Advanced strategic management

Advanced Strategic Business Management

Prof. Shashank Divekar Pune, India.

[email protected]

What is Corporate Strategy ?

Corporate Strategy is the direction and scope of an organisation, which achieves advantage for the organisation through its configuration of resources within a changing environment and to fulfill stakeholder expectations.

What is Strategic Managemant ?

It is the managerial process that focuses on identifying and building competitive advantage

By

Generating good ideas and implementing them effectively.

Strategic Business Management

An Overview

Definition : Corporate Strategy is the pattern of major objectives, purposes or goals and essential policies or plans (for achieving those goals), stated in such a way as to define what business the company is in or is to be in and the kind of company it is or is to be.

The task of corporate strategy is to create a distinctive way ahead for an organisation, using whatever skills and resources it has, against the background of the environment and its constraints.


Corporate level strategy

It decides the business you should be in. Is concerned with the overall purpose and scope of an organisation and how value will be added to the different parts (Business units) of an organisation.

Business Unit strategy

Also known as ‘Competitive Strategy’, it decides the tactics to beat/ overcome the competition. Is about how to compete successfully in particular markets. The concerns are about competitors, opportunities and new products or services.

LEVELS OF STRATEGY


Operational strategy

Also called the ‘Go-to-Market Strategy’ or ‘Functional Strategy’, it decides the operational methods to implement the tactics. Are concerned with how the component parts of an organisation deliver effectively the corporate and business-level strategies in terms of resources, processes and people.

LEVELS OF STRATEGY


A Comprehensive Strategic Management Model

Vision & Mission

Statements

Measure & Evaluate

Performance

External Audit

Internal Audit

Long-Term

Objectives

Generate, Evaluate &

Select Strategies

Implement Strategies –

Mgnt. Issues

Implement Strategies - Functional

Strategy Formulation Strategy Implementation Strategy Evaluation


Key Terms in Strategic Management

Strategic Analysis

Strategy Development

Strategy Implementation

The organisation, it mission and objectives have to be examined and analysed. The top management examines the objectives, the environment and resources.

The strategy options have to be developed and selected. The strategy has to be built on the particular strengths of the organisation, developing advantages over competition that are sustainable over time.

The selected options have to be implemented.


Strategy Analysis

Judgment about what strategy to pursue needs to flow directly from solid analysis of the company’s external environment and internal situation. The two most important situational considerations are :

1. Industry and competitive conditions

2. Company’s own competitive capabilities, resources, internal strengths & weaknesses and market position.

Strategy analysis and choice seek to determine alternative courses of action that could best enable the firm to achieve its mission and objectives.


Strategy Implememtation

A technically imperfect plan that is implemented well, will achieve more than the perfect plan that never gets off the paper on which it is typed. Change comes through implementation and evaluation and not through the plan.

The implementation tasks put to test the strategists’ abilities to allocate resources, design structures, formulate functional policies, and take into account the leadership styles required, besides dealing with various other issues.

Strategy formulation concepts and tools do not differ greatly for small, large, for-profit or non-profit organisations. However, strategy implementation varies substantially among different types.


Strategy Choice

Input Stage

External Factor Evaluation (EFE) Matrix Competitive Profile Matrix Internal Factor Evaluation (IFE) Matrix

Matching Stage

SWOT Matrix Strategic Position & Action Evaluation (SPACE) Matrix BCG Matrix Internal – External (IE) Matrix Grand Strategy Matrix

Decision Stage

Quantitative Strategic Planning (QSP) Matrix


Michael Porter’s Five Generic Strategies

1. Cost Leadership – Low cost

2. Cost Leadership – Best Value

3. Differentiation

4. Focus – Low cost

5. Focus – Best Value


RESOURCES Strategy needed

to direct activities of its

people, finance, factories etc.

How corp. strategy links the organisation’s resources with its environment

Economy Growing

Opportunity

Competitors Attacking

Threat

Customers excited about new products

& services

Opportunity

Suppliers becoming more aggressive

Threat

Environment Environment

Environment

Environment


How corp. strategy links the organisation’s resources with its environment

Economy at large

Technology Legislation & Regulation

Societal Values & Lifestyle Population

Demographics

Firm

Suppliers

Rivals Buyers

Substitutes

New Entrants



Mintzbetg’s 5 P’s of Strategy

Henry Mintzberg has described Strategy in different viewpoints. He argued that it is difficult to give a specific and concise definition of Strategy, since the word is used in different ways, by different people in different circumstances.

It is important to understand Strategy in the right context, for a meaningful review and analysis of the same.

Strategy is defined as 1. Plan

2. Ploy

3. Pattern

4. Position

5. Perspective.


Strategy as a PLAN : This is the most commonly understood concept of strategy. This is the default, automatic approach. Dictionary meaning of ‘Strategy’ is a plan, method or series of maneuvers that help the enterprise achieve its basic objectives. The objective of every strategy is ‘action’. According to Peter Drucker, Strategy is ‘Purposeful Action’. According to Moore, it is ‘Design for action’. In Management theory, Strategy is a unified, comprehensive and integrated plan. In Game theory, it is a ‘complete plan’, which also specifies what choices the player will make in every possible situation.



