Strategic management

Strategic ManagementStrategic Management
Prepared by: Harsh Arora
1Harsh Arora

Unit 1Unit 1
• Introduction
–Definition, nature, scope and importance of
strategy and strategic management
–Strategic decision making
• Process of strategic management and levels at
which strategy operates
–Role of strategists
–Defining strategic intent
• Vision, Mission, Business definition, Goals and
objectives
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In 1958, Phil Knight,
a keen athlete and
an undergraduate at
the University of
Oregon and his
track coach Bill
Bowerman realized
the need for a good
running shoe.The
leading track shoes
of the time were
being produced by
European
companies, adidas
and Puma
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IntroductionIntroduction
• Definition, nature, scope and importance of
strategy and strategic management
 Strategy refers to the ideas, plans, and support that
firms employ to compete successfully against their
rivals.
 Strategy designed to help firms achieve
competitive advantage.
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FoundationFoundation
In 1934, Prof. G. S. Gause of Moscow
University, known as ‘the father of
mathematical biology’ has published result
of his experiment.
Result: Gause’s Principle of “Competitive
Exclusion”

However, for million of years
competitors survived. How????
Darwinian natural selection
(based on adaptation and the survival of the
fittest)

“Evolution determines who survives and who
is crowded out”
--- Henderson D. Bruce, 1989
 Some are crowded out naturally, some by
the competitors and some suicide.
Reason: if every business could grow
indefinitely, the total market would grow to
an indefinite size on a finite earth.

Today, businesses has learned
“competitive coexistence”
How ???????
They have planned for evolutionary
change and combine various factors in
many different ways to differentiate.

Can evolution be planned for inCan evolution be planned for in
business ?business ?

In 1971, Knight and
Bowerman decided
to develop a
distinctive
trademark and a
new brand name
'Nike', inspired by
the Greek winged
Goddess ofVictory
'Nike'
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DefinitionDefinition
“Strategy is a deliberate search for a plan of
action that will develop a business’s
competitive advantage and compound it.”
---- Henderson, 1989
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Nature and ScopeNature and Scope
 A plan you adopt in order to get something done,
especially in politics, economics or business.

 The art of planning where to place armies and
weapons in order to gain the best military
advantage.
 The art of planning the best way to achieve
something or to be successful in a particular field.

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ImportanceImportance
However, even after understanding what
strategy is some fail and some sail !
Ex: in photocopy machine, IBM and East
Man Kodak failed to Xerox, at the same
time Canon survived………
What could be the reason ????
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Nature, Scope & ImportanceNature, Scope & Importance
Serves as a road map for the corporation
Enables long term decisions concerning
the firm
Ensure optimum utilization of resources
Prepares the firms to face the future
Helps acquiring competitive advantage

