objectives: module 1 (8 hours) external world) 2. internal analysis: analyze the organization’s...
TRANSCRIPT
Objectives:
• To explain core concepts in strategic management and provide examples of their relevance and use by actual companies • To focus on what every student needs to know about formulating, implementing and executing business strategies in today’s market environments • To teach the subject using value-adding cases that features interesting products and companies, illustrate the important kinds of strategic challenges managers face, embrace valuable teaching points and spark student’s interest.
Module 1 (8 Hours) Meaning and Nature of Strategic Management, its importance and relevance. Characteristics of Strategic Management. The Strategic Management Process. Relationship between a Company’s Strategy and its Business Model. Module 2 (8 Hours) Strategy Formulation – Developing Strategic Vision and Mission for a Company – Setting Objectives – Strategic Objectives and Financial Objectives – Balanced Scorecard. Company Goals and Company Philosophy. The hierarchy of Strategic Intent – Merging the Strategic Vision, Objectives and Strategy into a Strategic Plan. Module 3 (7 Hours) Analyzing a Company’s External Environment – The Strategically relevant components of a Company’s External Environment – Industry Analysis – Industry Analysis – Porter’s dominant Economic features – Competitive Environment Analysis – Porter’s Five Forces model – Industry diving forces – Key Success Factors – concept and implementation. Module 4 (8 Hours) Analyzing a company’s resources and competitive position – Analysis of a Company’s present strategies – SWOT analysis – Value Chain Analysis – Benchmarking Generic Competitive Strategies – Low cost provider Strategy – Differentiation Strategy – Best cost provider Strategy – Focused Strategy – Strategic Alliances and Collaborative Partnerships –Mergers and Acquisition Strategies – Outsourcing Strategies –International Business level Strategies. Module 5 (7 Hours) Business Planning in different environments – Entrepreneurial Level Business planning – Multistage wealth creation model for entrepreneurs– Planning for large and diversified companies –brief overview of Innovation, integration, Diversification, Turnaround Strategies - GE nine cell planning grid and BCG matrix. Module 6 (10 Hours) Strategy Implementation – Operationalizing strategy, Annual Objectives, Developing Functional Strategies, Developing and communicating concise policies. Institutionalizing the strategy. Strategy, Leadership and Culture. Ethical Process and Corporate Social Responsibility.
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Module 7 (8 Hours) Strategic Control, guiding and evaluating strategies. Establishing Strategic Controls. Operational Control
Systems. Monitoring performance and evaluating deviations, challenges of Strategy Implementation. Role
of Corporate Governance
Practical Components: • Business Plan: Students should be asked to prepare a Business Plan and present it at the end of the
semester. This should include the following:
Executive Summary
Overview of Business and industry analysis
Description of recommended strategy and justification
Broad functional objectives and Key Result Areas.
Spreadsheet with 5-year P&L, Balance Sheet, Cash Flow projections, with detailed Worksheets for
the revenue and expenses forecasts.
• Analyzing Mission and Vision statements of a few companies and comparing them
• Applying Michael Porter’s model to an industry (Retail, Telecom, Infrastructure, FMCG, Insurance,
Banking etc.
• Pick a successful growing company. Do a web-search of all news related to that company over a one-
year period. Analyze the news items to understand and write down the Company’s strategy and execution
efficiency.
• Pick a company that has performed very badly compared to its competitors. Collect Information on why
the company failed. What were the issues in strategy and execution that were responsible for the
company’s failure in the market. Analyze the internal and external factors
• Map out GE 9-cell matrix and BCG matrix for some companies and compare them
• Conduct SWOT analysis of your institution and validate it by discussing with faculty
• Conduct SWOT analysis of companies around your campus by talking to them
RECOMMENDED BOOKS: • Crafting and Executing Strategy, Arthur A. Thompson Jr., AJ Strickland III, John E
Gamble, 18/e, Tata McGraw Hill, 2012.
• Strategic Management, Alex Miller, Irwin McGraw Hill
• Strategic Management - Analysis, Implementation, Control, Nag A, 1/e, Vikas, 2011.
• Strategic Management - An Integrated Approach, Charles W. L. Hill, Gareth R. Jones,
Cengage Learning.
• Business Policy and Strategic Management, Subba Rao P, HPH.
• Strategic Management, Kachru U, Excel BOOKS, 2009.
REFERENCE BOOKS: • Strategic Management: Concepts and Cases, David R, 14/e, PHI.
• Strategic Management: Building and Sustaining Competitive Advantage, Robert A. Pitts & David Lei,
4/e, Cengage Learning.
• Competitive Advantage, Michael E Porter, Free Press NY
• Essentials of Strategic Management, Hunger, J. David, 5/e, Pearson.
• Strategic Management, Saroj Datta, jaico Publishing House, 2011.
• Business Environment for Strategic Management, Ashwathappa, HPH.
• Contemporary Strategic Management, Grant, 7/e, Wiley India, 2012
• Strategic Management-The Indian Context, R. Srinivasan, 4 th edition, PHI
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CONTENTS
1 Introduction to strategic Management
2 The Strategy Formulation
3 Analyzing a Company’s External
Environment
4 Analyzing a company’s resources & Generic
Competitive Strategies
5 Business Planning in different environments
6 Strategy Implementation
7 Strategic Control
Module No. Particulars
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Module – I
Meaning and Nature of Strategic Management, Its importance and relevance, Characteristics of
Strategic Management, The Strategic Management Process – Relationship between company’s
Strategy and its Business Model.
Strategy – What is Strategy?
The term strategy is derived from the Greek word ‘strategos’ which means ‘art of
general’.
Definition
According to Johnson and Scholes, “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 markets and to fulfill
stakeholder expectations”.
In other words, strategy is about:
How:
● How to outcompete rivals.
● How to respond to economic and market conditions and growth opportunities.
● How to manage functional pieces of the business.
● Howto improve the firm’s financial and market performance.
Definition
“The on-going process of formulating, implementing and controlling broad plans guide
the organization in achieving the strategic goods given its internal and external environment”.
Strategy at different Levels of a Business
Strategies exist at several levels in any organization – ranging from the overall business
(or group of businesses) through to individuals working in it.
Corporate Strategy – is concerned with the overall purpose and scope of the business to meet
stakeholder expectations. This is a crucial level since it is heavily influenced by investors in the
business and acts to guide strategic decision-making throughout the business. Corporate strategy
is often stated explicitly in a “mission statement”.
For eg. Coco cola, Inc., has followed the growth strategy by acquisition. It has acquired local
bottling units to emerge as the market leader
Business Unit Strategy – is concerned with how a business competes successfully in a particular
market. It concern strategic decisions about
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- Choice of products,
- Meeting needs of customers,
- Gaining advantage over competitors,
- Exploiting or creating new opportunities.
For eg. Apple Computers uses a differentiation competitive strategy that emphasizes
innovative product with creative design.
In contrast, ANZ Grindlays merged with Standard Chartered Bank to emerge competitively.
Operational Strategy – is concerned with how each part of the business is organized to deliver
the corporate and business unit level strategic direction. Operational strategy therefore focuses
on issues of
resources,
processes,
people etc.
Functional Strategy – it is the approach taken by a functional area to achieve corporate and
business unit objectives and strategies by maximizing resource productivity. It is concerned with
developing and nurturing a distinctive competence to provide the firm with a competitive
advantage.
For eg. P & G spends huge amounts on advertising to create customer demand.
Nature of Strategic Management
Strategic management is both an Art and science of formulating, implementing, and evaluating,
cross-functional decisions that facilitate an organization to accomplish its objectives. The
purpose of strategic management is to use and create new and different opportunities for future.
The nature of Strategic Management is dissimilar form other facets of management as it demands
awareness to the "big picture" and a rational assessment of the future options. It offers a strategic
direction endorsed by the team and stakeholders, a clear business strategy and vision for the
future, a method for accountability, and a structure for governance at the different levels, a
logical framework to handle risk in order to guarantee business continuity, the capability to
exploit opportunities and react to external change by taking ongoing strategic decisions.
Importance of Strategic Management:
Strategic management is important because is helps in setting detailed goals, analysing all our internal and
external resources, analysing our external environment, as well as stakeholder views.
Good corporate governance needs an efficient strategic management process.
As the environment changes, companies may change their vision and objectives, structure,
portfolio of business, markets and competitive strategies. The economic liberalization and the
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concomitant (associated) wide opening up of business opportunities and increase in competition
have in fact made strategic management a buzz word among the Indian corporate.
The task of Strategic Management is to identify the new and different businesses, technologies
and markets which the company should try to create long range It always reminds us the present
business, should we abandon?
Without competitors, there would be no need for strategy, for the sole purpose of strategic
planning to enable the company to gain, as efficiently as possible, a sustainable edge over it’s
competitors (rivals)
Changes in one stage of the strategic management process will inevitably affect other stages as
well. After a planned strategy is implemented, for example often requires modification as
environmental or organizational conditions change, or as top management’s ability to interpret
these changes improve. Hence, these steps are interrelated; they should be treated as an
integrated, ongoing process.
Relevance of Strategic Management:
Markets are becoming global & products must suit individual needs. There are too much of rules
& regulations prevailing which must be followed strictly. Above all, an organization is expected
to fulfill social responsibilities which, if ignored, may lead to drastic consequences. Due to fast
changing business environment, strategic management has assumed greater relevance today. It
has become increasingly difficult to predict the future as:
Environment is more complex
Technologies are changing at a rapid rate
Both domestic & international events get affected due to globalization
More reliance on innovation, creativity
More social responsibility
Increased legislation
Characteristics of Strategic Management
Long-Term Issues
Strategic management deals primarily with long-term issues that may or may not have an
immediate effect. For example, investing in the education of the company's work force
may yield no immediate effect in terms of higher productivity. Still, in the long run, their
education will result in higher productivity, and therefore enhanced profits.
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Competitive Advantage
Strategic management helps managers find new sources of sustainable competitive
advantage. Executives that apply the principles of strategic management in their work
continuously try to deliver products or services cheaper, produce greater customer
satisfaction and make employees more satisfied with their jobs.
Effect on Operations
Good strategic management always has a sizable effect on operational issues. For
example, a decision to link pay to performance will result in operational decisions being
more effective as employees try harder at their jobs. Operational decisions include
decisions that deal with questions such as how to sell to certain customers or whether to
open a credit line to them. Operational decisions are made in the lower echelons of the
organizational hierarchy.
Shareholders
Managing the organization strategically fashion requires that the interests of shareholders
be put at the heart of all issues. Whether the question at hand is expansion into a new
market or negotiating mergers and acquisitions, shareholder value should be at the core at
all times.
Strategic Management Process:
The strategic management is a broader term than strategy and is a process that includes top
management’s analysis of the environment in which the organization operates prior to
formulating a strategy, as well as the plan for implementation and control of the strategy.
1. External Analysis Analyze the opportunities and threats or constraints that exist in the
organization’s external environment, including industry and macro- environmental forces.
(external world)
2. Internal Analysis: Analyze the organization’s strengths and weakness in its internal
environment. (within the organization)
3. Mission & Direction: Reassess the organization’s mission and it’s goal in the light of the
previous two steps. (review)
4. Strategy Formulation: Formulate strategies that build and sustain competitive advantage by;
matching the organization’s strengths and weaknesses with the environment’s opportunities and
threats.
5. Strategy Implementation: Implement the strategies that have been developed.
6. Strategic Control: Engage in strategic control activities when the strategies are not producing
the desired outcomes.
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The Strategic Planning Process:
Strategic Analysis: The process of Strategic Analysis can be assisted by a number of tools,
including:
PEST Analysis – a technique for understanding the “environment” in which a business
operates.
Scenario Planning - a technique that builds various possible views of possible futures
for a business.
Five Forces Analysis – a technique for identifying the forces which affect the level of
competition in an industry.
Market Segmentation – a technique which seeks to identify similarities and differences
between groups of customers or users.
Directional Policy Matrix – a technique which summarizes the competitive strength of a
business operations in specific markets.
Critical Success Factor Analysis - a technique to identify those areas in which a
business must outperform the competition in order to succeed.
SWOT Analysis – a useful summary technique for summarizing the key issues arising
from an assessment of a business’s “internal” position and “external” environmental influences.
Strategic Choice:
Strategic choice involves understanding the nature of stakeholder expectations
identifying strategic options, and then evaluating and selecting strategic options.
Mission &
Objectives
Environmental
Scanning
Formulation Implementation
Evaluation &
Control
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Strategic implementation:
Strategic implementation is the process by which strategies and policies are put into
action through the development of programs, budgets and procedures.
According to Samuel C. Certo and J. Paul Peter, “Strategic management is a continuous,
interactive, cross-functional process aimed at keeping an organization as whole appropriately
matched to its environment.”
Strategic Management is the systematic application of strategic thinking to the development of
the organization. In other words, can be stated as the process by which an organization
formulates its objectives & achieves them. Strategic Management is different from long term
planning. Long time planning is the attempt to forecast the future & set procedures for present
based on past experience. Strategic management focuses on ‘second generation planning’.
Business is analyzed & several scenarios for the future are put forth.
Need for Strategic Management:
Initially business operated in environments which had little or no competition. Industry was
limited to a few firms. The geographical distribution of most organization was limited & changes
in technology were slow. The need for SM was felt in 1960’s due to changing world conditions
that lead to diversification & spreading out of activities in other countries. So the need was:
Due to change
To provide guide lines
Research & Development
Probability for business performance
Systemized decision
Improves Communication
Allocation of Resources
Improves co-ordination
Helps Managers to have Holistic Approach
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Relevance of Strategic Management:
Markets are becoming global & products must suit individual needs. There are too much of rules
& regulations prevailing which must be followed strictly. Above all, an organization is expected
to fulfill social responsibilities which, if ignored, may lead to drastic consequences. Due to fast
changing business environment, strategic management has assumed greater relevance today. It
has become increasingly difficult to predict the future as:
Environment is more complex
Technologies are changing at a rapid rate
Both domestic & international events get affected due to globalization
More reliance on innovation, creativity
More social responsibility
Increased legislation
Benefits of Strategic Management:
Though the results of SM cannot be measured directly as there are many other factors that
influence the performance of an organization, there are certain benefits to the organization. They
are:
1. Management process becomes flexible to allow for unanticipated future changes.
2. The organsation is prepared for several future scenarios & is better equipped for face
changes.
3. Since objectives ae defined, direction to all activities of the organization is provided.
4. All parts of the organization work in coordination to achieve organization purposes &
objectives.
5. Corporate communication, allocation of resources & short range planning also greatly
improved.
6. It makes managers proactive & conscious of their environments. It helps them to think of
future.
7. Higher motivational levels are achieved.
8. Conflict between personal/departmental goals & organizational goals is reduced.
9. Resistance to change is reduced as employees realize that changes may be due to achieve
goals.
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Strategic Management Process: General representation
Goal Setting: Set by the top management.
Analysis: Scanning of the environment, both external & internal
Strategy Formulation: Crafting a strategy to achieve the objectives.Strategy Formulation
includes developing:
Vision & Mission(target of the business)
Strength & Weakness
Opportunities & Threats( environmental scanning)
The considerations for the best strategy formulation are:
Allocation of resources
Business to enter or retain, to divest or liquidate
Joint Ventures or mergers, Expansion or entry into Foreign markets
Trying to avoid take over
Analysis
Goal Setting
Strategy
Formulation
Strategy
Implementation
nn
Strategy
Evaluation
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Strategy Implementation: Implementing the chosen strategy efficiently & effectively. It
requires developing Strategy supporting culture, creating an effective organization structure,
preparing budgets, developing IS to support the strategy.
Strategy Evaluation: Evaluating the performance & initiating corrective adjustments. This is the
final stage in the Strategic Management process. It is the means to obtain information about
proper implementation of the strategy. All strategies are subject to future modification because
external & internal forces are constantly changing.
Benefits of Strategic Management
Management process becomes flexible to allow for unanticipated future changes.
The organization is prepared for several future scenarios & is better equipped for face
changes.
Since objectives are defined, direction to all activities of the organization is provided.
All parts of the organization work in coordination to achieve organization purposes &
objectives.
Corporate communication, allocation of resources & short range planning also greatly
improved.
It makes managers proactive & conscious of their environments. It helps them to
think of future.
Higher motivational levels are achieved.
Conflict between personal/departmental goals & organizational goals is reduced.
Resistance to change is reduced as employees realize that changes may be due to
achieve goals.
Financial Benefits
Research indicates that organizations using strategic-management concepts are more profitable
and successful than those that do not. Businesses using strategic-management concepts show
significant improvement in sales, profitability, and productivity compared to firms without
systematic planning activities. High-performing firms tend to do systematic planning to prepare
for future fluctuations in their external and internal environments. Firms with planning systems
more closely resembling strategic management theory generally exhibit superior long-term
financial performance relative to their industry. High-performing firms seem to make more
informed decisions with good anticipation of both short- and long-term consequences. On the
other hand, firms that performs poorly often engage in activities that are shortsighted and do not
reflect good forecasting of future conditions. Strategists of low-performing organizations are
often preoccupied with solving internal problems and meeting paperwork deadlines. They
typically underestimate their competitors' strengths and overestimate their own firm's strengths.
They often attribute weak performance to uncontrollable factors such as poor economy,
technological change, or foreign competition.
Non- financial Benefits
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What are Non financial benefits of Strategic Management?
Why firms do no strategic planning?
Pitfalls to avoid in strategic planning
Business Ethics
Global challenges
Increased employee productivity
Improved understanding of competitors’ strategies
Greater awareness of external threats
Understanding of performance reward relationships
Better problem-avoidance
Lesser resistance to change
Strategy versus tactics:
The word strategy often confused with tactics, from the Greek Taktike. Taktike translates
as organizing the army. In modern usage, strategy and tactics might refer not only to warfare,
but to a variety of business practices. Essentially, strategy is the thinking aspect of planning a
change, organizing something, or planning a war. Strategy lays out the goals that need to be
accomplished and the ideas for achieving those goals. Strategy can be complex multi-layered
plans for accomplishing objectives and may give consideration to tactics.
Both "strategy" and "tactics" are derived from ancient Greek. To the Greeks, taktihos meant
"fit for arranging or maneuvering," and it referred to the art of moving forces in battle, that is
the "art and science of how?". Tactics are the meat and bread of the strategy. They are the
“doing” aspect that follows the planning. Tactics refer specifically to action. In the strategy
phase of a plan, the thinkers decide how to achieve their goals. In other words they think
about how people will act, i.e., tactics. They decide on what tactics will be employed to fulfill
the strategy.
The tactics themselves are the things that get the job done. Strategies can comprise numerous
tactics, with many people involved in attempting to reach an overall goal. While strategy
tends to involve the higher ups of an organization, tactics tend to involve all members of the
organization.
Another term related to strategy and tactics in military operations is logistics. Logistics refers
to how an army will be supported so they can employ tactics. Logistics form a part of
strategy, for example, when one looks at providing a military force with weapons, food and
lodging.
Strategy (what?): What to achieve? To attract more new clients and better retain existing
Ones
Tactics (How?) How to achieve your strategies through who you are, by what you do and
with what you have.
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1. Develop your Unique Value Proposition to gain attention
2. Develop your Unique Selling Proposition to stand of the crowd
3. Develop a powerful Audio Logo
4. Start an electronic newsletter
5. Write articles in magazines
As Peter Drucker says: "Strategy is doing the right things, tactics is doing things
right." Also, when you next hire a new employee, decide whether that employee
would do a strategic or a tactical job.
