets ( Panasonic factory in Japan) Valuable intangible assets ( Sony) Important competitive capabilities ( Parachute Marico) An attribute that places a company in a position of market advantage ( Chik, cavin care) Alliances or cooperative ventures with partners ( Hero Honda)
Competencies vs. Core Competencies vs. Distinctive Competencies

A competence 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 central (not peripheral or incidental) to a companys competitiveness and profitability A distinctive competence is a competitively valuable activity a company performs better than its rivals
Core Competencies
A competence becomes a core competence when the wellperformed activity is central to a companys competitiveness and profitability
Examples of core competencies

Expertise in integrating multiple technologies to create families of new products ( tata Nano) Know-how in creating operating systems for cost efficient supply chain management ( Safe express)
Speeding new/next-generation products to market( Microsoft cloud)

Better after-sale service capability (General motors) Skills in manufacturing a high quality product ( Mercedes Benz)
Often, a core competence results from collaboration among different parts of a company Typically, core competencies reside in a companys people, not in assets on a balance sheet A core competence gives a company a potentially valuable competitive capability and represents a definite competitive asset
Distinctive Competence
A distinctive competence is a competitively significant activity that a company performs better than its competitors A distinctive competence
Represents a competitively valuable capability rivals do not have Presents attractive potential for being a cornerstone of strategy Can provide a competitive edge in the marketplace because it represents a competitively superior resource strength
Examples
Sharp Corporation
Expertise in flat-panel display technology
Toyota and Honda

Low-cost, high-quality manufacturing capability and short design-to-market cycles
Intel
Ability to design and manufacture ever more powerful microprocessors for PCs
Wal-Mart
Low-cost distribution and use of state-of-the-art retail technology
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
Inferior or unproven skills, expertise, or intellectual capital ( Crompton Greeves) Lack of important physical, organizational, or intangible assets ( Mahindra satyam) Missing capabilities in key areas ( Bajaj Motors)
Identifying a Companys Market Opportunities

Opportunities most relevant to a company are those offering
Good match with its financial and organizational resource capabilities Best prospects for profitable long-term growth Potential for competitive advantage
Identifying External Threats

Emergence of cheaper/better technologies ( Pager v/s mobile) Introduction of better products by rivals ( HDFC v/s nationalized banks) Entry of lower-cost foreign competitors ( Walmart ) Onerous regulations ( Indian insurance sector) Rise in interest rates ( Home loans)
Potential of a hostile takeover ( Arcelor Mittal) Unfavorable demographic shifts ( Rural people to Urban areas) Adverse shifts in foreign exchange rates ( Rupee appreciation versus dollar)
Political upheaval in a country ( Pakistan)
Are the Companys Prices and Costs Competitive?

Assessing whether a firms costs are competitive with those of rivals is a crucial part of company analysis Key analytical tools
Value chain analysis
Benchmarking
Value Chain
A companys business consists of all activities undertaken in designing, producing, marketing, delivering, and supporting its product or service A companys value chain consists of a linked set of value-creating activities performed internally
The value chain contains two types of activities

Primary activities where most of the value for customers is created Support activities facilitate performance of the primary activities
Why Do Value Chains of Rivals Differ?

Several factors can cause differences in value chains of rival companies
Internal operations Strategy Approaches used in execution of the strategy Underlying economics of the activities
Differences complicate task of assessing rivals relative cost positions
Value chain
By Prasad Kulkarni
definition
A company value chain consists of the linked set of value creating activities the company performs internally The value chain consists of two broad categories of activities a. Primary activities: that are foremost in creating value for customers b. Support activities that facilitate and enhance the performance of the primary activities
The primary activities and factors for assessment

Inbound logistics 1. Soundness of material 2. Inventory control systems 3. Warehousing activities
Operations 1. Productivity of equipment compared to that of key competitors 2. Appropriate automation of production processes 3. Effectiveness of production control systems to improve quality and reduce costs. 4. Efficiency of plant layout and work flow design
Outbound logistics 1. Timeliness and efficiency of delivery of finished goods and services 2. Efficiency of finished goods warehousing activities
Marketing and sales 1. Effectiveness of market research to identify customer segments and needs 2. Innovation in sales promotion and advertising 3. Evaluation of alternate distribution channels 4. Motivation and competence of sales force 5. Development of an image of quality and a favorable reputation 6. Extent of brand loyalty among customers 7. Extent of market dominance within the market segment or overall market.
Customer service 1. Means to solicit customer input for product improvements 2. Promptness of attention customer complaints 3. Appropriateness of warranty and guarantee policies. 4. Quality of customer education and training 5. Ability to provide replacement parts and repair services
Support activities
Firm infrastructure 1. Capability to identify new product market opportunities and potential environmental threats 2. Quality of strategic planning system to achieve corporate objectives 3. Coordination and integration of all value chain activities among organizational subunits 4. Ability to obtain relatively low cost funds for capital expenditure and working capital.
5. Timely and accurate management information on general and competitive environments 6. Relationships with public policy makers and interest groups 7. Public image and corporate citizenship
Human resource management 1. Effectiveness of procedure for recruiting, training and promoting all levels of employees 2. Appropriateness of reward system for motivation and challenging employees 3. A work environment that minimizes absenteeism and keeps turnover at desirable levels 4. Relation with trade unions 5. Active participation by managers and technical personnel in professional organizations 6. Levels of employee motivation and job satisfaction
Technology development 1. Success of R&D activities in leading to product and process innovations 2. Quality of working relationships between R&D personnel and other departments 3. Timeliness of technology development activities in meeting critical deadlines 4. Quality of laboratories and other facilities 5. Qualification and experience of laboratory technicians and scientists
Procurement 1. Development of alternate sources for inputs to minimize dependence on a single supplier 2. Procurement of raw materials on a timely basis at lowest possible cost and at a acceptable levels of quality 3. Procedures for procurement of plant , machinery and buildings 4. Good long term relationship with reliable suppliers.
Benchmarking
By Prasad Kulkarni
definition
Measuring your performance against that of the best-in-class companies, determining how the best-in-class achieve those performance levels, and using the information as a basis for your own companys targets, strategies, and implementation.
Types of benchmarking
Comparison:
Internal Best in Firm Competitive Best in Industry World Class Best in World
Form:
Performance Benchmarking Process Benchmarking Strategic Benchmarking
Benchmarking process
Identify your problem areas Identify other industries that have similar processes Identify organizations that are leaders in these areas Survey companies for measures and practices Visit the "best practice" companies to identify leading edge practices Implement new and improved business practices
Module 5: Generic competitive strategies
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Competitive strategy
A competitive strategy concerns the specifics of managements game plan for competing successfully and securing a competitive advantage over rivals.
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Low cost provider strategies

