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STRATEGIC MANAGEMENTRAHUL PRATAP SINGH KAURAV
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LECTURE I [CASE STUDY]Orange Mobile Company
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STRATEGIC ANALYSIS IN ORANGEMOBILECOMPANY
The evolution of mobile phones industry is rapidly growing to credit card size phones from old brick size phones. The chang
trend in the market has made the companies to invent high-en
technology phones that most of the teenagers enjoy.
Orange mobile company, one of the mobile industries was estin April 1994. The aim of the company was to become the top
provider by making communication instinctive and easily acc
part of daily life.
The top level management in the company applied strategy a
for analysing the market competitor across the glob in order to
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STRATEGIC ANALYSIS IN ORANGEMOBILECOMPANY
After analysis the various competitors, the company decide tostrategic alliance with worlds leading suppliers and operators
considered the current scenario of the company resources in
employees, equipment finance and others.
This made the company attract more customers and outlookbusinesses in all areas of telecommunication. Therefore, an in
demand of services led to the increase in sales. The next aim
company was to expand globally; hence it introduced strategic
planning based on marketing.
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STRATEGIC ANALYSIS IN ORANGEMOBILECOMPANY
Considering the global market scenario, the company emphasstrategic planning and later strategic analysis was enhanced t
the process effective. This process involved segmenting the m
profiling market segments, and developing marketing strategy
of the market segments.
Thus the company benefited in gaining profits by systematicaanalysing the market scenario and expanded globally.
Questions to discuss: Why do you think the company introduced strategic analysis as the ke
in gaining profits? How did the com an benefit throu h strate ic anal sis?
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INTERNAL AND EXTERNAL ANALYSIS |
II
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WHAT ENVIRONMENT REFERS?
INTERNAL
Resources and behavior
Strengths and weaknesses
Synergistic efforts
Competencies
It is the way of avoiding external
threats to protect the organization.
EXTERNAL
Social
Political
Economical
Legal
Technological
It helps an organization to
what it might choose to do
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WHY ENVIRONMENTALAPPRAISAL (EA
EA finds the sources of anyopportunity or threat
EA helps management to decidethe strategy for implementation and
predict the discovered future
opportunities or threats
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CONCEPT OF EA
EA is the planning process that helps: In monitoring economic conditions,
Government rules,
Technology issues, Market settings,
EA is important for the evaluation of the presestrategy, setting objectives, for planning for fu
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EA PROCESS
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EFFECT OF CHANGING ENVIRONMENT
Dynamic social and economical conditions,
Problem of increased competition,
Obsolescence of machines and equipment,
Inference of Govt., and Increasing costs and prices.
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NEED FOR EA
Know the threats,
New resources,
Competitors,
Know the policies of other companies.
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OBJECTIVES OF EA
Detecting important economic, social, cultural, technoand political issues
Potential opportunities and threats for the organisatio
to environmental variablesAccurate understanding of organisationsstrengths a
limitations
Providing a basis for analysis of future programme
investments
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COMPONENTS OF EAAnalysis of environmental
variables(PLEST)
Communit
y Analysis
Market
AnalysisCompetito
r Analysis
Sup
Ana
Selection of strategic factors
opportunities and threats
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ENVIRONMENTAL SCANNING TECHNIQ
ETOP (Environmental threats andopportunities)
QUEST (Quick env. scanning technique)
SWOT
EFE (External factor evaluation) matrix
CPM (Competitive Profile Matrix)
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ENVIRONMENTAL THREAT ANDOPPORTUNITY PROFILE(ETOP)
ETOP was developed by GLUECK, is that of preparEnvironmental Threat and Opportunity Profile(ETOP)
organization.
The preparation of ETOP involves the following step
i. Dividing the environment into different sectors.
ii. Analyzing the impact of each sector on the organization
iii. Analyzing the impact of each sub-factor on the organizathe form of a statement.
iv. Preparing a summary to show major factors.
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IMPORTANCE OF ETOP:
It provides clear picture to strategists, whsectors has a favorable impact on
organization.
It helps an organization in being aware abwhere it stands with respect to its
environment.
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ETOP PRESENTED IN TWO FORMS:
Matrix Form : In matrix form , importanceimpact of various environmental factors a
presented in tabular form and are often
quantified
Descriptive Form: In descriptive form imof various factors is described in terms th
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MA
TRIXFOR
M
Sr.
NO
.
