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STRATEGIC MANAGEMENT
AA
CONCEPT ON STRATEGIC THINKING
ANDMODUS OPERANDIFOR SURVIVALIN 21st CENTURY
By
Dr. JANAK V. SHELAT
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WHY STRATEGIC THINKING?WHY STRATEGIC THINKING?
Companies are operating in age of discontinuing change - an age of creative & constructivedestruction.
Business, technology and product life is shrinking. Demographic shift in terms of consumer preference and requirements. A direct promotion from Agricultural economy to service or Hi-tech economy in the new growth
economy. A concept from liberalization, privatization & Globalization (LPG) to regionalization. Shift from controlled economy to market driven economy. Rich countries adopt deindustrialization. Emergence of new Global Socio economic system and world orders. Self-leadership is in, command and control out Networks are replacing hierarchies Wanted - employees with Emotional Intelligence. Forcing company transformationForcing company transformation Market access & branding changing disintermediation of traditional distribution channelsMarket access & branding changing disintermediation of traditional distribution channels Balance of power shift to consumerBalance of power shift to consumer Competition changingCompetition changing Pace of business increasingPace of business increasing Internet purchasing beyond traditional boundariesInternet purchasing beyond traditional boundaries Knowledge key asset source of competitive advantage. ItKnowledge key asset source of competitive advantage. It is replacing Infrastructure
Other Current Trends Other Current Trends
Increasing environmental awarenessIncreasing environmental awareness Growing health consciousnessGrowing health consciousness Expanding seniors marketExpanding seniors market Impact of the Generation Y boom letImpact of the Generation Y boom let Declining mass marketDeclining mass market Changing pace and location of lifeChanging pace and location of life Changing household compositionChanging household composition Increasing diversity of workforce & marketIncreasing diversity of workforce & market
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BASIC CONCEPTS
STRATEGY: It is Unified, Comprehensive, and Integratedlong term plan that relates to the strategic advantages ofthe firm to the challenges of the environment.
STRATEGIC MANAGEMENT: It is a stream of decisionsand actions which leads to the development of an
effective strategy to help achieve the corporateobjective. It is a continuous, iterative, & Cross functionalprocess of matching firm with its environment.
COMPETITIVE ADVANTAGE: is delivering superiorvalue advantage to your target customers relative to
your competitors. Or delivering equivalent customervalue to your target customers relative to yourcompetitors , but at a lower cost.
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Sustained Competitive AdvantageSustained Competitive Advantage
Above-Average ReturnsAbove-Average ReturnsReturns in excess of what an investor expects toReturns in excess of what an investor expects to
earn from other investments with similar riskearn from other investments with similar risk
Occurs when a firm develops a strategy thatOccurs when a firm develops a strategy thatcompetitors are not simultaneously implementingcompetitors are not simultaneously implementing
Provides benefits which current and potentialProvides benefits which current and potentialcompetitors are unable to duplicatecompetitors are unable to duplicate
Strategic CompetitivenessStrategic CompetitivenessAchieved when a firm successfully formulatesAchieved when a firm successfully formulates
and implements a value-creating strategyand implements a value-creating strategy
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PRODUCT
MARKET FUNCTION
What Business the Firm is in?Why the Firm is in the Business?What should be Firms Business?
WHAT IS BUSINESS?
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FIRM/BUSINESS
GAP OUT PUT
VALUE SYSTEMVISION
MISSION
PURPOSE
OBJECTIVES
BASIC IN FRASTRUCTURE AN D FRAME WORK OF A FIRM
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MISSION & GOALS OF A COMPANY VISION: It is a vividly descriptive image ofwhat you
what to be or what you want to be known for. Vision is
an art for seeing invisibles.
MISSION : It a statement of intent ofwhat a firm wants tocreate and through which line of Business. It is a process of
legitimization of corporate existence of business. It defines
the culture, philosophy and grand design of the firm. To
pursue the Creation of Value to all Stakeholders in the
Business. It is an answer to question What business are
we in?
GOALS / OBJECTIVES : End to be achieved. It is To make Profit for today and forever
To satisfy Customers today and forever
To satisfy Employees today and forever
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StrategicStrategic
PlanningPlanning
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Competitive success is transient...unless care is
taken to preserve competitive position
Competitive success is transient...unless care is
taken to preserve competitive position
Only 16 of the 100 largest U.S. companies atthe start of the 20th century are still
identifiable today!
Only 16 of the 100 largest U.S. companies atthe start of the 20th century are still
identifiable today!
In a recent year, 44,367 businesses filed for
bankruptcy and many more U.S. businesses failed
In a recent year, 44,367 businesses filed for
bankruptcy and many more U.S. businesses failed
Challenge of Strategic ManagementChallenge of Strategic Management
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Three Big StrategicThree Big Strategic
QuestionsQuestions Where Are We Now?Where Are We Now?
Where Do we WantWhere Do we Wantto Go?to Go?
How Will We GetHow Will We Get
There?There?
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Crafting a StrategyCrafting a Strategy
HOW to out compete rivals and win aHOW to out compete rivals and win a
competitive advantage.competitive advantage.
HOW to respond to changing industryHOW to respond to changing industryand competitive conditionsand competitive conditions
HOW to defend against threats to theHOW to defend against threats to the
companys well-beingcompanys well-being HOW to pursue attractive opportunitiesHOW to pursue attractive opportunities
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What is a Strategic Plan?What is a Strategic Plan?
A strategic planA strategic plan
specifies where aspecifies where a
company iscompany isheaded and HOWheaded and HOW
managementmanagement
intends to achieveintends to achieve
the targetedthe targetedlevels oflevels of
performanceperformance..
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Characteristics of Strategic ManagementDecisions
..
Corporate-level
decisions
Greater risk,cost,
and profit potential
Greater need for
flexibility
Longer time horizons
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Characteristics of StrategicManagement Decisions (contd.)
..
Functional-
level
decisions
Functional-
level
decisions
Implement overall strategy
Involve action-oriented
operational issues
Are relatively short range
and low risk
Incur only modest costs
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Characteristics of StrategicManagement
Decisions (contd.)
..
Business-level
decisions
Bridge decisions at
corporate and functional
levels
Are less costly, risky, and
potentially profitable than
corporate-level decisions
Are more costly, risky, and
potentially profitable than
functional-level decisions
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Strategic Management Basic model
Four Basic ElementsFour Basic Elements
Strategic management is the process of moving where you are
to where you want to be in future through
sustainable competitive advantages
Options on
Competitive
Positioning
Learning
points from
deviations
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FIRM
MACRO ENVIROAPPRAISAL
MICRO ENVIROAPPRAISAL OF
INDUSTRIES
MICRO ENVIRO
APPRAISAL OFFIRM
BASICSTRATEGIES
STRATEGICALTERNATIVES
BUSINESS LEVELSTRATEGIES
STRATEGICSELECTION
STRATEGICIMPLEMEMTATION
ORGANISATIONDESIGN
FUNCTIONALLEVELSTRATEGIES &
RESOURCESALLOCATION
DEVELOPMENTOF
CONTROL
IsStrategyWorking?
STRATEGIC PLANNING DESIGN AND IMPLEMENTATION PROCESS
GAPVISION
MISSION
VALUE
GOAL
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The Five Task of StrategicThe Five Task of Strategic
PlanningPlanning Developing a Vision and a MissionDeveloping a Vision and a Mission Setting ObjectivesSetting Objectives
Crafting a StrategyCrafting a Strategy
Implementing and Executing StrategyImplementing and Executing Strategy
Evaluating Performance, Reviewing theEvaluating Performance, Reviewing the
Situation and Initiating Corrective ActionSituation and Initiating Corrective Action
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Characteristic of theCharacteristic of the
Strategic ManagementStrategic Management
ProcessProcess An ongoing exerciseAn ongoing exercise
Boundaries among the tasks are blurry rather thanBoundaries among the tasks are blurry rather than
clear-cutclear-cut
Doing the 5 task is not isolated from other managerialDoing the 5 task is not isolated from other managerial
responsibilities and activities.responsibilities and activities.
