STRATEGIC MANAGEMENT

A CONCEPT ON STRATEGIC THINKING AND MODUS OPERANDI FOR SURVIVAL IN 21st CENTURY By Dr. JANAK V. SHELAT

WHY STRATEGIC THINKING?

Companies are operating in age of discontinuing change - an age of creative & constructive destruction. Business, technology and product life is shrinking. Demographic shift in terms of consumer preference and requirements. A direct promotion from Agricultural economy to service or Hi-tech economy in the new growth economy. A concept from liberalization, privatization & Globalization (LPG) to regionalization. Shift from controlled economy to market driven economy. Rich countries adopt deindustrialization. Emergence of new Global Socio economic system and world orders. Self-leadership is in, command and control out Networks are replacing hierarchies Wanted - employees with Emotional Intelligence.

Forcing company transformation Market access & branding changing disintermediation of traditional distribution channels Balance of power shift to consumer Competition changing Pace of business increasing Internet purchasing beyond traditional boundaries Knowledge key asset source of competitive advantage. It is replacing Infrastructure

Other Current Trends

Increasing environmental awareness Growing health consciousness Expanding seniors market Impact of the Generation Y boom let Declining mass market Changing pace and location of life Changing household composition Increasing diversity of workforce & market

BASIC CONCEPTS

STRATEGY: It is Unified, Comprehensive, and Integrated long term plan that relates to the strategic advantages of the firm to the challenges of the environment. STRATEGIC MANAGEMENT: It is a stream of decisions and actions which leads to the development of an effective strategy to help achieve the corporate objective. It is a continuous, iterative, & Cross functional process of matching firm with its environment. COMPETITIVE ADVANTAGE: is delivering superior value advantage to your target customers relative to your competitors. Or delivering equivalent customer value to your target customers relative to your competitors , but at a lower cost.
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Strategic Competitiveness
Achieved when a firm successfully formulates and implements a value-creating strategy

Sustained Competitive Advantage

Occurs when a firm develops a strategy that competitors are not simultaneously implementing Provides benefits which current and potential competitors are unable to duplicate

Above-Average Returns
Returns in excess of what an investor expects to earn from other investments with similar risk
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WHAT IS BUSINESS?

PRODUCT

MARKET

FUNCTION

What Business the Firm is in? Why the Firm is in the Business? What should be Firms Business?
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GAP OUT PUT VISION VALUE SYSTEM

FIRM/BUSINESS
MISSION PURPOSE BASIC INFRASTRUCTURE AND FRAME WORK OF A FIRM
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OBJECTIVES

MISSION & GOALS OF A COMPANY

VISION: It is a vividly descriptive image of what you what to be or what you want to be known for. Vision is an art for seeing invisibles.
MISSION : It a statement of intent of what a firm wants
to create and through which line of Business. It is a process of legitimization of corporate existence of business. It defines the culture, philosophy and grand design of the firm. To pursue the Creation of Value to all Stakeholders in the Business. It is an answer to question What business are we in?

GOALS / OBJECTIVES : End to be achieved. It is

To make Profit for today and forever To satisfy Customers today and forever To satisfy Employees today and forever

Strategic Planning

Challenge of Strategic Management

Only 16 of the 100 largest U.S. companies at the start of the 20th century are still identifiable today! In a recent year, 44,367 businesses filed for bankruptcy and many more U.S. businesses failed

Competitive success is transient...unless care is taken to preserve competitive position 9

Three Big Strategic Questions

Where Are We Now? Where Do we Want to Go? How Will We Get There?

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Crafting a Strategy

HOW to out compete rivals and win a competitive advantage. HOW to respond to changing industry and competitive conditions HOW to defend against threats to the companys well-being HOW to pursue attractive opportunities
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What is a Strategic Plan?

A strategic plan specifies where a company is headed and HOW management intends to achieve the targeted levels of performance.
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Strategic Management Basic model

Options on Competitive Positioning
Learning points from deviations

Four Basic Elements

Strategic management is the process of moving where you are to where you want to be in future through sustainable competitive advantages
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VISION

GAP

VALUE

MISSION

FIRM
GOAL
MACRO ENVIRO APPRAISAL

BASIC STRATEGIES

STRATEGIC IMPLEMEMTATION

STRATEGIC ALTERNATIVES

ORGANISATION DESIGN
FUNCTIONALLEVEL STRATEGIES & RESOURCES ALLOCATION

MICRO ENVIRO APPRAISAL OF INDUSTRIES

BUSINESS LEVEL STRATEGIES

MICRO ENVIRO APPRAISAL OF FIRM

DEVELOPMENT OF CONTROL

STRATEGIC SELECTION

Is Strategy Working?

STRATEGIC PLANNING DESIGN AND IMPLEMENTATION PROCESS

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The Five Task of Strategic Planning

Developing a Vision and a Mission Setting Objectives Crafting a Strategy Implementing and Executing Strategy Evaluating Performance, Reviewing the Situation and Initiating Corrective Action

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Characteristic of the Strategic Management Process

An ongoing exercise Boundaries among the tasks are blurry rather than clearcut Doing the 5 task is not isolated from other managerial responsibilities and activities. The time required to do the tasks of strategic management comes in lumps and spurts rather than being constant and regular. Involves pushing to get the best strategy supportive performance from each employee, perfecting the current strategy.
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ENVIRONMENTAL APPRAISAL

ENVIRONMENTAL ANALYSIS O
T
ETOP SAP OFPP

ENVIRONMENTAL DIAGNOSIS S W

EVALUATION PROCESS OF SWOT ANALYSIS

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Components of the General Environment

