Strategic Management Full

7/27/2019 Strategic Management Full

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Strategic Management

By

Prasad Kulkarni

23 July 2013 1(c) Prof. Prasad Kulkarni


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Objectives of the course

To study the meaning and nature of

strategic management.

To understand the method of strategy

formulation

To assess the impact of companys

external environment.

To analyze companys resources and

competitive position

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To apply generic competitive

strategies.

To formulate long term and great

strategies.

To implement the strategy in the

organization

To review and audit the strategy

implemented.



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Module 1



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Meaning of strategic

Management

Managements action plan for

running the business and conducting

operations.



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Strategy answers.

How management intends to grow

the business.

How it will build loyal clientele.

How each functional piece of

business will be operated.

How performance will be boosted



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The AMUL way

On Amuls future plans, RS Sodhi,

chief general manager, GCMMF said:

"We are expanding our processing

and packaging capacity to meet

growing demands. For starters, we

are setting up additional processing

facilities in Delhi and Mumbai.Currently, we lead the pack with the

production of 50 lakh liters per day."



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AMUL strategy

Simultaneous development of

suppliers and customers.

Cost leadership

Focus on core activities.

Managing the third party service

providers. Financially self reliant.



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WHAT HAPPENS IF AMUL

STARTS SELLING ITS MILK INKARNATAKA?

Discussion 1



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Strategy may focus on

Low cost or superior product

Virgin Mobile versus Airtel

High end or mid segment or low endBMW v/s Toyota Etios v/s Maruti 800

Wide product line v/s narrow product

line.Hindustan unilever v/s Cavin care.



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Regional V/s national V/s global

Mysore sandal V/s Medimix V/s Dove.

One industry or multiple industriesMarico v/s ITC.



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WHO WILL WIN THE BATTLEBETWEEN COLGATE SENSITIVE

VERSUS SENSODYNE?

Discussion 2



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Nature of strategic

management

Formulate the companys mission

Internal analysis

External environment analysis

Matching companys resources withexternal environment

Setting long term objectives and grandstrategies.

Developing annual objectives and shortterm strategies.

Strategy implementations and auditing.



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Importance of Strategic

Management

1. It results in higher organizational

performance.

2. It requires that managers examine and

adapt to business environment changes.

3. It coordinates diverse organizational units,

helping them focus on organizational

goals.

4. It is very much involved in the managerial

decision-making process.

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Relevance of Strategic

Management

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Characteristics of strategic

Management

1. Strategic decisions are likely to affect the long-

term direction of an organisation.

2. Strategic decisions are normally about trying to

achieve some advantage for the organisation.

3. Strategic decisions are likely to be concerned

with the scope of an organisations activities

4. Strategy is to do with the matching of the

activities of an organisation to the environmentin

which it operates.



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5. Strategy can also be seen as 'stretching' anorganization's resources and competences to createopportunities or capitalize on them.

6. Strategic decisions therefore often have majorresource implications for an organisation.

7. Strategic decisions are therefore likely to affectoperational decisions, to set off waves of lesserdecisions.

8. The strategy of an organisation will be affected notonly by environmental forces and resource availability,but also by the values and expectations of those whohavepowerin and around the organisation



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Dell Business model



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Lenovo Business Model



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The relationship between a companys

strategy and its business model

A companys business model explains

the rationale for why its business

approach and strategy will be a

money maker

A companys business model explains

why its business approach and

strategy will generate ample revenueto cover costs and capture a profit.



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Strategy- Deals

with a companys

competitive

initiatives andbusiness

approaches

Business Model-Concerns

whether revenues and

costs flowing from the

strategydemonstrate thebusiness can be amply

profitable and viable

Relationship Between

Strategy and Business Model


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DISCUSS THE BUSINESS MODELOF ANY ONE MOVIE THEATER OF

BELGAUM

Discussion 3



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Strategic Management process



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Developing a strategic vision

Managers must decide whatdirectional path the company shouldtake.

Factors deciding the one directionalpath versus another.

1. Changing market conditions

2. Opportunity of new markets andcustomers.

3. Market viability analysis

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Strategy on retrenchment of

market or products.

Companys growth path.

Will company sustain and improve

its position in the future?

Can company extend its brand

strength for further business?

Technology savvy of the company.

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Strategic vision is:

1. Providing panoramic view of where weare going?

2. Provides rationale behind goodbusiness sense for the company.

3. It provides direction for the future.

4. It gives the identity to the organization.

5. A clearly articulated strategic visioncommunicates managementsaspirations to stakeholders.

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ACC

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A good vision always needs to be

a bit beyond a companys reach,

but progress toward the vision is

what unifies the efforts ofcompany personnel.

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Analyze the Jindal steels vision

To be a globally admired

organization that enhances the

quality of life of all stakeholders

through sustainable industrial andbusiness development.

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Mission statement

Usually deals with the companyspresent business scope andpurpose.

A companys mission statement isdefined by the buyer needs it seeksto satisfy the customer groups andmarket segments it is endeavoring to

serve and the resources andtechnologies that it is deploying intrying to please its customers.

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Reliance communication

We will create world-class benchmarks by:

Meeting and exceeding Customer expectations with asegmented approach

Establishing, re-engineering and automating Processesto make them customer centric, efficient and effective

Incessant offering ofProducts and Services that arevalue for money and excite customers

Providing a Network experience that is best in theindustry

Building Reliance into an iconic Brand which isbenchmarked by others and leads industry in Intention to

Purchase and Loyalty Developing a professional Leadership team that inspires,

nurtures talent and propagates RCOM Values bypersonal example

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Shortcomings in company

vision statements

Incomplete

Vague

Not distinctive Too generic

Too broad.

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Linking the vision with company

values ( Example JSW)

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Company values

A company's values are the beliefs

, business principles and practices

that guide the conduct of its

business the pursuit of its strategicvision and the behavior of

company personnel

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Company managers connect values tothe strategic vision in two ways

1. in traditional organization shows thecompatibility of vision with values.

