Atm Prakash Rai

INTRODUCTION

BUSINESS?

POLICY?

TACTICS?

What is a Strategy?

Refers to the ideas, plans, and support that firms employ to compete successfully against its rivals.

Strategy is designed to help firms achieve competitive advantage .

How to get edge over rivals?

Being followed from the olden days (example- King Akbar).

Definitions of STRATEGY

Acc to Chandler: “ Strategy is the determinator of the basic long-term goals of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals.”

Acc to Mintzberg: “ Strategy is a mediating force between the organization and its environment: consistent patterns in streams of organization decisions to deal with the environment”

Characteristics of Strategy The decisions are concerned with or

effect the Long term direction of an organization.

Strategic decisions are normally about trying to achieve some advantage for the organization.

Matching the activities of an organization to the environment in which it operates.

The decision has major financial and resource implications.

Major impact outside the organization. The decision entails significant risks to

the business.

Strategy concepts

Distinctive Competence:-The special skills, capabilities, or resources that enable a firm to stand out from its competitors; what a firm can do especially well to compete or serve its customers. Example- McDonald’s core business is hamburger (quality food and reasonable price).

Terrain:- The environment in which competition occurs. In a military sense, terrain is the type of environment or ground on which a battle takes place. From a business sense, terrain refers to markets, segments, and products used to win over customers.

Strategy vs tactics

Aspects Strategy Tactics

Scale of Objectives Grand Limited

Scope of Action Broad and General Narrowly Focused

Guidance Provided General and Ongoing

Specific and Situational

Degree of Flexibility Adaptable, but not hastily changed

Fluid, quick to adjust and adapt in minor or major ways.

Timing in Relation to Action

Before Action During Action

Focus of Resource Utilization

Deployment Employment

Business policy and strategic management

What is strategic management?Definition:- “Strategic management is

a stream of decisions and actions that lead to the development of an effective strategy or strategies to help achieve corporate objectives.” – By Glueck.

Strategic management

Where we are today (current position)?

Where we want to go (Vision)?

What actions should we take to go there ( develop a plan or strategy)?

How can we bring out these actions ( Implement strategy)?

Six Ingredients of Strategy

Strategy

Value Creation

Global Awareness

Vision

Leveraging Technology

Planning and administratio

n

Stakeholders

Value Creation

Value Proposition The products and services that meet customer needs at a price that generates a positive economic return.

Customer Focus right customer + right product/services= Economic return.

Competitor focus Understanding the competitors.

Planning and Administration Activity Fit Do we have all resources to

perform activities?

Corporate Fit How to make our all business units to work together?

Alliance Fit Are we have right partners and whether their strategies are compatible with us?

People Fit Are our people are trained and skilled?

Communication Fit Do we promote clear and honest communication among our people?

Strategic management model

Goal Setting

Strategy monitoring

Strategy Implementatio

n

Strategy Formulation

Analysis

Strategic Management Process The steps by which management

converts a firm’s values, mission, and goals/objectives into a workable strategy.

It consists of FOUR stages: analysis, formulation, implementation, and adjustment/evaluation.

Strategy Management ProcessAnalysis

External Environment

Opportunities, Threats

Internal Environment

Strengths, Weakness

FormulationMission Customers to be

servedCapabilities to be developed.

Policies Goals, guidelines for major activities.

ImplementationOrganization structure, systems, culture, etc.

Adjustment/ Evaluation

(Cycle to earlier steps)

VMGS

VISION provides clear view of what firm is trying to achieve for its customers. It provides a direction of what the organization seeks to do or acquire.

MISSION who we are and what we do.

GOALS are high level statements that provide overall context for what the project is trying to achieve and should align to business goals. This is non-measurable.

OBJECTIVES What is to be accomplish? Time in which to accomplish it. Quantified when possible.

Nature of Strategic Management SM related to formal and organized sector, especially

in corporate sectors.

Very comprehensive and covers all the areas of the corporate business.

It is not specific but a holistic in nature.

Provides guidelines to all other functional areas.

Focuses into long-term goals, relatively broad.

SM is concerned to whole organization whereas operation management is related to any specific functional area.

Importance of SM approach Asks the manager about the goals of the

organization and the strategy to fulfill it.

Future cannot be controlled but it can be anticipated.

Each of the external environment shall either constrain or facilitate an organization as it seeks to implement policy.

Managers must be sensitive to the needs and respond to demands of constituents over whom they have little or no control.

Concentrates on assuring a good fit between the environment and the organization.

Strategy Levels In organization Corporate Strategy Market definition

Diversification into new product of geographic markets.

Business Strategy Market Navigation Attempts to secure competitive advantage in existing product of geographic markets.

Functional Strategy Support of Corporate strategy and Business Strategy Information systems, human resource practices and production processes that facilitate achievement of corporate and business strategy.

