Characteristics of Strategic Decision:Strategic issues require top management decisions:- Top management involvement is imperative.

Only at this level is there the perspective for understanding and anticipating broad implications and ramifications and the power to authorize the resource allocations necessary for implementations. Strategic issues involve the allocation of large amounts of company resources:Strategic issues are likely to have a significant impact on the long term prosperity of the firm Strategic issue are future oriented Strategic issues have major multifunctional or multibusinesses consequence. Strategic issues necessitate the considerations of firms external environment

Strategy
1. Competitive strategy is about being different. 2. Essence of strategy is activities Choosing to perform activities different or to perform different activities than rivals.

Insufficiency of Operational Effectiveness

1. Rapid diffusion of best practices. 2. Competitive Convergence

Underlying Principles
1. Company can outperform rivals only if it can establish a difference that it can preserve. 2. Cost advantages arise from performing particular activities more efficiently than competitors. 3. Differentiation arises from both the choice of activities and how they are performed. 4. Activities are the basic units of competitive advantage.

Operational Effectiveness:Performing similar activities better than rivals perform them. This refers to numbers of practices that allow a company to better utilize its inputs.

Strategic Planning
Performing different activities from rivals or performing similar activities in different ways.

Background
1. Rivals can quickly copy any market position 2. Barriers competition are falling 3. Companies inability to translate operational gains into sustainable profitability

Outcome
1. Need to nurture core competencies. 2. Need to distinguish between operational effectiveness and strategy. 3. Operational Effectiveness and strategy, both are essential to superior performance but both work in different ways.

Strategic Positions:-

a) Variety Based Positioning

1. Choice of product or service varieties rather customer segments 2. Serves a wide array of customers but only a subset of their needs.

b) Access Based Positioning

1. Segmenting consumers who are accessible in different ways. 2. Geography or customer scale.

Benefit of Strategic Management

1. This enhances the problem prevention capabilities of the firm. 2. Group based strategic decisions are most likely to reflect the best available alternatives 3. Employee motivation improves as they appreciate the productivity reward relationship inherent is every strategic plan. 4. Gap and overlaps in activities among diverse individuals and groups are reduced. 5. Resistance to change is reduced.

Risk of the Strategic Management

1. Manager may spend time away from work in the name of planning 2. Strategic manages must be trained to anticipate, minimize or constructively respond when participating subordinates become disappointed or frustrated over unattained expectations. 3. If formulation of strategy are not intimately involved with process, individual responsibility for input to decision process and subsequent conclusions can be shirked.

Strategic Management
Set of decisions and actions resulting in formulation and implementation of strategies designed to achieve objectives. This requirement is due to complexity and sophistication of Business Decision making process Strategic Management is necessary for effective dealing with environmental challenges with given organizational resources.

Strategy
1. Strategy is defining as achieving an organizations objectives and implementing its missions. 2. Large scale, future oriented plans for interacting with competitive environment to optimize achievement of an organizational objectives. 3. Pattern of an organizations responses to its environment overtime. 4. Long term objective or purpose of an organization. 5. Different from operating decisions i.e. day to day activities.

Three Levels of Strategy

Corporate Level Strategy :- Composed principally of members of board of directors and chief executive and administrative officers. They are responsible for financial performance of corporation as a whole. Orientations at the corporate level reflect the concern of all stakeholders. Business Level:- Composed Principally of business and corporate managers. These managers must translate the general statements of direction and intent generated at the corporate level into concrete, functional objectives and strategies for strategic business units. Functional Level Strategy :- Composed Principally of manager of product, geographic and functional areas. Short term strategies

STRATEGIC MANAGEMENT A corporate objective of strategic management is to find out why some organizations succeed why others fail. The Determinants of Company Performance Industry Context National Context Company Resources Capabilities and strategies

Company Performance

Why some industries are more profitable than others and how being based n an attractive industry can help a company achieve success. e.g. during last decade pharmaceutical industry has been more successful than tractor industry. National context is important because in many industries the market place has become a global one where companies from many countries are competing head to head around the world. Some companies find it easier to succeed because they are located in countries that have a competitive advantage in certain industries. Many of the worlds most successful, automobile consumer electronics companies are based in Japan, many of most pharmaceutical companies are based in the U.S.A and Switzerland and many of the most successful financial services companies are based in the United States and Britain. However the third factor- companys resources, capabilities and strategies is by far the strongest determinant of success or failure. Thus some companies manage to thrive even in very hostile industries, where the average level of profitability is low. Understanding the roots of success or failure is not an empty academic exercise. Such understanding brings a better appreciation of the strategies that can increase the probability of success and reduce the probability of failure.

What is Strategy? (The Traditional Approach)

Dictionary Meaning The science and art of military command as applied to the overall planning and conduct of large scale combat operations.

Management Meaning of Strategy (Harvards)

The determination of the basic long term goals and objectives of an enterprise and the adoption of courses of action and the allocation of resources necessary for carrying out these goals. Thus the strategy involves the rational planning.\

Strategy the New Approach

Definitions of Strategy that stress the role of planning ignores the fact that strategies can emerge from with in an organization without any formal plan. That is to say, even in the absence of intent, strategies can emerge from the grassroots of an organization. Strategies are often the emergent response to unforeseen circumstances. Emergent strategies are often successful and may be more appropriate than intended strategies.

Emergent and Deliberate Strategies

Intended Strategy

Deliberate Strategy

Realized Strategy

Unrealized Strategy

Emergent Strategy

Strategic Management
Mission Goals

Competitive Advantage Strength & Weakness

Strategic Choice

External Environment Opportunities & Threats

Global Level Strategy

Corporate Level Strategy

Business Level Strategy

Functional Level Strategy

Designing Organizational Structure

Implementing Strategic Change

Designing Strategic & Control System

Matching Structure and Control of Strategy

Feed 7 Back

Components of Strategic Management Process

1. Selection of the corporate mission and major corporate goals. 2. Analysis of the organizations external competitive environment to identify opportunities and threats. 3. Analysis of the organizations internal operating environment to identify the organizations strengths and weaknesses. 4. The selection of strategies that build on the organizations strengths and correct its weakness in order to take advantages of external opportunities and counter external threats. 5. Strategy implementation. The task of analyzing the organizations external and internal environment and then selecting an appropriate strategy is normally referred to as strategy formulation. In contrast strategy implementation involves designing appropriate organizational structure and control systems to put the organizations chosen strategy into action.

Mission and Goals The mission sets out why the organization exists and what it should be doing. Most profit seeking organizations operate with a hierarchy of goals, in which maximizing stockholder wealth is placed at or near the top.

Mission Goals

External Analysis

Strategic Choice

Internal Analysis

Intended Strategy

Organization for Implementation

External Analysis

Mission Goals

Internal Analysis

Strategic Choice Does it fit

Emergent Strategy 9 Organizational Grassroots

External Analysis: - The objective of external analysis is to identify strategic opportunities and threats in the organizations operating environment. Three inter related environment should be examined at this stage: the industry environment in which the organization operates, the national environment and wider global environment. Internal Analysis: - Internal analysis serves to pin point the strengths and weaknesses of the organization. Such analysis involves identifying the quantity and quality of resources available to the organization. Building and maintaining a competitive advantage requires a company to achieve superior efficiency, quality, innovation and customer responsiveness Company strengths lead to superiority in these areas, where as company weakness translate into inferior performance. Strategic Choice : - The comparison of strengths, weaknesses, opportunities and threats is normally referred to as a SWOT analysis. The purpose of the strategic alternatives generated by a SWOT analysis should be to build on company strengths in order to exploit opportunities and counter threats and to correct company weaknesses. To choose among the alternatives generated by SWOT analysis, the organization has to evaluate them against each other with respect to their ability to achieve major goals. Functional Level Strategy: - The strategies directed at improving the effectiveness of functional operations within a company such as manufacturing, Marketing, materials management, research and development and human resources are called functional level strategies. Techniques like TQM, JIT, inventory systems etc are all part of functional level strategy.
Business Level Strategy: - there are three generic business levels strategies. A. A strategy of cost leadership. B. A strategy of Differentiation (Quality). C. A strategy of Focusing on a particular market (customers satisfaction)

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Global Strategies: - In todays world of global markets and global competition, achieving a competitive advantage and maximizing companys performance increasingly requires a company to expand its operations outside its home country.

Corporate Level Strategies: - What business should we be in to maximize long run profitability of the organization. Vertical integration, horizontal integration, diversification, strategic alliance, acquisition, organic growth, (New ventures), Restructing, etc. are all part of corporate level strategies.

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Strategy Implementation
Strategy implementation has four main components.
1. 2. 3. 4. Designing appropriate organizational structures. Designing control systems. Matching the strategy, structure and controls. Managing Conflict, Politics and change.

1. Designing Organizational Structure

Designing a structure entails allocating task responsibility and decision making authority with in an organization how to divide the organization into sub units, how to distribute authority among the different levels of an organizations hierarchy and how to achieve integration between subunits, all these are part of designing the structure.

2. Designing Control System

Organization must decide how best to assess the performance and control the actions of subunits.

3. Managing Strategy, Structure and Control

If it wants to succeed, a company must achieve a fit among its strategy, structure and control.

4. Managing Conflict, Politics, and Change.

Although in theory, strategic management process is all rational decision making process but in practice, organizational politics plays a key role. Departments may compete with each other for a bigger share of an organizations finite resources.

The Feed Back Loop

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In the Strategic Management Process chart the feed back loop indicates that strategic management is an on going process. Once a strategy is implemented, its execution must be monitored to determine the extent to which strategic objectives are actually being achieved.

