strategic management session 1
DESCRIPTION
Introduction to Strategic management - MBA class in Christ Institute of management, Bangalore - June 2013TRANSCRIPT
WELCOME TO COURSE ON STRATEGIC MANAGEMENT
Session 1
S G Raja Sekharan
Strategic management course plan
Session 1 Introduction and overview to SM
Session 2/3 External and Internal environment
Session 3/4 Building SCA though value chains
Session 5 Growth through Integration, Diversification, Outsourcing and M&A
Session 6 Change management
Session 7 Tailoring strategies to fit specific industry & company situations
Session 8/9 Strategy Implementation and control
Session 10 Industry interaction
Strategic management course plan (Hill and Jones)
Session 1 Introduction and overview to SM –Chapter 1Session 2/3 External and Internal environment–Chapters 2&3
Session 3/4 Building SCA though value chains –Chapter 4
Session 5 Growth through Integration, Diversification, Outsourcing and M&A – Chapters 5, 6, 9 &10
Session 6/7 Competing in foreign markets and Tailoring strategies to fit specific industry & company situations – Chapters 6,7 & 8
Session 8 Strategy execution – building resource strengths and organizational capability and Managing internal operations -Chapters 12 &13
Session 9 Industry interaction
Session 10 Culture, leadership and ethics – Chapter 11
SESSION 1
INTRODUCTION AND OVERVIEW TO SM
Today’s agenda
Introduction to concept of Strategy and why is it important
Explain how strategy get’s formulated in companies
Introduce the idea of Vision, Mission, Values (VMV) and Goals
Form student groups and allocate some groups their CIA 1 tasks
What caught my eye last week – just after break
During break – I would like to meet a few of you one to one
HOW MANY OF YOU WANT TO BE A CEO?
LET US STEP INTO THE SHOES OF AN EXISTING CEO?
AJAY KAUL
HOW DOES THE COMPANY DELIVER?
The key areas of focus Jubilant Foodworks
Brand positioningMarket reach and expansionEmployee motivationBack end infrastructure (production)Operational efficiencyNew product development
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Mar '12 Mar '11 Mar '10 Mar '09 Mar '08 Mar '07 Mar '06 Mar '05
12 mths 12 mths 12 mths 12 mths 12 mths 12 mths 12 mths 12 mths
Income Total
Income 1,018.52 767.05 475.9 313.65 235.6 154.67 108.27 79.73Expenditure
Raw Materials 318.22 207.38 127.59 86.5 53.21 35.68 25.23 19.59Power & Fuel Cost 47.56 34.07 23.28 17.65 0 0 0 0Employee
Cost 196.22 135.53 80.46 55.57 42.51 25.57 16.24 12.47Other
Manufacturing
Expenses 4.12 3.28 2.42 1.61 0 0 0 0
Selling and Admin
Expenses 184.75 213.52 140.16 95.15 24.88 16.71 11.57 6.9Miscellaneo
us Expenses 75.42 51.17 35.22 23.34 88.65 59.4 43.91 33.54
Preoperative Exp
Capitalised 0 0 0 0 0 0 0 0Total
Expenses 826.29 644.95 409.13 279.82 209.25 137.36 96.95 72.5
Mar '12 Mar '11 Mar '10 Mar '09 Mar '08 Mar '07 Mar '06 Mar '05
12 mths 12 mths 12 mths 12 mths 12 mths 12 mths 12 mths 12 mths
Operating Profit 192.85 120.54 66.94 34.19 26.85 18.02 11.65 8.06PBDIT 192.23 122.1 66.77 33.83 26.35 17.31 11.32 7.23Interest 0 0.34 9.15 8.91 5.81 3.4 2.47 2.04PBDT 192.23 121.76 57.62 24.92 20.54 13.91 8.85 5.19
Depreciation 37.57 29.34 24.35 16.95 12.11 7.95 6.51 5.77
Other Written
Off 0 0 0 0 0 0 0 0Profit
Before Tax 154.66 92.42 33.27 7.97 8.43 5.96 2.34 -0.58
Extra-ordinary
items 0.77 0 -0.22 0.13 0 0 0 0PBT (Post Extra-ord
Items) 155.43 92.42 33.05 8.1 8.43 5.96 2.34 -0.58Tax 49.79 20.43 0.08 0.8 0.67 0.37 0.33 0
Reported Net Profit 105.64 72 32.97 7.3 7.76 5.58 2.02 -0.58
The focus areas for the senior management
Copyright © Houghton Mifflin Company. All rights reserved. 1 | 14
The key areas of focus for Jubilant Foodworks
Brand positioningMarket reach and expansionEmployee motivationBack end infrastructure (production)Operational efficiencyNew product development
“Strategy is a choice on how to compete.” - Michael Porter
What is strategy
A company’s strategy is management’s game plan for • how to grow the business, • how to attract and please customers, • how to compete successfully, • how to conduct operations, and • how to achieve targeted objectives.