The time required to do the tasks of strategicThe time required to do the tasks of strategic
management comes in lumps and spurts rather thanmanagement comes in lumps and spurts rather than
being constant and regular.being constant and regular. Involves pushing to get the best strategy supportiveInvolves pushing to get the best strategy supportive
performance from each employee, perfecting theperformance from each employee, perfecting the
current strategy.current strategy.
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ENVIRONMENTAL APPRAISAL
ENVIRONMENTALANALYSIS
ENVIRONMENTAL DIAGNOSIS
O
T
S
WETOPSAP
OFPP
ALUATION PROCESS OF SWOT ANALYS
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Political/
Legal
Political/
Legal
EconomicEconomic
TechnologicalTechnological
GlobalGlobal
DemographicDemographic SocioculturalSociocultural
CompetitiveCompetitive
EnvironmentEnvironment
IndustryEnvironment
IndustryEnvironment
Components of the General EnvironmentComponents of the General Environment
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ENVIRONMENTAL FACTORSENVIRONMENTAL FACTORS
ECONOMICAL
TECHNOLOGICALPOLITICAL /LEGAL
GLOBAL
SOCIOCULTURAL
DEMOGRAPHIC
FIRM/BUSINESS
GOVERNMENTAL
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Components of the General EnvironmentComponents of the General Environment
Variables in Societal Environment
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Variables in Societal Environment
International Societal Environments
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International Societal Environments
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Industry AnalysisIndustry Analysis
Porters Approach to Industry Analysis
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Porter s Approach to Industry Analysis
Threat of Substitute Products or Services
Bargaining Power of Buyers
Bargaining Power of Suppliers
Relative Power of Other Stakeholders
Rivalry Among Firm in an Industry
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DETERMINENT OF BUYERSDETERMINENT OF BUYERS
POWERPOWER
Bargaining LeverageBargaining Leverage(a) Buyers Concentration(a) Buyers Concentration
(b) Buyers Volume(b) Buyers Volume
(c) Buyers Switching Cost(c) Buyers Switching Cost
Price SensitivityPrice Sensitivity
(a) Price / Total Purchase(a) Price / Total Purchase
(b) Impact on Quantity/ Performance(b) Impact on Quantity/ Performance
(c) Buyers Profit.(c) Buyers Profit.
Porters Approach to Industry Analysis
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Porter s Approach to Industry Analysis
Threat of New Entrants Economies of scaleProprietary Product differentiationCapital requirements
Switching costsAccess to distribution channelsCost disadvantagesGovernment policyProprietary Low Cost DesignStage in Learning/ Experience Curve
Porters Approach to Industry Analysis
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Porter s Approach to Industry Analysis
Rivalry Among Existing Firms
Number of competitorsRate of industry growth (Slow)Product or service characteristics
Amount of fixed costsLack of differentiation or Switching CostCapacity augmentation in largeincreamentHeight of exit barriersDiversity of rivalsHigh strategic Stakes
Porters Approach to Industry Analysis
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Porter s Approach to Industry Analysis
Threat of Substitute Products or Services
Bargaining Power of Buyers
Bargaining Power of Suppliers
Relative Power of Other Stakeholders
Porters Approach to Industry Analysis
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Porter s Approach to Industry Analysis
Threat of New Entrants
Economies of scaleProprietary Product differentiationCapital requirementsSwitching costsAccess to distribution channelsCost disadvantagesGovernment policy and Regulations
Stage in Learning Curve
Porters Approach to Industry Analysis
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Porter s Approach to Industry Analysis
Rivalry Among Existing Firms
Number of competitorsRate of industry growthProduct or service characteristicsAmount of fixed costsCapacityHeight of exit barriers
Diversity of rivals
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Pressure from SubstitutePressure from Substitute
ProductsProductsThe threat from substitute products is highThe threat from substitute products is high
when:when:The price-performance tradeoff offered byThe price-performance tradeoff offered by
the substitute product is attracive.the substitute product is attracive.The switching costs for prospective buyersThe switching costs for prospective buyers
are minimal.are minimal.
The substitute products are being producedThe substitute products are being producedby industries earning superior profits.by industries earning superior profits.
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Bargaining Power BuyersBargaining Power Buyers
The bargaining power of a buyer groupThe bargaining power of a buyer group
is high when:is high when:
Its purchases are large relative to theIts purchases are large relative to thesales of the seller .sales of the seller .
Its switching costs are low.Its switching costs are low.
It poses a strong threat of backwardIt poses a strong threat of backwardintegration.integration.
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Bargaining Power SuppliersBargaining Power Suppliers
Suppliers have strong bargaining power when :Suppliers have strong bargaining power when :
Few suppliers dominate and the supplier group isFew suppliers dominate and the supplier group is
more concentrated than the buyer group.more concentrated than the buyer group.
There are hardly any viable substitutes for theThere are hardly any viable substitutes for the
products supplied.products supplied.
The switching costs for buyers are high.The switching costs for buyers are high.
Suppliers do present a real threat forwardSuppliers do present a real threat forwardintegration.integration.
IFAS
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EFAS
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SFAS Matrix
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SWOT analysis of strengths,SWOT analysis of strengths,weaknesses, opportunities,and threats.weaknesses, opportunities,and threats.
TOWS M iTOWS M t i
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TOWS MatrixTOWS Matrix
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CREATING STRATEGICCREATING STRATEGIC
MIND SETMIND SET
C t St t
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Corporate Strategy
Three Key Issues: Firms directional (CORPORATE)
strategy Firms portfolio (BUSINESS LEVEL)
strategy
Firms parenting (FUNCTIONAL LEVEL)strategy
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Initiation of StrategyInitiation of Strategy
Triggering
event
New CEO
External intervention
Threat of change inownership
Performance gap
Strategic inflection point
Stimulusfor change
in
strategy
Corporate Strategy
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Directional Strategy
Orientation toward growthExpansion, contraction, status quoConcentration or diversificationInternal development or acquisitions,mergers, or alliances
3 Grand StrategiesGrowth strategiesStability strategiesRetrenchment strategies
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Corporate Directional StrategiesCorporate Directional Strategies
COMBINATION STRATEGIES
DERIVED STRATEGIES
STRATEGIC VARIATIONS -STRATEGIC VARIATIONS -
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STRATEGIC VARIATIONS -STRATEGIC VARIATIONS
EXPANSIONEXPANSION INTERNAL: Add new product, product line, market,
functions, redefine/ reposition of product market. EXTERNAL : Take over, acquisition, merger.
RELATED : Synergic diversification.
UNRELATED:Non synergic diversification. HORIZONTAL: Supplementary/ Complementary
Expansion.
VERTICAL: Integration.
ACTIVE: R & D, Entrepreneurial development.
PASSIVE: Imitation, adoption & adaptation.
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IGOR ANSOFFS BUSINESS GROWTH MODELIGOR ANSOFFS BUSINESS GROWTH MODEL
PRODUCTS
EXISTING NEW
M
ARKE
TS/CUS
TOM
ERS
EXISTIN
G
NEW
ExistingShare of Business
EXISTING PRODUCTSIN EXISTING MARKETS
Increase
Market Share
SALESMGMT.
NEW PRODUCTS FOREXISTING CUSTOMERS
NEW PRODUCTDEVELOPMENT, UPGRADES
NEW CUSTOMERSFOR EXISTING LINESOF PRODUCTS
MARKET DEVELOPMENT
BUSINESSDEVELOPMENT
RelatedBusinesses
CORPORATEPLANNING
UnrelatedBusinesses
New products /New Markets
Products* Corporate Strategy, I. Ansoff, Jan 1965, McGraw Hill, USA
Corporate Strategy
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Growth Strategies --
External mechanisms
Mergers
Acquisitions
Strategic alliances
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EXTERNAL GROWTHEXTERNAL GROWTH
STRATEGIESSTRATEGIES
TAKE OVER, AQUISION &MERGER
BUYING FIRM SELLING FIRM
Acquire Controlling interest}
Acquire Assets and liabilities}of selling Firm}
Acquire & merge of Assets }liabilities of both the firms.}
TAKE OVERACQUISION
MERGER
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WHY THE FIRM PURSURE EXTERNALWHY THE FIRM PURSURE EXTERNAL
EXPANSIONEXPANSION To increase the firms stock.. To increase the growth rate of the firm. To make good investments. To improve the firms earnings & stability. To balance or fill out the product line.
