strat management

UNIT 1

• Nature of Strategic Management: Concept of Strategy; Vision Mission, Goals and Objectives;

• External Environmental Analysis; Analyzing Companies Resource in Competitive Position;

• Mintzberg’s 5Ps of Strategy; Strategic Management Process, Corporate Governance (10 Hours)

UNIT 2

• Strategy Formulation: External Environmental Analysis; Analyzing Companies Resource in

• Competitive Position- Concept of Stretch, Leverage and Fit; Strategic Analysis and Choice, Porter’s Five Forces Model, Concept of Value Chain, Grand Strategies; Porter’s Generic Strategies; Strategies for Competing in Global Markets. (10 Hours)

UNIT 3

• Corporate-Level Strategies: Diversification Strategies: Creating Corporate Value and the Issue of Relatedness, Vertical Integration: Coordinating the Value Chain,

• The Growth of the Firm: Internal Development, Mergers & Acquisitions, and Strategic Alliances Restructuring Strategies: Reducing the Scope of the Firm.

(12 Hours)

UNIT 4

• Strategy Implementation and Evaluation : Structural Considerations and Organizational Design;

• Leadership and Corporate Culture; Strategy Evaluation: Importance and Nature of Strategic Evaluation; Strategic and Operational Control, Need for Balanced Scorecard.

• (10 Hours)

Books• Text Books• 1. Thomas L. Wheelen, J. David Hunger (2010). Strategic Management and Business

Policy, • Pearson/Prentice Hall.• 2. Arthur, A, Thomson and Strickland, A. J. (2002). Strategic Management – Concept and

Cases. • Tata McGraw Hill, New Delhi. • R• eference Books• 1. Kark Rajneesh (2008). Competing with the Best: Strategic Management of Indian

Companies in a Globalizing • Arena Penguin Books. • • 2. Azhar Kazmi (2004). Business Policy and Strategic Management. Tata McGraw Hill,

New • Delhi.

Books

• 3. Hitt Michael A., Ireland R.D. and Robert E Hoskisson. Strategic Management: Competitiveness &

• Globalization, Concepts and Cases, Addison Wesley.

• • 4. Fred David (2008) Strategic Management :

Concepts and Cases , 12th Edition Prentice hall of India

NATURE OF STRATEGY

Concept, Vision, Mission, Goals, Objectives

STRATEGIC MANAGEMENT

The art and science of formulating, implementing and evaluating cross-functional decisions that enable an organization to achieve its objectives ( as per vision, mission and goals)- focuses on integrating management , marketing, finance/accounting, research, IT to achieve organizational success.

STRATEGY

Means by which long term objectives can be achieved. Potential actions that require top management decisions and allocation of resources- are future oriented; have multifunctional and multi divisional consequences, require consideration of external and internal factors

ADVANTAGES

• Identification, prioritization and exploitation of opportunities

• Objective view of problem• Framework of coordination and control• Minimizes effects of adverse conditions and

change• Major decisions to support objectives

ADVANTAGES

• Allocation of time and resources• Fewer errors• Framework for internal communication • Integrate behaviour of individual• Clarifies individual responsibilities• Encourages forward thinking• Co operative integrated and enthusiastic

approach

ADVANTAGES

• Creates favourable attitude towards change• Gives degree of discipline and formality to

management of a business

WHY FIRMS AVOIDE STRATEGIC PLANNING

• Lack of knowledge and planning• Poor reward structure• Fire-fighting• Waste of time• Too expensive• Laziness• Content with success

WHY FIRMS AVOIDE STRATEGIC PLANNING

• Fear of Failure• Over confidence• Prior bad experience• Self Interest• Fear of unknown• Honest deference of opinion• Suspicion

PITFALLS

• Use for gaining control• Window dressing- to satisfying the regulators• Tearing hurry to move from mission to

strategy planning• Not to share the strategy• Propensity for intuition• Lack of support from top management

PITFALLS

• Fail to use plan for standards of performance• Dedicated planners• Failing to involve key employees• Failing to create collaborating climate• View planning un necessary and un

important• Being do formal in planning that flexibility

and creativity are stifled

VISION

• Would answer the question: what do we want to become

• An articulation of a simple criterion or characterization- what the company must become ( time frame)

VISION

• Graphic. Paints a picture- market position• Directional. Forward looking- product,

market, customer technology• Focused. Specific to help decision making and

resource allocation• Flexible. Is not a once and for all time

statement. Course correction would be required based on circumstances

VISION

• Feasible. With in the realm of capability which the company can achieve with in a given time frame

• Desirable. Indicates why the chosen path makes good business sense

• Easy to communicate. Is explainable in five to ten minutes- simple memorable slogans

MISSION

• Answer to the question: what is our business. The purpose.– Customers – Products or services– Markets. Where to compete– Technology. Technologically current?– Philosophy. Beliefs, values, ethical practices,

aspirations– Self Concept. Distinctive competence

MISSION

• Concern for public image. Responsiveness to social, community environmental concerns

• Concern for employees. Are employees valuable assets

GOALS

• Survival. Most basic but generally neglected• Profitability. Needs to be long term.• Growth. Closely linked with survival and

profitability. Number of markets served, product range, technologies used

THE PROCESS OF STRATEGIC MANAGEMENT

FORMULATION, IMPLEMENTATION, EVALUATION

A Comprehensive Strategic – Management Model

PERFORM EXTERNAL AUDIT

Implement Strategies

Management Issues

Establish Long

Objectives Term

Development Vision And

Mission Statements

Measure And Evaluate

Performance

Implement Strategies- Marketing,

Finance, Accounting,

R&D, MIS Issues

Generate , Evaluate , And

Select Strategies

Perform Internal audit

THE FIRM’S EXTERNAL ENVIRONMENT

The Firm

Operating Environment.Competitors.Creditors.Customers.Labour.Suppliers

Industry.Entry Barriers.Supplier Power.Buyer Power.Substitute Availability

Remote Environment.Economic.Social.Political.Technological.Ecological

EXTERNAL ENVIRONMENT

• Everything outside an organization that might affect it is external environment

• It is much more difficult to understand than internal environment because the external forces are large in number, difficult to assess and predict

COMPONENTS OF EXTERNAL ENVIRONMENT

• Economic Environment• Social and Cultural Environment• Political Environment• Legal Environment• Technological Environment• Natural Environment• International Environment• Competitive Environment

ECONOMICAL ENVIRONMENT

• The economic state and the business cycle of the organization at present

• GDP rate and per capita income• Savings and investment rates• Payment balances and changes in foreign exchanges

reserves• Money supply and inflation rate• Industrial and agricultural production trend• Differences in the distribution of the income and

wealth

POLITICAL ENVIRONMENT

• Government instability• Interference of international power • Internal conflict with in the ruling party • Strength of parliamentary opposition party• Political principles

LEGAL ENVIRONMENT

Market condition in India is much more inclined towards the central, state and local governments. The government rules and policies must to be followed for existing in the market

TECHNOLGICAL ENVIRONMENT

It determine the development of an organization by increasing the efficiency, production, and competitiveness

THE ADAPTATION TO NEW TECHNOLOGY CAN BE IN THREE WAYS

• Inventing or creating a new product• Introducing the products and processes in

use• Diffusing the technology that cannot be used

first

TECHNOLOGICAL ENVIRONMENT THAT HAVE IMPACT IN AN ORGANIZATION INCLUDE

• Effectiveness of infrastructure (roads, ports, airport, rolling stock, hospitals, education, healthcare and communication)

• Productivity of the organization • New manufacturing processes

TECHNOLOGICAL ENVIRONMENT THAT HAVE IMPACT IN AN ORGANIZATION INCLUDE

• New technology that could impact the company

• New products and services of supply chain partners

• Cost and accessibility of resources such as electrical power, water supply, fuel etc

KEY EXTERNAL FACTORS

Important to achieve in long term and annual objectives .

Measurable .Applicable to all competitive firms.Hierarchical in the sense that some will

pertain to the overall company and others will be more narrowly focused on functional or divisional areas.

Economic forces• Import / export factors• Demand shifts for different categories of goods and services• Income differences by region and consumer groups• Price fluctuations• Export of labor and capital • Monetary policies• Fiscal policies• Tax rates• International monitory and trade related policies• The economic state and the business cycle of the organization at present• GDP rate and per capita income• Savings and investment rates• Payment balances and changes in foreign exchanges reserves• Money supply and inflation rate• Industrial and agricultural production trend• Differences in the distribution of the income and wealth

Example of Economic changes

• ‘Green Revolution’ in Agriculture• Industrial setup in rural and backward

regions• Opening up of new markets for the

marketing and supply of goods and services• Opening of new market for foreign

investment

Social , Cultural , Demographic , and Environmental Forces

• Population• Age groups• Literacy• Joint or nuclear family• Eating habits• Caste system• Population movement• Reaction to terrorism• Inter caste conflict• Gender base• Availability and spread of natural resumes.


