1. Strategic Management overview.ppt

8/14/2019 1. Strategic Management overview.ppt

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Concept of Str


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Concept of Strategy

Classical thinking on strategy

to fight and conquer is not supreme excellence . . ;

. . . supreme excellence consists in breaking the enemys resistance without fighting . . .

Art of War

Sun Tzu (360 BC)


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Concept of Strategy

The Origins of Strategy

Know the other and know yourself: Triumph without peril.Know Nature and know the Situation: Triumph completely.

- Sun Tzu (360 B.C.)

If half of strategic thinking is predicting what the otherplayer will do, the other half is figuring out what he knows.


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Concept of Strategy

Business strategy or Corporate strategy can be best understood from what it does to theorganization

What is Strategy?(Porter, M.E. (1996), What is Strategy, Harvard Business Review, 74(12): 61

Rivals can easily copy your improvement in quality and efficiency. But they shouldnt be

able to copy your strategic positioning (What distinguishes your company from all the rest)

Strategy is the creation of a unique and valuable position, involving a different set of

activities.

Strategy require you to make trade-offs in competing--to chose what not to do.

Strategy involves creating fit among a companys activities.


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Concept of Strategy

Differences between Operational Excellence and Strategy

means performing similaractivities better than rivals

perform them

means performingdifferent activities

from rivals or performingsimilar activities in differe

Growth

Relative costposition

N o n - p r i c e

b u y e r

v a

l u e

d e

l i v e r e d

lowhighlow

high Operational effectiveness Strategic positioning


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Concept of Strategy

Why is strategy required ?

Survival

(Susta ining

long t e rmsuccess)

GoalAchievement

( integrat ion ofshor t t e rm and

long term g oals)

Prof i tabi l i ty

Impact

Time Horizon

Businessgrowth

Time

Profits


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Concept of Strategy

Sources of Superior Profitability

RATE OF PROFITABOVE THE

COMPETITIVELEVEL

How do wemake money?

INDUSTRYATTRACTIVENESS

Which industriesshould we be

in?

COMPETITIVEADVANTAGE

How shouldwe compete?

CORPORATESTRATEGY

BUSINESSSTRATEGY


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Concept of Strategy

Focus of strategy

Direction ofthe

business

Scope of thebusinessactivities

How should thefirm compete

Which areas tocompete

Whichmarkets andconsumersegments?

To meetstakeholdersexpectation

Strategyfocuseson . . .

Activity Area Outcomes


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Concept of Strategy

Key dimensions of strategic decisions and areas of decisions

Decisions are taken at the top level ofthe business

Decisions have long term implicationson the business

Decisions are multifunctional andcould be

multi - business in their impact

Modernization / Divestment

Product / Brand Launch

Entry into new markets /geographies

Strategic alliances

Acquisitions

Overseas expansion

Turnaround / BPR / Restructuring

Some typical areas ofstrategic decisions


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Concept of strategy thoughtEvolution in corporate strategy

1950s 1960s 1970s 1980s early late1990s 1990s

Financial Corporate Corporate Positioning Quest for Strategicplanning & planning strategy competitive innovationcontrol advantage &

shareholdervalue

Budgeting Forecasting & Portfolio Analysis of Resource Dynamicproject appraisal investment planning. industry & analysis. sources of

planning Synergy competition Case advantage market competencies Knowledge share managemen

Co-opera

Emphasis on The rise of Diversifi- Industry and Restructuring Virtual orga-financial corporate planning cation. market BPR. nization.management departments Quest for select ivity. Re-focussing Alliances

& formal global Outsourcing competing planning market share for the future

Themes &Issues

Concepts &Techniques

Implementation


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Concept of Strategy

Difference between strategy and tactics

All men can see is the tactics from which victory evolves,

what none can see is the strategy from which tactics evolve

- Sun Tzu (360 B.C.)


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Concept of Strategy

Difference between strategy and tactics

Where

Strategy Tactics

How

Yes

Yes

Where

Strategy Tactics

How

SegmentsIndustryGeographies

Financial managementMarketing Information systemsProduction (JIT,TQM etc)HR


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Concept of Strategy

The key elements of strategic management

StrategyImplementation

StrategyFormulation

Strategic Control

OrganizationEnvironment

Strategyareas

Performance

The process of strategy does not distinguish between types and scale ofbusinesses...


