Strategy Management

The Strategic Management Process

 The Strategic Management Process [Daft]
Scan Ext. Identify
Envment Str.factors
- National - Opports.
- Global - Threats
IMPLEMENT
EVALUATE Define Strategy via
FORMULATE
Current New: Changes in
Strategy -Leadership/
Mission - Mission
SWOT - Goals
-Corporate
Culture
Goal - Business
Strategy - Grand - Structure
- Functional - Human Res.
Strategy
- Info/Control
Scan Int. Identify systems
Envment Str.factors
-Core comp. -Strengths
- Synergy -Weak-
- Value nesses
Creation

Top management in an enterprise plays a very important role in the formal

Strategic Planning process which has the following main steps. These steps
need to be followed sequentially:
Dr. B. K. Mukherjee 2
 The Strategic Management Model
MAIN STEPS IN STRATEGIC PLANNING:
1. EVALUATE/SELECT the corporate mission and corporate
goals.
 Scan/analyze the organization's external competitive
environment to identify opportunities and threats.
 Scan/analyze the organization’s internal operating environment
and identify the organization’s strengths and weaknesses.
 If necessary, define the new mission, goal and grand strategy.

2. FORMULATE strategies at the Corporate, Business and

Functional levels that
- build on the organization’s strengths, and
- correct its weaknesses, in order to take advantage of
external opportunities and counter external threats.
3. IMPLEMENT the strategy through changes in organizational
leadership or culture, corporate performance, structure, human
resources or ethics.
Dr. B. K. Mukherjee 3
 Strategy Evaluation - The TOWS Matrix
Internal Internal Strengths (S) Internal Weaknesses (W)
Factors eg, stregths in Mfg, R&D, Weaknesses in
External Engg/Tech., Marketing, areas shown
Factors Finance, HR, etc.

External SO Strategy: Maxi-Maxi WO Strategy: Mini-Maxi

Opportunities (O) Utilizing organization’s Developmental
strengths to take strategy to overcome
advantage of weaknesses and take
opportunities – advantage of
potentially most opportunities
successful strategy eg.,
ST Strategy: Maxi-Mini
eg.,RELIANCE , WT Strategy: Mini-Mini
RASNA v/s TANG
External Threats (T) Use of strengths to
(KELLOGGS) Retrenchment,
cope with/ avoid Liquidation or Joint
threats. Venture to minimize
eg, both weaknesses and
COLGATE, MANGOLA threats. eg., GOLD
Heinz Weihrich: “TOWS Matrix – A Tool for Situational Analysis”,
SPOT, L&T 1982
Dr. B. K. Mukherjee 4
 Strategy Formulation - The Ansoff Matrix
Review of opportunities for improving the existing businesses’ performance

Market Penetration Strategy Product Development Strategy

• Increase Market share by • Add product features,
- creating a SCA product
Existing (Sustainable
refinement
Markets Competitive Advantage) • Develop a new-generation
with product
enhanced customer value. • Develop new (related)
MARKETS

• Increase product usage products for

through the same market (through
- increase in frequency of brand
use, extension).
Market Development
- increase in quantityStrategy
of use, Diversification Strategy
New and
Markets• Expand
- newgeographically
applications for • Related
• Target
currentnew segments
users. • Unrelated

Existing Products New Products

PRODUCTS
H.Igor Ansoff’s ‘Product - Market Expansion Matrix, HBR, 1957 [Ref: Aaker David, Ch.11]
Dr. B. K. Mukherjee 5
 Hierarchy of Organizational Strategy
Multibusin
Corporate level ess PepsiCo Inc.
Corporati
on
Business
SBU-1 SBU-2 SBU- SBU-4 SBU-
level
3 5
Soft Drinks Quaker Oats Snacks Other BeveragesSports Drink
Pepsi, Mountain Dew, Slice Frito Lay,Tropicana, AquafinaDole juices
Rolled Gold Pretzels Lipton Tea

Functional
R&D Mfg Marketing HRD Finance
level
Co were also into the Restaurants business(Taco Bell, Pizza Hut, KFC) but have n
FORMULATING STRATEGIES: Corporate level
Multi-business corporations have to consciously decide as to what lines of
businesses they would like to be in. If, at the same time, they are Multi-
national corporations then they have to also decide which countries they
would like to do business in. These decisions are of crucial importance
which have a direct bearing on the fortunes of the enterprise and are made
at the Corporate level.
Dr. B. K. Mukherjee 6
 Corporate level Strategies
PORTFOLIO STRATEGY
 The firm decides on a mix of business units and product-lines
that fit together in a logical way to provide synergy and
competitive advantage for the corporation.
 Such a balanced mix of business divisions are called Strategic
Business Units (SBUs).
 Each SBU may have a unique business mission, product-lines,
competitors and markets relative to the other SBUs (eg. SBUs of
Hindustan Lever are Soaps & Detergents; Personal products;
Fats & culinary items; Animal feeds; Beverages; Frozen foods;
Speciality chemicals; Agribusiness; and Exports.)
Bruce Henderson, President, The BOSTON CONSULTING GROUP
(BCG) and his team in 1970, evaluated SBUs with respect to
two dimensions, namely
- Business growth rate, i.e., how rapidly is the entire industry
increasing, and
- Market share, showing whether a business unit has larger or
smaller share than its competitors.
 The combinations of Growth and Share provide four categories
of SBUs for a Corporate portfolio.

