Strategic Manage Men 1

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Strategic Management

Q. No.1.

Concept of Strategy & Meaning

Strategy, as a term is essentially linked with military science: It implies facing theenemy under conditions that are to ones advantage.

Strategy can be defined as interpretative planning. Strategy includes the determinationand evaluation of alternative paths to an already established mission or objective, andeventually choosing the right alternative. In order words a strategy outlines howmanagement decides and plans to achieve its goal and objectives. The term, strategy isderived from the Greek word "Stratetia" which implies the science, art, tact and qualityof being an efficient and effective army general. Due to industrial advancement in 18th

century strategic management started gaining importance, after Ist & Iind. world warsstrategic ° management gained much importance.

Management / exponents opined : " Business is also like war in one respect . In wara nation is to right with enemies to win. In business every organization has to lie withcompetitors, in a competitive market share. The objective, in both the cases are thesame - to win for survival, growth and development".

In 1962, business historian Aftred. D. Chandler defined strategy as "The determinationof the basic long term goals and objectives of an enterprise and the adoption of coursesof action necessary for carrying out these goals"

Charles Hofer & Dan Schendel After having gone through various historical

events, developed a definition of strategic management. approach that considered 4components:

1) The need to match product or markets with Geographic territories (known .asScope).

2) The need to deploy a large quantity & variety of resources both humans material.3) The need to recognize & seize competitive advantages.4) The need to convince a complies variety of functional divisions that departmental

cooperation is better for overall organizational performance than isolateddepartmental activity (a principle known as synergy.)

Strategic Planning

Planning is deciding in advance the future course of action i.e. what is to be done aswell as how and when it is to be done it involves projecting the future course of actionfor the business as a whole & also for the different livings within it.

The crucial pivot is strategic planning is to gather first hand information about the plans,programme and policy of the competitors relating to their products, pricing, marketingstrategy, target customers, distribution networking, distributing channels, source of

forwarding, technical lie - ups, Govt. support. So that more aPpropr:iate & competitivedecisions can be taken regarding its own future business planning.



Careful business planning with through evaluation and scanning of the businessenvironment and resources of competitors can be termed as strategic planning. Itincludes the plan, programme 86 policies of the existing as well as likely futurecompetitors, their strengths 86 weaknesses in relations to one's strengths 86weakness. It calls for a SWOT analysis before decision making for the future.

the strategic planning process comprise determination and laying down of :

i) Objectivesii) Policiesiii) Proceduresiv) Rulesv) Programmesvi) Budgetsvii) Strategies.

'today's approach to business planning is called "strategic planning": Herethe top management i.e. the owners, board of directors 86 corporate planners have a

role to play in strategic management. But the general managers and executors, play akey role as they strategically plan for proper implementation of the corporate plan.

?lanning Environment: The term environment refers to the ability of all the factorswhich involves both internal and external conditions of business, commerce andindustry. A business firm does not operate in vacuum , it . operates in an environmentand becomes part of it. If there is conflict between the enterprise and theenvironment, it is the enterprise that will suffer. Planning' environment, therefore hasto take into account the constraints imposed by the environment 86 also takeadvantage of the opportunities presented. "The various factors that contribute to the

business environment can be divided into 2 categories.

(a) External environment Like Country's economic policy, laws, globalization,infrastructure like transport, power, raw material , competitors, markets, values of society.(b) Internal environment : Like attitude values, shareholders, work culture, Morale of employees, trade unions, Technology etc.

Environment is the sum total of history geography, culture, sociology, politics andeconomies of a nation 86 interaction between economic 86 non - economic forces isbound to take place.

For planning environment , we can categorize the total environment into twosegments.

(a) Mega environment i.e. the overall environment prevailing in the business would,it indicates the trend' of business, the market - whether the trend is encouragingand positive or recessionary in the market. Major elements of the mega environmentare political, social, technological, economic & legal, could be regional or international.

b) The micro environment which is related organizations current business, the majorelements of micro - environment are supplies, customers, employees, dealers,retailers, financial institutions, who may have direct influence on business. For

Strategic management 2



environmental planning it is of tremendous importance to decide whether the existingstrategy is working or not.

Political factors in Environment: Any business organization is to operate within theparameters of industrial and business laws. The direction of all such laws, rules,regulations are based on political ideological belief of the leaders who rule the country.

Social Environment : Social environment concerns the values, attitude, opinion,beliefs and lifestyle of the people in the society & of those in a firm's externalenvironment, as developed" from their cultural, religious, educational, ecological ,demographic & ethnic 'conditioning. With the change of social attitude the demand of various goods and articles among the people in the society automatically changes e.g.entry of women in all spheres of activity . social changes is bringing a gradual changesin employment of child labour.

Economic Environment: The business sector has economic relations with the Govt. ,the capital market, the household sector and the foreign sector. The different sectors

together influences the trends & structure of the economy. The form & functioning of the economy varies from country to country.

Capital; sales of inflation ad growth trend of the gross national. product are allimportant economic factors that should be taken into consideration in strategicplanning.

Technological Environment & Forecasting: Technological environment with thechange and development of technology has radically contributed towardsadvancemcnt of industrialization. Technological advances gave rise to newer products,

processes & technology to efficiently meet the customers needs. Technologicalachievements .have reduced the time and cost of communication & -transportation,

Legal Environments: Changes in laws as required for business :

i) Changes in laws e.g. FERA / FEMAii) SEBIiii) Companies act.iv) Neq. Instruments.

Q.Z.

Discuss the different levels and types of strategy and tasks instrategic management

a) Corporate Level Strategy It is formulated by top management to decide theactions that the total organization is taking and attempts to determine the roles eachbusiness activity . is playing & should play in the organization. Corporate level strategydefines the long term objectives such objectives involves major . decisions for futurebusiness plans about market, product, profitability, return on investment,technological leadership.

b) Business unit strategy:- Business unit level strategy should be formulated theStrategic management 3



comprehensive general plan, programme, budget, schedule and policies throughwhich a




business unit intends to achieve its long term objective, i.e. corporate level strategy inan ever - charging environment, is called the business unit level strategy.

the major activities in business unit level strategy involves product development asper technological forecasting and decision of corporate level strategy, marketdevelopment innovation, diversification etc.

e► Functional Level Strategy:- It creates the frame work for the management of functions such as finance, R&D, production materials, personnel & marketing so that

they conform to the business unit level strategy.

Corporate levelstrategy

Multi-Businessorganizations

Business level strategy

Functional level strategy

1

R & DProducing Marketing Personnel Finance

Marketing Strategy American marketing association "Marketing Management is theprocess of planning and executing the conception, pricing, promotion and distributionof goods, services and ideas to create exchanges with target. groups that satisfycustomers and organizational objectives.".

Peter Ducker, claims that marketing is so basic to `business that it cannot beconsidered as a separate function rather it is the whole business from the customers

point of view. Present - day business success is not determined by the producer but by

the customers.


StrategyBusiness Unit



1



Marketing Objectives

1, Consumer focus .2, Profit focus.

3. Broadened functional base4. Integrated of marketing function5. Research base decision

Marketing Strategies:- Marketing / markets can be described and defined by theirnature of competition. Basically, the company's overall marketing strategy is itscompetitive poster in the market place. The marketers first task is to select apromising market and identifying its. needs and buying patterns, after which heformulates , strategies for each controllable factor (product, distributions, promotionand pricing)

In formulating 85 implementing marketing strategy, management concerns itself withidentifying opportunities to serve target markets profitability & serving them soeffectively that it is difficult for competitors to take business away on profitable basis:Competitive posters are either aggressive or defensive .. When a market's products arealready estbed in market, there is a strong temptation to adopt a defensive poster i.e.to maintain a holding action. The danger in defending the status - quo is that thismeans yielding the initiative to competitors . If the competitors develop importantproduct innovations, they may succeeded in breaking estbed customer loyalty &buying patterns.

