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Introduction to Strategy
Strategy comes from ancient Greek word meaning The Art of Leading an Army.
The Art of Generalship.
The publication of „Theory of Games and Economic Behavior‟ by Neuman and Morgan Stren acted as a bridge to Business Strategy.
They formulated the method of resolving conflicts in Politics, War and Business by interpreting strategy in two ways.
- Pure Strategy: series of moves by a business in a specific area e. g. Product Development
- Grand Strategy: A combination of Pure Strategies a business should pursue according to a situation.
However the markets are fast evolving due to Globalization, Technology, IT, Dismantling of Government Controls and Media and
several other factors. As a result of which, business have to Manage Change and exploit opportunities.
Thus the strategy also needs to answer the question: „How can we add value to a customer in a sustained way?‟
Concept of Strategy
A strategy is a fundamental pattern of present and planned objectives, resource deployment and interactions of an organization with
markets, competitors and other environmental factors
Components of Strategy:
There are five components or sets of issues within a well developed strategy
1. Scope: The number and types of industries, product lines and market segments it plans to enter
2. Goals and objectives: Desired levels of accomplishments- Volume growth, profits ROI over specific time period
3. Resource deployment- human and financial across product- markets, functional departments, management teams
4. Identification of sustainable competitive advantage
The organization needs to examine
- Market opportunities in each business product-market
- Core competencies or strengths relative to its competitors
5. Synergy: When a firm‟s business, product market, resource deployment reinforce one another
Synergy enables the total performance of the related businesses to be greater than it would be otherwise
Goals & Objectives Over all across business Depends on Corp goals depends on corp./business goals
Revenue growth Objectives aggregated objectives of specific product, mkt
Profitability across prod.-mkts entry, sales, mkt. share, cont margin
ROI, Earning per share. sales growth. customer satisfaction
new product- market growth
profits, ROI, cash flow
Strengthen basis of
competitive advantage
Allocation of Resources Across businesses among product, mkts across components of a mktg plan-
Across functions shared across functional depts. elements of maktg mix, product-mkt
by multipal businesses within the business unit entry
e.g. R&D, MIS
Source Of Competitive Primarily through superior Primarily through through effective product positioning
Advantage corporate financial, HR, R&D competitive strategy superiority of a component of mktg mix
relative to competitors
Better org. processes or business units competencies for a specific product- market
synergies relative competitors relative to competitors in its
across all industries industry
in which firm operates
STRATEGY FORMULATION
Mission Objectives
STRATEGY CHOICE
STRATEGY IMPLEMENTATION
STRATEGY EVALUATION
AND CONTROL
Feedback
Strategic Management is a continuous activity of setting and maintaining the strategic direction of the organization and its business,
and making decisions on a day-to-day basis to deal with changing circumstances and the challenges of the business environment.
A step by step description of the tasks of Strategic Management are given below.
1. Prepare Mission Statement: "Why does the organization exist?" The mission statement provides continued direction and focus to
the firm.
2. Prepare a Vision Statement: "What do we hope for our organization and customers?"
3. Prepare Value Statement: The value statement depicts the priorities in how the organization carries out activities with
stakeholders.
4. Conduct an External Analysis: Look at trends effecting the organization, e.g., economy, demography, competition, technology,
political, and the stakeholders‟ interests.
5. Conduct an Internal Analysis: Strengths and weaknesses, and the trends effecting the organization, e.g., reputation of the
organization, expertise of employees, facilities, strength of finances, patents and intellectual rights, goodwill, etc.
6. Identify Strategic Issues: Identify the major immediate and near-term issues that the organization must address. The key issues
should come from the internal and external analyses. Consider each of the issues. Ask whether it‟s “important” or “urgent.”
Attend to the important issues.
7. Establish Strategic Objectives: Design objectives that are specific, measurable, acceptable to the people. The objectives should be
closely aligned to the mission, vision and values.
