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					           Strategic Management
      Course Facilitator: Bijoy S Guha




Dec 2010             Strategic Management: B S Guha   1
                   Basic Concepts:
      Strategic Management & Business
                   Policy

                         Syllabus Topic:
           1) Introduction to Strategic Management



Dec 2010               Strategic Management: B S Guha   2
    Defined:
     Set of managerial decisions and
     actions that determines the
     long-run performance of a firm.
                                        The primary role of
                                    corporate management is
                                   finding the future ... Al Reis

Dec 2010      Strategic Management: B S Guha                        3
                                                                        3
Defined:
 General management orientation
 that looks inward for properly
 integrating the firm’s functional
 activities.


            Strategic Management: B S Guha   4

Dec 2010
          Basic financial planning: ‘serious’ planning for
           next year’s budget – limited horizon;
          Forecast-based planning: many programs run
           beyond a year; managers look at longer time
           horizons, typically 5 years, but much ad-hocism in
           forecasts;
          Externally-oriented planning (strategic): accent
           on reliable forecasts and centralized formulation of
           strategic actions;
          Strategic management: inclusion of
           implementation and control in strategic actions;
           involvement of all levels for realism and buy-in.
                          Strategic Management: B S Guha          5
Dec 2010
    Highly Rated Benefits:
               Clearer sense of strategic vision for the firm
               Sharper focus on what is strategically important
               Improved understanding of a rapidly changing
               environment
   Not always a formal process:
          Where is the organization now? (Not where do we
           hope it is!)
          If no changes are made, where will the organization
           be in 1 year, 2 years, 5 years, 10 years?
          What specific actions should management
           undertake? What are the risks and payoffs
           involved?

Dec 2010                   Strategic Management: B S Guha        6
                                      Strategic grid
            H
                                                                 High Logic ,
                        High Intuitive
                                                                 High Intuition
                       based strategy
                                                                 strategy
           Intuition




                                          Compromise
                                            strategy


                          Negligible                            High Logic based
                           strategy                                 strategy




Dec 2010
                                              Logic
                               Strategic Management: B S Guha
                                                                                  H   7
    Globalization
              Internationalization of markets and
               corporations
                Global (worldwide) markets rather than national markets


    Electronic Commerce
              Use of the Internet to conduct business
               transactions
                Basis for competition on a more strategic level rather than
                 traditional focus on product features and costs


Dec 2010                       Strategic Management: B S Guha                  8
  7 Trends:
            Internet forcing companies to transform
             themselves
            Market access and branding are changing,
             causing disintermediation of traditional
             distribution channels
            Balance of power shifting to the
             increasingly savvy consumer
            Competition is changing (convergence!)
            Pace of business increasing drastically
            Internet purchasing corporations out of
             their traditional boundaries
            Knowledge becoming a key asset and
             source of competitive advantage
                       Strategic Management: B S Guha   9
Dec 2010
Strategic flexibility:

       Demands a long-term commitment to the development
        and nurturing of critical resources

       Demands that the firm become a learning organization



 Dec 2010              Strategic Management: B S Guha   10
   Defined:
     An organization skilled at creating,
     acquiring, and transferring knowledge
     and at modifying its behavior to reflect
     new knowledge and insights.
  Four Main Activities:
          Solving problems systematically
          Experimenting with new approaches
          Learning from their won experiences and that of
           others
          Transferring knowledge quickly and efficiently
           throughout the organization
Dec 2010                Strategic Management: B S Guha   11
           Four Basic Elements




Dec 2010     Strategic Management: B S Guha   12
    Defined:
      The monitoring, evaluating, and
      disseminating of information from the
      external and internal environments to
      key people within the firm.




Dec 2010          Strategic Management: B S Guha   13
Dec 2010   Strategic Management: B S Guha   14
                      Identify strategic factors
              SWOT Analysis
                  Strengths, Weaknesses
                  Opportunities, Threats
              Internal Environment
                Strengths & Weaknesses
                  Within the organization but not subject to short-run
                   control of management
              External Environment
                Opportunities & Threats
                  External to the organization but not subject to
                   short-run control of management


Dec 2010                     Strategic Management: B S Guha          15
    Defined:
      Development of long-range plans for the
      effective management of environmental
      opportunities and threats in light of
      corporate strengths and weaknesses.



Dec 2010          Strategic Management: B S Guha   16
                      Mission Statement
            Purpose or reason for the organization’s
             existence
            Promotes shared expectations among
             employees
            Communicates public image important to
             stakeholders
            Who we are, what we do, what we’d like to
             become



                        Strategic Management: B S Guha   17
Dec 2010
                                              A goal is an open-ended
                               Objectives     statement of what one
                                              wants
            The end results of planned activity to accomplish
                                              with no quantification of
              What is to be accomplished     what is to be achieved
              Time in which to accomplish it and no time criteria for
                                              completion.
                Quantified when possible

   Corporate goals and objectives include:
              Profitability (net profits)
              Growth (increase in total assets, etc.)
              Utilization of resources (ROE or ROI)
              Market leadership (market share)

Dec 2010                     Strategic Management: B S Guha         18
 Defined:
   A strategy of a corporation forms a
   comprehensive master plan stating how
   the corporation will achieve its mission
   and objectives. It maximizes competitive
   advantage and minimizes competitive
   disadvantage.



               Strategic Management: B S Guha   19
Dec 2010
    Defined:
           Broad guidelines for decision
           making that link the formulation of
           strategy with its implementation.


                    Strategic Management: B S Guha   20
Dec 2010
                                                      Programs
       Strategy
    Implementation                                    Budgets
                                                      Procedures




                     Strategic Management: B S Guha                21
Dec 2010
Strategic Management Model




Dec 2010   Strategic Management: B S Guha   22
             •New CEO

             •External intervention                Stimulus
                                                  for change
Triggering   •Threat of change in
             ownership                                 in
   event                                           strategy
             •Performance gap

             •Strategic inflection point



                 Strategic Management: B S Guha          23
 Dec 2010
                            Inflection Point
           • The four phases of Business:
              – Starts with the introduction of a product/service,
              – Obtains a market position through R&D/ Range extensions/
                Improvements,
              – Establishes dominance through Customer Satisfaction/
                Technology/ positioning strategies,
              – Shrinks with influx of innovations/changing Customer needs/
                environmental conditions.
                                                                        Point of
    Dynamics of                                                        Inflection
     Strategy
                                                                                    + Clothing
                                                            Steel
                                        Automotive
                                  Telecom.
                                                                            Textile

                      Bio-Tech.


Dec 2010
                Introduction          Growth                Maturity
                               Strategic Management: B S Guha
                                                                              Decline 24
                     3 Types of Strategy

              Corporate strategy

              Business strategy

              Functional strategy

                        Strategic Management: B S Guha   25
Dec 2010
           Corporate Strategy
                  Business
               (Division Level)
                   Strategy


               Functional
                Strategy



Dec 2010      Strategic Management: B S Guha   26
   Strategic Decisions
            Rare: seldom have precedents
            Consequential: commit great deal of
             resources and demand high degree of
             commitment from people
            Directive: set the tone for further
             decisions and actions

Dec 2010            Strategic Management: B S Guha   27
                    Mintzberg’s Modes
     Entrepreneurial mode: made by a powerful individual,
      with opportunities as the primary focus and problems
      secondary. Characterized by founder’s vision and bold,
      large decisions for growth.
     Adaptive mode: characterized by reactive, fragmented
      solutions to existing problems more than proactive
      search for opportunities.
     Planning mode: characterized by data-collection,
      analysis and logical selection. It is both proactive &
      reactive.
     Logical incrementalism: combines all the above and is
      both ‘intraprenureal’ and top-led, allowing for both vision
      and experimentation to thrive.
Dec 2010             Strategic Management: B S Guha       28
Dec 2010   Strategic Management: B S Guha   29
           Strategic Decision Making




Dec 2010         Strategic Management: B S Guha   30
       ENVIRONMENTAL SCANNING &
             BUSINESS STRATEGY

                             Syllabus Topics:
                  (6) Process of Strategy Formulation
                       (2) Competitive Strategy ,
               (5a) Recent advances: core competencies
           (7a)Analytical framework for strategy formulation:
                           Input stage matrices

Dec 2010                  Strategic Management: B S Guha    34
    Environmental uncertainty:

           The degree of complexity plus
           the degree of change existing in
           an organization’s external
           environment.

Dec 2010            Strategic Management: B S Guha   35
    Environmental scanning:

           The monitoring, evaluating, and
           disseminating of information from
           the external and internal
           environments to key people within
           the corporation to avoid strategic
           surprise and ensure the long-term
           health of the firm.

Dec 2010             Strategic Management: B S Guha   36
        External Environmental Variables:
     Societal environment:
        General forces that do not directly
     touch on the short-run activities but
     often influence its long-run decisions.
      Task environment:
        Those elements or groups that
      directly affect the corporation and, in
      turn, are affected by it. The task
      environment is the industry within
      which that firm operates.
Dec 2010          Strategic Management: B S Guha   37
           Strategic Management: B S Guha   38
Dec 2010
           Issues Priority Matrix
                                                 Probable Impact on Corporation


                                              High            Medium         Low



                                            High                High       Medium
                                           Priority            Priority    Priority
            Probability of Occurrence




                                                              Medium
                                             High                            Low
                                                              Priority      Priority
                                           Priority




                                           Medium               Low          Low
                                           Priority            Priority     Priority



Dec 2010                                Strategic Management: B S Guha                 39
External Strategic Factors
Defined:
   Key environmental trends that are judged to
   have both a medium to high probability of
   occurrence and a medium to high
   probability of impact on the corporation.



