M A10

Strategic Management

Deepak Sundrani
 Allocation of sessions
Professor Sundrani : 10 sessions

Professor Mona Shah : 10 sessions

 Distribution of sessions
of Prof. Sundrani
Teaching : 9 sessions
Class Test (15 marks) : 1 session
 Reading Material
1) Azhar Kazmi Strategic Management and Business
Policy, 3e ( McGraw Hill)
2) Dess, Lumpkin, Eisner -- Strategic Management,
McGraw Hill, 6e, Indian edition *
3) Hitt, Ireland and Hoskisson- Strategic Management
4) Thomson, Strickland, Gamble and Jain : Crafting
and Executing Strategy
5) Johnson, Scholes and Whittington : Exploring
Corporate Strategy
6) Pearce II, Robinson Jr. and Mital : Strategic
Management
7) Parnell Strategic Management
Rs. 575 Rs. 700
 Reading Material
1) Azhar Kazmi Strategic Management and Business
Policy, 3rd edition ( McGraw Hill)
2) Dess, Lumpkin, Eisner -- Strategic Management, 6th
edition, Indian edition (McGraw Hill),
3) Hitt, Ireland and Hoskisson- Strategic Management
4) Thomson, Strickland, Gamble and Jain : Crafting
and Executing Strategy
5) Johnson, Scholes and Whittington : Exploring
Corporate Strategy
6) Pearce II, Robinson Jr. and Mital : Strategic
Management
7) Parnell Strategic Management
8) V.S.P. Rao and Hari Krishna Strategic
Management
9) Hunger & Wheelen Essentials of Strategic
Management
 Others
1) Michael Porter : Competitive Strategies
2) Kenichi Ohmae : The mind of the strategist.
3) Sun Tzu : The Art of War
4) W.Chan Kim and Renee Mauborgne : Blue Ocean
Strategy :
5) Management Journals (HBR, etc)
Business Magazines and
Business newspapers like Business Standard
( Monday : supplement : The Strategist)
5) Digital databases : Proquest, ScienceDirect,
6) Internet Google, etc.
 Supplementary Reading material
1) Annual Reports of Companies ( for Corporate
Governance, CSR, etc.)
2) Gazette of India, Extraordinary, dated 28
February 2014 for CSR Rules
3) Clause 49 of Listing , of BSE ( for Corporate
Governance)
4) Websites of companies for their CSR policies
 Strategy

Military origin
Strategos in Greek , which means General
Thus it is the art of Generals

In Business,
Senior Management makes strategies
 Evolution of the course
Harvard started MBA program in 1908.
In 1911 started Integrative course on General
Management.

In 1959, two reports were published in US which

recommended a capstone course of Business Policy ,
namely the:
1) The Gordon and Howell report
(sponsored by Ford Foundation)
2) The Pierson Report
(sponsored by Carnegie Foundation)
 Reaction to environment
Course of actions :

1) Expansion
2) Diversification
3) Focus
4) Turnaround
5) Stability
6) Divestment
These course of actions are called

STRATEGIES
 The concept of Strategy
In simplified terms , a strategy is the means to
achieve objectives.

Course of action, related to pursuing those

activities which move an organisation from its
current position to the desired future state.
 Mintzbergs 5 Ps of Strategy
1) `Plan for action
2) `Ploy a manoeuvre to outwit opponents
3) `Pattern of actions
4) `Position in an environment
5) `Perspective

Read : Mintzberg , 5 Ps of Strategy, California

Management Review, Fall 1987, 30, 1, page 11.
 Elements of Strategy
1) Arena
2) Vehicle
3) Differentiator
4) Staging
5) Economic logic

Read : Hambrick & Fredrickson, Are you sure

you have a strategy ?
 Different levels of Strategy
Corporate
office

SBU SBU SBU

A B C

Finance Marketing Operations HRM Information

 Strategic Business Unit (SBU)
Any part of a business organization which is
treated separately for strategic management
process
 Strategic Management
Dynamic process of
formulation,
implementation,
evaluation and
control
of strategies to realize the organizations
strategic intent
 Four phases in
Strategic Management process

Establishment Formulation Implementation

Strategic
of strategic of of
evaluation
intent strategies strategies

Strategic control
 Elements in
Strategic Management Process
I) Establishing the hierarchy of strategic intent
(1) Creating and communicating a vision
(2) Designing a mission statement
(3) Defining the Business
(4) Adopting business model
(5) Setting objectives
 Continued Elements in Strategic Management Process

II) Formulation of strategies

(6) Performing environmental appraisal
(7) Doing organisational appraisal
(8) Formulating Corporate level strategies
(9) Formulating Business-level Strategies
(10) Undertaking strategic analysis
(11) Exercising strategic choice
(12) Preparing strategic plan
 Continued Elements in Strategic Management Process

III) Implementation of Strategies

(13) Activating strategies
(14) Designing the structure, systems
and processes
(15) Managing Behavioral
implementation
(16) Managing functional implementation
(17) Operationalising strategies
 Elements in Strategic Management Process

IV) Performing Strategic Evaluation and

Control
(18) Performing strategic evaluation
(19) Exercising strategic control
(20) Reforming strategies
 Strategic Intent
Purposes the organisation strives for.
Points to what a firm sets out to achieve.

These may be expressed in terms of hierarchy

of strategic intent.

Vision and mission statement.

Goals and objectives
Vision
 VISION
Dream

future aspirations that lead to an inspiration to

be the best in ones field of activity.
 The Benefits of Having a Vision
1) Good visions are inspiring and exhilarating
2) Co. knows what it has to be
3) Creation of a common identity and a shared
sense of purpose
4) Foster risk taking and experimentation
5) Foster long term thinking
6) Can be used for benefit of people
 Process of Envisioning
Well conceived vision

Core ideology Envisioned future

Core values Long term goal

Core purpose Vivid description of achievement
 Punj Lloyd : Core values
To realize our vision and mission, we always turn to the corporate values that we
hold dear. We will live and deliver these values with uncompromising commitment
to safety and sustainability.
Performance
We are here to make a valuable difference to our stakeholders and we will make it
happen against all odds
Passion
We are differentiated by our Can Do attitude and the fire in our belly
Team work
We can gain from the diversity within our Group by sharing knowledge and
resources to achieve individual and collective success
Agility
We understand stakeholder needs and respond with speed and precision
Reliability
We are trustworthy and reliable, in both thought and action. Our stakeholders can
count on us to deliver, always
 HCC Vision
"To be the Industry Leader and a Market -
Driven Engineering Construction Company
renowned for excellence, quality,
performance and reliability in all types of
construction"

The Vision Statement has been inspired by the global infrastructure development needs of tomorrow, with
the Customer as the central focus. It was developed after conducting a series of in-house workshops.
Senior Leaders within the organization are actively involved in developing and maintaining an effective
and efficient management system to disseminate the Vision across HCC in order to achieve"Customer
Delight".
L&T : Vision
 Gammon India : Vision
To be the leaders in innovative engineering and
timely delivery of our quality construction
services, upholding our tradition of being
Builders to the nation
 MISSION
Peter Drucker raised important questions:
What is your business?
What will it be?
What it should be?

What an organisation is and why it exists ?

Purpose or reason for the organisations existence.

 Mission statement
Defines the basic reason for the existence of an
organisation
 How are mission statements
formulated ?
1) On the basis of vision that the Entrepreneur
decides in the initial stages of the organisations
growth.
2) Major strategists could also contribute to the
development of a mission statement.
3) Chief Executives play a major role.
4) Consultants may also be called upon to suggest
appropriate missionstatement
 Methods of communicating
mission statement
1) Annual Reports
2) Poster/plaques
3) Employee manuals
4) Company information kits
5) Word-of-mouth publicity
6) Seminars and workshops
7) Newsletters
8) Advertisements
9) Websites
 Characteristics of a
Mission Statement
1) It should be feasible
2) It should be precise
3) It should be clear
4) It should be motivating
5) It should be distinctive
6) It should indicate the major components of
strategy
7) It should indicate how objectives are to be
accomplished
 How is HCC mission derived?
The HCC Corporate Mission is derived from the
Vision Statement to encompass the overall
strategies, objectives and goals of the
Organization.

HCC Mission : Next slide

 HCC : Mission
The HCC Mission. Driven by excellence

To be a leading construction company in the global market.

To become the customers most preferred choice by attaining excellence in quality and timely
completed value added projects.
To continually innovate, develop and adopt state-of-the-art technology in methods and
materials to enhance productivity and cost effectiveness.
To continually improve the competence of our people and make them proud to work at HCC.
To build a safety culture aimed at continually reducing the frequency severity rate towards
achieving zero accidents.
To identify and mitigate all the environmental impacts arising from our activities and comply
with applicable environmental norms.
To develop and adopt eco-friendly concrete technology to reduce one million tons of
greenhouse gas (GHG) emissions in the next 10 years.
To contribute to the development of the local community and society at large as a part of our
corporate social responsibility.
 Punj Lloyd : Mission
We will deliver reliable, high-quality solutions
for global infrastructure, always ensuring that
integrity, safety and sustainability are at the
heart of everything we do.
 Gammon : Mission
To Develop, Build and Service Physical
Infrastructure for better living, Work
environment and Transportation.
 Differences
Vision Mission
1) Broad intentions 1) Purpose of business
2) States aspirations 2) States how it will
without stating means achieve vision
to achieve them
3) Dream, hazy, intangible 3) Clear, tangible
4) Guides in formulation of 4) Guides in formation of
mission business definition,
goals and objectives
5) Futuristic 5) Current
 Session 2
20 October 2015
 Business definition
Abells 3 dimensions for defining business
Customer functions (what)

Alternative Technologies (how)

Customer groups (who)

 Business Model
How does the business make money?

