Sei sulla pagina 1di 428

Syllabus: MBA: BPSM: Semester III

(301) BUSINESS POLICY & STRATEGIC MANAGEMENT 1. Strategy and the Quest for Competitive Advantage: Military origins of strategy Evolution Concept and Characteristics of strategic management Defining strategy Mintzbergs 5 Ps of strategy Corporate, Business Levels of strategy Strategic Management Process. (4) -------------------------------------------------------------Ulhas D. Wadivkar. B.E. (Elect), PGDIM, MBA (Finance) Management Consultant, Retired Vice President (Works), Graphite India Limited. Nashik & Bangalore. 1st August 2011

Ulhas D Wadivkar

Business Policy and Strategic Management


Without Business Policy and Strategy, an organisation is like a ship without rudder, going around in circles. Its like a tramp; who has no place to go Joel Ross and Michael Kami.

Business Policy definition by Christensen :

Business Policy is the study of the function and responsibilities of Senior Management, the crucial problems that affect success in the total enterprise, and the decisions that determine the directions of the organisation and shape of its future. The problems of policy in the business, like those of policy in public affairs, have to do with choice of purposes, the moulding of organisational identity and character, the continuous definition of what needs to be done, and the mobilisation of resources for the attainment of organisational Goals in the face of competition or adverse circumstance.
Ulhas D Wadivkar 2

Evolution of Business Policy as discipline.


Origin 1911- Harvard Business School Integrated Course in Management aimed at providing general management capability. Hofer: Strategic Management A Casebook in Policy and Planning: The Business Policy evolution has undergone four Paradigm Shifts. This transition is of overlapping nature. Development of subject of Business Policy has always followed the demands of real life business. 1930 -1960: Environment change: New Products: Continuously changing market: Ford Foundation recommended report, by Gordon and Howell, suggested a Capstone course of Business Policy which would give the students an opportunity to pull together what they have learned in the separate business fields and utilise this knowledge in the analysis of complex business problems.

Ulhas D Wadivkar

Evolution of Business Policy as discipline.


1969: The course was made mandatory by American Assembly of Collegiate School of Business (AACSB) 1990: The course has become an integral part of management education curriculum. Evolution of Business Policy has undergone four Paradigms Paradigm One: Ad-hoc Policy making. 1900 -1930: Era of Mass Production Maximising output, Normally a Single Product, Standardised and low cost product, catering to unique set of customers servicing limited geographical area Informal control and co-ordination. The Strategic planning was centred on maximising output.
Ulhas D Wadivkar 4

Evolution of Business Policy has undergone four Paradigms Paradigm Two Integrated Policy Formulation. 1930 - 1940: Changes in Technology, Turbulence in Political environment, Emergence of new industries, Demand for novelty products even at higher costs, Product Differentiation, Market segmentation in increasingly competitive and changing markets. These all made investment decisions increasingly difficult. This was era of integrating all functional areas and framing policies to guide managerial actions. Paradigm Three The Concept of Strategy. 1940 - 1960: Planned policy became irrelevant due to increasingly complex and accelerating changes. Firms had to anticipate environmental changes. A strategy needed to be formed with critical look at basic concept of Business and its relationship to the existing environment then. Ulhas D Wadivkar

Paradigm Four The Strategic Management. 1980 & onwards: The focus of Strategic Management is on the strategic process of business firms and responsibilities of general management. Everything out side the four walls is changing rapidly and this phenomenon is called as Discontinuity by Mr. Peter Drucker. Past experiences are no guarantee for future, as science and technology is moving faster. The future is no more extension of the past or the present. The world is substantially compressed and managing the External & Internal environment becomes crucial function. What to produce, where to market, which new business to enter, which one to quit and how to get internally stronger and resourceful are the new stakes. Strategic Planning is required to be done to endow the enterprise with certain fundamental competencies / distinctive strengths which could take care of eventualities resulting from unexpected environmental changes.
Ulhas D Wadivkar 6

The Indian Scenario:


However, the evolution of this fourth phase is still continuing and is yet not formed into a theory of how to manage an enterprise. But Strategic Management is a very important tool for and way of thinking to resolve strategic issues. The Indian Scenario: IIMs and Administrative Staff College of India formed in early sixties were based on American Model. IIM-A is based on Harvard Model. The All India Council of technical Education (AICTE), The Association of Indian Management Schools (AIMS) have recommended a standard curriculum including Business Policy and Strategic Management as a compulsory course. Business Policy is the preferred nomenclature but Strategic Management is being progressively adapted.
Ulhas D Wadivkar 7

Evolution of Strategic Management in India is divided in three periods.

Till 1980 : Pre-liberalisation Stage: Strategic management on Government fringes. Entwining enterprise objectives into the national Planning framework. Grabbing opportunities, high diversification, noncompetitive scales, and weak technology. Secretive & one man Strategic Management Process. 1980 - 2000 : Liberalisation Stage: Foreign Complex governed strategy. Strategy of focus on rationalisation and operations improvement. Strategy of growth through acquisitions, internationalisation and product market expansion. Employing international consulting firms in Strategic Management.
Ulhas D Wadivkar 8

Evolution of Strategic Management in India is divided in three periods.

2000- Onwards: Post Liberalisation Stage: Global maverick mindset & Acquire professional skills in Strategic Management and synergise entrepreneurial flair. Portfolio rationalisation, entry into emerging sectors. Mobilise resources and ensure adequate growth through existing business. De-merge businesses as independent companies and improve market capabilities. Development of Technology capabilities Decentralise organisations, develop institutionalised control mechanism.
Ulhas D Wadivkar 9

Core concept of Strategy:


A companys concept of Strategy consists of the competitive moves and business approaches that managers employ to attract and please customers, compete successfully, grow the business, conduct operations and achieve targeted objectives. Military Origins of Strategy: Strategy is a term that comes from the Greek Strategia, meaning "Generalship. In the military, strategy often refers to manoeuvring troops into position before the enemy is actually engaged. In this sense, strategy refers to the deployment of troops. Once the enemy has been engaged, attention shifts to tactics. Here, the employment of troops is central. Military origins of strategy are century old. It seems sensible to begin our examination of strategy with the military view. Substitute "resources" for troops and the transfer of the concept to the business world begins to take form. Strategy also refers to the means by which policy is effected, As per Clauswitz the war is the continuation of Ulhas D Wadivkar 10 political relations via other means.

Strategy According to B. H. Liddell Hart In his book, Strategy, Liddell Hart examines wars and battles from the time of the ancient Greeks through World War II. He concludes that Clausewitz definition of strategy as "the art of the employment of battles as a means to gain the object of war" is seriously flawed in that this view of strategy intrudes upon policy and makes battle the only means of achieving strategic ends. Wiser definition of strategy could be "the practical adaptation of the means placed at a Generals disposal to the attainment of the object in view." Thus, military strategy is clearly a means to political ends. Concluding his review of wars, policy, strategy and tactics, Liddell Hart arrives at this short definition of strategy: "The art of distributing and applying military means to fulfil the ends of policy."
Ulhas D Wadivkar 11

Strategy According to George Steiner George Steiner, a professor of management and one of the founders of The California Management Review. His book, Strategic Planning, is close to being a bible on the subject. Steiner points out in his notes that there is very little agreement as to the meaning of strategy in the business world. Some of the definitions in use to which Steiner pointed include the following: Strategy is that which top management does that is of great importance to the organization. Strategy refers to basic directional decisions, that is, to purposes and missions. Strategy consists of the important actions necessary to realize these directions. Strategy answers the question: What should the organization be doing? Strategy answers the question: What are the ends we seek and how should we achieve them?
Ulhas D Wadivkar 12

Defining Strategy and Concept of Strategic Management

Alfred D Chandler(1962) : The determination of basic longterm goals and the adoption of courses or the courses of action and the allocation of resources necessary for carrying out these goals

Alfred D Chandler(1984) : Basically, a strategy is a set of decisions-making rules for the guidance of organisational behaviour
Kenneth Andrews(1965) : The pattern of objectives, purpose, goals, and the major policies and plans for achieving these goals stated in such a way so as to define what business the company is in or is to be and the kind of company it is or to be

Kenneth Andrews (1965) : Business Strategy is a method of describing the future position of the company, its objectives, purposes, goals, policies, and plans that may be required for guiding the company from its existing position to where it desires to be. Ulhas D Wadivkar 13

Defining Strategy and Concept of Strategic Management Igor Ansoff(1965) : The common thread among the organisations activities and product-marketsthat defines the essential nature of business that the organisation was or planned to be in future

William F Gleueck(1972) : A unified, comprehensive and integrated plan that relates the Strategic advantage of the firm to the challenges of the environment and is designed to ensure that the basic objectives of the enterprise are achieved through proper implementation process
Henry Mintzberg(1987) : Strategy is Organisations pattern of response to its environment over a period of time to achieve its goals and mission.

Michael E Porter(1996) : Creation of a unique and valued position involving a different set of activities. The company that is strategically positioned performs different activities from rivals or performs similar activities in different ways
Ulhas D Wadivkar 14

If we sum up all the above definitions, then Strategy is :

A plan or course of action or a set of decisions rules forming pattern or creating a common thread. The pattern or common thread related to the organisations activities which move an organisation from its current position to a desired to a desired future stage Concerned with the resources necessary for implementing a plan or following a course of action and, Connected to the strategic positioning of a firm, making trade-offs between its different activities, and creating a fit among these activities.

Set a clear direction to the organisation.


Enterprise knows its strengths & weaknesses compared with those of its competitors.
Ulhas D Wadivkar 15

Essence Of Strategy

Strategy includes the determination and evaluation of alternative paths to an already established Mission and Objectives of enterprise and choosing the alternative to be adapted. Four important aspects of Strategy are: 1. Long Term Objectives: It emphasises on long term growth and development. These Objectives give direction for implementing Strategy. 2. Competitive Advantages: The external environment is continuously monitored & Strategy is made to have the firm a continuous Competitive Advantage. 3. Vector: is a Direction with Force. Series of actions are to be taken & they should have same direction for whole organisation. 4. Synergy: Once a series of decisions are taken to accomplish the objectives in same direction, there will be synergy. Synergy can happen due to Competitive Advantages and Growth Vector. The Objectives need be measurable and could be : ROI, Sales Ulhas D Wadivkar 16 Growth Rate,

Strategy as Action & Nature of Strategy

Three types of actions are involved in Strategy: 1. Determination of Long Term Goals & Objectives. 2. Adoption of courses of action. 3. Allocation of resources. Therefore, Strategy is Creation of unique & valued position involving a different set of activities. The Company that is strategically positioned performs different activities from rivals or performs similar activities in different ways Michael Porter. Thus Nature of Strategy is: Strategy is a major course of action through which organisation relates itself to its environment. (External) Strategy is blend of internal & external factors. Face opportunities & threats provided by external factors, Ulhas D Wadivkarfactors are matched with them. 17 internal

Nature of Strategy contd

Strategic actions are different for different situations. Strategy is combination of actions to solve a certain problem to achieve a desirable end. Strategy may involve contradictory actions simultaneously or with a gap of time like closing down some operations and expanding some at same time. Strategy is future oriented. New situations, which have not arisen in past will require revised Strategic Actions.
Strategy requires some systems and norms for its efficient adoption in any organisation. Strategy provides overall framework for guiding enterprise thinking and action.
Ulhas D Wadivkar 18

Strategy v/s Policies


Strategy & Policy are not synonymous. Policy is guideline for decisions & actions to be taken by subordinates for the fulfilment of the set of objectives. Policies are commonly accepted understanding of decision making. Policies are thought oriented. Policies have to be integrated so that Strategy is implemented successfully and effectively. Strategy and policies both are the means directed towards meeting organisational objectives.
Ulhas D Wadivkar

Strategies are concerned with the direction in which human and physical resources are deployed to maximise the chances of achieving organisational objectives in face of variable environment. Strategies are specific actions suggested to achieve objectives. Strategy is action oriented and empowers concerned to implement them. Strategy cannot be delegated downwards. Strategy is rule for making decision and Policy is contingent decision.
19

Strategy v/s Tactics


Strategy determines the major plans to be undertaken. Goal of Strategy is to gain competitive advantage, break the opponent. Strategic decisions cannot be delegated downwards. Strategy formulation is dynamic, responding to environment. It can be continuous or irregular. Strategy has a long term perspective & have a high element of uncertainty. Strategy formulation is affected by the personal values of person involved in the process. Ulhas D Wadivkar
Tactics is means by which previously determined plans are executed. Goal of Tactics is to achieve success in a given action. Tactics decisions can be delegated to all levels of organisation. Tactics are determined on a periodic basis with some fixed timetable. Tactical decisions are more certain as they work upon framework set by Strategy. Tactical decision implementation is impersonal. Tactical decisions are less important than Strategic decisions.
20

Strategic Management : Definition Strategic management is the process of systematically analysing various opportunities and threats vis--vis organisational strengths and weaknesses, formulating, and arriving at strategic choices through critical evaluation of alternatives and implementing them to meet the set objectives of the organisation. Definition Strategic Management is concerned with making decisions about an organisations future direction and implementing those decisions. - By Lloyd L Byras.

Ulhas D Wadivkar

21

Aspects of Strategic Management


Vision Statement Mission Statement indicating methodology for achieving the objectives, purposes and Philosophy of organisation as reflected in vision statement. Company Profile, its internal culture, strengths and capabilities. Critical study of external environmental factors, threats and opportunities. Finding out way and deciding the desirable course of actions for accomplishing the Mission statement. Selecting long term objectives and deciding corresponding strategies. Evolving short term objectives, defining corresponding strategies in tune with Mission and Vision Statements. Implementing chosen strategies in planned way, based on budgets, allocating resources, outlining action plan and tasks. Installation of a continuous review system, creating a control mechanism and Data generation for selecting future course of action.
Ulhas D Wadivkar 22

Five Tasks of Strategic Management


Forming a strategic Vision of what the companys future business make up will be and where the organisation is headed. (A long term vision to infuse the organisation with a sense of purposeful action.) Setting objectives: converting Strategic vision into specific measurable performance outcomes. Crafting a Strategy to achieve desired outcome. Implementing & Executing chosen strategy efficiently and effectively. Evaluating performance & initiating corrective adjustment in Vision, Long term directions, Objectives, Strategy in light of actual experience, changing conditions, new ideas & new opportunities.
23

Ulhas D Wadivkar

Who performs these five tasks of Strategic Management?


CEO is most important Strategy Manager, who is most visible also. He performs various roles such as, Chief direction setter, Chief objective setter, Chief strategy maker, Chief Strategy implementer. Vice Presidents of various functions have role to play in strategy making and implementing. Functional heads like Production, Marketing, Finance, HR etc have responsibilities to deliver measurable performance as per Strategic Planning. All major organisational units, business units, divisions, Staff, Plant support groups, district offices have leading and supporting roles in companys strategic game plan. CEO & Senior Corporate executives have responsibility & personal authority for major strategic decisions. Managers with Profit & Loss responsibilities for individual business units or divisions. Functional Heads & Departmental heads with direct responsibility over a major business areas. Managers of operating plants: Strategy making is a job for all the line managers. Doers should be strategy makers. It should not be left to staff of Planners. Strategic Planning is not a stand alone function. It is an integrated team effort. Ulhas D Wadivkar 24

Aspects of Strategic Planning - 1


Strategic Planning provides the route map for the enterprise. It lends a framework which can ensure that decisions concerning future are taken in a systematic and purposeful way. Strategic Planning provides a hedge against uncertainty, against totally unexpected developments. Strategic Planning helps in understanding trends in a better way and generates a reference frame for investment decisions. Strategic Planning provides the frame work for all major business decisions, decisions on business, products, markets, manufacturing facilities, investments, and organisational structure. It is a path finder for business opportunities and it is also a defence mechanism to avoid costly mistakes in choice of product market or investments.
Ulhas D Wadivkar 25

Aspects of Strategic Planning - 2


The more intense the environmental uncertainty, more critical is the need for strategic planning. The success of the efforts and activities of the enterprise depends heavily on the quality of strategic planning. Considerable thought and effort must go in vision, insight, experience, quality of judgement and the perfection of methods and measures. Strategic Planning is a management task concerned with growth and future of the business enterprise. As a management tool, Strategic Planning utilises both intuition and logic. Logic is through Planning and information process and intuition is through experience, knowledge and vision of top people in Management. All vital aspects of corporate governance are perfected through strategic planning, starting from corporate mission, philosophy and core values, down to choice of businesses Ulhas Dstrategies. 26 and Wadivkar

Through analytical process aspect, involved in Strategic Planning, corporation understands where its core competencies are, identifies the competitive advantages, pinpoints the gaps, formulate steps to bridge them. Main aspects of Strategic Planning are Future, Growth, Environment, basket of businesses of the firm for additions and deletions, Strategy and not day to day routine matters, creation of core competency and competitiveness and finally integration. It views the organisation / business in its totality and not a particular function. Thus Strategic Planning is Corporate Strategy. Strategic Planning differs from other operative and administrative functions of management. Strategic Planning provides objective strategy design: A) Growth Objective Performance levels, Profitability target, B) Product Market scope, its penetration, C) Growth Vector Product Market posture, development or diversification, D) Competitive Advantages, E) Synergy, strength obtained from new product-market selections.
Ulhas D Wadivkar 27

Aspects of Strategic Planning - 3

Mintzbergs 5Ps of strategy


Henry Mintzberg, in his 1994 book, The Rise and Fall of Strategic Planning, points out that people use "Strategy" in several different ways, the most common being these five: Strategy is a Plan, a "how," a means of getting from here to there. A strategy can be a Ploy too; really just a specific manoeuvre intended to outwit an opponent or competitor. Strategy is a Pattern in actions over time; for example, a company that regularly markets very expensive products is using a "high end" strategy. Strategy is Position; that is, it reflects decisions to offer particular products or services in particular markets. Strategy is Perspective, that is, vision and direction.
28

1. 2. 3.

4.
5.

Ulhas D Wadivkar

Mintzberg argues that strategy emerges over time as


intentions collide with and accommodate a changing reality. Thus, one might start with a perspective and conclude that it calls for a certain position, which is to be achieved by way of a carefully crafted plan, with the eventual outcome and strategy reflected in a pattern evident in decisions and actions over time.

This pattern in decisions and actions defines what


Mintzberg called "realized" or emergent strategy.
Ulhas D Wadivkar 29

Henry Mintzberg (pictured above,) Bruce Ahlstrand and Joseph Lampell, in their 2005 book Strategy Bites Back, present 5 "P's" as a way to define strategy. Each "P" shines a spotlight on what strategy is / means / encompasses from a different angle, to provide a comprehensive overview that is probably more useful than definitions that try to fit all into a couple of sentences.
Ulhas D Wadivkar 30

Mintzbergs 5Ps of strategy

The 5 "P's," adjusted where necessary to fit into the professional services / Industrial firms, are as follows: 1. Strategy is a PLAN To almost anyone you care to ask, strategy is a plan - some sort of consciously intended course of action, a guideline (or set of guidelines) to deal with a situation. A kid has a "strategy" to get over a fence; a firm has one to dominate a market for a particular service or practice area. By this definition, strategies have two essential characteristics: they are developed consciously and purposefully.
Ulhas D Wadivkar 31

2. Strategy as a PLOY: Strategy can be a ploy, too, which is really just a specific "manoeuvre" intended to outwit an opponent or competitor. The kid may use the fence as a ploy to draw a bully into his yard, where his Doberman Pincher awaits intruders. Likewise, a firm may threaten to establish a new practice area in order to discourage a competitor from trying to do the same. Here the real strategy (as plan, that is, the real intention) is the threat, not the new practice area itself, and as such is a ploy. Threatened litigation often falls into this category. 3. Strategy is a PATTERN: Strategy (whether as general plans or specific ploys) is pointless if it cannot be realized. In other words, defining strategy as a plan or ploy is not sufficient; we also need a definition that encompasses the resulting behaviour. Thus, strategy is also a pattern specifically, a pattern in a stream of actions. By this definition, strategy is consistent in behaviour, whether or not intended. The outcome of strategy does not derive from the design, or plan, but from the action that is taken as a result.
Ulhas D Wadivkar 32

4. Strategy is a POSITION: Strategy is also a position; specifically a means of locating a firm in its environment. In ecological terms: strategy becomes that firm's "niche." In management terms: a "domain" consisting of a particular combination of services, clients and markets. Position is often defined competitively (literally so in the military, where it becomes the site of a battle.) 5. Strategy is a PERSPECTIVE: While position is outwardly focused, perspective looks inward into the firm; even into the heads of the strategists themselves. Strategy in terms of this definition becomes an ingrained way of perceiving the world. Some firms are aggressive pacesetters; others build protective shells around themselves. Almost every profession has about it unique perspectives, that indelibly flavour the strategies that firms practicing those professions craft for themselves. A law firm's view of their business is fundamentally different to that of an accounting firm, and engineering firm or a graphic design studio, yet all are staffed Ulhasprofessionals. 33 by D Wadivkar

The Plan provides the roadmap by which the firm intends to achieve its goals. Ploys add a dimension of feint and manoeuvre, where one firm's gain is another's loss and competitive advantage is critical. Pattern emphasizes that strategy is not a once-off event but a constant stream of decisions and resultant actions that drive the firm forward, over time, towards its goal. Position adds that different firms have different mixes of markets, clients and services that they provide to those clients. Finally Perspective provides an insight onto how the firm and its strategists are informed by their own professions, their perceptions of business, and the Ulhas D Wadivkar 34 unique characteristics of each firms own "world."

What Is Strategy? - 1 What, then, is strategy? Is it a plan? Does it refer to how we will obtain the ends we seek? Is it a position taken? Just as military forces might take the high ground prior to engaging the enemy; might a business take the position of low-cost provider? Or does strategy refer to perspective, to the view one takes of matters, and to the purposes, directions, decisions and actions stemming from this view? Lastly, does strategy refer to a pattern in our decisions and actions? For example, does repeatedly copying a competitors new product offerings signal a "me too" strategy? Just what is strategy? Strategy is all theseit is perspective, position, plan, ploy and pattern. Strategy is the bridge between policy or high-order goals on the one hand and tactics or concrete actions on the other. Strategy and tactics together straddle the gap between ends and means. Ulhas D Wadivkar 35

What Is Strategy? - 2 In short, strategy is a term that refers to a complex web of thoughts, ideas, insights, experiences, goals, expertise, memories, perceptions, and expectations that provides general guidance for specific actions in pursuit of particular ends. Strategy, then, has no existence apart from the ends sought. It is a general framework that provides guidance for actions to be taken and, at the same time, is shaped by the actions taken. The ends to be obtained are determined through discussions and debates regarding the company's future in light of its current situation. A SWOT analysis (an assessment of Strengths, Weaknesses, Opportunities and Threats) is conducted based on current perceptions.
Ulhas D Wadivkar 36

A Companys Situation External Factors: Industry & Competitive conditions. Buyer Preferences PESTEL Political, Economical, Socio-cultural, Technological, Environmental & legal factors Internal Factors like Resources, Competitive strengths & Capabilities, Weaknesses & Threats.

Adopt / Abandon Strategy features

New Initiatives & Ongoing Strategy Features continued from prior periods

Companys Strategy

Adoptive reactions to Changing circumstances

Ulhas D Wadivkar

37

Strategy
It is a simple and undeniably relevant matter for managers to periodically ask the following questions of the employees reporting to them:

What have you done to improve customer service? What have you done to improve customer satisfaction? What have you done to reduce costs? What have you done to increase productivity? What have you done to increase revenues from new products and services?

Some Fundamental Questions Regardless of the definition of strategy, or the many factors affecting the choice of corporate or competitive strategy, there are some fundamental questions to be asked and answered. These include the following:
Ulhas D Wadivkar 38

Related to Mission & Vision

1.Who are we? 2.What do we do? 3.Why are we here? 4.What kind of company are we? 5.What kind of company do we want to become? 6.What kind of company must we become?

Related to Corporate Strategy 1.What is the current strategy, implicit or explicit? 2.What assumptions have to hold for the current strategy to be viable? 3.What is happening in the larger, social and educational environments? 4.What are our growth, size, and profitability goals? 5.In which markets will we compete? 6.In which businesses? 7.In which geographic areas? Ulhas D Wadivkar 39

Related to Competitive Strategy

Ulhas D Wadivkar

1.What assumptions have to hold for the current strategy to be viable? 2.What is happening in the industry, with our competitors, and in general? 3.What is the current strategy, implicit or explicit? 4.What are our growth, size, and profitability goals? 5.What products and services will we offer? 6.To what customers or users? 7.How will the selling/buying decisions be made? 8.How will we distribute our products and services? 9.What technologies will we employ? 10.What capabilities and capacities will we require? 11.Which ones are core competencies? 12.What will we make, what will we buy, and what will we acquire through alliance? 13.What are our options? 14.On what basis will we compete?
40

Some Concluding Remarks -1 1. Strategy has been borrowed from the military and adapted for business use. In truth, very little adaptation is required. 2. Strategy is about means. It is about the attainment of ends, not their specification. The specification of ends is a matter of stating those future conditions and circumstances toward which effort is to be devoted until such time as those ends are obtained. 3. Strategy is concerned with how you will achieve your aims, not with what those aims are or ought to be, or how they are established. If strategy has any meaning at all, it is only in relation to some aim or end in view. 4. Strategy is one element in a four- part structure. First are the ends to be obtained. Second are the strategies for obtaining them, the ways in which resources will be deployed. Third are tactics, the ways in which resources that have been deployed are actually used or employed. Fourth and last are the resources themselves, the means at our disposal. Thus it is that strategy and tactics bridge the gap between ends and Ulhas D Wadivkar 41 means.

Some Concluding Remarks -2 5. Establishing the aims or ends of an enterprise is a matter of policy and the root words there are both Greek: politeia and politesthe state and the people. Determining the ends of an enterprise is mainly a matter of governance not management and, conversely, achieving them is mostly a matter of management not governance.

6.

Those who govern are responsible for seeing to it that the ends of the enterprise are clear to the people who manages that enterprise and that these ends are legitimate, ethical and that they benefit the enterprise and its members.

Ulhas D Wadivkar

42

Some Concluding Remarks - 3 7. Strategy is the joint province of those who govern and those who manage. Tactics belong to those who manage. Means or resources are jointly controlled. Those who govern and manage are jointly responsible for the deployment of resources. Those who manage are responsible for the employment of those resourcesbut always in the context of the ends sought and the strategy for their achievement. 8 Over the time, the employment of resources yields actual results and these, in light of intended results, shape the future deployment of resources. Thus it is that "realized" strategy emerges from the pattern of actions and decisions. And thus it is that strategy is an adaptive, evolving view of what is required to obtain the ends in view.
Ulhas D Wadivkar 43

Criteria for Effective Strategy

A)
B)

Clear, decisive, measurable objectives,


Maintaining the initiative proactively,

C) Concentration on what will make the enterprise superior in power, D) Flexibility must be built in use of resources, buffers, reserved capabilities, manoeuvrability and repositioning, E) F) Coordinated and committed leadership, Surprise the opponent by use of speed, secrecy and intelligence,

G) Security: the organisation should secure & develop resources required, securely maintain all vital operating points for the enterprise, an effective intelligence system to prevent effects of surprise by the competitors.
Ulhas D Wadivkar 44

Importance of Strategy Modern era witnesses the tremendous increase in the External Threats. Companies must have clear Strategies & must implement them effectively so as to survive. We can see some companies like Jessops, Martin Burn have become extinct and some companies like Reliance, Infosys have become market leaders. The basic factor responsible is not the Government or infrastructure or labour relations, but the Strategic thinking that different companies have shown in conducting the business. 1. Strategy helps an organisation to take decisions on long range forecasts. 2. It allows the firm to deal with a new trend and meet competition in the effective manner. 3. With the help of strategy, management develops capacity to be flexible to meet unanticipated changes. 4. Efficient strategy formation and implementation result into financial benefits to the organisation in the form of Ulhas D Wadivkar 45 increased profits.

Importance of Strategy -2 5. Strategy provides focus in terms of organisational objectives and provides clarity of direction for achieving the objectives. 6. Strategy contributes towards organisational effectiveness by providing satisfaction to the personnel. 7. It gets managers into habit of thinking, makes them proactive and more conscious of their environment. 8. It provides motivation to employees as they can shape their work in the context of shared corporate goals and make them work for achieving these goals. 9. Strategy formulation & implementation gives opportunity to the management to involve different of management in the process. 10. It improves Corporate communication, coordination and Ulhas D Wadivkarof resources. allocation
46

Identifying a Companys Strategy What to look For: Actions to gain sales & Market share via lower prices, more performance features, more appealing design, better quality or customer service, wider production selection etc.

Actions to diversify the Companys revenue & earnings by entering into new business

Actions to respond changing market conditions and other external circumstances

Actions to strengthen competitive capabilities & correct competitive weaknesses

The Pattern of Actions & Business Approaches that define a Companys Strategy

Actions to enter new geographic or product markets or exit existing market

Actions & approaches that define how the company manages, research & development, production, sales & marketing, finance & other key activities
Ulhas D Wadivkar

Efforts to pursue new market opportunities & defend against threats to the Companys well-being

Actions to form Strategic alliances & collaborative partnerships

Actions to merge with or acquire rival companies.