Economic Demographic

Sociocultural Industry Environment

Competitive Environment

Political/ Legal

Global

Technological
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ENVIRONMENTAL FACTORS

GOVERNMENTAL ECONOMICAL POLITICAL /LEGAL

TECHNOLOGICAL FIRM/BUSINESS
DEMOGRAPHIC

GLOBAL

SOCIOCULTURAL

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Components of the General Environment

Demographic Segment Population size Age structure Geographic distribution Inflation rates Interest rates Trade deficits or surpluses Budget deficits or surpluses Political/Legal Segment Antitrust laws Taxation laws Deregulation philosophies Sociocultural Segment Women in the workforce Workforce diversity Attitudes about work life quality Ethnic mix Income distribution Personal savings rate Business savings rates Gross domestic product Labor training laws Educational philosophies and policies Concerns about the environment Shifts in work and career preferences Shifts in preferences regarding product and service characteristics Focus of private and government-supported R&D expenditures New communication technologies Newly industrialized countries Different cultural and institutional attributes Economic Segment

Technological Segment

Product innovations Applications of knowledge

Global Segment

Important political events Critical global markets

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Variables in Societal Environment

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International Societal Environments

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Industry Analysis

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Porters Approach to Industry Analysis

Threat

of Substitute Products or Services Power of Buyers Power of Suppliers

Bargaining Bargaining

Relative
Rivalry

Power of Other Stakeholders

Among Firm in an Industry

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DETERMINENT OF BUYERS POWER

Bargaining Leverage (a) Buyers Concentration (b) Buyers Volume (c) Buyers Switching Cost Price Sensitivity (a) Price / Total Purchase (b) Impact on Quantity/ Performance (c) Buyers Profit.

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Porters Approach to Industry Analysis

Threat of New Entrants

Economies

of scale Proprietary Product differentiation Capital requirements Switching costs Access to distribution channels Cost disadvantages Government policy Proprietary Low Cost Design Stage in Learning/ Experience Curve
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Porters Approach to Industry Analysis

Rivalry Among Existing Firms

Number

of competitors Rate of industry growth (Slow) Product or service characteristics Amount of fixed costs Lack of differentiation or Switching Cost Capacity augmentation in large increament Height of exit barriers Diversity of rivals High strategic Stakes
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IFAS

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EFAS

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SFAS Matrix

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SWOT analysis of strengths, weaknesses, opportunities,and threats.

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TOWS Matrix

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CREATING STRATEGIC MIND SET

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Corporate Strategy
Three Key Issues:

Firms directional (CORPORATE) strategy Firms portfolio (BUSINESS LEVEL) strategy Firms parenting (FUNCTIONAL LEVEL) strategy

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Initiation of Strategy

New CEO External intervention

Triggering event

Threat of change in ownership Performance gap Strategic inflection point

Stimulus for change in strategy

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Corporate Strategy

Directional Strategy

Orientation toward growth

Expansion,

3 Grand Strategies
Growth

contraction, status quo Concentration or diversification Internal development or acquisitions, mergers, or alliances strategies Stability strategies Retrenchment strategies

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Corporate Directional Strategies

COMBINATION STRATEGIES

DERIVED STRATEGIES

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STRATEGIC VARIATIONS - EXPANSION

INTERNAL: Add new product, product line, market, functions, redefine/ reposition of product market. EXTERNAL : Take over, acquisition, merger. RELATED : Synergic diversification. UNRELATED: Non synergic diversification. HORIZONTAL: Supplementary/ Complementary Expansion. VERTICAL: Integration. ACTIVE: R & D, Entrepreneurial development. PASSIVE: Imitation, adoption & adaptation.
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IGOR ANSOFFS BUSINESS GROWTH MODEL

New products /New Markets NEW CUSTOMERS FOR EXISTING LINES OF PRODUCTS MARKET DEVELOPMENT Related Businesses Unrelated Businesses

MARKETS / CUSTOMERS

NEW

EXISTING PRODUCTS IN EXISTING MARKETS

EXISTING Increase Market Share SALES MGMT.

NEW PRODUCTS FOR EXISTING CUSTOMERS NEW PRODUCT DEVELOPMENT, UPGRADES NEW
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Existing Share of Business EXISTING

PRODUCTS * Corporate Strategy, I. Ansoff, Jan 1965, McGraw Hill, USA

Products

Corporate Strategy

Growth Strategies -

External mechanisms
Mergers
Acquisitions Strategic

alliances

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EXTERNAL GROWTH STRATEGIES

TAKE OVER, AQUISION & MERGER

BUYING FIRM SELLING FIRM

Acquire Controlling interest} Acquire Assets and liabilities} of selling Firm} Acquire & merge of Assets } liabilities of both the firms.}

TAKE OVER
ACQUISION MERGER
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WHY THE FIRM PURSURE EXTERNAL EXPANSION

To increase the firms stock.. To increase the growth rate of the firm. To make good investments. To improve the firms earnings & stability. To balance or fill out the product line. To diversified the product line in mature state. To reduce the competition. To acquire the needed resources. For Tax purpose. To increase the efficiency and profitability. To diversify the owners holding. To deal with top management problems.
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CRITICAL ISSUES RELATED TO M & A

