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SESSION 2
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Topics for discussion
Formulation of Strategy
Company Mission, Vision
Formulating a mission statement Social Responsibility
Analyzing the business environment
PEST
Industry level analysis
Porters industry analysis : Five forces model,game
theory, Theory of Complementarity
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Mission of a company sets apart a company from other
companies in the same area of business
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Vision
Mission
Objectives
Plans
Policies
Goals
Strategies andTactics
Stakeholders / founder
Top Management
Unit Together with the Top Management
Unit Manager with the approval of the
superior
Each Organizational level In conformity
with other unit policies
Individual Managers in conformity with
unit Policies
Individual Managers in conformity with
unit goals
Determined by
Organizational Direction
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VISION STATEMENT OF CARGILL
Our Purpose is to be the global leader in nourishing people
We will harness our knowledge and energy to provide goods
and services that are necessary for life, health and growth.Our mission is to create distinctive value
We will succeed in business only by creating value for our
customers, our suppliers, employees, shareholders and
neighbors. We will build stronger customer relations andcreate solutions: Explore, Discover, Create, Deliver.
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Our approach is to be trustworthy, creative and enterprising
We build customer relationships on integrity. We develop
solutions that our customers need. We are forward- thinking and
action oriented.
Our performance measures are : engaged employees, satisfied
customers, enriched communities and profitable growth
Engaged employees focus on satisfying customers and aecommitted to livable, sustainable communities. With
accomplishments, we enjoy the profitable growth necessary to
sustain performance over time.
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VISION
Vision comprises of two main components
Core ideology What we stand for and why we exist
Envisioned future what we aspire to become, to achieve, to
create
Characteristics:
The vision needs to be specific so that the scope of the
interpretations is minimized.It needs to be efficiently communicated effectively
It should try to streamline and correlate the personal
goals of the employees with the organizational goals to the
extent possible
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It differentiates the company from its competitors
It defines the business(es) that the company wants
to be in, not necessarily the one(s) it is in
It is inspiring
It is relevant to all the stakeholders in the firm, not
just stakeholders and managers
It attempts to ensure that the organization
behaves in the way that it promises it will by
defining the purpose for which the firm exists
It seeks to clarify the purpose of the organization
why it exists.
Characteristics of a good mission statement
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Amission statement usually attempts to answer the following
questions
What is our reason for being? What is our basic purpose
What is unique or distinctive about our organization?
Who are, or should be our principal customers, clients?
What are or what should be our principal economicconcerns?
What is likely to be different ( from the existing state) about
our business three to five years in the future?
What are the basic beliefs, values, aspirations and
philosophical priorities of the firm?
As the business grows the company may redefine its
mission statement
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KEY ELEMENTS OF A MISSION STATEMENT
Competitive arenas: the business and
geographic arenas where the company
will compete
View of the future
The anticipated regulatory,
competitive and economic environment
in which they compete
Source of competition advantage: the
skills that the company will
develop/leverage to achieve its vision;
a description of how the company
intends to succeed
Fundamental Intentions
A statement of the role thatcompany will seek to adopt:
a description of what the
company hopes to
accomplish as means to
gauge future success
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The indispensable components of a mission statement
The basic product
The primary market
Principal technology
Mission statement of Pfizer Inc.
We will become the worlds most valued company to
patients, customers, colleagues, investors, business
partners and the communities where we work and live.
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Company goals: indicate the desired future state that a
company attempts to realize.
To be meaningful the goals :
Should be precise and measurable
should address important issues
Should specify a time period in which they should beachieved
The goals
Should address both financial and non financial issues
Should facilitate reasonable tradeoffs
They can be reached through stretch
They cut across financial areas
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The company philosophy and values give a
framework / boundary for individual actions aimedat achieving corporate goals. It reflects the basic
beliefs, values, aspirations, guiding principles and
philosophical priorities that the strategic decision
makers are committed to emphasize in their
management of the firm.
The company philosophy of Sun Microsystems
we believe human development to be the worthiest
of the goals of civilization for nurturing growth in
the capabilities of people.
