Strategic Intent

UNIT II Strategic Intent

Strategic management :- a strategy is a unified,

comprehensive & integrated plan that relates the strategic advantages of the firm to the challenges of the environment. Strategic management is defined as a set of decisions & actions resulting in formulation & implementation of strategies designed to achieve the objectives of an organization

Includes following areas Determining a mission including statement of its purpose Developing a company profile that reflects internal

conditions & capabilities Assessments of company’s external environment Identifying the desired options and analyzing them Strategic choice of a particular set long term objectives & grand strategies needed to achieve desired options. Implementation of strategic choice. Review or evaluation of the success of strategic process.

SM involves 3 types of decisions Definitional decisions;- defining business,

identifying customer groups, functions & technologies. Goalistic decisions: - defining corporate & functional objectives & policies. Optimal decisions:- strategies action programs & tactics

Strategy of an organization Comprises of Business vision Mission Objectives and goals Business definition

vision Vision articulates the position that the firm would

like to attain in the distinct future. A vision is more dreamt of than it is articulated . Tata steel says about its mission :- “ tata steel enters the new millennium with the confidence of learning, knowledge based happy organization. By its nature vision could be vague as a dream that one experienced last night & is not able to perfectly recall it. It acts as a powerful motivation to action.

definition Vision is a description of something (an organization

corporate culture , business ,a technology an activity in future) Benefits of having a good vision:Are inspiring , exhilarating & motivating. Represents discontinuity , a jump ahead Helps in creation of common identity and shared sense of purpose. Should be competitive, original & unique. Fosters risk taking & experimentation Represent integrity , are truly genuine & can be used for the benefit of the people.

Vision could be divided into two Core ideology:- it defines the enduring character of an

organization that remains unchangeable as it passes the changing environment It rests on the core values , mission & purposes. Envisioned future:- a 10- 30 year extremly confident goal. Descrition of what it will be like to achieve these goals. Encouraging & supporting goals Description of the future.

Effects of vision Learning acquiring knowledge & information Leads to commitment & motivation Emphasizing not only on profit makig but

producing useful products & services. Innovation encouraging Improving health & wealth of an organization.

Difficulties in creation of vision Culture & attitude within an oraganization Uncertain & unstable environment Restricted resources Resistance to change

An enriching and inspirational vision must Contain memorable language Clearly maps the company Challenges & motivated the workforce Provokes emotions

Mission (WHY WE EXIST) CORE VALUES (WHAT WE BELIEVE IN) VISION (WHAT WE WANT TO BE ) STRATEGY (GAME PLAN) STRATEGIC IMPERATIVES(WHAT I MEAN TO

DO ) PERSONAL OBJECTIVES STARTEGIC OUTCOME

mission Mission is a statement that defines the role that an

organization plays in the society. Purpose is anything that organization strives for. Mission is essential purpose of the organization , concerning particularly why it is in existence., the nature of business. E.g. of mission statement Maruti: building trust worldwide Modiluft : miles & smiles HCL: world class competitor

Elements of mission Clearly articulated Relevant Current Written with a positive tone/motivating Unique Adapted to target audience Feasible Precise Clear Indicate major components of strategy Indicate how objectives are to be achieved

Objectives & goals Objectives are open ended attributes that denote the future states

or outcomes. Refer to the operational side of business Goals are the close ended attributes& are précised & expressed in specific terms. Objectives are the ends which state how the goals will be achieved. An organization tries to its purpose into long term objectives & short term goals. Different objectives are pursued like continuity of profits, efficiency, product quality, employee satisfaction etc.

Goals are qualitative ,objectives are mainly quantitative Thus objectives are measurable & comparable. An organization may pursue multiple objectives. Importance of objectives:Justify the organization Provide direction Basis for management by objectives Helps in strategic planning & management Helps coordination Provides standards for assessment & control Helps decentralization

Characteristics of ideal objectives Formulation should involve participation They should be clear Realistic Flexibility Consistency Ranking (assigning priorities) Verifiability Balance Understandable Concrete & specific Challenging Should be in the constraints

What objectives are set Profit Employee welfare Marketing Growth Quality products & services Power Social responsibility of business

classification of objectives

Economic & social:Survival

Return on investment Growth Market share Welfare of society Protect consumer rights Interest of workers Primary :Extension, development & improvement Paying fair dividends to share holders. Payment of fair wages Reduction of prices

Secondary:Provide bonus for workers Promote education R&D in techniques Long run & short run:Official & operative:-

Formulation of the environment Forces in the environment Value system of top executives Awareness of management.

Business definition Dimensions of business:Customer functions:-what is being satisfied;

freshness, germs fight, protection Customer groups:- who is being satisfied; oral care, dental protection Alternative strategies:- how the need is being satisfied, paste powder, foam

Business policy It involves all member of organization Explicit or implicit Decision making process Formulated for frequent happenings Pyramids of policies – policies procedures ,

standard operating plans all guide to act but differ in the degree of guidance

Features of business policy Credibility Acceptability Feasibility Clear and consistent Proper communication Flexible Relative to objectives Policies should not be the result of

opportunistic decisions

Determinants of business policy Internal factors Mission Objectives Strength and weakness Management value orientation External factors Market structure Nature of industry Economic and government policies Technological social and political situation

