Strategic Planning & Management

Strategic Planning & Management (SPM)
GM-402 (February 15 – April 30, 2011)

IILM Institute for Higher Education
New Delhi
PGP (2010-12), Term – 4
Session 1 to 25

Compiled By:
Sunil Garg
B. Tech. M. Tech. MBA
Visiting Faculty (IB, SCM & Strategy)
Email: sunil.garg.edu@gmail.com

What is Strategy?
 Strategy is a combination of competitive moves and business approaches.
It is necessary to stand in front of competition.

 Strategy required to achieve superior performance & organization’s goals.

 Strategy is a plan for success over competitive forces.

 Strategy is a management’s game plan to knock competition in business.

 Strategy is Partly Proactive and Partly Reactive Planning.

 Strategy is an art and science of Formulating, Implementing, and
Evaluating Cross-Functional Decisions that enable an Organization to
Achieve its Objectives in competitive environments.

No Competition (Monopoly situation) –> No Strategy required.

What Is Strategy? (contd.)
• Consists of the combination of competitive moves and
business plans used by managers to run the company
• Management’s “game plan” for
– Attracting and pleasing customers
– Staking out a market position
– Competing successfully
– Growing the business
– Conducting operations &
– Achieve targeted objectives
Survival through Growth and Profitability

Means of
establishing
organizational
purpose in terms of Definition of the
LT objectives, competitive domain
resource of the firm
allocation

Means of investing Response to
In tangible and external
intangible resources to opportunities &
develop competencies threats, and
internal strengths

‘Strategy’ & weaknesses

Objectives,
Means to develop
the core
Purpose,
competencies of the
organization
Functions Way to define
Managerial tasks
With corporate,
Business and
Functional
perspectives

An expression of
strategic intent :
stretching the A coherent, unifying,
organization and integrative
A definition of the pattern of
economic and decisions
non-economic
contribution
to stakeholders

Why Strategy?
Strategy decides the success and failure of an organization
e.g.

• In Retail Industry: Wal-Mart consistently outperformed whereas
Kmart (rival company) facing bankruptcy in the difficult year of 1995.
• In Computer Industry: Apple and Digital (DEC), which were regarded
as most successful, faced difficult time in 1990s whereas Compaq and
Dell flourished.
• In Semiconductor Industry: Intel consistently outperformed its closest
rivals AMD (Advanced Micro Devices).

Thinking Strategically
Should answer three Big Strategic Questions:
1. Where are we now?

2. Where do we want to go?
 Business(es) to be in and market positions to stake out.
 Buyer needs and groups to serve.
 Outcomes to achieve.

3. How will we get there?
 A company’s answer to “how will we get there?”
is its strategy.

The Hows That
Define a Company's Strategy
• How to please customers
• How to respond to changing
market conditions Strategy
is HOW
• How to outcompete rivals to . . .

• How to grow the business
• How to manage each functional piece of the business
and develop needed organizational capabilities
• How to achieve strategic and financial objectives

Crafting Company’s Strategy
A Core Management functions that should Address:
• How to attract and please customers?
• How to respond to the changing market conditions?
• How to compete successfully / outcompete rivals?
• How to grow the business?
• How to manage each function of business and develop
needed capabilities?
• How to achieve performance targets?

Characteristics of an Effective Strategy
• Objectives and goals are clearly stated and are decisive and
attainable.
• Scope for initiative and freedom of actions.
• Mobilization and use of resources at operational points.
• Flexible and manoeuvrable to facilitate alteration of a course of
action.
• Championed by a committed leadership.
• Use of speed, secrecy and intelligence to initiate surprise attack
on opponents.
• Protect the resource base of the organization as well as the key
operating points from attack by competitors.

Strategic Management Process
Strategic Management Process is all about:

• ‘Identifying an organization’s existing vision, mission and setting objectives

followed by strategy formulation, implementation & evaluation’

• Choosing a set of strategies to pursue the vision & mission of the enterprise.

• Formal planning process by the top management which involves strategy

formulation, implementation, and evaluation as a non-ending process performed

on a continuous basis .

• Top management’s major role is to identifying strategies that company will pursue

to attain goals of earning growth and value creation.

• Good communication and feedback are needed throughout the strategic

management process.

