strategic mgmt..ppt

8/14/2019 Strategic Mgmt..ppt

1/100

Strategy is a designed action taken by anindividual/s to attain one or more of his immediate ,or long term goals.

Strategy is the plans and actions necessary toachieve Organisational Goal

Strategy is a planned, designed action initiated bymanager/s to attain one or more of the functional ororganisational goals in the short , medium or longterm.

Strategy is an integrated and coordinatedset of commitments and actions designed toexploit core competencies and gain acompetitive advantage.


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A company's strategy is managementsgame plan for growing the business,stakingout a market position, attracting and pleasingcustomers,competing successfully,conductingoperations as planned, and achievingtargeted objectives .


3/100

Strategic Elements of Low cost airlines.

Growing the business gradually adding more flights on existing routes and byinitiating service to new airports. Make friendly service a trade mark.

Maintain an aircraft fleet of only Boeing 737s.

Encourage customers to make reservations and purchase tickets at the company sweb site.

Avoid flying into congested airports, stressing instead routes between mediumsized cities and small airports close to major metropolitan areas.

Employ a point to point route system (as compared to Hub-and spoke system of

rival airlines) Economies on the amount of time it takes terminal personnel to check passengersin and on load passengers.

Economies on cost


4/100

Strategic management can bedefined as an art and science offormulating, implementing,andevaluating cross-functional decisions

that enable an organisation toachieve its objective in anintegrated and coordinated set ofcommitments and actions designed toexploit core competencies and gain acompetitive advantage.


5/100

S.M. Focuses on

Integrating management Marketing Finance Accounting Production/Operations Human Resource

Research and development Computer information systems etc Competitor's strategies


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Nature and characteristics of S.M.

It is a planned integrated management actionIt examines the present Vs the desiredIt prioritizes the involvementIt carefully chooses the optionIt aims minimum input to maximum outputIt brings about a change


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Importance and relevance of S.M.

Strategy focused organizations More likely to more strong bottom line performer. Strategy crafting & executing are vital management task.Increased cut throat competition.

Product obsolesce.Employee awareness.Availability of quality products.Opening of Economy and FDIAwareness of share holders.Age of take-over

Good str ategy + good str ategy execution = Good management


8/100

Benefits of Strategic Management.

It allows an organisation to be more proactive than reactive.

It might improve organizational financial position.

Non Financial Benefits.

1. It allows for identification, prioritization and exploitation of

Opportunities2. It provides an objective view of management problems

3. It represents a frame work for improved coordination and control ofactivities

4. It minimizes the effects of adverse conditions and changes

5. It allows major decisions to better support established objective


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6. It allows more effective allocation of time and resources toidentified opportunities.

7. It allows fewer resources and less time to be devoted tocorrecting erroneous or ad hoc decisions

8.It creates a frame work for internal communication among personnel.

9.It helps integrate the behavior of individuals into a total effort.10.It provides a basis for clarification of individual responsibility

11.It encourages forward thinking

12.It provides a cooperative, integrated,and enthusiastic approachto tackling problems and opportunities.

13.It encourages a favorable attitude toward change.

14. It provides a degree of discipline and formality to managementof business.


10/100

The formal strategic planning process has five main steps.

1. Select the corporate mission and major corporate goals.2. Analyze the organization's external competitive environment toidentify opportunities.

3. Analyze the organizations internal operating environment to identifyorganization's strengths and weaknesses.

4. Select strategies that build on the organization's strengths andcorrect its weakness in order to take advantage of externalopportunities and counter external threats.

5.Implement the strategy.


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A company s business model relates to whether the revenue,cost, profit Economics of its strategy demonstrate the viability of the business enterprise as a whole.

The company s strategy relates broadly to it s competitive

initiatives and business approaches (irrespective of the financialoutcomes it produces)

Company s model deals with whether the revenues and costsflowing from the strategy demonstrates business viability.


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What makes a strategy a winner.

1. How well the strategy fit the company s situation.

2. Is the strategy helping the company achieve a sustainablecompetitive advantage

3. Is the strategy resulting in better company performance (2

performance improvements tell the most about the caliber of thecompany s strategy (1) Gains in profitability and financialstrength (2) Gains in the company s competitive strength andmarket standing.


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Identifying company s Strategy What to look for?

The pattern of actionsand business approachesthat define a companysstrategy

Actions to gain sales and market share Via lower prices, more performance features more

appealing design better quality or customer service.


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Pattern of actions and business approaches that define acompany s strategy.

1. Action to gain sales and market share via lower price, more performance feature, more appealing design, better qualityor customer service, wider production selection.

2. Actions to respond to changing market conditions and otherexternal circumstances.

3. Actions to enter new geographic or product markets or exitexisting ones.

4. Actions to merge with or acquire rival companies.

5. Actions to form strategic alliences and collaborative partnerships.

6. Efforts to peruse new market opportunities and defend

against threats to the company s well being


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7. Actions and approaches that define how the company manages

research and development, production, sales and marketing,financeand other key activities.

8. Actions to strengthen competitive capabilities and correctcompetitive weakness.

9. Actions to diversify the company s revenues and earnings byentering new businesses


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4 Most frequently used strategic approaches to set companiesapart from rivals and achieving sustainable growth.

1. Being the industry s low cost provider.

2. Out competing rivals based on such differentiating featuresas higher quality wider product selection, added

performance, better service,more attractive stylingtechnological superiority or unusually good value for money.

