business envt & s m
TRANSCRIPT
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BUSINESS ENVT & S M
Dr Archana Sharma
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The Basic Framework of Strategy According to
Grant
The FirmGoals and values
Resources andcapabilities
Structure and
Systems
The Industry
EnvironmentCompetitors
Customers
Suppliers
INTERNAL EXTERNAL
STRATEGY
STRATEGY IS A LINK BETWEEN THE FIRM & ITS ENVIRONMENT
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Why is Strategy Needed?
Strategy, which can be applied at any level or for any size ofcompany, is needed to answer the following question:
What actions are most likely to achieve the organisations
goals given its internal and external context? And how can
these be implemented to maximise company performance
Examples of Strategies:
Business Strategy
Technology-Innovation Strategy
Customer Relationship Strategy
Human Resources Strategy Military strategy
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contd
INTERNAL ENVIRONMENT
Areas of technical expertise (e.g. IT, design, R & D, manufacturing,
materials engineering, innovation, JIT, logistics)
Corporate culture (e.g. diversity, operating excellence, customer
focus, training) - vision and mission statement Brand awareness (e.g. brand communication)
Company organisation (e.g. pyramid, flat, global, cross-regional)
EXTERNAL ENVIRONMENT
Industrial context (e.g. military and civil marine engineering) Legislation (e.g. environmental legislation)
Social and Demographic trends
Customer (needs and preferences)
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Business Strategy
Business Strategy is the framework of a
company in which it intends to compete and
obtain revenues.
It is the link between the internal and external
contexts.
It can take a front seat or a back seat depending
on internal and external conditions. Business strategy is a management tool.
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The role of Business Strategy
The primary role of business strategy is to ensure that
the internal context of a company matches the external
context so as to guarantee (sustainable) performance.
INTERNAL
CONTEXT
EXTERNALCONTEXT
PERFORMANCE
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Strategic management process
(contd Conducting an internal analysis
Assessing organisational resources, capabilities, activities,
and culture:
Strengths (core competencies) create value for the customerand strengthen the competitive position of the firm.
Weaknesses (things done poorly or not at all) can place the
firm at a competitive disadvantage.
Steps 2 and 3 combined are called a SWOTanalysis. (Strengths, Weaknesses, Opportunities,
and Threats)
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Identifying Opportunities
Orgn
resource
capabilities
Opportunity
In
envt
Orgn
opportunity
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Levels of organisational strategy
Multi
Business
SBU 1SBU 3
marketingHuman
ResourceManufacturingR&DFinance
SBU 2
Corporate
Business
Functional
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Types of Corporate strategy
Corporate-level strategies
Top managements overall plan for the entire
organisation 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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contd
Growth strategy
Seeking to increase the organisationsbusiness by
expansion into new products and markets. Types of growth strategies
Concentration
Focusing on a primary line of business andincreasing the number of products offered or
markets served.
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Vertical integrationBackward vertical integration: attempting
to gain control of inputs (become a self-supplier).
Forward vertical integration: attemptingto gain control of output through control of
the distribution channel and/or providecustomer service activities (eliminatingintermediatries)
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Horizontal integrationCombining operations with another competitor in the
same industry to increase competitive strengths and
lower competition among industry rivals.
DIVERSIFICATION
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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contd
Stability strategy
A strategy that seeks to maintain the
status quo to deal with the uncertainty of adynamic 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.
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contd
Renewal strategies
Developing strategies to counter organisation
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-termperformance
problems through the use of strong cost elimination
measures and large-scale organisational restructuring
Solutions.
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Strategic Planning Model
A B C D E
Environmental Scan
Assessment
Background
Information
Situational Analysis
SWOT Strengths,
Weaknesses,
Opportunities,
Threats
Situation Past,
Present and Future
Significant Issues
Align / Fit with
Capabilities
Mission & Vision
Values / Guiding
Principles
Major Goals
Specific Objectives
Performance
Measurement
Targets / Standards of
Performance
Initiatives and
Projects
Baseline Components
Performance
Management
Review Progress
Balanced Scorecard
Take Corrective
Actions
Down to Specifics Evaluate
Where we are Where we want to be How we will do it How are we doing
Gaps Action Plans Feedback upstream
revise plans
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Assessment
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Assessment Model:
S W O T
Assessment
External Assessment: Marketplace,competitors, social trends, technology,
regulatory environment, economic cycles .
External Assessment: Marketplace,competitors, social trends, technology,
regulatory environment, economic cycles .
