crafting & executing strategy
TRANSCRIPT
Harsh J. Parekh MBA (HR)
Self-reading material for Examination (Brief Content)
Email Id- [email protected]
UNIT - 1
1.1 What Do We Mean By “Strategy”
Strategy consists of competitive moves and business approaches that managers are employing to
Grow the business
Attract and please customers
Compete successfully
Conduct operations
Achieve target levels of organizational performance
1.2 What makes a strategy winner, Importance of Crafting & Executing strategy
1. Tests of a Winning Strategy
1. GOODNESS OF FIT TEST
How well does strategy fit the firm’s situation?
2. COMPETITIVE ADVANTAGE TEST
Does strategy lead to sustainable competitive advantage?
3. PERFORMANCE TEST
Does strategy boost firm performance?
Why Crafting and Executing strategy are important tasks?
- It provides A prescription for doing business.
- A road map to competitive advantage.
- A game plan for pleasing customers.
- A formula for attaining long-term standout marketplace performance.
Good Strategy + Good Strategy Execution = Good Management
1.3 Managerial process of Crafting & Executing strategy
The Strategy-Making, Strategy-Executing Process
Who Is Involved in Strategy Making? - CEO, Senior Executive, Managers of subsidiaries,
Division.
A Company’s Strategy-Making Hierarchy
UNIT- 2
2.1 PESTEL Model
The Components of a Company’s Macro-Environment
2.2 Five Force Model of Competition
2.3 Driving Forces and Key Success Factors
1. Changes in the long-term industry growth rate
2. Increasing globalization
3. Changes in who buys the product and how they use it
4. Technological change
5. Emerging new Internet capabilities and applications
6. Product and marketing innovation
7. Entry or exit of major firms
2.4 Strategic Group Mapping and Framework for Competitor
A Strategic Group
Is a cluster of industry rivals that have similar competitive approaches and market positions.
Identify the competitive characteristics that differentiate firms in the industry.
Plot the firms on a two-variable map using pairs of differentiating competitive characteristics.
Assign firms occupying about the same map location to the same strategic group.
Draw circles around each strategic group, making the circles proportional to the size of the
group’s share of total industry sales revenues.
UNIT - 3
3.1: HOW WELL IS THE COMPANY’S PRESENT STRATEGY WORKING?
The company is achieving its stated financial and strategic objectives.
The company is an above-average industry performer.
Growth in firm’s sales and market share
Acquisition and retention of customers
Increasing profit margins
Growing financial strength and credit rating
Positively viewed by shareholders and customers
Leadership in factors relevant to market\industry success
Continuing improvement in operating performance
Resources and Capabilities
A Resource
Is a productive input or competitive asset that is owned or controlled by a
company (e.g.,a fleet of oil tankers).
A Capability
Is the capacity of a firm to perform some activity proficiently (e.g.,superior
skills in marketing, Apple’s product innovation capability, Nordstrom's superior
incentive management, PepsiCo’s marketing and brand management).
Types of Company Resources
Tangible Resources Intangible Resources
Physical resources Human assets and intellectual capital
Financial resources Brands
Technological assets External relationships
Organizational resources Company culture and incentive system
3.2 SWOT Analysis
A Competence
Is an activity that a firm has learned to perform with proficiency—a capability.
A Core Competence
Is a proficiently performed internal activity that is central to a firm’s strategy and competitiveness.
A Distinctive Competence
Is a competitively valuable activity that a firm performs better than its rivals.
Examples: Distinctive Competencies
Toyota
Low-cost, high-quality manufacturing of motor vehicles
Starbucks
Innovative coffee drinks and store ambience
3.3 The Value Chain Activity and benchmarking
Identifies the primary internal activities that create customer value and the related support activities.
Permits a deep look at the firm’s cost structure and ability to offer low prices.
Reveals the emphasis that a firm places on activities that enhance differentiation and support higher
prices.
Representative Value Chain System for an Entire Industry
Benchmarking:
Involves improving a firm’s internal activities based on learning other companies’
“best practices.” (Xerox, Toyota)
Assesses whether the cost competitiveness and effectiveness of a firm’s value chain
activities are in line with its competitors’ activities.
Sources of Benchmarking Information
Reports, trade groups, analysts and customers
Visits to benchmark companies
Data from consulting firms (The Benchmarking Exchange, Best Practices, Strategic
Planning Institute’s Council on Benchmarking)
Translating Company Performance of Value Chain Activities into Competitive Advantage
3.4 A Representative Weighted Competitive Strength Assessment
3.4 Competitive Strength Assessment The Competitive Strength Assessment Process
Step 1 Make a list of the industry’s key success factors and measures of competitive strength or
weakness (6 to 10 measures usually suffice).
Step 2 Assign a weight to each competitive strength measure based on its perceived importance.
