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Strategic management

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The concept of strategy
 Strategy is the great work of organisation.
In situations of life or death it is the tao of
survival or extinction. Its study cannot be
neglected.----SUN TZU, The Art of
War.2500 B.C
 Stategy is about winning.
 Stratey is not a detailed plan or program of
instructions,it is a unifying theme that gives
coherance and direction to the actions and
decisions of an individual or an
organisation.
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Characteristic of a winning
strategy
 Goals that are simple, consistent, and long
term.
 Profound understanding of the competitive
environment.
 Objective appraisal of resources.
 Effective implimentation.
 Examples
 Kochouseph & V Guard
 Viswanathan Anand
 General Giap
 Dheerubhai Ambani

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Origin of the word

 Strategia means generalship in Greek.Stratos means “ army


“. Ag means “ to lead” .
 The concept of strategy was first given in the ART OF WAR
by SUN TZU in China 500 BC
 There are 13 chapters in the book.
 Laying plans
 On waging war
 The sheathed sword
 Tactics
 Energy
 Weak points and strong points
 Maneuvering
 Variations of tactics (cont..)

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 The army on the march
 Terrain
 The nine situations
 Attack by fire
 The use of spies.
 What is there in these chapters that can be
adopted to Business ?

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Sun Tzu says
 If you know the enemy and yourself, you need
not fear the result of a hundred battles.
 If you know yourself but not the enemy, for
every victory gained you will also suffer a
defeat.
 If you know neither the enemy nor yourself , you
will succumb in every battle

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SUN TZU says ,
 Know the other and know yourself
 Triumph without peril
 Know nature and know the situation
 Triump completely.

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Some definitions of strategy
 The art of war, especially the planning of movements of
troops and ships etc, into favourable positions ; plan of
action or policy in business or politics etc.( oxford dic.)
 The determination of the long-run goals and objectives of an
enterprise, and the adoption of courses of action and the
allocation of resources necessary for carrying out these
goals.( Alfred Chandler )
 A stategy is the pattern or plan that integrates an
organisations major goals, policies, and action sequences
into a cohesive whole.A well formulated stategy helps
marshal and allocate an organisations resouces into a
unique and viable posture based upon its relative internal
competencies and shortcomings, anticipated changes in the
environment, and contingent moves by intelligent opponents

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Definitions. ( cont.)
 Strategy is the pattern of objectives, purposes, or
goals, stated in such a way as to define what
business the company is in or is to be in and the
kind of company it is or is to be.( Kenneth
Andrews.)
 What business stategy is all about is, in a word,
competitive advantage.The sole purpose of
stategic planning is to enable a company to gain ,
as efficiently, a sustainable edge over its
competitors. Corporate strategy thus implies an
attempt to alter a companys stength relative to that
of its competitors in the most efficient way.(
KENICHI OHMAE. )
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Definitions ( cont.)
 The functions and resposibilities of choice
of objectives, mobilisation of resouces ,
allocation of such resources, continuous
monitoring of performance. It is the highest
function of management .
 The supervision of the continuous process
of deciding the nature of the enterprise and
setting, revising and attempting to achieve
its goals. (KENNETH ANDREWS )

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Fundamental issues in SM.
I. Purpose and missions
II. Corporate objectives
III. Choice of businesses
IV. Courses of action for achieving the
objectives.

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Nature & scope of SM
I. Route map for the organisation
II. Decision guide
III. Lays down growth objectives
IV. What to do how to do where to reach
V. Look forward and far ahead
VI. Monitor environment anticipate change and prepare
for the unexpected
VII. Build competitive advantage and build core
competencies
VIII. Not only anticipate future but shape future.
IX. Influence the environment.

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Concerns of SM
I. Future.
II. Growth.
III. Environment.
IV. Portfolios of business
V. Strategy.
VI. Integration.
VII. Creating competitive advantage and core
competency
VIII. Corporate strategy.

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Evolution of stategic mgt.
1950s. Budgetry planning & control.Financial control through
operational and capital budgeting.Investment planning through
project appraisal ,ROI, DCF. Financial planning was the key.
1960s. Corporate planning.Preparation of short medium and long term
plans.business forecasting and investment planning
models.Rise of corporate planning departments.
1970s. Corporate strategy, diversification, and portfolio planning
matrices.multidivisional structure.Quest for global market share.
Late 70s & early 80s.Analysis of industry and competition. Choice of
industries, markets, and segments and positioning with in them.
Competitor analysis and PIMS( profit impact of market stategy ).
market selectivity , industry restructuring .active asset
management.

