Business Strategy I

7/31/2019 Business Strategy I

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BUSINESS

STRATEGY - I


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FACULTYProf. M.H.Varma

B.E.(Mech.),DMS,

PGDMM,

MBA(SCM)


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Scope of Discussions / Objectives

Introduction to Strategic Management

Strategic PurposeVision / Mission etc.

Environmental ScanningPESTEL / SWOT etc.

Strategy Development - Multiple Approaches

Corporate StrategyVarious Facets

Business Strategy - Generic / Hybrid etc.

Global StrategyProducts & Services Adaptation / Choice of Market Entry

Strategy ImplementationKey implementation Tasks


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Learning Outcomes

Differentiate Strategic Management from Operational Mgt & identify thestrategy development Process including different levels of Strategy Articulate the purpose of an organizations existence & communicating the

same to all stakeholders

Analyze the key structural drivers in the business environment to identifyopportunities / threats and strategic gaps

Discuss contemporary approaches to strategy development processes / evaluationof strategic choices ; assess the role of a corporate parent in a multi-business

organization and its value adding capabilities in managing a porfolio of

businesses

Contrast the different bases of achieving competitive advantage and outline themeans to achieve sustainability in a competitive environment for an SBU Outline the ways to go global and achieve global competitiveness and identify

risks involved

Discuss the Key tasks for effective strategy implementation and assess how toalign them


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Introduction

to

Strategic Management


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A Recent Survey says

More than 90 % of unsatisfiedcustomers do not complain

It costs 5 times more to get a newcustomer than it does to keep acurrent customer


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7

What do Customers look for in

Any Product or Service?

Right Price (affordability factor) Right Quality (reliability factor) Right Delivery (service factor)


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Dawn of a New Era ..

Old Perceptions New Realities

Price : Sellers Cost plus Profit Quality : Standards determined

by the Seller

Marketing : A distinct FunctionalActivity

Focus on What is good for thecompany

Customers freedom of choicelimited

Customer doesnt know a thing

Price : What customer is willing to pay Quality : Standards determined by

the customer

Marketing : Is Everything / The wholeBusiness is Marketing

Focus on What is good for thecustomer

Customers freedom of choiceunlimited

Customer is the King


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What is Strategy?

Large-scale, future-oriented plan Used to interact within competitive

environment to achieve company goals

Provides a framework for managerialdecisions

Reflects a companys awareness of themain elements of competition


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What Is Strategy?

Consists of thecombination ofcompetitive moves andbusiness approaches used by managers to run the company

Managements game planto

Attract and please customers

Stake out a market position

Compete successfully

Grow the business

Achieve targeted objectives


11/103Exploring Corporate Strategy, Seventh Edition, Pearson Education Ltd 2005

Definition of Strategy

Strategy is the directionand scope ofan organisation over the long term,

which achieves advantage in a

changing environment through its

configuration of resources and

competences with the aim of fulfillingstakeholder expectations.



Strategic decisions


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How to please customers

How to respond to changing

market conditions

How to outcompete rivals

How to grow the business

How to manage each functional piece of the business anddevelop needed organizational capabilities

Howto achieve strategic and financial objectives

Strategy

isHOW

to . . .

The Hows ThatDefine a Firm's Strategy



Strategy and Operations

RoutinisedOrganisation-wide, holistic

Day to day issuesLong term

Operationally specificAmbiguous / uncertain

Operating within existingstrategy

Developing newresources

Managing existingresources

Creating new directions

Techniques and actionsConceptualisation of

issues

Operational ManagementStrategic Management


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Managers Strategic Thinking

(Current Status & Future Prospects)

Where are we now?

( market standing / competitive pressures / strengths & weaknesses)

Where do we want to go?

