Strategic Management

Strategy derived from the Greek word “STRATAGO” and first time it was used in wars.

Definition
“It is about decision making and actions which determine whether an enterprise excels,
survives or dies.”

EVOLUTION OF STRATEGIC MANAGEMENT

It is a process by which the manager can transform environmental factors, along with various
internal, personal, and political considerations, into decisions that result in strategies (goals
and plans of action for reaching them) to help guide the organization into the future in a
dominant competitive position.

Job of Strategic manager

- Should use the firms resources properly according o the changing environment
- has to make strategic decisions to achieve the ends
- He defines the business, products and markets to served
- frame policies for then organizations
- To execute the policies to achieve the objectives of the end.

Michale E Porter
“Business strategy is all about relating a firm to external environment”

“Bridging the present to the future”

Building Point of view

1) What is changing in the world?
2) What opportunities do these changes make possible?
3) What are the business concepts that would profitably exploit these changes?
3 C’s of Strategies

Craft
Skill
Conceptual - Concept
Contextual - Environment
Craft - Implementation
Conceptual Contextual
Skill Skill

Factors to study about Strategic Management

1) Change
2) Clear objective and direction to the employees
3) Research
4) Better perform
Strategic Decision making

Prescriptive Descriptive
(How things ought
to be done)
How a decision maker makes a decision
1) Rational Analytical decision maker
- He is unique (autocratic)
- He is intelligent and rational
- He take decision only on his choice
- He analyze situations to make advantage
2) Intuitive and emotional decision maker
- maintained daily work register of his own
- experience
- reflective thinking
- considers no. of alternatives and analyze
- he will be jumping from one step to another step
3) Political Behavior decision maker
- he will analyze both internal and external environment
Aspect of Changes
Temporary changes – Permanent changes
Short term changes – Long term changes
Expected changes – Unexpected changes
Revolutionary changes – Evolutionary changes
Continuous changes – Discontinuous changes
Disruptive changes – Gradual changes

Social changes – Social and cultural changes are always continuous changes (Eg.
Population)
Technological changes – All technological changes are need not to be disruptive changes.
It may be continuous and discontinuous. (Eg. Telephone technology)
Economical Changes – Most of the economical changes are continuous (Eg. Inflation)
Political Changes – It may be both continuous and discontinuous. But in political changes
discontinuous changes are not advisdable.

Methodology to identify Changes:

Inside – Out Approach
Outside - In Approach

Know - What Know - Where

(Mission) (Vision)

Know - How Know - Who

(Strategy) (Execution)

Mission
Mission is the description of an organization's reasons for existence, its fundamental purpose.
It is the guiding principle that drives the processes of goal and action plan formulation, "a
pervasive, although general, expression of the philosophical objectives of the enterprise." 24
Mission should focus on "long-range economic potentials, attitudes toward customers,
product and service quality, employee relations, and attitudes toward owners."25 It provides
identity, continuity of purpose, and overall definition, and should convey the following
categories of information.26
 1. Precisely why the organization exists, its purpose, in terms of (a) its basic product or
service, (b) its primary markets, and (c) its major production technology.27
2. The moral and ethical principles that will shape the philosophy and character of the
organization.
3. The ethical climate within the organization.

Thus mission outlines the firm's identity and provides a guide for shaping strategies at all
organizational levels.
The role played by mission in guiding the organization is an important one. Specifically it28

1. Serves as a basis for consolidation around the organization's purpose.

2. Provides impetus to and guidelines for resource allocation.
3. Defines the internal atmosphere of the organization, its climate.
4. Serves as a set of guidelines for the assignment of job responsibilities.
5. Facilitates the design of key variables for a control system.

