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STRATEGIC MANAGEMENT
Objectives:
To explain core concepts in strategic management and provide examples of their relevance and use by
actual companies
To focus on what every student needs to know about formulating, implementing and executing business
strategies in todays market environments
To teach the subject using value-adding cases that features interesting products and companies, illustrate
the important kinds of strategic challenges managers face, embrace valuable teaching points and spark
students interest.
Module 1 (8 Hours)
Meaning and Nature of Strategic Management, its importance and relevance. Characteristics of Strategic
Management. The Strategic Management Process. Relationship between a Companys Strategy and its
Business Model.
Module 2 (8 Hours)
Strategy Formulation Developing Strategic Vision and Mission for a Company Setting Objectives
Strategic Objectives and Financial Objectives Balanced Scorecard. Company Goals and Company
Philosophy. The hierarchy of Strategic Intent Merging the Strategic Vision, Objectives and Strategy
into a Strategic Plan.
Module 3 (7 Hours)
Analyzing a Companys External Environment The Strategically relevant components of a Companys
External Environment Industry Analysis Industry Analysis Porters dominant Economic features
Competitive Environment Analysis Porters Five Forces model Industry diving forces Key Success
Factors concept and implementation.
Module 4 (8 Hours)
Analyzing a companys resources and competitive position Analysis of a Companys present strategies
SWOT analysis Value Chain Analysis Benchmarking Generic Competitive Strategies Low cost
provider Strategy Differentiation Strategy Best cost provider Strategy Focused Strategy Strategic
Alliances and Collaborative Partnerships Mergers and Acquisition Strategies Outsourcing Strategies
International Business level Strategies.
Module 5 (7 Hours)
Business Planning in different environments Entrepreneurial Level Business planning Multistage
wealth creation model for entrepreneurs Planning for large and diversified companies brief overview of
Innovation, integration, Diversification, Turnaround Strategies - GE nine cell planning grid and BCG
matrix.
Module 7 (8 Hours)
Strategic Control, guiding and evaluating strategies. Establishing Strategic Controls. Operational Control
Systems. Monitoring performance and evaluating deviations, challenges of Strategy Implementation. Role
of Corporate Governance
Practical Components:
Business Plan: Students should be asked to prepare a Business Plan and present it at the end of the
semester. This should include the following:
Executive Summary
Overview of Business and industry analysis
Description of recommended strategy and justification
Broad functional objectives and Key Result Areas.
Spreadsheet with 5-year P&L, Balance Sheet, Cash Flow projections, with detailed Worksheets for
the revenue and expenses forecasts.
Analyzing Mission and Vision statements of a few companies and comparing them
Applying Michael Porters model to an industry (Retail, Telecom, Infrastructure, FMCG, Insurance,
Banking etc.
Pick a successful growing company. Do a web-search of all news related to that company over a one-
year period. Analyze the news items to understand and write down the Companys strategy and execution
efficiency.
Pick a company that has performed very badly compared to its competitors. Collect Information on why
the company failed. What were the issues in strategy and execution that were responsible for the
companys failure in the market. Analyze the internal and external factors
Map out GE 9-cell matrix and BCG matrix for some companies and compare them
Conduct SWOT analysis of your institution and validate it by discussing with faculty
Conduct SWOT analysis of companies around your campus by talking to them
RECOMMENDED BOOKS:
Crafting and Executing Strategy, Arthur A. Thompson Jr., AJ Strickland III, John E
Gamble, 18/e, Tata McGraw Hill, 2012.
Strategic Management, Alex Miller, Irwin McGraw Hill
Strategic Management - Analysis, Implementation, Control, Nag A, 1/e, Vikas, 2011.
Strategic Management - An Integrated Approach, Charles W. L. Hill, Gareth R. Jones,
Cengage Learning.
Business Policy and Strategic Management, Subba Rao P, HPH.
Strategic Management, Kachru U, Excel BOOKS, 2009.
REFERENCE BOOKS:
Strategic Management: Concepts and Cases, David R, 14/e, PHI.
Strategic Management: Building and Sustaining Competitive Advantage, Robert A. Pitts & David Lei,
4/e, Cengage Learning.
Competitive Advantage, Michael E Porter, Free Press NY
Essentials of Strategic Management, Hunger, J. David, 5/e, Pearson.
Strategic Management, Saroj Datta, jaico Publishing House, 2011.
Business Environment for Strategic Management, Ashwathappa, HPH.
Contemporary Strategic Management, Grant, 7/e, Wiley India, 2012
Strategic Management-The Indian Context, R. Srinivasan, 4 th edition, PHI
CONTENTS
Strategy Implementation
6 88-93
Strategic Control
7 94-102
Module I
Meaning and Nature of Strategic Management, Its importance and relevance, Characteristics of
Strategic Management, The Strategic Management Process Relationship between companys
Strategy and its Business Model.
The term strategy is derived from the Greek word strategos which means art of
general.
Definition
According to Johnson and Scholes, strategy is the direction and scope of an organization
over the long-term: which achieves advantage for the organization through its configuration of
resources within a challenging environment, to meet the needs of markets and to fulfill
stakeholder expectations.
How:
How to outcompete rivals.
How to respond to economic and market conditions and growth opportunities.
How to manage functional pieces of the business.
Howto improve the firms financial and market performance.
Definition
The on-going process of formulating, implementing and controlling broad plans guide
the organization in achieving the strategic goods given its internal and external environment.
Corporate Strategy is concerned with the overall purpose and scope of the business to meet
stakeholder expectations. This is a crucial level since it is heavily influenced by investors in the
business and acts to guide strategic decision-making throughout the business. Corporate strategy
is often stated explicitly in a mission statement.
For eg. Coco cola, Inc., has followed the growth strategy by acquisition. It has acquired local
bottling units to emerge as the market leader
Business Unit Strategy is concerned with how a business competes successfully in a particular
market. It concern strategic decisions about
- Choice of products,
- Meeting needs of customers,
- Gaining advantage over competitors,
- Exploiting or creating new opportunities.
For eg. Apple Computers uses a differentiation competitive strategy that emphasizes
innovative product with creative design.
In contrast, ANZ Grindlays merged with Standard Chartered Bank to emerge competitively.
Operational Strategy is concerned with how each part of the business is organized to deliver
the corporate and business unit level strategic direction. Operational strategy therefore focuses
on issues of
resources,
processes,
people etc.
Functional Strategy it is the approach taken by a functional area to achieve corporate and
business unit objectives and strategies by maximizing resource productivity. It is concerned with
developing and nurturing a distinctive competence to provide the firm with a competitive
advantage.
For eg. P & G spends huge amounts on advertising to create customer demand.
Strategic management is both an Art and science of formulating, implementing, and evaluating,
cross-functional decisions that facilitate an organization to accomplish its objectives. The
purpose of strategic management is to use and create new and different opportunities for future.
The nature of Strategic Management is dissimilar form other facets of management as it demands
awareness to the "big picture" and a rational assessment of the future options. It offers a strategic
direction endorsed by the team and stakeholders, a clear business strategy and vision for the
future, a method for accountability, and a structure for governance at the different levels, a
logical framework to handle risk in order to guarantee business continuity, the capability to
exploit opportunities and react to external change by taking ongoing strategic decisions.
As the environment changes, companies may change their vision and objectives, structure,
portfolio of business, markets and competitive strategies. The economic liberalization and the
Markets are becoming global & products must suit individual needs. There are too much of rules
& regulations prevailing which must be followed strictly. Above all, an organization is expected
to fulfill social responsibilities which, if ignored, may lead to drastic consequences. Due to fast
changing business environment, strategic management has assumed greater relevance today. It
has become increasingly difficult to predict the future as:
Environment is more complex
Technologies are changing at a rapid rate
Both domestic & international events get affected due to globalization
More reliance on innovation, creativity
More social responsibility
Increased legislation
Long-Term Issues
Strategic management deals primarily with long-term issues that may or may not have an
immediate effect. For example, investing in the education of the company's work force
may yield no immediate effect in terms of higher productivity. Still, in the long run, their
education will result in higher productivity, and therefore enhanced profits.
Competitive Advantage
Effect on Operations
Good strategic management always has a sizable effect on operational issues. For
example, a decision to link pay to performance will result in operational decisions being
more effective as employees try harder at their jobs. Operational decisions include
decisions that deal with questions such as how to sell to certain customers or whether to
open a credit line to them. Operational decisions are made in the lower echelons of the
organizational hierarchy.
Shareholders
Managing the organization strategically fashion requires that the interests of shareholders
be put at the heart of all issues. Whether the question at hand is expansion into a new
market or negotiating mergers and acquisitions, shareholder value should be at the core at
all times.
Evaluation &
Control
Strategic Analysis: The process of Strategic Analysis can be assisted by a number of tools,
including:
Scenario Planning - a technique that builds various possible views of possible futures
for a business.
Five Forces Analysis a technique for identifying the forces which affect the level of
competition in an industry.
SWOT Analysis a useful summary technique for summarizing the key issues arising
from an assessment of a businesss internal position and external environmental influences.
Strategic Choice:
Strategic choice involves understanding the nature of stakeholder expectations
identifying strategic options, and then evaluating and selecting strategic options.
Strategic implementation:
Strategic implementation is the process by which strategies and policies are put into
action through the development of programs, budgets and procedures.
Initially business operated in environments which had little or no competition. Industry was
limited to a few firms. The geographical distribution of most organization was limited & changes
in technology were slow. The need for SM was felt in 1960s due to changing world conditions
that lead to diversification & spreading out of activities in other countries. So the need was:
Due to change
Systemized decision
Improves Communication
Allocation of Resources
Improves co-ordination
Markets are becoming global & products must suit individual needs. There are too much of rules
& regulations prevailing which must be followed strictly. Above all, an organization is expected
to fulfill social responsibilities which, if ignored, may lead to drastic consequences. Due to fast
changing business environment, strategic management has assumed greater relevance today. It
has become increasingly difficult to predict the future as:
Environment is more complex
Technologies are changing at a rapid rate
Both domestic & international events get affected due to globalization
More reliance on innovation, creativity
More social responsibility
Increased legislation
Goal Setting
Analysis
Strategy
Formulation
Strategy
Implementation
nn
Strategy
Evaluation
Allocation of resources
Business to enter or retain, to divest or liquidate
Joint Ventures or mergers, Expansion or entry into Foreign markets
Trying to avoid take over
Strategy Evaluation: Evaluating the performance & initiating corrective adjustments. This is the
final stage in the Strategic Management process. It is the means to obtain information about
proper implementation of the strategy. All strategies are subject to future modification because
external & internal forces are constantly changing.
Financial Benefits
Research indicates that organizations using strategic-management concepts are more profitable
and successful than those that do not. Businesses using strategic-management concepts show
significant improvement in sales, profitability, and productivity compared to firms without
systematic planning activities. High-performing firms tend to do systematic planning to prepare
for future fluctuations in their external and internal environments. Firms with planning systems
more closely resembling strategic management theory generally exhibit superior long-term
financial performance relative to their industry. High-performing firms seem to make more
informed decisions with good anticipation of both short- and long-term consequences. On the
other hand, firms that performs poorly often engage in activities that are shortsighted and do not
reflect good forecasting of future conditions. Strategists of low-performing organizations are
often preoccupied with solving internal problems and meeting paperwork deadlines. They
typically underestimate their competitors' strengths and overestimate their own firm's strengths.
They often attribute weak performance to uncontrollable factors such as poor economy,
technological change, or foreign competition.
Another term related to strategy and tactics in military operations is logistics. Logistics refers
to how an army will be supported so they can employ tactics. Logistics form a part of
strategy, for example, when one looks at providing a military force with weapons, food and
lodging.
Strategy (what?): What to achieve? To attract more new clients and better retain existing
Ones
Tactics (How?) How to achieve your strategies through who you are, by what you do and
with what you have.
As Peter Drucker says: "Strategy is doing the right things, tactics is doing things
right." Also, when you next hire a new employee, decide whether that employee
would do a strategic or a tactical job.
The Strategic Planning Process:
In today's highly competitive business environment, budget-oriented planning or forecast based
planning methods are insufficient for a large corporation to survive and prosper. The firm must
engage in strategic planning that clearly defines objectives and assesses both the internal and
external situation to formulate strategy, implement the strategy, evaluate the progress, and make
adjustments as necessary to stay on track. A simplified view of the strategic planning process is
shown by the following diagram:
Business Model . . . Concerns whether revenues and costs flowing from the strategy
demonstrate a business can be amply profitable and viable
Business Model Design Template:
Infrastructure
Core capabilities
Partner network
Offering
Value proposition
Customers
Target customer
Distribution channel
Customer relationship
Finances
Cost structure
Revenue
Business Model-Components
The value proposition of what is offered to the market;
The target customer segments addressed by the value proposition;
The communication and distribution channels to reach customers and offer the value proposition;
The relationships established with customers;
The core capabilities needed to make the business model possible;
The configuration of activities to implement the business model;
The partners and their motivations of coming together to make a business model happen;
The revenue streams generated by the business model constituting the revenue model;
The cost structure resulting of the business model.
