M1 & M2 :: Strategy & Resources; Firm & Environment

The concept of Strategy

"Before you start some work, always ask yourself three questions - Why am I doing it, What the results might be and Will I be successful. Only when you think deeply and find satisfactory answers to these questions, go ahead. Chanakya (350 B.C. 275 B.C.)

Strategy is about winning. Strategy is about taking decisions. Strategy is not a detailed plan or program of instructions, it is a unifying theme that gives coherence and direction to the actions and decisions of an individual or an organisation.
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Origin of the word

Strategos means general in Greek. Stratos means army . Ag means to lead.

The concept of strategy was first given in the ART OF WAR by SUN TZU in China 500 BC We also get to learn many strategies from Arthasstra and Nitisstra by Chanakya, 300 BC
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The Art of War Sun Tzu

There are 13 chapters in the book.

Laying plans On waging war The sheathed sword Tactics Energy Weak points and strong points Maneuvering Variations of tactics The army on the march Terrain The nine situations Attack by fire The use of spies.

What is there in these chapters that can be adopted to Business ?

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Arthasstra - Chanakya

Chanakya or Kautilya was the key adviser to the Indian king Chandragupta Maurya (317293 B.C.), who first united the Indian subcontinent in empire. Written about 300 B.C., Chanakyas Arthasstra was a science of politics intended to teach a wise king how to govern. In this work, Chanakya offers wide-ranging and truly fascinating discussions on war and diplomacy, including

his wish to have his king become a world conqueror, his analysis of which kingdoms are natural allies and which are inevitable enemies, his willingness to make treaties he knew he would break, his doctrine of silent war or a war of assassination against an unsuspecting king, his approval of secret agents who killed enemy leaders and sowed discord among them, his view of women as weapons of war, his use of religion and superstition to bolster his troops and demoralize enemy soldiers, the spread of disinformation, and his humane treatment of conquered soldiers and subjects.

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Some definitions of strategy

The art of war, especially the planning of movements of troops and ships etc, into favourable positions; plan of action or policy in business or politics etc. (Oxford Dictionary) The determination of the long-run goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals. (Alfred Chandler) A strategy is the pattern or plan that integrates an organisations major goals, policies, and action sequences into a cohesive whole. A well formulated strategy helps marshal and allocate an organisations resources into a unique and viable posture based upon its relative internal competencies and shortcomings, anticipated changes in the environment, and contingent moves by intelligent opponents.

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Definitions ( contd.)

Strategy is the pattern of objectives, purposes, or goals, stated in such a way as to define what business the company is in or is to be in and the kind of company it is or is to be. (Kenneth Andrews) What business strategy is all about is, in a word, competitive advantage. The sole purpose of strategic planning is to enable a company to gain, as efficiently, a sustainable edge over its competitors. Corporate strategy thus implies an attempt to alter a companys strength relative to that of its competitors in the most efficient way. (Kenichi Ohmae)
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Definitions ( contd.)
Its functions and responsibilities include choice of objectives, mobilisation of resources, allocation of such resources, continuous monitoring of performance. It is the highest function of management . The supervision of the continuous process of deciding the nature of the enterprise and setting, revising and attempting to achieve its goals. (Kenneth Andrews)

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Fundamental issues in SM

What are the common factors in all these definitions?!

Purpose and missions Corporate objectives Choice of businesses Courses of action for achieving the objectives.

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Characteristics of a Winning Strategy

Goals

that are simple, consistent, and long term. Profound understanding of the competitive environment. Objective appraisal of resources. Effective implementation.

Examples Kochousep Chittilappally & V Guard Padmavibhushan Viswanathan Anand General Giap Dhirubhai Ambani Bill Gates Padmasri Sourav Ganguly Sam Walton Made in America M1 & M2 :: Strategy & Resources; Firm & Environment Aiswarya Rai

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Nature & Scope of SM

Route map for the organisation Decision guide Lays down growth objectives What to do, how to do, where to reach Look forward and far ahead Monitor environment, anticipate change and prepare for the unexpected Build competitive advantage and build core competencies Not only anticipate future but shape up future Influence the environment
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Concerns of SM

Future. Growth. Environment. Portfolios of business. Strategy. Integration. Creating competitive advantage and core competency. Corporate strategy.