47

The Strategy Hierarchy In most (large) corporations there are several levels of strategy. Strategic management is the highest in the sense that it is the broadest, applying to all parts of the firm. It gives direction to corporate values, corporate culture, corporate goals, and corporate missions. Under this broad corporate strategy there are often functional or business unit strategies
Different Levels of Strategy
Levels Corporate Structure Strategy Corporate Level

Corporate Office

SBU

SBU - A

SBU - B

SBU - C

Business level

Functional Finance Marketing Operations

Functional Level

Ulhas D Wadivkar

Personnel

Information

48

Corporate Strategy: The companywide game plan for managing a set of businesses. The levels involved are CEO and other Senior Executives. Business & Corporate Strategy Business strategy, which refers to the aggregated operational strategies of single business firm or that of an SBU in a diversified corporation, refers to the way in which a firm competes in its chosen arenas. Corporate strategy, then, refers to the overarching strategy of the diversified firm. Such corporate strategy answers the questions of "in which businesses should we compete?" and "how does being in one business add to the competitive advantage of another portfolio firm, as well as the competitive advantage of the corporation as a whole Business Strategy for Strategic Business Units: One for each business, the company has diversified into. Actions to build competitive capabilities and strengthen market position. Executed by General Mangers, Plant Heads, Division heads of each business with inputs from Corporate and Functional levels. Many companies feel that a functional organizational structure is not an efficient way to organize activities so they have re engineered according to processes or strategic business units (called SBUs). A Strategic Business Unit is a semi-autonomous unit within an organization. It is usually responsible for its own budgeting, new product decisions, hiring decisions, and price setting. An SBU is treated as an internal profit centre by corporate headquarters. Each SBU is responsible for developing its business strategies, strategies that must be in tune with broader corporate Ulhas D Wadivkar 49 strategies

Functional Strategies Functional strategies include Marketing Strategies, New product development strategies, Human resource strategies, Financial strategies, Legal strategies, Supply-chain strategies, and Information technology management strategies. The emphasis is on short and medium term plans and is limited to the domain of each departments functional responsibility and is executed by Functional heads. Each functional department attempts to do its part in meeting overall corporate objectives, and hence to some extent their strategies are derived from broader Corporate & Business strategies. Operational Strategy The lowest level of strategy is operational strategy. At this level, detailing is done to add completeness to Business & Functional Strategies. It is very narrow in focus and deals with day-to-day operational activities such as scheduling criteria. It must operate within a budget but is not at liberty to adjust or create that budget. Operational level strategy was encouraged by Peter Drucker in his theory of Management By Objectives (MBO). Operational level strategies are informed to business level strategies which, in turn, are informed to corporate level strategies. These strategies are executed by Brand Managers, Operating Managers, Plant managers. Important activities like Advertising, Web site operations, distributions are involved at this level. Ulhas D Wadivkar 50

Dynamic Strategy Since the turn of the millennium, there has been a tendency in some firms to revert to a simpler strategic structure. This is being driven by information technology. It is felt that Knowledge Management Systems should be used to share information and create common goals. Strategic divisions are thought to hamper this process. Most recently, this notion of strategy has been captured under the rubric of Dynamic Strategy, popularized by the strategic management textbook authored by Carpenter and Sanders. This work builds on that of Brown and Eisenhart as well as Christensen and portrays firm strategy, both business and corporate, as necessarily embracing ongoing strategic change, and the seamless integration of strategy formulation and implementation. Such change and implementation are usually built into the strategy through the staging and pacing facets. Strategists - Their Roles & Levels: Strategists are individuals or groups who are primarily involved in the formulation, implementation, and evaluation of Strategy. In a limited sense, all managers are Strategists. But we may have outside agencies involved in various aspects of Strategic Management, who are Ulhas D Wadivkar 51 also Strategists.

Board of Directors:- Board is an ultimate legal authority of an organisation. Board is responsible to owners, share holders, government, controlling agencies, and financial institutes. They get elected and appointed by holding or parent company. Board is requires to direct and is involved in reviewing and screening executive decisions in light of their environmental, business and organisational implications. Role of Board of Directors is to guide the senior management in setting and accomplishing objectives, reviewing and evaluating organisational performance, and appointing senior executives. Board is involved in setting strategic direction, establishing objectives & strategy, monitoring and reviewing achievement. Chief Executive Officer:- is responsible for all aspects of strategic management from the formulation to evaluation of strategy. CEO plays a pivotal role in setting mission, objectives and goals. He formulates and implements strategy and ensures that organisation does not deviate from a predetermined path. CEO is primarily responsible for strategic management of the organisation Entrepreneur:- is the person who starts a new business, is a venture capitalist. He has to play a proactive role to provide sense of direction, set objectives and formulate strategies. He is different from formal system and plays all strategic roles simultaneously.
Ulhas D Wadivkar 52

Senior management:- consists of higher management level starting from CEO to functional managers and profit centre or SBU heads. They are responsible for implementing the strategies and plans and for a periodic evaluation of their performance. Organisationally they come together in the form of committees, task forces, work groups, think tanks and play a very important role in Strategic management. SBU level Executives:- SBUs are formed with each business having a clearly defined product market segment and a unique strategy. They are CEOs for their SBUs and hence SBU level strategy formulation and implementation is their main role. Corporate Planning:- It assists management in all aspects of strategy formulation, implementation and evaluation. They are responsible for preparation and communication of strategic plans, provides administrative support and plays a measurement and controlling role. They do not from strategy and do not initiate a process on their own. Consultants:- in absence of a Corporate planning many organisation take an outside help in the form of a consultants or consulting companies. Besides providing corporate strategy and strategic planning, they are specialist, knowledgeable, outsider, unbiased and provide objective evaluation. E.g. AF Ferguson, PWC, KPMG, Billimoria, Mckinsey etc.
Ulhas D Wadivkar 53

Middle Level Managers:- They relate to operational matters and are seldom play active role in Strategic Management. They form departmental / functional plan in light of broad objectives and goals of organisation provided in vision, mission, goals and objective statements of the organisation. They are implementers, followers of guide lines, receivers of communication about strategic plans. They are basically involved in in the implementation of functional strategies. Executive Assistant:- An executive assistant is a person who assists the chief executive in the performance of his duties like data collection and analysis, suggesting alternatives. He prepares brief for various plans, proposals, and projects. He helps in public relations and liaison functions. He coordinates activities with the internal staff and outsiders. He is a corporate planner for CEO. Generally, he orients from finance background ensuring and opining on ROI and strategic positioning of the organisation.
Ulhas D Wadivkar 54

We will now look at a framework developed by Richard Rumlet for evaluating alternative strategies. It is described in a series of tests: Consistency: The strategy must not present mutually inconsistent goals and policies. Consonance: The strategy must represent an adaptive response to the external environment and to the critical changes occurring within it. Advantage: The strategy must provide for the creation and/or maintenance of a competitive advantage in the selected area of activity. Feasibility: The strategy must neither overtax available resources nor create unsolvable sub-problems We shall now look into the advantages and disadvantages of the strategy:

Strategy sets direction, but can also serve as a set of blinders to hide potential dangers. Strategy focuses efforts, there may be no peripheral vision and can become heavily embedded into the fabric of the organization. Strategy defines the organization, but defining it too sharply results in the rich complexity of the system being lost. Strategy provides consistency, but could hinder creativity.
Ulhas D Wadivkar 55

Kinds of Corporate Strategy -1 There are four Grand Strategic alternatives: a) Stability Strategy: Main aim here is Stabilising and improving Functional Performance. a.1) No Change Strategy. a.2) Profit Strategy. a.3) Pause / Proceed with caution Strategy. b) Expansion Strategy: Main aim is here High Growth. b.1) Concentration. b.2) Integration. b.3) Diversification. b.4) Cooperation. b.5) Internationalisation. Mergers, Takeovers, Joint Ventures, Strategic Alliances, Global Strategy, Trans-national Strategy, International Strategy, Multi-domestic Strategy. Ulhas D Wadivkar 56

Kinds of Corporate Strategy - 2

c) Retrenchment Strategy: Main aim here is contraction of its activities. It is done through Turnaround, divestment and liquidation in modes like c.1) Compulsory winding up. c.2) Voluntary winding up. c.3) Winding up under supervision of Court. d) Combination Strategies: It is combination of all above three policies simultaneously in different businesses or at different times. e.g.: i) Merger of TTK Chemicals with TTK pharma. ii) TT industries and Textiles Ltd. expanded through JV. iii) TTK Ltd., diversified into cooking utensils. iv) TTK maps and publications into the general publishing business after a turn-around. Ulhas D Wadivkar 57

Schools of Thought on Strategy Formation-1


The fourth paradigm (1980 onwards) says that subject of Strategic Management is still under evolution. Strategic decision making is at the core of Managerial activity, their Strategic behaviour is outcome of Formation of Strategy. Mintzberg and other doyens in field of Strategy have formed various perspectives called as Schools of Thought: The Perspective Schools: 1. Design School-(Sleznic & Andrews): Strategy is unique. The process of Strategy formation is based on Judgement and Thinking. 2. Planning School-(Ansoff): Strategy is seen as a plan divided into sub-strategies and programmes. The lead role in Strategy formation is played by Strategy Planners. 3. The Positioning School-(Schendel Hatten & Porter): Under this school Strategy is seen as set of planned generic positions chosen by a firm on the basis of an analysis of the competition Ulhas D Wadivkar 58 and the industry in which they operate.

Schools of Thought on Strategy Formation-2


The Descriptive Schools: 4. Entrepreneurial School -(Schumpeter & Cole): Strategy formation is mainly intuitive, visionary & deliberate. Strategy is an outcome of a personal & unique perspective to create a niche. 5. Cognitive School -(Simon & March): Strategy formation is mental process. The lead role is played by thinker philosopher. 6. Learning School -(Weick, Quinn, Senge & Lindblom): This school perceives Strategy formation as an emergent process. The process is informal and messy and lead role is played by the learner. 7. Power School - (Allison & Astley): Strategy is seen as political & cooperative process or pattern. This school perceives Strategy formation as negotiation process. The process of Strategy formation is messy, emergent & Ulhas D Wadivkar 59 deliberate.

Schools of Thought on Strategy Formation-3


8. Cultural School - (Rhenman & Normann): Strategy is seen as collective perspective. The process of Strategy formation is ideological, constrained & deliberate. 9. Environmental School -( Hanan, Freeman & Pugh): The lead role in strategy formation is played by environment as an entity. The process of Strategy formation is reactive, passive & imposed and hence deliberate. The Integrative School: -(Chandler, Miles & Snow): 10. The Strategy is viewed in relation to a specific context and any of the nine schools mentioned above can be used to form the Process. The Strategy formation process is integrative, episodic & sequential.

Ulhas D Wadivkar

60

Strategic Management Process - an Overview Definition of Strategic Management: Strategic management is defined as the dynamic process of formulation, implementation, evaluation and control of strategies to realise the Organisations Strategic intent. Strategic Management is a continual, evolving, iterative process. It is not rigid, stepwise activities arranged in a sequential order. It is repeated over time as situation demands.
Establish Strategic Intent Formulation of Strategies Implementation of Strategies

Strategic Evaluation

Ulhas D Wadivkar

Strategic Control

61

Strategic Management Process-1


Strategic Intent: 1. Creating & Communicating the Vision. 2. Defining the Business. 3. Designing a Mission Statement. 4. Adopting the Business Model. 5. Clarifying the business mission, purpose & setting broad Objectives and Goals. Formulation of Strategies: 6. External Environment Survey. SWOT Analysis. 7. Internal Appraisal of the firm. 8. Setting Corporate Objectives. 9. Formulating the Corporate objectives. 10. Formulating the Corporate strategies. 11. Exercising Strategic Choice. Ulhas D Wadivkar 62 12. Preparing a Strategic Plan.

Strategic Management Process-2


Implementation of Strategies: 13. Activating Strategies. 14. Designing Structure, Systems and processes. 15. Managing Behavioural Implementation. 16. Managing Functional Implementations. 17. Operationalising Strategies. Performing Strategic evaluation & Control: 18. Performing Strategic evaluation. 19. Exercising Strategic Control. 20. Reformulating Strategies.

Ulhas D Wadivkar

63

Syllabus

2. Strategic Intent & Strategy Formulation: Vision, mission and purpose Business definition, objectives and goals Stakeholders in business and their roles in strategic management Corporate Social Responsibility, Ethical and Social considerations in Strategy
(4) --------------------------------------------------------------

Ulhas D Wadivkar

64

Strategic Intent
Strategic Intent is combination of four levels in the Management. It involves discussions of Vision, Mission, Business Definition & Goals and Objectives. Strategic Intent refers to the purposes the Organisation strives for. Strategic Intent lays down the frame work within which firms would operate, adopt a predetermined direction, and attempt to achieve the Goals. Hamel & Prahalad considered Strategic Intent as an obsession with an Organisation. Strategic Intent envisions a desired leadership positioning and establishes the criterion the Organisation will use for charting its progress. In addition to ambitions of the Organisation; it encompasses active Management Process that includes focussing the organisations attention on winning. It covers motivating the people by communicating the values, targets. The intent encourages individual and team contributions and attempts sustaining enthusiasm by providing new operational definitions. The Strategic Intent guides the organisation through changing circumstances and guides use of resource allocations.
Ulhas D Wadivkar 65

Strategy FormulationVision, Mission and Purpose,


A vision is more dreamt of than it is. Vision Statement is permanent statement of a company. Vision is future aspirations that lead to an inspiration. It defines the very purpose of existence of a company.

The vision of a company is a direction for action for employees. The essence of a vision is forward looking view of what an organisation wishes to become.
Kotter(1990) defines Vision as a description of an enterprise. (an organisation, corporate culture, a business, a technology, an activity) in future. El-namaki(1992) defines vision as a mental perception of the kind of environment an individual, or an organisation, aspires to create within a broad time horizon and underlying conditions for the actualisation of this perception Miller and Dess(1996) defines vision as category of intentions that are broad, all inclusive, and forward thinking
Ulhas D Wadivkar 66

Characteristics of a Vision Statement


Inspiring and exhilarating. It represents, a discontinuity, a step, a jump ahead to dream what it is to be. Creation of common identity and share sense of purpose. Competitive, original and unique and practical. Foster risk taking and experimentation. Foster long term thinking.

A vision is a statement about what your organization wants to become. It should resonate with all members of the organization and help them feel proud, excited, and part of something much bigger than themselves. A vision should stretch the organizations capabilities and image of itself. It gives shape and direction to the organizations future. Visions range in length from a couple of words to several pages. Shorter vision statements is recommended because people will tend to remember their shorter organizational vision.
67

Ulhas D Wadivkar

Vision Statement
Vision Statement Samples: "Year after year, Westin and its people will be regarded as the best and most sought after hotel and resort management group in North America." (Westin Hotels) "To be recognized and respected as one of the premier associations of HR Professionals." (HR Association of Greater Detroit) Vision Statement of TATA STEEL TATA Steel enters the new millennium with the confidence of learning, knowledge based and happy organisation. We will establish ourselves as a supplier of choice by delighting our customers with our service and products. In the coming decade, we will become the most cost competitive steel plant and so serve the community and the nation. Vision Statement of Farm Fresh Produce We help the families of Main Town live happier and healthier lives by providing the freshest, tastiest and most nutritious local produce: From local farms to your table in under 24 hours.
Ulhas D Wadivkar 68

Developing a Vision Statement


The vision statement includes vivid description of the organization as it effectively carries out its operations. Developing a vision statement can be quick culture-specific, i.e., participants may use methods ranging from highly analytical and rational to highly creative and divergent, e.g., focused discussions, divergent experiences around daydreams, sharing stories, etc. Therefore, visit with the participants how they might like to arrive at description of their organizational vision. Developing the vision can be the most enjoyable part of planning, but the part where time easily gets away from you Note that originally, the vision was a compelling description of the state and function of the organization once it had implemented the strategic plan, i.e., a very attractive image toward which the organization was attracted and guided by the strategic plan. Recently, the vision has become more of a motivational tool, too often including highly idealistic phrasing and activities which the organization cannot realistically aspire.
69

Ulhas D Wadivkar

Strategic Vision
Strategic Vision is a road map showing the route a company intends to take in developing and strengthening the business. It defines Companys destination and provides rational for going there. It culminates in to a Mission Statement. Strategic Vision points an Organisation in a particular direction, charts a strategic path to follow for future and moulds the organisations identity. Strategic Vision is different from Mission Statement: Strategic Vision deals with where we are going, where as Mission Statement deals with Companys present business scope and purpose. A company Mission is guided by the buyers needs it seeks to satisfy, the customer groups and market segments it is endeavouring to serve, and the resources and technologies that it is deploying in trying to please customers and achieve a Market and Industry position.
Ulhas D Wadivkar 70

Example of Strategic Vision


The San Antonio Express News developed this Strategic Vision, "EXPAND our customer base and enhance the franchise by pursuing multimedia opportunities. DELIVER an award-winning level of journalistic excellence, building public interest, trust and pride. PROVIDE vigorous community leadership and support. INSTILL an environment of internal and external excellence in customer service. EMPOWER and recognize each employee's unique contribution. ACHIEVE the highest standards of quality. IMPROVE financial strength and profitability."
Ulhas D Wadivkar 71

Mission Thompson(1997) defines Mission as the essential purpose of the organisation, concerning particularly, why it is in existence, the nature of businesses it is in, and the customers it seeks to serve and satisfy Hunger and Wheelen(1999) say that mission is the purpose and reason for the organisations existence

Mission statements could be formulated on the basis of vision that an entrepreneur decides on in the initial stages.
A business mission helps to evolve an executive action.

Mission of organisation is what it is and why it exists. It represents common purpose which the entire organisation shares and pursues. It is a guiding principle.
Ulhas D Wadivkar 72

Mission Statement

Mission of a company is expressed it terms of products and


geographical scope. It includes a methodology of attaining the desired goal in vision. It defines the competitive strength

of a company and it emanates from corporate vision and


strategic posture of a company. Thus the mission of a business is a statement, a build-up philosophy of its current and future expected position with regards to its products, market leadership. Mission is statement which defines the role of organisation plays in a society. The corporate mission is growth ambition of the firm.
Ulhas D Wadivkar 73

Mission
Characteristics of a Mission Statement
1. It should be feasible, achievable & It should be precise. 2. It should be clear & It should be distinctive. 3. It should be motivating. 4. It should be indicative of major component of strategy &

Objectives.
5. It should be indicative of how objectives are to be accomplished. 6. It should be indicative of how Policies will be achieved. 7. It should focus Market Rather than Product.

Ulhas D Wadivkar

74

Mission Statement Creation


To create your mission statement, first identify your organizations winning idea.
This is the idea or approach that will make your organization stand out from its competitors, and is the reason that customers will come to you and not your competitors. Next identify the key measures of your success. Make sure you choose the most important measures (and not too many of them!) Combine your winning idea and success measures into a tangible and measurable goal. Refine the words until you have a concise and precise statement of your mission, which expresses your ideas, measures and desired result.
Ulhas D Wadivkar 75

Developing a Mission Statement


1. 2. At is most basic; the mission statement describes the overall purpose of the organization. If the organization elects to develop a vision statement before developing the mission statement, ask Why does the image, the vision exist -- what is its purpose? This purpose is often the same as the mission. Developing a mission statement can be quick culturespecific, i.e., participants may use methods ranging from highly analytical and rational to highly creative and divergent, e.g., focused discussions, divergent experiences around daydreams, sharing stories, etc. Therefore, visit with the participants how they might like to arrive at description of their organizational mission. When wording the mission statement, consider the organization's products, services, markets, values, and concern for public image, and maybe priorities of activities for survival.
76

3.

4.

Ulhas D Wadivkar

Mission Statements
5. Consider any changes that may be needed in wording of the mission statement because of any new suggested strategies during a recent strategic planning process. Ensure that wording of the mission is to the extent that management and employees can infer some order of priorities in how products and services are delivered. When refining the mission, a useful exercise is to add or delete a word from the mission to realize the change in scope of the mission statement and assess how concise is its wording. Does the mission statement include sufficient description that the statement clearly separates the mission of the organization from other organizations?
77

6.

7.

8.

Ulhas D Wadivkar

Mission Statement of Ranabaxy To become a $ 1 Billion research based global (International) pharmaceutical company Mission Statement of Graphite India Limited To be within top three companies in the world by achieving 1,00,000 MT Production of Graphite Electrodes before 2012 The mission statement of Farm Fresh Produce is: To become the number one produce store in Main Street by selling the highest quality, freshest farm produce, from farm to customer in under 24 hours on 75% of our range and with 98% customer satisfaction. "Our goal is simply stated. We want to be the best service organization in the world." (IBM) "To give ordinary folk the chance to buy the same thing as rich people." (Wal-Mart)
Ulhas D Wadivkar 78

Mission Statements "FedEx is committed to our People-Service-Profit Philosophy. We will produce outstanding financial returns by providing totally reliable, competitively superior, global, air-ground transportation of high-priority goods and documents that require rapid, time-certain delivery." (Federal Express) "Our mission is to earn the loyalty of Saturn owners and grow our family by developing and marketing U.S.-manufactured vehicles that are world leaders in quality, cost, and customer enthusiasm through the integration of people, technology, and business systems." (Saturn) "In order to realize our Vision, our Mission must be to exceed the expectations of our customers, whom we define as guests, partners, and fellow employees. (mission) We will accomplish this by committing to our shared values and by achieving the highest levels of customer satisfaction, with extraordinary emphasis on the creation of value. (strategy) In this way we will ensure that our profit, quality and growth Ulhas D Wadivkar 79 goals are met." (Westin Hotels and Resorts)

Values
Values are traits or qualities that are considered worthwhile; they represent an individuals highest priorities and deeply held driving forces. (Values are also known as core values and as governing values; they all refer to the same sentiment.) Value statements are grounded in values and define how people want to behave with each other in the organization. They are statements about how the organization will value customers, suppliers, and the internal community. Value statements describe actions which are the living enactment of the fundamental values held by most individuals within the organization.
Ulhas D Wadivkar 80

Values
The values of each of the individuals in your workplace, along with their experience, upbringing, and so on, held together to form your corporate culture. The values of your senior leaders are especially important in the development of your culture. These leaders have a lot of power in your organization to set the course and environment and they have selected the staff for your workplace. If you think about your own life, your values form the cornerstones for all you do and accomplish. They define where you spend your time, if you are truly living your values. Each of you makes choices in life according to your most important top ten values. It is necessary to take the time to identify what is most important to you and to your organization.
Ulhas D Wadivkar 81

Developing a Values Statement Values represent the core priorities in the organizations culture, including what drives members priorities and how they truly act in the organization, etc. Values are increasingly important in strategic planning. They often drive the intent and direction for organic planners. Developing a values statement can be quick culturespecific, i.e., participants may use methods ranging from highly analytical and rational to highly creative and divergent, e.g., focused discussions, divergent experiences around daydreams, sharing stories, etc. Therefore, visit with the participants how they might like to arrive at description of their organizational values.

Establish four to six core values from which the organization would like to operate. Consider values of customers, shareholders, employees and the community.
Ulhas D Wadivkar 82

Developing a Values Statement


Notice any differences between the organizations preferred values and its true values (the values actually reflected by members behaviours in the organization). Record each preferred value on a flash card, then have each member rank the values with 1, 2, or 3 in terms of the priority needed by the organization with 3 indicating the value is very important to the organization and 1 is least important. Then go through the cards again to rank how people think the values are actually being enacted in the organization with 3 indicating the values are fully enacted and 1 indicating the value is hardly reflected at all. Then address discrepancies where a value is highly preferred (ranked with a 3), but hardly enacted (ranked with a 1).
Incorporate into the strategic plan, actions to align actual behaviours with preferred behaviours.
Ulhas D Wadivkar 83

Samples of Values and Value Statements


"To preserve and improve human life." (Merck) At Merck, "corporate conduct is inseparable from the conduct of individual employees in the performance of their work. Every Merck employee is responsible for adhering to business practices that are in accordance with the letter and spirit of the applicable laws and with ethical principles that reflect the highest standards of corporate and individual behaviour... "At Merck, we are committed to the highest standards of ethics and integrity. We are responsible to our customers, to Merck employees and their families, to the environments we inhibit, and to the societies we serve worldwide. In discharging our responsibilities, we do not take professional or ethical shortcuts. Our interactions with all segments of society must reflect the high standards we profess." Patriot Ledger (SouthofBoston.com): "We have a total commitment to these values, shaping the way we do business for our employees, our customers and our company. Our employees are the most valued assets of our company, essential participants with a shared responsibility in fulfilling our mission. We recognize that the quality, motivation and performance of our Ulhas D Wadivkar 84 employees are the key factors in achieving our success.

Goals, Objectives and Action Plans After you have developed the key strategies, turn your attention to developing several goals that will enable you to accomplish each of your strategies. Goals should be S M A R T : Specific, Measurable, Achievable, Realistic and Time-based. Once you have enabled strategy accomplishment through setting SMART Goals, you will want to develop action plans to accomplish each goal. You will need to follow an action plan: Establish a cross section of professionals as a committee and meet to plan the sessions. Determine budget. Select topics based on member needs assessment. Plan advertising strategies, and so forth. Make action plans as detailed as you need them to be and integrate the individual steps into your planning system. An effective planning system, whether it uses a personal computer, a paper and pen system, a handheld computer or a Palm, will keep your goals and action plans on track and on target.
Ulhas D Wadivkar 85

Areas of Objectives
Objectives represent managerial commitment to achieve specific results in specific period of time. Objectives could be : Profitability : Markets : Productivity : Innovation : Product : Financial Resources : Physical facilities : Organisation Structure & Activities : Manager Performance & Development : Employee performance & Activities. : Customer Service 86 Ulhas D Wadivkar : Social Responsibility.

Defining the business


A clear-cut statement of the business, the firm is engaged in or planning to enter. It is elaboration of the business arena and the boundaries in which it will play. What is our business? What will it be? What should it be? Defining business involves three dimensions, namely Customer Functions, Customer Groups and Alternative technologies. Business Definition sets and limits the contours of the business. It clarifies the opportunities business can pursue and the areas in which these opportunities are to be looked for. It clarifies to the firm the various sources from which threats and competition will come for. Defining Customer functions and Customer groups provides Blue Print and a reference point for Product-market strategy. Mission Statement provides the basic inputs for Business definition and provides a broad frame work.
Ulhas D Wadivkar 87

Objectives of Business Policy:


Understand various concepts, like. Strategy, policies, plans, programmes. Knowledge of internal and external environment and how it affects the functioning of the organisation. Application of generalised approach to deal with wide variety of situations. Development of analytical ability to understand situation. Identify factors relevant to decision making. Analyse strength, weakness, opportunities and threats to organisation. Development of attitude of generalist and asses a situation from all angles.
Ulhas D Wadivkar 88

Some Business definitions: Modi Zerox : Focus as a service organisation rather than vendor of zerox machines. Customer focus: Office Communication with high priced and low priced equipments, marketing services of maintenance and per copy price. Customer Function: Availability of spares, Drums, Toner, good after sales service. Technology: Collaboration with Rank Zerox Helen Curtice: We are in beauty enriching business. We will pursue ideas that would generate products enhancing beauty and youthfulness of men and women. Intel: We are in the business of computing technology and to consistently develop the artifice/building blocks of computing technology for the entire computer industry of the world is our business.
Ulhas D Wadivkar 89

Attributes of a good business definition: It must be related to human needs which the product seeks to satisfy and should not be limited to just the product. It must be related to basic benefits the product offers. It should not be narrow. A wrong and or narrow concept could reduce the life span of organisation. It must be related to the functions performed by the product and not limited to just the product. It must encompass in its fold, as many related function / benefits as possible. It must go beyond the immediate product, beyond the immediate competitors, beyond the immediate market boundaries. It must be wide enough to embrace new opportunities. It must be wide enough to give a vision of latent sources of competition from say, substitute products. Business boundaries keep changing and defining Business is a dynamic situation and becomes an exacting exercise and it needs to be re-casted over time again and again. 90 Ulhas D Wadivkar

Benefits of Business Policy


Business Policy seeks to integrate the knowledge and experience gained in various functional areas of Management. Normally functional areas are aloof of complexities of real life business situations. Business Policy cuts across the narrow functional boundaries. Business Policy helps us to create an understanding of how policies are formulated. Managers become more receptive to the ideas and suggestions of senior Management. Managers feel themselves to be a part of a greater design. Understanding Business Policy provides a basic framework for understanding strategic decision making and Improvement in Job Performance. Study of business policy leads to personal development. Managers understand the impact of policy shifts on the status of ones department and on the positions one occupies. Understanding Business Policy enables manger to avail the an opportunity or avoid a risk to career planning and development Understand senior managements view point.
Ulhas D Wadivkar 91

Social Responsibility & Strategic Management


Social Responsibility along with ethics becomes a stated or un-stated requirement. It gets attended in Strategic Planning through environmental appraisals. It has differing views, while some do not want it to be considered in business operations, others boast around it. However, most business houses observe a balance and undertake to deliver social responsibility and business objectives without contradicting each other.
Social Responsibility extends beyond the workforce and stakeholders and many business houses take up activities for community welfare, rural development, sports etc. Presently, with ISO:14001:2004 which concerns Environment Management Systems, it has become a necessity to address the mode and means of delivering social responsibility.
Ulhas D Wadivkar 92

Social Responsibility

Scope of Social Responsibility is defined in terms of Social concern. Business organisation depending on its nature, size, and breadth of activity, could extend social responsiveness to the problems of the whole world, nation, local community, industry and to itself. Business organisations could also classify Social Responsibilities in terms of relatedness to its own activities.
Like any other strategic functions, for successful implementation, Organisations need to allocate resources, create Organisations Structure and evaluate its effectiveness. But all said and done, the society in large remains a major stake holder and we cannot escape our dues to society and towards social responsibility.
Ulhas D Wadivkar 93

Corporate Governance : Social Responsibility Business provides goods & services to Society for which it receives the price. Society provides goods and services to Business for which it receives the price. Business rewards to society for its inputs by paying wages/profits/dividends Society and Business are interdependent. Their growth & welfare is dependent on this mutuality. Business owes responsibility towards society. A firm carrying very positive image in society has very strong probability of lasting growth.
Society

Business
Ulhas D Wadivkar 94

Corporate Governance : Social Responsibility Sole aim of a business is and should be maximisation of Shareholders value, as stated by Milton Friedman, does not hold good anymore. All modern large corporate have attained their present size due to support of society in terms of shareholders, suppliers, lenders, employees, government, local community and society at large. Every business unit of the country must aim at becoming good corporate citizen of the country and the world as whole. World Class Quality of goods and services, reasonable prices is minimum requirement. With this companies would enjoy excellent image within area, country and world. Indian examples are Tatas, Birlas, Reliance, Bajaj, L&T, Hero Honda, HDFC, Dr. Reddy Laboratories. TCS, etc. Industrial Corporate Citizens are trustees and should utilise their wealth for the welfare of the society / community. Trusteeship invokes code of discipline, ethical behaviour and strong principle of accountability. Capital and Labour have to have mutual, peaceful co-existence. Ulhas D Wadivkar 95

Corporate Governance : Social Responsibility


Common feature they all posses is their image not only as value creator but more as Top Class Corporate citizen of India and of the world. They are asset to the share holders, country and society at large by creating world class products at competitive prices and price and providing these products to society at desired time and space. Many of them provide non-core social activities for benefit of society in quest of their becoming good Corporate Citizens. They realise their dependence on Society for their needed inputs like money, men and skills, society as a market for their outputs and realise that they cannot exist without unreserved support from Society. The more closely a company concentrates on solving societal problems, the better it is able to solve its own problem of growth and prosperity.
Ulhas D Wadivkar 96

Corporate Governance : Social Responsibility Capital and labour should supplement and assist each other. Capital being trustees should look after welfare of labour not only material but also moral welfare. Principle of mutually cherishing each other should be developed. Capital should look after the workers and workers should look after productivity and profit of the organisation. Presently, capital has been replaced by knowledge in newer industries like IT & Pharma. Knowledge workers (professionals) like Bill Gates, Narayan Murthy are paving the way towards social responsibilities. Social Responsibilities have foundation of Business Ethics, the moral principles of good & bad, right & wrong or Just & unjust. Peter Drucker has stated that there are no separate ethics of business. What is unethical and immoral in society is also applicable to business. The trick is to put your-self in shoes of those, against whom a particular action is being planned / taken, which is known as empathy. Corporate ethics refers to set of rules, code of conduct acceptable to society at large without any reservations. The concept of Business ethics is global phenomenon and is recognised 97 Ulhas D Wadivkar throughout the world.