The Strategic Planning Process:
In today's highly competitive business environment, budget-oriented planning or forecast based
planning methods are insufficient for a large corporation to survive and prosper. The firm must
engage in strategic planning that clearly defines objectives and assesses both the internal and
external situation to formulate strategy, implement the strategy, evaluate the progress, and make
adjustments as necessary to stay on track. A simplified view of the strategic planning process is
shown by the following diagram:
Business Model . . . Concerns whether revenues and costs flowing from the strategy
demonstrate a business can be amply profitable and viable
Business Model Design Template:
• Infrastructure
– Core capabilities
– Partner network
• Offering
– Value proposition
• Customers
– Target customer
– Distribution channel
– Customer relationship
• Finances
– Cost structure
– Revenue
Business Model-Components
• The value proposition of what is offered to the market;
• The target customer segments addressed by the value proposition;
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• The communication and distribution channels to reach customers and offer the value proposition;
• The relationships established with customers;
• The core capabilities needed to make the business model possible;
• The configuration of activities to implement the business model;
• The partners and their motivations of coming together to make a business model happen;
• The revenue streams generated by the business model constituting the revenue model;
• The cost structure resulting of the business model.
Relationship between a Company’s Strategy and its Business Model.
Strategy . . .
Deals with a company’s competitive initiatives and business approaches
Business Model . . . Concerns whether revenues and costs flowing from the strategy demonstrate
a business can be amply profitable and viable
Develop a Business Model for any Company
• Dominos Pizza
– Infrastructure (larger presence, fast delivery)
– Offerings (Pizza at Rs. 35/-)
– Customers (Lower and middle income group, franchisees, good services)
– Finances (Reduction in Cost through innovative practices, Economies of
Scale)
Good Strategy + Good Strategy Execution = Good Management
Value Creation Competency
Customer Focus
Competitor Focus
Planning and Administration Competency
Activity Fit
Corporate Fit
Alliance Fit
People Fit
Reward System Fit
Communications Fit
Global Awareness Competency
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Opportunities / Threats Exist Anywhere
Different Business Practices
Cultural Awareness
Leveraging Technology Competency
Faster Innovation
Big Companies Act Small
Small Companies Act Big
Stakeholder Competency
Shareholders
Customers
Employees
Communities
Senior Managers
INDIA’S TOP TEN STRATEGISTS
Name of the company Position in the industry
Infosys Technologies 1
Reliance Industries 2
Wipro 3
Hindustan Lever 4
Maruti Udyog 5
Dr. Reddy’s Laboratories 6
HDFC Bank 7
Jet Airways 8
ICICI Bank 9
Ranbaxy Laboratories 10
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Module – II
Strategy formulation – Developing Strategic vision and Mission for a company – Setting
Objectives – Strategic Objectives and Financial Objectives – Balanced score card, Company
Goals and Company Philosophy. The hierarchy of Strategic Intent – Merging the Strategic
Vision Objectives and Strategy into a Strategic Plan.
Strategy formulation
Strategy formulation is the process by which an organization chooses the most. appropriate
courses of action to achieve its defined goals. This process is. essential to an organization's
success, because it provides a framework for the. Strategy formulation refers to the process of
choosing the most appropriate course of action for the realization of organizational goals and
objectives and thereby achieving the organizational vision.
DEVELOPING A VISION & MISSION
The mission statement communicates the firm's core ideology and visionary goals, generally
consisting of the following three components:
1. Core values to which the firm is committed
2. Core purpose of the firm
3. Visionary goals the firm will pursue to fulfill its mission
The firm's core values and purpose constitute its core ideology and remain relatively constant.
They are independent of industry structure and the product life cycle.
The core ideology is not created in a mission statement; rather, the mission statement is simply
an expression of what already exists. The specific phrasing of the ideology may change with the
times, but the underlying ideology remains constant.
Mission Statement:
A mission statement is a brief description of a company’s fundamental purpose. A
mission statement answers the question, “Why does an organization exist?”
A mission statement is a brief written statement of the purpose of a company or
organization. Ideally, a mission statement guides the actions of the organization, spells
out its overall goal, provides a sense of direction, and guides decision making for all
levels of management
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Mission statements contain the following:
Purpose and aim of the organization
The organization's primary stakeholders: clients, stockholders, etc.
Responsibilities of the organization toward these stakeholders
Products and services offered
Characteristics of Mission Statements:
An enduring statement of purpose
Distinguishes one firm from another in the same business
A declaration of a firm’s reason for existence
Elements of a mission statement,
1. Clearly articulated. – easy to understand the values and purpose.
2. Relevant – in terms of its history, culture and shared values.
3. Current – not outdated
4. Written in a Positive (Inspiring) Tone – capable of inspiring and stimulating
Commitment towards fulfilling the mission.
5. Unique – not copied from similar units.
6. Enduring – Should guide, inspire and challenging.
7. Adapted to the Target Audience – stock holders, consumers, employees through shared
values and standards of behavior.
Mission is the purpose of or a reason for organization existence. Mission is a well
convincible statement included fundamental and unique purpose which makes it different
from other organization. It identifies scope of it operation in terms of product offered and
market served. Mission also means what we are and what we do.
Mission Statements are also known as:
� Creed statement
� Statement of purpose
� Statement of philosophy
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� Statement of business principles
Importance: Mission Statements reveal what an organization wants to be and whom it
wants to serve and how?
Mission Statements are essential for effectively establishing objectives and formulating
strategies.
Mission is divided into two categories:
Narrow Mission
Broad Mission
Narrow Mission:
Narrow mission also identifies the mission but it restrict in terms of:
1. Product and services offered
2. Technology used
3. Market served
4. Opportunity of growth
Broad Mission:
Broad mission wider our mission values in terms of product and services, offered, market
served, technology used and opportunity of growth. But main flow of this mission that if
creates confusion among employee due to its wider sense.
Illustration:For example consider two different firms A & B. A deals in Rail Roads and B
deals in Transportation i.e. we can say A co. has narrow mission and B co. has a wider
mission.
Characteristics of good Mission Statements:
Mission statements can and do vary in length, content, format, and specificity. Most practitioners
and academicians of strategic management consider an effective statement to exhibit nine
characteristics or components. Because a mission statement is often the most visible and public
part of the strategic management process, it is important that it includes all of these essential
components.
Effective mission statements should be:
Broad in scope
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Generate range of feasible strategic alternatives
Not excessively specific
Reconcile interests among diverse stakeholders
Finely balanced between specificity & generality
Arouse positive feelings and emotions
Motivate readers to action
Generate the impression that firm is successful, has direction, and is worthy of time,
support, and investment
Reflect judgments re: future growth
Provide criteria for selecting strategies
Basis for generating & screening strategic options
Are dynamic in orientation
Components and corresponding questions that a mission statement should answer are given here.
�Customer: Who are the firm’s customers?
�Products or services: What are the firm’s major products or services?
�Markets: Geographically, where does the firm compete?
�Technology: Is the firm technologically current?
�Concern for survival, growth, and profitability: Is the firm committed to growth and financial
soundness?
�Philosophy: What are the basic beliefs, values, aspirations, and ethical priorities of the firm?
�Self-concept: What is the firm’s distinctive competence or major competitive advantage?
�Concern for public image: Is the firm responsive to social, community, and environmental
concerns?
�Concern for employees: Are employees a valuable asset of the firm?
Examples of Mission Statements of some Organizations:
Apple Computer (www.apple.com)
It is Apple’s mission to help transform the way customers work, learn and communicate by
providing exceptional personal computing products and innovative customer services.
We will pioneer new directions and approaches, finding innovative ways to use computing
technology to extend the bounds of human potential.
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Apple will make a difference: our products, services and insights will help people around the
world shape the ways business and education will be done in the 21st century.
McDonald’s :To offer the fast food customer food prepared in the same high-quality manner
world-wide, tasty and reasonably priced, delivered in a consistent, low-key decor and friendly
atmosphere.
Key Market: To offer the fast food customer
Contribution: food prepared in the same high-quality manner world-wide, tasty and reasonably
priced,
Distinction: delivered in a consistent, low-key decor and friendly atmosphere.
VISION:
“Vision is the art of seeing things invisible”
.. . . . Jonathan Swift
“The very essence of leadership is that you have vision. You can’t blow an uncertain trumpet”
……...Theodore Hesburgh
VisionDefines the desired or intended future state of a specific organization or enterprise in term
s of its fundamental objective and/or strategic direction.
The difference between a mission statement and a vision statement is that a mission statement fo
cuses on a company’s present state while a vision statement focuses on a company’s future
Importance of Vision and Mission Statements
� Unanimity of purpose within the organization
� Basis for allocating resources
� Establish organizational climate
� Focal point for direction
� Translate objectives into work structure
� Cost, time and performance parameters assessed and controlled
� Most companies are now getting used to the idea of using mission statements.
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� Small, medium and large firms in Pakistan are also realizing the need and adopting mission
statements.
Components of vision:
The three components of the business vision can be portrayed as follows
Core Values
The core values are a few values (no more than five or so) that are central to the firm. Core
values reflect the deeply held values of the organization and are independent of the current
industry environment and management fads.
One way to determine whether a value is a core value to ask whether it would continue to be
supported if circumstances changed and caused it to be seen as a liability. If the answer is that it
would be kept, then it is core value. Another way to determine which values are core is to
imagine the firm moving into a totally different industry. The values that would be carried with it
into the new industry are the core values of the firm.
Core values will not change even if the industry in which the company operates changes. If the
industry changes such that the core values are not appreciated, then the firm should seek new
markets where its core values are viewed as an asset.
For example, if innovation is a core value but then 10 years down the road innovation is no
longer valued by the current customers, rather than change its values the firm should seek new
markets where innovation is advantageous.
The following are a few examples of values that some firms have chosen to be in their core:
· excellent customer service
· pioneering technology
· creativity
· integrity
· social responsibility
Core Purpose
The core purpose is the reason that the firm exists. This core purpose is expressed in a carefully
formulated mission statement. Like the core values, the core purpose is relatively unchanging
and for many firms endures for decades or even centuries. This purpose sets the firm apart from
other firms in its industry and sets the direction in which the firm will proceed.
The core purpose is an idealistic reason for being. While firms exist to earn a profit, the profit
motive should not be highlighted in the mission statement since it provides little direction to the
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firm's employees. What is more important is how the firm will earn its profit since the "how" is
what defines the firm.
Initial attempts at stating a core purpose often result in too specific of a statement that focuses on
a product or service. To isolate the core purpose, it is useful to ask "why" in response to first-
pass, product-oriented mission statements. For example, if a market research firm initially states
that its purpose is to provide market research data to its customers, asking "why" leads to the fact
that the data is to help customers better understand their markets. Continuing to ask "why" may
lead to the revelation that the firm's core purpose is to assist its clients in reaching their
objectives by helping them to better understand their markets.
The core purpose and values of the firm are not selected - they are discovered. The stated
ideology should not be a goal or aspiration but rather, it should portray the firm as it really is.
Any attempt to state a value that is not already held by the firm's employees is likely to not be
taken seriously.
Visionary Goals
The visionary goals are the lofty objectives that the firm's management decides to pursue. This
vision describes some milestone that the firm will reach in the future and may require a decade
or more to achieve. In contrast to the core ideology that the firm discovers, visionary goals are
selected.
These visionary goals are longer term and more challenging than strategic or tactical goals.
There may be only a 50% chance of realizing the vision, but the firm must believe that it can do
so. Collins and Porras describe these lofty objectives as "Big, Hairy, Audacious Goals." These
goals should be challenging enough so that people nearly gasp when they learn of them and
realize the effort that will be required to reach them.
Most visionary goals fall into one of the following categories:
· Target - quantitative or qualitative goals such as a sales target or Ford's goal to "democratize
the automobile."
· Common enemy - centered on overtaking a specific firm such as the 1950's goal of Philip-
Morris to displace RJR.
· Role model - to become like another firm in a different industry or market.
For example, a cycling accessories firm might strive to become "the Nike of the cycling
industry."
· Internal transformation - especially appropriate for very large corporations.
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For example, GE set the goal of becoming number one or number two in every market it serves.
While visionary goals may require significant stretching to achieve, many visionary companies
have succeeded in reaching them. Once such a goal is reached, it needs to be replaced; otherwise,
it is unlikely that the organization will continue to be successful. For example, Ford succeeded in
placing the automobile within the reach of everyday people, but did not replace this goal with a
better one and General Motors overtook Ford in the 1930's.
Strategic vision:
• A strategic vision is a road map showing the route a company intends to take in
developing and strengthening its business. It paints a picture of a company’s
destination and provides a rationale for going there.
• Involves thinking strategically about
– Future direction of company
– Changes in company’s product-market-customer-technology to improve
• Current market position
• Future prospects
•
WHY A SHARED VISION MATTERS
A strategic vision widely shared among all employees functions similar to how a magnet
aligns iron filings
When all employees are committed to firm’s long-term direction, optimum choices on
business decisions are more likely
o Individuals & teams know intent of firm’s strategic vision
o Daily execution of strategy is improved
ITC:
To enhance the wealth generation capability of the enterprise in a globalizing environment
, delivering a superior & sustainable stakeholder value.
Infosys
"We will be a globally respected corporation."
General Electric
We will become number one or number two in every market we serve, and revolutionize this
company to have the speed and agility of a small enterprise.
Microsoft Corporation
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“Empower people through great software—any time, any place, and on any device.”
Communicating the Strategic Vision
An exciting, inspirational vision
– Contains memorable language
– Clearly maps company’s future direction
– Challenges and motivates workforce
– Provokes emotion and enthusiasm
Winning support for the vision involves
– Putting “where we are going and why” in writing
– Distributing the statement organization-wide
– Having executives explain the vision to the workforce
Strategic Vision vs. Mission
• A strategic vision concerns a firm’s future business path - “where we are going”
– Markets to be pursued
– Future technology-product-customer focus
– Kind of company management is
– trying to create
• The mission statement of most companies focuses on current business activities - “who
we are and what we do”
– Current product and service offerings
– Customer needs being served
– Technological and business capabilities
Linking the Vision With Company Values
• A statement of values is often provided to guide the company’s pursuit of its vision
• Values – Beliefs, business principles, and ways of doing things that are incorporated into
– Company’s operations
– Behavior of workforce
• Values statements
– Contain between four and eight values
– Are ideally tightly connected to and reinforce company’s vision, strategy, and
operating practices
Example: Company Values
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SETTING OBJECTIVES
• Purpose of setting OBJECTIVES is to
– Convert mission into performance targets
– Create yardsticks to track performance
– Establish performance goals requiring stretch
– Push firm to be inventive, intentional, focused
• Objectives guards against
– Complacency
– Drift
– Internal confusion
– Status quo performance
–
Objectives of Madras Fertilizers Ltd.
• To produce and market fertilizers and bio-fertilizers and market agro-chemicals,
efficiently and economically, in an environmentally sound manner;
• To take up and implement schemes for saving energy;
• To continuously upgrade the quality of human resources and promote organizational and
management development.
• To continually improve plant and operational safety;
• To take up R&D schemes.
Objectives can be set at two levels:
(1) Corporate level
These are objectives that concern the business or organisation as a whole
Creating
sharehold
er value Building
strong
relationshi
ps
Entrepren
eurial
spirit
Excellent
customer
service Giving
back to
the
communit
y
Respect
for all
people Doing the
right thing
Taking
care of
people
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Examples of “corporate objectives might include:
• We aim for a return on investment of at least 15%
• We aim to achieve an operating profit of over £10 million on sales of at least £100 million
• We aim to increase earnings per share by at least 10% every year for the foreseeable future
(2) Functional level
e.g. specific objectives for marketing activities
Examples of functional marketing objectives” might include:
• We aim to build customer database of at least 250,000 households within the next 12 months
• We aim to achieve a market share of 10%
• We aim to achieve 75% customer awareness of our brand in our target markets
Both corporate and functional objectives need to conform to the commonly used SMART
criteria.
The SMART criteria:
SMART:
S specific, unambiguously
M measurable
A ambitious, acceptable, achievable
R realistic, Relevant, T in a certain time
Specific - the objective should state exactly what is to be achieved.
Measurable - an objective should be capable of measurement – so that it is possible to determine
whether (or how far) it has been achieved
Ambitious - the objective should be achievable given the circumstances in which it is set and the
resources available to the business.
Relevant - objectives should be relevant to the people responsible for achieving them
Time Bound - objectives should be set with a time-frame in mind. These deadlines also need to
be realistic.
Characteristics of Objectives • Represent commitment to achieve specific performance targets
• Spell-out how much of what kind
• of performance by when
• Well-stated objectives are
• Quantifiable
• Measurable • Contain a deadline for achievement
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TYPES OF OBJECTIVES
• Strategic Objectives Outcomes that will result in greater competitiveness & stronger long-term market
position
• Financial Objectives Outcomes that relate to improving firm’s financial performance
Examples: Financial Objectives
• X % increase in annual revenues
• X % increase annually in after-tax profits
• X % increase annually in earnings per share
• Annual dividend increases of X %
• Profit margins of X %
• X % return on capital employed (ROCE)
Examples: Strategic Objectives
• Winning an X % market share
• Achieving lower overall costs than rivals
• Overtaking key competitors on product performance or quality or customer service
• Deriving X % of revenues from sale of new products introduced in past 5 years
• Achieving technological leadership
Unilver’s Strategic and Financial Objectives
• Grow annual revenues by 5-6% annually
• Increase operating profit margins from 11% to 16% within 5 years
• Trim company’s 1200 food, household, and personal care products down to 400 core
brands
• Focus sales and marketing efforts on those brands with potential to become respected,
market-leading global brands
• Streamline company’s supply chain
Short-Term vs. Long-Term Objectives
• Short-term objectives – Targets to be achieved soon
– Milestones or stair steps for reaching long-range performance
• Long-term objectives
Targets to be achieved within 3 to 5 years
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– Prompt actions now that will permit reaching targeted
– long-range performance later
Objectives Are Needed at All Levels
1. First, establish organization-wide objectives and performance targets
2. Next, set business and product line objectives
3. Then, establish functional and departmental objectives
4.Individual objectives are established last
Importance of Top-Down Objectives
Guide objective-setting and strategy-making at lower levels
Ensures financial and strategic performance targets for all business units, divisions, and
departments are directly connected to achieving company-wide objectives
Integration of objectives has two advantages
Helps produce cohesion among objectives and strategies of different parts of
organization
Helps unify internal efforts to move a company along the chosen strategic path
Goals vs objectives:
Balanced scorecard-by Robert Kaplan & David Norton
Difference between goals and objectives
Goals Objectives
Broad in scope Narrow in scope
Are general intentions Very precise.
Intangible Tangible.
Abstract in nature Concrete in nature
Can't be validated Can be validated
Very short statement, few words Longer statement, more descriptive
Directly relates to the Mission
Statement
Indirectly relates to the Mission
Statement
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I n t r o d u c t i o n t o t h e b a l a n c e d s c o r e c a r d
The background
Developed by Robert Kaplan and David Norton in 1992
No single measures can give a broad picture of the organisation’s health.
So instead of a single measure why not one use a composite scorecard involving a
number of different measures.
Kaplan and Norton devised a framework based on four perspectives – financial,
customer, internal and learning and growth.
The organisation should select critical measures for each of these perspectives.
Balanced Scorecard:
History:
The Balanced Scorecard was developed in the early 1990s by two guys at the Harvard
Business School: Robert Kaplan and David Norton. The key problem that Kaplan and
Norton identified in the business of the day was that many companies tended to manage
their businesses based solely on financial measures. While that may have worked well in
the past, the pace of business in today's world requires more comprehensive measures.
Though financial measures are necessary, they can only report what has happened in the
past — where a business has been, but not where it is headed. It's like driving a car by
looking in the rearview mirror.
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To provide a management system that was better at dealing with today's business pace
and to provide business managers with the information they need to make better
decisions, Kaplan and Norton developed the Balanced Scorecard.
Balanced scorecard methodology is an analysis technique designed to translate an
organization's mission statement and overall business strategy into specific,
quantifiable goals and to monitor the organization's performance in terms of
achieving these goals.
