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This document provides an overview of strategic management for a PGDM course. It discusses the importance and process of strategic management. Regarding importance, it notes strategic management helps organizations identify opportunities, prepare for the future, be action-oriented, strengthen structure, and gain competitive advantages. The strategic management process involves goal setting, environmental scanning, strategy formulation, implementation, and evaluation. It also discusses different levels of strategy, approaches to strategic management, and organizational configurations.

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STRATEGIC MANAGEMENT PGDM 2022-24 Subject Code: PGDM 206
WHY STRATEGIC MANAGEMENT After going through the course, PGDM students should be able to CO1: Understand the basic concepts, principles and practices associated with strategy formulation and implementation CO2: Analyze the strategic management process and its steps of execution in organizations CO3: Evaluate various perspectives to take decisions and comprehend their impact on the businesses for devising successful strategies CO4: Analyze and evaluate critically real-life company situations and develop creative solutions, using a strategic management perspective CO5: Devise successful holistic and multi-functional strategies for business using tools and techniques of strategic management
UNIT 1: INTRODUCTION TO STRATEGIC MANAGEMENT
ORIGIN: STRATEGIC MANAGEMENT • Strategic Management as an academic discipline originated in 1950s • Prior to 1950, term “Strategy" was primarily used regarding war and politics, not in business • Among the numerous early contributors, most influential were Peter Drucker, Philip Selznick, Alfred Chandler, Igor Ansoff and Bruce Henderson • Forced change in focus from Production oriented to Marketing oriented acted like a Stepping Stone
CONT… • Strategy is defined as “the determination of basic long- term goals of an enterprise and the adoption of courses of action and allocation of resources necessary for carrying out these goals.” • Strategy is an action plan built to achieve a specific goal or set of goals within a definite time, while operating in an organizational framework • Strategies are established to set direction, focus effort, define the organization, provide consistency or guidance in response to the environment
INTRODUCTION • Strategic Management is formulation and implementation of major goals and initiatives taken by a company's top management based on consideration of Resources and an Assessment of the Internal and External environments in which the organization competes • Strategic Management is the continuous planning, monitoring, analysis and assessment of all that is necessary for an organization to meet its goals and objectives in the long run
IMPORTANCE Identify Opportunities • It is necessary to identify opportunities/threats, identify strengths/weaknesses by studying the internal/external structure of organization. One may consider new ways to implement strategies Prepare For The Future • It helps to prepare for the future in terms of Contingencies. A business environment is dynamic and fast-paced. Evolve and adapt strategies to keep abreast of vital changes in the business sphere.
IMPORTANCE Be Action-Oriented • If one is driven by action and purpose, one can easily alter policies and business plans to drive the organization forward. A sound action plan is sustainable and important for growth and survival of company. Strengthen Organizational Structure • One can reflect on organization’s internal structure and make changes wherever you feel necessary. Only a strong organizational structure can endure testing times. Sustained Competitive Advantage • It’s necessary to have a sustained competitive advantage. To do well in the market and avoid failure when faced with setbacks, build a plan that’s viable and long-lasting.
RESULTANT – MAY BE • Increase in Efficiency of Employees • Motivation of Employees • Acceptance of Organizational Changes • Reduction in Fixed and/or Variable Expense leading to better Profitability • Reduction in Cost of Capital • Increase in ROI • Better Market Share
MINTZBERG’S SCHOOLS OF THOUGHT
THE DESIGN SCHOOL Focus is on conception of ideas and to design new ideas. • Company does an internal analysis with help of SWOT analysis • Then try to match its internal strength with market conditions. • This works well in a stable environment, where competitors might not disrupt the market suddenly & it gives time to firm to adapt.
THE PLANNING SCHOOL • Planning entire strategy in a rigorous manner, so that the firm advances forward. • Complete process and the plan which the company will implement is documented from start to finish. • Plan is referred to whenever the management wants to take new decisions. • With the plan in hand, the management gets a clear direction to move in, helping the company to move forward unanimously.
THE POSITIONING SCHOOL • Management decides that they want to position the product at the top of the mind and makes decisions accordingly. • Management has to determine the competition already present in the market and where is their own company positioned. • It can use tools like Porters Five forces, BCG matrix etc to position its products • Once the market has been analysed, right strategy is needed to improve positioning of the product.
THE ENTREPRENEURIAL SCHOOL • Focus is CEO of Company. Mostly observed in small businesses or even large corporations which trust their leaders. • CEO needs to be visionary, needs strong leadership skill, and has to have the right judgement and direction. • This strategy has been proven right in very few cases over the years where the leaders were legendary by themselves. Examples: Steve Jobs, Bill Gates, Mark Zuckerberg
THE COGNITIVE SCHOOL • People’s perception and information is studied. A good example of cognitive study is Johari Window. • You can better your business by understanding your customers. • It is a mental and psychological process to find out what is in the minds of consumers and how do we improve on that or use that information. • You can change the psychology of consumers by communicating something better or different.
THE LEARNING SCHOOL • Management keeps a watch over what has already happened and then forms the future strategy looking at the past. • The company looks at things that worked and tries to implement the same thing over time with the assumption that it will work again. • The company also looks at things that did not work in its favour (or in favour of a competitor who tried the same thing) and discards such things / processes.
THE POWER SCHOOL •People who are in power take the decisions. These people can be your customers, stakeholders or certain people from within the management. •Anyone who is known to have power over the company can drive the company forward. •Generally lesser resistance for the strategy to be implemented.
THE CULTURAL SCHOOL •Company has a fantastic capital in terms of its Human Capital as well as its Social Capital. A positive culture in the firm can give a proper direction to the firm. •Cultural school tries to involve many different departments within a company. •It is critical during Mergers and Acquisitions. •It emphasizes the role of social values, beliefs and culture in decision making.
THE ENVIRONMENTAL SCHOOL •More of a Situational school of thought, the environmental school gives most of the importance to the environment. •Major emphasis is on the environment – which can be a source of raw material, present day business conditions as a major factor in the strategy by the company. •Situational analysis is the most used tool in the environmental school.
THE CONFIGURATION SCHOOL • Strategy needs to be configured. Strategy allows the firm to move from one position to another. • One needs to consider a lot of things which can go wrong and cannot be derived from simple set of values. • Over a period of time, an organization forms various sets of values which need to be transformed so that the organization reaches the point that it desires. • Organizations’ stable business might need to be disrupted and the organization has to be configured
PROCESS: STRATEGIC MANAGEMENT • Strategic Management process means defining organization’s strategy. Process by which managers make a choice of a set of strategies for the organization that will enable it to achieve better performance (Formulation, Implementation, Evaluation and Control). • It is a continuous process that appraises the business in which the organization is involved; appraises it of its competitors; fixes goals to meet all the present and future competition and then reassess each strategy.
STEPS IN PROCESS Goal-Setting • Clarify Vision for your business. • This stage consists of identifying three key facets: First, define both short and long-term objectives. Second, identify the process of how to accomplish your objectives. Finally, customize the process for your staff, give each person a task with which he can succeed. • Your goals have to be detailed, realistic and match the values of your vision. • Final step in this stage is to write a Mission statement that communicates your goals to shareholders / employees.
CONT… Environmental Scanning •Refers to process of collecting, scrutinizing and providing information for strategic decisions. •Helps in analyzing internal and external factors influencing an organization. •After environmental scanning, management should evaluate it on a continuous basis and strive to improve upon it.
CONT… Strategy Formulation • Process of deciding best course of action for accomplishing organizational objectives. • After conducting environment scanning, managers formulate corporate, business and functional strategies. Strategy Implementation • Implies making the strategy work as intended • Includes designing organization’s structure, distributing resources, developing decision making process and managing human resources.
CONT… Strategy Evaluation • Final step of Strategy Management process. • The key strategy evaluation activities are: appraising internal and external factors that are the root of present strategies, measuring performance and taking remedial/corrective actions. • Evaluation makes sure that the organizational strategy as well as its implementation meets the organizational objectives.
ROLE OF LEADERSHIP •Determining strategic direction •Establishing balanced organizational controls •Effectively managing the organization’s resource portfolio •Sustaining an effective organizational culture •Emphasizing ethical practices organizational controls
LEVELS OF STRATEGY Strategy may operate at different levels in an organization •Corporate Level •Business Level •Functional Level Strategy changes based on the change in Level
CONT… Corporate Level Strategy •Corporate level strategy occupies highest level of strategic decision making. •It covers actions dealing with the objective of firm, acquisition and allocation of resources and coordination of strategies of various SBUs for optimal performance. •Top management of organization makes such decisions.
EXAMPLES •What should be the scope of operations (what businesses should the firm be in, what is the geographical area of operation)? •Are there additional businesses the firm should enter or are there businesses that should be targeted for termination? •Should we pursue related diversification (similar products) or unrelated diversification (dissimilar products)
CONT… Business-Level Strategy • Business Level Strategy is applicable in those firms which have different businesses and each business is treated as Strategic Business Unit. • Fundamental concept in SBU is to identify the discrete product/market segments served by the organization. • Reliance Industries Limited operates in textile fabrics, yarns, telecommunications, petrochemical products etc. For each product group, the nature of market in terms of customers, competition and marketing channel differs.
CONT… • Therefore, it requires different strategies for its different product groups. • Each SBU sets its own strategies to make the best use of its resources (its strategic advantages) given the environment it faces. • At such a level, strategy is a comprehensive plan providing objectives for SBUs, allocation of resources among functional areas and coordination between them for making optimal contribution to the achievement of corporate-level objectives.
EXAMPLES •Developing distinctive competencies and competitive advantage in each unit. •Identifying product market niches and developing strategies for competing in each. •Monitoring markets so that strategies conform to the needs of the markets at the current stage of evolution.
CONT… Functional-Level Strategy • Functional strategy relates to a single functional operation and the activities involved therein. • Decisions at this level within the organization are often described as tactical. • Functional strategy deals with relatively restricted plan providing objectives for specific function, allocation of resources among different operations within that functional area and coordination between them for optimal contribution to the achievement of the SBU and corporate-level objectives. • Marketing, HR may be the functions
EXAMPLES •Efficiently utilizing specialists within the functional area. •Integrating activities within the functional area (e.g., coordinating advertising, promotion, and marketing research in marketing; or purchasing, inventory control, and shipping in production/operations). •Assuring that functional strategies mesh with business- level strategies and the overall corporate-level strategy.
CONT…
COMMON APPROACHES FOR SM As per Richard P. Rumelt • Diagnosis − What problem needs to be addressed? How do vision, mission and objectives of a firm imply its actions? • Guiding Policy − What according to the firm’s approach will be the framework to solve problems? • Action Plans − How would the operations look like (in detail)? How can the processes be enacted to be in sync with policy guidelines and to address issues diagnosed?
CONT… As per Michael Porter Michael Porter provided the following key elements that needs to be considered while forming a competitive strategy. Elements are: • SWOT Analysis • Broader Societal and Stakeholder expectations
CONT… As per Henry Mintzberg • Strategy as plan − Strategy is a directed course of action to reach intended set of goals (SWOT, PESTLE) • Strategy as pattern − Strategy emerges from a consistent pattern of past organizational behavior. A strategy is realized over time. • Strategy as position − This includes locating brands, products or companies within the market and industry depending on the conceptual framework of the firm’s consumers or stakeholders (Core Competence)
CONT… •Strategy as ploy − This is a specific manipulation intended to outwit a competitor. •Strategy as perspective − This kind of strategy is based on the "theory of the business" or it may be a natural extension of the given mindset or ideological attributes of the organization (Risk Taking, Innovation, outsourcing or any other innovative factor)
CONFIGURATIONAL PERSPECTIVE •Structure is sum total of ways in which an organisation divides its labour into distinct tasks and then achieves coordination among them. •Structure is the formal relation among groups and individuals in an organisation. •Consistency between Strategy and Structure is necessary for effective performance.
CONFIGURATIONAL PERSPECTIVE Two examples of Configurational Theories that have enjoyed widespread popularity. •Mintzberg's Theory of organizational structure (1979, 1983) •Miles and Snow's theory of strategy, structure and process (1978).
AS PER MILES AND SNOW Prospector •Most dynamic of the organizational forms. •Organization responds rapidly to early signals concerning areas of opportunity and responses often lead to a new round of competitive actions. •The ones who are innovators, growth oriented, search for new markets and opportunities as well encourage risk taking.
CONT… Defender • Defender is a less dynamic form of organization. • Happy with current place in market. • Protects their current markets, maintains stable growth and serves current customers. • Tends to offer a more limited range of products and services than its competitors and it tries to protect itself by offering either higher quality or superior service or lower prices etc (Any USP)
CONT… Analyzer • Analyzer adopts some characteristics of Prospectors and others of Defenders. • Ones who are true Analysers may not be the first to create something, but they may improve upon creation of any other firm. • Analyzer attempts to maintain a stable and limited line of products or services or tries to maintain current customer satisfaction with moderate emphasis on innovation.
CONT… Reactor •Does not appear to have a specific business approach or a strategy. •Try to catch up with the market as things change. •Firm is usually not as aggressive in maintaining established products, nor is it willing to take as many risks as either competitors. •Do not have a clear strategy but reacts to changes in the environment
WHAT TO DO? •Once you are clear which of the 4 ways you are going to operate, you can structure the design of company accordingly. •Example: If a company wants too much of innovation, that requires a different set of manpower as compared to a company who are not focussing on innovation.
AS PER MINTZBERG Simple Structure (direct supervision) • It has little or no structure, few support staffers, a loose division of labor, minimal differentiation among its units and a small managerial hierarchy. • Little of its behavior is formalized and it makes minimal use of planning, training and the liaison devices. • Coordination in the Simple Structure is effected largely by direct supervision.
CONT… Machine Bureaucracy (standardization of work) •Highly specialized, routine operating tasks, very formalized procedures in the operations, a proliferation of rules, regulations and formalized communication throughout the organization •Large sized units at the operating level, reliance on the functional basis of grouping tasks, relatively centralized power for decision making, an elaborate administrative structure.
CONT… Professional Bureaucracy (standardization of skills) • Relies for coordination on the standardization of skills and its associated design parameter, training and indoctrination. • It hires duly trained specialists professionals for the operations and then gives them considerable control over their own work. • Control over own work means that the professional works relatively independently of his colleagues, but closely with the clients he serves.
CONT… Divisionalized Form (standardization of outputs) •Relies on the market basis for grouping units at the top of the middle line, like Product Groups. • Divisions are created according to markets served and are then given control over the operating functions required to serve these markets so that each can operate as a autonomous entity, free of the need to coordinate with the others.
CONT… Adhocracy (coordination through mutual adjustment) • Highly organic structure with little formalization of behavior. • Reliance on the liaison to encourage mutual adjustment, the key coordinating mechanism within and between these teams. • Selective decentralization to and within these teams, which are located at various places in the organization and involve various mixture of line managers and staff
WHAT YOU AIM AT? • Direction: Which is the sense of Vision and Mission of organisation • Efficiency: Need to minimise costs and increase benefits • Proficiency: Carrying certain task with a high level of knowledge and skill •Innovation: Need to develop new products or services and adopt to the external environment
CONT… •Cooperation: It reflects the need for harmony and cooperation among a diverse set of people. •Competition: That can cause splitting apart of individuals and departments due to need for individual success and recognition. •An important purpose of Organisational form is to enable an organisation to achieve right balance of all above.
