STRATEGIC MANAGEMENT

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STRATEGIC MANAGEMENT

• A
• CONCEPT ON STRATEGIC THINKING AND MODUS OPERANDI
  FOR SURVIVAL IN 21st CENTURY
• Alokesh Banerjee

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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.
• Knowledge is replacing Infrastructure
• Self-leadership is in, command and control out
• Networks are replacing hierarchies
• Wanted - employees with Emotional Intelligence.
• Current Trends
• Increasing environmental awareness
• Growing health consciousness
• Expanding seniors market
• Impact of the Generation Y boom let
• Declining mass market

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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
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Challenge of Strategic Management
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21st Century Competitive Landscape
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21st Century Competitive Landscape
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21st Century Competitive Landscape
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Changing Corporations
Old Organizational Format New Organizational
Format One large corporation Mini-business units
cooperative relationships Vertical
communication Horizontal communication Centralized
top-down decision making Decentralized
participative decision making Vertical
integration Outsourcing Virtual
Organizations Work/quality teams Autonomous work
teams Functional work teams Cross-functional work
teams Minimal training Extensive
training Specialized job design focused on
individual Value-chain team-focused job
design Stability Structured Gradual Change
Flexibility Speedy, Fast Mass Production Mass
Customization
Business Week, 28 August, 2000
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FOUR MAJOR THRUST AREAS OF BUSINESS

• Managing Competition
• Aggressive Marketing Market Share Go Global
• Superior Quality of Products / Services
• Cost Reduction / Lowering Prices
• Faster Deliveries / Response Time
• Innovations / Productivity Improvements
• Developing Leadership Skills for Vision and
  Change.
• To focus on People besides Products, Process,
  Profits. Today, every person is a Profit
  Center.
• Using IT based tsunami of information, ideas and
  tools for managing the business E Business
• Making ours a Learning Organization

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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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Strategic Management
Creating Sustaining Competitive Advantages,
Globally
Why? To ensure Growth with Profits in the
long-run!
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The Strategic Management System
Involves the full set of
which are required for firms to achieve
Strategic Competitiveness
Sustained Competitive Advantage
Above-Average Returns
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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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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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GAP OUT PUT
VALUE SYSTEM
VISION
FIRM/BUSINESS
MISSION
OBJECTIVES
PURPOSE
BASIC INFRASTRUCTURE AND FRAME WORK OF A FIRM
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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

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Strategic Planning
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Three Big Strategic Questions

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

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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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An organizations MISSION

• reflects managements vision of what the
  organization seeks to do and to become
• sets forth a meaningful direction for the
  organization
• indicates an intent to stake out a particular
  business position
• outline Who we are, What we do, and Where we are
  headed.

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Setting Objectives

• The purpose is to convert the mission into
  Specific Performance Targets
• Serve as yardsticks for tacking company progress
  and performance.
• Should be set at levels that require stretch and
  disciplined effort.

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Two Types of Objectives are Needed

• FINANCIAL OBJECTIVES
• STRATEGIC OBJECTIVES
• Short-Run
• Long-Run

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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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Crafting Strategy is an Exercise in
Entrepreneurship

• Risk-taking and venture someone's
• Innovation and business creativity
• A keen eye for spotting emerging market
  opportunities
• Choosing among alternatives

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Why Good Management of Strategy Matters

• Powerful execution of a powerful strategy is a
  proven recipe for success.
• Crafting and implementing a strategy are CORE
  management functions.
• To qualify as WELL-MANAGED, a company should
  Have an attractive strategy
• A good strategy builds a position that is strong
  enough to overpower rivals and flexible enough to
  overcome unexpected obstacles.

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Why is a Companys Strategy Constantly Evolving?

• Changing market conditions
• Moves of competitors
• New technologies and production capabilities
• Evolving buyer needs and preferences
• Political and regulatory factors
• New windows of opportunity
• Fresh ideas to improve the current strategy
• A crisis situation

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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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GAP
VISION
STRATEGIC IMPLEMEMTATION
VALUE
BASIC STRATEGIES
FIRM
MISSION
ORGANISATION DESIGN
GOAL
MACRO ENVIRO APPRAISAL
STRATEGIC ALTERNATIVES
FUNCTIONALLEVEL STRATEGIES RESOURCES
ALLOCATION
MICRO ENVIRO APPRAISAL OF INDUSTRIES
BUSINESS LEVEL STRATEGIES
DEVELOPMENT OF CONTROL
MICRO ENVIRO APPRAISAL OF FIRM
STRATEGIC SELECTION
Is Strategy Working?
STRATEGIC PLANNING DESIGN AND IMPLEMENTATION
PROCESS
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Characteristic of the Strategic Management Process

