tksabarwal 1

WHY DO GREAT COMPANIES FAILWHY DO GREAT COMPANIES FAIL

UNPARALLED TRACK RECORD

OF SUCCESS

NO GAPBETWEEN EXPEC-

TATIONS & PERFORMANCE

ACCUMULATIONOF ABUNDANT RESOURCES

OPTIMISEDBUSINESS

SYSTEM

SUCCESSCONFIRMSSTRATEGY

A VIEW THATRESOURCES WILL

WIN OUT

DEEPLY ETCHED RECEPIES

MOMENTUMIS MISTAKEN

FORLEADERSHIP

CONTENTMENTWITH CURRENTPERFORMANCE

RESOURCESSUBSTITUTE FOR

CREATIVITY

VULNERABILITYTO NEWRULES

FAILURE TO “REINVENT”LEADERSHIP

INABILITY TO ESCAPETHE PAST

INABILITY TO INVENT THE FUTURE

tksabarwal 2

SuccessfulBusinessstrategy

CompetitivenessGrowth and profits

Managers begin To believe

They are best

Build layers of staff

To cope with growth

External arrogance

And internal focus

On control

Decline into Satisfactory

Under performance

Initiative and Innovation stifled

Dynamics of satisfactory underperformance

tksabarwal 3

AVERAGE ANNUAL INCREASEIN

STOCK PRICE- 1977-1988

6.5Company

‘A’

13.6Company

‘ B’

45.5 Company

‘C’

10%

20%

30%

50%

40%

Corp profileCorp profile

tksabarwal 4

EFFORT AUDITEFFORT AUDIT

0

1

2

3

4

5

6

7

Company A Company B Company C

CEO

None

EFFORT

V.HIGH

tksabarwal 5

THE VIRTUOUS CIRCLE

SUPERIOR DDTS/

SERVICE

CUSTOMERSATISFACTIO

N

FEWER CUSTOMERDEFECTIONS

HIGH PROFITSGROWTH

INVESTMENT TO ENHANCE

PRODUCTIVITY

INVESTMENTIN HR

EMPLOYEESATISFACTION

DEDICATED WORK TEAM

tksabarwal 6

THREE KINDS OF THINKING PROCESSTHREE KINDS OF THINKING PROCESSMECHANICALSYSTEMS HINKING

PROBLEM PROTOTYPE

INTUTION

STRATEGICTHINKING

.

SOLUTION

PROCESSOF THOUGHT

REARRANGEMENTOF ELEMENTS

LOCAL OPTIMIZATIONOR SEEING TREENOT THE FOREST

TRANSFORMATIONOR CHANGEDCONFIGURATION

ANALYSIS OF ESSENCE

tksabarwal 7

A HABIT CHARACTER

SOW A THOUGHT

AN ACTION A HABIT CHARACTER

DESTINYSOW REAP SOW SOWREAP

REAP

REAP

AN ACTION

tksabarwal 8

Strategic management—refers to the managerial process of forming a strategic vision,setting objectives, crafting a strategy; implementing and executing the strategy,and then over time initiating whatever corrective adjustments in the vision, objective, strategy, and execution are deemed appropriate.

Strategic vision—is a road map of a company’s future—providing specifics about technology and customer focus,the geographic and the product markets to be pursued, the capabilities it plans to develop and the kind of company that management is trying to create.

Mission statement– is typically focused on its present business scope—”who we are and what we do;”mission statement broadly describe an organization’s present capabilities, customer focus, activities, and business makeup.

Objectives—are an organization's performance targets—the results and outcomes it want to achieve. They function as yardsticks for tracking an organization’s performance and progress.