In the early 1980s,
Nike replaced adidas
as the leading athletic
shoe company in the
American market.
When Nike went
public, Knight became
one of the richest men
in the world. But in
the mid-1980s, after
five years of rapid
growth at an annual
rate of 44%, Nike
failed to anticipate the
emerging market for
aerobic shoes, having
concentrated its
efforts on casual shoes
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“He who loves practice without theory is
like a sailor who boards a ship without a
radar and compass and never knows
where he may cast”
Leonardo da Vinci
So, strategy (systematic planning) is a
necessity to start, grow, and sustain
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Basis of strategyBasis of strategy
The essence of strategy is to match
strengths and distinctive competence
with terrain in such a way that one’s own
business enjoys a competitive advantage
over rivals competing on the same
terrain.
◦ Terrain refers to the environmental setting in
which an engagement with an adversary takes
place.
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In the 1990s, Nike
made more
acquisitions
includingTetra
Plastic Inc., (1991)
and Sports
Specialties Inc
(1993).Tetra
manufactured
plastic film used in
the manufacture of
Nike's Air-sole
cushioning
components. Sports
Specialties
distributed licensed
headwear
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Strategic competencyStrategic competency
Vision competency
◦ Vision
◦ Mission
◦ Goals and objectives
Value creation
competency
◦ Customer focus
◦ Competitor focus
Planning and
administration
competency
◦ Activity fit
◦ Corporate fit
◦ Alliance fit
◦ People fit
◦ Reward system fit
◦ Communication fit
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Strategic competencyStrategic competency
Global awareness
competency
◦ Opportunities/threats
exist awareness
◦ Different business
practices
◦ Cultural awareness
Leveraging
technology
competency
◦ faster innovation
◦ Big companies act
small
◦ Small companies act
big
Stakeholder
competency
◦ Shareholders
◦ Customers
◦ Employees
◦ Communities
◦ Senior managers
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Knight, who had detached himself from Nike in
order to travel and pursue other interests,
joined the company back in 1999 after
Bowerman's death, at a time when Nike was
struggling. While addressing employees at a
meeting, Knight admitted that there had been a
management failure. Knight put together a new
executive team that comprised partly a few
Nike's veterans who carried the heritage and
culture of Nike's early years, and some
outsiders. The new executive team sent out
signals that the time had come to solve all the
problems
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Strategic management processStrategic management process
A management process designed to
satisfy strategic imperatives for building
competitive advantage is called strategic
management process. It consists of four
major steps
◦ Analysis
◦ Formulation
◦ Implementation
◦ Adjustment/evaluation
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Strategic management processStrategic management process
Analysis
External
environment
Opportunities, threats
Internal environment Strengths, weaknesses
Formulation
Mission
Customers to be served
Capabilities to be developed
policies
Goals, guidelines for major
activities
Implementation
Organizational structure,
systems, culture etc.
Adjustments/
Evaluation
(Cycle to earlier steps)
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Strategic decision makingStrategic decision making
Process of strategic management and
levels at which strategy operates
◦ Multi business firm/diversified firm: a firm that
operates more than one line of business.
Multi business firms often operate across
several industries or markets, each with a
separate set of customers and competitive
requirements. Firms can possess many
business units in their corporate portfolio.
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◦ Single business firm/undiversified firm: a firm
that operates only one business in one
industry or market
◦ Business strategy: plans and actions that firms
devise to compete in a given product/market
scope or setting; addresses the question
“How do we compete within an industry?”
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◦ Corporate Strategy: plans and actions that
firms need to formulate and implement when
managing a portfolio of business; an especially
a critical issue when firms seek to diversify
from their initial activities or operations into
new areas. Corporate strategy issues are key
to extending the firm’s competitive advantage
from one business to another.
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Multi Business Enterprise (GE)Multi Business Enterprise (GE)
CORPORATE MANAGERS
BUSINESS MANAGERS
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Role of strategistsRole of strategists
Executives most directly responsible for
strategic decisions are;
◦ Business managers: People in charge of
managing and operating a single line of
business
◦ Corporate managers: people responsible for
overseeing and managing a portfolio of
businesses within the firm
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Role of Board of Directors
Role of C.E.O
Role of Senior Management
Role of SBU – Level Executives
Role of Corporate Planning Staff
Role of Consultant
Role of Middle Level Managers
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Competitive advantage – most important
criterion by which to assess strategic
decisions
Strategic decision must also satisfy the
numerous and often conflicting needs of
various stakeholders;
◦ Shareholders
◦ Customers
◦ Employees
◦ Communities
◦ Top managers
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Defining strategic intentDefining strategic intent
 Vision, Mission, Business definition, Goals and objectives
Vision: the highest aspirations and ideals
of a person or organization; what a firm
wants to be. Vision statements often
describe the firm or organization in lofty,
even romantic or mystical tones.
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VisionVision
 How the organization wants to be
perceived in the future – what success looks
like
 An expression of the desired end state
 Challenges everyone to reach for
something
significant – inspires a compelling future
 Provides a long-term focus for the entire
organization

Examples of Vision StatementsExamples of Vision Statements
BHEL: A world class innovative, competitive
and profitable engineering enterprise
providing total business solution.
Colgate-Palmolive: To be company of first
choice in oral and personal hygiene by
continuously caring for consumers and
partners.
HUL: Our vision is to meet the everyday
needs of people everywhere
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Mission: describe the firm or organization
in terms of its business. Mission
statements answer the questions;
◦ What business are we in?
◦ What do we intend to do to succeed?
 Mission statements are somewhat more concrete than
vision statements but still do not specify the goals and
objectives necessary to translate the mission into reality
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Defining Corporate MissionDefining Corporate Mission
Corporate Mission is the essential purpose that
differentiate one company from others. It clearly
defines the priorities and the purpose of existence
of the company.
It focuses on limited number of goals
Stress the company’s major policies and values
Defines the major competitive spheres within
which the company will operate

