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Financial Benefits
#VISION
+MISSION
‘An Business Mission Statement focuses on “CURRENT” businessactivities.
‘Business Companyis in now
-Customer needs currently being served
#Merck
«Weare in the business of preserving humanlife. All our actions are measured
by our success in achieving this.
Vision Statement
%*To be a globally respected corporation that provides best-of-breed business
solutions, leveraging technology, delivered by best-in-class people
Vision Statement
# By 2010 Airtel will be the most admired brand in India:
#Loved by more customers
*Targeted by top talent
#Benchmarked by more business
Vision Statement
To be amongthe global top 10 by 2010
Mission Statements
SAMPLE MISSION STATEMENTS
Importance of Mission
Mission Characteristics
CustomerOrientation
Customer Orientation
Importance of Vision & Mission
Economic Forces
Social, Cultural, Demographic, and Environmental Forces
He
Technological Forces
Competitive Forces
ee
1, External forces can be divided into five broad categories: (1) economic forces; (2) social,
cultural, demographic, and environmental forces; (3) political, governmental, and legal forces;
(4) technological forces; and (5) competitive forces.
2. External trends and events significantly affect all products, services, markets, and
organizations in the world.
3. Changesin external forces translate into changes in consumer demand for both industrial and
consumerproducts and services.
1. The process of performing an external audit must involve as many managers and employeesas
possible, As emphasizedin earlier chapters, involvementin the strategic-managementprocess
can lead to understanding and commitmentfromorganizational members.
2. To perform an external audit, a company first must gather competitive intelligence and
information about social, cultural, demographic, environmental, economic, political, legal,
governmental, and technologicaltrends.
b. The Internet is another source for gathering strategic information, as are corporate,
university, and public libraries.
ECONOMIC FORCES
The key economic variables that a firm should monitor are (1) shifts to a service
economy in the United States; (2) availability of credit; (3) level of disposable income; (4)
propensity of people to spend; (5) interest rates; (6) inflation rate; (7) unemploymenttrends;
and so on.
Russia’s Economy
b. Trade. The major barriers to increased U.S. exports to Russia are a substantial
value-added tax, high import duties, and onerous Russian excise levies. In addition, the
government has imposed strict quality and safety standards on the majority of goods
entering Russia.
2. Social, cultural, demographic, and environmental trends are shaping the way
Americanslive, work, produce, and consume. New trends are creating a different type
of consumerand, consequently, a need fordifferent products,services, andstrategies.
3. Significant trends for the future include consumers becoming more educated, the
population aging, minorities becoming more influential, people looking for local
ratherthan federal solutions to problems, andfixation on youth decreasing.
A. Political, Governmental, and Legal Factors Represent Key Forces. Federal, state, local,
and foreign governments are majorregulators, deregulators, subsidizers, employers, and
customers of organizations,
B. Political, governmental, and legal factors therefore can represent key opportunities or
threats for both small and large organizations.
2. Changesinpatent laws, antitrustlegislation, tax rates, and lobbying activities can affect
firms significantly.
D. Local, state, and federal laws, regulatory agencies, and special interest groups can have a
major impactonthestrategies of small, large, for-profit, and nonprofit organizations.
E. Russiais thelast large country outside of the World Trade Organization (WTO), In efforts
to join the WTO, Russia has agreed to openits markets in banking, insurance, and
agriculture but not in the automobile and aircraft industries. The Russian parliamentis
currently passing legislation to pave the way for WTO mules and policies. Russia’s
government has failed at adequately collecting taxes and consequently has difficulty
paying for social services and military and government payroll and expenditures. Russian
tax laws are also among the most confusing in the world so many businesses avoid
keeping accurate recordsto eliminate tax implications.
A. Technological Forces Play a Key Role. The Internetis changing the very nature of
opportunities and threats by alteringthe life cycles of products, increasing the speed of
distribution, creating new products andservices, erasinglimitations oftraditional
geographic markets, and changing the historicaltrade-off between production
standardization andflexibility.
VL COMPETITIVE FORCES
1. An important part of an external auditis identifying rival firms and determining their
strengths, weaknesses, capabilities, opportunities, threats, objectives, andstrategies.
1. Good CI in business, as in the military, is one of the keys to success. The more
information and knowledgea firm can obtain about competitors, the morelikely it can
formulate and implementeffective strategies,
Unethical tactics such as bribery, wiretapping, and computer break-ins should never
be used to obtain information.
1. Strategies that stress cooperation among competitors are being used more. For
example, Lockheed recently teamed up with British Aerospace PLC to compete
against Boeing Companyto developthe next generation U.S. fighter jet.