(direction in which management believes the company should be headed)

How will we get there?(crafting & executing a strategy to get the company from where it is to

where it wants to go)


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Contribution of Leading Management

GurusIgor Ansoffs Strategic Success Paradigm

Based on extensive research study on Acquisitions by AmericanCompanies (1948-1968)

Acquisitions based on a rational strategy fared better than those basedon opportunistic decisions

The Key Elements of the paradigm are

No universal success formula for all firms Environment turbulence determines the strategy required for thesuccess of a company

The strategy aggressiveness should be aligned with theenvironmental turbulence


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Ansoff Matrix / Ansoff Grid

Existing Products New Products

Existing Market Market

Penetration

Product

Development

New Market Market

Development

Diversification


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Ansoffs Matrix

Provides four different growth strategies

Market Penetration Companies seek to achieve

growth with existing products in their current market

segments .

Market Development Companies seek growth by

targeting its existing products to new market segments

Product Development Companies develop newproducts targeted to its existing market segments.

Diversification Companies grow by diversifying into

new business by developing new products for new

markets.


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Ansoffs Matrix Use & Application

The Matrix is a framework to explore directions forstrategic growth

It is the most commonly used model for analysing

the possible strategic direction that a businessshould take

It not only identifies and analyses different growth

opportunities, it also encourages planners to

consider both expected returns and risks

However, real world examples do not fit neatly into

the four cells of the Ansoffs Matrix


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The management capabilities should be aligned with the

environment to optimize the companys success

Book Corporate Strategy (1965) played a key role in the

development of strategic planning

Introduced conceptsGap Analysis & Synergy

MintzbergStrategy as Craft

Added a new dimension to strategic management by bringing the

personal side of the manager

Book The Nature of Managerial Work (1973) advocated a more

human approach to strategy formulation & implementation


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Saw strategic formulation as a delibrate and delicate process

Peter Druckers Contribution

Management is not just passive & adaptive behaviour

Managing implies responsibility for attempting to shape the economicenvironment for planning and carrying through changes in that economic

environment

Major contribution to business strategy was the introduction of MBOconcept (1954)

MBO is more than a technique of management, it is a philosophy ofManaging


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Michael Porter : Strategy and Competitive Advantage

Introduced generic strategies like focus, cost leadership, cost

differentiation etc.

Five Forces Theory

the threat of new entrants the bargaining power of customers the bargaining power of suppliers the threat of substitute products the rivalry between existing players

BooksCompetitive Strategy (1980) and The Competitive

advantage of Nations (1990)

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Dimensions of Strategic Decisions

Strategic issues requiretop-management decisions

Strategic decisions cover severalareas of a firms operations

Usually only top management hasthe perspective needed to

understand their broad implications

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Strategic issues requiretop-management decisions

Usually only top managers havethe power to authorize necessary

resource allocations

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Strategic issues require largeamounts of thefirms Resources

They involve substantial allocations ofpeople, physical assets, and money

Strategic decisions commit the firm toactions over an extended period

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Strategic issues require largeamounts of thefirms Resources

In highly competitive firms, achievingand maintaining customer satisfaction

frequently involves commitment from

every facet of the firm

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Strategic issues often affect thefirmslong-term prosperity

Strategic decisions commit the firm for along time, typically 5 years; however theimpact lasts much longer

Once a Co., has committed itself to astrategy, its image and competitiveadvantages are usually tied to that strategy

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Strategic issues often affect thefirmslong-term prosperity

Companies become known for what theydo and where they compete. Shifting awayfrom that can jeopardize their previousgains.

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Strategic issues arefuture-oriented

They are based on what managersforecast, rather than what they know

Emphasis is on the development of solid

projections that will enable a Company to

seek the most promising strategic options

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Strategic issues arefuture-oriented

A firm will succeed only if it takes aproactive (anticipatory) stance toward

change

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Strategic issues usually havemultifunctionalormultibusiness

consequences.

