Strategic Planning & Management


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Prof. Sunil Garg B. Tech. M. Tech. MBA
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Strategic Planning & Management

  1. 1. Strategic Planning & Management (SPM) GM-402 (February 15 – April 30, 2011)IILM Institute for Higher Education New Delhi PGP (2010-12), Term – 4 Session 1 to 25 Compiled By: Sunil Garg B. Tech. M. Tech. MBA Visiting Faculty (IB, SCM & Strategy) Email:
  2. 2. What is Strategy? Strategy is a combination of competitive moves and business approaches. It is necessary to stand in front of competition. Strategy required to achieve superior performance & organization’s goals. Strategy is a plan for success over competitive forces. Strategy is a management’s game plan to knock competition in business. Strategy is Partly Proactive and Partly Reactive Planning. Strategy is an art and science of Formulating, Implementing, and Evaluating Cross-Functional Decisions that enable an Organization to Achieve its Objectives in competitive environments. No Competition (Monopoly situation) –> No Strategy required.
  3. 3. What Is Strategy? (contd.)• Consists of the combination of competitive moves and business plans used by managers to run the company• Management’s “game plan” for – Attracting and pleasing customers – Staking out a market position – Competing successfully – Growing the business – Conducting operations & – Achieve targeted objectives Survival through Growth and Profitability
  4. 4. Means of establishing organizational purpose in terms of Definition of the LT objectives, competitive domain resource of the firm allocation Means of investing Response to In tangible and external intangible resources to opportunities & develop competencies threats, and internal strengths ‘Strategy’ & weaknesses Objectives, Means to develop the core Purpose,competencies of the organization Functions Way to define Managerial tasks With corporate, Business and Functional perspectives An expression of strategic intent : stretching the A coherent, unifying, organization and integrative A definition of the pattern of economic and decisions non-economic contribution to stakeholders
  5. 5. Why Strategy? Strategy decides the success and failure of an organization e.g.• In Retail Industry: Wal-Mart consistently outperformed whereas Kmart (rival company) facing bankruptcy in the difficult year of 1995.• In Computer Industry: Apple and Digital (DEC), which were regarded as most successful, faced difficult time in 1990s whereas Compaq and Dell flourished.• In Semiconductor Industry: Intel consistently outperformed its closest rivals AMD (Advanced Micro Devices).
  6. 6. Thinking StrategicallyShould answer three Big Strategic Questions: 1. Where are we now? 2. Where do we want to go?  Business(es) to be in and market positions to stake out.  Buyer needs and groups to serve.  Outcomes to achieve. 3. How will we get there?  A company’s answer to “how will we get there?” is its strategy.
  7. 7. The Hows That Define a Companys Strategy• How to please customers• How to respond to changing market conditions Strategy is HOW• How to outcompete rivals to . . .• How to grow the business• How to manage each functional piece of the business and develop needed organizational capabilities• How to achieve strategic and financial objectives
  8. 8. Crafting Company’s Strategy A Core Management functions that should Address:• How to attract and please customers?• How to respond to the changing market conditions?• How to compete successfully / outcompete rivals?• How to grow the business?• How to manage each function of business and develop needed capabilities?• How to achieve performance targets?
  9. 9. Characteristics of an Effective Strategy• Objectives and goals are clearly stated and are decisive and attainable.• Scope for initiative and freedom of actions.• Mobilization and use of resources at operational points.• Flexible and manoeuvrable to facilitate alteration of a course of action.• Championed by a committed leadership.• Use of speed, secrecy and intelligence to initiate surprise attack on opponents.• Protect the resource base of the organization as well as the key operating points from attack by competitors.
  10. 10. Strategic Management Process Strategic Management Process is all about:• ‘Identifying an organization’s existing vision, mission and setting objectives followed by strategy formulation, implementation & evaluation’• Choosing a set of strategies to pursue the vision & mission of the enterprise.• Formal planning process by the top management which involves strategy formulation, implementation, and evaluation as a non-ending process performed on a continuous basis .• Top management’s major role is to identifying strategies that company will pursue to attain goals of earning growth and value creation.• Good communication and feedback are needed throughout the strategic management process.
  11. 11. Benefits of Strategic Management (Immediate)- Improved Communication - Higher Efficiency- Increased Understanding - More Effective- Enhanced Commitment - Greater Productivity - Allow Firm to Influence, Initiate, and Anticipate - Be Proactive Rather Than Reactive
  12. 12. Benefits of Strategic Management (Long Term)• Enables an organization to be more proactive than reactive in shaping its own future.• Allows for identification, prioritization, and exploitation of opportunities.• Provides an objective view of management problems.• Represents a framework for improved coordination and control of activities.• Minimizes the effects of adverse conditions and changes.• Allows more effective allocation of time and resources to identified opportunities.• Creates a framework for internal communication among personnel.• Provides a basis for clarifying individual responsibilities.• Encourages a favourable attitude towards change.• Enables firms to perform better by making more informed decisions with good anticipation of both short and long-term consequences.