Strategy . . .
Business Model . . . Concerns whether revenues and costs flowing from the strategy demonstrate
a business can be amply profitable and viable
Customer Focus
Competitor Focus
Activity Fit
Corporate Fit
Alliance Fit
People Fit
Reward System Fit
Communications Fit
Faster Innovation
Big Companies Act Small
Small Companies Act Big
Stakeholder Competency
Shareholders
Customers
Employees
Communities
Senior Managers
Module II
Strategy formulation Developing Strategic vision and Mission for a company Setting
Objectives Strategic Objectives and Financial Objectives Balanced score card, Company
Goals and Company Philosophy. The hierarchy of Strategic Intent Merging the Strategic
Vision Objectives and Strategy into a Strategic Plan.
Strategy formulation
Strategy formulation is the process by which an organization chooses the most. appropriate
courses of action to achieve its defined goals. This process is. essential to an organization's
success, because it provides a framework for the. Strategy formulation refers to the process of
choosing the most appropriate course of action for the realization of organizational goals and
objectives and thereby achieving the organizational vision.
The mission statement communicates the firm's core ideology and visionary goals, generally
consisting of the following three components:
The firm's core values and purpose constitute its core ideology and remain relatively constant.
They are independent of industry structure and the product life cycle.
The core ideology is not created in a mission statement; rather, the mission statement is simply
an expression of what already exists. The specific phrasing of the ideology may change with the
times, but the underlying ideology remains constant.
Mission Statement:
7. Adapted to the Target Audience stock holders, consumers, employees through shared
Creed statement
Statement of purpose
Statement of philosophy
Narrow Mission
Broad Mission
Narrow Mission:
Narrow mission also identifies the mission but it restrict in terms of:
2. Technology used
3. Market served
4. Opportunity of growth
Broad Mission:
Broad mission wider our mission values in terms of product and services, offered, market
served, technology used and opportunity of growth. But main flow of this mission that if
creates confusion among employee due to its wider sense.
Illustration:For example consider two different firms A & B. A deals in Rail Roads and B
deals in Transportation i.e. we can say A co. has narrow mission and B co. has a wider
mission.
Mission statements can and do vary in length, content, format, and specificity. Most practitioners
and academicians of strategic management consider an effective statement to exhibit nine
characteristics or components. Because a mission statement is often the most visible and public
part of the strategic management process, it is important that it includes all of these essential
components.
Broad in scope
Components and corresponding questions that a mission statement should answer are given here.
Concern for survival, growth, and profitability: Is the firm committed to growth and financial
soundness?
Philosophy: What are the basic beliefs, values, aspirations, and ethical priorities of the firm?
Concern for public image: Is the firm responsive to social, community, and environmental
concerns?
It is Apples mission to help transform the way customers work, learn and communicate by
providing exceptional personal computing products and innovative customer services.
We will pioneer new directions and approaches, finding innovative ways to use computing
technology to extend the bounds of human potential.
Apple will make a difference: our products, services and insights will help people around the
world shape the ways business and education will be done in the 21st century.
McDonalds :To offer the fast food customer food prepared in the same high-quality manner
world-wide, tasty and reasonably priced, delivered in a consistent, low-key decor and friendly
atmosphere.
Key Market: To offer the fast food customer
Contribution: food prepared in the same high-quality manner world-wide, tasty and reasonably
priced,
Distinction: delivered in a consistent, low-key decor and friendly atmosphere.
VISION:
.. . . . Jonathan Swift
The very essence of leadership is that you have vision. You cant blow an uncertain trumpet
...Theodore Hesburgh
VisionDefines the desired or intended future state of a specific organization or enterprise in term
s of its fundamental objective and/or strategic direction.
The difference between a mission statement and a vision statement is that a mission statement fo
cuses on a companys present state while a vision statement focuses on a companys future
Most companies are now getting used to the idea of using mission statements.
Small, medium and large firms in Pakistan are also realizing the need and adopting mission
statements.
Components of vision:
The core values are a few values (no more than five or so) that are central to the firm. Core
values reflect the deeply held values of the organization and are independent of the current
industry environment and management fads.
One way to determine whether a value is a core value to ask whether it would continue to be
supported if circumstances changed and caused it to be seen as a liability. If the answer is that it
would be kept, then it is core value. Another way to determine which values are core is to
imagine the firm moving into a totally different industry. The values that would be carried with it
into the new industry are the core values of the firm.
Core values will not change even if the industry in which the company operates changes. If the
industry changes such that the core values are not appreciated, then the firm should seek new
markets where its core values are viewed as an asset.
For example, if innovation is a core value but then 10 years down the road innovation is no
longer valued by the current customers, rather than change its values the firm should seek new
markets where innovation is advantageous.
The following are a few examples of values that some firms have chosen to be in their core:
Core Purpose
The core purpose is the reason that the firm exists. This core purpose is expressed in a carefully
formulated mission statement. Like the core values, the core purpose is relatively unchanging
and for many firms endures for decades or even centuries. This purpose sets the firm apart from
other firms in its industry and sets the direction in which the firm will proceed.
The core purpose is an idealistic reason for being. While firms exist to earn a profit, the profit
motive should not be highlighted in the mission statement since it provides little direction to the
firm's employees. What is more important is how the firm will earn its profit since the "how" is
what defines the firm.
Initial attempts at stating a core purpose often result in too specific of a statement that focuses on
a product or service. To isolate the core purpose, it is useful to ask "why" in response to first-
pass, product-oriented mission statements. For example, if a market research firm initially states
that its purpose is to provide market research data to its customers, asking "why" leads to the fact
that the data is to help customers better understand their markets. Continuing to ask "why" may
lead to the revelation that the firm's core purpose is to assist its clients in reaching their
objectives by helping them to better understand their markets.
The core purpose and values of the firm are not selected - they are discovered. The stated
ideology should not be a goal or aspiration but rather, it should portray the firm as it really is.
Any attempt to state a value that is not already held by the firm's employees is likely to not be
taken seriously.
Visionary Goals
The visionary goals are the lofty objectives that the firm's management decides to pursue. This
vision describes some milestone that the firm will reach in the future and may require a decade
or more to achieve. In contrast to the core ideology that the firm discovers, visionary goals are
selected.
These visionary goals are longer term and more challenging than strategic or tactical goals.
There may be only a 50% chance of realizing the vision, but the firm must believe that it can do
so. Collins and Porras describe these lofty objectives as "Big, Hairy, Audacious Goals." These
goals should be challenging enough so that people nearly gasp when they learn of them and
realize the effort that will be required to reach them.
Target - quantitative or qualitative goals such as a sales target or Ford's goal to "democratize
the automobile."
Common enemy - centered on overtaking a specific firm such as the 1950's goal of Philip-
Morris to displace RJR.
For example, a cycling accessories firm might strive to become "the Nike of the cycling
industry."
For example, GE set the goal of becoming number one or number two in every market it serves.
While visionary goals may require significant stretching to achieve, many visionary companies
have succeeded in reaching them. Once such a goal is reached, it needs to be replaced; otherwise,
it is unlikely that the organization will continue to be successful. For example, Ford succeeded in
placing the automobile within the reach of everyday people, but did not replace this goal with a
better one and General Motors overtook Ford in the 1930's.
Strategic vision:
A strategic vision is a road map showing the route a company intends to take in
developing and strengthening its business. It paints a picture of a companys
destination and provides a rationale for going there.
Involves thinking strategically about
Future direction of company
Changes in companys product-market-customer-technology to improve
Current market position
Future prospects
A strategic vision widely shared among all employees functions similar to how a magnet
aligns iron filings
When all employees are committed to firms long-term direction, optimum choices on
business decisions are more likely
o Individuals & teams know intent of firms strategic vision
o Daily execution of strategy is improved
ITC:
Infosys
General Electric
We will become number one or number two in every market we serve, and revolutionize this
company to have the speed and agility of a small enterprise.
Microsoft Corporation
Empower people through great softwareany time, any place, and on any device.
A strategic vision concerns a firms future business path - where we are going
Markets to be pursued
Future technology-product-customer focus
Kind of company management is
trying to create
The mission statement of most companies focuses on current business activities - who
we are and what we do
Current product and service offerings
Customer needs being served
Technological and business capabilities
A statement of values is often provided to guide the companys pursuit of its vision
Values Beliefs, business principles, and ways of doing things that are incorporated into
Companys operations
Behavior of workforce
Values statements
Contain between four and eight values
Are ideally tightly connected to and reinforce companys vision, strategy, and
operating practices
Entrepren
Creating eurial Excellent
sharehold spirit customer
er value service
Building Giving
strong back to
relationshi the
Taking Respect
ps communit
care of for all
y
people Doing the people
right thing
SETTING OBJECTIVES
We aim to achieve an operating profit of over 10 million on sales of at least 100 million
We aim to increase earnings per share by at least 10% every year for the foreseeable future
We aim to achieve 75% customer awareness of our brand in our target markets
Both corporate and functional objectives need to conform to the commonly used SMART
criteria.
SMART:
S specific, unambiguously
M measurable
A ambitious, acceptable, achievable
R realistic, Relevant,
T in a certain time
TYPES OF OBJECTIVES
Strategic Objectives
Outcomes that will result in greater competitiveness & stronger long-term market
position
Financial Objectives
Outcomes that relate to improving firms financial performance
Short-term objectives
Targets to be achieved soon
Milestones or stair steps for reaching long-range performance
Long-term objectives
Goals vs objectives:
The background
Balanced Scorecard:
History:
The Balanced Scorecard was developed in the early 1990s by two guys at the Harvard
Business School: Robert Kaplan and David Norton. The key problem that Kaplan and
Norton identified in the business of the day was that many companies tended to manage
their businesses based solely on financial measures. While that may have worked well in
the past, the pace of business in today's world requires more comprehensive measures.
Though financial measures are necessary, they can only report what has happened in the
past where a business has been, but not where it is headed. It's like driving a car by
looking in the rearview mirror.
To provide a management system that was better at dealing with today's business pace
and to provide business managers with the information they need to make better
decisions, Kaplan and Norton developed the Balanced Scorecard.
The Balanced Scorecard balances the financial perspective with the organisational,
customer and innovation perspectives which are crucial for the future of an organisation
For each of four perspectives it is necessary to identify indicators to measure the performance of
the organisations.
Shareholders are concerned with many aspects of financial performance: Amongst the measures
of success are:
Market share
Revenue growth
Profit ratio
Return on investment
Economic value added
Return on capital employed
Operating cost management
Operating ratios and loss ratios
Corporate goals
Survival
Profitability
Growth
Process cost savings
Increased return on assets
Profit growth
Measures
Cash flow
Net profitability ratio
Sales revenue
Growth in sales revenue
Cost reduction
ROCE
Share price
Return on shareholder funds
This focuses on the analysis of different types of customers, their degree of satisfaction and the
processes used to deliver products and services to customers.
Customer service
New products
New markets
Customer retention
Customer satisfaction
What does the organisation need to do to remain that customers valued supplier?
Customer satisfaction
New customer acquisition
Customer retention
Customer loyalty
Fast response
Responsiveness
Efficiency
Reliability
Image
The following metrics could be used to measure success in relation to the customer
perspective:
This perspective is concerned with assessing the quality of people and processes.
The following metrics could be used to measure success in relation to the internal perspective:
Efficiency improvements
Reduction in unit costs
Reduced waste
Improvements in morale
Increase in capacity utilisation
Increased productivity
% defective output
Amount of recycled waste
Amount of reworking
Technological leadership
HR development
Product diversification
The following metrics could be used to measure success in relation to the innovation and
learning perspective:
Performance indicator
Financial
Customer
Process
Learning
Advantages:
Disadvantages
It is in the form of a Slogan or Statement. It projects the ethical and value based
concept(philosophy) a Company contributes to public. This is more related to the Social
Responsibility& Public Good. The corporation is a creation of society whose purpose is the
production and distribution of needed goods and services, for profit of society and itself. The
Company in its own interest has to promote the public welfare in a positive way. Indeed, the
corporate interest broadly defined by management can support involvement in helping to solve
virtually any social
problem, because people who have good environment, education and opportunity make better
employees, customers and neighbors for business than those who are poor, ignorant and
oppressed. Pollution control, contributing to public cause in the areas of health, education &
poverty. Payment of taxes genuinely, fair wages to employees, quality products/services to
consumers, all actions are based on legal and moral foundation etc
strategic intent is the immediate point of view of a long term future that company would
like to create. It is the intent of the strategies that company may evolve i.e. it creates
spotlight for directing the strategy in a company. When carefully worded, provides a
strategic theme filled with emotion for the whole organization..