8. Establish Strategies to Reach Objectives: Define the general approaches needed to reach the objectives.
9. Develop Staffing Plan: Reference each of the strategies to reach the objectives and consider what kind of capabilities are needed
to implement the strategies.
10. Create an Action Plan: Identify objectives that must be achieved while implementing the strategy, when and by whom.
11. Develop an Operating Budget for Each Year in the Plan: The entire time span the plan should be covered by the budgeting.
12. Strategic Objectives and Performance Objectives: Identify the performance objectives of the management staff. Decide which
board committees will be addressing which strategic objectives.
13. Implementation of Plan: To monitor and evaluate the status of implementation design reporting and control systems to identify
current issues and any additional resources needed to implement the plan.
14. Specify How Plan Will Be Communicated: The plan should be known to everyone in the organization. Decide how we can make
this possible.
Keep in mind the following while doing industry and competitive analysis.
The task of analyzing a company’s external situation cannot be reduced to a mechanical exercise in which facts and data
are put in and definitive conclusions pour out.
Strategic analysis always leaves room for differences of opinion about all factors add up and what future industry and
competitive situation will be.
Industry Analysis - Dominant Economic Features
The factors to consider in profiling an industries Economic Features is fairly standard
This is where analysis of industry and competition begins.
Key features are:
- Market size
- scope of competitive rivalry
- Market growth rate and position in Industry Life Cycle
- Number of rivals and their relative sizes, fragmented, concentrated in clusters, dominated by few rivals
- Number of buyers and their relative sizes
- Extent to which rivals have backward or forward integration
- Distribution channels used, type and extent, trade terms
- Pace of technological changes in production process, innovation and new product introduction
- Extent to which products and services of rival firms are differentiated
- Extent to which rivals can realize economies of scale in purchasing, manufacturing, transportation, marketing or
advertising
- Whether industry activities are characterized strong learning and experience effects such that unit costs decline as
cumulative output grows.
- Whether high level of capacity utilization are crucial to achieving low cost production efficiency
- Capital requirements
- Ease of entry and exit
- Industry profitability
A industry’s economic analysis is important for its implication for strategy formulation
Competency: A company’s competency is the product of leaning and experience and represents proficiency in
performance of an internal activity.
Examples:
Expertise in a specific technology,
Skills in working with customers on new applications and product use
Expertise in Just-in-time inventory management
Expertise in creating an effective advertising campaign
Company’s competencies are normally a bundle of skills, know-how and resources rather than a discrete skill or a
resource
Competitive Capability: A company’s capability to become a meaning competitive capability when customer considers it
valuable and beneficial.
Core Competency: a valuable company resource is something a company does something better relative to other
internal activities.
A company may have more than one core competency but usually no more than 2 or 3
A core competency gives a company Competitive Capability and thus qualifies as a genuine its strength and resource
A company’s core competency lies in its people, and in its intellectual capital and not in its assets and balance sheet
Distinctive competency:
Differences in company resources account for why some companies are more profitable and more competitively
successful than others, the sustainable competitive advantage
Is the resource hard to copy? More difficult and more expensive it is to imitate, greater is the potential competitive
value.
The resource uniqueness, location and protection
The life of the resource, the longer it lasts, greater its value.