• Childbearing rates• Number of special- interest groups• Number of marriages• Number of divorces• Number of births• Number of deaths• Immigration and emigration rates• Social security programs• Life expectancy rates• Per capital income• Location of retailing ,

manufacturing , and service businesses

• Attitudes towards business

• Attitude toward retirement• Attitude toward leisure time• Attitude toward product quality• Attitude toward costumer services• Pollution control• Attitudes toward foreign people• Energy conservation• Social programs• Number of crèches• Number of crutch members• Social responsibilities• Attitude toward careers• Population changes by race , age ,

sex , and level of affluence


• Lifestyle• Traffic congestion• Inner city environments• Average disposal income• Trust in government• Attitude toward work• Buying habits• Ethical concerns• Attitude toward saving• Sex roles• Attitude toward investing• Racial equality• Use of birth control• Average level of education• Government regulation

• Attitudes toward authorities• Population changes by city ,

country , state , and region• Value placed on lager time• Regional changes in taste and

preferences• Number of women and minority

workers• Number of high school and colleges

graduates by geographic areas• Recycling• Air pollution• Water pollution• Ozone depletion• Endangered species

Political , Governmental , and Legal , Forces

• Government regulations or deregulations

• Change in tax law• Special tariffs• Political action committees• Voter participation rates• Number ,severity , and location of

government protests• Number of patents• Change in patent laws• Level of defense expenditures• Legislation on equal employment • Level of government subsidies• Antitrust legislation

• Sino-American relationships• Russian - American relationships• European –American relationships• African - American relationships• Import – export regulation• Government fiscal and monetary policy

change.• Political conditions in foreign countries• Special local , state , and federal laws • Lobbying activities• Size of government budgets• World oil , currency , and labor markets• Location and severity of terrorist

activities• Local , state , and national election

The Process Of Performing An External Audit

• Involve as many managers and employees as possible.

• Gather competitive intelligence and information about economic , social , cultural , demographic , environmental , political , governmental , legal , and technological trends.

• Should be assimilated and evaluated.

External Factor Evaluation

• List key external factors( 10 to 20)• Include opportunities and threats that affect

the firm• Opportunities first then threats. Be

specific( quantify)• Assign weight to each factor ( 0.0 to 1.0). This

indicates relative importance of this factor for the firm for being successful in the industry

External Factor Evaluation( Contd)

• Assign a rating between 1 to 4 to each key external factor to indicate how effectively the firm’s current strategies respond to the factor.

• Multiply each factor’s weight by its rating to determine weighted score

• Sum the weighted scores for each variable to determine the total weighted score for the organization.

External Factor Evaluation(Contd)

• A total less than 2.5 indicates that the organization is not responding to the existing opportunities and threats of the external environment

• The assessment may not be very accurate since some of the data is subjective.

EFE MATRIX- Haldiram in New Delhi

Key External Factor Wt Rating Weighted Score

GDP Growth Rate more than 7% .26 3 .78

Population growth in the area 10% .25 4 .75

Major restaurants in the area closing down .25 3 .75

Demand for vegetarian food on the increase12% .06 3 .18

Increase in the disposable income in the city 15% .05 3 .15

Preference for ordering food at home on the increase .03 4 .12

People avoiding eating out on weak days .02 3 .06

Increase in the number of malls with food courts .02 2 .04

Increase in govt taxation for high end eating joints .02 1 .02

Health awareness hence people avoid eating sweets and high oil content food

.04 2 .08

Total 2.93

HISTORICAL BACKGROUND TO CORPORATE GOVERNANCE

West to East

Corporate Governance. No longer a fashion statement

2002 The Year of the Apology Since the collapse of Enron in 2001 a spate of corporate misdoings

has been exposed.

• Dennis Kozlowski, the then CEO of Tyco International, apologized to investors for a $1.9 billion loss and layoffs of 7,100. Soon after his apology he was indicted for alleged sales tax evasion and use of company funds.

• Merrill Lynch in May issued a public apology for e mails from its analysts that “may have appeared inconsistent with Merrill’s published recommendation,” adding ;that the statement constituted "neither evidence nor admission of wrongdoing or liability”.

Hank Paulson, chairman of Goldman Sachs, gave a speech in which he said recent criticisms of the business community were “deserved” and then went on to suggest ways companies like his could help restore investor confidence.

Citigroup’s former CEO Sandy Weill apologized for certain activities "that do not reflect the way we believe business should be done”

James Rohr, chairman and CEO of PNC Financial Services Group, apologized for accounting irregularities that happened during his tenure.

Finally, McDonald’s apologized to Hindus, vegetarians and others for mislabeling French fries and hash browns as vegetarian. The fast food

What has really brought Corporate Governance center stage?

The passage of the Sarbanes-Oxley Act (The SOX Act as it is known), makes it a mandatory requirement for CEOs/CFOs of detailed knowledge of report. It should not contain materially untrue statement or omission of material fact which makes the report misleading”.

The Real Issue

The real issue:Directors and Officers Liability Insurance (D&O) D&O is professional liability coverage for legal

expenses and liability to shareholders, bondholders, creditors or others due to actions or omissions by a director or officer of a corporation or a nonprofit organization. In the U.S Average D&O Settlements went up from $9 million with a standard deviation of $ 71 Million….Very volatile!! In 2003 the SEC filed 616 cases, in 2004 it dropped to 490 and it touched 496 in 2005.

What is Corporate Governance?

…… is an art of managing companies ethically and efficiently for enhancing stakeholders’ value.

…… the entire gamut of corporate governance system could be referred to as “ corporate ethical and values system”

What is Corporate Governance?

Shleifer and Vishny (1997) state that “ Corporate governance deals with the ways in which suppliers of finance to corporations assure themselves of getting a return on their investment”

Blsot (1995) argues that corporate governance implicates” the whole set of legal, cultural, and institutional arrangements that determine what publicly traded corporations can do, who controls them, how that control is exercised, and how the risks and returns from the activities they undertake are allocated”

Corporate Governance

A nation’s system of corporate governance can be seen, (according to North, 1991) as an institutional matrix that structures the relations among owners, boards, and top managers, and determines the goals pursued by the corporation.

Definition of Corporate Governance

OECD and the Cadbury Committee, UK, defined corporate governance as: “ A system by which business corporations are directed and controlled”

CII– Desirable Corporate Governance Code defines thus: “ Corporate Governance deals with laws, procedures,

practices and implicit rules that determine a company’s ability to take informed managerial decisions vis-a-vis claimants- in particular its shareholders, creditors, customers, the State and employees. There is a global consensus about the objective of ‘good’ corporate governance: maximizing long-term shareholder value.

The Outside Forces: Active Players in Corporate Governance

Media Professional Activists Analysts > Regulators > Market Players > External Organization Organizations Investment - SEBI - Institutional Auditors

Institute of Centre for Brokerage - Stock Exchange investors Directors(IOD) Corporate House - RBI - Small investors

Governance Creditors - Government - Grievance Association - National > Share holders - Foundation for - Institutional Corporate - Large Private Investors Governance - Minority Investors > Self Regulators - Large Debt Providers

(Nominee Directors) - Representatives of Large Debt providers

Active Players The Force Within

Employees (-Whistle Blower Protection

Board of Directors (-Independence-Qualification)

Internal Auditors (- Audit Committee -Independence -Rotation)

Top Management TeamCEO(- Dual role-Evaluation--Succession

CORPORATE GOVERNANCE

• Deals with laws, procedures, practices rules etc. relating to corporate functioning:-– Companies Act 1956– Monopolies and restrictive trade practices Act

1969– Foreign Exchange regulation Act 1973 (now

FEMA)– Sick industries companies Act 1985– Security and Exchange Board of India Act 1992

CORPORATE GOVERNANCE

• Security Contract Regulation Act 1956• Listing Agreement of Stock Exchange • The depository Act• Consumer Forum• Arbitration and Conciliation Act• Codes prescribed by Chambers• SEBI Code on Corporate governance

SEBI CODE (CLAUSE 49 LISTING CONDITIONS) CORPORATE GOVERNACE

• Board of directors to have optimum combination of executive and non executive directors.

