strategic management

Strategic ManagementStrategic ManagementPrepared by: Harsh Arora

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Unit 1Unit 1• Introduction

–Definition, nature, scope and importance of strategy and strategic management

–Strategic decision making• Process of strategic management and

levels at which strategy operates

–Role of strategists–Defining strategic intent

• Vision, Mission, Business definition, Goals and objectives

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In 1958, Phil Knight, a keen athlete and an undergraduate

at the University of Oregon and his track coach Bill Bowerman realized the

need for a good running shoe. The leading

track shoes of the time were

being produced by European companies, adidas and

Puma

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IntroductionIntroduction• Definition, nature, scope and

importance of strategy and strategic management Strategy refers to the ideas, plans, and

support that firms employ to compete successfully against their rivals.

Strategy designed to help firms achieve competitive advantage.

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FoundationFoundation

In 1934, Prof. G. S. Gause of Moscow University, known as ‘the father of mathematical biology’

has published result of his experiment.

Result: Gause’s Principle of “Competitive Exclusion”


However, for million of years competitors survived. How????

Darwinian natural selection(based on adaptation and the

survival of the fittest)


“Evolution determines who survives and who is crowded out”

--- Henderson D. Bruce, 1989

Some are crowded out naturally, some by the competitors and some suicide.

Reason: if every business could grow indefinitely, the total market would grow to an indefinite size on a finite earth.

FoundationFoundationToday, businesses has learned

“competitive coexistence”

How ???????

They have planned for evolutionary change and combine various factors in many different ways to differentiate.

Can evolution be planned for Can evolution be planned for in business ?in business ?

In 1971, Knight and Bowerman decided to develop a distinctive trademark and a new brand name 'Nike', inspired by the Greek winged Goddess of Victory

'Nike'

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DefinitionDefinition

“Strategy is a deliberate search for a plan of action that will develop

a business’s competitive advantage and compound it.”

---- Henderson, 1989

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Nature and ScopeNature and Scope

A plan you adopt in order to get something done, especially in politics, economics or business.

The art of planning where to place armies

and weapons in order to gain the best military advantage.

The art of planning the best way to achieve something or to be successful in a particular field.

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ImportanceImportanceHowever, even after understanding

what strategy is some fail and some sail !

Ex: in photocopy machine, IBM and East Man Kodak failed to Xerox, at the same time Canon survived………

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Nature, Scope & ImportanceNature, Scope & Importance

Serves as a road map for the corporation

Enables long term decisions concerning the firm

Ensure optimum utilization of resources

Prepares the firms to face the future

Helps acquiring competitive advantage

In the early 1980s, Nike replaced adidas as the leading athletic shoe company in the American market. When Nike went public, Knight became one of the richest men in the world. But in the mid-1980s, after five years of rapid growth at an annual rate of 44%, Nike failed to anticipate the emerging market for aerobic shoes, having concentrated its efforts on casual shoes

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“He who loves practice without theory is like a sailor who boards a ship without a radar and compass and never knows where he may

cast”Leonardo da Vinci

So, strategy (systematic planning) is a necessity to start, grow, and sustain

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Basis of strategyBasis of strategyThe essence of strategy is to match

strengths and distinctive competence with terrain in such a way that one’s own business enjoys a competitive advantage over rivals competing on the same terrain.

◦Terrain refers to the environmental setting in which an engagement with an adversary takes place.

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In the 1990s, Nike made more acquisitions including Tetra Plastic Inc., (1991) and Sports Specialties Inc (1993). Tetra manufactured plastic film used in the manufacture of Nike's Air-sole cushioning components. Sports Specialties distributed licensed headwear

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Strategic competencyStrategic competencyVision

competency◦ Vision◦ Mission◦ Goals and

objectivesValue creation

competency◦ Customer focus◦ Competitor focus

Planning and administration competency◦ Activity fit◦ Corporate fit◦ Alliance fit◦ People fit◦ Reward system fit◦ Communication fit

