strategic management by Vimal pandey

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Strategic ManagementPG-401 (Session 11 to 25)

PGDM (2010-12) - Term 4

Institute of Management StudiesNoida

Compiled By:

Sunil Garg

B. Tech. M. Tech. MBAManagement Professor & Visiting Faculty

(IB, SCM & Strategy)

Email: [email protected]



A Company’s Menu of Strategy Options

1. Collaborative Strategies: Alliances and Partnerships

2. Merger and Acquisition Strategies

3. Vertical Integration Strategies: Operating Across More Stages of the Industry

Value Chain

4. Outsourcing Strategies: Narrowing the Boundaries of the Business

5. Offensive Strategies: Improving Market Position and Building Competitive

Advantage

6. Defensive Strategies: Protecting Market Position and Competitive Advantage

7. Web Site Strategies

8. Choosing Appropriate Functional-Area Strategies

9. First-Mover Advantages and Disadvantages

(Also Known as Corporate Strategies)



Collaborative Strategies:

Alliances and Partnerships

• Companies sometimes use strategic alliances

or collaborative partnerships to complement

their own strategic initiatives and strengthen

their competitiveness.

• Such cooperative strategies go beyond

normal company-to-company dealings but fallshort of merger or full joint venture

partnership.



Alliances Can Enhance a Firm’s Global

Competitiveness

Alliances, collaboration and partnerships can helpcompanies cope with two demanding competitivechallenges

Racing against rivals to build a market presence in manydifferent national markets

Racing against rivals to seize opportunities on thefrontiers of advancing technology

Collaborative arrangements can help a companylower its costs and/or gain access to new markets,expertise and capabilities.



Characteristics of a Strategic Alliance for

International GrowthStrategic alliance – A formal agreement between two or more separate

companies where there is

Strategically relevant interest of some sort

Joint contribution of resources

Shared risk

Shared control

Mutual dependence

Alliances often involve

Joint marketing

Joint sales or distribution

Joint production

Design collaboration

Joint research

Projects to jointly develop new technologies or products

Joint Venture –Financial Partnership / Sharing Control / Sharing Profit & Loss



Benefits of Alliances to Achieve Global

and Industry Leadership

Get into critical country markets quickly to accelerate process of

building a global presence

Gain inside knowledge about unfamiliar markets and cultures

Access valuable skills and competencies concentrated in particulargeographic locations

Establish a beachhead (base) to participate in target industry

Master new technologies and build new expertise faster than would

be possible internally

Open up expanded opportunities in target industry by combining

firm’s capabilities with resources of partners



Other Benefits of Strategic Alliances



Pitfalls Strategic Alliances



Guidelines in Forming Strategic Alliances



Joint VenturesGoing with a partner in foreign country:

• JV is a useful strategy in competitive markets• Control exercised with shared risk

• JV agreement with a company from the target country market is an entry strategy

• Types of JVs:

Contractual Joint Ventures (for projects with time frame)

Equity Joint Ventures (long term)

• JV may be necessary due to legal restrictions on foreign investment

• Reduces the investment required by a foreign firm, besides reducing risk

• Foreign partner stands to gain from local expertise

• Foreign investor may find the local partner redundant after some time

• Local partner may become a competitor after the end of the agreement

Example: Hero Honda Motors Ltd.,



Merger and Acquisition Strategies

M&A refers to the corporate strategy dealing with the buying, selling and

combining of different companies that can aid, finance, or rapid growth of company without having to create another business entity.

A merger happens when two firms agree (mutually consented) to go forward

as a single new company rather than remain separately owned and

operated. When firms are of about the same size called "merger of equals”.

In the 1999 merger of Glaxo Wellcome and SmithKline Beecham, both firms

ceased to exist when they merged, and a new company, GlaxoSmithKline,

was created.

An acquisition (takeover) is the purchase of one company by anothercompany. It may be friendly or hostile.