The importance of formalized overall marketing strategies' (i.e. deliberately plannedcompetitive postures).__ Varies with the competitive setting.. There are 4 types of competitive settings.

1. No direct competition2. Pure competition3 _ Monopolist competition4. Oligopolistic competition .

Marketing Strategy as a part of corporate strategy:

Marketing strategy is a well outlines game plan which is the fundamental strategybased on ,which all activities of the organization are decided marketing strategy broadly comprises 3 main steps.

1) Developing the product / service2) Selecting the target market3) Assembling the marketing mix.

Developing the product / service:- Organizations are increasingly recognizing thenecessity & advantages of regularly developing new products and services, especialLy

in view of changing tastes, technologies and competition. Every product goes througha life cycle . It is conceived & born, developed through phased and eventually .dies asyounger products come in the market . Every company needs a product developmentprogramme. A company may develop new products in 2 days.Strategic management 5



a) Through its own R&D & experimentations programmes.b) Through acquit ions of a new company. Buying a plant as a license to produce

someone else's product / brand.

Product development usually involves 8 stages :

1) Idea generations2) Idea screening3) Concept developments testing4) Marketing strategy development5) Business analysis6) Product development7) Market testing8) Commercialization.

Selecting the Target Market:- The process of market segmentations opens up,several new market segments with varying potential, profitability & risks. Markettargeting is the process of fixing one's target market. Marketing strategy should aimsto cash at each segment as a distinct marketing opportunity. Marketingsegmentations and target market selection are closely related to market strategyformulations.

Assembling the Marketing Mix:- Assembling the market mix means assemblingthe 4 ps of marketing in the right combination i.e. he product, place, promotion &price. At first, a company chooses or develops the product which would meet the

customers need, demand, aspirations & full satisfaction. Secondly, it organizes variousdistribution functions such as transportation, warehousing, distribution channelmanagement etc. so as to make the product easily available to the ultimatecustomers. Thirdly the company develops a number of promotional measures . suchas advertising sales campaign, personal selling and other sales promotionalprogrammes. Lastly, he company uses the pricing mechanism in consideration of -competitive advantage & profitability.

Marketing Costs as Profitability:- Marketing & distribution functions account for amajor portion of increasing costs towards sales of products and services and have adirect effect on profitability.

There are various elements of marketing costs which vary from company to companyin relation to size, significance, measurability & controllability.

Various elements & marketing costs broadly include the following :-

1. Cost of market survey & market research2. Cost of advertisement. 3. Sales promotion cost4. Over heads & admn cost for sales & marketing

5. Physical distribution cost6. Warehousing costs7. Costs of distribution channel (discounts)Strategic management 6

http://etc.so/

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8. Cost of credit sales9. Cost of marketing Information systems.

For better profitability through sales it is necessary to analyze the marketing costs andservice control whenever necessary. E.g.

(a) Assigning marketing costs to different segments of marketing functions(b) Analyzing each cost with related functional area of marketing(c) Identifying the areas for cost control.(d) Methods of cost control.

Cost Benefit Analysis: -

Costs incurred in different segments and functions of marketing need to be evaluatedand analysed in terms of results achieved towards profitability To be more effectivemarketing costs should include standard costing for various marketing activities and

should be compared with the budget provisions. Standard 'cost per each and everyactivity of sales & marketing should be set & then the actual costs are to be noted andagainst the standards . The standard cost approach will highlight what ought to havehappened or what could have happened, if the activity was managed 85 controlledefficiently with the objective of higher profitability. Cost benefit analysis should alsoinclude the areas such as credit control, credit rating, after sales - services.

Pricing Policies and strategies:- Pricing policy should be made to tackle variouscompetitive situations. This implies that the firm can follow different pricing policieswith regard to different markets for different customers e.g. full cost pricing may be

followed for a nig customer particularly when the plant capacity is lying idle. Some of the pricing policies could be :-

1. Prices should aim at maximizing profits for the entire product line.2. Prices should be, set to promote the long-term welfare of the enterprise.3. A pre-determined systematic method of pricing should be adoptedespeciallyfor new products.

4. Prices should be adopted and individualized to fit the diverse competitivesituations encountered by different products.

Certain factors affecting pricing policy: -

1. Cost of the goods2. Cost 8s price of competitors products.3. The nature and condition of demand.4. The quality of the product 8s services

5. Certain types of seasonal goods can be sold at a price which is higher whencompared with the actual cost of production due to .unusual risk.

Pricing Objectives: -

1. Target rate of return on investment or net sale.2. Price stabilization3. Meet or prevent competition




4. Maintain or improve share of the market5. Maximize profit.

Basic Methodology of pricing are: -

1. Cost - Plus Pricing:- This is a common method, formula is

unit selling price = Unit total cost + Desired unit profit.

2. Marginal cost pricing:- It is the amount of money at any given volume of outputby. which the aggregate cost is charged if the volume of output is increased or _decreased by one unit.3. Break - Even analysis:- BEP = Selling price / unit - variable cost / unit fixed cost

Fixed cost=

Contribution / unit

CASE STUDY

Small cars may cost good deal more

Strategic Management

Q. No.1. The BCG growth matrix has long remained and excellent tool forevaluation businesses by any companies? How this tool is utilized by the

companies.

Q. No.2. A turn around strategy is used for converting a failed company or arisk company into a successful company. Discuss the action plan for a risk unit.

Q. No.3. Prepare a swot analysis for a company and suggest on the bases of theanalysis its future of action?

Q. No.4. What could be the probable reason for companies to use themergers & acquisition route? Give examples of recent takeovers.

Q. No.5. What is strategic Management Process? Explain the frame work andkey elements of this process?

Q. No.6. How do you tackle the process of change management? Do yourequire a dynamic leader or a proper strategy or both?

Q. No.7. Explain the following with examples:-

a) Cost based strategies and pitch based strategies.b) Sustainable competitive advantage.c) Strategic audit

d) Poter's Model & its utility.




Q. No.8. short notes on : -

a) Supplier value chain and forward chainb) Vision & mission statementsc) Value chain analysis

d) Diversification optionse) Competence and care competencef) Divestment & spin - off.g) Entry barriers & exist barriers.

Vision & Mission Statements

The first task of strategic management is formulating the organization's vision, missionand value statements. They have the greatest impact on the identity and the future of the organization and reflect the strategic intent of the organization.

Vision:- is what keeps the organization moving forward. Vision is the motivator in anorganization. It needs to be meaningful with a long term perspective, so that it canmotivate .people even the organization is facing discouraging odds. When you beginthe process of strategic planning , visioning comes first. Martin Luther King Jr. said "Ihave a dream" and what followed was a .vision that changed a nation. That famousspeech is a dramatic example of the power that can be generated by a compellingvision of the future. A vision is a guide to implementing strategy. Vision are aboutfeelings, beliefs, emotions, and pictures. The process and outcomes of vision is. todevelop an effective basis for business strategy. The fore-sight of the organization is tofit the strengths of the organizations with the market demands, to make theorganization highly competitive with growth and profits as the rewards. Mr. Sunil Alaghwhen he was CEO of Britannia, decided to come up with a one line vision for thecompany "Every third Indian must be a Britannia Consumer by 2004".

Y. C. Deveshwar chairman of ITC, had a vision of ITC, reminiscent of Jack Welch. Hesaid that in a mature economy , with developed market institutions. ITC was unlikely tobe successful unless it was focused on a one theme vision "Either we become worldclass or we leave the business".

Hindustan Levers Ltd. "Our vision is to meet the everyday needs of people

everywhere".

Tata Irons & Steel Co. Ltd. :- "To seize the opportunities of tomorrow and create afuture that will make us an economic value added positive company.

− to continue to improve the quality of life of our employees & thecommunities we serve.− Revitalize the core business for a sustainable futureVenture into new business chat will own. a share of our future.− Uphold the spirit and values of Tata's towards nation building."

