Strategic management BY VARUN CHANDOK


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Strategic management BY VARUN CHANDOK

  1. 1. Strategic ManagementVARUNCHANDOK
  3. 3. Strategy In business, strategy means an overall plan of anorganisation which uses its resources to establisha favourable position and compete successfullyagainst it‟s rivals. According to Willam F.Glueck, “ Strategy is acomprehensive and integrated plan designed toassure that the basic objectives of the enterpriseare achieved” According to Alfred Chandler, “ Strategy is thedetermination of the long term goals of anenterprise, and the adoption of courses of actionand the allocation of resources necessary forcarrying out these goals”
  4. 4. Nature Strategy is a major course of action through which anorganization relates itself to its environment particularly the external factors. Strategy is the blend of internal and external factors. To meet the opportunities andthreats provided by the external factors, internal factors are matched with them. Strategy is the combination of actions aimed to meet a particular condition, to solvecertain problems or to achieve a desirable end. Due to its dependence on environmental variables, strategy mayinvolve a contradictory action. An organization may take contradictory actions. Forexample, a firm is engaged in closing down of some of its business and at the sametime expanding some Strategy is future oriented. Strategic actions are required for new situations whichhave not arisen before Strategy requires some systems and norms for its efficient adoption in anyorganization Strategy provides overall framework for guiding enterprise.
  5. 5. P&G Strategies Products-Delight the consumer with sustainableinnovations that improve the environmental profile ofour products. Operations-Improve the profile of P&G’s ownoperations. Social Responsibility-Improve children’s lives throughP&G’s social responsibility programs. Stakeholders- Shape the future by workingtransparently with our stakeholders to enable continuedfreedom to innovate in a responsible way.
  6. 6. In summary, A Strategy is:---A strategy could be:* A plan or course of action or set of decision rulesmaking a pattern………….* The pattern related to the organizations activitieswhich are derived from the policies, objectives andgoals,* related to pursuing those activities which move anorganization from its current position to the desiredfuture state,* Concerned with the resources necessary forimplementing a plan or following a course of action,* Connected to the Strategic positioning (desiredfuture position of the organization) of a firm* a planned coordination of the firm‟s major goals andactions, in time and space that continuously co-alignthe firm with its environment.
  7. 7. Business Policy According to Christensen, “ It is the study of thefunctions and responsibilities of seniormanagement, the crucial problems that affectsuccess in the total enterprise, and the decisionsthat determine the direction of the organisationand shape its future. The problems of policy inbusiness have to do with the choice ofpurposes, the moulding of orgnaisational identityand character, the continuous definition of whatneeds to be done and the mobilisation ofresources for the attainment of goals in the faceof competition”
  8. 8. Policy and strategy Difference between Policy and StrategyThe term “policy” should not be considered as synonymous to the term“strategy”. The difference between policy and strategy can besummarized as follows- Policy is a blueprint of the organizational activities which arerepetitive/routine in nature. While strategy is concerned with thoseorganizational decisions which have not been dealt/faced before insame form. Policy deals with routine/daily activities essential for effective andefficient running of an organization. While strategy deals with strategicdecisions. Policy is concerned with both thought and actions. While strategy isconcerned mostly with action.
  9. 9. What is Strategic Management According to Jauch and Glueck, “ Strategicmanagement is a stream of decisions and actionswhich lead to the development of an effectivestrategy or strategies to help in achieving thecorporate objective. According to Robinson, “Strategic Management isthe set of decisions and actions resulting informulation and implementation of strategiesdesigned to achieve the objectives of anorganisations”
  10. 10. Importance of strategy Better and effective control of uncertainty Enhancing organisational effectiveness Framework For Operational Planning Clarity in Direction of Activities Personnel Satisfaction
  11. 11. SBI STRATEGYSBI eyes home loans of state govt employeesMumbai May 05, 2006The State Bank of India(SBI) has adopted an innovative strategy toexpand its home loan portfolio and at the sametime ensure good credit quality. The country‟slargest bank is in talks to buy home loans givenby state governments to theiremployees. Banking sources said SBI is close insigning an agreement with the Kerala governmentfor purchasing home loans of its staff.
  12. 12. Difference Between SBU andSBA According to Sharplin, “ SBU is any part of abusiness organisation which is treated separatelyfor strategic management purpose”. Strategic business area- A distinctive segment ofthe environment in which the firm does or maywant to do business”
  13. 13. Strategic decision making Strategic decision making is the task of seniormanagement. It is one of the most important function of a seniormanagement Conventional Decision makingDefining objectivesSearching for alternativesEvaluation of alternativesSelection of alternative
  14. 14.  Strategic decision making1. Strategic decisions are highly complex2. The basic thrust of strategic decision making is tomake a choice regarding the courses of action toadopt3. The fundamental strategic decisions relates to thechoice of mission i.e. WHAT IS OUR BUSINESS?WHAT IT WILL BE? AND WHAT SHOULD IT BE?4. Also here senior management is faced withproblem of selecting the best alternative5. Apart from this senior management has to makeimportant strategic decisions related with theenvironmental threats and the availableopportunities.
  15. 15. Issues in Strategic Decisionmaking Criteria for decision making- Focus on objectivesConcept of maximisation- Objectives are set at thehighest pointConcept of satisfying- Objectives are set in such amanner that the firm can achieve them realisticallyConcept of incrementalism- Process of decision makingis complex. Adoption of small, logical and incrementalsteps Rationality in decision making Creativity in decision making- Help of Brainstorming Variability in decision making- Depending on situation Person related factors in decision making
  16. 16. Process of StrategicManagement
  17. 17.  Establishing the hierarchy of strategic intent:-Creating and communicating a vision- What organisationwhishes to achieve in long runDesigning a mission statement- Relates organisation tosocietyDefining the business- In terms of Customer needs, customergroups and alternatives technologiesSetting objectives Formulation of strategiesPerforming environmental appraisalDoing organisational appraisalConsidering corporate level strategiesConsidering business level strategiesUndertaking strategic analysisExercising strategic choiceFormulating strategiesPreparing strategic plan
  18. 18.  Implementation of strategiesProjectProceduralResource allocationStructuralBehaviouralFunctional and operational Performing strategic evaluation and controlPerforming strategic evaluationExercising strategic controlReformulating strategies
  19. 19. Models of the strategic management process Project implementation- Settingup the organisation Procedural implementation-Different aspects of theregulatory framework Resource allocation Structural-Designingappropriate organisationalstructural Behavioural aspect considerthe leadership style andculture, personal value,business ethics and socialresponsibility Functional aspect relates to thepolicies to be formulated indifferent functional areas andoperational implementation
  20. 20. Working model of strategicmanagement process
  21. 21. Levels at which strategy operates
  22. 22.  Societal strategies-Strategies plan above corporate strategiesHow the corporation relates itself to society in terms of aneed that it strives to fulfill.Corporate level strategies could be based on societalstrategies Operational level strategiesSet below the functional level strategiese.g. A functional strategy at the marketing level could besubdivided into sales, distribution, pricing, product andadvertising strategies
  23. 23. Who are strategist These are individuals who are primarilyinvolved in the formulation,implementation and evaluation ofstrategy. In limited sense, all managers arestrategist There are also persons outside theorganisation who are also involved invarious aspect of strategic management.
  24. 24. Role of strategist Role of BOD1. The ultimate authority of an organisation rest withthe BOD2. These are appointed by the owners of theorganisation, Govt, shareholders or even by theparent company.3. These are responsible for providing guidance andestablishing the directives according to which themanagers of the organisation operate.4. The board has to act according to the rules,procedure of an organisation5. The board is required to direct but many operationalmatters like technology collaboration, new productdevelopment may be brought to them.6. Their role is to guide senior management and
  25. 25. Role of CEO One of the most important strategist Involved in formation and evaluation of strategy He can be MD, President or GM of an organisation CEO performs the strategic task-action which arenecessary to provide a direction to the organisation sothat it achieve the purpose He plays an important role in setting mission, objectivesof the organisationRole modeling approachChief architect of organisational purpose, strategist or plannerOrganisational leader, organiser or organisational builderChief administrator, coordinator, motivator, mentor
  26. 26. Role of CEO Other approach- Directly or indirectly describe therole of a CEO in terms of:-1. How time is spent2. Qualities and personality3. Communication style4. Demographic characteristic- age, education,intelligence, experience and so on………5. Managerial style
  27. 27. Role of entrepreneurs The entrepreneur always searches for change, respondto it and exploits it as an opportunity An entrepreneur is a person who start a new businessand is having a high level of achievement They can be found in small as well as in largeorganisations They are proactive and provide a direction to theorganisation, set objectives and formulate a strategy Strategic decision making is quick and the entrepreneurgenerate a sense of purpose among their subordinates.
