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STRATEGIC MANAGEMENT

A
CONCEPT ON STRATEGIC THINKING
AND MODUS OPERANDI FOR SURVIVAL
IN 21st CENTURY
By
Dr. JANAK V. SHELAT

1
WHY STRATEGIC THINKING?
 Companies are operating in age of discontinuing change - an age of creative &
constructive destruction.
 Business, technology and product life is shrinking.
 Demographic shift in terms of consumer preference and requirements.
 A direct promotion from Agricultural economy to service or Hi-tech economy in
the new growth economy.
 A concept from liberalization, privatization & Globalization (LPG) to
regionalization.
 Shift from controlled economy to market driven economy.
 Rich countries adopt deindustrialization.
 Emergence of new Global Socio – economic system and world orders.
 Knowledge is replacing Infrastructure
 Self-leadership is in, command and control out
 Networks are replacing hierarchies
 Wanted - employees with Emotional Intelligence.
 Current Trends –
 Increasing environmental awareness
 Growing health consciousness
 Expanding seniors market
 Impact of the Generation Y boom let
 Declining mass market
 Changing pace and location of life
 Changing household composition
 Increasing diversity of workforce & market

2
Challenge of Strategic Management

Only 16 of the 100 largest U.S. companies at


the start of the 20th century are still
identifiable today!

In a recent year, 44,367 businesses filed for


bankruptcy and many more U.S. businesses failed

Competitive success is transient...unless care is


taken to preserve competitive position 3
Challenge of Strategic Management
Best Stocks of the Decade
The goals of achieving
strategic competitiveness
and earning above-
average returns are
challenging

The performance of
some companies more
than meets strategic
management's
challenge

4
21st Century Competitive Landscape

Fundamental nature of The pace of change


competition is changing is relentless....
• Rapid technological changes and increasing
• Rapid technology diffusions
Traditional industry
• Dramatic changes in boundaries are
information and blurring, such as...
communication technologies
• Computers
• Increasing importance of • Telecommunications
knowledge

5
21st Century Competitive Landscape

The global economy is Traditional sources of


changing competitive advantage
no longer guarantee
• People, goods, services and
success
ideas move freely across
geographic boundaries New keys to success
• New opportunities emerge include:
in multiple global markets • Flexibility
• Markets and industries • Innovation
become more • Speed
internationalized • Integration

6
21st Century Competitive Landscape
A country’s Country Competitiveness Rankings
1999 1998 Country Competitiveness Competitiveness
competitiveness is Index 1999 Index 1998
achieved through the 1
2
1
3
Singapore
United States
2.12
1.58
2.16
1.41
accumulation of 3 2 Hong Kong 1.41 1.91
4 6 Taiwan 1.38 1.19
individual firms’ 5 5 Canada 1.33 1.27
strategic 6
7
8
10
Switzerland
Luxembourg
1.27
1.25
1.10
1.05
competitiveness in 8 4 United Kingdom 1.17 1.29
the global economy 9
10
7
11
Netherlands
Ireland
1.13
1.11
1.13
1.05
11 15 Finland 1.11 0.70
12 14 Australia 1.04 0.79
13 13 New Zealand 10.1 0.84
Achieving improved 14 12 Japan 1.00 0.97
15 9 Norway 0.92 1.09
competitiveness 16 17 Malaysia 0.86 0.59
allows a country's 17 16 Denmark 0.85 0.61
18 30 Iceland 0.59 -0.18
citizens to have a 19 23 Sweden 0.58 0.25
higher standard of 20
21
20
18
Austria
Chile
0.37
0.57
0.37
0.57
living 22 19 Korea 0.46 0.39
23 22 France 0.44 0.25
24 27 Belgium 0.39 -0.03
25 24 Germany 0.37 0.15 7
26 25 Spain 0.16 0.02
Changing Corporations

Old Organizational Format New Organizational Format

One large corporation Mini-business units & cooperative relationships

Vertical communication Horizontal communication

Centralized top-down decision making Decentralized participative decision making

Vertical integration Outsourcing & Virtual Organizations

Work/quality teams Autonomous work teams

Functional work teams Cross-functional work teams

Minimal training Extensive training

Specialized job design focused on individual Value-chain team-focused job design

Stability & Structured & Gradual Change & Flexibility & Speedy, Fast

Mass Production Mass Customization

* Business Week, 28 August, 2000


8
FOUR MAJOR THRUST AREAS
OF BUSINESS
 Managing Competition
- Aggressive Marketing – Market Share – Go Global

- Superior Quality of Products / Services

- Cost Reduction / Lowering Prices

- Faster Deliveries / Response Time

- Innovations / Productivity Improvements

 Developing Leadership Skills for Vision and Change.


To focus on People besides Products, Process, Profits.
Today, every person is a Profit Center.
 Using IT based tsunami of information, ideas and tools
for managing the business – E Business
 Making ours a Learning Organization
9
WHAT IS BUSINESS?

PRODUCT

MARKET FUNCTION

What Business the Firm is in?


Why the Firm is in the Business?
What should be Firm’s Business?

10
Strategic Management

Creating &
Why?
To ensure Growth Sustaining
with Profits in
the long-run!
Competitive
Advantages,
Globally
11
The Strategic Management System
Involves the full set of:

Commitments Decisions Actions

which are required for firms to achieve:

Strategic Competitiveness
Sustained Competitive Advantage
Above-Average Returns
12
Strategic Competitiveness
Achieved when a firm successfully formulates
and implements a value-creating strategy

Sustained Competitive Advantage


Occurs when a firm develops a strategy that
competitors are not simultaneously implementing
Provides benefits which current and potential
competitors are unable to duplicate

Above-Average Returns
Returns in excess of what an investor expects to
earn from other investments with similar risk
13
BASIC CONCEPTS
 STRATEGY: It is Unified, Comprehensive, and Integrated
long term plan that relates to the strategic advantages of
the firm to the challenges of the environment.
 STRATEGIC MANAGEMENT: It is a stream of decisions
and actions which leads to the development of an
effective strategy to help achieve the corporate
objective. It is a continuous, iterative, & Cross functional
process of matching firm with its environment.
 COMPETITIVE ADVANTAGE: is delivering superior
value advantage to your target customers relative to
your competitors. Or delivering equivalent customer
value to your target customers relative to your
competitors , but at a lower cost.

14
GAP OUT PUT

VISION VALUE SYSTEM

FIRM/BUSINESS
MISSION
OBJECTIVES

PURPOSE

BASIC INFRASTRUCTURE AND FRAME WORK OF A FIRM


15
MISSION & GOALS OF A COMPANY
 VISION: It is a vividly descriptive image of what you
what to be or what you want to be known for. Vision is
an art for seeing invisibles.
 MISSION : It a statement of intent of “what a firm wants to
create and through which line of Business”. It is a process of
legitimization of corporate existence of business. It defines
the culture, philosophy and grand design of the firm. To
pursue the Creation of Value to all Stakeholders in the
Business. It is an answer to question – “What business are
we in?”
 GOALS / OBJECTIVES : End to be achieved. It is
 To make Profit for today and forever
 To satisfy Customers today and forever
 To satisfy Employees today and forever
16
Strategic
Planning

17
Three Big Strategic
Questions
 Where Are We Now?

 Where Do we Want
to Go?

 How Will We Get


There?

