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Learning objectives: Corporate level strategy- the corporate portfolio-growth share matrix-BCG, GE,
Arthur D Little, Diversification.
Three Levels of Strategy
1. Corporate level
2. Business level
3. Functional level
Strategic choices
• Strategic choices are concerned with decisions about an organization’s structure and the way in
which it needs to respond to many pressure and influences.
• The considerations of future strategy must be mindful of the realities of translating strategy in to the
action which, themselves can be significant constraint on strategic choice.
• At the different level of strategy and strategic decisions executives are faced with choices and to how
to meet the expectations of users, often in competition with another organization. Example-
investment analyst, business level executives.
• In turn , these executives face decision about how they will develop these strategies in terms of
products and markets they might develop; does it make sense to launch new product. Enter new,
markets and should this be done through organic development, alliances and M & A.?
Strategic
Choices
Value creation
Corporate Portfolio
parenting management
Penetration
Diversification Consolidation
Development
Scope decisions
Co rp ora te/
b u sine ss le vel
8
Corporate
strategies
Original
conception of
the business
Refined through
experience
Satisfying
stakeholders
Building Providing
Competences Investment
Centre
Division
Businesse
s
4) Is the corporate
control style
appropriate?
Efficiency gains
BCG Growth-
Share Matrix
Industry Attractiveness-
Business Strength BCG’s Strategic
Matrix Environments Matrix
Life Cycle-
Competitive
Strength Matrix
24
25
Industry Attractiveness
High Medium Low
Description of
Dimensions
High Invest- Selective Grow or Industry Attractiveness:
ment Growth Let Go Subjective assessment
based on broadest
possible range of
external opportunities
Selective Grow Harvest and threats beyond the
Medium Growth or strict control of
Let Go management
Business Strength:
Subjective assessment
Low Grow Harvest Divest of how strong a
or competitive advantage
is created by a broad
Let Go range of the firm’s
internal strengths and
weaknesses
BCG Matrix
• In early 1970’s the Boston Consulting Group developed a model for managing a portfolio of different
business units (or major product lines).
• BCG growth share matrix is widely used in corporate strategic analysis. Organizations have to take
decisions regarding the allocation of resources between competing business units.
• This matrix takes into consideration, the growth rate of the market and the relative market share of
the business unit. The market growth rate demands attention because it is important factor that
indicates whether the organization should stay in a particular industry or not.
• The BCG growth-share matrix displays the positions of business units on a graph of the market
growth rate against their market share relative to competitors.
• Resources can be allocated to business units on the basis of their classification into categories.
Business units are classified into four categories, namely Cash Cows , Stars ,Question Marks , and
Dogs.
The Growth Matrix (or BCG)
Relative Position (Market Share)
HIGH LOW
HIGH
Market Growth
LOW
Cost Uniqueness
The Restructuring concept must be aimed at achieving a fast and sustainable effect
o The restructuring concept must pursue two essential objectives:
o * Ensure short – term survival
o * Sustained reestablishment of competitiveness
o * To achieve these two objectives, a double – track restructuring concept is required. In the
short – term a quick solution to the acute liquidity problems must be found as part of an operative
restructuring plan. In the long – term the company must make far-reaching internal and market –
related changes in order to ensure its long – lasting survival. This can be done by means of strategic
restructuring.
Operative restructuring safeguards the short –
term survival of the company
Production of personnel costs
Improvemen
Reduction of materials
t of results costs
Reduction of
Operative miscellaneous expenses
restructuring
Short – term increase of
turnover
Reduction of accounts
receivable
Strategic positioning
Adjustment of structures
Adjustment of processes
* Equity Carve -
outs
• Horizontal Structure
Multidivisional corporations (M-Form organizations) came into existence in the twentieth century.
M – form organizations can be explained using the transaction cost approach. Growing firms which use a
unitary (U-Form) structure began to experience communications overload (bounded rationality) and the
problems of functional areas within the firm pursuing sub – goals (opportunism). M-form organizations can
also help in effective allocation of resources, and thus, strategic planning, monitoring and control become
easy.
