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Strategic management & business policy


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satya Acharya Bangalore B-School

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  • 1. SATYA SM & B Page 14.01 STRATEGIC MANAGEMENT & BUSINESS POLICYMODULE 1MEANING AND NATURE OF STRATEGIC MANAGEMENTMeaningStrategic Management – Defined―Art & science of formulating, implementing, and evaluating, cross-functional decisions thatenable an organization to achieve its objectives’Strategic management activities are related to the total system. These activities may be a changein organizational goals or managerial strategies that have implications throughout theorganization or business unitNature, Characteristics, and features of Strategic Management,The Nature, Characteristics, and features of Strategic Management as following:-a) It involves a long time perspective:- the directional decisions in strategic managementcan be expected to have effects on the organization for three to five years .b) It is an intellectual process:- in strategic management, key individuals perceive, analyze,and choose between alternatives, interrelating such elements as definitions of businesses,objectives, and functional/program strategies.c) It involves wide ramifications:- Strategic Management activities are related to the totalsystem. These activities may be change in organizational goals, or managerial strategiesthat have implications throughout the organization or business unit.d) It is a continuing dynamic social process:- Strategic Management is not just a course tobe undertaken a few times each year when top management meets to decide critical issuese) It use critical resources towards perceived opportunities or threats in a changingenvironment:- the most important human, financial, and other resources are brought tobear in certain situations, which provide the organization with an opportunity to managethe elusive environment.Its importance and relevance, of Strategic Management,There are many benefits of strategic management and they include identification, prioritization,and exploration of opportunities.Financial BenefitsIt has been shown in many studies that firms that engage in strategic management are moreprofitable and successful than those that do not have the benefit of strategic planning andstrategic management. When firms engage in forward looking planning and careful evaluation oftheir priorities, they have control over the future, which is necessary in the fast changingbusiness landscape of the 21st century. It has been estimated that more than 100,000 businessesfail in the US every year and most of these failures are to do with a lack of strategic focus andstrategic direction. Further, high performing firms tend to make more informed decisionsbecause they have considered both the short term and long-term consequences and hence, have
  • 2. SATYA SM & B Page 2oriented their strategies accordingly. In contrast, firms that do not engage themselves inmeaningful strategic planning are often bogged down by internal problems and lack of focus thatleads to failure.Non-Financial BenefitsThe section above discussed some of the tangible benefits of strategic management. Apart fromthese benefits, firms that engage in strategic management are more aware of the external threats,an improved understanding of competitor strengths and weaknesses and increased employeeproductivity. They also have lesser resistance to change and a clear understanding of the linkbetween performance and rewards. The key aspect of strategic management is that the problemsolving and problem preventing capabilities of the firms are enhanced through strategicmanagement. Strategic management is essential as it helps firms to rationalize change andactualize change and communicate the need to change better to its employees. Finally, strategicmanagement helps in bringing order and discipline to the activities of the firm in its both internalprocesses and external activities.Closing ThoughtsIn recent years, virtually all firms have realized the importance of strategic management.However, the key difference between those who succeed and those who fail is that the way inwhich strategic management is done and strategic planning is carried out makes the differencebetween success and failure. Of course, there are still firms that do not engage in strategicplanning or where the planners do not receive the support from management. These firms oughtto realize the benefits of strategic management and ensure their longer-term viability and successin the marketplace.The Strategic Management Process – The strategic management process means defining theorganization’s strategy. It is also defined as the process by which managers make a choice of aset of strategies for the organization that will enable it to achieve better performance. Strategicmanagement is a continuous process that appraises the business and industries in which theorganization is involved; appraises it’s competitors; and fixes goals to meet all the present andfuture competitor’s and then reassesses each strategy.Strategic management process has following four1.Environmental Scanning- Environmental scanning refers to a process of collecting,scrutinizing and providing information for strategic purposes. It helps in analyzing the internaland external factors influencing an organization. After executing the environmental analysisprocess, management should evaluate it on a continuous basis and strive to improve it.2.Strategy Formulation- Strategy formulation is the process of deciding best course of actionfor accomplishing organizational objectives and hence achieving organizational purpose. After