  13. 13. Communications Benefits of Engaging In Strategic ManagementManagers from all functionalareas listen and discuss theirviews in strategicmanagement meetings. Thisinteraction yields learning,appreciation, andunderstanding amongmanagers who otherwise donot communicate with eachother.
  14. 14. Challenges of Strategic Management• Communicating plans to all employees.• Ensuring that intuitive decisions made by top managers do not conflict with the formal plans.• Getting top managers to actively support the strategic planning process.• Involving all managers / key employees in all phases of planning rather than delegating planning to a “planner”.• Creating a collaborative climate supportive of change.• Ensuring that flexibility and creativity is not stiffed due to formal planning.• Charting course of action for the future, along with solving current problems.
  15. 15. Steps of Strategic Management Process A) Strategy Formulation:• Developing a vision and mission• Identifying external opportunities & threats (competitive nature)• Determining internal strengths & weaknesses (operational)• Establishing long & short term objectives• Generating alternative strategies• Strategy Selection
  16. 16. Steps of Strategic Management Process Issues involved in Strategy Formulation :• What new businesses to enter• What businesses to abandon• How to allocate resources• Expand operations or diversify• Enter international markets• Merge or form joint venture• Avoidance of hostile takeover
  17. 17. Steps of Strategic Management Process B) Strategy Implementation:• Developing a strategy-supportive culture• Creating an effective organizational structure• Redirecting marketing efforts• Preparing budgets (Resource allocations)• Developing & utilizing information systems• Linking employee compensation to performance Greatest of strategies remain great only in theory unless executed and implemented well..
  18. 18. Strategy Implementation•Designing organizational structure•Designing control systems Structure  Market and output controls  Bureaucratic controls  Control through organizational culture Controls  Rewards and incentives•Matching strategy, structure,and controls  Congruence (fit) among strategy, Strategy structure, and controls © 2001 Houghton Mifflin Company. All rights reserved.
  19. 19. Executing Company’s Strategy Staffing with needed skills and expertise Allocating ample resources Policies and procedures to facilitate execution Using best practices to perform core businessactivities Installing information & operating systems Motivating people Tying rewards & incentives to performance Creating a company culture & work climate forexecution Exerting internal leadership
  20. 20. Steps of Strategic Management Process C) Strategy Evaluation (Monitoring):• Reviewing external & internal factors that are bases for current strategies.• Measuring performance.• Taking corrective actions. Strategic planning and implementation work in tandem. Best of plans would only give theoretical pleasure unless coupled with an equally efficient implementation.
  21. 21. A Comprehensive Strategic Management Model Feedback Perform External Audit Generate, Establish Establish Measure Develop Evaluate, Long- Policies and Allocate and Mission and term Annual Resources EvaluateStatement Select Objectives Objectives Performance Strategies Perform Internal Audit Strategy Formulation Strategy Implementation Strategy Evaluation
  22. 22. Relationship between Planning & Execution Plan Execution Outcome 1 Good Good Thumping Success 2 Good Poor Outright failure 3 Poor Good Wastefulness 4 Poor Poor Doom 5 Average Average Moderate Results 6 Average Good Success 7 Good Average Moderate results that could be betterAn average plan >> implemented excellently >> assured success.
  23. 23. Business Model A company’s Business Model is the ‘Plan of doing business related to its cost and revenue’ or ‘ How to make money in this business’?• Both start-up ventures and established companies need a well defined business model to take new products and services.• Process of business model design is part of business strategy. Company’s strategy is complementary to its business model.• Implementation of company’s business model is a part of Business Operations (organization structure, human resources, sequence of operations and systems e.g. information technology architecture, production lines)
  24. 24. Relationship Between Strategy and Business ModelStrategy - Deals with a Business Model -Concernscompany’s competitive whether costs andinitiatives, growth and revenues flowing fromsuperior performance. the strategy demonstrate amply profitability and viability of the business.
  25. 25. Business Model Planning Formal descriptions of the business become the business model of a company.• Every business model needs to pass two critical tests, the ‘narrative test’ and the ‘numbers test’.• Narrative test must tell a good story and explain how the business works (who is the customer, what do they value and how a company can deliver value to the customer).• Numbers test means your Cost – Revenue assumptions must add up to profits (ROI). If Business Model doesn’t work, then model has failed on the above tests.
  26. 26. Business Model Planning
  27. 27. Link between Business Model and Strategy Business Model StrategyTo Generate Revenues sufficient: For Competitive moves • Products • Markets• To cover costs • Business Approaches •Geographies• To produce attractive profits (Action Plan for Business Growth) (Action Plan for Return on Investments) • Strategic Competitiveness • Above Average Returns
  28. 28. Hierarchy of Strategic IntentMost integrative Long Term Vision Mission Goals Objectives PlansMost specific Short Term
  29. 29. Hierarchy of Strategic Managers
  30. 30. Vision Core Core Values Purpose Vision Visionary GoalsA company’s vision gives a company: - Route for developing / Strengthening Business - Strategic course in preparing for the future
  31. 31. Strategic Vision vs. Mission
  32. 32. Vision & Mission• Vision is a formal declaration of what the company aims to achieve in future.• Mission is about the existence of an organization and how the organization views the claims of its various stakeholders.
