Strategy formulation

Environmental appraisal
Environment is complex Environment is dynamic Environment is multi dimensional Environment has far-reaching impact

Environmental sectors
Economic environment International environment Market environment Political environment Regulatory/legal environment Socio- cultural environment Supplier environment Technological environment

Factors in environment scanning

Events Trends Issues Expectations

ETOP: Environment Threat and Opportunity Profile

ETOP
Environmental sectors Economic Market International Political Regulatory Social Supplier Technological Nature of impact Impact of each sector

Environment scanning
Documentary or secondary sourcesnewspapers, magazines, books Mass media-Radio, TV Internal sources External agencies-customers, suppliers, trade intermediaries Formal research studies Business intelligence

SWOT
Strengths, Weaknesses, Opportunities and Threats Strength and Weakness refer to internal environment

Opportunities and Threats refer to external environment

Organizational Appraisal
An organization uses different types of resources and exhibits a certain kind of behaviour Organizational capability rests on an organizations capacity and the ability to use its competencies to excel in a particular field, thereby giving it strategic advantage

 Resources- are they rare, valuable, costly to imitate and non substitutable- The Resource based view of the firm Resources based view is concerned with the efficient use of resources Behaviour-how the various forces and influences that operate in an organization create the ability for or place constraints on the usage of resources

 Strengths and weaknesses- strength is an inherent capability that can be used to gain competitive advantage A weakness is an inherent limitation that creates a strategic disadvantage Synergistic effects-strengths and weaknesses do not exist independently. They combine in a variety of ways synergistically- the whole is greater than (or less than) the sum of individual parts

 Competencies-special qualities possessed by an organization that enable them to withstand the pressures of competition The capability to use competencies extremely well turn them into core competencies When a specific competency is possessed exclusively or in large measure it is a distinctive competence

Competencies- some examples

Access to low cost finance , not available to competitors Superior product attribute Differential advantage based on superior market research Competencies, core competencies, distinctive competencies- difference is in the degree of uniqueness

 Organizational capability- the skill for coordinating and resources and putting them to productive use Without capability, resources- even though unique and valuable- are useless Strategic advantages- are the outcome of organizational capabilities The purpose of gaining strategic advantage is to empower organizations to realise their strategic intent

Framework for developing strategic advantage

Strategic adv

Orgn capability

Competencies

Synergistic effects

Strengths and weaknesses

Orgn Resources Orgn behaviour

Organizational capability forms

Financial capability- Reliance Marketing capability-P&G, Parle, Operations capability-Mumbai dabbawala, Personnel capability-Industrial relations, Performance management system, Technology capability-Fedex, HDFC Bank General Management capability-Infosys

Organizational appraisal- methods

VRIO- framework (Barney) Valuable- relationship with government, quick delivery (Dominos pizza) Rare- Exclusive location Inimitable-strong brands, high market share Organised for usage-franchise network, sound R&D and innovation enabling processes

Value chain analysis

Value chain- a set of interconnected value creating activities Porter divided the value chain into primary and supporting activities Primary- Inbound logistics, Operations, Outbound logistics, Marketing and Sales, Service Supporting-Firm infrastructure, HRM, Tehnnology, Procurement

 Value chain analysis requires: i) Identifying the activities into Primary and Supporting Ii) Identifying the activities in the two groups that contribute to providing value Iii) Identifying how the value contribution can be increased through increased efficiency Iv)Identifying how the value configuration could be improved by innovation

Organizational appraisal- measures

Quantitative analysis- financial ratios, employee turnover, EVA, production cycle time Qualitative analysis-Historical analysis, Industry norms, Benchmarking, Based on the prganizational appraisal can prepare Strategic Advantages profile (SAP)

Strategic Advantage Profile

Capability Factor Finance Marketing Operations Personnel Information Tech General Management Nature of impact Competitive strength or weakness