2. In new companies managers derivevalue those drive vision.

A number of companies combine theirvision and values into a single statementor document that is provided to allcompany personnel and often posed onthe company web page.

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Operational level strategies:

Concerns the relatively narrow

strategic initiatives and

approaches for managing key

operating units and specific

operating activities with strategic

significance .

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l d


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Implementing and executing

the strategy

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Assignment 1

Discuss the strategic management

process of any one foundry company.

This assignment carries 3 marks.



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Objective definition

The desired or needed result to be

achieved by a specific time.

An objective is broader than a goal

and one objective can be broken

down into a number of specific goals.



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1. Profitability: it is just not the profit

for every year. The investment must

provide future appreciation of worth

and increased profits in future.

2. Return on investment: the return on

investment must be on increase year

after year.



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Low risk: high risk projects mightpromise a high return but it may besafer to opt for a project with a lowerreturn but a greater guarantee of

success. Share price, earnings, dividends and

market value: EPS or dividend paymentsare measures which recognize that

company is owned by its shareholders.Lesser the EPS, shareholders are likelyto sell the shares.



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Market capitalization: Total value ofbusiness shares on the stock market.When the earnings and dividends arelow, the market value of the shares alsodrops.

Price/ earnings ratio: The relationshipbetween EPS and the price at which the

shares are traded. It is the market valuedivided by EPS. This should not comedown



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A balanced score card is a

management and measurement

system whose purpose to

A. translate strategy into

A set of measures that

Uniquely communicate

Your vision to the organization



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Balanced scorecard addresses


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Balanced scorecard addresses

four basic questions

People: how can we develop our

people and their capabilities?

Business process: what must we excel

at to meet customer needs?

Customers: how do customers see us

and values our services?

Financial: How are we faring with

shareholder returns?



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Define your role within the business. How doyou measure the importance of the role withinthe business structure? What is your objectivewithin the role? What inspires you within therole?

Define your definition of excellence and offer avision for the future. Generally, that vision usessuch phrases as "industry leader," "the best" or"change [a particular sector of the market].

Use approximately 25 words to inspire, motivate

and define the overall philosophy and the way abusiness will function. Create an expectationand accountability.



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h h h f


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The hierarchy of strategic intent

1) a broad vision of what theorganizations should be.2) The organizations mission.3) The strategies objectives and specific

goals to be pursued relentlessly4) The plans that are develop toaccomplished the intentions ofmanagement in a concrete5) The plans that are developed toaccomplish the intentions ofmanagement in a concrete way.



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S i l T l


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Strategic plan Template



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I d t


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Industry

It is a group of companies offeringproducts or services that are close

substitutes for each other- that is

products or services that satisfy thesame basic customer needs.

S t


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Sector

Groups of closely related industries Example

Telecommunication sector

telecommunication equipment industry

telecommunication service industry

Market segments:

These are different group of customers within

a market that can be differentiated from eachother on the basis of homogeneity


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Whether industry members areracing to differentiate their products

from rivals by

a. offering better performance features

b. higher quality

c. improved customer service

d. wider product selections


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How actively industry members arepursuing efforts to build stronger

dealer networks.

How hard companies are striving togain market edge over rivals by

developing valuable expertise and

capabilities that rivals are hardpresses to match


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Rivalry increases when one or morecompetitors dissatisfied with their

market position.

Rivalry becomes more volatile andunpredictable as the diversity of

competitors increases in terms of

visions objectives, strategies andresources.


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Threat of entry of new


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companies

Entry is stronger when

a. The pool of entry candidate is large

and some of the candidates have

resources that would make themformidable market contenders

Example : entry of pure it in water

purifier market


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d. The industry outlook is risky oruncertain

Example: telecom equipment company

e. Buyer demand is growing slowly or

stagnantExample: color television

f. Industry members will strongly contestthe efforts of new entrants to gain a

market foot holdExample: Jiva versus Medimix


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Substitutes have comparable orbetter performance features

example : windows versus Google

chrome.

End users have low costs in switching

to substitutes

example: carbonated drinks versusfruit beverages.


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Threat of suppliers


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Threat of suppliers

The power of Microsoft and Intel on PCmakers.

Supplier bargaining power is higher when

a. Industry members incurs high costs inswitching their purchase to alternative

suppliers.

Example: company procuring steel fromTata steel world cheapest producer of

Iron.


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Needed inputs are short in supplyExample; Indian oil depends OPEC

decisions

Sellers product enhances the image ofthe product

Seagate and Intel in the PCs.

There are only few suppliers of a

particular inputExample: Airbus and boeing


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Some suppliers threaten to integrateforward into the business of industry

members and perhaps become

powerful rivalexample: ITC transformation from

commodity business leader to FMCG

maker.


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Good substitute inputs exists or newones emerge

Example : BT brinjal

There is a surge of suppliersEx: Anchor, haevell, surya, ABB etc..

Industry member is biggest purchaser ofthe product

Example: Maruti versus Gabriel shockobservers.


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Threat of Buyers


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Threat of Buyers

Buyer switching costs to competingbrands or substitute products are low

Ex: Switch in the FMCG product

Buyers are large and can demandconcessions when purchasing large

quantities

Ex: Jain irrigation can bargain morewith steel manufacturers.


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Buyer have the ability to postponepurchases until later if they do not

like the present deals being offered

by sellersEx: BSNL postponed telecom

equipment procurement.


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Strategic implications of five

f


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forces

Competitive environment is unattractivefromthe standpoint of earning good profitswhen

Rivalry is vigorous

Entry barriers are low and entry is likely

Competition from substitutes is strong

Suppliers and customers have considerablebargaining power


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Understanding the industry

d i i f


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driving forces

Internet and e-commerce opportunities Increasing globalization of industry

Changes in long-term industry growth rate

Changes in who buys the product and howthey use it

Product innovation

Technological change/process innovation Marketing innovation


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Entry or exit of major firms Diffusion of technical knowledge

Changes in cost and efficiency

Consumer preferences shift from standardized todifferentiated products (or vice versa)

Changes in degree of uncertainty and risk

Regulatory policies / government legislation

Changing societal concerns, attitudes, andlifestyles


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By

Prasad Kulkarni

Industry Driving Forces


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Increasing globalization- Seeking customers in foreign countries

- Outsourcing the production operations

changes in long term industry growth

rate- Shifts in industry growth up or down are

driving force for industry changeaffecting the balance between industry

supply and buyer demand entry and exitand the character and strength ofcompetition.