DIMENSIONS OF STRATEGIC DECISIONS 1. Strategic issues require top-management decisions • Strategic issues involve thinking in totality of firm’s objectives in which a considerable amount of risk is involved. • Problems calling for strategic decisions require to be considered by the top management. 2. Strategic issues involve allocation of large amounts of resources • It may require either a huge financial investment to venture into a new area of business or the firm may require a huge amount of manpower with new skill sets
CONT… 3. Strategic issues are likely to have a significant impact on the long term prosperity of firm • Generally the results of strategic implementation are seen on a long term basis and not immediately. 4. Strategic issues are future oriented • Strategic thinking involves predicting the future environmental conditions and how to orient for the changed conditions.
CONT… 5. Strategic issues usually have major multifunctional or multi-business consequences • As they involve organization in totality, they affect different sections of the organization with varying degree. 6. Strategic issues necessitate consideration of factors in the firm’s external environment • Strategic focus in an organization involves orienting its internal environment to the changes of external environment.
STRATEGIC INTENT •Strategic Intent of an organisation describes how firm’s resources are channelled for achieving a goal. •It is a statement about where an organization is going that conveys a sense of what that organization wants to achieve in long run. •Strategic Intent is stable over time and it sets a target that need efforts and commitment. •Strategic intent answers the question: “What exactly are we trying to accomplish?”
STRATEGIC INTENT HIERARCHY
VISION •Vision: Vision implies the blueprint of company’s future position. •It describes where the organization wants to land up at. •It is the dream of the business and an inspiration, base for the planning process. •Depicts the company’s aspirations for the business and provides a peep of what the organization would like to become in future.
MISSION • Mission: Mission delineates the firm’s business, its goals and ways to reach the goals. • Designed to help potential shareholders and investors understand the purpose of the company. • Helps to identify, ‘what business the company undertakes’. It defines the present capabilities, activities, customer focus and business makeup.
CONT… Kind of information contained in Mission statement varies from organization to organization. Most mission statements cover the following major topics: •Company product or service •Market •Technology •Company Objective •Public image
CRITERIA FOR MISSION STATEMENT • Clear, brief and understandable to all people. • Specifies what business firm is in. Includes statement about: • "What" customer needs the organization is attempting to fill, not what products or services are offered; • "Who" the organization's primary customers are; • "How" the organization plans to go about its business, what its primary technologies are; • "Why" the organizations exists, that is, the overriding purpose that the organization is trying to serve and its goals. • Should reflect distinctive competence of organization.
BUSINESS DEFINITION •Business Definition: It seeks to explain the business undertaken by the firm, with respect to the customer needs, target audience and alternative technologies. •With the help of business definition, one can ascertain the strategic business choices. The corporate restructuring also depends upon the business definition.
BUSINESS MODEL •Business Model: Business Model, as the name implies is a strategy for the effective operation of the business, ascertaining sources of income, desired customer base, financing details, Marketing etc •Rival firms, operating in the same industry may rely on different business model due to their possibly different strategic choice.
CONT… •When Management asks about a business model as in, “So what’s your business model?” they really want an answer to a much more direct and basic question: “How do you plan to make money?”
CONT… • Who’s your target customer? • What customer problems or challenges do you solve? • What value do you deliver? • How will you reach, acquire and keep customers? • How will you define and differentiate your offerings (USPs)? • What’s your cost structure? • How will you generate revenue? • What’s your profit margin?
GOALS AND OBJECTIVES • Goals and Objectives: These are the base of measurement. • Goals are the end results, that the organization attempts to achieve. • Objectives are time-based measurable actions, which help in the accomplishment of goals.
OBJECTIVES AND GOALS OF BUSINESS •Well-chosen goals and objectives point a new business in the right direction and keep an established company on the right track. •When establishing goals and objectives, try to involve everyone who will have the responsibility of achieving those goals and objectives after you lay them out.
CONT… Goals establish where you intend to go and tells you when you get there. •They help improve your overall effectiveness as a company — whether you want to increase your market share or improve your customer service. Objectives are the specific steps you and your company need to take in order to reach each of your goals. They specify what you must do and when you must do.
CONT… •Goals tell you where you want to go; Objectives tell you exactly how to get there. •Goals can increase your effectiveness; Objectives back your goals and make you more efficient. •Goals are typically described in words; Objectives often come with numbers and specific dates.
EXAMPLES • Suppose that your Goal is to double the number of people using your web-conferencing service. Your Objectives may be as follows: • Gain awareness by placing print ads in 4 regional markets and by airing radio ads in 2 major markets (by 10 June) • Attract first-time customers by offering an online discount of Rs. 5000 (by 1 June) • Cultivate prospects by implementing a permission-based weekly e-mail to 2500 targeted contacts (by 10 July) • Convert 10 percent of prospects to clients, using e-mail reminders (beginning 25 July)
GOALS / OBJECTIVES
HOW TO SET GOALS •Tie Goals to your Mission •Use Goal-setting to Achieve, Conserve, Eliminate, Steer Clear? (Next Page) •Cover all the bases
CONT…
STRATEGY AS STRETCH Stretch is the gap between: • Knowledge, resources, capability, competence and willpower currently available to the enterprise and • aspirations of enterprise and the degree to which its leadership desires to be more productive or more creative. • Where current resources and capabilities are unlikely to be adequate to meet the requirements of enterprise strategic intent, they will need stretching in order to meet the demands of that intent.
CONT… Degree of Stretch that is deemed to be required by the organization is defined by: • Strategic Intent • Nature of challenges to the enterprise that are likely to be faced by organization in achieving that strategic intent, as established by • (i) forecasts and future scenarios that may affect the activities of that organization • (ii) competitive comparisons and benchmarks, for instance as defined by criteria of “excellence”, “world class”, “best value”, or the ambition to be “number one” etc.
STRATEGY AS LEVERAGE •Management must find a way to close the gap between resources and aspirations of the firm (Strategic Intent). •Achieved by leveraging resources, like ‘travelling maximum distance using the least possible amount of fuel’. •Goal is to challenge managers to become better in multiplying the impact of firm’s resource base thereby enlarging it.
ACHIEVING LEVERAGE Concentrating Resources Focus – Concentration of resources on a very few objectives at any one time: then (and only then) moving on to the next one. • ‘no group of employees can attend to more than two key operational improvement goals at (any one) time’. • ‘(to divide) meagre resources across a wide range of medium-term operational goals is a recipe for disaster’. Targeting – enterprise targets effort activities that will yield greatest benefit in terms of: • potential improvement in customer perceptions about enterprise. • their relative competitive or comparative advantage.
CONT… Accumulating Resources Mining – Each new experience, each success or failure must be seen as an opportunity to learn. Hence you can do better in future. Borrowing – Enterprise variously gains access to or acquires competencies and resources from outside. It can do this through its network of relationships. Examples: • use of subcontractors so as to exploit the sources of competitive advantage, excellence, creativity and innovation of theirs. • strategic alliances. • making use of more attractive factor markets (locating call centre operations in India, manufacturing units in China).
CONT… Complementing Resources Blending – resources are combined in ways that multiply relative value of each. Sony’s “Walkman” brought together well-known functional components - headphones and an audiotape playback device and created a huge market for it Balancing – by which a balanced array of resources and competencies are put in place that permit all necessary activities to be carried out with equal effectiveness. • a firm that has a strong product development capacity but is relatively weak in terms of sales is unlikely to gain much of the profit stream.
CONT… Conserving Resources Recycling – more often a particular skill or competence is used, the greater the competence is developed. Protecting – by which the risk of value loss or damage to resources is avoided by the selection of appropriate competition strategies. Examples: • to avoid head-on confrontations with powerful opponents. • to maintain strategies of defence or counter-attack. • to enter new markets via undefended or poorly served segments
CONT… Recovering Resources Expediting returns – by which time between expenditure of resources and the recovery of those resources is minimized. • A rapid recovery process acts as a resource multiplier. An enterprise that can do anything twice as fast as its competitors, with a similar resource commitment, enjoys a twofold leverage advantage. • Shortening product development times, compressing operational time, carrying out related activities in parallel rather than in sequence, realising outstandings sooner
STRATEGIC FIT • Strategic Fit expresses the degree to which an organization is matching its resources/capabilities with the opportunities in external environment. • Key to profitability is through an internal focus which seeks to utilize the unique characteristics of the company’s resources and capabilities (USPs). •Unique combination of resources and capabilities can be developed into a competitive advantage which the company can benefit from.
CONT… Several tools have been developed that one can use in order to analyze the resources and capabilities of a company. These include: • SWOT Analysis • Cash Flow Analysis • Competitor Analysis
CONT… • Strategic Fit can be used to evaluate specific opportunities like M&A opportunities. Strategic fit would in this case refer to how well the potential acquisition fits with the strategy of the acquiring company. • M&A transactions should yield a better return than normal growth (Though can go wrong also) • M&A transactions may give the acquiring firm possibility of achieving positive synergy effects meaning that the two merged companies are worth more together than the sums of their parts individually.
BALANCED SCORE CARD • Balanced Scorecard is a performance metric used in strategic management to identify and improve various internal functions of a business and their resulting external outcomes. • It is used to measure and provide feedback to organizations. Characteristics that define a BSC are: • Focus on the strategic agenda of organization • Selection of a small number of data items to monitor a mix of financial and non-financial data items.
CONT…
PERSPECTIVE OF BSC • Financial: Encourages identification of few relevant high-level financial measures and answers the question "How do we look to shareholders?" Examples: cash flow, sales growth, operating income, return on equity, outstandings etc • Customer: Encourages identification of measures that answer the question "What is important to our customers and stakeholders?" Examples: percent of sales from new products, on time delivery, share of important customers’ purchases, ranking by important customers.
CONT… • Internal Business Processes: Encourages identification of measures that answer the question "What must we excel at?“ Examples: cycle time for new product introductions. • Learning and growth: Encourages identification of measures that answer the question "How can we continue to improve, create value and innovate?" Examples: time to develop new generation of products, life cycle to product maturity, involvement of employees
CRITICAL SUCCESS FACTORS • Critical Success Factor (CSF) are the elements of an organization or project that are vital to its success. It is also known as Key Result Area (KRA) or Key Success Factor (KSF). • It is something an organization, business or project must accomplish in order to fulfill their goal. It helps a team or organization decide what they should focus on and compare progress to the goals that are set.
CONT… • Factors that are vital to the organization’s success. •Benefits the company or department as a whole. • Be synonymous with a high-level goal. •Link directly to the business strategy. •Installation of a call centre for providing superior customer service (and indirectly, influencing acquiring new customers through customer satisfaction).
KEY PERFORMANCE INDICATORS •A Key Performance Indicator (KPI) is a type of performance measurement. •It is a quantifiable measure used to evaluate the success of an organization, employee etc. in meeting objectives for performance. •KPIs evaluate the success of an organization or of a particular activity (such as projects, programs, products) in which it engages.
CONT… •Is your objective Specific? •Can you Measure progress towards that goal? •Is the goal realistically Attainable? •How Relevant is the goal to your organization? •What is the Time-frame for achieving this goal?
HOW TO DEFINE KPI • What is your desired outcome? • Why does this outcome matter to you? • How are you going to measure progress? • How can you influence the outcome? • Who is responsible for the business outcome? • How will you know you’ve achieved your outcome? • How often will you review progress towards the outcome?
CATEGORIZATION OF KPIS • Quantitative indicators that can be presented with numbers. • Qualitative indicators that can't be presented as numbers. • Leading indicators that can predict the outcome of a process. • Lagging indicators that present the success or failure post doing. • Input indicators that measure the amount of resourc.es consumed during the generation of the outcome.
CONT… •Output indicators that reflect the outcome or results of the process activities. •Directional indicators specifying whether or not an organization is getting better. •Financial indicators used in performance measurement and when looking at an operating index.
ENVIRONMENT APPRAISAL •Environment means the surroundings, external objects, influences or circumstances under which someone or something exists. •The environment of any organization is the aggregate of all conditions, events and influences that surround and affect it
CHARACTERISTICS •Environment is Complex: The environment consist of number of factors, events, conditions and influences arising from different sources. All these do not exist in isolation but interact with each other to create an entirely new set of influences •Environment is dynamic: The environment is consistently changing in nature. Due to many and varied influence operating, there is dynamism in the environment causing it to continuously change its shape and character.
CONT… • Environment is multi faceted: What shape and character an environment assumes depends on perception of observer. A particular change in environment or a new development may be viewed differently by different observers. • Environment has a far reaching impact on organizations: The growth and profitability of an organization depends critically on environment in which it exists. Any environmental change has an impact on organization in several different ways.
INTERNAL ENVIRONMENT Strength: It is an inherent capacity which an organization can use to gain strategic advantage. •Examples: good reputation among customers, resources, assets, good manpower, experience Weakness: It is an inherent limitation or constraint which creates strategic disadvantages. •Examples: gaps in capabilities, financial deadlines not met, low morale of employees etc
INDICATORS - S Strengths •What advantages does your organization have? •What do you do better than anyone else? •What unique or lowest-cost resources can you draw upon that others can't? •What do people in your market see as your strengths? •What factors mean that you "get the sale"? •What is your organization's USP?
INDICATORS - W Weaknesses •What could you improve? •What should you avoid? •What are people in your market likely to see as weaknesses? •What factors lose you sales?
INDICATORS - O Opportunities •What good opportunities can you spot? •What interesting trends are you aware of? Useful opportunities can come from such things as: •Changes in technology and markets •Changes in government policy related to your field. •Changes in social patterns, population profiles, lifestyle •Local events.
INDICATORS - T Threats •What obstacles do you face? •What are your competitors doing? •Are quality standards or specifications for your job, products or services changing? •Is changing technology threatening your position?
USE OF SWOT • Develop new/revised strategies – revised analysis of strategic issues may mean the objectives need to change • Establish critical success factors – the achievement of objectives and strategy implementation • Preparation of operational, resource, projects plans for strategy implementation • Monitoring results – mapping against plans, taking corrective action, which may mean amending objectives/strategies
WHEN TO USE SWOT A SWOT analysis can be used to: •Explore new solutions to problems • Identify barriers that will limit goals/objectives • Decide on direction that will be most effective •Reveal possibilities and limitations for change • To revise plans to best navigate systems and organizations
EXTERNAL ENVIRONMENT Opportunity: It is a favorable condition in organization’s environment which enables it to strengthen its position. • Example: economic boom, favorable demographic shifts, arrival of new technologies etc Threat: It is an unfavorable condition in organization’s environment which creates a risk for or causes damage to organization. • Example: economic downturn, negative demographic shift, arrival of new technologies etc
ENVIRONMENTAL SECTORS •Economic Environment •International Environment •Market Environment •Political Environment •Regulatory Environment •Socio Cultural Environment •Supplier Environment •Technological Environment
ECONOMIC ENVIRONMENT Consists of macro level factors related to means of production and distribution of wealth that have on business of organization Some important factors are: •Economic stage in which country/area exists •Economic policies such as industrial, monetary and fiscal policies •Infrastructural factors such as banks, mode of transportation etc
INTERNATIONAL ENVIRONMENT Consists of all those factors that operate at transnational, cross cultural and across border level, having impact on business of organization. Some of them are: •Globalization •Global economic forces, blocks and forum •Geopolitical situation, equation, alliances and strategic interests of nations
MARKET ENVIRONMENT Consists of factors related to group and other organization that compete with and have an impact on an organizations market. Some factors are: •Customer or client factors such as needs and preference •Product factors such as demand •Marketing intermediary factors like delivery systems
POLITICAL ENVIRONMENT Consists of factors related to management of public affairs and impact on business organization. May consist of: •Political structure, its goals and stability •Political processes like operation of party system, elections. •Political philosophy, Govt. role in business etc
REGULATORY ENVIRONMENT Consists of factors related to planning, promotion and regulation of economic activities. Consists of: •Policies related to licensing, monopolies and foreign investment •Policies related to distribution and pricing and control •Policies related to import and exports •Rules and Regulations
SOCIO CULTURAL ENVIRONMENT Consists of factors related to human relationship within society, development, forms and function of such relationship. May consist of: • Demographic characteristics regarding population • Socio cultural attitudes and values such as expectation of society from business, social customs • Family structure and changes in it • Role and position of men, women, children and aged in family and society
SUPPLIER ENVIRONMENT Consists of factors related to cost, reliability and availability of factors of production or services that have impact on business. Some important factors are: •Cost, availability and continuity of supply of raw material •Cost and availability of finance •Cost, reliability and availability of energy used in production •Cost, availability and dependability of HR
TECHNOLOGICAL ENVIRONMENT Consists of those factors related to knowledge applied and material and machines used in production of goods and services that have impact on business of an organization. Some important factors are: • Sources of technology • Technological development, stages of development change and rate of change of technology • Communication and infrastructural technology in management
ENVIRONMENTAL SCANNING •Environmental scanning can be defined as a process by which organizations monitor the relevant environment to identify opportunities and threats affecting their business for purpose of taking strategic decisions. •It is something like carrying out a Research
FACTORS TO BE CONSIDERED •Events are important and so are specific occurrences taking place in different environmental sectors •Trends are general tendencies or the courses action along which events take place. •Issues are current concerns that arise in response to events and trends. •Expectations are demands made by interested groups in light of their concern for issues
APPROACHES TO ENVIRONMENTAL SCANNING •Kubr suggested three approaches which could be adopted for sorting out information for environmental scanning. These are •Systematic approach •Adhoc approach •Processed-form approach
SYSTEMATIC APPROACH • Under this approach, information for environmental scanning is collected systematically. • Information related to markets and customers, changes in legislation and regulations that have a direct impact on organizations activities etc is scanned. • It is collected continuously to monitor changes • Continuously Updating such information is necessary not only for strategic management but also for operational activities
ADHOC APPROACH •Using this approach an organization may conduct special service and studies to deal with specific environmental issues from time to time. •Such studies may be conducted for instance when an organization has to undertake special project, evaluate existing strategies or devise new strategies
PROCESSED FORM APPROACH •Organization uses information in processed form, available from different sources both inside and outside the organization. •When an organization uses information supplied by Govt. agencies or private institutions, it uses secondary source of data and the information is available in processed form.
