Strategic Planning & Management (SPM)

GM-402 (February 15 – April 30, 2011)

IILM Institute for Higher Education New Delhi

PGP (2010-12), Term – 4Session 1 to 25

Compiled By: Sunil Garg

B. Tech. M. Tech. MBAVisiting Faculty (IB, SCM & Strategy)

Email: sunil.garg.edu@gmail.com

What is Strategy? Strategy is a combination of competitive moves and business approaches.

It is necessary to stand in front of competition.

Strategy required to achieve superior performance & organization’s goals.

Strategy is a plan for success over competitive forces.

Strategy is a management’s game plan to knock competition in business.

Strategy is Partly Proactive and Partly Reactive Planning.

Strategy is an art and science of Formulating, Implementing, andEvaluating Cross-Functional Decisions that enable an Organization toAchieve its Objectives in competitive environments.

No Competition (Monopoly situation) –> No Strategy required.

What Is Strategy? (contd.)

• Consists of the combination of competitive moves andbusiness plans used by managers to run the company

• Management’s “game plan” for

– Attracting and pleasing customers

– Staking out a market position

– Competing successfully

– Growing the business

– Conducting operations &

– Achieve targeted objectives

Survival through Growth and Profitability

‘Strategy’ Objectives,

Purpose,Functions

Definition of thecompetitive domain

of the firm

Response to external

opportunities &threats, and

internal strengths& weaknesses

Way to defineManagerial tasksWith corporate,Business and

Functionalperspectives

A coherent, unifying,and integrative

pattern ofdecisions

A definition of theeconomic andnon-economiccontribution

to stakeholders

An expression of strategic intent :

stretching theorganization

Means to developthe core

competencies of theorganization

Means of investingIn tangible and

intangible resources todevelop competencies

Means of establishing

organizational purpose in terms of

LT objectives, resource allocation

Why Strategy?Strategy decides the success and failure of an organizatione.g.

• In Retail Industry: Wal-Mart consistently outperformed whereas

Kmart (rival company) facing bankruptcy in the difficult year of 1995.

• In Computer Industry: Apple and Digital (DEC), which were regarded

as most successful, faced difficult time in 1990s whereas Compaq and

Dell flourished.

• In Semiconductor Industry: Intel consistently outperformed its closest

rivals AMD (Advanced Micro Devices).

Thinking Strategically

Should answer three Big Strategic Questions:1. Where are we now?

2. Where do we want to go? Business(es) to be in and market positions to stake out.

Buyer needs and groups to serve.

Outcomes to achieve.

3. How will we get there?

A company’s answer to “how will we get there?”

is its strategy.

• How to please customers

• How to respond to changing market conditions

• How to outcompete rivals

• How to grow the business

• How to manage each functional piece of the business and develop needed organizational capabilities

• How to achieve strategic and financial objectives

Strategyis HOWto . . .

The Hows ThatDefine a Company's Strategy

Crafting Company’s Strategy

A Core Management functions that should Address:

• How to attract and please customers?

• How to respond to the changing market conditions?

• How to compete successfully / outcompete rivals?

• How to grow the business?

• How to manage each function of business and develop

needed capabilities?

• How to achieve performance targets?

Characteristics of an Effective Strategy

• Objectives and goals are clearly stated and are decisive and

attainable.

• Scope for initiative and freedom of actions.

• Mobilization and use of resources at operational points.

• Flexible and manoeuvrable to facilitate alteration of a course of

action.

• Championed by a committed leadership.

• Use of speed, secrecy and intelligence to initiate surprise attack

on opponents.

• Protect the resource base of the organization as well as the key

operating points from attack by competitors.

Strategic Management Process

Strategic Management Process is all about:

• ‘Identifying an organization’s existing vision, mission and setting objectives

followed by strategy formulation, implementation & evaluation’

• Choosing a set of strategies to pursue the vision & mission of the enterprise.

• Formal planning process by the top management which involves strategy

formulation, implementation, and evaluation as a non-ending process performed

on a continuous basis .

• Top management’s major role is to identifying strategies that company will pursue

to attain goals of earning growth and value creation.

• Good communication and feedback are needed throughout the strategic

management process.

- Improved Communication

- Increased Understanding

- Enhanced Commitment

- Higher Efficiency

- More Effective

- Greater Productivity

- Allow Firm to Influence, Initiate, and Anticipate

- Be Proactive Rather Than Reactive

Benefits of Strategic Management (Immediate)

Benefits of Strategic Management (Long Term)

• Enables an organization to be more proactive than reactive inshaping its own future.

• Allows for identification, prioritization, and exploitation ofopportunities.

• Provides an objective view of management problems.• Represents a framework for improved coordination and control of

activities.• Minimizes the effects of adverse conditions and changes.• Allows more effective allocation of time and resources to identified

opportunities.• Creates a framework for internal communication among personnel.• Provides a basis for clarifying individual responsibilities.• Encourages a favourable attitude towards change.• Enables firms to perform better by making more informed decisions

with good anticipation of both short and long-term consequences.

Managers from all functional areas listen and discuss their views in strategic management meetings. This interaction yields learning, appreciation, and understanding among managers who otherwise do not communicate with each other.