Vision

“It refers dream.” - If you can dream it you can make it. “How to go is depends on where to
go”

Three levels of Strategy

1) Corporate Level
2) Business unit level
3) Functional level

Corporate Level
Corporate-level goals consist of quantitative and qualitative outcomes that encompass
management's expectations about the optimal combination and types of businesses that make
up the company. They direct the integration of the particular collection of businesses that
makes up the overall organization and they serve as behavior specifications for staff members
at the corporate level (E.g. TVS Group of Companies TVS Motor Ltd., Southern Roadways,
TVS Tyres, Sundaram Fasteners etc., )
Business-Level
Goals at the business level specify the anticipated performance results of each SBU . Their
values are Simplified Model of the Organizational Relationship Among Mission and
Societal-, Corporate-, Business-,and Functional-Level Goals. (E.g. TVS Motor Ltd.) Here
the TVS Motor Ltd is a separated unit of TVS Group of companies. So it forms a separate
strategy for it’s own business unit.

Functional-Level Goals
At these level goals are set for each of the functional departments into which each SBU is
organized (Exhibit 3-5). The point of functional-level goals is to define several aims for each
department in such a way that their achievement would result in achievement of business-
level goals. In TVS Motor Ltd., there may be many functions like production, finance,
marketing, personnel etc., Here these functional level mangers form separate strategy which
leads to achieve the goal Business unit level.

Newman and Logan present two levels--business strategy and functional policy--for non
diversified firms, and a total of three (with the addition of corporate strategy) for diversified
firms.39

Higgins identifies four levels of strategy: societal response strategy (enterprise strategy),
mission determination strategy (corporate level), primary mission strategy (business level),
and mission supportive strategy (functional level). He defines their contents as follows:40

1. Societal response strategy: how the firm relates to its societal constituents.
2. Mission determination strategy: the organization's field of endeavor.
3. Primary mission strategy: how the organization will achieve its primary mission.
4. Mission supportive strategies: how primary mission strategy will be supported.

EXTERNAL, INDUSTRY, AND INTERNAL ANALYSIS

Both environmental and industry analysis procedures consist of four interrelated processes:

1. Developing an assessment taxonomy to outline major environmental dimensions.

2. Defining environmental boundaries (the "relevancy envelope").
3. Monitoring and forecasting change in key variables.
 4. Assessing potential impacts on the firm (or industry) in terms of whether they are
threats or opportunities.

ENVIRONMENTAL ANALYSIS

The dimensions of environment can be generally classified by a set of key factors that
describe the economic, political/legal, technological, and social surroundings. These, in
turn, can be overlaid by the various constituents of the firm, including shareholders,
customers, competitors, suppliers, employees, and the general public. To assess
environmental conditions, concern is focused on opportunities and threats that exist, or
may arise, through impacts on and by the firm's constituents.

Key Economic Variables

Firms that anticipate economic change and identify the constituents through which that
change will be applied, can better adapt goals and action plans. By the late-1990s, major oil
producing firms has shifted their source of supply from middle-eastern countries to
Venezuela because of uncertainties about the political and economic environment of the
Middle East.

Shareholder expectations of financial return are dictated in part by alternative investments

and their associated returns and risks. Interest rates, tax policies, shareholder incomes,
availability of funds for margin-purchased equity investments, and expectations of future
economic circumstances will shape changes in equity investor profiles and/or the financial
performance expectations of the firm's owners. In the early 1980s, high returns on money
market instruments (representing corporate and government debt) led to massive shifts from
equity holdings by private investors to those shorter-term debt instruments.

Personal income, savings, employment, and price-level trends can have dramatic effects on
the attractiveness of a firm's products or services in output markets--not only final markets,
but intermediate markets as well.

Economic conditions faced by competitors can play a large part in shaping a firm's strategies
and policies
The capacity, reliability, and, in some case, the survivability of suppliers are largely a
function of their economic climate. Both debt and equity capital markets often realize
significant swings as a result of overall economic conditions

Finally, in assessing the economic dimension of a firm's environment, it is important to

recognize the interrelated nature of the participants. The multiplier effect in macroeconomics
has its micro counterpart. Raw data on prices, wages, savings, government spending,
manufacturers' shipments, and the like are valuable in themselves, but represent only the front
line of a truly comprehensive analysis.

