BS slides

Business Strategy - I

Prof Ashish K Mitra

• Objective of the Course

– Business Strategy I & II, together form a ‘capstone’ course that helps students to view the company ‘as a whole’ and make company wide strategic decisions.

• Having acquired basic knowledge in the functional areas of Finance, Marketing, HR, Operations & IT in the first year of MBA course, in the Business Strategy I – course, students are introduced to the concepts of strategic decision making process involving – formulation of company mission, – analysis of the external business environments,

internal capabilities, – tools for making strategic choices, – and given exposure to various types of competitive

strategies used and ways to build competitive advantage for a company.

Evaluation Guidelines

• The Students will be evaluated on the following criteria:

• Class participation/ case studies !• Examination / Quiz / Assignments ! 50%• Group Project Work !

• End term examination 50%

Evolution of Business policy course

• Course titled ‘Business Policy’ first started in Harvard B-School

• In 1959 – 2 studies sponsored by Ford Foundation and Carnegie Foundation recommended that Business Policy course would give students an opportunity to put together what they have learned in separate fields and utilize this knowledge in analysis of complex business problems

• Thereafter made mandatory in all US business schools

Why study Strategic Management?

• Strategic management / Business Strategy is a capstone course which helps students to view the company as a whole

• Broad and integrative in nature – integrates functional knowledge of finance , marketing, HR , Operations etc

• Draws rich inputs from disciplines such as psychology, economics, sociology etc.

• Nature of Strategic Management is changing – all managers, regardless of organizational level or functional specialty are becoming more involved in helping to formulate and implement strategies for entire business

• Strategy making is not an one time event, but work in progress

• Strategic Management is now a days not limited to elite “strategists” or group of “strategic planners”

• Jack Welch – used teams of bright fresh Management Trainees to come up with “plans to destroy “ GE’s businesses

• Study of Strategic Management as a formal academic discipline really took of in late 1960s / early 1970s

• Igor Ansoff• Peter Drucker• Henry Mintzberg• Michael Porter• Kenechie Ohmae• Sumantra Ghoshal• C K Prahalad

Concepts not covered in ICMR book……….

• Strategic drift – Strategic Management in uncertain & complex conditions

• Concept of ‘Hyper-competition’ & strategic approaches in hypercompetitive space

• Critical success factors & concept of threshold competencies / resources.

• Core competencies ( covered in Chapter 24 of ICMR)

• Concept of ‘Strategy Clock’ • ‘Sustainability’ of Competitive Advantages in

today’s context

Introduction to Strategic

Management Process Prof Ashish K Mitra

Role of Strategy

• Strategy is about winning - not only in business context, but also in relation to other fields of human endeavor, including warfare, entertainment, politics, and sports.

• Strategy is however not a very detailed plan or detailed program of instructions;

• it is a unifying theme that gives coherence and direction to the actions and decisions of an organization or of an individual

Strategy’s Military Roots

• Word ‘Strategy’ – comes from a Greek word ‘strategia’ , means a General

• Roots in Military – art & science of directing – Battlefield strategies to gain an edge– Exploit weak spots

• For Business organizations – a ‘Game plan’ for achieving its objectives and mission

• Academic Origins of Strategic Management– Economic theory– Early organizational studies

Definition of Strategy in business context

A series of goal-directed decisions and actions

matching an organization's skills and resources

with the opportunities and threats in its environment

By strategy, most managers mean large scale, future oriented master plans for interacting with the competitive environment to optimize achievement of

organization objectives

Strategy as a driver of competitive advantage and superior profit

Birth of Strategic Management concepts• Sophistication in Mgm’nt processes post War II

– Increased number of competitors– Expanded role of regulations– Greater international trade, uncertainty– Problems in co-ordinating decisions & maintaining

control in increasing large & complex enterprises• 1960s – era of Long Range/ Corporate planning :

budgeting processes etc were blended with external forecasting/considerations

• Thereafter during the 1970s and 1980s– Becomes distinct academic field– Research focus on strategic decisions vs.

performance

Beginning of Corporate planning ( Long Range planning)• Corporate planning evolved during 1950s and 1960s,

to coordinating capital investment decisions that required a longer planning horizon than the standard annual budgeting process - during a period of stability and expansion.

• Long-term planning based on economic and market forecasts became a central task of top management. The typical format was a five-year corporate planning document that set goals and objectives, forecast key economic trends , established priorities for different products and business areas of the firm, and allocated capital expenditures.

• The primary emphasis of corporate planning during the 1960s and early 1970s was on the diversification strategies through which large corporations pursued growth and security. ( scenario planning at Shell)

• Igor Ansoff, widely recognized as one of the founding figures of the new discipline of corporate strategy, went as far as to define strategy in terms of diversification decisions. ( concepts of SWOT, GAP analysis, Synergy, Product-Market matrix)

• Scientific techniques of decision making, including cost–benefit analysis, discounted cash flow appraisal, linear programming, econometric forecasting, and macroeconomic demand management.

• Argument that scientific decision making and rational planning by corporations were superior to the haphazard workings of the market economy . Rational planning for diversification & expansion better than opportunistic growth

Evolution from Corporate Planning to Strategic Management • During the 1970s, business environment changed. Many

diversifications failed to for deliver the anticipated synergies

• Oil shocks of 1974 and 1979 ushered in a new era of macroeconomic instability, combined with increased international competition from resurgent Japanese, European, and Southeast Asian firms.

• The result was a shift in emphasis from planning to strategy making, where the focus was on positioning the company in markets and in relation to competitors in order to maximize the potential for profit.

• focus on competition as the central characteristic of the business environment and competitive advantage as the primary goal of strategy.

• Strategy as ‘fit’ between goals , external opportunities & threats, and internal capabilities

Strategy – quest for competitive advantage

• This shift of attention toward performance - (during the late 1970s and into the 1980s), the focus was on firms’ external environments through the analysis of industry structure and competition.

• Michael Porter of Harvard Business School pioneered the application of industrial organization economics to analyzing the determinants of firm profitability.

• Meanwhile, at the Boston Consulting Group, the determinants of profitability differences within industries were under investigation – their studies pointed to the critical role of market share and economies of experience.

• These two lines of inquiry – industry themes and the cost advantages of market share were developed and empirically refined in the Strategic Planning Institute’s PIMS (Profit Impact of Market Strategy) project.

Interest towards internal aspects of firms• During the late 1980s and early 1990s, continued

research in the role of strategy in building competitive advantage resulted in a shift of interest toward the internal aspects of the firm.

• Developments in the resource-based view (RBV) of the firm and organizational competencies and capabilities pointed to the firm’s resources and capabilities as the primary source of its profitability and the basis for formulating its longer-term strategy.

• This emphasis on the internal resources and capabilities of the firm represented a substantial shift in thinking about strategy. Prior to the 1990s, the emphasis of strategy was a quest for optimal positioning ,ie; companies needed to locate within the most attractive markets where they should seek to become market leaders. Concept of Core Competence, Strategy as stretch, Strategy as lever, role of Foresight, vision

• Resource Based View of strategy calls for deep analysis of what a company’s competencies were, and then continuously look for new market opportunities to exploit its existing resources and competencies. Also work to further strengthen existing competencies and develop or acquire new ones to meet current and potential market needs.

