Beruflich Dokumente
Kultur Dokumente
MBA 2008-09
STRATEGIC
MANAGEMENT
Dr AMIT RANGNEKAR
Strategic Management- Dr Amit Rangnekar
Strategic Management
Objectives- Help understand concepts, tools, processes & applications of strategic
management. Provide insights into the business environment, competitive analysis and the
practice of strategic management through theory and case studies.
Concepts
• Strategy- Directing action towards desired outcome
• Corporate strategy- business/es you should be in
• Business strategy- tactics to beat the competition
• Functional strategy- operational methods to implement the tactics
• Enterprise strategy- matching internal capabilities with external environment
• Strategic Competitiveness- Firm successfully formulates & implements a value-
creating strategy
• Strategic Management Process- Full set of commitments, decisions, & actions
required for a firm to achieve strategic competitiveness & earn above-average
returns
• Risk- Investor’s uncertainty of economic gains/ losses resulting from particular
investment
• Average Returns- Returns equal to investor earnings expectations from other
investments with similar amount of risk
• Above-average Returns- Returns in excess of what an investor expects to earn
from other investments with a similar amount of risk
• Strategic flexibility: Capabilities to respond to demands & opportunities in
dynamic & uncertain competitive environments
Global Economy
• Global Economy- Goods, people, skills & ideas move freely across borders
• Globalization- "Producing where it is most cost effective, sourcing capital from
where it's cheapest and selling it where it is most profitable" Narayana Murthy
• Increased economic interdependence among countries- flow of goods & services,
finance & knowledge across country borders leading to increased opportunities
• Technology- Technology change, perpetual / disruptive innovation, design
• Information- Converting information to knowledge, competitive advantage
Vision & Mission- To energize employees to work towards corporate goals, visions &
missions. Should be internalised by executives & constantly communicated to employees.
Many companies use vision & mission statements only in annual report or reception..
Vision
• A short, succinct, and inspiring statement of what an organization intends to
become and achieve, in the future, often stated in competitive terms
• Refers to the category of broad, all-intrusive and forward-thinking intentions
• Image of a business goal before the organization sets out to reach them
• Describes future aspirations, without specifying the means used to achieve them
Mission Statement
• An organization's vision translated into a written form
• Concretises a leader's view of the direction and purpose of the organization
• Vital element for corporate leaders to motivate employees & instill sense of priority
Setting Goals
• Major outcome of strategic road-mapping and strategic planning, based on the
vision and mission statement
• Long-range, specific and realistic goals set through strategic planning, translated
into activities that will ensure reaching the goal through operational planning.
Core Competencies
When the 4 key criteria of R&C are met, they become core competencies, and serve as a
source of competitive advantage. Managerial competencies are especially important
Strategic Intent
• Company's vision of what it wants to achieve in the long term
• Must convey a significant stretch for the company, a sense of direction, discovery,
and opportunity that can be communicated as worthwhile to employees
• Should focus so on tomorrow's opportunities than on today's problems
Strategic Mission
• Statement of firm’s unique purpose
• Describes scope of operations in product & market terms
• Externally focused, inspiring and relevant to all stakeholders
Stakeholders
Individuals and groups affected by the firm’s performance and who have claims on it’s
performance.
Stakeholder Groups
Capital Market Stakeholders
• Shareholders, banks & lenders expect firm to enhance the wealth entrusted
• Returns should be commensurate with the degree of risk to the shareholder
Product Market Stakeholders
• Customers- Demand reliable products at low prices
• Suppliers- Seek loyal customers willing to pay highest prices for goods and services
• Host communities- Want companies willing to be long-term employers and
providers of tax revenues while minimizing demands on public support services
• Union officials- Want secure jobs and desirable working conditions
Organizational Stakeholders
• Employees & managers- Expect a stimulating and rewarding work environment,
satisfied by a company that grows and actively develops their skills
Strategic Leaders
People responsible for the design and execution of strategic management processes (Top
management). They will decide how resources will be developed or acquired, at what
price resources will be obtained, and how resources will be used
Organizational Culture
The complex set of ideologies, symbols and core values, shared throughout the firm, that
influence how the firm conducts business
The external business environment may be divided into 2 sectors: Broad & task
Broad Environment- forms the context within which the firm and its task environment
exist. Consists of domestic and global forces
• political trends (e.g. open markets)
• economic trends (e.g. growing economy)
• socio-cultural trends (e.g. demographics)
• technological trends (e.g. internet)
Dimensions in the broader society that influence industry and the firms within it
PEST analysis
Quadrants below contain criteria (not exhaustive or exclusive) used to analyse either PEST
Political Economic
Ecological/environmental issues Domestic / International economy
Legislations / regulatory / policy Taxes, levies, FDI, interests
Government term and change Stock markets and exchange rates
Funding, grants and initiatives Seasonality/weather issues
Lobbies / pressure groups Market and trade cycles
Wars and conflict Industry Specific factors
Social Technological
Lifestyle trends Competing & emerging technologies
Demographics R&D
Psychographics Technology/solutions maturity
Consumer attitudes and opinions Manufacturing costs / capacity
Law changes affecting social factors Information and communication
Consumption & buying patterns Innovation
Events and influences Licensing, patents, IPR issues
Ethnic / ethical / religious factors Disruptive innovation
Common Pitfalls
• Defining industry- too broadly or too narrowly.