Vision serves the purpose of stating what an organization wishes to achieve in the long run.
Mission relates an organization to society.
Business explains the business of an organization in terms of customer needs, customer
groups and alternative technologies.
Objectives state what is to be achieved in a given time period.
Indicates firms intent to making quantum gains in competing against key rivals and to
establishing itself as a winner in the marketplace, often against long odds
Involves establishing a grandiose performance target that is out of proportion to its
immediate capabilities and market position but then devoting the companys
full resources and energies to achieving the target over time
Signals relentless commitment to achieving a particular market position and competitive
standing
Strategic Plan:
A Its strategic
Companys
Strategic visionandIts
Plan Itsbusiness
strategicand
strategy
Consists
Merging
mission
the Strategic Vision, Objectives and Strategy into a Strategic Plan:
financial
of competitive business environment, budget-oriented planning or forecast-based
In today's highly
objectives
planning methods are insufficient for a large corporation to survive and prosper. The firm must
engage in strategic planning that clearly defines objectives and assesses both the internal and
external situation to formulate strategy, implement the strategy, evaluate the progress, and make
adjustments as necessary to stay on track.
The strategic plan projects a prescriptive model based on predictive environment which is a
roadmap for execution. Strategic plan is translated into the operations planning. Any deviation
required is to be directed by strategic plan which takes care of the corporate objective and factors
commanding the change.
The emergent strategy is let us try this strategy and continue it or change it depending in our
experience. The prescriptive strategy prescribed, this is our strategy for the next five years,
administer it. The emergent approach holds that the long term being uncertain, it is unrealistic
to prescribe in advance a strategy with long term perspective. The strategy should evolve
responding to emerging developments, and therefore, to some extent, strategy development and
implementation occur concurrently.
Module-III
The performance of a company is affected by external factors like the economy, demographics,
social values, and technological changes. The factors in a companys macro-environment which
have the largest strategy impact relates to the companys environment, the industry, competition,
buyer relations, and supplier relations. To do a companys analysis of its external environment, a
company needs to do an industry analysis on dominant economic characteristics, an industrys
competitive forces, the driving forces of the industry, the market positions of the industrys
rivals, the strategic moves of rivals, key success factors, and the industrys outlook on future
profitability.
Understanding the economic characteristics provides an overview of the industry and provides an
understanding of the different kinds of strategic moves that the industry members are likely to
use.
The performance of a company is affected by external factors like the economy, demographics,
social values, and technological changes. The factors in a companys macro-environment which
have the largest strategy impact relates to the companys environment, the industry, competition,
buyer relations, and supplier relations. To do a companys analysis of its external environment, a
company needs to do an industry analysis on dominant economic characteristics, an industrys
competitive forces, the driving forces of the industry, the market positions of the industrys
rivals, the strategic moves of rivals, key success factors, and the industrys outlook on future
profitability.
Environmental Scanning
The systematic collection and analysis of information about relevant macro environmental
trends. It helps in increased general awareness of environmental changes, better strategic
1. The environment changes so fast that new opportunities and threats are created which may
result in disequilibrium into organizations existing equilibrium Strategists have to analyze the
environment to determine what factors in the environment present opportunities for greater
accomplishment of organizational objectives and that factors in the environment present threats
to the organizations objective accomplishment so that suitable adjustment in stagiest can be
made to derive maximum benefits.
2. Environmental analysis allows strategists time to anticipate opportunities and plan to take
optional responses to threes opportunities. Similarly, it helps to develop an early warning system
to prevent the threats or to develop strategies which can turn the threats to the organizations
advantages.
3. Environmental analysis helps strategists to narrow the range of available alternatives and
eliminate options that are clearly inconsistent with forecast opportunities or threats. The analysis
helps in eliminating unsuitable alternatives and to process most promising alternatives. Thus it
helps strategists to reduce time pressure and to concentrate on those which are important.
The external environment of an organization are those factors outside the company that affect the
company's ability to function. Some external elements can be manipulated by company
marketing, while others require the organization to make adjustments. Monitor the basic
components of your company's external environment, and keep a close watch at all times.
Customers
Your customers are among the external elements you can attempt to influence, via marketing and
strategic release of corporate information. But ultimately, your relationship with your clients is
based on finding ways to influence them to purchase your products. Market research is used to
determine the effectiveness of your marketing messages, and to decide what changes can be
made to future marketing programs to improve sales.
Government
Government regulations in product development, packaging and shipping play a significant role
in the cost of doing business and your ability to expand into new markets. If the government
places new regulations on how you must package your product for shipment, that can increase
your unit costs and affect your profit margins. International laws create processes that your
company must follow to get your product into foreign markets.
Economy
As with the majority of the elements of your organization's external environment, your company
must be efficient at monitoring the economy and learning how to react to it, rather than trying to
manipulate it. Economic factors affect how you market products, how much money you can
spend on business growth, and the kind of target markets you will pursue.
Competition
Your competition has a significant effect on how you do business and how you address your
target market. You can choose to find markets that the competition is not active in, or you can
decide to take on the competition directly in the same target market. The success and failure of
your various competitors also determines a portion of your marketing planning, as well. For
example, if a long-time competitor in a particular market suddenly decides to drop out due to
financial losses, then you will need to adjust your planning to take advantage of the situation.
Public Opinion
Any kind of company scandal can be damaging to your organization's image. The public
perception of your organization can hurt sales it's negative, or it can boost sales with positive
company news. Your firm can influence public opinion by using public relations professionals to
release strategic information, but it is also important to monitor public opinion to try and defuse
potential issues before they begin to spread.
Economic forces;
Social, cultural, demographic, and environmental forces;
Political, governmental, and legal forces;
Technological forces; and
Competitive forces.
Macro environment the general environment that affects all business firms in an industry,
which includes political-legal, economic, social and technological forces.
PEST An acronym referring to the analysis of the four macro environmental forces are
1. Political-legal include such factors as the outcomes of elections, legislation and judicial
court decisions, as well as decisions rendered by various commission and agencies in the Govt.
Trade restrictions will always exist to some of the optically sensitive areas like trade sanctions.
3. Social - such as social values, trends, traditions, religion, culture , societal trends
Industry analysis
An industry analysis is a business function completed by business owners and other individuals
to assess the current business environment. A marketassessmenttooldesigned to provide a
business with an idea of the complexity of a particular industry. Industry analysis involves
reviewing the economic, political and market factors that influence the way the industry
develops. Major factors can include the power wielded by suppliers and buyers, the condition of
competitors, and the likelihood of new market entrants.
Industry factors have been found to play a dominant role in the performance of many companies
with the exception of those that are its notable leaders of failures. As such, one needs to
understand these factors at the outset before delving into the characteristics of a specific firm.
Potential factors:
2. The Threat of new competitors entering the industry.- Economies of Scale, Brand Identity
and Product Differentiation, Capital Requirements, Switching costs, Access to Distribution
Channels, Cost disadvantages Independent of Size, Govt. policy
The following factors can have an effect on how much of a threat new entrants may pose:
The existence of barriers to entry (patents, rights, etc.). The most attractive segment is
one in which entry barriers are high and exit barriers are low. Few new firms can enter
and non-performing firms can exit easily.
Government policy
Capital requirements
Absolute cost
Cost disadvantages independent of size
Economies of scale
Economies of product differences
Product differentiation
Brand equity
Switching costs or sunk costs
Expected retaliation
Access to distribution
Customer loyalty to established brands
Industry profitability (the more profitable the industry the more attractive it will be to
new competitors)
3. The threat of substitute products or services. Rising of a Substitute Products that satisfy
similar consumer needs.
Potential factors:
4. The bargaining power of buyers. Buyers raising the weaknesses on the product, costs,
credit etc to bring down the rates or threaten to discontinue buying. Or buyers go to their own
production for economic reasons.
Potential factors:
5. The bargaining power of suppliers. - On the guise of rising costs, the suppliers bargain to
raise the rates or threaten to stop supplies. Competitor cornering the production of the supplier as
a threat. Monopoly of the supplier
Key internal forces (such as knowledge and competence of management and workforce) and
external forces (such as economy, competitors, technology) that shape the future of an
organization.
All industries are characterised by trends and new development that gradually or speedily
produce changes important enough to require a strategic response from participating firms.
Also Industries go thru a life cycle changes- its difference stages and hence the Industry
change.but it is far from complete
There are more causes..that need to be identified and their impact to be understood.
Industry conditions change because important forces are driving industry participants competitor,
customer, or suppliers) to alter their actions; the driving forces in an industry are the major
underlying causes of changing industry and competitive conditions- they have the biggest
influence on how the industry landscape will be altered. Some originate in the outer ring of
macro-environment and some originate from the inner ring.
1. Assessing whether the drivers of change are, on the whole, acting to make the industry
more or less attractive
2. Determining what strategy changes are needed to prepare for the impact of the
driving forces
Low cost increases the no. of online rival and hence the compitition of online v/s brick and
mortar sellers.
Internet gives customer-> Power to research the product offering and shop the market for the
best Value.
untig Ability of Consumer to download Music from internet has reshaped traditional music
retailers
Emails has eroded fax services and first class mail delivery revenues of govt postal
services world wide
Videoconferencing has eroded the demand of biz travels
Online cources offering have the potential of revolutionise higher education
Internet will feature faster speed, dazzling applications and over a billion connected gadgets
performing an array of functions thus driving firther industry and competitive changes. Internet
related impacts vary from industry to industry
2) Increasing Globalisation:
Competition begin to shift from regional & national focus to an inernational or global focus
Industry members begin seeking out customers in foreign market. Production activities begin to
migrate to countries where costs are lowest. Global competition really starts when one or more
ambitious Companies precipitate a race for world wide market leadership.
Globalization happens:-
Blossoming of customer and demand in more and more countries
Action of govt to reduce the trade barrier .Europe,Latin America and Asia
Significant difference in labour cost ->locate plant e.g China, india , Singapore, Maxico
and Brazil of those in US, Germany and Japan
Eg.Industires :- Credit Card, CellPhone, Digital Camera, Golf and Ski Equipment, Motor
Vehicles, Steel, Petrolium, Personal Computers, Vedio Games, Public Accounting and Text
Publishing.
Shift in industry growth or are driving force for industry change, affecting the balance between
industry supply and buyer demand, entry and exit of the firms
Increase in buyers demand triggers a race among established firms and new comers to capture
the new sales opportunities, in turn will launch offensive strategies to broaden customer base and
grow significantly
Decrease or slow down in rate at which demand is growing firms fight for their market share
If industry sales suddenly turns flat competition itencify, consolidation takes shapes by mergers
and acquisitions,
Stagnating sales forces both weak and strong firms to sell their biz to those who elect to stick->
forces to close inefficient plants and retrench to small prod base
4) Changes in who buys the Product and how they use it:
Shift in buyer demographics-New ways of using product- firms broaden or narrow their product
line-diff sales & promotionDownloading Music From Internet-Storing Music Files on HD &
PC, Burning CD-forced to reexamin the traditional music stores-also have stimulated the sales of
Disc burners and blank discs.PC & Internet- Banks to expand their electronics bill payment
services and retailers to move more of their customer services online
5) Product Innovation:
Rivals racing to be first to introduce the new product or product enhancement after another.
Competition changes->attracting more 1st time buyers ->Rejuvenating ind growth, creating
wider or narrow prod differentiation.
Strong market position of Successful innovators at the cost of slow innovators
Eg. Degital Cameras, Golf Glub, Video games, Toys and Prescription Drugs.
Identifying an Industrys Driving Forces: Technology change contd.. Eg. Internet based phones
are stealing large number of customers from using traditional telepone co world wide( high cost
technology, hard weird connections via overheads and underground telephone lines
7) Marketing Innovation :
Successful in introducing new ways to MARKET their products:
Any or all of which can alter the competitive position of rival firmEg.On line marketing of
Electronics goods, Music artist mkting their own website V/s contract with recording Studios.
8) Entry or Exit of Major Firms
Entry of one or more foreign co. into a geographic market once dominated by domestic firms
shakes up the competitive scenario.Pushes the competition to new direction, Bring in new rules
of competiting
Exit:- Reduces the no of mkt leaders, dominance of existing players and rush to capture existing
firms customers.
9) Diffusion of Technical Know how across more companies and more countries.
As the knowledge spreads, the competitive advantage of existing firm originally possessing it
erodes.
It happens thru Scientific Journals, Trade Publications, On site Plant tours, Word of mouth,
Employees Migration, and internet sources
Tehnology knowledge license / Royaltee fees
Cross border technology transfer has made the once domestic industries of automobile, tires,
consumer electronics, telecommunication and computers truly global
Low cost fax and e mail put mounting pressure on the inefficient and high cost operation of
Postal Dept.
Shrinking cost of differences in producing multifeatured mobiles is turning the mobile phone
market into commodity business and making more buyers to base Price as their Purchase
decision
11) Growing buyer preferences for differentiated products instead of a commodity product
When buyers taste and preferences start to diverge, sellers can win a loyal following by
providing different variants and taste then the competitors.
