The Scenario:

Low Cost through Economies of Scale

Techniques used include JIT, TQM, Kanban

Innovative Approach Competitive Pricing

Dynamic Environment

Focus on building Core

Competencies

The Concept of Strategy:

Strategic Management involves creating organizations that generate value in a turbulent

world over a sustained period of time.

• Leadership• Creativity• Passion• Analysis• Build an organization that generates and respond to change

Task involves:

Hierarchy of Strategic Intent:

• Refers to the purposes the organization strives to achieve• Can be broad:

* Vision* Mission

• Can be more focused:

* Goals * Objectives

Vision:

• Refers to the category of intentions that are broad, all - inclusive and forward thinking

• Describes the aspirations of for the future, without specifying the means that will be used to achieve the desired ends

• Are personal things and often unwritten

• Example: Statement such as “Quality comes First”

But no company can afford to stop production if quality is bad since quality improvement is a continuous and gradually process

Mission:

• Refers to a statement that makes vision more tangible

• Verbalizes the beliefs and directions towards which a manager wants to lead the organization

• Addresses issues that are explicit and serve to identify what is unique about the character of the organization

• No well established rules regarding what they must include

Attempts to answer the following questions:

a. What is our reason for being? What is our basic purpose?

b. What is unique or distinctive about our organization?

c. What is likely to be different about our business three or five years in the future?

d. Who are, or who should be, our principal customers, clients or key market segments?

e. What are our principal goods and services, present and future?f. What are our principal concerns?

g. What are the firm’s basic beliefs, values, aspirations and philosophical priorities?

Examples of Mission Statements:

FORD MOTOR COMPANY

Ford Motor Company is a worldwide leader in automotive

and automotive-related products and services as well as newer industries such as aerospace,

communications and financial products.

Our mission is to improve continually our products and services

to meet our customers’ needs, allowing us to prosper as a business and to provide a reasonable return for

our stockholders, the owners of our business.

Source: Strategic Management – Miller and Dess, Second International Edition, McGraw Hill Companies

Examples…

AMERICAN AIRLINES

We will be the global market leader in air transportation and related information services.

That leadership will be attained by:

• Setting the industry standard for safety and security• Providing world-class customer service • Creating an open and participative work environment which seeks positive changes, rewards innovation and provides growth, security and opportunity to all employees • Provide consistently superior financial returns for shareholdersSource: Strategic Management – Miller and Dess, Second International Edition, McGraw Hill Companies

Goals:

• Refers to attempts made to make mission statements more concrete • Goals are needed as mission statements hardly project

concrete directions for action

• Address both financial and non – financial issuesFinancial:

BOEING: Profitability as measured against our ability to achieve and then maintain a 20 % average

annual return on Stockholder’s return.

REYNOLDS: To be an industry leader in profitability and growthand achieve an average ROE of 20

%.

Non - Financial:

BOEING: Integrity must pervade

our actions in all relationships,

including those with our customers,

suppliers and each other. This is a

commitment to uncompromising

values and conduct.

GE: We will run only businesses

that are number one or number

two in their global markets.

• Facilitate reasoned trade-offs

Example:

a. Having simultaneous goals like low cost leadership and good employee

b. During Recession may face a dilemma such as retaining employees or laying – off employees; one results in a loss and the other affects employee relations

Goals:

• Can be reached with a stretch

In the words of Edwin Land, founder of Polaroid:

Goals that draw the greatest strengths out of people are those they feel are manifestly

important and nearly impossible. By constantly setting goals that demand

more effort, an organization is more likely to reach its

fullest potential.

Goals:

• Cut across functional areas: integrating force

Goals:

• Based on following areas:

* Market Share and Brand Equity* Productivity* Profit Projection* HRD* Innovation* Resource Planning* Good Corporate Citizenship

Objectives:

• Are operational definition of goals

• Define what will be accomplished in order to reach the goals

• Characteristics include:

* Can be measured

* Incorporate the dimension of time

* Reduce Conflict

Forms of Strategy:

1. Intended Strategies

• Represent the plans that managers develop

• Provide guidelines for the means by which the organization will work toward the ends it pursues• Example AT & T’s Intended Strategy: • We are dedicated to being the world’s best at bringing people together – giving them access to each other and to the information and services they want and need – anytime, anywhere.

