Strategy Formulation.pdf

7/27/2019 Strategy Formulation.pdf

1/21Notes by Gautam Chitanis Pg 1

L789 Strategy Formulation

Strategic formulation allows organizations tov Clearly define the purpose of the organization and establish realistic goals and

objectives consistent with that mission in a defined time frame within theorganizations capacity for implementation

v Find the best approaches to implementing its missionv Build on its assets, recognize its weaknessesv Ensure the most effective use is made of the organizations resources by

focusing the resources on the key priorities.v Provides guidance and direction for the staffv Is a tool for the board to hold the organization accountable to fulfilling its

missionv Communicates goals and objectives to the organizations constituentsv Ensures that the most effective use is made of the organizations resources by

focusing the resources on key prioritiesv Provides a base from which progress can be measured and establishes a

mechanism for informed change when neededv Brings together everyones best and most reasoned efforts in building

consensus about where the organization is going



The Concept of a Company Value Chain Developed by Michael Porter.v A companys business consists ofall activities undertaken in designing,

producing, marketing, delivering, and supporting its product or servicev A companys value chain consists of a linked set of value-creating activities

performed internallyv The value chain contains two types ofactivities

o Primary activities where most ofthe value for customers is created

o Support activities facilitateperformance of the primary activities



Why is a Strategic Vision Important?

A managerial imperative exists to look beyondtoday and think strategically aboutv Impact of new technologiesv How customer needs and expectations are changingv What it will take to outrun competitorsv Which promising market opportunities ought to be aggressively pursuedv External and internal factors driving what a company needs to do to prepare for

the future



Developing a VisionvVision an expression of what an entrepreneur stands for and believes in.vVision is based on an entrepreneurs values.vA clearly defined vision:

o Provides directiono Determines decisionso Motivates people

vCharts a companys future strategic coursevDefines the business makeup for 5 years (or more)vSpecifies future technology-product-customer focus

The Case of a VisionaryDhirubhai Ambani

The story may be miraculous but hasnever been denied. During the 1950s,

the Yemeni administration discoveredthat some denominations of its currency,the rial, were disappearing from themarket. The administration traced theshortage to Aden, a port in Yemen, andfound to its surprise that a young man inhis 20s had placed an unlimited buyorder for the rial. The rial was a solid silver coin. The young man simply bought therials, melted them into silver ingots and sold them to bullion dealers in London at amuch higher price because of the exchange rate arbitrage. The name of the youngman: Dhirajlal Hirachand Ambani, or Dhirubhai Ambani. Here were the early signs ofthe making of an iconic entrepreneur who was always looking for a businessopportunity and to make a quick buck on the side. Years later, Dhirubhai told aninterviewer: "The margins were small but it was money for jam. After three months, itwas stopped. But I made a few lakh of rupees. I dont believe in not takingopportunities.

Even in a world overflowing with rags-to-riches stories, there is only one Dhirubhai. Aman who rose from the position of a petrol pump attendant to set up the largest

grassroot oil refinery in the world; from borrowing Rs 100 to buy clothes in order to goto Aden for a job, to set up the most modern textile mill in the country; from being theone who was asked to wait for his paltry bills outside the cabins of purchase officersand cashiers in mills to become the greatest industrialist in the country and frombeing a member of a lower middle class Indian family to become a member of theForbes list of richest men in the world.