Strategic decisions have compleximplications for most areas of the

Company

Decisions about customer mix,competitive emphasis, or organizational

structure involve a number of the firms

SBUs, divisions, or program units

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Strategic issues require consideringthe firms external environment

All businesses exist in an open system.They affect and are affected by externalconditions that are largely beyond their

control

Successful positioning requires thatstrategic managers look beyond operations

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Three Levels of Strategy

Corporate level: board of directors,CEO & administration [Highest]

Business level: business and corporatemanagers [Middle]

Functional level: Product, geographic,and functional area managers [Lowest]


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Levels of Strategic Management

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Benefits of Strategic Management

Managers at all levels interact in planning andimplementing strategy

Similar to participative decision making

Assessing strategy formulation requireslooking at nonfinancial evaluations as well as

financial ones Promoting positive behavioral consequences

enables achievement of financial goals

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Strategic Management Process

Businesses vary in formulation and otherprocesses

The basic components of the models used to

analyze strategic management are similar

Strategic management is aprocessa flow

of information through interrelated stages ofanalysis towards the achievement of

organisational goals

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C t f St t i


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Components of Strategic

Management Model

Company Mission External Analysis

Long-Term Objectives

Short-Term Objectives

Policies EmpoweringAction

Strategic Control &Continuous

Improvement

Internal Analysis Strategic Analysis &

Choice

Generic & GrandStrategies Functional Tactics

Restructuring,Reengineering &Refocusing

Components of Strategic Management


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Existing Business

Model

Mission , Vision,

Values & Goals

External Analysis:

Opportunities &

Threats

Internal Analysis:

Strengths &

Weaknesses

SWOT Strategic

Choice

Business - Level

Strategies

FunctionalLevel

Strategies

Global Strategies

CorporateLevel

Strategies

Governance and

Ethics

Designing

Organization Culture

Designing Organization

Structure

Designing

Organization Controls

Components of Strategic Management

ProcessSTRATEGY FORMULATION

STRATEGY IMPLEMENTATION

FEEDB

ACK


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Strategic

Purpose


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Organization Core Philosophies

Vision Statement

An inspiring statement of what the organizationintends to become and to achieve in the future

What we want to be The statement incorporates our Beliefs Should project a compelling story about the future

(E.g. Steve Jobs : An Apple on Every Desk)

Is culture-specific :Simply put, the vision could state

what the founder ultimately envisions the business to

be in terms of growth, values, employees,

contribution to society, etc

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What is a Company Mission?

Company Mission:A broadly framed but enduring statement of a

firms intent. It is the unique purpose that sets a

company apart from others of its type andidentifies the scope of its operations in product,

market, and technology terms.


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OrganizationCore Philosophies

Mission Statement

Spells out how we see ourselves fulfilling our ideasof What we want to be in broad terms

Describes the overall purpose of the organization

Is an organizations vision translated into writtenform- spelling in concrete terms the leaders view of

the direction and purpose of the organization

What do we do? How do we do it? For whom do we do it?

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The Need for an Explicit Mission

Why is this firm in business? What are our economic goals? What is our operating philosophy in terms of

quality, company image, and self-concept?

What are our core competencies and competitiveadvantages?

What customers do and can we serve? How do we view our responsibilities to

stockholders, employees, communities,

environment, social issues, and competitors?

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Formulating a Mission

The typical business begins with the beliefs,desires, and aspirations of a single

entrepreneur

These beliefs are usually the basis for thecompanys mission

As the business grows or is forced to alter itsproduct, market, or technology, redefining thecompany mission may be necessary

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Mission Statement Components

Customer-market Product-service

Geographic Domain

Technology Concern for Survival

Philosophy

Self-concept Concern for Public Image

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Inputs to the Development of


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Inputs to the Development of

Company Mission


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OrganizationCore Philosophies

Values

Both the mission and vision statements reside in a sea ofvalues

Organizational beliefs respect for people, concern forindividuals, approach to innovation, reward system,encouragement for Team work etc

Describe what your Management Team really cares about

what it holds dear

(e.g. How do your managers respond to a trade-off between

product quality and profit? Thats really a question of values.)