Criticism of Formal Planning System

The central purpose of the strategic management process is to identify strategies that align, fit or match a companys resources and capabilities to the demands of the environment in which the company operates. Its aim is to match companys strengths and weaknesses with environmental opportunities and threats. This model was originally developed at Harvard Bus. School in 1960s But the research shows that this model not always produce better results. The four explanations are as follows. 1. Planning Equilibrium. 2. Planning under uncertainty. 3. Ivory tower planning. 4. Strategic intent V/S strategic fit. 1. Planning Equilibrium: If formal planning is to be a source of competitive advantage, some companies must have the technique while others do not. However once everybody has the technique, it levels the playing field. A technique used by every company can no longer be a source of competitive advantage. In such a situation, the technique is in equilibrium. However it follows from the same logic that the company that does not plan may put itself at a competitive disadvantage. 2. Planning Under Uncertainty: The future is inherently unpredictable. But in the real world the only constant is change. Even the best-laid plans can fall apart if unforeseen contingencies occur. Some companies ask managers to predict a range of possible scenarios. Executives are then asked to devise strategies to cope with the different scenarios. The objective is to get managers to understand the

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dynamic and complex nature of their environment and to think through problem in a strategic fashion. 3. Ivory Tower Planning: A serious mistake made by many companies in their initial enthusiasm for planning has been to treat planning as an exclusively top management function. This ivory tower approach can result in strategic plans formulated in a vacuum by planning executives who have little understanding or appreciation of operating managers. The role of corporate level planners should be that of facilitators who help operating managers do the planning. 4. Strategic Intent V/S Strategic Fit:The strategic fit model of planning has been criticized by C.K Prahlad of university of Michigin. According to him this model is too static and limiting. In this model, management focuses too much on the degree of fit between the existing resources of a company and current environmental opportunities and not enough upon building new resources and capabilities to create and exploit future opportunities. The secret of success of companies like. Toyota. Canon and Komatsu, according to Prahlad, is that they all had bold ambitions, which outstripped their existing resources and capabilities. All wanted to achieve global leadership and they set out to build the resources and capabilities that would enable them to attain this goal. Thus underlying the concept of strategic intent is the notion that strategy formulation should involve setting ambitious goals, which stretch a company and then finding ways to build the resources and capabilities necessary to attain those goals.

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Pitfalls in Decision Making (Strategy)

There is in fact a good deal of evidence that many managers are poor strategic decision makers. This happens because of cognitive biases and groupthink.

1. Cognitive Biases

Cognitive Biases

Prior Hypothesis Bias

Escalating Committme nt

Reasoning by Analogy

Representative ness

Illusion of Control

1.

Prior Hypothesis: CEO who has a strong prior belief that a certain strategy makes sense might continue to pursue that strategy, despite evidence that it is inappropriate or failing.

2.

Reasoning by Analogy: The bias of reasoning by analogy involves the use of simple analogies to make sense out of complex problems. A successful organization in an industry may try to diversify without thorough research with disastrous results.

3.

Escalating Committment: -

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This occurs when decision markers, having already committed significant resources to a project commit even more resources if they receive feedback that project is failing. This may be an emotional response; a more logical response would be to abandon the project and move on, rather than escalate commitment.

4.

Representative ness: It is a bias rooted in the tendency to generalize from a small sample. Example of depression after the World War II assumed because of same effect after World War I.

5.

Illusion of Control: It is the tendency to overestimate Ones ability to control events. Having risen to the top of an organization they tend to be over confident about their ability to succeed.

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II Group Think
Cognitive biases are individual biases. Groups not individuals make most strategic decisions. But in a group, typically everybody sticks around a person or policy. It ignores or filters our information that can be used to question the policy and develops after the fact rationalizations for its decision. Thus commitment is based on an emotional, rather than an objective assessment of the correct course of action. Groups are characterized by strong pressures towards uniformity, which makes their members avoid raising controversial issues.

Techniques for improving Decision Making 1. Devils advocacy

Expert Plan

Devils Advocacy Criticizes

Final Plan Devils advocacy involves the generation of both a plan and a critical analysis of the plan. One member of the decision-making group acts as the devils advocate bringing out all the reasons that might make the proposal unacceptable. In this way decision makers can become aware of the possible perils of recommended course of action.

Dialectic Inquiry
Expert Plan 1 Thesis 17 Debate Synthesis Expert Plan 2 Antithesis

The plan and the counter plan should reflect plausible but conflicting courses of action. Corporate decision markers consider a debate between advocates of the plan and Final Plan counterplan. The purpose of the debate is to reveal problems with definitions, recommended courses of action and assumptions. As a result corporate decision makers and planners are able to form a new and final plan.

Level of Strategic Management

1.) Corporate Level
Head Office

Corporate Level
Division A Division B Division C

Bus Level
Bus. Functions Bus. Functions Bus. Functions

Functional level
Market A Market B Market C

The CEO is the main general manager at this level. His strategic role is to oversee the development of strategies what business it should be in, allocating resources among, the different business areas, formulating and implementing and providing leadership for the rest of the organization. Corporate level general managers and particularly the CEO, can be viewed as the guardians of stockholder welfare. It is their responsibility to ensure that corporate 18

strategies pursued by the company are consistent with maximizing stockholder wealth. If they are not, then ultimately the CEO is likely to be called to account by the stockholders.

2. Business Level
In a multibusiness company, the business level consists of the heads of individual business unit with in the organization and their support staff. In a single industry company, the business and corporate levels are the same. Typically it is self-contained and has its own functional departments. Business units are referred to as divisions. General electric, for example, has more than 100 divisions, The main strategic managers at the business level are the heads of the business. Their strategic role is to translate general statements of direction and intent from the corporate level into concrete strategies for individual businesses.

3. Functional Level
Functional managers bear responsibility for specific business functions such as human resources, manufacturing, materials management, marketing and R&D. Their responsibility is to develop functional strategies.

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Mission and Goals

Companies can and should identify and incorporate the claims of various stake holder groups into strategic decision making. The corporate mission statement is the first key indicator of how an organization views the claims of its stakeholders. Mission statement defines the organizations business, states its vision and goals and articulates its main philosophical values.

Defining the Business :Defining the business involves answering these Questions What is our business? What will it be? What should it be?

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Customer Needs
Customer Group

Distinctive Competencies

THE RELATIONSHIP BETWEEN THE MISSION, STAKEHOLDER AND STRATEGIES:-

Inside Claimauts

Mission Statement

Outside Claimauts

1. 2. 3. 4.

Executer Officers Board of Director Stock holders Employees.

Business Definition major goals value system

Customers suppliers unions. govt competitors local communities general public

Strategy formulation guided by Mission statement 21

This (D.F Abell) approach stresses the need for a consumer oriented rather than a product oriented business definition. The need to take a customer oriented view of a companys business has often been ignored. Consequently, even big corporations failed that did not define their business or defined it incorrectly. These firms failed to see what their business would become and ultimately they declined. American railroads assumed themselves to be in the railroad business rather than in the transportation business. They were product oriented rather than customer oriented. However, IBM defined its business as providing a means for information, processing, and storage rather than just supplying mechanic tabulating equipment and typewriters. Given this definition, the companys subsequent moves into computers, software system, office systems, and printers seems logical. IBM started having problems in 1980s because company lost sight of the fact that increasingly consumer needs for information, processing, and storage were being satisfied by low cost, personal computers, and not by mainframe computers produced by its core business. In 1960s many companies reduced their dependence on their original business by moving into unrelated areas.

Diversified Company: -

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The corporate business is often one of managing a collection of businesses. In a diversified enterprise, what is our business is asked at two levels. At a business level, the focus should be on a consumeroriented definition. At a corporate level, business definition should focus on how the corporate level adds value to the constituent business of the company. It should indicate why those business units are better off as part of the corporation than as freestanding entities.

Strategy

Firms theory about how to compete successfully

Mission

A firms mission is its fundamental purposes and long term objectives.

Objective

Objectives are measurable performance targets that firms aspire to reach in each of the areas covered by a firms mission
Policies

Are the actions that firms take to implement their strategies

Strengths

Are resources and capabilities that the company possesses that enable it to engage in activities that generate economic value and competitive advantage
Weaknesses

Are firms resources and capabilities that either make it difficult to realize the economic value of a firms strengths

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or actually reduce a firms economic value if they are used by a firm to implement strategies.
Opportunities

Are chances for a firm to improve its competitive position and performance

Threats

Are any individual, group or organization outside a firm that seeks to reduce the level of that firms performance

Maximizing Stockholder Wealth

Although most profit seeking organizations operate with a variety of major corporate goals, at least in theory all these goals should be directed towards one end maximizing stockholder wealth. Stockholders provide a company with capital and in exchange expect an appropriate return on their investment. Stockholders receive returns in two ways. From dividend payments and from capital appreciation in the market value of a share a company can best maximize stockholder returns by pursuing strategies that

24

maximize its own return on investment, which is a good general indicator of a companys efficiency. The more efficient a company is, the better its future prospects look to stockholders and the greater it its ability to pay dividends.

The Short Term Problem: There is a danger in emphasizing only R.O.I. Too much emphasize on R.O.I can misdirect managerial attention and encourage some of the worst management practices such as maximizing short run rather than long run R.O.I. Although decreasing current expenditure increases R.O.I, the resulting under investment, lack of innovation and poor market awareness damages long run ROI. According to American Management expert, the widespread focus on short run ROI has been major factor in the long run loss of international competitiveness by U.S companies. To guard against short-run behavior P.Drucker suggests that companies adopt a number of secondary goals in addition to ROI. These goals should be designed to balance short run and long run considerations. Secondary goals relate to areas like 1) 2) 3) 4) 5) 6) 7) Market Share Innovation Productivity Physical and Financial Resources Manager Performance and Development Worker Performance and Attitude Social Responsibility

Even if a company does not recognize secondary goals explicitly, it must recognize them implicitly through a commitment to long run profitability

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CORPORATE STAKEHOLDERS Stakeholders are individuals or groups that have some claim on the company. They can be divided into internal claimants and external claimants. Internal claimants are stockholder and employees including executive officer and board members. External claimants are all other individuals and groups affected by the companys actions. Typically they comprise customers, suppliers, govt, unions, competitors, local communities and the general public. Employees provide labour and skills and in exchange expect commensurate income and job satisfaction. Customers want value for money. Suppliers seek dependable buyers. Govts insist on adherence to legislative regulations. Union demand benefits for their members in proportion to their contributions to the company. Rivals seek fair competition. Local communities want companies that are responsible citizens. The general public seeks some assurance that the quality of life will be improved as a result of the companys existence. A company has to take these claims into account when formulating its strategies or else stakeholders may withdraw their support. The mission statement thus becomes the companys formal commitment.