Lower overall costs than competitors Need not to be absolutely overall cost i. e cost less than nearest competitor is enough
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The two major avenues for achieving a cost advantage a. Cost efficient management of value chain activities. b. Revamping the value chain to curb or eliminate unnecessary activities.
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Cost efficient management of value chain activities 1. Striving to capture all available economies of scale. 2. Taking full advantage of learning/ experience curve effects. 3. Trying to operate facilities at full capacity.
4. Persuing efforts to boost sales volumes and thus spread such costs as R&D, advertising, Selling etc.. 5. Improving supply chain efficiency. 6. Substituting the use of low cost for high cost raw material. 7. Using online systems sophisticated software for achieve operating efficiencies.
8. Adopting labor saving operating method. Using the companys bargaining power vis- a -vis suppliers to gain concessions. 9. Adopting labor saving operational method. 10. Being alert to the cost advantages of outsourcing and vertical integration.
Revamping the value chain to curb unnecessary activities.

Cutting out distributors and dealers by selling directly to customers. Replacing certain value chain activities with faster and cheaper online technology Streamlining operations by eliminating low value added or unnecessary work steps and activities
4. Relocating facilities so as to curb the need of shipping and handling activities. 5. Offering a frills free product. 6. Offering limited product line as oppose to a full product line.
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When a low cost provider strategy works best 1. Price competition among rival sellers is especially vigorous. 2. The products of rival sellers are essentially identical and suppliers are readily available from any of several eager sellers.
3. There are few ways to achive product differentiation that have value to buyers. 4. Most buyers use the product in the same ways. 5. Buyers incur low costs in switching their purchases from one seller to another.
6. Buyers are large and have significant power to bargain down prices. 7. Industry newcomers use introductory low prices to attract buyers and build customer base.
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Pitfalls of low cost provider strategy 1. Overly aggressive price cutting result in lower profitability. 2. Rivals may catch up very fast. 3. May result in poor customer image.
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BROAD DIFFERENTIATION
Differentiation strategies are attractive whenever buyers needs and preferences are too diverse to be fully satisfied by a standardized product or by sellers with identical capabilities. Strategy should be unique than competitors.
Successful differentiation allows firm to a. Command premium price for its product. b. Increase unit sales c. Gain buyer loyalty to brand
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Types of differentiation themes. - Unique taste ( Maaza) - Multiple features ( Microsoft windows) - Wide selection and one stop shopping ( big bazaar) - Superior service ( VRL)
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Spare parts availability ( Maruti Suzuki) Engineering design and performance ( Audi) Prestige and distinctiveness ( Rolex) Product reliability( Johnson and Johnson)
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Quality manufacture( Toyota) Technological leadership (3M) Full range of services ( ICICI) Complete line of products ( Reckitt)
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Where along the value chain to create the differentiating attributes a. Supply chain activities b. Product R&D c. Production R& D and technology related activities. d. Manufacturing activities e. Distribution and shipping activities f. Marketing sales and customer sales activities.
The four best routes to competitive advantage via a broad differentiation strategy a. Incorporate product attributes and user features that lower the buyers overall costs of using the companys product.
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b. Incorporate features that raise product performance. c. Incorporate features that enhances buyer satisfaction in non economic ways. d. Deliver value to customer by differentiating on the basis of competencies and competitive capabilities that rivals dont have cant afford to match.
When differentiation strategy works best 1. Buyers needs and used of the products are diverse( soaps) 2. There are many ways to differentiate the product or service and many buyers perceive these differences as having value ( hair Oils)
Few rival firms are following a similar differentiation approach. ( Aqua guard) Technological changes is fast paces and competition revolves around rapidly evolving product features.( Mobile phones and DTH services)
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The pitfalls of a differentiation strategy a. Competitors quickly copy ( docomo) b. Cold response from the market ( Yamaha bikes) c. Overspending on developing products erodes profitability d. Sometime exceed buyer needs( spring water) e. Charging too high ( Harley davidson)
BEST COST PROVIDER

