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StrategyStrategy

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StrategyStrategy

Current set of plans,decisions & objectives that have Current set of plans,decisions & objectives that have been adopted to achieve the organizational goalsbeen adopted to achieve the organizational goals

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Organizational PurposeOrganizational Purpose Organizations are created for a purpose called the overall goal Organizations are created for a purpose called the overall goal

or missionor mission

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MissionMission Called official goalCalled official goal Mission is organization’s reason for existenceMission is organization’s reason for existence Describes organization’s vision, values & beliefsDescribes organization’s vision, values & beliefs It communicates current & prospective stakeholders It communicates current & prospective stakeholders

what the organization stands for & what it is trying to what the organization stands for & what it is trying to achieveachieve

It gives legitimacy to organizational purposeIt gives legitimacy to organizational purpose

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VisionVision Vision is that igniting spark that can Vision is that igniting spark that can

inspire and energise people to do inspire and energise people to do better. better.

The latest trend in many The latest trend in many organisations is to apply the "VIP" organisations is to apply the "VIP" approach i.e. "Vision Integrated approach i.e. "Vision Integrated Performance." Performance."

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ValuesValues There are fundamental beliefs that are inculcated and There are fundamental beliefs that are inculcated and

practiced in the organisation practiced in the organisation the Johnson and Johnson credo says, "We believe our the Johnson and Johnson credo says, "We believe our

primary responsibility is to the doctors, nurses and primary responsibility is to the doctors, nurses and patients, mothers and all others who use our products patients, mothers and all others who use our products and services". and services".

It must be remembered that unless these values are It must be remembered that unless these values are internalised by one and all in the organisation, they internalised by one and all in the organisation, they become fancy advertisements matter or beautiful wall become fancy advertisements matter or beautiful wall hangings. hangings.

British Airways' "putting people first" British Airways' "putting people first" JET AIRWAYS "the joy of flying “JET AIRWAYS "the joy of flying “ BPL's "believe in the best". BPL's "believe in the best".

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Some Vision StatementsSome Vision Statements SIEMENS:SIEMENS: Where technology touches lives Where technology touches lives

DU PONT:DU PONT: Better things for better living through Better things for better living through Chemistry Chemistry HYUNDAI:HYUNDAI: Building a better world through Building a better world through innovative technology innovative technology NOKIA:NOKIA: Connecting people Connecting people XEROX:XEROX: The document company The document company IBM:IBM: Solutions for a small planet Solutions for a small planetPHILIPS:PHILIPS: Let's make things better Let's make things better BPL: BPL: Believe in the best Believe in the best

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Operative GoalsOperative Goals Describe the ends sought through actual operating Describe the ends sought through actual operating

proceduresprocedures Describe specific measurable outcomesDescribe specific measurable outcomes Are often concerned with short term resultAre often concerned with short term result Operative vs. official goals represent actual vs. stated Operative vs. official goals represent actual vs. stated

goalsgoals Operative goals are directions for day to day Operative goals are directions for day to day

decisions and activities within departmentsdecisions and activities within departments

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Operative Goals (contd..)Operative Goals (contd..) Operative goals are concerned withOperative goals are concerned with Overall performanceOverall performance or profitability reflected as ROI, or profitability reflected as ROI,

earnings per shareearnings per share ResourcesResources pertain to acquisition of men, material, pertain to acquisition of men, material,

technology from the env.technology from the env. MarketMarket refers to market standing desired by the refers to market standing desired by the

organization, e.g. No. 1 automobile giant in the worldorganization, e.g. No. 1 automobile giant in the world

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Operative Goals (contd..)Operative Goals (contd..) Employee developmentEmployee development e.g. T&D, MDP, employee e.g. T&D, MDP, employee

safety and stress mgt.safety and stress mgt. Innovation & changeInnovation & change development of flexibility to development of flexibility to

adapt to the new env.adapt to the new env. ProductivityProductivity amt. Of output achieved from available amt. Of output achieved from available

resources. E.g. units produced per employeeresources. E.g. units produced per employee

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Goal Type, Their Purpose & Goal Type, Their Purpose & ImportanceImportance

Type of Goals Purpose of Goals

Official Goals, mission: Legitimacy

Operative goals: Employee direction and motivationDecision guidelinesStandard of performance

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Thinking StrategicallyThinking Strategically To help managers answer questions such as:To help managers answer questions such as: Where is the organization now?Where is the organization now? Where does the organization want to be?Where does the organization want to be? What changes are happening among What changes are happening among

competitors?competitors? What courses of action will help us achieve our What courses of action will help us achieve our

goals?goals? Answers define an overall direction for the Answers define an overall direction for the

organization's grand strategyorganization's grand strategy

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StrategyStrategy Can be premeditated i.e explicit set Can be premeditated i.e explicit set

of guidelines developed in advance of guidelines developed in advance (planning mode).(planning mode).