Corporate Governance : Social Responsibility


Code of Ethics for Indian Business (by PHD Chambers) It is believed that the best way to promote high standards of business practice is through self regulation. Business should be conducted in a manner that earns the goodwill of all concerned through Quality, efficiency, transparency & good values with objectives as under: a) Be faithful and realistic in stating claims. b) Be responsive to customer need and concerns.

c)

Treat all stakeholders fairly and with respect

d) Protect and promote the Environment and Community interests


Ulhas D Wadivkar 98

Stakeholder Definition Stakeholders are defined as "those groups without whose support the organization would cease to exist. A corporate stakeholder is a party that affects or can be affected by the actions of the business as a whole. Person, Group, or Organization that has direct or indirect Stake in an organization because it can affect or be affected by the Organisations actions, Objectives, and Policies. Key stakeholders in a Business Organization include Creditors, Customers, Directors, Employees, Government (and its Agencies) Owners, Shareholders, Suppliers, Unions, and the Community from which the business draws its Resources. Although stake-holding is usually self-legitimizing (those who Judge themselves to be stakeholders are de facto so), all stakeholders are not equal and different stakeholders are entitled to different Considerations. For example, a firm's customers are entitled to fair trading practices but they are not entitled to the same consideration as the firm's employees. Ulhas D Wadivkar 99

Ulhas D Wadivkar

100

External Stakeholder : Definition:


Entities such as Customers, Suppliers, Lenders, or the wider society which influence and are influenced by an Organisation but are not its 'internal part' Stakeholder: Any party that has an interest in an organization. Stakeholders of a company include stockholders, bondholders, customers, suppliers, employees, and so forth.
"The stakeholders in a corporation are the individuals and constituencies that contribute, either voluntarily or involuntarily, to its potential wealth-creating capacity and activities, and that are therefore its beneficiaries and/or risk bearers."
Ulhas D Wadivkar 101

Stakeholders Any individual, group or business with a vested interest (a stake) in the success of an organization is considered to be a Stakeholder. A Stakeholder is typically concerned with an organization delivering intended results and meeting its financial objectives. In general, a Stakeholder can be one of two types: internal (from within an organization) or external (outside of an organization). Examples of a Stakeholder are an owner, manager, Shareholder, Investor, employee, customer, partner and/or supplier, among others. A Stakeholder may contribute directly or indirectly to an organizations business activities. Other than traditional business, a Stakeholder may also be concerned with the outcome of a specific project, effort or activity, such as a community development project or the delivery of local health services. A Stakeholder usually stands to gain or lose depending on the decisions taken or policies implemented.
Ulhas D Wadivkar 102

Types of stakeholders
People who will be affected by an endeavour and can influence it but who are not directly involved with doing the work. In the Private Sector,*People who are (or might be) affected by any action taken by an organization or group. Examples are parents, children, customers, owners, employees, associates, partners, contractors, suppliers, people that are related or located near by. Any group or individual who can affect or who is affected by achievement of a group's objectives. An individual or group with an interest in a group's or an organization's success in delivering intended results and in maintaining the viability of the group or the organization's product and/or service. Stakeholders influence programs, products, and services. Any organization, governmental entity, or individual that has a stake in or may be impacted by a given approach to environmental regulation, pollution prevention, energy conservation, etc. A participant in a community mobilization effort, representing a particular segment of society. School board members, environmental organizations, elected officials, chamber of commerce representatives, neighbourhood advisory council members, and religious leaders are all examples of local stakeholders
Ulhas D Wadivkar

103

Examples of a company stakeholders


Stakeholder Owners private/shareholders Government Senior Management staff Non-Managerial staff Examples of interests Profit, Performance, Direction Taxation, VAT, Legislation, Low unemployment Performance, Targets, Growth Rates of pay, Job Security Working conditions, Minimum Wages, Legal requirements Value, Quality, Customer Care, Ethical products Credit score, New contracts, Liquidity Jobs, Involvement, Environmental issues, Shares
104

Trade Unions
Customers Creditors Local Community
Ulhas D Wadivkar

Syllabus: 3. Strategic analysis:

Analyzing Companys Resources and Competitive Position Organizational Capability Profile

Strategic Advantage Profile


Core Competence Distinctive competitiveness.

(4)

Ulhas D Wadivkar

105

Competitive Strategy According to Michael Porter


In a 1996 Harvard Business Review article and in an earlier book, Porter argues that competitive strategy is "about being different." He adds, "It means deliberately choosing a different set of activities to deliver a unique mix of value. In short, Porter argues that strategy is about competitive position, about differentiating yourself in the eyes of the customer, about adding value through a mix of activities different from those used by competitors. In his earlier book, Porter defines competitive strategy as "a combination of the ends (goals) for which the firm is striving and the means (policies) by which it is seeking to get there." Thus, Porter seems to embrace strategy as both plan and position. (It should be noted that Porter writes about competitive strategy, not about strategy in general.) Ulhas D Wadivkar 106

Identification and Assessment of firms Competitive Edge & Core Competencies


A Competence is something an Organisation is good at doing. It results out of accumulated learning and built-up proficiencies. Examples are Proficiency in Merchandising, Working with Customers, Proficiency in specific technology, Proven capabilities. A Core Competence is a proficiently performed activity that is central to the Organisation Strategy. These are important activities in which Company is better than other internal activities. Examples are : Good after sale service, Skills in Manufacturing, High quality product at low Cost. A Core Competence is knowledge & skill based residing in people, and in Companys intellectual capital. (Does not appear in Balance Sheet)
Ulhas D Wadivkar 107

Distinctive Competence
A Distinctive Competence is a competitively valuable activity that Company performs better than its rivals. It is Competitive superiority in performing Core activity generating competitively superior resource strength. A strength that is superior / distinctive to competition is competitive advantage. Competitive advantage is a back-up for strategy without which strategy will not work. Competitive advantage finally results in either cost advantage or differentiation advantage. Creating entry barrier is also a way to built up competitive advantage. Building Competitive advantage is a conscious and long term process. Preparing Competitive Advantage Profile for the organisation is based on internal appraisal and industrycompetition.
Ulhas D Wadivkar 108

Core Competency
An enduring competency that cannot be easily duplicated by imitation is Core Competency. Core Competency lies at the root of products. Techniques used are
Ulhas D Wadivkar

: SWOT Analysis : Bench marking : Value chain analysis : Value to customers Competitive approach : Competitive strength assessment.
109

Internal Appraisal of the firm:


Purpose: 1. To know ones organisational capabilities, Strengths and Weaknesses. 2. To select the most suitable Opportunities as per already appraised capabilities. 3. To assess the Capability GAP for the opportunity in hand and also for the Objectives and Goals. 4. To take steps to elevate the capability to achieve Objectives and Goals. 5. To select the Product / business in which organisation can grow as per potentials appraised. Factors considered for Internal Appraisal: Assessment of the Strengths-Weaknesses in different functions/areas Identification and assessment of firms Competitive Edge and Core Competencies. Appraisal of the individual business, product lines of the Ulhas D Wadivkar 110 firm and firms know-how status.

Assessing strengths and weaknesses:


1. How well is the companys present Strategy working? Evaluate companys competitive approach. Compare cost effectiveness of the Company products with its rivals. Are we low cost? Or does our product have distinctive features? What value for money is offered to the customers? What is the perception of Customers about our Product and the Company. Core competencies, distinctive competencies are building blocks of Strategy. They give the strength. Similarly resource weaknesses make company vulnerable and need to be corrected. Strength allows Company to take advantage of opportunities and guard against threats. Check Value Chain analysis. Do we competitively manage value additions in Value chain? Are we competitively stronger or weaker than our key rivals?
111

2.

3.

Ulhas D Wadivkar

Main Functions:
Check what strategic issues need managerial attention. Find out gaps and take remedial actions. Conduct Industry analysis and competitive situation analysis and prepare a worry list. Good company situation analysis, good industry & competitive analysis are valuable precondition for good strategy making.

Marketing: Market growth, market share of the firm and its competitors, Production capacity and GAP between market potential, brand equity, Products life cycle and estimating safe period. Customers perception for the product and level of satisfaction there of. Synergy of the product-mix, Prices, margins, new product capability, Advertising, Sales promotion,
Ulhas D Wadivkar 112

Main Functions:
Marketing audit: Market share analysis, Price-volume relationship, Cost analysis, Product line wise profits, Consumer satisfaction index, Brand monitoring surveys. Finance: Level of financial performance profitability and productivity, analysis of Assets & Costs, DSCR (debt service coverage ratio), analysis & efficiency of Cash flow, liquidity, Appreciation of long term financial plans as per Cost of capital, adequacy of Capital Expenditures, Tax administration, dynamism in Tax planning, payback, IRR & BE analysis, earning ratios like EPS, etc. Manufacturing/Operations: Appropriateness of manufacturing processes, skills, facilities for future requirements of product trend. Management in planning and manufacturing controls. Operating efficiency w.r.t industry standards, Industrial Engineering capability for improving product and methods. Value engineering to simplify the product. Analysis of capacity utilisation, maintenance, breakdowns, inventory analysis, cost of Ulhas D Wadivkar analysis. 113 product

Main Functions:
R & D: Commitment to R&D, nature & depth of R & D outfit, Allocation of resources, Speed of R & D, New product development-its records and adequacy, R & D and market needs, Analysis of patents generated, new product commercialisation, R & D expenses v/s new product launch. Allocation of resources and Corporate Functions: chief characteristics of Top Management Image as dynamic? Confident? Aggressive? Timid? Reticent? Change-stability oriented? Future oriented? Coping up with future challenges? Creative? Realistic? Innovation record? Organisation Culture & Structure Traditional? Modern? Rigid? Centralised? Flexible? Flat? Use of information Technology? Quality of strategic planning? Executive turnover? Directors Dummy? Active? Effective Policy makers? 114 Ulhas D Wadivkar

Signs of Strength in Companys Competitive Position

Important Core Competencies.


Strong or leading market Share. A pacesetting or distinctive strategy.

Growing customer base & Customer Loyalty.


Above average market visibility. In a favourably situated strategic group.

Concentrating on fastest growing Market Segments.


Strong Differentiated product. Cost advantages & above average Profit margins.

Above average technological and innovative Capability.


A creative, entrepreneurially alert management. In position to capitalise on available opportunities.
Ulhas D Wadivkar 115

Signs of Weaknesses in Companys Competitive Position

Confronted with competitive dis-advantages. Losing ground to rival firms. Below average growth in revenues. Short on financial resources. A slipping reputation with customers. Trailing in product development. In a strategic group destined to lose ground. Weak in areas where there is most market potential. A higher cost producer. Too small to be a major market force or in marketplace. Not in good position to deal with emerging threats. Weak product quality. Lacking skills and capabilities in key areas.
Ulhas D Wadivkar 116

Organizational Capability Profile & Strategic Advantage Profile:


Organisational Resources OR includes tangible, Non-tangible, assets, Capabilities, Organisational processes, Technology, Plant & Equipments, Human resources, Information, Knowledge, etc Four Types of Resources e.g. Valuable, Rare, Costly to Imitate and Non-Substitutable, will eventually, lead to Strategic Ulhas D Wadivkar Advantage. Organisational Behaviour OB is manifestation of forces and influence of Internal Environment. (like, Management Philosophy, Quality of Leadership, Shared value, Culture, Quality of Work, Work Environment, Climate, Politics, use of Power) OB affects ability of organisation to use its resources. OR is Hardware & OB is software
117

Organisational Resources Strength & Weaknesses Synergistic Effects

Organisational Behaviour

Competencies Organisational Capabilities Strategic Advantages


Ulhas D Wadivkar 118

OCP & SAP


Strength & Weaknesses OR & OB creates S & W. Strength is an inherent capability of organisation used to gain Strategic Advantage. It could be finance, Technology etc. A Weakness on other hand is inherent limitation or constraint creating Strategic Disadvantage. It could be Plant Location, Layout, Obsolete machinery, Uneconomical operations etc. Synergistic Effects Two or more attributes of S & W, do not add up mathematically but combine to produce an dramatic, enhanced or reduced effect. This is Synergy or Dysergy. e.g. when product, pricing, distribution, promotion support each other a synergistic effect will occur on marketing

Ulhas D Wadivkar

119

Competencies OR & OB develop S & W, which when combined with Synergistic Effects manifest themselves in terms of Competencies. This helps Organisations to withstand pressures of competition. This is ability to compete with rivals. Organisational Capability Organisational Capability is inherent capacity or potential of an organisation to use its Strengths and overcome Weaknesses to exploit Opportunities & face Threats. It is a skill for coordinating resources and putting them to productive use. Without capability, resources, even though valuable & unique, will be worthless. Organisational Capability, though measurable, remains a subjective attribute. Ulhas D Wadivkar 120

Strategic Advantage
Strategic Advantage is result of Organisational Capabilities. The advantages can be measured in terms of Profit, Market Share, Growth etc. Negative results indicate Strategic Disadvantages. When compared with known identified rivals, the Strategic Advantage is also known as Competitive Advantage. In an abundantly profit making company, Competitive Advantage is used as stimulus.

Ulhas D Wadivkar

121

Organisation Capability Profile (OCP): 1


Organisation capability is nothing but sum total of capabilities of various functional areas. Largely accepted main functional areas could be named as Finance, Marketing, Operations, Personnel, Information and General Management. These could be different for different types of organisations. Operations Capability: includes Production of Products and Services. Use of material resources, some factors are: Production System: Capacity, Location, Layout, Product Design, Work systems, Automation, etc. Operations & Control: Production Planning, Material Supply, Inventory, Cost control, Quality control, Maintenance System, Procedures, Standards etc. R&D or Design: Facilities, Product development, Patent rights, Technology, Collaboration, etc.
Ulhas D Wadivkar 122

Organisation Capability Profile (OCP): 2


Financial Capability: is basically, availability, sourcing, usage and management of Funds. It depends upon various factors for example: Sources of funds:- Capital Structure, Capital procurement, controllership, financing pattern, working capital availability, borrowings, reserves & surpluses, relations with banks, audit authorities. Usage of funds:- Capital Investment, Fixed asset acquisition, Current assets, Loans & advances, Dividend distributions, Relations with Share Holders. Management of funds:- Financial Accounting & Budgeting Systems, Management control systems, State of Financial health, Cash inflation, Credit & Risk management, Cost reduction & Control, Tax planning. Organisational Strength & Weaknesses related to above factors is a measure of Financial Capability.
Ulhas D Wadivkar 123

Organisation Capability Profile (OCP): 3


Marketing Capability: is basically, pricing, promotion, penetration and distribution of Product or Service. Marketing Capability Factors are: 4 Ps of Marketing: Product: Quality, Variety, Product Mix, Differentiation, Positioning, Packaging etc. Price: Pricing objectives & policies, Changes, Protection etc. Place: Distribution, Transportation, Logistics, Marketing Channels, marketing intermediaries etc. Promotion: Tools used for promotion, Sales Promotion, Advertising, Public Relations etc. Systemic: Marketing Mix, Market Standings, Company Image, marketing System, Marketing Management Information System etc.
Ulhas D Wadivkar

124

Organisation Capability Profile (OCP): 4


Personnel Capability: is related to use of Human resources & skills, aspects about ability to implement strategies. Some of the Factors are: Personnel System: Manpower planning, selection, development, compensation, communication, appraisal, Position of Personnel Dept. in organisation, etc.
Organisational Characteristics: Corporate Image & Image as Employer, Quality of Managers, Staff & workers, Working conditions, Developmental opportunities, etc. Industrial Relations: Union-Management Relations, Collective bargaining, Safety, Welfare, Employee satisfaction and moral, etc.
Ulhas D Wadivkar 125

Organisation Capability Profile (OCP): 5


Information Management Capability: relate to design & management of flow of information for decision making. Some factors are: Acquisition and retention of information: Sources, Quantity, Quality, Timeliness, retention, security, etc. Processing of Information: Database Management, Computer Systems, Software Capability, Ability to synthesise. Transmission & Dissemination: Speed, Scope, Width, depth of coverage, Integrative, Systemic, Supportive factors: IT infrastructure, its relevance & compatibility to organisational needs, Up-gradation, Computer Professionals, Top management Support, etc
Ulhas D Wadivkar 126

Organisation Capability Profile (OCP): 6


General Management Capability: relates to integration, co-ordination and direction of the functional capabilities. Some factors are: General Management System: Strategic management system, Strategy formulation, Strategy implementation machinery, MIS, Corporate planning, Rewards, Incentives, etc. General Managers: Orientation, Risk-propensity, values, norms, competence, track records, etc. External Relationship: Influence & rapport with Govt., Financial institutions, social responsibilities, Organisational Climate: Organisational cultures, political processes, balance of vested interests, Acceptance of management of change, Organisational Structure & Control, etc.
Ulhas D Wadivkar 127

Organisation capability Profile (OCP) : 7


The Organisation capability Profile (OCP) can be prepared by systematically assessing the various Functional areas and subjectively assign values to the different functional capability factors and sub-factors along a scale ranging from the values -5 to +5. Capability Factor Rating --------------- -----------------------------------------------Factor Weakness Normal Strength -5 0 +5 ---------------------------------------------------------------- Sources of Funds -5-4-3-2-1-0+1+2+3+4+5 = +3 After completion of charts for all the factors and subfactors mentioned above, Strategists can assess Weaknesses and Strengths of the organisation in each of the six functional areas.
Ulhas D Wadivkar 128

Preparing the Strategic Advantage Profile (SAP):


OCP capability Factor Rating chart becomes a base for SAP. Strategic Advantage or Disadvantages in each of the main functional areas can be summarised and presented. A SAP provides a picture of the more critical areas, which can have a relationship to the Strategic posture of the Firm.

Capability Factor Strength & Weaknesses Finance: High cost of capital. Reserves & Surplus position is unsatisfactory. High Rate of Profit Credit worthiness is favourable for raising Loans Low rate of Dividend
Ulhas D Wadivkar

-2 -3

+4
+2 -1

129

Preparing the Strategic Advantage Profile (SAP)-2:


Operations: Plant & Machinery is in excellent +4 Condition. Vendors are available. +2 Captive sources for raw material & spare parts are available. +1 Excellent Technology +4 Poor Quality Control -3 Marketing: Excellent Pre & Post Sales service +5 Complete understanding of Customers changing preferences to Sales Rep. +3 Close Competition -2 Human Resources: Capable & Competent Employees +5 Managers without HRM skills -2 Favourable compensation package +3 General Management: Top Management with Progressive ideas +4 Outdated Management Style -2
Ulhas D Wadivkar 130

Syllabus
4. Analyzing Companys External Environment: Environmental appraisal Scenario Planning Preparing an Environmental Threat and Opportunity Profile - (ETOP) Industry Analysis Porters Five Forces Model of competition. (4)
Ulhas D Wadivkar 131

Company and Environment


External Environment: PESTEL: Political, Economical, Socio-Cultural, Technological, Environmental, Legal,

Corrective Action

Visions Missions, Objectives, Goals, BusinessDefinition Strategy Systems Structures Targets Processes Planning Manufacturing Inspection Packing

Feedback

Input Resources : 5 Ms

Outputs Sales, Service, Transport of goods Profits

Ulhas D Wadivkar

132

Corporate Scenario Planning


Corporate Scenarios are proforma balance sheets and income statements that forecast the effect of alternative strategy and its various programs will likely to have on division and on corporate return on investment. Recommended scenarios are simply extension of the Industry Scenarios developed earlier. This should be done for every product and for every country. Develop common size financial statements for the companys or business units previous years which are basis for the trend analysis projections of proforma financial statements. Construct detailed proforma financial statements for each strategic alternatives. Compare the assumptions underlying the scenarios with these financial statements and ratios to determine the feasibility of the scenarios.
Ulhas D Wadivkar 133

Scenario Box for use in Generating Financial Pro Forma Statements.


Factor Last Historical Trends Year average 2 0 07 2 0 09 2 0 11 Comments

O P ML O P ML O P ML GDP

CPI
SALES FOREX PLR

Expnsn
Div. Profits EPS

ROI
ROE Others
Ulhas D Wadivkar 134

Scenario Planning
Scenarios are tools for strategists to express their views about alternative future environment for which todays decisions are framed. Scenarios resemble a set of stories, built around carefully constructed plots. The stories express multiple view points, paradigms on complex events taking place in world. Scenarios present alternative future images, instead of extrapolating current trends. Creating scenarios requires decision makers to question their broadest assumptions about the way the world works to foresee a decision, which could have been missed or denied For an organisation, scenarios provide a common vocabulary giving effective basis for communicating complex conditions and options. By recognising the warning signals, the threats & opportunities of future, one can avoid surprises, adapt and Ulhas D Wadivkar 135 act effectively.

Implementation of Scenario Planning


A cross function team is constituted for identifying and monitoring issues. Employees are encouraged to participate by offering some incentives. Step 1: Understand effects of external factor on the business. These can be Technology driven (New Product, IT integration), or Political (Deregulation, instability), or Economic ( Sudden downturn, boom), Competitive positioning ( moves of Competitors)
Step -2 :Classification of issues by the supportive record or documents. Then determine the uncertainty and kind of impact of these issues. Step 3 : Analysing and Problem Solving as per A, B, C & D categories as per given figure.
Ulhas D Wadivkar 136

High
A. Can be Discarded B. Keep a close watch

UnCertainty

C. Can be used for Long term Planning


Low Low
Ulhas D Wadivkar

D. Are of Highest Concern

Impact

High
137

Analysing Scenarios & Problem Solving


D Category : High Impact and Low Uncertainty. Highest priority issues, need to be addressed immediately and more cautiously. All employees must first focus on these issues. B Category : High Risk issues, need to be observed closely and monitored strictly because of high uncertainty involved. C Category : Low impact Low uncertainty: These issues can be used for Long term Planning. A Category : Because of High Uncertainty and Low impact to the organisation is involved, these issues can be discarded for time being.
The analysis and problem solution can be done by an individual or by a team depending upon coverage and importance. All ideas / analysis should then be submitted to the cross functional strategic teams for further analysis and strategy making.
Ulhas D Wadivkar 138

ETOP Environmental Threat and Opportunity Profile


Managers must be prepared to steer the Company to a
new direction or alter the Strategy as per the Environment. The External environment appraisal leads

to the Opportunities & Threats and Internal


environment appraisal will lead to find out Strengths & Weaknesses of the organisation. ETOP helps

organisation to face the weaknesses and capture the


Threats.
Ulhas D Wadivkar 139

ETOP Environment Threat and Opportunity Profile

Thinking strategically about a Companys External environment

Thinking strategically about a Companys Internal Environment

Form a Strategic vision of where the Company need to head

Identify promising strategic options for the Company

Select the best Strategy & Business Model for the Company
Ulhas D Wadivkar 140

Environment Survey : Purpose:


1. 2. 3. 4. To learn about events and trends in the environment and project the future of the environment. To identify the favourable and unfavourable factors in the environment from standpoint of the firm. To figure out the opportunities and threats hidden in environmental events and trends. To assess the scope of various opportunities and find out the ones having potential of becoming promising businesses and pursue them. To draw up the opportunity-threat profile. To formulate strategy in line with opportunities.
141

5. 6.

Ulhas D Wadivkar

Scope of Survey - 1
Macro- environmental factors Demographic Environment Size of population, age distribution, literacy levels, religious composition, composition of workforce, household patterns, regional characteristics, population shifts. Socio-cultural, Environment Culture-languageeducation, traditions, beliefs, values, lifestyle, social class, Economic Environment General Economic conditions and conditions for the targeted population segment, purchasing power, consumer spending pattern, rate of growth of economy and the growth of economy of targeted sector, rate of inflation, interest rates, tax rates, price of materials and energy, labour scene cost, skill, availability. Political Environment Regulating legislation, stability of the government, media, social and religious organisations, pressure groups-lobbies,
Ulhas D Wadivkar

142

Scope of Survey - 2
Natural Environment ecology, climate, endowment of natural resources, raw material, energy, Technology Environment Technology options available, their cost effectiveness, technology at International level. Govt. approach in respect of technology, technology selection. Legal- Business legislation Corporate affairs, Consumer protection, Employee protection, Corporate protection, Regulation on products, controls on trade practices, protecting national firms. Government Policies Organisations have to understand govt. policies while setting and operating units, especially MNCs who operate in various countries. For example, many MNCs prefer India over China due to Indias legal environment.
Ulhas D Wadivkar

143

Environmental factors specific to the business concerned -1


The Market / Demand Nature of Demand whether it is seasonal, related to specific event, repetitive etc., Demand Potential, Current level of Demand, Changes in demand, consumption pattern, buying habits, invasion of substitute products, The Consumer - Consumer tastes and preferences keep fluctuating and need to be monitored. A perpetual analysis of customer analysis is required. Who is the customer, what needs are served by product and what needs are envisaged by customer is to be analysed. Other factors are Purchasing power, buying motive, buying Habits, Attitudes, lifestyle, brand Awareness, brand loyalty, nearest competitor, customers reaction to upcoming new products.
144

Ulhas D Wadivkar

The Industry & competition Knowledge of Industry and competition is a fundamental requirement in developing strategy and industry analysis. The study of demand, consumer, industry and competition is normally a ongoing activity. Government Policies More important in regulated economies but even in free economy, Govt. plays role as large purchaser, offers subsidies, protect home producers, ban fresh entry, ban products. Some time Govt. itself is large supplier and regulates the market. Govt. policies have a great effect on socio-economic conditions. The Supplier related factors Suppliers as a group have their own bargaining power and can influence cost. Scarcity of raw materials can affect output and deliveries. Supplier becoming manufacturer is always a threat. Monitoring supplier environment helps in making a Wadivkar Ulhas Ddecision of integrating or outsourcing. 145

Environmental factors specific to the business concerned -2

Porters Five Forces Model,


Source: Porter, Michael E, - Competitive Strategies -1985
Potential Entrants Threat of new Entrants

Suppliers Bargaining Power of Suppliers

Industry Competitors
Rivalry among existing firms

Buyers Bargaining Power of Buyers

Threat of substitute products or suppliers

Substitutes
Ulhas D Wadivkar 146

Forces Shaping Competition in an industry - 1


According to Porter, a firm develops its business strategies in order to obtain competitive advantage (i.e.,

increase profits) over its competitors. It does this by


responding to five primary forces: 1. Rivalry amongst existing firms and jockeying for position - i.e. competition 2. Threat of new entrants 3. Bargaining power of buyers / customers 4. Threat form substitute products and
Ulhas D Wadivkar

5. Bargaining power of suppliers

147

Forces Shaping Competition in an industry - 2


These five factors shape competition and determine Attractiveness / Profitability in an industry.
Sizing up competition within factory is not enough; all forces shaping competition and survival of industry must be sized up. We should know which of these forces are strong and how they work in its industry, how will they affect the firm in particular and how to adjust ones position to defend or overcome or take advantage of these forces. The company positions itself so as to be least vulnerable to competitive forces while exploiting its unique advantage (say - cost leadership). A company can also achieve competitive advantage by altering the competitive forces.
Ulhas D Wadivkar 148

Forces Shaping Competition in an industry - 3


These five forces of competition influence the firms strategy. The five competitive forces model provides a solid base for developing business strategies that generate strategic opportunities. In fact the strategy should be formed in such a way to influence all these forces in favour of the firm. Strategy should be formed to build defence against these forces and finding a position in industry where the influence of these forces is weakest. In his recent study, Porter (2001) reemphasized the importance of analyzing the five competitive forces in developing strategies for competitive advantage: Analyzing the forces illuminates an industrys fundamental attractiveness, exposes the underlying drivers of average industry profitability, and provides insight into how profitability will evolve in the future. Ulhas D Wadivkar 149

Rivalry amongst existing firms and jockeying for position - i.e. competition
1. Industry members undertake more aggressive and more frequent actions to boost their market standing & performance. This makes rivalry stronger. 2. Rivalry is stronger in slow growing markets. 3. More nos. of competitors and competitors who are equal in size and capability makes rivalry stronger. 4. Rivalry increases as products of rival competitor becomes more standardised giving good reliability. 5. Rivalry increases as it becomes less costly for buyers to switch the brand. 6. Rivalry increases as competitors play a price war and other competitive weapons to boost their market share. 7. Rivalry is strong when nos. of competitors are less than five.
Ulhas D Wadivkar 150

8. Rivalry increases when strong companies outside the industry acquire weak firm in the industry and launch well-funded, aggressive moves to transform the acquired company in to a major contender. 9. Rivalry is weak in fast growing markets. 10. Rivalry is weak when, there are so many rivals, that impact of ones action is thin on spread over span.
Typical weapons to combat rivalry are: 1. Lower Prices. 2. More or different features. 3. Better product performance with higher Quality. 4. Stronger Brand image & appeal. 5. Wider selection to customers to choose from Models & styles. 6. Better & bigger dealer network. 7. Better Customer service capabilities.
Ulhas D Wadivkar 151

2. Threat of new entrants


Entry threats are stronger when: Candidates have resources that make them a formidable contender. Entry barriers are low. Newcomers can expect good returns. Buyer demand is growing rapidly. Industry is unwilling / unable to stop new entrants. Entry Threats are weaker when: Entry candidates are small in nos. Entry barriers are high. Existing industry is itself struggling for profits. Industry outlook is uncertain and risky. Buyer demand is stagnant or slow. Existing industry members strongly contest and does not allow new Ulhas D Wadivkar comer to settle. 152

3. Bargaining power of buyers / customers


1. When nos. of buyers is small and when a buyer is particularly important to seller. 2. When cost of switching brand is low to buyer. 3. When buyer demand is low and sellers are many 4. When buyers are well informed about product, prices & costs. 5. When buyer is capable of backward integrating and making product by themselves. 6. When buyers have discretion in whether & when to purchase the product & when buyer is large and can demand concessions. Bargaining power of buyer is low when: Infrequent and small purchases. Buyers cost of switching to other brands is high. It is a sellers market & Brand reputation is important to Ulhas D Wadivkar 153 buyer.