More value for the money Company acheives best cost status from an ability to incorporate attractive or upscale attributes at a lower cost than rivals. It is different from low cost provider by providing extra features at a best cost. ( NANO versus MARUTI 800)
The target market for a best cost provider is a value conscious buyers. A best cost provider strategy works best in markets where buyers diversify makes product differentiation the norm and where many buyers are also price sensitive and value conscious. Threat of low cost provider and high end differentiation.
FOCUSED LOW COST PROVIDER

A narrow markets niche where buyers needs and preferences are distinctively different Lower overall cost than rivals in serving niche members. Product line features and attributed tailored to the tastes and requirements of niche members.
A continuous search in production is taken to reduce the cost while incorporating feature matching to niche member preferences. Selective communication strategy Stay committed to serving the niche at lowest overall cost and dont enter other markets.
Focused differentiation
A narrow market niche where buyer needs and preferences are distinctively different Competitive advantage through attributes that appeal specifically to niche members. Features and attributes are tailored in a product line to the tastes and requirements of niche members.
Custom made products that match the tastes and requirements of niche members. Stay committed to serving the niche buyers better than rivals. Dont enter other markets.
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Strategic alliances
Strategic alliances are collaborative arrangements where two or more companies join forces to achieve mutually beneficial strategic outcomes.
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PC industry require strategic alliances Intel and Dell Five factors makes alliances strategic a. It is critical to the companys achievement of an important objectives. b. It helps builds, sustain or enhance a core competencies.
It helps blocks competitive threat It helps open up important new market opportunities It mitigates a significant risk to companys business. Example 1. TOYOTA 2. Microsoft Windows
A company that is racing for global market leadership needs alliances to 1. Get into critical country markets quickly and accelerate the process of building a potent global market presence. 2. Gain inside knowledge about unfamiliar markets and cultures 3. Access valuable skills and competencies.
The extent to which companies benefit from entering into alliances and collaborative partnerships seems to be function of six factors 1. Picking a good partner 2. Being sensitive cultural differences 3. Recognize that alliance must benefit both sides
Ensuring that both parties live up to their commitments. Structuring the decision making process so that actions can be taken swiftly when needed. Managing the learning process and then adjusting the alliance agreement over time to fit new circumstances.
Merger and acquisition strategies

Google acquisition of Motorola Mittal steel acquisition of Arcelor A merger is a pooling of equals with the newly created company often taking on a new name. An acquisition is a combination in which one company the acquirer purchases and absorbs the operations of another the aquired
Objectives of Mergers and acquisitions

To create a more cost efficient operations out of the combined companies. To expand companys geographic coverage. To extend the companys business into new product categories
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To gain quick access to new technologies or other resources and competitive capabilities. To try to invent a new industry and lead the convergence of industries whose boundaries are being blurred by changing technologies and new market opportunities
Impact of Mergers and acquisition

Competitive edge may not be visible Employee resist to change Employees leave the company Managers inefficiency may be seen in the mergers and acquisition
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Outsourcing strategies
Outsourcing involves farming out certain value chain activities to outside vendors. Why outsourcing? a. Outsiders can often perform activities better or cheaper. b. It allows firm to focus on core activities
When outsourcing strategies are advantageous?

An activity can be performed better o more cheaply by outside specialists. It is not a core activity of the firm It reduces the companys risk exposure to changing buyer preferences It improves companys ability to innovate.
It reduces the new product introduction time It streamline the company operation. It allows a company to assemble diverse kinds of expertise speedily and efficiently.
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Joint venture
A joint venture is a business agreement in which parties agree to develop, for a finite time, a new entity and new assets by contributing equity. They exercise control over the enterpriseand consequently share revenues, expenses and assets
On the other hand, when two or more persons come together to form a temporary partnership for the purpose of carrying out a particular project, such partnership can also be called a joint venture where the parties are "co-venturers". Some major joint ventures include Dow Corning, MillerCoors, Sony Ericsson and Penske Truck Leasin
International business level strategies

Why companies expand into foreign markets? 1. To gain access to new customers. 2. To achieve lower costs and enhance the firms competitiveness 3. To capitalize on its core competencies 4. To spread its business risk across a wider market base.
Cross country differences in cultural, demographic and market conditions Gaining competitive advantage based on where activities are located The risk of adverse exchange rate shifts. Host government policies
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How to enter foreign market

Exporting Licensing Franchising Multicounty strategy Global strategies Wholly owned franchise
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Profit sanctuaries are country markets in which a company derives substantial profits because of its strong and protected market position
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Offensive strategies suitable for competing in foreigbn markets. Strategic alliance and joint venture with foreign partners Strategies that fit the markets of emerging countries
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Module 6
By Prof. Prasad Kulkarni
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Tailoring strategy to fit specific industry and company situation
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Strategies for competing in emerging industry

High definition television and e- book Characteristics 1. Speculation about growth 2. Technological know how guarded by R &D company. 3. There is an uncertainty about the success of the product 4. Include customers as spokesperson of the company.
5. In digital brand world customer anticipate further growth in brand an postpone his/ her purchasing decision. 6. Big companies enter this segment if there is an ample of opportunity for growth. 7. If the volume grows price will come down
Strategies for emerging industries. 1. Push to perfect technology 2. Improve product quality 3. Develop additional features 4. Merge or acquire an expert. 5. Have first mover advantage 6. Joint venture with expert,
Pursue new customer groups. Make it easy and choice. Use price cut Have a great supply chain management.
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Strategies for competing in rapidly growing markets.

