strategic management

MBA@GIT http://www.mba.git.edu.

Strategic Management

By Prasad Kulkarni

Objectives of the courseTo study the meaning and nature of

strategic management.To understand the method of strategy

formulationTo assess the impact of company’s external

environment.To analyze company’s resources and

competitive position

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To apply generic competitive strategies.To formulate long term and great strategies.To implement the strategy in the

organizationTo review and audit the strategy

implemented.

Module 1

Meaning of strategic ManagementManagement’s action plan for running the

business and conducting operations.

Strategy answers….How management intends to grow the

business.How it will build loyal clientele.How each functional piece of business will

be operated.How performance will be boosted

The AMUL wayOn Amul’s future plans, RS Sodhi, chief

general manager, GCMMF said: "We are expanding our processing and packaging capacity to meet growing demands. For starters, we are setting up additional processing facilities in Delhi and Mumbai. Currently, we lead the pack with the production of 50 lakh liters per day."

AMUL strategySimultaneous development of suppliers and

customers.Cost leadershipFocus on core activities.Managing the third party service providers.Financially self reliant.

WHAT HAPPENS IF AMUL STARTS SELLING IT’S MILK IN KARNATAKA?

Discussion 1

Strategy may focus onLow cost or superior productVirgin Mobile versus AirtelHigh end or mid segment or low endBMW v/s Toyota Etios v/s Maruti 800Wide product line v/s narrow product line.Hindustan unilever v/s Cavin care.

Regional V/s national V/s globalMysore sandal V/s Medimix V/s Dove.One industry or multiple industriesMarico v/s ITC.

WHO WILL WIN THE BATTLE BETWEEN COLGATE SENSITIVE VERSUS SENSODYNE?

Discussion 2

Nature of strategic managementFormulate the company’s missionInternal analysisExternal environment analysisMatching company’s resources with external

environmentSetting long term objectives and grand strategies.Developing annual objectives and short term

strategies.Strategy implementations and auditing.

Importance of Strategic Management1. It results in higher organizational performance.

2. It requires that managers examine and adapt to business environment changes.

3. It coordinates diverse organizational units, helping them focus on organizational goals.

4. It is very much involved in the managerial decision-making process.

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Relevance of Strategic Management

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Characteristics of strategic Management

1. Strategic decisions are likely to affect the long-term direction of an organisation.

2. Strategic decisions are normally about trying to achieve some advantage for the organisation.

3. Strategic decisions are likely to be concerned with the scope of an organisation’s activities

4. Strategy is to do with the matching of the activities of an organisation to the environment in which it operates.

5. Strategy can also be seen as 'stretching' an organization's resources and competences to create opportunities or capitalize on them.

6. Strategic decisions therefore often have major resource implications for an organisation.

7. Strategic decisions are therefore likely to affect operational decisions, to ‘set off waves of lesser decisions’.

8. The strategy of an organisation will be affected not only by environmental forces and resource availability, but also by the values and expectations of those who have power in and around the organisation

Dell Business model

Lenovo Business Model

The relationship between a company’s strategy and its business model

A company’s business model explains the rationale for why its business approach and strategy will be a money maker

A company’s business model explains why its business approach and strategy will generate ample revenue to cover costs and capture a profit.

Relationship Between Strategy and Business Model

Strategy - Deals with a company’s competitive initiatives and business approaches

Business Model -Concerns whether revenues and costs flowing from the strategy demonstrate the business can be amply profitable and viable

DISCUSS THE BUSINESS MODEL OF ANY ONE MOVIE THEATER OF BELGAUM

Discussion 3

Module 2

Strategic Management process

Developing a strategic vision• Managers must decide what directional

path the company should take.• Factors deciding the one directional path

versus another.1. Changing market conditions2. Opportunity of new markets and

customers.3. Market viability analysis

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Strategy on retrenchment of market or products.

Company’s growth path.

Will company sustain and improve its position in the future?

Can company extend its brand strength for further business?

Technology savvy of the company.

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• Strategic vision is:1. Providing panoramic view of where we are

going?2. Provides rationale behind good business sense

for the company.3. It provides direction for the future.4. It gives the identity to the organization.5. A clearly articulated strategic vision

communicates managements aspirations to stakeholders.

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A good vision always needs to be a bit beyond a company’s reach, but progress toward the vision is what unifies the efforts of company personnel.

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• Characteristics of good vision statement1. Directional2. Focused3. Flexible4. Feasible5. Easy to communicate6. graphical

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Analyze the Jindal steel’s visionTo be a globally admired organization

that enhances the quality of life of all stakeholders through sustainable industrial and business development.

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Mission statement

Usually deals with the company’s present business scope and purpose.

A company’s mission statement is defined by the buyer needs it seeks to satisfy the customer groups and market segments it is endeavoring to serve and the resources and technologies that it is deploying in trying to please its customers.

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Reliance communicationWe will create world-class benchmarks by:

Meeting and exceeding Customer expectations with a segmented approach

Establishing, re-engineering and automating Processes to make them customer centric, efficient and effective

Incessant offering of Products and Services that are value for money and excite customers

Providing a Network experience that is best in the industry

Building Reliance into an iconic Brand which is benchmarked by others and leads industry in Intention to Purchase and Loyalty

Developing a professional Leadership team that inspires, nurtures talent and propagates RCOM Values by personal example

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Provides brief overview of the company’s present business.

Mission tells about the present products and services of the company.

Profit should not be the part of the mission statement.

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Shortcomings in company vision statements

Incomplete

Not distinctive

Too generic

Too broad.

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Linking the vision with company values ( Example JSW)

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Company values

A company's values are the beliefs , business principles and practices that guide the conduct of its business the pursuit of its strategic vision and the behavior of company personnel

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• Company managers connect values to the strategic vision in two ways

1. in traditional organization shows the compatibility of vision with values.

2. In new companies managers derive value those drive vision.

A number of companies combine their vision and values into a single statement or document that is provided to all company personnel and often posed on the company web page.

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Analyze the Jindal steel’s visionTo be a globally admired organization

that enhances the quality of life of all stakeholders through sustainable industrial and business development.

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Step 3: Crafting A strategy

Strategy making hierarchy OR The strategy making pyramid.

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Corporate strategy

• Initiatives the company uses to establish business position in different industries.

• The approaches corporate executives pursue to boost the combined performance of the set of businesses the company has diversified into and the means of capturing business synergies and turning them into competitive advantage.

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Business strategy:

1. Concerns the actions and the approaches crafted to produce successful performance in one specific line of business.

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• Functional area strategy1. Concerns the actions and practices to be

employed in managing the particular functions or business processes or key activities within a business.

2. Functional strategies aim at establishing or strengthening a business units competencies and capabilities in performing strategy critical activities so as to enhance the business’s market position and standing with customers.

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Operational level strategies:

Concerns the relatively narrow strategic initiatives and approaches for managing key operating units and specific operating activities with strategic significance .

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Strategic plan

Vision

Objectives

Direction in short and long range performance targets.

Competitive moves

Internal action approaches.

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Implementing and executing the strategy

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Initiating corrective adjustments phase 5:

Evaluate the company’s progress

Assessing the impact of new external developments

Making corrective adjustments regarding vision, mission , objectives and etc…

Balancing the external environment and company strategy.

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Assignment 1Discuss the strategic management process

of any one foundry company.This assignment carries 3 marks.

Setting objectiveProvide direction: the direction for the

functioning of the organization. When objectives are clear the aims of the activities of different people in the organization converges for achievement of common purpose.

Justify the organization: indicates the purpose and aim and by the social justification for the existence of the organization.

Objective definitionThe desired or needed result to be achieved

by a specific time.An objective is broader than a goal and one

objective can be broken down into a number of specific goals.

Financial objectivesThe primary objective is concerned with the

return to shareholder.A satisfactory return for a company must be

sufficient to reward shareholders adequately in the long run for the risks they take. The reward will take the form of profits which can lead to dividends or in increase in the market value.

The size of the return which is adequate for ordinary shareholders will vary according to the risk involved.

There are different ways of expressing a financial objectives in quantitative terms. Financial objective would include the following

1. Profitability: it is just not the profit for every year. The investment must provide future appreciation of worth and increased profits in future.

2. Return on investment: the return on investment must be on increase year after year.

Low risk: high risk projects might promise a high return but it may be safer to opt for a project with a lower return but a greater guarantee of success.

Share price, earnings, dividends and market value: EPS or dividend payments are measures which recognize that company is owned by its shareholders. Lesser the EPS, shareholders are likely to sell the shares.

Market capitalization: Total value of business shares on the stock market. When the earnings and dividends are low, the market value of the shares also drops.

Price/ earnings ratio: The relationship between EPS and the price at which the shares are traded. It is the market value divided by EPS. This should not come down

Balanced score cardThe balanced score card provides executives

with comprehensive framework that translates a company’s vision and strategy into a coherent set of performance measures

Kaplan and Norton.

