TRATEGIC MANAGEMENT

 ODULE THRE

 

STRATEGY LEVELS

• Corporate-level Strategy(Companywide) Specifies actions taken by the firm to

gain a competitive advantage byselecting and managing a group of different businesses competing inseveral industries and productmarkets.

• Business-level Strategy (Competitive) Each business unit in a diversified

firm chooses a business-level strategyas its means of competing in

 

C O R P O R A T

/

R A N D

S T R A T E G IE

S

S im u ltan eo u s

S e q u e n tia l

 im u lta n e o u s

+

Turnaroun

d

D iv e stm e n

t

Liq u id a tio n

 

o n o th in g

P ro fit

/a u se P ro ce e d

  ith ca u tio n

C o n ce n tra tio n

In te g ra tio n

D iv e rsifica tio n

In te rn a tio n a lis

a tio n

C o o p e ra tio n

D ig ita lisa tio n

 

STABILITY STRATEGIES

Pause strategies.

Organisation attempts toremain the same size or grow

slowly and in a controlledfashion

 

 arket penetration

 arket development

 roduct development

Horizontal

Vertical

–oncentric

Marketing

Technology

+kt Tech

/onglomerate

 nrelated

 int ventures

& –

orizontal

ertical

oncentric

onglomerate

–rategic alliances

-o competitive

-n competitive

ompetitive

-e competitive

International

Multidomestic

Global

Transnational

 

 ONCENTRATION STRATEGY

 

VERTICAL INTEGRATION

Primary

Secondary

Tertiary  Retail Stores

Manufacturer

 Vertical Integration Backwards

 acquisition takes place towards the

source

 

 ERTICAL INTEGRATION

Primary

Secondary

Tertiary

-Dairy Farming Cooperative

 Cheese Processing Plant

 Vertical Integration Forwards

 acquisition takes place towards the

market

 

 ORIZONTAL INTEGRATION

Primary

Secondary

Tertiary

 Soft DrinksManufacturer

 ConfectioneryManufacturer

 

  LEVELS AND TYPES OFDIVERSIFICATION

 

High Low

REASONS FORDIVERSIFICATION

 perational and Corporate Relatedness

:orporate Relatedness Transferring

 

kills into Businesses through

 

orporate Headquarters

 perational

:

elatedness

 haring

 ctivities

 etween

Businesses

High

Low

 

elated Constrained

 

elated Constrained

Diversification

iversification

 ertical Integration

 

ertical Integration

( )arket Power

)arket Power

Unrelated

nrelated

 iversification

 

iversification

( )inancial Economies

)inancial Economies

 

elated Linked

 

elated Linked

Diversification

iversification

( )conomies of Scope

)conomies of Scope

 oth Operational and

 

oth Operational and

 

orporate

 

orporate

Relatedness

elatedness

( are capability that

 are capability that

 reates diseconomies of

 reates diseconomies of

)cope

)cope

 

DIGITALISATION

 m p u te risa tio n  se o f co m p u te rs in th e v a rio u s

 u n ctio n s o f an org an isation

 e ctro n isa tio n  ro g re ssive co n ve rsio n o f

 h ysical d a ta in to e le ctro n ic d a ta

ig ita lisa tio n  ig ital co d in g o f in fo rm atio n an d

 h e g ro w in g p ro d u ctiv e g a in s in

 

ro c e ssin g a n d tra n sm issio n it

e n a b le s

 

Traditional

organisation

adopting

new

technology

Intermediaries

offering

 

n aggregate

 

et of serv ces

.g Yahoo

 line intermediary

&nnecting buyers

. . ,lers Eg Exchanges

,

.uctions etc

,roducts produced

&elivered

consumed

.

lectronically

.g Music

,ownloads Content

delivery

 elationships

between

&

rganisations

 ustomers in

 lectronic

platforms

.

g B2B

 

FORMS OFCOOPERATIVE STRATEGIES

• Collusive strategies – When several firms in an industry

cooperate to reduce industrycompetitiveness

• Explicit collusion (e.g. OPEC)• Tacit collusion (e.g. Steel industry in

the 50s, Big three automobilemanufacturers prior to internationalcompetition)

• Cooperative agreements and Strategicalliances – When several firms cooperate but industry

competitiveness is not reduced• Can exist among firms within a single

industry (e.g. technologicalalliances)

 

STRATEGIC ALLIANCES

 o w H ig h

  IN T E R A C T IO N

 

L

o

w

H

i

h

 

C

O

N

F

L

I

C

T

 

STRATEGIC ALLIANCE

• Advantages – Avoids bureaucratic costs of 

diversification.

 – Shared costs and risks.

 – Uses complementary skills of eachpartner.

 – Creates value through economies of scope.

• Disadvantages – Profits must be shared.

 – Disclosure of critical know-how to

 

MERGERS ANDACQUISITIONS

• Merger – Two firms agree to integrate their

operations on a relatively co-equalbasis because they have resourcesand capabilities that together maycreate a stronger competitiveadvantage.