4.

Threat form substitute products

When substitutes are readily available & attractively priced. When buyer view substitute products at par in terms of quality, performance & other attributes. When costs are low to end users to switch to substitutes.

Ulhas D Wadivkar

154

5. Bargaining power of suppliers


Major suppliers can have sufficient bargaining power to influence the terms & conditions in their favour. Item supplied is a commodity that is not readily available from other suppliers in market. When few large suppliers are primary suppliers of a particular item. (Suppliers can have a cartel) When it is costly or difficult for buyer to switch to new brand or alternate items. When needed items are in short supply. When supplied item has a differentiation, which enhances performance of final product. When certain supplier supplies item has possibilities of cost savings to industry members on account of its added quality feature or service. Bargaining Power of Supplier is weak when: backward integration is possible, when buyer is a major customer, when there are many suppliers available.
Ulhas D Wadivkar 155

SWOT Analysis:
Identify Company Resource Strengths and Competitive capabilities. Identify Company Resource Weaknesses and Competitive deficiencies. Identify Companys Market Opportunities. Identify External Threats to the Companys future well being. Next step will be to draw conclusions concerning the Companys overall business situation. Rank all factors from exceptionally weak to exceptional strong scale and find out business attractiveness. Identify attractive and non-attractive aspects of the Companys situation. Ulhas D Wadivkar 156

SWOT Analysis:
Third step will be to plan actions to improve Company Strategy.

Use Companys Strengths & Capabilities to overcome weaknesses.


Pursue those opportunities that are suitable to Companys Strengths and Competitiveness. Correct weaknesses that affect our abilities to take advantage of market Opportunities.

Use Companys Strengths & Capabilities to lessen the impacts of important external threats.
Ulhas D Wadivkar 157

Factors to look for in SWOT analysis:


Potential Resource Strengths & Capabilities # A powerful Strategy. # Core competencies. # Distinctive Competence. # A strongly differentiated Product. # Competencies & Capabilities matching with Key Success Factors of Industry. # A strong financial condition providing ample resources. # Strong brand image # An attractive Customer base. # Superior Technological skills / Product Quality/ Patents / intellectual Capital / Innovation capabilities. # Cost advantage. # Strong advertising & Promotion. # Supply Chain Management Capabilities. # Customer service capabilities. # Wide geographical coverage / strong Global distribution capabilities. # Alliances / joint ventures / collaborations.
Ulhas D Wadivkar 158

Potential Resource Weaknesses & Competitive

Deficiencies.
No clear Strategic Direction. Resources not matching KSFs Lack of Core & Distinctive competencies. Weak balance Sheet / heavy debt / low resources. Too narrow product line compared to rivals. Weak Brand image. Weaker dealer network. Low product Quality, lack of R&D and Technological know-how. Lack of Management depth. Loosing market share because Behind rivals in e-commerce capabilities. Internal operation problems / obsolete facilities. Underutilised Plant capacity.
159

Ulhas D Wadivkar

Potential Market Opportunities


Sharply rising buyer demand. Serving new market segments / new set of customers. Expanding to new geographic markets. Expanding product line & range of products to meet market demand. Online sales, e-business. Forward or backward integration. Overcoming Trade barriers and capturing new foreign markets. Acquire rival firms. Enter into alliances. Exploit new technologies.
160

Ulhas D Wadivkar

Potential External Threats


Increasing intensity of competition among rivals. Slowdown of market. Entry of new potent rivals. Loss of sales to substitute products. Growing bargaining power of Customers / Suppliers.

A shift in buyer needs and tastes.


Adverse demographic change curtailing demand. Restrictive trade policies on the part of foreign Governments. Costly new regulatory requirements.
Ulhas D Wadivkar 161

Internal Factors

Strengths Technological Skills Leading Brands Distribution Channels Consumer Loyalty Production Quality Scale Management

Weaknesses Absence of important skills Weak Brands Peer access to distribution Low Customer retention Unreliable Product / Service Sub-scale Management Threats Changing customer tastes Geographical Closures Technological advances Government Policies changes Lower personal Taxes Population age structure New Distribution Channels
162

External Factors

Ulhas D Wadivkar

Opportunities Changing customer tastes Geographical Liberalisation Technological advances Government Policies changes Lower personal Taxes Population age structure New Distribution Channels Positive

Negative

Syllabus
5. Corporate Portfolio Analysis: Business Portfolio Analysis Synergy and Dysergy BCG Matrix GE 9 Cell Model Concept of Stretch, Leverage and fit (3)
Ulhas D Wadivkar 163

Synergy v/s Dysergy -1


The whole is greater or lesser than sum of its parts. 1 + 1 could be 2 or 11 or 111. This effect is known as Synergy. In any organisation, Resources, Strengths, Weaknesses, behaviours do not exist independently but they act together. If these strengths, and resources and behaviour in the Organisation are directed properly, then a Synergistic Effect could be seen. The Organisation should cultivate Win-Win and open communication with philosophy of Seek to understand first and then to be understood. In such an atmosphere, two or more strong points add up to something more than its arithmetic sum. This is Synergy. Similarly, two or more weaknesses acting in tandem can damage more than its arithmetic sum. This is Dysergy.
Ulhas D Wadivkar 164

Synergy v/s Dysergy -2


In practice if functions like Product, Pricing, Distribution and Promotion, work in harmony and support each other, then, synergistic effect could be seen in Marketing. Similarly, if Marketing and Production areas support each other, then synergistic effect could be seen in Operating Efficiency. Marketing inefficiencies could result in reduction of operating efficiency as dysergistic effect. Synergistic Effects are results of quality and type of internal environment existing within organisation. These effects will only lead the organisations to develop competencies and ward off external threats.
Ulhas D Wadivkar 165

Business Portfolio Analysis


Definition : Analyzing Elements of a firm's Product
Mix to determine the Optimum Allocation of its Resources. Two most Common Measures used in a Portfolio Analysis are Market Growth and Relative Market Share. The strategic units that make up the company and the attempts to evaluate current effectiveness and vulnerabilities (McDonald et al, 1992)

Business Portfolio Management enable strategic planners to select the optimal strategies for the individual products whilst achieving overall corporate objectives (McNamee, 1985)
Ulhas D Wadivkar 166

When a Business Portfolio comprises of Multi-business Units and / or operating at multi-location, then the Strategist often ask two questions to take a decision on Business Strategy. How much of our time and money should we spend on our best products to ensure that they continue to be successful? How much of our time and money should we spend developing new costly products, most of which could never be successful? Examples of Portfolios: Unilever: ice cream, tea, spreads, Proctor & Gamble: Detergents, nappies, Gillette: batteries, Shaving products Virgin : trains, planes, cola, music stores, mobiles Wipro : Computers, Vanaspati, Veg. Oils, Soaps, 167 Ulhas D Wadivkar ITC : Tobacco, Soaps, Biscuits

Portfolio Analysis is an analysis of the Corporation as a portfolio of different businesses with the objective of managing it for optimum return on its resources. Portfolio analysis looks at the corporate investments in different products or industries under common corporate jurisdiction. It involves, analysing future implications of presents resource allocation and continuously deciding, adding, curtailing or disposing, operations or products, so that overall portfolio balance is maintained or improved. Portfolio analysis takes into considerations aspects such as Companies Competitive Strength, Resource Allocation Pattern & Industry Characteristics. All businesses have to balance, three basic aspects of running the business : 1. Net Cash Flow. 2. State of Development. 168 3. Ulhas D Wadivkar Risk.

Business Portfolio Analysis

Boston Consulting Group BCGs Growth Share Matrix

Ulhas D Wadivkar

169

BCGs Growth Share Matrix

1.

2.

Different businesses which forms the Business Portfolio can be characterised by two parameters: Companys Relative Market share for the business, representing the firms competitive position and The overall growth rate of the business. For each activity in the portfolio, a separate strategy must be developed depending upon its position in 2 X 2 matrix. Higher Market share will mean, higher profits and higher cash flows. Relative market share is defined as the market share of the relevant business divided by the market share of its largest competitor. i.e. A = 10%, B = 20% & C = 60%, then, As relative market share is 1/6 & Cs share is 3. Higher Growth rate will mean profitable investment / expansion opportunities and easier to increase market share. Earned Cash can be ploughed back to enhance ROI.
Ulhas D Wadivkar 170

BCGs Growth Share Matrix - Methodology

1. 2. 3.

4. 5.

Step-by-step procedure to develop the business portfolio matrix and identify appropriate strategies for different businesses: Classify various activities of the Company into different business segments or SBUs. (Strategic Business Units) For each business segment, determine the growth rate of the market. Plot it on linear scale. Compile assets employed for each business segment and determine the relative size of the business within the company. Estimate the relative market shares for the different business segments. This is done on logarithmic scale. Plot the position of each business on a matrix of business growth rate and relative market share.
Ulhas D Wadivkar 171

BCGs Growth Share Matrix - illustration


Relative market Share 20 STARS 18 16 Business Growth rate % QUESTION MARKS

14
12 10 CASH COWS DOGS

8
6 4 2 2 0.1 X
172

Ulhas D Wadivkar

10 X

4X

1.5 X

1X

0.5 X

Product Life Cycle

Ulhas D Wadivkar

173

Strategies as per Product Life Cycle-1 Expansion Strategy : Stars are the businesses
which have high growth rate & high market share. At times they are not self sufficient in cash flow, but need to be supported in view of their potential. This is Growth phase of Product Life Cycle (PLC). Such businesses generate as well as use large amount of cash. The Star generate high profits and represent the best investment opportunities for growth. We need to reaffirm the Companys Competitive Edge at this phase by sufficient doses of resources for expansion. The best strategy regarding stars is to make necessary investments and consolidate the companys high relative competitive position. e.g. Tiles, Electronics & Communications, Pharmaceuticals, Ulhas D Wadivkar industries. 174 are Star

Strategies as per Product Life Cycle-2


Hold Strategy - Cash Cows are the businesses with low growth rate and high market share. High market share leads to high generation of cash and profits. Cash Cow is a business that generates cash flows over & above its internal needs. Cows can be milked to provide a corporate parent with funds for investing in star / Question Mark businesses, financing new acquisitions or paying dividends. Cash cows provide the financial base for the company. A strong cash flow resulting out of relatively high market share / low market growth rate Cash Cow opportunities should be able to maintain market share at or around existing levels. In this state of business, Corporate can adopt mainly Stability Strategies. Expansions & investments can be thought only if the long term prospects are exceptionally bright. These are generally mature businesses reaping benefits of experience and expertise. Funds generated are to be used for Question Mark or Star businesses as Cash Cow's are destined to slow down. A phased retirement need to be 175 Ulhas D Wadivkar planned.

Strategies as per Product Life Cycle- 3

Build Strategy Question Mark : The Businesses with high industry growth but low market share are Question Marks. In the business. These Question Mark opportunities need investment in order to grow and gain market share. Because of their high growth, the cash requirement is high, but due to their low market share cash generation is low. These are sometimes known as Problem Child as someone with huge potential, but not clicking. Here, a large amount of Cash inflow is required to stabilise and enter into Star phase. Companies must obtain early lead to strengthen the business and capture growth opportunities. A question Mark business can either become a Star or can go to Dogs depending upon funds & competitive edge.
176

Ulhas D Wadivkar

Strategies as per Product Life Cycle - 4 The business is called Dogs, if business growth rate is low and the companys relative market share is also low. The lower market share means poor profits and as market growth is low, any investment is prohibitive as cash demanded will exceed the cash generation, causing negative cash flow. Under such circumstances, the Strategic solution is to either liquidate, or if possible harvest or divest the DOG business. Harvest Strategy : To develop short term cash flow irrespective of the long term damaging effect to the product or business. This strategy is appropriate for any weak products where disposal in the form of a sale is unavailable or not preferred due to high exit barriers Divest Strategy : To change the capital of the business and allow resources to be used elsewhere of industries that have a very slow or negative market growth rate and where a company has low market share. These are products in late maturity or declining stage as mostly substitutes start taking over these products. They stop generating large amount of Cash and face a cost disadvantage owing to low market share. Sometimes to reduce the high costs involved, a Ulhas D Wadivkar 177 Retrenchment Strategy is also adopted.

Cash Positions of Various Businesses


Business Type COW STAR Cash Cash Source Use More More Less More Net Cash Balance Funds available, so milk and deploy Build competitive position and grow

DOG

Less

More
More

Divest and re-deploy proceeds.


Funds needed to invest selectively to improve competitive position.

QUESTION Less MARK


Ulhas D Wadivkar

178

Limitation of BCG Matrix


Predicting Profitability from Growth and Market Share:- BCG assumes that profit depends on growth & market share. This may not be 100% true. Industry attractiveness may be different from simple growth rate and the firms competitive position may not be reflected in its market share. Difficulty in determining Market Share:- BCG has heavy dependence on market Share as indicator of its competitive strength. The calculation of market share depends upon how we decide, what is total market. Sometimes, we may have to consider niche market for analysis. No consideration for experience curve synergy :- In BCG each quadrant is viewed independently. Low costs due to expertise of employees can prolong Dog, star or cash cow stages. Disregard for Human aspect:- BCG does not recognise human aspect of business. Cash generated in one business in one business get associated with the power of concerned manager. Cash Cow unit may be reluctant to part away with its cash to other businesses in the house. Strategic options given by BCG may not Ulhas D Wadivkar 179 be easy to implement.

General Electrics ( or McKinsey) 9 point Multifactor Portfolio Planning Matrix


Different businesses in the organisation as SBUs can be rated for purpose of strategic planning. Two parameters are considered based on internal appraisal of all the SBUs done individually. 1. Industry Attractiveness: How attractive is the industry? The attractiveness index depends upon business strengths. It is a product of several factors like Industry potential, the current size of industry, the rate of growth of industry, structure and profitability of the industry. This is generally highly profitable, productive arena, where firm would like to deploy best of everything. Similarly least attractive business is kept with little attention or is for grabs i.e. for divestment. 2. Company business strength: Company business strengths is a product of several factors like companys current market share, growth rate, differentiation strength, Ulhas D Wadivkar brand image, corporate image. 180

GEs 9 Point Model.


The weighted factors for both these areas are plotted in Company business Strength/Industry attractiveness
Company Business Strength A t I n t d r High a u s c Medium t t r i Low y v e n e s Ulhas D Wadivkar s

Strong **********

Medium **********

Weak

**********

########
######## ########

Invest / Grow

Selectivity Harvest / /Earnings Divest


181

General Electrics Business Screen


I n d u s t r y A t t r a c ti v e n e s s Winners
A

Winners
B

High

Question Marks
D

Winners
E

Average Businesses
F

Medium

Losers

Losers
G

Low

Profit Producers Strong Average

Losers Weak

Business Strength / Competitive position

Circle denotes the size of Industry , while blue colour portion corresponds to Market Ulhas D Wadivkar 182 Share.

General Electrics Business Screen


The vertical axis represents Industry Attractiveness. This is weighted composite rating based on eight different factors. These factors are: 1. Size of Market 10% 2. Rate of Growth of Sales & Cyclicality 10% 3. Industry Profit Margin. 40% 4. Competitive intensity including vulnerability to foreign competition. 15% 5. Seasonality. 5% 6. Economics of Scale. 5% 7. Susceptibility to Technological obsolesce 5% 8. Entry conditions, Social, legal, environmental & human impacts. 10% Against each of these factors, the concerned business is rated on a scale of 1 to 10 and then the weighted score is determined from maximum of 10. This gives the Industry Ulhas D Wadivkar 183 Attractiveness Index.

General Electrics Business Screen


The horizontal axis represents business strength competitive position. This is a weighted composite rating based on eight factors. These factors are: 1. Relative market Share. 2. Relative cost position. 3. Profit margins relative to competitors. 4. Ability to compete on Price & Quality. 5. Knowledge of Customer & Market. 6. Competitive Strengths & Weaknesses. 7. Technological Capability 8. Calibre of Management. The two composite values for Industry Attractiveness and Business Strength are plotted for each business in a Companys Portfolio. The pie charts denote the proportional size of the industry white colour & blue segment represent company Ulhas D Wadivkar share. 184

General Electrics Business Screen


The horizontal axis represents business strength competitive position. This is a weighted composite rating based on seven factors. A typical scoring of Companys Competitive position
Factor Weightage Rating Score (1 to 10)

Market Share and Capacity


Growth Rate Location and Distribution Management Skill Work force Harmony Technical Excellence including Product and Process Engineering Company Image
Ulhas D Wadivkar

20%
10% 10% 15% 20% 20% 5% 100%

7
7 5 6 7 8 8

1.4
0.7 0.5 0.9 1.4 1.6 0.4 185 6.9

Corporate Strategy Implications GE Nine Cells

Grow & Build Strategy for upper left three cells as Industry Attractiveness & Competitive Position are high. Top investment priority to be given to businesses in these cells. The three diagonal cells from lower left to upper right gets medium priority. Steady investments to protect and maintain their industry position. i.e. Stability / Hold Strategy. The businesses in lower right corner do not receive any investment decisions. Harvest or Divest Strategy may be employed. Strengths: GE Nine Cell allows intermediate ranking between high & low and between Strong and weak. It incorporates much wider variety of strategically relevant variables, where as BCG Matrix is based on only two considerations Industry Growth & Relative Market Share.
Ulhas D Wadivkar 186

Strengths: GE Nine cell stresses channelling Corporate resources to businesses with greatest probability of achieving competitive advantage and superior performance. Weaknesses: The nine cell matrix provides no real guidance on the specific business strategy. The matrix suggests general strategy like Aggressive Expansion, Fortify and Defend or Harvest Divest. These strategies do not address the issue of strategic coordination between businesses, specific competitive approaches and Strategies to be adapted at business level.

Weakness: The GE Nine Cells method tend to obscure business that are about to become winners because their industries are entering the take off stage.
Ulhas D Wadivkar 187

Gap Analysis
Desired Performance

Gap
Performance Achieved Performance

Time -1
Ulhas D Wadivkar

Time -2
188

Gap analysis -2
Gap analysis is done for focussing on strategic alternatives. On dimension of time various alternatives are evaluated in different phases to get a clear picture for selection of strategies. What is the result of the present strategy? What should be new strategy? What should be methodology of implementation? If the gap is narrow, policy is to stabilise the strategies. If the gap is due to consistent past bad performance; which is also expected in future, then retrenchment / withdrawal strategies may be more suitable.
Ulhas D Wadivkar 189

Gap Analysis - 3
First step is to identify alternatives. Companies find it difficult to change their strategies because strategic thinking is not the core competency of managers. Hence lot of brain storming, situational analysis need to be done. A correct definition of the problem is the Second step. A hypothesis is developed after brain storming and situation analysis. This hypothesis must be tested to developing clear understanding of the forces that actually work. Next step is to formulate the strategy and address the driving forces in a cause and effect relationship. Find the 80:20 Pareto Principle and attack the most important one. Prioritise the strategies and a plan for the projects to implement strategies on time scale is created for future guidance and analysis.
Ulhas D Wadivkar 190

From Fit to Stretch:


Vertical Fit: If a Business house has a strategy to be Cost Effective Leader in the business, then resources and activities in all functional areas are to be focussed on adopting low cost structures and reducing costs. When all functional areas like Marketing, Finance, Operations, HRD, and Information Management etc. contribute to this objective to create a low cost structure, then it is a congruence of all functional strategies and coordination between functions operating at different levels in Organisation, toward a common Objective. Such congruence is the Vertical Fit. Horizontal Fit: Along with Vertical Fit, a need is there to have congruence and co-ordination amongst all the different activities taking place at same level. This is Horizontal Fit.
Ulhas D Wadivkar 191

Horizontal Fit is operational implementation. It is an approach adopted by organisation to achieve operational effectiveness. All functions operate optimally by performing value creating activities. This is also a value chain. To support value chain activities various staff function departments are involved and put along operations. For e.g. Procurement Department is placed along with Operations department. Horizontal fit means integration of all operational activities undertaken to provide a product or service to customer. Strategy & Structure for Generating Results in Organizations : The traditional strategic planning seeks a fit between resources and aspirations. You set realistic goals based on what you think you can achieve with the resources at hand and then construct strategies and tactics to achieve them. Fit means positioning the firm by matching its resources to its environments as per SWOT analysis. It could be a compromise formula with regards to Firms objectives and Competitive posture of the Company. Ulhas D Wadivkar 192

Strategy as Stretch and Leverage Hamel and Prahalads (1993) assertion that competitiveness is born in the gap between a companys resources and its managers goals has entered the mainstream of strategy thinking. This is one of the concepts of Stretch. Hamel and Prahalad began their deconstruction of conventional wisdom by challenging common understandings of the meaning of strategy. Hamel and Prahalad added duel concept of Stretch and Leverage to Strategic Intent. Stretch is a gap between resources and aspirations. Stretch is diametrically opposite to Fit. Since Fit means positioning the firm to match its resources to its environment. The concept of Leverage is concentrating, accumulating, complementing, conserving and recovering resources in such a manner that the meagre resources (Gap or Stretch) stretched to meet the aspirations that organisation has envisaged. The idea of Stretch & Leverage belongs to Learning School of Strategy. Capabilities are not seen as constraints to achieving. Environment is not seen as given but something Ulhas D can be 193 which Wadivkar created and moulded.

Strategy as Stretch and Leverage

Hamel and Prahalad considered that many managers understood strategy to mean: " fit, or the relationship between the company and its competitive environment; the allocation of resources among competing investment opportunities; and a long-term perspective in which resource money figures prominently. They stressed that being strategic implies a willingness to take the long view, and strategic investments mean betting bigger and betting earlier.
This view obscures the merits of alternatives in which the ideas of Stretch, Leverage, and Consistency of effort feature. Creating stretch, " a misfit between resources and aspirations is the single most important task Senior Manager. Under Fit, Strategic intent would seem more realistic; under Stretch & Leverage Strategic Intent is more idealistic. In both cases it is essentially a desired aim to be achieved.
Ulhas D Wadivkar 194

Porter on Strategy
- "What is strategy? It is, he wrote " the creation of a unique and valuable position, involving a different set of activities." But choosing a unique position is not enough to guarantee a sustainable advantage. Sustainability requires trade-offs with other possible positions - for three reasons: 1. To eliminate or minimise inconsistencies. 2. To maximise and concentrate the benefits of a chosen position. 3. To recognise and accept the limits of coordination and control. The essence of strategy is choosing what not to do. "Without trade-offs there would be no need for choice, and thus no need for strategy."
Ulhas D Wadivkar 195

Porters Three Types of Fit:


Porter considers Strategic Fit, as the way various components of a strategy interlink, or fit together. In this context Fit locks out imitators by creating a value chain that is as strong as its strongest link, and is a more potent, and central, strategic concept. Porter recognised three types of fit: Fit:- First order or simple consistency between activities Stretch:- Second order, or reinforcing activities Leverage:- Third order, or activities which optimise organisational effort In all three, the whole is more than any individual part. Competitive advantage grows out of the entire system of tightly linked activities.
Ulhas D Wadivkar 196

Thus defined, strategic fit is fundamental not only to competitive advantage, but also to the sustainability of that advantage, and the more an organisations positioning rests on activity systems with second- and third-order fit, the more sustainable its advantage will be. The definition of strategy then becomes Creating fit among a companys activities." The success of a strategy depends on doing many things and integrating them. The strategic agenda is defining a unique position, making clear trade-offs, and tightening fit. The strategic agenda demands discipline and continuity.
Ulhas D Wadivkar 197

For challenges of this sort to be effective, top management has to: A) Create a sense of urgency. B) Develop a competitor focus at every level through widespread use of competitor intelligence. C) Provide employees with the skills they need to work effectively. D) Give the organisation time to digest one challenge

before launching another.


E) Establish clear milestones and review mechanisms.
Ulhas D Wadivkar 198

-------------------------------------------------------- Syllabus 6. Generic Competitive Strategies: Low cost, Differentiation, Focus (3) --------------------------------------------------------Ulhas D Wadivkar 199

Competitive Strategy
Competitive Strategy is about being different. It means deliberately choosing to perform activities differently or to perform different activities than rivals to deliver unique mix of value Michael F Porter. Competitive Strategy is about analysing and then experimenting, trying, learning, and experimenting some more. Ian C. McMillan & Rita Gunther Mcgrath. The essence of Competitive Strategy lies in creating tomorrows competitive advantages faster than the competitors mimic the one you posses today. Gary Hammel & C K Prahalad. A Competitive Strategy concerns the specifics of management game plan for competing successfully and achieving a competitive edge over rivals.
Ulhas D Wadivkar 200

Generic Competitive Strategies


1. A low-cost provider Strategy : Appealing to a broad spectrum of customers by being the overall Low Cost Provider of a Product or Service. 2. A broad-differentiation strategy : Seeking to differentiate the companys Product/service by offering different from Rivals to broad spectrum of Customers. 3. A best-cost provider strategy : Giving customers more value for money by incorporating good to excellent product attributes at lower cost than rivals. 4. A focussed or market niche strategy based on Lower Cost : Concentrating on Narrow buyer segment and out competing rivals by offering at lowest cost than rivals 5. A focussed or market niche strategy based on differentiation : Concentrating on Narrow buyer segment and out competing rivals by offering customised attributes to niche member at lowest cost than rivals The basis of competitive strategy lies in Low-cost or Differentiation and finding out our own focus on market niche.
201

Ulhas D Wadivkar

Revamp Value Chain


A Low-cost advantage can be achieved by re-vamping the Value Chain activities and controlling all factors that drive the costs. Revamping of Value Chain is aimed at increasing efficiencies to out-manage rivals on costs. Re-vamping of value Chain is also done by examining the elements of value chain eliminating or bypassing the activities which are adding costs but not value to the product. (Waste elimination) Re-vamping the value Chain: 1. Use of internet Technology applications. 2. Approaching direct to end user in Sales & Marketing. 3. Purchasing directly from manufacturer. 4. Simplifying product design. 5. Using simpler, less capital intensive, flexible technologies. Using CADs. 6. Substituting high cost/imported raw materials with indigenous ones (Value Engineering) 7. Relocation of facilities. 8. Dropping the dead weight. Ulhas D Wadivkar 202

The value chain


The value chain is a systematic approach to examining the development of competitive advantage. It was created by M. E. Porter in his book, Competitive Advantage (1980). The chain consists of a series of activities that create and build value. They culminate in the total value delivered by an organisation. The 'margin' depicted in the diagram is the same as added value. The organisation is split into 'primary activities' and 'support activities.'

Ulhas D Wadivkar

203

Ulhas D Wadivkar

204

Primary Activities.
Inbound Logistics: Here goods are received from a company's suppliers. They are stored until they are needed on the production/assembly line. Goods are moved around the organisation. Operations: This is where goods are manufactured or assembled. Individual operations could include room service in a hotel, packing of books/videos/games by an online retailer, or the final tune for a new car's engine. Outbound Logistics: The goods are now finished, and they need to be sent along the supply chain to wholesalers, retailers or the final consumer. Marketing and Sales: In true customer orientated fashion, at this stage the organisation prepares the offering to meet the needs of targeted customers. This area focuses strongly upon marketing communications and the promotions mix. Service: This includes all areas of service such as installation, after-sales service, complaints handling, training and so on.
Ulhas D Wadivkar 205

Support Activities -1.


Procurement: This function is responsible for all purchasing of goods, services and materials. The aim is to secure the lowest possible price for purchases of the highest possible quality. They will be responsible for outsourcing (components or operations that would normally be done in-house are done by other organisations), and e-Purchasing (using IT and webbased technologies to achieve procurement aims). Technology Development: Technology is an important source of competitive advantage. Companies need to innovate to reduce costs and to protect and sustain competitive advantage. This could include production technology, Internet marketing activities, lean manufacturing, Customer Relationship Management (CRM), and many other technological developments.
Ulhas D Wadivkar

206

Support Activities -2. Human Resource Management (HRM). Employees are an expensive and vital resource. An organisation would manage recruitment and selection, training and development, and rewards and remuneration. The mission and objectives of the organisation would be driving force behind the HRM strategy. Firm Infrastructure. This activity includes and is driven by corporate or strategic planning. It includes the Management Information System (MIS), and other mechanisms for planning and control such as the accounting department.
Ulhas D Wadivkar 207

Five Generic Competitive Strategies


Type of Competitive Advantage Desired Lower Cost Differentiation
M a r k e t A Broad Cross Section of Buyers

Overall Low Cost Provider Strategy Best Cost Provider Strategy Focussed Low Cost Strategy

Broad Differentiation Strategy

S h a r e

A narrow Buyer segment for Market Niche

Focussed Differentiation Strategy


208

Ulhas D Wadivkar

Drivers for Low-Cost Strategy -1


Low-Cost Strategy makers generally attend to following cost drivers: a) Economies or diseconomies of scale: - Larger volumes can reduce the costs as fixed costs get spread over large volume. At the same time larger volume means larger inventories and higher inventory carrying costs. Manufacturing economies can be achieved by simplifying product line, longer production runs, reducing varieties of models, standardising designs and using common parts, use of modular designs etc. b) Learning Curve effects: A new product, new plant is full of innumerable problems. Faster we de-bug, master the technology, improve plant layout & work flow, improve design, will bring economies of learning curve. Aggressively managed companies who capture benefits of learning are the one who can offer low costs.
Ulhas D Wadivkar

209

Drivers for Low-Cost Strategy -2


c) Cost of key resource inputs: use of innovative incentive schemes for unionised labour, use of non unionised labours, out sourcing, large scale purchasing with effective use of bargaining power, variables due to locations, Effective Supply chain Management d) Use of industry value Chain by linking other activities for other products in the company. Also warranty claims can be linked with suppliers, there by diverting the warranty costs, sharing opportunities with other businesses in the organisations. e) Using vertical integration v/s outsourcing: backward or forward integration can reduce the reliance on outsourcing and can reduce the costs. f) Capacity utilisation has direct relation on spread of fixed costs in the product cost. Low cost leader has to find ways to operate at close to full capacity year Ulhas Dround. Wadivkar 210

Drivers for Low-Cost Strategy -3


g) Strategic Choices & Operating decisions such as: Adding / Cutting services offered to Buyers. Incorporating more / fewer performance & quality features into product. Increasing / decreasing distribution channels. Lengthening / Shortening delivery times to customers. Putting more emphasis on wages, incentives & fringe benefits to motivate employees.