Strategy as a PLOY: According to Mintzberg, Strategy involves getting better of the competitors, by plotting to disrupt, dissuade, discourage, or otherwise influence them. In this sense, strategy is seen as a Ploy’. As a ‘Ploy’, strategy is a killer move, a technique for dealing with impending troubles or problems. Strategy as a PATTERN : While Plans and Ploys are both deliberate exercises, sometimes strategy emerges as a past organisational behaviour. It can become a consistent and successful way of doing business, which can develop into a strategy. By this definitiom, strategy is consistency in behaviour, whether or not intended.



Strategy as a POSITION: How you decide to ‘position’ yourself in the marketplace can also be a strategy in itself. In this way, strategy helps you explore the fit between your organisation and your environment, and it helps you develop a sustainable competitive advantage.

By this definition, strategy becomes a mediating forcce, a ‘Match’ according to Hofer and Schendel, between organisations and environment.

Strategy as a PERPECTIVE : This is about the corporate philosophy, priorities and values behind every decision.

Under this conceept, strategy is all about how the organisation perceives the market, it’s own status and it’s own way of conducting business. In this sense, strategy is to the organisation, what personality is to an individual.


A Strategic Vision is a roadmap of a company’s future – providing specifics about technology and customer focus, the geographic and product markets to be pursued, the capabilities it plans to develop, and the kind of company the management is trying to create.

Vision Statements and Mission Statements are the inspiring words chosen by successful leaders to clearly and concisely

convey the direction of the organization.

A Mission Statement defines the company's business, its objectives and its approach to reach those objectives.

A Vision Statement describes the desired future position of the company.

Elements of Mission and Vision Statements are often combined to provide a statement of the company's purposes, goals and values.

Business Policy & Strategic Management

Vision, Mission & Objectives

The Vision statement communicates both the purpose and values of the organization.

A vision statement is a broad declaration of overall intent to eventually achieve a widely acknowledged state of existence - an aspiration for the future.

Vision refers to the category of intentions that are broad, all-inclusive and forward-thinking. It is the image that a business must have of its goals before it sets out to reach them.




A mission statement defines in a paragraph or so any entity's reason for existence. It embodies its philosophies, goals, ambitions and mores. Any entity that attempts to operate without a mission statement runs the risk of wandering through the world without having the ability to verify that it is on its intended course.

A Mission statement is an organization's vision translated into written form. It makes concrete the leader's view of the direction and purpose of the organization.


Mission and Vision Statements are commonly used to:

Internally :

• Guide management's thinking on strategic issues, especially during times of significant change;

• Help define performance standards;

• Inspire employees to work more productively by providing focus and common goals;

• Guide employee decision making;

• Help establish a framework for ethical behavior.

A Mission statement should be a short and concise statement of goals and priorities. In turn, goals are specific objectives that relate to specific time periods and are stated in terms of facts.



Mission and Vision Statements are commonly used to:

Externally :

• Enlist external support;

• Create closer linkages and better communication with customers, suppliers and alliance partners;

• Serve as a public relations tool.

Vision defines where the organisation wants to be in the future. It reflects the optimistic view of the organisation’s future. It should resonate with all members of the organisation and help them feel proud, excited and part of something bigger than themselves.

Mission defines where the organisation is going now, basically describing its purpose, its primary objectives.



Sample Vision Statements :



"PepsiCo's responsibility is to continually improve all aspects of the world in which we operate - environment, social, economic - creating a better tomorrow than today. Our vision is put into action through programs and a focus on environmental stewardship, activities to benefit society, and a commitment to build shareholder value by making PepsiCo a truly sustainable company."

“We aspire to be the global steel industry benchmark for Value Creation and Corporate Citizenship”.

- Tata Steel

Sustain ITC's position as one of India's most valuable corporations through world class performance, creating growing value for the Indian economy and the Company's stakeholders

- ITC

Driven by the customer

TVS Motor will be responsive to customer requirements consonant with its core competence and profitability. TVS Motor will provide total customer satisfaction by giving the customer the right product, at the right price, at the right time.

- TVS Motors

Sample Vision Statements : Strategic Business Management

Sample Mission Statements :


Our mission is to be the world's premier consumer products company focused on convenient foods and beverages. We seek to produce financial rewards to investors as we provide opportunities for growth and enrichment to our employees, our business partners and the communities in which we operate. And in everything we do, we strive for honesty, fairness and integrity.

- Pepsico


Consistent with the vision and values of the founder Jamsetji Tata, Tata Steel strives to strengthen India’s industrial base through the effective utilization of staff and materials. The means envisaged to achieve this are high technology and productivity, consistent with modern management practices. Tata Steel recognizes that while honesty and integrity are the essential ingredients of a strong and stable enterprise, profitability provides the main spark for economic activity.

- Tata Steel





“We are committed to being a highly profitable, socially responsible, and leading manufacturer of high value for money, environmentally friendly, lifetime personal transportation products under the TVS brand, for customers predominantly in Asian markets and to provide fulfilment and prosperity for employees, dealers and suppliers.”

- TVS Motors

“To enhance the wealth generating capability of the enterprise in a globalising environment, delivering superior and sustainable stakeholder value”.

- ITC


External Audit

The purpose of External Audit is to identify key external variables that offer actionable responses.

Firms should be able to respond either offensively of defensively to external factors by formulating strategies that take advantage of external opportunities or minimize the impact of potential threats.

Key External Forces :

1. Economic

2. Social, Cultural Demographic & Environmental

3. Political, Governmental & Legal

4. Technological

5. Competitive


Internal Audit

Performing an internal audit requires gathering, assimilating and evaluating information about the firm’s operations.