18
The Five Task of Strategic
Planning
 Developing a Vision and a Mission
 Setting Objectives
 Crafting a Strategy
 Implementing and Executing Strategy
 Evaluating Performance, Reviewing the
Situation and Initiating Corrective Action

19
An organization’s MISSION
 reflects management’s vision of what the
organization seeks to do and to become
 sets forth a meaningful direction for the
organization
 indicates an intent to stake out a particular
business position
 outline “Who we are, What we do, and
Where we are headed”.

20
Setting Objectives
 The purpose is to convert
the mission into Specific
Performance Targets
 Serve as yardsticks for
tacking company
progress and
performance.
 Should be set at levels
that require stretch and
disciplined effort.

21
Two Types of Objectives
are Needed
 FINANCIAL
OBJECTIVES

 STRATEGIC
OBJECTIVES
 Short-Run
 Long-Run

22
Crafting a Strategy
 HOW to out compete rivals and win a
competitive advantage.
 HOW to respond to changing industry
and competitive conditions
 HOW to defend against threats to the
company’s well-being
 HOW to pursue attractive opportunities

23
Crafting Strategy is an
Exercise in
Entrepreneurship
 Risk-taking and
venture someone's
 Innovation and
business creativity·
 A keen eye for
spotting emerging
market opportunities·
 Choosing among
alternatives

24
Why Good Management of Strategy Matters

 Powerful execution of a powerful strategy is a


proven recipe for success.
 Crafting and implementing a strategy are CORE
management functions.
 To qualify as WELL-MANAGED, a company
should · Have an attractive strategy
 A good strategy builds a position that is strong
enough to overpower rivals and flexible enough
to overcome unexpected obstacles.

25
Why is a Company’s
Strategy Constantly
Evolving?
 Changing market conditions·
 Moves of competitors·
 New technologies and production capabilities·
 Evolving buyer needs and preferences·
 Political and regulatory factors·
 New windows of opportunity·
 Fresh ideas to improve the current strategy·
 A crisis situation

26
What is a Strategic Plan?
 A strategic plan
specifies where a
company is
headed and HOW
management
intends to achieve
the targeted
levels of
performance.

27
Strategic Management Basic model
Options on
Learning
Competitive
points from
Positioning
deviations
Four Basic Elements

Strategic management is the process of moving where you are


to where you want to be in future – through
sustainable competitive advantages
28
VISION GAP
VALUE
STRATEGIC
IMPLEMEMTATION
BASIC
MISSION FIRM STRATEGIES
GOAL ORGANISATION
DESIGN
MACRO ENVIRO STRATEGIC
APPRAISAL ALTERNATIVES
FUNCTIONALLEVEL
STRATEGIES &
RESOURCES
MICRO ENVIRO ALLOCATION
APPRAISAL OF BUSINESS LEVEL
INDUSTRIES STRATEGIES
DEVELOPMENT
OF
MICRO ENVIRO CONTROL
APPRAISAL OF STRATEGIC
FIRM SELECTION
Is
Strategy
Working?

STRATEGIC PLANNING DESIGN AND IMPLEMENTATION PROCESS 29


Characteristic of the
Strategic Management
Process
 An ongoing exercise
 Boundaries among the tasks are blurry rather than
clear-cut
 Doing the 5 task is not isolated from other managerial
responsibilities and activities.
 The time required to do the tasks of strategic
management comes in lumps and spurts rather than
being constant and regular.
 Involves pushing to get the best strategy supportive
performance from each employee, perfecting the
current strategy.

30
ENVIRONMENTAL APPRAISAL

ENVIRONMENTAL ENVIRONMENTA
ANALYSIS L DIAGNOSIS
O S

T W
ETOP
SAP
OFPP

VALUATION PROCESS OF SWOT ANALYSI


31
Impact Of Environment Business

ENVIRONMENTAL FACTORS
GOVERNMENTAL INTERNATIONAL
ECONOMICAL

POLITICAL
TECHNOLOGICAL

FIRM/BUSINESS
LEGAL
SOCIETAL

CULTURAL

32
Variables in Societal Environment

33
International Societal Environments

34
Industry Analysis

35
Porter’s Approach to Industry Analysis

Threat of Substitute Products or Services

Bargaining Power of Buyers

Bargaining Power of Suppliers

Relative Power of Other Stakeholders

36
Porter’s Approach to Industry Analysis

Threat of New Entrants –


Economies of scale

Product differentiation

Capital requirements

Switching costs

Access to distribution channels

Cost disadvantages

Government policy

37
Porter’s Approach to Industry Analysis

Rivalry Among Existing Firms –

Number of competitors
Rate of industry growth

Product or service characteristics

Amount of fixed costs

Capacity

Height of exit barriers

Diversity of rivals

38
SWOT analysis of strengths,
weaknesses, opportunities,and threats.

39
TOWS Matrix

40
CREATING STRATEGIC
MIND SET

41
Corporate Strategy

Three Key Issues:


 Firm’s directional (CORPORATE)
strategy
 Firm’s portfolio (BUSINESS LEVEL)
strategy
 Firm’s parenting (FUNCTIONAL LEVEL)
strategy

42
Initiation of Strategy

•New CEO

•External intervention Stimulus


for change
Triggering •Threat of change in
ownership
in
event
strategy
•Performance gap

•Strategic inflection point

43
Corporate Directional Strategies

COMBINATION STRATEGIES

DERIVED STRATEGIES
44
STRATEGIC VARIATIONS -
EXPANSION
 INTERNAL: Add new product, product line, market,
functions, redefine/ reposition of product – market.
 EXTERNAL : Take over, acquisition, merger.
 RELATED : Synergic diversification.
 UNRELATED: Non – synergic diversification.
 HORIZONTAL: Supplementary/ Complementary
Expansion.
 VERTICAL: Integration.
 ACTIVE: R & D, Entrepreneurial development.
 PASSIVE: Imitation, adoption & adaptation.

45
IGOR ANSOFF’S BUSINESS GROWTH MODEL
New products /New Markets
CO Unrelated
NEW CUSTOMERS BU RP
FOR EXISTING LINES SIN ORA Businesses
ES T
OF PRODUCTS S D E PL
NEW

E A
Related VELO NNI
MARKETS / CUSTOMERS

N
MARKET DEVELOPMENT Businesses – PME G
NT

EXISTING PRODUCTS NEW PRODUCTS FOR


IN EXISTING MARKETS EXISTING CUSTOMERS
EXISTING

Increase
Market Share NEW PRODUCT
Existing
SALES DEVELOPMENT, UPGRADES
Share of Business
MGMT.
EXISTING NEW
Products
PRODUCTS
* Corporate Strategy, I. Ansoff, Jan 1965, McGraw Hill, USA
46
SPIN OUT MANAGING
Creating New Business PROJECT
As an external Ventures

INTERNAL VENTURE
STRATEGY
Managing new products/ services,
development projects as
in company
Ventures

ALLIANCE EXTERNAL INVESTMENT


In
Joint Ventures Acquisition of Product, Marke
ture Acquisition, Partnering Technology,
or Management control

EXTERNAL VENTURES STRATEGY 47


EXTERNAL GROWTH
STRATEGIES

 TAKE OVER, AQUISION &


MERGER
BUYING FIRM SELLING FIRM

•Acquire Controlling interest} •TAKE OVER


•Acquire Assets and liabilities}
of selling Firm} •ACQUISION
•Acquire & merge of Assets }
liabilities of both the firms.} •MERGER

48
WHY THE FIRM PURSURE EXTERNAL
EXPANSION
 To increase the firm’s stock..
 To increase the growth rate of the firm.
 To make good investments.
 To improve the firm’s earnings & stability.
 To balance or fill out the product line.
 To diversified the product line in mature state.
 To reduce the competition.
 To acquire the needed resources.
 For Tax purpose.
 To increase the efficiency and profitability.
 To diversify the owner’s holding.
 To deal with top management problems.

