Strategic management

1. Strategic Management
The Strategy Concept
Dr. B. K. Mukherjee 1

2. The Strategy Concept
This area of management study was first developed in 1950s and 1960s by H.
Igor Ansoff (Corporate Strategy. 1965) – rational and accurate ways by which
organizations could both adjust to and exploit changes in their environment.
Ansoff distinguished ‘corporate strategy’ (selection of what business/portfolio of
businesses to be in) from ‘business strategy’ (how to compete or function in
that business, once selected).
If a company’s strategy results in superior performance relative to other
companies in the same business/industry, then it is said to have a
competitive advantage.
Opening Case: DELL COMPUTERS
Started in 1984 by Michael Dell in his dorm room at the Uni. Of Texas in Austin.
Sales in 2002 was USD 30 billion.
• Direct selling strategy;
• Customization of product over the Internet; and
• Using the Web for Supply Chain Mgmt (JIT), resulting in lowest (5 days’)
Inventory on hand.
Dr. B. K. Mukherjee 2

3. Competitive Advantage
Major authority currently is Prof. Michael E.
Porter of Harvard Business School
(‘Competitive Strategy: Techniques for
Analyzing Industries and Competitors’, 1980)
.According to Porter, competitive advantage
grows fundamentally out of value a firm is
able to create for its buyers that exceeds the
firm’s cost of creating it. Value
(Benefits/Cost)is what buyers are willing to
pay, and superior value stems from offering
lower prices than competitors for equivalent
benefits or providing unique benefits that
more than offset a higher price.
Today, every enterprise operates in a complex
business environment, hence Strategy must
necessarily change over time to fit the
prevalent environmental conditions.
However, to remain competitive, companies
must focus on
• a) Core competence,
• b) Synergy, and
• c) Value creation.
Dr. B. K. Mukherjee 3

4. Core Competence
Core competence: a business activity that an organization does
particularly well in comparison to its competitors – should be
1) Distinctive – only for me / non-duplicable / based on culture (herbal
- Dabur), relationship (ICICI Bank), etc.
2) Reproducible – in terms of Technology, Value (VFM), etc.
SOME EXAMPLES OF CORE COMPETENCE
 BRITANNIA INDUSTRIES – real expertise lies in handling
perishable goods. However, AMUL is one step ahead of Britannia in
the value chain because of its own milk-producing unit.
 HINDUSTAN LEVER LTD.– Distribution of FMCGs, Toiletries, Food
products, etc.- vast and efficient distribution network – long shelf life.
 LARSEN & TOUBRO LTD – Engineering, Design and
fabrication/erection of complex plants/infrastructure projects, incl.
Nuclear reactors.
 TOYOTA MOTORS, JAPAN : The Japanese have further
promulgated this view by developing the “Five Zeros” and “Seven
Wastes” concepts. Actually, Toyota’s core-competence lies not in
making and selling cars, but in following the 5-zeros and 7-wastes
strategies.
Dr. B. K. Mukherjee 4

5. Toyota’s 5-zeros strategy
 FIVE ZEROS STRATEGY:
1. Zero Customer feedback time – continuous
customer feedback after sale.
2. Zero Product improvement time – ongoing
R&D activities, prompt introduction of improved
variants.
3. Zero Purchase time – JIT system, reduced
inventory, lower costs.
4. Zero Set-up time – Flexible design of tools,
jigs, robotics, processes.
5. Zero Defect – Frequent inspections, In-process
QC, Flawless finish.
Dr. B. K. Mukherjee 5

6. Toyota’s 7-wastes strategy
SEVEN WASTES TO BE AVOIDED:
1. Waste of time on hand (i.e, waiting time) – because
men, m/c, raw materials, stocks are waiting, by proper planning
and scheduling.
2. Waste in Transportation – by planned logistics and
Dr. B. K. Mukherjee 6
material movements.
3. Waste in over-productions – by proper production
planning and estimations.
4. Waste in stocks-on-hand – by effective sales
forecasts.
5. Waste in Processing – efficient use of technology.
6. Waste in movement – by detailed Work-study.
7. Waste in making defective products – state of mind

7. Core (Internal) Competences [Chaston]
Clearly defined Market Opportunity
Adoption of appropriate Market Positioning
Formal Plan to exploit identified opportunity
Strategic
Competences
Financial Resources capable of
supporting Plan Resource Competences
Organizational competences
Dr. B. K. Mukherjee 7
INNOVATION
Effective or
requiring
improvement?
WORKFORCE
Appropriate
structure,
motivated and
competent or
requiring
Improvement?
PRODUCTIVITY
Adequate,
supported by
ongoing invest-ment
in Techno-logy
or requiring
improvement
QUALITY
Adequate and
regularly
assessed or
requiring
improvement?
SYSTEMS
Information
flows permit
rapid problem
resolution or
requiring
Improvement?