STRATEGIC ISSUES: It relates to the commonality of strategic interest. Strength of one firm may be weakness of the other firm and vice versa. The firms can create Synergy and complementing business situation. FINANCIAL ISSUES: These are related to (a) Valuation of selling firms based on assets, market standing, share prices, earning potential etc. (b) Sources of financing for merger. MANAGERIAL ISSUES: It relates to professional compatibility and acceptance of managerial system of selling company. LEGAL ISSUES: It is related to various issues of legal provisions such as Chapter V of the Companies Act, the MRTP Act, and section 72A (I) of the Income Tax Act OR Anti Trust Act, Shermans Act. CULTURAL ISSUES: It relates to the cultural compatibility of the organization, society, market etc. LABOUR ISSUES: It relates to continuation of old staff and subsequent relations. SOCIETAL ISSUES: It relates to the benefits of society and Social compatibility. OTHER ISSUES: It relates to Political, Economic, Environmental factors.
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REASONS FOR FAILUR OF EXTERNAL GROWTH

Paying too much for the acquired firm. Assuming that a growing market or product will be out standing in market. Leaping into merger without carefully studying the consequences. Diversifying in to areas in which the firm had too little knowledge. Buying too large a firm and thus incurring an excessively large debt. Trying to merge disparate corporate cultures. Counting on key personnel staying after the merger.
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Corporate Strategy

Growth Strategies - Related

2 Basic forms
Concentration Diversification

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Corporate Strategy

Basic Concentration Strategies -

Vertical growth
Horizontal growth

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Corporate Strategy

Vertical Growth -
Full

Vertical integration
integration Taper integration Quasi-integration Long-term contract

Backward integration Forward integration

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Corporate Strategy

Concentration -

Horizontal Growth
Horizontal

integration

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Corporate Strategy

Basic Diversification Strategies -

Concentric Diversification
Conglomerate Diversification

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Corporate Strategy

Concentric Diversification -Growth into related industry Search for synergies

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Corporate Strategy

Conglomerate diversification -Growth into unrelated industry Concern with financial considerations

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DERIVED BUSINESS STRATEGIES

OFFENSIVE

DEFFENSIVE

CO-OPERATIVE

FRONTAL ASSAULT FLANKING MANEUVER BYPASS ATTACK ENCIRCLEMENT GUERRILLA WARFARE

RAISE STRUCTURAL BARRIER INCREASE EXPECTED RETALIATION LOWER INDUCEMENT FOR ATTACK

SYNDICATING (COLLUSION) STRATEGIC ALLIANCES MUTUAL CONSORTIA JOINT VENTURE LICENSING ARRANGEMENT VALUE CHAIN PARTNERSHIP

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STRATEGIC ALLIANCE (Partnering):

It is a partnership of two or more corporations or business units to achieve strategically significant objectives which can be mutually beneficial. Some alliance are short term till the product is established, while the others are longer lasting, resulting in merger. The reasons for alliance are:
(a) (b) (c) (d) (e) (f) (g) (h)

(i)
(j) (k)

To obtain technological, management and/or manufacturing capabilities. To enter into specific markets. To reduce financial risk. To reduce political and economic risk. To achieve or ensure competitive advantages in new businesses or markets It plays vital role in todays market condition and environment to solve some complicated issues. It provides vital role in providing the firms synergic strength. It helps to develop product, process, market & share the investment outlay jointly. It facilitates the development of unique technological capabilities to meet the challenges of technological revolution. It create a compulsion for alliance to enter in the local market through JV. Building brand image in local market is mostly possible through alliance.

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SPECIFIC ALLIANCE

Production Alliance: Two or more companies share the common manufacturing facilities, existing or new facilities. Marketing Alliance: Two or more companies share marketing services expertise and facilities. Financial Alliance: Companies joint together in order to reduce financial risks associated with the activities & share the profit in proportion to financial contribution. Research & Development Alliances: Fast changing technology, high cost of R & D and need of being ahead of changes, force companies to form alliance in R & D area. Human Resources Alliance: Alliance for outsourcing
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BREAK UP OF ALLIANCE:

Incompatibility between/among partners in management style, financial position, culture, business interest. Access to information. Distribution of Income. Change in business environment. Acquiring the strength of partner: The companies over a period of alliance, acquire the strengths of the partner and starts new operations in competitions.
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STRATEGIC JOINT VENTURE

Joint ventures (JV) are partnership in which two or more firms carry out a specific project or business in a selected area of industry in a form of new venture. Ownership of the original firms remains unchanged. Actually, corporate partnership are formed with specific and time bound objectives which, once achieved, leaves little reasons for the alliance to continue. Joint venture can be temporary or it can be long term. JV that last longer do so because their objectives have been redesigned. Every JV: 1. Has a scheduled life cycle, which will end sooner or later (5 to 10 years) 2. Has to be dissolved when it has outlived its life cycle. 3. Change in environment forces joint venture to be redesigned regularly 4. Translations seek to absorb their partners competencies. 5. It is a contractual obligation on fragile platform.

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Corporate Strategy

Stability Strategies -

Pause/proceed with caution No change Profit strategies

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Corporate Strategy

Retrenchment Strategies -Turnaround Captive Company Strategy Selling out Bankruptcy Liquidation

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RETRENCHMENT STRATEGY
Common Retrenchment Strategies:

Turnaround, restructuring, Divesting, Bankruptcy, Liquidation

WHY FIRM GO FOR RETRENCHMENT:

Prevalence of poor economic conditions. Competitive pressure may also cause firms to curtail their operations. The comp. is not doing well or perceive itself as doing poorly. The comp. has not met its objectives and there is pressure from shareholders, customers, or others to improve performance. The external environment poses threats and internal strengths are insufficient to face the threats. Better opportunities in the environments are perceived else where were firms strength can be utilized. Inability to implement latest technology cause by tech. revolution.
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Strategic reasons for Formation of JV

1. 2. 3.