3. Focusing on a narrow market niche and winning acompetitive edge by doing a better job than rivals of serving

the special needs and tastes of niche buyers.4. Developing expertise and resource strengths that give the

company competitive capabilities that rivals can t easilyimitate or trump with capabilities of their own


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Strategic planning processStrategy Formulation

Strategy implementation

Mission and goals

SWOT Strategic choice

implementing strategy Across Industry &

Country

Corporate performance

Governance, & ethics

Functional level Strategy

External AnalysisOpportunities & Threats

Internal AnalysisStrengths & Weakness

Business level Strategy

Global StrategyCorporate level Strategy

implementing strategyIn a single Industry


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A comprehensive Strategic Management Model

Perform

External Audit

Develop Vision& MissionStatement

Establish

Long Termobjectives

Implementstrategies,

ManagementIssues

Implementstrategies,Mketing,Finance,Accounting

R&D MISETC

Measure &

Evaluate

Performance

Generate

Evaluate& selectstrategies

Perform

Internal

Audit

StrategyFormulation

StrategyImplementation

StrategyEvaluation


19/100

Why some firms do no strategic planning.

1. Poor reward structures.

2. Fire fighting

3. Waste of time

4. Too expensive

5. Laziness

6. Fear of failure

7. Overconfidence

8. Prior bad experience


20/100

Strategic planning is a process that takes an organisation in touncharted territory .It does not provide a ready to use prescriptionfor success instead it takes an organisation through a journey and

offers a frame work for addressing questions and solving problems.Being aware of the potential pitfall is essential.

Using strategic plan to gain control over decisions and resources.

Doing strategic planning only to seek accredition or regulatoryrequirement.

Moving too hastily from mission development to Strategyformulation

Failing to communicate the plan to employees who continueworking in the dark.

Top managers making intuitive decisions that conflict with formal plans.


21/100

Top managers not supporting the strategic planning process.

Failing to use plans as a standard for measuring performance.

Delegating planning to a planner rather than involving.

Failing to involve all the employees in all phases of planning.

Failing to create a collaborative climate supportive to change.

Viewing planning as unnecessary or unimportant.

Becoming so engrossed in current problems that insufficient or no

planning is done.Being so formal in planning that flexibility and creativity are stifled.


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Strategy Making & execution process.

Phase 1Phase 2

Phase 3 Phase 4 Phase 5

Developing astrategic vision

SettingObjectives

Creating aStrategy toAchieve the

Objectives &Vision

ImplementingAnd

ExecutingStrategy

MonitoringdevelopmentsEvaluatingPerformanceAnd making

correctiveadjustments

Revise as needed in light of actualperformance, changing conditions, newopportunities and new ideas


23/100

Strategic vision is a road map showing the route a company intendsto take in developing and strengthening it s business.It paints a

picture of a company s destination and provides a rational for goingthere.

A strategic vision portrays a company s future business scope(Where we are going)

A company s mission typically describes it s present business scopeand the purpose (Who we are , what we do , and why we are her)

A company s values are the beliefs , business principles and practices that guide the conduct of it s business, the pursuit of it sstrategic vision and the behavior of the company.


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Factors to consider while deciding to commit the company to one directional pathversus another.

External consideration.Is the outlook for the company promising if itsimply maintains it s present

product/market/customer/technology focus? Doessticking with the company s present strategiccourse present attractive growth opportunities.

Are changes under way in the market andcompetitive landscape enhancing or weakeningthe outlook for the company s present business.

What if any new customer groups and/ orgeographic markets should the company get in

position.

Which emerging market opportunities should thecompany pursue and which ones should it avoid.

Should the company plan to abandon any of themarkets, market segments or customer groups weare presently serving?

Internal consideration. What are our ambitions for the company? Whatindustry standing does management want thecompany to have?

Will the company s present business generatesufficient growth and profitability in the years

ahead to please shareholders.What organizational strengths ought thecompany be trying to leverage in terms of addingnew products or services and /or getting into new

business..

Is the company s stretching it s resources toothin by trying to compete in too many markets orsegments? Are some pieces of the company s

business unprofitable.

Is the company's technological focus too broador too narrow? Are any changes needed?


25/100

Vision.Concern is Where we are going and why?

It refers to the long term intentions thatorganizations wishes to pursue.

It broad ,all inclusive and futuristic.

It is an image of how an organization seesitself over a period of time.

In most cases it is the dream of anorganization.

It is the aspirations an organization holds forit s future.

A mental image of the future state.

It might seem therefore difficult at times forthe organization to achieve vision even in thelong run but it provides the direction andenergy to work towards it.

Mission.Concern is What we are and how we aredoing?

Deals with company s present business scopeand purpose Who we are what do, why weare here?

Defined by the buyers needs it seeks tosatisfy the customer groups and marketsegments it is endeavoring to serve.

Some companies prefer to use the term business purpose than mission.

The mission statement makes the visionmore tangible and comprehensible.

It tries to differentiate the organisation fromothers.

It spells clearly the firms, obligationstowards it s stakeholders, the scope of the

business,source of competitive advantage etc.


26/100

Hierarchy of strategic intent

Most integrative

Most Specific

Fewest in Number

Greatest in Number

Plans

Objectives

Goals

Mission

Vision


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Mission statements make vision statement more viable. SimilarlyGoals provide the basis for necessary action which propel an

organization towards goal oriented action and moving towardsmission accomplishment.Goals can be both financial as well as nonfinancial. Goal statements specify the relative priorities between thevarious goals and thus indicated the specific intents that theorganization wishes to pursue.

Objectives are operational definitions of the organization's goals.It provides measurable parameters for monitoring/evaluating the performance of the organization.Objectives also include timedimensions.

Plan indicated the specific actions that will be taken byorganizations in order to achieve the objectives.


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The strategic intent of the organization is determined by a continuousinterplay of various forces. In the assessment of strategic options theorganization has(1) The interest of various shareholders (2) Theindustry context the firm operates in. (3) It s leadership (4) History(5) Culture (6) The state of future as perceived by the organization'sdominant coalition.

The primary determinant of an organization's strategic indent is theway the organization sees itself in future as represented by it s scopeof business domains activities.