Dec 2010        Strategic Management: B S Guha   42
                                 Societal Environment
                                  Important Variables
Economic                  Technological                Political-Legal           Socio-cultural
GDP trends                Total government             Antitrust regulations     Lifestyle changes
                           spending for R&D
Interest rates                                         Environmental             Career expectations
                          Total industry spending       protection laws
Money supply                                                                     Consumer activism
                           for R&D
                                                       Tax laws
Inflation rates                                                                  Rate of family
                          Focus of technological
                                                       Special incentives         formation
Unemployment levels        efforts
                                                       Foreign trade             Growth rate of
Wage/price controls       Patent protection
                                                        regulations               population
Devaluation/revaluation   New products
                                                       Attitudes toward          Age distribution of
Energy availability and   New developments in           foreign companies         population
 cost                      technology transfer
                                                       Laws on hiring and        Regional shifts in
                           from lab to
Disposable and                                          promotion                 population
                           marketplace
 discretionary income
                                                       Stability of government   Life expectancies
                          Productivity
                           improvements                                          Birth rates
                           through automation
  Dec 2010                           Strategic Management: B S Guha                               43
                       Societal Environment
           Strategists must monitor the major forces and
             their interactive effects, for their opportunity
             and threat potential:
           Example of interactive effects:
               explosive population growth (demo-graphic) leads
                to
               more resource depletion and pollution (natural)
                which, in-turn,
                 leads consumers to call for more preventive laws
                  (political-legal).
                 This could stimulate new solutions and products
                  (technological),
                 which – if they are affordable (economic)
                 may actually change attitudes and behaviours
                  (socio-cultural).
Dec 2010                   Strategic Management: B S Guha       44
            External Strategic Factors

Factors influencing the choice:
          Personal values of managers
          Functional experience of managers
          Success of current strategies
          Strategic myopia
            Willingness to reject unfamiliar as well as negative
             information



Dec 2010                   Strategic Management: B S Guha           45
           Industry analysis:
             An in-depth examination of key
           factors within a corporation’s task
           environment.


Dec 2010             Strategic Management: B S Guha   46
           Industry
               A group of firms producing a similar
               product or service, such as soft
               drinks, Automobiles or financial
               services.
            The principal determinant of the Task
             Environment is the “Industry Analysis”:
             – What is the structure of the industry in which the
               business unit operates?
             – How should the business unit exploit the industry
               structure?
             – What will be the basis of the business unit’s
               competitive advantage?
Dec 2010                 Strategic Management: B S Guha         47
           Porter’s approach:

              Assess the six forces --
                •   Threat of new entrants
                •   Rivalry among existing firms
                •   Threat of substitute products
                •   Bargaining power of buyers
                •   Bargaining power of suppliers
                •   Relative power of other stakeholders


Dec 2010                Strategic Management: B S Guha     48
Dec 2010   Strategic Management: B S Guha   49
Threat of New Entrants --

       Barriers to entry:
              Economies of Scale
              Product Differentiation
              Capital Requirements
              Switching Costs
              Access to Distribution Channels
              Cost Disadvantages Independent of Size
              Government Policy


Dec 2010                    Strategic Management: B S Guha   50
Rivalry Among Existing Firms --

       Intense rivalry related to:
              Number of competitors
              Rate of Industry Growth
              Produce or Service Characteristics
              Amount of Fixed Costs
              Capacity
              Height of Exit Barriers
              Diversity of Rivals


Dec 2010                     Strategic Management: B S Guha   51
       Threat of Substitute Products/Services

       Substitute Products:
        Those products that appear to be different but
        can satisfy the same need as another product.
        To the extent that switching costs are low,
        substitutes can have a strong effect on an
        industry. E.g. Entertainment Industry: T20 vs.
        Movies


Dec 2010              Strategic Management: B S Guha     52
Bargaining Power of Buyers --

       Buyer is powerful when:
            Buyer purchases large proportion of seller’s products
            Buyer has the potential to integrate backward
            Alternative suppliers are plentiful
            Changing suppliers costs very little
            Purchased product represents a high percentage of a
             buyer’s costs
            Buyer earns low profits
            Purchased product is unimportant to the final quality or
             price of a buyer’s products


Dec 2010                   Strategic Management: B S Guha         53
Bargaining Power of Suppliers --

           Supplier is powerful when:
              Supplier industry is dominated by a few companies but
                 sells to many
                Its product is unique and/or has high switching costs
                Substitutes are not readily available
                Suppliers are able to integrate forward and compete
                 directly with present customers
                Purchasing industry buys only a small portion of the
                 supplier’s goods.



Dec 2010                     Strategic Management: B S Guha         54
                     Industry Evolution

           Fragmented Industry –
            No firm has large market share and each firm
            serves only a small piece of the total market in
            competition with others.

           Consolidated Industry –
            Dominated by a few large firms, each of which
            struggles to differentiate its products from the
            competition.
                Multi-domestic/International  Global

Dec 2010                 Strategic Management: B S Guha        55
           Continuum of International Industries
  Multi-domestic                                                           Global

  Industry in which companies                          Industry in which
  tailor their products to the                         companies
  specific needs of consumers in                       manufacture and sell the
  a particular country.                                same products, with only
  • Retailing                                          minor adjustments made
                                                       for individual countries
  • Insurance
                                                       around the world.
  • Banking
                                                       • Automobiles
                                                       • Tires
                                                       • Television sets

  Industry primarily multi-domestic or primarily global based on:
           – Pressure for coordination
                – Within the multinationals in that industry
           – Pressure for local responsiveness
                – Individual country markets
Dec 2010                   Strategic Management: B S Guha                         56
                     Strategic Groups
           Defined:
            A set of business units or firms that
            pursue similar strategies with similar
            resources.


                      Strategic Types
           Defined:
            Category of firms based on a common
            strategic orientation and a combination of
            structure, culture, and processes
            consistent with that strategy.
Dec 2010            Strategic Management: B S Guha   57
                         Strategic groups
    Can be mapped by selecting broad characteristics that
    differentiate companies in an industry and plotting them
    on two lowly correlated dimensions to understand strategic
    (competitive) issues and ‘business models’.
                                     Restaurants
              High                                                          Another
                                      in 5-star
                                       Hotels                            dimension e.g.
                                                                         Service quality
                                        Speciality
                                        Restaurant      Multi-
                                                                        can be added to
           Price           KFC
                                                       cusine          convert this into a
                         McDonalds
                            etc.                      Restaurant            3-D plot.

                        Tapris,
                         Etc.
              Low
                     Small                                     Large
                             Product-line breadth
Dec 2010                      Strategic Management: B S Guha                            58
                          Strategic Types
            Defenders:
           Companies with a limited product line; focus on
                 improving efficiency of current operations
           Prospectors:
            Companies with fairly broad product lines;
            focus on product innovation and market
            opportunities.
            Analyzers:
            Corporations that operate in at least two
            different product-market areas – one stable/
            other variable.
            Reactors:
            Corporations that lack a consistent strategy-
            structure-culture relationship.
Dec 2010                 Strategic Management: B S Guha       59
Industry Matrix: Understanding Key Success Factors

 Key Success                               Company A         Company A              Company B         Company B
 Factors                    Weight         Rating            Weighted Score         Rating            Weighted Score

                    1                2                  3                      4                5                       6




                                                   Competitive Intelligence!




Total                        1.00


Source: T. L. Wheelen and J. D. Hunger, “Industry Matrix.” Copyright © 2001 by Wheelen and Hunger Associates. Reprinted by
    Dec 2010                                   Strategic Management: B S Guha                                       61
permission.
           Forecasting Techniques:

              Extrapolation
              Brainstorming
              Expert opinion
              Statistical modeling
              Scenario writing



Dec 2010             Strategic Management: B S Guha   62
                           External Factor Analysis Summary (EFAS)

External                                                                                      Weighted
Factors                                             Weight              Rating                Score                        Comments
                                           1                    2                       3                            4                               5
Opportunities


                                                   Ranked
                   8 to 10,
Threats
                  prioritized                                         Max: 5 on how well the company
                                                                       is currently dealing with factor

Total Weighted Score                                  1.00

 Notes: 1. List opportunities and threats (5–10) in column 1. 2. Weight each factor from 1.0 (Most Important) to 0.0 (Not Important) in Column 2 based
 on that factor’s probable impact on the company’s strategic position. The total weights must sum to 1.00. 3. Rate each factor from 5 (Outstanding) to 1
 (Poor) in Column 3 based on the company’s response to that factor. 4. Multiply each factor’s weight times its rating to obtain each factor’s weighted
 score in Column 4. 5. Use Column 5 (comments) for rationale used for each factor. 6. Add the weighted scores to obtain the total weighted score for
 the company in Column 4. This tells how well the company is responding to the strategic factors in its external environment.
 Source: T. L. Wheelen and J. D. Hunger, “External Strategic Factors Analysis Summary (EFAS).” Copyright © 1991 by Wheelen and Hunger Associates.
 Reprinted by permission.
     Dec 2010                                            Strategic Management: B S Guha                                                            63
                                                                       Weighted
External Factors                          Weight       Rating          Score           Comments
Opportunities                         1            2              3                4                          5
• Economic integration of                  .20              4                .80       Acquisition of
  European Community                                                                     Hoover
• Demographics favor quality               .10              5                .50       Maytag quality
  appliances
• Economic development of Asia             .05              1                .05       Low Maytag presence
• Opening of Eastern Europe                .05              2                .10       Will take time
• Trend to “Super Stores”                  .10              2                .20       Maytag weak in this
Threats                                                                                  channel

• Increasing government regulations        .10              4                .40       Well positioned
• Strong U.S. competition                  .10              4                .40       Well positioned
• Whirlpool and Electrolux strong          .15              3                .45       Hoover weak globally
  globally
• New product advances                     .05              1                .05       Questionable
• Japanese appliance companies             .10              2                .20       Only Asian presence is
                                                                                         Australia
Total Scores                               1.00                             3.15



    Dec 2010                               Strategic Management: B S Guha                           64
Internal Strategic Factors:
Critical Strengths and Weaknesses that are
    likely to determine if the firm will be able to
    take advantage of opportunities while
    avoiding threats.
Resources:
A resource is an asset, competency, process,
    skill or knowledge controlled by the
    corporation. A resource is:
      –    a strength if it provides a firm with competitive
           advantage;
      –    a weakness if it is something the company is not
           sufficiently endowed with respect to the
           competitors
Dec 2010               Strategic Management: B S Guha     65
Barney’s VRIO framework for evaluating a
   firm’s key resources:
   –  Value: does it provide competitive advantage?
   –  Rareness: do other competitors posses it?
   –  Imitability: is it costly for others to imitate?
   –  Organization: is the firm organized to exploit
      the resource?
   An answer “yes” for a particular resource
      indicates a strength and a distinct
      competence. Analysis is derived from:
           •   Company’s past performance
           •   Company’s key competitors
Dec 2010   •   The industry as a whole
                             Strategic Management: B S Guha   66
Using resources to gain competitive advantage is
   a 5-step process:
   1. Identification & classification of a firm’s resources
          as strengths & weaknesses;
   2. Combining the firm’s strengths into specific
          capabilities. Corp. capabilities (Competencies) are
          things that the firm does exceedingly well.
   3. Appraisal of the Profit Potential, in terms of
          sustainable competitive advantage, of these
          resources.
   4. Selection of the strategy that best exploits the
          firm’s capabilities in relation to the (external)
          opportunities.
   5. Identification of resource-gaps and investment in
 Dec 2010 upgrading weaknesses
                          Strategic Management: B S Guha    67
Sustainability is characterized by:
    – Durability: the rate at which the firm’s capabilities
      (competencies) depreciate or become obsolete;
    – Imitabilty: the rate at which the firms capabilities
      (competencies) can be duplicated by others. The
      Corp. Competencies can be imitated to the extent
      that they are:
           • Transparent: the speed with which other firms can understand
             the relationship between resources and capabilities and their
             exploitation;
           • Transferable: the ability of the competitors to gather the
             resources and generate capability;
           • Replicable: the ability of competitors to use the duplicated
             resources to imitate the champion’s success.
Dec 2010                    Strategic Management: B S Guha             68
                         Level of Resource Sustainability
   Hard to imitate                                                    Easy to imitate
   Slow Cycle Resources         Std. Cycle Resources           Fast Cycle Resources
     • Strongly shielded          • Mass Production
                                                               • Easily duplicated
     • Patents, Brands            • Scale, complex
                                                               • idea driven
     e.g. Gillette “Sensor”         process
                                                               e.g. SONY Walkman
                                  e.g. “DTSI” Engine