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- Higher the demand greater the activities ofexisting and new companies in the segment.

changes in who buys the product and howthey use it

- Shift in buyer demographics and new ways of

using the products.(c d) product innovation

- New products brings new customers createnew product differentiation among sellers.

- Innovation in the products strengthens themarket position( digital camera, toys anddrugs)


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technological change and manufacturingprocess innovations

- New technology- lower cost-opening upwhole new industry frontiers.

- Technology developments has effects on

a. Capital requirements

b. Minimum efficient plant sizes

c. Distribution channels and logisticsd. Learning curve effects


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Changes in cost and efficiency : widening andshrinking in the costs among key competitorstend to dramatically alter the state ofcompetition.( email and fax effect on postalservie)

growing buyer preferences for differentiatedproducts instead of a commodity product.

- Buyer varieties and consumer switching

- Buyer sometimes needs fixed product (example : online trading)


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reductions in uncertainty and businessrisks.

- Emerging industry- risk takingenterprises

- Once the emerging industry morenumber of companies will enter thebusinesses.

Regulatory influences and government

policy changes- Deregulations

- Protecting the domestic companies


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changing societal concerns, attitudesand lifestyles

- Anti smoking

- terrorism

Assessing the impact of the

driving forces


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driving forces

Are the driving forces causing demandfor the industrys product to increase

or decrease?

are the driving forces acting to makecompetition more or less intensive?

Will the driving force lead to higher or

lower industry profitability?


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By

Prasad Kulkarni

Key Success Factors

Definition


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KSFs are those competitive factors thatmost affect industry members ability

to prosper in the market place the

particular strategy elements, productattributes, resources, competencies,

competitive capabilities and market

achievements that spell the

difference between being strong

competitor and weak competitor


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How well a company product offeringresource and capabilities measure up

against an industry just how

financially and comparativelysuccessful that company will be


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KSF for beer industry1. Full utilization of capacity

2. Strong network of wholesale dealers

3. Clever advertising


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KSFs vary from industry to industry and evenfrom time to time within the same industry, asdriving forces and competitive conditions change

Identifying KSFs for industry

1. Attributes of competitors product offering are

casual2. Resources and competitive capabilities does acompany need to have to be competitivelysuccessful.

3. Shortcomings those are almost certain to put a

company at a significant competitivedisadvantage


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Correctly diagnosing an industry raisesa companys chances of crafting a

sound strategy


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Module 4



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By

Prasad Kulkarni

Analyzing a companysresources and competitive

position

Chapter roadmap


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Question 1: How Well Is the CompanysPresent Strategy Working?

Question 2: What Are the CompanysResource Strengths and Weaknesses and ItsExternal Opportunities and Threats?

Question 3: Are the Companys Prices andCosts Competitive?

Question 4: Is the Company CompetitivelyStronger or Weaker than Key Rivals?

Question 5: What Strategic Issues andProblems Merit Front-Burner ManagerialAttention?

How well is the companys

present strategy working?


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present strategy working?

Key issuesI. Identify competitive approach

Low-cost leadership ( Air Deccan)

Differentiation ( Asian Paints)

Focus on a particular market

niche ( Insurance single premium)


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II. Determine competitive scope Geographic market coverage (

chandrika south India)

Operating stages in industrysproduction/distribution chain

Examine recent strategic moves( Maruti800 Phase out)

Identifyfunctional strategies ( R&D,marketing, finance, HR, IT of Infosys)

Approaches to Assess How Well

the Present Strategy Is Working


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gy g

Qualitative

assessmentWhat is the

strategy?

Completeness

Internal

consistency

Rationale

Relevance

Quantitative assessment

What are the results?

Is company achieving its

financial and strategic

objectives?

Is company an above-average industry

performer?

Key Indicators of How Well

the Strategy Is Working


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the Strategy Is Working

Trend in sales and market share (HUL)

Acquiring and/or retaining

customers ( General motors freeservice and guarantee)

Trend in profit margins( softwarecompany)

Trend in net profits, ROI, and EVA


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Overall financial strength and credit ranking (Aravind Mills credit rating by CRISIL)

Efforts at continuous improvement activities( Toyota)

Trend in stock price and stockholder value (Reliance Industries)

Image and reputation with customers ( TataSons)

Leadership role(s) Technology, quality,innovation, e-commerce, etc. ( e bay)

What Are the Companys Strengths,

Weaknesses, Opportunities and Threats ?


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S W O T represents the first letter in

S trengths

Weaknesses

O pportunities

Threat


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For a companys strategyto be well-conceived, it must be

Matched to its resource strengths

and weaknesses (Berger Nicolas)

Aimed at capturing its best market

opportunities and erecting

defenses against external threatsto its well-being ( Nirma)

Identifying Resource Strengths

and Competitive Capabilities


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and Competitive Capabilities

A strength is something a firm doeswell or an attribute that enhances

its competitiveness

Valuable competencies or know-how ( Pfizer)

Valuable physical assets (

Daewoo) Valuable human assets ( Google)


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Valuable organizational assets (Panasonic factory in Japan)

Valuable intangible assets ( Sony) Important competitive capabilities

( Parachute Marico)An attribute that places a company

in a position of market advantage (Chik, cavin care)

Alliances or cooperative ventureswith partners ( Hero Honda)

Competencies vs. Core Competencies vs.

