Midterm PPTS

Midterm PPTSModule 1Introduction to strategic managementDefining Strategic ManagementStrategic management the art and science of formulating, implementing, and evaluating cross-functional decisions that enable an organization to achieve its objectivesStrategic management is defined as the art and science of formulating, implementing, and evaluating cross-functional decisions that enable an organization to achieve its objectives

Defining Strategic ManagementStrategic management is used synonymously with the term strategic planning.Sometimes the term strategic management is used to refer to strategy formulation, implementation, and evaluation, with strategic planning referring only to strategy formulation.Strategic management in this text is used synonymously with the term strategic planningSometimes the term strategic management is used to refer to strategy formulation, implementation, and evaluation, with strategic planning referring only to strategy formulation.

Defining Strategic ManagementA strategic plan is a companys game plan.A strategic plan results from tough managerial choices among numerous good alternatives, and it signals commitment to specific markets, policies, procedures, and operations.A strategic plan results from tough managerial choices among numerous good alternatives, and it signals commitment to specific markets, policies, procedures, and operations in lieu of other, less desirable courses of action.

Stages of Strategic ManagementThe strategic-management process consists of three stages: strategy formulation, strategy implementation,and strategy evaluation.Stages of Strategic ManagementStrategy formulation includes developing a vision and mission, identifying an organizations external opportunities and threats, determining internal strengths and weaknesses, establishing long-term objectives, generating alternative strategies, and choosing particular strategies to pursueStrategy formulation includes developing a vision and mission, identifying an organizations external opportunities and threats, determining internal strengths and weaknesses, establishing long-term objectives, generating alternative strategies, and choosing particular strategies to pursue

Strategy FormulationDeciding what new businesses to enter, What businesses to abandon, How to allocate resources, Whether to expand operations or diversify, Whether to enter international markets, Whether to merge or form a joint venture,How to avoid a hostile takeover.Deciding what new businesses to enter, What businesses to abandon, How to allocate resources, Whether to expand operations or diversify, Whether to enter international markets, Whether to merge or form a joint ventureHow to avoid a hostile takeover.

Stages of Strategic ManagementStrategy implementation requires a firm to establish annual objectives, devise policies, motivate employees, and allocate resources so that formulated strategies can be executedoften called the action stageStrategy implementation requires a firm to establish annual objectives, devise policies, motivate employees, and allocate resources so that formulated strategies can be executed and is often called the action stage

Stages of Strategic ManagementStrategy evaluationreviewing external and internal factors that are the bases for current strategies, measuring performance, and taking corrective actionsStrategy evaluation is defined as reviewing external and internal factors that are the bases for current strategies, measuring performance, and taking corrective actions

Stages of Strategic ManagementStrategy formulation, implementation, and evaluation activities occur at three hierarchical levels in a large organization: corporate, divisional or strategic business unit, and functionalStrategic management helps a firm function as a competitive teamStrategy formulation, implementation, and evaluation activities occur at three hierarchical levels in a large organization: corporate, divisional or strategic business unit, and functionalStrategic management helps a firm function as a competitive team

Integrating Intuition and AnalysisMost organizations can benefit from strategic management, which is based upon integrating intuition and analysis in decision makingIntuition is particularly useful for making decisions in situations of great uncertainty or little precedentMost organizations can benefit from strategic management, which is based upon integrating intuition and analysis in decision making

Intuition is particularly useful for making decisions in situations of great uncertainty or little precedent

Adapting to ChangeThe second-largest bookstore chain in the United States, Borders Group, declared bankruptcy in 2011 as the firm had not adapted well to changes in book retailing from traditional bookstore shopping to customers buying online, preferring digital books to hard copiesBorders was on the brink of financial collapse before being acquired in July 2011 by Direct BrandsKey Terms in Strategic ManagementCompetitive advantage anything that a firm does especially well compared to rival firmsStrategists the individuals who are most responsible for the success or failure of an organizationCompetitive advantage is anything that a firm does especially well compared to rival firmsStrategists are the individuals who are most responsible for the success or failure of an organization.

Key Terms in Strategic ManagementVision statement answers the question What do we want to become?often considered the first step in strategic planningThe Vision statement answers the question What do we want to become? and is often considered the first step in strategic planning

Key Terms in Strategic ManagementMission statements enduring statements of purpose that distinguish one business from other similar firmsidentifies the scope of a firms operations in product and market terms addresses the basic question that faces all strategists: What is our business?Mission statements are enduring statements of purpose that distinguish one business from other similar firms. It identifies the scope of a firms operations in product and market terms and addresses the basic question that faces all strategists: What is our business?Key Terms in Strategic ManagementExternal opportunities and external threats refer to economic, social, cultural, demographic, environmental, political, legal, governmental, technological, and competitive trends and events that could significantly benefit or harm an organization in the futureExternal opportunities and external threats refer to economic, social, cultural, demographic, environmental, political, legal, governmental, technological, and competitive trends and events that could significantly benefit or harm an organization in the future

Some Opportunities and ThreatsComputer hacker problems are increasing.Intense price competition is plaguing most firms.Unemployment and underemployment rates remain high.Interest rates are rising.Product life cycles are becoming shorter.State and local governments are financially weak. Availability of capital can no longer be taken for granted. Consumers expect green operations and products. Marketing moving rapidly to the Internet. Commodity food prices are increasing. Political unrest in the Middle East is raising oil prices. Computer hacker problems are increasing. Intense price competition is plaguing most firms. Unemployment and underemployment rates remain high. Interest rates are rising. Product life cycles are becoming shorter. State and local governments are financially weak. Turmoil and violence in Mexico is increasing. Winters are colder and summers hotter than usual. Home prices remain exceptionally low. Global markets offer the highest growth in revenues.Key Terms in Strategic ManagementInternal strengths and internal weaknesses an organizations controllable activities that are performed especially well or poorlydetermined relative to competitorsInternal strengths and internal weaknesses are an organizations controllable activities that are performed especially well or poorlyand are determined relative to competitorsKey Terms in Strategic ManagementObjectives specific results that an organization seeks to achieve in pursuing its basic missionlong-term means more than one yearshould be challenging, measurable, consistent, reasonable, and clearObjectives are specific results that an organization seeks to achieve in pursuing its basic mission. Long-term means more than one yearThey should be challenging, measurable, consistent, reasonable, and clear

Key Terms in Strategic ManagementStrategies the means by which long-term objectives will be achievedmay include geographic expansion, diversification, acquisition, product development, market penetration, retrenchment, divestiture, liquidation, and joint venturesStrategies are the means by which long-term objectives will be achieved. They may include geographic expansion, diversification, acquisition, product development, market penetration, retrenchment, divestiture, liquidation, and joint ventures.

