Strategic Management - 6

STRATEGIC MANAGEMENT A CONCEPT ON STRATEGIC THINKING AND MODUS OPERANDI FOR SURVIVAL IN 21st CENTURY By Dr. JANAK V. SHELAT

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WHY STRATEGIC THINKING?            

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Companies are operating in age of discontinuing change - an age of creative & constructive destruction. Business, technology and product life is shrinking. Demographic shift in terms of consumer preference and requirements. A direct promotion from Agricultural economy to service or Hi-tech economy in the new growth economy. A concept from liberalization, privatization & Globalization (LPG) to regionalization. Shift from controlled economy to market driven economy. Rich countries adopt deindustrialization. Emergence of new Global Socio – economic system and world orders. Knowledge is replacing Infrastructure Self-leadership is in, command and control out Networks are replacing hierarchies Wanted - employees with Emotional Intelligence.

Current Trends –        

Increasing environmental awareness Growing health consciousness Expanding seniors market Impact of the Generation Y boom let Declining mass market Changing pace and location of life Changing household composition Increasing diversity of workforce & market 2

Challenge of Strategic Management Only 16 of the 100 largest U.S. companies at the start of the 20th century are still identifiable today! In a recent year, 44,367 businesses filed for bankruptcy and many more U.S. businesses failed

Competitive success is transient...unless care is taken to preserve competitive position 3

Challenge of Strategic Management Best Stocks of the Decade

The goals of achieving strategic competitiveness and earning aboveaverage returns are challenging The performance of some companies more than meets strategic management's challenge 4

21st Century Competitive Landscape Fundamental nature of competition is changing • Rapid technological changes • Rapid technology diffusions • Dramatic changes in information and communication technologies • Increasing importance of knowledge

The pace of change is relentless.... and increasing Traditional industry boundaries are blurring, such as... • Computers • Telecommunications 5

21st Century Competitive Landscape The global economy is changing • People, goods, services and ideas move freely across geographic boundaries • New opportunities emerge in multiple global markets • Markets and industries become more internationalized

Traditional sources of competitive advantage no longer guarantee success New keys to success include: • • • •

Flexibility Innovation Speed Integration 6

21st Century Competitive Landscape A country’s competitiveness is achieved through the accumulation of individual firms’ strategic competitiveness in the global economy Achieving improved competitiveness allows a country's citizens to have a higher standard of living

Country Competitiveness Rankings 1999

1998

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

1 3 2 6 5 8 10 4 7 11 15 14 13 12 9 17 16 30 23 20 18 19 22 27 24 25

Country Singapore United States Hong Kong Taiwan Canada Switzerland Luxembourg United Kingdom Netherlands Ireland Finland Australia New Zealand Japan Norway Malaysia Denmark Iceland Sweden Austria Chile Korea France Belgium Germany Spain

Competitiveness Index 1999 2.12 1.58 1.41 1.38 1.33 1.27 1.25 1.17 1.13 1.11 1.11 1.04 10.1 1.00 0.92 0.86 0.85 0.59 0.58 0.37 0.57 0.46 0.44 0.39 0.37 0.16

Competitiveness Index 1998 2.16 1.41 1.91 1.19 1.27 1.10 1.05 1.29 1.13 1.05 0.70 0.79 0.84 0.97 1.09 0.59 0.61 -0.18 0.25 0.37 0.57 0.39 0.25 -0.03 0.15 7 0.02

Changing Corporations Old Organizational Format

New Organizational Format

One large corporation

Mini-business units & cooperative relationships

Vertical communication

Horizontal communication

Centralized top-down decision making

Decentralized participative decision making

Vertical integration

Outsourcing & Virtual Organizations

Work/quality teams

Autonomous work teams

Functional work teams

Cross-functional work teams

Minimal training

Extensive training

Specialized job design focused on individual

Value-chain team-focused job design

Stability & Structured & Gradual

Change & Flexibility & Speedy, Fast

Mass Production

Mass Customization

* Business Week, 28 August, 2000 8

FOUR 

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MAJOR THRUST AREAS OF BUSINESS

Managing Competition - Aggressive Marketing – Market Share – Go Global - Superior Quality of Products / Services - Cost Reduction / Lowering Prices - Faster Deliveries / Response Time - Innovations / Productivity Improvements Developing Leadership Skills for Vision and Change. To focus on People besides Products, Process, Profits. Today, every person is a Profit Center. Using IT based tsunami of information, ideas and tools for managing the business – E Business Making ours a Learning Organization 9

WHAT IS BUSINESS?

PRODUCT

MARKET

FUNCTION

What Business the Firm is in? Why the Firm is in the Business? What should be Firm’s Business? 10

Strategic Management

Why? To ensure Growth with Profits in the long-run!

Creating & Sustaining Competitive Advantages, Globally 11

The Strategic Management System Involves the full set of:

Commitments

Decisions

Actions

which are required for firms to achieve:

Strategic Competitiveness Sustained Competitive Advantage Above-Average Returns 12

Strategic Competitiveness Achieved when a firm successfully formulates and implements a value-creating strategy

Sustained Competitive Advantage Occurs when a firm develops a strategy that competitors are not simultaneously implementing Provides benefits which current and potential competitors are unable to duplicate

Above-Average Returns Returns in excess of what an investor expects to earn from other investments with similar risk 13

BASIC CONCEPTS 

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STRATEGY: It is Unified, Comprehensive, and Integrated long term plan that relates to the strategic advantages of the firm to the challenges of the environment. STRATEGIC MANAGEMENT: It is a stream of decisions and actions which leads to the development of an effective strategy to help achieve the corporate objective. It is a continuous, iterative, & Cross functional process of matching firm with its environment. COMPETITIVE ADVANTAGE: is delivering superior value advantage to your target customers relative to your competitors. Or delivering equivalent customer value to your target customers relative to your competitors , but at a lower cost.

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GAP OUT PUT VALUE SYSTEM

VISION

FIRM/BUSINESS MISSION

OBJECTIVES PURPOSE

BASIC INFRASTRUCTURE AND FRAME WORK OF A FIRM 15

MISSION & GOALS OF A COMPANY 

VISION: It is a vividly descriptive image of what you what to be or what you want to be known for. Vision is an art for seeing invisibles.

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MISSION : It a statement of intent of “what a firm wants to create and through which line of Business”. It is a process of legitimization of corporate existence of business. It defines the culture, philosophy and grand design of the firm. To pursue the Creation of Value to all Stakeholders in the Business. It is an answer to question – “What business are we in?”

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GOALS / OBJECTIVES : End to be achieved. It is

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To make Profit for today and forever To satisfy Customers today and forever To satisfy Employees today and forever

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Strategic Planning

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Three Big Strategic Questions 

Where Are We Now?

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Where Do we Want to Go?

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How Will We Get There?