Distinctive Competencies


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A competence is theproduct of organizationallearning and experience and represents realproficiencyin performing an internal activity

A core competence is a well-performedinternal activity central(not peripheral or incidental)to a companys competitiveness and profitability

A distinctive competence is a competitively valuableactivitya companyperforms better than its rivals

Core Competencies


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A competence becomes a corecompetence when the well-

performed activity is centralto a

companys competitiveness andprofitability

Examples of core competencies


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Expertise in integrating multiple technologiesto create families of new products ( tata Nano)

Know-how in creating operating systemsfor cost efficient supply chain management ( Safeexpress)

Speeding new/next-generation products to market(Microsoft cloud)

Better after-sale service capability (General motors)

Skills in manufacturing a high quality product (

Mercedes Benz)


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Often, acore competence results fromcollaboration among different parts of acompany

Typically, core competencies reside in a

companyspeople, not in assets on a balancesheet

A core competence gives a company apotentially valuable competitive capability

and represents a definite competitive asset

Distinctive Competence


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A distinctive competence is a competitivelysignificant activity that a companyperformsbetter than its competitors

A distinctive competence

Represents a competitivelyvaluable capabilityrivals do not have

Presents attractive potential for being acornerstone of strategy

Can provide a competitive edge in themarketplace because it represents acompetitively superiorresource strength

Examples


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Sharp Corporation Expertise in flat-panel display technology

Toyota and Honda Low-cost, high-quality manufacturing

capability and short design-to-market cycles

Intel Ability to design and manufacture

ever more powerful microprocessors for PCs

Wal-Mart Low-cost distribution and use of

state-of-the-art retail technology

Identifying Resource Weaknesses

and Competitive Deficiencies


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A weakness is something a firm lacks,does poorly, or a condition placing it ata disadvantage

Resource weaknesses relate to

Inferior or unproven skills, expertise, orintellectual capital ( Crompton Greeves)

Lack of important physical, organizational,

or intangible assets ( Mahindra satyam) Missing capabilities in key areas ( Bajaj

Motors)

Identifying a Companys

Market Opportunities


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pp

Opportunities most relevantto acompany are those offering

Good match with its financial and

organizational resource capabilities

Best prospects forprofitable long-termgrowth

Potentialfor competitive advantage

Identifying External Threats


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Emergence of cheaper/bettertechnologies ( Pager v/s mobile)

Introduction of better products by rivals( HDFC v/s nationalized banks)

Entry of lower-cost foreign competitors( Walmart )

Onerous regulations ( Indian insurance

sector) Rise in interest rates ( Home loans)


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Potential of a hostile takeover ( ArcelorMittal)

Unfavorable demographic shifts ( Rural

people to Urban areas) Adverse shifts in foreign exchange rates

( Rupee appreciation versus dollar)

Political upheaval in a country (Pakistan)

Are the Companys

Prices and Costs Competitive?


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p

Assessingwhether a firms costs arecompetitive with those of rivals is a crucialpart of company analysis

Key analytical tools

Value chain analysis

Benchmarking

Value Chain


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A companys business consists ofall activitiesundertaken in designing, producing, marketing,delivering, and supporting its product or service

A companys value chain consists of a linked setof value-creating activities performed internally

The value chain contains two types ofactivities

Primary activities where most of the value forcustomers is created

Support activities facilitate performance of the

primary activities

Why Do Value

Chains of Rivals Differ?


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Severalfactors can cause differencesin value chains of rival companies

Internal operations

Strategy

Approaches used in execution of the strategy

Underlying economics of the activities

Differences complicate taskofassessingrivals relative cost positions


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By

Prasad Kulkarni

Value chain

definition


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A company value chain consists of thelinked set of value creating activities thecompany performs internally

The value chain consists of two broad

categories of activitiesa. Primary activities: that are foremost in

creating value for customers

b. Support activities that facilitate andenhance the performance of theprimary activities


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The primary activities and

factors for assessment


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Inbound logistics

1. Soundness of material

2. Inventory control systems

3. Warehousing activities


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Operations1. Productivity of equipment compared tothat of key competitors

2. Appropriate automation of production

processes3. Effectiveness of production control

systems to improve quality and reducecosts.

4. Efficiency of plant layout and work flowdesign


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Outbound logistics1. Timeliness and efficiency of delivery

of finished goods and services

2. Efficiency of finished goodswarehousing activities


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Marketing and sales

1. Effectiveness of market research to identifycustomer segments and needs

2. Innovation in sales promotion and advertising

3. Evaluation of alternate distribution channels

4. Motivation and competence of sales force5. Development of an image of quality and a

favorable reputation

6. Extent of brand loyalty among customers

7. Extent of market dominance within themarket segment or overall market.


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Customer service

1. Means to solicit customer input forproduct improvements

2. Promptness of attention customer

complaints3. Appropriateness of warranty andguarantee policies.

4. Quality of customer education and

training5. Ability to provide replacement partsand repair services

Support activities


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Firm infrastructure

1. Capability to identify new product marketopportunities and potential environmentalthreats

2. Quality of strategic planning system toachieve corporate objectives

3. Coordination and integration of all valuechain activities among organizationalsubunits

4. Ability to obtain relatively low cost funds forcapital expenditure and working capital.


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5. Timely and accurate managementinformation on general and

competitive environments

6. Relationships with public policymakers and interest groups

7. Public image and corporate

citizenship


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Human resource management

1. Effectiveness of procedure for recruiting, trainingand promoting all levels of employees

2. Appropriateness of reward system for motivationand challenging employees

3. A work environment that minimizes absenteeismand keeps turnover at desirable levels

4. Relation with trade unions

5. Active participation by managers and technicalpersonnel in professional organizations

6. Levels of employee motivation and jobsatisfaction


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Technology development

1. Success of R&D activities in leading toproduct and process innovations

2. Quality of working relationships betweenR&D personnel and other departments

3. Timeliness of technology developmentactivities in meeting critical deadlines

4. Quality of laboratories and other facilities

5. Qualification and experience of laboratorytechnicians and scientists


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Procurement

1. Development of alternate sources forinputs to minimize dependence on asingle supplier

2. Procurement of raw materials on atimely basis at lowest possible cost and ata acceptable levels of quality

3. Procedures for procurement of plant ,machinery and buildings

4. Good long term relationship with reliablesuppliers.


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Benchmarking

By

Prasad Kulkarni

definition


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Measuring your performance againstthat of the best-in-class companies,

determining how the best-in-class

achieve those performance levels,

and using the information as a basis

for your own companys targets,

strategies, and implementation.

