Corporate Strategy

-Kishore KumarAugust 2005

Characteristics of Strategic DecisionsCharacteristics of Strategic Decisions

Concerned with the scope of an organization’s Concerned with the scope of an organization’s activitiesactivities

Matching the organization’s activities to its Matching the organization’s activities to its environmentenvironment

Matching the organization’s activities to its resource Matching the organization’s activities to its resource capabilitycapability

Strategic decisions have major resource implicationsStrategic decisions have major resource implications Affect operational decisionsAffect operational decisions Influenced by values and expectations of Influenced by values and expectations of

shareholdersshareholders Determine long-term direction of an organizationDetermine long-term direction of an organization

Levels of StrategyLevels of Strategy

Corporate LevelCorporate Level Competitive or Business StrategyCompetitive or Business Strategy Operational StrategyOperational Strategy

Corporate strategyCorporate strategy... defines the scope of the business in terms of ... defines the scope of the business in terms of the industries and markets in which it competes.the industries and markets in which it competes. includes decisions about diversification, vertical integration, includes decisions about diversification, vertical integration,

acquisitions, new ventures, divestments, allocation of scarce acquisitions, new ventures, divestments, allocation of scarce resources between business unitsresources between business units

Business strategyBusiness strategy... is concerned with how the firm competes within ... is concerned with how the firm competes within a particular industry or market... to win a business unit must adopt a a particular industry or market... to win a business unit must adopt a strategy that establishes a competitive advantage over its rivals.strategy that establishes a competitive advantage over its rivals.

Functional strategyFunctional strategy... the detailed deployment of resources at the ... the detailed deployment of resources at the operational leveloperational level

Vocabulary of StrategyVocabulary of Strategy

MissionMission GoalsGoals ObjectiveObjective StrategyStrategy TacticsTactics ActionAction Control Control RewardsRewards

Characteristics of Strategic DecisionsCharacteristics of Strategic Decisions

Concerned with the scope of an organization’s Concerned with the scope of an organization’s activitiesactivities

Matching the organization’s activities to its Matching the organization’s activities to its environmentenvironment

Matching the organization’s activities to its resource Matching the organization’s activities to its resource capabilitycapability

Strategic decisions have major resource implicationsStrategic decisions have major resource implications Affect operational decisionsAffect operational decisions Influenced by values and expectations of Influenced by values and expectations of

shareholdersshareholders Determine long-term direction of an organizationDetermine long-term direction of an organization

Strategic ManagementStrategic Management

Strategic AnalysisStrategic Analysis

Strategic Choice Strategy Implementation

Elements of Strategic ManagementElements of Strategic Management

Strategic Analysis Strategic Analysis The EnvironmentThe Environment Culture and Stakeholder ExpectationsCulture and Stakeholder Expectations Resources and Strategic CapabilityResources and Strategic Capability

Strategic ChoiceStrategic Choice Identifying Strategic OptionsIdentifying Strategic Options Evaluating OptionsEvaluating Options Selecting StrategySelecting Strategy

Strategy ImplementationStrategy Implementation Planning and Allocating ResourcesPlanning and Allocating Resources Organization Structure and DesignOrganization Structure and Design Managing Strategic ChangeManaging Strategic Change

Patterns of Strategy DevelopmentPatterns of Strategy Development

Natural selection viewNatural selection view Planning viewPlanning view Logical incremental viewLogical incremental view Cultural viewCultural view Political viewPolitical view Visionary viewVisionary view

Integrating views of strategy developmentIntegrating views of strategy development

Cultural WebCultural Web

ParadigmParadigm

StoriesStories SymbolsSymbols Power StructurePower Structure Organizational structuresOrganizational structures Control systemsControl systems Rituals and routinesRituals and routines

Strategic DriftStrategic Drift

Analyzing the EnvironmentAnalyzing the Environment

Macro Environmental AnalysisMacro Environmental Analysis

PESTLEPESTLE

PoliticalPolitical EconomicsEconomics SocialSocial TechnologicalTechnological LegalLegal EnvironmentalEnvironmental

Michael Porter’s 5 Forces AnalysisMichael Porter’s 5 Forces Analysis

Threat of New Entry

Rivalry Among Existing Competitors

Bargaining Powerof Customers

Threat of Substitutes

Bargaining Powerof Suppliers

• Economies of scale• Proprietary product

differences• Brand identity• Switching costs

• Capital requirements• Access to distribution• Absolute cost advantages• Government policy• Expected retaliation

• Relative price performance of substitutes• Switching costs• Buyer propensity to substitute

• Industry growth• Fixed costs / value

added• Overcapacity• Product differences• Brand identity

• Switching costs• Concentration and balance• Informational complexity• Diversity of competitors• Corporate stakes• Exit barriers