Formal definition :
Representation of a firms underlying core
logic and strategic choices for creating and
capturing value within a value network
 Business model : examples
1) Newspaper sold for Rs. 2
Cost of paper + printing + Salaries +
electricity, etc = Rs. 5
So how does it make profit?

2) How does a shopkeeper make profit ?

3) How Banks make profit ?

How does a infrastructure company make
money ?
 Goals and objectives
Goals denote what an organisation hopes to
accomplish in a future period of time.

Objectives are the ends that state specifically

how the goals shall be achieved.
Goals are generalised. Broadly stated aims.
Goals are qualitative.

Objectives are concrete and specific in contrast

to goals. Specifically stated aims. Objectives
make goals operational. Objectives are
quantitative
 Role of objectives
1) Objectives define the organisations
relationship with its environment.
2) Objectives help an organisation pursue its
vision and mission
3) Objectives provide the basis for strategic
decision-making
4) Objectives provide the standards for
performance appraisal.
 Characteristics of objectives
1) Objectives should be understandable
2) Objectives should be concrete and specific
3) Objectives should be related to a time frame
4) Objectives should be measurable and controllable
5) Objectives should be challenging
6) Different objectives should correlate with each
other
7) Objectives should be set within constraints
 Issues in objective-setting
1) Specificity
2) Multiplicity
3) Periodicity
4) Verifiability
5) Reality
6) Quality
 How are objectives formulated?

Glueck identifies 4 factors that should be

considered for objective-setting
1) The forces in the environment
2) Realities of Enterprise resources and Internal
Power Relationships
3) Value system of top Executive
4) Awareness by the Management
 Balanced Scorecard Approach
to Objectives setting
Developed by Robert Kaplan and David Norton
of Harvard Business School.

Requires evaluation of organisational

performance from 4 different perspectives.
Balanced scorecard
1) Financial Perspective
2) Customers perspective
3) Internal business perspective
4) Learning and Growth perspective
 Critical success factors
(Key Success Factors)
Those which are crucial for organisational
success.
Example : in Case of Courier service :
Speed
Reliability
Price
 Key Performance Indicators (KPI)
Measures in terms of which the Critical
Success Factors are evaluated
 Customer perspective Financial perspective
CSF Measure CSF Measure
Customer Delivery Survival + ve cash
service schedules, and fund
Maintenance flows
cycle

Internal perspective Innovation and

learning perspective
CSF Measure CSF Measure
Productivity Optimum Service Speed,
utilisation of leadership Service
capacity, network
Zero defects
 Benefits of KPIs
1) To help organization define and measure progress
towards its objectives
2) KPIs give everyone in organisation a clear picture of
what is important and what they need to do to
accomplish objectives -- motivate employees.
3) KPIs are applied in Business intelligence to gauge
business trends
4) KPIs can be used for benchmarking the performance
of an organisation and to compare its performance
with rivals in same industry.
#
II) Strategy
Formulation
 II) Strategy Formulation
1) Environmental appraisal
2) Organisational Appraisal
3) Corporate level Strategies
4) Business Level Strategies
5) Strategic Analysis and Choice
Environmental
Appraisal
 Concept of Environment
Aggregate of all conditions, events and
influences that surround and affect it.
 Characteristics of Environment
1) Environment is complex
2) Environment is Dynamic
3) Environment is multifaceted*
4) Environment has a far-reaching impact
 Characteristics of Environment
1) Environment is complex
2) Environment is Dynamic
3) Environment is multifaceted*
4) Environment has a far-reaching impact
 Environment

Internal External
Environment Environment
(S&W) (O&T)
 SWOT Analysis
Strengths:
1) Strong brand image
2) High quality products
3) Excellent distribution network
4) Good inventory management
5) Strong R & D
6) Economies of scale
7) Latest technology contd
Strengths contd

8) Comfortable Debt-Equity Ratio

9) Good credit rating
10) Motivated employees
11) Cordial industrial relations
12) Good after sales service
13) Motivated sales personnel
14) Locational facilities
15) Outsourcing support
16) Effective cost control contd
 Strengths contd
17) Firms record of achieving objectives
18) Top Management Skill, capabilities and
interest
19) ISO 9000 quality certification
 Weaknesses
1) Poor brand image
2) Narrow product mix
3) Weak distribution
4) Poor product quality
5) Uneconomical size of operations
6) Outdated technology
7) Poor inventory management
8) Weak R & D skills contd
Weaknesses continued

9) Poor reserves
10) Lower credit rating
11) Poor receivables Management
12) Excess manpower
13) Hostile industrial relations climate
14) Poor morale
15) Inefficient Board
16) Inaccessible location
17) Absence of strong USP
 Opportunities

1) Favorable industry trends

2) Delicensing
3) Dereservation
4) Import relaxations
5) FDI norms
6) Capital market reforms
7) Large, growing market
8) Growing urban incomes and population
9) Growth of consumerism
 Threats
1) Recession
2) Competition
3) Political instability
4) Religious battles
5) Terrorist attack
6) Social activism
7) Consumer Protectionism
8) Import liberalisation
 SWOT Analysis of NICMAR
Strengths Weaknesses

Opportunities Threats
 Benefits of SWOT Analysis
1) Simple to use
2) Low cost
3) Flexible and can be adapted to varying
situations
4) Leads to clarification of issues
5) Development of goal-oriented alternatives
6) Useful as a starting point for strategic
analysis.
 Four phases in
Strategic Management process

Establishment Formulation Implementation

Strategic
of strategic of of
evaluation
intent strategies strategies

Strategic control
 II) Strategy Formulation
1) Environmental appraisal
2) Organisational Appraisal
3) Corporate level Strategies
4) Business Level Strategies
5) Strategic Analysis and Choice
 General versus
Relevant Environment

Organisation

Relevant
Environment

General Environment
 Environmental Sectors
(in alphabetical order)

1) Economic Environment (4)

2) International Environment (8)
3) Market Environment (1)
4) Political Environment (6)
5) Regulatory Environment (5)
6) Socio-cultural Environment (7)
7) Supplier Environment (2)
8) Technological Environment (3)
Environment Sectors
1) Economic
environment

8 ) Technological 2) International
environment Environment

7) Supplier 3) Market
Company
environment environment

6) Socio-
4) Political
Cultural
environment
environment
5) Regulatory
environment
 1) Economic Environment
Macro level factors
(i) Economic stage
(ii) Economic structure ( Capitalist/Socialist/mixed
economy)
(iii) Economic policies Industrial, Monetary, fiscal
(iv) Economic planning 5 year plans, annual budgets
(v) Economic indices growth of GDP, etc
(vi) Infrastructural factors Financial Institutions,
Banks, Communication facilities, etc
 2) International Environment
(i) Globalisation, its process, content and
direction
(ii) Global economic forces, organisations,
blocks and forums
(iii) Global trade and commerce
(iv) Global financial systems
(v) Geopolitical situation
(vi) Global demographic patterns and shifts
(vii) Global HR
(viii) Global Information systems
(ix) Global Technological and quality systems
and standards
(x) Global markets and competitiveness
(xi) Global legal system
(xii) Globalisation of Management
Session 3

26 October 2015
 3) Market environment
Consists of factors related to the groups and
other organisations that compete with and
have an impact on an organisations markets
and businesses.
(i) Customer factors needs, preferences, etc.
(ii) Product factors Demand, image, features,
price, promotion, substitutes
(iii) Market intermediary factors
(iv) Competitor related factors
 4) Political environment
Factors related to management of public affairs
(i) Political system
(ii) The political structure
(iii) Political processes like operation of party
system, elections, funding, etc.
(iv) Political philosophy, governments role in
business, etc
 5) Regulatory environment
Regulation by Government
(i) Constitutional framework
(ii) Policies relating to licensing, monopolies
(iii) Policies related to distribution and pricing
and their control
(iv) Policies related to imports and exports
(v) Other policies related to the public sector,
small scale industries, sick industries,
pollution (natural environment), etc.
 6) Socio-cultural environment

(i) Demographic characteristics

(ii) Socio-cultural concerns pollution, consumerism,
mass media
(iii) Socio-cultural attitudes expectations of society
from business, materialism
(iv) Family structure and changes
(v) Role and position of men, women, children
(vi) Educational levels, awareness
 7) Supplier environment
Factors related to cost, reliability and
availability of the factors of production or
services.
(i) Cost, availability and continuity of supply of raw materials
(ii) Cost and availability of finance
(iii) Cost, reliability and availability of energy
(iv) Cost, availability and dependability of Human resources
(v) Cost, availability of plant, m/c, spares
(vi) Infrastructure support, Bargaining power of suppliers
 8) Technological Environment
Factors related to knowledge applied and
material and machines used.
(i) Sources of technology, cost,
(ii) Technological developments, rate of change
(iii) Impact of technology on human beings
(iv) Communication and infrastructural
technology
 PEST Analysis
1) Political
2) Economic
3) Socio-cultural
4) Technological