• Acquisition – One firm buys a controlling or 100

percent interest in another firm withthe intent of using a core competencemore effectively by making theacquired firm a subsidiary businesswithin its portfolio.

•  Takeover –

 

MERGERS

• Horizontal merger – Combination of twoor more organisations in the samebusiness

• Vertical merger - Combination of two ormore organisations not in the samebusiness

• Concentric merger - Combination of twoor more organisations related to eachother in terms of functions,customers, technologies etc.

• Conglomerate merger - Combination of 

 

PROBLEMS

WITH

ACQUISITIONS

Integrationdifficulties

InadequateDue Diligence

Cripplingdebt

Inability toachieve synergy

Resulting firmis too large

Overly focusedon Acquisition

Too muchdiversification

 

GLOBAL CORPORATESTRATEGIES

Need for national responsivenessHigh

Low

Low

High  TRANSNATIONAL

 

STRATEGY

  Balance global efficiencies and

  localresponsiveness

/Standardization  customization for

/product  advertising

strategies

 

GLOBALIZATION

 

STRATEGY

 Treats world as a single global

market Standardizes global

/products advertisi ng strategies

-

ULTI DOMESTIC

 

STRATEGY

 

 

Independent markets

  for each country  Adapts 

/product advertising to  local needs

 

N

e

e

d

f

o

r

g

l

o

b

a

l

i

n

t

e

g

r

a

t

i

o

n

 

L

o

w

 

H

i

g

h

 

XPORT

STRATEGY

  Domestic focus

 Exports a few products to selected countries

 

RETRENCHMENTSTRATEGIES

• Retrenchment the organization goesthrough a period of forced decline byeither shrinking current business unitsor selling off or liquidating entirebusinesses

• Turnaround turning around anorganisation from a loss making to aprofit making one

• Liquidation selling off a business nitfor the cash value of the assets, thusterminating its existence

••

 

Declini

 

g

 

ales

 r

margins

 mminent

bankrupt

cy

Low

High

 ost

reducti

on

 

sset

reducti

on

 

fficiency

maintenanc

e

Entrepreneur

 

al

reconfigurat

ion

S

t

a

b

i

l

i

t

y

R

e

c

o

v

e

r

y

Intern

 l

factor

s

Extern

 

l

factor

s

 urnaround situation  urnaround response

Cause

 

Severit

y

Retrenc

 ment

phase

 

ecovery phase

( )

perating

( )trategic

TURNAROUND PROCESS

 

COMBINATION STRATEGIES

Also called, mixed or hybridstrategies

Eg. Murugappa group, ITC, AdityaBirla group

A mixture of stability, expansion orretrenchment

strategies

Simultaneous applied in the sametime in different businesses

Sequential applied at differenttimes in the same business

 

SONY’S WEBOF CORPORATE

STRATEGY 

 

GENERIC/ BUSINESSSTRATEGIES

 

T

a

r

g

e

t

m

a

r

k

e

t

A d v a n ta g e

-verall Low Cost

Provider

Strategy

Broad

Differentiation

Strategy

Focused

-ow Cost

Strategy

Focused

Differentiation

Strategy

-est Cost

Strategy

 ower Cos Differentiation

Broad

 ange of

Buyers

 arrow

 uyer

Segment

 r Niche

 

GENERIC STRATEGIES

• Cost leadership Overall cost leader inthe industry Eg. GCMMF,Moser Baer, Walmart, McDonalds

• Differentiation Special featuresincorporated in the productwhich attracts a pricepremium Eg. Harley Davidson,Apple, Rolls Royce, AstonMartin, Rolex, Hidesign

• Focus Cost leadership ordifferentiation but catering to anarrow segment of the totalmarket Eg.Rolex, Nike, Tanishq

 

 hanges in

 ortfolio of

businesses

 hanges in

/quity

 ebt servicing

 hanges in

Organisation

structure

& , ,T SBI SAIL

 

 he process of analysis and decision

 aking to select from among the grand

,trategies considered that which

’ill best meet the organisation s

objectives

&TRATEGY ANALYSIS

CHOICE

 

GAP ANALYSIS

 

PORTFOLIO STRATEGY BCG MATRIX

M a trix

 

MCKINSEY-GE STOPLIGHTMATRIX

 

(

-

)

 

I

n

d

u

s

t

r

y

P

r

o

d

u

c

t

M

a

r

k

e

t

A

t

t

r

a

c

t

i

v

e

n

e

s

s

-

usiness Strength Competitive

Position

trong Average Weak

High

Medium

Low

Winners

Winners Winners

ProfitProducers

AverageBusiness

Questionmarks

Losers Losers

Losers

 

A D LITTLE’SPRODUCT-MARKET EVOLUTION

MATRIX

Strong Average We k

’The Business Unit s CompetitivePosition

Industr

’s

Stage

 n the

Evoluti

 ife

Cycle

Developme

nt

Growth

Decline

Competitiv

e

Shakeout

Maturity

Saturation

A

B

C

D

E

G

H

 

CORPORATE PARENTING

Views the corporation in terms of resources and capabilities that can beused to build business unit value aswell as generate synergies acrossbusiness units

üExamine each business unit in termsof its strategic factors.