Examples – Mission StatementsExamples – Mission Statements
To Make People
Happy
To Explore the
Universe and
Search for Life
and to Inspire the
Next Generation
of Explorers
NASA
Walt Disney
Does a good job of expressing the core
values of the organization. Also conveys
unique qualities about the organization.
Too vague and and unclear. Need more
descriptive information about what makes
the organization special.

Goals and Objectives
◦ Goals: the specific results to be achieved within a
given time period
◦ Objectives: the specific results to be achieved within
a given time period (also known as goals). Objectives
guide the firm or organization in achieving its mission.
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Goal formulationGoal formulation
Effective goals should be formulated so
that they are:
◦ Arranged hierarchically from broader to
more specific objectives
◦ Stated in quantitative terms
◦ Realistic
◦ Consistent with each other and the company
mission

ObjectiveObjective
◦ Relevant - directly supports the goal
◦ Compels the organization into action
◦ Specific enough so we can quantify and measure the
results
◦ Simple and easy to understand
◦ Realistic and attainable
◦ Conveys responsibility and ownership
◦ Acceptable to those who must execute
◦ May need several objectives to meet a goal

Goals Vs ObjectiveGoals Vs Objective
Very short
statement, few
words
Broad in scope
Directly relates to
the Mission
Statement
Covers long time
period (such as 10
years)
Longer statement,
more descriptive
Narrow in scope
Indirectly relates to
the Mission
Statement
Covers short time
period (such 1 year
budget cycle)
GOALS OBJECTIVES

By September 2004,
Nike's Soccer sales
were nearly $1 billion,
or 25% of the global
market. For the first
time, Nike's share of
the soccer shoe market
in Europe (35%),
exceeded that of adidas
(31%).
Nike had achieved rapid
growth in part by using
the aggressive
marketing tactics that
made it big in the US.
Nike paid the
prestigious Manchester
United club an
unprecedented $450
million over 14 years to
run its merchandising
and uniform operations
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Unit 2Unit 2
Environment
◦ Environmental appraisal
 Concept of environment, components of environment
(economical, social, political, and technological)
◦ Environmental scanning techniques
 ETOP, QUEST and SWOT (TOWS)
◦ Internal appraisal
 The internal environment, organizational capabilities in
various functional areas and Strategic Advantage Profile
 Methods and techniques used for organizational
appraisal, identification of Critical Success Factor (CSF)
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Environmental appraisal
 Concept of environment, components of environment
(economical, social, political, and technological)
A firm’s environment represents all
external forces, factors or conditions that
exert some degree of impact on the
strategies, decisions, and actions taken by
the firm.
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 The specific type of environmental forces and
conditions vary from industry to industry
 A number of broad environmental forces exert an
impact on the strategies of every firm
 Broadly two type of external environments;
 The broader macro-environment
 Industry specific competitive environment
 Environment offers both opportunities and threats to
the company.
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 Macro-environment
 Demographic environment
 Economical environment
 Political environment
 Social/cultural environment
 Technological environment
 Global environment
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 Competitive environment
The immediate economic factors – customers, competitors,
suppliers, buyers, and potential substitutes – of direct relevance
to a firm in a given industry
 Industry attractiveness: the potential for profitability when
competing in a given industry. An attractive industry has high
profit potential; an unattractive industry has low profit potential.
 Industry structure: the interrelationship among the factors in a
firm’s competitive or industry environment; configuration of
economic forces and factors that interrelate to affect the
behavior of firms competing in that industry.
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Examining and Responding to the MarketingExamining and Responding to the Marketing
EnvironmentEnvironment
Environmental
Scanning

Environmental
Scanning
Environmental
Analysis
Examining and Responding to the MarketingExamining and Responding to the Marketing
EnvironmentEnvironment