Rising / Lowering the specifications for purchased materials.


Example : Wall Mart.- The Low Cost Leader :
211

Ulhas D Wadivkar

Factors for Low Cost Strategy

Price competition is very high. Products are identical and are easily available. Product differentiation is low & cannot be achieved. Most buyers use the product in the same way. Cost of switching brand is low for customer. Buyers are large and have power to bargain. Newcomers can come with low price and attract buyers.

However, a Low Cost provider must always contain enough attributes to be attractive to prospective buyers. Low price by itself, is not appealing to buyers.
Ulhas D Wadivkar 212

Aspects of industry for Differentiation Strategy-1


The essence of broad differentiation strategy is to be unique in ways that are valuable to a wide range of customers. and at the same it should be noted that

Easy to copy differentiators cannot provide sustainable competitive advantages. As a rule,


Differentiation yields a longer lasting effect and more profitable competitive edge, when it is based on: 2. Technical superiority,

1. Product innovation by R&D, 4. Reliability.

3. Product quality with superior manufacturing abilities. 5. Comprehensive customer service, 6. Unique competitive capability 7. Superior supply-chain activities. 8. Maintaining the cost of differentiation in line.
Ulhas D Wadivkar 213

Aspects of industry for Differentiation Strategy-2


Such differentiation should result into: Perceived & actual delivered value for customers Command a premium price for its products Increase unit sales & Gain buyer Brand loyalty Approaches for achieving Cost Differentiation 1. Incorporate product attributes & user Features that lowers the buyers overall costs of using the companys product. 2. Incorporate features that raise product performance like quality, reliability, durability etc. 3. Incorporate features that enhance buyer satisfaction in non-economic or intangible ways. 4. To deliver value to customers via competitive capabilities that rivals do not have or cannot afford to match.
Ulhas D Wadivkar 214

Factors of Differentiation Strategy The Product can be differentiated in many ways and buyers perceive these differences as having value. Buyers needs and uses are diverse. There is less head to head competition. Few rival firms are following differentiation approach. Technological change is fast paced and competition revolves around evolving product features. Any differentiation that works well gets imitated and there is need for constant up gradation. Differentiating something that does not lower buyers cost or improves perceived value is a mistake. Over differentiating increasing service needs or usage constraints is a mistake. Trying to charge a too high a premium price. Being timid & not striving to open up about competitors defect and D Wadivkar differentiating that is not visible to buyers is a pitfall. 215 Ulhas

Best Cost Provider Strategies


Best Cost Provider Strategies are for giving customer more value for money'. It is middle path between pursuing a low cost advantage and differentiation strategy. Best Cost Provider Strategies are hybrid Strategies balancing emphasis on Low Cost & Differentiation. Target market is Price & Value conscious buyer, with diversity of products, where differentiation is a norm. To be successful, Best Cost Strategy must offer, buyers significantly better product attributes, so that they can justify higher price above Low Cost leaders and with sufficient differentiation can win over high-end Differentiation Leaders.
Ulhas D Wadivkar 216

Focussed or Market Niche Strategies


Focussed Strategies have concentrated attention on a narrow piece of the total Market. Target market segment is called as niche. e.g. Rolls Royce- a status symbol, Porsche for sports cars, e-Bay for e-auctions. Focussed Low Cost Strategy: Serving buyers in the target market niche at lower cost & lower price than rivals. Producing Private-Label imitating Brand name merchandise & selling directly to retail chains. Focussed Differentiation Strategy: Serving a buyer segment that is looking for special product attributes or seller capabilities. By offering niche members a product perceive as well suited for their own unique tastes & preferences and be at top of Market pyramid due to their strength of differentiation. e.g. Gucci, Rolls Royce, Armani, Rolex, Reliance Fresh, Kesari Tours Ulhas D Wadivkar 217

Low Cost Provider


Strategic Target Basis of competitive advantage Product Line A broad cross section of the market Lower overall costs than competitors. A good basic product with acceptable quality & few frills.

Production emphasis Continuous cost reduction without sacrificing attributes Marketing emphasis Keys to sustain strategy
Ulhas D Wadivkar

Make virtue of product features with low cost Economical prices, good value, low cost year after year.
218

Broad Differentiation
Strategic Target Basis of competitive advantage Product Line A broad cross section of the market Ability to offer something attractively different. Many Product, wide selection, with differentiating features.

Production emphasis Production superiority with differentiating features buyers are willing to pay Marketing emphasis Keys to sustain strategy Ulhas D Wadivkar Advertise features, charge a premium for differentiation Constant innovation to stay ahead, Few key differentiators. 219

Best Cost Provider


Strategic Target Basis of competitive advantage Product Line Value oriented buyers More value for money Items with appealing & assorted upscale attributes.

Production emphasis Items with appealing & assorted upscale attributes with lower costs

Marketing emphasis
Keys to sustain strategy
Ulhas D Wadivkar

Advertise best value, comparable features with lower value.


Unique expertise in managing costs while offering upscale features & attributes. 220

Focussed Low Cost Provider


Strategic Target Narrow market niche satisfying distinctively different buyers needs & preferences.

Basis of competitive advantage


Product Line Production emphasis Marketing emphasis

Lower overall costs than competitors in niche market.


A product tailored to tastes & requirements of niche market. Continuous cost reduction without sacrificing attributes Communicate budget priced product features that fits niche market requirements. Stay committed to serving niche at lowest over all cost . Do not loose 221 focus by entering other markets..

Keys to sustain strategy


Ulhas D Wadivkar

Focussed Differentiation Provider Narrow market niche satisfying Strategic Target


distinctively different buyers needs & preferences.

Basis of competitive advantage Product Line


Production emphasis Marketing emphasis

Attributes that appeal specifically to niche members. A product tailored to tastes & requirements of niche market.
Custom made products that match the tastes & requirements of niche market.

Communicate how product features does the best of meeting niche market requirements.
Stay committed to serving niche market at better differentiation. Do not loose focus by entering other markets Economical prices, 222 good value, low cost year after year.

Keys to sustain strategy


Ulhas D Wadivkar

7. Syllabus
----------------------------------------------------------------7. Grand Strategies: Stability, Growth, (Diversification Strategies, Vertical Integration Strategies, Mergers, Acquisition & Takeover Strategies, Strategic Alliances & Collaborative Partnerships), Retrenchment, Outsourcing Strategies. ----------------------------------------------------------------(8)

Ulhas D Wadivkar

223

Strategic Option Menu


Overall Low Cost Provider
STABILITY

Broad Differentiation

Best Cost Provider

Focussed Low Cost Provider

Focussed Differentiation

EXPANSION / GOWTH

RETRENCHMENT

COMBINITION

Complimentary Strategic options: 1. Strategic Alliances & Collaborative Partnerships ? 2. Merge with or acquire other companies? 3. Integrate backward or Foreword? 4. Outsourcing? 5. Initiate offensive Strategies? 6. Defensive Strategic moves? 7. Using Internet as Distribution Channel, if so, to what extent? Functional Strategies to support above Strategic Choices: 1. R & D, Engineering. 2. Production. 3. Marketing & Sales. 4. Human Resources. 5. Finance Timing the Companys Strategic move in marketplace: a) First Mover, b) Fast Mover? And/or c) Late Mover. Ulhas D Wadivkar 224

Grand Strategies
Having settled on one of the Competitive Generic Strategy, we now need to decide on other Strategic Actions to complement on the choice basic Competitive Strategy chosen. Grand Strategies are Corporate Level Strategies, Setting a choice of Direction that a firm should adopt. It could be a small entrepreneur firm with single location and single business or a corporate conglomerate with multi-location, diversified several different businesses. The Corporate Strategy in both cases is about setting the basic direction of the firm as a whole. Corporate Strategies are basic decisions about allocating & transferring resources among different businesses and managing & nurturing portfolios to achieve overall corporate objectives.
Ulhas D Wadivkar 225

Business Dimensions

Any Business is defined along three dimensions and combinations thereof. These three dimensions are: Customer Group Customer Functions and Alternative Technologies. As the organisations becomes large & diversified, the business definition also becomes complex. According to Glueck, there are four Grand Strategies, which are used as alternatives and in a combined way. These Strategies are: Stability Strategies. Expansion Strategies. Retrenchment Strategies. Combination Strategies. These Strategies are pure and depending upon various dimensions of the businesses, many mixed strategies do take place. Ulhas D Wadivkar Glueck has described four dimensions, such as: 226

Business Dimensions 1 & 2

1. a)

b)

Internal / External Dimensions: When the Organisation is an independent entity, it is operating under Internal Dimensions and When the Organisation adopts a strategy in association with another entity, it operates under External Dimension. Related / unrelated Dimensions: When organisation adopts a Strategy related to its existing Business Definition, the Related Dimension operates and
When organisation adopts a Strategy that is un-related to its existing business either in terms of Customer Groups, Customer functions or alternative Technology; the unrelated dimension operates.
Ulhas D Wadivkar 227

2. a)
b)

3. a)

b)

4. a) b)

Business Dimensions 3 & 4 Horizontal / Vertical Dimensions: The horizontal dimensions operates when an organisation adopts a strategy which results in serving additional customer groups and/or satisfying other customer functions in such a way that they compliment the existing business definition of one or more of its business. The vertical dimension operates when an organisation adopts a strategy which results in the expansion or contraction of the existing business definition of one or more businesses in terms of the utilisation of alternative technologies. Active / Passive Dimensions: The active dimension operates when an organisation adopts an offensive strategy in anticipation of environmental threats and opportunities. The passive dimension operates when an organisation adopts a defensive strategy as a reaction to environmental threats and opportunities.
Ulhas D Wadivkar 228

Thus combination of Four Grand Strategies, four Dimensions and two types in each dimension give rise to 32 possible mixed Strategies and if we consider three dimensions of Business Definition, these possibilities should be 32 x 3 = 96 and if we consider weight-ages for each factor the Strategic alternatives could be mind boggling. However, all alternatives are not feasible or possible and we narrow down the choice of few major strategic alternatives.

Ulhas D Wadivkar

229

1. Stability Strategies:
1.a) No-Change Policy: It is a conscious decision of not doing anything new and continue with present business definition. When environment is stable and predictable with no new significant threats & opportunities in the environment, it may not be worthwhile to alter strategy in present situation. Also no new strengths have been generated and no new weaknesses have been developed. No new threat of substitutes and new entrants. However, this should be a conscious decision and should not arise out of in-activity and owing to inertia. It is dangerous to be complacent. 1.b) Profit Strategy: No change policy cannot sustain for long and situations keep changing. However if company believes that the changes like economic recession, govt. rules, industry downturn, competitive pressures are Ulhas D Wadivkar 230 temporary and will turn favourable after some time,

then firm opts for maintain profit policy by artificial measures like cut costs, hold investments / replacements, raise prices, increase productivity and some such measures to tide over the difficult days. However, if the problems are not temporary, the company position deteriorates.
Pause / Proceed with caution Strategy is a temporary strategy like profit strategy and is used for consolidation. It is used to test the ground before going ahead with fullfledged Grand Strategy. Sometimes after a major expansion firms need to stabilise, allow strategic change to percolate through organisation structure and allowing existing systems to adopt the strategy and the move for further expansions. It is also used to bide the time for more opportune time and move on with rapid strides again.
Ulhas D Wadivkar 231

2. Expansion Strategies
1. If organisation is not moving ahead, it is actually going backwards. Companies aim for substantial growth to take advantage of Growing economy, liberalisation, burgeoning markets, globalisation, Emerging technologies etc.

2.

Expansion Strategies are of 5 types. 2.a) Expansion through Concentration: 2.b) Expansion through Integration: 2.c) Expansion through Diversification: 2.d) Expansion through Co-operation: 2.e) Expansion through Internationalisation:
232

Ulhas D Wadivkar

2.a) Expansion through Concentration: Firms tend to rely on doing what they know they are best at doing. Concentration Strategy involves investment of resources in a product line for an identified market. The firm has proven technology, market has high potential for growth and industry is sufficiently attractive for concentration to take place. The firm should also have financial strength to sustain expansion. This is a first preference strategy of firm doing what they are doing already and would like to invest more in known business. (Bajaj, Maruti)

Concentration strategy involves minimal organisation changes, improves competitive advantage due to in depth knowledge & expertise.
Ulhas D Wadivkar 233

The limitations of Concentration Strategies are putting all resources at one project, it is industry dependent and adverse condition in industry can affect. In the Recession time, it is too difficult for concentrated firms to withdraw. Product obsolescence is another threat for the heavy investment. 2.b) Expansion through Integration: When firms use their existing base to expand in the direction of their raw material or the ultimate consumer or acquire adjacent businesses; expansion through Integration takes place. This is exploring Vertical and Horizontal dimensions of Business. Expansions are pivoted around present base of customers. Scope of business definition is widened. Alternative technologies are used for backward or forward integration. The firm moves up or down the value chain. The firm aims at cost economics. It is also one type of Make or Buy decision. All integration strategies require Trade-offs. There are two types of Integrations.
Ulhas D Wadivkar 234

Vertical Integration: When an organisation start making new products that serve its own need or is for self consumption. Backward Integration means retreating to source of raw materials while Forward integration moves the organisation to its ultimate customers. Horizontal Integration: When an organisation takes up the same type of products at the same level for production or for marketing. Many a times Horizontal Integration is a merger of like industries. Integration strategy gives more control on Value chain but carry a risk as industry is set to serve same customer group and in case product fails or becomes obsolete. 2.c) Expansion through Diversification: Several firms diversify to reduce the risk of dependence on product and same set of customers. Diversification involves all dimensions of Strategic Alternatives. It could be internal or external, related or unrelated, horizontal or vertical, Ulhas D Wadivkar 235 technological etc. It changes business definition.

Concentric Diversification: The activity is related to existing business definition either in businesses, customer groups & functions and /or alternative technology. It could be market

related concentric diversification as different products for


same set of customers or Technology related Diversification as related technology to the present business or combination

of Market & Technology related diversification.


Conglomerate diversification: Diversification in activities which are totally unrelated to existing business definition of

one or more of its businesses. (ITC Tobacco & Hotel,


Essar Shipping & Steel, Shriram Nylon Fibre & Ball bearings, etc.)
Ulhas D Wadivkar 236

2.d) Expansion through Co-operation:


1. Mergers Strategy 2. Takeovers or Acquisitions Strategy. 3. Joint Ventures Strategy. 4. Strategic Alliances Strategy 2.e) Expansion through Internationalisation: 1. International Strategy. 2. Multi-domestic Strategy. 3. Global Strategy. 4. Trans-national Strategy.

Ulhas D Wadivkar

237

3. Retrenchment Strategies.
Retrenchment Strategy is followed when an organisation substantially reduces scope of its activities. The organisation need to find out problem areas and diagnose the causes of the Problems, accordingly, various types of Retrenchment Strategies are adopted. External Developments, Government Policies, Substitute Products, Changing Customer needs, Wrong Strategies, Obsolete Products, could be reasons for decline. Symptoms are noticed in poor performance, declining profits, dwindling Cash flow, falling sales, Shrinking markets, Shrinking market share, increasing debt. The organisation with proper monitoring controls can sense impending danger and position itself to find alternatives.
Ulhas D Wadivkar 238

Retrenchment Strategy Situations for Recovery


Slatter has described four types of Retrenchment Strategy situations for recovery Realistically non recoverable situation with little chance of Survival : Not competitive company, Low potential for Improvement, Company with cost dis-advantage, Products or Services are in terminal decline.. Temporary recovery situation but no sustained turn-around: Possible product re-positioning, new forms of Competitive advantage, cost reduction, revenue generation is possible. Sustained survival situation but no potential for future growth: Turnaround is possible but Industry is in slow decline, which cannot be revived. Therefore, a very little potential for growth is possible. Divestment is possible or Turn-around is possible by finding niche market, where organisation can be a leader. Sustained recovery situation with genuine possibility of Turnaround: A possible new developed product, Possible market development or a possible market re-positioning. Industry has attractiveness is still available and decline was caused more by internal factors.239 Ulhas D Wadivkar

3.a) Retrenchment Strategies: Turnaround Strategies: 3.a.1.: If CEO has credibility with Banks and Financial Institutions and if a qualified Consultant is available, then management team handles the entire turn-around strategy with support of advisory specialist external consultant. 3.a.2: In another situation, Turnaround specialist is employed to do the job and existing team is temporarily withdrawn. The person could be deputed by banks. 3.a.3: Replacement of existing team, especially CEO and / or merging sick unit with a healthy one. Possible actions could be: Analysis of Product, market, production processes, competition, market segment positioning, production logic, Target setting, feedback, remedial actions.
Ulhas D Wadivkar 240

3.b) Retrenchment Strategies : Divestment Strategies: 3.b.1: Divestment is done due to negative cash flows, mismatch of business with the company, project feared to be non-viable in long range, severe competition, Technological up-gradation asking for funds which are not available, Selling a part of company for survival of organisation, a better alternative is available for investment, Divestment as a part of merger plan of mutual exchange, Divestment is done in two ways : A part of company is divested or firm may sell a unit outright to a buyer, who finds the purchase as a strategic fit.
Ulhas D Wadivkar 241

3.c) Retrenchment Strategies : Liquidation Strategies: This is most un-attractive strategy, where company shuts down and tries to sell its assets. It is a last resort. Liquidation is difficult due to various legal constraints and protection given to employees in labour law.

Liquidation may be inevitable in spite of best efforts of the entrepreneur. In case of Textile Mills of Mumbai, writing was on wall as Mills did not invest in to new technology for more than 50 years. Secondly, it could be a planned liquidation, in view of prices of real estate in Mumbai. The neglect may have been deliberate. Some times liquidation can happen through court order for compulsory winding up and sometimes winding up can be voluntary. Ulhas D Wadivkar 242

Combination Strategies
Combination Strategies are mixture of Stability, Expansion and Retrenchment strategies. They are either followed simultaneously or in a sequential way. It is very difficult in the business environment to follow a single pure Strategy. Situation is Complex and business demands different strategies to suit the situational demands made upon the organisation.

As an example, we observe Asian Paints Ltd company following three strategies together. Addition of new variety of Decorative paint for widening customer base, (Stability), and Adding an entirely new product like Automotive Paint with new set of customers & functions (Expansion), while eliminating or closing the contract division, which used to take Painting Contracts (Retrenchment).
Ulhas D Wadivkar 243

Complimentary Strategic options:


1. Strategic Alliances & Collaborative Partnerships? 2. Merge with or acquire other companies? 3. Integrate backward or Foreword? 4. Outsourcing? 5. Initiate offensive Strategies? 6. Defensive Strategic moves? 7. Using Internet as Distribution Channel, if so, to what extent?

Timing Tactics the Companys Strategic move in marketplace: a) First Mover, b) Fast Mover? And/or c) Late Mover.
Ulhas D Wadivkar 244

Timing Tactics the Companys Strategic move in marketplace:


A Tactic is a sub Strategy. A specific operating plan how & when a Strategy to be implemented. When is often as important as what. 1st mover has advantage of taking inroads and establishing in market as leader being remembered (Bisleri), creating image as pioneer. Can capture raw material suppliers, distribution channels. First time consumers are likely to remain loyal. Disadvantage: could be costlier to be first. Apart from cost of technique, creating awareness in consumers is also costly. Late mover can come up with superior product by imitating & has fewer risks as market is already developed. They can be successful if they have staying power. First mover risks obsolescence due to technological advancements, smart late mover can turn apple cart & beat first mover. Sometime fence Wadivkarmoves in by fine tuning on mistakes of first mover. 245 sitter Ulhas D

1. Strategic Alliances & Collaborative Partnerships? In the present era of Privatisation & Globalisation, Industries have to face altogether different challenges not faced hitherto. Rapid advances in technology, free economy, new markets in developed & under developed countries, and invasion of foreign companies are forcing Industries to enter into race of building Global presence and into race of adopting new technologies. Industries also find that they do not have expertise for running the race of Global leadership. The global environment requires diverse & expensive skills, resources, technological skills. The fastest & surest way to fill up the gap is Alliances with enterprises having desired strengths. Strategic Alliances are collaborative partnerships where two or more companies join forces to achieve mutually beneficial strategic outcomes. These alliances are more than company to company give & take dealings but fall short of Merger or JV. These alliances are mainly for bridging gap of resources and technology. Ulhas D Wadivkar 246

Advantages of Alliance: Alliance is basically between equals, but alliances are also done with suppliers, distributors as partners by many big business houses. These alliances are mostly done with Value chain contributors. It is now common for companies to pursue their strategies in collaboration with suppliers, distributors, makers of complimentary product and some select companies. e.g. IBM & DELL. Advantages of Alliance: Get into critical country markets quickly. Gain, in-side information & knowledge about unknown / unfamiliar markets & cultures. Access valuable skills & competencies. Get a handle to participate in target technology or industry. Master new technology; build new expertise & competencies faster. Ulhas D Wadivkar broader opportunities. 247 Open up

Stability of Alliances:
Alliances have a very high rate of divorce. In US only about 39% of Alliances are found to be stable. Others are either outright failures or are limping along. Alliances to be successful should have partners working together. Stability of alliances depend upon their success in adopting to changing internal & external conditions, willingness to bargain on issues, real collaboration and not merely arm length exchange of ideas. Each partner must bring in high value allied skills, resources and contributions and respect each other. They should have co-operative arrangements working for win-win solutions. Causes for failures of alliances could be, diverging objectives and priorities, inability to work together, changing conditions which make initial reason for alliance as obsolete, more attractive technologies and / or rivalry at marketplace. Alliance partners should guard themselves from undue dependence. Over a period the partners must learn skills and technology. To be a market leader companies must develop their own capabilities or alliance will ultimately lead to Merger or Acquisition.
Ulhas D Wadivkar 248

Merger & Acquisition Strategies:


The phrase Mergers and Acquisitions (abbreviated M&A) refers to the aspect of corporate strategy, corporate finance and Management dealing with the buying, selling and combining of different Companies that can aid, finance, or help a growing company in a given industry to grow rapidly without having to create another business entity. In the pure sense of the term, a Merger happens when two firms, often of about the same size, agree to go forward as a single new company rather than remain separately owned and operated. This kind of action is more precisely referred to as a Merger of equals." Both companies' stocks are surrendered and new company stock is issued in its place. For example, both Daimler-Benz and Chrysler ceased to exist when the two firms merged, and a new company, DaimlerChrysler, was created.
Ulhas D Wadivkar 249

Merger & Acquisition Strategies-2:


When one company takes over another and clearly established itself as the new owner, the purchase is called an Acquisition. From a legal point of view, the Target Company ceases to exist, the buyer "swallows" the business and the buyer's stock continues to be traded. Whether a purchase is considered a Merger or an Acquisition really depends on whether the purchase is friendly or hostile and how it is announced. In other words, the real difference lies in how the purchase is communicated to and received by the target company's Board of Directors, employees and Shareholders. Hostile Takeovers are takeovers, where existing Management resists and opposition is expected. The bidder picks up shares from Market and obtains controlling interests. Bidder sometimes takes help of FI or majority share holder to enter Companys board and gain control. Examples are NEPC bidding for Modiluft or Starlite Industries bid for Indian Aluminium.
Ulhas D Wadivkar

250

M & A have not produced hoped-for results on many instances. Resistance of rank and file employees of two large companies is some times too formidable to resolve. Conflicts of management styles and difference in Corporate Cultures create problems in integration. Cost savings, expertise sharing, and enhanced competitive capabilities take substantially long time to materialise in view of above problems. Pros & Cons of M & A: 1) M&A ensures management accountability, 2) offer easy growth, 3) create mobility of resources, 4) avoid gestation period & hurdles involved in new projects, 5) offers a chance to sick units to revive, have possible selective divestment, 6) venture into new business & markets, 7) increase market share & 8) decrease competition. As against; in takeovers, 1) money power takes over professionalism. 2) Takeovers do not create any real assets for Society, 3) are detrimental to national economy, 4) reduces competition, 5) facilitate monopolistic, oligopolistic tendencies, 6) reduces employments, 7) affects cultural integration.
Ulhas D Wadivkar 251

Strategic objectives of Mergers & Acquisitions:


1. To pave the way for the acquiring company to gain more market share and, further, create a more efficient operation out of combined companies by closing high cost plants and eliminating surplus capacity industrywise. To expand companies geographic coverage. To extend companys business into new product categories or international markets. To gain quick access to new technologies and avoid the need for a time consuming R & D effort. To try to invent new industry and lead the convergence of industries whose boundaries are being blurred by changing technologies and new market opportunities To fill resource gaps
252

2. 3. 4. 5.

6.

Ulhas D Wadivkar

Outsourcing Strategies:
Unlike Integration; outsourcing is narrowing boundaries of the business. Integration has problems of mismatch of capacities, as economic size for individual items in value chain could be different and hence such specialised skilled processes or items in value chain could be outsourced to specialists.

A company should generally not perform any value chain


activity internally that can be performed more efficiently or effectively by its outside business partners the exception is when an activity is strategically crucial and internal control over the activity is deemed essential.
Ulhas D Wadivkar 253

Advantages of Outsourcing:
1. Cost reduction An activity can be performed more cheaply by outside specialists. 2. A particular skilled activity can be performed better by outside specialist. 3. The activity not connected with core competence and not crucial to firms ability to achieve sustainable competitive advantage and will not affect the technical Know-how can be outsourced to advantage. 4. Outsourcing reduces companys risk due to changes in technology and/ or change in buyer preferences. 5. Outsourcing streamlines the Company operations in ways that cut time it takes to get the newly developed product in to the market. 6. Outsourcing allows the company to concentrate on strengthening and leveraging its core competencies.
Ulhas D Wadivkar 254

Offensive Strategy
Offensive Strategic moves include yielding a cost advantage, a differentiation advantage, a resource advantage. These advantages, when used with initiative are termed as Offensive Strategy giving Competitive advantage to the initiator. However, competent, resourceful rivals wont take lightly and exert pressure to overcome the disadvantage they are facing because of initiative taken by one of their associates. The initiator of the Offensive Strategy has to come up follow-up offensive & defensive moves to sustain the initially won competitive advantage.
Ulhas D Wadivkar 255

Types of Offensive Strategies-1


1. Initiatives to match or exceed the competitor strengths: When rivals have strong competitive advantage, then firms are forced to take an initiative and take an offensive stand to whittle away from pressure. In second instance, when competitor is very strong and established, an offensive strategy to offer alternate products at faster pace and at cheaper price sometimes works and afterwards people get used to alternate product. e.g. AMD & Intel. One of the options is to offer equally good product at lower price. Other option could be to outsmart competitor by bringing in latest version of product in market before him and making his product obsolete. Adding new features, running Comparison ads, having plant in backyard of rival, superior customer service capability are some other options.
256

Ulhas D Wadivkar

Types of Offensive Strategies-2


2. Initiatives to capitalise on weaknesses of the competitor: This option has better chance than challenging strengths of competitor.

Options could be going after rival whose product lag in quality & features, or making special sales campaign, Service camps where rival lacks in service department,
or Win away customers with your strong brand appeal over his weak brand, or take advantage of geographic reasons, where rival has weak presence in market, or paying special attention to market segment which your rival is neglecting.
Ulhas D Wadivkar 257

Types of Offensive Strategies-3

3. Simultaneous initiatives on many fronts: Company


may launch a Grand Offensive on many fronts simultaneously and compel rivals to take defensive

actions,
Such offensive may include, price cuts, increased advertising, additional performance features, new models

& styles, customer service thrust & improvements, free


samples, coupons, rebates, in store displays, etc. When a product has sufficient Brand image & when a new specifically attractive product or service is being launched, such an offensive measure has more chances of success
Ulhas D Wadivkar 258

Types of Offensive Strategies- 4

4.

Ulhas D Wadivkar

End-run offensives: involves going around competitors instead of taking them head on and change rules of game & competition. This may include, introducing new products that redefine the market & terms of competition, e.g. digital camera, wireless communication. It could also include launching initiative in geographic area where competitors have not yet reached or introduce products in new market segments for selected buyers with different attributes & performance features, e.g. sport-utility-vehicles of Honda Accura or ford Lexus. Taking a jump ahead- leapfrogging by using next generation technology, which support existing business & technology such as 3 G hand sets, blackberries, i-phone, LCD screens
259

Types of Offensive Strategies- 5


5. Guerrilla offensives: This is adopted by small challenger companies, who do not have resources or market visibility to challenge the leaders. This is hit & run technique. Challenger Companies attack in areas neglected by biggies or where they have become vulnerable. Offering quality, when leaders have some quality problems or having a big discount sale week, or offering products at shortest & confirmed deliveries when leaders are facing delivery problems, a short offensive and win away selected client account, prompt technical support when clients are frustrated with leaders. etc.
260

Ulhas D Wadivkar

6.

a) b) c)
d) e) f) g)

Types of Offensive Strategies - 6 Pre-emptive strikes: This is one of a kind offensive move. Whosoever is first gains maximum competitive advantage! Pre-emptive strategies involve being first to secure an advantageous position, where rivals are kept away and cannot duplicate and then strike competitors by May be securing a big renowned distributor, New geographic area, new shopping mall, Good location for to cheap transportation & raw materials, etc, Choose which rivals to attack. It could be leaders, who are always vulnerable or Second run firm with weaknesses, here the challenger must be strong to strike weak company, Struggling enterprises who are on the verge of going under, Small local & regional firms with limited capabilities. The pre-emptive strikes are done on the basis of core competency of challenger, where they are best in areas like Resource strengths and competitive capabilities, otherwise chance of success are dim.
Ulhas D Wadivkar 261

Defensive Strategies:
In competitive environment every successful company has to face the threat of challenges from rivals and new entrants. The defensive strategies are used to lower the risk of being attacked and weakening the impact of attack. The defensive strategies do not improve competitive edge but they help to fortify companys competitive position, protect valuable resources and prevent possibilities of imitation. Two forms of Defensive Strategies are: 1. Blocking the avenues open to Challengers: Defender can participate in alternative Technology to reduce attack of better Technology which may be offered by rivals. New Products, new features, broaden the product range, close vacant niches,
Ulhas D Wadivkar 262

2.

