BPSM - Jan 2011edn 2.1 1mar2011

Strategic Management
Course Facilitator: Bijoy S Guha
Dec 2010
Strategic Management: B S Guha
Basic Concepts:
Strategic Management & Business Policy
Syllabus Topic: 1) Introduction to Strategic Management
Dec 2010
Defined: Set of managerial decisions and actions that determines the long-run performance of a firm.
The primary role of corporate management is finding the future ... Al Reis
Dec 2010 Strategic Management: B S Guha 3
Defined: General management orientation that looks inward for properly integrating the firms functional activities.
Strategic Management: B S Guha Dec 2010
Basic financial planning: serious planning for

next years budget limited horizon;
Forecast-based planning: many programs run

beyond a year; managers look at longer time horizons, typically 5 years, but much ad-hocism in forecasts;
Externally-oriented planning (strategic): accent

on reliable forecasts and centralized formulation of strategic actions;
Strategic management: inclusion of

implementation and control in strategic actions; involvement of all levels for realism and buy-in.
Strategic Management: B S Guha 5
Dec 2010
Highly Rated Benefits:

Clearer sense of strategic vision for the firm
Sharper focus on what is strategically important

Improved understanding of a rapidly changing
environment
Not always a formal process:

Where is the organization now? (Not where do we hope it is!) If no changes are made, where will the organization be in 1 year, 2 years, 5 years, 10 years? What specific actions should management undertake? What are the risks and payoffs involved?
Dec 2010
Strategic grid
H
High Intuitive based strategy
High Logic , High Intuition strategy
Intuition
Compromise strategy
Negligible strategy
High Logic based strategy
Dec 2010
Logic
Globalization
Internationalization of markets and corporations

Global (worldwide) markets rather than national markets
Electronic Commerce
Use of the Internet to conduct business transactions

Basis for competition on a more strategic level rather than
traditional focus on product features and costs

Dec 2010
7 Trends:

Internet forcing companies to transform themselves Market access and branding are changing, causing disintermediation of traditional distribution channels Balance of power shifting to the increasingly savvy consumer Competition is changing (convergence!) Pace of business increasing drastically Internet purchasing corporations out of their traditional boundaries Knowledge becoming a key asset and source of competitive advantage
Dec 2010
Strategic flexibility:
Demands a long-term commitment to the development and nurturing of critical resources

Demands that the firm become a learning organization
Dec 2010
10
Defined: An organization skilled at creating, acquiring, and transferring knowledge and at modifying its behavior to reflect new knowledge and insights. Four Main Activities:

Solving problems systematically Experimenting with new approaches Learning from their won experiences and that of others Transferring knowledge quickly and efficiently throughout the organization
Dec 2010
Four Basic Elements
Dec 2010
12
Defined: The monitoring, evaluating, and disseminating of information from the external and internal environments to key people within the firm.
Dec 2010
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Identify strategic factors
SWOT Analysis
Strengths, Weaknesses Opportunities, Threats
Internal Environment
Strengths & Weaknesses Within the organization but not subject to short-run control of management
External Environment
Opportunities & Threats External to the organization but not subject to short-run control of management
Dec 2010
15
Defined: Development of long-range plans for the effective management of environmental opportunities and threats in light of corporate strengths and weaknesses.
Dec 2010
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Mission Statement

Purpose or reason for the organizations existence Promotes shared expectations among employees Communicates public image important to stakeholders Who we are, what we do, what wed like to become
Dec 2010
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A goal is an open-ended Objectives statement of what one wants The end results of planned activity to accomplish with no quantification of What is to be accomplished what is to be achieved and no time criteria for Time in which to accomplish it completion.
Quantified when possible
Corporate goals and objectives include:

Profitability (net profits) Growth (increase in total assets, etc.) Utilization of resources (ROE or ROI) Market leadership (market share)
Defined: A strategy of a corporation forms a comprehensive master plan stating how the corporation will achieve its mission and objectives. It maximizes competitive advantage and minimizes competitive disadvantage.
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Defined:
Broad guidelines for decision making that link the formulation of strategy with its implementation.
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Programs
Strategy Implementation
Budgets
Procedures
Dec 2010
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Strategic Management Model
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New CEO External intervention
Triggering event
Threat of change in ownership

Performance gap
Stimulus for change in strategy
Strategic inflection point
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Inflection Point
The four phases of Business:
Starts with the introduction of a product/service, Obtains a market position through R&D/ Range extensions/
Improvements, Establishes dominance through Customer Satisfaction/ Technology/ positioning strategies, Shrinks with influx of innovations/changing Customer needs/ environmental conditions. Dynamics of Strategy
Steel Automotive Telecom. Bio-Tech.
Point of Inflection
+ Clothing
Textile
Dec 2010
Introduction
Growth
Maturity
Decline 24
3 Types of Strategy
Corporate strategy Business strategy
Functional strategy
Dec 2010
Corporate Strategy
Business (Division Level) Strategy
Functional Strategy
Dec 2010
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Strategic Decisions
Rare: seldom have precedents Consequential: commit great deal of
resources and demand high degree of commitment from people Directive: set the tone for further decisions and actions
Mintzbergs Modes
Entrepreneurial mode: made by a powerful individual, with opportunities as the primary focus and problems secondary. Characterized by founders vision and bold, large decisions for growth. Adaptive mode: characterized by reactive, fragmented solutions to existing problems more than proactive search for opportunities. Planning mode: characterized by data-collection, analysis and logical selection. It is both proactive & reactive. Logical incrementalism: combines all the above and is both intraprenureal and top-led, allowing for both vision and experimentation to thrive.
Dec 2010
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Strategic Decision Making
Dec 2010
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ENVIRONMENTAL SCANNING & BUSINESS STRATEGY

Syllabus Topics: (6) Process of Strategy Formulation (2) Competitive Strategy , (5a) Recent advances: core competencies (7a)Analytical framework for strategy formulation: Input stage matrices
Environmental uncertainty: The degree of complexity plus the degree of change existing in an organizations external environment.
Environmental scanning: The monitoring, evaluating, and disseminating of information from the external and internal environments to key people within the corporation to avoid strategic surprise and ensure the long-term health of the firm.
External Environmental Variables: Societal environment: General forces that do not directly touch on the short-run activities but often influence its long-run decisions. Task environment: Those elements or groups that directly affect the corporation and, in turn, are affected by it. The task environment is the industry within which that firm operates.
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Issues Priority Matrix

Probable Impact on Corporation High Medium Low
High Priority Probability of Occurrence
High Priority
Medium Priority
High Priority
Medium Priority
Low Priority
Medium Priority
Low Priority
Low Priority
Dec 2010
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External Strategic Factors

Defined: Key environmental trends that are judged to have both a medium to high probability of occurrence and a medium to high probability of impact on the corporation.
Dec 2010
42
Societal Environment Important Variables

Economic
GDP trends
Interest rates Money supply Inflation rates
Technological
Total government spending for R&D
Total industry spending for R&D Focus of technological efforts Patent protection New products New developments in technology transfer from lab to marketplace Productivity improvements through automation
Political-Legal
Antitrust regulations
Environmental protection laws Tax laws Special incentives Foreign trade regulations Attitudes toward foreign companies
Socio-cultural
Lifestyle changes
Career expectations Consumer activism Rate of family formation Growth rate of population Age distribution of population
Unemployment levels
Wage/price controls Devaluation/revaluation Energy availability and cost Disposable and discretionary income
Laws on hiring and promotion

Stability of government
Regional shifts in population

Life expectancies Birth rates
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Dec 2010
Societal Environment Strategists must monitor the major forces and their interactive effects, for their opportunity and threat potential:
Example of interactive effects: explosive population growth (demo-graphic) leads to more resource depletion and pollution (natural) which, in-turn,

Dec 2010
leads consumers to call for more preventive laws (political-legal). This could stimulate new solutions and products (technological), which if they are affordable (economic) may actually change attitudes and behaviours (socio-cultural).
External Strategic Factors