• We look at Customer satisfaction, employee satisfaction, Stock Price and EVA.

• We treat every one with respect and dignity, valuing individual and cultural differences

Categories of Guidelines:

• Help in linking the organization to the intentions/goals that are supposed to be reached.

Example: AT & T’s plans state that in order to reach its objective of 10

% growth in earnings annually, its business units will focus on high-margin products.

(A) Plans:

(ii) Other Examples:• To maintain our desired rate of growth, we will open four new stores in the next two years• To increase demand for our products, we will spend heavily on advertising to establish brand recognition.

• Timing is a critical element of plans

Categories of Guidelines:

• Guidelines explicitly stated or implicitly understood to be part of the intended strategy

Example:

• We will not depend on outside suppliers for the most critical

components for the assembly of our products.

(A) Policies :

• We will not take on long-term debt

• Usually stated in negative terms

• We will fund future growth through retained earnings

Realized Strategies:

• Entails reference to the past and to what has actually developed

• Realized Strategy different from Intended Strategy as the latter seldom survives implementation in its original form

• Plans that do not materialize are Unrealized Elements

Example:

* A firm plans to develop a new product and diversify into new markets. THIS IS INTENDED STARTEGY* The product is developed and successfully sold. THIS IS REALIZED STRATEGY.* Else the product is developed but fails to sell. THIS IS UNREALIZED STARTEGY.

Views of the Strategic Management Process:

Description Attempts to move an organization to a new strategic position and maintain that position as

efficiently and directly as possible

Assumption Organizational Strategy lends itself to intellectual analysis and formulation, the

environment is predictable and organizations are controllable

Benefits Has led to the development of many useful planning tools and techniques

Limitations Plans must be quickly outdated by unexpected developments; formal planning often breaks

down in implementation stage

RATIONAL PLANNING:

Mnemonic Icon Devise the shortest path

Views of the Strategic Management Process:

Mnemonic Icon

Search for what works

Description Typically move to new strategic positions and maintain those positions by making continuous

adjustments

Assumption While there will be many mistakes, organizations can benefit from them by discovering new ways of

moving towards the goals.

Benefits Emphasizes broad – based involvement in management of the firm and encourages risk

taking by legitimizing mistakes

ORGANIZATIONAL LEARNING:

Limitations May be stressful for individuals not used to unlearning the status quo and learning new ways of

managing.

Views of the Strategic Management Process:

Mnemonic Icon

Wander about

Description Organizational drift, from one strategy to the next, depending on the unfolding of events

beyond managers control

Assumption Managers lack the ability to forecast or enforce the developments essential to developing a pre-ordained strategy and therefore must continually

adjust.

Benefits Encourages flexibility and concern of strategy implementation

INCREMENTALISM:

Limitations Does not encourage proactive efforts to control the organization’s future or destiny.

Views of the Strategic Management Process:

Description Organizational drift, from one strategy to the next, depending on the unfolding of events

beyond managers control

Assumption Managers lack the ability to forecast or enforce the developments essential to developing a pre-ordained strategy and therefore must continually

adjust. Benefits Encourages flexibility and concern of strategy implementation

INCREMENTALISM:

Limitations Does not encourage proactive efforts to control the organization’s future or destiny.

Mnemonic Icon

Search for what works

Strategic Planning Process:

LEVELStrategic Context

Understanding and

Adjusting to Gaps

Identifying Resources needed to close Gap

Distributing Resources

Monitoring Progress

Corporate

Strategic GoalsVision

MissionObjectives

Business

Competitive Environmen

t Opportunities and Threats

Function

Internal SituationStrengths

and Weaknesses

1

2

3

4

5

6

7

8

9

10

11

12

Steps in Strategic Management Process:

• Evaluate performance in light off goals and identify gaps• Relate gaps to environmental conditions• Relate gaps to organizational capabilities• Identify future goals given understanding of gaps• Describe broad action plans aimed at meeting goals• Identify resources required by each function to implement

plans• Aggregate needs by function into overall needs of

business • Allocate resources across multiple business units• Reallocate resources across multiple functions• Deploy resources within functions• Monitor use of resources within functions• Monitor use of resources across businesses

Strategic Management vs. General Management .