Communications Benefits of Engaging In Strategic Management

Challenges of Strategic Management

• Communicating plans to all employees.• Ensuring that intuitive decisions made by top managers do not

conflict with the formal plans.• Getting top managers to actively support the strategic planning

process.

• Involving all managers / key employees in all phases ofplanning rather than delegating planning to a “planner”.

• Creating a collaborative climate supportive of change.• Ensuring that flexibility and creativity is not stiffed due to

formal planning.• Charting course of action for the future, along with solving

current problems.

Steps of Strategic Management Process

A) Strategy Formulation:

• Developing a vision and mission

• Identifying external opportunities & threats (competitive nature)

• Determining internal strengths & weaknesses (operational)

• Establishing long & short term objectives

• Generating alternative strategies

• Strategy Selection

Issues involved in Strategy Formulation :

• What new businesses to enter

• What businesses to abandon

• How to allocate resources

• Expand operations or diversify

• Enter international markets

• Merge or form joint venture

• Avoidance of hostile takeover

Steps of Strategic Management Process

Steps of Strategic Management Process

B) Strategy Implementation:

• Developing a strategy-supportive culture

• Creating an effective organizational structure

• Redirecting marketing efforts

• Preparing budgets (Resource allocations)

• Developing & utilizing information systems

• Linking employee compensation to performance

Greatest of strategies remain great only in theory unless executed and implemented well..

© 2001 Houghton Mifflin Company. All rights reserved.

Strategy Implementation

•Designing organizational structure

•Designing control systems

Market and output controls

Bureaucratic controls

Control through organizational culture

Rewards and incentives

•Matching strategy, structure, and controls

Congruence (fit) among strategy,

structure, and controls

Structure

Strategy

Controls

Executing Company’s Strategy

Staffing with needed skills and expertise Allocating ample resources Policies and procedures to facilitate execution Using best practices to perform core businessactivities Installing information & operating systems Motivating people Tying rewards & incentives to performance Creating a company culture & work climate forexecution Exerting internal leadership

Steps of Strategic Management Process

C) Strategy Evaluation (Monitoring):

• Reviewing external & internal factors that are bases for

current strategies.

• Measuring performance.

• Taking corrective actions.

Strategic planning and implementation work in tandem.

Best of plans would only give theoretical pleasure unless coupled with an equally efficient implementation.

DevelopMission

Statement

Establish Long-term

Objectives

Generate,Evaluate,

andSelect

Strategies

Establish Policies and

AnnualObjectives

AllocateResources

Measureand

EvaluatePerformance

PerformExternal

Audit

PerformInternal

Audit

Feedback

Strategy Formulation Strategy Implementation Strategy Evaluation

A Comprehensive Strategic Management Model

Relationship between Planning & Execution

Plan Execution Outcome

1 Good Good Thumping Success

2 Good Poor Outright failure

3 Poor Good Wastefulness

4 Poor Poor Doom

5 Average Average Moderate Results

6 Average Good Success

7 Good Average Moderate results that could be

better

An average plan >> implemented excellently >> assured success.

Business ModelA company’s Business Model is the ‘Plan of doing business related to its

cost and revenue’ or ‘ How to make money in this business’?

• Both start-up ventures and established companies need a well defined

business model to take new products and services.

• Process of business model design is part of business strategy. Company’s

strategy is complementary to its business model.

• Implementation of company’s business model is a part of Business

Operations (organization structure, human resources, sequence of

operations and systems e.g. information technology architecture,

production lines)

Strategy - Deals with a

company’s competitive

initiatives, growth and

superior performance.

Business Model -Concerns

whether costs and

revenues flowing from

the strategy demonstrate

amply profitability and

viability of the business.

Relationship Between Strategy and Business Model

Business Model Planning

Formal descriptions of the business become the business model of a

company.

• Every business model needs to pass two critical tests, the ‘narrative test’

and the ‘numbers test’.

• Narrative test must tell a good story and explain how the business works

(who is the customer, what do they value and how a company can

deliver value to the customer).

• Numbers test means your Cost – Revenue assumptions must add up to

profits (ROI).

If Business Model doesn’t work, then model has failed on the above tests.

Business Model Planning

Link between Business Model and Strategy

To Generate Revenues sufficient:

• To cover costs• To produce attractive profits

(Action Plan for Return on Investments)

For Competitive moves

• Business Approaches

(Action Plan for Business Growth)

Business Model

• Strategic

Competitiveness

• Above Average Returns

• Products

• Markets

•Geographies

Strategy

Hierarchy of Strategic Intent

Vision

Mission

Goals

Objectives

Plans

Most integrative

Most specific

Long Term

Short Term

Hierarchy of Strategic Managers

Vision

Vision

Core

Values

Core

Purpose

Visionary

Goals

A company’s vision gives a company:

- Route for developing / Strengthening Business

- Strategic course in preparing for the future

Strategic Vision vs. Mission

Vision & Mission

• Vision is a formal declaration of what thecompany aims to achieve in future.

• Mission is about the existence of anorganization and how the organization viewsthe claims of its various stakeholders.