üExamine areas in which performancecan be improved.

üAnalyze how well the parentcorporation fits with the businessunit

 

MULTI-BUSINESSORGANISATION

 

CORPORATE PARENTING

VALUE ADDING CORPORATE PARENTACTIVITIES

ØEnvisioning strategic intent

ØCentral services and resources

Ø Intervention at business level

ØExpertise VALUE DESTROYING CORPORATE

PARENT ACTIVITIES

ØBureaucracy

ØBuffer from reality – Financial safetynet

 

o Helps organization to identify O-T

o Consolidate and strengthenorganization’s position

o Provides the strategists of whichsectors have a favourable impacton the organization.

o Organization knows where itsstands with respect to itsenvironment.

o Helps in formulating appropriatestrate

 T O P N A LY S IS

&N V IR O N M E N TA L T H R E A T S O P P O R T U N IT IE

P R O F ILE

 

 MATRIX

   M  a  j  o

  r 

   T   h  r  e

  a  t  s

 

 

   M  o  d  e

  r  a  t  e

 

   T   h  r  e

  a  t  s

   M  o  d  e

  r  a  t  e

 

   T   h  r  e

  a  t  s

 

M  i  n  o

  r 

   T   h  r  e

  a  t  s

HIGH

HIGH

LOW 

LOW 

 ATTRACTIVENESS

PROBABILITY OF OCCURENCE

 

 MATRIX

 

   V  e  r  y

  a  t  t  r

  a  c  t  i

  v  e

 

 

   M  o  d  e

  r  a  t  e

   l  y

  A  t  t  r

  a  c  t  i

  v  e

   M  o  d  e

  r  a  t  e

   l  y

  A  t  t  r

  a  c  t  i

  v  e

 

   L  e  s  s

  A  t  t  r

  a  c  t  i

  v  e

HIGH

HIGH

LOW 

LOW 

 ATTRACTIVENESS

PROBABILITY OF OCCURENCE

 

 ETOP

o Divide the environment intodifferent sectors.

o Analyze the impact of eachsector on the organization.

o Subdivide each environmentalsector into sub factor.

o Summarise the impact of eachsub sector on organization inthe form of a statement.

o

 

:CONS

Pros Cons

o Help to determinethe key factor of threats andopportunities.

o Good tool to qualifythe factorsrelated tocompany’sstrategy.

o Can consider manyfactors for each

o It doesn’t show theinteractionbetween thefactors.

o It can’t reflect thedynamicenvironment.

o It’s a subjectiveanalysis tool.

 

’C K IN S E Y S 7 S

F R A M E W O R K

 

 T R A T E G IC A D V A N TA G E

 rg a n isa tio n a l C a p a b ility

C o m p e te n cie s

 yn e rg istic e ffe cts

&tre n g th s W e a k n e sse s

O rg a n isa tio n a l

resources

O rg a n isa tio n a l

b e h av io u r

 

PA B ILIT IE S  a tu re o f C o m p a ra tive stre n g t

 m p a ct w e a k n e sse s

 a n cia l + o u n d fin a n cia l p o sitio n

a rke tin g + re a t p ro d u cts

e ra tio n s - o r lo g istics

- …. .

… .

a n ag e m e n t …. .

 T R A T E G IC A D V A N TA G E

 

 R G A N IS A T IO N A L C A PA B ILIT Y

 h e ca p a c ity o r a b ility o f a n o rg a n isa tio n to u se

 ts co m p e te n cie s

 o e x c e l in a p a rticu la r fie ld le a d in g to a

.tra te g ic a d va n ta g e

C A PA B ILIT IE S  e a k n e ss N o rm a l S tre n g th

 

in n cia l ca p a b ilitie s

M a rke tin g

O p e ra tio n s

H R

IT

 e n e ra l M a n a g e m e n t

 

 

A LA N C E D S C O R E C A R D

&

o b e rt K a p la n D a v id

N o rto n

&tra te g y e v alu a tio n co n tro l

te ch n iq u e

 alan ce fin an cial m ea su re s w ith

-o n fin a n cia l m e a su re s

 a la n ce sh a e h o ld e r o b je ctive s w ith

&u sto m e r o p e ra tio n a l o b je ctiv e s

 

BALANCED SCORECARD

BEFORE to measure success, firmsused:

- Financial performance

- Market share

- The bottom line (profits).

BUT these approaches are narrowlyfocused and place more weight onshort-term results rather thanaddressing the firm's long-term

 

BALANCED SCORE CARD

 

BUILDING & IMPLEMENTINGBALANCED SCORE CARD

 

REVISED BALANCED SCORECARD