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STRATEGIC MANAGEMENT Managerial actions and decisions that

determine the long run performance of an

organization. Includes environmental scanning (external

and internal), strategy formulation, strategyimplementation, evaluation and control.

Emphasizes the monitoring, and evaluation ofexternal opportunities and threats, in the lightof the organizations strengths andweaknesses.


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BUSINESS POLICY Has a general management orientation.

Tends to look primarily inward, with its

concern for properly integrating thefunctional activities of an organization.

Strategic management incorporates the

integrative aspects of business policywith a heavier emphasis on theenvironment and planning.


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STRATEGYA comprehensive plan that states how

an organization will achieve its mission

and objectives. It incorporates ; Corporate strategy : overall plans of an

organization.

Business strategy : at business / product

level. Functional strategy : distinctive

competence in functional areas.


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CONCEPTS OF STRATEGY Plan : systematic gathering of

information required for situational

analysis, generation of feasiblealternatives and the rational selection ofthe most appropriate strategy.

Patterns : areas of influence in a non-profit organization which are sources ofrevenue.


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CONCEPTS OF STRATEGY Position : strategic positioning of a firm

making a trade off between different activities

and creating a fit among these activities. Perspective : consideration of resources

necessary to implement a plan or follow acourse of action.

Purpose : pursuing those activities that movean organization from its current state to itsdesired future state.


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Strategic management process Strategic management consists of four

basic elements. These are : Environmental scanning: monitoring,

evaluating and disseminating informationfrom the external and internal environmentto key people in the organization in order

to identify factors that will determine thefuture of the organization. This is donethrough a SWOT analysis.


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Strategic management process Strategy formulation: development of

long range plans for the effective

management of environmentalopportunities and threats, in the light ofcorporate strengths and weaknesses.Itincludes defining the corporate mission,

specifying achievable objectives developingstrategies (courses of action) and settingpolicy guidelines.


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Strategic management process Strategy implementation: the process

by which strategies and policies are put

into action through the development ofprograms, budgets and procedures.

Programs: statement of activities neededto accomplish a plan. This makes strategy

action oriented. It may also involverestructuring, changing the companysinternal culture or new research efforts.


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Strategic management process Budgets: a statement of a companys

program in terms of money that lists the

detailed costs of each program.. It servesas a detailed plan of the new strategy andspecifies its expected impact on the firmsfinancial future.

Procedures: a system of sequential stepsor activities that describe in detail how aparticular task or job is to be done.


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Strategic management process Evaluation and control : the process in

which corporate activities and performance

results are monitored so that actualperformance can be compared with desiredperformance in order to take correctiveaction and improve performance.


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MISSION The purpose or reason for an

organization to exist.

Defines the fundamental and uniqueprocess that sets a company apart fromother firms of its type and identifies the

scope of the companys operations interms of products or services offeredand markets served.


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Mission, vision and objectivesA mission statement describes what the

organization is now.

A vision statement describes what theorganization would like to become.

Objectives are the end results of

planned activity. They state what is tobe accomplished by when andquantified wherever possible.


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Environmental scanning The monitoring, evaluation and dissemination

of information from external as well as

internal environment to key people within theorganization for taking strategic decisions.

This tool is used by an organization to avoidstrategic surprise and ensure its long term

health.

Research has found a positive relationshipbetween environmental scanning and profits.


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External variables (societal) Indirectly influence long run decisions.

Economic forces that regulate the exchange

of money, materials, energy and information. Technological forces that generate problem

solving inventions.

Politico-legal forces that allocate power and

provide constraining and protecting laws andregulations.

Socio-cultural forces that regulate values,customs and traditions of society.


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External task variables Include those elements or groups that

directly affect the corporation and in turn are

affected by it. Government, special interest groups.

Local communities and trade associations.

Suppliers, creditors, customers, employeesand unions.

Competitors.


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PORTERS ANALYSIS Porter contended that a corporation is

most concerned with the intensity of

competition within its industry. The level of this intensity is determined

by the following basic competitiveforces : Threat of new entrants

Rivalry among existing firms


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PORTERS ANALYSIS

Threat of substitute products / services.

Bargaining power of buyers and suppliers.

Relative power of other stakeholders.

This is known as Porters five forcesmodel.


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Threat of new entrants Depends on the presence of entry

barriers and reaction that can be

expected from competitors. Some entry barriers are :

Economies of scalesize differences.

Product differentiation.

Capital / infrastructure requirements.


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Threat of new entrants

Entry barriers (continued) :

Switching costs (cost of new technology /training)

Access to distribution channels.

Government policies / local regulations.


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Rivalry among existing firms Factors for rivalry are :

Large number of competitors.

Rate of growth of industry.

Product or service characteristics.

Amount of fixed costs / industry capacity.

Height of exit barriers. Diversity of rivals.


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Threat of substitute products Substitutes limit the potential returns of an

industry by placing a ceiling on the price that

firms in the industry can profitably charge forexample tea instead of coffee.

If the price of coffee is raised beyond acertain ceiling, customers will stop buying it

and switch to tea forcing the seller to revertback to lower prices for coffee.


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Bargaining power of buyers Purchase of a large proportion of the sellers

product / service for example - oil filters in

auto industry. Backward integration by producing the

product itself - like a newspaper chainproducing its own paper.

Purchased product represents a highpercentage of the buyers costs thus makingit look around for lower priced supplies.