What is strategy
Typically, a company’s strategic choices are based • partly on trial-and-error organizational
learning about what has worked and what has not,
• partly on management’s appetite for risk taking, and
• partly on managerial analysis and strategic thinking about how to best proceed, given all the prevailing circumstances.
Strategy aims at creating
Superior performanceSustainable competitive advantage
Strategy aims at creating
Superior performance• Company’s profitability relative to that of other
companies in the same or similar business or industry• Profitability ratios that measure these are –
» Return on equity (ROE = reported net profit / net worth) and » Return on capital employed (ROCE = reported net profit /Total
liabilities) • Maximizing shareholder value is the ultimate goal of
profit making companies
Strategy aims at creating
Sustainable competitive advantage• attractive number of buyers prefer its
products or services over the offerings of competitors; and
• when the basis for this preference is durable.
The profitability ratios are same or improving over time
ROE and ROCE of Jubilant Foodworks
Mar '12 Mar '11 Mar '10 Mar '09 Mar '08 Mar '07 Mar '06 Mar '05Reported Net Profit 105.64 72 32.97 7.3 7.76 5.58 2.02 -0.58Networth 299.55 191.69 117.43 23.96 16.08 8.31 2.73 0.71ROE 35.27% 37.56% 28.08% 30.47% 48.26% 67.15% 73.99% -81.69%
Mar '12 Mar '11 Mar '10 Mar '09 Mar '08 Mar '07 Mar '06 Mar '05Reported Net Profit 105.64 72 32.97 7.3 7.76 5.58 2.02 -0.58Total Liabilities 299.55 191.69 126.02 106.41 67.75 44.35 29.93 28.27ROCE 35.27% 37.56% 26.16% 6.86% 11.45% 12.58% 6.75% -2.05%
Strategy and quest for competitive advantage
Most companies realize that winning a durable competitive edge over rivals hinges more on building competitively valuable expertise and capabilities than it does on having a distinctive product.
Remember the management focus on brand positioning, market reach, employee
motivation, back end infrastructure, operational
efficiency and new product development
Strategy and quest for competitive advantage can be through
greater product innovation capabilities than rivals better mastery of a complex technological process, expertise in defect-free manufacturing, specialized marketing and merchandising know-how,
Strategy and quest for competitive advantage can be through
global sales and distribution capability, superior e-commerce capabilities, unique ability to deliver personalized customer
service, or anything else that constitutes a competitively valuable
strength in creating, producing, distributing, or marketing the company’s product or service.
Strategy Is Partly Proactive and Partly Reactive
The biggest portion of a company’s current strategy flows from • previously initiated actions and business approaches that are
working well enough to merit continuation; and • newly launched managerial initiatives to strengthen the
company’s overall position and performance.
This part of management’s game plan is deliberate and pro active.
A portion of a company’s strategy is always developed on the fly. It comes about as a reasoned response to unforeseen developments and this part of game plan is reactive.
Strategy is always Work in Progress
Crafting a strategy involves stitching together a proactive/intended strategy and then adapting first one piece and then another as circumstances change or better options emerge – a reactive/adaptive strategy.
A Company’s strategy emerges incrementally and then evolves over time
The task of crafting a strategy is a work in progress, not a one-time event.
Intended, Emergent & Realized Strategies
Intended or Planned Strategies• Strategies an organization plans to put into action• Typically the result of a formal planning process• Unrealized strategies are the result of unprecedented
changes and unplanned events after the formal planning is completed
Emergent Strategies• Unplanned responses to unforeseen circumstances• Serendipitous discoveries and events may emerge that can
open up new unplanned opportunities• Must assess whether the emergent strategy fits the
company’s needs and capabilities Realized Strategies
• The product of whatever intended strategies are actually put into action and of any emergent strategies that evolve
A business model encompasses how the company will:
The concept of Business Model
• Select its customers• Define and differentiate
its product offerings• Create value for its
customers• Acquire and keep
customers• Produce goods or
services
• Deliver those goods and services to the market
• Organize activities within the company
• Configure its resources• Achieve and sustain a
high level of profitability• Grow the business over
time
Every industry has a few commonly used business models
Different Business models in restaurants
Chain restaurants vs Independent restaurants
Franchised modelQuick service restaurants vs Fine diningCentralized kitchen vs local cookingCafé model
The Relationship Between a Company’s Strategy and Its Business Model
A company’s strategy relates broadly to its competitive initiatives and business approaches
The business model zeros in on whether the revenues and costs flowing from the strategy demonstrate business viability.