4. 5. 6.

7.

Foreign firms are allowed to operate only if they enter into a JV with local partner. Size of the project may be very large and one company accomplish it. Some projects require multidimensional technology that no one firm possesses. Firm with different, but compatible technology may join together. One firm with technology competence and another with managerial competence join together. A foreign firm with technology competence joins with a domestic firm with marketing competence. While setting up of an organization requires surmounting hurdles such as import quota, tariffs, nationalistic political interest and cultural road block, Governments support for the JV. JV are undertaken for a variety of reasons like political, economic or technological
(A) SPIDER WEB (B) GO-TOGATHER & SPLIT (C) SUCCESSIVE INTEGRATION
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TYPES OF JV:

Business Level Strategy

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Value-Chain Analysis

Linked set of value-creating activities beginning with basic raw material and ending with distributors getting final goods into hands of customers

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Value-Chain Analysis

Typical Value Chain for a Manufactured Product

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Corporate Value Chain

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Porters Generic Competitive Strategies

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What is a Business level strategy

Business level strategies are firm-specific business model that will allow a company to gain a competitive advantage over its rivals in a market or industry. It aims at improving the effectiveness of a companys operations and thus its ability to attend superior efficiency, quality, innovation and customer responsiveness . Its ability to improve companys operations helps in achieving cost leadership or helps the company in differentiating its product from the rival company.

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Distinctive Competencies
They are firm specific strengths that allow a company to differentiate its products and/or achieve substantially lower costs than its rivals and thus gain a competitive advantage. E.g. Toyota They arise from two sources: 1) Resources 2) Capabilities
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Cost Leadership

It is based on the intent to outperform competitors by doing every thing to establish a cost structure that allows it to produce or provide goods or services at a lower unit cost. Cost leader chooses a low to moderate level of product differentiation relative to its competitors. Aims for a differentiation not markedly inferior to that of the differentiator but a level obtainable at a low cost. Frequently ignores the many different market segments in industry to appeal the average customers.
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Advantages and Disadvantages

Advantages

Disadvantages

Protected from industry competitors Less affected by competitors price change Requires a big market share so they purchases in relatively large quantities Barrier to entry.

Cost leadership approach lurk in competitors ability to find ways to lower their cost structure Ability to imitate cost leaders methods easily The single minded desire to reduce costs might drastically affect the demand
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Implications

To pursue a full blown cost-leadership, strategic managers need to devote enormous efforts to incorporate all the latest information, materials, management, and manufacturing technology into their operations to find new ways to reduce costs. A differentiator cannot let a cost leader get too great a cost advantage because the leader might then be able to use its high profits to invest more in product differentiation and beat leaders. Must respond to the strategic moves of its differential competitors and increase the quality and features of its products if it is to prosper in the long run
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Differentiation Strategy

The objective of the differentiation strategy is to achieve a competitive advantage by creating a product that consumers perceive as different or distinct in some important way. Product differentiation can be achieved in three ways

Quality Innovation Responsiveness to customers

Generally, a differentiator chooses to segment its market into many segments and niches A differentiated company concentrates on the organizational functions that provide the source of its differentiation advantage.
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Advantages and Disadvantages

Advantages

Disadvantages

Differentiation safeguards a company against competitors to the degree that customers develop brand loyalty for its product Suppliers are rarely a problem as companys strategy is geared more toward the price it can charge than toward costs Distinct product solves the problem of strong buyers The threat of substitutes depends on the ability of the competitors product.

Strategic managers long term ability to maintain a products perceived distinctness in customers eyes. The ease with which competitors imitate the differentiators product

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Focus Strategies

Focus Strategies position a company to compete for customers in a particular market segment, which can be defined geographically, by type of customers, or by region or even by locality.

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Focus Strategies

Focused Cost Leadership Strategy : If a company uses a focused low cost approach, it competes against the cost leader in the market segment in which it has no cost disadvantage. Focused Differentiation Strategy : If a company uses a focused differentiation approach, then all the means of differentiation that are open to the differentiator are available to the focused company.

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Advantages

A focused companys competitive advantage stem from the source of its distinctive competency: efficiency, quality, innovation, or responsiveness to customers. The company is protected from rivals to the extent that it can provide a product or service they cannot. This ability also gives the focuser power over its buyers because they cannot get the same things from anyone else.

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Disadvantages

Powerful suppliers The focusers niche can suddenly disappear because of technological change or change in customers tastes. The focuser is vulnerable and has to defend its niche constantly.

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Risks of Generic Strategies

Risks of Cost Leadership Risks of Costis Leadership Cost leadership not Cost leadership is not sustained: sustained: Competitors imitate. Competitors imitate. Technology changes. Technology changes. Other bases for cost Other bases for leadership erode. cost leadership erode. Proximity in differentiation is Proximity in differentiation is lost. lost. Cost focusers achieve even Cost focusers achieve even lower cost in segments. lower cost in segments.

Risks of Differentiation Risks of Differentiation Differentiation is not Differentiation is not sustained: sustained: Competitors imitate. Competitors imitate. Bases for differentiation Bases less for differentiation become important to become less important to buyers. buyers. Cost proximity is lost. Cost proximity is lost. Differentiation focusers Differentiation focusers achieve even greater achieve even differentiation ingreater segments. differentiation in segments.

Risks of Focus Risks ofstrategy Focus is The focus The focus strategy is imitated: imitated: The target segment becomes The target segment becomes structurally unattractive: unattractive: structurally Structure erodes. Structure erodes. Demand disappears. Demand disappears. Broadly targeted competitors Broadly targeted competitors overwhelm the segment: the segment: overwhelm The segments The segments differences from other differences from other segments narrow. segments narrow. The advantages of a broad The advantages of a line increase. line subsegment increase. Newbroad focusers New focusers subsegment the industry. the industry.