8. Core (Internal) Competences
• STRATEGIC COMPETENCE: Complacency is dangerous in a world full of competition. An
organization’s strategic competence can be evaluated by testing whether the strategies are
distinctive, appropriate, usable, measurable and sustainable.
• FINANCIAL RESOURCE COMPETENCE: may be achieved by way of conservative financial
management rather than ambitious over-expansion through cavalier acquisitions of
competitors’ businesses.
• INNOVATION: To prosper and grow all organizations need to continually innovate and
improve their products and process technologies (eg. 3M)
• WORKFORCE: HRM practices within the organization often play a decisive role, because a
motivated and appropriately structured workforce can contribute significantly towards
building market competitiveness.
• QUALITY: In the 1970s, countries like Japan and Korea were able to penetrate global
markets solely on the basis of superior quality of their products (concepts like TQM, Kaizen,
etc). Over the years, it has been clearly demonstrated that companies whose products are
perceived to be of a higher quality will enjoy higher profits and a larger market share.
• PRODUCTIVITY (measured as level of value-added activities per employee per number of
hours worked): The secret of Japanese competitiveness lies in adoption of concepts such as
lean production, concurrent engineering and JIT, thereby making them world leaders and,
at the same time, generating very healthy profits.
• INFORMATION SYSTEMS: The advent of low-cost, extremely powerful computers offers
opportunities through which to develop integrated Mgmt Information Systems.
Dr. B. K. Mukherjee 8

9. Synergy
‘Synergy’ occurs when the various parts of an organization interact
to produce a joint effect which is greater than the sum of the parts
acting alone, i.e, 1+1+1+1>4. This involves a process of ‘Vertical
Integration’ and also a strong psychological element. Examples are:
 OIL COMPANIES : Exploration(Crude oil, Natural gas) >
Drilling(Technology) > Crude Transportation (Pipelines, Tank ships)
> Crude Storage (Tank Farms) > Refining (Different fractions –
CNG/LPG/ Petrol/Diesel/Kerosene/ATF/Naphtha/Lubes/Fuel Oil) >
Product storage(Tanks) >Product Transportation > Retail pumps.
This is an example of Forward Integration.
 RELIANCE INDS : Textiles(VIMAL) >Yarn(Polyester Filament
Yarn/Partially Oriented Yarn, etc) > Petrochemicals(Purified
Terephthalic Acid, MonoEthylene Glycol, PolyPropylene, etc) > Oil
Refining (Naphtha) > Exploration (Crude). This is an example of
Backward Integration.
These are Integrated corporations who participate in the entire
Value chain, right from Exploration to Retail Pumps or from Textiles
to Oil Exploration.
Dr. B. K. Mukherjee 9

10. Value Creation & Value Delivery
 ‘Value’ can be defined as the perception of benefits received
against price paid by the customer, hence the term,”Value for
money”. Value must be greater than the cost of resources for the
business to be profitable.
 The task of any business is to deliver customer value at a profit.
 Traditional view was that a firm makes something and then sells it.
The economy is marked by shortages and customers are not fussy
about quality, features or style (eg. Henry Ford’s Model-T).
 However, this view will not hold in more competitive economies
where people face abundant choices. The smart competitor must
design and deliver offerings for well-defined target markets.
 This places Market at the beginning of the planning process and
companies now have to develop a proper ‘Value-creation & Value-delivery’
sequence in order to remain competitive.
Dr. B. K. Mukherjee 10

11. Value Creation & Delivery (contd.)
Traditional Physical process sequence
Design the product
Procure materials
Price the product
Sell the product
Dr. B. K. Mukherjee 11
1.Make the product
Make/manufacture the product
2.Sell the product Advertise / Promote
Distribute
Service after sales

12. Value creation & Value delivery
(contd)
Value Creation & Delivery sequence
Customer Segmentation
Focus Target audience
Position the value
Product/Service developmt
Price
2. Create the value Procurement/sourcing
Manufacturing
Sales force
Sales Promotion
Dr. B. K. Mukherjee 12
1. Select the value
(“Homework” by Co.)
Distribution
3. Communicate the
value Sales process
Advertising
Servicing
S-T-P
Strategic Mktg
Tactical
Mktg.

