GJU MBA 4th Sem Notes

8/17/2019 GJU MBA 4th Sem Notes

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O.D.M Computer & Mgt. Education

BUSINESS POLICY & STRAEGIC ANALYSIS (CP-301)

Ques 1:- What is Business Policy? How does Business Policy make the Study of

Management more meaningful? Ans:- Business Policy:-

The term Business Policy may be used interchangeablywith Strategic Management, corporate planning etc.

Primarily the term Business Policy means a long-term planning for the total business !as a whole".

BS!"#SS- $or%orate& '(erall functioning

P')!$* + Planning& ,ormulation of StrategiesThus Business policy means a long-term planning of any 'rganiation for the%ur%ose of its -

./'W0H

S/!2)

#3P2"S!'"

4!#/S!,!$20!'" #0$5The planning of the o#erall Business is done by the top-le#el managers who ha#e the

rele#ant s$ills e%perience and $nowledge to ta$e a strategic decision for the o#erallcorporate.2cc to $hristensen:-

!Business Policy is the study of the functions and responsibilities ofSenior Management, the crucial problems that affect success in the total enterprise,and the decision that determine the direction of the &rgani'ation and shape itsfuture."(rom the abo#e definition it may be understood that Business Policy attempts to studywhat path is the &rgani'ation going to ta$e in future.

-------------)AP-------------------------

Actual Position Anticipated Position

Planning *esigning +mplementing Steps


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Study of Business Policy

• "ature of Business Policy:-

15 Business Policy is a Study:-+t is a study of a what the top le#el

Managers do and what guides their acti#ities.

65 0o%-Management:- Business Policy deals with the long term perspecti#e of the&rgani'ation. These decision are ta$en by the managers at the senior le#el of management. Therefore, Business Policy attempts to Study the functions andresponsibilities of the senior management which primarily concerns itself to the crucialproblems or decisions of the organi'ation.

75 ,uture +'riented:- As the Study of Business Policy entails what should be doneto ta$e a desired future course of position it is future-oriented. The Senior le#elmanagers anticipate and predict the future and ta$e a policy decision in the present.

85 $hoice of a Position:- The study of a Business Policy in#ol#es e#aluating

arious courses of action and #arious desired future positions and ultimately choosingone of the best suitable future position.

eader (ollower hoice of a position

hallenger +nitiator

95 $hoice of a Strategy:+t also in#ol#es an e#aluation and choice of a

Strategy to reach upto the desired future position.

Mergers / Ac0uisitions1oint entures

hoice of a Strategy*i#ersification+ntegration

5 Mo;iliation of /esources:-

The study of Business Policy is also concerned with the optimum andmobili'ation of the a#ailable and the re0uired resources in an organisatio2n for theachie#ement of the :

'rganiational .oals

2


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Short-term )oals ong-term )oals

• #(aluation of Business Policy:-

(utureStrategic thin$ing

32456s Strategic Management

32756s

Strategy Paradigm 3285-956s

Planned Policy formulation +ntegration areas

Mid 32856s

Ad-hoc Policy-ma$ing 3233

art#ard Business School introduced anintegrati#e ourse in Management.

+n the +nitial days managers used to do with day to day planning methods. The firstphase in mid 32856s was the premise of ad-hoc policy-ma$ing mainly due to the

nature of the business of that period.

The second phase in 32856s and 32956s was mar$ed by the increasing en#ironmentalchanges. Planned Policy formulation replaced ad-hoc policy ma$ing, which led to theemphasis shift to the integration of functional areas.

The third phase during 32756s was based on strategy paradigm. +t was the effect andrelationship of the business with the en#ironment, which guided the process of policyma$ing.

+n the early eighties, the patterns changed again companies went global and

competition increased 1apanese ompanies unleashed a force across the worldalong with other Asian companies and possed threats for the ;.S. and


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• !m%ortanceThe study of Business Policy ma$es the study of mana-

gement more meaningful. +t completes the study of management for the students, asit puts together the information of all the functional areas and gi#es a complete pictureof the organi'ation for determining a comprehensi#e future policy of an organi'ation.

Thus the Business policy is important for

Students Business Policy see$s to integrate the $nowledge gained in #arious functionalareas of management i.e. (inance, Production, Mar$eting, and uman =elationsetc.

b> All the constraints and comple%ities of the real life business are studied in thesub?ect of Business Policy.

c> The study / practice of management becomes more meaning with the integrationof all the functional sub-systems.