Types of benchmarking


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Comparison: Internal Best in Firm

Competitive Best in Industry

World Class Best in World Form:

Performance Benchmarking

Process Benchmarking Strategic Benchmarking

Benchmarking process


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Identify your problem areas

Identify other industries that have similarprocesses

Identify organizations that are leaders inthese areas

Survey companies for measures andpractices

Visit the "best practice" companies toidentify leading edge practices

Implement new and improved businesspractices


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Module 5:

Generic

competitive

strategies

Competitive strategy


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A competitive strategy concerns thespecifics of managements game plan

for competing successfully and

securing a competitive advantage

over rivals.



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Low cost provider strategies


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Lower overall costs than competitors Need not to be absolutely overall cost

i. e cost less than nearest competitor

is enough



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The two major avenues for achievinga cost advantage

a. Cost efficient management of value

chain activities.b. Revamping the value chain to curb

or eliminate unnecessary activities.



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Cost efficient management of valuechain activities

1. Striving to capture all available

economies of scale.2. Taking full advantage of learning/

experience curve effects.

3. Trying to operate facilities at fullcapacity.



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4. Persuing efforts to boost salesvolumes and thus spread such costsas R&D, advertising, Selling etc..

5. Improving supply chain efficiency.

6. Substituting the use of low cost forhigh cost raw material.

7. Using online systems sophisticated

software for achieve operatingefficiencies.



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8. Adopting labor saving operatingmethod. Using the companysbargaining power vis- a -vis suppliersto gain concessions.

9. Adopting labor saving operationalmethod.

10. Being alert to the cost advantages

of outsourcing and verticalintegration.



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Revamping the value chain to curbunnecessary activities.

Cutting out distributors and dealers by

selling directly to customers.

Replacing certain value chain activities

with faster and cheaper online technology

Streamlining operations by eliminating low

value added or unnecessary work stepsand activities



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4. Relocating facilities so as to curb theneed of shipping and handling

activities.

5. Offering a frills free product.6. Offering limited product line as

oppose to a full product line.



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When a low cost provider strategyworks best

1. Price competition among rival sellers

is especially vigorous.2. The products of rival sellers are

essentially identical and suppliers

are readily available from any ofseveral eager sellers.



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3. There are few ways to achive productdifferentiation that have value to

buyers.

4. Most buyers use the product in thesame ways.

5. Buyers incur low costs in switching

their purchases from one seller toanother.



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6. Buyers are large and have significantpower to bargain down prices.

7. Industry newcomers use introductory

low prices to attract buyers and buildcustomer base.



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Pitfalls of low cost provider strategy1. Overly aggressive price cutting result

in lower profitability.

2. Rivals may catch up very fast.3. May result in poor customer image.


BROAD DIFFERENTIATION


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Differentiation strategies areattractive whenever buyers needs

and preferences are too diverse to be

fully satisfied by a standardized

product or by sellers with identical

capabilities.

Strategy should be unique than

competitors.



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Successful differentiation allows firmto

a. Command premium price for its

product.b. Increase unit sales

c. Gain buyer loyalty to brand



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Types of differentiation themes.- Unique taste ( Maaza)

- Multiple features ( Microsoft

windows)- Wide selection and one stop

shopping ( big bazaar)

- Superior service ( VRL)



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Spare parts availability ( MarutiSuzuki)

Engineering design and performance

( Audi) Prestige and distinctiveness ( Rolex)

Product reliability( Johnson and

Johnson)



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Quality manufacture( Toyota) Technological leadership (3M)

Full range of services ( ICICI)

Complete line of products ( Reckitt)


Where along the value chain to create


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Where along the value chain to createthe differentiating attributes

a. Supply chain activities

b. Product R&D

c. Production R& D and technologyrelated activities.

d. Manufacturing activities

e. Distribution and shipping activities

f. Marketing sales and customer salesactivities.



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The four best routes to competitiveadvantage via a broad differentiation

strategy

a. Incorporate product attributes anduser features that lower the buyers

overall costs of using the companys

product.



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b. Incorporate features that raise productperformance.

c. Incorporate features that enhancesbuyer satisfaction in non economic

ways.d. Deliver value to customer by

differentiating on the basis ofcompetencies and competitive

capabilities that rivals dont have cantafford to match.



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Few rival firms are following a similardifferentiation approach. ( Aqua

guard)

Technological changes is fast pacesand competition revolves around

rapidly evolving product features.(

Mobile phones and DTH services)



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The pitfalls of a differentiation strategya. Competitors quickly copy ( docomo)

b. Cold response from the market (Yamaha bikes)

c. Overspending on developing productserodes profitability

d. Sometime exceed buyer needs( spring

water)e. Charging too high ( Harley davidson)


BEST COST PROVIDER


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More value for the money Company acheives best cost status

from an ability to incorporate

attractive or upscale attributes at alower cost than rivals.

It is different from low cost provider

by providing extra features at a best

cost. ( NANO versus MARUTI 800)



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The target market for a best costprovider is a value conscious buyers.

A best cost provider strategy works best

in markets where buyers diversify

makes product differentiation the norm

and where many buyers are also price

sensitive and value conscious.

Threat of low cost provider and highend differentiation.


FOCUSED LOW COST PROVIDER


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A narrow markets niche where buyersneeds and preferences are

distinctively different

Lower overall cost than rivals inserving niche members.

Product line features and attributed

tailored to the tastes and

requirements of niche members.



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A continuous search in production istaken to reduce the cost while

incorporating feature matching to

niche member preferences.

Selective communication strategy

Stay committed to serving the niche

at lowest overall cost and dont enter

other markets.


