Unit 3 Strategic Management

8/16/2019 Unit 3 Strategic Management

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SWOT AnalysisSWOT AnalysisStrengths, Weaknesses, Opportunities, and ThreatsStrengths, Weaknesses, Opportunities, and Threats

• It examines:It examines:- The company’s internal strengths and weaknesses withThe company’s internal strengths and weaknesses with

respect to the environment,respect to the environment,-

The competition and looks at external opportunities andThe competition and looks at external opportunities andthreatsthreats

Opportunities may help to de!ine a target market or identi!yOpportunities may help to de!ine a target market or identi!ynew product opportunities, while threats are areas o! exposurenew product opportunities, while threats are areas o! exposure ..


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SWOT AnalysisSWOT AnalysisSWOT analysis is a tool strategists useSWOT analysis is a tool strategists use to evaluate Strengths,to evaluate Strengths,Weaknesses, Opportunities, and ThreatsWeaknesses, Opportunities, and ThreatsStrengths are company resources and capa"ilities that can leadStrengths are company resources and capa"ilities that can leadto a competitive advantageto a competitive advantage

Weaknesses are resources and capa"ilities that a company doesWeaknesses are resources and capa"ilities that a company doesnot possess, to the extent that their a"sence places the !irm at anot possess, to the extent that their a"sence places the !irm at acompetitive disadvantagecompetitive disadvantage

Opportunities are conditions in the "road and operatingOpportunities are conditions in the "road and operatingenvironments that allow a !irm to take advantage o!environments that allow a !irm to take advantage o!organi#ational strengths, overcome organi#ational weaknesses,organi#ational strengths, overcome organi#ational weaknesses,and$or neutrali#e environmental threatsand$or neutrali#e environmental threats

Threats are conditions in the "road and operating environmentsThreats are conditions in the "road and operating environmentsthat may impede organi#ational competitiveness or thethat may impede organi#ational competitiveness or the

achievement o! stakeholder satis!actionachievement o! stakeholder satis!action


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trengthstrengths

ASK yourself:ASK yourself:What advantages does your company have%What advantages does your company have%

What do you do "etter than anyone else%What do you do "etter than anyone else%What uni&ue or lowest-cost resources do youWhat uni&ue or lowest-cost resources do youhave access to%have access to%

What do people in your market see as yourWhat do people in your market see as yourstrengths%strengths%

What !actors mean that you 'get the sale'%What !actors mean that you 'get the sale'%


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eaknesseseaknesses

ASK yourself:ASK yourself:What could you improve%What could you improve%

What should you avoid%What should you avoid%What are people in your market likely to see asWhat are people in your market likely to see asweaknesses%weaknesses%

What !actors lose you sales%What !actors lose you sales%


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pportunitiespportunities

ASK yourself:ASK yourself:

Where are the good opportunities !acing you%Where are the good opportunities !acing you%

What are the interesting trends you are aware o!%What are the interesting trends you are aware o!%

(se!ul opportunities can come !rom such things as:(se!ul opportunities can come !rom such things as:)hanges in technology and markets on "oth a "road)hanges in technology and markets on "oth a "road

and narrow scaleand narrow scale)hanges in government policy related to your !ield)hanges in government policy related to your !ield)hanges in social patterns, population pro!iles, li!estyle)hanges in social patterns, population pro!iles, li!estylechangeschanges

*ocal events*ocal events


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hreatshreats

ASK yourself:ASK yourself:What o"stacles do you !ace%What o"stacles do you !ace%What is your competitor doing that you should "eWhat is your competitor doing that you should "eworried a"out%worried a"out%+re the re&uired speci!ications !or your o", products or+re the re&uired speci!ications !or your o", products orservices changing%services changing%

Is changing technology threatening your position%Is changing technology threatening your position%o you have "ad de"t or cash-!low pro"lems%o you have "ad de"t or cash-!low pro"lems%)ould any o! your weaknesses seriously threaten your)ould any o! your weaknesses seriously threaten your

"usiness% "usiness%


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SWOT Analysis ExampleSWOT Analysis Example


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StrengthStrength + smart and talented team that stayed !ocused and+ smart and talented team that stayed !ocused andlearned what it didn’t knowlearned what it didn’t know

WeaknessWeakness .o experience in: .o experience in:-Selling "ooksSelling "ooks-/rocessing credit card transactions/rocessing credit card transactions-0oxing "ooks !or shipment0oxing "ooks !or shipment

OpportunityOpportunity To sell onlineTo sell online ..

ThreatThreat + !ull-scale push "y one o! the large "ookstore+ !ull-scale push "y one o! the large "ookstorechains to claim the online marketchains to claim the online market

ExampleExampleThe +ma#on story

http://www.amazon.com/http://www.amazon.com/


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Example: NikeExample: NikeStrengthsStren gths

- Nike is a very competitive- Nike is a very competitiveorganization. Phil Knight (Founder andorganization. Phil Knight (Founder andCE ! is o"ten #uoted as saying thatCE ! is o"ten #uoted as saying that$%usiness is &ar &ithout 'ullets. he$%usiness is &ar &ithout 'ullets. heorganization have a diversi"ied rangeorganization have a diversi"ied rangeo" sports products.o" sports products.

)eaknesses)eaknesses

pportunitiespportunitiesProduct development offers Nike manyProduct development offers Nike manyopportunities.opportunities.

hreatshreatsNike is exposed to the internationalNike is exposed to the internationalnature of trade.nature of trade.


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Case StudyCase Study*ighly %rill +eisure Center has hired you to help them &ith their marketing*ighly %rill +eisure Center has hired you to help them &ith their marketing

decision making. Per"orm a S) analysis on *ighly %rill +eisure Center,decision making. Per"orm a S) analysis on *ighly %rill +eisure Center,'ased upon the "ollo&ing issues'ased upon the "ollo&ing issues

1.The enter is located !ithin a t!o"minute !alk of the main #us station$ and is a fifteen"minute1.The enter is located !ithin a t!o"minute !alk of the main #us station$ and is a fifteen"minuteride a!ay from the local rail!ay station.ride a!ay from the local rail!ay station.

%.There is a competition standard s!immin& pool' althou&h it has no !ave machines or !hirlpool%.There is a competition standard s!immin& pool' althou&h it has no !ave machines or !hirlpoole(uipment as do competin& local facilities.e(uipment as do competin& local facilities.

).*t is located next to one of the lar&est shoppin& centers in +ritain.).*t is located next to one of the lar&est shoppin& centers in +ritain.,.*t is one of the oldest centers in the area and needs some cosmetic attention.,.*t is one of the oldest centers in the area and needs some cosmetic attention.-. ue to an increase in disposa#le income over the last six years$ local residents have more money-. ue to an increase in disposa#le income over the last six years$ local residents have more money

to spend on leisure activities.to spend on leisure activities./.There has #een a su#stantial decrease in the #irth rate over the last ten years./.There has #een a su#stantial decrease in the #irth rate over the last ten years.0.*n &eneral people are livin& lon&er and there are more local residents a&ed over fifty"five no! than0.*n &eneral people are livin& lon&er and there are more local residents a&ed over fifty"five no! than

ever #efore.ever #efore..After a heated ar&ument !ith the mana&er of a competin& leisure center$ the leader of a respected.After a heated ar&ument !ith the mana&er of a competin& leisure center$ the leader of a respected

local scu#a clu# is lookin& for a ne! venue.local scu#a clu# is lookin& for a ne! venue.2.The local authority is considerin& privati3in& all local leisure centers #y the year %444.2.The local authority is considerin& privati3in& all local leisure centers #y the year %444.14.Press releases have 5ust #een issued to confirm that 6i&hly +rill 7eisure enter is the first center14.Press releases have 5ust #een issued to confirm that 6i&hly +rill 7eisure enter is the first center

in the area to #e a!arded (uality assurance standard +S 8N *S9 244%.in the area to #e a!arded (uality assurance standard +S 8N *S9 244%.11.A private 5oke #et!een staff states that if you !ant a day"off from !ork that you should order a11.A private 5oke #et!een staff states that if you !ant a day"off from !ork that you should order a

curry from the enter s canteen$ !hich has never made a profit.curry from the enter s canteen$ !hich has never made a profit.1%.The enter has #een offered the latest sportin& cra3e.1%.The enter has #een offered the latest sportin& cra3e.1).6i&hly +rill 7eisure enter has received a &rant to fit special ramps and chan&in& rooms to1).6i&hly +rill 7eisure enter has received a &rant to fit special ramps and chan&in& rooms to

accommodate the local disa#led.accommodate the local disa#led.