Different types of Strategies

Business and Corporate strategy Multibusiness firm or Diversified firm

General Electric in power generation, medical equipment, plastic, lighting, water treatment, financial services, home appliances, and transportation industries, etc.

Single-business firm or undiversified firm A firm that operates only one business in one industry or market. Example is Domino’s Pizza and Papa John’s International.

Corporate and Strategic Planning

UNIT 2

Content

PLANNING NATURE OF PLANNING SCOPE OF PLANNING TYPES OF PLANNING PROCESS OF PLANNING STRATEGIC PLANNING DECISION MAKING

Planning

ACCORDING TO WILLIAM KING :

“ Planning is the process of thinking through and making explicit the strategy, actions and relationships necessary to accomplish an overall objectives or purpose.”

NATURE OF PLANNING

PLANNING IS GOAL-ORIENTED: Planning is made to achieve the desired objectives

of the business.

PRIMACY OF PLANNING: Planning pervades all managerial activity,it is the

function of every manager.It facilitates organising,staffing,directing,and controlling.

PLANNING IS AN INTELLECTUAL PROCESS: Planning is an intellectual process and the quality

of planning will vary according to the quality of the mind of the managers

SCOPE OF PLANNING

Management is basically concerned with achieving the objectives of the business by utilising the available resources and human resources of the enterprise,by making optimum utilisation of resources.Attaining maximum results with the minimum resources and the least wastage is the ultimate end of every business,in order to achieve the goal of the organisation.

TYPES OF PLANNING

STRATEGIC PLANNING: A strategic planning is a framework for strategic thinking that he helps a school stay competitive, live into its core value, ward off threats and take advantage of opportunities.

OPERATIONAL PLANNING: To operationalize the vision and mission of the school through specific workplace that lead to shared responsibility and accountability of specific goal.

FORMAL AND INFORMAL PLANNING: A planning in BLACK and WHITE is known as formal planning. Informal planning is only thinking about it and nothing more.

CORPORATE PLANNING: The process of establishing corporate objective and formulating the policies, strategies and resource allocation that will best achieve these objectives.

FUNCTIONAL PLANNING: FP is segmental, and it is undertaken for each major function of the organisation like Production, Marketing, Finance, Human resource,etc.

SHORT TERM AND LONG RANGE

PLANNING: STP relates to a period of less than one year, MTP covers a period of over one year but less than three year. A planning between three to five years is known as long term planning.

PROACTIVE PLANNING: PP involves designing suitable course of action in anticipation of likely changes in the relevant environment. In India, co’s like Reliance Industries, Hindustan lever,etc have adopted this kind of approach.

REACTIVE PLANNING: In RP, organisations’s response come after the environmental changes have taken place.After the changes take place,organisations start planning.

PROCESS OF PLANNING

Collecting and analyzing information

Collecting and analyzing information

Defining objective

Defining objective

Setting the objective

Setting the objective Determinin

g planning premises

Determining planning premises

Examining and choice making

Examining and choice making

Determining derivative plan

Determining derivative plan

BudgetingBudgeting

Evaluate and follow up

Evaluate and follow up

STRATEGIC PLANNING

Is a systematic effort to produce fundamental decisions and actions that shape and guide what a business organization is, what it does and why it does it. The objective of strategic planning is to develop a chart by which to manage an organization’s positioning.

It requires significant amount of time and can be quite frustrating .

But if done properly, it can enable a firm to recognize its most effective position within its industry.

BENEFITS OF STRATEGIC PLANNING Defines the purpose, goals,

objectives and time frame. Communication of goals and

objectives to their stakeholders. Develop a sense of ownership. Emphasis on the effective use of the

resources. Provides a base to measure the

progress.

DECISION MAKING

ACCORDING TO R.S.DAVAR..

“Decision making may be defined as the selection based on some criteria of one behavior alternative from two or more possible alternatives. To decide means ‘to cut off’ or in practical content, ‘to come’ to a conclusion.

CHARACTERISTICS OF A DECISION

Decision is the choice of the best course among alternatives.

Decision is the end process preceded by deliberation and reasoning.

Decision making is a mental process because the final selection is made after thoughtful consideration.

Decision is aimed at achieving the objectives of the organisation.

Decision relates the means to the end.

DIFFICULTIES IN DECISION-MAKING

INCOMPLETE INFORMATION: Lack of information in decision-making, makes the process incomplete

.INEFFECTIVE COMMUNICATION: IC makes implementation

difficult. The manager should therefore care to communicate all decisions to the employees in clear, precise and simple language.

INCORRECT TIMING: If the decision is correct but the time is inopportune, it will not serve any purpose.

UN-SUPPORTING ENVIRONMENT: If there is all round goodwill and trust, the manager is encouraged to take decisions, On the other hand, under the opposite circumstances he avoids decision-making.