• In Porter’s view of strategy, a company was a portfolio of products and businesses. C K Prahalad & Hamel saw company as a portfolio of resources and competencies.

• Third stage of competition - the competition for dreams / aspirations : The energy in a company to compete for products & businesses, compete for creating competencies comes from the dreams & aspirations sold by leadership which creates exciting sense of purpose in all stakeholders.

• ‘Strategic Intent’ provides the emotional and intellectual energies to an organization to drive on a sustained basis towards future market leadership

• Sumantra Ghoshal, in his book “World Class in India” says – ‘In order to win, companies must win at three very different stages of competition : the competition for markets, the competition for competencies and competition for dreams’.

• HBR 1995 – Co-authored articles by Sumantra Ghoshal & Bartlett

• Changing role of Top Management:– Beyond STRATEGY to PURPOSE– Beyond STRUCTURE to PROCESSES– Beyond SYSTEMS to PEOPLE

Some more Definitions of Strategy

• Alfred Chandler (Strategy & Structure,1962) : The determination of the long-run goals of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals.

• Igor Ansoff : “Strategic Decisions are primarily concerned with external rather than internal problems of the firm and specifically with the selection of the product mix the firm will produce and the markets to which it will sell.”

• Kenneth Andrews (The concept of Corporate Strategy, 1971): Strategy is the pattern of objectives, purposes, or goals and the major policies and plans for achieving these goals …

• Henry Mintzberg : “Strategy represents a fundamental congruence between external opportunities and internal capability”.

• Kenichi Ohmae ( The mind of the strategist, 1983): What business strategy is all about is, in a word, competitive advantage… The sole purpose of strategic planning is to enable a company to gain, as efficiently as possible, a sustainable edge over its competitors. Corporate strategy thus implies an attempt to alter a company’s strength relative to that of its competitors in the most efficient way.

• Strategy is direction & scope of an organization over the long term, which achieves advantage for the organization through its configuration of resources within a changing environment & to fulfill stake holders expectations.

Challenges of globalization, hypercompetition, ethics, e-commerce & continuous learning organization

• At the beginning of a new decade, the field continues its rapid evolution. Key theoretical developments include applying game theory to business, probing the disruptive effects of technology, diagnosis of the “new economy”, the strategic use of knowledge within the firm – knowledge is becoming a key asset and a source of competitive advantage, and the application of real options thinking to strategic choice.

• At the practical level, companies continue to battle with the core dilemma of strategy formulation: how can companies take long-term decisions concerning new products, new technologies, and investments in physical and human capital when their business environments are changing at an ever accelerating pace?

• Corporations must develop strategic flexibility – the ability to shift from one dominant strategy to another.

• Strategic flexibility demands a long term commitment to the development and nurturing of critical resources. It demands that companies become a learning organization – an organization skilled at creating acquiring, and transferring knowledge, and at modifying its behavior to reflect new knowledge and insights.

• Organizational learning is a critical component of competitiveness in a dynamic environment , a necessity for innovation & product development.

• Organizations that are willing to experiment, are able to learn from their experience are more successful.

• Companies competing to shape the future of industry – trying collaboration, sharing competencies, risks and attempting for time compression

• Hypercompetition occurs when the frequency, boldness and aggressiveness of dynamic movements by competitors accelerate to create a condition of constant disequilibrium and change

• Competition in slower moving env is primarily building & sustaining competitive adv that are difficult to immitate, Hypercompetitive env all advantages are temporary & hypercompetition disrupt the status quo so that no one is able to sustain lng term adv on a sustained basis

Shades of Strategic Management

• Business Policy ( a cap-stone course)

• Strategic Management

• Strategic planning

• Strategic Analysis

• Strategic thinking

• Corporate strategy

• Business strategy

THE DIFFERENT ROLES OF STRATEGY WITHIN THE FIRM

• Strategy as Decision Support

• Strategy as a process for Coordinating and communicating

• Strategy as target

Brief history of evolution of Strategy• In 60’s & early 70s– Corporate Planning / Long Range

Planning to meet diversification & growth needs of large corporations

• From mid 70s – From Corporate Planning to strategy making, focus on positioning the company in markets in relation to competitors

• Through late 70/80s , focus was on external environment• In late 80s /1990s – Additional focus on aspects related

to Internal resources & capabilities, developing core competence

• In new millennium – increased speed of changes – Hyper-competition, information revolution, increased competition through globalization, disruptive technologies like e-commerce. Need for strategic innovation in the new economy & self learning organizations

Strategy as a driver of competitive advantage and superior profit

Four Basic

Activities

of

Strategic

Management

The Basics of Strategic Management

1. Environmental

Scanning &

2. Strategy Formulation

3. Strategy Implementation

4. Strategy Evaluation

Strategic Management

• Strategic Management is defined as the set of decisions & actions resulting in formulation and implementation of strategies designed to achieve the objectives of an organization– Formulating Mission of Company: including broad

statements about its purpose, philosophy, and goals– Developing Company Profile: internal conditions –

organization, resources , capabilities, Culture– Assessment of External Environment– Possible options : matching Company profile with

environment– Identify desired options : in light of company’s mission

Company Mission

&GoalsExternal Environment•Operating•Industry•Remote

Company Profile(Resources & capa-bilities)

Strategic Analysis and Choice

Long-term Objectives Generic & Grand Strategies

Annual Plans & Short term Objectives

Functional / OperatingStrategies/ tactics

Policies that empoweraction

Institutionalization of Strategy & implementation

Strategic Control & continuous improvement

? Possible

? Desired

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^

^ ^

v

STRATEGIC MANAGEMENT PROCESS

Feed BackFeed Back

Characteristics of Strategic Decisions• Subtle differences between strategic mgmnt and other

management functions like operations, HR, Marketing, Finance, R&D etc– Strategic Management Integrates various functions– Oriented towards achieving organization-wide goals– Considers a broad range of stake holders– Entails multiple time horizons – Concerned with both effectivity ( doing the right thing)

and efficiency ( doing the things right) and – Commit substantial resources & great deal of

commitment from people at all levels– Strategic decisions are not self generating ( routine),

unlike operational decisions, often have no precedents.– Effects change in structures, systems, policies, as well

as values / cultures

• Strategic decisions have Long term implications & can’t be reverted on the fly

• Complex in nature & have more uncertainty

• Strategic decisions affect operational decision

Basics of strategy decisions & Strategic Management

•Strategic Management•“Big picture” view of organization• Highly influenced by its external environment

Aspects that set apart Strategic Management

Interdisciplinary

External focus

Internal focus

Future direction

Goal of Business : THE DISTINCTION BETWEEN CORPORATE & BUSINESS STRATEGY

• If we accept that the fundamental goal of the firm is to earn a return on its capital that exceeds the cost of that capital, what determines the ability of the firm to earn such a rate of return?