Strategy of Jubilant Foodworks - Invest in branding, geographical growth and same store growth, new offerings, employee motivation etc
The Relationship Between a Company’s Strategy and Its Business Model
A company’s strategy relates broadly to its competitive initiatives and business approaches
The business model zeros in on whether the revenues and costs flowing from the strategy demonstrate business viability.
Business model look at how to make profits despite having high rentals in the prime areas in India and offering great food at a price point of Rs 200 per person?
centralized purchasing and manufacturing, home delivery, standard menu, focus on costs, operational efficiency and volumes.
To get the strategy right – the company needs to focus on three tasks
Strategic Leadership• Task of most effectively managing a
company’s strategy-making process Strategy Formulation
• Task of determining and selecting strategies Strategy Implementation
• Task of putting strategies into action to improve a company’s efficiency and effectiveness
To get the strategy right – the company needs to focus on three tasks
Strategic Leadership• Task of most effectively managing a
company’s strategy-making process Strategy Formulation
• Task of determining and selecting strategies Strategy Implementation
• Task of putting strategies into action to improve a company’s efficiency and effectiveness
Attributes of good strategic leadership
Vision, eloquence, and consistency Being well informed Ability to foresee the future trends Willingness to delegate and empower Emotional intelligence - Self-awareness,
Self-regulation, Motivation, Empathy, Social skills
Good leaders of the strategy-making process have a number of key attributes:
Levels of Strategic Management
Tata Motors
Passenger vehiclesCommercial vehicles Defense vehicles
Marketing, Finance, Operations, HR etc
Levels of Strategic Management
The corporate level managers guides the strategy for the company as a whole
The business level managers design the strategy for their businesses and are guided by the overall corporate strategy
The functional level managers implement the strategy in their functions
To get the strategy right – the company needs to focus on three tasks
Strategic Leadership• Task of most effectively managing a
company’s strategy-making process
Strategy Formulation• Task of determining and selecting strategies
Strategy Implementation• Task of putting strategies into action to improve a
company’s efficiency and effectiveness
The Five Steps of the Strategy Making Process
Select the corporate vision, mission, and values (VMV) and the major corporate goals and objectives.
Analyze the external competitive environment (to identify opportunities and threats).
Analyze the organization’s internal environment (to identify its strengths and weaknesses).
Select strategies that:• Build on the organization’s strengths and correct its weaknesses –
in order to take advantage of external opportunities and counter external threats
• Are consistent with organization’s vision, mission, and values and major goals and objectives
• Are congruent and constitute a viable business model
Implement the strat strategies and evaluate/course correct.
Selecting the Organization’s VMV and goals
Provides a framework or context within which strategies are formulated, including: Vision – A statement of “where we are going” Mission – A statement of ‘who we are and what we do” Values – A statement of “beliefs, business principles, and
practices that the organization is committed to” Major Goals – The measurable desired future state that an
organization attempts to realize
The Vision
Provides a panoramic view of “where we are going”
Is distinctive and specific to a particular organization
A good vision statement is • graphic ( helps visualize the future state)• Focused but flexible• Desirable and easy to communicate (helps
employees to relate to)
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The Vision -examples
Provide a global trading platform where practically anyone can trade practically anything.
At the Tata group we are committed to improving the quality of life of the communities we serve. We do this by striving for leadership and global competitiveness in the business sectors in which we operate
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Vision statement provides a panoramic view of “where we are going”
The Vision
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Vision statement provides a panoramic view of “where we are going”
Can you suggest a Vision statement for Domino’s Pizza?
McDonald’s vision statement – to become the recognized leaders in the QSR industry India and the first choice of our customers
The Mission
What is it that the company does? What is the companies business?
• Who is being satisfied (what customer groups)?
• What is being satisfied (what customer needs)?
• How customer needs are being satisfied (by what skills, knowledge, or distinctive competencies)?
The mission statement of a company focuses on its reason for existence today.
A company’s mission is best approached from a customer-oriented business definition.
Strategic Vision vs. Mission
A strategic vision concerns a firm’s future business path - “wherewe are going” • Markets to be
pursued• Future
product/market/customer/technology focus
The mission statement of a firm focuses on its present business purpose - “who we are and what we do”• Current product and
service offerings• Customer needs
being served
The Mission
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A company’s mission is best approached from a customer-oriented business definition.