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The Five Task of Strategic Planning     

Developing a Vision and a Mission Setting Objectives Crafting a Strategy Implementing and Executing Strategy Evaluating Performance, Reviewing the Situation and Initiating Corrective Action

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An organization’s MISSION 

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reflects management’s vision of what the organization seeks to do and to become sets forth a meaningful direction for the organization indicates an intent to stake out a particular business position outline “Who we are, What we do, and Where we are headed”.

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Setting Objectives 

The purpose is to convert the mission into Specific Performance Targets

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Serve as yardsticks for tacking company progress and performance.

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Should be set at levels that require stretch and disciplined effort.

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Two Types of Objectives are Needed 

FINANCIAL OBJECTIVES

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STRATEGIC OBJECTIVES Short-Run  Long-Run 

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Crafting a Strategy 

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HOW to out compete rivals and win a competitive advantage. HOW to respond to changing industry and competitive conditions HOW to defend against threats to the company’s well-being HOW to pursue attractive opportunities 23

Crafting Strategy is an Exercise in Entrepreneurship 

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Risk-taking and venture someone's Innovation and business creativity· A keen eye for spotting emerging market opportunities· Choosing among alternatives

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Why Good Management of Strategy Matters 

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Powerful execution of a powerful strategy is a proven recipe for success. Crafting and implementing a strategy are CORE management functions. To qualify as WELL-MANAGED, a company should · Have an attractive strategy A good strategy builds a position that is strong enough to overpower rivals and flexible enough to overcome unexpected obstacles.

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Why is a Company’s Strategy Constantly Evolving?

Changing market conditions· Moves of competitors· New technologies and production capabilities· Evolving buyer needs and preferences· Political and regulatory factors· New windows of opportunity· Fresh ideas to improve the current strategy· A crisis situation

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What is a Strategic Plan? 

A strategic plan specifies where a company is headed and HOW management intends to achieve the targeted levels of performance. 27

Strategic Management Basic model Options on Competitive Positioning

Four Basic Elements

Learning points from deviations

Strategic management is the process of moving where you are to where you want to be in future – through sustainable competitive advantages 28

VISION

MISSION

GAP

VALUE

BASIC STRATEGIES

FIRM GOAL MACRO ENVIRO APPRAISAL

MICRO ENVIRO APPRAISAL OF INDUSTRIES

MICRO ENVIRO APPRAISAL OF FIRM

STRATEGIC IMPLEMEMTATION

ORGANISATION DESIGN STRATEGIC ALTERNATIVES

BUSINESS LEVEL STRATEGIES

FUNCTIONALLEVEL STRATEGIES & RESOURCES ALLOCATION

DEVELOPMENT OF CONTROL

STRATEGIC SELECTION

Is Strategy Working?

STRATEGIC PLANNING DESIGN AND IMPLEMENTATION PROCESS

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Characteristic of the Strategic Management Process  

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An ongoing exercise Boundaries among the tasks are blurry rather than clear-cut Doing the 5 task is not isolated from other managerial responsibilities and activities. The time required to do the tasks of strategic management comes in lumps and spurts rather than being constant and regular. Involves pushing to get the best strategy supportive performance from each employee, perfecting the current strategy. 30

ENVIRONMENTAL APPRAISAL

ENVIRONMENTAL ANALYSIS O T

ENVIRONMENTA L DIAGNOSIS S ETOP SAP OFPP

W

VALUATION PROCESS OF SWOT ANALYSI 31

Impact Of Environment Business ENVIRONMENTAL FACTORS INTERNATIONAL

GOVERNMENTAL ECONOMICAL

POLITICAL

TECHNOLOGICAL FIRM/BUSINESS

LEGAL

SOCIETAL CULTURAL

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Variables in Societal Environment

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International Societal Environments

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Industry Analysis

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Porter’s Approach to Industry Analysis

Threat

of Substitute Products or Services

Bargaining

Power of Buyers

Bargaining

Power of Suppliers

Relative

Power of Other Stakeholders

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Porter’s Approach to Industry Analysis

Threat of New Entrants – Economies of scale Product differentiation Capital requirements Switching costs Access to distribution channels Cost disadvantages Government policy

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Porter’s Approach to Industry Analysis

Rivalry Among Existing Firms – Number

of competitors Rate of industry growth Product or service characteristics Amount of fixed costs Capacity Height of exit barriers Diversity of rivals

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SWOT analysis of strengths, weaknesses, opportunities,and threats.

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TOWS Matrix

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CREATING STRATEGIC MIND SET

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Corporate Strategy Three Key Issues: 

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Firm’s directional (CORPORATE) strategy Firm’s portfolio (BUSINESS LEVEL) strategy Firm’s parenting (FUNCTIONAL LEVEL) strategy 42

Initiation of Strategy

•New CEO •External intervention

Triggering event

•Threat of change in ownership

Stimulus for change in strategy

•Performance gap •Strategic inflection point

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Corporate Directional Strategies

COMBINATION STRATEGIES

DERIVED STRATEGIES

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STRATEGIC VARIATIONS EXPANSION

INTERNAL: Add new product, product line, market, functions, redefine/ reposition of product – market. EXTERNAL : Take over, acquisition, merger. RELATED : Synergic diversification. UNRELATED: Non – synergic diversification. HORIZONTAL: Supplementary/ Complementary Expansion. VERTICAL: Integration. ACTIVE: R & D, Entrepreneurial development. PASSIVE: Imitation, adoption & adaptation. 45

NEW

New products /New Markets CO Unrelated RP BU Businesses SIN ORA T ES S D E PL E A Related VELO NNI N Businesses – PME G NT

NEW CUSTOMERS FOR EXISTING LINES OF PRODUCTS MARKET DEVELOPMENT EXISTING PRODUCTS IN EXISTING MARKETS

EXISTING

MARKETS / CUSTOMERS

IGOR ANSOFF’S BUSINESS GROWTH MODEL

NEW PRODUCTS FOR EXISTING CUSTOMERS

Increase Market Share

Existing Share of Business EXISTING

SALES MGMT.

NEW PRODUCT DEVELOPMENT, UPGRADES

Products

NEW

PRODUCTS * Corporate Strategy, I. Ansoff, Jan 1965, McGraw Hill, USA

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MANAGING PROJECT

SPIN OUT Creating New Business

As an external Ventures

INTERNAL VENTURE STRATEGY Managing new products/ services, development projects as in company Ventures

ALLIANCE

Joint Ventures ture Acquisition, Partnering

EXTERNAL INVESTMENT In

Acquisition of Product, Marke Technology, or Management control

EXTERNAL VENTURES STRATEGY

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EXTERNAL GROWTH STRATEGIES 

TAKE OVER, AQUISION & MERGER

BUYING FIRM

•Acquire Controlling interest} •Acquire Assets and liabilities} of selling Firm} •Acquire & merge of Assets } liabilities of both the firms.}

SELLING FIRM

•TAKE OVER •ACQUISION •MERGER 48

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WHY THE FIRM PURSURE EXTERNAL EXPANSION To increase the firm’s stock.. To increase the growth rate of the firm. To make good investments. To improve the firm’s earnings & stability. To balance or fill out the product line. To diversified the product line in mature state. To reduce the competition. To acquire the needed resources. For Tax purpose. To increase the efficiency and profitability. To diversify the owner’s holding. To deal with top management problems.