Internal Assessment: Organizational assets,
resources, people, culture, systems, partnerships,
suppliers, . . .
Internal Assessment: Organizational assets,
resources, people, culture, systems, partnerships,
suppliers, . . .
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StrengthsAssessment
StrengthsStrengths Those things that you do well, theThose things that you do well, thehigh value or performance pointshigh value or performance points
Strengths can be tangible: Loyal customers,Strengths can be tangible: Loyal customers,
efficient distribution channels, very high qualityefficient distribution channels, very high quality
products, excellent financial conditionproducts, excellent financial condition
Strengths can be intangible: Good leadership,Strengths can be intangible: Good leadership,
strategic insights, customer intelligence, solidstrategic insights, customer intelligence, solid
reputation, high skilled workforcereputation, high skilled workforce
Often considered Core CompetenciesOften considered Core Competencies BestBest
leverage points for growth without draining yourleverage points for growth without draining your
resourcesresources
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WeaknessesAssessment
WeaknessesWeaknesses Those things that prevent you fromThose things that prevent you fromdoing what you really need to dodoing what you really need to do
Since weaknesses are internal, they are withinSince weaknesses are internal, they are within
your controlyour control
Weaknesses include: Bad leadership, unskilledWeaknesses include: Bad leadership, unskilled
workforce, insufficient resources, poor productworkforce, insufficient resources, poor product
quality, slow distribution and delivery channels,quality, slow distribution and delivery channels,
outdated technologies, lack of planning, . . .outdated technologies, lack of planning, . . .
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OpportunitiesAssessment
OpportunitiesOpportunities Potential areas for growth andPotential areas for growth andhigher performancehigher performance
External in natureExternal in nature marketplace, unhappymarketplace, unhappy
customers with competitors, better economiccustomers with competitors, better economic
conditions, more open trading policies, . .conditions, more open trading policies, . .
Internal opportunities should be classified asInternal opportunities should be classified as
StrengthsStrengths
Timing may be important for capitalizing onTiming may be important for capitalizing on
opportunitiesopportunities
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ThreatsAssessment
ThreatsThreats Challenges confronting the organization,Challenges confronting the organization,external in natureexternal in nature
Threats can take a wide rangeThreats can take a wide range bad pressbad press
coverage, shifts in consumer behavior, substitutecoverage, shifts in consumer behavior, substitute
products, new regulations, . . .products, new regulations, . . .
May be useful to classify or assign probabilities toMay be useful to classify or assign probabilities to
threatsthreats
The more accurate you are in identifying threats,The more accurate you are in identifying threats,the better position you are for dealing with thethe better position you are for dealing with the
sudden ripples of changesudden ripples of change
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Baseline
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Why create a baseline?Baseline
Puts everything about the organization into aPuts everything about the organization into asingle context for comparability and planningsingle context for comparability and planning
Descriptive about the company as well as theDescriptive about the company as well as the
overall environmentoverall environment
Include information about relationshipsInclude information about relationships
customers, suppliers, partners, . . .customers, suppliers, partners, . . .
Preferred format is the Organizational ProfilePreferred format is the Organizational Profile
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Organizational Profile
1. Operating Environment
Baseline
Products and ServicesProducts and Services Suppliers, DeliverySuppliers, DeliveryChannels, Contracts, Arrangements, . . .Channels, Contracts, Arrangements, . . .
Organizational CultureOrganizational Culture Barriers, Leadership,Barriers, Leadership,
Communication, Cohesiveness . . . .Communication, Cohesiveness . . . .
Workforce ProductivityWorkforce Productivity Skill levels, diversity,Skill levels, diversity,
contractors, aging workforce, . . .contractors, aging workforce, . . .
InfrastructureInfrastructure Systems, technology, facilities, . .Systems, technology, facilities, . .
RegulatoryRegulatory Product / Service Regulation, ISOProduct / Service Regulation, ISO
Quality Standards, Safety, Environmental, . . .Quality Standards, Safety, Environmental, . . .
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Organizational Profile
2. Business Relationships
Baseline
Organizational StructureOrganizational Structure Business Units,Business Units,Functions, Board, Management Layers, . . .Functions, Board, Management Layers, . . .
Customer RelationshipsCustomer Relationships Requirements,Requirements,
Satisfaction, Loyalty, Expectations, . . .Satisfaction, Loyalty, Expectations, . . .
Value ChainValue Chain Relationship between everyone inRelationship between everyone in
the value chain . . . .the value chain . . . .