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Hambrick and Fredrickson developed strategic Diamond or the model of strategicintent.( Also referred as Strategic Diamond )

Economic

logic

Arenas

Vehicles

Differentiators

Staging

Where will be active?(and with how much emphasis?)

Which product categories? Which geographic segments?

Which market segments? Which core technologies?

Which value creation stages?

What will be our Speed

and sequence of moves?

Speed of expansion ?

Sequence of initiatives ?

How will we get there?

Internal development ?

Joint ventures ?

Licensing?

Acquisitions?

How will we Win?

Image ?

Customization ?

Price?Styling? Product reliability?

How will we obtain our results?

Lowest cost throughScale advantages ?

Scope & replication advantages ?

Premium prices due to

Unmatchable service?

Proprietary product features?


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Characteristics of an effectively worded Vision statement.

Graphic : A well stated vision paints a picture of the kind of company that management istrying to create and the market position the companys striving to stake.

Directional : A well stated vision says something about the companys journey ordestination and signals the kinds of business and strategic changes that will be forth coming.

Focused: A well stated vision is specific enough to provide managers with guidance inmaking decisions and allocating resources .

Flexible : A well stated vision is not at once and-for-all-time pronouncement visionsabout a companys future path may need to change as events unfold and circumstanceschange.

Feasible : A well stated vision is within the realm of what the company can reasonably expectto achieve in due time .

Desirable : A well stated vision appeals to the long term interests of stakeholders particularlyshareowners, employees, and customers.

Easy to communicate : A well stated vision is explainable in less than 10 minites andideally can be reduced to a simple , memorable slogan.


31/100

Fords Vision : A car in every garage.

Mission: To improve continually our product and services to meet

our customers needs, allowing us to prosper as a business and provide a reasonable return for our stockholders, the oweners of our business.

NASAs Vision: To improve life here;to extend life there;to find life beyond

N.T.P.C.; To be one of the world s largest and best power utilities powering India's growth.


32/100

Businesses level strategy is concerned with developing a firms business model that will allow the firm to gain competitiveadvantage over it s rivals in the industry in which it operates.Informulating a business level strategies, a firm will consider how bestit can compete in each of the industries it operates in.Therefore the

business level strategy will require crafting the strategy and

positioning of the firm in each of its business. Essential decisionsthat need to be made in crafting a business level strategy emergefrom the definition. The following 3 elements are essential indefining business level strategies.

Customer groups (Who is being satisfied)

Customer needs (What is being satisfied)

Distinctive competencies (How are customer needs satisfied)

Business level strategies.


33/100

To aid in understanding the strategic positioning of firms researchershave developed typologies.One such is Miles and snow developed a

typology that categorizes the firms as under.Prospectors: Are those firms who prefer to innovate , take risks, andaggressively seek out new opportunities for growth.

Defenders: Are those firms who prefer to focus on stability andmaintain their markets.They defend their markets aggressivelycompete through maintaining internal efficiencies and producereliable high quality products at low prices.

Reactors: Are those firms who do not have clear strategies andrespond to what ever is happening in their environment.

Analyzers: Are those firms that try to balance efficiency andinnovation.They maintain their core in established markets, and look

for expansion into new areas.


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Business level strategies.

Businesses level strategy is concerned with developing a firms business model that will allow the firm to gain competitiveadvantage over it s rivals in the industry in which it operates.

The functional level strategies will endeavor to improve theeffectiveness of various functions within an organization.

The corporate level strategies that focus shifts from competingwithin an industry to choosing which industries to compete in.


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Difference Between Military & business strategy

Match

Internal External

Special Capability Battle Terrain

Strategy

Internal External

Apply, SustainDiscover

Overcome Avert

Strength Opportunity

Weakness Threat


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Ingredients of Strategy

ValueCreation

Vision

Planning & Administration

Global Awareness Stake Holders

LeveragingTechnology

Strategy


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Competencies required for each ingredients

Vision Competency

VisionMission

Goals & Objectives

Value creation Competency

Customer focusCompetitor focus

Global Awareness Competency

Opportunities/Threats Exists AnywhereDifferent Business practices

Cultural Awareness

Planning & AdministrationCompetency Activity fit

Corporate Fit

Alliance Fit

People Fit

Rewards System fit

Communications Fit

Leveraging TechnologyCompetencyFaster Innovation

Big companies act small

Stake holders Competency

ShareholdersCustomers

Employees

Communities

Senior managers


38/100

Abell s Framework for Defining the Business

Business

Definition

How are customer needsbeing satisfies?

Distinctive Competencies

Who is being satisfies?

Customer Groups

What is being satisfies?

Customer Needs


39/100

Mintzeberg s Emergent &Deliberate strategy

Planned Strategy

Unrealized Strategy

Deliberate Strategy

Realized Strategy

Emergent Strategy

Porters 5 force model helps managers identify analyise Forces in the industry environment


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Porters 5 force model helps managers identify,analyise Forces in the industry environmentto identify opportunities and threats.This model focuses on the 5 forces that shapecompetition within an industry.

Potential Entrants

Substitutes

Suppliers Buyers

Industry

CompetitorsRivalry amongExisting Firms

Bargaining PowerOf

Suppliers

Bargaining PowerOf

Buyers

Threat of substitute products

Threat of new entrants

Note:- The macroenviornmentthat effects this model are 1.Political & legal environment

2.Technological Environment.3.Social Environment.

4.Demographic Environment.

D t i t f Ri l


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Determinants of Rivalry Industry growth

Fixed(or storage)cost/value added

Intermittent overcapacity

Product differences.Brand identity

Switching costs

Concentration & Balance

Informational complexity

Diversity of competitorsExit Barriers.

Barriers to entryEconomies of scale

Proprietary product diffrences

Brand identity

Switching costs.

