SM module 1

Amity Business School


MBA HR Class of 2015, Semester III

Strategic Management

Module-I (Introduction)


Strategy, the art of war, is especially the planning of movement of troops and ships,

into favorable positions; plan of action or

policy in business or policies

Oxford Pocket Dictionary

Strategy narrowly defined as the art of general (Greek StratAgos)


Strategy is determination of long term goals and objectives of an enterprise and

the adoption of courses of action and the

allocation of resources necessary for

carrying out these goals

Alfred Chandler

Strategy & Structure


Strategy is a set of managerial decisions and actions involved in making a major

market-creating business offering

W. Chan Kim

INSEAD Faculty


What Business Strategy is all about is, in one word Competitive Advantage. The sole objective 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 companys strength relative to that of its competitors

in the most efficient way

Kenichi Ohmae

The Mind of the Strategist


Strategy is defined as those actions that a company

plans, in response to, or in anticipation of, changes in

its external environment, its customers and its

competitors.

Strategy is a way company aims to improve its

position vis--vis competition.


Strategic competitiveness and above normal returns

Concerns managerial decisions and actions which materially affect the success and survival of business

enterprises

Involves the judgment necessary to strategically position a business and its resources so as to maximize long-

term profits in the face of irreducible uncertainty and

aggressive competition

Strategy is the linkage between a business and its current and future environment

Domain of Strategy


Strategic management is the process of specifying the organization's mission, vision and

objectives, developing policies and plans, often in

terms of projects and programs, which are

designed to achieve these objectives, and then

allocating resources to implement the policies and

plans, projects and programs.


Strategic management provides overall direction to the enterprise and is closely related to the field of Organization Studies

Strategic management is the conduct of drafting, implementing and evaluating cross-functional

decisions that will enable an organization to

achieve its long-term objectives


Strategic management is an ongoing process that

evaluates and controls the business and the industries in

which the company is involved; assesses its competitors

and sets goals and strategies to meet all existing and

potential competitors; and then reassesses each strategy

annually or quarterly [i.e. regularly] to determine how it has

been implemented and whether it has succeeded or needs

replacement by a new strategy to meet changed

circumstances, new technology, new competitors, a new

economic environment., or a new social, financial, or

political environment. (Lamb, 1984:ix)


The Strategic Management Process


Strategic Management

The Evolution


DOMINANT

THEME

1950s 1960s-early 70s Mid-70s-mid-80s Late 80s 1990s 2000s

Budgetary Corporate Positioning Competitive Strategic

planning & planning advantage innovation

control

Financial Planning Selecting Focusing on Reconciling

control growth &- sectors/markets. sources of size with

diversification Positioning for competitive flexibility &

leadership advantage agility

Capital Forecasting. Industry analysis Resources & Cooperative

budgeting. Corporate Segmentation capabilities. strategy.

Financial planning. Experience curve Shareholder Complexity.

planning Synergy Portfolio analysis value. Owning

E-commerce. standards.

Knowledge Management

Coordination Corporate Diversification. Restructuring. Alliances &

& control by planning depts. Global strategies. Reengineering. networks

Budgeting created. Rise of Matrix structures Refocusing. Self-organiz

systems corporate Outsourcing. ation & virtual

planning organization

MAIN

ISSUES

KEY

CONCEPTS&

TOOLS

MANAGE-

MENT

IMPLIC-

ATIONS

Major Timeline


Major Thought Schools

Alfred Chandler Corporate Strategy

John Dunning IB Strategy

C K Prahalad Inclusive Strategy

Sumantra Ghoshal Problems in T.C.E.


Historical development of Strategic

Management

Birth of strategic management

originated in the 1950s and 60s

Alfred D. Chandler, Jr.,

Philip Selznick,

Igor Ansoff,

Peter F. Drucker


Alfred Chandler

Strategy and Structure

structure follows strategy

Philip Selznick

Organization's internal factors with external environmental circumstances

SWOT analysis


Igor Ansoff

market penetration strategies

product development strategies

market development strategies

horizontal and vertical integration

diversification strategies

Corporate strategy


Peter Drucker

stressed the importance of objectives

management by objectives (MBO)


Growth and portfolio theory

Profit Impact of Marketing Strategies (PIMS)

effect of market share

Started at General Electric, moved to Harvard in the early 1970s, and then moved to the Strategic Planning Institute in

the late 1970s, it now contains decades of information on the relationship between profitability and strategy

"PIMS provides compelling quantitative evidence as to which business strategies work and don't work" - Tom

Peters.


McKinsey 7S Framework

Strategy, Structure, Systems, Skills, Staff,

Style, and Supra-ordinate goals

The Mind of the Strategist was released in America by Kenichi Ohmae

Tom Peters -In Search of Excellence


Gaining competitive advantage Gary Hamel and C. K. Prahalad

Strategic intent and strategic architecture

Dave Packard and Bill Hewlett devised an active management style that they called Management By Walking Around (MBWA).