UNIT 3

CORPORATE STRATEGY and ENVIRONMENTAL ANALYSIS

In the half-century after the Second World War, the business corporation has brilliantly proved itself as an economic organization, i.e. a creator of wealth and jobs. In the next society, the biggest challenge for the large company – especially the multinational – will be its social legitimacy; its values, its mission, its vision.

—PETER DRUCKER

CONTENT

FORMULATION OF STRATEGY CORPORATE STRATEGY FACTORS RESPONSIBLE FOR SHAPING

THE STRATEGY DIFFERENT TYPES OF STRATEGIES ENVIRONMENTAL ANALYSIS INTERNAL AND EXTERNAL

ENVIRONMENT TECHNIQUES FOR ENVIRONMENTAL

ANALYSIS ENVIRONMENTAL THREATS AND

OPPORTUNITY PROFILE.

Formulation of Strategy

1. Evaluate current Performance Results. Examine and Evaluate the Current :Mission, Objectives, Strategies, Policies.

2. Review Corporate Governance3. Scan the external environment. Analyze

External factors: opportunities and threats.4. Scan Internal environment. Analyze Internal

factors: strengths, weakness.5. Select strategic factors in light of current

situation. Review and revise as necessary.6. Generate and evaluate strategic

alternatives. Select and recommend best alternatives.

Environment

All external forces, factors, or conditions that exert some degree of impact on the strategies, decisions, and actions taken by the firm.

Types of Environment• Macro or External environment :- The broad

collection of forces or conditions that affect every firm or organization in every industry (also known as general environment).

• Micro or Internal Environment:- Pricing Competition, Demand and supply scenario. Deals with a particular business and Corporate Governance.

Macro Environment

Aging Workforce Health Consciousness Changing cost of Capital or Interest

rates Technological Advancement Declining Birthrates Impact of Terrorism Foreign Competition

Types of Macro Environment The Demographic EnvironmentEndowment Factors The Political EnvironmentGujrat and China political willingness The Social/ Cultural EnvironmentHeterogeneous Workforce

ManagementAnapoorna and Sandwich

Generations in US.

Types of Macro Environment The Technological Environment3G vs 4G IT revolution IBM using ocean current to operate

Data Center. The Global EnvironmentDuPontUN conventions CTBT, Nuclear

disarmament

Environmental Analysis

External or Macro Environment Analysis PESTEL Analysis Porter’s Diamond Model for Analysis Industries and Sectors Analysis (Internal or

micro environment) Porter’s 5 forces Analysis Competitors and Markets analysis Strategic Groups Market Segments Strategic Customers Critical Success factors

PESTEL Analysis or STEEP analysis

The Organizatio

n

Legal

Political Economic Factors

EcologicalTechnological

Socio-Cultural Factors

Some Important variables in the Societal Environment

Economic Technological

Political-Legal

Sociocultural

GDP trends Govt. R&D spending

Antitrust regulations.

Lifestyle changes

Interest rates Total industry spending

Environmental protection laws

Career expectations

Money supply Focus of technological efforts

Global warming legislation

Consumer activism

Inflation rates Patent protection

Immigration laws

Rate of family formulation

Unemployment levels

New products Tax laws Growth rate of population

Wage/price control

New technology development from lab

Foreign trade regulation

Level of education.

Disposable and discretionary income

Tecomm. Availability

Stability of Govt

Birthrates.

Porter’s Diamond Model

Given by Michael Porter in his book “The Competitive Advantage of Nations”.

Suggests that there are inherent reasons why some nations are more competitive than others, and why some industries within nations are more competitive than others.

Porter’s Diamond Model

Firm Strategy, Structure

and Rivalry

Factor Conditio

ns

Demand Conditio

nsRelated

and Supportin

g Industries

Porter’s Diamond Model

Factor Condition:- In India there is available endowment for BPO & KPO.

Demand Conditions:- Global demand available.

Related and Supporting Industries:- Plenty software and IT cos existing in India.

Firm Strategy, Industry Structure and Rivalry:- Rivalry from Infosys, TCS etc.

Scenario:-detailed and plausible view for future.

Corporate strategy

Plans and actions that firms need to formulate and implement when managing a portfolio of businesses; an especially critical issue when firms seek to diversify from their initial activities or operations into new areas. Corporate strategy issues are key to extending the firm’s competitive advantage from one business to another.

Characteristics of Environment Complexity (relatively easier to

understand in parts but difficult to grasp in its totality).

Dynamic

Multi-faceted

Far-reaching Impact

Techniques to Monitor the Environment Environment Scanning (Porters’

model, SWOT, etc.)

Competitor intelligence gathering- how the services differ, managers visiting competitors hotels to assess the difference in services provides to the customer.

UNIT 4

CORPORATE APPRAISAL

CORPORATE APPRAISAL

To Identify opportunities and to neutralize threats in the external environment, mangers must thoroughly evaluate their firm’s potential capability to compete.