Capital requirements Access to distribution channels

Absolute cost advantages

Proprietary learning curve

Access to necessary inputs

Government policy.Expected retaliation

Determinants of buyer power Determinants of Supplier power


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Determinants of buyer powerBargaining leverage

Buyer concentration Vs Firmconcentration

Buyer volume

Buyer switching costs relative to firmswitching costs

Ability to backward integration

Substitute products

Pull-through

Price sensitivity

Price/Total purchases

Product differences

Brand identity

Impact on quality/performance

Buyer profits

Determinants of Supplier powerDifferentiation of inputs.

Switching costs of suppliers andfirms in industry

Presence of substitute inputs

Supplier concentration.

Importance of volume to supplier

Cost relative to total purchases in theindustry

Impacts of inputs on cost ordifferentiation

Threat of forward integration relativeto threat of backward integration byfirms in the industry

Determinants of Substitute Threat

Relative price/performance ofsubstitutes.

Switching cost

Buyer propensity to substitute

B l d


43/100

Balance score card

Prof. Robert Kaplan & David Norton of Harvard Business School DevelopedBalance Score card concept. It is basically a evaluation review technique.It s name is derived from perceived needs of the firm to balance financialmeasures which is often used in strategy evaluation and control. Theoverall objective is to match the shareholder objectives with customer andoperational objectives. It objective is to bring about Continuousimprovement in management (CIM) and TQM.This Basically looks at 4different perspectives. (1) Financial Performance.(2)Customerknowledge(3) Internal business process(4) Learning & growth.

Ultimately the BSC raises certain important questions as under:

1. How well is the firm continually improve and creating value alongmeasures such as innovation,technology, leadership,product quality,

operational process efficiency and so on2. How well is the firm sustaining and even improving upon it s core

competencies and competitive advantages?

3. How satisfied are the firms customers.

4. What is the present level of employee motivation, commitment etc.


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5. How well the company is addressing the corporate socialresponsibility and taking part in community development.

6. Are their business ethics acceptable7. Do they have environmental commitment if so how much

8.are they committed to the concept of green house effects and

international standards?

Alternative strategies or strategic tools


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g g

1. Forward Integration

2. Backward integration

3. Horizontal integration

4. Market penetration

5. Market development

6. Product development7. Concentric Development

8. Conglomerate Diversification

9. Horizontal Diversification

10. Retrenchment

11. Divestiture

12. LiquidationFred David

1. Gaining ownership or increased control overdistributors or retailers

2. Seeking ownership or increased control of afirms supplier

3. Seeking ownership or increased control overcompetitors

4. Seeking >market share for existingproducts/services in present market throughgreater marketing efforts

5. Introducing product or services into new newgeographic area

6. Seeking increased sales by improving presentproducts or services or developing new ones

7. Adding new but related products or service.

8. Adding new unrelated products or services

9. Adding new unrelated products or services forpresent customers

10. Regrouping through cost and asset reduction to

reverse declining sales and profit.11. Selling a division or part of an organization

12. Selling all of a company,s assets in partsfor their tangible worth.

L l f t t gi ith t ibl


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Levels of strategies with persons most responsible

Corporate level,C.E.O.

Divisional Level,Division president or

executive Vice president.

Functional Level,Fin.,Mktg., R&D., Prod.,Systems,H.R.M etc. Managers

Operational Level,Plant Mgrs.,Mktg. Mgrs., R&D Mgrs.,Prod Mgrs.,H.R.M Mgrs etc.

Large Company Small Company

Company level,Owner/President

Functional Level,Fin.,Mktg., R&D., Prod.,Systems,H.R.M etc. Managers

Operational Level,Plant Mgrs.,Mktg. Mgrs., R&D Mgrs.,Prod Mgrs.,H.R.M Mgrs etc.

Ke Financial Ratios


47/100

Key Financial Ratios

1. Liquidity ratios.

Current ratio = Current assetsCurrent Liability

Quick ratio =Current Liability

Current assets minus inventory

2. Leverage ratios.

Debt-to-total-Asset ratio = Total debt

Total asset

Debt-to-equity ratio = Total debt

Total debt stockholders equity

Long- term-Debt-to-equity ratio = Long term debt

Total stockholders equity

Times- interest-earned- ratio = Profits before interest and taxesTotal interest charges

( The extent to which a firm can meet its short-term obligations)

What it measures

( The extent to which a firm can meet its short-term

Obligations without relying upon the sale of its

inventories)

( The % of total funds that are provided by creditors)

( The % of total funds that are provided

by creditors verses by owners)

( The balance between debt and equity

in a firms long term capital structure )

( The extent to which earnings can decline without the firm becoming unable to meet its annual interest )


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Sales

Inventory of finished goods

Fixed Assets

Annual credit sale

Accounts receivable

Accounts receivable

Total credit sales/365 days

3. Activity ratios.

Inventory Turnover =

Fixed assets Turnover = Sales

Total assets Turnover = Sales

Total Assets

Accounts receivable Turnover =

Average collection Period =

( Whether a firm holds excessive stocks of

inventories & whether a firm is selling such

inventory slowly compared to industry

average)

( The sales productivity, plant & equipment utilization)

( Whether the firm is generating sufficient volume of

business for the size of its asset investment)

( The average length of time ittakes a firm to collect credit sales

(in percentage terms))

( The average length of time it takes a firm to collect credit sales (in days))


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Sales minus cost of goods

Sales

Earnings before interest & taxes (EBIT)

Sales

Sales

Net income

4. Profitability ratios.

Gross profit margin =

Operating profit margin =

Net profit margin =

( The total margin available to coveroperating expenses & yield a profit )

( Profitability without concern fortaxes & interest )

( After tax profits per rupee of sales)


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Net Income

Total assets

Total Stockholders equity

Net income

Number of shares of common stock outstanding

Market price per share

Earnings per share

Net Income

(ROA)

(ROE)

5. Profitability ratios.

Return on total assets =

Return on Stockholders equity =

Earnings per share = (EPS)

Price earning ratio =

( After tax profits per rupee of assets this ratio isalso called return on investment)

(After tax profits per rupee of stockholders investment in the firm)

(Earnings available to the owners of common stock)

(Attractiveness of firm on equity markets)


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Sales Annual percentage growth in total sales Firms growth rate in sales

Net income Annual percentage of growth in Profits Firms growth rate in profits

Earnings per share Annual percentage growth in EPS Firms growth rate in EPS

Dividends Per share Annual percentage growth in dividends per share Firms growthrate in

dividends pershare


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Managers need to have a deep understanding to steer their company

In a new direction to get that cutting edge over their competitive rivals.