From the point of view of production cost efficiency, the multidivisional organizational structure can be used
to draw maximum benefits of large fixed investments and this can be utilized over a number of individual
decentralized operations. The multidivisional form was adopted by General Motors when its activities were
confined only to the manufacturing of automobiles. Later on, General Motors ventured into transportation ,
manufacturing of household equipment and defense related products. In other firms, the multidivisional
form was adopted by General Motors when its activities were confined only to the manufacturing of
automobiles. Later on, General Motors ventured into transportation, manufacturing of household equipment
and defense related products. In other firms, the multidivisional form involved more diverse activities. To be
successful in diversified activities, there should be some relationship between the different activities such as
research, marketing or production.
Numerator and Denominator Management
• Most large organizations are now implementing contingency plans to face the business downturn.
CEOs have two alternatives for maintaining profitability levels. First, to reduce head count and
investment and sell assets under a “denominator – driven,” belt – tightening program. This type of
approach is called denominator management. Second, to increase profitability by improving
productivity. This approach is referred to as “numerator” – focused management. CEOs can increase
profitability by maximizing the components of the numerators, and minimizing, the components of
the denominators. Reducing manpower and expenditure is relatively easy to do.
• Gary Hamel and C.K.Prahalad, authors of the book, “Competing for the Future” say, “Regardless of
business cycle, talented CEOs are devoted to adopting numerator – driven business strategy, namely
seeking ways of increasing revenues and net profit, rather than the denominator – oriented
management of cutting investment and head count.” Prahalad and Hamel prefer reengineering to
restructuring because reengineering offers at least the hope of getting better as well as getting
smaller. Whereas, a company successfully restructuring itself will find itself getting smaller faster
than getting better
Organizational purposes
•Mission
•Objectives
Cultural context
Stakeholders •Which purposes are
* Whom does the prioritised?
organization serve? •Why?
Profit
· Return on Investment
· Return on Shareholders’ Capital
· % of Sales
Growth
· Production / Output
· Sales
· Investment
Marketing
· Increase in Sales
· Market Development for Existing Product
· Market Development for New Products
· Reduction in Unit Marketing Costs
· Improved Customer Service
Employees
· Industrial Relations
· Welfare
· Training and Development
Social Responsibility
· Community Service
· Auxiliary Industry Development
· Family Welfare
Mission statements
A mission statement is a generalized statement of the overriding purpose of an organization. It can
be thought of as an expression of its raison detre. .
Mission statements usually attempt to address some of the following issues:
A vision that is likely to persist as a ‘beacon in the distance’
Hamel and Prahalad prefer the term strategic intent to that of vision or mission; they see it as an
‘animating dream’. .
Describe the organization’s main activities and the position it wishes to attain in its industry. Many
statements talk about being ‘ the leader’ or ‘the best’
Be a statement of the key values of the organization, particularly regarding attitudes towards
stakeholder groups and the ethical agenda discussed earlier.
Good business leaders create a MISSION, articulate the MISSION, passionately own the MISSION, and
relentlessly drive it to completion."
HCL Infosystems
VISION :
Together we will create the enterprise of tomorrow
MISSION :
To provide world class information technology solution and services to enable our customers to serve their
customers better.
Characteristics
∞ Elicits an emotional, motivational response in employees.
∞ Be easily understood and be transferred into individual action
∞ Is a measurable and tangible goal.
∞ Is rooted in the competitive environment
Good mission statements can improve an institution’s
Mission promotes unity.
Mission provides direction.
Mission helps to move from ideas to action.
Mission establishes culture.
Techniques
¤ Administrative Mandate
¤ Survey Technique
¤ Delphi Technique
Production Unit Groups
How to write a mission statement ?
Make it Short.
Make it Memorarizable.
Make it Audible.
Make it Unique.
Polaris
Our mission is to be a reliable and responsive Techno-Business solutions provider in the areas of Banking,
Financial Services, Insurance, and Retail; will provide cost-effective and timely solutions, meeting customers
expectations through continuous process improvement and win- win relationships.