We need to identify the firms capabilities and internal analysis of strength and weakness.

Value Chain Analysis, Capability Drivers analysis and financial analysis.

The Value Chain

Primary Activities

Inbound Logistics : SCM major source to direct cost. (warehousing, storage, and control of raw materials).

A reduction in inventory and storage costs over time can have a major positive impact on a firm’s cost position.

Ex: Hospitals, Restaurants, etc. need timely supply of inputs.

Internet based software to coordinate the supply of inputs as to reduce cost to inventory.

Operations

The activities and procedure that transform raw materials, components and other inputs into finished end products.

Specific task activities include stamping, machining, testing, fabrication, and assembling in manufacturing based settings.

In telecomm firms operations are managing network of routers, switches, and other gear that is break down of communication and the internet. USX’s US steel unit and AK steel , Nucor built up a significant competitive position in steel industry by focusing on minimills- less cost and better quality.

Outbound Logistics

Transfer of finished end products to the distribution channels.

Activities include Inventory control, Warehouse, storage, and transport of finished products.

P&G has accelerated the timely delivery of goods that the retailers have trouble stocking- use of bar coding they balance the flow of inventory and checks the demand of the product.(RFID is also advantageous.)

Marketing and Sales

Include advertising, promotion, product mix, pricing, specific distribution channels, working with wholesalers, and sales force issues.

Example:- Coca-cola, McDonald’s, PepsiCo have effective marketing activities.

Service

Value is more often defined in the eyes of the customer rather than by what the firm thinks it has created.

Warranty, repair, installation, customers support, products adjustment and modification, and immediate response to customer needs.

FedEx and UPS allow customers to track the status of their package online.

Telecos providing customer care number.

Support Activities

Procurement: Economies of Scale, Bargaining power over suppliers.

Technology Development: Product and Process Development

HRM: Training, job satisfaction, efficiency and quality. Hotel industry employee are trained to be customer sensitive.

Firm Infrastructure: Finance ,legal, location etc.

Capability Drivers

The basic economic and strategic means by which a firm builds an underlying source of competitive advantage.

1.First-moves Advantage2.Economies of Scale3.Interrelationships (Pepsi and Lays

advertisement )

First Mover Advantage

Patents: Xerox corporation License: Walt Disney, McDonald’s provide

for the toy manufacturing. Location: New movie theatre near an

existing college. Channel access: Canned foods, beverages,

breakfast cereal, diapers are distributed through supermarkets which in turn give priorities to well known or first come brands.

Supply Access: Kellogg, Pillsbury are large purchaser of wheat and corn.

Reputation : Brand Image

Economies of Scale

Greater volume allows to take cost advantage.

a)Specializationb)Fixed-cost Spreading: more units,

declining per unit cost.c)Purchase discountd)Vertical Integration

Interrelationships

Resource Transfer: Personnel in soft drink and other beverages businesses are highly skilled in activities such as market research, market segmentation, consumer promotion, and TV advertising can be used for snack food unit.

Activity Sharing: Multiple product with same advertisement

Strategy and Competitive Advantage Low-cost leadership strategy: A

competitive strategy based on the firm’s ability to provide products or services at lower cost than its rivals. Example: Whirlpool in washers and dyers, Wal-Mart in retailing, Gillette in razor blades.

Cost Drivers : An economical or technological factors that determines the cost of performing some activity. Cost drivers which shape low cost leadership strategy are 1. Economies of Scale 2. Experience in the field 3. degree of Vertical Integration 4. location of activity performed.

Strategy and Competitive Advantage Differentiation: Competitive strategy

based on providing buyers with something special or unique that makes the firm’s product or service distinctive. It is based on providing buyers with something that is different or unique, that makes the company’s product or service distinct from that of its competitors.

Example: BMW and Mercedes in automobiles, Sony in Consumer electronics.

Matching Strategies

CorporateStrategy

Business Strategy

Functional Strategy

OperationalStrategy

Functional Strategy

Is an approach a functional area takes to achieve corporate and business unit objective or SBU objective.

Strategic Business Unit (SBU): A division or group of divisions composed of independent product-market segments that are given primary authority for the management of their own functions.

Functional Strategy

Marketing Strategy• Market Development: Capturing larger

share market through market saturation/Penetration. Example: IDBI, Corporation Bank, IOB looking for MOU with TVS, L&T as to stop rural customers from taking loan from the money lenders.

• Line Extension• Push and Pull Strategy

Functional Strategy

Financial Strategy: Financial implications of corporate and business level strategic options. It attempts to maximize the financial value of the firm and aims to get competitive advantage through lower cost.

• Buyback: By Reliance Energy Ltd.(REL) in 2007 for Rs 2000cr valued share @ Rs1600 per share.