• In case company has non executive chairman – fifty percent of the directors to be non executive

• Non executive chairman has an office and paid allowances so that she/ he can perform the duties


• A qualified empowered audit committee to be set up

• Remuneration committee to be set up for deciding on the compensations

• Board meeting at least four time in a year• A director can not be a member in more than ten

companies• Need to give consolidated accounts of all its

subsidiaries and segmented accounts of different lines business


• A management discussion and analysis report should form part of the annual report

• Disclosures on all personal interests and conflicts of interests by the directors

• Brief Resume, nature of expertise , and other directorships must be provided to the share holders while appointing a director

• Information on quarterly results, presentation to the analysts to be placed on the web site, half yearly financial report to be made available to the share holders


• Board committee under the chairmanship of non executive director to be formed to look into the complaints of all the shareholders

• Power of share transfer should be delegated to an officer or a committee or to registrar and transfer agents

• Should obtain certificates from the auditors on adherence to the tenets of corporate governance. These to be sent to the stock exchange.

Independent( Non Executive Director)

• Apart from receiving director’s remuneration does not have any material pecuniary relation ship or transactions, its promoters its senior management , holding companies, its subsidiaries and associated companies

• Is not related to promoters or management at the board level or at one level below the board

• Has not been the executive of the company during the preceding three years

Independent( Non Executive Director)

• Is not a partner or an executive of the statuary audit firm or internal audit firm that is associated with the company

• Is not a material supplier or service provider to the company

• Is not a substantial share holder ( more than two percent)

INFORMATION TO BE PLACED BEFORE THE BOARD OF DIRECTORS

• Annual operative plans, budgets and updates• Capital budgets and updates• Quarterly results• Minutes of meetings of audit committees and

other committees of the board• Information on recruitments and

remunerations of senior officers ( one level below the board)


• Show cause, demand and penalty notices• Fatal or serious accidents• Material default in financial obligations• Any issue, which involves possible public or

product liability claims of substantial nature• Details of any joint venture or collaboration• Transactions that involve substantial payments

towards goodwill brand equity intellectual property


• Significant labour problems and their proposed solutions

• Sale of material nature , of investment subsidiaries assets which is not in normal course of business

• Quarterly details of foreign exchange exposures• Non compliance of any regulatory, statutory

nature or listing requirements and share holders service.

EMERGENT STRATEGIES

• Implementation of strategies before clearly articulating mission, goals, objectives and then SWOT analysis.

• Involves allocating of resources even before choosing particular strategy

• Generally the organization adopt the emergent and deliberate strategy concept

Mintzberg’s 5Ps StrategyPlan :Consciously intended course of action. Two essential characteristics first made in advance second developed consciously. Ploy : A maneuver to out-wit the other.Pattern: This is a resulting behavior. Consistent at times it can be independent of plan the pattern may appear without preconception.Position: Locating an organization in an environment internal and external contextPerspective : In grained way of perceiving the world strategy to organization personality to individual.

INTERNAL ANALYSIS/AUDIT

SWOT, RBV, VCA, COMPETITVE ANALYSIS

ENVIRONMENTAL APPRAISAL

INTERNAL ENVIRONMENT

TECHNIQUES OF INTERNAL APPRAISAL

• SWOT Analysis.• Resource based view.• Value chain analysis• Organizational analysis

BASIC QUESTIONS

• How well the current strategy working?• What use made of our resources?• Are all departments working to

optimum levels?• Are all activities optimized?

SWOT Analysis• Quick Overview of a company’s strategic situation.

Internal strengths and weaknesses with external opportunities and threats.

• Strength – a resource or capability- advantage –relative to the competitors in meeting customers’ needs

• Weaknesses. Limitations……….. • Opportunities. Favorable situation in firm’s

environment• Threats. Unfavorable situation in firm’s

environment

THE PROCESS OF CONDUCTING SWOT ANALYSIS

• Formulate SWOT framework• Generate shared view•Workout strategies

Opportunities

Threats

Weaknesses Strengths

Cell 1: Aggressive Strategy

Cell 2. Diversification Strategy

Cell 4. Defensive Strategy

Cell 3. Turn around Strategy

Strategic Options after SWOT Analysis

• Aggressive. Growth orientation.• Diversification. Redeploy for long term

objectives.• Turnaround. Eliminate internal

weaknesses.• Defensive. Reduce resources in areas

identified by SWOT. Redirect

LIMITATIONS OF SWOT ANALYSIS

• Can over emphasize internal strengths and downplay external threats

• Can be static, ignore changes with time.• Can over emphasize single strength or

element of strategy• A strength may not be a source of

competitive advantage

RESOURCE BASED VIEWA method of analyzing and identifying a firm's strategic advantages based on examining its distinct combination of

assets, skills and intangibles.

RESOURCE BASED VIEW

• Physical Resources.–Plant and equipment–Location–Technology–Raw Material–Machines

RESOURCE BASED VIEW

• Human Resources– Employees– Training– Experience , Intelligence, Knowledge, skills, ability

• Organizational Resources– Structure– Planning process– Information System, patents, trademark, data

base, copy right

RESOURCE BASED VIEW

• Tangible assets. The most easily identifiable assets often found on a firm’s balance sheet. Production facilities, raw materials financial resources, real estate and computers

• Intangible assets. Assets that can’t be seen or touched but are critical in creating competitive advantage

RESOURCE BASED VIEW

• Intangible assets. Brand names, company reputation, organizational morale, technical knowledge, patents and trade marks, accumulated experience within the organization

WHAT MAKES A RESOURCE VALUABLE

• Scarcity– Short supply–Non availability of substitutes–Difficult to imitate• Physically unique• Path Dependent• Causal ambiguity• Economic Deterrence

WHAT MAKES A RESOURCE VALUABLE

• Appropriability. Who actually gets the profit created by the resource• Sustainability. How rapidly will

the resource depreciate

HOW TO USE THE RBV TECHNIQUE

• Disaggregate resources• Utilize functional perspective• Look at organizational processes and

combination of resources• Use the value chain approach to

uncover organizational capabilities , activities and processes

VALUE CHAIN ANALYSIS

• Business is seen as a chain of activities, departmental demarcations are ignored

• The chain of activities transforms input in to out put that customers value.

• The customer value is derived from:-– Product differentiation– Cost– Timeliness in meeting customers’ needs

VCA

• Divide company’s activities in to specific business processes.

• Group these in to primary and support activities.• The primary activities include:-

• Inbound logistics• Operations• Outbound logistics• Marketing and sales• Services

PRIMARY ACTVITIES

• Inbound logistics. Fuel, energy, raw materials, parts/components, merchandise and consumable items from the vendors. Receiving , storing and disseminating inputs from suppliers, inspection and inventory management

• Operations. Converting input in to final products- production, assembly, packaging maintenance, quality assurance, environmental protection

PRIMARY ACTVITIES

• Outbound logistics. Distributing, warehousing, order processing, order picking, packing shipping delivery vehicle operation.

• Marketing and sales. Sales force effort, advertising and promotion, market research and planning, dealer distributor support

• Service. Assistance to buyer( installation, spare parts delivery, maintenance and repair, technical assistance, buyers’ enquiry and complaints

SUPPORT ACTIVITIES

• General Administration. Accounting and finance, legal and regulatory affairs, safety and security, MIS and other overhead functions

• HRM. Development of knowledge based skills, recruitment, compensation management, training and development

• Research, technology and systems development. Equipment design, software development, telecommunication systems, CAD/CAM

• Procurement. Supplies, services, outsourcing

ALLOCATE COSTS• Each activity in the value chain incurs cost and

ties up time and assets• Traditional cost accounting of purchase

department, would include:-– Wages and salaries– Employees benefits– Supplies– Travel– Depreciation– Miscellaneous operating expenses

ALLOCATE COSTS

• Activity based cost accountancy(purchase department) would include– Evaluate suppliers capabilities– Process purchase orders– Expedite suppliers delivery– Expedite internal processing– Check quality of items purchased– Resolve problems– Internal administration

DIFFICULTY IN ALLOCATING COSTS

• The existing financial management and accounting systems in most firms is not geared to provide activity based costs.

• This can also create redundant work• Financial reporting requirements do not

match with the activity based costs accounting

IDENTIFY ACTIVITIES THAT DIFFERENTIATE THE FIRM

• Examining the value chain brings out several sources of differentiation advantage relative to competitors.

• The firm can concentrate on these sources of differentiation advantages to gain competitive advantages.

• Alternatively the firm can analyse the entire value chain.