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Evolution of st. mg ( cont.)
Late 80s & early 90s. The quest for competitive advantage
.Sources of competitive advantage with in the firm.
Resource analysis of core competencies.corporate
restructuring and business process reengineering.Re
focusing and outsourcing
Late 90s & early 2000. stategic innovation and the new
economy.Competitive advantage through stategic
innovation.Competing on knowledge adopting to the
new digital networked economy.Organisational
flexibility and speed of response.Knowledge
management and organisational learning.Competing
for standards .Early mover advantage. The virtual
organisation. The knowledge based firm.Alliances
and networks. The quest for critical mass.

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Corporate & business stategy
 Focus of strategic management shifted from planning process to quest for
profit.
 The fundamental goal of business is to earn a return on its capital that
exceed the cost of capital.there are two ways to attain this.
 the firm may locate in an industry where favourable conditions result in the
industry earning a rate of return above the competitive level.
 Second , the firm may attain a position of advantage vis-a vis its competitors
with in an industry,allowing it to earn a return in excess of the industry
average.
 Corporate stategy defines the scope of the firm in terms of the industries
and markets in which it compets.corporate stategy decisions include,
 Investment in diversification
 Vertical integration
 Acquisition
 New ventures
 Allocation of resources between the different business of the firm.
 Divestment.

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Business stategy.
 Business stategy is concerned with how the firm
compets within a particular industry or market.
This is also referred as competitive stategy.
 The questions ?how can the firm make money ?
 This leads to
 What business or businesses should we be in?
 How should we compete ?
 Answer to the first question describes “ corporate
strategy “ and the second describes business
( competitive stategy )

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Strategic management
 Strategic management is the study of such
set of managerial decisions and actions
that determines the long run performance
of a firm. The major steps in the strategic
management process are :
 Environmental analysis
 Strategy formulation
 Strategy implementation
 Strategy evaluation and control

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Why strategic planning ?
 It gives a clear vision of internal and external
environment of a business firm
 Focus on what is most important and how it is to
be managed for success of business.
 Understanding of problem, its nature ,its threats,
its controls and implications.
 Appropriate decisions to implement the strategies
evolved to achieve the desirable objectives.
 A continuous monitaring and evaluation of the
progress through the path to the goals

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The strategic planning process
 The tasks in strategic planning,
 Clarifying the mission of the corporation
 Defining the business
 Surveying the environment
 Internal appraisal of the firm
 Setting the corporate objectives
 Formulating the corporate stategy
 Monitoring the strategy.

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STRATEGIC PLANNING
PROCESS
A. Clarifying the mission of corporation
B. Defining the business
C. Surveying the environment
 Macro environmental factors
Demographic Socio-cultural Economic Political

Natural Technological Legal Govt Policies

 Environmental factors specific to business concerned


Industry & Competition Market/Customer Technology

Supplier Factors Govt. Policies

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STRATEGIC PLANNING
PROCESS
 Spotting the opportunities & threats
 Checking the attractiveness and probability position of
these opportunities
 Highlighting those opportunities the pursuit of which
will help the firm bridge its strategic planning gap
 Developing the opportunities-threats profiles (OTP)
(i) Internal appraisal of the firm
 Assessing the firm’s capabilities/strengths &
weakness in the various areas:
Finance Marketing Human Resources
Operations R&D General Management

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STRATEGIC PLANNING
PROCESS
 Developing the strength-weakness profile
 Appraising the individual business/strategic business
units (SBUs) of the firm
 Identifying the competitive advantages and core
competencies and developing the competitive
advantage profile (CAP)
 Examining the capability gap (gap between existing
capabilities and the ones needed for pursuing the
spotted opportunities)
i) Setting the corporate objectives
 Framing the broad aims of the corporation, using the
corporate mission as the guide

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STRATEGIC PLANNING
PROCESS
 Examining the strategic planning gap and checking
the growth-scope
 Fixing the growth objective
 Setting specific objectives in all major areas:
Profitability Competitive Position Technology
Productivity R&D and Innovation Human Resources
Corporate Image Social Responsibilites