A system of corporate appraisal which looks at financial and non-financial elements from
a variety of perspectives.
An approach to the provision of information to management to assist strategic policy
formation and achievement.
It provides the user with a set of information which addresses all relevant areas of
performance in an objective and unbiased fashion.
A set of measures that gives top managers a fast but comprehensive view of the business.
Importance of balanced scorecard…
The Balanced Scorecard balances the financial perspective with the organisational,
customer and innovation perspectives which are crucial for the future of an organisation
The balanced scorecard methodology is a comprehensive approach that analyzes an
organization's overall performance in four ways, based on the idea that assessing
performance through financial returns only provides information about how well the
organization did prior to the assessment, so that future performance can be predicted and
proper actions taken to create the desired future.
Allows managers to look at the business from four important perspectives.
Provides a balanced picture of overall performance highlighting activities that need to be
improved.
Combines both qualitative and quantitative measures.
Relates assessment of performance to the choice of strategy.
Includes measures of efficiency and effectiveness.
Assists business in clarifying their vision and strategies and provides a means to translate
these into action.
Main benefits of using the balanced scorecard
Helps companies focus on what has to be done in order to create a breakthrough
performance
Acts as an integrating device for a variety of corporate programmes
Makes strategy operational by translating it into performance measures and targets
Helps break down corporate level measures so that local managers and employees can
see what they need to do well if they want to improve organisational effectiveness
Provides a comprehensive view that overturns the traditional idea of the organisation as a
collection of isolated, independent functions and departments
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B a l a n c e d s c o r e c a r d - f o u r p e r s p e c t i v e s
The four perspectives are:
Financial perspective - how does the firm look to shareholders?
Customer perspective - how do customers see the firm?
Internal perspective - how well does it manage its operational processes?
Innovation and learning perspective – can the firm continue to improve and create
value? This perspective also examines how an organisation learns and grows.
For each of four perspectives it is necessary to identify indicators to measure the performance of
the organisations.
From the financial perspective
This is concerned with the shareholders view of performance.
Shareholders are concerned with many aspects of financial performance: Amongst the measures
of success are:
Market share
Revenue growth
Profit ratio
Return on investment
Economic value added
Return on capital employed
Operating cost management
Operating ratios and loss ratios
Corporate goals
Survival
Profitability
Growth
Process cost savings
Increased return on assets
Profit growth
Measures
Cash flow
Net profitability ratio
Sales revenue
Growth in sales revenue
Cost reduction
ROCE
Share price
Return on shareholder funds
From the customerperspective
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How do customers perceive the firm?
This focuses on the analysis of different types of customers, their degree of satisfaction and the
processes used to deliver products and services to customers.
Particular areas of focus would include:
Customer service
New products
New markets
Customer retention
Customer satisfaction
What does the organisation need to do to remain that customer’s valued supplier?
Potential goals for the customer perspective could include:
Customer satisfaction
New customer acquisition
Customer retention
Customer loyalty
Fast response
Responsiveness
Efficiency
Reliability
Image
The following metrics could be used to measure success in relation to the customer
perspective:
Customer satisfaction index
Repeat purchases
Market share
On time deliveries
Number of complaints
Average time to process orders
Returned orders
Response time
Reliability
New customer acquisitions
Perceived value for money
From the internal perspective
This seeks to identify:
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How well the business is performing.
Whether the products and services offered meet customer expectations.
The critical processes for satisfying both customers and shareholders.
Activities in which the firm excels?
And in what must it excel in the future?
The internal processes that the company must be improved if it is to achieve its
objectives.
This perspective is concerned with assessing the quality of people and processes.
Potential goals for the internal perspective include:
Improve core competencies
Improvements in technology
Streamline processes
Manufacturing excellence
Quality performance
Inventory management
Quality
Motivated workforce
The following metrics could be used to measure success in relation to the internal perspective:
Efficiency improvements
Reduction in unit costs
Reduced waste
Improvements in morale
Increase in capacity utilisation
Increased productivity
% defective output
Amount of recycled waste
Amount of reworking
The innovation and learning perspective
This perspective is concerned with issues such as:
Can we continue to improve and create value?
In which areas must the organisation improve?
How can the company continue to improve and create value in the future?
What should it be doing to make this happen?
Potential goals for the innovation and learning perspective include:
New product development
Continuous improvement
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Technological leadership
HR development
Product diversification
The following metrics could be used to measure success in relation to the innovation and
learning perspective:
Number of new products
% sales from new products
Amount of training
Number of strategic skills learned.
Value of new product in sales
R&D as % of sales
Number of employee suggestions.
Extent of employee empowerment
Critical success factors:
– Success factors on which the company concentrates, to distinguish oneself for
competition to build up an advantage in completion
Performance indicator
– Translation of critical success factors to measurable indicators
Company goals & philosophy :Objectives, Measures, Targets, Initiatives
• Each perspective of the Balanced Scorecard includes, objectives, measures of those
objectives, target values of those measures, initiatives, defined as follows:
– Objectives – Major objectives to be achieved (Profitable Growth)
– Measures – the observable parameters that will be used to measure progress
reaching the objective. (the objective of profitable growth might be measured by
growth in net margin)
– Targets – the specific targets values for measures (+2% growth in net margin)
– Initiatives – action programs to be initiated in order to meet the objectives
Objectives Measures Targets Initiatives
Financial
Customer
Process
Learning
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Advantages:
• Structure in collection and assimilation of performance information
• Translation of strategy to operational performance indicators
• Perspective of learning and growing gives a challenge to improving processes
continuously
• BSC can be used as a planning instrument
• Gives insight in performance per critical success factor.
Disadvantages
• A laborious and difficult process
• Use external experts
• Involve employees with the process
• Choose a limited amount of performance indicators
• Pay attention to the availability of information of performance indicators
Company Philosophy
It is in the form of a Slogan or Statement. It projects the ethical and value based
concept(philosophy) a Company contributes to public. This is more related to the Social
Responsibility& Public Good. The corporation is a creation of society whose purpose is the
production and distribution of needed goods and services, for profit of society and itself. The
Company in it’s own interest has to promote the public welfare in a positive way. Indeed, the
corporate interest broadly defined by management can support involvement in helping to solve
virtually any social
problem, because people who have good environment, education and opportunity make better
employees, customers and neighbors for business than those who are poor, ignorant and
oppressed. Pollution control, contributing to public cause in the areas of health, education &
poverty. Payment of taxes genuinely, fair wages to employees, quality products/services to
consumers, all actions are based on legal and moral foundation etc
Hierarchy of Strategic Intent
HAMEL AND PRAHALAD coined the term strategic intent
• “strategic" is mainly used with long term
• "Intent" is basically related to "intentions" that is "a plan to do something" is an
intention
“Strategic Intent -a plan to do something in the long term"
strategic intent is the immediate point of view of a long term future that company would
like to create. It is the intent of the strategies that company may evolve i.e. it creates
spotlight for directing the strategy in a company. When carefully worded, provides a
strategic theme filled with emotion for the whole organization..
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• It involves the following:
– Creating and Communicating a vision
– Designing a mission statement
– Defining the business
– Setting objectives
• Vision serves the purpose of stating what an organization wishes to achieve in the long run.
• Mission relates an organization to society.
• Business explains the business of an organization in terms of customer needs, customer
groups and alternative technologies.
• Objectives state what is to be achieved in a given time period.
Strategic intent is about clarity, focus and inspiration
Characteristics of Strategic Intent
Indicates firm’s intent to making quantum gains in competing against key rivals and to
establishing itself as a winner in the marketplace, often against long odds
Involves establishing a grandiose performance target that is out of proportion to its
immediate capabilities and market position but then devoting the company’s
full resources and energies to achieving the target over time
Signals relentless commitment to achieving a particular market position and competitive
standing
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A Company’s Strategy-Making Hierarchy
Strategic Plan:
Merging the Strategic Vision, Objectives and Strategy into a Strategic Plan:
In today's highly competitive business environment, budget-oriented planning or forecast-based
planning methods are insufficient for a large corporation to survive and prosper. The firm must
engage in strategic planning that clearly defines objectives and assesses both the internal and
Its strategic
visionand
business
mission
Its strategy
Its
strategicand
financial
objectives
A
Company’s
Strategic
Plan
Consists
of
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external situation to formulate strategy, implement the strategy, evaluate the progress, and make
adjustments as necessary to stay on track.
The strategic plan projects a prescriptive model based on predictive environment which is a
roadmap for execution. Strategic plan is translated into the operations planning. Any deviation
required is to be directed by strategic plan which takes care of the corporate objective and factors
commanding the change.
The emergent strategy is “let us try this strategy and continue it or change it depending in our
experience. The prescriptive strategy prescribed, “this is our strategy for the next five years,
administer it. “The emergent approach holds that the long term being uncertain, it is unrealistic
to prescribe in advance a strategy with long term perspective. The strategy should evolve
responding to emerging developments, and therefore, to some extent, strategy development and
implementation occur concurrently.
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Module-III
Analyzing a Company’s External Environment – The Strategically relevant components of a
Company’s External Environment – Industry Analysis – Porter’s dominant economic features –
Competitive Environment Analysis – Porter’s Five Forces model – Industry diving forces – Key
Success Factors – concept and implementation.
Analyzing a Company’s External Environment
The performance of a company is affected by external factors like the economy, demographics,
social values, and technological changes. The factors in a company’s macro-environment which
have the largest strategy impact relates to the company’s environment, the industry, competition,
buyer relations, and supplier relations. To do a company’s analysis of its external environment, a
company needs to do an industry analysis on dominant economic characteristics, an industry’s
competitive forces, the driving forces of the industry, the market positions of the industry’s
rivals, the strategic moves of rivals, key success factors, and the industry’s outlook on future
profitability.
The Industry’s Dominant Economic Characteristics
Identification of the industry’s dominant economic characteristics is important for analyzing a
company’s industry and preparing a proper competitive analysis of their environment.
Understanding the economic characteristics provides an overview of the industry and provides an
understanding of the different kinds of strategic moves that the industry members are likely to
use.
The performance of a company is affected by external factors like the economy, demographics,
social values, and technological changes. The factors in a company’s macro-environment which
have the largest strategy impact relates to the company’s environment, the industry, competition,
buyer relations, and supplier relations. To do a company’s analysis of its external environment, a
company needs to do an industry analysis on dominant economic characteristics, an industry’s
competitive forces, the driving forces of the industry, the market positions of the industry’s
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rivals, the strategic moves of rivals, key success factors, and the industry’s outlook on future
profitability.
The Strategically relevant components of a Company’s External Environment :
The Industry’s Dominant Economic Characteristics
Identification of the industry’s dominant economic characteristics is important for analyzing a
company’s industry and preparing a proper competitive analysis of their environment.
Understanding the economic characteristics provides an overview of the industry and provides an
understanding of the different kinds of strategic moves that the industry members are likely to
use.
Examples of Economic Characteristics:
Market size and growth rate
• Scope of competitive rivalry
• Number of buyers and rivals
• A competitive analysis of the geographic scope
• Degree of product differentiation
• Technological changes and innovations
• Economies of scale
• Capacity utilization
• Industry profitability
• Learning and experience curves
• Degrees of vertical integration
• Supply and Demand Conditions
• Product innovation and characteristics
• Ease of entry/exit in the industry
Environmental Scanning
The systematic collection and analysis of information about relevant macro environmental
trends. It helps in increased general awareness of environmental changes, better strategic
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planning and decision-making, greater effectiveness in governmental matters and proper
diversification and resource allocation decisions Environmental scanning also forecast future
trends and changes. A number of forecasting techniques are available to strategic managers and
they are:
Time series analysis – an empirical forecasting procedure in which certain historical
trends are used to predict such variables as a firm’s sales or market share.
Delphi technique – a forecasting procedure whereby experts are independently and
repeatedly questioned about the probability of some event’s occurrence until consensus is
reached regarding the particular forecasted events.
Judgmental forecasting - A procedure whereby employees, consumers, suppliers and /or
trade associations serve as sources of qualitative information regarding future trends.
Multiple scenarios - a forecasting procedure in which management formulates several
plausible hypothetical descriptions of sequence of future events and trends.
Role of Environmental Analysis for an Industry
1. The environment changes so fast that new opportunities and threats are created which may
result in disequilibrium into organization’s existing equilibrium Strategists have to analyze the
environment to determine what factors in the environment present opportunities for greater
accomplishment of organizational objectives and that factors in the environment present threats
to the organization’s objective accomplishment so that suitable adjustment in stagiest can be
made to derive maximum benefits.
2. Environmental analysis allows strategists time to anticipate opportunities and plan to take
optional responses to threes opportunities. Similarly, it helps to develop an early warning system
to prevent the threats or to develop strategies which can turn the threats to the organization’s
advantages.
3. Environmental analysis helps strategists to narrow the range of available alternatives and
eliminate options that are clearly inconsistent with forecast opportunities or threats. The analysis
helps in eliminating unsuitable alternatives and to process most promising alternatives. Thus it
helps strategists to reduce time pressure and to concentrate on those which are important.
Five Components of an Organization's External Environment
The external environment of an organization are those factors outside the company that affect the
company's ability to function. Some external elements can be manipulated by company
marketing, while others require the organization to make adjustments. Monitor the basic
components of your company's external environment, and keep a close watch at all times.
Customers
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Your customers are among the external elements you can attempt to influence, via marketing and
strategic release of corporate information. But ultimately, your relationship with your clients is
based on finding ways to influence them to purchase your products. Market research is used to
determine the effectiveness of your marketing messages, and to decide what changes can be
made to future marketing programs to improve sales.
Government
Government regulations in product development, packaging and shipping play a significant role
in the cost of doing business and your ability to expand into new markets. If the government
places new regulations on how you must package your product for shipment, that can increase
your unit costs and affect your profit margins. International laws create processes that your
company must follow to get your product into foreign markets.
Economy
As with the majority of the elements of your organization's external environment, your company
must be efficient at monitoring the economy and learning how to react to it, rather than trying to
manipulate it. Economic factors affect how you market products, how much money you can
spend on business growth, and the kind of target markets you will pursue.
Competition
Your competition has a significant effect on how you do business and how you address your
target market. You can choose to find markets that the competition is not active in, or you can
decide to take on the competition directly in the same target market. The success and failure of
your various competitors also determines a portion of your marketing planning, as well. For
example, if a long-time competitor in a particular market suddenly decides to drop out due to
financial losses, then you will need to adjust your planning to take advantage of the situation.
Public Opinion
Any kind of company scandal can be damaging to your organization's image. The public
perception of your organization can hurt sales it's negative, or it can boost sales with positive
company news. Your firm can influence public opinion by using public relations professionals to
release strategic information, but it is also important to monitor public opinion to try and defuse
potential issues before they begin to spread.
Key External Forces
External forces can be divided into five broad categories:
� Economic forces;
� Social, cultural, demographic, and environmental forces;
� Political, governmental, and legal forces;
� Technological forces; and
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� Competitive forces.
Macro environment – the general environment that affects all business firms in an industry,
which includes political-legal, economic, social and technological forces.
PEST – An acronym referring to the analysis of the four macro environmental forces are
Political, Economic, Social and Technology.
1. Political-legal – include such factors as the outcomes of elections, legislation and judicial
court decisions, as well as decisions rendered by various commission and agencies in the Govt.
Trade restrictions will always exist to some of the optically sensitive areas like trade sanctions.
2. Economic- significantly influence business operations including growth deadline in Gross
Domestic Product and increases or decreases in inflation rate, and exchange rate.
3. Social - such as social values, trends, traditions, religion, culture , societal trends
4. Technology – include scientific improvement and innovations and productivity..
Industry analysis
An industry analysis is a business function completed by business owners and other individuals
to assess the current business environment. A marketassessmenttooldesigned to provide a
business with an idea of the complexity of a particular industry. Industry analysis involves
reviewing the economic, political and market factors that influence the way the industry
develops. Major factors can include the power wielded by suppliers and buyers, the condition of
competitors, and the likelihood of new market entrants.
Porter’s dominant economic features –Competitive Environment Analysis – Porter’s Five
Forces model:
Industries differ significantly on such factors as market size and growth rate, the number and
relative sizes of both buyers and sellers, the geographic scope of competitive rivalry, the degree
of product differentiation, the speed of product innovation, demand–supply conditions, the extent
of vertical integration, and the extent of scale economies and experience/learning curve effects.
Porter’s Five Forces model
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Industry factors have been found to play a dominant role in the performance of many companies
with the exception of those that are its notable leaders of failures. As such, one needs to
understand these factors at the outset before delving into the characteristics of a specific firm.
Michel Porter, a leading authority on industry analysis, proposed a systematic means of
analyzing an industry’s potential profitability known as Porter’s “Five Forces” model. According
to Porter, an industry’s overall profitability depends on five basic competitive forces, the relative
weights of which vary by industry.
1. The Intensity of Rivalry among incumbent firms.- Concentration of competitors, High
Fixed or Storage Costs, Slow, Lack of Differentiation or Low Switching costs, Capacity
Augmented in Large Increments, Diversity of Competitors, High strategic Stakes, High
Exit Barriers.
Potential factors:
Sustainable competitive advantage through innovation
Competition between online and offline companies
Level of advertising expense
Powerful competitive strategy
Firm concentration ratio
Degree of transparency
2. The Threat of new competitors entering the industry.- Economies of Scale, Brand Identity
and Product Differentiation, Capital Requirements, Switching costs, Access to Distribution
Channels, Cost disadvantages Independent of Size, Govt. policy
The following factors can have an effect on how much of a threat new entrants may pose:
The existence of barriers to entry (patents, rights, etc.). The most attractive segment is
one in which entry barriers are high and exit barriers are low. Few new firms can enter
and non-performing firms can exit easily.
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Government policy
Capital requirements
Absolute cost
Cost disadvantages independent of size
Economies of scale
Economies of product differences
Product differentiation
Brand equity
Switching costs or sunk costs
Expected retaliation
Access to distribution
Customer loyalty to established brands
Industry profitability (the more profitable the industry the more attractive it will be to
new competitors)
3. The threat of substitute products or services. – Rising of a Substitute Products that satisfy
similar consumer needs.
Potential factors:
Buyer propensity to substitute
Relative price performance of substitute
Buyer switching costs
Perceived level of product differentiation
Number of substitute products available in the market
Ease of substitution
Substandard product
Quality depreciation
Availability of close substitute
4. The bargaining power of buyers. – Buyers raising the weaknesses on the product, costs,
credit etc to bring down the rates or threaten to discontinue buying. Or buyers go to their own
production for economic reasons.
Potential factors:
Buyer concentration to firmconcentration ratio
Degree of dependency upon existing channels of distribution
Bargaining leverage, particularly in industries with high fixed costs
Buyer switching costs relative to firm switching costs
Buyer information availability
Force down prices
Availability of existing substitute products
Buyer price sensitivity
Differential advantage (uniqueness) of industry products
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RFM (customer value) Analysis
The total amount of trading
5. The bargaining power of suppliers. - On the guise of rising costs, the suppliers bargain to
raise the rates or threaten to stop supplies. Competitor cornering the production of the supplier as
a threat. Monopoly of the supplier
Potential factors are:
Supplier switching costs relative to firm switching costs
Degree of differentiation of inputs
Impact of inputs on cost or differentiation
Presence of substitute inputs
Strength of distribution channel
Supplier concentration to firm concentration ratio
Employee solidarity (e.g. labor unions)
Supplier competition: the ability to forward vertically integrate and cut out the buyer.
Industry diving forces
Key internal forces (such as knowledge and competence of management and workforce) and
external forces (such as economy, competitors, technology) that shape the future of an
organization.
All industries are characterised by trends and new development that gradually or speedily
produce changes important enough to require a strategic response from participating firms.