• Differentiation of inputs• Switching costs• Presence of substitute

inputs• Supplier concentration• Importance of volume to

supplier• Cost relative to total

purchases• Impact of inputs on cost or

differentiation• Threat of forward

integration

• Buyer concentration• Buyer volume• Buyer switching costs• Buyer information• Ability to integrate

backward• Substitute products• Price / total purchases• Product differences• Brand identity• Impact of quality /

performance• Buyer profits

Porter’s Five Forces Porter’s Five Forces AnalysisAnalysis

Porter’s Five Forces Porter’s Five Forces AnalysisAnalysis

Strategic Group AnalysisStrategic Group AnalysisBCG Growth-Share MatrixBCG Growth-Share MatrixBCG Growth-Share MatrixBCG Growth-Share MatrixL

ow

LowHigh

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Hig

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Relative Market Share

Earnings: high stable, growing

Cash flow: neutral

Strategy: invest for growth

Earnings: low, unstable, growing

Cash flow: negative

Strategy: analyze to determine whether business can be grown into a

star, or will degenerate into a dog

Earnings: high stable

Cash flow: high stable

Strategy: milk

Earnings: low, unstable

Cash flow: neutral or negative

Strategy: divest

Strategic CapabilityStrategic Capability

Resource AuditResource Audit

Physical resourcesPhysical resources Human resourcesHuman resources Financial Financial IntangiblesIntangibles

Value-Chain AnalysisValue-Chain Analysis

Comparative AnalysisComparative Analysis

Historical analysisHistorical analysis Comparison with Industry normsComparison with Industry norms Best practice analysisBest practice analysis

Balance of ResourcesBalance of Resources

Portfolio analysisPortfolio analysis

Balance of skills/personalitiesBalance of skills/personalities

Financial resourcesFinancial resources

Flexibility of resourcesFlexibility of resources

Key IssuesKey Issues

SWOT analysisSWOT analysis

StrengthStrengthWeaknessWeaknessOpportunitiesOpportunitiesThreatThreat

Core CompetencyCore Competency

Who owns the competencyWho owns the competencyHow durable are the competencesHow durable are the competencesHow transferable are the competencesHow transferable are the competencesHow replicable are the competencesHow replicable are the competences

Culture and Stakeholder ExpectationsCulture and Stakeholder Expectations

Cultural Context – External and InternalCultural Context – External and Internal

InfluenceInfluence

Expectations – Individuals, External stakeholders, Internal Expectations – Individuals, External stakeholders, Internal stakeholdersstakeholders

PowerPower

Purposes – Mission, ObjectivesPurposes – Mission, Objectives

InfluenceInfluence

StrategiesStrategies

Cultural Context of StrategyCultural Context of Strategy

External influencesExternal influences

Values of SocietyValues of Society

Organized groupsOrganized groups

Internal influencesInternal influences

ParadigmParadigm

Stakeholder AnalysisStakeholder Analysis

PowerPower – hierarchy, influence, control of strategic resources, – hierarchy, influence, control of strategic resources, knowledge or skills, control of environment, decision-knowledge or skills, control of environment, decision-making expertisemaking expertise

DynamismDynamism

InterestInterest

Strategic ChoiceStrategic Choice

Development StrategiesDevelopment Strategies

What Basis – Generic Strategies: price based, differentiation, What Basis – Generic Strategies: price based, differentiation, focusfocus

Which Direction – Alternative Directions: withdrawal, Which Direction – Alternative Directions: withdrawal, consolidation, market penetration, product development, consolidation, market penetration, product development, market development, diversification (related or unrelated)market development, diversification (related or unrelated)

How - Alternative Methods: internal development, How - Alternative Methods: internal development, acquisition, joint development alliancesacquisition, joint development alliances

Strategic EvaluationStrategic Evaluation

Evaluation CriteriaEvaluation Criteria

SuitabilitySuitability

FeasibilityFeasibility

AcceptabilityAcceptability

Also check portfolio analysis, PLC, Value-chain and Also check portfolio analysis, PLC, Value-chain and profitabilityprofitability

Strategy ImplementationStrategy Implementation

Resource AllocationResource Allocation identifying resourcesidentifying resources fit with existing resources – new requirements, fit with existing resources – new requirements,

changing old…consistency and changing old…consistency and linkageslinkages

Organization Structure and DesignOrganization Structure and Design

Simple structureSimple structure Functional structureFunctional structure Multidivisional structureMultidivisional structure MatrixMatrix

Strategic ChangeStrategic Change

Understanding processes of strategic changeUnderstanding processes of strategic change Diagnosing strategic change needsDiagnosing strategic change needs Managing the strategic change processManaging the strategic change process Styles of managing changeStyles of managing change Changing organizational routinesChanging organizational routines Symbolic activitySymbolic activity Political activityPolitical activity Leadership and change agencyLeadership and change agency