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Bargaining power of buyers Low profits cause buyer to be sensitive

to costs and service differences.

Purchased product does not directlyaffect the quality or price of the buyersproducts and can be easily substituted

without affecting the final productadversely.


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Relative power of other

stakeholders Examples of other stakeholders are :

Governments

Local communities Trade associations

Special interest groups

Unions

Shareholders and stakeholders

Complementors like tyre and auto industry


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Strategic groups and typesA strategic group is a set of business

units that pursue a similar strategy with

similar resources.A strategic type is a category of firms

based on a common strategic

orientation and a combination ofstructure, culture and processesconsistent with that strategy.


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Strategic types These were enumerated by Miles and Snow

and are as follows :

Defenders

focus on improving efficiency ofexisting operations.

Prospectors focus on productimprovisation and market opportunities.

Analyzers

operate in at least two productmarket areas.

Reactors lack consistent strategy culture.


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Industry matrix Key success factors

Variables that affect the overall competitive

positions of all companies within anindustry.

Usually determined by the economic andtechnological characteristics of the industryand by the competitive characteristics onwhich the firms have built their strategies.


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Industry matrixAn industry matrix summarizes the key

success factors within a particular

industry. The matrix also specifies how well

various competitors in the industry are

responding to each factor.


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Resource based approach For gaining competitive advantage, the

resource based approach to strategy

analysis is as follows : Identify and classify the firms resources in

terms of its strengths and weaknesses.

Combine the firms strengths into specificcapabilities.

Core competencies are activities that an


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Resource based approach Core competencies are activities that a corporation

can do exceedingly well. When these are superiorto those of competitors they are called distinctive

competencies.

Appraise the profit level of these resources.

Select a strategy that best exploits the resourcesand capabilities relative to external opportunities.

Identify resource gaps and upgrade weaknesses.


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Portfolio analysis Involves balancing of companys investments

in different products and business units.

Useful for highly diversified and multi-productcompanies operating in a limited market.

Requires balancing SBUs in relation to netcash flow, state of development and riskinvolved.


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Portfolio analysis Portfolio analysis makes use of display

matrices to allocate resources for

maximum revenue. One of the best examples of portfolio

matrix that is most widely used is the

BCG growth matrix.


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Internal analysis This is done in the following ways :

Identification of core competencies and

distinctive competencies.Value chain analysis

Internal strategic factors : These are critical strengths and

weaknesses that are likely to determine ifthe firm will be able to take advantage ofthe opportunities and avoid threats


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Resource analysisA resource is an asset, competency, skill

or knowledge controlled by the

company. It is a strength if it provides the

company with a competitive advantage(CA).

It is a weakness if it is a drawback thatputs its competitors ahead of it


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Resource analysisVRIO framework of analysis.

Valuedoes it provide a competitive

advantage ? Rarenessdo other competitor companies

possess it ?

Imitatibilityis it easy or difficult for

others to imitate / copy ? Organizationis the firm organized to

exploit the resource ?


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Value chain analysis It is one of the techniques of internal

analysis used for appraisal of an

organisation. It is a method used for assessing the

strengths and weaknesses of the

organisation based on an understandingof the series of activities it performs.


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Porters value chain analysisA value chain is a series of value

creating activities performed by an

organization. They are divided in case of a

manufacturing organization into primaryand support activities.

Primary activities are directly related tothe flow of products to the customer.


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Porters value chain analysis Primary activities include

Inbound logistics such as warehousing,

material handling, inventory control andscheduling.

Outbound logistics such as orderprocessing, physical distribution, marketing

and sales and service. Operations such as manufacturing,

packaging, assembly and maintenance.


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Porters value chain analysis Support activities are provided to

sustain primary activities. The profit

margin that an organization earnsdepends on how effectively the valuechain has been managed.


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Porters value chain analysis These consist of :-

Infrastructure which includes organizational

design and staffing Technology development

Human resource development

Procurement (purchasing)


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Distinctive competencies CSFCritical success factors (CSF)

sometimes referred to as key factors or

strategic factors for success are thosefactors that are crucial for anorganizations success in business.

Many organizations achieve strategicsuccess by building distinctivecompetencies around CSFs.


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Distinctive competencies When a specific ability is possessed by

a particular organization exclusively or

in a relatively large measure in such away that

It is unique to the organization and

The organization takes advantage of it toachieve strategic success.

It is called a distinctive competence.


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Distinctive competencies Examples of Distinctive competency are:-

Superior product quality in a particular attribute

like fuel efficiency. Creation of a market niche of highly specialized

products to a particular market segment.

Differential advantages based on superior R&D.

Access to low cost financial source likeshareholders.


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Corporate level strategies Choice of direction that a firm adopts in order

to achieve its objectives.

Decisions related to allocating resourcesamong different businesses of a firm,transferring resources from one set ofbusiness to another and managing or

nurturing a portfolio of businesses in such away that corporate objectives are achieved.


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Corporate level strategies The major corporate level strategies

are:-

Stability strategies Expansion strategies

Retrenchment strategies

Combination strategies


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Corporate level strategies Stability strategy is adopted because

It is less risky as fewer changes are

involved The environment is relatively stable

Expansion may be threatening

Consolidation is sought after throughstabilising after a period of rapid expansion


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Corporate level strategies Types of stability strategy are:-

No change strategy

Pause/proceed with caution strategy

Profit strategy


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Corporate level strategies Expansion strategy is adopted:-

Due to environmental demands/pressures

CEOs take pride in growth from expansion

More control over the market as comparedto opponents

Advantages from experience curve andscale of operations


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Corporate level strategies Types of expansion strategies are:-

Expansion through concentration

Expansion through integration

Expansion through diversification

Expansion through co-operation

Expansion through internationalization


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Corporate level strategies Concentration

Involves investment of resources in a product linefor an identified market with the help of a proventechnology in a manner that results in expansion.

