STRATEGIC MANAGEMENT
Course Code: MGT: 512
Lectures delivered by:
Prof. Dr. Ravi Raj Kumar
Strategy refers to the
„plan or course of
action‟ framed or
formulated to achieve
a specified objective
or goal.
A compreh...
STRATEGY: SOME VIEWS !
A combination of the ends (goals) for which
the firm is striving and the means (policies)
by which ...
ETYMOLOGY OF „STRATEGY‟
Derived from the Greek
Word “Strategia”
meaning „generalship‟ ,
„office of command‟
Greek Word “St...
EARLY TEXTS ON STRATEGY
The famous Chinese
Philosopher Sun Tzu‟s
“The Art of War”
written in the
6th century B.C.
The famous Indian
Guru Chanakya‟s
“Arthasastra” written
in the 4th century B.C.
EARLY TEXTS ON STRATEGY
continued……
The notorious Italian
Niccolo Machiavelli‟s
“The Prince”
“The Discourses” &
“The Art of War”
written in the
16th century A...
STRATEGIC MANAGEMENT
“It is the set of managerial decisions and
actions that determines the long-run
performance of an org...
VISION:
Defines the way an
organization or
enterprise will look
in the future.
Vision is a long-term view, sometimes
descr...
MISSION/MISSION STATEMENT
In general, an organization‟s mission
indicates its activities including its
production and the ...
VALUES:
Beliefs that are shared among the
stakeholders of an organization.
Values drive an organization's culture and
prio...
OBJECTIVE/GOAL
It is the desired outcome expected by the firm.
Objectives must be clear, specific and realistic.
Effective...
SOME CORE CONCEPTS OF SM
STRATEGY:
It is a broad plan of action, by the
implementation of which the company
achieves its g...
TACTIC:
It is a course of action
more specific and detailed
than a strategy and
covering a shorter time
period than a stra...
OPPORTUNITIES:
Positive external environmental factors
which the organization can exploit to its
advantage.
THREATS:
Negat...
STRENGTHS:
Internal Resources that are available to the
organization. Even the things that an
organization does better can...
CORE
COMPETENCY:
Any of the strengths representing unique
skills or resources that can determine the
organization‟s compet...
Competitive advantage is defined as
the strategic advantage one business
entity has over its rival entities within
its com...
STRATEGIC PLANNING
Strategic planning is an organization's
process of defining, often in hyperbolic
terms, its strategy, o...
Strategic planning is the formal
consideration of an organization's future
course. All strategic planning deals with at
le...
In business strategic planning, some authors
phrase the third question as
"How can we beat or avoid competition?"
But this...
While strategic planning may be used to
effectively plot a company's longer-term
direction, one cannot use it to reliably
...
THE STRATEGY HIERARCHY
CORPORATE
STRATEGY
BUSINESS
STRATEGY
FUNCTIONAL
STRATEGY
OPERATIONAL
STRATEGY
Framed & Formulated
b...
THE STRATEGY HIERARCHY
Corporate Strategy
It refers to the overarching strategy of the
diversified firm. A corporate strat...
Functional strategy
It is an attempt of each department to do its part in
meeting the overall corporate objectives. The
em...
Identification
of the
Organization’s
Current
mission,
objectives and
strategies
Reassessment
of
Organization’s
Mission and...
STRATEGIC MANAGEMENT (redefined…)
“Strategic management is an ongoing process
that evaluates and controls the business and...
DEVELOPMENT
OF STRATEGIC
VISION &
MISSION
STATEMENTS
SETTING OF
OBJECTIVES
(LONG
TERM)
GENERATION
OF
STRATEGIES
IMPLEMENTA...
PLANNED
STRATEGY
REALIZED
STRATEGY
UNREALIZED
STRATEGY
EMERGENT
STRATEGY
DELIBERATE STRATEGY
UNPREDICTED C
H
A
N
G
E
UNPLA...
Forecasting techniques used in strategic planning:
SWOT analysis (Strengths, Weaknesses, Opportunities,
and Threats )
PEST...
SCENARIO PLANNING
Identify
different
possible
futures
Formulate
Plans to deal
with those
futures
Invest in
one plan
but……
...
DECENTRALIZED PLANNING
Strategic Planning often fails because executives do
not plan for uncertainty and ivory tower plann...
SEVEN CHARACTERISTICS OF EFFECTIVE STRATEGIC
LEADERSHIP
* VISION, ELOQUENCE, & CONSISTENCY
* ARTICULATION OF BUSINESS MODE...
SWOT LANDSCAPE ANALYSIS
factors and provides an interactive,
query-able 3D landscape.
The SWOT-landscape grabs different
managerial situations by ...
OTHER USEFUL MODELS
Porter's Four Corners Model
It is a predictive tool designed by Michael
Porter that helps in determini...
COMPETITOR‟S
MOTIVATION: DRIVERS
MOTIVATION: MANAGEMENT ASSUMPTIONS
ACTIONS:
STRATEGY
ACTIONS:
CAPABILITIES
Porter's Four ...
The Four Corners Model
Motivation – drivers
This helps in determining the competitor's
action by understanding their goals...
The Four Corners Model
Actions – Strategy
A competitor's strategy determines how it
competes in the market. However, there...
framework for industry analysis and
business strategy development.