Have economy priced product range to ward off price wars. Lengthening warranty periods, free service training or camps. Developing capability to provide spare parts. Providing free coupons, give away samples, sponsoring gift hampers, Search & appoint creditable distributors & book them with volume discounts & other finance terms so as to discourage them from trying other suppliers. Signalling Challengers that retaliation is likely & let challengers know that the battle will cost more than its worth. Publicly announcing managements commitment to maintain the firms present share. Publicly committing the company to match competitors terms & prices. Maintaining a war chest & marketable securities. Making an occasional strong reaction on moves of weak competitor to enhance the companys image of tough defender.
Ulhas D Wadivkar 263

Strategies for Using Internet as distribution channel The internet era has brought second wave of Internet entrepreneurship. Companies need to address how best to make internet as part of the business to use as distribution channel. How much emphasis to be placed for use of internet? Managers must decide how to use the Internet in positioning the company in marketplace? Using Internet Just to Disseminate Product Information: and use internet to direct customers to distribution channel partners for sales transaction or indicate locations retail stores. This is to avoid conflict with already existing distribution channel partners. Direct sale on net will indicate weakening commitment to distributors. Dealers are considered better positioned to deal with brick & click Strategy for Company products / services. Company considers that strong support and goodwill of dealer network is essential. Web is considered in partnership with dealers and not in competition. Ulhas D Wadivkar 264

Using Internet as Minor Distribution Channel: Here, the strategy is to use Internet to gain online sale experience, doing market research, testing product, getting feed back from web surfers and create sufficient interest about Companys Product and Services in web community. e.g. Nike selling some footwear on line, giving buyers option for colour & features so as to gain more & first hand knowledge about customers choices.

This path will be beneficial to dealers & will not create


resistance.
Ulhas D Wadivkar 265

Using Brick and Click Strategy:


Sell directly to customers on line and at the same time use traditional whole sale & retail channels. This policy is beneficial in certain circumstances. e.g. Software Programmes, where direct downloading is more comfortable than going to shop and getting a CD. Internet has more reach and geographic constraints are taken care of with help of dealers in that area, though Distribution channels are necessary and customer need to have a physical contact with Product / Services, On-line sell improves profitability as dealer commission could be up to 35 40% of retail price. Customers visiting web site are automatic prospective buyers. Also where the technology is more suitable for build to order strategy.
Ulhas D Wadivkar 266

First / Fast / Late Mover Strategy


When to make a Strategic move is equally important as what move to make. It will depend upon the product life cycle, technology requirement. First mover has many advantages, but fast & late mover can also be a profitable move. First mover builds up reputation & image. (Bisleri) First movers early commitment to new technology, new features, new distribution channels can give a cost advantage over rivals. Being first mover is an offensive move of pre-emptive strike. Rivals are not ready & this makes imitation difficult. Bigger the first mover advantage, more attractive the move is.
Ulhas D Wadivkar 267

First movers customers are likely to retain brand loyalty giving him firm footage in market. However, first mover has to have good financial resources, important competencies, competitive capabilities and high quality management.

The first move cannot be for name sake. First mover must time his product entry with precise combination of features, customer value & sound revenue cost profit economics to sustain the edge over rivals and maintain market leadership.
Being the first mover need competency and cost. It may be cheaper to copy. If the product life cycle is long, the initial advantages of first mover can be nullified over a time and with safety. A follower and late mover assume that first mover to be slow in learning and updating his products.
Ulhas D Wadivkar 268

First mover risks obsolescence due to technological advancements, smart late mover can turn apple cart & beat first mover. Sometime fence sitter moves in by fine tuning on mistakes of first mover Being a Fast follower and late starter can also be an advantageous move with wait and see policy. It may be

easier to copy first mover and improve upon by learning from


errors on part of first mover and de-bug the problems. Late mover can come up with superior product by imitating &

has fewer risks as market is already developed. They can be


successful if they have staying power.
Ulhas D Wadivkar 269

Syllabus
=============================== 8. Tailoring strategy to fit specific industry: Life Cycle Analysis Emerging, Growing, Mature & Declining Industries. (4) ===============================
Ulhas D Wadivkar 270

Tailoring strategy to fit specific industry


Strategies for: Competing in Emerging Industries.

Competing in turbulent, high-Velocity Markets.


Competing in Mature Industries. Firms in Stagnant or Declining Industries.

Competing in Fragmented Industries.


Sustaining Rapid Company Growth. Industry Leaders. Runner-Up Firms. Weak and Crisis-Ridden Businesses.
Ulhas D Wadivkar 271

Strategies for : Competing in Emerging Industries: 1. Strategy deals with risks & opportunities. 2. Try for winning early race to Industry leadership, Risk taking entrepreneurship. 3. Broad or focussed differentiation Strategy with technological superiority. 4. Strategy to go all out for perfecting the Technology, improved product quality with additional performance features. 5. Form strategic alliance with key suppliers for gaining technological expertise, specialised skills, and critical material component. 6. Pursue new customer groups, new user applications, new geographical areas. 7. Acquire, merge, form JVs with companies having complementary technology. 8. Make it easy & cheap for first time buyers for them to experience industrys first generation product.
Ulhas D Wadivkar 272

Strategies for: Competing in Turbulent, High-

Velocity Markets
The Strategy could be offensive or defensive, depending upon where you react to change or you lead the change. A middle path is anticipating change. Strategies to invest aggressively in R & D for leading edge of technical know how. Develop quick response capability. Have strategic partnerships with suppliers making tie in products. Initiate fresh actions regularly in every few moths without waiting for situations compelling change, thereby keep companys product & services fresh & exciting to withstand changing environment.
Ulhas D Wadivkar 273

Strategies for : Competing in Mature Industries: At matured stage, check your portfolio and prune added products & models being in list for name sake. Concentrate on Value Chain, trim costs, & do not allow Fat additions. Concentrate on increased sales to present customers.. Acquire rival firms. Expand Internationally. Build new or more flexible capabilities. Strategies for : Firms in Stagnant or Declining Industries: Concentrate on Value chain, drive down your costs and strategise to become industry leader as low cost provider. Even in declining industry, some segments are growing. Know the needs of buyers in that segment & fulfil them. Concentrate on product differentiation with quality Ulhas Dimprovement & innovation. Wadivkar 274

Strategies for: Competing in Fragmented Industries:


There are hundreds of industries co-existing in a very big market without differentiation and there is an absence of clear market leader. Entry barriers are low, initial investment can be low to start business, product is global, young product crowded with many aspirants.

Become a low cost operator.


Add differentiators. Have good distributor chain, specialised and mange low cost with differentiation, in view of volume. Focus on limited geographic area.
Ulhas D Wadivkar 275

Strategies for : Sustaining Rapid Company Growth:


Short span strategy could be to expand in present business

and obtain increased revenue. Time span 1 to 3 years.


Medium span Strategy: use existing resources and capabilities and enter into new business having a growth potential. Time span 3 to 5 years Long Span Strategy: Look at businesses that do not exist

today. Use present resources for venture investment.


Present cash flow reduces, some loss expected on new business but strategy is longevity & significant future gains
Ulhas D Wadivkar 276

Strategies for : Industry Leaders:


Stay on Offensive Strategy : Strategy is to be first mover and a proactive market leader. Keep rivals in reactive mode or scrambling to keep up your pace. Grow faster than the Industry as whole and wrestle marker share from rivals. Fortify and defend Strategy: Increased spending on advertisement, bigger R & D outlay. Add personalised services. Keep prices reasonable. Patenting feasible alternative technologies. Muscle flexing strategy : Overkill : Quickly matching and exceeding challenges from rivals. Use Promotional campaigns to keep rivals away from gaining. Use arm twisting tactics. Display displeasure on customer for trying others and offer some specific benefits for Brand Loyalty.
Ulhas D Wadivkar 277

Strategies for: Runner-Up Firms: These are second tier companies with lesser market share than the leader. These are also up-coming market challengers. Offensive Strategy to build market share. Strategy to grow through acquisition. Strategy to fill up vacant niche. Strategy to be a specialist, or to have superior product or to have a distinct image (Differentiation) Strategy to be a content follower no trendsetting moves but steal customers aggressively by copying and with special privileges. Strategies for: Weak and Crisis-Ridden Businesses. These are Retrenchment & Turn around strategies. Selling off Assets. Revising the existing Strategy. Launching efforts to boost revenues. Pursuing cost reduction. Ulhas D Wadivkar Using a combination of these efforts. 278

Crafting a successful Business Strategy: 1 :

Ulhas D Wadivkar

Take a long term view for Companys Competitive position and take those Strategic moves on top priority. Be alert about unmet customer needs, buyers wishes for something better, emerging technological alternatives and be prompt in adapting to changing market conditions. Be alert needs of non consumers, which is a very large share of the Market.( e.g.- Wall Mart at 14%) Invest in creating sustainable competitive advantage. Do not assume most optimistic circumstances while forming Strategies. Avoid Strategies which can be successful only in optimistic circumstances. (if not, then what?) Do not under-estimate rivals in their reactions or commitment to do better. Attacking competitive weakness is always safer and profitable than attacking competitive strength.
279

Crafting a successful Business Strategy: 2 :


Check possible cost advantages before cutting prices. You need to cut costs before cutting prices. You need to be Low cost provider for winning Price cutting war. If you have a differentiation Strategy as a base, then we should really strive meaningful jump in quality / services / performance. Any minor variation in rivals product will not be noticed by buyer and will not be important to them. It should be noted that a middle path strategy and compromise strategy are two different matters. Compromise Strategies are not sustainable. Best cost provider Strategy is not a compromise, it must be a well thought & well executed. Be aware that offensive Strategies will always invite retaliation. Aggressive moves to capture market share from rivals will invite a price war which will be detrimental to every body. Prepare your defences before being aggressive.

Ulhas D Wadivkar

280

Syllabus
9. New Business Models and strategies for Internet Economy: Shaping characteristics of E-Commerce environment E-Commerce Business Model and Strategies Internet Strategies for Traditional Business Key success factors in E-Commerce Virtual Value Chain. (6)
Ulhas D Wadivkar 281

What is E-commerce?
E-Commerce from Communication point of view: It is the ability to deliver products, services, information, payments via network like internet. E-commerce from Interface point of view means information and transaction exchange: Business to Business (B2B), Business-to-Consumer (B2C), Consumer to Consumer (C2C) and Business to Government (B2G). E- Commerce as Business Process means activities that support commerce electronically by networked connections, for example, business process like manufacturing and inventory and business to business process like supply chain management are managed by the same networks as business to consumer processes. E-Commerce as Online process: E-commerce is an electronic environment that allows sellers to buy and sell products / services and information on the internet. The products may be physical, like cars or services like news or consulting.
Ulhas D Wadivkar

282

What is E-commerce? E-Commerce-Structure: E-commerce deals various media: data, text, web pages, internet telephony, and internet desktop video. E-Commerce Market: E-commerce is a worldwide network. A local store can open a web storefront and find that the world is at its door step customers, suppliers, competitors, and payment services along with advertisement presence. E-commerce is selling goods and services on the retail level with anyone, anywhere, via internet. It includes new business opportunities that result in greater efficiency and more effective exchange of good and services. Every transaction is blocks of information exchanged between E-merchant and a customer via the corporate Web site. Examples : www.amazon.com, www.ebay.com, www.crutchfield.com,
Ulhas D Wadivkar

283

What is E-business?
E-business is conducting critical business systems and constituencies directly via internet, extranets and intranets. E-business is the conduct of business on the internet, in supply-chain planning, tracking, fulfilment, invoicing and payment. It includes buying, selling as well as servicing customers and collaborating with business partners. E-business has various Goals: Reach new markets. Create new products or services. Build customer loyalty. Enrich human capital. Make the best use of existing and emerging technologies. Achieve market leadership and competitive advantage. Example: SAP: Provider of Business Software used for ERP. Online banking services is one more example.
Ulhas D Wadivkar

284

E-commerce Business Models:1:


The important generic models are B2B, B2C and C2B, C2C B2B is Business to Business E-commerce is an automated exchange of information between different organisations. B2B involves only the firms business / trading partners, like Suppliers, Distributors, Dealers, Vendors and so on. This is used for awareness, product research, supplier sourcing, transactions, post-support sales. B2B transactions can be EDI, mails for purchasing goods and services, buying information, consulting services, requesting proposals, receiving proposals. B2B are alternative ways of executing transactions between buyers and sellers that are business organisations; a network of independent organisations and long term trading partners. B2C : Business to Consumers Commerce is retailing on World Wide Web.
Ulhas D Wadivkar 285

E-commerce Business Models:2:


Storefront Model: It is an E-commerce site which offers products or goods for a price. Website displays products with product information, cost with a shopping cart and ordering mechanism. The web business merchant makes money the same way as traditional shop merchant. Typically, books, computers, electronic goods, pizza delivery are sold through Storefront Model Click and Mortar Model is a shop that combines both Website and a physical store. Goods can be physically examined and returned to store directly. Built to Order Merchant Model is website which offers goods or services with an ability to order customised versions. Generally Computer vendor adapts this model. Service Provider Model: for ex. Pizza delivery Service, Movie Ticket delivery service, Flower delivery service. Some service providers provide advertising based access to their service. One of the successful ad-driven sites is www.yahoo.com
Ulhas D Wadivkar 286

E-commerce Business Models:3:


Subscription based Access model: Visitor registers himself, pays monthly or annually and access unlimited service. Typical for accessing database, news, articles, online games. Movie shows etc. One of the Indian example is www.bharatmatrimony.com Prepaid Access Model: Some services like telephony, movies are accessible by offering payment by minute and handled via a subscription. Broker Model: Brokers are intermediaries; they bring buyers and sellers together and facilitate transaction between them by charging fee for every facilitated transaction. These transactions can be B2B, B2C, C2C etc. www.ebay.com is an example. Advertiser Model: These are free sites which offer free access for something and display advertisements as banners. Visitor can click the advertisement and visit the webpage of the advertiser and can order his requirements.
Ulhas D Wadivkar 287

E-commerce Business Models:4:


Portal Site Model: For news, Stock information, Weather, message boards, chats etc. These sites allow the visitors to personalise the interface and content. For example www.my.yahoo.com or www.my.cnn.com Free access Model: Provides free web space. www.blogspot.com Virtual Mall Model: A site that hosts many merchants, service providers, brokers and other businesses. Virtual Community Model is a website that attracts a group of users with a common interest who work together on the site. Few social networks are www.orkut.com, www.facebook.com. Infomediary Model: An Infomediary collects, evaluates and sells information on consumers and their buying behaviour to other parties. Infomediary offers something free to visitor that requires free registration by visitor, which allows Infomediary to monitor the visitors online activities. Trust Intermediary Model is an entity that creates trust between buyer and the seller, which provides a secure environment for buyer and seller. They offer branded goods and provide escrow services and maintain privacy. Examples are verisign, cybercash, https//:
Ulhas D Wadivkar 288

Strategies for Internet Economy.


Many companies doing e-business are still in the investment and brand-building phase and have yet to show a profit. However, as e-businesses shift their focus from building a customer base to increasing revenue growth and profitability, it is required for the e-business to re-evaluate their current business strategies. E-commerce is fundamentally changing the economy and the way business is conducted. E-commerce forces companies to find new ways to expand the markets in which they compete, to attract and retain customers by tailoring products and services to their needs, and to restructure their business processes to deliver products and services more efficiently and effectively. McCarthys four marketing mix model and Porters five competitive forces model are used to identify strategies for Internet and achieve a competitive advantage. The development and implementation of e-business strategies will contribute to increased profit.
Ulhas D Wadivkar 289

McCarthy's Four Marketing Mix Model:1:


Internet Economy has impact on McCarthys four marketing mix (product, price, promotion, and place) and also on Porters 5 competitive forces (the threat of new entrants, rivalry among existing firms, the threat of substitutes, the bargaining power of suppliers, and the bargaining power of buyers) According to McCarthy (1960) and again McCarthy (1999), a firm develops its marketing strategies by first identifying the target market for its products or services. It then develops a marketing mix. A particular combination of product, price, promotion, and place (i.e., distribution and delivery functions in the supply chain) designed to enhance sales to the target market. A unique mix of these elements in a given industry allows firms to compete more effectively, thus ensuring profitability and sustainability. Since the Internet has a significant impact on the makeup of this marketing mix, Internet companies should develop strategies that take the unique nature of online marketing into account. Ulhas D Wadivkar 290

McCarthys Product Strategies


On the Internet, consumers can easily collect information about products or services without travelling to stores to inspect products and compare prices. Strategy shall be to differentiate the product by adding extra features. This is known as Product Bundling which counteracts the threat of product Substitutes and rivalry. Introduce niche product by understanding need of small segment of customers. Use customer centric strategy rather than product centric strategy. Pull information from customers and improve and customize the products. Internet companies can also expand their product line into areas related to their existing product lines. For example, www.amazon.com recently started selling personal computers in addition to its existing line of electronic products such as disk drives and memory.
Ulhas D Wadivkar 291

McCarthys Price Strategies


Employ appropriate pricing strategies for selling products over the Internet. Sellers can employ a price discrimination strategy that makes it difficult for buyers to compare the prices of alternative product offerings. For instance, www.staples.com charges different prices for different markets by asking customers to enter their zip codes before they can obtain prices. Protect profits by achieving cost leadership in a particular market or industry
Ulhas D Wadivkar 292

McCarthys Promotion Strategies


Mass marketing and sales promotions result in expensive, inefficient brand management. To manage ebrands effectively and efficiently, companies have to employ promotion strategies different from those used by traditional marketing To manage e-brands effectively and efficiently, companies have to employ promotion strategies like building a direct link with consumers and enter into a dialogue with them about products (dialogue-based marketing or one-to-one marketing). Build a base of loyal and profitable customers by formulating customer-centric promotion strategies and respond to this new customer power. A revenue-sharing marketing strategy is an affiliated marketing program with partners based on commissions. For example, www.amazon.com launched its affiliate program and now has some 400,000 affiliates
Ulhas D Wadivkar 293

McCarthys Place Strategies


For most companies, place refers to the supply chain (or value chain). The place aspects of the marketing mix are closely related to the distribution and delivery of products or services. The Internet and its associated application software have significantly changed the way companies products or services are delivered by reducing transaction and distribution costs. One way for companies to differentiate their products from rival companies is faster and more efficient delivery of products to their customers Integrate online (Click) and bricks-and-mortar businesses (clicks-and-mortar strategy). E-businesses (particularly eretailers) need fully automated distribution warehouses to meet demand from shoppers on the Internet. For example, Amazon.com leased a new 322,560 sq. ft. distribution centre in Fernley, Nevada. By Investing in physical assets such as a warehouse, Amazon.com can compete more effectively with Barnes & Noble.
Ulhas D Wadivkar 294

Porter's Five Competitive Forces Model


According to Porter, a firm develops its business strategies in order to obtain competitive advantage (i.e., increase profits) over its competitors. It does this by responding to five primary forces: (1) the threat of new entrants, (2) rivalry among existing firms within an industry, (3) the threat of substitute products/services, (4) the bargaining power of suppliers, and (5) the bargaining power of buyers. The company positions itself so as to be least vulnerable to competitive forces while exploiting its unique advantage (cost leadership). A company can also achieve competitive advantage by altering the competitive forces. The five competitive forces model provides a solid base for developing business strategies that generate strategic opportunities. The Internet dramatically affects these competitive forces. Companies should take effect of internet on these forces into account while formulating their strategies. Analyzing the forces illuminates an industrys fundamental attractiveness, exposes the underlying drivers of average industry profitability, and provides insight into how profitability will evolve in the future.
Ulhas D Wadivkar 295

Impact of the Internet on Marketing Mix and Competitive Forces


The Internet can dramatically lower entry barriers for new competitors. Entering into e-commerce has become very easy for new entrants. The number of people with Internet access has reached an estimated 304 million worldwide, an increase of almost 78 percent. The Internet also brings many more companies into competition by expanding geographic markets. The Internet also changes the balance of power in relationships with buyers and suppliers by increasing or decreasing the switching costs of these buyers and suppliers.
Ulhas D Wadivkar 296

By reducing customers' search costs, the Internet makes price comparison easy for customers, and thus increases price competition and shifts bargaining power of customers new promotion venues. The Internet creates new substitution threats by enabling new approaches to meeting customer needs and performing business functions (Porter 2001). World Wide Web (www) technology itself has produced new promotion venues. The Internet also facilitates an electronic integration of the supply chain activities, achieving efficient distribution and delivery. It also facilitates partnerships or strategic alliances by networking partners or allies.
Ulhas D Wadivkar 297

E-Business Strategies for Competitive Advantage: Product, Price, Promotion, and Place Strategies
Product Price Promotion Place

Threat of Differentiation, Price Customer New Discrimination, centric Entrant Promotion, Innovation or Cost Performance Niche Product leadership, based Appeal, Value added
Products Revenue Sharing

Outsourcing
Strategic Alliance, Click & Mortar Strategy

Ulhas D Wadivkar

298

Product

Price

Promotion

Place

Threat of Product Substitutes Differentiation like bundling Innovation and or Niche Product Customer centric strategy
Rivalries among Existing firms

Price discrimination Cost leadership. Value added products / services


Customer Centric Promotion Performance based Brand appeal Revenue Sharing

Clicks and Mortar Strategy

Product Price differentiation discrimination Innovation and or Niche Product Cost leadership. Value added products

Outsourc ing Strategic Alliances Clicks and Mortar Strategy


299

Ulhas D Wadivkar

Product Price Bargaining Power of Suppliers

Promotion

Place Outsourcing Strategic alliances

Value added Revenue products / Sharing services marketing

Bargaining Power of Buyers

Ulhas D Wadivkar

Value added Customer products / Centric services Promotion Performance based Brand appeal Revenue Sharing

Outsourcing Strategic alliances

300

Key success factors in E-Commerce.


Information is a key part of the value chain in all businesses. By providing a vehicle for the delivery of information with unprecedented availability and reach, today's information technology, in particular Internet technology, is dramatically changing the very fundamentals of business. This explosion in connectivity is the latestand for business strategists, the most importantwave in the information revolution. Internet technology and its derivative Intranets (connecting employees and internal systems) and Extranets (connecting external partners and systems) are having a profound and far-reaching impact on business. Information such as pricing, costs, customer lists, supplier relationships, product information, employment statistics, legal proceedings, defect records, and historical statements and plans is now available to all freely. Businesses that do not rethink their fundamental value proposition based on this possibility may lose their competitive edge, or worse. Ulhas D Wadivkar 301

Ulhas D Wadivkar

302

However, if you want to benefit from this new Internet economy, you will need to apply technology and electronic media to improve two basic aspects of your operation. You must: Differentiate your products and servicesand improve your market share. Enhance your efficiencya move that will lead to improved profitability To see how these efforts can lead to greater levels of competitive success, refer to the following graphic. In this graphic, the four quadrants represent overall characteristics of value propositionsfor individual products, services or entire companies in any industry. In the top right quadrant, companies successfully differentiate their products and services to capture increased market share, while at the same time leveraging the power of technology to slash the cost of sales and operations and generate market-leading profitability, which in turn finances ongoing reinvestment. In the top left quadrant, companies are often fighting a multitude of new combatants within a commoditized market, where price competition is acute. In this situation, technology must be maximally leveraged to maintain even modest profits.
Ulhas D Wadivkar 303

In the bottom right quadrant, companiesusually inheriting their market differentiation from their legacystill enjoy acceptable profit margins but are at extreme risk of new market entrants inventing new ways to leverage technology to deliver the same or superior value to their customers less expensively and more rapidly. In the lower left quadrant are usually the enterprises that offer customers products or services that are not differentiated from less expensive options, and that are generally trailing the pack in leveraging IT. They lose market share and ultimately risk failure. The underlying canvas of this diagramthe market itself is constantly being pulled down and to the left by new competitors with innovative ideas and new technologies that make those ideas less expensive to realize. Moving up and to the right, maintaining market leadership requires a disciplined focus on continual improvement along both dimensions. Following strategies are required to be employed to accomplish continual improvement in both market share and profitability.
Ulhas D Wadivkar 304

1. Market Share: Through Increased Differentiation:1: Customers from anywhere can reach out to merchants anywhereand vice versathey can evaluate their options with a few clicks of a mouse button. In this environment, it has become difficult to differentiate products and services. If you are to remain competitive, you will need to set yourself apart from your competition.

a) Economic and Pricing Models


a.1) Customers will only purchase products or services with real, understandable value. a.2) Profit is dependent upon differentiated value. It is absolutely vital that differentiation be achieved and maintained through constant attention to innovation in intrinsic value, branding, distribution and affinity with complementary products and services.
Ulhas D Wadivkar

305

1. Market Share: Through Increased Differentiation:2:

a.3) Distribution channels are more important then ever a.4) Make sure your value proposition, as expressed on the Internet, is real and understandable, and you have a strong differentiation strategy to drive profitability and you've constructed a distribution strategy that leverages new intermediaries. Then continually improve all of the above.
a.5) Understand the information dynamics of your marketplace as it changes with the Internet, evaluate the activities of your competitors, try to develop breakthrough ideas, keep your plans confidential until they're ready to launch and continually improve every aspect of your electronic value proposition and operations. And move quickly.
Ulhas D Wadivkar 306

b) Distribution Channel Reengineering


b.1) "Distributors are dead on the Internet." The disintermediation process is on. Large percentage of retail stock market transactions are now conducted on line rather than through human brokers. This has happened barely within 24 months since the first large-scale launch of Internet trading services.
b.2) New intermediaries known as "aggregators" such as search, news and community Web sites. Yahoo is perhaps the best known new intermediary. In many fundamental respects, so also is America Online (AOL) b.3) Understand what's happening to intermediation within your industry, develop a strategy to grapple with it as aggressively as possible, and ensure that it works through measurement of results.
Ulhas D Wadivkar 307

c) Customer Service Re-engineering and Optimization c.1) Customer support is one of the most powerful differentiators in the online world. Assess where selfservice Web sites can be implemented, integrate them with your existing support knowledge systems, build communities among customers and adapt the systems to the patterns of customer behaviour d) Brand Strategy and Development : d.1) Brand loyalty has become one of the most powerful differentiators in e-commerce. Brand gets embodied through set of thoughts and emotions. Greater the depth of these impressions, the stronger the brandin a positive or negative direction. d.2) In the online world, impressions can be transmitted in seconds to millions of people, therefore, the process of managing publicityboth good and badis as important as ever. Recognize the power of online opinion, a material market advantage might get lost and a new and an undesirable brand attribute might get attached
Ulhas D Wadivkar 308

d.3) Understand that your online brand must be differentiated from competitors, that it must be developed within a disciplined and planned program.
e) Audience Development e.1) On the Internet, it is easier than ever to actually communicate a message to large numbers of people. However, in many cases, it's much harder for your message to be heard. Successful online marketing program boils down to the same objective as in the physical world: developing an audience or "Audience Development" is preferred phrase for online marketing, e.2) To succeed in any marketing endeavour, you must have an audience. Create an Audience Development.
Ulhas D Wadivkar 309

f. User Experience Design

f.1) Users expect a Web site, Intranet or Extranet to present information in an intuitive, compelling and efficient manner, and leverage the interactivity of computing. This is part of the process of creating a powerful user experience.
f.2) Optimal user experience blends several common objectives into a seamless visual and interactive experience: the personality of the brand, the purpose of the interaction, the ease of comprehension and the speed of the results. f.3) Critical success factors for any Internet application are usability, interactivity and efficiency. These factors should be integrated into a user experience plan aligned with brand, audience and purpose, and then measured for optimization
Ulhas D Wadivkar 310

2 - Profitability: Through Increased Efficiency


The first step to leverage Internet technology within business processes across your company is to establish an Internet Architecture. An Internet Architecture is defined as an IT infrastructure model with the following attributes: 1. It should support any type of user device. 2. It should support self-service access to the information infrastructure. All databases should be server-based, including user profiles, as well as authentication and security systems, enabling nomadic users to access application systems and databases from any access point. 3. It should employ self-teaching content and make it readily accessible and understandable. 4. Applications should operate from within a single Internet browser standard. 5. It should comply with standard networking protocols 6. It should permit any type of device or system to act as a server. 7. It should support multi-tiered architecture. Multi-tiered architecture, which is the basis for client/server systems, 8. It should be structured within a standard network and resource Ulhas D Wadivkar 311 management infrastructure.