 Prescribing the hierarchy/rank/priorities of the


objectives

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STRATEGIC PLANNING
PROCESS
i. Formulating the corporate strategy: exploring generic
alternatives
 Examining which generic strategy the firm should opt for:
• Stability ?
• Expansion ?
• Divestment ?
• Combination ?
 Understanding the effect of the alternatives in terms of
changes/additions/deletions to the firm’s existing product-market
posture
 Clarifying the competitive advantage and synergy which each
alternative would require/use

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STRATEGIC PLANNING
PROCESS
I. Formulating the corporate strategy: strategy
choice
 Evaluating the strategy alternatives
 Keeping the O-T profile, the growth objective and CAP
as the reference frame, examining what strategy
would be the best
 Reviewing the exisiting businesses
Assessing the prospects of each SBU
Examining what to do with each SBU
Build? Maintain ? Harvest ? Divest ? To what extent ?
At what pace ?

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STRATEGIC PLANNING
PROCESS
 Examining which business are to be taken up
 Examining the resource requirement of the different
strategy options and checking the resource availability
 Making the final choice of the strategy/strategy
spectrum
 Translating the strategy in terms of what is to be done
with each SBU
Assigning the priorities to the SBUs, exisiting as well
as new ones
Clarifying what is expected of each SBU
Allocating resources to the SBUs
(a) Monitoring the strategy
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Generic Value Chain
FIRM INFRASTRUCTURE

HUMAN RESOURCE MANAGEMENT


SUPPORT
ACTIVITIES TECHNOLOGY DEVELOPMENT

PROCUREMENT

INBOUND OPERATIONS OUTBOUND MARKETING SERVICE


LOGISTICS LOGISITCS & SALES

PRIMARY
ACTIVITIES

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Strategy Alternatives

Stability Expansion Divestment Combination

Intensification Diversification

Market Market Product Vertically Concentric Conglomerate


Penetration Development Development Integrated Diversification Diversification

Forward Backward

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Vision & mission
 Vision is what the firm wants to be in future.such a
view is often made explicit in a VISION statement of
the company.a vision statement gives aspiration and
motivation besides guiding the formulation of
strategy.
 Hamel and Prahalad , term it as stategic intent.
Examples:
 To put a man on the moon by the end of the decade– Apollo
program.
 Our vision is to dominate the global food service industry–
McDonald.
 Encircle Caterpillar – Kamatsu.
 Project infinity – Coca Cola

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Mission
 Mission statement contains the ultimate
purpose of the firm.It also is the vision of
the founders.
 The corporate mission is an expression of
the growth ambition of the firm.
 It is the firms future visualised.

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How does mission helps the firm
I. Lends direction
II. Gives focus
III. Objectives , targets and programs are
formulated based on mission.
IV. Helps people at various levels in the
corporation understand in what direction they
should move.
V. Guiding the action at all levels.
VI. Helps prevent people falling into an activity
trap.
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A few mission statements
 The mission of our company, is to make
cleanliness commonplace, to lesson work for
women, to foster health, and to contribute to
personal attractiveness that life may be more
enjoyable for the people who use our products.---
Unilever
 To preserve and improve human life---Merck
 To help business corporations and governments to
more successful.—McKinsey & Co.
 To become a major player in the global chemical
business and simultaneously grow in other growth
industries like infrastructure ---RIL
 To become a $ 1 billion research based global
pharmaceutical company --- Ranbaxy
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Values & beliefs
 Organisational values are a major
constituent of mission.It is values that hold
the mission in tact.It is the shared values
that holds a firm together.Values proclaim
the qualities it will cherish and what it will
give to and expect from its people and
society.
 The firms beliefs can also be found in the
mission statement.

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Environmental analysis
I. Macro environment. A ) socio cultural,
politico- legal, socio- economic, technological
and economic factors acting on the firm. B )
task environment comprising share holders,
suppliers, employees, competitors, creditors,
debtors, customers, government etc.
II. Micro –environment. A) organisational
structure b) organisational culture and work
.c) organisational resources.

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Macro – environment variables
 Societal environment consisting of :
 Economic forces
 Tecnological forces
 Politico legal forces
 Socio cultural forces
 Socio economic forces.