To diversified the product line in mature state. To reduce the competition. To acquire the needed resources. For Tax purpose.
To increase the efficiency and profitability. To diversify the owners holding. To deal with top management problems..
CRITICAL ISSUES RELATED TO M & ACRITICAL ISSUES RELATED TO M & A
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CRITICAL ISSUES RELATED TO M & ACRITICAL ISSUES RELATED TO M & A STRATEGIC ISSUES:
It relates to the commonality of strategic interest. Strength of onefirm may be weakness of the other firm and vice versa. The firms
can create Synergy and complementing business situation. FINANCIAL ISSUES:
These are related to (a) Valuation of selling firms based on assets,market standing, share prices, earning potential etc. (b) Sources offinancing for merger.
MANAGERIAL ISSUES:It relates to professional compatibility and acceptance of
managerial system of selling company. LEGAL ISSUES:
It is related to various issues of legal provisions such as Chapter Vof the Companies Act, the MRTP Act, and section 72A (I) of theIncome Tax Act OR Anti Trust Act, Shermans Act.
CULTURAL ISSUES: It relates to the cultural compatibility of the organization, society,
market etc. LABOUR ISSUES: It relates to continuation of old staff and
subsequent relations. SOCIETAL ISSUES: It relates to the benefits of society and Social
compatibility. OTHER ISSUES: It relates to Political, Economic, Environmental
factors.
REASONS FOR FAILUR OFREASONS FOR FAILUR OF
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REASONS FOR FAILUR OFREASONS FOR FAILUR OF
EXTERNAL GROWTHEXTERNAL GROWTH
Paying too much for the acquired firm.Paying too much for the acquired firm. Assuming that a growing market orAssuming that a growing market or
product will be out standing in market.product will be out standing in market. Leaping into merger without carefullyLeaping into merger without carefully
studying the consequences.studying the consequences. Diversifying in to areas in which the firmDiversifying in to areas in which the firm
had too little knowledge.had too little knowledge. Buying too large a firm and thus incurringBuying too large a firm and thus incurring
an excessively large debt.an excessively large debt. Trying to merge disparate corporateTrying to merge disparate corporate
cultures.cultures. Counting on key personnel staying afterCounting on key personnel staying after
the merger.the merger.
Corporate Strategy
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Growth Strategies - Related
2 Basic forms
Concentration
Diversification
Corporate Strategy
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Basic Concentration Strategies --
Vertical growth
Horizontal growth
Corporate Strategy
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Vertical Growth --Vertical integration
Full integrationTaper integrationQuasi-integrationLong-term contract
Backward integration
Forward integration
Corporate Strategy
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Concentration --
Horizontal GrowthHorizontal integration
Corporate Strategy
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Basic Diversification Strategies --
Concentric Diversification
Conglomerate Diversification
Corporate Strategy
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Concentric Diversification --
Growth into related industrySearch for synergies
Corporate Strategy
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Conglomerate diversification --
Growth into unrelated industryConcern with financial considerations
DERIVED BUSINESS STRATEGIES
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OFFENSIVE DEFFENSIVE CO-OPERATIVE
DERIVEDBUSINESS STRATEGIES
FRONTAL ASSAULTFLANKING MANEUVERBYPASS ATTACK
ENCIRCLEMENTGUERRILLA WARFARE
RAISE STRUCTURALBARRIER
INCREASE EXPECTEDRETALIATION
LOWER INDUCEMENT FORATTACK
SYNDICATING (COLLUSIOSTRATEGIC ALLIANCESMUTUAL CONSORTIA
JOINT VENTURELICENSING ARRANGEMENVALUE CHAIN PARTNERS
STRATEGIC ALLIANCESTRATEGIC ALLIANCE
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(Partnering):(Partnering): It is a partnership of two or more corporations or business units to
achieve strategically significant objectives which can be mutuallybeneficial. Some alliance are short term till the product isestablished, while the others are longer lasting, resulting in merger.
The reasons for alliance are:
(a) To obtain technological, management and/or manufacturing capabilities.(b) To enter into specific markets.(c) To reduce financial risk.
(d) To reduce political and economic risk.(e) To achieve or ensure competitive advantages in new businesses or markets(f) It plays vital role in todays market condition and environment to solve some
complicated issues.(g) It provides vital role in providing the firms synergic strength.(h) It helps to develop product, process, market & share the investment outlay
jointly.(i) It facilitates the development of unique technological capabilities to meet the
challenges of technological revolution.
(j) It create a compulsion for alliance to enter in the local market through JV.(k) Building brand image in local market is mostly possible through alliance.
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SPECIFIC ALLIANCESPECIFIC ALLIANCE Production Alliance:Production Alliance: Two or more companies share theTwo or more companies share the
common manufacturing facilities, existing or new facilities.common manufacturing facilities, existing or new facilities.
Marketing Alliance:Marketing Alliance: Two or more companies shareTwo or more companies sharemarketing services expertise and facilities.marketing services expertise and facilities.
Financial Alliance:Financial Alliance: Companies joint together in order toCompanies joint together in order toreduce financial risks associated with the activities & sharereduce financial risks associated with the activities & share
the profit in proportion to financial contribution.the profit in proportion to financial contribution. Research & Development Alliances:Research & Development Alliances: Fast changingFast changing
technology, high cost of R & D and need of being ahead oftechnology, high cost of R & D and need of being ahead ofchanges, force companies to form alliance in R & D area.changes, force companies to form alliance in R & D area.
Human Resources AllianceHuman Resources Alliance: Alliance for outsourcing: Alliance for outsourcing
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BREAK UP OF ALLIANCE:BREAK UP OF ALLIANCE:
Incompatibility between/among partners
in management style, financial position,culture, business interest.
Access to information.
Distribution of Income. Change in business environment. Acquiring the strength of partner: The
companies over a period of alliance,
acquire the strengths of the partner andstarts new operations in competitions.
STRATEGIC JOINT VENTURESTRATEGIC J
OINT VENTURE
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STRATEGIC JOINT VENTURESTRATEGIC JOINT VENTURE Joint ventures (JV) are partnership in which two or
more firms carry out a specific project or business in a
selected area of industry in a form of new venture.Ownership of the original firms remains unchanged.Actually, corporate partnership are formed withspecific and time bound objectives which, onceachieved, leaves little reasons for the alliance tocontinue. Joint venture can be temporary or it can be
long term. JV that last longer do so because theirobjectives have been redesigned.Every JV:
1. Has a scheduled life cycle, which will end sooner or later (5 to 10years)
2. Has to be dissolved when it has outlived its life cycle.
3. Change in environment forces joint venture to be redesignedregularly
4. Translations seek to absorb their partners competencies.
5. It is a contractual obligation on fragile platform.
Corporate Strategy
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Stability Strategies --
Pause/proceed with caution
No change
Profit strategies
Corporate Strategy
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Retrenchment Strategies --
TurnaroundCaptive Company StrategySelling outBankruptcyLiquidation
RETRENCHMENT STRATEGY
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RETRENCHMENT STRATEGYCommon Retrenchment Strategies: Turnaround, restructuring,
Divesting, Bankruptcy, Liquidation
WHY FIRM GO FOR RETRENCHMENT:
Prevalence of poor economic conditions. Competitive pressure may also cause firms to curtail their
operations.
The comp. is not doing well or perceive itself as doing poorly. The comp. has not met its objectives and there is pressure
from shareholders, customers, or others to improveperformance.
The external environment poses threats and internal strengths
are insufficient to face the threats. Better opportunities in the environments are perceived else
where were firms strength can be utilized. Inability to implement latest technology cause by tech.
revolution.
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Business Level Strategy
Value-Chain Analysis
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Linked set of value-creating activities
beginning with basic raw material andending with distributors getting finalgoods into hands of customers
Value-Chain Analysis
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Typical Value Chain for a Manufactured Product
Corporate Value Chain
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Corporate Value Chain
Porters Generic Competitive Strategies
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Porter s Generic Competitive Strategies
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What is a Business level strategyWhat is a Business level strategy
Business level strategies are firm-specific business modelBusiness level strategies are firm-specific business modelthat will allow a company to gain a competitivethat will allow a company to gain a competitive
advantage over its rivals in a market or industry.advantage over its rivals in a market or industry.
