MBA 401 Strategic Management.pptx

8/10/2019 MBA 401 Strategic Management.pptx

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STRATEGIC MANAGEMENTRAHUL PRATAP SINGH KAURAV


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LECTURE I [CASE STUDY]Orange Mobile Company


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STRATEGIC ANALYSIS IN ORANGEMOBILECOMPANY

The evolution of mobile phones industry is rapidly growing to credit card size phones from old brick size phones. The chang

trend in the market has made the companies to invent high-en

technology phones that most of the teenagers enjoy.

Orange mobile company, one of the mobile industries was estin April 1994. The aim of the company was to become the top

provider by making communication instinctive and easily acc

part of daily life.

The top level management in the company applied strategy a

for analysing the market competitor across the glob in order to


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After analysis the various competitors, the company decide tostrategic alliance with worlds leading suppliers and operators

considered the current scenario of the company resources in

employees, equipment finance and others.

This made the company attract more customers and outlookbusinesses in all areas of telecommunication. Therefore, an in

demand of services led to the increase in sales. The next aim

company was to expand globally; hence it introduced strategic

planning based on marketing.


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Considering the global market scenario, the company emphasstrategic planning and later strategic analysis was enhanced t

the process effective. This process involved segmenting the m

profiling market segments, and developing marketing strategy

of the market segments.

Thus the company benefited in gaining profits by systematicaanalysing the market scenario and expanded globally.

Questions to discuss: Why do you think the company introduced strategic analysis as the ke

in gaining profits? How did the com an benefit throu h strate ic anal sis?


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INTERNAL AND EXTERNAL ANALYSIS |

II


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WHAT ENVIRONMENT REFERS?

INTERNAL

Resources and behavior

Strengths and weaknesses

Synergistic efforts

Competencies

It is the way of avoiding external

threats to protect the organization.

EXTERNAL

Social

Political

Economical

Legal

Technological

It helps an organization to

what it might choose to do


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WHY ENVIRONMENTALAPPRAISAL (EA

EA finds the sources of anyopportunity or threat

EA helps management to decidethe strategy for implementation and

predict the discovered future

opportunities or threats


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CONCEPT OF EA

EA is the planning process that helps: In monitoring economic conditions,

Government rules,

Technology issues, Market settings,

EA is important for the evaluation of the presestrategy, setting objectives, for planning for fu


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EA PROCESS


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EFFECT OF CHANGING ENVIRONMENT

Dynamic social and economical conditions,

Problem of increased competition,

Obsolescence of machines and equipment,

Inference of Govt., and Increasing costs and prices.


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NEED FOR EA

Know the threats,

New resources,

Competitors,

Know the policies of other companies.


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OBJECTIVES OF EA

Detecting important economic, social, cultural, technoand political issues

Potential opportunities and threats for the organisatio

to environmental variablesAccurate understanding of organisationsstrengths a

limitations

Providing a basis for analysis of future programme

investments


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COMPONENTS OF EAAnalysis of environmental

variables(PLEST)

Communit

y Analysis

Market

AnalysisCompetito

r Analysis

Sup

Ana

Selection of strategic factors

opportunities and threats


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ENVIRONMENTAL SCANNING TECHNIQ

ETOP (Environmental threats andopportunities)

QUEST (Quick env. scanning technique)

SWOT

EFE (External factor evaluation) matrix

CPM (Competitive Profile Matrix)


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ENVIRONMENTAL THREAT ANDOPPORTUNITY PROFILE(ETOP)

ETOP was developed by GLUECK, is that of preparEnvironmental Threat and Opportunity Profile(ETOP)

organization.

The preparation of ETOP involves the following step

i. Dividing the environment into different sectors.

ii. Analyzing the impact of each sector on the organization

iii. Analyzing the impact of each sub-factor on the organizathe form of a statement.

iv. Preparing a summary to show major factors.


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IMPORTANCE OF ETOP:

It provides clear picture to strategists, whsectors has a favorable impact on

organization.

It helps an organization in being aware abwhere it stands with respect to its

environment.


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ETOP PRESENTED IN TWO FORMS:

Matrix Form : In matrix form , importanceimpact of various environmental factors a

presented in tabular form and are often

quantified

Descriptive Form: In descriptive form imof various factors is described in terms th


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MA

TRIXFOR

M

Sr.

NO

.