Benefits of Strategic Management
(Immediate)

- Improved Communication - Higher Efficiency
- Increased Understanding - More Effective
- Enhanced Commitment - Greater Productivity
- Allow Firm to Influence, Initiate, and Anticipate
- Be Proactive Rather Than Reactive

Benefits of Strategic Management
(Long Term)
• Enables an organization to be more proactive than reactive in
shaping its own future.
• Allows for identification, prioritization, and exploitation of
opportunities.
• Provides an objective view of management problems.
• Represents a framework for improved coordination and control of
activities.
• Minimizes the effects of adverse conditions and changes.
• Allows more effective allocation of time and resources to identified
opportunities.
• Creates a framework for internal communication among personnel.
• Provides a basis for clarifying individual responsibilities.
• Encourages a favourable attitude towards change.
• Enables firms to perform better by making more informed decisions
with good anticipation of both short and long-term consequences.

Communications Benefits of Engaging In
Strategic Management
Managers from all functional
areas listen and discuss their
views in strategic
management meetings. This
interaction yields learning,
appreciation, and
understanding among
managers who otherwise do
not communicate with each
other.

Challenges of Strategic Management
• Communicating plans to all employees.
• Ensuring that intuitive decisions made by top managers do not
conflict with the formal plans.
• Getting top managers to actively support the strategic planning
process.

• Involving all managers / key employees in all phases of
planning rather than delegating planning to a “planner”.

• Creating a collaborative climate supportive of change.
• Ensuring that flexibility and creativity is not stiffed due to
formal planning.
• Charting course of action for the future, along with solving
current problems.

Steps of Strategic Management Process

A) Strategy Formulation:
• Developing a vision and mission
• Identifying external opportunities & threats
(competitive nature)
• Determining internal strengths & weaknesses
(operational)
• Establishing long & short term objectives
• Generating alternative strategies
• Strategy Selection


Issues involved in Strategy Formulation :
• What new businesses to enter
• What businesses to abandon
• How to allocate resources
• Expand operations or diversify
• Enter international markets
• Merge or form joint venture
• Avoidance of hostile takeover


B) Strategy Implementation:
• Developing a strategy-supportive culture
• Creating an effective organizational structure
• Redirecting marketing efforts
• Preparing budgets (Resource allocations)
• Developing & utilizing information systems
• Linking employee compensation to performance

Greatest of strategies remain great only in theory unless
executed and implemented well..

Strategy Implementation

•Designing organizational structure
•Designing control systems Structure

 Market and output controls
 Bureaucratic controls
 Control through organizational culture
Controls
 Rewards and incentives
•Matching strategy, structure,
and controls
 Congruence (fit) among strategy,
Strategy
structure, and controls

© 2001 Houghton Mifflin
Company. All rights reserved.

Executing Company’s Strategy
 Staffing with needed skills and expertise
 Allocating ample resources
 Policies and procedures to facilitate execution
 Using best practices to perform core business
activities
 Installing information & operating systems
 Motivating people
 Tying rewards & incentives to performance
 Creating a company culture & work climate for
execution
 Exerting internal leadership


C) Strategy Evaluation (Monitoring):

• Reviewing external & internal factors that are bases for
current strategies.
• Measuring performance.
• Taking corrective actions.

Strategic planning and implementation work in tandem.
Best of plans would only give theoretical pleasure unless
coupled with an equally efficient implementation.

A Comprehensive Strategic Management Model
Feedback

Perform
External
Audit

Generate,
Establish Establish Measure
Develop Evaluate,
Long- Policies and Allocate and
Mission and
term Annual Resources Evaluate
Statement Select
Objectives Objectives Performance
Strategies

Perform
Internal
Audit

Strategy Formulation Strategy Implementation Strategy Evaluation

Relationship between Planning & Execution
Plan Execution Outcome
1 Good Good Thumping Success

2 Good Poor Outright failure

3 Poor Good Wastefulness

4 Poor Poor Doom

5 Average Average Moderate Results

6 Average Good Success

7 Good Average Moderate results that could be
better

An average plan >> implemented excellently >> assured success.

Business Model
A company’s Business Model is the ‘Plan of doing business related to its

cost and revenue’ or ‘ How to make money in this business’?

• Both start-up ventures and established companies need a well defined

business model to take new products and services.

• Process of business model design is part of business strategy. Company’s

strategy is complementary to its business model.