Examining and Responding to theExamining and Responding to the
Marketing EnvironmentMarketing Environment
 Reactive
Response
Proactive
Response

Case:Case:
Coke & Pepsi in India: Pesticides in
carbonated beverages

Economic environmentEconomic environment
Business cycle
Buying power
Financial sources
Willingness to spend
◦ GDP, growth, inflation, central bank lending rates,
currency exchange rates, fiscal policies (tax on
corporations and individuals), regional issues like land
process and labor rates, distribution of economic
rewards in the society, freedom to move monies,
stock exchange and money market

Social environmentSocial environment
Attitude, values, and beliefs tastes held by
people including ethnic minorities
Culture: attitude to work, savings,
investments, ethics etc.
Demography: Size and structure of
workforce, population shifts, aging
Social structure: class and segmentation
of the market
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Political environmentPolitical environment
 Supranational (global)
 National (domestics)
 Local
 Government active areas include;
◦ Policies on healthcare, unemployment, exchange rates, inflation,
economic growth
◦ Government employment and the public sector
◦ Fiscal policies on taxation
◦ Government agencies regulating competition, pollution and
industrial relations
◦ Law of various kinds such as those relating to protection of the
environment or the safety of employees in the work place or
those relating to customer protection

Technological environmentTechnological environment
These can be internal and external
Software used for quality control and produce
products of varying complexity
Technology includes;
◦ Goods and services
◦ Production process
◦ Information and communication
◦ Transport and distribution
◦ Computing and associated implication for production
◦ Biotechnology and new industries
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Environmental scanning techniques
Benefits;
◦ Increasing managerial awareness of environmental
change
◦ Increasing understanding of the context in which
industries and markets functions
◦ Increasing understanding of multinational settings
◦ Improving resource allocation decisions
◦ Facilitating risk management
◦ Focusing attention on primary influences on strategic
change
◦ Acting as an early warning system
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SWOT (TOWS) AnalysisSWOT (TOWS) Analysis
Central purpose:
◦ identify strengths that align, fit or match an
organizations resources and capabilities to the
demands of the environment
◦ To build on organizations strength in order to
exploit opportunities and counter threats and
to correct organizational weaknesses
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StrengthsStrengths
 Strength’s – Those things that you do well, the high
value or performance points
 Strengths can be tangible: Loyal customers, efficient
distribution channels, very high quality products,
excellent financial condition
 Strengths can be intangible: Good leadership,
strategic insights, customer intelligence, solid
reputation, high skilled workforce
 Often considered “Core Competencies” – Best
leverage points for growth without draining your
resources

StrengthsStrengths
 Core competencies in key
areas
 Adequate financial resources
 Well thought of by buyers
 An acknowledged market
leader
 Well conceived functional
area strategies
 Access to economies of scale
 Insulated (at least somewhat)
from strong competitive
pressures
 Proprietary technology
 Cost advantages
 Better advertising campaigns
 Product innovation skills
 Proven management
 Ahead on experience curve
 Better manufacturing
capabilities
 Superior technological skills

WeaknessWeakness
 Weaknesses – Those things that prevent you from
doing what you really need to do
 Since weaknesses are internal, they are within your
control
 Weaknesses include: Bad leadership, unskilled
workforce, insufficient resources, poor product
quality, slow distribution and delivery channels,
outdated technologies, lack of planning

WeaknessWeakness
 No clear strategic
direction
 Obsolete facilities
 Profitability issues
 Lack of management
depth and talent
 Missing some key skills
and competencies
 Poor track record in
implementing problems
 Falling behind in R&D
 Too narrow in product
line
 Weak market image
 Weak distribution
network
 Below average marketing
skills
 Unable to finance
needed changes in
strategy
 Higher overall unit costs
relative to key
competitors

OpportunitiesOpportunities
 Opportunities – Potential areas for growth and higher
performance
 External in nature – marketplace, unhappy customers
with competitor’s, better economic conditions, more
open trading policies
 Internal opportunities should be classified as Strength’s
 Timing may be important for capitalizing on
opportunities

