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STRATEGIC

MANAGEMENT
UNIT II & III
Semester II Subject Code MBA 205 By Ifra Khan

COMPETITIVE INTELLIGENCE
Competitive Intelligence is a formal program of gathering information on a companys competitors. Also referred to as Business Intelligence(BI), it is one of the fastest growing fields within the Strategic management. There are three primary reasons for practicing BI

Build industry awareness Support strategic planning process Develop new products New marketing strategies & tactics

WHY?

What are my Competitors doing now?

Revenues, Earnings & benchmarks New Accounts & Proposals Product features & Performance
New Technology New Products New Markets Competitive Responses M & A , Divestement, etc

What will my competitors do tomorrow?


SOURCES OF COMPETITIVE INFORMATION

Direct Sources

Passive
Web (Company website, Portals, Search Engines) Press Release Industry(Market) analysts Govt Filings (SEC, UCC, Environment/Zone) Financial Analysists Employment Ads

Active
Trade Shows Technical Conferences Employment Interviews Meetings & Panels

CONTD..

Indirect Sources
Customer Interviews Customer Surveys Sales force Reps & Distributors Suppliers & Partners Former Employees

COMPETITIVE ANALYSIS TECHNIQUES


PORTERS FOUR CORNER EXERCISE
In order to compile a competitors response profile this involves analyzing a specific competitors

Future Goals Assumptions Current strategies Capabilities

TREACY AND WIERSEMAS VALUE DISCIPLINE

Treacy and Wiersemas Value Discipline


Involves the evaluation of a competitor in terms of the following three dimensions Product Leadership Operational Excellence Customer intimacy The firms develop a compelling & unmatched value proposition on any ONE dimension & maintain acceptable standards on the other two dimensions.

GILADS BLIND SPOT ANALYSIS

Gilads Blind Spot Analysis


This is based on the premise that the assumptions held by the decision makers regarding their own company and their industry may act as a perpetual biases or Blind spots. As a result The firm may not be aware to strategically impotant developments The firm may accurately perceive strategically important developments, or Even if the firm is aware of important developments, it may learn too slowly to allow for a timely response.

1. 2. 3.

ETOP - ENVIRONMENTAL THREAT AND OPPORTUNITY PROFILE


Environmental threat and opportunity profile is referred as ETOP profile. It identifies the relevant environmental factors. Such factors might be general, environmental factors and task environment factors. Thereafter, it is necessary to identify their nature. Some factors are positive to the organization whereas others are negative. Therefore, it is necessary to find out their impact to the organization. Positive, neutral, and negative sign in ETOP denotes the relevant impact of environmental factors.

ETOP VARIABLES *
1.
2. 3. 4.

5.
6. 7. 8.

Market Environment Technological Environment Supplier Environment Economic Environment Regulatory Environment Political Environment Socio-cultural Environment International Environment

*PS : Please Check Notes in Word Document

Market Environment: The Market Environment consists of the factors related to the groups and other organizations that compete with and have an impact on an organizations markets and business.

It includes: Customer Factors: such as, the needs, bargaining power, customer satisfaction, etc. Product Factors: such as, the features, design, life cycle, price, promotion, etc. Marketing Intermediary Factors: such as, the distribution channels, logistics, etc. Competitor Related Factors: such as, types of competitors, number of competitors, etc

Technological Environment: The Technological Environment consists of those factors that are related to the knowledge applied and the materials and machines used in the production of goods and services.

It includes: Sources of Technology: such as, foreign sources, external sources, collaboration, etc Technological Development: such as, stage of development, R & D Impact of Technology: such as, effect on humans and environment, etc. Communication & Infrastructural Technology.

Supplier Environment: The Supplier Environment consists of those factors that are related to the cost, availability and reliability of the factors of production. It includes: Raw Materials: such as, their cost, availability and continuity of supply Finance: such as, cost and availability of finance for implementing plans & projects Energy: such as, cost, availability & reliability of energy used in production Human Resource: such as, cost, availability & dependability of manpower Economic Environment: The Economic Environment consists of those factors that are related to the creation & distribution of wealth for the organization. It includes: Economic Stage of the country at that time Economic Structure of the country: such as, capitalist, socialist or mixed Economic Policies of the country: such as, industrial, monetary, fiscal policies Economic Planning: such as, annual budgets, five-year plans, etc. Economic Indices: such as, National Income, GDP, rate of inflation, etc. Economic Infrastructure: such as, Capital markets, Banks, Financial Institutions etc.