The internal audit involves collecting and analyzing data and details about the firm’s management, marketing, finance/ accounting, production/ operations, R&D, and MIS operations.

Representative managers and employees from throughout the firm need to be involved in determining the firm’s strengths and weaknesses.

The process of performing an internal audit provides more opportunity for the participants to understand how their jobs, departments and divisions fit into the whole organization.


Goals & Objectives

Objectives are open-ended attributes that denote the future states or outcomes.

Goals are close-ended attributes which are precise and expressed in specific terms.

Objectives may be qualitative while goals generally tend to be quantitative.

The pursuit of objectives is an unending process such that organizations sustain themselves. They provide meaning and sense of direction to organizational endeavour.

Objectives are organizations performance targets – the results and outcomes it wants to achieve. They function as yardstick for tracking an organizations performance and progress.


Goals & Objectives

COMMON OBJECTIVES :

• SURVIVAL

• STABILITY

• GROWTH

• EFFICIENCY

• PROFITABILITY


Characteristics of Objectives :

• Objectives help an organization in pursuit of its vision and mission.

• Objectives provide the basis for strategic decision-making

• Objectives should define an organization's relationship with its environment.

• Objectives should provide the standards for performance appraisal.

• Objectives should be concrete and specific.

• Objectives should be measurable, controllable and challenging.

• Objectives should be set within constraints.


ENVIRONMENTAL APPRAISAL

Environment is the sum of various external and some internal forces that affect the functioning of business.

"The environment includes factors outside the firm which can lead to opportunities for, or threats to the firm. Although there are many factors, the most important of the sectors are socio-economic, technological, supplier, competitors, and government. “

- Glueck & Jauch

"Environment factors or constraint are largely if not totally, external and beyond the control of individual industrial enterprises and their managements. These are essentially the 'givers' within which firms and their managements must operate in a specific country and they vary, often greatly, from country to country.“

- Barry M. Richman & Melvyn Copen



Objectives of Environmental Appraisal :

1. To understand the current and potential changes taking place

2. To obtain necessary inputs for strategic decision making.

3. To facilitate and foster strategic thinking in organisations

Characteristics of Business Environment :

• Environment is complex

• Environment is Dynamic

• Environment is multi-faceted

• Far-reaching impact

• Carries risks, uncertainties & opportunities


Micro Environment

Micro-environment is related to small area or immediate periphery of the organisation. It influences the organisation regularly and directly.

Decisions affected by Micro-Environment

• Employees, their characteristics, attitudes and profiles.

• The customer base

• Methods and sources of finance

• Vendors/ suppliers and the relationships

• The local community

• Direct competition


Macro Environment

Macro Environment consists of broad, indirect factors which affect the overall business environment in a country or region, across all industries.

MACRO ENVIRONMENT

DEMOGRAPHIC

ECONOMIC

LEGAL / REGULATORY

GOVERNMENT

POLITICAL

CULTURAL

TECHNOLOGICAL

GLOBAL


Types of strategies

Forward Integration : Gaining ownership/ increased control over channel partners

Backward Integration : Ownership/ control over suppliers

Horizontal Integration : Ownership/ control over competitors

Market Penetration : Seeking increased market share in existing markets through extra efforts.

Market Development : Introducing existing product (s) into new geographic areas

Product Development : Improving existing products or developing new products

Integration

Intensive


Types of strategies

Related Diversification : Adding new but related products or services

Unrelated Diversification : Adding new, unrelated products or services

Retrenchment : Regrouping through cost and asset reduction to reverse declining sales/ profits

Divestiture : Selling/ hiving off a division or part of the organisation

Liquidation : Selling all the assets, in parts, for their tangible worth

Diversification

Defensive


Competitive Analysis : Porter’s Five-Forces Model

1. Rivalry among competing firms

2. Potential entry of new competitors

3. Potential development of substitute products

4. Bargaining power of suppliers

5. Bargaining power of consumers

The Five-forces model is used in three steps to determine what competition is like in a given industry :

1. Identify the specific competitive pressures/ key elements associated with each of the five forces, that impact the firm.

2. Evaluate how strong are the pressures comprising each of the five forces (Fierce, strong, moderate to normal or weak).

3. Determine whether the collective strength of the five competitive forces is conducive to earning attractive profits.


External Analysis. Internal Analysis

Opportunities, threats, trends and strategic uncertainties

Strategic strengths, weaknesses, problems, constraints and uncertainties

Strategy identification and selection Identify strategic alternatives

Select strategy

Implement the operating plan

Review strategies

•Product-maker investment strategies • Functional area strategies • Assets, competencies and synergies

Strategic Analysis



Strategy Implementation concerns the managerial exercise of putting a freshly chosen strategy into place.

Characteristics of Strategy Implementation :

• Action Oriented

• Comprehensive in scope

• Requires varied skills

• Wide-ranging involvement

• Integrated Process

Managing strategy implementation and execution is an operations-oriented activity aimed at shaping the performance of core business activities in a strategy-supportive manner.



To convert strategic plans into actions and results, a manager must be able to :

• Direct organizational change • Motivate people • Build and strengthen company competencies • Strengthen competitive capabilities • Create a strategy-supportive work climate and • Meet or beat performance targets.