1,.*t is !idely ackno!led&ed that 6i&hly +rill has the #est"trained and most respected staff of all of1,.*t is !idely ackno!led&ed that 6i&hly +rill has the #est"trained and most respected staff of all ofthe centres in the localitythe centres in the locality


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Answers AnswersStrengthsStren gths, /, 0 (may'e 1,, /, 0 (may'e 1,

2!2!

)eaknesses)eaknesses0, (may'e 1!0, (may'e 1!

pportunitiespportunities)$ -$ $ 2$ 1% ;may#e)$ -$ $ 2$ 1% ;may#e14


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TOWS 4atrixTOWS 4atrix


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Strengths in internal

departments likemanagement, R&D,Finance, marketing,OD etc

Eg weaknesses in

internaldepartments

Current and Futureconditions in respect ofeconomy, politics,

nancial regulations,new products, ser icesand technology

!he most successfulstrategy, utili"ing theorg#s strengths totake ad ofopportunities in the

market$

De elopmentalstrategy% too ercome internalweaknesses to takead of opportunities

Energy shortages,competition and otherareas like conditionsmentioned a o e

'se of strengths tocope up with threatsor to a oid threats

Retrenchment,li(uidation, )oint

entures etc tominimi"e

weaknesses &threats


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TOWS 4atrixTOWS 4atrixS –O strategies : pursue opportunities that aregood !it to the company’s strengthsW-O strategies : overcome weaknesses to

pursue opportunitiesS –T strategies : identi!y ways to use strengthsto reduce vulnera"ility to external threats

W –T strategies : esta"lish a de!ensive plan to prevent the !irm’s weaknesses !rom making ithighly suscepti"le to external threats


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The Strategy Hierarchy n large !orporations there are se"eral le"els o# strategy$ Strategi!

management is the highest in the sense that it is the %roadest& applying to allparts o# the #irm$ t gi"es dire!tion to !orporate "alues& !orporate !ulture&!orporate goals& and !orporate missions$ 'nder this %road !orporate strategythere are o#ten #un!tional or %usiness unit strategies

Different Levels of StrategyDifferent Levels of Strate gy

Levels Structure Strategy

CorporateCorporate (e"el

S)' * A S)' * ) S)' * CS)' )usiness le"el

+un!tional+inan!e ,arketing Operations

-ersonnel n#ormation

+un!tional (e"el

Corporate O##i!e


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Corporate Strategy

Those strategies concerned with the broadand long-term &uestions o! what "usiness5es6the organi#ation is in and what it wants to dowith those "usinesses


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Kinds of Corporate Strategy -1

There are !our 7rand Strategic alternatives:a) Stability Strategy: 4ain aim here is Sta"ilising and

improving 8unctional /er!ormancea 26 .o )hange Strategy

a 16 /ro!it Strategya 96 /ause $ /roceed with caution Strategy

b) Growth Strategy: 4ain aim here is igh 7rowth " 26 )oncentration " 16 iversi!ication


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Kinds of Corporate Strategy - 2

c) Retrenchment Strategy: Main aim here is contraction of itsactivities !t is done thro"gh T"rnaro"nd# divestment and

li$"idation in modes li%ec &) T"rnaro"ndc ') (a tive com anyc *) Sello"t+ ,ivestmentc ) .an%r" tcy+ /i$"idation

d) (ombination Strategies: !t is combination of all above threeolicies sim"ltaneo"sly in different b"sinesses or at different

times e g :i)

Merger of Tata with (or"sii) 0irgin Mobile !ndia /imited is a cell"lar tele hone servicerovider com any which is a 1oint vent"re between Tata Tele

service and Richard .ranson2s Service Gro" ("rrently# thecom any "ses Tata2s (,M3 networ% to offer its services"nder the brand name 0irgin Mobile# and it has also startedGSM services in some states

C S h id l i % i $


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./

Corporate Strategy: The !ompanywide game plan #or managing a set o# %usinesses$The le"els in"ol"ed are CEO and other Senior Exe!uti"es$

Business Corporate Strategy0 Business strategy & whi!h re#ers to the aggregated operational strategies o# single

%usiness #irm or that o# an S)' in a di"ersi#ied !orporation& re#ers to the way in whi!h a#irm !ompetes in its !hosen areas$0 Corporate strategy & then& re#ers to the o"erar!hing strategy o# the di"ersi#ied #irm$Su!h !orporate strategy answers the uestions o# 2in whi!h %usinesses should we!ompete32 and 2how does %eing in one %usiness add to the !ompetiti"e ad"antage o#another port#olio #irm& as well as the !ompetiti"e ad"antage o# the !orporation as a

whole

Business Strategy for Strategic Business !nits: One #or ea!h %usiness& the!ompany has di"ersi#ied into$ A!tions to %uild !ompetiti"e !apa%ilities and strengthenmarket position$ Exe!uted %y 4eneral ,anagers& -lant 5eads& i"ision heads o# ea!h%usiness with inputs #rom Corporate and +un!tional le"els$

,any !ompanies #eel that a #un!tional organi7ational stru!ture is not an e##i!ient way toorgani7e a!ti"ities so they ha"e re 8engineered a!!ording to pro!esses or strategi!%usiness units 9!alled S)'s $ A Strategic Business !nit is a semi*autonomous unitwithin an organi7ation$ t is usually responsi%le #or its own %udgeting& new produ!tde!isions& hiring de!isions& and pri!e setting$ An S)' is treated as an internal pro#it!entre %y !orporate head uarters$ Ea!h S)' is responsi%le #or de"eloping its %usinessstrategies& strategies that must %e in tune with %roader !orporate strategies


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.1

"unctional Strategies4"nctional strategies include 4arketing Strategies, new product developmentstrategies, human resource strategies, !inancial strategies, legal strategies, supply-chain strategies, and in!ormation technology management strategies The emphasisis on short and medium term plans and is limited to the domain o! eachdepartment’s !unctional responsi"ility and is executed "y 8unctional heads ;ach!unctional department attempts to do its part in meeting overall corporateo" ectives, and hence to some extent their strategies are derived !rom "roader)orporate < 0usiness strategies

O erational StrategyThe =lowest> level o! strategy is o erational strategy +t this level, detailing isdone to add completeness to 0usiness < 8unctional Strategies It is very narrow in!ocus and deals with day-to-day operational activities such as scheduling criteria Itmust operate within a "udget "ut is not at li"erty to ad ust or create that "udget

Operational level strategy was encouraged "y /eter rucker in his theory o!4anagement 0y O" ectives 540O6 Operational level strategies are in!ormed to "usiness level strategies which, in turn, are in!ormed to corporate level strategiesThese strategies are executed "y ?0rand 4anagers’, ?Operating 4anagers’, ?/lantmanagers’ Important activities like +dvertising, We" site operations, distri"utionsare involved at this level


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1# Sta$ility Strategies:

1.a< No-Change Policy: It is a conscious decision o! notdoing anything new and continue with present "usinessde!inition When environment is sta"le and predicta"le with nonew signi!icant threats < opportunities in the environment, itmay not "e worthwhile to alter strategy in present situation+lso no new strengths have "een generated and no newweaknesses have "een developed