Importance of business policy  For learning the course –  Integrates knowledge  Deals with constraint and complexity of real life business  Broad perspective  Make study and practice of management more meaningful  For understanding business environment –  Formulation of policies  Makes management receptive  Reduces feeling of isolation  For understanding the organization  Presents a basic frame work for understanding decision making  Brings the knowledge in strategic decision making  Importance of job performance  For personal development –  Career choice  Offers unique perspective to employees

Purpose of business policy Integrate the knowledge in various

functional areas of management Generalist approach (problem solving) Understand complex linkage with the operating system

Formulation of business policy Goal specification and priorities Identification of policy alternatives Evaluation of policy alternatives Check the acceptability Choice of policy Impact of external and internal

environment

Function of business policy Policy establishes indirect control over

independent actions Policy promotes uniform handling of similar activities Ensures quicker decision Institutionalize basic aspect of organization Reduces uncertainty Counter act resistance Mechanism of avoiding hasty and ill decisions

Types of business policy Production policy – purchasing policy ,

quality of RM used , choice of material , size of purchase Production process – choice of technology , extent of automation , size of decentralization , extent of division labor Production capacity – sales forecast , policy decision , equipment utilization Marketing and replacement Marketing policy – Product mix Product differentiation Pricing policy

 Distribution policy  Geographical location  Selection of customer  Size of customer  Channel design  Choice of middle man  Promotion policy  Financial polity – financial control  Lease of buy  Risk  User of assets  HR policy  R and D

Business environment

It consists of both external & internal environments Aggregate of all conditions , events, influences that

surround & effect it. Internal are controllable aspects External uncontrollable Success depends on the ability to design the internal variable to take advantage of the opportunities & threats.

Internal appraisal It provides the organization with its capabilities to

capitalize an opportunity for protecting itself from threats present in the environment. Determine distant competencies What makes it unique What are its capabilities in future, competent in specific areas.

Frame work for development of strategic advantage Strategic advantage Organization capability Competencies Synergistic effect Strength & weaknesses Organization resources & organization behavior

Organization resources:- tangible, Intangible, assets &

capabilities, information & knowledge. Organization behavior:- forces & influences operating in internal environment, values, culture, leadership, power & politics. S&W:-inherent capability, inherent limitation or constraint. Synergistic effect:- S&W combine Competencies:- special qualities possessed by organization that make them stand pressure of competition, a distinctive competence Strategic advantage:- outcome of organization’s capabilities, result of activities leading to reward, profits market share , reputation

Internal factors to be analyzed:FINANCIAL & ACCOUNTING:Financial resources & strength, liquidity cash flow Cost of capital Relations with owners & stock holders. Tax conditions Financial planning MARKETING & DISTRIBUTUIN FACTORS:Product related: variety, differentiation Price related Place: logistics, channels of distribution Promotion: advertising, sales promotion, PR Integrative system: market research, packaging of product

 PRODUCTION & OPERATION FACTORS; Use of RM  Production system, capacity  Location  Service design  Operation & control  Product planning  Material supply  Quality control  Lower cost, inventory  Capacity utilization  PERSONNEL CAPABILIY FCTORS: Use of HR skills  Safety welfare, security appraisal  Satisfaction morale, compensation, climate , structure, trade unionism

 INFORMATION CAPABILITY: Flow of information. Outside & within  DBMS, use of information  Speed & IT infrastructure  GENERAL MANAGEMENT; Strategic analysis & intent formulation  Rewards & incentives  Goals & competence  CSR  Organization climate & regulations.  R & D & ENGINEERING:  New improved production  Material , processes  Cost advantage  Research capability

Approaches to Internal Appraisal Systematic approach:Proactive measure to organizational formal

planning Ad hoc:Reactive to response to a crisis

SOURCES OF INFORMATION:Internal

External

Employee opinion

Comparative appraisal

Company files & documents Financial statements

Company reports &

MIS Annual reports Functional area profile

magazine Through consultants

Methods & techniques

Quantitative

Financial analysis: ratio analysis Nonfinancial analysis employee turn over, inventory units, absenteeism Qualitative: Corporate culture Knowledge Moral

Comparative:- strength & weakness & distinctive competencies Historical Industry norms Bench marking: a point for purpose of meeting best practices

performances, process. Comprehensive Balanced score card Key factor rating market : product, service , price Financial: source of funds, usage & management operations: production system, operation & control personnel: IR , employee characteristics information management; acquisition, synthesis & processing, usage general management; OC general management system

Structuring organization appraisal Organization capability profile Capability factors Weakness

normal strength -5 0 +5 preparing strategic advantage profile Capability factors competitive strengths or weakness

Criteria for determining S & W Historical: past performance Normative: what ought to be Competition party: Critical factors for success

External appraisal Monitoring of economic, government, legal, market/

competitive , supplier/technological, geographic & social setting to determine opportunities & threats. Macro factors:International Economic Political Regulatory Demographic Socio cultural

Micro Suppliers Customers Competitor Inter mediaries Market Public Environment analysis is the process of identifying O & T

facing in an organization for the purpose of strategic formulation

Characteristics of environment: Complex Dynamic Multi faceted Far reaching impact Market factors: client needs,

preferences Environmental sectors Product factors: image, demand, price PLC Market intermediaries: middle man, distribution channel Competitor related: entry exit barriers, nature of competition

Various types of markets could be Consumer Industrial International Reseller Technological environment factors:Knowledge of goods & services, future inventions Sources of technology Tech. development, stages, rate of change Impact of tech on humans Availability of tech. Foreign technology collaboration Strict rules & regulations

