Techniques used include

Techniques used include
The Scenario: Dynamic Environment Focus on building Core Competencies Low Cost through Economies of Scale Techniques used include JIT, TQM, Kanban Innovative Approach Competitive Pricing

The Concept of Strategy:
Strategic Management involves creating organizations that generate value in a turbulent world over a sustained period of time. Task involves: Leadership Creativity Passion Analysis Build an organization that generates and respond to change

Hierarchy of Strategic Intent:
Refers to the purposes the organization strives to achieve Can be broad: * Vision * Mission Can be more focused: * Goals * Objectives

Vision: Refers to the category of intentions that are broad, all -
inclusive and forward thinking Describes the aspirations of for the future, without specifying the means that will be used to achieve the desired ends Are personal things and often unwritten Example: Statement such as “Quality comes First” But no company can afford to stop production if quality is bad since quality improvement is a continuous and gradually process

Mission: Refers to a statement that makes vision more tangible
Verbalizes the beliefs and directions towards which a manager wants to lead the organization Addresses issues that are explicit and serve to identify what is unique about the character of the organization No well established rules regarding what they must include

Attempts to answer the following questions:
What is our reason for being? What is our basic purpose? b. What is unique or distinctive about our organization? c. What is likely to be different about our business three or five years in the future? d. Who are, or who should be, our principal customers, clients or key market segments? e. What are our principal goods and services, present and future? f. What are our principal concerns? g. What are the firm’s basic beliefs, values, aspirations and philosophical priorities?

Examples of Mission Statements:
FORD MOTOR COMPANY Ford Motor Company is a worldwide leader in automotive and automotive-related products and services as well as newer industries such as aerospace, communications and financial products. Our mission is to improve continually our products and services to meet our customers’ needs, allowing us to prosper as a business and to provide a reasonable return for our stockholders, the owners of our business. Source: Strategic Management – Miller and Dess, Second International Edition, McGraw Hill Companies

That leadership will be attained by:
Examples… AMERICAN AIRLINES We will be the global market leader in air transportation and related information services. That leadership will be attained by: Setting the industry standard for safety and security Providing world-class customer service Creating an open and participative work environment which seeks positive changes, rewards innovation and provides growth, security and opportunity to all employees Provide consistently superior financial returns for shareholders Source: Strategic Management – Miller and Dess, Second International Edition, McGraw Hill Companies

Goals: Refers to attempts made to make mission statements
more concrete Goals are needed as mission statements hardly project concrete directions for action Address both financial and non – financial issues Financial: BOEING: Profitability as measured against our ability to achieve and then maintain a 20 % average annual return on Stockholder’s return. REYNOLDS: To be an industry leader in profitability and growth and achieve an average ROE of 20 %. Non - Financial: BOEING: Integrity must pervade our actions in all relationships, including those with our customers, suppliers and each other. This is a commitment to uncompromising values and conduct. GE: We will run only businesses that are number one or number two in their global markets.

Goals: Facilitate reasoned trade-offs Example:
Having simultaneous goals like low cost leadership and good employee b. During Recession may face a dilemma such as retaining employees or laying – off employees; one results in a loss and the other affects employee relations

Goals: Can be reached with a stretch
In the words of Edwin Land, founder of Polaroid: Goals that draw the greatest strengths out of people are those they feel are manifestly important and nearly impossible. By constantly setting goals that demand more effort, an organization is more likely to reach its fullest potential.

Goals: Cut across functional areas: integrating force
Based on following areas: * Market Share and Brand Equity * Productivity * Profit Projection * HRD * Innovation * Resource Planning * Good Corporate Citizenship

Objectives: Are operational definition of goals
Define what will be accomplished in order to reach the goals Characteristics include: * Can be measured * Incorporate the dimension of time * Reduce Conflict

Forms of Strategy: 1. Intended Strategies
Represent the plans that managers develop Provide guidelines for the means by which the organization will work toward the ends it pursues Example AT & T’s Intended Strategy: We are dedicated to being the world’s best at bringing people together – giving them access to each other and to the information and services they want and need – anytime, anywhere. We look at Customer satisfaction, employee satisfaction, Stock Price and EVA. We treat every one with respect and dignity, valuing individual and cultural differences

Categories of Guidelines:
(A) Plans: Help in linking the organization to the intentions/goals that are supposed to be reached. Timing is a critical element of plans Example: AT & T’s plans state that in order to reach its objective of 10 % growth in earnings annually, its business units will focus on high-margin products. (ii) Other Examples: To maintain our desired rate of growth, we will open four new stores in the next two years To increase demand for our products, we will spend heavily on advertising to establish brand recognition.