Factors influencing the choice:
Personal values of managers Functional experience of managers Success of current strategies Strategic myopia
Willingness to reject unfamiliar as well as negative
information
Dec 2010
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Industry analysis: An in-depth examination of key factors within a corporations task environment.
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Industry
A group of firms producing a similar product or service, such as soft drinks, Automobiles or financial services. The principal determinant of the Task Environment is the Industry Analysis:
What is the structure of the industry in which the
business unit operates? How should the business unit exploit the industry structure? What will be the basis of the business units competitive advantage?
Porters approach: Assess the six forces - Threat of new entrants Rivalry among existing firms Threat of substitute products Bargaining power of buyers Bargaining power of suppliers Relative power of other stakeholders
Dec 2010
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Dec 2010
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Threat of New Entrants -Barriers to entry:

Economies of Scale Product Differentiation Capital Requirements Switching Costs Access to Distribution Channels Cost Disadvantages Independent of Size Government Policy
Dec 2010
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Rivalry Among Existing Firms -Intense rivalry related to:

Number of competitors Rate of Industry Growth Produce or Service Characteristics Amount of Fixed Costs Capacity Height of Exit Barriers Diversity of Rivals
Dec 2010
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Threat of Substitute Products/Services

Substitute Products: Those products that appear to be different but can satisfy the same need as another product. To the extent that switching costs are low, substitutes can have a strong effect on an industry. E.g. Entertainment Industry: T20 vs. Movies
Dec 2010
52
Bargaining Power of Buyers -Buyer is powerful when:

Buyer purchases large proportion of sellers products Buyer has the potential to integrate backward Alternative suppliers are plentiful Changing suppliers costs very little Purchased product represents a high percentage of a buyers costs Buyer earns low profits Purchased product is unimportant to the final quality or price of a buyers products

Dec 2010
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Bargaining Power of Suppliers -Supplier is powerful when:

Supplier industry is dominated by a few companies but
sells to many Its product is unique and/or has high switching costs Substitutes are not readily available Suppliers are able to integrate forward and compete directly with present customers Purchasing industry buys only a small portion of the suppliers goods.
Dec 2010
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Industry Evolution
Fragmented Industry
No firm has large market share and each firm serves only a small piece of the total market in competition with others.
Consolidated Industry
Dominated by a few large firms, each of which struggles to differentiate its products from the competition. Multi-domestic/International Global
Continuum of International Industries

Multi-domestic
Industry in which companies tailor their products to the specific needs of consumers in a particular country. Retailing Insurance Banking
Global
Industry in which companies manufacture and sell the same products, with only minor adjustments made for individual countries around the world. Automobiles Tires Television sets
Industry primarily multi-domestic or primarily global based on:
Pressure for coordination

Within the multinationals in that industry
Pressure for local responsiveness

Dec 2010
Individual country markets
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Strategic Groups
Defined: A set of business units or firms that pursue similar strategies with similar resources.
Strategic Types
Defined: Category of firms based on a common strategic orientation and a combination of structure, culture, and processes consistent with that strategy.
Strategic groups
Can be mapped by selecting broad characteristics that differentiate companies in an industry and plotting them on two lowly correlated dimensions to understand strategic (competitive) issues and business models.
High
Restaurants in 5-star Hotels KFC McDonalds etc. Tapris, Etc. Low Small
Dec 2010
Price
Speciality Restaurant
Multicusine Restaurant
Another dimension e.g. Service quality can be added to convert this into a 3-D plot.
Large
Product-line breadth
Strategic Types
Defenders: Companies with a limited product line; focus on improving efficiency of current operations Prospectors: Companies with fairly broad product lines; focus on product innovation and market opportunities. Analyzers: Corporations that operate in at least two different product-market areas one stable/ other variable. Reactors: Corporations that lack a consistent strategystructure-culture relationship.
Industry Matrix: Understanding Key Success Factors

Key Success Factors 1
Weight
2
Company A Rating 3
Company A Weighted Score 4
Company B Rating 5
Company B Weighted Score 6
Competitive Intelligence!
Total
1.00
Source: T. L. Wheelen and J. D. Hunger, Industry Matrix. Copyright 2001 by Wheelen and Hunger Associates. Reprinted by Dec 2010 Strategic Management: B S Guha 61 permission.
Forecasting Techniques:

Extrapolation Brainstorming Expert opinion Statistical modeling Scenario writing
Dec 2010
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External Factor Analysis Summary (EFAS)

External Factors
Opportunities 1 Weight 2 Rating 3
Weighted Score
4
Comments 5
Ranked
Threats
8 to 10, prioritized
Max: 5 on how well the company is currently dealing with factor

1.00
Total Weighted Score
Notes: 1. List opportunities and threats (510) in column 1. 2. Weight each factor from 1.0 (Most Important) to 0.0 (Not Important) in Column 2 based on that factors probable impact on the companys strategic position. The total weights must sum to 1.00. 3. Rate each factor from 5 (Outstanding) to 1 (Poor) in Column 3 based on the companys response to that factor. 4. Multiply each factors weight times its rating to obtain each factors weighted score in Column 4. 5. Use Column 5 (comments) for rationale used for each factor. 6. Add the weighted scores to obtain the total weighted score for the company in Column 4. This tells how well the company is responding to the strategic factors in its external environment. Source: T. L. Wheelen and J. D. Hunger, External Strategic Factors Analysis Summary (EFAS). Copyright 1991 by Wheelen and Hunger Associates. Reprinted by permission. Dec 2010 Strategic Management: B S Guha 63
External Factors
Weight
Rating
Weighted Score
Comments
Opportunities
Economic integration of European Community Demographics favor quality appliances Economic development of Asia Opening of Eastern Europe Trend to Super Stores
1
.20 .10 .05 .05 .10 .10 .10 .15 .05 .10
2
4 5 1 2 2 4 4 3 1 2
3
.80 .50 .05 .10 .20 .40 .40 .45 .05 .20
4
Acquisition of Hoover Maytag quality
Threats Increasing government regulations

Strong U.S. competition Whirlpool and Electrolux strong globally New product advances Japanese appliance companies
Low Maytag presence Will take time Maytag weak in this channel Well positioned Well positioned Hoover weak globally Questionable Only Asian presence is Australia
Total Scores
1.00
3.15
Dec 2010
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Internal Strategic Factors: Critical Strengths and Weaknesses that are likely to determine if the firm will be able to take advantage of opportunities while avoiding threats. Resources: A resource is an asset, competency, process, skill or knowledge controlled by the corporation. A resource is:

Dec 2010
a strength if it provides a firm with competitive advantage; a weakness if it is something the company is not sufficiently endowed with respect to the competitors
Barneys VRIO framework for evaluating a firms key resources:

Value: does it provide competitive advantage? Rareness: do other competitors posses it? Imitability: is it costly for others to imitate? Organization: is the firm organized to exploit the resource? An answer yes for a particular resource indicates a strength and a distinct competence. Analysis is derived from:
Dec 2010
Companys past performance Companys key competitors Strategic Management: B S Guha The industry as a whole
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Using resources to gain competitive advantage is a 5-step process:

1. Identification & classification of a firms resources as strengths & weaknesses; 2. Combining the firms strengths into specific capabilities. Corp. capabilities (Competencies) are things that the firm does exceedingly well. 3. Appraisal of the Profit Potential, in terms of sustainable competitive advantage, of these resources. 4. Selection of the strategy that best exploits the firms capabilities in relation to the (external) opportunities. 5. Identification of resource-gaps and investment in Dec 2010 upgrading weaknesses Strategic Management: B S Guha 67
Sustainability is characterized by:

Durability: the rate at which the firms capabilities (competencies) depreciate or become obsolete; Imitabilty: the rate at which the firms capabilities (competencies) can be duplicated by others. The Corp. Competencies can be imitated to the extent that they are:
Transparent: the speed with which other firms can understand the relationship between resources and capabilities and their exploitation; Transferable: the ability of the competitors to gather the resources and generate capability; Replicable: the ability of competitors to use the duplicated resources to imitate the champions success.
Hard to imitate
Level of Resource Sustainability Std. Cycle Resources Mass Production Scale, complex process e.g. DTSI Engine
Easy to imitate
Slow Cycle Resources Strongly shielded Patents, Brands e.g. Gillette Sensor
Fast Cycle Resources Easily duplicated idea driven e.g. SONY Walkman
Dec 2010
A core competency is a specific factor that a business sees as being central to the way it, or its employees work. It fulfils three key criteria: It provides consumer benefits It is not easy for competitors to imitate It can be leveraged widely to many products and markets.
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Competencies are easy to acquire if they come from explicit knowledge:

Since readily articulated and communicated, this knowledge is easily acquired by commercial intelligence;
Core Competencies come from tacit knowledge (or knowing):

Not easily communicated or imitable since they come from shared knowledge i.e. deeply rooted in experiences and corporations culture; Often they are not very formalized or are derived from a complex web of elements which cannot be distinctly defined by the management; Top management Strategic Management: B S Guhato intervene! (dont fix70 are very reluctant Dec 2010 it if it aint broke)
Core Competence
Prahalad & Hamel introduced this term in their paper The Core Competence of the Corporation (HBR, 1990). In highlight:
CC represents the collective learning and coordination capabilities/skills behind the firms manifest product lines CC leads to the development of core products which in turn spawn a host of end-user products/services The core products are not traded and thus lead to sustainable competitive advantage. Business Units tap into the core to deliver the market-beating end products The intersection of market opportunities with the CC forms the basis of launching new products Without CC, a corporation is just a collection of discreet businesses It is not necessarily expensive to develop CC since it is more about coordination rather than elaborate R&D, vertical integration etc. Dec 2010 Strategic Management: B S Guha 71
Core Competence ctd

To be world-class, a company must identify and build on a few core competencies, precisely, what is it?
Honda, for example, has a core competence in small engine design and manufacturing (core product): manifest in multiple products; Sony has a core competence in miniaturization (core process), leading to many firsts e.g. Transistor Radio; Walmart has a core competence in logistics & SCM (core service) leading to outstanding variety on offer at lowest cost. Typically, a core competence refers to a set of skills or experience in some activity, rather than physical or financial assets.Strategic Management: B S Guha Dec 2010 72
Core Competence ctd

Strong core competencies:
are well-organized special skills, technologies, processes, knowledge, expertise, or abilities. are typically achieved by long-term development processes and experiences. create customer value because they are considered by your customers to be unique and distinguishable, and they are not equally accessible to all competitors. are extremely difficult for other companies to imitate, if they can at all. can be transferred to other markets
The Business Organization Model: Value Chain

Firm Infrastructure Human Resource Management Technology Development Procurement
(Porter,1985)
Inbound Logistics
Operations
Outbound Logistics
Marketing & Sales
Service
Primary Activities
Value Chain Analysis:

Examination of each product/service lines core competencies and core deficiencies Examination of the linkages between the value-elements: the value/cost trade-offs and interactive effects
E.g. using Brand Ambassadors may improve marketing but make a dent in the budget allocation for technological development initiatives in e-marketing.
Finding synergies across product-lines and businesses to gain Economies of Scope

Dec 2010
E.g. use of common distribution channel by Unilever for the wide variety of product/business lines: Personal care, Hygiene & Cookery
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Internal (organization) Analysis

Activities in the value are formally grouped into departments in and arranged to show reporting relationships i.e. Organization Structure. The most common types are:
Simple Structure (Stage I)
Entrepreneur Decision making tightly controlled
Entrepreneur/ Owner
Little formal structure

Planning short range/reactive Flexible and dynamic
Sr. Manager
Jr. Manager
Internal (organization) Analysis

Functional Structure (Stage II)
Management team Functional specialization Delegation decision making
Concentration/specialization in industry
Divisional Structure (Stage III)

Diverse product lines
Decentralized decision making SBUs Independent resource allocations
Dec 2010
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Functional Structure
Managing Director
Divisional Structure
C.E.O
Operations Director
Production Manager Materials Manager
Dec 2010
Marketing Director
Sales Manager Logistics Manager
Finance Director
C.O.O Publishing Technical Manager Marketing Manager
C.O.O Fin. Serv. Operations Manager Finance Manager
C.O.O Exports
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Divisional Structure: Matrixed

C.E.O C.O.O Publishing Technical Manager Finance Manager
Dec 2010
C.O.O Fin. Serv. Operations Manager Finance Manager
C.O.O Exports Finance Manager
C.F.O
Manager Fin Control Manager Treasury
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Marketing Manager
The evolving Value Chain

Corporate Support Activities
In Logs.
Out Manf. Logs.
Out
R&D
(Swn)
Co.
I.T.
(TelCo)
In Logs. Manf. Logs. Sales
Mkt &
Mkt & Sales

Serv.
Engg. Serv.
(India)
Mkt. Logs Sales* Serv*.

* O/sourced in major Mkts
Manf.
(Vam) (L/Co) cloned Multi-location Activities
Customers
Typical multi-domestic Organization: 20th Century Overseas operations characterized by rigid business systems with equity links.
Dec 2010
Typical Global Organization: 21st Century Networked functions/activities, out-sourced with key control levers in hand: partnerships/ service level agreements
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Network Structure
Packagers Designers Corporate Headquarters (Broker) Manufacturers Promotion/ Advertising Agencies
Suppliers
Distributors
Impact of Corporate Culture :

Definition is the collection of beliefs, expectations and values learned and shared its members, transmitted from one generation of employees to another
This is who we are, what we do and what we stand for Has two attributes, shaping behaviours and influencing strategy:
Intensity: degree of acceptance of norms, manifest in acceptance of sub-cultures within each unit the depth of culture: leading to shared value e.g. Tata Motors Integration: commonality across the lines of business/units, manifest in an all-pervasive culture the breadth of culture: Strategic Management: B S Guha 83 leading to consistent behaviours e.g. Army
Dec 2010
Corporate Culture fulfills several important functions in an organization:

Conveys a sense of identity for employees Helps generate employee commitment to something greater than themselves Adds to the stability of the organization as a social system Serves as a frame of reference for employees to use to make sense out of organizational activities As a guide to appropriate behaviour
Culture strongly influences behaviour and can significantly affect a firms ability to
Dec 2010 Strategic Management: B S Guha
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Marketing:
Primary link to Customers & Competition
Positioning: Who are our Customers?
Segmentation: Niches, new products & USPs?
Marketing Mix:
4Ps to use to for gaining competitive advantage Links & leverages vis--vis costs
Product Life-cycle considerations

Financial: Funds - Source, Use & Control?

Capital Structure:
Leverage (debt/asset ratio)? High is good with upswings, low under recession & downswings
Capital Budgeting:
Return on Capital: Shareholders value
Hurdle rates for Project Pay-back and Profitability
Research & Development: apt technology to support Objectives & Mission i.e. short & long terms
R&D Intensity: R&D Spend as %age revenue to keep abreast/ahead of the industry
Risks: appraisal and mitigation Make or Buy? Technology transfer issues
R&D Mix: Fundamental Research, Product & Process Development

Adjusted to a products position in the life-cycle Technological Discontinuity: S-Curves
Dec 2010
From incremental improvements to Factoring in Strategic Management: B S Guha major break-throughs
87
Operations: must meet/better the Q-C-T requirements of business, consistently:

Set-ups & systems: geared to the nature of demand: High-volume/Low variety Or Lowvolume/High variety Experience Curve: Costs decrease with cumulative units made industry norms Mass Customization: combining economies of scope and scale
Lean manufacturing
Dec 2010
Intermittent systems, e.g. Job-shops Continuous systems, e.g. robotized assembly lines
Estimating/cost-projections for start-ups Guideline for target setting
CAD/CAM Flexible manufacturing systems
Strategic Management: JIT, TPM and allied systems B S Guha
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H.R.M: towards flexibility and dynamism to support the business needs