It draws upon Industrial Organization
economics to deri...
PORTER‟S FIVE FORCES MODEL
SIX FORCES MODELAn extension to Porter's Five Forces
Model, it is a market opportunities
analysis model more robust than a...
approach to Strategic management.
Compared to a philosophical focus on
the characteristics of a product
(product economics...
Haxioms of Delta Model
1. The center of the strategy is
the customer
He is the driving force for all
actions .
2. You don'...
It is a tool for analyzing the
organizations task environment & states
that strategic choices should not only be
a functio...
THE NATIONAL DIAMOND
context of business management. VRIO is
an acronym for the four question about
a resource/capability to determine its
comp...
VALUE CHAIN ANALYSIS
First described & popularized by
Michael Porter in 1985, a value chain
is a chain of activities for a firm.
Products pass ...
assumptions the seven main
elements of strategic management
theory are:
•Strategic management involves
adapting the organi...
Continuation of Chaffee’s
Assumptions:
•Strategic management involves both
strategy formation (referred to as
content) and...
COMPETITIVE
ADVANTAGE
* LOW COST
* DIFFERENTIATION
SUPERIOR
QUALITY
SUPERIOR
CUSTOMER
RESPONSIVENESS
SUPERIOR
INNOVATION
S...
COMPETITIVE ADVANTAGE & SUPERIOR PROFITABILITY
Company’s Business Model that
utilizes its Distinctive
Competencies to diff...
INTEGRATION STRATEGIES
* FORWARD INTEGRATION
Control over Retailers, Distributors, Wholesalers
* BACKWARD INTEGRATION
Cont...
INTENSIVE STRATEGIES
MARKET
PENETRATION
PRODUCT
DEVELOPMENT
MARKET
DEVELOPMENT
DIVERSIFICATION
Present New
Products Produc...
DIVERSIFICATION STRATEGIES
CONCENTRIC
DIVERSIFICATION
HORIZONTAL
DIVERSIFICATION
X CONGLOMERATE
DIVERSIFICATION
Related Un...
DEFENSIVE STRATEGIES
* RETRENCHMENT
Reduction in Cost and Asset
* DIVESTITURE
Disposing of a firm’s division or part
* LIQ...
RED OCEAN & BLUE OCEAN
STRATEGIES
Red Oceans are all the industries in existence today—the
known market space. In the red ...
RED OCEAN & BLUE OCEAN STRATEGIES
Blue oceans denote all the industries not in existence today—the
unknown market space, u...
The corner-stone of Blue Ocean Strategy is 'Value
Innovation'. A blue ocean is created when a company
achieves value innov...
HOW TO ACHIEVE THE
STRATEGIES
* First Mover Advantage
* Out Sourcing
* Joint Venture/Partnership
* Merger
* Acquisition
* ...
THE INPUT
STAGE
THE
MATCHING
STAGE
THE
DECISION
STAGE
STRATEGY FORMULATION
ANALYTICAL FRAMEWORK
PORTER‟S FIVE GENERIC
STRATEGIES
COST LEADERSHIP DIFFERENTIATION FOCUS
LOW COST – Type I
BEST VALUE – Type II
PRODUCT/SERV...
STRENGTHS - S WEAKNESSES - W
OPPORTUNITIES- O STRENGTH-
OPPORTUNITIES (SO)
STRATEGIES
WEAKNESS-OPPORTUNITIES
(WO)
STRATEGI...
CONSERVATIVE
STRATEGY
AGGRESSIVE STRATEGY
DEFENSIVE STRATEGY COMPETITIVE
STRATEGY
STRATEGIC POSITION & ACTION
EVALUATION (...
THE EXTERNAL FACTOR
EVALUATION (EFE) MATRIX
A significant Strategic Tool/Instrument utilized to identify
and assess an org...
THE INTERNAL FACTOR
EVALUATION (IFE) MATRIX
A significant Strategic Tool/Instrument utilized to identify
and assess the st...
THE COMPETITIVE PROFILE
MATRIX (CPM)
A significant Strategic Tool utilized to identify an
organization’s major competitors...
Johnson, Scholes and Whittington present a model in
which strategic options are evaluated against three key
success criter...
SUITABILITY
Suitability deals with the overall rationale of the strategy.
The key point to consider is whether the strateg...
FEASIBILITY
Feasibility is concerned with whether the resources required to
implement the strategy are available, can be d...
ACCEPTABILITY
Acceptability is concerned with the expectations of the identified
stakeholders (mainly shareholders, employ...
•The Industrial Organizational Approach
based on economic theory — deals with issues like
competitive rivalry, resource al...
Strategic management techniques can be viewed as bottom-up,
top-down, or collaborative processes.
In the bottom-up approac...
REASONS WHY STRATEGIC PLANS
FAIL
•Failure to execute by overcoming the four key
organizational hurdles
Cognitive hurdle
Mo...
REASONS WHY STRATEGIC PLANS
FAIL
•Failure to understand the customer
Why do they buy
Is there a real need for the product
...
REASONS WHY STRATEGIC PLANS FAIL
•Over-estimation of resource competence
Can the staff, equipment, and processes handle th...
REASONS WHY STRATEGIC PLANS FAIL
•Failure to obtain employee commitment
New strategy not well explained to employees
No in...