Once the IT infrastructure model is ready as above, following business processes are to be used. E-commerce, both business-to-business and business-toconsumer. Value chain integration. Human resources benefits administration, recruiting and stock administration. Sales force automation. Inventory and configuration management. Customer support. Distribution and service channel automation. Document management and workflow. Knowledge management. Financial reporting, analysis and EIS. Ulhas D Wadivkar Point-to-point, conference and broadcast communication. 312

3 - Profiles of Success in the Internet Economy


Successful profile in Internet Economy occurs by tapping the increased efficiencies of Internet Architecture and by adopting new differentiation strategies through the Internet. Examples are given of the businesses finding they can provide better products and servicesand even new products and servicesfaster and at a lower cost. Some are expanding their market by making the Internet the integral core of their businesses Dell Computers was one of the first PC makers to recognize the tremendous market potential for e-commerce on the Internet. Because its products are highly commoditized, the Web offered Dell an excellent avenue for reaching new customers and re-establishing itself as an innovator and market leader. Dell now conducts a considerable portion of its total business on line, and projects that ultimately 100 percent of its business will be conducted Ulhas D Wadivkar on line 313

Manheim Auctions recognized that selling used cars is a difficult, "dog-eat-dog" business that makes many potential customers uncomfortable. This company found a way to propel the used-car business into the '90s with new and innovative ways of selling that eliminated the need for high-pressure sales tactics on a car lot. The company reports that it has generated sales from more than 4,000 dealers subscribing to its online used-car auction site. Amazon.com saw a huge market of people who prefer to browse the Web rather than browse through bookshelves in a retail store. As a result of its early innovation, the company has quickly created a large and growing Internet-based business. Amazon.com realizes all its revenues from the Internet.
Ulhas D Wadivkar 314

Characteristics of Internet Economy


Information is a key part of the value chain in business, and Internet technologies have taken a giant leap in making information universally and economically available. Internet has created a wave that is engulfing just about every business and changing its fundamentals. The customers themselves are driving much of this change. They are demanding online services such as e-commerce, 24-hour service and support information, the ability to check product availability and track their accounts or portfolios, and the availability of timely news and updates. They expect companies to make it as easy as possible for them to purchase products and serviceswithout the need to go from store to store in search of the items and services they need. Customers are demanding that businesses deliver these services through the Internet. Businesses must understand the complex technologies that have come together on the Internet; they also must understand how to integrate their Internet strategy with their overall business strategy. Internet technology to be used to deconstruct and reconstruct the value chain in just about every industry, Ulhas D Wadivkar 315

Getting There from Here

But many are taking a haphazard approach, resulting in wasted time, effort, money and, more significantly, lost opportunity. For example, Forrester Research found that one of the most common mistakes companies make when implementing an Internet project is not having a clear vision or purpose for the solution. Integrating Internet technology successfully into a business involves fundamental considerations. Companies must rethink their business strategies and plans in light of the oncoming Internet wave, using it to their advantage. Internet is a relatively new arena that will have a far-reaching impact; many companies have not yet developed the necessary skills and technology expertise in-house to create solutions that tap the full potential of the Internet. That's why it is important to partner with companies such as Dynamic Net, Inc. that have the breadth of expertise, experience and resources necessary for developing new strategies and improving business processes using Internet-based technologies. By partnering with a strategic firm such as Dynamic Net Inc., PWC, to help you accomplish these objectives, you can ride the Internet Ulhas D Wadivkar 316 wave to new levels of success.

Ulhas D Wadivkar

317

The virtual value chain:1:


The virtual value chain, created by John Sviokla and Jeffrey Rayport, is a business model describing the dissemination of value-generating information services throughout an Extended Enterprise. This value chain begins with the content supplied by the provider, which is then distributed and supported by the information infrastructure; thereupon the context provider supplies actual customer interaction. It supports the physical value chain of procurement, manufacturing, distribution and sales of traditional companies. There are many businesses that employ both value chains including banks which provide services to customers in the physical world at their branch offices and virtually online. The value chain is separated into two separate chains because both the marketplace (physical) and the marketspace (virtual) need to be managed in different ways to be effective and efficient (Samuelson 1981). Nonetheless, the linkage between the two is critical for effective Ulhas D Wadivkarsupply chain management. 318

The virtual value chain:2:


In the virtual value chain (VVC), information has become a dynamic element in the formation of a business competitive advantage. The information collected is utilized to generate innovative concepts and new knowledge. This translates to a new value for the consumer. An examination of the VVC model informs the business to what function they have in the chain, and if they are not currently offering services that are information based (i.e. Internet services), how they can make the transition to the information based model. In the virtual value chain the virtual indicates that the value adding steps are performed with information. The transfer of information between all events and among all members is a fundamental component in using this model. In the VVC the creation of knowledge/added value involves a series of five events: gathering, organization, selection, synthesize and distribution of information. The completion of these five events, allows businesses to generate new markets and new relationships within existing markets. The process of a business refining raw material into something of value and the sequence of events involved is similar to that of business collecting information and adding value through its cycle of events. Ulhas D Wadivkar 319

Stages of the value adding information process


Businesses implement value-adding information by using the three stages of the Rayport and Sviokla model: Visibility By using information businesses learn the ability to view physical operations more effectively. The virtual value chain is used to co-ordinate the activities of the physical value chain. With the assistance of IT, it is then fully possible to plan, implement, and assess events with greater precision and speed. Mirroring Capability Businesses duplicate their once physical activities for virtual, by producing a parallel value chain in the marketspace. In other words, the business moves the value adding activities from the marketplace to the marketspace. New Customer Relationships Businesses present value to the customer by new means and in new fashions. IT creates value in the marketspace. The new relationship between business and customer is strongly based on using IT. This implies that products and services are presented by IT in the form of bits. Ulhas D Wadivkar 320

Relevance to the business world:1:


The Virtual Value Chain has the benefit of having a view that encompasses the entire network along with its strong employment of IT. The VVC model has a strong relationship to the supply chain and the goal of that relationship is to produce materials, information and knowledge for the market. IT maintains the relationship among the members of the chain. The VVC model does not indicate any shifts in the market, or how and when the customers needs will change. New technological developments in IT are drastically changing the way businesses operate. Each business internal and external relationships are managed by IT and value adding and generation of ideas are relying more and more on IT. This trend has led to a different approach to value chain thinking. Using this approach Mary Cronin separates the VVC into three elements: inputs from supplier, internal operations, and customer relations.
Ulhas D Wadivkar 321

Relevance to the business world:2:


The inputs from supplier element are focused on the Internet and how it can add value to the businesss acquisition activities. In other words, business with use of the Internet have the capability to find different suppliers quickly (effective) and for different purposes (efficient). The internal operations element is in regards to the business value adding events which are based on the effective procurement and distribution of the information within the business. It is essential that businesses can emulate this model because of the increasing large role information plays in the business world. With use of the Internet, the business can procure and distribute information globally with relative ease and low cost. The customer relations element concentrates on applying the information directly from the customers needs and attitudes about the product or service to add value. The internet is a useful tool in acquiring the direct information about the customers needs and attitudes. The internet is also used to distribute information about the products and services to the market (i.e. electronic catalogues). Following the distribution, forums and discussion groups collect the necessary information about the products and Ulhas D Wadivkar the business provides 322 services that

The Management of Virtual Value Chain:1:


Today managers need to concentrate on how their business creates value in both the physical and virtual world. However, the methods for creating value are different in these worlds. By careful interpretation of the differences and interactions among the value adding events of the physical and virtual worlds, managers can more clearly visualize the strategic issues facing the business. Managers must learn to utilize and value the virtual world of information. "By thinking boldly about the integration of place and space," Sviokla and Rayport comment, "executives may be able to create valuable digital assets that, in turn, could change the competitive dynamics of industries." (Rayport et al. 1996) To properly use the information, that is to create value from it, managers must explore the marketspace. Although the value chain or the marketspace is similar to that of the marketplace, there is an increased dynamic involved. The processes for transferring raw information to products and services are unique to the information world.
Ulhas D Wadivkar 323

The Management of Virtual Value Chain:2:


The conventional value chain model uses information for solely support, not as a source of value itself. However, with the arrival of the Internet the virtual value chain has been enabled, allowing businesses to use information for the creation of innovative products and services that are exclusive to the marketspace. This study establishes that the strategy of IT is an important issue for a business. Productivity, quality, cost structure and profitability are all characteristics that are directly affected by IT. It is essential for businesses to use IT in the most effective way and to have knowledge to implement IT systems. Lastly, both users and businesses need to realize the potential that IT has for their business. Ulhas D Wadivkar 324

The Management of Virtual Value Chain:3:


An example of using the VVC to create such services includes the Federal Express Corporation which recently

created a customer designed website to track packages


by using their air bill number. FedEx has been able to capitalize using the VVC by adding value for the

customer (for free) and in turn has increased customer


loyalty in an intensely competitive market. In this increasingly information based economy managers must

extract value from both the physical and virtual value


chains to succeed.
Ulhas D Wadivkar 325

Syllabus
10. Strategy Implementation: Project Implementation Procedural Implementation Resource Allocation Organization Structure Matching structure and strategy. (3)
Ulhas D Wadivkar 326

Issues in implementation:
Project Implementation. Procedural Implementation. Resource Allocation. Structural Implementation. Behavioural Implementation. Functional & Operational Implementation.

Ulhas D Wadivkar

327

Strategy Implementation
Strategy Implementation is managerial exercise of putting freshly chosen Strategy into place. Action orientation: Strategy implementation entails action, it is putting formulated Strategies into action through the management processes. Strategy Implementation is comprehensive in scope. It includes everything that is included in the discipline of management studies. Strategist must have somebody with a wide range of knowledge, skills, attitudes and Attributes for Implementation. Actual Implementation demands varied Skills Wide range of involvement. Along with CEO every employee is involved in Strategy implementation. The various tasks in strategy cannot stand alone. They are interrelated. Each task performed is related to other and thus create an interconnected network.
Ulhas D Wadivkar 328

Adopting a clear model of Strategy Implementation: A Clear unambiguous Strategy, Clear Responsibilities & Accountabilities, Comprehending, how various elements are interconnected. Effective management of change in complex situations: Behavioural changes, leadership style changes, Strategy Implementation is Activating Strategies, preparing ground for managerial tasks & activities. ( Project implementation, Procedural Implementation & Resource Allocation) The core of strategy implementation is Managing Change. (Structural Implementation, Leadership Implementation and Behavioural Implementation). It involves Degree of change, Timing of change & Activity areas of the change. The outcome of Strategy Implementation is to Achieve Effectiveness through Functional and Operational Implementation. Goal Model, Resource based Model, Internal process Model and the Conflicting Values Model. (Attempt to consolidate different view points & using diverse indicators of performance)
Ulhas D Wadivkar 329

Formulated Strategy

Mintzbergs Conception of the Type of Strategies

Implemented Strategy

Intended Strategy

Deliberate Strategy

Realised Strategy

Unrealised Strategy
Ulhas D Wadivkar

Emergent Strategy
330

Strategies Plans Program Projects

Budgets
Policies, Procedures, Rules & Regulations

Ulhas D Wadivkar

331

Strategies F u n c t io n al Pl a n B r o a d
O bj e ct I v e s

Corporate

Corporate Plan

A n n u al O p e r a t I o n
B u d g e ts

Sector Plan

Business sector

Divisional Plan

Division

Product / technology Plan

Product Level

Long Term / Medium Term Objectives : Market Share, ROI, ROE, New Markets. These are integrated and coordinated, consistent, prioritised and measurable objectives.

Long Term (5-10 years)


Ulhas D Wadivkar

Medium Term (3 Yrs)

Short Term (1 Year) 332

Advantages of Annual Objectives:


Tangible Growth targets. Focus on Growth.

Role clarity to managers and sub-ordinates.


Mobilise people and enable them to participate in direction of growth.

Unifying all groups in one direction.


Basis for strategic control. Motivate employees.

Provide challenges for functional groups


Tool to Operationalising strategies.
333

Ulhas D Wadivkar

1. Project Implementation:
Strategic Management Process

Strategy Implementation

Strategy Evaluation & Control

Project Objectives

Control Measures

Initiating

Planning

Executing

Controlling

Closing

Ulhas D Wadivkar

Project Management Process

334

1. Project Implementation:
Conception Phase: Extension of Strategy Formulation Phase. Prioritising projects conceived.
Definition Phase: Preparation of Detailed Project Report considering marketing, technical, financial (eligible for scrutiny by financial institutes, economic and ecological aspects), feasibility study, Organisation, location, whether new or Modernisation or expansion or diversification, backward integration, nature of Industry, nature of products. Project promoters & Financial details of the company.

Project details. Detailed Cost of project.


Means of financing, Profitability and cash flow. Marketing arrangements
Ulhas D Wadivkar 335

Economic considerations like competition, economic benefits to country or region, contribution to development, ancillaries etc. Environment aspect Govt. consents like licence, capital goods, foreign Exchange, technical collaboration permission etc.
Planning and organising phase: Designs, budgets, finance, schedules, manpower, systems and procedures. Implementation Phase : detailed engineering, order placement, testing, trial and commissioning of the project. Clean up phase : disbanding the project set up and handing over of the facility to operation.
Ulhas D Wadivkar 336

2. Procedural Implementation
Formation of the company Licensing procedures SEBI requirements MRTP requirements Foreign collaborations procedures FEMA requirements Import and Export Licences / requirements Patenting and trade mark requirement Labour legislation requirement Environmental requirement and Pollution board requirements Consumer protection requirements Procedures for availing Incentives and facilities to get benefits.
337

Ulhas D Wadivkar

3. Resource Allocation
Resource allocation deals with procurement and commitment of financial, physical and human resources to strategic tasks. Project related resources are generally one time requirements and for on-going concern the resources are required on continuous basis. Finance is primary resource. It is required for creation and maintenance of other resources. Long term resources are required for creation of capital assets and short term finance is required for working capital. Resources could be internal or external. Internal resources are retained earnings, depreciation provisions, other reserves etc. External resources are equity and long term loans. Also money market resources such as bank credits, hire purchase debt, instalment credit and fixed deposits. Resource allocation : This could be top down where resources are allocated by top level to all other levels of organisation based on budgets. In a bottom up scenario budgets are drawn by operation group as required. However Strategic Budgeting is a mix of both and is dynamic. It involves to and fro communications and actions between all levels of management based on strategic decisions. Ulhas D Wadivkar 338

Resources availability

Top management

Corporate Policy Guidelines

Goals Short & Long

Approvals & sanctions

Strategic budget
Minimising gaps
P R O P O S A L S

Executive Management

Core Competencies, Marketing & past Performance, Environment, culture

Operating Management
Ulhas D Wadivkar

Targets / Operation Budgets

Implementa tion
339

Types of Strategic Budgets


High
I n d u st r y G r o w t h R a t e 20%

BCG Matrix for Strategic Decisions

Stars 15%

Question Marks

SBUs / Multidivisions / Multidepartments are identified for Resource allocations for Investment.

10%

Cash Cows 5% Low High Relative Market Share

Dogs

Cash flows are based on their strengths in BCG Matrix.

Low 340

Ulhas D Wadivkar

Types of Strategic Budgets


PLC Based Budget: Product / SBU Life Cycle: Resources are allocated based on different stages Product / SBU Life Cycle. Capital Budgeting: A separate budget is drawn for Capital requirement in case of new SBU or new product or expansion or modernisation. In case of capital sources fund raising are different. Zero based Budgeting: ZSB is based on present evaluation and not based on past performance. Each requirement is to be justified by operation group on the basis of fresh calculation of costs and targets. In other words the resource allocation demand is based on ground zero Parta System: This system is mainly used by conservative business houses where CEO is basically a financial wizard. This system is based on daily net cash flow (before tax and dividend) statement. The net cash flow is pre determined and agreed figure between SBU In-charge / Operating Management and the Chairperson / owner / major stock holder of the company. This is a daily budgeting and reporting 341 Ulhas D Wadivkar system.

Factors affecting Resource Allocation:


Objectives of the Organisation Realisation of Strategic Intent. Dominant Strategists Powerful Lobbying, influential departmental heads, CEO preferences etc. Internal Politics Resource allocation is construed a Power Statement and SBU In-charges, departmental heads strive for grabbing more resources for their departments. External Influences Government policies, statutory requirements, demands from financial institutes, Share holders, Community, necessity of Pollution control and safety equipments. Scarcity of Resources Financial, physical and human resources, cost of capital and that of cash credits, Government Policies with regards to raw materials and Technology. Credit-worthiness of organisation ability to raise funds. Overstatement of needs Bottom up or democratic ways of resource allocation gets developed in to every one grabbing his share of pie by overstating and dramatising their needs. It is a role for CEO for managing resources. He need to have a Strategic Plan and communicate the same to all executives and Ulhas D Wadivkar 342 ensure that resource allocation decisions are taken amicably.

4. Structural Implementation
Entrepreneurial:
Owner - Manager Employees

Functional
Production

CEO

Public Relations

Finance

Marktg.

Personnel

Legal

Divisional / Product
Corporate Finance

CEO

Legal / PR

Division

Gen. Manager- DIV. A

Gen. Manager- Div. B

Marktg., Operations, Pers.,

Marktg., Operations, Pers.,

Ulhas D Wadivkar

343

SBU Based
CEO
Head SBU 1 Head SBU 2 Head SBU 3

Div. A,B,C

Div. D,E,F

Div. G,H,K

Ulhas D Wadivkar

344

Matrix
Corporate
Finance

CEO
Operations

Personnel

Marketing

Head A Location / Product / Plant

Head B Location / Product / Plant

Head C Location / Product / Plant

Ulhas D Wadivkar

345

Network
Region A Project M Function X

Corporate HQ

Region B

Project N

Function Y

Ulhas D Wadivkar

346

Product based Structures: In large volume scenario it makes a sense to have a separate organisation dedicated to a product. This enables optimum use of specialised skills. Product separation helps organisation in addition /deletion decisions. Customer based Structures: Assuming that sales volume justifies the need of separate setup; it enables organisation to concentrate on specific customer group and provide exclusive attention required for that particular product / services. It helps in creating specialised skills and timely response to changing needs of the customers. Geographic Structures: Set ups at different sites sometimes evolve due to expansions and mergers. It also offers advantage of nearness to raw materials or to markets / customers. It helps in fair degree of decentralisation. It needs a very good top level coordination and communication amongst all locations and corporate office.
Ulhas D Wadivkar 347

Intrapreneurial Structure: This is a cluster of various owner driven set-ups. It encourages entrepreneurial abilities of its employees. Employees as entrepreneurs with support of parent organisation can apply its full attention to his part of business for development of new ideas for products and services. There are also Horizontal Organisations and Delaminated matrices. In horizontal type; the structure corresponds to process of providing products or services directly served to customer thereby eliminating special corporate functions like marketing, finance etc. Executives have to be multifunctional in such a case as the core process is managed by cross functional teams. Delaminated Matrices are combination of Horizontal organisations with a Functional structure. The firm employs both process oriented horizontal teams and functional departments. These two layers of matrix organisation are separated providing depth of expertise and capabilities to the organisation. Ulhas D Wadivkar 348

Organisational Design: Structural Dimensions: Formalisation: Written Documents, Procedures, Job Descriptions, Regulations & Policy Manuals. Specialisation: Specialised tasks are subdivided into separate groups. Hierarchy of Authority: Span of Control of Managers, Reporting structure, Nos. of Sub-ordinates. Centralisation: Decision making process, Delegation of decision making authority. Professionalism: Formal Education & Training requirements. Personnel Ratios: Deployment of people to various functions & Departments, Administrative Ratio, Clerical Ratio, Indirect v/s Direct labour Ratio. Contextual Dimensions: Environment, Goals & Strategy, Culture, Technology and size of Organisation are factors that influence the shape the structural dimensions.
Ulhas D Wadivkar 349

Organisations are structured to implement strategic plan in best possible way. All functions and activities that are critical from strategy view point are required to be considered. Thus key activities performed to achieve Objectives and realise the Mission are required to be considered in Organisational design. Identification of key activities necessary to be performed for achieving Objectives and realising the Mission through the formulated strategy. The activities which are similar in nature and skills are grouped together. Different groups of activities are accommodated in the structure. Creation of Departments, Divisions; Regions and so on to which the group of activities are assigned. Design establishes an interrelationship between these different departments for the purpose of coordination and communications.
Ulhas D Wadivkar 350

Traditional Organisations

Emerging Organisations

One large firm


Vertical Communication

Small business units with Cooperative relationship.


Horizontal Communication

Centralised and Top-down decision Making


Vertical Integration Work / Quality based Teams Functional Work teams Minimum Training Individual-focussed specialised Ulhas D Wadivkar Job Design

Decentralised and participative decision making


Outsourcing and virtual organisations Autonomous work teams Functional Work teams Extensive Training value chain team-focussed Job 351 Design

Organisational Systems
Control Systems The measurement and correction of the performance of activities of all the people in structure in order to make sure that enterprise objectives and plan devised to achieve the same is accomplished.
Establish Standards

Determine corrective performance

Measure Performance

Evaluate Performance against Standards


Ulhas D Wadivkar 352

Organisational Systems
Information Systems The Organisational Arrangements that provides information to managers to perform their tasks and relate their works to others. This is also known as MIS Appraisal Systems Evaluating managerial performance. Appraisals are used for salary fixation, awards, incentives, management development, etc. Motivation Systems to enforce desirable behaviour. Motivation can be monetary such as Salary, Bonus, Rewards and non monetary such as recognition, designation, perks
Ulhas D Wadivkar 353

Organisational Systems
Planning Systems Planning is basically formulating strategy. Planning can be centralised or decentralised depending upon Organisational Character. Plans are provided as packaged plan for implementation in centralised planning by planning committee. In decentralised planning corporate strategy performs a directive role for divisions, who in turn does planning taking environment into consideration.

Ulhas D Wadivkar

354

Development systems is a process of gradual, systematic improvement in knowledge, skills and performance of mangers to enable them to perform their duties.
The process of management Development Organisational Characteristics Training & Education, New Experiences

Individual Characteristics

Managerial behaviour

Performance

Experience

Learning

Management Development Ulhas D Wadivkar 355

5. Behavioural Implementation.
Behaviour of the strategist has a huge impact on implementing the chosen strategy. Implementation of

strategy has thus many behavioural issues.


Leadership.

Corporate Culture.
Corporate Politics. Use of Power. Personal Values and Business Ethics.
Ulhas D Wadivkar 356

Leadership in Implementation:1: Leadership plays a critical role in the success and failure of an enterprise. It is one of the most important elements affecting Organisational performance. Leaders have Personality traits and Qualities. Leaders Influence relationship between individuals. Behaviour of leader lead to actions around. Situation in which leader has to operate decides the mettle of a leader. Subordinates and situation at times show dependence on a leader. This generates Contingency behaviour within the leader. Leader transacts with sub-ordinates and indicates Role differentiation. Leader with absence of a real concepts provides anti leadership. Leadership thrives on entire organisational Culture. Leader uses his influence and creates intrinsic motivation and bring about Transformation of the organisation Risk Taking Leader: Willingness to take high risks. This is required at times depending on the strategy which involves highDreturns. Ulhas Wadivkar 357

Leadership in Implementation:2:
Technocracy: Optimum decisions based on technical needs Organicity: The flexibility and adaptability in changing requirements is required to satisfy an agile operating staffs. Participation: Inviting participation at all levels in the decision-making, Process and strategy implementation. Coercion involves domination, authoritarianism by top management complied with wishes given in Mission and adjectives. Key role of Leaders: CEO: Identifying Strategy and implement. He remains accountable for success or failures. He should identify changes in environment and should operate a trigger. He should have interpersonal skills and creativity to Mobilise people. CEO should develop and choose future strategists. Their career planning and establish a succession plans. Normally a promotion within, is useful for moral of the organisation. Ulhas D Wadivkar 358

Corporate Culture
Corporate Culture is a set of important assumptionsoften un-stated but most members share in common. Something like people at top do not understand or Whether you work or dont work, you will get salary, there is stagnation at Top or Turnover is important. Thus shared things like uniforms, Shared sayings, shared actions like service oriented approach, shared feelings like hard work is not rewarded here creates a Corporate culture.

Strategists have four approaches to create a strategy related supportive culture. This depends on strategyculture relationship.
Ulhas D Wadivkar 359

Ignore corporate culture: Changes required are very high and compatibility of change is low, then

To adapt strategy implementation to suit corporate culture. Changes required are very high and compatibility of change is also high, then To change corporate culture to suit strategic requirements :Changes required are very low and compatibility of change is high, then

To change strategy to fit corporate culture Changes required are very low and compatibility of change is also low, then

Ulhas D Wadivkar

360

Corporate Politics and Power: Power is an ability to influence others and politics is carrying out activities though not prescribed by any Policy to gain advantages and influence distribution. Corporate politics is not good or bad but it creates divisiveness which is not good.
Sources of Power : Reward Power ability of Manager to reward people of his choice. Coercive Power Ability to penalise negative results. Legitimate Power Ability of Mangers to influence behaviour of sub ordinates. Referent Power is Managers to create liking among subordinates due to charisma or knowledge. Expert Power is due to competence, knowledge and experience of Managers.
Ulhas D Wadivkar 361

Personal Values and Business Ethics


Value is a view of life and a judgement of what is desirable and what is correct. These views forms personality of a leader and creates a groups morale. Business ethics are traditionally been considered as core values like honesty, trust, respect & fairness. To inculcate these value and ethics: Consider Values & Ethics of a person during recruitment. Incorporate in new comer trainees and in training programme. Top management to set examples. Communicate Values & Ethics through wide publicity. Consistently monitor and nurture values and build ethics.
Ulhas D Wadivkar 362

Social Responsibility and Strategic Management


Social Responsibility along with ethics becomes a stated or un-stated requirement. It gets attended in Strategic Planning through environmental appraisals. It has differing views, while some do not want it to be considered in business operations, others boast around it. However, most business houses observe a balance and undertake to deliver social responsibility and business objectives without contradicting each other. Social Responsibility extends beyond the workforce and stakeholders and many business houses take up activities for community welfare, rural development, sports etc. Presently, with ISO:14001:2004 which concerns Environment Management Systems, it has become a necessity to address the mode and means of delivering social responsibility. Like any other strategic functions, for successful implementation, Organisations need to allocate resources, create Organisation Structure and evaluate its effectiveness. But all said and done, the society in large remains a major stake holder and we cannot escape our dues to society and towards social responsibility.
Ulhas D Wadivkar

363

Functional and Operational Implementation.


Enterprise Vision, Mission, Objectives and Goals are of generic nature. Various functions like Marketing, Operation, Finance, HRD etc. are created for effective implementation of the Strategic Plans. Functional Plans and Policies are developed.

Functional Strategy deals with limited restricted plan which provides objectives for a specific function.
Resources are allocated function wise for their optimal contribution to the achievement of Business and Corporate level Objectives.
Ulhas D Wadivkar 364

Functional Plans and Policies:


1. 2. 3. Functional Strategies are implemented through defined plans and policies for various functions. The strategic decisions are implemented by all the functions of the organisations. A basis is created for controlling activities of all different functional areas of business. Plans are laid down clearly for all functional departments and Policies provide discretionary framework. Thus functional mangers do not spend time groping in dark. Functional mangers can handle similar situations effectively. Co-ordination across the different functions takes place where necessary.
365

4. 5.

Ulhas D Wadivkar

Strategy Formulation

Nature of Product / Services

Nature of market

Manner in which Market is to be served Operational System Objective

Operational System Structure

Operational Policies and plans


Ulhas D Wadivkar 366

Syllabus
11. Behavioural issues in implementation: Corporate culture Mc Kinseys 7s Framework Concepts of Learning Organization (3)

Ulhas D Wadivkar

367

Description of the 7-S Frame work of MC Kinsey

Ulhas D Wadivkar

368

Description of the 7-S Frame work of MC Kinsey


The 7-S framework of McKinsey is a Value Based Management (VBM) model. Together these factors determine the way in which a corporation operates. Shared Value: The interconnecting centre of McKinsey's model is: Shared Values. What does the organization stands for and what it believes in. These are Central beliefs and attitudes. Strategy: Strategy is a Plan for the allocation of a firms scarce resources, over a time to reach identified goals. Strategy considers Environment, Competition and Customers. Structure: The way the organization's units relate to each other: centralized, functional divisions (top-down); decentralized (the trend in larger organizations); matrix, network, holding, etc. System: The procedures, processes and routines that characterize how important work are to be done: financial systems; hiring, promotion and performance appraisal systems; information systems. Staff: Numbers and types of personnel within the organization. Style: Cultural style of the organization and how key managers behave in achieving the organizations goals. Skill: Wadivkar Distinctive capabilities of personnel or of the organization369 as Ulhas D a whole. (Core Competencies).

The McKinsey 7S Framework


Ensuring that all parts of your organization work in harmony While some models of organizational effectiveness go in and out of fashion, one that has persisted is the McKinsey 7S framework. Developed in the early 1980s by Tom Peters and Robert Waterman, two consultants working at the McKinsey & Company consulting firm, the basic premise of the model is that there are seven internal aspects of an organization that need to be aligned if it is to be successful. The McKinsey 7S model can be applied to elements of a team or a project as well. The alignment issues apply, regardless of how you decide to define the scope of the areas you study * The 7S model can be used in a wide variety of situations where an alignment perspective is useful, for example: Improve the performance of a company; Examine the likely effects of future changes within a company; Align departments and processes during a merger or acquisition;
Ulhas D Wadivkar 370

The Seven Elements Hard Elements Strategy Structure Systems Soft Elements Shared Values Skills Style Staff

"Hard" elements are easier to define or identify and management can directly influence them: These are strategy statements; organization charts and reporting lines; and formal processes and IT systems. "Soft" elements, on the other hand, can be more difficult to describe, and are less tangible and more influenced by culture. However, these soft elements are as important as the hard elements if the organization is going to be successful. Ulhas D Wadivkar 371

The way the model is presented in Figure depicts the interdependency of the elements and indicates how a change in one affects all the others. Placing Shared Values in the middle of the model emphasizes that these values are central to the development of all the other critical elements. The company's structure, strategy, systems, style, staff and skills all stem from why the organization was originally created, and what it stands for. The original vision of the company was formed from the values of the creators. As the values change, so do all the other elements

Ulhas D Wadivkar

372

How to Use the Model The model is based on the theory that, for an organization to perform well, these seven elements need to be aligned and mutually reinforcing. So, the model can be used to help identify what needs to be realigned to improve performance, or to maintain alignment (and performance) during other types of change. Whatever the type of change - restructuring, new processes, organizational merger, new systems, change of leadership, and so on - the model can be used to understand how the organizational elements are interrelated, and so ensure that the wider impact of changes made in one area is taken into consideration. You can use the 7S model to help analyze the current situation (Point A), a proposed future situation (Point B) and to identify gaps and inconsistencies between them. It's then a question of adjusting and tuning the elements of the 7S model to ensure that your organization works effectively and well once you reach the desired endpoint.
Ulhas D Wadivkar 373

However, it is not simple. Changing your organization probably will not be simple at all! Whole books and methodologies are dedicated to analyzing organizational strategy, improving performance and managing change. The 7S model is a good framework to help you ask the right questions - but it won't give you all the answers. For that you'll need to bring together the right knowledge, skills and experience. When it comes to asking the right questions, we've developed a Mind Tools checklist and a matrix to keep track of how the seven elements align with each other. Supplement these with your own questions, based on your organization's specific circumstances and accumulated wisdom.
Ulhas D Wadivkar 374

7S Checklist Questions
Here are some of the questions that you'll need to explore to help you understand your situation in terms of the 7S framework. Use them to analyze your current (Point A) situation first, and then repeat the exercise for your proposed situation (Point B). Strategy: What is our strategy? How to we intend to achieve our objectives? How do we deal with competitive pressure? How are changes in customer demands dealt with? How is strategy adjusted for environmental issues? Structure: How is the company/team divided? What is the hierarchy? How do the various departments coordinate activities? How do the team members organize and align themselves? Is decision making and controlling centralized or decentralized? Is this as it should be, given what we're doing? Ulhas D Wadivkar Where are the lines of communication? Explicit and implicit?375

Systems:

What are the main systems that run the organization? Consider financial and HR systems as well as communications and document storage. Where are the controls and how are they monitored and evaluated? What internal rules and processes does the team use to keep on track? Shared Values: What are the core values? What is the corporate/team culture? How strong are the values? What are the fundamental values that the company/team was built on? Style: How participative is the management/leadership style? How effective is that leadership? Do employees/team members tend to be competitive or cooperative? 376 Ulhas D Wadivkarreal teams functioning within the organization or are Are there they just nominal groups?