Step 3 Rate the firm and its rivals on each competitive strength measure and multiply by each
measure by its corresponding weight.
Step 4 Sum individual ratings to get an overall measure of competitive strength for each rival
Step 5 Based on overall strength ratings, determine overall competitive position of firm
UNIT -4
4.1 Types of Growth Strategy 1. Integration Strategy
2. Diversification Strategy 3. Cooperation Strategy
1. Integration Strategies
Strategic integration is an important element in the process of improving organizational
performance because it facilitates the continuous alignment of business strategies within the ever
changing business environment.
What is vertical integration?
Vertical integration is a competitive strategy by which a company takes complete control over one or
more stages in the production or distribution of a product.
A company opts for vertical integration to ensure full control over the supply of the raw materials to
manufacture its products. It may also employ vertical integration to take over the reins of distribution
of its products.
A supermarket may acquire control of farms to ensure supply of fresh vegetables (backward
integration) or may buy vehicles to smoothen the distribution of its products (forward integration).
Advantages of vertical integration
smoothen its supply chain (by ensuring ready supply of tyres and electrical components in the
exact specifications that it requires)
make its distribution and after-sales service more efficient (by opening its own showrooms)
invest in specific functions such as tyre-making and develop its core competencies
Disadvantages of vertical integration
The quality of goods supplied earlier by external sources may fall because of a lack of
competition.
It may be difficult for the company to sustain core competencies as it focuses on the integration
of the new units.
What is horizontal integration?
Horizontal integration is another competitive strategy that companies use. An academic
definition is that horizontal integration is the acquisition of business activities that are at the
same level of the value chain in similar or different industries.
In simpler terms, horizontal integration is the acquisition of a related business: a fast-food
restaurant chain merging with a similar business in another country to gain a foothold in foreign
markets.
Horizontal Integration in Strategic Management
Horizontal integration, as we have seen, is a company’s acquisition of a similar or a competitive
business—it may acquire, but it may also merge with or takeover, another company to strengthen
itself—to grow in size or capacity, to achieve economies of scale or product uniqueness, to reduce
competition and risks, to increase markets, or to enter new markets.
Quick examples of horizontal expansion are Standard Oil’s acquisition of about 40 other refineries
and the acquisition of Arcelor by Mittal Steel and that of Compaq by HP.
When is horizontal integration attractive for a business?
When the industry is growing
When rivals lack the expertise that the company has already achieved
When economies of scale can be achieved
Advantages of horizontal integration
Economies of scale: The bigger, horizontally integrated company can achieve a higher
production than the companies merged, at a lower cost.
Increased differentiation: The company will be able to offer more product features to customers.
Disadvantages of horizontal integration strategy
As touched upon earlier, the management of a company should be able to handle the bigger
organisation efficiently if the advantages of horizontal integration are to be realised.
2. Diversification Strategy
Broadening the current scope of diversification by entering additional industries.
Reasons for Diversification 1. Value Creating Diversification
Economies of scope (related diversification)
Market Power (related diversification)
Financial economies (unrelated diversification)
2. Value Neutral Diversification
● Antitrust regulations ● Tax laws ● Uncertain future cash flows ● Tangible resources
● Low performance ● Risk reduction for firm ● Intangible resources
3. Value reducing diversification
● Diversifying managerial employment risk ● increasing managerial compensation
3. Cooperation Strategy
Cooperative Strategy. A large number of firms today engage in co-operative strategies. A
cooperative strategy is an attempt by a firm to realize its objectives through cooperation with other
firms, in strategic alliances and partnerships (typically joint ventures), rather than through
competition with them.
Following cooperative strategies
1. Mergers - A merger is a combination of two or more organizations in which one acquires the assets and liabilities of the other in exchange for shares or cash, or both the organizations are dissolved, and the assets and liabilities are combined and new stock is issued.
2. Takeovers (or Acquisitions) - The attempt of one firm to acquire ownership or control over another firm against the wishes of the latter’s management. It may be hostile takeover (which are against the wishes of the acquired firm), friendly takeover (mutual consent)
Reasons : 1. Quick growth, 2. Diversification, 3. Establishing-industrialist, 4. Reducing competition, 5. Increasing market share,
3. Joint ventures - It is a special case of consolidation where ‘two or more companies from a temporary for a specified purpose.
4. Strategic Alliances - “A strategic alliance is a formal agreement between two or more separate companies in which they agree upon to work cooperatively towards some common objective”
FACTORS THAT MAKE AN ALLIANCE “STRATEGIC”
1. It facilitates achievement of an important business objective. 2. It helps build, sustain, or enhance a core competence or competitive advantage.
3. It helps block a competitive threat. 4. It helps remedy an important resource deficiency or competitive weakness.
5. It increases the bargaining power of alliance members over suppliers or buyers. 6. It helps open up important new market opportunities. 7. It mitigates a significant risk to a firm’s business.