  28. 28. Role of senior management Chief executive and various functional heads canbe included in it. Some of the members of the senior managementact as a directors on the board. They are responsible for implementing of strategiesand their evaluation. They may be included in Adhoc committees forsome special projects. When assigned specific responsibilities, seniormanagers look after modernisation, technologyupgradation, diversification, expansion, planimplementation and new product development
  29. 29. Role of SBU Executives Help in managing diversified company Each business is having a clearly defined productmarket segment and adopt a unique strategy They are considered as a chief executive of thatparticular business unit. They are responsible for formulation andimplementation of strategies of their business unit. There can be separate management board in order toreview the performance of each profit center.
  30. 30. Role of corporate planning staff Corporate planning staff play a supportive role instrategic management It helps the management in formulating, implementingand evaluation of strategies. They also communicate the strategy plan and conductspecial studies or research pertaining to strategicmanagement. It is important to note that corporate planning staff isnot responsible for strategic management and usuallydoes not initiate the process on its own.
  31. 31. Role of consultants Many small organisation which do not have corporateplanning staff look for external help for formulating thestartegies. These consultants may be individuals, academiciansor consultancy companies. According to Management Consultants Association ofIndia, management consultancy is a professionalservice performed by trained persons to advice andassist managers to improve their performance. These people will give unbiased, objective opinion. McKinsey, BCG, KPMG
  32. 32. Role of a middle level managers These people rarely play an active role instrategic management. They are the implementors of decisions takenabove, followers of policy. They implement all the functional strategies. Sometime they can also contribute to thegenerations of ideas, development of strategicalternative, refinement of business, functional anddevelopment plans etc.
  33. 33. Role of Executive Assistant An executive assistant is a person who assist the chiefexecutive in the performance of his duties in variousways. They can help the chief executive in collection of data,its analysis, suggesting alternatives, projects andreport etc. These people also act as a filter for the informationcoming from different sources. It is the function of executive assistant to monitor thechanges taking place. But in a company where corporate planningdepartment exist, this function is not assigned to the
  34. 34. Strategic Intent By strategic intent, we refer to the purpose theorganisation strives for. Strategic intent could be in the form of vision,mission statement. At the business level, these could be expressed asthe business definition. When stated in exact term, its an expression of aimsto be achieved operationally, these may be goalsand objectives. Strategic intent encompasses an activemanagement process that includes: focusing theorganisation‟s attention on the essence of winning….
  35. 35. Concept of stretch, leverage andfit Stretch- The company need to Stretch. As oftoday there is a misfit between resources andaspirations. Leverage- It refers to concentrating,accumulating, complementing (balancing),conserving and recovering resources in such amanner that the meager resource base isstretched to meet the aspirations. Fit- Positioning the firm my matching itsorganisational resources to itsenvironment.(SWOT)
  36. 36. Vision
  37. 37. Vision Aspirations expressed as strategic intent should lead toresults. It is what the firm would like to become It is a mental perception of the kind of environment anindividual, or an organisation, aspires to create within abroad time horizon.Benefits:- Good visions are aspiring Company knows what it want to be…… Good visions help in the creating of a common identity anda shared sense of purpose. Good visions are competitive, original and unique Good Vision foster risk taking and experimentation Good vision foster long term thinking
  38. 38. Process of envisioning According to Collins, a well conceived vision consistsof two major components: core ideology andenvisioned future. The core ideology defined the character of anorganisation that remains unchangeable as it passesthrough technology, competition.(Core values and corepurpose) Envisioned future consists of two components i.e.Long term audacious goalVivid description of what it will be like to achieve thatgoal
  39. 39. Mission Mission is what an organisation is and why it exists. Organisation relate their existence to satisfy a need ofthe society. Mission is a statement which defined the role that anorganisation plays in the society According to Thompson, “ It is an essential purpose ofthe organisation, concerning particularly why it is inexistence, the nature of the business it is in and thecustomers it seeks to serve and satisfy”.
  40. 40. Mission statements of variouscompanies Companies often list their vision and their missionstatements on their sites. The difference between a missionstatement and a vision statement is that a missionstatement focuses on a company‟s present state while avision statement focuses on a company‟s future. However,some companies tend to blend these statements. Thefollowing are some of the top technology-based companymission statements: Amazon: Amazon‟s vision is to be earth‟s most customercentric company; to build a place where people can come tofind and discover anything they might want to buyonline. (They list this as their mission as a combinationmission/vision on their site). Apple: Apple is committed to bringing the best personalcomputing experience to students, educators, creativeprofessionals and consumers around the world through itsinnovative hardware, software and Internet offerings.
  41. 41.  Dell: Dell‟s mission is to be the most successfulcomputer company in the world at delivering the bestcustomer experience in markets we serve. Facebook: Facebook‟s mission is to give people thepower to share and make the world more open andconnected. Google: Google‟s mission is to organize the world„sinformation and make it universally accessible anduseful. Microsoft: Microsoft‟s mission is to enable people andbusinesses throughout the world to realize their fullpotential. Skype: Skype‟s mission is to be the fabric of real-timecommunication on the web. Yahoo!: Yahoo!‟s mission is to be the most essentialglobal Internet service for consumers and businesses
  42. 42. How mission statements areformulated and communicated????? An entrepreneur has a perception of the type oforganisation that he wants his company to be.Mission statements could be formulated on the basisof the vision that the entrepreneur decided in theinitial stages of an organisation‟s growth. Major strategists could also contribute to thedevelopment of a mission statement like CEO…… One can also take the help of various consultants….. Mission example:--- TO BE A VIBRANTORGANISATION, KEEPING ITS CUSTOMERS ANDEMPLOYEES SATISFIED IN TERMS OF SERVICESAND WORK REWARD;GIVING ADEQUATERETURNS ON INVESTMENT TO THE
  43. 43.  Communicating the mission statement is as importantas formulating it. High visibility of the mission statements posted onmultiple locations is an effective tactic to aid missionfamiliarity and recognition by employees. Methods of communicating Mission statement-ANNUAL REPORTS, POSTERS, EMPLOYEEMANNUALS, COMPANY INFORMATION KITS, WORDOF MOUTH PUBLICITY, SEMINARS, WORKSHOPS,NEWSLETTERS, ADVERTISEMENT. A mission statement is generally formulated for longspan of time but it may become unclear as theorganisation grows and add new products, market andtechnologies. In such a case Mission statement has tobe reconsidered and re-examined.
  44. 44. Features of Mission Statement It should be feasible- Should not be an impossiblestatement It should be precise- Hero Cycles mission statement,“Its our mission to strive for synergy betweentechnology, systems and human resources, toproduce products and services that meet thequality, performance and price aspirations of ourcustomers. While doing so, we maintain thehighest standards of ethics and societalresponsibilities” It should be clear It should be motivating- Bank of Baroda‟s strategicvision 2010, includes the mission of „pursuing best
  45. 45.  It should be distinctive It should indicate the major components of strategy-The mission of HCL Infosystems is: “To provide worldclass information technology solutions and services toenable our customers to serve their customers better”. It should indicate how objectives are to beaccomplished- LG electronics has its mission ofbecoming „2 by 10‟.
  46. 46. Business Definition What is our business?????? According to Derek Bell, “ A Business can be definedalong the three dimensions i.e. customer group i.e. whois being satisfied (children, men, women), customerneed (what is being satisfied) and Alternativetechnologies(how the need will be satisfied). A business definition can indicate the choice ofobjectives, helps in exercising a choice amongdifferent strategic alternatives, facilitate functionalpolicy implementation and suggest an appropriateorganisational structure.
  47. 47. Levels at which business could bedefined It can be defined at SBU or corporate level. A single business firm is active in only one area so itsbusiness definition is simple. At the corporate level, the business definition willconcern itself with the wider meaning of customergroups, customer function and alternative technologies.On the other hand a highly diversified companyorganised on a divisional basis could benefit by havinga business definition at the SBU level. Business definition offer unique insights to companiesoperating in competitive markets where the customer isan important external stakeholder of the firm.
  48. 48. Product/Service concept A product/service concept is the manner in which acompany assesses the user‟s perception of its productor service. Such a perception is based on how the product orservice provides functions that satisfy customer needs. For e.g. Motorola wished to make the mobile phone notjust a device for making a phone call but offeringSEAMLESS MOBILITY making it possible to perform avariety of functions such as pay bills, buy tickets or usemobile phone for personal identification. NIIT saw itself not as a computer training institution butas a service- providing organisation, seeking tounderstand and implement the concept of knowledgetransfer across the gamut of IT led human activity.
  49. 49. Business Model Business model are often expressed in the form of aquestion: HOW DOES THE ORGANISATION MAKEMONEY???? Business model has an important relationship with thestrategy of the organisation. Strategies result in choices and a business model canbe used to help ,analyse and communicate thesestrategic choices. The success of WAL MART as a retailer, GOOGLE asa search engine, DELL COMPUTERS as an internetbased marketer is attributed to their respectivebusiness models.
  50. 50. Goals and objectives Goals denote what an organisation hopes toaccomplish in a future period of time Objectives are the ends that state specifically how thegoals shall be achieved. Objectives are concrete and specific in contrast togoals that are generalised. Objectives makes the goal operational. Goals may be qualitative while objectives tend to bequantitative.