Teams: with mature and knowledgeable workforce
Self-managed teams Cellular, cross-functional groups Concurrent Engineering Flexi-time & Work from home
Currency: to keep-up with skill/knowledge demands

Contracting, Part-time & job-sharing, restructuring T & D of core staff :Employability Diversity: fairness, equal opportunity employment, culture
Dec 2010
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M.I.S: enabling improved decision making and information flow

Rapid changes in IT: life-cycle cost issues Developments in B2B & B2C
Inter-organizational integration: supplier-partners Emphasis on knowledge development
Virtualization of organization
Flatter structures with increased coordination needs
Dec 2010
Increasing employee independence & participation in
90
Scan
The internal organizational environment Departments/functions, competencies
Factors for their particular business Identify Benchmark: use VIRO framework
Capture the high impact/consequence factors Prioritize Rank for relative importance by weighting
Internal Factors
Weight Strengths 1 2 Rating 3
Weighted Score
4
Comments 5
Experienced top management Vertical Integration Current Asset Management Distribution Network International Orientation Global Positioning Product Portfolio Employee relations Manf. facilities R&D
0.05 0.05 0.15 0.10 0.15 0.15 0.15 0.05 0.10 0.05
1.00
Weaknesses
2.5 2.0 4.0 3.5 3.5 3.5 4.0 2.5 2.0 2.0
Total Weighted Score
0.13 0.10 0.60 0.35 0.52 0.53 0.60 0.13 0.20 0.10 3.266
Industry knowledge Component manufacture Inventory control system Dedicated dealers Growing supply SE Asia Brand name unattractive Domestic segment focus Health & safety concerns Old plant & m/cs Speed
Notes: 1. List strengths and weaknesses (510) in column 1. 2. Weight each factor from 1.0 (Most Important) to 0.0 (Not Important) in Column 2 based on that factors probable impact on the companys strategic position. The total weights must sum to 1.00. 3. Rate each factor from 5 (Outstanding) to 1 (Poor) in Column 3 based on the companys response to that factor. 4. Multiply each factors weight times its rating to obtain each factors weighted score in Column 4. 5. Use Column 5 (comments) for rationale used for each factor. 6. Add the weighted scores to obtain the total weighted score for the company in Column 4. This tells how well the company is responding to the strategic factors in its internal environment. Source: T. L. Wheelen and J. D. Hunger, Internal Strategic Factors Analysis Summary (IFAS). Copyright 1991 by Wheelen and Hunger Associates. Reprinted by permission.
Dec 2010
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Environmental Scanning External

Mission
Reason for
Strategy Formulation
Societal Environment General Forces Task Environment Industry Analysis
existence
Objectives What results to get & when
Strategies
Plan to achieve the mission & objectives
Policies Broad guide to decision making
Internal
Structure Chain of Command Culture Beliefs, Expectations, Values Resources Assets, Skills Competencies, Knowledge
Dec 2010
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Situational Analysis
Strategy formulation:
Strategic planning or long-range planning: develops mission, objectives, strategies and policies Process of finding a strategic fit between external opportunities and internal strengths while working around external threats and internal weaknesses.
Situational Analysis:
Dec 2010
S W O T analysis is the most common and enduring tool to determine the fit arising from the current situation.
Must identify the distinctive competencies that can be used to make best use of opportunities Also identify the lack of resources leading to under exploitation of the opportunities
Broadly speaking, Strategic Alternative is the ratio Opportunity divided by (Strength minus Weakness). Important issue: Should one invest more in strengths to make them more robust or improve on weaknesses to at least competitive levels?
S W O T analysis does not provide a complete answer or direction:

It can generate a lengthy list Does not assign priorities
Uses language which can be ambiguous or interpretative

Opinion based difficult to substantiate or verify The same factor might show up two categories Lack of supportive analysis for action plans There is no logical link to strategy implementation
Strategic Factor Analysis Summary Strategic Factors (SFAS)

(Select the most important opportunities/threats from EFAS Table & the most important strengths and weaknesses from IFAS Table )
1 2 3 4
Duration
INTERMEDIATE
SHORT
Weight
LONG
Rating
Weighted Score
Comments
Total Score
Strategic Factor Analysis Summary (SFAS): Maytag as Example

Duration
INTERMEDIATE
Strategic Factors
SHORT
Weight
.10 .10 .10 .15
LONG
(Select the most important opportunities/threats from EFAS, Table and the most important strengths and weaknesses from IFAS, Table) S1 S3 Quality Maytag culture (S) Hoovers international orientation (S)
Rating
5 3 2 2
Weighted Score
.50 .30 .20 .30
Comments
Quality key to success Name recognition High debt Only in N.A., U.K., and Australia
X X X
W3 Financial position (W) W4 Global positioning (W) O1 Economic integration of European Community (O)
.10
.10 .10 .15 .10
4
5 2 3 2
.40
.50 .20 .45 .20 X X X
X X
Acquisition of Hoover Maytag quality Weak in this channel
O2 Demographics favor quality (O)

O5 Trend to super stores (O + T) T3 T5 Whirlpool and Electrolux (T) Japanese appliance companies (T)
Dominate industry
X Asian presence
Total Score
Dec 2010
1.00
3.05
98
SWOT analysis & TOWS Matrix
Dec 2010
99
Situational Analysis
Niche:
A need in the marketplace that is currently unsatisfied.
Goal for the Corporation

Find a propitious niche

An extremely favorable niche
Strategic window
Unique market opportunity available for a limited time
Dec 2010
100
Business Strategy:
Focuses on improving the competitive position of a companys or business units products or services within the specific industry or market segment that the firm serves.
Dec 2010
Porters Competitive Strategies Competitive Strategy:

Low cost?
Differentiation?
Compete head to head in large
market? Focus on niche?

Generic Competitive Strategies:

Lower cost strategy
Design, produce, market more efficiently than competitors
Differentiation strategy
Unique and superior value in terms of product quality, features, service
Generic Competitive Strategies
Dec 2010
104
Cost Leadership:
Low-cost
competitive strategy Aimed at broad mass market Aggressive construction of efficientscale facilities Cost reductions Cost minimization
Differentiation:
Broad
mass market Unique product or service Charge premiums Lower customer sensitivity to price
Dec 2010
106
Cost focus:
Low
cost competitive strategy Focus on particular buyer group or market Niche focused Seek cost advantage in target market
Dec 2010
107
Differentiation focus:
Focus
on particular group or geographic market Seek differentiation in targeted market segment Serve special needs of narrow target market
Stuck in the middle:

No
competitive advantage Below-average performance
Dec 2010
109
Requirements for Generic Competitive strategy

Strategy Skills & Resources Organizational Requirements
Cost Leadership
Access to capital for sustained investment Process Engineering High supervision Design for assembly Low distribution cost Strong Marketing skill Product Engineering R&D, creativity Reputation & tradition Channel partnership Above focused at target
Tight cost control Frequent, detailed reporting Structured organization & jobs Target based incentive plans
Differentiation
High coordination within depts. Subjective measurements & incentives Skill & knowledge based hiring Creativity prized Above with Niche/Customer focus
110
Focus
Dec 2010
Risks of Generic Competitive Strategies

Risks of Cost Leadership Cost leadership is not sustained: Competitors imitate. Technology changes. Other bases for cost leadership erode. Proximity in differentiation is lost. Cost focusers achieve even lower cost in segments. Risks of Differentiation Differentiation is not sustained: Competitors imitate. Bases for differentiation become less important to buyers. Cost proximity is lost. Differentiation focusers achieve even greater differentiation in segments. Risks of Focus The focus strategy is imitated: The target segment becomes structurally unattractive: Structure erodes. Demand disappears. The segments differences from other segments narrow. The advantages of a broad line increase. New focusers sub-segment the industry.
111
Dec 2010
Influence of Industry Structure
Consolidated Industry
Mature industry dominated by a few large companies Cost Leadership or Differentiation predominate
Dec 2010
Fragmented Industry
Many small and mediumsized local companies compete for small shares of total market Focus strategies predominate
112
Strategic rollup: developed in the 90s to quickly consolidate fragmented industry

