business strategy

1. Introduction to Strategic Management
Definition of Strategic Management
Strategic Management is a stream of decisions and actions (a continuous
process of relating the organization to its environment), which leads to the
development of an effective strategy or strategies to help achieve corporate
objectives. The strategic management process is the way in which strategists
determine objectives and make strategic decisions.
[Changing circumstances and ongoing management efforts to improve the
strategy cause a company’s strategy to evolve over time – a condition that
makes the task of crafting a strategy a work in progress, not a one-time
event]
Business Policy is the study of the functions and responsibilities of senior
management, the crucial problems that affect success in the total enterprise,
and the decisions that determine the direction of the organization and shape
its future.
Collins Dictionary Meaning of Strategy
1. A plan one adopts in order to get something done, especially in politics,
economics or business.
2. The art of planning where to place armies and weapons in order to gain
the best military advantage.
3. The art of planning the best way to achieve something or to be successful
in a particular field.

2. What is Strategy?
It involves performing different activities from rivals’ (ArcelorMittal/ IKEA)
or performing similar activities in different ways (Wal-Mart). Delivering
greater value allows a company to charge higher average unit prices, while
greater efficiency results in lower average unit costs.
At general management’s core is strategy, which involves the following:
 Identify a unique position (Indigo Airways: low fare & on time),
 Make trade offs to prioritize initiatives (no meals, no frills & less TAT),
 Forge fits (combining) among activities to produce a unique blend (same
aircrafts, leased aircrafts, smart sale of tickets, overall parsimony)
-In ‘What is Strategy?’ by Michael E. Porter
A company’s strategy consists of the competitive moves and business
approaches that managers are employing to grow the business, attract and
please customers, compete successfully, conduct operations, and achieve the
target levels of organizational performance.
-Thompson & Strickland
Dimensions of Strategic Decisions
Strategic decisions have the following dimensions:
1. Require top management to take decision
2. Involve allocation of large amounts of company resources
3. Are likely to have significant impact on long-term prosperity of a firm
4. Are future oriented
5. Have major multifunctional or multi-business consequences
6. Necessitate considering factors in the firm’s external environment

3. Changing Concept of Strategy
The concept of strategy has changed over time even as the world economies
have undergone change as also the nature of competition in industries.
A close look at the way this concept has evolved over the last five decades
reveals:
• 1960s: Strategy thrust was on LONG-TERM PLANNING.
The cake was big and growing. Companies had to set long-term goals and
build capabilities to achieve them. Focus was on growth in the same line
of business.
• 1970s: Strategy thrust moved to CAPABILITY-OPPORTUNITY FIT. Oil
shock, resource constraints and limited opportunities in a given line of
business, forced companies to integrate or diversify selectively.
• 1980s: Strategy thrust perched on COMPETITIVE ADVANTAGE.
Severe competition arose from Japanese and newly industrialized
countries. Emphasis shifted to distinctive competencies, differentiation,
and better value to selected customer segments.
• 1990s: Strategy thrust shifted to COPABILITY, COLLABORATION &
COPTITION. Environment had become complex, with unprecedented
uncertainties, global competition, stunning technological breakthroughs,
shifting consumer tastes and ever changing exchange rates.

4. • 2000s: Strategy thrust during early years was on growth via M&A (E.g.
Chinese and Indian companies taking over businesses in developed
countries) & green-field projects in high growth emerging economies.
During the later years the focus shifted to managing recessionary
conditions with several banks and financial institutions in the western
world either going bust or needing government intervention. [Lehman
Brothers, Washington Mutual, Enron, World Com, GM, etc)
Concept of Competitive Advantage (CA)
Strategic Management is all about gaining and maintaining competitive
advantage. It is defined as, “anything that a firm does especially well
compared to rival firms”.
According to Porter sources of CA are either low cost or differentiation
linked to broad or narrow scope. If none of these are present then a firm gets
stuck-in-the-middle.
Competitive advantage is similar to the ‘economic moat theory’. The term
economic moat was coined by Warren Buffett. To him the castle is the
business, and the unbreachable moat is the competitive advantage one
company has over others in the same industry, which makes it impossible for
other firms to impact its market share. The wider the moat, the larger and
more sustainable is the competitive advantage.
An economic moat can be:

5.  A business model hard to replicate (Sun TV Network with the ability to
command pricing power and monopoly in cable TV business in south
India)
 A strong brand value that is tough to match (Colgate Palmolive in oral
care; Nestle India with strong brands like Maggi, Cerelac, Nescafe, etc;
Pedilite Industries with popular brands like Fevicol, M-Seal, etc)
 Pricing power that can under cut rivals on low cost (Shriram Transport
Finance: India’s largest player in commercial vehicle finance; Wal-Mart)
 High switching costs that involve a one-time expense which a buyer
incurs to change from one supplier’s product to another supplier (Mico-
Bosh in fuel injection systems; and
 Intellectual property rights such as patents (Global Pharmaceutical
companies)
Sustainable competitive advantage (SCA):
A company achieves SCA when a sufficiently large number of buyers prefer
its products or services over the offerings of competitors and when the basis
for this preference is durable & not be easily replicated. E.g. Titan Industries
Frequently used approaches to gain sustainable competitive advantage
1. Become the industry’s lowest-cost provider and aim for cost-based
competitive advantage over rivals. (Amul)

