Strategic Management Overview

Concept of Strategy
Concept of Strategy
Classical thinking on strategy
to fight and conquer is not supreme excellence . . ;

. . . supreme excellence consists in breaking the enemys resistance without fighting . . .
Art of War
Sun Tzu (360 BC)
Concept of Strategy
The Origins of Strategy
Know the other and know yourself: Triumph without peril. Know Nature and know the Situation: Triumph completely.
- Sun Tzu (360 B.C.)
If half of strategic thinking is predicting what the other player will do, the other half is figuring out what he knows.
Concept of Strategy
What is Strategy?
(Porter, M.E. (1996), What is Strategy, Harvard Business Review, 74(12): 61 -78.
Business strategy or Corporate strategy can be best understood from what it does to the organization
Rivals can easily copy your improvement in quality and efficiency. But they shouldnt be able to copy your strategic positioning (What distinguishes your company from all the rest)
Strategy is the creation of a unique and valuable position, involving a different set of activities.
Strategy require you to make trade-offs in competing--to chose what not to do.
Strategy involves creating fit among a companys activities.
Concept of Strategy
Differences between Operational Excellence and Strategy
high
Operational effectiveness means performing similar activities better than rivals perform them
Strategic positioning means performing different activities from rivals or performing similar activities in different ways
Non-price buyer value delivered
Growth
low high Relative cost position low
Concept of Strategy
Why is strategy required ?
Business growth
Survival
Time
(Sustaining long term success)
Impact
Goal Achievement (integration of short term and long term goals)
Profitability
Profits
Time Horizon Time
Concept of Strategy
Sources of Superior Profitability
INDUSTRY
ATTRACTIVENESS
RATE OF PROFIT ABOVE THE COMPETITIVE LEVEL
Which industries should we be in?
CORPORATE STRATEGY
How do we make money?
COMPETITIVE ADVANTAGE
How should we compete?
BUSINESS STRATEGY
Concept of Strategy
Focus of strategy
Activity
Area
Outcomes
Direction of the business
How should the firm compete
Strategy focuses on . . .
Scope of the business activities
Which areas to compete
Which markets and consumer segments?
To meet stakeholders expectation
Concept of Strategy
Key dimensions of strategic decisions and areas of decisions
Some typical areas of strategic decisions
Decisions are taken at the top level of the business
Modernization / Divestment Product / Brand Launch Entry into new markets /geographies
Decisions have long term implications on the business
Strategic alliances Acquisitions
Decisions are multifunctional and could be multi - business in their impact
Overseas expansion
Turnaround / BPR / Restructuring
Concept of strategy thought

Evolution in corporate strategy
1950s 1960s 1970s 1980s
early late
1990s Themes & Issues

Financial planning & control Corporate planning Corporate strategy Positioning Quest for competitive advantage & shareholder value
1990s
Strategic innovation
Concepts & Techniques
Budgeting project appraisal
Forecasting & investment planning
Portfolio planning. Synergy market share
Analysis of industry & competition
Resource analysis. Case competencies
Dynamic sources of advantage Knowledge management Co-operation
Implementation
Emphasis on financial management
The rise of corporate planning departments & formal planning
DiversifiIndustry and cation. market Quest for select ivity. global market share
Restructuring Virtual orgaBPR. nization. Re-focussing Alliances Outsourcing competing for the future
Concept of Strategy
Difference between strategy and tactics
All men can see is the tactics from which victory evolves, what none can see is the strategy from which tactics evolve
- Sun Tzu (360 B.C.)
Concept of Strategy
Difference between strategy and tactics
Strategy
Tactics
Where How
Yes Yes
Strategy
Tactics
Where
Segments Industry Geographies

Financial management Marketing Information systems Production (JIT,TQM etc) HR
How
Concept of Strategy
Strategic Control
The key elements of strategic management
Performance
Strategy areas
Strategy Formulation Strategy Implementation
Environment
Organization
The process of strategy does not distinguish between types and scale of businesses...
Concept of Strategy
The structural framework of business ...
Single Unit Business

Corporate/ business level
Multi-Unit Business
Corporate/ business level
R&D and Product strategies
Financial/ strategies
Marketing strategies
Human relations strategies
Strategic Business unit - 1
Strategic Business unit - 2
R&D and Product strategies
Financial/ strategies
Marketing strategies
Human relations strategies
Product A Product B Product C
Concept of Strategy
Varying levels of analysis
Corporate Strategy
Where to Compete?
How to Compete?
Business Strategy
How to Contribute?
Functional Strategy
Choice of Products Choice of Markets Choice of Competitors
Concept of Strategy
Hierarchy of objectives and strategy
Ends (What is to be achieved?) Mission, including goals & philosophy Means (How is it to be achieved?)
Strategic Decision Makers

Board of Directors Corporate Managers Business Managers Functional Managers
Long-term objectives
Grand strategy
Annual objectives
Short-term strategies & policies
Note:
indicates a principal responsibility;
indicates a secondary responsibility
Concept of Strategy
The Three Big Strategic Analysis Questions
Where are we now?