STAKEHOLDER IMPACT ANALYSIS

A company cannot always satisfy claim of all stakeholders. The claims of different groups may conflict and in practice few organizations have the resources to manage all stakeholders. Union claims for higher wages can conflict with consumer demands for reasonable prices and
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stockholder demands for acceptable returns. Often the company must make choices. To do so, it must identify the most important stakeholder and give highest priority to pursuing strategies that satisfy their needs. Typically, stakeholder impact analysis involves the following steps. 1. Identifying stakeholders 2. Identifying stakeholder interest and concerns 3. Identifying what claims stake holders are likely to make on the organization 4. Identifying the stakeholders that are most important from the organizations perspective. 5. Identifying the resulting strategic challenges. For example if community involvement is identified as a critical stakeholder claim, it must be incorporated in the mission statement and any strategies that conflict with it must be rejected. Manager should pursue strategies that are in the best interest of the stockholders and maximize stockholder wealth.

MANAGEMENT GOALS V/S STOCKHOLDER GOALS

Why should managers want to pursue other strategies than those consistent with maximizing stockholder wealth? The answer depends upon the personal goals of professional managers. Managers may be motivated by desire for status, power, job security, income . In 1990s average American CEO earned 85 to 100 times as much as the average American worker. By comparison, in Japan the average CEO earns 17 times as much as the average worker. In Germany this ratio was 25.

TRADEOFF BETWEEN PROFITABILITY GROWTH RATE

P max

Profitability 27

P1 PG 2 0

G1 Growth Rate

G2

A growth rate of Go is not consistent with maximizing profitability. A moderate growth rate of G1 on the other hand does allow a company to maximize profits. Achieving a growth rate in excess of G1 requires diversification into areas that the company knows little about .Consequently it can only be achieved by sacrificing profitability . Yet G2 may be the growth rate favored by an Empire building CEO

STOCK BASED COMPENSATION SCHEMES.

To get around the problem, companies have introduced stock-based compensation schemes for their senior executives. These schemes are designed to align the interests of managers with those of stockholders.

STRATEGY AND ETHICS

While a Proposed strategy may enhance the welfare of some stakeholder groups, it may harm other. With falling demand and excess capacity, a steel producer may decide to close down a steel making facility that is the major source of employment in a small town. It could result in thousands of people losing employment and the death of a small town. Is such a decision ethical. Strategic management theory by
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Charles W.K Hill/ Gareth R/ Jones

POLITICAL LEGAL ENVIRONMENT

TECHNICAL ENVIRONEMENT

Potential Competitors THREAT OF NEW ENTRANCE

SOCIAL Supplier ENVIRONMENT Power

Rivalry Amongst Firms

Buyer Power

THREAT OF SUBSTITUTE PRODUCTS Substitutes DEMOGRAPHIC ENVIRONMENT 29 MACRO ECONOMIC ENVIRONMENT

FIVE FORCES MODEL OF EXTERNAL FIVE FORCES MODEL OF EXTERNAL Environment (Threats)
The strongest competitive force or forces determines the profitability of an industry and so are of greatest importance in strategy formulation.

A) THREAT OF ENTRY
New entrants to an industry bring new capacity, the desire to gain market share and often-substantial resources. Companies diversifying through acquisition into the industry from other markets often leverage their resources. The seriousness of the threat of entry depends on the barriers present and on the reaction from existing competitors that the entrant can expect.

Major Sources of Barriers to Entry

1.

Economies of scale: -

These economies deter entry by forcing the aspirant either to come is on a large scale or to accept a cost disadvantage. Economies of scale an also act as hurdles in distribution, utilization of the sales forces, financing and nearly any other part of a business.

2. Product Differentiation: -

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Brand identification creates a barrier by forcing entrants to spend heavily to overcome customer loyalty. It is perhaps the most important entry barrier in soft drinks, over the counter drugs cosmetics.

3. Capital Requirements: Capital is necessary not only for fixed facilities but also for customer credit, inventories and absorbing star up losses. The need to invest large financial resources in order to compete creates a barrier to entry. Particularly if the capital is required for activities. Like R&D

4. Cost Disadvantages Independent of Size: Entrenched companies may have cost advantages not available to potential rivals, no matter what their size and attainable economies of scale. These advantages can stem from the effects of the learning curve, proprietory technology, and access to the best raw materials resources, govt subsidies or favorable locations.

5. Access to Distribution Channels: A new food product, for example, must displace others from the supermarket shelf via price breaks, promotions, intense selling efforts etc. The more limited the wholesale or retail channels are and the more that existing competitors have these tied up, obviously the tougher that entry into the industry will be.

6. Govt Policy: The govt can limit or even foreclose entry to industries with such controls as license requirements and limits on access to raw materials.

B) Powerful Suppliers And Buyers: A supplier group is powerful if 1. If is dominated by a few companies and is more concentrated than the industry it sells to.

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2. Its product is unique or at least differentiated or if it has built up switching cost. Switching costs are fixed costs buyers face in changing suppliers. 3. It poses a credible threat of integrating forward into the industrys business. 4. The industry is not an important customer of the supplier group. A buyer group is powerful if 1. If purchases in large volumes. 2. The products it purchases from the industry are standard or undifferentiated. 3. It earns low profits, which create great incentive to lower its purchasing costs. 4. The industrys product is unimportant to the quality of the buyers products or services e.g. can an aero plane industry afford to buy a low quality product. 5. The buyer poses a credible threat of integrating backward. In the ready to wear clothing industry, as the buyers (Departmental stores) have become more concentrated and control has passed to large chains the industry has come under increasing pressure and suffered falling margins. The industry has been unable to differentiate its product or increase switching cost that lock in its buyers enough to neutralize these trends.

C) Threat of substitute Product: The existence of close substitutes presents a strong competitive threat, limiting the price a company can charge and thus its profitability. However, if a companys products have few close substitutes then, other things being equal, the company has the opportunity to raise prices and earn additional profits. Consequently, its strategies should be designed to take advantage of this fact. For example, companies in the coffee industry compete indirectly with those in the tea and soft drink industry. The price that companies in the coffee

32

industry can charge are limited by the existence of substitutes such as tea and soft drinks 1. Rivalry among established companies: - If this competitive force is weak companies have an opportunity to raise prices and earn greater profits. Price competition limits profitability by reducing the margins that can be earned on sale. The extent of rivalry among established companies within an industry is largely a function of three factors. 1. Industry competitive structure 2. Demand conditions 3. The height of exit barriers in the industry

1.Industry Competitive Structure: This refers to the number and size distribution of companies in an industry. Structures vary from fragmented to consolidated. A fragmented industry contains a large number of small companies, none of which is in a position to dominate the industry. (Perfect competition) .A consolidated industry is dominated by a small number of large companies(oligopoly).Fragmented industry includes agriculture, health clubs, real estate brokers etc. Consolidated industry includes aerospace, automobiles, pharmaceutical etc. Low entry barriers and commodity type products that are hard to differentiate characterize fragmented industry. The combination of these traits tends to result in boom and bust because of the ease of new entry and will be followed by price wars and bankruptcies. Since differentiation is often difficult in these industries, the best strategy for a company to pursue in such circumstances may be one of cost minimization. This strategy allows a company to rack up high returns in a boom and survive any subsequent bust. Consolidated industries are interdependent. Competitive actions of one company directly affects the profitability of others in the industry. Price wars constitute a major threat. Companies reduce this threat by following the price lead set by a dominant company in the industry. When price wars are a threat, companies compete on non-price factors such as product quality and design features. This type of competition constitutes an attempt to build brand loyalty.

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2. Demand Conditions.
Growing demand tends to moderate competition by providing greater room for expansion. Demand grows when the market as a whole is growing through the addition of new consumers or when existing consumers are purchasing more of an industrys products. When demand is growing companies can increase revenues without taking market share away from other companies. Thus growing demand gives a company a major opportunity to expand operations. When demand is declining, a company can attain a growth only by taking market share away from other companies.

3. Exit Barriers:Exit barriers are a serious competitive threat when industry demand is declining. Exit barriers are economic, strategic and emotional factors that keep companies competing in an industry even when returns are low. Common exit barriers include the following. 1. 2. 3. 4. Investments in plan- equipment that have no alternative uses. High fixed costs of exits such as compensation to employees. Emotional attachments to an industry. Strategic relationship between business units.

Strategic management by Robinson.

Threat in an international context

Non-domestic competition is an important consideration in five forces analysis of the attractiveness of the industries. Swiss mechanical watch industry underestimated the threat from U.S and Japanese electronics firms who developed electronic time keeping devices. It took several years for the Swiss watch industry to recover from this unanticipated threat.

34

U.S automobile industry also underestimated the threat posed by Japanese Car manufactures.

What Is Competitiveness
The ability to learn faster than your competitor may be the only sustainable competitive advantage. Competitiveness is about relooking at your business every day. It is not about leading today. It is about tomorrow. The unique combination of quality, service and price (QSP) has to be continuously fine tuned to turn satisfied customers into delighted customers.

How Competitive Is Your Business

1. Which customers are you serving today, how will your future customers be different? 2. Who are your competitors today, who will they be tomorrow? 3. What is the basis of your competitiveness advantage today? What will that be in future? 4. Where do your margins come from today? Where will they come from tomorrow? 5. What skills or capability make you unique today? What will make you unique tomorrow? Competitiveness is a basket with excellence in all fields planning, manufacturing, marketing and service. It means being truly world class at all points of time. This includes efficiency, performance, productivity and growth.