  51. 51. Role of objectives Objectives defines the organisation‟s relationship withits environment Objective help an organisation pursue its vision andmission Objectives provide the basis for strategic decisionmaking Objectives provide the standard for performanceappraisalCharacteristics of objectives It should be understandable It should be specific It should be related to time frame It should be measurable It should be challenging
  52. 52. Issues in Objective Setting Specificity1.Objectives may be stated at a different levels ofspecificity2Objectives might be broadly stated as goals or theymight be stated as targets. 3Specificity is related to theorganisational level for which a set of objectives hasbeen stated(Corporate, functional and operational) Multiplicity1.Objectives deals with a number of performance areas, avariety of them have to be formulated to cover allaspects of the functioning of an organisation.2.The issue of multiplicity deals with different types ofobjectives with respect to organisational levels (Higher
  53. 53. Issues in Objective Setting Verifiability- Quantitative objectives and Qualitativeobjectives Reality-official objectives- Objectives which the organisationprefer to attainoperative objectives- Objectives which they seek toattain in realityE.g. Many organisation state one of their officialobjectives as the development of human resource. Butwhether it is also an operative objective depends on theamount of resources allocated to HRD. Quality- It can be good or badBad objective- To be market leader in our
  54. 54. What objectives are set??????? Objectives have to be set in all those performanceareas which are of strategic importance to anorganisation. According to Drucker, objectives need to be set in theeight areas:-Market standingInnovationProductivityPhysical and financial resourcesProfitabilityManager performance and developmentWorker performanceAttitude
  55. 55. How objectives are formulated The forces in the environmentDifferent Stakeholders Realities of enterprise resources and internal powerrelationship1.Objectives are set keeping in mind the availableresources (material and human) of a company2.It also depend upon the decisional power hold bydifferent group of strategist The value system of the top executiveValues are beliefs, perceptions about WHAT IS GOODAND BAD, DESIRABLE AND UNDESIRABLE. Awareness by the managementAwareness of past objectives
  56. 56. Balanced Scorecard approach to objective-setting It was developed by Robert S. Kaplan and David Norton “The Balanced Scorecard translates an organization‟smission and strategy into a comprehensive set ofperformance measures that provides the framework for astrategic measurement and management system”
  57. 57.  Financial perspective- This perspective consider thefinancial measures arising from the strategic intent ofthe organisation for e.g. measuring revenues, earning,return on capital and cash flow. Customer perspective- It consider the ability of theorganisation to provide quality of goods and services,effective delivery and overall customer satisfaction. Internal Business perspective- It measures the “criticalinternal processes in which the organization mustexcel” for e.g. productivity indicators, quality measuresand efficiency. Learning and growth perspective-1. Focus on the ability of the organisation to manage itsbusinesses and adapt to change2. Focus on the development of employees in terms of
  58. 58. Development of scorecard1. The development of scorecard begins with theestablishment of the organisation‟s strategic intentincluding vision and mission2. The design of balance scorecard is determined byidentifying the specific measures related to the fourperspectives. The specific strategies should beformulated and implemented,3. The following step involves mapping the strategythrough the indentification of organisational activitiesthat are derived from the strategies.4. In the final stage, metrics that can be used toaccurately measure the performance of theorganisation in a specific areas are established
  59. 59. CSF- Critical Success Factors These are the important factors which lead theorganisation to success. CSF are sometimes referred to strategic factors thatare crucial to the organisation success. For a shoe manufacturing company a CSF can bequality, cost efficiency, sophisticated retailing, flexibleproduct mix and creation of product image. For a toothpaste company, CSF can be flavour,freshness, form. For a courier service, CSF can be speed, despatch,reliability and price.
  60. 60. KPI- Key performance indicators KPI are the measures in terms of which the CSF areevaluated For e.g. A shoe manufacturing company has a highmanufacturing quality as a critical success factor and hecan compare this factor with recall rate after delivery,product reject rate, on-time delivery etc. This form theKPI. KPI depend upon the vision set by an organisation. Fore.g.For a profitable company in industry- Its KPI will be pre-tax profitFor a responsible corporate citizen- Its KPI will be theper cent of profit contributed to community KPI give everyone in the organisation a clear picture of
  61. 61. Environmental Appraisal Organisation grow in the business environment. Environment literally means the surroundings, externalobjects, influences or circumstances under whichsomeone or something exists. The environment of an organisation is the aggregate ofall conditions, events and influences that surround andaffect the organisation.Characteristics of Environment Environment is complex Environment is dynamic Environment is multi faceted- Some development iswelcomed as an opportunity by one company whileanother company perceives it as threat. Environment has far reaching impact
  62. 62. Internal and External Environment Internal environment- Factors within the organisation (strengthsand weaknesses) External Environment- Factors outside the organisation(opportunity and threat). StrengthsGood reputationResourcesPeopleExperienceKnowledgeCapabilities WeaknessGaps in capabilitiesFinancial deadlinesLow morale
  63. 63.  OpportunityEconomic boomFavorable demographics shiftsArrival of new technologiesFavorable global influencesUnfulfilled customer needs ThreatEconomic downturnDemanding new regulationsUnfavourable politicalNew technology
  64. 64. SWOT ANALYSIS SWOT Analysis evolved during 1960s at Stanford ResearchInstitute SWOT analysis process1.Setting the objectives of the organisation or its unit2.Identifying its strength, weaknesses, opportunity and threats3.ASKING FOUR QUESTIONSQ1 HOW DO WE MAXIMISE OUR STRENGTHQ2 HOW DO WE MINIMISE OUR WEAKNESSESQ3 HOW DO WE CAPITALISE ON THE OPPORTUNITIES INOUR EXTERNAL ENVIRONMENTQ4 HOW DO WE PROTECT OURSELVES FROM THREATSIN OUR EXTERNAL ENVIRONMENT4. Recommending strategies
  65. 65. Benefits Simple to use Low cost Flexible and can be adapted to varying situations Leads to clarification of issues Development of goal oriented alternatives Useful as a starting point for strategic analysis
  66. 66. General versus relevant environment General EnvironmentInternationalNationalSocial changesDemographic variablesPolitical systemTechnologyAttitude towards businessEnergy sourceRaw material Relevant Environment-Include factors which arerelated with mission,purpose and strategies.General EnvironmentRelevantenvironmentOrganisation
  67. 67. Classification of environmentalsectors Economic Environment International Environment Market Environment Political Environment Regulatory Environment Socio- cultural Environment Supplier Environment Technological Environment
  68. 68. Economic Environment Economic Environment consist of macro level factorsrelated to the means of production and distribution of wealththat have an impact on the business of an organisation.WHAT ARE FACTORS:- The economic stage in which a country exists at a givenpoint of time The economic structure adopted, such as capitalistic,socialistic or mixed economy. Economic policies such as industrial, monetary policies Economic planning such as five years plans National Income, Disposable income, rate of saving andinvestment. Infrastructure factors such as financial institutions, banks,modes of transportation.
  69. 69. International Environment Important factors and influences operating in theinternational environment are as follows:-1. Globalisation2. Global economic forces3. Global trade and commerce4. Global financial system5. Geopolitical situation6. Global demographic patterns7. Global human resources8. Global information system9. Global technological and quality systems
  70. 70. Market Environment Important factors and influences operating in themarket environment are as follows:-1. Customer needs, preferences, perceptions,attitudes2. Product factors such as demand, image, features,utility, function, design, life cycle, price, promotion,distribution etc3. Marketing intermediary factors such as levels andquality of customer service, middleman etc.4. Different types of competitors, entry and exit ofmajor competitors
  71. 71. Political Environment Important factors and influences operating in thepolitical environment are as follows:-1. Nature of political system2. The political structure3. Political philosophy, government‟s role in business, itspolicies.Regulatory Environment Constitutional framework, fundamental rights Policies related to licensing, monopolies, foreigninvestment Policies related to pricing and their control Policies related to import and export
  72. 72. Supplier environment Some of the important factors and influences operatingin the supplier environment are as follows:-1. Cost, availability and continuity of supply of rawmaterial, parts and components2. Cost and availability of finance3. Cost, reliability and dependability of human resource4. Cost, availability and the existence of sources andmeans for supply of machinery, spare parts and aftersale service5. Infrastructural support and ease of availability of thedifferent factors of production, bargaining power ofsuppliers.
  73. 73. Technological environment1. Sources of technology like company sources,external sources, foreign sources, cost oftechnology acquisition.2. Technological development, stages ofdevelopment, change of technology3. Impact of technology on human beings and itsenvironmental effects.