49
CRITICAL ISSUES RELATED TO M & A
 STRATEGIC ISSUES:
It relates to the commonality of strategic interest. Strength of one
firm may be weakness of the other firm and vice versa. The firms
can create Synergy and complementing business situation.
 FINANCIAL ISSUES:
These are related to (a) Valuation of selling firms based on assets,
market standing, share prices, earning potential etc. (b) Sources of
financing for merger.
 MANAGERIAL ISSUES:
It relates to professional compatibility and acceptance of
managerial system of selling company.
 LEGAL ISSUES:
It is related to various issues of legal provisions such as Chapter V
of the Companies Act, the MRTP Act, and section 72A (I) of the
Income Tax Act OR Anti Trust Act, Sherman’s Act.
 CULTURAL ISSUES:
 It relates to the cultural compatibility of the organization, society,
market etc.
 LABOUR ISSUES: It relates to continuation of old staff and
subsequent relations.
 SOCIETAL ISSUES: It relates to the benefits of society and Social
compatibility.
 OTHER ISSUES: It relates to Political, Economic, Environmental
factors.

50
REASONS FOR FAILUR OF
EXTERNAL GROWTH
 Paying too much for the acquired firm.
 Assuming that a growing market or
product will be out standing in market.
 Leaping into merger without carefully
studying the consequences.
 Diversifying in to areas in which the firm
had too little knowledge.
 Buying too large a firm and thus incurring
an excessively large debt.
 Trying to merge disparate corporate
cultures.
 Counting on key personnel staying after
the merger.
51
DERIVED BUSINESS STRATEGIES

OFFENSIVE DEFFENSIVE CO-OPERATIVE

•RAISE STRUCTURAL •SYNDICATING (COLLUSION


•FRONTAL ASSAULT
BARRIER •STRATEGIC ALLIANCES
•FLANKING MANEUVER
•INCREASE EXPECTED •MUTUAL CONSORTIA
•BYPASS ATTACK
RETALIATION •JOINT VENTURE
•ENCIRCLEMENT
•LOWER INDUCEMENT FOR
•LICENSING ARRANGEMENT
•GUERRILLA WARFARE
ATTACK •VALUE CHAIN PARTNERSH

52
CO-OPERATIVE STRATEGIES
COLLUSION (SYNDICATING):
It is an active cooperation of firm for their individual and collective
advantages within an industry to reduce out-put and raise price in
order to the
normal economic law of supply & Demand. Collusion may be
 Explicit, in which firms co operate through direct communication and negotiation, or
 Tacit in which firms cooperate indirectly through an informal system of signals.
Explicit is illegal under MRTP/ Anti trust Acts.
It can be successful if:
(1) There are small number of identifiable competitors.
(2) Cost are similar among firms.
(3) One firm tends to act as price leader or market leader.
(4) There is common industrial culture that accepts the cooperation.
(5) Sales are characterized by high frequency of small orders.
(6) There are high entry barriers to new competitors.
(Exp: Economic Scale of operation, Switching cost, Capital, Capacity, Regulations, market accessibility, stage in learning
curve, Brand loyalties etc )

53
 MUTUAL CONSORTIA – Complemented Grouping:

It is a partnership of similar companies in similar industries who


pool their competency & resources to gain benefits that are too
expensive to develop/ deploy alone, such as access to advance
technology or capturing the market.
It is fairly weak and fragile alliances. There is very little interaction or
communication among the partners.

 LICENSING ARRANGEMENT:
It is an agreement in which the licensing firm (licensor) grants rights to
another firm( licensee) in another country or market to produce and/or
sell a product or services. The licensee pays compensation (Royalties,
profit sharing, or lump sum payment) to the licensing firm in return for
technical expertise.
It is useful strategy if the trademark or brand name is well known. It is
also useful when there is Entry barrier for a MNC.

54
STRATEGIC ALLIANCE
(Partnering):
 It is a partnership of two or more corporations or business units to
achieve strategically significant objectives which can be mutually
beneficial. Some alliance are short term till the product is
established, while the others are longer lasting, resulting in merger.
The reasons for alliance are:

(a) To obtain technological, management and/or manufacturing capabilities.


(b) To enter into specific markets.
(c) To reduce financial risk.
(d) To reduce political and economic risk.
(e) To achieve or ensure competitive advantages in new businesses or markets
(f) It plays vital role in today’s market condition and environment to solve some
complicated issues.
(g) It provides vital role in providing the firms synergic strength.
(h) It helps to develop product, process, market & share the investment outlay
jointly.
(i) It facilitates the development of unique technological capabilities to meet the
challenges of technological revolution.
(j) It create a compulsion for alliance to enter in the local market through JV.
(k) Building brand image in local market is mostly possible through alliance.

55
SPECIFIC ALLIANCE
 Production Alliance: Two or more companies share the
common manufacturing facilities, existing or new facilities.
 Marketing Alliance: Two or more companies share
marketing services expertise and facilities.
 Financial Alliance: Companies joint together in order to
reduce financial risks associated with the activities & share
the profit in proportion to financial contribution.
 Research & Development Alliances: Fast changing
technology, high cost of R & D and need of being ahead of
changes, force companies to form alliance in R & D area.
 Human Resources Alliance: Alliance for outsourcing

56
BREAK – UP OF ALLIANCE:
 Incompatibility between/among partners
in management style, financial position,
culture, business interest.
 Access to information.
 Distribution of Income.
 Change in business environment.
 Acquiring the strength of partner: The
companies over a period of alliance,
acquire the strengths of the partner and
starts new operations in competitions.

57
STRATEGIC JOINT VENTURE
 Joint ventures (JV) are partnership in which two or
more firms carry out a specific project or business in a
selected area of industry in a form of new venture.
Ownership of the original firms remains unchanged.
Actually, corporate partnership are formed with
specific and time bound objectives which, once
achieved, leaves little reasons for the alliance to
continue. Joint venture can be temporary or it can be
long term. JV that last longer do so because their
objectives have been redesigned.
Every JV:
1. Has a scheduled life – cycle, which will end sooner or later (5 to 10
years)
2. Has to be dissolved when it has outlived its life – cycle.
3. Change in environment forces joint venture to be redesigned
regularly
4. Translations seek to absorb their partner’s competencies.
5. It is a contractual obligation on fragile platform.
58
Strategic reasons for
Formation of JV
1. Foreign firms are allowed to operate only if they enter
into a JV with local partner.
2. Size of the project may be very large and one company
accomplish it.
3. Some projects require multidimensional technology
that no one firm possesses. Firm with different, but
compatible technology may join together.
4. One firm with technology competence and another with
managerial competence join together.
5. A foreign firm with technology competence joins with a
domestic firm with marketing competence.
6. While setting up of an organization requires
surmounting hurdles such as import quota, tariffs,
nationalistic political interest and cultural road block,
Government’s support for the JV.
7. JV are undertaken for a variety of reasons like political,
economic or technological

TYPES OF JV:
(A) SPIDER WEB
(B) GO-TOGATHER & SPLIT
(C) SUCCESSIVE INTEGRATION
59
Building Competitive Advantage
Through Business Level Strategy

60
Corporate Value Chain

61
Porter’s Generic Competitive Strategies

62
What is a Business level strategy

• Business level strategies are firm-specific business model


that will allow a company to gain a competitive advantage
over its rivals in a market or industry.
• It aims at improving the effectiveness of a company’s
operations and thus its ability to attend superior efficiency,
quality, innovation and customer responsiveness .
• Its ability to improve company’s operations helps in
achieving cost leadership or helps the company in
differentiating its product from the rival company.