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CII-LM Thapar Center for Competitiveness Chandhigarh

Strategic Groups Within Industries Companies with in one industry might differ from each other and the difference might have implication for the opportunities and threats that they face. In practice, companies within an industry often differ from each other with respect to factors such as distribution channels used, market segments served, product quality, technological leadership, customer service, pricing policy, advertising policy etc. With in most industries, it is possible to observe groups of companies in which each member follows the same basic strategy as other companies in the group but a strategy different from the one followed by companies in other groups. These groups of companies are known as strategic groups. For example in pharmaceutical industry, two main strategic groups stand out one groups characterized by heavy R&D spending and focus on developing new proprietory block buster drugs. The companies in this proprietory group are pursuing high risk high return strategy. The second strategic group might be characterized as the generic drug group. This group is characterized by low R&D spending and an emphasis on price competition. This is low risk- low return strategy because they can not charge high prices.

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High

Propritory group Dr. Reddy Lab

Generic Group Cipla

Low Low

R&D Spending

Implication of strategic groups

Companies immediate competitors are those in its strategic group since all the companies in a strategic group are pursuing similar strategies, consumers tend to view the product of such enterprises as being direct substitutes for each other. Thus a major threat to a companys profitability can come from within its own strategic group. Different strategic groups can have a different standing with respect to each of Porters five competitive forces. The risk of new entry by potential competitors, the degree of rivalry among companies with in a group, the
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bargaining power of buyers, the bargaining power of suppliers and the competitive force of substitute products can all vary in intensity among different strategic groups within the same industry. Managers must evaluate whether their company would be better off competing in a different strategic group. Yet this opportunity is rarely without costs mainly because of mobility barriers between groups. Mobility barriers are factors that inhibit the movement of companies between groups in an industry. They include both the barriers to entry into a group and the barriers to exit from a companys existing group.
Limitation of the five forces and strategic group models

a) Strategic models in a dynamic world: Over any reasonable length of time, in many industries competition can be viewed as a process driven by innovation. Companies that pioneer new products, processes or strategies can often earn enormous profits. Apple computers pioneered the growth of personal computers. Dell pioneered new way of selling personal computers. Wal-Mart pioneered the low price discount superstore concept. Two decades ago, large, integrated steel companies populated steel industry. The industry was a typical oligopoly. Dominated by a small no. of large producers in which tactic collusion was practiced. Then came a new technology electric are furnaces. Now the structure of the Period of industry is much more,fragmented and price competitive. It has happened Disequilibrium because of lower fixed cost of production because of innovation. Michael porter the propagator of five forces and strategic group concepts has explicitly recognized the role of innovation.

Consolidated (Oligopoly)

Fragmented To

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Time

His view is that after a period of turbulence triggered off by innovation the structure of an industry once more settles down into a fairly stable pattern. Once the industry stabilizes in its new configuration, the five forces and strategic group concepts can once more be applied. This view of the evolution of industry structure is often referred to as punctuated equilibrium. The punctuated equilibrium view holds that long periods of equilibrium, when an industrys structure is stable, are punctuated by periods of rapid change when industry structure is revolutionized by innovation. It implies that five forces and strategic group models are applicable while the industry is in a steady state but not while it is undergoing radical restructuring due to innovation or some other discontinuity. But some authors argue that many industries are hyper competitive. They are characterized by permanent and ongoing innovation (e.g. computer industry) of equilibrium. In such cases,five forces model is of limited value since of a moving picture.

Strategy Implementation
Strategy implementation is translating thoughts into strategic action Operational zing the strategy involves the following steps
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1. Identification of measurable, mutually determined annual objectives. 2. Developing specific functional strategies.
3. Developing and communicating concise policies to guide decisions.

Annual Objectives
1. Translation of long-term aspirations into years budget. 2. Specific basis for monitoring and controlling organizational performance. 3. Alert top management to variations in key performance areas.
4. Specific, measurable statements of what an organizations subunit is

expected to achieve is contributing to accomplishment of business grand strategy.

Qualities / characteristics of effective annual objectives.

1. Linkage to long-term objectives. 2. Add breadth and specifies what must be accomplished in order to achieve long-term objective. 3. Provide targets for performance of operating. 4. Consistency in annual objectives e.g. when, what and how measurements are to be done. 5. Annual objectives must be measurable.
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6. Objectives must be prioritized objectives which are critical to success deserve additional attention.

In short annual objective must be 1. Understandable 2. Suitable 3. Acceptable 4. Flexible

5. Motivating

Benefit of Annual Objectives

1. Tangible and meaningful focus through which managers translate long term objectives and grand strategies into specific actions. 2. Clarity of purpose a better understanding of each persons role in business mission. 3. Basis for strategic control:- developing budgets, schedules, trigger points, and other mechanism for controlling strategy implementation.

Problem in strategic Implementation

1. Implementation took more time than originally planned. 2. Unanticipated major problems arose 3. Activities were ineffectively coordinated. 4. Competing activities and crisis took attention away from implementation. 5. The employees had sufficient capabilities to perform their jobs. 6. Lower level problems were inadequately timed.
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7. Uncontrollable external factors created problems. 8. Departmental managers provided inadequate leadership and direction. 9. Key implementation tasks and activities were poorly defined. 10.The information system inadequately monitored activities.

Strategic Implementation
Strategic implementation is sum total of all the activities and choices required for the execution of a strategic plan. It is a process by which strategies and policies are put into action through the development of programmes, budgets and procedures. Three factors are to be taken into consideration for strategic implementation. 1. What must be done to align the companys operations in the new intended direction. 2. Who are the people who will carry out the strategic plan? 3. How is everyone going to do what is needed.

Who Implement The Strategy

Diverse Set of People 1. 2. 3. 4. 5. Vice presidents of functional areas. Directors of divisions Plant managers Project managers. First line supervisors. 6. Every employee.

Prerequisites for implementation

1. Programmes. 2. Budgets. 3. Procedures.

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4. Achieving synergry.

How Strategy is to be implemented

1. 2. 3. 4. Organizing the activities. Staffing Directing. Controlling the activities.

FACTS
1. Strategies not implemented, no matter how brilliant they may be are little more than academic exercises. 2. Ability to implement strategies is one of the most valuable of all managerial skills. 3. Average success rate is less than 10%

Obstacles to Strategy implementation

The organizational immune system. 1. 2. 3. 4. Requirement for organization to move in new direction. Major organizational change. Degree of inertia affecting the change. Phenomenon of trying to maintain the previous course and resist change.

Difficult Paradoxes
1. Elements of change are counter intuitive. 2. Irreconcilable problems for leaders. 3. To get everyone in an organization to buy into proposed changes. 4. Involvement of many people and taking risks.
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Number of Variables Involved Number of variables involved add to the complexity of implementation. Organizational behavior, Individual Behavior, Social Factors, Physical Setting, Organizing arrangements, technology etc. are the factors affecting strategic implementation. Mapping all the elements involved in the change is an enormous task itself.

Interconnectedness of elements effecting change

A change to one element has a ripple effect that impacts other parts of the model, which in turn have their own ripple effects. Moving all the elements in a common direction balancing individual and organizational goals is a difficult exercise..

The Need To Change Everything At Once

Change in one or two factors can not Lead to the desired outcome. It needs redirecting an organization and need to address a number of overlapping and related issues. Resulting impression of the need to change everything at once often overwhelms managers

McKinseys 7s Framework For Strategic Implementation

1. 2. 3. 4. 5. 6. 7. Structure Systems Strategy Share Values Skills Staff Style.

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Functional Stragies : Functional, strategy is a short term game plan for a key functional area within a company. These are specific details about how key functional areas are to be managed in the near future. Key functional areas can be of marketing, finance, production, R&D and personnel. Functional strategies implement grand strategy by organizing and activating specific subunits of the company to pursue the business strategy in daily activities. Functional strategies translate grand strategy into action designed to accomplish specific annual objectives.

Distinction between grand and functional strategy : a) Time Horizon : Shorter time span focuses managers attention on what needs to be done now to make grand strategy work. Shorter time frame work allows functional managers to recognize current conditions and adjust to changing conditions in developing functional strategies.

b) Specificity: 1. 2. 3. 4. More specific than grand strategy Functional actions but grand strategy provides general direction Specific guidance to achieve annual objectives Adds substance, completeness and meaning to what a specific subunit of a business must do.

c) Participant:Functional level strategy is delegated by business level manager to principal subordinates for running operating area of the business. Involvement of operating managers is essential as he is the front runner and active involvement increases commitment to strategies developed.
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FUNCTIONAL STRATEGIES IN PRODUCTION / OPERATIONS

1. Facilities and equipment a. How centralized should the facilities be (one big facility or several small facilities) b. How integrated should the separate process be. c. To what extent mechanization or automation. d. Should size and capability be oriented towards peak or normal operating levels. 2. Purchases a. How many sources are needed. b. How do we select suppliers and manage relationships over time 3. Operations planning and control a. Should work be scheduled to order or to stock b. What level of inventory is appropriate c. What are key focus areas quality labour, cost, downtime, product usage etc d. Should maintenance be breakdown/preventive/predictive e. Job specialization/plan safety/ use of standards.

Functional Strategies in the Marketing Area

A)Product 1. Identification of customer needs 2. Features, product lines, packaging, quality and new product development 3. Productive service concept and target markets 4. Most profitable product lines. 5. Change to influence customer orientation 6. Which product do we emphasize

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B)Price
1. Approach to pricing strategy cost oriented/market oriented or competition oriented 2. Discounting structure. 3. Pricing policies- National / Regional differences. 4. Price segment to be tragetted. 5. Profit Margins. 6. Market skimming or Market Penetration.

C)Place
1. 2. 3. 4. Decision regarding channel management Level of market coverage. Priority of geographic areas. Channel objectives and structure 5. Sales organization structure.