Analysis
 Environmental Scanning
Process by which the organisations monitor
their relevant environment to identify
opportunities and threats affecting their
businesses for the purpose of taking strategic
decisions
 Factors to be Considered for
Environmental Scanning
1) Events specific occurrences
2) Trends general tendencies
3) Issues concerns
4) Expectations - demands
 Sources of information
for Environmental Scanning
1) Secondary sources (Documents)
2) Mass media
3) Internal sources
4) External agencies
5) Formal studies
6) Spying and surveillance
 Identifying the
environmental factors
Impact on business

High Medium Low

High
Critical High priority Low priority
Probability
Of
Impact
Medium High priority High priority Low priority

Low To be watched Low priority Low priority

 ETOP
Environment Threat and opportunity profile

Technique to structure the environmental

appraisal.
Sub-dividing each environmental factor into
sub-factors and then the impact of each sub-
factor on the organisation is described in the
form of a statement
 ETOP
Sr. Factor Effect (Impact) Assessment
No. Threat/
Opportunity

1 Economic
2 Market
3 International
4 Political
5 Regulatory
6 Social
7 Supplier
8 Technological
Organisational
Appraisal
(to find Strength and Weaknesses, etc)
So that the Co. knows what it CAN do
Framework for development of Strategic advantage by an organisation

Strategic
Advantage

Organisational
capability

Competencies

Synergistic
effects

Strengths and
weaknesses

Organisational Organisational
Resources + Behaviour
 Dynamics of
Internal Environment
Organisational resources formal systems and
structures as well as informal relations among
groups.
Organisational Behaviour manifestation of
various forces and influences operating in the
internal environment of an organisation that
create the ability for, or place constraints on,
the usage of resources. ( quality of leadership, management
philosophy, shared values and culture, quality of work environment and
organisational climate, organisational politics, use of power , etc)
 Strength an inherent capability which an
organisation can use to gain strategic
advantage.
Weakness inherent limitation or constraint
which creates a strategic disadvantage for an
organisation.
Synergistic effects : 2+2=5 or 2+2=3

Competencies - special qualities possessed by

an organisation that make them withstand the
pressures of competition in the marketplace.

(See article by Prahalad and Hamel : The Core

Competence of the Corporation, Harvard
Business Review, May-June 1990)
Organisational capability
is the inherent capacity or potential of an
organisation to use its strengths and
overcome its weaknesses in order to exploit
the opportunities and face the threats in its
external environment.
Strategic Advantage outcomes of
organisational capability. Example :
profitability.

Competitive advantage relative , to be

measured and compared with respect to other
rivals in an industry.
(Article by Alfred Ngowi : What is a competitive advantage in
the Construction industry, Cost Engineering, Feb 1999))
Purpose of gaining strategic advantage is to
empower organisations to realize their
strategic intent
 Organizational capability factors
( Capability factors / Strategic factors /
strategic advantage factors /
corporate competence factors)

Strategic strengths and weaknesses existing in

different functional areas within an
organisation, which are of crucial importance
to strategy formulation and implementation.
1) Financial capability
2) Marketing capability
3) Operations capability
4) Personnel Capability
5) Information Management capability
6) General Management capability
 Financial capability factors
relate to the availability, usages and
management of funds and all allied aspects
that have bearing on an organisations
capacity and ability to implement its
strategies.
Factors related to sources of funds
Factors related to usage of funds
Factors related to management of funds
 Typical strengths that support
financial capability
- Access to financial resources
- Amicable relations with financial institutions
- High level of credit worthiness
- Efficient capital budgeting system
- Low cost of capital
- High level of shareholder confidence
- Effective Management control system
 Marketing capability factors
Relate to the pricing, promotion and
distribution of products and services , and all
the allied aspects that have bearing on an
organisations capacity and ability to implement
its strategies.
Product related factors
Price related factors
Place related factors
Promotion related factors
Integrative and systemic factors
 Typical strengths that support
marketing capability
- Wide variety of products
- Better quality of products
- Sharply focussed positioning
- Low prices compared to competitors
- High quality customer services
- Effective distribution system
- Effective sales promotion, advertising
- Favorable company and product image
- Effective marketing information system
 Operations capability factors
relate to the production of products and
services , use of material resources and all the
allied aspects that have bearing on an
organisations capacity and ability to
implement its strategies.
Factors related to production system
Factors related to operations and control
system
Factors related to R & D system
 Typical strengths that support
Operations capability
- High level of capacity utilisation
- Favourable plant location
- High degree of vertical integration
- Reliable sources of supply
- Effective control of operational costs
- Existence of good inventory control system
- Availability of high calibre R&D persons
- Technical collaboration with reputed firms
abroad
 Personnel capability factors
relate to the existence and use of human
resources and skills, and all the allied aspects
that have bearing on an organisations
capacity and ability to implement its
strategies.
Factors related to personnel system
Factors related to organisational and
employee characeristics
Factors related to industrial relations
 Typical strengths that support
personnel capability
- Genuine concern for HRM
- Efficient and effective personnel systems
- Perception of Organisation as being fair and model
employer
- Excellent training opportunities and facilities
- Congenial working environment
- Highly satisfied and motivated workforce
- High level of organisational loyalty
- Low level of absenteeism
 Information Management
capability factors
Relate to the design and management of the flow of
information from outside into, and within an
organisation for the purpose of decision making and all
the allied aspects that have bearing on an
organisations capacity and ability to implement its
strategies.
Factors related to acquisition and retention of info
Factors related to processing and synthesis of info
Factors related to retrieval of info
Factors related to transmission and dissemination
Integrative, systemic and supportive factors
 Typical strengths that support
Information Management capability
- Ease and convenience of access to information sources
- Widespread use of computerised information system
- Availability and operability of high-tech equipment
- Positive attitude to sharing and disseminating information
- Wide coverage and networking of computer systems
- Presence of foolproof information security systems
- Presence of buyers and suppliers conversant with IT applications
- Support of top management to IT
 General Management
capability factors
relates to the integration, coordination and direction
of the functional capabilities towards common goals
and all the allied aspects that have bearing on an
organisations capacity and ability to implement its
strategies.
Factors related to general management system
Factors related to General Managers
Factors relating to external relationships
Factors related to organisational climate
 Typical strengths that support
General Management capability
- Effective system for corporate planning
- Control, rewards and incentive system for top
managers geared to achievement of objectives
- Entrepreneurial orientation
- Good rapport with government
- Favourable corporate image
- Commonly perceived as good organisation
- Development oriented organisational culture
- Effective Management of organisational change
Session 4
27 October 2015
 Organisational Appraisal
(Internal appraisal / internal analysis /
organisational analysis / company analysis)

Purpose :
To determine the organisational capability in
terms of strengths and weaknesses that lie in
different functional areas.
Why is it necessary ?
Because strengths and weaknesses have to be
matched with the environmental
opportunities and threats for strategy
formulation to take place.
 Methods and techniques used for
Organisational appraisal
Organisational
Appraisal

a) b) c)
Internal Analysis Comparitive Comprehensive
Analysis analysis
a) Internal b) Comparitive c) Comprehensive
Analysis Analysis Analysis
1) VRIO 1)Historical 1) Key factor rating
framework analysis 2) Business
2) Value chain 2) Industry Intelligence
analysis norms systems
3) Quantitative 3) Bench 3) Balanced
analysis scorecard
marking
4) Qualitative
analysis
 a) Internal Analysis
1) VRIO framework Valuable, Rare, Inimitable,
Organised for usage
Are the Are the Are the Are the Are the
capabilities capabilities capabilities capabilities capabilities
valuable ? rare? costly to organised for strengths or
imitate ? usage? weaknesses ?
No No Weakness

Yes No Yes Strength

Yes Yes No Yes Strength and distinctive

competence
Yes Yes Yes Yes Strength and sustainable
distinctive competence
2) Value chain analysis

Value chain is a set of interlinked value-

creating activities performed by an
organisation.

Porter divided the value chain of a

manufacturing organisation into primary and
support activities.
Porters Generic Value Chain
Primary activities are related to flow of product
to customer
The profit margin that an organisation earns depends
on how effectively the value chain is managed.

The activities that create more value to customer at

less cost are strengths.