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Perceived Stakeholders

Customers Government

Stockholders Employees

Society


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Exploring Corporate Strategy, Seventh Edition, Pearson Education Ltd 2005

Corporate Social Responsibility

Internal Aspects External AspectsEmployee welfare Environmental issues

Working conditions Products

Job design Markets and marketing

Intellectual property Suppliers

EmploymentCommunity activity

Human rights

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Types of Social Responsibility

Economicthe duty of managers, as agents of thecompany owners, to maximize stockholder wealth

Legalthe firms obligations to comply with thelaws that regulate business activities

Ethicalthe companys notion of right and properbusiness behavior


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Corporate Governance

The governance framework

whom the organisation serves

how the purposes and priorities should be decided

how an organisation should function

how power is distributed among stakeholders

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The New Corporate Governance


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The New Corporate Governance

Structure


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Environmental

Scanning

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Firms External Environment

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Layers of the business environment

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Macroenvironment PESTEL


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MacroenvironmentPESTEL

(1)


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Political

Government stability

Taxation policy

Foreign traderegulations

Social welfarepolicies

Economic

Business cycles

GNP trends

Interest rates

Money supply

Inflation

Unemployment

Disposable income


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Macroenvironment PESTELSociocultural

Populationdemographics

Income distribution

Social mobility Lifestyle changes

Attitudes to work andleisure

Consumerism

Levels of education

Technological

Government spending onresearch

Government and industry

focus on technologicaleffort

New discoveries/developments

Speed of technologytransfer

Rates of obsolescence


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Environmental Environmental

protection laws

Waste disposal Energy consumption

Legal Competition law

Employment law

Health and safety Product safety


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Porters Five Forces Model

Risk of Entry by Potential Competitors

Threat of Sustitutes

Bargaining Power of Buyers

Bargaining Power of Suppliers

Industry / Competitive Rivalry The Five Forces Framework


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The Five Forces Framework


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Five Forces Analysis

The threat of entry ...Dependent on barriers to entry such as:

economies of scale

capital requirements of entry

access to supply or distribution channels

customer or supplier loyalty

experience

expected retaliation legislation or government action

differentiation

Fi F A l i


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Threat of substitutes

Reduction in demand for products as customersswitch to alternatives:

Product for product substitution

e.g. email for post substitution of need

e.g. reliable and cheap appliances reduce need formaintenance services

generic substitution competition for household income, e.g. cars versus holidays doing without




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Buyer poweris likely to be high where thereis / are:

a concentration of buyers

many small operators in the supplying industry

alternative sources of supply

low switching costs

components/materials that are a high percentage

of cost to the buyer leading to shopping around a threat of backward integration


Fi F A l i


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Supplier poweris likely to be high wherethere is / are:

a concentration of suppliers

customers that are fragmented and bargaining

power low

high switching costs

powerful supplier brand

possible integration forward by the supplier


Fi F A l i


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Competitive Rivalryis likely to be highwhen:

competitors are in balance

there is slow market growth (product life cycle)

there are high fixed costs in an industry

there are high exit barriers

markets are undifferentiated


Competitive rivals are organisations with similar products and services aimed atthe same customer group = direct competitors


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The SWOT Matrix


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Strategic Gaps

Opportunities in business environment not being

fully exploited by the competition:

substitute industries

other strategic groups or strategic spaces

the chain of buyers

complementary products and services

new market segments markets developing over time


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Strategic Capability

Resources Tangible resources physical assets of an organisation Intangible resources non-physical assets of an

organisation

Competences The activities and processes through which an

organisation deploys its resources effectively

Strategic capability is the adequacy and suitabilityof the resources and competences of an

organisation for it to survive and prosper

R


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Resources Physical resources

Machines, buildings, production capacity

Financial resources Capital, cash, debtors/creditors, suppliers of

money (shareholders, bankers etc) Human resources

Number and mix of people, skills andknowledge

Intellectual capital Patents, brands, business systems, customer

databases, goodwill

Competences


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Competences

How an organisation employs and deploysits resources

Efficiency and effectiveness of physical,financial, human and intellectual resources How they are managed Cooperation between people Adaptability Innovation Customer and supplier relationships Learning

