bpa_lec 3.pdf
TRANSCRIPT
Business Process Analysis Strategy Management
By:
Sunil Soni
Visiting Faculty
CDC - BITS Pilani
GGSIP University
1
Lecture Outline
• Definition of Strategy
• Level and Type of Strategy
• Strategic Management Process
• External Environmental Analysis
• Internal Environmental Analysis
• Executing Strategy
• Explanation on Assignment 1
Note
In case you do not get audio because of my mistake of mike
on mute, please drop a mail on [email protected] or call
at 9810301926.
2
Strategy
• There is a need in modern times for strategies to achieve agreed goals &
objectives, giving a sense of purpose & direction to the organization, because
of technological and social changes & competition from rivals organization.
• In ancient Greek, “stratos” was the term for the army and so in military terms,
“strategy” referred to “the act of the General” so a strategy in some sort of
future plan of action, undertaken by senior management a high level of
abstraction.
• Definition: Strategy is the direction and scope of an organization over the long
term , which achieves advantage for the organization through its configuration
of resources within a challenging environment to meet the needs of market and
to fulfill stakeholders expectation
Strategy is a comprehensive action plan that identifies long-term direction for an
organization and guides resource utilization to accomplish organizational goals with
sustainable competitive advantage.
3
Process of Strategy
• Strategic Management is the
organized development of the
resources of the functional areas:
Financial, manufacturing,
technological, manpower etc in the
pursuit of its objectives. It is use of all
the entity resources.
Strategy Deployment of resources
Desired Objectives
4
Levels of Strategy
5
• By comparing intended strategy with realised strategy it is
possible to differentiate:
– deliberate strategy – realised as intended strategy - from
– emergent strategy – patterns of consistencies realised in the absence of
intention.
– The difference being intention.
Source: Mintzberg, H. and Water, J. A. 1985:257-272
Types of Strategy
Emergent Strategy
Unrealised Strategy
Opportunistic Strategy
Intended Strategy
Deliberate Strategy
Realised Strategy
Imposed Strategy
6
Types of Strategy
Survival vs. Advancement (von Krogh, Roos, Slocum, 1994)
• Survival – maintaining current level of success, mastering current
markets and competitors
• Advancement – Future success based on new markets, non-
replicability – requires knowledge creation
How do you plan/design strategy?
• Formal strategy and planning – Traditional strategy sets positions,
targets, measures. Alignment means “follow the leader.”
• Learning and emergence – New thinking (not always in practice)
shows strengths in org learning and preparing for conditions.
Alignment means “Learn and collaborate.”
7
Strategic Drivers
Market Growth
Operational Effectiveness
Customer Intimacy
Growth through share,
market strength,
distribution – external
market focus
Forging long-term, deep
relationships with
customers – external
focus, growing with
customer success
Profit through productivity
and cost control – internal
development focus
8
Schools of Strategy
• Design school: Strategy Formation as a Process of Conception
• Planning school: Strategy Formation as a Formal Process
• Positioning school : Strategy Formation as an Analytical Process
• Entrepreneurial school : Strategy Formation as a Visionary Process
• Cognitive school : Strategy Formation as a Mental Process
• Learning school : Strategy Formation as an Emergent Process
• Power school : Strategy Formation as a Process of Negotiation
• Cultural school : Strategy Formation as a Collective Process
• Environmental school : Strategy Formation as a Reactive Process
• Configuration school : Strategy Formation as a Process of Transformation
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Strategic Leadership and the Strategic Management Process
Effective Strategic
Leadership
Strategic Intent Strategic
Mission
Successful
Strategic Actions
Formulation of
Strategies
Implementation
of Strategies
Strategic
Competitiveness
Above-average Returns
Shapes the
Formulation of and
Influence
Yields Yields
10
Management - Chapter 9
10 Strategy formulation ( Development) and implementation in the
strategic management process.