Focused differentiation


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A narrow market niche where buyerneeds and preferences aredistinctively different

Competitive advantage through

attributes that appeal specifically toniche members.

Features and attributes are tailored in

a product line to the tastes andrequirements of niche members.



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Custom made products that matchthe tastes and requirements of niche

members.

Stay committed to serving the nichebuyers better than rivals. Dont enter

other markets.


Strategic alliances


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Strategic alliances are collaborativearrangements where two or more

companies join forces to achieve

mutually beneficial strategic

outcomes.



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PC industry require strategic alliances Intel and Dell

Five factors makes alliances strategic

a. It is critical to the companysachievement of an important

objectives.

b. It helps builds, sustain or enhance acore competencies.



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It helps blocks competitive threat It helps open up important new

market opportunities

It mitigates a significant risk tocompanys business.

Example

1. TOYOTA2. Microsoft Windows


A company that is racing for global


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A company that is racing for globalmarket leadership needs alliances to

1. Get into critical country marketsquickly and accelerate the process of

building a potent global marketpresence.

2. Gain inside knowledge aboutunfamiliar markets and cultures

3. Access valuable skills andcompetencies.



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The extent to which companiesbenefit from entering into alliances

and collaborative partnerships seems

to be function of six factors

1. Picking a good partner

2. Being sensitive cultural differences

3. Recognize that alliance must benefitboth sides



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Ensuring that both parties live up totheir commitments.

Structuring the decision makingprocess so that actions can be taken

swiftly when needed. Managing the learning process and

then adjusting the alliance

agreement over time to fit newcircumstances.


Merger and acquisitionstrategies

Google acquisition of Motorola


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Google acquisition of Motorola

Mittal steel acquisition of Arcelor

A merger is a pooling of equals withthe newly created company often

taking on a new name.

An acquisition is a combination inwhich one company the acquirer

purchases and absorbs theoperations of another the aquired


Objectives of Mergers andacquisitions


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To create a more cost efficientoperations out of the combined

companies.

To expand companys geographiccoverage.

To extend the companys business

into new product categories



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To gain quick access to newtechnologies or other resources and

competitive capabilities.

To try to invent a new industry and

lead the convergence of industries

whose boundaries are being blurred

by changing technologies and new

market opportunities


Impact of Mergers andacquisition


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Competitive edge may not be visible Employee resist to change

Employees leave the company

Managers inefficiency may be seen inthe mergers and acquisition


Outsourcing strategies


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Outsourcing involves farming outcertain value chain activities to

outside vendors.

Why outsourcing?

a. Outsiders can often perform

activities better or cheaper.

b. It allows firm to focus on coreactivities


When outsourcing strategiesare advantageous?


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An activity can be performed better omore cheaply by outside specialists.

It is not a core activity of the firm

It reduces the companys riskexposure to changing buyer

preferences

It improves companys ability toinnovate.



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It reduces the new productintroduction time

It streamline the company operation.

It allows a company to assemblediverse kinds of expertise speedily

and efficiently.


Joint venture


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Ajoint venture is a businessagreement in which parties agree to

develop, for a finite time, a new

entity and new assets by

contributing equity.

They exercise control over

the enterpriseand consequently

share revenues, expenses and assets


On the other hand, when two or more
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,persons come together to forma temporary partnership for thepurpose of carrying out a particularproject, such partnership can also becalled a joint venture where the partiesare "co-venturers".

Some major joint ventures include Dow

Corning, MillerCoors, SonyEricsson and Penske Truck Leasin


International business levelstrategies

Why companies expand into foreign
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y p p gmarkets?

1. To gain access to new customers.

2. To achieve lower costs and enhance

the firms competitiveness

3. To capitalize on its corecompetencies

4. To spread its business risk across awider market base.



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Cross country differences in cultural,demographic and market conditions

Gaining competitive advantage based

on where activities are located

The risk of adverse exchange rate

shifts.

Host government policies


How to enter foreign market


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Exporting Licensing

Franchising

Multicounty strategy Global strategies

Wholly owned franchise



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Profit sanctuaries are countrymarkets in which a company derives

substantial profits because of its

strong and protected market position



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Offensive strategies suitable forcompeting in foreigbn markets.

Strategic alliance and joint venture

with foreign partners

Strategies that fit the markets of

emerging countries



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Module 6

By

Prof. Prasad Kulkarni

23 July 2013 236(c) Prof. Prasad Kulkarni


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Tailoring strategy to fit specific

industry and company situation


Strategies for competing inemerging industry

High definition television and e- book


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Characteristics

1. Speculation about growth

2. Technological know how guarded by R

&D company.3. There is an uncertainty about the

success of the product

4. Include customers as spokesperson ofthe company.


5. In digital brand world customer


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anticipate further growth in brandan postpone his/ her purchasingdecision.

6. Big companies enter this segment ifthere is an ample of opportunity forgrowth.

7. If the volume grows price will comedown



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Strategies for emerging industries.1. Push to perfect technology

2. Improve product quality

3. Develop additional features4. Merge or acquire an expert.

5. Have first mover advantage

6. Joint venture with expert,



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Pursue new customer groups. Make it easy and choice.

Use price cut

Have a great supply chainmanagement.


Strategies for competing inrapidly growing markets.

LCD TV markets


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Driving down costs per unit so as toenable price reductions that attractdroves of new customers

Pursuing rapid product innovationboth to set a companys productoffering from rivals and to

incorporate attributes that appeal togrowing number of customers



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Gaining access to additionaldistributional channels and sales

outlets.

Expanding the companys geographic

coverage

Expanding the product line to add

models that appeal to wider range of

buyers.


Strategies for competing inMaturing industries

How slowing growth alters market


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conditions ( CTV)

1. Slowing growth in buyer demandgenerates more competition for

market share2. Buyers become sophisticated and

negotiate more.

3. Competition on the basis of cost andservice



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4. Product innovation and new end useapplications are harder to come

5. International competition increases

6. Industry profitability falls temporarilyor permanently.

7. Mergers and acquisitions happens in

the industry.