MACRO ENVIRONMENT • Macro environment is the condition that exists in the economy as a whole, rather than in a particular sector or region. • In general, the macro environment includes trends in gross domestic product (GDP), inflation, employment, spending and monetary and fiscal policy. • The macro environment is closely linked to the general business cycle as opposed to the performance of an individual business.
CONT… • Major external and uncontrollable factors that influence an organization's decision making, and affect its performance and strategies. • These factors include economic factors; demographics; legal, political, social conditions; technological changes; natural forces. • Macro environment influences competitors, changes in interest rates, changes in culture as well as tastes, weather, or government regulations.
MICRO ENVIRONMENT •Factors or elements in an organization's immediate area of operations that affect its performance and decision- making freedom. •These factors include competitors, customers, distribution channels, shareholders, media and the general public.
MACRO VS MICRO
BCG MATRIX • Based on Relation between Market Share of Company X and Growth of Industry. • Boston Consulting Group developed a matrix for assessing the product lines of a company called the BCG Matrix.
BCG MATRIX
CONT… Stars •High Growth, High Market Share •Star units are leaders in the category. Products located in this quadrant are attractive as they are located in a robust category and these products are highly competitive in the category. •Strategic choices: Market Penetration, Market Development, Product Development
CONT… Question Marks • High Growth, Low Market Share • Future potential of these products is doubtful. Since the growth rate is high here, with the right strategies and investments, they can become Cash Cows and ultimately Stars. • But they have low market share so wrong investments can downgrade them to Dogs even after lots of investment. • Strategic choices: Market penetration, market development, product development (Need to be cautious)
CONT… Cash Cows •Low Growth, High Market Share •These products or services generate interesting profits and cash but need to be replaced because the future growth will be lower. If they are profitable, they can finance other activities in progress (including stars and question marks). •Strategic choices: Product Development, Diversification
CONT… Dogs • Low Growth, Low Market Share • Dogs hold low market share compared to competitors. • In general, they are not worth investing in because they generate low or negative cash returns and may require large sums of money to support. • Due to low market share, these products face cost disadvantages. • Strategic choices: Retrenchment, Liquidation
UNIT 3: COMPETITIVE STRATEGY
PORTERS FIVE FORCES •Porter's Five Forces is a powerful tool for understanding competitiveness of your business environment, and for identifying your strategy's potential profitability. •Derive five forces that determine the competitive intensity and therefore, the attractiveness (or lack of it) of an industry in terms of its profitability. •The most unattractive industry would be one approaching "pure competition"
CONT… Porter's five forces include three forces from 'horizontal' competition • threat of substitute products or services • threat of established rivals • threat of new entrants and two others from 'vertical' competition • bargaining power of suppliers • bargaining power of customers
THREATS FROM NEW ENTRANTS • Existence of barriers to entry (patents etc.) • Government policy (not now generally) • Capital requirements • Cost advantages • Product differentiation • Brand Equity • Expected retaliation • Access to distribution channels • Customer loyalty to established brands • Industry profitability
THREATS FROM SUBSTITUTES •Buyer inclination to substitute •Relative price of substitute •Availability of close substitute •Buyer's switching benefits •Perceived level of product differentiation •Number of substitutes available in the market
BARGAINING POWER OF CUSTOMERS •How easy it is for buyers to drive your prices down •How many buyers are there and how big are their orders •Are your buyers strong enough to dictate terms to you? •Availability of existing substitute products •Buyer price sensitivity
BARGAINING POWER OF SUPPLIERS •How easy it is for suppliers to increase their prices •How many potential suppliers do you have? •Supplier switching costs •Degree of differentiation
INDUSTRY RIVALRY •Strength of your competitors •How many rivals do you have? •Sustainable competitive advantage through innovation •Powerful competitive strategy
GENERIC STRATEGIES Porter categorised the Generic Strategies as: •Cost Leadership (no frills) •Differentiation (creating uniquely desirable products and services) •Focus (offering a specialized service in a niche market)
COST LEADERSHIP STRATEGIES • Cost Leadership is a concept developed by Michael Porter and utilised in business strategy. • It describes a way to establish the competitive advantage. • Cost Leadership means the lowest cost of operation in the industry. •However Cost Leadership is different from Price Leadership.
CONT… •Cost leadership is often driven by company efficiency, size, scale and cumulative experience (learning curve). •A cost leadership strategy aims to exploit scale of production and other economies (e.g., a good purchasing approach), producing highly standardized products, using advanced technology.
CONT… Companies that are successful in achieving Cost Leadership usually have: •Very efficient logistics. •A low-cost base (labor, materials etc), a way of sustainably cutting costs below those of other competitors. •It is important to continuously find ways of reducing variable costs
DIFFERENTIATION STRATEGY •Differentiation involves making your products or services different from and more attractive than those of your competitors. •May involve Features, Durability, Very high levels of Service etc and also brand image that your customers value.
HOW TO ACHIEVE DIFFERENTIATION •Good Research, Development and Innovation. •Improve product performance. •Ability to deliver high-quality products or services. •Good Service Back up. •Excellent Point of Customer Interaction. •Better User Convenience. •Effective Sales and Marketing. •Creating a brand image.
FOCUS STRATEGY •Companies that use Focus Strategies concentrate on particular Niche Markets •They understand the unique needs of customers within it, develop uniquely well-specified products for the market. •Because they serve customers in their market uniquely well, they tend to build strong brand loyalty amongst their customers.
CHOOSING RIGHT GENERIC STRATEGY Step 1: •For each generic strategy, carry out a SWOT Analysis of your Strengths and Weaknesses, and Opportunities and Threats you would face, if you adopted that strategy. •Having done this, it may be more clear that your organization is likely / unlikely to be able to make success or not.
CONT… Step 2: •Use Five Forces Analysis to understand the nature of the industry you are in.
CONT… Step 3: For each option, ask how you could use that strategy to: • Reduce or manage supplier power. • Reduce or manage buyer power. • Reduce the effect of competitive rivalry. • Reduce or eliminate the threat of substitution. • Reduce or eliminate the threat of new entrants. • Select the generic strategy that gives you the strongest set of options.
VALUE CHAIN •A Value Chain is a set of activities that a firm operating in a specific industry performs in order to deliver a product or service to the market. •A Value Chain is a series of activities or processes which aims at creating and adding Value to an product at every step during the production process. •When more Value is created, the same is passed on to the customers and thus further helps in consolidating a competitive edge.
PRIMARY ACTIVITIES • Inbound Logistics: Inbound movement of material, from suppliers to manufacturing, warehouses or retail stores • Operations: Process that converts inputs into outputs • Outbound Logistics: Storage and movement of final product flows from end of production line to the end user • Marketing and Sales: Selling a product or service and processes for creating, communicating, delivering and exchanging offerings that have value for customers • Back up Service: Includes all activities required to keep the product/service working effectively for the buyer after it is sold
CORE COMPETENCY •“A harmonized combination of multiple resources and skills that distinguish a firm in the marketplace”. •It helps company to define its Strength helping it to expand business and grow in size. •Capabilities of the company which can help the company in developing a unique market identity.
FEATURES: CORE COMPETENCY? • Relevance – Must give your customer something that strongly influences him to choose your product. If it does not, then it is not a core competence. • Difficult to imitate – This allows you to provide products that are better than those of your competition. • Breadth of application – It should be something that opens up a good number of potential markets. If it only opens up a few small, niche markets, then success in these markets will not be enough to sustain significant growth.
WHAT TO DO? •First, the company needs to identify the special abilities that can provide them a competitive edge •Second, the company needs to find ways in which they can use it to improve these abilities working for the overall development of the firm •Third, the company needs to direct its resources in further strengthening the core competencies. •Fourth, the company needs a specific strategy to sustain the core competencies.
EXAMPLES (FOR INDIVIDUALS) • Excellent Communication - Can use language effectively to gather information and facilitate exchange of ideas. • Flexibility - Ability to adapt to changes while keeping focus on goals and apply knowledge to new conditions • Influence - Can encourage others to be proactive. • Initiative - Ability to obtain information from several sources to address present needs. • Interpersonal Relations - Exhibits respect and understands others to develop relationships. • Leadership - Ability to establish a team effort that promotes working towards a common goal.
ADAPTABILITY AND INNOVATION • Generates new ideas and approaches to deal with changing market demands, technology and internal initiatives • Adaptable and flexible to change, remains composed, is able to adjust and reprioritize when necessary Behaviours includes: • Demonstrating flexibility • Adapting to the situation • Adapting to variations
CONT… • Learn Continuously: Pursue ways to develop and apply new skills and knowledge. • Flexible and Adaptable: maintain a positive attitude, demonstrate willingness to try new ways of doing things. • Thinks expansively: view situations from multiple perspectives, brainstorms approaches and solutions. Think about potential impact outside of one’s own area • Continuous Improvement: target focus to address meaningful work issues that add value to the system. Challenges seek alternative ways to solve problems.
UNIT IV: CORPORATE LEVEL STRATEGY
EXPANSION STRATEGY • Expansion Strategy is adopted by an organization when it attempts to achieve a high growth as compared to its past achievements. • When a firm aims to grow considerably by broadening the scope of its business operations, either individually or jointly, then it follows the Expansion Strategy.
CONT… • Reasons for the expansion could be higher profits, increased prestige, economies of scale, larger market share, social benefits etc. Types of Expansion • Expansion through Concentration • Expansion through Diversification • Expansion through Integration • Expansion through Cooperation • Expansion through Internationalization
CONCENTRATION Expansion through Concentration is the first level form of Expansion Strategy that involves investment of resources in the product line, catering to the needs of identified market with the help of proven and tested technology. May be: • Market penetration strategy: The firm focuses intensely on the existing market with its existing product. • Market Development: Attracting new markets for existing product. • Product Development: Focus on new products in the existing market.
ANSOFF MATRIX Diversify as: • Current Product – Current Market • Current Product – New Market • New Product – Current Market • New Product – New Market
DIVERSIFICATION Expansion via Diversification is followed when an organization aims at changing the business definition. • A firm adopts the expansion through diversification strategy, to prepare itself to overcome the economic downturns. May be • Concentric Diversification: When an organization acquires or develops a new product or service that are closely related to the organization’s existing range of products and services is called as a Concentric Diversification. • Conglomerate Diversification: When an organization expands itself into different areas as compared to its core business is called Conglomerate Diversification.
INTEGRATION Expansion via Integration means combining one or more present operation of business with no change in the customer groups. May be • Vertical integration: It is of two types: forward and backward. When an organization moves close to ultimate customers, it is forward integration. Example: the manufacturing firm open up its retail outlet. • If organization retreats to source of raw materials, is said to have made a backward integration. Example: shoe company manufactures its own raw material such as leather. • Horizontal Integration: A firm makes horizontal integration when it takes over the same kind of product with similar marketing and production levels. Example: pharmaceutical company takes over its rival pharmaceutical company.
COOPERATION Expansion through Cooperation is a strategy followed when an organization enters into an agreement with a competitor to expand market potential. May be • Merger: Combination of two or more firms wherein one acquires assets and liabilities of the other in exchange of cash/shares. New Organization comes into existence. • Takeover: One firm acquires the other in such a way that it becomes responsible for all the acquired firm’s operations. • Joint Venture: Both the firms agree to combine and carry out the business operations jointly for a
INTERNATIONALIZATION Expansion through Internationalization is the strategy followed by an organization when it aims to expand beyond the national market. May be • International Strategy: Firms offer products and services to the foreign markets where these are not available (Import / Export) • Multidomestic Strategy: Firms offer the customized products and services that match the local conditions operating in foreign markets. This could be a costly affair because of fine tuning needed for research and development, production and marketing.
CONT… • Global Strategy: Standardised Product. Rely on low-cost structure and offer those products and services to the selected in foreign markets in which they have the expertise (Economies of Scale). • Transnational Strategy: Firms adopt the combined approach of multi-domestic and global strategy.
STABILITY STRATEGY Strategy by a company where it stops expenditure on expansion (does not venture into new markets/products). Stability strategy is adopted by company due to following reasons • When the company plans to consolidate its position • When the economy is in recession, then companies want to have more cash in their balance sheet • When company has too much debt in balance sheet then also company postpones its expansion plans • When the company is operating in an industry which has reached maturity phase with little scope for growth • When the gains from expansion plans are less than the costs involved
TYPES OF STABILITY STRATEGY No Change Strategy • No-Change Strategy as the name itself suggests is the strategy followed when an organization aims at maintaining the present business definition. • Simply, the decision of not doing anything new and continuing with the existing business operations and the practices referred to as a no-change strategy.
CONT… Profit Strategy • Profit Strategy is followed when an organization aims to maintain the profit by whatever means possible. • Due to lower profitability, the firm may cut costs, reduce investments, raise prices to overcome the temporary difficulties. • Profit strategy can be followed when the problems are temporary or short-lived. • Problems could be the economic recession or inflation, industry downturn, worst market conditions, competitive pressure, government policies etc.
CONT… Pause / Proceed with Caution Strategy • Pause/Proceed with Caution Strategy is followed when an organization waits and looks at the market conditions before launching a grand strategy. • Pause/Proceed with Caution strategy is also a temporary strategy. • It is a deliberate action taken by the firm to postpone the strategic action till the best opportunity knocks at the door.
RETRENCHMENT STRATEGY • A strategy used by firms to reduce the overall size of operations. • This strategy is often used in order to cut expenses with the goal of becoming a more financial stable business. • The Retrenchment Strategy is adopted when an organization aims at reducing its one or more business operations with the view to cut expenses and reach to a more stable financial position.