     A core competency is a specific factor that a
         business sees as being central to the way it, or its
         employees work. It fulfils three key criteria:
        • It provides consumer benefits
        • It is not easy for competitors to imitate
        • It can be leveraged widely to many products
            and markets.
Dec 2010                      Strategic Management: B S Guha                          69
• Competencies are easy to acquire if they
  come from explicit knowledge:
   – Since readily articulated and communicated, this
     knowledge is easily acquired by commercial intelligence;


• Core Competencies come from tacit
  knowledge (or ‘knowing’):
     – Not easily communicated or imitable since they come from
         ‘shared knowledge’ i.e. deeply rooted in experiences and
         corporation’s culture;
     – Often they are not very formalized or are derived from a
         complex web of elements which cannot be distinctly
         defined by the management;
     – Top management Strategic Management: B S Guhato intervene! (“don’t fix70
Dec 2010
                                are very reluctant
         it if it a’int broke”)
                  Core Competence
Prahalad & Hamel introduced this term in their paper “The
  Core Competence of the Corporation” (HBR, 1990). In
  highlight:
   – CC represents the collective learning and coordination
       capabilities/skills behind the firm’s manifest product lines
   – CC leads to the development of core products which in turn
       spawn a host of end-user products/services
   – The core products are not traded and thus lead to sustainable
       competitive advantage. Business Units tap into the core to
       deliver the market-beating end products
   – The intersection of market opportunities with the CC forms the
       basis of launching new products
   – Without CC, a corporation is just a collection of discreet
       businesses
   – It is not necessarily expensive to develop CC since it is more
       about coordination rather than elaborate R&D, vertical
       integration etc.
  Dec 2010                   Strategic Management: B S Guha         71
          Core Competence … ctd
• To be world-class, a company must identify and
  build on a few core competencies, precisely,
  what is it?
    – Honda, for example, has a core competence in
       small engine design and manufacturing (core
       product): manifest in multiple products;
    – Sony has a core competence in miniaturization (core
       process), leading to many ‘firsts’ e.g. Transistor
       Radio;
    – Walmart has a core competence in logistics & SCM
       (core service) – leading to outstanding variety on
       offer at lowest cost.
    Typically, a core competence refers to a set of skills or
       experience in some activity, rather than physical or
       financial assets.Strategic Management: B S Guha
Dec 2010                                                  72
               Core Competence … ctd

  Strong core competencies:
           – are well-organized special skills, technologies,
             processes, knowledge, expertise, or abilities.
           – are typically achieved by long-term
             development processes and experiences.
           – create customer value because they are
             considered by your customers to be unique and
             distinguishable, and they are not equally
             accessible to all competitors.
           – are extremely difficult for other companies to
             imitate, if they can at all.
           – can be transferred to other markets
Dec 2010                  Strategic Management: B S Guha    73
 The Business Organization Model: “Value Chain”                                (Porter,1985)

                              Firm Infrastructure

                          Human Resource Management

                            Technology Development

                                    Procurement




           Inbound                   Outbound       Marketing
                       Operations                                    Service
           Logistics                 Logistics       & Sales




                             Primary Activities
Dec 2010                            Strategic Management: B S Guha                      75
• Value Chain Analysis:
     – Examination of each product/service lines
       core competencies and core deficiencies
     – Examination of the linkages between the
       value-elements: the value/cost trade-offs and
       interactive effects
           • E.g. using Brand Ambassadors may improve “marketing”
             but make a dent in the budget allocation for “technological
             development’ initiatives in e-marketing.
     – Finding synergies across product-lines and
       businesses to gain “Economies of Scope”
           • E.g. use of common distribution channel by Unilever for the
             wide variety of product/business lines: Personal care,
             Hygiene & Cookery
Dec 2010                    Strategic Management: B S Guha                 76
           Internal (organization) Analysis
“Activities” in the value are formally grouped into
    departments in and arranged to show reporting
    relationships i.e. Organization Structure. The
    most common types are:
     Simple Structure (Stage I)
           • Entrepreneur                                           Entrepreneur/
                                                                       Owner
              – Decision making tightly controlled
              – Little formal structure
              – Planning short range/reactive                Sr. Manager      Jr. Manager
              – Flexible and dynamic
Dec 2010                    Strategic Management: B S Guha                           77
           Internal (organization) Analysis

              Functional Structure (Stage II)
                  • Management team
                  • Functional specialization
                  • Delegation decision making
                  • Concentration/specialization in industry


              Divisional Structure (Stage III)
                  • Diverse product lines
                  • Decentralized decision making
                  • SBU’s
                  • Independent resource allocations
Dec 2010                 Strategic Management: B S Guha        78
Functional Structure                                 Divisional Structure
                Managing                                             C.E.O
                 Director

Operations      Marketing       Finance             C.O.O            C.O.O           C.O.O
 Director        Director       Director           Publishing       Fin. Serv.       Exports


   Production        Sales                              Technical       Operations
    Manager         Manager                             Manager          Manager


    Materials       Logistics                           Marketing        Finance
    Manager         Manager                             Manager          Manager

 Dec 2010                        Strategic Management: B S Guha                            79
               Divisional Structure: Matrixed
                                       C.E.O


                      C.O.O           C.O.O             C.O.O
                                                                        C.F.O
                     Publishing      Fin. Serv.         Exports

                        Technical         Operations          Finance    Manager
                        Manager            Manager            Manager   Fin Control

           Finance      Marketing          Finance                       Manager
           Manager      Manager            Manager                       Treasury

Dec 2010                     Strategic Management: B S Guha                           80
The evolving Value Chain                                       R&D                            I.T.
                                                                               Co.
                                                              (Sw’n)                        (TelCo)

    Corporate Support Activities
                                                                   Engg.
                     Out         Mkt &                            (India)
 In Logs.     Manf. Logs.       Sales
                                              Serv.                                  Mkt.
                        Out   Mkt &
       In Logs. Manf. Logs. Sales     Serv.                      Manf.      Logs                Cust-
                                                                                     Sales*
                                                               (V’am) (L/Co)                    omers

            “cloned” Multi-location Activities
                                                                                     Serv*.
                                                                            * O/sourced in major Mkts
 Typical “multi-domestic” Organization:                         Typical “Global” Organization:
 20th Century                                                   21st Century
 • Overseas operations characterized                            • Networked functions/activities,
 by rigid business systems with equity                          out-sourced with key control
 links.                                                         levers in hand: partnerships/
                                                                service level agreements
Dec 2010                              Strategic Management: B S Guha                                  81
                       Network Structure

                                  Packagers


           Designers                                       Suppliers


                                 Corporate
                                Headquarters
                                  (Broker)


      Manufacturers                                       Distributors

                                  Promotion/
                                  Advertising
                                   Agencies


Dec 2010                 Strategic Management: B S Guha                  82
• Impact of Corporate Culture :
• Definition
“ is the collection of beliefs, expectations and values
   learned and shared its members, transmitted from
   one generation of employees to another”
    “ This is who we are, what we do and what we
      stand for”
    – Has two attributes, shaping behaviours and
      influencing strategy:
           • Intensity: degree of acceptance of norms, manifest in
             acceptance of sub-cultures within each unit – the ‘depth’ of
             culture: leading to ‘shared value’ e.g. Tata Motors
           • Integration: commonality across the lines of business/units,
             manifest in an all-pervasive culture – the ‘breadth’ of culture:
Dec 2010                      Strategic Management: B S Guha                  83
             leading to consistent behaviours e.g. Army
• Corporate Culture fulfills several important
  functions in an organization:
    – Conveys a sense of identity for employees
    – Helps generate employee commitment to
      something greater than themselves
    – Adds to the stability of the organization as a
      ‘social’ system
    – Serves as a frame of reference for employees
      to use to make sense out of organizational
      activities
    – As a guide to appropriate behaviour
• Culture strongly influences behaviour and
  can significantly affect a firm’s ability to
Dec 2010            Strategic Management: B S Guha   84
Marketing:
           Primary link to Customers & Competition
   Positioning: Who are our Customers?
   Segmentation: Niches, new products & USPs?
   Marketing Mix:
           • 4Ps to use to for gaining competitive advantage
           • Links & leverages vis-à-vis costs
           • Product Life-cycle considerations
Dec 2010                    Strategic Management: B S Guha     85
• Financial: Funds - Source, Use & Control?
   – Capital Structure:
           • Leverage (debt/asset ratio)? “High” is good with
            upswings, “low” under recession & downswings