It aims at improving the effectiveness of a companysIt aims at improving the effectiveness of a companys
operations and thus its ability to attend superioroperations and thus its ability to attend superiorefficiency, quality, innovation and customerefficiency, quality, innovation and customer
responsiveness .responsiveness .
Its ability to improve companys operations helps inIts ability to improve companys operations helps in
achieving cost leadership or helps the company inachieving cost leadership or helps the company in
differentiating its product from the rival company.differentiating its product from the rival company.
i i i C iDi i i C
i
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Distinctive CompetenciesDistinctive Competencies
They are firm specific strengths that allow aThey are firm specific strengths that allow acompany tocompany to differentiatedifferentiate its products and/orits products and/orachieve substantiallyachieve substantially lower costslower costs than its rivalsthan its rivals
and thus gain a competitive advantage.and thus gain a competitive advantage.
E.g. ToyotaE.g. Toyota
They arise from two sources:They arise from two sources:
1)1) ResourcesResources2)2) CapabilitiesCapabilities
C t L d hiCost Leadership
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Cost LeadershipCost Leadership
It is based on the intent to outperform competitors byIt is based on the intent to outperform competitors by
doing every thing to establish a cost structure that allows itdoing every thing to establish a cost structure that allows it
to produce or provide goods or services at a lower unitto produce or provide goods or services at a lower unit
cost.cost. Cost leader chooses a low to moderate level of productCost leader chooses a low to moderate level of product
differentiation relative to its competitors.differentiation relative to its competitors.
Aims for a differentiation not markedly inferior to that ofAims for a differentiation not markedly inferior to that of
the differentiator but a level obtainable at a low cost.the differentiator but a level obtainable at a low cost. Frequently ignores the many different market segments inFrequently ignores the many different market segments in
industry to appeal the average customers.industry to appeal the average customers.
Advantages and DisadvantagesAdvantag
es and Disadvantages
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Advantages and DisadvantagesAdvantages and Disadvantages
AdvantagesAdvantages DisadvantagesDisadvantages
Protected from industryProtected from industry
competitorscompetitors
Less affected by competitorsLess affected by competitors
price changeprice change Requires a big market shareRequires a big market share
so they purchases inso they purchases in
relatively large quantitiesrelatively large quantities
Barrier to entry.Barrier to entry.
Cost leadership approachCost leadership approach
lurk in competitors abilitylurk in competitors ability
to find ways to lower theirto find ways to lower their
cost structurecost structure Ability to imitate costAbility to imitate cost
leaders methods easilyleaders methods easily
The single minded desireThe single minded desire
to reduce costs mightto reduce costs might
drastically affect thedrastically affect the
demanddemand
ImplicationsImp
lications
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ImplicationsImplications
To pursue a full blown cost-leadership, strategicTo pursue a full blown cost-leadership, strategic
managers need to devote enormous efforts to incorporatemanagers need to devote enormous efforts to incorporate
all the latest information, materials, management, andall the latest information, materials, management, and
manufacturing technology into their operations to findmanufacturing technology into their operations to find
new ways to reduce costs.new ways to reduce costs. A differentiator cannot let a cost leader get too great aA differentiator cannot let a cost leader get too great a
cost advantage because the leader might then be able tocost advantage because the leader might then be able to
use its high profits to invest more in productuse its high profits to invest more in product
differentiation and beat leaders.differentiation and beat leaders. Must respond to the strategic moves of its differentialMust respond to the strategic moves of its differential
competitors and increase the quality and features of itscompetitors and increase the quality and features of its
products if it is to prosper in the long runproducts if it is to prosper in the long run
Differentiation StrategyDifferentiation Strateg
y
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gygy
The objective of the differentiation strategy is to achieve aThe objective of the differentiation strategy is to achieve a
competitive advantage by creating a product that consumerscompetitive advantage by creating a product that consumers
perceive as different or distinct in some important way.perceive as different or distinct in some important way.
Product differentiation can be achieved in three waysProduct differentiation can be achieved in three ways QualityQuality
InnovationInnovation
Responsiveness to customersResponsiveness to customers
Generally, a differentiator chooses to segment its market intoGenerally, a differentiator chooses to segment its market into
many segments and nichesmany segments and niches A differentiated company concentrates on the organizationalA differentiated company concentrates on the organizational
functions that provide the source of its differentiation advantage.functions that provide the source of its differentiation advantage.
Advantages and DisadvantagesAdvantag
es and Disadvantages
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Advantages and DisadvantagesAdvantages and DisadvantagesAdvantagesAdvantages
Differentiation safeguards aDifferentiation safeguards acompany against competitors tocompany against competitors tothe degree that customers developthe degree that customers develop
brand loyalty for its productbrand loyalty for its product Suppliers are rarely a problem asSuppliers are rarely a problem as
companys strategy is gearedcompanys strategy is gearedmore toward the price it canmore toward the price it cancharge than toward costscharge than toward costs
Distinct product solves theDistinct product solves theproblem of strong buyersproblem of strong buyers
The threat of substitutes dependsThe threat of substitutes dependson the ability of the competitorson the ability of the competitors
product.product.
DisadvantagesDisadvantages
Strategic managers longStrategic managers long
term ability to maintain aterm ability to maintain a
products pe products pe
distinctness in customersdistinctness in customers
eyes.eyes. The ease with whichThe ease with which
competitors imitate thecompetitors imitate the
differentiators productdifferentiators product
S iF S i
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Focus StrategiesFocus Strategies
Focus Strategies position a company toFocus Strategies position a company to
compete for customers in a particular marketcompete for customers in a particular market
segment, which can be definedsegment, which can be definedgeographically, by type of customers, or bygeographically, by type of customers, or by
region or even by locality.region or even by locality.
F S iF S i
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Focus StrategiesFocus Strategies
Focused Cost Leadership Strategy :Focused Cost Leadership Strategy :
If a company uses a focused low cost approach, itIf a company uses a focused low cost approach, it
competes against the cost leader in the marketcompetes against the cost leader in the market
segment in which it has no cost disadvantage.segment in which it has no cost disadvantage.
Focused Differentiation Strategy :Focused Differentiation Strategy :
If a company uses a focused differentiationIf a company uses a focused differentiation
approach, then all the means of differentiation thatapproach, then all the means of differentiation that
are open to the differentiator are available to theare open to the differentiator are available to thefocused company.focused company.
Ad tAd antage
s
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AdvantagesAdvantages A focused companys competitive advantage stemA focused companys competitive advantage stem
from the source of its distinctive competency:from the source of its distinctive competency:efficiency, quality, innovation, or responsiveness toefficiency, quality, innovation, or responsiveness tocustomers.customers.
The company is protected from rivals to the extentThe company is protected from rivals to the extent
that it can provide a product or service they cannot.that it can provide a product or service they cannot. This ability also gives the focuser power over itsThis ability also gives the focuser power over its
buyers because they cannot get the same thingsbuyers because they cannot get the same thingsfrom anyone else.from anyone else.
Di d tDi d t
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DisadvantagesDisadvantages
Powerful suppliersPowerful suppliers
The focusers niche can suddenly disappearThe focusers niche can suddenly disappear
because of technological change or change inbecause of technological change or change incustomers tastes.customers tastes.
The focuser is vulnerable and has to defend itsThe focuser is vulnerable and has to defend its
niche constantly.niche constantly.
Risks of Generic Strategies
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Risks of Cost Leadership
Cost leadership is notsustained:
Competitors imitate.
Technology changes.
Other bases for cost
leadership erode.
Proximity in differentiation is
lost.Cost focusers achieve even
lower cost in segments.
Risks of Differentiation
Differentiation is notsustained:
Competitors imitate.
Bases for differentiation
become less important to
buyers.
Cost proximity is lost.
Differentiation focusersachieve even greater
differentiation in segments.
Risks of Focus
The focus strategy isimitated:
The target segment becomes
structurally unattractive:
Structure erodes.
Demand disappears.