Effective strategy execution involves creating strong ‘fits’ between strategy and organizational capabilities, between strategy and reward structure, between strategy and internal operating systems, and between strategy and the organization’s work climate and culture.

It is the most demanding and time-consuming part of the strategy-management process.


A technically imperfect plan that is implemented well, will achieve more than the perfect plan that never gets off the paper on which it is typed. Change comes through implementation and evaluation and not through the plan.

Strategic-management process does not end when the firm decides what strategies to pursue. There must be a transition of strategic thought into strategic action. Implementing strategy affects an organisation from top to bottom; it affects all the functional and divisional areas of a business.

Strategy execution deals with the managerial exercise of supervising the ongoing pursuit of strategy, making it work, improving the competence with which it is executed and showing measurable progress in achieving the targeted results.



Strategy formulation is fundamentally different from strategy implementation :

Strategy Formulation Strategy Implementation

Positioning forces before the

action

Managing forces during the

action

Focuses on effectiveness Focuses on efficiency

Primarily an intellectual

process

Primarily an operational

process

Requires good intuitive and

analytical skills

Requires special motivation

and leadership skills

Requires coordination

among few individuals

Requires coordination

among many individuals

Strategy formulation concepts and tools do not differ greatly for small, large, for-profit or non-profit organisations. However, strategy implementation varies substantially among different types.




Environment is the sum of various external and some internal forces that affect the functioning of business.

"The environment includes factors outside the firm which can lead to opportunities for, or threats to the firm. Although there are many factors, the most important of the sectors are socio-economic, technological, supplier, competitors, and government. “

- Glueck & Jauch

"Environment factors or constraint are largely if not totally, external and beyond the control of individual industrial enterprises and their managements. These are essentially the 'givers' within which firms and their managements must operate in a specific country and they vary, often greatly, from country to country.“

- Barry M. Richman & Melvyn Copen



Objectives of Environmental Appraisal :

1. To understand the current and potential changes taking place

2. To obtain necessary inputs for strategic decision making.

3. To facilitate and foster strategic thinking in organisations

Characteristics of Business Environment :

• Environment is complex

• Environment is Dynamic

• Environment is multi-faceted

• Far-reaching impact

• Carries risks, uncertainties & opportunities


Micro Environment

Micro-environment is related to small area or immediate periphery of the organisation. It influences the organisation regularly and directly.

Decisions affected by Micro-Environment

• Employees, their characteristics, attitudes and profiles.

• The customer base

• Methods and sources of finance

• Vendors/ suppliers and the relationships

• The local community

• Direct competition


Macro Environment

Macro Environment consists of broad, indirect factors which affect the overall business environment in a country or region, across all industries.

MACRO ENVIRONMENT

DEMOGRAPHIC

ECONOMIC

LEGAL / REGULATORY

GOVERNMENT

POLITICAL

CULTURAL

TECHNOLOGICAL

GLOBAL


Types of strategies

Forward Integration : Gaining ownership/ increased control over channel partners

Backward Integration : Ownership/ control over suppliers

Horizontal Integration : Ownership/ control over competitors

Market Penetration : Seeking increased market share in existing markets through extra efforts.

Market Development : Introducing existing product (s) into new geographic areas

Product Development : Improving existing products or developing new products

Integration

Intensive


Types of strategies

Related Diversification : Adding new but related products or services

Unrelated Diversification : Adding new, unrelated products or services

Retrenchment : Regrouping through cost and asset reduction to reverse declining sales/ profits

Divestiture : Selling/ hiving off a division or part of the organisation

Liquidation : Selling all the assets, in parts, for their tangible worth

Diversification

Defensive


Competitive Analysis : Porter’s Five-Forces Model

1. Rivalry among competing firms

2. Potential entry of new competitors

3. Potential development of substitute products

4. Bargaining power of suppliers

5. Bargaining power of consumers

The Five-forces model is used in three steps to determine what competition is like in a given industry :

1. Identify the specific competitive pressures/ key elements associated with each of the five forces, that impact the firm.

2. Evaluate how strong are the pressures comprising each of the five forces (Fierce, strong, moderate to normal or weak).

3. Determine whether the collective strength of the five competitive forces is conducive to earning attractive profits.


Michael Porter’s Five Generic Strategies :

1. Cost Leadership – Low cost

2. Cost Leadership – Best Value

3. Differentiation

4. Focus – Low cost

5. Focus – Best Value


Strategy Alternatives

Stability Expansion Retrenchment Combination

Intensification Diversification

Market Development

Product Development

Market Penetration

Vertically Integrated

Concentric Diversification

ConglomerateDiversification

Forward Backward



PORTER’S VALUE CHAIN

One of the primary tasks of top management in any business organisation is to create a strong and sustainable competitive advantage. For this, it is essential to analyse the various activities through which such competitive advantage can be created. For this purpose, Michael Porter modelled a firm as a chain of value creating activities. The term ‘Value Chain’ was used by Michael Porter in his book "Competitive Advantage: Creating and Sustaining superior Performance" (1985). Rather than looking at departments or accounting cost types, Porter's Value Chain focuses on systems, and how inputs are changed into the outputs purchased by consumers.