TYPES OF RETRENCHMENT STRATEGIES Turnaround • Turnaround Strategy is followed by an organization when it feels that the decision made earlier is wrong. • It is backing out from the decision wrongly made earlier and transform from a loss making company to a profit making one. Followed in case of: • Continuous losses • Poor management • Persistent negative cash flows • High employee attrition rate • Declining market share • Uncompetitive products and services
CONT… Divestment • Divestment Strategy includes the downsizing of the scope of business. • Firm sells or liquidates a portion of a business or one or more of its strategic business units or a major division, with the objective to revive its financial position. • An organization adopts the divestment strategy only when the turnaround strategy proves to be unsatisfactory.
CONT… • Liquidation Strategy is most unpleasant strategy adopted by firms that includes selling off its assets and the final closure / winding up of business operations. • It is the last resort and it involves serious consequences such as a sense of failure, loss of future opportunities, spoiled market image, loss of employment for employees etc. Followed if • Continuous losses • Obsolete technology • Outdated products/processes • Business becoming unprofitable • Very Poor management
COMBINATION STRATEGY • Combination Strategy means making the use of mix of strategies (stability, expansion or retrenchment) simultaneously. • Such strategy is followed when an organization is large and complex and consists of several businesses that lie in different industries, serving different purposes. • It is a Corporate Planning aimed at achieving two or more goals (such as consolidation, growth, stability) simultaneously.
EXAMPLE • A baby diaper company is maintaining its range of diapers for the babies to have a wide range of its products (Stability) and at the same time, it also plans to manufacture diapers for old age people, thereby covering the other market segment (Expansion). • In order to focus more on the diapers division, the company plans to shut down its baby wipes division and allocate its resources to the most profitable division (Retrenchment).
CONCENTRATION STRATEGY • Concentration Strategies involves trying to grow by successfully competing only within a single industry. • Company invests more resources in that one area, but carries the risk of significant losses in event of a drop in demand or increase in competition. • This may lead to the product becoming obsolete, and also a particular reason could lead to its failure. • Benefits include to build a strong reputation within a market and generate loyalty among the customers.
CONCENTRATION STRATEGY OPTIONS
CONT… Product-Market Exploration Option • Firm attempt to increase sales of its current product(s) in its current market(s). For example: Coca Cola and Pepsi fighting for the soft drink market. They rely on their marketing activities to gain popularity. Product Development Option • Due to the demand from its current market, firm creates new product. For example: McDonald in order to gain market share in India comes up with newer products.
CONT… Market Development Option • When a firm sell its current products in areas which were not before served by the firm. The way to increase the market reach is by entering to new channels. Example: Starbucks entered to grocery stores to expand their market base (not doing earlier) Product-Market Diversification Option • Expansion both into new products & new markets
CORPORATE RESTRUCTURING • Restructuring is a Corporate management term for act of reorganizing the legal, ownership, operational or other structures of a company for the purpose of making it better. • Corporate restructuring is an action taken by the corporate entity to modify its capital structure or its operations significantly.
CORPORATE RESTRUCTURING • Generally, corporate restructuring happens when a corporate entity is experiencing significant problems and is in financial trouble. • Although restructuring is a generic word for any changes in the company, this word is generally associated with financial troubles. • Corporate restructuring can involve cutting out or merging departments that often has the effect of displacing staff members.
TYPES OF CORPORATE RESTRUCTURING • Financial Restructuring: May take place due to a severe fall in the overall sales because of adverse economic conditions. Here, the corporate entity may alter its equity pattern, debt-servicing schedule, equity holdings. • Organisational Restructuring: Implies a change in the organisational structure of a company, such as reducing its level of the hierarchy, redesigning the job positions, downsizing the employees, changing the reporting relationships. This type of restructuring is done to cut down the cost
REASONS FOR RESTRUCTURING Change in the Strategy • Management of the troubled company attempts to improve the company’s performance by eliminating certain subsidiaries or divisions which are not aligning well Lack of Profits • The division may not be profitable enough to cover the firm’s cost of capital and cause economic losses to the firm.
CONT… Reverse Synergy • According to reverse synergy, the individual parts may be worth more than the combined unit. This may be a reasoning for divesting the assets. Cash Flow Requirement • Sale of the division can help in creating a considerable cash inflow for the company. If the company is facing some difficulty in obtaining finance, selling an asset is a quick approach to raise money and reduce debt.
CHARACTERISTICS • To improve the Balance Sheet of the company (by disposing of the unprofitable division) • Staff reduction (by closing down / selling off the unprofitable division) • Changes in Corporate Management • Outsourcing its operations such as technical support and payroll management to a 3rd party. • Shifting of operations such as moving of manufacturing operations to lower-cost locations.
CHARACTERISTICS • Reorganising functions such as marketing, sales and distribution. • Renegotiating labour contracts to reduce overheads. • Rescheduling or refinancing of debt to minimise the interest payments. • Conducting a public relations campaign at large to reposition the company with its consumers.
CONT…
UNIT V: STRATEGY ANALYSIS AND IMPLEMENTATION
FORMULATION AND IMPLEMENTATION OF STRATEGY • Strategy Formulation includes planning and decision-making involved in developing organization's strategic goals and plans. • Strategy Implementation involves all those means related to executing the strategic plans. • In short, Strategy Formulation is placing the Forces before the Action.
BARRIERS TO STRATEGY IMPLEMENTATION • Strategy that is too lofty • Overly focused on immediacy • Doing what we like to do • Lack of congruency at the top and commitment from the middle • Not reviewing enough • Lack of Resources • Resistance to Change
FORMULATION VS IMPLEMENTATION
STRATEGIC BUDGETING • Strategic budgeting is the process of creating a long-range budget that spans a period of more than one year. • Intent is to develop a plan that supports a long-range vision for future position. • Examples: involve the development of new geographic markets, research and development team needed to introduce a new product line, converting to a new technology platform, restructuring of the organization etc.
CONT… • Strategic Budget is less concerned with the detailed revenue and expense typically found in an Annual Budgeting. Focus on • Future Strategy • Risk management • Competitive threats • Growth options • Reallocations of resources for higher-growth areas
EXAMPLES Product Development • Products that require years to research, develop and launch. Operations • Launching operations facilities such as a new factory. Capabilities • Large scale changes to processes and technology to improve efficiency, productivity, risk management, quality and organizational performance. For example, large scale software implementations that shall take lot of time
CONT… Programs • Programs that have a mission takes lot of time to achieve. For example, a Space Mission that might take years altogether. So shall be Defence Projects Infrastructure • Mega Infrastructure projects may take lot of time to complete. For example, a state that builds a high speed rail link between two cities may require a budget of five years duration or more. Bullet Train Project may be an example
RESOURCE ALLOCATION • It is a process and strategy involves a company deciding where scarce resources should be used. • A resource can be any factor of production.
FACTORS AFFECTING RESOURCE ALLOCATION • Objectives: Should be oriented to Objectives Achievement. Critical Success Factors need to be considered. • Managerial Preferences: Top Managers who dominate strategy formulation tend to affect resource allocation. Their preferences attract more resources for their favourite projects
CONT… • Internal Policies: Internal policies would also have an impact on resource allocation. • External Influences: Demands of stakeholders affect resource allocation. The may be owners, suppliers, customers, employees, bankers, community. Legal requirements may require for resources allocation also (Pollution Control Mechanisms to be installed).
ALLOCATE RESOURCES FOR A PROJECT 1. Coordinate project and operations by establishing a comprehensive strategy. Evaluate project proposals to decide which ones gets more budgets. 2. May Employ software tools such as Project Management Softwares to identify project tasks, allocate resources effectively and avoid over allocation. Approve budgets, finish dates and the amount of flexibility in the deadlines to make decisions aligned with the company's strategic goals.
CONT… 3. Delay tasks until staff have time available to work on them or split up tasks and hire additional workers to prevent employee burnout. 4. May Outsource routine tasks to companies that specialize in a particular function, such as payroll processing, customer service or technical support.
CONT… 5. Train employees so they have the required skills and job to tasks get completed on time. Train less experienced workers to complete job tasks if you experience unexpected demand or attrition.
ISSUES DUE TO FAULTY RESOURCE ALLOCATION • Too great an emphasis on short-run financial criteria • Organizational politics • Vague strategy targets • Taking too less / too more risk • Lack of sufficient knowledge • Lack of Resources
PROCESS OF STRATEGIC CHOICE • Strategic Choice refers to the decision that determines the future strategy of a firm. • It is like “Where shall we go”? • The decision to select from the grand strategies considered, the strategy which will bets meet the enterprise’s objective. The decision involves focusing on a few alternatives considering the selection factors, evaluating the alternatives against these criteria and making the actual choice – Azhar Kazmi
FACTORS AFFECTING STRATEGIC CHOICE • Environmental Constraints • Values and Preferences • Management Attitude towards Risk • Impact of Past Strategy • Constraints – Time, Cost, Information • Competitors Reaction • Timing
WHAT TO DO? • What are the various Alternatives • Analysing the Alternatives (Judgment) • Evaluation of Strategies (Pros and Cons) • Making a Strategic Choice (Best under the present circumstances)
LIFE CYCLE ANALYSIS • It is a technique to assess environmental impacts associated with all stages of a product's life from raw material extraction to materials processing to manufacture to distribution to use to repair and maintenance to disposal to recycling. ISO-compliant life cycle assessment is the most reliable method to verify environmental impacts and support claims. It provides designers, regulators and engineers with valuable information for exploring decisions in each life stage of materials, buildings, services and infrastructure.
EXPERIENCE CURVE ANALYSIS • Experience curve is an idea developed by Boston Consulting Group (BCG) in the mid-1960s. • Working with a leading manufacturer of semiconductors, the consultants noticed that the company's unit cost of manufacturing fell by about 25% for each doubling of the volume that it produced.
REASONS • Labour efficiency - Workers become mentally more confident and spend less time hesitating, learning, experimenting or making mistakes. • Standardization, specialization and methods improvements - As processes, parts and products become more standardized, efficiency tends to increase. When employees specialize in a limited set of tasks, they operate at a faster rate. • Technology-Driven Learning - Automated production technology and information technology can introduce efficiencies as they are implemented and people learn how to use them efficiently and effectively. • Better use of equipment - as total production increases, manufacturing equipment will have been more fully exploited thus lowering costs.
CONT… • Product redesign - As the manufacturers and consumers have more experience with the product, they can usually find improvements. • Network-building leads to cost reductions - As a product enters more widespread use, the consumer uses it more thereby decrease cost per unit. • Shared experience effects - Experience curve effects are reinforced when two or more products share a common activity or resource. Any efficiency learned from one product can be applied to the other products.
COMPETITOR ANALYSIS • Identifying your Competitors and evaluating their strategies to determine their strengths and weaknesses relative to those of yours. • A Competitor analysis is a critical part of your company marketing plan. • This analysis provides both an offensive and defensive strategic context to identify opportunities and threats.
HOW TO DO? • Define the industry – scope and nature of the industry. • Determine who the competitors are. • Determine their key strengths – price, product features, attractive advertisements, service back up etc. • Rate each competitor on each of the key success factors as well as yourself.
CONTINGENCY STRATEGY • A contingency plan is a plan devised for an outcome other than in the usual (expected) plan. • It is often used for risk management when an exceptional risk that, though unlikely, would have negative consequences. • It is like a Plan B
STRATEGIC GAP ANALYSIS • Strategic Gap analysis is an evaluation of the difference between desired outcome and actual outcome. • It attempts to determine what a company should do differently to achieve a particular goal by looking at the variables (time frame, management, budget and other factors) to determine where shortcomings lie. • After conducting this analysis, the company should develop an implementation plan to eliminate the gaps.
CONT… • Where are we now? • Where do we wish we were? • How are we going to close the gap?
STEPS • 1. Identify the current state • 2. Identify where you want to be • 3. Identify the gaps (Along with reasons) • 4. Devise improvements to close the gaps Don’t leave your gap analysis on the shelf to collect dust!
MCKINSEY’S 7S MODEL • Using the information you have gathered, now examine where there are gaps and inconsistencies between elements. • 7-S model helps analyze the current situation, a proposed future situation and to identify gaps and inconsistencies between them. • It's then a question of adjusting and tuning the elements of the 7-S model to ensure that your organization works effectively
CONT… Strategy: • What is our strategy? • How do we intend to achieve our objectives? • How do we deal with competitive pressure? • How are changes in customer demands dealt with? • How is strategy adjusted for environmental issues?
CONT… Structure: • How is the company/team divided? • What is the hierarchy? • How do the various departments coordinate activities? • How do the team members organize and align themselves? • Is decision making centralized or decentralized? Is this as it should be, given what we're doing? • Where are the lines of communication?
CONT… Systems: • What are the main systems that run the organization? Consider Financial and HR systems as well as communications and document storage. • Where are the controls and how are they monitored and evaluated? • What internal rules and processes does the team use to keep on track?
CONT… Shared Values: • What are the core values? • What is the corporate/team culture? • How strong are the values? • What are the fundamental values that the company/team was built on?
CONT… Style: • How participative is the management/leadership style? • How effective is that leadership? • Do employees/team members tend to be competitive or cooperative? • Are there real teams functioning within the organization or are they just nominal groups?
CONT… Staff: • What positions or specializations are represented within the team? • What positions need to be filled? • Are there gaps in required competencies?
CONT… Skills: • What are the strongest skills represented within the company/team? • Are there any skills gaps? • What is the company/team known for doing well? • Do the current employees/team members have the ability to do the job? • How are skills monitored and assessed?
STRATEGY EVALUATION • Strategic evaluation is a process that critically examines a program. It involves collecting and analyzing information about a program's activities and outcomes. Its purpose is to make judgments about a program and to improve its effectiveness Process • Setting Goals • Measuring Performance • Analysing Variance • Evaluation • Corrective Action
BARRIERS IN STRATEGY EVALUATION • Probable lowering of Standards. • Lack of Cooperation. • Lack of proper Measurement Tools (May be Financial Statements, Questionnaires, Interviews etc). • Not honest Reporting.
RUMELT’S CRITERIA FOR STRATEGY EVALUATION 1. Consistency implies that a strategy should not present inconsistent goals and policies which leads to organizational conflict and bickering. “If success for one organizational department means failure for another department, then strategies may be inconsistent”. 2. Consonance requires strategists to examine external trends in the environment. A strategy should present an adaptive response to critical changes in the external environment.