REASONS WHY STRATEGIC PLANS FAIL
•Failure to manage change
Inadequate understanding of internal resistance to
change
Lack ...
INTERNATIONAL STRATEGIC
MANAGEMENT
An ongoing management planning process aimed at developing
strategies to allow an organ...
INTERNATIONAL STRATEGIC
MANAGEMENT
When an organization moves from being a domestic entity to an
international organizatio...
INTERNATIONAL STRATEGIC
MANAGEMENT
Factors that can influence international strategies:
•local languages required in many ...
INTERNATIONAL STRATEGIC
MANAGEMENT
Factors that can influence international strategies (cont..):
•problems & exorbitant co...
To operate outside national borders, firms must be ready to
incorporate international considerations into their thinking
a...
PROBLEMS OF GLOBAL BUSINESS
* Deals might have to be transacted in foreign languages
and under foreign laws, customs and r...
PROBLEMS OF GLOBAL BUSINESS
cont…
•Risk levels are higher in foreign markets. The risk include
political risks, commercial...
MODES OF GLOBAL BUSINESS
•Import/export of commodities & manufactured goods
•investment of capital in manufacturing, extra...
DIMENSIONS OF GLOBAL
BUSINESS
* Technological Impacts:
* Functional impact
* Competitive Impacts
* Environmental Impacts
*...
Technological Impacts: Better/Innovative Products,
Better Techniques, Shorter Life Cycles
Economic Impacts: Economic Struc...
REASONS WHY CORPORATIONS
GLOBALIZE
•They can reduce their sourcing and distribution costs
compared to national businesses
...
•They can penetrate markets throughout the world
from supply points in several different countries,
supplemented perhaps b...
FACTORS WHICH COMPEL
GLOBALIZATION
Organizations decide to globalize on account of the
following two sets of organizationa...
TYPES OF GLOBAL
STRATEGIES
• Wholly owned foreign subsidiary
• Joint Ventures
• Fade-Out Agreements
• Portfolio Investment...
THE END !
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Strategic management (1)

  1. 1. STRATEGIC MANAGEMENT Course Code: MGT: 512 Lectures delivered by: Prof. Dr. Ravi Raj Kumar
  2. 2. Strategy refers to the „plan or course of action‟ framed or formulated to achieve a specified objective or goal. A comprehensive way to try to pursue certain ends.
  3. 3. STRATEGY: SOME VIEWS ! A combination of the ends (goals) for which the firm is striving and the means (policies) by which it is seeking to get there. A strategy is sometimes called a roadmap which is the path chosen to plow towards the end vision. The most important part of implementing the strategy is ensuring the company is going in the right direction which is towards the end vision.
  4. 4. ETYMOLOGY OF „STRATEGY‟ Derived from the Greek Word “Strategia” meaning „generalship‟ , „office of command‟ Greek Word “Strategos” (compound of „Stratos‟ which means „army‟ & „ago‟ which means „to lead‟) meaning „leader or commander of an army‟
  5. 5. EARLY TEXTS ON STRATEGY The famous Chinese Philosopher Sun Tzu‟s “The Art of War” written in the 6th century B.C.
  6. 6. The famous Indian Guru Chanakya‟s “Arthasastra” written in the 4th century B.C. EARLY TEXTS ON STRATEGY continued……
  7. 7. The notorious Italian Niccolo Machiavelli‟s “The Prince” “The Discourses” & “The Art of War” written in the 16th century A.D. EARLY TEXTS ON STRATEGY continued……
  8. 8. STRATEGIC MANAGEMENT “It is the set of managerial decisions and actions that determines the long-run performance of an organization” “It is the process of developing a systematic means of analyzing the environment, assessing the organization‟s strengths and weaknesses, and identifying opportunities where the organization could have a competitive advantage”
  9. 9. VISION: Defines the way an organization or enterprise will look in the future. Vision is a long-term view, sometimes describing how the organization would like the world to be in which it operates. SOME CORE CONCEPTS OF SM
  10. 10. MISSION/MISSION STATEMENT In general, an organization‟s mission indicates its activities including its production and the satisfaction that it offers to the customer through its products. Mission statement indicates the purpose of the organization‟s existence, and specifies the boundaries of an organization‟s activities. It answers the question: “What business are we in ?” SOME CORE CONCEPTS OF SM
  11. 11. VALUES: Beliefs that are shared among the stakeholders of an organization. Values drive an organization's culture and priorities and provide a framework in which decisions are made. SOME CORE CONCEPTS OF SM
  12. 12. OBJECTIVE/GOAL It is the desired outcome expected by the firm. Objectives must be clear, specific and realistic. Effective planning should begin with a set of objectives that are to be accomplished by carrying out certain plans. It should answer the question: “What do we want to accomplish ?” SOME CORE CONCEPTS OF SM
  13. 13. SOME CORE CONCEPTS OF SM STRATEGY: It is a broad plan of action, by the implementation of which the company achieves its goals. It answers to: In general terms, how are we going to accomplish our goals ?