,or # Business Policy helps to create an understanding of how policies are formulatede> The study ma$es the e%ecuti#es more recepti#e to the de#elopments in the

en#ironment to pic$ ideas and suggestion for implementation purpose.f> Business Policy prepares the e%ecuti#es at middle-le#el of management for the

understanding of strategic decision ma$ing.g> +t offers a uni0ue perspecti#e to e%ecuti#es to understand the senior

management6s #iewpoint.

$'"$)S!'"S:-

The purpose of the business policy course is to integrate the $nowledge gained in#arious functional areas, to adopt a generalist approach and to comprehend thecomple% interaction ta$ing place within the organi'ation. +t is a core sub?ect thatintegrates all the $nowledge / e%perience gained for future of the organi'ation.

#


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Ques5 6:- 4ifferentiate ;etween ision and a =Mission> Mention thecharacteristics of a good mission statement5

2ns:- !S!'":- The promoters of an organi'ation, normally ha#e some aspirationswhich guide them in the structuring and functioning of the organi'ation. These

aspirations are e%pressed in strategic intent means intention. A strategic intent shouldlead to on end. That end is the ision of an organi'ation. +t is what the firm or personwould ultimately li$e to become in the future.

A #ision is more dreamt of than it is articulated. Many a times it may not be e#identwhat #ision does the top management holds for its organi'ation. A #ision could be asha'y / #ague as a dream. Det it is a powerful moti#ator to action.

2cc to otler :- !ision is a description of something in the future."

2cc to #l-"amaki:- !ision is a mental perception of the mind of en#ironment on

indi#idual, or an organi'ation that aspires to creat within a broad time hori'on and theunderlying conditions for the actuali'ation of this perception.

This #ision is a future aspiration that leads to an inspiration to be the best in one6sfield of action. +t acts as a strong moti#ating factor for the senior le#el managers as itpro#ides a direction to the organi'ational efforts.

• Benefits of a !S!'":-

2cc to Parikh:-

3. )ood #isions are inspiring.E. isions represent a discontinuity and shows the company what is to be achie#ed

as an ultimate position.8. )ood #isions helps in the certain of a common identity and a shared sense of

purpose.9. )ood #isions are competiti#e, original and uni0ue. They gi#e a sense of identity to

all the employees in an organi'ation.. isions foster long-term thin$ing and guides the organi'ational wor$ing towards a

common philosophy.

7. A ision represent integrity and may be useful for the benefit of people.

Thus a good isions may be inspiring / moti#ating to the management. +t may guidethe wor$ing of a dream i. e. a ision. A #ision articulates the position that a firm wouldli$e to attain in the distant future.

#5g5 :-

5


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!'$>s ision

!+ndian &il aims to achie#e international standards of e%cellence in all aspects of energy an di#ersified business with focus on customer delight through 0ualityproducts and ser#ices."

Thus ision constitutes future aspirations that lead to an inspiration to be the bestin one6s field of acti#ity.

Mission:2 mission is a statement which defines the role that an organi'ation plaus in a

society. +t is the lin$ that the organi'ation de#elops between its e%istence and the need of the society.

Fhile the essence of a #ision is forward-loo$ing #iew of what an organi'ationwishes to become Mission is what an organi'ation is and why it e%ists.

2ccording to 0homson5

!Mission is the essential purpose of the organi'ation concerning particularly why it is ine%istence, the nature of the business it is in an the customers it see$s to ser#e andsatisfy."

2ccording to Hunger:-Mission is the purpose or reason for the organi'ations e%istence.

G $H2/2$0#/!S0!$S ', 2 M!SS!'" S020#M#"0:

15 ,easi;le:-2 mission statement should always aim high should not be an impossible statement.

+t should be realistic and achie#able.

2ccording to Ha(ell>s:

!S!'":- @Fe are committed to the cause of enriching the 0uality of life by ensuringsafe, efficient and con#enient use of electricity."

M!SS!'": A Better 0echnologyBetter QualityBetter 0omorrowA

6

(ormally Mission

ision+nformally

(ormulated

Statement of thereason of e%istence

*ream to be achie#edin future


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$'"$)S!'":-Therefore from the abo#e discussion it may be concluded that a #ision is a future

dream of the promoters of an organi'ation. Based on this foundation, the topmanagement designs a statement for the #ery reason of its e%istence in the society,which is called Mission. The two terms are different in concept yet they complement each

other in gi#ing a purpose to the e%istence of an organi'ation and guides its acti#itiestowards a future position.