e.g the value of Kodak’s resource in film and film processing is rapidly being undercut by digital cameras
Competitive superiority of resource
e.g Coca cola’s marketing skills are presumably better than Pepsi cola’
Mercedes Benz’s brand name is more powerful than BMW
- Local - Be dominant - Aggressive expansion - Getting stronger - Mostly offensive -Striving for
leader via acquisition and on the move leadership
for low cost internal growth
- Regional
- National - Overtake leader internal growth - Well entrenched - Mostly defensive - Focusing on
market niche
- Global - Be among top 5 - Expansion through - Stuck in middle -Aggressive risk taker
organic growth via
- Move into - Try to move from - Conservative follower - Focusing on
top 10 - Expansion weaker to stronger differentiation
- Overtake a acquisition position bases on
particular rival - Quality,
- Hold on to - Losing ground - Service
- Maintain position present share -Technology
-Range
- Just survive - Give up share for -Image
short term profit - Value
At the Range Level: This involves having products at different cycle stages to ensure overall balance in volume, growth, profitability and cash flow
It may also involve rationalization and product improvement exercises
At the Product Category Level: Stages in PLC has a major bearing on how much effort or resource we are prepared to or is sensible to commit
Develop new segments Improve/ re-launch product Later perhaps increase prices
as product is refocused and
repositioned on narrower segments
Specifies how a business brand or a product should be [perceived by the customer relative to competition
This is strategic and is a long-term effort to give advantage over competition
Strategic Position:
Differentiates from competition
Resonates with customers
Drives strategic initiatives
Expresses the value/ culture of an organization
Is the face of business strategy
Segmentation Co
Competitor
analysis
Choice
Choice of Analyzing
Customer their offering
targets
Customer Developing an
insights edge
Position your
offer
Session 6: Culture
Culture: Is the synthesis of shared values, a common mind- set, characteristic behavior & symbols of various kinds.
Values: What members of an organization collectively see as important and this tends to guide their behavior.
E.g. Order, conformity, status, growth, job security, respect for authority, openness, loyalty product quality, risk taking, ethical behavior, flexibility.
Mind-set or paradigm: Consists of shared set of assumptions- „Chinese products are of poor quality‟
Characteristic behavior: Key aspects include, management style, Dress, relationships and interactions
Symbols: Symbols of corporate culture- image created by a firm‟s identity programs, impressions created by corporate office
A weakness of power culture org. is that it tends to lose its most able people who become frustrated at their lack of involvement in key decision
areas.
The problems arise when the firms become large. This may lead to anarchy
Entrepreneurial Culture: A mix of power and achievement culture defined by young organizations those are lively and exciting places to work.
Family Business Culture: Common element as power culture. Two subcultures- family members and the rest characterized by traditional practices,
paternalist attitudes, tend to cultivate family atmosphere.
Cultural Change:
See change management
Vision:
Is a description of a desired future state of the organization, whereas Mission is about ultimate purpose, values and standards.
The term contains the idea of innovative imaginative thinking challenging conventional thinking and points the way to new opportunities
Development of vision involves thinking freely without constraints of the past or cultural limitations
It is about dreaming ahead.
It is however difficult to develop a radically new mind set or paradigm
Examples of visionaries who built entire organizations on the basis of a vision are Ray Kroc – MacDonalds
Richard Branson- Virgin Atlantic, Narayan Murty-Infosys. JRD Tata
1.Top managements go through a consultative process inviting ideas or suggestions from the members of an organization before developing a
Vision Statement.
Or the chief takes the lead, develops a Vision and seeks to share it with others, and seeks their comments
Whatever the process, the vision is owned and shared. Some steps that may be needed are:
- Create arenas or for a within the org. at several levels where possible alternate futures are discussed
- Meet members of the org. face to face and expose them to new thinking
- The vision must be „launched/ presented‟ to the members
- The vision must be exciting and inspiring. It should be believable
- Members must be given some idea of turn the vision into reality
A decade from now I would like GE to be perceived as a unique, high spirited entrepreneurial enterprise
- company known around the world for its unmatched level of excellence. I would want GE to be the most profitable highly diversified company on
the earth with world class quality leadership in every one of its product lines
The mission should ideally appeal to both minds (strategy) and hearts (cultural values) of the organization‟s members
A strong sense of mission exists when the four elements of mission reinforce each other
Purpose
Mission
Strategy
Values
Behavior Standards
Successful mission depends upon how far the individual‟s personal values and beliefs match with those of the organization
In order to promote a strong sense of mission careful recruitment is very important
People don‟t change values when they join an organization.
Through teamwork, quality our customers require, business excellence- acting ethically & continuously striving for excellence in our performance.