Maruti Suzuki The leader in the Indian Automobile

Industry, creating customer delight

and shareholder’s wealth; A Pride of

India

Customer Obsession; Fast, flexible and

first mover; Innovation & Creativity;

Networking & Partner ship; Openness

& Learning

NTPC Ltd. To be one of the world's largest and

best power utilities, powering India's

growth

Customer Focus; Organizational Pride;

Mutual Respect and Trust Initiative

and Speed ;Total Quality

ITC Sustain ITC’s position as one of India’s

most valuable corporations through

world class performance, creating

growing value for the Indian economy

and the Company’s stakeholders.

Trusteeship; Customer Focus; Respect

for people; Excellence Innovation;

Nation Orientation

Tata Power To be the most integrated power and

energy company delivering sustainable

value to all Stakeholders

Integrity; Trust; Care; Collaboration

Agility; Respect; Excellence

SAIL To be a respected world class corporation and the leader in Indian steel business in quality, productivity, profitability and customer satisfaction.

Lasting relationships with customers based on trust and mutual benefit; Highest ethical standards in conduct of business; Culture that supports flexibility, learning and is proactive to change; Opportunity and responsibility to make a meaningful difference in people's Lives

COMPANY MISSION

Maruti Suzuki Motorize India

NTPC Ltd Develop and provide reliable power, related products and services at competitive prices, integrating multiple energy sources with innovative and eco-friendly technologies, and contribute to society

ITC To enhance the wealth generating capability of the enterprise in a globalizing environment, delivering superior and sustainable stakeholder value.

Tata Power We will become the most admired company delivering sustainable

value by being the supplier partner by choice; achieving

excellence in safety, operations & project management;

focusing on the culture of sustainability; ensuring growth

and delivering value to all stakeholders; caring for the community.

BSES, Delhi To attain global best practices and become a world-class utility;

to provide: uninterrupted, affordable, quality, reliable, safe and

clean power to our customers; to achieve excellence in: service,

quality, reliability, safety and customer care; to earn: trust and

confidence of all customers and stakeholders by exceeding their

expectations, and make the company a respected household name;

to promote a work culture that fosters: individual growth,

team sprit and creativity to overcome challenges and attain goals.

What are Objectives ?

Setting Objectives

Concept of Strategic Intent

Stakeholders

Are individuals or groups that have an interest, claim, or stack in the

company.

• Internal Stakeholders: stockholders, employees, including executive officers,

managers and board members.

• External Stakeholders: customers, suppliers, government, unions, local

communities, and the general public.

• Each stakeholder has some claim on the company. A company must take these

claims into account when formulating its strategies or else stakeholders may

withdraw their support. It is not possible to satisfy claims of all stakeholders. The

goals of different groups may conflict and in practice few organizations have the

resources to manage all stakeholders.

Process of Crafting and Executing Company’s Strategy

A five-phase managerial process:

1. Developing a strategic vision – where company needs to head.

2. Setting objectives and using them as yardsticks for measuring

company’s performance and progress.

3. Crafting a strategy to achieve the desired outcomes and move the

company along the strategic course.

4. Implementing and executing the chosen strategy efficiently and

effectively.

5. Monitoring developments and initiating corrective adjustments in the

company’s long term direction, objectives, strategy, or execution in light

of company actual performance, changing conditions, new ideas and

new opportunities.

Strategy-Making, Strategy-Executing Process

Developing A Strategic

vision

SettingObjectives

Developing A Strategic

vision

Crafting aStrategy toAchieve theObjectivesAnd vision

Implementingand executingthe strategy

Monitoringdevelopments,

evaluatingperformance &

making corrective

adjustments

Revise as needed in light of actual performance,changing conditions

Analysis + Intuition

Effective Strategic Decisions

Basis for Good Strategic Decisions

Business Mission

Strategy Formulation

External Opportunities and Threats

Internal Strengths and Weaknesses

Keys to Formulating Strategies

Partly Proactive and Partly Reactive Strategies

(Based on Internal & External Factors)

Economic

Social

Cultural

Demographic Environmental

Political

Legal

Governmental

Technological

Competitive

Ten Key External Forces

External Analysis

Identifying strategic opportunities andthreats in the operating environment.

Macroenvironment National

Immediate (Industry)

Opportunities and Threats (External)Beyond the control of a single organization

Basic tenet of strategic management

Strategy formulation to:

Take advantage of external opportunities

Avoid or reduce impact of external threats

Management

Marketing

Distribution

Production/

Operations

Research & Development

Purchasing

Manufacturing

Fourteen Key Internal Forces

Finance/Accounting

Packaging

Computer Information

Systems

Employee/Manager Relations

Human Resource

Management

Vendor Relations

Promotion

Key Internal Forces (cont.)

