introdution to strategy

8/7/2019 Introdution to Strategy

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Strategy

The determination of basic long term goals of an

enterprise and the adoption ofcourses of action and theallocation of resources necessary for carrying out thesegoals is called strategic thinking.

Strategy is related to pursuing those activities which

moves the organization from its current position to itsdesired future state


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It is not the strongest of the species

that survive, nor the most intelligent,

but the one

most responsive to change.

Charles Darwin


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Evolution of the Concept

The word Strategy comes from the Greek word strategia

which means General or Military commander

(Strategeos means Generalship).

Business wars are sometimes as fierce as the wars fought

in the actual Battlefield.


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Strategic planning The development of strategic plans involves taking

information from the environment and deciding upon an

organizational mission and upon objectives, strategies anda strategic architecture.


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THETASKENVIRONMENTTHETASKENVIRONMENT

THEBROAD ENVIRONMENTTHEBROAD ENVIRONMENT

THEORGANIZATIONTHEORGANIZATION

suppliers

government

unions

activists

local communities

financial

intermediaries

customers

competitors

socio-cultural

forces

socio-cultural

forces

technological

forces

technological

forces

economic

forces

economic

forces

owners/board of directors

managers employees

political/legal

forces

political/legal

forces


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External Environmental Analysis The external environment of business may be divided into

two sectors:

Broad (Macro Environment)

Task (Micro Environment)

All trends and stakeholders in the external environmentshould be analyzed at both the domestic and internationallevel

External environmental analysis involves evaluation ofthe broad and task environments to determine trends,threats, and opportunities and to provide a foundation forstrategic direction.


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Broad EnvironmentThe broadenvironment consists of domestic and global forcessuch as

socio-cultural trends (e.g. demographics)

technological trends (e.g. internet) political trends (e.g. open markets)

economic trends (e.g. growing economy)

The broad environment forms the context within which the firmand its task environment exist.


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TaskEnvironmentThe taskenvironment consists of external stakeholders --groups or individuals outside the organization that aresignificantly influenced by or have a major impact on the

organization - such as:

Customers

Suppliers

Competitors


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Internal stakeholders include managers, employees

and the owners and their representatives (e.g., board

of directors).

Internal analysis includes an evaluation of internal

stakeholders andthe organizations resources and

capabilities Purpose of internal analysis to determine

strengths and opportunities for competitive

advantage, and

weaknesses and organizational vulnerabilitiesthat should be corrected.


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Evaluate

Current:

Mission

Goals

Strategies

Scan External

Environment

Define New:Mission

Goals

Identify

Strategic

Factors:

Opportunities

Threats

Identify

Strategic

Factors:

Strengths

Weaknesses

Scan Internal

Environment

Formulate

Strategy:Corporate

Business

Functional

Implement

Strategy via

Changes in:

Leadership

CultureHuman

Resources

Information

and Control

Systems


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Levels at which Strategy operates It is not uncommon to find many companies that while

being under a management are working in differentbusiness lines with regard to their products or services

Hindustan Lever organizes itself into 4 businesses ofhome and personal care, food, new ventures and exports

TvS group has Sundaram fastners, Lucas TvS, BrakesIndia, Wheels India, Sundaram brake linings, TvS motor

company and TvS Electronics Finolex group is business conglomerate with interest in

diverse areas such as telecommunications petrochemicalsirrigation and education.


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Levels at which Strategy operates Balmer and Lawrie a public sector company has a

diversified portfolio of businesses in the fields of

lubricants, leather & functional chemicals, packaging, teaexports, travel and tourism and cargo and logistics For any companies as given above a single strategy is not

adequate or appropriate

There is a need for multiple strategies each applicable at

different levels Hence companies organize themselves on the basis of

operating divisions. These divisions may also be knownas strategic business units or profit centres.


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Levels of Strategy

Business Level (SBU)How are we going to compete in our

chosen business?

FunctionalProviding objectives for specific functions

CorporateWhat direction are we going and what

business (es) are we in or do we want to

be in?


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Corporate-Level Strategy

("What business are we in?")

Acquisition of new businesses

Additions or divestment of business units,plants, or product lines

Joint ventures with other companies in new

areas.

Allocation of resources to SBUs


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Business-Level Strategy

("How do we compete?") Advertising

Direction and extent of R&D

Product changes

New product development

Equipment and facilities

Expansion or contraction of product lines.


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Function-Level Strategy

("How do we support business-level strategy?")

Production

Distribution

Finance

Human Resources


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Vision and Strategy The Vision: What you want the organization

to be; your dream.

(The Strategy: What you are going to do to

achieve your vision)

A well conceived vision consists of 2 parts.

First component is core ideology and the

second component is an envisioned future. Agood vision is a play between these two

complementary forces.