OpportunitiesOpportunities
 Ability to serve
additional customer
groups or expand into
new markets or
segments
 Ways to expand product
line to meet broader
range of customer needs
 Ability to transfer skills
or technological know
how to new products or
businesses
 Integrating forward or
backward
 Falling trade barriers in
attractive foreign
markets
 Complacency among
rival firms
 Ability to grow rapidly
because of strong
increases in market
demand
 Emerging new
technologies

ThreatsThreats
 Threats – Challenges confronting the organization,
external in nature
 Threats can take a wide range – bad press coverage,
shifts in consumer behavior, substitute products, new
regulations, . . .
 May be useful to classify or assign probabilities to
threats
 The more accurate you are in identifying threats, the
better position you are for dealing with the “sudden
ripples” of change

ThreatsThreats
 Entry of lower cost
foreign competitors
 Rising sales of substitute
products
 Slower market growth
 Adverse shifts in foreign
exchange rates and trade
policies of foreign
governments
 Costly regulatory
requirements
 Vulnerability to
recession and business
cycle
 Growing bargaining
power of customers or
suppliers
 Changing buyers needs
and tastes
 Adverse demographic
changes

The SWOT processThe SWOT process
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ETOP: Environmental Threat andETOP: Environmental Threat and
Opportunity ProfileOpportunity Profile
It is a process of dividing an environment
into different sectors and than analyzing
the impact of each sector on the
organization
It provides a clear picture to the
strategists about which sectors &
different factors in each sector, have a
favorable impact on the organization
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Environmental
Sectors
Nature of
Impact
Impact of each sector
Economic
Growing affluence among urban
consumers, rising disposable
incomes & living standards
Market
Organized sector a virtual
oligopoly with 4 major
manufacturers, buyers, critical &
better informed, overall industry
growth rate not encouraging,
growth rate for niche market, like
sports, trekking etc.
International
Global imports growing but India’s
share shrinking, major importers
are the US & EU but India exports
mainly to Africa

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Environmental
Sectors
Nature of
Impact
Political
Bicycle principle mode of
transport for low and middle
income, industry too small to
draw attention
Regulatory
Parts and components reserved
from SSI, bicycle industry a thrust
area for export.
Social
Environment & health friendly
transport option, wide usage, as
recreation, convenient in traffic,
customer preference.

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Environmental
Sectors
Nature of
Impact
Supplier
Mostly ancillaries in small scale
sector supply parts & components,
rising steel prices, industrial
concentration in Punjab &
Tamilnadu
Technological
Up gradation in progress, import
of machinery simple, product
innovation ongoing like battery
operated & lightweight foldable
cycles