• There are two routes. First, the firm may locate in an industry where favorable conditions result in the industry earning a rate of return above the competitive level.

• Second, the firm may attain a position of advantage vis-à-vis its competitors within an industry, allowing it to earn a return in excess of the industry average .

• These two sources of superior performance define the two basic levels of strategy within an enterprise: corporate strategy and business strategy.

• Corporate strategy defines the over all Purpose and scope of the firm in terms of the industries and markets in which it competes. Corporate strategy decisions include investment in diversification, vertical integration, acquisitions, and new ventures; the allocation of resources between the different businesses of the firm; and divestments.

• Business strategy is concerned with how the firm competes within a particular industry or market. If the firm is to prosper within an industry, it must establish a competitive advantage over its rivals. Hence, this area of strategy is also referred to as competitive strategy. Using slightly different terminology, Jay Bourgeois has referred to corporate strategy as the task of domain selection and business strategy as the task of domain navigation.

• SBU ?

– Part of an organization for which there is a distinct market for goods & service that is different from another SBU

– Example Paints Business – are there different SBUs?

• Possibly (i) SBU for Industrial Paint & (ii) SBU for Retail/ Decorative Paint

• Need to follow different Strategies for the above two markets. They have different types of customers, need different distribution channels etc

The Three Levels of Strategy and decision making hierarchy

• Corporate Level - composed of top mgmt: (responsibility for all major elements of strategic plng & mgmnt process, develop major portion of the plan & reviews , evaluate and counsel on all other aspect)

• Business Level - composed of business and corporate managers (responsible for environment analysis, forecast based on analysis, establishing business objectives & developing business plans prepared by functional teams)

• Functional Level ( Operational strategies) – functional managers, product and geographic managers

• Does Corporate add value? Role of centre?

Corporate Level• Firm’s financial performance of co as a whole &

non-financial goals like operating philosophies, image , social responsibilities etc.

• Determine firms lines of businesses in multi-business firms

• Set objectives that govern the activities of individual businesses & functional areas

• Exploit firm’s distinctive competencies across multiple businesses. Develop synergies for coordinating & sharing resources ( core competency development, umbrella brand etc)

Corporate Level

• Some typical Corporate Level Strategic decision– Choice of business– Source of long term financing option– Priorities for growth– Dividend policy– Development of R&D competence to be used

across all businesses– core competency development, umbrella brand etc

Business Level

• Translate corporate strategy into concrete objectives and strategies for individual businesses or SBUs

• Strive to identify and secure most promising market segment (s) within their business portfolio. Concerned with using generic strategies to create competitive advantages

• Some typical business level decisions– Market segmentations and coverage– Selecting Distribution channels– New Product introduction– Plant or Warehouse relocations

Functional Level

• Functional managers develop short range objectives & strategies ( also called Operational strategies) , often spanning one or two years – in areas like production, operations, R &D, finance, Marketing, IT, HR etc

• However they have primary responsibility of implementing and executing the firms strategic plans, deliver efficiency & effectivity

• Some examples– Level of inventory / customer service– Transportation mix– HR strategies for new recruits– General purpose vs specific purpose production tools

Characteristics of Strategic Management decisions at

different levels

Characteristics Corporate Business FunctionalType Conceptual Mixed Operational

Measurability Value judgments

dominated

Semi quantifiable Usually Quantifiable

Frequency Periodic or Sporadic

Periodic or Sporadic

Periodic

Risk Wide ranging Moderate Low

Profit potential Large Medium Small

Cost Major Medium Modest

Time Horizon Long range Medium range Short range

Flexibility High Medium Low

Cooperation required

Considerable Moderate little

Hierarchy of Objectives & Strategies

Ends ( What

is to

Be achieved ?)

Means (How it is to be achieved?)

STRA

Board of directors

TEGIC

Corporate managers

DECISION

Business managers

MAKER

Functional managers

Mission, incl goals & philosophy

Primary Primary Secondary

Long-term objectives

Grand Strategy

Secondary Primary Primary

Annual

objectives

Short-term strategy, policies

Secondary Primary Primary

Functional Objectives

Tactics Secondary Primary

Strategic Management vs Operational Management

• An Individual manager most often deals with problems of operational control, such as efficient production of goods, management of sales force, monitoring of financial performance or design of new system to improve customer service level.

• These are vital to effective implementation of Strategy but it is not the same a strategic management.

• The scope of strategic management is greater than that of any one area of operational magmnt

• Strategic Management Operational Management

• Ambiguous / Uncertain Routinised• Complex Operationally specific• Organization wide• Fundamental• Long-term implications Short-term implications

• Strategic Management is concerned not only with taking decisions about major issues facing the organization but also concerned with ensuring that the strategy is put into effect.

Strategic Position, Strategic Choices & Strategy in action**

• Strategic Management includes understanding (1) the strategic position of an organization,(2) strategic choices for the future and(3) turning strategy into action. It can be thought of having above three main elements.

• Strategic position is concerned with the impact on strategy of the external environment (PESTEL), internal resources & competencies, and the expectations & influence of stakeholders.

The Strategic Position

Strategic Choices

Strategy inAction

The Environment

Purpose &Expectations Resources &

Competencies

Corporate LevelStrategies

BusinessLevel Strat

Development Directions& Methodologies

Organizing

EnablingManagingChange

A Model of Elements of Strategic Management**

• Strategic Choices involve understanding the underlying bases for future strategy at both the Corporate and Business Unit levels and options for developing strategy in terms of both the directions and methods of development.

• Strategy in Action is concerned with ensuring that strategies are working in practice. This is achieved through Structuring, Enabling and Change Management

The vocabulary of Strategy**• Vision (or Strategic intent) : Desired future state –

the aspiration of the organization• Mission: overriding purpose of the organization• Goals: General statement of aim or purpose in line

with the mission(may be qualitative in nature• Objective: Quantification (if possible) or precise

statement of the goal• Unique resources and Core competencies :

Resources, processes or skills which provide competitive advantage

• Strategies : Long term direction of the org’nztion• Control :Assess effectiveness or modify

strategies/actions

Different Approaches to Strategy• Debate between Design vs Process Schools • “Design School” of strategy views strategic

decision making a logical process, in which strategy is formulated through a rational analysis of firm, its performance and the external environment. The strategy is communicated to the organization & implemented through successive organizational layers

• “Process School” of strategy , led by Henry Mintzberg argues that strategy development is more about crafting process than planning, through involvement, intuition, experience, learning & commitment of many within the organization and their interaction with outside world

Is Wal-mart’s rise due to grand planning or crafting?

• Wal-Mart’s brilliantly successful chain of discount stores based on its unique distribution system and small-town locations, was not the result of grand design.

• It was the result of Sam Walton’s hunch that discount stores could do well in small, rural towns

• Then finding that he needed to do his own distribution because manufacturers and wholesalers would not, he set up his own distribution network

• Most text books on Strategic Management cover rationalist, analytic approach to strategy formulation in preference to the crafting approach advocated by Mintzberg. This is not because planning is necessarily superior to crafting – we have already noted that strategy is about identity and direction rather than planning. Nor is it because one wishes to downplay the role of skill, dedication, involvement, harmony, or creativity.