  33. 33. Maruti Suzuki The leader in the Indian Automobile Customer Obsession; Fast, flexible and Industry, creating customer delight first mover; Innovation & Creativity; and shareholder’s wealth; A Pride of Networking & Partner ship; Openness India & LearningNTPC Ltd. To be one of the worlds largest and Customer Focus; Organizational Pride; best power utilities, powering Indias Mutual Respect and Trust Initiative growth and Speed ;Total QualityITC Sustain ITC’s position as one of India’s Trusteeship; Customer Focus; Respect most valuable corporations through for people; Excellence Innovation; world class performance, creating Nation Orientation growing value for the Indian economy and the Company’s stakeholders.Tata Power To be the most integrated power and Integrity; Trust; Care; Collaboration energy company delivering sustainable Agility; Respect; Excellence value to all StakeholdersSAIL To be a respected world class Lasting relationships with customers corporation and the leader in Indian based on trust and mutual benefit; steel business in quality, productivity, Highest ethical standards in conduct of profitability and customer satisfaction. business; Culture that supports flexibility, learning and is proactive to change; Opportunity and responsibility to make a meaningful difference in peoples Lives
  34. 34. COMPANY MISSIONMaruti Suzuki Motorize IndiaNTPC Ltd Develop and provide reliable power, related products and services at competitive prices, integrating multiple energy sources with innovative and eco-friendly technologies, and contribute to societyITC To enhance the wealth generating capability of the enterprise in a globalizing environment, delivering superior and sustainable stakeholder value.Tata Power We will become the most admired company delivering sustainable value by being the supplier partner by choice; achieving excellence in safety, operations & project management; focusing on the culture of sustainability; ensuring growth and delivering value to all stakeholders; caring for the community.BSES, Delhi To attain global best practices and become a world-class utility; to provide: uninterrupted, affordable, quality, reliable, safe and clean power to our customers; to achieve excellence in: service, quality, reliability, safety and customer care; to earn: trust and confidence of all customers and stakeholders by exceeding their expectations, and make the company a respected household name; to promote a work culture that fosters: individual growth, team sprit and creativity to overcome challenges and attain goals.
  35. 35. What are Objectives ?
  36. 36. Setting Objectives
  37. 37. Concept of Strategic Intent
  38. 38. Stakeholders Are individuals or groups that have an interest, claim, or stack in the company.• Internal Stakeholders: stockholders, employees, including executive officers, managers and board members.• External Stakeholders: customers, suppliers, government, unions, local communities, and the general public.• Each stakeholder has some claim on the company. A company must take these claims into account when formulating its strategies or else stakeholders may withdraw their support. It is not possible to satisfy claims of all stakeholders. The goals of different groups may conflict and in practice few organizations have the resources to manage all stakeholders.
  39. 39. Process of Crafting and Executing Company’s Strategy A five-phase managerial process:1. Developing a strategic vision – where company needs to head.2. Setting objectives and using them as yardsticks for measuring company’s performance and progress.3. Crafting a strategy to achieve the desired outcomes and move the company along the strategic course.4. Implementing and executing the chosen strategy efficiently and effectively.5. Monitoring developments and initiating corrective adjustments in the company’s long term direction, objectives, strategy, or execution in light of company actual performance, changing conditions, new ideas and new opportunities.
  40. 40. Strategy-Making, Strategy-Executing Process Crafting a MonitoringDeveloping Setting Strategy to Implementing developments,A Strategic Achieve the and executing evaluating Objectives vision Objectives the strategy performance & And vision making corrective adjustments Revise as needed in light of actual performance, changing conditions
  41. 41. Basis for Good Strategic Decisions Analysis + Intuition Effective Strategic Decisions
  42. 42. Keys to Formulating Strategies Business Mission External InternalOpportunities Strengths and and Threats Weaknesses Strategy Formulation
  43. 43. Partly Proactive and Partly Reactive Strategies (Based on Internal & External Factors)
  44. 44. Ten Key External Forces Competitive Economic Technological Social Governmental Cultural PoliticalDemographic Environmental Legal
  45. 45. External AnalysisIdentifying strategic opportunities andthreats in the operating environment. Immediate (Industry) Macroenvironment National
  46. 46. Opportunities and Threats (External) Beyond the control of a single organization Basic tenet of strategic management Strategy formulation to: Take advantage of external opportunities Avoid or reduce impact of external threats
  47. 47. Fourteen Key Internal Forces ManagementMarketing ManufacturingResearch & Production/Development Operations Purchasing Distribution
  48. 48. Key Internal Forces (cont.) Finance/Accounting Packaging Promotion Human Employee/ Resource ManagerManagement Relations Computer Vendor Information Relations Systems
  49. 49. Internal Analysis•Identify Strengths – Quality and quantity of resources available – Distinctive competencies•Identify Weaknesses – Inadequate resources – Managerial and organizational deficiencies
  50. 50. Strengths and Weaknesses (Internal) Controllable activitiesArise in functional areas of the business: • Management • Marketing • Finance/accounting • Production/operations • Research & development • Computer Information Systems
  51. 51. A Company’s Strategy-Making Hierarchy The companywide CORPORATE game plan for managing a set of STRATEGY businesses Two-way influence BUSINESS One for each business the company has STRATEGY diversified into Two-way influence Functional-area FUNCTIONAL strategies within STRATEGY each business Two-way influence Operating strategies within OPERATING each business STRATEGY
  52. 52. Corporate-Level Strategies•Vertical integration•Diversification•Strategic alliances•Acquisitions•New ventures•Business portfoliorestructuring
  53. 53. Corporate Level Issues Scope Decisions InternationalProduct Diversity DiversityCorporate Parenting Managing theRoles Portfolio Value Creation
  54. 54. Business-Level Strategies•Cost leadership – Attaining, then using the lowest total cost basis as a competitive advantage.•Differentiation – Using product features or services to distinguish the firm’s offerings from its competitors.•Market niche focus – Concentrating competitively on a specific market segment.