The concept of ‘Value chain’ looks at an organisation as a system, made up of sub-systems. Each system and sub-system involves inputs, transformation process and output. Inputs, transformation processes, and outputs involve the acquisition and consumption of resources - money, labour, materials, equipment, buildings, land, administration and management. The costs incurred and the profits earned are determined by the way value chain activities are carried out. Michael Porter classified the value chain activities into 2 categories :

1. Primary Activities/ Processes 2. Support Activities / Processes




Primary Activities/ Processes : 1. Inbound Logistics : Include the receiving, warehousing, and

inventory control of input materials. Involve relationships with suppliers and include all the activities required to receive, store, and disseminate inputs.

2. Operations : These are the transformation and value-creating activities that transform the inputs into the final product.

3. Outbound Logistics : These activities deliver your product or service to your customer. These are things like collection, storage, and distribution systems, and they may be internal or external to your organization.

Contd..



Primary Activities/ Processes : 4. Marketing & Sales : Inform buyers about products and services,

induce buyers to purchase them, and facilitate their purchase. These are the processes to persuade clients to purchase from you instead of your competitors. The benefits offered, and how well these are communicated, are sources of value here.

5. Service : These are the activities related to maintaining the value of

your product or service to your customers, once it's been purchased. Includes all the activities required to keep the product or service working effectively for the buyer after it is sold and delivered.



Support Activities/ Processes : 1. Procurement : Is the acquisition of inputs, or resources, for the

firm. This is what the organization does to get the resources it needs to operate. This includes finding vendors and negotiating best prices.

2. Human Resource Management : Covers all activities involved in recruiting, hiring, training, developing, compensating and (if necessary) dismissing or laying off personnel. People are a significant source of value, so businesses can create a clear advantage with good HR practices.

Contd..



Support Activities/ Processes : 3. Technological Development : Pertains to the equipment,

hardware, software, procedures and technical knowledge brought to bear in the firm's transformation of inputs into outputs. Minimizing information technology costs, staying current with technological advances, and maintaining technical excellence are sources of value creation.

4. Infrastructure : These are a company's support systems, and the functions that allow it to maintain daily operations. Accounting, legal, administrative, and general management are examples of necessary infrastructure that businesses can use to their advantage.

Procurement

Technology Development

Human Resource Management

Infrastructure

MARGINS

Primary Activities

Support Activities



Porter’s Value System

Supplier

Value Chain

Customer

Value Chain

Distributor

Value Chain

Organisation’s

Value Chain



Environmental Threat & Opportunity Profile (ETOP)

Every business needs to conduct continuous environmental analysis for strategic business decisions. This results into a mass of information related to trends, events, issues and market expectations.

A Structuring of this data and information in esssential in order to make it meaningful and relevant. ETOP is a technique which is used for this purpose.

ETOP involves :

1. Dividing the environment into various sectors and further into sub-sectors.

2. Analysing the impact of each sector and sub-sector on the organisation

3. Describe the impact in the form of a statement (Favourable, unfavourable or neutral).


Environmental Threat & Opportunities Profile (ETOP)

ENVIRONMENTAL SECTOR

NATURE OF IMPACT IMPACT OF THE SECTOR

ECONOMIC Burgeoning middle class,

rising disposable incomes, lifestyle changes.

MARKET

Several major players, lots of small players and a large

unorganised sector, margin pressures.

GLOBAL Global slowdown, cheaper imports, US$, crude prices.




POLITICAL Coalition compulsions, lack

of direction, instability.

REGULATORY

Too many controls, inspector raj, documentation and

licensing, reservations for SSI etc.

SOCIAL

Changing attitudes, acceptance of new social

values and norms, new ideas and liberal outlook.





TECHNOLOGY Cheaper technology

development, skilled and trained indigenous talent.

SUPPLIERS

Too few vendors, new suppliers reluctant to enter

the market. Pricing and scheduling issues.


The BCG Growth-Share Matrix is a portfolio planning model was developed by Bruce Henderson of Boston Consulting Grup in the early 1970’s. It displays the various business units on a graph of the market growth rate vs. market share relative to competitors. This helps the company allocate resources and is used as an analytical tool in brand marketing, product management, strategic management, and portfolio analysis. It facilitates a comparison of many business units at a glance. The BCG Matrix uses two dimensions : Market Share and Market Growth. The position of a business unit on the growth-share matrix provides an indication of the cash generation and its cash consumption.


BCG Matrix



BCG Matrix

Placing products or businesses in the BCG Matrix results in 4 categories in a portfolio of a company : DOGS ( Low Growth, Low Market Share) These neither generate nor consume large amounts of cash in the business. However, these are cash traps because money is tied up in a business that has little potential. They depress an otherwise profitable company’s return on assets ratio. Question Marks (High Growth, Low Market Share) This business unit has a small market share in a high-growth market. These require resources and investment to increase the market share, but success is doubtful. ders and thus also generate large amounts of cash.

STARS (High Growth, High Market Share) They consume large amounts of cash and are market leaders in a high-growth market. Stars generate cash but on the other hand, in order to maintain its market leadership, they also require large infusion or investment. Cash Cows (Low Growth, High Market Share) Business unit that has a large market share in a mature, slow growing industry. Cash cows require little investment and generate cash that can be used to invest in other business units. They are to be "milked" continuously with as little investment as possible, since such investment would be wasted in an industry with low growth.


BCG Matrix

The GE 9-Cell Matrix was developed with the intention to overcome certain limitations of the BCG Matrix.

The Matrix was pioneered by General Electric Co., with the aid of Boston Consulting Group and McKinsey & Co.