Economic factors:Economic conditions: level of income Economic policies: restrictive & liberalized Eco system Inflating deflating rates Monitory policy Eco structure Eco planning Regulatory factors:Constitutional framework, fundamental principles Policies related to licensing, foreign investements Imports & exports policy Public sector , small scale

Political & government: Philosophy of govt. Structure , goals Election, budget Subsidies, protect unfair trade Socio cultural:Society, beliefs, traditions, education, pace of urbanization International factors:Global eco policies, global HR, global village

Secure sources of funds Competitors Opposition from host country Political, social & eco risk Natural factors:Geographical location, natural resources ,weather , climate

Suppliers:-

micro

Cost ,reliability, availability factors. Continuity of supply Customers:Individual govt. other commercial establishment Competitors:Same product Same market Market intermediaries:Promoting, selling & distributing agents Vital link between consumer & company Public:Media, citizens, local public

Environmental scanning Environment is changing, so it is needed to be

monitored Factors analyzed to determine conditions of threat & opportunities. Factors in external environment: Events: specific occurrences Trends: general tendencies & courses of Action Issues: concerns that arise Expectations: demands made

Approaches to scanning Systematic scanning:Information collected systematically & continuously to

monitor changes & take relevant factor into consideration. Ad Hoc :Special surveys & studies to deal with specific environment issues from time to time. Processed form approach:Uses information in processed form,  available from different sources,  highly systematic & formal procedure Proactive measure for the anticipated change

Techniques used for environmental scanning  MIS:- formulize line & staff , gathering of information desired by

strategists  Develop strategic management system: by relying on responses by customers, suppliers, comptitors, environment condition  Spying:-determine trade secrets  Formal forecasting:-corporate plans, consultants , futurists.  Quest:- quick environmental scanning technique  4 step process  Observation about major events & trends  Speculate on wide variety of issues  Quest director prepares report & summarizes major issues & implications  Reports & scenarios are reviewed or redesigned to develop strategies

Scenario writing Simulation Game theory Cross impact analysis

Description of ES Strategies more concerned with economic factors than

the others Does not give significant time Psychologically unprepared for change

Appraising the environment Be aware of the factors affecting the process of

environmental appraisal(strategies, org. environment) Identify environmental factors Structuring the result of environmental appraisal Prepare an ETOP

ETOP Evnt. sector

sector Market Tech. Suppliers Economic Regulatory Socio-cultural political

nature of impact

impact on each

unstructured demand up gradation

Grand level strategies Environmental & internal appraisal lead to the

generation of strategic alternatives. the grand strategic alternatives are Stability Retrenchment Expansion Diversification Integration

Dimensions of grand strategies Internal/external;When an organization adopts strategy independent to other its

internal In association with other entity its external Related/unrelated;Related or unrelated to existing business. Horizontal/vertical:Serving additional CG or CF, Expansion or contraction of existing business startegy.AS Active/passive:Offensive strategy in anticipation of environmental threat Defensive strategy as a reaction to the environment

Strategies are  Stability: No change  Pause/proceed with caution  Profit strategies  Expansion: Through concentration  Through integration  Through diversification  Through cooperation  Through internationalization  Retrenchment: Turnaround  Divestment  liquidation  Combination; Simultaneous  Sequential  Combination of both

Stability strategy It is adopted by organization when it attempts at an incremental

improvements of its functional performance by marginally changing one or more of its business in terms of their respective customer group customer function and alternative technologies. The company stays with the current business & products , markets Maintains existing level of efforts Is satisfied with incremental growth

Major reasons for adopting stability are Less risky Fewer changes Environment faced is relatively stable Expansion may be perceived as threatening Better deployment & utilization of resources Not redefining business Safety oriented No fresh investments Does not nil growth, but it is incremental

Conditions under which stability is adopted Enjoys comfortable position Future is ensured Growth ambitions are modest Niche's prefer mostly E.g.: Copier machine provides better after sales service to its

existing customer to improve its company image

No change strategy:Continues with the same business definition The environment is predictable & certain No opportunities & threats in environment No major strength & weakness No new competitors No obvious threat of substitute

Profit strategy No firm can identically continue with no change. Sometimes things do change & the firm has to face

situation where it has to do something. When there occur temporary changes or problems the firm tries to maintain the profits The problems could be: economic recession, govt. attitude, industry downturn, competitive pressure. These problems are short run only If problem continues has to adopt another strategy

Pause/proceed with caution Firms which wish too test the ground before moving ahead with

full fledged strategy. Or may have had a blistering phase of expansion & now wish to rest for a while before moving ahead. Purposes to let the strategic changes seep down the organization levels, allow structural changes to take place, and let the systems adopt new strategies. While profit strategies are enforced choices aimed at sustaining profitability Pause/proceed are deliberate and conscious attempt to adjourn major strategic changes to a more opportune time, or when the firm is ready to move on with rapid strides again

Expansion strategy Conditions:Expansion becomes imperative when envt. Demands increase

in the pace of activity. Increasing size may lead to more control over the market Advantages from experience curve & economies of scale High risk Redefinition of business Fresh investments new business/ product/ market Highly versatile strategy

Through concentration:Converging resources in one or more firm’ s

business 1st preferred strategy. Involves investment of resources in product line for an identified market.  market Market ExistingMarket penetration development new market Existing product Product diversification development

New product

Applies to situation where the firm finds expansion

worth while. It’s the 1st preferred strategy Entering into known business Advantages:Involve minimal org. change so there is less threatening Managers comfortable with present business enables the firm to master in business by the depth of the knowledge. Can develop competitive advantage. Past experience is valuable.