• An ongoing exercise
• Boundaries among the tasks are blurry rather than
  clear-cut
• 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
ENVIRONMENTAL DIAGNOSIS
O T
S W
ETOP SAP OFPP
EVALUATION PROCESS OF SWOT ANALYSIS
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Impact Of Environment Business

• ENVIRONMENTAL FACTORS

INTERNATIONAL
GOVERNMENTAL
ECONOMICAL
POLITICAL
TECHNOLOGICAL
FIRM/BUSINESS
LEGAL
SOCIETAL
CULTURAL
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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
• Bargaining Power of Buyers
• Bargaining Power of Suppliers
• Relative Power of Other Stakeholders

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Porters Approach to Industry Analysis

• Threat of New Entrants
• Economies of scale
• Product differentiation
• Capital requirements
• Switching costs
• Access to distribution channels
• Cost disadvantages
• Government policy

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Porters Approach to Industry Analysis

• Rivalry Among Existing Firms
• Number of competitors
• Rate of industry growth
• Product or service characteristics
• Amount of fixed costs
• Capacity
• Height of exit barriers
• Diversity of rivals

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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
• Threat of change in
• ownership
• Performance gap
• Strategic inflection point

Stimulus for change in strategy
Triggering event
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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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Products
Corporate Strategy, I. Ansoff, Jan 1965,
McGraw Hill, USA
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SPIN OUT Creating New Business
MANAGING PROJECT As an external Ventures
INTERNAL VENTURE STRATEGY Managing new products/
services, development projects as in company
Ventures
ALLIANCE Joint Ventures Venture Acquisition,
Partnering
EXTERNAL INVESTMENTS In Acquisition of Product,
Market, Technology, or Management control
EXTERNAL VENTURES STRATEGY
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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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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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CO-OPERATIVE STRATEGIES

• COLLUSION (SYNDICATING)
• It is an active cooperation of firm for their
  individual and collective
• advantages within an industry to reduce out-put
  and raise price in order to the
• normal economic law of supply Demand. Collusion
  may be
• Explicit, in which firms co operate through
  direct communication and negotiation, or
• Tacit in which firms cooperate indirectly through
  an informal system of signals.
• Explicit is illegal under MRTP/ Anti trust Acts.
• It can be successful if
• There are small number of identifiable
  competitors.
• Cost are similar among firms.
• One firm tends to act as price leader or market
  leader.
• There is common industrial culture that accepts
  the cooperation.
• Sales are characterized by high frequency of
  small orders.
• There are high entry barriers to new competitors.
  
• (Exp Economic Scale of operation,
  Switching cost, Capital, Capacity, Regulations,
  market accessibility, stage in learning curve,
  Brand loyalties etc )

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• MUTUAL CONSORTIA Complemented Grouping
  
• It is a partnership of similar companies in
  similar industries who
• pool their competency resources to gain
  benefits that are too expensive to develop/
  deploy alone, such as access to advance
  technology or capturing the market.
• It is fairly weak and fragile alliances.
  There is very little interaction or communication
  among the partners.
• LICENSING ARRANGEMENT
• It is an agreement in which the licensing
  firm (licensor) grants rights to another firm(
  licensee) in another country or market to produce
  and/or sell a product or services. The licensee
  pays compensation (Royalties, profit sharing, or
  lump sum payment) to the licensing firm in return
  for technical expertise.
• It is useful strategy if the trademark or
  brand name is well known. It is also useful when
  there is Entry barrier for a MNC.

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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
• 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
• Has a scheduled life cycle, which will end
  sooner or later (5 to 10 years)
• Has to be dissolved when it has outlived its life
  cycle.
• Change in environment forces joint venture to be
  redesigned regularly
• Translations seek to absorb their partners
  competencies.
• It is a contractual obligation on fragile
  platform.

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Strategic reasons for Formation of JV

• 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
• TYPES OF JV
• (A) SPIDER WEB
• (B) GO-TOGATHER SPLIT
• (C) SUCCESSIVE
  INTEGRATION

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Building Competitive Advantage Through Business
Level Strategy

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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
• Resources
• Capabilities

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Build
RESOURCES
Differentiation

• BUSINESS STRATEGIES
• Superior
• Efficiency
• Quality
• Innovation
• Customer responsiveness

profitability
DISTINCTIVE COMPETENCIES
Value creation
Low cost
Build
CAPABILITIES
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Product/Market/Distinctive-Competency Choices and
Generic Competitive Strategies
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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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Competitive positioning and business level
strategy

• Strategic group Analysis
• Investment Analysis
• Game Theory

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Strategic group Analysis

• Strategic group analysis helps a company identify
  the strategies that its industry rivals are
  pursuing.
• It allows managers to uncover the most important
  basis of competition in an industry and identify
  products and market segments where they can
  compete most successfully for customers.
• Such analysis also helps to reveal what
  competencies are likely to be most valuable in
  the future so that companies can make the right
  investment decision.