   – Capital Budgeting:
           • Return on Capital: Shareholders’ value

           • Hurdle rates for Project Pay-back and Profitability
Dec 2010                   Strategic Management: B S Guha          86
• Research & Development: apt
  technology to support Objectives & Mission
  i.e. short & long terms
    – R&D Intensity: R&D Spend as %age revenue
      to keep abreast/ahead of the industry
           • Risks: appraisal and mitigation
           • Make or Buy? Technology transfer issues
    – R&D Mix: Fundamental Research, Product &
      Process Development
           • Adjusted to a product’s position in the life-cycle
           • “Technological Discontinuity”: S-Curves
              – From incremental improvements to
Dec 2010      – Factoring in Strategic Management: B S Guha
                             major break-throughs                 87
Operations: must meet/better the “Q-C-T”
 requirements of business, consistently:
   – Set-ups & systems: geared to the nature of
     demand: High-volume/Low variety Or Low-
     volume/High variety
           • Intermittent systems, e.g. Job-shops
           • Continuous systems, e.g. robotized assembly lines
   – “Experience Curve”: Costs decrease with
     cumulative units made – industry norms
           • Estimating/cost-projections for start-ups
           • Guideline for target setting
   – “Mass Customization”: combining economies of
     scope and scale
           • CAD/CAM
           • Flexible manufacturing systems
   – Lean manufacturing
Dec 2010   • JIT, TPM and allied systems B S Guha
                              Strategic Management:              88
H.R.M: towards flexibility and dynamism to
 support the business needs
   – Teams: with mature and knowledgeable
     workforce
           •   Self-managed teams
           •   Cellular, cross-functional groups
           •   ‘Concurrent Engineering’
           •   “Flexi-time” & “Work from home”
   – Currency: to keep-up with skill/knowledge
     demands
           • Contracting, Part-time & job-sharing, restructuring
           • T & D of core staff :“Employability”
           • Diversity: ‘fairness’, equal opportunity employment, culture
Dec 2010                        Strategic Management: B S Guha              89
M.I.S: enabling improved decision making and
 information flow
    – Rapid changes in IT: life-cycle cost issues

    – Developments in B2B & B2C
           • Inter-organizational integration: ‘supplier-partners’

           • Emphasis on knowledge development

    – “Virtualization” of organization
           • Flatter structures with increased coordination needs
Dec 2010                   Strategic Management: B S Guha            90
           • Increasing employee independence & participation in
           • The internal organizational environment
   Scan    • Departments/functions, competencies


          • Factors for their particular business
 Identify • Benchmark: use VIRO framework


           • Capture the high impact/consequence factors
Prioritize • Rank for relative importance by weighting

Dec 2010             Strategic Management: B S Guha    91
Internal Factors                                                                               Weighted
                                                    Weight              Rating                 Score                       Comments
                                           1                    2                       3                            4                                5
Strengths
 •Experienced top management                           0.05                2.5                         0.13               •Industry knowledge
 •Vertical Integration                                 0.05                2.0                         0.10               •Component manufacture
 •Current Asset Management                             0.15                4.0                         0.60               •Inventory control system
 •Distribution Network                                 0.10                3.5                         0.35               •Dedicated dealers
 •International Orientation                            0.15                3.5                         0.52               •Growing supply SE Asia
Weaknesses
 •Global Positioning                                   0.15                3.5                         0.53
                                                                                                                          •Brand name unattractive
 •Product Portfolio                                    0.15                4.0                         0.60
                                                                                                                          •Domestic segment focus
 •Employee relations                                   0.05                2.5                         0.13
                                                                                                                          •Health & safety concerns
 •Manf. facilities                                     0.10                2.0                         0.20
                                                                                                                          •Old plant & m/cs
 •R&D                                                  0.05                2.0                         0.10
                                                                                                                          •Speed
Total Weighted Score                                  1.00                                             3.266
 Notes: 1. List strengths and weaknesses (5–10) in column 1. 2. Weight each factor from 1.0 (Most Important) to 0.0 (Not Important) in Column 2
 based on that factor’s probable impact on the company’s strategic position. The total weights must sum to 1.00. 3. Rate each factor from 5 (Outstanding)
 to 1 (Poor) in Column 3 based on the company’s response to that factor. 4. Multiply each factor’s weight times its rating to obtain each factor’s
 weighted score in Column 4. 5. Use Column 5 (comments) for rationale used for each factor. 6. Add the weighted scores to obtain the total weighted
 score for the company in Column 4. This tells how well the company is responding to the strategic factors in its internal environment.
 Source: T. L. Wheelen and J. D. Hunger, “Internal Strategic Factors Analysis Summary (IFAS).” Copyright © 1991 by Wheelen and Hunger Associates.
 Reprinted by permission.
     Dec 2010                                           Strategic Management: B S Guha                                                          92
           P
           Environmental
             Scanning
               External                 Mission
                                      Reason for
                                                         Strategy
                                                        Formulation


                Societal
                                      existence    Objectives
              Environment
             General Forces
                                                   What
                 Task                              results to   Strategies
              Environment                          get & when
                                                                Plan to
            Industry Analysis
                                                                achieve the
                                                                                Policies
                                                                mission &
                Internal                                        objectives    Broad guide
                                                                              to decision
               Structure                                                      making
           Chain of Command

                  Culture
           Beliefs, Expectations,
                  Values

                Resources
               Assets, Skills
              Competencies,
                Knowledge




Dec 2010                        Strategic Management: B S Guha                              93
                  Situational Analysis
 Strategy formulation:
          Strategic planning or long-range planning:
           develops mission, objectives, strategies
           and policies
 Situational Analysis:
          Process of finding a strategic fit between
           external opportunities and internal
           strengths while working around external
           threats and internal weaknesses.
Dec 2010               Strategic Management: B S Guha   94
• S W O T analysis is the most common and enduring tool
  to determine the ‘fit’ arising from the current situation.
     – Must identify the distinctive competencies that can be used
       to make best use of opportunities
     – Also identify the lack of resources leading to under
       exploitation of the opportunities
• Broadly speaking, “Strategic Alternative” is the ratio
  Opportunity divided by (Strength minus Weakness).
• Important issue: Should one invest more in strengths to
  make them more robust or improve on weaknesses to at
  least competitive levels?

Dec 2010                Strategic Management: B S Guha          95
• S W O T analysis does not provide a complete answer or
  direction:
     – It can generate a lengthy list
     – Does not assign priorities
     – Uses ‘language’ which can be ambiguous or interpretative
     – Opinion based – difficult to substantiate or verify
     – The same factor might show up two categories
     – Lack of supportive analysis for action plans
     – There is no logical link to strategy implementation

Dec 2010                 Strategic Management: B S Guha       96
          Strategic Factor Analysis Summary
Strategic Factors       (SFAS)
(Select the most important        1        2            3            4    Duration               5                      6
opportunities/threats from EFAS




                                                                                  INTERMEDIATE
Table & the most important
                                                            Weighted




                                                                          SHORT
strengths and weaknesses from




                                                                                                 LONG
                                      Weight   Rating       Score                                       Comments
IFAS Table )




Total Score
     Dec 2010                            Strategic Management: B S Guha                                            97
         Strategic Factor Analysis Summary (SFAS):
                     Maytag as Example
                                                                                       Duration
Strategic Factors




                                                                                           INTERMEDIATE
(Select the most important
opportunities/threats from EFAS, Table and
                                                                    Weighted




                                                                                   SHORT




                                                                                                          LONG
the most important strengths and
weaknesses from IFAS, Table)                  Weight    Rating      Score                                        Comments
S1   Quality Maytag culture (S)                 .10         5            .50                              X      Quality key to success
S3   Hoover’s international orientation (S)     .10         3            .30               X                     Name recognition
W3 Financial position (W)                       .10         2            .20               X                     High debt
W4 Global positioning (W)                       .15         2            .30                                     Only in N.A., U.K., and Australia
O1 Economic integration of
     European Community (O)                     .10         4            .40                              X      Acquisition of Hoover
O2 Demographics favor quality (O)               .10         5            .50               X              X      Maytag quality
O5 Trend to super stores (O + T)                .10         2            .20       X                             Weak in this channel
T3   Whirlpool and Electrolux (T)               .15         3            .45       X                             Dominate industry
T5   Japanese appliance companies (T)           .10         2            .20                              X      Asian presence

                                              1.00                     3.05
Total Score

     Dec 2010                                     Strategic Management: B S Guha                                                             98
           SWOT analysis & TOWS Matrix




Dec 2010          Strategic Management: B S Guha   99
                       Situational Analysis
     Niche:
              A need in the marketplace that is currently
               unsatisfied.

     Goal for the Corporation
              Find a propitious niche
                An extremely favorable niche
              Strategic window
                Unique market opportunity available for a limited time

Dec 2010                      Strategic Management: B S Guha              100
Business Strategy:
           Focuses on improving the competitive
           position of a company’s or business unit’s
           products or services within the specific
           industry or market segment that the firm
           serves.



Dec 2010               Strategic Management: B S Guha
           Porter’s Competitive Strategies
           Competitive Strategy:
              – Low cost?
              – Differentiation?
              – Compete head to head in large
                market?
              – Focus on niche?

Dec 2010             Strategic Management: B S Guha   102
    Generic Competitive Strategies:
           – Lower cost strategy
             • Design, produce, market more
               efficiently than competitors
           – Differentiation strategy
             • Unique and superior value in terms of
               product quality, features, service

Dec 2010             Strategic Management: B S Guha    103
           Generic Competitive Strategies




Dec 2010         Strategic Management: B S Guha   104
 Cost Leadership:
            Low-cost  competitive strategy
            Aimed at broad mass market
            Aggressive construction of efficient-
             scale facilities
            Cost reductions
            Cost minimization

Dec 2010                Strategic Management: B S Guha   105
 Differentiation:
            Broad mass market
            Unique product or service
            Charge premiums
            Lower customer sensitivity to price




Dec 2010              Strategic Management: B S Guha   106
 Cost focus:
            Low cost competitive strategy
            Focus on particular buyer group or
             market
            Niche focused
            Seek cost advantage in target market



Dec 2010             Strategic Management: B S Guha   107
 Differentiation focus:
            Focus on particular group or
             geographic market
            Seek differentiation in targeted market
             segment
            Serve special needs of narrow target
             market

Dec 2010              Strategic Management: B S Guha   108
 Stuck in the middle:
            No competitive advantage
            Below-average performance




Dec 2010             Strategic Management: B S Guha   109
Requirements for Generic Competitive strategy
       Strategy        Skills & Resources                Organizational Requirements
 Cost Leadership   • Access to capital for         • Tight cost control
                   sustained investment            • Frequent, detailed reporting
                   • Process Engineering           • Structured organization & jobs
                   • High supervision              • Target based incentive plans
                   • ‘Design for assembly’
                   • Low distribution cost
 Differentiation   • Strong Marketing skill        • High coordination within depts.
                   • Product Engineering           • Subjective measurements &
                   • R&D, creativity               incentives
                   • Reputation & ‘tradition’      •Skill & knowledge based hiring
                   • Channel partnership           • Creativity prized
 Focus             Above focused at target         Above with Niche/Customer focus
 Dec 2010                     Strategic Management: B S Guha                           110
             Risks of Generic Competitive Strategies
Risks of Cost Leadership          Risks of Differentiation          Risks of Focus
Cost leadership is not            Differentiation is not            The focus strategy is imitated:
sustained:                        sustained:                        The target segment becomes
• Competitors imitate.            • Competitors imitate.            structurally unattractive:
• Technology changes.             • Bases for differentiation       • Structure erodes.
• Other bases for cost              become less important to        • Demand disappears.
  leadership erode.                 buyers.
                                                                    • The segment’s
Proximity in differentiation is   Cost proximity is lost.             differences from other
lost.                             Differentiation focusers            segments narrow.
Cost focusers achieve even        achieve even greater              • The advantages of a
lower cost in segments.           differentiation in segments.         broad line increase.
                                                                    New focusers sub-segment the
                                                                    industry.