And in this long, eventful journey spanning four-odd decades, not only did he converthis fledging businesshe started with about Rs 13,000 as seed capital for his first



textile plant in Naroda, near Ahmedabadinto a Rs 60,000-crore powerhouse butalso enlisted the support of four million Indians weaned on socialism, in an adventurein can-do capitalism, convincing them to ride the Reliance story. Not for nothing thatDhirubhai is dubbed the high priest of the equity cult, that began in 1977 whenReliance Industries first went public with 58,000 shareholders, and continues eventoday under his two sons, Mukesh and Anil, with over four million shareholders. A factthat has been acknowledged even by the Wharton School of Business in 1998 whiledescribing "his path-breaking contribution towards the concept of equity investing inIndia by creating wealth and value for millions of shareholders.The financial acumen of a poor school teachers son can also be gauged from thefact that Reliance Industries did not pay a paisa in taxes on its corporate earnings till1996, when Finance Minister P Chidambaram introduced the Minimum Alternate TaxHis other innovations ranged from raising funds through the global depository route,introducing convertible debentures and issuing 100-year bonds in the US market.

Beginnings Of A Business GeniusBut for a true analysis of his genius, we have to travel back a few decades and trace

Dhirubhais journey from Aden, where he worked as an attendant in a Shell outlet andthen returned to India in 1956 to begin his new journey. With the money earned fromthe silver content of Adens coinage, he started a trading house called RelianceCommercial Corporation in Mumbai, importing polyester yarn and exporting spices.Sensing an opportunity in polyester fibre, Dhirubhai opened his first textile mill inNaroda, near Ahmedabad, in 1966 and concentrated on building up his business,giving birth to the Vimal brand.

In 1982, India saw another first from Dhirubhai Ambani, the beginning of the conceptof backward integration with Reliance Industries setting up a 10,000-million tonnepolyester plant in Patalganga, some 80 km from Mumbai for polyester yarn and fibreintermediates and finally to the basic raw material, oil, by setting up a 27-million tonnerefinery in Jamnagar, Gujarat, in 1998. He subsequently diversified into chemicals,gas, petrochemicals, plastics, power and telecommunications.Yet his success always had a whiff of controversy to it. Rivals alleged that his"His biggest plus point was his ability to align the goal of his enterprise to the needsof the pass on the benefits to the shareholders"success had as much to do with hisbusiness acumen as his ability to get official rules and regulations tweaked toundercut his rivals and push his own business interests. His fight-to-the-finish battle

with the fiery proprietor of Indian Express, Ramnath Goenka, the war with industrialistNusli Wadia, the allegations against some Ambani staffers over a plot to murderWadia and his travails during the VP Singh government, controversies over licencedcapacities, export manipulation and share switching are part of the Ambani plot.

As Gita Piramal wrote in her book Business Maharajas: "The corporate world issharply divided between those who feel he is a visionary and those who consider hima manipulator." Mukesh Ambani, Chairman of Reliance Industries, qualifies it: "Whatgalled Dhirubhais critics was his success in outwitting them at every turn. Not only



did he dream bigger but he also found novel methods to realise them. One such waywas to ensure that even ordinary citizen shared in the wealth he created.

Thinking BigSo what was it that makes Dhirubhai a respected as well as reviled figure? For RRavimohan, Managing Director of Standard and Poors South Asia operations, hissuccess could be attributed to his penchant for global benchmarking, using state-of-the-art technology while cutting costs, pursuing ambitious goals, flawlessimplementation and a willingness to take calculated risks. "But his biggest plus pointwas his ability to align the goal of his enterprise to the needs of the market and passon that vision to every member of the Reliance family," he says.

His ambitious goals could leave others shell-shocked. For instance, in the early1980s, when Dhirubhai told Ravimohan, then a project officer with ICICI, that heplanned to sell polyester yarn at less than the price of groundnut, his jaw nearly fell.But within just three to four years, Dhirubhai brought down its prices from Rs 180 toRs 17 per kg.

Ravimohan says Dhirubhai was responsible for the telecom revolution in India. Whenthe call rates were Rs 16 per minute and consultants told him to keep it at Rs 6 aminute, Dhirubhai talked of bringing it down to 40 paisa a minute. "It was RelianceInfocomm which slashed prices, and the whole industry followed," he adds.