Categories of Guidelines:
(A) Policies : Guidelines explicitly stated or implicitly understood to be part of the intended strategy Usually stated in negative terms Example: We will not depend on outside suppliers for the most critical components for the assembly of our products. We will not take on long-term debt We will fund future growth through retained earnings

Realized Strategies: Entails reference to the past and to what has actually developed Realized Strategy different from Intended Strategy as the latter seldom survives implementation in its original form Plans that do not materialize are Unrealized Elements Example: * A firm plans to develop a new product and diversify into new markets. THIS IS INTENDED STARTEGY * The product is developed and successfully sold. THIS IS REALIZED STRATEGY. * Else the product is developed but fails to sell. THIS IS UNREALIZED STARTEGY.

Views of the Strategic Management Process:
RATIONAL PLANNING: Description Attempts to move an organization to a new strategic position and maintain that position as efficiently and directly as possible Assumption Organizational Strategy lends itself to intellectual analysis and formulation, the environment is predictable and organizations are controllable Benefits Has led to the development of many useful planning tools and techniques Limitations Plans must be quickly outdated by unexpected developments; formal planning often breaks down in implementation stage Mnemonic Icon Devise the shortest path

ORGANIZATIONAL LEARNING: Description Typically move to new strategic positions and maintain those positions by making continuous adjustments Assumption While there will be many mistakes, organizations can benefit from them by discovering new ways of moving towards the goals. Benefits Emphasizes broad – based involvement in management of the firm and encourages risk taking by legitimizing mistakes Limitations May be stressful for individuals not used to unlearning the status quo and learning new ways of managing. Mnemonic Icon Search for what works

INCREMENTALISM: Description Organizational drift, from one strategy to the next, depending on the unfolding of events beyond managers control Assumption Managers lack the ability to forecast or enforce the developments essential to developing a pre-ordained strategy and therefore must continually adjust. Benefits Encourages flexibility and concern of strategy implementation Limitations Does not encourage proactive efforts to control the organization’s future or destiny. Mnemonic Icon Wander about

INCREMENTALISM: Description Organizational drift, from one strategy to the next, depending on the unfolding of events beyond managers control Assumption Managers lack the ability to forecast or enforce the developments essential to developing a pre-ordained strategy and therefore must continually adjust. Benefits Encourages flexibility and concern of strategy implementation Limitations Does not encourage proactive efforts to control the organization’s future or destiny. Mnemonic Icon Search for what works

Strategic Planning Process:
LEVEL Strategic Context Understanding and Adjusting to Gaps Identifying Resources needed to close Gap Distributing Resources Monitoring Progress Corporate Strategic Goals Vision Mission Objectives Business Competitive Environment Opportunities and Threats Function Internal Situation Strengths and Weaknesses 4 8 1 12 9 11 5 7 2 3 10 6

Steps in Strategic Management Process:
Evaluate performance in light off goals and identify gaps Relate gaps to environmental conditions Relate gaps to organizational capabilities Identify future goals given understanding of gaps Describe broad action plans aimed at meeting goals Identify resources required by each function to implement plans Aggregate needs by function into overall needs of business Allocate resources across multiple business units Reallocate resources across multiple functions Deploy resources within functions Monitor use of resources within functions Monitor use of resources across businesses

Strategic Management vs. General Management .
Integrates various management functions Oriented toward achieving organizational goals Considers broad range of stakeholders Entails multiple time horizons Concerned with both efficiency and effectiveness