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Organizational Direction

Vision

Mission

Objectives

Plans

Policies

Tactic


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Vision & mission Vision is what the firm wants to be in future. Such

a view is often made explicit in a VISION statement

of the company. A vision statement gives aspiration

and motivation besides guiding the formulation of

strategy.

Examples:

To put a man on the moon by the end of the

decade Apollo program. Our vision is to dominate the global food service

industry McDonald.


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A

mission is what an organization does, its action;a vision is what an organization would like to happen as a

result of the action that it does.

Mission equals the action; vision is the ultimate result of

the action.

Mission answers the question What change is achieved

because we exist?

Vision answers the question: What are the results, the ends,

the consequences of our action?

Vision looks into the far future; mission looks at today and

near future .


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Mission statement To define its mission, companies must address

Peter Druckers classic questions, What

business are we in Who are our customers What is of value to the Customer

Mission statement - clear message to managers,

employees and customers

A mission was earlier considered as the scope of

business activities a firm does. Now it has

expanded to embody the purpose of existence of

the organization also.


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How does mission helps the firm

Gives focus

Objectives , targets and programs are formulated

based on mission. Helps people at various levels in the corporation

understand in what direction they should move.

Guiding the action at all levels.

Helps prevent people falling into an activity trap.


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Good Mission Statements

Focus on limited number of goals

Stress major policies and values

Define major competitive spheres

Take a long-term view

Short, memorable, meaningful


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CadburyI

ndia limited number of goals

To attain leadership position in the confectioneryand food drinks market of India


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Stress major policies and values

Hero cycles It is our mission to strive

for synergy between technology, systems

and human resources to produce products

and services that meet quality ,performance

and price aspirations of our customers.

While doing so we maintain the highest standardsof ethics and social responsibility


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Major Competitive Spheres

Industry

Products

Market

segment

Geographical

Competence

Vertical

channels


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Competitive spheres Industry Industrial market (DuPont), consumer

market (Dow)

Products Food service (Mc Donald's )

Competence Technology (Japan NEC)

Market segment collectors (e-bay)

Vertical it is the number of channel levels (Fordowned glass factories, rubber plantation)

Geographical Multinational (Unilever)


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eBay market segment mentioned

We help people trade anything on earth.

We will continue to enhance the onlinetrading experiences of allcollectors,

dealers, small businesses, unique item

seekers, bargain hunters, opportunity

sellers, and browsers.


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Short memorable and meaningful

Walt Disney

"To make people happy.

Ford Motor Company (early 1900's)

"Ford will democratize the automobile"


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Britannia - A long term view

Our mission is to make every Indian a BritanniaCustomer


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Google

Our mission is to organise the worlds informationAnd to make it universally acceptable and useful


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Mission statements may change over timeto

take advantage of new market conditions

Amazon.com changed its mission from being the

Worlds largest online book store to the worlds largestOnline store

ebay changed its mission from running online auctions

for collectors to running online auctions for all kinds ofgoods


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Mission statements best to define

the business

When Reliance Industry entered the telecom business,

the leaders of the corporation did not say that they are

entering the telephone business. Instead, Dhirubhai

Ambani, the founder leader stated that We are

entering the communication business

Kingfisher Airlines We are in the aviation hospitality

business

Examples of Business definitions


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Business Definition:

Product Orientation vs. Market Orientation

Company Product Market

Xerox We make copying

equipment

We improve office

productivityColumbia

Pictures

We make movies We entertain

people

Encyclopedia

Britannica

We sell encyclopedias We distribute

informationCarrier We make air conditioners

and furnaces

We provide climate

control inside

homes


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Objectives A book publisher and magazine editor are both

engaged in satisfying the information needs of the

society but they do it by different means.

A book publisher may aim at producing excellent

reading material while the magazine editor may

strive to produce news analysis in an unbiased

manner.

Both have identical mission but different

objectives


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Area where objectives must be set

GROWTH investment, assets, revenue, profits, market

capitalization

PROFITABILITY Return on investment, Earnings pershare

PRODUCTIVITY Resource utilization, cost savings,

reducing defect rate

TECHNOLOGY AND R&D modernization, innovation HUMAN RESOURCES

SOCIAL RESPONSIBILITY Commitment to public

welfare


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Corporate objective Example of Reliance

Industries

Reliance industries driven by good performance in petrochemicals

and oil refining businesses crossed $ 25 billion in annual sales in

2007, a 30% growth over the previous year.

Reliance set its corporate objectives for 2007 2012 as follows:

1. Sales revenue should grow at a minimum of 20 % p.a

2. 25% CAGR would be achieved in return on net worth

3. Shareholder value of Reliance would be doubled by the year 2012

4. Company will choose best in class technology in all its business5. Best of attention would be given to community health, safety and

environmental protection consistent with the companys position as

signatory of Global Voluntary Responsibility Care initiative

6. There will be investment toward enhancing the expertise of staff

introdution to strategy

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