Balanced scorecard process

A balanced score card is a management and measurement system whose purpose to

A. translate strategy intoA set of measures thatUniquely communicateYour vision to the organization

Balanced scorecard addresses four basic questions

People: how can we develop our people and their capabilities?

Business process: what must we excel at to meet customer needs?

Customers: how do customers see us and values our services?

Financial: How are we faring with shareholder returns?

Need of balanced scorecardFocus on traditional financial accounting

measures such as ROA, ROE, EPS gives misleading signals to executives with regards to quality and innovation. It is important to look at the means used to achieve outcomes such as ROA, not just focus on the outcomes themselves.

Executive performance needs to be judged on success at meeting a mix of both financial and non-financial measures to effectively operate a business.

Some non-financial measures are drivers of financial outcome measures which give managers more control to take corrective actions quickly.

Too many measures, such as hundreds ofpossible cost accounting index measures,can confuse and distract an executive fromfocusing on important strategic priorities.Thebalanced scorecard disciplines an executiveto focus on several important measures thatdrive the strategy.

Company goalThree economic goals guide the strategic

direction of almost every business organization. They are

SurvivalGrowthProfitability

Company goalAny company needs solid goals in order to grow the

business and reach full potential. If you are looking to set a few company goals to inspire

your employees and make your business more successful, then you are going to need the full cooperation of all the employees involved.

With the help of everyone at your company, you can set and subsequently reach goals that are made to make your business more successful and your employees more satisfied and productive.

Call a meeting together with some of your top employees, sales associates and anyone else who should be a part of your company goal-setting. Send out a memo detailing the time and place of a goal setting meeting.

Begin the meeting by explaining why you believe your company should be setting goals, and what those goals should ultimately achieve, such as better productivity, better customer satisfaction or better inter-office relationships.

Ask for ideas for goals that the company could try to meet. Write all the ideas on a large piece of poster board or white board. Discuss how each goal could potentially be met.

Choose three goals from the brainstorming session that you are going to commit to keeping as a company. Strategize on how the goals will be met, what you expect to get out of setting that goal, and a timeline for those changes to take place. Be specific and write down all the ways you can achieve the goals you've chosen.

Write about the the goals in a memo to send out to everyone in the company, so everyone knows what was discussed in the meeting. Post the goals in prominent places around the office, so they are constantly fresh in all of the employees' minds.

Company PhilosophyIt reflects or specifies the basic beliefs,

values, aspirations and philosophical priorities to which strategic decision makers are committed in managing the company.

How to write company philosophy?Determine the purpose of your service, business or role

as an employee.Define the business entity or your role as an employee in

a statement of purpose, describing how you will perform, how you will evaluate success and how you will spur growth and expand your role within the company or business.

Express a value for performance and growth. Outline the performance value and growth value that is necessary for success. For example, "Create high-quality jewelry to increase quarterly revenue by 10 percent.”

Define your role within the business. How do you measure the importance of the role within the business structure? What is your objective within the role? What inspires you within the role?

Define your definition of excellence and offer a vision for the future. Generally, that vision uses such phrases as "industry leader," "the best" or "change [a particular sector of the market].“

Use approximately 25 words to inspire, motivate and define the overall philosophy and the way a business will function. Create an expectation and accountability.

Google’s PhilosophyFocus on User and all else will followIts best to do one thing really, really well.Fast is better than slowDemocracy on the web worksYou don’t need to be at your desk to need

an answerYou can make money without doing evil

There’s always more information out thereThe need for information crosses all bordersYou can be serious without a suit great just isn’t good enough.

Volvo - Philosophy

Strategic intentStrategic Intent is the leveraging of a firm’s

internal resources capabilities and core competencies to accomplish the firm’s vision, mission and objectives in a competitive environment.

It is all about winning competitive battles and gaining leadership position by putting organizational resources to best use.

Strategic intent is said to exist when all employees and levels of a firm are committed to the pursuit of a specific but significant performance target.

strategic intent tries to establish the parameters that shape the values motives and actions of people throughout their organization.

The hierarchy of strategic intent1) a broad vision of what the organizations

should be.2) The organization’s mission.3) The strategies objectives and specific goals to be pursued relentlessly4) The plans that are develop to accomplished the intentions of management in a concrete5) The plans that are developed to accomplish the intentions of management in a concrete way.

Merging the strategic vision, objectives and strategy into a strategic plan

A strategic plan lays out the company’s future direction, performance targets and strategy

The strategic plan usually ends up as a written document that is circulated to most managers and perhaps selected employees.

This is also explicitly written in the annual report.

Strategic plan Template

Module 3: Analyzing company’s

external environment

External environment analysis

ByPrasad Kulkarni

IndustryIt is a group of companies offering

products or services that are close substitutes for each other- that is products or services that satisfy the same basic customer needs.

SectorGroups of closely related industriesExampleTelecommunication sector

telecommunication equipment industrytelecommunication service industry

Market segments: These are different group of customers within a market that can be differentiated from each other on the basis of homogeneity

Industry dominant economic traits.Market size and growth rateScope of competitive rivalryNumber of rivalsBuyer needs and requirementsProduction capacityPace of technological changeVertical integrationProduct innovationDegree of product differentiationEconomies of scaleLearning and experience curve effects

Michel Porter’s five force model

By Prasad Kulkarni

MICHEL PORTERS FIVE FORCES MODEL.

Force 1: Rivalry among competing sellers

Rivalry intensifies when competing sellers are active in launching fresh actions to boost their market standing and business performance

Example: head and shoulders, Pantene versus clinic plus, clear

Whether industry members are racing to differentiate their products from rivals by

a. offering better performance featuresb. higher quality c. improved customer service d. wider product selections

Rivals resort to a. Special promotionsb. Heavy advertisingc. Rebatesd. Low interest finance

How actively industry members are pursuing efforts to build stronger dealer networks.

How hard companies are striving to gain market edge over rivals by developing valuable expertise and capabilities that rivals are hard presses to match

Rivalry intensifies as the number of competitors increases and as competitors become more equal in size and capability

Rivalry is usually stronger in slow growing markets and weaker in fast growing markets.

Rivalry is usually weaker in industries comprised of so many rivals that the impact of any one company’s action is spread thin across all industry members; likewise it is often weak when there are fewer than five competitors.

Rivalry increases when buyer demand falls and sellers find themselves with excess capacity/inventory.

Rivalry increases as it becomes less costly for buyers to switch brands.

Rivalry is more intense when industry conditions tempt competitors to use price cuts or other competitive weapons to boost unit volume.

Rivalry increases when one or more competitors dissatisfied with their market position.

Rivalry becomes more volatile and unpredictable as the diversity of competitors increases in terms of visions objectives, strategies and resources.

Rivalry increases when strong companies outside the industry acquire weak firms in the industry and launches aggressive well funded moves.

A powerful successful competitive strategy employed by 1 company greatly intensify the competitive pressure on its rivals to develop effective strategic responses

Threat of entry of new companiesEntry is stronger whena. The pool of entry candidate is large and

some of the candidates have resources that would make them formidable market contenders

Example : entry of pure it in water purifier market

b. Entry barriers are low or can be readily hurdled by the likely entry candidates ( ex: Entry of Prestige into induction cooker market)

c. When existing industry members are looking to expand their market reach by entering product segments or geographical areas when they currently do not have presence

Ex: chandrika soap with glycerin and Mysore sandal in North India

New comers can expect to earn attractive profits

Example: entry of Go air in the airline segment

Buyer demand is growing rapidlyExample: Android phonesIndustry members are unable to strongly

contest the entry of new comers ( Idea- spice – Karnataka)

Entry threats are weaker whena. Pool of entry candidates are small

example: Uninor, virgin etc…b. Entry barriers are high example: Insurance sector pay upfront 100

crorec. Existing competitors are struggling to earn

high profittsExample: Usha Martin

d. The industry outlook is risky or uncertainExample: telecom equipment companye. Buyer demand is growing slowly or

stagnantExample: color televisionf. Industry members will strongly contest the

efforts of new entrants to gain a market foot hold

Example: Jiva versus Medimix

Threat of substitutesThreat of substitutes are stronger whena. Good substitutes are readily available or

new ones are emerging example: Digital pen versus penb. Substitutes are attractively priced example: china silk versus kanchi silk.

Substitutes have comparable or better performance features

example : windows versus Google chrome.

End users have low costs in switching to substitutesexample: carbonated drinks versus fruit beverages.

Substitutes are weaker when1. Good substitutes are not readily available

or don’t existexample: Music CD versus USB

2. Substitutes are highly priced relative to the performance they deliverExample: Hair oil versus almond oils

End users have high costs in switching to substitutes

Example: Digital greetings versus Archie's

Signs that competition from substitutes is strong when

a. Sales of substitutes are growing faster than sales of the industry being analyzed ( Pureit versus aquagueard)

b. Profits of the producers of substitutes are on the rise( tubeless tyres versus tyres.