EXTERNAL ENVIRONMENT ANALYSIS

Strategic Management Plan
Gaining Competitive Advantage through: * Differentiation * Cost Leadership * Quick Response * Market Focus * Market Life Cycle

Addressing Financial Performance through: * Economic Value Addition * Profitability * Growth * Managing Financial Risk * Ability to arrange low cost funds

Process Plan Evaluation through: * Product Development * Demand Management * Order Fulfillment

Competitive Strength through: * Rivalry amongst Existing Players * Threat of New Entrants * Threat of Substitute Products * Bargaining Power of the Buyers * Bargaining Power of the Suppliers

Firm’s Strength through: * Core Competencies * Market Share * Infrastructure * Cash Flow

Firm’s Capacities: * Strategic Plans * Organizational Learning * Structure and Culture * Systems * Motivating Actions

The General Environment
Consists of factors external to the Industry Includes: * Demographic * Socio-cultural * Political / Legal * Technological * Macro-economic * Global

Successful Strategic Adjustments to the General Environment:
Holds both opportunities for and threats to expansion Example: Telecommunications / Changing Interest Rates Developments change competitive battle lines Example: Deregulation of Airlines Sector Same trends can have different effects on different industries Example: Increasing Health Awareness

Successful Strategic Adjustments to the General Environment:
Impact differs for different firms within the same industry Example: Rising ATF prices and Low Cost Airlines Not all developments predictable with accuracy Example: Interest Rate Changes, Inflation, etc. Impact differs from country to country Example: MNC’s strategies for different countries

Components of General Environment
Demographic: * Ethnic Composition * Aging of Population * Maturing of Baby Boom Generation * Changes in Population Growth and Decline

Components …. Socio- Cultural: * Changing Composition of Workforce
* Health and Fitness Awareness * Erosion of Educational Standards * Spread of Drug Addictiveness * Increasing Environmental Concern

Components …. Macro Economic: * Interest Rate Changes
* Fluctuation in Exchange Rates * Budget / Trade Deficit and Surplus * Inflation Rates * Savings Rates

Components …. Political / Legal: * Deregulation * Alliance Governments
* Enactment of Laws

Components …. Technological: * Process Innovations – Robotics
* Changes in IT * Biotechnology Development * Industrial Disasters

Components …. Global: * Consumer tastes and preferences * Trade Blocs
* Global Debt * Global Terrorism * Increasing economic dependence

Michael Porter's Five Forces Model
Threat of New Entrants Potential Entrants Bargaining Power of Suppliers Suppliers Buyers Industry Competitiveness Rivalry among Existing firms Bargaining Power of Buyers Substitutes Threat of Substitute Products Source: Michael Porter - Competitive Strategy: Techniques for Analyzing Industries and Competitors, New York

The Threat of New Entrants
Implications of New Entrants * Add to existing production capacity * Erode market share of existing firms * Bring substantial resources such as huge advertising budget, willingness to spend heavily on R & D

The Threat….. * Access to distribution channels Barriers to Entry:
* Other advantages – patents, favourable access to raw materials, favourable location, government subsidies, etc. * Capital Requirements * Customers switching costs – psychological or financial * Access to distribution channels

The Bargaining Power of Suppliers
* Supplies – a big chunk of total cost * Impact Company profits in a big way * Cost increase can get passed * Quality deterioration may occur * Suppliers powerful in sectors such as - soft drink concentrates, sophisticated weapon systems, mainframe computers, etc.

What makes Suppliers powerful?
Dominance by few suppliers Absence of substitutes Greater concentration among suppliers Size of the customer Importance of Suppliers product to buyers Example: Coke to McDonald’s High switching costs High product differentiation Threat of Forward Integration

The Bargaining Power of Customers
Can force prices down Cut quantity purchased Demand better quality for the same price

What makes Buyer powerful?
Undifferentiated supplies Threat of Backward Integration Accurate information about the cost structure of the supplier Price sensitivity of the buyer: * Supplies are significant portion of total cost * Product unimportant to overall quality or cost * Buyer already earns low profits Greater concentration in buyer’s industry