  74. 74. Environmental scanning Environment scanning can be defined as the processby which organisation monitor their relevantenvironment to identify opportunities, threats affectingtheir business for the purpose of taking strategicdecisions.Factors to be considered for environment scanning:--1. Events are important and specific occurrences takingplace in different environmental sectors2. Trends are the general tendencies or the courses ofaction along which events take place3. Issues are current concerns that arise in response toevents and trends4. Expectations are the demands made by interestedgroups in the light of their concern for issues
  75. 75. Approaches to environmentalscanning Systematic approach- Information is collected in asystematic way Ad hoc approach- Organisation conduct specialsurveys and studies to deal with specificenvironment issues time to time Processed form approach- Organisation usesinformation in a processed form, available fromdifferent sources both inside and outside theorganisation. (secondary sources)
  76. 76. Sources of information for environment scanning Secondary sources of information- newspaper,magazine, journals, books. Mass media- TV, Radio, Internet Internal sources – Internal report, MIS, database External agencies like customers, suppliers etc Formal studies done by employees, market researchagencies, consultant
  77. 77. ETOP- Environmental Threat and opportunity profile(Glueck)1. The preparation of ETOP involves dividing theenvironment into different sectors and then analysingthe impact of each sector on the organisation.2. A comprehensive ETOP requires subdividing eachenvironmental sector into subfactors and then theimpact of each subfactor on the organisation isdescribed in the form of a statement.3. The preparation of ETOP provides clear picture to thestrategists about which sectors and the differentfactors in each sector have a favourable impact onthe organisation.4. By the means of ETOP, the organisation knows whereit stands with respect to its environment.
  78. 78. ETOP of Motor Bike companyEnvironmental Sectors Impact of each sector Social ( ) Customer preference for motorbike, which arefashionable, easy to ride… Political ( ) No significant factor Economic( ) Growing affluence among urbanconsumers Regulatory( ) Two wheeler industry a thrust area forexport Market ( ) Industry growth rate is up….. Supplier ( ) Mostly associated companies supply partsand components, Licenses for importedraw material is also available Technological( ) Technological up gradation of industry is inprogress.(UP ARROW INDICATE FAVORABLE IMPACT, DOWN ARROWS INDICATE
  79. 79. Points to remember while preparingETOP Issue selection- Focus on the issue which have beenselected. Some of the important issues may be thoserelated to market share, competitive pricing, customerpreference, technological changes, economic policies,competitive trends etc. Accuracy of data- Data should be collected from goodsources. The relevance, importance, manageability and lowcost of data are some of the important factors. Impact studies- Impact studies should be conductedfocusing on the various opportunities and threats and thecritical issues selected. It may include study of probableeffect on the company‟s strengths and weaknesses,competitive position, accomplishment of vision and mission. Before the formulation of strategies can be undertaken, the
  80. 80. Internal Environment Internal analysis is the process of reviewing organisationalresources, scanning organisational activities and identifyingstrengths and capabilities. Internal analysis stands for resource audit, value chainanalysis and core competence. Internal diagnosis is the process by which strategistdetermine how to exploit the opportunities and meet thethreats. In other words Corporate appraisal is the process throughwhich managers analyse the various factors of theirorganisation to evaluate their relative strengths andweaknesses in order to meet the opportunities and threats ofenvironment. The appraisal of the external environment of a firm helps it tothink of what it might choose to do and the appraisal of
  81. 81. Dynamics of InternalEnvironment Organisation uses different types of resources andpositive interplay of these resources can producessynergy within an organisation. These interplay leads to the development ofstrengths and weaknesses over a period of time. Some of these strengths make an organisationespecially competent in a particular area of itsactivity causing it to develop competencies.
  82. 82. Process of development of strategicadvantage …..Strategic advantageOrganisational capabilityCompetenciesSynergistic effectStrengths and weaknessesOrganisational resources + Organisational Behaviour
  83. 83. Organisational Resources A firm is a bundle of bundle of resources- tangible andintangible and include all assests, capabilities,organisational process, information, knowledge etc. PHYSICAL RESOURCES- Technology, plant, equipment,geographical location, access to raw material…. HUMAN RESOURCES- Training, experiences, intelligence,relationships etc. ORGANISATIONAL RESOURCES- Formal systems,structures as well as informal relations among groups. Resources can lead the organisation to the ultimatestrategic advantage. According to Barney (Developer of resource based theory)-“Firms possess resources of which those that are valuableand rare enable them to achieve strategic advantage.
  84. 84. Organisational Behaviour Organisational behaviour is unique in the sense that itleads to the development of a special identity andcharacter of an organisation. Some of the important forces that affect organisationalbehaviour are the quality of leadership, managementphilosophy, values and culture, quality of workenvironment, organisation climate etc… The resources and the behaviour of the organisationcan provide a synergy effect in the development of anorganisation. They can collectively produce strengthsand weaknesses.
  85. 85. Strengths and weaknesses Strength is an inherent capability which anorganisation can use to gain strategic advantage. A weakness is an inherent limitation which creates astrategic disadvantage for an organisation. Strengths and weaknesses do not exist in isolation butcombine within a functional area and also acrossdifferent functional area.
  86. 86. Synergistic Effect Synergy is an idea that the whole is greater or lesserthan the sum of its parts. It can be expressed as „thetwo plus two is equal to five or three effect‟ It is the inherent nature of organisation that strengthsand weaknesses, like resources and behaviour, donot exist indivudally but combine in a variety of ways. Two strong points in a functional area add up tosomething more than double the strengths. Likewisetwo weaknesses acting in tandem result in more thandouble the damage.
  87. 87. Competencies Competencies are special qualities possessed by anorganisation that make them withstand the pressuresof competition in the marketplace Unique resources, core capabilities, knowledge When a specific ability is possessed by a particularorganisation exclusively or relatively in large measure,it is called a distinctive competence A firm should build its competencies around the CSF
  88. 88. Organisational Capability Organisational capability is the inherent capacity orpotential of an organisation to use its strengths andweaknesses in order to exploit the opportunities andface the threats in its external environment. It is the skill of the organisation to coordinateresources and putting them to productive use. Organisational capability is the capacity or potential ofan organisationa and it means that it is a mesurableattribute( total resources and behaviour, strengths andweaknessess etc)
  89. 89. Strategic and competitive advantage Strategic advantage are the outcomes of organisationalcapabilities. Strategic disadvantage are penalties in the form offinancial loss or damage to market share. Strategic advantages are measurable in absolute termsusing the parameters in which they are expressed fore.g. profitability could be used to measure strategicadvantage..
  90. 90. Organisational Capability factors Capabilities are most often developed in specificfunctional areas such as marketing or operations oreven in R&D. Organisational capability factors are the strategicstrengths and weaknesses existing in differentfunctional areas within an organisation, which are ofcrucial importance to strategy formulation andimplementation. It is feasible to measure and compare capabilities indifferent functional areas.
  91. 91. Financial capability Financial capability factors relate to the availability,usages and management of funds. Factors related to sources of funds- Capital structure,procurement of capital, controllership, financing pattern,working capital availability, borrowings, capital andcredit availability, reserves, surplus, relationship withlenders, banks and financial institutions. Factors related to usage of funds- Capital investment,current assets, loans and advances, relationship withshareholders. Factors related to management of funds- Financialaccounting and budgeting systems, state of financialhealth, cash, credit, return and risk management, costreduction.
  92. 92. Marketing capability These factors related with pricing, promotion anddistribution of products or services Product related factors- Variety, differentiation, mixquality, positioning, packaging Price related factors- Pricing policies and objectives Place related factors- Distribution, transportation,marketing channels, marketing intermediaries Promotion related factors- Sales promotion,advertising, public relation
  93. 93. Operations capability These factors are related with production of productsand use of material resources. Factors related to the production system- capacity,location, layout, work system, degree of automation. Factors related to the operations and control system-Production planning, material supply, inventory, costand quality control, maintenance systems. Factors related to R&D system- Personnel facilities,product development, level of technology used,technical collaborations and support.
  94. 94. Personnel capability Factors related to personnel system- Systems formanpower planning, selection, development,compensation, communication and appraisal. Factors related to organisational and employeecharacteristics- Corporate image, quality of managers,staff and workers perception about the organisationand organisational employer, ,opportunities foremployees to grow, working conditions etc. Factors related to industrial relations- Unionmanagement relationship, safety, welfare and security,employee satisfaction and morale etc.