Michael Porter cost minimization strategies, product

differentiation strategies, and market focus strategies


The Military Theorists

Business War Games by Barrie James, 1984 Marketing Warfare by Al Ries and Jack Trout, 1986 Leadership Secrets of Attila the Hun by Wess Roberts ,

1987

Philip Kotler was a well-known proponent of marketing warfare strategy

Offensive marketing warfare strategies Defensive marketing warfare strategies Flanking marketing warfare strategies Guerrilla marketing warfare strategies


Strategic change

In 1968, Peter Drucker (1969) coined the phrase Age

of Discontinuity

In 2000, Gary Hamel discussed strategic decay

In 1978, Abell, D. described strategic windows and

stressed the importance of the timing (both

entrance and exit) of any given strategy


Clayton Christensen (1997)

1-disruptive technology

2-agnostic marketing (no one knows how in what

quantities a disruptive product will be used before

experiencing the product)

Henry Mintzberg (1988) Strategy was much more fluid and unpredictable than people had thought


Strategy as plan - a direction, guide, course of action - intention rather than actual

Strategy as ploy - a maneuver intended to outwit a competitor

Strategy as pattern - a consistent pattern of past behavior - realized rather than intended

Strategy as position - locating of brands, products, or companies within the conceptual framework of consumers or other stakeholders - strategy determined primarily by factors outside the firm

Strategy as perspective - strategy determined primarily by a master strategist


Information and technology driven

strategy

Peter Drucker had theorized the rise of the knowledge worker back in the 1950s

In 1990, Peter Senge, who had collaborated with Arie de Geus at Dutch Shell, borrowed de Geus' notion of the learning organization

People can continuously expand their capacity to learn and be productive

New patterns of thinking are nurtured

Collective aspirations are encouraged, and

People are encouraged to see the whole picture together.


Senge identified five components of a learning organization. They are:

Personal responsibility

Self reliance

Mastery of Mental models

Team learning -a spirit of advocacy to a spirit of enquiry

Systems thinking


Criticisms of strategic

management

marketing myopia

In 2000, Gary Hamel coined the term strategic convergence

Ram Charan, aligning with a popular marketing tagline, believes that strategic planning must not

dominate action. "Just do it!",


Levels of Strategy


FUNCTIONAL STRATEGY: Maximize Resource Productivity

It is concerned with developing & nurturing a

distinctive competence to provide a company or

business unit with a competitive advantage

CORPORATE STRATEGY: Overall Direction of Company and Management of Businesses

BUSINESS STRATEGY:

Competitive & Cooperative Strategies It occurs at Business unit or Product level.

It emphasizes on improvement of competitive

position of Corporations product & services

Functional Strategy supports Business Strategy which in turn

supports the Corporate Strategy


ORGANIZATIONAL STRUCTURE

&

LEVELS OF STRATEGY

Business

Strategy

Corporate

Strategy

Functional

Strategy

Div-A Div-B Div-C

Prod. HR Fin. Marketing

Corporate

Head Office


Corporate Level Strategy

What businesses are we in? What businesses should we be in?

Four areas of focus

Diversification management (acquisitions and divestitures)

Synergy between units

Investment priorities

Business level strategy approval (but not crafting)


Business Level Strategy How do we support the corporate strategy?

How do we compete in a specific business arena?

Three types of business level strategies: Low cost producer

Differentiator

Focus

Four areas of focus Generate sustainable competitive advantages

Develop and nurture (potentially) valuable capabilities

Respond to environmental changes

Approval of functional level strategies


Functional / Operational Level Strategy

Functional: How do we support the

business level

strategy?

Operational: How do we support the

functional level

strategy?

An example.

Business L.S.: Become the low cost producer of

widgets

Functional L.S. (Mfg.): Reduce manufacturing

costs by 10%

Operational (Plant #1): Increase worker

productivity by 15%


A Simple Organization Chart

(Single Product Business)

Business

Research and

Development Manufacturing Marketing

Human

Resources Finance

Functional

Level

Strategy

Business

Level

Strategy


A Simple Organization Chart

(Dominant or Related Product Business)

Multibusiness

Corporation

Corporate

Level

Business 1

(Related)

Business 2

(Related)

Business 3

(Related)

Business

Level

Research and

Development Manufacturing Marketing

Human

Resources Finance

Functional

Level


An example of an Unrelated Product Business

(Note: By itself, an SBU can be considered a related

product business)

A

(Multi-business)

Corporation

Ex.: G.E. (General

Electric Corp.)

Strategic Business

Unit 1

S.B.U.

2

Company 1 Co. 2 Co. 3 Division 1 Div. 2 Div. 3

SBU: a single

business or collection

of related businesses

that is independent

and formulates its

own strategy


Corporate Strategy


Corporate Strategy

Approach to future that involves

(1) examination of the current and anticipated factors associated with customers and competitors (external environment) and the firm itself (internal environment),

(2) envisioning a new or effective role for the firm in a creative manner, and

(3) aligning policies, practices, and resources to realize that vision.