The idea ofjoining forces with a competitoris not easily accepted by Americans, who
often view cooperation and partnerships with skepticism and suspicion. Indeed,joint
ventures and cooperative arrangements among competitors demand a certain amount
oftrust to combat paranoia about whetherone firm will injure the other.
oe Ros P
Potential entry of new competitors.
Potential developmentof substitute products,
Bargaining powerof suppliers.
Bargaining powerof consumers.
Rivalry among competing firms. Usuallyis the most powerful of the five competitive
forces. The strategies pursued by one firm can be successful only to the extent that
they provide competitive advantage overthe strategies pursued byrival firms.
Potential entry of new competitors. Whenever new firms can easily enter a particular
industry, the intensity of competitiveness amongfirms increases.
B. Internet
Millions of people today use on-line services for both business and personal purposes.
2. The Internet offers consumers and businesses a widening range of services and
information resources fromall over the world.
OUTLINE
Shailesh Dudani
Strategy Analysis & Choice
B. Procedures for developing an EFE Matrix, an IFE Matrix, and a CPM were presented
earlier in the textbook,
C. The input tools require strategists to quantify subjectively during early stages of the
strategy-formulation process. Making small decisions in the input matrices regarding the
relative importance of external and internal factors allows strategists to generate and
evaluate alternative strategies more effectively.
B. The TOWSMatrix
1. The TOWS Matrix is an important matching tool that helps managers develop four
typesofstrategies:
WOstrategies.
g. Match internal strengths with external threats and record the resultant ST
strategies.
h. Match internal weaknesses with external threats and record the resulting WT
strategies.
1. Aggressive
2. Competitive
3. Defensive
4. Conservative
2. The BCG Matrix appears hasdivisionsin the respective circles in the BCG Matrix are
called question marks, stars, cash cows, and dogs.
1. Jn addition to the TOWS Matrix, SPACE Matrix, BCG Matrix, and IE Matrix, the
Grand Strategy Matrix has become a popular tool for formulating alternative
strategies. All organizations can bepositioned in oneofthe Grand Strategy Mattix’s
fourstrategy quadrants.
1. Otherthan ranking strategies to achieve the prioritizedlist, there is only one analytical
techniquein the literature designed to determinetherelative attractiveness of feasible
alternative actions.
1. A positive feature ofthe QSPM is that sets of strategies can be examined sequentially
or simultaneously. Anotherpositive feature of the QSPM is thatit requires strategists
to integrate pertinent external and internal factors into the decision process,
Developing a QSPM makesit less likely that key factors will be overlooked or
weighted inappropriately.
Equifinality
VFYeRS
Satisfying
Generalization
Focus on Higher-Order Issues
Provide Political Access on Important Issues
OUTLINE
Long-Term Objectives
i
Types ofStrategies
i
Integration Strategies
Intensive Strategies
i
Diversification Strategies
in
Defensive Strategies
i
Merger/Acquisition
LONG-TERM OBJECTIVES
a)
a. Managing by extrapolation
b. Managingby crisis
c. Managing by subjectives
d. Managing by hope
IL TYPES OF STRATEGIES
A. Forward Integration
B. Backward Integration
Outsourcing, whereby companies use outside suppliers, shop around, play one seller
against another, and go with the best deal is becoming widely practiced.
C. Horizontal Integration
There are five guidelines for when horizontal integration may be an especially
effective strategy:
aor
Whenanorganization competesin a growingindustry.
When increased economiesof scale provide major competitive advantages.
When an organization has both the capital and human talent needed to
successfully manage an expandedorganization.
A. Market Penetration
B. Market Development
a. When new channels of distribution are available that are reliable, inexpensive,
and of goodquality.
b. When an organization is very successful at whatit does.
Whennew untappedorunsaturated markets exist.
°
d. When an organization has the needed capital and human resources to manage
expanded operations.
e. When an organization has excess production capacity.
f. When an organization’s basic industry rapidly is becoming globalin scope.
C. Product Development
a9
Whenan organization competesin a high-growth industry.
e. When an organization has especially strong research and development
capabilities. :
A. Concentric Diversification
B. Horizontal Diversification
1. Adding new, unrelated products or services for present customersis called horizontal
diversification. This strategy is not as risky as conglomerate diversification because a
firm already should be familiarwith its present customers.
C. Conglomerate Diversification
A. Retrenchment
B. Divestiture
Strategies in Action Shailesh Dudani
Selling a division or part of an organizationis called divestiture. Divestiture often is
used to raise capitalforfurtherstrategic acquisitions orinvestments.