4.2 Stability Strategy
Definition: The Stability Strategy is adopted when the organization attempts to maintain its current
position and focuses only on the incremental improvement by merely changing one or more of its
business operations in the perspective of customer groups, customer functions and technology
alternatives, either individually or collectively.
1.No-Change Strategy No-Change Strategy, as the name itself suggests, is the stability
strategy followed when an organization aims at maintaining the present
business definition. Simply, the decision of not doing anything new
and continuing with the existing business operations and the practices
referred to as a no-change strategy.
2. Profit Strategy The Profit Strategy is followed when an organization aims to
Maintain the profit by whatever means possible. Due to lower
profitability, the firm may cut costs, reduce investments, raise prices,
increase productivity or adopt any methods to overcome the temporary
difficulties.
3. Pause/Proceed with Caution Strategy
The Pause/Proceed with Caution Strategy is well understood by the
name itself, is a stability strategy followed when an organization wait
and look at the market conditions before launching the full-fledged
grand strategy.
To have a better understanding of Stability Strategy go through the following examples in the
context of customer groups, customer functions and technology alternatives.
1. The publication house offers special services to the educational institutions
apart from its consumer sale through the market intermediaries, with the
intention to facilitate a bulk buying.
2. The electronics company provides better after-sales services to its customers
to make the customer happy and improve its product image.
3. The biscuit manufacturing company improves its existing technology to have
the efficient productivity.
In all the above examples, the companies are not making any significant changes in their
operations, they are serving the same customers with the same products using the same technology.
4.3 Retrenchment Strategy
This strategy is often used in order to cut expenses with the goal of becoming a more financial
stable business. Typically the strategy involves withdrawing from certain markets or the
discontinuation of selling certain products or service in order to make a beneficial turnaround.
Retrenchment is a corporate level strategy that aims to reduce the size or diversity of an
Symptoms of retrenchment strategy
1. Diminishing profitability, 2. dwindling cash flow, falling sales,
3. shrinking market shares, 4. increasing debt, etc.
Examples: 1. Typewriters, Wooden toys, Normal mobile, landline telephone, Compact Disk (CD), floppy, etc.
Turnaround Strategies
It is done either internally or externally
“Turnaround strategy means backing out, withdrawing or retreating from a decision wrongly taken earlier in order to reverse the process of decline.” Managing Turnaround
● The existing chief executive and management team handle the entire turnaround strategy with the advisory support of a specialist external consultant.
● The existing team withdraws temporarily and an executive consultant or turnaround specialist is employed to do the job.
Approached to turnaround
1. Surgical-tough attitude about the pattern of action followed is roughly the same everywhere. 2. Human- understanding problem, eliciting opinions, adopting a conciliatory attitude and coming to
negotiated settlements. UNIT-5
5.1 Customer Relationship with BLS
A number of firms are becoming skilled in managing its customer's relationship. For Example : Amazon.com
Reach (For Ex. Amazon.com, Facebook)
Richness (Information based exchange with customers)
Affiliation (Facilitating useful interactions with customers)
5.2. Generic Strategies
Low-Cost
Provider
Striving to achieve lower overall costs than rivals on products that attract a broad
spectrum of buyers.
Broad
Differentiation
Differentiating the firm’s product offering from rivals’ with attributes that appeal
to a broad spectrum of buyers
Focused Low-
Cost
Concentrating on a narrow price-sensitive buyer segment and on costs to offer a
lower-priced product.
Focused
Differentiation
Concentrating on a narrow buyer segment by meeting specific tastes and
requirements of niche members
Best-Cost
Provider
Giving customers more value for the money by offering upscale product attributes
at a lower cost than rivals
5.3. Offensive strategies and Defensive strategies
CHOOSING WHICH RIVALS TO ATTACK
Best Targets for Offensive Attacks
BLUE-OCEAN STRATEGY—A SPECIAL KIND OF OFFENSIVE
A ―blue ocean‖ market space, where the industry has not yet taken shape, with no rivals and wide-
open long-term growth and profit potential for a firm that can create demand for new types of
products.