Eg.Beer, Automobile
An emerging industry is typically characterized by much uncertainty and risk in terms of time
and efforts required to cover-up with the investments.Emerging industries tend to attract only
risk-taking entrepreneurial companies. over time how ever, if the business model of industry
pioneers proves profitable and market demand for the product appears durable, more
conservative firms are usually enticed to enter the market. Often the later entrants are large
& financially strong looking to invest into attractive growth industry.
Low biz risk and less industry uncertainty also affect competition in international market. In the
early stage the co. enters foreign market with a conservative approach with less risky strategies
like exporting, licensing, joint marketing agreement and JV with local companies.
As time goes and the co accumulates experience, it starts moving boldly and independently
making acquisitions, constructing their own plants, putting their own sales and marketing
capabilities to build strong competitive position...
Critical success factor vs. key performance indicator: Critical success factors are elements that
are vital for a strategy to be successful. A critical success factor drives the strategy forward, it
makes or breaks the success of the strategy (hence critical).
Kenichi Ohmae in his The Mind of the Strategist observes, A good business strategy is oneby
which a company can gain significant ground on its competitors at an acceptable cost to itself.
Finding a way of doing this is real task of the strategist. He suggests the following four ways
ofstrengthening a Companys position relative to that of its competitors.
1. Strategy Based on KFS - Key Factors for Success to identify such critical factors in the
areas like sourcing raw materials, production, marketing and concentrate resources on them to
gain strategic advantage over the competitors.
2. Strategy based on Relative Superiority Avoids head on competition and seeks to exploit
competitors weaknesses. Even when the competitors are very strong on the whole, there may be
some critical factors or market segments where the company enjoys relative superiority which it
can build into a strategic advantage. The relative superiority may be in respect of technology,
cost, product quality, suitability of the product to market environment, distribution, after sales
service, customer relations, cultural factors etc.
3. Strategy Based On Aggressive Initiatives When competitors are so well established that it
may be hard to dislodge. Sometimes the only answer is in unconventional strategy aimed at
upsetting the key factors for success on which the competitor has built an advantage. Ask every
point as Why? You will get a point.
In the words of Ohmae, in each of these, the principal concern is to avoid doing the same thing,
on the same battle ground, as the competition. The aim is to attain a competitive situation in
which your company can (1) gain a relative advantage through measures is competitors will
findhard to follow and (2) extend that advantage still further.
MODULE IV
Analyzing a companys resources and competitive position Analysis of a Companys present strategies
SWOT analysis Value Chain Analysis Benchmarking- Generic Competitive Strategies Low cost
provider Strategy Differentiation Strategy Best cost provider Strategy Focused Strategy Strategic
Alliances and Collaborative Partnerships Mergers and Acquisition Strategies Outsourcing Strategies
International Business level Strategies.
The object of any industry is to develop the competitive advantage over similar industries in order to
sustain growth and profitability. For this, a constant assessment of Strength and Weaknesses in every area
of management is to be done on a continuous basis to retain its stability & strengths. The external factors
are guiding the internal actions to take advantage of the situation. It is the internal strength h is the real
strength of the Management to combat with external changes.
Internal Analysis gives the manager the information they need to choose the strategies and business
model that will enable their Company to attain a sustained competitive advantage. Internal analysis is a
three-step process.
(1) The manager must understand the process by whichcompanies create value for customers and profit
for themselves, and they need to understand the role of resource, capabilities and distinctive competencies
in this process.
(2) Secondly, the Managers need to understand how important superior efficiency, innovation, quality and
(3) Thirdly, the Managers must be able to analyze the sources of their companys competitive advantage
to identify what is driving the profitability of their enterprise and where opportunities for improvement
might lie. In other words, they must be able to identify how the strengths of the enterprise boost its
profitability and how any weakness leader to lower profitability.
(2) Why do successful companies are often lose their competitive advantage?
(3) How can companies avoid competitive failure and sustain their competitive advantage over time?
Internal Analysis:
Internal Analysis is the process by which strategists examine a firms marketing & distribution,
research & development, production, research & development to determine where the firm has its
strengths & weaknesses, determine how to exploit the opportunities & meet the threats the environment
is presenting.
Types of Resources
Tangible Resources
Relatively easy to identify, and include physical and financial assets used to create value for customers
Financial resources
Firms cash accounts
Firms capacity to raise equity
Firms borrowing capacity
Physical resources
Modern plant and facilities
Favorable manufacturing locations
State-of-the-art machinery and equipment
Technological resources
Trade secrets
Innovative production processes
Patents, copyrights, trademarks
Organizational resources
Effective strategic planning processes
Excellent evaluation and control systems
Intangible Resources
Difficult for competitors (and the firm itself) to account for or imitate, typically embedded in
unique routines and practices that have evolved over time
Human
Experience and capabilities of employees
Trust
Managerial skills
Firm-specific practices and procedures
Innovation and creativity
Technical and scientific skills
Innovation capacities
Reputation
Effective strategic planning processes
Excellent evaluation and control systems
Organizational Capabilities
Competencies or skills that a firm employs to transform inputs to outputs, and capacity to combine
tangible and intangible resources to attain desired end
It helps to know where the firm stands in terms of strengths & weaknesses.
It helps to select the opportunities to be tapped in line with its capacity.
2. What are the companys resource strengths /weaknesses and external opportunities
and threats?A SWOT analysis provides an overview of a firm's situation and is an essential
component of crafting a strategy tightly matched to the company's situation. The two most
important parts of SWOT analysis are (1) drawing conclusions about what story the compilation
of strengths, weaknesses, opportunities, and threats tells about the company's overall situation,
and (2) acting on those conclusions to better match the company's strategy, to its resource
strengths and market opportunities, to correct the important weaknesses, and to defend against
external threats. A company's resource strengths, competencies, and competitive capabilities are
strategically relevant because they are the most logical and appealing building blocks for
strategy; resource weaknesses are important because they may represent vulnerabilities that need
correction. External opportunities and threats come into play because a good strategy necessarily
aims at capturing a company's most attractive opportunities and at defending against threats to its
well-being.
3. Are the companys costs and prices competitive?One telling sign of whether a
company's situation is strong or precarious is whether its prices and costs are competitive with
those of industry rivals. Value chain analysis and benchmarking are essential tools in
determining whether the company is performing particular functions and activities cost-
effectively, learning whether its costs are in line with competitors, and deciding which internal
activities and business processes need to be scrutinized for improvement. Value chain analysis
teaches that how competently a company manages its value chain activities relative to rivals is a
key to building a competitive advantage based on either better competencies and competitive
capabilities or lower costs than rivals.
The key appraisals here involve how the company matches up against key rivals on industry key
success factors and other chief determinants of competitive success and whether and why the
company has a competitive advantage or disadvantage. As a rule a company's competitive
strategy should be built around its competitive strengths and should aim at shoring up areas
where it is competitively vulnerable. When a company has important competitive strengths in
areas where one or more rivals are weak, it makes sense to consider offensive moves to exploit
rivals' competitive weaknesses. When a company has important competitive weaknesses in areas
where one or more rivals are strong, it makes sense to consider defensive moves to curtail its
vulnerability.
5. What strategic issues does the company face?This analytical step zeros in on the
strategic issues and problems that stand in the way of the company's success. It involves using
the results of both industry and competitive analysis and company situation analysis to identify a
"worry list" of issues to be resolved for the company to be financially and competitively
successful in the years ahead. The worry list always centers on such concerns as "how to . . . ,"
"what to do about . . . ," and "whether to . . ."the purpose of the worry list is to identify the
specific issues/problems that management needs to address. Actual deciding on a strategy and
what specific actions to take is what comes after the list of strategic issues and problems that
merit front-burner management attention is developed.
SWOT Analysis
Value Chain Analysis
Benchmarking
Ethical Conduct
SWOT Analysis
SWOT is an abbreviation for Strengths, Weaknesses, Opportunities and Threats
SWOT analysis is a systematic identification of factors and the strategy that reflects the
best match between them.
It is based on the logic that an effective strategy maximizes a businesss strengths and
opportunities and minimizes its weaknesses and threats.
This simple assumption if accurately applied has powerful implications for successfully choosing
and designing an effective study.
SWOT analysis is an important tool for auditing the overall strategic position of a
business and its environment.
Strengths:
Strength is a resource, skill or other advantage relative to the competitors and the needs of the
markets firm serves or anticipates serving.
Strength is a distinctive competence that gives firm a comparative advantage in the
marketplace.
E.g.
- financial resources
- image
- market leadership
Weaknesses:
A weakness is a limitation or deficiency in resources, skills, and capabilities that seriously impedes
effective performance.
Eg: Facilities, financial resources, management capabilities, marketing skills, and brand image could
be sources of weaknesses.
A threat is a major unfavorable situation in the firms environment. It is a key obstacle to the firms
current and/ or desired future position.
E.g.
- entrance of a new competitor
- slow market growth
- increased bargaining power of key buyers and suppliers
Understanding the key opportunities and threats facing a firm helps manager identify realistic
options from which to choose an appropriate strategy.
To better understand the activities through which a firm develops a competitive advantage and
creates shareholder value, it is useful to separate the business system into a series of value-
generating activities referred to as the value chain. In his 1985 book Competitive Advantage,
Michael Porter introduced a generic value chain model that comprises a sequence of activities
found to be common to a wide range of firms. Porter identified primary and support activities as
shown in the following diagram:
M
A
Marketing
Inbound Outbound R
> Operations > > & > Service >
Logistics Logistics G
Sales
I
N
Firm Infrastructure
HR Management
Technology Development
Procurement
The goal of these activities is to offer the customer a level of value that exceeds the cost of the
activities, thereby resulting in a profit margin.
Inbound Logistics: the receiving and warehousing of raw materials, and their distribution
to manufacturing as they are required.
Operations: the processes of transforming inputs into finished products and services.
Outbound Logistics: the warehousing and distribution of finished goods.
Marketing & Sales: the identification of customer needs and the generation of sales.
Service: the support of customers after the products and services are sold to them.
The infrastructure of the firm: organizational structure, control systems, company culture,
etc.
Human resource management: employee recruiting, hiring, training, development, and
compensation.
Technology development: technologies to support value-creating activities.
Procurement: purchasing inputs such as materials, supplies, and equipment.
The firm's margin or profit then depends on its effectiveness in performing these activities
efficiently, so that the amount that the customer is willing to pay for the products exceeds the
cost of the activities in the value chain. It is in these activities that a firm has the opportunity to
generate superior value. A competitive advantage may be achieved by reconfiguring the value
chain to provide lower cost or better differentiation.
The value chain model is a useful analysis tool for defining a firm's core competencies and the
activities in which it can pursue a competitive advantage as follows:
Cost advantage: by better understanding costs and squeezing them out of the value-
adding activities.
Differentiation: by focusing on those activities associated with core competencies and
capabilities in order to perform them better than do competitors.
Benchmarking:
Benchmarking is the tool that allows a company to determine whether the manner in
which it performs particular functions and activities represent industry best practices
when both cost and effectiveness are taken into account.It is a point of reference against
which performance is measured and compared.
they facilitate improved performance in critical functions within an organisation or in key areas
of the business environment.
Types of Benchmarking
Functional Benchmarking: Businesses look to benchmark with partners drawn from different
business sectors or areas of activity to find ways of improving similar functions or work
processes. This sort of benchmarking can lead to innovation and dramatic improvements.
Internal Benchmarking: involves benchmarking businesses or operations from within the same
organisation (e.g. business units in different countries). The main advantages of internal
benchmarking are that access to sensitive data and information is easier; standardised data is
often readily available; and, usually less time and resources are needed. There may be fewer
barriers to implementation as practices may be relatively easy to transfer across the same
organisation. However, real innovation may be lacking and best in class performance is more
likely to be found through external benchmarking.
External Benchmarking: involves analysing outside organisations that are known to be best in
class. External benchmarking provides opportunities of learning from those who are at the
"leading edge". This type of benchmarking can take up significant time and resource to ensure
the comparability of data and information, the credibility of the findings and the development of
sound recommendations.
International Benchmarking: Best practitioners are identified and analysed elsewhere in the
world, perhaps because there are too few benchmarking partners within the same country to
produce valid results. Globalisation and advances in information technology are increasing
opportunities for international projects. However, these can take more time and resources to set
up and implement and the results may need careful analysis due to national differences
Business Unit - An organizational entity with its own unique mission, set of competitors and
industry.
Strategic Group A select group of direct competitors who have similar strategic profiles.
Generic Strategies Strategies that can be adopted by business unit to guide their organization.
based on their similarities.
Michael Porter developed the most commonly cited generic strategy frame work. According to
Porters a business unit must address two basic competitive concerns. First Managers must
determine whether the business unit should focus its efforts on an identifiable subset of the
industry in which it operates or seek to serve the entire market as a whole.