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Public Image
Johnson & Johnson products are regarded as safe
products
Sonys as quality products
Company self concept know itselfSocial Responsibility-
Economic must do
Legal have to doEthical should do
Discretionary might do
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INFOSYS:
Infosys foundation concerned with serving the
underprivileged in the society. It focuses on improving healthand education
Orphanages in Orissa
Free girls hostel etc
SUN MICROSYSTEMS:
Volunteer teams that work on issues such as the environment,
education, homeless and hunger.
Sun Microsystems Foundation Inc - an NPO
To act as a vehicle for the community investment efforts
Sun employees train teachers at schools to utilize efficiently
the grants received from the company
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Analyzing The Business
Environment
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ExternalEnvironment: consists of all the conditions
and forces that affect an organization's strategic options
and define its competitive situation
Operatingenvironment
Industry environment
Remote Environment
The three interactive segments of the ex
ternal environment
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EnvironmentalVariables
Internal Environment
Structure
Culture
Resources
Task Environment
Societal Environment
Socio-CulturalForces
EconomicForces
Political-legal
ForcesTechnological
Forces
Suppliers
Employees
Labor unions
Competitors
Trade Associations
CommunitiesCreditors
Customers
Social Interest
Groups
Government
Shareholders
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RemoteBusiness
Operational
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ExternalEnvironment
PoliticalEnvironment
Antitrust laws,Fair trade decisions, Pollution and
Pricing policies, Administrative activities and many other
activities aimed at protecting the consumers and the local
environment
The political activities also influence
The supplier function
The customer function
The competitor function
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Economic Environment
Crucial Macroeconomic trends that need to be taken into
consideration : GNP, General availability of credit, the
level of disposable income and the propensity to spend at
national and international levels
SocialEnvironment
Changes in values, beliefs, attitudes, opinions and
lifestyles increasing women at work
The cultural, demographic, religious, educational and
ethnic conditioning of individuals
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TechnologicalEnvironment
Factors related to materials and machines
used for manufacturing goods and services
Cost of technologyRate of change of technology
Receptivity to new technology
Technological innovations
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Industry level analysis
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Porters Industry analysis: Five forces model
Industry competitors
Rivalry among existing
firms
Potential entrants
Suppliers Buyers
Substitutes
Bargaining power
of suppliersBargaining power
of powers
Threat of
substitute products
or services
Threats from new
entrants
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Threat of new entrants
Barriers to entry
Economies of scale
Product differentiation
Capital requirements
Cost disadvantages independent of size
Access to distribution channels
Government policies
Intensity of rivals
Number and size
Exit barriers to the loyalty of the old players to the industry
despite low returns
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The bargaining power of buyers
The buyers are powerful under the following circumstances
when the suppliers are many and the buyers are a few and
largeWhen the buyers purchase in large quantities
When the suppliers industry depends on the buyers for a
large percentage of its total orders
When the buyers can switch orders between supply
companies at a low cost, thereby playing companies off
against each other to force down prices
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When it is economically feasible for the buyers to
purchase the input from several companies at a time
When the buyers can use the threat to provide for
their own needs through vertical integration as a
device for forcing down prices
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The bargaining power of suppliers
When the product that they sell has few substitutes and isimportant to the purchasing company or buyer
When no single industry is a major customer for the suppliers
When products in the industry are differentiated to such anextent that they are not easily substitutable and its costly for a
buyer to switch from one supplier to another
To raise prices, the supplier can use the threat of vertically
integrating forward into the industry and competing directly
with buying company.
The buyer companies cannot use the threat of vertically
integrating backward and supplying their own needs as a
means to reduce input prices
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Example : Intel worlds largest manufacturer
of microprocessors manufacturers of personal
computers are dependent on the single largestsupplier of of computer chips
Threat of substitute products
Coffee tea soft drinks
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Game theory
Elements of a game:
Players: rival companies
Actions: choices available
Information
Strategies: guidelines that tell the decision maker
which action to choose at each point of the game
Outcomes: results such as price wars
Payoffs : potential benefits
Equilibria: stable result which need not always be
beneficial
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AssessingAnother players likely behavior
analyzing the game through the other
players eyes
Techniques
Fishbowl
Red team / blue team
Future mapping
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Concept ofComplementarity
Two variables in addition to five factors
Import competitionMultimarket contact
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The Value net by Braden burger and Nalebuff
Customers
Competitors ComplementorsCompany
Supply
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