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CRITICAL ISSUES RELATED TO M & A 

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STRATEGIC ISSUES: It relates to the commonality of strategic interest. Strength of one firm may be weakness of the other firm and vice versa. The firms can create Synergy and complementing business situation. FINANCIAL ISSUES: These are related to (a) Valuation of selling firms based on assets, market standing, share prices, earning potential etc. (b) Sources of financing for merger. MANAGERIAL ISSUES: It relates to professional compatibility and acceptance of managerial system of selling company. LEGAL ISSUES: It is related to various issues of legal provisions such as Chapter V of the Companies Act, the MRTP Act, and section 72A (I) of the Income Tax Act OR Anti Trust Act, Sherman’s Act. CULTURAL ISSUES: It relates to the cultural compatibility of the organization, society, market etc. LABOUR ISSUES: It relates to continuation of old staff and subsequent relations. SOCIETAL ISSUES: It relates to the benefits of society and Social compatibility. OTHER ISSUES: It relates to Political, Economic, Environmental factors. 50

REASONS FOR FAILUR OF EXTERNAL GROWTH  

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Paying too much for the acquired firm. Assuming that a growing market or product will be out standing in market. Leaping into merger without carefully studying the consequences. Diversifying in to areas in which the firm had too little knowledge. Buying too large a firm and thus incurring an excessively large debt. Trying to merge disparate corporate cultures. Counting on key personnel staying after the merger. 51

DERIVED BUSINESS STRATEGIES

OFFENSIVE

DEFFENSIVE

•RAISE STRUCTURAL •FRONTAL ASSAULT BARRIER •FLANKING MANEUVER •INCREASE EXPECTED •BYPASS ATTACK RETALIATION •ENCIRCLEMENT •LOWER INDUCEMENT •GUERRILLA WARFARE ATTACK

CO-OPERATIVE

•SYNDICATING (COLLUSION •STRATEGIC ALLIANCES •MUTUAL CONSORTIA •JOINT VENTURE FOR •LICENSING ARRANGEMENT •VALUE CHAIN PARTNERSH

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CO-OPERATIVE STRATEGIES COLLUSION (SYNDICATING):

It is an active cooperation of firm for their individual and collective advantages within an industry to reduce out-put and raise price in order to the normal economic law of supply & Demand. Collusion may be  

Explicit, in which firms co operate through direct communication and negotiation, or Tacit in which firms cooperate indirectly through an informal system of signals. Explicit is illegal under MRTP/ Anti trust Acts.

It can be successful if: (1) (2) (3) (4) (5) (6)

There are small number of identifiable competitors. Cost are similar among firms. One firm tends to act as price leader or market leader. There is common industrial culture that accepts the cooperation. Sales are characterized by high frequency of small orders. There are high entry barriers to new competitors.

(Exp: Economic Scale of operation, Switching cost, Capital, Capacity, Regulations, market accessibility, stage in learning curve, Brand loyalties etc )

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MUTUAL CONSORTIA – Complemented Grouping: It is a partnership of similar companies in similar industries who pool their competency & resources to gain benefits that are too expensive to develop/ deploy alone, such as access to advance technology or capturing the market. It is fairly weak and fragile alliances. There is very little interaction or communication among the partners.

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LICENSING ARRANGEMENT: It is an agreement in which the licensing firm (licensor) grants rights to another firm( licensee) in another country or market to produce and/or sell a product or services. The licensee pays compensation (Royalties, profit sharing, or lump sum payment) to the licensing firm in return for technical expertise. It is useful strategy if the trademark or brand name is well known. It is also useful when there is Entry barrier for a MNC.

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STRATEGIC ALLIANCE (Partnering): It is a partnership of two or more corporations or business units to

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achieve strategically significant objectives which can be mutually beneficial. Some alliance are short term till the product is established, while the others are longer lasting, resulting in merger. The reasons for alliance are: (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k)

To obtain technological, management and/or manufacturing capabilities. To enter into specific markets. To reduce financial risk. To reduce political and economic risk. To achieve or ensure competitive advantages in new businesses or markets It plays vital role in today’s market condition and environment to solve some complicated issues. It provides vital role in providing the firms synergic strength. It helps to develop product, process, market & share the investment outlay jointly. It facilitates the development of unique technological capabilities to meet the challenges of technological revolution. It create a compulsion for alliance to enter in the local market through JV. Building brand image in local market is mostly possible through alliance.

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SPECIFIC ALLIANCE 

Production Alliance: Two or more companies share the common manufacturing facilities, existing or new facilities.

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Marketing Alliance: Two or more companies share marketing services expertise and facilities.

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Financial Alliance: Companies joint together in order to reduce financial risks associated with the activities & share the profit in proportion to financial contribution.

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Research & Development Alliances: Fast changing technology, high cost of R & D and need of being ahead of changes, force companies to form alliance in R & D area.

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Human Resources Alliance: Alliance for outsourcing

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BREAK – UP OF ALLIANCE: 

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Incompatibility between/among partners in management style, financial position, culture, business interest. Access to information. Distribution of Income. Change in business environment. Acquiring the strength of partner: The companies over a period of alliance, acquire the strengths of the partner and starts new operations in competitions.

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STRATEGIC JOINT VENTURE Joint ventures (JV) are partnership in which two or more firms carry out a specific project or business in a selected area of industry in a form of new venture. Ownership of the original firms remains unchanged. Actually, corporate partnership are formed with specific and time bound objectives which, once achieved, leaves little reasons for the alliance to continue. Joint venture can be temporary or it can be long term. JV that last longer do so because their objectives have been redesigned. Every JV: 1. Has a scheduled life – cycle, which will end sooner or later (5 to 10 years) 2. Has to be dissolved when it has outlived its life – cycle. 3. Change in environment forces joint venture to be redesigned regularly 4. Translations seek to absorb their partner’s competencies. 5. It is a contractual obligation on fragile platform. 

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Strategic reasons for Formation of JV 1. 2. 3.

4. 5. 6.

7.

Foreign firms are allowed to operate only if they enter into a JV with local partner. Size of the project may be very large and one company accomplish it. Some projects require multidimensional technology that no one firm possesses. Firm with different, but compatible technology may join together. One firm with technology competence and another with managerial competence join together. A foreign firm with technology competence joins with a domestic firm with marketing competence. While setting up of an organization requires surmounting hurdles such as import quota, tariffs, nationalistic political interest and cultural road block, Government’s support for the JV. JV are undertaken for a variety of reasons like political, economic or technological

TYPES OF JV:

(A) SPIDER WEB (B) GO-TOGATHER & SPLIT (C) SUCCESSIVE INTEGRATION

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Building Competitive Advantage Through Business Level Strategy

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Corporate Value Chain

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Porter’s Generic Competitive Strategies

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What is a Business level strategy •

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Business level strategies are firm-specific business model that will allow a company to gain a competitive advantage over its rivals in a market or industry. It aims at improving the effectiveness of a company’s operations and thus its ability to attend superior efficiency, quality, innovation and customer responsiveness . Its ability to improve company’s operations helps in achieving cost leadership or helps the company in differentiating its product from the rival company.