Limitations:Putting all eggs in one basket has his

own problem Heavily dependent on industry If industry goes into recession firm finds difficult to save itself Its crowded with competitors its attractiveness decreases. Factors like product obsolescence, merging of new technologies are threats to firm.

Through integration

Works in present set of CF & CG but the AS

dimension of business undergoes a change Integration is combining activities on the basis of value chain A set of interlinked activities performed by firm right from procurement of basic raw material to marketing of finished products. Widening the scope of business. Petrochemicals steel hydrocarbons industry. Cost economics Forward or backward integration

diversification Diversification may involve all dimensions of

strategic alternatives Internal – external, related – unrelated, horizontal – vertical. Involves a substantial change in business definition. Different types are :concentric diversification:Related to existing business definition either in

terms of CG, CF or AS ,is called concentric diversification. May be of three types:  Marketing related:-similar type of product is offered with help of unrelated

technology . sewing machines produces diversify into kitchenware & house hold appliances, sold to housewives through a chain of retail stores.

Conglomerate:Unrelated to existing business definition. ITC Essar (shipping, marine construction, oil

support services)

Why are diversification strategies adopted;To minimize risk by spreading it over

several business Capitalize organizations strength & minimize weakness. Only way out if growth is blocked because of environmental or regulatory factors.

Advantages:Enables firm to attain synergy by exchange of

resources & skills. Avail economies of scale Reduction in risk by spreading risk Disadvantages:Increase risk & commitment Diversion of resources & concentration to other areas.

Through cooperation  Mergers  Take overs  Joint ventures  Strategic alliances  Merger: Combination of 2 or more than 2 entities involved in which

one acquires the assets & liabilities of other in exchange of cash or shares .  Or both the organizations are dissolved assets & liabilities combined & new stock is issued.  Objectives of the firms are matched

Types of mergers Horizontal :- same business Vertical mergers:-complementary in terms

of input or output Concentric:-related CF,CG, AS Conglomerate;- unrelated.

Reasons for mergers Increase value of firm’s stock Increase growth rate & make a good investment Improve stability of earning sales To balance, complete & diversify product lines. Reduce competition Take advantages of synergy

Takeover/ acquisition How t takes place:Spell objective Indicate how they will be achieved Assess managerial quality Check compatibility of business style Anticipate & solve problems early Treat people with dignity & concern

reasons

 Quick growth

 Reducing competition  Increasing market share  Creating goodwill  Friendly & hostile  Pros & cons: Growth  Mobility of resources  Sick units betterment  Stress strain

Joint venture  2or more firm consolidation for temporary partnership  Conditions for JV  One cant do alone  Risk is to be shared  Competitive advantage of both can be brought together.  Advantages: Foreign technology  Govt. Policy & support  New fields  Synergistic effect  Disadvantages: Coordination lacking  Foreign regulations  Cultural & behavioral differences

Strategic alliance 2 or more firms unite to pursue a set of agreed upon goals but

remain independent. Win win strategy Share strength Lend power to enterprise Pooling of resources Risk is mutual E.g. TVs Suzuki, Mahindra ford, bpl SANYO, Videocon Suzuki.

Types of strategic alliance Pro active (low interaction/low conflict) Inter industry, vertical value chain integration Non competitive(high interaction/low conflict) Intra industry , non competitive firms Competitive: (high interaction/high conflict) Rival firms to cooperation , inert/ intra industry Pre competitive: (low interaction high conflict) Unrelated industries, new product development.

reasons Entering new markets Reducing manufacturing costs Developing & diffusing strategy

Diversification through internationalization  Competitive advantage of nations  Factor conditions  Demand conditions  Related & supporting industries  Firm strategy, structure & rivalry  Beyond domestic market  Asses environment  Evaluate capabilities  Devise strategy.  Motives: Expansion  Market potential  Govt. policies  resources

Global strategy

Transactional strategy

International strategy

Multi domestic strategy

International:Where the products are not available like MCD,, coca cola,

IBM, Kellogg's Multi domestic:Matching products to national conditions. Customize products. Global;Standardized products , Economies of scale Undifferentiated product Competitive price

Entry modes

Export entry mode Direct Indirect

Contractual:Licensing Franchising Other forms (tech.)

Investment JV, strategic alliance Independent ventures

Advantages:Sales profit Expansion Above average returns Disadvantages: Risk Uncertainty of economic & political environment Cultural diversity Trade barriers

retrenchment Reducing scope of activity Demand saturation Govt. policies adverse Substitutes emerged Changing needs & preferences Poor managt Wrong strategies Poor quality

4 types of situation Realistic non recoverable Temporary recovery Sustained survival Sustained recovery

Turn around Negative cash flow Profits Mismanagement Declining market share Uncompetitive products High turnover Approaches:Surgical Non surgical

Divestment/cutback Sale or liquidation of portion of business . Liquidation strategies:Closing down a firm & selling its assets Termination of employees Loss of employer Serious consequences.

combination Mixture of all either applied simultaneously or

sequentially

management Establishing strategic intent:Vision, mission, business definition & objectives

Formulation of strategies:Environment & organizational appraisal Swot analysis Corporate level strategies Business level strategies Strategic choice Strategic plan