Key Political/Legal Variables

Business firms, like people, are touched directly and indirectly by political/legal influences at
all levels of government (federal, state, and local). These influences run the alphabetic gamut
from antitrust to zoning. The scale of federal intervention in business is matched only by its
turbulence.

In addition to serving as regulatory bodies, governments also represent a major factor in the
private sector through fiscal policy. Taxation and government spending can represent both
opportunities and threats, depending upon the nature, timing, and position of the impacted
enterprise. And, of course, fiscal policy can have dramatic impacts on the overall economic
climate of the firm.

Shareholders are affected by governments in a variety of ways. Changes in tax structures can
affect tax exposure on corporate payouts when treatments of capital recovery versus earnings
distributions are considered. To the extent that corporations themselves are shareholders,
inter corporate shareholding can be constrained by antitrust laws. Security and Exchange
Commission regulations can affect the "tradability" of shares as well as dictate corporate
disclosures.

Assessing and forecasting the political/legal environment require creativity and a sensitivity
to industry-specific matters. Unlike the economic environment, the political/legal
environment requires a largely "soft" calculus where numerical relationships and
extrapolations are often unavailable or inappropriate.
Key Technological Variables
Electronics, bioengineering, chemicals, energy, medicine, and space are but a few of the
fields in which major technological change have opened new areas to private enterprise. In
some cases entire industries have emerged seemingly overnight (such as genetic engineering),
bringing with them new opportunities, and new threats, in the marketplace. In other cases
technological changes within industries have brought new forms of product competition (e.g.,
micro technologies in electronics) that require an openness to new applications. In still others
technological process changes (as in the use of robots in automobile manufacturing) have led
to different competitive advantages in production costs and product quality.

To the extent that technological innovation is a key factor of success in a given industry, it
must be monitored and forecast aggressively. In all cases at least a general sensitivity to the
technological environment is a primary component of successful strategic planning.

Key Social Variables

As with the other dimensions of a firm's environment, social conditions can pose both
opportunities and threats. Computer crime, for example, has become a major concern in
industry, and is expensive to control. At the same time, a new field within the computer
industry has emerged to provide computer crime control services and systems. Thus one
profits from the social circumstances from which the others suffer economically.

Identifying Environmental Boundaries

Environmental boundaries can be at least generally established by examining the firm's

strategic postures regarding:

1. Geographic diversity
2. Product/market scope
3. Sources of supply
4. Sources of capital
5. Technology/innovation
6. Regulatory vulnerability
7. Return horizon on fixed commitments
8. Overall flexibility
 Industrial Analysis

Industry analysis is relevant in any of these situations:

1. The firm's strategy defines the business in terms of specific industries.

2. The firm is facing new forms of extra-industry competition.
3. The firm is contemplating entry into a new industry.

Levels of Analysis
Industry analysis focuses interest on two primary levels:

• The structure and performance of the industry as a whole.

• The strategies and performance of individual competitors.

Porter’s Five Forces Model of Competition

Bargaining power
of suppliers

Rivalry among Threat of new

Substitutes existing firm entrants

Bargaining power
of buyers

Degree of Rivalry

- Exit barriers
- Industry concentration
- Fixed cost/ value added
- Industry growth
- Intermittent over capacity
 - Product difference
- Switching costs
- Brand identify
- Diversity of rivals
- Corporate stakes

Supplier power

- Supplier concentration
- Importance of volume of supplier
- Differentiation of inputs
- Impact of input on cost or differentiation
- Switching costs of firms in the industry
- Threat of forward integration
- Preference of substitute inputs
- Cost relative to total purchases in industry
Buyer power