  • 3. SATYA SM & B Page 3conducting environment scanning, managers formulate corporate, business and functionalstrategies.3.Strategy Implementation- Strategy implementation implies making the strategy work asintended or putting the organization’s chosen strategy into action. Strategy implementationincludes designing the organization’s structure, distributing resources, developing decisionmaking process, and managing human resources.4.Strategy Evaluation- Strategy evaluation is the final step of strategy management process.The key strategy evaluation activities are: appraising internal and external factors that are theroot of present strategies, measuring performance, and taking remedial / corrective actions.Evaluation makes sure that the organizational strategy as well as it’s implementation meets theorganizational objectives.These components are steps that are carried, in chronological order, when creating a newstrategic management plan. Present businesses that have already created a strategic managementplan will revert to these steps as per the situation’s requirement, so as to make essential changes.Components of Strategic Management ProcessStrategic management is an ongoing process. Therefore, it must be realized that each componentinteracts with the other components and that this interaction often happens in chorus.Relationship between a Company’s Strategy and its Business Model.Company StrategyThe term "business strategy" describes the methods a business uses achieve its mission andobjectives. The companys strategy might involve buying products from local food producers,encouraging customers to bring their own grocery bags, advertising in local newspapers andbuying recycled product packaging materials. A business’ strategy includes how it deals with theopportunities and threats it faces.Business ModelA companys business model describes the basic means by which it creates value, delivers valueto consumers and collects revenue from customers to make a profit. Business models can varygreatly from one company to another. A local grocery stores business model might involve
  • 4. SATYA SM & B Page 4buying food at wholesale prices and selling it to end consumers at a higher price to make profit.A website might have a business model based on providing video content to customers andgenerating revenue through advertisements placed on the site.How They Are RelatedA companys business model is a part of its business overall strategy: It is the nuts and boltsbehind how the company plans to achieve its goals, such as making a profit. A company canchange its business model over time as a part of its profit-making strategy. For example, ifwebsite does not make enough revenue from advertisements to make profit, managers mightdecide implement a new business model, such as selling T-shirts and other goods though anonline store, as a strategy to boost profit.MODULE 2CORPORATE BUSINESS POLICY Vs STRATEGYPolicy is the spheres or scope within which decisions are taken by the subordinates in a companyor organization. Strategy is an action that managers and directors take to achieve one or more ofthe companys goals.International Business Policy;Labour PolicyStaffing Policy A firm’s staffing policy is concerned with the selection of employees who havethe skills required to perform a particular job A staffing policy can be a tool for developing anpromoting the firm’s corporate culture (the organization’s norms and value system) A strongcorporate culture can help the firm implement its strategyTypes Of Staffing Policy There are three main approaches to staffing policy within internationalbusinesses:1. the ethnocentric approach:-The ethnocentric approach to staffing policy fills key management positions with parent-country nationals It makes sense for firms with an international strategy Firms that pursuean ethnocentric policy believe that: there is a lack of qualified individuals in the hostcountry to fill senior management positions it is the best way to maintain a unifiedcorporate culture value can be created by transferring core competencies to a foreignoperation via parent country nationals2. The polycentric approach:-The polycentric staffing policy recruits host country nationals to manage subsidiaries intheir own country, and parent country nationals for positions at headquarters It makessense for firms pursuing a localization strategy The polycentric approach: can minimizecultural myopia may be less expensive to implement than an ethnocentric policy3. the geocentric approach:-The geocentric staffing policy seeks the best people, regardless of nationality for key jobsthis approach is consistent with building a strong unifying culture and informal
  • 5. SATYA SM & B Page 5management network It makes sense for firms pursuing either a global or transnationalstrategy Immigration policies of national governments may limit the ability of a firm topursue this policyHR Policy;Human resource policies are systems of codified decisions, established by an organization, tosupport administrative personnel functions, performance management, employee relations andresource planning. Each company has a different set of circumstances, and so develops anindividual set of human resource policies.These activities include: Determining the firms human resource strategy staffing performance evaluation management development compensation labor relationsThe Strategic Role Of International HRM Firms need to ensure there is a fit between their humanresources practices and strategy In order to carry out a strategy effectively, employees need theright training, an appropriate compensation package, and a good performance appraisal systemSmall Business Policy;Marketing Policy;A marketing policy aimed at distribution centers to encourage their promotion of a product orservices to their customers. For example, a pushing policy might be used by an industrial
