Business Strategy - I

Prof Ashish K Mitra

 Objective of the Course

Business Strategy I & II, together form a capstone course that helps students to view the company as a whole and make company wide strategic decisions.

 Having acquired basic knowledge in the functional areas of Finance, Marketing, HR, Operations & IT in the first year of MBA course, in the Business Strategy I course, students are introduced to the concepts of strategic decision making process involving
formulation of company mission, analysis of the external business environments, internal capabilities, tools for making strategic choices, and given exposure to various types of competitive strategies used and ways to build competitive advantage for a company. Challenges facing strategy making in new millennium.

Evaluation Guidelines The Students will be evaluated on the following criteria:

Class participation/ case studies Examination / Quiz / Assignments Group Project Work End term examination ! ! ! 50% 50%

Evolution of Business policy course Course titled Business Policy first started in Harvard B-School In 1959 2 studies sponsored by Ford Foundation and Carnegie Foundation recommended that Business Policy course would give students an opportunity to put together what they have learned in separate fields and utilize this knowledge in analysis of complex business problems Thereafter made mandatory in all US business schools
Business Policy Corporate /Business Strategy Strategic Management

Why study Strategic Management?

Strategic management / Business Strategy is a capstone course which helps students to view the company as a whole Broad and integrative in nature integrates functional knowledge of finance , marketing, HR , Operations etc Draws rich inputs from disciplines such as psychology, economics, sociology etc. Nature of Strategic Management is changing all managers, regardless of organizational level or functional specialty are becoming more involved in helping to formulate and implement strategies for entire business Strategy making is not an one time event, but work in progress

 Strategic Management is now a days not limited to elite strategists or group of strategic planners Jack Welch used teams of bright fresh Management Trainees to come up with plans to destroy GEs businesses Study of Strategic Management as a formal academic discipline really took of in late 1960s / early 1970s Igor Ansoff Peter Drucker Henry Mintzberg Michael Porter Kenechie Ohmae Sumantra Ghoshal C K Prahalad

Concepts not covered in ICMR book.

Strategic drift Strategic Management in uncertain & complex conditions Concept of Hyper-competition & strategic approaches in hypercompetitive space Critical success factors & concept of threshold competencies / resources. Core competencies ( covered in Chapter 24 of ICMR) Concept of Strategy Clock Sustainability of Competitive Advantages in todays context

Introduction to Strategic Management Process

Prof Ashish K Mitra

Role of Strategy
Strategy is about winning - not only in business context, but also in relation to other fields of human endeavor, including warfare, entertainment, politics, and sports. Strategy is however not a very detailed plan or detailed program of instructions; it is a unifying theme that gives coherence and direction to the actions and decisions of an organization or of an individual

Strategys Military Roots

Word Strategy comes from a Greek word strategia , means a General Roots in Military art & science of directing
Battlefield strategies to gain an edge

Exploit weak spots

For Business organizations a Game plan for achieving its objectives and mission Academic Origins of Strategic Management

Economic theory Early organizational studies

Definition of Strategy in business context

A series of goal-directed decisions and actions matching an organization's skills and resources with the opportunities and threats in its environment

By strategy, most managers mean large scale, future oriented master plans for interacting with the competitive environment to optimize achievement of organization objectives

Strategy as a driver of competitive advantage and superior profit

Birth of Strategic Management concepts

Sophistication in Mgmnt processes post War II
Increased number of competitors Expanded role of regulations Greater international trade, uncertainty Problems in co-ordinating decisions & maintaining control in increasing large & complex enterprises

1960s era of Long Range/ Corporate planning : budgeting processes etc were blended with external forecasting/considerations Thereafter during the 1970s and 1980s
Becomes distinct academic field Research focus on strategic decisions vs. performance

Brief history of evolution of Strategy

In 60s & early 70s Corporate Planning / Long Range Planning to meet diversification & growth needs of large corporations From mid 70s From Corporate Planning to strategy making, focus on positioning the company in markets in relation to competitors Through late 70/80s , focus was on external environment In late 80s /1990s Additional focus on aspects related to Internal resources & capabilities, developing core competence In new millennium increased speed of changes Hyper-competition, information revolution, increased competition through globalization, disruptive technologies like e-commerce. Need for strategic innovation in the new economy & self learning organizations Strategy as a driver of competitive advantage and superior profit

Phase I :Beginning of Corporate planning ( Long Range planning)

Corporate planning evolved during 1950s and 1960s, to coordinating capital investment decisions that required a longer planning horizon than the standard annual budgeting process - during a period of stability and expansion. Long-term planning based on economic and market forecasts became a central task of top management. The typical format was a five-year corporate planning document that set goals and objectives, forecast key economic trends , established priorities for different products and business areas of the firm, and allocated capital expenditures. The primary emphasis of corporate planning during the 1960s and early 1970s was on the diversification strategies through which large corporations pursued growth and security. ( scenario planning at Shell)