Threat of Substitute Products
Places upper price limit on the product Encourages switching amongst customer’s Number increasing due to deregulation and technological advancements Example: Growth in Banking industry Example: CD- ROM’s replacing Books

The Intensity of Rivalry among Competitors
Ever increasing competition Implications include: * Intense price competition * Product Differentiation * Product Innovation * Increased Advertising spend

Factors resulting in Intense Rivalry
Well-matched rivals Slow Industry growth encouraging retaliation High fixed costs – desire to increase sales Lack of differentiation encourage switching Large increases in manufacturing capacity High profit earning opportunities High exit barriers

Application of Five Forces Framework Industry v/s Strategic Groups
What are Strategic Groups? Cluster of competitors that share similar strategies and therefore compete more directly Are grouped together for the purpose of improving analysis and understanding competition within their industry Do not necessarily belong to an real group such as Industry Trade Association or Strategic Alliance …….

Strategic Groups may be Homogeneous or Heterogeneous
Homogenous – similarity in terms of Strategies, Product, marketing efforts, R & D expenditure, Capital Intensity, etc. For Example: Paper Mills Heterogeneous – Group with multiple strategies For Example: Automobile Manufacturers

Classification of Strategic Groups:
Breadth of Market: Niche or Otherwise Product and Service Quality: Standard, Premium or Luxury Geographical Distribution: Regional, National or Global Level of Vertical Integration: Own Production unit or Job Order Production Profit or Non-Profit:

Processes for Analyzing External Environment:
Environmental Scanning: - Done to collect information relevant to strategy formulation. - Also known as Gathering Intelligence - Uses include: a. Information on competitive environment b. Challenging common assumptions about competitive environment

Processes for Analyzing…..
c. Forecasting future developments d. Identifying and compensating for exposed competitive weaknesses e. Determining when a strategy is no longer viable or sustainable f. Indicating when and how strategy be adjusted to changing environment.

Sources of Information:
Information collected by Sales force from market Local Newspaper Databases Governmental Agencies Customers and Suppliers Competitors

Processes for Analyzing…..
Scenario Planning: Scenarios are future environmental events and the firm’s response Based on assumptions that it is inappropriate to simply identify an outcome and reasonable highs and lows around it Attempt to identify a set of diverse alternative futures Highlights forces that shape the future

Guidelines for Developing Scenarios:
Avoid focusing exclusively on controllable issues Actively seek out contrarian views Do reality checks as scenarios begin to form Don’t get bogged down in too many scenarios or too may details

Mckinsey’s 7 S Model: Structure Systems Strategy Shared Vision Skills
Style Staff

Mckinsey’s 7 S Model: Shared Vision
A set of values aspirations often unwritten that go beyond profit, ROI, Growth, etc. Strategy Set of actions, plans and policies aimed at attaining sustainable competitive advantage.

Mckinsey’s 7 S Model: Structure
Firm's reporting line up, the organization chart, functional divisions and their integration System Provides flow chart of operations, the processes, quality control systems, manufacturing process and information system.

Mckinsey’s 7 S Model: Style
Working philosophy, time management and interpersonal behaviour, peer group, leading by example Staff Career growth of the employees, training patterns and honing intrinsic values

Mckinsey’s 7 S Model: Skills
Capabilities of the combined set of people in the firm

BUSINESS LEVEL STRATEGY
DR. RAJINDER SHRIRAM AURORA PROFESSOR – CONTROL SYSTEMS AND STRATEGY

Competitive Advantage
Differentiation Cost Leadership Quick Response

Differentiation Firms attempt to create
unique bundles of products and / or services that will be highly valued by customers

Margin Firm Infrastructure Human Resource Management Technology
Development Procurement Inbound Logistics Operations Outbound Marketing and Sales Services Extensive database on consumers suggests more effective advertising – Celebrity advertising used Incentive and training programs encourage high quality Product and produce better service representatives Cutting edge product features and patented production gives superior quality products and helps outperform competitors Purchase of branded components raises finished product image supplemented by effective media space. Margin Superior material improve quality of finished product customer satisfaction and product specifications Improves performance Low defects increase JIT minimizes down time And better shipping minimizes damages Builds image and superior Sales data aid customer Effective advertising selection product quality ensures replacement Courteous technicians customers and build rapport with