Money from venture capital Entrepreneur acquires hundreds of owner-
operated firms Creates large firm with economies of scale & scope, brings in higher managerial proficeiency Differ from Conventional M &As
Large number of firms Owner-operated firms Goal to reinvent entire industry
Generic Strategy Dynamics

Lowest Cost
Lowest Price every day WALMART
Lowest Cost
The current mantra And Jack Welch: No1 or No2 in chosen line of Business
Its a SONY
Past: Single dimensional Current: Multi dimensional

Car for every purpose, pocket, person GM
Differentiation Features/Differentiation Customization/Focus Dec 2010 Strategic Management: B S Guha
Customization
114
Briefly, the predominant strategy drivers over the last 50 years are: 60s: Efficiency Service 70s: (Efficiency) + Quality 80s: (Efficiency + Quality) + Flexibility 90s: (Efficiency + Quality + Flexibility) + Speed 00s: All the above + Sustainability Impact of IT From the hard, tangible measures towards a Hard-soft balanced, dynamic approach. The dominant symbol is +(i.e. and)!! Global From share of market to share of mind! Governance & Social Responsibility for continuity
Competitive Strategy: Hyper-competition
It is becoming increasingly difficult to sustain competitive advantage for very long :

Stability threatened by short product life cycles New Technologies Convergence:
Frequent entry of outsiders Repositioning by incumbents Redefinitions (tactical) of market boundaries
Mergers & Acquisitions
Dec 2010
Challenging the very basis of sustainable competitive advantage

116
Tactic:
Specific
operating plan detailing how a strategy is to be implemented in terms of when and where it is to be put into action.
Timing tactics Market location tactics
Dec 2010
117
Timing Tactics:
First
mover (pioneer)
Reputation as industry leader High profits Sets standards for subsequent products in the industry
Late mover Able to imitate technological advances of
others
Keeps R&D costs down Keeps risks down
Dec 2010
118
Market Location Tactics:

Offensive
Tactics
Frontal assault Flanking maneuver Bypass attack Encirclement
Guerrilla warfare
Dec 2010
119
Market Location Tactics:

Defensive
Tactics
Raise structural barriers Increase expected retaliation Lower the inducement for attack
Dec 2010
120
Used to gain competitive advantage within an industry by working with other firms e.g. Star Alliance (airlines) Friendly competition can raise the industry standard and provide a barrier for entry e.g. Japanese auto firms (70s & 80s)
Collusion:
Active cooperation of firms to reduce output and raise prices
Explicit (e.g. OPEC) Tacit (e.g. cartels)
Strategic Alliance:
Partnership of two or more corporations or business units to achieve strategically significant objectives that are mutually beneficial.
Obtain technology
Access to markets
Strategic Alliance
Reduce financial risk
Reduce political risk Achieve competitive advantage

Continuum of Strategic Alliances
Mutual Service Consortia
Joint Venture Licensing Arrangement
Value-Chain Partnership
Weak and Distant
Strong and Close
Source: Suggested by R. M. Kanter, Collaborative Advantage: The Art of Alliances, Harvard Business Review (July-August 1994), pp. 96108.
Dec 2010
124
Igor Ansoffs Product-Market Matrix

Is the classical business growth strategy, advocating the sticking to the knitting principle to grow profitably. It is more prescriptive, than analytical. Assumes growth is strategy driven and minimally, if at all, influenced by market forces and business cycles; Profitability is ensured by the learning curve principle. However:
Links with the core-competence proposition, through core-product principle e.g. Honda For single-industry firms e.g. Coca-Cola, there is relevance in the concentration prescription.
PRODUCT/ Existing MARKET Existing

Market Penetration Product Development
New
New
Market Development
Diversification
Dec 2010
126
Ansoffs Product-Market Matrix

Diversification Product Development
Revenue
Market Development Market Penetration
Time
Corporate Strategy
Syllabus Topics: 3) Corporate Strategy, 5) Recent advances, 7b) Analytical framework for strategy formulation: Matching stages
Dec 2010
128
Corporate Strategy
Hierarchy of Strategy
Corporate Strategy
Business (Division Level) Strategy
What mix of businesses should we be in? How do we ensure profitable growth? How do we support the Growth & Profit objectives?
Functional Strategy
Dec 2010
129
Three Key Issues:

What route?

Firms directional strategy Firms portfolio strategy Firms parenting strategy
What lines of Business?

What to synergize?
Prentice Hall, 2004 Dec 2010
Chapter 6 Strategic Management: B S Guha Wheelen/Hunger
130 130
Directional Strategy:
Three
Grand Strategies:
Growth strategies
Stability strategies Retrenchment strategies
Orientation toward growth

Expand, cut back, status quo? Concentrate within current industry, diversify
Dec 2010
into other industries? Growth and expansion through internal development or acquisitions, mergers, or strategic alliances? Strategic Management: B S Guha
131
Dec 2010
132
Growth Strategies:
Most widely pursued strategies External mechanisms:
Mergers
Transaction involving two or more firms in which stock is exchanged but only one firm survives.
Acquisition
Purchase of a firm that is absorbed as an operating subsidiary of the acquiring firm.
Strategic Alliance
Partnership of two or more firms to achieve strategically significant objectives that are mutually beneficial.
2 Basic Growth Strategies:
Concentration
Current product line in one industry Vertical Growth Horizontal Growth
Diversification
Into other product lines in other industries
Dec 2010
134
Corporate Strategy Concentration

Vertical growth Vertical integration
Full integration Taper integration Quasi-integration
Backward integration
Expansion to other geographical locations and/or increasing range of offerings
Dec 2010
Forward integration
Backward Integration: assuming a function previously provided by a supplier. Forward Integration: assuming a function previously provided by a distributor
Horizontal Growth
Horizontal integration
Dec 2010
136
Corporate Strategy Diversification

Concentric Diversification
Growth into related industry Search for relatedness
Conglomerate Diversification
Growth into unrelated industry Concern with financial considerations
Dec 2010
137
Corporate Strategy Diversification

Single Industry: (Wrigley, Coca Cola)
Degree of Relatedness
Related Diversified: (Unilever, Sony)
Conglomerates: (Tata, GE, Mitsubishi)
Extent of Diversification
Exporting Licensing Franchising Joint Ventures Acquisitions Green-Field Production Sharing Turnkey Operations BOT Concept Management Contracts
International Entry Options
Stability Strategies: Pause/proceed with caution

Period of stabilization following (rapid) growth Consolidating before the next wave of meaningful opportunities
No change
A stable period in the business cycle with the firm having found a comfortable niche. No threats from new entrants
Profit strategies
Restructuring generate profit by sweeping (often harsh) internal changes; temporary one-shot in nature Reengineering a new approach (even sectored) to business; temporary and may be in sequenced steps140 Strategic Management: B S Guha
Dec 2010
Retrenchment Strategies:
Turnaround
Characterized by rapid return to profitability, usually in contraction (i.e. cutback in size and costs), followed by consolidation (i.e. stabilization of leaner organization )phases. Usually not sustainable nor desirable for along period of time. Sets the tone for a more radical change e.g. Restructuring and/or Reengineering.
Captive Company Strategy

is giving up independence for security; become a supplier to a more dominant company. Usually resorted by poorly competitive and fund-strapped firms. Allows for cost cutting (activity) and better cash flows
Dec 2010
141
Selling out
Resorted to under uncompetitive and no-fund conditions, but with a buyer in place e.g. Sell-out of Tata Oil Mills (TOMCo) to Hindustan Levers (HLL). In selling out lines of businesses with poor fit or low growth potential, this act is termed Divestment e.g. sell out of Dalda and related brands worldwide (hydrogenated Oil) by Unilever to American Bunge Co.
Bankruptcy/Liquidation
Bankruptcy means giving up management of the firm to court appointed receivers for settling obligations and extend the life of the firm e.g. General Motors Liquidation implies the termination of a firms activity, wherein assets are sold off to meet the creditors and then the shareholders claims without the intervention of courts (who usually give low priority to shareholders!).
Dec 2010
142
An approach to work out an appropriate strategic intent (choice) Strategic Position & ACtion Evaluation Analysis (SPACE):
Competitive Advantage
Market Share Product Quality Product Life Cycle(position) Customer Loyalty Competitions capacity utilizn. Technology, know-how Vertical Integration
Financial Strength
Return on Investment Leverage Liquidity Capital required/ capital available Cash flow Ease of exit from market Risk involved in business
Industry Strength
Growth potential Profit potential Financial stability Resource Utilization Capacity Intensity Ease of entry into the market Productivity, capacity utilzation
Dec 2010
Environmental Stability
Technology Changes Rate of Inflation Demand variability Price range of competing products Barriers to entry into market Competitive pressure Price elasticity of demand
143
Leading to the Strategic Postures in a matrix: SPACE MATRIX

