Session 1 Business Strategy

K. Rangarajan

Executive PG Diploma in International Business

Coverage at a Glance

Module I Strategic Management – Basics Strategic Management Process Crafting a Strategy Levels of StrategyModule II External & Industry Environment Constituents of External Environment Framework for Environmental Scanning Industry AnalysisModule III Internal Resources & Capabilities Capabilities, core competencies & competitive advantage Value Chain Analysis SWOT Analysis Resources & competencies

Coverage at a Glance

Module IV Business Level Strategies - I Cost & Differentiation Strategies BCG & GE MATRIX Functional Strategies & alignmentModule V Business Level Strategies – II SWOT & Strategic Options Strategic Groups & Stgy ClockModule VI Corporate & Competitive Strategies Integration & Outsourcing Diversification & M&A strategies Offensive & Defensive Strategies First, second & late mover strategies Challenges of Internationalisation

Evaluation Components

TermPaper

EndTermCaseQuiz

Time bound Post module Before ET As Scheduled

India is rated as the second preferred destination for FDIs in the coming years.

Excess Capacity especially in the wake of WTO is becoming a strategic issue of top priority (Steel, Textile, Polyester etc.)

Greenfield Investments is the preferred form for investment in developing countries.

The No. of Parent Cos of TNCs operating in economy is around 82k (India-815)

Only 2 coys from India are ranked in the top 100 non-financial TNCs by Foreign Assets from the Developing Countries.

The R & D expenditure by Indian Business firms is around 0.32% of Sales

The downslide of Traditional business houses (Great Indian Churn)

Growing interdependence of global economies Growing Economic Turbulence across the world Crash of TNCs like Standard Oil, Union Carbide, Enron,

Lehman ………

A Few Points to ponder

BT ranking of most valuable companies: 2006, 2009 & 2010

India’s Most Admired Companies

2010

1. RIL2. Infosys3. TCS4. Airtel5. ITC6. L&T7. ICICI8. WIPRO9. HDFC

Bank10. HDFC

2009

1. RIL2. Airtel3. Infosys4. TCS5. L&T6. ITC7. ICICI8. HDFC9. WIPRO10. HDFC

Bank

2006

1. RIL2. TCS3. Infosys4. Airtel5. WIPRO6. ITC7. HLL8. ICICI 9. Rel Info10. L&T

2010

1. ONGC2. NTPC3. SBI4. MMTC5. BHEL6. NMDC7. IOC8. SAIL9. GAIL10. Power G

2009

1. ONGC2. NTPC3. MMTC4. NMDC5. SBI6. BHEL7. IOC8. SAIL9. Power G10. GAIL

2006

1. ONGC2. NTPC3. IOC4. BHEL5. SBI6. NMDC7. SAIL8. GAIL9. NALCO10. MTNL

PUBLIC SECTORPRIVATE SECTOR

7

Why is it that some firms perform well

over time relative to competitors, while

other firms fail?

Who are the stakeholders relative to firm performance

(e.g., managers, owners, investors,

employees, customers,

suppliers, …)?

What drivesbusiness

performance (value creation)?

We will learn to apply strategic management “toolkits” to identify issues, evaluate

alternatives, and choose & implement actions.

Business Strategy questions

8

Why performance differences among firms?

Concentration of market power, monopoly positions ? (Bain)

Opportunistic innovation? (Schumpeter)

Efficiency through vertical integration?

Efficiency through control of transaction costs? (Williamson)

Capability to learn & adapt continuously

9

Drivers of performance (brief version)

• Desire - some firms seek dominance (e.g. WalMart, Canon, Dell, Sony, RIL, SBI)– National competition - firms may be protected

from the forces of competition (‘HAL’ for example)

• Ability– To identify a valuable opportunity. – To innovate & protect the innovation (others see

it and are attracted by first mover success). – To leverage firm-specific capabilities and

resources.

10

Strategy Formulation

Strategy

Management’s values &

attitude toward risk

The Environment “Threats &

OpportunitiesOrganization’s capabilities -

“Strengths & Weaknesses”

Goals

11

The Environment -“Threats & Opportunities”

Management’s values &attitude toward risk

Organization’s capabilities -“Strengths & Weaknesses”

STRATEGY

GOAL

Strategic Management Process

Performance

Execution/Implementation

Control

Formulation Implementation

12

More specifically …

Strategy consists of organization-wide commitments and actions required for a firm to exploit its competencies, gain competitive advantage, and earn above-average returns*commitments - long term (irreversible) commitments*actions - involving substantial creation, acquisition, or redeployment of resources*competitive advantage(s) – competitors are unable to copy/imitate•Average (or “accounting”) returns•Returns equal to those an investor expects to earn from other investments with a similar amount of risk•Above-Average (or “economic”) returns•Returns from firm-specific strategies that competitors are not simultaneously implementing

13

Limited sources of value creation

Strategies

Structures/business models

Products/processes

Resource/capability creation

Resource/capability combination

New markets

But …good business ideas are hard to find!