This needs a strategic thinking for the managers.

In turn the strategic thinking needs a through understanding of the (A)Environment in which the company is operating the week and forcefulforces shaping the market etc. (B) The companys market position ,itscompetitive position, its resource , S.W.O.T., its rivals position etc.

Developing strategy Appraise external & internal environment

Forming strategic vision where the company wishes to head

Moving towards evaluating most promising strategic optionschoose from various strategies.

Focus will be on competitive arena in which the company operatestogether with technological, societal, regulatory,or demographic which

influence and reshape the market.


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7 vital elements to be addressed before using the analytical tools.

1. What are the dominant economic features of the industry in which the companyoperates?

2. What kinds of competitive forces are industry members facing and how strong is each?

3. What forces are driving changes in the industry, and what impact will these changeshave on the competitive intensity and industry profitability?

4. What market positions do industry rivals occupy who is strongly positioned and who isnot?

5. What strategic moves are rivals likely to make?

6. What are the key factors for future competitive success?

7. Does the outlook for the industry present the company with sufficently attractive

prospects for profitability?


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ThinkingStrategically abouta company sexternalenvironment

ThinkingStrategically abouta company sinternalenvironment

Form a StrategicVision of wherethe companyneeds to head

Identify promising

strategic optionsfor the company.

Select the best

Strategy & business modelfor the company

From thinking to choosing strategically


55/100


56/100

Different industry will have different factors affecting it s competitive edge resulting indifference in their strategy formulation and implementation which is drawn from theexternal environment or the macro environment.In order to formulate an effectivestrategy the strategists must answer the following questions.

1. What are the dominant economic features of the industry in which the companyoperates?

What to consider in identifying an industrys Dominant Economic Features

Economic features Features to focus or answer

Market size & growth rate :- How big the industry and how fast is it growing? What does the industrysposition in the business life cycle (early development ,rapid growth & takeoff,early maturity, saturation and stagnation decline) reveal about the industrys

growth prospects?

Scope of competitive rivalry :- Is the geographic area over which most companies compete local regional ,national, multinational? Is having a presence in foreign markets becoming moreimportant to a companys long term competitive success?

Number of rivals :- Is the industry fragmented into many small companies or dominated by a fewlarge companies? Is the industry going through a period of consolidation tosmaller number of competitors?

Buyer needs and requirements:- What are buyers looking for What attributes prompt buyers to choose one


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y q y g p p ybrand over another? Are buyer needs or requirements changing? If so what is

driving such changes?

Production capacity :- Is a surplus of capacity pushing prices & profit margins down?Is the industry over crowded with too many competitors?

Pace of technological changes :- what roles does advancing technology play in industry? Are on going upgradesof facilities/equipment essentials because of rapidly advancing production processtechnology? Do most industry members have or need strong technologicalcapabilities? Why?

Vertical Integration :- Are some competitors in this industry partially or full y integrated? Are there important cost differences among fully versus Partiallyversus non integrated firms?

Is there any competitive advantage or disadvantage associated withbeing fully or partially integrated?

Buyer needs and requirements :- Is the industry characterized by rapid product innovationsand short product life cycles?How important is R&D and product innovation?

Are there opportunities to overtake key rivals by being first tomarket with next generation products?

Degree of product innovation :- Are the products of rivals becoming more differentiated or lessdifferentiated?

Are increasingly look alike products of rivals causing heightenedprice competition?


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Economic features Features to focus or answer

Economics of scale :- Is the industry characterized by economics of scale in purchasing,manufacturing, advertising, shipping or other activities?

Do companies with large-scale operations have an important costadvantage over small scale firms?

Learning and experience curve effects: - Are certain industry activities characterized by strong learning andexperience effects(learning by doing) such that unit costs decline asa companys experience in performing the activity builds?

Do any companies have significant cost advantages because of theirexperience in performing particular activities?


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2. What kind of competitive forces the company is facing?

There are composite of forces that operate in the competitive market often termed asPorters 5 force model.

1. Competitive forces and pressures associated with market maneuvering for gaining the buyer patronage that goes on among rival sellers.

2. The pressures exerted when there is a threat of new entrants in the same market3. The competitive pressures which emerges from the attempts of companies in other

industries to win buyers over to their own substitute products.

4. Competitive pressures that emerges from suppliers bargaining power and supplier buyer collaboration

5. Competitive pressers emerging from buyer bargaining power and seller-buyercollaboration

Some of the typical weapons for combating rivals and attracting buyers towards your own


60/100

product/service.

1. Lower prices.

2. More or different features.

3. Better product performance.

4. Higher quality.

5. Stronger brand image and appeals.

6. Giving a wider choice of models and better styling to the customers.

7. Giving a better and bigger dealer net work for the customers.

8. Tying up with financial institutions for providing low interest rates and better serviceto the customer.

9. Increased level of advertising.

10. Building stronger product innovation capabilities through developing inhouse R&D oroutsourcing R&D services.

11. Increasing the customer service capabilities.

12. Building a stronger capability to provide buyers with customized products.

This will lead to increased rivalry among the sellers


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Characteristics when RIVALRYis strong or weak.