Strategic objectives—relate to outcomes that strengthen an organization’s overall business position and competitive vitality

Basic definitionsBasic definitions

tksabarwal 9

THE INDIVIDUAL MUST BE RESPECTED

EXCELLENCE & SUPERIOR PERFORMANCE MUST BE

PURSUED

Mission statement-IBMMission statement-IBM

THE CUSTOMER MUST BE GIVEN THE BEST POSSIBLE SERVICE

tksabarwal 10

Tasks of strategic managementTasks of strategic management

SETTINGOBJECTIVES

STRATEGY TO ACHIEVE

OBJECTIVES

IMPLEMENTINGAND

EXECUTI;NGSTRATEGY

EVALUATIONAND

CONTROL

DEVELOPINGSTRATEGICVISION ANDMISSION

REVISE ASNEEDED

REVISE AS NEEDED

IMPROVE/CHANGE AS

NEEDED

IMPROVE/CHANGE AS

NEEDED

RECYCLE TOTASKS 1,2,3.4

AS NEEDED

TASK - 1

TASK -2 TASK-4TASK-3

TASK-5

tksabarwal 11

EconomicSocietalPolitical

Regulatory &Community

considerations

CompetitiveConditions and Overall industryattractiveness

CompanyOpportunities &Threats to the

Company’sWell-being

The mix of considerations thatDetermine a company’s strategic situation

Company resourcesStrengths/

weaknessesCompetencies

AndCompetitive capabilities

Personal ambitionsBusiness

Philosophies &Ethical principals

To keyexecutives

Shared values And

Company culture

IdentificationEvaluation

Of Strategy

alternatives

ConclusionsAbout

Factors OnImplications

For strategy

CraftingStrategyThat fits

The Overall

situation

Strategy factors Strategy factors internal/internal/externalexternal

Internal factors

External factors

tksabarwal 12

Jobs and structure

Management andmeasurement system

BusinessProcess

Values and beliefs

The Business System The Business System DiamondDiamond

tksabarwal 13

ENVISIONING THE OPPURTUNITIESENVISIONING THE OPPURTUNITIES

CREATE A VISIONOF THE FUTURE

ASSES THE FIRM’SFUTURE

ENVIRONMENT

DEFINE THE SCOPE OF

INNOVATION

SET STRATEGICDIRECTIONS &PRIORITIES

TO SEEDINGSTAGE

CREATING A VISION

1. WHAT DO WE WANT TO STAND FOR AS A COPRPORATION.

2. WHAT KINDS OF PRODUCTS DO WE WANT TO OFFER.

3. WHAT KIND OF CUSTOMERS DO WE WANT TO SERVE

4. WHAT DO WE WANT OUR PRODUCTS TO MEAN TO OUR CUSTOMERS.

tksabarwal 14

IDENTIFYING OPPURTUNITIESIDENTIFYING OPPURTUNITIES

OPPUR-TUNITIES

COMPTTTECHNOLOGIES

MARKET

• FAST GROWING SEGMENTS• NEW TRADE/ CONSUMER GROUPS

• NEW COMPONENTS• NEW MATERIALS• NEW PROCESSES• NEW STANDARDS

• UNMET/ ILL MET NEEDS• NEW/ EMERGING NEEDS

• SCOPE AND FOCUS• WEAKNESS/ GAPS• SUBSTITUTION POTS• EMERGING COMPTT

tksabarwal 15

SWOT Analysis

Formal framework for identifying growth opportunities.

Helps focus the matching process.

Goes beyond just developing lists.

tksabarwal 16

Examples of Strengths

Reputation/brand image Distribution channels Research and development skills Experienced management talent Experienced sales force

***Note that all of the above are “sustainable” strengths.

tksabarwal 17

Examples of Weaknesses

Includes the lack of the previousIncludes the lack of the previous

High debtHigh debt

Lack of manufacturing Lack of manufacturing capacity/capabilitycapacity/capability

tksabarwal 18

Examples of Opportunities

Upturn in consumer confidence

Trends in consumer needs/wants

Demographic trends

Changes in distribution patterns/consumer shopping behavior

tksabarwal 19

Formulating Product/Market

Strategies

Market Market penetrationpenetration

Market Market developmendevelopmentt

New New offering offering developmendevelopmentt

DiversificatiDiversificationon

MARKETSMARKETS

ExistingExisting NewNew

OFFERINGSOFFERINGS

ExistingExisting

NewNew

tksabarwal 20

Selecting Product/Market Strategies

Is the strategy consistent with organization Is the strategy consistent with organization mission, goal, and capabilities.mission, goal, and capabilities.