Mission Statements:- Vision is the critical focal point and beginning to highperformance. But obviously a vision alone won't make it happen, even the mostexciting vision will remain only a dream unless it followed up with string, building &improving Strategic management 9



What is Mission ? "A mission statement is an enduring statement of purpose, thatdisting-uishes one business from other similar firms. A mission statement identifies thescope of a firm's operations in product and market terms".

Fred David Observes, a mission statement reveals the long term vision of an

organization in terms of what it wants to be and whom it wants to serve. It describe anorganization `s purpose, customers, products or services, markets philosophy 85 basictechnology. In combination these components of a mission statement answer a keyquestion about on enterprise "What is our business"? A good answer to this questionmakes strategy formulation, strategy implementation & strategy evaluation activitiesmuch easier. "A .well crafted mission statement must be narrow enough to specify thereal area of interest, it should serve as a signal on where the top management intendsto take the firm."

RANBAXY LABORATORIES LTD.. - MISSION STATEMENT

"Our mission is to become a research based international pharmaceuticalcompany"

McDonald's - Mission Statement :

"To offer the fast food customer food prepared in the same high qualityworld wide, tasty and reasonably period, delivered in a consistent low key

decor and friendly manner.

Ford Foundation : Mission Statement

" Our dream is a world free of poverty. To fight poverty with passion andprofessionalism for last results.

To help people, help themselves and their environment by providing resources,sharing knowledge, building capacity and forging partnership in the public and privatesectors.

To be an excellent institutions able to attract, excite and nurture diverse andcommitted staff with exceptional skills who know how to listen and learn.

Our Principles:- Client centered, working in partnership, accountable for qualityresults, dedicated to financial integrity and cost effectiveness , inspired andinnovative.

OTIS Elevators:- "To provide any customer a means of moving people and things up,down and sideways, over that distances with higher reliability than any otherenterprise in the world."

If we study the mission statements carefully we will notice that these statements have

three distinct & identifiable components e.g. The key market, contribution 8sdistinction.

Organizational Values and their impact on strategy:- The value statements givea common cause and a common sense of purpose across the organization. Just like the



mission statement, it provides the direction to the strategy of the organization. I tprovides an explicit depiction of values to guide the organization in choosing amongcompeting priorities, thereby setting the organization apart from others.

.Ford Foundation - Our Values :-

"Personal honesty, integrity, commitment working together in terms, with openness andtrust , empowering others and respecting differences, encouraging risk-taking andresponsibility, enjoying our work and our families".

Wipro Technologies:- Values: -

"With utmost respect to human value, we promise to serve our customers with integritythrough innovative value for money solutions, by applying thought day after day".

Figure :

Hierarchy of Vision, Mission & Objectives: -

Objectives, Goals & Targets :

Objectives may be defied as "these ends which the organization seeks to achieve byits existence and operation".

`Objectives defines the enterprise, used broadly , the word objectives covers "Long -range company aims, more specific department goals, and even individualassignments. Thus, objectives may pertains to a wide or narrow part of an enterprise,and they may be either long or short range ".

Strategic management / 13



Objectives may be tangible or intangible. Intangible objectives include achievement o f materially quantifiable targets or goals. Intangible objectives include factors like brandor company image, employee morale.

Objectives should not be static, they should be dynamic as kotter remarks "Objectivescan grew obsolete because of the continuous changes occurring in the company's

marketing environment"

Importance of obectives: -

The following points elucidate the importance or usefulness of objectives.

1. Justify the organizations2. Provide direction3. Basis for management by objectives4. Help strategic management

5. Help coordination's6. Provide standards for assessment and control.7. Help decentralization.

archy of objectives at different levels. Promoters vision & Value ock

holders Stock holders expectations Environment

Mission _________________________________________

Corporate objectivesSBU - Objectives

Dept - Objectives ___________________________________

Individual Objectives

Strategic management / 14



Classification of Objectives: -

1. Economic Objectives:- (Survival, Roi, Growth, Innovation Market share.)

2. Social Objectives:- (Protect interests of consumers, Employees &

society). Example:- Nike's Strategic Objectives are :-

1. Protect Nike's position as the number one athletic brand in America.2. Build a strong momentum in growing fitness market.3. Intensify the company's efforts to develop products that women need and want.

. Explore the markets for products specifically designed for the requirements of maturing Americans.

. Direct and manage the company's international business as it continues todevelop.

. Continue the drive for increased margins through proper inventory managementand fewer, better products.

Value chain analysis: -

According to porter, the business of a firm can best be described as a value chain , inwhich total revenue minus total costs of all activities undertaken to develop & market aproduct or services yields value. All firms in a given industry have a similar value chain,which includes activities such as obtaining raw materials, designing products, buildingmanufacturing facilities, developing cooperative agreement & producing customer

service. A firm will profit as long as total. revenues exceed the total costs--incurred increating & delivering the product or service firms should strive to understand not onlytheir own value chain, operations, but also their competitors, suppliers 85 distributionsvalue chains.

Value chain analysis VCA refers to the process whereby a firm determines the costsassociated with organizational activities from purchasing raw materials tomanufacturing products to marketing those products. VCA aims to identify where low -cost advantages or disadvantages exist anywhere along the value chain from rawmaterial to customer service activities. VCA enable a firm to better identify its ownstrengths and weaknesses, especially as compared to' competitors value chains

analyses 85 their own data -examined over time.

'Substantial judgment may be required in performing a VCA because different itemsalong the value chain. may impact other items positively or negatively, so their existcomp lex relationships e.g. receptional customer service may be especially expensiveyet may reduce the costs of returns & increase revenues. Cost and price differenceamong rival firms. can have their origins in activities performed by suppliers,distributors, creditors on even shareholders. Despite the complicity of VCA, the initialstep in implementing this procedure is to divide a firm's operations into specificactivities on business process. The analyst attempts to attach a cost to each discreteactivity 86 the costs could be in 'terms of both times money. Finally, the analyst

converts the cost data into information by looking for competitive cost strength & sweaknesses that may yield competitive advantage or dis-advantage. Conducting VCAis supportive of the RBV's examination of a firms assets and capabilities as sources of distinctive competence.

Strategic management , * ' 13



When a major competitor or new market entrant offers products or services at verylow prices, this may be because that firm has substantially lower value chain costs oxperhaps the rival firm is just waging a desperate attempt to gain sales or market share. Thus. VCA can be critically important for a firemen monitoring whether its prices andcosts are competitive (e.g. is given on the next page).

Value chain differ immensely across industries and firms. Whereas. a paper productscompany, such as stone container, would include on its value chains timber farming,logging, pulp mills and papermaking, a computer company such as Hewlett - Packardwould include programming, peripherals, software, hardware and laptops. A matelwould include food, housekeeping check-in & check-out operations, website,reservations system etc.

tration :- A value chain for a Typical Manufacturing Company

Supplier Costs

Raw material

Fuel

Energy

Transportation

Truck Drivers

Truck Maintenance

Component PartsInspection

Storing

Warehouse

Production Costs

Inventory

Plant Layout

MaintenancePlant Location

Computer

R&D

Cost Accounting

Distribution Costs

Loading

Shipping




Budgeting

Personnel Internet

0 Trucking

Railroads

Fuel

Maintenance

Sales & Marketing

es Persons Website

Internet Publicity

Promotion

Advertising

Transportation.

Food & Lodging

Customer Service.

Cost Postage

Phone Internet

Warranty

Management Costs

HR Admn.

Employees benefits

Labour Relations

Managers

Employees

Finance Legal

,All firms should use value - chain system (VCA) to develop & nurture core competence85 convert this competence into a distinctive competence. A core competence evolvesinto a major competitive advantages, then it is called a distinctive competence.Strategic management 15



Illustration

Competencies &

capabilitiesgraduallyemergein certainimpt V.C.activities

Co,proficiency

inperformingI&2VCactivitiesreses tothe level of a corecompetencies

Co - proficiencyin performing a

corecompetencies - ►contd. To build &evolve adistinctive

competencies

Co - gainsfor

sustainablecompetitiveadvantage.