When new entrants enter the market the assessment thereof (2 point of P.MODEL)


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What happens when substitute products emerge in the market assessment thereof (3 point of


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P.MODEL)

Concept

Substitutes matter when customers are attractedto the products of firms in other industr ies

Examples

Eyeglasses and contact lensvs. laser surgery

Sugar vs. artificial sweeteners

Newspapers vs. TV vs. Internet

How to Tell Whether Substitute


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How to Tell Whether SubstituteProducts Are a Strong Force

Whether substitutes arereadily available and attractively priced

Whether buyers view substitutes as beingcomparable or better

How much it costs end users to switch to

substitutes

Factors Affecting


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Factors AffectingCompetition From Substitute Products

What happens when Bargaining power of suppliers Changes in the market & assessment


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thereof (4 point of P.MODEL)

Competitive Pressures From Suppliers and Supplier-Seller Collaboration

Whether supplier-seller relationships represent a weak or strong

competitive force depends on

Whether suppliers can exercise sufficient bargaining leverage toinfluence terms of supply in their favor

Nature and extent of supplier-seller collaboration in the industry

Factors Affecting the bargaining power of suppliers (5 Pt.)


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What happens when Bargaining power of Buyers Changes in the market & assessmenth f ( f )


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thereof (5 point of P.MODEL)

Competitive Pressures: Collaboration Between Sellers and Suppliers

Sellers are forging strategic partnershi ps with select suppliers to

Reduce inventory and logistics costs

Speed availability of next-generation components

Enhance quality of parts being supplied

Squeeze out cost savings for both parties

Competi tive advantage potenti al may accrue to sellers doing the best job of managing supply-chain relationships

Competitive Pressures From Buyers and Seller-Buyer Collaboration


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p y y

Whether seller-buyer relationships represent a

weak or strong competitive force depends on

Whether buyers have sufficient bargainingleverage to influence terms of sale in their favor

Extent and competitive importance ofseller-buyer strategic partnershipsin the industry

Factors Affecting Bargaining Power of Buyers


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Strategic Implications of the Five Competitive Forces


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g p p

Competitive environment is unattractive from the standpoint ofearning 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

Competitive Pressures: Collaboration Between Sellers and


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pBuyers

Partnerships are an increasingly important competitive element in business-to-business relationships

Collaboration may result in mutual benefits regarding

Just-in-time deliveries

Order processing

Electronic invoice payments

Data sharing

Competi tive advantage potenti al may accrue to sellers doing the best job of managing seller-buyer partnerships


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Objective is to craft a strategy to

Insulate firm fromcompetitive pressures

I ni tiate actions to producesustainable competi tive advantage

Allow firm to be the industry s mover and shaker with the most powerful strategy that defines thebusiness model for the industry

Q #3: What Factors Are Driving Industry Change and


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What Impacts Will They Have?

Industries change because forces are driving industryparticipants to alter their actions

Driving forces are the major under lying causes ofchanging industry and competitive conditions

Analyzing Driving Forces


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Analyzing Driving Forces

1. Identify forces likely to exert greatest in f luence over next 1 - 3years

Usually no more than 3 - 4 factorsqualify as real drivers of change

2. Assess impact

Are the driving forces causing demand for product to increaseor decrease?

Are the driving forces acting to make competition more or lessintense?

Will the driving forces lead to higher or lower industryprofitability?

Common Types of Driving ForcesInternet and e-commerce opportunities


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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

What Market Positions Do Rivals Occupy?


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One technique to reveal different competi tive positions ofindustry rivals is str ategic group mapping

A str ategic group is a cluster of firms in an industry with similar

competitive approaches and market positions

Geographic Coverage

Price/Quality

Low

High

Few Outlets in few localities Many Outlets in many localities

WallMart

Gucci

Strategic Group Mapping


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Strategic Group MappingFirms in same str ategic group have two or more competitive

characteristics in common

Have comparable product line breadth

Sell in same price/quality range

Emphasize same distribution channels

Use same product attributes to appeal to similar types of buyers

Use identical technological approaches

Offer buyers similar services

Cover same geographic areas

Procedure for Constructing a Strategic Group Map


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STEP 1: Identify competitive characteristics that differentiate firms inan industry from one another

STEP 2: Plot firms on a two-variable map using pairs of thesedifferentiating characteristics

STEP 3: Assign firms that fall in about the same strategy space tosame strategic group

STEP 4: Draw circles around each group, making circles proportionalto size of group s respective share of total industry sales

Guidelines: Strategic Group Maps


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Variables selected as axes should not be highly correlatedVariables chosen as axes should expose big differences in how

rivals compete

Variables do not have to be either quantitative or continuousDrawing sizes of circles proportional to combined sales of firms in

each strategic group allows map to reflect relative sizes of eachstrategic group

If more than two good competitive variables can be used, severalmaps can be drawn

Interpreting Strategic


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Group Maps

Driving forces and competitive pressures often favor some strategicgroups and hurt others

Profit potential of different strategic groups varies due to strengthsand weaknesses in each group s market position

The closer that strategic groups are on the map, the stronger thatcompetitive rivalry among the members of these groups tendsto be

What Strategic Moves


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Are Rivals Likely to Make?A firm s best str ategic moves are affected by

Current strategies of competitors

Future actions of competitors

Profiling key rivals involves gathering competi tive intel l igence about

Current strategies

Most recent actions and public announcements

Resource strengths and weaknessesEfforts being made to improve their situation

Thinking and leadership styles of top executives

Competitor Analysis


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Competitor Analysis

Sizing up str ategies and competitive strengths and weaknesses ofrivals involves assessing

Which rival has the best strategy? Which rivalsappear to have weak strategies?

Which firms are poised to gainmarket share, and which onesseen destined to lose ground?