Strategic Management Process
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Basic Elements of the Strategic Management Process
12
External and Internal Environmental Analysis
Examine Unique Resources, Capabilities, and Competencies
(Sustainable Competitive Advantage)
Examine Opportunities and Threats
Business Process Analysis External Environmental Analysis
By:
Sunil Soni
Visiting Faculty
CDC - BITS Pilani
GGSIP University
14 14
External Environmental Analysis
• Organizations are affected by conditions in the environment
• Managers need to be aware of these conditions in order to
– Take advantage of opportunities that can lead to higher profits
– Reduce the impact of threats that can harm the organization’s future
• Managers need information in order to know and develop an
understanding about what is happening in the external environment
• Three approaches to information gathering:
– Scanning: general surveillance of environmental changes; looking for early
signals of changes
– Monitoring: close attention to specific developments that could affect the
organization
– Competitive Intelligence: following actions of competitors
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PESTLE analysis
• PESTLE is an analytical tool which considers external factors and
helps you to think about their impacts – Is a useful tool for understanding the “big picture” of the environment in which
you are operating
– By understanding your environment, you can take advantage of the opportunities and minimize the threats.
– This provides the context within which more detailed planning can take place
to take full advantage of the opportunities that present themselves.
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The factors in PESTLE analysis
• P – Political – The current and potential influences from political pressures
• E - Economic
– The local, national and world economic impact
• S - Sociological – The ways in which changes in society affect the project
• T - Technological – How new and emerging technology affects our project / organization
• L - Legal – How local, national and global legislation affects the project
• E - Environmental – Local, national and global environmental issues
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• In contrast to a SWOT, PESTLE encourages you to think
about the wider environment and what might be happening
now and in the future which will either benefit or be of
disadvantage to the organization, individual etc
– a kind of radar which picks up trends and developments in the external
environment which can be used to inform longer term planning and
strategy making
PESTLE vs. SWOT
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• Political: – Government type and stability
– Freedom of the press, rule of law and levels of bureaucracy and corruption
– Regulation and de-regulation trends
– Social and employment legislation
– Tax policy, and trade and tariff controls
– Environmental and consumer-protection legislation
– Likely changes in the political environment
• Economic: – Stage of a business cycle
– Current and projected economic growth, inflation and interest rates
– Unemployment and supply of labor
– Labor costs
– Levels of disposable income and income distribution
– Impact of globalization
– Likely impact of technological or other changes on the economy
– Likely changes in the economic environment
PESTLE
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PESTLE
• Sociological: – Cultural aspects, health consciousness, population growth rate, age distribution,
– Organizational culture, attitudes to work, management style, staff attitudes
– Education, occupations, earning capacity, living standards
– Ethical issues, diversity, immigration/emigration, ethnic/religious factors
– Media views, law changes affecting social factors, trends, advertisements, publicity
– Demographics: age, gender, race, family size
• Technological: – Maturity of technology, competing technological developments, research funding,
technology legislation, new discoveries
– Information technology, internet, global and local communications
– Technology access, licensing, patents, potential innovation, replacement technology/solutions, inventions, research, intellectual property issues, advances in manufacturing
– Transportation, energy uses/sources/fuels, associated/dependent technologies, rates of obsolescence, waste removal/recycling
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PESTLE
• Legal: – current home market legislation, future legislation
– International legislation
– regulatory bodies and processes
– environmental regulations, employment law, consumer protection
– industry-specific regulations, competitive regulations
• Environmental: – Ecological
– environmental issues, environmental regulations
– customer values, market values, stakeholder/ investor values
– management style, staff attitudes, organizational culture, staff engagement
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• It is possible to use the PESTLE analysis on projects as well for organizations
• It is not always needed, especially if the projects are small
• If PESTLE analysis is used for a project, then the focus should be on solving the “focal problem” and analyze how the external environment is affecting the process of solving the “focal problem”