Broadly targeted competitors
overwhelm the segment: The segments
differences from other
segments narrow.
The advantages of a
broad line increase.
New focusers subsegment
the industry.
Risks of Cost LeadershipCost leadership is notsustained:
Competitors imitate.
Technology changes.
Other bases for cost
leadership erode.
Proximity in differentiation is
lost.
Cost focusers achieve even
lower cost in segments.
Risks of DifferentiationDifferentiation is not
sustained:
Competitors imitate.
Bases for differentiation
become less important to
buyers.
Cost proximity is lost.
Differentiation focusers
achieve even greater
differentiation in segments.
Risks of FocusThe focus strategy is
imitated:
The target segment becomes
structurally unattractive:
Structure erodes.
Demand disappears.
Broadly targeted competitors
overwhelm the segment:
The segments
differences from other
segments narrow.
The advantages of a
broad line increase.
New focusers subsegment
the industry.
IndustryForce
Generic Strategies
Cost Leadership Differentiation Focus
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Cost Leadership Differentiation Focus
EntryBarriers
Ability to cut price in retaliation deterspotential entrants.
Customer loyalty can discouragepotential entrants.
Focusing develops corecompetencies that can act as anentry barrier.
BuyerPower
Ability to offer lower price to powerfulbuyers. Large buyers have less power tonegotiate because of few close alternatives.Large buyers have less power to negotiatebecause of few alternatives.
Ability to offer lower price to powerfulbuyers. Large buyers have less powerto negotiate because of few closealternatives. Large buyers have lesspower to negotiate because of fewalternatives.
Ability to offer lower price topowerful buyers. Large buyers haveless power to negotiate because offew close alternatives. Largebuyers have less power tonegotiate because of fewalternatives.
Supplier
Power
Better insulated from powerful suppliers.Better able to pass on supplier price
increases to customers. Suppliers havepower because of low volumes, but adifferentiation-focused firm is better able topass on supplier price increases.
Better insulated from powerfulsuppliers. Better able to pass on
supplier price increases to customers.Suppliers have power because of lowvolumes, but a differentiation-focusedfirm is better able to pass on supplierprice increases.
Better insulated from powerfulsuppliers. Better able to pass on
supplier price increases tocustomers. Suppliers have powerbecause of low volumes, but adifferentiation-focused firm isbetter able to pass on supplierprice increases.
Threat ofSubstitute
s
Can use low price to defend againstsubstitutes. Customer's become attached todifferentiating attributes, reducing threat of
substitutes. Specialized products & corecompetency protect against substitutes.
Can use low price to defend againstsubstitutes. Customer's becomeattached to differentiating attributes,
reducing threat of substitutes.Specialized products & corecompetency protect againstsubstitutes.
Can use low price to defend againstsubstitutes. Customer's becomeattached to differentiating
attributes, reducing threat ofsubstitutes. Specialized products &core competency protect againstsubstitutes.
Rivalry Better able to compete on price.Brandloyalty to keep customers from rivals.Rivalscannot meet differentiation-focusedcustomer needs.
Better able to compete on price.Brandloyalty to keep customers fromrivals.Rivals cannot meetdifferentiation-focused customerneeds.
Better able to compete onprice.Brand loyalty to keepcustomers from rivals.Rivals cannotmeet differentiation-focusedcustomer needs.
Functional Strategy
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The approach a functional areatakes to achieve corporate andbusiness unit objectives andstrategies by maximizing resourceproductivity
Functional StrategyMarketing Strategy
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FRONTAL ASSAULT
FLANKING MANEUVER
BYPASS ATTACKENCIRCLEMENT
GUERRILLA WARFARE
PricingSkim pricingPenetration pricingDynamic pricing
SellingDistribution
Product developmentLine extensionAdvertising and promotionPush strategy
Pull strategy
Functional Strategy
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Financial Strategy
Leveraged buyoutReversed stock splitTracking stock
Functional Strategy
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R&D Strategy
Technological leaderTechnological followerOpen innovation
Functional Strategy
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Operations Strategy
Job shopConnected line batch flow
Flexible manufacturing systemsDedicated transfer linesMass productionContinuous improvement system
Modular manufacturing
Functional Strategy
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Purchasing Strategy
Multiple sourcingSole sourcingJust-in-time (JIT)Parallel sourcing
Functional Strategy
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Logistics Strategy
CentralizationOutsourcingInternet
Functional Strategy
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HRM Strategy
360 degree appraisal
Functional Strategy
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Outsourcing errors
Activities that should not beoutsourcedWrong vendor selectionWriting poor contractOverlooking personnel issuesHidden costs of outsourcingFailing to plan exit strategy
Proposed Outsourcing Matrix
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Functional Strategy
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Strategies to Avoid
3 Follow the leaderHit another home runArms raceDo everythingLosing hand
Functional Strategy
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Subjective Factors AffectingDecisions --
Managements attitude toward riskPressures from stakeholdersPressures from corporate cultureNeeds and desires of key managers
Strategic Choice
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Evaluation of Strategic Alternatives--
Mutual exclusivitySuccessCompletenessInternal consistency
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PORTFOLIOPORTFOLIO
ANALYSISANALYSIS
Corporate Strategy
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Portfolio Analysis --
Resource commitment on bestproducts to ensure continued success
Resource commitment on new costlyproducts high risk
Stages of the Industry Life CycleStages of the Industry Life Cycle
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PRODUCT LIFE CYCLEPRODUCT LIFE CYCLE
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Most product sales observed over long periods can be portrayedas bell shaped curves Product life cycle curves which can betypically divided into four stages: Introduction, Growth, Maturityand Decline.
Product Life Cycle asserts four things. 1. Products have limited life. 2. Product Sales pass through distinct stages, each posing
different challenges, opportunities and problems to the seller. 3. Profits rise and fall through different stages of the life cycle. 4. Products require different marketing, financial, manufacturing,
purchasing and H.R. strategies in each life cycle stage. Growth-Slump-Maturity pattern (small kitchen appliances)
Cycle Recycle Pattern Scalloped Pattern (succession of PLCs; eg: Nylon)
INTRODUCTIONINTRODUCTION - STRATEGIES- STRATEGIES
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PRIC
E
Hi
Lo
PROMOTION
Hi
SLOW
SKIMMING
SLOW
PENETRATION
RAPID
SKIMMING
RAPID
PENETRATION
Sales growth tends to be slow - Delays in production capacity
expansion /technical problems; Distribution/retail chains being put up;
sales expensive as conversion rates are lower (innovators).
Promotion at the highest ratio to sales inform customers, induce
trial and secure distribution in retail outlets.
Prices tend to be high as costs are higher.
PLC - GROWTH STAGEPLC - GROWTH STAGE
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Introduction is followed by aIntroduction is followed by a stage marked by rapid climb instage marked by rapid climb in
sales. Companies starts to eye for market share.sales. Companies starts to eye for market share.
Growth is a period of rapid market acceptance &Growth is a period of rapid market acceptance & substantialsubstantial
profit improvement.profit improvement.
Innovators, early adaptors like the product and continue toInnovators, early adaptors like the product and continue to
buy the product whilebuy the product while middle majoritymiddle majority starts trying.starts trying.
New competitionNew competition as sales and profits are growing. The stageas sales and profits are growing. The stage
where we see entry of competition in large numbers.where we see entry of competition in large numbers.
Prices remain where they are or fall slightlyPrices remain where they are or fall slightly to allow betterto allow better
penetration or for entry into other segments.penetration or for entry into other segments.
Time noted for theTime noted for the introduction of variants/ brand extensionsintroduction of variants/ brand extensions..
Companies maintainCompanies maintain promotion at same or higher levelpromotion at same or higher level..
Profits increase even with higher promotion costs as it getsProfits increase even with higher promotion costs as it gets
spread over higher sales volume.spread over higher sales volume.
PLC - GROWTH STAGEPLC - GROWTH STAGE
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MARKETING STRATEGIESMARKETING STRATEGIES
FirmFirm improves product quality and adds new features andimproves product quality and adds new features and
models.models. EntersEnters new market segmentsnew market segments..
EntersEnters new distribution channelnew distribution channel..