14

Dynamics of strategic maneuvering among global and innovative combatants

Price-quality positioning, new know-how, first mover

Protect or invade established product or geographic

markets

Fundamental nature of competition is changing

Competitive Landscape

Hyper Competition

15

Goods, services, people, skills, and ideas move freely across geographic borders.

Spread of economic innovations around the

world.

Political and cultural adjustments are required.

Fundamental nature of competition is changing

Competitive Landscape

Hyper Competition

Emergence of Global Economy

16

Increasing rate of technological change

and diffusion

The information age

Increasing knowledge intensity

Fundamental nature of competition is changing

Competitive Landscape

Hyper Competition

Emergence of Global Economy

Rapid Tech Change

17

Strategic flexibility?

How can a firm develop dynamic capabilities in response to perpetually turbulent and uncertain competitive environments?

Can firms change? (i.e., success breeds failure)?

18

StrategicFlexibilityStrategicFlexibility

Strategic Flexibility

Strategicflexibility

Strategicreorientation

Capacity tolearn

Organizationalslack

19

1. Strategy dictated by the external environments of the firm (what opportunities exist in these environments?)

2. Firm develops internal skills required by external environment (what can the firm do about the opportunities?)

Industry Environment

CompetitorEnvironment

I/O Model of Above-Average Returns

Demographic

Technologcal

EconomicSocio Cultural

Poliitical/Legal

20

1.Strategy dictated by unique resources and capabilities of the firm (what can the firm do best?)

2.Find an environment in which to exploit these assets (where are the best opportunities?)

Resource-based Model of Above Average Returns

Firm’s Resources

21

Strategic Intent

The resources required to realize the strategy may not be available initially

Intent is about seeing the end state and deciding how to leverage internal resources, capabilities, and core competencies in a “staged” approach

Art & science of formulating, implementing, and evaluating, cross-functional decisions that enable an organization to achieve its objectives.

Strategic Management

Strategy

Means by which long-term objectives are achieved

Strategic Management & Strategy

Strategy as Plan:Consciously intended course of action which

may be in the form of guidelines/report guiding decision making.

Strategy as Ploy:Short-term tactic or a maneuver, intended to

outwit a competitor.Strategy as Pattern:It is after-the-fact view which emerges over a

period of time.

Other Views of Strategy

Strategy as Position:Managers see their firm as occupying a space

within an environment in terms of Market share, Profits, Assets etc.

Strategy as Perspective:This is a way of perceiving the world, and

individuals in an organization are united by common thinking and behaviour.

Eg.: Lucent Tech. claims that it makes the things that make communications work.

Other Views of Strategy

Levels of Strategy:

•Corporate Level – Choice of business, dividend policies,sources of long term financing and priorities for growth

•Business Level – Plant location, marketing segmentation andgeographic coverage, and distribution channels

•Functional Level – Levels of Inventory, degree of supervision,selection of production equipment etc.

Levels of Strategy

Business Strategy

Functional Strategies (R&D, manufacturing, marketing,

finance, human resources, etc.)

Operating Strategies (regions and districts, plants,

departments within functional areas)

Two-Way influence

Two-Way influence

A Single-Business Company

Responsibility of corporate-level managers

Responsibility of heads of major functional activities within a business

Responsibility of plant managers, geographic unit managers, and lower-level supervisors

The Strategy-Making Pyramid

The Strategy-Making Pyramid

Functional Strategies (R&D, manufacturing, marketing,

finance, human resources, etc.)

Business Strategies

Corporate Strategy

Operating Strategies (regions and districts, plants, departments

within functional areas)

Two-Way influence

Two-Way influence

Two-Way influence

Responsibility of corporate-level managers

Responsibility of business-level general managers

Responsibility of heads of major functional activities within a business unit or division

Responsibility of plant managers, geographic unit managers, and lower-level supervisors

A Diversified Company

A Company’s Actual Strategy Is Partly Planned and Partly Reactive

Company Experiences, Know-how, Resource

Strengths and Weaknesses,

and Competitive Capabilities

Actual Company Strategy

29

Cases

Describe actual situations Forces you to choose among different options

and plan implementation actions

Cases include background events and supporting materials Financial statements Operational data Product lists Transcripts of interviews with employees

30

Case Skills

Evaluate multiple aspects of a business situation differentiate significant factors deal with uncertainty, missing information

Envision explanations not readily apparent outcomes of decisions

Integrate/Synthesize understand firm-level effects interdependencies

31

Case Analysis

Put yourself “inside” the case Strategic decision maker Board member Outside consultant

Purpose is to diagnose problems and find solutions. Unravel the case material. Background/Problem Statement 10-20% Strategic Analysis/Options 60-75 % Recommendations/Action Plan 10-20%

With best wishes - Rangarajan

An organization’s Mission

Reflects Management’s vision of what theorganization seeks to do and to become

Sets forth a meaningful direction for theorganization

Indicates an intent to stake out a particularbusiness position

Outline “Who we are, What we do, and Wherewe are headed”.