Translating Company performance of VC activities into competitiveadvantage: -

More and more companies are using VCA to gain and sustain competitive advantageby being specially efficient and effective along various parts of the value chain e.g.Wal - Mart has built powerful value advantages by focusing on exceptionally tightinventory control volume purchasing of products, & offering exemplary customerservice.

What is Benchmarking? Benchmarking is an analytical tool used to determine

whether a firm's value chain activities are competitive compared to rivals & thusconducive to winning in the marketplace. Benchmarking entails measuring costs of value chain activities across on industry to determine "best practices" amongcompeting firms for the purpose of duplicating or improving upon those bestpractices. Benchmarking enables a firm to take action to improve its competitivenessby identifying (improving upon) value chain activities where rival firms havecomparative advantages in cost, service, reputation, or operations. The hardest partof benchmarking can be gaining access t other firms' value chain activities withassociated costs, Typical sources of benchmarking information however, includepublished reports, trade publication suppliers, distributors, customers, partnerscreditors shareholders, Lobbyists & willing rival firms, ,because of ifs popularity .many consulting firms are using benchmarking e.g. Acceptors.

Strategic in . Action.

1) Integration strategies e.g. forward & backward integrities2) Intensive strategies (market Penetration) Integration (M&A)3) Diversification strategies4) Defensive strategies5) Michael porters' strategies6) Small business strategies

Intensive Strategies


Companyperform

activity inits VC



Market penetrations, market development & product development are sometimesreferred to as intensive strategies, because they requires intensive efforts if a firm'scompetitive position with existing products is to improve. r




Market Penetration

It seeks to increase market share for present products or service in present marketthrough greater market efforts. Market penetrations includes increasing the number of salespersons, increasing advertising expenditures, offering extensive sales promotions_ items on increasing publicity efforts.

Japanies electronics giants Sony Corporation is spending over $140 million in a newadvertising & promotion drive to market it high definition television sets in the U.S.A.

Five guidelines for when market penetration may be effective strategy.

1. When current market are not started with a particular product or service.2. When the usage rate of present customers could be increased significantly.3. When the market share of major competitors have been declining while totalindustry sales have been increasing.

4. When the correlation between dollar sales & dollar marketing expenditurehistorically has been high.

5. When increased economics of scale provide major competitive

advantages. Market Development

It involves introducing present products or services into new geographic area eg.Adidas in May 2005, had 1,500 stores in China & Stated that it would open another 40stores every months in china for the next 40 months. Already the . number 2sportswear company in the would behind Nike, Adidas has been nominated as the

official outfitter Of the National Olympic committee in china in 2008:ideline for. when market develo . ment ma be an es s eciall effective strate are : -

1. When new channels of distribution are available that are reliable , inexpensiveand of good quality.2. When an organization is 'very successful at what it does.3. When new untapped or unsaturated market s exists.4. When an organization has the needed capital & HRS to manage expandedoperations.5. When an organization has excess production capacity.

6. When an organizations basic industry is becoming rapidly global in scope.Product Development:- is a strategy that seeks increased sales by improving ormodifying present products or services. Product development usually entails largeresearch & development expenditures.

Fast - Food chains from Arbys' to McDonaldsare pursuing product development testinggourmet like sandwiches, because customers increasingly are willing to pay more forfast food crafted with quality ingredients . People more and more want food that notonly tests good but.that they can feel good about eating. McDonald `s now has designyour own deli sandwiches & Arby's sells chi-chi sandwiches, which is a chicken saladblended with pecans , apples 86 grapes subway is testing a healthy kids pak & Windy 'sis testing fruit cups & milk as options in its kid meals.

17 r`



Coca - Cola Co., based in Atlanta 86 Pepsi co based in purchase New York areintroducing Coca-Cola zero 86 Pepsi co one, respectively which underscore thegrooving popularity of diet soft drinks at the expenses of sugar drinks. Sales of sugarydrinks such as Coca-Cola . classic & Pepsi, fell 3% & 2.5%. Last year diet drinks nowhave 29.1% market shares that is growing many teenagers young adults have ditchedregular colas in favour of bottled water 86 diet drinks.

5 guideline for when product development may be an especially effective strategy topursue are : -

1. When an organization has successful products that are in the maturity stage of the product life cycle the idea here is to attract satisfied customers to try new(improved) products as a result of their positive experience with the organizationspresent products or services.2. When organizations completes in an industry that is characterized by rapid

technological developments.3. When major competitors offer better quality products at comparable prices.4. When an organization competes in a high growth industry.5. When an organization has especially strong research 86 development capabilities.

Core Competencies: -

Prahlad and Hemal through a service of articles in the Harvard business review

followed by a best selling book, competing for the future, developed in the conceptof CoreCompetencies .

Core competence can be seen as any combination of specific, inherent integrated andapplied knowledge , skills and attitudes.

Core competencies are not fixed . Competencies are developed internally by the firmin its day by day activity. and by the use of acquired resource. Therefore,competencies are accumulated following firm specific knowledge patterns.

While the core competencies vary by industry and by company, following is a relatedlist of skills, processes or systems that might be considered as core competencies.(a) Product development - Marketing

(b) Supply chain- Speed to market(c) Sales force - Customer service(d) Technology - Strategic Alliances(e) Manufacturing practice - Engineering(f) Service levels - Design(g) Efficient Systems - Product innovation

Core competency analysis creates a realistic view of the skill sets, processes andsystems the company is uniquely good at performing e.g. reliance industries hasgrown to be the largest private enterprise in India in the last 25 years . The secret of its phenomenal success are its competencies. Its competencies are its project

management skills, perhaps the best in the world, its competence to mobilize largequantities of low cost finance, manage the regularity environment and speed. Thesecompetencies allowedStrategic management 18



Reliance to set - up world scale plants at the lowest capital costs of any company in.India and extend its activities to span exploration and production (E 8v P) of oil & gas ,,refining & marketing, petrochemical (Polyester, polymers and intermediates) textilesfinancial services and insurance, power telecom and infocom initiative.

In each industry there are different sets of core competencies that are important to thesuccess of the business. In most instances the list of important competencies isrelatively short. However this short list, when well selected and developed provides theopportunity to leverage the strategy of the company. Porter has identified somecompetencies that determine strategy . These are given in table below

Table (Identification of Core Competencies)

Area Competent Requirementsoducts from the users point of view, in each market segment breadth & depth of the

product time.Channel coverage & quality strength of channel relationships ability to service thechannels

kills in each aspects of the marketing more skills in market research & new productdevelopment training 85 skills of the sales force.d. Operations Manufacturing cost position economic of scales, learningcurve, age of equipment etc. Technological sophistication of facilities and equipment,flexibility of facilities and equipment transportation cost, labor cost unionizations cost of raw material.

Research & Patents, copyright in house capability in R&D etc.Engineering

f. Overall cost Overall relative costs shared costs etc.

Organizational Capabilities :- -

Competencies and capabilities result from the way the 'organization uses its resourcesto create knowledge and skills. When these competencies and capabilities are linkedtogether effectively they sustain excellent performance & give the organization marketposition & market power.

Traditionally the capabilities of the organization have been described under thefollowing heads.

- Financial capabilities− Market capabilities− Technological capabilities• Strategic Business alignment capability or nangst. Capability.

Sttrategic management 22



Financial Capabilities

The 'financial strength of an organization is determined by its ability to grow .its quickresponse ability, ability to respond to change 86 staying power. This is demonstrated byits cash flow, short 86 long sum barrowing sing capacity (debt equity ratio) 86 itscapacity to attract new equity in the foreseeable future and financial management

ability which includes negotiation, raising capital , credit, inventories and accountreceivable. An organization can effectively show financial capability of it can carry allits stakeholders with it investor will invest in the firm if the market has confidence inthe stock, providers of funds will assess the risk attached to the barrowings 86 thecompetence with which the barrowings are managed , the competence with which theorganization is governed and administered will determine the ability of theorganization to match the funds brought in by the providers of funds.

