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UNDERSTANDING

STRATEGIES
MCS are the tools to implement strategies.
Strategies differ between organisations.
Controls should be tailored to suit the
specific strategies.
Different strategies require different task
priorities, different key success factors &
different skills, perspectives and behaviors
Strategies are plans to achieve
organisational goals.
Goals can be Profitability, Maximising
shareholder value etc
Strategy describe the general direction in
which an organisation plans to move to
attain its goals.
Firms develop their strategies by matching
the core competencies with industry
opportunities.
Strategies can be found at 2 levels
Strategies for the whole organisation
Strategies for business units within the
organisation
Strategy Key strategic Generic Primary
level issues Strategic Org. levels
Options involved
Corporate Are we in the Single Ind Corporate
Level right mix of Office
Related
industries? diversification
What ind Unrelated
should we be diversification
in?
Business What should Build, Hold, HO & BU
Unit be the mission? Harvest, Gen Mngr
Level Divest
How to realise Low cost, BU Gen
the mission? Differentiation Mngr
Environmental Internal Analysis
Analysis
Tech know-how
Competitor
Production Know-how
Customer
Mktg. Know-how
Supplier
Distr. Know-how
Regulatory
Logistic Know-how
Social / Political

Opportunities & Strength & Weakness


Threats Identify core
Identify opportunities competencies

Fix internal
competencies with
external
Opportunities

Firms Strategies
Corporate level strategy

This is about being in the right mix of


business.
It is concerned with the question of
where to compete rather than with how
to compete in a particular industry.
How to compete is a business unit
strategy.
Companies can be classified into one of
3 categories.
Single Industry
Related diversification
Unrelated diversification
Single Industry Related Unrelated
firm diversified firms diversified firms

Competes in one Sharing of core Autonomous


industry competencies business in
across business different
markets
Eg
Business Unit Strategies
The strategy of a BU depends on 2
interrelated aspects. Viz.,
Its mission (what are its overall objectives)
Its competitive advantage (how should the
BU compete in its industry to accomplish its
mission)
Cash source
High Low
High High

Star Question Mark


Hold Build
Market
Growth Cash use
Rate

Cash Cow Dog


Harvest Divest
Low Low
High Low

Relative market share


Build:- Implies an objective of increased
market share, even at the expenses short-
term earnings & cash-flow

Hold:- It is used to protect the BUs market


share & competitive position

Harvest:- Has an objective of maximising


short-term earnings & cash flow even at the
expenses of market share

Divest:- It indicates a decision to withdraw


from the business.
Business Unit Competitive Advantage
Ask 3 interrelated questions like-

What is the structure of the industry in


which the business unit operates?
How should the business unit exploit the
industry structure?
What will be the basis of the BUs
competitive advantage?
Industry Analysis

New Entrants

Suppliers Industry Customers

Competitors

Substitutes
Rivalry among existing competitors:

Factors affecting are:


Industry growth,
Product differentiation,
No. of competitors,
Level of F.C,
Overcapacity,
Exit barriers
Customers (Bargaining power) :

Factors affecting are:


No. of buyers,
Buyers switching costs,
Significance of BU volume to buyers,
Suppliers (Bargaining power):

Factors affecting are:


No. of suppliers,
Presence of substitutes,
BUs volume to suppliers
Substitutes (Threat from):

Factors affecting are:


Price/performance of substitutes,
Buyers switching cost, etc..
New entrants (Threat of):

Factors affecting are:


Capital requirement,
Access to distribution channels,
Economies of scale,
Product differentiation,
Govt. policies, etc..
The more powerful these forces are, the
less profitable an industry is.
If the aggregate profitability is high, these
5 forces are weak.
Depending on the relative strength of the 5
forces, the key strategic issues facing a BU
will differ from one industry to another.
Understanding the nature of each force
helps the firm to formulate effective
strategies.
Generic Competitive Advantages:

Along with 5-force industry analysis


(which helps identify O & T), BUs should
also respond to 2 generic competitive
advantages.
Low Cost;
Differentiation.
Low cost:

Cost leadership can be achieved thru


Economies of scale,
Experience curve effect,
Tight cost control,
Cost minimisation.
Differentiation:

Focus here is to differentiate the


product (creating something that is perceived as
being unique).
Approaches may include
Brand loyalty,
Superior customer services,
Product design & features
Technology.
Value chain analysis

It is the complete set of activities


involved in a product, starting with
extraction of RM & ending with post
delivery support to customers.
Here the firm is broken down into
distinct strategic activities.
The most attractive competitive position
is to achieve cost-cum-differentiation.
i.e providing better customer value for an
equivalent cost or equivalent customer
value for a lower cost.
Basis for competitive advantage
Superior
Cost-cum- Differentiation
differentiation advantage
Relative advantage
Differentiation
position Low-cost Stuck-in-the-
advantage middle
Inferior
Superior Inferior

Relative cost position


Value chain

Product
Manufacturing Mktg & Sales Service/Logistic
development

Support activities: Finance, HR, IT