- Bargaining Leverage
- Buyer volume
- Buyer information
- Brand identity
- Price sensitivity
- Threat of backward integration
- Product differentiation
- Buyer concentration to industry
- Buyer’s incentives

Barriers to entry

- Absolute cost advantages

- Proprietary learning curve
- Access to inputs
- Government policy
 - Economies of scale
- Capital requirements
- Brand identify
- Switching cost
- Access to distribution
- Expected retaliation
- Proprietary products

Threat to substitutes

- switching costs
- buyer inclination substitute
- price performance trade off of substitutes

Buyer are powerful if

- buyers are concentrated that are a few buyers with significant market share
- buyers purchase a significant production of output – distribution of purchase or if
the product is standardized
- buyers possess a credible backward integration threat can threaten to buy
producing firm or rival
Suppliers are powerful if

- credible forward integration threat by suppliers

- suppliers are concentrated
- significant cost to switch suppliers
- customers are powerful

Entry & Exit Barriers

Easy to enter if there is

- common technology
- little brand franchise
- low scale threshold
Easy ro exit if there is

- Salable assets
- Low exit cost
- Independent business

Formulating a Strategy

Step I – What is the structure of the industry and the position of competitors?

Step II – Why is the industry fragmented?

Step III – Can fragmentation be overcome? How?

Step IV – Is overcoming fragmentation profitable? Where should the firm be

Positioned to do so?

Step V – If fragmentation inevitable what is the best alternative for coping with it?

Internal Analysis

Process of Internal Analysis

There are two fundamental ways to conduct an internal analysis: vertical and horizontal.22 For
the vertical approach, strengths and weaknesses are identified at each organizational level.
The horizontal analysis corresponds to the functional areas of the SBUs. Strengths and
weaknesses are identified for each function.

The process of internal analysis involves the following steps:

1. Perform a complete financial analysis.

2. Comprehensively identify the major functional areas that make up SBU operations.
3. Enumerate the critical operational factors of each functional area.
 4. Identify both qualitative and quantitative variables to describe performance of the
SBU on each operational factor.
5. Conduct research to assign either qualitative or quantitative values to the variables
identified in (4).
6. Organize findings by function according to whether they represent strengths or
weaknesses.

Identification of Major Functional Areas

Whatever organization is analyzed, the analyst should select a comprehensive set of
categories that define the firm's operations. These categories, or functional areas, can vary
from one organization to another, and depend upon whether the analyst is conducting a
vertical or a horizontal analysis. We have selected for discussion of horizontal analysis the
common functional areas of marketing, personnel, production, and R&D, along with
organization structure, present and past strategies, and external relations

Operational Factors of Each Functional Area

After identifying the appropriate functional areas to study in the internal analysis, the next
step is to decide what aspects of each one to analyze.

Marketing. Consistent with marketing convention, this function is analyzed by examining

the operating characteristics of the organizations' products/services, price, promotion,
distribution, and new product development systems. Interest is focused on all aspects of each
of these systems that have not already been identified as part of the financial analysis.
Examples of checkpoints for each factor are as follows:

1. Products/services
a. Market share
b. Penetration
c. Quality level
d. Market size
e. Market expansion rate
2. Price
a. Relative position (leader or follower)
b. Image
c. Relationships to gross profit margin
 3. Promotion
a. Effectiveness
b. Appropriateness of emphases
c. Budget as percent of sales
d. Is return measurable, acceptable?
4. Distribution
a. Delivery record
b. Are other methods more appropriate?
c. Unfilled orders
d. Costs
5. New product development
a. New product introduction rate
b. Sources of ideas effective?
c. Extent of market feedback
d. Success rate

The problem is not to identify simply what the organization's marketing department is doing,
but instead what it is doing particularly well or poorly.

