STRATEGIC MANAGEMENT

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Lecture 1

Strategic Management Definition & Basics

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Strategic Management is all about identification and description of the strategies that managers can carry so as to achieve better performance and a competitive advantage for their organization.

- An organization is said to have competitive advantage if its profitability is higher than the average profitability for all companies in its industry

- Strategic management can also be defined as a bundle of decisions and acts which a manager undertakes and which decides the result of the firms performance.

STRATEGY-IN-PRACTICE

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REALITY OF THE NEW BUSINESS CONTEXT

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Customers are not just demanding but they also haveinfinite options

Competition is not just intensifying but there are also newsources of competition

Resources are not just limited but they are also migratingall the time

Investors are not just dissatisfied with the level of returnsthey got in the past but they are also becoming impatient

Both huge opportunities and risks are existingsimultaneously

WE NEED TO HAVE A STRATEGIC PERSPECTIVE IN EVERYTHING WE DO

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We and our organization must think and actDIFFERENTLY AND SMARTLY in order to facethe NEW ENVIRONMENTAL CONTEXT

Strategy makes our business and organization lookand perform DIFFERENTLY

CHARACTERISTICS OF STRATEGIC DECISIONS

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CONTEXT-SPECIFIC INDICATES LONG TERM DIRECTION OF AN

ORGANIZATION DEFINES CONTEXT SPECIFIC COMPETITIVE

ADVANTAGE DETERMINES SCOPE OF THE ORGANIZATION STRATEGIC FIT BETWEEN RESOURCES AND

ACTIVITIES AND ENVIRONMENTALCONTINGENCIES

CHARACTERISTICS OF STRATEGIC DECISIONS[Contd]

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EXPLOITS EXISTING RESOURCES ANDCAPABILITIES OR EXPLORES NEW OPPORTUNITIESUSING COMPETENCIES

MAJOR RESOURCE COMMITMENT, IRREVERSIBLE INTHE SHORT RUN

AFFECTS ORGANIZATIONAL DECISIONS SHAPED BY VALUES AND EXPECTATIONS OF KEY

STAKEHOLDERS

Key implications of strategic decisions

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They are complex in nature Requires a Point of View on the FUTURE since

future is uncertain and has not yet happened Demands integrated approach to managing an

organization Requires management of relationships and

networks outside the organization Involves change within the organization

DIFFERENT TYPES OF STRATEGY

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Corporate: Portfolio selection, considering synergy and risk-return criterion Resource Allocation organizational, financial and people across businesses Core capability development used by more than one business

Business Core business Strategy Growth strategy Internationalization strategy

Functional Strategies and programs at functional level to operationalize the overall

strategy [corporate or business as relevant], aligned to each other

Operational Actions plans and programs at the frontline where strategy gets operational

DIFFERENT TYPES OF STRATEGY

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CORPORATE STRATEGY dealing with CONTEXT-SPECIFIC strategic choices ref

Portfolio of distinct businesses [distinct in terms of market mission, customer segments and competition and capabilities]

Portfolio of geographical markets [more relevant for global cos.] Role of the corporate office to support value creation at business

level [corporate parenting role] Resource allocation Development of enterprise wide capabilities Talent scouting and development

BUSINESS STRATEGY dealing with CONTEXT-SPECIFIC strategic choices for achieving sustainable competitive advantages at business level

DIFFERENT TYPES OF STRATEGY

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FUNCTIONAL STRATEGY dealing with CONTEXT-SPECIFICstrategic choices made at individual functional level[manufacturing, R&D, marketing , sales , Finance, HR, SCMetc] thereby contributing to business level strategies forachieving sustainable competitive advantages

OPERATIONAL STRATEGY dealing with CONTEXT-SPECIFIC[at branch, department or unit level] actions and programsunder each functional areas and their cross functionalalignments for achieving sustainable competitive advantageat the business level.

NOTE: There must be a clear LINE OF SIGHT among all 4levels of strategies and POV the firm has

CORPORATE STRATEGY

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Portfolio of distinct businesses [distinct in terms of market mission, customer segments and competition and capabilities]

Portfolio of geographical markets [more relevant for global cos.]