  14. 14. TACTIC: It is a course of action more specific and detailed than a strategy and covering a shorter time period than a strategy. It answers to: “In specific terms, how are we going to accomplish our goals ?” SOME CORE CONCEPTS OF SM
  15. 15. OPPORTUNITIES: Positive external environmental factors which the organization can exploit to its advantage. THREATS: Negative external environmental factors that the organization can face, and which need to be removed or avoided. SOME CORE CONCEPTS OF SM
  16. 16. STRENGTHS: Internal Resources that are available to the organization. Even the things that an organization does better can be its strengths. WEAKNESSES: Resources that an organization lacks or activities in which it is not efficient. SOME CORE CONCEPTS OF SM
  17. 17. CORE COMPETENCY: Any of the strengths representing unique skills or resources that can determine the organization‟s competitive edge SOME CORE CONCEPTS OF SM
  18. 18. Competitive advantage is defined as the strategic advantage one business entity has over its rival entities within its competitive industry. Achieving competitive advantage strengthens and positions a business better within the business environment. COMPETITIVE ADVANTAGE
  19. 19. STRATEGIC PLANNING Strategic planning is an organization's process of defining, often in hyperbolic terms, its strategy, or direction, and making decisions on allocating its resources to pursue this strategy, including its capital and people.
  20. 20. Strategic planning is the formal consideration of an organization's future course. All strategic planning deals with at least one of three key questions: "What do we do?" "For whom do we do it?" "How do we excel?" STRATEGIC PLANNING
  21. 21. In business strategic planning, some authors phrase the third question as "How can we beat or avoid competition?" But this approach is more about defeating competitors than about excelling. In order to determine where it is going, the organization needs to know exactly where it stands, then determine where it wants to go and how it will get there. The resulting document is called the "strategic plan." STRATEGIC PLANNING
  22. 22. While strategic planning may be used to effectively plot a company's longer-term direction, one cannot use it to reliably forecast how the market will evolve and what issues will surface in the immediate future. Therefore, strategic innovation and tinkering with the "strategic plan" have to be a cornerstone strategy for an organization to survive the turbulent business climate. STRATEGIC PLANNING
  23. 23. THE STRATEGY HIERARCHY CORPORATE STRATEGY BUSINESS STRATEGY FUNCTIONAL STRATEGY OPERATIONAL STRATEGY Framed & Formulated by: Corporate Managers Business Managers Functional Managers Operational Managers
  24. 24. THE STRATEGY HIERARCHY Corporate Strategy It refers to the overarching strategy of the diversified firm. A corporate strategy answers the questions: "which businesses should we be in?" and "how does being in these businesses create synergy and/or add to the competitive advantage of the corporation as a whole?" Business Strategy It refers to the aggregated strategies of single business firm or a strategic business unit (SBU) in a diversified corporation. A business strategy incorporates either cost leadership, differentiation, or focus to achieve a sustainable competitive advantage
  25. 25. Functional strategy It is an attempt of each department to do its part in meeting the overall corporate objectives. The emphasis is on short and medium term plans and is limited to the domain of each department’s functional responsibility. Marketing strategies, new product development strategies, human resource strategies, financial strategies, legal strategies, and supply-chain strategies are some of the functional strategies. Operational strategy Encouraged by Peter Drucker in his theory of management by objectives (MBO), it is a very narrow focused strategy that deals with day-to-day operational activities such as scheduling criteria. THE STRATEGY HIERARCHY cont..
  26. 26. Identification of the Organization’s Current mission, objectives and strategies Reassessment of Organization’s Mission and Objectives Formulation & Implementation of the Strategies Evaluation of the Results SWOT ANALYSIS SWOT ANALYSIS Analysis of the Environment Identification of Opportunities & Threats Identification of Organization’s Strengths & Weaknesses Analysis of the Organization’s resources STRATEGIES DEVELOPMENT, IMPLEMENTATION & ASSESSMENT PROCESS
  27. 27. STRATEGIC MANAGEMENT (redefined…) “Strategic management is an ongoing process that evaluates and controls the business and the industries in which the company is involved; assesses its competitors and sets goals and strategies to meet all existing and potential competitors; and then reassesses each strategy regularly to determine how it has been implemented and whether it has succeeded or needs replacement by a new strategy to meet changed circumstances, new technology, new competitors, a new economic environment, or a new social, financial, or political environment.”
  28. 28. DEVELOPMENT OF STRATEGIC VISION & MISSION STATEMENTS SETTING OF OBJECTIVES (LONG TERM) GENERATION OF STRATEGIES IMPLEMENTATION OF STRATEGIES (MANAGERIAL, MARKETING, PRODUCTION, FINANCIAL, HR,) EVALUATION OF OUTCOME INTERNAL FACTOR EVALUATION (IFE) THE STRATEGIC MANAGEMENT MODEL EXECUTION OF REMEDIAL MEASURES EXTERNAL FACTOR EVALUATION (EFE) S W O T
  29. 29. PLANNED STRATEGY REALIZED STRATEGY UNREALIZED STRATEGY EMERGENT STRATEGY DELIBERATE STRATEGY UNPREDICTED C H A N G E UNPLANNED SHIFT BY TOP LEVEL MANAGERS AUTONOMOUS ACTION BY LOWER LEVEL MANAGERSSERENDIPITY WASTE BASKET Henry Mintzberg’s Model of Strategy Development
  30. 30. Forecasting techniques used in strategic planning: SWOT analysis (Strengths, Weaknesses, Opportunities, and Threats ) PEST analysis (Political, Economic, Social, and Technological) PESTEL analysis (Political, Economic, Social, and Technological , Ethics, and Legal) STEER analysis (Socio-cultural, Technological, Economic, Ecological, and Regulatory factors) EPISTEL analysis (Environment, Political, Informatic, Social, Technological, Economic and Legal) STEEPLED analysis (Social, Technological, Ethics, Environmental, Political, Legal, Economic, and Demographics
  31. 31. SCENARIO PLANNING Identify different possible futures Formulate Plans to deal with those futures Invest in one plan but…… Hedge your bets by preparing for other scenarios Switch Strategy if tracking of signposts shows alternative scenarios becoming more likely The process of formulating Strategies based on what-if scenarios about the future.
