BUSINESS ENVIRONMENT

AND
STRATEGIC MANAGEMENT
MBA – Gen/I & B/T&L/ENT/3C/HM/PR&EM/RE&UI /TA
September 2014 & January 2015 Batches
 Learning outcomes
• Appreciate the importance of the need for strategy in
organizations (M – I)
• Understand the impact of environmental factors on analyzing
strategy (M – II)
• Appraise the different models in strategy analysis and
formulation (M – III)
• Justify the need for strategy classification for strategy
implementation (M – IV)
• Determine the need for evaluation of various strategies using
appropriate evaluation tools (M – V)
 What is Strategy?
• Strategy is the creation of a unique and valuable position,
involving a different set of activities

• Strategy requires you to make trade-offs in competing—to

choose what not to do

• Strategy involves creating “fit” among a company’s activities

 Definitions of Strategy
• ‘..the determination of the long-run goals and objectives of an enterprise
and the adoption of courses of action and the allocation of resource
necessary for carrying out these goals’
Alfred Chandler

• ‘Competitive strategy is about being different. It means deliberately

choosing a different set of activities to deliver a unique mix of value’
Michael Porter

• ‘..a pattern in a stream of decisions’

Henry Mintzberg

Sources:
o A.D. Chandler, Strategy and Structure: Chapters in the History of American Enterprise, MIT Press, 1963, p.
13
o M.E. Porter, ‘What is strategy?’, Harvard Business Review, 1996, November–December,
p. 60
o H. Mintzberg, Tracking Strategy: Toward a General Theory, Oxford University Press, 2007, p. 3
WHAT IS STRATEGIC MANAGEMENT?

“Strategic Management is trying to understand

where you will fit in tomorrow’s world and deciding
where you want to be - and getting there”
- Jack Welch

Where are you today?

Where are you going?
How do you get there?
 What is Strategy?
• Creating, Producing, Selling and Delivering a product or
service are the basic units of competitive advantage

• Operational Effectiveness means performing these activities

better—faster or with fewer inputs and defects than rivals

• All companies adopt the Productivity Frontier – the maximum

value a company can deliver at a given cost, with the best
available technology

• The more benchmarking that companies do, the more

Competitive Convergence they have
 Points to Ponder
• Who sells the largest number of cameras in India?
– It’s isn’t Nikon or Sony or Canon, but (was) NOKIA
• Who runs the biggest music business in India?
– It’s Airtel, by selling “caller tunes”
• In 2008, who was the toughest competitor to British Airways for
international flights in India? Singapore Airlines? Air India?
– Maybe, but it’s the video-conferencing services of Hewlett-Packard
and Cisco
• Remember, if there is one place where Newton's law of gravity is
applicable besides physics it is in electronic hardware, where prices
consistently fall:
– Between 1977 and 1991, prices of the now-dead VCR crashed to one third of
their original levels in India. PC prices also dropped. If this trend repeats itself,
then video-conferencing prices will also crash. Imagine the fate of airlines then
 Points to Ponder c’ontd…
• India has two passions: films and cricket.
– The two markets were distinctly different. So were the icons. The cricket gods are
Sachin and Dhoni. The film gods are the Khans (Aamir Khan, Shah Rukh Khan,
Salman Khan). That was when cricket was fundamentally test cricket or at best 50-
over cricket
• Then came the IPL and the two markets collapsed into one.
– IPL brought cricket down to 20 overs, reducing the game to the length of a three-
hour movie. Cricket became a competitor to film. Desperate multiplex owners
requisitioned the rights for screening IPL matches at movie halls to hang on to the
audience. If the IPL were to become the mainstay of cricket, films would have to
sequence their releases so as to not clash with IPL matches. As far as the audience is
concerned, both are a three-hour "tamasha" (entertainment). Cricket season has
pushed films out of the market
• Look at the products that vanished from India in the last 20 years
– When did you last see a black and white movie? When did you last use a fountain
pen? When did you last type on a typewriter? The answer for all the above is "I
don't remember!"
 Points to Ponder c’ontd…
• One final illustration:
– Some 20 years ago, what were Indians using to wake them up in the
morning? An alarm clock, that monster of mechanical springs. It had to be
physically wound up every day. It made so much noise that it woke you -- and
the rest of the colony. What do we use today? Cellphones. An entire category
of clocks practically disappeared without warning
• The boss of an IT company once said something interesting about the
animal called competition.
– He said "Have breakfast …or…. be breakfast"! That sums it up rather neatly.
• Dr YLR Moorthi is a Professor at the Indian Institute of Management
Bangalore. He is an MTech from Indian Institute of Technology, Madras
and a PGPM from IIM, Bangalore
Putting the Strategic Management
Puzzle Together
Vision Mission Values