ENVIRO.FACTOR

S

DEGREE OF

IMPORTANCE

DEGR

IMPAC

High

3

Medium

2

Low1 + - (3)

1. Economic

components

2. Socio-cultural

components

3. Competitive

components

4. Technological

components


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DE

SCRIPTIVE

FO

RM:

ENVIRONMENTAL FACTORS IMPACT

(+)opportunity (-) threats

Socio-economic (+)Continued emphasis o

infrastructure developme

including power supply fo

industry, transport and do

consumption

(-) severe resource const

Supplier (-)Increasing scarcity oftechnology

Government (+) liberalization of techn

import

Technological (+) higher growth in indus

production and technolog

gradation

ETOP PREPARED FOR MOTOR CAR


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ETOP PREPARED FOR MOTOR CARMANUFACTUREENVIRONMENT

AL FACTORS

IMPACT (+) Opportunity(-) Threats

Technology (+)Niche market for high end market(+) free import from cheaper markets

(+) vast, growing, educating youth preferring

and sleek models

Economic (+) rising income levels

(-) price competition from local as well as int

brands

(-) poor transportation services

Social (+) buyer preferences for sporty, fashionable

models

(-) high transport accidents forcing people to

modes of transportation


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LECTURE III[EXTERNAL APPRAISALS]


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QUICK ENVIRONMENTAL SCANNINGTECHNIQUE (QUEST)

It was proposed by B NANUS. It is a four step

process uses scenario-writing for scanning the

environment and identified strategic options

i. Strategists make observation about major eventtrends in the industry

ii. Strategists speculate on a wide range of importaissues

iii. The QUEST director prepares a report


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EXTERNAL FACTOR EVALUATION (EFEMATRIX

An External Factor Evaluation (EFE)Matrix allostrategists to summarize and evaluate econom

social, cultural, demographic, environmental,

political, governmental, legal, technological, ancompetitive information.


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CPM

The Competitive Profile Matrix (CPM) identifies a firmcompetitors and its particular strengths and weakness

weights and total weighted scores in both a CPM and

have the same meaning.

The critical success factors in a CPM are not groupedopportunities and threats as they are in an EFE. In a C

ratings and total weighted scores for rival firms can be

to the sample firm. This comparative analysis provides

internal strategic information.


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ORGANIZATIONALAPPRAISAL


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ORGANIZATIONAL APPRAISAL

Internal Environment - strength & weakness in different f

Organization capability- Capacity & ability to use distinctive competencies

particular field

- Ability to use its S & W to exploit O & face T

external environmentOrganization resources

- Physical & human

- cost, availability - strength / weakness

ORGANIZATIONALAPPRAISAL


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ORGANIZATIONAL APPRAISAL

Identity & character of an organization leadership, Mg

Philosophy, values, culture, quality of work environmeOrganization climate, organization politics etc.

Resource Behaviour

Distinctive competence


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METHODS & TECHNIQUES USED FORORGANIZATIONAL APPRAISAL

Financial Analysis - Ratio Analysis, EVA, ABC

Key factor rating - Rating of different factors throudifferent questions

Value chain analysisVRIO framework


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METHODS & TECHNIQUES USED FORORGANIZATIONAL APPRAISAL

BCG, GE 9 cell Matrix , PIMS, McKinsey 7S

Balanced Scorecard

Strategic Advantage profile Internal Factor Analysis Summary

EXAMPLES OF ORGANIZATIONAL


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CAPABILITY PROFILE

Financial Capability

Bajaj - Cash Management

LIC - Centralized payment, decentralized collection

Reliance - high investor confidence

Marketing Capability

Hindustan Lever - Distribution Channel

IDBI/ICICI Bank - Wide variety of products


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EXAMPLES OF ORGANIZATIONALCAPABILITY PROFILE

Operations Capability

Lakshmi machine works - absorb imported technology

Balmer & Lawrie - R&D - New specialty chemicals

Personnel Capability

Apollo Tyres - Industrial relations problem


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LECTURE IV[INTERNAL APPRAISALS]


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VRIO FRAMEWORK

Value: Does it provide competitive advantage?

Rarity: Do other competitors possess it? Imitability: Is it costly for others to imitate?