  32. 32. DECENTRALIZED PLANNING Strategic Planning often fails because executives do not plan for uncertainty and ivory tower planners lose touch with operating realities. Successful Strategic Planning should encompass managers at all levels of the corporation. Much of the best planning can and should be undertaken by business level managers and/or functional level managers who are closest to real life scenario.
  33. 33. SEVEN CHARACTERISTICS OF EFFECTIVE STRATEGIC LEADERSHIP * VISION, ELOQUENCE, & CONSISTENCY * ARTICULATION OF BUSINESS MODEL * COMMITMENT * BEING WELL INFORMED * WILLINGNESS TO DELEGATE & EMPOWER * ASTUTE USE OF POWER * EMOTIONAL INTELLIGENCE
  34. 34. SWOT LANDSCAPE ANALYSIS
  35. 35. factors and provides an interactive, query-able 3D landscape. The SWOT-landscape grabs different managerial situations by visualizing and foreseeing the dynamic performance of comparable objects. Changes in relative performance are continually identified. Projects that could be potential risk or opportunity objects are highlighted. SWOT-landscape also indicates which underlying strength/weakness factors that have had or likely will
  36. 36. OTHER USEFUL MODELS Porter's Four Corners Model It is a predictive tool designed by Michael Porter that helps in determining a competitor‟s course of action. Unlike other predictive models, this calls for an understanding of what motivates the competitor. This added dimension of understanding a competitor's internal culture, value system, mindset and assumptions help in determining a much more accurate and realistic reading of a competitor‟s possible
  37. 37. COMPETITOR‟S MOTIVATION: DRIVERS MOTIVATION: MANAGEMENT ASSUMPTIONS ACTIONS: STRATEGY ACTIONS: CAPABILITIES Porter's Four Corners Model
  38. 38. The Four Corners Model Motivation – drivers This helps in determining the competitor's action by understanding their goals (both strategic and tactical) and their current position vis-à-vis their goals. Motivation – Management Assumptions The perceptions and assumptions the competitor has about itself and its industry would shape strategy. This corner includes determining the competitor's perception of its strengths and weaknesses, organization
  39. 39. The Four Corners Model Actions – Strategy A competitor's strategy determines how it competes in the market. However, there could be a difference between the company's intended strategy and its realized strategy (as is evident in its acquisitions, new product development, etc.). Actions – Capabilities This looks at a competitor's inherent ability to initiate or respond to external forces. Though it might have the motivation and the drive to
  40. 40. framework for industry analysis and business strategy development. It draws upon Industrial Organization economics to derive five forces that determine the competitive intensity and therefore attractiveness of a market. Porter's five forces include - three forces from 'horizontal' competition: threat of substitute products, threat of established rivals, and threat of new entrants; and two forces from 'vertical' competition: bargaining power of suppliers and bargaining
  41. 41. PORTER‟S FIVE FORCES MODEL
  42. 42. SIX FORCES MODELAn extension to Porter's Five Forces Model, it is a market opportunities analysis model more robust than a standard SWOT analysis, and comprises of the following forces: * Competition * New entrants * End users/Buyers * Suppliers * Substitutes * Complementary products/ government/public (extended by Brandenburger &
  43. 43. approach to Strategic management. Compared to a philosophical focus on the characteristics of a product (product economics), the model is based on customer economics. The customer-centric model was developed by Dean Wilde and Arnoldo Hax. Haxioms are a set of principles, proposed by Arnoldo Hax, which serve as a framework for the conceptualization of the Delta Model, and somehow challenges
  44. 44. Haxioms of Delta Model 1. The center of the strategy is the customer He is the driving force for all actions . 2. You don't win by beating the competition. You win by achieving Customer Bonding 3. Strategy is not war; it is Love The extreme way of non- conflict is LOVE. 4. A product-centric mentality is
  45. 45. It is a tool for analyzing the organizations task environment & states that strategic choices should not only be a function of industry structure and a firms resources, it should also be a function of the constraints of the institutional framework. It recognizes four pillars of research: * factor conditions * demand conditions * related and supporting industries * firm structure, strategy and rivalry that must be undertaken in analyzing the
  46. 46. THE NATIONAL DIAMOND
  47. 47. context of business management. VRIO is an acronym for the four question about a resource/capability to determine its competitive potential: •The Question of Value: "Is the firm able to exploit an opportunity or neutralize an external threat ?" •The Question of Rarity: "Is control of resource/capability in the hands of a relative few?" •The Question of Imitability: "Is it difficult to imitate, and will there be significant cost disadvantage to a firm trying to obtain or duplicate resource/capability?"