Attributes that Differentiate Products
Physical characteristics of product features: Philips TV After sales service: Whirlpool Desirable Image: Fashion product Technological Innovation Reputation Manufacturing consistency Status Symbol

Implications of Differentiation Strategy
Competitive rivalry lessens with successful differentiation Brand loyal customers are less price sensitive New entrants forced to overcome barriers of brand loyalty

Risks associated with Differentiated Strategy
Several competitors pursuing the same strategy may be perceived equals Specialists operating in niche markets more successful at differentiation Attempts to stay a step ahead of the competition may result in “gold plating”

Cost Leadership Achieving low cost position in relation to competitor's Involves offering no-frills / standardized product aimed at large target market. Is a relative term – involves cost relative to benefits and cost relative to competitor’s cost.

How Firms achieve Cost Leadership?
Infrastructure Human Resource Management Technology Development Procurement Inbound Logistics Operations Outbound Marketing and Sales Services Flatter Organizations Simplified Information System Process breakthrough lowers production costs Product reformulation allows use of cheaper ingredients Healthy employee policies minimize turnover Training employees reduces waste and scrap Global purchasing resulting in low cost components from offshore Real Estate purchases in rural areas . Margin Long term relationship with vendors results in passing cost savings Experiencing effects raise efficiency over Economies of scale time Computerized Routing Shipping in bulk lowers cost National advertising leads to economies of scale in buying media time follow-up time avoiding expenses of calls product right first technicians repair Expert service

How Cost Leadership addresses Competitive Forces?
Prevents rivals from indulging into price war Limited pressure from customers to lower prices further Higher margins improve position to withstand increase in cost by vendors New entrants find it difficult to compete due to lack of experience Facilitates competition with substitute products

Risk associated with Cost Leadership Strategy
Undesirable for second most competitive firm Leads to desirable product attributes getting eliminated Strategy can be duplicated by competitors Limits firm’s abilities to remain competitive

Quick Response Cost leadership and differentiation lead to a situation “atarimae hinshitsu” – value taken for granted Race for determining new competitive advantage started Focus shifted to Response Time

Quick Response Quick Response refers to
the speed with which a new product, product improvement or a managerial decision can be made Research shows that slow response to customer’s needs forces them to look for alternatives

How Firms achieve Quick Response?
Infrastructure Human Resource Management Technology Development Procurement Inbound Logistics Operations Outbound Marketing and Sales Services Faster adjustments to trends due to Top Mngt. Timely data available due to MIS New products developed due to Product Development New process invention reduces production time Well executed training programs resulting in productive workers Work with suppliers ensures each incorporates latest technological advances Margin Warehouse location minimizes shipping delays Quick adjustment to reduces plant traffic Production layout new orders JIT reduces down time Attracts new customers Effective manning of Quick resolution of customer queries orders Service Technicians guarantee 24 hour response time

Competitive Advantage through Quick Response
Development of new products Products Customization Improving existing products Timely delivery of ordered products Quick adjustment of marketing efforts Answering customers queries

Quick response time vis-à-vis Five Forces
Firms can avoid head-to-head rivalry Firms can charge premium price Encourage quick response from suppliers Greater flexibility in dealing with new entrants and substitute products

Quick Response – A strategy not always beneficial
Lack of systems that facilitate competition on response time Speed not important to all customers Can create stress Speed for the sake of speed does not lead to competitive advantage – value addition prime

The Cycle of Experience Effects
Higher Market Share Greater Relative Sales Lower Relative Prices Costs Higher Relative Sales Volume Production Volume More Rapid Gains In Experience Faster Progress Down the Experience Curve

Competitive Advantage across Market Life Cycle
Introduction: First Mover Advantage Strong Brand Recognition Strong Differentiation Advantage

Growth: Associated with glamour and success Demand grows faster than supply Reasons: Less price pressure, exciting technological development, increasing sales volume

Assumptions made during Growth
Growth is easy to achieve Less price pressure in growth markets Development of critical expertise easier in growth markets