LCD TV markets Driving down costs per unit so as to enable price reductions that attract droves of new customers Pursuing rapid product innovation both to set a companys product offering from rivals and to incorporate attributes that appeal to growing number of customers
Gaining access to additional distributional channels and sales outlets. Expanding the companys geographic coverage Expanding the product line to add models that appeal to wider range of buyers.
Strategies for competing in Maturing industries

How slowing growth alters market conditions ( CTV) 1. Slowing growth in buyer demand generates more competition for market share 2. Buyers become sophisticated and negotiate more. 3. Competition on the basis of cost and service
4. Product innovation and new end use applications are harder to come 5. International competition increases 6. Industry profitability falls temporarily or permanently. 7. Mergers and acquisitions happens in the industry.
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Strategies that fit conditions in maturing industries. 1. Pruning marginal products and models. 2. Improving value chain efficiency 3. Trimming costs 4. Increasing sales to present customers
5. Acquiring rival firms at bargaining prices. 6. Expanding internationally 7. Building new or more flexible capabilities.
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Strategies for competing in stagnant or declining industries

VCR/VCDs Pursue a focused strategy aimed at the fastest growing or slowest decaying market segments within the industry. Stress differentiation based on quality improvement and product innovation. Reduce the cost and be the low cost provider.
End game strategies for declining industries 1. A slow exit strategies 2. A fast exit strategies
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Strategies for competing in turbulent high velocity markets

Mobile services Ways to cope with rapid change. 1. It can react to change 2. It can anticipate change 3. It can lead change
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Strategy options for fast changing markets. 1. Invest in R&D 2. Keep company's product fresh 3. Develop quick response 4. Build supply chain 5. Initiate rapid action snow and then
Strategies for competing in fragmented industries

Pharmaceuticals and FMHG Reasons for supply side fragmentation. 1. The product or service is delivered at neighbor hood locations so as to be conveniently accessible to local residents. 2. Buyer preference and requirements are very large
Low entry barriers allow small firms to enter quickly and cheaply Lack of scale of economies makes them to compete with large firms. The scope of the market become global New areas are explored and tried to found one suitable area for the company.
Strategy options for competing in a fragmented industry. 1. Constructing and operating formula facilities 2. Becoming a low cost operator 3. Specializing by product type 4. Specializing by customer type 5. Focusing on a limited geographic area.
Strategies for sustaining rapid company growth

Extend the companys position in existing businesses Leverage existing resources to enter new businesses. Venture into the business no one ventured so for.
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Strategies for industry leaders.

Be offensive Muscle flexing strategy Be defensive 1. Spend more on advt 2. Fill the niches 3. Build customer loyalty by personalizing 4. Reasonable price
Cost competitive Technologically progressive Patent the technologies
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Strategies for runner-ups

Offensive strategies to build market share 1. Acquire small firm to have reach 2. Reduce the cost dramatically 3. Differentiate the product 4. Have technological breakthrough 5. Have a first mover advantage
Other strategic approaches for runner-up companies 1. Vacant niche strategy 2. Specialist strategy 3. Superior product strategy 4. Distinctive image strategy 5. Content follower strategy
Strategies for weak and crisis ridden businesses

Turnaround strategies for businesses in crisis a. Selling off assets b. Strategy revision c. Boosting revenues d. Cutting costs e. Combination efforts
Harvest strategies for weak businesses 1. Liquidation 2. Sell off
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Formulating long term objectives and grand strategies
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Long term objectives

These are statements of the results a firm seeks to achieve over a specific period, typically three to five years.
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Areas of long term objectives

Profitability Productivity Competitive position Employee development Employee relation Technological leadership Public responsibility
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Grand Strategies
Grand strategies, often called master or business strategies, provide basic direction for strategic actions Indicate the time period over which longrang objectives are to be achieved Any one of these strategies could serve as the basis for achieving the major longterm objectives of a single firm Firms involved with multiple industries, businesses, product lines, or customer groups usually combine several grand strategies
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Types of Grand Strategies