• Leveraged Buyout• Debt-to-Equity ratio and Reverse Stock

Splits

Functional Strategy

R&D strategy: Deals with product and process innovation and improvement.

• Technological Leader: focuses on new technology, options open for lower cost. Example: NIKE spends more than most of the company in the industry on R&D to differentiate the performance of its athletic shoes.

• Technological Follower: Same standard produced but at lower cost.

Functional Strategy

HR strategy: Whether to hire large no. of low skilled employees who receive low pay, perform repetitive jobs, and most likely quit after short time (McDonald’s restaurant strategy).

Satyam’s Rs 200000 bonds from the freshers.

UNIT 5

STRATEGY IMPLEMENTATION

STRATEGY IMPLEMENTATION

The sum total activities and choices required for the execution of a strategic plan.

It is the process by which objectives, strategies, and policies are put into action through the development of programs, budgets, and procedures.

Poor implementation has been blamed for a number of strategic failure.

STRATEGY IMPLEMENTATION

To begin the implementation process, strategy makers must consider these questions:

WHOWHATHOW

Implementation Vs Formulation

Strategy Formulation Strategy Implementation

Deals with locating the forces before the action takes place

Deals with the management of forces during the action.

Based on Effectiveness Based on Efficiency

Intellectual Process Operational Process

Requires good intuitive and analytical skills.

Requires special motivation and leadership skills

Coordination among a few individuals.

Coordination with many persons.

Prerequisite FOR STRATEGIC IMPLEMENTATION Developing Programs, Budgets, And

ProceduresProgram: To make a strategy action

oriented. Example: Six Sigma introduced by Motorola. One Sigma= 690000 defects per million. 6 sigma reduces to 3.4 per million.

BudgetsProcedures

Organizational structure and strategy implementation Structure follow strategy (Structure

Influence Strategy) New strategy created New administrative problems emerge Economic performance declines New appropriate structure is invented Profit returns to its previous level.Example: In 1920 GM was restructured as

“Centralized policy determination coupled with decentralized operation management (max. freedom for product development)

Stages to organizational structure Simple Structure: Little formal structure; the

entrepreneur directly supervise the activities of every employee; flexibility and dynamism are its greatest strength. Example Co-founder Lawrence Ellision of Oracle

Functional Structure : Delegation of authority required, specialized managers needed.

Divisional structure: Corporation using diverse product need this structure. Central Headquarters and decentralized operating divisions. Includes SBU. Example: GE and GM

Stages to organizational structure Beyond SBUs: Matrix Structure: Used by Philips,

Boeing Network Structure: Many activities are

outsourced. Nike, Reebok are example of Network structure.

Cellular / Modular Structure: Is composed of cells(self-managing teams, autonomous business units, etc.)

Strategy implementation through staffing Selection and use of employees to meet the

organizational goals. Implementation of new strategies and policies

calls for new HRM priorities and a different use of personnel.

When a corporate follows a growth through acquisition strategy, it may find that it needs to replace several managers in the acquired company.

In a study of 40 mergers, 90% of the acquiring cos in the 15 successful mergers identified key employees and targeted them for retention within 30 days after the announcement. In contrast, this task was carried out in one-third of the acquisitions.

Leading the strategy implementation Implementation also involves leading

through coaching people to use their abilities and skills most effectively to achieve organizational objectives. Without direction, people tend to do their work according to their personal view of what task should be done, how, and in what order.

Managing the corporate culture(Integration, Assimilation, Seperation, Deculturation)

Strategy implementyation and culture ‘Culture is most commonly used in three

basic senses          1) The set of shared attitudes, values goals and practices that characterizes an institution, Organization or group.          2) An integrated patterns of human knowledge, beliefs and behavious that depends up on the capacity for Symbolic thought and social learning.          3) Excellence of taste in the fine arts and humanities.

“An ordered system of meaning and of symbols in terms of which social interaction take place” (Clifford Geertz 1973).

Strategy implementation and organizational culture In today’s dynamic business world,

strategies are dynamic. Hence, it is but logical that your organizational culture has to be dynamic too.

It needs to adapt to the demands of business. In such cultures, all employees have confidence in the teams ability to meet any challenge.

Portolio Analysis

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.

Portfolio Analysis

The two best-known portfolio planning methods are the Boston Consulting Group Portfolio Matrix and the McKinsey / General Electric Matrix . In both methods, the first step is to 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.

Business Mix of ITC Ltd.

FMCG• Cigar ettes• Foods•Lifestyle Retailing• Greeting, Gifting &Stationery•Safety Matches• Agar battis

Paperboards & Packaging•Paperboards &Specialty Papers•Packaging

Agri - Business• Agri-Exports• e- Choupal•Leaf Tobacco HotelsGroup Companies• ITC Infotech; etc.

Vision & Mission statements Vision: Sustain ITC’s position as one of

India’s most valuable corporations through world class performance, creating growing value for the Indian economy and the Company’s stakeholders.