What are the costs and benefits of alternative What are the costs and benefits of alternative strategies and their probabilities of success?strategies and their probabilities of success?

Includes an analysis of competitive structure, Includes an analysis of competitive structure, market growth or decline factors, and opportunity market growth or decline factors, and opportunity costs.costs.

tksabarwal 21

Developing Product/Market Strategies

Selecting Target Markets

Determining the Marketing Mix Product/Service Price Promotion/Communication Place/Distribution

tksabarwal 22

Budgeting for the Strategy

Formal, quantitative expression of the organization’s plan in financial terms. What will it cost???

Important so that organization goals are attained.

tksabarwal 23

Developing Reformulation and Developing Reformulation and Recovery StrategiesRecovery Strategies

Plans seldom go exactly as expected since Plans seldom go exactly as expected since they are based on assumptions regarding they are based on assumptions regarding consumer response, competitive reaction, consumer response, competitive reaction, and environmental factors.and environmental factors.

Important to periodically conduct Important to periodically conduct marketing audits to determine problem marketing audits to determine problem areas.areas.

Preplanning of reformulation/recovery Preplanning of reformulation/recovery strategies allows faster response times in strategies allows faster response times in determining remedial action (contingency determining remedial action (contingency plans).plans).

tksabarwal 24

Levels of StrategyLevels of Strategy

Business Strategy (competitive Business Strategy (competitive strategy) is concerned with strategy) is concerned with howhow a firm a firm competes within a particular marketcompetes within a particular market

Corporate strategy is concerned with Corporate strategy is concerned with wherewhere a firm competesa firm competes

tksabarwal 25

Levels of Strategy (cont’d)Levels of Strategy (cont’d) Business-Level Strategy (competitve strategy)Business-Level Strategy (competitve strategy)

How to create competitive advantage in each busness in How to create competitive advantage in each busness in which the company competes:which the company competes:

low cost leadershiplow cost leadership differentiationdifferentiation focus low cost/ focus differentiationfocus low cost/ focus differentiation

Business (or Competitive) Strategy is concerned with the Business (or Competitive) Strategy is concerned with the use of resources and capabilities to create competitive use of resources and capabilities to create competitive advantages in each of businesses or industries in which a advantages in each of businesses or industries in which a company competescompany competes

Corporate-Level Strategy (companywide strategy)Corporate-Level Strategy (companywide strategy) Corporate (or Company-wide) Strategy is the overall plan Corporate (or Company-wide) Strategy is the overall plan

for a multi-business unit company.for a multi-business unit company. Corporate strategy is what makes the corporate whole add Corporate strategy is what makes the corporate whole add

up to more than the sum of its business unit partsup to more than the sum of its business unit parts

tksabarwal 26

Premises of Corporate Premises of Corporate StrategyStrategy

Competition occurs at the business unit levelCompetition occurs at the business unit level• corporations don’t compete; only their business units docorporations don’t compete; only their business units do• value is created at the business unit level, it is only added at the value is created at the business unit level, it is only added at the

corporate levelcorporate level• Successful corporate strategy must grow out of and reinforce Successful corporate strategy must grow out of and reinforce

competitive strategycompetitive strategy

Corporate Strategy inevitably adds costs and Corporate Strategy inevitably adds costs and constraints to business unitsconstraints to business units

• Corporate overhead and costs of communication between HQ and Corporate overhead and costs of communication between HQ and SBUsSBUs

• bureaucratic costs, costs of coordination, costs of monitoringbureaucratic costs, costs of coordination, costs of monitoring

Shareholders can readily diversify themselvesShareholders can readily diversify themselves• Shareholders can diversify their own portfolios of stocks, and they Shareholders can diversify their own portfolios of stocks, and they

can often do it more cheaply with less risk than corporationscan often do it more cheaply with less risk than corporations• Shareholders can buy shares at market prices and avoid paying Shareholders can buy shares at market prices and avoid paying

large acquisition premiumslarge acquisition premiums

tksabarwal 27

Implications from these Implications from these PremisesPremises

Corporate Strategy cannot succeed unless it Corporate Strategy cannot succeed unless it truly adds value to business units:truly adds value to business units:

by providing tangible benefits that offset costs of lost by providing tangible benefits that offset costs of lost independenceindependence

economies of scope in operationseconomies of scope in operations economies of scale in administration and internal financingeconomies of scale in administration and internal financing

add value to shareholders in a way that shareholders add value to shareholders in a way that shareholders could not replicate by themselvescould not replicate by themselves

tksabarwal 28

DECOMPOSING THE ECONOMIC DECOMPOSING THE ECONOMIC ENGINEENGINE

CONCEPT OFSERVED MKT

-1-

REVENUE &MARGIN

STRUCTURE-2-

CONFIGRATION OF SKILL &

ASSETS-3-

FLEXIBILITY &ADAPTIVENESS

-4-

WHAT IS OUR BASIC VALUE POSITION?HOW HAVE WE SEGMENTED THE MARKET?WHAT KIND OF CUSTOMERS DO WE SERVE?WHERE ARE OUR CUSTOMERS?

WHERE IN THE BUSINESS SYSTEM WE TAKE PROFIT?WHERE DO OUR MARGINS COME FROM?WHAT HAS DETERMINED THE SIZE OF THE MARGIN?WHAT ARE THE MAJOR COST & PRICE DRIVERS?

WHAT DO WE BELIEVE WE KNOW HOW TO DO WELL?WHAT KINDS OF SKILLS PREDOMINATE IN OUR INDUSTRY?WHAT IS THE TRAJECTORY OF OUR DEVELOPMENT SPENDING?

HOW ALERT ARE WE TO NEW VALUEDELIVERY MODELS?HOW EASILY COULD INVESTMENTSPROGRAMME BE RECONFIGURED?WHICH CONSTITUENCIES WOULD RESIST CHANGE?

tksabarwal 29

FINDING THE LIMITS OF THE FINDING THE LIMITS OF THE CURRENT CURRENT

ECONOMIC ENGINEECONOMIC ENGINE

-1-

-2-

-3-

- 4-

WHAT CUSTOMER NEEDS ARE’T WE SERVING.

COULD PROFITS BE EXTRACTED AT A DIFFERENT POINT IN THE VALUE CHAIN.

MIGHT CUSTMER NEEDS BEBETTER SERVED BY AN ALTERNATE CONFIGURATION OF SKILLS & ASSETS.

WHAT IS OUR VULNERA-BILITY TO’ NEW RULES’OF THE GAME

tksabarwal 30

PLANNING- CREATING & DELIVERING SERVICESPLANNING- CREATING & DELIVERING SERVICES

CORPORATE OBJECTIVES & RESOURCES

MARKET OPPURTUINITY ANALYSIS RESOURCE ALLOCATION ANALYSIS

MARKET POSITIONING STATEMENT

•WHAT PRODUCT/S•WITH WHAT DISTINGUISHING CHARACTERISTICS•TO WHAT TARGET MARKET SEGMENT

OPERATING ASSETS STATEMENT

•WHAT PHYSICAL FACILITIES•WHAT EQUIPMENT•WHAT INFO & COMM TECHNO LOGY•WHAT HUMAN RESOURCES (NUMBER SKILLS)

SERVICES MARKETING CONCEPTWHAT CUSTOMER BENEFITS•CORE PRODUCT•SUPPLMENTARY ‘S’•SERVICE RELIABILITY LEVELS•ACCESSABILITY (WHERE & WHEN)AT WHAT COST•MONEY•TIME•MENTAL HASSLE•PHYSICAL EFFORT

SERVICES OPERATING CONCEPTSGEOGRAPHIC SCOPE OF OPERATIONS•AREAS SERVED•SINGLE VS MULTISITE•FACILITIES LOCATION•TELECOM LINKAGESCHEDULING•HRS-DAYS-SEASON•CONTINUOUS/ INTERMITENTFACILITY DESIGN- LAYOUTOPERATING ASSESTS DEPLOYMENT•WHAT TASKS-WHERE-WHEN•LEVERAGE THROUGH INTERMEDIARIES OPERATING COSTS•LEVERAGE THRU’ CUSTOMER ASSETS (PARTNERSHIP & SELF SER.•SPECIFIC TASKS ASSIGNED TO “FRONT-BACKSTAGE OPERATIONS

SERVIC DELIVERYPROCESS

tksabarwal 31

Firms in other industries offering substitute products

Rivalry among competing sellers

Competitive pressure created by jockeying for better market position and comptt advantage

Potential new entrants

Buyers

Suppliers of raw materials, parts, components etc.