Or it can just emerge i.e not Or it can just emerge i.e not necessarily well thought out necessarily well thought out (evolutionary mode)(evolutionary mode)

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Three Levels of Strategy Three Levels of Strategy in Organizations (Types of in Organizations (Types of

Strategy)Strategy)Corporate-Level Strategy: What business are we in?

Corporation

Business-Level Strategy: How do we compete in each of our businesses?

Textiles Unit Chemicals Unit Auto Parts Unit

Functional-Level Strategy: How do we support the business-level strategy?

Finance R&D Manufacturing Marketing

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ChandlerChandler Studied American firms from 1909-1959Studied American firms from 1909-1959 ConcludedConcluded1.1. Changes in the strategy preceded Changes in the strategy preceded

changes in structurechanges in structure2.2. All organizations began as centralized All organizations began as centralized

structures and later adopted different structures and later adopted different structures (simple, functional, structures (simple, functional, divisional)divisional)

3.3. Concept of forward and backward Concept of forward and backward integration strategicintegration strategic

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Limitations of Chandler’s Limitations of Chandler’s WorkWork Studied only very large and powerful organizationsStudied only very large and powerful organizations

Small, medium organizations and public sector were ignoredSmall, medium organizations and public sector were ignored He was more concerned about growth than profitability (strategy-structure He was more concerned about growth than profitability (strategy-structure

fit leading to growth )fit leading to growth ) Wrigley used the same paradigm and differentiated organizations in to the Wrigley used the same paradigm and differentiated organizations in to the

followingfollowing1.1. Single business (no diversification)Single business (no diversification)2.2. Dominant business (70-90% of sales coming from one business or Dominant business (70-90% of sales coming from one business or

vertically integrated chain)vertically integrated chain)3.3. Related business (diversified in related areas with no one business Related business (diversified in related areas with no one business

accounting for more than 70% of sales)accounting for more than 70% of sales)4.4. Unrelated business (diversified in unrelated areas with no one business Unrelated business (diversified in unrelated areas with no one business

accounting for more than 70% of sales)accounting for more than 70% of sales) Acc to Wrigley related and unrelated business strategies were associated Acc to Wrigley related and unrelated business strategies were associated

with multi divisional structures, and single business strategies related to with multi divisional structures, and single business strategies related to functional structures.functional structures.

No single structure was found consistently in the dominant business No single structure was found consistently in the dominant business categorycategory

Thus strategy does influence structureThus strategy does influence structure

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Porter’s Competitive Porter’s Competitive StrategyStrategy

Use one of the three which gives Use one of the three which gives you competitive advantageyou competitive advantage

1.1. CostCost2.2. DifferentiationDifferentiation3.3. FocusFocus

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Porter’s Competitive Porter’s Competitive Strategy: CostStrategy: Cost

Requires the organization to be Requires the organization to be the the cost leader and not merely one of cost leader and not merely one of the contenders for the positionthe contenders for the position

It includes efficiency of operationsIt includes efficiency of operations Economies of scaleEconomies of scale Technological innovationTechnological innovation Low cost laborLow cost labor Preferential access to raw materialPreferential access to raw material

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Porter’s Competitive Porter’s Competitive Strategy: DifferentiationStrategy: Differentiation

Emphasizes high qualityEmphasizes high quality Extraordinary serviceExtraordinary service Innovative designInnovative design Technological capabilityTechnological capability Unusual and positive brand imageUnusual and positive brand image The key is that the attribute chosen must The key is that the attribute chosen must

be different from those offered by rivals be different from those offered by rivals and significant enough to justify a price and significant enough to justify a price premium that exceeds the cost of premium that exceeds the cost of differentiationdifferentiation

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Porter’s Competitive Porter’s Competitive Strategy: FocusStrategy: Focus

This approach aims at a competitive This approach aims at a competitive advantage in a narrow segmentadvantage in a narrow segment

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Porter’s Competitive StrategiesPorter’s Competitive StrategiesCompetitive Competitive

ScopeScopeCompetitiveCompetitiveAdvantageAdvantage StrategyStrategy ExampleExample

BroadBroad Low CostLow CostLow-CostLow-CostLeadershipLeadership

Dell Computer/Dell Computer/low cost airlines/low cost airlines/Big Bazaar (Future Big Bazaar (Future Gp.)detergent/telecom Gp.)detergent/telecom servicesservices

BroadBroad UniquenessUniqueness DifferentiationDifferentiation

Starbucks Coffee Starbucks Coffee Co./Café Coffee Co./Café Coffee Day/Mocha/ Day/Mocha/ Pantaloon(Future Gp.)Pantaloon(Future Gp.)

