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Strategic Intent

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Title: Strategic Intent


1
UNIT II
  • Strategic Intent

2
  • Strategic management - a strategy is a unified,
    comprehensive integrated plan that relates the
    strategic advantages of the firm to the
    challenges of the environment.
  • Strategic management is defined as a set of
    decisions actions resulting in formulation
    implementation of strategies designed to achieve
    the objectives of an organization

3
Includes following areas
  • Determining a mission including statement of its
    purpose
  • Developing a company profile that reflects
    internal conditions capabilities
  • Assessments of companys external environment
  • Identifying the desired options and analyzing
    them
  • Strategic choice of a particular set long term
    objectives grand strategies needed to achieve
    desired options.
  • Implementation of strategic choice.
  • Review or evaluation of the success of strategic
    process.

4
SM involves 3 types of decisions
  • Definitional decisions- defining business,
    identifying customer groups, functions
    technologies.
  • Goalistic decisions - defining corporate
    functional objectives policies.
  • Optimal decisions- strategies action programs
    tactics

5
  • Strategy of an organization Comprises of
  • Business vision
  • Mission
  • Objectives and goals
  • Business definition

6
vision
  • Vision articulates the position that the firm
    would like to attain in the distinct future.
  • A vision is more dreamt of than it is articulated
    .
  • Tata steel says about its mission - tata steel
    enters the new millennium with the confidence of
    learning, knowledge based happy organization.
  • By its nature vision could be vague as a dream
    that one experienced last night is not able to
    perfectly recall it.
  • It acts as a powerful motivation to action.

7
definition
  • Vision is a description of something (an
    organization corporate culture , business ,a
    technology an activity in future)
  • Benefits of having a good vision-
  • Are inspiring , exhilarating motivating.
  • Represents discontinuity , a jump ahead
  • Helps in creation of common identity and shared
    sense of purpose.
  • Should be competitive, original unique.
  • Fosters risk taking experimentation
  • Represent integrity , are truly genuine can be
    used for the benefit of the people.

8
Vision could be divided into two
  • Core ideology- it defines the enduring character
    of an organization that remains unchangeable as
    it passes the changing environment
  • It rests on the core values , mission purposes.
  • Envisioned future- a 10- 30 year extremly
    confident goal.
  • Descrition of what it will be like to achieve
    these goals.
  • Encouraging supporting goals
  • Description of the future.

9
Effects of vision
  • Learning acquiring knowledge information
  • Leads to commitment motivation
  • Emphasizing not only on profit makig but
    producing useful products services.
  • Innovation encouraging
  • Improving health wealth of an organization.

10
Difficulties in creation of vision
  • Culture attitude within an oraganization
  • Uncertain unstable environment
  • Restricted resources
  • Resistance to change

11
An enriching and inspirational vision must
  • Contain memorable language
  • Clearly maps the company
  • Challenges motivated the workforce
  • Provokes emotions

12
  • Mission (WHY WE EXIST)
  • CORE VALUES (WHAT WE BELIEVE IN)
  • VISION (WHAT WE WANT TO BE )
  • STRATEGY (GAME PLAN)
  • STRATEGIC IMPERATIVES(WHAT I MEAN TO DO )
  • PERSONAL OBJECTIVES
  • STARTEGIC OUTCOME

13
mission
  • Mission is a statement that defines the role that
    an organization plays in the society. Purpose is
    anything that organization strives for.
  • Mission is essential purpose of the organization
    , concerning particularly why it is in
    existence., the nature of business.
  • E.g. of mission statement
  • Maruti building trust worldwide
  • Modiluft miles smiles
  • HCL world class competitor

14
Elements of mission
  • Clearly articulated
  • Relevant
  • Current
  • Written with a positive tone/motivating
  • Unique
  • Adapted to target audience
  • Feasible
  • Precise
  • Clear
  • Indicate major components of strategy
  • Indicate how objectives are to be achieved

15
Objectives goals
  • Objectives are open ended attributes that denote
    the future states or outcomes.
  • Refer to the operational side of business
  • Goals are the close ended attributes are
    précised expressed in specific terms.
  • Objectives are the ends which state how the goals
    will be achieved.
  • An organization tries to its purpose into long
    term objectives short term goals.
  • Different objectives are pursued like continuity
    of profits, efficiency, product quality, employee
    satisfaction etc.

16
  • Goals are qualitative ,objectives are mainly
    quantitative
  • Thus objectives are measurable comparable.
  • An organization may pursue multiple objectives.
  • Importance of objectives-
  • Justify the organization
  • Provide direction
  • Basis for management by objectives
  • Helps in strategic planning management
  • Helps coordination
  • Provides standards for assessment control
  • Helps decentralization

17
Characteristics of ideal objectives
  • Formulation should involve participation
  • They should be clear
  • Realistic
  • Flexibility
  • Consistency
  • Ranking (assigning priorities)
  • Verifiability
  • Balance
  • Understandable
  • Concrete specific
  • Challenging
  • Should be in the constraints

18
What objectives are set
  • Profit
  • Employee welfare
  • Marketing
  • Growth
  • Quality products services
  • Power
  • Social responsibility of business

19
classification of objectives
  • Economic social-
  • Survival
  • Return on investment
  • Growth
  • Market share
  • Welfare of society
  • Protect consumer rights
  • Interest of workers
  • Primary -
  • Extension, development improvement
  • Paying fair dividends to share holders.
  • Payment of fair wages
  • Reduction of prices

20
  • Secondary-
  • Provide bonus for workers
  • Promote education
  • RD in techniques
  • Long run short run-
  • Official operative-

21
Formulation of the environment
  • Forces in the environment
  • Value system of top executives
  • Awareness of management.

