STRATEGIC MANAGEMENT

MODULE THREE
 STRATEGY LEVELS
• Corporate-level Strategy
(Companywide)
 Specifies actions taken by the firm to
gain a competitive advantage by
selecting and managing a group of
different businesses competing in
several industries and product
markets.
• Business-level Strategy (Competitive)
 Each business unit in a diversified
firm chooses a business-level strategy
as its means of competing in
 D o n o th in g
P ro fit
P a u se / P ro ce e d C o n ce n tra tio n
w ith ca u tio n In te g ra tio n
D iv e rsifica tio n
In te rn a tio n a lis
a tio n
CO R PO R AT C o o p e ra tio n
E/ D ig ita lisa tio n
GRAND Tu rn a ro u n
S T R A T E G IE d
S D iv e stm e n
t
L iq u id a tio n
S im u lta n e o u s
S e q u e n tia l
S im u lta n e o u s
+
STABILITY STRATEGIES

Pause strategies.

Organisation attempts to
remain the same size or grow
slowly and in a controlled
fashion
International
Multidomestic Market penetration
Global Market development
Transnational Product development

Horizontal
Vertical

oint ventures
& A –
orizontal
ertical
oncentric
onglomerate
trategic alliances – Concentric –
ro - competitive Marketing
on - competitive Technology
ompetitive Mkt + Tech
re - competitive Conglomerate /
Unrelated
CONCENTRATION STRATEGY
VERTICAL INTEGRATION
Primary Vertical Integration
Backwards
acquisition takes
place towards the
source

Secondary Manufacturer

Tertiary Retail Stores

VERTICAL INTEGRATION

Primary Dairy Farming Co-

operative
Vertical Integration
Forwards
acquisition takes
place towards the
market

Secondary Cheese Processing Plant

Tertiary
HORIZONTAL INTEGRATION

Primary

Confectionery Soft Drinks

Secondary Manufacturer Manufacturer

Tertiary
LEVELS AND TYPES OF
DIVERSIFICATION
 REASONS FOR
DIVERSIFICATION
Operational and Corporate Relatedness

High Both Operational and

Related Constrained Corporate
Diversification Relatedness
Operational Vertical Integration ( Rare capability that
( Market Power ) creates diseconomies of
Relatedness : scope
scope))
Sharing
Activities
between
Businesses Unrelated Related Linked
Diversification Diversification
( Financial Economies ) ( Economies of Scope )
Low

High Low
Corporate Relatedness : Transferring
Skills into Businesses through
Corporate Headquarters
 DIGITALISATION

o m p u te risa tio n U se o f co m p u te rs in th e v a rio u s

fu n ctio n s o f a n o rg a n isa tio n

le ctro n isa tio n P ro g re ssiv e co n v e rsio n o f

p h y sica l d a ta in to e le ctro n ic d a ta

ig ita lisa tio n D ig ita l co d in g o f in fo rm a tio n a n d

th e g ro w in g p ro d u ctiv e g a in s in
p ro ce ssin g a n d tra n sm issio n it
e n a b le s
 Relationships
between
Products produced , Organisations &
delivered & customers in
consumed electronic
electronically . platforms
Eg . Music Eg . B2B
downloads , Content Traditional
delivery organisations
adopting
new
technology

Intermediaries
nline intermediary offering
connecting buyers & an aggregate
ellers . Eg . Exchanges , set of services
irtual distributors , Eg . Yahoo
Auctions etc .
 FORMS OF
COOPERATIVE STRATEGIES
• Collusive strategies
– When several firms in an industry
cooperate to reduce industry
competitiveness
• Explicit collusion (e.g. OPEC)
• Tacit collusion (e.g. Steel industry in
the 50s, Big three automobile
manufacturers prior to international
competition)
• Cooperative agreements and Strategic
alliances
– When several firms cooperate but industry
competitiveness is not reduced
• Can exist among firms within a single
industry (e.g. technological
alliances)
 STRATEGIC ALLIANCES
H ig h
C O N F L IC T
Lo w