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Task environment.
 Task environment consists of all the work and
people directly connected to firms
activities.major task environments are,
 Buyer and seller groups.
 Competitor groups.
 Employees ( manpower groups ).
 Stock / owner groups
 Crdit group
 Debt group
 Regulatory group.

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Analytical model
 SWOT – model. Strength, weaknesses,
opportunities and threats.O & T are external or
macro environment and S & W are internal or
micro environment factors.
 Swot is used to identify core competancy as well
as lack of appopriate resources.
 O is no O unless backed by resources.
 SA = O / S- W or O / S – T where SA – strategic
alternative. O – is opportunity, S is stength , T –
threat.
 Swot is used to generate external factor analysis
summery ( EFAS) and internal factor analysis
summery ( IFAS )
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SWOT -- HM
 Strength,
 First motor car company in India,
 Good product accepability,
 Monopoly and protected market,
 Built extensive dealer, repair and sevice networkThe
 GP-CK Birla group,
 First collaboration with GM.
 Acceptance in government and taxi market,
 Most suited for the then Indian roads.
 One out of the only two car companies in the country

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Weakness -- HM
 no mission, vision or goals.
 No shared values or beliefs.
 Conflict between labour and management.
 No corporate strategy.
 Failed to see the environmental changes
 Did not anticipate competition,
 Did nothing to counter the threat from Maruthi till it was too late
 Cling on the same product for 50 years without any major change,
 Can failed to see customer needs and what competitors offered
 High labour cost and low productivity
 Failed to follow up the initial success of Lancer,
 Truker was a flop.
 Deviated from core areas and core competencies.

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Opportunity
 GDP growth and boom in the car market,
 Opening of the economy,
 Globalisation and upsurge in peoples
aspiration level
 Good road network
 Export possibility
 Low labour cost
 JV and collaboration with world class motor
car companies.the
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In Threat
competition ?
any other ?

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BCG growth-share matrix
 BCG (Boston Consuting Group ) is a
simple way to anayse a firms portfolio of
investments , products , or business units.
 The classification is most attractive,
potentially attractive, moderately attractive,
and least attractive based on growth rates
and market share.
 They are also called CASH COWS,
STARS, QUESTION MARKS, DOGS to
describe the above position.

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BCG matrix ( cont. )
 Stars and question marks are businesses that
operate in high growth industries.
 Cash cows and dogs are businesses that operate
in low growth industries.
 Stars are net users of resources but hold potential
for future.question marks are also net users of
resources but are in high risk categories.
 A cash cow brings lot of cash to the company.
Dogs are weak in market share and also in low
growth market.they are a drag on company
resources.

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GE multifactor portfolio planning
matrix
 Different businesses or products are rated based on the
following two parameters,
 Industry attractiveness &
 Companies business strength.
 How attractive is the industry and how strong is
the firm in the industry.
 If both are very strong such businesses needs
more investment and allowed to grow. Invest and
develop such SUBs.
 If they are medium the stategy should be
selective.
 If they are low the policy should be harvest /
divest

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SBUs.
 It is a single business or collection of related businesses that
can be planned separately from the rest of the company,
 It a scientific method of grouping the businesses of a multi
business corporation to help planning.
 Products/ businesses that are related in the standpoint of “
function “ are formed as a distinct SBU.
 A SBU can be a separate corporation or adivision in a
corporation.
 Each SBU will be under a separate CEO, and will be a profit
centre
 SBU is for facilitating strategic planning and implimentation
and will be having their vision mission, goals, targets,
programs,budgetsand SOPs.

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Competitive advantage & core
competence
 A competitive advantage is a position of superiority
on the part of the firm in some function /factor/
activity/ in relation to its competition.It is this
superiority that enables the firm to survive, grow
and excel in a competitive market.
 The superiority can be in any function such as
manufacturing, marketing, finance, HRM, or a
combination.Intellectual property, knowledge, or
any factor of production can give a competitive
advantage.
 Thus competitive advantage is a superior position
relative to competition.

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Com. Adv ( cont.)
 CA is linked to strategy.both goes hand in
hand.CA is a vital component of strategy.
 For the strategy to work the firm should
have competitive advantage.
 CA is the back up of strategy.without
relavent CA strategy will not succeed.
 Strategy can be used to create and excel
CA.