Strategic !ntent

Q57:- What is the conce%t of #n(ironment in Strategic Management? What as%ectsdoes #n(ironmental 2%%raisal deal with?2ns:-

#n(ironment:The term basically means the surroundings: e%ternal ob?ecti#es, #ariables, e#ents

and circumstances under which someone or something e%ists. +n terms of Business,


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C$haracteristics of #n(ironment:-aD $om%le


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0he de#elopments and e#ents shaping the en#ironment ha#e a far reachinginfluence on the operations of a business. (or e%ample any change in the tastes / lin$ingof customers affect the growth / profitability of a firm.

(or any business organi'ation the study of en#ironment is of utmost important tobe able to ad?ust itself to the latest de#elopments and to be able to reap the benefits of the opportunities arising in the mar$et. The comple%ities of any en#ironment may be

understood by di#iding it into different categories.


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Stage of economic de#elopment of the country.Structure of economy- apitalistCSocialistCMi%ed


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P'/0#/>S ,!# ,'/$#S M'4#) ', #30#/"2) #"!/'"M#"0

2ccording to Michael Porter:@ompetiti#e strategy must grow out of a sophisticated understanding of the rules of competition that determine an industry6s attracti#eness."

$'"$)S!'":-Thus the study of #arious aspects of the en#ironment is underta$en by the

strategist in order to determine positi#e / negati#e trends that could impact uponorgani'ational performance. hange is a continuous phenomenon in the e%ternalen#ironment and that change is unpredictable from the perspecti#es of timing / strength.

A manager6s ability to recogni'e and anticipate en#ironmental changes plays a $ey rolein shaping the company6s future. ;nderstanding of the e%ternal en#ironment helps tobuild the company6s base of $nowledge and information, which can help impro#e acompany6s competiti#e position, buffer the company from en#ironmental impacts / buildbridges to influence sta$eholders of the company. This will impro#e the company6sopportunities to successfully adopt its strategic direction to the trend of the en#ironment.

Q585: 4efine SW'05 What is the rationale of %erforming SW'0?2ns: SW'0:

Any Business organi'ation for its sur#i#al and growth underta$es a detailed SF&Tanalysis. SF&T is the shortform for

StrengthFea$nesses&pportunities /Threats+n the cut-throat competition faced by the business today a detailed en#ironmental

scanning is a must. The study of +nternal /


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en#ironment ma$es a business house adopt itself to the e#er changing and e#er demanding surroundings in which the business operates.

S F & T

+nternal


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,or e


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14

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( o r m u l a t i o n

S t r a t e g

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P r o g r a m


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l e m e n t a t i o n

S F & T

A n a l y s i s

0 H #

B S

! " # S S

S 0 / 2 0 # . ! $ - P ) 2 " "

! " . P

/ ' $ # S S


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!ndicators of com%etiti(e strengths3. Strong mar$et share

E. )rowing customer base and customer loyalty.8. Abo#e a#erage mar$et #isibility9. Strongly differentiated products. ost ad#antages7. Abo#e a#erage profit marginsH. A creati#e / entrepreneurial alert management4. Abo#e a#erage technological / inno#ational capability

!ndicators of $om%etiti(e Weaknesses3. ompetiti#e disad#antagesE. Short on financial resources8. Slipping reputation with customers

9. ag in new product de#elopment. igh cost of production7. Fea$ product 0ualityH. osing ground to ri#al companies4. ac$ing s$ills / capabilities in $ey areas

$'"$)S!'": A Successful strategist concentrates his efforts on the understanding of both

e%ternal as well as the internal analysis. The $nowledge of competiti#e mo#es andcounter mo#es and the recognition of the potential competiti#e ad#antages of theorgani'ation. Both are e0uality important to be reali'ed by a Strategist.

Q595 4ifferentiate ;etween B$. and .# matri< tools used for Strategic %lanning52ns:- B$. ./'W0H- SH2/# M20/!3:

The Boston onsulting )roup B)> a leading management-consulting firmde#eloped and populari'ed a growth share matri%. The matri% comprises of four 0uadrants each describing the si'e and position of the strategic business unit owned byan organi'ation.

Stars Iuestion Mar$s

15

Mar$et)rowth=ate


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ash ow *ogs

&n the #ertical a%is is the Mar$et )rowth rate of the mar$et in which the businessoperates. A mar$et growth rate abo#e 35 percent is considered to be high.

&n the hori'ontal a%is is the =elati#e Mar$et Share. +t refers to the StrategicBusiness ;nit6s mar$et share as compared to the firm, which is its largest competitor inthe segment under consideration. The relati#e mar$et share ser#es a measure of thecompany6s strength in the mar$et segment.

