STRATEGIC MANAGEMENT

ASSIGNMENT 2
ANSHUL GUPTA
CASE 1: The Theory of Business 281012
FMG – 28 - A
Summary:
1) Big companies that have enjoyed long-term success hit stagnation and find
themselves in unmanageable crisis despite having experience, best brains, sound
policies etc.
2) Phenomenon is not restricted to businesses alone but also happens in labour unions,
government agencies, hospitals, museums and churches.

In 1950 IBM was structuring SAGE air protection framework for early recognizable proof of
foe airplane. Univac propelled the model of first multipurpose PC. Every single prior plan
were for single reason machines. IBM promptly set its best specialists to chip away at the
Univac engineering and planned made the principal multipurpose PC. After three years IBM
turned into the world's predominant PC creator and leading figure. It made a PC as well all in
all PC industry. In 1970s IBM was unhesitatingly forming ground-breaking centralized
computer PC into which an enormous number of clients could plug. Macintosh thought of the
primary Personal Computer; a fabulous achievement. IBM acknowledged the new reality and
built up an easier PC. After two years it turned into the biggest PC maker and industry
standard setter. Be that as it may, centralized server PCs and PCs were contenders and
couldn't coincide in the equivalent corporate substance so IBM confronted issues in
enhancing the creation of both.

Approach (General Motors):

General Motors was once world’s largest and most profitable manufacturing organization. Its
assumptions were that US market was homogeneous with stable income groups. Long runs
of mass produced cars with minimum changes each model year. Structure of
semiautonomous divisions each focusing on one income segment. Highest priced model of
one division overlapped with lowest priced model of the next. The theory worked for 70
years; GM never suffered losses and steadily gained market share. But in late 1970s the
market was fragmenting into highly volatile ‘lifestyle’ segments and income no longer
remained the only factor of buying decision. Also lean manufacturing created economics of
small scale and shorter runs and variations in model became more profitable. GM tried to
patch things over by maintaining the existing divisions that now offered ‘a car for every
purse’, automated the long run mass production system but neglected the real growth
market – light trucks and minivans. End result – confused set of customers, dealers,
employees and the management itself.
Parts:
1) Assumptions about the environment of the organization: society and its structure, the
market, the customer and technology.
2) Assumptions about the specific mission of the organization.
3) Assumptions about the core competencies needed to accomplish the organization’s
mission.
Guidelines:
1) The assumption about environment, mission and core competencies must fit reality.
(Marks and Spencer decided it was the merchant not the manufacturer who knew the
customer)
2) The assumptions in all three areas have to fit one another. (GM’s core competency-
financial control of the manufacturing process and a theory of capital allocations)
3) The theory of the business must be known and understood throughout the
organization (successful organization tends to take its theory for granted and it
substitutes discipline with culture)
4) The theory of the business has to be tested constantly. (It is a hypothesis and it must
have the ability to change itself)
Preventive measures:
1) Systematic monitoring and testing of its theory of the business
2) Rethink a theory that is stagnating
3) Take effective action in order to change policies and practices
4) Bring organization’s behaviour in line with new realities of its environment , with its
new mission and with new core competencies
Early Diagnosis:
1) Theory becomes obsolete when an organization attains its original objectives.
2) Rapid growth is another sign of crisis. It challenges assumptions, policies, and habits.
3) Two clear signals are unexpected success and unexpected failure whether one’s
own or a competitor’s. Ex: unexpected success of Chrysler by sales of Jeep and
minivans is unexpected failure of GM.
4) To establish maintain and restore a theory requires not a genius but his hard work.
5) It is not being clever but being conscientious.
6) It is what CEOs are paid for.
i. They start out with diagnosis and analysis
ii. They do not dismiss unexpected failure but treat it as a symptom of ”systems
failure”

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 iii. They don’t take credit for unexpected success but as a challenge to their
assumptions

Case 2: Are you sure you have a strategy

Background:
When executives call everything strategy, and end up with a collection of strategies, they
create confusion and undermine their own credibility. They especially reveal that they don’t
really have an integrated conception of the business. How does knowing that their firm is
pursuing an “acquisition strategy” or a “first-mover strategy” help the vast majority of
managers do their jobs or set priorities?
Strategy:
Strategy is derived from the Greek strategos, or “the art of the general.” Business generals,
whether they are CEOs of established firms, division presidents, or entrepreneurs, must also
have a strategy— a central, integrated, externally oriented concept of how the
business will achieve its objectives.
Frameworks for analyzing strategic situations:
• Five forces analysis,
• Core competencies,
• Hyper-competition,
• The resource-based view of the firm,
• Value chains
• and a host of other helpful, often powerful, analytic tools
Example of lacking a coherent strategy:
Once a towering force in retailing, Sears spent 10 sad years vacillating between an
emphasis on hard goods and soft goods, venturing in and out of ill-chosen businesses,
failing to differentiate itself in any of them, and never building a compelling economic logic.