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Strategic competencyStrategic competencyGlobal awareness

competency◦ Opportunities/

threats exist awareness

◦ Different business practices

◦ Cultural awarenessLeveraging

technology competency◦ faster innovation

◦ Big companies act small

◦ Small companies act big

Stakeholder competency◦ Shareholders◦ Customers◦ Employees◦ Communities◦ Senior managers

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Knight, who had detached himself from Nike in order to travel and pursue other interests, joined the company back in

1999 after Bowerman's death, at a time when Nike was struggling. While

addressing employees at a meeting, Knight admitted that there had been a

management failure. Knight put together a new executive team that comprised

partly a few Nike's veterans who carried the heritage and culture of Nike's early

years, and some outsiders. The new executive team sent out signals that the time had come to solve all the problems

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Strategic management Strategic management processprocessA management process designed

to satisfy strategic imperatives for building competitive advantage is called strategic management process. It consists of four major steps◦Analysis◦Formulation◦Implementation◦Adjustment/evaluation

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Strategic management Strategic management processprocess

Analysis

External environment

Opportunities, threats

Internal environment

Strengths, weaknesses

FormulationMission

Customers to be servedCapabilities to be developed

policiesGoals, guidelines for major activities

Implementation

Organizational structure, systems, culture etc.

Adjustments/ Evaluation

(Cycle to earlier steps)

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Strategic decision makingStrategic decision makingProcess of strategic management

and levels at which strategy operates◦Multi business firm/diversified firm: a

firm that operates more than one line of business. Multi business firms often operate across several industries or markets, each with a separate set of customers and competitive requirements. Firms can possess many business units in their corporate portfolio.

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Strategic decision makingStrategic decision making◦Single business firm/undiversified

firm: a firm that operates only one business in one industry or market

◦Business strategy: plans and actions that firms devise to compete in a given product/market scope or setting; addresses the question “How do we compete within an industry?”

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Strategic decision makingStrategic decision making◦Corporate Strategy: plans and

actions that firms need to formulate and implement when managing a portfolio of business; an especially a 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.

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Multi Business Enterprise Multi Business Enterprise (GE)(GE)

CORPORATE MANAGERS

BUSINESS MANAGERS

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Role of strategistsRole of strategistsExecutives most directly

responsible for strategic decisions are;◦Business managers: People in charge

of managing and operating a single line of business

◦Corporate managers: people responsible for overseeing and managing a portfolio of businesses within the firm

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Role of strategistsRole of strategistsRole of Board of DirectorsRole of C.E.ORole of Senior ManagementRole of SBU – Level ExecutivesRole of Corporate Planning StaffRole of ConsultantRole of Middle Level Managers

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Role of strategistsRole of strategistsCompetitive advantage – most

important criterion by which to assess strategic decisions

Strategic decision must also satisfy the numerous and often conflicting needs of various stakeholders;◦ Shareholders◦ Customers◦ Employees◦ Communities◦ Top managers

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Defining strategic intentDefining strategic intent Vision, Mission, Business definition, Goals

and objectives

Vision: the highest aspirations and ideals of a person or organization; what a firm wants to be. Vision statements often describe the firm or organization in lofty, even romantic or mystical tones.

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VisionVision

How the organization wants to be perceived in the future – what success looks like

An expression of the desired end state

Challenges everyone to reach for something

significant – inspires a compelling future

Provides a long-term focus for the entire organization

Examples of Vision Examples of Vision StatementsStatementsBHEL: A world class innovative,

competitive and profitable engineering enterprise providing total business solution.

Colgate-Palmolive: To be company of first choice in oral and personal hygiene by continuously caring for consumers and partners.

HUL: Our vision is to meet the everyday needs of people everywhere

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Defining strategic intentDefining strategic intent Vision, Mission, Business definition, Goals and

objectives

Mission: describe the firm or organization in terms of its business. Mission statements answer the questions;◦What business are we in?◦What do we intend to do to succeed?