Strategy implementation:Project, procedural, resource allocation, structural, behavioral

functional & operational Strategic evaluation Strategic control

Business level strategies Business strategies are those courses of action adopted by a

firm for each of its business separately to serve identified CG, provide value to the customers by a satisfaction of their need. Porter says that factors that determine the choice of a

competitive strategy are two: Industry structure Positioning of a firm

Industry structure is determined by 5 competitive forces:Threat of new entrants Threat of substitutes products or services Bargaining power of suppliers Bargaining power of buyers Rivalry among exiting competitors in an industry. They vary from industry to industry & they determine long

term profitability. Positioning of the firm:Firms overall approach to competing, designed to gin sustainable strategic advantage. Two variables:- competitive advatgae Lower cost & differentiation

Competitive scope:Broad target & narrow target Offers mass product distributed through mass marketing High priced products of a limited variety but intensely

focused. Lower cost is based on the competence of a firm to design,

produce & market a comparable product more efficiently than its competitors. Differentiation is the competence of a firm to provide unique & superior value to the buyers in terms of quality, special features or after sales services

Competitive scope:Range of products , distribution channels, types of buyers,

geographical area served & related industry. Industries are segmented having different needs and require different sets of competencies & strategies to satisfy the needs of customers. Broad target approach:Full range of products/services Narrow target :Offers a limited product or area When the two factors are combined it results in a set of generic business level strategy

Porters generic business strategy:Competitive scope Cost leadership

Differentiation

Focused cost leadership

Focused differentiation

Broad target

Narrow target

o

low cost products/services differentiated products Competitive advantage

Cost leadership in business strategy CA of a firm lies in the lower cost of product/services High profit l\flexibility to lower price if market becomes stiff E.g. Gujarat cooperative milk marketing federation Amul branded ice cream market lower cost platform by

backing of 180 diaries High quality Supply chain management Moser Baer manufactures CDs at lower cost, lower raw material cost & lower labor costs

Achieving cost leadership Costs are spread over entire value chain activities to reduce

the cumulative cost , analyze cost drivers && identify areas of optimization of costs. Accurate demand forecasting High capacity utilization Attaining economies of scale leads to lower cost/unit High level of standardization & uniform services, packaging Investments in cost saving techniques Withholding differentiation till it becomes necessary

Conditions under which cost leadership is used Price based competition is vigorous making cost an

imp. Factor Products are standardized Lesser customer loyalty cost of switching is low Few ways available for differentiation Buyers are price sensitive.

benefits Best insurance against industry competition , protects against the

ill effects of competition Less effected by the price increase by the suppliers. Can offer prices reduction to the buyers Threat of cheaper substitute if off set Effective entry barrier Risks:Does not sustain for long time as can be copied Not a market friendly approach Can limit experimentation Technological shifts ,cheaper process & technologies may be

used by competitors

Differentiation business strategy Special features incorporated in product/service which is

demanded by customers who are willing to pay . The strategy which is then adopted is called differentiation strategy. Special features & attributes A premium price is charged, customers gain additional value & command customer loyalty Profit comes from difference in premium price But may fail if customers are not longer interested in differentiated products

E.g.:Orient fans offers premium ceiling fans based on product

innovation & superior technology. Extra wide blades, heavy duty motor Low voltage, high velocity & maximum coverage area. Brand salt industry DCW home products made captain

cook for quality conscious salt users, free flow, iodine content. Frooti tetra pack

Achieving differentiation To create value to customer that is unmatched by competitors Offer utility for customers & match their tastes & preferences Incorporate features that can lower the cost Which can raise the performance Increase buyer satisfaction Promise high quality Enhance status & prestige Full range of products is offered to satisfy

Conditions under which differentiation is used Market is too large to be catered by few firms offering

standardized products Customer needs & preferences are too diversified to be satisfied by standardized products Is possible to change premium price Brand loyalty is possible to generate & sustain Ample scope for increasing sales on basis of differentiated features

benefits Lessoning competitive rivalry Customer brand loyalty acts as a safe guard Customers are generally less prices sensitive, can

absorb price increases Powerful buyers do not negotiate price , special features & attributes New entrants are not normally in a condition to offer similar differentiation Substitute products pose a negligible threat

risks Difficult to sustain, first mover advantage associated Distinctiveness is gradually lessoned & ultimately lost Failed if unnecessary features are added Price premiums too have a limit

Focus business strategy

These strategies rely on either cost leadership or differentiation

but cater to an narrow segment of the local market. Used for identifying customer groups on the basis of demographic characteristics, geographic segmentation. Price is an imp consideration in piracy ridden industry T series offered cheap cassette of Hindi film songs while Sony

music & mega sound cater to the upper end niches Philips India launched flat TV plasma tech that enables distortion free pictures Dolby sound in the niche market of sophisticated tech. driven audience.

Achieving focus Identifying a narrow target in terms of market &

customers. Locate a niche in the market Cost leader & differentiators in an attempt to cover broad target tend to leave out segments which require special attention . E.g. truck tyres , airplane tyres A small no of buyers willing to pay higher price to get some king of special treatment . Automobiles for physically handicapped persons, specialized medical treatment for well to do persons.