22
Business definition
  • Dimensions of business-
  • Customer functions-what is being satisfied
    freshness, germs fight, protection
  • Customer groups- who is being satisfied oral
    care, dental protection
  • Alternative strategies- how the need is being
    satisfied, paste powder, foam

23
Business policy
  • It involves all member of organization
  • Explicit or implicit
  • Decision making process
  • Formulated for frequent happenings
  • Pyramids of policies policies procedures ,
    standard operating plans all guide to act but
    differ in the degree of guidance

24
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25
Features of business policy
  • Credibility
  • Acceptability
  • Feasibility
  • Clear and consistent
  • Proper communication
  • Flexible
  • Relative to objectives
  • Policies should not be the result of
    opportunistic decisions

26
Determinants of business policy
  • Internal factors -
  • Mission
  • Objectives
  • Strength and weakness
  • Management value orientation
  • External factors -
  • Market structure
  • Nature of industry
  • Economic and government policies
  • Technological social and political situation

27
Importance of business policy
  • For learning the course
  • Integrates knowledge
  • Deals with constraint and complexity of real life
    business
  • Broad perspective
  • Make study and practice of management more
    meaningful
  • For understanding business environment
  • Formulation of policies
  • Makes management receptive
  • Reduces feeling of isolation
  • For understanding the organization
  • Presents a basic frame work for understanding
    decision making
  • Brings the knowledge in strategic decision making
  • Importance of job performance
  • For personal development
  • Career choice
  • Offers unique perspective to employees

28
Purpose of business policy
  • Integrate the knowledge in various functional
    areas of management
  • Generalist approach (problem solving)
  • Understand complex linkage with the operating
    system

29
Formulation of business policy
  • Goal specification and priorities
  • Identification of policy alternatives
  • Evaluation of policy alternatives
  • Check the acceptability
  • Choice of policy
  • Impact of external and internal environment

30
Function of business policy
  • Policy establishes indirect control over
    independent actions
  • Policy promotes uniform handling of similar
    activities
  • Ensures quicker decision
  • Institutionalize basic aspect of organization
  • Reduces uncertainty
  • Counter act resistance
  • Mechanism of avoiding hasty and ill decisions

31
Types of business policy
  • Production policy purchasing policy , quality
    of RM used , choice of material , size of
    purchase
  • Production process choice of technology ,
    extent of automation , size of decentralization ,
    extent of division labor
  • Production capacity sales forecast , policy
    decision , equipment utilization
  • Marketing and replacement
  • Marketing policy
  • Product mix
  • Product differentiation
  • Pricing policy

32
  • Distribution policy
  • Geographical location
  • Selection of customer
  • Size of customer
  • Channel design
  • Choice of middle man
  • Promotion policy
  • Financial polity financial control
  • Lease of buy
  • Risk
  • User of assets
  • HR policy
  • R and D

33
Business environment
  • It consists of both external internal
    environments
  • Aggregate of all conditions , events, influences
    that surround effect it.
  • Internal are controllable aspects
  • External uncontrollable
  • Success depends on the ability to design the
    internal variable to take advantage of the
    opportunities threats.

34
Internal appraisal
  • It provides the organization with its
    capabilities to capitalize an opportunity for
    protecting itself from threats present in the
    environment.
  • Determine distant competencies
  • What makes it unique
  • What are its capabilities in future, competent in
    specific areas.

35
Frame work for development of strategic advantage
  • Strategic advantage
  • Organization capability
  • Competencies
  • Synergistic effect
  • Strength weaknesses
  • Organization resources organization behavior

36
  • Organization resources- tangible, Intangible,
    assets capabilities, information knowledge.
  • Organization behavior- forces influences
    operating in internal environment, values,
    culture, leadership, power politics.
  • SW-inherent capability, inherent limitation or
    constraint.
  • Synergistic effect- SW combine
  • Competencies- special qualities possessed by
    organization that make them stand pressure of
    competition, a distinctive competence
  • Strategic advantage- outcome of organizations
    capabilities, result of activities leading to
    reward, profits market share , reputation

37
Internal factors to be analyzed-
  • FINANCIAL ACCOUNTING-
  • Financial resources strength, liquidity cash
    flow
  • Cost of capital
  • Relations with owners stock holders.
  • Tax conditions
  • Financial planning
  • MARKETING DISTRIBUTUIN FACTORS-
  • Product related variety, differentiation
  • Price related
  • Place logistics, channels of distribution
  • Promotion advertising, sales promotion, PR
  • Integrative system market research, packaging of
    product

38
  • PRODUCTION OPERATION FACTORS-
  • Use of RM
  • Production system, capacity
  • Location
  • Service design
  • Operation control
  • Product planning
  • Material supply
  • Quality control
  • Lower cost, inventory
  • Capacity utilization
  • PERSONNEL CAPABILIY FCTORS-
  • Use of HR skills
  • Safety welfare, security appraisal
  • Satisfaction morale, compensation, climate ,
    structure, trade unionism

39
  • INFORMATION CAPABILITY-
  • Flow of information. Outside within
  • DBMS, use of information
  • Speed IT infrastructure
  • GENERAL MANAGEMENT-
  • Strategic analysis intent formulation
  • Rewards incentives
  • Goals competence
  • CSR
  • Organization climate regulations.
  • R D ENGINEERING
  • New improved production
  • Material , processes
  • Cost advantage
  • Research capability

40
Approaches to Internal Appraisal
  • Systematic approach-
  • Proactive measure to organizational formal
    planning
  • Ad hoc-
  • Reactive to response to a crisis

41
SOURCES OF INFORMATION-
  • Internal
  • Employee opinion
  • Company files documents
  • Financial statements
  • MIS
  • Annual reports
  • Functional area profile
  • External
  • Comparative appraisal
  • Company reports magazine
  • Through consultants