Desired position Effort Gap
Where do we want to go? - Products / Services those can be launched - Buyer groups those could be served
How will we get there?
Make
Activity options Buy
Current position Gap analysis will reveal the difference between position.
Growth lies in identifying opportunities in markets
Study of options will indicate least risk route to grow
End of introduction deck on strategic management
Flow of crafting strategy
Company mission & vision External Environment Internal analysis
Strategic analysis & choice
Feedback
Feedback
Long-term objectives
Generic & grand strategies
Short-term objectives; reward system
Functional tactics
Policies that empower action
Restructuring, reengineering & refocusing the organization

Legend
Major impact
Minor impact
Strategic control & continuous improvement
Concept of Strategy
Andrews Strategy Framework
Source: Kenneth R. Andrews, The Concept of Corporate Strategy, 1971 Environmental Conditions and Trends
Economic Technical Physical Political Social Community Nation World Evaluation to determine best match of opportunity and resources
Consideration of all combinations
Distinctive Competence
Capabilities: Financial Managerial Functional Organizational Reputation History
Corporate Resources
As extending or constraining opportunity
Opportunities and Risks

Identification Inquiry Assessment of Risk
Choice of Products and Markets

Economic Strategy
Identification of strengths and weaknesses Programs for increasing capability
Concept of Strategy
Key steps in strategy formulation Key definitions to start with . . .
Mission
Why we exist
Values
Whats important to us
Vision
What we want to be
Strategy
Our game plan
Concept of Strategy
Key steps in strategy formulation
The Vision Thing
Mission & Vision
Specifies unique purpose
of company
Identifies scope of operations
Describes product,
market, and technological

areas of emphasis
Reflects values and priorities of decision makers Expresses approach to social responsibility efforts
Concept of Strategy
Internal Analysis
(1) External and Internal assessment
a. Analysis of market and environmental opportunities and threats
Analysis of Business Strengths

What are the assets that we must grow?
b. Analysis of business strength & weaknesses
How critical are these assets to gain market share?
Are our competencies strong and effective?
Concept of Strategy
Internal Analysis Resource and Capability appraisal

Resource mapping
Borrowing capacity (Specify Capital / Revenue)

1 - 5 scale 1 5
Capabilities
Financial system and
1 - 5 scale 1 5
management

Internal Fund generation Plant & Machinery
Market information system Development of new
(Modern / Efficient etc)

products
Patents and Copy rights R&D Technical Employees (Specify area)
Efficient volume
manufacturing
Designs / Style
- Information on market trends - Dedicated personnel to execute job
Brand awareness Reputation with suppliers Training of staff
(Technical)
Marketing support
Brand management
Speed of distribution
(Field staff) Overall Rating
Concept of Strategy
Key steps in strategy formulation Aligning the resources to the organization
A D Little model for simplification of organizational responsibilities
Set strategies to satisfy key stakeholders Stakeholders by improving critical business processes and aligning resources and organization Processes
Resources
Organization
Concept of Strategy
Improvement of performance
Profit Revenue = Revenue Cost = Price x Volume
Not only . . .
Increase revenues by increasing price Increase revenue by increasing volume Increase revenue and hold cost constant Increase revenues in excess of cost increases
But also
Lower cost and hold revenue constant Lower costs in excess of revenue losses Lower costs and increase revenues (price increases)
Concept of Strategy
Growth Strategy alternatives
Desired position Sales growth/ Volume growth
Diversification
Strategic gap analysis reveals dimensions that can be pursued for growth
Integrative Intensive
Current position
Time
Strategic management growth models

Fundamental models for strategic thinking
a. Analysis of market and environmental opportunities and threats b. Analysis of business strength & weaknesses
Standardized Models
Industry attractiveness
The Mckinsey / GE Business BCG Growth Share - Matrix