Key Terms in Strategic ManagementAnnual objectives short-term milestones that organizations must achieve to reach long-term objectives should be measurable, quantitative, challenging, realistic, consistent, and prioritizedshould be established at the corporate, divisional, and functional levels in a large organizationAnnual objectives are short-term milestones that organizations must achieve to reach long-term objectives. They should be measurable, quantitative, challenging, realistic, consistent, and prioritizedThey should be established at the corporate, divisional, and functional levels in a large organization.

Key Terms in Strategic ManagementPoliciesthe means by which annual objectives will be achievedinclude guidelines, rules, and procedures established to support efforts to achieve stated objectivesguides to decision making and address repetitive or recurring situationsPolicies are the means by which annual objectives will be achieved. They include guidelines, rules, and procedures established to support efforts to achieve stated objectivesPolicies are guides to decision making and address repetitive or recurring situations

The Strategic-Management ModelThese are three important questions to answer in developing a strategic plan:Where are we now?Where do we want to go?How are we going to get there?A Comprehensive Strategic-Management Model

The framework illustrated in Figure 1-1 is a widely accepted, comprehensivemodel of the strategic-management process.12 This model does not guarantee success, butit does represent a clear and practical approach for formulating, implementing, and evaluating strategies.Relationships among major components of the strategic-management process are shown in themodel, which appears in all subsequent chapters with appropriate areas shaped to show the particularfocus of each chapter.Benefits of Strategic ManagementHistorically, the principal benefit of strategic management has been to help organizations formulate better strategies through the use of a more systematic, logical, and rational approach to strategic choiceHistorically, the principal benefit of strategic management has been to help organizations formulate better strategies through the use of a more systematic, logical, and rational approach to strategic choice

Benefits of Strategic ManagementCommunication is a key to successful strategic managementThrough dialogue and participation, managers and employees become committed to supporting the organizationBenefits to a Firm That Does Strategic Planning

Figure 1-2 illustrates thisintrinsic benefit of a firm engaging in strategic planning. Note that all firms need all employees on amission to help the firm succeed.Financial BenefitsBusinesses using strategic-management concepts show significant improvement in sales, profitability, and productivity compared to firms without systematic planning activitiesHigh-performing firms seem to make more informed decisions with good anticipation of both short- and long-term consequencesBusinesses using strategic-management concepts show significant improvement in sales, profitability, and productivity compared to firms without systematic planning activities

High-performing firms seem to make more informed decisions with good anticipation of both short- and long-term consequences

Nonfinancial BenefitsIt allows for identification, prioritization, and exploitation of opportunities.It provides an objective view of management problems.It represents a framework for improved coordination and control of activities.It minimizes the effects of adverse conditions and changes.It allows for identification, prioritization, and exploitation of opportunities.It provides an objective view of management problems.It represents a framework for improved coordination and control of activities.It minimizes the effects of adverse conditions and changes.

Nonfinancial BenefitsIt allows major decisions to better support established objectives.It allows more effective allocation of time and resources to identified opportunities.It allows fewer resources and less time to be devoted to correcting erroneous or ad hoc decisions.It creates a framework for internal communication among personnel.It allows major decisions to better support established objectives.It allows more effective allocation of time and resources to identified opportunities.It allows fewer resources and less time to be devoted to correcting erroneous or ad hoc decisions.It creates a framework for internal communication among personnel.Why Some Firms Do No Strategic PlanningLack of knowledge in strategic planningPoor reward structuresFirefightingWaste of timeToo expensiveLazinessContent with success Lack of knowledge or experience in strategic planningNo training in strategic planning. Poor reward structuresWhen an organization assumes success, it often fails to rewardsuccess. When failure occurs, then the firm may punish. FirefightingAn organization can be so deeply embroiled in resolving crises and firefightingthat it reserves no time for planning. Waste of timeSome firms see planning as a waste of time because no marketable productis produced. Time spent on planning is an investment. Too expensiveSome organizations see planning as too expensive in time and money. LazinessPeople may not want to put forth the effort needed to formulate a plan. Content with successParticularly if a firm is successful, individuals may feel there is noneed to plan because things are fine as they stand. But success today does not guaranteesuccess tomorrow.Why Some Firms Do No Strategic PlanningFear of failureOverconfidencePrior bad experienceSelf-interestFear of the unknownHonest difference of opinionSuspicion Fear of failureBy not taking action, there is little risk of failure unless a problem isurgent and pressing. Whenever something worthwhile is attempted, there is some risk offailure. OverconfidenceAs managers amass experience, they may rely less on formalizedplanning. Rarely, however, is this appropriate. Being overconfident or overestimatingexperience can bring demise. Forethought is rarely wasted and is often the mark ofprofessionalism. Prior bad experiencePeople may have had a previous bad experience with planning, thatis, cases in which plans have been long, cumbersome, impractical, or inflexible. Planning,like anything else, can be done badly. Self-interestWhen someone has achieved status, privilege, or self-esteem through effectivelyusing an old system, he or she often sees a new plan as a threat. Fear of the unknownPeople may be uncertain of their abilities to learn new skills, oftheir aptitude with new systems, or of their ability to take on new roles. Honest difference of opinionPeople may sincerely believe the plan is wrong. They mayview the situation from a different viewpoint, or they may have aspirations for themselvesor the organization that are different from the plan. Different people in different jobs havedifferent perceptions of a situation. SuspicionEmployees may not trust managementPitfalls in Strategic PlanningUsing strategic planning to gain control over decisions and resourcesDoing strategic planning only to satisfy accreditation or regulatory requirementsToo hastily moving from mission development to strategy formulationFailing to communicate the plan to employees, who continue working in the darkTop managers making many intuitive decisions that conflict with the formal planUsing strategic planning to gain control over decisions and resourcesDoing strategic planning only to satisfy accreditation or regulatory requirementsToo hastily moving from mission development to strategy formulationFailing to communicate the plan to employees, who continue working in the darkTop managers making many intuitive decisions that conflict with the formal plan