Threat of suppliersThe power of Microsoft and Intel on PC

makers.Supplier bargaining power is higher whena. Industry members incurs high costs in

switching their purchase to alternative suppliers.

Example: company procuring steel from Tata steel world cheapest producer of Iron.

Needed inputs are short in supplyExample; Indian oil depends OPEC decisionsSellers product enhances the image of the

productSeagate and Intel in the PCs.There are only few suppliers of a particular

inputExample: Airbus and boeing

Some suppliers threaten to integrate forward into the business of industry members and perhaps become powerful rival

example: ITC transformation from commodity business leader to FMCG maker.

Supplier bargaining power is weaker whena. Commodity readily available from many

suppliers example: fertilizersb. Sellers switching cost alternatives are lowExample: Namadhari seeds, seed teck,

parry’s Mahyco

Good substitute inputs exists or new ones emerge

Example : BT brinjalThere is a surge of suppliersEx: Anchor, haevell, surya, ABB etc..Industry member is biggest purchaser of the

productExample: Maruti versus Gabriel shock

observers.

Industry members are a threat to integrate backward into the business of suppliers and to self manufacture their own requirement.

Ex: Hindustan lever chemicals and seeds.

Threat of BuyersBuyer switching costs to competing brands

or substitute products are lowEx: Switch in the FMCG productBuyers are large and can demand

concessions when purchasing large quantities

Ex: Jain irrigation can bargain more with steel manufacturers.

Large volume purchases by buyers are important to sellers

Ex: KPTCL and ABB.There are few buyersEx: Electricity manufacturers in KarnatakaIdentity of buyer adds prestige to sellers list

of customersEx: JK tyres and automobile manufactures

Buyer have the ability to postpone purchases until later if they do not like the present deals being offered by sellers

Ex: BSNL postponed telecom equipment procurement.

Bargaining power is weaker whenA. Buyer purchases in small quantityB. Buyer switching cost to competitor is

high ( Sony Explod to other music players)

C. There is a surge in buyer demand that creates seller market( Real estate)

d. A seller brand reputation is important to buyers

Ex: IFB washing machine whirlpool refrigerator.

5. Buyer collaboration or partnering with selected sellers provides attractive Win –win opportunities

CEAT and two wheeler manufacturer

Strategic implications of five forcesCompetitive environment is unattractive

fromthe standpoint of earning good profits when

– Rivalry is vigorous

– Entry barriers are low and entry is likely

– Competition from substitutes is strong

– Suppliers and customers have considerable bargaining power

Competitive environment is ideal from a profit-making standpoint when

– Rivalry is moderate

– Entry barriers are high and no firm is likely to enter

– Good substitutes do not exist

– Suppliers and customers are in a weak bargaining position

Understanding the industry driving forcesInternet and e-commerce opportunities

Increasing globalization of industry

Changes in long-term industry growth rate

Changes in who buys the product and how they use it

Product innovation

Technological change/process innovation

Marketing innovation

Entry or exit of major firms

Diffusion of technical knowledge

Changes in cost and efficiency

Consumer preferences shift from standardized to differentiated products (or vice versa)

Changes in degree of uncertainty and risk

Regulatory policies / government legislation

Changing societal concerns, attitudes, and lifestyles

Industry Driving Forces

ByPrasad Kulkarni

definitionIndustry driving forces are those that

have the biggest influence on what kinds of changes will take place in the industry structure and competitive environment

Driving forces analysis has two stepsa. Identifying what the driving forces areb. Assessing the impact they will have

on the industry

Identifying an industry’s driving forcesGrowing use of internet and emerging new

internet technology applications- Internet is working as new distribution

channel- Due to internet rivalry among competitor

is increasing- Helps in better supplier coordination- Squeeze out the costs of internal

operation.

Increasing globalization- Seeking customers in foreign countries- Outsourcing the production operations changes in long term industry growth rate- Shifts in industry growth up or down are

driving force for industry change affecting the balance between industry supply and buyer demand entry and exit and the character and strength of competition.

- Higher the demand greater the activities of existing and new companies in the segment.

changes in who buys the product and how they use it

- Shift in buyer demographics and new ways of using the products.(c d)

product innovation- New products brings new customers create new

product differentiation among sellers.- Innovation in the products strengthens the market

position( digital camera, toys and drugs)

technological change and manufacturing process innovations

- New technology- lower cost-opening up whole new industry frontiers.

- Technology developments has effects ona. Capital requirements b. Minimum efficient plant sizesc. Distribution channels and logisticsd. Learning curve effects

Marketing innovations- Internet marketing- Rural models entry or exit of major firms- Entry of foreign firms- Entry of established firm from another

segmentDiffusion of technical know how across

more companies and more countries.

Changes in cost and efficiency : widening and shrinking in the costs among key competitors tend to dramatically alter the state of competition.( email and fax effect on postal servie)

growing buyer preferences for differentiated products instead of a commodity product.

- Buyer varieties and consumer switching- Buyer sometimes needs fixed product

( example : online trading)

reductions in uncertainty and business risks.

- Emerging industry- risk taking enterprises- Once the emerging industry more number

of companies will enter the businesses.Regulatory influences and government

policy changes- Deregulations- Protecting the domestic companies

changing societal concerns, attitudes and lifestyles

- Anti smoking- terrorism

Assessing the impact of the driving forcesAre the driving forces causing demand

for the industry’s product to increase or decrease?

are the driving forces acting to make competition more or less intensive?

Will the driving force lead to higher or lower industry profitability?

Key Success Factors

ByPrasad Kulkarni

DefinitionKSF’s are those competitive factors that

most affect industry members ability to prosper in the market place the particular strategy elements, product attributes, resources, competencies, competitive capabilities and market achievements that spell the difference between being strong competitor and weak competitor

How well a company product offering resource and capabilities measure up against an industry just how financially and comparatively successful that company will be

KSF for beer industry1. Full utilization of capacity2. Strong network of wholesale dealers3. Clever advertising

KSF’s vary from industry to industry and even from time to time within the same industry, as driving forces and competitive conditions change

Identifying KSF’s for industry1. Attributes of competitors product offering are

casual2. Resources and competitive capabilities does a

company need to have to be competitively successful.

3. Shortcomings those are almost certain to put a company at a significant competitive disadvantage

Correctly diagnosing an industry raises a company’s chances of crafting a sound strategy

Module 4

Analyzing a company’s resources and competitive

position

ByPrasad Kulkarni

Chapter roadmap

Question 1: How Well Is the Company’s Present Strategy Working?

Question 2: What Are the Company’s Resource Strengths and Weaknesses and Its External Opportunities and Threats?

Question 3: Are the Company’s Prices and Costs Competitive?

Question 4: Is the Company Competitively Stronger or Weaker than Key Rivals?

Question 5: What Strategic Issues and Problems Merit Front-Burner Managerial Attention?

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How well is the company’s present strategy working?

Key issuesI. Identify competitive approach

–Low-cost leadership ( Air Deccan)–Differentiation ( Asian Paints)–Focus on a particular market niche

( Insurance single premium)

II. Determine competitive scopeGeographic market coverage ( chandrika

south India)Operating stages in industry’s

production/distribution chainExamine recent strategic moves( Maruti

800 Phase out)Identify functional strategies ( R&D,

marketing, finance, HR, IT of Infosys)

Approaches to Assess How Well the Present Strategy Is Working

Qualitative assessment –What is the strategy?

– Completeness

– Internal consistency

– Rationale

– Relevance

Quantitative assessment – What are the results?– Is company achieving its

financial and strategic objectives?

– Is company an above-average industry performer?

Key Indicators of How Wellthe Strategy Is Working

Trend in sales and market share ( HUL)Acquiring and/or retaining customers

( General motors free service and guarantee)

Trend in profit margins( software company)

Trend in net profits, ROI, and EVA

Overall financial strength and credit ranking ( Aravind Mills credit rating by CRISIL)

Efforts at continuous improvement activities ( Toyota)

Trend in stock price and stockholder value ( Reliance Industries)

Image and reputation with customers ( Tata Sons)

Leadership role(s) – Technology, quality, innovation, e-commerce, etc. ( e bay)

What Are the Company’s Strengths, Weaknesses, Opportunities and Threats ?