  • 6. SATYA SM & B Page 6business to market to a distribution channel of wholesalers and retailers to obtain their assistancein getting their customers to buy its product.Financial PolicyMODULE 3STRATEGY FORMULATIONPerforming a situation analysis, self-evaluation and competitor analysis: both internal andexternal; both micro-environmental and macro-environmental.Concurrent with this assessment, objectives are set. These objectives should be parallel toa timeline; some are in the short-term and others on the long-term. This involves craftingvision statements (long term view of a possible future), mission statements (the role thatthe organization gives itself in society), overall corporate objectives (both financial andstrategic), strategic business unit objectives (both financial and strategic), and tacticalobjectives.These objectives should, in the light of the situation analysis, suggest a strategic plan.The plan provides the details of how to achieve these objectives.The following aspects or levels of strategy formulation, each with a different focus, need to bedealt with in the formulation phase of strategic management.Corporate Level Strategy: In this aspect of strategy, we are concerned with broaddecisions about the total organizations scope and direction. Basically, we consider whatchanges should be made in our growth objective and strategy for achieving it, the lines ofbusiness we are in, and how these lines of business fit together. It is useful to think ofthree components of corporate level strategy: (a) growth or directional strategy (whatshould be our growth objective, ranging from retrenchment through stability to varyingdegrees of growth - and how do we accomplish this), (b) portfolio strategy (what shouldbe our portfolio of lines of business, which implicitly requires reconsidering how muchconcentration or diversification we should have), and (c) parenting strategy (how weallocate resources and manage capabilities and activities across the portfolio -- where dowe put special emphasis, and how much do we integrate our various lines of business).Competitive Strategy (often called Business Level Strategy): This involves deciding howthe company will compete within each line of business (LOB) or strategic business unit(SBU).Functional Strategy: These more localized and shorter-horizon strategies deal with howeach functional area and unit will carry out its functional activities to be effective andmaximize resource productivity.Developing Strategic vision and Mission for a company
  • 7. SATYA SM & B Page 7What is a vision?Vision statement provides direction and inspiration for organizational goal setting.Vision is where you see yourself at the end of the horizon OR milestone therein. It is a singlestatement dream OR aspiration. Typically a vision has the flavors of Being Most admired,Among the top league, being known for innovation, being largest and greatest and so on. Involves thinking strategically about Future direction of company Changes in company’s product-market-customer-technology to improve Current market position Future prospectsA strategic vision is a road map showing the route a company intends to take in developing andstrengthening its business. It paints a picture of a company’s destination and provides a rationalefor going there.What is a mission?Mission of an organization is the purpose for which the organization is. Mission is again a singlestatement, and carries the statement in verb. Mission in one way is the road to achieve the vision.For example, for a luxury products company, the vision could be To be among most admiredluxury brands in the world and mission could be To add style to the livesA good mission statement will be:Clear and Crisp: While there are different views, We strongly recommend that missionshould only provide what, and not how and when. We would prefer the mission ofMaking People meet their career to making people meet their career through effectivecareer counseling and education. A mission statement without how & when elementleaves a creative space with the organization to enable them take-up wider strategicchoices.Have to have a very visible linkage to the business goals and strategy: For example youcannot have a mission (for a home furnishing company) of Bringing Style to People’slives while your strategy asks for mass product and selling. Its better that either you startselling high-end products to high value customers, OR change your mission statement toHelp people build homes.
  • 8. SATYA SM & B Page 8Should not be same as the mission of a competing organization. It should touch uponhow its purpose it unique.Mission follows the Vision:The Entire process starting from Vision down to the business objectives is highly iterative. Thequestion is from where should be start. I strongly recommend that mission should follow thevision. This is because the purpose of the organization could change to achieve their vision.Setting Objectives – Purpose of setting objectives Converts vision into specific performance targets Creates yardsticks to track performance Pushes firm to be inventive, intentional, and focused in its actions Setting challenging, achievable objectives guards against Complacency Internal confusion Status quo performance Short-term objectives Targets to be achieved soon Milestones or stair steps for reaching long-range performance Long-term objectives Targets to be achieved within 3 to 5 years Prompt actions now that will permit reaching targeted long-range performancelaterStrategic Objectives and Financial Objectives –STRATEGIC OBJECTIVES:Any objective that is market based is strategic objective. Any objective that can be derived fromfinancial statements is financial objective. Strategic objectives are objectives that set out what thebusiness are trying to achieve. They can set at two levels:Corporate level: These objectives are ones that include the business as a whole. For example,‘Our Company’s top line goal is to increase our annual income by 15% for every year.Functional level: These objectives are set out to improve on an area of assigned responsibilitiesof the chosen division of the business. Additionally the objectives are usually set after thecorporate objectives have been set.FINANCIAL OBJECTIVES:
  • 9. SATYA SM & B Page 9Financial objectives focus on achieving acceptable profitability in a company’s pursuit of itsmission/vision, long-term health, and ultimate survival. Financial objectives signal commitmentto such outcomes as good cash flow, creditworthiness, earnings growth, an acceptable return oninvestment, dividend growth, and stock price appreciation.The following are examples of financial objectives:Growth in revenuesGrowth in earningsWider profit marginsBigger cash flowsHigher returns on invested capitalAttractive economic value added (EVA) performanceAttractive and sustainable increases in market value added (MVA)A more diversified revenue baseBALANCE SCORE CARDThe score card allows managers to evaluate a firm from different complementary perspectives.The arguments run this(i) A firm can offer superior returns to stakeholders if it has a competitive advantage inits product or service offerings when compared to its rivals.(ii) In order to sustain a competitive advantage, a firm must offer superior value tocustomers(iii) this, in turn, requires development of operations with necessary capabilities.(iv) In order to develop the needed operational capabilities, a firm requires the service ofemployees having requisite skills, creativity, diversity and motivations.Four perspectives of the Balanced Scorecard:The Customer’s perspective: Does the firm provide the customer with superior value in terms ofproduct differentiation, low cost and quick response.The operation perspective: How effectively and efficiently do the core processes that producecustomer value perform? Which are the most important sources of customer value, which needimproving to offer greater customer value?The Organizational perspective: Can this firm adapt to changes in its environment? Is itsworkforce committed to shared goals? Does the organization learn from past mistakes? Whenconfronted with a problem, does it go to work on root causes or does it only scratch the surface!The Financial Perspective: Does the firm offer returns in excess of the total cost of capital, assuggested by the economic value added ―To succeed financially, how should we appear to ourshareholders? Is the question to be answered here?COMPANY GOALS:
  • 10. SATYA SM & B Page 10Goals and targets are more precise and expressed in specific terms. They are stated in preciseterms as quantatively as possible. The emphasis in goals is on measurement of progress towardthe attainment of objectives. Goals have the following features, they:i) Are derived from objectivesii) Offer a standard for measuring performanceiii) Are expressed in concrete termsiv) Are time-bound and work-orientedAny company needs solid goals in order to grow the business and reach full potential. If you arelooking to set a few company goals to inspire your employees and make your business moresuccessful, then you are going to need the full cooperation of all the employees involved. Withthe help of everyone at your company, you can set and subsequently reach goals that are made tomake your business more successful and your employees more satisfied and productive. Hereshow.COMPANY PHILOSOPHY:The literature on company philosophy is neither very extensive nor very satisfactory. But onedictionary definition of philosophy does apply: "general laws that furnish the rationalexplanation of anything." In this sense, a company philosophy evolves as a set of laws orguidelines that gradually become established, through trial and error or through leadership, asexpected patterns of behavior. Some typical examples of basic beliefs that serve as guidelines toaction will clarify the concept. Although such basic beliefs inevitably vary from company tocompany, here are five that recurring frequently in the most successful corporations:1. Maintenance of high ethical standards in external and internal relationships is essential tomaximum success.2. Decisions should be based on facts, objectively considered -- what I call the fact-founded,thought-through approach to decision making.3. The business should be kept in adjustment with the forces at work in its environment.4. People should be judged on the basis of their performance, not on personality, education,or personal traits and skills.5. The business should be administered with a sense of competitive urgency.The hierarchy of Strategic Intent –Strategic intent refers to the purposes the organization strives for. These may be expressed interms of a hierarchy of strategic intent. The framework within which firms operate, adopt apredetermined direction and attempt to achieve their goal is provided by a strategic intent. Thehierarchy of strategic intent covers the vision, mission, business definition, business model andthe goals and objectives.
  • 11. SATYA SM & B Page 11Decision criteriaMerging the Strategic Vision Objectives and Strategy into a Strategic PlanA company’s strategic plan lays out its future direction, performance targets, and strategy.Developing a strategic vision, setting objectives and crafting a strategy are basic-direction settingtasks. They map out the company’s direction, its short range and long range performance targets,and the competitive moves and internal action approaches to be used in achieving the targetedbusiness results. Together, they constitute a strategic plan for coping with industry andcompetitive conditions, the expected action of the industry’s key players, and the challenges andissues that stand as obstacles to the company’s success. In companies committed to regularstrategy reviews and the development of explicit strategic plans. The strategic plan may take theform of a written document that is circulated to managers (and perhaps to select employees). Insmall privately owned companies, strategic plan exist mostly in the form of oral understandingsand commitments among managers and key employees about where to head, what to accomplishand how to proceed. Short-term performance targets are the part of the strategic plan most oftenspelled out explicitly and communicated to managers and employees. A number of companiessummarize key elements of their strategic plans in the company’s annual report to shareholders,in postings on their websites, in press releases, or in statements provide to the business media.Other companies, perhaps for reasons of competitive sensitivity, make only vague, generalstatements about their strategic plans that could apply to most any company.Strategic decisions differ from other functions of management as strategic decisions deal withgrowth of an organization (long range focus). Whereas, operational decisions are routine onespertaining to day to day activities and administrative decisions are by and large patterned afterexisting practices in the corporation. In short, strategic planning provides the company with aneasily discernible, clear cut, objective-strategy design which in turn takes the company in therequired direction.