13. Emergent strategies: The case of
Honda
According to Henry Mintzberg, emergent strategies are the unplanned
responses to unforeseen circumstances, often arising from autonomous
action by individual managers or from serendipitous discoveries or
events. Mintzberg maintains that emergent strategies are often
successful and may be more appropriate than intended strategies.
In 1959, Honda Motor Co. decided to enter the U.S. motorcycle market. A
number of Honda executives arrived in Los Angeles from Japan to
establish the U.S. operation. Their original aim (intended strategy) was
to focus on selling 250-cc and 350-cc machines to confirmed
motorcycle enthusiasts rather than the 50-cc Honda Cubs, which were
a big hit in Japan. Their instinct told them that the Honda-50s were not
suitable for the U.S. market where everything was bigger and more
luxurious than Japan (eg, Harley-Davidsons, big sedans, etc).
However, sales of the 250-cc and 350-cc bikes were sluggish, and the
bikes themselves were plagued by mechanical problems. It looked like
Honda’s strategy was going to fail.
At the same time, the Japanese executives who were using the Honda-50s
to run errands around Los Angeles were attracting a lot of attention.
Dr. B. K. Mukherjee 13

14. The case of Honda (contd.)
One day they got a call from Sears, Roebuck who wanted to sell
the 50-cc bikes to a broad market of Americans who were not
necessarily already motorcycle enthusiasts. The Honda
executives were initially hesitant to sell the small bikes for fear
of alienating serious bikers, who might then associate Honda
with “wimpy” machines. In the end, they were pushed into doing
so by the failure of he 250-cc and 350-cc models.
Honda had thus stumbled onto a previously untouched market
segment that was to prove huge: the average American who
had never owned a motorbike.
Honda had also found an untried channel of distribution: general
retailers rather than specialty motorbike stores. By 1964, nearly
one out of every two motorcycles sold in the United States was
a Honda.
In this case, the company’s meticulously planned intended strategy
was a near disaster. What ultimately worked was the emergent
strategy, not through planning but through unplanned action in
response to unforeseen circumstances.
Dr. B. K. Mukherjee 14

15. Serendipity and Strategy
Business history is full of examples which suggest that many successful
strategies emerge not out of well-thought-out plans but out of serendipity,
i.e, stumbling upon good things unexpectedly.
THE CASE OF THE MINNESOTA MINING & MANUFACTURING CO (3M)
In the 1920s, 3M was a small manufacturer of sandpaper. Its best-selling
product, wet-and-dry sandpaper, was introduced in 1921 and was primarily
sold to automobile companies for sanding auto bodies between paint
coats. A problem with the paper, however, was that the grit did not always
stay bound to the sandpaper and ended up damaging the paint surface.
To tackle the problem in the early 1920s, a young CEO, William McKnight,
hired 3M’s first research scientist, Richard Drew, who was fresh out of
college on his first job. While experimenting with adhesives, Drew
happened to develop a weak adhesive that did not seem very promising.
However, it had an interesting quality: when applied to paper, it would
easily peel off from a surface without damaging it or leaving any adhesive
residue. This led to the advent of “masking tape”, which would be
extensively used in all auto paint shops and, years later, the product “Post-it”
pads.
Sticky (“Scotch”) Tape subsequently became a major business for 3M and for
40 years McKnight and Drew together helped build 3M and shape its
organizational culture: that of encouraging initiative and innovation.
Dr. B. K. Mukherjee 15

16. Serendipity and Strategy (contd.)
Another such example happened in the 1960s. At that time, 3M
was producing fluorocarbons for the air-conditioning industry.
One day a researcher working with fluorocarbons in a 3M lab
spilled some of the liquid on her shoes. Later that day when she
spilled coffee on her shoes, she was surprised to notice that the
coffee formed into little beads of liquid and ran off the shoes
without leaving any stain.
Further research led to the development of ‘Scotch Guard’, a
fluorocarbon-based product for protecting fabrics from liquid
stains. Subsequently, Scotch Guard became one of 3M’s most
profitable products and took the company into the fabric
protection business, an area it had never planned to enter.
But some companies have missed out on profitable serendipitous
opportunities because of strategic myopia. A century ago, the
telegraph company Western Union turned down an opportunity
to purchase the rights to an invention made by Alexander
Graham Bell.
The invention was the telephone, a technology that subsequently
made the telegraph obsolete.
Dr. B. K. Mukherjee 16