Also Industries go thru a life cycle changes- its difference stages and hence the Industry
change….but it is far from complete
There are more causes…..that need to be identified and their impact to be understood.
The Concept of Driving Force:
Industry conditions change because important forces are driving industry participants competitor,
customer, or suppliers) to alter their actions; the driving forces in an industry are the major
underlying causes of changing industry and competitive conditions- they have the biggest
influence on how the industry landscape will be altered. Some originate in the outer ring of
macro-environment and some originate from the inner ring.
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Driving forces Analysis:
Identifying what the driving forces are
1. Assessing whether the drivers of change are, on the whole, acting to make the industry
more or less attractive
2. Determining what strategy changes are needed to prepare for the impact of the
driving forces
Identifying an Industry’s Driving Forces:
1) Emerging new internet Capabilities and Applications
Got into every days biz operation and social fabric of life all across the world.
Increasing internet usage & Speed->Growing internet shopping
Companies using online technology
Collaborate closely with suppliers and streamline their supply chain
Revamp internal operations and squeeze our cost saving
Manufacturer-> website-> Direct customers.
All Biz->Extend Geographical Reach
Low cost increases the no. of online rival and hence the compitition of online v/s brick and
mortar sellers.
Internet gives customer-> Power to research the product offering and shop the market for the
best Value.
untig Ability of Consumer to download Music from internet has reshaped traditional music
retailers
Emails has eroded fax services and first class mail delivery revenues of govt postal
services world wide
Videoconferencing has eroded the demand of biz travels
Online cources offering have the potential of revolutionise higher education
Internet will feature faster speed, dazzling applications and over a billion connected gadgets
performing an array of functions thus driving firther industry and competitive changes. Internet
related impacts vary from industry to industry
2) Increasing Globalisation:
Competition begin to shift from regional & national focus to an inernational or global focus
Industry members begin seeking out customers in foreign market. Production activities begin to
migrate to countries where costs are lowest. Global competition really starts when one or more
ambitious Companies precipitate a race for world wide market leadership.
Globalization happens:-
Blossoming of customer and demand in more and more countries
Action of govt to reduce the trade barrier .Europe,Latin America and Asia
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Significant difference in labour cost ->locate plant e.g China, india , Singapore, Maxico
and Brazil ¼ of those in US, Germany and Japan
Eg.Industires :- Credit Card, CellPhone, Digital Camera, Golf and Ski Equipment, Motor
Vehicles, Steel, Petrolium, Personal Computers, Vedio Games, Public Accounting and Text
Publishing….
3) Changes in an Industry Long Term Growth Rate.
Shift in industry growth or are driving force for industry change, affecting the balance between
industry supply and buyer demand, entry and exit of the firms
Increase in buyers demand triggers a race among established firms and new comers to capture
the new sales opportunities, in turn will launch offensive strategies to broaden customer base and
grow significantly
Decrease or slow down in rate at which demand is growing firms fight for their market share
If industry sales suddenly turns flat competition itencify, consolidation takes shapes by mergers
and acquisitions,
Stagnating sales forces both weak and strong firms to sell their biz to those who elect to stick->
forces to close inefficient plants and retrench to small prod base…
4) Changes in who buys the Product and how they use it:
Shift in buyer demographics-New ways of using product- firms broaden or narrow their product
line-diff sales & promotion…Downloading Music From Internet-Storing Music Files on HD &
PC, Burning CD-forced to reexamin the traditional music stores-also have stimulated the sales of
Disc burners and blank discs.PC & Internet- Banks to expand their electronics bill payment
services and retailers to move more of their customer services online
5) Product Innovation:
Rivals racing to be first to introduce the new product or product enhancement after another.
Competition changes->attracting more 1st time buyers ->Rejuvenating ind growth, creating
wider or narrow prod differentiation.
Strong market position of Successful innovators at the cost of slow innovators
Eg. Degital Cameras, Golf Glub, Video games, Toys and Prescription Drugs.
6) Technology Change & Manufacturing Process Innovation Advances in the technology can dramatically alter an industry’s landscape.
Gives birth to new and better products at lower costs opening up new industry frontier.
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Identifying an Industry’s Driving Forces: Technology change contd.. Eg. Internet based phones
are stealing large number of customers from using traditional telepone co world wide( high cost
technology, hard weird connections via overheads and underground telephone lines
Flat screen technology are killing CRT monitors
LCD and Plasma screen tech are driving CRT tech further
Digital tech driving huge change in camera and film industry
MP3 technology is transforming how people listen to music.
7) Marketing Innovation : Successful in introducing new ways to MARKET their products:
Spark a burst in buyer interest
Widen industry demand
Increase product differentiation
Lower unit cost
Any or all of which can alter the competitive position of rival firmEg.On line marketing of
Electronics goods, Music artist mkting their own website V/s contract with recording Studios….
8) Entry or Exit of Major Firms
Entry of one or more foreign co. into a geographic market once dominated by domestic firms
shakes up the competitive scenario.Pushes the competition to new direction, Bring in new rules
of competiting
Exit:- Reduces the no of mkt leaders, dominance of existing players and rush to capture existing
firm’s customers.
9) Diffusion of Technical Know how across more companies and more countries.
As the knowledge spreads, the competitive advantage of existing firm originally possessing it
erodes.
It happens thru Scientific Journals, Trade Publications, On site Plant tours, Word of mouth,
Employees Migration, and internet sources
Tehnology knowledge license / Royaltee fees
Cross border technology transfer has made the once domestic industries of automobile, tires,
consumer electronics, telecommunication and computers truly global
10) Change in cost and efficiency Widening or shrinking differences in the costs among key competitors tend to dramatically alter
the state of competition
Low cost fax and e mail put mounting pressure on the inefficient and high cost operation of
Postal Dept.
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Shrinking cost of differences in producing multifeatured mobiles is turning the mobile phone
market into commodity business and making more buyers to base Price as their Purchase
decision
11) Growing buyer preferences for differentiated products instead of a commodity product When buyers taste and preferences start to diverge, sellers can win a loyal following by
providing different variants and taste then the competitors.
Eg.Beer, Automobile
12) Reduction in uncertainty and Business Risk.
An emerging industry is typically characterized by much uncertainty and risk in terms of time
and efforts required to cover-up with the investments.Emerging industries tend to attract only
risk-taking entrepreneurial companies. over time how ever, if the business model of industry
pioneers proves profitable and market demand for the product appears durable, more
conservative firms are usually enticed to enter the market. Often the later entrants are large
& financially strong looking to invest into attractive growth industry.
Low biz risk and less industry uncertainty also affect competition in international market. In the
early stage the co. enters foreign market with a conservative approach with less risky strategies
like exporting, licensing, joint marketing agreement and JV with local companies.
As time goes and the co accumulates experience, it starts moving boldly and independently
making acquisitions, constructing their own plants, putting their own sales and marketing
capabilities to build strong competitive position...
13) Regulatory Influence and government Poliy Changes. Govt regulatory actions can often forces significant changes in industry practices and strategic
approaches.Deregulation has proved to be a potent pro competitive force in the airline, banking,
natural gas, telecommunications, and electric utility industries.Govt efforts to reform
MEDICARE and HEALT Insurance have become potent driving forces in the health care
industry.
Key Success Factors - Concept and Implementation:
Critical success factor vs. key performance indicator: Critical success factors are elements that
are vital for a strategy to be successful. A critical success factor drives the strategy forward, it
makes or breaks the success of the strategy (hence “critical”).
Kenichi Ohmae in his “The Mind of the Strategist” observes, “A good business strategy is oneby
which a company can gain significant ground on its competitors at an acceptable cost to itself.
Finding a way of doing this is real task of the strategist. He suggests the following four ways
ofstrengthening a Company’s position relative to that of its competitors.
1. Strategy Based on KFS - Key Factors for Success – to identify such critical factors in the
areas like sourcing raw materials, production, marketing and concentrate resources on them to
gain strategic advantage over the competitors.
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2. Strategy based on Relative Superiority – Avoids head on competition and seeks to exploit
competitor’s weaknesses. Even when the competitors are very strong on the whole, there may be
some critical factors or market segments where the company enjoys relative superiority which it
can build into a strategic advantage. The relative superiority may be in respect of technology,
cost, product quality, suitability of the product to market environment, distribution, after sales
service, customer relations, cultural factors etc.
3. Strategy Based On Aggressive Initiatives – When competitors are so well established that it
may be hard to dislodge. Sometimes the only answer is in unconventional strategy aimed at
upsetting the key factors for success on which the competitor has built an advantage. Ask every
point as “Why”? You will get a point.
4. Strategy Based on SDF:; Strategic degrees of freedom (SDF). Superior competitive
performance is to exploit the strategic degrees of freedom. This is relevant for consumer goods
companies and cost-conscious industrial goods manufacture. Successful deployment of
innovations is an alternative.. These innovations may involve the opening up of new markets or
the development of new products.
In the words of Ohmae, “in each of these, the principal concern is to avoid doing the same thing,
on the same battle ground, as the competition. The aim is to attain a competitive situation in
which your company can (1) gain a relative advantage through measures is competitors will
findhard to follow and (2) extend that advantage still further.
Industry conditions change because important forces driving industry participants
(competitors,customers, suppliers) to alter their actions, the driving forces in an industry are the
major underlying causes of changing industry and competitive conditions. Several factors can
affect anindustry powerful enough to act as driving forces
1. Changes in the long-term industry growth rate
2. Changes in who buys the product and how they use it.
3. Product innovation.
4. Technological change.
5. Marketing innovations
6. Entry or exit of major firms.
7. Diffusion of technical know-how.
8. Increasing globalization of the industry.
9. Changes in cost and efficiency.
10. Emerging buyer prefers for a differentiated product
11. Regulatory influences and govt policy changes.
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12. Changing societal concerns, attitudes and life-style.
13. Reduction in uncertainty and business risk.
Concept of implementation:
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MODULE IV
Analyzing a company’s resources and competitive position – Analysis of a Company’s present strategies
– SWOT analysis – Value Chain Analysis – Benchmarking- Generic Competitive Strategies – Low cost
provider Strategy – Differentiation Strategy – Best cost provider Strategy – Focused Strategy – Strategic
Alliances and Collaborative Partnerships –Mergers and Acquisition Strategies – Outsourcing Strategies –
International Business level Strategies.
Analyzing Company’s Resources & Competitive Position:
The object of any industry is to develop the competitive advantage over similar industries in order to
sustain growth and profitability. For this, a constant assessment of Strength and Weaknesses in every area
of management is to be done on a continuous basis to retain its stability & strengths. The external factors
are guiding the internal actions to take advantage of the situation. It is the internal strength h is the real
strength of the Management to combat with external changes.
Internal Analysis gives the manager the information they need to choose the strategies and business
model that will enable their Company to attain a sustained competitive advantage. Internal analysis is a
three-step process.
(1) The manager must understand the process by whichcompanies create value for customers and profit
for themselves, and they need to understand the role of resource, capabilities and distinctive competencies
in this process.
(2) Secondly, the Managers need to understand how important superior efficiency, innovation, quality and
responsiveness to customers are in creating value and generating high profitability.
(3) Thirdly, the Managers must be able to analyze the sources of their company’s competitive advantage
to identify what is driving the profitability of their enterprise and where opportunities for improvement
might lie. In other words, they must be able to identify how the strengths of the enterprise boost its
profitability and how any weakness leader to lower profitability.
Three more critical issues in internal analysis are addressed
(1) what factors influence the durability of competitive advantage?
(2) Why do successful companies are often lose their competitive advantage?
(3) How can companies avoid competitive failure and sustain their competitive advantage over time?
Internal Analysis:
“ Internal Analysis is the process by which strategists examine a firm’s marketing & distribution,
research & development, production, research & development to determine where the firm has it’s
strength’s & weaknesses, determine how to exploit the opportunities & meet the threats the environment
is presenting.”
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Types of Resources
Tangible Resources
Relatively easy to identify, and include physical and financial assets used to create value for customers
Financial resources
Firm’s cash accounts
Firm’s capacity to raise equity
Firm’s borrowing capacity
Physical resources
Modern plant and facilities
Favorable manufacturing locations
State-of-the-art machinery and equipment
Technological resources
Trade secrets
Innovative production processes
Patents, copyrights, trademarks
Organizational resources
Effective strategic planning processes
Excellent evaluation and control systems
Intangible Resources Difficult for competitors (and the firm itself) to account for or imitate, typically embedded in
unique routines and practices that have evolved over time
Human
Experience and capabilities of employees
Trust
Managerial skills
Firm-specific practices and procedures
Innovation and creativity
Technical and scientific skills
Innovation capacities
Reputation
Effective strategic planning processes
Excellent evaluation and control systems
Organizational Capabilities
Competencies or skills that a firm employs to transform inputs to outputs, and capacity to combine
tangible and intangible resources to attain desired end
Outstanding customer service Excellent product development capabilities
Innovativeness of products and services
Ability to hire, motivate, and retain human capital
Significance of Internal Analysis:
It helps to know where the firm stands in terms of strengths & weaknesses.
It helps to select the opportunities to be tapped in line with its capacity.
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It supports matching of objectives to its capacity.
It assists in assessing the capability-gap & takes steps for evaluating the capability in line
with growth objective.
It assists in selecting the specific lines in which it can grow, using its potential.
Analysis of the company’s present strategies:
1. How well is the present strategy working?
This involves evaluating the strategy from a qualitative standpoint (completeness,
internal consistency, rationale, and suitability to the situation) and also from a
quantitative standpoint (the strategic and financial results the strategy is producing).
The stronger a company's current overall performance, the less likely the need for
radical strategy changes. The weaker a company's performance and/or the faster the
changes in its external situation (which can be gleaned from industry and competitive
analysis), the more its current strategy must be questioned.
2. What are the company’s resource strengths /weaknesses and external opportunities
and threats?A SWOT analysis provides an overview of a firm's situation and is an essential
component of crafting a strategy tightly matched to the company's situation. The two most
important parts of SWOT analysis are (1) drawing conclusions about what story the compilation
of strengths, weaknesses, opportunities, and threats tells about the company's overall situation,
and (2) acting on those conclusions to better match the company's strategy, to its resource
strengths and market opportunities, to correct the important weaknesses, and to defend against
external threats. A company's resource strengths, competencies, and competitive capabilities are
strategically relevant because they are the most logical and appealing building blocks for
strategy; resource weaknesses are important because they may represent vulnerabilities that need
correction. External opportunities and threats come into play because a good strategy necessarily
aims at capturing a company's most attractive opportunities and at defending against threats to its
well-being.
3. Are the company’s costs and prices competitive?One telling sign of whether a
company's situation is strong or precarious is whether its prices and costs are competitive with
those of industry rivals. Value chain analysis and benchmarking are essential tools in
determining whether the company is performing particular functions and activities cost-
effectively, learning whether its costs are in line with competitors, and deciding which internal
activities and business processes need to be scrutinized for improvement. Value chain analysis
teaches that how competently a company manages its value chain activities relative to rivals is a
key to building a competitive advantage based on either better competencies and competitive
capabilities or lower costs than rivals.
4. How strong is the company relative to rivals?
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The key appraisals here involve how the company matches up against key rivals on industry key
success factors and other chief determinants of competitive success and whether and why the
company has a competitive advantage or disadvantage. As a rule a company's competitive
strategy should be built around its competitive strengths and should aim at shoring up areas
where it is competitively vulnerable. When a company has important competitive strengths in
areas where one or more rivals are weak, it makes sense to consider offensive moves to exploit
rivals' competitive weaknesses. When a company has important competitive weaknesses in areas
where one or more rivals are strong, it makes sense to consider defensive moves to curtail its
vulnerability.
5. What strategic issues does the company face?This analytical step zeros in on the
strategic issues and problems that stand in the way of the company's success. It involves using
the results of both industry and competitive analysis and company situation analysis to identify a
"worry list" of issues to be resolved for the company to be financially and competitively
successful in the years ahead. The worry list always centers on such concerns as "how to . . . ,"
"what to do about . . . ," and "whether to . . ."—the purpose of the worry list is to identify the
specific issues/problems that management needs to address. Actual deciding on a strategy and
what specific actions to take is what comes after the list of strategic issues and problems that
merit front-burner management attention is developed.
SWOT Analysis
Value Chain Analysis
Benchmarking
Ethical Conduct
SWOT Analysis
SWOT is an abbreviation for Strengths, Weaknesses, Opportunities and Threats
SWOT analysis is a systematic identification of factors and the strategy that reflects the
best match between them. It is based on the logic that an effective strategy maximizes a business’s strengths and
opportunities and minimizes its weaknesses and threats.
This simple assumption if accurately applied has powerful implications for successfully choosing
and designing an effective study.
SWOT analysis is an important tool for auditing the overall strategic position of a
business and its environment.
Objectives of SWOT Analysis
To provide a framework to reflect the organizational capability to avail opportunities or to
overcome threats presented by the environment.
It presents the information about external and internal environment to structured form whereby
key external opportunities
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Identifying: Company STRENGTHS & competitive capabilities; Company WEAKNESSES &
resource deficiencies; Company market OPPORTUNITIES; THREATS to a company’s future
profitability…..
Importance of SWOT Analysis:
Pattern of SWOT Analysis
High opportunities and high strengths.
– Supports an aggressive strategy
High opportunities and low strengths.
– Turnaround oriented strategy
High threats and high strengths.
– Supports Diversification strategy
High threats and low strengths.
– Supports a Defensive strategy.
Strengths:
Strength is a resource, skill or other advantage relative to the competitors and the needs of the
markets firm serves or anticipates serving.
Strength is a distinctive competence that gives firm a comparative advantage in the
marketplace.
E.g.
- financial resources
- image
- market leadership
Weaknesses:
A weakness is a limitation or deficiency in resources, skills, and capabilities that seriously impedes
effective performance.
Eg: Facilities, financial resources, management capabilities, marketing skills, and brand image could
be sources of weaknesses.
o Aids in narrowing the choice of alternatives and selecting a strategy.
o Distinct competence and critical weakness are identified in relation to key determinants of
success for market segment.
Opportunities
An opportunity is a major favorable situation in the firm’s environment.
E.g.
- identification of a previously unlooked market segment
- changes in competitive or regulatory circumstances
- technological changes
Threats:
A threat is a major unfavorable situation in the firm’s environment. It is a key obstacle to the firm’s
current and/ or desired future position.
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E.g.
- entrance of a new competitor
- slow market growth
- increased bargaining power of key buyers and suppliers
Understanding the key opportunities and threats facing a firm helps manager identify realistic
options from which to choose an appropriate strategy.
Value Chain Analysis
To better understand the activities through which a firm develops a competitive advantage and
creates shareholder value, it is useful to separate the business system into a series of value-
generating activities referred to as the value chain. In his 1985 book Competitive Advantage,
Michael Porter introduced a generic value chain model that comprises a sequence of activities
found to be common to a wide range of firms. Porter identified primary and support activities as
shown in the following diagram:
Inbound
Logistics > Operations >
Outbound
Logistics >
Marketing
&
Sales
> Service >
M
A
R
G
I
N
Firm Infrastructure
HR Management
Technology Development
Procurement
The goal of these activities is to offer the customer a level of value that exceeds the cost of the
activities, thereby resulting in a profit margin.
The primary value chain activities are:
Inbound Logistics: the receiving and warehousing of raw materials, and their distribution
to manufacturing as they are required.
Operations: the processes of transforming inputs into finished products and services.
Outbound Logistics: the warehousing and distribution of finished goods.
Marketing & Sales: the identification of customer needs and the generation of sales.
Service: the support of customers after the products and services are sold to them.
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These primary activities are supported by:
The infrastructure of the firm: organizational structure, control systems, company culture,
etc.
Human resource management: employee recruiting, hiring, training, development, and
compensation.