Can you suggest a mission statement for for Domino’s Pizza?
McDonald’s vision statement – We will lead the QSR industry in India by creating unmatched value for our customers, through our promise of outstanding Quality, Service and Cleanliness.
Values
The values of a company should state: How managers and employees should
conduct themselves How they should do business What kind of organization they need to build
to help achieve the company’s mission Organizational culture
• The set of values, norms, and standards that control how employees work to achieve an organization’s mission and goals
• Often seen as an important source of competitive advantage
In high-performance organizations, values respect the interests of key stakeholders.
Values
Our Values & Philosophy are a reflection of the socially and environmentally responsible company we aspire to be. They are the foundation for every business decision we make.
We uphold our commitment with six guiding principles.
1. Care for our customers, our consumers and the world we live in.
2. Sell only products we can be proud of.3. Speak with truth and candor.4. Balance short term and long term5. Win with diversity and inclusion6. Respect others and succeed together.
The Values
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Can you suggest a Value statement for Dominos Pizza?
In high-performance organizations, values respect the interests of key stakeholders.
McDonald’s value statement – We will drive our mission through unwavering commitment towards customer satisfaction, delivered with a sense of warmth, friendliness, fun, integrity, individual pride and company spirit
Selecting the Organization’s VMV and goals
Provides a framework or context within which strategies are formulated, including: Vision – A statement of “where we are going” Mission – A statement of ‘who we are and what we do” Values – A statement of “beliefs, business principles, and
practices that the organization is committed to” Major Goals – The measurable desired future state that an
organization attempts to realize
Key characteristics of well-constructed goals:1. Precise and measurable – to provide a
yardstick or standard to judge performance 2. Address crucial issues – with a limited
number of key goals that help to maintain focus3. Challenging but realistic – to provide
employees with incentive for improving4. Specify a time period – to motivate and
inject a sense of urgency into goal attainment
Major Goals
A goal is a precise and measurable desired future state that a company must realize if
it is to attain its vision or mission.
Financial and Strategic goals
Financial Goals
Outcomes focused
on improving
Financial
Performance
Strategic Goals
Customer Value creation
Internal Processes Value creating processes
Learning and Growth Aligning organizational, information, and human capital with strategy
Balanced score card method helps in goal setting and performance evaluation across different types of goals
Examples of Financial Goals
X % increase in annual revenues
X % increase annually in after-tax profits
Profit margins of X % X % return on capital
employed (ROCE) Sufficient internal
cash flows to fund 100% of new capital investment
Customer• Winning an X % market share• Achieving a customer retention rate of X %• Acquire X number of new customers
Internal Processes• Reduce product defects to X %• Introduction of X number of new products in the
next three yearsLearning and Growth
• Increase employee training to X hours/year• Reduce turnover to X % per year
Examples of Strategic Goals
Goals Are Needed at All Levels
First, set Corporate level goals
Next, establish Business level goals
Then, operating /functional level goals are established
Levels of Strategic Management
Tata Motors
Passenger vehiclesCommercial vehicles Defense vehicles
Marketing, Finance, Operations, HR etc
Performance in Nonprofit Enterprises
Nonprofit entities such as government agencies, universities, and charities:• Should use their resources efficiently and effectively• Set performance goals unique to the organization• Set strategies to achieve goals and compete with other
nonprofits for scarce resources
A successful strategy gives potential donors a compelling message as to
why they should contribute.
The Five Steps of the Strategy Making Process (next session)
Select the corporate vision, mission, and values (VMV) and the major corporate goals and objectives.
Analyze the external competitive environment (to identify opportunities and threats).
Analyze the organization’s internal environment (to identify its strengths and weaknesses).
Select strategies that:• Build on the organization’s strengths and correct its weaknesses –
in order to take advantage of external opportunities and counter external threats
• Are consistent with organization’s vision, mission, and values and major goals and objectives
• Are congruent and constitute a viable business model
Implement the strat strategies and evaluate/course correct.
Some closing thoughts
A strategy-focused organization is more likely to be a strong bottom-line performer.
Good Strategy + Good Strategy Execution = Good Management
Excellent execution of an excellent strategy is the best test of managerial excellence – and the most reliable recipe for turning companies into standout performers.
Strategic management course plan
Session 1 Introduction and overview to SM
Session 2/3 External and Internal environment
Session 3/4 Building SCA though value chains
Session 5 Growth through Integration, Diversification, Outsourcing and M&A
Session 6 Change management
Session 7 Tailoring strategies to fit specific industry & company situations
Session 8/9 Strategy Implementation and control
Session 10 Industry interaction
THANK YOU