Advantages

Minimal organizational changes

Fewer problems when dealing with known situations

High level of predictability hence less strain in decisionmaking.


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Corporate level strategies Concentration

Limitations:-

Putting all eggs in one basket

Heavily dependent on industry

Constraints for expansion in a matured industry

Product obsolescence

Less challenging/stimulating

Organizational inertia

Potential for growth, attractiveness and maturity arevariable factors


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Corporate level strategies Diversification strategies

Involve all dimensions of strategic

alternatives that is internal, external,related, unrelated, horizontal, vertical,active, passive, singly or collectively


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Corporate level strategies Diversification strategies

Types of diversification strategies

Concentric diversification

Market related

Technology related

Marketing and technology related Conglomerate diversification


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Corporate level strategies Concentric diversification

When an organization takes up an activity in

such a manner that it is related to theexisting business definition of one or more ofa firms business in terms of customergroups, customer functions or alternative

technologies it is called concentricdiversification.


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Corporate level strategies Concentric diversification

Types are

Marketing related- similar type of product offeredwith the help of unrelated technology

Technology related- new type of product or serviceoffered with the help of related technology

Marketing and technology related- when a similartype of product or service is provided with thehelp of a related technology


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Corporate level strategies

Conglomerate diversification

Taking up those activities that are

unrelated to the existing businessdefinition of one or more of thecompanys businesses either in terms of

customer groups, customer functions oralternative technologies


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Reasons for diversification strategies

Minimize risk by spreading it over several

businesses To capitalize on organizational strengths

and minimize weaknesses

The only way out if growth in existingbusiness is blocked due to environmentalor regulatory factors


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Concentric diversification

Advantages

Synergy by exchange of resources and skills To avail economies of scale and tax benefits

Disadvantages

Risk and commitment of resources

Reduction of flexibility


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Conglomerate diversification

Advantages

Better management and allocation of cash flows realisingin a higher return on investment (ROI)

Reduction of risk by spreading investment in differentbusinesses and industries

Disadvantages

Diversion of resources and attention to other areasleading to lack of concentration

Risks of managing an entirely new and unrelatedbusiness


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h h


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Expansion throughcooperation

Types of co-operative strategies :

Mergers

Takeovers (acquisitions)

Joint ventures

Strategic alliances


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Mergers

A combination of two or moreorganizations in which one acquires the

assets and liabilities of the other(s) inexchange for shares or cash .

The existing organizations may be

dissolved, the assets and liabilitiescombined and new stock issued.


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Mergers

For the organization that acquires another, itis an acquisition.

For the firm that is acquired, it is a merger. If both firms dissolve their identity to create a

new organization, it is a consolidation.

Examples are TVS whirlpool with Whirlpool ofIndia, Sandoz (india) with Hindustan CibaGeigy.


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Important issues in mergers

Strategic issues : commonality of strategicinterests between buyer and seller firms.

Strategic advantages and distinctivecompetencies of firms to be analyzed forsynergy

Financial issues : valuation of firm being

bought and sources of financing for mergers.EPS to be positive or neutral (non-negative).


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Important issues in mergers

Managerial issues : problems ofmanaging the firm after merger has

taken place. Compensation for staff laidoff and corporate culture issues.

Legal issues : provisions made by law

for the purpose of mergers Chapter V ofCompanies Act 1956 (Sections 390,394A, 395, 396 and 396A)


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Types of mergers

Concentric mergers : when there is acombination of two or more firms related to

each other in terms of customer functions,customer groups or alternative technologiesused.

Conglomerate mergers : combination of two

or more firms, unrelated in terms of customerfunctions, customer groups or alternativetechnologies used.


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Reasons for merger - buyer

To increase stock value

To increase growth rate and make a goodinvestment.

To improve stability of earning and sales.

To balance, complete or diversify product line.

To acquire resources quickly

To avail of tax concession benefits. To take advantage of synergy.


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Reasons for merger - seller

To increase stock value and make agood investment.

To increase growth rate. To acquire resources.

To stabilise operations

To benefit from tax legislation. To deal with top management

succession problems.


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Take over strategies

Post liberalisation period has seen anincreasing use of takeover strategies as

a means of rapid growth. Issues

Define motivation for takeover

Arranging for financing Expression of interest


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Take over strategies

Initiation by trusted intermediaries

Negotiations keeping in view factors such

as valuation of assets,business goodwill,market opportunities, growth potential.

Final arrangement by fixing of price forshare transfer.


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Advantages-Takeovers

Management accountability is ensured.

Offers easy growth opportunities.

Creates mobility of resources. Avoids gestation periods and hurdles involved

in new projects.

Offers a chance for sick units to survive

(turnaround strategy) Opens up opportunities for selective

divestment.


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Drawbacks-Takeovers

Professionalism gets replaced by moneypower.

Does not create any real asset for society. Detrimental to national economy.

Interest of minority shareholders notprotected.

Undue stress and strain created in companiesexposed to threat of takeover.