Technology development: technologies to support value-creating activities.
Procurement: purchasing inputs such as materials, supplies, and equipment.
The firm's margin or profit then depends on its effectiveness in performing these activities
efficiently, so that the amount that the customer is willing to pay for the products exceeds the
cost of the activities in the value chain. It is in these activities that a firm has the opportunity to
generate superior value. A competitive advantage may be achieved by reconfiguring the value
chain to provide lower cost or better differentiation.
The value chain model is a useful analysis tool for defining a firm's core competencies and the
activities in which it can pursue a competitive advantage as follows:
Cost advantage: by better understanding costs and squeezing them out of the value-
adding activities.
Differentiation: by focusing on those activities associated with core competencies and
capabilities in order to perform them better than do competitors.
Benchmarking:
Benchmarking is the process of identifying "best practice" in relation to both products
(including) and the processes by which those products are created and delivered. The
search for "best practice" can take place both inside a particular industry, and also in
other industries
Benchmarking is the tool that allows a company to determine whether the manner in
which it performs particular functions and activities represent industry best practices
when both cost and effectiveness are taken into account.It is a point of reference against
which performance is measured and compared.
The objective of benchmarking is to understand and evaluate the current position of a
business or organisation in relation to "best practice" and to identify areas and means of
performance improvement.
The Benchmarking Process
Benchmarking involves looking outward (outside a particular business, organisation, industry,
region or country) to examine how others achieve their performance levels and to understand the
processes they use. In this way benchmarking helps explain the processes behind excellent
performance. When the lessons learnt from a benchmarking exercise are applied appropriately,
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they facilitate improved performance in critical functions within an organisation or in key areas
of the business environment.
Application of benchmarking involves four key steps:
(1) Understand in detail existing business processes
(2) Analyse the business processes of others
(3) Compare own business performance with that of others analysed
(4) Implement the steps necessary to close the performance gap
Benefits of Benchmarking
It ensures best practices will be identified, which in turn assures appropriate
improvement.
It provides a deeper understanding of the organisation’s process.
It stimulates the company to try some thing different.
Identify new technology
Types of Benchmarking
There are a number of different types of benchmarking, as summarised below:
Strategic Benchmarking: Where businesses need to improve overall performance by examining
the long-term strategies and general approaches that have enabled high-performers to succeed. It
involves considering high level aspects such as core competencies, developing new products and
services and improving capabilities for dealing with changes in the external environment.
Changes resulting from this type of benchmarking may be difficult to implement and take a long
time to materialize
Performance or Competitive Benchmarking: Businesses consider their position in relation to
performance characteristics of key products and services. Benchmarking partners are drawn
from the same sector. This type of analysis is often undertaken through trade associations or third
parties to protect confidentiality.
Process Benchmarking: Focuses on improving specific critical processes and operations.
Benchmarking partners are sought from best practice organisations that perform similar work or
deliver similar services. Process benchmarking invariably involves producing process maps to
facilitate comparison and analysis. This type of benchmarking often results in short term
benefits.
Functional Benchmarking: Businesses look to benchmark with partners drawn from different
business sectors or areas of activity to find ways of improving similar functions or work
processes. This sort of benchmarking can lead to innovation and dramatic improvements.
Internal Benchmarking: involves benchmarking businesses or operations from within the same
organisation (e.g. business units in different countries). The main advantages of internal
benchmarking are that access to sensitive data and information is easier; standardised data is
often readily available; and, usually less time and resources are needed. There may be fewer
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barriers to implementation as practices may be relatively easy to transfer across the same
organisation. However, real innovation may be lacking and best in class performance is more
likely to be found through external benchmarking.
External Benchmarking: involves analysing outside organisations that are known to be best in
class. External benchmarking provides opportunities of learning from those who are at the
"leading edge". This type of benchmarking can take up significant time and resource to ensure
the comparability of data and information, the credibility of the findings and the development of
sound recommendations.
International Benchmarking: Best practitioners are identified and analysed elsewhere in the
world, perhaps because there are too few benchmarking partners within the same country to
produce valid results. Globalisation and advances in information technology are increasing
opportunities for international projects. However, these can take more time and resources to set
up and implement and the results may need careful analysis due to national differences
Benchmarking Generic COMPETITIVE STRATEGIES:
Business Unit - An organizational entity with its own unique mission, set of competitors and
industry.
Competitive Advantage - A state whereby; a business unit’s successful strategies cannot be
easily duplicated by it competitors.
Strategic Group – A select group of direct competitors who have similar strategic profiles.
Generic Strategies – Strategies that can be adopted by business unit to guide their organization.
based on their similarities.
Generic Competitive Strategies
Michael Porter developed the most commonly cited generic strategy frame work. According to
Porter’s a business unit must address two basic competitive concerns. First Managers must
determine whether the business unit should focus its efforts on an identifiable subset of the
industry in which it operates or seek to serve the entire market as a whole.
Second, managers must determine whether the business unit should compete primarily by
minimizing its costs relative to those of its competitors (i.e. low cost strategy) or by seeking to
offer unique and or unusual products and services (i.e. a differentiation strategy). Efficiency is
the key to such business. Ex – Nirma, Wal-Mart
Low cost provider Strategy, Differentiation Strategy, Best cost provider Strategy &
Focused Strategy:
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1. Overall Cost Leadership Strategy - Generates competitive advantage in the form of offering
products to customers at lower prices which helps in achieving large market.-no frill products &
services. The Co pursuing overall cost leadership must aggressively pursue a position of cost
leadership by constructing the most efficient scale faculties and must be good in engineering,
manufacturing and physical distribution. The Co has a large market share so that its per unit cost
is the lowest. Ex – Hero cycles
2. Differentiation Strategy - An act of designing a set of meaningful differences to distinguish
the company’s offering from competitors’ offerings in which a large business products and
markets to the entire industry products or services that can be readily distinguished from those of
it competitors. Thus, the product offered by a Co is perceived by customers as being different
from other companies offering the similar product. The product is perceived as distinct, may
attract higher price which results into higher profitability. One must be vigil to see whether
competitors also go on the same strategy and change the design and models. Ex- Gillette blades,
Pizza
3. Best Cost Provider Strategy- An organization focuses on a narrow segment of the market
and offers product at lower price than its competitors on the basis of its low cost. with no frills
product & services for a market niche with elastic demand. According to Porter, those companies
pursuing the same strategy; directed to the same target market constitute a strategic group. The
Co which has clear strategy on cost dimension performs better than others. This strategy has the
same risk like overall cost leadership strategy has. Ex – UB Airways ticket fare Rs.1/-
4. Focused Differentiation Strategy - This strategy generates advantage based on the ability to
create more customer value for a narrowly targeted segment and results from a better
understanding of customer needs. Ex – Hotels
Strategic Alliance & Collaborative Partnership
A strategic alliance is an agreement between two or more parties to pursue a set of agreed upon
objectives needed while remaining independent organizations. This form of cooperation lies
between mergers and acquisitions and organic growth. Strategic alliances occurs when two or
more organizations join together to pursue mutual benefits.
Partners may provide the strategic alliance with resources such as products, distribution
channels, manufacturing capability, project funding, capital equipment, knowledge, expertise, or
intellectual property. The alliance is a cooperation or collaboration which aims for a synergy
where each partner hopes that the benefits from the alliance will be greater than those from
individual efforts. The alliance often involves technology transfer (access to knowledge and
expertise), economic specialization shared expenses and shared risk. There are many reasons to
enter a Strategic Alliance:
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Shared risk: The partnerships allow the involved companies to offset their market
exposure. Strategic Alliances probably work best if the companies´ portfolio complement
each other, but do not directly compete.
Shared knowledge: Sharing skills (distribution, marketing, management), brands, market
knowledge, technical know-how and assets leads to synergistic effects, which result in
pool of resources which is more valuable than the separated single resources in the
particular company.
Opportunities for growth: Using the partner´s distribution networks in combination
with taking advantage of a good brand image can help a company to grow faster than it
would on its own. The organic growth of a company might often not be sufficient enough
to satisfy the strategic requirements of a company, that means that a firm often cannot
grow and extend itself fast enough without expertise and support from partners
Speed to market: Speed to market is an essential success factor In nowadays competitive
markets and the right partner can help to distinctly improve this.
Complexity: As complexity increases, it is more and more difficult to manage all
requirements and challenges a company has to face, so pooling of expertise and
knowledge can help to best serve customers.
Costs: Partnerships can help to lower costs, especially in non-profit areas like research &
development.
Access to resources: Partners in a Strategic Alliance can help each other by giving
access to resources, (personnel, finances, technology) which enable the partner to
produce its products in a higher quality or more cost efficient way.
Access to target markets: Sometimes, collaboration with a local partner is the only way
to enter a specific market. Especially developing countries want to avoid that their
resources are exploited, which makes it hard for foreign companies to enter these markets
alone.
Economies of Scale: When companies pool their resources and enable each other to
access manufacturing capabilities, economies of scale can be achieved. Cooperating with
appropriate strategies also allows smaller enterprises to work together and to compete
against large competitors.
Advantages
Access to new technology, intellectual property rights,
Create critical mass, common standards, new businesses,
Diversification,
Improve agility, R&D, material flow, speed to market,
Reduce administrative costs, R&D costs, cycle time
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Allowing each partner to concentrate on their competitive advantage.
Learning from partners and developing competencies that may be more widely exploited
elsewhere.
To reduce political risk while entering into a new market
Disadvantages
Disadvantages of strategic alliances include:
Sharing: In a Strategic Alliance the partners must share resources and profits and often
skills and know-how. This can be critical if business secrets are included in this
knowledge. Agreements can protect these secrets but the partner might not be willing to
stick to such an agreement.
Creating a Competitor: The partner in a strategic alliance might become a competitor
one day, if it profited enough from the alliance and grew enough to end the partnership
and then is able to operate on its own in the same market segment.
Opportunity Costs: Focusing and committing is necessary to run a Strategic Alliance
successfully but might discourage from taking other opportunities, which might be
benefitial as well.
Uneven Alliances: When the decision powers are distributed very uneven, the weaker
partner might be forced to act according to the will of the more powerful partners even if
it is actually not willing to do so.
Foreign confiscation: If a company is engaged in a foreign country, there is the risk that
the government of this country might try to seize this local business so that the domestic
company can have all the market on its own.
Risk of losing control over proprietary information, especially regarding complex
transactions requiring extensive coordination and intensive information sharing.
Coordination difficulties due to informal cooperation settings and highly costly dispute
resolution
Common Mistakes
Many Companies struggle to operate their alliances in the way they imagined it and many of
these partnerships fail to reach their defined goals. There are some very “popular” mistakes
which can be seen again and again. Some are mentioned here:
Low commitment
Poor operating/planning integration
Strategic weakness
Rigidity/ poor adaptability
Too strong focus on internal alliance issues instead on customer value
Not enough preparation time
Hidden agenda leading to distrust
Lack of understanding of what is involved
Unrealistic expectations
Wrong expectation of public perception leading to damage of reputation
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Underestimated complexity
Reactive behavior instead of prepared, proactive actions
Overdependence
Legal problems
Classification
– All partners poor their R & D efforts together by
exchanging information and ideas among themselves through networking in order to reduce
costs, time and risk.
– Aims at improving production or services efficiently
through exchange of information about the task.
– To create synergistic effect for marketing products
and or services, thereby enhancing sales revenue and reducing marketing costs.
Such alliances are quite common in India.
-country Alliance - Alliance among foreign country partners or from
the same country. In the globalization of world economy, many alliances have been formed at
International level.
1. X & Y Alliance - Partners may be of same skills or different skills join together to reap the
benefits of economies of scale.
Collaborative Partners
Any alliance is passable with minimum two partners and any number of partners with the Core
Competence (competitive skills), commitment and expertised back ground on these lines. There are
essential qualifications that make the Partnership successful. A corporate-level growth strategy in which
two or more firms agree to share the costs, risks and benefits associated with pursuing new business
opportunities. The strategic alliances are often referred to as partnership.
Mergers & Acquisition Strategy:
Mergers and acquisitions are both aspects of strategic management, corporate finance and
management dealing with the buying, selling, dividing and combining of different companies
and similar entities that can help an enterprise grow rapidly in its sector or location of origin, or a
new field or new location, without creating a subsidiary, other child entity or using a joint
venture.
M&A can be defined as a type of restructuring in that they result in some entity reorganization
with the aim to provide growth or positive value. Consolidation of an industry or sector occurs
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when widespread M&A activity concentrates the resources of many small companies into a few
larger ones, such as occurred with the automotive industry between 1910 and 1940.
The distinction between a "merger" and an "acquisition" has become increasingly blurred in
various respects (particularly in terms of the ultimate economic outcome), although it has not
completely disappeared in all situations. From a legal point of view, a merger is a legal
consolidation of two companies into one entity, whereas an acquisition occurs when one
company takes over another and completely establishes itself as the new owner (in which case
the target company still exists as an independent legal entity controlled by the acquirer). Either
structure can result in the economic and financial consolidation of the two entities. In practice, a
deal that is a merger for legal purposes may be euphemistically called a "merger of equals" if
both CEOs agree that joining together is in the best interest of both of their companies, while
when the deal is unfriendly (that is, when the management of the target company opposes the
deal) it is almost always regarded as an "acquisition".
Merger or Amalgamation: is the integration of two or more business. Is also the joining of two
separate Cos to form a single Co – an external strategy for growth of the organization. A
corporate-level growth strategy in which a firm combines with another firm through an exchange
of stock. A merger occurs when two or more firms, usually of similar sizes, combine into one
through an exchange of stock. Mergers are generally undertaken to share or transfer resources
and or improve competitiveness by developing synergy. The name of the merged Co will go after
merging. There will be one Company i.e. Merger.
Reasons for Merger
1. Quick entry in the business.- There is no gestation time and familiarity of the product
orservice to the market and customers.
2. Faster Growth Rate - The volume of business can be raised rapidly with less risk. Youcan
overcome a competitors in certain cases. Ready utilities like production, marketing,distribution,
research & Development.
3. Diversification Advantages - If the acquiring Co or Merger Co wants to diversify, theycan
takeover the same product Co and enter into the business with less time..
4. Reduction in Competitors and Dependence - You can eliminate Competitors andincrease in
your market share. You can enjoy a ready market.
5. Tax advantage - If the merged Co possessing accumulated losses can be set off by theMerger
Co.
6. Synergistic Advantages - The complementary capabilities can be achieved like2 + 2 = 5 in
Marketing, investment, operating (utilization of common facilities,personnel, overheads,
inventories etc), Common Management and avoidingduplicating of managerial and other
personnel.
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Causes for failure
1. In accuracy (manipulated) of data causing teething problems after merger. The advantages are
over emphasized and weaknesses are suppressed.
2. Incompatibility of managerial and other persons causing misalignment of operations.
3. Inadequate planning of merger causing confusion, misunderstanding and delays.
Acquisition or Takeover
is where one business purchases another. Is the purchase of a controlling interest in another Co.
A form of a merger whereby one firm purchases another, often with a combination of cash and
stock. Firms with large, successful businesses often acquire smaller competitors with different or
complementary product or service lines. Like Cement to Cement, Soap to Soap, Car to Car etc.
Acquiring the existing organizations, products, technology, facilities, talent or manpower has the
strong advantage of much quicker entry into the target market, while at the same time detouring
such barriers to entry as licensing, patents, technological inexperience, lack of raw material
suppliers, substantial economies of scale, establishment of distribution channels, etc.
The acquisition or Merger goes with a strong report on survey of economics, business prospects,
brand equity and financial soundness
The acquirer should attempt an evaluation of the following
1. The prospects of technological change in the industry.
2. The size and strength of competitors.
3. The reaction of competitors to an acquisition.
4. The likelihood of government information and legislation.
5. The state of the industry and its long-term prospects.
6. The amount of synergy obtaininable from the merger or acquisition
Takeover is done through negotiations or by calling bids by outsiders. The first basic step inacquisition
process is the definition of acquisitions objectives. This is necessary because it willdefine
precisely the type of organization to be acquired and consequently the type of effortsrequired in
the process. The terms are to be complementary to both. The focus is on valuecreation to the
acquirer Co. The strength and weaknesses are worked out and solutions are foundwith a planning
the program of acquisition schedule.
Outsourcing Strategies:
What distinguishes an outsourcing arrangement from any other business arrangement is the
transfer of ownership of an organization’s business activities (processes or functions)-or the
responsibility for the business outcomes flowing from these activities-to a service provider. In a
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typical outsourcing arrangement, the people, the facilities, the equipment and the technology (the
Factors of Production) are also transferred to the service provider, which then uses the Factors of
Production to provide the services back to the organization. The people are often transferred to
the service provider, but this is not always the case.
An outsourcing arrangement can be either “tactical” or “strategic.” An outsourcing is tactical
when it is driven by a desire to solve a practical problem. For example, a company may find that
its payroll clerk is not able to process payroll changes, cheques, tax returns and make the
required accounting entries on time. The company concludes that although the payroll clerk is
competent, there is too much work for a single person. The company outsources the payroll
process (including the clerk), and ends up with all of the payroll work done on time and at a
lower cost. As a result, it achieves a net gain in operational efficiency. Similarly, if an
organization outsources its IT infrastructure so it can save five to 10 per cent on the cost of
operating that function, the outsourcing is purely tactical.
“Strategic” outsourcing, on the other hand, is not driven by a problem-solving mentality. Instead,
it is structured so that it is aligned with the company’s long-term strategies. The changes that
organizations expect from strategic outsourcing vary and can include anything from
(a) achieving a gain in competitive advantage,
(b) spending more time on those activities that are truly central to the success of the organization,
(c) repositioning the organization in the marketplace, or
(d) achieving a dramatic increase in share price
Outsourcing has been around for a long time, but it is only in the most recent past that it has
become known by that name. A classic example is Coca-Cola. By the late 1890s, Coca-Cola had
already established itself as a highly successful soft drink company, but the firm was looking to
extend its business across new markets. Although bottling was then considered an emerging
source of competitive advantage, Coca-Cola decided that it did not have the capital, the time or
the expertise to produce its own bottles. Production methods for bottles at the time were
primitive, the result inconsistent, and quality control was a significant concern. Coca-Cola chose
to license a group of independent bottlers to whom it sold its syrup while imposing strict quality
controls. In the next several decades, Cola-Cola was able to achieve its key strategic business
objectives, including vastly expanding its market and protecting its good name. By outsourcing
the non-core business function of bottling its products, Coca-Cola was able to focus on its core
business objectives (such as maintaining high product quality, protecting its brand and growing
market share).
By the late 1970s, however, bottled products had developed into a significant competitive
feature. While Coca-Cola’s competitors were making significant headway in the bottling of soft
drinks, the company’s independent bottlers were not improving their business. Coca-Cola was
losing market-share to its main competitors. In 1979, the company responded by taking steps to
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buy out several of its bottle-making alliance partners so it could develop its own internal
capability in what had become a strategic area.
First-Mover Advantages & Disadvantages
Benefits derived from being the first firm to offer a new or modified product or
service.Prospectors typically seek “First-mover advantages” by becoming First to enter the
market.First mover advantages can be strong, as demonstrated by; product widely known by
theiroriginal brand names. Being first, however, can be a risky proposition, and research has
shownthat competitors may be able to catch up quickly and effectively. As a result, prospectors
mustdevelop expertise in innovation and evaluate risk scenarios effectively.Defenders are almost
the opposite of prospectors. They perceive the environment to be stableand certain, seeking
stability and control in their operations to achieve maximum efficiency Inhigh-technology
industries, companies often compete by surviving to be the first to developrevolutionary new
products, that is, to be a “ First Mover” By definition, the first mover withregard to a
revolutionary product satisfies unmet consumer needs and demand is high, the firstmover can
capture significant revenues and profits. Such revenues and profits signal to potentialrivals that
there is money to be made by imitation will rush into the market created by the firstmover,
competing away the first mover’s monopoly profits and leaving all participants in themarket with
a much lower level of returns.