 Igor Ansoff, widely recognized as one of the founding figures of the new discipline of corporate strategy, went as far as to define strategy in terms of diversification decisions. ( concepts of SWOT, GAP analysis, Synergy, Product-Market matrix) Scientific techniques of decision making, including cost benefit analysis, discounted cash flow appraisal, linear programming, econometric forecasting, and macroeconomic demand management. Argument that scientific decision making and rational planning by corporations were superior to the haphazard workings of the market economy . Rational planning for diversification & expansion better than opportunistic growth

Phase II :Evolution from Corporate Planning to Strategic Management

During the 1970s, business environment changed. Many diversifications failed to for deliver the anticipated synergies Oil shocks of 1974 and 1979 ushered in a new era of macroeconomic instability, combined with increased international competition from resurgent Japanese, European, and Southeast Asian firms. The result was a shift in emphasis from planning to strategy making, where the focus was on positioning the company in markets and in relation to competitors in order to maximize the potential for profit. focus on competition as the central characteristic of the business environment and competitive advantage as the primary goal of strategy. Strategy as fit between goals , external opportunities & threats, and internal capabilities

Strategy quest for competitive advantage

This shift of attention toward performance - (during the late 1970s and into the 1980s), the focus was on firms external environments through the analysis of industry structure and competition. Michael Porter of Harvard Business School pioneered the application of industrial organization economics to analyzing the determinants of firm profitability. Meanwhile, at the Boston Consulting Group, the determinants of profitability differences within industries were under investigation their studies pointed to the critical role of market share and economies of experience. These two lines of inquiry industry themes and the cost advantages of market share were developed and empirically refined in the Strategic Planning Institutes PIMS (Profit Impact of Market Strategy) project.

Phase III : Interest towards internal aspects of firms

During the late 1980s and early 1990s, continued research in the role of strategy in building competitive advantage resulted in a shift of interest toward the internal aspects of the firm. Developments in the resource-based view (RBV) of the firm and organizational competencies and capabilities pointed to the firms resources and capabilities as the primary source of its profitability and the basis for formulating its longer-term strategy. This emphasis on the internal resources and capabilities of the firm represented a substantial shift in thinking about strategy. Prior to the 1990s, the emphasis of strategy was a quest for optimal positioning ,ie; companies needed to locate within the most attractive markets where they should seek to become market leaders. Concept of Core Competence, Strategy as stretch, Strategy as lever, role of Foresight, vision

 Resource Based View of strategy calls for deep analysis of what a companys competencies were, and then continuously look for new market opportunities to exploit its existing resources and competencies. Also work to further strengthen existing competencies and develop or acquire new ones to meet current and potential market needs. In Porters view of strategy, a company was a portfolio of products and businesses. C K Prahalad & Hamel saw company as a portfolio of resources and competencies.

 Third stage of competition - the competition for dreams / aspirations : The energy in a company to compete for products & businesses, compete for creating competencies comes from the dreams & aspirations sold by leadership which creates exciting sense of purpose in all stakeholders. Strategic Intent provides the emotional and intellectual energies to an organization to drive on a sustained basis towards future market leadership Sumantra Ghoshal, in his book World Class in India says In order to win, companies must win at three very different stages of competition : the competition for markets, the competition for competencies and competition for dreams.

 HBR 1995 Co-authored articles by Sumantra Ghoshal & Bartlett Changing role of Top Management:
Beyond STRATEGY to PURPOSE Beyond STRUCTURE to PROCESSES Beyond SYSTEMS to PEOPLE

Some more Definitions of Strategy

Alfred Chandler (Strategy & Structure,1962) : The determination of the long-run goals of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals. Igor Ansoff : Strategic Decisions are primarily concerned with external rather than internal problems of the firm and specifically with the selection of the product mix the firm will produce and the markets to which it will sell. Kenneth Andrews (The concept of Corporate Strategy, 1971): Strategy is the pattern of objectives, purposes, or goals and the major policies and plans for achieving these goals

 Henry Mintzberg : Strategy represents a fundamental congruence between external opportunities and internal capability. Kenichi Ohmae ( The mind of the strategist, 1983): What business strategy is all about is, in a word, competitive advantage The sole purpose of strategic planning is to enable a company to gain, as efficiently as possible, a sustainable edge over its competitors. Corporate strategy thus implies an attempt to alter a companys strength relative to that of its competitors in the most efficient way.