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Evolution of Strategic Management

1950s:Budgetary planning & control. Financial control through
operational and capital budgeting. Investment planning through project appraisal, ROI, DCF. Financial planning was the key.

1960s:Corporate planning. Preparation of short medium and long

term plans. Business forecasting and investment planning models. Rise of corporate planning departments.

1970s:Corporate strategy, diversification, and portfolio planning

matrices. Multi-divisional structure. Quest for global market share.

Late 70s & early 80s: Analysis of industry and competition. Choice
of industries, markets, and segments and positioning with in them. Competitor analysis and PIMS (Profit Impact of Market Strategy). Market selectivity, industry restructuring. Active asset management.
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Evolution of Strategic Management

Late 80s & early 90s: The quest for competitive advantage.
Sources of competitive advantage within the firm. Resource analysis of core competencies. Corporate restructuring and business process reengineering. Re focusing and outsourcing.

Late 90s & early 2000: Strategic innovation and the new
economy. Competitive advantage through strategic innovation. Competing on knowledge adopting to the new digital networked economy. Organisational flexibility and speed of response. Knowledge management and organisational learning. Competing for standards. Early mover advantage. The virtual organisation. The knowledge based firm. Alliances and networks. The quest for critical mass.

What next??!!!
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Strategic Management

Strategic management is the study of such set of managerial decisions and actions that determines the long run performance of a firm. The major steps in the strategic management process are :

Environmental analysis Strategy formulation Strategy implementation Strategy evaluation and control

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Corporate & Business Strategy

Focus of Strategic Management shifted from planning process to quest for profit. The fundamental goal of business is to earn a return on its capital that exceed the cost of capital. There are two ways to attain this.

The firm may locate in an industry where favourable conditions result in the industry earning a rate of return above the competitive level. Second, the firm may attain a position of advantage vis-a vis its competitors with in an industry, allowing it to earn a return in excess of the industry average.

Corporate strategy defines the scope of the firm in terms of the industries and markets in which it competes. Corporate strategy decisions include,

Investment in diversification Vertical integration Acquisition New ventures Allocation of resources between the different business of the firm Divestment

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Business Strategy

Business strategy is concerned with how the firm competes within a particular industry or market. This is also referred as Competitive Strategy. The questions? How can the firm make money ?

This leads to

What business or businesses should we be in? How should we compete ?

Answer to the first question describes Corporate Strategy and the second describes Business (Competitive) Strategy

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Why Strategic Planning?

It gives a clear vision of internal and external environment of a business firm Focus on what is most important and how it is to be managed for success of business. Understanding of problem, its nature ,its threats, its controls and implications. Appropriate decisions to implement the strategies evolved to achieve the desirable objectives. A continuous monitoring and evaluation of the progress through the path to the goals
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The Total Planning Process

Environmental Analysis Competition

Corporate objective
- Profit targets - ROI - Turnover - Nature of business

Corporate Strategy and Formulation of plans

Corporate Appraisal of strengths, weaknesses & problems

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The strategic planning process

The tasks in strategic planning,

Clarifying

the mission of the corporation Defining the business Surveying the environment Internal appraisal of the firm Setting the corporate objectives Formulating the corporate stategy Monitoring the strategy.