GE Nine-Cell Strategic Model

The matrix consists of 9 cells (3X3) and Two Key Variables :

• Business Strength • Industry Attractiveness

Business Strengths :

• Product features/ Patents • Market Share • Profit Margins • Price/ Quality Competitiveness • Market Intelligence

Industry Attractiveness :

• Market Size & Growth • Economies of scale • Technology • Social/ environmental aspects • Competitive factors



Industry Attractiveness

Enterprise Strength

High

Medium

Low

High Medium Low

Leader

Try Harder

Growth

Phased Withdrawal

Withdrawal Phased

Withdrawal

Cash Generation

Proceed with care

Improve or Quit

If your enterprise falls in the green zone you are in a favorable position with relatively attractive growth opportunities.

A position in the yellow zone is viewed as having medium attractiveness.



Industry Attractiveness

Enterprise Strength

High

Medium

Low

High Medium Low

Leader

Try Harder

Growth

Phased Withdrawal

Withdrawal Phased

Withdrawal

Cash Generation

Proceed with care

Improve or Quit

A position in the red zone is not attractive. The suggested strategy is that management should begin to make plans to exit the industry.



McKinsey’s 7 S Framework

The McKinsey 7- S framework is a popular model used in organisations to analyse the environment to investigate if the company is achieving its intended objectives.

The model was developed by Tom Peters & Robert Waterman, consultants at the McKinsey & Company consulting firm. The basic premise of the model is that there are seven internal aspects of an organization that need to be aligned if it is to be successful. The 7-S model can be used in a wide variety of situations to help

• Improve the performance of a company. • Examine the likely effects of future changes within a company. • Align departments and processes during a merger or acquisition. • Determine how best to implement a proposed strategy.


The McKinsey 7S model involves seven interdependent factors which are categorized as either "hard" or "soft" elements:

Hard Elements Soft Elements

Strategy Shares Values

Structure Skills

Systems Style

Staff

"Hard" elements are easier to define or identify and management can directly influence them: These are strategy statements; organization charts and reporting lines; and formal processes and IT systems.

“Soft" elements, on the other hand, can be more difficult to describe, and are less tangible and more influenced by culture. However, these soft elements are as important as the hard elements if the organization is going to be successful.




Hard Elements • Strategy – It refers to the intended sequence of actions taken by a

company to achieve its goals and objectives. It deals with resource allocation and includes competition, customers and the environment.

• Structure – It refers to how the various business units are structured and how they communicate with each other. A company’s structure may be centralized or decentralized or may take many other forms depending on the company’s culture and values.

• Systems – This includes a host of systems within an organization that define its processes and routines. It includes performance appraisal system, financial systems, IT systems etc.



Soft Elements • Shared values – These are the core values of the company that

connect all the other 6 factors. These are the fundamental ideas or guiding principles that lay the foundation of businesses.

• Skills: the actual skills and core competencies of the employees working for the company.

• Style – This spans the core beliefs, norms and management style in the organization.

• Staff – It refers to the number and type of employees in the organization. It is very important for an organization to manage its human capital to create competitive advantage.



SYNERGY

Synergy is a state in which two or more things work together in a particularly fruitful way that produces an effect which is greater than the sum of their individual effects.

Synergy describes the benefits a business experiences by strategically organizing itself to maximize cooperation and innovation. In simple terms, a synergistic organization achieves more as a group than its parts could in isolation.

Increasing synergy requires a careful analysis of your organization’s current strategies to identify better ways of doing business.

The term ‘Synergy’ is most commonly used in the context of mergers and acquisitions. Synergy, or the potential financial benefit achieved through the combining of companies, is often a driving force behind a merger.

1 + 1 = 3


SYNERGY Besides growth needs, acquisitions and mergers are done for the purpose of achieving a measure of synergy between the parent and the acquired entity. Synergy may result from such bases as physical facilities, technical and managerial skills, distribution channels, R&D, patents etc. Business synergy may manifest itself in different ways – either as sustained higher profitability or as a strong competitive advantage in the markets. In management, synergies may be created between management teams, resulting in increased capacity and workflow that was not possible when the teams were working independently.


STRATEGIC FIT Most business managers seeking to expand their company's operation through a merger or acquisition will look for another company that makes a good strategic fit with their own firm. Strategic fit expresses the degree to which an organization is matching its resources and capabilities with the opportunities in the external environment. A Strategic Fit is a situation that occurs when a specific project, target company or product is seen as appropriate with respect to an organization's overall objectives. Synergy and Strategic Fit are two important factors which determine the strategic business decisions and their outcomes.


Strategic ‘Fit’ and ‘Stretch’ Startegic ‘fit’ refers to matching the organisation’s activities and business decisions to the environment in which it operates. Here, the business strategy is designed according to the prevailing and expected business environment. Strategy development by 'stretch' is the identification and leverage of the resources and competences of the organisation which yield new opportunities or provide competitive advantage. Strategic ‘fit’ and ‘stretch’ are opposite ideas. Under ‘fit’, the strategic intent is seen as more realistic, while under ‘stretch’ and ‘leverage’, it is seen as idealistic.


Strategic Leverage The ability to influence a system, or an environment, in a way that multiplies the outcome of one's efforts without a corresponding increase in the consumption of resources. Strategic leverage is defined as a company's maneuver (its ability to change its competitive position in a market) multiplied by its return (changes in revenue, market share, or both that result from any maneuver). Leverage refers to ‘Doing more, using lesser resources’. Leverage strategic usually rely on the use of outside business partners to help you market your firm. Marketing partners can have huge multiplying effects on your marketing efforts.