• Integrates various management functions

• Oriented toward achieving organizational goals

• Considers broad range of stakeholders

• Entails multiple time horizons

• Concerned with both efficiency and effectiveness

Strategic Management Plan

Gaining Competitive Advantage through:

* Differentiation* Cost Leadership* Quick Response* Market Focus* Market Life Cycle

Strategic Management Plan

Addressing Financial Performance through:

* Economic Value Addition* Profitability* Growth* Managing Financial Risk* Ability to arrange low cost funds

Strategic Management Plan

Process Plan Evaluation through:

* Product Development * Demand Management * Order Fulfillment

Strategic Management Plan

Competitive Strength through:

* Rivalry amongst Existing Players* Threat of New Entrants * Threat of Substitute Products* Bargaining Power of the Buyers* Bargaining Power of the Suppliers

Strategic Management Plan

Firm’s Strength through:

* Core Competencies

* Market Share

* Infrastructure

* Cash Flow

Strategic Management Plan

Firm’s Capacities:

* Strategic Plans

* Organizational Learning

* Structure and Culture

* Systems

* Motivating Actions

The General Environment

Consists of factors external to the Industry

Includes:* Demographic* Socio-cultural* Political / Legal* Technological* Macro-economic* Global

Successful Strategic Adjustments to the General

Environment:Holds both opportunities for and

threats to expansion Example: Telecommunications / Changing Interest Rates

Developments change competitive battle lines Example: Deregulation of Airlines Sector

Same trends can have different effects on different industries Example: Increasing Health Awareness

Impact differs for different firms within the same industry Example: Rising ATF prices and Low Cost Airlines

Not all developments predictable with accuracy Example: Interest Rate Changes, Inflation, etc.

Impact differs from country to country Example: MNC’s strategies for different countries

Successful Strategic Adjustments to the General Environment:

Components of General Environment

Demographic:

* Ethnic Composition

* Aging of Population

* Maturing of Baby Boom Generation

* Changes in Population Growth and

Decline

Components …. Socio- Cultural:

* Changing Composition of Workforce

* Health and Fitness Awareness

* Erosion of Educational Standards

* Spread of Drug Addictiveness

* Increasing Environmental Concern

Components …. Macro Economic:

* Interest Rate Changes

* Fluctuation in Exchange Rates

* Budget / Trade Deficit and Surplus

* Inflation Rates

* Savings Rates

Components …. Political / Legal:

* Deregulation

* Alliance Governments

* Enactment of Laws

Components …. Technological:

* Process Innovations – Robotics

* Changes in IT

* Biotechnology Development

* Industrial Disasters

Components …. Global:

* Consumer tastes and preferences

* Trade Blocs

* Global Debt

* Global Terrorism

* Increasing economic dependence

Michael Porter's Five Forces Model

Source: Michael Porter - Competitive Strategy: Techniques for Analyzing Industries and Competitors, New York

Industry Competitivene

ss

Rivalry among Existing firms

Suppliers Buyers

Substitutes

Potential Entrants

Threat of

New Entrant

s

Threat of Substitut

e Products

Bargaining

Power of Buyers

Bargaining

Power of Suppliers

The Threat of New Entrants

Implications of New Entrants

* Add to existing production capacity

* Erode market share of existing firms

* Bring substantial resources such as

huge advertising budget, willingness

to spend heavily on R & D

The Threat…..

Barriers to Entry:

* Other advantages – patents, favourable

access to raw materials, favourable location, government subsidies, etc. * Capital Requirements

* Customers switching costs – psychological

or financial * Access to distribution channels

The Bargaining Power of Suppliers

* Impact Company profits in a big way

* Cost increase can get passed

* Quality deterioration may occur

* Suppliers powerful in sectors such as -

soft drink concentrates, sophisticated weapon systems, mainframe

computers, etc.

* Supplies – a big chunk of total cost

What makes Suppliers powerful?

Dominance by few suppliers

Greater concentration among suppliers Size of the customer

Importance of Suppliers product to buyers Example: Coke to McDonald’s High switching costs

Absence of substitutes

High product differentiation Threat of Forward Integration

The Bargaining Power of Customers

Cut quantity purchased

Demand better quality for the same price

Can force prices down

What makes Buyer powerful?