EXAMINING THE VALUE CHAIN

• Identify activities that are critical to customer satisfaction and market success– Basic Mission– Nature of value chain and the relative importance

of activities within them vary by industry.– Relative importance of value activities vary by

company’s position in broader value system that include the value chain of its upstream suppliers and down stream customers and partners providing products and services to the end users

COMPETITIVE PROFILE MATRIX

IN RELATION TO MAJOR COMPETITORS

COMPETITIVE PROFILE MATRIXCritical Success Factor

Wt Rating Score

Advertising .20 1 .20

Quality .10 4 .40

Price .10 3 .30

Management .10 4 .40

Financial Position .15 4 .60

Cust Loyalty .10 4 .40

Market Share .05 4 .20

Tech Leadership .20 2 .40

Total 2.90

PORTER’S FIVE FORCE , MODEL

INDUSTRY COMPITITOR

NEW ENTRANTS

BUYERSSU BSTITUTES

SUPPLIERS

ECONIMIES OF SCALE PROPRIETARY PRODUCT DIFFERENCES

BRAND IDENTITYSWITCHING COST

CAPITAL REQUIREMENTSACCESS TO DISTRIBUTION

ABSOLUTE COST ADVANTAGESPROPRIETARY LOW- COST PRODUCT

DESIGNEXPECTED RETALIATION

INDUSTRY GROWTHFIXED COST / VALUE ADDED

INTERMITTENT OVERCAPACITYPRODUCT DIFFERENCES

BRAND IDENTITYSWITCHING COSTS

CONCETRATION AND BALANCEINFORMATIONAL COMPLEXITYDIVERSITY OF COMPETITORS

CORPORATE STAKESEXIT BARRIERS

DIFFERENTATION OF INPUTS SWITCHING COST OF SUPPLIERS AND FIRM S

IN THE INDUSTRYPRESENCE OF SUBSITITUTE INPUTS

SUPPLIER CONCENTRATIONIMPORTANCE OF VOLUME TO SUPPLIER

COST RELATIVE TO TOTAL PURCHASE IN THE INDUSTRY

IMPACT OF INPUTS ON COST OR DIFFERENTIATION

THREAT OF FORWARD INTEGRATION RELATIVE TO THREAT OF BACKWARD INTEGRATION BY

FIRMS IN THE INDUSTRY

RELATIVE PRICE PERFORMANCE OF

SUBSTITUTES SWITCHING COSTS BUYER PROPENSITY

TO SUBSTITUTE

Determinant Of Buyer Power•Concentration (Buyer / Firms)

• Volume• Switching Costs• Information

•Ability To Backward Integrate• Substitute Product• Pull Through

PORTER’S GENERIC STRATEGIES

Porter’s Five generic StrategiesCost Leadership Differentiation Focus

Market Size Large Type1. Cost leader ship low costType 2. Cost leader ship Best value

Type 3

Market Size Small Type 3 Type 4. Focus low costType 5. Focus best value

Cost Leadership Strategies

• Reason for integration strategies is to gain low cost or best value leadership. Must be done in conjunction with differentiation.

• Need to perform value chain activities more efficiently than the competitors. Operating close to full capacities, changing product design

• Revamp the overall value chain activities. Securing new suppliers, relocating manufacturing facilities

Cost Leadership Strategies

• In vigorous cost competition• Identical products supplies readily available• Few ways to obtain product differentiation• Same way for use of the product• Low cost of switching from one product to

another• Large number of buyers have power to down

prices.

Differentiation Strategies

• Successful differentiation – greater product flexibility, compatibility, lower cost, improved services, less maintenance, greater convenience, more features etc.

• The risk in adopting differentiation can be – customer do not perceive the differentiation as propagated and are not ready to pay higher prices. Then costs have to be lowered.

Differentiation Strategies

• When many ways available and customers value these factors

• When buyers needs and uses are diverse• Few rival firms following the method• Fast technological changes.

Focus Strategies

• Industry segment of sufficient size and has good growth potential

• Market penetration, market development offer good focus strategies

• When rival firms are not attempting the same• Should be tried in conjunction with

differentiation

Focus Strategies

• Niche target market and growing fast• Industry leaders not keen to follow the niche• Industry leaders find it difficult expensive to

customize/specialize.• Many niches and segments• When few competitors targeting the same

segment

Strategies for Turbulent and High Velocity Markets

• Some of the industries changing at an exceptionally fast pace. Tele communication, Internet based technologies, medical, biotechnology, pharmaceuticals, computer hardware software.

• The choices here are – react, anticipate or lead

Strategies for Turbulent and High Velocity Markets

• React to Change. Defensive• Anticipate change- Balanced.• Lead the Change. Aggressive

CONCEPTS OF FIT, STRETCH AND LEVERAGE

Fit – A function of Positioning• Positioning can be :– Variety based– Needs based– Access based

• Once a valuable positioning achieved the competitors will imitate. If the position is to be sustained –must look at– Inconsistencies– Inflexibilities– Limits of internal coordination

FIT

• A perfect fit in a competitive environment can only be sustained by constantly working on the value chain so that the most critical links are the strongest in the chain.

• A less efficient approach will leave a slack between the goals and achievement

Concept of Stretch

• The concept of stretch is based on aspiration - creating a chasm between ambition and resources. This is done by design.

• Every single step to the future is not predetermined

• Leadership can not be entirely planned for neither does it occur in the absence of a clearly articulated and widely shared aspiration

• The gap between resources and aspiration is filled by leveraging the resources

Strategy as Leverage

• This strategy is based on the concept of doing more with less.

• The American and European firms spend more on R&D as compared to the corresponding Japanese competitors. But the Japanese achieve more with less resources( GM Vs Honda, Phillips Vs Sony)

• This is the concept of leveraging the resources. • The stretch goals can be achieved by leveraging

the resources

GRAND STRATEGIES

• A master long term plan that provides basic direction for major actions directed towards achieving long term business objectives

• Also indicate a time period over which the long term objectives are to be achieved: A comprehensive general approach that guide a firm’s actions

THE GRAND STRATEGY: MATRIX FOR MAKING CHOICE

This matrix is based on two evaluative dimension. These include competitive position and market growth . With competitive position on the X Axis and marked growth on the Y axis four quadrants emerge.

Rapid Market Growth

Slow Market Growth

Weak Competitive Position Strong Competitive Position

Quadrant- II Quadrant-I

Quadrant-III Quadrant-IV

GRAND STRATEGY MATRIX

Quadrant 2Market DevelopmentMarket PenetrationProduct DevelopmentHorizontal integrations DivestitureLiquidation

Quadrant 1Market DevelopmentMarket PenetrationProduct DevelopmentAll integrationsRelated Diversification

Quadrant 3RetrenchmentRelated DiversificationUn related diversificationDivestitureLiquidation

Quadrant 4Related DiversificationUn related diversificationJoint venture

Slow Market Growth

Rapid Market Growth

Weak Competitive Position

Strong Competitive Position

QUARDRANT-1

• Rapid growth, strong competitive advantage.• When in possession of excessive resources

should go for backward, forward and horizontal integration.

• If too heavily committed to single product then diversification should be the strategy.

• Can take risks aggressively when it is necessary. Never shift focus from established competitive advantages.

QUARDRANT-2

• Rapid growth weak competitive advantage.• Must concentrate on finding reasons as to why

the firm lacks the competitive advantage.• Prefer horizontal integration. • As a last resort divestiture or liquidation

should be considered.• Funds so acquired can be used to acquire other

business or buy back stock

QUARDRANT-3

• Slow Market growth, weak competitive position.– Must make some drastic changes quickly to avoid

further decline and possible liquidation.– Pursue extentive cost and asset reduction.– Diversify– Liquidate, divestiture.

QUARDRANT-4

• Slow market growth, strong competitive advantage .–Since there is high cash flow level can

launch diversified products .–Can pursue joint venture .

GRAND STRATEGIES

• Concentrated growth • Market Development • Product Development• Turn around • Divestiture• Liquidation• Bankruptcy• Joint Venture

GRAND STRATEGIES

• Strategic Alliance • Consortia• Innovation• Horizontal Integration • Vertical Integration• Concentric Diversification• Conglomerate Diversification

Concentrated Growth

• Resistant to technology (Risk)• Resistance to Changes (Risk)• Distinctive• Inputs stable in price and quantity • Stable markets• Efficient production & distribution channels

Market Development

• Marketing present products often with only cosmetic modifications to customers in related market areas–Additional geographic markets–Attracting Other market segments

GRAND STRATEGIES (EXPLAINATIONS)

• Product Development Substantially modified product to the same market (Brand, enhance product life cycle)

• InnovationReap premium margin associated with creation of a customer acceptance service

• Horizontal Integration Growth through acquisition of similar firms

• Vertical Integration Acquire firms which supply inputs or new customers for output .

GRAND STRATEGIES (EXPLAINATIONS)

• Concentric diversification operation of second business that benefits from access to the first firm’s Core Competencies. (Marketing, technology).