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Distinctive Competencies… They are firm specific strengths that allow a company to differentiate its products and/or achieve substantially lower costs than its rivals and thus gain a competitive advantage. E.g. Toyota… They arise from two sources: 1) Resources 2) Capabilities 64

Build RESOURCES Differentiatio n

DISTINCTIVE COMPETENCIES

BUSINESS STRATEGIES Superior: •Efficiency •Quality •Innovation •Customer responsiven ess

Value creatio n

profitabili ty

Low cost Build CAPABILITIES

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Product/Market/Distinctive-Competency Choices and Generic Competitive Strategies Cost Leadership

Differentiation

Product Low (Principally High (Principally Differentiation by Price) by Uniqueness)

Focus

Low to High (Price or Uniqueness)

Market Segmentation

Low (Mass Market)

High (Many Market Segments)

Low (One or a few Segments)

Distinctive Competency

Manufacturing and Materials Management

Research & Development, Sales & Marketing

Any kind of Distinctive Competency 66

Cost Leadership 

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It is based on the intent to outperform competitors by doing every thing to establish a cost structure that allows it to produce or provide goods or services at a lower unit cost. Cost leader chooses a low to moderate level of product differentiation relative to its competitors. Aims for a differentiation not markedly inferior to that of the differentiator but a level obtainable at a low cost. Frequently ignores the many different market segments in industry to appeal the average customers. 67

Advantages and Disadvantages Advantages 

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Protected from industry competitors Less affected by competitors price change Requires a big market share so they purchases in relatively large quantities Barrier to entry.

Disadvantages 

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Cost leadership approach lurk in competitors’ ability to find ways to lower their cost structure Ability to imitate cost leader’s methods easily The single minded desire to reduce costs might drastically affect the demand 68

Implications 

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To pursue a full blown cost-leadership, strategic managers need to devote enormous efforts to incorporate all the latest information, materials, management, and manufacturing technology into their operations to find new ways to reduce costs. A differentiator cannot let a cost leader get too great a cost advantage because the leader might then be able to use its high profits to invest more in product differentiation and beat leaders. Must respond to the strategic moves of its differential competitors and increase the quality and features of its products if it is to prosper in the long run 69

Differentiation Strategy 

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The objective of the differentiation strategy is to achieve a competitive advantage by creating a product that consumers perceive as different or distinct in some important way. Product differentiation can be achieved in three ways   

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Quality Innovation Responsiveness to customers

Generally, a differentiator chooses to segment its market into many segments and niches A differentiated company concentrates on the organizational functions that provide the source of its differentiation advantage. 70

Advantages and Disadvantages Advantages 

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Differentiation safeguards a company against competitors to the degree that customers develop brand loyalty for its product Suppliers are rarely a problem as company’s strategy is geared more toward the price it can charge than toward costs Distinct product solves the problem of strong buyers The threat of substitutes depends on the ability of the competitors’ product.

Disadvantages 

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Strategic manager’s long term ability to maintain a product’s perceived distinctness in customers’ eyes. The ease with which competitors imitate the differentiator’s product

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Focus Strategies 

Focus Strategies position a company to compete for customers in a particular market segment, which can be defined geographically, by type of customers, or by region or even by locality.

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Focus Strategies 

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Focused Cost Leadership Strategy : If a company uses a focused low – cost approach, it competes against the cost leader in the market segment in which it has no cost disadvantage. Focused Differentiation Strategy : If a company uses a focused differentiation approach, then all the means of differentiation that are open to the differentiator are available to the focused company. 73

Advantages 

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A focused company’s competitive advantage stem from the source of its distinctive competency: efficiency, quality, innovation, or responsiveness to customers. The company is protected from rivals to the extent that it can provide a product or service they cannot. This ability also gives the focuser power over its buyers because they cannot get the same things from anyone else.

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Disadvantages  

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Powerful suppliers The focuser’s niche can suddenly disappear because of technological change or change in customer’s tastes. The focuser is vulnerable and has to defend its niche constantly.

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Competitive positioning and business – level strategy 

Strategic group Analysis

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Investment Analysis

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Game Theory

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Strategic group Analysis 

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Strategic group analysis helps a company identify the strategies that its industry rivals are pursuing. It allows managers to uncover the most important basis of competition in an industry and identify products and market segments where they can compete most successfully for customers. Such analysis also helps to reveal what competencies are likely to be most valuable in the future so that companies can make the right investment decision.

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Investment Analysis 

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An Investment Strategy sets the amount and type of resources – human, financial and functional – that must be invested to maximize a company’s profitability over time. Two factors are crucial in choosing an investment strategy: 

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The strength of a company’s position in an industry relative to its competitors. The stage of the industry’s life cycle in which the company is competing. 78

Game Theory 

Game such as chess, player move in turn, and one player can select a strategy to pursue after considering its rival’s choice of strategies or the players act at the same time, in ignorance of their rival’s current action.

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Business Level Strategies Help To Improve 1.Efficiency 2.Quality

3.Innovation 4.Customer

responsiveness

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Industry Force

Generic Strategies Cost Leadership

Differentiation

Focus

ntry arriers

Ability to cut price in retaliation deters potentialCustomer loyalty can discourage entrants. potential entrants.

uyer ower

Ability to offer lower price to powerful buyers. Ability to offer lower price to powerful Ability to offer lower price to powerful Large buyers have less power to negotiate buyers. Large buyers have less power tobuyers. Large buyers have less power because of few close alternatives. Large buyers negotiate because of few close to negotiate because of few close have less power to negotiate because of few alternatives. Large buyers have less alternatives. Large buyers have less alternatives. power to negotiate because of few power to negotiate because of few alternatives. alternatives.

upplier ower

Better insulated from powerful suppliers. Better Better insulated from powerful able to pass on supplier price increases to suppliers. Better able to pass on customers. Suppliers have power because of supplier price increases to customers. low volumes, but a differentiation-focused firm Suppliers have power because of low is better able to pass on supplier price volumes, but a differentiation-focused increases. firm is better able to pass on supplier price increases.

use low price to defend against hreat of Can substitutes. Customer's become attached to ubstitutes differentiating attributes, reducing threat of

valry

substitutes. Specialized products & core competency protect against substitutes.

Better able to compete on price.Brand loyalty to keep customers from rivals.Rivals cannot meet differentiation-focused customer needs.

Focusing develops core competencies that can act as an entry barrier.

Better insulated from powerful suppliers. Better able to pass on supplier price increases to customers. Suppliers have power because of low volumes, but a differentiationfocused firm is better able to pass on supplier price increases.