Undifferentiated supplies

Accurate information about the cost structure of the supplier

Price sensitivity of the buyer:* Supplies are significant portion of total cost* Product unimportant to overall quality or cost* Buyer already earns low profits

Threat of Backward Integration

Greater concentration in buyer’s industry

Threat of Substitute Products

Places upper price limit on the product

Number increasing due to deregulation and technological advancements

Example: CD- ROM’s replacing Books

Example: Growth in Banking industry

Encourages switching amongst customer’s

The Intensity of Rivalry among Competitors

Ever increasing competition

* Intense price competition

* Product Differentiation

* Product Innovation

* Increased Advertising spend

Implications include:

Factors resulting in Intense Rivalry

Well-matched rivals

High fixed costs – desire to increase sales Lack of differentiation encourage switching

Large increases in manufacturing capacity

Slow Industry growth encouraging retaliation

High profit earning opportunities High exit barriers

Application of Five Forces FrameworkIndustry v/s Strategic Groups

What are Strategic Groups?

Are grouped together for the purpose of improving analysis and understanding competition within their industry

Cluster of competitors that share similar strategies and therefore compete more directly

Do not necessarily belong to an real group such as Industry Trade Association or Strategic Alliance …….

Strategic Groups may be Homogeneous or Heterogeneous

Homogenous – similarity in terms of Strategies, Product, marketing efforts, R & D expenditure, Capital Intensity, etc.

For Example: Paper MillsHeterogeneous – Group with multiple

strategies For Example: Automobile

Manufacturers

Classification of Strategic Groups:

• Breadth of Market: Niche or Otherwise

• Product and Service Quality: Standard, Premium or Luxury

• Geographical Distribution: Regional, National or Global

• Level of Vertical Integration: Own Production unit or Job Order Production

• Profit or Non-Profit:

Processes for Analyzing External Environment:

Environmental Scanning:

- Done to collect information relevant to

strategy formulation.

- Also known as Gathering Intelligence

- Uses include:

a. Information on competitive

environment

b. Challenging common assumptions

about competitive environment

Processes for Analyzing…..c. Forecasting future developments

d. Identifying and compensating for exposed competitive weaknesses

e. Determining when a strategy is no longer viable or sustainable

f. Indicating when and how strategy be

adjusted to changing environment.

Sources of Information: Information collected by Sales force

from market

Local Newspaper

Databases

Governmental Agencies

Customers and Suppliers

Competitors

Scenario Planning:Scenarios are future environmental events and the firm’s response

Based on assumptions that it is inappropriate to simply identify an outcome and reasonable highs and lows around it

Attempt to identify a set of diverse alternative futures

Highlights forces that shape the future

Processes for Analyzing…..

Avoid focusing exclusively on controllable issues

Actively seek out contrarian views

Do reality checks as scenarios begin to form

Don’t get bogged down in too many scenarios or too may details

Guidelines for Developing Scenarios:

Mckinsey’s 7 S Model:

Strategy

Structure

Systems

Shared Vision

Skills

Staff

Style

Shared Vision

A set of values aspirations often unwritten that go beyond profit, ROI, Growth, etc.

Strategy

Set of actions, plans and policies aimed at attaining sustainable competitive advantage.

Mckinsey’s 7 S Model:

Mckinsey’s 7 S Model:Structure

Firm's reporting line up, the organization chart, functional divisions and their integration

System

Provides flow chart of operations, the processes, quality control systems, manufacturing process and information system.

Mckinsey’s 7 S Model:Style

Working philosophy, time management and interpersonal behaviour, peer group, leading by example

Staff

Career growth of the employees, training patterns and honing intrinsic values

Mckinsey’s 7 S Model:Skills

Capabilities of the combined set of people in the firm

DR. RAJINDER SHRIRAM AURORAPROFESSOR – CONTROL SYSTEMS

AND STRATEGY

Competitive Advantage

Differentiation

Cost Leadership

Quick Response

Differentiation

Firms attempt to create unique bundles of products and /

or services that will be highly

valued by customers

Firm Infrastructure

Human Resource ManagementTechnology Development

Procurement

Inb

ou

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Log

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cs

Op

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Extensive database on consumers suggests more effective advertising – Celebrity advertising used

Incentive and training programs encourage high qualityProduct and produce better service representatives

Cutting edge product features and patented production gives superior quality products and helps outperform competitors

Purchase of branded components raises finished product image supplemented by effective media space.