Lo w H ig h
IN T E R A C T IO N
 STRATEGIC ALLIANCE

• Advantages
– Avoids bureaucratic costs of
diversification.
– Shared costs and risks.
– Uses complementary skills of each
partner.
– Creates value through economies of
scope.
• Disadvantages
– Profits must be shared.
– Disclosure of critical know-how to
 MERGERS AND
ACQUISITIONS
• Merger
– Two firms agree to integrate their
operations on a relatively co-equal
basis because they have resources
and capabilities that together may
create a stronger competitive
advantage.
• Acquisition
– One firm buys a controlling or 100
percent interest in another firm with
the intent of using a core competence
more effectively by making the
acquired firm a subsidiary business
within its portfolio.
• Takeover
 MERGERS
• Horizontal merger – Combination of two
or more organisations in the same
business
• Vertical merger - Combination of two or
more organisations not in the same
business
• Concentric merger - Combination of two
or more organisations related to each
other in terms of functions,
customers, technologies etc.
• Conglomerate merger - Combination of
 Integration Resulting firm
difficulties is too large

Overly focused
Inadequate PROBLEMS
WITH on Acquisition
Due Diligence
ACQUISITIONS

Crippling Too much

debt diversification

Inability to
achieve synergy
 GLOBAL CORPORATE
STRATEGIES
High TRANSNATIONAL
GLOBALIZATION
STRATEGY
STRATEGY Balance global
High
Need for global

Treats world as a efficiencies and

single global local
market responsiveness
Standardizes global Standardization /
products/advertisi customization for
ng strategies product/
advertising
integration

strategies
MULTI - DOMESTIC

EXPORT
STRATEGY STRATEGY
Domestic focus Independent
markets
Low

Exports a few for each country

products to Adapts
selected countries
Low product/advertising to
local needs
Low High
Need for national responsiveness
 RETRENCHMENT
STRATEGIES
• Retrenchment the organization goes
through a period of forced decline by
either shrinking current business units
or selling off or liquidating entire
businesses


• Turnaround turning around an

organisation from a loss making to a
profit making one


• Liquidation selling off a business nit

for the cash value of the assets, thus
terminating its existence
•
 TURNAROUND PROCESS
Turnaround situation Retrenc Turnaround response
Cause Severit hment Recovery phase
y phase
( operating )
Intern
al Declini Cost
ng Efficiency
factor reducti maintenanc
s sales on
or e
margins
Low

Stabil

Recove
ity

ry
High

Imminent Entrepreneur
Extern ial
al bankrupt Asset
cy reducti reconfigurat
factor ion
s on
( strategic )
COMBINATION STRATEGIES
Also called, mixed or hybrid
strategies
Eg. Murugappa group, ITC, Aditya

Birla group


A mixture of stability, expansion or

retrenchment
strategies

Simultaneous applied in the same

time in different businesses
Sequential applied at different
times in the same business
SONY’S WEB
OF CORPORATE
STRATEGY
 GENERIC/ BUSINESS
STRATEGIES
A d v a n ta g e
Lower Cost Differentiation

Broad Overall Low - Cost Broad

Range of Provider Differentiation
Buyers
Strategy Strategy
m a rk e t
Ta rg e t

Best - Cost
Provider
Strategy
Narrow
Buyer Focused Focused
Segment Low - Cost Differentiation
or Niche Strategy Strategy
 GENERIC STRATEGIES
• Cost leadership Overall cost leader in
the industry Eg. GCMMF,
Moser Baer, Walmart, McDonalds
• Differentiation Special features
incorporated in the product
which attracts a price
premium Eg. Harley Davidson,
Apple, Rolls Royce, Aston
Martin, Rolex, Hidesign
• Focus Cost leadership or
differentiation but catering to a
narrow segment of the total
market Eg.Rolex, Nike, Tanishq
 Changes in
Portfolio of
businesses

Changes in
Equity /
Debt servicing

Changes in
Organisation
structure
L & T , SBI , SAIL
 STRATEGY ANALYSIS &
The
CHOICE
process of analysis and decision
making to select from among the grand
strategies considered , that which
will best meet the organisation ’ s
objectives
GAP ANALYSIS
PORTFOLIO STRATEGY
BCG MATRIX

BCG
M a trix
 MCKINSEY-GE STOPLIGHT
MATRIX
Business Strength - Competitive
Position
Strong Average Weak

Winners Winners
Industry ( Product - Market )

High
Question
marks
Attractiveness

Winners Average
Medium Business

Losers

Low Profit
Producers
Losers Losers
 A D LITTLE’S
PRODUCT-MARKET EVOLUTION
MATRIX
The Business Unit’s Competitive
Position
Strong Average Weak

Developme A
nt C
B
Industr Growth
y’s
Stage
in the Competitiv D F
Evoluti e
onary Shakeout E
Life Maturity
Cycle 
Saturation G