Advantages
1. An opportunity to exploit a virgin market network effects and positive feedback loops,locking
consumers into its technology.
2. Can establish significant Brand Loyalty which is expensive for later entrants to breakdown.
3. Be able to grab sales volume ahead of rivals and thus reap cost advantages associated withthe
realization of scale economies and learning effects.
4. Be able to create switching costs for its customers that subsequently make it difficult forrivals
to enter the market. Can change the product features what the rivals are making. Andstill can
compete with them.
5. Be able to accumulate valuable knowledge related to customer needs, distributionchannels,
product technology process technology etc
Disadvantages
1. Significant pioneering costs is to be incurred which the rival need not. Fromprocessing,
marketing channels, pricing etc are to be done “One time” carries a risk.
2. Prone to make mistakes because there are so many uncertainties in a new market.
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3. Risk of building the wrong resource and capabilities because they are focusing on acustomer
set that is not going to be characteristic of the mass market. “trial & error” cost.
4. Risk of investing in an inferior or obsolete technology as there is speed of change on
designand function of the product.
International Business level strategies – Strategic Alliance & Joint Venture.
Global Strategy or International Business Strategy is relevant in Globalization of Trade and
commerce. Some Cos choose to be involved on an International basis by operating in various
countries but limiting their involvement to importing, exporting, licensing or making strategic
alliances. Exporting alone can significantly benefit even a small Co. However, international joint
ventures – a form of strategic alliance involving co-operative arrangements between business
across borders - may be desirable even when resources for a direct investment are available.
Firms with global objectives may decide to invest directly in facilities abroad. Due to the
complexities associated with establishing operations across borders, however, strategic alliances
may be particularly attractive to firms seeking to expand their global involvement. Companies
often possess market, regulatory and other knowledge about their domestic markets but may
need to “partner” with Cos abroad to gain access to this knowledge as it pertains to international
markets. International strategic alliances provide a number of advantages to a firm . They can
provide entry into a global market, access to the partner’s knowledge about the foreign market,
and risk sharing with the partner firm. They can work effectively when partners can learn from
each other, when neither partner is large enough to function alone, and when both partners share
common strategic goal but are not in direct competition. However a number of problems can
arise from International joint ventures, including disputes and lack of trust over proprietary.
Knowledge, cultural difference between firms and disputes over ways to share the costs and
revenues associated with the partnerships.
Most manufacturing Cos begin their global expansion as exporters and only later switch to one
of the other does for serving a foreign market.
1. International licensing - An arrangement whereby a foreign licensee purchases the rights to
produce a company’s products and/or use its technology in the licensee’s country for a
negotiated fee structure. Eg - Pharmaceuticals, patented goods which has a formula.
2. International franchising - . A form of licensing in which a local franchisee pays a franchiser
in another country for the right to use the franchiser’s brand names, promotions, materials and
producer. Franchising is more used in Service Industries such as fast food.
3. Exporting: Exporting has two distinct advantages: it avoids the costs of establishing
manufacturing operations in the host country, which are often substantial and it may be
consistent with realizing experience curve cost economies and location economies.
4. Foreign Branching: Is an extension of the Company in its foreign market – a separate located
strategic business unit directly responsible for fulfilling the operational duties assigned to it by
corporate management, including sales, customer service and physical distribution Host counties
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may require that the brands to be “domesticated”, that is, have some local managers in middle
and upper-level positions.
5. Wholly Owned Subsidiary: Is one in which the parent Co owns 100% of subsidiary’s shares.
To establish a wholly owned subsidiary in a foreign market, a company can either set up a
completely new operation in that country or acquire an established host country Co and use it to
promote its products in the host market. There are 3 advantages a)Competitive advantage is
based on its control of a technical (high-tech) competency b)Freedom to have full control in all
areas of operation and full profits unlike in JV c) It can recognize the local resources and further
develop/expand the business lines. The disadvantage is, considerable amount of investment and
running high risk.
6. Joint Venture: is a contractual arrangement whereby two or more parties undertake an
economic activity; which is subject to joint control. A form of Multi National Strategy Cos goes
for Joint Venture with a target nation firm. JV involves Collaboration rather than mere exchange.
Establishing a JV with a foreign Co has long been a favored mode of entering a new market. The
advantages are, it can benefit from a local partner’s knowledge of a host country’s competitive
conditions, culture, language, political systems and business systems. When the development
costs and risks of opening a foreign market are high, a company might gain by sharing these
costs and risk with a local partner. Depending upon the political linkage, the JV gets
encouragement from Govt. The disadvantage is the Technical Know-how goes in the hand of
partner other controls like market, production, quality etc The majority stake holder is likely to
dominate and take control of very thing., there arising misunderstanding and in efficiency; JV
can be made within the country which is very common. The Cos having the core competence in
their respective fields will come together, form a Co and carry on the Economic activity.
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Module 5 (7 Hours)
Business Planning in different environments – Entrepreneurial Level Business planning – Multistage
wealth creation model for entrepreneurs– Planning for large and diversified companies –brief overview of
Innovation, integration, Diversification, Turnaround Strategies - GE nine cell planning grid and BCG
matrix.
Business planning in different environments
Business Planning:
Business planning, also known as strategic planning or long-range planning, is a management-directed
process that is intended to determine a desired future state for a business entity and to define overall
strategies for accomplishing the desired state. Through planning, management decides what objectives to
pursue during a future period, and what actions to undertake to achieve those objectives.
Successful business planning requires concentrated time and effort in a systematic approach that involves:
assessing the present situation; anticipating future profitability and market conditions; determining
objectives and goals; outlining a course of action; and analyzing the financial implications of these
actions. From an array of alternatives, management distills a broad set of interrelated choices to form its
long-term strategy. This strategy is implemented through the annual budgeting process, in which detailed,
short-term plans are formulated to guide day-to-day activities in order to attain the company's long-term
objectives and goals.
A business plan is an externally focused document that provides more detailed information on the
proposed development of an organisation, and is likely to be shared with potential investors - funding
bodies for the voluntary and community sector.
1. A business plan will usually include more detailed information on the financial position of the
organisation, financial forecasts, and competitor and market analysis.
2. A business plan is more formal and detailed in its structure and contents.
3. It may be more difficult to present the level of detail required within a business plan in a pictorial
format, for example.
The use of formal business planning has increased significantly over the past few decades. The increase in
the use of formal long-range plans reflects a number of significant factors:
Competitors engage in long-range planning.
Global economic expansion is a long-range effort.
Taxing authorities and investors require more detailed reports about future prospects and annual
performance.
Investors assess risk/reward according to long-range plans and expectations.
Availability of computers and sophisticated mathematical models add to the potential and
precision of long-range planning.
Expenditures for research and development increased dramatically, resulting in the need for
longer planning horizons and huge investments in capital equipment.
Steady economic growth has made longer-term planning more realistic.
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TYPES OF PLANS
In addition to differentiation by planning horizon, plans are often classified by the business function they
provide. All functional plans emanate from the strategic plan and define themselves in the tactical plans.
Four common functional plans are:
1. Sales and marketing: for developing new products and services, and for devising marketing plans
to sell in the present and in the future.
2. Production: for producing the desired product and services within the plan period.
3. Financial: for meeting the financing needs and providing for capital expenditures.
4. Personnel: for organizing and training human resources.
Each functional plan is interrelated and interdependent. For example, the financial plan deals with moneys
resulting from production and sales. Well-trained and efficient personnel meet production schedules.
Motivated salespersons successfully market products.
Two other types of plans are strategic plans and tactical plans. Strategic plans cover a relatively long
period and affect every part of the organization by defining its purposes and objectives and the means of
attaining them. Tactical plans focus on the functional strategies through the annual budget. The annual
budget is a compilation of many smaller budgets of the individual responsibility centers. Therefore,
tactical plans deal with the micro-organizational aspects, while strategic plans take a macro-view.
Entrepreneurial Level Business planning
A business owner has to choose a model of planning, such as strategic planning, that will guide the entire
business. Planning is about setting goals that can be timed and measured to determine if a company meets
the desired level of performance. Without a strategic plan, a business owner will make more reactive
decisions in response to the market. With a strategic plan, all of the firm's employees will know what
direction to take.
Multi stage wealth creation model for entrepreneurs
Entrepreneur
Resource capabilities
Values/beleifs
Characteristics
Networks
Environment
Dynamism
Gostility
Heterogeneity
Strategic Orientation
Risk taking
Innovation
Pro activeness
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Autonomy
Planning for large and diversified companies
In smaller companies, strategic planning is a less formal, almost continuous process. The president and
his handful of managers get together frequently to resolve strategic issues and outline their next steps.
They need no elaborate, formalized planning system. Even in relatively large but undiversified
corporations, the functional structure permits executives to evaluate strategic alternatives and their action
implications on an ad hoc basis. The number of key executives involved in such decisions is usually
small, and they are located close enough for frequent, casual get-togethers.
Large, diversified corporations, however, offer a different setting for planning. Most of them use the
product/market division form of organizational structure to permit decentralized decision making
involving many responsibility-center managers. Because many managers must be involved in decisions
requiring coordinated action, informal planning is almost impossible.Therefore, even executives whose
corporate situation permits informal planning may find that our delineation of the process helps them
clarify their thinking. To this end, formalizing the steps in the process requires an explanation of the
purpose of each step.
Three Levels of Strategy
Every corporate executive uses the words strategy and planning when he talks about the most important
parts of his job. The president, obviously, is concerned about strategy; strategic planning is the essence of
his job. A division general manager typically thinks of himself as the president of his own enterprise,
responsible for its strategy and for the strategic planning needed to keep it vibrant and growing. Even an
executive in charge of a functional activity, such as a division marketing manager, recognizes that his
strategic planning is crucial; after all, the company’s marketing strategy (or manufacturing strategy, or
research strategy) is a key to its success.
These quite appropriate uses of strategy and planning have caused considerable confusion about long-
range planning. This article attempts to dispel that confusion by differentiating among three types of
“strategy” and delineating the interrelated steps involved in doing three types of “strategic planning” in
large, diversified corporations. (Admittedly, although we think our definitions of strategy and planning
are useful, others give different but reasonable meanings to these words.)
The process of strategy formulation can be thought of as taking place at the three organizational levels
headquarters (corporate strategy), division (business strategy), and department (functional strategy). The
planning processes leading to the formulation of these strategies can be labeled in parallel fashion as
corporate planning, business planning, and functional planning.
Corporate planning and strategy—Corporate objectives are established at the top levels. Corporate
planning, leading to the formulation of corporate strategy, is the process of (a) deciding on the company’s
objectives and goals, including the determination of which and how many lines of business to engage in,
(b) acquiring the resources needed to attain those objectives, and (c) allocating resources among the
different businesses so that the objectives are achieved.
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Business planning and strategy—Business planning, leading to the formulation of business strategy, is the
process of determining the scope of a division’s activities that will satisfy a broad consumer need, of
deciding on the division’s objectives in its defined area of operations, and of establishing the policies
adopted to attain those objectives. Strategy formulation involves selecting division objectives and goals
and establishing the charter of the business, after delineating the scope of its operations vis-à-vis markets,
geographical areas, and/or technology.Thus, while the scope of business planning covers a quite
homogeneous set of activities, corporate planning focuses on the portfolio of the divisions’ businesses.
Corporate planning addresses matters relevant to the range of activities and evaluates proposed changes in
one business in terms of its effects on the composition of the entire portfolio.
Functional planning and strategy—In functional planning, the departments develop a set of feasible
action programs to implement division strategy, while the division selects—in the light of its objectives—
the subset of programs to be executed and coordinates the action programs of the functional departments.
Strategy formulation involves selecting objectives and goals for each functional area (marketing,
production, finance, research, and so on) and determining the nature and sequence of actions to be taken
by each area to achieve its objectives and goals. Programs are the building blocks of the strategic
functional plans.
Entrepreneurial Level Business planning grand Strategies;
Identification of various alternative strategies is an important aspect of strategic management asit
provides the alternatives which can be considered and selected for implementation in order toarrive at
certain results The basic objective of identification of strategic alternatives is two fold:
First, the managers should be aware about the various courses of action available to them andsecond, even
if large number of possible alternative actions are available to them, even if largenumber of possible
alternative actions are available, they should be in a position to limitthemselves to various relevant
alternatives so that unnecessary exercises are not taken up. TheGrand strategy covers up
1. Stability - In an effective stability strategy, Cos will concentrate their resources wherethe Company
presently has or can rapidly develop a meaningful competitive advantage inthe narrowest possible
product-market scope consistent with the firm’s resources andmarket requirement.
2. Growth - Is one that an enterprise pursues when it increases its level of objectivesupward in significant
increment, much higher than an exploration of its past achievementlevel. The most frequent increase
indicating a growth strategy; is to raise the marketshare and or sales objectives upward significantly
3. Retrenchment - Is one that an entries pursues when it decides to improve its performancein reaching
its objectives by (i) focusing on functional improvement, specially reductionin cost (ii) reducing the
number of functions it performs by becoming a captivecompany or (iii) reducing the number of the
products and markets it serves up to andincluding liquidation of the business. ( Turnaround, divestment,
liquidation)
4. Turnaround: Also known as cutback strategy has the basic philosophy “hold the presentbusiness and
cut the costs”. This situation needed as no organization is immune frominternal hard time-stagnation or
declining performance no matter what the state ofeconomy is. It can be for a part of the Co when
economical advantage is under stress. Itis a scanning process to cut costs to see that it becomes viable.
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5. Divestment Strategy: The organization after observing for some time finds there is nofuture to the
dept or product decides to dispose of. This is done by transferring the sharesto the buyer at a specific
negotiated rate. There may be reasons like a company wants togo for a new project wants to dispose of
the existing company can also go bydisinvestment route.
6. Liquidation Strategy: When a specific line of activity i.e. production or service is notprofitable and no
future and also that there are no buyers through disinvestment process,can dismantle and liquidate the
assets and collect money to be used in the profitableareas. Generally, the Cos having accumulated losses
or forthcoming period is notpromising, liquidation is one option.
7. Combination: It is a combination of stability, growth, retrenchment strategies in variousforms. The
basic reason for adopting this strategy by a multi-business organization isthat a single strategy does not fit
all businesses at a particular point of time, because eachbusiness faces different kinds of problems. Like
life cycle, recession, severe completionfrom better technology products etc
8. Business Restructuring: Choosing the profitable lines and ignoring the loss making orless profitable
units so that more concentration can be given to the prospering lines. Cuttingdown overheads by reducing
less utility manpower starting from top.
Innovation strategy
Is a key factor in the success or many companies, specifically those industries dealing
specifically in the fiercely competitive field of technology.
Innovation
• Innovation is needed since both consumer and industrial markets expect periodic changes
and improvements in the products offered.
• Firms seeking to making innovation as their grand strategy seek to reap the initially high
profits associated with customer acceptance of a new or greatly improved product.
• As the products enters the maturity stage these companies start looking for a new
innovation.
• The underlining rationale is to create a new product life cycle and thereby make similar
existing products obsolete.
• This strategy is different from the product development strategy in which the product life
cycle of an existing product is extended.
– e.g. Polaroid which heavily promotes each of its new cameras until competitors
are able to match its technological innovation; by this time Polaroid normally is
prepared to introduce a dramatically new or improved product.
Integration strategy
takes place when companies merge or one company buys another.Horizontal integration
Seeking ownership or increased control over competitors
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Horizontal integration refers to a strategy of seeking ownership of or increased control over a
firm's competitors. One of the most significant trends in strategic management today is the
increased use of horizontal integration as a growth strategy. Mergers, acquisitions, and takeovers
among competitors allow for increased economies of scale and enhanced transfer of resources
and competencies.
Increased control over competitors means that you have to look for new opportunities
either by the purchase of the new firm or hostile take over the other firm. One
organization gains control of other which functioning within the same industry.
It should be done that every firm wants to increase its area of influence, market share and
business.
It is a strategy in which a firms long term strategy is based on growth through acquisition
of one or more similar firms operating at the same stage of the production-marketing
chain. E.g. Acquisition of Arcelor by Mittal Steels
Such acquisitions eliminate competitors and provide the acquiring firm with access to
new markets.
The acquiring firm is able to greatly expand its operations, thereby achieving greater
market share, improving economics of scale, and increasing the efficiency of capital use.
The risk associated with horizontal integration is the increased commitment to one type
of business.
Vertical integration
• It is a process in which a firm's grand strategy is to acquire firms that supply it with
inputs (such as raw materials) or are customers for its outputs (such as warehouses for
finished products).
• The acquiring of suppliers is called backward integration.
• The main reason for backward integration is the desire to increase the dependability of
the supply or quality of the raw materials used in the production inputs.
• This need is particularly great when the number of suppliers are less and the number of
competitors is large.
• In these conditions a vertically integrated firm can better control its costs and, thereby,
improve the profit margin.
– e.g. acquiring of textile producer by a shirt manufacturer
• The acquiring of customers is called forward integration.
– e.g. acquiring of clothing store by a shirt manufacturer
Benefits of vertical integration strategy:
It Allows a firm to gain control over:
� Distributors (forward integration)
� Suppliers (backward integration)
� Competitors (horizontal integration)
Forward integration: Gaining ownership or increased control over distributors or retailers
Forward integration involves gaining ownership or increased control over distributors or retailer
can gain ownership or control over the distributors, suppliers and
Competitors using forward integration.
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Guidelines for the use of integration strategies:
Six guidelines when forward integration may be an especially effective strategy are:
� Present distributors are expensive, unreliable, or incapable of meeting firm’s needs
� Availability of quality distributors is limited
� when firm competes in an industry that is expected to grow markedly
� Organization has both capital and human resources needed to manage new business of
distribution
� Advantages of stable production are high
� Present distributors have high profit margins
Backward Integration –
Seeking ownership or increased control of a firm’s suppliers
Both manufacturers and retailers purchase needed materials from suppliers. Backward
integration is a strategy of seeking ownership or increased control of a firm's suppliers. This
strategy can be especially appropriate when a firm's current suppliers are unreliable, too costly,
or cannot meet the firm's needs.
Guidelines for Backward Integration:
Six guidelines when backward integration may be an especially effective strategy are:
� When present suppliers are expensive, unreliable, or incapable of meeting needs
� Number of suppliers is small and number of competitors large
� High growth in industry sector
� Firm has both capital and human resources to manage new business
� Advantages of stable prices are important
� Present supplies have high profit margins
Diversification Strategies
Diversification strategies are becoming less popular as organizations are finding it more difficult
to manage diverse business activities. In the 1960s and 1970s, the trend was to diversify so as not
to be dependent on any single industry, but the 1980s saw a general reversal of that thinking.
Diversification is now on the retreat.
Diversification is a form of corporate strategy for a company. It seeks to increase profitability
through greater sales volume obtained from new products and new markets. Diversification can
occur either at the business unit level or at the corporate level. At the business unit level, it is
most likely to expand into a new segment of an industry which the business is already in. At the
corporate level, it is generally] and it is also very interesting entering a promising business
outside of the scope of the existing business unit.
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Diversification is part of the four main marketing strategies defined by the
Product/Market Ansoff matrix:
Ansoff pointed out that a diversification strategy stands apart from the other three strategies. The
first three strategies are usually pursued with the same technical, financial, and merchandising
resources used for the original product line, whereas diversification usually requires a company
to acquire new skills, new techniques and new facilities.
Ansoff's matrix provides four different growth strategies:
Market Penetration - the firm seeks to achieve growth with existing products in their
current market segments, aiming to increase its market share.
Market Development - the firm seeks growth by targeting its existing products to new
market segments.
Product Development - the firms develops new products targeted to its existing market
segments.