Corporate Strategies I. Directional

The firms overall direction toward growth, stability, or retrenchment

II. Portfolio

The industries or markets in which the firm compete through its products and

business units

III. Parenting

The manner in which management coordinates activities and transfers

resources and cultivates capabilities among product lines and business units


I. Directional Strategies

A. Growth Strategies

1. Concentration

a. Vertical Growth

b. Horizontal Growth

2. New Product

3. New Market

4. Diversification

a. Concentric

b. Conglomerate

B. Stability Strategies

1. Pause

2. No Change

3. Profit

C. Retrenchment Strategies

1. Turnaround

2. Captive Company

3. Sell out or Divestment

4. Bankruptcy or Liquidation

II. Portfolio Strategy

III. Parenting Strategy

i. Exporting

ii. Licensing

iii. Franchising

iv. Joint Ventures

v. Acquisitions

vi. Green Field Development

vii. Production Sharing

viii. Turnkey operations

ix. Management contracts

x. Build, Operate, Transfer

(BOT)

i. Forward Integration

ii. Backward Integration

Corporate Strategies

(Grand Strategies)


Growth Strategies Related to expansion of companys activities, such as increasing sales or adding products

Concentration- within one product line or industry

Vertical Growth- Growth can be achieved through vertical growth by taking over a function previously provided by a supplier or by a distributor. This may be done to reduce cost, gain control over a scarce resource, guarantee quality of a key input, or obtain access to a new customer. This is logical for a corporation with a strong competitive position in a highly attractive industry


Vertical Integration

When a firms grand strategy is to acquire firms that supply it with inputs (such as raw

materials) or are customers for its outputs

(such as warehouses for finished products),

vertical integration is involved

The main reason for backward integration is the desire to increase the dependability of the

supply or quality of the raw materials used as

production inputs

7-43


Horizontal Integration

When a firms long-term strategy is based on growth through the acquisition of one or more

similar firms operating at the same stage of

the production-marketing chain, its grand

strategy is called horizontal integration

Such acquisitions eliminate competitors and provide the acquiring firm with access to new

markets

7-44

Amity Business School Vertical and Horizontal

Integration

7-45


Full Integration Company produces all of a particular input

from its own operations. Disposes of all of its completed products through its own

outlets.

Taper Integration In addition to company-owned suppliers, the company will

also use other suppliers for inputs or independent outlets in addition to company-owned outlets.


Full and Taper Integration


A company pursues vertical integration to strengthen the business model of its original or core business or to improve its competitive position:

Increasing Profitability Through Vertical Integration

1. Facilitates investments in efficiency-enhancing

specialized assets Allows company to lower the cost structure or

Better differentiate its products

2. Enhances or protects product quality To strengthen its differentiation advantage through either forward or

backward integration

3. Results in improved scheduling Makes it easier and more cost-effective to plan, coordinate, and

schedule the transfer of product within the value-added chain

Enables a company to respond better to changes in demand


Problems with vertical Integration

Companies may disintegrate or exit industries adjacent to the industry value chain when encountering disadvantages from the vertical integration:

Vertical integration can weaken business model when: Company-owned suppliers lack incentive to reduce costs Changing demand or technology reduces ability to be competitive

Cost structure is increasing. Company-owned suppliers develop a higher cost structure than those

of the independent suppliers

Bureaucratic costs of solving transaction difficulties

The technology is changing fast. Vertical integration may lock into old or inefficient technology

Prevent company from changing to a new technology that could strengthen the business model

Demand is unpredictable.

Creates risk in vertical integration investments.


Alternatives to Vertical Integration: Cooperative Relationships

Short-term contracts and competitive bidding May signal a companys lack of commitment to its supplier

Strategic alliances and long-term contracting Enables creation of a stable long-term relationship

Becomes a substitute for vertical integration

Avoids the problems of having to manage a company located in an adjacent industry

Building long-term cooperative relationships

Hostage taking creating a mutual dependency

Credible commitments a believable promise or pledge

Maintaining market discipline power to discipline supplier

Periodic contract renegotiation Parallel sourcing policy

Strategic Alliances are long-term agreement between two or more companies to jointly develop new products or processes that benefit all companies concerned.


Strategic Outsourcing

Company is choosing to focus on a fewer number of value-creation activities

In order to strengthen its business model Companys typically focus on noncore or nonstrategic activities

In order to determine if they can be performed more effectively and efficiently by independent specialized companies

Virtual Corporation

Describes companies that have pursued extensive strategic outsourcing

Strategic Outsourcing allows one or more of a companys value-chain activities or functions to be performed by independent specialized companies that focus all their skills and knowledge on just one kind of activity.


Strategic Outsourcing of Primary Value

Creation Functions


Benefits of Outsourcing

1. Reducing the cost structure The specialist company cost is less than what it would cost to perform the

activity internally.

2. Enhanced differentiation The quality of the activity performed by the specialist is greater than if the

activity were performed by the company.

3. Focus on the core business Distractions are removed.

The company can focus attention and resources on activities important for value creation and competitive advantage.

Strategic outsourcing may be detrimental when: Holdup company becomes too dependent on specialist provider Loss of information company loses important customer contact or competitive information


Horizontal Integration

Single-Industry Strategy

Focus resources Its total managerial, technological, financial and functional resources and capabilities are devoted to competing successfully in one area.