Marketing Capability

Marketing is the foundations of a good business. It is the anticipation and fulfillment of

customers needs taking account of an organizations core competencies. A customersbecause more demanding, their needs change, new technologies emerge 86competition increases, many organizations find that they need to build or changeevery organizations needs to understand how changes will impact its business. It hasto evolve strategies to deal with these changes to ensure continued survival.Marketing and sales provide the means whereby consumers 86 users are made awareof the product or service offered by the organization. Marketing sales also provide thecustomer the ability to procure the product or service in a manner that they perceive afair exchange of value.

The popular tools used by firms evolve 86 assess strategies are:

1) Decision Trees2) SWOT analysis3) PESTLE Analyses4) Case Analysis

Decision Tree

Decision Trees are most common tools used in business. A decision Tree takes as.impact on object or situation described by a set of properties, and outputs a yes / no

decision.. Decision trees therefore represent Boolean functions. They can beextremely simple or highly complex, you start decision tree with a decision that youneed to make. Draw a small square to represent this towards the left of a large pieceof paper from this box draw but lines towards the right for each possible solution, 86

write that solution along the line, keep the lines apart as per as possible so that youcan expand yours thoughts at the end of each line consider the results.

.SWOT Analysis

It is a popular tool for audit and analysis of the overall strategic position of a businessand its environment. The acronym SWOT represent `Strengths' (S) ` Weakness' (W),`Opportunities ` (O) 86 'Threats' (T).



The SWOT analysis provides informations that is helpful in matchingthe firms resources & capabilities to the competitive environment inwhich is operates. As such, it i s instrumental in strategy formulationand selection. Successful business build on their strength, correcttheir weaknesses and protect against internal vulnerabilities and.

external threats. They also keepon

eye on their overall businessenvironment & spot 8& exploits new opportunities faster thancompetitors. The technique is simple and effective. It requires ananalytical frame of mind. Due to its simplicity all firms have thecapacity to use this tool to advantage.

The SWOT Matrix

The. relationships in a SWOT analysis are generally represented by2x2 matrix. The "Strengths & opportunities" are both positive

considerations. Weakness & Threats are both negativeconsiderations.

[n General company should attempt to− Build it's strengths− Reverse in weaknesses− Maximizing its response toopportunities. - Overcome its threats.

SWOT MATRIX S W

Strengths - WeaknessPositive Negative

0

Opportunities

T

Threats

Strengths Could be :-

a) Marketing Expertise (Tata)b) Innovative product (Nono)c) Location of business (dis advantage)d) Quality processes & procedures (Tata has good)

Weakness could be: -a) Lack of marketing expertise (Palio fiat)

Strate ic mana ement 24



b) Location & businessc) Poor quality goods or servicesd) Damaged reputations (Fiat)

Sfirategic management 21



Opportunities and threats are external factors

e.g. An opportunities Could be :-

a) A developing market e.g. internet.b) Mergers, It ventures or strategic alliancesc) Moving into new market segments that offers improved profits.d) A new international markete) A market vacated by an ineffective competitor.

A threat could be: -

a) A new competitor in your home market.b) Price wars with competitorsc) A competitor has a new innovative product or service

d) Competitors have superior access to channels of distribution.e) Taxation is introduced on your product or service.

A word of caution, Swot analysis can be very subjective., Do not rely on it too much. Two. 'people rarely come up with the same final version of SWOT Tows analysis isextremely similar. It simply looks at the negative factors first in order to turn them intopositive factors. So use it as guide and not as prescription.

Simple Rules for successful SWOT Analysis

Be realistic about strength & weaknesses.Analysis should differentiate where your organization is today 8s where it could be inthe future.− Be specific, avoid grey areas.− Always analyze in contest to your competition− Keep your SWOT short and simple avoid over analysis.

SWOt Strategies

S - 0 ---> Strategy --> pursue opportunities that are a good fit to the company's

strengths W.0 - Strategies overcomes weaknesses to pursue opportunities .

S-T. - strategies identify ways that the firm can use its strengths to reduce itsvulnerability to external threats.

W - T --> Strategies establish a defensive plan to prevent the firms weaknesses frommaking it highly susceptible to externals threats.

Strate ic mana ement 26



Fig. SWOT Strategies

Strengths .Weaknesses

Opportunities S. O. Strategies W. O. Strategies

Threats S. T. Strategies W. T. Strategies

SWOT analysis, PEST OR PESTLE analysis can provide information that is helpful to thefirm in strategy formulations and selection.

PESTLE (Analysis) is an acronym for

P - Political

E - EconomicS 4 SocialCultural T 4 Technological L ->LegalE - Environment

Like Swot analysis the PESTLE analysis

is simple, quick and use 4 keyperspectives

The advantage of this tool is that it encourages management into proactive andstructured thinking in its decision making.

PESTLE analysis involves identifying the political economic, socio - cultural and

technological influences -on an organization and providing a way of auditing theenvironmental influences that have impacted on an organization or policy in the pastand how they might do so in future.

Increasingly when carrying out anaysis of environmental or external influences, legalfactors have been separated out from political factors. The increasing,acknowledgement of the significance of environmental factors has also led toenvironment becoming a further general category, hence PESTLE analysis becoming anincreasingly used an recognized term, replacing the traditional `PEST' analysis.

The PESTLE Matrix

The first step is to identify the issue remember focus is very important. Make up yourown PESTLE questions and prompts to suit the issue being analyzed and the situation .shortlist those that are important.

Making it more scientific

The PESTLE analysis can be converted into a more specific instrument by giving aweightage & a score to the items in each of the sections for each of the identifiedoptions that the firm has to consider

For each of the items in each segment of the PESTLE chart, we can give a score on a

23



scale of 1 to 100. Some factors will be more important than the others. Make sure the



total weights add up to 100. In case we are booking . at options, the next step is to listaril the options that we are considering. Give marks to each specific option.

Political

• Ecological / environmental issues

• Future laws

•

Current laws• Govt polities

• Regulatory bodies

• Trading policies

Economic

• Economy situations trends

• Taxation specific to products

• Market 8s trade cycles• Customer . end user drivers

• Interest 8; exchange rates

Social

§ Life style trends

• Demographics

• Consumer attitudes 86

opinion

• Brand 86 co's technology

• Consumer buying pattern

§ Ethinic religious factors

Technological

• Replacement technology or

solution

• Maturity of technology

• Innovation potential

• Technology access

licensing, patents.

Legal

• International law

• Employment law

• Competition law

• Health safety law

• Regional legislation

Environmental

• Environmental impact

• Environmental legislation

• Energy consumption

• Waste disposal

[THE PESTLE MATRIX]

Multiple the marks with the weight age factor and then add the total score for eachoption. "The higher the score is the more attractive the option".

The PESTLE analysis is a useful business measurement tool for understanding thecompetitive environment of the firm.



On completion of PESTEL analysis, the short listed options can be examined using .SWOT analysis."PESTLE is useful before SWOT - not generally the other way round".

CASE ANALYSIS:

Case analysis is not a management tool but a management learning tool. Case studyhas been used in management studies from 1908. When the Harvard Business schoolwas set - up. Case analysis requires us to apply the concepts taught in different area of business study & use the concepts to analyze the organization on the problem.

A case study presents an account of what happened to a business on industry over anumber of years. It chronicles the events that managers had to deal with and providesa detailed insight into various aspects of business life, such as changes in thecompetitive environment, and charts the managers response, which usually involvedchanging the business on corporate level strategy. It is normally written from the point

of view of the decision maker. Each case is different because each organization isdifferent.

The case writer reports the relevant facts of the situation and the student is expectedto provide arguments and an independent opinion on the problem & present alternativeon. possible solution. There is no right answer to a problem. The importance of thismethod is that it provides an opportunity to think & an ability to understand thecomplicities of the real world. The underlying thread in all cases, however is the use of strategic management techniques to solve business problems.

