Strategic Management-1

Dr. Kamal Kishore Sharma

+91 79 255 56524 Kamalkishore.sharma@aiim.ac.in kksharma1@gmail.com

AIIM PGP-IM program II Term, Session 1, 2 7 November 2012

What is a business?
What is the objective of business?

What is a business strategy?

Are these strategies?

Our strategy is to beat the competition on costs and reach.

Were pursuing a global strategy.

The companys strategy is to integrate a set of regional acquisitions. Our strategy is to provide unrivaled customer service. Our strategy is to move from defense to industrial applications.

Or they are current priorities?

What is a business? What is the objective of business?

What is a business strategy? Who are business leaders?

The Competitive Strategy Process

What is the business doing now?

What is happening in the environt?

What should the business be doing?

Concepts to begin with

Vision, mission & clarity in the organisation purpose? Goals, Policy, Objectives, Tactics Stakeholders & their perspectives Value of a good/service & Willingness to Pay Types of Industries, Forms & differences in Goals with respect to type Attractiveness of an industry - Industry profitability

Concepts to begin with

Strategic Competitiveness - When a firm successfully formulates and implements a valuecreating strategy. Competitive Advantage
When a firm implements a strategy that its competitors are unable to duplicate or find too costly to try to imitate. LIFE ????

Strategic position v/s operational effectiveness Cost/Differentiation/Both Economies of scale Barriers to market entry Product differentiation

Concepts to begin with

Risk
An investors uncertainty about the economic gains or losses that will result from a particular investment.

Average Returns
Returns equal to those an investor expects to earn from other investments with a similar amount of risk.

Above-average Returns
Returns in excess of what an investor expects to earn from other investments with a similar amount of risk.

Two generic models to run successful businesses

Input- Output model Resource-Based Model
(Core Competency)

Basic Components of a Business Strategy

Vision & Mission The Strategy Why do you need them?

Do you believe
All industries influenced by the environment - Key dimensions, how is it evolving, opportunities, threats

What is dynamic??
New Government policies (Excise, Tax-holidays, SEZs, Environment) Economic growth, liberalisation, entrepreneurship & competition Technologies (product as well as the way the product is delivered internet, store-formats) New growth industries (Services, Telecom, Education, Agri processing, Bio-tech etc. Competition Product profiles across price and value segments People skills, migration New management tools (JIT, Six sigma, Zero defect)

Do you believe
All industries influenced by the environment - Key dimensions, how is it evolving, opportunities, threats Every firm has a competitive strategyimplicit or explicit

Why do you need a Vision & Mission

Public face To fire/energise the employees For everybody to know where the organization is going and what it is trying to achieve in the future

Why do you need a Strategy?

Strategy Approach Known environment Stable environment Building on existing competencies, capabilities, products, markets Need consolidation Need stability and certainty Lack capacity for flexibility, corporate venturing, and speed Opportunity Approach Unknown environment Unstable environment Building on new competences, capabilities, products, markets Need rapid growth Need change, accept uncertainty Established capacity for flexibility, corporate venturing, and speed

Why do you need a strategy?

Make pieces look a whole - need for coordination and unity of purpose To convey a sense of direction, discovery, and opportunity that can be communicated as worthwhile to all employees. To meet the dynamic nature of environment & competition Sustainability survival in the long run by taking advantage of existing and impending opportunities

Issues in Strategy
1.Product /Process ? 2.Strategy development 3.Strategy Implementation

What Strategy means

the way in which a company orients itself towards the market in which it operates and towards the other companies in the marketplace against which it competes a plan an organization formulates to gain a sustainable competitive advantage that adds value for the targeted customers over the long run by consistently meeting their needs better than the competition does a plan that does not focus so much on today's problems, which are normally dealt with by company visions and missions, but rather on tomorrow's opportunities

Definition of Strategy
An integrated and coordinated set of commitments and actions designed to exploit core competencies and gain a competitive advantage.

What is strategy
Strategy Development - developing a set of answers to five interlinked questions 1. What are our broad aspirations for our organization & the concrete goals against which we can measure our progress? 2. Across the potential field available to us, where will we choose to play and not play? 3. In our chosen place to play, how will we choose to win against the competitors there? 4. What capabilities are necessary to build and maintain to win in our chosen manner? 5. What management systems are necessary to operate to build and maintain the key capabilities?
The trick is to have five answers that are consistent with one another and actually reinforce one another.

Classical approach
Ends (Goals/Objectives/Mission etc.) Means (Policies/tactics etc.) The wheel of competitive strategy the importance of the hub(goals) and the spokes (policies), need of the spokes to be connected to each other
Policies need to be broken down into operational goals

Classical approach
4 key factors in Context
Internal factors
Company strengths and weaknesses (assets and relative skills, financials, technical competence, brand image etc.) Personal values of the Key Implementors

External factors
Industry Opportunities & Threats (Economical as well as Technical) Broader Societal Expectations (Govt Policy, social concerns, evolving mores etc.)

Tata Steel

The Competitive Strategy Process

What is the business doing now?

(Current Strategy & relative advantage to industry & competition)

What is happening in the envt.?

(Industry, competition, society & firm preparedness for future)

What should the business be doing?

(Generation & analysis of options, choice & implementation)

Formulation of a Strategy - process

What is business doing now
Identification of current strategy Implied assumtions (SWOT, competition & industry trends)

The Environment
Industry analysis (key factors of success) Competitor analysis (present & future, possible future moves) Societal analysis (Policy changes etc.) Strengths and Weaknesses (relative to present and future competitors

So what should the business do

Tests of assumption and strategy (status of current strategy) Available strategic alternatives (is this your current strategy?) Strategic choice and implementation

Requires a great effort and a penetrating analysis

The Three Stakeholder Groups

Vision, Mission and Strategy

Vision (Combination of Core ideology & Visionary goals)
core & unchanging ideals that remain relatively steady and provide guidance in the process of strategic decision-making three components:
Core values to which the firm is committed Core purpose of the firm Visionary goals the firm will pursue to fulfill its mission

core ideology remains relatively constant- are independent of industry structure and the product life cycle

Mission (statement)
Expression of the business vision Communicates the firm's core ideology and visionary goals phrasing may change with the times, but the underlying ideology remains constant

Goals, Policy, Objectives, Tactics, Paradigm

While Goals are general intentions with broad outcomes that help to define specific objectives (eg. becoming the leading greeting cards player in India, Objectives are precise statements relating to specific outcomes that can be validated (eg. to sell 10,000 greeting cards in Year One, 25,000 Year Two and 40,000 Year Three- can be substantiated by reviewing your company's sales reports), Short term plans (Budget, 5-year plan) Operational planning - the result expected by the end of the budget (or other designated short term cycle) Policy refers to a definite course of action adopted by an individual, group, or organization in an effort to promote the best practice particular to desired results/objectives,
some sort of a prescription what s ok, whats not, what should be etc.

Tactics involves the detail, the procedure, and the order of how to achieve the desired results particular to the strategy Paradigm: the whole conceptual framework embracing our most deeply held, unconscious assumptions and values. It encompasses the things we take for granted in any situation. It therefore determines our expectations, frames the questions we ask, and structures the way we do things
paradigm becomes so embedded that new ideas that do not fit the paradigm, are not welcome, and are treated as anomalies only when anomalies mount up to cause major disruption, that changes occur and a paradigm shift take place

Criteria for Resources and Capabilities That Become Core Competencies

Valuable

Rare

Core Competencies

Nonsubstitutable

Costly to Imitate