Mission: To enhance the wealth generating capability of the enterprise in a globalizing environment, delivering superior and sustainable stakeholder

Cagr during 2005-2008

Category CAGR Growth Parameters

Cigarettes 10.9% Pricing Power

Hotel 22.7% Inward traffic, Occupancy

Paper 17.2% Capacity Utilization, Value Added Products

Agri-business 34.3% E-choupal, Choupal sugar

FMCG 60.2% Fast track, decent share

Market share of itc ltd.

Outstanding market leaderCigarettes, Hotels, Paperboards, Packaging and Agri-Exports.

Gaining market share Nascent businesses of Packaged Foods & Confectionery, Branded Apparel and Greeting Cards

Segment Dominance Revenue % PBIT %

Cigarettes 70% share 77.0% 87.7%

Hotels Rank no.2 4.3% 5.4%

Papers Packaging board no.1 in Asia

7.3% 10.7%

Agri-Business 1 among the largest exporters in India

7% 3.7%

FMCG Aashirvaad Atta no.1 in branded segment

4.4% -7.5%

BCG matrix-itc ltd.

•Hotels•Paper & Packaging•Agri-Business

•FMCG

•Cigarettes ITC infotech

The McKinsey / General Electric Matrix The McKinsey/GE Matrix overcomes a

number of the disadvantages of the BCG Box. Firstly, market attractiveness replaces market growth as the dimension of industry attractiveness, and includes a broader range of factors other than just the market growth rate.

Secondly, competitive strength replaces market share as the dimension by which the competitive position of each SBU is assessed.

Factors that Affect Market Attractiveness Whilst any assessment of market

attractiveness is necessarily subjective, there are several factors which can help determine attractiveness. These are listed below:

- Market Size- Market growth - Market profitability - Pricing trends - Competitive intensity / rivalry - Overall risk of returns in the industry - Opportunity to differentiate products and services - Segmentation - Distribution structure (e.g. retail, direct, wholesale

Factors that Affect Competitive Strength Factors to consider include: - Strength of assets and competencies

- Relative brand strength- Market share- Customer loyalty- Relative cost position (cost structure compared with competitors)- Distribution strength- Record of technological or other innovation- Access to financial and other investment resources

Strategic implications

Plot the information-mckinsey Market size is represented by the

size of the circle. Market share is shown by using the

circle as the pie chart The expected future position is

portrayed by the arrow.

Strategic implications

Grow-Strong business unit in attractive industries, average business unit in attractive industries, and strong business unit in average industries.

Hold-Average business in average industries, strong business in weak industries and weak business in strong industries.

Harvest-weak business in unattractive industries, average business in unattractive industries, and weak business unit in average industries.

Limitation of mckinsey matrix The valuation of the realization of

various factors. Aggregation of the indicators is

difficult Core competencies are not

represented. Interactions between strategic

business units are not considered.

Advantages of portfolio analysis It encourages top management to

evaluate each of the corporation’s businesses individually and to set objectives and allocate resources for each.

It stimulates the use of externally oriented data to supplement management’s judgment.

It raises the issue of cash-flow availability for use in expansion and growth.

It graphic depiction facilitates communications.

Limitations of portfolio analysis Defining product/market segments are

difficult. It suggests the use of standard

strategies that can miss opportunities or be impractical.

It provides an illusion of scientific rigor when in reality positions are based on subjective judgments.

It is not always clear what makes an industry attractive or where a product is in its life cycle.

Business Unit strategy

Business Unit Strategy focuses on improving the competitive position of a company’s or business unit’s products or services within the specific industry or market segment that the company or business unit serves.

Business strategy

Porter’s Competitive Strategy: The firm’s competitive advantage in an industry is determined by its Competitive Scope- the breadth of the business unit’s or company’s target market. Before choosing the below 2 strategies the firm must choose the range of product varieties it will produce.

• Lower Cost strategy• Differentiation Strategy

Business Unit Strategy

Cooperative Strategy: A company can gain competitive advantage within an industry by working with other firms. The 2 general types of Cooperative strategy are :

1.Collusion2.Strategic Alliance

Collusion

A non-competitive agreement between rivals that attempts to disrupt the market's equilibrium. By collaborating with each other, rival firms look to alter the price of a good to their advantage. 

The parties may collectively choose to restrict the supply of a good, and/or agree to increase its price in order to maximize profits. Groups may also collude by sharing private information, allowing them to benefit from insider knowledge.

Collusion…

Indian wholesale grain market is characterized by large numbers of sellers and relatively small numbers of buyers. This imbalance provide ample opportunities for manipulation of the otherwise transparent price formation process.