Mission statements are somewhat more concrete than vision statements but still do not specify the goals and objectives necessary to translate the mission into reality

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Defining Corporate Defining Corporate MissionMissionCorporate Mission is the essential

purpose that differentiate one company from others. It clearly defines the priorities and the purpose of existence of the company.

It focuses on limited number of goalsStress the company’s major policies and

valuesDefines the major competitive spheres

within which the company will operate

Examples – Mission Examples – Mission StatementsStatements

To Make People Happy

To Explore the Universe and Search for Life and to Inspire the Next Generation of Explorers

NASA

Walt Disney

Does a good job of expressing the core values of the organization. Also conveys unique qualities about the organization.

Too vague and and unclear. Need more descriptive information about what makes the organization special.

Defining strategic intentDefining strategic intent Vision, Mission, Business definition, Goals

and objectives

Goals and Objectives◦ Goals: the specific results to be achieved

within a given time period◦ Objectives: the specific results to be

achieved within a given time period (also known as goals). Objectives guide the firm or organization in achieving its mission.

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Goal formulationGoal formulationEffective goals should be

formulated so that they are:◦Arranged hierarchically from broader

to more specific objectives

◦Stated in quantitative terms

◦Realistic

◦Consistent with each other and the company mission

ObjectiveObjective◦ Relevant - directly supports the goal◦ Compels the organization into action◦ Specific enough so we can quantify and

measure the results◦ Simple and easy to understand◦ Realistic and attainable◦ Conveys responsibility and ownership◦ Acceptable to those who must execute◦ May need several objectives to meet a goal

Goals Vs ObjectiveGoals Vs Objective

Very short statement, few words

Broad in scopeDirectly relates

to the Mission Statement

Covers long time period (such as 10 years)

Longer statement, more descriptive

Narrow in scopeIndirectly relates

to the Mission Statement

Covers short time period (such 1 year budget cycle)

GOALS OBJECTIVES

By September 2004, Nike's Soccer sales were nearly $1 billion, or 25% of the global market. For the first time, Nike's share of the soccer shoe market in Europe (35%), exceeded that of adidas (31%).Nike had achieved rapid growth in part by using the aggressive marketing tactics that made it big in the US.Nike paid the prestigious Manchester United club an unprecedented $450 million over 14 years to run its merchandising and uniform operations

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Unit 2Unit 2Environment

◦Environmental appraisal Concept of environment, components of

environment (economical, social, political, and technological)

◦Environmental scanning techniques ETOP, QUEST and SWOT (TOWS)

◦ Internal appraisal The internal environment, organizational

capabilities in various functional areas and Strategic Advantage Profile

Methods and techniques used for organizational appraisal, identification of Critical Success Factor (CSF)

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Environmental appraisalConcept of environment, components of

environment (economical, social, political, and technological)

A firm’s environment represents all external forces, factors or conditions that exert some

degree of impact on the strategies, decisions, and actions

taken by the firm.

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Environmental appraisalThe specific type of environmental forces

and conditions vary from industry to industryA number of broad environmental forces

exert an impact on the strategies of every firm

Broadly two type of external environments; The broader macro-environment Industry specific competitive environment

Environment offers both opportunities and threats to the company.

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Environmental appraisalMacro-environment

Demographic environment Economical environment Political environment Social/cultural environment Technological environment Global environment

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Environmental appraisalCompetitive environment

The immediate economic factors – customers, competitors, suppliers, buyers, and potential

substitutes – of direct relevance to a firm in a given industry

Industry attractiveness: the potential for profitability when competing in a given industry. An attractive industry has high profit potential; an unattractive industry has low profit potential.

Industry structure: the interrelationship among the factors in a firm’s competitive or industry environment; configuration of economic forces and factors that interrelate to affect the behavior of firms competing in that industry.