Role of the corporate office to support value creation at business level [corporate parenting role]

Resource allocation Development of enterprise wide capabilities Talent scouting and development

Business Strategy

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Strategy of a business is its proactive & deliberate move, comprising aset of integrated cross functional decisions, that helps the business

POSITION itself DISTINCTLY AND UNIQUELY

ensuring

DIFFERENCE SMARTNESS

in the way the business is proposed to be conducted given the

CONTEXT in which the strategist and his/her business is in andwill be in

Business Strategy

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Such a DISTINCT and UNIQUE POSITIONING should be

SUSTAINABLE in the eyes of the CUSTOMERS and vis--vis COMPETITION

WEALTH CREATING for key stakeholders

Business Strategy thus helps in achieving SUSTAINABLECOMPETITIVE ADVANTAGE and is encapsulated in theBUSINESS MODEL

KEY WORDS

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POSITIONING based on DIFFERENCE in terms of Competitive Advantage sought

based on market selection [WHERE TO COMPETE?]and core value propositions (HOW TO COMPETE?] [cost based and/or product and process based in the areas of product, solutions and experience] (P+S+E)

SMARTNESS in the design of value delivery model[optimized resource deployment assets, manning andnetwork]

SUSTAINABILITY at least in short and medium term tillinvestments made upfront are recovered and till thenext set of competitive advantages is put in place

WEALTH CREATION for customers, employees andinvestors and also society/community at large

BUSINESS MODEL is the business strategy

KEY WORDS:BUSINESS MODEL

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BUSINESS MODEL for a product or service are choicesmade in respect of :

Revenue Model market selection [be different]

customer groups being targeted competition being targeted

core value propositions relative to price and target competition [be different]

Value delivery model [VDM] [be smart]

Success of a Business Model depends on: how DISTINCT and UNIQUE is the model vis--vis those of other

leading players along each of the 3 dimensions stated above quality of execution]

CORE VALUE PROPOSITIONS (CVP) AT BUSINESS LEVEL: VARIOUS TYPES OF DIFFERENCES

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PRICE BASED DIFFERENCES [LOW COST STRATEGY]

No frills which combines low price, low perceived product/service benefits and a focus on price sensitive markets

Products are commodity type Price sensitive customers Buyers have high power and/or low switching cost Competitors have equal market power and imitation is easy

and thus price is a key competitive weapon Low price segment is an opportunity for smaller players to

avoid the major competitors who concentrate on higher price points

CORE VALUE PROPOSITIONS (CVP) AT BUSINESS LEVEL: VARIOUS TYPES OF DIFFERENCES

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BENEFIT BASED DIFFERENCES [DIFFERENTIATIONSTRATEGY]

Provide products or services that offer benefits different from thoseof competition and that are widely valued by customers

Normally a combination of differences in product, solutions [refproblems faced by target customers in acquiring and consumingthe product/services] and experience

Key requirements for success: market selection [ viz. rightidentification of customer and its decision maker andcompetitors who are also trying to create differentiation]

Sustainable competitive advantages will accrue only if theproposed differences are created through a set of firm-specificdistinctive capabilities that customers value and competitioncannot imitate easily

CORE VALUE PROPOSITIONS AT BUSINESS LEVEL: VARIOUS TYPES OF DIFFERENCES

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HYBRID seeking to achieve simultaneously DIFFERENTIATION and PRICE based DIFFERENCES [Hybrid strategy]- particularly useful when;

It is felt that much greater volume can be achieved vs. competition implying higher margin due to lower per unit cost structure

the firm is clear about the areas where it has capabilities to create differentiation and, except those, it is able to reduce cost in other areas

the firm is intending to enter a new market segments where there are already established competitors whose competitive advantage in such segments are not strong

CORE VALUE PROPOSITIONS AT BUSINESS LEVEL: VARIOUS TYPES OF DIFFERENCES

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NICHE STRATEGY - FOCUSSED DIFFERENTIATION fora select segment that seeks to provide high perceivedproduct/service benefits justifying a substantial pricepremium which large companies followingdifferentiation strategy find unattractive to pursue

NICHE STRATEGY - COST/LOW PRICE FOCUSSED fora select segment that seeks to provide standardproduct/services at lowest price which largecompanies following cost leadership strategy findunattractive to pursue

Thank You

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STRATEGIC MANAGEMENTStrategic Management Definition & BasicsSTRATEGY-IN-PRACTICEREALITY OF THE NEW BUSINESS CONTEXTWE NEED TO HAVE A STRATEGIC PERSPECTIVE IN EVERYTHING WE DOCHARACTERISTICS OF STRATEGIC DECISIONSCHARACTERISTICS OF STRATEGIC DECISIONS[Contd]Key implications of strategic decisionsDIFFERENT TYPES OF STRATEGYDIFFERENT TYPES OF STRATEGYDIFFERENT TYPES OF STRATEGYCORPORATE STRATEGYBusiness StrategyBusiness Strategy KEY WORDSKEY WORDS:BUSINESS MODELCORE VALUE PROPOSITIONS (CVP) AT BUSINESS LEVEL: VARIOUS TYPES OF DIFFERENCES CORE VALUE PROPOSITIONS (CVP) AT BUSINESS LEVEL: VARIOUS TYPES OF DIFFERENCES CORE VALUE PROPOSITIONS AT BUSINESS LEVEL: VARIOUS TYPES OF DIFFERENCES CORE VALUE PROPOSITIONS AT BUSINESS LEVEL: VARIOUS TYPES OF DIFFERENCES Slide Number 21