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Concept of Strategy

Varying levels of analysis

CorporateStrategy

BusinessStrategy

FunctionalStrategy

Choice of ProductsChoice of MarketsChoice of Competitors

Where to Compete?

How to Compete?

How to Contribute?


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Concept of Strategy

Hierarchy of objectives and strategy

Board ofDirectors

CorporateManagers

Strategic Decision Makers

BusinessManagers

FunctionalManagers

Mission, includinggoals & philosophy

Ends(What is to be

achieved?)

Means(How is it to be

achieved?)

Long-termobjectives Grand strategy

Annual objectivesShort-term

strategies &policies

Note: indicates a principal responsibility; indicates a secondary responsibility


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Concept of Strategy

The Three Big Strategic Analysis Questions

Where are we now? Where do we want to go? How will we get there?

Effort

Desired position

Current position

Gap

Gap analysis will reveal the

difference between position.

Growth lies in identifying

opportunities in markets

- Products / Services those

can be launched

- Buyer groups those could be

served

Activityoptions

Make

Buy

Study of options will indicate

least risk route to grow


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End of introduction deck on strategic management


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Flow of craftingstrategy

Company mission& vision

Long-term objectives Generic & grand strategies

Short-termobjectives; reward

systemFunctional

tacticsPolicies that empower

action

Restructuring, reengineering & refocusing the

organization

Strategic control & continuous improvement

ExternalEnvironment Internal analysis

Strategic analysis & choice

Legend

Major impact

Minor impact

F e e

d b a c

k


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Concept of Strategy

Andrews Strategy Framework Source: Kenneth R. Andrews, The Concept of Corporate Strategy, 1971

EnvironmentalConditionsand Trends

EconomicTechnicalPhysicalPoliticalSocial

CommunityNationWorld

Opportunitiesand Risks

IdentificationInquiry

Assessment of Risk

Consideration ofall combinations

Evaluation to determinebest match of

opportunity and resources

Choice of Products

and Markets Economic Strategy

DistinctiveCompetence

Capabilities:FinancialManagerialFunctionalOrganizational

ReputationHistory

CorporateResources

As extending orconstrainingopportunity

Identification ofstrengths andweaknesses

Programs forincreasingcapability


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Concept of Strategy

Key steps in strategy formulation

Key definitions to start with . . .

MissionWhy we exist

ValuesWhats important to us

VisionWhat we want to be

StrategyOur game plan


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Concept of Strategy


The Vision Thing

Mission & Vision

Specifies unique purposeof company

Identifies scope of

operations

Describes product,market, and technologicalareas of emphasis

Reflects values and prioritieof decision makers

Expresses approach to socia

responsibility efforts


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C t f St t


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Concept of Strategy


Internal Analysis Resource and Capability appraisal

Borrowing capacity(Specify Capital / Revenue)

Internal Fund generation

Plant & Machinery

(Modern / Efficient etc)

Patents and Copy rights

R&D

Technical Employees

(Specify area)

Brand awareness

Reputation with suppliers

Training of staff

(Technical)

Marketing support

(Field staff)

Resource mapping

Overall Rating

1 - 5 scale51

1 - 5 scale1 Financial system and

management

Market information system

Development of newproducts

Efficient volumemanufacturing

Designs / Style

- Information on market

trends

- Dedicated personnel to

execute job

Brand management

Speed of distribution

Capabilities

C f S


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Concept of Strategy


Aligning the resources to the organization

Stakeholders

Pr ocesses

Resources Organization

Set strategies to satisfy keystakeholders

by improving critical business processes

and aligningresour ces andorganization

A D Little model for simplificationof organizational responsibilities

C t f St t g


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Concept of Strategy


Improvement of performance

Increase revenues by increasing price Increase revenue by increasing

volume Increase revenue and hold cost

constant Increase revenues in excess of cost

increases

Lower cost and hold revenue constant Lower costs in excess of revenue

losses Lower costs and increase revenues

(price increases)

Profit = Revenue Cost

Revenue = Price x Volume

Not only . . . But also


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Concept of Strategy


Growth Strategy alternatives

Time

Diversification

Integrative

Intensive

Strategic gap analysisreveals dimensions

that can bepursued for growth

Sales growth/

Volume growth

Currentposition

Desiredposition

(1)External and

a.