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Com. Adv.( con )
 Sources of CA :
 MARKETING
 FINANCE
 PRODUCTION
 R& D
 HR
 THE CEO & LEADERSHIP
 LOCATION & Many more.

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CA & Strength
I. Strength is different from CA.
II. All strength are not CA.
III. All CA are strength.
IV. A strength is a CA only if it can affect
the competition in an advantageous
manner or bring in superiority in the
market vis- a- vis the competitor.
Otherwise it will remain as astrength.
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Building CA
 By strategy
 By SWOT
 By bench marking
 By value chain approach,
 By analysing value chain of self and
competitor

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Core competence
 A firm may loose the CA as competitors will
catch up after some time.There for to keep
up the position the firm should develop
some unique strenth . This is know as
CORE COMPETENCE .
 An enduring competency that cannot be
easily imitated.
 A competency that lies at the root of
products.
 ( VSR, Ch. 10 )

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mission, vision,
goal, objective, policy, SOP.
 Mission- is the purpose or reason for the firms existance.
 Vision is a statement of what a firm can do and what it wants
to be.
 Goal is a statement of what a firm wants to achieve. Goals
should be SMART.
 Objective is a statement of what firm wants to achieve with
definitive commitment on quantity and time frame.
 Policy is a broad guideline for decision making to link
strategy strategy formulation and strategy implementation
 Standard operating procedures is developed to control
activities .sops can be in the form of simple conventions or in
detailed written manuals.

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Strategic management process
 Environmental analysis-
 Stategy formulation
 Stategy implementation
 Evaluation and control

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Environmental analysis
 Understanding, analyssing the external and
internal environment of a firm.models like
SWOT, GE spot light can be used for
this.Foercasting methods can also be used
for finding the future trends and possible
developments.
 This includes external ( society and task ) &
internal (structure, culture, & resources )

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Strategy formulation
(strategic planning )
 This is the planning stage.The firm will decide the
the vission, mission, objectives, goals, strategies,
policies.the major decisions will be,
 What business shuold we be in?
 Where should we locate ?
 What product /service ?
 How much capital & from where ?
 What is the organisation structure ?
 Who should be the key personnel ?
 Basically these are the entrepreneurial decisions
and these are taken buy the investors/ promoters.

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Strategic planning ( cont. )
 Stategy for stability
 Stategy for growth
 Strategy for retrenchment
 Competitive stategy
 Cooperative strategy.

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Generic competitive strategy
( Michael Porter )
 1 ) overall cost leadership.a firm can achieve
competitive advantage if it can supply its prodcts /
srevice at a lower cost than the competitors. How
can one achieve this overall cost leadership ?
 2) differentiation strategy . Offer something
unique or different.through brand creation and and
positioning .

3 ) focused stategy.concetrate on specific products,


customers, segments where it is good or
superior.the concept of core competency came out
of this.

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Strategy implementation
 Strategy is translated into action so that the
objective of the strategy is achieved.In
doing so,
 Progamms are drawn,
 Budgets are made,
Policies, procedures,rules, are formulated.

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Evaluation & control
 Evaluation and control is the most
important part of strategic mgt. process.It
involves feedback, monitoring,
assessment, corrective decisions
(sometimes involving total reversal or even
abandonment ) and implementation.

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Strategic mgt. process
( summery )
I. Environmental analysis: task
environment factors & internal factors.
II. Strategy planning : objectives,
strategiies,tactics, policies.
III. Strategy implementation: programmes,
budgets, procedures.
IV. Evaluation & control: evaluation,
assesment and control.
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Types of strategies
 Competitive strategy. Aimed at improving
competitive position. This is achieved through cost
leadership or differentiation strategy.
 Cooperative strategy.they are,
 Collusion,
 Strategic alliances,
 Mutual service consortia
 Joint venture
 Licencing agreement
 Value-chain partnership ( inboud logistic,
operations, outbound logistics, marketing and
sales, services. Supporting activities,
procurement, technology development, HRM,&
firm infrastructure.)firm infrastructure includes,
planning, finance, acconting, legal, govt & PR

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Common features of competitive
and cooperative strategies
I. They are made by board of directors or
managers
II. Both are based on common principle of
competitive position of a firm against
competitors.
III. They may be formed for entire
company, or a business unit or a
particular product/ service or a
particular market segment.
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Major corporate strategies
I. Directional : the firms overall orientation
towards growth, stability, or retrnchment.
II. Portfolio : the industry or markets in which
firm compets through its products and
services
III. Pareting : the manner in which the top
management coordinates actvities, transfers
resources and cultivates capabilities among
its product lines and business units

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Distinction between cooperative
and competitive strategy
I. Coop. stgy may modify organisational
structure. But compet. Stgy will not alter the
organisation structure.
II. Both have opposite direction to face
competition.in coop. they nullify competition
but in compet. they face each other.
III. Cooperative strategy involve sharing,
synergetic ,friendly but competitive is
unfriendly nonsharing and hostile.