Margin

Margin

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Attributes that Differentiate Products

Physical characteristics of product features: Philips TV

After sales service: WhirlpoolDesirable Image: Fashion product

Technological InnovationReputationManufacturing consistencyStatus Symbol

Implications of Differentiation

Strategy Competitive rivalry lessens with successful differentiation

Brand loyal customers are less price sensitive

New entrants forced to overcome barriers of brand loyalty

Risks associated with Differentiated

StrategySeveral competitors pursuing the same strategy may be perceived equals

Specialists operating in niche markets more successful at differentiation

Attempts to stay a step ahead of the competition may result in “gold plating”

Cost Leadership Achieving low cost position in relation to competitor's

Involves offering no-frills / standardized product aimed at large target market.

Is a relative term – involves cost relative to benefits and cost relative to competitor’s cost.

How Firms achieve Cost Leadership?Firm InfrastructureHuman Resource Management

Technology Development

Procurement

Inb

ou

nd

Log

isti

cs

Op

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s

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• Flatter Organizations• Simplified Information System

• Process breakthrough lowers production costs• Product reformulation allows use of cheaper ingredients

• Healthy employee policies minimize turnover• Training employees reduces waste and scrap

• Global purchasing resulting in low cost components from offshore• Real Estate purchases in rural areas .

Margin

Margin

• L

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• C

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• S

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• N

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How Cost Leadership addresses Competitive Forces?Prevents rivals from indulging into price war

Limited pressure from customers to lower prices further

Higher margins improve position to withstand increase in cost by vendors

New entrants find it difficult to compete due to lack of experience

Facilitates competition with substitute products

Risk associated with Cost Leadership

Strategy Undesirable for second most competitive firm

Leads to desirable product attributes getting eliminated

Strategy can be duplicated by competitors

Limits firm’s abilities to remain competitive

Quick ResponseCost leadership and differentiation lead to a situation “atarimae hinshitsu” – value taken for granted

Race for determining new competitive advantage started

Focus shifted to Response Time

Quick ResponseQuick Response refers to

the speed with which a new product,

product improvement or a managerial decision can be made

Research shows that slow response to customer’s needs forces them to look for alternatives

Firm InfrastructureHuman Resource Management

Technology Development

Procurement

Inbou

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Logis

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• Faster adjustments to trends due to Top Mngt.• Timely data available due to MIS

• New products developed due to Product Development • New process invention reduces production time

• Well executed training programs resulting in productive workers

• Work with suppliers ensures each incorporates latest technological advances

Margin

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Ware

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How Firms achieve Quick Response?

Competitive Advantage through Quick Response

Development of new productsProducts CustomizationImproving existing products Timely delivery of ordered products

Quick adjustment of marketing efforts

Answering customers queries

Quick response time vis-à-vis Five Forces

Firms can avoid head-to-head rivalry

Firms can charge premium price

Encourage quick response from suppliers

Greater flexibility in dealing with new entrants and substitute products

Quick Response – A strategy not always

beneficialLack of systems that facilitate competition on response time

Speed not important to all customers

Can create stressSpeed for the sake of speed does not lead to competitive advantage – value addition prime

Higher Market Share

Greater Relative Sales

Lower Relative Prices

Lower Relative Costs

Higher Relative Sales Volume

Higher RelativeProduction Volume

More Rapid Gains In Experience

Faster Progress Down the Experience Curve

The Cycle of Experience Effects

Competitive Advantage across Market Life Cycle

Introduction:

First Mover Advantage

Strong Brand Recognition

Strong Differentiation Advantage

Growth:

Associated with glamour and success

Demand grows faster than supply

Reasons: Less price pressure, exciting technological development, increasing sales volume

Assumptions made during Growth Growth is easy to achieve

Less price pressure in growth markets

Development of critical expertise easier in growth markets

Maturity:

Lack of continuous growth

Key technology benefits disappear

Cumulative experience fails to provide benefits

Growing trend to compete on the basis of price

Why are price wars detrimental?