ENVIRO.FACTOR
S
DEGREE OF
IMPORTANCE
DEGR
IMPAC
High
3
Medium
2
Low1 + - (3)
1. Economic
components
2. Socio-cultural
components
3. Competitive
components
4. Technological
components
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DE
SCRIPTIVE
FO
RM:
ENVIRONMENTAL FACTORS IMPACT
(+)opportunity (-) threats
Socio-economic (+)Continued emphasis o
infrastructure developme
including power supply fo
industry, transport and do
consumption
(-) severe resource const
Supplier (-)Increasing scarcity oftechnology
Government (+) liberalization of techn
import
Technological (+) higher growth in indus
production and technolog
gradation
ETOP PREPARED FOR MOTOR CAR
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ETOP PREPARED FOR MOTOR CARMANUFACTUREENVIRONMENT
AL FACTORS
IMPACT (+) Opportunity(-) Threats
Technology (+)Niche market for high end market(+) free import from cheaper markets
(+) vast, growing, educating youth preferring
and sleek models
Economic (+) rising income levels
(-) price competition from local as well as int
brands
(-) poor transportation services
Social (+) buyer preferences for sporty, fashionable
models
(-) high transport accidents forcing people to
modes of transportation
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LECTURE III[EXTERNAL APPRAISALS]
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QUICK ENVIRONMENTAL SCANNINGTECHNIQUE (QUEST)
It was proposed by B NANUS. It is a four step
process uses scenario-writing for scanning the
environment and identified strategic options
i. Strategists make observation about major eventtrends in the industry
ii. Strategists speculate on a wide range of importaissues
iii. The QUEST director prepares a report
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EXTERNAL FACTOR EVALUATION (EFEMATRIX
An External Factor Evaluation (EFE)Matrix allostrategists to summarize and evaluate econom
social, cultural, demographic, environmental,
political, governmental, legal, technological, ancompetitive information.
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CPM
The Competitive Profile Matrix (CPM) identifies a firmcompetitors and its particular strengths and weakness
weights and total weighted scores in both a CPM and
have the same meaning.
The critical success factors in a CPM are not groupedopportunities and threats as they are in an EFE. In a C
ratings and total weighted scores for rival firms can be
to the sample firm. This comparative analysis provides
internal strategic information.
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ORGANIZATIONALAPPRAISAL
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ORGANIZATIONAL APPRAISAL
Internal Environment - strength & weakness in different f
Organization capability- Capacity & ability to use distinctive competencies
particular field
- Ability to use its S & W to exploit O & face T
external environmentOrganization resources
- Physical & human
- cost, availability - strength / weakness
ORGANIZATIONALAPPRAISAL
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ORGANIZATIONAL APPRAISAL
Identity & character of an organization leadership, Mg
Philosophy, values, culture, quality of work environmeOrganization climate, organization politics etc.
Resource Behaviour
Distinctive competence
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METHODS & TECHNIQUES USED FORORGANIZATIONAL APPRAISAL
Financial Analysis - Ratio Analysis, EVA, ABC
Key factor rating - Rating of different factors throudifferent questions
Value chain analysisVRIO framework
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METHODS & TECHNIQUES USED FORORGANIZATIONAL APPRAISAL
BCG, GE 9 cell Matrix , PIMS, McKinsey 7S
Balanced Scorecard
Strategic Advantage profile Internal Factor Analysis Summary
EXAMPLES OF ORGANIZATIONAL
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CAPABILITY PROFILE
Financial Capability
Bajaj - Cash Management
LIC - Centralized payment, decentralized collection
Reliance - high investor confidence
Marketing Capability
Hindustan Lever - Distribution Channel
IDBI/ICICI Bank - Wide variety of products
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EXAMPLES OF ORGANIZATIONALCAPABILITY PROFILE
Operations Capability
Lakshmi machine works - absorb imported technology
Balmer & Lawrie - R&D - New specialty chemicals
Personnel Capability
Apollo Tyres - Industrial relations problem
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LECTURE IV[INTERNAL APPRAISALS]
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VRIO FRAMEWORK
Value: Does it provide competitive advantage?
Rarity: Do other competitors possess it? Imitability: Is it costly for others to imitate?
Organisation: Is the firm organised to exploit the r
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BALANCED SCORECARD- KAPLAN & NORT
4 performance measures
Customer perspective
Internal business perspective
Innovation & learning perspective Financial perspective
Balanced Scorecard
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Balanced Scorecard A model integratifinancial and non financial measures. (KaplanNorton 1996)
Causal link between outcomes and performandrivers of such outcomes
Translates the vision and strategy of a busineunit into objectives and measures in 4 distin
areas Financial
Customer
Internal Business process
Learning and growth
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THE BALANCED SCORECARD
Purpose of Balanced Scorecard:
A method of implementing a business strategy by translatin
a set of performance measures derived from strategic go
allocate rewards to executives and managers based o
success at meeting or exceeding the performance measures
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PORTFOLIO ANALYSIS
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PORTFOLIO ANALYSIS
27% of fortune 500 companies use it in strate
formulation
Top management views its product lines andunits as a series of investment return
Product lines/Business units - a portfolio ofinvestment - company constantly juggle - to g
STRATEGIC ADVANTAGE PROFILE (SAP)
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S G C V N G O (S )
A picture of the more critical areas which can have a relationsh
of the strategic posture of the firm in the future.