• Conglomerate Diversification to exploit promising investment opportunity (focus on profit pattern)

• Divestiture Sale of a firm or a major unit of firm as a going concern.

The Quantitative Strategy Planning Matrix(QSPM)

This forms the stage 3 of the strategy formulation analytical frame work. It objectively indicates which alternative strategies are the best.The QSPM uses results from stage 1 and stage-2 of strategy formulation and matches these to obtain the information for the stage-3 i.e. the QSPM. This technique requires good intuitive judgments. The matrix is formed as under:-Key Factor Weight S 1. S 2. S 3.

The top rout consist of alternative strategies determined in stage 2 from SWOT, SPACE, BSC and IE matrices. The alternative should not be extremes.

CORPORATE LEVEL STRATEGIES

• Directional- Growth , stability and retrenchment

• Stability- pause/ proceed with caution, no change, profit.

• Retrenchment- Turnaround, captive company, sell out divestment, bankruptcy liquidation

DIRECTIONAL STRATEGIES- GROWTH

• Concentration• Vertical growth- forward, backward, transaction cost

economy, full integration, taper integration, quasi integration, long term contracts• Horizontal growth- horizontal integration,

international entry

• Diversification• Concentric(related), conglomerate ( unrelated)

diversification .

STABILITY STRATEGY

• Pause/ proceed with caution. Typically a temporary strategy adopted as time out till the environment become suitable or consolidate the gains

• No change. Decision to do nothing since no change in the situation ( opportunity, threat). Future expected to be an extension of the present.

• Profit. Artificially support profits when sales are declining.

RETRENCHMENT STRATEGIS

• Turnaround. Problems pervasive but not critical. Emphasis on improving operational performance

• Captive Company. Giving up independence and offer to be captive to the needs of one of the big customers.

• Sell out/ divestment. • Bankruptcy/ liquidation

STRATEGIES FOR COMPETING IN THE GLOBAL MARKETS

• Customize to suit local market or Standardized product

• Employ same competitive strategy in all countries or modify strategy country by country.

• Where to locate production, distribution and customer services.

• Transfer of resource strength and Capabilities from one country to another to ensure competitive advantage -------

APPRAISAL PROCESS

• Gather, assimilate and evaluate information on firm’s operations.

• Identify Critical Success Factors.• Prioritize Critical Success Factors• List 10 to 20 factors in order of priority.• Involve Maximum members- shared view.• Coordinate for inter department relationship.• Conduct financial ratio analysis

ORGANIZATIONAL APPRAISAL

• The strategic advantage in terms of organizational capabilities depends on a number of organization related factors.– Organizational resources.– Organizational Behavior– These create strengths and weaknesses– Synergy– Competencies– Strategic advantages

Competencies

Synergy

Strengths and weaknesses

BehaviorOrganizational

Resources

Strategic Advantages

Capabilities

FACTORS OF ORGANIZATIONAL STRATEGIC ADVANTAGE

• Resources• Behavior• Strengths and weaknesses• Synergy• Competencies• Capability• Strategic and Competitive advantage

STRENGTHS THAT SUPPORT FINANCIAL CAPABILITIES

• Ability to raise short-term capital.• Ability to raise long term capital; debt-equity• Corporate-level resources(multi business firm)• Cost of capital relative to that of Industry and

competitors• Tax considerations• Relations with owners, investors, and stockholders• Leverage position; capacity to utilize alternative,

financial strategies, such as lease or sale and leaseback

STRENGTHS THAT SUPPORT FINANCIAL CAPABILITIES

• Cost of entry and barriers to entry• Price-earnings ratio• Working capital; flexibility of capital structure• Effective cost control; ability to reduce cost

Financial size.• Effective and effectiveness of accounting

system for cost, budget, and profit planning.

STRENGTHS THAT SUPPORT MARKETING CAPABILITIES

• Firm’s products-services: breadth of product line.• Concentration of sales in a few products or to a few

customers.• Ability to gather needed information about markets .• Market share or submarket shares• Product-service mix and expansion potential : life cycle of

key products; profit-sales balance in production service.• Channels of distributions: number, coverage, and control• Effective sales organization: knowledge of customer needs

STRENGTHS THAT SUPPORT MARKETING CAPABILITIES

• Internet Usage• Product-service image, reputation and quality• Imaginativeness, efficiency, and effectiveness of

sales promotion and advertisements.• Pricing strategy and pricing flexibility• Procedures for digesting market feedback and

developing new products, services, or market• After-sale service and follow-up.• Goodwill- brand loyalty

STRENGTHS THAT SUPPORT OPERATIONS CAPABILITIES

• Raw materials ‘ cost and availability, supplier relationships.

• Inventory control systems; inventory turnover• Location of facilities, layout and utilization of

facilities• Economies of scale• Technical efficiency of facilities and utilization of

capacity • Effectiveness of subcontracting use.

STRENGTHS THAT SUPPORT OPERATIONS CAPABILITIES

• Degree of vertical integration; value added and profit margin

• Efficiency and cost-benefit of equipment• Effectiveness of operation control procedures:

design, scheduling, purchasing, quality control, and efficiency

• Costs and technological competencies relative to those of industry and competitors.

• Research and development-technology-innovation patents, trademarks and similar legal protection.

STRENGTHS THAT SUPPORT PERSONNEL CAPABILITIES

• Management personnel• Employees’ skill and morale• Labor relations costs compared with those of industry and

competitors• Efficiency and effectiveness of personnel policies.• Effectiveness of incentives used to motivates performance• Ability to level peaks and valleys of employment• Employees turnover and absenteeism• Specialized skills• Experience

STRENGTHS THAT SUPPORT INFORMATION MANAGEMNET

CAPABILITIES• Timeliness and accuracy of information about

sales, operations , cash, and suppliers• Relevance of information for tactical decisions• Information to manage quality issues:

customer service• Ability of people to use the information that is

provided.• Linkages to suppliers and customers

STRENGTHS THAT SUPPORT GENERAL MANAGEMENT CAPABILITIES

• Organizational structure• Firm’s image and prestige• Firm’s record in achieving objectives• Organization of communication systems• Overall organizational control system(effectiveness and

utilization)• Organizational climate; organizational culture• Use of systematic procedures and techniques in decision making• Top-management skill, capabilities, and interest Strategic

planning systems• Intra-organizational synergy(multi-business firms)

FINANCIAL RATIOS

The hard facts: In God we trust for rest we need data, facts

Liquidity Ratios

• Current Ratio – The extent to which a firm can meet its short-term obligations

• Quick Ratio- The extent to which a firm can meet its short-term obligations without relying upon the sale of its inventories

Leverage Ratios

• Debt-to-Total-Assets Ratio- The percentage of total funds that are provided by creditors

• Debt-to-Equity Ratio- The percentage of total funds provided by creditors versus by owners

• Long-termDebt-to-Equity Ratio- The balance between debt and

equity in a firms long term capital structure> Time-Interest-Earned Ratio- The extent to which

earnings can decline without the firm becoming unable to meet its annual interest costs.

Activity Ratios

• Inventory Turnover- Whether a firm holds excessive stocks of inventories and whether a firm is slowly selling its inventories compared to the industry average.

• Fixed Assets Turnover- Sales productivity and plant and equipment utilization

• Total Assets Turnover- Whether a firm is generating a sufficient volume of business for the size of its assets investment

• Accounts Receivable Turnover- The average length of time it takes a firm to collect credit sales (in percentage terms)

• Average Collection Period- The average length of time it takes a firm to collect on credit sales(in days)

Profitability Ratios

• Gross Profit Margin- The total margin available to cover operating expenses and yield a profit

• Operating Profit Margin- Profitability without concern for taxes and interest.

• Net Profit Margin- After-tax profits per unit of sales

Profitability Ratios

• Return on Total Assets-(ROA)- After-tax profit per dollar of assets; this ratio is also called return on investment(ROI)

• Return on Stockholders’ Equity(ROE)- After-tax profits per dollar of stockholders investment in the firm.

• Earnings per Share(EPS)- Earnings available to the owners of common stock

• Price- Earnings Ratio- Attractiveness of Firm on equity markets.