Diversification - the firm grows by diversifying into new businesses by developing new
products for new markets.
Selecting a Product-Market Growth Strategy
The market penetration strategy is the least risky since it leverages many of the firm's existing
resources and capabilities. In a growing market, simply maintaining market share will result in
growth, and there may exist opportunities to increase market share if competitors reach capacity
limits. However, market penetration has limits, and once the market approaches saturation
another strategy must be pursued if the firm is to continue to grow.
Market development options include the pursuit of additional market segments or geographical
regions. The development of new markets for the product may be a good strategy if the firm's
core competencies are related more to the specific product than to its experience with a specific
market segment. Because the firm is expanding into a new market, a market development
strategy typically has more risk than a market penetration strategy.
A product development strategy may be appropriate if the firm's strengths are related to its
specific customers rather than to the specific product itself. In this situation, it can leverage its
strengths by developing a new product targeted to its existing customers. Similar to the case of
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new market development, new product development carries more risk than simply attempting to
increase market share.
Diversification is the most risky of the four growth strategies since it requires both product and
market development and may be outside the core competencies of the firm. In fact, this quadrant
of the matrix has been referred to by some as the "suicide cell". However, diversification may be
a reasonable choice if the high risk is compensated by the chance of a high rate of return. Other
advantages of diversification include the potential to gain a foothold in an attractive industry and
the reduction of overall business portfolio risk.
The two principal objectives of diversification are
1. improving core process execution, and/or
2. enhancing a business unit's structural position.
The fundamental role of diversification is for corporate managers to
create value for stockholders in ways stockholders cannot do better for
themselves. The additional value is created through synergetic
integration of a new business into the existing one thereby increasing its competitive advantage.
Diversification typically takes one of three forms:
1. Vertical integration – along value chain
2. Horizontal diversification – moving into new industry
3. Geographical diversification – open up new markets
Means of achieving diversification include internal development ,acquisitions, strategic
alliances, and joint ventures. As each route has its own set of issues, benefits, and limitations,
various forms and means of diversification can be mixed and matched to create a range of
options.
The different types of diversification strategies
The strategies of diversification can include internal development of new products or markets,
acquisition of a firm, alliance with a complementary company, licensing of new technologies,
and distributing or importing a products line manufactured by another firm. Generally, the final
strategy involves a combination of these options. This combination is determined in function of
available opportunities and consistency with the objectives and the resources of the company.
There are three types of diversification: concentric, horizontal and conglomerate:
Concentric Diversification
Adding new, but related, products or services is widely called concentric diversification.
Guidelines for Concentric Diversification
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• It involves the acquisition of businesses that are related to the acquiring firm in terms of
technology, markets, or products.
• The selected new business must possess a very high degree of compatibility with the
firm's existing business.
• The ideal concentric diversification occurs when the combined company profits increase
the strengths and opportunities and decreases the weaknesses and exposure to risk.
• Thus, the acquiring firm searches for new businesses whose products, markets,
distribution channels, technologies and resource requirements are similar to but not
identical with its own, whose acquisition results in synergies but not complete
interdependence.
– e.g. acquiring of Spice Telecom by Idea
Five guidelines when concentric diversification may be an effective strategy are provided below:
� Competes in no- or slow-growth industry
� Adding new & related products increases sales of current products
� New & related products offered at competitive prices
� Current products are in decline stage of the product life cycle
� Strong management team
Conglomerate Diversification
Adding new, unrelated products or services
Adding new, unrelated products or services is called conglomerate diversification. Some firms
pursue conglomerate diversification based in part on an expectation of profits from breaking up
acquired firms and selling divisions piecemeal.
• It is a grand strategy in which a very large firm plans to acquire a business because it
represents the most promising investment opportunity available.
• The principal concern, and often the sole concern, of the acquiring firm is the profit
pattern of the venture.
• They may seek a balance in their portfolio between current businesses with cyclical sales
and acquired businesses with countercyclical sales, between high-cash/low-opportunity
and low-cash/high-opportunity businesses or between debt-free and high leveraged
businesses.
– e.g. acquisition of Adlabs by Anil Dirubhai Ambani Group
Guidelines for Conglomerate Diversification
Four guidelines when conglomerate diversification may be an effective strategy are provided
below:
� Declining annual sales and profits
� Capital and managerial talent to compete successfully in a new industry
� Financial synergy between the acquired and acquiring firms
� Exiting markets for present products are saturated
Defensive Strategies
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In addition to integrative, intensive, and diversification strategies, organizations also could
pursue retrenchment, divestiture, or liquidation.
Turnaround
• Sometimes the profit of a company decline due to various reasons like economic
recession, production inefficiencies and innovative breakthrough by competitors.
• In many cases the management believes that such a firm can survive and eventually
recover if a concerted effort is made over a period of a few years to fortify its distinctive
competences.
• This is known as turnaround strategy.
Turnaround typically is begun with one or both of the following forms of retrenchment being
employed either singly or in combination.
1. Cost reduction
– It is done by decreasing the workforce through employee attrition, leasing rather
than purchasing equipment, extending the life of machinery, eliminating
promotional activities, laying off employees, dropping items from a production
line and discontinuing low-margin customers.
2. Asset reduction
– This includes sale of land, buildings and equipment not essential to the basic
activity of the firm.
• Research have showed that turnaround almost always was associated with changes in top
management.
• New managers are believed to introduce new perspectives, raise employee morale and
facilitate drastic actions like deep budgetary cuts in established programs.
Turnaround situation
• The model begins with the depiction of external and internal factors as causes of a firm's
performance downturn.
• When these factors continue to detrimentally impact the firm, its financial health is
threatened.
• Unchecked decline places the firm in a turnaround situation.
• Turnaround situations may be a result of years of gradual slowdown or months of sharp
decline.
• For a declining firm, stabilizing operations and restoring profitability almost always
entail strict cost reduction followed by shrinking back to those segments of the business
that have been the best prospects of attractive profit margins.
Situation severity
• The urgency of the resulting threat to company survival posed by the turnaround situation
is known as situation severity.
• Severity is the governing factor in estimating the speed with which the retrenchment
response will be formulated and activated.
• When severity is low, stability can be achieved through cost reduction alone.
• When severity is high cost reduction must be supplemented with more drastic asset
reduction measures.
• Assets targeted for divestiture are those determined to be underproductive.
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• More productive resources are protected and will become the core business in the future
plan of the company.
Turnaround response
• Turnaround response among successful firms typically include two strategic activities:
– Retrenchment phase
– Recovery phase
Retrenchment phase
• It consists of cost-cutting and asset-reducing activities.
• The primary objective of this process is to stabilize the firm's financial condition.
• Firms in danger of bankruptcy or failure attempt to halt decline through cost and asset
reductions.
• It is very important to control the retrenchment process in a effective and efficient
manner for any turnaround to be successful.
• After the stability has been attained through retrenchment, the next step of recovery phase
begins.
Recovery phase
• The primary causes of the turnaround situation will be associated with the recovery
phase.
• For firms that declined as a result of external problems, turnaround most often has been
achieved through creating new entrepreneurial strategies.
• For firms that declined as a result of internal problem, turnaround has been mostly
achieved through efficiency strategies.
• Recovery is achieved when economic measures indicate that the firm has regained its
predownturn levels of performance.
Tailoring strategy to fit specific industry and company situations
Strategies based on industry situation
• Strategies for emerging industries
• Strategies for competing in turbulent, high-velocity markets
• Strategies for competing in maturing industries
• Strategies for firms in stagnant or declining industries
• Strategies for competing in fragmented industries
Strategies based on company situation
• Strategies for sustaining rapid company growth
• Strategy for industry leaders
• Strategies for runner-up firms
• Strategies for weak and crisis-ridden businesses
GE nine cell planning grid
General Electric with the assistance of McKinsey and Company developed this matrix.
This martix includes 9 cells based on long-term industry attractiveness(on Y-axis) and business
strength/competitive position (on X-axis).
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The industry attractiveness includes Market size, Market growth rate, Market profitability,
Pricing trends, Competitive intensity / rivalry, Overall risk of returns in the industry, Entry
barriers, Opportunity to differentiate products and services, Demand variability, Segmentation,
Distribution structure, Technology development
Business strength and competitive position includes Strength of assets and competencies,
Relative brand strength (marketing), Market share, Market share growth, Customer loyalty,
Relative cost position (cost structure compared with competitors), Relative profit margins
(compared to competitors), Distribution strength and production capacity, Record of
technological or other innovation, Quality, Access to financial and other investment resources,
Management strength
L i m i t a t i o n s
It presents a somewhat limited view by not considering interactions among the business units
It neglects to address the core competencies leading to value creation
Rather than serving as the primary tool for resource allocation, portfolio matrices are better
suited to displaying a quick synopsis of the strategic business units.
B o s t o n c o n s u l t i n g m a t r i x ( B C G m a t r i x ) - P r o d u c t p o r t f o l i o
s t r a t e g y
Introduction
The business portfolio is the collection of businesses and products that make up the company.
The best business portfolio is one that fits the company's strengths and helps exploit the most
attractive opportunities.
The company must:
(1) Analyse its current business portfolio and decide which businesses should receive more or
less investment, and
(2) Develop growth strategies for adding new products and businesses to the portfolio, whilst at
the same time deciding when products and businesses should no longer be retained.
Methods of Portfolio Planning
The two best-known portfolio planning methods are from the Boston Consulting Group (the
subject of this revision note) and by General Electric/Shell. In each method, the first step is to
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identify the various Strategic Business Units ("SBU's") in a company portfolio. An SBU is a unit
of the company that has a separate mission and objectives and that can be planned independently
from the other businesses. An SBU can be a company division, a product line or even individual
brands - it all depends on how the company is organised.
The Boston Consulting Group Box ("BCG Box")
Using the BCG Box (an example is illustrated above) a company classifies all its SBU's
according to two dimensions:
On the horizontal axis: relative market share - this serves as a measure of SBU strength in the
market
On the vertical axis: market growth rate - this provides a measure of market attractiveness
By dividing the matrix into four areas, four types of SBU can be distinguished:
Stars - Stars are high growth businesses or products competing in markets where they are
relatively strong compared with the competition. Often they need heavy investment to sustain
their growth. Eventually their growth will slow and, assuming they maintain their relative market
share, will become cash cows.
Cash Cows - Cash cows are low-growth businesses or products with a relatively high market
share. These are mature, successful businesses with relatively little need for investment. They
need to be managed for continued profit - so that they continue to generate the strong cash flows
that the company needs for its Stars.
Question marks - Question marks are businesses or products with low market share but which
operate in higher growth markets. This suggests that they have potential, but may require
substantial investment in order to grow market share at the expense of more powerful
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competitors. Management have to think hard about "question marks" - which ones should they
invest in? Which ones should they allow to fail or shrink?
Dogs - Unsurprisingly, the term "dogs" refers to businesses or products that have low relative
share in unattractive, low-growth markets. Dogs may generate enough cash to break-even, but
they are rarely, if ever, worth investing in.
Using the BCG Box to determine strategy
Once a company has classified its SBU's, it must decide what to do with them. In the diagram
above, the company has one large cash cow (the size of the circle is proportional to the SBU's
sales), a large dog and two, smaller stars and question marks.
Conventional strategic thinking suggests there are four possible strategies for each SBU:
(1) Build Share: here the company can invest to increase market share (for example turning a
"question mark" into a star)
(2) Hold: here the company invests just enough to keep the SBU in its present position
(3) Harvest: here the company reduces the amount of investment in order to maximise the short-
term cash flows and profits from the SBU. This may have the effect of turning Stars into Cash
Cows.
(4) Divest: the company can divest the SBU by phasing it out or selling it - in order to use the
resources elsewhere (e.g. investing in the more promising "question marks").
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Module VI
Strategy Implementation – Operationalizing strategy, Annual Objectives, Developing Functiona l
Strategies, Developing and communicating concise policies. Institutionalizing the strategy.
Strategy, Leadership and Culture. Ethical Process and Corporate Social Responsibility.
Strategy Implementation:
After the creative and analytical aspects of strategy formulations are settle, the managerial
priority is converting the strategy into something operationally effect. This is the implementation
of strategy.
Implementation concerns can become quite challenging when a major strategic change is being
proposed. When the environment changes rapidly or abruptly, progressive firms take steps to
capitalize on new opportunities and or minimize the negative effects of the changes. Change can
be brought about by factors such as the need to address increased competition, improve quality
or service, reduce costs, or align the firm with the practices and expectations of its partners.
Strategic change can be transformational, such as when a firm changes its product lines, markets
or channels of distribution. Strategic change can also be operation, such as when a firm
overhauls its production system to improve quality and lower its costs of operations.
The implementation of policies and strategies is concerned with the design and management of
systems to achieve the best integration of people, structures, processes and resources, in reaching
organizational processes.
Strategy implementation may be said to consist of securing resources, organizing these resources
and directing the use of these resources within and outside the organization.
Strategy implementation is the translation of chosen strategy into organizational action so
as to achieve strategic goals and objectives. Strategy implementation is also defined as the
manner in which an organization should develop, utilize, and amalgamate organizational
structure, control systems, and culture to follow strategies that lead to competitive advantage and
a better performance. Organizational structure allocates special value developing tasks and roles
to the employees and states how these tasks and roles can be correlated so as maximize
efficiency, quality, and customer satisfaction-the pillars of competitive advantage. But,
organizational structure is not sufficient in itself to motivate the employees.
An organizational control system is also required. This control system equips managers with
motivational incentives for employees as well as feedback on employees and organizational
performance. Organizational culture refers to the specialized collection of values, attitudes,
norms and beliefs shared by organizational members and groups.
a) Operationalizing the strategy (communicating strategy, setting annual objectives,developing
divisional strategies and policies, and resource allocation)
b) Institutionalizing the strategy:(organizational structuring and leadership implementation.
c) Evaluation & control of the strategy
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Operationalizing Strategy
Operational zing the strategy requires transcending the various components of the strategy to
different level, mobilization and allocation of resources, structuring authority, responsibility, task
and information flows, establishing policies and evaluation and control.
Strategy is a blue print indicating the courses of action to achieve the desired objective. The
objectives are achieved by proper activation of the strategy or implementation steps in the
strategic management encompass the operational details to translate the strategy in for effective
practice. Strategy formulation is a intellectual process, whereas strategy implementation is more
operational in character. Strategy formulation requires good conceptual, integrative and
analytical skills but strategy implementation requires special skills in motivating and managing
others. Strategy formulation occurs primarily at the corporate level of the organization while
strategy implementation permeates all hierarchical levels.
Strategy activation encompasses communicating and motivating, setting goals, formulating
policies and functional strategies, organizational stunting, leadership implementation and
resource allocation.
Annual Objectives
Annual operating objective designed to contribute to the long term objectives is a critical step in
strategy implementation. Long term objectives indicate the planned long term positioning of the
organization. Short term objectives like annual objective lay down the specific goals and targets
to be achieved within the specific time frame so that the long term objectives would achieved.
Annual objectives should be measurable, consistent, reasonable, challenging, clear,
communicated thought the organization, characterized by appropriate time dimension and
accompanied by commensurate rewards and sanctions Annual objectives should prioritized due
to time consideration and relative impact on strategic success.
Annual objectives provide several benefits like:
1. Systematic development of annual objectives provides a tangible, meaningful focus through
which managers can translate long-term objectives and grand Strategies into specific action. It
helps to build coordinated relation between operations managers.
2. Helps objective resource allocation.
3. They become basis for monitoring the progress towards achieving long term objectives.
4. It provides a link between strategic intentions and operating reality.
Developing Functional Strategies
Organizational plan for human resources, marketing, research and development and other
functional areas. The functional strategy of a company is customized to a specific industry and
is used to back up other corporate and business strategies.
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Functional strategy- selection of decision rules in each functional area. Thus, functional
strategies in any organization, some (e.g., marketing strategy, financial strategy, etc.). It is
desirable that they have been fixed in writing.
In particular, functional strategies are as follows:
Production strategy( "make or buy") - defines what the company produces itself, and that
purchases from suppliers or partners, that is, how far worked out the production chain.
Financial Strategy- to select the main source of funding: the development of their own funds
(depreciation, profit, the issue of shares, etc.) or through debt financing (bank loans, bonds,
commodity suppliers' credits, etc.).
Organizational strategy- decision on the organization of the staff (choose the type of
organizational structure, compensation system, etc.).
May be allocated and other functional strategies, for example, the strategy for research and
experimental development (R & D), investment strategy, etc.
In addition, each of the functional strategies can be divided into components. For example,
organizational strategy can be divided into three components:
strategy of building organizations - to select the type of structure (divisional, functional,
project, etc.);
strategy to work with the staff - a way of training (mainly administrative staff), training
of staff (in a business or educational institutions), career planning, etc.;
Strategy wages (in the broader sense - rewards and penalties) - in particular, the approach
to the compensation of senior managers (salary, bonuses, profit sharing, etc.).
Organization for the implementation of the strategy at the functional area responsible senior
specialist (Ch. Engineer, Director of Finance), at the enterprise level - the general director or
director of the department, at the level of groups of companies - a collegiate body (management,
board of directors)
Developing & communicating concise policies:
Effective implementation of strategy requires formulation of policies. “A policy is a broad,
general guide to action with constrains or directs goal attainment. Thus, policies serve to channel
and guide the implementation of strategies
The critical element, the major analytical exercise involved in policy making, is the ability to
factor the grand strategy into policies that are compatible, workable. It is not enough for
managers to decide to change the strategy. What comes next is at least as important. The
manager does by preparing policies to implement the grand strategy..
Important benefits of policies are,
1. Policies make clear what and how everybody is expected to do and they make coordination,
evaluation and control easier. They also help reduce the time managers spend on supervision and
decision making.
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2. Policies are immense help in conducting the regular activities of an organizationsmoothly and
efficiently. Policies provide clear guidance for carrying out activities andthereby avoid confusion
and discretionary misuse.
3. Policies help delegation because the clarity of procedures etc. enable the work to becarried out
independently.
4. They help to avoid delay in decision making.
5. Clear policies help minimize conflicting practices and establish consistent patterns ofaction
because policies clarity what work is to be done by whom.
There are 3 types of policies in an organization, namely,
1) Corporate Policies (2) Divisional Policies © Departmental Policies.
Institutionalizing the Strategy
The strategy does not become either acceptable or effective by virtue of being well designed and
clearly announced, the successful implementation of strategy requires that the leader acts as its
promoter and defender. Often what happens is that the leader’s role is quite prominent in strategy
formulation and his personality variables become influential factors in the strategy formulation.
Thus, in practice, it becomes almost personal strategy of the top man in the organization.
Therefore, there is an urgent need for institutions of the strategy because with outit, the strategy
is subject to being undermined. Institutionalization of strategy involves two elements.
1. Communication of strategy to organizational members: The role of a strategist is not only to
make the fundamental analytical and entrepreneurial decisions, but also to present these to the
members of the organization in a way that appeals to them and brings their support. In order to
get the strategy accepted and consequently implemented requires its communications. The
communication may be oral through the interaction among strategist and other persons,
particularly at higher level in meetings or in other ways of personal interaction. It can be in a
documented form containing organizational mission, objectives, environmental variables,
contributions, achievements etc.
2. Strategy Acceptance: Generally, there is a resistance for acceptance because fear of failure and
risk. It is not just sufficient to communicate the context and content of a strategy but to get the
willing acceptance of those who are responsible for its implementation. This will make
organizational members to develop a positive attitude towards the strategy. This makes them to
give commitment to the strategy as if it is their own. Thus the entire institution is gearing up to
implement the strategy.