Capability Factor Competitive strengths / Weakness
Finance High cost of capital, reserves & surplus
Marketing Fierce competition, company positionsecure
Operational P&M - excellent - parts & componentsavailable
STRATEGIC ADVANTAGE PROFILE (SAP)
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STRATEGIC ADVANTAGE PROFILE (SAP)
Capability Factor Competitive strengths / Weakne
Personnel Quality of management & perso
par with competition
General High Quality experienced top
management - take proactive s
BCG GROWTH - SHARE MATRIX
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BCG GROWTH SHARE MATRIX
Matrix of
- Growth rate of the industry - % of increase in- Market share
Relative market share of a firm= Market share in
industry/market share of the largest other competitor
> 1 indicates market leaderAssumption: Other things equal - growing market is
attractive
BCG GROWTH - SHARE MATRIX
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STARS QUESTI
MARKSBUSINESS 16
GROWTH 12
RATE 8 CASH COWS DO
(%) 4
0 10 4 2 1.5 1 0.1
RELATIVE COMPETITIVE
POSITIONING
GE PORTFOLIO MATRIX
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Industry attractiveness
Companys business strengths/Competitive position
Industry attractiveness- market growth rate, industry
profitability, size, pricing practices, opportunities/ threats
scale 1 - 5 Very unattractive to very attractive
Business strengths- Market share, technological position,
profitability, size, strengths & weakness
scale 1-5, 1- very weak, 5 - very strong
Product line- a letter, circle - area - (size - scales) pie - mark
share Identify performance group - current & projected portf
without any change in strategy
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LECTURE V[5-FORCE MODEL & 7-S]
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PORTERS FIVE FORCES MODEL Developed by Michael Porter in 1979/1980
Considered a classic industry analysis tool
Provides a framework for perspective on multipcompetitive factors affecting your company and
industry
Five basic competitive forces whose
collective strength determines the
long-run profit potential of an industry
THE FIVE FORCES
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THE FIVE FORCESThreat of New
Entrants/ Barriers to
Entry
Bargaining P
of Customer
Threat of Substitutes
Bargaining
Power of
Suppliers
Rivalry
Among
Existing
Competitors
Sources for this section: Michael E. Porter, Understanding Industry Structure, Revised 2007 an
How Competit ive Forces Shape Strategy, Harvard Business Review, 1979
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THREAT OF NEWENTRANTS/BARRIERS TO ENTRY
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ENTRANTS/BARRIERS TO ENTRYThreat of potential entrants determined by:
Attractiveness of industry
Height of entry barriers (e.g., start-up costs, regul Customer switching costs (high fixed costs involved in
another supplier)
Capital requirements (e.g., very high in gas exploration
Incumbency advantages independent of size (e.g., protechnology, patents)
Unequal access to distribution channels (how much hacompetitors tied up distribution channels)
Restrictive government policy
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BARGAINING POWER OF SUPPLIERS
Strength of suppliers determined by: Number of suppliers and their degree of differentia
Portion of a firms inputs obtained from a particulasupplier
Portion of a suppliers sales sold to a particular firm
Switching costs
Potential for vertical integration
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BARGAINING POWER OF SUPPLIERSA supplier group is powerful if:
It is more concentrated than the industry itsells to (e.g., Microsoft: near-monopoly inoperating systems, with fragmentation amongPC-making customers)
Industry participants face high switching costs
when changing suppliers Differentiated products offered by suppliers No substitutes for what the supplier group
offers
Supplier group does not depend heavily on a
particular industry
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POWER OF CUSTOMERS
Power of customers determined by: Number of buyers
Firms degree of differentiation
Portion of a firms inputs sold to a particular buyer
Portion of a buyers purchases bought from a part
firm
Switching costs
Potential for vertical integration
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THREAT OF SUBSTITUTES
A substitute performs the same function as an
industrys product or service, but by a different
Determined by the number of potential substitutescloseness in function and relative price
Not just another product: sometimes the substitutdo without the product or to do it themselves
Long distance phone service providers vs. VoIP providand Vonage)
Mobile phone as primary phone vs. landline
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RIVALRY AMONG EXISTING COMPETIT
Rivalry determined by number of firmrelative size, degree of differentiationbetween firms, demand conditions anbarriers to exit
Competition among rivals is greatestwhen:There are many competitors, nearly eq