  • 12. SATYA SM & B Page 12Strategic planning is however not a single task, it is an integrated package of several tasks thatare distinct, yet inter-relatedClarifying vision / missionDefining the businessSurveying the environmentInternal appraisal of the firmSetting the corporate objectivesFormulating the corporate / business strategyMonitoring the strategyMODULE 4GENERIC COMPETITIVE STRATEGIESAnalyzing a company’s resources and competitive position –There are five key questions to consider in analyzing a companys own particular competitivecircumstances and its competitive position vis-à-vis key rivals:How well is the present strategy working? This involves evaluating the strategy from aqualitative standpoint (completeness, internal consistency, rationale, and suitability to thesituation) and also from a quantitative standpoint (the strategic and financial results the strategyis producing). The stronger a companys current overall performance, the less likely the need forradical strategy changes. The weaker a companys performance and/or the faster the changes inits external situation (which can be gleaned from industry and competitive analysis), the more itscurrent strategy must be questioned.What are the companys resource strengths and weaknesses, and its external opportunitiesand threats? A SWOT analysis provides an overview of a firms situation and is an essentialcomponent of crafting a strategy tightly matched to the companys situation. The two mostimportant parts of SWOT analysis are (1) drawing conclusions about what story the compilationof strengths, weaknesses, opportunities, and threats tells about the companys overall situation,and (2) acting on those conclusions to better match the companys strategy, to its resourcestrengths and market opportunities, to correct the important weaknesses, and to defend againstexternal threats. A companys resource strengths, competencies, and competitive capabilities arestrategically relevant because they are the most logical and appealing building blocks forstrategy; resource weaknesses are important because they may represent vulnerabilities that needcorrection. External opportunities and threats come into play because a good strategy necessarilyaims at capturing a companys most attractive opportunities and at defending against threats to itswell-being.Are the companys prices and costs competitive? One telling sign of whether a companyssituation is strong or precarious is whether its prices and costs are competitive with those of
  • 13. SATYA SM & B Page 13industry rivals. Value chain analysis and benchmarking are essential tools in determiningwhether the company is performing particular functions and activities cost-effectively, learningwhether its costs are in line with competitors, and deciding which internal activities and businessprocesses need to be scrutinized for improvement. Value chain analysis teaches that howcompetently a company manages its value chain activities relative to rivals is a key to building acompetitive advantage based on either better competencies and competitive capabilities or lowercosts than rivals.Is the company competitively stronger or weaker than key rivals? The key appraisals hereinvolve how the company matches up against key rivals on industry key success factors andother chief determinants of competitive success and whether and why the company has acompetitive advantage or disadvantage. Quantitative competitive strength assessments, using themethod presented in Table 4.4, indicate where a company is competitively strong and weak, andprovide insight into the companys ability to defend or enhance its market position. As a rule acompanys competitive strategy should be built around its competitive strengths and should aimat shoring up areas where it is competitively vulnerable. When a company has importantcompetitive strengths in areas where one or more rivals are weak, it makes sense to consideroffensive moves to exploit rivals competitive weaknesses. When a company has importantcompetitive weaknesses in areas where one or more rivals are strong, it makes sense to considerdefensive moves to curtail its vulnerability.What strategic issues and problems merit front-burner managerial attention? Thisanalytical step zeros in on the strategic issues and problems that stand in the way of thecompanys success. It involves using the results of both industry and competitive analysis andcompany situation analysis to identify a "worry list" of issues to be resolved for the company tobe financially and competitively successful in the years ahead. The worry list always centers onsuch concerns as "how to . . . ," "what to do about . . . ," and "whether to . . ."—the purpose of theworry list is to identify the specific issues/problems that management needs to address. Actualdeciding on a strategy and what specific actions to take is what comes after the list of strategicissues and problems that merit front-burner management attention is developed.Value chain Analysis –Value Chain Analysis describes the activities that take place in a business and relates them to ananalysis of the competitive strength of the business. Influential work by Michael Portersuggested that the activities of a business could be grouped under two headings:(1) Primary Activities - those that are directly concerned with creating and delivering a product(e.g. component assembly); and(2) Support Activities, which whilst they are not directly involved in production, may increaseeffectiveness or efficiency (e.g. human resource management). It is rare for a business toundertake all primary and support activities.