  55. 55. Functional-Level StrategiesFocus is on improving the effectiveness ofoperations within a company. – Manufacturing – Marketing – Materials management – Research and development – Human resources
  56. 56. Global-Level Strategies– Multi-domestic– International– Global– Transnational
  57. 57. Evaluating Company ResourcesTangible Resources Intangible ResourcesFinancial  The firm’s borrowing Human  Knowledge capacity  Trust  Ability to generate internal  Managerial capabilit funds  Organizational routinOrganizational  Firm’s reporting structure Innovation  Ideas and formal planning ,  Scientific capabilitie controlling systems  Capability to innovaPhysical  Location of a firm’s plant Reputational  Brand name & equipment  Reputation with  Access to raw materials customers / suppliers  Perceptions about product quality, durability & reliabilitTechnological  Stock of technology such as patents, trademarks, copyrights and trade secrets
  58. 58. Evaluating the Companys Current Strengths / Weaknesses Firms sales growing faster / slower / same pace as the market ? Acquiring new customers as well as retaining existing customers ? Profit margins increasing / decreasing ? Trends in the firms net profits / ROI ? Overall financial strength / credit rating improving / declining ? Continuous improvement in internal measures ? Shareholders view of the company ? Image / reputation with customers ? Company vis-a-vis rivals with respect to technology , product innovation etc. ?
  59. 59. Company Competencies and Capabilities A competence is something an organization is good at doing; it is the product of learning and experience. A core competence is a competitively important activity that a company performs better than other internal activities. A distinctive competence is a competitively valuable activity that a company performs better than its rivals.
  60. 60. Examples: Strategies Based on Distinctive Capabilities• Sophisticated distribution systems – Wal-Mart• Product innovation capabilities – 3M Corporation• Complex technological process – Michelin• Defect-free manufacturing – Toyota and Honda• Specialized marketing and merchandising know-how – Coca- Cola• Global sales and distribution capability – Black & Decker• Superior e-commerce capabilities – Dell Computer• Personalized customer service – Ritz Carlton hotels
  61. 61. SWOT Analysis Tool for auditing an organization and its environment. It is a way to analyze competitive position of a company / business. Environmental Scan Internal Analysis External AnalysisStrengths Weaknesses Opportunities Threats SWOT Matrix
  62. 62. SWOT MatrixA graphical representation of the SWOT framework.
  63. 63. TOWS Matrix TOWS analysis is similar to the SWOT. It looks at the negative factors first in order to turn them into positive factors. Strengths Weaknesses Opportunities S – O strategies W – O strategies Threats S – T strategies W – T strategiesS – O strategies : pursue opportunities that are good fit to the company’s strengthsW- O strategies : overcome weaknesses to pursue opportunitiesS – T strategies : identify ways to use strengths to reduce vulnerability to externalthreatsW – T strategies : establish a defensive plan to prevent the firm’s weaknesses frommaking it highly susceptible to external threats
  64. 64. Strategic Environmental OpportunityOptions Turnaround- Aggressive Oriented Strategy StrategyCritical Internal Critical InternalWeakness Strength Defensive Diversification Strategy Strategy Environmental Threat
  65. 65. BCG Growth – Share MatrixA model for managing a portfolio of different business units (ormajor product lines), The matrix displays the various business unitson a graph of the market growth vs. market share relative tocompetitors. Developed by Boston Consulting Group In 1970
  66. 66. BCG Growth – Share Matrix (Contd.)BCG matrix provides a framework for allocating resources among different business unitsaccording to their position on the grid as follows:Cash Cow – A business unit that has large market share in a mature, slow growing industry.Cash caws require little investment and generate cash that can be used to invest in otherbusiness units. (Products generate high amounts of cash for the company, but growth rate isslowing).Star - A business unit that has large market share in fast growing industry. Star may generatecash, but because the market is growing rapidly they require investment to maintain theirlead.Question Mark (or Problem Child) - A business unit that has a small market share in highgrowth market. These require resources to grow market share, but whether they will succeedand become stars is unknown.Dogs - A business unit that has a small market share in a mature industry. May not requiresubstantial cash, but it ties up capital that could better be deployed elsewhere. Unless a doghas some other strategic purpose, it should be liquidated if there is little prospect for it togain market share.