PESTLE analysis and projects
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• The main problem with these external PESTLE factors is that they are continuously changing
• Therefore PESTLE analysis should include a thorough analysis of what is affecting the organization or a project Now, and what is likely to affect it in the Future
• The result of a PESTLE analysis is usually a list of positive and negative factors that are likely to affect a project – However, by themselves, theses factors they mean very little
– It is important to bear in mind, that PESTLE analysis requires careful Application of results
Issues of concern
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• Other forms of PEST - PESTLE, PESTLIED, STEEPLE and SLEPT: Some people prefer to use different flavors of PEST analysis, using other factors for different situations. The variants are:
• PESTLE/PESTEL: Political, Economic, Sociological, Technological, Legal, Environmental;
• PESTLIED: Political, Economic, Social, Technological, Legal, International, Environmental, Demographic;
• STEEPLE: Social/Demographic, Technological, Economic, Environmental, Political, Legal, Ethical; and
• SLEPT: Social, Legal, Economic, Political, Technological
Similar analysis
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Porter’s 5 Force Model
Strategy becomes a matter of choosing an appropriate industry and positioning the firm within that industry to a generic strategy of either low cost or product differentiation
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Treat of New Entrants
• Fundamental question: how
easy is it for another company to
enter the industry?
• Factors making easy entry to
industry
– Low economies of scale
– Low product differentiation
– Low capital requirements
– No switching costs for buyer
– Easy access to distribution
channels
– Little government regulation
Supplier Power
• Fundamental question: how badly
does a supplier need your
business?
• Factors giving power to supplier: – Supplier industry dominated by few
firms
– Buyer is not important to customer
– Supplier’s product is important input to
buyer’s product
– Supplier’s products have high
switching costs
– Supplier can “integrate forward” and
become competitor of buyer
Porter’s 5 Force Model
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Threat of Substitutes
Treat of Substitutes
• Fundamental question: what
other products or services
could perform the same
function as your products or
services?
• Factors indicating high threat
of substitutes:
– Few switching costs for buyer
– Price of substitute lower or
quality higher than for your
products
– Firms offering substitutes have
high profitability
Buyer Power
• Fundamental questions: How
badly does a buyer need your
products or services?
• Factors contributing to high buyer
power:
– Few buyers compared to the
number of sellers
– Buyers purchases high relative to
seller’s sales
– Products are undifferentiated
– Buyer has low switching costs
– Buyer has low profits
– Buyer can “integrate backward” and
supply the product to itself
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Competitive Rivalry
• Fundamental question: how intense is competition in
the industry?
• Factors leading to high competitive rivalry:
– Numerous or equally balanced competitors
– High fixed costs
– Slow industry growth
– Lack of differentiation or switching costs
– High strategic stakes
– High exit barriers
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Key Success Factors
• In many industries, there are certain actions or practices
that a business must follow in order to compete in the
industry.
• May need effort to distinguish company from
competitors
Business Process Analysis Internal Environmental Analysis
By:
Sunil Soni
Visiting Faculty
CDC - BITS Pilani
GGSIP University
30 30
Purpose of Internal Analysis
• An organization’s future success depends on its own
internal conditions as well as external conditions
• Managers need to be able to identify
– Strengths that the company can relay on in order to compete
– Weaknesses that need to be corrected or minimized as
competitive factors
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Terminology
Competitive Advantage
• The collection of factors that sets a company apart from its
competitors and gives it a unique position in the market
• Means to add value for stakeholders
• Focus especially on adding value for customers
Core Competence
• A unique set of lasting capabilities that a company relies on to
achieve competitive advantage and add value
– Innovation
– Efficiency
– Customer Responsiveness
– Quality
– Special Expertise
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Example: VMOST Analysis
Objective
Component of
Actions
Quantifies
Amplifies
Makes Operative
Strategy Goal
Vision
Tactic
Mission
Implements
Drives Towards
Formulated To
Achieve
States
Need: Simple modeling techniques to link goals and DYNAMIC BEHAVIOR
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Areas need to be considered for internal analysis
• The organization’s resources, capabilities
• The way in which the organization configures and co-ordinates its key
value-adding activities
• The structure of the organization and the characteristics of its culture
• The performance of the organization as measured by the strength of its
products.