Second, managers must determine whether the business unit should compete primarily by
minimizing its costs relative to those of its competitors (i.e. low cost strategy) or by seeking to
offer unique and or unusual products and services (i.e. a differentiation strategy). Efficiency is
the key to such business. Ex Nirma, Wal-Mart
Low cost provider Strategy, Differentiation Strategy, Best cost provider Strategy &
Focused Strategy:
1. Overall Cost Leadership Strategy - Generates competitive advantage in the form of offering
products to customers at lower prices which helps in achieving large market.-no frill products &
services. The Co pursuing overall cost leadership must aggressively pursue a position of cost
leadership by constructing the most efficient scale faculties and must be good in engineering,
manufacturing and physical distribution. The Co has a large market share so that its per unit cost
is the lowest. Ex Hero cycles
3. Best Cost Provider Strategy- An organization focuses on a narrow segment of the market
and offers product at lower price than its competitors on the basis of its low cost. with no frills
product & services for a market niche with elastic demand. According to Porter, those companies
pursuing the same strategy; directed to the same target market constitute a strategic group. The
Co which has clear strategy on cost dimension performs better than others. This strategy has the
same risk like overall cost leadership strategy has. Ex UB Airways ticket fare Rs.1/-
4. Focused Differentiation Strategy - This strategy generates advantage based on the ability to
create more customer value for a narrowly targeted segment and results from a better
understanding of customer needs. Ex Hotels
A strategic alliance is an agreement between two or more parties to pursue a set of agreed upon
objectives needed while remaining independent organizations. This form of cooperation lies
between mergers and acquisitions and organic growth. Strategic alliances occurs when two or
more organizations join together to pursue mutual benefits.
Partners may provide the strategic alliance with resources such as products, distribution
channels, manufacturing capability, project funding, capital equipment, knowledge, expertise, or
intellectual property. The alliance is a cooperation or collaboration which aims for a synergy
where each partner hopes that the benefits from the alliance will be greater than those from
individual efforts. The alliance often involves technology transfer (access to knowledge and
expertise), economic specialization shared expenses and shared risk. There are many reasons to
enter a Strategic Alliance:
Shared risk: The partnerships allow the involved companies to offset their market
exposure. Strategic Alliances probably work best if the companies portfolio complement
each other, but do not directly compete.
Costs: Partnerships can help to lower costs, especially in non-profit areas like research &
development.
Access to resources: Partners in a Strategic Alliance can help each other by giving
access to resources, (personnel, finances, technology) which enable the partner to
produce its products in a higher quality or more cost efficient way.
Access to target markets: Sometimes, collaboration with a local partner is the only way
to enter a specific market. Especially developing countries want to avoid that their
resources are exploited, which makes it hard for foreign companies to enter these markets
alone.
Economies of Scale: When companies pool their resources and enable each other to
access manufacturing capabilities, economies of scale can be achieved. Cooperating with
appropriate strategies also allows smaller enterprises to work together and to compete
against large competitors.
Advantages
Disadvantages
Sharing: In a Strategic Alliance the partners must share resources and profits and often
skills and know-how. This can be critical if business secrets are included in this
knowledge. Agreements can protect these secrets but the partner might not be willing to
stick to such an agreement.
Creating a Competitor: The partner in a strategic alliance might become a competitor
one day, if it profited enough from the alliance and grew enough to end the partnership
and then is able to operate on its own in the same market segment.
Opportunity Costs: Focusing and committing is necessary to run a Strategic Alliance
successfully but might discourage from taking other opportunities, which might be
benefitial as well.
Uneven Alliances: When the decision powers are distributed very uneven, the weaker
partner might be forced to act according to the will of the more powerful partners even if
it is actually not willing to do so.
Foreign confiscation: If a company is engaged in a foreign country, there is the risk that
the government of this country might try to seize this local business so that the domestic
company can have all the market on its own.
Risk of losing control over proprietary information, especially regarding complex
transactions requiring extensive coordination and intensive information sharing.
Coordination difficulties due to informal cooperation settings and highly costly dispute
resolution
Common Mistakes
Many Companies struggle to operate their alliances in the way they imagined it and many of
these partnerships fail to reach their defined goals. There are some very popular mistakes
which can be seen again and again. Some are mentioned here:
Low commitment
Poor operating/planning integration
Strategic weakness
Rigidity/ poor adaptability
Too strong focus on internal alliance issues instead on customer value
Not enough preparation time
Hidden agenda leading to distrust
Lack of understanding of what is involved
Unrealistic expectations
Wrong expectation of public perception leading to damage of reputation
Underestimated complexity
Reactive behavior instead of prepared, proactive actions
Overdependence
Legal problems
Classification
1. X & Y Alliance - Partners may be of same skills or different skills join together to reap the
benefits of economies of scale.
Collaborative Partners
Any alliance is passable with minimum two partners and any number of partners with the Core
Competence (competitive skills), commitment and expertised back ground on these lines. There are
essential qualifications that make the Partnership successful. A corporate-level growth strategy in which
two or more firms agree to share the costs, risks and benefits associated with pursuing new business
opportunities. The strategic alliances are often referred to as partnership.
Mergers and acquisitions are both aspects of strategic management, corporate finance and
management dealing with the buying, selling, dividing and combining of different companies
and similar entities that can help an enterprise grow rapidly in its sector or location of origin, or a
new field or new location, without creating a subsidiary, other child entity or using a joint
venture.
M&A can be defined as a type of restructuring in that they result in some entity reorganization
with the aim to provide growth or positive value. Consolidation of an industry or sector occurs
when widespread M&A activity concentrates the resources of many small companies into a few
larger ones, such as occurred with the automotive industry between 1910 and 1940.
The distinction between a "merger" and an "acquisition" has become increasingly blurred in
various respects (particularly in terms of the ultimate economic outcome), although it has not
completely disappeared in all situations. From a legal point of view, a merger is a legal
consolidation of two companies into one entity, whereas an acquisition occurs when one
company takes over another and completely establishes itself as the new owner (in which case
the target company still exists as an independent legal entity controlled by the acquirer). Either
structure can result in the economic and financial consolidation of the two entities. In practice, a
deal that is a merger for legal purposes may be euphemistically called a "merger of equals" if
both CEOs agree that joining together is in the best interest of both of their companies, while
when the deal is unfriendly (that is, when the management of the target company opposes the
deal) it is almost always regarded as an "acquisition".
Merger or Amalgamation: is the integration of two or more business. Is also the joining of two
separate Cos to form a single Co an external strategy for growth of the organization. A
corporate-level growth strategy in which a firm combines with another firm through an exchange
of stock. A merger occurs when two or more firms, usually of similar sizes, combine into one
through an exchange of stock. Mergers are generally undertaken to share or transfer resources
and or improve competitiveness by developing synergy. The name of the merged Co will go after
merging. There will be one Company i.e. Merger.
1. Quick entry in the business.- There is no gestation time and familiarity of the product
orservice to the market and customers.
2. Faster Growth Rate - The volume of business can be raised rapidly with less risk. Youcan
overcome a competitors in certain cases. Ready utilities like production, marketing,distribution,
research & Development.
5. Tax advantage - If the merged Co possessing accumulated losses can be set off by theMerger
Co.
1. In accuracy (manipulated) of data causing teething problems after merger. The advantages are
over emphasized and weaknesses are suppressed.
Acquisition or Takeover
is where one business purchases another. Is the purchase of a controlling interest in another Co.
A form of a merger whereby one firm purchases another, often with a combination of cash and
stock. Firms with large, successful businesses often acquire smaller competitors with different or
complementary product or service lines. Like Cement to Cement, Soap to Soap, Car to Car etc.
Acquiring the existing organizations, products, technology, facilities, talent or manpower has the
strong advantage of much quicker entry into the target market, while at the same time detouring
such barriers to entry as licensing, patents, technological inexperience, lack of raw material
suppliers, substantial economies of scale, establishment of distribution channels, etc.
The acquisition or Merger goes with a strong report on survey of economics, business prospects,
brand equity and financial soundness
Takeover
is done through negotiations or by calling bids by outsiders. The first basic step inacquisition
process is the definition of acquisitions objectives. This is necessary because it willdefine
precisely the type of organization to be acquired and consequently the type of effortsrequired in
the process. The terms are to be complementary to both. The focus is on valuecreation to the
acquirer Co. The strength and weaknesses are worked out and solutions are foundwith a planning
the program of acquisition schedule.
Outsourcing Strategies:
What distinguishes an outsourcing arrangement from any other business arrangement is the
transfer of ownership of an organizations business activities (processes or functions)-or the
responsibility for the business outcomes flowing from these activities-to a service provider. In a
typical outsourcing arrangement, the people, the facilities, the equipment and the technology (the
Factors of Production) are also transferred to the service provider, which then uses the Factors of
Production to provide the services back to the organization. The people are often transferred to
the service provider, but this is not always the case.
Strategic outsourcing, on the other hand, is not driven by a problem-solving mentality. Instead,
it is structured so that it is aligned with the companys long-term strategies. The changes that
organizations expect from strategic outsourcing vary and can include anything from
(b) spending more time on those activities that are truly central to the success of the organization,
Outsourcing has been around for a long time, but it is only in the most recent past that it has
become known by that name. A classic example is Coca-Cola. By the late 1890s, Coca-Cola had
already established itself as a highly successful soft drink company, but the firm was looking to
extend its business across new markets. Although bottling was then considered an emerging
source of competitive advantage, Coca-Cola decided that it did not have the capital, the time or
the expertise to produce its own bottles. Production methods for bottles at the time were
primitive, the result inconsistent, and quality control was a significant concern. Coca-Cola chose
to license a group of independent bottlers to whom it sold its syrup while imposing strict quality
controls. In the next several decades, Cola-Cola was able to achieve its key strategic business
objectives, including vastly expanding its market and protecting its good name. By outsourcing
the non-core business function of bottling its products, Coca-Cola was able to focus on its core
business objectives (such as maintaining high product quality, protecting its brand and growing
market share).
By the late 1970s, however, bottled products had developed into a significant competitive
feature. While Coca-Colas competitors were making significant headway in the bottling of soft
drinks, the companys independent bottlers were not improving their business. Coca-Cola was
losing market-share to its main competitors. In 1979, the company responded by taking steps to
buy out several of its bottle-making alliance partners so it could develop its own internal
capability in what had become a strategic area.
Benefits derived from being the first firm to offer a new or modified product or
service.Prospectors typically seek First-mover advantages by becoming First to enter the
market.First mover advantages can be strong, as demonstrated by; product widely known by
theiroriginal brand names. Being first, however, can be a risky proposition, and research has
shownthat competitors may be able to catch up quickly and effectively. As a result, prospectors
mustdevelop expertise in innovation and evaluate risk scenarios effectively.Defenders are almost
the opposite of prospectors. They perceive the environment to be stableand certain, seeking
stability and control in their operations to achieve maximum efficiency Inhigh-technology
industries, companies often compete by surviving to be the first to developrevolutionary new
products, that is, to be a First Mover By definition, the first mover withregard to a
revolutionary product satisfies unmet consumer needs and demand is high, the firstmover can
capture significant revenues and profits. Such revenues and profits signal to potentialrivals that
there is money to be made by imitation will rush into the market created by the firstmover,
competing away the first movers monopoly profits and leaving all participants in themarket with
a much lower level of returns.
Advantages
1. An opportunity to exploit a virgin market network effects and positive feedback loops,locking
consumers into its technology.
2. Can establish significant Brand Loyalty which is expensive for later entrants to breakdown.
3. Be able to grab sales volume ahead of rivals and thus reap cost advantages associated withthe
realization of scale economies and learning effects.
4. Be able to create switching costs for its customers that subsequently make it difficult forrivals
to enter the market. Can change the product features what the rivals are making. Andstill can
compete with them.
Disadvantages
1. Significant pioneering costs is to be incurred which the rival need not. Fromprocessing,
marketing channels, pricing etc are to be done One time carries a risk.
2. Prone to make mistakes because there are so many uncertainties in a new market.
3. Risk of building the wrong resource and capabilities because they are focusing on acustomer
set that is not going to be characteristic of the mass market. trial & error cost.
Most manufacturing Cos begin their global expansion as exporters and only later switch to one
of the other does for serving a foreign market.
3. Exporting: Exporting has two distinct advantages: it avoids the costs of establishing
manufacturing operations in the host country, which are often substantial and it may be
consistent with realizing experience curve cost economies and location economies.
4. Foreign Branching: Is an extension of the Company in its foreign market a separate located
strategic business unit directly responsible for fulfilling the operational duties assigned to it by
corporate management, including sales, customer service and physical distribution Host counties
may require that the brands to be domesticated, that is, have some local managers in middle
and upper-level positions.