QUEST: Quick EnvironmentalQUEST: Quick Environmental
Scanning TechniqueScanning Technique
It is a scanning procedure designed to assist
executives and planners to keep side by side of
change and its implications for the
organizational strategies and policies.
It is develop a quick, inexpensive analysis of the
possible futures of the organization may face
based on the perception, experience,
knowledge, and observations of the senior
executive team
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QUEST: Quick EnvironmentalQUEST: Quick Environmental
Scanning TechniqueScanning Technique
 The Quest Process
1. Preparation: Selection of participants and compilation of
“intelligence file” containing readily available information on
past trends and future prospects in the particular industry
2. Divergent Planning: Determine the top 10 most significant
events and evaluate cross impact
3. Scenario Development: Analysis of organization’s business
environment and associated performance measures and
develop alternative future scenarios using the identified
critical events
4. Strategic option identification: follow up to prepare Strength
and Weaknesses of the organization
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Internal appraisal
All organizations have strengths and weaknesses in the
functional areas of business. No enterprise is equally
strong or weak in all areas. Maytag, for example, is
known for excellent production and product design,
whereas Procter & Gamble is known for superb
marketing. Internal strengths/weaknesses, coupled with
external opportunities/threats and a clear statement of
mission, provide the basis for establishing objectives
and strategies. Objectives and strategies are established
with the intention of capitalizing upon internal strengths
and overcoming weaknesses
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Internal appraisal
 Organizational capabilities in various
functional areas;
◦ marketing, finance, accounting, management,
management information systems, and
production/operations; there are many
subareas within these functions, such as
customer service, warranties, advertising,
packaging, and pricing under marketing etc.
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Internal appraisal
 Organizational capabilities in various functional
areas;
◦ A firm’s strengths that cannot be easily matched or imitated by
competitors are called distinctive competencies.
◦ Building competitive advantages involves taking advantage of
distinctive competencies. For example, 3M exploits its
distinctive competence in research and development by
producing a wide range of innovative products.
◦ Strategies are designed in part to improve on a firm’s
weaknesses, turning them into strengths—and maybe even into
distinctive competencies.
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Internal appraisal
 Strategic Advantage Profile
Strategic advantage profile (SAP) tries to find out
organizational strengths and weaknesses in relation to
certain CSF advantage factors or competence factors)
within a particular industry.
Many industries have relatively small but extremely
important sets of factors that are essential for
successfully gaining and maintaining competitive
advantages. Known as critical success factors (CSFs),
they have a significant bearing on
the overall growth of a firm within an industry.
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Internal appraisal
 Major sources of Critical Success Factor
(CSF)
 Industry characteristics
 Competitive positions
 General environments
 Organizational developments
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Unit 3Unit 3
Corporate level and business level
strategies
◦ Corporate level strategies
 Stability, expansion, retrenchment and combination
strategy.
 Corporate restructuring, concept of synergy,
Mergers & acquisitions, corporate restructuring
◦ Business level strategies
 Porter’s framework of competitive strategies;
conditions, risks and benefits of cost leadership,
differentiation and focus strategies, concept,
importance, building and use of core competence
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Corporate level strategies
 Stability strategy
involves maintaining the status quo or growing in a
methodical, but slow, manner.
 Organizations might follow a stability strategy for a variety of
reasons:
 Why rock the boat?
 Why not stop for a while?
 Why to swallow risk?
 Where are the resources?
Stability strategies would work only when the firm is
doing well and the environment is
not excessively volatile
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 Expansion strategy
The firm tries to redefine the business, enter new
businesses, that are related or unrelated
or look at its product portfolio more intensely.
 Why to pursue growth strategy?
 To ensure survival: Ambassador car failed to grow and
forced out of market.
 To obtain scale economics.
 To stimulate talent.
 To reach commanding heights.
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 Expansion strategy
Strategic growth options: The Ansoff Matrix
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 Retrenchment strategy.
defensive strategy followed by a firm when its
performance is disappointing or when its survival is at
stake
 Economic recessions, production inefficiencies, and
innovative breakthroughs by competitors
 Xerox went through a terrible 2-year period in early 1980s
when managers and analysts thought the firm might face
bankruptcy because of crushing attacks from Japanese
competitors like Cannon and Sharp.
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 Forms of Retrenchment strategy.
 Divestment strategy (also called divestiture or spin-
off): It involves the sale of those units or parts of a
business that no longer contribute to or fit the
firm’s distinctive competence. The firm simply gets
out of certain businesses and sells off units or
divisions
 Turnaround Strategies: to reverse a negative trend
and bring the organization back to normal health
and profitability.
 Liquidation Strategy: Liquidation involves selling or
disposing of all or a part of an organization’s assets.
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 Forms of Retrenchment strategy.
 Bankruptcy: an organization that is unable to pay its
debts can seek court protection from creditors and
from certain contract obligations while it tries to
regain financial health and stability
Combination strategy
Corporate planning aimed at achieving two or
more goals (such as consolidation, growth, stability)
simultaneously
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 Corporate restructuring
 Advances in information technology
 To keep smile on the customers’ face every time
 to redefine markets and industries
 Internally structures, management styles and cultures
 to get ahead of its competitors
Peter Drucker, ‘every
organization must prepare to abandon every
thing it does”.
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 Concept of synergy
 Consolidation: If both firms dissolve their
identity to create a new firm, it is called
consolidation
 A friendly merger takes place when both firms
agree to combine their might in order to gain
certain synergistic benefits like
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 Concept of synergy
 Marketing synergy- using common distribution
channels, sales force, sales promotion etc.
 Operating synergy- better use of facilities
 Investment synergy – better uses of resources as in
the case of mergers of banks or financial
institutions.
 Management synergy- using existing managerial
talent in a judicious way.
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 Mergers & acquisitions
 A merger occurs when two or more
organizations (usually of roughly similar sizes)
combine to become one through an exchange
of stock or cash or both.
 Acquisition is the purchase of a firm that is
considerably larger. The firm that acquires is
called the acquiring firm and other, the
merging firm.
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Business level strategies
 Porter’s framework of competitive strategies
(Michael Porter’s five forces model)
Awareness of the five forces can help a company
understand the structure of its industry and stake out a
position that is more profitable and less vulnerable to
attack
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Threat of entryThreat of entry
New entry to an industry bring in:
◦ New capacity
◦ Desire to gain market share
◦ Puts pressure
 on prices
 on costs
 Rate of investment necessary to compete
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◦ When new entrant diversify from other
markets, they
 Leverage existing capabilities
 Cash flow to shake up competition
Pepsi entered into Mineral Water
Microsoft entered into Internet Browser
Apple entered into music distribution
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When threat is high
◦ Hold down prices
◦ Boost investment
◦ Deter new competitors
Starbucks invest aggressively in
modernizing stores and menus
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Entry barriers
◦ Supply side economies of scale (Intel)
◦ Demand side benefits of scale (IBM, eBay)
◦ Customer switching cost (SAP – ERP software)
◦ Capital requirements (Aviation)
◦ Incumbency advantages independent of size (Wal-
Mart)
◦ Unequal access to distribution channels (Eureka
Forbes)
◦ Restrictive government policy (Ambassador – WB)
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Powerful suppliers;
◦ Capture more value for themselves
◦ Charge higher prices
◦ Limiting quality or services
◦ Shifting cost to industry participants
Microsoft contributed to the erosion of profitability
among PC makers by raising prices on operating
systems
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Power of SuppliersPower of Suppliers