CAFÉ COFFEE DAY
To be the best café chain in the country by offering a world class coffee experience at affordable prices.
LIC Housing Finance
Provide Secure Housing Finance At An
Affordable Cost, Maximizing Shareholders
Value With Higher Customer Sensitivity.
ZEE TELEFILM
To establish the company as the creator of entertainment and infotainment products and services to feast the
viewers and advertisers. Through these sellers we intend to become an integral part of global market. As a
corporation, we will be profitable, productive, creative, trend setting and financially rugged with care and
concern for all stake holders.
STATE BANK OF INDIA
To retain the banks position as the premier Indian financial services group, with the world class standards and
significant global business, committed to excellence in the customer, shareholder and the employee satisfaction,
and to play a leading role in the expanding and diversifying financial services sector, while continuing emphasis
on its development banking role.
Google
Google's mission is to organize the world's information and make it universally
accessible and useful.
As a first step to fulfilling that mission, Google's founders Larry Page and Sergey Brin developed a new
approach to online search that took root in a Stanford University
dorm room and quickly spread to information seekers around the globe.
What's a Google?
"Googol" is the mathematical term for a 1 followed by 100 zeros.
Google's play on the term reflects the company's mission to organize the immense
amount of information available on the web
Google’s Philosophy
Ten things Google has found to be true –
Focus on the user and all else will follow
It's best to do one thing really, really well.
Fast is better than slow
Democracy on the web works
You don't need to be at your desk to need an answer
You can make money without doing evil
There's always more information out there
The need for information crosses all borders
You can be serious without a suit
Great just isn't good enough
Coke
Mission –
To refresh the world...
To inspire moments of optimism and happiness...
To create value and make a difference
Vision –
People: Be a great place to work where people are inspired to be the best they can be.
Portfolio: Bring to the world a portfolio of quality beverage brands that anticipate and satisfy
people's desires and needs.
Partners: Nurture a winning network of customers and suppliers, together we create mutual,
enduring value.
Planet: Be a responsible citizen that makes a difference by helping build and support sustainable
communities.
Profit: Maximize long-term return to shareowners while being mindful of our overall
responsibilities.
Productivity: Be a highly effective, lean and fast-moving organization.
Toyota
To sustain profitable growth by providing the best customer experience and dealer support”
Yahoo
To connect people to their passions, communities, and the world’s knowledge
Percept Picture
Our objective is to combine proprietary technology and world-class creative talent to develop and distribute
feature length films, ad films and television shows. We aim to create inspiring stories and memorable
characters that appeal to audiences of all ages and nationalities
Vision and Mission of ITC
Sustain ITC’s position as one of the India’s most valuable corporations through world class
performance, creating growing value for the Indian economy & Company’s stakeholder
Mission: To enhance the wealth generating capability of the enterprise in a globalizing
environment, deliveries superior and sustainable stakeholders
“The potential of an enterprise for wealth creation is set as per distinctive amalgamation of its
vision, value and vitaility
Mix of constancy and change of a timeless core and constantly evolving strategy and process a
built around cores”
4) Review- Understanding Strategy Development
Strategy Development process in organizations – strategic planning system – strategic leadership-
organizational politics-logical incrementalism-the learning organization-development-intended and
realized strategies-
WHAT IS STRATEGY
Strategy is the direction and scope of an organization over the long term
which achieves advantage for the organization through its configuration of
resources within a changing environment and to fulfill stake holders expectation
Johnson & Scholes
The role of strategy fundamentals
Strategy fundamentals such as industry structure,competitive advantage ,relative buyer
value,relative cost,operational effectiveness ,and strategic positioning represent the inherent
underpinning of corporate performance.
Focus on the Ends of competition and not focussing on specific technologies or means of competing in
any point of time in particular field
Strategic Leadership
Design
Lenses
Ideas Experience
THE STRATEGY LENSES
Most people make sense of complex situations in more than one way. Think
of everyday conversations or discussions. It is not unusual for people to
say: ‘But if you look at it this way….’