The Balanced Scorecard is a strategic performance management framework that has been designed to help an organisation monitor its performance and manage the execution of its strategy.

In 1992 Robert Kaplan and David Norton developed the Balanced Scorecard, a performance measurement system that considers not only financial measures, but also customer, business process, and learning measures.

In a recent world-wide study on management tool usage, the Balanced Scorecard was found to be the sixth most widely used management tool across the globe which also had one of the highest overall satisfaction ratings.

The Balanced Scorecard


In its simplest form the Balanced Scorecard breaks performance monitoring into four interconnected perspectives :

Financial Customer Internal Processes Learning & Growth.

Data collection is crucial to providing quantitative results, which are interpreted by managers and executives and used to make better long-term decisions.

The critical characteristics that define a Balanced Scorecard are : • Its focus on the strategic agenda of the organisation • The selection of a small number of data items to monitor • A mix of financial and non-financial data items.




The Financial Perspective covers the financial objectives of an organisation and allows managers to track financial success and shareholder value. a. Financial Results & Growth

b. Key Financial Parameters and Perfoemance (ROE/ ROCE)

c. Higher Profit Margins

d. Improved Cash Flow

e. Lower Bad Loans and Lower Debt

f. Net Interest Margin

g. Reduced Overhead Expenses




The Customer Perspective covers the customer objectives such as customer satisfaction, market share goals as well as product and service attributes.

a. Increase Customer Satisfaction

b. Increase Customer Loyalty

c. Retention of Key Customers

d. Sales Revenue per Customer

e. Competitive Pricing & product offering

f. High Quality Service

g. Customer preference

The Internal Process Perspective covers internal operational goals and outlines the key processes necessary to deliver the customer objectives.

a. Improve Operational Efficiency

b. Customer Relationship Management

c. Higher success rate in converting business opportunities

d. Fast Business Decisions and Approvals

e. Proper work culture & Employee Confidence





The Learning and Growth Perspective covers the intangible drivers of future success such as human capital, organisational capital and information capital including skills, training, organisational culture, leadership, systems and databases.

a. Employee Training & Development

b. Corporate Culture

c. Employee Turnover

d. Job Satisfaction & Motivation

e. Innovation


Strategy and Organisation Structure

An organisation's strategy is its plan for the whole business that sets out how the organisation will use its major resources.

An organisation's structure is the way the pieces of the organisation fit together internally. It also covers the links with external organisations such as partners.

Organisational structures need to be designed to meet aims. They involve combining flexibility of decision making, and the sharing of best ideas across the organisation, with appropriate levels of management and control from the centre.

The organisation structure defines how all the pieces, parts and processes work together. This structure must be totally integrated with strategy for the organization to achieve its mission and goals. Structure supports strategy.

Matching Structure with Strategy

When a firm changes its strategy, the existing organisational structure may become ineffective.

Changes in structure can facilitate strategy-implementation efforts, but changes in structure should not be expected to make a bad strategy good, to make bad managers good, or to make bad products sell.

Chandler found a particular structure sequence to be often repeated as organisations grow and change strategy over time.

New Strategy is formulated

New administrative problems

Organisational performance declines

New Organisational Structure

Improved Organisational Performance

Chandler’s Strategy-Structure Relationship



Blue Ocean Strategy By - W. Chan Kim and Renee Mauborgne.

According to some thinkers, the key to exceptional business success is to redefine the terms of competition and move into the “blue ocean,” where you have the water to yourself. The goal of these strategies is not to beat the competition, but to make the competition irrelevant. Kim & Mauborgne assert that these strategic moves create a leap in value for the company, its buyers, and its employees, while unlocking new demand and making the competition irrelevant. Under this theory, markets are divided into two distinct types :

• Red Ocean • Blue Ocean


Blue Ocean Strategy :

Red ocean represents all the industries in existence today - the known market space. Here companies try to outperform their rivals to grab a greater share of product or service demand. As the market space gets crowded, prospects for profits and growth are reduced. and cutthroat competition turns the ocean bloody; hence, the term red oceans. Blue oceans, denote all the industries not in existence today - the unknown market space, untainted by competition. In blue oceans, demand is created rather than fought over. There is ample opportunity for growth that is both profitable and rapid. Blue Ocean is undefined market space, otherwise known as ‘Opportunity’.


Mr. Kim and Ms. Mauborgne argue that businesses should focus less on their competitors and more on alternatives; they also should focus less on their customers, and more on non-customers, or potential new customers. The cornerstone of Blue Ocean Strategy is 'Value Innovation‘. Value innovation is the simultaneous pursuit of differentiation and low cost, creating value for both the buyer, the company, and its employees, thereby opening up new and uncontested market space.

The aim of value innovation is not to compete, but to make the competition irrelevant by changing the playing field of strategy.




Kim and Mauborgne challenge the wisdom of restricting strategic choice to Porter’s 5 forces and instead talk about “four actions” that can help create a blue ocean strategy. The actions are found by answering these questions: 1. Which of the factors that the industry takes for granted should be

eliminated ?