  67. 67. GE / McKinsey MatrixGE Matrix, attempts to improve upon BCG Matrix. It maps SBUs on agrid of industry and SBU position in the industry. It has nine cells vs.Four cells in the BCG matrix. Developed by McKinsey & Co as a tool for screening GE large portfolio of SBUs In 1970
  68. 68. GE / McKinsey Matrix (Cont.)Industry Attractiveness Factors: Market Growth Rate, Market Size, DemandVariability, Industry Profitability, Industry Rivalry, Global Opportunities, Macro-environmental FactorsBusiness Unit StrengthFactors:Market Share,Growth in MarketShare,Brand Equity,Distribution ChannelAccess,Production Capacity,Profit Margin Relativeto Competitors
  69. 69. Ansoffs Matrix - Planning for GrowthDiversification is part of the four main growth strategies defined by the Product /Market Ansoff matrix: Diversification usually requires a company to acquire new skills, new techniques and new facilities.
  70. 70. Corporate Parent Centre Divisions BusinessThe corporate parent refers to the levels of management above that of the businessunits, and therefore without direct interaction with buyers and competitors. There arethree styles of corporate parenting: financial control, strategic planning and strategiccontrol.
  71. 71. ParentingThe role of corporate headquarters (parent) to share wisdom, insight andguide multi-businesses (children) to help to excel. Helping large businesses to dismantle their hierarchical structures. Ensuring businesses are led by managers with specialized skills. Providing a clear vision to the business unit managers. Monitor and attempt to avoid predictable errors. Link different businesses to improve market position/efficiency. Share capabilities across businesses. Share specialized / rare expertise with businesses (scale economies) Maintain external relationships with stakeholders Assist business units in taking difficult/major decisions. Assist business units to revamp their processes / businesses. Hierarchies delay decisions. Buffer the executives in business so that they are not answerable for performance of their business. Diversity and size of corporations might inhibit from having a clear vision.
  72. 72. Porter’s Five Forces Model of Competition (A Model for Industry Analysis)Attractiveness:Overall IndustryProfitabilityUnattractive:Low OverallProfitability orIntenseCompetition
  73. 73. Combination of five forces determines the competitive intensity or attractiveness of a market in which an industry operates
  74. 74. Competitive Strategy 3 Questions Who are the customers ? What are their needs ? How to satisfy those needs ? ------------------- Customers are the foundation for business level strategy. Aim of every firm to deliver maximum value to the customers. And establish long term relationship with them. Customer is the King
  75. 75. Porter’s Generic StrategiesAccording to Michael Porter a firm’s strengths ultimately fall into two headings: CostAdvantage and Differentiation. Called generic – as not dependent on firm or industry.Applied at the business unit (SBU) level. Generic Strategies: Cost Leadership Differentiation Focused
  76. 76. Generic Competitive Strategies• Cost Leadership Strategy: This usually targets broad markets by cutting costs and selling at average industrial prices or lower. Firms acquire low cost advantages by improving process efficiencies, gaining access to bulk lower cost materials, optimizing outsourcing, technology upgrade and vertical integration or avoiding some costs altogether.• Differentiation Strategy: By developing and offering unique product or service those customers perceive to be better than or different from competitor’s product. Products are sold at premium price that covers extra cost for product uniqueness and additional profit. Require leading scientific research and creative product development capabilities, strong sales team and corporate reputation for quality and innovation.• Focused Strategy: Concentrate on a narrow segment and within the segment attempts to achieve either a cost advantage or differentiation. Enjoys customer loyalty with lower volumes.• Combination of Generic Strategies: Focused Low Cost, Focused Differentiation, Best Cost Provider
  77. 77. Strategic Business Unit (SBU)SBU is a business unit within the overall corporate identity which isdistinguishable from other business because it serves a defined externalmarket where management can conduct strategic planning in relation toproducts and markets.SBU has its own business strategy, objectives and competitors and these willoften be different from those of the parent company.SBUs are self contained divisions formed within an organization for dealingwith specific business concerns with full profit and loss responsibility investedin the top management of the unit.Purpose behind the formation of strategic business units is to serve a clearand defined market segment along with a clear and defined strategy. When companies become really large, they are best managed as an organization of a number of businesses (or SBUs).
  78. 78. Strategic Business Unit StructureSBUs are also referred to as independent business units or strategic planningunits to gain competitive advantage in the populated marketplace.SBUs might be based on product lines, geographic markets, or otherdifferentiating factors. SBU Structure based on geographic areas
  79. 79. A Company’s Menu of Strategy Options1. Collaborative Strategies: Alliances and Partnerships2. Merger and Acquisition Strategies3. Vertical Integration Strategies: Operating Across More Stages of the IndustryValue Chain4. Outsourcing Strategies: Narrowing the Boundaries of the Business5. Offensive Strategies: Improving Market Position and Building CompetitiveAdvantage6. Defensive Strategies: Protecting Market Position and Competitive Advantage7. Web Site Strategies8. Choosing Appropriate Functional-Area Strategies9. First-Mover Advantages and Disadvantages (Also Known as CooperativeStrategies)
  80. 80. Collaborative Strategies: Alliances and Partnerships• Companies sometimes use strategic alliances or collaborative partnerships to complement their own strategic initiatives and strengthen their competitiveness.• Such cooperative strategies go beyond normal company-to-company dealings but fall short of merger or full joint venture partnership.