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Directional strategy
 Growth strategies:
 Mergers ,
 Acquisitions ,or takeovers,
 Strategic alliances
 Two types of growth strategies can be seen.
 Concentration stategies. ( vertical growth,forward
integration, backward integration,a firm builds on its
value chain.)
 Vertical integration can be full ownership of value chain
to no ownership atall. Example Indian Oil and RIL. As
against this some companies outsources the entire
value chain and have minimum vertical integration.
 Horizontal growth results in horizontal integration.It
refers expansion of forms products to larger
geographical areas or by increasing range of products
or services.

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Directional strategy ( cont.)
 Diversification strategies: continuous growth may
not be possible with vertical, horizontal strategies
alone.Then the firm goes for diversification.
Diversification can be concentric or conglumerate.
 Concentric diversification refers to growth into a related
industry.the search in concentric diversification is
SYNERGY. The concept is that two will generate more
profits together than they could separately.
 Conglumerate strategy.It refers to growth by
diversification into an industry not related to its current
line of business.

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Stability strategy.
I. Pause / proceed strategy.
II. No change strategy.
III. Profit strategy.

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Retrenchment strategies
 Turnaround strategy.it is an important
retrenchment strategy in corporate world. Its focus
is on operational efficiency.turnaround strategy
involve ,
 Cuts in profit, sales, production.
 Cut in cost
 Identify and stabilise at new level of profit / salse /
production.
 Improvement of operational efficiency.
 Adopt growth strategies from new stabilised level.
 Turnaround strategies are adopted in two steps
 1 contraction
 2 consolidation and growth at opportune time.

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Turnaround strategy ( cont. )
 Entrepreneurial turnarond strategy.
 Efficiency turnaround strategy.
 Captive company strategy.
 Disinvestment strategy.

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Generation of strategic
alternatives
I. Generation of strategic alternatives
II. Shortlisting the feasible strategies
III. Comparative evaluation of feasible
strategies
IV. Selection of best strategy.

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Steps involved in generating
strategic alternatives.
 Among various models , TOWS matrix
model is used most widely.
 SO – stategy . Use of stregth to take advantage
of opportunities.
 ST –strategy. Use stength to face threats.
 WO –strategy .overcome weakness to to take
advantage of opportunities.
 WT – strategy. Minimise weakness and avoid
threats ( defensive strategies )

STRATEGIC MANAGEMENT MBA IV SEMESTER 72


Forecasting techniques.
 Forecasting is very crucial for all
planning as all plannigs are for future.
Some of the more important techniques
are.
 Brain storming
 Consultancy
 Delphi technique.

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Organisational strategies
 Organisational strategies are such strategies that
are made at board level.this is the top most level
and is headed by CMD.they are corporate
strategies and hence decide the direction of the
firm.They decide :
 The objective
 The overall goals and targets
 The product and service mix
 The capital and financial requirements
 Total sequence of how a firm has to perform.
 They also govern all functional strategies such as for
marketing, production, transportation etc.
 They are regarded as MASTER STRATEGIES.

STRATEGIC MANAGEMENT MBA IV SEMESTER 74


Important org. strategies
I. Organisation modification strategy:they
modify the organisation structure
including the heirarchy, staffing,
objective and capital of the company.
II. Functional modification strategy :they
may or maynot alter the organisational
structure. They bring functional
modifications with or without capital
restructuring.