Can use low price to defend against Can use low price to defend against substitutes. Customer's become substitutes. Customer's become attached to differentiating attributes, attached to differentiating attributes, reducing threat of substitutes. reducing threat of substitutes. Specialized products & core competency Specialized products & core protect against substitutes. competency protect against substitutes.

Better able to compete on price.Brand loyalty to keep customers from rivals.Rivals cannot meet differentiation-focused customer needs.

Better able to compete on price.Brand loyalty to keep customers from rivals.Rivals cannot meet 81 differentiation-focused customer needs.

RETRENCHMENT STRATEGY Common Retrenchment Strategies:

Turnaround, restructuring,

Divesting, Bankruptcy, Liquidation WHY FIRM GO FOR RETRENCHMENT:    

  

Prevalence of poor economic conditions. Competitive pressure may also cause firms to curtail their operations. The comp. is not doing well or perceive itself as doing poorly. The comp. has not met its objectives and there is pressure from shareholders, customers, or others to improve performance. The external environment poses threats and internal strengths are insufficient to face the threats. Better opportunities in the environments are perceived else where were firms strength can be utilized. Inability to implement latest technology cause by tech. revolution. 82

International International Strategy Strategy

83

International Strategy Opportunities and Outcomes Identify Internatiodgd gnal Opportunities

Explore Resources and Capabilities

Use Core Competence

International

Modes of Entry

Strategies Increased Market Size Return on Investment Economies of Scale and Learning Location Advantage

International Business-Level Strategy Multidomestic Strategy Global Strategy Transnational Strategy

Strategic Competitiveness Management Outcomes Problems and Risk

Exporting Higher Performance Returns

Exporting Strategic Alliances Acquisition

Innovation

Establishment of New Subsidiary Management Problems and Risk

84

International Strategy Lifecycle Selling Products or Services Outside a Firm’s Domestic Market

2 1

Product Demand Develops and Firm Exports Products

Firm Introduces Innovation in Domestic Market

5

Production Becomes Standardized and is Relocated to Low Cost Countries

3

Foreign Competition Begins Production

4

Firm Begins Production Abroad 85

Motivations for International Expansion Increase Market Share Domestic market may lack the size to support efficient scale manufacturing facilities Example: Japanese electronics or automobile manufacturers

Return on Investment Large investment projects may require global markets to justify the capital outlays Example: Aircraft manufacturers Boeing or Airbus Weak patent protection in some countries implies that firms should expand overseas rapidly in order to preempt imitators 86

Motivations for International Expansion Economies of Scale or Learning Expanding size or scope of markets helps to achieve economies of scale in manufacturing as well as marketing, R & D or distribution - Can spread costs over a larger sales base - Increase profit per unit

Location Advantages Low cost markets may aid in developing competitive advantage May achieve better access to: - Raw materials - Key customers - Lower cost labor - Energy - Key suppliers - Natural resources

87

Porter’s Determinants of National Advantage Home Country of Origin Is Crucial to International Success Related & Supporting Industries Factor Conditions Basic Factors - Land, labor Advanced Factors - Highly educated workers - Digital communications Generalized Factors - Capital, infrastructure Specialized Factors - Skilled personnel

- Japanese cameras & copiers - Italian shoes & leather

Demand Conditions

Home country may support scale efficient operations by itself

Firm Strategy, Structure & Rivalry Intense rivalry fosters industry competition

88

Business-Level International Strategies International Low Cost Usually located in home country Export to international markets Low value added operations in foreign countries High value added operations in home country

International Differentiation Countries with advanced or specialized factor conditions most likely to use this strategy Example: Japan, Germany, U.S. 89

Business-Level International Strategies International Focus Strategies Technologically advanced firms follow focused low cost strategy Focused differentiation firms compete on the basis of image & design Third group competes on low price by imitating

International Integrated Low Cost/Differentiation Can be most effective in dealing with diverse markets Often relies upon flexible manufacturing, total quality management or rapid communication networks 90

Corporate-Level International Strategies Type of Corporate Strategy selected will have an impact on the selection and implementation of the business-level strategies Some Corporate strategies provide individual country units with flexibility to choose their own strategies Others dictate business-level strategies from the home office and coordinate resource sharing across units

Three Corporate Strategies

Multi-Domestic Strategy Global Strategy Transnational Strategy

91

Corporate-Level International Strategies Multi-Domestic Strategy Strategy and operating decisions are decentralized to strategic business units (SBU) in each country Products and services are tailored to local markets Business units in each country are independent of each other Assumes markets differ by country or regions Focus on competition in each market Prominent strategy among European firms due to broad variety of cultures and markets in Europe

92

Corporate-Level International Strategies Global Strategy Products are standardized across national markets Decisions regarding business-level strategies are centralized in the home office Strategic business units (SBU) are assumed to be interdependent Emphasizes economies of scale Often lacks responsiveness to local markets Requires resource sharing and coordination across borders (which also makes it difficult to manage)

93

Corporate-Level International Strategies Transnational Strategy Seeks to achieve both global efficiency and local responsiveness Difficult to achieve because of simultaneous requirements for strong central control and coordination to achieve efficiency and local flexibility and decentralization to achieve local market responsiveness Must pursue organizational learning to achieve competitive advantage 94

International Corporate Strategy When is each strategy appropriate?

High

Need for Global Integration MultiDomestic Low Low

High

Need for Local Market Responsiveness

95

International Corporate Strategy When is each strategy appropriate? High

Global Strategy

Transnational

Need for Global Integration MultiDomestic Low Low

High

Need for Local Market Responsiveness

96

Choice of International Entry Mode Exporting Exporting Common way to enter new international markets No need to establish operations in other countries Establish distribution channels through contractual relationships May have high transportation costs May encounter high import tariffs May have less control on marketing and distribution Difficult to customize products

97

Choice of International Entry Mode Licensing Licensing Firm authorizes another firm to manufacture and sell its products Licensing firm is paid a royalty on each unit produced and sold Licensee takes risks in manufacturing investments Least risky way to enter a foreign market Licensing firm loses control over product quality and distribution Relatively low profit potential A significant risk is that licensor learns technology and competes when license expires

98

Choice of International Entry Mode Strategic Strategic Alliances Alliances Enable firms to shares risks and resources to expand into international ventures Most joint ventures (JVs) involve a foreign company with a new product or technology and a host company with access to distribution or knowledge of local customs, norms or politics May experience difficulties in merging disparate cultures May not understand the strategic intent of partners or experience divergent goals 99

Choice of International Entry Mode Acquisitions Acquisitions Enable firms to make most rapid international expansion Can be very costly Legal and regulatory requirements may present barriers to foreign ownership Usually require complex and costly negotiations Potentially disparate corporate cultures 100

Choice of International Entry Mode New Wholly-Owned Subsidiary Most costly and complex of entry alternatives Achieves greatest degree of control Potentially most profitable, if successful Maintain control over technology, marketing and distribution May need to acquire expertise and knowledge that is relevant to host country Could require hiring host country nationals or consultants at high cost 101