THE
PARADIGM
Strategy
Environmental Organizational
forces capabilities
Performance
STRATEGY AS IDEAS
The ideas lens sees strategy as the emergence of order and innovation from the variety and diversity
which exists in and around organizations. New ideas and therefore innovation may come from
anywhere in an organization, or indeed from stimuli in the world around it.
The evidence is that innovation comes, not from the top, but quite likely from low down in an
organization. There are links here to the experience lens. Sensing of an organization’s environment
takes place throughout an organization, not just at the top. People interpret issues in different ways
according to their experience and may come up with different ideas based on personal experience.
Such ideas may not be well formed or well informed and, at the individual level, they may be diverse.
The greater the variety of experience, the more likely there will be innovation.
Challenges and
Implications
•Strategic Drift
•The learning organization
•Uncertain and complex
conditions
•Managing strategy
development process
Strategic planning
Strategic Planning may take a form of systematised, step-by-step chronological procedures to develop or co-
ordinate an organizations strategy
5. Annual 6.
Capital & Corporate
Operating plan
Budgets
7. Approval
by board
8.Annual
9.Performance Performance
Appraisal Targets
GROUP
GROUP FOCUSED STRATEGIC
STRATEGY
SCENARIOS SCENARIOS PLAN
REVIEW
CHAIRMAN’S COUNTRY
APPRAISAL
LETTER GUIDLINES
COUNTRY GROUP
COUNTRY GROUP
BUISNESS RESOURCES
PROMISES PROMISES
PLAN REVIEW
Cultural and
Learning and logical
political
incrementalism
processes
5
4 3
Intended
1 Realized strategy
strategy
Unrealized strategy
Plan
Strategic Intent,
Policies Vision, Mission,
Goals,
Objectives
Intended Strategy
Realized Strategy
Emergent strategy
Strategic direction may emerge from actions taken by middle management and organizational routines rather
than by strategy as designed by top management.
Indeed, it is often a complaint of chief executives that the planning systems in their organization have
degenerated into little more than post – rationalizations of where the organization has come from.
There are a number of important practical implications for managers here.
1)There may be a gap between what top managers think strategy is, or should be – the intended
strategy, perhaps as stated in a strategic plan – and what is actually going on in practice – the realised
strategy. Illustration Intel’s top management believed the organization was following one strategy in
the 1980s when it was infact developing another.
2. The organizational effort, in terms of systems and management time, may be going into designing the
intended strategy, when more efforts need to be spent on attending to the processes that give rise to
the realised strategy especially if significant strategic change is needed; and this may mean
understanding and addressing cultural and political processes. Managing strategy does not just
mean formulating intended strategy.
3. 3) It may be that the intentions of top management are not the best way forward. It could be that
the direction of strategy that emerges from lowest in the organization is more appropriate to the
needs of the organization. The strategic contribution of middle and lower – level management is, for
example, being increasingly recognized by researchers and there exist well – documented accounts of
significant changes in strategy occuring in this way.
The process…
Intended
strategy: Emergent
Strategy Challenges and
* Strategic Development implications
planning *Strategic Drift
*Logical
* Strategy Incrementalis *The leaning
workshops m Organization
and project
*Resource *Uncertain and
groups
Allocation complex
*strategy conditions
consultants *Cultural
Processes Managing
*externally Strategy
imposed *Political Development
strategies Processes
Strategy Development Routes
Emergent
strategy
3
4
1
Intended Realised
strategy Process strategy
2 Unrealised
strategy
Strategic Drift
Historical studies of the pattern of strategy development and change of organizations have
shown that, typically, organizations go through long periods of relative continuity during
which established strategy remains largely unchanged or changes only incrementally.
This can go on for considerable periods of time in some organizations. This creates what is
known as strategic drift – where the strategies adopted progressively fail to address the strategic
position of the organization and with this the performance deteriorates.
This is typically followed by a period of flux during which strategies change, but not in very
clear direction.