Strategies that fit conditions in


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maturing industries.

1. Pruning marginal products and

models.

2. Improving value chain efficiency

3. Trimming costs

4. Increasing sales to presentcustomers


5. Acquiring rival firms at bargaining


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prices.

6. Expanding internationally

7. Building new or more flexiblecapabilities.


Strategies for competing instagnant or declining industries

VCR/VCDs


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Pursue a focused strategy aimed at the

fastest growing or slowest decaying

market segments within the industry.

Stress differentiation based on quality

improvement and product innovation.

Reduce the cost and be the low cost

provider.


End game strategies for declining


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industries

1. A slow exit strategies

2. A fast exit strategies


Strategies for competing inturbulent high velocity markets

Mobile services


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Ways to cope with rapid change.

1. It can react to change

2. It can anticipate change3. It can lead change


Strategy options for fast changing


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markets.

1. Invest in R&D

2. Keep company's product fresh3. Develop quick response

4. Build supply chain

5. Initiate rapid action snow and then


Strategies for competing infragmented industries

Pharmaceuticals and FMHG


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Reasons for supply side fragmentation.

1. The product or service is delivered

at neighbor hood locations so as tobe conveniently accessible to local

residents.

2. Buyer preference and requirements

are very large


Low entry barriers allow small firmsi kl d h l


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to enter quickly and cheaply

Lack of scale of economies makesthem to compete with large firms.

The scope of the market becomeglobal

New areas are explored and tried to

found one suitable area for thecompany.


Strategy options for competing in a


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fragmented industry.

1. Constructing and operating formula

facilities

2. Becoming a low cost operator

3. Specializing by product type

4. Specializing by customer type

5. Focusing on a limited geographic area.


Strategies for sustaining rapidcompany growth

Extend the companys position in


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existing businesses

Leverage existing resources to enter

new businesses.

Venture into the business no one

ventured so for.


Strategies for industry leaders.

Be offensive


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Muscle flexing strategy

Be defensive

1. Spend more on advt

2. Fill the niches

3. Build customer loyalty bypersonalizing

4. Reasonable price


Cost competitive


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Technologically progressive

Patent the technologies


Strategies for runner-ups

Offensive strategies to build market


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share

1. Acquire small firm to have reach

2. Reduce the cost dramatically3. Differentiate the product

4. Have technological breakthrough

5. Have a first mover advantage



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Strategies for weak and crisisridden businesses

Turnaround strategies for businesses


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in crisis

a. Selling off assets

b. Strategy revisionc. Boosting revenues

d. Cutting costs

e. Combination efforts


Harvest strategies for weak

b


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businesses

1. Liquidation

2. Sell off



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Formulating long term

objectives and grand strategies


Long term objectives

These are statements of the results a

fi k hi ifi


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firm seeks to achieve over a specific

period, typically three to five years.


Areas of long term objectives

Profitability


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Productivity

Competitive position

Employee development Employee relation

Technological leadership

Public responsibility


Grand Strategies

Grand strategies, often called master or

business strategies provide basic


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business strategies, provide basicdirection for strategic actions

Indicate the time period over which long-

rang objectives are to be achieved

Any one of these strategies could serve asthe basis for achieving the major long-

term objectives of a single firm

Firms involved with multiple industries,

businesses, product lines, or customergroups usually combine several grand

strategies7-265

Types of Grand Strategies

Concentrated Growth

M k t D l t

Conglomerate Diversification

T d


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266

Consortia

Market Development

Product Development

Innovation

Horizontal Integration

Vertical Integration

Concentric Diversification

Turnaround

Divestiture

Liquidation

Bankruptcy

Joint Ventures

Strategic Alliances

Concentrated Growth

Concentrated growth is the strategy ofthe firm that directs its resources to the

fit bl th f d i t


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profitable growth of a dominantproduct, in a dominant market, with adominant technology

Concentrated growth strategies lead toenhanced performance

Specific conditions favor concentratedgrowth

The risks and rewards vary

7-267


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Product Development

Product developmentl h b l


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Product developmentinvolves the substantialmodification of existingproducts or the creation of

new but related products thatcan be marketed to currentcustomers through

established channels

7-269

Innovation

These companies seek to reap the initiallyhigh profits associated with customer

acceptance of a new or greatly improved


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acceptance of a new or greatly improvedproduct

Then, rather than face stiffeningcompetition as the basis of profitability

shifts from innovation to production ormarketing competence, they search forother original or novel ideas

The underlying rationale of the grand

strategy of innovation is to create a newproduct life cycle and thereby make similarexisting products obsolete

7-270

Horizontal Integration

When a firms long-term strategy is

based on growth through thei iti f i il


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based on growth through theacquisition of one or more similarfirms operating at the same stageof the production-marketing chain,

its grand strategy is calledhorizontal integration

Such acquisitions eliminatecompetitors and provide theacquiring firm with access to newmarkets

7-271

Vertical Integration

When a firms grand strategy is toacquire firms that supply it withinputs (such as raw materials) or are


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inputs (such as raw materials) or arecustomers for its outputs (such aswarehouses for finished products),

vertical integration is involved The main reason for backward

integration is the desire to increasethe dependability of the supply or

quality of the raw materials used asproduction inputs

7-272

Ex. 7.7 Vertical and Horizontal Integrations


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7-273


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Turnaround

The firm finds itself with declining profits

Among the reasons are economicrecessions, production inefficiencies, and


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recessions, production inefficiencies, andinnovative breakthroughs by competitors

Strategic managers often believe the firmcan survive and eventually recover if a

concerted effort is made over a period of afew years to fortify its distinctivecompetences. This is turnaround.