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Organisation modification strgs.
 Organisation life cycle.
 Stage 1 simple.
 Stage ii functional,
 Stage iii divisional.
 Stage iv declining.
 Stage v mortality. Organisation modification can be brought
in one of the following ways.
 They push the organisation from stage I to stage ii or
stage ii to stage iii
 They may require the restructuring of the objective
 They may alter the method and persons making
strategic decisionsthey may bring about capital
restructuring
 They change the staffing patterns
 They may alter the ownership pattern

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Mergers .
 Merger is a process involving establishment of a
single corporate body by merging resources and
technologies of two different bodies performing
competitive or cooperative business in the same
industry.It requiers situations like,
 Equal size
 Competitive firms ,merger nullify competition
 Two firms cooperative and merger will
consolidate their cooperation
 Two companies are from the same industries
 Same or partially same board of directors
 Synergic or complementary.( HP- Compaq )

STRATEGIC MANAGEMENT MBA IV SEMESTER 77


Functional & organisational
modifications on mergers
I. instead of two boards only one board .
II. A new company is formed with new name .shares of old
companies are collected and cancelled and new shares of the
new company is issued
III. Restructuring of the organisation is carried out including shifting
of personal
IV. Work duplication is avoided.
V. The new company will adopt itown policies
VI. Staff relocation is carried out as needed
VII. Physical shifting of fixed assets or manpower is normally not
done.
VIII. Merger involves MOU statement and declaration that earlier
entities are no more in existence and the shares ,assets
liabilities ,technologies, and all other resources of two
companies stand merged into a new legal entity.

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Advantages & disadvantages.
 Advantages are ; consolidation, increased
market , more resources,good will ,
synergy, nullification of competition.
 Disadvantages are : liabilities and bad
debts are tranfered to new
company.staffing can create problems.
 Usually there is a droppage of share prices
in the stock market
 Frequent mergers lead to inconsistencies
in strategy formulation and implementation

STRATEGIC MANAGEMENT MBA IV SEMESTER 79


Joint ventures
 Joint venture is a cooperative business activity formed by
two or more separate organisations for strategic purposes
crating an independent entity.the ownership, the operational
resposibility, the risk and rewards are shared in agreed
manner through a promotional agreement.
 In a JV the respective stengths are shared to overcome a
weakness or exploit a new opportunity
 In international business JV is one of the most popular forms
of organisations because it has the least financial, political
and legal constraints as a mode of entry.
 Advantages are flexibility, less legal and statutory
constraints, synergy and brings growth for both parties.
 Disadvantages are conflicts, loss of control operations from
the respective JV parties, and in technology transfers less
advantages to stronger party.

STRATEGIC MANAGEMENT MBA IV SEMESTER 80


Acquisition
 This is a method of growth in which a strong
company acquires all the assets and liabilities of
another company.
 Acquisitions are made for specific objectives like
capital investment, corporate growth, market
coverage, new products or technology transfer.
 Advantages are easy entry, synergy, fast growth,
less risky especially in international contest, least
jestation period.
 Disadvantages are cultural conflicts, adjustment
problems, erosion in market image if ownership
change is frequent.

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Take over
 Take over is a form of acquisition, and can be
done by buying shares from market and taking
over the control with or with out the consent of
the owners. In a takeover the owners lose their
ownership/ control of the company against their
wishes.
 Against an attempt by a hostile takeover the
owners may try to get a friendly takeover or
bring a “ white knight “ and handover control.

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Networking
 In recent years a new and radical type of organisations have
emerged with network structure . It is also called VIRTUAL
ORGANISATION because it is composed of a series of
functional ,project, supply groups or collaborations or
partnerships linked and constantly changing .the cobweb like
networking is nonhierarchial in nature but each one doing its
specified function in the value chain.
 The organisation is only a shell electronically connected to
some completely owned division, partially owned
subsidiaries,and other independent companies.
 Such organisations will outsource most of the functions .
 For ex. Amason . Com. Most functions of DEL COMPUTERS
is carried out through a network organisation.
 Virtual organisation is most dynamic, fexible, and easy to
add, delete, disband and relatively less costly.

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Consortia
 It is a loose partnership between
companies in similar or allied industries
who pool their resources to undertake
specific tasks.
 Typical consortia working can be seen in R
& D activity, loans, insurance,
develpomental work of various types.