Which rivals are likely to rank among the industry leaders five yearsfrom now? Do any up-and-coming rivals have strategies and theresources to overtake the current industry leader?

Considerations Involved in


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Predicting Moves of Rivals

Which rivals need to increase their unit sales and market share?What strategies are rivals most likely to pursue?

Which rivals have a strong incentive, along with resources, to makemajor strategic changes?

Which rivals are good candidates to be acquired? Which rivals havethe resources to acquire others?

Which rivals are likely to enter new geographic markets?

Which rivals are likely to expand their product offerings and enternew product segments?

What Are the Key Factors for Competitive


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Success?

KSFs are those competitive factors most affecting every industry members abilityto prosper. They concern

Specific strategy elements

Product attributes

Resources

Competencies

Competitive capabilities

that a company needs to have to be competitively successfulKSFs are attributes that spell the difference between

Profit and loss

Competitive success or failure

Identifying Industry


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Key Success Factors

Pinpoin ting KSF s involves determining

On what basis do customers choose between competing brands of sellers?

What resources and competitive capabilities does a seller need to have to bcompetitively successful?

What does it take for sellers to achieve a sustainable competitiveadvantage?

KSFs consist of the 3 - 5 major determinants of financial andcompetitive success


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Factors to Consider in


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Assessing Industry Attractiveness

Industry s market size and growth potential Whether competitive forces are conducive to rising/falling industry profitability

Whether industry profitability will be favorably or unfavorably impacted bydriving forces

Degree of risk and uncertainty in industry s future

Severity of problems facing industry

Firm s competitive position in industry vis --vis rivals

Firm s potential to capitalize on vulnerabilities of weaker rivals

Whether firm has sufficient resources to defend against unattractive industryfactors

RBV Approach to competitive advantage


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Resource Based View was propounded by Jay Barney

Organization performance will primarily determined by internal resource.

Physical (Plant ,Equipment,location,technology,raw material ,machines,etc)

Human (Employees, Training, Experience ,Intelligence,Knowledge,Skills,abilities,etc)

Organizational (Org. Structure,Planning Process, information systems, patents, Copyrights

Database, Trademark, etc)

This theory asserts that the (1) Internal resource is key to the firm exploiting opportunitiesand neutralizing the threats.

Fred R David Pg.117

10 Commandments for Crafting Successful Business Strategies


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1. Always put top priority on crafting and executing strategic movesthat enhance a firm s competitive position for the long -term and

that serve to establish it as an industry leader.

2. Be prompt in adapting and responding to changing marketconditions, unmet customer needs and buyer wishes for something

better, emerging technological alternatives, and new initiatives ofrivals. Responding late or with too little often puts a firm in the

precarious position of playing catch-up.

3. Invest in creating a sustainable competitive advantage, for it is amost dependable contributor to above-average profitability.

4. Avoid strategies capable of succeeding only in the best ofcircumstances.

5. Don t underestimate the reactions and the commitment of rivalfirms


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6. Consider that attacking competitive weakness is usually more profitable than attacking competitive strength.

7. Be judicious in cutting prices without an established cost advantage

8. Employ bold strategic moves in pursuing differentiation strategiesso as to open up very meaningful gaps in quality or service or

advertising or other product attributes.9. Endeavor not to get stuck back in the pack with no coherent

long-term strategy or distinctive competitive position, and little prospect of climbing into the ranks of the industry leaders.

10. Be aware that aggressive strategic moves to wrest crucial marketshare away from rivals often provoke aggressive retaliation in theform of a marketing arms race and/or price wars.

The Grand strategy normally views things in the long term and establishes itsobjectives in the following 7 areas.


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1. Profitability :The ability of a firm and its strategic planners depends ongenerating an acceptable level of profitability on a consistent basis.Strategically managed firms usually have profitability as their objective andexpressed in terms of earnings per share or return on capital.

2. Productivity : Strategic managers and firms with an eye on grand strategy willconstantly increase productivity i.e. increase in input output relationshipwhich will normally increase profitability. Commonly used productivityobjectives are no. of items produced or no. of services rendered per unit of

input. It can also be expressed in terms of reduced cost of input, reducedrejection (Six sigma) reduced customer complaints leading to litigation.

3. Competitive position : Relative dominance in the market place. (using totalsales as a measure or the market share)

4. Employee Development : Strategic planners often focus employee education

& development to create multi skilling M.P. thus aiming to reduced M.P. costand eventually profitability more & better salary & perks.

5. Employee relation : Strategically managed firms and strategic managersbelieve that productivity is linked to employee loyalty. (Safety programs,works committee, E.S.O.P)

6. Technological Leadership : Firms must decide either (1) to lead or (2) follow either canbe successful but requires a strategy The typical e g can be that of caterpillar The second


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be successful but requires a strategy. The typical e.g. can be that of caterpillar. The secondone can be that of e-commerce development of GE AND DELTA AIRWAYS.7. Public Responsibility : Firms and mangers realize their responsibility towards the societyand they move towards fulfilling their corporate responsibilities. They engage in variousactivities like community development etc.

Qualities of long term objectives.

Acceptability :- Managers are more likely to pursue objectives that are consistent with their preferences. They may object or even obstruct the achievement of goals if they see that isharmful. Like animal tallow. Etc.

Flexibility :- Objectives should be adaptable to unforeseen or extraordinary changes in thefirms competitive or environmental forecast.Measurable:-MotivatingSuitableUnderstand ableAchievable.

Grand strategy is also called master strategy provide basic direction forstrategic action. They are coordinated & sustained efforts directed towards

hi i l t b i bj ti Li t t th i P i i l f


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achieving long term business objectives. List out the various Principals ofgrand Strategies.