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Examining and Responding to the Examining and Responding to the Marketing EnvironmentMarketing Environment

EnvironmentalScanning

EnvironmentalScanning

EnvironmentalAnalysis

Examining and Responding to the Examining and Responding to the Marketing EnvironmentMarketing Environment

Examining and Responding to Examining and Responding to the Marketing Environmentthe Marketing Environment Reactive

Response

Proactive Response

Case: Case:

Coke & Pepsi in India: Pesticides in carbonated beverages

Economic environmentEconomic environmentBusiness cycleBuying powerFinancial sourcesWillingness to spend

◦ GDP, growth, inflation, central bank lending rates, currency exchange rates, fiscal policies (tax on corporations and individuals), regional issues like land process and labor rates, distribution of economic rewards in the society, freedom to move monies, stock exchange and money market

Social environmentSocial environmentAttitude, values, and beliefs tastes

held by people including ethnic minorities

Culture: attitude to work, savings, investments, ethics etc.

Demography: Size and structure of workforce, population shifts, aging

Social structure: class and segmentation of the market

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Political environmentPolitical environmentSupranational (global)National (domestics)LocalGovernment active areas include;

◦ Policies on healthcare, unemployment, exchange rates, inflation, economic growth

◦ Government employment and the public sector ◦ Fiscal policies on taxation◦ Government agencies regulating competition,

pollution and industrial relations◦ Law of various kinds such as those relating to

protection of the environment or the safety of employees in the work place or those relating to customer protection

Technological Technological environmentenvironmentThese can be internal and externalSoftware used for quality control and

produce products of varying complexityTechnology includes;

◦ Goods and services◦ Production process◦ Information and communication◦ Transport and distribution◦ Computing and associated implication for

production◦ Biotechnology and new industries

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Environmental scanning techniques

Benefits;◦ Increasing managerial awareness of

environmental change◦ Increasing understanding of the context in

which industries and markets functions◦ Increasing understanding of multinational

settings◦ Improving resource allocation decisions◦ Facilitating risk management◦ Focusing attention on primary influences on

strategic change◦ Acting as an early warning system

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SWOT (TOWS) AnalysisSWOT (TOWS) AnalysisCentral purpose:

◦identify strengths that align, fit or match an organizations resources and capabilities to the demands of the environment

◦To build on organizations strength in order to exploit opportunities and counter threats and to correct organizational weaknesses

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StrengthsStrengthsStrength’s – Those things that you do well,

the high value or performance points

Strengths can be tangible: Loyal customers, efficient distribution channels, very high quality products, excellent financial condition

Strengths can be intangible: Good leadership, strategic insights, customer intelligence, solid reputation, high skilled workforce

Often considered “Core Competencies” – Best leverage points for growth without draining your resources

StrengthsStrengths Core competencies in key

areas Adequate financial

resources Well thought of by buyers An acknowledged market

leader Well conceived functional

area strategies Access to economies of

scale Insulated (at least

somewhat) from strong competitive pressures

Proprietary technology Cost advantages Better advertising

campaigns Product innovation skills Proven management Ahead on experience

curve Better manufacturing

capabilities Superior technological

skills

WeaknessWeaknessWeaknesses – Those things that prevent you

from doing what you really need to do

Since weaknesses are internal, they are within your control

Weaknesses include: Bad leadership, unskilled workforce, insufficient resources, poor product quality, slow distribution and delivery channels, outdated technologies, lack of planning

WeaknessWeaknessNo clear strategic

directionObsolete facilitiesProfitability issuesLack of management

depth and talentMissing some key skills

and competenciesPoor track record in

implementing problems

Falling behind in R&DToo narrow in product

line

Weak market imageWeak distribution

networkBelow average

marketing skills Unable to finance

needed changes in strategy

Higher overall unit costs relative to key competitors

OpportunitiesOpportunitiesOpportunities – Potential areas for growth

and higher performance

External in nature – marketplace, unhappy customers with competitor’s, better economic conditions, more open trading policies

Internal opportunities should be classified as Strength’s

Timing may be important for capitalizing on opportunities

OpportunitiesOpportunitiesAbility to serve

additional customer groups or expand into new markets or segments

Ways to expand product line to meet broader range of customer needs

Ability to transfer skills or technological know how to new products or businesses

Integrating forward or backward

Falling trade barriers in attractive foreign markets

Complacency among rival firms

Ability to grow rapidly because of strong increases in market demand

Emerging new technologies

ThreatsThreatsThreats – Challenges confronting the

organization, external in nature

Threats can take a wide range – bad press coverage, shifts in consumer behavior, substitute products, new regulations, . . .