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Strategic management growth models

Fundamental models for strategic thinking

Relative Market Share

Star

M a r k e

t G r o w t

h

H L

H

L ProblemChild

CashCow Dog

BCG

Growth

Share - Matrix

(1)External

andInternal

assessment a.

Analysis and envir

opportun

b.Analysis of business strength &weaknesses

Investment &Growth

(G)

SelectiveGrowth

(G)

Se

SelectiveGrowth

(G)

Selectivity(Y)

Selectivity(Y)

Harvest(R)

Industry attractiveness

High Medium Low

High

Medium

Low B u s

i n e s s

S t r e n g

t h s

The Mckinsey / GE Business

Assessment Array

Standardized Models

All models primarily focus on resources and opportunity mapping

External andInternal

assessment

Analysisand envi

opportun


(1)External and

a.A l i


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Weak

Tentative

Favorable

Strong

Dominant

AgingMatureGrowthEmbryonic

Stage of Industry Maturity

C o m p e

t i t i v

e P o s

i t i o n

A.D. Littles Business

Profile Matrix

Standardized Models


Internalassessment

Analysisand envi

opportun


(1)External and

I t la.Analysis


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DisinvestDouble

orQuit

Phasedwithdrawal Growth

Tryharder

Cashgeneration Leader

Prospects for sector profitability

Weak

Medium

Strong C o m p a n y s c o m p e

t i t i v e

c a p a

b i l i t i e s

Phasedwithdrawal

Growth

Leader

Custodial

Shell Internationals

Directional policy

Matrix

Standardized Models


Internalassessment

Analysisand envi

opportun


Unattractive AttractiveAverage


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Revisiting the portfolio

Promote portfolios Recruit portfolios

Nurture portfolios Retire portfolios

Market Growth

Relative Market Share

LowHigh

High

Low

The process of strategic growth lies in the capability of generating productsunder the portfolio and sustaining current portfolios

No two species that depend on the same prey will


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Identify clusters ofcommon

competingcharacteristic

Position each firmin

relation tothese variables

Concept of Strategy


External Analysis Competition

A stra tegic group is a group o f f i rms in an industry fol low ing the same or s imilar s t rategy

No two species that depend on the same prey willthink differently

Gause Laws of natural competition

Identify principalstrategic variables

which distinguishfirms

Assess Evaluate Rank

Concept of Strategy


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Concept of Strategy


External Analysis

(1)External and Internal

assessment a.Analysis of market and environmental

opportunities and threats


What is the level of uncertainty?

Is it relatively static - or are there signs of change?

How are the changes taking place?

What/ Who is driving the changes?Are the changes simple or complex?

Environmental changes

Concept of Strategy


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p gy



Broad

ProductRange

Narrow

National Geographical Scope Global

NATIONALLY- FOCUSED,SMALL, SPECIALIST

PRODUCERS e.g., Bristol(U.K.), Classic Roadsters

(U.S.), Morgan (U.K.)

NATIONALLY FOCUSED,INTERMEDIATE LINE

PRODUCERS e.g., Maruti

REGIONALLY FOCUSEDBROAD-LINE

PRODUCERS e.g. Fiat,PSA, Renault, Rover,

Chrysler

PERFORMANCECAR PRODUCERS

e.g., Porsche,Maserati, Lotus

LUXURY CARMANUFACTURERSe.g., Jaguar, Rolls

Royce, Daimler-Benz,BMW

GLOBAL SUPPLIERSOF NARROW MODELRANGE e.g., Volvo,

Subaru, Isuzu, Suzuki,Saab, Hyundai

GLOBAL, BROAD-LINEPRODUCERS e.g., GM,Ford, Toyota, Nissan,

Honda, VW

Concept of Strategy


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OBJECTIVES What are competitors current goals? Is performance meeting the goals? How are its goals likely to change?

STRATEGY How is the firm competing?

ASSUMPTIONS What assumptions does the competitor

hold about the industry and itself?

RESOURCES & CAPABILITIES What are the competitors key

strengths and weaknesses?

What strategy changes

will the competitorinitiate?

How will the competitorrespond to our strategicinitiatives?

