strategic management session 1

WELCOME TO COURSE ON STRATEGIC MANAGEMENT

Session 1

S G Raja Sekharan

Strategic management course plan

Session 1 Introduction and overview to SM

Session 2/3 External and Internal environment

Session 3/4 Building SCA though value chains

Session 5 Growth through Integration, Diversification, Outsourcing and M&A

Session 6 Change management

Session 7 Tailoring strategies to fit specific industry & company situations

Session 8/9 Strategy Implementation and control

Session 10 Industry interaction

Strategic management course plan (Hill and Jones)

Session 1 Introduction and overview to SM –Chapter 1Session 2/3 External and Internal environment–Chapters 2&3

Session 3/4 Building SCA though value chains –Chapter 4

Session 5 Growth through Integration, Diversification, Outsourcing and M&A – Chapters 5, 6, 9 &10

Session 6/7 Competing in foreign markets and Tailoring strategies to fit specific industry & company situations – Chapters 6,7 & 8

Session 8 Strategy execution – building resource strengths and organizational capability and Managing internal operations -Chapters 12 &13


Session 10 Culture, leadership and ethics – Chapter 11

SESSION 1

INTRODUCTION AND OVERVIEW TO SM

Today’s agenda

Introduction to concept of Strategy and why is it important

Explain how strategy get’s formulated in companies

Introduce the idea of Vision, Mission, Values (VMV) and Goals

Form student groups and allocate some groups their CIA 1 tasks

What caught my eye last week – just after break

During break – I would like to meet a few of you one to one

HOW MANY OF YOU WANT TO BE A CEO?

LET US STEP INTO THE SHOES OF AN EXISTING CEO?

AJAY KAUL

HOW DOES THE COMPANY DELIVER?

The key areas of focus Jubilant Foodworks

Brand positioningMarket reach and expansionEmployee motivationBack end infrastructure (production)Operational efficiencyNew product development

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Mar '12 Mar '11 Mar '10 Mar '09 Mar '08 Mar '07 Mar '06 Mar '05

12 mths 12 mths 12 mths 12 mths 12 mths 12 mths 12 mths 12 mths

Income Total

Income 1,018.52 767.05 475.9 313.65 235.6 154.67 108.27 79.73Expenditure

Raw Materials 318.22 207.38 127.59 86.5 53.21 35.68 25.23 19.59Power & Fuel Cost 47.56 34.07 23.28 17.65 0 0 0 0Employee

Cost 196.22 135.53 80.46 55.57 42.51 25.57 16.24 12.47Other

Manufacturing

Expenses 4.12 3.28 2.42 1.61 0 0 0 0

Selling and Admin

Expenses 184.75 213.52 140.16 95.15 24.88 16.71 11.57 6.9Miscellaneo

us Expenses 75.42 51.17 35.22 23.34 88.65 59.4 43.91 33.54

Preoperative Exp

Capitalised 0 0 0 0 0 0 0 0Total

Expenses 826.29 644.95 409.13 279.82 209.25 137.36 96.95 72.5

Mar '12 Mar '11 Mar '10 Mar '09 Mar '08 Mar '07 Mar '06 Mar '05

12 mths 12 mths 12 mths 12 mths 12 mths 12 mths 12 mths 12 mths

Operating Profit 192.85 120.54 66.94 34.19 26.85 18.02 11.65 8.06PBDIT 192.23 122.1 66.77 33.83 26.35 17.31 11.32 7.23Interest 0 0.34 9.15 8.91 5.81 3.4 2.47 2.04PBDT 192.23 121.76 57.62 24.92 20.54 13.91 8.85 5.19

Depreciation 37.57 29.34 24.35 16.95 12.11 7.95 6.51 5.77

Other Written

Off 0 0 0 0 0 0 0 0Profit

Before Tax 154.66 92.42 33.27 7.97 8.43 5.96 2.34 -0.58

Extra-ordinary

items 0.77 0 -0.22 0.13 0 0 0 0PBT (Post Extra-ord

Items) 155.43 92.42 33.05 8.1 8.43 5.96 2.34 -0.58Tax 49.79 20.43 0.08 0.8 0.67 0.37 0.33 0

Reported Net Profit 105.64 72 32.97 7.3 7.76 5.58 2.02 -0.58

The focus areas for the senior management

The key areas of focus for Jubilant Foodworks

Brand positioningMarket reach and expansionEmployee motivationBack end infrastructure (production)Operational efficiencyNew product development

“Strategy is a choice on how to compete.” - Michael Porter

What is strategy

A company’s strategy is management’s game plan for • how to grow the business, • how to attract and please customers, • how to compete successfully, • how to conduct operations, and • how to achieve targeted objectives.