Q. What is Restructuring, RE-engineering & E-Engineering _& change management or• managing resistance to change?

OR

How to implement strategic change? Describe the steps in change

OrBriefly discuss the organizational politics, power & conflict and its impact onchange management.

Ans. To. change is to move from the present to the future, from known information to

relatively unknown informations. Therefore change can be defined as "to make orbecome different give or begin to have a different form"

Change also refers to dissatisfaction with the old values, beliefs and systems andhence adopts to new values, beliefs and systems. The deficiency also reflects theinability of the system to respond to environmental changes. Changes signifies aqualitatively different .way of perceiving, thinking & behaving to make improvementover the past & present trends of the business management. Strategic change. inorganizations can be termed as a process of bringing about relatively enduringalternation in the present status of an organization or its _ components or

interrelationships among the components & their differentiated & integrated functionsin totality or partially.




Implementing Strategic change: Steps in the Changing process

The management of strategic change involves serious steps that managers mustfollow if the.

Determine the need for change

Determine the obstacles

Implementing change

Evaluating change

(Stages in the change process)

Change process is to be succeeding. The major important steps are listed above :-

1) Determining the need for changes: By conducting SWOT analysis, finding strengths; weaknesses.2) Determine the obstacles:- To change, by analyzing obstacles relatedto corporate, divisional or functional strategies preventing the company fromreaching to ideal future state3) Implementing. change:-. i.e. top down change or Bottom - up change

4) Evaluating Change:- Evaluate the effects of the changes instrategy 86 structure on organization performance.

Defining. Politics, . Power & Conflict: -

Organizational politics defines as the tactics but interdependent individuals 86groups seek to obtain and use power to influence the goals 86 objectives of theorganization to further their own interests organizational politics process is listedas.

a) Sources of organizational politics (Individuals)b) Source of power .c) Strategic change

These processes are used for decision making in the organization..Strategic management 26



Power: Power is defined as "the ability of one individual , functions, or division tocause another individual, function or division to do something that it would nototherwise have done" Power is different from authority, when stems from holding aformal position in the hierarchy.

Effects of Power and Politics on Strategic Change:

Politics & power can strongly influence a company's choice of strategy and structure..Company has to maintain organizational structure & is responsible for the variousdivisions functions 8s managers need to change in the remote environment .Companies have to face power problems within the organizational structure. Therefore,changes of the environmental trends of the organization when environment changes,companies are not responding faster. In this circumstance excessive politicizing andpower struggles to reduce a company's flexibility . It cause inertia & erode competitiveadvantage.

Conflict can be defined as situation that arises when the goal directed behaviour of one organizational group blocks goal directed behaviour of another. Conflict can begood or bad, sources of conflicts are employees, task relationship, scarcity of resources. Good strategic planning can prevent conflicts.

Restructuring is also referred to as downsizing, rightsizing, or delaying - involvesreducing the size of the firm in terms of number of employees, no of divisions or units& no. of hierarchical levels in the firms structure. This reduction in size inintended toimprove both efficiency & effectiveness. Restructuring is concerned primarily withshare holder well being rather than employee .well.. - being recession in economiesleads to retrenchment of employee and restricting of organization. In India Since 1990a process of change is observed, due to Globalization, industrial sickness • ,outdated skills, technology, customer choice of behaviour is responsible for changes,resulting into VRS schemes b com.anies like PAL Carona shoes Blue star Crom•tonGreaves Godre" etc.

Re-Engineering is concerned more with employees and customer well being. thanshare holder well being re-engineering also called process management, processinnovation, or process re-design - involves reconfiguring or re-dressing work, jobs andprocesses for the purpose of improving cost, quality service & speed. Re-engineering

does not usually affect the organizational structure or chart, nor does of imply job lossor employee pay offs. Whereas restructuring is concerned with eliminating orestablishing, shrinking or enlarging & moving organizational departmental & divisions,the focus of re-engineering is changing the way of work actually carried out.

Re-engineering is characterized by many tactical (short-term, business function -specific) divisions whereas restructuring is characterized by strategic (long term,affecting all business functions) decisions e.g. of re-engineering are companies , Asianpaints, Pepsico, Bajaj, examples of restructuring are Bombay Dyena, Fiat cars, Godrej,Pfizer India.

In re-engineering a firm uses informations technology to break division functionalbarriers & create a work systems based on business processes, products, or outputs




rather than on functions or inputs , cornerstones of re-engineering aredecentralization:, reciprocal interdependence 85 information sharing.

Resistance to change :- It is determined as single greatest threat to successfulstrategy. implementation , resistance regularly occurs in organization in the form of sabotage production machines, absenteeism, filing unfounded grievances and an

unwillingness to cooperate. People after resist strategy implementation because theydo not understand what is happening or why changes are taking place. In that caseemployees simply need accurate information. Successful strategy implementationhinges upon managers ability to develop an organizational climate conducive tochange. Change must be viewed as an opportunity rather than as threat by managers& employees.

Resistance to change can emerge at any stage or level of the strategy implementationprocess. Although there are various approaches for implementing changes, threecommonly used strategies are a force change strategy an educative change strategyand a rational or self interest change strategy.

Strategies in Action (Conti.. from earlier page )

Q. :- Explain : Integration Strategies, Diversification &

Divestiture: Integration Strategies

Forward integration, backward integration and horizontal integration are sometimescollectively referred to as vertical integration strategies. Vertical, integration strategies

allow a firm to gain control over distributors, suppliers and an competitors.

Forward Integration

Forward integration involves gaining ownership or increased control over distributorsor retailers, increasing numbers of manufacturers (suppliers) today are pursuing aforward integration strategy by establishing website to directly sell products toconsumers. This strategy is causing turmoil in some industries e.g. Dell computerrecently began pursuing forward integrations by establishing its own stores within astore in Sears, Roebuck. This strategy supplements Dells mall based kiosks. Whichenable customers to see a try dell computers before they purchase one. Neither the

Dell kiosks nor dell stores within a store will stock computers.. Customers still willorder Dell exclusively by phone or over the internet, which historically differentiatedDell from other computer firms. Size guidelines for when forward integration may bean especially effective strategy are:

a) When an organizations present distribution are especially expensive,or unreliable or un-capable of meeting the firms distribution needs.b) When the availability of quality distributors is so limited as to offera competitive advantage to these firms that integrate forward.c) When an organization completes in an industry that is grooving & is

expected to continue to grow markedly.d) When an organization has both the capital and human resourcesneeded to manage the new business of distributing its own products.




Backward Integration

Both manufacturers and retailers purchase needed materials from suppliers. Backwardintegration is a strategy of seeking ownership or increased control of a firm's suppliers.. This strategy can be especially appropriate when a firms current suppliers areunreliable,, too costly or cannot meet the firms needs.

e.g. when you buy a base of pampers diapers at wal - mart, a scanner at the storescheckout counter instantly zaps an order to Procter 86 gamble company.

Horizontal integration

It refers to strategy of seeking ownership of or increased control over a firmscompetitors. One of the most significant trends in strategic management today is theincreased use of horizontal integration as a growth strategy. Mergers, acquisitions, and

takeovers among competitors allow for increased economies of scales 86 enhancedtransfer of resources 86 competencies. Kenneth Davidson makes the followingobservation about horizontal integration:-

"The trend towards horizontal integration seems to reflect strategists misgiving abouttheir ability to operate many unrelated business. Merger between direct competitorsare more likely to create efficiencies than mergers between unrelated businesses bothbecause there is a greater potential for. eliminating duplicate facilities 86 because themanagement of the acquiring firm is more likely to understand'' the business of thetarget".

Diversification Strategies: -

There are 2 general types of diversification strategies, related 86 unrelated..Businesses are said to be related when their value chain posses competitively valuablecross business strategic fits, businesses are said to be unrelated when their valuechains are so dissimitor that no competitively valuable cross business relation shipsexists. Most companies favor related diversification strategies in order to capitalize onsynergies as follows.