May be useful to classify or assign probabilities to threats

The more accurate you are in identifying threats, the better position you are for dealing with the “sudden ripples” of change

ThreatsThreatsEntry of lower cost

foreign competitorsRising sales of

substitute productsSlower market growthAdverse shifts in

foreign exchange rates and trade policies of foreign governments

Costly regulatory requirements

Vulnerability to recession and business cycle

Growing bargaining power of customers or suppliers

Changing buyers needs and tastes

Adverse demographic changes

The SWOT processThe SWOT process

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ETOP: Environmental Threat ETOP: Environmental Threat and Opportunity Profileand Opportunity ProfileIt is a process of dividing an

environment into different sectors and than analyzing the impact of each sector on the organization

It provides a clear picture to the strategists about which sectors & different factors in each sector, have a favorable impact on the organization

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ETOP: Environmental Threat ETOP: Environmental Threat and Opportunity Profileand Opportunity Profile

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Environmental Sectors

Nature of

Impact

Impact of each sector

Economic

Growing affluence among urban consumers, rising disposable incomes & living standards

Market

Organized sector a virtual oligopoly with 4 major manufacturers, buyers, critical & better informed, overall industry growth rate not encouraging, growth rate for niche market, like sports, trekking etc.

International

Global imports growing but India’s share shrinking, major importers are the US & EU but India exports mainly to Africa


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Nature of

Impact


Political

Bicycle principle mode of transport for low and middle income, industry too small to draw attention

Regulatory

Parts and components reserved from SSI, bicycle industry a thrust area for export.

Social

Environment & health friendly transport option, wide usage, as recreation, convenient in traffic, customer preference.


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Nature of

Impact


Supplier

Mostly ancillaries in small scale sector supply parts & components, rising steel prices, industrial concentration in Punjab & Tamilnadu

Technological

Up gradation in progress, import of machinery simple, product innovation ongoing like battery operated & lightweight foldable cycles

QUEST: Quick Environmental QUEST: Quick Environmental Scanning TechniqueScanning TechniqueIt is a scanning procedure designed to

assist executives and planners to keep side by side of change and its implications for the organizational strategies and policies.

It is develop a quick, inexpensive analysis of the possible futures of the organization may face based on the perception, experience, knowledge, and observations of the senior executive team

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QUEST: Quick Environmental QUEST: Quick Environmental Scanning TechniqueScanning TechniqueThe Quest Process

1. Preparation: Selection of participants and compilation of “intelligence file” containing readily available information on past trends and future prospects in the particular industry

2. Divergent Planning: Determine the top 10 most significant events and evaluate cross impact

3. Scenario Development: Analysis of organization’s business environment and associated performance measures and develop alternative future scenarios using the identified critical events

4. Strategic option identification: follow up to prepare Strength and Weaknesses of the organization

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Internal appraisalAll organizations have strengths and weaknesses

in the functional areas of business. No enterprise is equally strong or weak in all areas.

Maytag, for example, is known for excellent production and product design, whereas Procter

& Gamble is known for superb marketing. Internal strengths/weaknesses, coupled with

external opportunities/threats and a clear statement of mission, provide the basis for

establishing objectives and strategies. Objectives and strategies are established with

the intention of capitalizing upon internal strengths and overcoming weaknesses

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Internal appraisal Organizational capabilities in

various functional areas;◦marketing, finance, accounting,

management, management information systems, and production/operations; there are many subareas within these functions, such as customer service, warranties, advertising, packaging, and pricing under marketing etc.

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Internal appraisal Organizational capabilities in various

functional areas;◦ A firm’s strengths that cannot be easily matched or

imitated by competitors are called distinctive competencies.