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Investment Analysis

• An Investment Strategy sets the amount and type
  of resources human, financial and functional
  that must be invested to maximize a companys
  profitability over time.
• Two factors are crucial in choosing an investment
  strategy
• The strength of a companys position in an
  industry relative to its competitors.
• The stage of the industrys life cycle in which
  the company is competing.

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Game Theory

• Game such as chess, player move in turn, and one
  player can select a strategy to pursue after
  considering its rivals choice of strategies or
  the players act at the same time, in ignorance of
  their rivals current action.

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• Business Level Strategies Help To Improve
• Efficiency
• Quality
• Innovation
• Customer responsiveness

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RETRENCHMENT STRATEGYCommon 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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• International Strategy

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International Strategy Opportunities and Outcomes
Identify Internatiodgdgnal Opportunities
Explore Resources and Capabilities
Use Core Competence
Strategic Competitiveness Outcomes
Management Problems and Risk
International Strategies
Modes of Entry
Increased Market Size
International Business-Level Strategy
Exporting
Higher Performance Returns
Exporting
Return on Investment
Multidomestic Strategy
Strategic Alliances
Economies of Scale and Learning
Global Strategy
Acquisition
Innovation
Establishment of New Subsidiary
Location Advantage
Transnational Strategy
Management Problems and Risk
85
International Strategy Lifecycle
Selling Products or Services Outside a Firms
Domestic Market
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Motivations for International Expansion
Example Japanese electronics or automobile
manufacturers
Example Aircraft manufacturers Boeing or Airbus
87
Motivations for International Expansion
Economies of Scale or Learning
Expanding size or scope of markets helps to
achieve economies of scale in manufacturing as
well as marketing, R D or distribution
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Porters Determinants of National Advantage
Home Country of Origin Is Crucial to
International Success
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Business-Level International Strategies
International Low Cost
International Differentiation
Countries with advanced or specialized factor
conditions most likely to use this strategy
Example Japan, Germany, U.S.
90
Business-Level International Strategies
International Focus Strategies
International Integrated Low Cost/Differentiation
91
Corporate-Level International Strategies
Multi-Domestic Strategy
Global Strategy
Transnational Strategy
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Corporate-Level International Strategies
Strategy and operating decisions are
decentralized to strategic business units (SBU)
in each country
Products and services are tailored to local
markets
Business units in each country are independent of
each other
Assumes markets differ by country or regions
Focus on competition in each market
Prominent strategy among European firms due to
broad variety of cultures and markets in Europe
93
Corporate-Level International Strategies
Products are standardized across national markets
Decisions regarding business-level strategies are
centralized in the home office
Strategic business units (SBU) are assumed to be
interdependent
Emphasizes economies of scale
Often lacks responsiveness to local markets
Requires resource sharing and coordination across
borders (which also makes it difficult to manage)
94
Corporate-Level International Strategies
Seeks to achieve both global efficiency and local
responsiveness
Difficult to achieve because of simultaneous
requirements for strong central control and
coordination to achieve efficiency and local
flexibility and decentralization to achieve local
market responsiveness
Must pursue organizational learning to achieve
competitive advantage
95
International Corporate Strategy When is each
strategy appropriate?
Multi- Domestic
96
International Corporate Strategy
When is each strategy appropriate?
Global Strategy
Trans- national
Multi- Domestic
97
Choice of International Entry Mode
Exporting
Common way to enter new international markets
No need to establish operations in other countries
Establish distribution channels through
contractual relationships
May have high transportation costs
May encounter high import tariffs
May have less control on marketing and
distribution
Difficult to customize products
98
Choice of International Entry Mode
Licensing
99
Choice of International Entry Mode
Strategic Alliances
100
Choice of International Entry Mode
Acquisitions
101
Choice of International Entry Mode
New Wholly-Owned Subsidiary
102
Strategic Competitiveness Outcomes
103
Major Risks of International Diversification
Political Risk
104
Major Risks of International Diversification
Economic Risk
105
Limits To International Expansion
Management Problems
106
PORTFOLIO ANALYSIS
107
Stages of the Industry Life Cycle
108
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)

109
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
RAPID SKIMMING
PRICE
SLOW PENETRATION
RAPID PENETRATION
Lo
Hi
PROMOTION
110
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.