Those activities that provide less value at more cost

are weaknesses ( so outsource)
3) Quantitative Analysis
(i) Financial Analysis
- Ratios ( Liquidity , Profitability, etc)
- EVA analysis
- Activity based cost
(ii) Non financial analysis
 EVA ( Economic value added) analysis

is defined as the system of corporate management

that defines profitability in terms of the returns on
capital above the cost of servicing the capital
employed.
EVA is the wealth an organisation creates for its
owners and is expressed as the difference of after-
sales operating profits and the total cost of capital..
EVA is the representation of a simple idea that an
organisation needs to earn more from a business
than the cost of capital invested in it.
 ABC ( Activity based cost) Analysis
identify the major activities in the value chain
within a firm and keep a tab on the costs
within each activity.
This helps in identifying the factors that
determine cost ( cost drivers) and the areas
where costs are actually incurred
 (ii) Non financial analysis
Examples :
Employee turnover
Absenteeism
Market ranking
Total cycle time of production
Service call rate
Number of patents registered in a given
period
 4) Qualitative analysis

Based on informed opinion, judgement,

intuition or hunch.

Cannot be expressed in quantitative

terms.

Example : Ability to absorb or assimilate

knowledge, level of morale among
employees,etc.
 b) Comparitive Analysis
1) Historical analysis
of ones own organisation over a period of time.
is a good measure of how well or badly an
organisation has progressed with respect to its own
past performance.

Companies give comparative figures

Last year / same period in past year
2) Industry norms

Check whether the Organisations cost

structure is comparable to that of its
competitors, or budget spent on advertising is
equal to nearest rival.
3) Benchmarking

To find best performers so that one could

match ones own performance with them
and even surpass them.
 c) Comprehensive Analysis
1) Key factor rating :
rating of key factors by asking questions
Factors under functional capabilities

1) Financial capability
2) Marketing capability
3) Operations capability
4) Personnel Capability
5) Information Management capability
6) General Management capability
Financial
Factors related to sources of funds
Factors related to usage of funds
Factors related to management of funds
Marketing
Product related factors
Price related factors
Place related factors
Promotion related factors
Integrative and systemic factors
Operations
Factors related to production system
Factors related to operations and control system
Factors related to R & D system
Personnel
Factors related to personnel system
Factors related to organisational and employee characteristics
Factors related to industrial relations
Information Management capability
Factors related to acquisition and retention of info
Factors related to processing and synthesis of info
Factors related to retrieval of info
Factors related to transmission and dissemination
Integrative, systemic and supportive factors
General Management capability
Factors related to general management system
Factors related to General Managers
Factors relating to external relationships
Factors related to organisational climate
2) Business Intelligence system
Use Information Technology

Broad category of applications and

technologies for gathering, storing, analysing,
and providing access to data to help
enterprise users make better decisions.
Decision support systems, statistical analysis,
forecasting, data-mining.
3) Balanced scorecard
 Structuring Organisational Appraisal

1) OCP ( Organisational Capability Profile)

2) SAP ( Strategic Advantage Profile )
 OCP (Organisational capability profile)
Capability factors Weakness, Normal, Strength
-5 0 +5
Financial
Factors related to sources of funds
Factors related to usage of funds
Factors related to management of funds

Marketing
Product related factors
Price related factors
Place related factors
Promotion related factors
Integrative and systemic factors

Operations
Factors related to production system
Factors related to operations and control
system
Factors related to R & D system
 OCP (Organisational capability profile)
Capability factors Weakness, Normal, Strength
-5 0 +5
Personnel
Factors related to personnel system
Factors related to organisational and employee
characteristics
Factors related to industrial relations
Information Management capability
Factors related to acquisition and retention of info
Factors related to processing and synthesis of info
Factors related to retrieval of info
Factors related to transmission and dissemination
Integrative, systemic and supportive factors

General Management capability

Factors related to general management system
Factors related to General Managers
Factors relating to external relationships
Factors related to organisational climate
SAP ( Strategic Advantages Profile)
(similar to ETOP)

OCP is detailed.
SAP is Concise
 SAP
Sr.No. Capability factor Competitive Nature of
strengths or impact
weaknesses S/W

1 Finance

2 Marketing

3 Operations

4 Personnel

5 Information

6 General management
 II) Strategy Formulation
1) Environmental appraisal
2) Organisational Appraisal
3) Corporate level Strategies
4) Business Level Strategies
5) Strategic Analysis and Choice
 Different levels of Strategy
Corporate
office

SBU SBU SBU

A B C

Finance Marketing Operations HRM Information

 Corporate Level
Strategies
(Grand strategies)
 Answers to the following define an overall
direction for the organization's grand strategy
Where is the organization now?
Where does the organization want to be?
What changes are among competitors?
What courses of action will help us achieve our
goals?
 Corporate level strategies
Are about decisions related to :
1) Allocating resources among the different
businesses of a firm
2) Transferring resources from one set of
business to others
3) Managing and nurturing a portfolio of
business.

These decisions are taken so that the overall

corporate objectives are achieved
Boston Consulting Group Matrix
 Corporate
level
strategies

A) Expansion B) Stability C) Retrenchment D) Combination

Strategies Strategies Strategies Strategies
 Business definition
Abells 3 dimensions for defining business
Customer functions (what)

Alternative Technologies (how)

Customer groups (who)

Marketing oriented
 A) Expansion strategies
When an organisation aims at a higher growth
by substantially broadening the scope of one or
more of its businesses in terms of their
respective
customer groups,
customer functions and
alternative technologies
 Business definition
Abells 3 dimensions for defining business
Customer functions (what)

Alternative Technologies (how)

Customer groups (who)

Marketing oriented
 B) Stability strategies
When an organisation attempts at
incremental improvement of its performance
by marginally changing one or more of its
businesses in terms of their respective
customer groups,
customer functions and
alternative technologies
 C) Retrenchment strategies
When an organisation aims at contraction /
reduction of its activities through a substantial
reduction or elimination of the scope of one or
more of its businesses in terms of their
respective
customer groups,
customer functions and
alternative technologies,

in order to improve its overall performance.

 D) Combination Strategy
When an organisation adopts a mixture of
stability, expansion and retrenchment
strategies
either at the same time in its different
businesses
or at different times in one of its businesses,

with the aim of improving its performance.

 Major Corporate level Strategies
A) Expansion B) Stability C) Retrenchment D) Combination
Strategies Strategies Strategies Strategies
1) Concentration 1) No change 1) Turnaround 1) Simultaneous
2) Integration 2) Pause / 2) Divestment 2) Sequential
3) Diversification proceed with 3) Liquidation 3) Combination
4) Internationalisa caution of
tion 3) Profit simultaneous
5) Cooperation and
sequential
6) Digitalisation
 A) Expansion Strategies
A1) Concentration Strategies
( Intensification / focus / specialization)
Focus more intensely on their existing
businesses.
Putting all eggs in one basket.
Converging resources in one or more
of a firms businesses.
if Industry has high potential for growth
Ansoffs Product-Market matrix
Market penetration : selling more products in
same market eg. Mobile services

Market development : Same product in new

market eg. Nitrogen in tyres, PVC for windows

Product development : New products to same

market , eg. medical tourism
 Advantages of
Concentration Strategies
1) Minimal organisational change
2) Firm masters one or few businesses
3) Focussing can create competitive advantage
4) Less problems because known situations
5) Systems and processes familiar
6) Decision making under less strain as high
level of predictability. Past experience useful.
 Limitations of
Concentration strategies
1) Heavily dependent on one industry.
If recession in that sector.
2) Obsolescence, new technologies are threats.
3) Doing too much of known thing - Not
challenging
4) Cash flow problem.
Session 5
 A 2) Integration Strategies
Combining activities related to present activity
of a firm.
Alternative technology dimension changes.
It is also a subset of diversification.

(Naiknavare Construction)
 A2) Integration strategies continued

2 Integration strategies
(i) Horizontal integration (lateral integration)
( acquisition & mergers)
(ii) Vertical Integration
a) Backward / Downward integration -
move towards raw material.
Make or Buy : Make
b) Forward / Upward integration -
move towards customer
 Horizontal Integration / lateral integration : increase
size of company by same type of products
( Buying competitors business)
Tata Steel bought Corus
Tata Motors acquired Jaguar and Land Rover
Adidas acquired Reebok in 2006
Kraft and Hershey & Nestle trying to buy out Cadbury.

Business definition remains same

 Advantages of
Horizontal integration strategy
1) Economies of scale
2) Bundling possible
3) Increased market power over suppliers and
customers
4) Replication of a successful business model
5) Reduction in industry rivalry
 Disadvantages of
Horizontal integration
1) Little practical evidence to show increase of
value of an organisation.
2) Increased size may attract MRTP Act /
antitrust laws.
Vertical integration
Making new products that serve its own needs.
(a) Backward integration : Retreating to
the source of raw materials
(b) Forward integration : taking
organisation nearer to the ultimate
customer
 Advantages of vertical integration
1) Reduced dependence on suppliers / vendors
and dealers
 Limitations of
vertical integration
1) Increased costs of integration
2) Potential of either excess capacity or under-
utilisation of resources
3) Technological obsolescence
4) Loss of strategic flexibility
5) Increased mobility and exit barriers
6) Tight coupling to poor performing business unit
due to dependence
7) Lack of information and feedback from suppliers
and distributors.
A 3) Diversification strategies
Involves a substantial change in business definition
either singly or jointly
in terms of
Customer functions,
Customer groups, or
Alternative technologies
Of one or more of a firms businesses.
 Types of diversifications
a) Concentric or Related Diversification
b) Conglomerate or Unrelated
diversification
 (a) Concentric or Related
diversification

Activity related to existing business definition,

either related to
Customer groups or
Customer functions
Or alternative technology
 Types of Concentric or Related
diversification
- Marketing related : common distribution
channel newspaper company starts
publishing magazines
- Technology related : related technology;
example HDFC gives loans for homes, if it
gives for cars also.
- Marketing and technology related Sintex PVC
water tank manufactures PVC doors
 Concentric or Related diversification
Is an attractive corporate strategy,
As it offers best of both worlds:
It enables diversification as well as keeps it close
to it in terms of relatedness
 (b) Conglomerate or Unrelated
Diversification
Taking up those activities which are unrelated
to the existing business definition of any of its
businesses, either in
terms of their respective customer groups ,
customer functions or alternative
technologies.
When organisation has surplus capital.
If it can be reinvested into new ventures which
can generate more value than returning it to
shareholders.