Internal Analysis

•Identify Strengths

– Quality and quantity of resources available

– Distinctive competencies

•Identify Weaknesses

– Inadequate resources

– Managerial and

organizational deficiencies

Strengths and Weaknesses (Internal)Controllable activities

Arise in functional areas of the business:

• Management• Marketing• Finance/accounting• Production/operations• Research & development• Computer Information Systems

A Company’s Strategy-Making Hierarchy

The companywidegame plan for managing a set of

businesses

One for each business the company hasdiversified into

Functional-area strategies within

each business

Operating strategies withineach business

Two-way influence

Two-way influence

Two-way influence

CORPORATE

STRATEGY

BUSINESS

STRATEGY

FUNCTIONAL

STRATEGY

OPERATING

STRATEGY

Corporate-Level Strategies

•Vertical integration

•Diversification

•Strategic alliances

•Acquisitions

•New ventures

•Business portfolio restructuring

Corporate Level Issues

Scope Decisions

Value Creation

Product Diversity

International

Diversity

Corporate Parenting

Roles

Managing the

Portfolio

Business-Level Strategies

•Cost leadership– Attaining, then using the lowest total cost basis as

a competitive advantage.

•Differentiation– Using product features or services to distinguish

the firm’s offerings from its competitors.

•Market niche focus– Concentrating competitively on

a specific market segment.

Functional-Level Strategies

Focus is on improving the effectiveness ofoperations within a company.

– Manufacturing

– Marketing

– Materials management

– Research and development

– Human resources

Global-Level Strategies

– Multi-domestic

– International

– Global

– Transnational

Evaluating Company ResourcesTangible Resources Intangible Resources

Financial The firm’s borrowing

capacity

Ability to generate internal

funds

Human Knowledge

Trust

Managerial capabilities

Organizational routines

Organizational Firm’s reporting structureand formal planning ,

controlling systems

Innovation Ideas

Scientific capabilities

Capability to innovate

Physical Location of a firm’s plant

& equipment

Access to raw materials

Reputational Brand name

Reputation withcustomers / suppliers

Perceptions aboutproduct quality,

durability & reliability

Technological Stock of technology such

as patents, trademarks,copyrights and trade secrets

Evaluating the Company's Current Strengths / Weaknesses

Firm's sales growing faster / slower / same pace as the market ?

Acquiring new customers as well as retaining existing customers ?

Profit margins increasing / decreasing ?

Trends in the firm's net profits / ROI ?

Overall financial strength / credit rating improving / declining ?

Continuous improvement in internal measures ?

Shareholders' view of the company ?

Image / reputation with customers ?

Company vis-a-vis rivals with respect to technology , product innovation etc. ?

Company Competencies and Capabilities

A competence is something an organization is good at doing;

it is the product of learning and experience.

A core competence is a competitively important activity that

a company performs better than other internal activities.

A distinctive competence is a competitively valuable activity

that a company performs better than its rivals.

Examples: Strategies Basedon Distinctive Capabilities

• Sophisticated distribution systems – Wal-Mart

• Product innovation capabilities – 3M Corporation

• Complex technological process – Michelin

• Defect-free manufacturing – Toyota and Honda

• Specialized marketing and merchandising know-how – Coca-Cola

• Global sales and distribution capability – Black & Decker

• Superior e-commerce capabilities – Dell Computer

• Personalized customer service – Ritz Carlton hotels

SWOT AnalysisTool for auditing an organization and its environment.

It is a way to analyze competitive position of a company / business.

Environmental Scan

Threats

Internal Analysis External Analysis

Strengths Weaknesses Opportunities

SWOT Matrix

SWOT MatrixA graphical representation of the SWOT framework.

TOWS MatrixTOWS analysis is similar to the SWOT.

It looks at the negative factors first in order to turn them into positive factors.

Strengths Weaknesses

Opportunities

Threats

S – O strategies W – O strategies

S – T strategies W – T strategies

S – O strategies : pursue opportunities that are good fit to the company’s strengths

W- O strategies : overcome weaknesses to pursue opportunities

S – T strategies : identify ways to use strengths to reduce vulnerability to external

threats

W – T strategies : establish a defensive plan to prevent the firm’s weaknesses from

making it highly susceptible to external threats

Critical Internal

Weakness

Critical Internal

Strength

Environmental Opportunity

Critical Internal

Weakness

Environmental Threat

Aggressive

Strategy

Diversification

Strategy

Turnaround-

Oriented

Strategy

Defensive

Strategy

Strategic Options

BCG Growth – Share MatrixA model for managing a portfolio of different business units (ormajor product lines), The matrix displays the various business unitson a graph of the market growth vs. market share relative tocompetitors.

Developed by Boston Consulting Group In 1970

BCG Growth – Share Matrix (Contd.)BCG matrix provides a framework for allocating resources among different business unitsaccording to their position on the grid as follows:

Cash Cow – A business unit that has large market share in a mature, slow growing industry.Cash caws require little investment and generate cash that can be used to invest in otherbusiness units. (Products generate high amounts of cash for the company, but growth rate isslowing).

Star - A business unit that has large market share in fast growing industry. Star may generatecash, but because the market is growing rapidly they require investment to maintain theirlead.

Question Mark (or Problem Child) - A business unit that has a small market share in highgrowth market. These require resources to grow market share, but whether they will succeedand become stars is unknown.