Strategy: We are unique in our product and service breadth and our technological depth. We will use these strengths to be always ahead of our
competitors- have competitive advantage on sustainable basis
When the change come, organizations cannot rely on existing source of competitive advantage, but learn to create new one as their
environments change.
Building and sustaining competitive advantage amidst rapid change requires the organizations to learn new technologies, new markets
and new ways of managing.
In future the only source of sustainable competitive advantage will be to learn new skills and this can be traumatic.
Managers and employees at all levels resist change.
Continued learning
Decentralization
Learning
Openness & diversity of ideas
Organization
Multiple experiments
Continued rotation exposes a manager to new ideas and insights. A manager tends to get emotionally attached and promote current
strategies. Continuous rotation overcomes this tendency and helps the manage to learn new functional skills, new perspectives and
competencies
Continued training of personnel helps to overcome resistance to change as it removes the fear of becoming obsolete and thus loose
promotional opportunities/ career advancement- the main obstacles to change.
Successful companies have long commitment to training as it benefits both the individual and the organization
Decentralization of decision making to some degree is important. Lower level mangers. front- line managers are the first to spot new
opportunities or problem areas
Encouragement of multiple or parallel experiments is better bec of high failure rates of new initiatives
It also helps in a superior idea getting rejected. Parallel experimentation helps choose better technologies, product standards,
marketing approaches and management methods. This also encourages a healthy internal competition.
High tolerance for failures: Many innovative companies tolerate failure and reward achievements
Openness & diversity of viewpoints: True openness by managers to new ideas, suggestions and criticisms is rare
Successful organizations listen to new ideas but encourage diversity of viewpoint and perspectives thought the firm
Excessive control makes the manager myopic.
We can broadly classify organizations into three types.
Learning organizations that consider change as an opportunity & renewal
Static Organizations that focus on doing better what they are doing. They do not promote new learning
In between organizations that change after overcoming varying degrees of resistance. They take time but change. Most
organizations fall in this category.
Change Steps:
1. Sensing the need for strategic change
2. Building organizational awareness for this need
3. Stimulating debate for alternative solutions
4. Strengthening consensus for a preferred approach
5. Assigning responsibility for implementation
6. Allocating resources to sustain the effort
Case: Transformation of GE
Before Welch took-over GE was profitable and grew slowly. Its home appliances, aircraft engines, lighting plastics, consumer
electronics & motor businesses were mature, profitable.
Each business unit was finally attuned to competing in its own environment with competition and technology fairly predictable and
stable.
The process of transformation from a static to a learning organization that is agile and lean was not easy.
It took two decades to implement many new management practices that make change an acceptable part of working at GE. The figure
below shows implementation of various changes that has changed GE to a learning organization.
Welsh believed that a boundary-less organization would change faster because it will learn faster
2. Welsh dissolved many layers of management. It lead to layoffs. GE became a thin organization in many units
3. Each business unit was expected to become no 1 or no. 2 in its industry or were sold away.
Several businesses were sold away that were profitable
4. Acquired several new companies. Mr. Welsh acquired 100‟s of small companies to bolster GE‟s growth rate
Mr. Welsh of course resistance from lower level managers who feared erosion of power base. Some veterans left others were trained.
Over time he introduced several new initiatives
- Managerial rotation and training
- Promote openness and idea exchange at all levels
- People with the most workable suggestions were given the authority to implement
5. GE introduced six sigma to revamp all its operations, core processes to promote those practices that best support and improve
quality objectives of six sigma to identify and eliminate all sources of waste, unleashing in greater improvement in quality and
productivity
6. GE trainees graduated to „black belt‟ in process improvement
7. GE became aggressive to expand into new markets and into new service-based businesses i.e. investing in Asia
8. Expand services businesses to expand to improve profitability of its major businesses
Some major service areas are Aircraft Engines, Medical Systems, Power Systems, Lighting Plastics, and transportation systems.
They also moved closer to customers by setting up service operations on customer sites e. g. on-site repairs.