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Joint venture strategies

Combination of two or more companies intoone in two ways

Absorption: When a company acquires another(acquisition/takeover)

Consolidation: Two or more companies combine toform a new company. JVs are a special case ofconsolidation where two or more companies forma temporary partnership for a specified purpose.This partnership is also referred to as aconsortium


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JVs are useful to gain access to new business

When an activity is uneconomical for anorganization to do it alone

When the risk of business has to be shared andcan therefore be reduced by participating firms.

When the distinctive competencies of two or morecompanies can be brought together

To bypass hurdles such as import quotas such astariffs, political interests or cultural road blocks


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Advantages

Minimising risk

Reducing individual companys investment Access to foreign technology

Broad based equity participation

Access to government and political agencies

Entering new fields of business Synergistic advantages


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Disadvantages

Problems in equity participation

Foreign exchange regulations Lack of proper co-ordination among

participating firms.

Cultural and behavioral differences Possibility of conflict among partners


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Strategic alliances

Necessary and sufficient characteristics(Yoshino and Rangan)

Two or more firms unite to set up on agreed upongoals but remain independent even afterformulation of the alliance.

Partner firms share the benefits of the alliance andcontrol over the performance of assigned tasks.

Partner firms contribute on a continuing basis inone or more key strategic areas like technology ormarketing


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Strategic alliances

Types of strategic alliances:

Pro-competitive alliance (low interaction/lowconflict)- inter-industry, vertical value chainrelationships between manufacturers andsuppliers/distributors.

Non-competitive alliance (high interaction/lowconflict)- intra-industry partnership between non-

competitive firms that operate in the sameindustry but do not see each other as rivals asareas of activity are distinct.


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Strategic alliances

Competitive alliances (highinteraction/high conflict)

Partnerships that bring two rivals in aco-operative arrangement whereintense interaction is necessary

Can be inter or intra-industry


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Strategic alliances

Pre-competitive alliances (low interaction/highconflict)

Firms from different unrelated industriesworking on well defined activities such astechnology development, new productdevelopment or creating awareness about

new products Joint R&D and mass awareness campaigns

are examples


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Reasons for strategic alliances

Entering new markets (MNCs)

Reducing manufacturing costs (pooling

resources) Developing and diffusing technology

Leveraging the expertise of two or more

firmsAccelerating new product introduction

Overcoming legal and trade barriers


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Internationalization strategy

Global integration, intensification ofeconomic linkages among nations,

internationalization of markets, trade,finance, technology, labour,communication, transportation and

economic institutions are some of thereasons for internationalization as astrategy

Characteristics globally


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Characteristics-globallycompetitive firms

Factor conditions- inputs of production suchas natural resources, raw materials andlabour

Demand conditions- nature and size ofbuyers needs in the domestic market

Related and supporting industries-existenceof these in relation to those in which thenation excels

Firm strategy structure and rivalry-how firmsare created, organized and managed and thenature of domestic competition

Types of international


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Types of internationalstrategies

International strategy

Value is created by transferring products

and services in foreign markets wherethese products/services are not available

Standardized products and services withlittle or no differentiation

Examples are Coca Cola, IBM, Kellogg,P&G, Microsoft



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Multi domestic strategy

When firms try to achieve a high level of localresponsiveness by matching their products and

services to the country they operate in

Customizing products and services according tolocal conditions

Leads to high cost structure as functions such as

R&D, production and marketing have to bedeveloped



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Global strategy

Applied when firms rely on a low cost approachbased on reaping the benefits of the experience

curve, location economies and offer standardizedproducts and services across different countries

Focuses on low cost structure by leveragingexpertise, providing specific products and services

and concentrating production of these at a fewfavourable locations around the world



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Trans-national strategy Where a combined approach of low cost and high

local responsiveness is adopted simultaneously for

products and services As the two are contradictory, it calls for a creative

approach to managing the production andmarketing of these products

Bartlett and Ghoshal feel that through a processtermed global learning a trans-national firm shouldtransfer expertise from foreign subsidiaries tohead quarters and from one foreign subsidiary toanother


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Entry modes

Export entry- firm produces in the homecountry and exports to markets

overseas. Types of export entry are:- Direct exports- through direct

agents/distributors; no intermediary

Indirect exports- through home countryintermediarie


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Entry modes

Contractual entry- these are of thefollowing types:-

Licensing- transfer of knowledge,technology, patent, etc. for a period oftime in return for payment of royalty

Franchising- Right to use a businessformat, usually a brand name in theoverseas market for some sort of payment


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Entry modes

Other agreements such as technologyagreements (technology transfers), servicecontracts for technical support or expertiseprovision, contract manufacturing,production sharing, turnkey operations,build-operate-transfer (BOT) arrangements


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Entry modes

Investment entry mode- ownership ofproduction unit in the overseas market basedon direct/equity investment

JV/strategic alliances involving a co-operativepartnership with financial interests as thebasis of co-operation

Independent ventures or wholly ownedsubsidiaries in which the parent internationalcompany holds hundred percent equity. Thisis known as Greenfield Venture

Advantages-international


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Advantages internationalstrategies

Lower costs

Increased sales

Higher profits

Ample opportunities for economies ofscale and learning

Option for expansion strategies and apromise of above average returns

Disadvantages-international


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Disadvantages internationalstrategies

Costs of failure are great

Risks of uncertainty in economic and

political environments of host countries Difficulty in managing cultural

diversities

Cost of co-ordination, communicationand distribution

Reasons- international


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Reasons internationalstrategy for expansion

Global integration

Strengthening of international economic

order Primacy of economic considerations

over political in international relations

Emergence of regional trade blocks

Reasons- international


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Reasons internationalstrategy for expansion

Emergence of internet as acommunication platform

Higher levels of cultural diffusion Establishment of bilateral and

multilateral institutions such as WTO to

regulate and manage trade relations


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Retrenchment strategies

Followed when an organization reduces itsscope of activities substantially

This is done through an attempt to find outthe problem areas and diagnose causes ofthese problems

Next, steps are taken to solve the problems.