 Strategy is direction & scope of an organization over the long term, which achieves advantage for the organization through its configuration of resources within a changing environment & to fulfill stake holders expectations.

Challenges of globalization, hypercompetition, ethics, e-commerce & continuous learning organization

At the beginning of a new decade, the field continues its rapid evolution. Key theoretical developments include applying game theory to business, probing the disruptive effects of technology, diagnosis of the new economy, the strategic use of knowledge within the firm knowledge is becoming a key asset and a source of competitive advantage, and the application of real options thinking to strategic choice.

 At the practical level, companies continue to battle with the core dilemma of strategy formulation: how can companies take long-term decisions concerning new products, new technologies, and investments in physical and human capital when their business environments are changing at an ever accelerating pace?

 Corporations must develop strategic flexibility the ability to shift from one dominant strategy to another. Strategic flexibility demands a long term commitment to the development and nurturing of critical resources. It demands that companies become a learning organization an organization skilled at creating acquiring, and transferring knowledge, and at modifying its behavior to reflect new knowledge and insights.

 Organizational learning is a critical component of competitiveness in a dynamic environment , a necessity for innovation & product development. Organizations that are willing to experiment, are able to learn from their experience are more successful. Companies competing to shape the future of industry trying collaboration, sharing competencies, risks and attempting for time compression

 Hypercompetition occurs when the frequency, boldness and aggressiveness of dynamic movements by competitors accelerate to create a condition of constant disequilibrium and change Competition in slower moving env is primarily building & sustaining competitive adv that are difficult to immitate, Hypercompetitive env all advantages are temporary & hypercompetition disrupt the status quo so that no one is able to sustain lng term adv on a sustained basis

Shades of Strategic Management

Business Policy ( a cap-stone course) Strategic Management Strategic planning Strategic Analysis Strategic thinking Corporate strategy Business strategy

THE DIFFERENT ROLES OF STRATEGY WITHIN THE FIRM

Strategy as Decision Support Strategy as a process for Coordinating and communicating Strategy as target

The Basics of Strategic Management 1. Environmental Scanning &

Four Basic Activities of Strategic Management

2. Strategy Formulation

4. Strategy Evaluation
3. Strategy Implementation

Strategic Management
Strategic Management is defined as the set of decisions & actions resulting in formulation and implementation of strategies designed to achieve the an organizations objectives. It comprises of following critical tasks: Formulating Mission of Company: including broad statements about its purpose, philosophy, and goals Developing Company Profile: analysis of internal conditions organization, resources , capabilities, Culture Assessment of External Environment Analyze possible options by matching Company profile with external environment Identify most desired options : by evaluating each option in light of companys mission

STRATEGIC MANAGEMENT PROCESS Company Mission ^ &Goals

? Possible
<

v External Environment Operating Industry Remote ^

Company Profile (Resources & capabilities) ^

? Desired

Strategic Analysis and Choice Long-term Objectives Annual Plans & Short term Objectives Generic & Grand Strategies Functional / Operating Strategies/ tactics Policies that empower action

Institutionalization of Strategy & implementation

Feed Back

(Restructuring/Re-engineering,,Leadership) Strategic Control & continuous improvement

Feed Back

Dimensions / characteristics of Strategic Decisions What decisions facing a business are strategic and therefore deserve strategic management attention? Typically strategic issues have following dimensions. Strategic Management Integrates various functions Oriented towards achieving organization-wide goals Considers a broad range of stake holders Strategic issues are future oriented, require considering firms external environment & often entails multiple time horizons Concerned with both effectivity ( doing the right thing) and efficiency ( doing the things right) and Commit substantial resources & great deal of commitment from people at all levels. Due to several of the above mentioned reasons, Decisions on Strategic issues require top management participation & approval.. .

 Strategic Issues often affects Firms have Long- term prosperity. Strategic decisions cant be reverted on the fly Complex in nature & have more uncertainty Strategic decisions affect operational decision. Many strategic decisions call for change in structures, systems, policies, as well as values / cultures of the organization.
Strategic decisions are not self generating ( routine), unlike operational decisions, often have no precedents

Basics of strategy decisions & Strategic Management

Strategic Management Big picture view of organization Highly influenced by its external environment

Aspects that set apart Strategic Management

Interdisciplinary External focus Internal focus Future direction

Goal of Business : THE DISTINCTION BETWEEN CORPORATE & BUSINESS STRATEGY

If we accept that the fundamental goal of the firm is to earn a return on its capital that exceeds the cost of that capital, what determines the ability of the firm to earn such a rate of return? There are two routes. First, the firm may locate in an industry where favorable conditions result in the industry earning a rate of return above the competitive level. Second, the firm may attain a position of advantage vis-vis its competitors within an industry, allowing it to earn a return in excess of the industry average . These two sources of superior performance define the two basic levels of strategy within an enterprise: corporate strategy and business strategy.