Example : Manikchand Gutka , real estate

construction, mineral water, greeting card,
electric switches.
 Why adopt diversification strategies ?

1) Minimise risk by spreading risk over small

businesses.
2) Capitalise on its capabilities and business
model so as to maximise its strengths. Eg.
NICMAR MDP
3) May be only way out.
Example Manikchand. Gutka limitations
 Reasons for Concentric or Related
Diversification
Emphasis is on Synergy
1) Financial synergy
2) Marketing synergy
3) Operational synergy
4) Personnel synergy
5) Informational synergy
6) Managerial synergy
 Reasons for Conglomerate or
Unrelated Diversification
Emphasis is on Spreading risk
1) Spreading business risks by investing in different
industries.
2) Maximising returns by investing in profitable ones
3) Leveraging competencies in corporate restructuring
4) Taking advantage of emerging opportunities
5) Creating industrial empires
 Risks of diversification
1) Complex strategy ( esp. for unrelated), high
level of competence required
2) Wide variety of skills required.
3) Decreasing commitment and diverting it to
several of them at same time
4) Increases administrative costs
 Taught till here in session 6
On Friday 19 July 2013
From 9.10 am to 10.50 am
Strategic Management in
Infrastructure

Session 7
23 July 2013
Deepak Sundrani
A 4) Internationalisation Strategies
Market their products or services beyond the
domestic (national) market.
 Porters Model of
Competitive advantage of nations
 Types of International strategies

High Global Transnational

Pressure for
strategy strategy
cost reductions

International Multidomestic
Low
strategy strategy

Low High
Pressure for local responsiveness
 Entry modes

Export Contractual Investment

Entry modes Entry modes Entry modes
 Strategic
Decisions in
Internationalisation

Scale of entry
Timing of entry
into
Which International into
International
Markets to enter International
markets
markets
 Advantages of expansion through
Internationalisation
1) Realising economies of scale
2) Expansion and extension of markets
3) Realising location economies
4) Access to resources overseas (natural,
financial or HR)
 Disadvantages of expansion through
Internationalisation
1) Higher risks due to uncertainty (economic
and political environment)
2) Difficulty in managing cultural diversity
3) High bureaucratic costs ( of coordination and
communication)
4) High distribution costs
5) Trade barriers
A 5) Cooperative strategy
Co-opetition : Simultaneous Competition and
cooperation among rival firms for mutual
benefit.
Cooperative Strategies
a) Mergers and Acquisition
b) Joint ventures
c) Strategic alliances
(a) Mergers and Acquisitions : For the organisation
which acquires another it is an acquisition.
For the organisation which is acquired it is a merger.

(b) JV : when an independent firm is created by at-least two

other firms.
Example : ICICI Prudential Life Insurance Company.

(c) Strategic alliances : partnerships whereby resources

combined for mutual interests to develop, manufacture or
distribute goods.
Examples : setting up McDonalds at petrol pump,
 Reasons for mergers and acquisitions

Why buyer wants to merge :

1) To increase the value of organisations stock.
2) To increase growth rate and make good investment
3) To improve stability of its earnings and sales
4) To balance, complete or diversify its product line.
5) To reduce competition
6) To acquire needed resource quickly
7) To take advantages of synergy
Why seller wants to merge :
1)To increase value of owners stock and
investment
2)To increase growth rate
3)To acquire resources to stabilise operations
4)To deal with Top Management Succession
problem.
 Pros of mergers
1) Ensure management accountability
2) Offer easy growth opportunity
3) Create mobility of resources
4) Avoid gestation period and hurdles involved in new
projects
5) Offer a chance to sick companies to survive and
open up alternatives for selective divestment.
6) Allow firms to increase sales revenue and enlarge
their product and brand portfolios
7) Allow firms to increase market share
8) Decrease competition
 Cons of mergers
1) Professionalism gets replaced by money power
2) Takeovers do not create real assets for society
3) Interest of minority shareholder not protected
4) Stresses and strains created in companies which are
being taken over
5) Reduced competition oligopoly , monopoly
Increase of price, job losses
6) Difficulty in cultural integration
 (b) Joint Ventures
Entity resulting from a long-term contractual
agreement between two or more parties, to
undertake mutually beneficial economic
activities, exercise joint control and contribute
equity and share in the profits or losses of the
entity.

Examples : ICICI Prudential Life Insurance Co.

Mahindra + Renault + Nissan car plant in Chennai
 Conditions for JV
1) When an activity is uneconomical for an organisation
to do alone.
2) When the risk of business has to be shared and
therefore, is reduced for participating firms
3) When the distinctive competence of two or more
organisations can be brought together.
4) When setting up an organisation requires
surmounting hurdles such as import quotas, tariffs,
nationalistic political interests and cultural
roadblocks.
 Benefits of JV
1) Minimising risk
2) Reducing an individual companys investment
3) Creating access to foreign technology
4) Entering new fields of business
5) Synergistic effects
 Disadvantages of JV
1) Problems in equity participation
2) Foreign exchange regulations
3) Lack of proper coordination
4) Cultural and behavioural differences and
possibility of conflict among partners
 c) Strategic alliance
Two or more firms unite to pursue a set of
agreed upon goals , but remain independent.

Example : East India Hotels + Hilton International.

In Civil Engineering :
construction , interior designers , landscaping
persons, together give a complete building.
 Reasons why strategic alliances are used

1) Entering new markets

2) Reducing manufacturing costs
3) Developing and diffusing technology
4) Accelerate product introduction
 Pitfalls in Strategic Alliances
1) Lack of trust and commitment
2) Perceived misunderstanding among partners
3) Conflicting goals and interests
4) Inadequate preparation for entering into
partnerships
5) Hasty implementation of plans
6) Focussing on controlling the relationship
rather than managing it for mutual benefit.
 A 6) Digitalisation strategy
Use technological developments to initiate
strategic changes and aim for strategic
advantage using technology.
Digitalisation
E-business
E-commerce
E-learning
E-trading
E-banking
E-tailing
 Digitalisation
Has created an entirely new type of product category
called as digitised products / services.

Books, Magazines, music, software, videos, financial

banking, insurance services.

Electronic transactions : People buy products in e-

markets.
 Business definition
Abells 3 dimensions for defining business
Customer functions (what)

Alternative Technologies (how)

Customer groups (who)

Marketing oriented
Call centres
Medical transcription
CRM
Automation of ordering
Allow customers to make online payments
Speed up processes
Reduce costs
Real estate brokers, portals ( Magicbricks, etc),
Naukri .com, Jeevansathi.com
 Indian Railways
Airlines
Banks ATM, Online Banking,
Insurance : policies
Bar coding
Filing IT returns
MSEB electric bill
Land records digitalised
 Transparency : Tenders online
Use of IT in functional areas
 B) Stability Strategies
Stability strategies result from attempts by an
organisation at incremental improvement of
functional performance.
 B) Stability Strategies
Relevant for an organisation operating in
reasonably certain and predictable
environment.
Usually followed by small and medium
businesses. Can be useful in the short run
when such organisations are satisfied with
current performance
B 1) No change strategy

Organisation does not find it worthwhile to

alter the present situation by changing its
strategy.
When no significant Opportunities and
Threats. No new Strengths and weaknesses.
No new competitors, no threats of substitute
products.
B 2) Profit strategy :
Forced choice
If organisation faced with a situation where it has to
do something, if problems are short lived and will go
away with time , then organisation tries to sustain its
profitability by artificial measures, by adopting a
profit strategy.
So, reduce investments, cut costs, increased
productivity, adopt other measures, sell assets,
sell off non-core businesses, provide services to other
organisations needing outsourcing.
B 3) Pause / Proceed-with-caution strategy

Test ground before moving ahead with full-fledged

corporate strategy.

It is a Temporary strategy.

Example : Hindustan Lever sold few thousand pairs of

shoes, few years back, in India.
( now focus on exports through Ponds exports,
Pondicherry.)
 C) Retrenchment strategies
Followed when an organisation substantially
reduces the scope of its activities.