42
Methods techniques
  • INTENAL ANALYSIS-
  • Value chain analysis
  • Qualitative
  • Quantitative
  • Financial
  • Non financial
  • COMPARITIVE
  • Historical
  • Industry norms
  • Bench marking
  • COMPREHENSICE-
  • Balanced score card
  • Key factor rating

43
  • internal
  • Value chain
  • Set of interlinked value created activities
    preferred by organization.
  • Porters generic value chain
  • Primary activities-
  • Inbound operations outbound marketing
    service
  • logistics logistics
    sales
  • Secondary
  • Procurement HRD technology infrastructure
  • development

44
  • Quantitative
  • Financial analysis
  • ratio analysis
  • Nonfinancial analysis
  • employee turn over, inventory units,
    absenteeism
  • Qualitative
  • Corporate culture
  • Knowledge
  • Moral

45
  • Comparative- strength weakness distinctive
    competencies
  • Historical
  • Industry norms
  • Bench marking a point for purpose of meeting
    best practices performances, process.
  • Comprehensive
  • Balanced score card
  • Key factor rating
  • market product, service , price
  • Financial source of funds, usage management
  • operations production system, operation
    control
  • personnel IR , employee characteristics
  • information management acquisition, synthesis
    processing, usage
  • general management OC general management system

46
Structuring organization appraisal
  • Organization capability profile
  • Capability factors
  • Weakness normal strength
  • -5 0 5
  • preparing strategic advantage profile
  • Capability factors competitive strengths or
    weakness

47
Criteria for determining S W
  • Historical past performance
  • Normative what ought to be
  • Competition party
  • Critical factors for success

48
External appraisal
  • Monitoring of economic, government, legal,
    market/ competitive , supplier/technological,
    geographic social setting to determine
    opportunities threats.
  • Macro factors-
  • International
  • Economic
  • Political
  • Regulatory
  • Demographic
  • Socio cultural

49
  • Micro
  • Suppliers
  • Customers
  • Competitor
  • Inter mediaries
  • Market
  • Public
  • Environment analysis is the process of
    identifying O T facing in an organization for
    the purpose of strategic formulation

50
  • Characteristics of environment
  • Complex
  • Dynamic
  • Multi faceted
  • Far reaching impact Market factors client needs,
    preferences
  • Environmental sectors
  • Product factors image, demand, price PLC
  • Market intermediaries middle man, distribution
    channel
  • Competitor related entry exit barriers, nature
    of competition

51
  • Various types of markets could be
  • Consumer
  • Industrial
  • International
  • Reseller
  • Technological environment factors-
  • Knowledge of goods services, future inventions
  • Sources of technology
  • Tech. development, stages, rate of change
  • Impact of tech on humans
  • Availability of tech.
  • Foreign technology collaboration
  • Strict rules regulations

52
  • Economic factors-
  • Economic conditions level of income
  • Economic policies restrictive liberalized
  • Eco system
  • Inflating deflating rates
  • Monitory policy
  • Eco structure
  • Eco planning
  • Regulatory factors-
  • Constitutional framework, fundamental principles
  • Policies related to licensing, foreign
    investements
  • Imports exports policy
  • Public sector , small scale

53
  • Political government
  • Philosophy of govt.
  • Structure , goals
  • Election, budget
  • Subsidies, protect unfair trade
  • Socio cultural-
  • Society, beliefs, traditions, education, pace of
    urbanization
  • International factors-
  • Global eco policies, global HR, global village
  • Secure sources of funds
  • Competitors
  • Opposition from host country
  • Political, social eco risk
  • Natural factors-
  • Geographical location, natural resources ,weather
    , climate

54
micro
  • Suppliers-
  • Cost ,reliability, availability factors.
  • Continuity of supply
  • Customers-
  • Individual govt. other commercial establishment
  • Competitors-
  • Same product
  • Same market
  • Market intermediaries-
  • Promoting, selling distributing agents
  • Vital link between consumer company
  • Public-
  • Media, citizens, local public

55
Environmental scanning
  • Environment is changing, so it is needed to be
    monitored
  • Factors analyzed to determine conditions of
    threat opportunities.
  • Factors in external environment
  • Events specific occurrences
  • Trends general tendencies courses of Action
  • Issues concerns that arise
  • Expectations demands made

56
Approaches to scanning
  • Systematic scanning-
  • Information collected systematically
    continuously to monitor changes take relevant
    factor into consideration.
  • Ad Hoc -
  • Special surveys studies to deal with specific
    environment issues from time to time.
  • Processed form approach-
  • Uses information in processed form,
  • available from different sources,
  • highly systematic formal procedure
  • Proactive measure for the anticipated change

57
Techniques used for environmental scanning
  • MIS- formulize line staff , gathering of
    information desired by strategists
  • Develop strategic management system-
  • by relying on responses by customers, suppliers,
    comptitors, environment condition
  • Spying-determine trade secrets
  • Formal forecasting-corporate plans, consultants
    , futurists.
  • Quest- quick environmental scanning technique
  • 4 step process
  • Observation about major events trends
  • Speculate on wide variety of issues
  • Quest director prepares report summarizes major
    issues implications
  • Reports scenarios are reviewed or redesigned to
    develop strategies

58
  • Scenario writing
  • Simulation
  • Game theory
  • Cross impact analysis

59
Description of ES
  • Strategies more concerned with economic factors
    than the others
  • Does not give significant time
  • Psychologically unprepared for change

60
Appraising the environment
  • Be aware of the factors affecting the process of
    environmental appraisal(strategies, org.
    environment)
  • Identify environmental factors
  • Structuring the result of environmental appraisal
  • Prepare an ETOP

61
ETOP
  • Evnt. sector nature of impact impact on each
    sector
  • Market unstructured
    demand
  • Tech.
    up gradation
  • Suppliers
  • Economic
  • Regulatory
  • Socio-cultural
  • political