What is strategy

Typically, a company’s strategic choices are based • partly on trial-and-error organizational

learning about what has worked and what has not,

• partly on management’s appetite for risk taking, and

• partly on managerial analysis and strategic thinking about how to best proceed, given all the prevailing circumstances.

Strategy aims at creating

Superior performanceSustainable competitive advantage


Superior performance• Company’s profitability relative to that of other

companies in the same or similar business or industry• Profitability ratios that measure these are –

» Return on equity (ROE = reported net profit / net worth) and » Return on capital employed (ROCE = reported net profit /Total

liabilities) • Maximizing shareholder value is the ultimate goal of

profit making companies


Sustainable competitive advantage• attractive number of buyers prefer its

products or services over the offerings of competitors; and

• when the basis for this preference is durable.

The profitability ratios are same or improving over time

ROE and ROCE of Jubilant Foodworks

Mar '12 Mar '11 Mar '10 Mar '09 Mar '08 Mar '07 Mar '06 Mar '05Reported Net Profit 105.64 72 32.97 7.3 7.76 5.58 2.02 -0.58Networth 299.55 191.69 117.43 23.96 16.08 8.31 2.73 0.71ROE 35.27% 37.56% 28.08% 30.47% 48.26% 67.15% 73.99% -81.69%

Mar '12 Mar '11 Mar '10 Mar '09 Mar '08 Mar '07 Mar '06 Mar '05Reported Net Profit 105.64 72 32.97 7.3 7.76 5.58 2.02 -0.58Total Liabilities 299.55 191.69 126.02 106.41 67.75 44.35 29.93 28.27ROCE 35.27% 37.56% 26.16% 6.86% 11.45% 12.58% 6.75% -2.05%

Strategy and quest for competitive advantage

Most companies realize that winning a durable competitive edge over rivals hinges more on building competitively valuable expertise and capabilities than it does on having a distinctive product.

Remember the management focus on brand positioning, market reach, employee

motivation, back end infrastructure, operational

efficiency and new product development

Strategy and quest for competitive advantage can be through

greater product innovation capabilities than rivals better mastery of a complex technological process, expertise in defect-free manufacturing, specialized marketing and merchandising know-how,

Strategy and quest for competitive advantage can be through

global sales and distribution capability, superior e-commerce capabilities, unique ability to deliver personalized customer

service, or anything else that constitutes a competitively valuable

strength in creating, producing, distributing, or marketing the company’s product or service.

Strategy Is Partly Proactive and Partly Reactive

The biggest portion of a company’s current strategy flows from • previously initiated actions and business approaches that are

working well enough to merit continuation; and • newly launched managerial initiatives to strengthen the

company’s overall position and performance.

This part of management’s game plan is deliberate and pro active.

A portion of a company’s strategy is always developed on the fly. It comes about as a reasoned response to unforeseen developments and this part of game plan is reactive.

Strategy is always Work in Progress

Crafting a strategy involves stitching together a proactive/intended strategy and then adapting first one piece and then another as circumstances change or better options emerge – a reactive/adaptive strategy.

A Company’s strategy emerges incrementally and then evolves over time

The task of crafting a strategy is a work in progress, not a one-time event.

Intended, Emergent & Realized Strategies

Intended or Planned Strategies• Strategies an organization plans to put into action• Typically the result of a formal planning process• Unrealized strategies are the result of unprecedented

changes and unplanned events after the formal planning is completed

Emergent Strategies• Unplanned responses to unforeseen circumstances• Serendipitous discoveries and events may emerge that can

open up new unplanned opportunities• Must assess whether the emergent strategy fits the

company’s needs and capabilities Realized Strategies

• The product of whatever intended strategies are actually put into action and of any emergent strategies that evolve

A business model encompasses how the company will:

The concept of Business Model

• Select its customers• Define and differentiate

its product offerings• Create value for its

customers• Acquire and keep

customers• Produce goods or

services

• Deliver those goods and services to the market

• Organize activities within the company

• Configure its resources• Achieve and sustain a

high level of profitability• Grow the business over

time

Every industry has a few commonly used business models

Different Business models in restaurants

Chain restaurants vs Independent restaurants

Franchised modelQuick service restaurants vs Fine diningCentralized kitchen vs local cookingCafé model

The Relationship Between a Company’s Strategy and Its Business Model

A company’s strategy relates broadly to its competitive initiatives and business approaches

The business model zeros in on whether the revenues and costs flowing from the strategy demonstrate business viability.