PREDICTIONS

Concept of Strategy


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Speed of response

Predictabilityof response

Slow Fast

High

Low

Laid back

competitors

Selective

competitors

Stochastic

competitorsTiger

competitors

It is not the size of the dog in the fight .... it is the size of fight in the dog

In a fight it is not the size of the animal . . . its the size of its mouth.Bigger the mouth .. larger the bite

Concept of Strategy


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External Analysis Competition from the five forces

Threat ofSubstitute

Products

Threat

of New

Entrants

Threat ofNew

Entrants

Rivalry AmongCompeting Firms

in Industry

BargaiPoweBuy

BargainingPower ofSuppliers

Product A

Product B

Product C

Product D

OfficeCar goer

FamilyCar

OutstationCar(SUV)

Concept of Strategy


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External Analysis Competition (Five Forces)

Threat ofSubstitute

Products

Threat

of New

Entrants

Threat ofNew

Entrants


in Industry

BargainingPower ofBuyers


Numerous or equally balanced competi

Slow growth industry

High fixed costs

Lack of differentiation or switching co

High storage costs

Capacity added in large increments

High strategic stakes

High exit barriers

Diverse competitors

Internal Rivalry

Concept of Strategy


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External Analysis Competition (Five Forces) Buyer groups are likely to be more

powerful if Buyers are concentrated or purchases arelarge relative to sellers sales

Purchase accounts for a significantfraction of suppliers sales Products are undifferentiated

Buyers face few switching costs

Buyers industry earns low profits Buyer presents a credible threat ofbackward integration

Product unimportant to quality

Buyer has full information

Threat ofSubstitute

Products

Threat

of New

Entrants

Threat ofNew

Entrants

Rivalry AmongCompeting Firmsin Industry



Concept of Strategy


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External Analysis Competition (Five Forces) Supplier groups are likely to be more

powerful if

Threat ofSubstitute

Products

Threat ofNew

Entrants


in Industry



Supplier industry is dominated by afew firms

Suppliers products have fewsubstitutes

Buyer is not an important customer to

supplier Suppliers product is an important

input to buyers product Suppliers products are differentiated Suppliers products have high

switching costs Supplier poses credible threat of

forward integration

Concept of Strategy


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External Analysis Competition (Five Forces)

Threat ofSubstitute

Products

Threat ofNew

Entrants


in Industry



Barriers to entry Economies of Scale

Product Differentiation

Capital Requirements

Switching Costs

Cost Disadvantages Independent of Scale

Government Policy

Expected Retaliation


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Concept of Strategy


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External Analysis Entry and Exit barriers

High, Risky Returns

EntryBarriers

Exit Barriers

High

Low

HighLow

Low, Stable Returns

High, Stable Returns

Low, Risky Returns

Concept of Strategy


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External Analysis PEST analysis

Economic General availability ofcredit Level of disposableincome Propensity of people to

spend Prime interest rates Inflation rates Trends in growth ofgross national product

Social

Entry of large numbersof women into labormarket Accelerating interestof consumers andemployees inquality-of-life issues Shift in age

distribution of population

Technology

New products

Improvements in

existing products

Manufacturing and

marketing techniques

Political

Fair-trade decisions

Antitrust laws

Tax programs

Minimum wage

legislation

Ratings on each parameter will assist in environmental study

Concept of Strategy


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External Analysis - Rating of the external environment

Politicalframes

Economicframes

Socio/ Demoframes

Technologicalframes

Opportunities

Threats

List out Opportunities and Threats in all segments and subsequently rate them

High risk potential

Low risk potential

Moderate risk potential

Concept of Strategy


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External Analysis

Opportunities/Threats

Product

Markets

Existing

New

Existing

New

Opportunities Threats- Competition is driving outsmaller players and consolidationwill increase price levels

- Change of legislation may

restrict imports critical for our

product

- New technology is allowing

better performance platforms and

cost reduction possibilities

- New technology is unstable and

the results may come at very high

costs

- Increase in customer base is

generating demand in our

segment.

- As the markets expand, cheap

low cost substitutes may emerge

and affect our profits

- New markets throw upopportunities complementing ourcurrent business lineDiversification pays off very well.

- In the new market demand ishigh but is it stable?