  Dec 2010                         Strategic Management: B S Guha                              111
           Influence of Industry Structure

Consolidated Industry                 Fragmented Industry
     Mature industry                        Many small and medium-
                                             sized local companies
      dominated by a few
                                             compete for small
      large companies                        shares of total market
     Cost Leadership or                     Focus strategies
      Differentiation                         predominate
      predominate

Dec 2010             Strategic Management: B S Guha               112
 “Strategic rollup”: developed in the 90’s to
     quickly consolidate fragmented industry
           – Money from venture capital
           – Entrepreneur acquires hundreds of owner-
             operated firms
           – Creates large firm with economies of scale &
             scope, brings in higher managerial proficeiency
           – Differ from Conventional M &A’s
                – Large number of firms
                – Owner-operated firms
                – Goal to “reinvent” entire industry
Dec 2010                   Strategic Management: B S Guha      113
                        Generic Strategy Dynamics
               Lowest Cost                                           Lowest Cost
                                       The current mantra
   “Lowest Price
     every day”                               “And”
    WALMART                          Jack Welch: “No1 or No2
                                    in chosen line of Business”


                              Past:
                              Single dimensional
                                        Current:
                                        Multi dimensional
      It’s a
     SONY                           “Car for every
                                   purpose, pocket,
                                     person” GM
Features/Differentiation                               Differentiation
                        Customization/Focus                                   Customization
   Dec 2010                    Strategic Management: B S Guha                        114
   Briefly, the predominant strategy drivers over
     the last 50 years are:
60’s: Efficiency
70’s: (Efficiency) + Quality                Service
80’s: (Efficiency + Quality) + Flexibility
90’s: (Efficiency + Quality + Flexibility) + Speed
00’s: All the above + Sustainability              Impact of IT
 From the hard, tangible measures towards a
  Hard-soft balanced, dynamic approach. The
  dominant symbol is +(i.e. ‘and’)!!                Global
 From ‘share of market’ to ‘share of mind’!

 Governance & Social Responsibility for continuity

Dec 2010             Strategic Management: B S Guha        115
    Competitive Strategy: “Hyper-competition”
    “It is becoming increasingly difficult to sustain
         competitive advantage for very long ”:
           – Stability threatened by short product life cycles
           – New Technologies
           – Convergence:
             • Frequent entry of “outsiders”
             • Repositioning by incumbents
             • Redefinitions (tactical) of market boundaries
           – Mergers & Acquisitions
    Challenging the very basis of “sustainable” competitive
        advantage
Dec 2010                 Strategic Management: B S Guha          116
 Tactic:
            Specificoperating plan detailing how a
            strategy is to be implemented in terms
            of when and where it is to be put into
            action.
              Timing tactics
              Market location tactics




Dec 2010                  Strategic Management: B S Guha   117
 Timing Tactics:
            First   mover (pioneer)
              Reputation as industry leader
              High profits
              Sets standards for subsequent products in the industry
            Late mover
               Able to imitate technological advances of
               others
                 Keeps R&D costs down
                 Keeps risks down


Dec 2010                  Strategic Management: B S Guha                118
 Market Location Tactics:
            Offensive   Tactics
              Frontal assault
              Flanking maneuver
              Bypass attack
              Encirclement
              Guerrilla warfare



Dec 2010                 Strategic Management: B S Guha   119
 Market Location Tactics:
            Defensive    Tactics
              Raise structural barriers
              Increase expected retaliation
              Lower the inducement for attack




Dec 2010                Strategic Management: B S Guha   120
 Used to gain competitive advantage
     within an industry by working with
     other firms e.g. Star Alliance
     (airlines)
 ‘Friendly competition’ can raise the
     industry standard and provide a
     barrier for entry e.g. Japanese auto
     firms (70’s & 80’s)
Dec 2010       Strategic Management: B S Guha   121
           Collusion:
              Active cooperation of firms to reduce
               output and raise prices
                Explicit (e.g. OPEC)
                Tacit (e.g. cartels)
           Strategic Alliance:
               Partnership of two or more
                corporations or business units to
                achieve strategically significant
                objectives that are mutually
                beneficial.
Dec 2010                Strategic Management: B S Guha   122
                                                  Obtain technology


                                                  Access to markets

    Strategic
    Alliance                                     Reduce financial risk


                                                 Reduce political risk


                                                 Achieve competitive
                                                     advantage

Dec 2010        Strategic Management: B S Guha                      123
          Continuum of Strategic Alliances



                                                  Joint Venture                                             Value-Chain
Mutual Service                                Licensing Arrangement                                         Partnership
  Consortia




Weak and Distant                                                                                        Strong and Close
 Source: Suggested by R. M. Kanter, “Collaborative Advantage: The Art of Alliances,” Harvard Business Review (July-August
 1994), pp. 96–108.




    Dec 2010                                  Strategic Management: B S Guha                                         124
           Igor Ansoff’s Product-Market Matrix
• Is the classical business growth strategy, advocating
  the ‘sticking to the knitting’ principle to grow profitably.
  It is more prescriptive, than analytical.
• Assumes growth is strategy driven and minimally, if at
  all, influenced by market forces and business cycles;
  Profitability is ensured by the ‘learning curve’
  principle. However:
     – Links with the ‘core-competence’ proposition, through
       core-product principle e.g. Honda
     – For single-industry firms e.g. Coca-Cola, there is relevance
       in the ‘concentration’ prescription.

Dec 2010                Strategic Management: B S Guha           125
           PRODUCT/
                              Existing                     New
           MARKET

            Existing          Market                      Product
                            Penetration                 Development



             New             Market                 Diversification
                           Development




Dec 2010               Strategic Management: B S Guha                 126
   Ansoff’s Product-Market Matrix
                                                      Diversification
                                     Product
                                   Development
 Revenue




                           Market
                         Development

             Market
           Penetration


                                  Time
Dec 2010             Strategic Management: B S Guha                     127
                Corporate Strategy

                             Syllabus Topics:
                          3) Corporate Strategy,
                           5) Recent advances,
           7b) Analytical framework for strategy formulation:
                             Matching stages




Dec 2010                 Strategic Management: B S Guha         128
           Corporate Strategy
Hierarchy of Strategy                              What mix of
                                                businesses should
                                                    we be in?
            Corporate Strategy

                 Business                        How do we ensure
              (Division Level)                   profitable growth?
                  Strategy

                                                   How do we
                Functional
                                                   support the
                 Strategy
                                                  Growth & Profit
                                                   objectives?


Dec 2010       Strategic Management: B S Guha                         129
   Three Key Issues:
                                                         What route?

          Firm’s directional strategy
                                                            What ‘lines of
          Firm’s portfolio strategy                         Business’?
          Firm’s parenting strategy
                                                             What to
                                                           ‘synergize’?


  Prentice Hall, 2004              Chapter 6
Dec 2010                Strategic Management: B S Guha
                                 Wheelen/Hunger                             130
                                                                          130
  Directional Strategy:
            Three     Grand Strategies:
                Growth strategies
                Stability strategies
                Retrenchment strategies
              Orientation toward growth
                Expand, cut back, status quo?
                Concentrate within current industry, diversify
                 into other industries?
                Growth and expansion through internal
                 development or acquisitions, mergers, or
Dec 2010         strategic alliances?
                            Strategic Management: B S Guha        131
Dec 2010   Strategic Management: B S Guha   132
  Growth Strategies:
            Most widely pursued strategies
            External mechanisms:
                Mergers
                   Transaction involving two or more firms in
                    which stock is exchanged but only one firm
                    survives.
                Acquisition
                   Purchase of a firm that is absorbed as an
                    operating subsidiary of the acquiring firm.
                Strategic Alliance
                   Partnership of two or more firms to achieve
                    strategically significant objectives that are
                    mutually beneficial.
Dec 2010                   Strategic Management: B S Guha           133
  2 Basic Growth Strategies:

              Concentration
               – Current product line in one industry
                   – Vertical Growth
                   – Horizontal Growth


              Diversification
               – Into other product lines in other industries



Dec 2010                    Strategic Management: B S Guha      134
                        Corporate Strategy
                          Concentration

                    Vertical growth
                    – Vertical integration
                         • Full integration
                         • Taper integration                   Backward Integration:
                         • Quasi-integration                   assuming a function
                                                               previously provided by a
                    – Backward integration                     supplier.
                                                               Forward Integration:
                    – Forward integration                      assuming a function
   Expansion to                                                previously provided by a
       other                                                   distributor
   geographical
 locations and/or   Horizontal Growth
increasing range       Horizontal integration
    of offerings
Dec 2010                      Strategic Management: B S Guha                              135
Dec 2010   Strategic Management: B S Guha   136
                   Corporate Strategy
                     Diversification

           – Concentric Diversification
            • Growth into related industry
            • Search for relatedness


           – Conglomerate Diversification
            • Growth into unrelated industry
            • Concern with financial considerations



Dec 2010                 Strategic Management: B S Guha   137
              Corporate Strategy
                Diversification
                                  Single Industry: (Wrigley, Coca Cola)




                                                Related Diversified: (Unilever, Sony)
 Degree of
Relatedness


              Conglomerates: (Tata, GE,
              Mitsubishi)



                 Extent of Diversification
Dec 2010              Strategic Management: B S Guha                               138
                                    •Exporting
                                    •Licensing
                                    •Franchising
 International                      •Joint Ventures
     Entry                          •Acquisitions
    Options
                                    •Green-Field
                                    •Production Sharing
                                    •Turnkey Operations
                                    •BOT Concept
                                    •Management Contracts
Dec 2010         Strategic Management: B S Guha             139
Stability Strategies:
     Pause/proceed with caution
             Period of ‘stabilization’ following (rapid) growth
             Consolidating before the next wave of meaningful
              opportunities
          No change
             A stable period in the business cycle with the firm
              having found a comfortable ‘niche’.
             No threats from new entrants