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STRATEGIC PLANNING PROCESS

Clarifying the mission of corporation Defining the business Surveying the environment

Macro environmental factors

Demographic Socio-cultural Economic Political

Natural

Technological

Legal

Govt Policies

Environmental factors specific to business concerned

Industry & Competition Market/Customer
Supplier Factors Govt. Policies
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Technology

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STRATEGIC PLANNING PROCESS

Spotting the opportunities & threats Checking the attractiveness and probability position of these opportunities Highlighting those opportunities the pursuit of which will help the firm bridge its strategic planning gap Developing the opportunities-threats profiles (OTP) Assessing the firms capabilities/strengths & weakness in the various areas:
Finance Operations Marketing R&D
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Internal appraisal of the firm

Human Resources General Management

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Developing the strength-weakness profile Appraising the individual business/strategic business units (SBUs) of the firm Identifying the competitive advantages and core competencies and developing the competitive advantage profile (CAP) Examining the capability gap (gap between existing capabilities and the ones needed for pursuing the spotted opportunities) Framing the broad aims of the corporation, using the corporate mission as the guide
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STRATEGIC PLANNING PROCESS

Setting the corporate objectives

Examining the strategic planning gap and checking the growth-scope Fixing the growth objective Setting specific objectives in all major areas:
Profitability Productivity Corporate Image Competitive Position R&D and Innovation Social Responsibilites Technology Human Resources

STRATEGIC PLANNING PROCESS

Prescribing the hierarchy/rank/priorities of the objectives

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STRATEGIC PLANNING PROCESS

Formulating the corporate strategy: exploring generic alternatives

Examining which generic strategy the firm should opt for:

Stability ? Expansion ? Divestment ? Combination ?

Understanding the effect of the alternatives in terms of changes/additions/deletions to the firms existing productmarket posture Clarifying the competitive advantage and synergy which each alternative would require/use
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STRATEGIC PLANNING PROCESS

Formulating the corporate strategy: strategy choice

Evaluating the strategy alternatives Keeping the O-T profile, the growth objective and CAP as the reference frame, examining what strategy would be the best Reviewing the exisiting businesses Assessing the prospects of each SBU Examining what to do with each SBU Build? Maintain ? Harvest ? Divest ? To what extent ? At what pace ?
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STRATEGIC PLANNING PROCESS

Examining which business are to be taken up Examining the resource requirement of the different strategy options and checking the resource availability Making the final choice of the strategy/strategy spectrum Translating the strategy in terms of what is to be done with each SBU Assigning the priorities to the SBUs, exisiting as well as new ones Clarifying what is expected of each SBU Allocating resources to the SBUs

Monitoring the strategy

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Generic Value Chain

FIRM INFRASTRUCTURE
SUPPORT ACTIVITIES

HUMAN RESOURCE MANAGEMENT

TECHNOLOGY DEVELOPMENT PROCUREMENT

INBOUND LOGISTICS

OPERATIONS

OUTBOUND LOGISITCS

MARKETING & SALES

SERVICE

PRIMARY ACTIVITIES
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Strategy Alternatives Stability Intensification Expansion Divestment Diversification Combination

Market Penetration

Market Development

Product Development

Vertically Integrated

Concentric Diversification

Conglomerate Diversification

Forward

Backward

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Vision & mission

Vision is what the firm wants to be in future. Such a view is often made explicit in a VISION statement of the company. A vision statement gives aspiration and motivation besides guiding the formulation of strategy. Hamel and Prahlad , term it as strategic intent. Examples:

To put a man on the moon by the end of the decade Apollo program. Our vision is to dominate the global food service industry McDonald. Encircle Caterpillar Kamatsu. Project infinity Coca Cola

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Mission
Mission statement contains the ultimate purpose of the firm. It also is the vision of the founders. The corporate mission is an expression of the growth ambition of the firm. It is the firms future visualised.

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How does mission helps the firm

Lends direction Gives focus Objectives, targets and programs are formulated based on mission Helps people at various levels in the corporation understand in what direction they should move Guiding the action at all levels Helps prevent people falling into an activity trap
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A few mission statements

The mission of our company, is to make cleanliness commonplace, to lesson work for women, to foster health, and to contribute to personal attractiveness that life may be more enjoyable for the people who use our products.--- Unilever To preserve and improve human life---Merck

To help business corporations and governments to more successful.---McKinsey & Co.