.o new threat o! su"stitutes and new entrants owever, thisshould "e a conscious decision and should not arise out o! in-activity and owing to inertia It is dangerous to "e complacent

2 "6 Profit Strategy: .o change policy cannot sustain !or long andsituations keep changing owever i! company "elieves thatthe changes like economic recession, govt rules, industrydownturn, competitive pressures are temporary and will turn!avoura"le a!ter some time,


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Cont;d


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2# %&pansion Strategies I! organisation is not moving ahead, it is actually going

"ackwards )ompanies aim !or su"stantial growth to takeadvantage o! 7rowing economy, li"eralisation, rapidlyincreasing markets, glo"alisation, ;merging technologiesetc

56 ansion Strategies are of 7 ty es

2.a) Expansion through Concentration : 8irms tend to rely ondoing what they know they are "est at doing )oncentrationStrategy involves investment o! resources in a product line !or

an identi!ied market The !irm has proven technology, markethas high potential !or growth and industry is su!!icientlyattractive !or concentration to take place The !irm should alsohave !inancial strength to sustain expansion This is a !irst

pre!erence strategy o! !irm doing what they are doing alreadyand would like to invest more in known "usiness 50a a ,4aruti6


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)oncentration strategy involves minimal organisation changes,improves competitive advantage due to in depth knowledge <expertise

The limitations are putting all resources at one pro ect, it isindustry dependent and adverse condition in industry cana!!ect In the @ecession time, it is too di!!icult !or concentrated!irms to withdraw /roduct o"solescence is another threat !orthe heavy investment

2.b) Expansion through Integration : When !irms use theirexisting "ase to expand in the direction o! their raw material orthe ultimate consumer or ac&uire ad acent "usinessesAexpansion through Integration takes place This is exploringBertical and ori#ontal dimensions o! 7rand Strategy;xpansions are pivoted around present "ase o! customersScope o! "usiness de!inition is widened +lternativetechnologies are used !or "ackward or !orward integration The!irm moves up or down the value chain The !irm aims at costeconomics It is also one type o! ?4ake or 0uy’ decision +llintegration strategies re&uire Trade-o!!s There are two types

o! Integrations


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Vertical Integration: When an organisation start making new products that serve its own need or is !or sel! consumption

0ackward Integration means retreating to source o! rawmaterials while !orward integration moves the organisation toits ultimate customers

Horizontal Integration: When an organisation takes up thesame type o! products at the same level !or production or !ormarketing 4any a times ori#ontal Integration is a merger o!like industriesIntegration strategy gives more control on Balue chain "utcarry a risk as industry is set to serve same customer groupand in case product !ails or "ecomes o"solete2.c) Expansion through Diversification: Several !irmsdiversi!y to reduce the risk o! dependence on product andsame set o! customers iversi!ication involves all dimensionso! Strategic +lternatives It could "e internal or external,related or unrelated, hori#ontal or vertical, technological etc Itchanges "usiness de!inition


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Concentric Di ersification: The activity is related to existing

"usiness de!inition either in "usinesses, customer groups <

!unctions and $or alternative technology It could "e market

related concentric diversi!ication as di!!erent products !or

same set o! customers or Technology related iversi!ication as

related technology to the present "usiness or com"ination o!

4arket < Technology related diversi!ication

Conglo!erate di ersification : iversi!ication in activities

which are totally unrelated to existing "usiness de!inition o!

one or more o! its "usinesses 5IT) C To"acco < otel 6


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2.d) Expansion through Co-operation:2 4ergers Strategy1 Takeovers or +c&uisitions Strategy9 Doint Bentures StrategyE Strategic +lliances Strategy

2.e) Expansion through Internationalisation:2 International Strategy1 4ulti-domestic Strategy9 7lo"al StrategyE Trans-national Strategy

ont=d>>>..


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'# (etrench)ent Strategies#

@etrenchment Strategy is !ollowed when an organisationsu"stantially reduces scope o! its activities The organisationneed to !ind out pro"lem areas and diagnose the causes o! the/ro"lems, accordingly, various types o! @etrenchmentStrategies are adopted;xternal evelopments, 7overnment /olicies, Su"stitute

/roducts, )hanging )ustomer needs, Wrong Strategies,O"solete /roducts, could "e reasons !or declineSymptoms are noticed in poor per!ormance, declining pro!its,diminishing )ash !low, !alling sales, Shrinking markets,

Shrinking market share, increasing de"tThe organisation with proper monitoring controls can senseapproaching danger and position itsel! to !ind alternatives


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* a) Retrenchment Strategies: T"rnaro"nd

Strategies: 9 a 2 : I! );O has credi"ility with 0anks and 8inancialInstitutions and i! a &uali!ied )onsultant is availa"le, thenmanagement team handles the entire turn-around strategy withsupport o! advisory specialist external consultant9 a 1: In another situation, Turnaround specialist is employedto do the o" and existing team is temporarily withdrawn9 a 9: @eplacement o! existing team, or merging sick unit witha healthy one/ossi"le actions could "e: +nalysis o! /roduct, market,

production processes, competition, market segment positioning, production logic, Target setting, !eed"ack,corrective actions


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'#$* (etrench)ent Strategies : Divest)ent Strategies:

9 " 2: ivestment is done due to negative cash !lows,

mismatch o! "usiness with the company, pro ect !eared to "e

non-via"le in long range, strict competition, Technological up-

gradation asking !or !unds which are not availa"le, Selling a

part o! company !or survival o! organisation, a "etteralternative is availa"le !or investment, ivestment as a part o!

merger plan o! mutual exchange,

ivestment is done in two ways : + part o! company isdivested or !irm may sell a unit entire to a "uyer, who !inds the

purchase as a strategic !it


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'#c* (etrench)ent Strategies : Li+uidation Strategies:

This is most un-attractive strategy, wherecompany shuts down and tries to sell itsassets It is a last resort *i&uidation isdi!!icult due to various legal constraints and

protection given to employees in la"our law


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Co)$ination Strategies(ombination Strategies are mixture o! Sta"ility, ;xpansionand @etrenchment strategies They are either !ollowed

simultaneously or in a se&uential way It is very di!!icult in the "usiness environment to !ollow a single pure StrategySituation is )omplex and "usiness demands di!!erentstrategies to suit the situational demands made upon theorganisation

+s an example, o"serve a paint company !ollowing threestrategies together +ddition o! new variety o! ? ecorative

paint’ !or widening customer "ase, 5Sta"ility6, and +dding an

entirely new product like ?+utomotive /aint’ with new set o!customers < !unctions 5;xpansion6, while eliminating orclosing the contract division, which used to take /ainting)ontracts 5@etrenchment6


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e!inition o! Strategy$Strategic planning

+ care!ul plan or methodThe art o! devising or employing plans or strategiestowards a goal

O! great importance within an integrated whole or toa planned e!!ect

.ecessary to or important in the initiation, conduct,

or completion o! a strategic plan


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What Strategi! -lanning is Not

Strategic planning is not !orecastingStrategic planning is not the simple application o!&uantitative techni&ues to "usiness planningStrategic planning is concerned with makingdecisions today that will a!!ect the organi#ation5product line6 and it’s !utureStrategic planning does not eliminate risk, it helpsmanagers access the risks they must take "y gaining a

"etter understanding o! the parameters involved intheir decisions


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-ro!ess o# Strategi! -lanning

The process o! strategic planning is a step-"y-stepapproach three key &uestions that lie at the heart o!any "usiness strategy:

What are you going to sell%Who are your target customers%

ow can you "eat or avoid your competition%

I! you can answer these three &uestions well, youhave a strategy

Data deas


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Data1$ External Situation.$ nternal Situation=$ Capa%ilities and