Financial Strength
6
Competitive advantage
FOCUS Conservative
COST LEADERSHIP Aggressive

0
6
Industrial Strength
-6
GAMESMANSHIP Defensive
DIFFERENTIATION Competitive
Arrows indicate increasing Values for the dimension.

Dec 2010
-6
And associated actions:

Financial Strength
Status Quo
Related Diversification
FOCUS Conglomerate Diversification Conservative

Diversification
COST LEADERSHIP Concentration Aggressive

Vertical Integration
Industrial Strength
Divestment
GAMESMANSHIP Defensive Liquidation

a Retrenchment
Mergers/acquisitions (related)
DIFFERENTIATION Competitive Mergers/acquisitions

(unrelated) Turnaround
Arrows indicate increasing Values for the dimension.

Dec 2010
145
e.g. SPACE matrix for a Bank:

Competitive Advantage
Data processing for > 450 Customers, c/wide -2 Rapid entry of foreign banks/institutions -5 Large, old Cust. Base -2 -9
Financial Strength
Primary Capital Ratio 7.23%, >6% avg. RoA 0.77, <+0.7 avg. Net Inc. $190B, -9%L.yr Rev. increase 7%, $3.5B +1 +1 +3 +4 +9
Industry Strength
Dergln. Advantages Dergln. Competitive disadvantage Laws for Acquisition +4 +2 +4 +10
U/Dev country situation Depressed condition of maj. customer industries Destabilization of banking indus. due deregulation -4 -5 -4 - 13
ES average is 13/3 = -4.33; IS average is +10/3 = 3.33; CA average is 9/3 = -3.00; FS average is + 9/4 = 2.25 & directional vector coordinate are X-axis: -3.00 + 3.33 = + 0.33 Y-axis: -4.33 + 2.25 = - 2.08
e.g. SPACE matrix for a Bank:

Financial Strength
FOCUS Conservative
COST LEADERSHIP Aggressive
Industrial Strength
GAMESMANSHIP Defensive
DIFFERENTIATION Competitive
X Directional Vector
The bank should follow Competitive Strategy.

Portfolio Analysis
How much of our time and money should we spend on our best products to ensure that they continue to be successful? How much of our time and money should we spend developing new costly products, most of which may never be successful?
Dec 2010
148
Portfolio Analysis
BCG (Boston Consulting Group) Matrix
Product life cycle and funding decisions

Question marks Stars Cash cows Dogs
GE Business Screen
Long-term industry attractiveness Business strength/competitive position
Demarcates Dominance Identifies businesses and their relative size
Demarcates Leaders
Dec 2010
150
Hi Hi
Cash Source STAR Hold ??? Build
Lo Hi
Market Growth rate
Cash Use
Cash Cow Harvest
DOGS Divest
Lo Hi
Dec 2010
Relative Market Share

Lo Lo
151
BUILD: The mission implies

An increase of market share, a possible decrease in short-term earnings & cash-flows. e.g. Tata Motors
HOLD: The mission is geared to

Protection of Market Share Retain competitive position under aggressive challenge. e.g. HLL Detergents
HARVEST: The mission aims at

Maximizing short-term earnings & cash-flow, Possible market-share sacrifice, e.g. Tata Steel
DIVEST: The mission is to

Withdraw from the business through sale or slow liquidation. e.g. HLL Vanaspati Business (Dalda).
BCG matrix singles out Market Share as the primary strategy variable: Based on the experience curve i.e. cost per unit decrease predictably with the number of units produced (cumulative) The Market-share leader would have the greatest accumulated experience; Thus they should have the lowest cost; resulting in highest profit in the industry. Empirically supported by PIMS (Profit Impact of Marketing Strategies) data base. Concept applies well to relatively mature and lowly differentiated products. For these products, becoming a low cost player is critical.
Dec 2010
153
Firms pursuing uniqueness (niche players) could have high profits with low overall market share e.g. Harley Davidson, Porsche. There could be many drivers of cost, apart from experience e.g. Technology breakthroughs can provide significant reduction in per unit costs, not available through cumulative experience, e.g. Internet marketing vis--vis direct selling via salesmen.
Over focus/dependence on experience curve leads to loss of flexibility in the Market: with shifts in wants/ demands (emerging technologies and/or lifestyles) e.g. Bajaj Scooters.
154
General Electrics Business Screen

Business Unit Identity Industry/ Market Size
C Winners A High Winners B
Question Marks
D
Share
Winners E Medium
Average Businesses F
Losers
Losers G Low Profit Producers Strong Average
Losers Weak
Business Strength/Competitive Position

The GE Business Screen is an improvement over the BCG Matrix:

Based on many more variables than the simplistic uni-dimensional measure
Industry attractiveness is assessed more completely (than just growth rate in BCG): Market growth rate,
Industry profitability, Size, Pricing practices, Possible Opportunities (& Threats)
Business Strength/Competitive Position is determined by: Market Share, distribution strengths, engineering capabilities and other factors giving competitive edge.
But suffers from lacking hard measures many judgemental elements for assessing Dec 2010 Strategic Management: B S Guha the major parameters.
156
2 Factors:
Countrys attractiveness
Market size, rate of growth, regulation
Competitive strength
Market share, product fit, contribution margin, market support
Dec 2010
157
Portfolio Matrix for Plotting Products by Country

Competitive Strengths High Low
Invest/Grow
Dominate/Divest Joint Venture
Selective Strategies
Harvest/Divest Combine/License
Dec 2010
158
Advantages:
Top management evaluates each of firms businesses individually Use of externallyoriented data to supplement management judgment Raises issue of cash flow availability Facilitates communication
Disadvantages:
Difficult to define product/market segments Standard strategies can miss opportunities Illusion of scientific rigor though subjective Value-laden terms
159
Dec 2010
Corporate Parenting:
Views the corporation in terms of resources and capabilities that can be used to build business unit value as well as generate synergies across business units.
Dec 2010
160
Corporate Parenting: Strategic factors
Those elements of a company that determine its Strategic success or failure Performance improvement
Summarizes the various judgments regarding corporate/business unit fit for the corporation as a whole. 2 Dimensions Positive contributions parent can make Negative effects parent can have
Analyze fit: Parenting-Fit Matrix
Dec 2010
MISFIT between critical success factors and parenting characteristics
Parenting-Fit Matrix
Low
Heartland
Ballast
Edge of
Heartland
Alien Territory
High Low
Value Trap
High
FIT between parenting opportunities and parenting characteristics

Horizontal Strategy:
Corporate
strategy that cuts across business unit boundaries to build synergy across business units to improve the competitive position of one or more business units
Dec 2010
163
Horizontal Strategy:
When used to leverage synergy, e.g. distribution strength of Unilever, this is Corporate Parenting; When used to improve the competitive position of a business with the support of others, it is forms a part of the Corporate competitive strategy
Multipoint Competition when large conglomerates compete in different businesses in different markets using corporate assistance, e.g. Pricing (subsidised) for new products, cross-holding for investment purposes etc. Could be used to reduce hyper-competition by reducing inducement to attack or by the threat of retaliation Strategic Management: B S Guha 164
Dec 2010
Case Study: T.I. & H.P.