• Studies by Henry Mintzberg and his colleagues at McGill University into the process of strategy making also distinguish between intended & realized strategy

• Strategy development is a multidimensional process that must involve both rational analysis and intuition, experience, and emotion.

• Without analysis, the process of strategy formulation, there will be no basis for comparing and evaluating alternatives.

• Moreover, critical decisions become susceptible to the whims and preferences of individual managers, to contemporary fads.

• Concepts, theories, and analytic frameworks are not alternatives or substitutes for experience, commitment, and creativity.

• But they do provide useful frames for organizing and assessing the vast amount of information available on the firm and its environment and for guiding decisions, and may even act to stimulate rather than repress creativity and innovation.

Intended , Realized and Emergent strategies• Strategy is typically developed by managers in an

intended, planned fashion.• Intended strategy is a deliberate , designed process of

development and implementation. • A company’s realized strategy is often the product of

intended strategies and unplanned or emergent strategies.

• Emergent strategies are the unplanned response to unforeseen circumstances. They often arise from actions by managers / employees within organization based on experience, learning , intuition and not out of the formal top down planning mechanism.

• Managers typically reconcile different views through negotiations & political activity. So strategy could develop in an emergent fashion as the outcome of cultural & political process

Contd.• Some part of Intended strategy is unrealised for

reasons like – plans were unworkable, environment changed after plans were drawn, influential stakeholders did not go along with the plan etc.

• There could be certain imposed restrictions on the strategy regulatory / governmental actions

• Strategy development as explained in terms of logical incrementalism or learning may also take form of emergent strategy

Intended Strategy Realized Strategy

Unrealized Strategy

Emergent Strategy

Imposed Strategy

Deliberate Strategy

Emergent strategies ariseOut of learning, cultural & political process, intuition etc

Honda’s successful entry into US Motor Cycle industry in 1960s

• HBS Case “Honda (A) , 1984 – A rational, analytical approach to strategy. Based on exploiting volume based economies to attain cost leadership in world motor cycle industry (between 1960 &73, share of British cos BSA, Triump 49%9%)

• HBS Case “ Honda (B), 1984 – Honda had originally believed that its main opportunities lay with larger bikes. But outstanding success was due to surprise acceptance of Honda 50cc Supercub (Nicest people campaign)

Honda’s entry into U.S. Motorcycle market

• Intended Strategy– Focus on 350cc &250 cc MCycles ( rather than 50 cc

Honda cubs, which were hit in Japan- instinct told them US market preferred bigger , ‘macho’ product) to take a share of imported UK heavy bikes

• Emergent Strategy– Bigger bikes ran into technical problems , Sales

sluggish , looked Honda’s strategy was failing– Japanese executives running on 50 cc bikes in Los

Angles were attracting lot of attention– Call from Sears , sports goods dealers that they

wanted to sell small bikes to a different segment– ( Honda executives were initially hesitant to push

small bikes for fear of alienating serious bikers)

• Realized Strategy– Finally Honda had stumbled onto a untouched market

segment that was to prove huge• Honda example demonstrate the critical points

– In practice, the strategies of most organizations are probably a combination of Intended and the emergent

– The message for the management is that it needs to recognize the process of emergence and to intervene when appropriate, killing off bad emergent strategies but nurturing potentially good ones.

– They must be able to judge the worth of emergent strategies

– Mintzberg stresses that an organization’s capability to produce emergent strategies is a function of kind of corporate culture that the organization’s structure & control system fosters

• The existence of the Intended strategy helps to evaluate the efficiency of emergent options & act as the base for comparison.

• Intel’s Emergent Strategy – transformation from being a Memory Company to Micro Processor Company– Originally DRAM & EPROM Memory mfg– Core competence in design & fabrication of chips– Manufacturing resources were allocated between

memory chips & microprocessor chip– Strategy of treating memory business as the core

business. Lions share of R&D allocation by top management to memory

– Due to changes in market, middle management changed allocation of manufacturing capacity.

The Strategy Lenses**

• Development of Strategy & management of Strategy can be viewed through the lenses of Design, Experience and Ideas

• Strategy as Design : The Design lens views strategy development as the deliberate positioning of the organization through a rational, analytical, structured and directive process. Many argue that the design lens is useful but not sufficient. Managers in more stable environments see more evidence of design than those in more unstable environments.

• Strategy as experience: The Experience lens views strategy development as the outcome of individual and collective experience of individuals and the ‘taken for granted assumptions’ represented by cultures based on history& cultural processes in and around company , and past success.

• It suggests that often strategies develop in an adaptive fashion building on the existing strategy and changing gradually. Once an organization has adopted a particular strategy, it tends to develop from and within that strategy , rather than fundamentally changing direction

• Strategy as Ideas: The ideas lens sees strategy as the emergence of order and innovation from the variety and diversity which exists in and around organizations.

• New ideas and innovation may come from any where, more likely not from top.

• Sensing of an organizations environment takes place throughout the organization, not just at the top.

• Some Organizations are more innovative than others, and they seem to cope with a fast changing environment better than others.

• See Exhibit 2.8 ( hand out)

Implications for Management vis-a- vis ideas lens• Management needs to find ways to encourage

variety within the organization that will generate new ideas. It is unrealistic to expect new ideas and innovations to be planned in a top down fashion

• This will not be achieved by ‘tight’ strategies and control systems. Cultures and organizational design that encourage variety, diversity , information networking, social interaction of people and awareness of what is going around them, will be helpful.

• Strategic changes often take place incrementally, but occasionally may be sudden and dramatic as new ideas surface & take organizational form.

Strategic Development Processes in Organizations**• Strategic Planning Systems**: Often Strategy

development is equated with Strategic planning system. This is manifestation of Design approach to managing strategy. This takes form of highly systemised step by step, chronological procedures involving many different parts of the organization.

• Formaized Planning provide a structured means of analysis and thinking about complex strategic problems, providing opportunity to managers to question and challenge the received wisdom they take for granted.

• It encourages a longer term view of strategy than might otherwise occur. Planning horizons vary . In FMCG, 3-5 years may be appropriate. In companies, which have to take very long-term views on capital investment, such as oil industry, planning horizons can be as long as 14 years ( in Exxon) or 20 years ( in Shell).

• It can be a useful means of co-ordination and help communicate intended strategy and create ownership of the strategy.

• Planning systems provide a sense of security and feel of exercising control over the destiny of the organization.

• Viewed through Experience lens, Planning may help in drawing together experiences of people and ensure effective communication.

• Viewed from Ideas lens, Planning systems provide a selection mechanism by which new ideas can be evaluated. New ideas and innovations compete or prove their worth.

• There are some pit falls also in the formalization of strategic Planning process:– Line managers, due to their pre-occupation with day

to day work, may actually cede responsibility for strategic issues to specialist. This may result in strategic planning becoming an intellectual exercise removed from the reality of operations.