D)Promotion
1. Key promotion priorities and approaches 2. Advertising, communication priorities and approaches liked to different products or markets 3. Media management 4. Promotion budgeting.

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Functional Strategies in Finance Area

1. Capital Acquisition Acceptable cost of capital Desired proportion of short term and long term, debt, preferred and common equity Balance between internal and external funding Appropriate risk and ownership structure. Levels and forms of leasing for providing assets.

2. Promotion
Priorities for capital allocation projects Final selection of projects Capital allocation by operating managers.

3. Dividing and working capital management

Proportion of earnings as dividend. Importance of dividend stability Cash flow requirements, minimum and maximum cash balances. Liberal / conservative credit polices. Payment timings and procedures.

Functional Strategies in R & D Area

1. 2. 3. 4. Research v/s commercial development Time horizon long term v/s short term. In house R&D or contracting out Centralized

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Functional Strategies in Personnel.

1. 2. 3. 4. 5. 6. Development of managerial talent. Employee recruitment, selection and orientation Career development and counseling and training and development Compensation, labour/union relations. Discipline, control and evaluations. Performance appraisal, 360 feed back

IDENTIFYING CORPORATE COMPETENCE AND RESOURCES Organizational capability factors.

Capabilities are most often developed in specific functional areas, such as marketing or operations or in part of a functional area, such as , distribution or R&D. It is also feasible to measure and compare capabilities in functional areas. Thus a company could be considered as inherently strong in marketing owing to a competence in distribution skills or a company could be competitive in operations owing to a superior R&D infrastructure. Organizational capability factors are strategic strengths and weaknesses existing in different functional areas within an organization which are of crucial importance to strategy formulation and implementation Financial capability Financial capability Factors relate to the availability, usage and management of funds.
1. Factors related to sources of funds -:

Capital structure, procurement of capital, financing pattern, working capital avaibility, borrowing capital and credit availability, reserves and surplus, relationship with lenders, and bank and financial institutions

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2.

Factors related to usage of funds -:

Capital investment, fixed asset acquisition, current assets, loans and advances, dividend distribution.

3. Factors related to Management funds -:

Financial accounting and budgeting systems, management control system, control system, risk return management, cost reducing and control, tax planning and advantages.

Typical strengths that support financial capability -:

1. 2. 3. 4. 5. 6. 7. 8. Access to financial resources Amicable relationship with financial institutions. High level of credit worthiness Efficient capital budgeting system Low cost of capital as compared to competitors. High level of share holders confidence. Effective management control system. Tax benefit due to various govt policies.
Reliance, Wipro, Maxhealth, Forties.

Example

Marketing Capability
Examples-: H.L.L Coke Pepsi, McDonald (Low Tech Generally) 1. Product related factors-: variety, differentiations mix quality,

positioning, packaging and others. 2. Price related factors-: Pricing objective policies etc. 3. Place related factors-: Distribution, transportation and logistics, marketing channels, etc. 4. Promotion related factors-: Promotion tools, sales promotion, advertising, public relationship etc. 5. Integrative and systematic factors-: marketing mix, market standing, company image, marketing organization marketing system, marketing management information systems

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TYPICAL STRENGTHS THAT SUPPORT MARKETING CAPABILITIES

Capabilities

1. Wide variety of products 2. Better quality of products 3. Sharply focused positioning 4. Lower prices 5. Price protection due to govt policies 6. High quality customer service 7. Effective distribution system 8. Effective sales promotion 9. High profile advertising 10. Effective marketing management information systems.

Operations Capabilities
1. Factor related to the production system-:

Capacity, location, layout, product or service design, work systems, degree of automation extent of vertical integration etc.
2. Factor related to the Operation and control system-:

Aggregate production planning, material supply, inventory cost and quality control, maintenance system and procedures and so on. 3. Factor related to the R&D system-: Personnel, facilities, product development, patent rights, level of technology used,technical collaboration and so on.

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Typical strength that support the operations capability

1. 2. 3. 4. 5. 6. 7. High level of capacity, utilization Favorable plant location High degree of vertical integration Reliable sources of supply Effective control of operational costs. Existence of good inventory control system Availability of high caliber R&D personnel 8. Technical collaboration with reputed firms aboard.
Examples -: Sundram Fasteners, Bharat Forge, L&T., Reliance, Infosys, Ranbaxy etc.

Personal capabilities
1. Factor related to the Personal system-:

System for manpower planning, selection, development, compensation, communication and appraisal, position of the personnel deptt with in the organization, procedures and standards and so on. 2. Factor related to the organizational and Employees Characteristics-: Corporate image, quality of managers, staff and workers; working condition, availability of developmental opportunities etc. 3. Factor related to the Industrial Relations-: Union management relationship, collective bargaining, safety, welfare and security, employee satisfaction etc

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TYPICAL STRENGTHS THAT SUPPORT PERSONNEL CAPABILITIES

1. Genuine concern for human resource management and development. 2. Efficient and effective personnel systems. 3. Excellent training facilities and opportunities. 4. Congenial working environment 5. Highly satisfied and motivated workforce. 6. High level of organized loyalty. 7. Low level of absenteeism 8. Safe working conditions.
Example -: ONCG / IOC / NTPC / TATA

INFORMATION MANAGEMENT CAPABILITY

1. Factor related to the processing and synthesis of information -:

Data base management, computer system, software capabilities, etc. 2. Factor related to the Acquision and Retention of information-: Sources, quantity, quality and timeliness of information, retention capacity and security of information. 3.Factor related to the retrieval and usage of information:Availability and appropriateness of information formats and capacity to assimilate and use information. 4. Factor related to the Transmission and Dissemination-: Speed, scope, width and depth of coverage of information and willingness to accept information.

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5.Integrative Supportive factors -: Availability of IT infrastructure its relevance and compatibility to the organizational needs, up gradation of facilities, availability of computer professionals and top management support.

TYPICAL STRENGTHS THAT SUPPORT INFORMATION MANAGEMENT CAPABILITY

1. 2. 3. 4. 5. 6. 7. 8. Ease and convenience of access to information sources. Widespread use of computerized information systems Availability of high tech equipment Positive attitude to sharing and disseminating information Networking of computer systems Presence of foolproof information security systems. Presence of buyers and suppliers conversant with IT applications. Top managements understanding of and support to IT and its application with in the organization.

Corporate Level Strategies

Corporate level strategies are about the choice of direction that the firm adopt in order to achieve its objective. They are basically abut decisions related to allocating resources among the different business of a firm, transferring resources from one set of business to other, and managing and nurturing a portfolio of businesses so that overall corporate objectives are achieved. 1. Stability 2. Expansion 3. Retrenchment 4. Combination Stability strategy is adopted by an organization when it attempts an incremental improvement of its function performance expansion strategy is followed when an organization aims at high growth. Retrenchment strategy is followed when an organization aims at a contraction of its activities.

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Expansion Strategies

Diversification
Diversification can be into an area of unrelated goods or related goods. In 1960, diversification fueled tremendous corporate growth. Diversification into unrelated goods was on the assumption that good managers could manage any business allowing the formation of huge conglomerates of completely unrelated business. The 1980, brought a broad based effort to restructure corporation as managers stripped out unrelated business and focused on the business of their core competence.

Core Competence
In the present era since the 90s corporations have once again taken an interest in using diversification to grow. The fundamental role of diversification is for corporate mangers to create value for stockholders in ways stockholders can not do better for themselves. When corporate managers diversify a corporation they essentially invest stockholders funds in additional business. A corporation value ultimately depends upon how well its various business units perform. Superior business level performance requires a sustained competitive advantage, corporate managers should seek diversification moves that add business with competitive advantages or that improve the competitive advantages of their existing business. Diversification moves that improve core process, execution or enhance a business unite structural position, thereby increasing its competitive position, present the most likely ways of investing stockholders funds better than the stockholders themselves could.

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Forms of Diversification
Vertical Horizontal Global

Vertical Integration:- When corporation performs more than one step

of the process involved in converting raw materials into a product delivered and ready for consumption, it is considered to be vertically diversified. A vertically diversified corporation integrates its business so that one efficiently feeds the other. Coordinating upstream operations (those closer to the raw materials) with the down stream operations (those closer to the customer) is called vertical integration. Backward integration means retreating to the sources of raw materials while forward integration moves the organization nearer to the ultimate customer.

Benefit of the vertical integration:1. vertical integration often eliminates or at least reduces the costs of buying

and selling (transaction costs) incurred when separate firms carry out the various steps of converting raw materials to finished goods. 2. Smoother, better coordinated operations.

Limits / Disadvantages :1. Unbalanced capacities may limit transaction cost savings. For example a television tube has a much higher minimum efficient production scale than any other component. If the minimum efficient scale of one part of a vertically integrated corporation differs radically from that of another, the excess capacity of the larger corporation must be disposed of profitably. This usually means that the excess capacity must be sold to other firms. This incurs transaction costs which is against the idea of vertical integration. 2. Firm may reduce their flexibility. 3. Firm becomes more susceptible to organized labour strikes

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4. Difficultly may arise in integrating different specializations.

When to Integrate Vertically

1. Are our existing supplier or customer meeting the final customer needs:Nike limits its in-house work to athletic shoe design and marketing strategy and outsources production to manufacturers in southeast Asia. 2. How Volatile is the Competitive Situation Highly volatile situation with changing technologies evolving customer needs and unpredictable competitors are poor candidates for vertical integration. 3. Is it possible to own a business without actually buying it:Maruti is in a position to enforce its quality standards on its vendors without buying them out. 4. Will vertical integration enhance the businesss structural position Vertical integration may move you into a line of business that has historically held greater market power and is consequently more profitable.

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Horizontal Diversification
Horizontal Diversification entails moving into more than one industry. Infact the central issue in managing horizontal diversification is to determine how closely related the new business should be to the old business. Related v/s non related diversification has product mixed results. But some consistent evidence suggests that related diversification is somewhat more profitable.