Drawbacks in Strategic PlanningTop managers not actively supporting the strategic-planning processFailing to use plans as a standard for measuring performanceDelegating planning to a planner rather than involving all managersFailing to involve key employees in all phases of planningFailing to create a collaborative climate supportive of changeTop managers not actively supporting the strategic-planning processFailing to use plans as a standard for measuring performanceDelegating planning to a planner rather than involving all managersFailing to involve key employees in all phases of planningFailing to create a collaborative climate supportive of change

Comparing Business and Military StrategyA fundamental difference between military and business strategy is that business strategy is formulated, implemented, and evaluated with an assumption of competition, whereas military strategy is based on an assumption of conflictBoth business and military organizations must adapt to change and constantly improve to be successfulA fundamental difference between military and business strategy is that business strategy is formulated, implemented, and evaluated with an assumption of competition, whereas military strategy is based on an assumption of conflict

Both business and military organizations must adapt to change and constantly improve to be successful

Module 2Strategic Management ProcessStrategic ManagementDefinition- the art and science of formulating, implementing, and evaluating cross-functional decisions that enable an organization to achieve its objectivesStages of Strategic ManagementFormulating- developing a vision and mission statement, identifying an organizations external opportunities and threats, determining internal strengths and weaknesses, establishing long-term objectives, generating alternative strategies, and choosing strategies to pursue

Stages of Strategic ManagementImplementation- establish annual objectives, devise policies, motivate employees, and allocate resources so formulated strategies can be executed. Evaluation-final stage, includes 3 fundamental activitiesReviewing external and internal factors as bases for current strategiesMeasuring performanceTaking corrective actionsStrategic PlanningDefinition- an organizations process of defining its strategy, or direction, and making decisions on allocating its resources to pursue this strategySWOT AnalysisTool used to evaluate internal strengths and weaknesses and external opportunities and threatsUsed in strategic planning Dominos PizzaVision statement-To be thebest operatorDomino's Pizzasystemwiththe best talent.Number one in pizza.Number one in people.

Mission Statement-Maintaining highstandards ofthe international chain ofpizza deliveryinMexicoand providethe experienceof an excellent productwith excellentcustomer service.ExceptionalPeopleserving thebest pizza in theworld.Sell more pizza.Have more fun.

Objectives/GoalsProvide exceptional customer serviceTimely delivery of productsMaintain low cost of productionFollow newest technology availableSWOTStrengthsConvenienceCustomer serviceLocationPricingWeaknessesTime/costEmployee trainingLimited expansionCompetition

SWOTOpportunitiesOpen more locationsRe-evaluate operationsEvaluate technological advancesThreatsCompetition-low barriers to entry, many other shops aroundSmall company- difficult to compete with large companiesSmall profit margins

StrategiesStrong marketing and advertisingHire, train and motivate employees to provide exceptional serviceWillingness to be flexiblePurchase only the best productsCapture market share by gaining customer loyaltyEvaluation Financial evaluationProduct evaluationEmployee evaluationsCustomer surveysCompare performance with similar sized pizza shops

Module 3Strategic PlanningDiscussionWhat is Strategy?What does it mean for a business, large or small?Why is strategy formulation important?Strategy is coping with competition. Michael Porter, 1979.What Comprises Strategy?Substantial Resource CommitmentsCross-functional ImplicationsLong-Term EffectsEnterprise-Level ThinkingWhat are the Firms GoalsFinancial Goals- accounting based, Stock Market based (if applicable)Strategic Goals- non-financial goalsTypes of ObjectivesFinancial Objectives- objectives that improve a firms financial performance

Strategic Objectives- outcomes that strengthen a firms competitiveness and long-term market positionFinancial and Strategic ObjectivesExamplesFinancial ObjectivesRevenue Growth of 10% per yearIncrease Earnings by 15% per yearIncrease Earnings per Share (EPS) by 5% per yearIncrease Net Profit margins from 2%-6%Strategic ObjectivesIncrease market ShareQuicker design-to- market times than rivalsHigher product quality than rivalsLower costs relative to key competitorsBetter and faster innovationsHow do you plan to achieve goals?Means to achieve goals:Internal Analysis (SWOT)Resource Allocations

External AnalysisIndustry StructureStrategy is..Making Choices

GoalsMeans to achieve goalsResource AllocationWhat determines a firms success?

Industry Attractiveness- What industries should we be in?Corporate StrategyCompetitive Positioning-How should we compete?Business StrategyOperational Effectiveness vs. StrategyOperational Effectiveness - Performing similar activities better than rivals (Efficiency)Strategy Perform similar activities differently or perform different activities (Positioning)Operational Effectiveness is NOT Strategic Positioning