CONT… 3. Feasibility means that the strategy can be executed with the physical, human and financial resources of the enterprise. The organization possesses the “abilities, competencies, skills and talents needed to carry out a given strategy”. 4. Advantage requires the creation or maintenance of a competitive advantage in an area or activity that results from: resources, skills or position

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Strategic Management PGDM 2022-24.pptx

  • 2. WHY STRATEGIC MANAGEMENT After going through the course, PGDM students should be able to CO1: Understand the basic concepts, principles and practices associated with strategy formulation and implementation CO2: Analyze the strategic management process and its steps of execution in organizations CO3: Evaluate various perspectives to take decisions and comprehend their impact on the businesses for devising successful strategies CO4: Analyze and evaluate critically real-life company situations and develop creative solutions, using a strategic management perspective CO5: Devise successful holistic and multi-functional strategies for business using tools and techniques of strategic management
  • 3. UNIT 1: INTRODUCTION TO STRATEGIC MANAGEMENT
  • 4. ORIGIN: STRATEGIC MANAGEMENT • Strategic Management as an academic discipline originated in 1950s • Prior to 1950, term “Strategy" was primarily used regarding war and politics, not in business • Among the numerous early contributors, most influential were Peter Drucker, Philip Selznick, Alfred Chandler, Igor Ansoff and Bruce Henderson • Forced change in focus from Production oriented to Marketing oriented acted like a Stepping Stone
  • 5. CONT… • Strategy is defined as “the determination of basic long- term goals of an enterprise and the adoption of courses of action and allocation of resources necessary for carrying out these goals.” • Strategy is an action plan built to achieve a specific goal or set of goals within a definite time, while operating in an organizational framework • Strategies are established to set direction, focus effort, define the organization, provide consistency or guidance in response to the environment
  • 6. INTRODUCTION • Strategic Management is formulation and implementation of major goals and initiatives taken by a company's top management based on consideration of Resources and an Assessment of the Internal and External environments in which the organization competes • Strategic Management is the continuous planning, monitoring, analysis and assessment of all that is necessary for an organization to meet its goals and objectives in the long run
  • 7. IMPORTANCE Identify Opportunities • It is necessary to identify opportunities/threats, identify strengths/weaknesses by studying the internal/external structure of organization. One may consider new ways to implement strategies Prepare For The Future • It helps to prepare for the future in terms of Contingencies. A business environment is dynamic and fast-paced. Evolve and adapt strategies to keep abreast of vital changes in the business sphere.
  • 8. IMPORTANCE Be Action-Oriented • If one is driven by action and purpose, one can easily alter policies and business plans to drive the organization forward. A sound action plan is sustainable and important for growth and survival of company. Strengthen Organizational Structure • One can reflect on organization’s internal structure and make changes wherever you feel necessary. Only a strong organizational structure can endure testing times. Sustained Competitive Advantage • It’s necessary to have a sustained competitive advantage. To do well in the market and avoid failure when faced with setbacks, build a plan that’s viable and long-lasting.
  • 9. RESULTANT – MAY BE • Increase in Efficiency of Employees • Motivation of Employees • Acceptance of Organizational Changes • Reduction in Fixed and/or Variable Expense leading to better Profitability • Reduction in Cost of Capital • Increase in ROI • Better Market Share
  • 11. THE DESIGN SCHOOL Focus is on conception of ideas and to design new ideas. • Company does an internal analysis with help of SWOT analysis • Then try to match its internal strength with market conditions. • This works well in a stable environment, where competitors might not disrupt the market suddenly & it gives time to firm to adapt.
  • 12. THE PLANNING SCHOOL • Planning entire strategy in a rigorous manner, so that the firm advances forward. • Complete process and the plan which the company will implement is documented from start to finish. • Plan is referred to whenever the management wants to take new decisions. • With the plan in hand, the management gets a clear direction to move in, helping the company to move forward unanimously.
  • 13. THE POSITIONING SCHOOL • Management decides that they want to position the product at the top of the mind and makes decisions accordingly. • Management has to determine the competition already present in the market and where is their own company positioned. • It can use tools like Porters Five forces, BCG matrix etc to position its products • Once the market has been analysed, right strategy is needed to improve positioning of the product.
  • 14. THE ENTREPRENEURIAL SCHOOL • Focus is CEO of Company. Mostly observed in small businesses or even large corporations which trust their leaders. • CEO needs to be visionary, needs strong leadership skill, and has to have the right judgement and direction. • This strategy has been proven right in very few cases over the years where the leaders were legendary by themselves. Examples: Steve Jobs, Bill Gates, Mark Zuckerberg
  • 15. THE COGNITIVE SCHOOL • People’s perception and information is studied. A good example of cognitive study is Johari Window. • You can better your business by understanding your customers. • It is a mental and psychological process to find out what is in the minds of consumers and how do we improve on that or use that information. • You can change the psychology of consumers by communicating something better or different.
  • 16. THE LEARNING SCHOOL • Management keeps a watch over what has already happened and then forms the future strategy looking at the past. • The company looks at things that worked and tries to implement the same thing over time with the assumption that it will work again. • The company also looks at things that did not work in its favour (or in favour of a competitor who tried the same thing) and discards such things / processes.
  • 17. THE POWER SCHOOL •People who are in power take the decisions. These people can be your customers, stakeholders or certain people from within the management. •Anyone who is known to have power over the company can drive the company forward. •Generally lesser resistance for the strategy to be implemented.
  • 18. THE CULTURAL SCHOOL •Company has a fantastic capital in terms of its Human Capital as well as its Social Capital. A positive culture in the firm can give a proper direction to the firm. •Cultural school tries to involve many different departments within a company. •It is critical during Mergers and Acquisitions. •It emphasizes the role of social values, beliefs and culture in decision making.
  • 19. THE ENVIRONMENTAL SCHOOL •More of a Situational school of thought, the environmental school gives most of the importance to the environment. •Major emphasis is on the environment – which can be a source of raw material, present day business conditions as a major factor in the strategy by the company. •Situational analysis is the most used tool in the environmental school.
  • 20. THE CONFIGURATION SCHOOL • Strategy needs to be configured. Strategy allows the firm to move from one position to another. • One needs to consider a lot of things which can go wrong and cannot be derived from simple set of values. • Over a period of time, an organization forms various sets of values which need to be transformed so that the organization reaches the point that it desires. • Organizations’ stable business might need to be disrupted and the organization has to be configured
  • 21.
  • 22. PROCESS: STRATEGIC MANAGEMENT • Strategic Management process means defining organization’s strategy. Process by which managers make a choice of a set of strategies for the organization that will enable it to achieve better performance (Formulation, Implementation, Evaluation and Control). • It is a continuous process that appraises the business in which the organization is involved; appraises it of its competitors; fixes goals to meet all the present and future competition and then reassess each strategy.
  • 23. STEPS IN PROCESS Goal-Setting • Clarify Vision for your business. • This stage consists of identifying three key facets: First, define both short and long-term objectives. Second, identify the process of how to accomplish your objectives. Finally, customize the process for your staff, give each person a task with which he can succeed. • Your goals have to be detailed, realistic and match the values of your vision. • Final step in this stage is to write a Mission statement that communicates your goals to shareholders / employees.
  • 24. CONT… Environmental Scanning •Refers to process of collecting, scrutinizing and providing information for strategic decisions. •Helps in analyzing internal and external factors influencing an organization. •After environmental scanning, management should evaluate it on a continuous basis and strive to improve upon it.
  • 25. CONT… Strategy Formulation • Process of deciding best course of action for accomplishing organizational objectives. • After conducting environment scanning, managers formulate corporate, business and functional strategies. Strategy Implementation • Implies making the strategy work as intended • Includes designing organization’s structure, distributing resources, developing decision making process and managing human resources.
  • 26. CONT… Strategy Evaluation • Final step of Strategy Management process. • The key strategy evaluation activities are: appraising internal and external factors that are the root of present strategies, measuring performance and taking remedial/corrective actions. • Evaluation makes sure that the organizational strategy as well as its implementation meets the organizational objectives.
  • 27. ROLE OF LEADERSHIP •Determining strategic direction •Establishing balanced organizational controls •Effectively managing the organization’s resource portfolio •Sustaining an effective organizational culture •Emphasizing ethical practices organizational controls
  • 28. LEVELS OF STRATEGY Strategy may operate at different levels in an organization •Corporate Level •Business Level •Functional Level Strategy changes based on the change in Level
  • 29. CONT… Corporate Level Strategy •Corporate level strategy occupies highest level of strategic decision making. •It covers actions dealing with the objective of firm, acquisition and allocation of resources and coordination of strategies of various SBUs for optimal performance. •Top management of organization makes such decisions.
  • 30. EXAMPLES •What should be the scope of operations (what businesses should the firm be in, what is the geographical area of operation)? •Are there additional businesses the firm should enter or are there businesses that should be targeted for termination? •Should we pursue related diversification (similar products) or unrelated diversification (dissimilar products)
  • 31. CONT… Business-Level Strategy • Business Level Strategy is applicable in those firms which have different businesses and each business is treated as Strategic Business Unit. • Fundamental concept in SBU is to identify the discrete product/market segments served by the organization. • Reliance Industries Limited operates in textile fabrics, yarns, telecommunications, petrochemical products etc. For each product group, the nature of market in terms of customers, competition and marketing channel differs.
  • 32. CONT… • Therefore, it requires different strategies for its different product groups. • Each SBU sets its own strategies to make the best use of its resources (its strategic advantages) given the environment it faces. • At such a level, strategy is a comprehensive plan providing objectives for SBUs, allocation of resources among functional areas and coordination between them for making optimal contribution to the achievement of corporate-level objectives.
  • 33. EXAMPLES •Developing distinctive competencies and competitive advantage in each unit. •Identifying product market niches and developing strategies for competing in each. •Monitoring markets so that strategies conform to the needs of the markets at the current stage of evolution.
  • 34. CONT… Functional-Level Strategy • Functional strategy relates to a single functional operation and the activities involved therein. • Decisions at this level within the organization are often described as tactical. • Functional strategy deals with relatively restricted plan providing objectives for specific function, allocation of resources among different operations within that functional area and coordination between them for optimal contribution to the achievement of the SBU and corporate-level objectives. • Marketing, HR may be the functions
  • 35. EXAMPLES •Efficiently utilizing specialists within the functional area. •Integrating activities within the functional area (e.g., coordinating advertising, promotion, and marketing research in marketing; or purchasing, inventory control, and shipping in production/operations). •Assuring that functional strategies mesh with business- level strategies and the overall corporate-level strategy.
  • 37. COMMON APPROACHES FOR SM As per Richard P. Rumelt • Diagnosis − What problem needs to be addressed? How do vision, mission and objectives of a firm imply its actions? • Guiding Policy − What according to the firm’s approach will be the framework to solve problems? • Action Plans − How would the operations look like (in detail)? How can the processes be enacted to be in sync with policy guidelines and to address issues diagnosed?
  • 38. CONT… As per Michael Porter Michael Porter provided the following key elements that needs to be considered while forming a competitive strategy. Elements are: • SWOT Analysis • Broader Societal and Stakeholder expectations
  • 39. CONT… As per Henry Mintzberg • Strategy as plan − Strategy is a directed course of action to reach intended set of goals (SWOT, PESTLE) • Strategy as pattern − Strategy emerges from a consistent pattern of past organizational behavior. A strategy is realized over time. • Strategy as position − This includes locating brands, products or companies within the market and industry depending on the conceptual framework of the firm’s consumers or stakeholders (Core Competence)
  • 40. CONT… •Strategy as ploy − This is a specific manipulation intended to outwit a competitor. •Strategy as perspective − This kind of strategy is based on the "theory of the business" or it may be a natural extension of the given mindset or ideological attributes of the organization (Risk Taking, Innovation, outsourcing or any other innovative factor)
  • 41. CONFIGURATIONAL PERSPECTIVE •Structure is sum total of ways in which an organisation divides its labour into distinct tasks and then achieves coordination among them. •Structure is the formal relation among groups and individuals in an organisation. •Consistency between Strategy and Structure is necessary for effective performance.
  • 42. CONFIGURATIONAL PERSPECTIVE Two examples of Configurational Theories that have enjoyed widespread popularity. •Mintzberg's Theory of organizational structure (1979, 1983) •Miles and Snow's theory of strategy, structure and process (1978).
  • 43. AS PER MILES AND SNOW Prospector •Most dynamic of the organizational forms. •Organization responds rapidly to early signals concerning areas of opportunity and responses often lead to a new round of competitive actions. •The ones who are innovators, growth oriented, search for new markets and opportunities as well encourage risk taking.
  • 44. CONT… Defender • Defender is a less dynamic form of organization. • Happy with current place in market. • Protects their current markets, maintains stable growth and serves current customers. • Tends to offer a more limited range of products and services than its competitors and it tries to protect itself by offering either higher quality or superior service or lower prices etc (Any USP)
  • 45. CONT… Analyzer • Analyzer adopts some characteristics of Prospectors and others of Defenders. • Ones who are true Analysers may not be the first to create something, but they may improve upon creation of any other firm. • Analyzer attempts to maintain a stable and limited line of products or services or tries to maintain current customer satisfaction with moderate emphasis on innovation.
  • 46. CONT… Reactor •Does not appear to have a specific business approach or a strategy. •Try to catch up with the market as things change. •Firm is usually not as aggressive in maintaining established products, nor is it willing to take as many risks as either competitors. •Do not have a clear strategy but reacts to changes in the environment
  • 47. WHAT TO DO? •Once you are clear which of the 4 ways you are going to operate, you can structure the design of company accordingly. •Example: If a company wants too much of innovation, that requires a different set of manpower as compared to a company who are not focussing on innovation.
  • 48. AS PER MINTZBERG Simple Structure (direct supervision) • It has little or no structure, few support staffers, a loose division of labor, minimal differentiation among its units and a small managerial hierarchy. • Little of its behavior is formalized and it makes minimal use of planning, training and the liaison devices. • Coordination in the Simple Structure is effected largely by direct supervision.
  • 49. CONT… Machine Bureaucracy (standardization of work) •Highly specialized, routine operating tasks, very formalized procedures in the operations, a proliferation of rules, regulations and formalized communication throughout the organization •Large sized units at the operating level, reliance on the functional basis of grouping tasks, relatively centralized power for decision making, an elaborate administrative structure.
  • 50. CONT… Professional Bureaucracy (standardization of skills) • Relies for coordination on the standardization of skills and its associated design parameter, training and indoctrination. • It hires duly trained specialists professionals for the operations and then gives them considerable control over their own work. • Control over own work means that the professional works relatively independently of his colleagues, but closely with the clients he serves.
  • 51. CONT… Divisionalized Form (standardization of outputs) •Relies on the market basis for grouping units at the top of the middle line, like Product Groups. • Divisions are created according to markets served and are then given control over the operating functions required to serve these markets so that each can operate as a autonomous entity, free of the need to coordinate with the others.
  • 52. CONT… Adhocracy (coordination through mutual adjustment) • Highly organic structure with little formalization of behavior. • Reliance on the liaison to encourage mutual adjustment, the key coordinating mechanism within and between these teams. • Selective decentralization to and within these teams, which are located at various places in the organization and involve various mixture of line managers and staff
  • 53. WHAT YOU AIM AT? • Direction: Which is the sense of Vision and Mission of organisation • Efficiency: Need to minimise costs and increase benefits • Proficiency: Carrying certain task with a high level of knowledge and skill •Innovation: Need to develop new products or services and adopt to the external environment
  • 54. CONT… •Cooperation: It reflects the need for harmony and cooperation among a diverse set of people. •Competition: That can cause splitting apart of individuals and departments due to need for individual success and recognition. •An important purpose of Organisational form is to enable an organisation to achieve right balance of all above.
  • 55. DIMENSIONS OF STRATEGIC DECISIONS 1. Strategic issues require top-management decisions • Strategic issues involve thinking in totality of firm’s objectives in which a considerable amount of risk is involved. • Problems calling for strategic decisions require to be considered by the top management. 2. Strategic issues involve allocation of large amounts of resources • It may require either a huge financial investment to venture into a new area of business or the firm may require a huge amount of manpower with new skill sets
  • 56. CONT… 3. Strategic issues are likely to have a significant impact on the long term prosperity of firm • Generally the results of strategic implementation are seen on a long term basis and not immediately. 4. Strategic issues are future oriented • Strategic thinking involves predicting the future environmental conditions and how to orient for the changed conditions.
  • 57. CONT… 5. Strategic issues usually have major multifunctional or multi-business consequences • As they involve organization in totality, they affect different sections of the organization with varying degree. 6. Strategic issues necessitate consideration of factors in the firm’s external environment • Strategic focus in an organization involves orienting its internal environment to the changes of external environment.