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Industry Force Entry Barriers Buyer Power

Generic Strategies Cost Leadership

Ability to cut price in retaliation deters potential entrants.

Differentiation
Customer loyalty can discourage potential entrants.

Focus
Focusing develops core competencies that can act as an entry barrier. Ability to offer lower price to powerful buyers. Large buyers have less power to negotiate because of few close alternatives. Large buyers have less power to negotiate because of few alternatives. Better insulated from powerful suppliers. Better able to pass on supplier price increases to customers. Suppliers have power because of low volumes, but a differentiation-focused firm is better able to pass on supplier price increases. Can use low price to defend against substitutes. Customer's become attached to differentiating attributes, reducing threat of substitutes. Specialized products & core competency protect against substitutes. Better able to compete on price.Brand loyalty to keep customers from rivals.Rivals cannot meet differentiationfocused customer needs.

Ability to offer lower price to powerful buyers. Large buyers have less power to negotiate because of few close alternatives. Large buyers have less power to negotiate because of few alternatives.

Ability to offer lower price to powerful buyers. Large buyers have less power to negotiate because of few close alternatives. Large buyers have less power to negotiate because of few alternatives. Better insulated from powerful suppliers. Better able to pass on supplier price increases to customers. Suppliers have power because of low volumes, but a differentiation-focused firm is better able to pass on supplier price increases. Can use low price to defend against substitutes. Customer's become attached to differentiating attributes, reducing threat of substitutes. Specialized products & core competency protect against substitutes.

Supplier Power

Better insulated from powerful suppliers. Better able to pass on supplier price increases to customers. Suppliers have power because of low volumes, but a differentiation-focused firm is better able to pass on supplier price increases.

Threat of Substitut es

Can use low price to defend against substitutes. Customer's become attached to differentiating attributes, reducing threat of substitutes. Specialized products & core competency protect against substitutes.

Rivalry

Better able to compete on price.Brand loyalty to keep customers from rivals.Rivals cannot meet differentiationfocused customer needs.

Better able to compete on price.Brand loyalty to keep customers from rivals.Rivals cannot meet differentiationfocused customer needs.

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Functional Strategy

The approach a functional area takes to achieve corporate and business unit objectives and strategies by maximizing resource productivity

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Marketing Strategy
FRONTAL ASSAULT FLANKING MANEUVER BYPASS ATTACK ENCIRCLEMENT GUERRILLA WARFARE

Functional Strategy

Pricing

Skim

Selling Distribution Product development

Line

pricing Penetration pricing Dynamic pricing

Advertising and promotion

Push

extension

strategy Pull strategy

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Functional Strategy

Financial Strategy
Leveraged buyout Reversed stock split Tracking stock

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Functional Strategy

R&D Strategy
Technological leader Technological follower Open innovation

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Functional Strategy

Operations Strategy
Job shop Connected line batch flow Flexible manufacturing systems Dedicated transfer lines Mass production Continuous improvement system Modular manufacturing

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Functional Strategy

Purchasing Strategy
Multiple sourcing Sole sourcing Just-in-time (JIT) Parallel sourcing

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Functional Strategy

Logistics Strategy
Centralization Outsourcing Internet

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Functional Strategy

HRM Strategy

360 degree appraisal

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Functional Strategy

Outsourcing errors
Activities that should not be outsourced Wrong vendor selection Writing poor contract Overlooking personnel issues Hidden costs of outsourcing Failing to plan exit strategy

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Proposed Outsourcing Matrix

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Functional Strategy

Strategies to Avoid
3 Follow the leader Hit another home run Arms race Do everything Losing hand

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Functional Strategy

Subjective Factors Affecting Decisions -Managements attitude toward risk Pressures from stakeholders Pressures from corporate culture Needs and desires of key managers

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Strategic Choice

Evaluation of Strategic Alternatives -Mutual exclusivity Success Completeness Internal consistency

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PORTFOLIO ANALYSIS

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Corporate Strategy

Portfolio Analysis -Resource commitment on best products to ensure continued success

Resource commitment on new costly products high risk

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Stages of the Industry Life Cycle

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PRODUCT LIFE CYCLE

Most product sales observed over long periods can be portrayed as bell shaped curves Product life cycle curves which can be typically divided into four stages: Introduction, Growth, Maturity and Decline. Product Life Cycle asserts four things. 1. Products have limited life. 2. Product Sales pass through distinct stages, each posing different challenges, opportunities and problems to the seller. 3. Profits rise and fall through different stages of the life cycle. 4. Products require different marketing, financial, manufacturing, purchasing and H.R. strategies in each life cycle stage. Growth-Slump-Maturity pattern (small kitchen appliances) Cycle Recycle Pattern Scalloped Pattern (succession of PLCs; eg: Nylon)
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INTRODUCTION - STRATEGIES
Sales growth tends to be slow - Delays in production capacity expansion /technical problems; Distribution/retail chains being put up; sales expensive as conversion rates are lower (innovators).