These steps result in the different kinds ofretrenchment strategies


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Symptoms of decline

Diminishing profitability

Dwindling cash flows

Falling sales

Shrinking market share

Increasing debt


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Recovery situation

Realistically non-recoverable situationterminaldecline

Temporary recovery situationinitially successful

retrenchment but no sustained turnaround Sustained survival situationturnaround is

achievable but little potential for future growth

Sustained recovery situationgenuine or successful

turnaround is possible owing to new productdevelopment and/or market repositioning if theindustry is still attractive enough.


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Managing turnaround

Advisory support of an external consultantunder the existing team

Existing team withdraws temporarily and aturnaround specialist is employed to do thejob

Replacement of the existing team specially

CEO or merging the sick organization with ahealthy teamthis is most often used


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Workable action plan

Analysis of product, market, productionprocesses, competition and market

positioning Clear thinking about the market place

and market logic

Implementation of plans by targetsetting, feedback and remedial action

Elements that contribute to a


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Elements that contribute to aturnaround

Changes in top management

Initial credibility building actions

Neutralizing external pressures

Initial control

Identifying quick pay-off activities

Quick cost reductions

Elements that contribute to a


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Elements that contribute to aturnaround

Revenue generation

Asset liquidation for generation of cash

Mobilization of resources

Improved motivation and morale

Better internal co-ordination


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Divestment strategies

Involves sale or liquidation of a portion of thebusiness, a major division, profit center or SBU

Divestment is usually a part of a rehabilitation or

restructuring plan Adopted when a turnaround has been attempted but

proved unsuccessful

Harvesting strategies, a variant of the divestment

strategy involves a process of gradually letting acompany or business wither away


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Reasons for divestment

A business acquired proves a mismatch or aproject that proves to be unviable

Persistent negative cash flows from a

particular business that create financialproblems for the firm

Severity of competition and inability of thefirm to cope

Oversize and resultant inability to manage thebusiness


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Reasons for divestment

Technological upgradation required is difficultto achieve in terms of effort, finances andtime

The firm is in a better position to do itsremaining businesses

Better alternatives available for investment

To avoid attracting the provisions of MRTP Act


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Liquidation strategies

Most extreme and unattractiveretrenchment strategy

Involves closing down a firm and sellingof its assets

Termination of business

Causes serious problems like lay-off ofworkers, termination of opportunitiesand stigma of failure


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A mixture of stability, expansion orretrenchment strategies

Applied either simultaneously (at thesame time in different businesses ) orsequentially (at different times in the

same business )


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The complexity of business demandsthat different strategies be adopted to

suit the situational demands made uponthe organization

Multi business organizations, as most

large and medium companies are todayhave to follow multiple strategieseither sequentially or simultaneously

Examples of combination


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pstrategies

TI (Murugappa Group)strategicalliances in tubes cycles and steel strips

Peerless General Finance andInvestment Company hotels,housing, hospitals, retailingPeerless

Technologies and Peerless Shippingdivestedmain businessnon-bankingfinancial institution

Examples of combination


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pstrategies

ITC Ltd.turnaround strategy for specialitypaper business (Triveni Tissues)Financialservices and Agri business to be divested

Pidilite Industriesexpansion acrossadhesives and sealants, construction, paintsand chemicals and art materialsdivested its

speciality chemical business and has acquiredM-Seal product from Mahindras


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Business level strategies

Corporations operate through their businessgroups / units

Strategies at the corporate level provide

overall direction to the organization Most competitive interaction, though occurs

at the level of individual businesses

Business level strategies are therefore animportant level at which companies set theirstrategies


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Business level strategies

They are

Cost leadership strategy

Differentiation strategy Focus (niche) strategy


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Achieving cost leadership

Accurate demand forecasting andmaximum capacity utilization

Attaining economies of scale (lower perunit cost of product / service)

High level of standardization of

products using mass productiontechniques


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Achieving cost leadership

Aiming at the average customer(generalized set of utilities in product /service)

Investing in cost saving technologiesthus making the product / servicecompetitive in the market

Withholding differentiation till itbecomes absolutely necessary


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Cost leadership is used when

Markets operate in such a way that price-base competition is vigorous making cost animportant factor

Product / service is standardized makingdifferentiation superfluous

Buyers are numerous and possess significantbargaining power

Buyer loyalty is low as switching costs fromone seller to another are insignificant


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Benefitscost leadership

Cost advantage is the best insuranceagainst industry competition

Firms that possess cost advantage areless affected by bargaining power ofpowerful suppliers as they can absorbprice increase to some extent

Cost advantage can act as an effectiveentry barrier for potential entrants


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Risks - cost leadership

Imitation of cost reduction techniques is easy,hence the advantage is temporary

Not a market friendly approach as it can

dilute customer focus and limitexperimentation with product attributes

Scope for product / service gets reducedwhen competitors move out of the business