Soft SpotsBut there are certain softer aspects of Dhirubhais life, too. For instance, his ability tostrike up conversation with anybody, his willingness to reward talented people andgive them a free hand, his open-handed generosity, the skillful blend of head andheart and his legendary management techniques, which AG Krishnamurthy, founderChairman and former MD of Mudra Communications, the advertising arm of Reliancecalls "Dhirubhaism."

So, how will history judge Dhirubhai Ambani? Will he be talked in the same breath asHenry Ford or Bill Gates when the economic history of India is written. Possibly yes,because unlike others in the West he had to contend with red tapism, serious creditcrunch, an abysmal infrastructure and a poorly developed capital market to build aformidable, globally competitive industrial empire. And thats quite an achievement.



Communicating the VisionAn exciting, inspirational vision

v Challenges and motivates workforcev Arouses strong sense of organizational purposev Induces employee buy-inv Galvanizes people to live the business

Mission Statement.v Mission - addresses question:

"What business are we in?v A written expression of how the company will reflect the owners values, beliefs,

and vision.vSets the tone for the entire company and guides the decisions people make.v Defines the institutions purpose and direction

Characteristics of a Mission Statementv Defines current business activities

v Highlights boundaries of current businessv Conveys

o Who we are,o What we do, ando Where we are now

v Company specific, not generic so as to give a company its own identityv A companys mission is not to make a profit !v The real mission is always

What will we do to make a profit?



CASE I

Vision :

We pledge to provide the finest personal service and facilities for our guests who willalways enjoy a warm, relaxed yet refined ambiance. The Ritz-Carlton experienceenlivens the senses, instills well-being, and fulfills even the unexpressed wishes and

needs of our guests.

Mission :

The Ritz-Carlton Hotel is a place where the genuine care and comfort of our guests isour highest priority.



CASE II



Goals & Objectives ..v Converts strategic vision and mission into specific performance targetsv Creates yardsticks to track performancev Pushes firm to be inventive and focused on resultsv Helps prevent complacencyv Goals specify what the organization hopes to fulfill in the medium to long

term.o Precise and measurableo Address important issueso Challenging but realistico Specify a time period

The Goal-Setting ProcessSteps:

1. Review the organizational vision and mission(s)2. Evaluate available resources3. Determine broad, long-term, organization-wide goals

4. Write down the organization-wide goals5. Determine specific, short-term operational goals6. Write down the operational goals7. Review results

Some Strategic Goals .v Increase firms market sharev Overtake key rivals on quality or customer service or product performancev Attain lower overall costs than rivalsv Boost firms reputation with customersv Attain stronger foothold in international marketsv Achieve technological superiorityv Become leader in new product introductionsv Capture attractive growth opportunities



Objectives.vObjectives are the specific, measurable steps that will help you achieve your

mission.v Develop objectives that are SMART+C: specific, measurable, achievable

(eventually), relevant to your mission, and timed (with a date for completion.)v An example of an objective would be: "By the year (x), the university will

develop and implement a university-wide plan to recruit students with highpotential for success.

v The +C reminds you to adds another important quality to your goals: makethem challenging.

v Stretch your team to make improvements that are significant to members of thefaculty.

Basis of Strategic Formulation..vGoals-based strategic formulation is probably the most common and starts with

a focus on the organization's mission (and vision and/or values), goals to worktoward the mission, strategies to achieve the goals, and action planning (who

will do what and by when).v Issues-based strategic formulation often starts by examining issues facing the

organization, strategies to address those issues, and action plans. Organicstrategic planning might start by articulating the organization's vision and valuesand then action plans to achieve the vision while adhering to those values.

v Organic-based strategic formulation might start by articulating theorganization's vision and values and then action plans to achieve the visionwhile adhering to those values.