Promotion at the highest ratio to sales inform customers, induce trial and secure distribution in retail outlets.
Prices tend to be high as costs are higher. Hi
SLOW SKIMMING SLOW PENETRATION RAPID SKIMMING

Lo

RAPID PENETRATION

Hi
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PROMOTION

PLC - GROWTH STAGE

Introduction is followed by a stage marked by rapid climb in sales. Companies starts to eye for market share. Growth is a period of rapid market acceptance & substantial profit improvement. Innovators, early adaptors like the product and continue to buy the product while middle majority starts trying. New competition as sales and profits are growing. The stage where we see entry of competition in large numbers. Prices remain where they are or fall slightly to allow better penetration or for entry into other segments. Time noted for the introduction of variants/ brand extensions. Companies maintain promotion at same or higher level. Profits increase even with higher promotion costs as it gets spread over higher sales volume.
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PLC - GROWTH STAGE

MARKETING STRATEGIES Firm improves product quality and adds new features and models. Enters new market segments. Enters new distribution channel. Advertising focus shifts from awareness / knowledge to Interest/desire/conviction. Prices should be reduced (or low priced variants launched) at the right time to attract the next level of price sensitive customers. Faces tradeoff between high market share to high current profit. Firm that pursues market expansion strategy will improve its competitive position.
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PLC - MATURITY STAGE

Many products which we see around us are in the maturity stage of PLC. A stage characterized by the slow down in the growth rate. Most of practical Marketing management deals with a mature product. Hence the most important phase in PLC. Three Phases 1. Growth Maturity: Sales growth starts to fall due to distribution saturation. Growth predominantly due to trial by laggards. 2. Stable Maturity: Most potential customers have tried the product. Future sales governed by population growth and replacement demand. 3. Decaying Maturity: Absolute level of sales decline. Slow down in sales growth causes over-capacity ----Intensified competition ----- price wars ---- profit Erosion---weak exit. 99

MATURITY STAGE STRATEGIES

R&D spends are increased to find better versions. Increased advertising spends. More Consumer / Dealer cuts. Three types of interventions are taken up by Marketers. 1. Market Modification: Company should not try to conserve but should try & expand market for its Brand. Sales vol. = No. of users X usage rate. Try expand the no. of Brand Users by: Convert non users: Attempts to convert non coffee drinkers to try coffee. Enter new market segments: Johnson & Johnson baby shampoo for adults, Cerelac adapted for the senile. Win competitors customers: Pepsi/Coke, NIIT/Apple.
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MATURITY STAGE STRATEGIES

Volume can also be increased by focusing on the Current Users convincing them to use more. More frequent use: Biscuits an all time snack, Coke instead of coffee/tea, clinic shampoo, variety of SKU, vending machines. More usage per Occasion: Shampoo giving better results in two rinsing, more SKUs. New more varied uses: Recipe route tried out by microwave oven manufacturers, Sachets by shampoo manufacturers for travelers, Arm & Hammer Baking soda as a refrigerator deodorant. 2. PRODUCT MODIFICATION Stimulate sales by modifying the products characteristics by improvements in quality, feature and style.
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STRATEGIES FOR MATURE STAGE

2. PRODUCT MODIFICATION Quality Improvement: Functional performance improved- for cars, TV, white goods - New Improved eg: Santro Xing, Indica V2. Plus launch - from FMCG manufacturers --------- stronger, bigger, better, Lifebuoy Plus. Aimed at triggering Brand switching Style Improvement: Aimed at increasing aesthetic appeal. Periodic intro of color variants by auto manufacturers. Consumer/packaged food bringing packaging /color variants. Advantages: Unique identity / can secure loyal customers. Major disadvantage arises from the fact that it is difficult to judge customer preferences --- risk of losing those who liked earlier version
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STRATEGIES FOR MATURE STAGE (contd.)

Advantages of feature improvements Build progressive and leadership image for co. (Maruti) New features can be made optional (adapted or dropped easily). Helps to win loyalty of some segments. Cost effective publicity. Can generate enthusiasm for sales force and dealers. Main disadvantage is that many of these can be easily imitated. 3. Marketing Mix Modifications: Product Manager should also try to stimulate sales by modifying Mktg. Mix. Price: Decision whether a price cut will attract new customers. Trying price specials, early bird discounts, easier credit terms to retain loyal customers..
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MATURITY STAGE STRATEGIES

3. Marketing Mix Modifications: Advertising: Change message- copy, media- vehicle mix, timing/frequency, to target new audience. Build new brand identity / image. Direct comparison Ads about competition. Sales Promotion: Step up trade discount Price offs, Rebates, warranties, festival offers, gifts etc. Personal selling: should the quality of sales people or their area of specialization need to be changed. Questions on territory revisions; incentive plans; planning of sales call etc. Services: can the company speed up delivery. Extending technical services. Disadvantages: can be easily copied. Mass distribution and penetration efforts may not help can lead to profit erosion. 104

STRATEGIES FOR DECLINE STAGE

Sales of most products/brands eventually decline . 1. Technological advancements in the product category. 2. Consumer shifts in taste & perception. 3. Increased domestic & foreign competition-----price cutting/ over capacity/ profit erosion.
Sales may plunge to zero or gradually fall for a long period. As sales decline, profits fall. Some of the weaker firms withdraw. Those remaining drop smaller market segments & marginal trade channels to conserve profits. They may cut their promotion budgets and may reduce prices further. Unless strong reasons for retention exist, carrying a weak product is very costly to the firm. It can delay aggressive search for alternatives/replacement.
105

STRATEGIES FOR DECLINE STAGE

MARKETING STRATEGIES: 1. Increase firms investment (Dominate the market or to strengthen its competitive position) 2. Hold investment level until uncertainties about the industry are resolved. 3. Decreasing investment selectively. (Unprofitable target groups/ markets/ products will have to be identified and instead look for strong niches.) 4. Harvesting: milking to recover cash quickly (Brands with high loyalty can continue longer without any investments). 5. Divest the business quickly by disposing off its assets as advantageously as possible. Drop Decision:
Sell/transfer to someone Should drop slowly or fast. Inventory/service level to be maintained.
106