S W O T represents the first letter inS trengthsW eaknessesO pportunitiesT hreat

For a company’s strategy to be well-conceived, it must be– Matched to its resource strengths and

weaknesses (Berger Nicolas)– Aimed at capturing its best market

opportunities and erecting defenses against external threats to its well-being ( Nirma)

Identifying Resource Strengthsand Competitive Capabilities

A strength is something a firm does well or an attribute that enhances its competitiveness–Valuable competencies or know-

how ( Pfizer)–Valuable physical assets ( Daewoo)–Valuable human assets ( Google)

Valuable organizational assets ( Panasonic factory in Japan)

Valuable intangible assets ( Sony)Important competitive capabilities

( Parachute Marico)An attribute that places a company in a

position of market advantage ( Chik, cavin care)

Alliances or cooperative ventures with partners ( Hero Honda)

Competencies vs. Core Competencies vs. Distinctive Competencies

A competence is the product of organizational learning and experience and represents real proficiency in performing an internal activity

A core competence is a well-performedinternal activity central (not peripheral or incidental)to a company’s competitiveness and profitability

A distinctive competence is a competitively valuable activity a company performs better than its rivals

Core Competencies

A competence becomes a core competence when the well-performed activity is central to a company’s competitiveness and profitability

Examples of core competenciesExpertise in integrating multiple technologies

to create families of new products ( tata Nano)

Know-how in creating operating systemsfor cost efficient supply chain management ( Safe express)

Speeding new/next-generation products to market( Microsoft cloud)

Better after-sale service capability (General motors)

Skills in manufacturing a high quality product ( Mercedes Benz)

Often, a core competence results from collaboration among different parts of a company

Typically, core competencies reside in a company’s people, not in assets on a balance sheet

A core competence gives a company apotentially valuable competitive capabilityand represents a definite competitive asset

Distinctive CompetenceA distinctive competence is a competitively

significant activity that a company performs better than its competitors

A distinctive competence – Represents a competitively valuable capability rivals

do not have – Presents attractive potential for being a cornerstone of

strategy– Can provide a competitive edge in the marketplace —

because it represents a competitively superior resource strength

ExamplesSharp Corporation

Expertise in flat-panel display technology Toyota and Honda

Low-cost, high-quality manufacturingcapability and short design-to-market cycles

IntelAbility to design and manufacture

ever more powerful microprocessors for PCsWal-Mart

Low-cost distribution and use ofstate-of-the-art retail technology

Identifying Resource Weaknessesand Competitive Deficiencies

A weakness is something a firm lacks, does poorly, or a condition placing it at a disadvantage

Resource weaknesses relate to– Inferior or unproven skills, expertise, or

intellectual capital ( Crompton Greeves)– Lack of important physical, organizational, or

intangible assets ( Mahindra satyam)– Missing capabilities in key areas ( Bajaj Motors)

Identifying a Company’sMarket Opportunities

Opportunities most relevant to acompany are those offering

Good match with its financial and organizational resource capabilities

Best prospects for profitable long-term growth

Potential for competitive advantage

Identifying External ThreatsEmergence of cheaper/better technologies

( Pager v/s mobile)Introduction of better products by rivals

( HDFC v/s nationalized banks)Entry of lower-cost foreign competitors

( Walmart )Onerous regulations ( Indian insurance sector)Rise in interest rates ( Home loans)

Potential of a hostile takeover ( Arcelor Mittal)

Unfavorable demographic shifts ( Rural people to Urban areas)

Adverse shifts in foreign exchange rates ( Rupee appreciation versus dollar)

Political upheaval in a country ( Pakistan)

Are the Company’sPrices and Costs Competitive?

Assessing whether a firm’s costs are competitive with those of rivals is a crucial part of company analysis

Key analytical tools

– Value chain analysis

– Benchmarking

Value ChainA company’s business consists of all activities

undertaken in designing, producing, marketing, delivering, and supporting its product or service

A company’s value chain consists of a linked set of value-creating activities performed internally

The value chain contains two types of activitiesPrimary activities – where most of the value for

customers is createdSupport activities – facilitate performance of the

primary activities

Why Do ValueChains of Rivals Differ?

Several factors can cause differencesin value chains of rival companies

– Internal operations

– Strategy

– Approaches used in execution of the strategy

– Underlying economics of the activities

Differences complicate task of assessingrivals’ relative cost positions

Value chain

ByPrasad Kulkarni

definitionA company value chain consists of the

linked set of value creating activities the company performs internally

The value chain consists of two broad categories of activities

a. Primary activities: that are foremost in creating value for customers

b. Support activities that facilitate and enhance the performance of the primary activities

The primary activities and factors for assessment

Inbound logistics1. Soundness of material2. Inventory control systems3. Warehousing activities

Operations1. Productivity of equipment compared to

that of key competitors2. Appropriate automation of production

processes3. Effectiveness of production control

systems to improve quality and reduce costs.

4. Efficiency of plant layout and work flow design

Outbound logistics1. Timeliness and efficiency of delivery

of finished goods and services2. Efficiency of finished goods

warehousing activities

Marketing and sales1. Effectiveness of market research to identify

customer segments and needs2. Innovation in sales promotion and advertising3. Evaluation of alternate distribution channels4. Motivation and competence of sales force5. Development of an image of quality and a

favorable reputation6. Extent of brand loyalty among customers7. Extent of market dominance within the market

segment or overall market.

Customer service1. Means to solicit customer input for

product improvements2. Promptness of attention customer

complaints3. Appropriateness of warranty and

guarantee policies.4. Quality of customer education and training5. Ability to provide replacement parts and

repair services

Support activitiesFirm infrastructure1. Capability to identify new product market

opportunities and potential environmental threats

2. Quality of strategic planning system to achieve corporate objectives

3. Coordination and integration of all value chain activities among organizational subunits

4. Ability to obtain relatively low cost funds for capital expenditure and working capital.

5. Timely and accurate management information on general and competitive environments

6. Relationships with public policy makers and interest groups

7. Public image and corporate citizenship

Human resource management1. Effectiveness of procedure for recruiting, training

and promoting all levels of employees2. Appropriateness of reward system for motivation

and challenging employees3. A work environment that minimizes absenteeism

and keeps turnover at desirable levels4. Relation with trade unions5. Active participation by managers and technical

personnel in professional organizations6. Levels of employee motivation and job satisfaction

Technology development1. Success of R&D activities in leading to

product and process innovations2. Quality of working relationships between

R&D personnel and other departments3. Timeliness of technology development

activities in meeting critical deadlines4. Quality of laboratories and other facilities5. Qualification and experience of laboratory

technicians and scientists

Procurement1. Development of alternate sources for inputs

to minimize dependence on a single supplier2. Procurement of raw materials on a timely

basis at lowest possible cost and at a acceptable levels of quality

3. Procedures for procurement of plant , machinery and buildings

4. Good long term relationship with reliable suppliers.

Benchmarking

ByPrasad Kulkarni

definitionMeasuring your performance against that of

the best-in-class companies, determining how the best-in-class achieve those performance levels, and using the information as a basis for your own company’s targets, strategies, and implementation.

Types of benchmarkingComparison:

– Internal – Best in Firm– Competitive – Best in Industry– World Class – Best in World

Form:– Performance Benchmarking– Process Benchmarking– Strategic Benchmarking

Benchmarking processIdentify your problem areas Identify other industries that have similar

processes Identify organizations that are leaders in these

areas Survey companies for measures and practices Visit the "best practice" companies to identify

leading edge practices Implement new and improved business practices

Module 5: Generic

competitive strategies

Competitive strategyA competitive strategy concerns the

specifics of management’s game plan for competing successfully and securing a competitive advantage over rivals.

Low cost provider strategiesLower overall costs than competitorsNeed not to be absolutely overall cost i. e

cost less than nearest competitor is enough

The two major avenues for achieving a cost advantage

a. Cost efficient management of value chain activities.

b. Revamping the value chain to curb or eliminate unnecessary activities.

Cost efficient management of value chain activities

1. Striving to capture all available economies of scale.

2. Taking full advantage of learning/ experience curve effects.

3. Trying to operate facilities at full capacity.

4. Persuing efforts to boost sales volumes and thus spread such costs as R&D, advertising, Selling etc..

5. Improving supply chain efficiency.6. Substituting the use of low cost for high

cost raw material.7. Using online systems sophisticated

software for achieve operating efficiencies.

8. Adopting labor saving operating method. Using the company’s bargaining power vis- a -vis suppliers to gain concessions.

9. Adopting labor saving operational method.

10. Being alert to the cost advantages of outsourcing and vertical integration.

Revamping the value chain to curb unnecessary activities.

Cutting out distributors and dealers by selling directly to customers.

Replacing certain value chain activities with faster and cheaper online technology

Streamlining operations by eliminating low value added or unnecessary work steps and activities

4. Relocating facilities so as to curb the need of shipping and handling activities.

5. Offering a frills free product.6. Offering limited product line as oppose to

a full product line.

When a low cost provider strategy works best

1. Price competition among rival sellers is especially vigorous.

2. The products of rival sellers are essentially identical and suppliers are readily available from any of several eager sellers.