Dogs - A business unit that has a small market share in a mature industry. May not requiresubstantial cash, but it ties up capital that could better be deployed elsewhere. Unless a doghas some other strategic purpose, it should be liquidated if there is little prospect for it togain market share.

GE / McKinsey Matrix

GE Matrix, attempts to improve upon BCG Matrix. It maps SBUs on a grid of industry and SBU position in the industry. It has nine cells vs. Four cells in the BCG matrix.

Developed by McKinsey & Co as a tool for screening GE large portfolio of SBUs In 1970

GE / McKinsey Matrix (Cont.)

Industry Attractiveness Factors: Market Growth Rate, Market Size, DemandVariability, Industry Profitability, Industry Rivalry, Global Opportunities, Macro-environmental Factors

Business Unit Strength Factors:Market Share, Growth in Market Share, Brand Equity, Distribution Channel Access, Production Capacity, Profit Margin Relative to Competitors

Ansoff's Matrix - Planning for GrowthDiversification is part of the four main growth strategies defined by the Product /Market Ansoff matrix:

Diversification usually requires a company to acquire new skills, new techniques and new facilities.

Centre

Divisions

Business

CorporateParent

The corporate parent refers to the levels of management above that of the businessunits, and therefore without direct interaction with buyers and competitors. There arethree styles of corporate parenting: financial control, strategic planning and strategiccontrol.

ParentingThe role of corporate headquarters (parent) to share wisdom, insight and

guide multi-businesses (children) to help to excel.

Helping large businesses to dismantle their hierarchical structures.

Ensuring businesses are led by managers with specialized skills.

Providing a clear vision to the business unit managers.

Monitor and attempt to avoid predictable errors.

Link different businesses to improve market position/efficiency.

Share capabilities across businesses.

Share specialized / rare expertise with businesses

(scale economies)

Maintain external relationships with stakeholders

Assist business units in taking difficult/major decisions.

Assist business units to revamp their processes / businesses.

Hierarchies delay decisions. Buffer the executives in business so that they are not answerable for performance of

their business. Diversity and size of corporations might inhibit from having a clear vision.

Porter’s Five Forces Model of Competition(A Model for Industry Analysis)

Attractiveness:Overall Industry Profitability

Unattractive: Low Overall Profitability or Intense Competition

Combination of five forces determines the competitive intensity or attractiveness of a market in which an

industry operates

Competitive Strategy

3 QuestionsWho are the customers ? What are their needs ? How to satisfy those needs ?

------------------- Customers are the foundation for business level

strategy.Aim of every firm to deliver maximum value to

the customers.And establish long term relationship with them.

Customer is the King

Porter’s Generic StrategiesAccording to Michael Porter a firm’s strengths ultimately fall into two headings: CostAdvantage and Differentiation. Called generic – as not dependent on firm or industry.Applied at the business unit (SBU) level.

Generic Strategies:

Cost Leadership

Differentiation

Focused

Generic Competitive Strategies• Cost Leadership Strategy: This usually targets broad markets by cutting costs and

selling at average industrial prices or lower. Firms acquire low cost advantages byimproving process efficiencies, gaining access to bulk lower cost materials,optimizing outsourcing, technology upgrade and vertical integration or avoidingsome costs altogether.

• Differentiation Strategy: By developing and offering unique product or service thosecustomers perceive to be better than or different from competitor’s product.Products are sold at premium price that covers extra cost for product uniquenessand additional profit. Require leading scientific research and creative productdevelopment capabilities, strong sales team and corporate reputation for qualityand innovation.

• Focused Strategy: Concentrate on a narrow segment and within the segmentattempts to achieve either a cost advantage or differentiation. Enjoys customerloyalty with lower volumes.

• Combination of Generic Strategies: Focused Low Cost, Focused Differentiation,Best Cost Provider

Strategic Business Unit (SBU)

SBU is a business unit within the overall corporate identity which isdistinguishable from other business because it serves a defined externalmarket where management can conduct strategic planning in relation toproducts and markets.

SBU has its own business strategy, objectives and competitors and these willoften be different from those of the parent company.

SBUs are self contained divisions formed within an organization for dealingwith specific business concerns with full profit and loss responsibility investedin the top management of the unit.

Purpose behind the formation of strategic business units is to serve a clearand defined market segment along with a clear and defined strategy.

When companies become really large, they are best managed as an organization of a number of businesses (or SBUs).

SBUs are also referred to as independent business units or strategic planningunits to gain competitive advantage in the populated marketplace.SBUs might be based on product lines, geographic markets, or otherdifferentiating factors.

SBU Structure based on geographic areas

Strategic Business Unit Structure

A Company’s Menu of Strategy Options

1. Collaborative Strategies: Alliances and Partnerships

2. Merger and Acquisition Strategies

3. Vertical Integration Strategies: Operating Across More Stages of the Industry

Value Chain

4. Outsourcing Strategies: Narrowing the Boundaries of the Business

5. Offensive Strategies: Improving Market Position and Building Competitive

Advantage

6. Defensive Strategies: Protecting Market Position and Competitive Advantage

7. Web Site Strategies

8. Choosing Appropriate Functional-Area Strategies

9. First-Mover Advantages and Disadvantages

(Also Known as CooperativeStrategies)

Collaborative Strategies:Alliances and Partnerships

• Companies sometimes use strategic alliancesor collaborative partnerships to complementtheir own strategic initiatives and strengthentheir competitiveness.