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Analysis of the global business
Resources, capabilities and
core competences
Cultural and structural analysis
Global value chain analysis: configuration
and co-ordination
Global products and performance
Internal Analysis
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Value Chain
• Value-chain analysis a strategic analysis of an organization that uses value
creating activities.
• Value is the amount that buyers are willing to pay for what a firm provides them
and is measured by total revenue
• Primary Activities contribute to the physical creation of the product or service,
its sale and transfer to the buyer, and its service after the sale.
• Support activities of the value chain that either add value by themselves or add value through
important relationships with both primary activities and other support activities
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Resources
• Resources are assets employed in the activities and processes of the organization.
• They can be tangible or intangible.
• They can be obtained externally (organization-addressable) or internally generated (organization-specific).
• They can be specific and non-specific:
– Specific resources can only be used for highly specialized
purposes and are very important to the organization in adding
value to goods and services.
– Assets that are less specific are less important in adding value, but are more flexible.
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• Resources fall within several categories:
– Human
– Financial
– Physical
– Technological
– Informational
• An audit of resources would be likely to include an
evaluation of resources in terms of availability, quantity
and quality, extent of employment, sources, control
systems and performance.
Resources
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General Competences/capabilities
They are assets like industry-specific skills, relationships and
organizational knowledge which are largely intangible and
invisible assets.
Competences and capabilities will often be internally
generated, but may be obtained by collaboration with other
organizations.
Certain competences are likely common to competing
businesses within a global industry or strategic group.
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Core Competences/Distinctive Capabilities
• Core competences or distinctive capabilities are combinations
of resources and capabilities which are unique to a specific
organization and which are responsible for generating its
competitive advantage.
• Kay (1993) identified four potential sources of Core
competences:
– Reputation
– Architecture (i.e., internal and external relationship)
– Innovation
– Strategic assets
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Criteria to evaluate Core Competences
• Complexity: How elaborate is the bundle of resources and capabilities which comprise the core competence?
• Identifiability: How difficult is it to identify?
• Imitability: How difficult is it to imitate?
• Durability: How long does it be replaced by an alternative competences?
• Superiority: Is it clearly superior to the competences of other organizations?
• Adaptability: How easily can the competence be
leveraged or adapted?
• Customer orientation: How is the competence perceived by customers and how far is it linked to their needs?
41
Global Organizational Culture and Structure
• A global business must have a culture and structure which allow
it to carry out its global activities.
• The structure of the business must allow it to accomplish its
objectives as effectively and as efficiently as possible.
• Culture is an important determinant of how effectively the
organization operates and has important implications for
employee motivation.
42
Portfolio Analysis
• A key concept with regard to successful product or
subsidiary strategy is that of portfolio.
• Portfolio analysis is used in evaluating the balance of an
organization’s range of products.
• A broad portfolio can spread risk across more than one
market.
• A narrow portfolio mean that the organalization become
more specialized in its knowledge of fewer products and
markets
43
The BCG Matrix
• The Boston Consulting Group (BCG) growth-share matrix
is most often used by organizations in multiproduct and
multimarket situations.
• BCG matrix offers a way of examining and making sense
of a company’s portfolio of product and market interests.
• It based on the idea that market share in mature markets is
highly correlated with profitability and that is relatively less
expensive and less risky to attempt to win share in the
growth stage of the market.
44
Boston Matrix
Low High
Market growth %
Market share
C B
A D
Cash cow
Problem child Star
Dogs
High
Low
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•Looks at market share and how fast that share is growing in terms of relative market share, market growth and its position on the grid relative to other products •Gain perspective from this analysis that allows you to plan with confidence to use money generated by cash cows to fund stars and possibly question marks
Boston Matrix
46
BCG Matrix…
• Cash Cows: A product with a high market share in a low-growth
market is normally both profitable and a generator of cash.