Advertising focus shifts from awareness / knowledgeAdvertising focus shifts from awareness / knowledge toto
Interest/desire/conviction.Interest/desire/conviction.
Prices should be reduced (or low priced variants launched)Prices should be reduced (or low priced variants launched)
at the right timeat the right time to attract the next level of price sensitiveto attract the next level of price sensitive
customers.customers.
FacesFaces tradeoff between high market share to high currenttradeoff between high market share to high current
profit.profit.
Firm that pursues market expansion strategy will improve itsFirm that pursues market expansion strategy will improve its
competitive positioncompetitive position..
PLC - MATURITY STAGEPLC - MATURITY STAGE M d t hi h d i th t itMany products which we see around us are in the maturity
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Many products which we see around us are in the maturityMany products which we see around us are in the maturitystage of PLC.stage of PLC.
A stage characterized by the slow down in the growth rate.A stage characterized by the slow down in the growth rate. Most of practical Marketing management deals with aMost of practical Marketing management deals with a
mature product. Hence themature product. Hence the most important phase in PLC.most important phase in PLC. Three PhasesThree Phases
1. Growth Maturity1. Growth Maturity
::
Sales growth starts to fall due toSales growth starts to fall due to
distribution saturation. Growth predominantly due to trial bydistribution saturation. Growth predominantly due to trial bylaggards.laggards.
2. Stable Maturity2. Stable Maturity:: Most potential customers have tried theMost potential customers have tried theproduct. Future sales governed by population growth andproduct. Future sales governed by population growth and
replacement demand.replacement demand. 3. Decaying Maturity3. Decaying Maturity:: Absolute level of sales decline.Absolute level of sales decline. Slow down in sales growth causes over-capacity -----Slow down in sales growth causes over-capacity -----
Intensified competition ----- price wars ---- profit Erosion----Intensified competition ----- price wars ---- profit Erosion----weak exit.weak exit.
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MATURITY STAGE STRATEGIESMATURITY STAGE STRATEGIES
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Volume can also be increased by focusing on the CurrentVolume can also be increased by focusing on the CurrentUsers Users convincing them to use moreconvincing them to use more..
More frequent useMore frequent use:: Biscuits an all time snack, Coke insteadBiscuits an all time snack, Coke insteadof coffee/tea, clinic shampoo, variety of SKU, vendingof coffee/tea, clinic shampoo, variety of SKU, vendingmachines.machines.
More usage per OccasionMore usage per Occasion:: Shampoo giving better results inShampoo giving better results in
two rinsing, more SKUs.two rinsing, more SKUs. New more varied uses:New more varied uses: Recipe route tried out by microwaveRecipe route tried out by microwave
oven manufacturers, Sachets by shampoo manufacturersoven manufacturers, Sachets by shampoo manufacturersfor travelers, Arm & Hammer Baking soda as a refrigeratorfor travelers, Arm & Hammer Baking soda as a refrigeratordeodorant.deodorant.
2. PRODUCT MODIFICATION2. PRODUCT MODIFICATION Stimulate sales by modifying the products characteristicsStimulate sales by modifying the products characteristics
by improvements inby improvements in quality, feature and stylequality, feature and style..
STRATEGIES FOR MATURE STAGETRATEGIES FOR MATURE STAGE
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2. PRODUCT MODIFICATION2. PRODUCT MODIFICATION Quality Improvement:Quality Improvement: Functional performance improved- for cars, TV, whiteFunctional performance improved- for cars, TV, white
goods - New Improved eg: Santro Xing, Indica V2.goods - New Improved eg: Santro Xing, Indica V2. Plus launch - from FMCG manufacturers --------- stronger,Plus launch - from FMCG manufacturers --------- stronger,
bigger, better, Lifebuoy Plus.bigger, better, Lifebuoy Plus. Aimed at triggering Brand switchingAimed at triggering Brand switching Style Improvement:Style Improvement: Aimed at increasing aesthetic appeal.Aimed at increasing aesthetic appeal. Periodic intro of color variants by auto manufacturers.Periodic intro of color variants by auto manufacturers. Consumer/packaged food bringing packaging /colorConsumer/packaged food bringing packaging /color
variants.variants. Advantages: Unique identity / can secure loyal customers.Advantages: Unique identity / can secure loyal customers. Major disadvantage arises from the fact that it is difficult toMajor disadvantage arises from the fact that it is difficult to
judge customer preferences --- risk of losing those whojudge customer preferences --- risk of losing those wholiked earlier versionliked earlier version
STRATEGIES FOR MATURE STAGE (contd.)STRATEGIES FOR MATURE STAGE (
contd.)
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Advantages of feature improvementsAdvantages of feature improvements Build progressive and leadership image for co. (Maruti)Build progressive and leadership image for co. (Maruti) New features can be made optional (adapted or droppedNew features can be made optional (adapted or dropped
easily).easily). Helps to win loyalty of some segments.Helps to win loyalty of some segments. Cost effective publicity.Cost effective publicity.
Can generate enthusiasm for sales force and dealers.Can generate enthusiasm for sales force and dealers. Main disadvantage is that many of these can be easilyMain disadvantage is that many of these can be easilyimitated.imitated.
3. Marketing Mix Modifications:3. Marketing Mix Modifications: Product Manager should also try to stimulate sales byProduct Manager should also try to stimulate sales by
modifying Mktg. Mix.modifying Mktg. Mix. Price:Price: Decision whether a price cut will attract newDecision whether a price cut will attract new
customers.customers. Trying price specials, early bird discounts, easier creditTrying price specials, early bird discounts, easier credit
terms to retain loyal customers..terms to retain loyal customers..
MATURITY STAGE STRATEGIESMATURITY STAGE STRATEGIES
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3. Marketing Mix Modifications:3. Marketing Mix Modifications: Advertising:Advertising: Change message- copy, media- vehicle mix,Change message- copy, media- vehicle mix,
timing/frequency, to target new audience.timing/frequency, to target new audience. Build new brand identity / image.Build new brand identity / image. Direct comparison Ads about competition.Direct comparison Ads about competition. Sales Promotion:Sales Promotion: Step up trade discountStep up trade discount
Price offs, Rebates, warranties, festival offers, gifts etc.Price offs, Rebates, warranties, festival offers, gifts etc. Personal selling:Personal selling: should the quality of sales people or theirshould the quality of sales people or their
area of specialization need to be changed.area of specialization need to be changed. Questions on territory revisions; incentive plans; planning ofQuestions on territory revisions; incentive plans; planning of
sales call etc.sales call etc. Services:Services: can the company speed up delivery. Extendingcan the company speed up delivery. Extending
technical services.technical services. Disadvantages: can be easily copied. Mass distribution andDisadvantages: can be easily copied. Mass distribution and
penetration efforts may not help can lead to profit erosion.penetration efforts may not help can lead to profit erosion.
STRATEGIES FOR DECLINE STAGESTRATEGIES FOR DECLINE STAGE
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Sales of most products/brands eventually decline .Sales of most products/brands eventually decline . 1. Technological advancements in the product category.1. Technological advancements in the product category. 2. Consumer shifts in taste & perception.2. Consumer shifts in taste & perception. 3. Increased domestic & foreign competition------3. Increased domestic & foreign competition------ price cutting/ over capacity/ profit erosion.price cutting/ over capacity/ profit erosion.
Sales may plunge to zero or gradually fall for a long period.Sales may plunge to zero or gradually fall for a long period. As sales decline, profits fall. Some of the weaker firmsAs sales decline, profits fall. Some of the weaker firmswithdraw.withdraw.
Those remaining drop smaller market segments & marginalThose remaining drop smaller market segments & marginaltrade channels to conserve profits.trade channels to conserve profits.
They may cut their promotion budgets and may reduce pricesThey may cut their promotion budgets and may reduce pricesfurther.further. Unless strong reasons for retention exist, carrying a weakUnless strong reasons for retention exist, carrying a weak
product is very costly to the firm.product is very costly to the firm. It can delay aggressive search for alternatives/replacement.It can delay aggressive search for alternatives/replacement.