Maturity: Lack of continuous growth Key technology benefits disappear
Cumulative experience fails to provide benefits Growing trend to compete on the basis of price

Why are price wars detrimental?
Profits are price sensitive Advantages are short lived Future expectations increase Customers shop for low prices rather than value and benefits

Practices followed to avoid Price Wars
Avoiding strategies that force competitors to respond with lower prices Avoiding all possible misreading of competition Avoiding overreacting to competitor’s price cuts Using jawboning Repositioning your product from a commodity to a differentiated position

Decline: Adopt “milking” Strategies include: * Divestment * Harvest
* Niche * Leadership

Diversification Is a process that:
Improves the core business execution Enhances the unit’s structural position Increases the competitive advantage Creates value for the shareholder’s

Forms of Diversification
Vertical Integration Is one where a corporation performs more than one step of the process involved in converting raw materials into a product delivered and ready for consumption and the integration is so efficient that one business feeds the other.

Benefits of Vertical Integration
Elimination or reduction of transaction costs Improved coordination Keeps inside counterparts honest and on their toes

Limits to Vertical Integration
May upset the minimum efficient scale of the firm Reduces flexibility and makes products outdated and non-competitive Makes firm susceptible to strikes Difficulties integrating different specializations

When to Integrate Vertically?
Are our existing suppliers or customers meeting the final consumer’s needs? How volatile is the competitive situation? Is it possible to “own” a business without actually buying it? Will vertical integration enhance the structural position of the business?

Horizontal Diversification
Entails moving into more than one industry For Example: Retailing of FMCG Products and Petroleum Products by Reliance

Why Horizontal Diversification?
Better financial strength Expertise to run diverse business Economies of Scale Higher profitability

Case against Conglomerates?
Conglomerate Discounts – stock sells less for than the total of the individual stocks would sell for Discount determined using P/E ratio – higher the ratio more the value of stock Gave rise to the concept of Corporate Raiders – Acquiring a conglomerate and then selling individual parts to earn huge gains without actually running the business even for a day

Takeover Premiums Takeover Premiums
Difference in the normal trading price of the takeover’s target’s stock and the price required to entice shareholder's to sell enough shares to acquire controlling interest Risky as the corporate stock may become worthless subsequently and lead to conglomerate discount

Global Diversification
Acquiring a global company or entering into strategic alliance with a global partner Facilitates operations at a global level Helps launch in the global arena with ease

Means of Diversification
Acquisitions Refers to purchase of a company that is already in operation Facilitates quick diversification and improvement in the value of stockholder’s investment

Pre-acquisition Management
Analyze the deal itself: * Cost of Acquisition * Benefits from the deal * Financing of the deal * Returns from the deal Analyzing the human, organizational and cultural aspects of acquisition

Post-acquisition Management
Determine potential ability of the firm to increase competitiveness Actions needed include * Setting stretching targets * Define key top positions * Pick the best people * Commit adequate resources * Anticipate and prioritize senior management agenda * Listen and transmit

Strategic Alliance Refers to arrangements in which corporations join forces to form cooperative partnership Neither company owns the other – third entity created Strengths of one offset the weakness of the other Coordination difficult due to differences in goals, strategies, procedures and cultures

Avoiding conflict in Joint Ventures
Discuss the following: * Mission of the new business * Market’s it will serve * Products it will offer * Obligations of each partner * Procedure for dissolving the venture Do not depend on the contract to make joint venture successful Do not try to short change your partner

Internal Development Refers to building new businesses more or less from ground up – Corporate Entrepreneurship Four Strategies adopted: * Act as Venture Capitalists * New Venture Incubator * Idea generation and transfer program * Intrapreneurialship

Benefits of Diversifications
Capitalizing on Core Competencies Increasing market power Sharing Infrastructures Balancing financial resources Maintaining Growth Reducing Risk

The Growth Share Matrix
Analysis projects two factors that predict success * The growth rate of the market within which the business competes * Its share of that market Entities in fast growing markets need more cash than they have and vice versa

The Growth Share Matrix
Star Cash Cow Problem Child Dog Source: BCG Market Growth High Low Market Share