Personnel and Union Relations. The overall purpose of the personnel function is to manage
the relationship between employees and the organization. Therefore, internal analysis of the
personnel function is an assessment of the strengths and weaknesses of that relationship. This
function can be analyzed by examining the following factors and questions or others tailored
to the organization:

1. Job analysis factors

a. Are necessary skills present?
b. Are all necessary jobs present?
c. Are selection and placement systems effective?
d. Recruiting capability
e. Training effectiveness
2. Job evaluation factors
a. Pay scales appropriate?
b. Image of pay scale within labor market
c. Do pay differentials reflect job content differences?
 d. Adequacy of benefits
3. Turnover/absenteeism
4. Turnover rate
5. Absenteeism rate
6. Attitude of employees, managers
7. Seasonality a factor?
8. Performance evaluation
a. Reliability
b. Validity
9. Union-management relations
a. Unions representing employees
b. Bargaining positions
c. Quality of relations
d. Negotiation schedule

Production. The production or manufacturing area's strengths and weaknesses relate to the
organization's ability to produce its products/services at the desired quality level on time at
the planned-for-costs. Examples of evaluative factors for production are the following:

1. Facilities and equipment

a. Capacity level
b. Per-unit costs of manufacturing
c. Obsolescence; today, future
d. Level of technology applied
e. Process optimality
f. Replacement, maintenance
2. Quality level
a. Defective units
b. Inspection costs
c. Remanufacturing costs
d. Competitive position
e. Consistency
3. Inventory
a. Level, turnover
 b. Costs and trends
c. Is inventory rationally maintained?
4. Procurement
a. Sources
b. Quality of inputs
c. Constant lead times
5. Planning, scheduling
a. Formal system
b. Is demand smoothed?
c. Excessive overtime charges?
d. Productivity

For most service organizations, the process of providing the service can be roughly equated
to the production of a product. Costs of providing the service, as well as quality of the service
delivered, can be the focus of analysis.

Wheelwright suggests evaluating production strategy by analyzing its consistency and

emphasis.24 First, the analyst should evaluate the consistency of production strategy with
business strategy, other functional strategies, and with the overall business environment. The
categories within production strategy itself should exhibit a high level of consistency as well.
Then, the extent to which production strategy is focused on factors of success should be
evaluated. This involves making sure that priorities among production activities are
appropriate to business strategy, that business level opportunities have been addressed, and
that production strategy is communicated, understood, and integrated with other functional
strategy managers.

Research and Development. Research and development (R&D) provides technical analysis
and support to other departments, and designs products or processes to meet market needs
and thereby generate a profit. Operation of R&D must strike a balance between practicality
and creativity in order to contribute successfully to profit goals. Overemphasis on practical
matters can impair future profitability because few innovations will be generated.
Overemphasis on creativity could result in generation of few marketable product ideas while
researchers explore the frontiers of their scientific disciplines. The correct balance between
creativity and practicality for a particular firm is a strategic issue that cannot be decided
absolutely. That is, this balance is a function of the extent to which the organization requires
either innovation or market emphasis, and that issue is a function of business-level goals and
action plans.

Conducting an internal analysis of the R&D function involves identifying strengths and
weaknesses in R&D activities such as the following:

1. Demand for R&D

a. Is demand for R&D services stable?
b. Is R&D funding stable?
c. Is R&D funding vulnerable to profit variations?
2. Facilities and equipment
a. Are facilities and equipment state-of-the-art?
b. Is obsolete equipment expendable?
c. Is space a problem?
3. Market and production inputs
a. Does market information get fed into the R&D process?
b. Does production information influence the R&D process?
c. Are marketing and production influences balanced?
4. Planning and scheduling
a. Are jobs planned and scheduled?
b. Are costs effectively monitored?
c. Are human resource needs planned?
5. Is the level of uncertainty associated with the type of R&D activity in which the
organization is involved appropriate for the intended level of risk?

Exhibit 2-11 can be used to gain a rough idea about the level of intended risk and uncertainty
associated with various anticipated R&D outcomes. It can be seen, for example, that a new
version of an existing product represents a moderate level of risk and uncertainty whereas a
basic research program is extremely high (true) risk and uncertainty.