◦ Building competitive advantages involves taking advantage of distinctive competencies. For example, 3M exploits its distinctive competence in research and development by producing a wide range of innovative products.

◦ Strategies are designed in part to improve on a firm’s weaknesses, turning them into strengths—and maybe even into distinctive competencies.

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Internal appraisal Strategic Advantage ProfileStrategic advantage profile (SAP) tries to find out

organizational strengths and weaknesses in relation to certain CSF advantage factors or

competence factors) within a particular industry.

Many industries have relatively small but extremely important sets of factors that are

essential for successfully gaining and maintaining competitive advantages. Known as critical success factors (CSFs), they have a

significant bearing on

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Internal appraisal Major sources of Critical Success

Factor (CSF) Industry characteristics Competitive positions General environments Organizational developments

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Unit 3Unit 3Corporate level and business level

strategies◦Corporate level strategies

Stability, expansion, retrenchment and combination strategy.

Corporate restructuring, concept of synergy, Mergers & acquisitions, corporate restructuring

◦Business level strategies Porter’s framework of competitive strategies;

conditions, risks and benefits of cost leadership, differentiation and focus strategies, concept, importance, building and use of core competence

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Corporate level strategiesStability strategyinvolves maintaining the status quo or growing

in a methodical, but slow, manner. Organizations might follow a stability strategy for a

variety of reasons: Why rock the boat? Why not stop for a while? Why to swallow risk? Where are the resources?

Stability strategies would work only when the firm is doing well and the environment is

not excessively volatile

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Corporate level strategiesExpansion strategyThe firm tries to redefine the business, enter

new businesses, that are related or unrelated

or look at its product portfolio more intensely. Why to pursue growth strategy? To ensure survival: Ambassador car failed to

grow and forced out of market. To obtain scale economics. To stimulate talent. To reach commanding heights.

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Corporate level strategiesExpansion strategy

Strategic growth options: The Ansoff Matrix

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Corporate level strategiesRetrenchment strategy. defensive strategy followed by a firm when its

performance is disappointing or when its survival is at stake

Economic recessions, production inefficiencies, and innovative breakthroughs by competitors

Xerox went through a terrible 2-year period in early 1980s when managers and analysts thought the firm might face bankruptcy because of crushing attacks from Japanese competitors like Cannon and Sharp.

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Corporate level strategies Forms of Retrenchment strategy.

Divestment strategy (also called divestiture or spin-off): It involves the sale of those units or parts of a business that no longer contribute to or fit the firm’s distinctive competence. The firm simply gets out of certain businesses and sells off units or divisions

Turnaround Strategies: to reverse a negative trend and bring the organization back to normal health and profitability.

Liquidation Strategy: Liquidation involves selling or disposing of all or a part of an organization’s assets.

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Corporate level strategies Forms of Retrenchment strategy.

Bankruptcy: an organization that is unable to pay its debts can seek court protection from creditors and from certain contract obligations while it tries to regain financial health and stability

Combination strategyCorporate planning aimed at achieving two

or more goals (such as consolidation, growth, stability) simultaneously

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Corporate level strategies Corporate restructuring

Advances in information technology To keep smile on the customers’ face

every time to redefine markets and industries Internally structures, management styles

and cultures to get ahead of its competitors

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Corporate level strategies Concept of synergy

Consolidation: If both firms dissolve their identity to create a new firm, it is called consolidation A friendly merger takes place when both

firms agree to combine their might in order to gain certain synergistic benefits like

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Corporate level strategies Concept of synergy

Marketing synergy- using common distribution channels, sales force, sales promotion etc.

Operating synergy- better use of facilities Investment synergy – better uses of

resources as in the case of mergers of banks or financial institutions.

Management synergy- using existing managerial talent in a judicious way.

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Corporate level strategies Mergers & acquisitions

A merger occurs when two or more organizations (usually of roughly similar sizes) combine to become one through an exchange of stock or cash or both.