 Corporate strategy defines the over all Purpose and scope of the firm in terms of the industries and markets in which it competes. Corporate strategy decisions include investment in diversification, vertical integration, acquisitions, and new ventures; the allocation of resources between the different businesses of the firm; and divestments. Business strategy is concerned with how the firm competes within a particular industry or market. If the firm is to prosper within an industry, it must establish a competitive advantage over its rivals. Hence, this area of strategy is also referred to as competitive strategy. Using slightly different terminology, Jay Bourgeois has referred to corporate strategy as the task of domain selection and business strategy as the task of domain navigation.

 SBU ?
Part of an organization for which there is a distinct market for goods & service that is different from another SBU Example Paints Business are there different SBUs?
Possibly (i) SBU for Industrial Paint & (ii) SBU for Retail/ Decorative Paint Need to follow different Strategies for the above two markets. They have different types of customers, need different distribution channels etc

The Three Levels of Strategy and decision making hierarchy

Corporate Level - composed of top mgmt: (responsibility for all major elements of strategic plng & mgmnt process,
develop major portion of the plan & reviews , evaluate and counsel on all other aspect)

Business Level - composed of business and corporate managers (responsible for environment analysis,
forecast based on analysis, establishing business objectives & developing business plans prepared by functional teams)

Functional Level ( Operational strategies) functional managers, product and geographic managers Does Corporate add value? Role of centre?

Corporate Level
Firms financial performance of co as a whole & non-financial goals like operating philosophies, image , social responsibilities etc. Determine firms lines of businesses in multibusiness firms Set objectives that govern the activities of individual businesses & functional areas Exploit firms distinctive competencies across multiple businesses. Develop synergies for coordinating & sharing resources ( core competency
development, umbrella brand etc)

Corporate Level
Some typical Corporate Level Strategic decision
Choice of business Source of long term financing option Priorities for growth Dividend policy Development of R&D competence to be used across all businesses
core competency development, umbrella brand etc

Business Level
Translate corporate strategy into concrete objectives and strategies for individual businesses or SBUs Strive to identify and secure most promising market segment (s) within their business portfolio. Concerned with using generic strategies to create competitive advantages Some typical business level decisions
Market segmentations and coverage Selecting Distribution channels New Product introduction Plant or Warehouse relocations

Functional Level
Functional managers develop short range objectives & strategies ( also called Operational strategies) , often spanning one or two years in areas like production, operations, R &D, finance, Marketing, IT, HR etc However they have primary responsibility of implementing and executing the firms strategic plans, deliver efficiency & effectivity Some examples
Level of inventory / customer service Transportation mix HR strategies for new recruits General purpose vs specific purpose production tools

Characteristics of Strategic Management decisions at

different levels
Characteristics
Type Measurability

Corporate
Conceptual Value judgments dominated

Business
Mixed Semi quantifiable

Functional
Operational Usually Quantifiable

Frequency
Risk Profit potential Cost Time Horizon Flexibility Cooperation required

Periodic or Sporadic
Wide ranging Large Major Long range High Considerable

Periodic or Sporadic
Moderate Medium Medium Medium range Medium Moderate

Periodic
Low Small Modest Short range Low little

Hierarchy of Objectives & Strategies

Ends ( What Means (How it is to is to Be achieved ?) be achieved?) Mission, incl goals & philosophy
Long-term objectives Annual objectives Functional Objectives Grand Strategy Short-term strategy, policies Tactics

STRA TEGIC DECISION MAKER Board of Corporate Business Functio directors managers managers nal manager s Primary Primary Secondary

Secondary Primary

Primary Primary

Secondary Primary

Secondary Primary

Strategic Management vs Operational Management An Individual manager most often deals with problems of operational control, such as efficient production of goods, management of sales force, monitoring of financial performance or design of new system to improve customer service level. These are vital to effective implementation of Strategy but it is not the same a strategic management. The scope of strategic management is greater than that of any one area of operational magmnt

 Strategic Management Ambiguous / Uncertain Complex Organization wide Fundamental Long-term implications

Operational Management Routinised Operationally specific

Short-term implications

Strategic Management is concerned not only with taking decisions about major issues facing the organization but also concerned with ensuring that the strategy is put into effect.