Growth Ratios

• Sales- Firms growth rate in sales• Net Income- Firms growth rate in profits• Earnings per share- Firms growth rate in

EPS• Dividends Per Share- Firms growth rate

in dividends per share

NON FINANCIAL QUANTITATIVE METHODS

Aspects such as employees turnover, absenteeism, market ranking, rate of advertising recall, total cycle time of production, inventory units used per period, service call rate, number of patents, registered per period are some of the examples. These non- financial aspects at times become much more important

GROWTH OF A FIRM• Survival, Growth and profitability are primary

concerns of a firm• Growth orientation needs to be over long term• The profits that are generated from operations

are ultimate source of funds for growth • Growth is multidimensional: profitability,

number of markets served, variety of products and technologies

NATURE OF GROWTH

• Growth can be through concentration ( vertical and horizontal integration) or through diversification ( concentric or conglomerate diversification)

• Related diversifications are considered to be better options than pure concentration strategies

NATURE OF GROWTH

• Relationship between Relatedness and performance. If a new business is very similar to that of the acquiring firm very little value is added to the corporation as compared to acquisition of new resources and capabilities in a different but similar business.

• Firms growing internally perform better than those which grow from external means ( acquisition, mergers, alliances

NATURE OF GROWTH

• A combination of internal and external growth can be adopted. While considering external growth through acquisitions a suitable candidate for take over:-– Must be relatively small– Must be comparable in organizational culture– Must be physically close to one of the affiliates

MERGER

• Merger is transaction involving two corporations in which stock is exchanged but only one corporation survives

• Occurs between firms of similar size and is friendly

• Resulting firm derives the name from its composite firms

ACQUISITION

• Purchase of a company that is completely absorbed as an operating subsidiary or division of the acquiring corporation.

• Generally between firms of different sizes can be friendly or hostile

• Hostile acquisitions are called takeovers

MERGERS AND ACQUSITIONS

• Difference in merger and acquisition relates more to details of ownership, management control, and financial arrangements than to strategy and competitive advantage

• The resources , competencies, and competitive capabilities of the newly created enterprise end up much the same whether the combination is result of acquisition or merger.

STRATEGIC OBJECTIVES OF MERGERS AND ACQUSITIONS

• Cost effective operations

• Expand geographic coverage

• Expand in to new product categories

• Access to technologies or other resources

STRATEGIC ALLIANCES

• It is a formal agreement between two or more separate companies – joint contribution of resources, shared risks, shared control and mutual dependence

• Generally involve joint marketing, sales, distribution, production , design collaboration, joint research or technology development

STRATEGIC ALLIANCES

• Relationship can be contractual or merely collaborative. Stops short of ownership and control. Factors for strategic alliance:-– Achievement of important objectives.– Build , sustain core competence.– Block a competitive threat– Open up new market opportunities– Mitigates significant risks

STRATEGIC ALLIANCES• Get in to critical country market• Gain inside knowledge about unfamiliar

markets and cultures through alliance with local partners

• Access valuable skills and competencies• Establish stronger beachhead• Master new technologies• Open up broader opportunities

CAPTURING THE BENEFITS OF STRATEGIC ALLIANCES

• Picking a good partner• Being sensitive to cultural differences• Alliance must benefit both sides• Live up to respective commitments• Structure the decision making so that action can

be taken swiftly• Managing the learning process and then

adjusting the alliance agreement over time to fit new circumstances

UNSTABLE AND DANGEROUS ALLIANCES

• Failure to respond to changing circumstances• Arms length collaboration does not help in

alliances• Mostly alliances are short lived• Alliance can reduce competitive disadvantage

but rarely give competitive edge.

RESTRUCTURING STRATEGY

• Involves divesting some businesses and acquiring others to change the company’s line up

• Redesigning an organizational structure with the intent of emphasizing and enabling activities most critical to a firm’s strategy to function at maximum effectiveness.


• Too many businesses in slow growth, declining, low margin or otherwise un attractive industries

• Too many competitively weak businesses • On going declines in market shares of one or

more major business units that are falling prey to competitors


• Excessive debt burden• Ill chosen acquisition that have not lived up

to expectations• Emergence of new technologies• Special circumstance when a very big

acquisition is to be affected• To find a strategic fit

RESTRUCTURING STRATEGY(ORGANIZATIONAL ASPECTS

• Redefine corporate HQ role from control to support and coordination

• Rigorous financial controls and reporting enable cost efficiency, resource deployment and autonomy across different units, flexible controls are conducive to responsiveness and innovations

• Concept of executive councils for all critical decisions

RESTRUCTURING STRATEGY(ORGANIZATIONAL ASPECTS)

• The executive councils replace routine staff functions

• From checkers, inquisitors and authority figure to facilitators helper and supporters

• Balance control and differentiation ( example of coke and GE)

• Emphasis on a particular part of value chain depends on the type of business and mission

BUSINESS PROCESS REENGINEERING

• Fundamental rethinking and radical redesigning of a business process so that company can create value for the customer by eliminating barriers that create distance between employees and customers

• Reduces fragmentations , and cuts down overheads

Types of Benchmarking

• Performance Benchmarking• Process Benchmarking• Strategic Benchmarking• Internal Benchmarking:-

Competitive BenchmarkingFunctional BenchmarkingGeneric Benchmarking

STRATEGY IMPLEMENTATION

FROM PLANNING THE WORK TO WORKING THE PLAN, STRATEGIC

THOUGHT TO ACTION

Execution of Strategy

• Identify short term objective• Initiate specific functional tactics• Outsource non essential functions• Communicate policies that empower people

in the organization• Design effective rewards

Short Term Objectives

• Operationalize long term objectives• Discussion on short term objective raise

issues which need coordination• These help in identifying measurable

outcomes of action plans or functional activities. These can be used as feedback to evaluate the strategy

Qualities of Short Term Objectives

• Measurable. What to be accomplished, how to be accomplished and when to be accomplished. Line activities are more easily measures than staff outcome.

• Priorities. Through discussion and negotiation, prudent to assign weightage

• Linked to long term objectives. Need to seen as cascading effect.

Functional Tactics

• Detailed statement of means or activities that will be used by the company to achieve short term objectives and establish competitive advantage

• These are under taken in functional areas – marketing, finance, production, R&D and HR

• Every value chain activity executes functional tactics

Out Sourcing

• Acquiring an activity or service or product necessary to provide a company’s product or services from outside the people or operations controlled by the acquiring company

• Initially out sourcing seen as cost cutting activity.

• Modern trend- outsourcing to gain and sustain competitive advantage

Out Sourcing- Pit Falls

• Loss of control and reliance on outsiders• Can create future competitors• Skills important to product or service is lost• Can cause negative impact on public and

investor• Crafting good legal documents especially for

services is difficult• Can get involved in long term contract that

may become costly

Out Sourcing- Pit Falls

• At times suppliers under bid. This effects the quality.

• This can lead to increasingly fragmented work culture where low paid workers get the work done with little initiative, enthusiasm.

Policies: to Empower People

• Empowerment. The act of allowing an individual or team the right and flexibility to make decisions and initiate action

• Policies. Broad precedent setting decisions that guide or substitute for repetitive or time sensitive managerial decision making

Creating Policies that Empower

• Indirect control over independent action• Uniform handling of similar activities• Quicker decision in standardized situation• Institutionalize basic aspects of

institutionalized behaviour• Reduce uncertainties in repetitive activities

Creating Policies that Empower

• Counteract resistance to or rejection of chosen strategies by organization members

• Offer predetermined answer to routine problems

• Afford managers a mechanism for avoiding hasty and ill conceived decisions in changing operations

Reward

• Stock Options• Restricted Stock Plans• Golden Handcuff• Golden Parachute• Cash Based on internal business performance

using financial measures

What Matters Most to Strategy Execution

• Information. Important information about competitive environment flows quickly to corporate Headquarters

• Decision Rights. Every one knows which decision and action an employee is responsible for

What Matters Most to Strategy Execution

• Motivators. Even in an over all weak performance of the company the good divisions get the bonus, besides pay other incentives, career advancement linked with performance

• Structure. Reporting channels, promotions can be lateral, fast track employees can expect promotions more frequently than every three years

17 Fundamental Traits of Organizational Effectiveness

Trait Index Building Block

Every one has good idea of her/his decisions and actions 81 Decision

Information of competitive environment gets to top quickly 68 Info

Decisions rarely second guessed 58 Decision

Fast flow of information horizontally 58 Info

Bottom line impact clearly understood by field employees 55 Info

Access to metrics for measuring performance – Line managers 48 Info

Managers up the line get involved in operational decisions 32 Decision

Conflicting messages are rarely sent to the market 32 Info

Individual performance appraisal: high, adequate, low performers 32 Mot

Ability to deliver performance commitments – career advancement

32 Mot

Culture persuade and cajole as against command and control 29 Decision

17 Fundamental Traits of Organizational Effectiveness

Corporate staff primarily supports the business rather than audit 29 Decision

Promotions can be lateral ( same level in the hierarchy) 29 Structure

Fast track employees can expect promotion more frequently 23 Structure

On average middle managements have five or more reports 19 Structure

If the firm has bad year the division performing well still gets the bonus 13 Mot