To become a major player in the global chemical business and simultaneously grow in other growth industries like infrastructure ---RIL To become a $ 1 billion research based global pharmaceutical company --- Ranbaxy
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Values & beliefs

Organisational values are a major constituent of mission. It is values that hold the mission in tact. It is the shared values that holds a firm together. Values proclaim the qualities it will cherish and what it will give to and expect from its people and society. The firms beliefs can also be found in the mission statement.

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Environmental analysis

Macro environment.

A) socio cultural, politico- legal, socio- economic, technological and economic factors acting on the firm. B) task environment comprising share holders, suppliers, employees, competitors, creditors, debtors, customers, government etc.
A) organisational structure B) organisational culture and work C) organisational resources
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Micro environment.

Macro environment variables

Societal environment consisting of :

Economic

forces Technological forces Politico legal forces Socio cultural forces Socio economic forces.

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Task environment
Task

environment consists of all the work and people directly connected to firms activities. Major task environments are,

Buyer and seller groups Competitor groups Employees (manpower groups) Stock / owner groups Credit group Debt group Regulatory group

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Analytical model
SWOT model. Strength, weaknesses, opportunities and threats.O & T are external or macro environment and S & W are internal or micro environment factors. SWOT is used to identify core competancy as well as lack of appropriate resources. O is no O unless backed by resources.

SA = O / S- W or O / S T where SA strategic alternative. O is opportunity, S is stength , T threat. SWOT is used to generate external factor analysis summary (EFAS) and internal factor analysis summary (IFAS )
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SWOT -- HM

Strength,

First motor car company in India, Good product accepability, Monopoly and protected market, Built extensive dealer, repair and sevice networkThe GP-CK Birla group, First collaboration with GM. Acceptance in government and taxi market, Most suited for the then Indian roads. One out of the only two car companies in the country

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Weakness -- HM

no mission, vision or goals. No shared values or beliefs. Conflict between labour and management. No corporate strategy. Failed to see the environmental changes Did not anticipate competition, Did nothing to counter the threat from Maruthi till it was too late Cling on the same product for 50 years without any major change, Can failed to see customer needs and what competitors offered High labour cost and low productivity Failed to follow up the initial success of Lancer, Trekker was a flop. Deviated from core areas and core competencies.
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Opportunity
GDP growth and boom in the car market, Opening of the economy, Globalisation and upsurge in peoples aspiration level Good road network Export possibility Low labour cost JV and collaboration with world class motor car companies.the

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In Threat
competition ? any other ?

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BCG growth-share matrix

BCG (Boston Consuting Group ) is a simple way to anayse a firms portfolio of investments , products , or business units. The classification is most attractive, potentially attractive, moderately attractive, and least attractive based on growth rates and market share. They are also called CASH COWS, STARS, QUESTION MARKS, DOGS to describe the above position.

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BCG matrix ( cont. )

Stars and question marks are businesses that operate in high growth industries. Cash cows and dogs are businesses that operate in low growth industries. Stars are net users of resources but hold potential for future.question marks are also net users of resources but are in high risk categories. A cash cow brings lot of cash to the company. Dogs are weak in market share and also in low growth market.they are a drag on company resources.

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GE multifactor portfolio planning matrix

Different businesses or products are rated based on the following two parameters,

Industry attractiveness & Companies business strength. How attractive is the industry and how strong is the firm in the industry. If both are very strong such businesses needs more investment and allowed to grow. Invest and develop such SUBs. If they are medium the stategy should be selective. If they are low the policy should be harvest / divest

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SBUs.

It is a single business or collection of related businesses that can be planned separately from the rest of the company, It a scientific method of grouping the businesses of a multi business corporation to help planning. Products/ businesses that are related in the standpoint of function are formed as a distinct SBU. A SBU can be a separate corporation or adivision in a corporation. Each SBU will be under a separate CEO, and will be a profit centre SBU is for facilitating strategic planning and implimentation and will be having their vision mission, goals, targets, programs,budgetsand SOPs.