Staff: What positions or specializations are represented within the team? What positions need to be filled? Are there gaps in required competencies? Skills: What are the strongest skills represented within the company / team? Are there any skills gaps? What is the company / team known for doing well? Do the current employees/team members have the ability to do the job? How are skills monitored and assessed?
Ulhas D Wadivkar 377

7S Matrix questions
Using the information you have gathered, now examine where there are gaps and inconsistencies between elements. Remember you can use this to look at either your current or your desired organization. Check off alignment between each of the elements as you go through the following steps: Start with your Shared Values: Are they consistent with your structure, strategy, and systems? If not, what needs to change? Then look at the hard elements. How well does each one support the others? Identify where changes need to be made. Next look at the other soft elements. Do they support the desired hard elements? Do they support one another? If not, what needs to change? As you adjust and align the elements, you'll need to use an iterative (and often time consuming) process of making adjustments, and then re-analyzing how that impacts other elements and their alignment. The end result of better Ulhas D Wadivkar 378 performance will be worth it.

Key points: The McKinsey 7Ss model is one that can be applied to almost any organizational or team effectiveness issue.
If something within your organization or team isn't working, chances are there is inconsistency between some of the elements identified by this classic model. Once these inconsistencies are revealed, you can work to align the internal elements to make sure they are all contributing to the shared goals and values. The process of analyzing where you are right now in terms of these elements is worthwhile in and of itself. But by taking this analysis to the next level and determining the ultimate state for each of the factors, you can really move your organization or team forward. Ulhas D Wadivkar 379

Concepts of Learning Organization


Organisational Learning vs. Learning Organisation There is a difference between Organisational Learning and Learning Organisation. Argyris (1977) defines Organisational Learning as the process of "detection and correction of errors" while Senge (1990) defines Learning Organisation as "a group of people continually enhancing their capacity to create what they want to create". Senge further remarks that "the rate at which organizations learn may become the only sustainable source of competitive advantage". Organisational Learning is a Process and Learning Organisation is a Structure. A Learning Organisation is an Organisation that learns and encourages learning among its people in an effort to create a more knowledgeable and flexible workforce capable to adapt to cultural changes.
Ulhas D Wadivkar 380

A Learning Organization is the term given to a company that facilitates the learning of its members and continuously transforms itself. Learning Organizations develop as a result of the pressures facing modern organizations and enables them to remain competitive in the business environment. A Learning Organization has five main features; systems thinking, personal mastery, mental models, shared vision and team learning. Donald Schon. He provided a theoretical framework linking the experience of living in a situation of an increasing change with the need for learning. The loss of the stable state means that our society and all of its institutions are in continuous processes of transformation. We cannot expect new stable states that will endure for our own lifetimes. We must learn to understand, guide, influence and manage these transformations. We must make the capacity for undertaking them integral to ourselves and to our institutions. We must, in other words, become adept at learning. We must become able not only to transform our institutions, in response to changing situations and requirements; we must invent and develop institutions which are learning systems, that is to say, systems capable of bringing about their own continuing transformation. Ulhas D Wadivkar 381 (Schon 1973: 28)

Subsequently, we have seen very significant changes in the nature and organization of production and services. Companies, organizations and governments and we have to operate in a global environment and that has altered its character in significant ways. Productivity and competitiveness are, by and large, a function of knowledge generation and information processing. Firms and Territories are organized in networks of production, management and distribution. The core economic activities are global that is they have the capacity to work as a unit in real time, or chosen time, on a planetary scale. (Castells 2001: 52) A failure to attend to the learning of groups and individuals in the organization spells disaster in this context. As Leadbeater (2000: 70) has argued, companies need to invest not just in new machinery to make production more efficient, but in the flow of knowhow that will sustain their business. Organizations need to be good at knowledge generation, appropriation and exploitation
Ulhas D Wadivkar 382

Why do Learning Organizations develop?


Organizations do not organically develop into Learning Organizations; there are usually factors prompting their change. It has been found that as organizations grow, they lose their natural capacity to learn as company structures and individual thinking becomes rigid. When problems arise in the company, the solutions that are proposed often turn out to be only short term (single loop learning) and re-emerge in the future. To remain competitive, many organizations have restructured, which has resulted in fewer people in the company. This means those who remain need to work more effectively. To create a competitive advantage, companies need to be able to learn faster than their competitors and also develop a customer responsive culture. Modern organizations need to maintain knowledge about new products and processes, understand what is happening in the outside environment and produce creative solutions using the knowledge and skills of all employed within the organization. This requires co-operation between individuals and groups, free and reliable communication, and a culture of trust. These needs Ulhas D Wadivkar 383 can be met through embracing the tenets of the Learning Organization.

Learning Organisation : Definitions


The Learning Company is a vision of what might be possible. It is not brought about simply by training individuals; it can only happen as a result of learning at the whole organization level. (Pedler et. al. 1991: 1) Pedler et al, later redefined this concept to an organization that facilitates the learning of all its members and consciously transforms itself and its context, reflecting the fact that change should not happen just for the sake of change, but should be well thought out. "Organisations where people continually expand their capacity to create the results they truly desire, where new and expansive patterns of thinking are nurtured, where collective aspiration is set free, and where people are continually learning to learn together" (Peter Senge, 1990). Learning organizations are characterized by total employee involvement in a process of collaboratively conducted, collectively accountable change directed towards shared values or principles. (Watkins and Marsick 1992: 118) According to Sandra Kerka (1995) most conceptualisations of the learning organisations seem to work on the assumption that learning is valuable, continuous, and most effective when Ulhas D Wadivkar that every experience is an opportunity to learn. 384 shared and

Characteristics of a Learning Organization-1


Learning Organization exhibits five main characteristics; Systems thinking, Personal mastery, Mental models, a Shared vision and Team learning. Systems thinking This is a conceptual framework that allows people to study businesses as bounded objects. Learning Organizations employ the method of thinking when assessing their company and develops information systems that measures the performance of the organization as a whole and of its various components. Systems thinking also state that all the characteristics listed must be apparent at once in an organization for it to be a Learning Organization. If any of these characteristics is missing, then the organization will fall short of its goal. However OKeeffee believes that the characteristics of a Learning Organization are factors that are gradually acquired, rather than developed simultaneously. Ulhas D Wadivkar 385

Characteristics of a Learning Organization-2


Personal Mastery Personal mastery is the commitment by an individual to the process of learning. There is a Competitive Advantage for an organisation whose workforce can learn quicker than the workforce of other organisations. Individual learning is acquired through staff training and development. However learning cannot be forced upon an individual if he or she is not receptive to learning. Research has shown that most learning in the workplace is incidental, rather than the product of formal training; therefore it is important to develop a culture where personal mastery is practiced in daily life. A Learning Organisation has been described as the sum of individual learning, but it is important for there to be mechanisms by which individual learning is transferred into Organisational Learning.
Ulhas D Wadivkar 386

Characteristics of a Learning Organization-3


Mental models Mental Models are the terms given to ingrained assumptions held by individuals and organisations. To become a Learning Organisation, these mental models must be challenged. Individuals tend to espouse theories, which they intend to follow, and theories-in-use, which is what they actually do. Similarly, organisations tend to have memories which preserve certain behaviours, norms and values. In the creation of a learning environment it is important to replace confrontational attitudes with an open culture that promotes inquiry and trust. To achieve this, the Learning Organisation will have mechanisms for locating and assessing organisational theories of action. If there are unwanted values held by the organisation, these need to be discarded in a process called unlearning Wang and Ahmed refer to this as triple loop learning.
Ulhas D Wadivkar 387

Characteristics of a Learning Organization-4


Shared vision The development of a shared vision is importantly provides incentive to the workforce to learn as it creates a common identity that can provide focus and energy for learning. The most successful visions are built on the individual visions of the employees at all levels of the organisation The creation of a shared vision is likely to be hindered by traditional structures where a company vision is imposed from above. Therefore Learning Organisations tend to have flat, decentralised organisational structures. The topic of shared vision is often to succeed against a competitor, however Senge states that these are transitory goals and suggests that there should also be long term goals that Wadivkar Ulhas Dare intrinsic within the company. 388

Characteristics of a Learning Organization-5


Team learning is the accumulation of individual learning. The benefit of sharing individual learning is that employees grow more quickly and the problem solving capacity of the organisation is improved through better access to knowledge and expertise. Learning Organisations have structures that facilitate team learning with features such as boundary crossing and openness. Team learning requires individuals to engage in dialogue and discussion, therefore it is important that team members develop open communication, shared meaning and understanding. Learning Organisations also have excellent knowledge management structures, which allow creation, acquisition, dissemination, and implementation of this knowledge throughout Ulhas D Wadivkar the organisation. 389

Characteristics of a Learning Organization-6


The basic rationale for such organisations is that in situations of rapid change, only those that are flexible, adaptive and productive will excel. For this to happen, it is argued that organisations need to discover how to tap peoples commitment and capacity to learn at all levels (Peter Senge, 1990) And that the pressure of change in the external environments of organisations... is such that they need to learn more consciously, more systematically, and more quickly than they did in the past... They must learn not only in order to survive but also to thrive in a world of ever increasing change (Pearn, 1997). The key ingredient of the Learning Organisation is in how organisations process their experiences and how they learn from their experiences rather than being bound by their past Ulhas D Wadivkar 390 experiences.

Learning Organisation Concepts


The concept of organisational learning evolved from the individual learning process, but organisational learning is

not simply the collectively of individual learning


processes, but it engages interaction between: Individuals in the organisation

Interaction between organisations as an entity


Interaction between the organisation and its environment The major Learning Organisational concepts focus on Continuous Improvement, Culture and Innovation and Creativity.
Ulhas D Wadivkar 391

Focus
1.

The concept of Learning Organisation


A learning organisation should consciously and intentionally devote to the facilitation of individual learning in order to continuously transform the entire organisation and its context (Pedler et al. 1991) A learning organisation should be viewed as a metaphor rather than a distinct type of structure, whose employees learn conscious communal processes for continually generating, retaining and leveraging individual and collective learning to improve performance of the organisational system in ways important to all stakeholders and by monitoring and improving performance (Drew & Smith, 1995)

Practices

Continuous Improvement

The adoption of Total Quality Management practices


Creation and maintenance of learning culture: adopting to cultural change, collaborati ve team working, employee empowerment and involvement, etc.

2.

Culture

3.

Innovation and Creativity

Organisation learning is the process by which the organisation constantly questions existing product, process and system, identify strategic position, apply various modes of learning, and achieve sustained competitive advantage

Facilitation of learning and knowledge creation; focus on creative quality and value innovation
392

Ulhas D Wadivkar

Problems / issues that may be encountered in a Learning Organisation: Even within a Learning Organisation, problems may be encountered that stall the process of learning or cause it to regress. Most of the problems arise from an Organisation not fully embracing all the facets outlined above that are necessary in a Learning Organisation. If these problems can be identified, work can begin on improving them. Organisational barriers to learning: Some organisations can find it hard to embrace personal mastery because as a concept it is intangible and the benefits cannot be quantified. Additionally, personal mastery can be seen as a threat to the organisation.
This threat can be real, as Senge points out, that to empower people in an unaligned organisation can be counterproductive.
Ulhas D Wadivkar 393

Organisational barriers to learning: (Contd.)


In other words, if individuals do not engage with a shared vision, personal mastery could be used to advance their own vision. In some organisations a lack of a pro-learning culture can be a barrier to learning. It is important that an environment is created where individuals can share learning without it being devalued and ignored. So more people can benefit from their knowledge and the individual becomes empowered. A Learning Organisation needs to fully embrace the removal of traditional hierarchical structures. These are a barrier to the development of shared vision and to the sharing of knowledge.
Ulhas D Wadivkar 394

Individual barriers to learning


Resistance to learning can occur within a Learning Organisation if there is not sufficient buy in at an individual level. This is often encountered by people who feel threatened by change or believe that they have the most to lose. The same people who feel threatened by change are likely to have closed mind sets are not willing to embrace engagement with mental models. Unless implemented coherently across the whole organisation, learning can be viewed as elitist and restricted to more senior levels within the organisation. If this is the case, learning will not be viewed as a shared vision. If training and development is compulsory, it can be viewed as a form of control, rather than a form of personal development. Learning and the pursuit of personal mastery needs to be an individual choice, therefore enforced take up will not work.
Ulhas D Wadivkar 395

Ideas on the "Why Learning Organisation?"


Because we want superior performance and competitive advantage For customer relations To avoid decline To improve quality To understand risks and diversity more deeply For innovation For our personal and spiritual well being To increase our ability to manage change For understanding For energized committed work force To expand boundaries To engage in community For independence and liberty For awareness of the critical nature of interdependence Ulhas D Wadivkar the times demand 396 Because

Syllabus
===================================== 12. Functional issues: Functional plans and policies Financial, Marketing, Operations, Personnel, IT, (2) ======================================
Ulhas D Wadivkar 397

Functional Plans & Policies:


Functional Strategies are derived from Business & Corporate Strategies and are implemented through Functional & operational Implementation. Functional Strategies deal with limited plan designed to achieve Objectives in a specific Functional area, allocation of resources for that functional area and coordination among different functional operations to achieve Functional Objectives. Functional Plans & Policies are developed for: 1. The Strategic decisions are implemented by all parts of an Organisation. 2. There is a basis available for controlling activities in different functional areas of Operation. 3. Plans are laid down for what is to be done and Policies provide guideline for discretions and Functional Managers time in decision making is reduced. 4. Required Coordination amongst different functions takes place. Ulhas D Wadivkar 398

Financial Plans & Policies


Sources of Funds: 1. Capital Mix Decisions. 2. Capital Structure. 3. Procurement of Capital. 4. Working Capital Borrowings. 5. Reserves & Surpluses as source of Funds. 6. Relationships with Lenders, Banks & FIs. Plans & Policies related to sources of funds determine how financial resources will be made available for implementation of Strategies. Usage of Funds: 1. Investment or Asset mix decisions. 2. Capital Investments, 3. Fixed Asset acquisitions, 399 4. Ulhas D Wadivkar Current Assets, Loans & Advances,

5. Dividend decisions, 6. Relationship with Shareholders, Usage of Funds relates to efficiencies & effectiveness of resource utilisation in the process of Strategy Implementation. Management of Funds: 1. System of Finance, 2. Accounting & Budgeting, 3. Management Control Systems, 4. Cash, Credit and Risk Management, 5. Cost control, cost reduction and Tax planning 6. Aiming at Conservation and Optimum utilisation of Funds. Organisations which implement business strategies of Cost leadership must practice proper management of Funds. Good management of funds often creates the difference Between strategically successful or unsuccessful Company.
Ulhas D Wadivkar 400

Marketing Plans & Policies


These are 4Ps of Marketing Product: Goods & Services offered by Organisation to its Target market. (Choice of Models, Quality, Features, Brand names, Packaging etc.) Pricing : Money that Customers pay in exchange of Goods & Services. (Discounts, Mode of payment, Allowances, Payment period, Credit terms) Promotion: Marketing communications intended to convey the company and product or service image to prospective buyers. (Advertising, Personal Selling, Sales Promotion and Publicity) Place: Distribution process by which goods or services are made available to the customers. (Transportation, logistics, inventory storage management, coverage of markets, etc.,)
Ulhas D Wadivkar 401

Integrative & Systematic Factors: This part of the plans & policies related to Marketing Management. (Marketing mix, Segmentation, Targeting, Positioning, Market Standing, Company Image, Marketing Organisation, Marketing System, Marketing Management Information System)

Operations Plans & Policies:


Production System Capacity, Location, Layout, Product or Service design, Work systems, Degree of Automation, extent of vertical integration. Operation Plans & Policies deals with vital issue affecting the capability of the Organisation to achieve objectives. Operational Planning & Control Production Planning, Materials supply, inventory, Cost, Quality Management, Maintenance of Plant and Equipment. Ulhas D Wadivkar 402 Research & Development

Personnel Plans & Policies:


HRM Plans & Policies relate to providing & maintaining human resources: Personnel System: Manpower Planning, Selection, Development, Compensation, Communication and Appraisal Organisational & Employee Characteristics: Corporate image, Quality of Managers, Staff & Workers, Image of Organisation as an Employer, availability of Development opportunities for employees, working conditions etc., Industrial Relations: Union Management relationship, Collective bargaining, Safety & Security, Employee satisfaction & morale.

Information management Plans & Policies:


Information capability factors relate to design & management of the flow of information within and from outside. The value of Ulhas D Wadivkar 403 information is source of Strategic Advantage.

Acquisition and Retention of Information: Sources, Quantity, Quality, and timeliness of Information, retention capacity and security of information. Processing and Synthesis of Information: Database management, Computer Systems, Software capability and ability to synthesise information. Retrieval & Usage of Information: Availability and appropriateness of Information formats and the capacity to assimilate and use information. Transmission & Dissemination of Information: speed, scope, width & depth of coverage of information with willingness to accept the information. Integrative, Systematic and Supportive Factors: availability of IT infrastructure and its relevance, compatibility to organisational needs, up gradation facilities, investing in state of art systems, Computer professionals, top management support.
Ulhas D Wadivkar 404

Syllabus
==================================

13. Strategy Evaluation: Operations Control and Strategic Control Symptoms of malfunctioning of strategy Balanced Scorecard. (2)
==================================

Ulhas D Wadivkar

405

Ulhas D Wadivkar

406

Balanced Score Card (BSC)


The Balanced scorecard (BSC) is a strategic Performance Management tool for measuring whether the smaller-scale operational activities of a company are aligned with its larger-scale objectives in terms of vision and strategy. Balance Card focuses not only on financial outcomes but also on the operational, marketing and developmental inputs to these. Organizations measure, those factors which influenced the financial outputs. For example, process performance, market share / penetration, long term learning and skills development, and so on. The Balanced Scorecard helped organizations achieve a degree of Balance" in selection of performance measures Balanced Scorecard helps provide a more comprehensive view of a business This tool is also being used to address business response to Environmental Changes.
Ulhas D Wadivkar 407

Organizations must also control those factors which influences the financial outputs, such as, process performance, market share / penetration, long term learning and skills development, and so on. Organisations cannot directly influence Financial Outcomes as they relate to past. There is a "lag" between actions and Financial Outcome. Also to use of financial measures alone for the strategic control of the firm is unwise. Organizations should also measure those areas where direct management intervention is possible. Balanced Scorecard helps organizations achieve a degree of "balance" in selection of performance measures. Scorecards achieve this balance by selecting measures from three additional categories or perspectives: "Customer," "Internal Business Processes" and "Learning and Growth." Phrase Balanced Scorecard" was coined in the early 1990s. In 1992, by Dr. Robert Kaplan and David P Norton. They added another innovation, the Strategy Map. This new tool, which provided a visual way to craft business strategies.
Ulhas D Wadivkar 408

1. 2.

3. 4.

Balanced Score Cards helps managers, in focussing their attention on strategic issues and the management of the implementation of strategy, it is important to remember that the balanced scorecard itself has no role in the formation of strategy. In fact, balanced scorecards comfortably co-exist with strategic planning systems and other tools. Implementing Balanced Scorecards typically includes four processes: Translating the vision into operational goals; Communicating the vision and link it to individual performance; Business planning; index setting; Feedback and Learning, and adjusting the Strategy accordingly
409

Ulhas D Wadivkar

Measures are selected based on a set of "strategic objectives" plotted on a "strategic linkage model" or Strategy Map". The strategic objectives are distributed across the four measurement perspectives, so as to "connect the dots" to form a visual presentation of strategy and measures. To develop a Strategy Map, managers select a few strategic objectives within each of the perspectives, and then define the cause-effect chain among these objectives by drawing links between them. A balanced scorecard of strategic performance measures is then derived directly from the strategic objectives. This type of approach provides greater contextual justification for the measures chosen, and is generally easier for managers to work through. Strategy Mapping:A strategy map is a visual representation of the strategy of an organization. It illustrates how the organization plans to achieve its mission and vision by means of a linked chain of continuous Ulhas D Wadivkar 410 improvements.

Methodology of Strategy Mapping

Strategy Mapping
For a commercial business, the strategy map illustrates the long-term game plan or competitive strategy to achieve increased profitability. For a non-profit or governmental organization, it illustrates the plan by which the organization intends to improve performance of its mission. In either case it illustrates the cause-and-effect relationships between different strategic objectives and their measures, or Key Performance Indicators (KPIs) that are included in a Balanced Score Card. Strategy maps are communication tools used to tell a story of how value is created for the organization. They show a logical, step-by-step connection between strategic objectives (shown as ovals on the map) in the form of a cause-andeffect chain. Generally speaking, improving performance in the objectives found in the Learning & Growth perspective (the bottom row) enables the organization to improve its Internal Process perspective Objectives (the next row up), which in turn enables the organization to create desirable results in the Customer and Financial perspectives (the top Ulhas Drows). 411 two Wadivkar

Ulhas D Wadivkar

412

Kaplan and Norton found that companies are using Balanced Scorecards to: Drive strategy execution; Clarify strategy and make strategy operational; Identify and align strategic initiatives; Link budget with strategy; Align the organization with strategy; Conduct periodic strategic performance reviews to learn about and improve strategy.
The four perspectives Financial perspective; Customer perspective; Internal process perspective; Innovation and learning perspective.
Ulhas D Wadivkar 413

1. The Financial Perspective


The companys implementation and execution of its strategy must contribute to the bottom-line improvement of the company. It represents the long-term strategic objectives of the organization and thus it incorporates the tangible outcomes of the strategy in traditional financial terms. The three possible measurements as described by Kaplan and Norton (1996) are: Rapid growth: Increased sales volumes, Acquisition of new customers, Growth in revenues etc Sustain: Operations and Costs, by calculating the Return On Investment, Return On Capital Employed, EVA, etc and Harvest: Cash Flow analysis with measures such as Payback Periods and Revenue Volume. Profit Margins, Net Operating Income Financial KPIs : Cash Flow, Return on Investments, Financial Results, Return on Capital Employed, Return on Equity, Residual Income, Economic Value Addition, etc.
Ulhas D Wadivkar 414

2.The Customer Perspective


The Customer Perspective defines the value proposition that the organization will apply to satisfy customers and thus generate more sales to the most desired (i.e. the most profitable) customer groups. The measures are value that is delivered to the customer (value proposition) and Cost Value proposition: (e.g., customer satisfaction, market share). Cost: Delivery Time, Quality, Performance and Service, The value proposition can be centred on one of the three: operational excellence, Customer Intimacy, or product leadership, KPIs could be : Cost Leadership, CSI Customer Satisfaction Index, Quality Parameters Six Sigma initiatives, Performance Customer Complaint Record Claims,
Ulhas D Wadivkar 415

3. Internal Process Perspective

The Internal Process Perspective is concerned with the processes that create and deliver the customer value proposition. It focuses on all the activities and key processes required in order for the company to excel at providing the value expected by the customers both productively and efficiently. These can include both short-term and long-term objectives as well as incorporating innovative process development in order to stimulate improvement. Operations management - (by improving asset utilization, supply chain management, etc), Customer management - (by expanding and deepening relations - CSI), Innovation - (by new products and services) Continual Improvement - KPI and Regulatory & Social - (by establishing good relations with the external stakeholders). KPIs Opportunity Success rate, Accident Ratios, Environment Ulhas D Wadivkar 416 Compatibility, Operational Equipment Effectiveness OEE.

4. Innovation and Learning Perspective


The innovation and learning perspective is the foundation of any strategy and focuses on the Intangible Assets of an organization, mainly on the internal skills and capabilities that are required to support the value-creating internal processes. The Innovation & Learning Perspective is concerned with the jobs (human capital), the systems (information capital), and the climate (organisation capital) of the enterprise. These three factors relate to the infrastructure that is needed in order to enable ambitious objectives in the other three perspectives to be achieved. This of course will be in the long term, since an improvement in the learning and growth perspective will require certain expenditures that may decrease short-term financial results, whilst contributing to long-term success. Learning and growth: KPIs: Investment Rate, Illness Rate, Internal Promotions, (Succession Plan), Employee Turnover, Gender Ratios
Ulhas D Wadivkar 417

Key Success factors Non Financial


Customer Related : Bookings, Backorders-Backlog, Market Share, Key Account orders, CSI Customer Satisfaction Index, Customer Retention, Customer loyalty, Internal Business Processes: Capacity Utilisation, (Sold Time for Consultants, Occupancy rates for Hotels etc.), On time Delivery, Inventory Turnover, Throughput Cycle Time = Processing Time (Value Adding) + Storage Time + Movement Time + Inspection Time (Non Value adding times), JIT Index = Process Time / Total Cycle Time Quality Defective units, Late deliveries, Yields, Rework Percentage, Scrap, Machine Breakdowns, Customer Complaints and Claims, Field service Expenses, Products Returned,
Ulhas D Wadivkar 418

Ulhas D Wadivkar

419

Ulhas D Wadivkar

420

Ulhas D Wadivkar

421

Symptoms of Mal-Functioning of Strategy -1


The strategic Symptoms frequently include one or more of the following (Grant, 2002): 1. Low growth exposes strategic sloppiness and strategic errors 2. Strategic change is often lumpy as firms lurch from strategy to strategy to combat low growth; Whilst some policy appears proactive, much is reactive Contains elements of hasty opportunism 3. Poor Organisational Results: Unsustainable Business Results, Poor Financial Results and / or, Poor Operational results. 4. Low employee Morale: High Employee Turnover, Missing Commitments, D Wadivkar targets too often, Missing Ulhas 422

Symptoms of Mal-Functioning of Strategy-2


5. Customer Dissatisfaction: Customer Complaints non-specific to Quality, Repeated Customer complaints for same cause, Loss of key account Customers or loss of customers in general, Very few repeat orders. Delayed deliveries, missing commitments, 6. Loss of Market Share: Lack of Innovation, Lack of Up-Gradation, Unable to sustain market competition, Unable to manage competition, 7. Poor Work Climate in Organisation: Organisation developing unsustainable work practices. Quality taking second place lagging behind practice prevailing over law, Ulhas D Wadivkar 423 Resulting into decreased Quality in all spheres of Operation.

Symptoms of Mal-functioning for a CEO: 1. Are you attending too many meetings, and ones which are discussing the wrong things? 2. Do subordinates consult you too often before taking action? 3. Do you learn about things only after theyve already happened? 4. Are your subordinates apparently trying to anticipate your likes and dislikes - and forming their opinions accordingly? 5. Are you unclear about where you stand with your boss or bosses? 6. Are your incentives disproportionately dependent on the share price? 7. Do you have few, if any, activities which are not connected to the company? All these personal behaviours are symptoms of a corporate disease - and that illness is as common as the cold. The disease is chronic mismanagement. All seven of the symptoms show that you and others in the corporation are being hampered in managing effectively by faults which manifests to failure or poor Ulhas D Wadivkar 424 performance.

CEO Cult in Organisations


This happens due to a CEO Cult :The Cult holds these seven Beliefs: 1. The CEO runs the company. 2. He or she does so, on the basis of order-and obey. 3. The CEO controls all events and is the source of all important information. 4. His or her authority is enhanced by the exercise of personality - even charisma. 5. The CEO has no trouble in turning the other directors into acquiescent poodles. 6. CEOs place pleasing shareholders above all else, primarily by boosting shareholder value (i.e., the share price) 7. They are expected to deploy superhuman qualities in order to live up to the previous six postulates.
The Cult is fallacious and dangerous. Each of these seven items puts the company and its stakeholders at risk. Ulhas D Wadivkar 425

What a CEO should do?


Generate collective, collaborative processes that make excellent decisions and effective execution far more likely. For example, CEO should... Limit the number of meetings you attend to those whose purpose are clearly defined and demand your presence. Delegate ample authority and autonomy to subordinates so that they can take decisions and actions on their own initiative. Establish communications bottom-up, top-down and lateral so that everybody, including you, has the fullest possible picture of whats going on everywhere. Listen to full and frank discussion with subordinates before guiding people to the best consensus. Operate on a mutual, advise-and-consent basis (avoiding order-and-obey) in relations with superiors and subordinates Work out the vital metrics of the business, and concentrate on them, not the share price. 426 Ulhas D Wadivkar Stop the business taking over the whole of your life.

Case Study Method - Comments


Case Method is quite old & method of learning from real life situations. First introduced by Harward Law School in 1871. A case is narration of events in, & Conditions of, an organisation. Through these events & conditions, reader of a case gets to know the situation prevailed in that organisation for him to dwell on, understand, discuss, analyse and suggest remedies and practical workable solutions. Guidelines for systematic approach to prepare a case for Discussions. 1. Read case once for familiarity, get a feel of the situation. 2. Read case again, grasp the facts, make notes, jot down important points. 3. Evaluate the situation described in Case. Attempt to understand objectives, strategies, policies, problems & their causes, issues and role of individuals in the case. 4. Prepare ETOP & SAP in your notes. 5. Think of Strategic Alternatives & suggest best options. Support your proposal with facts, reasons & arguments.
Ulhas D Wadivkar 427

6. Propose comprehensive plan for Strategy Implementation considering resources and manageability of implementation. 7. Evaluate you proposal. State quantitative & qualitative criteria, you assumptions for arriving at your conclusion. 8. Keep the written analysis simple, but do not overlook major issues. 9. Adopt nice style of writing. Do not copy word to word from Case. Use headings,, Labels, Topic issues. Present whole written structure to be in one logical & integrated way. 10. Include analysis based on techniques like ETOP, SWOT, SAP, Value Chain, Industry analysis, competitive analysis. 11. Specifically state you assumptions when making recommendations. Provide supporting evidence and benchmarks used for evaluation. 12. Provide a summary, in a page, for major issues and recommendations made by you.
Ulhas D Wadivkar 428

Potrebbero piacerti anche