Strategy consists of:Creating a unique, valuable, and defensible offer, which addresses a significant target market (Positioning)Unique: Differentiated from competitors product/serviceValuable: Addresses a clear customer needDefensible: Sustainable by fit/alignmentObjective of All Strategy Making IsGain and/or Sustain Competitive AdvantageCompetitive Advantage consists in delivering value to the customerAt a price lower than the competitionSuperior value at a higher priceStrategic ManagementIs crucial to building a successful business.Involves developing a plan to guide a company as it strives to accomplish its goals and mission, and to keep it on its desired course.Strategic Management and Competitive EdgeDeveloping a strategic plan is critical to creating the competitive advantage, the aggravation of factors that sets a company apart from its competitors and gives it a unique position in the market. Key: Core CompetenciesA unique set of abilities a company develops in key areas, such as superior quality, customer service, innovation, team-building, flexibility, responsiveness, and others that allow it to vault past competitors.They are what a company does best.Best to rely on a natural advantage (often linked to a companys smallness). Strategic Management Process Step 1: Develop a vision and translate it into a mission statement.Step 2: Assess strengths and weaknesses.Step 3: Scan the environment for opportunities (internal) and threats (external).Step 4: Identify key success factors.Strategic Management ProcessStep 5: Analyze Competition.Step 6: Create Goals and Objectives.Step 7: Formulate Strategies.Step 8: Translate Plans into Actions.Step 9: Establish Accurate Control Measures.Step1: Develop a Vision and Create a Mission StatementWhat is a vision? An expression of what an entrepreneur stands for and believes in.A vision is based on values.A clearly defined vision:Provides directionDetermines decisionsMotivates peopleStep 1: A Mission StatementWhat does a Mission Statement Accomplish? It addresses the question: What business are we in?It is a written expression of how the company will reflect the owners values, beliefs, and vision.It sets the tone for the entire company and serves as a decision guide.Step 2: Assess Company Strengths and WeaknessesStrengths: Positive internal factors that contribute to accomplishing the mission, goals, and objectives.Weaknesses: Negative internal factors that inhibit the achievement of the mission, goals, and objectives.Step 3: Scan for Opportunities and ThreatsOpportunities: Positive external options the company can employ to accomplish its mission, goals, and objectives.Threats: negative external forces that inhibit the firms ability to achieve its mission, goals, and objectives.External Market ForcesInclude:TechnologicalEconomicSocial and DemographicPolitical and RegulatoryCompetitiveStep 4: Identify Key Success FactorsKey Success Factors are:Relationships between a controllable variable and a critical factor that influence a companys ability to compete in the market.They are the keys to unlocking the secrets of successfully competing in a particular market segment.Step 5: Analyze CompetitorsAnalyzing key competitors allows a firm to:Avoid surprises from existing competitors new strategies and products.Identify potential new competitors and the threats they pose.Improve reaction time to competitors actions.Anticipate rivals next strategic moves.

Step 5: Analyze CompetitorsHow can this be done?Monitor trade and industry publications.Talk to customers and suppliers.Listen to employees, especially sales reps. and purchasing agents.Attend trade shows and conferences.Step 5: Analyze CompetitorsMonitor competitors employment ads.Conduct searches for patents and trademarks filed by competitors.Search databases for types of materials and equipment that competitors are importing.Study competitors literature and benchmark their products and services.Visit competing businesses to observe their operations.Knowledge ManagementThe process of gathering, organizing, and disseminating the collective wisdom and experience of a companys employees for the purpose of strengthening its competitive position.Knowledge management involves:Taking inventory of the special knowledge the people in the firm possess.Organizing and disseminating the knowledge.Step 6: Create Company Goals and ObjectivesWhat are goals? Broad, long-range attributes to be accomplished.

What are Objectives? Detailed specific targets that are designed to be:SpecificMeasurableAssignableRealistic (yet challenging)Timely

Step 7: Formulate StrategiesA strategy is:A map that guides a company through a dynamic environment as it seeks to accomplish its mission, goals, and objectives.Focused on the key success factors identified in Step 4.Mission, goals, and objectives = EndsStrategy = MeansStep 7: Formulate StrategiesThree basic strategies:Cost Leadership Examples?Differentiation Examples?Focus Examples?

Cost LeadershipGoal: to be the low-cost producer in the industry or market sector.Advantages: reaching buyers who buy on the basis of price.Works well when:Buyers are sensitive to price changeCompeting firms sell the same commodity productsA company can benefit from economies of scale

DifferentiationA company seeks to build customer loyalty by positioning its product or services in a unique or different manner.Idea is to be unique at something customers value.KEY: build basis for differentiation on core competencies, what the firm is uniquely good at performing.FocusA company selects one or more customer segments in a market, identifies specific customer needs, wants, or desires, and then targets them with a service designed specifically for them.Strategy builds on differences among market segments.FocusRather than attempt to serve the total market, the company focuses on serving a niche within that market.

Examples: Craft Beer, Specialty Cheeses Step 8: Strategies into Action PlansCreate projects by defining:PurposeScopeContributionResource TimingStep 9: Establish Accurate ControlsThe plan establishes the standards against which actual performance is measured.The business owner must:Identify and track performance indicators.Take corrective action.

Ice Breaker

Introduce yourselfIf you had a time machine that would work only once, where in the future or past would you travel and why? Step OneGather all facts

When making decisions it is always best to have the maximum amount of information available.

SWOT Analysis

Gather inputs from stakeholders, company performance analysis of the your organization

internal and external limitations

social and economic trends .Among the most useful tools for strategic planning is SWOT analysis internal and external of the organization.

StrengthsWeaknessesOpportunitiesThreatsThe 4 Key ElementsVision

Mission

Values

StrategySell your visionWhy is it important to make sure other individuals understand the purpose and future gains of the strategic change.Organization Action StrategyChange may be outline by few but cannot be achieved without working together as a whole

Develop clearly written objectives for each department to implement.

The objectives listed must be reviewed by upper management adjusted if needed and then finalized before the documents are sent to each department.

Those who fail to plan, plan to fail.Review of The

MODULE 4Strategy ChoicesPorters Generic StrategyTarget ScopeAdvantage

(Low Cost)Advantage

(Product Uniqueness)Broad(Industry wide)Cost LeadershipDifferentiationNarrow(Market wide)Focus Strategy(low cost)Focus Strategy(differentiation)Porters Generic StrategyCost Leadership StrategyAiming to become Lowest Cost ProducerThe firm can compete on the price with every other industries and earn higher unit profits.Cost reduction provides the focus of the organisations strategy.Targets a broad market. Competitive advantage is achieved by driving down costs.A successful cost leadership strategy requires that the firm is the cost leader and is unchallenged in this position.Especially beneficial : where customers are price sensitive

(Walmart logo, used from June 30, 2008-present.)Type : Public

Industry : Retailing

Founded : 1962

Founder(s) : Sam Walton

Headquarters : Bentonville, Arkansas,US

Number of locations : 8,970(2011)

Area served : Worldwide

Key people : Mike Duke(CEO) H. Lee Scott(Chairman) S. Robson Walton(Chairman)

Employees : Approx. 2.1 million(2011)

Subsidiaries : Walmex Asda Sam's Club Seiyu GroupThe central goal of Wal-Mart is to keep retail prices low -- and the company has been very successful at this.