3. There are few ways to achive product differentiation that have value to buyers.

4. Most buyers use the product in the same ways.

5. Buyers incur low costs in switching their purchases from one seller to another.

6. Buyers are large and have significant power to bargain down prices.

7. Industry newcomers use introductory low prices to attract buyers and build customer base.

Pitfalls of low cost provider strategy1. Overly aggressive price cutting result in

lower profitability.2. Rivals may catch up very fast.3. May result in poor customer image.

BROAD DIFFERENTIATION Differentiation strategies are attractive

whenever buyers needs and preferences are too diverse to be fully satisfied by a standardized product or by sellers with identical capabilities.

Strategy should be unique than competitors.

Successful differentiation allows firm toa. Command premium price for its product.b. Increase unit salesc. Gain buyer loyalty to brand

Types of differentiation themes.- Unique taste ( Maaza)- Multiple features ( Microsoft windows)- Wide selection and one stop shopping

( big bazaar)- Superior service ( VRL)

Spare parts availability ( Maruti Suzuki)Engineering design and performance ( Audi)Prestige and distinctiveness ( Rolex)Product reliability( Johnson and Johnson)

Quality manufacture( Toyota)Technological leadership (3M)Full range of services ( ICICI)Complete line of products ( Reckitt)

Where along the value chain to create the differentiating attributes

a. Supply chain activitiesb. Product R&Dc. Production R& D and technology related

activities.d. Manufacturing activitiese. Distribution and shipping activitiesf. Marketing sales and customer sales activities.

The four best routes to competitive advantage via a broad differentiation strategy

a. Incorporate product attributes and user features that lower the buyers overall costs of using the company’s product.

b. Incorporate features that raise product performance.

c. Incorporate features that enhances buyer satisfaction in non economic ways.

d. Deliver value to customer by differentiating on the basis of competencies and competitive capabilities that rivals don’t have cant afford to match.

When differentiation strategy works best1. Buyers needs and used of the products

are diverse( soaps)2. There are many ways to differentiate the

product or service and many buyers perceive these differences as having value ( hair Oils)

Few rival firms are following a similar differentiation approach. ( Aqua guard)

Technological changes is fast paces and competition revolves around rapidly evolving product features.( Mobile phones and DTH services)

The pitfalls of a differentiation strategya. Competitors quickly copy ( docomo)b. Cold response from the market ( Yamaha

bikes)c. Overspending on developing products

erodes profitabilityd. Sometime exceed buyer needs( spring

water)e. Charging too high ( Harley davidson)

BEST COST PROVIDERMore value for the moneyCompany acheives best cost status from an

ability to incorporate attractive or upscale attributes at a lower cost than rivals.

It is different from low cost provider by providing extra features at a best cost. ( NANO versus MARUTI 800)

The target market for a best cost provider is a value conscious buyers.

A best cost provider strategy works best in markets where buyers diversify makes product differentiation the norm and where many buyers are also price sensitive and value conscious.

Threat of low cost provider and high end differentiation.

FOCUSED LOW COST PROVIDERA narrow markets niche where buyers needs

and preferences are distinctively differentLower overall cost than rivals in serving

niche members.Product line features and attributed tailored

to the tastes and requirements of niche members.

A continuous search in production is taken to reduce the cost while incorporating feature matching to niche member preferences.

Selective communication strategyStay committed to serving the niche at

lowest overall cost and don’t enter other markets.

Focused differentiationA narrow market niche where buyer needs

and preferences are distinctively differentCompetitive advantage through attributes

that appeal specifically to niche members.Features and attributes are tailored in a

product line to the tastes and requirements of niche members.

Custom made products that match the tastes and requirements of niche members.

Stay committed to serving the niche buyers better than rivals. Don’t enter other markets.

Strategic alliancesStrategic alliances are collaborative

arrangements where two or more companies join forces to achieve mutually beneficial strategic outcomes.

PC industry require strategic alliancesIntel and DellFive factors makes alliances strategica. It is critical to the company’s

achievement of an important objectives.b. It helps builds, sustain or enhance a core

competencies.

It helps blocks competitive threatIt helps open up important new market

opportunitiesIt mitigates a significant risk to company’s

business.Example1. TOYOTA2. Microsoft Windows

A company that is racing for global market leadership needs alliances to

1. Get into critical country markets quickly and accelerate the process of building a potent global market presence.

2. Gain inside knowledge about unfamiliar markets and cultures

3. Access valuable skills and competencies.

The extent to which companies benefit from entering into alliances and collaborative partnerships seems to be function of six factors

1. Picking a good partner2. Being sensitive cultural differences3. Recognize that alliance must benefit both

Ensuring that both parties live up to their commitments.

Structuring the decision making process so that actions can be taken swiftly when needed.

Managing the learning process and then adjusting the alliance agreement over time to fit new circumstances.

Merger and acquisition strategiesGoogle acquisition of MotorolaMittal steel acquisition of Arcelor A merger is a pooling of equals with the

newly created company often taking on a new name.

An acquisition is a combination in which one company the acquirer purchases and absorbs the operations of another the aquired

Objectives of Mergers and acquisitions

To create a more cost efficient operations out of the combined companies.

To expand company’s geographic coverage.To extend the company’s business into new

product categories

To gain quick access to new technologies or other resources and competitive capabilities.

To try to invent a new industry and lead the convergence of industries whose boundaries are being blurred by changing technologies and new market opportunities

Impact of Mergers and acquisitionCompetitive edge may not be visibleEmployee resist to changeEmployees leave the companyManagers inefficiency may be seen in the

mergers and acquisition

Outsourcing strategiesOutsourcing involves farming out certain

value chain activities to outside vendors.Why outsourcing?a. Outsiders can often perform activities

better or cheaper.b. It allows firm to focus on core activities

When outsourcing strategies are advantageous?

An activity can be performed better o more cheaply by outside specialists.

It is not a core activity of the firmIt reduces the company’s risk exposure to

changing buyer preferencesIt improves company’s ability to innovate.

It reduces the new product introduction time

It streamline the company operation.It allows a company to assemble diverse

kinds of expertise speedily and efficiently.

Joint ventureA joint venture is a business agreement in

which parties agree to develop, for a finite time, a new entity and new assets by contributing equity.

They exercise control over the enterpriseand consequently share revenues, expenses and assets

On the other hand, when two or more persons come together to form a temporary partnership for the purpose of carrying out a particular project, such partnership can also be called a joint venture where the parties are "co-venturers".

Some major joint ventures include Dow Corning, MillerCoors, Sony Ericsson and Penske Truck Leasin

International business level strategies

Why companies expand into foreign markets?

1. To gain access to new customers.2. To achieve lower costs and enhance the

firm’s competitiveness3. To capitalize on its core competencies4. To spread its business risk across a wider

market base.

Cross country differences in cultural, demographic and market conditions

Gaining competitive advantage based on where activities are located

The risk of adverse exchange rate shifts.Host government policies

How to enter foreign marketExportingLicensingFranchisingMulticounty strategyGlobal strategiesWholly owned franchise

Profit sanctuaries are country markets in which a company derives substantial profits because of its strong and protected market position

Offensive strategies suitable for competing in foreigbn markets.

Strategic alliance and joint venture with foreign partners

Strategies that fit the markets of emerging countries

Module 6

ByProf. Prasad Kulkarni

April 8, 2023 236(c) Prof. Prasad Kulkarni

Tailoring strategy to fit specific industry and company situation

Strategies for competing in emerging industry

High definition television and e- bookCharacteristics1. Speculation about growth 2. Technological know how guarded by R &D

company.3. There is an uncertainty about the success

of the product4. Include customers as spokesperson of the

company.April 8, 2023 (c) Prof. Prasad Kulkarni 238

5. In digital brand world customer anticipate further growth in brand an postpone his/ her purchasing decision.

6. Big companies enter this segment if there is an ample of opportunity for growth.

7. If the volume grows price will come down

Strategies for emerging industries.1. Push to perfect technology2. Improve product quality3. Develop additional features4. Merge or acquire an expert.5. Have first mover advantage6. Joint venture with expert,

Pursue new customer groups.Make it easy and choice.Use price cutHave a great supply chain management.

Strategies for competing in rapidly growing markets.

LCD TV marketsDriving down costs per unit so as to enable

price reductions that attract droves of new customers

Pursuing rapid product innovation both to set a company’s product offering from rivals and to incorporate attributes that appeal to growing number of customers

Gaining access to additional distributional channels and sales outlets.

Expanding the company’s geographic coverage

Expanding the product line to add models that appeal to wider range of buyers.

Strategies for competing in Maturing industries

How slowing growth alters market conditions ( CTV)

1. Slowing growth in buyer demand generates more competition for market share

2. Buyers become sophisticated and negotiate more.

3. Competition on the basis of cost and service

4. Product innovation and new end use applications are harder to come

5. International competition increases6. Industry profitability falls temporarily or

permanently. 7. Mergers and acquisitions happens in the

industry.