          Profit strategies
             Restructuring – generate profit by sweeping (often
              harsh) internal changes; temporary one-shot in nature
             Reengineering – a new approach (even sectored) to
Dec 2010
              business; temporary and may be in sequenced steps140
                           Strategic Management: B S Guha
Retrenchment Strategies:
          Turnaround
             Characterized by rapid return to profitability, usually in
              ‘contraction’ (i.e. cutback in size and costs), followed
              by ‘consolidation’ (i.e. stabilization of ‘leaner’
              organization )phases.
             Usually not sustainable nor desirable for along period
              of time.
             Sets the tone for a more radical change e.g.
              Restructuring and/or Reengineering.
          Captive Company Strategy
             is giving up ‘independence’ for ‘security’’; become a
              ‘supplier’ to a more dominant company. Usually
              resorted by poorly competitive and fund-strapped
              firms.
             Allows for cost cutting (activity) and better cash flows
Dec 2010                   Strategic Management: B S Guha             141
          Selling out
             Resorted to under uncompetitive and no-fund
              conditions, but with a ‘buyer’ in place e.g. Sell-out of
              Tata Oil Mills (TOMCo) to Hindustan Levers (HLL).
             In selling out lines of businesses with poor fit or low
              growth potential, this act is termed ‘Divestment’ e.g.
              sell out of ‘Dalda’ and related brands worldwide
              (hydrogenated Oil) by Unilever to American Bunge Co.
          Bankruptcy/Liquidation
             Bankruptcy means giving up management of the firm
              to court appointed receivers for settling obligations
              and extend the life of the firm e.g. General Motors
             Liquidation implies the termination of a firm’s activity,
              wherein assets are sold off to meet the creditors and
              then the shareholder’s claims – without the
              intervention of courts (who usually give low priority to
              shareholders!).
Dec 2010                   Strategic Management: B S Guha           142
An approach to work out an appropriate strategic intent (choice)
Strategic Position & ACtion Evaluation Analysis (SPACE):
        Competitive Advantage                          Financial Strength
              Market Share                          Return on Investment
             Product Quality                               Leverage
        Product Life Cycle(position)                        Liquidity
             Customer Loyalty                  Capital required/ capital available
       Competition’s capacity utili’zn.                    Cash flow
          Technology, know-how                     Ease of exit from market
            Vertical Integration                  Risk involved in business

            Industry Strength                      Environmental Stability
             Growth potential                        Technology Changes
              Profit potential                          Rate of Inflation
             Financial stability                      Demand variability
           Resource Utilization               Price range of competing products
            Capacity Intensity                    Barriers to entry into market
        Ease of entry into the market                Competitive pressure
       Productivity, capacity utilzation           Price elasticity of demand
 Dec 2010                       Strategic Management: B S Guha                       143
        Leading to the “Strategic Postures” in a matrix:
        SPACE MATRIX
                                              Financial Strength
                                                          6
              Competitive advantage


                                         FOCUS                    COST LEADERSHIP




                                                                                        Industrial Strength
                                       Conservative                  Aggressive

                                 -6                                                 6
                                                              0


                                      GAMESMANSHIP                DIFFERENTIATION
                                         Defensive                    Competitive


Arrows indicate increasing
Values for the dimension.                               -6
                                            Environmental Stability
 Dec 2010                                      Strategic Management: B S Guha                                 144
   And associated actions:
                                                  Financial Strength
                                                                     Related
                                         Status Quo
                                                                     Diversification
                Competitive advantage


                                            FOCUS
                                         Conglomerate               COST LEADERSHIP
                                                                    Concentration




                                                                                           Industrial Strength
                                         Diversification
                                         Conservative                  Aggressive
                                                                     Vertical
                                         Diversification
                                                                     Integration

                                                                    Mergers/acquisitions
                                         Divestment                 (related)
                                        GAMESMANSHIP                DIFFERENTIATION
                                            Defensive
                                         Liquidation                    Competitive
                                                                    Mergers/acquisitions
                                         a                          (unrelated)
                                         Retrenchment
Arrows indicate increasing                                          Turnaround
Values for the dimension.
 Dec 2010                                       Environmental Stability                                          145
                                                 Strategic Management: B S Guha
             e.g. SPACE matrix for a Bank:
       Competitive Advantage                         Financial Strength
     Data processing for > 450              Primary Capital Ratio 7.23%,
      Customers, c/wide        -2           >6% avg.                       +1
     Rapid entry of foreign                 RoA –0.77, <+0.7 avg.          +1
     banks/institutions        -5           Net Inc. $190B, -9%L.yr        +3
     Large, old Cust. Base     -2           Rev. increase 7%, $3.5B        +4
                               -9                                          +9

           Industry Strength                     Environmental Stability
     Dergln. Advantages          +4        U/Dev country situation         -4
     Dergln. Competitive                   Depressed condition of maj.
      disadvantage               +2         customer industries            -5
     Laws for Acquisition        +4        Destabilization of banking
                                            indus. due deregulation         -4
                                +10                                        - 13

     ES average is –13/3 = -4.33; IS average is +10/3 = 3.33;
     CA average is – 9/3 = -3.00; FS average is + 9/4 = 2.25
       & directional vector coordinate are X-axis: -3.00 + 3.33 = + 0.33
                                          Y-axis: -4.33 + 2.25 = - 2.08
Dec 2010                    Strategic Management: B S Guha                        146
                                   e.g. SPACE matrix for a Bank:

                                           Financial Strength
           Competitive advantage

                                      FOCUS                COST LEADERSHIP




                                                                               Industrial Strength
                                    Conservative              Aggressive




                                   GAMESMANSHIP            DIFFERENTIATION
                                      Defensive                Competitive
                                                         X
                                                              Directional Vector

                                         Environmental Stability
  The bank should follow “Competitive Strategy.”
Dec 2010                                     Strategic Management: B S Guha                          147
  Portfolio Analysis

              How much of our time and money should we
               spend on our best products to ensure that
               they continue to be successful?

              How much of our time and money should we
               spend developing new costly products, most
               of which may never be successful?



Dec 2010                 Strategic Management: B S Guha     148
                       Portfolio Analysis
  BCG (Boston Consulting Group) Matrix
              Product life cycle and funding decisions
                  Question marks
                  Stars
                  Cash cows
                  Dogs

   GE Business Screen
               – Long-term industry attractiveness
               – Business strength/competitive position

Dec 2010                  Strategic Management: B S Guha   149
                                                 Demarcates
                                                ‘Dominance’
                                                   Identifies
                                                businesses and
                                                 their relative
                                                     size‘




                                            Demarcates
                                             ‘Leaders’




Dec 2010   Strategic Management: B S Guha                         150
                                 Hi             Cash Source                          Lo
                                                                                          Hi
               Hi                     STAR                                ???

                                       “Hold”                             “Build”
           Market Growth rate




                                                                                          Cash Use
                                      Cash Cow                            DOGS

                                      “Harvest”                           “Divest”

           Lo                                                                             Lo
                                Hi                                                        Lo
                                         Relative Market Share
                                         Strategic Management: B S Guha                              151
Dec 2010
   • BUILD: The mission implies –
           – An increase of market share,
           – a possible decrease in short-term earnings & cash-flows.
           e.g. Tata Motors
   • HOLD: The mission is geared to –
           – Protection of Market Share
           – Retain competitive position under aggressive challenge.
           e.g. HLL Detergents
   • HARVEST: The mission aims at –
           – Maximizing short-term earnings & cash-flow,
           – Possible market-share sacrifice,
           e.g. Tata Steel
   • DIVEST: The mission is to –
           – Withdraw from the business through sale or slow
              liquidation.
           e.g. HLL Vanaspati Business (“Dalda”).
Dec 2010                     Strategic Management: B S Guha             152
BCG matrix singles out “Market Share” as the primary strategy
  variable:
   – Based on the ‘experience curve’ i.e. cost per unit decrease
      predictably with the number of units produced (cumulative)
        • The Market-share leader would have the greatest
          accumulated experience;
        • Thus they should have the lowest cost; resulting in highest
          profit in the industry.
        • Empirically supported by PIMS (Profit Impact of Marketing
          Strategies) data base.
   – Concept applies well to relatively mature and lowly
      differentiated products. For these products, becoming a low
      cost player is critical.




Dec 2010                 Strategic Management: B S Guha                 153
– Firms pursuing ‘uniqueness’ (niche players)
  could have high profits with low overall market
  share e.g. Harley –Davidson, Porsche.

– There could be many drivers of cost, apart from
  experience e.g. Technology breakthroughs can
  provide significant reduction in per unit costs,
  not available through cumulative experience,
  e.g. Internet marketing vis-à-vis direct selling via
  salesmen.

– Over focus/dependence on experience curve
  leads to loss of flexibility in the Market: with
  shifts in wants/ demands (emerging
  technologies and/or lifestyles) e.g. Bajaj
  Scooters.
Dec 2010             Strategic Management: B S Guha      154
                   General Electric’s Business Screen
           Business                                                  C
           Unit Identity           Winners            Winners
                                     A                               Question
           Industry/       High                          B            Marks
           Market Size                                                    D
                       Share
                                   Winners
                                     E               Average
                                                    Businesses
                       Medium                           F
                                                                      Losers


                                                                          H
                                                      Losers
                                                        G
                           Low
                                    Profit
                                  Producers                           Losers


                                    Strong            Average            Weak
                                      Business Strength/Competitive Position
Dec 2010                          Strategic Management: B S Guha                155
The GE Business Screen is an
 improvement over the BCG Matrix:
  – Based on many more variables than the
    simplistic uni-dimensional measure
     • ‘Industry attractiveness’ is assessed more completely
       (than just ‘growth rate’ in BCG): Market growth rate,
       Industry profitability, Size, Pricing practices, Possible
       Opportunities (& Threats)
     • ‘Business Strength/Competitive Position’ is
       determined by: Market Share, distribution strengths,
       engineering capabilities and other factors giving
       competitive edge.
  – But suffers from lacking ‘hard’ measures –
     many judgemental elements for assessing
     the major parameters.
  Dec 2010           Strategic Management: B S Guha                156
    2 Factors:

          Country’s attractiveness
           •   Market size, rate of growth, regulation

          Competitive strength
           •   Market share, product fit, contribution
               margin, market support



Dec 2010                 Strategic Management: B S Guha   157
Portfolio Matrix for Plotting Products by Country
                             Competitive Strengths


                  High                                   Low




               Invest/Grow                         Dominate/Divest
                                                    Joint Venture




                                  Selective
                                  Strategies




                                                    Harvest/Divest
                                                   Combine/License




Dec 2010          Strategic Management: B S Guha                     158
  •        Advantages:                     •       Disadvantages:
           – Top management                         – Difficult to define
             evaluates each of                        product/market
             firm’s businesses                        segments
             individually
           – Use of externally-                     – Standard
             oriented data to                         strategies can
             supplement                               miss opportunities
             management
             judgment
                                                    – Illusion of scientific
           – Raises issue of                          rigor though
             cash flow                                subjective
             availability
           – Facilitates
             communication                          – Value-laden terms
Dec 2010                 Strategic Management: B S Guha                     159
   Corporate Parenting:

          Views the corporation in terms of
           resources and capabilities that can
           be used to build business unit
           value as well as generate synergies
           across business units.