Retrenchment strategies are a response to

decline in industries and markets.
 External factors leading to decline :
1) New dominant technologies
2) New business models
3) Adverse Government policies
4) Demand saturation
5) Changing customer needs and preferences
6) Emergence of substitute products
 Internal factors leading to decline :
1) Ineffective top-management
2) Inappropriate strategies
3) Continual resistance to externally imposed change
4) Poor quality of functional management
5) Wrong organisation design
6) High costs
7) Ineffective sales and marketing
8) Unproductive new product development
 Industries / products
in state of decline
Example : Jute
Fountain pens
Manual typewriters
slide rules
telex
 C1) Turnaround strategy
If the organisation chooses to focus on ways
and means to reverse the process of decline, it
adopts a turnaround strategy

(Reversing a negative trend and turning

around the organisation to profitability)
 Turnaround strategy
How : By improving efficiency.
Usually under a new CEO / Consultant.

Surgical approach / humane approach.

Indian Railways : without removing employees,

without raising fares.

BHEL in 1980s, Arvind Mills, Scooters India Ltd

 Action plan for Turnaround
1) An analysis of product, market, production
processes, competition and market segment
positioning
2) Clear thinking about the market place and
production logic
3) Implementation of plans by target-setting,
feedback and remedial action.
2) Divestment strategies
( divesture / cutback)

Sale or liquidation of a portion of business, or

a major division, profit centre or SBU.

Adopted when turnaround unsuccessful,

sometimes without attempting Turnaround.
 Divestment approaches
1) Part of company is divested
2) Sell outright

Examples : L&T divested cement division to Aditya Birla

TISCO divested cement division
Tatas divested TOMCO to HLL (now HUL)
Tata Pharma divested to Wockhardt
Tatas Lakme divested to HUL
HLL (now HUL) divested its marine food
business to Temptation Foods
3) Liquidation strategies

(Check mate / Game over)

Closing down organisation and selling off

assets (usually at scrap value)

Bajaj Auto, Akurdi, Pune ?

 D) Combination Strategies
(also called Mixed / Hybrid strategies)
Mixture of stability, expansion or retrenchment
strategies, applied other simultaneously or
sequentially.
Restructuring.

Multipronged strategy
Example : Aditya Birla Group, HUL, Thermax
Business Level
Strategies

(Generic Business
Strategies)
 Different levels of Strategy
Corporate
office

SBU SBU SBU

A B C

Finance Marketing Operations HRM Information

 Business Level strategies
Are the courses of action adopted by an
organisation for each of its businesses
separately, to serve identified customer
groups and provide value to the customer by
satisfaction of their needs.
 Factors that determine choice of
competitive strategy ( as per Porter)

1) Industry structure ( determined by the five

competitive forces)
2) Positioning of the firm in the industry :
overall approach of the firm towards
competing.
Porters 5 force model
 Factors determining
choice of competitive
strategy

Industry structure
Positioning of
(dependent on
Company
5 forces)

Competitive Competitive
advantage scope

Broad target Narrow target

Lower cost Differentiation
approach approach
 1) Industry structure
These five forces vary from industry to
industry.
Every industry has a unique structure and
these factors determine the long term
profitability of organisations in that industry.
 2) Positioning of firm
overall approach of the firm towards competing.

It is designed to gain a sustainable

competitive advantage.
Based on 2 variables
(i) Competitive advantage
(ii) Competitive scope
 (i) Two generic types of
Competitive advantages

1) Lower cost
2) Differentiation
 (ii) Competitive scope
The breadth of the organisations target
within its industry

Breadth means :
range of products, distribution channels, types
of buyers, geographic areas served and the
array of related industries in which the firm
would also compete
 Porters Generic Strategies

Broad
target Cost Differentiation
COMPETITIVE
leadership
SCOPE

Focussed cost Focussed

Narrow
leadership differentiation
target

Low cost Differentiated

Products/ services Products/services
COMPETITIVE ADVANTAGE
1) Cost leadership (low cost and broad target)
2) Differentiation ( Differentiated products and
broad target)
3) Focus ( Narrow target)
low cost product or differentiated products,
but narrow Target
 Business
Strategies

Cost leadership Differentiation Focus

 1) Cost leadership strategy
When the Competitive advantage of
organisation lies in its lower cost of products
or services relative to what the competitors
have to offer.

Example : Moser Baer Blank CD,

DVD : 3 movies for Rs. 45
 Benefits of Low cost strategy
1) Cost advantage best insurance against
industry competition
2) Effective entry barrier for potential entrants
 Risks faced under
cost leadership strategy
1) Competitors can imitate cost reduction.
2) Interests of customer reduced : No
improvement in product is made
3) Technological shifts are a threat to cost
leader
 2) Differentiation strategy
When the competitive advantage of an
organisation lies in special features
incorporated into the product/ service which
is demanded by the customers, who are
willing to pay for it.

Charge premium price for differentiation

Branding
 Achieving Differentiation
1) Incorporate features that :
offer utility for customer , raise performance,
increase buyer satisfaction,
enable buyer to claim distinctiveness and
enhance status,
2) Special product attributes, Value for money,
superior after-sales service,
Engineering design, etc.
 Benefits of differentiation
1) Customer Brand loyalty acts as safeguard
against competitors. Brand loyal customers are
less price-sensitive
2) Price increase in raw materials can be absorbed
3) Buyers cannot negotiate price as few options
4) Differentiation is a formidable entry option
 Risks faced
under differentiation strategy

1) Competitors can imitate differentiation.

2) Fails if basis of differentiation not valued by
customer
3) Limit to price premium
4) Failure to communicate benefit may cause
differentiation strategy to fail
 3) Focus strategy
(Niche strategies)

Essentially rely on either cost leadership or

differentiation, but cater to a narrow segment of the
market.

Locate a niche in the market where the cost leaders

and differentiators are not operating.
Cost leaders and Differentiators, in an attempt
to cover a broad target , tend to leave out
segments of the market which require very
special attention.

Example : Tyre market

Truck tyres : large segment
Aircraft tyres : very small segment.
Cement : Oil well cement
 Benefits of Focus strategies
1) Protected from competition
2) Increase in Price of raw material can be
passed on to customers
3) Buyers less likely to shift loyalties
4) Specialisation is a powerful barrier for
competitors
 Risks of focus strategies
1) Development of distinctive competence may
be a long and difficult process
2) Cost configuration : costs high as markets
small
3) If niche becomes attractive enough, bigger
players might shift attention to them.
Rapidex learn English Book (low price,
narrow target)

Trump Tower Rs. 12 crore flats in Pune

(niche, 44 flats only, very high cost, narrow
target)
 Tactics

When Where
(Timing) (Market location )

First movers Market

Late movers Market leaders
(Pioneers) challengers

Market followers Market nichers

 Timing (When)
First movers :
Example : Parles Bisleri mineral water.
 Advantages of being first mover
1) Can establish position as market leader. Get
valuable experience, can attain cost
leadership.
2) Early commitments to suppliers of raw
materials
3) Image of pioneer , which helps build image
and reputation.
4) Creates a lead
5) First time customers likely to remain loyal
 Disadvantages of being first mover
1) Costly : Spend resources on creating
awareness and education
2) Late movers can imitate technological
advances
3) Technological change obsolescence for first
movers
4) Customers loyalty not guaranteed
 Location (Where)
Kotler Competitive strategies

1) Market leaders
- Expand Total market
- Defend market share
- Expand market share
2) Market challengers
- Frontal attack
- Flank attack
- Encirclement attack
- Bypass attack
- Guerrillaattack
 3) Market followers
- Counterfeiter strategy duplicating
- Cloner strategy
- Imitator strategy
- Adapter strategy
 4) Market nichers
(similar to focus strategy)

- Creating niches
- Expanding niches
- Protecting niches
 Four phases in
Strategic Management process

Establishment Formulation Implementation

Strategic
of strategic of of
evaluation
intent strategies strategies

Strategic control
 II) Strategy Formulation
1) Environmental appraisal
2) Organisational Appraisal
3) Corporate level Strategies
4) Business Level Strategies
5) Strategic Analysis and Choice
5) Strategic Analysis
and choice
 Strategic Choice
The decision to select among the grand
strategies considered, the strategy which will
best meet the enterprises objectives.
 Process of strategic choice
Step 1 Focussing on strategic alternatives
(narrow down choice of strategies)*

Step 2 Analysing strategic alternatives

( based on selection factors : objective
factors and subjective factors)

Step 3 Evaluating strategic alternatives

Step 4 Choosing among the strategic
alternatives
 Gap analysis for focussing on
strategic analysis

Desired Performance

Performance Present Performance

performance gap

Time
T1 T2
 Focussing on strategic analysis
(Gap Analysis)
Gap Strategies
Narrow Stability Strategies

Large Expansion
due to expected opportunities strategies
Large Retrenchment
Due to past and expected bad strategies
performance
Complex scenario Combination
Multiple reasons strategies
 Strategic Analysis
Is the investigation of the objective factors being
considered in the process of strategic choice.

Strategic Analysis is meant to answers questions like :

- Which industries to enter and which to leave
- Which business to create / acquire / divest
- Which products and markets to retain/grow/divest
 Strategic Analysis
Can be done at two levels :
1) Corporate level ( for diversified company)
2) Business Level
 Tools and Techniques
for Strategic Analysis
(i) Corporate Portfolio Analysis : defined as a set of
techniques that help strategists in taking strategic
decisions with regard to individual products or
businesses in a firms portfolio.
Used for multi-product and
multi-business firm.