Staging:
It is the speed and sequence of major moves taken to heighten the likelihood of success.

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Economic Logic:
At the heart of a business strategy must be a clear idea of how profits will be generated—not
just some profits, but profits above the firm’s cost of capital.
Example of IKEA:
▪ IKEA’s strategy over the past 25 years has been highly coherent, with all five
elements reinforcing each other.
▪ The Arenas in which IKEA operates are well defined:
⮚ the company sells relatively inexpensive, contemporary, Scandinavian-style
furniture and home furnishings.
⮚ IKEA’s target market is young, primarily white-collar customers.
⮚ The geographic scope is worldwide, or at least all countries where socioeconomic
and infrastructure conditions support the concept.
⮚ IKEA is not only a retailer, but also maintains control of product design to ensure
the integrity of its unique image and to accumulate unrivaled expertise in
designing for efficient manufacturing.
▪ As its primary Vehicle for getting to its chosen arenas, IKEA engages in organic
expansion, building its own wholly owned stores.
▪ Differentiators - IKEA attracts customers and beats competitors by offering several
important differentiators.
⮚ First, its products are of very reliable quality but are low in price (generally 20 to
30 percent below the competition for comparable quality goods).
⮚ Second, in contrast to the stressful, intimidating feeling that shoppers often
encounter in conventional furniture stores, IKEA customers are treated to a fun,
nonthreatening experience, where they are allowed to wander through a visually
exciting store with only the help they request.
⮚ And third, the company strives to make customer fulfillment immediate.

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 ▪ As for Staging, or IKEA’s speed and sequence of moves, once management realized
that its approach would work in a variety of countries and cultures, the company
committed itself to rapid international expansion, but only one region at a time
▪ The Economic logic of IKEA rests primarily on scale economies and efficiencies of
replication.

Case 3: What is Strategy

Setting the Right Goals:
▪ The fundamental goal of a company is superior long-term return on investment.
▪ Growth is good only if superiority in ROIC is achieved and sustained ROIC threshold
▪ Profitability must be measured realistically, capturing the actual profits on the full
investment
⮚ Profitability metrics besides ROIC are risky for strategy.
⮚ Prevalent accounting adjustments to reported profitability (e.g., write offs,
restructuring charges) can obscure true economic performance and lead to bad
competitive choices economic performance and lead to bad competitive choices
⮚ Goodwill must be treated as part of investment
Levels of Strategy:
1) Competitive or Business Strategy – How to compete in each distinct business or
industry
2) Group or Corporate Strategy – The Company’s mix of businesses and the way that
business unit strategies are integrated.
Economic Foundations of Competition:
▪ The fundamental unit of strategic analysis is the business or industry –Defining the
relevant industry is important to strategy
▪ Company economic performance results from two distinct causes
▪ Strategic thinking must encompass both

Achieving Superior Performance:

▪ Operational Effectiveness - Assimilating, attaining, and extending best practices –
Run the same race faster
▪ Strategic Positioning - Creating a unique and sustainable competitive position –
Choose to run a different race
Five Tests of a Good Strategy:
1) A unique value proposition compared to other organizations compared to other
organizations
2) A different, tailored value chain

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 3) Clear tradeoffs, and choosing what not to do
4) Activities that fit together and reinforce each other
5) Strategic continuity with continual improvement in realizing the strategy
Value Proposition Definition:
▪ A novel value proposition can grow the pie/expand the industry