Dr. B. K. Mukherjee 7
 The BCG Matrix
High Low
Market Share

STARS QUESTION MARKS

Rapid Growth New ventures, Risky –
And Expansion 6 a few go on to become Stars,
others divested
Business Growth Rate

4
5
3

CASH COWS DOGS

Milk to finance No further investment,
Question Marks Keep if profitable.
and Stars Consider divestment 2
7
1

Low
The BCG Growth-Share Matrix, 1970

Dr. B. K. Mukherjee 8
 Analysis of the BCG Matrix
The combinations of Growth and Share, as seen in the BCG Matrix, provide
four categories of SBUs for a Corporate Portfolio:
1. The ‘STAR’ enjoys large market share in a rapidly growing industry –
important because of additional growth potential. Profits should be
ploughed back into the business for future growth and profits. Stars are
visible and attractive, hence to be nurtured and developed.
2. The ‘CASH COW’ is a dominant business in a mature, slow-growth
industry with a large market share, hence heavy investments in
advertising and expansion are no longer required. Profits to be
invested in other riskier businesses.
3. The ‘QUESTION MARK’ exists in a new, rapidly growing industry but
has only a small market share. Hence risky, could become a Star or
could fail. Profits from Cash Cows may be invested in QMs in order to
nurture them into future Stars.
4. The ‘DOG’ is a poor performer, enjoys small share of a slow-growth
market and brings in little profit to the company. May be divested.
Most corporations have businesses in more than one quadrant, where circle
size represents the relative size of each business.

Dr. B. K. Mukherjee 9
 Business level Strategies
POTENTIAL
NEW ENTRANTS

Threat of New entrants

Bargaining power
of Suppliers INDUSTRY
SUPPLIERS COMPETITORS BUYERS
Rivalry amongBargaining power
existing firms of Buyers

Threat of substitute products PORTER’S FIVE FORCES

from other industry MODEL
SUBSTITUTES Competitive Forces that
determine
Prof. Michael E. Porter of the Harvard Business SchoolIndustry
studied aProfitability
number of
business organizations and proposed that business level strategies are a result
of five competitive forces in the company’s environment which help determine a
company’s position vis-à-vis competitors.

Dr. B. K. Mukherjee 10
 Porter’s Five Forces Model
1. Threat of Potential new entrants: Capital requirements and
economies of scale are examples of two potential “barriers to entry”,
eg,Automobile industry v/s small mail-order business, Times of India
v/s Hindustan Times and DNA.
2. Bargaining power of buyers: ‘Informed’ customers become
empowered customers because they now have a range of options at
the market-place, eg, Eco-labeling. This situation is more
pronounced if there are one or two large, powerful customers.
3. Bargaining power of Suppliers: Concentration of suppliers and
availability of substitute suppliers are significant factors – whether
supplier can survive without a particular purchaser or whether
purchaser can threaten to self-manufacture the product.
4. Threat of substitute products: If the industry has a few close
substitutes (eg, Coffee industry v/s Tea, Soft drinks or Fruit juices, all
serving the customer needs for non-alcoholic drinks), then the
customer may switch preferences due to cost changes, increased
health-consciousness or any other such reason.
5. Rivalry among competitors: Scrambling and jockeying for position,
eg, Pepsi v/s Coke ad campaigns.
Dr. B. K. Mukherjee 11
 Functional level Strategies
Porter’s Value Chain

Support Activities
Firm Infrastructure

M
Human Resources Management

A
R
Technology Development

G
IN
Procurement

Operations

Outbound

Mktg. &
Logistics
Logistics
Service
Inbound

IN
Sales

G
R
A
MFG.

M
Primary Activities
SCM CRM
The Porter’s Value Chain (“Competitive Advantage”, 1985)provides a valuable
tool for identifying ways to create more customer value. Every firm is a collection
of activities performed to design, produce, market, deliver and support its product.
The Value Chain identifies nine strategically relevant activities that create value
and cost in a business.
Dr. B. K. Mukherjee 12
 The Porter’s Value Chain
PRIMARY ACTIVITIES
These comprise of the sequence of bringing materials into the
business (Inbound Logistics), converting them to final products
(Operations), shipping out final products (Outbound Logistics),
marketing them (Marketing & Sales), and servicing them
(Service). All these are Line functions.
SUPPORT ACTIVITIES
These are activities handled for the entire organization by certain
specialized departments, hence these are Staff functions.
 Infrastructure covers the costs of general management,
planning, finance, accounting, legal, and govt. affairs that are
borne by all the primary and support activities.
 Procurement involves the sourcing of various inputs for each
primary activity.
 Similarly, Human Resources Mgmt and Technology
Development are specialized activities covering all areas of the
firm’s business.
Dr. B. K. Mukherjee 13
 The Porter’s Value Chain (contd.)
COMPETITIVE ADVANTAGE
The firm’s task is to examine its costs and performance in each value-
creating activity and look for ways to improve it.
This is done by estimating its competitor's costs and performance as
“benchmarks”. To the extent it can improve its performance vis-à-vis
competitors, it can achieve competitive advantage.

HOW TO LEVERAGE COMPETITIVE ADVANTAGE

Emphasis on close coordination and cooperation in areas involving cross-
functional inputs, eg, marketing and production.
Close monitoring and sustained improvements in core business processes,
such as:
 New product realization process
 Inventory management process
 Order-to-remittance process
 Customer service process.

Dr. B. K. Mukherjee 14