62
Grand level strategies
  • Environmental internal appraisal lead to the
    generation of strategic alternatives.
  • the grand strategic alternatives are
  • Stability
  • Retrenchment
  • Expansion
  • Diversification
  • Integration

63
Dimensions of grand strategies
  • Internal/external-
  • When an organization adopts strategy independent
    to other its internal
  • In association with other entity its external
  • Related/unrelated-
  • Related or unrelated to existing business.
  • Horizontal/vertical-
  • Serving additional CG or CF,
  • Expansion or contraction of existing business
    startegy.AS
  • Active/passive-
  • Offensive strategy in anticipation of
    environmental threat
  • Defensive strategy as a reaction to the
    environment

64
Strategies are
  • Stability-
  • No change
  • Pause/proceed with caution
  • Profit strategies
  • Expansion-
  • Through concentration
  • Through integration
  • Through diversification
  • Through cooperation
  • Through internationalization
  • Retrenchment-
  • Turnaround
  • Divestment
  • liquidation
  • Combination-
  • Simultaneous
  • Sequential
  • Combination of both

65
Stability strategy
  • It is adopted by organization when it attempts at
    an incremental improvements of its functional
    performance by marginally changing one or more of
    its business in terms of their respective
  • customer group
  • customer function and
  • alternative technologies.
  • The company stays with the current business
    products , markets
  • Maintains existing level of efforts
  • Is satisfied with incremental growth

66
Major reasons for adopting stability are
  • Less risky
  • Fewer changes
  • Environment faced is relatively stable
  • Expansion may be perceived as threatening
  • Better deployment utilization of resources
  • Not redefining business
  • Safety oriented
  • No fresh investments
  • Does not nil growth, but it is incremental

67
Conditions under which stability is adopted
  • Enjoys comfortable position
  • Future is ensured
  • Growth ambitions are modest
  • Niche's prefer mostly
  • E.g.
  • Copier machine provides better after sales
    service to its existing customer to improve its
    company image

68
  • No change strategy-
  • Continues with the same business definition
  • The environment is predictable certain
  • No opportunities threats in environment
  • No major strength weakness
  • No new competitors
  • No obvious threat of substitute

69
Profit strategy
  • No firm can identically continue with no change.
  • Sometimes things do change the firm has to face
    situation where it has to do something.
  • When there occur temporary changes or problems
    the firm tries to maintain the profits
  • The problems could be economic recession, govt.
    attitude, industry downturn, competitive
    pressure.
  • These problems are short run only
  • If problem continues has to adopt another
    strategy

70
Pause/proceed with caution
  • Firms which wish too test the ground before
    moving ahead with full fledged strategy.
  • Or may have had a blistering phase of expansion
    now wish to rest for a while before moving ahead.
  • Purposes to let the strategic changes seep down
    the organization levels, allow structural changes
    to take place, and let the systems adopt new
    strategies.
  • While profit strategies are enforced choices
    aimed at sustaining profitability
  • Pause/proceed are deliberate and conscious
    attempt to adjourn major strategic changes to a
    more opportune time, or when the firm is ready to
    move on with rapid strides again

71
Expansion strategy
  • Conditions-
  • Expansion becomes imperative when envt. Demands
    increase in the pace of activity.
  • Increasing size may lead to more control over the
    market
  • Advantages from experience curve economies of
    scale
  • High risk
  • Redefinition of business
  • Fresh investments new business/ product/ market
  • Highly versatile strategy

72
  • Through concentration-
  • Converging resources in one or more firm s
    business
  • 1st preferred strategy.
  • Involves investment of resources in product line
    for an identified market.
  • Existing
    market new market
  • Existing product
  • New product

73
  • Applies to situation where the firm finds
    expansion worth while.
  • Its the 1st preferred strategy
  • Entering into known business
  • Advantages-
  • Involve minimal org. change so there is less
    threatening
  • Managers comfortable with present business
  • enables the firm to master in business by the
    depth of the knowledge.
  • Can develop competitive advantage.
  • Past experience is valuable.

74
  • Limitations-
  • Putting all eggs in one basket has his own
    problem
  • Heavily dependent on industry
  • If industry goes into recession firm finds
    difficult to save itself
  • Its crowded with competitors its attractiveness
    decreases.
  • Factors like product obsolescence, merging of new
    technologies are threats to firm.
  • Lead to cash flow problems

75
Through integration
  • Works in present set of CF CG but the AS
    dimension of business undergoes a change
  • Integration is combining activities on the basis
    of value chain
  • A set of interlinked activities performed by firm
    right from procurement of basic raw material to
    marketing of finished products.
  • Widening the scope of business.
  • Petrochemicals steel hydrocarbons industry.
  • Cost economics
  • Forward or backward integration

76
diversification
  • Diversification may involve all dimensions of
    strategic alternatives
  • Internal external, related unrelated,
    horizontal vertical.
  • Involves a substantial change in business
    definition.
  • Different types are -
  • concentric diversification-
  • Related to existing business definition either in
    terms of CG, CF or AS ,is called concentric
    diversification.
  • May be of three types
  • Marketing related-similar type of product is
    offered with help of unrelated technology .
    sewing machines produces diversify into
    kitchenware house hold appliances, sold to
    housewives through a chain of retail stores.
  • Technology related- a leasing firm provides
    hire- purchase services.

77
  • Conglomerate-
  • Unrelated to existing business definition.
  • ITC
  • Essar (shipping, marine construction, oil support
    services)
  • Why are diversification strategies adopted-
  • To minimize risk by spreading it over several
    business
  • Capitalize organizations strength minimize
    weakness.
  • Only way out if growth is blocked because of
    environmental or regulatory factors.