5. Wholly Owned Subsidiary: Is one in which the parent Co owns 100% of subsidiarys shares.
To establish a wholly owned subsidiary in a foreign market, a company can either set up a
completely new operation in that country or acquire an established host country Co and use it to
promote its products in the host market. There are 3 advantages a)Competitive advantage is
based on its control of a technical (high-tech) competency b)Freedom to have full control in all
areas of operation and full profits unlike in JV c) It can recognize the local resources and further
develop/expand the business lines. The disadvantage is, considerable amount of investment and
running high risk.
Module 5 (7 Hours)
Business Planning:
Successful business planning requires concentrated time and effort in a systematic approach that involves:
assessing the present situation; anticipating future profitability and market conditions; determining
objectives and goals; outlining a course of action; and analyzing the financial implications of these
actions. From an array of alternatives, management distills a broad set of interrelated choices to form its
long-term strategy. This strategy is implemented through the annual budgeting process, in which detailed,
short-term plans are formulated to guide day-to-day activities in order to attain the company's long-term
objectives and goals.
A business plan is an externally focused document that provides more detailed information on the
proposed development of an organisation, and is likely to be shared with potential investors - funding
bodies for the voluntary and community sector.
1. A business plan will usually include more detailed information on the financial position of the
organisation, financial forecasts, and competitor and market analysis.
2. A business plan is more formal and detailed in its structure and contents.
3. It may be more difficult to present the level of detail required within a business plan in a pictorial
format, for example.
The use of formal business planning has increased significantly over the past few decades. The increase in
the use of formal long-range plans reflects a number of significant factors:
TYPES OF PLANS
In addition to differentiation by planning horizon, plans are often classified by the business function they
provide. All functional plans emanate from the strategic plan and define themselves in the tactical plans.
Four common functional plans are:
1. Sales and marketing: for developing new products and services, and for devising marketing plans
to sell in the present and in the future.
2. Production: for producing the desired product and services within the plan period.
3. Financial: for meeting the financing needs and providing for capital expenditures.
4. Personnel: for organizing and training human resources.
Each functional plan is interrelated and interdependent. For example, the financial plan deals with moneys
resulting from production and sales. Well-trained and efficient personnel meet production schedules.
Motivated salespersons successfully market products.
Two other types of plans are strategic plans and tactical plans. Strategic plans cover a relatively long
period and affect every part of the organization by defining its purposes and objectives and the means of
attaining them. Tactical plans focus on the functional strategies through the annual budget. The annual
budget is a compilation of many smaller budgets of the individual responsibility centers. Therefore,
tactical plans deal with the micro-organizational aspects, while strategic plans take a macro-view.
A business owner has to choose a model of planning, such as strategic planning, that will guide the entire
business. Planning is about setting goals that can be timed and measured to determine if a company meets
the desired level of performance. Without a strategic plan, a business owner will make more reactive
decisions in response to the market. With a strategic plan, all of the firm's employees will know what
direction to take.
Entrepreneur
Resource capabilities
Values/beleifs
Characteristics
Networks
Environment
Dynamism
Gostility
Heterogeneity
Strategic Orientation
Risk taking
Innovation
Pro activeness
Autonomy
In smaller companies, strategic planning is a less formal, almost continuous process. The president and
his handful of managers get together frequently to resolve strategic issues and outline their next steps.
They need no elaborate, formalized planning system. Even in relatively large but undiversified
corporations, the functional structure permits executives to evaluate strategic alternatives and their action
implications on an ad hoc basis. The number of key executives involved in such decisions is usually
small, and they are located close enough for frequent, casual get-togethers.
Large, diversified corporations, however, offer a different setting for planning. Most of them use the
product/market division form of organizational structure to permit decentralized decision making
involving many responsibility-center managers. Because many managers must be involved in decisions
requiring coordinated action, informal planning is almost impossible.Therefore, even executives whose
corporate situation permits informal planning may find that our delineation of the process helps them
clarify their thinking. To this end, formalizing the steps in the process requires an explanation of the
purpose of each step.
Every corporate executive uses the words strategy and planning when he talks about the most important
parts of his job. The president, obviously, is concerned about strategy; strategic planning is the essence of
his job. A division general manager typically thinks of himself as the president of his own enterprise,
responsible for its strategy and for the strategic planning needed to keep it vibrant and growing. Even an
executive in charge of a functional activity, such as a division marketing manager, recognizes that his
strategic planning is crucial; after all, the companys marketing strategy (or manufacturing strategy, or
research strategy) is a key to its success.
These quite appropriate uses of strategy and planning have caused considerable confusion about long-
range planning. This article attempts to dispel that confusion by differentiating among three types of
strategy and delineating the interrelated steps involved in doing three types of strategic planning in
large, diversified corporations. (Admittedly, although we think our definitions of strategy and planning
are useful, others give different but reasonable meanings to these words.)
The process of strategy formulation can be thought of as taking place at the three organizational levels
headquarters (corporate strategy), division (business strategy), and department (functional strategy). The
planning processes leading to the formulation of these strategies can be labeled in parallel fashion as
corporate planning, business planning, and functional planning.
Corporate planning and strategyCorporate objectives are established at the top levels. Corporate
planning, leading to the formulation of corporate strategy, is the process of (a) deciding on the companys
objectives and goals, including the determination of which and how many lines of business to engage in,
(b) acquiring the resources needed to attain those objectives, and (c) allocating resources among the
different businesses so that the objectives are achieved.
Business planning and strategyBusiness planning, leading to the formulation of business strategy, is the
process of determining the scope of a divisions activities that will satisfy a broad consumer need, of
deciding on the divisions objectives in its defined area of operations, and of establishing the policies
adopted to attain those objectives. Strategy formulation involves selecting division objectives and goals
and establishing the charter of the business, after delineating the scope of its operations vis--vis markets,
geographical areas, and/or technology.Thus, while the scope of business planning covers a quite
homogeneous set of activities, corporate planning focuses on the portfolio of the divisions businesses.
Corporate planning addresses matters relevant to the range of activities and evaluates proposed changes in
one business in terms of its effects on the composition of the entire portfolio.
Functional planning and strategyIn functional planning, the departments develop a set of feasible
action programs to implement division strategy, while the division selectsin the light of its objectives
the subset of programs to be executed and coordinates the action programs of the functional departments.
Strategy formulation involves selecting objectives and goals for each functional area (marketing,
production, finance, research, and so on) and determining the nature and sequence of actions to be taken
by each area to achieve its objectives and goals. Programs are the building blocks of the strategic
functional plans.
First, the managers should be aware about the various courses of action available to them andsecond, even
if large number of possible alternative actions are available to them, even if largenumber of possible
alternative actions are available, they should be in a position to limitthemselves to various relevant
alternatives so that unnecessary exercises are not taken up. TheGrand strategy covers up
1. Stability - In an effective stability strategy, Cos will concentrate their resources wherethe Company
presently has or can rapidly develop a meaningful competitive advantage inthe narrowest possible
product-market scope consistent with the firms resources andmarket requirement.
2. Growth - Is one that an enterprise pursues when it increases its level of objectivesupward in significant
increment, much higher than an exploration of its past achievementlevel. The most frequent increase
indicating a growth strategy; is to raise the marketshare and or sales objectives upward significantly
3. Retrenchment - Is one that an entries pursues when it decides to improve its performancein reaching
its objectives by (i) focusing on functional improvement, specially reductionin cost (ii) reducing the
number of functions it performs by becoming a captivecompany or (iii) reducing the number of the
products and markets it serves up to andincluding liquidation of the business. ( Turnaround, divestment,
liquidation)
4. Turnaround: Also known as cutback strategy has the basic philosophy hold the presentbusiness and
cut the costs. This situation needed as no organization is immune frominternal hard time-stagnation or
declining performance no matter what the state ofeconomy is. It can be for a part of the Co when
economical advantage is under stress. Itis a scanning process to cut costs to see that it becomes viable.
5. Divestment Strategy: The organization after observing for some time finds there is nofuture to the
dept or product decides to dispose of. This is done by transferring the sharesto the buyer at a specific
negotiated rate. There may be reasons like a company wants togo for a new project wants to dispose of
the existing company can also go bydisinvestment route.
6. Liquidation Strategy: When a specific line of activity i.e. production or service is notprofitable and no
future and also that there are no buyers through disinvestment process,can dismantle and liquidate the
assets and collect money to be used in the profitableareas. Generally, the Cos having accumulated losses
or forthcoming period is notpromising, liquidation is one option.
8. Business Restructuring: Choosing the profitable lines and ignoring the loss making orless profitable
units so that more concentration can be given to the prospering lines. Cuttingdown overheads by reducing
less utility manpower starting from top.
Innovation strategy
Is a key factor in the success or many companies, specifically those industries dealing
specifically in the fiercely competitive field of technology.
Innovation
Innovation is needed since both consumer and industrial markets expect periodic changes
and improvements in the products offered.
Firms seeking to making innovation as their grand strategy seek to reap the initially high
profits associated with customer acceptance of a new or greatly improved product.
As the products enters the maturity stage these companies start looking for a new
innovation.
The underlining rationale is to create a new product life cycle and thereby make similar
existing products obsolete.
This strategy is different from the product development strategy in which the product life
cycle of an existing product is extended.
e.g. Polaroid which heavily promotes each of its new cameras until competitors
are able to match its technological innovation; by this time Polaroid normally is
prepared to introduce a dramatically new or improved product.
Integration strategy
takes place when companies merge or one company buys another.Horizontal integration
Seeking ownership or increased control over competitors
Increased control over competitors means that you have to look for new opportunities
either by the purchase of the new firm or hostile take over the other firm. One
organization gains control of other which functioning within the same industry.
It should be done that every firm wants to increase its area of influence, market share and
business.
It is a strategy in which a firms long term strategy is based on growth through acquisition
of one or more similar firms operating at the same stage of the production-marketing
chain. E.g. Acquisition of Arcelor by Mittal Steels
Such acquisitions eliminate competitors and provide the acquiring firm with access to
new markets.
The acquiring firm is able to greatly expand its operations, thereby achieving greater
market share, improving economics of scale, and increasing the efficiency of capital use.
The risk associated with horizontal integration is the increased commitment to one type
of business.
Vertical integration
It is a process in which a firm's grand strategy is to acquire firms that supply it with
inputs (such as raw materials) or are customers for its outputs (such as warehouses for
finished products).
The acquiring of suppliers is called backward integration.
The main reason for backward integration is the desire to increase the dependability of
the supply or quality of the raw materials used in the production inputs.
This need is particularly great when the number of suppliers are less and the number of
competitors is large.
In these conditions a vertically integrated firm can better control its costs and, thereby,
improve the profit margin.
e.g. acquiring of textile producer by a shirt manufacturer
The acquiring of customers is called forward integration.
e.g. acquiring of clothing store by a shirt manufacturer
Six guidelines when forward integration may be an especially effective strategy are:
Present distributors are expensive, unreliable, or incapable of meeting firms needs
Availability of quality distributors is limited
when firm competes in an industry that is expected to grow markedly
Organization has both capital and human resources needed to manage new business of
distribution
Advantages of stable production are high
Present distributors have high profit margins
Backward Integration
Six guidelines when backward integration may be an especially effective strategy are:
When present suppliers are expensive, unreliable, or incapable of meeting needs
Number of suppliers is small and number of competitors large
High growth in industry sector
Firm has both capital and human resources to manage new business
Advantages of stable prices are important
Present supplies have high profit margins
Diversification Strategies
Diversification strategies are becoming less popular as organizations are finding it more difficult
to manage diverse business activities. In the 1960s and 1970s, the trend was to diversify so as not
to be dependent on any single industry, but the 1980s saw a general reversal of that thinking.
Diversification is now on the retreat.
Ansoff pointed out that a diversification strategy stands apart from the other three strategies. The
first three strategies are usually pursued with the same technical, financial, and merchandising
resources used for the original product line, whereas diversification usually requires a company
to acquire new skills, new techniques and new facilities.
Market Penetration - the firm seeks to achieve growth with existing products in their
current market segments, aiming to increase its market share.
Market Development - the firm seeks growth by targeting its existing products to new
market segments.
Product Development - the firms develops new products targeted to its existing market
segments.
Diversification - the firm grows by diversifying into new businesses by developing new
products for new markets.
The market penetration strategy is the least risky since it leverages many of the firm's existing
resources and capabilities. In a growing market, simply maintaining market share will result in
growth, and there may exist opportunities to increase market share if competitors reach capacity
limits. However, market penetration has limits, and once the market approaches saturation
another strategy must be pursued if the firm is to continue to grow.
Market development options include the pursuit of additional market segments or geographical
regions. The development of new markets for the product may be a good strategy if the firm's
core competencies are related more to the specific product than to its experience with a specific
market segment. Because the firm is expanding into a new market, a market development
strategy typically has more risk than a market penetration strategy.