DEFENSIVE STRATEGIES—PROTECTING MARKET POSITION AND COMPETITIVE
Purposes of Defensive Strategies
1. Lower the firm’s risk of being attacked
2. Weaken the impact of an attack that does occur
3. Influence challengers to aim their efforts at other rivals
5.4. Timing a Company’s Offensive and Defensive Moves, Outsourcing Strategies
TIMING A FIRM’S OFFENSIVE AND DEFENSIVE STRATEGIC MOVES
CONDITIONS THAT LEAD TO FIRST-MOVER ADVANTAGES
THE POTENTIAL FOR LATE-MOVER ADVANTAGES OR FIRST-MOVER
DISADVANTAGES
TO BE A FIRST MOVER OR NOT
OUTSOURCING STRATEGIES: NARROWING THE SCOPE OF OPERATIONS
5.5. Porter’s Diamond of National Competitive Advantages and Strategy option
for entering into foreign market
WHY COMPETING ACROSS NATIONAL BORDERS MAKES STRATEGY-MAKING
MORE COMPLEX
1 Different countries have different home-country advantages in different industries
2 Location-based value chain advantages for certain countries
3 Differences in government policies, tax rates, and economic conditions
4 Currency exchange rate risks
5 Differences in buyer tastes and preferences for products and services
STRATEGIC OPTIONS FOR ENTERING AND COMPETING IN INTERNATIONAL
MARKETS
1. Maintain a national (one-country) production base and export goods to foreign markets.
2. License foreign firms to produce and distribute the firm’s products abroad.
3. Employ an overseas franchising strategy.
4. Establish a wholly-owned subsidiary by either acquiring a foreign company or through a
Greenfield venture.
5. Rely on strategic alliances or joint ventures with foreign companies. EXPORT STRATEGIES
LICENSING AND FRANCHISING STRATEGIES
FOREIGN SUBSIDIARY STRATEGIES
Greenfield Venture
A Greenfield venture is a subsidiary business that is established by setting up the entire
operation from the ground up.
BENEFITS OF ALLIANCE AND JOINT VENTURE STRATEGIES
THE RISKS OF STRATEGIC ALLIANCES WITH FOREIGN PARTNERS
UNIT-6
6.1 Corporate Portfolio analysis
CPA is defined as a set of techniques that help the strategists in taking strategic decisions with regard to individual products or businesses in a firm’s portfolio.
BCG Matrix
1. Stars: Products in high growth markets with high market share.
2. Question marks or Problem Child: Products in high growth markets with low market share.
3. Cash cows: Products in low growth markets with high market share
4. Dogs: These are products with low growth or market share.
GE Nine Cell Matrix - GE nine-box matrix is a strategy tool that offers a systematic approach for
the multi business enterprises to prioritize their investments among the various business units. It is a
framework that evaluates business portfolio and provides further strategic implications.
The green zone suggests you to ‘go ahead’, to grow and build, pushing you through expansion
strategies. Businesses in the green zone attract major investment.
Yellow cautions you to ‘wait and see’ indicating hold and maintain type of strategies aimed at
stability.
Red indicates that you have to adopt turnover strategies of divestment and liquidation or rebuilding
approach.
6.2 Building an Organization Capable of Good Strategy Execution
A grand strategy can lead the way to small business success, but companies must be structured in
such a way as to encourage good strategy execution to achieve real results. To accomplish this, a
company culture must be instilled with adaptability and innovation, and work processes structured to
accommodate operational changes or shifts in focus.
1. Build your departments around dynamic work teams and encourage within each department.
2. Encourage competition between departments and teams for rewards and other incentives.
3. Be the first to adapt to new strategic objectives, and actively motivate others to get on board
by using personal encouragement.
4. Tie incentives and reward systems to strategic goals. Use contests and award programs to
motivate employees about specific objectives.
5. Involve managers and employees at all levels of your company in strategic discussion and
decision-making.
6. Communicate strategic needs effectively to garner buy-in at all levels of the organization, and
let employees know how strategic changes will enhance their individual job roles.
7. Allow employees to give their input freely, and let your actions speak louder than your word s
when it comes to giving real consideration to employee's concerns and ideas.
8. Translate corporate-level strategies into business unit, departmental and personal strategies to
make objectives relevant at all levels.
9. Employ strategic management tools such as SWOT (Strengths, Weaknesses, Opportunities,
Threats) and Gap analysis to identify areas of potential improvement in your operations at least
once per year.
6.3 Managing Internal Operations - Tools for promoting operating excellence
1. Business process Reengineering - involves radically redesigning and streamlining how an
activity is performed, with the intent of achieving quantum improvements in performance.
2. Total Quality Management - entails creating a total quality culture, involving managers and
employees at all levels, bent on continuously improving the performance of every value chain
activity.
3. Six Sigma Quality Control Programs - utilize advanced statistical methods to improve quality
by reducing defects and variability in the performance of business processes.
4. Installing Information and operating systems
5. Instituting Adequate Information Systems, Performance Tracking and Controls
6.4 Ethical Standards, Drivers of Unethical Strategies
Drivers of Unethical Strategies & Business Behavior
Faulty oversight, enabling the pursuit of personal gain & self-interest
Self-dealing
Heavy pressure to meet or beat short-term performance targets
Short-termism
Company culture that puts profitability & business performance ahead of ethical behavior
Why Should Company Strategies Be Ethical?
1. Unethical strategies are morally wrong and will reflect badly on the company.
2. Ethical strategies can be good business and serve the self-interest of the shareholders.