Resources can be diverted to those businesses that

possess the greatest potential for creating
competitive advantage.
Boston Consulting Group (BCG) Matrix
McKinsey GE 9 cell matrix
McKinsey GE 9 cell matrix
 Factors in GE 9 cell matrix
Market Attractiveness
Market size and growth rate
Industry profit margin
Competitive intensity
Seasonality
Cyclicality
Economies of scale
Technology
Social, Environmental, legal and
human impact
Business Strength
Relative market share
Profit margins
Ability to compete on price and
quality
Knowledge of customer and
market strength
Strengths and weaknesses
Technological capability
Calibre of management
 Strategic Position and Action Evaluation) matrix
(SPACE ) matrix, developed by Rowe et al

is a four quadrant framework which indicates

whether
aggressive
conservative
defensive , or
competitive strategies
are most appropriate for a given enterprise or
company.
 SPACE ( Strategic Position and Action Evaluation)

Financial strength

Competitive advantage Industry strength

Environmental stability
 Financial strength (FS)
1) Return on investment
2) Leverage
3) Liquidity
4) Working capital
5) Cash flow
6) Risk involved in business
 Competitive advantage (CA)
1) Market share
2) Product quality
3) Customer loyalty
4) Competitions capacity utilisation
5) Technological know how
6) Control over suppliers and distributors
 Environmental stability (ES)
1) Technological changes
2) Rate of inflation
3) Demand variability
4) Price range of competing products
5) Barriers to entry into market
6) Competitive pressure
7) Price elasticity of demand
 Industry strength (IS)
1) Growth potential
2) Profit potential
3) Financial stability
4) Technological know how
5) Resource utilisation
6) Ease of entry into market
7) Productivity, capacity utilisation
SPACE
SPACE
SPACE
SPACE
Example
 Other techniques
(ii) SWOT Analysis
Consolidated ETOP ( Environmental Threat
and opportunity Profile) and SAP (Strategic
Advantages profile)
(iii) Experience curve analysis
(iv) Life cycle analysis*
(v) Industry Analysis (Porter)*
(vi) Competitor Analysis
Life cycle
 Industry Analysis
(Porters 5 force model)
 Strategic Plan
Is a document which provides information
regarding the different elements of strategic
management and the manner in which an
organisation and its strategists propose to put
the strategies into action.
 Four phases in
Strategic Management process

Establishment Formulation Implementation

Strategic
of strategic of of
evaluation
intent strategies strategies

Strategic control
III) Implementation of Strategies
Strategy implementation concerns the
managerial exercise of putting a freshly
chosen strategy into place
 Continued Elements in Strategic Management Process

III) Implementation of Strategies

(1) Activating strategies
(2) Structural implementation
(3) Managing Behavioral implementation
(4) Functional implementation
(5) Operational implementation
1) Activating strategies

S trateg y

P lans

P rogrammes

P rojects

B udgets

P olicies , P rocedures , R ules a nd R egulations

 Implementation
Once strategies are developed, organisation
must work out detailed supporting programs.

According to McKinsey & Co., strategy is

only one of the seven elements in successful
business practice
McKinseys 7 S framework
 McKinseys 7 S
1) Strategy
2) Structure
3) Systems
-------------------------------------------------------------------
4) Style
5) Skills
6) Staff
7) Shared value
 McKinseys 7 S framework
1) Strategy : Systematic action and allocation of resources

2) Structure : Organisation structure and authority / responsibility

relationships

3) Systems : Procedures and processes such as mfg. process

----------------------------------------------------------------------------------------
4) Style : common way of thinking and behaving

5) Skills : Employees have skills needed to carry out the companys

strategy

6) Staff : Co. has hired able people, trained them well and assigned
them right jobs

7) Shared value : employees share same guiding values (superordinate goals)

 2) Structural implementation
Organisation structure
is the arrangement of tasks and subtasks
required to implement a strategy.
 Interrelationship of
structure and strategy

determines

STRUCTURE
STRATEGY

affects
 Why is structural implementation needed ?

Strategic New Implementation Mismatch

plan is strategies of new occurs
implemented put in place strategies

Performance Structure Effectiveness Performance

improves is changed is reduced declines
 3) Managing Behavioral
Implementation
Stakeholders

A) Internal : shareholders/ owners, managers

and employees

B) External : customers, suppliers, government,

banks, creditors, mass media, NGOs, activists,
Local communities, general public
 Corporate Governance
The management of the relationship between
the directors (and managers) of the
organisation
and
Other stakeholders
is called corporate Governance
 In a broad sense, corporate governance is the
extent to which the companies are run in an
open and honest manner
Failure of large organisations, such as :
Arthur Anderson
Enron
Satyam, etc.
has heightened the interest in corporate
governance.
Much concern about unethical practices adopted by
companies, specially financial matters
 CII ( Confederation of Indian Industry) under the
chairmanship of Rahul Bajaj, in April 1997 devised a
code of desirable corporate governance. (available
online)
Followed by
Kumar Mangalam Birla Committee on Corporate
Governance ( 1999)
Naresh Chandra Committee (2002)
Narayana Murthy SEBI committee

National Foundation of Corporate Governance (NFCG)

 Definition according to NFCG
Corporate governance involves a set of
relationships amongst the companys
management, its board of directors,
shareholders and other stakeholders. These
relationships which involve various rules and
incentives, provide the structure through
which the objectives of the company are set
and the means of attaining those objectives
and monitoring performance are determined.
 According to NFCG
Key aspects of good corporate governance
include :
1) Transparency of corporate structures and
operations
2) The accountability of managers and the
boards to shareholders, and
3) Corporate responsibility towards employees,
creditors, suppliers and local communities
where the corporation operates.
 Corporate Governance
mechanisms in India
Corporate Governance mechanisms in India include both
mandatory and voluntary regulations
The major legislations having provisions related to corporate
governance are : The Companies Act, the Securities Act, the
Securities and Exchange Board of India Act, the Depositories
Act.
Also, listing agreement with stock exchanges that define the
rules, processes and disclosures that companies must follow
to remain as listed companies : Section 49 ( BSE 13 pages
available online)
ICRA provides ratings on corporate governance of Indian
Companies
 Relating Corporate Governance to
Strategic Management
If we consider NFCG definition and similar
definitions :
There is a clear relationship between corporate
governance of an organisation and stakeholder
management as well as its strategic management
1) Corporate governance and Strategic Intent
2) Corporate Governance and Strategy formulation
3) Corporate Governance and Strategy
implementation
4) Corporate Governance and strategy implementation
Strategic leadership :
Managers provide leadership to an
organisation.

Organisational leaders influence the behaviour

of subordinates so that they willingly and
enthusiastically work towards the
achievement of organisational objectives.
 Tasks of Strategic Leaders
1) Determining strategic direction
2) Effectively managing the organisational
resources portfolio
3) Sustaining an effective organisational culture
4) Emphasizing ethical practices
5) Establishing balanced organizational controls
Organisational (Corporate) culture
Is the set of important assumptions, often
unstated that the members of an
organisation share in common.
2 major assumptions are beliefs and values
Beliefs are assumptions about reality and are
derived and reinforced by experience
Values are assumptions about ideals that are
desirable and worth striving for.
People also share norms (expected standards
of behaviour)
 When beliefs, values and norms are shared in
an organisation, they create corporate culture.
The manifestation of corporate culture is
evident in
(i) Shared things
(ii) Shared sayings
(iii) Shared actions
(iv) Shared feelings
Impact of culture on corporate life
Culture affects not only the way managers
behave within an organisation, but also the
decisions they make about the organisations
relationship with its environment and strategy.
Culture is a strength ( facilitate communication,
decision-making and control and create
cooperation and commitment) that can also be a
weakness (obstruct smooth implementation of a
strategy by creating or augmenting resistance to
change)
 Strategy Culture Relationship
Corporate culture can be a source of
sustainable competitive advantage.
( paper by J.B.Barney, Organizational Culture : Can it be a source of competitive advantage)

Strategic options could also be limited by the

culture of the organization
(in the book by E.H. Schein, Organizational Culture and Leadership))
How corporate culture contributes to the
competitive advantage :
By defining boundaries of the organisation in a
manner that facilitates individual interaction
and/or by limiting the scope of information
processing to appropriate levels.
(Krefting & Frost)

Widely shared relationships of corporate culture

and strongly held values enable the management
to predict employee reactions to certain strategic
alternatives, thereby minimising he scope of
unintended consequences.
(Ogbonna & Harris)
 The basic question before strategists is how to
create a strategy-supportive culture.
 Corporate Politics and Power
Power is defined as the ability to influence
others.

Corporate Politics is `the carrying out of

activities not prescribed by policies for the
purpose of influencing the distribution of
advantages within the organisation
 Managers derive power from :

(i) Reward power

(ii) Coercive power
(iii) Legitimate power
(iv) Referent power
(v) Expert power
Strategic use of power and politics
Strategy implementation is basically about
change management, therefore, corporate
politics and use of power have a definite role
to play in strategy implementation.
Strategists should know when to use power
and politics to get things done and when to
shun politics and use of power to maintain
harmony.
Politics and power affect the way a strategy is
formulated and implemented.