Many other things-besides pay, motivate individuals to do a good job 10 Mot

STRATEGY IMPLEMENTATION

. Formulation Vs Implementation

FORMULATION IMPLEMENTATION• Positioning of Forces > Managing of Forces• Effectiveness > Efficiency • Intellectual Process > Operational Process• Intuitive, Analytical Skills Motivational and Leadership Skills

Coordination among many Coordination among few • Same tools small and large org Diff tools small & large org

Management Perspective of Strategy Implementation

• Establishing Annual Objectives• Devising Policies• Allocating Resources• Organization Structure• Restructuring and re-engineering • Revising reward and incentive plans• Minimizing resistance to change• Match managers to strategy• Developing strategy supportive culture• Adopting production/Operation Processes• Developing an effective human resources function

Management Perspective of Strategy Implementation

• AS in the case of strategy formulation here also participative culture and shared view are important . Managers at the lower levels should be involved in the process of strategy implementation

• Annual ObjectivesAnnual objectives should be clearly stated and should be in tune

with the organization culture. These objectives differ as per the hierarchy of the organization. These act as Guidelines for actions, channelizing efforts standard of performance Source of Motivation and identification Provide basis for organization designs

POLICIES

• Refer to specific guidelines, methods, procedures, rules, forms and administrative practices established to support and encourage work towards stated goals.

• Set boundaries, constraints and limits on the kinds of administrative action which can be taken to reward and sanction behaviorWhat can and cannot be doneWho can doExpectation from the EmployeesDelegation of decision making.

RESOURCE ALLOCATION

• This is based on the priorities established in the annual objectives. The resources includesPhysicalHumanFinancialTechnological

MANAGING CONFLICT

• Avoidance: Ignore• Diffusion: Play down

differences high light positive • Confrontation: Exchange

members of conflicting partners

Matching Structure and Strategy

• Dictates how objectives and policies will be established

• Dictates resources allocation• Various types of structure are:

Divisional StructureSBUMatrix Structure

Restructuring, Re- Engineering and Engineering

• Restructuring Down Sizing Right Sizing Delayering

Primarily involves reducing the number of employees, number of division or units and number of hierarchical levels in an organizational.

Intended to improve efficiency and effectiveness. Done to cater for share holders interest .

Re-Engineering

• The process of re-engineering primarily focuses on break8ing the stero-types beurocartic culture which sets in almost all the companies over-time. The focus of employees become functions and departments rather than process, products and outputs. Corner stone of re-engineering and decentralization, delegation , reciprocal interdependence and information sharing.

• In fact the modern trend in re-engineering is not only to dismantle the internal walls and barriers but to dismantle the external walls and barriers. This opens the way for interaction with other firms.

Re-Engineering

• For employees and customer will being. Process related management, redesign or innovation .

• Characterized by many short term tactical business function specific decision.

• Six sigma is one of the re-engineering techniques.

Linking Performance and Pay to Strategies

• Need to be based on long term and short term objectives. 75% on short term annual objectives and 25% on long term plan. To be Constructive Bonus, profit sharing end pay hikes.The appraisal system should give genuine

feedback and should differentiate performances.

MANAGING RESISTANCE TO CHANGE

• Natural thoughts on change are based on:– Insecurity – Financial Loss– Uncertainty

The three ways to implement changes:Forced changeEducative changesRational or self interest change

MANAGING NATURAL ENVIRONMENT

• This involves treating the earth and environment as stake holder. Companies need to formulate green business strategy. Primarily involves energy conservation, prevention/minimization of pollution as also preventing other damages to the environment.

STRATEGY SUPPORTIVE CULTURE

• Elements to link culture with strategy:- Formal statement: Philosophy, charter, creeds, recruitment

and selection and socialization. Designing of physical places, facades and buildings. Role modeling , teaching, and Coaching by leaders. Rewards and promotions. Legends, myths, parable about key people and events Leaders’ focus, measures and controls Leaders’ reaction to crisis. Systems and procedures Organizational design and structure.

PRODUCTION CONCERNS

• Strategy implementation aspects depend to a large extent on the production related issues.– Plant size, location, product design, choice of equipment,

kind of tooling, size of inventory, inventory and quality control use of standards , job specifications, employees training, equipment and resources utilization , technology innovation, supply-chain.

– JIT Concepts– For high technology firms flexibility is more important

because major product designs changes may be needed.

HRM ISSUES• The issues that arise from implementation of strategies pertaining

to HRM are:- Disruption of social and political structure Failure to match individual aptitude with implementation of tasks.

Inadequate top management support for implementations activities. The best way to overcome these problems is to generate a shared view

of the strategy to be implemented. As many managers as possible strategy is to be implemented.

ESOPS Balancing Work life and Home Life. A Diverse Workforce: There is growing trends for diverse

workforce. Some of the benefits of having diverse workforce are:• Improve corporate Culture

HRM ISSUES

• Employee Morale• Higher Retention• Easier Recruitments• Increases creativity • Decision inter personal conflicts • Improve Client relations• Increases productivity• improves the bottom line.• Maximizes brand identity• Reduces Training Cost.

Marketing Issues

Marketing decisions that may require policies for implementation are:-– Distribution Channels , multiple or exclusive

dealership– TV advertisement, heavy , light or nil.– Share of business with single customer?– To be a price leader or price follower– Complete or limited warranty– Mode of reward to sales persons

VARIABLE FOR STRATEGY IMPLEMENTATION

• Market segmentation. Subdividing the market in to distinct subsets of customers of customers according to needs and buying habits.

• Product Positioning. This involves identifying schematic representation of how the product fares in relation to that of the competitor’s

SEGMENTATION

• Geographic. Region, province size, city size, density, climate

• Demographic. Age, gender, family size, income, occupation, education, religion, nationality.

• Psychographic. Social class, personality.• Behavioral. Use occasion, benefits sought,

user status, usage rate, loyalty status, readiness state, attitude towards product

PRODUCT POSITIONING

• Select key criterion that effectively differentiate product or services in the industry.

• Plot a two dimensional product positioning map.• Plot products of major competitors on the map.• Identify areas where the company products or

services can be most competitive• Develop a marketing plan accordingly

PRODUCT POSITIONING

• Look for vacant niche• Do not position between segments• Do not serve two segments with

same strategy• Do not position in the middle of the

map

FINANCE AND ACCOUNTING ISSUES

• Raising capital through – Short term or long term debt– Preferred or common stock

• Lease or buy fixed assets• Determine appropriate dividend pay out ratio• Extension in time of account receivable• Percentage discount on accounts with

specified period of time

FINANCE AND ACCOUNTING ISSUES

The decision to acquire capital through debt or equity as also the mix of debt and equity depends on analysis Earning per share and earning before interest and tax.

The strategic decision to adopt common stock , debt or mixed option depends generally on highest EPS value under each event – recession, normal or boom condition.

PROJECTED FINANCIAL STATEMENT

• Forecast sale. Need to be accurate and realistic

• Identify cost of goods sold. Generally calculated as percentage of sales.

• Net Income. Deducting selling expenses, administrative expenses from the margin.

• Retained Earning. By subtracting dividends from the net income

RESEARCH AND DEVELOPMENT ISSUES

• Emphasis on product or process improvement

• Stress on basic or applied research• Be leaders or followers of niche technology• Develop automated or manual processes• Spend high , average or low amount on R &D.• In house or out sourced R&D.

R&D MARKET CONDITIONS AND EXTERNAL ENVIRONMENT

• In house R&D– Slow technical progress– Moderate market growth– Significant barrier to new products

• No major effort in R&D– Rapid technology change– Slow market growth

• Out source R&D – Slow technology change– Rapid market growth

R&D MARKET CONDITIONS AND EXTERNAL ENVIRONMENT

• Acquisition and merger– Rapid technology growth– Rapid market growth

• The three main approaches to R&D are– Be market leader– Imitate– Mass production at low cost

MIS

• Gather Information. Sources and their tasking

• Assimilate. Screen the relevant• Evaluate. Information in to intelligence.

Help in decision making• Decide. Choosing the course of action,

strategy

MIS

• The benefits of MIS are– Flexi timings–Possibility of working from home.

• While exploiting IT care must be taken to safeguard IT network from hackers, leakage and theft

IDENTIFY THE COMMON FACTOR

- MAHARANA PRATAP- PORUS- MAHARANI LAXMI BAI- RANI DURGAVATI- SUBHASH CHANDRA BOSE- SIRAJUDAULA

LEADERSHIP MANIFESTATION

TOTELL

TO SEE

TO DO

TO BE

The Level 5 Leadership

• The level 5 leadership is at the apex of hierarchy of capabilities- is a necessary requirement for transforming an organization from good to great.