• Profits from this product can be used to support other products that
are in their development phase, ‘milked’ on an on going basis.
• Standard strategy would be to manage conservatively, but to
defend strongly against competitors.
• Dogs: A product that has a low market share in a low-growth
market is termed a dog in that it is typically not very profitable.
• Once a dog has been identified as part of a portfolio, it is often
discontinued or disposed of.
• More creatively, a small share product can be used to price
aggressively against a very large competitor as it is expensive for
the large competitor to follow suit.
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BCG Matrix…
• Stars have a high share of a rapidly growing market and therefore
rapidly growing sales.
• It is the sales manager’s dream, but the account’s nightmare.
• It is often necessary to spend heavily on advertising and product
improvement so that when the market slows these products become
‘cash flow.’
• If market share is lost, the product will eventually become a ‘dog’
when the market stops growing.
• Question Marks are aptly named they create a dilemma.
• They already have a foothold in a growing market, but if market share
cannot be improved they will become ‘dogs.’
• Resources need to be devoted to winning market share.
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Limitation of the BCG Matrix
• There are many relevant aspects relating to products that are not taken
into account.
• The imprecise nature of its four categories and the difficulties inherent in
predicting future market growth.
• Global activity may add extra dimension to the process of portfolio
analysis.
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SWOT Analysis
• SWOT Analysis (Strengths, Weaknesses, Opportunities, and Threats)
• Method developed by Michael Porter
• Objective is to sustain the company’s strengths, mitigate is weaknesses, avoid threats, and grab opportunities.
• SWOT is used by a firm to observe where it stands relative to the environment within which the firm operates.
• Strategy is seen as the balancing act performed by the firm as it straddles the high wire strung between the external environment ( opportunities ) and the internal capabilities ( strength and weaknesses)
• Application of the SWOT framework has been dominated from 1980 by Porter’s ‘Five forces model.
50
SWOT Analysis
Strengths
• Experience and expertise
• Financial position
• Capital raising capability
• Industrial contacts
• Foreign Collaboration
Weaknesses
• Newer unfamiliar technologies
• Inability to raise huge investments
• Lack of experience
• Lack of trained personnel
• Inability to forecast market trends
Opportunities
• Emerging technologies
• New products with new markets
• New processes with better features
• Special financing schemes
• Government and other incentives
Threats
• Competitors
• Poor state of the economy
• Outdated technology
• Unprofessional management skills
• New products and services
51
SWOT Case Study a IT Major
Strengths
Direct Model Unparallel Business model Supply Chain Management
Firm’s Strategy
Opportunities Change in technology industry
Lack of specific Solutions Open Technology
Weakness
Seen as Hardware Company Limited services experience
Big company difficulty in change management
Threats Low end competition
Enterprise leadership of HP & IBM
Business Process Analysis Executing Strategy
By:
Sunil Soni
Visiting Faculty
CDC - BITS Pilani
GGSIP University
53
Executing Strategy
• Contextual Issues while executing Strategy
– Time
– Scope
– Capability
– Readiness
– Strategic leadership
• Leaders Characteristics to execute strategy
– Challenges the status quo
– Establishes & communication a clear vision & direction
– Models the walk
– Empower People
– Celebrate People
• Tools for Executing strategy
– Balanced Scorecard
– McKinsey 7-S Model
54
McKinsey 7-S Model
Hard Ss: The hard elements are factual and easy to identify. They can be found in strategy statements, corporate plans, organization charts, and other documentation.
Soft SsThe soft elements are difficult to describe since they are continuously developing and changing. They are highly determined by the people at work in the organization.