Experts estimate that Wal-Mart saves shoppers at least 15 percent on a typical cart of groceries.

Wal-Mart Stores Inc. is rolling out its "everyday low prices" (EDLP) retail strategy to more international markets to replace the more usual high-low pricing in emerging markets. EDLP means working with suppliers to ensure their prices are constantly low, but also means price changes are kept to a minimum.

Wal-Mart also employs a good structure that works with the systems to empower the low price strategy.

Wal-Mart has in place a set of systems that helps it achieve its strategy of low prices everyday. Access to the capital required to make a significant investment in production assets.

Design skills for efficient manufacturing

High level of expertise in manufacturing process engineering.

Efficient distribution channels.

Success MantraRisks Involved..Other firms may be able to lower their costs as well.

As technology improves, the competition may be able to leapfrog the production capabilities, thus eliminating the competitive advantage.

It could lead to a damaging price wars.

There might be difficulty in sustaining cost leadership in the long run.

A firm following a focus strategy might be able to achieve even lower cost within their segment.Differentiation StrategyA differentiation strategy calls for the development of a product or service that offers unique attributes that are valued by customers.

Customers perceive the product to be different and better than that of rivals.

The value added by the uniqueness of the product may allow the firm to charge a premium price for it.

Differentiation can be based on product image or durability,after-sales,quality,additional features.

It requires flair,research capability and strong marketing.Type : Public

Industry : Restaurants

Founded : McDonalds Corporation ~ May 15, 1940 in San Bernardino, California ~ April 15, 1955 in Des Plaines, Illinois

Founder(s) : Richard and Maurice McDonald,( McDonalds restaurant concept ) Ray Kroc,( McDonalds Corporation founder )

Headquarters : Oak Brook,Illinois,US

Area served : Worldwide

Key people : James A. Skinner (Chairman & CEO)

Number of locations :32,000

Employees : 4,00,000 ( 2010)

Products : Fast Food ( hamburgers , chicken , french fries , soft drinks , coffee , milkshakes , salads, desserts , breakfast )McDonald's customers are of all classes, but largely working and middle classes, and people of all ages.

McDonalds strove to meet a customer wait time at no more than one minute in line and 30 seconds at the counter.

McDonald's understood that the parent was making the purchasing decision, most likely based solely on price. What McDonald's marketing executives did was ingenious. They put a $.50 toy in with the hamburger, french fries, and Coke. Then they gave it a special name, calling it a Happy Meal. Then they marketed it to the kids.

McDonald's knows that some customers go to its stores to take a quick break from their day's activities and not because McDonald's was able to make their food ten seconds faster than a competitor. So McDonald's marketing executives then put together the phrase, Have you had your break today?

They've taken competing on price right out of the picture, says Greshes. They bring you quality, convenience, service, and value and they make you feel like you are getting a break in your hectic day.Success MantraAccess to leading scientific research.

Highly skilled and creative product development team.

Strong sales team with the ability to successfully communicate the perceived strengths of the product.

Corporate reputation for quality and innovation.

Risks InvolvedInvolves higher costs.

Customers might become price sensitive and choose on price rather than uniqueness.

Customers may no longer need the differentiation factor.

Imitation by competitors and changes in customer tastes.

Rivals pursuing a focus strategy may be able to achieve even greater differentiation in their market segments. Focus StrategyThe focus strategy concentrates on a narrow segment and within that segment attempts to achieve either a cost advantage or differentiation.

The premise is that the needs of the group can be better serviced by focusing entirely on it.

A firm using a focus strategy often enjoys a high degree of customer loyalty, and this entrenched loyalty discourages other firms from competing directly.

Because of their narrow market focus, firms pursuing a focus strategy have lower volumes and therefore less bargaining power with their suppliers

However, firms pursuing a differentiation-focused strategy may be able to pass higher costs on to customers since close substitute products do not exist.

Type : Public

Industry : Food and Beverages

Founded : North Carolina,U.S.(1986)

Founder(s) : Donald Kendall,Herman Lay

Headquarters : Purchase,New York,US

Area served : Worldwide

Key people : Indra Nooyi (Chairman & CEO)

Employees : 2,94,000(2010)

Divisions : PepsiCo Americas Foods; PepsiCo Americas Beverages; PepsiCo Europe; PepsiCo Asia, Middle East & Africa

Subsidiaries : Products, Trademarks ~ Frito-Lay ~ Quaker Oats ~ Tropicana

By successfully adopting the 'focus' strategy since 1997, PepsiCo has emerged as the second largest consumer packaged goods company.

The company has significantly strengthened its competitive position in the beverages segment. By acquiring leading beverages' company like Tropicana products (July 1998), South Beach Beverage Company (October 2000) and Quaker Oats (December 2000)

Success MantraLower investment in resources.

The firm benefits from specialisation.

Provides scope for greater knowledge of a segment of the market.

Makes entry to new markets easier and less costly.

Firms using a focus strategy often enjoy a high degree of customer loyalty.Risk InvolvedLimited opportunities for growth.

The firm could outgrow the market.

Danger of decline in the chosen segment or niche.

Risk of imitation.

Risk of changes in the target segment.

A reputation for specialisation inhibits move into new sector.

Mckinsey 7 S Model It was first mentioned in "The Art Of Japanese Management" by Richard Pascale & Anthony Athos in 1981. At around the same time, Tom Peters & Robert Waterman were exploring what made a company excellent. The 7 S model was born at a meeting of these four authors in 1978. It was taken up as a basic tool by the global management consultancy company McKinsey.

HISTORY It is a management model that describes 7 factors to organize a company in an holistic and effective way. Together these factors determine the way in which a corporation operates. Managers should take into account all seven of these factors, to be sure of successful implementation of a strategy. Large or small. They're all interdependent, so if you fail to pay proper attention to one of them, this may effect all others as well. On top of that, the relative importance of each factor may vary over time.