Two forms of retrenchment:

Cost reduction Asset reduction

7-276

Elements of Turnaround

A turnaround situation represents absolute and

relative-to-industry declining performance of a

sufficient magnitude to warrant explicit


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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 firmstypically 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 ofthe turnaround process, the recovery response

7-277

Divestiture

A divestiture strategy involves the

sale of a firm or a major componentf fi


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sale of a firm or a major componentof a firm

When retrenchment fails toaccomplish the desired turnaround,

or when a nonintegrated businessactivity achieves an unusually highmarket value, strategic managersoften decide to sell the firm

Reasons for divestiture vary

7-278

Liquidation

When liquidation is the grand

strategy the firm typically is sold


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strategy, the firm typically is soldin parts, only occasionally as a

wholebut for its tangible asset

value and not as a going concern

Planned liquidation can be

worthwhile

7-279


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Joint Ventures

Occasionally two or more capable firmslack a necessary component for success in

a particular competitive environment


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a particular competitive environment

The solution is a set ofjoint ventures,which are commercial companies(children) created and operated for the

benefit of the co-owners (parents) The joint venture extends the supplier-

consumer relationship and has strategicadvantages for both partners

7-281

Strategic Alliances

Strategic alliances are distinguished

from joint ventures because thel d d k


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from joint ventures because thecompanies involved do not take an

equity position in one another

In some instances, strategicalliances are synonymous with

licensing agreements

Outsourcing arrangements vary

7-282

Consortia, Keiretsus, and Chaebols

Consortia are defined as large

interlocking relationships betweenbusinesses of an industry


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interlocking relationships betweenbusinesses of an industry

In Japan such consortia are knownas keiretsus, in South Korea as

chaebols Their cooperative nature is growing

in evidence as is their market

success

7-283

Selection of Long-Term Objectives and GrandStrategy Sets

When strategic planners study theiropportunities, they try to determine

which are most likely to result in achieving


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y gvarious long-range objectives

Almost simultaneously, they try toforecast whether an available grandstrategy can take advantage of preferredopportunities so the tentative objectivescan be met

In essence, then, three distinct but highlyinterdependent choices are being made atone time

7-284

Sequence of Selection and StrategyObjectives

The selection of long-range objectives

and grand strategies involves

simultaneous rather than sequential


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simultaneous, rather than sequential,

decisions

While it is true that objectives are

needed to prevent the firms directionand progress from being determined

by random forces, it is equally true

that objectives can be achieved only if

strategies are implemented

7-285

Retrenchment strategies

Retrenchment is a short-run renewal

strategy designed to overcome


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strategy designed to overcome

organizational weaknesses that are

contributing to deteriorating

performance.

Retrenchment strategies call for two

primary actions: cost cutting and

restructuring



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Survival strategy

a Divestment


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a. Divestment

b. Spin off


Kirloskar Pneumatic Company Limited-Turnaround SuccessKirloskar Pneumatic Company Limited (KPC) was set up in 1958.

It started operations with the manufacture of air compressors

and pneumatic tools in collaboration with Broom and Wade

Ltd., U.K. and then diversified into Airconditioning,

Refrigeration and Transmission. Currently its activities are

grouped into four major divisions: Air-Compressor, Air-conditioning and Refrigeration, Hydraulic Power Transmission


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conditioning and Refrigeration, Hydraulic Power Transmission

and Process gas.

During the recession in the late 1990s, the salesbottomed out and the management realized that thebusiness could not grow any more. This triggered a

i d f i t ti d th t t d


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period of introspection and the company startedlooking inwards. Every time any business hits thebottom, there are two perspectives external andinternal. Since the management had little control overexternal factors, it focused on managing the internalworking of the company. Fortunately, even on theexternal front, the company had a chance to buy outone of their major competitors K G Khosla. The movestarted in 1994 when KG Khosla Company became sickand the ICICI requested the Kirloskars to manage thisbusiness. Subsequently both the companies, KPC & KGKhosla, were merged in the year 2000.


The first thing KPC management team did was to understand the

business of KG lines, style of business, etc. Then it started

leveraging the synergies between the two companies. Since the


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sales of the KPC were already bottoming out and the Khosla

product line with its manufacturing facilities was added to its plant

in Pune, the company was left with no other option except to cut

costs across the board. By the end of 2000, the management of

KPC had through an understanding with the staff at Faridabadplant of KG Khosla reduced the employee strength considerably.

The VRS at Faridabad was introduced with a total understanding

with the parting staff. KPC then shifted 90 people from Pune to

Faridabad for about three months during which time the company

saw to it that the production continued at Faridabad with these

workers. After this activity at Faridabad, the company alsorestructured its Pune plant by reducing the strength by 650

people. The final strength of employees at both the plants after

this whole downsizing exercise finally stood at 800.


The company then turned its attention

on restructuring its debt to bring theinterest costs down The third element


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g ginterest costs down. The third elementof improvement was adding newproduct lines to its existing range while

concentrating on improving theefficiency of its existing products. As aresult, KPC turned around aftersuccessful implementation of all thesewellplanned initiatives during the period

1999 2002.


Case 2: Gillette restructuring

Gillette India has achieved its growth target in themost profitable manner through strategic restructuringand functional excellence. The strategic restructuringfoc sed on its b siness portfolio to identif the


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focused on its business portfolio to identify thebusinesses it would like to continue and the ones itwishes to exit. Consequent to strategic restructuring,Gillette exited the Geep Battery business and theBraun business. Likewise, it discontinued all thenonprofitable and non-strategic business lines in itsexisting portfolio. The company also developedstrategic governing statements for each of thebusiness, which made each business extremelyfocused. Advertising spend was focused on the rightstrategic


product. Advertising or sales promotion, which

gave short-term benefits, was Turnarounddiscontinued. The company also focused on


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p yimproving short-term gross profit margins of itscore businesses. Comprehensive profitimprovement plans were put in place throughpromotions, SKU rationalizations, cost reductionand improved asset management. Functionalexcellence initiatives ensured that each andevery process within the organization isbenchmarked against peer group companiesand process improved through a well-defined

action plan.


Post Restructuring Scenario

After the divestiture of Geep battery business,grooming business (blades and razors) has emerged ash l l b f % f


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the single largest business accounting for

Strategic Management Full

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