STRATEGIES FOR DECLINE STAGETRATEGIES FOR DECLINE STAGE
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MARKETING STRATEGIESMARKETING STRATEGIES:: 1. Increase firms investment (Dominate the market or to1. Increase firms investment (Dominate the market or to
strengthen its competitive position)strengthen its competitive position) 2. Hold investment level until uncertainties about the2. Hold investment level until uncertainties about the
industry are resolved.industry are resolved. 3. Decreasing investment selectively. (Unprofitable target3. Decreasing investment selectively. (Unprofitable target
groups/ markets/ products will have to be identified andgroups/ markets/ products will have to be identified and
instead look for strong niches.)instead look for strong niches.) 4. Harvesting: milking to recover cash quickly (Brands with4. Harvesting: milking to recover cash quickly (Brands with
high loyalty can continue longer without any investments).high loyalty can continue longer without any investments). 5. Divest the business quickly by disposing off its assets5. Divest the business quickly by disposing off its assets
as advantageously as possibleas advantageously as possible..
Drop DecisionDrop Decision:: Sell/transfer to someoneSell/transfer to someone Should drop slowly or fast.Should drop slowly or fast. Inventory/service level to be maintained.Inventory/service level to be maintained.
P.L.C WEAKNESSES.L.C WEAKNESSESN U if Sh
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No Uniform ShapeNo Uniform Shape::
An S shaped curve describes only shape of PLC while mostAn S shaped curve describes only shape of PLC while most
of them vary or are unique.of them vary or are unique. Unpredictable Turning Points:Unpredictable Turning Points:
While most products do peak and then fall there is noWhile most products do peak and then fall there is no
specific turning point.specific turning point.
Difficult to Decide the StagesDifficult to Decide the Stages:: A dormant sales (flat) pattern may denote the product hasA dormant sales (flat) pattern may denote the product has
reached maturity while it may be just that the product hasreached maturity while it may be just that the product has
touched a plateau before another growth period.touched a plateau before another growth period.
Tendency to drop a product due to such readings can turnTendency to drop a product due to such readings can turn
out to be fatal due to the risks involved in new productout to be fatal due to the risks involved in new product
development.development.
P.L.C WEAKNESSES.L.C WEAKNESSES
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Unclear ImplicationsUnclear Implications::
Growth phase may or may not be associated withGrowth phase may or may not be associated withhigh profit margin.high profit margin. Rapid growth can be associated with low profits andRapid growth can be associated with low profits and
decline can be very profitable.decline can be very profitable.
Product OrientedProduct Oriented:: Fails to understand the changes in the requirementFails to understand the changes in the requirement
of customers / strategies of competitors,of customers / strategies of competitors,attractiveness of new market to competitors/attractiveness of new market to competitors/
Emergence of technologies etc.Emergence of technologies etc. Technologies, needs/ demands, product categoriesTechnologies, needs/ demands, product categories
have different driving forces.have different driving forces.
P.L.C WEAKNESSES.L.C WEAKNESSES
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No Uniform ShapeNo Uniform Shape: An s shaped curve describes only shape: An s shaped curve describes only shapeof PLC while most of them vary or are unique.of PLC while most of them vary or are unique.
Unpredictable Turning Points:Unpredictable Turning Points:While most products do peakWhile most products do peakand then fall there is no specific turning point.and then fall there is no specific turning point. Difficult to Decide the Stagesifficult to Decide the Stages : A dormant sales (flat): A dormant sales (flat)
pattern may denote the product has reached maturity whilepattern may denote the product has reached maturity whileit may be just that the product has touched a plateau beforeit may be just that the product has touched a plateau beforeanother growth period. Tendency to drop a product due toanother growth period. Tendency to drop a product due tosuch readings can turn out to be fatal due to the riskssuch readings can turn out to be fatal due to the risks
involved in new product developmentinvolved in new product development Unclear ImplicationsUnclear Implications: Growth phase may or may not be: Growth phase may or may not be
associated with high profit margin. Say rapid growth can beassociated with high profit margin. Say rapid growth can beassociated with low profits and decline can be veryassociated with low profits and decline can be veryprofitable.profitable.
Product OrientedProduct Oriented: Fails to understand the changing: Fails to understand the changing
requirement of customers / strategies of competitors,requirement of customers / strategies of competitors,attractiveness of new market to competitor-ors /attractiveness of new market to competitor-ors /Emergence of technologies etc.Emergence of technologies etc.
Technologies, needs/ demands, product categories haveTechnologies, needs/ demands, product categories havedifferent driving forces.different driving forces.
Boston Consulting GroupBoston Consulting Group
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g pg p
(BCG) Matrix(BCG) Matrix
When a firms divisions compete in differentWhen a firms divisions compete in different
industries, a separate strategy often must beindustries, a separate strategy often must be
developed for each business.developed for each business.
To enhance and formulate strategies.To enhance and formulate strategies. To manage its portfolio of businessesTo manage its portfolio of businesses
Focuses onFocuses on relative market sharerelative market share position andposition and
thethe industry growth rateindustry growth rate..
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BCG MatrixBCG MatrixRelative Market Share Position
Ind
ustrySales
Gro
wth
Rate
High
1.0
Medium
Low
High
Low
Med
StarsIV
Question MarksIII
Cash CowsI
DogsII
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BCG MatrixBCG Matrix
Pie Chart corresponds to corporatePie Chart corresponds to corporaterevenue generated by that business unit.revenue generated by that business unit.
The pie slice indicates the proportion ofThe pie slice indicates the proportion of
divisions profit.divisions profit. Divisions locatedDivisions located Quadrant I is calledQuadrant I is called Cash CowsCash Cows,, Quadrant II is calledQuadrant II is called DogsDogs.. Quadrant III is calledQuadrant III is called Question MarksQuestion Marks,, Quadrant IV is calledQuadrant IV is called StarsStars,,
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MARKET SHARE DOMINANCE
HIGH LOW
MARK
ETG
ROWT
HRATE
LOW
HIGH
High growth
Market leadersRequire cashLarge profits
Low growth
High market shareHigh cash flow
Low growthLow market shareMinimal cash flow
High growth
Low market shareNeed cash
Poor profit margins
$$$$
BCG Portfolio MatrixBCG Portfolio Matrix
Cash CowsCash Cows
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Cash CowsCash Cows
High relative market share but compete in aHigh relative market share but compete in alow-growth industrylow-growth industry Generate cash in excess of their needsGenerate cash in excess of their needs
Milked i.e. cash for other purposesMilked i.e. cash for other purposes Manages to maintain strong position as longManages to maintain strong position as long
as possibleas possible Product developmentProduct development
Concentric diversificationConcentric diversification Retrenchment or divestiture if the divisionRetrenchment or divestiture if the division
becomes weakbecomes weak
DogsDogs
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DogsDogs
Low relative market share andLow relative market share andcompete in a slow- or no-growthcompete in a slow- or no-growth
industryindustry
Weak internal and external positionWeak internal and external position LiquidationLiquidation DivestitureDivestiture
RetrenchmentRetrenchment
Question MarksQuestion Marks
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Question MarksQuestion Marks
Low relative market sharecompeteLow relative market sharecompetein a high growth industryin a high growth industry Cash needs are highCash needs are high
Cash generation is lowCash generation is low Decision: strengthen by pursuing anDecision: strengthen by pursuing an
intensive strategy, e.g. to sell them.intensive strategy, e.g. to sell them.
StarsStars
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StarsStars
High relative market share and a highHigh relative market share and a highindustry growth rateindustry growth rate
Represent the organizations bestRepresent the organizations bestlong-run opportunities for growth andlong-run opportunities for growth andprofitability.profitability.
Substantial investment to maintain orSubstantial investment to maintain orstrengthen their dominant position.strengthen their dominant position.
Integration strategiesIntegration strategies Intensive strategiesIntensive strategies Joint venturesJoint ventures
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or o o a r xor o o a r xExampleExample
MARKET SHARE DOMINANCE
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pp
Sub-Notebooksand Hand-Held
Computer
Integratedphone/Palm
devices
Laptop andPersonal
Computers
MainframeComputer
MAR
KETG
ROW
THRA
TE
LOW
H
IGH
MARKET SHARE DOMINANCE
HIGH LOW
STAR PROBLEMCHILD
CASHCOW DOG
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BCG Matrix & BenefitBCG Matrix & Benefit
Setting the path for growthSetting the path for growth Knowing dead investmentsKnowing dead investments Draws attention to the cash flow,Draws attention to the cash flow,
Investment characteristicsInvestment characteristics Needs of an organizations variousNeeds of an organizations various
divisions.divisions.