63
Distinctive Competencies…

They are firm specific strengths that allow a


company to differentiate its products and/or
achieve substantially lower costs than its rivals
and thus gain a competitive advantage.
E.g. Toyota…
They arise from two sources:
1) Resources

2) Capabilities

64
Build
RESOURCES
Differentiatio
n
BUSINESS
STRATEGIES
Superior:
•Efficiency
•Quality Value profitabili
DISTINCTIVE
•Innovation creatio ty
COMPETENCIES
•Customer n
responsiven
ess
Low cost

Build
CAPABILITIES

65
Product/Market/Distinctive-Competency
Choices and Generic Competitive
Strategies
Cost Differentiation Focus
Leadership
Product Low (Principally High (Principally Low to High
Differentiation by Price) by Uniqueness) (Price or
Uniqueness)
Market Low (Mass High (Many Low (One or a
Segmentation Market) Market few Segments)
Segments)
Distinctive Manufacturing Research & Any kind of
Competency and Materials Development, Distinctive
Management Sales & Competency
Marketing
66
Cost Leadership
 It is based on the intent to outperform competitors by
doing every thing to establish a cost structure that allows it
to produce or provide goods or services at a lower unit
cost.
 Cost leader chooses a low to moderate level of product
differentiation relative to its competitors.
 Aims for a differentiation not markedly inferior to that of
the differentiator but a level obtainable at a low cost.
 Frequently ignores the many different market segments in
industry to appeal the average customers.
67
Advantages and Disadvantages
Advantages Disadvantages

 Protected from industry  Cost leadership approach


competitors lurk in competitors’ ability
 Less affected by competitors to find ways to lower their
price change cost structure
 Requires a big market share  Ability to imitate cost
so they purchases in leader’s methods easily
relatively large quantities  The single minded desire
 Barrier to entry. to reduce costs might
drastically affect the
demand
68
Implications
 To pursue a full blown cost-leadership, strategic
managers need to devote enormous efforts to incorporate
all the latest information, materials, management, and
manufacturing technology into their operations to find
new ways to reduce costs.
 A differentiator cannot let a cost leader get too great a
cost advantage because the leader might then be able to
use its high profits to invest more in product
differentiation and beat leaders.
 Must respond to the strategic moves of its differential
competitors and increase the quality and features of its
products if it is to prosper in the long run
69
Differentiation Strategy
 The objective of the differentiation strategy is to achieve a
competitive advantage by creating a product that consumers
perceive as different or distinct in some important way.
 Product differentiation can be achieved in three ways
 Quality
 Innovation
 Responsiveness to customers
 Generally, a differentiator chooses to segment its market into
many segments and niches
 A differentiated company concentrates on the organizational
functions that provide the source of its differentiation
advantage.
70
Advantages and Disadvantages
Advantages Disadvantages
 Differentiation safeguards a  Strategic manager’s long
company against competitors to term ability to maintain a
the degree that customers develop
brand loyalty for its product product’s perceived
 Suppliers are rarely a problem as distinctness in customers’
company’s strategy is geared eyes.
more toward the price it can  The ease with which
charge than toward costs
competitors imitate the
 Distinct product solves the
differentiator’s product
problem of strong buyers
 The threat of substitutes depends
on the ability of the competitors’
product.

71
Focus Strategies
 Focus Strategies position a company to
compete for customers in a particular market
segment, which can be defined
geographically, by type of customers, or by
region or even by locality.

72
Focus Strategies
 Focused Cost Leadership Strategy :
If a company uses a focused low – cost approach, it
competes against the cost leader in the market
segment in which it has no cost disadvantage.
 Focused Differentiation Strategy :
If a company uses a focused differentiation
approach, then all the means of differentiation that
are open to the differentiator are available to the
focused company.

73
Advantages
 A focused company’s competitive advantage stem
from the source of its distinctive competency:
efficiency, quality, innovation, or responsiveness to
customers.
 The company is protected from rivals to the extent
that it can provide a product or service they cannot.
 This ability also gives the focuser power over its
buyers because they cannot get the same things
from anyone else.

74
Disadvantages

 Powerful suppliers
 The focuser’s niche can suddenly disappear
because of technological change or change in
customer’s tastes.
 The focuser is vulnerable and has to defend its
niche constantly.

75
Competitive positioning and
business – level strategy
 Strategic group Analysis

 Investment Analysis

 Game Theory

76
Strategic group Analysis

 Strategic group analysis helps a company identify the


strategies that its industry rivals are pursuing.
 It allows managers to uncover the most important basis of
competition in an industry and identify products and market
segments where they can compete most successfully for
customers.
 Such analysis also helps to reveal what competencies are
likely to be most valuable in the future so that companies
can make the right investment decision.

77
Investment Analysis

 An Investment Strategy sets the amount and type


of resources – human, financial and functional –
that must be invested to maximize a company’s
profitability over time.
 Two factors are crucial in choosing an investment
strategy:
 The strength of a company’s position in an industry relative
to its competitors.
 The stage of the industry’s life cycle in which the company
is competing.

78
Game Theory

 Game such as chess, player move in turn, and


one player can select a strategy to pursue after
considering its rival’s choice of strategies or
the players act at the same time, in ignorance
of their rival’s current action.

79
Business Level Strategies Help To
Improve
1.Efficiency
2.Quality
3.Innovation
4.Customer responsiveness

80
Industry Generic Strategies
Force
Cost Leadership Differentiation Focus

Ability to cut price in retaliation deters potentialCustomer loyalty can discourage Focusing develops core competencies
ntry entrants. potential entrants. that can act as an entry barrier.
arriers

Ability to offer lower price to powerful buyers. Ability to offer lower price to powerful Ability to offer lower price to powerful
uyer Large buyers have less power to negotiate buyers. Large buyers have less power tobuyers. Large buyers have less power
ower because of few close alternatives. Large buyers negotiate because of few close to negotiate because of few close
have less power to negotiate because of few alternatives. Large buyers have less alternatives. Large buyers have less
alternatives. power to negotiate because of few power to negotiate because of few
alternatives. alternatives.

Better insulated from powerful suppliers. Better Better insulated from powerful Better insulated from powerful
upplier able to pass on supplier price increases to suppliers. Better able to pass on suppliers. Better able to pass on
ower customers. Suppliers have power because of supplier price increases to customers. supplier price increases to customers.
low volumes, but a differentiation-focused firm Suppliers have power because of low Suppliers have power because of low
is better able to pass on supplier price volumes, but a differentiation-focused volumes, but a differentiation-
increases. firm is better able to pass on supplier focused firm is better able to pass on
price increases. supplier price increases.

hreat of Can use low price to defend against


substitutes. Customer's become attached to
Can use low price to defend against
substitutes. Customer's become
Can use low price to defend against
substitutes. Customer's become
ubstitutes differentiating attributes, reducing threat of attached to differentiating attributes, attached to differentiating attributes,
substitutes. Specialized products & core reducing threat of substitutes. reducing threat of substitutes.
competency protect against substitutes. Specialized products & core competency Specialized products & core
protect against substitutes. competency protect against
substitutes.