Analysis of Matrix Cash Cows
* Expected to produce more cash than can be usefully employed in the house * Businesses often “milked” to finance other businesses that influence the success of the Corporation

Dogs * Are businesses holding small shares of
slow growing or declining markets * Unlikely to ever become important sources of cash generation * Are great users of cash for which there is little return * Adopt “Harvest” strategy – Do not invest ; shift cash flows to more promising business

Problem Child * Low market shares of rapidly growing markets
* Represent a potential opportunity * Increase in their market share can make them cash cows but failure can make them dogs * Strategy – investing and exploiting opportunity or not investing and missing opportunity

Stars * Hold large market share currently
* Hope of the future * Hold large market share currently * Cash flows minimal or even negative * Strategy to nurture them, maintain their health and wait for the market to slow to increase cash flows * Cash hungry start get transformed into cash cows that can be milked to nurture another generation of businesses

Competitive Strength Matrix:
BCG fails to consider other issues affecting cash flow other than market growth and market share CSM depicts various strategic issues beyond simply growth Provides a useful bridge between strategy formulation at business and corporate level

Stage of Market Life Cycle
Invest Aggressively PUSH Invest Selectively CAUTION DANGER Harvest Low Moderate High Introduction Growth Maturity Decline Stage of Market Life Cycle Competitive Strength

Industry Attractiveness – Business Position Matrix
Considers the matters discussed in other frameworks and incorporates other considerations Facilitates subjective evaluation of overall industry attractiveness and business position Industry Attractiveness is the subjective assessment based on broadest possible range of external opportunities and threats beyond the strict control of management Business Position is assessment of how strong a competitive advantage is created by the firm’s internal strengths and weaknesses

Industry Attractiveness
Low Moderate High Medium Industry Attractiveness Business Position Invest Selective Growth Up or Out Harvest Divest

Industry Attractiveness:
Factors Considered Industry Attractiveness: (a) Bargaining Powers of Suppliers: Relative Size of players Numbers of each Importance of purchases from or sales to Ability to integrate vertically (b) Threat of Substitute Products/ New Entrants: Technological Maturity Diversity of the Market Barriers to Entry Flexibility of Distribution System (c) Nature of Competitive Rivalry: Number of Competitors Size of Competitors Price Wars Competition on Multiple dimensions (d) Economic Factors: Scale Volatility Cyclicality of Demand Market Growth Capital Intensity (e) Financial Norms: Average profitability Typical Leverage Credit Practices (f) Socio Political Considerations: Government Regulation Community Support Ethical Standards

Industry Attractiveness:
Factors Considered (d) Financial Strength: Solvency Liquidity BEP Cash Flows Profitability Growth in Revenues (e) Human Assets: Turnover Skill Level Relative Wage Morale Managerial Commitment Unionization (f) Public Approval: Goodwill Reputation Image Industry Attractiveness: (a) Level of Differentiation: Advertising Effectiveness Product Quality Company Image Patented Products Brand Awareness (b) Cost Position: Economies of Scale Manufacturing Costs Overheads Scrap / Waste / Rework Labour Rates Patented Processes (c) Response Time: Manufacturing Flexibility Time needed to introduce new products Delivery Time

International Level Strategy

Global Diversification
Benefits: Lower operational costs Can supplement limited domestic opportunities Willingness to fight international competition on home turf – Fuji Xerox

Disadvantages: Greater risk Complex structure
Differences in customer requirements and ways of competing Differences in organizational cultures and managerial practices

Strategies Exporting Licensing and Franchising Joint Ventures
Wholly Owned Subsidiaries

International Strategy and Competitive Advantage:
Differentiation Cost Leadership Quick Response

Government regulations as a Source of Competitive Advantage:
Regulators Co-negotiators Suppliers Customers

What is Strategy Implementation?
Involves a broad range of efforts aimed at transforming strategic intentions into actions. Constitutes firm’s realized strategy Ability to implement strategies is one of the most valuable managerial skills