Porter’s modelPorter’s model

tksabarwal 32

Means to competitive Means to competitive advantageadvantage

Competitive advantage

Strategic assets And market achievements

Core and distintictive competencies

Core capabilities

Company resources

tksabarwal 33

Product portfolio analysisProduct portfolio analysis

Relates attractiveness and competitiveness indicators to facilitate strategic thinking suggesting specific marketing strategies to achieve a balanced mix of products that will ensure growth and profit performance in the long run

•Helps a multibusiness firm to decide how to allocate scarce resources among product markets they compete in.

•Procedure consists of cross- classifying each activity each activity with respect to two independent dimensions.

•Dimensions are

•Attractiveness of the reference market

•Firm’s capacity to take advantage of opportunities within the market

tksabarwal 34

BCG GROWTH –SHARE MATRIXBCG GROWTH –SHARE MATRIX

There are two basic assumptions underlying the BCG matrix

1. Concerning the existence of experience effect. Higher market share leads to cost advantage. The largest competitor will be the most profitable at current prices. The implication of this assumption is that the expected cash flow is market share specific.

2. The PLC model highlights the desirability of a balanced mix of products situated in different phases of PLC. Implication is that the cash needs for products in rapidly growing markets are expected to be greater than they are for those in the slower growing ones

tksabarwal 35

starsstars Problem childProblem child

Cash cowsCash cows dogsdogs

5

7

8

14

6

010x 1x 0.1x

22

Relative market share

Mark

et

gro

wth

rate

3

2

BCG matrixBCG matrix

tksabarwal 36

Portfolio alternativesPortfolio alternatives

cash cows

Problem childrenstars

dogs

disaster

innovator

medio

crit

y

Relative market share

Mark

et

gro

wth

rate

+

+

+

+

-

-

-

-

follower

tksabarwal 37

BSelective

Development(problem children)

COffensiveGrowth(stars)

ADisinvestments

(dogs)

DLow profile(cash cows)

Multi-factor gridMulti-factor grid

weak

weak

att

ract

iveness

average

avera

ge

high

hig

h

competitiveness

tksabarwal 38

Evaluation of MFPGEvaluation of MFPG

MFPG Basically leads to same kind of analysis as BCG matrix but the major difference is that the link between the competitiveness and financial performance is lost.

tksabarwal 39

Corporate strategy

Business strategies

Functional strategies

Operating strategies

Strategy levelsStrategy levels

Corporate level managers

Business level general mangers

Heads of functional areas within business unit or division

Plant managers,geographic unit managers

tksabarwal 40

Company value chainCompany value chain

PurchasedSupplies and

Inboundlogistics

operationsSales and marketing

DistributionAnd

Outboundlogistics

serviceProfit

margins

Product –technology and systems development

General administration

Human resources management

Primary activities and costs

SupportActivities& costs

tksabarwal 41

experience effect

020406080100120

1million 2milliion 4million 8million

units

cost

per

uni

t

Series1 Series2 Series3

Experience effectExperience effect

tksabarwal 42

The 7s modelThe 7s model

structures

Super ordinategoals

staff

styleSkills

strategy Systems

tksabarwal 43

7s etiology7s etiology

1. Strategy—a coherent set of actions aimed at gaining a sustainable advantage over competition., improving positin vis-à-vis customers, or allocating resources.

2. Structure—org. chart showing who reports to whom.

3. Systems. The processes and flows showing how thing are done on day to day basis. ( info systems, capital budgeting systems, qc systems, etc.)

4. Style—tangible evidence of what is important, it is more concerned with behavior of management.

5. Staff– people in the organization, important to think of corporate demographics rather than individual personalities.

6. Shared values-- the value of the organization must be shared by each member.

7. Sills—are those capabilities that are possessed by the organization as a whole as opposed to people in it.