!ompeten!ies

,deas>$ Assumptions

nalysis?$ Strategi! assessment

Strategi! ssues

Direction 6$ Strategies

Co))it)ent@$ ,ission Statement 4oals O% e!ti"es

,)ple)entationB$ A!tion -lans

$ )udgets1/$ S!hedules


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Simpli#ied -ro!ess o# Strategi!-lanning* 5ow it Works

.lanning

0/ather ,nfor)ation0 ssess Capa$ilities00a e ssu)ptions00a e Strategic ssess)ents0"or)ulate Strategy0%sta$lish /oals and $3ectives0"or)ulate Tentative ction .lans0"inali4e ction .lans %&ecution

0onitor Develop)ents and .rogress


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Stages o# !orporate de"elopment

)orporate evelopment re!ers to the planning and executiono! a wide range o! strategies to meet speci!ic organi#ationalo" ectives

Stages of Corporate Develop)ent


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,4,4

g p p)

Stage I: Simple Structure 5;ntrepreneur68lexi"le and dynamic

ecision making tightly controlled

*ittle !ormal structure/lanning short range$reactive

Stage II: 8unctional Structure

8unctional speciali#ationelegation o! decision making

)oncentration$speciali#ation in industry

Stages o! corporatedevelopment


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Cont;d


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,%,%

5# Structural ,)ple)entation5# Structural , )ple)entation

8ntrepreneurial:8ntrepreneurial: 9!ner " ?ana&er

8mployees

CE

Pu#lic@elations

7e&alProduction inance ?arkt&. Personnel

unctional

89

orporate inance 7e&al B P@

Product *C. A Product" iv. +ivision

?arkt&.$ 9perations$ Pers.$ ?arkt&.$ 9perations$ Pers.$

ivisional B Product

9!ner " ?ana&er

8mployees


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,),)

Cont;d


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,,,,

89

inance 9perations Personnel ?arketin&

6ead F A7ocation BProduct B

Plant

6ead F +7ocation BProduct B

Plant

6ead F 7ocation BProduct B

Plant

orporate

3atri4

N t! k


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,-,-

orporate6ead(uarter

Pro5ect?

Pro5ectN

unctionG

unctionH

@e&ionA

@e&ion+

Net!ork


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$

ll ll $ h


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,0,0

1# Strategic lliances Colla$orative .artnerships61# Strate gic lliances Colla$orative .artnerships6

In the present era o! /rivatisation < 7lo"alisation, IndustriesIn the present era o! /rivatisation < 7lo"alisation, Industrieshave to !ace altogether di!!erent challenges not !aced hithertohave to !ace altogether di!!erent challenges not !aced hitherto

@apid advances in technology, !ree economy, new markets in@apid advances in technology, !ree economy, new markets indeveloped < under developed countries, and invasion o!developed < under developed countries, and invasion o!!oreign companies are !orcing Industries to enter into race o!!oreign companies are !orcing Industries to enter into race o!

"uilding 7lo"al presence and into race o! adopting new "uilding 7lo"al presence and into race o! adopting newtechnologiestechnologies

Industries also !ind that they do not have expertise !or runningIndustries also !ind that they do not have expertise !or runningthe race o! 7lo"al leadership The glo"al environment re&uiresthe race o! 7lo"al leadership The glo"al environment re&uiresdiverse < expensive skills, resources, technological skills Thediverse < expensive skills, resources, technological skills The!astest < surest way to !ill up the gap is +lliances with!astest < surest way to !ill up the gap is +lliances withenterprises with desired strengthsenterprises with desired strengthsStrategic 3lliancesStrate gic 3lliances are colla"orative partnerships where twoare colla"orative partnerships where twoor more companies oin !orces to achieve mutually "ene!icialor more companies oin !orces to achieve mutually "ene!icialstrategic outcomes These alliances are more than company tostrategic outcomes These alliances are more than company tocompany give < take dealings "ut !all short o! 4erger or DBcompany give < take dealings "ut !all short o! 4erger or DBThese alliances are mainly !or "ridging gap o! resources andThese alliances are mainly !or "ridging gap o! resources andtechnologytechnology ..

d t g f llidvanta

ges of lliance:


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,,

dvantages of lliance:dvanta ges of lliance:

+lliance is "asically "etween e&uals, "ut alliances are also+lliance is "asically "etween e&uals, "ut alliances are alsodone with suppliers, distri"utors as partners "y many "igdone with suppliers, distri"utors as partners "y many "ig

"usiness houses These alliances are mostly done with Balue "usiness houses These alliances are mostly done with Baluechain contri"utorschain contri"utorsIt is now common !or companies to pursue their strategies inIt is now common !or companies to pursue their strategies incolla"oration with suppliers, distri"utors, makers o!colla"oration with suppliers, distri"utors, makers o!complimentary product and some select companies e g I04complimentary product and some select companies e g I04< ;**< ;**

3dvantages of 3lliance:3dvant ages of 3lliance:7et into critical country markets &uickly7et into critical country markets &uickly7ain, in-side in!ormation < knowledge a"out unknown $7ain, in-side in!ormation < knowledge a"out unknown $un!amiliar markets < culturesun!amiliar markets < cultures

+ccess valua"le skills < competencies+ccess valua"le skills < competencies7et a handle to participate in target technology or industry7et a handle to participate in target technology or industry4aster new technologyA "uild new expertise < competencies4aster new technologyA "uild new expertise < competencies!aster!asterOpen up "roader opportunitiesOpen up "roader opportunities

S $ili f lliSt $ilit

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Sta$ility of lliances:Sta$ilit y of lliances:

Alliances to #e successful should have partners !orkin&Alliances to #e successful should have partners !orkin&to&ether. Sta#ility of alliances depend upon their success into&ether. Sta#ility of alliances depend upon their success inadoptin& to chan&in& internal I external conditions$adoptin& to chan&in& internal I external conditions$!illin&ness to #ar&ain on issues$ real colla#oration and not!illin&ness to #ar&ain on issues$ real colla#oration and notmerely arm len&th exchan&e of ideas. 8ach partner mustmerely arm len&th exchan&e of ideas. 8ach partner must#rin& in hi&h value allied skills$ resources and contri#utions#rin& in hi&h value allied skills$ resources and contri#utionsand respect each other. They should have co"operativeand respect each other. They should have co"operative

arran&ements !orkin& for !in"!in solutions.arran&ements !orkin& for !in"!in solutions.auses for failures of alliances could #e$ diver&in&auses for failures of alliances could #e$ diver&in&o#5ectives and priorities$ in"a#ility to !ork to&ether$o#5ectives and priorities$ in"a#ility to !ork to&ether$chan&in& conditions !hich make initial reason for alliancechan&in& conditions !hich make initial reason for allianceas o#solete$ more attractive technolo&ies and B or rivalry atas o#solete$ more attractive technolo&ies and B or rivalry atmarketplace.marketplace.

Alliance partners should &uard themselves from undueAlliance partners should &uard themselves from unduedependence. 9ver a period the partners must learn skillsdependence. 9ver a period the partners must learn skillsand technolo&y. To #e a market leader companies mustand technolo&y. To #e a market leader companies mustdevelop their o!n capa#ilities or alliance !ill ultimately leaddevelop their o!n capa#ilities or alliance !ill ultimately leadto ?er&er or Ac(uisition.to ?er&er or Ac(uisition.