Concentrated Growth Market Development Conglomerate Diversification Turnaround
Product Development
Innovation Horizontal Integration Vertical Integration Concentric Diversification
Divestiture
Liquidation Bankruptcy Joint Ventures Strategic Alliances
Consortia
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Concentrated Growth
Concentrated growth is the strategy of the firm that directs its resources to the profitable growth of a dominant product, in a dominant market, with a dominant technology Concentrated growth strategies lead to enhanced performance Specific conditions favor concentrated growth The risks and rewards vary
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Market Development
Market development commonly ranks second only to concentration as the least costly and least risky of the 15 grand strategies It consists of marketing present products, often with only cosmetic modifications, to customers in related market areas by adding channels of distribution or by changing the content of advertising or promotion Frequently, changes in media selection, promotional appeals, and distribution are used to initiate this approach
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Product Development
Product development involves the substantial modification of existing products or the creation of new but related products that can be marketed to current customers through established channels
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Innovation
These companies seek to reap the initially high profits associated with customer acceptance of a new or greatly improved product Then, rather than face stiffening competition as the basis of profitability shifts from innovation to production or marketing competence, they search for other original or novel ideas The underlying rationale of the grand strategy of innovation is to create a new product life cycle and thereby make similar existing products obsolete
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Horizontal Integration
When a firms long-term strategy is based on growth through the acquisition of one or more similar firms operating at the same stage of the production-marketing chain, its grand strategy is called horizontal integration Such acquisitions eliminate competitors and provide the acquiring firm with access to new markets
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Vertical Integration
When a firms grand strategy is to acquire firms that supply it with inputs (such as raw materials) or are customers for its outputs (such as warehouses for finished products), vertical integration is involved The main reason for backward integration is the desire to increase the dependability of the supply or quality of the raw materials used as production inputs
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Ex. 7.7
Vertical and Horizontal Integrations
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Concentric Diversification
Concentric diversification involves the acquisition of businesses that are related to the acquiring firm in terms of technology, markets, or products With this grand strategy, the selected new businesses possess a high degree of compatibility with the firms current businesses The ideal concentric diversification occurs when the combined company profits increase the strengths and opportunities and decrease the weaknesses and exposure to risk
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Conglomerate Diversification
Occasionally a firm, particularly a very large one, plans acquire a business because it represents the most promising investment opportunity available. This grand strategy is commonly known as conglomerate diversification. The principal concern of the acquiring firm is the profit pattern of the venture Unlike concentric diversification, conglomerate diversification gives little concern to creating product-market synergy with existing businesses
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Turnaround
The firm finds itself with declining profits Among the reasons are economic recessions, production inefficiencies, and innovative breakthroughs by competitors Strategic managers often believe the firm can survive and eventually recover if a concerted effort is made over a period of a few years to fortify its distinctive competences. This is turnaround. Two forms of retrenchment: Cost reduction Asset reduction
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Elements of Turnaround
A turnaround situation represents absolute and relative-to-industry declining performance of a sufficient magnitude to warrant explicit turnaround actions The immediacy of the resulting threat to company survival is known as situation severity Turnaround responses among successful firms typically include two stages of strategic activities: retrenchment and the recovery response The primary causes of the turnaround situation have been associated with the second phase of the turnaround process, the recovery response
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Divestiture
A divestiture strategy involves the sale of a firm or a major component of a firm When retrenchment fails to accomplish the desired turnaround, or when a nonintegrated business activity achieves an unusually high market value, strategic managers often decide to sell the firm Reasons for divestiture vary
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Liquidation
When liquidation is the grand strategy, the firm typically is sold in parts, only occasionally as a wholebut for its tangible asset value and not as a going concern Planned liquidation can be worthwhile
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Bankruptcy
Liquidation bankruptcyagreeing to a complete distribution of firm assets to creditors, most of whom receive a small fraction of the amount they are owed Reorganization bankruptcythe managers believe the firm can remain viable through reorganization Two notable types of bankruptcy
Chapter 7 Chapter 11
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Joint Ventures
Occasionally two or more capable firms lack a necessary component for success in a particular competitive environment The solution is a set of joint ventures, which are commercial companies (children) created and operated for the benefit of the co-owners (parents) The joint venture extends the supplierconsumer relationship and has strategic advantages for both partners
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Strategic Alliances
Strategic alliances are distinguished from joint ventures because the companies involved do not take an equity position in one another In some instances, strategic alliances are synonymous with licensing agreements Outsourcing arrangements vary
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Consortia, Keiretsus, and Chaebols

Consortia are defined as large interlocking relationships between businesses of an industry In Japan such consortia are known as keiretsus, in South Korea as chaebols Their cooperative nature is growing in evidence as is their market success
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Selection of Long-Term Objectives and Grand Strategy Sets
When strategic planners study their opportunities, they try to determine which are most likely to result in achieving various long-range objectives Almost simultaneously, they try to forecast whether an available grand strategy can take advantage of preferred opportunities so the tentative objectives can be met In essence, then, three distinct but highly interdependent choices are being made at one time
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Sequence of Selection and Strategy Objectives

The selection of long-range objectives and grand strategies involves simultaneous, rather than sequential, decisions While it is true that objectives are needed to prevent the firms direction and progress from being determined by random forces, it is equally true that objectives can be achieved only if strategies are implemented
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Retrenchment strategies
Retrenchment is a short-run renewal strategy designed to overcome organizational weaknesses that are contributing to deteriorating performance. Retrenchment strategies call for two primary actions: cost cutting and restructuring
Retrenchment strategy alternatives include shrinking selectively, extracting cash for investment in other businesses, and divestment. restructuring involves an organization refocusing on its primary business. Variants of Retrenchment Strategy: The three major variants of retrenchment strategy are turnaround strategy, survival strategy and liquidation strategy.
Survival strategy a. Divestment b. Spin off
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Kirloskar Pneumatic Company Limited-Turnaround Success Kirloskar Pneumatic Company Limited (KPC) was set up in 1958. It started operations with the manufacture of air compressors and pneumatic tools in collaboration with Broom and Wade Ltd., U.K. and then diversified into Airconditioning, Refrigeration and Transmission. Currently its activities are grouped into four major divisions: Air-Compressor, Airconditioning and Refrigeration, Hydraulic Power Transmission and Process gas.
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During the recession in the late 1990s, the sales bottomed out and the management realized that the business could not grow any more. This triggered a period of introspection and the company started looking inwards. Every time any business hits the bottom, there are two perspectives external and internal. Since the management had little control over external factors, it focused on managing the internal working of the company. Fortunately, even on the external front, the company had a chance to buy out one of their major competitors K G Khosla. The move started in 1994 when KG Khosla Company became sick and the ICICI requested the Kirloskars to manage this business. Subsequently both the companies, KPC & KG Khosla, were merged in the year 2000.
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The first thing KPC management team did was to understand the business of KG lines, style of business, etc. Then it started leveraging the synergies between the two companies. Since the sales of the KPC were already bottoming out and the Khosla product line with its manufacturing facilities was added to its plant in Pune, the company was left with no other option except to cut costs across the board. By the end of 2000, the management of KPC had through an understanding with the staff at Faridabad plant of KG Khosla reduced the employee strength considerably. The VRS at Faridabad was introduced with a total understanding with the parting staff. KPC then shifted 90 people from Pune to Faridabad for about three months during which time the company saw to it that the production continued at Faridabad with these workers. After this activity at Faridabad, the company also restructured its Pune plant by reducing the strength by 650 people. The final strength of employees at both the plants after this whole downsizing exercise finally stood at 800.
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The company then turned its attention on restructuring its debt to bring the interest costs down. The third element of improvement was adding new product lines to its existing range while concentrating on improving the efficiency of its existing products. As a result, KPC turned around after successful implementation of all these wellplanned initiatives during the period 1999 2002.
Case 2: Gillette restructuring