Objectives

External Strategy Internal

Environment Selection Environment

Organisational
Alignment

Implementation

Control, Review,
Adjustment

Past Present Future

 Core Competency and Strategic Intent
• Strategic Intent defines the company and its market
– How long could we dominate the market if we didn’t
control the core competency?
– What future opportunities would we lose without it?
– Does it provide access to multiple markets? (Casio’s
core competence with display systems let it succeed
in calculators, laptop monitors and car dashboards)
– Do customer benefits revolve around it? (Honda’s
light-weight engines offers multiple consumer
benefits)
 Strategies Come About in Many Ways

• Deliberate purposeful action

– From a formal process
– From entrepreneurial behaviour/’gut-feel’
– Inspiration, Invention
• Emerge
– By doing things – experimentation, trial & error
– From culture, ideology, - how people work
– Internal resources/capabilities
• Forced Reaction/Capitalisation on Opportunity
– To a customer, competitor initiative, change in
regulation etc.
• From Luck etc. etc.
Identifying Key Success Factors
PRE-REQUISITES FOR SUCCESS

WHAT DO CUSTOMERS HOW DOES THE FIRM

WANT? SURVIVE COMPETITION?

ANALYSIS OF DEMAND ANALYSIS OF COMPETITION

• WHAT ARE THE MAIN

• WHO ARE THE CUSTOMERS?
• WHAT DO THEY WANT?
• WHAT IS THEIR DECISION
MAKING PROCESS?
DIMENSIONS OF COMPETITION?
• HOW INTENSE IS COMPETITION?
• HOW CAN WE OBTAIN A SUPERIOR
COMPETITIVE POSITION?

KEY SUCCESS FACTORS

Holistic Integration of Organisational
Strategy is a Never Ending Process

Region Company Division

Corporate
Competence

Capability
Business

Operational

PART OF AN ECOSYSTEM
 The VRIO Framework
• The Question of Value:
o Does a resource enable a firm to exploit an environmental opportunity
and/or neutralize an environmental threat
• The Question of Rarity:
o Is a resource currently controlled by only a small number of competing
firms? [are the resources used to make the products/services or the
products/services themselves rare?]
• The Question of Imitability:
o Do firms without a resource face a cost disadvantage in obtaining or
developing it? [is what a firm is doing is difficult to imitate?]
• The Question of Organization(al) support:
o Are a firm’s other policies and procedures organized to support the
exploitation of its valuable, rare and costly-to-imitate resources?
 The Different Strategies
• The Corporate Strategy
• The Business Strategy
• The Culture Strategy
• The HR Strategy
• The Organizational Strategy
• The Leadership Strategy
• The Blue Ocean Strategy
• The VRIO Framework Strategy (Value, Rareness,
Imitability, Organization) – Barney & Wright
 Three Levels of Strategy
Corporate
Strategy
(Business to be pursued
– looks at the whole
range of business
activities)
Business Strategy
(How to beat the competition –
tactics: competitive advantage,
market dominance, price
leadership, new product
development, etc.)

Functional Strategy
(operational methods to implement tactics –
diversification, marketing, differentiation,
technology, etc.)
 Levels of strategy
• Corporate-Level Strategy is concerned with the
overall purpose and scope of an organisation and
how to add value to business units.
• Business-Level Strategy is concerned with the
way a business seeks to compete successfully in
its particular market.
• Operational (Functional) Level Strategy is
concerned with how different parts of the
organisation deliver the strategy in terms of
managing resources, processes and people.
Types of Business Strategies
Make a business in an attractive industry where you can excel;
then excel by achieving a low cost of differentiation through
unique activities

Firm Infrastructure
SUPPORT Human Resource Management
ACTIVITIES
Technology Development

Procurement

MARGIN

Inbound Operations Outbound Marketing Service

logistics logistics & sales

PRIMARY ACTIVITIES

THE VALUE CHAIN

 Management Infrastructure
Very strong corporate culture Very lean structure
One of America's best managed companies Highly concerned about ethics, ecology, and safety
Superb financial management & managerial control capabilities

Human Resources Management

Friendly & cooperative labor relations Excellent training & development
Strong recruiting programs in top universities Excellent rewards & health-care programs

Technology Development
Technology leader; developer of break-path drugs (e.g., Vasotec, Sinement, Mevacor)
Intensive R&D spending
Strengthening technological & marketing capabilities through strategic alliances (Astra, DuPont, and Johnson & Johnson)
Fastest time-to-market in drug discovery and drug approval processes

Vertical integration in chemical products
Inbound Manufacturing
Logistics Increasing manufacturing
flexibility and cost reductions
Stressing quality and
productivity improvements
Global facilities network
Procurement
Outbound Logistics
Acquisition of Medco
provides unique distribution
capabilities and information
technology support
Medco is the number one
mail-order firm
MARGIN
Marketing & Sales Service
Marketing leadership Medco's service
excellence has attracted
Large direct sales staff major corporations
and health-care
Global marketing coverage organizations as
clients.
Leverage through Medco,
including powerful marketing
groups and sales forces, and
proprietary formulary

Medco IT infrastructure and

database, covering patients,
physicians, and drug uses

Strategic alliances

MERCK'S VALUE CHAIN