Better able to compete on price.Brand loyalty Better able to compete on price.Brand Better able to compete on
valry to keep customers from rivals.Rivals cannot loyalty to keep customers from price.Brand loyalty to keep customers
meet differentiation-focused customer needs. rivals.Rivals cannot meet from rivals.Rivals cannot meet
differentiation-focused customer needs. 81
differentiation-focused customer
needs.
RETRENCHMENT STRATEGY
Common Retrenchment Strategies: Turnaround, restructuring,
Divesting, Bankruptcy, Liquidation
WHY FIRM GO FOR RETRENCHMENT:
 Prevalence of poor economic conditions.
 Competitive pressure may also cause firms to curtail their
operations.
 The comp. is not doing well or perceive itself as doing poorly.
 The comp. has not met its objectives and there is pressure
from shareholders, customers, or others to improve
performance.
 The external environment poses threats and internal strengths
are insufficient to face the threats.
 Better opportunities in the environments are perceived else
where were firms strength can be utilized.
 Inability to implement latest technology cause by tech.
revolution.
82
International
International Strategy
Strategy

83
International Strategy Opportunities and Outcomes
Identify Explore Use Core Strategic
Internatiodgd Resources and Competence Competitiveness
gnal Capabilities Management Outcomes
Opportunities Problems
International Modes of and Risk
Strategies Entry
Increased International Exporting
Market Size Business-Level Higher
Strategy Exporting Performance
Return on
Investment Multidomestic Returns
Strategic
Strategy
Economies of Alliances
Scale and Global
Acquisition
Learning Strategy
Innovation
Location Transnational Establishment of
Advantage Strategy New Subsidiary

Management
Problems
and Risk 84
International Strategy Lifecycle
Selling Products or Services Outside a Firm’s Domestic Market

2 Product Demand
Develops and
Firm Exports
Products
1 Firm Introduces
3 Foreign
Innovation in
Domestic Market Competition
Begins Production

5 Production Becomes
Standardized and is 4
Relocated to Low Cost Firm Begins
Countries Production Abroad
85
Motivations for International Expansion
Increase Market Share
Domestic market may lack the size to support efficient
scale manufacturing facilities
Example: Japanese electronics or
automobile manufacturers

Return on Investment
Large investment projects may require global markets to
justify the capital outlays
Example: Aircraft manufacturers Boeing or Airbus

Weak patent protection in some countries implies that firms


should expand overseas rapidly in order to preempt imitators
86
Motivations for International Expansion
Economies of Scale or Learning
Expanding size or scope of markets helps to achieve
economies of scale in manufacturing as well as marketing,
R & D or distribution
- Can spread costs over a larger sales base
- Increase profit per unit

Location Advantages
Low cost markets may aid in developing
competitive advantage
May achieve better access to:
- Raw materials - Key customers
- Lower cost labor - Energy
- Key suppliers - Natural resources 87
Porter’s Determinants of National Advantage
Home Country of Origin Is Crucial to International Success

Related & Supporting


Industries
- Japanese cameras & copiers
Factor Conditions - Italian shoes & leather
Basic Factors
- Land, labor Demand
Advanced Factors Conditions
- Highly educated workers Home country may
- Digital communications support scale efficient
Generalized Factors operations by itself
- Capital, infrastructure
Specialized Factors Firm Strategy, Structure &
- Skilled personnel Rivalry
Intense rivalry fosters
industry competition 88
Business-Level International Strategies

International Low Cost


Usually located in home country
Export to international markets
Low value added operations in foreign countries
High value added operations in home country

International Differentiation
Countries with advanced or specialized factor
conditions most likely to use this strategy
Example: Japan, Germany, U.S.

89
Business-Level International Strategies
International Focus Strategies
Technologically advanced firms follow focused
low cost strategy
Focused differentiation firms compete on the
basis of image & design
Third group competes on low price by imitating

International Integrated Low Cost/Differentiation


Can be most effective in dealing with diverse markets
Often relies upon flexible manufacturing, total quality
management or rapid communication networks
90
Corporate-Level International Strategies
Type of Corporate Strategy selected will have an
impact on the selection and implementation of the
business-level strategies
Some Corporate strategies provide individual country
units with flexibility to choose their own strategies
Others dictate business-level strategies from the home
office and coordinate resource sharing across units

Multi-Domestic Strategy
Three
Corporate Global Strategy
Strategies
Transnational Strategy 91
Corporate-Level International Strategies
Multi-Domestic Strategy

Strategy and operating decisions are decentralized


to strategic business units (SBU) in each country
Products and services are tailored to local markets
Business units in each country are independent
of each other
Assumes markets differ by country or regions
Focus on competition in each market
Prominent strategy among European firms due to
broad variety of cultures and markets in Europe
92
Corporate-Level International Strategies
Global Strategy

Products are standardized across national markets


Decisions regarding business-level strategies are
centralized in the home office
Strategic business units (SBU) are assumed to be
interdependent
Emphasizes economies of scale
Often lacks responsiveness to local markets
Requires resource sharing and coordination across
borders (which also makes it difficult to manage)
93
Corporate-Level International Strategies
Transnational Strategy

Seeks to achieve both global efficiency and local


responsiveness

Difficult to achieve because of simultaneous


requirements for strong central control and
coordination to achieve efficiency and local
flexibility and decentralization to achieve local
market responsiveness

Must pursue organizational learning to achieve


competitive advantage
94
International Corporate Strategy
When is each strategy appropriate?

High

Need for
Global
Integration

Multi-
Domestic
Low
Low High
Need for Local Market Responsiveness 95
International Corporate Strategy
When is each strategy appropriate?
High

Global Trans-
Strategy national

Need for
Global
Integration

Multi-
Domestic
Low
Low High
Need for Local Market Responsiveness 96
Choice of International Entry Mode
Exporting
Exporting

Common way to enter new international markets


No need to establish operations in other countries
Establish distribution channels through contractual
relationships
May have high transportation costs
May encounter high import tariffs
May have less control on marketing and distribution
Difficult to customize products
97
Choice of International Entry Mode
Licensing
Licensing
Firm authorizes another firm to manufacture and
sell its products
Licensing firm is paid a royalty on each unit
produced and sold
Licensee takes risks in manufacturing investments
Least risky way to enter a foreign market
Licensing firm loses control over product quality
and distribution
Relatively low profit potential
A significant risk is that licensor learns technology
and competes when license expires 98
Choice of International Entry Mode
Strategic
Strategic Alliances
Alliances
Enable firms to shares risks and resources to expand into
international ventures
Most joint ventures (JVs) involve a foreign company
with a new product or technology and a host company
with access to distribution or knowledge of local
customs, norms or politics

May experience difficulties in merging disparate


cultures
May not understand the strategic intent of partners or
experience divergent goals 99
Choice of International Entry Mode
Acquisitions
Acquisitions

Enable firms to make most rapid international


expansion
Can be very costly

Legal and regulatory requirements may present


barriers to foreign ownership

Usually require complex and costly negotiations

Potentially disparate corporate cultures


100
Choice of International Entry Mode
New Wholly-Owned Subsidiary

Most costly and complex of entry alternatives


Achieves greatest degree of control
Potentially most profitable, if successful
Maintain control over technology, marketing
and distribution
May need to acquire expertise and knowledge
that is relevant to host country
Could require hiring host country
nationals or consultants at high cost
101
Strategic Competitiveness Outcomes
International diversification facilitates innovation in
the firm
Provides larger market to gain more and faster returns
form investments in innovation
May generate resources necessary to sustain a large-
scale R&D program
Generally related to above-average returns, assuming
effective implementation and management of
international operations
International diversification provides greater
economies of scope and learning 102
Major Risks of International Diversification
Political Risk

Rebel fighting in Chechnya (Russia) and


Liberia (Africa)

Continual warfare among Middle Eastern nations

Potential renationalization of privatized enterprises


in Russia

Failure of European Community in quest for


economic superpower status because of intercountry
disagreements
103
Major Risks of International Diversification
Economic Risk

Mexico’s effect on world trade with low wages and high


quality but strong currency risks

China’s difficulty in enforcing intellectual property rights


on CDs, software, etc.