Relative Market Share H L
Investment & Growth (G)
Assessment Array
High
(1)Medium External and Internal assessme nt
Low
Business Strengths
High
Selective Growth (G)
Selectivity (Y)
Market Growth
Star
Problem Child
Medium
Selective Growth (G)
Selectivity (Y)
Harvest (R)
Cash Cow
Dog
Low
Selectivity (Y)
Harvest (R)
Harvest (R)
All models primarily focus on resources and opportunity mapping
Strategic management growth models Fundamental models for strategic thinking
Standardized Models
A.D. Littles Business Profile Matrix
Embryonic
Stage of Industry Maturity

Growth Mature Aging
Competitive Position
Dominant Strong Favorable Tentative Weak
Strategic management growth models Fundamental models for strategic thinking
Standardized Models
Shell Internationals Directional policy Matrix
Prospects for sector profitability Unattractive Average

Phased withdrawal Custodial
Phased withdrawal
Attractive
Double or Quit Try harder
Companys competitive capabilities
Weak
Disinvest
Medium
Growth
Strong
Cash generation
Growth Leader Leader
Revisiting the portfolio
Relative Market Share

High High Low
Promote portfolios Market Growth Nurture portfolios

Low
Recruit portfolios
Retire portfolios
The process of strategic growth lies in the capability of generating products
under the portfolio and sustaining current portfolios
Concept of Strategy
No two species that depend on the same prey will think differently Gause Laws of natural competition
External Analysis Competition

A strategic group is a group of firms in an industry following the same or similar strategy
Identify principal strategic variables which distinguish firms
Position each firm in relation to these variables
Identify clusters of common competing characteristic
Assess
Evaluate
Rank
Concept of Strategy
External Analysis
Environmental changes
What is the level of uncertainty? Is it relatively static - or are there signs of change?
How are the changes taking place?

What/ Who is driving the changes? Are the changes simple or complex?
Concept of Strategy
Broad
REGIONALLY FOCUSED BROAD-LINE PRODUCERS e.g. Fiat, PSA, Renault, Rover, Chrysler
GLOBAL, BROAD-LINE PRODUCERS e.g., GM, Ford, Toyota, Nissan, Honda, VW
Product Range
NATIONALLY FOCUSED, INTERMEDIATE LINE PRODUCERS e.g., Maruti
GLOBAL SUPPLIERS OF NARROW MODEL RANGE e.g., Volvo, Subaru, Isuzu, Suzuki, Saab, Hyundai
LUXURY CAR MANUFACTURERS e.g., Jaguar, Rolls Royce, Daimler-Benz, BMW
NATIONALLY- FOCUSED, SMALL, SPECIALIST PRODUCERS e.g., Bristol (U.K.), Classic Roadsters (U.S.), Morgan (U.K.)
Narrow National
PERFORMANCE CAR PRODUCERS e.g., Porsche, Maserati, Lotus
Geographical Scope
Global
Concept of Strategy

OBJECTIVES
What are competitors current goals? Is performance meeting the goals? How are its goals likely to change?
PREDICTIONS
What strategy changes

STRATEGY
How is the firm competing?

ASSUMPTIONS
will the competitor initiate?
What assumptions does the competitor hold about the industry and itself?
RESOURCES & CAPABILITIES
How will the competitor respond to our strategic initiatives?
What are the competitors key strengths and weaknesses?
Concept of Strategy

It is not the size of the dog in the fight .... it is the size of fight in the dog
Slow High
Speed of response Selective
Fast
Laid back competitors Predictability of response

Stochastic
competitors
Tiger
competitors
competitors
Low
In a fight it is not the size of the animal . . . its the size of its mouth. Bigger the mouth .. larger the bite
Concept of Strategy
External Analysis Competition from the five forces

Threat
Office Car goer Product A Product B Product C Product D
Family Car
Outstation Car(SUV)
Threat of of New New Entrants Entrants
Bargaining Power of Suppliers
Rivalry Among Competing Firms in Industry
Bargaining Power of Buyers
Threat of Substitute Products
Concept of Strategy
External Analysis Competition (Five Forces) Internal Rivalry

Threat Threat of of New New Entrants Entrants
Numerous or equally balanced competitors

Slow growth industry High fixed costs
High storage costs Lack of differentiation or switching costs Capacity added in large increments
Diverse competitors High strategic stakes High exit barriers
Concept of Strategy
External Analysis Competition (Five Forces)

Threat
Buyer groups are likely to be more powerful if
Threat of of New New Entrants Entrants
Buyers are concentrated or purchases are large relative to sellers sales