• There is a danger that strategy is thought of as the plan. Strategy is, of course, not the same as ‘the plan’, the strategy is the long term direction that the organization is following. Strategic planning can become over detailed in its approach, whilst sound in itself, may miss the major strategic issues facing the organization.

• Planners can overlook experience of those in an organization. More inclusive ways of developing strategy must be pursued. The cultural and political dimensions of the organizations have to be taken into account.

• Planning can become obsessed with the search for a definitive right strategy. It is more important to establish a more generalised direction within which there is the sort of flexibility that the ideas lens would emphasize.

Strategic Leadership**

• Strategic Development may also be strongly associated with an individual.

• A strategic Leader is an individual upon whom strategy development and change are seen to be dependent. Others in the organization willingly giving him the position. In some organization the individual may be owner or founder, often in case of small businesses. In some cases it could be an individual chief executive who has turned around a business in difficult time.

• The design lens suggests the individual carries out the analysis & evaluation. These could be using his own logic or using techniques associated with strategic planning & analysis.

• The experience lens suggests that strategy advanced by individual is formed on basis of the individual’s experience, perhaps within the organization or perhaps from some other organization where he previously worked. The strategy advanced by a chief executive new to an organization may be based on a successful strategy followed in previous organization.

• The strategy of an organization may be more symbolically with an individual, for example founder in a family controlled business.

• Viewed from Ideas lens, Evolutionary theorists emphasize the way in which the strategies develop from competing ideas, so tend to diminish the role of so called strategic leader. However, a strategic leader can provide the vision with sufficient clarity within which the discretion of others in the organization can be exercised.

• Organizational Politics**: The political view of strategy development is that strategies develop as the outcome of process of bargaining and negotiation among powerful internal or external interest groups ( or stakeholders). This is the world of boardroom battles portrayed in films & TV dramas.

• The design lens sees it as inevitable but negative influence on strategy development.

• Experience lens helps to explain the likelihood of political activity. People in organizations are rooted in their experience & therefore in approaching major problems, seek to be protective of their views – preserving or enhancing the power of their positions.

• Political activity may then seen as one explanation of incremental, adaptive strategy development. Very significant change to strategy may be very threatening to the power of certain managers.

• The experience lens also suggests that the analytical processes that go into planning may not be entirely based on objective and neutral facts.

• Powerful individuals and groups may also strongly influence the identification of key issues and indeed the strategies eventually selected. Planning thus has a political dimension. Political activity has to be taken seriously as an influence on strategy development.

• The ideas lens also suggests that organizational politics can be seen as manifestation of the sort of conflict that results from innovation and new ideas. The variety and diversity that exists in organizations takes form in new ideas supported or opposed by different ‘champions’.

• Logical incrementalism**: In a study of major multinational businesses, Quinn concluded that the strategic management process could be best described as logical incrementalism.

• Managers have a view of where they want the organization to be in years to come and try to move towards this position incrementally.

• They do this by attempting to ensure the success & development of a strong , secure but flexible core business while using the experience gained develop business and perhaps experiment with ‘ side bets. Encourage ideas to emerge from lower levels as well.

• Imposed Strategy : Imposition of strategy by agencies or forces external to the organization. Government may dictate a particular direction eg: in public sector or when it chooses to privatise a PSU.

• MNC’s are subjected to regulations in different countries. An operating business within a multi-divisional organization might see overall corporate strategic direction as an imposition on it.

• It might be argued that imposed strategy is a way of overcoming the sort of strategic inertia that had arisen as a result of strategies developing incrementally based on history, experience or compromises resulting from bargaining & negotiations of powerful groups.

Multiple Processes of Strategy Development**:

• First, there is no one right way. The way in which strategies develop in a fast changing environment is not likely to be same in an environment where little changes.

• Second, it is very likely that the way the strategies are developed will be seen differently by different people.

• Senior executives tend to see strategies more in terms of design, where as middle management tend to see them as a result of cultural political processes.

• Managers who work for government organizations tend to see strategy as more imposed than those in the private sector.

• There will be multiple processes at work. Even in a predominantly Planning system, some level of political activity and certain elements of imposed strategy is likely to be there.

Implications for Strategy Development

• Intended and realized Strategies

• Strategic Drift

• Strategic Management in Uncertain and complex conditions

Strategic Drift

• Historical studies of organizations have shown prevalence of processes leading to emergent strategy.

• There are long periods of relative continuity during which established strategy remains largely unchanged or changes incrementally, there are also periods of flux in which strategies change but in no very clear direction.

• Transformational change, when there is a fundamental change in strategic direction, does take place but is infrequent.

• The above pattern is known as punctuated equilibrium.

• There are strong forces at work which are likely to push organizations towards this pattern. Incremental strategic change is a natural outcome of the influence of experience.

• The influence of the paradigm and ‘the way we do things around here’ is likely to mean that faced with changes in environment, managers try to look for solutions with which they are familiar and therefore minimize the extent to which they face ambiguity and uncertainty.

• There is a danger that incremental strategic changes are not enough to keep pace with environmental changes, and more fundamental or transformational change is needed.

• Indeed, often Transformational change tends to occur at times when performance has declined significantly. There is a danger that Organizations under such pressure may be acting reactively to the environment.

• Some times strategic action required is outside the scope of current paradigm and existing culture, the core assumptions of managers.

• Managers are more likely to attempt solutions by searching for solutions within the existing paradigm & as last resort look for a new one as shown in exhibit 2.12

• Strategic drift occurs when over a period, the organization’s strategy gradually moves away from relevance, with respect to the forces in its environment. Even most successful companies may drift in this way.

• Indeed, there is a tendency – which has become known as the Icarus Paradox – for businesses to become victims of the very success of their past.

• See Exhibit 2.13 for phases of Strategic drift.• Organizations that seek to innovate could also

sometimes face problems by developing products or services much ahead of its environment ( market demand)

• All these goes to emphasize the delicate balance required while developing strategy. Internal cultural pressures tend to constrain strategy development and at the same tome the organizations need to cope with environmental forces.

Strategic Management in Uncertain & complex conditions• Different organizations face environments which differ in

form & complexity. Since one of the main problems of strategic management is coping with uncertainty , the above aspect is very important.

• In simple / static conditions, the environment is easy to understand & does not undergo significant change. Raw material suppliers & some mass manufacturing companies are examples. Technical processes may be fairly simple and competition & markets change very little. If environmental changes does occur, analysing past historical patterns / forecasting helps predict them .

• In situations of relatively low complexity, it may also be possible to identify some predictors of environmental influences. For example birth rates is a good indicator to determine provision for schooling.

• So in simple / static conditions strategy development in design terms may make sense.

• In Dynamic conditions, managers need to consider the environment of future, not just the past. They may employ structured ways of making sense of the future , such as scenario planning, or they may rely more on encouraging active sensing of environmental changes low down in the organization and the sort of diversity and variety seen as through the ideas lens.

• The emphasis should be on creating organizational conditions which encourage individuals & groups to be intuitive and challenging in their thinking about possible futures through the sort of learning organisation.