  81. 81. Alliances Can Enhance a Firm’s CompetitivenessAlliances and partnerships can help companiescope with two demanding competitive challenges Racing against rivals to build a market presence in many different national markets Racing against rivals to seize opportunities on the frontiers of advancing technologyCollaborative arrangements can help a companyLower its costs and/or gain access to neededExpertise and capabilities
  82. 82. Characteristics of a Strategic Alliance Strategic alliance – A formal agreement between two or more separate companies where there is Strategically relevant collaboration of some sort Joint contribution of resources Shared risk Shared control Mutual dependence Alliances often involve Joint marketing Joint sales or distribution Joint production Design collaboration Joint research Projects to jointly develop new technologies or products Joint Venture –Financial Partnership / Sharing Control / Sharing Profit & Loss
  83. 83. Potential Benefits of Alliances to Achieve Global and Industry Leadership Get into critical country markets quickly to accelerate process of building a global presence Gain inside knowledge about unfamiliar markets and cultures Access valuable skills and competencies concentrated in particular geographic locations Establish a beachhead (base) to participate in target industry Master new technologies and build new expertise faster than would be possible internally Open up expanded opportunities in target industry by combining firm’s capabilities with resources of partners
  84. 84. Benefits of Strategic Alliances
  85. 85. Pitfalls Strategic Alliances
  86. 86. Guidelines in Forming Strategic Alliances
  87. 87. Joint Ventures Going with a partner in foreign country:• JV is a useful strategy in competitive markets• Control exercised with shared risk• JV agreement with a company from the target country market is an entry strategy• Types of JVs: Contractual Joint Ventures (for projects with time frame) Equity Joint Ventures (long term)• JV may be necessary due to legal restrictions on foreign investment• Reduces the investment required by a foreign firm, besides reducing risk• Foreign partner stands to gain from local expertise• Foreign investor may find the local partner redundant after some time• Local partner may become a competitor after the end of the agreement Example: Hero Honda Motors Ltd.,
  88. 88. Merger and Acquisition StrategiesM&A refers to the corporate strategy dealing with the buying, selling andcombining of different companies that can aid, finance, or rapid growth ofcompany without having to create another business entity.A merger happens when two firms agree (mutually consented) to go forwardas a single new company rather than remain separately owned andoperated. When firms are of about the same size called "merger of equals”.In the 1999 merger of Glaxo Wellcome and SmithKline Beecham, both firmsceased to exist when they merged, and a new company, GlaxoSmithKline,was created.An acquisition (takeover) is the purchase of one company by anothercompany. It may be friendly or hostile.When the deal is unfriendly (that is, when the target company does not wantto be purchased) it is always regarded as an acquisition.
  89. 89. Merger and Acquisition Strategies Merger – Combination and pooling of equals, with newly created firm often taking on a new name Acquisition – One firm, the acquirer, purchases and absorbs operations of another, the acquired Merger-acquisition strategy Much-used strategic option Especially suited for situations where alliances do not provide a firm with needed capabilities or cost-reducing opportunities Ownership allows for tightly integrated operations, creating more control and autonomy than alliances
  90. 90. Objectives of Mergers and Acquisitions To create a more cost-efficient operation To expand a firm’s geographic coverage To extend a firm’s business into new product categories or international markets To gain quick access to new technologies or competitive capabilities To invent a new industry and lead the convergence of industries whose boundaries are blurred by changing technologies and new market opportunities
  91. 91. Rationales for M&A Acquiring firms seek improved financial performance or growth by:• Economy of Scale: reduction in fixed cost and increasing profit margins.• Economy of Scope: Increasing the scope of marketing and distribution, of different types of products.• Vertical Integration: Merger of an upstream and downstream firm.• Increasing revenue or market share: Merged identity increases market power (market share of competitor) to set prices.• Synergy: Increased opportunities of specialization and managerial and purchasing economics.• Taxation: Reducing tax liability by acquiring assets of a non-performing company.
  92. 92. Vertical Integration Strategies The degree to which a firm owns its upstream suppliers and its downstreambuyers is referred to as vertical integration. Extend a firm’s competitive scope with in same industry Can aim at either full or partial integration Deciding issues for vertical integration are: Cost & Control• Forward Integration: downstream expansion of activities (towards end-usersof final product)• Backward Integration: upstream expansion of activities (into sources ofsupply)Improve supply–chain efficiency, better control over inputs/outputs, expansionof core competencies, capturing upstream / downstream profit margins
  93. 93. Overview of an Enterpriseupstream downstream Backward Integration Forward Integration
  94. 94. Example of Backward & Forward Integrations
  95. 95. Pros and Cons of Integration vs. De-Integration Whether vertical integration is a viable strategic option depends on its Ability to lower cost, build expertise, increase differentiation, or enhance performance of strategy-critical activities Impact on investment cost, flexibility, and administrative overhead Contribution to enhancing a firm’s competitiveness Many companies are finding that de-integrating value chain activities is a more flexible, economic strategic option!