Partner RelationshipsPartner Relationships Alliances, longAlliances, long--termterm
suppliers, customer partnerships, . . .suppliers, customer partnerships, . . .
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Organizational Profile
3. Key Performance Categories
Baseline
CustomerCustomer
Products and ServicesProducts and Services
FinancialFinancial Human CapitalHuman Capital
OperationalOperational
External (Regulatory Compliance, SocialExternal (Regulatory Compliance, Social
Responsibility, . . . )Responsibility, . . . )
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Gap AnalysisBaseline
Baseline / Org Profile Challenges / SWOT
Gap = Basis for Long-Term
Strategic Plan
Gap = Basis for Long-Term
Strategic Plan
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Components
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Developing GoalsComponents
Cascade from the top of the StrategicCascade from the top of the StrategicPlanPlan
Mission, Vision, Guiding Principles.Mission, Vision, Guiding Principles.
Look at your strategic analysisLook at your strategic analysis SWOT,SWOT,Environmental Scan, Past Performance,Environmental Scan, Past Performance,
Gaps . .Gaps . .
Limit to a critical fewLimit to a critical few such as five tosuch as five to
eight goals.eight goals.
Broad participation in the development ofBroad participation in the development of
goals:goals:
Consensus from aboveConsensus from above buybuy--in at thein at the
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Examples of GoalsComponents
Reorganize the entire organization for better responsiveness to customersReorganize the entire organization for better responsiveness to customers
We will partner with other businesses, industry leaders, and government agencies in
order to better meet the needs of stakeholders across the entire value stream.
We will partner with other businesses, industry leaders, and government agencies in
order to better meet the needs of stakeholders across the entire value stream.
Manage our resources with fiscal responsibility and efficiency through a single
comprehensive process that is aligned to our strategic plan.
Manage our resources with fiscal responsibility and efficiency through a single
comprehensive process that is aligned to our strategic plan.
Improve the quality and accuracy of service support information provided to our
internal customers.
Improve the quality and accuracy of service support information provided to our
internal customers.
Establish a means by which our decision making process is market and customer
focus.
Establish a means by which our decision making process is market and customer
focus.
Maintain and enhance the physical conditions of our public facilities.Maintain and enhance the physical conditions of our public facilities.
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Objectives
RelevantRelevant -- directly supports the goaldirectly supports the goal
Compels the organization into actionCompels the organization into action
Specific enough so we can quantify andSpecific enough so we can quantify andmeasure the resultsmeasure the results
Simple and easy to understandSimple and easy to understand
Realistic and attainableRealistic and attainable Conveys responsibility and ownershipConveys responsibility and ownership
Acceptable to those who must executeAcceptable to those who must execute
May need several objectives to meet aMay need several objectives to meet a
goalgoal
Components
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Goals vs. Objectives
GOALS OBJECTIVES
Very short statement, fewwords Longer statement, moredescriptive
Broad in scope Narrow in scope
Directly relates to the
Mission Statement
Indirectly relates to the Mission
Statement
Covers long time period
(such as 10 years)
Covers short time period (such
1 year budget cycle)
Components
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P.E.S.T. elements
Political aspects: What are the political implications,
connections, actions needed etc.? e.g. Gulf war
Economical aspects : Is it viable, does it make
economic sense (short or long-term), how much?? Social aspects : What are the social consequences of
the idea, strategy, changes etc. e.g. how will eBanking
affect the customers?
Technological aspects: What technology is needed,
available, is this a quantum leap for the
consumer/supplier?
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Forces in the industry analysis
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Five competitive forces
Threat of new entrants
The ease or difficulty with which new competitorscan
enter an industry.
Threat of substitutes
The extent to which switching costs and brandloyalty
affect the likelihood of customers adopting substitutes
products and services. Bargaining power of buyers
The degree to which buyers have the marketstrength to
hold sway over and influence competitors in an industry.
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Bargaining power of suppliers
The relative number of buyers tosuppliers and threats from substitutes and
new entrants affect the buyersupplierrelationship.
Current rivalry
Intensity among rivals increases whenindustry growth rates slow, demand falls,and product prices descend.
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Competitive strategies
Cost leadership strategy
Seeking to attain the lowest total overall costsrelative to
other industry competitors.
Differentiation strategy
Attempting to create a unique and distinctive productor
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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Innovation strategies
Possible events
Radical breakthroughs in products.
Application of existing technology to new uses.
Strategic decisions about innovation
Basic research
Product development
Process innovation
First mover
An organisation that brings a product innovation to
market or use a new process innovations