Gillette India has achieved its growth target in the most profitable manner through strategic restructuring and functional excellence. The strategic restructuring focused on its business portfolio to identify the businesses it would like to continue and the ones it wishes to exit. Consequent to strategic restructuring, Gillette exited the Geep Battery business and the Braun business. Likewise, it discontinued all the nonprofitable and non-strategic business lines in its existing portfolio. The company also developed strategic governing statements for each of the business, which made each business extremely focused. Advertising spend was focused on the right strategic
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product. Advertising or sales promotion, which gave short-term benefits, was Turnaround discontinued. The company also focused on improving short-term gross profit margins of its core businesses. Comprehensive profit improvement plans were put in place through promotions, SKU rationalizations, cost reduction and improved asset management. Functional excellence initiatives ensured that each and every process within the organization is benchmarked against peer group companies and process improved through a well-defined action plan.
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Post Restructuring Scenario After the divestiture of Geep battery business, grooming business (blades and razors) has emerged as the single largest business accounting for 70% of turnover. Focus has been on the premium double edge, which was declining earlier, but with focused support and advertising this product made a strong rebound. Mach III the flagship brand of the company continues to perform extremely well with its niche premium positioning. Overall, the blades and razors business has registered a 22% growth. In addition, a new product called Vector Plus has been introduced in India. The product, which is an outcome of three years of development at its Boston Research and Development Facility, is based on the Indian consumer habits.
In personal care business, the main focus was on the tube shaped gel and the Gillette Series products in aerosol, gel, foam, after-shave and splash. This segment has registered a growth of 400%. Activities aimed at preventing the growth gray market have also aided growth in this segment. The oral care strategy for India has been revised to target the mass segment. Two products have been launched - Oral-B Classic and Oral-B Plus, both positioned in the popular price segment. This business has grown by 34% during 1999. The alkaline battery segment (Duracell), accounts for a small part of turnover, but company enjoys a very high market share in the category. The strategy here would be wait and watch till the alkaline category starts growing. This business has grown at about 11% year on year.
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Restructuring
It is the process of reorganizing and divesting business units and exiting industries to refocus on companys core business and rebuild its distinctiveness
Why restructuring?
Stock market valuation is less for the diversified company. Investors see highly diversified company unattractive for four reasons 1. Multi business system do not have proper business models 2. Companies hide the performance result of weaker firms 3. Diversification reduces profitability 4. Innovation in the businesses
Retrenchment Strategies
Turnaround (most conservative) often involves layoffs Divestment Liquidation (most extreme) A retrenchment strategy is often accompanied by a reorganization process known as corporate restructuring.
Original BCG Matrix

High Relative
Market Share
Low Relative
Market Share
High Industry Growth Rate
Stars
Question Marks
Low Industry Growth Rate
Cash Cows
Dogs
Build market share with stars and question marks Hold market share with cash cows Harvest (milk) as much short-term cash as possible Divest a business unit
BCG Matrix Options for Strategic Managers
GE 9-Cell Matrix
Business Strength/Competitive Position
Strong Average Weak
Long-Term M Industry Attractiveness

L
Industry attractiveness
Bargaining power of suppliers Threat of substitutes Threat of new entrants Competitive rivalry Economic factor Profitability Sociopolitical environment
Business position
Level of differentiation Cost position Response time Financial strength Human assets
Mckinsey 7s matrix
Module 7
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Strategy Implementation
By Prasad Kulkarni
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Definition
Strategy implementation is the process chosen to strategy to action It involves the designed management of systems to achieve the best integration of people structure, processes and resources in an efficient and most optimum way.
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Role of annual objectives in operational izing the strategy

Meaning of annual objectives Annual objectives translate long range aspirations into the current year budget.
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Characteristics of annual objectives

Annual objective should be understable Annual objective should be concrete and specific Annual objectives should be measurable and controllable Annual objectives should be challenging
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Role of annual objectives

Annual objectives define the organizations relationship with its environment. Annual objectives help in organization to pursue its vision and mission Annual objectives provide the basis for strategic decision making Annual objectives provide the standards for performance appraisal
Distinguish between annual objective and long term objectives
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Developing Functional strategies