Collusion are of 2 types: 1.) Explicit Collusion 2.) Tacit Collusion

Explicit collusion

A formal, usually secret, collusion agreement among competing firms (mostly oligopolistic firms) in an industry designed to control the market, raise the market price, and otherwise act like a monopoly. Also termed overt collusion, the distinguishing feature of explicit collusion is a formal agreement. This should be contrasted with implicit or tacit collusion that does not involve a formal, explicit agreement.

 

Strategic Alliance

One of the fastest growing trends for business today is the increasing number of strategic alliances.

For small businesses, strategic alliances are a way to work together with others towards a common goal while not losing their individuality. Alliances are a way of reaping the rewards of team effort - and the gains from forming strategic alliances appear to be substantial.

Strategic alliance

Mutual Service Consortium- Fairly weak and distance alliance- appropriate for partners that wish to work together but not share their core competencies. Example: IBM established a research alliances with sony Electronics and Toshiba to build ‘cell’ chip, a microprocessor running at 256 gigaflops. There is little interaction or communication among the partners.

Strategic Alliance

Joint Venture: An independent business entity is created from the separate organizations for the strategic purpose. Example: Maruti udyog ltd and Suzuki Motor Corporation in 1982.

Licensing Arrangements- Yum!brands successfully used franchising and licensing to establish its KFC, Pizza Hut, Taco Bell, etc.

A value-chain partnership- To improve the quality of parts it purchases, companies in the U.S auto industry , for example, have decided to work more closely with fewer suppliers and to involve them more in product design decisions.

Unit 6

Strategic Alternative

Strategic alternative (TOWS matrix) Internal Factors

External factors

Strengths (S)List 5-10 internal strengths here

Weakness (W)List 5-10 internal weakness here

Opportunities (o)List 5-10 external opportunities here

SO strategiesGenerate strategies here that use Strengths to take advantage of Opportunities.

WO strategiesGenerate strategies here that take advantage of Opportunities by overcoming Weakness.

Threats (T)List 5-10 external threats here

ST strategiesGenerates strategies here that use Strengths to avoid Threats.

WT strategiesGenerate strategies here that minimize Weakness and avoid Threats.

Stability strategy

A corporate may choose stability over growth by continuing its current activities without any significant change in direction.

They are very popular with small business owners who have found a niche and are happy with their success and the manageable size of the firms.

It can be very useful in short run, but they can be dangerous if followed for too long,

Stability strategy

1. A pause/proceed with caution strategy- DELL followed this strategy after achieving 285% growth in 2 years.

2. No change strategy-a choice to continue current operations and policies in foreseeable future. The relative stability created by the firm’s modest competitive position in an industry facing little or no growth encourages the company to continue on its current course, making only small adjustments for inflation in its sales and profits objectives.

3. The profit strategy is an attempt to artificially support profits when a company’s sales are declining by reducing investment and short term discretionary expenditure.

Retrenchment startegy

Retrenchment is a corporate-level strategy that seeks to reduce the size or diversity of an organization's operations. Retrenchment is also a reduction of expenditures in order to become financially stable.

Retrenchment is a pullback or a withdrawal from offering some current products or serving some markets.

Retrenchment is often a strategy employed prior to or as part of a Turnaround strategy.

The Retrenchment strategies can further be classified into Turnaround Strategy, Captive Company Strategy, Sell-out/Divestment Strategy and Bankruptcy/Liquidation strategy.

Turnaround strategy

The overall goal of turnaround strategy is to return an underperforming or distressed company to normal in terms of acceptable levels of profitability, solvency, liquidity and cash flow.

To achieve its objectives, turnaround strategy must reverse causes of distress, resolve the financial crisis, achieve a rapid improvement in financial performance, regain stakeholder support, and overcome internal constraints and unfavourable industry characteristics.

Turnaround strategy

Contraction is the initial effort to quickly “stop the bleeding” with a general, across the board cutback in size and costs. Example : Howard Stringer, CEO, Sony Corporation in 2005 eliminated 10,000 jobs , closed 11 of 65 plants and divesting many unprofitable businesses.

Consolidation implements a program to stabilize the now-leaner corporation. Plans are developed to reduce unnecessary overhead and to make functional activities cost-justified.

Captive Company strategy

Involves giving up independence in exchange for security. A cos with a weak competitive position may not be able to engage in a full-blown turnaround strategy.

Example: To become the sole suppliers of an auto part to GM , Simpson Industries of Birmingham, Michigan, agreed to let a special team from GM inspect its engine parts facilities and books and interview its employees . In return, nearly 80% of the company production was sold to GM through long term contracts.

Sell-out/divestment strategy Sell-Out strategy- makes sense if

management can still obtain a good price for its shareholders and the employees can keep their jobs by selling the entire company to another firm. Example : Marginal performance in a troubled industry was one reason Northwest airlines was willing to be acquired by Delta Airlines in 2008.

Divestment Strategy – If the corporation has multiple business lines and it chooses to sell off a division with low growth potential. Example: Ford sold its Jaguar and Land Rover units to Tata Motors in 2008 for $2b.

