Corporate Strategy -Kishore Kumar August 2005

Characteristics of Strategic Decisions Concerned with the scope of an organization’s activities Concerned with the scope of an organization’s activities Matching the organization’s activities to its environment Matching the organization’s activities to its environment Matching the organization’s activities to its resource capability Matching the organization’s activities to its resource capability Strategic decisions have major resource implications Strategic decisions have major resource implications Affect operational decisions Affect operational decisions Influenced by values and expectations of shareholders Influenced by values and expectations of shareholders Determine long-term direction of an organization Determine long-term direction of an organization

Levels of Strategy Corporate Level Corporate Level Competitive or Business Strategy Competitive or Business Strategy Operational Strategy Operational Strategy Corporate strategy... defines the scope of the business in terms of the industries and markets in which it competes. Corporate strategy... defines the scope of the business in terms of the industries and markets in which it competes. includes decisions about diversification, vertical integration, acquisitions, new ventures, divestments, allocation of scarce resources between business units includes decisions about diversification, vertical integration, acquisitions, new ventures, divestments, allocation of scarce resources between business units Business strategy... is concerned with how the firm competes within a particular industry or market... to win a business unit must adopt a strategy that establishes a competitive advantage over its rivals. Business strategy... is concerned with how the firm competes within a particular industry or market... to win a business unit must adopt a strategy that establishes a competitive advantage over its rivals. Functional strategy... the detailed deployment of resources at the operational level Functional strategy... the detailed deployment of resources at the operational level

Vocabulary of Strategy Mission Mission Goals Goals Objective Objective Strategy Strategy Tactics Tactics Action Action Control Control Rewards Rewards

Characteristics of Strategic Decisions Concerned with the scope of an organization’s activities Concerned with the scope of an organization’s activities Matching the organization’s activities to its environment Matching the organization’s activities to its environment Matching the organization’s activities to its resource capability Matching the organization’s activities to its resource capability Strategic decisions have major resource implications Strategic decisions have major resource implications Affect operational decisions Affect operational decisions Influenced by values and expectations of shareholders Influenced by values and expectations of shareholders Determine long-term direction of an organization Determine long-term direction of an organization

Strategic Management Strategic Analysis Strategic Choice Strategy Implementation

Elements of Strategic Management Strategic Analysis Strategic Analysis The Environment The Environment Culture and Stakeholder Expectations Culture and Stakeholder Expectations Resources and Strategic Capability Resources and Strategic Capability Strategic Choice Strategic Choice Identifying Strategic Options Identifying Strategic Options Evaluating Options Evaluating Options Selecting Strategy Selecting Strategy Strategy Implementation Strategy Implementation Planning and Allocating Resources Planning and Allocating Resources Organization Structure and Design Organization Structure and Design Managing Strategic Change Managing Strategic Change

Patterns of Strategy Development Natural selection view Natural selection view Planning view Planning view Logical incremental view Logical incremental view Cultural view Cultural view Political view Political view Visionary view Visionary view Integrating views of strategy development Integrating views of strategy development

Cultural Web Paradigm Stories Stories Symbols Symbols Power Structure Power Structure Organizational structures Organizational structures Control systems Control systems Rituals and routines Rituals and routines

Strategic Drift

Analyzing the Environment

Macro Environmental Analysis PESTLE Political Political Economics Economics Social Social Technological Technological Legal Legal Environmental Environmental

Michael Porter’s 5 Forces Analysis

Threat of New Entry Rivalry Among Existing Competitors Bargaining Power of Customers Threat of Substitutes Bargaining Power of Suppliers Economies of scale Proprietary product differences Brand identity Switching costs Capital requirements Access to distribution Absolute cost advantages Government policy Expected retaliation Relative price performance of substitutes Switching costs Buyer propensity to substitute Industry growth Fixed costs / value added Overcapacity Product differences Brand identity Switching costs Concentration and balance Informational complexity Diversity of competitors Corporate stakes Exit barriers Differentiation of inputs Switching costs Presence of substitute inputs Supplier concentration Importance of volume to supplier Cost relative to total purchases Impact of inputs on cost or differentiation Threat of forward integration Buyer concentration Buyer volume Buyer switching costs Buyer information Ability to integrate backward Substitute products Price / total purchases Product differences Brand identity Impact of quality / performance Buyer profits Porter’s Five Forces Analysis

Strategic Group Analysis BCG Growth-Share Matrix Low High Annual real rate of market growth % High Relative Market Share Earnings: high stable, growing Cash flow: neutral Strategy: invest for growth Earnings: low, unstable, growing Cash flow: negative Strategy: analyze to determine whether business can be grown into a star, or will degenerate into a dog Earnings: high stable Cash flow: high stable Strategy: milk Earnings: low, unstable Cash flow: neutral or negative Strategy: divest

Strategic Capability Strategic Capability Resource Audit Physical resources Physical resources Human resources Human resources Financial Financial Intangibles Intangibles

Value-Chain Analysis

Comparative Analysis Historical analysis Historical analysis Comparison with Industry norms Comparison with Industry norms Best practice analysis Best practice analysis

Balance of Resources Portfolio analysis Balance of skills/personalities Financial resources Flexibility of resources

Key Issues SWOT analysis StrengthWeaknessOpportunitiesThreat Core Competency Who owns the competency How durable are the competences How transferable are the competences How replicable are the competences

Culture and Stakeholder Expectations Cultural Context – External and Internal Influence Expectations – Individuals, External stakeholders, Internal stakeholders Power Purposes – Mission, Objectives InfluenceStrategies

Cultural Context of Strategy External influences Values of Society Organized groups Internal influences Paradigm

Stakeholder Analysis Power – hierarchy, influence, control of strategic resources, knowledge or skills, control of environment, decision-making expertise DynamismInterest

Strategic Choice Development Strategies What Basis – Generic Strategies: price based, differentiation, focus Which Direction – Alternative Directions: withdrawal, consolidation, market penetration, product development, market development, diversification (related or unrelated) How - Alternative Methods: internal development, acquisition, joint development alliances

Strategic Evaluation Evaluation Criteria SuitabilityFeasibilityAcceptability Also check portfolio analysis, PLC, Value-chain and profitability

Strategy Implementation Resource Allocation identifying resources identifying resources fit with existing resources – new requirements, changing old…consistency and linkages fit with existing resources – new requirements, changing old…consistency and linkages Organization Structure and Design Simple structure Simple structure Functional structure Functional structure Multidivisional structure Multidivisional structure Matrix Matrix

Strategic Change Understanding processes of strategic change Understanding processes of strategic change Diagnosing strategic change needs Diagnosing strategic change needs Managing the strategic change process Managing the strategic change process Styles of managing change Styles of managing change Changing organizational routines Changing organizational routines Symbolic activity Symbolic activity Political activity Political activity Leadership and change agency Leadership and change agency