Divestiture has become a very popularstrategy as firms try to focus on their core
strengths, lessening their level of diversification.
Six guidelines for whento use divestiture:
C. Liquidation
1, Selling all of a company’s assets, in parts, for their tangible worthis called liquidation.
Liquidation is recognition of defeat and consequently can be an emotionally difficult
strategy.
lL. A primary reason for pursuing forward, backward, and horizontal integration
strategiesis to gain cost leadership benefits.
The basic idea behind a cost leadership strategy is to underprice competitors and
thereby gain market share and sales, driving some competitors out of the market
entirely.
B. Differentiation Strategies
2. A risk of pursuing a differentiation strategy is that the unique product may not be
valued highly enough by customersto justify the higherprice.
C. FocusStrategies
3. Focus strategies are most effective when consumers have distinctive preferences or
requirements and whenrival firms are not attempting to specialize in the sametarget
segment, Firms pursuing a focus strategy include Midas, Red Lobster, Federal
Express, and Schwinn.
1. According to Porter, the business of a firm can be best described as a value chain in
which total revenues minustotal: costs of all activities undertaken to develop and
marketa productorservice yields value.
2. Firms should strive to understand not only their own value chain operations, but also
their competitors’, suppliers’, and distributors’ value chains.
A. Joint Venture
1, Joint venture is a popularstrategy that occurs when two or more companies form a
temporary partnership or consortium for the purpose of capitalizing on some
opportunity.
3. Joint ventures and cooperative arrangements are being used increasingly because they
allow companies to improve communications and networking, to globalize operations
and minimizerisk.
1. A joint venture strategy offers a possible way to enter the Russian market.
IX, MERGER/ACQUISITION
1. A merger occurs when two organizations of about equal size unite to form one
enterprise.
B. There are many reasons for mergers and acquisitions, including the following:
3. Besides trying to avoid a hostile takeover, other reasons for the initiation of an LBO by
senior management are that particular divisions do not fit into an overall corporate
strategy, must be sold to raise cash, or receive anattractive offering price. A LBO takes a
corporationprivate.
OUTLINE
The strategic-management process results in decisions that can have significant, long-
lasting consequences. Erroneous strategic decisions caninflict severe penalties and
can be exceedingly difficult, if not impossible, to reverse.
Strategy evaluation can be a complex and sensitive undertaking. Too much emphasis
on evaluating strategies may be expensive and counterproductive. Yet, too litde or no
evaluation can create even worse problems. Strategy evaluationis essential to ensure
that stated objectives are being achieved.
a, consistency
b, consonance
c, feasibility
d, advantage
Managers and employees of the firm should continually be aware of progress being
made toward achieving the firm’s objectives. Ascritical success factors change,
organizational members should be involved in determining appropriate corrective
actions.
L. by developing a revised EFE Matrix and IFE Matrix, the underlying bases of an
organization’s strategy can be approached and reviewed,
b. A revised EPE Matrix should indicate how effectively a firm’s strategies have
beenin response to key opportunities andthreats.
Quantitative criteria commonly usedto evaluate strategies are financial ratios, which
strategists use to make three critical comparisons:
a. return on investment
emenos
profit margin
market share
debtto equity
earnings per share
sales growth
asset growth
a
1. A basic premise of goodstrategic management is that firms plan waysto deal with
unfavorable and favorable events before they occur.
2. Contingency plans can be defined asalternative plans that can be put into effectif
certain key events do not occur as expected.
1, Identify both beneficial and unfavorable events that could possibly derail the strategy
orstrategies.
2. Specify trigger points. Estimate when contingent events are likely to occur.
3. Assess the impact of each contingent event, Estimate the potential benefit or harm of
each contingent event.
4. Develop contingency plans. Be sure that the contingency plans are compatible with
current strategy andfinancially feasible.
5. Assess the counterimpact of each contingency plan, Thatis, estimate how much each
contingency planwill capitalize on or cancel out ils associated contingent event,
6. Determine early warning signals for key contingent events, Monitor the early warning
signals.
INTRODUCTION
Pioneered by Robert Kaplan and David Norton (1990):It is a Strategy and Performance management
System
2
fe In a performance measurement and control system financial measures alone are inadequate for
strategic decision-making as they are unable to ensure goal congruence between management
decisions and actions.
Classic financial measures (return on assets, return on sales, and return on capital employed) fail
to distinguish between ‘excellent’ and ‘non-excellent’ firms.