Strategic Competitiveness Outcomes International diversification facilitates innovation in the firm Provides larger market to gain more and faster returns form investments in innovation May generate resources necessary to sustain a largescale R&D program Generally related to above-average returns, assuming effective implementation and management of international operations International diversification provides greater economies of scope and learning

102

Major Risks of International Diversification Political Risk Rebel fighting in Chechnya (Russia) and Liberia (Africa) Continual warfare among Middle Eastern nations Potential renationalization of privatized enterprises in Russia Failure of European Community in quest for economic superpower status because of intercountry disagreements 103

Major Risks of International Diversification Economic Risk Mexico’s effect on world trade with low wages and high quality but strong currency risks China’s difficulty in enforcing intellectual property rights on CDs, software, etc. Germany’s struggle with high unemployment, high interest rates, sagging competitiveness, and cuts in social programs China’s trade policies. $44 billion trade surplus with United States in 1977. China’s overall trade surplus 104 increased twentyfold in first half of 1997.

Limits To International Expansion Management Problems Cost of Coordination across diverse geographical business units Institutional and cultural barriers Understanding strategic intent of competitors The overall complexity of competition

105

PORTFOLIO ANALYSIS

106

Stages of the Industry Life Cycle

107

PRODUCT LIFE CYCLE 

  

 

  

Most product sales observed over long periods can be portrayed as bell shaped curves – Product life cycle curves which can be typically divided into four stages: Introduction, Growth, Maturity and Decline. Product Life Cycle asserts four things. 1. Products have limited life. 2. Product Sales pass through distinct stages, each posing different challenges, opportunities and problems to the seller. 3. Profits rise and fall through different stages of the life cycle. 4. Products require different marketing, financial, manufacturing, purchasing and H.R. strategies in each life cycle stage. Growth-Slump-Maturity pattern (small kitchen appliances) Cycle Recycle Pattern Scalloped Pattern (succession of PLC’s; eg: Nylon)

108

INTRODUCTION - STRATEGIES •Sales growth tends to be slow - Delays in production capacity expansion /technical problems; Distribution/retail chains being put up; sales expensive as conversion rates are lower (innovators). •Promotion at the highest ratio to sales – inform customers, induce trial and secure distribution in retail outlets. •Prices tend to be high as costs are higher.

PRICE

Hi

Lo

SLOW SKIMMING

RAPID SKIMMING

SLOW PENETRATION

RAPID PENETRATION

PROMOTION

Hi 109

PLC - GROWTH STAGE 









 

Introduction is followed by a stage marked by rapid climb in sales. Companies starts to eye for market share. Growth is a period of rapid market acceptance & substantial profit improvement. Innovators, early adaptors like the product and continue to buy the product while middle majority starts trying. New competition as sales and profits are growing. The stage where we see entry of competition in large numbers. Prices remain where they are or fall slightly to allow better penetration or for entry into other segments. Time noted for the introduction of variants/ brand extensions. Companies maintain promotion at same or higher level. Profits increase even with higher promotion costs as it gets spread over higher sales volume. 110 110

PLC - GROWTH STAGE  

  







MARKETING STRATEGIES Firm improves product quality and adds new features and models. Enters new market segments. Enters new distribution channel. Advertising focus shifts from awareness / knowledge to Interest/desire/conviction. Prices should be reduced (or low priced variants launched) at the right time to attract the next level of price sensitive customers. Faces tradeoff between high market share to high current profit. Firm that pursues market expansion strategy will improve its competitive position. 111 111

PLC - MATURITY STAGE 

 

 



 

Many products which we see around us are in the maturity stage of PLC. A stage characterized by the slow down in the growth rate. Most of practical Marketing management deals with a mature product. Hence the most important phase in PLC. Three Phases 1. Growth Maturity: Sales growth starts to fall due to distribution saturation. Growth predominantly due to trial by laggards. 2. Stable Maturity: Most potential customers have tried the product. Future sales governed by population growth and replacement demand. 3. Decaying Maturity: Absolute level of sales decline. Slow down in sales growth causes over-capacity ----Intensified competition ----- price wars ---- profit Erosion---weak exit. 112

MATURITY STAGE STRATEGIES      

  





R&D spends are increased to find better versions. Increased advertising spends. More Consumer / Dealer cuts. Three types of interventions are taken up by Marketers. 1. Market Modification: Company should not try to conserve but should try & expand market for its Brand. Sales vol. = No. of users X usage rate. Try expand the no. of Brand Users by: Convert non users: Attempts to convert non coffee drinkers to try coffee. Enter new market segments: Johnson & Johnson baby shampoo for adults, Cerelac adapted for the senile. Win competitors customers: Pepsi/Coke, NIIT/Apple. 113

MATURITY STAGE STRATEGIES 







 

Volume can also be increased by focusing on the Current Users – convincing them to use more. More frequent use: Biscuits an all time snack, Coke instead of coffee/tea, clinic shampoo, variety of SKU, vending machines. More usage per Occasion: Shampoo giving better results in two rinsing, more SKU’s. New more varied uses: Recipe route tried out by microwave oven manufacturers, Sachets by shampoo manufacturers for travelers, Arm & Hammer Baking soda as a refrigerator deodorant. 2. PRODUCT MODIFICATION Stimulate sales by modifying the product’s characteristics by improvements in quality, feature and style. 114

STRATEGIES FOR MATURE STAGE           

2. PRODUCT MODIFICATION Quality Improvement: Functional performance improved- for cars, TV, white goods - New Improved eg: Santro Xing, Indica V2. Plus launch - from FMCG manufacturers --------- stronger, bigger, better,– Lifebuoy Plus. Aimed at triggering Brand switching Style Improvement: Aimed at increasing aesthetic appeal. Periodic intro of color variants by auto manufacturers. Consumer/packaged food bringing packaging /color variants. Advantages: Unique identity / can secure loyal customers. Major disadvantage arises from the fact that it is difficult to judge customer preferences --- risk of losing those who liked earlier version

115

STRATEGIES FOR MATURE STAGE (contd.)           

Advantages of feature improvements Build progressive and leadership image for co. (Maruti) New features can be made optional (adapted or dropped easily). Helps to win loyalty of some segments. Cost effective publicity. Can generate enthusiasm for sales force and dealers. Main disadvantage is that many of these can be easily imitated. 3. Marketing Mix Modifications: Product Manager should also try to stimulate sales by modifying Mktg. Mix. Price: Decision whether a price cut will attract new customers. Trying price specials, early bird discounts, easier credit terms to retain loyal customers..