Why Strategy Implementation is Difficult?
Organizational Immune System – Resist change Difficult Paradoxes – Participative management and motivating subordinates to accept change Number of variables involved Interlink between factors affecting change Need to change everything at once

Activity Centered Change Programs
Analyses common pattern of failure in introducing change Focus is on change centered on an activity that is suppose to bring change rather than on desired results Individual elements reflect rationality yet fail collectively

Elements of Activity Centered Change Program:
Senior management, dissatisfied with past performance, develops new strategic ideas requiring organizational change Example: Declining sales leading to shift in strategy of improving customer satisfaction Initiating a program for producing desired change Example: Initiating program “Customer is King”

Management of program is delegated to those in staff positions
Example: King Customer Program handed over to Director of Quality Senior Management is “handled” by staff personnel in charge of the program Example: CEO’s speech prepared by Director of Quality

Staff in charge of the program focus on range of issues under their direct control
Example: Director of Quality develops new training program Performance measured by success of the program Example: Number of people graduating from the new training and development program

A small change is accepted as success of the program
Example: Success of the training program To continue the change initiative new programs introduced Example: New program to reduce cost initiated

Confusion with regards to old and new program as the same can conflict
Example: Cost reduction by eliminating quality programs Cynicism creeps in and status quo supported Example: Every new program looked upon as a bother

Strategic Programming
Strategy formulated on the basis of pre-established missions and objectives Short range programs evolved to implement strategy Budgets evolved to provide monetary resources Results evaluated and put in feedback loop Used first by Robert McNamara, Secretary of Defence Also known as Planning, Programming and Budgeting System

Generic Model of Strategic Programming
Introduction of Mission Derivation of Objectives Identification of Alternative Strategies Evaluation of Alternatives Selection of Preferred Alternatives Creation of Master Plan / Program Creation of Medium run Plan / Program Creation of Short run Plan / Program Evaluation of Results Feedback Loop Establish Master Budget Establish Medium Run Operating Budget Establish sort run tactical Budget Strategy Formulation Strategy Implementation

Limitations of Strategic Programming
Required Conditions: * Stability * Simplicity * Industry Maturity * Capital Intensity * Tightly Coupled Operations * External Control

Organizational Learning
Result of knowledge based competition Is combination of discovering new things and acting in ways that allow the organization to adapt to changes and sustain and improve competitiveness Called for since business units face uncertain conditions and survival depends on learning and adapting to new ways

Stephen Covey States One level of learning well suited to management
is like climbing a ladder; but higher level of Learning, one that requires leadership, involves questioning whether or not the ladder is leaning against the right wall

The Model of Organizational Learning
Learning from History and Experience Systematic Problem Solving Experimentation with New Approaches Learning from the Best Practices of Others DISCOVERY ACTION Incremental Adaptive Changes Quantum Generative Evolutionary Acts Revolutionary

Strategic Leadership Strategic leadership involves:
the ability to anticipate, envision, maintain flexibility and empower others to create strategic change multi-functional work that involves working through others consideration of the entire enterprise rather than just a sub-unit a managerial frame of reference

Strategic Leadership and the Strategic Management Process
Effective Strategic Leadership shapes the formulation of Strategic Intent Strategic Mission and influence Successful Strategic Actions

Strategic Leadership and the Strategic Management Process
Successful Strategic Actions Formulation of Strategies Implementation yields Strategic Competitiveness Above-Average Returns

Factors Affecting Managerial Discretion
External Environment External Environment Industry structure Rate of market growth Number and type of competitors Nature and degree of political/legal constraints Degree to which products can be differentiated

External Environment Characteristics of the Organization Size Age Culture Availability of resources Patterns of interaction among employees Characteristics of the Organization

External Environment Characteristics of the Manager Tolerance for ambiguity Commitment to the firm and its desired strategic outcomes Interpersonal skills Aspiration level Degree of self-confidence Characteristics of The Organization Characteristics of The Manager Managerial Discretion

Exercise of Effective Strategic Leadership
Determining strategic direction Establishing balanced organizational controls Exploiting and maintaining core competencies Effective Strategic Leadership Emphasizing ethical practice Developing human capital Sustaining an effective organizational culture

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