Strategic

management

81

If you dont have a strategy you

will be . . . part of somebody
elses strategy.
- Alvin Toffler

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Strategic Management
The set of managerial decisions
and actions that determines
the long-run performance
of an organization.

83

Definition of strategy
A strategy is the set of actions through which an
organization, develops resources and uses them to
deliver services or products in a way which its users find
valuable, while meeting the financial and other objectives
and constraints imposed by key stakeholders.

Why Strategic Management Is Important

1. It results in higher organizational
performance.
2. It requires that managers examine and
adapt to business environment changes.
3. It coordinates diverse organizational units,
helping them focus on organizational
goals.
4. It is very much involved in the managerial
decision-making process.
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The Strategic Management Process

External Analysis
opportunities
threats

Identify the
organization's
current mission, goals,

SWOT Analysis

Formulate

Implement

Evaluate

Strategies

Strategies

Results

and strategies

Internal Analysis
strengths
weaknesses

Strategic Management Process

Step 1: Identifying the organizations current
mission, objectives, and strategies
Mission: the firms reason for being
The

scope of its products and services

Goals: the foundation for further planning

Measurable

performance targets

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The Mission

The mission is a statement of a companys reason for existence

today.

What is it that the company does?

Who is being satisfied
(what
customer groups)?
What is being satisfied
(what customer needs)?
How customer needs are being satisfied
(by
what skills, knowledge, or distinctive competencies)?

A companys mission is best approached from

a customer-oriented business definition.
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Organization Mission
1) Customers. Who are the organizations customers?
2) Products or services. What are the organizations major products or
services?
3) Location. Where does the organization compete?
4) Technology. What is the firms basic technology?
5) Concern for survival. What is the organizations commitment to
economic objectives?
6) Philosophy. What are the basic belief, values, aspirations, and
philosophical priorities of the organization?
7) Self-concept. What are the organizations major strengths and
competitive advantages?
8) Concern for public image. What are the organizations public
responsibilities, and what image is desired?
9) Concern for employees. What is the organizations attitude toward its
employees?

Evaluating Mission
Statements

Evaluation Matrix
To determine whether a component is satisfactorily included in a mission statement, ask
yourself:
Does the mission statement answer the key question associated with this component?
Customer orientation rather than product orientation
Kodak: desire to provide customers with solutions they need to

capture , store, process, output and communicate images

Smith corona: production of typewriters
IBM: providing means for information processing and storage

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811

To assure victory,
always
carefully survey- Sun
the
Tzu
field
before battle.

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External Analysis

The purpose of external analysis is to identify

the strategic opportunities and threats in the
organizations operating environment.

External Analysis requires an assessment of:

Industry environment in which company operates
Competitive structure of industry
Competitive position of the company
Competitiveness and position of major rivals

The wider socioeconomic or macroenvironment that

may affect the company and its industry

PESTLE

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814

External Analysis:
Analyzing the dynamics of the industry in which
Opportunities
and
Threats
an organization competes to help identify:

Opportunities

Threats

Conditions in the
environment that a
company can take
advantage of to
become more
profitable

Conditions in the
environment that
endanger the integrity
and profitability of
the companys
business

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816

Five Competitive Forces

Threat of New Entrants
The ease or difficulty with which new competitors
can enter an industry.
Threat of Substitutes
The extent to which switching costs and brand

loyalty affect the likelihood of customers adopting

substitutes products and services.

Bargaining Power of Buyers

The degree to which buyers have the market
strength to hold sway over and influence
competitors in an industry.
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Five Competitive Forces

Bargaining Power of Suppliers
The relative number of buyers to suppliers and
threats from substitutes and new entrants
affect the buyer-supplier relationship.
Current Rivalry
Intensity among rivals increases when industry

growth rates slow, demand falls, and product

prices descend.