  • 58. STRATEGIC INTENT •Strategic Intent of an organisation describes how firm’s resources are channelled for achieving a goal. •It is a statement about where an organization is going that conveys a sense of what that organization wants to achieve in long run. •Strategic Intent is stable over time and it sets a target that need efforts and commitment. •Strategic intent answers the question: “What exactly are we trying to accomplish?”
  • 60. VISION •Vision: Vision implies the blueprint of company’s future position. •It describes where the organization wants to land up at. •It is the dream of the business and an inspiration, base for the planning process. •Depicts the company’s aspirations for the business and provides a peep of what the organization would like to become in future.
  • 61. MISSION • Mission: Mission delineates the firm’s business, its goals and ways to reach the goals. • Designed to help potential shareholders and investors understand the purpose of the company. • Helps to identify, ‘what business the company undertakes’. It defines the present capabilities, activities, customer focus and business makeup.
  • 62. CONT… Kind of information contained in Mission statement varies from organization to organization. Most mission statements cover the following major topics: •Company product or service •Market •Technology •Company Objective •Public image
  • 63. CRITERIA FOR MISSION STATEMENT • Clear, brief and understandable to all people. • Specifies what business firm is in. Includes statement about: • "What" customer needs the organization is attempting to fill, not what products or services are offered; • "Who" the organization's primary customers are; • "How" the organization plans to go about its business, what its primary technologies are; • "Why" the organizations exists, that is, the overriding purpose that the organization is trying to serve and its goals. • Should reflect distinctive competence of organization.
  • 64. BUSINESS DEFINITION •Business Definition: It seeks to explain the business undertaken by the firm, with respect to the customer needs, target audience and alternative technologies. •With the help of business definition, one can ascertain the strategic business choices. The corporate restructuring also depends upon the business definition.
  • 65. BUSINESS MODEL •Business Model: Business Model, as the name implies is a strategy for the effective operation of the business, ascertaining sources of income, desired customer base, financing details, Marketing etc •Rival firms, operating in the same industry may rely on different business model due to their possibly different strategic choice.
  • 66. CONT… •When Management asks about a business model as in, “So what’s your business model?” they really want an answer to a much more direct and basic question: “How do you plan to make money?”
  • 67. CONT… • Who’s your target customer? • What customer problems or challenges do you solve? • What value do you deliver? • How will you reach, acquire and keep customers? • How will you define and differentiate your offerings (USPs)? • What’s your cost structure? • How will you generate revenue? • What’s your profit margin?
  • 68. GOALS AND OBJECTIVES • Goals and Objectives: These are the base of measurement. • Goals are the end results, that the organization attempts to achieve. • Objectives are time-based measurable actions, which help in the accomplishment of goals.
  • 69. OBJECTIVES AND GOALS OF BUSINESS •Well-chosen goals and objectives point a new business in the right direction and keep an established company on the right track. •When establishing goals and objectives, try to involve everyone who will have the responsibility of achieving those goals and objectives after you lay them out.
  • 70. CONT… Goals establish where you intend to go and tells you when you get there. •They help improve your overall effectiveness as a company — whether you want to increase your market share or improve your customer service. Objectives are the specific steps you and your company need to take in order to reach each of your goals. They specify what you must do and when you must do.
  • 71. CONT… •Goals tell you where you want to go; Objectives tell you exactly how to get there. •Goals can increase your effectiveness; Objectives back your goals and make you more efficient. •Goals are typically described in words; Objectives often come with numbers and specific dates.
  • 72. EXAMPLES • Suppose that your Goal is to double the number of people using your web-conferencing service. Your Objectives may be as follows: • Gain awareness by placing print ads in 4 regional markets and by airing radio ads in 2 major markets (by 10 June) • Attract first-time customers by offering an online discount of Rs. 5000 (by 1 June) • Cultivate prospects by implementing a permission-based weekly e-mail to 2500 targeted contacts (by 10 July) • Convert 10 percent of prospects to clients, using e-mail reminders (beginning 25 July)
  • 74. HOW TO SET GOALS •Tie Goals to your Mission •Use Goal-setting to Achieve, Conserve, Eliminate, Steer Clear? (Next Page) •Cover all the bases
  • 76. STRATEGY AS STRETCH Stretch is the gap between: • Knowledge, resources, capability, competence and willpower currently available to the enterprise and • aspirations of enterprise and the degree to which its leadership desires to be more productive or more creative. • Where current resources and capabilities are unlikely to be adequate to meet the requirements of enterprise strategic intent, they will need stretching in order to meet the demands of that intent.
  • 77. CONT… Degree of Stretch that is deemed to be required by the organization is defined by: • Strategic Intent • Nature of challenges to the enterprise that are likely to be faced by organization in achieving that strategic intent, as established by • (i) forecasts and future scenarios that may affect the activities of that organization • (ii) competitive comparisons and benchmarks, for instance as defined by criteria of “excellence”, “world class”, “best value”, or the ambition to be “number one” etc.
  • 78. STRATEGY AS LEVERAGE •Management must find a way to close the gap between resources and aspirations of the firm (Strategic Intent). •Achieved by leveraging resources, like ‘travelling maximum distance using the least possible amount of fuel’. •Goal is to challenge managers to become better in multiplying the impact of firm’s resource base thereby enlarging it.
  • 79. ACHIEVING LEVERAGE Concentrating Resources Focus – Concentration of resources on a very few objectives at any one time: then (and only then) moving on to the next one. • ‘no group of employees can attend to more than two key operational improvement goals at (any one) time’. • ‘(to divide) meagre resources across a wide range of medium-term operational goals is a recipe for disaster’. Targeting – enterprise targets effort activities that will yield greatest benefit in terms of: • potential improvement in customer perceptions about enterprise. • their relative competitive or comparative advantage.
  • 80. CONT… Accumulating Resources Mining – Each new experience, each success or failure must be seen as an opportunity to learn. Hence you can do better in future. Borrowing – Enterprise variously gains access to or acquires competencies and resources from outside. It can do this through its network of relationships. Examples: • use of subcontractors so as to exploit the sources of competitive advantage, excellence, creativity and innovation of theirs. • strategic alliances. • making use of more attractive factor markets (locating call centre operations in India, manufacturing units in China).
  • 81. CONT… Complementing Resources Blending – resources are combined in ways that multiply relative value of each. Sony’s “Walkman” brought together well-known functional components - headphones and an audiotape playback device and created a huge market for it Balancing – by which a balanced array of resources and competencies are put in place that permit all necessary activities to be carried out with equal effectiveness. • a firm that has a strong product development capacity but is relatively weak in terms of sales is unlikely to gain much of the profit stream.
  • 82. CONT… Conserving Resources Recycling – more often a particular skill or competence is used, the greater the competence is developed. Protecting – by which the risk of value loss or damage to resources is avoided by the selection of appropriate competition strategies. Examples: • to avoid head-on confrontations with powerful opponents. • to maintain strategies of defence or counter-attack. • to enter new markets via undefended or poorly served segments
  • 83. CONT… Recovering Resources Expediting returns – by which time between expenditure of resources and the recovery of those resources is minimized. • A rapid recovery process acts as a resource multiplier. An enterprise that can do anything twice as fast as its competitors, with a similar resource commitment, enjoys a twofold leverage advantage. • Shortening product development times, compressing operational time, carrying out related activities in parallel rather than in sequence, realising outstandings sooner
  • 84. STRATEGIC FIT • Strategic Fit expresses the degree to which an organization is matching its resources/capabilities with the opportunities in external environment. • Key to profitability is through an internal focus which seeks to utilize the unique characteristics of the company’s resources and capabilities (USPs). •Unique combination of resources and capabilities can be developed into a competitive advantage which the company can benefit from.
  • 85. CONT… Several tools have been developed that one can use in order to analyze the resources and capabilities of a company. These include: • SWOT Analysis • Cash Flow Analysis • Competitor Analysis
  • 86. CONT… • Strategic Fit can be used to evaluate specific opportunities like M&A opportunities. Strategic fit would in this case refer to how well the potential acquisition fits with the strategy of the acquiring company. • M&A transactions should yield a better return than normal growth (Though can go wrong also) • M&A transactions may give the acquiring firm possibility of achieving positive synergy effects meaning that the two merged companies are worth more together than the sums of their parts individually.
  • 87. BALANCED SCORE CARD • Balanced Scorecard is a performance metric used in strategic management to identify and improve various internal functions of a business and their resulting external outcomes. • It is used to measure and provide feedback to organizations. Characteristics that define a BSC are: • Focus on the strategic agenda of organization • Selection of a small number of data items to monitor a mix of financial and non-financial data items.
  • 89. PERSPECTIVE OF BSC • Financial: Encourages identification of few relevant high-level financial measures and answers the question "How do we look to shareholders?" Examples: cash flow, sales growth, operating income, return on equity, outstandings etc • Customer: Encourages identification of measures that answer the question "What is important to our customers and stakeholders?" Examples: percent of sales from new products, on time delivery, share of important customers’ purchases, ranking by important customers.
  • 90. CONT… • Internal Business Processes: Encourages identification of measures that answer the question "What must we excel at?“ Examples: cycle time for new product introductions. • Learning and growth: Encourages identification of measures that answer the question "How can we continue to improve, create value and innovate?" Examples: time to develop new generation of products, life cycle to product maturity, involvement of employees
  • 91. CRITICAL SUCCESS FACTORS • Critical Success Factor (CSF) are the elements of an organization or project that are vital to its success. It is also known as Key Result Area (KRA) or Key Success Factor (KSF). • It is something an organization, business or project must accomplish in order to fulfill their goal. It helps a team or organization decide what they should focus on and compare progress to the goals that are set.
  • 92. CONT… • Factors that are vital to the organization’s success. •Benefits the company or department as a whole. • Be synonymous with a high-level goal. •Link directly to the business strategy. •Installation of a call centre for providing superior customer service (and indirectly, influencing acquiring new customers through customer satisfaction).
  • 93. KEY PERFORMANCE INDICATORS •A Key Performance Indicator (KPI) is a type of performance measurement. •It is a quantifiable measure used to evaluate the success of an organization, employee etc. in meeting objectives for performance. •KPIs evaluate the success of an organization or of a particular activity (such as projects, programs, products) in which it engages.
  • 94. CONT… •Is your objective Specific? •Can you Measure progress towards that goal? •Is the goal realistically Attainable? •How Relevant is the goal to your organization? •What is the Time-frame for achieving this goal?
  • 95. HOW TO DEFINE KPI • What is your desired outcome? • Why does this outcome matter to you? • How are you going to measure progress? • How can you influence the outcome? • Who is responsible for the business outcome? • How will you know you’ve achieved your outcome? • How often will you review progress towards the outcome?
  • 96. CATEGORIZATION OF KPIS • Quantitative indicators that can be presented with numbers. • Qualitative indicators that can't be presented as numbers. • Leading indicators that can predict the outcome of a process. • Lagging indicators that present the success or failure post doing. • Input indicators that measure the amount of resourc.es consumed during the generation of the outcome.
  • 97. CONT… •Output indicators that reflect the outcome or results of the process activities. •Directional indicators specifying whether or not an organization is getting better. •Financial indicators used in performance measurement and when looking at an operating index.
  • 98. ENVIRONMENT APPRAISAL •Environment means the surroundings, external objects, influences or circumstances under which someone or something exists. •The environment of any organization is the aggregate of all conditions, events and influences that surround and affect it
  • 99. CHARACTERISTICS •Environment is Complex: The environment consist of number of factors, events, conditions and influences arising from different sources. All these do not exist in isolation but interact with each other to create an entirely new set of influences •Environment is dynamic: The environment is consistently changing in nature. Due to many and varied influence operating, there is dynamism in the environment causing it to continuously change its shape and character.
  • 100. CONT… • Environment is multi faceted: What shape and character an environment assumes depends on perception of observer. A particular change in environment or a new development may be viewed differently by different observers. • Environment has a far reaching impact on organizations: The growth and profitability of an organization depends critically on environment in which it exists. Any environmental change has an impact on organization in several different ways.
  • 101. INTERNAL ENVIRONMENT Strength: It is an inherent capacity which an organization can use to gain strategic advantage. •Examples: good reputation among customers, resources, assets, good manpower, experience Weakness: It is an inherent limitation or constraint which creates strategic disadvantages. •Examples: gaps in capabilities, financial deadlines not met, low morale of employees etc
  • 102. INDICATORS - S Strengths •What advantages does your organization have? •What do you do better than anyone else? •What unique or lowest-cost resources can you draw upon that others can't? •What do people in your market see as your strengths? •What factors mean that you "get the sale"? •What is your organization's USP?
  • 103. INDICATORS - W Weaknesses •What could you improve? •What should you avoid? •What are people in your market likely to see as weaknesses? •What factors lose you sales?
  • 104. INDICATORS - O Opportunities •What good opportunities can you spot? •What interesting trends are you aware of? Useful opportunities can come from such things as: •Changes in technology and markets •Changes in government policy related to your field. •Changes in social patterns, population profiles, lifestyle •Local events.
  • 105. INDICATORS - T Threats •What obstacles do you face? •What are your competitors doing? •Are quality standards or specifications for your job, products or services changing? •Is changing technology threatening your position?
  • 106. USE OF SWOT • Develop new/revised strategies – revised analysis of strategic issues may mean the objectives need to change • Establish critical success factors – the achievement of objectives and strategy implementation • Preparation of operational, resource, projects plans for strategy implementation • Monitoring results – mapping against plans, taking corrective action, which may mean amending objectives/strategies
  • 107. WHEN TO USE SWOT A SWOT analysis can be used to: •Explore new solutions to problems • Identify barriers that will limit goals/objectives • Decide on direction that will be most effective •Reveal possibilities and limitations for change • To revise plans to best navigate systems and organizations
  • 108. EXTERNAL ENVIRONMENT Opportunity: It is a favorable condition in organization’s environment which enables it to strengthen its position. • Example: economic boom, favorable demographic shifts, arrival of new technologies etc Threat: It is an unfavorable condition in organization’s environment which creates a risk for or causes damage to organization. • Example: economic downturn, negative demographic shift, arrival of new technologies etc
  • 109. ENVIRONMENTAL SECTORS •Economic Environment •International Environment •Market Environment •Political Environment •Regulatory Environment •Socio Cultural Environment •Supplier Environment •Technological Environment
  • 110. ECONOMIC ENVIRONMENT Consists of macro level factors related to means of production and distribution of wealth that have on business of organization Some important factors are: •Economic stage in which country/area exists •Economic policies such as industrial, monetary and fiscal policies •Infrastructural factors such as banks, mode of transportation etc
  • 111. INTERNATIONAL ENVIRONMENT Consists of all those factors that operate at transnational, cross cultural and across border level, having impact on business of organization. Some of them are: •Globalization •Global economic forces, blocks and forum •Geopolitical situation, equation, alliances and strategic interests of nations
  • 112. MARKET ENVIRONMENT Consists of factors related to group and other organization that compete with and have an impact on an organizations market. Some factors are: •Customer or client factors such as needs and preference •Product factors such as demand •Marketing intermediary factors like delivery systems
  • 113. POLITICAL ENVIRONMENT Consists of factors related to management of public affairs and impact on business organization. May consist of: •Political structure, its goals and stability •Political processes like operation of party system, elections. •Political philosophy, Govt. role in business etc
  • 114. REGULATORY ENVIRONMENT Consists of factors related to planning, promotion and regulation of economic activities. Consists of: •Policies related to licensing, monopolies and foreign investment •Policies related to distribution and pricing and control •Policies related to import and exports •Rules and Regulations
  • 115. SOCIO CULTURAL ENVIRONMENT Consists of factors related to human relationship within society, development, forms and function of such relationship. May consist of: • Demographic characteristics regarding population • Socio cultural attitudes and values such as expectation of society from business, social customs • Family structure and changes in it • Role and position of men, women, children and aged in family and society
  • 116. SUPPLIER ENVIRONMENT Consists of factors related to cost, reliability and availability of factors of production or services that have impact on business. Some important factors are: •Cost, availability and continuity of supply of raw material •Cost and availability of finance •Cost, reliability and availability of energy used in production •Cost, availability and dependability of HR
  • 117. TECHNOLOGICAL ENVIRONMENT Consists of those factors related to knowledge applied and material and machines used in production of goods and services that have impact on business of an organization. Some important factors are: • Sources of technology • Technological development, stages of development change and rate of change of technology • Communication and infrastructural technology in management
  • 118. ENVIRONMENTAL SCANNING •Environmental scanning can be defined as a process by which organizations monitor the relevant environment to identify opportunities and threats affecting their business for purpose of taking strategic decisions. •It is something like carrying out a Research
  • 119. FACTORS TO BE CONSIDERED •Events are important and so are specific occurrences taking place in different environmental sectors •Trends are general tendencies or the courses action along which events take place. •Issues are current concerns that arise in response to events and trends. •Expectations are demands made by interested groups in light of their concern for issues
  • 120. APPROACHES TO ENVIRONMENTAL SCANNING •Kubr suggested three approaches which could be adopted for sorting out information for environmental scanning. These are •Systematic approach •Adhoc approach •Processed-form approach
  • 121. SYSTEMATIC APPROACH • Under this approach, information for environmental scanning is collected systematically. • Information related to markets and customers, changes in legislation and regulations that have a direct impact on organizations activities etc is scanned. • It is collected continuously to monitor changes • Continuously Updating such information is necessary not only for strategic management but also for operational activities
  • 122. ADHOC APPROACH •Using this approach an organization may conduct special service and studies to deal with specific environmental issues from time to time. •Such studies may be conducted for instance when an organization has to undertake special project, evaluate existing strategies or devise new strategies
  • 123. PROCESSED FORM APPROACH •Organization uses information in processed form, available from different sources both inside and outside the organization. •When an organization uses information supplied by Govt. agencies or private institutions, it uses secondary source of data and the information is available in processed form.