2. Which factors should be reduced well below industry standards ?

3. Which factors should be raised well above the industry standards ?

4. Which factors can be created, that the industry has never offered ?


Red Ocean V/s Blue Ocean :

1. Red Ocean is about competing in existing market space. Blue ocean seeks to create new, uncontested market space.

2. Red ocean strategy is focussed towards ‘beating’ the competition. Blue ocean seeks to make competition irrelevant.

3. Red ocean strategy tries to exploit existing demand, while blue ocean seeks to create and capture new demand.

4. Red ocean strategy seeks value-cost trade off. Blue ocean breaks the value-cost trade –off.

5. Under Red ocean, the firms tries to make the strategic choice between differentiation or low cost. Under blue ocean, it seeks differentiation and low cost.

Managing Conflict

Conflict is disagreement between two or more parties on one or more issues.

Establishing annual objectives can lead to conflict because individuals have different expectations and perceptions , schedules create pressures, personalities are incompatible, and misunderstandings between line managers and staff managers may occur.

Conflict is unavoidable in organisations , so it is important that conflict be managed and resolved before dysfunctional consequences affect organisational performance.

Various approaches to managing conflicts can be classified into three categories :

a. Avoidance

b. Defusion

c. Confrontation


Conflicts in Organisations :

Conflicts may be cognitive or affective.

A Cogntive conflict refers to differences in perspectives or judgments on certain issues.

An Affective conflict is emotional and directed at people.

Affective conflict is to be avoided since it can become destructive, may lead to anger, bitterness goal displacement and poor decisions.

Cognitive conflict is considered mostly healthy.


Conflicts in Organisations :

Traditional View

Conflict is avoidable

Conflict is caused by management error in designing organisations or by trouble-makers.

Conflict disrupts the organisation and prevents optimal performance.

Optimal organisational performance requires removal of conflict.

Modern View

Conflict is inevitable

Conflicts arise from many causes, including org.structure, differences in goals and priorities etc.

The task of management is to manage the level of conflict and its resolution for optimal organisational performance.

Optimal organisational performance requires a moderate level of conflict.


Creating a Strategy-Supportive Culture

Strategists should preserve, nurture, emphasize and build upon the positive aspects of an existing culture that are conducive to proposed new strategies.

Aspects of an existing culture that are not favourable to new strategies need to be identified and changed.

Triangulation proposed by James Duncan is an effective, multi-method technique for studying and altering a firm’s culture. Triangulation includes the combined use of obtrusive observation, self-administered questionnaires and personal interviews to determine the nature of a firm’s culture.

The process of Triangulation reveals changes that need to be made to a firm’s culture in order to benefit strategy.


Creating a Strategy-Supportive Culture

Schein indicated that the following elements are most useful in linking culture to strategy.

• Formal statement of organisational philosophy, charters, creeds, materials used for recruitment and selection, and socialisation.

• Designing of physical spaces, facades and buildings

• Deliberate role modeling, teaching and coaching by leaders

• Explicit rewards and status system, promotion criteria

• Stories, legends, myths and parables about key people and events.

• What leaders pay attention to, measure and control

• Leaders reaction to critical incidents and organisational crises

• How the organisation is designed and structured

• Organisational systems and procedures


Model Question Bank

What is Environmental Analysis? How is environmental analysis different at domestic level from global analysis? Discussthe factors which influence environmental analysis at the global, both positively as well as negatively. How do corporate strategies influence other strategies (Business and Functional) ? What is the difference between single and multi-business organisations? What is value chain analysis? Describe the difference between primary and support activities using value-chain analysis with respect to a company pursuing a differentiation strategy. What key concerns must functional strategies address in the functional areas of Marketing, Finance, Operations, HR and Technology?

Discuss at length porter’s five forces model of industry analysis with respect to any one of the following industry : a) Telecom service providers. b) Two wheeler manufacturers. What is a ‘Value chain’? Explain the primary and support activities in a value chain. Why do value chains of rival companies often differ? How does a company’s culture influence strategy implementation? What problems are posed by new acquisitions to corporate culture? Considering any one of the following industries, explain the 3 generic strategies of : a) low cost b) differentiation c) focus. Also bring out the strategic pitfalls of these 3 strategies. Industry 1 : Civil Aviation (Passenger Airlines) Industry 2 : White goods (T.V., Refrigerators, etc.)

Model Question Bank

How has the internet & telecom revolution impacted the business models of the following firms? a) Travel & Tourism companies. b) Book Publishers. c) Matrimonials. What is a Mission statement? What are the characteristics of a good Mission statement? Give an example of a good mission statement of your choice, along with your own analysis and interpretation. What are core competencies? How are they different from strengths? How can core competencies be identified? While the past has been about positioning the firm in its external environment, today it is more about harnessing internal resources aimed at providing superior benefits to customers. Discuss.

Model Question Bank

When it comes down to strategic management, the issues in traditional brick and mortar businesses and the new economy e-businesses are one and the same – same problems and same strategic tools to solve them. Do you agree? Discuss with proper justification. Critically analyse the difference between the BCG Matrix and the GE 9-Cell Matrix for portfolio analysis. Discuss in how many ways can a ‘Balanced Scorecard’ technique help managers evolve wholesome business strategies to create long-term competitive advantage for the firm. “Diagnosing and solving organizational problems means looking not merely to structural reorganization for answers but to a framework that includes structure and several related factors”. Discuss this statement in relation to the McKinsey’s 7-S Framework.

Model Question Bank

Thank You..

Prof. Shashank Divekar Pune, India Email : [email protected]

Advanced strategic management

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