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How the Five Forces Shape

The stronger that each of these five forces is, the more
Competition
within
an to raise
limited is the ability of established
companies
prices and earn greater profits within their industry.
Industry
A weak competitive force

may be viewed as an opportunity as it allows

company to earn greater profits

A strong competitive force

may be viewed as a threat as it depresses

industry profits

Strength of forces may change as

industry conditions change

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Supplier power
If strong, suppliers can charge high prices and

take the profits from the industry

Weak if:

Many suppliers (even if they are large)

Few switching costs

Strong if:
Few suppliers
Inputs vital to quality of finished product
Little prospect of backward integration by firms
in industry, or of new entrants

Buyer power
If strong, firms in industry will face limits on prices and may be forced to incur high

costs
Factors similar to supplier power in reverse
High if buyers have many firms to choose from or if products undifferentiated
Switching costs is low
Buyer power reduced if:
Information lacking (hence low during introductory , growth phase of life cycle)

Product cost small in relation to total

Backward integration, undifferentiated, switching cost low

Threat of substitution (differ

from
competitors
product)
Customers may switch if alternative products
available at competitive prices

industry must provide value for money

Substitute products competitors products

Are products from a different industry
Not all products have realistic substitutes
Three types of substitute:
Carry out same function as product/service (mobile
phone-camera)
Fulfil similar psychological need (chocolates-rose)
Compete for same spending power

Threat of new entrants

If barriers to entry low, new firms enter, competition intensifies,

profits fall
Apparent barriers to entry based on size:
Capital outlay
These do not work against determined, confident, well-funded
entrants
Established brands and intellectual resources may deter entrants
but can be circumvented
Strong relationships with distributors, or control of key inputs or
locations, can be strong barriers
Economic of scale, product differentiation, capital requirement , switching cost, government policy

Competitive rivalry
Strength in other four forces intensifies competitive

rivalry:
Price wars and heavy discounting
Expensive advertising and promotion battles
Commitments to investment, product development

Industry Life Cycle

Analysis
Industry Life Cycle Model analyzes the affects of

industry evolution on competitive forces over time

and is characterized by five distinct life cycle stages:

1.

Embryonic industry just beginning to develop

2.

Growth first-time demand takes-off with new customers

3.

Low rivalry as focus is on keeping up with high industry growth

Mature market totally saturated with low to no growth

4.

Rivalry based on perfecting products, educating customers, and opening

up distribution channels

Industry consolidation based on market share, driving down price

Decline industry growth becomes negative

Rivalry further intensifies based on rate of decline and exit barriers

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Internal Analysis
Value Chain Management (already studied)

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827

After Internal and

External
Go for SWOT Environment
Scanning

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828

SWOT analysis
Strength:
Strong brand names
Good reputation among customers (customer loyalty,
customer satisfaction)
Cost advantage
Exclusive excess to high grade natural resources
Favorable access to distribution channel

Employee satisfaction and retention

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829

Weakness
Lack of patent protection
Weak brand name
Poor reputation among customers
High cost structure
Lack of access to natural resources
Lack of access to distribution channel

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830

opportunities
An unfulfilled customer needs
Arrival of new technologies
Loosening of regulations
Removal of international trade barriers
Advent of new distribution channels

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831

threat
Shift in consumer taste away from firms product
Emergence of substitute products
New regulations
Increased trade barriers

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832

SWOT

Launched in 1954

Oldest detergent used in more then 20 countries

Very strong brand communication

Available in wide variety and product size. (surf excel blue, matic, quick
wash, comfort in 5 kg, 2kg, 250grm)

Solid base company of Unilever (HUL) , employee 2lks, operated in 100

countries, $868 m in R&D;

Strong competitors, (tide, nirma, ariel, oxycean, sundry)

Substitute products (liquid detergent, bars)

Lack of control in supply chain mgmt

No famous brand ambassador

High price of product

Changing life style

Applying tactics and surprise

Explore new geographical market

Political effects, economical effect, legislative effect;environmental effect

Chances of price war

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834

Strong

brand portfolio
Brand name
Solid base of company
Innovative aspects
Success of slogan: stain is good

High

price of the products

Lack of control in supply chain
management
No famous brand ambassador

Changing

life style of the people

New market vertical, horizontal
Increasing the volume of the production
Seasonal weather and fashion influences
Technology innovation and development