Strategic Payoffs:
▪ Tradeoffs occur when strategic positions are incompatible – The need for a choice.
▪ Sources of Tradeoffs –
⮚ Incompatible product / service features or attributes
⮚ Differences in the best configuration of activities in the value chain to deliver the
chosen value proposition
⮚ Inconsistencies in image or reputation across positions
⮚ Limits on internal coordination, measurement, motivation, and control
▪ Tradeoffs make a strategy sustainable against imitation by established rivals
Sources of Competitive Advantage:
1) Key Success Factors
2) Core Competencies
3) Critical Resources
▪ Competitive advantage is seen as concentrated in a few parts of the value chain
Strategic Continuity:
▪ Continuity of strategy is fundamental to sustainable competitive advantage –
⮚ e.g. allowing the organization to understand the strategy
⮚ Building truly unique skills and assets related to the strategy
⮚ Establishing a clear identity with customers, channels, and other outside entities
⮚ Strengthening fit across the value chain
▪ Reinvention and frequent shifts in direction are costly and confuse the customer, the
industry, and the organization
▪ Maintain continuity in the value proposition
▪ Continuously improve ways to realize the value proposition – Strategic continuity and
continuous change should occur simultaneously. They are not inconsistent.
▪ Continuity of strategy allows learning and change to be faster and more effective.
Barriers to Strategy:
1) Flawed Management Concepts
2) Industry Convergence Pressures
3) Internal Practices
4) Capital Market Biases

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Unique Strategic Position Identification:
Segmenting the Industry (not just the Market) Exploiting Tradeoffs
Creatively segmenting product varieties, Identifying tradeoffs in the value proposition
customer groups, and purchase occasions or in the value chain
Leveraging Unique Activities Capitalizing on Industry Dynamics
Building off activities with true uniqueness. Identifying strategic positions opened up by
Looking for new activity configurations and industry structural changes
combinations

Growing Strategically:
▪ Make the strategy even more distinctive − Introduce new technologies, features,
products or services that are tailored to the strategy and which leverage other
distinctive activities within the value chain
▪ Deepen the strategic position (rather than broaden it) – Raise the penetration of
chosen customers / needs
▪ Expand geographically to tap new regions or countries using the same positioning –
Aggressively reposition foreign acquisitions around the company’s strategy
▪ Expand the market for what the company can uniquely deliver –Find other customers
and segments that value the strategy

Role of Leaders:
▪ Drive operational improvement but clearly distinguish it from strategy
▪ Lead the process of choosing the company’s unique position – The CEO is the chief
strategist – The choice of strategy cannot be entirely democratic
▪ Communicate the strategy relentlessly to all constituencies – Harness the moral
purpose of strategy
▪ Maintain discipline around the strategy, in the face of many distractions.
▪ Decide which industry changes, technologies, and customer needs to respond to and
how the response can be tailored to the company’s strategy
▪ Measure progress against the strategy using tailored metrics that capture the
implications of the strategy for serving customers and performing particular activities
particular activities Sell the company’s strategy and how to evaluate progress against
the strategy to the financial markets.

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 Case 4: Delivering Desired Outcomes
Efficiently
Competitive Advantage Building:
1) Traditional Approach – i) Resource-Based
ii) SWOT
Strategies Include: Cost Leadership, Differentiation
2) Value Approach – i) Value Innovation & Solving Commonly Occurring Issues
ii) Outcome > Resource
Strategies Include: Reverse Engineering, Using optimal resources to deliver unique
outcomes and hence provide greatest value
Industry Related Examples:
1) Miata’s reintroduction of British two seaters (Prioritizing value)
a) Assembly Line re-ordering (resource vs. value approach)
⮚ External Outcomes - Provide value (customer) & revenue (firm)
⮚ Internal Outcomes - Needed to deliver external outcomes
b) The Value Frontier
⮚ Mercedes - White Glove Treatment
⮚ Toyota – Integrated into production. Faster, less costly
⮚ Lexus – Internal outcomes weren’t visible.
⮚ Toyota – Invented lean production.
2) K-Mart
a) No sophisticated Inventory Management

b) Generic Strategy: ‘Cost Leadership’

c) Assumed shopping environment doesn’t matter.

d) Target and Wal-Mart provided brand name merchandise as and when advertised,
created a pleasant shopping environment.

The Framework:

1) Develop Optimal Processes to Match Outcomes

⮚ List external outcomes that are valuable
⮚ List internal outcomes that are applicable
2) Differentiate in External Outcomes
⮚ Sustainable resource usage

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 ⮚ External outcomes should provide value better than competition
3) Be Efficient in Internal Outcomes
⮚ Minimize costs
⮚ Optimize resource usage
4) Outcomes Make it easy to see efficiency improvements
⮚ A ready made concrete mix company identifies itself with a pizza company
and optimize their operations in a similar manner
5) Don’t ignore the link between internal and external outcomes
⮚ Not all internal outcomes must be targeted
⮚ Internal outcomes shouldn’t negatively affect customer experience
6) Exploit hidden value in internal outcomes
⮚ Lexus Satellite Linkup (a free integrated Concierge)
⮚ Honda Advertising its clean workshops and Limo Pickup Service
7) Remove External Outcomes with negative or no value
⮚ Delta Airlines removed lettuce from dishes, saving $1.5mn/year
⮚ Go-Air hires only female staff for on-board operations, saving INR 3cr/year

Outcomes & Competitive Market Opportunities:

▪ Stage-1
⮚ Need fulfilment based outcomes
⮚ Satisfy perceived customer needs
▪ Stage-2
⮚ Selection-and-acquisition based outcomes
⮚ Affects how easy it is for the customer to identify the product and to acquire it

▪ Stage-3
⮚ Post-purchase-satisfaction based outcomes
⮚ Determines if stage-1 customer expectations have been met.