• Organizations in Complex situations face an environment difficult to comprehend. They may face dynamic conditions too, and therefore combination of complexity & uncertainty. A multinational firm or a government authority with many services, may also be in a complex condition because of diversity, while different operating companies within it face varying degrees of complexity & dynamism

• Difficult to handle complexity by relying only on analysis & planning. So organizational design is important. Decentralization with different parts of the organization made responsible for different aspects & given the resources and authority to handle their own parts.

• Organizations have to learn to cope with complexity in different ways. Top management has to recognize that specialist down the line know more about the environment know more than they do. This strategic competence based on experience may provide competitive advantage . Taken-for-granted has to be challenged

Simple Complex

ENVIRONMENTALCONDITIONS

Static

Dynamic

Historical AnalysisForecasting

Scenario Planning

Decentralization ofOrganization

Experience &Learning

Strategy development in environmental contexts

• Principle of Business• Competitive Advantage• Strategic Intent• Strategy as ‘fit’• Strategy as ‘stretch’ & a ‘lever’• Core competence• Competing for Future -taking Charge of future• Competing through collaboration• Future of competition

Competing for Future

• Conventional Strategy theory talks about creating a fit between goals and resources & capabilities.

• The enhanced view of strategy is more concerned with creating stretch goals that challenge employees to accomplish seemingly impossible

• This view of strategy is much more than allocating scarce resources across competing businesses / projects and includes quest to overcome resource constraints through a creative and unending pursuit of better resource leverage

• Companies not only compete within the boundaries of existing industries, they compete to shape structure of future industries.

• Competition for Core Competence leadership precedes competition for product leadership. Prahlad & Hamel conceives corporation as a portfolio of competencies as well as a portfolio of businesses.

• Competition often takes place within and between coalition of companies and not only between individual businesses.

Formality in Strategic Management

• Formality in Strategic Management – Degree of Formality varies with size, management

style, complexity of organizations environment , extent of company’s problems etc.

– Formality is usually positively correlated with cost, comprehensiveness , accuracy and success of planning.

– Henry Mintzberg classified strategic decision making into 3 different modes

Modes of Strategic Decision Making

• Mintzberg Classified Strategic Decision Making into 3 modes:– Entrepreneurial mode : Strategy framed by one

powerful individual. Founder’s own vision, bold decisions, Growth is the dominant goal. Focus is on opportunities. Advantage is speed. Problems including that of implementations get secondary look

– Adaptive mode : Characterized by reactive solution to existing problems, rather than a proacative search for new opportunities. This mode results in fragmented strategy with incremental improvements ( govt, universities, hospitals, some corporations)

• Planning mode : Appropriate information for situational

analysis is gathered systematically. Feasible alternatives strategies are developed. Planning mode encompasses both, a proactive search for opportunities and a reactive solutions to existing problems

• Logical Incrementalism: A fourth decision making mode, which can be viewed as a synthesis of of the planning, adaptive , and, to a lesser extent, the entrepreneurial modes, was proposed by Quinn. In this mode the top management has a reasonably clear idea of the Corporation’s mission and objectives but, in its development of strategies, it uses an interactive process for probing the future, experiments and learns from series of incremental commitments. Useful approach when environment is changing rapidly & it is important to build consensus.

• Overall, Logical incrementalism can be thought of as the deliberate development of strategy by ‘learning through doing’ or ‘crafting’ of strategy.

• It sees job of ‘strategist’ as continually, proactively pursuing a strategic goal, countering competitive moves and adapting to their environment, whilst not ‘rocking the boat’ too much so as to maintain efficiency & performance.

• Whilst, strategy is not designed in terms of being pre-planned, it is nonetheless rationally thought through, taking into account environment & competencies of organization. Top managements role of providing overarching vision rather than tight control is in line with the ideas lens.

• The Learning Organization**: Uncertainty & complexity of the world of organizations can not be readily understood purely analytically. The concept of the learning organization and strategy development as a learning process, became popularised in the 1990s.

• The learning organization is capable of continual regeneration from the variety of knowledge, experience and skills of individuals within a culture which encourages mutual questioning and challenge around a shared purpose or vision.

• There is a need to continually challenge that which is taken for granted in the organization, conflicting ideas & views should be welcomed & debated.

• Experimentation, trying out ideas in action should become part of learning process. Networking should be encouraged.

• Job of top management is to create a learning organisation by building teams and networks; allowing enough organizational slack that there is time to debate and challenge; and by releasing control rather than holding on to it.

Company Mission

&GoalsExternal Environment•Operating•Industry•Remote

Company Profile(Resources & capa-bilities)

Strategic Analysis and Choice

Long-term Objectives Generic & Grand Strategies

Annual Plans & Short term Objectives

Functional / OperatingStrategies/ tactics

Policies that empoweraction

Institutionalization of Strategy & implementation

Strategic Control & continuous improvement

? Possible

? Desired

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STRATEGIC MANAGEMENT PROCESS

Feed BackFeed Back

The Iterative flow of Strategic process

• The Strategic management process : often misconceived as unidirectional flow of objectives, strategies, and parameters from corporate to business to functional level managers.

• Highly interactive , designed to stimulate input from creative, skilled and knowledgeable people at all levels

• Team oriented• Participation enhances commitment

Value of Strategic Management

• Strategic issues require large amount of a firm’s resources : from internal sources or from outside

• Affect the Firm’s long term prosperity – enduring effects

• Are future oriented• Multifunctional or multi-business consequences• Require assessment of Firm’s external

environment• Require top management decisions/ approval

Benefits of Strategic Management

• Financial Benefits – Several studies provide convincing evidence

that firms adopting strategic management approach return much improved performance, outperforming non formal planners

– Views on financial & non financial benefits are shared by company executives

Benefits of Strategic Management

• Behavioral effects– Enhance problem prevention capabilities of

the firm– Group interaction generates best available

alternatives , commitment to organizational goals.

– Heightens Employee motivation reduces gaps & overlaps among activities

– Reduces resistance to change, improves ownership of actions during implementation

Risks of Strategic Management process

• Time management vis-à-vis operational responsibilities for individual managers

• Objective analysis required for Strategic management consumes time & effort. Some companies are perpetually in planning mode & devote little time for implementation. This is self defeating.

• Strategic plans could erroneously be made too rigid & inflexible. Large scale Forecasting errors can damage the process

• Expectation management of subordinates may become issue if not handled properly

Company Mission

• Mission is a general enduring statement of company’s intent ( who are we & what we do?)