Stick to its knitting Company stays focused on what it does best, rather than entering

new industries where its existing resources and capabilities add little value.

Horizontal Integration is the process of acquiring or merging with industry competitors in an effort to achieve the competitive advantages that come with large scale and scope.

Staying inside a single industry allows a company to:


Benefits of Horizontal Integration Profits and profitability increase when horizontal integration:

1. Lowers the cost structure Creates increasing economies of scale Reduces the duplication of resources between two companies

2. Increases product differentiation Product bundling broader range at single combined price Total solution saving customers time and money Cross-selling leveraging established customer relationships

3. Replicates the business model In new market segments within same industry

4. Reduces industry rivalry Eliminate excess capacity in an industry Easier to implement tacit price coordination among rivals

5. Increases bargaining power Increased market power over suppliers and buyers Gain greater control


Problems with Horizontal Integration

A wealth of data suggests that the majority of mergers and acquisitions DO NOT create value and that many may actually DESTROY value. Implementing a horizontal integration is not an easy task.

Problems associated with merging very different company cultures

High management turnover in the acquired company when the acquisition is a hostile one

Tendency of managers to overestimate the benefits to be had in the merger

Tendency of managers to underestimate the problems involved in merging their operations

The merger may be blocked if merger is perceived to: Create a dominant competitor

Create too much industry consolidation

Have the potential for future abuse of market power




1. Concentration

a. Vertical Growth


2. New Product

3. New Market

4. Diversification

a. Concentric

b. Conglomerate


1. Pause

2. No Change

3. Profit


1. Turnaround

2. Captive Company





i. Exporting

ii. Licensing

iii. Franchising

iv. Joint Ventures

v. Acquisitions






(BOT)




(Grand Strategies)


Horizontal Growth i. Exporting

ii. Licensing

iii.Franchising

iv.Joint Ventures

v. Acquisitions

vi.Green Field Development

vii.Production Sharing

viii.Turnkey operations

ix.Management contracts

x. Build, Operate, Transfer (BOT)




1. Concentration

a. Vertical Growth


2. New Product

3. New Market

4. Diversification

a. Concentric

b. Conglomerate


1. Pause

2. No Change

3. Profit


1. Turnaround

2. Captive Company





i. Exporting

ii. Licensing

iii. Franchising

iv. Joint Ventures

v. Acquisitions






(BOT)




(Grand Strategies)


Market Development

Market development commonly ranks second only to concentration as the least costly and least risky of all the grand strategies

It consists of marketing present products, often with only cosmetic modifications, to customers in related market areas by adding channels of distribution or by changing the content of advertising or promotion

Frequently, changes in media selection, promotional appeals, and distribution are used to initiate this approach

7-60


Product Development

Product development involves the substantial modification of

existing products or the creation of

new but related products that can

be marketed to current customers

through established channels

7-61


Innovation

These companies seek to reap the initially high profits associated with customer acceptance of a new or greatly

improved product

Then, rather than face stiffening competition as the basis of profitability shifts from innovation to production or

marketing competence, they search for other original or

novel ideas

The underlying rationale of the grand strategy of innovation is to create a new product life cycle and

thereby make similar existing products obsolete

7-62


Diversification Strategies Diversification is a form of corporate strategy for a

company. It seeks to increase profitability through greater sales volume obtained from new products and new markets.

Diversification can occur either at the business unit level or at the corporate level.

At the business unit level, it is most likely to expand into a new segment of an industry which the business is already in.

At the corporate level, it is entering a promising business outside of the scope of the existing business unit.

Diversification usually requires a company to acquire new skills, new techniques and new facilities


Concentric diversification

When there is a technological similarity between the

industries, which means that the firm is able to leverage its technical know-how to gain some advantage.

For example, a company that manufactures industrial adhesives might decide to diversify into adhesives to be sold via retailers. The technology would be the same but the marketing effort would need to change. It also seems to increase its market share to launch a new product which helps the particular company to earn profit.

However, there's one more example, Addition of tomato ketchup and sauce to the existing "Maggi" brand processed items of Nestle is an example of technological-related concentric diversification.


Horizontal diversification

The company adds new products or services that are technologically or commercially unrelated (but not always) to current products, but which may appeal to current customers.

In a competitive environment, this form of diversification is desirable if the present customers are loyal to the current products and if the new products have a good quality and are well promoted and priced.

Moreover, the new products are marketed to the same economic environment as the existing products, which may lead to rigidity and instability. In other words, this strategy tends to increase the firm's dependence on certain market segments.

For example company was making note books earlier now they are also entering into pen market through its new product.


Conglomerate diversification (or lateral diversification)

The company markets new products or services that have no technological or commercial synergies with current products, but which may appeal to new groups of customers.

The conglomerate diversification has very little relationship with the firm's current business. Therefore, the main reasons of adopting such a strategy are first to improve the profitability and the flexibility of the company, and second to get a better reception in capital markets as the company gets bigger.

Even if this strategy is very risky, it could also, if successful, provide increased growth and profitability.