Seven pointers to note for setting long term objectives

1.Demographic Changev most obvious change is the aging population; impact of seniors, boomers and

their kidsv smaller families; more single-person householdsv smaller, non-traditional householdsv more part-time workers, dual-income householdsv changing patterns of immigration; ethnic mix

2.Economic Conditionsv consider the effect on consumers and on businesses of:

o recession (business cycle)o changes in interest rateso inflationo unemployment

v how are consumers likely to respond?v they often shop around more; store and brand loyalty suffer when consumers

are uncertain about the future.

3.Competitioncompetition takes place at three levels:

o directly at the brand or store levelo at the level of substitute products/serviceso other demands upon our buying powero could be from international (e.g. outsourcing).

4.Social and Cultural Forcesv lifestyles, values and beliefsv greater emphasis on quality of lifev immigration brings changing valuesv rapidly changing gender rolesv different attitudes toward physical activity, exercise, and diet among certain

segmentsv increased emphasis on service quality and value

5.Technologyv launches entirely new industries, such as multimedia, digital communications

and electronic commercev alters or virtually destroys existing industries, such as the effect of e-mail on

regular mail and even faxv stimulates other markets and industries, such as Internet shopping has

expanded the credit card industry



6.Political and Legal Forcesv government and laws affect marketing at many levelsv legislation often has implications for marketing; some more direct than othersv many industries are directly affected by legislation; packaging, labeling,

advertising

7.Controllable Environmental Forcesv the companys market, its suppliers, and other businesses involved in

distribution channelsv external to the firm, but part of its marketing system because of its close

relationshipv these can be influenced by the firm to greater or lesser degrees; they are not

entirely uncontrollablev these forces may be considered relationship-sensitive, as it is of

considerable importance for the firm to establish solid relationships withthese partners in its success



The 3 Big Questions in Strategy Formulation1. Where are we now?2. Where do we want to go?3. How do we get there?

The Situation & SWOT AnalysisAnswers the 1st Question: Where are we now

Organization goals & objectives encapsulated in Mission & Vision Statement Answers2nd Question:

2. Where do we want to go? Sub questions ..v What business(es) should be inv Market positions to stake out?v Consumer needs & segments serve?v Outcomes to achieve?

Final Question answered by Strategic Planning: Growth, Competitive & FunctionalStrategies



View From The Window (Sept 30, 2011 Corporate Dossier ET)

The secret to successful management is to marry the short term with the longterm says Microsofts

BHASKAR PRAMANIK

Jetlagged and bleary-eyed after a long haul from the Microsoft headquarters inRedmond, Bhaskar Pramanik still manages to radiate energy as he sit in his 9th flooroffice in Gurgaons DLF Cyber Greens. The Chairman of Microsoft India has worked

with companies ranging from DCM and NELCO, to Sun Microsystems and Oracle. Ina candid chat with CD, the 60-year-old veteran flits back and forth, as if on a timemachine, to let some light in through his Windows. Excerpts:

Whats your solace in times of trouble?My recourse is primarily reflection, followed by a discussion with my wife.



Do you carry work home?I wouldnt say I carry the entire office home. But there are times when you want to

hear something and get a completely unbiased view. My experience has been thatmy spouse is the best person for that.

How do you achieve buy-in?A lot of it is by consensus. I paint the picture. I get views. I take mine. And then I try

to put together what I think would be the consensus.

What surprised you about Bill Gates?I met him very briefly at the Microsoft CEOs Summit a few months back. What I

found remarkable was his knowledge about some very serious problems thathumanity is facing, whether it has to do with education or health or alternativesources of energy. Hes extremely well read, well informed and well invested.

Did he talk to you about his investments in India through the Bill & MelindaGates Foundation?

No, we didnt talk about the foundation at all. But we did talk about nuclear poweras an alternative source of energy. He believes that despite what happened in Japan,it still is the most viable form of power into the future. He has, in fact, invested in acompany that has come up with some revolutionary designs. The challenge withnuclear power is that if you look at the power stations around the world, most of themwere built many years ago. The technology, which they are using, is actually veryoutdated. Hes talking about a technology that can triple or quadruple the amount ofpower you draw.