• Paying equal attention to all forces than focusing on the most important ones.
• Confusing effect (price sensitivity) with cause (buyer economics).
• Using static analysis that ignores industry trends.
• Confusing cyclical or transient changes with true structural changes.
• Framework used to declare industry - attractive/ unattractive, than use it for
strategic choices
Strategic Groups
A set of firms emphasizing similar strategic dimensions and using similar strategies
Internal competition between strategic group firms is greater than between firms outside
that strategic group. More heterogeneity in performance of firms within strategic groups
Strategic Dimensions
Extent of technological leadership, product quality, pricing policy, distribution channels
customer service
Competitor Analysis
Competitor Intelligence- Gather information & data to understand and better anticipate:
• Competitor’s direction (future objectives)
• Competitor’s capabilities and intentions (current strategy)
• Competitor’s beliefs about the industry (assumptions)
• Competitors (capabilities)
Creating Value
• By exploiting core competencies or competitive advantages, firms create value
• Value is measured by a product’s performance characteristics and its attributes for which
customers are willing to pay
• Firms create value by innovatively bundling & leveraging their resources & capabilities
Resources
• Inputs into a firm’s production process- Capital equipment, employee skills,
patents, finances, talent
• Organization is made up of resources: financial, physical, human, general
organizational (structure, systems, culture, reputation, stakeholder relationships
• Source of a firm’s capabilities & assets, including people & value of its brand name
• Broad in scope, cover a spectrum of individual, social & organizational phenomena
• Represent inputs into a firm’s production process, such as: Capital equipment, skills
of employees, brand names, financial resources, and talented managers
• Tangible - Seen & quantified- financial, physical, production resources
• Intangible - Deep roots in firms history- trust, innovation, knowledge, reputation
• Effective development or acquisition of organizational resources may be the most
important reason that some organizations are more successful than others
Capabilities
• Capacity of a set of resources to perform, in an integrative manner. Capability
should not be highly imitable but should be manageable & controllable
• Firm’s capacity to deploy resources, integrated to achieve a desired end state
• Emerge over time by complex interactions among tangible & intangible resources
• Often based on developing, carrying and exchanging information and knowledge
through the firm’s human capital
• The foundation of many capabilities lie in unique skills and knowledge of firm’s
employees, and functional expertise
Core Competencies
When the 4 key criteria of R&C are met, they become core competencies, and serve as a
source of competitive advantage. Managerial competencies are especially important
• Resources & capabilities that serve as a source of a firm’s competitive advantage:
• Activities, a firm performs especially well compared to competitors, and through
which the firm adds unique value to its goods or services over a long period of time
• Emerge over time through an organizational process of accumulating and learning
how to deploy different resources and capabilities
Competitive Advantage
• Firms achieve strategic competitiveness and earn above-average returns when their
core competencies are effectively- acquired, bundled or leveraged
• Over time, competitors may duplicate benefits of any value-creating strategy
Value Chain Analysis: Template that allows firm to understand parts of its operations that
create value & those that do not
• Understand their cost position
• Identify means to facilitate implementation of a chosen business-level strategy
• Primary activities involved with: A product’s physical creation, a product’s sale
and distribution to buyers, the product’s service after the sale
• Support activities- provide support necessary for primary activities to take place
• Shows how a product moves from raw-material stage to the final customer
• To be a source of competitive advantage, a resource or capability must allow the
firm: To perform an activity in a manner superior to the way competitors perform it,
or to perform a value-creating activity that competitors cannot complete
Examine each activity wrt competitors’ abilities & rate as superior, equivalent or inferior
Industrial Markets
• End-use segments
• Product segments (technology, production economics)
• Geographic segments (country, regional differences)
• Common buyer segments (product market & geographic
segments)
• Customer size segments
Competitive scope
Scope- Dimensions, including product groups, customer segments & geographic markets
• Broad scope- firm competes in many customer segments
• Narrow scope- firm selects a segment / group of segments in the industry and tailors
its strategy to serving them at the exclusion of others
Competitive advantage
Cost Uniqueness
Broad Cost leadership Differentiation
Target Integrated Cost
leadership /
Competitive Narrow Differentiation
scope Target
Focused cost leadership Focused differentiation
Differentiation
An integrated set of actions taken to produce goods or services (at an acceptable cost) that
customers perceive as being different in ways that are important to them
• Nonstandardised products
• Customers value differentiated features more than they value low cost
Focus strategies
An integrated set of actions taken to produce goods or services that serve the needs of a