  48. 48. VALUE CHAIN ANALYSIS
  49. 49. First described & popularized by Michael Porter in 1985, a value chain is a chain of activities for a firm. Products pass through all activities of the chain in order, and at each activity the product gains some value. The chain of activities gives products more added value than the sum of independent activity's value. A value system includes the value chains of a firm's supplier (and their suppliers ), the firm itself, the firm distribution channels, and the firm's buyers (extended to the buyers of
  50. 50. assumptions the seven main elements of strategic management theory are: •Strategic management involves adapting the organization to its business environment. •Strategic management is fluid and complex. Change creates novel combinations of circumstances requiring unstructured non- repetitive responses. •Strategic management affects the entire organization by providing direction.
  51. 51. Continuation of Chaffee’s Assumptions: •Strategic management involves both strategy formation (referred to as content) and also strategy implementation (referred to as process). •Strategic management is partially planned and partially unplanned. •Strategic management is done at several levels: overall corporate strategy, and individual business
  52. 52. COMPETITIVE ADVANTAGE * LOW COST * DIFFERENTIATION SUPERIOR QUALITY SUPERIOR CUSTOMER RESPONSIVENESS SUPERIOR INNOVATION SUPERIOR EFFICIENCY BUILDING BLOCKS OF COMPETITIVE ADVANTAGE
  53. 53. COMPETITIVE ADVANTAGE & SUPERIOR PROFITABILITY Company’s Business Model that utilizes its Distinctive Competencies to differentiate its products and/or lower its cost structure A Firm implements a set of Strategies to configure its Value Chain to Create Distinctive Competencies that give it a Competitive Advantage Distinctive Competencies are Firm’s specific strengths allowing it to achieve superior efficiency, quality innovation, and effective customer responsiveness BUSINESS MODEL DISTINCTIVE COMPETENCIES STRATEGIES COMPETITIVE ADVANTAGE & VALUE CREATION CYCLE
  54. 54. INTEGRATION STRATEGIES * FORWARD INTEGRATION Control over Retailers, Distributors, Wholesalers * BACKWARD INTEGRATION Control over Suppliers * HORIZONTAL INTEGRATION Control over Competitors (Mergers, Acquisitions)
  55. 55. INTENSIVE STRATEGIES MARKET PENETRATION PRODUCT DEVELOPMENT MARKET DEVELOPMENT DIVERSIFICATION Present New Products Products Present Markets New Markets
  56. 56. DIVERSIFICATION STRATEGIES CONCENTRIC DIVERSIFICATION HORIZONTAL DIVERSIFICATION X CONGLOMERATE DIVERSIFICATION Related Unrelated Products Products Existing Customers New Customers
  57. 57. DEFENSIVE STRATEGIES * RETRENCHMENT Reduction in Cost and Asset * DIVESTITURE Disposing of a firm’s division or part * LIQUIDATION Disposing of a firm’s asset for its tangible worth
  58. 58. RED OCEAN & BLUE OCEAN STRATEGIES Red Oceans are all the industries in existence today—the known market space. In the red oceans, industry boundaries are defined and accepted, and the competitive rules of the game are known. Here companies try to outperform their rivals to grab a greater share of product or service demand. As the market space gets crowded, prospects for profits and growth are reduced. Products become commodities or niche, and cutthroat competition turns the ocean bloody. Hence, the term red ocean strategies.
  59. 59. RED OCEAN & BLUE OCEAN STRATEGIES Blue oceans denote all the industries not in existence today—the unknown market space, untainted by competition. In blue oceans, demand is created rather than fought over. There is ample opportunity for growth that is both profitable and rapid. In blue oceans, competition is irrelevant because the rules of the game are waiting to be set. Blue ocean is an analogy to describe the wider, deeper potential of market space that is not yet explored.
  60. 60. The corner-stone of Blue Ocean Strategy is 'Value Innovation'. A blue ocean is created when a company achieves value innovation that creates value simultaneously for both the buyer and the company. The innovation (in product, service, or delivery) must raise and create value for the market, while simultaneously reducing or eliminating features or services that are less valued by the current or future market.