To achieve a portfolio of divisionsTo achieve a portfolio of divisionsthat are Stars.that are Stars.
BCG Matrix LimitationsBCG Matrix Limitations
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BCG Matrix LimitationsBCG Matrix Limitations
Viewing every business as a star, cash cow,Viewing every business as a star, cash cow,dog, or question mark is overly simplistic.dog, or question mark is overly simplistic. Middle of the BCG matrix is not easily classified.Middle of the BCG matrix is not easily classified. The BCG matrix does not reflect whether or notThe BCG matrix does not reflect whether or not
various divisions or their industries are growingvarious divisions or their industries are growingover time.over time.
Other variables besides relative market shareOther variables besides relative market shareposition and industry growth rate in sales areposition and industry growth rate in sales areimportant in making strategic decisions aboutimportant in making strategic decisions about
various divisions.various divisions.
G.E Strategic Planning Model
Strong Average Weak Business StrengthBusiness Strength
I
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Indu
stryAttractiv
eness
High
Medium
Low
Business Strength Index Industry Attractiveness Index
* Market Share * Market size
* Price Competitiveness * Market Growth
* Product Quality * Industry Profit Margin
* Customer Knowledge * Amount of Competition
* Sales Force and Effectiveness * Seasonality
* Geographic Advantage * Cost Structure
* Others * Etc.
GE Business Screen (Portfolio Analysis)
Winners WinnersC
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AB
QuestionMarks
D
F
AverageBusinesses
EWinners
Losers
G
LosersH
LosersProfitProducers
Strong Average Weak
Low
Medium
High
Business Strength/Competitive Position
Ind u s try Attra c tive n
e s s
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Parenting-Fit Matrix
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Edge ofHeartland
Heartland
AlienTerritory
Low
High
HighLow
FIT between parenting opportunities and parenting characteristics
MISFITbe
tweenc
riticalsucc
ess
factors a
nd
pa re nt i n
g
c ha ra c t e ris t
ic s
Ballast
Value Trap
Corporate Strategy
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Corporate Parenting Strategy --
Strategic factorsperformance improvementAnalyze fit
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LeaderLeader - major resources are focused upon the- major resources are focused upon theSBUSBU
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SBU.SBU. Try harderTry harder - could be vulnerable over a longer- could be vulnerable over a longer
period of time, but fine for now.period of time, but fine for now. Double or quitDouble or quit - gamble on potential major SBU's- gamble on potential major SBU's
for the future.for the future. GrowthGrowth - grow the market by focusing just enough- grow the market by focusing just enough
resources here.resources here. CustodialCustodial - just like a cash cow, milk it and do not- just like a cash cow, milk it and do not
commit any more resources.commit any more resources. Cash GeneratorCash Generator - Even more like a cash cow, milk- Even more like a cash cow, milk
here for expansion elsewhere.here for expansion elsewhere. Phased withdrawalPhased withdrawal - move cash to SBU's with- move cash to SBU's with
greater potential.greater potential. DivestDivest - liquidate or move these assets on a fast as- liquidate or move these assets on a fast as
you can.you can.
McKinseys 7 S ModelMcKinseys 7 S Model
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Strategy
Structure Systems
Style
Staff
Skills
SuperOrdinate
Goals-
Shared
Values
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Constructing Corporate Scenarios
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Implementation of aImplementation of a
strategystrategy
Strategy ImplementationStrategy Implementation
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Sum total of the activities
and choices required forthe execution of astrategic plan.
Process by which strategiesand policies are put intoaction through programs,
budgets, and procedures. The toughest phase in
Strategy Management
Strategy ImplementationStrategy Implementation
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Problems in
ImplementingStrategic plans
More time than plannedUnanticipated problemsActivities ineffectively coordinatedCrises deferred attention away
Employees w/o capabilitiesInadequate employee trainingUncontrollable external factorsInadequate leadershipPoorly defined tasksInadequate information systems
DESIGN OF OBJECTIVES& COMMUNICATE TO
CONCERNEDIS STRATEGY
FUNCTIONAL?
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TASK BREAK DOWN
ORGANISATION DESIGN& DEVELOPMENT
DELEGATION OF TASK &AUTHORITIES &
RESPOSIBILITIES
RESOURCESMOBILISATION &
ALLOCATIONDESIGN OFPERFORMANCE
STANDARD
DESIGN OF SIS /MIS
TRAINING &DEVELOPMENT OF
MANAGERS
EVALUATION OFOUT COME
FUNCTIONAL?
STRATEGIC
IMPLEMENTATION
&CONTROL
PROCESS
The Nature of Strategy Implementation
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The greatest strategy will be failed if itsThe greatest strategy will be failed if itsimplemented badly.implemented badly.
Successful strategy formulation does not guaranteeSuccessful strategy formulation does not guarantee
successful strategy implementation.successful strategy implementation.
Less than 10% of strategies formulated areLess than 10% of strategies formulated aresuccessfully implemented!successfully implemented!
The Nature of Strategy Implementation
Strategy Implementation can have a low success rate
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Failing to segment marketsFailing to segment marketsappropriatelyappropriately
Paying too much for a new acquisitionPaying too much for a new acquisition Falling behind competition in R&DFalling behind competition in R&D Not recognizing benefit of computersNot recognizing benefit of computers
in managing informationin managing information
Strategy Implementation can have a low success rate
Implementation may fail due to:
The Nature of StrategyImplementation
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Market goods & services wellMarket goods & services well
Raise needed working capitalRaise needed working capital Produce technologically sound goodsProduce technologically sound goods Sound information systemsSound information systems
Implementation
Successful Strategy Implementation
Formulation vs. Implementation
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Formulation focuses on effectivenessFormulation focuses on effectiveness
Implementation focuses on efficiencyImplementation focuses on efficiency
Formulation is primarily an intellectual process Implementation is primarily an operational process
Formulation requires good intuitive & analytical skills Implementation requires special motivational &leadership skills
Formulation requires coordination among a fewindividuals
Implementation requires coordination among manyindividuals
Nature of StrategyImplementation
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Varies among different types & sizes ofVaries among different types & sizes oforganizationsorganizations
Implementation
Strategy Implementation
Nature of StrategyImplementation
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Altering sales territoriesAltering sales territories
Adding new departmentsAdding new departments Hiring new employeesHiring new employees Cost-control proceduresCost-control procedures Modifying advertising strategiesModifying advertising strategies Building new facilitiesBuilding new facilities
Implementation
Implementation Activities
Nature of StrategyImplementation
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Shift in responsibilityShift in responsibility
Implementation
Management Perspectives
Division orFunctionalManagers
Strategists
Management IssuesManagement Issues
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Management IssuesManagement Issues
ManagementIssues
ResourcesResources
Organizational structureOrganizational structure
RestructuringRestructuring
Annual ObjectivesAnnual Objectives
Management IssuesManagement Issues (contd)(contd)
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Management IssuesManagement Issues (cont d)(cont d)
ManagementIssues Production/OperationsProduction/Operations
Resistance to ChangeResistance to Change
Management Issues
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Purpose of Annual Objectives --
Basis for resource allocation
Mechanism for management (e.g. IT
management) evaluation
Metric for gauging progress on long-term
objectives
Establish priorities (organizational, division,
& departmental)
Management Issues
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Resource Allocation
-- Central management activity that
allows for the execution of strategy
enables resources to be allocated
according to priorities established by
annual objectives.
Management Issues
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1. Financial resources
2. Physical resources
3. Human resources
4. Technological resources
4 Types of Resources
Management Issues
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Matching Structure with Strategy
-- Changes in strategy= Changes in
structure
Structure dictates how objectives &
policies will be established and how
resources will be allocated; e.g. is
structure based on location or based
on the product
Structure should be designed to
facilitate the strategic pursuit of a firm
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New administrative
problems emerge
New strategy
Is formu