  95. 95. Information management capability Factors related to acquisition and retention ofinformation- Sources, quantity, quality and security ofinformation. Factors related to processing of information- Databasemanagement, computer systems, software capability Factors related to retrieval and usage of information Factors related to transmission and dissemination-Speed, scope of coverage
  96. 96. General Management Capability Factors related to the general management systemStrategic management system, Strategic intent, strategyformulation and implementation, strategy evaluationsystem, Corporate planning system Factors related to general managersValues, Personal goals, capacity to work, risk propensity Factors related to external relationshipRapport with government, regulatory agencies, financialinstitutions, PR, sense of social responsibility Factors related to organisational climateCulture, balance of vested interest
  97. 97. example----HUL Vs P&GMUMBAI: It was quick and it was smart.It was an ambush in the skies that HindustanUnileverlaunched against archrival Procter & Gamble.The story starts on July 23, when Mumbai wokeup to hoardings that screamed: „A MysteryShampoo!! 80% women say is better thananything else‟. P&G, it was later found, wasplanning to unveil the new Pantene on August1.HUL saw an opportunity to score a point.They ambushed P&G. On July 28, even asthe P&G hoardings stood tall on its skyline,Mumbai woke up to another hoarding thatwas upfront, and suggestive of its source ofinspiration. It said: „There is no mystery. Doveis the No.1 shampoo‟. Dove is one of the fourbrands in HUL‟s shampoo portfolio.For instance, when Coke bagged the officialsponsorship rights to the 1996 cricket worldcup in the subcontinent, Pepsi came up with
  98. 98. Methods and techniques used fororganisational appraisal Organisational appraisal is different from performanceevaluation as earlier is more comprehensive and is forlong term and also tells what organisation needs to doin order to grow. The emphasis of performance evaluation is onassessing current behaviour with respect to efficiencyand effectiveness of the organisation. Internal Analysis Comparative analysis Comprehensive analysis
  99. 99. Internal analysis VRIO framework Value chain analysis Quantitative analysisFinancial analysisNon-financial analysis Qualitative analysis
  100. 100. VRIO framework Contributed by Barney also known as the founder ofresource based theory. V- VALUABLE, R-RARE, I-INIMITABLE, O-ORGANISED FOR USAGE ValuableThe organisational capabilities that help to generaterevenues by capitalising opportunities and reducingcostFor e.g. Amicable relationship with Government or aftersale service RareThe organisational capabilities exclusively possessed byfirms
  101. 101.  InimitableOrganisational capabilities that are impossible or verydifficult or not worthwhile to duplicate by thecompetitors.E.g.- A favorable corporate image Organised for usageOrganisational capabilities that could be used throughappropriate organisational structure, businessprocesses, control system and reward system.E.g.- Availability of competent R&D personnel andresearch laboratories to innovate new and improvedproducts or the availability of potential businesspartners who are competent and willing to integratetheir information systems with that of the firm.
  102. 102. Value chain analysis Strengths and weaknesses are determined byunderstanding the series of activities. Porter is credited for this framework. A value chain is a set of interlinked value creatingactivities performed by an organisation These activities may begin with purchase of rawmaterial till the finished or end product. Here, activities are divided into two parts i.e. Primaryactivities and supportive activities
  103. 103. Primary activities Inbound logistics- Receiving, storing and transportinginputs going into production process Operations- Transformation of raw material into finishedproducts Outbound logistics- Activities includingreceiving, storing and transporting outputs going out ofproduction process.(material handling, orderprocessing, physical distribution etc) Marketing and sales- Activities that an organisationuses to market or sell its products. Service- Activities used for enhancing and maintainingproduct‟s value. (installation, repair, customer trainingetc)
  104. 104. Support activities Firm infrastructure- Accounting, finance, planning,general management, legal support and managinggovernment relations. HRM- Recruitment, selection, training, development,appraising and compensating Technology development- R&D, product design,process design, equipment design. Procurement- Procuring inputs needed to produceproducts or product services. (Machinery,equipments, raw material etc)
  105. 105. Value chain analysis Identifying the activities that make up the organisation‟svalue chain and classifying them into primary andsecondary activities Identifying the things done in those activities thatcontribute in providing value for the customer Identifying how the value contribution can be increasedso that it costs less to provide the same or more value. Identifying how the value configuration could beimproved by innovatively reconfiguring or recombiningactivities. The main purpose of value chain analysis is to promotethose activities that create more value to the customerat less cost and reducing those activities that provideless value and cost more or the organisation canoutsource these activities to external party who can
  106. 106. Limitations of Value chainanalysis This technique looks simple but difficult to implement It applies to the industrial organisation and needs to beadapted for application to service organisation. The concept of value is hazy. It is difficult to say whatconstitute value for the customer. This analysis requires collecting data from varioussources and it may increase the cost.
  107. 107. Quantitative analysis Numbers in the form of financial figures can give usmore accurate data and which helps the organisation inassessing the strengths and weaknesses. FINANCIAL ANALYSIS NON-FINANCIAL ANALYSIS
  108. 108. Financial analysis Ratio analysis-1. This analysis helps the organisation in assessing liquidity,profitability.2. Ratio analysis is used on the basis of the reasonableassumptions that ratios cover all the important aspects of anorganisation‟s activities.3. Ratios tell the whole story of changes in the financial conditionof the business EVA (Economic value added analysis)1. It is used to determine wealth of the company2. EVA is defined as the system of corporate management thatdefines profitability in terms of return on capital above the costof servicing the capital employed3. EVA is the representation of the simple idea that anorganisation needs to earn more from business than the cost of
  109. 109.  Activity based costing1. Activity based costing is an accounting theory thatinvolves assigning all the costs of the business toeach individual product or service provided.2. ABC identifies the major activities in the value chainwithin a firm and keeps a tab on the costs within eachactivity3. This helps in identifying the factors that determine costand the areas where costs are actually incurred.4. The purpose of this type of costing is to have amethod for evaluating the total cost to create and sella specific product.NON- FINANCIAL ANALYSIS1. Non-Financial analysis helps in analysis theintangibles such as goodwill, employee morale
  110. 110. Qualitative analysis Most of the Strengths and weaknesses of anorganisation cannot be expressed in quantitative termsand for this reason, organisation can go in for qualitativeanalysis. Comparative analysis- From competitor point of viewHistorical analysisIndustry NormsBenchmarking Historical analysis1.Go to the history of the organisation2.Frequently, the performance of companies is shown interms of comparative figures over the last year
  111. 111.  Industry Norms1.The industry to which a business belongs is the mostobvious choice for comparison .2.A company might check whether its cost structure iscomparable to that of its competitors.3.A firm may follow similar strategies building strategicgroups.4.Strategic groups are the clusters of competitors thatshare similar strategies and therefore compete moredirectly with one another. Benchmarking1. It is a reference point for taking measures2. The purpose of benchmarking is to find the bestperformers in an area so that one could match one‟sown performance with them and even surpass them.
  112. 112. WHAT TO BE COMPARED Performance benchmarking- Comparing performance Process benchmarking- Comparing process(methods/practices) Strategic benchmarking- Comparing long term, significantdecisions and actions undertaken by other organisation___________________________________________________ Internal benchmarking- Comparison between departments ofthe same organisation. Competitive benchmarking- Direct comparison of ownperformance against the best competitors. Functional benchmarking- It is the comparison of functionsagainst non-competitive organisation within the same sector. Generic benchmarking- It is the comparison of ownprocesses against the best practice anywhere, in any type oforganisation. (For example, an insurance company mayBenchmark a bank loan application process against its
  114. 114. Key Factor Rating This method is used with financial analysis This system is based on rating, depending on thenumber of key factors and each factor is properlyanalysed.For Financial capability factors1. Questions related to sources of funds2. Questions related to usage of funds3. Questions related to management of fundsFor marketing capability factors1. Questions related to products or services2. Questions related to price3. Questions related to promotion
  115. 115.  For operational capability factors1. Questions related to the production system2. Questions related to operations and control3. Questions related to the R&D system For personnel capability factors1. Questions related to the personnel system2. Questions related to organisational and employeecharacteristics3. Questions related to industrial relations
  116. 116.  For Information management capability factors1. Questions related to acquisition and retention ofinformation2. Questions related to processing of information3. Questions related to retrieval and usage of information4. Questions related to transmission and dissemination For general management capability factors1. Questions related to general management system2. Questions related to general managers3. Questions related to external relationship4. Questions related to organisational climate
  117. 117. Business intelligence systems Business intelligence is used for discoveringknowledge from various internal and externalrepositories available to an organisation to supporteffective decision making This system was developed by Horward J. Dresner ofthe Gartner Group and according to him “BI is a broadcategory of applications and technologies forgathering, storing, analysing and providing access todata to help enterprise users make better businessdecisions.” Gartner ranked the strategic use of BI in the followingorder1. Corporate performance management2. Optimising customer relations, monitoring business
  118. 118. Balance Scorecard
  119. 119.  Financial perspective- This perspective consider thefinancial measures arising from the strategic intent ofthe organisation for e.g. measuring revenues, return oncapital and cash flow. Customer perspective- It consider the ability of theorganisation to provide quality of goods and services,effective delivery and overall customer satisfaction. Internal Business perspective- It measures the “criticalinternal processes in which the organization mustexcel” for e.g. productivity indicators, quality measuresand efficiency. Learning and growth perspective-1. Focus on the ability of the organisation to manage itsbusinesses and adapt to change2. Focus on the development of employees in terms of
  120. 120.  Balance scorecard is considered as a set of measuresthat give top managers a fast and comprehensive viewof the business and it includes financial measures thattell the results of actions already taken Balance scorecard can be used as a means to identifythe strengths and weaknesses in an organisation bykeeping the score of strengths and weaknesses incritical areas of performance. It enables quantitative as well as qualitative analysis ofthe organisation.