  • 14. SATYA SM & B Page 14Value Chain Analysis is one way of identifying which activities are best undertaken by abusiness and which are best provided by others ("out sourced").Linking Value Chain Analysis to Competitive AdvantageWhat activities a business undertakes is directly linked to achieving competitive advantage. Forexample, a business which wishes to outperform its competitors through differentiating itselfthrough higher quality will have to perform its value chain activities better than the opposition.By contrast, a strategy based on seeking cost leadership will require a reduction in the costsassociated with the value chain activities, or a reduction in the total amount of resources used.Bench marking;Strategic benchmarking looks at what other companies are doing in terms of top managementcapabilities, strategic initiatives, competitive product development and other long-term qualitiesand processes that have proved successful. Determining what a company is doing strategically issometimes easier than trying to learn how they manage individual procedures. Top managementcapabilities are often evident in the operations of the company. Leaders that are savvy in terms oftechnology tend to implement technology-rich processes. Strategic direction can be found inannual reports, if the company is public. Selecting a company to study that is not a directcompetitor makes it easier to approach management and ask for advice and information on howthe company built its successGeneric Competitive Strategies:-Low cost,• An integrated set of actions taken to produce goods or services with features that areacceptable to customers at the lowest cost, relative to that of competitors with featuresthat are acceptable to customers– Relatively standardized products– Features acceptable to many customers– Lowest competitive price• Cost saving actions required by this strategy:– Building efficient scale facilities– Tightly controlling production costs and overhead– Minimizing costs of sales, R&D and service– Building efficient manufacturing facilities– Monitoring costs of activities provided by outsiders– Simplifying production processes
  • 15. SATYA SM & B Page 15DifferentiationApproach under which a firm aims to develop and market unique products for different customersegments. Usually employed where a firm has clear competitive advantages, and can sustain anexpensive advertising campaign. It is one of three generic marketing strategies (see focusstrategy and low cost strategy for the other two) that can be adopted by any firm. See alsosegmentation strategiesBest cost,This strategy tells that the organization can gain competitive advantages (advantages over andabove our competitors) by offering a product with higher attributes/ facilities/ additional features(NOT a Basic product) at a lower price compared to its competitors.Higher Attributes + Low Price = Best Cost Provider StrategyEx – One of the best examples would be Toyota Lexus. Toyota had been doing variousresearches and experiments on producing a Luxury vehicle which can outperform Benz, BMW,Cadillac and Volvo. (A vehicle with higher attributes/ features than Benz, BMW) So the ultimateresult was the introduction of Lexus. But the main important thing was that they could sell thisLuxury Vehicle at a lower price compared to its main competitors Benz and BMW. This ismainly due to their Lean Management (Keeping wastage at the minimum level and increase theefficiency)Toyota has been recognized as the best company for practicing Lean Management atthe best possible level. According to ToyotaPerformance of Lexus = Performance of BMW 5 series car but the price of Lexus = BMW 3series car price.In this example the strategy was to offer a product with high attributes at a lower price (Lexus) -Low Cost Provider StrategyUltimate result was the advantage achieved by Toyota over and above its competitors -BMW,BenzFocused StrategiesA marketing strategy in which a company concentrates its resources on entering or expanding ina narrow market or industry segment A focus strategy is usually employed where the companyknows its segment and has products to competitively satisfy its needs. Focus strategy is one ofthree generic marketing strategies. See differentiation strategy and low cost strategy for the othertwo.
  • 16. SATYA SM & B Page 16Strategic alliances,An arrangement between two companies that have decided to share resources to undertake aspecific, mutually beneficial project A strategic alliance is less involved and less permanent thana joint venture, in which two companies typically pool resources to create a separate businessentity. In a strategic alliance, each company maintains its autonomy while gaining a newopportunity. A strategic alliance could help a company develop a more effective process, expandinto a new market or develop an advantage over a competitor, among other possibilities.Collaborative partnerships,Collaboration is working with each other to do a task.[1] It is a recursive[2] process where two ormore people or organizations work together to realize shared goals, (this is more than theintersection of common goals seen in co-operative ventures, but a deep, collective, determinationto reach an identical objectiveCollaborative partnerships (people and organizations from multiple sectors working together incommon purpose) are a prominent strategy for community health improvement. This reviewexamines evidence about the effects of collaborative partnerships on (a) community and systemschange (environmental changes), (b) community-wide behavior change, and (c) more distantpopulation-level health outcomes. We also consider the conditions and factors that maydetermine whether collaborative partnerships are effective.A partnership between two or more people that gives structure and organization for planning,thinking, and working together to accomplish a common goal. The only question that remains is,what partnership isnt considered collaborative?Mergers and acquisition,Mergers and acquisitions (abbreviated M&A) is an aspect of corporate strategy, corporatefinance and management dealing with the buying, selling, dividing and combining of differentcompanies and similar entities that can help an enterprise grow rapidly in its sector or location oforigin, or a new field or new location, without creating a subsidiary, other child entity or using ajoint venture. The distinction between a "merger" and an "acquisition" has become increasinglyblurred in various respects (particularly in terms of the ultimate economic outcome), although ithas not completely disappeared in all situations.Joint Ventures StrategiesA business agreement between two different companies to work together to achieve specificgoals Unlike a merger or acquisition, a strategic joint venture does not have to be permanent, andit offers companies the benefits of maintaining their independence and identities as individualcompanies while offsetting one or more weaknesses with another companys strengths.