Organization. Organization structure must support strategies and facilitate their successful
implementation. To do so, structure must prevent a certain set of problems from
materializing. These problems are the characteristics that are searched for to determine the
appropriateness of a change in structure.
Changing structure is risky. Therefore, it should not be tampered with unless there is either a
problem present that must be corrected or one that can reasonably be expected to develop if a
change is not made. In either case, though, organization structure should be changed only
because of specific problems. That is, there is no absolutely best structure, but only the
structure that minimizes organization-related problems.

Some of the criteria that can be used to analyze organization structure are as follows:

1. Does structure make sense?

a. Is it confusing?
b. Are there too many levels?
c. Are there horizontal communication channels?
d. Does it expedite communication?
e. Are the forms of organization used appropriate?
2. Accountability and control
a. Does structure fix responsibility?
b. Are there single functions assigned to more than one person?
c. Are there too many committees?

Present Strategies

The following steps can be followed to evaluate current strategy at any of the four levels of
strategy:

1. Select strategy levels for analysis.

2. Identify present goals and action plans at each level.
3. Determine extent to which short- and long-term goals have or have not been met.
4. Determine which action plans have and have not been effective.

CLARIFICATION OF TERMS
Various authors have used the terms goal, target, and objective differently as elements of the
strategic management process. One set of differences concerns their definitions: Are they
interchangeable terms or do they have distinct meanings? The second concerns their role vis-
a-vis strategy: Are they part of strategy (that is, proper elements of strategy statements) or is
strategy formulation a separate process that occurs after the process of goal and objective
formulation?

On the first issue we have taken the position that goal and objective are interchangeable
terms,1 but we prefer the term goal only because it seems to be most popular. Consequently,
the following distinctions apply:

1. A goal is an expected result. Synonyms for goal include the words aim, end, and
objective.
2. A qualitative goal is an aspiration toward which effort is directed; a goal to be reached
for but not necessarily grasped,2 rather than a quantitative level of a certain variable.
Thus, a firm might aspire to be a good corporate citizen.
3. A quantitative goal is one intended to be reached, a quantified expected result. There
are two types: (1) A hurdle goal value is a certain level of a quantitative goal that is to
be exceeded (synonyms include instrumental and interim goal); (b) a final or overall
quantitative goal is a value that should be achieved. A final goal could be established
without hurdle values or it could be the value achieved after all appropriate hurdles
have been reached.3 Achieving a ten percent increase in total revenue within three
years would be a final goal. Hurdle goals would be the targeted revenue increase
intended at the end of Years 1 and 2.

The relationships among these terms can be portrayed as in Exhibit 3-1. Thus the process of
goal formulation involves the task of setting qualitative aspirations and establishing both
hurdle and final values, all three of which are different types of goals. Examples of the kinds
of goals are presented in Exhibit 3-2.

Resolution of the second area of disagreement (whether goals, actually are part of strategy or
should stand alone in the process of strategic management) depends on what you believe
should be the content of a firm's strategy. Two views are prevalent among business policy
authors. According to one view, strategy consists of both goals and action plans.4 Thus the
statement "We intend to increase sales by 10 percent within one year by concentrating on
market development" would be deemed a strategy (or at least part of one) by adherents to this
view. Strategy formulation would have consisted of establishing the quantitative goal of a 10
percent sales increase in one year as well as the selection of the action plan of market
development as the means for achieving it.
Arguing against separating goals from the activities designed to achieve them, Andrews
states:5

The interdependence of purposes ... and action is crucial to the particularity of an individual
strategy ... It is theunity, coherence, and internal consistency of a company's strategic
decisions that position the company in its environment and give the firm its identity, its
power to mobilize its strengths, and its likelihood of success in the marketplace.