  121. 121. Structuring organisational appraisal SAP (strategic advantage profile)- Here theresults of the organisational appraisal arepresented in a summarised form. Organisational capability profile-1. Assessing company‟s strengths andweakness in dealing with the opportunitiesand threats in the external environment.2. Here the strategists assess the variousfunctional areas or capability factors and itssub factors along a scale ranging fromvalues -5 to +5.
  122. 122. Strategic advantage profile On the basis of Organisational Capability Profile,the organisation can go in for strategic advantageprofile SAP provides a picture of more critical areaswhich can have a relationship with the strategicposture of the firm in the future.
  123. 123. SAP for a bicycle companyCapability factor Competitive strengths or weaknesses Finance ( ) High cost of capital, reserve andsurplus position unsatisfactory Marketing( ) High competition in industry;company’s position secure at present Operations ( ) Plant and machinery is in excellent condition Personnel( ) Quality of managers and workers comparablewith that in competitor companies Information ( ) Advanced management information system inplace, mostly traditional functions are nowcomputerised General Management( ) High quality and experienced topmanagement, proactive(up arrow indicate strengths, down arrows indicateweakness, horizontal arrows indicate neutral position)
  124. 124. Identification of CSF CSF are the factors unique to a company thatinfluence the success of that company. These factors differ from industry to industry. These can be also called core competencies(Core competencies refers unique strengths of thecompany that competition can not easily match orimitate. Core competencies is a bundle of skills andtechniques that help the company to provide aparticular benefit to customers.
  125. 125. Attributes of CSF Core competencies is base for all products Core competencies makes or mars the success Core competencies is bundle of skills andtechnologies Core competencies cannot be copies easily.
  126. 126. Corporate level strategies Organisational Appraisal and Environmental appraisal willlead to the generation of these strategies. The choice of strategy is wide as it will depend on thestrengths, weakness along with the opportunity and threat tothe organisation Corporate level strategy involve:-Allocating resources among the different businesses of a firmTransferring resources from one set of businesses to othersManaging and nurturing portfolio of businesses Corporate strategy will exercise the choice of direction thatan organisation adopts. After doing the business analysis, the firm is having a wideoptions available to them in terms of strategic alternatives.(Strategic alternatives revolve around the question of whetherto continue or change the business, the enterprise iscurrently in or improve the efficiency and effectiveness with
  127. 127. Four strategic alternatives:--- Expansion strategies Stability strategies Retrenchment strategies Combination strategies All the above strategies cover customer group,customer function and alternative technologies
  128. 128. Expansion strategy This strategy is adopted when organisation aims highgrowth and wants to improve overall performance.Reasons for adopting expansion strategies:--1.It may become essential when the environment demandsincrease in pace of activity2.Chief executives may take pride in presiding overorganisational perceived to be growth-oriented3. Increasing size may lead to more control over the marketalong with the competitorsExpansion strategy in the form of customer group, functionand alternative technology (Customer groups relate to „who‟is being satisfied, customerneeds describe „what‟ is being satisfied, and alternative
  129. 129. Expansion strategies Expansion through concentration Expansion through integration Expansion through diversification Expansion through cooperation Expansion through internationalization Expansion through digitalisation
  130. 130. Concentration strategies It involves converging resources in one or more of afirm‟s business in terms of their respective customergroup, customer function and alternative technologies. A strategic approach in which a business focuses ona single market or product. This allows the company toinvest more resources in production and marketing inthat one area, but carries the risk of significant losses inthe event of a drop in demand or increase in the levelof competition. Ansoff‟ Product- Market MatrixProductMarketPresent NewPresent MarketPenetrationProductdevelopment
  131. 131. Market penetration It means selling more products to the same market. Helps in increasing market share of present product. For e.g. Budget airlines in India went into aggressivemarketing with low pricing, adopting a market penetrationtype of concentration strategy. Eg. : ITC has capturedsubstantial marketshare in cigarettes, Lifeboy soap…Market development It involves selling the same product in new market andattract new users for existing product. Here new market can be in the form of geographical,demographic. Some of the companies which have made keen attempt todevelop rural market are HUL (personal products), ITC.Product development-
  132. 132. Integration strategies It means combining activities related to the presentactivity of a firm. One can take the help of value chain analysis Here integration strategies are designed on the basisof present set of customer functions and customergroup. Integration strategy is also a subset of diversificationstrategy. Reasons for adopting this strategy-Transaction costeconomics Here the company may go in for MAKE OR BUYdecision.
  133. 133.  Horizontal integration1. Here the organisation moves beyond its boundariesinto the domain of the industry it is operating in.2. When an organisation takes up the same type ofproducts at the same level of production or marketingprocess, it is said to follow a strategy of horizontalintegration (acquisition or merger).3. It may involves buying a competitor‟s business inorder to increase the market share and remain in thesame industry.Benefits1. Product differentiation2. Increased market power3. Reduction in industrial rivalry
  134. 134.  Vertical integration1. Here the orgsniation starts making new products thatserve its own needs.2. Any activity undertaken with the purpose of eithersupplying inputs (raw material) or serving newcustomer for output (marketing of firm‟s product) isvertical integration.3. It can be backward or forward integration.4. Backward integration means moving back to thesource of raw materials while forward integrationmoves the organization nearer to the ultimatecustomer.5. Taper integration strategies requires firms to makepart of their own requirements and to buy the restfrom outsiders.
  135. 135. Stability strategy It is less risky, involves less changes and people feelcomfortable with things as they are. The environment faced is relatively stable Expansion may be perceived as being threatening. Consolidation is sought through stabilising after aperiod of rapid expansion. Here the company serves the same markets with thepresent product. The essence of stability strategies is not doinganything but sustaining moderate growth in line
  136. 136.  No change strategy- No change strategy is adecision to do nothing new i.e continuecurrent operations and policies for the future. Pause/proceed with caution strategy- Someorganizations pursue stability strategy for atemporary period of time until the particularenvironmental situation changes, especially ifthey have been growing too fast in theprevious period. Profit strategies- The profit strategy is anattempt to artificially maintain profits byreducing investments and short-termexpenditures.
  137. 137. Retrenchment strategy Here the organisation contracts its activities The management no longer wishes to remain inbusiness due to continuous losses. The environment faced is threatening. Stability can be ensured by reallocation of resourcesfrom unprofitable to profitable businesses.
  138. 138.  Turnaround strategies- If your company is steadilylosing profit or market share, a turnaround strategy maybe needed. There are two forms of turnarounds: First,one may choose contractions (cutting labor costs andMarketing). Second, they may decide to consolidate Divestment strategies- This is a form of retrenchmentstrategy used by businesses when they downsize thescope of their business activities. Divestment usuallyinvolves eliminating a portion of a business. Firms mayelect to sell, close a strategic business unit, majoroperating division, or product line. This move often isthe final decision to eliminate unrelated, unprofitable, orunmanageable operations. Liquidation strategies- sell the business
  139. 139. Combination strategy Mixture of stability, expansion andretrenchment strategies. The organisation is large and facescomplex environment. The organisation is composed ofdifferent businesses, each of which liesin a different industry, requiring adifferent response.
  140. 140. Expansion Strategy- Diversificationstrategy When new products are made for the new market thediversification takes place. By adopting diversification, an organisation doessomething in terms of newness of products or markets. It can be of Concentric (Related) and Conglomerate(Unrelated) diversification. Related or concentric diversification- Here, anorganisation takes up an activity in such a manner that itis related to the existing business definition or if the newbusiness is related with the existing business definition.Marketing related concentric diversification- Commondistribution channelsTechnology related concentric diversificationMarketing and technology related concentricdiversification
  141. 141.  Conglomerate or unrelated diversification-1.When an organisation adopts a strategy whichrequires taking up those activities which are unrelatedto the existing business definition of any of itsbusinesses either in terms of their respective customergroups, customer function or alternative technologies, itis conglomerate diversification.2.Can go for this strategy if the company has excesscapital
  142. 142. Expansion throughInternationalization Here the firm goes beyond the national market. A firm should assess the international environment. Porter‟s Model of competitive advantage of Nations-Four national characteristics create an environmentthat is conducive to create globally competitive firm in aparticular industry.1. Factor conditions- Special factors of production sucha s natural resources, raw materials, labour etc.2. Demand conditions- The nature and size of thebuyer‟s need in the domestic market.3. Related and supporting industries- The existence ofrelated and supporting industries to the ones in whicha nation excels.4. Firm strategy, structure and rivalry- The conditions inthe nation determining how firms are created,
  143. 143. Types of International strategies Focus on the cost pressures and pressures for localresponsiveness International strategy- Transferring the products andservices to the foreign market. Here the firm offersstandardised products and services in different countrieswith little or no differentiation. Multidomestic strategy- Focus is on high level of localresponsiveness and on customization Global strategy- Here the company focuses on standardproducts and services and the focus is on to reduce thecost. It selects few favorable locations around the world. Transnational strategy- Focus is on low cost and highlocal responsiveness. It is difficult to adopt this strategyand it calls for creative approach to manage theproduction and marketing of products and services.