Transferring competitively valuable expertise, technological know how or othercapabilities from one business to another.− Combining the related activities of separate business into a singleoperation to achieve lower costs.− Exploiting common use of a well known brand name.Cross business collaboration to create competitively valuable resource strengths 86capabilities.

Diversification strategies are becoming less popular as organization are finding itmore difficult to manage diverse business activities. In the 1960 86 1970s the trendwas to diversity .so as not be dependent on any single industry, but in 1980s saw a

general reversal of that thinking. Diversification is now on the retreat Michael porterof the Howard Business school, school, says "Manage ent found it could not managethe




beast", Hence, business are selling, or closing, less profitable diversions in order tofocus on core business.

A few companies today in India however, pride themselves on being conglomeratesfrom small firms to big ones, e.g. Reliance Industry (Anil Ambani Group) from Reliancefinance, to reliance constructions or projects to well established Reliance

communications etc.

Divestiture

Selling a division, or part of an organization is called divestiture. Divestiture often isused. to raise capital for further strategic -acquisitions or investments. Divestiture canbe part of an overall retrenchment strategy to rid an organization of business that areunprofitable, that require too much capital, as that do not fit well with the firms otheractivities .e.g. Morgan Stanley plans to divest its discover credit card division to be

purchased. by a group of shareholders & former executives who have convinced CEOPhilips Purewell & Morgan Stanley's board that the division should be divested Unliverrecently sold its perfume division to including brands Calin Klein & Vora Wang to CotyInc for $800 million.

Q. Define Mergers & Acquisition.__Why it is done? What are the benefits /limitations. Is any strategy required for M&A ?

Ans. Merger and Acquisition are two commonly used ways to pursue strategies. Amerger occurs when two organizations of about equal size unite to form oneenterprise. An acquisition occurs when a large organization purchases (acquires) a

smaller or vice - versa. When a merger or acquisition is not desired by both parties, itcan be called a take over or hostile takeover.

Mergers and acquisitions are also methods of diversification. Takeovers and mergershave sometimes been a dominant means of implementing strategies, there can bereal advantages, particularly if there is a good fit between the organizations . Synergycan occur although less often then expected . the disadvantages of mergers are thatthey can result in operational & psychological issues which can distract the people.Who have to make them work.

In 1998 merger of ICICI and ICICI BANK was one that is reshaping the definition of lending institutions in India. Another example of a merger is the case of Lockheed andmartin - Marietta corp. They merged to form Lockheed - Martin..

In recent years we have seen many hostile acquisitions in which the organizationbuying acquired did not want to be bought . These are referred to as takeovers. It isnatural for the target organizations management to try to resist the take over. Takeover or acquisition is popular strategic alternative. Ispat International N. V. is acompany that started as small wire rod manufacturer in Indonesia 8s has grown . into theworld's largest steel maker troughs an acquisition strategy. Where it focused onacquiring companies that use DRI process in the manufacture of steel. Many Indian

companies have adopted this route to grow e.g. the R. P. Goenka group of companieshave used this as a high . growth strategy. Their net worth of has gone upon from 70crores in 1979 to Rs.5 500Strategic management 30



3. Raider Theory Focus on how an acquirer with no strategic intent popularlyknown as private equity funds (whose motive is to earn financial returns frominvestments) acquires a concealing stake in a Target firm to transfer wealth from thetarget company stockholders to the acquirer stockholders. The primary value thatraiders add would be to acquire distressed firms with inappropriate capital structures

& restructure them to make them more efficient.

4. Information or Valuation Theory Sine there is an information asymmetrybetween financial statements and the public information incorporated in the stock pricenew information may be disclosed during a merger deal. Information theories refers tothe revaluation of the firm through disclosure of new information during the mergernegotiations, the tender offer process, or planning for a strategic alliance / jointventure.

5. Empire Building or Agency Theory Jerrson's and Mackling formulated theimplications of agency problem , Agency problem occur when the separation of ownership & management leads the management to work towards their personalbenefit rather than the benefit of' owners. Agency problem also give rise to mergermotives of the empire building theory.

Market Entry Strategy: -

MNC, use acquisition of domestic companies as an effective market entry strategy. Through M&A, MNCs not only get access to the domestic market, they also gainsignificant local capabilities to create and deliver their products & services.

Commenting on the NatSted deal, B. Muthuraman, M. D. Tata Steel said, "The

acquisition of the steel business of Nasteel is an important step in Tata Steel's' plansto build a global business. Natsteel's business provide Tata Steel access to key Asiansteel markets including China".

There are may reasons for M&A including the following:-1. To provide improved capacity utilization.2. To make better use of existing sales force.3. To reduce Tax obligation4. To gain new technology5. To reduce managerial staff.6. To gain access to new suppliers, distributors, custorners products 86 creditors.

Q. A turnaround strategy is used for converting a failed company or a sick company into a successful company ? Discuss the action plan of a sick unit.

Many companies restructure their operations divesting themselves_ of_.their. _diversified_

activities, because they wish to focus more on their core business area. An integral part of restructuring, therefore is the development of strategy for turning around the company'score or remaining business areas. Following are the steps taken by the organizations.

1. Identifying the causes of the failure

2. Developing strategies for successfu* urn - around. Strategicmanagement 32



1. The cause of the failure can be identified either by evaluation 85 performance. i.e.evaluating the process, performance measurement or Auditing the firms objectives,goals, strategies the cause of failure could be.

a. Poor management: It involves many sins, like, neglect of core businesses, in

sufficient number of good manager, bad leadership. b. Over Expansion: Rapid expansions or diversification & poor controls on finances.Inadequate financial____controls: Employing excess staff, . spending beyond

requirement.d. High Costs: Inadequate financial control can lead to high costs. Causes could be

low labour productivity management's failure to introduce labour saving technology.High salaries of employees, failure to realize economy of scale, low market share.e. New Competition: Many companies have failure because of unable to face threatsof competitors. Therefore, new competition kills, idle companies in the business word.

: Unforeseen Demand shifts: Environment threat like marketing, technology , political,social, legal cultural environment can change open market opportunities for new

products. It consequence is the unforeseen demand shifts from old to new products. Therefore, customer has preference to buy new product at a low cost. When companieshave failure to fulfillment of the above fact then have a failure in the business world.

g. Organizational Inertia: The emergence of powerful new competition & unforeseen shiftsin demand might not be enough to cause corporate decline. Organization is slow torespond to environmental changes.

1. Changing leadership

2. Redefining strategic focus.3. Asset sales & closures.4. Acquisitions.5. Improving Probability

Improving probability involves number of steps to improve efficiency, quality,innovation & customer responsiveness. It involves.

a. Lay - offs white & blue collar employeeb. Investment in labour saving equipmentc. Tightening financial control

. Assessment of profit responsibility to individuals & subunits within the companyby a change of organizational structure of necessary.e. Cutting back on marginal products.f. Re-engineering business process to cut costs & boost productivity.g. Introducing total. quality management (TQM).

Q. What is BCG Matrix ? Is it an Excellent tool for evaluation business? Howthis tool is utilized by the companies.


Main Elements of Successful turn around



Ans. During the 1960s, a number of management consulting companies developed :aserious of conceptual techniques whose stated purpose was to help the top officers of diversified better management portfolio of business.. These techniques are known a sPortfolio planning techniques Portfolio matrix first time developed by the BostonConsulting group (BCG) technique as it is called. The main objective of BCG matrix o rtechnique is to help senior manager to identify the cash flow requirements of the

different business in their portfolio. The BCG approach involves three main processes. They are :

1. Dividing a company into strategic Business units (SBUs) & assessing the longterm prospects of each2. Comparing strategic business units3. Strategic complications.