Rationale of diversification

According to Calori and Harvatopoulos (1988), there are two dimensions of rationale for diversification. The first one relates to the nature of the strategic objective: diversification may be defensive or offensive.

Defensive reasons may be spreading the risk of market contraction, or being forced to diversify when current product or current market orientation seems to provide no further opportunities for growth. Offensive reasons may be conquering new positions, taking opportunities that promise greater profitability than expansion opportunities, or using retained cash that exceeds total expansion needs.

The second dimension involves the expected outcomes of diversification: management may expect great economic value (growth, profitability) or first and foremost great coherence and complementary to their current activities (exploitation of know-how, more efficient use of available resources and capacities). In addition, companies may also explore diversification just to get a valuable comparison between this strategy and expansion.


Risks Diversification is the riskiest of the four strategies

presented in the Ansoff matrix and requires the most careful investigation. Going into an unknown market with an unfamiliar product offering means a lack of experience in the new skills and techniques required. Therefore, the company puts itself in a great uncertainty.

Moreover, diversification might necessitate significant expanding of human and financial resources, which may detracts focus, commitment and sustained investments in the core industries. Therefore a firm should choose this option only when the current product or current market orientation does not offer further opportunities for growth.




1. Concentration

a. Vertical Growth


2. New Product

3. New Market

4. Diversification

a. Concentric

b. Conglomerate


1. Pause

2. No Change

3. Profit


1. Turnaround

2. Captive Company





i. Exporting

ii. Licensing

iii. Franchising

iv. Joint Ventures

v. Acquisitions






(BOT)




(Grand Strategies)


Stability Strategies

This strategy is essentially a continuation of existing

strategies. Such strategies are typically found in

industries having relatively stable environments. The firm

is often making a comfortable income operating a

business that they know, and see no need to make the

psychological and financial investment that would be

required to undertake a growth strategy.


Pause Strategy This strategy in effect, a time-out, an opportunity to rest

before continuing a growth or retrenchment strategy. It may be a very appropriate strategy to enable a company to consolidate its resources after prolonged rapid growth in an industry that faces an uncertain future. It is typically a temporary strategy to be used until the environment becomes more hospitable or to enable a company to consolidate its resources after prolonged rapid growth. This was the strategy Dell Computer Corporation followed in the early 1990s after its growth strategy had resulted in more growth than it can handle. Dell did not give up on its growth strategy, but merely put it temporarily in limbo until company could hire new managers, improve the structure, and build new facility


No Change Strategy

It is a strategic decision to do nothing new, a choice to continue current operations and policies for the foreseeable future. Rarely articulated as a definite strategy, no change strategy's success depends on a lack of significant change in a corporations situation. The corporation has probably found a reasonably profitable and stable niche for its products. Most small-town businesses probably follow this strategy before a Wal-Mart moves into their areas


Profit Strategy

It is a decision to do nothing new in a worsening situation, but instead to act as

though the companys problems are only temporary. It is an attempt to artificially

support profits when a companys sales are declining by reducing investment and short-

term discretionary expenditures.




1. Concentration

a. Vertical Growth


2. New Product

3. New Market

4. Diversification

a. Concentric

b. Conglomerate


1. Pause

2. No Change

3. Profit


1. Turnaround

2. Captive Company





i. Exporting

ii. Licensing

iii. Franchising

iv. Joint Ventures

v. Acquisitions






(BOT)




(Grand Strategies)


Retrenchment Strategies Management may pursue retrenchment strategies

when the company has a weak competitive

position in some or all of its product lines resulting

in poor performance- when sales are down and

profits are becoming losses. These strategies

generate a great deal of pressure to improve

performance. The CEO is under extreme pressure

to do something quickly or be fired. In an attempt to

eliminate the weaknesses that are dragging the

company down, management my follow turnaround

or becoming a captive company to selling out,

bankruptcy or liquidation.


Turnaround Strategy

The firm finds itself with declining profits

Among the reasons are economic recessions, production inefficiencies, and innovative breakthroughs by competitors

Strategic managers often believe the firm can survive and eventually recover if a concerted effort is made over a period of a few years to fortify its distinctive competences. This is turnaround.

Two forms of retrenchment:

Cost reduction

Asset reduction

7-76


Elements of Turnaround

A turnaround situation represents absolute and relative-to-industry declining performance of a sufficient

magnitude to warrant explicit turnaround actions

The immediacy of the resulting threat to company survival is known as situation severity

Turnaround responses among successful firms typically include two stages of strategic activities: retrenchment

and the recovery response

The primary causes of the turnaround situation have been associated with the second phase of the turnaround

process, the recovery response 7-77


Captive Company

This strategy involves giving up independence in exchange for some security by becoming another company's sole supplier, distributor, or a dependent subsidiary.

Example- J B Mangharam now a captive company of Britannia

Simpson Industries of Birmingham, Michigan agreed to have its engine parts facilities and books inspected and its employees interviewed by a special team from GM. In return, nearly 80% of the companys production was sold to GM through long term contracts.