78
  • Advantages-
  • Enables firm to attain synergy by exchange of
    resources skills.
  • Avail economies of scale
  • Reduction in risk by spreading risk
  • Disadvantages-
  • Increase risk commitment
  • Diversion of resources concentration to other
    areas.

79
Through cooperation
  • Mergers
  • Take overs
  • Joint ventures
  • Strategic alliances
  • Merger-
  • Combination of 2 or more than 2 entities involved
    in which one acquires the assets liabilities of
    other in exchange of cash or shares .
  • Or both the organizations are dissolved assets
    liabilities combined new stock is issued.
  • Objectives of the firms are matched

80
Types of mergers
  • Horizontal - same business
  • Vertical mergers-complementary in terms of input
    or output
  • Concentric-related CF,CG, AS
  • Conglomerate- unrelated.

81
Reasons for mergers
  • Increase value of firms stock
  • Increase growth rate make a good investment
  • Improve stability of earning sales
  • To balance, complete diversify product lines.
  • Reduce competition
  • Take advantages of synergy

82
Takeover/ acquisition
  • How t takes place-
  • Spell objective
  • Indicate how they will be achieved
  • Assess managerial quality
  • Check compatibility of business style
  • Anticipate solve problems early
  • Treat people with dignity concern

83
reasons
  • Quick growth
  • Reducing competition
  • Increasing market share
  • Creating goodwill
  • Friendly hostile
  • Pros cons-
  • Growth
  • Mobility of resources
  • Sick units betterment
  • Stress strain

84
Joint venture
  • 2or more firm consolidation for temporary
    partnership
  • Conditions for JV
  • One cant do alone
  • Risk is to be shared
  • Competitive advantage of both can be brought
    together.
  • Advantages-
  • Foreign technology
  • Govt. Policy support
  • New fields
  • Synergistic effect
  • Disadvantages-
  • Coordination lacking
  • Foreign regulations
  • Cultural behavioral differences

85
Strategic alliance
  • 2 or more firms unite to pursue a set of agreed
    upon goals but remain independent.
  • Win win strategy
  • Share strength
  • Lend power to enterprise
  • Pooling of resources
  • Risk is mutual
  • E.g. TVs Suzuki, Mahindra ford, bpl SANYO,
    Videocon Suzuki.

86
Types of strategic alliance
  • Pro active (low interaction/low conflict)
  • Inter industry, vertical value chain integration
  • Non competitive(high interaction/low conflict)
  • Intra industry , non competitive firms
  • Competitive (high interaction/high conflict)
  • Rival firms to cooperation , inert/ intra
    industry
  • Pre competitive (low interaction high conflict)
  • Unrelated industries, new product development.

87
reasons
  • Entering new markets
  • Reducing manufacturing costs
  • Developing diffusing strategy

88
Diversification through internationalization
  • Competitive advantage of nations
  • Factor conditions
  • Demand conditions
  • Related supporting industries
  • Firm strategy, structure rivalry
  • Beyond domestic market
  • Asses environment
  • Evaluate capabilities
  • Devise strategy.
  • Motives-
  • Expansion
  • Market potential
  • Govt. policies
  • resources

89
  • Matrix
  • Cost pressure
  • High
  • Low
  • low high
  • Pressure for local
    responsiveness

90
  • International-
  • Where the products are not available like MCD,,
    coca cola, IBM, Kellogg's
  • Multi domestic-
  • Matching products to national conditions.
    Customize products.
  • Global-
  • Standardized products ,
  • Economies of scale
  • Undifferentiated product
  • Competitive price

91
Entry modes
  • Export entry mode
  • Direct
  • Indirect
  • Contractual-
  • Licensing
  • Franchising
  • Other forms (tech.)
  • Investment
  • JV, strategic alliance
  • Independent ventures

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  • Advantages-
  • Sales profit
  • Expansion
  • Above average returns
  • Disadvantages
  • Risk
  • Uncertainty of economic political environment
  • Cultural diversity
  • Trade barriers

93
retrenchment
  • Reducing scope of activity
  • Demand saturation
  • Govt. policies adverse
  • Substitutes emerged
  • Changing needs preferences
  • Poor managt
  • Wrong strategies
  • Poor quality

94
4 types of situation
  • Realistic non recoverable
  • Temporary recovery
  • Sustained survival
  • Sustained recovery

95
Turn around
  • Negative cash flow
  • Profits
  • Mismanagement
  • Declining market share
  • Uncompetitive products
  • High turnover
  • Approaches-
  • Surgical
  • Non surgical

96
Divestment/cutback
  • Sale or liquidation of portion of business .
  • Liquidation strategies-
  • Closing down a firm selling its assets
  • Termination of employees
  • Loss of employer
  • Serious consequences.

97
combination
  • Mixture of all either applied simultaneously or
    sequentially

98
Process of strategic management
  • Establishing strategic intent-
  • Vision, mission, business definition objectives
  • Formulation of strategies-
  • Environment organizational appraisal
  • Swot analysis
  • Corporate level strategies
  • Business level strategies
  • Strategic choice
  • Strategic plan
  • Strategy implementation-
  • Project, procedural, resource allocation,
    structural, behavioral functional operational
  • Strategic evaluation
  • Strategic control

99
Business level strategies
  • Business strategies are those courses of action
    adopted by a firm for each of its business
    separately to serve identified CG, provide value
    to the customers by a satisfaction of their need.
  • Porter says that factors that determine the
    choice of a competitive strategy are two
  • Industry structure
  • Positioning of a firm

100
  • Industry structure is determined by 5 competitive
    forces-
  • Threat of new entrants
  • Threat of substitutes products or services
  • Bargaining power of suppliers
  • Bargaining power of buyers
  • Rivalry among exiting competitors in an industry.
  • They vary from industry to industry they
    determine long term profitability.
  • Positioning of the firm-
  • Firms overall approach to competing, designed to
    gin sustainable strategic advantage.
  • Two variables- competitive advatgae
  • Lower cost differentiation