• Such cooperative strategies go beyondnormal company-to-company dealings but fallshort of merger or full joint venturepartnership.

Alliances Can Enhance a Firm’s Competitiveness

Alliances and partnerships can help companiescope with two demanding competitive challenges

Racing against rivals to build a market presence in manydifferent national markets

Racing against rivals to seize opportunities on thefrontiers of advancing technology

Collaborative arrangements can help a companyLower its costs and/or gain access to neededExpertise and capabilities

Characteristics of a Strategic Alliance

Strategic alliance – A formal agreement between two or more separatecompanies where there is

Strategically relevant collaboration of some sort Joint contribution of resources Shared risk Shared control Mutual dependence

Alliances often involve

Joint marketing Joint sales or distribution Joint production Design collaboration Joint research Projects to jointly develop new technologies or products

Joint Venture –Financial Partnership / Sharing Control / Sharing Profit & Loss

Potential Benefits of Alliances to Achieve Global and Industry Leadership

Get into critical country markets quickly to accelerate process of

building a global presence

Gain inside knowledge about unfamiliar markets and cultures

Access valuable skills and competencies concentrated in particular

geographic locations

Establish a beachhead (base) to participate in target industry

Master new technologies and build new expertise faster than would

be possible internally

Open up expanded opportunities in target industry by combining

firm’s capabilities with resources of partners

Benefits of Strategic Alliances

Pitfalls Strategic Alliances

Guidelines in Forming Strategic Alliances

Joint VenturesGoing with a partner in foreign country:

• JV is a useful strategy in competitive markets

• Control exercised with shared risk

• JV agreement with a company from the target country market is an entry strategy

• Types of JVs:

Contractual Joint Ventures (for projects with time frame)

Equity Joint Ventures (long term)

• JV may be necessary due to legal restrictions on foreign investment

• Reduces the investment required by a foreign firm, besides reducing risk

• Foreign partner stands to gain from local expertise

• Foreign investor may find the local partner redundant after some time

• Local partner may become a competitor after the end of the agreement

Example: Hero Honda Motors Ltd.,

Merger and Acquisition Strategies

M&A refers to the corporate strategy dealing with the buying, selling andcombining of different companies that can aid, finance, or rapid growth ofcompany without having to create another business entity.

A merger happens when two firms agree (mutually consented) to go forwardas a single new company rather than remain separately owned andoperated. When firms are of about the same size called "merger of equals”.

In the 1999 merger of Glaxo Wellcome and SmithKline Beecham, both firmsceased to exist when they merged, and a new company, GlaxoSmithKline,was created.

An acquisition (takeover) is the purchase of one company by anothercompany. It may be friendly or hostile.

When the deal is unfriendly (that is, when the target company does not wantto be purchased) it is always regarded as an acquisition.

Merger and Acquisition Strategies

Merger – Combination and pooling of equals, with newly created

firm often taking on a new name

Acquisition – One firm, the acquirer, purchases and absorbs

operations of another, the acquired

Merger-acquisition strategy

Much-used strategic option

Especially suited for situations where alliances do not provide a

firm with needed capabilities or cost-reducing opportunities

Ownership allows for tightly integrated operations, creating more

control and autonomy than alliances

Objectives of Mergers and Acquisitions

To create a more cost-efficient operation

To expand a firm’s geographic coverage

To extend a firm’s business into new product categories or

international markets

To gain quick access to new technologies or competitive

capabilities

To invent a new industry and lead the convergence of industries

whose boundaries are blurred by changing technologies and

new market opportunities

Rationales forM&A

Acquiring firms seek improved financial performance or growth by:

• Economy of Scale: reduction in fixed cost and increasing profit margins.

• Economy of Scope: Increasing the scope of marketing and distribution, ofdifferent types of products.

• Vertical Integration: Merger of an upstream and downstream firm.

• Increasing revenue or market share: Merged identity increases marketpower (market share of competitor) to set prices.

• Synergy: Increased opportunities of specialization and managerial andpurchasing economics.

• Taxation: Reducing tax liability by acquiring assets of a non-performingcompany.

Vertical Integration Strategies The degree to which a firm owns its upstream suppliers and its downstreambuyers is referred to as vertical integration.

Extend a firm’s competitive scope with in same industry

Can aim at either full or partial integration

Deciding issues for vertical integration are: Cost & Control

• Forward Integration: downstream expansion of activities (towards end-usersof final product)

• Backward Integration: upstream expansion of activities (into sources ofsupply)

Improve supply–chain efficiency, better control over inputs/outputs, expansionof core competencies, capturing upstream / downstream profit margins

Overview of an Enterprise

upstream downstream

Backward Integration Forward Integration

Example of Backward & Forward Integrations

Pros and Cons ofIntegration vs. De-Integration

Whether vertical integration is a viable strategic option depends on

its

Ability to lower cost, build expertise, increase differentiation, or

enhance performance of strategy-critical activities

Impact on investment cost, flexibility, and administrative overhead

Contribution to enhancing a firm’s competitiveness

Many companies are finding that de-integrating value chain activities

is a more flexible, economic strategic option!