Case 13-3; Management Control Systems 12 edn
Recent Advances
The Blue Ocean Strategy Sustainability & The Triple Bottom Line
Dec 2010
166
Blue Ocean Strategy
Promoted by W. Chan Kim & Renee Mauborgne, the

approach suggests that Competition be made redundant by side-stepping it!
You will never ever see competition in quite the same light. Kim & Mauborgne present a compelling case for pursuing strategy with a creative, not combative, approach. Carlos Ghosn, CEO: Nissan Motor Co. Our research confirms that there are no permanently excellent companies just as there are no permanently excellent industries. And we have found, we all, like corporations do smart things and not-so-smart things. To improve the quality of our success, we must study what made the difference and how to replicate it. Kim &
Mauborgne
Dec 2010
Blue Ocean Strategy: Basic premises
Red Oceans
Represents all the industries in existence today: this is the known market space; boundaries are defined and competitive rules of are known; Companies try to outperform their rivals in this space: cutthroat competition turns ocean Red.
Blue Oceans.
Are defined by the untapped market space, demand creation and highly profitable growth Created beyond existing industry boundaries as well as from within the Red Oceans by expanding the existing boundary.
Dec 2010
168
Blue Ocean Strategy: Basic premises
Value Innovation the corner stone:

Equal emphasis on value & innovation: Value w/o innovation = transient value creation Innovation w/o value = Futuristic or hobbyism Value innovation occurs only when companies align innovation with utility, price & cost positions simultaneously. bleeding-edge technology and/or market pioneering paves way for others. Defies value-cost trade-off: differentiation vs. lowcost; Blue Oceans are created in the AND world!
Dec 2010
169
Blue Ocean Strategy: Quick Comparison

Red Ocean Strategy Compete in existing markets Beat the Competition Exploit existing demand Make the value-cost trade-off Blue Ocean Strategy Create uncontested markets Make the competition irrelevant Create & Capture new demand Break the valuecost trade-off
Align firm to differentiation or Low cost

Dec 2010
Align systems to both differentiation and low Cost

170
Blue Ocean Strategy: Case Study

Case in point Strategy Canvas for Southwest Airlines:
Line of business: short-haul passenger transport

Customers trade-offs: speed of airplanes vis--vis the economy and flexibility of cars
Rules of airline business: hub and spoke model, connectivity (un)certainties, multiple flights, schedules with built-in wait , lounges, meals etc. provided, cost high.
Southwests offer: Speed of air-travel, flexibility of schedules via point-to-point routing, friendly but austere service, low cost = unprecedented utility for air travelers and a leap in value for a lowcost model.
+
o
o o
o o
Normal Airlines
Cars
SWest Airlines
+ X
+
+
X X X
+
X X
Low Price
Dec 2010
Meals
Lounge
Seat choice
Hub connect
Friendly Service
Speed
Freq. Depart point to Point

172
Blue Ocean Strategy: Prognosis

Red Oceans will always be a fact of Business. But with Supply outstripping Demand, operating strategies for this while necessary, will not be sufficient for sustained high If I listened to customers, I would try performance;
to make a faster horse! Henry Ford.
To seize new profit and growth opportunities, Blue Oceans need to be created. Though the term Blue Oceans is new, their existence is not.
Business launch profiling (108 companies): 86% were line extensions; accounting for 62% of revenue and 39% of profits; 14% were in blue oceans; 38% of revenues and 61% of profits.
Dec 2010
173
Sustainability
Earths resources are exhaustible they will run out some day:
How will we run our power-plants, cars and stoves? There are just about 1400 tigers left in India! Human Life expectancies are rising so are newer, deadlier diseases !
Life-forms are disappearing & rapidly:

Recent survey in US, post economic meltdown, shows that >80% wealth is with < 20% people:
People in US polled a 50-50 balance is fair
Is the World and Life-style that we take for granted be there forever i.e. Sustain?
Dec 2010
Sustainability: viewpoints
Sustain: DICTIONARY
Sustainability
To endure without yielding: withstand To keep up or maintain Synonyms: Aid, Carry, Endure, Keep, Preserve, Support Is being used more in the sense of human sustainability on planet Earth;
The most widely quoted definition is sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs.
175
Dec 2010
The definition contains two key concepts:
Needs: in particular the essential needs of the worlds poor to which overriding priority should be given Limitations: imposed by the state of technology and social organizations on the environments ability to meet present and future needs for a business enterprise, sustainable development means adopting strategies and activities that meet the needs of the firm and its stakeholders today while protecting, sustaining and enhancing the human and natural resourcesGuha needed for the future. Strategic Management: B S 176
The definition was extended to Business:
Dec 2010
Shifting Priorities
Economy
Society
Envmental
Industrial Age
New Age
177
A universally accepted definition of sustainability is difficult because it is expected to achieve many things:
factual and scientific: a clear statement of a specific destination. The simple definition "sustainability is improving the quality of human life while living within the carrying capacity of supporting eco-systems conveys the idea of sustainability having quantifiable limits. call to action: a task in progress or journey, therefore a political process, so some definitions set out common goals and values e.g.The Earth Charter.
Dec 2010
The idea of sustainability is age-old; societies over time have learnt to balance social, environmental and economic concerns. At its core, sustainable development is about creating an interactive and appropriate balance between:
Social Equity: i.e. Human rights, peace, justice, gender equity, cultural diversity etc. Environmental protection: referring to natural environment i.e. Air, water, biodiversity, forests, energy etc. Economic development: understanding the limits and potential of economic growth factoring in poverty reduction, responsible consumption, corporate responsibility, employment andS allied themes. Dec 2010 Strategic Management: B Guha 179
Dec 2010 Business Sustainability
179
The triple bottom line (abbreviated as "TBL" or "3BL", and also known as "people, planet, profit") captures an expanded spectrum of values and criteria for measuring organizational (and societal) success.
The concept of TBL demands that a company's responsibility lies with Stakeholders not Shareholders. Here, "stakeholders" refers to anyone who is influenced, directly or indirectly, by the actions of the firm. Accordingly, the business entity should be used as a vehicle for coordinating stakeholder interests, instead of maximizing shareholder (owner) profit.
SustainAbilty180
Triple bottom line score-card means expanding the traditional reporting framework to take into account ecological and social performance in addition to financial performance. "People, planet and profit" clearly describes the triple bottom lines and the goal:
"People" (human capital) pertains to fair and beneficial business practices toward labour and the community and region in which a corporation conducts its business. "Planet" (natural capital) refers to sustainable environmental practices. A TBL endeavor reduces the ecological footprint.
"Profit" is the economic value created by the organisation
after deducting the cost of all inputs, including the cost of the capital tied up.
Case Study: Hindustan Lever

Case 15-4; Management Control Systems 12 edn.
Syllabus Topics 4) Strategy Implementation: Structure, Systems and People
Dec 2010
Strategy Implementation:
Sum total of the activities and choices required for the execution of a strategic plan. Process by which strategies and policies are put into action through programs, budgets, and procedures.
Dec 2010
184
Implementation Process Questions:
Who are the people to carry out the strategic plan? What must be done to align operations with new direction? How is work going to be coordinated?
Dec 2010
McKinsey, in 1977, commissioned task forces to find out answers , with particular concern with the nature of the relationship between Strategy, structure and management effectiveness. Tom Peters and Robert Waterman led the team for management effectiveness ( = implementation). Their research let them to define 7 S Framework for management, addressing the crucial problem of execution and adaptation.
7-S Framework (McKinsey)

STRUCTURE STRATEGY SHARED VALUES SKILLS STYLE SYSTEMS
STAFF
The Happy Atom


Hard Elements: Strategy, Structure & Systems
Definable and/or measureable Can be put down on paper
Soft Elements: Shared Values, Skill, Staff & Style