Germany’s struggle with high unemployment, high


interest rates, sagging competitiveness, and cuts in social
programs

China’s trade policies. $44 billion trade surplus with


United States in 1977. China’s overall trade surplus
increased twentyfold in first half of 1997. 104
Limits To International Expansion
Management Problems

Cost of Coordination across diverse geographical


business units

Institutional and cultural barriers

Understanding strategic intent of competitors

The overall complexity of competition

105
PORTFOLIO
ANALYSIS

106
Stages of the Industry Life Cycle

107
PRODUCT LIFE CYCLE
 Most product sales observed over long periods can be portrayed
as bell shaped curves – Product life cycle curves which can be
typically divided into four stages: Introduction, Growth, Maturity
and Decline.
 Product Life Cycle asserts four things.
 1. Products have limited life.
 2. Product Sales pass through distinct stages, each posing
different challenges, opportunities and problems to the seller.
 3. Profits rise and fall through different stages of the life cycle.
 4. Products require different marketing, financial, manufacturing,
purchasing and H.R. strategies in each life cycle stage.
 Growth-Slump-Maturity pattern (small kitchen appliances)
 Cycle Recycle Pattern
 Scalloped Pattern (succession of PLC’s; eg: Nylon)

108
INTRODUCTION - STRATEGIES
•Sales growth tends to be slow - Delays in production capacity
expansion /technical problems; Distribution/retail chains being put up;
sales expensive as conversion rates are lower (innovators).
•Promotion at the highest ratio to sales – inform customers, induce
trial and secure distribution in retail outlets.
•Prices tend to be high as costs are higher.

Hi
SLOW RAPID
SKIMMING SKIMMING
PRICE

SLOW RAPID
PENETRATION PENETRATION
Lo Hi
PROMOTION 109
PLC - GROWTH STAGE
 Introduction is followed by a stage marked by rapid climb in
sales. Companies starts to eye for market share.
 Growth is a period of rapid market acceptance & substantial
profit improvement.
 Innovators, early adaptors like the product and continue to
buy the product while middle majority starts trying.
 New competition as sales and profits are growing. The stage
where we see entry of competition in large numbers.
 Prices remain where they are or fall slightly to allow better
penetration or for entry into other segments.
 Time noted for the introduction of variants/ brand extensions.
 Companies maintain promotion at same or higher level.
Profits increase even with higher promotion costs as it gets
spread over higher sales volume.
110
110
PLC - GROWTH STAGE
 MARKETING STRATEGIES
 Firm improves product quality and adds new features and
models.
 Enters new market segments.
 Enters new distribution channel.
 Advertising focus shifts from awareness / knowledge to
Interest/desire/conviction.
 Prices should be reduced (or low priced variants launched)
at the right time to attract the next level of price sensitive
customers.
 Faces tradeoff between high market share to high current
profit.
 Firm that pursues market expansion strategy will improve its
competitive position.
111
111
PLC - MATURITY STAGE
 Many products which we see around us are in the maturity
stage of PLC.
 A stage characterized by the slow down in the growth rate.
 Most of practical Marketing management deals with a
mature product. Hence the most important phase in PLC.
 Three Phases
 1. Growth Maturity: Sales growth starts to fall due to
distribution saturation. Growth predominantly due to trial by
laggards.
 2. Stable Maturity: Most potential customers have tried the
product. Future sales governed by population growth and
replacement demand.
 3. Decaying Maturity: Absolute level of sales decline.
 Slow down in sales growth causes over-capacity -----
Intensified competition ----- price wars ---- profit Erosion----
weak exit. 112
MATURITY STAGE STRATEGIES
 R&D spends are increased to find better versions.
 Increased advertising spends.
 More Consumer / Dealer cuts.
 Three types of interventions are taken up by Marketers.
 1. Market Modification:
 Company should not try to conserve but should try &
expand market for its Brand.
 Sales vol. = No. of users X usage rate.
 Try expand the no. of Brand Users by:
 Convert non users: Attempts to convert non coffee drinkers
to try coffee.
 Enter new market segments: Johnson & Johnson baby
shampoo for adults, Cerelac adapted for the senile.
 Win competitors customers: Pepsi/Coke, NIIT/Apple.
113
MATURITY STAGE STRATEGIES
 Volume can also be increased by focusing on the Current
Users – convincing them to use more.
 More frequent use: Biscuits an all time snack, Coke instead
of coffee/tea, clinic shampoo, variety of SKU, vending
machines.
 More usage per Occasion: Shampoo giving better results in
two rinsing, more SKU’s.
 New more varied uses: Recipe route tried out by microwave
oven manufacturers, Sachets by shampoo manufacturers
for travelers, Arm & Hammer Baking soda as a refrigerator
deodorant.
 2. PRODUCT MODIFICATION
 Stimulate sales by modifying the product’s characteristics
by improvements in quality, feature and style.
114
STRATEGIES FOR MATURE STAGE
 2. PRODUCT MODIFICATION
 Quality Improvement:
 Functional performance improved- for cars, TV, white
goods - New Improved eg: Santro Xing, Indica V2.
 Plus launch - from FMCG manufacturers --------- stronger,
bigger, better,– Lifebuoy Plus.
 Aimed at triggering Brand switching
 Style Improvement:
 Aimed at increasing aesthetic appeal.
 Periodic intro of color variants by auto manufacturers.
 Consumer/packaged food bringing packaging /color
variants.
 Advantages: Unique identity / can secure loyal customers.
 Major disadvantage arises from the fact that it is difficult to
judge customer preferences --- risk of losing those who
liked earlier version
115
STRATEGIES FOR MATURE STAGE (contd.)
 Advantages of feature improvements
 Build progressive and leadership image for co. (Maruti)
 New features can be made optional (adapted or dropped
easily).
 Helps to win loyalty of some segments.
 Cost effective publicity.
 Can generate enthusiasm for sales force and dealers.
 Main disadvantage is that many of these can be easily
imitated.
 3. Marketing Mix Modifications:
 Product Manager should also try to stimulate sales by
modifying Mktg. Mix.
 Price: Decision whether a price cut will attract new
customers.
 Trying price specials, early bird discounts, easier credit
terms to retain loyal customers..
116
MATURITY STAGE STRATEGIES
 3. Marketing Mix Modifications:
 Advertising: Change message- copy, media- vehicle mix,
timing/frequency, to target new audience.
 Build new brand identity / image.
 Direct comparison Ads about competition.
 Sales Promotion: Step up trade discount
 Price offs, Rebates, warranties, festival offers, gifts etc.
 Personal selling: should the quality of sales people or their
area of specialization need to be changed.
 Questions on territory revisions; incentive plans; planning of
sales call etc.
 Services: can the company speed up delivery. Extending
technical services.
 Disadvantages: can be easily copied. Mass distribution and
penetration efforts may not help – can lead to profit erosion.
117
STRATEGIES FOR DECLINE STAGE
 Sales of most products/brands eventually decline –.
 1. Technological advancements in the product category.
 2. Consumer shifts in taste & perception.
 3. Increased domestic & foreign competition------
 price cutting/ over capacity/ profit erosion.