What is the 7-S Framework?MCKINSEY's 7S FRAMEWORK

HARD SsStrategyStructure SystemShared ValuesSkills Staff StyleThe Hard Ss & Soft SsSOFT SsStrategy:- It is the plan or course of action in allocating resources to achieve identified goals over time. Structure:- The way people & work/ tasks are organized. Systems:- All the processes & information flows that links the organization together.

Th Hard SsShared Values:- These are the core values of the company that are evidenced in the corporate culture & the general work ethic. Style:- The way the managers behave. Staff:- The employees & their general capabilities. Skills:- The actual skills & competencies of the employees working for the companyThe Soft SsAdvantage of the 7S model Determines how best to implement a proposed strategy.Guides organizational change.Combines rational and hard elements with emotional and soft elements.Managers must act on all Ss in parallel and all Ss are interrelated. The external environment is not mentioned in the McKinsey 7S Framework.

The notion of performance or effectiveness is not made explicit in the model.Disadvantages of the 7S modelThe McKinsey 7Ss model is one that can be applied to almost any organizational or team effectiveness issue. Inconsistency between some of the elements can be identified by this classic model.

Key Points of the 7S model Types Of StrategyTYPES OF STRATEGYTypes of StrategyManagement ControlTypes of integration strategiesIntegration StrategyVertical IntegrationVertical integration is the degree to which a firm owns its upstream suppliers and its downstream buyers.

Types of Strategy: Integration StrategiesA company exhibitsbackward vertical integrationwhen it controls subsidiaries(suppliers) that produce some of the inputs used in the production of its products.

Control of these three subsidiaries is intended to create a stable supply of inputs and ensure a consistent quality in their final product.

Vertical Integration : Backward IntegrationTypes of Strategy: Integration StrategiesWhen an organizations present suppliers are especially expensive, or unreliable.

When the number of suppliers is small and the number of competitors is large.

When an organization competes in an industry that is growing rapidly.

When an organization has both capital and human resources to manage the new business of supplying its own raw materials.Vertical Integration : Backward IntegrationSeven guidelines for when backward integration may be an especially effective strategy are:When the advantages of stable prices are particularly important.

When present supplies have high profit margins, which suggests that the business of supplying products or services in the given industry is a worthwhile venture.

When an organization needs to quickly acquire a needed resource.Vertical Integration : Backward IntegrationSeven guidelines for when backward integration may be an especially effective strategy are: Cont.......A company tends towardforward vertical integrationwhen it controls distribution centers and retailers where its products are sold

Vertical Integration : Forward IntegrationTypes of Strategy: Integration StrategiesWhen an organizations present distributors are especially expensive, or unreliable

When the availability of quality distributors is so limited as to offer a competitive advantage to those firms that integrate forward.

When an organization competes in an industry that is growing and is expected to continue to grow markedly.Vertical Integration :Forward IntegrationSix guidelines for when forward integration may be an especially effective strategy are:When an organization has both the capital and human resources needed to manage the new business of distributing its own products.

When the advantages of stable production are particularly high.

When present distributors or retailers have high profit margins.Vertical Integration :Forward IntegrationSix guidelines for when forward integration may be an especially effective strategy are: Cont......It is a strategy of seeking ownership of or increased control over a firms competitors.

Growth strategy.

Mergers, acquisitions and takeovers among competitors allow for increased economies of scale and enhanced transfer of resources and competencies.Horizontal IntegrationTypes of Strategy: Integration StrategiesHorizontal integration is accomplished by expansion into additional business activities that are within the same level of the value chain.

Using the gemstones as an example, a wholesale jeweler could acquire or merge with another wholesale jeweler in an attempt to horizontally integrate the company.

Horizontal Integration : ExamplesTypes of Strategy: Integration StrategiesWhen an organization can gain monopolistic characteristics in a particular area or region without being challenged by the federal government for tending substantially to reduce competition.When an organization competes in a growing industry.When increased economies of scale provide major competitive advantages.When an organization has both the capital and human talent needed to successfully manage an expanded organization.When competitors are faltering due to a lack of managerial expertise or a need for particular resources that an organization possesses.Horizontal IntegrationThese five guidelines indicate when horizontal integration may be an especially effective strategy:The strategies require intensive efforts if a firms competitive position with existing products is to improveTypes of StrategyIntensive StrategyTypes of Strategies: Intensive StrategiesA market penetration strategy seeks to increase market share for present products or services in present markets through greater marketing efforts.

Market penetration includes increasing the number of salespersons, increasing advertising expenditures, offering extensive sales promotion items, or increasing publicity effortsMarket PenetrationWhen current markets are not saturated with a particular product or service.When the usage rate of present customers could be increased significantly.When the market shares of major competitors have been declining while total industry sales have been increasing.When the correlation between dollar sales and dollar marketing expenditures historically has been high.When increased economies of scale provide major competitive advantages.Intensive Strategy: Market PenetrationThese five guidelines indicate when market penetration may be an especially effective strategy:Types of Strategies: Intensive StrategiesMarket development involves introducing present products or services into new geographic areas.

Wal-Mart Stores (60), Carefour SA (28 stores), Tesco PLC ()are expanding further in China in 2009/2010.

Market DevelopmentWhen new channels of distribution are available that are reliable, inexpensive, and of good quality.When an organization is very successful at what it does.When new untapped or unsaturated markets exist.When an organization has the needed capital and human resources to manage expanded operations.When an organization has excess production capacity.When an organizations basic industry is rapidly becoming global in scope.Intensive Strategy: Market DevelopmentThese six guidelines indicate when market development may be an especially effective strategy:Types of Strategies: Intensive StrategiesProduct development is a strategy that seeks increased sales by improving or modifying present products or services.Product development usually entails large research and development expenditures.Googles new Chrome OS operating system illuminates years of monies spent on product development. Google expects Chrome OS to overtake Microsoft Windows by 2015.Product DevelopmentWhen an organization has successful products that are in the maturity stage of the product life cycle.When an organization competes in an industry that is characterized by rapid technological developments.When major competitors offer better-quality products at comparable prices.When an organization competes in a high-growth industry.When an organization has especially strong research and development capabilities.Intensive Strategy: Product DevelopmentThese five guidelines indicate when product development may be an especially effective strategy to pursue:Types:

Advantage:Lessen the risk of being in a single industryDisadvantage:More difficult to manage

Types of StrategyDiversification StrategiesWhen value chains posses competitively valuable cross-business strategic fits

A process that takes place when a business expands its activities into product lines that are similar to those it currently offers.