The vocabulary of Strategy**

Vision (or Strategic intent) : Desired future state the aspiration of the organization Mission: overriding purpose of the organization Goals: General statement of aim or purpose in line with the mission(may be qualitative in nature Objective: Quantification (if possible) or precise statement of the goal Unique resources and Core competencies : Resources, processes or skills which provide competitive advantage Strategies : Long term direction of the orgnztion Control :Assess effectiveness or modify strategies/actions

Different Approaches to Strategy

Debate between Design vs Process Schools Design School of strategy views strategic decision making a logical & planned process, in which strategy is formulated through a rational analysis of firm, its performance and the external environment. The strategy is communicated to the organization & implemented through successive organizational layers Process School of strategy , led by Henry Mintzberg argues that strategy development is more about crafting process than planning, through involvement, intuition, experience, learning, creativity & commitment of many within the organization and their interaction with outside world

Is Wal-marts rise due to grand planning or crafting? Wal-Marts brilliantly successful chain of discount stores based on its unique distribution system and small-town locations, was not the result of grand design. It was the result of Sam Waltons hunch that discount stores could do well in small, rural towns Then finding that he needed to do his own distribution because manufacturers and wholesalers would not, he set up his own distribution network

 Most text books on Strategic Management cover rationalist, analytic approach to strategy formulation in preference to the crafting approach advocated by Mintzberg. This is not because planning is necessarily superior to crafting we have already noted that strategy is about identity and direction rather than planning. Nor is it because one wishes to downplay the role of skill, dedication, involvement, harmony, or creativity. Studies by Henry Mintzberg and his colleagues at McGill University into the process of strategy making also distinguish between intended & realized strategy

 Strategy development is a multidimensional process that must involve both rational analysis and intuition, experience, and emotion. Without analysis, the process of strategy formulation, there will be no basis for comparing and evaluating alternatives. Moreover, critical decisions become susceptible to the whims and preferences of individual managers, to contemporary fads. Concepts, theories, and analytic frameworks are not alternatives or substitutes for experience, commitment, and creativity. But they do provide useful frames for organizing and assessing the vast amount of information available on the firm and its environment and for guiding decisions, and may even act to stimulate rather than repress creativity and innovation.

Intended , Realized and Emergent strategies

Strategy is typically developed by managers in an intended, planned fashion. Intended strategy is a deliberate , designed process of development and implementation. A companys realized strategy is often the product of intended strategies and unplanned or emergent strategies. Emergent strategies are the unplanned response to unforeseen circumstances. They often arise from actions by managers / employees within organization based on experience, learning , intuition, creativity and not out of the formal top down planning mechanism. Managers typically reconcile different views through negotiations & political activity. So strategy could develop in an emergent fashion as the outcome of cultural & political process

Contd.
Some part of Intended strategy is unrealised for reasons like plans were unworkable, environment changed after plans were drawn, influential stakeholders did not go along with the plan etc. There could be certain imposed restrictions on the strategy regulatory / governmental actions Strategy development as explained in terms of logical incrementalism or learning may also take form of emergent strategy

Emergent strategies arise Out of learning, cultural & political process, intuition etc
Emergent Strategy Imposed Strategy

Intended Strategy

Deliberate Strategy

Realized Strategy

Unrealized Strategy

Hondas successful entry into US Motor Cycle industry in 1960s

HBS Case Honda (A) , 1984 A rational, analytical approach to strategy. Based on exploiting volume based economies to attain cost leadership in world motor cycle industry
(between 1960 &73, share of British cos BSA, Triump 49%9%)

HBS Case Honda (B), 1984 Honda had originally believed that its main opportunities lay with larger bikes. But outstanding success was due to surprise acceptance of Honda 50cc Supercub (Nicest people campaign)

Hondas entry into U.S. Motorcycle market Intended Strategy

Focus on 350cc &250 cc MCycles ( rather than 50 cc Honda cubs, which were hit in Japan- instinct told them US market preferred bigger , macho product) to take a share of imported UK heavy bikes

Emergent Strategy
Bigger bikes ran into technical problems , Sales sluggish , looked Hondas strategy was failing Japanese executives running on 50 cc bikes in Los Angles were attracting lot of attention Call from Sears , sports goods dealers that they wanted to sell small bikes to a different segment ( Honda executives were initially hesitant to push small bikes for fear of alienating serious bikers)

 Realized Strategy
Finally Honda had stumbled onto a untouched market segment that was to prove huge

Honda example demonstrate the critical points

In practice, the strategies of most organizations are probably a combination of Intended and the emergent The message for the management is that it needs to recognize the process of emergence and to intervene when appropriate, killing off bad emergent strategies but nurturing potentially good ones. They must be able to judge the worth of emergent strategies Mintzberg stresses that an organizations capability to produce emergent strategies is a function of kind of corporate culture that the organizations structure & control system fosters

 The existence of the Intended strategy helps to evaluate the efficiency of emergent options & act as the base for comparison. Intels Emergent Strategy transformation from being a Memory Company to Micro Processor Company
Originally DRAM & EPROM Memory mfg Core competence in design & fabrication of chips Manufacturing resources were allocated between memory chips & microprocessor chip Strategy of treating memory business as the core business. Lions share of R&D allocation by top management to memory Due to changes in market, middle management changed allocation of manufacturing capacity.