Choosing specific niche by identifying gaps not

covered by cost leader & differentiates . Creating superior skills for catering niche market . Creating superior efficiency Developing innovative ways to manage the value chain

Condition under which focus strategies are used Some types of uniqueness in the segment may be

geographic demographic or based on life style . Specialized requirement Niche market is big enough to be profitable for the firm Promising potential for growth Major players are not interested in the niche market Necessary skills & expertise to serve the niche segment.

Benefits Protected from competition or they provide which

would not be profitable for others to provide Price increase can be absorbed Powerful buyer may not shift Specialization in niche market acts as a barrier

Risks Requires development of distinctive competencies ,

difficult process Being focused means committed to a narrow market, difficult to cater other segments Shift in customers need may make the niche disappear Become attractive enough for big players to shift .

Tactics for business strategy Timing tactic : first mover in mineral water is parley with

biseleri. Late movers icici pru,max new York , hdfc standard life :- LIC Advantages of first movers Market leaders Benefits of learning curve Cost advantages Customer loyalty Disadvantages Becomes costlier (create awareness ) More risks Late movers can imitate technological advances and skills

Market location tactics Market leaders Market challengers Market followers Marker nichers

Process of strategic choice Focusing on alternatives:Narrow down a choice to a manageable number of

feasible strategies. Start with business definition CG :- cosmetic segment, fluoride segment CF:- foam, freshness, flavor, dental care AS:- paste, powder, diff. base material, diff. packaging, diff. flavoring material, addictives

Gap analysis

Strategies to be followed

Performance

performance o performance gap

Present performance

desired

How wide or narrow is the gap. Where gap is narrow , stability strategy would

seem to be better Gap is large due to expected environment opportunities expansion is feasible If due to past & expected bad performance, retrenchment strategies may be suitable

Considering the selection factors Determine the criteria on which evaluation of

strategic alternative can be used. 2 groups:Objective:- based on analytical techniques & are hard facts or data used to facilitate strategic choice called ration/ normative/ prescriptive factors Subjective:- based on personal judgments / collective or descriptive factors.

Evaluation of strategic alternatives Bring together the results of analysis. Making the strategic choice:Most suitable choice under existing conditions Blue print has to be made.. Objective factors are divided into two parts Corporate level strategic analysis Business level strategic analysis

Corporate level analysis  Treats corporate entity as a portfolio of business under a corporate

umbrella  Relevant in case of diversified business.  In which analysis of a company as a collection of different business with a view to identify the status & potential of the various business with regard to resource use & resource generation  Corporate portfolio analysis 5. Bcg matrix 6. Ge9 cell matrix 7. Hofer’s product / market evolution matrix 8. Directional policy matrix 9. Strategic position & action evaluation

BCG matrix Growth share matrix 2 variables ;- rate of growth of product / market Market share of the firm relative to its competitors Market growth indicates attractiveness of the firm Market share indicated the strength of the firm.

Matrix Stars Growth stage Modest cash flow Expansion strategy Scooter for Bajaj, activa for Honda Fast food, telecom, electronics

High

Cash cows Market growth Mature stage Stability Rate

Large cash flow Colgate, decorative paint for Asian paints

Question marks/problem children Large negative cash flow Retrenchment/expansion Holiday resorts, light commercial vehicle

dogs Late maturity & decline Retrenchment Modest cash flow Cotton, jute textile shipping

Low high low

relative market share

GE 9 cell matrix Mckinsey & group Vertical axis 8 different factors Industry attractiveness 4. Market size 5. Growth rate 6. Industry profit margin 7. Competitive intensity 8. Seasonality 9. Cyclicality 10.Economies of scale 11.Tech, & social , legal & human aspects

Horizontal axis;2. Business strength 3. Relative market share 4. Profit margins 5. Ability to compete on price & quality 6. Knowledge of customer & market 7. Competitive S&W 8. Tech\ Capability & ability of the firm

Zone Green:investment/expand Yellow:- select / earn

Red:Harvest/ divest green

Industry attractiveness High

yellow

Medium red

Low o o

strong

avg weak business strength/competitive position

Advantages of GE9

Intermediate classification of medium & avg. Large no. of variables Disadvantages Provides broad strategic prescription than specifying the

business strategy. Limitation of BCG:Predicting profitability from growth rate of market share is difficult. Difficulty in determining market share No consideration to experience curve Disregard for human aspect

Hofer’s product/market evolution matrix 15 cell matrix Considers the stages of development And competitive position Growth Development Shake out Maturity decline

Directional policy matrix Company’s competitive abilities Strong avg. weak Business sector prospects Unattractive

avg attractive

Corporate parenting analysis Fit between parenting opp. & parenting characteristics

x axis Misfit between CSF & parenting characteristics. Y axis Focuses on fit of business with the corporate parent Heartland business:-expansion strategy Edge of heartland:- expansion strategy may suit by investing Ballast:- like cash cows Alien territory;- retrenchment Value trap:- retrenchment

SWOT analysis

Business level analysis  Experience curve analysis  Life cycle analysis  Industry analysis: Michael porter 5 forces model  Threat of new entrants: Higher entry barriers  Economies of scale  Capital requirements  Switching costs  Product differentiation  Access to distribution channel  Cost disadvantages  Govt policies

Rivalry among competitors:Competitive structure Demand conditions Exit barriers Bargaining power of buyers:Buyers are few in no Buyers place k\large orders Alternatives suppliers are present and supply at lower rates Switching cost of buyers is low Sensitive to price increases Has the ability to integrate backwards

Bargaining power of suppliersSuppliers are few & buyers are more Product is unique Substitutes are not available Switching cost of supplier is high Buyers buys in small quantity Has the ability to integrate forwardly Threat of substitutes:Level of price charged is reasonable

Strategic groups analysis Clusters of competitors that share similar strategies &

therefore compete with one another directly. Homogeneous & heterogeneous because of their strategies Icici aimed at becoming a universal bank through attaining a large size HDFC at optimum revenue generation.