  144. 144. International entry modes Export entry modes- Here the firm produces in thehome country and market in the overseas market. Contractual entry modesLicensing- Here the international company transfersknowledge, technology for a limited period of time inreturn for some form of payment.Franchising- It is the right to use a business format or abrand nameInvestment entry modes- Joint ventures or independentventures
  145. 145. Strategic decisions inInternationalisation Which International markets to enter??? Timing of entry into international market. Scale of entry into international markets….ADVANTAGES Economies of scale Expansion Access to resources overseasDISADVANTAGES High risk Difficulty in managing cultural diversity Higher distribution cost Trade barriers
  146. 146. Cooperative strategiesMergers and acquisitionsJoint venturesStrategic alliances
  147. 147. Merger and acquisition strategies Mergers- It takes place when the objectives of thebuyer firm and the seller firms are matched. A merger is a combination of two or moreorganisations in which one acquires the assets andliabilities of the other in exchange for shares or cashor both the organisations are dissolved and assetsand liabilities are combined and new stock is issued. Acquisition or takeover- These are based on thestrong motivation of the buyer firm to acquire. Takeover can be in the form of hostile takeovers andfriendly takeovers.
  148. 148. Types of mergers andacquisitions Horizontal mergers- Mergers between two ormore organisations in the same business Concentric mergers- It take place when there is acombination of two or more organisations relatedto each other either in terms of customerfunctions, customer groups or alternativetechnologies. Vertical mergers- Not necessary the samebusiness Conglomerate mergers- For e.g. footwearcompany combine with pharmaceutical firm.
  149. 149. Important issues in mergers andacquisitions Strategic issues- Synergistic effects, strategicadvantages and distinctive competencies…. Financial issues- Sources of finance foracquisition, share price of target firm, growthsprospects of target firm, quality and integrity oftop management…. Managerial issues Legal issues
  150. 150.  Tata Chemicals buys British salt Reliance Power and Reliance Natural Resourcesmerger Airtel‟s acquisition of Zain in Africa ICICI Bank buys Bank of Rajasthan The Reliance – BP deal Mahindra & Mahindra acquires Ssangyong
  151. 151. Joint Venture strategies A Joint venture could be considered asan entity resulting from a long termcontractual agreement between two ormore parties, to undertake mutuallybeneficial economic activities, exercisejoint control.
  152. 152. Conditions for joint venture When an activity is uneconomical for anorganisation to do alone. When the risk of the business has to be shared. When the distinctive competencies of two or moreorganisations can be brought together.
  153. 153. Types of joint ventures Between two organisations in one industry. Between two organisations across differentindustries. Between an Indian organisation and a foreignorganisation in India. Between an Indian organisation and a foreignorganisation in that foreign country. Between an Indian organisation and a foreignorganisation in third foreign country.
  154. 154. Strategic alliances Two or more firms unite to pursue a set ofagreed upon goals but remain independentsubsequent to the formation of the alliance. The partner firm share the benefits of thealliance and control over the performance ofassigned tasks. The partner firms contribute on a continuingbasis in one or more strategic areas.
  155. 155. Digitalisation strategies Computerisation Electronisation Digitalisation E Channel pattern Click and brick pattern E Portal pattern E market
  156. 156. Stability strategy This strategy is followed by small and medium sizedenterprise. These strategies can be used for short term andwhen such organisations are satisfied with theircurrent performance. No change strategyTo continue with present business business definitionHere taking no decision sometimes, is a decision too….Useful in predictable and certain external environmentThere is no significant opportunity or threat in themarketUseful for a niche market
  157. 157.  Profit strategyFocus on only profitUseful for a short period of timeFirm can go in for reducing investment, cut costs, raiseprice oin order to face temporary difficultiesSustain profitability by whatever means. Pause/Proceed with caution strategyUseful for firm that wish to test the ground before movingahead with a full fledged corporate strategy.Can apply before going in for consolidationIt is a temporary strategy just like profit strategyFollowing this strategy is a conscious attempt to adjournmajor strategic changes or when the organisation isready to move on with rapid force again
  158. 158.  Retrenchment strategiesHere the organisation reduces the scope of its activitiesMajor external factors leading to decline:-1. New organisation form2. New technologies3. New business models4. Demand saturation5. Changing customer needs and preferences6. Emergence of substitute productsMajor internal factors leading to decline:-1. Ineffective top management2. Inappropriate strategies3. High cost4. Ineffective sales and marketing5. Wrong organisation design
  159. 159.  Turnaround strategieso This can be Internal(focus on improving internal efficiency)or externalManaging turnaroundo CEO and management handles the entire turnaroundstrategy with the support of external consultant. CEO musthave a good credibility with the banks and financialinstitutions.o Can go in for a person deputed by the banks and financialinstitutionso Replace the existing team and CEO or merge the sickorganisation with a healthy one.Approaches to TurnaroundIssue order for changeChange product mixFocus on R&DRemove obsolete machinery
  160. 160.  Divestment strategyo Sale or liquidation of a portion of businesso It can be SBU or a major divisiono This strategy is followed if the organisation failed inimplementing turnaround strategy.Reasons for Divestmento Business which was earlier acquired proves to be amismatch and cannot be integrated within the company.o Persistent negative cash flow from a particular businesso Intense competitiono Not able to adopt new technologyo Better alternative may be available for the firm
  161. 161.  Liquidation strategyo Close down the organisation and sell its assetso Should be considered as a last solutiono It may lead to serious consequences such as loss ofemployment, termination of opportunities where anorganisation could pursueo Small scale units can be easily liquidated but its is verydifficult to liquidate medium or large size organisation inIndian for several following reasons:----1. Govt. may not allow for liquidation2. Pressure of trade union3. Company management, banks, financial institutions,creditors Combination strategyo Mixture of stability, expansion and retrenchmentstrategy
  162. 162. Corporate restructuring Synonyms of restructuring arerevamping, regrouping….. It can take place at the macro level( reductionof subsidies, dismantling of price control) andmicro level ( Business levelrestructuring, financialrestructuring, organisational restructuring). Business level restructuring- Changes in theorganisation‟s set of businesses in order tocreate more profitable enterprise. Financial restructuring
  163. 163. Reasons for corporaterestructuring At business levelAn organisation may go in forrestructuring in its business portfolio.Business portfolio changes could lead tothe organisational acquiring newbusinesses and divesting some others.It may go in for combination strategy
  164. 164. Business level strategies Companies operate through theirbusiness. Business level strategies are based oncorporate level strategies. Business definitionWhat- Customer needsWho- Customer groupsHow- Alternative technologies Business definition lays down theframework within which a business
  165. 165. Business level strategies Business level strategies are the courseof action adopted by an organisation foreach of its business separately, to serveidentified customer groups and providevalue to the customer by satisfying theirneeds. According to Porter, “ Competitionincludes a group of competitorsproducing products and services thatcompete directly with each other. It isthe industry where competitive
  166. 166. Industry structure According to Porter, industry structure isdetermined by the competitive forces.
  167. 167. Threat of new entrants The most attractive segment is one in whichentry barriers are high and exit barriers arelow i.e. few new firms can enter the industryand poor performing firms can easily exit. If the entry and exit barriers are low, firmseasily enter and leave the industry and thereturns are stable or low. The worst case is when the entry barriersare low and exit barriers are high. Here firmsenter during good times but hard to leaveduring bad times.For e.g. aviation sector.
  168. 168. Threat of substitute products A substitute product is a product thatappears to be different but can satisfy thesame need as another product. A segment is unattractive when there areactual or potential substitutes for theproduct. Substitutes place a limit on price and profits.
  169. 169. Bargaining Power of Buyers A segment is unattractive if buyers possessstrong or growing bargaining power. Buyers bargaining power grows when theybecome more aware, when the buyerswitching costs are low, when buyers areprice sensitive. To protect themselves, sellers might selectbuyers who have the least power tonegotiate or to switch to other suppliers.
  170. 170. Suppliers growing bargainingpower Suppliers affect an industry through their ability toraise prices or reduce the quality of purchasinggoods and services. A supplier or supplier group is powerful if some ofthe following factors are apply: The supplier industry is dominated by a fewcompanies, but it sells to many(petroleumindustry) Its product or service is unique and/or it has builtup switching costs( word processing software) Suppliers are able to integrate forward andcompete directly with their present customers.
  171. 171. Positioning of firm in industry Positioning of firm depends upon the two variables:-(Competitive advantage)1. One type of positioning approach may be ofoffering mass produced products, distributedthrough mass marketing and resulting in lower costper unit.2. Other type of positioning approach could bemarketing higher prices products of a limitedvariety and focusing on customer groups who arewilling to pay higher price.3. The business need to differentiate its products andservices on some tangibles basis from what itsrivals have to offer so that customer purchases the
  172. 172. (Competitive scope)1.It is the range of products, distributionchannels, types of buyers, geographicalarea served.2. Competitive scope is important as industry issegmented, have different needs andrequire different sets of competencies andstrategies to satisfy the needs of customers
  173. 173. Generic Business Strategy Business strategy is dependent upon industry structureand the positioning of the firm in the industry. Competitive advantage is derived from two approachedi.e. lower cost and differentiation.