Technological advancement can change theground rules and cost advantage enjoyed


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Differentiation strategy

When the CA of a firm lies in offering specialfeatures incorporated into the business /service

These features are demanded by customerswho are willing to pay a premium for them

The firm outperforms its competitors who are

not able or willing to offer the special featuresthat it can


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Differentiation

Achieved by incorporating features that match the taste and requirements of

customers

raise the performance of the product

increase buyer satisfaction in tangible /intangible ways

Enable customers to claim distinctivenessfrom others and enhance their status /prestige among buyers


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Differentiation

Also achieved by

Offering full range of products / servicesthat customers require for needsatisfaction


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Differentiation is used when

Market is too large to be catered by a fewfirms offering a standardized product orservice

Customer needs/preferences are too largeand diversified to be satisfied by a singleproduct

The customer is prepared to pay a premiumfor a product/service valued by him


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Differentiation is used when

The nature of the product or service issuch that brand loyalty can be sustained

that is it has a unique feature There is ample scope for increasing

sales of the product or service in terms

of differentiated services and premiumpricing


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Advantages - differentiation

Reduces competition rivalry due tocustomer brand loyalty

It is a market and customer focusedstrategy

Acts as an entry barrier due to highprices

Substitute product or services are anegligible threat due to brand loyalty


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Risks - differentiation

Long term perceived uniqueness of productor service is difficult to sustain

Distinctiveness of differentiation is gradually

weakened and lost Over-differentiation (unnecessary features)

can have a negative impact

Price premiums have a limit due to costbenefit analysis

Failure on the part of firm to communicatebenefits adequately to consumer


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Focus business strategy

Relies on cost leadership or differentiation butcaters to a narrow segment of the market

Focus strategies are niche strategies

Basis for identification of customer groups aredemographic characteristics like age, gender,income, occupation, etc. Geographicsegmentation (urban/rural or north/south) or

life-style (traditional/modern)


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Conditions - Focus

Specialized features and attributes exist in theproduct

Specialized requirements that common

customers cannot be expected to fulfill Niche market is large enough for a focused

firm

The firm has the necessary skills andexpertise to serve the niche segmentadequately


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Benefits - Focus

Competitive advantage of focused firms thatare able to provide specialized products orservices to loyal customers

Focused firms buy in small quantities hencepowerful suppliers may not evince muchinterest

Specialization and competence that focusedfirms are able to achieve act as a powerfulbarrier to new entrants or substitute products


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RisksFocus strategy

Niche markets require the developmentof distinctive competencies to servethem. This is difficult to achieve.

Being focused means being committedto a narrow market segment.

Costs for a focused firm are higher as

markets are limited and volume ofproduction as well as sales are low.


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RisksFocus strategy

Niches are transient; they maydisappear owing to technology ormarket forces

Niches may become attractive enoughfor the bigger players to shift attentionto them

Rivals may devise ways to serve theniche markets better


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Strategy implementation

Strategies lead to plans.

Plans lead to different kinds of specific

programs.A program is a broad term that includes

goals, policies, procedures, rules and

steps that are to be taken to put a planinto action.


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Programs are usually supported by fundsallocated for new product development;example- an R&D program for new product

development.

Programs lead to the formulation of projects.

A project is a highly specific program for

which time schedule and costs arepredetermined. It requires allocation of fundsbased on Capital budgeting.


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Projects create the needed infrastructure forday to day operations

They may be used for setting up of new oradditional plants, modernizing existingfacilities or similar such activities required forimplementation strategies

ExampleProduction of different models ofmotorcycles or scooters


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l


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Project implementation

A project is a time bound, goal directedmajor undertaking requiring the

commitment of skills and resources The goals or objectives of a project are

derived from the plans and programswhich are based on the strategiesadopted

h f


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Phases of a project

Conception phasegeneration of ideas whichform the core for procedures in the project

Definition phaseanalysis of various aspectslike technical, financial and structuraldocumented in the form of a projectfeasibility report. This can consist of

Generation of information regarding theorganization and industry

Information regarding project promoters

Ph f j


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Phases of a project

Project details such as capacity, processes,technical arrangements, management,location, land and buildings, plant and

machinery, raw materials, utilities,effluents, labour, housing for labour andschedule of implementation

Overall cost of project Means of financing

Ph f j t


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Phases of a project

Profitability and cash flow

Economic considerations such as pricefixing, benefits for the country and region

Competing products

Environmental considerations

Government consents such as Letter of

intent, industrial license, import license,etc.

Ph f j t


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Phases of a project

Planning and organizing phase

Includes planning related to aspects suchas infrastructure, engineering designs,schedules and budgets

A project structure which will deal with theorganization and manpower systems as

well as procedures are to be created tohelp in implementation

Ph f j t


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Phases of a project

Implementation Detailed activities of implementation of the

project leading to testing, trial and

commissioning of the plant Clean-up phase

The final phase in project implementation

which deals with disbanding the projectinfrastructure and handing over thecommissioned plant to operating personnel

P d l i l t ti


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Procedural implementation

Procedural framework by which plans,programs and projects have to be

approved by regulatory authorities atcentral, state and local levels

Consist of a number of legislativeenactments and administrative ordersbesides Policy guidelines issued by theGovernment of India from time to time