Political

effect
Legislative effect
Environmental effect
Introduction of local products
Change in the life style
Chances of price war
Economic crisis

Step 4: formulating strategy

Formulating Strategy
:Alternative strategy
Basic elements of strategic management
Strategies form a comprehensive master plan that states how the
corporation will achieve its mission and objectives
Corporate
Business
Functional
Global

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Levels of Strategic Management

Figure 1.4

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FIGURE 38

Type of Strategy at Each Company Level

342

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Types of Corporate Strategies

Corporate Strategy
Possibilities

Growth

Stability

Renewal

343

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Organizational Strategies
Corporate Strategies
Top managements overall plan for the entire
organization and its strategic business units

Types of Corporate Strategies

Growth: expansion into new products and markets
Stability: maintenance of the status quo
Renewal: redirection of the firm into new markets

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Corporate-Level Strategies
Growth Strategy (within the same industry)
Seeking to increase the organizations business by
expansion into new products and markets.

Types of Growth Strategies

Concentration
Vertical integration
Horizontal integration
Diversification (growth outside present business/
industry)

845

Concentration Strategies
Figure 6.8

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Corporate Strategies
Concentration
Focusing on a primary line of business and increasing
the number of products offered or markets served.

Vertical Integration
Backward vertical integration: attempting to gain
control of inputs (become a self-supplier).
Forward vertical integration: attempting to gain control
of output through control of the distribution channel or
provide customer service activities (eliminating
intermediaries).
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Hall

847

Growth Strategies
Vertical Integration
Backward vertical integration: attempting to gain
control of inputs (become a self-supplier).
Forward vertical integration: attempting to gain control
of output through control of the distribution channel
and/or provide customer service activities (eliminating
intermediaries).

848

Growth Strategies (contd)

Horizontal Integration
Combining operations with another competitor in the
same industry to increase competitive strengths and
lower competition among industry rivals.

Related Diversification
Expanding by merging with or acquiring firms in
different, but related industries that are strategic fits.

Unrelated Diversification
Growing by merging with or acquiring firms in
unrelated industries where higher financial returns are
possible.
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Integration Strategy

Growth Strategies (contd)

Stability Strategy
A strategy that seeks to maintain the status quo to
deal with the uncertainty of a dynamic environment,
when the industry is experiencing slow- or no-growth
conditions, or if the owners of the firm elect not to
grow for personal reasons.
Eg. Continuing to serve same clients by offering same
product, maintaing market share, sustaining an
organizations current business operations.

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Growth Strategies (contd)

Renewal Strategies
Developing strategies to counter organization
weaknesses that are leading to performance declines.
Retrenchment:

focusing of eliminating non-critical

weaknesses and restoring strengths to overcome
current performance problems.

Turnaround:

addressing critical long-term performance

problems through the use of strong cost elimination
measures and large-scale organizational restructuring
solutions.

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Corporate Portfolio Analysis

BCG Matrix
Developed by the Boston Consulting Group
Considers market share and industry growth rate
Classifies firms as:
Cash

cows: low growth rate, high market share

Stars: high growth rate, high market share
Question marks: high growth rate, low market share
Dogs: low growth rate, low market share

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The BCG Matrix

BCG Matrix i.e. Growth-Share Matrix, Boston Box,
Boston Matrix, Boston Consulting Group analysis.

Created by Bruce Henderson for the Boston Consulting

Group in 1970 to help corporations with analyzing their
business units or product lines.

This helps the company allocate resources and is used

as an analytical tool in brand marketing, product
management, strategic management, and portfolio
analysis.

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BCG
DIMENSIONS
Industry Growth Rate
Relative Market Share
Uses ratios instead of absolute market shares

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Question Mark
This category always involves a start-up organization
investing in a potential market. Its products generate less
cash than is invested in them.
They are risky and require considerable funding, making
them minimally profitable in the initial stages.
The business which falls in this category can set it
corporate strategy to be growth or retrenchment.
The Question Mark products/business units could become
Stars by increasing market share or divest to exit the
uncompetitive industry.