Purchase accounts for a significant fraction of suppliers sales
Products are undifferentiated Buyers face few switching costs Buyers industry earns low profits
Buyer presents a credible threat of backward integration Product unimportant to quality
Buyer has full information
Concept of Strategy
Supplier groups are likely to be more powerful if Supplier industry is dominated by a few firms
Threat of New Entrants
Suppliers products have few substitutes

Buyer is not an important customer to supplier Suppliers product is an important input to buyers product Suppliers products are differentiated Suppliers products have high switching costs
Supplier poses credible threat of forward integration
Concept of Strategy

Barriers to entry
Economies of Scale Product Differentiation Capital Requirements
Switching Costs Cost Disadvantages Independent of Scale Government Policy
Expected Retaliation
Concept of Strategy

Substitutes
Products with improving price/performance tradeoffs relative to present industry products
For Example:
Bargaining Power of Suppliers Rivalry Among Competing Firms in Industry Bargaining Power of Buyers
Electronic security systems in place of security guards Fax machines in place of overnight mail delivery
Concept of Strategy
External Analysis Entry and Exit barriers
Exit Barriers
Low High
Low Entry Barriers High
Low, Stable Returns
Low, Risky Returns
High, Stable Returns
High, Risky Returns
Concept of Strategy
External Analysis PEST analysis
Political
Fair-trade decisions
Antitrust laws Tax programs Minimum wage legislation
Economic
General availability of credit Level of disposable income Propensity of people to spend Prime interest rates Inflation rates Trends in growth of gross national product
Social
Entry of large numbers of women into labor market Accelerating interest of consumers and employees in quality-of-life issues Shift in age distribution of population
Technology
New products Improvements in existing products Manufacturing and marketing techniques
Ratings on each parameter will assist in environmental study
Concept of Strategy
External Analysis - Rating of the external environment
Political frames
Opportunities
Economic frames
Socio/ Demo frames
Technological frames
Threats
List out Opportunities and Threats in all segments and subsequently rate them
High risk potential Moderate risk potential
Low risk potential
Concept of Strategy
External Analysis
Opportunities
- Competition is driving out smaller players and consolidation will increase price levels
Threats
- Change of legislation may restrict imports critical for our product
Existing
Product
- New technology is allowing New better performance platforms and cost reduction possibilities - New technology is unstable and the results may come at very high costs
Opportunities/ Threats
- Increase in customer base is Existing generating demand in our segment. - As the markets expand, cheap low cost substitutes may emerge and affect our profits
Markets
- New markets throw up opportunities complementing our current business line Diversification pays off very well. - In the new market demand is high but is it stable? New capacity added could be costly
New
Concept of Strategy
Understanding the Value Chain
Firm Infrastructure
Support (Enabling) Activities
Human Resource Management Technology Development Procurement
M a r g i n
Inbound Logistics
Operations
Outbound Logistics
Marketing & Sales
After-Sales Service
Primary (Core) Activities

Shaded area indicates dominant strength of the SBU
Concept of Strategy
Key steps in strategy formulation Generic Strategies
Focus
STRATEGIC ADVANTAGE
Uniqueness Perceived by the Customer Low Cost Position
Differentiation
STRATEGIC TARGET
Industry wide
DIFFERENTIATION
OVERALL COST LEADERSHIP
Particular Segment only
FOCUS
Cost Leadership
Concept of Strategy
Structural break down of key drivers
Cost Leadership Low Product Differentiation Market Segmentation (Principally based on price) Low (Mass Market) Differentiation Focus
High (Principally by Uniqueness) High (Many segments)
Low or High (Price or Uniqueness) Low (One of a few key segments) Low or High (Efficiency or Value Added)
Low Cost Structure (Efficiency)
High (Value Added)
Distinctive Competency
Manufacturing and Materials Management
Research and Development, Marketing
Any kind of distinctive competency
Concept of Strategy
Key steps in strategy formulation Key Features of generic strategies Cost Leadership
Price competition in industry is very vigorous industry product is standardizedcommodities There are few ways to achieve meaningful product differentiation-buyers are only sensitive to price differences
Differentiation
There are many ways to differentiate a product or service and many buyers perceive these differences to have value Buyers needs and uses for your product are diverse Few rival firms are following a similar differentiation approach Point of differentiation cannot easily be copied by competitors
Focus
The segment is big enough to be profitable -the segment has good growth potential The segment is not crucial to the success of major competitors The focusing firm has the skills and resources necessary to serve the segment The focuser can defend against challengers based on loyalty and the goodwill it has built
Low or no switching costs are incurred by buyers