P.L.C WEAKNESSES

No Uniform Shape: An S shaped curve describes only shape of PLC while most of them vary or are unique. Unpredictable Turning Points: While most products do peak and then fall there is no specific turning point. Difficult to Decide the Stages: A dormant sales (flat) pattern may denote the product has reached maturity while it may be just that the product has touched a plateau before another growth period. Tendency to drop a product due to such readings can turn out to be fatal due to the risks involved in new product development.
107

P.L.C WEAKNESSES

Unclear Implications: Growth phase may or may not be associated with high profit margin. Rapid growth can be associated with low profits and decline can be very profitable.

Product Oriented: Fails to understand the changes in the requirement of customers / strategies of competitors, attractiveness of new market to competitors/ Emergence of technologies etc. Technologies, needs/ demands, product categories have different driving forces.
108

P.L.C WEAKNESSES

No Uniform Shape: An s shaped curve describes only shape of PLC while most of them vary or are unique. Unpredictable Turning Points: While most products do peak and then fall there is no specific turning point. Difficult to Decide the Stages: A dormant sales (flat) pattern may denote the product has reached maturity while it may be just that the product has touched a plateau before another growth period. Tendency to drop a product due to such readings can turn out to be fatal due to the risks involved in new product development Unclear Implications: Growth phase may or may not be associated with high profit margin. Say rapid growth can be associated with low profits and decline can be very profitable. Product Oriented: Fails to understand the changing requirement of customers / strategies of competitors, attractiveness of new market to competitor-ors / Emergence of technologies etc. Technologies, needs/ demands, product categories have different driving forces.
109

Boston Consulting Group (BCG) Matrix

When a firms divisions compete in different industries, a separate strategy often must be developed for each business. To enhance and formulate strategies. To manage its portfolio of businesses Focuses on relative market share position and the industry growth rate.
110

BCG Matrix
Relative Market Share Position
High 1.0 High Medium Low

Industry Sales Growth Rate

Stars IV
Med

Question Marks III

Cash Cows I
Low

Dogs II

111

BCG Matrix

Pie Chart corresponds to corporate revenue generated by that business unit. The pie slice indicates the proportion of divisions profit. Divisions located Quadrant I is called Cash Cows, Quadrant II is called Dogs. Quadrant III is called Question Marks, Quadrant IV is called Stars,
112

BCG Portfolio Matrix

MARKET SHARE DOMINANCE

HIGH
MARKET GROWTH RATE

LOW

High growth Market leaders Require cash Large profits

High growth Low market share Need cash Poor profit margins

HIGH LOW

$
Low growth High market share High cash flow Low growth Low market share Minimal cash flow
113

Cash Cows

High relative market share but compete in a low-growth industry

Generate cash in excess of their needs Milked i.e. cash for other purposes

Manages to maintain strong position as long as possible

Product development Concentric diversification Retrenchment or divestiture if the division becomes weak
114

Dogs

Low relative market share and compete in a slow- or no-growth industry Weak internal and external position

Liquidation Divestiture Retrenchment

115

Question Marks

Low relative market sharecompete in a high growth industry

Cash needs are high Cash generation is low

Decision: strengthen by pursuing an intensive strategy, e.g. to sell them.

116

Stars

High relative market share and a high industry growth rate Represent the organizations best longrun opportunities for growth and profitability. Substantial investment to maintain or strengthen their dominant position.

Integration strategies Intensive strategies Joint ventures

117

BCG Matrix

118

BCG Portfolio Matrix Example

MARKET SHARE DOMINANCE
HIGH LOW Integrated phone/Palm devices

MARKET GROWTH RATE

HIGH

Sub-Notebooks and Hand-Held Computer

STAR
Laptop and Personal Computers CASH COW

PROBLEM CHILD
Mainframe Computer

LOW

DOG
119

BCG Matrix & Benefit

Setting the path for growth Knowing dead investments Draws attention to the cash flow, Investment characteristics Needs of an organizations various divisions. To achieve a portfolio of divisions that are Stars.
120

BCG Matrix Limitations

Viewing every business as a star, cash cow, dog, or question mark is overly simplistic. Middle of the BCG matrix is not easily classified. The BCG matrix does not reflect whether or not various divisions or their industries are growing over time. Other variables besides relative market share position and industry growth rate in sales are important in making strategic decisions about various divisions.
121

Parenting-Fit Matrix
Low
MISFIT between critical success factors Heartland Ballast Edge of Heartland

Alien Territory High Low FIT between parenting opportunities and parenting characteristics Value Trap High

122

Corporate Strategy

Corporate Parenting Strategy -Strategic factors performance improvement Analyze fit

123

McKinseys 7 S Model
Strategy

Structure

Super Ordinate GoalsShared Values

Systems

Style

Skills

Staff

124

125

Constructing Corporate Scenarios

126

Implementation of a strategy

127

Strategy Implementation

Sum total of the activities and choices required for the execution of a strategic plan. Process by which strategies and policies are put into action through programs, budgets, and procedures. The toughest phase in Strategy Management
128

Strategy Implementation
More time than planned Unanticipated problems Activities ineffectively coordinated Crises deferred attention away Employees w/o capabilities Inadequate employee training Uncontrollable external factors Inadequate leadership Poorly defined tasks Inadequate information systems

Problems in Implementing Strategic plans

129

IS STRATEGY FUNCTIONAL?