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Star
The organization performance in this category yields more
cash than the cash investment in them.
However, Stars need investment to maintain their position
because the rivalry may be tense from market
challengers who compete to gain more market share or
new competitors who enter to a high growth market

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Cash Cow
Business units with high market growth, generating more
cash than the cash investments required for sustaining
them.
Cash Cows are mature products/business units in wellestablished markets, generating funds to support other
parts of the business

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Dog
Declining stage which business units gain small market
share and operate in slow growing market.
These products do not generate much cash, but they do
absorb cash.
Their profitability is declining and they
must be divested if possible, or otherwise turnaround

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The Coca Cola Company

Established: 1886
Ranking: Own 4 of the worlds top 5 nonalcoholic
sparkling beverage brands: Coca-Cola, Diet Coke,
Sprite and Fanta.
Operational Reach: 200+ countries
Consumer Servings (per day): 1.5 billion.

The Coca Cola Company

Coca cola Company offers more than 3000+ products
in over 200 countries

Energy Drinks
Juices / Juice Drinks
Soft Drinks
Sports Drinks
Tea and Coffee
Water
Other

The Coca Cola Company

The BCG Matrix

BIRLA group
I) Their flagship company Hindalco had been
a matter of pride to the group. They are the
countrys largest producing aluminium
company and have state of art plants in UP
and Orissa. However, the aluminium sector
itself has not shown good performance
recently primarily because of the
unfavorable excise duty in the country and
the Chinese competition in the International
market.

 II) With the increase in government

expenditure on infrastructure projects like
roads and dams, the demand for cement has
witnessed a huge increase. This growth has
been further fuelled by rapid drop in housing
loan interest rates. It is here where Birla
cement has consolidated its position and
emerged number one

 III) Birla recently moved into insurance

company. Managers hope the division will
prosper as they are in a rapidly growing
industry, but being new the potential demand in
the market is less at this point.

 IV) Birlas have recently sold off their stake in IT

Education Company called Learning Byte
International, which was not performing
satisfactorily. Move over IT education industry
itself does not hold any promise.

Example

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Business-Level Strategy
A strategy that seeks to determine how an
organization should compete in each of its
businesses (strategic business units).
Low-cost provider
Differentiation
Focus/Niche

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Competitive Strategies
Cost Leadership Strategy
Seeking to attain the lowest total overall costs relative
to other industry competitors.

Differentiation Strategy
Attempting to create a unique and distinctive product
or service for which customers will pay a premium.

Focus Strategy
Using a cost or differentiation advantage to exploit a
particular market segment rather a larger market.
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Difference among the three Generic Strategies

Strategic Advantage

Uniqueness Perceived
by the Customer

Strategic Target

Industry wide

Particular
Segment Only

Low Cost Position

DIFFERENTIATION COSTOVERALL
LEADERSHIP

FOCUS

Source: Porter (1980)

Differentiation
A product / service with unique and appealing
attributes allows a firm to, if it achieved viable
strategy for earning above average return.
Command a premium price
Increase unit sales
Build brand loyalty
Differentiation can be achieved by design or brand
image, technology, features, customer services,
dealer network etc
It is a trade off with cost.

Types of Differentiation Themes

Multiple features -- Microsoft Windows and Office
Unique taste Bikaner Bhujia
Wide selection and one-stop shopping -- Amazon.com
Superior service FedEx, Airtel
Spare parts availability -- Caterpillar
More for your money -- McDonalds
Prestige -- Rolex
Quality manufacture -- Honda, Toyota
Technological leadership -- 3M Corporation
Top-of-line image -- Ralph Lauren.

Focus Strategies
Focus strategy is build around serving a particular target very well and
each functional policy is built with this in mind.
Focus strategy focusing on a particular buyer group, segment of
product line and geographical market with unique needs.
Involve concentrated attention on a narrow piece of the total market.
Serve focus buyers better than rivals.
Focus involves a trade off between profitability and sales volume.

Examples of Focus Strategies

eBay
Online auctions

Porsche
Sports cars

Animal Planet and History Channel

Cable TV
Royal Enfield
Bikes