  61. 61. HOW TO ACHIEVE THE STRATEGIES * First Mover Advantage * Out Sourcing * Joint Venture/Partnership * Merger * Acquisition * Takeover (Hostile)
  62. 62. THE INPUT STAGE THE MATCHING STAGE THE DECISION STAGE STRATEGY FORMULATION ANALYTICAL FRAMEWORK
  63. 63. PORTER‟S FIVE GENERIC STRATEGIES COST LEADERSHIP DIFFERENTIATION FOCUS LOW COST – Type I BEST VALUE – Type II PRODUCT/SERVICE/COST DIFFERENTIATION – Type III - - PRODUCT/SERVICE/COST DIFFERENTIATION – Type III LOW COST – Type IV BEST VALUE – Type V GENERIC STRATEGIES LARGE SMALL SIZEOFMARKET
  64. 64. STRENGTHS - S WEAKNESSES - W OPPORTUNITIES- O STRENGTH- OPPORTUNITIES (SO) STRATEGIES WEAKNESS-OPPORTUNITIES (WO) STRATEGIES THREATS - T STRENGTH-THREATS (ST) STRATEGIES WEAKNESS-THREATS (WT) STRATEGIES THE SWOT MATRIX
  65. 65. CONSERVATIVE STRATEGY AGGRESSIVE STRATEGY DEFENSIVE STRATEGY COMPETITIVE STRATEGY STRATEGIC POSITION & ACTION EVALUATION (SPACE) MATRIX COMPETITIVE ADVANTAGE(CA) FINANCIAL STRENGTHS (FS) ENVIRONMENTAL STABILITY (ES) INDUSTRY STRENGTHS(IS) -6 -5 -4 -3 -2 -1 0 +1 +2 +3 +4 +5 +6 +6 +5 +4 +3 +2 +1 -1 -2 -3 -4 -5 -6
  66. 66. THE EXTERNAL FACTOR EVALUATION (EFE) MATRIX A significant Strategic Tool/Instrument utilized to identify and assess an organization’s external forces, and the opportunities & threats faced by it, viz: * Social * Political * Economic * Legal * Technological * Governmental * Environmental * Competition * Product Life Cycle Stage * Demographic * Customers’ Awareness * Natural
  67. 67. THE INTERNAL FACTOR EVALUATION (IFE) MATRIX A significant Strategic Tool/Instrument utilized to identify and assess the strengths/weaknesses of an organization: * Market Share * Product Quality * Human Resources * Financial Resources * Location * Technology * Raw Materials * Management Policy * Distribution Network * R&D (Innovation) * Marketing Budget/Policy * Customer Loyalty
  68. 68. THE COMPETITIVE PROFILE MATRIX (CPM) A significant Strategic Tool utilized to identify an organization’s major competitors and their strengths & weaknesses, viz: * Market Share * Technology * Product Quality * Human Resources * Financial Resources * Price * Management Policy * Customer Loyalty * Marketing Budget/Policy * R&D
  69. 69. Johnson, Scholes and Whittington present a model in which strategic options are evaluated against three key success criteria: • Suitability (would it work?) • Feasibility (can it be made to work?) • Acceptability (will they work it?) EVALUATION OF STRATEGIES
  70. 70. SUITABILITY Suitability deals with the overall rationale of the strategy. The key point to consider is whether the strategy would address the key strategic issues underlined by the organzation's strategic position. •Does it make economic sense? •Would the organization obtain economies of scale or economies of scope? •Would it be suitable in terms of environment and capabilities?
  71. 71. FEASIBILITY Feasibility is concerned with whether the resources required to implement the strategy are available, can be developed or obtained. Resources include funding, people, time and information. Technical Feasibility, Financial Feasibility, Commercial Feasibility, & Socio-Cultural Feasibility are some of the concerns that need to be addressed.
  72. 72. ACCEPTABILITY Acceptability is concerned with the expectations of the identified stakeholders (mainly shareholders, employees and customers) with the expected performance outcomes, which can be return, risk and stakeholder reactions. •Return deals with the benefits expected by the stakeholders (financial and non-financial). •Risk deals with the probability and consequences of failure of a strategy (financial and non-financial). •Stakeholder reactions deals with anticipating the likely reaction of stakeholders.
  73. 73. •The Industrial Organizational Approach based on economic theory — deals with issues like competitive rivalry, resource allocation, economies of scale assumptions — rationality, self discipline behaviour, profit maximization •The Sociological Approach deals primarily with human interactions assumptions — bounded rationality, satisfying behaviour, profit sub-optimality. APPROACHES TO STRATEGIC MANAGEMENT
  74. 74. Strategic management techniques can be viewed as bottom-up, top-down, or collaborative processes. In the bottom-up approach, employees submit proposals to their managers who, in turn, funnel the best ideas further up the organization. The top-down approach is the most common by far. In it, the CEO, possibly with the assistance of a strategic planning team, decides on the overall direction the company should take. Some organizations are starting to experiment with collaborative strategic planning techniques that recognize the emergent nature of strategic decisions.
  75. 75. REASONS WHY STRATEGIC PLANS FAIL •Failure to execute by overcoming the four key organizational hurdles Cognitive hurdle Motivational hurdle Resource hurdle Political hurdle
  76. 76. REASONS WHY STRATEGIC PLANS FAIL •Failure to understand the customer Why do they buy Is there a real need for the product Inadequate or incorrect marketing research •Inability to predict environmental reaction What will competitors do oFighting brands oPrice wars Will government intervene
  77. 77. REASONS WHY STRATEGIC PLANS FAIL •Over-estimation of resource competence Can the staff, equipment, and processes handle the new strategy Failure to develop new employee & management skills •Failure to coordinate Reporting and control relationships not adequate Organizational structure not flexible enough •Failure to obtain senior management commitment Failure to get management involved right from the start Failure to obtain sufficient company resources to accomplish task
  78. 78. REASONS WHY STRATEGIC PLANS FAIL •Failure to obtain employee commitment New strategy not well explained to employees No incentives given to workers to embrace the new strategy •Under-estimation of time requirements No critical path analysis done •Failure to follow the plan No follow through after initial planning No tracking of progress against plan No consequences for above
  79. 79. REASONS WHY STRATEGIC PLANS FAIL •Failure to manage change Inadequate understanding of internal resistance to change Lack of vision on the relationships between processes, technology and organization •Poor communications Insufficient information sharing among stakeholders Exclusion of stakeholders and delegates
  80. 80. INTERNATIONAL STRATEGIC MANAGEMENT An ongoing management planning process aimed at developing strategies to allow an organization to expand abroad and compete internationally. Strategic planning is used in the process of developing a particular international strategy: * determine what products or services to sell * where and how to make these products or services * where to sell them * how to acquire necessary resources for these tasks * how to outperform its competitors
  81. 81. INTERNATIONAL STRATEGIC MANAGEMENT When an organization moves from being a domestic entity to an international organization it must consider the possible broad complexities that accompany such a decision. In a domestic country, an organization needs only consider one national government, a single currency and accounting system, one political and legal system, and usually a similar culture. Entering into one or more foreign countries can involve multiple governments, currencies, accounting systems, legal systems, and a large variety of languages and cultures. These create numerous barriers to entry for organization looking to expand internationally.