DESIGN OF OBJECTIVES & COMMUNICATE TO CONCERNED

TASK BREAK DOWN EVALUATION OF OUT COME

TRAINING & DEVELOPMENT OF MANAGERS

STRATEGIC IMPLEMENTATION & CONTROL PROCESS

ORGANISATION DESIGN & DEVELOPMENT

DELEGATION OF TASK & AUTHORITIES & RESPOSIBILITIES

RESOURCES MOBILISATION & ALLOCATION

DESIGN OF SIS /MIS DESIGN OF PERFORMANCE STANDARD

130

The Nature of Strategy Implementation

The greatest strategy will be failed if its implemented badly.

Successful strategy formulation does not guarantee successful strategy implementation. Less than 10% of strategies formulated are successfully implemented!

131

The Nature of Strategy Implementation

Strategy Implementation can have a low success rate

Implementation may fail due to:

Failing to segment markets appropriately Paying too much for a new acquisition Falling behind competition in R&D Not recognizing benefit of computers in managing information

132

The Nature of Strategy Implementation

Successful Strategy Implementation

Market goods & services well Raise needed working capital Produce technologically sound goods Sound information systems

133

Formulation vs. Implementation

Formulation focuses on effectiveness Implementation focuses on efficiency

Formulation is primarily an intellectual process Implementation is primarily an operational process

Formulation requires good intuitive & analytical skills Implementation requires special motivational & leadership skills Formulation requires coordination among a few individuals Implementation requires coordination among many individuals
134

Nature of Strategy Implementation

Strategy Implementation

Varies among different types & sizes of organizations

135

Nature of Strategy Implementation

Implementation Activities

Altering sales territories Adding new departments Hiring new employees Cost-control procedures Modifying advertising strategies Building new facilities

136

Nature of Strategy Implementation

Management Perspectives

Shift in responsibility
Strategists Division or Functional Managers

137

Management Issues
Annual Objectives

Management Issues

Resources Organizational structure Restructuring

138

Management Issues (contd)

Resistance to Change

Management Issues

Production/Operations

139

Management Issues
Purpose of Annual Objectives -Basis for resource allocation Mechanism for management (e.g. IT management) evaluation Metric for gauging progress on long-term objectives

Establish priorities (organizational, division, & departmental)

140

Management Issues
-- Central management activity that allows for the execution of strategy Resource Allocation
enables resources to be allocated according to priorities established by annual objectives.

141

Management Issues
4 Types of Resources
1. Financial resources 2. Physical resources 3. Human resources 4. Technological resources

142

Management Issues
Matching Structure with Strategy -- Changes in strategy = Changes in structure
Structure dictates how objectives & policies will be established and how resources will be allocated; e.g. is structure based on location or based on the product
143

Structure should be designed to facilitate the strategic pursuit of a firm

New strategy Is formulated

New administrative problems emerge

Organizational performance declines

Organizational performance improves

New organizational structure is established

144

Management Issues
Restructuring -- Reducing the size of the firm # of employees, divisions and/or units, # of hierarchical levels; e.g. The Internet is
ushering in a new wave of business transformations

145

Management Issues
Reengineering In reengineering, a firm uses information technology to break down functional barriers and create a work system based on business processes Reconfiguring or redesigning work, jobs, & processes to improve cost, quality (alteration of Scott Mortons value chain) Think of an example.
146

Management Issues
Resistance to Change -- Single greatest threat to successful strategy implementation Raises anxiety; fear concerning: economic loss, Inconvenience or Uncertainty
Force Change Strategy

Educative Change Strategy

Rational or Self-Interest Change Strategy
147

Management Issues
Production/Operations Concerns

Production processes typically constitute more than 70% of firms total assets
Decisions concern e.g. :

Plant size
Quality control Technological innovation

148

Marketing Issues
Marketing variables affect success/failure of strategy implementation

1. Market segmentation
2. Product positioning

149

Marketing Issues
Market Segmentation: Subdividing of a
market into distinct subsets of customers according to needs and buying habits

Market segmentation variables:

Product Place Promotion Price

150

Marketing Mix Component Factors

Product Quality Features Style Brand name Place Distribution channels Promotion Advertising Personal selling Sales promotion Publicity Price Level

Distribution coverage
Outlet location Sales territories

Discounts & allowances

Payment terms

Packaging
Product line Warranty Service level

Inventory levels/locations
Transportation carriers

151 151

Marketing Issues
Product Positioning

Schematic representations that reflect how products/services compare to competitors on dimensions most important to success in the industry; I.e. according to customer wants and customer needs

152

Finance/Accounting Issues
Essential for implementation

Acquiring needed capital Developing projected financial statements Preparing financial budgets Evaluating worth of a business

153

Research & Development Issues

New products and improvement of existing products that allow for effective strategy implementation

Use an R&D strategy that ties external opportunities to internal strengths and is linked with objectives.

154

Research & Development Issues

3 Major R&D approaches to implementing strategies
1. 2. 3.

1st firm to market new technological products Innovative imitator of successful products Low-cost producer of similar but less expensive products

155

Management Information Systems (MIS) Issues

Information is the basis for understanding the firm. One of the most important factors differentiating successful from unsuccessful firms MIS used to : Information collection, retrieval, & storage Keeping managers informed Coordination of activities among divisions Allow firm to reduce costs
156

Evaluation and Control

Return on Investment (ROI)

Traditional Financial Measures

Earnings per Share (EPS) Return on Equity (ROE)

157

THANK YOU.
ANY QUESTIONS?

.JANAK V. SHELAT
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