The two a%is are di#ided into high / low. The growth matri% is di#ided into four cells each indicating a different type of business profile.

15 Question marks:

These are Businesses that operate in high- growth mar$ets but ha#e low relati#emar$et shares. A 0uestion mar$ re0uires a lot of cash because the company has tospend money on plant, e0uipment and personnel to $eep up with the fast growing mar$etand because it wants to o#erta$e the mar$et leader. The company has to thin$ hardabout whether to $eep on in#esting money into this business or put an end.

65 Stars:+t is a mar$et leader in a high growth mar$et. A star does not necessarily produce

a positi#e cash flow for the company. The company must spend substantial funds to $eepup with the high mar$et growth an to fight off competitor attac$s. A star is a potentialbusiness which has the competiti#e ad#antage to be a mar$et leader in an industry that isgrowing fast.

75 $ash cows:Stars with a falling growth rate that still ha#e the largest relati#e mar$et share and

produce a lot of cash for the company is called a cash cow. The company does not ha#eto finance e%pansion because the mar$ets growth rate has slowed because the businessis the mar$et leader it en?oys economies of scale and higher profit margins. The companyuses its cash cows to pay bills and support other business.

85 4ogsBusinesses that ha#e wea$ mar$et shares in low-growth mar$ets are in the dog

category. The company should consider whether they are e%pecting a turn around in themar$et growth rate or a new chance for mar$et leadership else they should di#est thisbusiness. +t would be fruitless to spend and money on this matri% business.

.-# M20/!3

16

=elati#e Mar$et Share


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A refined #ersion of the B) Matri% is the one pioneered by )eneral


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Mar$et attracti#eness #aries with the mar$et6s si'e, annual mar$et growth rate,historical profit margins etc. business strength #aries with the company6s mar$et share,share of growth, product, 0uality etc.

Fhile the B) matri% considers only two factors, the )< portfolio matri% helps thestrategic planners to loo$ at more factors in e#aluating an actual or potential businessthan the B) model does.

As against the B) matri% the )< matri% is di#ided into nine cells, which in turnfalls into 'ones.

The three cells in the upper left corner indicates strong SB;6s in which the companyshould in#est or grow. The diagonal cells stretching from the lower left to the upper rightindicate SB;6s that are medium in o#erall attracti#eness.

The company should pursue selecti#ely and manage for earnings. The three cells

in the lower-right corner indicate SB;6s that are low in o#erall attracti#eness. Thecompany should gi#e serious thought to har#esting or di#esting these business units. Apart from the B) and )< portfolio matri%, three more portfolio matri% are used toe#aluate the strength of business units and facilitate strategic planning.

A> *irection PolicyB> Space Matri%

$'"$)S!'":Portfolio models ha#e helped managers to thin$ more strategically, to understand

the economics of their businesses better, impro#e the 0uality of their plans, impro#e

18

Business Strength

igh

Medium

ow

M a r $ e t A t t r a c t i # e n e s s


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communication between business and corporate management, eliminate wea$er businesses / strengthen their in#estment in more promising businesses.

owe#er, portfolio models must be used cautiously. They may lead the companyto place too much emphasis on mar$et-share growth and entry into high growthbusinesses or to neglect its current businesses because may end up in the same cellposition though differ greatly in underlying ratings / weights.

Q55 : @0he core of general management is StrategyA #la;orate5 2lso discuss therole that a strategist %lay in strategic management52ns: S0/20#.*:

0H# concept of Strategy is central to understanding Business Policy and StrategicManagement. The term JStrategy6 is deri#ed from the )ree$ word JStrategos6 whichmeans generalship. The term Strategy means the art of the managing or adopting acourse of action. A course of action may be:

to ta$e ad#antage of opportunities to de#ise ways to counter threats etc.

2$$'/4!". 0' 2),/#4 45 $H2"4)#/ E1F6D!A Strategy is the determination of the basic long- term goals and ob?ecti#es of anenterprise and the adoption of the courses of action and the allocation of resourcesnecessary for carrying out these goals."

2$$'/4!". 0' W!))!2M ,5.)#$ E1FG6D!A Strategy is a unified, comprehensi#e and integrated plan designed to assure that thebasic ob?ecti#es of the enterprise are achie#ed."

By combining the abo#e definitions we understand that a Strategy is a plan or course of action or a set of decision rules forming a pattern or creating a common thread

related to the organi'ations6 acti#ities which are deri#ed from its policies, ob?ecti#es andgoals.

+n business the strategy operates at different le#els.