Exhibit 3-1: Relationships Among Types of Goals

Goals Qualitative Final Values

Objectives

Aimes Quantitative Hurdle (Interim) Values

Exhibit 3-2: Examples of Types of Strategic Goals and Their Definitions

Goal Type Definition Examples

Qualitative An aspiration "Good corporate citizenship"

"Ethical practices"

"Improved quality of life"

"Heightened awareness"

Quantitative (Final Numerical aim "6 percent increase in sales

Goal)

"Raise ROI by percent"

Hurdle goal Minimum to be reached w/in a "Increase sales by percent per

timeframe year for three

To avoid using the same word (strategy) for different concepts (individual action plans and
overall strategy), we employ the following terms:

Goal set A collection of quantitative and qualitative goals for a particular

 organizational level.

Action plan A description of the means by which activity is expected to be directed

toward striving for specified goals.

Strategy. A set of goals and their action plans for a particular strategy level.

Organizational goals manifested as either qualitative or quantitative values would be tied to

action plans that identify the appropriate ways to work toward them. A single-line business
would thus have a set of goals and related action plans that together define how it should
compete within its business segment. This set of goals and action plans would be called its
business-level strategy. It could also have strategies, still made up of goals and action plans,
for other strategy levels. That point is covered in the next section.

"Policy" and "tactic" are other terms that have been defined in many different ways. We use
policy to refer to standing directions, instructions that vary little with changes in strategy.
Thus organizations can have vacation policy, a policy on absenteeism, affirmative action
policy, and so on. Policy tends to have fewer competitive implications than strategy when
used in this way. However, in many curricula the strategic management course is called
business policy. This is probably a holdover from the days of the business policy paradigm as
described in Chapter 1.

A tactic is a short-term action taken by management to adjust to internal or external

perturbations. They are formulated and implemented within a strategic effort, usually with the
intention of keeping the organization on its strategic track.

Ansoff Matrix
 Product
Diversification
Development

w
N
e
u
dP
ro
ct
Market
Development

g
tnE
is
x
Existing New
Market

BCG Growth Matrix

Competitive Position
Star:High business growth rate and high competitive
position (Most attractive)

H
? Cash Cow:Releases cash which can be invested in
another business
?:Investing the amount of cash cow to this business,
because it has high groeth rate but low market
share and it need funds. Then it became star
performance.
L Dogs Cash Dogs:If the high growth rate business will not
Cow
R eG B

be funded then it will become dogs position

th
arosin
u

In the saturation position the Star performar

L H may becash cow

GE – Mc Kinsley Industry Screen

Invest & Selectively Selectively

H Grow Grow Grow

Selectively Selectively Harvest &

M Grow Grow Grow
trgh
eS B
sin
u

Selectively Harvest & Harvest &

L Grow Grow Grow

L M H
Industry Attraction

Key Success Factor

 Technology Procurement Manufacturing Marketing Distribution Service

Generic Strategies

There are three kinds of generic strategies.

1) Cost Leadership – LG follows the cost leadership by increase the volume of production

2) Focus – Concentrated on one particular segment

3) Differentiation – Differentiate our product with the competitive product

Porter’s Value Chain Analysis

Firm Infrastructures

Human Resource Management

Support
Activities
Technology Development

Procurement
Primary Inbound
Operation
Outbound Marketing
logistics logistics Service
Activities & Sales

Industrial Structural Analysis

Different Types of Environment

Firm Industry External

Environment

(Internal) (Intermediate) (External)

Types of Industries Environment

 Industries environment differ most strongly in this fundamental strategic implications
along a no. of key dimensions.
- On the basis of Concentration Vs Fragmentation
- On the basis of Life cycle
- On the basis of Exposure to competition
What makes an industry fragmented