Strategies that fit conditions in maturing industries.

1. Pruning marginal products and models.2. Improving value chain efficiency3. Trimming costs4. Increasing sales to present customers

5. Acquiring rival firms at bargaining prices.6. Expanding internationally7. Building new or more flexible capabilities.

Strategies for competing in stagnant or declining industries

VCR/VCDsPursue a focused strategy aimed at the

fastest growing or slowest decaying market segments within the industry.

Stress differentiation based on quality improvement and product innovation.

Reduce the cost and be the low cost provider.

End game strategies for declining industries1. A slow exit strategies2. A fast exit strategies

Strategies for competing in turbulent high velocity markets

Mobile servicesWays to cope with rapid change.1. It can react to change2. It can anticipate change3. It can lead change

Strategy options for fast changing markets.1. Invest in R&D2. Keep company's product fresh3. Develop quick response4. Build supply chain5. Initiate rapid action snow and then

Strategies for competing in fragmented industries

Pharmaceuticals and FMHGReasons for supply side fragmentation.1. The product or service is delivered at

neighbor hood locations so as to be conveniently accessible to local residents.

2. Buyer preference and requirements are very large

Low entry barriers allow small firms to enter quickly and cheaply

Lack of scale of economies makes them to compete with large firms.

The scope of the market become globalNew areas are explored and tried to found

one suitable area for the company.

Strategy options for competing in a fragmented industry.

1. Constructing and operating formula facilities

2. Becoming a low cost operator3. Specializing by product type4. Specializing by customer type5. Focusing on a limited geographic area.

Strategies for sustaining rapid company growth

Extend the company’s position in existing businesses

Leverage existing resources to enter new businesses.

Venture into the business no one ventured so for.

Strategies for industry leaders.Be offensiveMuscle flexing strategyBe defensive1. Spend more on advt2. Fill the niches3. Build customer loyalty by personalizing4. Reasonable price

Cost competitiveTechnologically progressivePatent the technologies

Strategies for runner-upsOffensive strategies to build market share1. Acquire small firm to have reach2. Reduce the cost dramatically3. Differentiate the product4. Have technological breakthrough5. Have a first mover advantage

Other strategic approaches for runner-up companies

1. Vacant niche strategy2. Specialist strategy3. Superior product strategy4. Distinctive image strategy5. Content follower strategy

Strategies for weak and crisis ridden businesses

Turnaround strategies for businesses in crisisa. Selling off assetsb. Strategy revisionc. Boosting revenuesd. Cutting costse. Combination efforts

Harvest strategies for weak businesses1. Liquidation2. Sell off

Formulating long term objectives and grand strategies

Long term objectivesThese are statements of the results a firm

seeks to achieve over a specific period, typically three to five years.

Areas of long term objectivesProfitabilityProductivityCompetitive positionEmployee developmentEmployee relationTechnological leadershipPublic responsibility

Grand Strategies Grand strategies, often called master or

business strategies, provide basic direction for strategic actions

Indicate the time period over which long-rang objectives are to be achieved

Any one of these strategies could serve as the basis for achieving the major long-term objectives of a single firm

Firms involved with multiple industries, businesses, product lines, or customer groups usually combine several grand strategies

Types of Grand Strategies

266 Consortia

Concentrated Growth

Market Development

Product Development

Innovation

Horizontal Integration

Vertical Integration

Concentric Diversification

Conglomerate Diversification

Turnaround

Divestiture

Liquidation

Bankruptcy

Joint Ventures

Strategic Alliances

Concentrated GrowthConcentrated growth is the strategy of the

firm that directs its resources to the profitable growth of a dominant product, in a dominant market, with a dominant technology

Concentrated growth strategies lead to enhanced performance

Specific conditions favor concentrated growth

The risks and rewards vary7-267

Market DevelopmentMarket development commonly ranks second

only to concentration as the least costly and least risky of the 15 grand strategies

It consists of marketing present products, often with only cosmetic modifications, to customers in related market areas by adding channels of distribution or by changing the content of advertising or promotion

Frequently, changes in media selection, promotional appeals, and distribution are used to initiate this approach

Product Development

Product development involves the substantial modification of existing products or the creation of new but related products that can be marketed to current customers through established channels

Innovation These companies seek to reap the initially

high profits associated with customer acceptance of a new or greatly improved product

Then, rather than face stiffening competition as the basis of profitability shifts from innovation to production or marketing competence, they search for other original or novel ideas

The underlying rationale of the grand strategy of innovation is to create a new product life cycle and thereby make similar existing products obsolete

Horizontal IntegrationWhen a firm’s long-term strategy is

based on growth through the acquisition of one or more similar firms operating at the same stage of the production-marketing chain, its grand strategy is called horizontal integration

Such acquisitions eliminate competitors and provide the acquiring firm with access to new markets

Vertical IntegrationWhen a firm’s grand strategy is to

acquire firms that supply it with inputs (such as raw materials) or are customers for its outputs (such as warehouses for finished products), vertical integration is involved

The main reason for backward integration is the desire to increase the dependability of the supply or quality of the raw materials used as production inputs

Ex. 7.7 Vertical and Horizontal Integrations

Concentric DiversificationConcentric diversification involves the

acquisition of businesses that are related to the acquiring firm in terms of technology, markets, or products

With this grand strategy, the selected new businesses possess a high degree of compatibility with the firm’s current businesses

The ideal concentric diversification occurs when the combined company profits increase the strengths and opportunities and decrease the weaknesses and exposure to risk

Conglomerate Diversification Occasionally a firm, particularly a very large

one, plans acquire a business because it represents the most promising investment opportunity available. This grand strategy is commonly known as conglomerate diversification.

The principal concern of the acquiring firm is the profit pattern of the venture

Unlike concentric diversification, conglomerate diversification gives little concern to creating product-market synergy with existing businesses 7-275

TurnaroundThe firm finds itself with declining profits Among the reasons are economic

recessions, production inefficiencies, and innovative breakthroughs by competitors

Strategic managers often believe the firm can survive and eventually recover if a concerted effort is made over a period of a few years to fortify its distinctive competences. This is turnaround.

Two forms of retrenchment: Cost reduction Asset reduction

Elements of Turnaround

A turnaround situation represents absolute and relative-to-industry declining performance of a sufficient magnitude to warrant explicit turnaround actions

The immediacy of the resulting threat to company survival is known as situation severity

Turnaround responses among successful firms typically include two stages of strategic activities: retrenchment and the recovery response

The primary causes of the turnaround situation have been associated with the second phase of the turnaround process, the recovery response

Divestiture

A divestiture strategy involves the sale of a firm or a major component of a firm

When retrenchment fails to accomplish the desired turnaround, or when a nonintegrated business activity achieves an unusually high market value, strategic managers often decide to sell the firm

Reasons for divestiture vary7-278

LiquidationWhen liquidation is the grand

strategy, the firm typically is sold in parts, only occasionally as a whole—but for its tangible asset value and not as a going concern

Planned liquidation can be worthwhile

BankruptcyLiquidation bankruptcy—agreeing to a

complete distribution of firm assets to creditors, most of whom receive a small fraction of the amount they are owed

Reorganization bankruptcy—the managers believe the firm can remain viable through reorganization

Two notable types of bankruptcy – Chapter 7– Chapter 11

Joint VenturesOccasionally two or more capable firms lack

a necessary component for success in a particular competitive environment

The solution is a set of joint ventures, which are commercial companies (children) created and operated for the benefit of the co-owners (parents)

The joint venture extends the supplier-consumer relationship and has strategic advantages for both partners

Strategic AlliancesStrategic alliances are distinguished

from joint ventures because the companies involved do not take an equity position in one another

In some instances, strategic alliances are synonymous with licensing agreements

Outsourcing arrangements vary

Consortia, Keiretsus, and Chaebols Consortia are defined as large

interlocking relationships between businesses of an industry

In Japan such consortia are known as keiretsus, in South Korea as chaebols

Their cooperative nature is growing in evidence as is their market success

Selection of Long-Term Objectives and Grand Strategy Sets

When strategic planners study their opportunities, they try to determine which are most likely to result in achieving various long-range objectives

Almost simultaneously, they try to forecast whether an available grand strategy can take advantage of preferred opportunities so the tentative objectives can be met

In essence, then, three distinct but highly interdependent choices are being made at one time

Sequence of Selection and Strategy Objectives

The selection of long-range objectives and grand strategies involves simultaneous, rather than sequential, decisions

While it is true that objectives are needed to prevent the firm’s direction and progress from being determined by random forces, it is equally true that objectives can be achieved only if strategies are implemented

Retrenchment strategiesRetrenchment is a short-run renewal

strategy designed to overcome organizational weaknesses that are contributing to deteriorating performance.