Acquisition is the purchase of a firm that is considerably larger. The firm that acquires is called the acquiring firm and other, the merging firm.

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Business level strategiesPorter’s framework of competitive strategies

(Michael Porter’s five forces model)

Awareness of the five forces can help a company understand the structure of its industry and stake out a position that is

more profitable and less vulnerable to attack

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Threat of entryThreat of entryNew entry to an industry bring in:

◦New capacity◦Desire to gain market share◦Puts pressure

on prices on costs Rate of investment necessary to compete

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Threat of entryThreat of entry◦When new entrant diversify from

other markets, they Leverage existing capabilities Cash flow to shake up competition

Pepsi entered into Mineral WaterMicrosoft entered into Internet BrowserApple entered into music distribution

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Threat of entryThreat of entryWhen threat is high

◦Hold down prices◦Boost investment ◦Deter new competitors

Starbucks invest aggressively in modernizing stores and menus

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Entry barriers◦ Supply side economies of scale (Intel)◦ Demand side benefits of scale (IBM, eBay)◦ Customer switching cost (SAP – ERP

software)◦ Capital requirements (Aviation)◦ Incumbency advantages independent of size

(Wal-Mart)◦ Unequal access to distribution channels

(Eureka Forbes)◦ Restrictive government policy (Ambassador

– WB)

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Threat of entryThreat of entry

Powerful suppliers;◦ Capture more value for themselves◦ Charge higher prices◦ Limiting quality or services◦ Shifting cost to industry participants

Microsoft contributed to the erosion of profitability among PC makers by raising

prices on operating systems

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Power of SuppliersPower of Suppliers

A supplier group is powerful if;◦ More concentrated than industry◦ Does not depend heavily on industry or

serve many industries◦ Industry participants face switching costs◦ Suppliers offers products that are

differentiated (pharma)◦ No substitute for suppliers products◦ Supplier can threaten to integrate forward

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Power of SuppliersPower of Suppliers

Customer group has negotiating leverage if;◦ Few buyers, or each one purchases in

volumes◦ Industry’s products are standardized or

undifferentiated◦ Buyers few switching cost◦ Buyers can threaten to integrate backward

Well logging companies (which measure below ground conditions of oil wells)

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Power of BuyersPower of Buyers

Video conferencing ~ travelPlastic ~ aluminum

E-mail ~ Physical mailsThreat of substitute is high if;

◦ Offers an attractive price performance trade off (phone ~ skype)

◦ Buyers cost of switching is low (generic drugs, technologically strong plastic ~ steel for automobile cos.)

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Threat of SubstitutesThreat of Substitutes

Rivalry among existing Rivalry among existing competitorscompetitorsPrice discountingNew product introductionAdvertising campaignsService improvements

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Rivalry among existing Rivalry among existing competitorscompetitorsIntensity of rivalry greatest if;

◦ Competitors are numerous or are roughly equal in size and power

◦ Industry growth is slow◦ Exit barriers are high◦ Rivals are highly committed to the

business and have aspirations for leadership

◦ Firms cannot read each other’s signals well because of lack of familiarity with one another, diverse approaches to competing, or differing goals

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Case let 3Case let 3Commercial aviation: it’s one of the

least profitable industries because ◦ all five forces are strong

Established rivals compete intensely on price Customers are fickle, searching for the best deal

regardless of carrier Suppliers – plane and engine manufactures, along with

unionized labor forces – bargain away the lion’s share of airline’s profits

New players enter the industry in a constant stream Substitutes are readily available – such as train or car

travel

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Business level strategiesPorter’s framework of competitive strategies:

cost leadership

Cost leadership is a strategy that focuses on making an organization more competitive by producing its

products more cheaply than competitors can.

Example: Nirma, Wal-Mart

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differentiation strategies

It involves attempting to develop products and services that are

viewed as unique in the industry. Successful differentiation allows the business to charge premium prices,

leading to above average profits. Brand image (Rolex) Technology (Honda) Customer service (HDFC)

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focus strategies

It is a strategy that emphasizes making an organization more

competitive by targeting a specific regional market, product line or

buyer group. The organization can use either a differentiation or low

cost approach, but only for a narrow target market.