0 i i i S i0

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0erger c+uisition Strategies:0er ger c+uisition Strategies:The phraseThe phrase Mergers and 3c$"isitionsMergers and 3c$"isitions 5a""reviated5a""reviated M83M83 66re!ers to the aspect o! corporate strategy, corporate !inance andre!ers to the aspect o! corporate strategy, corporate !inance and

4anagement dealing with the "uying, selling and com"ining4anagement dealing with the "uying, selling and com"iningo! di!!erent )ompanies that can aid, !inance, or help a growingo! di!!erent )ompanies that can aid, !inance, or help a growingcompany in a given industry to grow rapidly without having tocompany in a given industry to grow rapidly without having tocreate another "usiness entitycreate another "usiness entity

In the pure sense o! the term, aIn the pure sense o! the term, a MergerMerger happens when twohappens when two!irms, o!ten o! a"out the same si#e, agree to go !orward as a!irms, o!ten o! a"out the same si#e, agree to go !orward as asingle new company rather than remain separately owned andsingle new company rather than remain separately owned andoperated This kind o! action is more precisely re!erred to as aoperated This kind o! action is more precisely re!erred to as a9Merger of e$"als9Merger of e$"als 0oth companiesF stocks are surrendered0oth companiesF stocks are surrenderedand new company stock is issued in its place 8or example,and new company stock is issued in its place 8or example,

"oth aimler-0en# and )hrysler ceased to exist when the two "oth aimler-0en# and )hrysler ceased to exist when the two!irms merged, and a new company, aimler)hrysler, was!irms merged, and a new company, aimler)hrysler, wascreatedcreated

0 + i iti St t i 20

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0erger c+uisition Strategies-2:0 erger c+uisition Strategies-2:

When one company takes over another and clearly esta"lishedWhen one company takes over another and clearly esta"lisheditsel! as the new owner, the purchase is called anitsel! as the new owner, the purchase is called an 3c$"isition3c $"isition

8rom a legal point o! view, the8rom a legal point o! view, the Target )ompanyTar get )ompany ceases to exist,ceases to exist,the "uyer 'swallows' the "usiness and the "uyerFs stockthe "uyer 'swallows' the "usiness and the "uyerFs stockcontinues to "e tradedcontinues to "e tradedWhether a purchase is considered aWhether a purchase is considered a Merger or an 3c$"isitionMerger or an 3c$"isition really depends on whether the purchase is !riendly or hostile andreally depends on whether the purchase is !riendly or hostile andhow it is announced In other words, the real di!!erence lies inhow it is announced In other words, the real di!!erence lies inhow the purchase is communicated to and received "y the targethow the purchase is communicated to and received "y the targetcompanyFscompanyFs 0oard o! irectors0oard o! irectors , employees and, employees and ShareholdersShareholders4 < + have not produced hoped-!or results on many instances4 < + have not produced hoped-!or results on many instances@esistance o! rank and !ile employees o! two large companies is@esistance o! rank and !ile employees o! two large companies issome times too di!!icult to resolve )on!licts o! managementsome times too di!!icult to resolve )on!licts o! managementstyles and di!!erence in )orporate )ultures create pro"lems instyles and di!!erence in )orporate )ultures create pro"lems inintegration )ost savings, expertise sharing, and enhancedintegration )ost savings, expertise sharing, and enhancedcompetitive capa"ilities take su"stantially long time tocompetitive capa"ilities take su"stantially long time tomaterialise in view o! a"ove pro"lemsmaterialise in view o! a"ove pro"lems ..

S i $3 i f 0 i i iS

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Strategic o$3ectives of 0ergers c+uisitions:Strat egic o$3ectives of 0ergers c+uisitions:

22 To pave the way !or the ac&uiring company to gain moreTo pave the way !or the ac&uiring company to gain moremarket share and, !urther, create a more e!!icient operationmarket share and, !urther, create a more e!!icient operationout o! com"ined companies "y closing high cost plants andout o! com"ined companies "y closing high cost plants andeliminating surplus capacity industry-wiseeliminating surplus capacity industry-wise

11 To expand companies geographic coverageTo expand companies geographic coverage99 To extend company’s "usiness into new product categoriesTo extend company’s "usiness into new product categories

or international marketsor international marketsEE To gain &uick access to new technologies and avoid the needTo gain &uick access to new technologies and avoid the need

!or a time consuming @ < e!!ort!or a time consuming @ < e!!ortGG To try to invent new industry and lead the convergence o!To try to invent new industry and lead the convergence o!

industries whose "oundaries are "eing "lurred "y changingindustries whose "oundaries are "eing "lurred "y changingtechnologies and new market opportunitiestechnologies and new market opportunitiesHH To !ill resource gapsTo !ill resource gaps

f


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Business .ortfolio nalysisBusiness .ortfolio na lysise!initione!inition :: +naly#ing =+naly#ing = ;lements;lements > o! a !irmFs => o! a !irmFs =/roduct 4ix>/roduct 4ix>

to determine theto determine the

= Optimum +llocation= O ptimum +llocation

> o! its> o! its

=@esources>=@esources>

Two mostTwo most =)ommon 4easures>=)ommon 4easures> used in aused in a =/ort!olio=/ort!olio

+nalysis>+nal ysis> areare =4arket 7rowth>=4arket 7rowth> and = and = @elative 4arket@elative 4arket

ShareShare >>

==The strategic units that make up the company and theThe strategic units that make up the company and theattempts to evaluate current e!!ectiveness and vulnera"ilities>attempts to evaluate current e!!ectiveness and vulnera"ilities>

54c onald et al, 2 1654c onald et al, 2 16

==0usiness /ort!olio 4anagement> ena"le strategic planners to0usiness /ort!olio 4anagement> ena"le strategic planners toselect the optimal strategies !or the individual products whilstselect the optimal strategies !or the individual products whilst

achieving overall corporate o" ectives> 54c.amee, 2 JG6achieving overall corporate o" ectives> 54c.amee, 2 JG6


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When a 0usiness /ort!olio comprises o! 4ulti-"usiness (nitsWhen a 0usiness /ort!olio comprises o! 4ulti-"usiness (nitsand $ or operating at multi-location, then the Strategist o!ten askand $ or operating at multi-location, then the Strategist o!ten asktwo &uestions to take a decision on 0usiness Strategytwo &uestions to take a decision on 0usiness Strategy

K How !uch of our ti!e and !oney should we s"end on our #est How !uch of our ti!e and !oney should we s"end on our #est "roducts to ensure that they continue to #e successful$ "roducts to ensure that they continue to #e successful$K How !uch of our ti!e and !oney should we s"end de elo"ing How !uch of our ti!e and !oney should we s"end de elo"ing

new costly "roducts% !ost of which will ne er #e successful new costly "roducts% !ost of which will ne er #e successful

;xamples o! /ort!olios:;xamples o! /ort!olios:7illette: "atteries, Shaving products7illette: "atteries, Shaving productsIT) : To"acco, Soaps, )igarettesIT) : To"acco, Soaps, )igarettes

Business ortfolio nalysisBusiness ortfolio nal

ysis


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Business .ortfolio nalysisBusiness .ortfolio nal ysis

/ort!olio analysis looks at the corporate investments in di!!erent/ort!olio analysis looks at the corporate investments in di!!erent products or industries under common corporate urisdiction It products or industries under common corporate urisdiction Itinvolves, analysing !uture implications o! presents resourceinvolves, analysing !uture implications o! presents resourceallocation and continuously deciding, adding, curtailing orallocation and continuously deciding, adding, curtailing ordisposing, operations or products, so that overall port!oliodisposing, operations or products, so that overall port!olio

"alance is maintained or improved "alance is maintained or improved

/ort!olio analysis takes into considerations aspects such as =/ort!olio analysis takes into considerations aspects such as =)ompanies )ompetitive Strength)om panies )ompetitive Strength >, =>, =@esource +llocation@esource +llocation/attern/attern > < => < = Industry )haracteristicsIndustr y )haracteristics >>+ll "usinesses have to "alance, three "asic aspects o! running the+ll "usinesses have to "alance, three "asic aspects o! running the

"usiness : "usiness :22 .et )ash 8low .et )ash 8low11 State o! evelopmentState o! evelopment99 @isk@isk