Does scale become a hindrance in IT after some time? Doesnt it limitinnovation, agility and the ability to respond to a fast changing world?

Its not necessarily related to IT companies. Size is always a challenge from anagility perspective. Legacy is always the biggest challenge for most organisations.Legacy is not necessarily defined in terms of technology or whether its new or old. Itis about the business practices and processes and the way companies are doingbusiness. The challenge is to overcome older beliefs, older business models andcome up something which is completely new.

How do you do that?

The best way to do that is to come up with a completely separate organisation,which is not hampered by the rest of the organisation. The only thing it shouldperhaps get from the older part of the company is financing. Treat it as a separatedivision, perhaps treat it as a separate company. I can think of ITC as an example.Look at e-choupal and how it has redefined their agri-business. It began as a startupand was completely unfettered. Or, for that matter, Apple, which has redefined itselffrom the same company.



Is Microsoft going the Apple way?Microsoft has been transforming itself. It started off as a company that was focused

on the IT consumer. Before you knew it, Microsoft became a company which wasselling into corporate IT and enabling businesses. But it started off with the ITconsumer. The challenge that Microsoft now has is to go back to its roots, which isserving the individual consumer. If you look at the consumerisation of IT, Microsoft isthe only one which can have technology that spans across multiple kinds of devicesand can serve content, either for business or the consumer. We have the whole thing.We have the PC, the phone, the slate, the TV. We also have all the different kinds ofcloud format, whether it or public or private or hybrid. So Microsoft is uniquelypositioned from that perspective.

How has your education influenced the way you manage?Im an engineer from IIT Kanpur. What I liked about IIT was that it made you a

good problem-solver. While it doesnt make you an expert, it really hones your mindto identify what the problem is and look at the alternatives and figure out the bestsolution, whether it is a technical problem or a business problem or a change problem

What keeps you awake at night?These days, its change. When I started my career, there was talk of economic

cycles, which were 7-10 years. Then it was 3-5 years. And now you cant even staystill for year or even six months. Even before your fiscal is completed, youll mostprobably see a rise or a dip and youve got to respond quickly to tackle that.

Anticipating the future, to me, is the biggest challenge.

What do you like to read?I used to read everything I could lay my hands on. My favourite at one point was

action, mystery and science fiction. These days I like reading historical novels,particularly the ones by Alex Rutherford. Niall Ferguson is another favourite. Ive readhis Civilization. I also read the usual management books and the Freakonomicsvariety. I read a lot of Ram Charan because hes implementable.

Who have been the biggest influences in your life?Its been different people as I grew up. My parents have instilled a very good sense

of discipline, competition and tolerance from very early on. My first boss in DCMwhen I was a management trainee, VK Manchanda, took a college student like me

and placed me as a manager. I learnt a lot from him in terms of the very basics ofbeing a manager. One other person who has had a very big impact on me is RatanTata. I worked for him for nearly 10 years at NELCO. It wasnt a company that wasdoing well. I was a trouble-shooter in many different areas and I enjoyed my stint. Hetaught me about how to build relationships with other companies, how to ensure thatboth sides made money and ensure any kind of alliance is a win-win.


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Whats the Bhaskar Pramanik principle of management?While youre managing the day-to-day, come up with a shared vision, make sure

people get inspired by it and then look at what are you going to do three years fromnow. Youve got to marry the short term with the long term.

Any quotable quote you use very often?Well, the one Ive always enjoyed in my previous companies may not be very

appropriate for Microsoft In shallow waters, shrimps make fools of dragons.Unfortunately, Microsoft is a dragon here but Im always worried about the nextshrimp. In my previous companies, it was interesting because you could always figureout who the dragons were and the enjoyment was sending them into the shallowwaters. At Microsoft, you have to do exactly the reverse.

Assignment No.4 Fame to flame as discussed in the class..

Strategy Formulation.pdf

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