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  • Competitive scope-
  • Broad target narrow target
  • Offers mass product distributed through mass
    marketing
  • High priced products of a limited variety but
    intensely focused.
  • Lower cost is based on the competence of a firm
    to design, produce market a comparable product
    more efficiently than its competitors.
  • Differentiation is the competence of a firm to
    provide unique superior value to the buyers in
    terms of quality, special features or after sales
    services

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  • Competitive scope-
  • Range of products , distribution channels, types
    of buyers, geographical area served related
    industry.
  • Industries are segmented having different needs
    and require different sets of competencies
    strategies to satisfy the needs of customers.
  • Broad target approach-
  • Full range of products/services
  • Narrow target -
  • Offers a limited product or area
  • When the two factors are combined it results in a
    set of generic business level strategy

103
  • Porters generic business strategy-
  • Competitive scope
  • Broad target
  • Narrow target
  • low cost products/services
    differentiated products

  • Competitive advantage

104
Cost leadership in business strategy
  • CA of a firm lies in the lower cost of
    product/services
  • High profit
  • l\flexibility to lower price if market becomes
    stiff
  • E.g.
  • Gujarat cooperative milk marketing federation
  • Amul branded ice cream market lower cost platform
    by backing of 180 diaries
  • High quality
  • Supply chain management
  • Moser Baer manufactures CDs at lower cost, lower
    raw material cost lower labor costs

105
Achieving cost leadership
  • Costs are spread over entire value chain
    activities to reduce the cumulative cost ,
    analyze cost drivers identify areas of
    optimization of costs.
  • Accurate demand forecasting
  • High capacity utilization
  • Attaining economies of scale leads to lower
    cost/unit
  • High level of standardization uniform services,
    packaging
  • Investments in cost saving techniques
  • Withholding differentiation till it becomes
    necessary

106
Conditions under which cost leadership is used
  • Price based competition is vigorous making cost
    an imp. Factor
  • Products are standardized
  • Lesser customer loyalty cost of switching is low
  • Few ways available for differentiation
  • Buyers are price sensitive.

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benefits
  • Best insurance against industry competition ,
    protects against the ill effects of competition
  • Less effected by the price increase by the
    suppliers.
  • Can offer prices reduction to the buyers
  • Threat of cheaper substitute if off set
  • Effective entry barrier
  • Risks-
  • Does not sustain for long time as can be copied
  • Not a market friendly approach
  • Can limit experimentation
  • Technological shifts ,cheaper process
    technologies may be used by competitors

108
Differentiation business strategy
  • Special features incorporated in product/service
    which is demanded by customers who are willing to
    pay .
  • The strategy which is then adopted is called
    differentiation strategy.
  • Special features attributes
  • A premium price is charged, customers gain
    additional value command customer loyalty
  • Profit comes from difference in premium price
  • But may fail if customers are not longer
    interested in differentiated products

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  • E.g.-
  • Orient fans offers premium ceiling fans based on
    product innovation superior technology.
  • Extra wide blades, heavy duty motor
  • Low voltage, high velocity maximum coverage
    area.
  • Brand salt industry DCW home products made
    captain cook for quality conscious salt users,
    free flow, iodine content.
  • Frooti tetra pack

110
Achieving differentiation
  • To create value to customer that is unmatched by
    competitors
  • Offer utility for customers match their tastes
    preferences
  • Incorporate features that can lower the cost
  • Which can raise the performance
  • Increase buyer satisfaction
  • Promise high quality
  • Enhance status prestige
  • Full range of products is offered to satisfy

111
Conditions under which differentiation is used
  • Market is too large to be catered by few firms
    offering standardized products
  • Customer needs preferences are too diversified
    to be satisfied by standardized products
  • Is possible to change premium price
  • Brand loyalty is possible to generate sustain
  • Ample scope for increasing sales on basis of
    differentiated features

112
benefits
  • Lessoning competitive rivalry
  • Customer brand loyalty acts as a safe guard
  • Customers are generally less prices sensitive,
    can absorb price increases
  • Powerful buyers do not negotiate price , special
    features attributes
  • New entrants are not normally in a condition to
    offer similar differentiation
  • Substitute products pose a negligible threat

113
risks
  • Difficult to sustain, first mover advantage
    associated
  • Distinctiveness is gradually lessoned
    ultimately lost
  • Failed if unnecessary features are added
  • Price premiums too have a limit

114
Focus business strategy
  • These strategies rely on either cost leadership
    or differentiation but cater to an narrow segment
    of the local market.
  • Used for identifying customer groups on the basis
    of demographic characteristics, geographic
    segmentation.
  • Price is an imp consideration in piracy ridden
    industry
  • T series offered cheap cassette of Hindi film
    songs while Sony music mega sound cater to the
    upper end niches
  • Philips India launched flat TV plasma tech that
    enables distortion free pictures Dolby sound in
    the niche market of sophisticated tech. driven
    audience.

115
Achieving focus
  • Identifying a narrow target in terms of market
    customers. Locate a niche in the market
  • Cost leader differentiators in an attempt to
    cover broad target tend to leave out segments
    which require special attention .
  • E.g. truck tyres , airplane tyres
  • A small no of buyers willing to pay higher price
    to get some king of special treatment .
  • Automobiles for physically handicapped persons,
    specialized medical treatment for well to do
    persons.