Either through acquisition of competitors or through internal development of new products/services.Related DiversificationTypes of Strategy: Diversification StrategiesSix guidelines for when related diversification may be an effective strategy are as follows.When an organization competes in a no-growth or a slow-growth industry.

When adding new, but related, products would significantly enhance the sales of current products.

When new, but related, products could be offered at highly competitive prices.

Diversification Strategies: Related When new, but related, products have seasonal sales levels that counterbalance an organizations existing peaks and valleys.

When an organizations products are currently in the declining stage of the products life cycle.

When an organization has a strong management team.

Six guidelines for when related diversification may be an effective strategy are as follows. Cont........Diversification Strategies: Related Unrelated diversificationAn unrelated diversification strategy favors capitalizing on a portfolio of businesses that are capable of delivering excellent financial performance in their respective industries, rather than striving to capitalize on value chain strategic fits among the businesses.

A form of diversification when the business adds new or unrelated product lines and penetrates new marketsTypes Of Strategy: Diversification Ten guidelines for when unrelated diversification may be an especially effective strategyWhen revenues derived from an organizations current products or services would increase significantly by adding the new, unrelated products.When an organization competes in a highly competitive and/or a no-growth industry, as indicated by low industry profit margins and returns.When an organizations present channels of distribution can be used to market the new products to current customers.When the new products have countercyclical sales patterns compared to an organizations present products.Diversification Strategies: Unrelated When an organizations basic industry is experiencing declining annual sales and profits.When an organization has the capital and managerial talent needed to compete successfully in a new industry.When an organization has the opportunity to purchase an unrelated business that is an attractive investment opportunity.When there exists financial synergy between the acquired and acquiring firm. When existing markets for an organizations present products are saturated.When antitrust action could be charged against an organization that historically has concentrated on a single industry.Diversification Strategies: Unrelated Guidelines: Cont Defensive strategiesA management approach designed to reduce the risk of loss

Types:Types of StrategyRetrenchmentSometimes called a turnaround or reorganizational strategyOccurs when an organization regroups through cost and asset reduction to reverse declining sales Entail selling off land and buildings to raise needed cash, pruning product lines, closing marginal businesses, closing obsolete factories, automating processes, reducing the number of employees, and instituting expense control systems and profitsTypes of Strategy: Defensive StrategiesFive guidelines for when retrenchment may be an especially effective strategy:When an organization has a clearly distinctive competence but has failed consistently to meet its objectives and goals over time.When an organization is one of the weaker competitors in a given industry.When an organization is plagued by inefficiency, low profitability, poor employee morale, and pressure from stockholders to improve performance.Defensive Strategies: RetrenchmentWhen an organization has failed to capitalize on external opportunities, minimize external threats, take advantage of internal strengths, and overcome internal weaknesses over time; that is, when the organizations strategic managers have failed (and possibly will be replaced by more competent individuals).When an organization has grown so large so quickly that major internal reorganization is needed.Defensive Strategies: RetrenchmentFive guidelines for when retrenchment may be an especially effective strategy. ContdivestitureSelling a division or part of an organizationOften is used to raise capital for further strategic acquisitions or investments.Can be part of an overall retrenchment strategy to rid an organization of businesses that are unprofitable, that require too much capital, or that do not fit well with the firms other activitiesTypes Of Strategy: Defensive Strategies Six guidelines for when divestiture may be an especially effective strategyWhen an organization has pursued a retrenchment strategy and failed to accomplish needed improvements.When a division needs more resources to be competitive than the company can provide.When a division is responsible for an organizations overall poor performance.Defensive Strategies: DivestitureWhen a division is a misfit with the rest of an organization; this can result from radically different markets, customers, managers, employees, values, or needs.When a large amount of cash is needed quickly and cannot be obtained reasonably from other sources.When government antitrust action threatens an organization.Defensive Strategies: RetrenchmentSix guidelines for when divestiture may be an especially effective strategy. Cont..liquidationSelling all of a companys assets, in parts, for their tangible worthA recognition of defeat and consequently can be an emotionally difficult strategyTypes of Strategy: Defensive Strategies NGOs rely on money from a variety of sources, including individual donors, foundations, corporations, and governments. Often what an NGO can and cannot do is tied to where the money comes from, dramatically affecting the effectiveness and neutrality of NGOs. While some NGOs, like GPF, refuse to accept government or corporate funding to stay independent in their decision making, many NGOs need depend on these funding sources in order to operate. Funding Issues have become particularly challenging, following the economic crisis. This section examines how NGOs are funded, and how funding sources affect NGO operations.

Ministry of AgricultureMinistry of Agro and Rural IndustriesMinistry of Commerce and IndustryMinistry of Communication and Information TechnologyMinistry of Consumer Affairs, Food and Public DistributionMinistry of Development of North Eastern RegionMinistry of Environmental and ForestsMinistry of Finance

Ministry of Shipping, Road Transport and HighwaysMinistry of Small Scale IndustriesMinistry of Social Justice and EmpowermentMinistry of TextilesMinistry of Tourism and CultureMinistry of Tribal AffairsMinistry of Water ResourcesMinistry of Women and Child DevelopmentMinistry of Youth Affairs and Sports

Foreign Funding Agencies, etc. List of Foreign Funding AgenciesList of Micro Finance Agencies

Module 7SWOT MatrixStrengths-Opportunities (SO)Weaknesses-Opportunities (WO)Strengths-Threats (ST)Weaknesses-Threats (WT)Four Types of StrategiesSO StrategiesUse a firmsinternal strengthsto take advantageof external opportunitiesSOStrategiesStrengthsWeaknessesOpportunitiesThreats