A supplier group is powerful if;
◦ More concentrated than industry
◦ Does not depend heavily on industry or serve many
industries
◦ Industry participants face switching costs
◦ Suppliers offers products that are differentiated
(pharma)
◦ No substitute for suppliers products
◦ Supplier can threaten to integrate forward
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Power of SuppliersPower of Suppliers

Customer group has negotiating leverage if;
◦ Few buyers, or each one purchases in volumes
◦ Industry’s products are standardized or
undifferentiated
◦ Buyers few switching cost
◦ Buyers can threaten to integrate backward
Well logging companies (which measure below
ground conditions of oil wells)
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Power of BuyersPower of Buyers

Video conferencing ~ travel
Plastic ~ aluminum
E-mail ~ Physical mails
 Threat of substitute is high if;
◦ Offers an attractive price performance trade off (phone ~
skype)
◦ Buyers cost of switching is low (generic drugs, technologically
strong plastic ~ steel for automobile cos.)
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Threat of SubstitutesThreat of Substitutes

Rivalry among existing competitorsRivalry among existing competitors
Price discounting
New product introduction
Advertising campaigns
Service improvements
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Rivalry among existing competitorsRivalry among existing competitors
Intensity of rivalry greatest if;
◦ Competitors are numerous or are roughly equal in
size and power
◦ Industry growth is slow
◦ Exit barriers are high
◦ Rivals are highly committed to the business and have
aspirations for leadership
◦ Firms cannot read each other’s signals well because
of lack of familiarity with one another, diverse
approaches to competing, or differing goals
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Case let 3Case let 3
Commercial aviation: it’s one of the least
profitable industries because
◦ all five forces are strong
 Established rivals compete intensely on price
 Customers are fickle, searching for the best deal regardless of
carrier
 Suppliers – plane and engine manufactures, along with unionized
labor forces – bargain away the lion’s share of airline’s profits
 New players enter the industry in a constant stream
 Substitutes are readily available – such as train or car travel
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 Porter’s framework of competitive strategies: cost
leadership
Cost leadership is a strategy that focuses on
making an organization more competitive by
producing its products more cheaply than
competitors can.
Example: Nirma, Wal-Mart
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 Porter’s framework of competitive strategies:
differentiation strategies
It involves attempting to develop products and
services that are viewed as unique in the
industry. Successful differentiation allows the
business to charge premium prices, leading to
above average profits.
 Brand image (Rolex)
 Technology (Honda)
 Customer service (HDFC)
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 Porter’s framework of competitive strategies: focus
strategies
It is a strategy that emphasizes making an
organization more competitive by targeting a
specific regional market, product line or
buyer group. The organization can use either
a differentiation or low cost approach, but
only for a narrow target market.
Example: Titan
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Unit 4Unit 4
Strategic analysis and choice
◦ Corporate level analysis (BCG, GE Nine cell
Matrix)
◦ Industry level analysis; Porter’s five forces
Model
◦ Qualitative factors in strategic choice
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Strategic analysis and choiceStrategic analysis and choice
Corporate level analysis : BCG Matrix
Harsh Arora 112