  174. 174. Cost leadership businessstrategy Competitive advantage of an organisation lies in itslower cost of products and services. This is referred to as cost leadership. Customer always prefer a lower cost productparticularly if it offers the same utility to them ascomparable products available in the market.Achieving cost leadership Accurate demand forecasting Attaining economies of scale High level of standardization of products Aiming at the average customers Investment in cost saving technologies
  175. 175. Differentiation business strategy Adding special features in the product orservice. Competitors are not able to offer the samefeatures of product or service. Customer always prefer differentiatedproduct or service. A differentiator may charge premium pricefor its product and service. Should be able to grab the attention of thecustomer towards differentiation…..
  176. 176.  Achieving differentiation1. Adding features that offer utility for thecustomer and match her tastes andpreferences2. Organisation can add features that loweroverall cost of the buyer3. Organisation can add features that raisesthe performance of the product4. Organisation can incorporate features thatincrease the buyer satisfaction5. Organisation can add features that enhancethe prestige among the buyer community
  177. 177. Conditions under which differentiation isused1. Market is too large and organisationsare offering standardised products andservices2. Customer needs and preferences aretoo diversified to be satisfied bystandardised product3. It is possible for the organisation tocharge premium price4. The nature of product/service is such
  178. 178. Focus business strategy Focus business strategy may rely on eithercost leadership or differentiation but cater toa narrow segment of the total market Focus strategies can be called nichestrategies The most commonly used bases foridentifying customer groups are thedemographic characteristics (age, gender,income, occupation etc), geographicsegmentation (rural/urban or northern
  179. 179. Achieving focus1. Choosing niches by identifying gapsnot covered by cost leaders anddifferentiators2. Creating superior skills for catering tosuch niche markets3. Creating superior efficiency forserving such niche markets4. Achieving lower cost/differentiation ascompared to competitors in servingniche markets
  180. 180. Conditions under which focus strategies areused1. Uniqueness in the segment which couldeither be geographical, demographic orbased on lifestyle2. Potential of growth in niche market3. Major players are not interested in theniche market4. Focusing organisation has necessary skilland expertise to serve the niche segment
  181. 181. Tactics for business strategies A tactic is a sub strategy It is a specific operating plan detailinghow a strategy is to be implemented interms of when and where it is to be putinto action. Two types of tactics:-Timing tacticLocation tactic
  182. 182. Timing tactic When to make a business strategy move is often asimportant as what move to make. Timing of the application of a business strategy isalso important. A business strategy of low cost, differentiation orfocus may be a right move but only if it is made atthe right time.First Movers and Late movers First movers- First company to manufacture and sella new product or service is called the pioneer or thefirst mover organisation.(eBay was the first companyto take the auction process online, Coca-Cola wasthe first cola producer, and began selling its productto the public in 1886)
  183. 183. Advantages of first movers:- Can establish position as market leader Moving first in the industry results in commitments tosuppliers of raw material, new technology, distributionchannels. Develop an image of being a pioneer. First time customers are likely to remain loyalDisadvantages:- Being a pioneer is often costlier than being a follower Late movers can imitate technology Technology change is often rapid creating obsolescencefor the first movers Customer loyalty may be at risk
  184. 184. Market location tactics Where to compete Market location could be classified according to the rolethat organisations play in the target market and thetypes of business tactics they adopt. Market leaders Market challenger Market follower Market nichers
  185. 185. Competitive strategies for market leaders- Expanding the totalmarket• New customers1. A company can search for new users among three groups:-----those who might use it but do not (market penetrationstrategy), those who have never used it (new marketsegment strategy) or those who live elsewhere(geographical-expansion strategy).• Various strategies to increase more usage1. Usage can be increased by increasing the level or quantityof consumption or increase the frequency of consumption,through packaging or product design, identifying additionalopportunities to use the brand.2. Help of advertisement for communicating the advantagesof using brand.• Defending market share1. While trying to expand total market size, the dominant firm
  186. 186. Market challenger strategy Focus on increase market share and attackthe market leader.• It can attack firms of its own size that arenot doing the job and are underfinanced.• It can attack small local and regional firms.• Choosing a general attack strategy1. Frontal attack- Here the attacker matchesits opponent‟s product, advertising, priceand distribution.2. Flank attack- An enemy‟s weak spots aretargeted.e.g segmental- Japanese automaker put
  187. 187. 3 Encirclement attack- Theencirclement attack is an attempt tocapture a wide slice of enemy‟sterritory.4 By pass attack- It means bypassingthe enemy and attacking easiermarkets to broaden one‟s resourcebase. For e.g. Pepsi used a bypassstrategy against coke by purchasingorange juice giant Tropicana.5 Guerrilla attack- Small attacks toharass and demoralise the opponent
  188. 188. Market Follower Strategies A strategy of product imitation…………. A innovator bears the expense of developingthe new product , getting it into distributionand informing and educating the market.Another firm can come along and copy orimprove market leadership. As there is a risk to be attacked by themarket challengers, the market followershould keep its manufacturing cost low andquality high. E.g. Friendster –> Facebook
  189. 189. Market Follower Strategies• Counterfeiter1. The counterfeiter duplicates the leader‟s productand packages and sells it. Music record firms,apple computers and Rolex have been facing acounterfeiter problem, especially in Asia.2. Cloner- The cloner copy the leader‟s products,name and packaging with slight variations.3. Imitator- The imitator copies some things from theleader but maintains differentiation in terms ofpackaging, advertising, pricing.4. Adapter- The adapter takes the leader‟s productsand adapts or improves them. The adapter maychose to sell to different markets
  190. 190. Market Nicher startegies An alternative to being a follower in a large marketis to be a leader in a small market, or niche. Nichers have three tasks: creating niches,expanding niches and protecting niches. For e.g. Computer mouse maker Logitech is only afraction the size of giant microsoft, yet throughskillful niching, it dominates the PC mouse marketwith microsoft as its runner up. e.g. Restaurants offering all food are example ofMass Marketing. White Pizza Hut has targetedPizza Market out of thousands of food products. Itis called Niche Marketing.
  191. 191. Strategic analysis and choice Strategic choice is a part of decision makingprocess. Decision making process consists of settingobjectives, generating alternatives, choosing one ormore alternative and implementation. The choice is based on certain criteria. Strategic choice is the decision to select fromamong the grand strategies considered, thestrategy which will best meet the enterprise‟sobjectives. The decision involves focusing on a fewalternatives, considering the selection factors,evaluating the alternatives against these criteriaand making actual choice.
  192. 192. Strategic analysis Strategic analysis helps in solvingfollowing questions:---Q Which industry to enter and to leave?Q Which business tocreate/acquire/divest?Q Which products and markets to retain,grow, divest?
  193. 193. Steps in strategic analysis:-Focusing on strategicalternativesAnalysing the strategicalternativesEvaluating the strategicalternativesChoosing from among thestrategic alternatives
  194. 194. Focusing on strategic alternatives Narrow down the choice Considering too many alternatives wouldmake the process unproductive. Decision maker should focus on a reasonablenumber of alternatives. Focusing on alternatives could be done byvisualizing the future state and workingbackwards and this can be done through gapanalysis.Future state- Set the objective for future periodof time
  195. 195. Performance gap- At corporate level Gap can be wide or narrow Choice of alternatives will depend uponthis gap. When the gap is narrow stabilitystrategies would seem to be a feasiblealternative but if the gap is large due toexpected environmental opportunities, afirm can go in for expansion strategy. A firm can go in for combinationstrategies if the environment is complex.
  196. 196. Performance gap- At businesslevel Choice between low cost ordifferentiation or focussed. Organisation should go in for properanalysis of industry before going in forany choice. An organisation can also go in forbusiness definition i.e. customer group,customer function and alternativetechnologies and it enables the decision
  197. 197. alternatives Thorough analysis of strategic alternatives A strategist should analyse the strategicalternatives on the basis of certain factors and thatcan be called selection factors. Selection factors can be divided into objective andsubjective factors.Evaluating the strategicalternatives Narrowing the choice leads to few alternatives Evaluation of strategic alternatives involvesbringing together the analysis done on the basis ofobjective and subjective factors..Choosing from among the strategic alternatives
  198. 198.  BOSTON CONSULTING GROUP (BCG) MATRIX is developed byBRUCE HENDERSON of the BOSTON CONSULTING GROUP INTHE EARLY 1970’s.According to this technique, businesses orproducts are classified as low or highperformers depending upon their marketgrowth rate and relative market share.It is widely used method of portfoliomanagement and helps businesses evaluatetheir business portfolios to estimate theirprofitability. The matrix provides diversifiedorganisations with an effective framework forevaluating the relative performance of theirvarious businesses.BOSTON CONSULTING GROUPMATRIX
  199. 199. THE BCG GROWTH-SHAREMATRIX It is a portfolio planning modelwhich is based on the observationthat a company‟s business unitscan be classified in to fourcategories: Stars Question marks Cash cows Dogs