  96. 96. Outsourcing StrategiesOutsourcing involves withdrawing from certain value chain activities and relying on outsiders to supply needed products, support services, or functional activities Internally Performed Activities Functional Suppliers Activities Support Distributors Services or Retailers Involves farming out certain value chain activities to outside vendors
  97. 97. When Does Outsourcing Make Strategic Sense?• Activity can be performed better or more cheaply by outside specialists• Activity is not crucial to achieve a sustainable competitive advantage• Risk exposure to changing technology and/or changing buyer preferences is reduced• It improves firm’s ability to innovate• Operations are streamlined to Improve flexibility Cut time to get new products into the market• It increases firm’s ability to assemble diverse kinds of expertise speedily and efficiently• Firm can concentrate on “core” value chain activities that best suit its resource strengths Risk: Losing touch with activities and expertise that determine overall long-term success
  98. 98. Offensive and Defensive StrategiesType of marketing warfare strategy designed to obtain an objective, usually marketshare, from a target competitor.In addition to market share, an offensive strategy could be designed to obtain keycustomers, high margin market segments, or high loyalty market segments. Offensive Strategies Defensive StrategiesUsed to build: Used to protect:new or stronger market competitive advantageposition (rarely lead to creatingand / or advantage)create competitiveadvantage
  99. 99. Low-cost Country Sourcing (LCCS) StrategyCommon examples:• Labor - intensive manufacturing: products produced using low-cost Chinese labor,• Call centres staffed with low-cost English speaking workers in the Philippines and India,• IT work performed by low-cost programmers in India and Eastern Europe.
  100. 100. Just- in-Time Strategy Requires cooperation, coordination, and information sharing to eliminate inventory across the supply chain. Strategic features:• Commitment to zero defects by seller and buyer.• Frequent shipments of small lot sizes according to strict quality and delivery performance standards.• Closer, even collaborative, buyer-seller relationship.• Stable production schedule sent to suppliers on a regular basis.• Extensive information sharing electronically between supply chain members.• Electronic data interchange capability with suppliers.
  101. 101. Strategic Framework for Supply Chain
  102. 102. Supply Chain Strategy or Design
  103. 103. Web Site Strategies Strategic Challenge – What use of the Internet should a company make in staking out its position in the marketplace? Five Web site approaches• Use to disseminate only product information (Catalogue website)• Use as minor distribution channel to sell direct to customers• Use as one of several important distribution channels to access customers• Use as primary distribution channel to access buyers• Use as exclusive channel to transact sales with customers (E- commerce website)
  104. 104. Using the Internet to Disseminate Product Information Approach – Website used to provide product information of manufacturers or wholesalers/dealers-> Informs end-users of location of retail stores-> Relies on click- through to websites of dealers for sales transactions Issues – Pursuing online sales may-> Signal weak strategic commitment to dealers-> Signal willingness to cannibalize dealers’ sales-> Prompt dealers to aggressively market rivals’ brands Avoids channel conflict with dealers – Important where strong support of dealer networks is essential
  105. 105. Effective Website Strategies Having a website is one thing, but making it work to produce enquiries and sales is quite another. In simple terms your website should achieve 3 objectives:• Attract visitors• Engage them so they stay on your site• Covert them from visitors to customers ‘Online marketing initiatives are cost effective’
  106. 106. Effective Website Strategies1. Define your target audience (ideal visitors profile)2. Content is king (appropriate & relevant to target audience)3. Tell people about it (display widely)4. Optimise it online (SEO & SMO)5. Make sure you measure (web analytical tools for traffic,transactions & customer satisfaction)6. What will your website do? (either selling, or information orboth)7. Differentiate your website (stand out from the crowd and easyto navigate)
  107. 107. Advertisement will appear hereAdvertisement will appear here Private & Confidential
  108. 108. Website Traffic Measurement May 8,2010 to June 7, 2010 (After the Campaign)Google Analytics
  109. 109. First-Mover Advantages When to make a strategic move is often as crucialas what move to make First-mover advantages arise when Pioneering helps build firm’s image and reputation Early commitments to new technologies, new-style components, and distribution channels can produce cost advantage Loyalty of first time buyers is high Moving first can be a preemptive strike
  110. 110. Choosing Appropriate Functional-Area StrategiesInvolves strategic choices about how functionalareas are managed to support competitivestrategy and other strategic movesFunctional strategies include: Research and development Production Human resources Sales and marketing Finance Managing a particular activity in ways that support the overall business strategy.
  111. 111. Competing in Foreign Markets
  112. 112. Entering Strategy for Foreign Markets Exporting (Indirect/Direct) >>> Joint Ventures >>> Direct investment Indirect Exporting:• Exporting through intermediary or distribution channel.• Involve least risk and limited capital expenditure.• Use merchants who sell the products of the company in international markets or• Use the distribution facilities of other firms in the international markets• Export through merchant exporters or large trading houses who export products on behalf of several small firms collectively Distribution chains e.g. Wal-Mart, Malls, Stores Products: FMCG, garments, handicrafts, processed food, medicines, electronics, etc. Exporters: Haldiram, MDH, LG, Samsung, Dell, HP, etc.