Regulatory Environment:

The Regulatory Environment consists of those factors that are related to the planning, promotion and regulation of economic activities by the government. It includes: Policies related to licensing, monopolies and financing of industries Policies related to distribution and pricing Policies related to import, export and foreign investment Policies related to quality standards, consumer protection, etc.

Political Environment: The Political Environment consists of those factors that are related to the management of public affairs. It includes: The political structure, and stability of government at Centre & States The party system number of parties and their ideologies Funding of political parties by business organization Governments role and intervention in business

Socio-cultural Environment:

The Socio-cultural Environment consists of those factors that are related to the human behavior and relationship within a society. It includes: Demographic characteristics: such as, population, its density & distribution, etc. Socio-cultural concerns: such as, consumerism, corruption, environmental pollution Socio-cultural Attitudes & Values: such as, social customs, beliefs, lifestyle, etc. Family Structure: such as, nuclear families, joint families

International Environment:

The Socio-cultural Environment consists of those factors that operate at the transnational, cross-cultural and across-the-border level. It includes: Global Trade & Commerce Global Political, Social & Economic environment Global Political Environment, Relations between countries, etc.

CORPORATE ANALYSIS

RESOURCE BASED APPROACH


Strategic Analysis Professionals from different organizations suggest that a firms overall strengths and weaknesses Internal capabilities and process execution at times allow firms to gain competitive edge over competitors even with relatively lesser resources and lesser advantageous position.

Resource Based Approach* Value Chain Approach* Scanning Functional Resources Audit & Budget

* PS : Check Notes in Word Document

TYPES OF RESOURCES
1.

2.
3.

Assets Capabilities and Competencies

ASSETS

The factors of production used by firms in providing its customers with valuable goods and services are called assets. These assets are of two types- tangible assets and intangible assets. Any physical means a firm uses to provide value to its customers form its tangible assets. Similarly, intangible assets are equally valuable for firms but their physical presence cannot be felt or seen. For example, a brand name is a very important resource for any organization even though it is intangible.

EXAMPLES
Few examples of Tangible assets Firms property and equipment R & D firms patents Distribution network IT network system

Few examples of Intangible assets Brand name, which is trusted Knowledgeable workforce Robust Organization structure Organizational Culture

CAPABILITIES

In order to take full advantage of its assets the organization needs to develop skills, as experience suggests that with similar assets two different firms may add value of different amount for themselves. This difference can only be explained by the differences these organizations carry their capabilities in utilizing these assets. This is greatly reflected in the type of organizations that pick them up for employment and the kind of job responsibilities they are offered. This difference in output can be explained on account of the skills which these institutions carry with themselves. This position has been found true in case of many Indian companies as well as the multinational corporations.

COMPETENCIES
Most simply put, it refers to the ability to perform. Experts from field of strategy, using the term distinctive competencies refer to the critical bundle of skills that an organization can draw on to distinguish itself from competitors. However, in order to have a better understanding of the concept, you need to understand first the resources, which are available to an organization and how they differentiate themselves as competencies or core competencies.

ISSUES IN RESOURCE BASED ANALYSIS


Scarcity In-imitability Durability

VALUE CHAIN
24

THE VALUE CHAIN

A framework for identifying core competencies

Inside the firm In the supply chain

Can be used to
Identify strengths and weaknesses Identify sources of competitive advantage Identify market opportunities

THE VALUE CHAIN


Firm Infrastructure

Supporting Activities

Human Resource Management Technological Development Procurement

Inbound Logistics

Operations

Outbound Marketing Logistics & Sales

Service

Relationship with Suppliers

Relationship with Buyers

Elapsed Time - Value added time cost

PRIMARY ACTIVITIES IN THE VALUE CHAIN

Inbound Logistics
Materials handling, warehousing, inventory control used to receive, store and disseminate inputs to a product Fertilizer and chemical storage, delivery of inputs, application of inputs

Operations

Take inputs from inbound logistics and convert to final products Plowing, planting, spraying, harvesting, feeding, medicating, weighing,etc. Collecting, Storing, and physical distribution of the final product. Crop storage, finished hog handling, Processing and determining delivery dates, delivery to the packer or elevator etc.