Organisation: Is the firm organised to exploit the r


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BALANCED SCORECARD- KAPLAN & NORT

4 performance measures

Customer perspective

Internal business perspective

Innovation & learning perspective Financial perspective

Balanced Scorecard


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Balanced Scorecard A model integratifinancial and non financial measures. (KaplanNorton 1996)

Causal link between outcomes and performandrivers of such outcomes

Translates the vision and strategy of a busineunit into objectives and measures in 4 distin

areas Financial

Customer

Internal Business process

Learning and growth


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THE BALANCED SCORECARD

Purpose of Balanced Scorecard:

A method of implementing a business strategy by translatin

a set of performance measures derived from strategic go

allocate rewards to executives and managers based o

success at meeting or exceeding the performance measures


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PORTFOLIO ANALYSIS


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PORTFOLIO ANALYSIS

27% of fortune 500 companies use it in strate

formulation

Top management views its product lines andunits as a series of investment return

Product lines/Business units - a portfolio ofinvestment - company constantly juggle - to g

STRATEGIC ADVANTAGE PROFILE (SAP)


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S G C V N G O (S )

A picture of the more critical areas which can have a relationsh

of the strategic posture of the firm in the future.

Capability Factor Competitive strengths / Weakness

Finance High cost of capital, reserves & surplus

Marketing Fierce competition, company positionsecure

Operational P&M - excellent - parts & componentsavailable



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Capability Factor Competitive strengths / Weakne

Personnel Quality of management & perso

par with competition

General High Quality experienced top

management - take proactive s

BCG GROWTH - SHARE MATRIX


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BCG GROWTH SHARE MATRIX

Matrix of

- Growth rate of the industry - % of increase in- Market share

Relative market share of a firm= Market share in

industry/market share of the largest other competitor

> 1 indicates market leaderAssumption: Other things equal - growing market is

attractive

BCG GROWTH - SHARE MATRIX


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STARS QUESTI

MARKSBUSINESS 16

GROWTH 12

RATE 8 CASH COWS DO

(%) 4

0 10 4 2 1.5 1 0.1

RELATIVE COMPETITIVE

POSITIONING

GE PORTFOLIO MATRIX


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Industry attractiveness

Companys business strengths/Competitive position

Industry attractiveness- market growth rate, industry

profitability, size, pricing practices, opportunities/ threats

scale 1 - 5 Very unattractive to very attractive

Business strengths- Market share, technological position,

profitability, size, strengths & weakness

scale 1-5, 1- very weak, 5 - very strong

Product line- a letter, circle - area - (size - scales) pie - mark

share Identify performance group - current & projected portf

without any change in strategy


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LECTURE V[5-FORCE MODEL & 7-S]


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PORTERS FIVE FORCES MODEL Developed by Michael Porter in 1979/1980

Considered a classic industry analysis tool

Provides a framework for perspective on multipcompetitive factors affecting your company and

industry

Five basic competitive forces whose

collective strength determines the

long-run profit potential of an industry

THE FIVE FORCES


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THE FIVE FORCESThreat of New

Entrants/ Barriers to

Entry

Bargaining P

of Customer

Threat of Substitutes

Bargaining

Power of

Suppliers

Rivalry

Among

Existing

Competitors

Sources for this section: Michael E. Porter, Understanding Industry Structure, Revised 2007 an

How Competit ive Forces Shape Strategy, Harvard Business Review, 1979


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THREAT OF NEWENTRANTS/BARRIERS TO ENTRY


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ENTRANTS/BARRIERS TO ENTRYThreat of potential entrants determined by:

Attractiveness of industry

Height of entry barriers (e.g., start-up costs, regul Customer switching costs (high fixed costs involved in

another supplier)

Capital requirements (e.g., very high in gas exploration

Incumbency advantages independent of size (e.g., protechnology, patents)

Unequal access to distribution channels (how much hacompetitors tied up distribution channels)

Restrictive government policy


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BARGAINING POWER OF SUPPLIERS

Strength of suppliers determined by: Number of suppliers and their degree of differentia

Portion of a firms inputs obtained from a particulasupplier

Portion of a suppliers sales sold to a particular firm

Switching costs

Potential for vertical integration


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BARGAINING POWER OF SUPPLIERSA supplier group is powerful if:

It is more concentrated than the industry itsells to (e.g., Microsoft: near-monopoly inoperating systems, with fragmentation amongPC-making customers)

Industry participants face high switching costs

when changing suppliers Differentiated products offered by suppliers No substitutes for what the supplier group

offers

Supplier group does not depend heavily on a

particular industry


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POWER OF CUSTOMERS

Power of customers determined by: Number of buyers

Firms degree of differentiation

Portion of a firms inputs sold to a particular buyer

Portion of a buyers purchases bought from a part

firm

Switching costs

Potential for vertical integration


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THREAT OF SUBSTITUTES

A substitute performs the same function as an

industrys product or service, but by a different

Determined by the number of potential substitutescloseness in function and relative price

Not just another product: sometimes the substitutdo without the product or to do it themselves