  • 124. MACRO ENVIRONMENT • Macro environment is the condition that exists in the economy as a whole, rather than in a particular sector or region. • In general, the macro environment includes trends in gross domestic product (GDP), inflation, employment, spending and monetary and fiscal policy. • The macro environment is closely linked to the general business cycle as opposed to the performance of an individual business.
  • 125. CONT… • Major external and uncontrollable factors that influence an organization's decision making, and affect its performance and strategies. • These factors include economic factors; demographics; legal, political, social conditions; technological changes; natural forces. • Macro environment influences competitors, changes in interest rates, changes in culture as well as tastes, weather, or government regulations.
  • 126. MICRO ENVIRONMENT •Factors or elements in an organization's immediate area of operations that affect its performance and decision- making freedom. •These factors include competitors, customers, distribution channels, shareholders, media and the general public.
  • 128. BCG MATRIX • Based on Relation between Market Share of Company X and Growth of Industry. • Boston Consulting Group developed a matrix for assessing the product lines of a company called the BCG Matrix.
  • 130. CONT… Stars •High Growth, High Market Share •Star units are leaders in the category. Products located in this quadrant are attractive as they are located in a robust category and these products are highly competitive in the category. •Strategic choices: Market Penetration, Market Development, Product Development
  • 131. CONT… Question Marks • High Growth, Low Market Share • Future potential of these products is doubtful. Since the growth rate is high here, with the right strategies and investments, they can become Cash Cows and ultimately Stars. • But they have low market share so wrong investments can downgrade them to Dogs even after lots of investment. • Strategic choices: Market penetration, market development, product development (Need to be cautious)
  • 132. CONT… Cash Cows •Low Growth, High Market Share •These products or services generate interesting profits and cash but need to be replaced because the future growth will be lower. If they are profitable, they can finance other activities in progress (including stars and question marks). •Strategic choices: Product Development, Diversification
  • 133. CONT… Dogs • Low Growth, Low Market Share • Dogs hold low market share compared to competitors. • In general, they are not worth investing in because they generate low or negative cash returns and may require large sums of money to support. • Due to low market share, these products face cost disadvantages. • Strategic choices: Retrenchment, Liquidation
  • 135. PORTERS FIVE FORCES •Porter's Five Forces is a powerful tool for understanding competitiveness of your business environment, and for identifying your strategy's potential profitability. •Derive five forces that determine the competitive intensity and therefore, the attractiveness (or lack of it) of an industry in terms of its profitability. •The most unattractive industry would be one approaching "pure competition"
  • 136. CONT… Porter's five forces include three forces from 'horizontal' competition • threat of substitute products or services • threat of established rivals • threat of new entrants and two others from 'vertical' competition • bargaining power of suppliers • bargaining power of customers
  • 137. THREATS FROM NEW ENTRANTS • Existence of barriers to entry (patents etc.) • Government policy (not now generally) • Capital requirements • Cost advantages • Product differentiation • Brand Equity • Expected retaliation • Access to distribution channels • Customer loyalty to established brands • Industry profitability
  • 138. THREATS FROM SUBSTITUTES •Buyer inclination to substitute •Relative price of substitute •Availability of close substitute •Buyer's switching benefits •Perceived level of product differentiation •Number of substitutes available in the market
  • 139. BARGAINING POWER OF CUSTOMERS •How easy it is for buyers to drive your prices down •How many buyers are there and how big are their orders •Are your buyers strong enough to dictate terms to you? •Availability of existing substitute products •Buyer price sensitivity
  • 140. BARGAINING POWER OF SUPPLIERS •How easy it is for suppliers to increase their prices •How many potential suppliers do you have? •Supplier switching costs •Degree of differentiation
  • 141. INDUSTRY RIVALRY •Strength of your competitors •How many rivals do you have? •Sustainable competitive advantage through innovation •Powerful competitive strategy
  • 142.
  • 143. GENERIC STRATEGIES Porter categorised the Generic Strategies as: •Cost Leadership (no frills) •Differentiation (creating uniquely desirable products and services) •Focus (offering a specialized service in a niche market)
  • 144. COST LEADERSHIP STRATEGIES • Cost Leadership is a concept developed by Michael Porter and utilised in business strategy. • It describes a way to establish the competitive advantage. • Cost Leadership means the lowest cost of operation in the industry. •However Cost Leadership is different from Price Leadership.
  • 145. CONT… •Cost leadership is often driven by company efficiency, size, scale and cumulative experience (learning curve). •A cost leadership strategy aims to exploit scale of production and other economies (e.g., a good purchasing approach), producing highly standardized products, using advanced technology.
  • 146. CONT… Companies that are successful in achieving Cost Leadership usually have: •Very efficient logistics. •A low-cost base (labor, materials etc), a way of sustainably cutting costs below those of other competitors. •It is important to continuously find ways of reducing variable costs
  • 147. DIFFERENTIATION STRATEGY •Differentiation involves making your products or services different from and more attractive than those of your competitors. •May involve Features, Durability, Very high levels of Service etc and also brand image that your customers value.
  • 148. HOW TO ACHIEVE DIFFERENTIATION •Good Research, Development and Innovation. •Improve product performance. •Ability to deliver high-quality products or services. •Good Service Back up. •Excellent Point of Customer Interaction. •Better User Convenience. •Effective Sales and Marketing. •Creating a brand image.
  • 149. FOCUS STRATEGY •Companies that use Focus Strategies concentrate on particular Niche Markets •They understand the unique needs of customers within it, develop uniquely well-specified products for the market. •Because they serve customers in their market uniquely well, they tend to build strong brand loyalty amongst their customers.
  • 150. CHOOSING RIGHT GENERIC STRATEGY Step 1: •For each generic strategy, carry out a SWOT Analysis of your Strengths and Weaknesses, and Opportunities and Threats you would face, if you adopted that strategy. •Having done this, it may be more clear that your organization is likely / unlikely to be able to make success or not.
  • 151. CONT… Step 2: •Use Five Forces Analysis to understand the nature of the industry you are in.
  • 152. CONT… Step 3: For each option, ask how you could use that strategy to: • Reduce or manage supplier power. • Reduce or manage buyer power. • Reduce the effect of competitive rivalry. • Reduce or eliminate the threat of substitution. • Reduce or eliminate the threat of new entrants. • Select the generic strategy that gives you the strongest set of options.
  • 153. VALUE CHAIN •A Value Chain is a set of activities that a firm operating in a specific industry performs in order to deliver a product or service to the market. •A Value Chain is a series of activities or processes which aims at creating and adding Value to an product at every step during the production process. •When more Value is created, the same is passed on to the customers and thus further helps in consolidating a competitive edge.
  • 154.
  • 155. PRIMARY ACTIVITIES • Inbound Logistics: Inbound movement of material, from suppliers to manufacturing, warehouses or retail stores • Operations: Process that converts inputs into outputs • Outbound Logistics: Storage and movement of final product flows from end of production line to the end user • Marketing and Sales: Selling a product or service and processes for creating, communicating, delivering and exchanging offerings that have value for customers • Back up Service: Includes all activities required to keep the product/service working effectively for the buyer after it is sold
  • 156. CORE COMPETENCY •“A harmonized combination of multiple resources and skills that distinguish a firm in the marketplace”. •It helps company to define its Strength helping it to expand business and grow in size. •Capabilities of the company which can help the company in developing a unique market identity.
  • 157. FEATURES: CORE COMPETENCY? • Relevance – Must give your customer something that strongly influences him to choose your product. If it does not, then it is not a core competence. • Difficult to imitate – This allows you to provide products that are better than those of your competition. • Breadth of application – It should be something that opens up a good number of potential markets. If it only opens up a few small, niche markets, then success in these markets will not be enough to sustain significant growth.
  • 158. WHAT TO DO? •First, the company needs to identify the special abilities that can provide them a competitive edge •Second, the company needs to find ways in which they can use it to improve these abilities working for the overall development of the firm •Third, the company needs to direct its resources in further strengthening the core competencies. •Fourth, the company needs a specific strategy to sustain the core competencies.
  • 159. EXAMPLES (FOR INDIVIDUALS) • Excellent Communication - Can use language effectively to gather information and facilitate exchange of ideas. • Flexibility - Ability to adapt to changes while keeping focus on goals and apply knowledge to new conditions • Influence - Can encourage others to be proactive. • Initiative - Ability to obtain information from several sources to address present needs. • Interpersonal Relations - Exhibits respect and understands others to develop relationships. • Leadership - Ability to establish a team effort that promotes working towards a common goal.
  • 160. ADAPTABILITY AND INNOVATION • Generates new ideas and approaches to deal with changing market demands, technology and internal initiatives • Adaptable and flexible to change, remains composed, is able to adjust and reprioritize when necessary Behaviours includes: • Demonstrating flexibility • Adapting to the situation • Adapting to variations
  • 161. CONT… • Learn Continuously: Pursue ways to develop and apply new skills and knowledge. • Flexible and Adaptable: maintain a positive attitude, demonstrate willingness to try new ways of doing things. • Thinks expansively: view situations from multiple perspectives, brainstorms approaches and solutions. Think about potential impact outside of one’s own area • Continuous Improvement: target focus to address meaningful work issues that add value to the system. Challenges seek alternative ways to solve problems.
  • 163. EXPANSION STRATEGY • Expansion Strategy is adopted by an organization when it attempts to achieve a high growth as compared to its past achievements. • When a firm aims to grow considerably by broadening the scope of its business operations, either individually or jointly, then it follows the Expansion Strategy.
  • 164. CONT… • Reasons for the expansion could be higher profits, increased prestige, economies of scale, larger market share, social benefits etc. Types of Expansion • Expansion through Concentration • Expansion through Diversification • Expansion through Integration • Expansion through Cooperation • Expansion through Internationalization
  • 165. CONCENTRATION Expansion through Concentration is the first level form of Expansion Strategy that involves investment of resources in the product line, catering to the needs of identified market with the help of proven and tested technology. May be: • Market penetration strategy: The firm focuses intensely on the existing market with its existing product. • Market Development: Attracting new markets for existing product. • Product Development: Focus on new products in the existing market.
  • 166. ANSOFF MATRIX Diversify as: • Current Product – Current Market • Current Product – New Market • New Product – Current Market • New Product – New Market
  • 167. DIVERSIFICATION Expansion via Diversification is followed when an organization aims at changing the business definition. • A firm adopts the expansion through diversification strategy, to prepare itself to overcome the economic downturns. May be • Concentric Diversification: When an organization acquires or develops a new product or service that are closely related to the organization’s existing range of products and services is called as a Concentric Diversification. • Conglomerate Diversification: When an organization expands itself into different areas as compared to its core business is called Conglomerate Diversification.
  • 168. INTEGRATION Expansion via Integration means combining one or more present operation of business with no change in the customer groups. May be • Vertical integration: It is of two types: forward and backward. When an organization moves close to ultimate customers, it is forward integration. Example: the manufacturing firm open up its retail outlet. • If organization retreats to source of raw materials, is said to have made a backward integration. Example: shoe company manufactures its own raw material such as leather. • Horizontal Integration: A firm makes horizontal integration when it takes over the same kind of product with similar marketing and production levels. Example: pharmaceutical company takes over its rival pharmaceutical company.
  • 169. COOPERATION Expansion through Cooperation is a strategy followed when an organization enters into an agreement with a competitor to expand market potential. May be • Merger: Combination of two or more firms wherein one acquires assets and liabilities of the other in exchange of cash/shares. New Organization comes into existence. • Takeover: One firm acquires the other in such a way that it becomes responsible for all the acquired firm’s operations. • Joint Venture: Both the firms agree to combine and carry out the business operations jointly for a
  • 170. INTERNATIONALIZATION Expansion through Internationalization is the strategy followed by an organization when it aims to expand beyond the national market. May be • International Strategy: Firms offer products and services to the foreign markets where these are not available (Import / Export) • Multidomestic Strategy: Firms offer the customized products and services that match the local conditions operating in foreign markets. This could be a costly affair because of fine tuning needed for research and development, production and marketing.
  • 171. CONT… • Global Strategy: Standardised Product. Rely on low-cost structure and offer those products and services to the selected in foreign markets in which they have the expertise (Economies of Scale). • Transnational Strategy: Firms adopt the combined approach of multi-domestic and global strategy.
  • 172. STABILITY STRATEGY Strategy by a company where it stops expenditure on expansion (does not venture into new markets/products). Stability strategy is adopted by company due to following reasons • When the company plans to consolidate its position • When the economy is in recession, then companies want to have more cash in their balance sheet • When company has too much debt in balance sheet then also company postpones its expansion plans • When the company is operating in an industry which has reached maturity phase with little scope for growth • When the gains from expansion plans are less than the costs involved
  • 173. TYPES OF STABILITY STRATEGY No Change Strategy • No-Change Strategy as the name itself suggests is the strategy followed when an organization aims at maintaining the present business definition. • Simply, the decision of not doing anything new and continuing with the existing business operations and the practices referred to as a no-change strategy.
  • 174. CONT… Profit Strategy • Profit Strategy is followed when an organization aims to maintain the profit by whatever means possible. • Due to lower profitability, the firm may cut costs, reduce investments, raise prices to overcome the temporary difficulties. • Profit strategy can be followed when the problems are temporary or short-lived. • Problems could be the economic recession or inflation, industry downturn, worst market conditions, competitive pressure, government policies etc.
  • 175. CONT… Pause / Proceed with Caution Strategy • Pause/Proceed with Caution Strategy is followed when an organization waits and looks at the market conditions before launching a grand strategy. • Pause/Proceed with Caution strategy is also a temporary strategy. • It is a deliberate action taken by the firm to postpone the strategic action till the best opportunity knocks at the door.