Outbound Logistics

PRIMARY ACTIVITIES IN THE VALUE CHAIN


Marketing

and Sales

Provide means through which customers can purchase products and to induce them to do so Advertising, communicating with buyers, developing customer relationships, pricing products (futures, hedging, forward contracting, etc.), delivery scheduling Activities designed to enhance or maintain a products value Timely delivery, identity preservation, ISO9000, certifying as organic, etc.

Service

SUPPORTING ACTIVITIES IN THE VALUE CHAIN


Procurement

Activities to purchase the inputs needed to produce products Negotiating with suppliers, standard timing of replenishing parts and tools, setting up buying groups, etc.

Technological

Development

Activities that improve the firms products and/or processes Volunteering for test plots, being a part of feeding trials, attending technology seminars/field days, designing equipment to make specific production tasks more efficient, etc.

Human

Resources

Recruiting, hiring, training, developing, and compensating all personne

SUPPORTING ACTIVITIES IN THE VALUE CHAIN


Firm

Infrastructure

General Management, planning, finance, accounting, legal support, governmental relations, etc. Establishment of accounting practices, management information systems, compliance with environmental regulations, tracking and reporting for government programs, etc. Where strategy development takes place identifying opportunities and threats, resources and capabilities, and support of core competencies

THE RESULT OF THE VALUE CHAIN


Margins

Capture the value from performing value-creating activities as cheaply as possible The basic idea is that the consumer is willing to pay a certain amount for the value you create. This is depicted as the size of the overall pentagon. The size of the individual activity boxes represents the cost of performing those particular activities. Thus, the smaller the size of the individual activity boxes relative to the value the consumer is willing to pay, the greater the MARGIN will be for the firm.

The Value Chain Grains Farm


Firm Infrastructure

Supporting Activities

Human Resource Management Technological Development Procurement

Inbound Operations Logistics

Outbound Marketing Service Logistics & Sales

Relationship with Suppliers

Relationship with Buyers

Elapsed Time - Value added time cost

Supporting Activities for a Grain Farm


Infrastructure: management, planning, finance,
accounting, government compliance, quality control

Human Resource: motivation tools, compensation,


training, and directing farm employees, including family, management, and laborers

Technological Development: research and adoption practices


for things like GPS, VRT, GMOs, No-Till, the Internet, IP storage facilities Procurement: Purchasing inputs: seed, fertilizer, chemicals,
fuel, land, Machinery, storage equipment, office supplies, parts, tools, insurance etc. with focus on negotiating capabilities

Primary Activities for a Grain Farm


Service Outbound Marketing On-time delLogistics ivery Inbound Operations & Sales Forward Logistics contract Grain
transport Fwd. contracts to elevator Futures or buyer Options IP grain Grain Value added transport grain to storage IP Storage Tracing QA

Tillage Planning Fertilizer and Fertilizing chemical storage, Spraying custom Cultivate application Harvest of inputs

Relationship with Suppliers

Relationship with Buyers

VALUE CHAIN ANALYSIS


A

firms value chain must be compared to competitors value chains to determine where competitive advantages exist. To be a source of competitive advantage a resource or capability must allow a firm to:

Perform an activity in a manner that is superior to competitors performances Perform a value-creating activity that competitors cannot complete

LINKAGES WITHIN THE VALUE CHAIN


Optimization

and coordination of activities in the

value chain Linkages exist between support activities and primary activities and between separate primary activities Generic causes for linkages
Same function can be performed in different ways Efforts in indirect activities Activities performed inside the firm reduce the need for activities in the field Quality Assurance can be performed in different ways

VALUE CHAIN LINKAGES IN THE SUPPLY CHAIN


Buyer Chain Supplier Chain Firm Chain Buyer Chain

Supplier Chain Buyer Chain

LINKAGES WITH SUPPLIER VALUE CHAIN


Linkages

between suppliers value chains and a firms chain provide opportunities for the firm to enhance competitive advantage. Division of benefits between firm and its suppliers is a function of suppliers bargaining power and reflecting in suppliers margins. Both coordination with suppliers and hard bargaining are important to competitive advantage.

THE BUYERS VALUE CHAIN

A firms differentiation stems from how its value chain relates to its buyers chain. Differentiation derives fundamentally from creating value for the buyer through a firms impact on the buyers value chain. Value is created when a firm creates a competitive advantage for its buyer. The buyer must perceive the value to pay a premium price.