According to the BCG Matrix (shown in the figure) a company can relate a SBUs foreach economically distinct business area - top managers can define SBUs, topmanagers, then assess each, based on 2 criteria listed be below:

1. The SBUs, relative Market2. The growth rate of SBUs industry / market growth

BCG Growth / Share Matrix

Cell -- 1

Stars

Cell. - 2

?

Cell-3

Cash Cows

Cell-4

Dogs


Hig

LowHigh

Relative Market

Low



Limitations of the BCG Matrix

1. It is clearly defining a market is very difficult task as a result, accuratelymeasuring share and growth rate can be a problem. This creates the potentialmanipulation or distortion.2. Dividing the matrix into 4 cells is based on a high / low classificationscheme . It does not recognize the markets with average growth rates of the businesswith average market share.3. Strategic evaluation of a set of business requires examination of more thanrelative market shares and market growth.

Q. Discuss Poter's Model on Strategy development & .Competitive Analysis.

And. Poters five forces model of competitive analysis is a widely used approach fordeveloping strategies in many industries. The intensity of competition among firmsvaries widely across industries. According to partner, the mature of competitiveness in

a given industry can be viewed as a composite of 5 forces.

1. Rivalry among competing firms Rivalry among competing firms is usually themost powerful of the 5 competitive forces. The strategies pursued by one firm can besuccessful only to the extent that they period competitive advantage over thestrategies pursued by rival firms changes in strategy by one firm may be met withretaliatory countermoves, such as lowering praise, enchanting quality, addingfeatures, providing services, extending warranties 86 increasing advertisement. Freeflowing information on the internet in driving down prices and inflation worldwide . The

internet coupled with common currency. in _ Europe, enables consumers to

easily make price comparisons across countries. In India also use of internet tocheck the features and car, prices are becoming common.

The intensity of rivalry among competing firms tends to increase as the number of competitions increases, as competitors become more equal in size and capability, as .demand for the industry's products declines, & as price cutting becomes commonrivalry also increases when consumers can switch brands easily, when barriers toleaving the market are high, when fixed cost are high when the product is perishable.

2. Potential entry of new competitors Whenever new firms can easily enter aparticular industry, the intensity of competitiveness among firms increases. Barriers

to entry, however can include the need to gain economies of scale quickly, the needto gain technology & specialized know-how, strong customer loyalty, strong brandpreferences, tariffs, lack of access to raw materials possession of patents.

Despite numerous barriers to entry, new firms sometimes enter business with higher -quality products, lower prices, & substantial marketing resources. The strategists jobtherefore is to identify potential new firms entering the market, to monitor, the newrival firms strategies, to counterattack as needed & to capitalize on existing strengthsand opportunities when the threat of new firms entering the market is strong,incumbent firms generally fortify their positions and take actions




to deter new entrants, such as lower prices, extending warranties, adding features, oroffering financing specials.

3. Potential Development of Substitute products In many industries , firms are

in close competition with producers of substitute products in other industries e.g.

Plastic container producers competing with glass, paperboard 86 aluminum canproducers and pain killers competing with each other. Competitive pressures arising

from substitute products increase as the relative price of substitute products declines

& as consumers susitehing costs decrease.

4. Bargaining Power & Suppliers The bargaining power of suppliers affect the

intensity of competition in an industry, especially when there is a large numbers of

suppliers, when there are only a few good substitute raw materials, or when the cost

of switching raw materials is especially costly. It is often in the best interest of both

suppliers & producers to assist each reasonable prices, improved quality,

development of new services, just in-time deliveries & reduced inventory costs, thus

enchaining long term profitability for all concerned few firms, pursue a backward

integration strategy to gain control or ownership of suppliers; when supplier are not

reliable, too costly, not meeting the firms need. In many industries it more economical

to use outside supplier for small components than to self manufacturing the items.

5. Bargaining Power of Consumers When customers are concentrated on large

or buy in volume, their bargaining power represents a major force affecting the

intensity of competition in an industry. Consumers gain increasing bargaining power

under the following circumstances.

a. If.they can inexpensively switch. to competing brands or substitutes -b. If

they are particularly important to the seller

c. If sellers are struggling in the face of falling consumer demand.

d. If, they are informed about the sellers, products; prices, & costs.




Five - Forces Model of Competition

Potential development of substituteproducts

Rivarly amongcompeting firms

s

Potential entry of new competitors




The above figure represent the BCG matrix for a company with nine businesses. Eachcircle represents the proportion of corporate revenue generated by that business unit.I t provides visualization of the current competence of each revenue generator.

Comparing Strategic Business Units

The next step of the BCG matrix approach is comparing SBU, against t each by meansof a matrix based on 2 dimensional areas mentioned below:

1. Relative market share2.. Industry / market of growth / rate

Figure above provides the vertical dimension measures the industry . market growthrate. The horizontal dimension measures relative market share the matrix in divestedin 4 cells they are

Cell - 1 is star of high growth / high competitive position.

Cell - 2 is question marks or high growth / Low competitiveposition. Cell..- 3 is cash cows or low growth / high competitiveposition Cell - 4 is dogs / low growth / low competitive position.

Stars represents the high growth and low competitive position. Stars represent thebest long run opportunities like growth and profitability in the company's portfolio. These business require huge investment to maintain 85 expand their market share.

Dogs low growth / low competitive position

These businesses are started , mature markets with intense competitions low profitmargins, because of their weak position, these businesses are managed for short -term cash flow to supplement corporate level resources needed or liquidated once theshort term harvesting is maximized. Recent research suggests that well managed dogsturn out to be positive, highly reliable resources generators. Well managed dogs canbe useful component of a businesses portfolio.

Cash Cows

Are high market share business in maturing, low growth markets or industries becauseof their strong position & minimum investment requirements for growths. These

businesses often generate cash in excess of their needs. Cash cows are yesterdaysstar & their needs. Cash cows are yesterdays star & remain the current foundation of their corporate portfolios, They period the cash to pay corporate overhead 8sdividends & provide debt capacity.

Question Marks Business has considerable appeal because of their high growth rate

yet present questionable profit potential because of low market share. Question n rk

businesses are known, as cash guzzlers because, their cash needs are high as a rapid

growth, while their cash generation is low due to a small market share.




Case No.1 Today Tata's major business is in seven core areas e.g. Engineering,Metals, Energy, Chemicals consumer products, communications & It &lasthy services. Total motors belong to Tata Engineering business,products are well known cars e.g. Sumo, Indigo, Indica, Public utilityservices, Trucks Vans etc. in the car segment Tata added a totally newsegment of a economic small, fuel efficient car which is called as"Nano". This car was a mission of Ratan Tata that he wanted a commonIndian to effort a car costing Rs. One Lakh. The other objective or goal

was to cover the other marketing segment of youngsters those who usetwo wheelers, which is unsafe, carry only two persons, behind all these Tata definitely had worked on strategies related production, marketing,HR & Finance. The efforts of Tatas had sent a signal around the world tothe manufacturer of two wheelers and small cars that this is possible asa manager of a competitors think about the strategies to counter thiseffects on the products of your company.

Case No.2:_____Price Wars in Indian Detergent Market

"Rash, thoughtless and desperate measures of price cuts, directly orthrough promotions, actually reduce and discount the perceived valueof brand in the minds of the consumers",

- Jagdeep Kapoor, Chairman & M. D. of Samrika Marketing consultant.

When P&G slashed the prices of its 20 gms Ariel & Tide detergentsachets in September 2003m ut created a stir in the Indian detergentmarket, Hindustan Liver Ltd. (HLL) that dominated the detergentmarket with around 44% share reacted swiftly bring down the prices of

the sachets of its premium detergent brand Surf Excel. HLL was caughtunaware, while analyst fell that it was as attempt to wrest advantagefrom HLL, that was grapping with, decelerating growth. P & Gmaintained that the price cuts were possible because of efficiencies &projected it as "Value Correction". By March end all other players, likeHenko started price slashing.

As a Business Expert or consultant of companies like Nirma, GodrejSoaps, what strategies you will suggest to your clients.

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Strategic Manage Men 1

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