Resource based View of Strategy


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Resource-based View of Strategy

Competitive advantage derives from thedistinctivenessof an organisationscapabilities

Some businesses achieve extraordinaryprofitscompared with others in the same industry

Their resources or competences permit production at lower cost

or generation of superior product or service at

standard cost

The Experience Curve


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The Experience Curve

Implications of the Experience Curve


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Growth not optional Longer experience means lower costs

Threat of competitors gaining cost advantages

Real unit costs should decline each year

First mover advantage can be important Accumulated experience



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p p

(contd)

But Sustained competitive advantage unlikely due tounachievable market share

Therefore Cost reduction becomes a threshold competence

Outsourcing may become appropriate


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Strategy

Development

Th D i f P di Ch


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The Dynamics of Paradigm Change

Source:Adapted from p. Grinyeh and J.-C. Spender, Turnaround: Managerial recipes for strategic success, AssociatedBusiness Press, 1979, p. 203.

Exhibit 11.5

Different Processes of Strategy


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Developmentin Multiple forms & in

different contexts

There is no one right way in which strategies are

developed (Eg: Fast changing environment Vs slowchanging environment)

Processes of strategy development differ over timeand in different contexts

Diff t P f St t


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Developmentin Multiple forms & in

different contexts (contd.)

Perceptions of how strategies develop will be seendifferently by different people (Senior Executives /

Middle Management / Public Sector)

It is likely that no one process describes strategydevelopment in any organisationnormally there aremultiple processes at work


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Intended and Emergent Strategies

Intended Strategy is an expression of desired strategicdirection deliberately formulated or planned by Managers

Implies that the Intended Strategy is also planned in terms ofresource allocation, control systems, organisational structure etc

Emergent Strategy comes about through day-to-day routines,activities and processes in an organisation

The Routine activities, though not direct, have a significantrole in the development of strategy


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Intended Processes of Strategy Development

Strategic Planning Systems

A form of systematised, step-by-step, chronologicalprocedures involving different Functions / Departments of the

Organisation

Starting point is a set of guidelines / assumptions about theexternal environment (price levels / supply status etc)

Plans drawn up by various businesses / divisions and passedon to the Corporate level


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Strategic Planning Systems(contd.)

Corporate Planresulting from the aggregation ofbusiness plans

A number of financial / strategic targets are drawn up toprovide a basis for performance monitoring

There could be minor variations while drawing up the plansin different organisations


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Strategic Planning SystemsAdvantages / Uses

It provides a structured means of analysis and thinking about complexproblems

Encourages managers to question and challenge the current wisdom

Encourages a long term view of organisational strategy (Eg: in the caseof FMCG sector5 to 7 years)

Provides a means of coordination (between various businesses)

It communicates intended strategy from the TOP

A St t i Pl i C l


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A Strategic Planning Cycle

St t i Pl i


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Strategic Planning


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Emergent Processes of Strategy Development

Logical Incrementalism

Is the development of strategy by experimentation andlearning from partial commitments rather than through global

formulations of total strategies

Managers have a generalised rather than specific view ofwhere they want the organisation to be in future

Effective Managers try to be sensitive to environmental signalsthrough constant scanning and test changes in strategy in small

scale steps


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Logical Incrementalism (contd.)

Commitment to strategic options may be tentative in the early stages ofstrategy development

Experiments through subsystems (people involved in product development /product positioning / diversification etc)building on the experience gained

in that business

Top managers utilise a mix of formal / informal / social and politicalprocessesto draw an emerging pattern of strategies from these subsystems

Logical incrementalism is a conscious, purposeful, proactive, executivepracticeto improve available information and build peoples identification

with the strategy development


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Logical Incrementalism

Source : Strategies for Change: Logical Incrementalism ( By James B.