Sell out or Divestment If a company in a weak position is unable or

unlikely to succeed with a turnaround or captive company strategy, it has few choices other than to try to find a buyer and sell itself (or divest, if part of a diversified corporation)

When Monsanto realized that its well known chemical business had been overshadowed by advances in biotechnology and in agricultural products such as Roundup, it sold its chemical unit.


Bankruptcy or Liquidation When a company has been unsuccessful in

or has none of the previous three strategic

alternatives available, the only remaining

alternative is liquidation, often involving a

bankruptcy. There is a modest advantage of

a voluntary liquidation over bankruptcy in

that the board and top management make

the decisions rather than turning them over

to a court, which often ignores stockholders'

interests.


Corporate-Level Strategies

Firm

Status

Valuable

strengths

Critical

weaknesses

Environmental Status Abundant

environmental

opportunities

Critical

environmental

threats

Corporate

growth

strategies

Concentric Diversification

(Economies of

Scope)

Conglomerate

Diversification

(Risk Mgt.)

Corporate

retrenchment

strategies

Can still go for business-level growth

(economies of scale)

Corporate

stability

strategies


Vision, Mission and Business Definition

Whether you are starting a new company or

improving an existing one, you should define its

purpose for existence. Then it is important to have

a mission, plans and a vision for your company or

business enterprise.

Questions you may have include:

What factors are in the purpose of a business?

How do you define a mission?

What about a business concept?


Vision/Mission Statements Statements that explain who we are

Type of organization Products/services Needs we fill

Statements that explain our direction, our purpose, our reason for being What difference do we make?

Statements that explain what makes us unique Values People Combination of products and services


Major Components of the

Strategic Plan / Down to Action

Mission

Vision

Goals

Objectives

Measures

Why we exist

What we want to be

Indicators and

Monitors of success

Desired level of

performance and timelines

Planned Actions to

Achieve Objectives

O1 O2

AI1 AI2 AI3

M1 M2 M3

T1 T1 T1

Specific outcomes expressed in

measurable terms (NOT activities)

Strategic Plan

Action Plans

Evaluate Progress

Targets

Initiatives

What we must achieve to be successful


VISION : Desired future state; the

aspiration of the Organization

What are our Dreams and Aspirations?

What do we want to look like in 5, 10, 15 years?

Where do we want to go?


A Vision is

How the organization wants to be perceived in the future what success looks like

An expression of the desired end state Challenges everyone to reach for something significant inspires a compelling future

Provides a long-term focus for the entire organization

A guiding philosophy

Consistent with organizational value

Influenced by the strengths and weaknesses of the

business


Components of a Vision Statement

Core ideology

Core Values - timeless guiding principles

Core Purpose - reason for being

Envisioned future

Big Hairy Audacious Goals (BHAG) - clearly articulated goals

Vivid description - a graphic description of what success and the future will be like

Recognition of service to stakeholders

Owners/creditors

Employees

Customers


Essentials of good Business Vision

Statement

Should significantly stretch the resources and capabilities of the firm

Should inspire people in the organization to achieve things they never thought possible

Should unite people in the organization toward the pursuit of one common goal


MISSION :It is the unique purpose or reason for organizations existence.

Overriding purpose in line with the values

or expectations of the stakeholders

Who are we?

What business are we in?


The mission statement of an organization is normally short, to the point, and contains the following elements:

Provides a concise statement of why the organization exists, and what it is to achieve;

States the purpose and identity of the organization;

Defines the institution's values and philosophy; and

Describes how the organization will serve those affected by its work.


Importance of Mission

Mission

Resource Allocation

Unanimity of Purpose

Organizational Climate

Focal point for work

structure

Benefits from a strong mission


Mission

Elements

Customers

Markets

Employees

Public

Image Self-Concept Philosophy

Survival

Growth

Profit

Products

Services

Technology


Mission Statements Fleetwood Enterprises will lead the recreational vehicle and manufactured

housing industries (2, 7) in providing quality products, with a passion for

customer-driven innovation (1). We will emphasize training, embrace

diversity and provide growth opportunities for our associates and our

dealers (9). We will lead our industries in the application of appropriate

technologies (4). We will operate at the highest levels of ethics and

compliance with a focus on exemplary corporate governance (6). We will

deliver value to our shareholders, positive operating results and industry-

leading earnings (5). (Comment: Statement lacks two components:

Markets and Concern for Public Image)

We are loyal to Royal Caribbean and Celebrity and strive for continuous improvement in everything we do. We always provide service with a friendly

greeting and a smile (7). We anticipate the needs of our customers and

make all efforts to exceed our customers expectations (1). We take ownership of any problem that is brought to our attention. We engage in

conduct that enhances our corporate reputation and employee morale (9).