Boston Consulting /roup 7 BC/8s /ro9th 7 Share 0atri&Boston Consultin

g /roup 7 BC/8s /ro9th 7 Share 0atri&


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Boston Consulting /roup 7 BC/8s /ro9th 7 Share 0atri&Boston Consultin g /roup 7 BC/8s /ro9th 7 Share 0atri&

BC/8s /ro9th 7 Share 0atri&BC/8s /ro9th 7 Share 0atri&


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i!!erent "usinesses which !orms the 0usiness /ort!olio can "ei!!erent "usinesses which !orms the 0usiness /ort!olio can "echaracterised "y two parameters:characterised "y two parameters:

22 )ompany’s 4arket share)om pany’s 4arket share !or the "usiness, representing the!or the "usiness, representing the!irm’s competitive position and!irm’s competitive position and

11 The overall growth rateThe overall growth rate o! the "usinesso! the "usiness8or each activity in the port!olio, a separate strategy must "e8or each activity in the port!olio, a separate strategy must "edeveloped depending upon its position in 1 L 1 matrixdeveloped depending upon its position in 1 L 1 matrix

igher 4arket share will mean, higher pro!its and higher cashigher 4arket share will mean, higher pro!its and higher cash!lows @elative market share is de!ined as the market share o! the!lows @elative market share is de!ined as the market share o! therelevant "usiness divided "y the market share o! its largestrelevant "usiness divided "y the market share o! its largestcompetitor i e + M 23N, 0 M 13N < ) M H3N, then, ?+’scompetitor i e + M 23N, 0 M 13N < ) M H3N, then, ?+’srelative market share is 2$H < ?)’s share is 9relative market share is 2$H < ?)’s share is 9

igher 7rowth rate will mean pro!ita"le investment $ expansionigher 7rowth rate will mean pro!ita"le investment $ expansionopportunities and easier to increase market shareopportunities and easier to increase market share

BC/8s /ro9th 7 Share 0atri& - 0ethodologyBC/8s /ro9th 7 Share 0atri& - 0ethodolo

gy


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gy gy

Step-"y-step procedure to develop the "usiness port!olio matrixStep-"y-step procedure to develop the "usiness port!olio matrixand identi!y appropriate strategies !or di!!erent "usinesses:and identi!y appropriate strategies !or di!!erent "usinesses:

22 )lassi!y various activities o! the )ompany into di!!erent "usiness)lassi!y various activities o! the )ompany into di!!erent "usinesssegments or S0(s 5Strategic 0usiness (nits6segments or S0(s 5Strategic 0usiness (nits6

11 8or each "usiness segment, determine the growth rate o! the8or each "usiness segment, determine the growth rate o! the

market /lot it on linear scalemarket /lot it on linear scale99 7ather assets employed !or each "usiness segment and determine7ather assets employed !or each "usiness segment and determine

the relative si#e o! the "usiness within the companythe relative si#e o! the "usiness within the companyEE ;stimate the relative market shares !or the di!!erent "usiness;stimate the relative market shares !or the di!!erent "usiness

segmentssegmentsGG /lot the position o! each "usiness on a matrix o! "usiness growth/lot the position o! each "usiness on a matrix o! "usiness growth

rate and relative market sharerate and relative market share

BC/8s /ro9th 7 Share 0atri& - illustrationBC/8s /ro9th 7 Share 0atri& - illustration


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BC/8s /ro9th 7 Share 0atri& illustrationBC/8s /ro9th 7 Share 0atri& illustration

1 G14G

1.-G

, G 4.-G

4.1

G

5elative market Share

%usiness6ro&thrate 7

%

/

,

14

%4

11/

1,

1%

S 85S

C8S* C )S 9 6S

:;ES < N

385KS

St t i d t Lif C l 1Strat

egies as per rod ct Life C cle 1


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Strategies as per .roduct Life Cycle-1Strat egies as per .roduct Life Cycle-156 ansion Strategy : Stars56 ansion Strategy : Stars C are the "usinesses which have high C are the "usinesses which have highgrowth rate < high market share +t times they are not sel!growth rate < high market share +t times they are not sel!su!!icient in cash !low, "ut need to "e supported in view o! theirsu!!icient in cash !low, "ut need to "e supported in view o! their

potential This is ?7rowth’ phase o! =/roduct *i!e )ycle> 5/*)6 potential This is ?7rowth’ phase o! =/roduct *i!e )ycle> 5/*)6Such "usinesses generate as well as use large amount o! cash TheSuch "usinesses generate as well as use large amount o! cash TheStar generate high pro!its and represent the "est investmentStar generate high pro!its and represent the "est investmentopportunities !or growth We need to rea!!irm the )ompany’sopportunities !or growth We need to rea!!irm the )ompany’s)ompetitive ;dge at this phase "y su!!icient doses o! resources)ompetitive ;dge at this phase "y su!!icient doses o! resources!or expansion The "est strategy regarding stars is to make!or expansion The "est strategy regarding stars is to makenecessary investments and consolidate the company’s highnecessary investments and consolidate the company’s highrelative competitive positionrelative competitive position

e g ;lectronics < )ommunications is =Star> industrye g ;lectronics < )ommunications is =Star> industry

Strategies as per .roduct Life Cycle-2Strat

egies as per .roduct Life Cycle-2


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Strategies as per .roduct Life Cycle 2g p y;old Strategy - (ash (ows;old Strategy - (ash (ows are the "usinesses with low growthare the "usinesses with low growthrate and high market share igh market share leads to highrate and high market share igh market share leads to highgeneration o! cash and pro!its )ash )ow is a "usiness thatgeneration o! cash and pro!its )ash )ow is a "usiness that

generates cash !lows over < a"ove its internal needs )ows can "egenerates cash !lows over < a"ove its internal needs )ows can "emilked to provide a corporate parent with !unds !or investing in starmilked to provide a corporate parent with !unds !or investing in star$ cash dog "usinesses, !inancing new ac&uisitions or paying$ cash dog "usinesses, !inancing new ac&uisitions or payingdividendsdividends)ash cows provide the !inancial "ase !or the company)ash cows provide the !inancial "ase !or the company

+ strong cash !low resulting out o! relatively high market share $+ strong cash !low resulting out o! relatively high market share $low market growth rate ?)ash )ow’ opportunities should "e a"le tolow market growth rate ?)ash )ow’ opportunities should "e a"le tomaintain market share at or around existing levelsmaintain market share at or around existing levelsIn this state o! "usiness, )orporate can adopt mainlyIn this state o! "usiness, )orporate can adopt mainly Sta"ilitySta"ilit yStrategiesStrate gies ;xpansions < investments can "e thought only i! the ;xpansions < investments can "e thought only i! the

long term prospects are exceptionally "rightlong term prospects are exceptionally "rightThese are generally mature "usinesses reaping "ene!its o!These are generally mature "usinesses reaping "ene!its o!experience and expertise 8unds generated are to "e used !orexperience and expertise 8unds generated are to "e used !or= uestion 4ark> or =Star> "usinesses as =)ash )owFs are= uestion 4ark> or =Star> "usinesses as =)ash )owFs are destineddestinedto slow downto slow down + phased retirement need to "e planned + phased retirement need to "e planned

St t gi d t Lif C l 'Strat

egies as per roduct Life Cycle '


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Strategies as per .roduct Life Cycle- 'Strat egies as per .roduct Life Cycle- '

."ild Strategy – phase)ash in!low is re&uired to sta"ilise and enter into =Star> phase)ompanies must o"tain early lead to strengthen the "usiness)ompanies must o"tain early lead to strengthen the "usinessand capture growth opportunitiesand capture growth opportunities+ &uestion 4ark "usiness can either "ecome a Star or can go to+ &uestion 4ark "usiness can either "ecome a Star or can go to

ogs depending upon !unds < competitive edgeogs depending upon !unds < competitive edge