Dec 2010             Strategic Management: B S Guha   160
Corporate Parenting:
  Strategic factors
              Those elements of a company that determine its
                 Strategic success or failure
                 Performance improvement

          Analyze fit: Parenting-Fit Matrix
              Summarizes the various judgments regarding
               corporate/business unit ‘fit’ for the corporation
               as a whole.
                 2 Dimensions
                  • Positive contributions parent can make
                  • Negative effects parent can have
Dec 2010                    Strategic Management: B S Guha     161
                                                            Parenting-Fit Matrix
           MISFIT between critical success factors
                                                     Low

              and parenting characteristics
                                                                                                    Heartland
                                                                   Ballast

                                                                                            Edge of
                                                                                           Heartland


                                                                        Alien
                                                                        Territory
                                                                                                Value Trap
                                                     High
                                                            Low                                              High

                                                                  FIT between parenting opportunities
                                                                      and parenting characteristics


Dec 2010                                                           Strategic Management: B S Guha                   162
  Horizontal Strategy:
            Corporate strategy that cuts
            across business unit boundaries
            to build synergy across business
            units to improve the competitive
            position of one or more business
            units


Dec 2010            Strategic Management: B S Guha   163
Horizontal Strategy:
              When used to leverage synergy, e.g. distribution
               strength of Unilever, this is Corporate Parenting;

              When used to improve the competitive position of a
               business with the support of others, it is forms a part
               of the Corporate competitive strategy
                  ‘Multipoint Competition’ when large conglomerates
                  compete in different businesses in different markets
                  using corporate assistance, e.g. Pricing (subsidised)
                  for new products, cross-holding for investment
                  purposes etc.
                 Could be used to reduce hyper-competition by
                  reducing inducement to attack or by the threat of
Dec 2010          retaliation Strategic Management: B S Guha          164
           Case Study: T.I. & H.P.
            Case 13-3; “Management Control Systems” 12 edn




Dec 2010
                   Strategic Management: B S Guha            165
• Recent Advances

     – The Blue Ocean Strategy

     – Sustainability & The Triple Bottom Line




Dec 2010           Strategic Management: B S Guha   166
    Blue Ocean Strategy
   Promoted by W. Chan Kim & Renee Mauborgne, the
    approach suggests that ‘Competition be made
    redundant’ by side-stepping it!
          “You will never ever see competition in quite the same
           light. Kim & Mauborgne present a compelling case for
           pursuing strategy with a creative, not combative,
           approach.” Carlos Ghosn, CEO: Nissan Motor Co.
          “Our research confirms that there are no permanently
           excellent companies just as there are no permanently
           excellent industries. And we have found, we all, like
           corporations do smart things and not-so-smart things. To
           improve the quality of our success, we must study what
           made the difference and how to replicate it.” Kim &
           Mauborgne
Dec 2010                   Strategic Management: B S Guha         167
    Blue Ocean Strategy: Basic premises
   “Red Oceans”
     Represents all the industries in existence today: this is the
      known market space; boundaries are defined and
      competitive rules of are known;
     Companies try to outperform their rivals in this space: cut-
      throat competition turns ‘ocean’ Red.
   “Blue Oceans.”
     Are defined by the untapped market space, demand
      creation and highly profitable growth
     Created beyond existing industry boundaries as well as
      from within the Red Oceans by expanding the existing
      boundary.
Dec 2010                 Strategic Management: B S Guha           168
    Blue Ocean Strategy: Basic premises
          ‘Value Innovation’ the corner stone:
            Equal emphasis on “value” & “innovation”:
               Value w/o innovation = transient value creation
               Innovation w/o value = Futuristic or ‘hobbyism’
            Value innovation occurs only when companies align
             innovation with utility, price & cost positions
             simultaneously.
               ‘bleeding-edge’ technology and/or market pioneering
                paves way for others.
               Defies value-cost trade-off: ‘differentiation’ vs. ‘low-
                cost’;
               Blue Oceans are created in the “AND” world!
Dec 2010                     Strategic Management: B S Guha            169
    Blue Ocean Strategy: Quick Comparison
       Red Ocean Strategy                        Blue Ocean Strategy

 Compete in existing markets                Create uncontested markets

 Beat the Competition                       Make the competition irrelevant

 Exploit existing demand                    Create & Capture new demand

 Make the value-cost trade-off              Break the value–cost trade-off

 Align firm to “differentiation” or         Align systems to both
 “Low cost”                                 “differentiation” and “low Cost”
Dec 2010                    Strategic Management: B S Guha                     170
     Blue Ocean Strategy: Case Study
 Case in point – Strategy Canvas for Southwest Airlines:
     Line of business: short-haul passenger transport
     Customers’ trade-offs: speed of airplanes vis-à-vis the
      economy and flexibility of cars
     Rules of airline business: ‘hub and spoke’ model, connectivity
      (un)certainties, multiple flights, schedules with built-in wait ,
      lounges, meals etc. provided, cost high.
     Southwest’s offer: Speed of air-travel, flexibility of schedules
      via point-to-point routing, friendly but austere service, low
      cost
            = unprecedented utility for air travelers and a leap in value
            for a low–cost model.
 Dec 2010                     Strategic Management: B S Guha           171
                                                                                  X
                                                                          +
                                 o                            +                   +

   o                                                          o
                      o                                                   o
                                                  o
Normal
Airlines    o                                                                 Cars


                                     S’West
                                     Airlines
                +
   +
   X
                                                                                  o
                      +
                                                                      X
                                 +                +
                X     X          X                    X       X
  Low       Meals   Lounge      Seat            Hub       Friendly   Speed    Freq. Depart
  Price                         choice          connect   Service             point to Point

 Dec 2010                    Strategic Management: B S Guha                           172
           Blue Ocean Strategy: Prognosis
  • Red Oceans will always be a fact of Business. But with
  Supply outstripping Demand, operating strategies for this
  while necessary, will not be sufficient for sustained high
  performance;                  “If I listened to customers, I would try
                                          to make a faster horse!” Henry Ford.

  • To seize new profit and growth opportunities, Blue
  Oceans need to be created. Though the term “Blue
  Oceans” is new, their existence is not.

  • Business launch profiling (108 companies):
     86% were ‘line extensions’; accounting for 62% of revenue
     and 39% of profits;
     14% were in blue oceans; 38% of revenues and 61% of
     profits.
Dec 2010                  Strategic Management: B S Guha                         173
                          “Sustainability”
     Earth’s resources are exhaustible – they will run out
      some day:
          How will we run our power-plants, cars and stoves?
     Life-forms are disappearing & rapidly:
          There are just about 1400 tigers left in India!
          Human Life expectancies are rising – so are newer, deadlier
           diseases !
     Recent survey in US, post economic meltdown, shows
      that >80% wealth is with < 20% people:
          People in US polled a 50-50 balance is ‘fair’
     Is the World and Life-style that we take for granted
      be there forever i.e. Sustain?
Dec 2010                     Strategic Management: B S Guha              174
               Sustainability: viewpoints
            Sustain:                                   Sustainability
           DICTIONARY
     To endure without                        The most widely
      yielding: withstand                       quoted definition is
     To keep up or maintain                    “sustainable
                                                development is
     Synonyms: Aid, Carry,                     development that
      Endure, Keep,                             meets the needs of
      Preserve, Support                         the present without
     Is being used more in                     compromising the
      the sense of human                        ability of future
      sustainability on planet                  generations to meet
      Earth;                                    their own needs.”
Dec 2010                Strategic Management: B S Guha                    175
     The definition contains two key concepts:
          ‘Needs’: in particular the essential needs of the
           world’s poor – to which overriding priority should be
           given
          ‘Limitations’: imposed by the state of technology and
           social organizations on the environment’s ability to
           meet present and future needs
     The definition was extended to Business:
          ‘for a business enterprise, sustainable development
           means adopting strategies and activities that meet
           the needs of the firm and its stakeholders today
           while protecting, sustaining and enhancing the
Dec 2010
           human and natural resourcesGuha
                           Strategic Management: B S
                                                     needed for the future.’
                                                                          176
                         Shifting Priorities


              Economy


           Society   Env’mental




           “Industrial Age”                                    “New Age”
Dec 2010                      Strategic Management: B S Guha               177
   A universally accepted definition of sustainability
    is difficult because it is expected to achieve
    many things:
          factual and scientific: a clear statement of a specific
           “destination”. The simple definition "sustainability is
           improving the quality of human life while living within
           the carrying capacity of supporting eco-systems”
           conveys the idea of sustainability having quantifiable
           limits.
          call to action: a task in progress or “journey”,
           therefore a political process, so some definitions set
           out common goals and values e.g.The Earth Charter.
Dec 2010                   Strategic Management: B S Guha       178
      The idea of sustainability is age-old; societies over
       time have learnt to balance social, environmental
       and economic concerns.
      At its core, sustainable development is about
       creating an interactive and appropriate balance
       between:
        Social Equity: i.e. Human rights, peace, justice, gender
         equity, cultural diversity etc.
        Environmental protection: referring to natural
         environment i.e. Air, water, biodiversity, forests, energy
         etc.
        Economic development: understanding the limits and
         potential of economic growth factoring in poverty
         reduction, responsible consumption, corporate
Dec 2010
         responsibility, employment andS allied themes.
                           Strategic Management: B Guha             179
Dec 2010                     Business Sustainability                 179
   The triple bottom line (abbreviated as "TBL" or "3BL", and
    also known as "people, planet, profit") captures an
    expanded spectrum of values and criteria for measuring
    organizational (and societal) success.
The concept of TBL demands that a
company's responsibility lies with
Stakeholders not Shareholders.
Here, "stakeholders" refers to
anyone who is influenced, directly
or indirectly, by the actions of the
firm. Accordingly, the business
entity should be used as a vehicle
for coordinating stakeholder
interests, instead of maximizing
shareholder (owner) profit.                                              ©
                                                           SustainAbilty180
Dec 2010                  Strategic Management: B S Guha
   Triple bottom line score-card means expanding the
    traditional reporting framework to take into account
    ecological and social performance in addition to financial
    performance. "People, planet and profit" clearly describes
    the triple bottom lines and the goal:

        "People" (human capital) pertains to fair and beneficial
         business practices toward labour and the community and
         region in which a corporation conducts its business.