  82. 82. INTERNATIONAL STRATEGIC MANAGEMENT Factors that can influence international strategies: •local languages required in many situations •very diverse cultures, both between countries and sometimes even within countries •often volatile politics •varied economic systems •scarcity of skilled labor, with possible costs in training labor or redesigning procedures •poorly-developed financial markets and government- controlled capital flows, in some of the countries
  83. 83. INTERNATIONAL STRATEGIC MANAGEMENT Factors that can influence international strategies (cont..): •problems & exorbitant costs in obtaining market research data •limited advertising, subjected to lots of restrictions •possible low literacy rates, not to mention the possibility of making mistakes in the language when advertising •currency exchange fluctuations •inadequate or limited communication •mandatory worker participation in management in some countries •legal restrictions on laying off of workers
  84. 84. To operate outside national borders, firms must be ready to incorporate international considerations into their thinking and planning, making decisions related to questions such as: * How will our idea, good, or service fit into the international market? * Should we enter the market through trade or through investment? * Should I obtain my supplies domestically or from abroad? * What product adjustments are necessary to be responsive to local conditions? * What threats from global competition should be expected and how can these threats be counteracted?
  85. 85. PROBLEMS OF GLOBAL BUSINESS * Deals might have to be transacted in foreign languages and under foreign laws, customs and regulations * Information on foreign countries needed by a particular firm may be difficult or even impossible to obtain * Numerous cultural differences may have to be taken into account when trading in other nations * Control and communication systems are normally more complex for foreign than for domestic operations
  86. 86. PROBLEMS OF GLOBAL BUSINESS cont… •Risk levels are higher in foreign markets. The risk include political risks, commercial risk and financial risks •Global managers require a broader range of management skills than do managers concerned with domestic markets •Large amounts of important work might have to be left to intermediaries, consultants and advisors •More difficult to observe/monitor trends activities(including competitor’s activities) in foreign countries
  87. 87. MODES OF GLOBAL BUSINESS •Import/export of commodities & manufactured goods •investment of capital in manufacturing, extractive, agricultural, transportation& communication assets •supervision of employees in different countries •investment in international services like banking, advertising, tourism, retailing and construction •transactions involving copyrights, patents, trademarks and process technology
  88. 88. DIMENSIONS OF GLOBAL BUSINESS * Technological Impacts: * Functional impact * Competitive Impacts * Environmental Impacts * Political/Legal Impacts * Economic Impacts
  89. 89. Technological Impacts: Better/Innovative Products, Better Techniques, Shorter Life Cycles Economic Impacts: Economic Structure of the Host Nation, GDP, Inflation Rate, Labour Cost, Level of Unemployment, Consumer Expenditures Functional Impact: Variations in Accounting, Marketing, Operational, HR & Financial Functions Competitive Impacts: Competitive Advantages/Disadvantages over other Domestic/International Firms Environmental Impacts: Cultural/Social Differences, Transfer of company’s resources, Technology, Bodies like WTO, EC, ASEAN, IMF, ILO, UNCTAD Political/Legal Impacts: Entry Restrictions, Tariff Levels, Laws & Codes, Regulations concerning foreign owner-ships, advertisements, production
  90. 90. REASONS WHY CORPORATIONS GLOBALIZE •They can reduce their sourcing and distribution costs compared to national businesses •They can avoid tariffs, quotas and other trade barriers faced by exporters •They are able periodically to shift operations from high-cost to low-cost countries
  91. 91. •They can penetrate markets throughout the world from supply points in several different countries, supplemented perhaps by exports from the parent firm plus ad hoc licensing and contract manufacture agreements •Their management plan, organize and control company operations on a worldwide scale, with national markets being regarded as little more than segments of a broader regional customer base
  92. 92. FACTORS WHICH COMPEL GLOBALIZATION Organizations decide to globalize on account of the following two sets of organizational/industry’s internal and external factors: Internal factors: Market Imperfections Product Life Cycle External factors: Macro forces of Globalization Competitive Advantage of Nations
  93. 93. TYPES OF GLOBAL STRATEGIES • Wholly owned foreign subsidiary • Joint Ventures • Fade-Out Agreements • Portfolio Investments • Licensing • Franchising • Exporting
  94. 94. THE END !

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