particular competitive segment (buyer group) or different segment of a product line or
different geographic markets
• Firm can direct resources to value chain activities to build competitive advantage
Competitive Dynamics
Competitor analysis
• Understand competitors future objectives, current strategies, assumptions & capabilities
• Predict competitor behaviour, anticipate response, form competitive actions & responses
• Market commonality & resource similarity with competitors
Competitive rivalry- Ongoing actions and responses taking place between an individual
firm and its competitors for an advantageous market position
Competitive action- A strategic or tactical action the firm takes to build or defend its
competitive advantages or improve its market position
Competitive response- A strategic or tactical action the firm takes to counter the effects of
a competitor’s competitive action
Quality exists when firm’s goods or services meet or exceed customers’ expectations
Product Quality Dimensions
• Performance—Operating characteristics
• Features—Important special characteristics
• Flexibility—Meeting operating specifications over some period of time
• Durability—Amount of use before performance deteriorates
• Conformance—Match with preestablished standards
• Serviceability—Ease and speed of repair
• Aesthetics—How a product looks and feels
• Perceived quality—Subjective assessment of characteristics (product image)
Competitive dynamics
Slow cycle market Fast cycle market Standard cycle
market
Competitive Shielded from Not shielded from Moderately shielded
advantage imitation for long imitation from
periods of time
Sustainability High Low Partial
Imitation Costly Quick & inexpensive moderate
Strategy Concentrate on Competitors reverse Upgrade quality is
competitive actions engineer to quickly continuously
& responses to imitate or improve on Firms seek large
protect, maintain & firm’s products market shares
extend proprietary Non-proprietary Firms gain customer
advantage technology diffused loyalty through brand
rapidly names
Firms carefully control
operations
Industry Pharma R&D patents Reverse engineering HUL, P&G
Disney characters firms- Indian pharma
PC makers
Diversification
When a firm chooses to diversify beyond a single industry and operate businesses in
several industries. Firm creates value by productively using excess resources.
Product diversification concerns scope of the industries and markets in which the firm
competes and how managers buy, create and sell different businesses to match skills and
strengths with opportunities presented to the firm
Diversification levels
Low Single business >95% revenue from single
1
business
Dominant 70-95% revenue from single 1 2
business business
Moderate Related <70% revenue from dominant
to High constrained business and all businesses share 1
product, technological & 2 3
distribution linkages
Related linked <70% revenue from dominant
business and limited linkages 1 2 3
between businesses
Very Unrelated <70% revenue from dominant
High business and no linkages between 1 2 3
businesses
Unrelated Diversification
• Financial economies- cost savings through improved allocations of financial
resources, create value through efficient internal capital allocations, purchase other
corporations & restructure their assets
• Efficient internal capital allocation- Corporate office distributes capital to SBU to
create overall value
• Business restructuring-
• Creates value by buying & selling other firms’ assets in external market
• Focus on mature, low-technology businesses, not reliant on a client orientation
Strategic Motives
• Economies of scope (related diversification)
Sharing activities
Transferring core competencies
• Market power (related diversification)
Blocking competitors through multipoint competition
Vertical integration
• Financial economies (unrelated diversification)
Efficient internal capital allocation
Business restructuring
Internal Ventures
Internal ventures make use of the R&D programs of the organization
• Advantages- Control over the venture, information not shared, profits retained
• Disadvantages- High failure risk, lot of time to execute, Internal resources locked
Horizontal acquisition
•Acquisition in the same industry increases firm’s market power by exploiting
cost-based and revenue-based synergies
•Acquisitions with similar characteristics result in higher performance than those with
dissimilar characteristics
Vertical acquisitions
•Acquisition of a supplier or distributor of one or more of the firm’s goods or services
•Increases a firm’s market power by controlling additional parts of the value chain
Related acquisitions
•Acquisition of a company in a highly related industry
•Difficulty in implementing synergy, make related acquisitions difficult to implement
Restructuring
• A strategy through which a firm changes its set of businesses or financial structure
• Failure of an acquisition strategy often precedes a restructuring strategy
• Due to changes in the external or internal environments
Restructuring strategies:
Strategy What happens Short term outcomes Long term outcomes
Down Reduction in number of Reduced labour costs Loss of human
sizing employees/operating More efficient operations capital
units Lower performance
Down Divestment / spin-off to Reduced debt costs Higher performance
scoping eliminate non core Strategic controls emphasis
businesses & refocus
Leveraged A party buys the firm’s Strategic controls emphasis Higher risk
buyouts assets to take it private High debt costs
Can correct managerial
mistakes, facilitate
entrepreneurial growth
International Strategy
Strategy where a firm sells its goods or services, outside its domestic market.