We are committed to act in the highest ethical manner and respect the

rights and dignity of others (6). (Comment: Statement lacks five

components: Products/Services, Markets, Technology, Concern for

Survival/Growth/Profits, Concern for Public Image)


We aspire to make PepsiCo the worlds (3) premier consumer products company, focused

on convenient foods and beverages (2). We

seek to produce healthy financial rewards for

investors (5) as we provide opportunities for

growth and enrichment to our employees (9),

our business partners and the communities (8)

in which we operate. And in everything we do,

we strive to act with honesty, openness, fairness

and integrity (6). (Comment: Statement lacks

three components: Customers, Technology,

and Self-Concept)


Vision vs. Mission

The vision is more broad and future oriented the goal on the horizon

The mission is more focused how you will get to the horizon


GOAL: General statement of Aim or

Purpose.

It is an open ended statement of what one

wishes to accomplish with no quantification

and no time frame for completion.


Describes a future end-state desired outcome that is supportive of the mission and vision.

Shapes the way ahead in actionable terms. Best applied where there are clear choices about the future.

Puts strategic focus into the organization specific ownership of the goal should be assigned to someone

within the organization.

May not work well where things are changing fast goals tend to be long-term for environments that have

limited choices about the future.


Developing Goals Cascade from the top of the Strategic Plan Mission, Vision, Guiding Principles.

Look at your strategic analysis SWOT, Environmental Scan, Past Performance, Gaps .

Limit to a critical few such as five to eight goals. Broad participation in the development of goals: Consensus from above buy-in at the execution level. Should drive higher levels of performance and close a critical performance gap.


OBJECTIVE : Quantification or more precise

statement of objective

Definable: It should defined to compare the performance

Quantifiable: It should be expressed in terms of Value Or Market share

( Avoid Vague terms such as increase, improve or maximize)

Achievable:

e.g. To increase sales of product globally by 30% in real terms within 5yrs.

To increase market share for the product in the India from 10%-15% over 2yrs


Relevant - directly supports the goal

Compels the organization into action

Specific enough so we can quantify and measure the results

Simple and easy to understand

Realistic and attainable

Conveys responsibility and ownership

Acceptable to those who must execute

May need several objectives to meet a goal


GOALS OBJECTIVES

Very short statement, few

words

Longer statement, more

descriptive

Broad in scope Narrow in scope

Directly relates to the

Mission Statement

Indirectly relates to the

Mission Statement

Covers long time period

(such as 10 years)

Covers short time period (such

1 year budget cycle)


GOAL OBJECTIVE STRATEGY

To be

No. 1

in the

market

Increase

market

share by

15% in

three years

i) Increase product

promotion

ii) Design product pricing

iii) Penetration

iv) New market

development

v) Product-Service mix

vi) Quality improvement


Business Definition


A Business Definition is a clear statement of the business the firm is engaged in or is planning to enter.

What is our Business in precise way:

We are in the beauty enriching Business (Helen and Curtis)

We are in the Business of Computing Technology (Intel)

We are Watch makers of the nation (HMT)

We are in the transportation business (TELCO)


Business Definition

Abells Framework

http://www.12manage.com/methods_abell_three_dimensional_business_definition.html


Business Definition Statements

Define the space that the business wants to create for itself in competitive terrain

Broadly specifies the opportunities that the business may exploit within the space and the threats it may encounter from rival firms in course of time

Must be defined in broad ways, keeping changing customer tastes and aspirations in mind


Product Oriented V/S market Oriented

Company Product Definition Market Definition

Railways We run railways We are a people and

Goods mover

Oil Company We Sell Gasoline We supply energy

Film Producing

Company

We make movies We make entertainment

Air conditioning

company

We make air

conditioners

We provide climate

control in the home

Publishing Company We produce and sell

books

We distribute

information

Copying Company We make copying

equipments

We help improve office

productivity


VALUES

What do we prize?

What drives our business?

What are our criteria for making ethical decisions?


Guiding Principles and Values

Every organization should be guided by a set of values and beliefs

Provides an underlying framework for making decisions part of the organizations culture Values are often rooted in ethical themes, such as honesty, trust, integrity, respect, fairness, . . . .

Values should be applicable across the entire organization Values may be appropriate for certain best management practices best in terms of quality, exceptional customer service, etc.


Examples of

Guiding Principles and Values

We obey the law and do not compromise moral or ethical principles ever! We expect to be measured by what we do, as well as what we say.

We treat everyone with respect and appreciate individual differences.

We carefully consider the impact of business decisions on our people and we

recognize exceptional contributions.

We are strategically entrepreneurial in the pursuit of excellence, encouraging original

thought and its application, and willing to take risks based on sound business

judgment.

We are committed to forging public and private partnerships that combine diverse

strengths, skills and resources.


Stakeholders

Individuals and groups who have an interest in a firms performance and an ability to influence its actions

Interest in performance coupled with ability to influence the firm through their decision to support

the firm or not companies have important relationships with their stakeholders.

111


112


ETHICS

The word ethics is derived from the Greek word ethos meaning character and latin word mores meaning customs

To better understand ethics let us understand and contrast the definition of ethics and law

Law is a consistent set of universal rules that are widely published, generally accepted and usually enforced. These rules describe the ways in which people are required to act in society.

Ethics defines what is good for the individual and for society and establishes the nature of duties that people owe to oneself and others in society


What are ethics

The principle of conduct professional ethics

A system or philosophy of conduct

A discipline dealing with what is good and bad- moral duty and obligation

A set of moral principles or values.