19

(unctional e#elStrategy

Business e#elStrategy

orporate&ffice

SB; 3 SB; E SB; 8

Production &perations Mar$eting (inance Personnel

orporate e#elStrategy


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Apart from the three le#els mentioned, many a times a strategy may be designedat higher le#els. Such strategies may be called the Societal Strategies.

The strategies may be set at le#els lower than the functional le#el, which are

called &perational Strategies.@0he stream of decisions and actions which leads to the de(elo%ment of a aneffecti(e strategy or strategies to hel% achie(e cor%orate o;ecti(es5A

-.lueck E1F8DStrategy is the most significant concept in Business policy and Strategic Management. +tguides the functional and operational decisions by defining the broad course of action.

(or e%ample, for an old and #ery well established company, which had been themar$et leader for se#eral years, suddenly faces threat from the emergence of competitors has e.g. Ba?a? Scooters faced competition from M scooters. A course of action may in#ol#e strategies li$e e%pansion di#ersification, focus, turn around, stability or di#estment phases in the Strategic Management.

/ole of strategists:Strategists are indi#iduals or groups who are primarily in#ol#ed in the formulation,

implementation and e#aluation of strategy. (or different le#els of managers andsometimes e#en outside e%perts are in#ol#ed.aD Board of 4irectors:

The Board of *irectors are the ultimate legal authority which is elected by the

owners of the organi'ation. The board is responsible for pro#iding guidance andestablishing the directi#es. There may be difference between the role played by theBoards of different &rganisations.

0he ;oard acti(ities include:To direct*iscuss matters of technology collaboration@ew product de#elopmentSenior management appointments=e#iewing and screening e%ecuti#e decisions

20


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Setting and accomplishing ob?ecti#es=e#iewing and e#aluating organisational performance

;D $hief #


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Thus there are #arious parties in#ol#ed in the strategy (ormulation, +mplementation /e#aluation. Strategies gi#e a direction to the company. They coordinate the efforts of allfunctions / all le#els towards a predetermined common organisational purpose. +tfacilitates an optimum resource allocation / helps programming all organisationalacti#ities in ad#ance.

Q5G5 What are the different ty%es of Strategies under $or%orate- le(el Strategies EaDSta;ility E;D #


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+t is a strategy to gi#e a pause to the blasting e%pansion strategy in the past or toemo#e cautiously before mo#ing into a new business aspect.

4!S242"02.#S ', S02B!)!0* S0/20#.*

Acts as a testing ground, before entering into a new #enture

)i#es a period of rest if the company had been pursuing aggressi#e e%pansion. Suitable when any e%pansion may be threatening

!! #3P2"S!'"S S0/20#.*:0H!S strategy aims at high growth by substantially broadening the scope of one or

more of its businesses. +t aims at the impro#ement of its o#erall performance in business.

There may be fi#e types of


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Mar$eting Technology Mar$eting /=elated =elated Technology

related$onglomerate di(ersification: A strategy that plans to enter into an unrelated businessacti#ity for eg. )odre? loc$sCAlmirahsC=eferigeratorsCSoaps.

dD #

oncentric mergersE related firms>ertical mergers

E firms creatingcomplementary products>

ost Pressures


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ow igh

Pressure for local =esponsi#eness

!!! /#0/#"$HM#"0 S0/20#.*=etrenchment strategy is followed when organisation aims at a contraction of the

scope of business. +t may in#ol#e a total or partial withdrawal from an e%isting business. A firm may adopt this strategy when faced with ad#erse e%ternal en#ironment eg.Shrin$ing mar$et share, diminishing profitability, falling sales, emergence of substituteproducts, ad#erse go#ernment policies, tougher competition, changing customer need /preferences etc.+t in#ol#es strategies li$e.

aD 0urnaround Strategies:-+t means de#ising a strategy to re#ersing the trend, negati#ely affecting the

organisation. The strategy implemented internally focus on the ways and means of re#ersing the process of decline.

;D 4i(estment:-+t is a strategy which cuts-off the loss- ma$ing units or di#isions, a product list or

any of its decline causing function etc. it in#ol#es a sale of a portion of business. +t isadopted in case a turn-around strategy is not successful.

cD )iKuidation:-+t is a strategy adopted to abandon all its acti#ities completely. +t in#ol#es closing

down a firm and setting its assets. +t is considered to be the last resort for any strategistas it in#ol#es both loss to employees as well as to the organisation.2d(antages of /etrenchment strategy

To mo#e out of loss-ma$ing business.To meet threatening en#ironment )o#ernmentC competitorC SubstitutesC .Supports profitable businesses by reallocation of resources.Sa#es managements efforts by cutting off unprofitable business.