116
  • Choosing specific niche by identifying gaps not
    covered by cost leader differentiates .
  • Creating superior skills for catering niche
    market .
  • Creating superior efficiency
  • Developing innovative ways to manage the value
    chain

117
Condition under which focus strategies are used
  • Some types of uniqueness in the segment may be
    geographic demographic or based on life style .
  • Specialized requirement
  • Niche market is big enough to be profitable for
    the firm
  • Promising potential for growth
  • Major players are not interested in the niche
    market
  • Necessary skills expertise to serve the niche
    segment.

118
Benefits
  • Protected from competition or they provide which
    would not be profitable for others to provide
  • Price increase can be absorbed
  • Powerful buyer may not shift
  • Specialization in niche market acts as a barrier

119
Risks
  • Requires development of distinctive competencies
    , difficult process
  • Being focused means committed to a narrow market,
    difficult to cater other segments
  • Shift in customers need may make the niche
    disappear
  • Become attractive enough for big players to shift
    .

120
Tactics for business strategy
  • Timing tactic first mover in mineral water is
    parley with biseleri. Late movers icici pru,max
    new York , hdfc standard life - LIC
  • Advantages of first movers
  • Market leaders
  • Benefits of learning curve
  • Cost advantages
  • Customer loyalty
  • Disadvantages
  • Becomes costlier (create awareness )
  • More risks
  • Late movers can imitate technological advances
    and skills

121
Market location tactics
  • Market leaders
  • Market challengers
  • Market followers
  • Marker nichers

122
Process of strategic choice
  • Focusing on alternatives-
  • Narrow down a choice to a manageable number of
    feasible strategies.
  • Start with business definition
  • CG - cosmetic segment, fluoride segment
  • CF- foam, freshness, flavor, dental care
  • AS- paste, powder, diff. base material, diff.
    packaging, diff. flavoring material, addictives

123
Gap analysis
  • Strategies to be followed
  • Performance desired performance

  • performance gap
  • Present performance
  • time

124
  • How wide or narrow is the gap.
  • Where gap is narrow , stability strategy would
    seem to be better
  • Gap is large due to expected environment
    opportunities expansion is feasible
  • If due to past expected bad performance,
    retrenchment strategies may be suitable

125
Considering the selection factors
  • Determine the criteria on which evaluation of
    strategic alternative can be used.
  • 2 groups-
  • Objective- based on analytical techniques are
    hard facts or data used to facilitate strategic
    choice called ration/ normative/ prescriptive
    factors
  • Subjective- based on personal judgments /
    collective or descriptive factors.

126
Evaluation of strategic alternatives
  • Bring together the results of analysis.
  • Making the strategic choice-
  • Most suitable choice under existing conditions
  • Blue print has to be made..
  • Objective factors are divided into two parts
  • Corporate level strategic analysis
  • Business level strategic analysis

127
Corporate level analysis
  • Treats corporate entity as a portfolio of
    business under a corporate umbrella
  • Relevant in case of diversified business.
  • In which analysis of a company as a collection of
    different business with a view to identify the
    status potential of the various business with
    regard to resource use resource generation
  • Corporate portfolio analysis
  • Bcg matrix
  • Ge9 cell matrix
  • Hofers product / market evolution matrix
  • Directional policy matrix
  • Strategic position action evaluation

128
BCG matrix
  • Growth share matrix
  • 2 variables - rate of growth of product / market
  • Market share of the firm relative to its
    competitors
  • Market growth indicates attractiveness of the
    firm
  • Market share indicated the strength of the firm.

129
  • Matrix
  • High
  • Market growth
  • Rate
  • Low
  • high relative market share low

130
GE 9 cell matrix
  • Mckinsey group
  • Vertical axis 8 different factors
  • Industry attractiveness
  • Market size
  • Growth rate
  • Industry profit margin
  • Competitive intensity
  • Seasonality
  • Cyclicality
  • Economies of scale
  • Tech, social , legal human aspects

131
  • Horizontal axis-
  • Business strength
  • Relative market share
  • Profit margins
  • Ability to compete on price quality
  • Knowledge of customer market
  • Competitive SW
  • Tech\ Capability ability of the firm

132
  • Zone
  • Industry attractiveness
  • High
  • Medium
  • Low
  • strong
    avg weak

  • business strength/competitive position

133
Advantages of GE9
  • Intermediate classification of medium avg.
  • Large no. of variables
  • Disadvantages
  • Provides broad strategic prescription than
    specifying the business strategy.
  • Limitation of BCG-
  • Predicting profitability from growth rate of
    market share is difficult.
  • Difficulty in determining market share
  • No consideration to experience curve
  • Disregard for human aspect

134
Hofers product/market evolution matrix
  • 15 cell matrix
  • Considers the stages of development
  • And competitive position
  • Growth
  • Development
  • Shake out
  • Maturity
  • decline

135
Directional policy matrix
  • Companys competitive abilities
  • Strong avg. weak
  • Business sector prospects
  • Unattractive avg attractive

136
Corporate parenting analysis
  • Fit between parenting opp. parenting
    characteristics x axis
  • Misfit between CSF parenting characteristics. Y
    axis
  • Focuses on fit of business with the corporate
    parent
  • Heartland business-expansion strategy
  • Edge of heartland- expansion strategy may suit
    by investing
  • Ballast- like cash cows
  • Alien territory- retrenchment
  • Value trap- retrenchment

137
  • SWOT analysis

138
Business level analysis
  • Experience curve analysis
  • Life cycle analysis
  • Industry analysis-
  • Michael porter 5 forces model
  • Threat of new entrants-
  • Higher entry barriers
  • Economies of scale
  • Capital requirements
  • Switching costs
  • Product differentiation
  • Access to distribution channel
  • Cost disadvantages
  • Govt policies

139
  • Rivalry among competitors-
  • Competitive structure
  • Demand conditions
  • Exit barriers
  • Bargaining power of buyers-
  • Buyers are few in no
  • Buyers place k\large orders
  • Alternatives suppliers are present and supply at
    lower rates
  • Switching cost of buyers is low
  • Sensitive to price increases
  • Has the ability to integrate backwards

140
  • Bargaining power of suppliers-
  • Suppliers are few buyers are more
  • Product is unique
  • Substitutes are not available
  • Switching cost of supplier is high
  • Buyers buys in small quantity
  • Has the ability to integrate forwardly
  • Threat of substitutes-
  • Level of price charged is reasonable

141
Strategic groups analysis
  • Clusters of competitors that share similar
    strategies therefore compete with one another
    directly.
  • Homogeneous heterogeneous because of their
    strategies
  • Icici aimed at becoming a universal bank through
    attaining a large size
  • HDFC at optimum revenue generation.