• There are four levels below the level 5- each one appropriate in its own right

• The progress from level 1 to 5 need not be sequential


• Level 1. Highly capable individual. Makes productive contributions through talent, knowledge, skills and good work habits

• Level 2. Contributing team member. Contribute to achievement of group objectives, works effectively with others in a group setting


• Level 3. Competent Manager. Organizes people and resources towards effective and efficient pursuit of predetermined objectives

• Level 4. Effective Leader Catalyzes commitment to vigorous pursuit of a clear and compelling vision. Stimulates the group to high performance standards


• Level 5. Executive. Builds enduring greatness through a paradoxical combination of personal humility and professional will. They take their companies to greatness and keep them there

Leadership and Strategy Implementation

• Is primarily for coping with change. In modern environment changes of all kinds occur very rapidly. Hence the importance of leaders.

• Organizational leadership- is the process by key executives of guiding people in the organization towards achieving the vision

• Leadership principle is based on the moral compass- honesty, integrity, ethical behavior.

Leadership

• Leaders must build organization– Ensuring common understanding about organizational

understanding– Clarifying responsibilities among managers and

organizational units– Empowering newer managers and pushing authority

lower down the chain– Facilitate coordination and communication– Gaining personal commitment– Remain closely connected to the internal and external

environment

Leadership: Emotional Intelligence

• Self awareness• Self management• Social awareness• Social skills

Leadership: Sources of Power

• Position. Decision making, due to structure• Reward. In return of desired outcome.• Information. Access and control• Punitive power. Coercion and fear of

punishment• Expert influence. Knowledge and expertise• Referent influence. Desire to be identified• Peer influence. Assignments to teams and

groups

Managing Strategy Culture Relationship

Link changes to basic mission and fundamental organizational norms.

1

Reformulate Strategy or prepare carefully for long term cultural change

4

Synergistic focus on re -enforcing culture

2Manage around the culture

3

Change

Few

Many

CompatibilityHigh Low

STRATEGY EVALUATION

• Examine underlying bases of a firm’s strategy

• Compare expected results with actual results

• Taking corrective action to ensure that performance conforms to plan

WHY STRATEGY EVALUATION IS DIFFICULT

• Increase in environment’s complexity• Difficulty in predicting the future• Increasing number of variable• Rapid rate of obsolescence• Domestic and world events affecting the

organization• Decreasing time span for which planning can

be done with any accuracy

EVALUATION OF STRATEGYRUMELT’S CRITERIA

• Consistency. With goals and policies• Consonance. Adaptive response to

external environment• Feasibility. Not to overtax available

resources , not create unsolvable sub-problems

• Advantage. Create and sustain competitive advantage

CONSISTENCY

• Problems continue despite changes in personnel, these are issue based rather than people based

• Success of one department is taken as failiure of another department

• If problem and issues continue to be brought to the top for resolution

Consonance

• Needs for examining sets of trends as well as individual trends

• Strategy needs to represent an adaptive response to external environment and critical changes occurring within

• There are a series of interdependent factors that bring about waves of change

Feasibility

• Neither overtax available resources nor leave unsolvable sub problems

• Most easily the financial resources can be checked.

• Need for innovative uses of resources ( leveraging) must need to be remembered

Advantage

• Competitive advantage based on– Resources– Skills – Position

• Once gained the position is defensible• For sustaining positional advantages internal

factors need to remain the same• Position also related to size

STRATEGY EVALUATION ASSESSMENT MATRIXMaj changes internal strategic position

Maj changes external strategic position

Achievement of Strategic Objective

Corrective Action?

No No No Yes

Yes Yes Yes Yes

Yes Yes No Yes

Yes No Yes Yes

Yes No No Yes

No Yes Yes Yes

No Yes No Yes

No No Yes No

STRATEGY EVALUATION FRAMEWORK

IFE COMPARISON EFE COMPARISON

Significant changes

Measure Organizational Performance

Take corrective

action

Continue present course

Yes

Differnces

No differences

No

SOME KEY FINANCIAL RATIOS FOR STRATEGY EVALUATION

• ROI• ROE• Profit Margin• Market Share• Debt to Equity• EPS• Sales Growth• Assets Growth

CORRECTIVE ACTIONS

• Structure• Individual• Business Division• Vision/mission• Objectives• Strategies• Policies• Performance Incentives

CORRECTIVE ACTIONS(CONTD)

• Raise capital with stock or debt• Add or terminate sales persons,

managers , employees• Allocate resources differently• Out source or rein in business

functions

The Balanced Score Card

• Company’s strategy analyzed based on four measures – Financial Performance– Customer’s knowledge– Internal Business processes– Learning and growth.

• Each measure studied in terms of objectives, measures, targets and initiatives

The Balanced Score Card

Vision and StrategyCustomer To achieve our

vision how should we appear to our customers

Internal Business Processes To satisfy our

shareholders and customers at which

business processes we must excel?

Financial. To succeed financially how should we appear to our

shareholders

Learning and Growth. To achieve our vision how will we sustain

our ability to change and improve

SPACE MATRIX

• This is second stage matching tool.• Financial strength and Competitive

advantage are the internal parameters.• Environmental Stability and industrial

strength are the external factors• The factors used in IFE and EFE should be

used for the SPACE matrix• Should be tailor made to the organization.

SPACE MATRIXConservative Market Penetration, developmentProduct developmentRelated

DefensiveRetrenchmentDivestitureLiquidation

CompetitiveBackward, forward, horizontal integrationMarket Penetration, developmentProduct development

Aggressive Backward, forward, horizontal integrationMarket Penetration, developmentProduct developmentDiversification(related , unrelated

Environment Stability

Financial Strength

CAIS

BCG MATRIX

• Firms with number of divisions competing in different industries need separate strategy for business.

• This multi division firm need to formulate strategies for each division based on– Relative market share– Industry growth rate in terms of sales

BCG MATRIX

DogsRetrenchment Divestiture, Liquidation

Question MarksMarket PenetrationMarket, product developmentDivestiture

Stars.B,F,H IntegrationMarket PenetrationMarket, product developmentDivestiture

Cash CowsProduct DevelopmentDiversificationRetrenchmentDivestiture

Relative Market Share

Industry Sales Growth Rate

BCG MATRIX• Question marks. Low market share, competing

in high growth industries. Pump heavy investment or sell off

• Stars. High relative market share and high industry growth. Increase investment.

• Cash Cows. High relative market share, low industry growth. Maintain position, re investment cash else where

• Dogs. Low relative market share and low industry growth. Sell off.

Internal External Matrix

• X Axis is the Internal Factor Evaluation Weighted factors

• Y Axis is the External Factor Evaluation Weighted factors– 1 TO 1.99. Weak– 2 to 2.99. Average– 3 to 4. Strong

• This brings out nine cells in the matrix

IE MATRIX

1 2 3

4 5 6

78 9

IFE Weighted Score 11.99

34

1

1.99

3

EFE

IE MATRIX

• Cell number 1, 2, 4. Grow and build• Backward, forward or horizontal

integration( Integrative strategies) • Market penetration, development

and product development(intensive strategies)

IE MATRIX

• Cell No-3,5 and 7. These cells are managed by holds and maintain strategies. This market penetration and product development are the preferred action.

• CELL No- 6,8 and 9.Harvest or Divest ,Retrenchment and

divestiture

WHY ENTER THE FOREIGN MARKET

• Expand in Foreign Market• Access to new customers• Achieve lower cost• Capitalize on core competency • Spread business risk.

Strategy options for Entering and competing Foreign Markets

• Maintain national production base and export goods to foreign market using either company owned or foreign controlled distribution channel.

• License foreign firms to use company’s technologies or to produce and distribute the company’s product.

• Employ a franchising strategy.• Follow multi country strategy varying company’s approach country to

country in accordance with local conditions and differing buyer tastes and preferences.

• Follow the global strategy using essentially the same competitive strategy approach in all country markets where the company has a presence.

• Use strategic alliance or joint-ventures with foreign companies as the primary vehicle for entering foreign markets.

CASE STUDIES

• Focus on key strategic issues• Do not overlook exhibits• Draw on all knowledge of the business• Examine the company website• Analyze the case avoid repeating the words and

phrases given in the case• Use headings• Be specific in your assumptions and

recommendations

CASE STUDIES

• Use your own words• Rehearse your presentations• Use visual aids• Be prepared to handle questions• While working as a team– Equitable division of work– Plan and structure team meetings– Communicate with other members

strat management

Documents