Profits are price sensitive

Advantages are short lived

Future expectations increase

Customers shop for low prices rather than value and benefits

Practices followed to avoid Price Wars

Avoiding strategies that force competitors to respond with lower prices

Avoiding all possible misreading of competition

Avoiding overreacting to competitor’s price cuts

Using jawboningRepositioning your product from a

commodity to a differentiated position

Decline:Adopt “milking”Strategies include:

* Divestment* Harvest* Niche* Leadership

Diversification

Is a process that: Improves the core business execution

Enhances the unit’s structural position

Increases the competitive advantage

Creates value for the shareholder’s

Forms of Diversification

Vertical Integration

Is one where a corporation performs more than

one step of the process involved in converting raw materials into a product

delivered and ready for consumption and the integration is so efficient that one business feeds the other.

Benefits of Vertical Integration

Elimination or reduction of transaction costs

Improved coordination

Keeps inside counterparts honest and on their toes

Limits to Vertical Integration

May upset the minimum efficient scale of the firm

Reduces flexibility and makes products outdated and non-competitive

Makes firm susceptible to strikes

Difficulties integrating different specializations

When to Integrate Vertically?Are our existing suppliers or customers

meeting the final consumer’s needs?

How volatile is the competitive situation?

Is it possible to “own” a business without actually buying it?

Will vertical integration enhance the structural position of the business?

Horizontal Diversification

Entails moving into more than one industry

For Example: Retailing of FMCG Products and Petroleum Products by Reliance

Why Horizontal Diversification?

Better financial strength

Expertise to run diverse business

Economies of Scale

Higher profitability

Case against Conglomerates?Conglomerate Discounts – stock sells less

for than the total of the individual stocks would sell for

Discount determined using P/E ratio – higher the ratio more the value of stock

Gave rise to the concept of Corporate Raiders – Acquiring a conglomerate and then selling individual parts to earn huge gains without actually running the business even for a day

Takeover Premiums

Takeover Premiums

Difference in the normal trading price of the takeover’s target’s stock and the price required to entice shareholder's to sell enough shares to acquire controlling interest

Risky as the corporate stock may become worthless subsequently and lead to conglomerate discount

Global Diversification

Acquiring a global company or entering into strategic alliance with a global partner

Facilitates operations at a global level

Helps launch in the global arena with ease

Means of Diversification

Acquisitions

Refers to purchase of a company that is already in operation

Facilitates quick diversification and improvement in the value of stockholder’s investment

Pre-acquisition Management

Analyze the deal itself:* Cost of Acquisition* Benefits from the deal* Financing of the deal* Returns from the deal

Analyzing the human, organizational and cultural aspects of acquisition

• Determine potential ability of the firm to increase competitiveness

• Actions needed include* Setting stretching targets * Define key top positions* Pick the best people* Commit adequate resources* Anticipate and prioritize senior management agenda* Listen and transmit

Strategic Alliance

Refers to arrangements in which corporations join forces to form cooperative partnership

Neither company owns the other – third entity created

Strengths of one offset the weakness of the other

Coordination difficult due to differences in goals, strategies, procedures and cultures

Avoiding conflict in Joint Ventures

Discuss the following:* Mission of the new business* Market’s it will serve* Products it will offer* Obligations of each partner* Procedure for dissolving the venture

Do not depend on the contract to make joint venture successful

Do not try to short change your partner

Internal Development

Refers to building new businesses more or less from ground up – Corporate Entrepreneurship

Four Strategies adopted:* Act as Venture Capitalists * New Venture Incubator* Idea generation and transfer program* Intrapreneurialship

Benefits of Diversifications

• Capitalizing on Core Competencies

• Increasing market power

• Sharing Infrastructures

• Balancing financial resources

• Maintaining Growth

• Reducing Risk

The Growth Share Matrix

Analysis projects two factors that predict success* The growth rate of the market within

which the business competes* Its share of that market

Entities in fast growing markets need more cash than they have and vice versa

The Growth Share Matrix

Star Cash Cow

Problem Child

Dog

Source: BCG

Market Growth

High Low

High

Low

Mark

et

Share

Analysis of Matrix Cash Cows

* Expected to produce more cash than can be

usefully employed in the house

* Businesses often “milked” to finance other

businesses that influence the success of the Corporation

Dogs

* Are businesses holding small shares of slow growing or declining markets* Unlikely to ever become important

sources of cash generation* Are great users of cash for which there

is little return* Adopt “Harvest” strategy – Do not invest

; shift cash flows to more promising business

Problem Child

* Low market shares of rapidly growing markets

* Represent a potential opportunity* Increase in their market share can make

them cash cows but failure can make them dogs* Strategy – investing and exploiting opportunity or not investing and missing opportunity