142
Competitor analysis
  • It focuses on competitors directly
  • Deals with actions reactions of individual firm
  • Components of competitor analysis-
  • Future goals of competitor- how our goall are
    compaed with others ?what is the attitude towards
    risk?
  • Current strategy of competitor- does it suppoat
    changes?
  • Key assumptions made by the competitor-
  • Capabilities of competitor-

143
Subjective factor in strategic choice
  • Considerations for govt. policy
  • Perception of CFF distinctive competencies
  • Commitment to past strategic plans
  • Strategic decisions style attitude to risk
  • Internal political considerations
  • Timing competitors consideration.
  • Management philosophy
  • Corporate ethics
  • Social responsibility

144
Contingency strategies
  • Strategic choice is made on certain conditions,
    assumptions premises. When conditions change
    strategy becomes partly irrelevant , if changes
    are drastic, strategies have to be modified
    continuously. strategies are formulated in
    advance to deal with certain conditions.
  • Most changes occur in environment social, market
    , regulatory, international, where it occurs
    suddenly
  • Eg FMCG, power, telecom, IT Insurance
  • 3 scenario model
  • Pessimistic
  • most likely
  • optimistic

145
Contingency planning process
  • Identify the contingent event
  • Establishing the trigger points
  • Developing strategies tactics

146
Strategic plan
  • A clear statement of strategic intent
  • Results of environmental appraisal, major
    opportunities and threats, CSF
  • Results of organization appraisal, major strength
    weakness core competencies.
  • Strategies chosen the assumptions under which
    strategies would be relevant . Contingent
    strategies to be used for different conditions.
  • Strategic budget for the purpose of resource
    allocation for implementing strategies
    schedule for implementation.
  • Proposed organizational structure major
    organizations system
  • Functional strategies mode of their
    implementation
  • Measure to be used to evalaute performance
    assess the success of strategy implementation

147
Strategy implementationpyramid of strategy
implementation
148
Project implementation
  • strategies lead to plans, programs, projects.
  • Knowledge related to projects is covered under
    project management
  • A project is a one shot goal limited, time
    limited , major undertaking , requiring the
    commitment of various skills resources.
  • Goals are derived from plans programs

149
Phases of project
  • Conception phase
  • Definition phase
  • Planning organizing phase
  • Implementation phase
  • Clean up phase

150
Procedural implementation
  • Formulation of a company
  • Licensing procedures
  • Securities exchange board of india
  • Monopolies restrictive trade practices MRTP
  • Foreign collaboration procedure
  • Foreign exchange management act FEMA
  • Import export requirements
  • Patenting trademarks requirement
  • Labor legislation requirement
  • Environment protection pollution control
  • Consumer protection requirements
  • Incentives facilities benefits

151
Resource allocation
  • deals with the procurement commitment of
    financial , physical HR to strategic tasks for
    the achievement of org. objectives.
  • Both one time continuous process
  • New project requires
  • What sources are tapped
  • What factors affect
  • What approaches adopted
  • How it takes place
  • What are the difficulties

152
Procurement of resources
  • Different types of resources are
  • Financial
  • Physical
  • Human
  • Finance considered as primary source is used
    for creation maintenance of other resources.
  • 2 types of finances
  • Long term- creation of capital assets
  • Short term- working capital
  • Both can be rocured froom internal external
    sources

153
Internal sources
  • Retained earning
  • Depreciation provision
  • Development rebate
  • Investment allowances reserve
  • External sources
  • Capital market sources
  • Equity loans
  • Money market sources
  • Bank credit,
  • Trade credit
  • Fixed deposits
  • Both have pros cons but company prefers
    internal sources

154
  • 1st task is to distribute the resources within
    the org. to different SUBs , divisions,
    departments.
  • Approaches to RA-
  • Top- down approach- a process of segregation
    down to the operating level adopted (ceo ,
    management) in entrepreneul modes
  • Bottom approach-
  • Allocated after aggregation from operating level
  • Mix of both

155
Means of RA
  • Used as planning budgeting coordination control
    device
  • BCG based budgeting- SBU identified as stars,
    cash cows.
  • Plc based- stages of product or SBU may attract
    more resources, diverted from high yielding
    products at maturity.
  • Capital budgeting- in case of restructuring or
    modernization
  • Zero based budgeting- justify RA demand , on
    zero grounds, fresh cost calculation
  • Parta system- indigenous for of control device,
    exercising control to access daily net cash
    inflow from operations, tax dividends, daily
    budgeting reporting system

156
Factors affecting RA
  • Objectives of org
  • Preference of dominant strategies
  • Internal policies
  • External influences

157
Difficulties
  • Scarcity of resources
  • Financial resources
  • Physical assets , land , machinery
  • Human resource
  • Restriction on generating resources for newer
    units
  • Over statement of needs

158
Structural implementation
  • What is structure?
  • Is the way in which the tasks sub tasks
    required to implement a strategy.
  • Structures for strategy-
  • Entrepreneur structure-

159
Advantages of entrepreneurial structure
  • Quick decision making
  • Timely respons
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