Meaning of functional strategies: Strategies those are used for the allocation of resources among different operations within that functional area and achieving business level and corporate level strategies
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Need of functional strategies It is important that an organization periodically review all functional strategies to assure that they are a. Consistent with business strategy b. Supportive of the business strategy c. Consistent with other functional strategies
Supportive of other functional strategies Best utilize the organizational strengths Lead to the level of efficiency and effectiveness desired Create or maintain functional competitive advantages
Types of functional strategies i. Finance and accounting strategies ii. Human resource strategies iii. Information system strategies iv. Marketing strategies v. Production strategies. vi. R & D strategies
Vertical fit a. Strategic marketing management b. Strategic financial management c. Strategic operations management d. Strategic HR management e. Strategic information management.
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Horizontal fit: congruence and coordination among the different activities taking place at the same level is called horizontal fit There should be coordination of strategies across the functions.
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Functional strategies are not implemented directly. They have to be defined in terms of plans and policies Need for functional plans and policies a. The strategic decisions are implemented by all the parts of the organization
There is a basis available for controlling activities in the different areas of a business. The time spent by functional managers on decision making may be reduced as the plans lay down clearly what has to be done and policies provide discretionary framework within which decisions need to be taken Coordination across the different functions takes place where necessary.
Functional strategies in marketing 1. Expansion of product mix 2. Line pruning 3. Repositioning 4. Trading up and down with line filling 5. Skimming and penetration pricing 6. Pricing in relation to established products
Stay out of price Line pricing Psychological pricing Dual pricing Push and pull strategy Direct selling Sell through networks
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Functional strategies in finance: 1. Capital structure( long term source of finance and total capital) 2. Proprietors funds 3. Borrowers funds 4. Reserves and surplus 5. Capital investment
Dividend strategies Working capital strategies Mergers and acquisitions R & D strateigies Location decision Plant layout decision Procurement decision EOQ
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Facilities and equipment Recruitment, selection and training Compensation management Industrial relation management Performance appraisal Career planning
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Developing and communicating concise policies

Policies will provide 1. A basis for management control 2. Allow coordination across organizational units 3. Reduce the amount of time manager spend making decisions Policies also clarify what work is to be done by whom
Many organization have a policy manual that serves to guide and direct behavior Policies serve as a mechanism for implementing strategies and obtaining objectives
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Policies required on a. Policy on centralization and decentralization b. Policy on hiring c. Promotion policy d. Negotiation policy e. Overtime work policy f. Buying and leasing policy
Shift policy Sexual harassment policy Policy on cigarettes and alcohols Supplier policy Stock policy
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Organization structure
Organizational structure is the formal or quasi formal network of reporting or controlling relationships in an organization and the powers and duties associated with each role in this network
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Need of organization structure

Divide and allocate the work authority and responsibility Establishing working relationship and operating mechanism Establishing the pattern of managerial supervision and control Indicating the areas responsibility, authority and accountability
Provide the basis for fair and justified reward system Meeting the aspiration of people involved in it.
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Designing organizational structure

1. Process approach 2. result approach 3. decision approach
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Types of structures
Entrepreneurial structure Functional structure Divisional structure SBU structure Matrix organization Network structure Product based structures Customer based structures Geographic structures.
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Entrepreneurial structure
owner
employee
Quick decision Ease of control Close relationship Simple reward system Informal system Highly demanding Focus on routine than strategic Expansion not possible No scope for managerial development
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Functional organization structure
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Benefits of specialization Expert knowledge Reduced pressure of work Guaranteed internal discipline No unity of command Problems of coordination Complicated in operation Misuse of authority
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Divisional organization structure
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Strengthens corporate finance control Management by exception It motivates and boost the morale Enable top management to focus on strategic matters The efficiency is high
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Costly system Competition between division Coordination problem Policy inconsistancy
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Strategic business unit structure

Meaning: any part of a business organization which is treated separately to strategic management purpose
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Decentralization of authority Better coordination Effective strategy formulation Assured accountability Increase in operating cost Gap between divisions and head office Little flexibility
Matrix organization structure
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Creation of direct relation Better quality decision Participative management Possible conflicts and confusion Delayed decisions It is costly
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Role of CEOs play in strategic management

Formulating long term plans Formulation of strategy Guiding and directing Integrating staffing Reviewing and controlling Public relations Coordination Link between top and bottom management
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Corporate culture
The character of companys internal work climate and personality as shaped by its core values, beliefs, business' principles, traditions established behaviors and work practices and styles of operating
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Key features of companys corporate culture

The values business principles and ethical standards that management preaches and practices The companys approach to people management The spirit and character that pass through the work culture
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The strength of peer pressure to do things in particular ways and conform to expected norms Companys past culture Dealing with external stakeholders.
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Unhealthy cultures
Politicized culture Change resistant culture Insular inwardly focused culture Unethical and greed driven culture
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Changing a problem culture