Competitor analysis It focuses on competitors directly Deals with actions & reactions of individual firm Components of competitor analysis;Future goals of competitor;- how our goall are

compaed with others ?what is the attitude towards risk? Current strategy of competitor:- does it suppoat changes? Key assumptions made by the competitor;Capabilities of competitor:-

Subjective factor in strategic choice Considerations for govt. policy Perception of CFF & distinctive competencies Commitment to past strategic plans Strategic decisions style & attitude to risk Internal political considerations Timing & competitors consideration. Management philosophy Corporate ethics Social responsibility

Contingency strategies Strategic choice is made on certain conditions, assumptions

& premises. When conditions change strategy becomes partly irrelevant , if changes are drastic, strategies have to be modified continuously. strategies are formulated in advance to deal with certain conditions. Most changes occur in environment social, market , regulatory, international, where it occurs suddenly Eg FMCG, power, telecom, IT Insurance 3 scenario model Pessimistic most likely optimistic

Contingency planning process Identify the contingent event Establishing the trigger points Developing strategies & tactics

Strategic plan

 A clear statement of strategic intent  Results of environmental appraisal, major opportunities and threats,

CSF  Results of organization appraisal, major strength & weakness & core competencies.  Strategies chosen & the assumptions under which strategies would be relevant . Contingent strategies to be used for different conditions.  Strategic budget for the purpose of resource allocation for implementing strategies & schedule for implementation.  Proposed organizational structure & major organizations system  Functional strategies & mode of their implementation  Measure to be used to evalaute performance & assess the success of strategy implementation

Strategy implementation pyramid of strategy implementation

Project implementation  strategies lead to plans, programs, projects. Knowledge related to projects is covered under

project management A project is a one shot goal limited, time limited , major undertaking , requiring the commitment of various skills & resources. Goals are derived from plans & programs

Phases of project Conception phase Definition phase Planning & organizing phase Implementation phase Clean up phase

Procedural implementation Formulation of a company Licensing procedures Securities & exchange board of india Monopolies & restrictive trade practices MRTP Foreign collaboration procedure Foreign exchange management act FEMA Import & export requirements Patenting & trademarks requirement Labor legislation requirement Environment protection & pollution control Consumer protection requirements Incentives & facilities benefits

Resource allocation deals with the procurement & commitment of financial ,

physical & HR to strategic tasks for the achievement of org. objectives. Both one time & continuous process New project requires What sources are tapped What factors affect What approaches adopted How it takes place What are the difficulties

Procurement of resources Different types of resources are Financial Physical Human Finance considered as primary source & is used for

creation & maintenance of other resources. 2 types of finances Long term;- creation of capital assets Short term:- working capital Both can be rocured froom internal & external sources

Internal sources

Retained earning

Depreciation provision Development rebate Investment allowances reserve External sources Capital market sources Equity & loans Money market sources Bank credit, Trade credit Fixed deposits Both have pros & cons but company prefers internal sources

1st task is to distribute the resources within the org. to

different SUB’s , divisions, departments. Approaches to RA:Top- down approach:- a process of segregation down

to the operating level adopted (ceo , management) in entrepreneul modes Bottom approach:Allocated after aggregation from operating level Mix of both

Means of RA Used as planning budgeting coordination & control device BCG based budgeting;- SBU identified as stars, cash cows. Plc based:- stages of product or SBU may attract more resources, diverted from high yielding products at maturity. Capital budgeting:- in case of restructuring or modernization Zero based budgeting:- justify RA demand , on zero grounds, fresh cost calculation Parta system:- indigenous for of control device, exercising control to access daily net cash inflow from operations, tax & dividends, daily budgeting & reporting system

Factors affecting RA Objectives of org Preference of dominant strategies Internal policies External influences

Difficulties Scarcity of resources Financial resources Physical assets , land , machinery Human resource Restriction on generating resources for newer units Over statement of needs

Structural implementation What is structure? Is the way in which the tasks & sub tasks required to implement

a strategy. Structures for strategy:Entrepreneur structure:-

structure Quick decision making Timely response to environmental changes Informal & simple org systems Disadvantages:Excessive reliance on the manager – owner & proves

demanding May divert the attention of owner to day to day activities. Inadequate for future if business expands

Functional structure Specialized skills &delegation of authority

Advantages:Efficient distribution of work through specialization Delegation of day to day operational functions Providing time for top management to focus on the

strategic decisions. Disadvantages:Difficulty in coordination Specialization at the cost of overall benefit of org. Functional , line & staff conflicts

Divisional structure Work divided on the basis of product lines, type of

customers served, or geographic area covered.

Advantages :Enables grouping of functions related to a division. Generates quick response to environmental changes

affecting the different divisions. Enables top management to focus on startegeis. Disadvantages:Problem in resource allocation, corporate overhead

costs. Inconsistency from the sharing of authority between corporate & divisional levels Policy inconsistency between the different divisions

SBU Any part of business org which is treated

separately for strategic management purposes.