A product development strategy may be appropriate if the firm's strengths are related to its
specific customers rather than to the specific product itself. In this situation, it can leverage its
strengths by developing a new product targeted to its existing customers. Similar to the case of
new market development, new product development carries more risk than simply attempting to
increase market share.
Diversification is the most risky of the four growth strategies since it requires both product and
market development and may be outside the core competencies of the firm. In fact, this quadrant
of the matrix has been referred to by some as the "suicide cell". However, diversification may be
a reasonable choice if the high risk is compensated by the chance of a high rate of return. Other
advantages of diversification include the potential to gain a foothold in an attractive industry and
the reduction of overall business portfolio risk.
Concentric Diversification
Adding new, but related, products or services is widely called concentric diversification.
Guidelines for Concentric Diversification
It involves the acquisition of businesses that are related to the acquiring firm in terms of
technology, markets, or products.
The selected new business must possess a very high degree of compatibility with the
firm's existing business.
The ideal concentric diversification occurs when the combined company profits increase
the strengths and opportunities and decreases the weaknesses and exposure to risk.
Thus, the acquiring firm searches for new businesses whose products, markets,
distribution channels, technologies and resource requirements are similar to but not
identical with its own, whose acquisition results in synergies but not complete
interdependence.
e.g. acquiring of Spice Telecom by Idea
Five guidelines when concentric diversification may be an effective strategy are provided below:
Competes in no- or slow-growth industry
Adding new & related products increases sales of current products
New & related products offered at competitive prices
Current products are in decline stage of the product life cycle
Strong management team
Conglomerate Diversification
Four guidelines when conglomerate diversification may be an effective strategy are provided
below:
Declining annual sales and profits
Capital and managerial talent to compete successfully in a new industry
Financial synergy between the acquired and acquiring firms
Exiting markets for present products are saturated
Defensive Strategies
Turnaround
Sometimes the profit of a company decline due to various reasons like economic
recession, production inefficiencies and innovative breakthrough by competitors.
In many cases the management believes that such a firm can survive and eventually
recover if a concerted effort is made over a period of a few years to fortify its distinctive
competences.
This is known as turnaround strategy.
Turnaround typically is begun with one or both of the following forms of retrenchment being
employed either singly or in combination.
1. Cost reduction
It is done by decreasing the workforce through employee attrition, leasing rather
than purchasing equipment, extending the life of machinery, eliminating
promotional activities, laying off employees, dropping items from a production
line and discontinuing low-margin customers.
2. Asset reduction
This includes sale of land, buildings and equipment not essential to the basic
activity of the firm.
Research have showed that turnaround almost always was associated with changes in top
management.
New managers are believed to introduce new perspectives, raise employee morale and
facilitate drastic actions like deep budgetary cuts in established programs.
Turnaround situation
The model begins with the depiction of external and internal factors as causes of a firm's
performance downturn.
When these factors continue to detrimentally impact the firm, its financial health is
threatened.
Unchecked decline places the firm in a turnaround situation.
Turnaround situations may be a result of years of gradual slowdown or months of sharp
decline.
For a declining firm, stabilizing operations and restoring profitability almost always
entail strict cost reduction followed by shrinking back to those segments of the business
that have been the best prospects of attractive profit margins.
Situation severity
The urgency of the resulting threat to company survival posed by the turnaround situation
is known as situation severity.
Severity is the governing factor in estimating the speed with which the retrenchment
response will be formulated and activated.
When severity is low, stability can be achieved through cost reduction alone.
When severity is high cost reduction must be supplemented with more drastic asset
reduction measures.
Assets targeted for divestiture are those determined to be underproductive.
More productive resources are protected and will become the core business in the future
plan of the company.
Turnaround response
Turnaround response among successful firms typically include two strategic activities:
Retrenchment phase
Recovery phase
Retrenchment phase
It consists of cost-cutting and asset-reducing activities.
The primary objective of this process is to stabilize the firm's financial condition.
Firms in danger of bankruptcy or failure attempt to halt decline through cost and asset
reductions.
It is very important to control the retrenchment process in a effective and efficient
manner for any turnaround to be successful.
After the stability has been attained through retrenchment, the next step of recovery phase
begins.
Recovery phase
The primary causes of the turnaround situation will be associated with the recovery
phase.
For firms that declined as a result of external problems, turnaround most often has been
achieved through creating new entrepreneurial strategies.
For firms that declined as a result of internal problem, turnaround has been mostly
achieved through efficiency strategies.
Recovery is achieved when economic measures indicate that the firm has regained its
predownturn levels of performance.
General Electric with the assistance of McKinsey and Company developed this matrix.
This martix includes 9 cells based on long-term industry attractiveness(on Y-axis) and business
strength/competitive position (on X-axis).
The industry attractiveness includes Market size, Market growth rate, Market profitability,
Pricing trends, Competitive intensity / rivalry, Overall risk of returns in the industry, Entry
barriers, Opportunity to differentiate products and services, Demand variability, Segmentation,
Distribution structure, Technology development
Business strength and competitive position includes Strength of assets and competencies,
Relative brand strength (marketing), Market share, Market share growth, Customer loyalty,
Relative cost position (cost structure compared with competitors), Relative profit margins
(compared to competitors), Distribution strength and production capacity, Record of
technological or other innovation, Quality, Access to financial and other investment resources,
Management strength
Limitations
It presents a somewhat limited view by not considering interactions among the business units
Rather than serving as the primary tool for resource allocation, portfolio matrices are better
suited to displaying a quick synopsis of the strategic business units.
Introduction
The business portfolio is the collection of businesses and products that make up the company.
The best business portfolio is one that fits the company's strengths and helps exploit the most
attractive opportunities.
(1) Analyse its current business portfolio and decide which businesses should receive more or
less investment, and
(2) Develop growth strategies for adding new products and businesses to the portfolio, whilst at
the same time deciding when products and businesses should no longer be retained.
The two best-known portfolio planning methods are from the Boston Consulting Group (the
subject of this revision note) and by General Electric/Shell. In each method, the first step is to
identify the various Strategic Business Units ("SBU's") in a company portfolio. An SBU is a unit
of the company that has a separate mission and objectives and that can be planned independently
from the other businesses. An SBU can be a company division, a product line or even individual
brands - it all depends on how the company is organised.
Using the BCG Box (an example is illustrated above) a company classifies all its SBU's
according to two dimensions:
On the horizontal axis: relative market share - this serves as a measure of SBU strength in the
market
On the vertical axis: market growth rate - this provides a measure of market attractiveness
By dividing the matrix into four areas, four types of SBU can be distinguished:
Stars - Stars are high growth businesses or products competing in markets where they are
relatively strong compared with the competition. Often they need heavy investment to sustain
their growth. Eventually their growth will slow and, assuming they maintain their relative market
share, will become cash cows.
Cash Cows - Cash cows are low-growth businesses or products with a relatively high market
share. These are mature, successful businesses with relatively little need for investment. They
need to be managed for continued profit - so that they continue to generate the strong cash flows
that the company needs for its Stars.
Question marks - Question marks are businesses or products with low market share but which
operate in higher growth markets. This suggests that they have potential, but may require
substantial investment in order to grow market share at the expense of more powerful
competitors. Management have to think hard about "question marks" - which ones should they
invest in? Which ones should they allow to fail or shrink?
Dogs - Unsurprisingly, the term "dogs" refers to businesses or products that have low relative
share in unattractive, low-growth markets. Dogs may generate enough cash to break-even, but
they are rarely, if ever, worth investing in.
Once a company has classified its SBU's, it must decide what to do with them. In the diagram
above, the company has one large cash cow (the size of the circle is proportional to the SBU's
sales), a large dog and two, smaller stars and question marks.
Conventional strategic thinking suggests there are four possible strategies for each SBU:
(1) Build Share: here the company can invest to increase market share (for example turning a
"question mark" into a star)
(2) Hold: here the company invests just enough to keep the SBU in its present position
(3) Harvest: here the company reduces the amount of investment in order to maximise the short-
term cash flows and profits from the SBU. This may have the effect of turning Stars into Cash
Cows.
(4) Divest: the company can divest the SBU by phasing it out or selling it - in order to use the
resources elsewhere (e.g. investing in the more promising "question marks").
Module VI
Strategy Implementation Operationalizing strategy, Annual Objectives, Developing Functiona l
Strategies, Developing and communicating concise policies. Institutionalizing the strategy.
Strategy, Leadership and Culture. Ethical Process and Corporate Social Responsibility.
Strategy Implementation:
After the creative and analytical aspects of strategy formulations are settle, the managerial
priority is converting the strategy into something operationally effect. This is the implementation
of strategy.
Implementation concerns can become quite challenging when a major strategic change is being
proposed. When the environment changes rapidly or abruptly, progressive firms take steps to
capitalize on new opportunities and or minimize the negative effects of the changes. Change can
be brought about by factors such as the need to address increased competition, improve quality
or service, reduce costs, or align the firm with the practices and expectations of its partners.
Strategic change can be transformational, such as when a firm changes its product lines, markets
or channels of distribution. Strategic change can also be operation, such as when a firm
overhauls its production system to improve quality and lower its costs of operations.
The implementation of policies and strategies is concerned with the design and management of
systems to achieve the best integration of people, structures, processes and resources, in reaching
organizational processes.
Strategy implementation may be said to consist of securing resources, organizing these resources
and directing the use of these resources within and outside the organization.
An organizational control system is also required. This control system equips managers with
motivational incentives for employees as well as feedback on employees and organizational
performance. Organizational culture refers to the specialized collection of values, attitudes,
norms and beliefs shared by organizational members and groups.
Operationalizing Strategy
Operational zing the strategy requires transcending the various components of the strategy to
different level, mobilization and allocation of resources, structuring authority, responsibility, task
and information flows, establishing policies and evaluation and control.
Strategy is a blue print indicating the courses of action to achieve the desired objective. The
objectives are achieved by proper activation of the strategy or implementation steps in the
strategic management encompass the operational details to translate the strategy in for effective
practice. Strategy formulation is a intellectual process, whereas strategy implementation is more
operational in character. Strategy formulation requires good conceptual, integrative and
analytical skills but strategy implementation requires special skills in motivating and managing
others. Strategy formulation occurs primarily at the corporate level of the organization while
strategy implementation permeates all hierarchical levels.
Strategy activation encompasses communicating and motivating, setting goals, formulating
policies and functional strategies, organizational stunting, leadership implementation and
resource allocation.
Annual Objectives
Annual operating objective designed to contribute to the long term objectives is a critical step in
strategy implementation. Long term objectives indicate the planned long term positioning of the
organization. Short term objectives like annual objective lay down the specific goals and targets
to be achieved within the specific time frame so that the long term objectives would achieved.
Annual objectives should be measurable, consistent, reasonable, challenging, clear,
communicated thought the organization, characterized by appropriate time dimension and
accompanied by commensurate rewards and sanctions Annual objectives should prioritized due
to time consideration and relative impact on strategic success.
Organizational plan for human resources, marketing, research and development and other
functional areas. The functional strategy of a company is customized to a specific industry and
is used to back up other corporate and business strategies.
Functional strategy- selection of decision rules in each functional area. Thus, functional
strategies in any organization, some (e.g., marketing strategy, financial strategy, etc.). It is
desirable that they have been fixed in writing.
Production strategy( "make or buy") - defines what the company produces itself, and that
purchases from suppliers or partners, that is, how far worked out the production chain.
Financial Strategy- to select the main source of funding: the development of their own funds
(depreciation, profit, the issue of shares, etc.) or through debt financing (bank loans, bonds,
commodity suppliers' credits, etc.).
Organizational strategy- decision on the organization of the staff (choose the type of
organizational structure, compensation system, etc.).
May be allocated and other functional strategies, for example, the strategy for research and
experimental development (R & D), investment strategy, etc.
In addition, each of the functional strategies can be divided into components. For example,
organizational strategy can be divided into three components:
Organization for the implementation of the strategy at the functional area responsible senior
specialist (Ch. Engineer, Director of Finance), at the enterprise level - the general director or
director of the department, at the level of groups of companies - a collegiate body (management,
board of directors)
2. Policies are immense help in conducting the regular activities of an organizationsmoothly and
efficiently. Policies provide clear guidance for carrying out activities andthereby avoid confusion
and discretionary misuse.
3. Policies help delegation because the clarity of procedures etc. enable the work to becarried out
independently.
4. They help to avoid delay in decision making.
5. Clear policies help minimize conflicting practices and establish consistent patterns ofaction
because policies clarity what work is to be done by whom.
transforms the organization which involves changing all faces such as size, management
practices, culture and values, and people in such a way that the organization becomes unique (2)
The strategic leadership process emphasizes people because they are the source for transforming
various physical and financial resources of the organization into outputs that are meaningful to
the society.
1. Strategic Leadership deals with vision keeping the mission in sight and with effectiveness
and results. It is less oriented to organizational efficiency in terms of cost-benefit analysis.