Strategy of Jubilant Foodworks - Invest in branding, geographical growth and same store growth, new offerings, employee motivation etc

The Relationship Between a Company’s Strategy and Its Business Model

A company’s strategy relates broadly to its competitive initiatives and business approaches

The business model zeros in on whether the revenues and costs flowing from the strategy demonstrate business viability.

Business model look at how to make profits despite having high rentals in the prime areas in India and offering great food at a price point of Rs 200 per person?

centralized purchasing and manufacturing, home delivery, standard menu, focus on costs, operational efficiency and volumes.

To get the strategy right – the company needs to focus on three tasks

Strategic Leadership• Task of most effectively managing a

company’s strategy-making process Strategy Formulation

• Task of determining and selecting strategies Strategy Implementation

• Task of putting strategies into action to improve a company’s efficiency and effectiveness

Attributes of good strategic leadership

Vision, eloquence, and consistency Being well informed Ability to foresee the future trends Willingness to delegate and empower Emotional intelligence - Self-awareness,

Self-regulation, Motivation, Empathy, Social skills

Good leaders of the strategy-making process have a number of key attributes:

Levels of Strategic Management

Tata Motors

Passenger vehiclesCommercial vehicles Defense vehicles

Marketing, Finance, Operations, HR etc


The corporate level managers guides the strategy for the company as a whole

The business level managers design the strategy for their businesses and are guided by the overall corporate strategy

The functional level managers implement the strategy in their functions

To get the strategy right – the company needs to focus on three tasks

Strategic Leadership• Task of most effectively managing a

company’s strategy-making process

Strategy Formulation• Task of determining and selecting strategies

Strategy Implementation• Task of putting strategies into action to improve a

company’s efficiency and effectiveness

The Five Steps of the Strategy Making Process

Select the corporate vision, mission, and values (VMV) and the major corporate goals and objectives.

Analyze the external competitive environment (to identify opportunities and threats).

Analyze the organization’s internal environment (to identify its strengths and weaknesses).

Select strategies that:• Build on the organization’s strengths and correct its weaknesses –

in order to take advantage of external opportunities and counter external threats

• Are consistent with organization’s vision, mission, and values and major goals and objectives

• Are congruent and constitute a viable business model

Implement the strat strategies and evaluate/course correct.

Selecting the Organization’s VMV and goals

Provides a framework or context within which strategies are formulated, including: Vision – A statement of “where we are going” Mission – A statement of ‘who we are and what we do” Values – A statement of “beliefs, business principles, and

practices that the organization is committed to” Major Goals – The measurable desired future state that an

organization attempts to realize

The Vision

Provides a panoramic view of “where we are going”

Is distinctive and specific to a particular organization

A good vision statement is • graphic ( helps visualize the future state)• Focused but flexible• Desirable and easy to communicate (helps

employees to relate to)

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The Vision -examples

Provide a global trading platform where practically anyone can trade practically anything.

At the Tata group we are committed to improving the quality of life of the communities we serve. We do this by striving for leadership and global competitiveness in the business sectors in which we operate

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Vision statement provides a panoramic view of “where we are going”

The Vision

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Vision statement provides a panoramic view of “where we are going”

Can you suggest a Vision statement for Domino’s Pizza?

McDonald’s vision statement – to become the recognized leaders in the QSR industry India and the first choice of our customers

The Mission

What is it that the company does? What is the companies business?

• Who is being satisfied (what customer groups)?

• What is being satisfied (what customer needs)?

• How customer needs are being satisfied (by what skills, knowledge, or distinctive competencies)?

The mission statement of a company focuses on its reason for existence today.

A company’s mission is best approached from a customer-oriented business definition.

Strategic Vision vs. Mission

A strategic vision concerns a firm’s future business path - “wherewe are going” • Markets to be

pursued• Future

product/market/customer/technology focus

The mission statement of a firm focuses on its present business purpose - “who we are and what we do”• Current product and

service offerings• Customer needs

being served

The Mission

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A company’s mission is best approached from a customer-oriented business definition.

Can you suggest a mission statement for for Domino’s Pizza?