- Low overall entry barriers

- Absence of economies of scale or experience curve
- High transportation cost
- High inventory cost or Erratic sales fluctuations
- No advantage of size in dealing with buyers or suppliers
- Diseconomies of scale in some important aspect
- Diverse market needs
- High product differentiation, particularly if based on image
- Exit barriers
- Local regulation
- Government prohibition of concentration
- Newness
Typical Fragmented Industries
1) Service
2) Retailers
3) Distribution
4) Wood and metal fabrication
5) Agricultural products
6) Creative business
Common Approaches to consolidation
1) Create economies of scale or experience curve
2) Standardize diverse market needs
3) Neutralize or split off aspects most responsible for fragmentation
4) Make acquisitions for a critical mass
5) Recognize industry trends early
Product Life Cycle
 Introduction Growth Maturity Decline

S
le
a u
d
In
try
s

Time

Characteristics of Emerging Industries

1) Technological uncertainty
2) Strategic uncertainty
3) High initial cost but steep cost reduction
4) Embryonic companies and spin-off
5) First time buyers
6) Short time horizon
7) Subsidy

Strategic Portfolio facing Matured Industries

1) A company self-perception and its perception of the industry]

2) Caught in the middle
3) The cash trap investments to build share in a mature market
4) Give up market share too easily In favor of short run profits
5) Resentment and irrational reaction to price competition (We will not compete on
price)
6) Resentment and irrational reaction to changes in industry practices ( They are hurting
the industry)
7) Overemphasis on “creative” “new” product rather than improving and aggressively
selling existing ones
 8) Clinging to “high quality” as an excuse for not meeting aggressively pricing and
marketing movers of competitors
Industries that are “Stuck”
1) Existing firms lack resources or skills
2) Existing firms are myopic (short sighted)
3) Lack of attention by outside firms
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Growth Strategies

DIRECTION
Product Expansion
It refers that expanding the product from the existing model. i.e. Product Line. E.g. Chik
shampoo introduces various flavors like jasmine, black etc.

Market Penetration
To make the new customers to buy the product. If a product is consumed by children only
then make the adults also to purchase it.

Market Expansion
Expanding the market from one are to another area. E.g. if Arun ice cream is selling in
Tamilnadu only then expanding the market to Kerala, Karnataka and Andhra.

Backward Integration
Any company which produce it’s raw material it’s own is called backward integration. For
e.g. Arun Icecream’s main raw material is milk. So they came into the milk business also and
have brand namely “Arokya Milk”. This is backward integration.

Forward Integration
Any raw material producing company decides to produce the finished goods is called forward
integration. E.g. for chocolate coca is the main raw material, and the coca producers supply
them to the chocolate producers. Suddenly the chocolate producers decided to produce and
market the chocolate in their own brand namely ‘Campco” chocolate. This is forward
integration.

Horizontal Integration
When a company decide to produce any product which not either raw material of
complementary goods to its own product is called horizontal integration. But they doing this
due to their marketing capacity. E.g. Titan is the main producer of watches. But they also
produce Gold and marketed it. Since they have good marketing network they decided for that.
Unrelated Divesification
When a company completely divert from it’s own product and nature of business is called
unrelated diversified or conglomerate. E.g ITC ‘s main business is Tobacco products. But
now they diverted into food products, hotels, and garments etc.

MODE
Organic/Inernal
From this mode the company generate all the production sources from it’s own premises. i.e.
from A to Z will available under one premises and no need to ask for others help. E.g. Tata
had already the Heavy vehicle production unit so they decided to produce passenger cars,
since they have all facilities of making a car they need not to go for the help of other
companies.

Merger & Acquisitions

One company will took over the other company for its expansion. Nowadays Mittal Steels
took over the Arcelor Steels.

Strategic Alliances
Two big companies will make alliance to avoid the unnecessary competition. In some
countries they will be the competitors and in some countries they will alliance. In India
political parties of Congress and Communists are the best example for this strategic alliance.
In Kerala and West Bengal they are opponents and in Tamilnadu and Andhra they are in
alliance.