Outsourcing Strategies

Outsourcing involves withdrawing from certain value chain activities and relying on outsiders to supply needed

products, support services, or functional activities

InternallyPerformedActivities

Suppliers

SupportServices

FunctionalActivities

Distributorsor Retailers

Involves farming out certain value chain activities to outside vendors

When Does Outsourcing Make Strategic Sense?

• Activity can be performed better or more cheaply by outside specialists

• Activity is not crucial to achieve a sustainable competitive advantage

• Risk exposure to changing technology and/or changing buyer preferences is reduced

• It improves firm’s ability to innovate

• Operations are streamlined to

Improve flexibility Cut time to get new products into the market

• It increases firm’s ability to assemble diverse kinds of expertise speedily and

efficiently

• Firm can concentrate on “core” value chain activities that best suit its resource

strengths

Risk: Losing touch with activities and expertise that determine overall long-term success

Offensive and Defensive Strategies

Offensive Strategies Defensive Strategies

Used to build: new or stronger marketposition and / orcreate competitive advantage

Used to protect: competitive advantage(rarely lead to creating advantage)

Type of marketing warfare strategy designed to obtain an objective, usually marketshare, from a target competitor.In addition to market share, an offensive strategy could be designed to obtain keycustomers, high margin market segments, or high loyalty market segments.

Low-cost Country Sourcing (LCCS) Strategy

Common examples:

• Labor - intensive manufacturing: productsproduced using low-cost Chinese labor,

• Call centres staffed with low-cost Englishspeaking workers in the Philippines and India,

• IT work performed by low-cost programmers inIndia and Eastern Europe.

Just- in-Time Strategy

Requires cooperation, coordination, and information sharing to

eliminate inventory across the supply chain. Strategic features:

• Commitment to zero defects by seller and buyer.

• Frequent shipments of small lot sizes according to strict quality and

delivery performance standards.

• Closer, even collaborative, buyer-seller relationship.

• Stable production schedule sent to suppliers on a regular basis.

• Extensive information sharing electronically between supply chain

members.

• Electronic data interchange capability with suppliers.

Strategic Framework for Supply Chain

Supply Chain Strategy or Design

Web Site Strategies

Strategic Challenge – What use of the Internet should a company

make in staking out its position in the marketplace?

Five Web site approaches

• Use to disseminate only product information (Catalogue website)

• Use as minor distribution channel to sell direct to customers

• Use as one of several important distribution channels to access

customers

• Use as primary distribution channel to access buyers

• Use as exclusive channel to transact sales with customers (E-

commerce website)

Using the Internet toDisseminate Product Information

Approach – Website used to provide product information of manufacturers or wholesalers/dealers

-> Informs end-users of location of retail stores

-> Relies on click- through to websites of dealers for sales transactions

Issues – Pursuing online sales may

-> Signal weak strategic commitment to dealers

-> Signal willingness to cannibalize dealers’ sales

-> Prompt dealers to aggressively market rivals’ brands

Avoids channel conflict with dealers – Important where strong support of dealer networks is essential

Effective Website Strategies

Having a website is one thing, but making it work

to produce enquiries and sales is quite another.

In simple terms your website should achieve 3

objectives:

• Attract visitors

• Engage them so they stay on your site

• Covert them from visitors to customers

‘Online marketing initiatives are cost effective’

Effective Website Strategies

1. Define your target audience (ideal visitors profile)

2. Content is king (appropriate & relevant to target audience)

3. Tell people about it (display widely)

4. Optimise it online (SEO & SMO)

5. Make sure you measure (web analytical tools for traffic,

transactions & customer satisfaction)

6. What will your website do? (either selling, or information or

both)

7. Differentiate your website (stand out from the crowd and easy

to navigate)

Private & Confidential

Advertisement will appear hereA

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Google Analytics

Website Traffic Measurement May 8,2010 to June 7, 2010 (After the Campaign)

First-Mover Advantages When to make a strategic move is often as crucialas what move to make

First-mover advantages arise when

Pioneering helps build firm’s image and reputation

Early commitments to new technologies, new-stylecomponents, and distribution channels can produce costadvantage

Loyalty of first time buyers is high

Moving first can be a preemptive strike

Choosing AppropriateFunctional-Area Strategies

Involves strategic choices about how functionalareas are managed to support competitivestrategy and other strategic moves

Functional strategies include:

Research and development ProductionHuman resourcesSales and marketingFinance

Managing a particular activity in ways that support the overall business strategy.

Competing in Foreign Markets

Entering Strategy for Foreign MarketsExporting (Indirect/Direct) >>> Joint Ventures >>> Direct investment

Indirect Exporting:

• Exporting through intermediary or distribution channel.• Involve least risk and limited capital expenditure.• Use merchants who sell the products of the company in international

markets or• Use the distribution facilities of other firms in the international markets• Export through merchant exporters or large trading houses who export

products on behalf of several small firms collectively

Distribution chains e.g. Wal-Mart, Malls, Stores

Products: FMCG, garments, handicrafts, processed food, medicines,electronics, etc.