• Unique purpose that sets the company apart from others

• Identifies the scope of its operation in terms of product, market, and technology thrust areas

• Reflects the values and priorities of strategic decision makers – business philosophy, image company seeks to project and firm’s self-concept

• Mission of a business looks to an endless future as if the firm were immortal

Company Profile

• Depicts quality & quantity of financial, human and physical resources

• Assesses inherent strength and weaknesses of firm’s management and organization structure

• Contrasts historical successes of the firm / values and concerns with firm’s current capabilities in an attempt to identify the firm’s future capabilities

External environment

• Conditions and forces that affect its strategic options but typically beyond firm’s control– Operating environment – The industry environment– Remote environment - general economic ,

political, social and technological framework

Strategic Analysis and Choice

• Possible attractive opportunities: avenues for investment• Screened through the criterion of the company mission,

a set of possible and desired opportunities• Further screening results in selection of strategic choices• Process provides a combination of long term objectives,

and generic and grand strategies that optimally position the firm in the environment to achieve the co’s mission.

• ( Strategic Analysis & choice revolves around building sustainable competitive advantage in case of a single or dominant business; Multi-business firms focus for best combination of businesses to maximize shareholder value)

• Criteria used in assessing choices – depends on attitude towards risk, flexibility, growth, stability, profitability etc, firm’s current commitment to organization structure, access to resources

Long Term Objectives

• Results sought to be achieved over a number of years

• Objectives typically involve the following areas: Profitability, ROI, Competitive positioning, Technology Leadership, Productivity, public relation, employee development etc

• Objectives should be specific, measurable and consistent with other objectives of the firm

• Example: doubling of earning per share within 5 years, becoming number two in the decorative Paints business by 2006 etc

Generic and Grand Strategies

• Generic strategies : Firms explicitly or implicitly adopt one or more generic or combination strategies that characterizes their competitive orientation

• Grand strategies: unique package of long term strategies to achieve company’s objectives. The Grand strategy provides the framework for the entire business of the firm. 14 identified basic approaches of grand strategies :– concentration, market development, product development, innovation,

horizontal integration, vertical integration, JVs, strategic alliances, consortia, concentric diversification, conglomerate diversification, turnaround, divestiture, and liquidation

Annual Objectives

• Annual or short term objectives relate to the same areas of business as the long term objectives and are based on them.

• Greater specificity possible and necessary• Planning activities of all major functions or

divisions should reflect company-wide short term objectives

• Example: If long term growth objective in 5 years is 20%, may be this year it is 4.5%, Finance dept has to arrange additional loan of Rs 30 crores to fund expansion of manufacturing capacity by 5%

Functional Strategies or operational strategies• Grand strategy is split into strategy for each

business division and function• Specific to needs of each functional area and

prescribe an integrated action plan• Operating strategies provides means for

achieving annual objectives• Company budget is coordinated with the needs

of operating strategies to ensure specificity, practicality and accountability in the plans

Policies

• Directives designed to guide thinking, decisions and actions of managers & their subordinates in strategy implementation

• Standard Operating Procedures : increase managerial effectiveness by standardization, limiting discretion

Strategy Implementation

• Strategy implementation is the process by which strategies and policies are put into action through the development of programs, budgets, and procedures, sometimes termed standard operating procedures (SOP).

Institutionalizing the strategy

• Annual objectives, functional strategies, and policies are important means of communication for implementing strategy

• Translating long-term objectives into short term goals make the strategy operational.

• Strategy must permeate the vary day-to-day activities of the company

• Long term means of institutionalizing through Structure, leadership and culture.

Control and evaluation

• Strategy formulation is largely subjective, and the first test of reality for a strategy is in its implementation.

• Strategy managers should employ early monitoring and control methods, to ensure that the strategic plan is followed.

• The ultimate test of strategy is its ability to achieve the ends – annual objectives, long term objectives and the company’s mission.

Strategic Management as a Process

• Change in one component affect several or all other components

• Strategy formulation and implementation are sequential

• Not every component of the process deserves equal attention each time

• Feedback essential

• Dynamic in nature

Developing a strategic perspective

• Developing a strategic perspective contributes to effective implementation of strategy. Organizations often fail to develop such perspective due to:– Lack of awareness within top management– Kidding themselves syndrome– Vested interest to maintain power & position– Excessive involvement in day to day operations– Top management complacent after initial success– Change of direction often misinterpreted as an

admission of past mistake, resist change• Solution is to make strategy development

process a FORMAL activity

Practical Limitations

• Holistic vs tactical

• Analytical vs Prescriptive

• Non-political

• Evolutionary

Strategic Management Challenges in the new millennium

• Ethics & social Responsibility• Impact of Globalization• Technological changes , especially impact of Electronic

commerce• Information revolution• Hyper-competition• Creating a learning Organization – transition from an

Industrial to knowledge based society• Diversity of Workforce• Competing through collaboration in networked economy• Complexity of Strategic Management environment

Strategy : Creating Value for Whom? Shareholder Vs Stakeholder

• Strategy is about creating Value by realizing superior performance

• The Value created by firms is distributed among different parties or stakeholders. Value added is distributed among Owners / shareholders (profit), lenders ( interest), employees ( wages), government (taxes), customers ( consumer surplus) & society at large

• A key role of top management is to balance the interest of different stake holders with (often conflicting) interests.

• The case for the stakeholder approach to defining the goals of the firm is based on the recognition that business enterprise is a social institution pursuing the interest of multiple groups.

• In Japan & continental Europe , the notion of corporation balancing interests of multiple interest groups has a long tradition ( reflected in company’s legal obligations)

• In the US, Canada, the UK & Australia company boards are required to act in the interests of share holders, French boards are required to pursue the national interest, Dutch boards are required to ensure the continuity of the enterprise rather than shareholder value, and German supervisory boards are constituted to include representatives of both shareholders & employees

• Shareholder vs Stakeholder -On going debate – Raises issue of ethics & broader social responsibility of business

• Under conditions of increasing competition, firms have little alternative to pursuing profitability. Pressure of competition has caused interest of different stakeholders to converge. The underlying common interest of all stakeholders is the firm’s survival. Survival requires that, over the long term, the firm earns a rate of profit that covers it cost of capital

• Managers who do not serve the interest of shareholders will be replaced by those who do. Pressure of active international shareholders ( Pension funds, retirement systems etc)

• Quest for profits over the long term is likely to require that a company treats its employees well and develops their full potential, acts fairly & honourably towards suppliers & customers, and conduct itself responsibly in relation to the environment & society’s value. ‘Good ethics are good business’

• One of the most compelling reasons for assuming that firms exist to make profit is simply that such a goal allows us to subject strategic decision making to rational analysis. Virtually all the major tools of business decision making & arsenal of management techniques are founded on the notion that more profit is better than less.

• EVA• Balanced Score Card

Social Responsibilities of Strategic Decision Makers

• Concept of Social Responsibility proposes that a corporation has responsibilities to society that extends beyond making a profit

• Milton Friedman (1962) and Archie Carroll offer two contrasting views of the responsibilities of business firms to society.

• Friedman referred to the social responsibility of business as a “fundamentally subversive doctrine” and stated that:– “There is one and only one social responsibility of business – to

use its resources and engage in activities designed to increase its profit so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.”