STRATEGIC MANAGEMENT PROCESS Company Mission ^ &Goals

? Possible
<

v External Environment Operating Industry Remote ^

Company Profile (Resources & capabilities) ^

? Desired

Strategic Analysis and Choice Long-term Objectives Annual Plans & Short term Objectives Generic & Grand Strategies Functional / Operating Strategies/ tactics Policies that empower action

Feed Back

Institutionalization of Strategy & implementation Strategic Control & continuous improvement

Feed Back

The Iterative flow of Strategic process

The Strategic management process : often misconceived as unidirectional flow of objectives, strategies, and parameters from corporate to business to functional level managers. Highly interactive , designed to stimulate input from creative, skilled and knowledgeable people at all levels Team oriented Participation enhances commitment

Value of Strategic Management

Strategic issues require large amount of a firms resources : from internal sources or from outside Affect the Firms long term prosperity enduring effects Are future oriented Multifunctional or multi-business consequences Require assessment of Firms external environment Require top management decisions/ approval

Benefits of Strategic Management

Financial Benefits
Several studies provide convincing evidence that firms adopting strategic management approach return much improved performance, outperforming non formal planners Views on financial & non financial benefits are shared by company executives

Benefits of Strategic Management

Behavioral effects
Enhance problem prevention capabilities of the firm Group interaction generates best available alternatives , commitment to organizational goals. Heightens Employee motivation reduces gaps & overlaps among activities Reduces resistance to change, improves ownership of actions during implementation

Risks of Strategic Management process

Time management vis--vis operational responsibilities for individual managers Objective analysis required for Strategic management consumes time & effort. Some companies are perpetually in planning mode & devote little time for implementation. This is self defeating. Strategic plans could erroneously be made too rigid & inflexible. Large scale Forecasting errors can damage the process Expectation management of subordinates may become issue if not handled properly

Company Mission
Mission is a general enduring statement of companys intent ( who are we & what we do?) Unique purpose that sets the company apart from others Identifies the scope of its operation in terms of product, market, and technology thrust areas Reflects the values and priorities of strategic decision makers business philosophy, image company seeks to project and firms self-concept Mission of a business looks to an endless future as if the firm were immortal

Company Profile
Depicts quality & quantity of financial, human and physical resources Assesses inherent strength and weaknesses of firms management and organization structure Contrasts historical successes of the firm / values and concerns with firms current capabilities in an attempt to identify the firms future capabilities

External environment
Conditions and forces that affect its strategic options but typically beyond firms control
Operating environment The industry environment Remote environment - general economic , political, social and technological framework

Strategic Analysis and Choice

Possible attractive opportunities: avenues for investment Screened through the criterion of the company mission, a set of possible and desired opportunities Further screening results in selection of strategic choices Process provides a combination of long term objectives, and generic and grand strategies that optimally position the firm in the environment to achieve the cos mission.
( Strategic Analysis & choice revolves around building sustainable competitive advantage in case of a single or dominant business; Multi-business firms focus for best combination of businesses to maximize shareholder value) Criteria used in assessing choices depends on attitude towards risk, flexibility, growth, stability, profitability etc, firms current commitment to organization structure, access to resources

Long Term Objectives

Results sought to be achieved over a number of years Objectives typically involve the following areas: Profitability, ROI, Competitive positioning, Technology Leadership, Productivity, public relation, employee development etc Objectives should be specific, measurable and consistent with other objectives of the firm Example: doubling of earning per share within 5 years, becoming number two in the decorative Paints business by 2006 etc

Generic and Grand Strategies

Generic strategies : Firms explicitly or implicitly adopt one or more generic or combination strategies that characterizes their competitive orientation in the market place Cost leadership, differentiation , focus Grand strategies: unique package of long term strategies to achieve companys objectives. The Grand strategy provides the framework for the entire business of the firm. 15 identified basic approaches of grand strategies :
concentration, market development, product development, innovation,
horizontal integration, vertical integration, JVs, strategic alliances, consortia, concentric diversification, conglomerate diversification, turnaround, divestiture, bankruptcy and liquidation