The Case for Conglomerates :Building conglomerates is based on the assumptions that corporate managers have the expertise to recognize undervalued stocks that many individual investors would miss. For financing acquisitions, corporations have economies of scale that are unavailable to individuals purchasing limited number of shares.

The Case Against Conglomerate:A) Conglomerate Discounts:This exists when the stock of a conglomerate sells for less than the total of the individual stocks would sell for if each business in the corporate sold its stock separately. Conglomerate discount are evidence that the market perceives Negative Synergy meaning that the sum of the pieces is worth more than the whole. This perception might arise from a fear that managing a diverse and complex corporation entails excessively high overhead. Conglomerate discounts are measured by P/E ratio. A high P/E ratio means that investors have high expectations for that corporation and will pay relatively more for its stock

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B)Takeover Premiums:If one corporation wishes to buy another, it can expect to pay a takeover premium. This is the differences in the normal trading price of the take over targets stock and the price required to entice stockholders to sell enough shares to give the acquiring firm controlling interests. It is not uncommon to pay a premium of 50% or more to acquire controlling interests in a corporation.

Means of Diversification :1. Acquisitions 2. Strategic Alliances: Joint Ventures 3. Internal Development

Acquisitions:This refers to the purchase of a company that is already in operation Acquisition can quickly diversify a corporation and improve the value of stockholders investment. But the track record of success with mergers and acquisitions is not very encouraging. A study conducted by Mckinsey and co. Found that only 23% of mergers and acquisitions examined over a 10 years period generated return in excess of the costs incurred by the deal. In acquisitions following points need to be considered. 1. What is the cost of Acquisition? 2. How will the acquiring firm benefit? 3. How much of the deal can be financed internally and how much will require outside capital? 4. Will the combination business be able not only to repay the cost of making the deal but also to generate returns for stockholders, sufficient to beat any comparable alternative investment?

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5. The human and organizational and cultural aspects of acquisition. Acquisitions are typified by managerial conflicts that stem from feelings of inferiority in the acquired firm and feelings of superiority in the acquiring firm. This may result in high managerial turnover. 6. Acquisition should be chosen for their potential ability to increase the Competitiveness for one or the other of the firms, there by creating value for stockholders.

Strategic Alliances:- Joint Ventures

Diversification by strategic alliances refers to arrangements in which corporations join forces to form cooperative partnerships. Typically neither company owns the other, though often they create a third commercial entity usually referred to as a joint venture. Strategic alliance makes the most sense when each party has strengths that offset the others weaknesses.

Benefits :1. Neither partner must invest to develop the full range of capabilities required by the new venture. 2. Financing should be easier to attract because the new business has two backers instead of just one and the partners can share development risks.

Disadvantages :1. Achieving close coordination is difficult between two companies that almost certainly have different goals, strategies, procedures and cultures.

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Guidelines for Success of Joint Ventures

1. Establish a clear understanding between the partners:Potential partner should discuss in detail The mission of a new business The market it will serve The products it will offer The obligations of each partner How the joint venture will be dissolved, if necessary.

2. Do not depend only on the words of contract : Joint ventures succeed often because managers work to make them successful more than because of legally binding agreements.:3. Do not try to shortchange your partner: There is no space for greed and it should be collaborative effort.

III) Internal Development

This refers to building new business more or less from the ground up a process also called corporate entrepreneurship. Corporate may play the role of venture capitalist to provide risk capital, they may also provide low cost space, spare equipments and limited managerial oversight.

Benefit of Diversification 1) Capitalizing on core competencies:Core competencies are the most significant value creating skills within a corporation. These skills can often be extended to products or markets beyond those in which they were originally developed.

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2) Increase the Market Share :Member ship in the larger corporate enterprise may provide a business with markets or distribution channels it could not access on its own. If a small drinks company aligns with Wal-Mart then it will have much market power.

3) Sharing Infrastructure:Infrastructures are tangible resource such as production facilities, Marketing programmes, purchasing procedures and delivery routes. These are basic nuts and bolts of any business and the ability to share these resources can be an important benefit of diversification.

4) Balancing Financial Resources :Different Businesses even within the same corporation generate different levels of cash. Some business produce more cash than necessary to continue operating while others need more than they can produce. Diversified business can balance cash more efficiently.

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Business Level Strategies (Resources, Capabilities and Competencies)

Competitive advantage of any organization rests on four main building blocks. 1. 2. 3. 4. Efficiency Quality Innovation Customer Responsiveness.

All companies must have at least one factor to remain competitive.

Superior Quality

Superior Efficiency Competitive Advantage

Superior Customer Responsiveness

Superior Innovation

Company has competitive advantage when its profit rate is higher than the average for its industry. For this to happen one the following conditions should prevail.

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1)The companys unit price must be higher than that of the average company. 2)The companys unit cost must be lower than that of the average company. 3)The company must have both a lower unit cost and higher unit price than the average company. The company can charge a higher price if it can differentiate its product in some way. This price is called premium pricing. Michelle porter has referred to low cost and differentiation as generic business Level Strategies.

Superior Efficiency
One of the keys to achieving high efficiency is to utilize inputs in the most productive way possible. The most important component of efficiency for most companies is employee productivity which is usually measured by output per employee. Greater efficiency will lead to lower unit costs.

Quality
Quality products are goods and services that are reliable and do the job they were designed for and do it well. High quality products create a brand name reputation and can charge a higher price for its products.

Innovation
Innovation can be defined as any thing new about the way a company operates or the products it produces. This innovation includes advances in. 1. 2. 3. 4. 5. Products Production Process Management Systems Organizational Structures Strategies Developed by a company

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Innovation is perhaps the single most important building bloc of competitive advantage. Xeroxs development of photocopier. Intels development of latest microprocessor H.Ps development of the lesser printer, Baush and Lambs development of contact lenses, Sonys development of walkman are all example of innovation.

Increased Reliability

Higher Prices

Increase Quality

Higher Profits

Increased Productivity

Lower Cost

Efficiency

Lower Unit Cost Quality Innovation Higher Unit Prices

Customer Responsibility

Impact of efficiency quality customer responsiveness and innovation on unit cost and prices.
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Resources and Capabilities: - Resources refer to the financial, physical human, technological and organizational resources of the company. Resources are of two kinds. 1. Tangible:- Land, Buildings, Plant, Equipment 2. Intangible:- Brand names, reputation, patents technology, marketing know how, a companys capabilities are the product of its organization structure and control systems. Capabilities are by definition intangible. Strategy and Competitive Advantage:- The primary objective of strategy is to achieve a competitive advantage. A company needs to pursue strategies that build on its existing resources and capabilities as well as strategies that build additional resources and capabilities.

Durability of Competitive Advantage

How long will competitive advantage last once it has bee created . the answer depends upon 3 factors. 1. Barriers to Imitation. 2. Capabilities of competitiors. 3. General dynamism of the industry environment. 1) Barriers to Imitation:- (Resources) Intangible resources can be more difficult to imitate. Brand names are important because they symbolize a companys reputation. Movement of skilled marketing personnel between companies may facilitate the general dissemination of know-how. In theory patent system should make technological know how relatively immune to imitation but many times it is possible to Invent Around patents.

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Barriers to Immitation:- (Capabilities)

Imitating a companys capabilities tends to be more difficult than imitating its tangible and intangible resources, chiefly because a companys capabilities are often invisible to outsiders. In theory competitors could gain insight into how a company operates by hiring few people away from that company. However companys capabilities are the product of how numerous individuals interact with in a unique organisational setting.

2) Capabilities of Competitors:When competitors have long established commitments to a particular way of doing business they may be slow to imitate an innovating companys competitive advantage.

3) Industry Dynamism:A dynamic industry environment is one that is changing rapidly. When barriers to imitation are low, capable competitor abound and the environment is very dynamic, with innovations being developed all the time, then competitive advantage is likely to be transitory.
Barriers to Imitation Capability of Competitors Industry Dynamism

Durability of Competitive Advantage

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Why do companies fail? Failing companies typically earn low or negative profits. They are at a competitive disadvantage. There are three related reason for failure. 1. Inertia 2. Prior Strategic Commitments 3. Icarus paradox.

Inertia :Companies find it difficult to change their strategies and structure in order to adopt to changing competitive conditions IBMS troubles were caused by dramatic decline in the cost of computing power as a result of innovations in microprocessors. As a result market started shifting from mainframe computers towards personal computers. IBM failed to shift the focus of its efforts away from mainframes towards personal computers. Capabilities are difficult to change because a certain distribution of power and influence is embedded within the established decision making and management processes of an organization.

Prior strategic Commitments:IBM, for instances, had made major investments in the mainframe computers business . It was stuck with significant resources that were specialized to that particular business.

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The Incarus Paradox:In Greek mythology incarus made a pair of wings to attach to himself by wax and escaped from the prison where he was held. He flew so well that he went higher and higher until the heat of the sun melted the wax. His greatest asset, his ability to fly, caused his demise. Many companies become so dazzled by their early success that they believe more of the same type of effort is the way to future success. As a result, the company can become so specialized and inner diverted that it loses sight of market realities and may end up producing novel but completely useless products.

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BCG Growth / Share Matrix Relative Competitive Position (Market Share)

High

Sta rs

A select few

Question Marks

Reminder Divested

Net Supplier of Resources Harvested or Liquidated Low Dogs Cash Cows High Low

High in market share signifies market leadership

STARS High Growth / High Competitive Position 1. These are businesses in rapidly growing markets with large market share. 2. Stars represent best long run opportunities growth and profitability 3. These businesses require substantial investment to maintain and expand their dominant position in a growing market 4. Investment requirement is often in excess of what can be generated internally. CASH COWS Low Growth, High Competitive Position

1. Cash cows are high market share businesses in maturing, low growth markets or industries. 2. Because of minimal investment requirement of growth, these businesses often generate cash in excess of their needs. 3. These businesses are selectively milked 4. Cash cows are yesterdays Star and remain the current foundation of their corporate portfolios. 5. They provide the cash to pay corporate overheads dividends and also provide Debt capacity 6. They are managed to maintain their strong market share while efficiently generating excess resources for corporate wide use.