– Managers should act on economic motive and they are trained for that

Social Responsibilities of a business / strategic decision makers• Archie Carroll lists four responsibilities of managers of a

business organization ( in order of priority):– 1. Economic : a business firm must make to satisfy economic

responsibility to repay to its creditors and shareholders.– 2. Legal: To continue in existence must follow the laws defined

by government. ( Packaging /Labeling act, product safety laws)– 3. Ethical : A firm can fulfill its ethical responsibilities by taking

actions that society tends to value but has not yet put in law. ( like equal opportunities, imports made from vendors who abide by child labor regulations etc, truthful disclosures)

– 4. Discretionary: When ethical responsibilities are satisfied, a firm can focus on discretionary responsibilities – purely voluntary actions that society has not yet decided as important . Examples are philanthropic contributions, providing day care centers , education of underprivileged etc. Discretionary responsibilities of today can become the ethical responsibilities of tomorrow.

• Carroll suggests that to the extent that business fail to acknowledge discretionary or ethical responsibilities, society, by pressuring government , will act, making them legal responsibilities.

• Organizations may have greater difficulty in earning profit than it would have if it would have voluntarily assumed some ethical / discretionary responsibilities.

• Carroll proposes that a lack of social responsibility results in increased government regulations, which reduces a firm’s efficiency.

• Being known as a socially responsible firm may provide a company competitive advantage. Outstanding employees prefer to work for a responsible firm, responsible firm are more likely to be welcomed into a foreign country, attract long term investments , trustworthiness helps generate enduring relationships with suppliers and distributors, environmental friendliness may enable charging of premium prices.

Discre-tionary

(might do)

Ethical

(Should do)

Economic

(Must do)

Legal

(Have to do)

Social Responsibilities

CARROLL’s Four Responsibilities of Business

CSR• “To What Extent embrace CSR?”, is an important

strategic decision. Often finds place in values / philosophies.

• CSR : Avoid harm to stake holders and environment & consider overall betterment of society

• A Firm’s CSR strategy is defined by specific combination of socially beneficial activities it opts and supports with its contributions of money, time and other resources

• It is difficult to prove shareholder disadvantage due to CSR efforts

• Higher the public profile & brand – higher is the scrutiny of pressure groups

• Sarbanes-Oxley Act ‘2002, heightened role of audit• Customers – Product stewardship• Society , Employees – safety, Health, Environment ,

transportability of retirement / pension benefits• Investors – Disclosure, Insider trading etc

Why need Vision, Mission & Values ?

• Profit Maximization (shareholder value maximization, to be precise) provides the foundation for strategy analysis

• Yet it is not the one that causes Bill Gates to continue working at Microsoft rather than retiring to enjoy his billions of dollar of personal wealth

• Nor does it provide such motivation or direction to the thousand of employees of his company

• Vision, mission & values are the three concepts that have become highly influential in helping companies think about their identity, their purpose and the fundamental features of their strategy

Resources

DistinctiveCompetencies

Capabilities

StrategiesCompetitiveAdvantage

SuperiorProfitability

Build

Build

Shape

Strategy , Resources, Capabilities, and Competencies

• Objective of Strategy is to achieve competitive advantage because then superior profit will follow

• Thus , Strategy is driver of competitive advantage and superior profit

• Distinctive competencies are firm-specific strengths that allow a company to differentiate its products and /or achieve substantial lower costs than its rivals and thus gain competitive advantage.

• Toyota, in global automobile industry has distinctive competency in manufacturing processes, known as ‘lean production system’. Toyota pioneered a whole range of techniques, such as JIT inventory systems, self-managing teams, reduced setup times for complex equipment. Helped it attain superior efficiency and product quality

• Distinctive competencies arise from two complementary sources: resources and capabilities

• Resources – Tangible resources : physical like plants, equipment, inventory,

land, finance– Intangible resources: non-physical entities that are creation of the

company and its employees, such as brand names, the reputation of the company, knowledge that employees have gained through experience, and intellectual property of the company, including patents, copyrights, and trademarks.

• The more firm specific and difficult to imitate is a resource, the more likely a company is to have a distinctive competency. For example, Polaroid’s distinctive competency in instant photography was based on a firm-specific intangible resource: technological know-how in instant film processing that was protected from imitation by patents.

• Another important quality of a resource that leads to a distinctive competency is that it is valuable; in some way, helps create strong demand for company’s products

• Capabilities refer to a company’s skills at coordinating its resources and putting them to productive use. These skills reside in an organization’s rules, procedures , styles or manner through which it makes decisions and manage internal processes.

• More generally, Capabilities are result of a firm’s organizational structure, processes, and control systems. Kind of behaviors that are rewarded, process of decision making, cultural norms and values

• Capabilities are intangible. They reside not so much in individuals, as in the way individuals interact, cooperate, and make decisions within the context of an organization.

• A company may have firm specific and valuable resources, but unless it has the capability to use those resources effectively, it may not create distinctive competency.

Resources

DistinctiveCompetencies

Capabilities

SuperiorProfitability

ValueCreation

Differentiation

Low Cost

Superior

•Efficiency•Quality•Innovation•Customer responsiveness

The Roots of Competitive Advantage

Superior Quality

SuperiorInnovation

SuperiorEfficiency

SuperiorCustomerresponsiveness

CompetitiveAdvantage•Low Cost•Differentiation

Generic Building Block of Competitive Advantage

Business Strategy Project• Study the industry structure of a selected firm• Carry out competition analysis for the Industry. Find out

the selected Firm’s competitive positioning . Benchmark against relevant best Indian and World class players against appropriate parameters.

• What do you think are the core competencies of the Firm?

• Find out the Key success Factors for the industry to which the firm belongs and the observed Value Chain of the industry in general

• Highlight strategies followed by the firm in last 10-15 yrs• Is the boundary of the industry to which the firm belongs

changing ?• Going forward, what you perceive is its chosen strategy?• Justify the above. Do you have any strategy alteration to

suggest ? Give reasons.

Select a leading public limited firm belonging to one of the following industry

• Health Care• Pharmaceutical• Automobiles ( 2 wheelers , Cars / trucks)• Automobile Ancillary• Telecommunication• Metals ( steel or Aluminum)• Organized Retailing• Construction • Real Estate• Hospitality / tourism• Entertainment• Food Processing / Dairy• IT services• BPO• FMCG• Paints/Coatings

r• Study the industry structure of the industry to which your selected

Company belongs – Porter’s Five Forces model– Strategic Group Analysis in the Industry– Industry Life Cycle – identify stage & justify– Find out the Key success Factors for the industry to which the firm belongs– Industry Value Chain – identify the main players / components.

• Carry out competition analysis for the Industry. Find out the selected Company’s competitive positioning . Benchmark against relevant best Indian and World class players against appropriate parameters.

– Resources, Capabilities & core competencies of the company– Type of ‘Generic Strategy’ and Grand strategy being followed by the company – Compare industry structure with company’s resources & its positioning in the

industry– Use SWOT/BCG/Ansoff matrix etc– Value Chain of the company

• Highlight strategies followed by the firm in last 10-15 yrs• Is the boundary of the industry to which the firm belongs changing ?• Going forward, what you perceive is its chosen strategy?• Justify the above. Do you have any strategy alteration to suggest ? Give

reasons.