Strategies as per .roduct Life Cycle - 5Strate

gies as per .roduct Life Cycle - 5


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/)/)

The "usiness is calledThe "usiness is called ,ogs#,ogs# i! "usiness growth rate is low and thei! "usiness growth rate is low and thecompany’s relative market share is also lowcompany’s relative market share is also low The lower market share means poor pro!its and as market growthThe lower market share means poor pro!its and as market growth

is low, any investment is prohi"itive as cash demanded will exceedis low, any investment is prohi"itive as cash demanded will exceedthe cash generation, causing negative cash !lowthe cash generation, causing negative cash !low(nder such circumstances, the Strategic solution is to either(nder such circumstances, the Strategic solution is to eitherli&uidate, or i! possi"le harvest or divest the O7 "usinessli&uidate, or i! possi"le harvest or divest the O7 "usiness;arvest Strategy :;arvest Strategy : To develop short term cash !low irrespective o!To develop short term cash !low irrespective o!the long term damaging e!!ect to the product or "usiness Thisthe long term damaging e!!ect to the product or "usiness This

strategy is appropriate !or any weak products where disposal in thestrategy is appropriate !or any weak products where disposal in the!orm o! a sale is unavaila"le or not pre!erred due to high exit!orm o! a sale is unavaila"le or not pre!erred due to high exit "arriers "arriers,ivest Strategy :,ivest Strategy : To change the capital o! the "usiness and allowTo change the capital o! the "usiness and allowresources to "e used elsewhere o! industries that have a very slowresources to "e used elsewhere o! industries that have a very slowor negative market growth rate and where a company has lowor negative market growth rate and where a company has lowmarket share These are products in late maturity or declining stagemarket share These are products in late maturity or declining stageas mostly su"stitute’s start taking over these products They stopas mostly su"stitute’s start taking over these products They stopgenerating large amount o! )ash and !ace a cost disadvantagegenerating large amount o! )ash and !ace a cost disadvantageowing to low market share Sometimes to reduce the high costsowing to low market share Sometimes to reduce the high costsinvolved, ainvolved, a Retrenchment StrategyRetrenchment Strategy is also adoptedis also adopted


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Cash .ositions of arious BusinessesCash .ositions of arious Businesses

BusinessType

CashSource

Cash!se

;et Cash Balance

COW ,ore (ess +unds a"aila%le& so milk anddeploy

STAD ,ore ,ore )uild !ompetiti"e positionand grow

O4 (ess (ess i"est and re*deploy

pro!eeds$'EST ON (ess ,ore +unds needed to in"est

sele!ti"ely to impro"e!ompetiti"e position$

Li)itation of BC/ 0atri&Li)itation of BC/ 0atri&


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))=redicting =rofitability from Growth and Mar%et Share:-=redictin g =rofitability from Growth and Mar%et Share:- 0)70)7assumes that pro!it depends on growth < market share This may not "eassumes that pro!it depends on growth < market share This may not "e233N true Industry attractiveness may "e di!!erent !rom simple growth233N true Industry attractiveness may "e di!!erent !rom simple growthrate and the !irm’s competitive position may not "e re!lected in its marketrate and the !irm’s competitive position may not "e re!lected in its marketshareshare,iffic"lty in determining Mar%et Share:-,iffic"lt y in determining Mar%et Share:- 0)7 has heavy dependence0)7 has heavy dependenceon market Share as indicator o! its competitive strength The calculation o!on market Share as indicator o! its competitive strength The calculation o!market share depends upon how we decide, what is total marketmarket share depends upon how we decide, what is total market

Sometimes, we may have to consider =niche’ market !or analysisSometimes, we may have to consider =niche’ market !or analysis?o consideration for e6 erience c"rve synergy :-?o consideration for e6 erience c"rve synergy :- In 0)7 each &uadrantIn 0)7 each &uadrantis viewed independently *ow costs due to expertise o! employees canis viewed independently *ow costs due to expertise o! employees can

prolong og, star or cash cow stages prolong og, star or cash cow stages,isregard for ;"man as ect:-,isre gard for ;"man as ect:- 0)7 does not recognise human aspect o!0)7 does not recognise human aspect o!

"usiness )ash generated in one "usiness in one "usiness get associated "usiness )ash generated in one "usiness in one "usiness get associatedwith the power o! concerned manager )ash )ow unit may "e reluctant towith the power o! concerned manager )ash )ow unit may "e reluctant to

part away with its cash to other "usinesses in the house Strategic options part away with its cash to other "usinesses in the house Strategic optionsgiven "y 0)7 may not "e easy to implementgiven "y 0)7 may not "e easy to implement

/eneral %lectric8s < or 0cKinsey* = point/eneral %lectric8s

< or 0cKinsey* = point


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/eneral %lectric8s < or 0cKinsey* = point/eneral %lectric8s < or 0cKinsey* = point0ultifactor .ortfolio .lanning 0atri&0ultifactor .ortfolio .lannin g 0atri&i!!erent "usinesses in the organisation as S0(s can "e ratedi!!erent "usinesses in the organisation as S0(s can "e rated

!or purpose o! strategic planning!or purpose o! strategic planningTwo parameters are considered "ased on internal appraisal o!Two parameters are considered "ased on internal appraisal o!all the S0(s done individuallyall the S0(s done individually22 Industry +ttractivenessIndustr y +ttractiveness : ow attractive is the industry% The: ow attractive is the industry% Theattractiveness indexattractiveness index depends upon "usiness strengths It is adepends upon "usiness strengths It is a

product o! several !actors like Industry potential, the current product o! several !actors like Industry potential, the currentsi#e o! industry, the rate o! growth o! industry, structure andsi#e o! industry, the rate o! growth o! industry, structure and

pro!ita"ility o! the industry This is generally highly pro!ita"le, pro!ita"ility o! the industry This is generally highly pro!ita"le, productive arena, where !irm would like to deploy "est o! productive arena, where !irm would like to deploy "est o!everything Similarly least attractive "usiness is kept with littleeverything Similarly least attractive "usiness is kept with little

attention or is !or gra"s i e !or divestmentattention or is !or gra"s i e !or divestment11 )ompany "usiness strength)om pany "usiness strength : )ompany "usiness strengths is: )ompany "usiness strengths isa product o! several !actors like company’s current marketa product o! several !actors like company’s current marketshare, growth rate, di!!erentiation strength, "rand image,share, growth rate, di!!erentiation strength, "rand image,corporate imagecorporate image


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/%8s = .oint 0odel#/%8s = .oint 0odel#The !ei&hted factors for #oth these areas are plotted inThe !ei&hted factors for #oth these areas are plotted in

ompany #usiness Stren&thB*ndustry attractivenessompany #usiness Stren&thB*ndustry attractiveness

Strong ,edium Weak

5igh n"est Sele!ti"e4rowth

'p or Out

,edium Sele!ti"e

4rowth

'p or Out 5ar"est

(ow 'p or Out 5ar"est i"est

Company %usiness Strength

<ndustry

8ttracti

venes

s


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6eneral Electric=s %usiness Screen

AJinners Jinners

+ uestion ?arks

Avera&e

+usinesses

8Jinners

7osers

E7osers

6

7osersProfit Producers

Stron& Avera&e Jeak

7o!