Stars* Hope of the future* Hold large market share currently* Cash flows minimal or even negative* Strategy to nurture them, maintain

their health and wait for the market to slow

to increase cash flows* Cash hungry start get transformed into

cash cows that can be milked to nurture another generation of businesses

Competitive Strength Matrix:

BCG fails to consider other issues affecting cash flow other than market growth and market share

CSM depicts various strategic issues beyond simply growth

Provides a useful bridge between strategy formulation at business and corporate level

PUSH

Inve

st A

ggress

ively

CAUTION

Inve

st S

elect

ively

DANGER

Harve

stLow

Moderate

High

Introduction Growth Maturity Decline

Stage of Market Life Cycle

Com

peti

tive S

trength

Industry Attractiveness – Business Position Matrix

Considers the matters discussed in other frameworks and incorporates other considerations

Facilitates subjective evaluation of overall industry attractiveness and business position

Industry Attractiveness is the subjective assessment based on broadest possible range of external opportunities and threats beyond the strict control of management

Business Position is assessment of how strong a competitive advantage is created by the firm’s internal strengths and weaknesses

Low

Moderate

High

High Medium Low

Industry Attractiveness

Bu

sin

ess

Posi

tion Invest Selective

GrowthUp or Out

Harvest

Divest

Up or Out

Up or Out

Selective Growth

Harvest

Factors ConsideredIndustry Attractiveness:(a) Bargaining Powers of Suppliers:Relative Size of playersNumbers of eachImportance of purchases from or sales toAbility to integrate vertically

(b) Threat of Substitute Products/ New

Entrants:Technological MaturityDiversity of the MarketBarriers to EntryFlexibility of Distribution System

(c) Nature of Competitive Rivalry:Number of CompetitorsSize of CompetitorsPrice WarsCompetition on Multiple dimensions

(d) Economic Factors:Scale VolatilityCyclicality of Demand Market GrowthCapital Intensity

(e) Financial Norms:Average profitabilityTypical Leverage Credit Practices

(f) Socio Political Considerations:Government RegulationCommunity SupportEthical Standards

Factors ConsideredIndustry Attractiveness:

(a) Level of Differentiation:Advertising EffectivenessProduct QualityCompany ImagePatented ProductsBrand Awareness

(b) Cost Position:Economies of ScaleManufacturing CostsOverheadsScrap / Waste / ReworkLabour Rates Patented Processes

(c) Response Time:Manufacturing FlexibilityTime needed to introduce new

productsDelivery Time

(d) Financial Strength:SolvencyLiquidity BEPCash Flows Profitability Growth in Revenues

(e) Human Assets:TurnoverSkill LevelRelative WageMoraleManagerial CommitmentUnionization

(f) Public Approval:GoodwillReputationImage

Global DiversificationBenefits:

Lower operational costs

Can supplement limited domestic opportunities

Willingness to fight international competition on home turf – Fuji Xerox

Disadvantages:Greater risk

Complex structure

Differences in customer requirements and ways of competing

Differences in organizational cultures and managerial practices

Strategies

Exporting

Licensing and Franchising

Joint Ventures

Wholly Owned Subsidiaries

International Strategy and Competitive Advantage:

Differentiation

Cost Leadership

Quick Response

Government regulations as a Source of Competitive Advantage:

Regulators

Co-negotiators

Suppliers

Customers

• Involves a broad range of efforts aimed at transforming strategic intentions into actions.

• Constitutes firm’s realized strategy

• Ability to implement strategies is one of the most valuable managerial skills

Why Strategy Implementation is Difficult?Organizational Immune System –

Resist change

Difficult Paradoxes – Participative management and motivating subordinates to accept change

Number of variables involved

Interlink between factors affecting change

Need to change everything at once

Activity Centered Change Programs

• Analyses common pattern of failure in introducing change

• Focus is on change centered on an activity that is suppose to bring change rather than on desired results

• Individual elements reflect rationality yet fail collectively

Elements of Activity Centered Change Program:

Senior management, dissatisfied with past performance, develops new strategic ideas requiring organizational change Example: Declining sales leading to shift in strategy of improving customer satisfaction