Corporate level analysis : GE Nine cell Matrix
Harsh Arora 115

Market attractivenessMarket attractiveness Business StrengthBusiness Strength
 Overall market size.
 Annual market growth.
 Competitive intensity.
 Inflationary vulnerability.
 Energy requirements.
 Environmental impact.
 Social –political legal.
 Market share.
 Product quality.
 Brand reputation.
 Distribution network
 Promotional effectiveness.
 Productive capacity.

Industry level analysis; Porter’s five forces
Model
(done in the last module)
Qualitative factors in strategic choice
 Seymour Tiles identified six qualitative questions that are
useful in evaluating strategies way back in 1963 thus
1. Is the strategy internally consistent?
2. Is the strategy consistent with the environment?
3. Is the strategy appropriate in view of available resources?
4. Does the strategy involve an acceptable degree of risk?
5. Does the strategy have an appropriate time framework?
6. Is the strategy workable? Harsh Arora 117

Unit 5Unit 5
Resource allocation, projects and
procedural issues
Organization structure and system in
strategy implementation
Strategic control and operational control,
organizational system and techniques of
strategic evaluation
118Harsh Arora

Resource allocation, projects andResource allocation, projects and
procedural issuesprocedural issues
While implementing strategies, the scarce
resources of a firm (financial, physical,
human, technological) need to be
allocated carefully, according to a plan.
◦ Means of resource allocation
 Strategic budget: SBU level
 Capital budget: for long term profitability
 Performance budget: to carry out functions
 Zero based budget:
119Harsh Arora

Organization structure and systemOrganization structure and system
in strategy implementationin strategy implementation
Strategy implementation is a crucial issue
because any strategy is as good as the effort
behind lit to move it forward. Successful
strategy implementation requires support,
discipline, motivation land hard work from all
managers and employees. More importantly,
it requires a suitable in organization structure
to translate ideas into concrete action plans.
Harsh Arora 120

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Behavioral issues in strategy implementation
 Influence tactics
 Power
 Expertise
 Charisma
 Reward power
 Information power
 Exchange
 Legitimate power
 Coercive power
Harsh Arora 123

Strategic control and operationalStrategic control and operational
controlcontrol
"Strategic Control' is concerned with
tracking a strategy as it is being
implemented, detecting problems or
changes in its underlying premises, and
making necessary adjustments“
◦ There are four types of strategic control:
1. Premise control.
2. Implementation control.
3. Strategic surveillance.
4. Strategic alert control
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Strategic control and operationalStrategic control and operational
controlcontrol
Operational controls provide post-action
evaluation and control over short periods
◦ Evaluation Techniques for Operational
Control
 Value Chain Analysis
 Quantitative performance measurement
 Benchmarking
 Balanced score card
 Key factor rating
Harsh Arora 125

Organizational system andOrganizational system and
techniques of strategic evaluationtechniques of strategic evaluation
Strategy evaluation and control (SEC) is
the final phase of strategic management.
Purpose
◦ to determine the effectiveness of a given
strategy
◦ achieving the organizational objectives
◦ taking appropriate corrective action
whenever required
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Strategy evaluation generally operates at
two levels
◦ Strategic: examine the consistency of strategy
with environment
◦ Operational: finding how a given strategy is
effectively pursued
Harsh Arora 127

SEC helps an organization in;
◦ Feedback
◦ Are we moving in the proper direction?
◦ How are we performing?
◦ Reward
◦ Future planning
Harsh Arora 128

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