6. 2. Outperforming rivals based on differentiating features like higher
quality, wider product range, added performance, value-added services,
and technological superiority. (VIP Industries: acquired Aristocrat +
Carlton)
3. Serving a narrow market niche and doing a better job than rivals. (Café
Coffee Day)
4. Developing expertise and resources that rivals cannot easily imitate.
(Godrej in hair care products; Johnson & Johnson in baby care products)
Views on Strategy:
Industrial Organization (industry analysis, strategic group analysis,
competitor analysis, value chain analysis leading to Positioning)
Versus
Resource Based View (Core competency, core capability and resource based
view leading to strategy based on learning)

7. Different Levels of Strategy
LEVELS STRUCTURE STRATEGY
Corporate Corporate
Level Strategy
[Which business to be
in and how to run them?]
SBU/ SBU/ Business/
Division Competitive
Strategy
[How to
achieve
SCA in a given product
Market?]
Functions Functional
Strategies
[Competitive strategy by function]
Corporate office
SBU
‘A’
SBU
‘B’
SBU
‘C’
Finance Marketing
Operations H R D

8. Concept of Strategy
I. Corporate level strategy
 It is about being in the right mix of businesses.
 It is concerned with ‘where to compete?’
 Here the questions are:
i. The definition of business in which each firm will participate and
ii. The deployment of resources among these businesses.
 Corporate-wide strategic analysis results in decisions involving businesses
to add, retain, emphasize, divest, re-position, internationalize, etc.
 In terms of corporate level strategies, companies can be classified into
three categories:
i. Single industry firm
ii. Related diversified firm, and
iii. Unrelated business firm.

9. The research findings regarding these firms are as follows: on an average
 Related diversified firms perform best
 Unrelated business firms do not perform well over the long-term
 Single industry firms are the second best.
II. Business Unit Strategy
 Competition between diversified firms does not take place at the corporate
level but at the business unit level.
 Corporate office of a diversified firm does not make profit by itself.
 Business Strategy is concerned with ‘how to compete?’ in an industry.
 The strategy of the business unit depends on two interrelated aspects:
• It’s mission - what are its overall objectives?
• Its competitive advantage - how should the business unit compete in its
industry to accomplish its mission?
 Three tools can help in developing business unit strategies:
i) Industry structure analysis,
ii) Value chain analysis, and
iii) Portfolio matrices

10. Vision, Mission, Objective and Goals
A vision is a roadmap of a company’s future and indicates the kind of
company that management is trying to create.
Thus, vision is concerned with ‘where we are going and what we want to
become?’
E.g. Microsoft: Empowering people through great software, anytime,
anyplace, and on any device.
GE: We are in the energy business.
Infosys: We will be a globally respected corporation.
ITC: Sustain ITC's position as one of India's most valuable corporations
through world class performance, creating growing value for the Indian
economy and the Company’s stakeholders
HUL: We're constantly developing our brands and products to keep pace
with the changes in consumers lives.
ONGC: To stimulate, continue, and accelerate efforts to develop and
maximize the contribution of the energy sector to the economy of the
country.

11. A mission statement broadly describes an organization’s present capabilities
(products & services), customer focus (types of customers served), and
business makeup (technology and manner in which it competes).
It typically focuses on the present business scope – ‘who we are? & what is
our business?’
E.g. Otis Elevators: Our mission is to provide any customer a means of
moving people and things up, down, and sideways over short distances with
higher reliability than any similar enterprise in the world.
Avis Rent-A-Car: Our business is renting cars. Our mission is total
customer satisfaction.
American Red Cross: The mission of American Red Cross is to improve the
quality of human life; to enhance self-reliance and concern for others; and to
help people avoid, prepare for, and cope with emergencies.
Infosys: To achieve our objectives in an environment of fairness, honesty,
and courtesy towards our clients, employees, vendors and society at large
ITC: To enhance the wealth generating capability of the enterprise in a
globalizing environment, delivering superior and sustainable stakeholder
value.

12. Objectives are an organization’s performance targets – the results and
outcomes it wants to achieve. They function as yardsticks for tracking an
organization’s performance and progress.
A sample of objectives from a few companies
Domino’s Pizza: To safely deliver a hot, quality pizza in 30 minutes or less
at a fair price and a reasonable profit.
Procter & Gamble: will provide branded products and services of superior
quality and value that improve the lives of consumers. As a result consumers
will reward us with industry leadership sales, profit and value creation,
allowing our people, our shareholders and the communities in which we live
and work to prosper.
L’Oreal: we believe that lasting business success is built upon ethical
standards which guide growth and on a genuine sense of responsibility to our
employees, our consumers, our environment and the communities in which
we operate.