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DOGs Low Growth Low Competitive Position 1. These businesses are in saturated mature markets with intense competition and low profit margins. 2. Because of their weak position, these businesses are managed for short term cash flows through ruthless cost cutting. 3. They are eventually divested or liquidated once the short term harvesting is maximized. 4. According to some studies well managed dogs can turn out to be positive and highly reliable resource generators. 5. Well managed dogs combine a narrow business focus, emphasis on high product quality and moderate prices, cost cutting and cost control and limited advertising. QUESTION MARK High Growth / Low Competitive Position 1. Question mark businesses are cash guzzlers because their cash needs are high as a result of rapid growth. 2. Their cash generation is low due to small market share. 3. Because market growth rate is high, a favorable market share should be easier to obtain than with the Dogs in the portfolio. Limitation of BCG Matrix 1. Measuring market share and growth rate is difficult this creates the potential for distortion or manipulation 2. Dividing the matrix into four cells based on high/ low classification scheme is somewhat simplistic. It does not recognize the markets with average growth rates or the business with average market shares. 3. The relationship between market share and profitability underlying the BCG matrix varies across industries and market segments. In some industries a large market share creates major advantages in unit costs; in others it does not. 4. The BCG matrix is not particularly helpful in comparing relative investment opportunities across different business units in the corporate port folio. 5. The attractiveness of an industry may increase based on technological, seasonal, competitive or other considerations as much as on growth rate. 6. The four colorful classifications in the BCG matrix somewhat oversimplify the types of businesses in a corporate portfolio. 7. Widespread dislike of dog, question mark, cash cow and star terminology. It creates motivational problems.

One study suggests a preference for such strategy labels as Build Hold; Harvst and withdraw rather than star, Cash Cow, Question Mark and Dog.

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General Electrics Nine Cell Planning Grid

Market Size Growth Rate Industry Profit Social, Environmental, Competitive Intensity Seasonality Technology. Cyclical Economies of Scale Legal and Human Impacts.

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3. Industry Attractiveness Factor :Market growth, size , industry profitability, competition, seasonality and cyclical qualities, economies of scale, technology and social, environmental leagal / human factors are identified as enhancing industry attractiveness. 4. Each Industry Attractiveness Factor is assigned a weight that reflects its perceived importance relative in to the other attractiveness factors 5. e.g Industry attractiveness factor Market Size Project Mkt Growths Technological Requirements Concentration Rating High = 1, Medium = .5 low = 0 6) Business Strength factor Relative Market Share Production Capacity Production Efficiency Production Location Technological Capability Sales Organization Promotion Advantage Weight 20 10 10 20 20 15 5 ------100 Rating 0.5 1.0 1.0 0 0.5 1.0 0 ------Score 10 10 10 0 10 15 ------55 w.t 20 35 15 30 Rating 0.5 1.o 0.5 0 Score 10 35.0 7.5 0

Rating High =1, Medium = 0.5, Low = 0 7. The above example Illustrate how one business with in a corporate portfolio might be assessed using G.E Planning grid. 8. What factors should be included or excluded as well as how it should be rated and weighted is primarily a matter of managerial judgment. 9. Three basic strategi approaches are suggested for any business:(a) Invest to grow (b) invest selectively and manage for earnings (c) Harvest or Divest for resources. Invest to grow is like Stars in BCG. Harvest / Divest is like (Dogs) in BCG

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Differences Between BCG and G.E Approach

(1). Terminology used in G.E is preferable as it is less offensive (2). Multiple measures associated with each dimension of the G.E grid tap more factors relevant to business strength and market attractiveness than simply market share and market growth. (3). Nine cell format allows finer distinction by including Average between High and Low Grand Strategy Selection Matrix

Overcome Weaknesses
Turn around or Retrenchment Liquidation Internal Resources Concentration Market Development Product Development Innovation I I II II Vertical Integration

I External I Resources V Horizontal Integration Concentric Diversification Joint Venture

Maximize Strengths
Quadrant I Firm in Qudrant I often views itself as overly committed to a particular business with limited growth opportunities or involving high risks because the company has All its eggs in one basket.One solution is vertical integration However external orientation to overcome weakness usually result in the most costly grand strategy. The decision to acquire a second business demands both large initial time investment and sizable financial resources. Thus strategic Managers considering these approaches must guard against exchanging one set of weaknesses for another. Quadrant II A more conservative approach to overcome weaknesses is in Quardant II. Firms often choose to redirect resources from one business activity to another with in the company.

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Quadrant III The most common approach is concentration that is market penetration. The business that selects this strategy is strongly committed to its current products and markets. It will strive to solidify its position by reinvesting resources to fortify its strength. Two alternatives are product and market development. With either of these strategies the business attempts to broaden its operations. A final alternative for firm is innovation. Quadrant IV In Quadrant IV Horizontal integration is attractive because it enables a firm to quickly increase output capability. Concentric diversification is a good second choice. Because the original and newly acquired business are related, the distinctive competencies of the diversifying firm are likely to facilitate a smooth, synergetic and profitable expansion . The final option is joint venture.

STARS

Model of Grand Strategy Clusters

High Market Growth
Reformulation Horizontal Integration, Divestiture, Liquidation Question mark?

Strong Competitive Position Concentration Conglomerate Diversification Joint Venture

I II II

I I Weak Competitive I Position V Turn around Divest Liquidate Concentric Diversification Conglomerate Diversification

CASH COW

Question Marks Low Market Growth

It is a modification of BCG matrix. A Business Situation is defined in terms of the growth rte of the general market and the companys competitive position in that market. A business can be in one of four quadrants 1. 2. 3. 4. Strong competitive position in rapidly growing market. Weak position in a rapidly growth market Weak position in a slow growth market Strong position in a slow growth market 75

Firm in Quadrant I Are in excellent strategic position. One obvious strategy for such firms such firms is continued concentration in their current business. Because consumers seem satisfied with the firms current strategy, it would be dangerous to shift notably from the established competitive advantages. However if the business has resources that exceed the demands of concentration strategy, it should consider vertical integration; either forward or backward integration helps a businesses protect its profit margins and market share by ensuring better access to either consumers or material inputs. Also quadrant I firms might be wise to consider concentric diversification to diminish the risks associated with a narrow product or service line. With this strategy heavy investment in the companys basic area of proven ability continues. Firm in Quadrant II must seriously evaluate maintaining their present approach to the market place. If a firm has competed long enough to accurately assess the merits of its current grand strategy, it must determine. (1) The reasons its approach is ineffectual (2) Whether the company has the capability to compete effectively. Depending upon the answers to these questions, the firm should choose one of four grand strategy options; formulation of concentration strategy, horizontal integration, Divestiture or Liquidation. In a rapidly growing market, even a small or relatively weak business is often able to find a profitable niche. Firm in Quadrant III strategy managers, who have a business in Quadrant III and feel that continued slow market growth and relatively weak competitive position are going to continue, will usually attempt to decrease their resources commitment to that business. Minimal withdrawal is accomplished through retrenchment. This strategy has the side benefits of making resources available for other investments and motivating employees to increase their operating efficiency. An alternative strategy is to divest resources for expansion through investment in other businesses. This approach involves either concentric or conglomerate diversification, because the firm wants to enter more promising arenas of competition than forms of integration or development would allow. The final option for Quadrant III are divestiture if an optimistic buyer can be found and Liquidation.

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Firm in Quadrant IV Quadrant IV businesses (Strong Competitive Position is a slow growth market) have a basis of strength from which to diversify into more promising growth areas. These businesses have high cashflow levels and limited internal growth needs. They ae in an excellent position for concentric diversification. A second choice is conglomerate diversification which spreads investment risk and does not divest managerial attention frm the present business . The final option is joint ventures. Behavioural Consideration Choice:Strategic decision makers, after comprehensive strategy examination, are often confronted with several viable alternatives rather than luxury of a clear cut obvious choice. Under those circumstances, several factors influence the strategic choice decision .Some of more important of these factors are. 1. 2. 3. 4. 5. 6. Role of Past Strategy. Degree of the firms external Dependence. Attitudes towards Risk Internal Political Consideration and the CEO. Timing. Competitive Reaction.

Role of Past Strategy :Current strategists are often architects of past strategies. The older and more successful a strategy has been, the harder it is to replace. Degree of Firms External Dependence:A firms external environment factors are owners, customers, suppliers, govt; competitors, union etc. If a firm is highly dependant on one or more of these factors, its strategic alternatives and ultimate choice must accommodate this dependence. The greater the dependence, lower its range and flexibility. Attitude Towards Risk Where attitudes favour risks, the range and diversity of strategic choices expand. Where management is risk averse the diversity of choice is limited Intenal Political Considerations and CEO :When CEO begins to favour a particular choice, it is often unanimously selected Timing Consideration :Even a good strategy may be disastrous if it is undertaken at the wrong time.

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Competitive Reaction :If management chooses an aggressive strategy that directly challenges a key competitor, that competitor can be expected to mount an aggressive counter strategy. Contingency Approach to Strategic Choice Strategic choice is made on the basis of certain conditions, assumptions and premises. When there is a change in conditions, shift in assumptions and promises do not turn out to be wholly valid, then the strategy chosen becomes partly irrelevant. If the changes are drastic, the chosen strategies may have to be modified. Often the shift in assumptions is sudden, leaving very little time for strategists to reorient strategies. Contingency strategies are formulated in advance to deal with uncertainties that are natural part of the business. Most changes occur in the companys environment. Certain components of environment such as social environment alter gradually and such change can be anticipated well in advance. Then there are other types of environment, for instance, the market or regulatory environment, where change could be sudden and leave little time for the strategists to readjust to the situation. Environment differs for different types of industries. Certain industries face a turbulent enviournement while others face a relatively placid enviournment. Business that exists in industries which face a turbulent enviournment feel a greater need for contingency strategies than those which exist in a relatively stable environment There are few approaches to help companies develop and implement contingency strategies. One such approach is based on a model of contingency planning process. The model consists of three steps: 1. Identify the contingency events. 2. Establish the trigger points 3. Develop Strategies and Tactics. Essentially, the requirements of the model are to list events that may occur in future that are critical to a companys strategy formulation process. Trigger points in the form of indicators are established that signal the impending occurrence of these events after which strategies or tactics are employed to deal with changed situation. Contingency strategies have received a fair amount of attention from policy researchers as they are of immense value to strategists who have to deal with a transient phenomenon like the

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business enviournment. The final step before a strategy is implemented is the formulation of a strategic plan.