Importance of Mission

MissionResource Allocation

Unanimity of Purpose

Organizational Climate

Focal point for work structure

Benefits from a strong mission

Mission Statement

Enduring Statements of Purpose thatdistinguish one organisation from othersimilar enterprises. Insure unanimity of purpose Arouse positive feelings about the firm Provide direction Provide a basis for objectives and strategies Serve as a focal point Resolve divergent views among managers.

Components of Mission Statement

Customers (the target market) Products/Services (offerings and value provided to

customers) Geographic Markets (where the firm seeks customers) Technology (the technology used to produce and market

products) Concern for Survival/Growth/Profits (the firm’s concern

for financial soundness) Philosophy (the firm’s values, ethics, beliefs) Public Image (contributions the firm makes to

communities) Employees (the importance of managers and

employees) Distinctive Competence (how the firm is different or

better than competitors)

Examples: Mission and Vision Statements

Empower people through great software anytime, anyplace, and on any

device.

Microsoft Corporation

our mission is to enable people andbusinesses throughout the world torealize their full potential. We consider ourmission statement a promise to ourcustomers. We deliver on that promise bystriving to create technology that isaccessible to everyone—regardless ofage or ability..

Microsoft - Values

As a company, and as individuals, we value integrity,honesty, openness, personal excellence, constructiveself-criticism, continual self-improvement, and mutualrespect. We are committed to our customers andpartners and have a passion for technology. We take onbig challenges, and pride ourselves on seeing themthrough. We hold ourselves accountable to ourcustomers, shareholders, partners, and employees byhonoring our commitments, providing results, andstriving for the highest quality.

Examples: Mission and Vision Statements

Our vision: Getting to a billion connected computers worldwide, millions of servers, and trillions of dollars of e-commerce. Intel’s core mission is being the building block

supplier to the Internet economy and spurring efforts to make the Internet more useful. Being connected is now at

the center of people’s computing experience. We are helping to expand the capabilities of the PC platform and

the Internet.

Intel

Fresh Look at Intel

Our missionDelight our customers, employees, and shareholders by relentlessly delivering the platform and technology advancements that become essential to the way we work and live.

Our valuesCustomer orientationResults orientationRisk takingGreat place to workQualityDiscipline

Our objectivesExtend our silicon technology and manufacturing leadershipDeliver unrivaled microprocessors and platformsGrow profitability worldwideExcel in customer orientation

Examples: Mission and Vision Statements

Jet Airways will be the most preferred domestic airline in India. It will be the automatic first choice carrier for the travelling public and set standards, which other competing airlines will seek to match.

Jet Airways will achieve this pre-eminent position by offering a high quality of service and reliable, comfortable and efficient operations.

Jet Airways will be an airline which is going to upgrade the concept of domestic airline travel - be a world class domestic airline.

Jet Airways will achieve these objectives whilst simultaneously ensuring consistent profitability, achieving healthy, long-term returns for the investors and providing its employees with an environment for excellence and growth.

Mission Statement of Jet Airways

Examples: Mission and Vision Statements

Vision & Mission

Videocon’s mission: a reflection of continuity and change

Videocon’s mission expression has been crafted to envelope both extant and emerging realities:

“To delight and deliver beyond expectation through ingenious strategy, intrepid entrepreneurship, improved technology, innovative products, insightful marketing

and inspired thinking about the future.”

Mission Statement of Videocon

Mission of L&T

The L&T vision reflects the collective goal of the company. It was drafted through a large scale interactive process which engaged employees at every

level, worldwide.

Mission Statement Evaluation Matrix

COMPONENTS

Organization CustomersProducts Services Markets

Concern for Survival, Growth,

Profitability Technology

Videocon Partial No No Yes Yes

L & T Yes No Yes Yes Yes

Mission Statement Evaluation Matrix

COMPONENTS

Organization PhilosophySelf-

ConceptConcern for Public Image

Concern for Employees

Videocon Yes Yes No No

L & T Yes Yes Yes Yes