Retrenchment strategies call for two primary actions: cost cutting and restructuring

Retrenchment strategy alternatives include shrinking selectively, extracting cash for investment in other businesses, and divestment.

restructuring involves an organization refocusing on its primary business.

Variants of Retrenchment Strategy:The three major variants of retrenchment

strategy are turnaround strategy, survival strategy and liquidation strategy.

Survival strategya. Divestmentb. Spin off

Kirloskar Pneumatic Company Limited-Turnaround SuccessKirloskar Pneumatic Company Limited (KPC) was set up in 1958. It started operations with the manufacture of air compressors and pneumatic tools in collaboration with Broom and Wade Ltd., U.K. and then diversified into Airconditioning,Refrigeration and Transmission. Currently its activities are grouped into four major divisions: Air-Compressor, Air-conditioning and Refrigeration, Hydraulic Power Transmission and Process gas.

During the recession in the late 1990s, the sales bottomed out and the management realized that the business could not grow any more. This triggered a period of introspection and the company started looking inwards. Every time any business hits the bottom, there are two perspectives – external and internal. Since the management had little control over external factors, it focused on managing the internal working of the company. Fortunately, even on the external front, the company had a chance to buy out one of their major competitors – K G Khosla. The move started in 1994 when KG Khosla Company became sick and the ICICI requested the Kirloskars to manage this business. Subsequently both the companies, KPC & KG Khosla, were merged in the year 2000.

The first thing KPC management team did was to understand the business of KG lines, style of business, etc. Then it started leveraging the synergies between the two companies. Since the sales of the KPC were already bottoming out and the Khosla product line with its manufacturing facilities was added to its plant in Pune, the company was left with no other option except to cut costs across the board. By the end of 2000, the management of KPC had through an understanding with the staff at Faridabad plant of KG Khosla reduced the employee strength considerably. The VRS at Faridabad was introduced with a total understanding with the parting staff. KPC then shifted 90 people from Pune to Faridabad for about three months during which time the company saw to it that the production continued at Faridabad with these workers. After this activity at Faridabad, the company also restructured its Pune plant by reducing the strength by 650 people. The final strength of employees at both the plants after this whole downsizing exercise finally stood at 800.

The company then turned its attention on restructuring its debt to bring the interest costs down. The third element of improvement was adding new product lines to its existing range while concentrating on improving the efficiency of its existing products. As a result, KPC turned around after successful implementation of all these wellplanned initiatives during the period 1999 – 2002.

Case 2: Gillette restructuringGillette India has achieved its growth target in the most

profitable manner through strategic restructuring and functional excellence. The strategic restructuring focused on its business portfolio to identify the businesses it would like to continue and the ones it wishes to exit. Consequent to strategic restructuring, Gillette exited the Geep Battery business and the Braun business. Likewise, it discontinued all the nonprofitable and non-strategic business lines in its existing portfolio. The company also developed strategic governing statements for each of the business, which made each business extremely focused. Advertising spend was focused on the right strategic

product. Advertising or sales promotion, which gave short-term benefits, was Turnaround discontinued. The company also focused on improving short-term gross profit margins of its core businesses. Comprehensive profit improvement plans were put in place through promotions, SKU rationalizations, cost reduction and improved asset management. Functional excellence initiatives ensured that each and every process within the organization is benchmarked against peer group companies and process improved through a well-defined action plan.

Post Restructuring ScenarioAfter the divestiture of Geep battery business, grooming business

(blades and razors) has emerged as the single largest business – accounting for 70% of turnover. Focus has been on the premium double edge, which was declining earlier, but with focused support and advertising this product made a strong rebound. Mach III the flagship brand of the company continues to perform extremely well with its niche premium positioning. Overall, the blades and razors business has registered a 22% growth. In addition, a new product called Vector Plus has been introduced in India. The product, which is an outcome of three years of development at its Boston Research and Development Facility, is based on the Indian consumer habits.

In personal care business, the main focus was on the tube shaped gel and the Gillette Series products in aerosol, gel, foam, after-shave and splash. This segment has registered a growth of 400%. Activities aimed at preventing the growth gray market have also aided growth in this segment. The oral care strategy for India has been revised to target the mass segment. Two products have been launched - Oral-B Classic and Oral-B Plus, both positioned in the popular price segment. This business has grown by 34% during 1999. The alkaline battery segment (Duracell), accounts for a small part of turnover, but company enjoys a very high market share in the category. The strategy here would be wait and watch till the alkaline category starts growing. This business has grown at about 11% year on year.

RestructuringIt is the process of reorganizing and

divesting business units and exiting industries to refocus on company’s core business and rebuild its distinctiveness

Why restructuring?Stock market valuation is less for the diversified

company.Investors see highly diversified company

unattractive for four reasons1. Multi business system do not have proper

business models2. Companies hide the performance result of

weaker firms3. Diversification reduces profitability4. Innovation in the businesses

Retrenchment StrategiesTurnaround (most conservative)—often

involves layoffsDivestmentLiquidation (most extreme)A retrenchment strategy is often

accompanied by a reorganization process known as corporate restructuring.

Original BCG Matrix

High Relative

Market Share

Low Relative

Market Share

High Industry Growth Rate

Stars Question Marks

Low Industry Growth Rate

Cash Cows Dogs

BCG Matrix Options for Strategic Managers

Build market share with stars and question marks

Hold market share with cash cowsHarvest (milk) as much short-term cash as

possibleDivest a business unit

Strong Average Weak

GE 9-Cell MatrixBusiness Strength/Competitive Position

Long-Term Industry Attractiveness

Industry attractivenessBargaining power of suppliersThreat of substitutesThreat of new entrantsCompetitive rivalryEconomic factorProfitabilitySociopolitical environment

Business positionLevel of differentiationCost positionResponse timeFinancial strengthHuman assets

Mckinsey 7s matrix

Module 7

Strategy Implementation

ByPrasad Kulkarni

April 8, 2023 308(C) Prof. Prasad Kulkarni

DefinitionStrategy implementation is the process

chosen to strategy to actionIt involves the designed management of

systems to achieve the best integration of people structure, processes and resources in an efficient and most optimum way.

April 8, 2023 (C) Prof. Prasad Kulkarni 309

Role of annual objectives in operational izing the strategy

Meaning of annual objectivesAnnual objectives translate long range

aspirations into the current year budget.

Characteristics of annual objectivesAnnual objective should be understableAnnual objective should be concrete and

specificAnnual objectives should be measurable

and controllableAnnual objectives should be challenging

Role of annual objectivesAnnual objectives define the organizations

relationship with its environment.Annual objectives help in organization to

pursue its vision and missionAnnual objectives provide the basis for

strategic decision makingAnnual objectives provide the standards for

performance appraisal

Distinguish between annual objective and long term objectives

Developing Functional strategiesMeaning of functional strategies:Strategies those are used for the allocation

of resources among different operations within that functional area and achieving business level and corporate level strategies

Need of functional strategiesIt is important that an organization

periodically review all functional strategies to assure that they are

a. Consistent with business strategyb. Supportive of the business strategyc. Consistent with other functional

strategies

Supportive of other functional strategiesBest utilize the organizational strengthsLead to the level of efficiency and

effectiveness desiredCreate or maintain functional competitive

advantages

Types of functional strategiesi. Finance and accounting strategiesii. Human resource strategiesiii. Information system strategiesiv. Marketing strategiesv. Production strategies.vi. R & D strategies

Vertical fita. Strategic marketing managementb. Strategic financial managementc. Strategic operations managementd. Strategic HR managemente. Strategic information management.

Horizontal fit: congruence and coordination among the different activities taking place at the same level is called horizontal fit

There should be coordination of strategies across the functions.

Functional strategies are not implemented directly. They have to be defined in terms of plans and policies

Need for functional plans and policiesa. The strategic decisions are implemented

by all the parts of the organization

There is a basis available for controlling activities in the different areas of a business.

The time spent by functional managers on decision making may be reduced as the plans lay down clearly what has to be done and policies provide discretionary framework within which decisions need to be taken

Coordination across the different functions takes place where necessary.