Buyers are large, and have significant power to drive down prices
Concept of Strategy
Key steps in strategy formulation ROIC improvement alternatives under Grand Strategy and Functional Strategy
Profit Improvement Productivity Improvement Sales Growth
Existing assets
Investment - Innovation - Diversification
Change asset base
Market Penetration
Market Development
Product Development
Disinvestment - Redevelopment of capital resources
Cost reduction of current operations
Improve asset utilization (experience & utilization)
Increase price / reduce discounts
Increase usage
Take competitors customers
New segments
Convert non users
Existing markets
New markets
Cash and margin focus
Growth focus
Concept of Strategy
Implementation
Our learnings are based on the McKinsey & 7s model
Strategy Structure Shared Values

(culture)
Systems
Skills
(management)
Style
(leadership)
Staff
(management)
Factors impacting implementation
Concept of Strategy
Structure (Organization of firms activities)
Leadership (Style, staffing, and skills)
Culture (Shared values creating behavioral norms)
Concept of Strategy
Implementation
Functional organization
CEO
Structure
Geographical organization
Chief Executive
Matrix organization
Chief Executive Officer
Engineering
Personnel
Marketing
Corporate Staff Finance & Accounting Personnel Marketing Legal Planning Research & Development
Vice President, Engineerin g Projec t Mana ger A Enginee ring Staff
Vice President, Production
Vice President, Purchasing
Vice President, Administra tion Administra tion Coordinato r
Production
Finance & accounting
Producti on Staff
Purchasi ng Agent
General Mgr. Western District
General Mgr. Southern District
General Mgr. Central District
General Mgr. Northern District
General Mgr. Eastern District
Projec t Mana ger B
Enginee ring Staff
Producti on Staff
Purchasi ng Agent
District Staff Personnel Accounting & Control
Administra tion Coordinato r
Projec t Mana ger A
Enginee ring Staff
Producti on Staff
Purchasi ng Agent
Administra tion Coordinato r
Engineering
Production
Marketing
Concept of Strategy
Implementation
Leadership and Culture
Key tasks of a leader

Strategic leadership
Clarifying strategic intent
Building an organization
Management skills to cope with uncertainty
Shaping organizational culture
Concept of Strategy
Implementation
Tasks for Re structuring the business
Expand
Expansion Mergers and Acquisitions Joint Ventures
Contract
Sell-offs Spin offs (Sell to another management) Split offs (Maintain control in management but reduce stake) Split ups (Dissolve JVs or Divisions)
Concept of Strategy
End of Discussion

Strategic Management Overview

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Strategic Management Overview

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Concept of Strategy

Classical thinking on strategy

to fight and conquer is not supreme excellence . . ;

The Origins of Strategy

Differences between Operational Excellence and Strategy

Non-price buyer value delivered

low high Relative cost position low

Why is strategy required ?

(Sustaining long term success)

Goal Achievement (integration of short term and long term goals)

Time Horizon Time

Sources of Superior Profitability

RATE OF PROFIT ABOVE THE COMPETITIVE LEVEL

Which industries should we be in?

How do we make money?

How should we compete?

Direction of the business

How should the firm compete

Which markets and consumer segments?

To meet stakeholders expectation

Key dimensions of strategic decisions and areas of decisions

Some typical areas of strategic decisions

Decisions are taken at the top level of the business

Decisions have long term implications on the business

Strategic alliances Acquisitions

Decisions are multifunctional and could be multi - business in their impact

Turnaround / BPR / Restructuring

Concept of strategy thought

1990s Themes & Issues

Concepts & Techniques

Budgeting project appraisal

Forecasting & investment planning

Portfolio planning. Synergy market share

Analysis of industry & competition

Resource analysis. Case competencies

Dynamic sources of advantage Knowledge management Co-operation

Emphasis on financial management

The rise of corporate planning departments & formal planning

Difference between strategy and tactics

Difference between strategy and tactics

Segments Industry Geographies

The key elements of strategic management

Single Unit Business

R&D and Product strategies

Human relations strategies

Strategic Business unit - 1

Strategic Business unit - 2

R&D and Product strategies

Human relations strategies

Product A Product B Product C

Choice of Products Choice of Markets Choice of Competitors

Strategic Decision Makers

Short-term strategies & policies

indicates a principal responsibility;

indicates a secondary responsibility

Where are we now?

How will we get there?

Activity options Buy

Growth lies in identifying opportunities in markets

Study of options will indicate least risk route to grow

End of introduction deck on strategic management

Flow of crafting strategy

Company mission & vision External Environment Internal analysis