4isad(antagesMay be used a short cut to putting hard wor$May di#est a potentially profitable business.May be the decline is temporary.! $'MB!"20!'" S0/20#.!#S:-

+t is strategy adopted by an organisation as a mi%ture of Stability,


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Advantage of Combination Strategy

Big organisation facing comple% en#ironment cannot run a single strategy. An organisation has different business.


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2PP/'2$H#S 0' 4#$!S!'"S- M2!".

aD /ational a%%roach:-The rational approach to decision-ma$ing in#ol#es an intensi#e effort in all the

steps:-

+dentification of Problem

*iagnosis of the problem

+dentification of #arious alternati#es


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$om;ination 2%%roachThis approach states that practically decisions are not completely rational or

completely emotional. These are ta$en in combination of the two. A Strategist tries tota$e a decision based on an e%tensi#e research howe#er he may ha#e some personalfactors affecting his choice of an alternati#e. Thus it6s the combination, which is the mostpractical approach of decision-ma$ing.

GGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGG

Q F5 4iscuss the 0echniKues used for '%erational $ontrol5

2ns:- '%erational $ontrol:-&perational control is aimed at the allocation and use of organisational resources

through an e#aluation of the performance of the organisational units an to assess their

contribution to the achie#ement of organisational ob?ecti#es.oncerned with actual results or performance

ontrol

Strategic ontrol &perational ontrol

Strategic $ontrolProacti#eontinuous 0uestioning of the basic direction of strategy(ocus on e%ternal en#ironment

'%erational $ontrol=eacti#e

Allocation / use of organisation resources(ocus on internal en#ironment

Process of '%erational $ontrol

28

uman

Approach

=ational

Approach


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0#$H"!Q#S ,'/ 'P#/20!'"2) $'"0/')The techni0ues for &perational control are based on organisatonal appraisal i.e.

internal en#ironmental performance. Broadly spea$ing there are three sets of Techni0ues.

aD !"0#/"2) 2"2)*S!S:-it is the analysis of the internal en#ironment of the organisation strengths /

wea$nesses etc. this analysis can be done by #arious methods:-

iD alue-chain 2nalysis:-alue chain is the se0uence of acti#ities starting from production to mar$eting. The

#alue chain analysis focuses on a set of these inter-related acti#ities underta$en in anorganisation. The importance of this techni0ue is that the total tas$s of an organisationare segregated into different parts and then e#aluated.

iiD Quantitati(e 2nalysis:-+t is an operational techni0ue which ma$es use of a physical unit in 0uantitati#e

terms for the purpose of performance assessment. +t is one of the most popularly usedmethods.

Quantitati(e techniKues

,inancial %arameters Physical %arameters=atio Analysis omputation of absenteeism =ate of ad#ertising recallTotal cycle time of production

;D $'MP2/20!# 2"2)*S!S:-

29

Comparative Analysis

Strategy CPlanob?ecti#es

Settingstandards of performance

Actualperformance

Measurementof actualperformance

=eformulateStrategyCplan

hec$ standards hec$performance

Analysingariance

(eedbac$

Internal Analysis

Comprehensive Analysis


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The techni0ue mentioned aims at comparing the performance of an organisationwith its past performance. This comparison helps in the operational control. There e%iststhree techni0ues:-

iD Historical 2nalysis:-The techni0ue of istorical analysis is a #ery easy to implement and a #ery

fre0uently used techni0ue. This aims at comparing the present performance of anorganisation uses past date i.e. historical data for analysis of comparison.

iiD !ndustry "orms:-This method of comparison uses the standards of leading firms in the same

industry to be used for comparison with the performance achie#ed by an organisation.

Present performance +ndustry normsCa#erage&f an organisation. of performance

iiiD Bench marketing:-

Bench mar$eting is a comparati#e techni0ue, where the performance of anorganisation is measured against the best practices in an area.

Performance The best practices&f an organisation in the +ndustry

cD $'MP/#H#"S!# 2"2)*S!S:- As the name suggests, it is a techni0ue, which encompasses total acti#ities of an

organisation for the purpose of analysis.iD Balanced Scorecard:-

This method is based on the identification of four $ey performance measures of customer perspecti#e, internal business perspecti#e, inno#ation / learning perspecti#e /financial perspecti#e. The performance of an organisation is measured ta$ing intoaccount #arious parameters.

iiD ey ,actor /ating:-+t is a #ery comprehensi#e method ta$ing a holistic #iew of the organisational

performance. +t ta$es into account $ey factors in se#eral areas / then e#aluatesperformance.

GGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGG

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VS

VS


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Q51L EaD Write a short note on !ndustry 2nalysis5

2ns:- !"4S0/* 2"2)*S!S:-Because &rganisations are open system, a number of en#ironment factors

influence these ine#itably that is suppliers, competitors and buyers.

Su%%liers :- They supply the goods

$om%etitors:- They ha#e impact on out business. Their e#ery step influence us.

Buyers:- By whom we ma$es profit.The industrial en#ironment of the firm.

!"0#/"20!'"2) #"!/'"M#"0

!"4S0/* $H2/2$0#/!S0!$S 0H20 $')4 !MP2$0 ,!/MS P#/,'/M2"$#The number of firms in the industryThe le#el and pattern of Promotional e%penditure.The rate and nature of technological competition.The relati#e si'e of firm.onsumer preferences for the product and for related products.The rate of demand growth.The e%tent of demand growth.The price beha#iour of the leading firm.The minimum efficient scale of production.Buyers switching costs.*emand- side economies of scale.

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The industry env.

Suppliers

Competitors

Buyers

Economic Env.

Social & Cultural Env.

Political Env.

egal Env..

Technological Env.

!atural Env.


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Specificity of plant and e0uipment to industry etc.

iD 0hreats of #ntryi> The economies of scaleii> Brand identificationiii> )o#t. imitations icense re0uirement>

iiD Powerful Buyers:-Fhen buyer can force down prices.

iiiD Powerful Su%%liers:Fhen Suppliers can force buyers to pay higher prices

i(D Su;stitute Products:-By placing a ceiling on the price it can change to substitute products or ser#ices and limitthe potential of an industry.

D Jockeying for Position:-

The strongest forces which influence the profitability of a firm become the determiningfactors in strategy formulation.

sefulness of !ndustry 2nalysis :-

25 !ndustry 2ttracti(enessB5 $om%etiti(e Position5

!ndustry 2ttracti(eness:-

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Michaelporter6sanalysis

Threats of entry

PowerfulSuppliers

Powerfulbuyers

SubstituteProducts

1oc$eyingfor position


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a> )rowth potentialb> Profitability of the industryc> =elati#e abilities of players.

$om%etiti(e Position:-

Fhere does the firm stand in comparison to others ina particular +ndustry.

!"4S0/* 2"2)*S!S

3. Basic ,eatures:-Si'e of +ndustryProduct offeringolume

E. !ndustry #n(ironment:-(ragmented +ndustry


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+ndustry Analysis. The analysis of the +ndustry includes the o#erall #ariables of theindustry includes the o#erall #ariables of the industry incorporating its si'e, nature,performance, attracti#eness, relati#e mar$et share etc. by analysing the industry, aStrategist can #ery well e#aluate whether it should enter into a gi#en business within#estments or refrain from going ahead.

0hreat of entry:-

A new entrant in an industry represents a competiti#e threat for established firmalled as +ncumbents> but the li$elihood of new entrant is functional of two factors.

Maor ,orces in this are:-

Economics of scale:-

@ew entrants ha#e to enter the industry in big way to reap economies of scale. There willbe a ris$ of a strong retaliation to o#er come these barriers. Auto mobile manufacturersha#e customi'ed their product.

Expected retaliation:- =etaliation Strong> can be e%pected if incumbent has a ma?or share in industry butindustry growth is slow.

Product differentiation:- Product differentiation refers to physicalCperceptional differences that ma$e a productspecialC;ni0ue. ompanies such as Pepsi, o$e spend huge amount on ad#ertisementand create emotional bondings. +t is #ery difficult to switch customers from them.

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@ew


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Capital Requirement:-

ompeting in new +ndustry needs huge capital in#estment.


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dD Powerful ;uyers:-ustomers can force price down demanding better 0uality or more ser#ice / play

competition off against each other, in case they are stronger that the suppliers.

Buyer>s $oncentration:-Buyers are concentrated at one place or buy in large 0uantities related to total

industry sales. +n such scenario buyers can get deals stuc$ in their fa#our. (or e.g.omputer / Automobile industry.

Price Sensiti(ity:-+f the product that the buyers purchase represent a large portion of buyer6s cost. +n

such a case, price is an important issue for buyers. They all are $een to bargain for fa#ourable terms / indulge in selecti#e buying. (or e.g. =efrigerator #Cs igarettes.