Annual & Short term Objectives

Annual or short term objectives are the desired results a company seeks over a periods of one year or less. They are logically consistent with the firms long term objectives. Companies typically have many short term / annual objectives to provide guidance for their functional & operational activities. Planning activities of all major functions or divisions should reflect company-wide short term objectives Example: If long term growth objective in 5 years is 20%, may be this year it targets growth of 4.5%, Finance dept has to arrange additional loan of Rs 30 crores to fund expansion of manufacturing capacity by 5%

Functional Strategies / tactics or operational strategies / tactics

Short term , limited scope plans are called tactics Grand strategy is split into strategy for each business division and beneath that functional tactics Specific to needs of each functional area and prescribe an integrated action plan Operating strategies provides means for achieving annual objectives Company budget is coordinated with the needs of operating strategies to ensure specificity, practicality and accountability in the plans

Policies
Directives designed to guide thinking, decisions and actions of managers & their subordinates in strategy implementation Policies empower decision making to the lower levels in the organization Policies / Standard Operating Procedures : increase managerial effectiveness by standardization in repetitive decision making, limiting discretion & speeding up decision making.

Strategy Implementation Strategy implementation is the process by which strategies and policies are put into action through the development of programs, budgets, and procedures, sometimes termed standard operating procedures (SOP).

Institutionalizing the strategy

Annual objectives, functional strategies, and policies are important means of communication for implementing strategy Translating long-term objectives into short term goals make the strategy operational. Strategy must permeate the vary day-today activities of the company Long term means of institutionalizing through Structure, leadership and culture.

Control and evaluation

Strategy formulation is largely subjective, and the first test of reality for a strategy is in its implementation. Strategy managers should employ early monitoring and control methods, to ensure that the strategic plan is followed. The ultimate test of strategy is its ability to achieve the ends annual objectives, long term objectives and the companys mission.

Strategic Management as a Process

Change in one component affect several or all other components Strategy formulation and implementation are sequential Not every component of the process deserves equal attention each time Feedback essential Dynamic in nature

Developing a strategic perspective

Developing a strategic perspective contributes to effective implementation of strategy. Organizations often fail to develop such perspective due to: Lack of awareness within top management Kidding themselves syndrome Vested interest to maintain power & position Excessive involvement in day to day operations Top management complacent after initial success Change of direction often misinterpreted as an admission of past mistake, resist change

Solution is to make strategy development process a FORMAL activity

Strategic Management Challenges in the new millennium Ethics & social Responsibility Impact of Globalization Technological changes , especially impact of Electronic commerce Information revolution Hyper-competition Creating a learning Organization transition from an Industrial to knowledge based society Diversity of Workforce Competing through collaboration in networked economy Complexity of Strategic Management environment

Strategy : Creating Value for Whom? Shareholder Vs Stakeholder Strategy is about creating Value by realizing superior performance The Value created by firms is distributed among different parties or stakeholders. Value added is distributed among Owners / shareholders (profit), lenders ( interest), employees ( wages), government (taxes), customers ( consumer surplus) & society at large A key role of top management is to balance the interest of different stake holders with (often conflicting) interests. The case for the stakeholder approach to defining the goals of the firm is based on the recognition that business enterprise is a social institution pursuing the interest of multiple groups.

In Japan & continental Europe , the notion of corporation balancing interests of multiple interest groups has a long tradition ( reflected in companys legal obligations) In the US, Canada, the UK & Australia company boards are required to act in the interests of share holders, French boards are required to pursue the national interest, Dutch boards are required to ensure the continuity of the enterprise rather than shareholder value, and German supervisory boards are constituted to include representatives of both shareholders & employees Shareholder vs Stakeholder -On going debate Raises issue of ethics & broader social responsibility of business

 Under conditions of increasing competition, firms have little alternative to pursuing profitability. Pressure of competition has caused interest of different stakeholders to converge. The underlying common interest of all stakeholders is the firms survival. Survival requires that, over the long term, the firm earns a rate of profit that covers it cost of capital Managers who do not serve the interest of shareholders will be replaced by those who do. Pressure of active international shareholders ( Pension funds, retirement systems etc) Quest for profits over the long term is likely to require that a company treats its employees well and develops their full potential, acts fairly & honourably towards suppliers & customers, and conduct itself responsibly in relation to the environment & societys value. Good ethics are good business

 One of the most compelling reasons for assuming that firms exist to make profit is simply that such a goal allows us to subject strategic decision making to rational analysis. Virtually all the major tools of business decision making & arsenal of management techniques are founded on the notion that more profit is better than less. EVA Balanced Score Card

Social Responsibilities of Strategic Decision Makers Concept of Social Responsibility proposes that a corporation has responsibilities to society that extends beyond making a profit Milton Friedman (1962) and Archie Carroll offer two contrasting views of the responsibilities of business firms to society. Friedman referred to the social responsibility of business as a fundamentally subversive doctrine and stated that:
There is one and only one social responsibility of business to use its resources and engage in activities designed to increase its profit so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud. Managers should act on economic motive and they are trained for that