116

MATURITY STAGE STRATEGIES  

    







3. Marketing Mix Modifications: Advertising: Change message- copy, media- vehicle mix, timing/frequency, to target new audience. Build new brand identity / image. Direct comparison Ads about competition. Sales Promotion: Step up trade discount Price offs, Rebates, warranties, festival offers, gifts etc. Personal selling: should the quality of sales people or their area of specialization need to be changed. Questions on territory revisions; incentive plans; planning of sales call etc. Services: can the company speed up delivery. Extending technical services. Disadvantages: can be easily copied. Mass distribution and penetration efforts may not help – can lead to profit erosion. 117

STRATEGIES FOR DECLINE STAGE     

     

Sales of most products/brands eventually decline –. 1. Technological advancements in the product category. 2. Consumer shifts in taste & perception. 3. Increased domestic & foreign competition-----price cutting/ over capacity/ profit erosion. Sales may plunge to zero or gradually fall for a long period. As sales decline, profits fall. Some of the weaker firms withdraw. Those remaining drop smaller market segments & marginal trade channels to conserve profits. They may cut their promotion budgets and may reduce prices further. Unless strong reasons for retention exist, carrying a weak product is very costly to the firm. It can delay aggressive search for alternatives/replacement. 118

STRATEGIES FOR DECLINE STAGE    

 

MARKETING STRATEGIES: 1. Increase firms investment (Dominate the market or to strengthen its competitive position) 2. Hold investment level until uncertainties about the industry are resolved. 3. Decreasing investment selectively. (Unprofitable target groups/ markets/ products will have to be identified and instead look for strong niche’s.) 4. Harvesting: milking to recover cash quickly (Brands with high loyalty can continue longer without any investments). 5. Divest the business quickly by disposing off its assets as advantageously as possible.



Drop Decision:



Sell/transfer to someone Should drop slowly or fast. Inventory/service level to be maintained.

 

119

P.L.C WEAKNESSES  

 

 



No Uniform Shape: An ‘S’ shaped curve describes only shape of PLC while most of them vary or are unique. Unpredictable Turning Points: While most products do peak and then fall there is no specific turning point. Difficult to Decide the Stages: A dormant sales (flat) pattern may denote the product has reached maturity while it may be just that the product has touched a plateau before another growth period. Tendency to drop a product due to such readings can turn out to be fatal due to the risks involved in new product development. 120

P.L.C WEAKNESSES 



 



Unclear Implications: Growth phase may or may not be associated with high profit margin. Rapid growth can be associated with low profits and decline can be very profitable. Product Oriented: Fails to understand the changes in the requirement of customers / strategies of competitors, attractiveness of new market to competitors/ Emergence of technologies etc. Technologies, needs/ demands, product categories have different driving forces. 121

P.L.C WEAKNESSES

  







No Uniform Shape: An s shaped curve describes only shape of PLC while most of them vary or are unique. Unpredictable Turning Points: While most products do peak and then fall there is no specific turning point. Difficult to Decide the Stages : A dormant sales (flat) pattern may denote the product has reached maturity while it may be just that the product has touched a plateau before another growth period. Tendency to drop a product due to such readings can turn out to be fatal due to the risks involved in new product development Unclear Implications: Growth phase may or may not be associated with high profit margin. Say rapid growth can be associated with low profits and decline can be very profitable. Product Oriented: Fails to understand the changing requirement of customers / strategies of competitors, attractiveness of new market to competitor-ors / Emergence of technologies etc. Technologies, needs/ demands, product categories have different driving forces. 122

BCG Portfolio Matrix MARKET SHARE DOMINANCE

High growth Market leaders Require cash Large profits

HIGH LOW

MARKET GROWTH RATE

HIGH

LOW

High growth Low market share Need cash Poor profit margins

$$

Low growth High market share High cash flow

Low growth Low market share Minimal cash flow 123

BCG Matrix Relative Market Share Position

Industry Sales Growth Rate

High 1.0 High

Medium

Low

Stars IV

Question Marks III

Cash Cows I

Dogs II

Med

Low

124

BCG Matrix

125

BCG Portfolio Matrix Example MARKET SHARE DOMINANCE

HIGH LOW

MARKET GROWTH RATE

HIGH Sub-Notebooks and Hand-Held Computer STAR Laptop and Personal Computers CASH COW

LOW Integrated phone/Palm devices PROBLEM CHILD Mainframe Computer

DOG 126

Boston Consulting Group (BCG) Matrix 

  

When a firm’s divisions compete in different industries, a separate strategy often must be developed for each business. To enhance and formulate strategies. To manage its portfolio of businesses Focuses on relative market share position and the industry growth rate.

127

BCG Matrix 



    

Pie Chart corresponds to corporate revenue generated by that business unit. The pie slice indicates the proportion of division’s profit. Divisions located Quadrant I is called Cash Cows, Quadrant II is called Dogs. Quadrant III is called Question Marks, Quadrant IV is called Stars, 128

Cash Cows 

High relative market share but compete in a low-growth industry  



Generate cash in excess of their needs Milked i.e. cash for other purposes

Manages to maintain strong position as long as possible   

Product development Concentric diversification Retrenchment or divestiture if the division becomes weak 129

Dogs 



Low relative market share and compete in a slow- or no-growth industry Weak internal and external position   

Liquidation Divestiture Retrenchment

130

Question Marks 

Low relative market share—compete in a high growth industry  



Cash needs are high Cash generation is low

Decision: strengthen by pursuing an intensive strategy, e.g. to sell them.

131

Stars 





High relative market share and a high industry growth rate Represent the organization’s best long-run opportunities for growth and profitability. Substantial investment to maintain or strengthen their dominant position.   

Integration strategies Intensive strategies Joint ventures 132

BCG Matrix & Benefit     



Setting the path for growth Knowing dead investments Draws attention to the cash flow, Investment characteristics Needs of an organization’s various divisions. To achieve a portfolio of divisions that are Stars. 133

BCG Matrix Limitations 

 



Viewing every business as a star, cash cow, dog, or question mark is overly simplistic. Middle of the BCG matrix is not easily classified. The BCG matrix does not reflect whether or not various divisions or their industries are growing over time. Other variables besides relative market share position and industry growth rate in sales are important in making strategic decisions about various divisions.

134

Medium

Low

Business Strength Index * Market Share * Price Competitiveness * Product Quality * Customer Knowledge * Sales Force and Effectiveness * Geographic Advantage * Others

Industry Attractiveness

G.E Strategic Planning Model Business Strength Strong Average Weak High

Industry Attractiveness Index * Market size * Market Growth * Industry Profit Margin * Amount of Competition * Seasonality * Cost Structure * Etc.

135

Strategies for Resource Allocation Provide financial resources if SBU (Problem Build Build Hold Hold Harvest Harvest

Divest Divest

Child) has potential to be a Star. Preserve market share if SBU is a successful Cash Cow. Use cash flow for other SBUs. Increase short-term cash return. Appropriate for all SBUs except Stars.