Initiating a program for producing

desired changeExample: Initiating program “Customer is King”

Management of program is delegated to those in staff positionsExample: King Customer Program handed over to Director of Quality

Senior Management is “handled” by staff personnel in charge of the programExample: CEO’s speech prepared by Director of Quality

Staff in charge of the program focus on range of issues under their direct controlExample: Director of Quality develops new training program

Performance measured by success of the

programExample: Number of people graduating from the new training and development program

A small change is accepted as success of the programExample: Success of the training program

To continue the change initiative new programs introducedExample: New program to reduce cost initiated

Confusion with regards to old and new program as the same can conflictExample: Cost reduction by eliminating quality programs

Cynicism creeps in and status quo supportedExample: Every new program looked upon as a bother

Strategic Programming

Strategy formulated on the basis of pre-established missions and objectives

Short range programs evolved to implement strategy

Budgets evolved to provide monetary resources

Results evaluated and put in feedback loop Used first by Robert McNamara, Secretary

of Defence Also known as Planning, Programming and

Budgeting System

Generic Model of Strategic Programming

Introduction of Mission

Derivation of Objectives

Identification of Alternative Strategies

Evaluation of Alternatives

Selection of Preferred Alternatives

Creation of Master Plan / Program

Creation of Medium run Plan / Program

Creation of Short run Plan / Program

Evaluation of Results

Fee

db

ack

Lo

op

Establish Master Budget

Establish Medium Run Operating Budget

Establish sort run tactical BudgetS

trat

egy

Fo

rmu

lati

on

Str

ateg

y Im

ple

men

tati

on

Limitations of Strategic Programming

Required Conditions:

* Stability* Simplicity* Industry Maturity* Capital Intensity* Tightly Coupled Operations* External Control

Organizational Learning

Result of knowledge based competition

Is combination of discovering new things and acting in ways that allow the organization to adapt to changes and sustain and improve competitiveness

Called for since business units face uncertain conditions and survival depends on learning and adapting to new ways

Stephen Covey States One level of learning

well suited to management is like climbing a ladder;

but higher level of Learning, one that requires leadership,

involves questioning whether or not

the ladder is leaning against the right wall

The Model of Organizational Learning

Learning from History

and Experience

Systematic Problem Solving

Experimentation with

New Approaches

Learning from the Best Practices of

Others

DISCOVERY

ACTION

Incremental Adaptive Changes

Quantum Generative

Changes

EvolutionaryActs

RevolutionaryActs

Strategic Leadership Strategic leadership involves:Strategic leadership involves:

the ability to anticipate, envision, the ability to anticipate, envision, maintain flexibility and empower maintain flexibility and empower others to create strategic changeothers to create strategic change

multi-functional work that involves multi-functional work that involves working through othersworking through others

consideration of the entire enterprise consideration of the entire enterprise rather than just a sub-unitrather than just a sub-unit

a managerial frame of referencea managerial frame of reference

SuccessfulStrategic Actions

Strategic Leadership and the Strategic

Management ProcessEffective Strategic

Leadership

Strategic Intent Strategic Mission

shapes the formulation of

andinfluence

Strategic Leadership and the Strategic Management Process

StrategicCompetitiveness

Above-Average Returns

Formulationof Strategies

Implementationof Strategies

SuccessfulStrategic Actions

yields

Factors Affecting Managerial Discretion

External Environment

•Industry structure•Rate of market growth

•Number and type of competitors

•Nature and degree of political/legal constraints

•Degree to which products can be differentiated

External Environment

Factors Affecting Managerial Discretion

Characteristics of the Organization

Characteristics of the Organization

•Size•Age•Culture•Availability of resources

•Patterns of interaction among employees

External Environment

Factors Affecting Managerial Discretion

External Environment

Characteristics of The Organization

Characteristics of The Manager

ManagerialDiscretion

Characteristics of the Manager

•Tolerance for ambiguity

•Commitment to the firm and its desired strategic outcomes

•Interpersonal skills•Aspiration level•Degree of self-confidence

Exercise of Effective Strategic Leadership

Establishingbalanced

organizationalcontrols

Emphasizingethical

practice

Developinghumancapital

Exploiting andmaintaining

corecompetencies

Sustainingan effective

organizationalculture

Determiningstrategicdirection

Effective StrategicLeadership

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