  • 17. SATYA SM & B Page 17Outsourcing Strategies-Strategic outsourcing is the process of engaging the services of a provider to manage essentialtasks that would otherwise be managed by in-house personnel. This is often done to allow abusiness to arrange the use of its assets to best advantage, and allow the company to move closerto the achievement of its goals. An outsourcing strategy of this type may be employed bybusinesses and other organizations of any size, and normally helps to reduce the cost ofoperations as well as allow available resources to be allocated to the other necessary functionsthat are still managed within the organization proper.International Business level strategies• An integrated and coordinated set of commitments and actions the firm uses to gain acompetitive advantage by exploiting core competencies in specific product markets
  • 18. SATYA SM & B Page 18MODULE 5FORMULATING LONG-TERM AND GRAND STRATEGIESTailoring Strategy to fit specific Industry and company situation – long term objectives forGrand StrategiesThe company mission encompasses the broad aims of the firm.The most specific statement of aims presented in the mission appeared as the goals of the firm.However, those goals, which commonly dealt with profitability, growth, and survival, werestated without specific targets or time frames.They were always to be pursued but could never be fully attained.They gave a general sense of direction but were not intended to provide specific benchmarks forevaluating the firm’s progress in achieving its aims.Providing such benchmarks is the function of objectives.Tailoring Strategy to fit specific Industry and company situation – long term objectives forGrand Strategies- Innovation, Integration and diversification – Conglomerate Diversification,Retrenchment, Restructuring and turnaround –Long-term objectivesStrategic managers recognize that short-run profit maximization is rarely the best approach toachieving sustained corporate growth and profitability.To achieve long-term prosperity, strategic planners commonly establish long-term objectives inseven areas: Profitability The ability of any firm to operate in the long run depends on attaining anacceptable level of profits. Strategically managed firms characteristically have a profitobjective, usually expressed in earnings per share or return on equity. Productivity Strategic managers constantly try to improve the productivity of theirsystems Firms that can improve the input-output relationship normally increaseprofitability. Thus, firms almost always state an objective for productivity. Commonlyused productivity objectives are the number of items produced or the number of servicesrendered per unit of input. However, productivity objectives are sometimes stated interms desired cost decreases. For example, objectives may be set for reducing defectiveitems, customer complaints leading to litigation, or overtime. Achieving such objectivesincreases profitability if unit output is maintained. Competitive Position One measure of corporate success is relative dominance in themarketplace Larger firms often establish an objective in terms of competitive position,
  • 19. SATYA SM & B Page 19often using total sales or market share as measures of their competitive position. Anobjective with regard to competitive position may indicate a firm’s long-term priorities.For example, Gulf Oil set a five-year objective of moving from third to second place as aproducer of high-density polypropylene. Total sales were the measure. Employee Development Employees value growth and career opportunities. Providingsuch opportunities, often increases productivity and decreases turnover. Therefore,strategic decision makers frequently include an employee development objective in theirlong- range plans. For example. A company can declare an objective of developing ahighly skilled and flexible employees and thus providing steady employment for areduced number of workers. Employee Relations Whether or not they are bound by union contracts, firms activelyseek good employee relations. In fact, proactive steps in anticipation of employee needsand expectations are a characteristic concern of strategic managers. Strategic managersbelieve that productivity is linked to employee loyalty and perceived managementinterest in workers’ welfare. They therefore set objectives to improve employee relations.Among the outgrowths of such objectives are safety programes, worker representation onmanagement committees, and employee stock option plans. Technological Leadership Firms must decide whether to lead or follow in themarketplace. Approach can be successful, but each requires a different strategic postureTherefore, many firms state an objective with regard to technological leadership. Forexample, Caterpillar Tractor Company established its early reputation and dominantposition in its industry by being in the forefront of technological innovation in themanufacture of large earthmovers. Public Responsibility Firms recognize their responsibilities to their customers and tosociety at large. In fact, many firms seek to exceed the demands made by government.They work not only to develop reputations for fairly priced products and services but alsoto establish themselves as responsible corporate citizens. For example, they may establishobjectives for charitable and educational contributions, minority training, public orpolitical activity, community welfare, or urban renewal.Qualities of Long-Term ObjectivesWhat distinguishes a good objective from a bad one? What qualities of an objective improve itschances of being attained?Perhaps these questions are best answered in relation to seven criteria that should be used inpreparing long-term objectives:1. Acceptable,2. Flexible,3. Measurable over time,4. Motivating,5. Suitable,