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Case 5: Valuing Facebook

Introduction:
The case talks about how we can choose the estimation of an endeavour and the
methodologies used to decide the proportionate. It takes the instance of Facebook to plot the
identical. Facebook was the best of the web 2.0 new organizations, having initiated a social
transformation, offering one of the best business openings dependent on its colossal

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customer base and their social collaborations. Its Initial open offering was the most
puncturing occasions that gloomed the money related markets all through the spring of
2012.
The cases discusses various procedures to gather Facebook's value and they are according
to the accompanying industry trends –

1) Valuations dependent on comparable:

This system incorporates recognizing exchanged in an open market organization like
organization being regarded, by then finding out valuation proportions for these open
organizations and in conclusion applying these valuation proportions to the benefit,
livelihoods, or net assets of the organization being regarded. It expect the organizations
working in a comparable industry will have similar characteristics. T gives a check of critical
worth using items got from the stock expenses of exchanged on an open market
organizations.

In this methodology P/E proportion is extensively used and using this present Facebook's
P/E proportion got from its dispatch cost of $38 turned out some place in the scope of 38
and 95. While it's for all intents and purposes indistinguishable, Google's P/E during same
period was 12 and Apple's was 10. In any case, Facebook didn't have any factors supporting
such high P/E and along these lines, this technique can't be used in regarding Facebook

2) DCF Valuation :
Constrained Income Strategy incorporates evaluating the future salaries of a business for a
particular discrete period and restricting such earnings to exhibit worth. If the wages are
depended upon to continue past the discrete time span, by then a terminal estimation of the
business is evaluated and restricted to display worth. The aggregate of the two structures
the present estimation of the firm. The discount rate is resolved using CAPM (capital asset
esteeming model), which mirrors the danger trademark in the wages.

Connecting Facebook's number, organization was regarded at $109 Billion and its value for
each portion of $43.59. In any case, this can't be completely trusted moreover. This is on the
grounds that there were suspicions made in computations, for instance, improvement rate
being relentless past 2018 which is unreasonable, appraisals of pay and advantages
dependent on past year figures, etc.
Whichever methodology was grasped the issue was deciding Facebook's future advantages.
Its future advantages were dependent upon its ability to overpower the long range casual

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communication market and its ability to contend with other media providers to secure
creating portion of publicizing salaries.

Once Facebook had developed itself as the market head, its consequent improvement was
actuated by two components -
1) System impacts: customers driving non-customers to Facebook

2) Including of extra new administrations, for instance, messaging, etc.

However, can Facebook hold its interest to customers? As customers' numbers increase, it
ends up being less cool. People look for something even more interesting. People get
depleted of using same thing for a long a period and in this way endeavour new advances
and enhancements. Examiners regard the firm dependent on a picture they have formed,
that Facebook may achieve forcing plan of action in its section, and in this manner, the
potential pay is gigantic. Nevertheless, customers may not stay immovable until the finish of
time. Certainly organization has made it costly to leave, similar to association with
companions, etc, anyway whether the costs as adequately high to abstain from rippling
among the frameworks and devices that haven't been structured now.

To create pay, Facebook must change over its customer base into publicizing driving
vehicle. Facebook's advantage in pulling in publicizing isn't only that it is one of the world's
two most visited locales alongside Google yet additionally the potential it offers sponsors to
target customers dependent on their needs and interests. Four piece of slack that Facebook
had the option to offer sponsors are reach, centrality, social setting and in conclusion, a
superior medium than attract with potential customers.

Such concentrating on opened Facebook to two threats, one was the peril of alienating
customers and the other was danger of rule either dependent on protection concerns or
antitrust order. In addition, creating development web access to mobile phones was negative
to the exhibit of plugs because of little screen size.
All of these factors consolidated gave an exceptionally dim picture of Facebook's future and
from this time forward its value can't be explicitly surmised.

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