2. Transformational leadership is the set of abilities that allow a leader to recognize the need for
change to create a vision to guide that change and to execute that change effectively
3. Strategic leadership inspires and motivates people to work together with a common vision and
purpose.
4. Strategic leadership has external focus rather internal focus. This external focus helps the
organization to relate itself with the environment.
Organizational culture is a system of shared assumptions, values, and beliefs, which governs
how people behave in organizations. These shared values have a strong influence on the people
in the organization and dictate how they dress, act, and perform their jobs.
(a) Economic: Produce goods & services of value to society so that the firm may repay its
creditors and stockholders
(b) Legal: Defined by governments in laws that management is expected to obey
(c) Ethical: Follow generally held beliefs about how one should act in society
this.
Corporate social responsibility (CSR, also called corporate conscience, corporate citizenship or
responsible business) is a form of corporate self-regulation integrated into a business model.
Proponents argue that corporations increase long-term profits by operating with a CSR
perspective, while critics argue that CSR distracts from businesses' economic role. A 2000 study
compared existing econometric studies of the relationship between social and financial
performance, concluding that the contradictory results of previous studies reporting positive,
negative, and neutral financial impact, were due to flawed empirical analysis and claimed when
the study is properly specified, CSR has a neutral impact on financial outcomes.
Module VII
Strategic Control, guiding and evaluating strategies. Establishing Strategic Controls. Operational
Control Systems. Monitoring performance and evaluating deviations, challenges of Strategy
Implementation. Role of Corporate Governance.
Strategic Control:
Strategic control is a term used to describe the process used by organizations to control the
formation and execution of strategic plans; it is a specialised form of management control, and
differs from other forms of management control (in particular from operational control) in
respects of its need to handle uncertainty and ambiguity at various points in the control process.
Strategic control is also focused on **the achievement of future goals**, rather than the
evaluation of past performance. Vis:
The purpose of control at the strategic level is not to answer the question:' 'Have we made the
right strategic choices at some time in the past?" but rather "How well are we doing now and
how well will we be doing in the immediate future for which reliable information is available?"
The point is not to bring to light past errors but to identify needed corrections to steer the
corporation in the desired direction. And this determination must be made with respect to
currently desirable long-range goals and not against the goals or plans that were established at
some time in the past.
Premise Control
Every strategy is based on certain planning premises or predictions. Premise control is designed
to check methodically and constantly whether the premises on which a strategy is grounded on
are still valid. If you discover that an important premise is no longer valid, the strategy may have
to be changed. The sooner you recognize and reject an invalid premise, the better. This is
because the strategy can be adjusted to reflect the reality.
A special alert control is the rigorous and rapid reassessment of an organization's strategy
because of the occurrence of an immediate, unforeseen event. An example of such event is the
acquisition of your competitor by an outsider. Such an event will trigger an immediate and
intense reassessment of the firm's strategy. Form crisis teams to handle your company's initial
response to the unforeseen events.
Implementation Control
Implementing a strategy takes place as a series of steps, activities, investments and acts that
occur over a lengthy period. As a manager, you'll mobilize resources, carry out special projects
and employ or reassign staff. Implementation control is the type of strategic control that must be
carried out as events unfold. There are two types of implementation controls: strategic thrusts or
projects, and milestone reviews. Strategic thrusts provide you with information that helps you
determine whether the overall strategy is shaping up as planned. With milestone reviews, you
monitor the progress of the strategy at various intervals or milestones.
Strategic Surveillance
Strategic surveillance is designed to observe a wide range of events within and outside your
organization that are likely to affect the track of your organization's strategy. It's based on the
idea that you can uncover important yet unanticipated information by monitoring multiple
information sources. Such sources include trade magazines, journals such as The Wall Street
Journal, trade conferences, conversations and observations.
Process of Evaluation
Quantitative Criteria
Qualitative Criteria
There has to be a special set of qualitative criteria for a subjective assessment of the factors
like capabilities, core competencies, risk- bearing capacity, strategic clarity, flexibility, and
workability
Measurement of Performance
The evaluation process operates at the performance level as action takes place. Standards of
performance act as the benchmark against which the actual performance is to be compared. It is
important, however, to understand how the measurement of performance can take place.
Analyzing Variances
The measurement of actual performance and its comparison with standard or budgeted
performance leads to an analysis of variances. Broadly, the following three situations may arise:
There are three courses for corrective action: checking of performance, checking of standards,
and reformulating strategies, plans, and objectives.
Techniques for strategic control could be classified into two groups on the basis of the
type of environment faced by the organisation. The organisation that operate in a relative
stable environment may use strategic momentum control, while those which face a
relatively turbulent environment may find strategic leap control more appropriate.
Internal analysis
Comparative analysis
Comprehensive analysis.
it is the process by which managers monitor the ongoing activities of an organization and its
members to evaluate whether activities are being performed efficiently and effectively and to
take corrective action to improve performance if they are not
Organizational performance
Strategic Control:
Allows the organization to respond to new opportunities that may present itself
The final stage in strategic management is strategy evaluation and control. All strategies are
subject to future modification because internal and external factors are constantly changing. In
the strategy evaluation and control process managers determine whether the chosen strategy is
achieving the organization's objectives. The fundamental strategy evaluation and control
activities are: reviewing internal and external factors that are the bases for current strategies,
measuring performance, and taking corrective actions.
Strategic control requires data from more sources. The typical operational control
problem uses data from very few sources.
Strategic control requires more data from external sources. Strategic decisions are
normally taken with regard to the external environment as opposed to internal operating
factors.
Strategic control are oriented to the future. This is in contrast to operational control
decisions in which control data give rise to immediate decisions that have immediate
impacts.
Strategic control is more concerned with measuring the accuracy of the decision
premise. Operating decisions tend to be concerned with the quantitative value of certain
outcomes.
Strategic control standards are based on external factors. Measurement standards for
operating problems can be established fairly by past performance on similar products or
by similar operations currently being performed.
Strategic control relies on variable reporting interval. The typical operating
measurement is concerned with operations over some period of time: pieces per week,
profit per quarter, and the like.
Strategic control models are less precise. This is in contrast to operational control
models, which are generally very precise in the narrow domain they apply.
Strategic control models are less formal. The models that govern the considerations in
a strategic control problem are much more intuitive, therefore, less formal.
The principal variables in a strategic control model are structural. In strategic
control, the whole structure of the problem, as represented by the model, is likely to vary,
not just the values of the parameters.
The key need in analysis for strategic control is model flexibility. This is in contrast to
operating control, for which efficient quantitative computation is usually most desirable.
The key activity in management control analysis is alternative generation. This is
different from the operational control problem, in which in many cases all control
alternatives have been specified in advance. The key analysis step in operations is to
discover exactly what happened.
The key skill required for management control analysis is creativity. In operational
control, by contrast, the formal review of outcomes to discover causes means that they
skill required is the ability to do technical, even statistical, analysis of the data received.
Authority over normal business operations at the operational level, as opposed to the strategic or
tactical levels. Operational control includes control over how normal businessprocesses are
executed, but does not include control over the strategic business targets or high-level business
priorities.
Operational control systems help operating managers to implement strategy at their level. These
systems help to guide, monitor, and evaluate progress in meeting the annual objectives of the
company. Corporate resource planning, budgets, and policies and procedures are three important
topics in operational control. The most common types of budgets that translate company
objectives are revenue budgets, capital budgets, and expenditure budgets. Many organizations
have shifted their focus away from traditional budgets to 'rolling budgets' or 'rolling forecasts'.
Articulate a strategic vision for the firm, Present a role for other to identify with and follow
(e.g., behavior, attitude, values, etc) and
Communicate high performance standards & show confidence in followers abilities to meet
these standards
Manage the strategic planning process: Evaluate division/units to make sure they fit together
into an overall corporate plan
The strategic plan document should specify who is responsible for the overall implementation of
the plan, and also who is responsible for achieving each goal and objective.
The document should also specify who is responsible to monitor the implementation of the plan
and made decisions based on the results. For example, the board might expect the chief executive
to regularly report to the full board about the status of implementation, including progress toward
each of the overall strategic goals. In turn, the chief executive might expect regular status reports
from middle managers regarding the status toward their achieving the goals and objectives
assigned to them.
The frequency of reviews depends on the nature of the organization and the environment in
which it's operating. Organizations experiencing rapid change from inside and/or outside the
organization may want to monitor implementation of the plan at least on a monthly basis.
Insufficient partner buy-in: In conducting strategic planning, firm leaders and partners
involved in the process develop a strong understanding of the business imperative behind
the chosen strategy and the need for change in order to achieve partner goals. However,
Dept of MBA,SJBIT Page 99
STRATEGIC MANAGEMENT 14MBA25
partners removed from the process may struggle to identify with the goals and strategies
outlined by firm leaders. These partners may not see a need for change, and without
understanding the background and rationale for the chosen strategy, these partners may
never buy-in to strategic plan and, as a result, will passively or actively interfere with the
implementation process.
Insufficient leadership attention: Too often, law firm leaders view the strategy
development process as a linear or finite initiative. After undergoing a resource intensive
strategic planning process, the firm's Managing Partner and Executive Committee
members may find themselves jumping back into billable work or immersing themselves
in other firm matters, mistakenly believing that writing the plan was the majority of the
work involved. Within weeks of finalizing the plan, strategies start to collect dust,
partners lose interest, and eventually, months pass with little or no reference to the plan
or real action from firm leaders to move forward with implementation.
Ineffective leadership: Leading strategy implementation requires a balancing act - the
ability to work closely with partners in order to build cohesion and support for the firm's
strategy, while maintaining the objectivity required in order to make difficult decisions.
Strategy implementation frequently fails due to weak leadership, evidenced by firm
leaders unable or unwilling to carry out the difficult decisions agreed upon in the plan. To
compound the problem, partners within the firm often fail to hold leaders accountable for
driving implementation, which ultimately leads to a loss of both the firm's investment in
the strategy development process as well as the opportunities associated with establishing
differentiation in the market and gaining a competitive advantage.
Weak or inappropriate strategy: During the course of strategic planning, the lack of a
realistic and honest assessment of the firm will lead to the development of a weak,
inappropriate or potentially unachievable strategy. A weak strategy may also result from
overly aspirational or unrealistic firm leaders or partners who adopt an ill-fitting strategy
with respect to the firm's current position or market competition. Without a viable
strategy, firms struggle to take actions to effectively implement the plan identified.
Resistance to change: The difficulty of driving significant change in an industry rooted
in autonomy and individual lawyer behaviors is not to be underestimated. More often
than not, executing on strategy requires adopting a change in approach and new ways of
doing things. In the context of law firms, this translates to convincing members of the
firm, and in particular partners, that change is needed and that the chosen approach is the
right one.
By developing an awareness of these hurdles and traps which lead to failure in implementation,
firms can learn how to adapt their approach and develop tools to assist them in more successfully
executing on their strategy.
As a first step in ensuring the successful implementation of the firm's strategy, firm leaders must
take early and aggressive action to institutionalize the strategy within the firm. The Managing
Partner, Chair, and other key leaders must demonstrate visible ownership of the firm's strategy,
communicating clearly with partners about the details, value and importance of the strategy to
the firm. Members of management should also seek input and support from key opinion leaders
and rainmakers early-on and request their help in championing the strategy to other partners
within the firm. Over time, such actions will assist in generating buy-in among partners, leading
to greater overall support for the strategic plan and the changes inherent in its execution.
Having successfully sold the main tenets of a strategic plan to the partnership, firm leaders must
then reorient themselves around the task at hand: strategy implementation. This is where the real
work begins. To facilitate more effective execution, leaders should take the following critical
actions:
Implementation Planning: A fundamental and critical step in moving forward with strategy
execution involves planning. Implementation planning entails developing a detailed outline of
the specific actions and sub-actions, responsibilities, deadlines, measurement tools, and follow-
up required to achieve each of the firm's identified strategies. Implementation plans often take
the form of detailed charts which map the course of action for firm leaders over a 24-36 month
time period. Achieving a level of detail in these plans provides for a tangible and measurable
guide by which both the firm and its leaders can asses progress in implementation over time.
needed. Such assessments are crucial in ensuring that action is taken and progress is made on
strategy execution.
In the context of law firms, strategic planning represents a methodology for developing a shared
organizational view of the desired direction for the firm and outlining the process by which the
firm will move in that direction. For many firms, movement along the firm's chosen strategy can
be intensely challenging, and too often, implementation efforts fail. In order to realize the
potential and value in a firm's strategy, law firm leaders must dedicate themselves to driving
successful implementation. This requires planning, resources, time, attention, leadership and
courage. Yet, the investment in implementation is not without its rewards. By focusing the
necessary energy on implementation, your firm's strategy will no longer be the one collecting
dust. If implemented properly, your firm's strategy will be living and breathing inside your firm
and driving your firm towards market differentiation and competitive advantage.