  • 20. SATYA SM & B Page 206. Understandable,7. Achievable.FORMULATION OF GRAND STRATEGIESThese provide a comprehensive general approach guiding major actions designed to accomplishthe firm’s long-term objectives.GENERIC STRAGEGIESMany planning experts believe that the general philosophy of doing business declared by thefirm in the mission statement must be translated into a holistic statement of the firm’s strategicorientation before it can be further defined in terms of a specific long-term strategy.In other words, a long-term or grand strategy must be based on a core idea about how the firmcan best compete in the marketplace.The popular term for this core idea is generic strategy. From a scheme developed by MichaelPorter, many planners believe that any long-term strategy should derive from a firm’s attempt toseek a competitive advantage based on one of three generic strategies:1. Striving for overall low-cost leadership in the industry.2. Striving to create and market unique products for varied customer groups throughdifferentiation.3. Striving to have special appeal to one or more groups of consumer or industrial buyers,focusing on their cost or differentiation concerns.GRAND STRATEGIESWhile the need for firms to develop generic strategies remains an unresolved debate, designers ofplanning systems agree about the critical role of grand strategies. Grand strategies, often calledmaster or business strategies provide basic direction for strategic actions. They are the basis ofcoordinated and sustained efforts directed toward achieving long-term business objectives.Grand strategies indicate how long-range objectives will be achieved. Thus, a grand strategycan be defined as a comprehensive general approach that guides a firm’s major actions. Any oneof these strategies could serve as the basis for achieving the major long-term objectives of asingle firmInnovation
  • 21. SATYA SM & B Page 21An innovation strategy involves new processes, business ideas, and more basic R&D than isusually associated with a product development strategy. Innovation is usually paired with otherstrategies as a supporting or complementary strategyIntegrationThese are two typesHorizontal IntegrationThis strategy focuses on mergers or acquisitions in the same industry. This strategy will usuallyincrease a firms market share and it helps the firm gain relevant knowledge and expertise.Horizontal integration strategy can support a concentrated growth or market developmentstrategy.Vertical IntegrationVertical integration is a grand strategy that involves acquiring either suppliers or customers.The transaction may involve stock purchase, buying assets, or stock swap. Backward verticalintegration involves acquiring a firm at an earlier stage of the value chain. Forward integrationinvolves acquiring a firm at a later stage in the value chain. This strategy can result in control ofmore value chain activities. For example, backward vertical integration may insure control ofsources of supply. Forward integration enables an organization to obtain increased control overits distributors or retailers. It can be implemented when the distribution of an organization iscostly, distributors are unreliable. When an organization is not able to avail the advantage ofcompetition due to lack of quality distributionCentric DiversificationA diversification strategic thrust involves acquiring related or unrelated businesses, and in somecases major new product line development programs. Concentric diversification focuses oncreating a portfolio of related business. The portfolio is usually developed by acquisition ratherthan by internal new business creation. Product-market synergies are a major issue in creatingthe portfolios of SBUs. This strategy focuses on expansion in the same industry or area oftechnical know howConglomerate DiversificationThis strategy focuses on expansion through new products and new markets.Conglomerate diversification involves acquiring a portfolio of businesses based on financialperformance criteria. Product-market synergies are not an issue.It can be implemented:
  • 22. SATYA SM & B Page 22 When basic industry of an organization is facing a downfall in annual sales and profit. When an organization has the opportunity to purchase an unrelated business that lookslike an attractive investment. When there is a financial synergy between acquired and acquiring organization. When existing markets are saturatedRetrenchment,Retrenchment is a corporate level strategy that aims to reduce the size or diversity of anorganization. Retrenchment is also reduction in expenditure to become financially stable.Retrenchment strategy is a strategy used by corporates in order to reduce the diversity or to cutthe overall size of the operations of the company. This strategy is often used to cut downexpenses with the goal of becoming more financially stable business. Typically the strategyinvolves withdrawing from certain markets or the discontinuation of selling certain products orservices in order to make a beneficial turn around.Retirement is one of the retrenchment strategy. It is a point where a person stops employmentcompletely. A person may also semi retire by reducing work hours. Many people choose to retirewhen they are eligible for private or public pension benefits, although some are forced to retirewhen physical conditions do not allow them to work anymore.TurnaroundTurnaround management is a process dedicated to corporate renewal. It uses analysis andplanning to save troubled companies and returns them to solvency. Turnaround managementinvolves management review, activity based costing, root failure causes analysis, and SWOTanalysis to determine why the company is failing. Once analysis is completed, a long termstrategic plan and restructuring plan are created. These plans may or may not involve abankruptcy filing. Once approved, turnaround professionals begin to implement the plan,continually reviewing its progress and make changes to the plan as needed to ensure thecompany returns to solvency.GE nine cell planning grid and BCG MatrixGeneral Electric with the assistance of McKinsey and Company developed this matrix.• This matrix includes 9 cells based on long-term industry attractiveness (on Y-axis) andbusiness strength/competitive position (on X-axis).• The industry attractiveness includes Market size, Market growth rate, Market profitability,Pricing trends, Competitive intensity / rivalry, Overall risk of returns in the industry, Entrybarriers, Opportunity to differentiate products and services, Demand variability, Segmentation,Distribution structure, Technology development
  • 23. SATYA SM & B Page 23• Business strength and competitive position includes Strength of assets and competencies,Relative brand strength (marketing),Market share, Market share growth, Customer loyalty,Relative cost position (cost structure compared with competitors), Relative profit margins(compared to competitors), Distribution strength and production capacity, Record oftechnological or other innovation, Quality, Access to financial and other investment resources,Management strength