Standardied %roducts:-+f the products that the buyers purchase are standardi'ed, in such case buyers

ha#e a tendency to play one seller against another. (or e%ample steel is a standardi'ed

product, all automobile li$e Maruti, yundai can ha#e bargaining power for that.

eD 0hreat of Su;stitute %roducts:

Substitute products are different goods or ser#ices from outside a gi#en industry thatperform similar or the same function as a product that the industry produces. Thepresence of substitute products poses a threat on prices that can be changed by anindustry. Fhen relati#e price of substitute product rise, for e%ample Tea / offee, plasticbag #s paper beg, &il #s P). ustomers tend to switch their localities towards thesubstitute products because of low price.

$'"$)S!'": After ha#ing a #iew of Porter6s model we conclude that how a firm can do its competiti#eanalysis / which can be done to a#oid this by studying porter6s fi#e forces and ma$eeffecti#e strategic planning.

36


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S

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(uture ob?ecti#ewhere will emphasisin future

urrent Strategyow are we currentlycompeting

Assumptions Are we operatingunder a status 0uo

apabilitiesFhat are our strengths/ wea$ness

=esponseFhat will ourcompetitors do infuture


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GURU HARKRISHAN INSTITUTE OF MANAGEMENTBUSINESS POLICY & STRAEGIC ANALYSIS (CP-301)

Iues:- Fhat do you mean by competiti#e ad#antage Fhat are the determinants of nationalcompetiti#e ad#antage


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of impro#ement / inno#ation by the organisations. These factors either train organisationsfor world-class competiti#e or fail to ade0uately prepare them to competent in the globalmar$et place

8. =elated / supporting +ndustries:- Apart from the main industry in which conte%tcompetiti#e ad#antage is tal$ed about, the conditions of related / supporting industriesalso determine industry6s competiti#e ad#antage. owe#er the ong run , the relationshipbetween main industry / related / supporting industries becomes reciprocal. (or e%.:- +f the main +ndustry is de#eloped, the relate industries will also de#elop with a time lag. +nthe same way, the related industries will pro#ide support to the further de#elopment of themain industry.

9. (irmstrategy,structure / =i#alry:- *ifferences in strategy, structure / ri#alry createad#antages or disad#antages to firms. ompeting in different types of industries in anation. The aggregate of these determines national competiti#e ad#antage. The waydifferent firms shape their strategy- ranging from a broad outloo$ and long-termprofitability to narrow range and short term profitability-determine how the nation will becompetiti#e. (or e%.:- ;S companies ran$ return on in#estment, share price increase, /mar$et share in that order.

Approaches for ompetiti#e Ad#antage:-These approaches are as follows:-3. )eneric competiti#e strategyE. ST=AT ost (ocus:- a situation in which an organisation focus on a narrow mar$etsegment / offers product at the lower price than its competitors based on cost

ad#antage.c> *ifferentiation:- is the act of designing a set of meaning full differences of

distinguish the organisations offerings from competitor6s offeringsd> (ocused *ifferentiation:- differentiation of acti#ities to generate competiti#e

ad#antage in a narrowly defined mar$etC coustmor segment.++. Strategic +ntent:- ambitions and obsession for winning which are used a means for generating competiti#e ad#antage.

According to amel / Prahalad:-a> Building layers of ad#antageb> Searching for loose bric$s

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O%era co$t eader$)ip Di**erentiation

Co$t !ocu$ !ocu$ed

Di**erent ion


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c> hanging the rules for engagementd> ollaborating+++. Bench Mar$ing:- +t is another tool which can be used to generate competiti#e ad#antage. +tis a process of identifying, understanding, and adapting outstanding practices from within thesame organi'ation or from other business to help impro#e performance.Types of Benchmar$ing:-3. Product Benchmar$ingE. ompetiti#e bench mar$ing8. process bench mar$ing9. strategic benchmar$ing. global benchmar$ing.

+. Synergic Approach:- can be used as a means do generating competiti#e ad#antage to anorganisation if the managers are sufficiently aware about how synergistic effect is de#eloped.Synergy is the process of putting two or more elements together to achie#e a sum total greater than the sum total of indi#idual elements separately. This effect is described as ENEO effect.

Areas of synergistic effect:- Production synergy Mar$eting synergy =esearch de#elopment synergy (inancial synergy )eneral management synergy

. ritical Success factors Approach:- characteristics, conditions or #ariables which whensustained can ha#e significant impact on the success of an organisation competing in aparticular industry.

• &rganisational ritical success factors:-

Mc$insey H6s framewor$:-Strategy, Structure, systems, staffs, s$ills, style, shared #alues

• Types of competiti#e Ad#antage:-

(


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. (or e%. =estaurants.

GJU MBA 4th Sem Notes

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