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Franchising
 It is an agreement under which a company
grants right to other company to open an
establishment using the name , brand,
products, services and operating systems
of the parent company.the first company is
called the franchiser company and the
company that uses the name of the
franchiser is called the franchisee
 Fast growth, least capital ,and mutual
benefit..
STRATEGIC MANAGEMENT MBA IV SEMESTER 85
Subcontracting
 Sub contracting is a form of outsourcing the
work to outside organisation or individuals.
 Most companies do it in different degrees.
 International subcontracting is a huge area in
which business is developing very fast.The BPO
is mostly based on subcontracting .Various
functions on the value chain is subcontracted to
take advantage of the cost difference in factors
of production in different locations in the world.

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Licencing
 Licencing is an arrangement, wherein a
company licences other companies to
produce and or sell a product developed by
it
 Licensing is based on copy right, patents,
trademarks,which are known as IPRs.

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Major reasons for failures.
I. Managers are inadequately prepared for strategic
planning.
II. The information for preparing the plans is insufficient
for planning for action.
III. The goals of the organisation are too vauge to be of
value.
IV. The business units ( SBUs ) are not clearly identified.
V. The reviews of the strategic plans of the business
units are not done effectively.
VI. The link between strategic planning and control is
insufficient.

STRATEGIC MANAGEMENT MBA IV SEMESTER 88


Successful implimentation of
strategies.
 It is not enough to have strategic planning.It should be
successfully implemented.the following are eight
recommendations for successful implementation.
 Communication of strategies to all key decision making
managers.
 Developing and communicating planning premises.
 Action plans contributing to and reflecting major objectives
and stategies.
 Regular reviews of strategies.
 Development of contingency strategies and programs.
 Making organisation structure fit planning needs.
 Continuing emphasis on planning and implementing
strategy.
 Creating a company climate that forces planning.

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Strategic management ,
new leadership model.
 The old leadership style was more maco or masculine ( strong decision making,
leading the troops, driving strategies, waging competitive battle )is shifted to more
feminine qualities, ( listening, relationship building, and nurturing ). The model today is
not so much “ take it on your shoulders “ but “ create the environment that will enable
others to carry part of the burden.
 The leadership needs of the organisationsare, the ability to :
 Build confidence,
 Build enthusiasm,
 Cooperate,
 Deliver results,
 Form networks,
 Influence others,
 Use information.
 And the required competancies of business leaders are :
 Business literacy
 Creativity
 Cross cultural effectiveness
 Empathy
 Flexibility
 Proactivity
 Problem solving
 Relation building
 Team work
 vision

STRATEGIC MANAGEMENT MBA IV SEMESTER 90


Need is EQ for leaders.
 Self awareness, in terms of the ability to read and
understand ones emotions and asses ones strengths and
weaknesses, and have positive self worth.
 Self management in terms of control, integrity,
conscientiousness, initiative, and achievement orientation.
 Social awarness in relation to sensing others emotions
( empathy ) reading the organisation ( organisational
awarness ) and recoganising customers needs.( service
orientation )
 Social skills in relation to influencing and inspiring others,
communicating, collaborating, and building relationships with
others, and managing change and conflict

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GAME THEORY
 A game is a competitive activity in which players contend
with each other according to a set of rules.
 Can use game theory to illuminate economic, political, and
biological phenomina.
 The theory of rational choice – a decision maker chooses the
best action according to her preferences among all the
actions available to her.
 The players in the game moves according to their perception
of their best advantages.Based on this they can be ,
 Competitive, or cooperative.
 win – lose,
 Lose – win,
 Lose – lose,
 Win -- win

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G. T ( Cont )
 The theory of rational choice:
 In any given situation the decision- maker
chooses the best according to to her
preferences. If there are several equally
attractive best actions , the theory is,
 The action chosen by a decision maker is at
least as good , according to her preferences, as
every other available action.

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Strategic games.
 A strategic game is a model of interacting
decision– makers. Because of the
interaction we call them players. Each
player has a set of possible actions. Each
player has preferences about the action
profile ie , the list of all the players actions.
 A strategic game consists of,
 A set of players,
 For each player a set of actions,
 For each player, preferences over the set of
action profiles.c
STRATEGIC MANAGEMENT MBA IV SEMESTER 94
The prisoners dilemma.
 Two suspects Molly and Mottu are caught in
a major crime and put in separate cells. If
both keep quite they will get only one year
each as evidence is only for a minor crime.
 If molly confeses , she will be set free, but
Mottu gets four years.and vice versa.
 If both confesses , both will get three years.
 What will MOLLY and MOTTU DO?

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