13. Process of Strategy Management (development & deployment)
1. Defining organisational mission & objectives
2. Environmental appraisal
3. Corporate / Company appraisal
4. Identifying strategic alternatives
5. Evaluating alternatives & choice of strategy
6. Strategy Implementation
7. Control of strategy

14. Strategic Competition Vs Natural Competition
Features of Strategic Competition:
1. It compresses time
2. It requires the commitment from all in the organization
3. It is deliberate (carefully considered and tightly reasoned)
4. It is revolutionary by nature and brings about radical change by making
topsy-turvy existing competitive relationships. The result can be
phenomenal success or total disaster.
Example of Xerox Vs Canon
Canon did to Xerox what IBM and Eastman Kodak could not. The latter
attacked Xerox head on and failed miserably. Canon changed the rules of the
game itself.
Xerox Canon
1. Focused on large accounts
and large machines
1. Using technical capabilities it
created a reliable & cheaper copier
needing limited service.
2. Adopted the route of leasing 2. It went in for outright sale
3. Provided direct sales and
service using its own sales force
3. Used dealers avoiding the
expense of direct sales
Hero Honda Motors Ltd did it successfully in the Indian two-wheeler
market by changing the demand pattern of customers and dominating the
market subsequently.

15. ESSENCE OF STRATEGIC THINKING
Three fundamental questions have to be addressed:
1. Where are we now and how did we get here?
 It involves Self-analysis and knowing.
 It reveals present level of profitability, growth rate of the firm, market
share of the firm, level of customer satisfaction, extent of share-
holder/stake-holder value creation, etc.
 External circumstances or the foresight of company strategists may
have made the company to seek this.
2. Where do we want / have to go from here? [to grow/ survive]
 Are the present achievements adequate to remain profitable at present
and in the future?
 Here three situations may exist for companies:
i. Those who occupy a market niche. E.g. a separate parts firm which is a
sourcing base of MNCs. (CAPTIVE MARKET)

16. ii. Those who want to and can grow in terms of leadership: market/
technological/ MNC status. (OUTSTANDING GROWTH)
iii. Those who have no option but to grow / diversify as their past
performances have been poor or the environment threatening.
(SURVIVAL)
3. How are we going to get there? [Developing strategy]
 A company may have to redefine its mission and objectives, restructure
itself, divest unwanted/ unprofitable peripheral business portfolios, engage
in mergers & acquisitions, enter new/ emerging & sunrise businesses,
strike strategic alliances or even venture into global markets.
 To achieve future goals a company has to prepare corporate strategy for
the company as a whole and business strategy for each operating division/
SBU and even individual product strategies.

17. Defining the Business [as per Derek Abell]
1. Along three important dimensions
Customer need, Customer groups & Alternative technologies
2. Along the vertical dimension
Integrated forward: Bata Shoe Co; Titan Industries
Integrated backward: RIL, Tata Tea, Ranbaxy
Customer Group Customer Need
Industrialists Personal Banking
Professionals Business Banking
High Net worth Individuals NRI Banking
Institutional SME Banking
Salaried
SO/HO
Retired Persons
Traditional
Computerized
Core Banking
Tele Banking
Net Banking/ Mobile Banking
EFT
Multicity Cheque Facility
Alternate Technologies
Broad versus narrow business definition:
Cooperative bank versus modern private bank (ICICI /HDFC Bank)
Local courier firm (DTDC) versus Global courier firm (Federal Express)

18. Models for formulating strategies:
1. Michael Porter’s model of competitive strategies:
Michael Porter’s model of competitive strategies:
1. Low-cost leadership strategy (Wal-Mart, Amul, Air Asia)
2. Differentiation strategy (Mercedes-Benz, Taj Group,)
3. Focus strategy:
Cost Focus (Ujala, Sree Leathers)
Differentiation Focus (CD Shirts, Harley Davidson, Hush
Puppies)
Stuck-in-the-middle
2. Miles and Snow’s strategy typology: Based on the notion that
organizations strive for a fit among internal organization
characteristics, strategy and the external environment.
Prospector strategy
Innovate, take risk, explore opportunities and grow. It is ideally
suited for a dynamic environment. Thrust is on creativity (less on
efficiency).
E.g. FedEx; Microsoft; ebay

19. Defender strategy
The focus is on stability, internal efficiency and control. It suits a
company operating in a stable environment.
E.g. Amul; Sree Leathers
Analyzer strategy
It is mid way between prospector and defender. A balance is struck
between efficiency for current products versus innovation to
develop new ones.
E.g.; Titan Industries; Maruti Suzuki Ltd;
Reactor strategy
It responds to the environment in an ad hoc manner. A long term
vision seems absent in such organizations.
E.g. HMT (in wrist watches and tractors); Kinetic Motors