Investment analysts who considered both financial and non-financial measures were more
accurate in their earnings forecasts than those who considered only financial indicators.
A performance management system therefore should have strategic focus and should include
both financial anc operating measures.
BSC aims to control performance measures and thus leads to managing the measures rather than
performance of the people whose performance is measured.
The Premise Behind the Balanced Scorecard Is that Measurement Motivates Behavior
Financial: What are the financial perspectives that would help us understand the effectiveness
and efficiency of our financial processes?
Customer: Who are our customers? What do our customers expect or demand from us? What
is our value proposition in serving them?
Internal Process: What must we excel at in order to continue to add value for our customers?
What are the processes we have/need to best execute our strategies?
Learning & development: What is the level/content of employee skills needed to meet our
mission/value? What information systems needs to support these processes? What
organizational climate (culture) supports this success?
The Balanced Scorecard Is Based on an Understanding ofthe
Basic Building Blocks of the Strategy
: Eb et D 8 22) 1. The economic model of
: © Return on : key fevers driving financial
Revenue
<._ Invesimant TS prosusiey” performance
5 Strategy . Swaiegy I
Sources of Grown Sources of Prodtictivity
3 Bud the
Grane
Dekver the
Product’
“Service
Exceptionally
3. The value chain of core
business processes
BSC Example:
Strategic Theme:
.
Operating i
Efficiency Objectives
jf Measurement Target itiati
Initiative
Fi jal
manele Proftabilty ° Profitability * Market Value » 30% CAGR
a ~ * More * Seat Revenue * 20% CAGR
, > More
Fever Planes) NN cutters Customers * Plane Lease * 5% CAGR
* Ze * Fewer planes Cost
Customer te * Flight ison- * DGCAOn Time + #1 > Quality
Cod
Flight “Lowest time Arrival Rating management
Is onrine)_Prices * Lowest prices * Customer oH * Customer
me Ranking (Market loyalty
Survey) program
g
internal | * Fast ground * On Ground Time * 30 Minutes ° Cycle time
Fast Ground turnaround * On-Time * 90% optimization
aD Departure program
& The term value chain describes a way of looking at a business as a chain of activities
that transform inputs into outputs that customers value.
= Customervalue derives from three basic sources:
= activities that differentiate the product
> activities that lower its cost
> activities that meet the customer's need quickly.
= Value chain analysis views the organization as a sequential process of value-creating
activities, and attempts to understand how a business creates customervalue by
examining the contributions of different activities within the businessto that value.
Support Activities
a
General administration
Primary Activiies
Red oceans represent all the industries in existence today. This is the known market space.
Blue oceans denote all the industries not in existence today. This is the unknown market space.
in the red oceans, industry boundaries are defined and accepted, and the competitive rules of the game
are known. Here, companies try to outperform their rivals to grab a greater share of existing demand. As
the market space gets crowed, prospectsfor profits and growth are reduced. Products become
commodities, and cutthroat competition turns the red ocean bloody.
Blue Oceans,in contrast, are defined by untapped market space, demand creation, and the opportunity
for highly profitable growth. Although some blue oceans are created well beyond existing industry
boundaries, most are created from within red oceans by expanding existing industry boundaries. In blue
oceans competition is irrelevant because the rules of the game are waiting to be set.
Logic of Blue Ocean Strategy is so called value innovation and is the cornerstone of Blue Ocean Strategy
Value innovation places equal emphasis on value and innovation. It is a new way of thinking about and
executing strategy that results in the creation of a blue ocean and a break from the competition.
Importantly, value innovation defies one of the most commonly accepted dogmas of competition-based
strategy: The value-cost trade-off.
> It is conventionally believed that companies can either create greater value to the customersat
higher cost or create reasonable value at a lower cost. Here strategy is seen as making a choice between
differentiation and low cost. In contrast , those that seek to create blue oceans pursue differentiation
and low cost simultaneously.
Now turn the clock backonly thirty years, How many industries of today's industries were then
unknown? Mutual funds, cell phones, gas-fired electricity plants, biotechnology, discount retail,
snowboards and coffee bars to name a few.
DAs trade barriers between nations and regions are dismantled and as information on products and
prices becomes instantly and globally available, niche markets and havens for monopoly continue to
disappear.
-The result has been accelerated commoditization of products and services, increasing price wars, and
shrinking profit margins.
-And for major product and service categories, brands are generally becoming more similar and as they
are becoming more similar people increasingly select based on price.
.. overcome believes
Eliminate Create/Add
Creating
new markets:
Anew value
curve
Raise