Identify facets of present culture that are conducive to strategy execution and operating excellence and those that are not Specify what new actions behaviors and work practices should be prominent in the new culture
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Talk openly about problems of present culture and how new behavior will improve performance Follow with visible forceful actions both substantive and symbolic to ingrain a new set of behaviors , practices and cultural norms.
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Role of leader
1. Staying on top of how well things are going 2. Putting constructive pressure on the organization to achieve good results and operating excellence 3. Leading the development of stronger core competencies and competitive capabilities 4. Displaying ethical integrity and leading social responsibility initiatives
5. Pushing corrective actions to improve strategy execution and achieve the targeted results
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Business ethics
Concerns the application of general ethical principles and standards to the actions and decisions of companies and the conduct of company personnel
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Origin of ethics
The school of ethical universalism The school of ethical relativism a. The use of underage labor b. The payment of bribes and kickbacks c. Pushed to exremes
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Integrated social contract theory

Universal ethical principles or norms based on the collective views of multiple cultures and societies combine to form a social contract that all individuals in all situations have a duty to observe.
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Three categories of management morality

The moral manager The immoral manager The amoral manager
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Drivers of unethical strategies

Ovezealous pursuit of personal gain wealth and selfish interests Heavy pressures on company managers to meet or beat earning targets. Company cultures that put the bottom line ahead of ethical behavior
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Approaches to managing companys ethical conduct

The unconcerned approach The damage control approach The compliance approach The ethical culture approach
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Social responsibility
Duty to operate in an honorable manner provide good working conditions for employees, be a good steward of the environment, and actively work to better the quality of life in local communities where it operates and society at large
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Five components of socially responsible business behavior

Action to promote workforce diversity Action to enhance employee well being and to make the company a great place to work Action to protect or enhance the environment
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Action to support charitable cause participate in community service activities and better the quality of life. Action to ensure the company has an ethical strategy and operate honorably and ethically.
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The business case for social responsible behavior

It generates internal benefits It reduces the risk of reputation Increase buyer patronage It is in the best interest of stake holders.
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Module 8
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Strategic review and audit

By Prof. Prasad Kulkarni
Strategic control
The process of continuous review of the strategy between the phase of strategy implementation and obtaining the intended objectives
Types of strategic control

Premise control Special alert control Strategic surveillance Implementation control
Premise control
It is designed to check systematically and continuously whether the premises on which the strategy is based are still valid. If the designed strategy idea is not good that can be rejected Planning the premise control dependence on environmental and industry factors.
Strategy should be controlled on various environmental factors such as inflation, technology, interest rates, regulation and demographic factors. Premise control also got affected by industry factors like competitive suppliers, product substitutes, and barriers to entry.
Strategic surveillance
It is designed to monitor a broad range of events inside and outside the firm that are likely to affact the course of its strategy Business world, business today, trade conferences conversations intended and unintended observations are all subjects of strategic surveillance
Special alert control

A special alert control is the through and often rapid reconsideration of the firms strategy because of a sudden unexpected event.
Implementation control
It is designed to assess whether the overall strategy should be changed in light of the results associated with the incremental actions that implement the overall strategy. Implementation control depends on Two factors i.e. monitoring strategic thrusts and milestone review
Monitoring strategic thrust or projects 1. Implementing the process in phases and monitoring. 2. Managers will be observing the process continuously.
Milestone review 1. Identify significant milestones 2. Milestones are critical events, major resource allocation etc 3. Establish the milestone period point.
Operational control
Operational control is aimed at the allocation and use of organizational resources through an evaluation of the performance of organizational units such as division, SBUs to assess their contribution to the achievement of the organizational objectives
Evaluation process for operational control a. Setting standards of performance b. Measurement of performance c. analyzing variance d. Taking corrective actions
a. Setting standards. - The key managerial tasks - The special requirement for the performance of the key tasks can help to determine the type of standards to set. - Performance indicators that best express the special requirements could then be decided upon to be used for evaluation.
b. Measurement system - Difficulties in measurement - Timing of measurement - Periodicity in measurement c. Analyzing the variance. - The actual performance matches the budgeted performance
The actual performance deviates positively over the budgeted performance The actual performance deviates negatively from the budgeted performance.
d. Taking corrective actions - Checking of performance - Checking of standards - Reformulating strategies plans and objectives.
Monitoring performance and evaluating deviations ( same as operational control) Monitoring performance - Difficulties in measurement - Timing of measurement - Periodicity in measurement Analyzing variance - Actual performance matching with budgeted, positive and negative of the performance
Strategic evaluation
The process of determining the effectiveness of a given strategy in achieving the organizational objectives and taking corrective actions wherever required
What to be evaluated
Objectives Environmental objectives Internal conditions Resource capabilities
Techniques of strategic evaluation

Evaluation techniques for strategic control A. strategic momentum control - Responsibility control centers - Success factors - Generic strategies b. Strategic leap control - Strategic issue management - Strategic field analysis
Evaluation techniques for operational control - Internal analysis a. Value chain analysis b. Quantities analysis c. Qualitative analysis - Comparative analysis
a. b. c. a. b.
Historical analysis Industry norms Benchmarking Comprehensive analysis Balanced score card Key factor rating
Process of strategic evalauation

Developing criteria for evaluation Measuring actual performance Analyzing deviations from acceptable tolerance limits Feed back and mdifications.
Organizational system in strategic evaluation

Information system Control system Appraisal system Motivation system Development system
Strategic Reward Systems

Individual reward systems
Piecework plans Commission systems Bonus plans Promotion
Group and organizational reward systems

Group-based bonus systems Profit sharing systems Employee stock option systems Organization bonus systems
Challenges in strategy implementation

Culture adaptability Resource allocation Revamping the organization structure Resistance to change Production and operation issues

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