  113. 113. Entering Strategy for Foreign Markets Direct Exporting:• Company decides to export its products itself and Shipping goods directly to a foreign buyer.• Develops overseas contacts, undertakes marketing research, handles documentation and transportation, and decides the marketing mix.• Involve identification of foreign buyers and taking risk directly.• May establish a sales and marketing office in the foreign market Long term and repeated supplies to Original Equipment Manufacturers (OEMs), spare part markets, large scale industries, projects, etc. Products: Auto Parts, Hand Tools, Industrial Raw Materials, etc. Exporters: like Sundram Fasteners, MRF Tyre, Sesa Goa, …………….
  114. 114. Motivation for Competing Internationally
  115. 115. Multinational Corporations (MNCs)MNCs are firms that are incorporated in one country and have productionand sales operations in other countries. There are about 60,000 MNCs inthe world. Many MNCs obtain raw materials from one nation, financialcapital from another, produce goods with labor and capital equipment ina third country and sell their output in various other national markets. Top 10 MNCs 1 General Electric United States 2 Ford Motor Company United States 3 Royal Dutch/Shell Group Netherlands/ UK 4 General Motors United States 5 Exxon Corporation United States 6 Toyota Japan 7 IBM United States 8 Volkswagen Group Germany 9 Nestlé SA Switzerland 10 Daimler-Benz AG Germany
  116. 116. Strategy Options for Competing in Foreign Markets
  117. 117. International Vs. Global Competition
  118. 118. Multi-Country Vs. Global StrategyMcDonalds - Customized Products IBM – Standardized Products
  119. 119. International Corporate-Level Strategies
  120. 120. Characteristics of Multi-Country Competition
  121. 121. Characteristics of Global Competition
  122. 122. Cross-country Differences in Cultural, Demographic, & Market Conditions
  123. 123. Market Differs Country to Country
  124. 124. Different Countries – Different Conditions
  125. 125. Fluctuating Exchange Rates – Affects Company’s Competitiveness
  126. 126. Strategic Framework of Foreign Exchange Risk Management Forecasts Risk Estimation Benchmarking Hedging Stop Loss Reporting and Review
  127. 127. Corporate Governance (CG)CG is defined as the general set of customs, procedures,policies, regulations, habits, and laws that determine theway a corporation (or company) is directed, administratedor controlled.CG is most explicitly define as:a) making sure that boards and managers don’t lie, cheatand steal, orb) clarifying that shareholders are the “real owners” of thefirm (a legal stance that appears to be untrue)CG relates to the nature and extent of accountability ofparticular individuals in the organization.
  128. 128. Corporate GovernanceCorporate Governance reflects and enforces the company’s values!
  129. 129. Corporate Governance:Strategic Role of Board of Directors
  130. 130. Obligations of Board of Directors
  131. 131. CG at InfosysCorporate governance is a reflection of our culture,policies, our relationship with stakeholders, and ourcommitment to values. Infosys has been a pioneer inbenchmarking its corporate governance practiceswith the best in the world.The primary purpose of corporate leadership is tocreate wealth legally and ethically. This translates tobringing a high level of satisfaction to fiveconstituencies - customers, employees, investors,vendors and the society-at-large.N.R. Narayana Murthy (Chairman of the Board and ChiefMentor)
  132. 132. Strategy Implementation: Why Strategic Plans Often FailsPoor prioritization – highest level of strategy is selection of priorities.Lack of detailed planning to support plan goal achievement – planning is road map while communication and feedback are essence of execution.Strategy and culture misalignment – plans to match the existing culture, human system and operating procedures.Accountability missing from plan goals – defining clear responsibilities and authority for rewards and sanctions.Poor planning governance – high-level leadership for overall plan performance.Ill-defined strategic goals – ambiguity avoidance
  133. 133. Strategy Implementation: Link to Execution Top-Down, Bottom-Up – seeking active participation from the lower levels Understanding of Acceleration - reality check on the planning process Accountability, Performance and Reward Energy and Focus - first mobilize organization energy, then focus it Communication Governance
  134. 134. Balanced Scorecard (BSC)A strategic approach and performancemanagement system that enablesorganizations to translate company’s vision andstrategy into implementation from fourperspectives: Financial (How do we appear to shareholders?) Customer (How do customer view us?) International Business Perspective (What must we excel at?) Learning and Growth (Can we continue to improve and create value?)
  135. 135. Balanced Scorecard Approach -Strategic & Financial Objectives
  136. 136. Strategy Evaluation and Control
  137. 137. Measures of Corporate Performance
  138. 138. Strategic AuditType of management audit that is extremely usefulas a diagnostic tool to pinpoint corporate-wideproblem areas and to highlight organizationstrength and weakness.
  139. 139. Thank You, Sunil Garg B. Tech. M. Tech. MBAIndustry Consultant & Management Professor (IB, SCM & Strategy) Advisory Board Member - ISCEA, USA – Country Head (India) - BRASI, Canada - Director – IKN, Canada - Ph: +91 98688 77774 / 98716 58884, USA: +1 815 349 6142