STRATEGIC BUDGET AND AUDIT


A strategic audit is an examination and evaluation of areas affected by the operation of a strategic management process within an organization. A strategy audit may be needed under the following conditions: Performance indicators show that a strategy is not working or is producing negative side effects. High-priority items in the strategic plan are not being accomplished. A shift or change occurs in the external environment. Management wishes:
(1) to fine-tune a successful strategy and (2) to ensure that a strategy that has worked in the past continues to be in tune with subtle internal or external changes that may have occurred

AUDIT

To aid in control, firms will occasionally perform audits to ensure that certain aspects of their operations are in order. Such audit may include operational audits (assessing the firm's operating health) and strategic audits (assessing the firm's strategic health).

CORPORATE STRATEGY

CORPORATE STRATEGY
Growth/ Expansion Strategies
Mergers & Acquisitions Turnkey Operations Joint Ventures No Change Strategy Sell-out / Divest strategy Profit Strategy Bankruptcy / Liquidation strategy

Stability Strategies
Pause/ Proceed with caution Strategy

Retrenchment Strategies
Turnaround Strategy

Captive Company Strategy

Exports
Licensing & Franchising etc

MERGER & ACQUISITION


Merger is a business term used to describe a tool implemented by corporations for expansion purposes. Normally, a merger means the combination of two business firms that results into one bigger entity. Acquisition or acquiring refers to the act of taking control over another corporation. By taking control over a another business entity, one would hope to gain access to certain key functions, skill or knowledge in a particular industry. While the above are not meant to be an exhaustive list, there are various reasons for taking on different options. In determining your growth path, it is very critical to have both inward and outward looking approach. Identify key resources that you need within your firm is one way and understand what is in for you should go with any strategy.

FRANCHISING & LICENSING


Franchising and licensing are considered as viable business growth options. In both situations, you build your business through intellectual property and sharing a proven way of running a business effectively. In these circumstances, you must have a good understanding of your rights as to whether you are a franchisor or franchisee, licensor or licensee. The agreements must then of course be translated into a legal binding contract for a certain period of time for selected market(s).

JOINT VENTURES
A joint venture is a cooperative business activity, formed by two or more separate organizations for a strategic purpose, that creates an independent business entity and allocates ownership, operational responsibilities and financial risks and rewards to each member, yet preserving their own separate identity/autonomy. In International parlance, its maybe an association between a foreign corporation & a domestic company. JVs are required to get the necessary support, combine resources & expertise to develop new products.

EXPORTS
A good way to minimize risk & experiment with a specific product is exporting, shipping goods produced in home country to other parts. This is basically the first step to test waters in new geographies. Exporting is becoming increasingly popular for small businesses because of internet, fax, toll-free nos, other logistical advancements etc., that reduce the cost of going international.

ANSOFFS GROWTH MATRIX

Product

Market

GROWTH MATRIX
Ansoff's Growth Matrix - (Product & Market Mix) One of the common business strategy frameworks used in understanding growth strategies is the Ansoff's Growth Matrix. It was developed by H. Igor Ansoff a strategic management guru. The matrix serves as a basic handy tool to set a firm thinking about the direction it wants to take in its search for growth.

MARKET PENETRATION
In this strategy, it would mean that the firm aims to sell more of its existing products in the markets that they are already in. This would translate into allocating more resources and efforts to build up sales and marketing activities to attain revenue growth. Indirectly, the firm is also trying to increase its market share. Generally, this may seem less risky to a certain extent because the firm is already dealing in the same markets and products, however there may be limitations as to how much growth one can derive in this strategy.

MARKET DEVELOPMENT
For this strategy existing products/new markets, this happens when a firm decides to sell its existing products into new geographical markets or new market segments (another defined target market). For example, it could mean selling an existing computer model to a new market overseas or alternatively, selling it to a new market segment (e.g. second-hand market). The firm would also need to spend on sales and marketing to persuade consumers in new markets to purchase the product/services

PRODUCT DEVELOPMENT
This strategy on the other hand, necessitates developing new products to be sold in existing markets. This can be seen as a quite common process because for a company to sustain its presence and growth, it cannot rely on a single product range. For instance, in the retail industry of product consumables like shampoo, cosmetics and even apparels, companies are competitively refreshing their product lines to keep in touch with consumers as well as to keep up with certain trends, market needs/tastes and etc. One would need some good grasp of market knowledge and skills to come with new product introductions that suits consumer's needs

DIVERSIFICATION
Diversification is a form of corporate strategy for a company. It seeks to increase profitability through greater sales volume obtained from new products and new markets. Diversification can occur either at the business unit level or at the corporate level. At the business unit level, it is most likely to expand into a new segment of an industry that the business is already in. At the corporate level, it is generally very interesting entering a promising business outside of the scope of the existing business.