        "Planet" (natural capital) refers to sustainable environmental
         practices. A TBL endeavor reduces the ecological footprint.

     "Profit" is the economic value created by the organisation
     after deducting the cost of all inputs, including the cost of the
     capital tied up.
Dec 2010                   Strategic Management: B S Guha           181
           Case Study: Hindustan Lever
               Case 15-4; “Management Control Systems” 12 edn.




Dec 2010
                       Strategic Management: B S Guha            182
           Syllabus Topics
           4) Strategy Implementation: Structure,
              Systems and People



Dec 2010             Strategic Management: B S Guha
                                                      183
               Strategy Implementation

  Strategy Implementation:
              Sum total of the activities and choices
               required for the execution of a
               strategic plan.

              Process by which strategies and
               policies are put into action through
               programs, budgets, and procedures.


Dec 2010                 Strategic Management: B S Guha   184
               Strategy Implementation

  Implementation Process Questions:
              Who are the people to carry out the
               strategic plan?

              What must be done to align operations
               with new direction?

              How is work going to be coordinated?

Dec 2010                Strategic Management: B S Guha   185
           Strategy Implementation
• McKinsey, in 1977, commissioned task
  forces to find out answers , with particular
  concern with the nature of the relationship
  between Strategy, structure and
  management effectiveness.
• Tom Peters and Robert Waterman led the
  team for management effectiveness ( =
  implementation).
• Their research let them to define 7 S
  Framework for management, addressing the
  crucial problem of execution and adaptation.

Dec 2010         Strategic Management: B S Guha   186
           7-S Framework (McKinsey)
                             STRUCTURE


            STRATEGY                                      SYSTEMS


                               SHARED
                               VALUES

             SKILLS                                        STYLE



                                  STAFF

                                                        The Happy Atom
Dec 2010               Strategic Management: B S Guha               187
           7-S Framework (McKinsey)
• ‘Hard’ Elements: ‘Strategy’, ‘Structure’ & ‘Systems’
      – Definable and/or measureable
      – Can be put down on paper
• ‘Soft’ Elements: ‘Shared Values’, ‘Skill’, ‘Staff’ &
  ‘Style’
      – Can be ‘felt’ or sensed but difficult to define or put
        down on paper.
      – Thus ‘management‘ is more difficult: soft is hard!
      – Explains better why things work (or don’t!) in a
        company.
• Real ‘change’ is a function of these 7 complex
  elements



Dec 2010                Strategic Management: B S Guha           188
           7-S Framework (McKinsey)
• Led to the investigation on “management
  excellence” why some (American)companies are
  so:
     – ‘Excellent companies are brilliant on basics’
     – ‘Tools do not substitute for thinking’
     – ‘Intellect did not overpower wisdom’
     – ‘Analysis did not impede action’.
     – ‘They listened to people (customers & employees )’
     – ‘They allowed some chaos in return for quick action
       and regular experimentation’
     – ‘Worked hard to keep things simple in a complex
       world’
• Further expanded to 8 attributes for excellence
Dec 2010              Strategic Management: B S Guha         189
           7-S Framework (McKinsey)
 1. A bias for action: for getting on with it
 2. Close to the customer: learning from people they
       serve
 3.    Autonomy & entrepreneurship: fostering many
       leaders and innovators throughout the organization
 4.    Productivity through people: rank and file the root
       source of quality and productivity gains
 5.    Hands on, Value driven: embodied in the statement
       ‘walk the talk’
 6.    Stick to the Knitting: stay reasonably close to the
       business they know
 7.    Simple form, lean staff: more soldiers than generals
 8.    Simultaneous loose tight properties: core values
       are fanatically ‘rigid’, operations are ‘flexible’

Dec 2010              Strategic Management: B S Guha     190
           Selecting the Best Strategy:
              Most Important criteria –
                   the ability of a proposed strategy to deal
                    with the strategic factors developed in the
                    SWOT analysis
                   the ability of each alternative to meet
                    agreed-on objectives with least ‘sacrifice’
                    of resources and negative side effects.
              Corporate Scenarios –
                Pro forma balance sheets and income
                    statements that forecast effects of
                    alternatives on return on investment
Dec 2010                     Strategic Management: B S Guha       191
 Constructing Corporate Scenarios:

              Steps in constructing scenarios –
                Use industry scenarios
                Develop common-size financial
                 statements
                Construct detailed pro forma financial
                 statements for each alternative:
                   ‘Best Case’ (Optimistic)
                   ‘Worst Case’ (Pessimistic}
                   ‘Probable case’ (Most likely)

Dec 2010                  Strategic Management: B S Guha   192
Scenario Box to Generate Pro Forma Statements

                                                                                           1
                                                                               Pr objections
                              Last   Historical    Tr end         19—              19—             19—
 Factor                       Year   Average       Analysis   O    P    ML    O     P     ML   O    P    ML   Comments

 GDP
 CPI
 Other
 Sales units
 Dollars
 COGS
 Adver tising and marketing
 Inter est expense
 Plant expansion
 Dividends
 Net pr ofits
 EPS
 ROI
 ROE
 Other




  Dec 2010                                        Strategic Management: B S Guha                                  193
                                    A 'Du-pont" style Report

                                                                                     Sales

   BalanceSheet                                                Capital            12.793
                                                                                                      Total Assets
                                                              Turnover        /
                                                               2.05                                   11.497
                                                                                  Net Assets
                                                                                                  -
                                                                                   6.233              Interest free
                                                                                                        Liabilities
    RONA
                  x                                                                                    5.264
 12.9% 14.8%


                                                                                     Sales

                                                                                  12.793
                                                              Operating
                                                                                                      Other Costs
                                                               Income         -
                                           Income             1.103   1.219        Operating           5.854
                                          before Tax      +                        expenses       +
                                           809      925       Financial           11.690 11.573       Purchased
                        Margin
                                     %                         Income                                  materials
 P&L                  6.30% 7.20%                             -294                                     5.854   5.728

                                            Sales

                                         12.793




Dec 2010                                 Strategic Management: B S Guha                                          194
 Attitude Toward Risk:
              Risk is composed of:
                Probability of (success) effective strategy
                Impact of any strategy
                   Amount of assets committed
                   Length of time of asset commitment
            Conventionally, risk is quantified in
             terms of ‘Net Present Value’ of any
             Project - in so far as quantification is
             possible.

Dec 2010                  Strategic Management: B S Guha       195
    Using NPV to assess risk
          the variability associated with obtaining
           different results (e.g. NPV)


             NPV       Prob.          The “weighted” NPV works out to:
                                                       3
              200       0.3                   E(NPV) = S pi NPVi
              600       0.5                           i=1
              900       0.2                 = 0.3x200 + 0.5x600 + 0.2x900
                                            = 540

            A measure of the ‘risk’ is the range i.e.
             difference between the highest/lowest value
             i.e. 900 – 200 = 700
Dec 2010                   Strategic Management: B S Guha              196
            The higher the ‘spread’ the more the variability and
            risk
            Standard Deviation (s) of the NPV distribution
            quantifies this:
              s = {0.3(200-540)2 + {0.5(600-540)2 + {0.2(900-540)2}   =
              250
            We can now define a “coefficient of variation” in
            which we relate the s to weighted net present value:
              CV = s/weighted value ; = 250/540 = 0.46
              The higher the CV, the higher the risk ranking

Dec 2010                     Strategic Management: B S Guha                197
Process of Strategic Choice:
          The evaluation of alternative strategies
           and selection of the best alternative:
            Consensus ?
               Discussion, disagreement
               ‘Vision – Contradictions – Solution’
            Programmed conflict (to avoid consensus trap)
               Devil’s Advocate: Identify potential pitfalls and
                problems with a proposed alternative strategy
                in a formal presentation.
               Dialectic Enquiry: two proposals are generated
                for each alternative using different sets of
                assumption and/or groups (‘shadow’
                committees)
Dec 2010                 Strategic Management: B S Guha       198
 Evaluating strategic alternatives:
           Ability to meet four criteria:
             – Mutual exclusivity: doing one would discard
               the other,
             – Success: S.M.A.R.T i.e. must be ‘doable’
             – Completeness: taking into account all the
               foreseen strategic factors
             – Internal consistency: must make sense on
               its own without contradicting or unduly
               compromising any key objective/mission/
               policy

Dec 2010               Strategic Management: B S Guha      199
Organizational Life Cycle:
           Generic choices decided by the
            organization’s position in its life-cycle
             Stages:
                  Birth Stage
                  Growth
                  Maturity
                  Decline
                  Death
                                       Birth          Growth   Maturity   Decline
 Dec 2010                   Strategic Management: B S Guha                    200
                 Stage I        Stage II         Stage III1            Stage IV       Stage V

Phase            Birth          Growth           Maturity              Decline        Death

Popular          Concentration Horizontal        Concentric &          Profit strategy Liquidation or
Strategies       in a niche    and vertical      conglomerate          followed by     bankruptcy
                               growth            diversification       retrenchment

Likely           Entrepreneur Functional  Decentralization   Structural               Dismemberment
Structure        dominated     management into profit or     surgery                  of structure
                               emphasized investment centers

Note: 1. An organization may enter a Revival Phase either during the Maturity or Decline Stages

and thus extend the organization’s life.




     Dec 2010                         Strategic Management: B S Guha                             201
Structural Characteristics of Modern Corporation

Old Organizational Design                            New Organizational Design

One large corporation                                Mini-business units & cooperative relationships

Vertical communication                               Horizontal communication

Centralized top-down decision making                 Decentralized participative decision making

Vertical integration                                 Outsourcing & virtual organizations

Work/quality teams                                   Autonomous work teams

Functional work teams                                Cross-functional work teams

Minimal training                                     Extensive training

Specialized job design focused on individual         Value-chain team-focused job design




   Dec 2010                          Strategic Management: B S Guha                             202
  Matrix Structure:
              3 Distinct Phases
                 Temporary cross-functional task forces
                 Product/brand management
                 Mature matrix
  Network Structure:
              “non structure” – elimination of in-house business
               functions
              Termed “virtual organization”
                 Useful in unstable environments
                 Need for innovation and quick response
  Cellular Organization:
              composed of “cells”
                 Self-managing teams
                 Autonomous business units
Dec 2010                      Strategic Management: B S Guha        203

				
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