111
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.

112
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.

113
MATURITY STAGE STRATEGIES

• RD 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.

114
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.

115
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

116
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..

117
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.

118
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.

119
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.

120
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.

121
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.

122
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.

123
BCG Portfolio Matrix
High growth Market leaders Require
cash Large profits
High growth Low market share Need cash Poor
profit margins
Low growth High market share High cash
flow
Low growth Low market share Minimal cash
flow

124
BCG Matrix
Relative Market Share Position
High 1.0
Medium
Low
High
Stars IV
Question Marks III
Med
Industry Sales Growth Rate
Cash Cows I
Dogs II
Low
125
BCG Matrix
126
BCG Portfolio Matrix Example
127
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.

128
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,

129
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

130
Dogs

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

131
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.

132
Stars

• High relative market share and a high industry
  growth rate
• Represent the organizations best long-run
  opportunities for growth and profitability.
• Substantial investment to maintain or strengthen
  their dominant position.
• Integration strategies
• Intensive strategies
• Joint ventures

133
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.

134
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.

135
G.E Strategic Planning Model
Business Strength
Strong Average Weak
Industry Attractiveness
High Medium Low
Business Strength Index
Industry Attractiveness Index Market Share
Market size
Price Competitiveness Market
Growth Product Quality Industry
Profit Margin Customer Knowledge
Amount of Competition Sales Force and
Effectiveness Seasonality
Geographic Advantage
Cost Structure Others
Etc.
136
Strategies for Resource Allocation
137
Parenting-Fit Matrix
Low

Heartland
Ballast
Edge of

and parenting characteristics
MISFIT between critical success factors
Heartland
Alien

Territory
Value Trap
High
Low
High
FIT between parenting opportunities

and parenting characteristics
138
McKinseys 7 S Model
Strategy
Structure
Systems
Super Ordinate Goals- Shared Values
Style
Skills
Staff
139
Implementation of a strategy
140
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

141
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
142
IS STRATEGY FUNCTIONAL?
DESIGN OF OBJECTIVES COMMUNICATE TO CONCERNED
TASK BREAK DOWN
STRATEGIC IMPLEMENTATION CONTROL PROCESS
EVALUATION OF OUT COME
ORGANISATION DESIGN DEVELOPMENT
TRAINING DEVELOPMENT OF MANAGERS
DELEGATION OF TASK AUTHORITIES
RESPOSIBILITIES
DESIGN OF SIS /MIS
RESOURCES MOBILISATION ALLOCATION
DESIGN OF PERFORMANCE STANDARD
143
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!

144
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 RD
• Not recognizing benefit of computers in managing
  information

145
The Nature of Strategy Implementation
Successful Strategy Implementation

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

146
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

147
Nature of Strategy Implementation
Strategy Implementation

• Varies among different types sizes of
  organizations

148
Nature of Strategy Implementation
Implementation Activities

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

149
Nature of Strategy Implementation
Management Perspectives

• Shift in responsibility

Division or FunctionalManagers
Strategists
150
Management Issues
Annual Objectives
Management Issues
Resources
Organizational structure
Restructuring
151
Management Issues (contd)
Resistance to Change
Management Issues
Production/Operations
152
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)

153
Management Issues
-- Central management activity that allows for
the execution of strategy
enables resources to be allocated according to
priorities established by annual objectives.
Resource Allocation
154
Management Issues
4 Types of Resources

• Financial resources
• Physical resources
• Human resources
• Technological resources

155
Management Issues
Matching Structure w/ 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

156
Structure should be designed to facilitate the
strategic pursuit of a firm
New administrative problems emerge
New strategy Is formulated
Organizational performance declines
Organizational performance improves
New organizational structure is established
157
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
158
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.
159
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

160
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

161
Marketing Issues

• Marketing variables affect success/failure of
  strategy implementation

• Market segmentation
• Product positioning

162
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

163
Marketing Mix Component Factors
163
164
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

165
Finance/Accounting Issues
Essential for implementation

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

166
Research Development Issues

• New products and improvement of existing
  products that allow for effective strategy
  implementation
• Use an RD strategy that ties external
  opportunities to internal strengths and is linked
  with objectives.

167
Research Development Issues
3 Major RD approaches to implementing strategies

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

168
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 re