H
Decline
 CORPORATE PARENTING
 Views the corporation in terms of
resources and capabilities that can be
used to build business unit value as
well as generate synergies across
business units
ü Examine each business unit in terms
of its strategic factors.
ü Examine areas in which performance
can be improved.
ü Analyze how well the parent
corporation fits with the business
unit
MULTI-BUSINESS
ORGANISATION
 CORPORATE PARENTING
 VALUE ADDING CORPORATE PARENT
ACTIVITIES
Ø Envisioning strategic intent
Ø Central services and resources
Ø Intervention at business level
Ø Expertise
 VALUE DESTROYING CORPORATE
PARENT ACTIVITIES
Ø Bureaucracy
Ø Buffer from reality – Financial safety
net
 E T O P A N A LY S IS
E N V IR O N M E N T A L T H R E A T S & O P P O R T U N IT IE S
P R O F IL E

o Helps organization to identify O-T

o Consolidate and strengthen
organization’s position
o Provides the strategists of which
sectors have a favourable impact
on the organization.
o Organization knows where its
stands with respect to its
environment.
o Helps in formulating appropriate
strategy
 THREAT
MATRIX

HIGH ate
or s der s
j Mo eat
Ma eat r
r Th
Th
ATTRACTIVENESS

te nor s
a
er ats Mi eat
LOW d r
Mo hre Th
T

HIGH LOW
PROBABILITY OF OCCURENCE
 OPPORTUNITY
MATRIX

ely
HIGH at ive
ry ive r
de act
Ve act o
M tr
ttr At
a
ATTRACTIVENESS

ly e s s ive
e Le act
r at tiv
LOW
ode rac t tr
M tt A
A

HIGH LOW
PROBABILITY OF OCCURENCE
PREPARING
ETOP

o Divide the environment into

different sectors.
o Analyze the impact of each
sector on the organization.
o Subdivide each environmental
sector into sub factor.
o Summarise the impact of each
sub sector on organization in
the form of a statement.
o
ETOP: PROS AND
CONS

 Pros Cons


o Help to determine o It doesn’t show the

the key factor of interaction
threats and between the
opportunities. factors.
o Good tool to qualify o It can’t reflect the
the factors dynamic
related to environment.
company’s o It’s a subjective
strategy. analysis tool.
o Can consider many
factors for each
M C K IN S E Y ’ S 7 S
FR A M EW O R K
 S T R A T E G IC A D V A N T A G E

O rg a n isa tio n a l C a p a b ility

C o m p e te n cie s

S y n e rg istic e ffe cts

S tre n g th s & W e a k n e sse s

O rg a n isa tio n a l O rg a n isa tio n a l

re so u rce s b e h a v io u r
 S T R A T E G IC A D V A N T A G E

A P A B IL IT IE S N a tu re o f C o m p a ra tiv e stre n g th
im p a ct w e a k n e sse s

in a n cia l + S o u n d fin a n cia l p o sitio n

a rk e tin g + G re a t p ro d u cts
p e ra tio n s - P o o r lo g istics
R - …. .
…. .
anagem ent …. .
 O R G A N IS A T IO N A L C A P A B IL IT Y
T h e ca p a city o r a b ility o f a n o rg a n isa tio n to u se
its co m p e te n cie s
to e x ce l in a p a rticu la r fie ld le a d in g to a
stra te g ic a d v a n ta g e .
C A P A B IL IT IE S W e a k n e ss N o rm a l S tre n g th

F in a n cia l ca p a b ilitie s
M a rk e tin g
O p e ra tio n s
HR
IT
G e n e ra l M a n a g e m e n t
 B A LA N C E D S C O R E C A R D

R o b e rt K a p la n & D a v id
N o rto n
S tra te g y e v a lu a tio n & co n tro l
te ch n iq u e
B a la n ce fin a n cia l m e a su re s w ith
n o n - fin a n cia l m e a su re s
B a la n ce sh a re h o ld e r o b je ctiv e s w ith
cu sto m e r & o p e ra tio n a l o b je ctiv e s
 BALANCED SCORECARD

 BEFORE to measure success, firms

used:
- Financial performance
- Market share
- The bottom line (profits).


 BUT these approaches are narrowly

focused and place more weight on
short-term results rather than
addressing the firm's long-term
BALANCED SCORE CARD
BUILDING & IMPLEMENTING
BALANCED SCORE CARD
REVISED BALANCED SCORE
CARD