Long distance phone service providers vs. VoIP providand Vonage)

Mobile phone as primary phone vs. landline


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RIVALRY AMONG EXISTING COMPETIT

Rivalry determined by number of firmrelative size, degree of differentiationbetween firms, demand conditions anbarriers to exit

Competition among rivals is greatestwhen:There are many competitors, nearly eq

in size or power

Slow industry growth

Hi h barriers to exit MCKINSEYS 7S FRAMEWORK

TO DIAGNOSE CAUSES OF ORG PROBLEM & FORMULATE PROGRA


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Structure

Superordinate

Goals

Strategy

Skills

System

Style

Staff

MCKINSEYS 7S FRAMEWORK


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Style

One of the levers which top managemen

to bring about organization Change

StaffUpdate knowledge & skills to keep pace

change



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Strategy

Includes purpose, mission, objectives, goal, actipolicies

Systems

Procedures & methods framed by organization &

by operational personnel in the respective funct



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Structure

Relationship between/ among various positactivities

Design of structure - critical task for top mgm

SkillsAcquainted with state of the art technoimprovised methods & practices



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Superordinate Goals

Fundamental ideas of business

Main values

Broad notions of future directions

TOWS MatrixInternal (S) (W)


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External

List 5-10

Internal strengths

List 5-10

Internal

Weakness

(O)

List 5-10

External

Opportunities

(T)

List 5-10

External Threats

SO Strategies

Use S to take

advantage of O

WO Strategi

Take advanta

of O by

overcoming

ST Strategies

Use S to avoid

T

WT Strategi

Minimize W a

avoid T

Generate Alternative Strategies

APPLICATION OF GAME THEORY INSTRATEGY FORMULATION


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STRATEGY FORMULATION

'Game Theory'is a concept that deals with theformulation of the correct strategy, when confro

a complex challenge, to succeed in addressing

challenge.

It was developed based on the premise that fowhatever circumstance, or for whatever 'game

exists a strategy that will allow one to 'win.

Any business is a game played against compe

APPLICATION OF GAME THEORY IN


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Invented by John von Neumann and OskarMorgenstern in 1944.

Game Theory is an important tool in any strate

toolbox, especially when dealing with a situatioinvolves several entities whose decisions are i

by what decisions they expect from other entit



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Game Theory has several important elemsome of which are: 1) the agent, which refers to a person or entity wh

their own goals and preferences;

2) the utility, which is an abstract concept that indiamount of satisfaction that an agent derives from a

or an event;


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STRATEGY FORMULATION

In 1950, Albert Tucker of Princeton Universi

invented the Prisoner's Dilemma, an imagin

scenario that is undoubtedly one of the mos

representations of Game Theory.


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PRISONERS DILEMMA

Two suspects arrested for a crime Prisoners decide whether to confess or not to confes

If both confess, both sentenced to 3 months of jail

If both do not confess, then both will be sentenced toof jail

If one confesses and the other does not, then the congets freed (0 months of jail) and the non-confessor se

to 9 months of jail

BATTLE OF SEXES


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BATTLE OF SEXES

A couple deciding how to spend the evenin

Wife would like to go for a movie

Husband would like to go for a cricket mat

Both however want to spend the timetogether

Scope for strategic interaction

GAMES


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GAMES Normal Form representationPayoff Matrix

Confess Not Confess

Confess -3,-3 0,-9

Not Confess -9,0 -1,-1

Movie Cricket

Movie 2,1 0,0

Cricket 0,0 1,2

Prisoner 1

Prisoner 2

Wife

Husband

NASH EQUILIBRIUM


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NASH EQUILIBRIUM

A new concept related to Game Theory is the Nash equilibriumwas developed by John Nash for his PhD thesis. In a game,

would tend to change strategies from time to time to improve t

respective positions.

The Nash Equilibrium is the point at which no player can impr

or her position in the game by changing strategy. In the PrisonDilemma, the Nash Equilibrium is the point at which both priso

confess, since whoever changes this strategy will be sent to a

prison term, instead of an intermediate one.

NASH EQUILIBRIUM


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NASH EQUILIBRIUM

Each players predicted strategy is the best response to

predicted strategies of other players No incentive to deviate unilaterally

Strategically stable or self-enforcing

Confess Not Confess

Confess -3,-3 0,-9

Not Confess -9,0 -1,-1Prisoner 1

Prisoner 2


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UNIT IIICOMPETITIVE ADVANTAGE

MBA 401 Strategic Management.pptx

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