THE BCG GROWTH-SHARE MATRIX


2. Star 1. Question mark

3. Cash cow High

4. Dog Low

Relative market share

BCG MATRIX
Relative

Four Possible Strategies 1. 2. 3. 4. Build For Question Marks Hold For Stars Harvest For Cows Divest For Dogs

1. Stars (=high growth, high market share) - use large amounts of cash and are leaders in the business so they should also generate large amounts of cash. - frequently roughly in balance on net cash flow. However if needed any attempt should be made to hold share, because the rewards will be a cash cow if market share is kept. 2. Cash Cows (=low growth, high market share) - profits and cash generation should be high ,and because of the low growth, investments needed should be low. Keep profits high - Foundation of a company

3. Dogs (=low growth, low market share) - avoid and minimize the number of dogs in a company. - beware of expensive turn around plans. - deliver cash, otherwise liquidate 4. Question Marks (= high growth, low market share) - have the worst cash characteristics of all, because high demands and low returns due to low market share - if nothing is done to change the market share, question marks will simply absorb great amounts of cash and later, as the growth stops, a dog. - either invest heavily or sell off or invest nothing and generate whatever cash it can. Increase market share or deliver cash.

SWOT & TOWS MATRIX

GENERATING ALTERNATIVE STRATEGIES FROM SWOT


SWOT

analysis is a tool for helping assess the current situation for the firm. However, we need to be able to combine the information in the SWOT analysis in a meaningful way to generate alternative strategies that we might pursue. The TOWS matrix is a tool designed to match external opportunities and threats with our internal strengths and weaknesses

SWOT ANALYSIS
Internal Environment
Strengths 1. 2. 3. Weaknesses 1. 2. 3.

External Environment

Opportunities 1. 2. 3.

Threats 1. 2. 3.

TOWS MATRIX

Technique used in strategy formulation for combining

External analysis
Opportunities Threats

Internal analysis
Strengths Weaknesses

TOWS MATRIX
From Internal Analysis (IFAS)

From External Analysis (EFAS)

Opportunities: 1. 2. 3. Strengths: 1. 2. 3. SO Strategies Use strengths to take advantage of opportunities

Threats: 1. 2. 3. ST Strategies Take advantage of Strengths to avoid threats

Weaknesses: 1. 2. 3.

WT Strategies WO Strategies Defensive strategies Use Opportunities to to minimize overcome weaknesses weaknesses and avoid threats

TOWS MATRIX

GE NINE CELL MATRIX


In consulting engagements with General Electric in the 1970's, McKinsey & Company developed a nine-cell portfolio matrix as a tool for screening GE's large portfolio of strategic business units (SBU). GE 9 Cell Matrix identifies the optimum business portfolio as one that fits perfectly to the Cos strengths & helps to explore the most attractive industry sector or mkt. This business screen became known as theGE/McKinsey Matrix and is shown below:

THE GE 9 CELL MATRIX

High

Medium

Low

Strong

Medium

Weak

Industry Attractiveness based on :


1. 2. 3. 4. 5. 6. 7. 8.

Business Strength based on :


1. 2. 3. 4. 5. 6. 7. 8.

Mkt size Mkt growth rate Demand variability Industry profitability Competitive rivalry Global opportunities Capital requirements Entry/Exit Barriers etc

Mkt share Distribution channel Financial resources R&D Brand equity Production capacity Customer knowledge Relative cost position etc

GROW - HOLD - HARVEST


GROW : Business units that fall under GROW attract High investments. Firms may go for Product differentiation or cost leadership. Huge cash is generated in this phase. Market Leaders exist in this phase.

HOLD : Business units that fall under HOLD attract Moderate investments. Market segmentation, Market Penetration, imitation strategies are adopted in this phase. Followers exist in this phase HARVEST : Business units that fall under this are unattractive. Low priority is given in these business units. Strategies like Divestment, Diversification, Mergers are adopted in this phase

CORPORATE RESTRUCTURING

REASONS FOR CORPORATE RESTRUCTURING


The emergence of buyers driven market that is putting pressure on the companies, particularly in the wake of increased competition. The increased competition caused by deregulation & liberalization The increased assertiveness on the part of shareholders who expect increasing return on equity

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