Strategy, Organizational Leadership & Culture
Leadership is basically the ability to persuade others to seek defined objectives willingly and
enthusiastically. A manager can get an intended work accomplished by his subordinates in the
organization in two ways. By exercising authority vested in him or by winning support of his
subordinates. Out of these, the second approach is better because it brings people to work
enthusiastically and their contributions would be more than the first approach in which people
use about 60-70% of their ability in performing work. Every forward-looking organization needs
leadership, more particularly strategic leadership in the course of implementation of strategies.
Strategic Leadership Is the process of transforming an organization with the help of its people so
as to put it in a unique position. Thus, two aspects are involved in strategic leadership (1) It
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transforms the organization which involves changing all faces such as size, management
practices, culture and values, and people in such a way that the organization becomes unique (2)
The strategic leadership process emphasizes people because they are the source for transforming
various physical and financial resources of the organization into outputs that are meaningful to
the society.
1. Strategic Leadership deals with vision – keeping the mission in sight – and with effectiveness
and results. It is less oriented to organizational efficiency in terms of cost-benefit analysis.
2. Transformational leadership is the set of abilities that allow a leader to recognize the need for
change to create a vision to guide that change and to execute that change effectively
3. Strategic leadership inspires and motivates people to work together with a common vision and
purpose.
4. Strategic leadership has external focus rather internal focus. This external focus helps the
organization to relate itself with the environment.
Organizational culture is a system of shared assumptions, values, and beliefs, which governs
how people behave in organizations. These shared values have a strong influence on the people
in the organization and dictate how they dress, act, and perform their jobs.
Ethical Process and Corporate Social Responsibility
Corporate Social Responsibility
The concept of social responsibility: Proposes that a private firm has responsibilities to society
that extend beyond making a profit. Obligation of firm decision makers to make decisions &
actin ways that recognize the interrelatedness of business & society and It recognizes the
existenceof various stakeholders and firms deal with them
Two Views of “who” are firms responsible to:
(1) Traditional View (Milton Friedman)
“There is one and only one social responsibility of business – to use its resources and engage in
activities designed to increase its profits so long as it stays within the rules of the game, which is
to say, engages in open and free competition without deception or fraud” “The Social
Responsibility of Business is to Increase Profits.
2) Modern View (Archie Carroll)
(a) Economic: Produce goods & services of value to society so that the firm may repay its
creditors and stockholders
(b) Legal: Defined by governments in laws that management is expected to obey
(c) Ethical: Follow generally held beliefs about how one should act in society
this.
(d) Discretionary: Purely voluntary obligations a firm assumes
-core unemployed, providing day-care centers, etc.
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Corporate social responsibility (CSR, also called corporate conscience, corporate citizenship or
responsible business) is a form of corporate self-regulation integrated into a business model.
Corporate social responsibility (CSR, also called corporate conscience, corporate
citizenship or responsible business)is a form of corporate self-regulation integrated into a
business model. CSR policy functions as a self-regulatory mechanism whereby a business
monitors and ensures its active compliance with the spirit of the law, ethical standards and
national or international norms. With some models, a firm's implementation of CSR goes beyond
compliance and engages in "actions that appear to further some social good, beyond the interests
of the firm and that which is required by law.“The aim is to increase long-term profits through
positive public relations, high ethical standards to reduce business and legal risk, and shareholder
trust by taking responsibility for corporate actions. CSR strategies encourage the company to
make a positive impact on the environment and stakeholders including consumers, employees,
investors, communities, and others.
Proponents argue that corporations increase long-term profits by operating with a CSR
perspective, while critics argue that CSR distracts from businesses' economic role. A 2000 study
compared existing econometric studies of the relationship between social and financial
performance, concluding that the contradictory results of previous studies reporting positive,
negative, and neutral financial impact, were due to flawed empirical analysis and claimed when
the study is properly specified, CSR has a neutral impact on financial outcomes.
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Module VII
Strategic Control, guiding and evaluating strategies. Establishing Strategic Controls. Operational
Control Systems. Monitoring performance and evaluating deviations, challenges of Strategy
Implementation. Role of Corporate Governance.
Strategic Control:
Strategic control is a term used to describe the process used by organizations to control the
formation and execution of strategic plans; it is a specialised form of management control, and
differs from other forms of management control (in particular from operational control) in
respects of its need to handle uncertainty and ambiguity at various points in the control process.
Strategic control is also focused on **the achievement of future goals**, rather than the
evaluation of past performance. Vis:
The purpose of control at the strategic level is not to answer the question:' 'Have we made the
right strategic choices at some time in the past?" but rather "How well are we doing now and
how well will we be doing in the immediate future for which reliable information is available?"
The point is not to bring to light past errors but to identify needed corrections to steer the
corporation in the desired direction. And this determination must be made with respect to
currently desirable long-range goals and not against the goals or plans that were established at
some time in the past.
Premise Control
Every strategy is based on certain planning premises or predictions. Premise control is designed
to check methodically and constantly whether the premises on which a strategy is grounded on
are still valid. If you discover that an important premise is no longer valid, the strategy may have
to be changed. The sooner you recognize and reject an invalid premise, the better. This is
because the strategy can be adjusted to reflect the reality.
Special Alert Control
A special alert control is the rigorous and rapid reassessment of an organization's strategy
because of the occurrence of an immediate, unforeseen event. An example of such event is the
acquisition of your competitor by an outsider. Such an event will trigger an immediate and
intense reassessment of the firm's strategy. Form crisis teams to handle your company's initial
response to the unforeseen events.
Implementation Control
Implementing a strategy takes place as a series of steps, activities, investments and acts that
occur over a lengthy period. As a manager, you'll mobilize resources, carry out special projects
and employ or reassign staff. Implementation control is the type of strategic control that must be
carried out as events unfold. There are two types of implementation controls: strategic thrusts or
projects, and milestone reviews. Strategic thrusts provide you with information that helps you
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determine whether the overall strategy is shaping up as planned. With milestone reviews, you
monitor the progress of the strategy at various intervals or milestones.
Strategic Surveillance
Strategic surveillance is designed to observe a wide range of events within and outside your
organization that are likely to affect the track of your organization's strategy. It's based on the
idea that you can uncover important yet unanticipated information by monitoring multiple
information sources. Such sources include trade magazines, journals such as The Wall Street
Journal, trade conferences, conversations and observations.
• Process of Evaluation
Setting standards of performance
Measurement of performance
Analyzing variances
Taking corrective action
• Setting of Standards
Quantitative Criteria
It has performed as compared to its past achievements
Its performance with the industry average or that of major competitors
Qualitative Criteria
There has to be a special set of qualitative criteria for a subjective assessment of the factors
like capabilities, core competencies, risk- bearing capacity, strategic clarity, flexibility, and
workability
• Measurement of Performance
The evaluation process operates at the performance level as action takes place. Standards of
performance act as the benchmark against which the actual performance is to be compared. It is
important, however, to understand how the measurement of performance can take place.
• Analyzing Variances
The measurement of actual performance and its comparison with standard or budgeted
performance leads to an analysis of variances. Broadly, the following three situations may arise:
The actual performance matches the budgeted performance
The actual performance deviates positively over the budget performance
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The actual performance deviates negatively from the budgeted
• Taking Corrective Actions
There are three courses for corrective action: checking of performance, checking of standards,
and reformulating strategies, plans, and objectives.
• Techniques of Strategic Evaluation and Control
Evaluation Techniques for Strategic Control
Evaluation Techniques for Operational Control
• Evaluation Techniques for Strategic Control
• Techniques for strategic control could be classified into two groups on the basis of the
type of environment faced by the organisation. The organisation that operate in a relative
stable environment may use strategic momentum control, while those which face a
relatively turbulent environment may find strategic leap control more appropriate.
• Evaluation Techniques for Operational Control
Operational control is aimed at the allocation and use of organisational resources
The evaluation techniques are classified into three parts:
Internal analysis
Comparative analysis
Comprehensive analysis.
What is Strategic control?
“…it is the process by which managers monitor the ongoing activities of an organization and it’s
members to evaluate whether activities are being performed efficiently and effectively and to
take corrective action to improve performance if they are not…”
The importance of Strategic Control
• The success of a chosen strategy
• The implementation compass
• Organizational performance
• Ensuring competitive advantage
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Strategic Control:
• Requires more than re-acting on past performance
• Keeps the organization on track
• Anticipating events that might occur in future
• Allows the organization to respond to new opportunities that may present itself
Guiding and evaluating the strategy
The final stage in strategic management is strategy evaluation and control. All strategies are
subject to future modification because internal and external factors are constantly changing. In
the strategy evaluation and control process managers determine whether the chosen strategy is
achieving the organization's objectives. The fundamental strategy evaluation and control
activities are: reviewing internal and external factors that are the bases for current strategies,
measuring performance, and taking corrective actions.
Establishing Strategic Control Systems:
Strategic control requires data from more sources. The typical operational control
problem uses data from very few sources.
Strategic control requires more data from external sources. Strategic decisions are
normally taken with regard to the external environment as opposed to internal operating
factors.
Strategic control are oriented to the future. This is in contrast to operational control
decisions in which control data give rise to immediate decisions that have immediate
impacts.
Strategic control is more concerned with measuring the accuracy of the decision
premise. Operating decisions tend to be concerned with the quantitative value of certain
outcomes.
Strategic control standards are based on external factors. Measurement standards for
operating problems can be established fairly by past performance on similar products or
by similar operations currently being performed.
Strategic control relies on variable reporting interval. The typical operating
measurement is concerned with operations over some period of time: pieces per week,
profit per quarter, and the like.
Strategic control models are less precise. This is in contrast to operational control
models, which are generally very precise in the narrow domain they apply.
Strategic control models are less formal. The models that govern the considerations in
a strategic control problem are much more intuitive, therefore, less formal.
The principal variables in a strategic control model are structural. In strategic
control, the whole structure of the problem, as represented by the model, is likely to vary,
not just the values of the parameters.
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The key need in analysis for strategic control is model flexibility. This is in contrast to
operating control, for which efficient quantitative computation is usually most desirable.
The key activity in management control analysis is alternative generation. This is
different from the operational control problem, in which in many cases all control
alternatives have been specified in advance. The key analysis step in operations is to
discover exactly what happened.
The key skill required for management control analysis is creativity. In operational
control, by contrast, the formal review of outcomes to discover causes means that they
skill required is the ability to do technical, even statistical, analysis of the data received.
Operational control systems
Authority over normal business operations at the operational level, as opposed to the strategic or
tactical levels. Operational control includes control over how normal businessprocesses are
executed, but does not include control over the strategic business targets or high-level business
priorities.
Operational control systems help operating managers to implement strategy at their level. These
systems help to guide, monitor, and evaluate progress in meeting the annual objectives of the
company. Corporate resource planning, budgets, and policies and procedures are three important
topics in operational control. The most common types of budgets that translate company
objectives are revenue budgets, capital budgets, and expenditure budgets. Many organizations
have shifted their focus away from traditional budgets to 'rolling budgets' or 'rolling forecasts'.
The Role of Top Management
Top management function is usually performed by CEO in coordination with
Chief Operating Officer (COO) or President
Chief Financial Officer (CFO)
Chief Information Officer (CIO)
Executive Vice Presidents (VP’s) and VP’s of divisions & functional areas
Responsible for every decision & action of every organizational employee
Responsible for providing effective strategic leadership
Strategic leadership is the ability to anticipate, envision, maintain flexibility, think
strategically, and work with others in an organization to initiate changes that will create a viable
and valuable future for the organization
Provide executive leadership
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Articulate a strategic vision for the firm, Present a role for other to identify with and follow
(e.g., behavior, attitude, values, etc) and
Communicate high performance standards & show confidence in followers’ abilities to meet
these standards
Manage the strategic planning process: Evaluate division/units to make sure they fit together
into an overall corporate plan
The whole top management’s strategic leadership responsibilities involves
Determining the firm’s mission, vision, and objectives, Exploiting & maintaining the firm’s
resources, core competencies & capabilities, Creating & sustaining a strong organizational
culture, Emphasizing ethical decision & practices and Establishing appropriately balance
organizational control
Monitoring performance and evaluating deviations:
The strategic plan document should specify who is responsible for the overall implementation of
the plan, and also who is responsible for achieving each goal and objective.
The document should also specify who is responsible to monitor the implementation of the plan
and made decisions based on the results. For example, the board might expect the chief executive
to regularly report to the full board about the status of implementation, including progress toward
each of the overall strategic goals. In turn, the chief executive might expect regular status reports
from middle managers regarding the status toward their achieving the goals and objectives
assigned to them.
The frequency of reviews depends on the nature of the organization and the environment in
which it's operating. Organizations experiencing rapid change from inside and/or outside the
organization may want to monitor implementation of the plan at least on a monthly basis.
Boards of directors should see status of implementation at least on a quarterly basis.
Chief executives should see status at least on a monthly basis.
Challenges of Strategy Implementation:
All too often, law firms dedicate substantial internal and external resources to a strategy
development process, but ultimately, fail to move the firm in the direction identified or realize
the benefits of their investment. Why is it that so many firms fail in strategy implementation?
The most common reasons include:
Insufficient partner buy-in: In conducting strategic planning, firm leaders and partners
involved in the process develop a strong understanding of the business imperative behind
the chosen strategy and the need for change in order to achieve partner goals. However,
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partners removed from the process may struggle to identify with the goals and strategies
outlined by firm leaders. These partners may not see a need for change, and without
understanding the background and rationale for the chosen strategy, these partners may
never buy-in to strategic plan and, as a result, will passively or actively interfere with the
implementation process.
Insufficient leadership attention: Too often, law firm leaders view the strategy
development process as a linear or finite initiative. After undergoing a resource intensive
strategic planning process, the firm's Managing Partner and Executive Committee
members may find themselves jumping back into billable work or immersing themselves
in other firm matters, mistakenly believing that writing the plan was the majority of the
work involved. Within weeks of finalizing the plan, strategies start to collect dust,
partners lose interest, and eventually, months pass with little or no reference to the plan
or real action from firm leaders to move forward with implementation.
Ineffective leadership: Leading strategy implementation requires a balancing act - the
ability to work closely with partners in order to build cohesion and support for the firm's
strategy, while maintaining the objectivity required in order to make difficult decisions.
Strategy implementation frequently fails due to weak leadership, evidenced by firm
leaders unable or unwilling to carry out the difficult decisions agreed upon in the plan. To
compound the problem, partners within the firm often fail to hold leaders accountable for
driving implementation, which ultimately leads to a loss of both the firm's investment in
the strategy development process as well as the opportunities associated with establishing
differentiation in the market and gaining a competitive advantage.
Weak or inappropriate strategy: During the course of strategic planning, the lack of a
realistic and honest assessment of the firm will lead to the development of a weak,
inappropriate or potentially unachievable strategy. A weak strategy may also result from
overly aspirational or unrealistic firm leaders or partners who adopt an ill-fitting strategy
with respect to the firm's current position or market competition. Without a viable
strategy, firms struggle to take actions to effectively implement the plan identified.
Resistance to change: The difficulty of driving significant change in an industry rooted
in autonomy and individual lawyer behaviors is not to be underestimated. More often
than not, executing on strategy requires adopting a change in approach and new ways of
doing things. In the context of law firms, this translates to convincing members of the
firm, and in particular partners, that change is needed and that the chosen approach is the
right one.
By developing an awareness of these hurdles and traps which lead to failure in implementation,
firms can learn how to adapt their approach and develop tools to assist them in more successfully
executing on their strategy.
Tools for Success in Strategy Implementation
As a first step in ensuring the successful implementation of the firm's strategy, firm leaders must
take early and aggressive action to institutionalize the strategy within the firm. The Managing
Partner, Chair, and other key leaders must demonstrate visible ownership of the firm's strategy,
communicating clearly with partners about the details, value and importance of the strategy to
the firm. Members of management should also seek input and support from key opinion leaders
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and rainmakers early-on and request their help in championing the strategy to other partners
within the firm. Over time, such actions will assist in generating buy-in among partners, leading
to greater overall support for the strategic plan and the changes inherent in its execution.
Having successfully sold the main tenets of a strategic plan to the partnership, firm leaders must
then reorient themselves around the task at hand: strategy implementation. This is where the real
work begins. To facilitate more effective execution, leaders should take the following critical
actions:
Implementation Support Structure: To support effective implementation, firm leaders should
ask the question: does the firm have the right leadership, governance and operational structure
required to support effective implementation? Are the right people serving in the right places?
Very often, firm leaders demonstrate the behavior of dynamic and influential visionaries.
However, such leaders may lack an attention to detail and the organizational skills required to
effectively drive day to day action. By assessing whether the firm has the right people in the right
places, a law firm can better ensure that visionary firm leaders are appropriately supported by
individuals who can get the daily actions of implementation done.
Implementation Planning: A fundamental and critical step in moving forward with strategy
execution involves planning. Implementation planning entails developing a detailed outline of
the specific actions and sub-actions, responsibilities, deadlines, measurement tools, and follow-
up required to achieve each of the firm's identified strategies. Implementation plans often take
the form of detailed charts which map the course of action for firm leaders over a 24-36 month
time period. Achieving a level of detail in these plans provides for a tangible and measurable
guide by which both the firm and its leaders can asses progress in implementation over time.
Alignment of Management Processes: Successful implementation of a law firm's strategy also
requires alignment of the firm's partner compensation system, performance management
approach, and other related practice group and client team management structures and processes
with the firm's chosen strategy. The most common (and perhaps critical) example of a structure
necessitating alignment is that of partner compensation. Very often firms adopt strategic plans
which require partner collaboration and teamwork in order to achieve success, yet fail to modify
the partner compensation system to reward such activities. Failure to align management
processes and structures with a newly adopted strategy frequently results in a stall out of
implementation efforts, as members of the firm direct individual behaviors to align with the
firm's historic rewards system, and not the newly stated strategy.
Measurement, Follow up and Accountability: A key component of success in implementation
involves holding firm leaders and partners accountable for actively driving and supporting
execution. Whether individuals are assigned discreet implementation activities (e.g. hire lateral
IP partner) or asked to participate in ongoing efforts to support strategic initiatives (e.g. expand
existing Energy clients), measurement and follow up is required. What actions have been taken
to expand work for existing Energy clients, and how much new business has been generated
from these efforts? By following up and assessing progress in implementation at regular intervals
(e.g. monthly or quarterly), firms can more effectively determine whether current
implementation activities and assignments are working, or whether a different approach is
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needed. Such assessments are crucial in ensuring that action is taken and progress is made on
strategy execution.
Incorporating Organizational Learning: As an evolving and recurring process, effective
strategy creation and implementation necessitates ongoing review of the firm's chosen direction.
The strategic planning process entails periodically evaluating the firm's strategy in light of
internal and external changes and incorporating lessons learned into the implementation plan.
This key component of strategy implementation ensures that the firm's strategy remains dynamic
and drives ongoing competitiveness in the market.
In the context of law firms, strategic planning represents a methodology for developing a shared
organizational view of the desired direction for the firm and outlining the process by which the
firm will move in that direction. For many firms, movement along the firm's chosen strategy can
be intensely challenging, and too often, implementation efforts fail. In order to realize the
potential and value in a firm's strategy, law firm leaders must dedicate themselves to driving
successful implementation. This requires planning, resources, time, attention, leadership and
courage. Yet, the investment in implementation is not without its rewards. By focusing the
necessary energy on implementation, your firm's strategy will no longer be the one collecting
dust. If implemented properly, your firm's strategy will be living and breathing inside your firm
and driving your firm towards market differentiation and competitive advantage.
Role of corporate governance in strategic management
Strategic Management Responsibility: Corporate Governance Issues
The corporation is a mechanism established to allow different parties to contribute capital,
expertise and labor for their mutual benefit.
Investors/Shareholders – capital providers
Management – expertise & labor providers for running of company
Board of directors (BOD) elected by shareholders to protect their interest.
Corporate governance – relationship among BOD, management, and shareholders
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