A manager cannot effectively formulate and

implement strategy without being perceptive about
company politics and being adept at political
manoeuvring.

Political considerations affect which type of objectives

take precedence over others and which strategy the
firm has to choose.
 In strategy implementation, politics and power
affect a number of elements.
The nature of strategy implementation requires
consensus building , managing coalitions and
creating commitments. It also requires conflict
resolution and delicate balancing of differing
interests.

Example : Resource allocation.

 Note :
Having astute political skills is a definite and
even a necessary asset for a manager to have,
in orchestrating the whole strategic process.
 Corporate Politics and Power
in the Indian context
In India, person-oriented nature of society ; leading
to reliance on personal characteristics in hiring,
promoting and rewarding employees. This creates a
perception of lack of fairness in employee-
organisation exchanges, eg. Employees may have a
feeling that competence alone may not enable them
to progress in their career. Some of them may resort
to manipulative behaviour.

Strategists usually forget the distinction between the

use of power and politics for the benefit of self,
organisation or society.
Personal values and Business Ethics
Only personal values and a sense of business
ethics can help a strategist to distinguish
between moral and amoral use of politics and
power as a means to achieve organisational
goals.
 Meaning of values and ethics
Personal values refer to a conception of what
an individual or group regards as desirable.
A value is a view of life and judgement of what
is desirable, which is very much a part of a
persons personality and a groups morale, eg.
A benign attitude to labour welfare .
Contd . Meaning of Values and ethics
Within organisations, values are imparted by
the founder-entrepreneur or a dominant chief
executive.
Business places great demand on the CEO : it
needs him to self-impose a framework of
ethics, values, fairness and objectivity on
himself at all times.
Contd . Meaning of Values and ethics
Business Ethics is the study of how personal
moral norms apply to activities and goals of a
commercial enterprise.
It is the study of how the business context
poses its own unique problems for the moral
person who acts as the agent of this system
Contd Meaning of Values and ethics
Practically, business ethics operates as a
system of values and is concerned primarily
with the relationship of business goals and
techniques to specify human ends.
A major task of leadership is to inculcate
personal values and impart a sense of
business ethics to the organisational
members.
 Contd Meaning of Values and ethics
At one end, values and ethics shape the
corporate culture and dictate the way how
politics and power will be used, and at the
other end, clarify the social responsibilities of
the organisation.
Importance of Values and Ethics in
Business
Aid provided by World Bank, IMF frittered
away by corrupt government officials.
Transparency International Corruption
Perception Index
Corruption index : Indias rank
 Acceptable behaviour ?
Corruption in industry is a major by-product of
the degradation of values and ethics.
Excellent organisations are driven by values.
Strategists have to provide the right values
and ethical sense to the organisations they
manage
 Values, Ethics and Strategy
Executives in charge of companies do not look
exclusively to what a company might do or can
do, but they seem heavily influenced by what
they personally want to do.
CEOs are prone to let their personal
preferences influence company strategy to the
extent they have discretion.
Strategists should take decisions not only on
the basis of purely economic reasons, but also
consider values and ethics.
 Business ethics also includes preventing frauds
by own employees.
Usually the top management commits frauds
People often entrusted with the destiny of the
organisation often act unethically.
Being managers, these people are highly
educated (white-collar crimes)
 Business ethics as a major source
of competitive advantage
Companies that are recognised as ethical
organisations are able to attract investment and
human capital, retain talent, differentiate
themselves in the market and create a
perception of being customer-friendly.
Money cannot buy reputation and integrity,
both have to be earned.
 Organisations based on strongly-held shared
values amongst their customers and
employees have been able to professionalise
and develop their market potential through
strong brand loyalty and relationship-building
with their constituents.
 Difference between
values and ethics
Values are personal in nature (eg. Belief in
providing customer satisfaction) wheras Ethics is
a generalised value system (eg. Adopting fair
business practices).

Business ethics can provide the general

guidelines based on which strategic
management can operate. Values, however offer
alternatives to choose from. Example .
Example :
Philanthropy as a business policy is optional. A strategist
may or may not possess this value and still remain
within the limits of business ethics. It is values,
therefore, that vary among the strategists in an
organisation and such a variance can be a source of
conflict at the time of strategy formulation and
implementation. A major set of tasks in strategy
implementation is to create consistency among the
personal values, and business ethics and the proposed
strategy.
 Organisations derive values and ethics from
their corporate culture.
 Corporate Social Responsibility
Strategic planning provides answers to what
an organisation might and can do

Personal values justify what an organisation

wants to do

Social responsibility, along with business

ethics, tells what an organisation ought to do
 Differing views of CSR
The issue of responsibilities of business
towards society, evokes varying responses.
Economists Adam Smith and Milton Friedman
opined that business should not do any social
functions. Other extreme
The economic goals and social responsibility
objects need not be contradictory to each
other and should be achieved simultaneously.
 CSR in India
( See Annual Reports of companies)

Adequate allocation of funds

Solar power

Gazette of India, ( Rajpatra) Extraordinary

dated 28 February 2015 gives details of CSR
rules ( available on Internet)
Screenshot of Gazette
 4) Functional Implementation
1) Financial plans sources, usage,
management of funds
2) Marketing plans product, pricing, place,
promotion,
3) Operational plans production, R&D,
Technology
4) Personnel plans Personnel System,
Industrial relations,
5) Information Management plans
 Integration of Functional plans
What has been segregated will have to be
brought together, since all activities are
performed to achieve overall objectives of any
organisation.

Integration of functional plans.

 Integration of functional plans

Financial Operational
plans plans

Integration
of functional
plans

Marketing
plans Personnel
plans

Info
Management
plans
 5) Operational implementation
is the approach adopted by an organisation to
achieve operational effectiveness.

Action.
Hoshin Kanri System of Deployment
 HOSHIN KANRI
HO means direction, SHIN means needle
So Hoshin means Direction needle ( compass)

KAN, means control or channeling.

RI, means reason or logic.

Taken altogether, Hoshin Kanri means management

and control of the organization's direction needle or
focus.
 Hoshin Kanri
The most popular English translation of Hoshin
Kanri is Policy Deployment
 Hoshin Kanri

Act Plan

Check Do
 Comparision of
Hoshin Kanri Planning and MBO
Element Hoshin Kanri MBO
Vision Long term Short term
Focus Processes Targets
Implementation Prioritize Troubleshoot
Measures Realistic Incentives
Review Improvement Failure
Communication Deployment of Job evaluation
targets
Feedback Top-down and Top-down
bottom up
 Benefits of Hoshin Kanri
1) Integration of strategic objectives with
tactical daily management
2) Application of Plan-do-check-act circle
3) Company wide approach
4) Improvements in communication
5) Increased consensus and buy-in to goal
setting and cross-functional management
integration.
 IV) Strategic Evaluation & Control
Process of determining the effectiveness of a
given strategy in achieving the organisational
objectives and taking corrective action
wherever required
 Importance of Strategic evaluation
1)Ability to coordinate the tasks performed by
individual managers, groups, divisions, through
control of performance.
2) Need for feedback, Appraisal and Reward
3) Check on validity of Strategic choice
4) Congruence between decisions and intended
strategy
5) Successful culmination of strategic management
process
6) Creating inputs for New Strategic Planning
 Strategic Control
The 4 basic types of strategic controls are :

(i) Premise control

(ii) Implementation control
(iii) Strategic surveillance
(iv) Special alert control
 (i) Premise control

Serves the purpose of continually testing the

assumptions to find out whether they are still
valid or not.

This enables the strategists to take corrective

action at right time rather than continuing
with a strategy based on erroneous
assumptions
 (ii) Implementation control
is aimed at evaluating whether the plans,
programs and projects are actually guiding the
organisation towards its predetermined
objectives or not,
otherwise
revision is necessary -- strategic rethinking
 (iii) Strategic surveillance

Monitor a broad range of events inside and

outside the company that a likely to threaten
the course of a firms strategy.

Scanning system.
 (iv) Special alert control

Based on trigger mechanism for rapid

response and immediate reassessment of
strategy in light of sudden and unexpected
events.

Contingencies.

Example : Fall of Government, industrial

disaster, breach of information
 Operational Control
is aimed at the allocation and use of
organisational resources, through evaluation
of the performance of organisational units
such as divisions, SBUs, etc.
 Evaluation Techniques for Operational Control
1) Internal Analysis :
VRIO framework, Value Chain Analysis, Quantitative analysis,
Qualitative analysis
2) Comparitive Analysis :
Historical analysis, Industry norm, Benchmarking,
3) Comprehensive Analysis :
Key factor rating, Business Intelligence system, Balanced
scorecard
4) Special purpose Techniques
Network techniques (PERT, CPM), MBO, Parta system,
Memorandum of understanding (MoU)
5) Auditing Techniques
Corporate social audit, Environmental audit.
Unrealized strategy
THE END