R l t l t


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Regulatory elements

Formation of a company is governed by theprovisions of the Companies Act,1956 andconsists of promotion, registration and

floatation Promotionpreliminary steps to create awareness

Registrationregistering the Memorandum ofAssociation, Articles of Association andAgreements with the Registrar of Companies whoissues a Certificate of Incorporation

Floatationraising of Capital to commencebusiness

Li i d


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Licensing procedures

Industrial policy resolution1956

Industries Development and Regulation Act1951(IDRA)

Post-1991 periodLiberalisation led toabolishing of industrial licensing irrespectiveof the level of investment for all industries

except a few (those pertaining to security,defence or environment)


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Li i d


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Foreign collaboration proceduresFCCB,RBI, FIPB and Project Approval Board aremajor regulatory agencies for concluding JVs

with companies abroad FEMA (in June 2000) has replaced FERA

(1973) for dealing in Foreign Exchange inexport businesses

Export-Import requirements are governed byEXIM policy

Li i d


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Patenting and trademark requirementsThese are governed by

Indian Patents Act of 1970 Indian Patents (Amendments) Act of 1995

Trade and Merchandise Marks Act of 1958

Copyright Act of 1957

Li i d


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Labour legislation requirements

Environmental protection and pollutioncontrol requirements

Environmental pollution Act of 1956

Water (protection and conservation) Act of 1974

Air (protection and conservation) Act of 1981

Forest conservation Act of 1980

Wildlife protection Act of 1972

Licensing p oced es


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Consumer protection requirements

Essential commodities Act

Standard weights and measures Act

MRTP Act

Consumer protection Act of 1986

Consumer protection (Amendment)Ordinance of 1993

Resource allocation


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Resource allocation

Deals with the procurement andcommitment of financial, physical,human resources to strategic tasks for

the achievement of organisationalobjectives

Finances are of two types

Long termcapital assets Short termworking capital

Resource allocation


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Resource allocation

Sources of finance

Internal sources

Retained earnings

Depreciation provisions

Taxation provisions

Other resources such as development rebate,

investment allowance, reserves

Resource allocation


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Resource allocation

Sources of finance

External sources

Capital market sources such as equity and debt

Money market sources such as bank credit, hirepurchase, trade credit, installment debit andfixed deposits


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Factors resource allocation


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Factorsresource allocation

Objectives of the organisationpriorities oftasks/objectives

Preference of dominant strategists (CEO)

Internal politicsresources are a source ofpower and are therefore affected by internalpolitics

External influencesgovernment policy,

shareholders, financial institutions, legalrequirements and social requirements

Strategy in fragmentedindustries


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industries

Examples of fragmented industries

Services

RetailingAgricultural products

steel



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industries

Reasons for fragmentation

Low overall entry barriers

Absence of economies of scale orexperience curve

High transportation costs

High inventory costs and fluctuating sales

Diverse market needs

High product differentiation



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industries

Strategies to overcome fragmentation

Create economies of scale or experiencecurve

Standardize diverse market needs

Neutralize or split off aspects mostresponsible for fragmentation

Make acquisitions for a critical mass

Recognize industry trends well in advance

Strategy in emergingindustries


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industries

Newly formed or reformed industriesthat have been created by technologicalinnovation, shifts in relative costrelationships, emergence of newcustomer needs or any other economicor sociological changes that elevate a

new product or service to the level of apotentially viable business opportunity



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industries

Characteristics of emerging industry

Technological uncertainty

Strategic uncertainty High initial costs

Short time horizons



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industries

Mobility barriers Proprietary technology

Access to distribution channels

Access to raw materials and other inputs ofappropriate costs and quality

Cost advantages due to experience

Risk, which raises effective opportunitycost of capital and thereby effective capitalbarriers



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industries

Strategic choices

Shaping industry structure

Balance between industry and pursuing narrow

self interest Shift in orientation of suppliers and distribution

channels

Shifting mobility barriers

Timing of entry into market

Coping with competitors

Strategic choices in matureindustries


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industries

Maturity involves

Slowing down of growth which means morecompetition for market share

Competition shifts towards greater emphasis oncost and service

Managing change

Increasing competition

Falling profits

Falling margins

Strategic choices in matureindustries


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industries

Strategic choices

Making the strategic choice between costleadership and differentiation

Process innovation

Correct pricing

Increasing scope of purchase

Selection of buyers

Strategy in declining industries


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Causes

Technology

Demographics

Shifts in needs

Conditions

Uncertainty

Decline in unit sales over a sustained period Falling profits



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Strategic exit barriers

Inter-relatedness

Access to financial marketsVertical integration

Informational barriers

Managerial or emotional barriers

Government or social barriers



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Strategic alternatives Leadershipseek a leadership position in

terms of market share

Nichecreate or defend a strong positionin a particular segment

Harvestmanage a control divestmenttaking advantage of strengths

Divestliquidate the investment as quicklyas possible in the decline phase

Strategic audit


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Strategic audit

Provides a check-list of questions by area orratio that enables a systematic analysis ofvarious corporate functions and activities

required to be made Extremely useful as a diagnostic tool to

pinpoint problem areas and highlightorganisational strengths and weaknesses

Can find causes to a problem and helpgenerate solutions to the problem

Strategic audit


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Strategic audit

Steps - Corporate strategic audit

Evaluate current performance results

Review corporate governance

Scan and assess external environment

Scan and assess internal environment

Analyse strategic factors using SWOT

Generate and evaluate strategic alternatives

Implement strategies

Evaluate and control

Strategic audit


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Strategic audit

Current performance

Strategic posture

Mission Objectives

Strategies

Policies

Strategic audit


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Strategic audit

Corporate governance

Board of Directors

External or internal

Share of stock

Contribution in terms of knowledge, skills,background and connections

International experience

How long on the board

Level of involvement in strategic management

Strategic audit


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Strategic audit

Top management

Constitution

Knowledge, skills, background and style International experience

Contribution to corporations performance

How long in the management

Strategic audit


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Strategic audit

Top management

Whether management has establishedsystematic approach to strategy

Interaction with lower level managementand board of Directors

Ethics and social responsibility

Stock options and executive compensation

Skills to deal with future challenges

Strategic audit


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Strategic audit

External environment(opportunities/threats)