Transnational strategy- Seeks to achieve both global efficiency and local responsiveness
• Difficult to achieve because of simultaneous requirements
• Strong central control and coordination to achieve efficiency
• Decentralization to achieve local market responsiveness
• Must pursue organizational learning to achieve competitive advantage
Cooperative Strategy
Strategy in which firms work together to achieve a shared objective to create customer
value and establish a favorable position relative to competitors
Strategic Alliance
Combine resources and capabilities of firms to create a mutually competitive advantage.
To co-develop, co-market or distribute goods and services. Competitive advantage
developed through a cooperative strategy is called a collaborative or relational advantage.
Types
• Joint Venture- 2 or more firms create an independent firm by sharing some of their
resources and capabilities
• Equity Strategic Alliance- Partners own different equity shares in separate
company
• Non-equity Strategic Alliance- 2 or more firms develop a contractual relationship
to share some of their unique resources and capabilities
Strategic Direction
Strategy Formulation
• Strategy is an organizational plan of action intended to accomplish goals.
• Corporate strategy formulation refers to domain definition, or the choice of business
areas. Usually decided by the CEO and the BOD.
• Business strategy formulation involves domain direction and navigation, or how to
compete in a given area. Usually decided by SBU heads & managers.
• Functional strategy formulation contains the details of how the functional areas such as
marketing, operations, finance, and research should work together to achieve the
business-level strategy.
Growth Strategies
Internal Strategies External Strategies
• Market penetration • Horizontal integration
• Market development • Alliance formation
• Applications development
• Product development
Note: these strategies assume that the firm is seeking a broad customer base. If the firm is
pursuing a particular market segment it is using a “focus” strategy.
Differentiation
Create Value Through Uniqueness
• Superior Quality
• Innovations and Research
• Speed and Flexibility
• Reputation and Brand Name
• Creative advertising
Customers Must Be Willing to Pay More for Uniqueness
• Added costs vs. incremental price
Cost Leadership
• Accurate Demand Forecasting and High Capacity Utilization
• Economies of Scale
• Technological Advances
• Learning/Experience Effects
Disadvantages of Concentration
• Risky in unstable environments
• Product obsolescence and industry maturity
• Cash flow problems
Unrelated Diversification
• Large, highly diversified firms are called conglomerates
• Not a high performing strategy for most firms (with a few notable exceptions) in
industrialized nations like the U.S.
• Difficult for a top manager to understand and appreciate the core technologies, key
success factors and special requirements of each business area
Related Diversification
• Based on tangible and intangible relatedness
• In theory, can lead to synergy (but synergy is often illusive)
• Often a higher performing strategy than unrelated diversification (lower risk and higher
profitability)
• Can lead to corporate-level distinctive competencies
Portfolio Models
Strategy Implementation
Learning Objectives
To understand:
• the role of leadership in successful execution of strategies
• how culture and organizational energy influence the success of strategy implementation
• functional strategies and their importance to strategy implementation
• the stages firms encounter as they execute global strategies
• basic organizational structures, and their strengths and weaknesses
• the various roles played by foreign subsidiaries
Scenario: An internally consistent view of what the future might turn out to be – not a
forecast, but one possible future outcome (Porter).
Growth Strategies
The different routes to growth fall broadly into 5 options, but, they are not mutually
exclusive and can overlap. They maybe limited by available resources, but require a clear
focus on objectives and a sustained level of commitment.
• Organic growth
• Mergers and acquisitions
• Integration
• Diversification
• Specialisation
Business level growth strategies: New products, new markets, new geographies
Crown Jewels
A defense against a takeover in which a company sells its most precious assets to a friendly
buyer. The suitor then disappears since the target of its pursuit has gone elsewhere and the
company rebuys its assets from its friend.
Pac-man defense
A takeover, in which the target bites back, and makes an offer to take over the shares of the
suitor. The name is derived from a once popular video game.
Poison Pill
A range of devices designed to make a takeover unpalatable to the swallower (acquirer). Eg
accompany might borrow a large sum of money in order to distribute it immediately as
dividends to the company’s shareholders; or it might make an issue of preferred stock that
gives shareholders the right to redeem it at a hefty premium after a takeover
Scorched Earth
Shark Repellant
A smell put out by a company to deter potential suitors. Eg A leaked announcement about a
‘secret’ contract to pay millions to existing managers should the company be taken over.
White Knight
A firm that comes to the rescue of a company that is in the throes of an unwelcome
takeover.
Dawn Raid
An early morning purchase on the stock market, of a large block of a company’s shares, by
an investor who has an eye on taking over the company. Aimed at pre-empting any other
potential raider from gaining a similar stranglehold on the takeover target.