?edium

6i&h

+usiness Stren&th B ompetitive position

*

ndustryAt

tractiveness

Circle denotes the size o"


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The vertical axis represents Industry +ttractiveness This isThe vertical axis represents Industry +ttractiveness This isweighted composite rating "ased on eight di!!erent !actors Theseweighted composite rating "ased on eight di!!erent !actors These!actors are:!actors are:

22 Si#e o! 4arketSi#e o! 4arket11 @ate o! 7rowth o! Sales@ate o! 7rowth o! Sales99 Industry /ro!it 4arginIndustry /ro!it 4arginEE )ompetitive intensity including vulnera"ility to !oreign)ompetitive intensity including vulnera"ility to !oreign

competitioncompetitionGG SeasonalitySeasonalityHH ;conomics o! Scale;conomics o! ScalePP Suscepti"ility to Technological o"solesceSuscepti"ility to Technological o"solesceJJ ;ntry conditions, Social, legal, environmental < human impacts;ntry conditions, Social, legal, environmental < human impacts

+gainst each o! these !actors, the concerned "usiness is+gainst each o! these !actors, the concerned "usiness israted on a scale o! 2 to G and then the weighted score israted on a scale o! 2 to G and then the weighted score isdetermined !rom maximum o! G This gives the Industrydetermined !rom maximum o! G This gives the Industry

+ttractiveness Index+ttractiveness Index

/eneral %lectric8s Business Screen/eneral %lectric8s Business Screen


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0101

/eneral %lectric8s Business Screen/eneral %lectric8s Business ScreenThe hori#ontal axis represents "usiness strength competitiveThe hori#ontal axis represents "usiness strength competitive

position This is a weighted composite rating "ased on seven position This is a weighted composite rating "ased on seven

!actors These !actors are:!actors These !actors are:22 @elative market Share@elative market Share11 /ro!it margins/ro!it margins99 +"ility to compete on /rice < uality+"ility to compete on /rice < ualityEE Qnowledge o! )ustomer < 4arketQnowledge o! )ustomer < 4arketGG )ompetitive Strengths < Weaknesses)ompetitive Strengths < WeaknessesHH Technological )apa"ilityTechnological )apa"ilityPP )ali"re o! 4anagement)ali"re o! 4anagement

The two composite values !or ?Industry +ttractiveness’ andThe two composite values !or ?Industry +ttractiveness’ and?0usiness Strength’ are plotted !or each "usiness in a?0usiness Strength’ are plotted !or each "usiness in a)ompany’s /ort!olio The pie charts denote the proportional)ompany’s /ort!olio The pie charts denote the proportionalsi#e o! the industry C white colour < "lue segment representsi#e o! the industry C white colour < "lue segment representcompany sharecompany share

C d $$C d $$


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Cont;d


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Cont;d


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Cont;d


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Cont;d


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*imitations o! 7; matrix*imitations o! 7; matrix

It is complicatedIt is complicated+ggregation o! the indicators is di!!icult+ggregation o! the indicators is di!!icult

)ore competencies are not represented)ore competencies are not represented

It does not depict the position o! new products or "usinessIt does not depict the position o! new products or "usinessunits in developing industriesunits in developing industriesIt does not provide speci!ic strategy to use or how toIt does not provide speci!ic strategy to use or how toimplement that strategyimplement that strategy

The process o! selecting !actors, assigning weights, rating andThe process o! selecting !actors, assigning weights, rating andcomputing values, in reality is "ased on su" ectivecomputing values, in reality is "ased on su" ective

udgements udgements

S i Ch iSt t i Ch i


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Strategic ChoiceStrategic ChoiceThe "usiness !irms !ace an almost in!initive num"er o!The "usiness !irms !ace an almost in!initive num"er o!

alternative strategies !rom which to choosealternative strategies !rom which to choose@ational views o! decision making advocate that all@ational views o! decision making advocate that allalternatives "e evaluatedalternatives "e evaluated

Strategic choice may "e de!ined as =The decision to selectStrategic choice may "e de!ined as =The decision to select

!rom among grand strategies considered, the strategy which!rom among grand strategies considered, the strategy whichwill "est meet the enterprise’s o" ectives The decisionwill "est meet the enterprise’s o" ectives The decisioninvolves !ocussing on a !ew alternatives, considering theinvolves !ocussing on a !ew alternatives, considering theselection !actors, evaluating the alternatives against theseselection !actors, evaluating the alternatives against thesecriteria and making the actual choice>criteria and making the actual choice>

Strategic choice is the evaluation o! alternative strategies andStrategic choice is the evaluation o! alternative strategies andthe selection o! "est alternativethe selection o! "est alternative

S i S i! Ch i!S i S i! Ch i!


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Steps in Strategi! Choi!eSteps in Strategi! Choi!eThe strategic choice consists o! !ollowing steps:The strategic choice consists o! !ollowing steps:

5a65a6 8ocussing on strategic alternatives8ocussing on strategic alternatives5"65"6 +naly#ing the strategic alternatives+naly#ing the strategic alternatives5c65c6 ;valuating the strategic alternatives;valuating the strategic alternatives5d65d6 )hoosing !rom among the strategic alternatives)hoosing !rom among the strategic alternatives

Structure for )a ing strategic choice


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>hat ptionsare availa$le6

Structure for )a ing strategic choice

ptions of)ethod on

ho9 to progress

ptions a$outproducts? )ar ets

and services

ptions to i)proveresources capa$ilities

0a ing the Choice

Choice Criteria- ssess)ent

-,ntent Theoretical

"ra)e9or s for )a ingstrategic choice

>ho should $einvolved in

the Choice6

Lin ing into availa$le strategic options

Chosen Strategy

C t d


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Cont;d


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Cont;d


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Cont;d


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Cont;d


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6 > E

5 N 3 E

N (

C * 8 N

C EC 3

% < N E 9

< 3 P 8 C (

C 3 %

< N E 9 < 3 P 8

C (

The diamond is mutually reinforcin&


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Porter s diamond model su&&ests that there areinherent reasons !hy some nations$ andindustries !ithin nations$ are more competitivethan others on a &lo#al scale.

The ar&ument is that the national home #ase ofan or&ani3ation provides or&ani3ations !ithspecific factors$ !hich !ill potentially createcompetitive advanta&es on a &lo#al scale.

Cont;d


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/orterFs model includes E determinants o! national advantage,which are shortly descri"ed "elow:4actor (onditions 8actor conditions include those !actors that can "e exploited

"y companies in a given nation8actor conditions can "e seen as advantageous !actors !oundwithin a country that are su"se&uently "uild upon "ycompanies to more advanced !actors o! competition +dverse conditions such as la"or shortages or scarce rawmaterials !orce !irms to develop new methods, and thisinnovation o!ten leads to a national comparative advantage

Some examples o! !actor conditions:ighly skilled work!orce*inguistic a"ilities o! work!orce@ich amount o! raw materialsWork!orce shortage

emand Conditions


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I! the local market !or a product is larger and more demanding

at home than in !oreign markets, local !irms potentially putmore emphasis on improvements than !oreign companiesThis will potentially increase the glo"al competitiveness o!local exporting companies

+ more demanding home market can thus "e seen as a drivero! growth, innovation and &uality improvement

8or eg Dapanese consumers have historically "een more

demanding o! electrical and electronic e&uipment than westernconsumers This has partly !ounded the success o! Dapanesemanu!acturers within this sector

emand Conditions


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Delated and Supporting ndustries

When local supporting industries and suppliers arecompetitive, home country companies will potentially getmore cost e!!icient and receive more innovative parts and

products

This will potentially lead to greater competitiveness !ornational !irms8or eg The Italian shoe industry "ene!its !rom a highlycompetent pool o! related "usinesses and industries, which hasstrengthened the competitiveness o! the Italian shoe industry

world-wide

+irm Strategy& Stru!ture& and


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+irm Strategy& Stru!ture& andDi"alry

The structure and management systems o! !irms in di!!erentcountries can potentially a!!ect competitivenessI! rivalry in the domestic market is very !ierce, companies may

"uild up capa"ilities that can act as competitive advantages on

a glo"al scaleome markets with less rivalry may there!ore "e

counterproductive, and act as a "arrier in the generating o!glo"al competitive advantages such as innovation and

development

C d $ $


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Cont;d


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Cont;d


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Cont;d


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Unit 3 Strategic Management

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