Relation between ethics and law

Amity Business School ETHICS-

Reflection in a companys operations of the values and moral principles used in the communities in which they operate

Successful markets and corporate performance are founded on a commitment to basic ethical principles aligned as much as possible to the interests of individuals, corporations and society.

Ethical standards may be expressed in a companys formal conduct requirements, or contained in generally stated principles that guide a companys preferred conduct or behavior.

Most companies have put in place a code of ethics for its employees to conduct themselves in a particular manner while doing business.


Purpose of Ethics

Ethics are the guiding principles.

Where the proposed business activity/ operation of the company borders on the

unknown, the company needs to apply the

ethics principle to decide on the project.

Ethics help make relationships mutually pleasant and productive- imbibes a sense of

community among members- a sense of

belongingness to society.


Why have a code of ethics?

To define acceptable behavior

To promote high standards of practice

To provide a benchmark for self-evaluation

To establish a framework for professional behavior and responsibilities

As a vehicle for occupational identity

As a mark of occupational maturity.


Code of ethics -transition

Original

Compliance

Enforcement

Punishment

Directive

Secretive

Integrity

Inspiration

Motivation

Educational

Open

Revised


Creating the Ethical Imperative

Written code of ethics

Employee commitment

Employee training

Discipline process

Full disclosure

Building expectations

Resolution process conflict management


THE INFOSYS MODEL

A formal code of business conduct and ethics.

To be signed and adhered to by employees.

Action against any employee for violation thereof.


THE INFOSYS MODEL -Contents

General standards of conduct

Management of conflicts of interest

Prohibition of exploitation of corporate opportunities

Protection of companys confidential information

Obligations under securities laws

Use of assets

An entire section on responsibilities to customers and stakeholders.


Definitions and Relationships Corporate social responsibility (CSR) is the

process by which businesses negotiate their

role in society

In the business world, ethics is the study of morally appropriate behaviors and decisions,

examining what "should be done

Although the two are linked in most firms, CSR activities are no guarantee of ethical behavior


Main Concepts of CSR

Social Contract (Donaldson, 1982; Donaldson and Dunfee, 1999) There is a tacit social contract between the firm and society; the

contract bestows certain rights in exchange for certain

responsibilities.

Stakeholder Theory (Freeman, 1984) A stakeholder is any group or individual who can affect or is affected by the achievement of an

organization's purpose. Argues that it is in the companys strategic interest to respect the interests of all its stakeholders.

CSR (Carrol, 1979)

Firms have responsibilities to societies including economic, legal,

ethical and discretionary (or philanthropic).

- See also DeGeorge (1999) on the Myth of the Amoral Firm


Maximize

firms profits to the exclusion

of all else

Balance

profits and

social

objectives

Do what it takes

to make a profit;

skirt the law; fly

below social

radar

Fight social

responsibility

initiatives

Comply;

do what is

legally

required

Integrate social

objectives and

business goals

Lead the industry

and other

businesses with

best practices

Do more than

required; e.g.

engage in

philanthropic

giving

Articulate

social value

objectives

Corporate Social Responsibility Continuum


CSR are Grounded by Opposing Objectives

(Maximize Profits to Balance Profits with Social

Responsibility) and so Activities Range Widely

Do what it takes to make a profit; skirt the law; fly below social radar

Fight CSR initiatives

Comply with legal requirements

Do more than legally required, e.g., philanthropy

Articulate social (CSR) objectives

Integrate social objectives and business goals

Lead the industry on social objectives


Main Concepts of CSR

CSR = political economy

The rights and responsibilities assigned to private industry.


Key Issues in CSR

Labour rights:

child labour

forced labour

right to organise

safety and health

Environmental conditions

water & air emissions

climate change

Human rights

cooperation with paramilitary forces

complicity in extra-judicial killings

Poverty Alleviation

job creation

public revenues

skills and technology


Context Globally

Liberalization of markets reduction of the regulatory approach

Emergence of global giants, consolidation of market share

Development of the embedded firm and the global value chain

Development of supplier networks in developing countries


Key drivers of CSR

Around the world

NGO Activism

Responsible investment

Litigation

Gov initiatives

Developing Countries

Foreign customers

Domestic consumers

FDI

Government


CSR Management:

Systems approach

Sustainable business development does not come

about of its own accord. Rather, commitment to

sustainability demands that corporate processes

be reliably controlled and that everyone's actions -

in finance as much as in environmental and social

areas - be coordinated. Prerequisites for this are

binding guidelines, unambiguous corporate

goals and a clear organizational structure.

- Deutsche Telekom

Amity Business School CSR Management:

Plan, Do, Check, Act method Plan

Consult stakeholders

Establish code of conduct

Set targets

Do

Establish management systems and personnel

Promote code compliance

Check

Measure progress

Audit

Report

Act

Corrective action

Reform of systems

SM module 1

Documents

business strategy

new strategy

corporate strategy

new competitors

strategic management

potential competitors

company plans

new economic environment