NarrowNarrow Low CostLow CostFocused Low-CostFocused Low-Cost

LeadershipLeadership

EnterpriseRent-a- EnterpriseRent-a- Car/car for the Car/car for the common peoplecommon people

NarrowNarrow UniquenessUniquenessFocusedFocused

DifferentiationDifferentiation

fashion & jewellery fashion & jewellery industry/luxury carsindustry/luxury cars

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Structural Implications of Structural Implications of Porter’s ModelPorter’s Model

Cost LeadershipCost Leadership Structure high in complexity Structure high in complexity

(specialization, departmentalization, (specialization, departmentalization, tall structure), high formalization and tall structure), high formalization and centralizationcentralization

Differentiation StrategyDifferentiation Strategy Structure low in complexity, low Structure low in complexity, low

formalization, decentralized decision formalization, decentralized decision making.making.

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Miles and Snow’sMiles and Snow’sStrategy TypologyStrategy Typology

ProspectorProspector Values creativity, risk-taking, and innovation Values creativity, risk-taking, and innovation Learning orientation; flexible, fluid, decentralized structureLearning orientation; flexible, fluid, decentralized structure Strong capability in researchStrong capability in research IT sector E.g. Microsoft, GoogleIT sector E.g. Microsoft, Google

DefenderDefender Emphasis on production efficiency, low overheadEmphasis on production efficiency, low overhead Efficiency orientation; centralized authority and tight cost controlEfficiency orientation; centralized authority and tight cost control Close supervision; little employee empowermentClose supervision; little employee empowerment A manufacturing/assembling plant (Chinese industries)A manufacturing/assembling plant (Chinese industries)

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Miles and Snow’sMiles and Snow’sStrategy Typology (cont’d)Strategy Typology (cont’d)

AnalyzerAnalyzer Balances efficiency and learning; tight cost control with Balances efficiency and learning; tight cost control with

flexibility and adaptabilityflexibility and adaptability Efficient production for stable product lines; emphasis on Efficient production for stable product lines; emphasis on

creativity, research, risk-taking for innovationcreativity, research, risk-taking for innovation FMCG sectorFMCG sector

ReactorReactor No clear organizational approach; design characteristics No clear organizational approach; design characteristics

may shift abruptly depending on current needsmay shift abruptly depending on current needs A temporary approach Eg. Xerox in 1970-80sA temporary approach Eg. Xerox in 1970-80s

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Organization Design outcomes of Organization Design outcomes of strategystrategy

StrategyStrategy:Differentiation:Differentiation Org. designOrg. design:Learning Orientation, flexibility, :Learning Orientation, flexibility,

strong horizontal coordination,emphasis on strong horizontal coordination,emphasis on R&D,customer intimacy, risk takingR&D,customer intimacy, risk taking

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Organization Design outcomes of Organization Design outcomes of strategystrategy

StrategyStrategy: Low Cost leadership: Low Cost leadership Org. DesignOrg. Design:efficiency orientation, strong :efficiency orientation, strong

central authority,tight cost control, standard central authority,tight cost control, standard operating procedures,efficient procurement & operating procedures,efficient procurement & distribution systems,routine tasks and limited distribution systems,routine tasks and limited employee empowermentemployee empowerment

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MillerMiller1.1. Innovation:Innovation:2.2. Market differentiation: Miles& Snow’s Market differentiation: Miles& Snow’s

prospector strategyprospector strategy3.3. Breadth: product diversification of ChandlerBreadth: product diversification of Chandler4.4. Cost control: Porter’s cost leadershipCost control: Porter’s cost leadership According to Miller Porter’s differentiation According to Miller Porter’s differentiation

can be seen as market differentiation and can be seen as market differentiation and product differentiation as innovationproduct differentiation as innovation

Breadth can be achieved by doing more Breadth can be achieved by doing more innovation or by moving in to stable marketsinnovation or by moving in to stable markets

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Strategy-Structure Strategy-Structure RelationshipRelationship

Structure follows strategy as Structure follows strategy as changing structure is a slow processchanging structure is a slow process