Can be felt or sensed but difficult to define or put down on paper. Thus management is more difficult: soft is hard! Explains better why things work (or dont!) in a company.
Real change is a function of these 7 complex elements
Dec 2010
188

Led to the investigation on management excellence why some (American)companies are so:
Excellent companies are brilliant on basics Tools do not substitute for thinking Intellect did not overpower wisdom Analysis did not impede action. They listened to people (customers & employees ) They allowed some chaos in return for quick action and regular experimentation Worked hard to keep things simple in a complex world
Further expanded to 8 attributes for excellence


1. A bias for action: for getting on with it 2. Close to the customer: learning from people they
3.
4.
5.
6.
7. 8.
serve Autonomy & entrepreneurship: fostering many leaders and innovators throughout the organization Productivity through people: rank and file the root source of quality and productivity gains Hands on, Value driven: embodied in the statement walk the talk Stick to the Knitting: stay reasonably close to the business they know Simple form, lean staff: more soldiers than generals Simultaneous loose tight properties: core values are fanatically rigid, operations are flexible
Dec 2010
Selecting the Best Strategy:
Most Important criteria
the ability of a proposed strategy to deal with the strategic factors developed in the SWOT analysis the ability of each alternative to meet agreed-on objectives with least sacrifice of resources and negative side effects.
Corporate Scenarios
Pro forma balance sheets and income
statements that forecast effects of alternatives on return on investment

Constructing Corporate Scenarios:
Steps in constructing scenarios

Use industry scenarios Develop common-size financial
statements Construct detailed pro forma financial statements for each alternative: Best Case (Optimistic) Worst Case (Pessimistic} Probable case (Most likely)
Scenario Box to Generate Pro Forma Statements

1 Pr objections
Last Factor GDP CPI Other Sales units Dollars COGS Adver tising and marketing Inter est expense Plant expansion Dividends Net pr ofits EPS ROI ROE Other Year Historical Average Tr end Analysis O 19 P ML O 19 P ML O 19 P ML Comments
Dec 2010
193
A 'Du-pont" style Report

Sales BalanceSheet Capital Turnover
2.05 12.793
/ Net Assets
6.233
Total Assets
11.497
Interest free Liabilities

5.264
RONA
12.9% 14.8%
Sales
12.793
Operating Income Income before Tax Margin P&L

6.30% 7.20% 809 925 1.103 1.219
Operating expenses
11.690 11.573
Other Costs
5.854
+
Financial Income
-294
+
Purchased materials
5.854 5.728
Sales
12.793
Dec 2010
194
Attitude Toward Risk:
Risk is composed of:

Probability of (success) effective strategy Impact of any strategy Amount of assets committed
Length of time of asset commitment
Conventionally, risk is quantified in terms of Net Present Value of any
Project - in so far as quantification is possible.

Using NPV to assess risk
the variability associated with obtaining different results (e.g. NPV)
NPV
200 600 900
Prob.
0.3 0.5 0.2
The weighted NPV works out to: 3 E(NPV) = S pi NPVi i=1 = 0.3x200 + 0.5x600 + 0.2x900 = 540
A measure of the risk is the range i.e.
difference between the highest/lowest value i.e. 900 200 = 700

The higher the spread the more the variability and
risk
Standard Deviation (s) of the NPV distribution
quantifies this: s = {0.3(200-540)2 + {0.5(600-540)2 + {0.2(900-540)2}

250 =
We can now define a coefficient of variation in
which we relate the s to weighted net present value:

CV = s/weighted value ; = 250/540 = 0.46
The higher the CV, the higher the risk ranking
Process of Strategic Choice:
The evaluation of alternative strategies and selection of the best alternative:

Consensus ? Discussion, disagreement Vision Contradictions Solution
Programmed conflict (to avoid consensus trap) Devils Advocate: Identify potential pitfalls and problems with a proposed alternative strategy in a formal presentation. Dialectic Enquiry: two proposals are generated for each alternative using different sets of assumption and/or groups (shadow committees)
Evaluating strategic alternatives:

Ability to meet four criteria:
Mutual exclusivity: doing one would discard
the other, Success: S.M.A.R.T i.e. must be doable Completeness: taking into account all the foreseen strategic factors Internal consistency: must make sense on its own without contradicting or unduly compromising any key objective/mission/ policy
Organizational Life Cycle:
Generic choices decided by the organizations position in its life-cycle

Stages:

Dec 2010
Birth Stage Growth Maturity Decline Death

Birth Growth Maturity Decline
200 Strategic Management: B S Guha
Stage I
Stage II
Growth
Stage III1
Maturity
Concentric & conglomerate diversification
Stage IV
Decline
Stage V
Death
Phase
Popular Strategies
Birth
Concentration Horizontal in a niche and vertical growth
Profit strategy Liquidation or followed by bankruptcy retrenchment
Likely Structure
Entrepreneur Functional Decentralization Structural dominated management into profit or surgery emphasized investment centers
Dismemberment of structure
Note: 1. An organization may enter a Revival Phase either during the Maturity or Decline Stages and thus extend the organizations life.
Dec 2010
201
Structural Characteristics of Modern Corporation

Old Organizational Design One large corporation New Organizational Design Mini-business units & cooperative relationships
Vertical communication
Centralized top-down decision making Vertical integration Work/quality teams
Horizontal communication
Decentralized participative decision making Outsourcing & virtual organizations Autonomous work teams
Functional work teams

Minimal training Specialized job design focused on individual
Cross-functional work teams

Extensive training Value-chain team-focused job design
Dec 2010
202
Matrix Structure:
3 Distinct Phases Temporary cross-functional task forces Product/brand management Mature matrix non structure elimination of in-house business functions Termed virtual organization Useful in unstable environments Need for innovation and quick response composed of cells Self-managing teams Autonomous business units
Network Structure:

Cellular Organization:
Dec 2010
203

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Strategic Management

Course Facilitator: Bijoy S Guha

Strategic Management: B S Guha

Strategic Management: B S Guha

Strategic Management: B S Guha Dec 2010

Basic financial planning: serious planning for

Forecast-based planning: many programs run

Externally-oriented planning (strategic): accent

Strategic management: inclusion of

Highly Rated Benefits:

Sharper focus on what is strategically important

Not always a formal process:

High Logic based strategy

Strategic Management: B S Guha

Internationalization of markets and corporations

Use of the Internet to conduct business transactions

traditional focus on product features and costs

Demands a long-term commitment to the development and nurturing of critical resources

Strategic Management: B S Guha

Four Basic Elements

Strategic Management: B S Guha

Strategic Management: B S Guha

Strategic Management: B S Guha

Identify strategic factors

Strategic Management: B S Guha

Strategic Management: B S Guha

Strategic Management: B S Guha

Quantified when possible

Corporate goals and objectives include:

Dec 2010 Strategic Management: B S Guha 18

Strategic Management: B S Guha Dec 2010

Strategic Management: B S Guha Dec 2010

Strategic Management: B S Guha

Strategic Management Model

Strategic Management: B S Guha

New CEO External intervention

Threat of change in ownership

Stimulus for change in strategy

Strategic inflection point

Strategic Management: B S Guha Dec 2010

Strategic Management: B S Guha

Corporate strategy Business strategy

Strategic Management: B S Guha

Dec 2010 Strategic Management: B S Guha 28

Strategic Management: B S Guha

Strategic Decision Making

Strategic Management: B S Guha

ENVIRONMENTAL SCANNING & BUSINESS STRATEGY

Strategic Management: B S Guha Dec 2010

Issues Priority Matrix

High Priority Probability of Occurrence

Strategic Management: B S Guha

External Strategic Factors

Strategic Management: B S Guha

Societal Environment Important Variables

Laws on hiring and promotion

Regional shifts in population

Strategic Management: B S Guha

External Strategic Factors

Willingness to reject unfamiliar as well as negative

Strategic Management: B S Guha

Strategic Management: B S Guha