55
McKinsey 7-S Model
• Strategy: Actions a company plans in response to or in anticipation of changes in its external
environment
• Structure: Basis for specialization and coordination, influenced primarily by strategy and by
organization size and diversity
• Systems: Formal and informal procedures that support the strategy and structure (Systems
are more powerful than they are given credit)
• Style / Culture
• Staff : The people/human resource management – ways of shaping basic management values, processes used to develop managers, ways of introducing new employees and managing careers, socialization processes
• Skills: Distinctive competencies – what the company does best, ways of developing or shifting competencies
• Shared values / Superordinate goals: Guiding concepts, fundamental ideas around which a business is built – simple, usually stated at abstract level, have great meaning inside the organization, although outsiders may not see or understand them
56
• Strategy
• Structure
• Systems
• Style
• Staff
• Skills
• Superordinate goals
• Effective organizations achieve a
harmony between these seven
elements; if one element changes, then
this will affect all the others
• In change processes, many
organizations focus their efforts on the
hard S’s; however, the soft factors can
make or break a successful change
process. All factors must be accounted
for.
• These elements are
– Interrelated
– Equilibrium
– Foundation of corporate culture
– Levers available to management
McKinsey 7-S Model
57
Strategy Execution Challenge
There are generally accepted tools to manage finances, customers,
processes, and people. But what about strategy?
The Balanced Scorecard is the vehicle that fills the
Strategy Management Gap
Financial Management Tools
EVA
Balance Sheets
Income Statements
Shareholder Value Analysis
Customer Management Tools
Customer Satisfaction Measurement
Customer Relationship Management
Segmentation Analysis
One-to-One Marketing
Process Management Tools
Six Sigma
Supply Chain Integration
Cycle Time Reduction
TQM
People Management Tools
Core Competencies
Knowledge Management
Pay for Performance
HRIS
Strategy Management Tools
?
58
What is a “Balanced” Scorecard
• A strategic and operational tool
• Owned by the Executive
• Shared by everyone
• Balances:- – Long and short term
– Hard and soft measures
– Leading and trailing indicators
– Internal/external perspectives
• Like writing a novel, not writing a list
• Measures support change, not monitoring
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It is NOT
• A new idea
• An end in itself
• A playing field for internal politics
• An “initiative” of Finance, HR, Marketing etc.
• Boardroom art
• A make-work exercise
60
Financial Measures How do we perform
according to our shareholders ?
Balanced
Scorecard
Customer perspective How do our customer
see us ?
Learning and growth
Can we keep on improving
and adding value ?
Business Processes
What we should excel at?
The Balanced Score Card
The Balanced Scorecard balances the financial perspective with the organizational, customer and innovation perspectives which are crucial for the future of an organization
Business Process Analysis Why BA requires understanding of Org Strategy?
By:
Sunil Soni
Visiting Faculty
CDC - BITS Pilani
GGSIP University
62
Strategic Management Process
Review/revise
mission
New goals
and objectives
Portfolio of
strategic choices
Strategy
formulation
Strategy
implementation
Projects
External
environment--
opportunities
and threats
Internal
environment--
strengths and
weaknesses
1
2
3
4
Strategic Management Process
Includes Four Activities
1. Review and define the organizational
mission.
2. Set long-range goals and objectives.
3. Analyze and formulate strategies to
reach objectives.
4. Implement strategies through projects.
(S.W./O.T.)
64
Strategy, Objectives and Project Linkages
Organization
Mission
Objectives
Project
Design
3 advanced,
solid waste
plants
Engineering
firm
Design
department
Objective:
“Diversify”
Strategy:
“R & D”
Objective:
“Waste plants”
Strategy:
“Design special
purpose plants”
Objective:
“Design solid
waste plant”
Project
Pull-type
luggage with
hidden,
retractable
wheels
Luggage
firm
R & D
department
Objective:
“Increase sales 40%”
Strategy:
“Specialize”
Strategy:
“Pull-type
luggage”
Objective:
“R & D”
Objective:
“Pull-type
luggage”
66
Assignment Discussion