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Competitive advantage & core competence

A competitive advantage is a position of superiority on the part of the firm in some function /factor/ activity/ in relation to its competition.It is this superiority that enables the firm to survive, grow and excel in a competitive market. The superiority can be in any function such as manufacturing, marketing, finance, HRM, or a combination.Intellectual property, knowledge, or any factor of production can give a competitive advantage. Thus competitive advantage is a superior position relative to competition.
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Com. Adv ( cont.)

CA is linked to strategy.both goes hand in hand.CA is a vital component of strategy. For the strategy to work the firm should have competitive advantage. CA is the back up of strategy.without relavent CA strategy will not succeed. Strategy can be used to create and excel CA.

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Com. Adv.( con )

Sources of CA :

MARKETING FINANCE PRODUCTION R& D HR THE CEO & LEADERSHIP LOCATION & Many more.

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CA & Strength
Strength is different from CA. All strength are not CA. All CA are strength. A strength is a CA only if it can affect the competition in an advantageous manner or bring in superiority in the market vis- a- vis the competitor. Otherwise it will remain as astrength.

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Building CA
By strategy By SWOT By bench marking By value chain approach, By analysing value chain of self and competitor

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Core competence
A firm may loose the CA as competitors will catch up after some time.There for to keep up the position the firm should develop some unique strenth . This is know as CORE COMPETENCE . An enduring competency that cannot be easily imitated. A competency that lies at the root of products. ( VSR, Ch. 10 )

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mission, vision, goal, objective, policy, SOP.

Mission- is the purpose or reason for the firms existance. Vision is a statement of what a firm can do and what it wants to be. Goal is a statement of what a firm wants to achieve. Goals should be SMART. Objective is a statement of what firm wants to achieve with definitive commitment on quantity and time frame. Policy is a broad guideline for decision making to link strategy strategy formulation and strategy implementation Standard operating procedures is developed to control activities .sops can be in the form of simple conventions or in detailed written manuals.

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Strategic management process

Environmental

analysis Stategy formulation Stategy implementation Evaluation and control

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Environmental analysis
Understanding, analyssing the external and internal environment of a firm.models like SWOT, GE spot light can be used for this.Foercasting methods can also be used for finding the future trends and possible developments. This includes external ( society and task ) & internal (structure, culture, & resources )

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Strategy formulation (strategic planning )

This is the planning stage.The firm will decide the the vission, mission, objectives, goals, strategies, policies.the major decisions will be,

What business shuold we be in? Where should we locate ? What product /service ? How much capital & from where ? What is the organisation structure ? Who should be the key personnel ? Basically these are the entrepreneurial decisions and these are taken buy the investors/ promoters.
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Strategic planning ( cont. )

Stategy for stability Stategy for growth Strategy for retrenchment Competitive stategy Cooperative strategy.

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Generic competitive strategy ( Michael Porter )

1 ) overall cost leadership.a firm can achieve competitive advantage if it can supply its prodcts / srevice at a lower cost than the competitors. How can one achieve this overall cost leadership ? 2) differentiation strategy . Offer something unique or different.through brand creation and and positioning .

3 ) focused stategy.concetrate on specific products, customers, segments where it is good or superior.the concept of core competency came out of this.
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Strategy implementation

Strategy is translated into action so that the objective of the strategy is achieved.In doing so,
Progamms are drawn, Budgets are made, Policies, procedures,rules, are formulated.

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Evaluation & control

Evaluation and control is the most important part of strategic mgt. process.It involves feedback, monitoring, assessment, corrective decisions (sometimes involving total reversal or even abandonment ) and implementation.

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Strategic mgt. process ( summery )

Environmental analysis: task environment factors & internal factors. Strategy planning : objectives, strategiies,tactics, policies. Strategy implementation: programmes, budgets, procedures. Evaluation & control: evaluation, assesment and control.

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