Get rid of SBUs with low shares in low-growth markets. 136

McKinsey’s 7 S Model Strategy

Structure

Super Ordinate GoalsShared Values

Systems

Skills

Style Staff

137

Implementation of a strategy

138

Strategy Implementation 





Sum total of the activities and choices required for the execution of a strategic plan. Process by which strategies and policies are put into action through programs, budgets, and procedures. The toughest phase in Strategy Management 139

Strategy Implementation

Problems in Implementing Strategic plans

•More time than planned •Unanticipated problems •Activities ineffectively coordinated •Crises deferred attention away •Employees w/o capabilities •Inadequate employee training •Uncontrollable external factors •Inadequate leadership •Poorly defined tasks •Inadequate information systems

140

IS STRATEGY FUNCTIONAL?

DESIGN OF OBJECTIVES & COMMUNICATE TO CONCERNED

TASK BREAK DOWN EVALUATION OF OUT COME TRAINING & DEVELOPMENT OF MANAGERS

STRATEGIC IMPLEMENTATION & CONTROL PROCESS

ORGANISATION DESIGN & DEVELOPMENT

DELEGATION OF TASK & AUTHORITIES & RESPOSIBILITIES

DESIGN OF SIS /MIS DESIGN OF PERFORMANCE STANDARD

RESOURCES MOBILISATION & ALLOCATION

141

The Nature of Strategy Implementation

The greatest strategy will be failed if it’s implemented badly. Successful strategy formulation does not guarantee successful strategy implementation. Less than 10% of strategies formulated are successfully implemented!

142

The Nature of Strategy Implementation Strategy Implementation can have a low success rate

• Implementation may fail due to:    

Failing to segment markets appropriately Paying too much for a new acquisition Falling behind competition in R&D Not recognizing benefit of computers in managing information

143

The Nature of Strategy Implementation Successful Strategy Implementation

   

Market goods & services well Raise needed working capital Produce technologically sound goods Sound information systems

144

Formulation vs. Implementation  

Formulation focuses on effectiveness Implementation focuses on efficiency

• Formulation is primarily an intellectual process • Implementation is primarily an operational process • Formulation requires good intuitive & analytical skills • Implementation requires special motivational & leadership skills • Formulation requires coordination among a few individuals • Implementation requires coordination among many individuals 145

Nature of Strategy Implementation Strategy Implementation



Varies among different types & sizes of organizations

146

Nature of Strategy Implementation Implementation Activities      

Altering sales territories Adding new departments Hiring new employees Cost-control procedures Modifying advertising strategies Building new facilities 147

Nature of Strategy Implementation Management Perspectives 

Shift in responsibility Strategists

Division or Functional Managers

148

Management Issues Annual Objectives

Management Issues

Resources Organizational structure Restructuring

149

Management Issues

(cont’d)

Resistance to Change

Management Issues

Production/Operations

150

Management Issues Purpose of Annual Objectives -Basis for resource allocation Mechanism for management (e.g. IT management) evaluation Metric for gauging progress on long-term objectives Establish priorities (organizational, division, & departmental) 151

Management Issues -- Central management activity that allows for the execution of strategy Resource Allocation enables resources to be allocated according to priorities established by annual objectives.

152

Management Issues 4 Types of Resources 1. Financial resources 2. Physical resources 3. Human resources 4. Technological resources

153

Management Issues Matching Structure w/ Strategy -- Changes in strategy = Changes in structure  Structure dictates how objectives & policies will be established and how resources will be allocated; e.g. is structure based on location or based on the product… 154

Structure should be designed to facilitate the strategic pursuit of a firm

New strategy Is formulated

Organizational performance improves

New administrative problems emerge

Organizational performance declines

New organizational structure is established

155

Management Issues Restructuring -- Reducing the size of the firm – # of employees, divisions and/or units, # of hierarchical levels; e.g. The Internet is ushering in a new wave of business transformations…

156

Management Issues Reengineering In reengineering, a firm uses information technology to break down functional barriers and create a work system based on business processes… Reconfiguring or redesigning work, jobs, & processes to improve cost, quality… (alteration of Scott Morton’s value chain) Think of an example. 157

Management Issues Resistance to Change -- Single greatest threat to successful strategy implementation Raises anxiety; fear concerning: economic loss, Inconvenience or Uncertainty Force Change Strategy Educative Change Strategy Rational or Self-Interest Change Strategy 158

Management Issues Production/Operations Concerns

Production processes typically constitute more than 70% of firm’s total assets Decisions concern e.g. : Plant size Quality control Technological innovation

159

Marketing Issues Marketing variables affect success/failure of strategy implementation

1. Market segmentation 2. Product positioning

160

Marketing Issues Market Segmentation: Subdividing of a market into distinct subsets of customers according to needs and buying habits



Market segmentation variables:    

Product Place Promotion Price

161

Marketing Mix – Component Factors Product

Place

Promotion

Price

Quality

Distribution channels

Advertising

Level

Features

Distribution coverage

Personal selling

Discounts & allowances

Style

Outlet location

Sales promotion

Payment terms

Brand name

Sales territories

Publicity

Packaging

Inventory levels/locations

Product line

Transportation carriers

Warranty Service level 162 162

Marketing Issues Product Positioning

Schematic representations that reflect how products/services compare to competitors’ on dimensions most important to success in the industry; I.e. according to customer wants and customer needs

163

Finance/Accounting Issues Essential for implementation    

Acquiring needed capital Developing projected financial statements Preparing financial budgets Evaluating worth of a business

164

Research & Development Issues New products and improvement of existing products that allow for effective strategy implementation 

Use an R&D strategy that ties external opportunities to internal strengths and is linked with objectives.

165

Research & Development Issues 3 Major R&D approaches to implementing strategies 1. 2. 3.

1st firm to market new technological products Innovative imitator of successful products Low-cost producer of similar but less expensive products 166

Management Information Systems (MIS) Issues Information is the basis for understanding the firm. One of the most important factors differentiating successful from unsuccessful firms

• • • • •

MIS used to : Information collection, retrieval, & storage Keeping managers informed Coordination of activities among divisions Allow firm to reduce costs 167

Stages of the Industry Life Cycle Stage Factor Generic strategies Market growth rate

Introduction

Growth

Maturity

Decline

Differentiation DifferentiationDifferentiation Overall cost Overall cost leadership leadership Focus Low Very large Low to Negative moderate

Number of segments

Very few

Some

Many

Few

Intensity of competition

Low

Increasing

Very intense Changing

Emphasis on product design

Very high

High

Low to moderate

Low

168

Stages of the Industry Life Cycle Stage Factor

Introduction

Growth

Maturity

Decline

Emphasis on Low process design

Low to moderate

High

Low

Major functional area(s) of concern

Research and Development

Sales and marketing

Production

General management and finance

Overall objective

Increase market share awareness

Create consumer demand

Defend market share and extend product life cycles

Consolidate, maintain, harvest, or exit

169

Evaluation and Control Return on Investment (ROI)

Traditional Financial Measures

Earnings per Share (EPS) Return on Equity (ROE)

170

THANK YOU. ANY QUESTIONS?

…….JANAK V. SHELAT 171