Functional strategies in marketing1. Expansion of product mix2. Line pruning3. Repositioning4. Trading up and down with line filling5. Skimming and penetration pricing6. Pricing in relation to established products

Stay out of priceLine pricingPsychological pricingDual pricingPush and pull strategyDirect sellingSell through networks

Functional strategies in finance:1. Capital structure( long term source of

finance and total capital)2. Proprietors funds3. Borrowers funds4. Reserves and surplus5. Capital investment

Dividend strategiesWorking capital strategiesMergers and acquisitionsR & D strateigiesLocation decisionPlant layout decisionProcurement decisionEOQ

Facilities and equipmentRecruitment, selection and trainingCompensation managementIndustrial relation managementPerformance appraisalCareer planning

Developing and communicating concise policies

Policies will provide1. A basis for management control2. Allow coordination across organizational

units3. Reduce the amount of time manager

spend making decisionsPolicies also clarify what work is to be done

by whom

Many organization have a policy manual that serves to guide and direct behavior

Policies serve as a mechanism for implementing strategies and obtaining objectives

Policies required ona. Policy on centralization and

decentralizationb. Policy on hiringc. Promotion policyd. Negotiation policye. Overtime work policyf. Buying and leasing policy

Shift policySexual harassment policyPolicy on cigarettes and alcoholsSupplier policyStock policy

Organization structureOrganizational structure is the formal or

quasi formal network of reporting or controlling relationships in an organization and the powers and duties associated with each role in this network

Need of organization structureDivide and allocate the work authority and

responsibilityEstablishing working relationship and

operating mechanismEstablishing the pattern of managerial

supervision and controlIndicating the areas responsibility, authority

and accountability

Provide the basis for fair and justified reward system

Meeting the aspiration of people involved in it.

Designing organizational structure1. Process approach2. result approach3. decision approach

Types of structuresEntrepreneurial structureFunctional structureDivisional structureSBU structureMatrix organizationNetwork structureProduct based structuresCustomer based structuresGeographic structures.

Entrepreneurial structureQuick decisionEase of controlClose relationshipSimple reward systemInformal systemHighly demandingFocus on routine than

strategicExpansion not possibleNo scope for managerial

development

employee

Functional organization structure

Benefits of specializationExpert knowledgeReduced pressure of workGuaranteed internal disciplineNo unity of commandProblems of coordinationComplicated in operationMisuse of authority

Divisional organization structure

Strengthens corporate finance controlManagement by exceptionIt motivates and boost the moraleEnable top management to focus on

strategic mattersThe efficiency is high

Costly systemCompetition between divisionCoordination problemPolicy inconsistancy

Strategic business unit structureMeaning: any part of a business

organization which is treated separately to strategic management purpose

Decentralization of authorityBetter coordinationEffective strategy formulationAssured accountabilityIncrease in operating costGap between divisions and head officeLittle flexibility

Matrix organization structure

Creation of direct relationBetter quality decisionParticipative managementPossible conflicts and confusionDelayed decisionsIt is costly

Role of CEOs play in strategic management

Formulating long term plansFormulation of strategyGuiding and directingIntegrating staffingReviewing and controllingPublic relationsCoordinationLink between top and bottom management

Corporate cultureThe character of company’s internal work

climate and personality as shaped by its core values, beliefs, business' principles, traditions established behaviors and work practices and styles of operating

Key features of company’s corporate culture

The values business principles and ethical standards that management preaches and practices

The company’s approach to people management

The spirit and character that pass through the work culture

The strength of peer pressure to do things in particular ways and conform to expected norms

Company’s past cultureDealing with external stakeholders.

Unhealthy culturesPoliticized cultureChange resistant cultureInsular inwardly focused cultureUnethical and greed driven culture

Changing a problem cultureIdentify facets of present culture that are

conducive to strategy execution and operating excellence and those that are not

Specify what new actions behaviors and work practices should be prominent in the new culture

Talk openly about problems of present culture and how new behavior will improve performance

Follow with visible forceful actions both substantive and symbolic to ingrain a new set of behaviors , practices and cultural norms.

Role of leader1. Staying on top of how well things are going2. Putting constructive pressure on the

organization to achieve good results and operating excellence

3. Leading the development of stronger core competencies and competitive capabilities

4. Displaying ethical integrity and leading social responsibility initiatives

5. Pushing corrective actions to improve strategy execution and achieve the targeted results

Business ethicsConcerns the application of general ethical

principles and standards to the actions and decisions of companies and the conduct of company personnel

Origin of ethicsThe school of ethical universalismThe school of ethical relativisma. The use of underage laborb. The payment of bribes and kickbacksc. Pushed to exremes

Integrated social contract theoryUniversal ethical principles or norms based

on the collective views of multiple cultures and societies combine to form a social contract that all individuals in all situations have a duty to observe.

Three categories of management morality

The moral managerThe immoral managerThe amoral manager

Drivers of unethical strategiesOvezealous pursuit of personal gain wealth

and selfish interestsHeavy pressures on company managers to

meet or beat earning targets.Company cultures that put the bottom line

ahead of ethical behavior

Approaches to managing company’s ethical conduct

The unconcerned approachThe damage control approachThe compliance approachThe ethical culture approach

Social responsibilityDuty to operate in an honorable manner

provide good working conditions for employees, be a good steward of the environment, and actively work to better the quality of life in local communities where it operates and society at large

Five components of socially responsible business behavior

Action to promote workforce diversityAction to enhance employee well being and

to make the company a great place to work

Action to protect or enhance the environment

Action to support charitable cause participate in community service activities and better the quality of life.

Action to ensure the company has an ethical strategy and operate honorably and ethically.

The business case for social responsible behavior

It generates internal benefitsIt reduces the risk of reputationIncrease buyer patronageIt is in the best interest of stake holders.

Module 8

Strategic review and audit

ByProf. Prasad Kulkarni

Strategic controlThe process of continuous review of the

strategy between the phase of strategy implementation and obtaining the intended objectives

Types of strategic controlPremise controlSpecial alert controlStrategic surveillanceImplementation control

Premise controlIt is designed to check systematically and

continuously whether the premises on which the strategy is based are still valid.

If the designed strategy idea is not good that can be rejected

Planning the premise control dependence on environmental and industry factors.

Strategy should be controlled on various environmental factors such as inflation, technology, interest rates, regulation and demographic factors.

Premise control also got affected by industry factors like competitive suppliers, product substitutes, and barriers to entry.

Strategic surveillanceIt is designed to monitor a broad range of

events inside and outside the firm that are likely to affact the course of its strategy

Business world, business today, trade conferences conversations intended and unintended observations are all subjects of strategic surveillance

Special alert controlA special alert control is the through and

often rapid reconsideration of the firm’s strategy because of a sudden unexpected event.

Implementation controlIt is designed to assess whether the overall

strategy should be changed in light of the results associated with the incremental actions that implement the overall strategy.

Implementation control depends on Two factors i.e. monitoring strategic thrusts

and milestone review

Monitoring strategic thrust or projects1. Implementing the process in phases and

monitoring.2. Managers will be observing the process

continuously.

Milestone review1. Identify significant milestones2. Milestones are critical events, major

resource allocation etc…3. Establish the milestone period point.

Operational controlOperational control is aimed at the

allocation and use of organizational resources through an evaluation of the performance of organizational units such as division, SBUs to assess their contribution to the achievement of the organizational objectives

Evaluation process for operational controla. Setting standards of performanceb. Measurement of performancec. analyzing varianced. Taking corrective actions

a. Setting standards.- The key managerial tasks- The special requirement for the

performance of the key tasks can help to determine the type of standards to set.

- Performance indicators that best express the special requirements could then be decided upon to be used for evaluation.

b. Measurement system- Difficulties in measurement- Timing of measurement- Periodicity in measurementc. Analyzing the variance.- The actual performance matches the

budgeted performance

The actual performance deviates positively over the budgeted performance

The actual performance deviates negatively from the budgeted performance.

d. Taking corrective actions- Checking of performance- Checking of standards- Reformulating strategies plans and

objectives.

Monitoring performance and evaluating deviations ( same as operational control)

Monitoring performance- Difficulties in measurement- Timing of measurement- Periodicity in measurementAnalyzing variance- Actual performance matching with

budgeted, positive and negative of the performance

Strategic evaluationThe process of determining the

effectiveness of a given strategy in achieving the organizational objectives and taking corrective actions wherever required

What to be evaluatedObjectivesEnvironmental objectivesInternal conditionsResource capabilities

Techniques of strategic evaluationEvaluation techniques for strategic controlA. strategic momentum control- Responsibility control centers- Success factors- Generic strategiesb. Strategic leap control- Strategic issue management- Strategic field analysis

Evaluation techniques for operational control

- Internal analysisa. Value chain analysisb. Quantities analysisc. Qualitative analysis- Comparative analysis

a. Historical analysisb. Industry normsc. Benchmarking- Comprehensive analysisa. Balanced score cardb. Key factor rating

Process of strategic evaluationDeveloping criteria for evaluationMeasuring actual performanceAnalyzing deviations from acceptable

tolerance limitsFeed back and modifications.

Organizational system in strategic evaluation

Information systemControl systemAppraisal systemMotivation systemDevelopment system

Strategic Reward SystemsIndividual reward systems

– Piecework plans– Commission systems– Bonus plans– Promotion

Group and organizational reward systems– Group-based bonus systems– Profit sharing systems– Employee stock option systems– Organization bonus systems

Challenges in strategy implementation

Culture adaptabilityResource allocationRevamping the organization structureResistance to changeProduction and operation issues

strategic management

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managementbyprasad kulkarni

gogte institute of technology

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