1. Concentrated growth. Many firms do fall pray to merger or take over maniawithout out doing a proper scanning of the environment , analyzing theSWOTS of self and competitors etc. resulting in a faulted growth of the firm.Instead some firms fully focus on their core competences and concentrate intheir present line of business. Concentrated growth is the strategy of the firmthat directs its resource to the profitable growth of a single product in a singlemarket with a single dominant technology. Concentrated growth strategieslead to enhanced performance. The ability to asses market needs ,knowledgeof buyer, customer price sensitivity are some characteristics of C.G. strategy.The C.G. industrys condition that favors such growth pattern is the firmsindustry is resistant to major technological advancements. The second reasonis such firms market rarely saturate. Third reason can be when a firmsproduct market are sufficiently distinctive to dissuade competitors inadjustant product markets from trying to invade the firms segment.

The characteristics of concentrated growth strategy can be(1)The ability toasses market needs (2) knowledge of buyer behaviour(3)customer pricesensitivity(4)effectiveness of product promotion. All these characteristics

makes a concentrated strategy enhance performance.

2.Market Development. It consists of marketing present products , often withcosmetic modifications to customers in related market areas by adding channels


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of distribution or by changing the contents of advertisement or promotion.Several specific market development strategies are as under(2.1:1) concentration :- (Increasing use of present product in present

market)(1:1:1) Increasing present customers rate of use by (1:1:2) Increasing thesize of purchase(1:1:3) Increasing the rate of productobsolescence.(1:1:4)Advertising other uses.(1:2) Attracting competitors customers :- (1:2:1) Establishing sharper branddiffrenciation(1:2:2) Increasing promotional efforts(1:2:3)Initiating price cuts Attracting non users to buy product :- (c1)Introducing trial use throughsamples, price incentives, etc. (c2) Pricing up or down (c3) Advertising newuses.

(2.2) Market Development :- (Sell ing present pr oducts in new markets)(2:2:1) Opening additional geographic markets:

(2:2:1:1)Regional Expansion (2:1:2)National Expansion (2:1:3)InternationalExpansion

(2:2) Attracting other market segments (2:2:1) Developing product versions toappeal to other segments.(2:2:2)Entering other channels ofdistribution(2:2:3)Advertising in other media.

2:3. Product development :- (Developing new products for present markets (2:3:1)Developing new product features.

(2:3:1:1) Adapt (to other ideas development)(2:3:1:2)Modify(change


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(2:3:1:1) Adapt (to other ideas, development)(2:3:1:2)Modify(changecolour,

motion, sound, odor, form, shape) hic(2:3:1:3)Magnify(stronger,longer,thicker, extra value)(2:3:1:4)Minify(Smaller, shorter, lighter)(2:3:1:5)Substitute(other ingredients, process, power)(3:1:6) Rearrange (other patterns, lay outs,sequence, components) (3:1:7) Reverse (inside out) (3:1:8) Combine (blend, alloy,assortment, ensemble, combine units,

(3:2) Developing quality variations. (3:3) Developing additional models and sizes

(product proliferation)3. Product development :- P.D. involves the substantial modification of current products or

creation of new products but related to the present product line that can be marketed topresent customer through established channels. The P.D. strategy often adopted to (1) prolong

the present product life cycle of current products (2) take advantage of present brand name,loyalty etc. The idea is to attract satisfied customers to new products as a result of their

positive experience with the firms initial offer. P.D strategy is based on market penetration.4. Innovation:- It has become absolutely essential for firms with their eyes on long term

strategy to fully concentrate on innovation. It is the increasing periodic expectation of bothconsumer & industrial markets have set this innovation on a higher platform. Organizationwith long term view innovate both product and service to remain in the market rather thanpushed out by rivels.

Booz Allen & hamilton management research department found that 2% of innovative products of nearly 51 companies eveantually reached market place. The stages in idea


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generation to product coming to the market has to pass through the stage of (a) Screening (b)Business analysis (c )Development (d) testing (e) commerlisation (f) Successful product

5. .Horizontal integration . When firms long term strategy is based on growththrough acquisition of one or more similar firms operating at the same stage of the production

marketing chain its grand strategy is called horizontal integration.6. Vertical integration . When firms grand strategy is is to acquire firms that supply itwith inputs (such as raw material) or are customers for its outputs (such as warehouse forfinished goods ) vertical integration is involved

Textile producer Textile producer

Shirt Manufacturer Shirt Manufacturer

Clothing store Clothing stores

Acquisitions or mergers of suppliers or customers business are vertical integrations

Acquisitions or mergers of competing business are horizontal integrations

7. Concentric diversification. Concentric diversification involves the acquisition ofbusiness that are related to acquiring firm in terms of technology, markets , or products. Withh d h l d b h h d f b l h h


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this grand strategy the selected new business possesses a high degree of compatibility with thefirms current business. The ideal concentric diversification occurs when combined companysprofits increases the strengths and opportunities & decrease the weakness. Thus the acquiringfirm searches for new business whose products , markets ,distribution channels, technologies,&resources requirements are similar to but not identical with its own business whose acquisitionresults in synergies but not complete interdependence. The motive of acquiring firms are :-(1) Increase firms stock value. In the past , mergers often leads to increase in stock price orthe price earnings ratio. (2)Increase growth rate of the firm (3) Make an investment thatrepresents better use of funds than plowing them into internal growth (4) Improve the stabilityof earnings and sales by acquiring firms whose earnings and sales complement the firms peaks

and valleys. (5)8.Conglomerate diversification.9.Turnaround.10. Divestiture.11. Liquidation.12. Bankruptcy.

13. Joint ventures.14. Strategic alliances.15. Consortia


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Turnaround Situation Turnaround response


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Cause Severity Retrenchment phase Recovery Phase

InternalFactors

External

Factors

Decliningsales ormargins

Low

High

ImminentBankruptcy

CostReduction

AssetReduction

Stability

Efficiencymaintenance

Entrepreneurialreconfiguration

Recovery

strategic mgmt..ppt

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