Directional Policy Matrix Model

High

Invest

Grow

Market Attractiveness

Low

Harvest High Business Strength

Divest Low

Business Strengths :- Expert systems are used to determine the organizational strength of the organization. The position of the enterprise on the chart is based upon the assessment of the following factors. (1) Supplier Bargaining Power (2) Threat of substitutes (3) Threat of new entrants (4) Competitive rivalry (5) Buyer Bargaining power (6) Product Quality (7) Product Value (8) Relative Market Share (9) Reputation (10) Customer Loyalty (11) Staying Power (12) Experience. There are 8 steps involved in the process Step 1 :- Determine the products or services for markets that you intend to include in the matrix Step 2 :- Define the market attractiveness factors can be summarized into three headings. 1. Growth rate 2. Accessible market size 3. Profit potential this varies considerably from industry to industry.

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Step 3 :- Determine the scoring method and weight age criteria (weighting out of 100 and score out of 10 for example) Step 4 :- Define business strengths. These can be grouped into following factors for example. 1. Product Requirement 2. Price Requirement 3. Service Requirement 4. Promotion Requirement Step 5 :- Weight and score the business strengths. Weights of the factors should equal 100. score the factor out of 10 and multiply the score by weight

Company Strength Factors Product Price Service Image Total

Weight 30 35 25 10 100

Score 7 6 7 4 21 0 21 0 17 5 40 63 5

Comp -1 6 6 9 8 180 210 225 80 695

Comp -2 4 10 5 3 120 350 125 30 625

Step 6 :- Producing the directional policy matrix Step 7 :- Forecasting. The factors are rescored for the products / service in three years time. Step 8 :- Set Strategies Analysis 1. Interest :- High market attractiveness / High Business strength. 2. Grow :- High Market Attractiveness / Low Business Strengths. 3. Harvest :- Low market Attractiveness / High Business Strengths. 4. Divest :- Low market Attractiveness / Low Business Strengths. Advantages and Disadvantage of Matrix Models. Advantage (1) Key Areas. (2) Cash Flows. (3) Balance Portfolio (4) Divest Perspective

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(5) Flexible Comparison

Disadvantages (1) Too Simplistic (2) Market Share may not be the best measure of a companys success. (3) Market Share and Cash flow mismathch High mkt share in a low growth industry does not necessary result in positive cashflow characteristic of cash cow Business to remain competitive, you may not be able to take out cash because of capital requirement. (4) Subjective numbers (5) Static pictures. (6) Multiple SBUS (7) Conflict of Interests (8) Improper Divesting Strategic Management By Upendra Kachru

Strategic Management Model

Company Mission Company Profile Strategic Analysis and Choice Grand Strategy
Feed Back

External Envirournment

Long term Objectives Annual Objecitve

Feed Back

Functional Strategy Institutionalising the Strategy Control and Evaluation

Company Mission:81

The mission of a business is the fundamental unique purpose that sets it apart from other firms of its type. The mission is a general enduring statement of company intent. It embodies the business philosophy of strategic decision makers. Company Profile:At any designated point of time, the company profile depicts the quantitiy and quality of financial, Human and physical resources available to the firm . The profile also assesses the inherent strengths and weaknesses of the firms management and organizational structure. External Environment:A firms external environment consists of all the conditions and forces that affect its strategic potions but are typically beyond the firms control. External environment consists of operating environment and remote environment. Changes in operating environment often result from strategic actions taken by the firm or its competitors, consumers, users, suppliers or creditors. The remote environment refers to forces and conditions that originate beyond and usually irrespective of any single firms immediate operating environment and provide the general economic, political, social and technological frame work within which competing organizations, operate. Strategic Analysis and Choice:There are opportunities for investments. There are different alternative choices after analysis of factors like stability, growth, profitability and diversification. Long Term Objectives:For example doubling of earnings per share after 5 years. Grand Strategy:General plan of major actions through which a firm intends to achieve its long term objectives in a dynamic environment. There are 12 Basic approaches which are (1) Concentration (2) Market Development (3) Product Development (4) Innovation (5) Horizontal Integration (6) Vertical Integration (7) Joint Ventures (8) Concentric Diversification (9) Conglomerate Diversification (10) Retrenchment / Turnaround (11) Divestiture (12) Liquidation Annual Objectives:The result, an organization seeks to achieve with in a one year period are annual objectives. Functional Strategies:With in the general frame work of grand strategy, each distinctive business function or division needs a specific and integrative plan of action. Most strategic managers attempt to develop an operating strategy or each related set of annual objectives. Policies:-

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Policies are directives designed to guide the thinking, decisions and actions of managers and their subordinates in implementing the organizations strategy. Institutionalizing the Strategy:Annual objectives, functional strategies and specific policies provide important means of communicating what must be done to implement the overall strategy. By translating long term intentions into short term guides to action, they make the strategy operational. But the strategy must also be institutionalized and must permeate the very day to day life of the company, if it is to be effectively implemented. Control and Evaluation:An Implemented strategy must be monitored to determine the extent to which objectives are achieved. The process of formulating a strategy is largely subjective, the reality test of it comes only after its implementation. Evaluating the Multinational Environment:Special complications confront a firm involved in international operations. Multinational corporations (MNCs) headquartered in one country with subsidiaries in others, experience difficulties understandably associated with operating in two or more distinctly different competitive arenas. Developing Process of MNC:Considerations prior to internationalization. 1. 2. 3. 4. Scan the international situation Make connections with academia and Research Organization Increase the companys international visibility Undertake co operating research projects.

Factors to Consider in Choosing a Foreign manufacturing site:Labour Factors 1. Managerial, Technical Labour able to speak the language of parent company. 2. Degree of skill and discipline at all levels. 3. Presence or absence of militant unions. 4. Degree and nature of labour and voice in management. Tax Factor 1. Tax rate trends 2. Joint tax treaties with home country.

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3. Duty and tax draw backs when imported goods are exported 4. Availability of Tariff protection Capital Source Factor 1. 2. 3. 4. Cost of local borrowing Local availability of convertible currencies Modern Banking systems. Govt credit aids to new businesses.

Geographic Factor 1. 2. 3. 4. Efficiency of transport Proximity of site to export markets Availability of local raw materials. Availability of Power, Water and Gas

Economic Factors 1. Size of GNP and projected rate of growth 2. Foreign Exchange position 3. Size of market for companys products 4. Current or perspective membership in a customs union. Political Factors 1. Form and stability of govt. 2. Attitude towards private and foreign investment by govt and customers. 3. Practice of favorable v/s neutral treatment 4. Degree of foreign discrimination Business Factors 1. State of marketing and distribution system. 2. Normal profit margins in the industry. 3. Competitive situation in the firms industry. 4. Availability of amenities for expatriate executive and families.

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Complexity of Multinational Environment Multinational strategic planning is more complex than such purely domestic planning. There are at least five contributing factors. 1. Multinational faces multiple political, economic, legal, social and cultural environment as well as various rates of change with in each of them. 2. Interaction between national and foreign environment are complex because of national sovereignty issues and widely differing economic and social conditions. 3. Geographical separation, cultural and national differences and variations in business practices all tend to make communication between headquarters and overseas affiliates difficult. 4. Multinationals face extreme competition because of differences in industry structure. 5. Multinationals are confronted by various international organizations, such as European Economic Community, Latin Amercian free trade Area, that restricts a firms selection of its competitive strategies.

Business Policy
1. 2. 3. 4. Refers to decisions about future of an enterprise Top management involvement Setting long term objectives of an enterprise. Study of functions and responsibilities of senior management concerning crucial problems. 5. It provides direction to the organization and shape of future.

Business Policy as a Field of Study

1. 2. 3. 4. 5. It gives an integrated view of management based knowledge and experience. Complexities of business and its constraints with respect to environment Broader perspective of management learning. Study of top management and responsibilities and decision making process. Conceptualization of key business processes

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Characteristics of Business Policy

1. 2. 3. 4. 5. 6. Policy refers to total enterprise or large segment of it i.e. change in organizational goals. Long term perspective and commitment. Usage of critical resources vis--vis environment Continuous process in nature. Identification of opportunities and choosing the right strategy. Adaptation to the changing environment.

STRATEGIC ANALYSIS AND CHOICE

The search for alternative strategies is both incremental and creative in that strategists begin by considering alternative they are familiar with and think they will work. Those are usually incremental alternations of past strategies. Systematic comparison of external and internal factors is often used to search for alternative strategies. Creativity can be important in this external / internal comparison. The search for multiple alternatives depends on systematic comparison of the strengths, weaknesses, risk and trade offs of each alternative. Several alternatives are generated and systematically evaluated in a comparative framework. The quality of the ultimate choice is there by logically enchanced.

Process of Strategic Analysis

Corporate Level Strategy:1. Analysis of the overall company portfolio of businesses in terms of relative business unit strengths matched with relative industry attractiveness and stage of development. 2. Identification of probable corporate performance if the current business unit portfolio is maintained with respective strategies. 3. Comparison of this projected corporate performance with tentative corporate objective to identify major performance gaps. 4. Identification of the alternative port folios to close performance gaps. 5. Evaluation of the alternatives and strategic choice. In the broad sense, corporate strategy is concerned with generation and allocation of corporate resources.

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