Exporters: Haldiram, MDH, LG, Samsung, Dell, HP, etc.

Entering Strategy for Foreign Markets

Direct Exporting:

• Company decides to export its products itself and Shipping goods directly to a

foreign buyer.

• Develops overseas contacts, undertakes marketing research, handles

documentation and transportation, and decides the marketing mix.

• Involve identification of foreign buyers and taking risk directly.

• May establish a sales and marketing office in the foreign market

Long term and repeated supplies to Original Equipment Manufacturers (OEMs),

spare part markets, large scale industries, projects, etc.

Products: Auto Parts, Hand Tools, Industrial Raw Materials, etc.

Exporters: like Sundram Fasteners, MRF Tyre, Sesa Goa, …………….

Motivation for Competing Internationally

Multinational Corporations (MNCs)

MNCs are firms that are incorporated in one country and have production

and sales operations in other countries. There are about 60,000 MNCs in

the world. Many MNCs obtain raw materials from one nation, financial

capital from another, produce goods with labor and capital equipment in

a third country and sell their output in various other national markets.

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10

Top 10 MNCsGeneral ElectricFord Motor CompanyRoyal Dutch/Shell GroupGeneral MotorsExxon CorporationToyotaIBMVolkswagen GroupNestlé SADaimler-Benz AG

United StatesUnited StatesNetherlands/ UK United StatesUnited StatesJapanUnited StatesGermanySwitzerlandGermany

Strategy Options for Competing in Foreign Markets

International Vs. Global Competition

Multi-Country Vs. Global Strategy

McDonalds - Customized Products IBM – Standardized Products

International Corporate-Level Strategies

Characteristics of Multi-Country Competition

Characteristics of Global Competition

Cross-country Differences in Cultural, Demographic, & Market Conditions

Market Differs Country to Country

Different Countries – Different Conditions

Fluctuating Exchange Rates – Affects Company’s Competitiveness

Strategic Framework of Foreign Exchange Risk Management

Forecasts

Risk Estimation

Benchmarking

Hedging

Stop Loss

Reporting and Review

Corporate Governance (CG)

CG is defined as the general set of customs, procedures,

policies, regulations, habits, and laws that determine theway a corporation (or company) is directed, administrated

or controlled.

CG is most explicitly define as:a) making sure that boards and managers don’t lie, cheat

and steal, orb) clarifying that shareholders are the “real owners” of thefirm (a legal stance that appears to be untrue)

CG relates to the nature and extent of accountability ofparticular individuals in the organization.

Corporate Governance

Corporate Governance reflects and enforces the company’s values!

Corporate Governance:Strategic Role of Board of Directors

Obligations of Board of Directors

CG at InfosysCorporate governance is a reflection of our culture,policies, our relationship with stakeholders, and ourcommitment to values. Infosys has been a pioneer inbenchmarking its corporate governance practiceswith the best in the world.

The primary purpose of corporate leadership is tocreate wealth legally and ethically. This translates tobringing a high level of satisfaction to fiveconstituencies - customers, employees, investors,vendors and the society-at-large.

N.R. Narayana Murthy (Chairman of the Board and ChiefMentor)

Strategy Implementation:Why Strategic Plans Often Fails

Poor prioritization – highest level of strategy is selection of

priorities.

Lack of detailed planning to support plan goalachievement – planning is road map while communication and

feedback are essence of execution.

Strategy and culture misalignment – plans to match

the existing culture, human system and operating procedures.

Accountability missing from plan goals – defining

clear responsibilities and authority for rewards and sanctions.

Poor planning governance – high-level leadership for

overall plan performance.

Ill-defined strategic goals – ambiguity avoidance

Strategy Implementation: Link to Execution

Top-Down, Bottom-Up – seeking active participation from thelower levels

Understanding of Acceleration - reality check on the planningprocess

Accountability, Performance and Reward

Energy and Focus - first mobilize organization energy, then

focus it

Communication

Governance

Balanced Scorecard (BSC)

A strategic approach and performancemanagement system that enablesorganizations to translate company’s vision andstrategy into implementation from fourperspectives:

Financial (How do we appear to shareholders?) Customer (How do customer view us?) International Business Perspective (What must we

excel at?) Learning and Growth (Can we continue to improve

and create value?)

Balanced Scorecard Approach -Strategic & Financial Objectives

Strategy Evaluation and Control

Measures of Corporate Performance

Strategic Audit

Type of management audit that is extremely usefulas a diagnostic tool to pinpoint corporate-wideproblem areas and to highlight organizationstrength and weakness.

Thank You,

Sunil GargB. Tech. M. Tech. MBA

Industry Consultant & Management Professor (IB, SCM & Strategy)

Advisory Board Member - ISCEA, USA – www.iscea.comCountry Head (India) - BRASI, Canada - www.brasi.org

Director – IKN, Canada - www.iknownetwork.orgPh: +91 98688 77774 / 98716 58884, USA: +1 815 349 6142

http://in.linkedin.com/in/skgarg