Advantages:Establishing coordination between divisions having

common strategic interests. Facilitates strategic management & control of large, diverse org. Disadvantages:There are too many diff. SBU’s to handle effectively in a

large , diverse org. Difficulty in assigning responsibility & defining autonomy for SBU heads. Addition of another level of management between corporate & divisional management

Matrix structure In large org. there is a need to work on projects

& products. This results in requirement of matrix org. Once a project is completed , the team members revert to their parent departments.

Advantages;Individual talent to be assigned where talent is needed Fosters creativity because of pooling of talents Provides exposure to specialists Disadvantages:Dual accountability creates confusion for individual

team members Requires high level of vertical & horizontal combination Shared authority may create communication problems

Network structure Spider web or virtual org. Non hierarchical, highly decentralized & organized around

customer groups.

Advantages:High level of flexibility Permits concentration of core competencies of the firm Adaptability to cope with rapid changes Disadvantages:Loss of control & lack of coordination High costs as duplication of resources could be there

Other types of structures Product based:Volume of sales is prevalent Customer based:Sales volume of individual customer groups justifies the

separate divisions. Geographic structure:-

Org. design & change Steps:Identify key activities to be performed to accomplish the

goals & mission grouping of activities similar in nature. Choice of structure that can accommodate group of activities. Creation of departments , divisions Establishing interrelationship between departments. Strategies formulated for Span of management Line & staff relationship Use of committees & group decision making Restructuring, reengineering, delayering, flatter structures

Org. systems Information system Control system Appraisal system Motivation system Development system Planning system

Behavioral implementation Leadership implementation:- roles diff. strategists play Theoretical under planning of leadership Personality:- traits & qualities, & great personalities. Influence:- relationship between individuals. Behavior :- actions of leaders Situation:- in which the leader operates. Contingency:Transactional;-role differentiation & social interaction

between the leader & subordinates Anti – leadership:- absence of real concept of leadership. Culture of entire org

Strategists style & strategy:Risk taking Technocracy:-of planning , qualified personnel &

techniques. Organicity:- extent of org, structural flexibility Participation:Coercion;-

Development of strategies Choice of future strategists, Their career planning & development Succession planning Corporate culture:Shared things Shared sayings Shared actions Shared feeelings

Strategy culture relationship 4 approaches:- ignore culture Adapt strategy implementation to suit corporate culture. Change corporate culture to suit strategic requirements. Too change strategy to fit corporate culture. Corporate culture & politics:Power within an org. is derived from 5 sources:Reward power Coercive power Legitimate power Referent power Expert power

Strategic use of politics Understand how org. power structure works Be sensitive alert to political signals Reward org. commitments & penalize indifferent

attitude. Practice principled politics & use openness & honesty. Personal values & business ethics CSR

Functional & operational implementation Functional implementation is carried out through functional

plans & policies. Fit activities & capabilities of an org. with its strategies. Vertical & horizontal fit:Strategic marketing management:Strategic financial management Strategic HR management Strategic information management

Operational plans & policies Impact of strategy on operational plans & polices:-

Area of operational effectiveness Process:BPR ERP Benchmarking Supply chain management outsourcing People:Pace;Time study Network analysis & activity charts Time based management Nature of managerial work

Productivity:Mass production Flexible manufacturing system Total productive management

Strategic evaluation & control Importance of evaluation Need for feedback Appraisal & reward Check on validity of e strategic choice Successive culmination of strategic management process Creating inputs for new strategy.

Participants in evaluation Board of directors Chief executives SBU’s heads Financial controller, company secretary , external or

internal auditor Audit & executives committee Middle level managers

barriers Limits of control:Difficulties in measurement Resistance to evaluation Short – termism Relying on efficiency ‘doing right things’ over

effectiveness ‘doing the things right’

evaluation Control should involve the minimum amount of

information:- too much control lead to cluttering up of system & creates confusion Control should monitor only managerial activities Should be timely Both long & short term should be used to balance Should pinpoint the exceptions Reward for meeting or exceeding the standards should be emphasized

Strategic control Premise control:- strategy is based on certain factors, some of the

factors are highly significant Premise control is necessary to identify key assumptions & keep a track of any change. Implementation control:- evaluating whether the plans , programs & projects are guiding the organization. May lead to strategic rethinking (PERT /CPM) Strategic surveillance :- more generalized & over reaching. Designed to monitor a broad range of events inside & outside the company Special alert control:- based on rapid response & immediate reassessment of strategy in the light of sudden & unexpected events. Can be exercised by formulation of contingency strategies

Process of evaluation Setting standards of performance Measurement of performance Analyzing variance Taking corrective actions

Techniques of evaluation Strategic momentum control:- aims at assuring that the

assumptions on whose basis strategies were formed are still valid. 3 types Responsibility control centers:- 4 types revenue, expense, profit & investments Underlying success factors: - focus on CSF Generic strategies:- strategies adopted b a similar firm are comparable .

Strategic leap control:- when environment is relatively

unstable, organizations make startegic leap 4 techniques Strategic issues management:Strategic field analysis:-examine the nature & extent of synergies that exist in org. Systems modeling:- based on computer based models that simulate essential feature of org. Scenarios:- perception about the likely environment a firm would face in future.

Evaluation techniques for operational control Internal analysis:Value chain Qualitative quantitative Comparative ;Historical Industry norms benchmarking Comprehensive:Balance score card Key factor rating

Parta Network techniques MBO Memorandum of understanding