Strategic Drift
Environmental change
Strategic changes
^
| 3
|
Cum
change --------- Phase – 1 Incremental changes ------------------ < Phase–2 Flux > --Phase -3/4 ----
Transformational
changes or
demise
2 4
1
Time ----------
Growth
Product Lines
No. of Competitors
Market Share
Customers
Ease of Entry
Technology
10
MARUTI SUZUKI
The Government of India has since divested its share and Maruti-Suzuki Ltd is
now a fully owned subsidiary of Suzuki Motor Corporation of Japan.
Entry-level Maruti 800 car (powered by 796cc 3 cylinder petrol engine), when
launched in 1983 at a cost of Rs.40,000.
Many foreign automobile manufacturers have lined up and expanded their base
in India after liberalization of economy commencing 1991
The Government of India has since divested its share and Maruti-Suzuki Ltd is
now a fully owned subsidiary of Suzuki Motor Corporation of Japan.
Strategic Capability
Learning Outcomes
What is meant by strategic capabilities and how this contributes to the competitive advantage of the
organizations.
The strategic importance of resources, competences, core competences and dynamic capabilities.
The importance of continual improvement in cost efficiency.
What is Strategic Capability?
Strategic capability is the adequacy and suitability of the resources and competences of an organization
for it to survive and prosper.”
Resources and Competences
• Tangible resources- They are the physical assets of an organization such as plant labor and finance.
• Intangible resources- They are the non physical assets such as information reputation and
knowledge.
Categories of Resources
• Physical resources- such as the number of machines, buildings or the production capacity of the
organization. The nature of these resources such as age, condition, capacity and location of each
resource determine the usefulness of resources.
• Financial resources- such as capital, cash, debtors and creditors and suppliers of money
(shareholders, bankers etc)
• Human resources- including the number and mix (example demographic profile) of people in an
organization. The intangible resources of their skills and knowledge is also likely to be important.
This applies both to employees an other people in an organizations network.
• Intellectual capital- is an important aspect of the intangible resources of an organization. This
includes patents, brands, business systems and customer databases. In a knowledge based economy,
intellectual capital is likely to be a major asset of many organizations.
Such resources are certainly important but what an organization does that is to say how it employs
and deploys it resources matters at least as much as what resources it has.
What Do We Mean By Competences
“Competences are the activities and processes through which an organization deploys its resources
effectively.”
In understanding strategic capability, the emphasis is , then , not just on what resources
exist but on how they are used
Capabilities
• Capabilities is the combination of resources and competences.
• An important distinction here is between capabilities that are at a threshold level and those that
might help the organization achieve competitive advantage.
Critical Success Factors(CSF
Critical Success Factor (CSF) is a business advocate term for an element which is necessary for an
organization or project to achieve its mission. They are the critical factors or activities required for ensuring
the success of your business.
Example Of CSF
Maruti Suzuki
• World Class manufacturing and quality
• Extensive service network- a core competency of Maruti.
• Suzuki’s advanced technology.
• High productivity
• Economies of scale.
• Large range of models
• Strong dealer network
• Quality program ‘Kaizen’.
• Brand equity
• Hire purchase scheme.
• Design Expertise
• Excellent advertizing and mass communication effort.
Cost Efficiency
An important strategic capability in an organization is to ensure attention is paid to achieving and continually
improving cost efficiency. This will involve having both appropriate resources and the competences to
manage cost.
Customer can benefit from cost efficiency in terms of lower prices or more product features for the same
price.
Cost
efficiency
Product/process
Supply costs
design
Unit Cost
Causal ambiguit y
•Characteristic
ambiguity
•Linkage ambiguity
• Linked to this cultural embeddedness, therefore, is the likelihood that such competences have
developed overtime and in a particular way. This historic path by which competences have arisen in
an organization is difficult to discern and imitate. This is referred to as path dependency.
Relationship Of Organizational Knowledge to Strategic Capability
• Organizational knowledge is the collective and shared experience accumulated through systems,
routines and activities of sharing across the organization. Knowledge is captured by formal
organization systems, processes and day to day activities which draw of people’s experiences
It is also concerned with the capacity of an organization to learn and is therefore central to the dynamic
capability of an organization to adapt to changing conditions
Ways of Diagnosing Strategic
Capability
The value chain and value network