Bankruptcy/liquidation strategy Bankruptcy involves giving up

management of the firm to the courts in return for some settlement of the corporation’s obligations. Example: Lehman Brothers filed in 2008.

Liquidation strategy seeks to convert as many saleable assets as possible to cash, which are distributed to the shareholders after all obligations are paid.

DIVERSIFICATION STRATEGIES According to strategist Richard Rumelt,

companies begin thinking about diversification when their growth has plateaued and opportunities for growth in the original business have been depleted.

The two basic diversification strategies are:

1.Concentric (Related) diversification2.Conglomerate(Unrelated)

diversification

Concentric diversification Type of diversification where

a firm acquires or develops new products or services (closely related to its core business or technology) to enter one or more new markets.

Example:passengers cars and sports vehicles

Conglomerate diversification Type of diversification whereby

a firm enters (through acquisition or merger) an entirely different market that has little or no synergy with its core business or technology.

Example: Tata Groups

Strategic choice process

Strategic choice is the evaluation of alternative strategies and selection of the best alternative.

Key reasons for blunders:1.Speedy actions leads to a rush to

judgment.2.They apply failure prone decision making

practices such as adopting the claim of an influential stakeholders,

3.They make poor use of resources by investigating only one or two options.

4.Depended on past experience while devising strategic alternatives.

Strategic Choice process…. When an organization is facing a dynamic

environment, the best strategic decisions are not arrived at through consensus.

Two techniques help strategic managers avoid the consensus traps, are:

1.Devil’s Advocate2.Dialectric Inquiry- requires that two

proposals using different assumptions be generated for each alternative strategy under consideration. Advocates of each position debate the merits of their arguments, either one or compromised alternative is selected.

Strategic Intent

Strategic intent refers to the purposes the organization strives for. These may be expressed in terms of a hierarchy of strategic intent.

The framework within which firms operate, adopt a predetermined direction and attempt to achieve their goal is provided by a strategic intent.

The hierarchy of strategic intent covers the vision, mission, business definition, business model and the goals and objectives.

What Options are available?

Strategic choice

Options of method on

how to progress

Options about products, markets

and services

Options to improve resources &capabilities

Making the Choice

Choice Criteria-Assessment

-Intent Theoretical Frameworks for

making strategic choice

Who should be involved inthe Choice?

Linking into available strategic options

Chosen Strategy

Evaluation and control process Evaluation and control information

consists of performance data and activity reports.

Performance is the end result of activities and Processes.

Evaluation and control information must be relevant to what is being monitored.

Performance Evaluation is the basis for the Control.

Performance Indicators

ROI, EPS are appropriate for evaluating a corporation’s or a division’s ability to achieve a profitability objective. But it can be calculated after the profits are totaled for a period.

To predict the future profitability, Steering Controls are used. Example: Airlines calculate cost per passenger mile.

Types of CONTROL

Input Control- emphasize resources, such as knowledge, skills, abilities, values, and motives of employees.

Behavior Control- specify how something is to be done through policies, rules, standard operating procedures, and orders from a superior. Example: Sales call to potential customers.

Output Control- Specify what is to be accomplished by focusing on the end result of the behaviors through the use of objectives and performance targets or milestones. Example: Sales Quotas, profit objectives.

Activity based costing

ABC is a recently developed accounting method for allocating indirect and fixed costs to individual products or product lines based on the value-added activities going into that product.

UNIT 7

Strategy in Global environment

Global strategy

Globalization refers to growth of trade and investment, accompanied by the growth in international businesses, and the integration of economies around the world.

Managers must be conscious that markets, supplies, investors, locations, partners, and competitors can be anywhere in the world. Successful businesses will take advantage of opportunities wherever they are and will be prepared for downfalls.

For example, Japanese electronics and automobiles are common in Asia, Europe, and North America, while U.S. automobiles, entertainment, and financial services are also common in Asia, Europe, and North America.

Global strategy

Companies have become transnational or multinational-that is, they are based in one country but have operations in others.

For example, Japan-based automaker Honda operates the largest single factory in the United States, while U.S. based Coca-Cola operates plants in other countries including France and Belgium—with about 80 percent of that company's profits come from overseas sales.

In developing appropriate global strategies, managers need to take the benefits and drawbacks of globalization into account. A global strategy must be in the context of events around the globe, as well as those at home.

Differences Between Domestic and International StrategyFactors Domestic

conditionsGlobal conditions

Culture Homogeneous Heterogeneous

Currency Uniform Different exchange rates

Economy Stable and uniform Variable and unpredictable

Government Stable May be unstable

Labor Skilled workers available

May be hard to find

Language Generally single Different languages and dialectic

Marketing Many media and few restrictions

May be fewer media and more restrictions

Transport Several competitive mode

May be inadequate.