  • 176. RETRENCHMENT STRATEGY • A strategy used by firms to reduce the overall size of operations. • This strategy is often used in order to cut expenses with the goal of becoming a more financial stable business. • The Retrenchment Strategy is adopted when an organization aims at reducing its one or more business operations with the view to cut expenses and reach to a more stable financial position.
  • 177. TYPES OF RETRENCHMENT STRATEGIES Turnaround • Turnaround Strategy is followed by an organization when it feels that the decision made earlier is wrong. • It is backing out from the decision wrongly made earlier and transform from a loss making company to a profit making one. Followed in case of: • Continuous losses • Poor management • Persistent negative cash flows • High employee attrition rate • Declining market share • Uncompetitive products and services
  • 178. CONT… Divestment • Divestment Strategy includes the downsizing of the scope of business. • Firm sells or liquidates a portion of a business or one or more of its strategic business units or a major division, with the objective to revive its financial position. • An organization adopts the divestment strategy only when the turnaround strategy proves to be unsatisfactory.
  • 179. CONT… • Liquidation Strategy is most unpleasant strategy adopted by firms that includes selling off its assets and the final closure / winding up of business operations. • It is the last resort and it involves serious consequences such as a sense of failure, loss of future opportunities, spoiled market image, loss of employment for employees etc. Followed if • Continuous losses • Obsolete technology • Outdated products/processes • Business becoming unprofitable • Very Poor management
  • 180. COMBINATION STRATEGY • Combination Strategy means making the use of mix of strategies (stability, expansion or retrenchment) simultaneously. • Such strategy is followed when an organization is large and complex and consists of several businesses that lie in different industries, serving different purposes. • It is a Corporate Planning aimed at achieving two or more goals (such as consolidation, growth, stability) simultaneously.
  • 181. EXAMPLE • A baby diaper company is maintaining its range of diapers for the babies to have a wide range of its products (Stability) and at the same time, it also plans to manufacture diapers for old age people, thereby covering the other market segment (Expansion). • In order to focus more on the diapers division, the company plans to shut down its baby wipes division and allocate its resources to the most profitable division (Retrenchment).
  • 182. CONCENTRATION STRATEGY • Concentration Strategies involves trying to grow by successfully competing only within a single industry. • Company invests more resources in that one area, but carries the risk of significant losses in event of a drop in demand or increase in competition. • This may lead to the product becoming obsolete, and also a particular reason could lead to its failure. • Benefits include to build a strong reputation within a market and generate loyalty among the customers.
  • 184. CONT… Product-Market Exploration Option • Firm attempt to increase sales of its current product(s) in its current market(s). For example: Coca Cola and Pepsi fighting for the soft drink market. They rely on their marketing activities to gain popularity. Product Development Option • Due to the demand from its current market, firm creates new product. For example: McDonald in order to gain market share in India comes up with newer products.
  • 185. CONT… Market Development Option • When a firm sell its current products in areas which were not before served by the firm. The way to increase the market reach is by entering to new channels. Example: Starbucks entered to grocery stores to expand their market base (not doing earlier) Product-Market Diversification Option • Expansion both into new products & new markets
  • 186. CORPORATE RESTRUCTURING • Restructuring is a Corporate management term for act of reorganizing the legal, ownership, operational or other structures of a company for the purpose of making it better. • Corporate restructuring is an action taken by the corporate entity to modify its capital structure or its operations significantly.
  • 187. CORPORATE RESTRUCTURING • Generally, corporate restructuring happens when a corporate entity is experiencing significant problems and is in financial trouble. • Although restructuring is a generic word for any changes in the company, this word is generally associated with financial troubles. • Corporate restructuring can involve cutting out or merging departments that often has the effect of displacing staff members.
  • 188. TYPES OF CORPORATE RESTRUCTURING • Financial Restructuring: May take place due to a severe fall in the overall sales because of adverse economic conditions. Here, the corporate entity may alter its equity pattern, debt-servicing schedule, equity holdings. • Organisational Restructuring: Implies a change in the organisational structure of a company, such as reducing its level of the hierarchy, redesigning the job positions, downsizing the employees, changing the reporting relationships. This type of restructuring is done to cut down the cost
  • 189. REASONS FOR RESTRUCTURING Change in the Strategy • Management of the troubled company attempts to improve the company’s performance by eliminating certain subsidiaries or divisions which are not aligning well Lack of Profits • The division may not be profitable enough to cover the firm’s cost of capital and cause economic losses to the firm.
  • 190. CONT… Reverse Synergy • According to reverse synergy, the individual parts may be worth more than the combined unit. This may be a reasoning for divesting the assets. Cash Flow Requirement • Sale of the division can help in creating a considerable cash inflow for the company. If the company is facing some difficulty in obtaining finance, selling an asset is a quick approach to raise money and reduce debt.
  • 191. CHARACTERISTICS • To improve the Balance Sheet of the company (by disposing of the unprofitable division) • Staff reduction (by closing down / selling off the unprofitable division) • Changes in Corporate Management • Outsourcing its operations such as technical support and payroll management to a 3rd party. • Shifting of operations such as moving of manufacturing operations to lower-cost locations.
  • 192. CHARACTERISTICS • Reorganising functions such as marketing, sales and distribution. • Renegotiating labour contracts to reduce overheads. • Rescheduling or refinancing of debt to minimise the interest payments. • Conducting a public relations campaign at large to reposition the company with its consumers.
  • 194. UNIT V: STRATEGY ANALYSIS AND IMPLEMENTATION
  • 195. FORMULATION AND IMPLEMENTATION OF STRATEGY • Strategy Formulation includes planning and decision-making involved in developing organization's strategic goals and plans. • Strategy Implementation involves all those means related to executing the strategic plans. • In short, Strategy Formulation is placing the Forces before the Action.
  • 196. BARRIERS TO STRATEGY IMPLEMENTATION • Strategy that is too lofty • Overly focused on immediacy • Doing what we like to do • Lack of congruency at the top and commitment from the middle • Not reviewing enough • Lack of Resources • Resistance to Change
  • 198. STRATEGIC BUDGETING • Strategic budgeting is the process of creating a long-range budget that spans a period of more than one year. • Intent is to develop a plan that supports a long-range vision for future position. • Examples: involve the development of new geographic markets, research and development team needed to introduce a new product line, converting to a new technology platform, restructuring of the organization etc.
  • 199. CONT… • Strategic Budget is less concerned with the detailed revenue and expense typically found in an Annual Budgeting. Focus on • Future Strategy • Risk management • Competitive threats • Growth options • Reallocations of resources for higher-growth areas
  • 200. EXAMPLES Product Development • Products that require years to research, develop and launch. Operations • Launching operations facilities such as a new factory. Capabilities • Large scale changes to processes and technology to improve efficiency, productivity, risk management, quality and organizational performance. For example, large scale software implementations that shall take lot of time
  • 201. CONT… Programs • Programs that have a mission takes lot of time to achieve. For example, a Space Mission that might take years altogether. So shall be Defence Projects Infrastructure • Mega Infrastructure projects may take lot of time to complete. For example, a state that builds a high speed rail link between two cities may require a budget of five years duration or more. Bullet Train Project may be an example
  • 202. RESOURCE ALLOCATION • It is a process and strategy involves a company deciding where scarce resources should be used. • A resource can be any factor of production.
  • 203. FACTORS AFFECTING RESOURCE ALLOCATION • Objectives: Should be oriented to Objectives Achievement. Critical Success Factors need to be considered. • Managerial Preferences: Top Managers who dominate strategy formulation tend to affect resource allocation. Their preferences attract more resources for their favourite projects
  • 204. CONT… • Internal Policies: Internal policies would also have an impact on resource allocation. • External Influences: Demands of stakeholders affect resource allocation. The may be owners, suppliers, customers, employees, bankers, community. Legal requirements may require for resources allocation also (Pollution Control Mechanisms to be installed).
  • 205. ALLOCATE RESOURCES FOR A PROJECT 1. Coordinate project and operations by establishing a comprehensive strategy. Evaluate project proposals to decide which ones gets more budgets. 2. May Employ software tools such as Project Management Softwares to identify project tasks, allocate resources effectively and avoid over allocation. Approve budgets, finish dates and the amount of flexibility in the deadlines to make decisions aligned with the company's strategic goals.
  • 206. CONT… 3. Delay tasks until staff have time available to work on them or split up tasks and hire additional workers to prevent employee burnout. 4. May Outsource routine tasks to companies that specialize in a particular function, such as payroll processing, customer service or technical support.
  • 207. CONT… 5. Train employees so they have the required skills and job to tasks get completed on time. Train less experienced workers to complete job tasks if you experience unexpected demand or attrition.
  • 208. ISSUES DUE TO FAULTY RESOURCE ALLOCATION • Too great an emphasis on short-run financial criteria • Organizational politics • Vague strategy targets • Taking too less / too more risk • Lack of sufficient knowledge • Lack of Resources
  • 209. PROCESS OF STRATEGIC CHOICE • Strategic Choice refers to the decision that determines the future strategy of a firm. • It is like “Where shall we go”? • The decision to select from the grand strategies considered, the strategy which will bets meet the enterprise’s objective. The decision involves focusing on a few alternatives considering the selection factors, evaluating the alternatives against these criteria and making the actual choice – Azhar Kazmi
  • 210. FACTORS AFFECTING STRATEGIC CHOICE • Environmental Constraints • Values and Preferences • Management Attitude towards Risk • Impact of Past Strategy • Constraints – Time, Cost, Information • Competitors Reaction • Timing
  • 211. WHAT TO DO? • What are the various Alternatives • Analysing the Alternatives (Judgment) • Evaluation of Strategies (Pros and Cons) • Making a Strategic Choice (Best under the present circumstances)
  • 212. LIFE CYCLE ANALYSIS • It is a technique to assess environmental impacts associated with all stages of a product's life from raw material extraction to materials processing to manufacture to distribution to use to repair and maintenance to disposal to recycling. ISO-compliant life cycle assessment is the most reliable method to verify environmental impacts and support claims. It provides designers, regulators and engineers with valuable information for exploring decisions in each life stage of materials, buildings, services and infrastructure.
  • 213. EXPERIENCE CURVE ANALYSIS • Experience curve is an idea developed by Boston Consulting Group (BCG) in the mid-1960s. • Working with a leading manufacturer of semiconductors, the consultants noticed that the company's unit cost of manufacturing fell by about 25% for each doubling of the volume that it produced.
  • 214. REASONS • Labour efficiency - Workers become mentally more confident and spend less time hesitating, learning, experimenting or making mistakes. • Standardization, specialization and methods improvements - As processes, parts and products become more standardized, efficiency tends to increase. When employees specialize in a limited set of tasks, they operate at a faster rate. • Technology-Driven Learning - Automated production technology and information technology can introduce efficiencies as they are implemented and people learn how to use them efficiently and effectively. • Better use of equipment - as total production increases, manufacturing equipment will have been more fully exploited thus lowering costs.
  • 215. CONT… • Product redesign - As the manufacturers and consumers have more experience with the product, they can usually find improvements. • Network-building leads to cost reductions - As a product enters more widespread use, the consumer uses it more thereby decrease cost per unit. • Shared experience effects - Experience curve effects are reinforced when two or more products share a common activity or resource. Any efficiency learned from one product can be applied to the other products.
  • 216. COMPETITOR ANALYSIS • Identifying your Competitors and evaluating their strategies to determine their strengths and weaknesses relative to those of yours. • A Competitor analysis is a critical part of your company marketing plan. • This analysis provides both an offensive and defensive strategic context to identify opportunities and threats.
  • 217. HOW TO DO? • Define the industry – scope and nature of the industry. • Determine who the competitors are. • Determine their key strengths – price, product features, attractive advertisements, service back up etc. • Rate each competitor on each of the key success factors as well as yourself.
  • 218. CONTINGENCY STRATEGY • A contingency plan is a plan devised for an outcome other than in the usual (expected) plan. • It is often used for risk management when an exceptional risk that, though unlikely, would have negative consequences. • It is like a Plan B
  • 219. STRATEGIC GAP ANALYSIS • Strategic Gap analysis is an evaluation of the difference between desired outcome and actual outcome. • It attempts to determine what a company should do differently to achieve a particular goal by looking at the variables (time frame, management, budget and other factors) to determine where shortcomings lie. • After conducting this analysis, the company should develop an implementation plan to eliminate the gaps.
  • 220. CONT… • Where are we now? • Where do we wish we were? • How are we going to close the gap?
  • 221. STEPS • 1. Identify the current state • 2. Identify where you want to be • 3. Identify the gaps (Along with reasons) • 4. Devise improvements to close the gaps Don’t leave your gap analysis on the shelf to collect dust!
  • 222. MCKINSEY’S 7S MODEL • Using the information you have gathered, now examine where there are gaps and inconsistencies between elements. • 7-S model helps analyze the current situation, a proposed future situation and to identify gaps and inconsistencies between them. • It's then a question of adjusting and tuning the elements of the 7-S model to ensure that your organization works effectively
  • 223. CONT… Strategy: • What is our strategy? • How do we intend to achieve our objectives? • How do we deal with competitive pressure? • How are changes in customer demands dealt with? • How is strategy adjusted for environmental issues?
  • 224. CONT… Structure: • How is the company/team divided? • What is the hierarchy? • How do the various departments coordinate activities? • How do the team members organize and align themselves? • Is decision making centralized or decentralized? Is this as it should be, given what we're doing? • Where are the lines of communication?
  • 225. CONT… Systems: • What are the main systems that run the organization? Consider Financial and HR systems as well as communications and document storage. • Where are the controls and how are they monitored and evaluated? • What internal rules and processes does the team use to keep on track?
  • 226. CONT… Shared Values: • What are the core values? • What is the corporate/team culture? • How strong are the values? • What are the fundamental values that the company/team was built on?
  • 227. CONT… Style: • How participative is the management/leadership style? • How effective is that leadership? • Do employees/team members tend to be competitive or cooperative? • Are there real teams functioning within the organization or are they just nominal groups?
  • 228. CONT… Staff: • What positions or specializations are represented within the team? • What positions need to be filled? • Are there gaps in required competencies?
  • 229. CONT… Skills: • What are the strongest skills represented within the company/team? • Are there any skills gaps? • What is the company/team known for doing well? • Do the current employees/team members have the ability to do the job? • How are skills monitored and assessed?
  • 230. STRATEGY EVALUATION • Strategic evaluation is a process that critically examines a program. It involves collecting and analyzing information about a program's activities and outcomes. Its purpose is to make judgments about a program and to improve its effectiveness Process • Setting Goals • Measuring Performance • Analysing Variance • Evaluation • Corrective Action
  • 231. BARRIERS IN STRATEGY EVALUATION • Probable lowering of Standards. • Lack of Cooperation. • Lack of proper Measurement Tools (May be Financial Statements, Questionnaires, Interviews etc). • Not honest Reporting.
  • 232. RUMELT’S CRITERIA FOR STRATEGY EVALUATION 1. Consistency implies that a strategy should not present inconsistent goals and policies which leads to organizational conflict and bickering. “If success for one organizational department means failure for another department, then strategies may be inconsistent”. 2. Consonance requires strategists to examine external trends in the environment. A strategy should present an adaptive response to critical changes in the external environment.
  • 233. CONT… 3. Feasibility means that the strategy can be executed with the physical, human and financial resources of the enterprise. The organization possesses the “abilities, competencies, skills and talents needed to carry out a given strategy”. 4. Advantage requires the creation or maintenance of a competitive advantage in an area or activity that results from: resources, skills or position