When the deal is unfriendly (that is, when the target company does not want

to be purchased) it is always regarded as an acquisition.

http://en.wikipedia.org/wiki/GlaxoSmithKline

http://en.wikipedia.org/wiki/GlaxoSmithKline



Merger and Acquisition Strategies

Merger – Combination and pooling of equals, with newly created

firm often taking on a new name

Acquisition – One firm, the acquirer, purchases and absorbs

operations of another, the acquired

Merger-acquisition strategy

Much-used strategic option

Especially suited for situations where alliances do not provide a

firm with needed capabilities or cost-reducing opportunities

Ownership allows for tightly integrated operations, creating more

control and autonomy than alliances



Objectives of Mergers and Acquisitions

To create a more cost-efficient operation

To expand a firm’s geographic coverage

To extend a firm’s business into new product categories or

international markets

To gain quick access to new technologies or competitive

capabilities

To invent a new industry and lead the convergence of industries

whose boundaries are blurred by changing technologies and

new market opportunities



Rationales for M&A

Acquiring firms seek improved financial performance or growth by:

• Economy of Scale: reduction in fixed cost and increasing profit margins.

• Economy of Scope: Increasing the scope of marketing and distribution, of

different types of products.

• Vertical Integration: Merger of an upstream and downstream firm.

• Increasing revenue or market share: Merged identity increases market

power (market share of competitor) to set prices.

• Synergy: Increased opportunities of specialization and managerial andpurchasing economics.

• Taxation: Reducing tax liability by acquiring assets of a non-performing

company.



Vertical Integration Strategies The degree to which a firm owns its upstream suppliers and its downstream

buyers is referred to as vertical integration.

Extend a firm’s competitive scope with in same industry

Can aim at either full or partial integration

Deciding issues for vertical integration are: Cost & Control

• Forward Integration: downstream expansion of activities (towards end-users

of final product )

• Backward Integration: upstream expansion of activities (into sources of

supply )

Improve supply – chain efficiency, better control over inputs/outputs, expansion

of core competencies, capturing upstream / downstream profit margins



Overview of an Enterprise

upstream downstream

Backward Integration Forward Integration



Example of Backward & Forward Integrations



Pros and Cons of

Integration vs. De-Integration

Whether vertical integration is a viable strategic option depends onits

Ability to lower cost, build expertise, increase differentiation, or

enhance performance of strategy-critical activities

Impact on investment cost, flexibility, and administrative overhead

Contribution to enhancing a firm’s competitiveness

Many companies are finding that de-integrating value chain activities

is a more flexible, economic strategic option!



Strategic Framework for Supply Chain



Outsourcing Strategies

Outsourcing involves withdrawing from certain value chain

activities and relying on outsiders to supply needed

products, support services, or functional activities

Internally

PerformedActivities

Suppliers

Support

Services

Functional

Activities

Distributors

or Retailers

Involves farming out certain value chain activities to outside vendors

Wh D O i M k



When Does Outsourcing Make

Strategic Sense?

• Activity can be performed better or more cheaply by outside specialists

• Activity is not crucial to achieve a sustainable competitive advantage

• Risk exposure to changing technology and/or changing buyer preferences is reduced

• It improves firm’s ability to innovate

• Operations are streamlined to

Improve flexibility

Cut time to get new products into the market

• It increases firm’s ability to assemble diverse kinds of expertise speedily and

efficiently

• Firm can concentrate on “core” value chain activities that best suit its resource

strengths

Risk: Losing touch with activities and expertise that determine overall long-term

success



Offensive and Defensive Strategies

Offensive Strategies Defensive Strategies

Used to build:

new or stronger market

position

and / orcreate competitive

advantage

Used to protect:

competitive advantage

(rarely lead to creating

advantage)

Type of marketing warfare strategy designed to obtain an objective, usually market

share, from a target competitor.

In addition to market share, an offensive strategy could be designed to obtain keycustomers, high margin market segments, or high loyalty market segments.



Low-cost Country Sourcing (LCCS) Strategy

Common examples:

• Labor - intensive manufacturing: productsproduced using low-cost Chinese labor,

• Call centres staffed with low-cost Englishspeaking workers in the Philippines and India,

• IT work performed by low-cost programmers inIndia and Eastern Europe.



Just- in-Time Strategy

Requires cooperation, coordination, and information sharing to

eliminate inventory across the supply chain. Strategic features:

• Commitment to zero defects by seller and buyer.