Societal environmentgeneralenvironment forces affecting thecorporation and industries it competeswith(economic, technological, politico-

legal,socio-cultural)

Strategic audit


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Strategic audit

External environment (opportunities/threats)

Task environment (Industry)

Key forces in immediate environment affecting

corporationcustomers, competitors, creditors,suppliers, labour unions, governments, tradeassociations, interest groups, local communities

Porters five forces

Summary of external factorsimportant forces

and factors at present and in the future

Strategic audit


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Strategic audit

Internal environment (strengths andweaknesses)

Corporate structure

Present structure Decision making authority (centralised/decentralised)

Organised on what basis

Is present structure consistent with current corporateobjectives, strategies, policies and programs as well asthe firms international operations

Strategic audit


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Strategic audit


Corporate culture

Well defined or emerging Consistent with firms objectives, strategies, policies and

programs

Position on issues facing the corporation like productivity,performance variables and adaptability to change

Values of nations culture in which the firm operates

Strategic audit


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Strategic audit

Internal environment (strengths andweaknesses) Corporate resources

Marketingcurrent marketing objectives,strategies, policies and programs; whetherclearly stated or implied fromprograms/budgets

Whether consistent with the core mission,objectives, strategies, policies and with internaland external environments

Strategic audit


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Strategic audit


Corporate resources

Marketing performance

Concepts and techniques to improve productperformance

Adjusting to countries of operation

Role of marketing manager in the strategicmanagement process

Strategic audit


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Strategic audit


Corporate resources

Finance

Whether financial objectives, strategies, policies andprograms are clearly stated

Performance in terms of financial analysistrends,

impact on past and future performance, comparisonwith competing firms; CA ?

Role of financial manager

Strategic audit


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Strategic audit


Corporate resources

R & D

Compare R & D strategy, policy and programs withthat of company for consistency.

Role of technology in corporate performance

Does R & D provide the company with a CA

Role of the R & D Manager in the strategicmanagement process

Strategic audit


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Strategic audit


Operations and logistics Capabilities of the corporation whether being

handled appropriately

Check facilities for both product oriented and serviceoriented systems

Does operations provide the company with CA Role of the Operations manager in the strategic

management process

Strategic audit


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Strategic audit


Human resources Current HRM objectives, strategies, policies and

programs, whether consistent with those of company

Analysis of HRM to see how it improves the fitbetween individual employee and the job

Does HRM provide a CA Role of HRM manager in the strategic management

process

Strategic audit


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Strategic audit


Information Systems Current IS objectives, strategies policies and programs Whether consistent with objectives of the company Performance in terms of providing database, internet

access, performing routine office operations and assistingmanagers in making routine decisions

Concepts and techniques to improve corporateperformance

Does it provide CA Role of the IS manager in he strategic management

process

Strategic audit


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Strategic audit


Summary of internal factors

Which factors are core competencies

Which of these are most important to thecorporation and to the industry in which Icompetes

Which of these will be important in the future

Analysis of strategic factors


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a y o a g a o

Situational Analysis What are the most important internal and external

factors (SWOT) that strongly affect thecorporations present and future performance (list

10 strategic factors)

Review of mission and objectives Are the current mission and objectives appropriate

in the light of key strategic factors

Should the mission and objectives be change; ifyes, what will be its effect on the firm

Strategic alternatives


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g

Can the current or revised objectives be metby fine tuning the strategies in use

What are the major alternate feasible

strategies available; what are the pros andcons of each can corporate scenarios bedeveloped and agreed upon

Alternatives must fit societal environment,industry and company for the next 3-5 years.

Recommended strategy


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gy

Specify the strategic alternativesrecommended at corporate, business andfunctional levels

Justify recommendations in terms of theirability to resolve both long and short termproblems

State policies to be developed or revised toguide effective implementation

Impact of recommended strategy oncompanys core and distinctive competencies

Implementation


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p

Programs required to be developed (such asrestructuring or implementing TQM) toimplement he recommended strategy

Who should develop these programs Are these programs financially viable? Can

proforma budgets be developed and agreed upon

Are priorities and time tables appropriate toindividual programs

Will new standard operating procedures need o bedeveloped

Evaluation and control


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Is the current Information systemcapable of providing sufficient feedbackon implementation activities andperformance?

Can it measure strategic factors?

Can performance results be pinpointed by

area, unit, project or function?

Is the information timely?

Evaluation and control


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Are adequate control measures in placein order to ensure conformance withthe recommended strategic plan?Are appropriate standards and measures

being used?

Are reward systems capable of recognizingand rewarding good performance?

strategic management -www.itworkss.com

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