Example: Titan

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Unit 4Unit 4Strategic analysis and choice

◦Corporate level analysis (BCG, GE Nine cell Matrix)

◦Industry level analysis; Porter’s five forces Model

◦Qualitative factors in strategic choice

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Strategic analysis and Strategic analysis and choicechoiceCorporate level analysis : BCG Matrix

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Strategic analysis and Strategic analysis and choicechoiceCorporate level analysis : GE Nine cell

Matrix

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Market attractivenessMarket attractiveness Business Business StrengthStrength

Overall market size.Annual market

growth.Competitive intensity. Inflationary

vulnerability.Energy requirements.Environmental impact.Social –political legal.

Market share.Product quality.Brand reputation.Distribution networkPromotional

effectiveness.Productive capacity.

Strategic analysis and Strategic analysis and choicechoiceIndustry level analysis; Porter’s five forces

Model(done in the last module)

Qualitative factors in strategic choice Seymour Tiles identified six qualitative questions that are

useful in evaluating strategies way back in 1963 thus1. Is the strategy internally consistent?2. Is the strategy consistent with the environment?3. Is the strategy appropriate in view of available resources?4. Does the strategy involve an acceptable degree of risk?5. Does the strategy have an appropriate time framework?6. Is the strategy workable?

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Unit 5Unit 5Resource allocation, projects and

procedural issuesOrganization structure and

system in strategy implementation

Strategic control and operational control, organizational system and techniques of strategic evaluation

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Resource allocation, projects Resource allocation, projects and procedural issuesand procedural issuesWhile implementing strategies, the

scarce resources of a firm (financial, physical, human, technological) need to be allocated carefully, according to a plan.◦Means of resource allocation

Strategic budget: SBU level Capital budget: for long term profitability Performance budget: to carry out functions Zero based budget:

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Organization structure and Organization structure and system in strategy system in strategy implementationimplementation

Strategy implementation is a crucial issue because any strategy is as good

as the effort behind lit to move it forward. Successful strategy

implementation requires support, discipline, motivation land hard work from all managers and employees.

More importantly, it requires a suitable in organization structure to translate

ideas into concrete action plans.

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Organization structure and Organization structure and system in strategy system in strategy implementationimplementation

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Organization structure and Organization structure and system in strategy system in strategy implementationimplementationBehavioral issues in strategy

implementation Influence tactics Power Expertise Charisma Reward power Information power Exchange Legitimate power Coercive power

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Strategic control and Strategic control and operational controloperational control

"Strategic Control' is concerned with tracking a strategy as it is being

implemented, detecting problems or changes in its underlying premises, and making necessary adjustments“◦There are four types of strategic control:

1. Premise control.2. Implementation control.3. Strategic surveillance.4. Strategic alert control

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Strategic control and Strategic control and operational controloperational controlOperational controls provide post-

action evaluation and control over short periods

◦Evaluation Techniques for Operational Control Value Chain Analysis Quantitative performance measurement Benchmarking Balanced score card Key factor rating

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Organizational system and Organizational system and techniques of strategic techniques of strategic evaluationevaluationStrategy evaluation and control

(SEC) is the final phase of strategic management.

Purpose◦to determine the effectiveness of a

given strategy◦achieving the organizational

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Organizational system and Organizational system and techniques of strategic techniques of strategic evaluationevaluationStrategy evaluation generally

operates at two levels◦Strategic: examine the consistency

of strategy with environment◦ Operational: finding how a given

strategy is effectively pursued

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Organizational system and Organizational system and techniques of strategic techniques of strategic evaluationevaluationSEC helps an organization in;

◦Feedback◦Are we moving in the proper

direction?◦How are we performing?◦Reward◦Future planning

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strategic management

Education

puma harsh arora

strategic management

importance of strategy

definitiondefinition

business definition

foundationfoundation

scope importancenature

competitive coexistence