• Frequent shipments of small lot sizes according to strict quality and

delivery performance standards.

• Closer, even collaborative, buyer-seller relationship.

• Stable production schedule sent to suppliers on a regular basis.

• Extensive information sharing electronically between supply chain

members.

• Electronic data interchange capability with suppliers.



Web Site Strategies

Strategic Challenge – What use of the Internet should a company

make in staking out its position in the marketplace?

Five Web site approaches

• Use to disseminate only product information (Catalogue website)

• Use as minor distribution channel to sell direct to customers

• Use as one of several important distribution channels to access

customers

• Use as primary distribution channel to access buyers

• Use as exclusive channel to transact sales with customers (E-

commerce website)



Effective Website Strategies

Having a website is one thing, but making it workto produce enquiries and sales is quite another.

In simple terms your website should achieve 3

objectives:

• Attract visitors

• Engage them so they stay on your site

• Covert them from visitors to customers

‘Online marketing initiatives are cost effective’



Effective Website Strategies

1. Define your target audience (ideal visitors profile)2. Content is king (appropriate & relevant to target audience)

3. Tell people about it (display widely)

4. Optimise it online (SEO & SMO)

5. Make sure you measure (web analytical tools for traffic,

transactions & customer satisfaction)

6. What will your website do? (either selling, or information or

both)

7. Differentiate your website (stand out from the crowd and easy

to navigate)



Private & Confidential

Advertisement will appear here A d v e

r t i s e m e n t w i l l a

p p e a r h e r e



Google Analytics

Website Traffic Measurement

May 8,2010 to June 7, 2010 (After the Campaign)



First-Mover Advantages

When to make a strategic move is often as crucial

as what move to make

First-mover advantages arise when

Pioneering helps build firm’s image and reputation

Early commitments to new technologies, new-stylecomponents, and distribution channels can produce costadvantage

Loyalty of first time buyers is high

Moving first can be a preemptive strike



Strategy for Foreign Markets



Motivation for Foreign Markets



Entering Strategy for Foreign Markets

Exporting (Indirect/Direct) >>> Joint Ventures >>> Direct investment

Indirect Exporting:

• Exporting through intermediary or distribution channel.

• Involve least risk and limited capital expenditure.

• Use merchants who sell the products of the company in international

markets or

• Use the distribution facilities of other firms in the international markets

• Export through merchant exporters or large trading houses who export

products on behalf of several small firms collectively

Distribution chains e.g. Wal-Mart, Malls, Stores

Products: FMCG, garments, handicrafts, processed food, medicines,

electronics, etc.

Exporters: Haldiram, MDH, LG, Samsung, Dell, HP, etc.



Entering Strategy for Foreign Markets

Direct Exporting:

• Company decides to export its products itself and Shipping goods directly to a

foreign buyer.

• Develops overseas contacts, undertakes marketing research, handles

documentation and transportation, and decides the marketing mix.

• Involve identification of foreign buyers and taking risk directly.

• May establish a sales and marketing office in the foreign market

Long term and repeated supplies to Original Equipment Manufacturers (OEMs),spare part markets, large scale industries, projects, etc.

Products: Auto Parts, Hand Tools, Industrial Raw Materials, etc.

Exporters: like Sundram Fasteners, MRF Tyre, Sesa Goa, …………….



Strategy Options for Competing in

Foreign Markets



International Vs. Global Competition



International Corporate-Level Strategies

St t I l t ti



Strategy Implementation:Why Strategic Plans Often Fails

Poor prioritization –

highest level of strategy is selection of

priorities.

Lack of detailed planning to support plan goal

achievement – planning is road map while communication and

feedback are essence of execution.

Strategy and culture misalignment – plans to match

the existing culture, human system and operating procedures.

Accountability missing from plan goals

–

defining

clear responsibilities and authority for rewards and sanctions.

Poor planning governance – high-level leadership for

overall plan performance.

Ill-defined strategic goals

–

ambiguity avoidance



Strategic Audit

Type of management audit that is extremely useful

as a diagnostic tool to pinpoint corporate-wide

problem areas and to highlight organization

strength and weakness.

strategic management by Vimal pandey

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