McDonald’s vision statement – We will lead the QSR industry in India by creating unmatched value for our customers, through our promise of outstanding Quality, Service and Cleanliness.

Values

The values of a company should state: How managers and employees should

conduct themselves How they should do business What kind of organization they need to build

to help achieve the company’s mission Organizational culture

• The set of values, norms, and standards that control how employees work to achieve an organization’s mission and goals

• Often seen as an important source of competitive advantage

In high-performance organizations, values respect the interests of key stakeholders.

Values

Our Values & Philosophy are a reflection of the socially and environmentally responsible company we aspire to be. They are the foundation for every business decision we make.

We uphold our commitment with six guiding principles.

1. Care for our customers, our consumers and the world we live in.

2. Sell only products we can be proud of.3. Speak with truth and candor.4. Balance short term and long term5. Win with diversity and inclusion6. Respect others and succeed together.

The Values

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Can you suggest a Value statement for Dominos Pizza?

In high-performance organizations, values respect the interests of key stakeholders.

McDonald’s value statement – We will drive our mission through unwavering commitment towards customer satisfaction, delivered with a sense of warmth, friendliness, fun, integrity, individual pride and company spirit

Selecting the Organization’s VMV and goals

Provides a framework or context within which strategies are formulated, including: Vision – A statement of “where we are going” Mission – A statement of ‘who we are and what we do” Values – A statement of “beliefs, business principles, and

practices that the organization is committed to” Major Goals – The measurable desired future state that an

organization attempts to realize

Key characteristics of well-constructed goals:1. Precise and measurable – to provide a

yardstick or standard to judge performance 2. Address crucial issues – with a limited

number of key goals that help to maintain focus3. Challenging but realistic – to provide

employees with incentive for improving4. Specify a time period – to motivate and

inject a sense of urgency into goal attainment

Major Goals

A goal is a precise and measurable desired future state that a company must realize if

it is to attain its vision or mission.

Financial and Strategic goals

Financial Goals

Outcomes focused

on improving

Financial

Performance

Strategic Goals

Customer Value creation

Internal Processes Value creating processes

Learning and Growth Aligning organizational, information, and human capital with strategy

Balanced score card method helps in goal setting and performance evaluation across different types of goals

Examples of Financial Goals

X % increase in annual revenues

X % increase annually in after-tax profits

Profit margins of X % X % return on capital

employed (ROCE) Sufficient internal

cash flows to fund 100% of new capital investment

Customer• Winning an X % market share• Achieving a customer retention rate of X %• Acquire X number of new customers

Internal Processes• Reduce product defects to X %• Introduction of X number of new products in the

next three yearsLearning and Growth

• Increase employee training to X hours/year• Reduce turnover to X % per year

Examples of Strategic Goals

Goals Are Needed at All Levels

First, set Corporate level goals

Next, establish Business level goals

Then, operating /functional level goals are established


Tata Motors

Passenger vehiclesCommercial vehicles Defense vehicles

Marketing, Finance, Operations, HR etc

Performance in Nonprofit Enterprises

Nonprofit entities such as government agencies, universities, and charities:• Should use their resources efficiently and effectively• Set performance goals unique to the organization• Set strategies to achieve goals and compete with other

nonprofits for scarce resources

A successful strategy gives potential donors a compelling message as to

why they should contribute.

The Five Steps of the Strategy Making Process (next session)

Select the corporate vision, mission, and values (VMV) and the major corporate goals and objectives.

Analyze the external competitive environment (to identify opportunities and threats).

Analyze the organization’s internal environment (to identify its strengths and weaknesses).

Select strategies that:• Build on the organization’s strengths and correct its weaknesses –

in order to take advantage of external opportunities and counter external threats

• Are consistent with organization’s vision, mission, and values and major goals and objectives

• Are congruent and constitute a viable business model

Implement the strat strategies and evaluate/course correct.

Some closing thoughts

A strategy-focused organization is more likely to be a strong bottom-line performer.

Good Strategy + Good Strategy Execution = Good Management

Excellent execution of an excellent strategy is the best test of managerial excellence – and the most reliable recipe for turning companies into standout performers.

Strategic management course plan

Session 1 Introduction and overview to SM

Session 2/3 External and Internal environment

Session 3/4 Building SCA though value chains

Session 5 Growth through Integration, Diversification, Outsourcing and M&A

Session 6 Change management

Session 7 Tailoring strategies to fit specific industry & company situations

Session 8/9 Strategy Implementation and control


THANK YOU

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