Social Responsibilities of a business / strategic decision makers Archie Carroll lists four responsibilities of managers of a business organization ( in order of priority):
1. Economic : a business firm must make to satisfy economic responsibility to repay to its creditors and shareholders. 2. Legal: To continue in existence must follow the laws defined by government. ( Packaging /Labeling act, product safety laws) 3. Ethical : A firm can fulfill its ethical responsibilities by taking actions that society tends to value but has not yet put in law. ( like equal opportunities, imports made from vendors who abide by child labor regulations etc, truthful disclosures) 4. Discretionary: When ethical responsibilities are satisfied, a firm can focus on discretionary responsibilities purely voluntary actions that society has not yet decided as important . Examples are philanthropic contributions, providing day care centers , education of underprivileged etc. Discretionary responsibilities of today can become the ethical responsibilities of tomorrow.

 Carroll suggests that to the extent that business fail to acknowledge discretionary or ethical responsibilities, society, by pressuring government , will act, making them legal responsibilities. Organizations may have greater difficulty in earning profit than it would have if it would have voluntarily assumed some ethical / discretionary responsibilities. Carroll proposes that a lack of social responsibility results in increased government regulations, which reduces a firms efficiency. Being known as a socially responsible firm may provide a company competitive advantage. Outstanding employees prefer to work for a responsible firm, responsible firm are more likely to be welcomed into a foreign country, attract long term investments , trustworthiness helps generate enduring relationships with suppliers and distributors, environmental friendliness may enable charging of premium prices.

CARROLLs Four Responsibilities of Business

Social Responsibilities

Economic (Must do)

Legal (Have to do)

Ethical (Should do)

Discretionary (might do)

CSR
To What Extent embrace CSR?, is an important strategic decision. Often finds place in values / philosophies. CSR : Avoid harm to stake holders and environment & consider overall betterment of society A Firms CSR strategy is defined by specific combination of socially beneficial activities it opts and supports with its contributions of money, time and other resources It is difficult to prove shareholder disadvantage due to CSR efforts Higher the public profile & brand higher is the scrutiny of pressure groups Sarbanes-Oxley Act 2002, heightened role of audit Customers Product stewardship Society , Employees safety, Health, Environment , transportability of retirement / pension benefits Investors Disclosure, Insider trading etc

Why need Vision, Mission & Values ? Profit Maximization (shareholder value maximization, to be precise) provides the foundation for strategy analysis Yet it is not the one that causes Bill Gates to continue working at Microsoft rather than retiring to enjoy his billions of dollar of personal wealth Nor does it provide such motivation or direction to the thousand of employees of his company Vision, mission & values are the three concepts that have become highly influential in helping companies think about their identity, their purpose and the fundamental features of their strategy

Business Strategy Project

Study the industry structure of a selected firm Carry out competition analysis for the Industry. Find out the selected Firms competitive positioning . Benchmark against relevant best Indian and World class players against appropriate parameters. What do you think are the core competencies of the Firm? Find out the Key success Factors for the industry to which the firm belongs and the observed Value Chain of the industry in general Highlight strategies followed by the firm in last 10-15 yrs Is the boundary of the industry to which the firm belongs changing ? Going forward, what you perceive is its chosen strategy? Justify the above. Do you have any strategy alteration to suggest ? Give reasons.

Select a leading public limited firm belonging to one of the following industry
Health Care Pharmaceutical Automobiles ( 2 wheelers , Cars / trucks) Automobile Ancillary Telecommunication Metals ( steel or Aluminum) Organized Retailing Construction Real Estate Hospitality / tourism Entertainment Food Processing / Dairy IT services BPO FMCG Paints/Coatings

Study the industry structure of the industry to which your selected Company belongs
Porters Five Forces model Strategic Group Analysis in the Industry Industry Life Cycle identify stage & justify Find out the Key success Factors for the industry to which the firm belongs Industry Value Chain identify the main players / components.

Carry out competition analysis for the Industry. Find out the selected Companys competitive positioning . Benchmark against relevant best Indian and World class players against appropriate parameters.
Resources, Capabilities & core competencies of the company Type of Generic Strategy and Grand strategy being followed by the company Compare industry structure with companys resources & its positioning in the industry Use SWOT/BCG/Ansoff matrix etc Value Chain of the company

Highlight strategies followed by the firm in last 10-15 yrs Is the boundary of the industry to which the firm belongs changing ? Going forward, what you perceive is its chosen strategy? Justify the above. Do you have any strategy alteration to suggest ? Give reasons.