Quinn)

A Management philosophy for achieving broad organisational goals

Enables making strategic decisions in small steps

Small steps attempt to resolve conflicting views of participants

Reduces Risk by capitalizing on knowledge that is gained during the

process

Logical incrementalism has the advantage of flexibility / but likely to be

time-consuming and inefficient

ll d S


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Externally Imposed Strategy

Imposition of strategy by powerful external stakeholders

Mainly Government / Regulatory Bodiesexercising norms /stipulations (Eg: Privatisation)

MNCs being advised for Joint Ventures / local alliances

Imposed strategy is designed outside the organisation

Imposed strategyto be implementedmight entail large capitalexpenditure. (Eg: In Paper Mills: Capex on Production Machinery Vs

Recycling / Pollution Control Machinery)

Strategy Development Additional Issues


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Strategy DevelopmentAdditional Issues

Managers Face

The challenge ofStrategic Drift

Strategiesover a period of timeprogressivelyfail to address the strategic position of thecompany and performance deteriorates

There are strong forces at work that are likely topush organisations towards this pattern

Strategy Development Additional Issues


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Strategy DevelopmentAdditional Issues

Managers Face

The challenge ofStrategic Drift (contd.)

Incremental strategic change is a naturaloutcome of the influence of organisationalculture, collective experience, political processes

and prior decisions

Strategic drift results ultimately in a complacentorganisation

Challenges for Strategy Development


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Challenges for Strategy Development

Strategic drift

Incremental strategic change influenced by

organisational culture

individual and collective experience

political processes prior decisions

Risk of getting out of line with faster changes inenvironment

Need to encourage challenge and change ofcore assumptions

Learning organisation

Th L i O i ti


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The Learning Organisation

Traditionally, organisations are seen hierarchies and bureaucraciesset up to achieve objectives and maintain control

Structures convey stability rather than change

A learning organisationis the one that is capable of continualregeneration from the variety of knowledge, experience and skills of

individuals within a culturewhich encourages mutual questioning

A learning organisationis the one where the collective knowledge ofall individuals in a company normally exceeds what the organisationitself knows and is capable of doing


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The Learning Organisation (contd.)

Formal organisational structures stifle organisational knowledge andcreativity

Organisationsneed to look at themselves as social networks

Managers need to play a less directive and more facilitative role

A learning organisationis the one inherently capable of change andwith a capacity for organisational learning

U t i d C l C diti


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Uncertain and Complex Conditions

Strategy Development

A major problem of strategic managementcoping with uncertainty

Environmentsdiffer in their form and complexity

Simple / Static conditionsthe environment is relatively straightforward to understand and does not undergo significant change

(Eg. Mass production companies / Raw Material Suppliers)

All Companies end up following same strategyresults in high degreeof competition / low margins

Dynamic conditionsManagers need to consider environment of thefuture / not of the past

U t i d C l C diti


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Uncertain and Complex Conditions

Strategy Development (contd.)

Companies resort to scenario planningfor making sense of the future

Emphasis should be to encourage individuals and groups to be forwardthinking and intuitive

In complex situationsan environment is difficult to comprehend

Coupled with dynamic conditionsthe environment is a combination ofcomplexity and uncertainty

Strategy Development in Environmental


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Strategy Development in EnvironmentalContexts

Exhibit 11.8

Managing Strategy Development Processes


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Managing Strategy Development Processes

Organisation needs different processes fordifferent purposes

What is the right emphasis at a given time?

What is the role of top management? What are the strategy development roles at

different organisational levels?

Do the different managerial levelsacknowledge and value different roles?


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Strategy Development Routes


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Strategy Development Routes

Strategic Leadership


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g p

Change Agent

Individual or group that effects strategic changein an organisation

The process of influencing an organisation in itsefforts towards achieving an aim or goal

Charismatic leaders Instrumental or transactional leaders



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Vision, eloquence, and consistency Articulation of the business model Commitment Being well informed Willingness to delegate and empower

The astute use of power Emotional intelligence: self-awareness, self-regulation, motivation, empathy, social skills

Good leaders of the strategy-making processhave a number of key attributes:

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