New capacity added could becostly

Concept of Strategy


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Understanding the Value Chain

InboundLogistics

Operations OutboundLogistics

Marketing& Sales

After-SalesService

Ma

ri

n

Primary (Core)Activities

Support(Enabling)Activities

FirmInfrastructure

HumanResourceManagement

TechnologyDevelopment

Procurement

Shaded area indicates dominant strength of the SBU

Concept of Strategy


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Generic Strategies

OVERALLCOST LEADERSHIPDIFFERENTIATION

Low Cost PositionUniqueness Perceivedby the Customer

Industry wide

ParticularSegment only

STRATEGIC ADVANTAGE

S T R A T E G I C

T A R G E T

FOCUS

Focus

CLeade

Differe

Concept of Strategy


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Structural break down of key drivers

CostLeadership Differentiation Focus

ProductDifferentiation

Low

(Principally

based on price)

High

(Principally by

Uniqueness)

Low or High

(Price or

Uniqueness)

MarketSegmentation

Low

(Mass Market)

High

(Many

segments)

Low

(One of a few

key segments)

Cost Structure Low

(Efficiency)

High

(Value Added)

Low or High

(Efficiency or

Value Added)

DistinctiveCompetency

Manufacturing

and Materials

Management

Research and

Development,

Marketing

Any kind of

distinctive

competency

Concept of Strategy


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Key Features of generic strategies

Price competition in industryis very vigorous industryproduct is standardized-

commodities

There are few ways to achievemeaningful productdifferentiation-buyers are onlysensitive to price differences

Low or no switching costs areincurred by buyers

Buyers are large, and havesignificant power to drivedown prices

Cost Leadership Differentiation

There are many ways todifferentiate a product orservice and many buyersperceive these differences tohave value

Buyers needs and uses for yourproduct are diverse

Few rival firms are following asimilar differentiation approach

Point of differentiation cannot easily be copied by competitors

Focus

The segment is big enough tobe profitable -the segment hasgood growth potential

The segment is not crucial to

the success of majorcompetitors

The focusing firm has the skillsand resources necessary toserve the segment

The focuser can defend againstchallengers based on loyaltyand the goodwill it has built

Concept of Strategy


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ROIC improvement alternatives under Grand Strategy and Functional Strategy

ProfitImprovement

ProductivityImprovement

SalesGrowth

Existing assets Change assetbase

MarketPenetration

MarketDevelopment

ProductDevelopment

Cost reductionof currentoperations

Improve asset utilization(experience &

utilization)

Increase price /reduce discounts

Increaseusage

Takecompetitorscustomers

Newsegments

Convert nonusers

Existingmarkets

Investment- Innovation- Diversification

Disinvestment- Redevelopment ofcapital resources

Cash and margin focus Growth focus

Concept of Strategy


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Implementation

SharedValues

(culture)

Strategy

Staff

Systems

Style

Structure

Skills(management) (leadership)

(management)

Our learnings are based on the McKinsey & 7s model

Factoimpact

implemen

Concept of Strategy


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Leadership

(Style, staffing, and skills)

Structure

(Organization of firmsactivities)

Culture

(Shared values creatingbehavioral norms)

Concept of Strategy


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Implementation Structure

CEO

Engineering Personnel Marketing

ProductionFinance &

accounting

Functional organization

GeneralMgr.

CentralDistrict

GeneralMgr.

SouthernDistrict

GeneralMgr.

WesternDistrict

GeneralMgr.

NorthernDistrict

GeneralMgr.

EasternDistrict

ChiefExecutive

District StaffPersonnelAccounting

& Control

Corporate StaffFinance &AccountingPersonnelMarketingLegalPlanningResearch &

Development

MarketingProductionEngineering

Geographical organization

VicePresident,Production

VicePresident,Engineerin

g

VicePresident,

Purchasing

Chief Executive Officer

Project

Manager A

EngineeringStaff

Production Staff

Purchasing

Agent

Project

Manager B

EngineeringStaff

Production Staff

Purchasing

Agent

Project

Manager A

EngineeringStaff

Production Staff

Purchasing

Agent

Matrix organization

Concept of Strategy


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Key tasks of a leader


Implementation Leadership and Cul

Strategicleadership

Managementskills to cope with

uncertainty

Clarifying strategic intent

Building an organization

Shaping organizational

culture

Concept of Strategy


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Implementation Tasks for Re structuring the business

Expansion Mergers and Acquisitions Joint Ventures

Sell-offs Spin offs (Sell to another management) Split offs (Maintain control in

management but reduce stake) Split ups (Dissolve JVs or Divisions)

Expand

Contract


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Concept of Strategy

End of Discussion

1. Strategic Management overview.ppt

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