 Sales may plunge to zero or gradually fall for a long period.


 As sales decline, profits fall. Some of the weaker firms
withdraw.
 Those remaining drop smaller market segments & marginal
trade channels to conserve profits.
 They may cut their promotion budgets and may reduce prices
further.
 Unless strong reasons for retention exist, carrying a weak
product is very costly to the firm.
 It can delay aggressive search for alternatives/replacement.
118
STRATEGIES FOR DECLINE STAGE
 MARKETING STRATEGIES:
 1. Increase firms investment (Dominate the market or to
strengthen its competitive position)
 2. Hold investment level until uncertainties about the
industry are resolved.
 3. Decreasing investment selectively. (Unprofitable target
groups/ markets/ products will have to be identified and
instead look for strong niche’s.)
 4. Harvesting: milking to recover cash quickly (Brands with
high loyalty can continue longer without any investments).
 5. Divest the business quickly by disposing off its assets
as advantageously as possible.
 Drop Decision:
 Sell/transfer to someone
 Should drop slowly or fast.
 Inventory/service level to be maintained.
119
P.L.C WEAKNESSES
 No Uniform Shape:
 An ‘S’ shaped curve describes only shape of PLC while most
of them vary or are unique.
 Unpredictable Turning Points:
 While most products do peak and then fall there is no
specific turning point.
 Difficult to Decide the Stages:
 A dormant sales (flat) pattern may denote the product has
reached maturity while it may be just that the product has
touched a plateau before another growth period.
 Tendency to drop a product due to such readings can turn
out to be fatal due to the risks involved in new product
development.
120
P.L.C WEAKNESSES
 Unclear Implications:
Growth phase may or may not be associated with
high profit margin.
 Rapid growth can be associated with low profits and
decline can be very profitable.

 Product Oriented:
 Fails to understand the changes in the requirement
of customers / strategies of competitors,
attractiveness of new market to competitors/
Emergence of technologies etc.
 Technologies, needs/ demands, product categories
have different driving forces.
121
P.L.C WEAKNESSES
 No Uniform Shape: An s shaped curve describes only shape
of PLC while most of them vary or are unique.
 Unpredictable Turning Points: While most products do peak
and then fall there is no specific turning point.
 Difficult to Decide the Stages : A dormant sales (flat)
pattern may denote the product has reached maturity while
it may be just that the product has touched a plateau before
another growth period. Tendency to drop a product due to
such readings can turn out to be fatal due to the risks
involved in new product development
 Unclear Implications: Growth phase may or may not be
associated with high profit margin. Say rapid growth can be
associated with low profits and decline can be very
profitable.
 Product Oriented: Fails to understand the changing
requirement of customers / strategies of competitors,
attractiveness of new market to competitor-ors /
Emergence of technologies etc.
 Technologies, needs/ demands, product categories have
different driving forces.

122
BCG Portfolio Matrix
MARKET SHARE DOMINANCE
HIGH LOW
MARKET GROWTH RATE

High growth High growth


HIGH

Market leaders Low market share


Require cash Need cash
Large profits Poor profit margins

$$
LOW

Low growth Low growth


High market share Low market share
High cash flow Minimal cash flow

123
BCG Matrix
Relative Market Share Position
High Medium Low
1.0
High
Industry Sales Growth Rate

Stars Question Marks


IV III

Med

Cash Cows Dogs


I II
Low

124
BCG Matrix

125
BCG Portfolio Matrix
Example
MARKET SHARE DOMINANCE

HIGH LOW

Sub-Notebooks Integrated
MARKET GROWTH RATE

and Hand-Held phone/Palm


Computer devices
HIGH

PROBLEM
STAR CHILD

Laptop and Mainframe


Personal Computer
Computers
LOW

CASH
COW DOG

126
Boston Consulting Group
(BCG) Matrix
 When a firm’s divisions compete in different
industries, a separate strategy often must be
developed for each business.
 To enhance and formulate strategies.
 To manage its portfolio of businesses
 Focuses on relative market share position and
the industry growth rate.

127
BCG Matrix
 Pie Chart corresponds to corporate
revenue generated by that business unit.
 The pie slice indicates the proportion of
division’s profit.
 Divisions located
 Quadrant I is called Cash Cows,
 Quadrant II is called Dogs.
 Quadrant III is called Question Marks,
 Quadrant IV is called Stars,

128
Cash Cows
 High relative market share but compete in a
low-growth industry
 Generate cash in excess of their needs
 Milked i.e. cash for other purposes
 Manages to maintain strong position as long
as possible
 Product development
 Concentric diversification
 Retrenchment or divestiture if the division
becomes weak

129
Dogs
 Low relative market share and
compete in a slow- or no-growth
industry
 Weak internal and external position
 Liquidation
 Divestiture
 Retrenchment

130
Question Marks
 Low relative market share—compete
in a high growth industry
 Cash needs are high
 Cash generation is low
 Decision: strengthen by pursuing an
intensive strategy, e.g. to sell them.

131
Stars
 High relative market share and a high
industry growth rate
 Represent the organization’s best
long-run opportunities for growth and
profitability.
 Substantial investment to maintain or
strengthen their dominant position.
 Integration strategies
 Intensive strategies
 Joint ventures
132
BCG Matrix & Benefit

 Setting the path for growth


 Knowing dead investments
 Draws attention to the cash flow,
 Investment characteristics
 Needs of an organization’s various
divisions.
 To achieve a portfolio of divisions that
are Stars.

133
BCG Matrix Limitations
 Viewing every business as a star, cash cow, dog,
or question mark is overly simplistic.
 Middle of the BCG matrix is not easily classified.
 The BCG matrix does not reflect whether or not
various divisions or their industries are growing
over time.
 Other variables besides relative market share
position and industry growth rate in sales are
important in making strategic decisions about
various divisions.

134
G.E Strategic Planning Model
Business Strength
Strong Average Weak

Industry Attractiveness
High

Medium

Low

Business Strength Index Industry Attractiveness Index


* Market Share * Market size
* Price Competitiveness * Market Growth
* Product Quality * Industry Profit Margin
* Customer Knowledge * Amount of Competition
* Sales Force and Effectiveness * Seasonality
* Geographic Advantage * Cost Structure
135
* Others * Etc.
Strategies for Resource
Allocation
Provide financial resources if SBU (Problem
Build
Build Child) has potential to be a Star.

Preserve market share if SBU is a successful


Hold
Hold Cash Cow. Use cash flow for other SBUs.

Increase short-term cash return. Appropriate


Harvest for all SBUs except Stars.
Harvest

Get rid of SBUs with low shares in


Divest
Divest low-growth markets.