SWOTWO StrategiesImproving internalweaknesses bytaking advantageof externalopportunitiesWOStrategiesStrengthsWeaknessesOpportunitiesThreats

SWOTST StrategiesUse a firms strengthsto avoid orreduce the impactof externalthreatsSTStrategiesStrengthsWeaknessesOpportunitiesThreats

SWOTWT StrategiesDefensive tacticsaimed at reducinginternal weaknesses & avoidingenvironmentalthreats

WTStrategiesStrengthsWeaknessesOpportunitiesThreats

SWOTSWOT MatrixDeveloping the SWOT List firms key internal StrengthsList firms key internal WeaknessesList firms key external OpportunitiesList firms key external ThreatsSWOT MatrixLeave BlankStrengths S

List StrengthsWeaknesses W

List WeaknessesOpportunities O

List OpportunitiesSO Strategies

Use strengths to take advantage of opportunitiesWO Strategies

Overcoming weaknesses by taking advantage of opportunitiesThreats T

List ThreatsST Strategies

Use strengths to avoid threatsWT Strategies Minimize weaknesses and avoid threatsLimitations with SWOT MatrixDoes not show how to achieve a competitive advantageProvides a static assessment in timeMay lead the firm to overemphasize a single internal or external factor in formulating strategiesSPACE MatrixStrategic Position & Action Evaluation MatrixAggressiveConservativeDefensiveCompetitiveSPACE MatrixTwo Internal DimensionsFinancial Strength (FS)Competitive Advantage (CA)SPACE MatrixTwo External DimensionsEnvironmental Stability (ES)Industry Strength (IS)SPACE FactorsEnvironmental Stability (ES)

Technological changesRate of inflationDemand variabilityPrice range of competing productsBarriers to entryCompetitive pressurePrice elasticity of demandEase of exit from market Risk involved in businessFinancial Strength (FS)

Return on investmentLeverageLiquidityWorking capitalCash flow

External Strategic PositionInternal Strategic PositionSPACE FactorsIndustry Strength (IS)

Growth potentialProfit potentialFinancial stabilityTechnological know-howResource utilizationEase of entry into marketProductivity, capacity utilizationCompetitive Advantage CA

Market shareProduct qualityProduct life cycleCustomer loyaltyCompetitions capacity utilizationTechnological know-howControl over suppliers & distributors

External Strategic PositionInternal Strategic PositionBCG MatrixBoston Consulting Group MatrixEnhances multi-divisional firm in formulating strategiesAutonomous divisions = business portfolioDivisions may compete in different industriesFocus on market-share position & industry growth rateBCG MatrixRelative Market Share PositionRatio of a divisions own market share in an industry to the market share held by the largest rival firm in that industry

BCG MatrixDogsIVCash CowsIIIQuestion MarksIStarsIIRelative Market Share PositionHigh1.0Medium.50Low0.0Industry Sales Growth RateHigh+20Low-20Medium0BCG MatrixQuestion MarksLow relative market share compete in high-growth industryCash needs are highCase generation is low

Decision to strengthen (intensive strategies) or divestBCG MatrixStarsHigh relative market share and high growth rateBest long-run opportunities for growth & profitability

Substantial investment to maintain or strengthen dominant positionIntegration strategies, intensive strategies, joint venturesBCG MatrixCash CowsHigh relative market share, competes in low-growth industryGenerate cash in excess of their needsMilked for other purposesMaintain strong position as long as possibleProduct development, concentric diversificationIf weakensretrenchment or divestitureBCG MatrixDogsLow relative market share & compete in slow or no market growthWeak internal & external position

Liquidation, divestiture, retrenchmentThe Internal-External MatrixPositions an organizations various divisions in a nine-cell displaySimilar to BCG Matrix except the IE Matrix:Requires more information about the divisionsStrategic implications of each matrix are differentGrand Strategy MatrixTool for formulating alternative strategiesBased on two dimensionsCompetitive positionMarket growthQuadrant IVConcentric diversificationHorizontal diversificationConglomerate diversificationJoint venturesQuadrant IIIRetrenchmentConcentric diversificationHorizontal diversificationConglomerate diversificationLiquidation

Quadrant IMarket developmentMarket penetrationProduct developmentForward integrationBackward integrationHorizontal integrationConcentric diversificationQuadrant IIMarket developmentMarket penetrationProduct developmentHorizontal integrationDivestitureLiquidationRAPID MARKET GROWTHSLOW MARKET GROWTHWEAK COMPETITIVE POSITIONSTRONGCOMPETITIVE POSITIONGrand Strategy MatrixExcellent strategic positionConcentration on current markets/productsTake risks aggressively when necessaryQuadrant I Grand Strategy MatrixEvaluate present approachHow to improve competitivenessRapid market growth requires intensive strategyQuadrant IIGrand Strategy MatrixCompete in slow-growth industriesWeak competitive positionDrastic changes quicklyCost & asset reduction (retrenchment)Quadrant IIIGrand Strategy MatrixStrong competitive positionSlow-growth industryDiversification to more promising growth areasQuadrant IVGE MatrixAlso known as Directional Policy Matrix

Nine-cell matrix

Tool used in brand marketing and product management to decide what products to add to the portfolio

First developed by McKinsey & Co. for GE in 1971GE MatrixPositions products according to market attractiveness and competitive strength

Market attractiveness measured byPestel AnalysisFive Force Model

Competitive strength measured by competitive analysisGE Matrix Industry Attractiveness High Medium Low

Business HighUnit Strength Medium

LowInvestment and GrowthSelective GrowthSelectivitySelective GrowthSelectivityHarvest/DivestSelectivityHarvest/DivestHarvest/DivestImplicationsSeek dominance Grow Maximize investment Identify growth segments Invest strongly Maintain position elsewhere Maintain overall position Seek cash flow Invest at maintenance level Evaluate potential for leadership via segmentation Identify weaknesses Build strengths Identify growth segments Specialize Invest selectively Minimize investment Position to divest Specialize Seek niches Consider acquisitions Specialize Seek niches Consider exit Go after competitors cash generators Time to exit and divest