in size or power
Slow industry growth
Hi h barriers to exit MCKINSEYS 7S FRAMEWORK
TO DIAGNOSE CAUSES OF ORG PROBLEM & FORMULATE PROGRA
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Structure
Superordinate
Goals
Strategy
Skills
System
Style
Staff
MCKINSEYS 7S FRAMEWORK
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Style
One of the levers which top managemen
to bring about organization Change
StaffUpdate knowledge & skills to keep pace
change
MCKINSEYS 7S FRAMEWORK
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Strategy
Includes purpose, mission, objectives, goal, actipolicies
Systems
Procedures & methods framed by organization &
by operational personnel in the respective funct
MCKINSEYS 7S FRAMEWORK
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Structure
Relationship between/ among various positactivities
Design of structure - critical task for top mgm
SkillsAcquainted with state of the art technoimprovised methods & practices
MCKINSEYS 7S FRAMEWORK
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Superordinate Goals
Fundamental ideas of business
Main values
Broad notions of future directions
TOWS MatrixInternal (S) (W)
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External
List 5-10
Internal strengths
List 5-10
Internal
Weakness
(O)
List 5-10
External
Opportunities
(T)
List 5-10
External Threats
SO Strategies
Use S to take
advantage of O
WO Strategi
Take advanta
of O by
overcoming
ST Strategies
Use S to avoid
T
WT Strategi
Minimize W a
avoid T
Generate Alternative Strategies
APPLICATION OF GAME THEORY INSTRATEGY FORMULATION
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STRATEGY FORMULATION
'Game Theory'is a concept that deals with theformulation of the correct strategy, when confro
a complex challenge, to succeed in addressing
challenge.
It was developed based on the premise that fowhatever circumstance, or for whatever 'game
exists a strategy that will allow one to 'win.
Any business is a game played against compe
APPLICATION OF GAME THEORY IN
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APPLICATION OF GAME THEORY INSTRATEGY FORMULATION
Invented by John von Neumann and OskarMorgenstern in 1944.
Game Theory is an important tool in any strate
toolbox, especially when dealing with a situatioinvolves several entities whose decisions are i
by what decisions they expect from other entit
APPLICATION OF GAME THEORY IN
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APPLICATION OF GAME THEORY INSTRATEGY FORMULATION
Game Theory has several important elemsome of which are: 1) the agent, which refers to a person or entity wh
their own goals and preferences;
2) the utility, which is an abstract concept that indiamount of satisfaction that an agent derives from a
or an event;
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APPLICATION OF GAME THEORY IN
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STRATEGY FORMULATION
In 1950, Albert Tucker of Princeton Universi
invented the Prisoner's Dilemma, an imagin
scenario that is undoubtedly one of the mos
representations of Game Theory.
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PRISONERS DILEMMA
Two suspects arrested for a crime Prisoners decide whether to confess or not to confes
If both confess, both sentenced to 3 months of jail
If both do not confess, then both will be sentenced toof jail
If one confesses and the other does not, then the congets freed (0 months of jail) and the non-confessor se
to 9 months of jail
BATTLE OF SEXES
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BATTLE OF SEXES
A couple deciding how to spend the evenin
Wife would like to go for a movie
Husband would like to go for a cricket mat
Both however want to spend the timetogether
Scope for strategic interaction
GAMES
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GAMES Normal Form representationPayoff Matrix
Confess Not Confess
Confess -3,-3 0,-9
Not Confess -9,0 -1,-1
Movie Cricket
Movie 2,1 0,0
Cricket 0,0 1,2
Prisoner 1
Prisoner 2
Wife
Husband
NASH EQUILIBRIUM
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NASH EQUILIBRIUM
A new concept related to Game Theory is the Nash equilibriumwas developed by John Nash for his PhD thesis. In a game,
would tend to change strategies from time to time to improve t
respective positions.
The Nash Equilibrium is the point at which no player can impr
or her position in the game by changing strategy. In the PrisonDilemma, the Nash Equilibrium is the point at which both priso
confess, since whoever changes this strategy will be sent to a
prison term, instead of an intermediate one.
NASH EQUILIBRIUM
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NASH EQUILIBRIUM
Each players predicted strategy is the best response to
predicted strategies of other players No incentive to deviate unilaterally
Strategically stable or self-enforcing
Confess Not Confess
Confess -3,-3 0,-9
Not Confess -9,0 -1,-1Prisoner 1
Prisoner 2
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UNIT IIICOMPETITIVE ADVANTAGE