136
McKinsey’s 7 S Model

Strategy

Structure Systems
Super
Ordinate
Goals-
Shared
Values
Style Skills

Staff 137
Implementation of a
strategy

138
Strategy Implementation
 Sum total of the activities
and choices required for
the execution of a
strategic plan.
 Process by which strategies
and policies are put into
action through programs,
budgets, and procedures.
 The toughest phase in
Strategy Management
139
Strategy Implementation

•More time than planned


•Unanticipated problems
•Activities ineffectively coordinated
•Crises deferred attention away
Problems in
•Employees w/o capabilities
Implementing
•Inadequate employee training
Strategic plans
•Uncontrollable external factors
•Inadequate leadership
•Poorly defined tasks
•Inadequate information systems

140
DESIGN OF OBJECTIVES
IS STRATEGY & COMMUNICATE TO
CONCERNED
FUNCTIONAL?

TASK BREAK DOWN

EVALUATION OF
OUT COME STRATEGIC ORGANISATION DESIGN
IMPLEMENTATION & DEVELOPMENT
TRAINING & &
DEVELOPMENT OF CONTROL
MANAGERS PROCESS DELEGATION OF TASK &
AUTHORITIES &
RESPOSIBILITIES
DESIGN OF SIS /MIS
RESOURCES
MOBILISATION &
DESIGN OF ALLOCATION
PERFORMANCE
STANDARD
141
The Nature of Strategy Implementation

The greatest strategy will be failed if it’s


implemented badly.

Successful strategy formulation does not guarantee


successful strategy implementation.

Less than 10% of strategies formulated are


successfully implemented!

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The Nature of Strategy Implementation
Strategy Implementation can have a low success rate

• Implementation may fail due to:

 Failing to segment markets appropriately


 Paying too much for a new acquisition
 Falling behind competition in R&D
 Not recognizing benefit of computers in
managing information

143
The Nature of Strategy
Implementation
Successful Strategy Implementation

 Market goods & services well


 Raise needed working capital
 Produce technologically sound goods
 Sound information systems

144
Formulation vs. Implementation
 Formulation focuses on effectiveness
 Implementation focuses on efficiency
• Formulation is primarily an intellectual process
• Implementation is primarily an operational process
• Formulation requires good intuitive & analytical skills
• Implementation requires special motivational &
leadership skills
• Formulation requires coordination among a few
individuals
• Implementation requires coordination among many
individuals

145
Nature of Strategy
Implementation
Strategy Implementation

 Varies among different types & sizes of


organizations

146
Nature of Strategy
Implementation
Implementation Activities

 Altering sales territories


 Adding new departments
 Hiring new employees
 Cost-control procedures
 Modifying advertising strategies
 Building new facilities

147
Nature of Strategy
Implementation
Management Perspectives

 Shift in responsibility
Division or
Strategists Functional
Managers

148
Management Issues
Annual Objectives

Resources
Management
Issues Organizational structure

Restructuring

149
Management Issues (cont’d)

Resistance to Change

Management
Issues Production/Operations

150
Management Issues
Purpose of Annual Objectives --

Basis for resource allocation


Mechanism for management (e.g. IT
management) evaluation
Metric for gauging progress on long-term
objectives
Establish priorities (organizational, division,
& departmental)

151
Management Issues

-- Central management activity that


allows for the execution of strategy

Resource Allocation
enables resources to be allocated
according to priorities established by
annual objectives.

152
Management Issues

4 Types of Resources

1. Financial resources
2. Physical resources
3. Human resources
4. Technological resources

153
Management Issues

Matching Structure w/ Strategy

-- Changes in strategy = Changes in


structure
 Structure dictates how objectives &
policies will be established and how
resources will be allocated; e.g. is
structure based on location or based
on the product…

154
Structure should be designed to
facilitate the strategic pursuit of a firm

Organizational
New strategy New administrative
performance
Is formulated problems emerge
declines

Organizational
New organizational
performance
structure is established
improves

155
Management Issues

Restructuring

-- Reducing the size of the firm – # of


employees, divisions and/or units, # of
hierarchical levels; e.g. The Internet is
ushering in a new wave of business
transformations…

156
Management Issues
Reengineering
In reengineering, a firm uses
information technology to break down
functional barriers and create a work
system based on business
processes… Reconfiguring or
redesigning work, jobs, & processes to
improve cost, quality… (alteration of
Scott Morton’s value chain) Think of
an example.
157
Management Issues
Resistance to Change -- Single
greatest threat to successful strategy
implementation
Raises anxiety; fear concerning:
economic loss, Inconvenience or Uncertainty

Force Change Strategy


Educative Change Strategy
Rational or Self-Interest Change Strategy
158
Management Issues
Production/Operations Concerns
Production processes typically
constitute more than 70% of firm’s total
assets
Decisions concern e.g. :
Plant size
Quality control
Technological innovation

159
Marketing Issues

Marketing variables affect


success/failure of strategy
implementation

1. Market segmentation

2. Product positioning

160
Marketing Issues
Market Segmentation: Subdividing of a
market into distinct subsets of customers
according to needs and buying habits

 Market segmentation variables:


 Product
 Place
 Promotion
 Price

161
Marketing Mix – Component Factors
Product Place Promotion Price

Distribution
Quality Advertising Level
channels
Distribution Discounts &
Features Personal selling
coverage allowances

Style Outlet location Sales promotion Payment terms

Brand name Sales territories Publicity

Inventory
Packaging
levels/locations
Transportation
Product line
carriers

Warranty

Service level

162
162
Marketing Issues

Product Positioning

Schematic representations that reflect how


products/services compare to competitors’ on dimensions
most important to success in the industry; I.e. according to
customer wants and customer needs

163
Finance/Accounting Issues

Essential for implementation

 Acquiring needed capital


 Developing projected financial statements
 Preparing financial budgets
 Evaluating worth of a business

164
Research & Development
Issues

New products and improvement of


existing products that allow for
effective strategy implementation
 Use an R&D strategy that ties
external opportunities to internal
strengths and is linked with
objectives.

165
Research & Development
Issues

3 Major R&D approaches to implementing


strategies

1. 1st firm to market new technological


products
2. Innovative imitator of successful
products
3. Low-cost producer of similar but less
expensive products

166
Management Information
Systems (MIS) Issues

Information is the basis for understanding


the firm. One of the most important
factors differentiating successful from
unsuccessful firms

• MIS used to :
• Information collection, retrieval, & storage
• Keeping managers informed
• Coordination of activities among divisions
• Allow firm to reduce costs
167
Stages of the Industry Life Cycle
Stage
Introduction Growth Maturity Decline
Factor

Generic Differentiation DifferentiationDifferentiation


strategies Overall cost
Overall cost leadership
leadership Focus
Market Low Very large Low to Negative
growth rate moderate

Number of Very few Some Many Few


segments

Intensity of Low Increasing Very intense Changing


competition

Emphasis on Very high High Low to Low


product moderate
design

168
Stages of the Industry Life Cycle
Stage
Introduction Growth Maturity Decline
Factor

Emphasis on Low Low to High Low


process moderate
design

Major Research and Sales and Production General


functional Development marketing management
area(s) of and finance
concern

Overall Increase Create Defend Consolidate,


objective market share consumer market share maintain,
awareness demand and extend harvest, or
product life exit
cycles

169
Evaluation and Control

Return on
Investment
(ROI)

Earnings per
Traditional
Share
Financial (EPS)
Measures
Return on
Equity
(ROE)

170
THANK YOU.

ANY QUESTIONS?

…….JANAK V. SHELAT
171