• Implementation of company’s business model is a part of Business

Operations (organization structure, human resources, sequence of

operations and systems e.g. information technology architecture,

production lines)

Relationship Between
Strategy and Business Model
Strategy - Deals with a Business Model -Concerns
company’s competitive whether costs and
initiatives, growth and revenues flowing from
superior performance. the strategy demonstrate
amply profitability and
viability of the business.

Business Model Planning
Formal descriptions of the business become the business model of a

company.

• Every business model needs to pass two critical tests, the ‘narrative test’

and the ‘numbers test’.

• Narrative test must tell a good story and explain how the business works

(who is the customer, what do they value and how a company can

deliver value to the customer).

• Numbers test means your Cost – Revenue assumptions must add up to

profits (ROI).
If Business Model doesn’t work, then model has failed on the above tests.

Link between Business Model and Strategy
Business Model Strategy

To Generate Revenues sufficient: For Competitive moves • Products

• Markets
• To cover costs
• Business Approaches •Geographies
• To produce attractive profits
(Action Plan for Business
Growth)
(Action Plan for Return on
Investments)

• Strategic
Competitiveness
• Above Average
Returns

Hierarchy of Strategic Intent
Most integrative Long Term

Vision

Mission

Goals

Objectives

Plans

Most specific Short Term

Hierarchy of Strategic Managers

Vision
Core Core
Values Purpose

Vision

Visionary
Goals

A company’s vision gives a company:

- Route for developing / Strengthening Business
- Strategic course in preparing for the future

Vision & Mission
• Vision is a formal declaration of what the
company aims to achieve in future.
• Mission is about the existence of an
organization and how the organization views
the claims of its various stakeholders.

Maruti Suzuki The leader in the Indian Automobile Customer Obsession; Fast, flexible and
Industry, creating customer delight first mover; Innovation & Creativity;
and shareholder’s wealth; A Pride of Networking & Partner ship; Openness
India & Learning

NTPC Ltd. To be one of the world's largest and Customer Focus; Organizational Pride;
best power utilities, powering India's Mutual Respect and Trust Initiative
growth and Speed ;Total Quality

ITC Sustain ITC’s position as one of India’s Trusteeship; Customer Focus; Respect
most valuable corporations through for people; Excellence Innovation;
world class performance, creating Nation Orientation
growing value for the Indian economy
and the Company’s stakeholders.

Tata Power To be the most integrated power and Integrity; Trust; Care; Collaboration
energy company delivering sustainable Agility; Respect; Excellence
value to all Stakeholders

SAIL To be a respected world class Lasting relationships with customers
corporation and the leader in Indian based on trust and mutual benefit;
steel business in quality, productivity, Highest ethical standards in conduct of
profitability and customer satisfaction. business; Culture that supports
flexibility, learning and is proactive to
change; Opportunity and responsibility
to make a meaningful difference in
people's Lives

COMPANY MISSION
Maruti Suzuki Motorize India

NTPC Ltd Develop and provide reliable power, related products and services at
competitive prices, integrating multiple energy sources with
innovative and eco-friendly technologies, and contribute to society

ITC To enhance the wealth generating capability of the enterprise in a
globalizing environment, delivering superior and sustainable
stakeholder value.

Tata Power We will become the most admired company delivering sustainable
value by being the supplier partner by choice; achieving
excellence in safety, operations & project management;
focusing on the culture of sustainability; ensuring growth
and delivering value to all stakeholders; caring for the community.

BSES, Delhi To attain global best practices and become a world-class utility;
to provide: uninterrupted, affordable, quality, reliable, safe and
clean power to our customers; to achieve excellence in: service,
quality, reliability, safety and customer care; to earn: trust and
confidence of all customers and stakeholders by exceeding their
expectations, and make the company a respected household name;
to promote a work culture that fosters: individual growth,
team sprit and creativity to overcome challenges and attain goals.

Stakeholders
Are individuals or groups that have an interest, claim, or stack in the
company.
• Internal Stakeholders: stockholders, employees, including executive officers,
managers and board members.
• External Stakeholders: customers, suppliers, government, unions, local
communities, and the general public.

• Each stakeholder has some claim on the company. A company must take these
claims into account when formulating its strategies or else stakeholders may
withdraw their support. It is not possible to satisfy claims of all stakeholders. The
goals of different groups may conflict and in practice few organizations have the
resources to manage all stakeholders.

Process of Crafting and Executing
Company’s Strategy
A five-phase managerial process:
1. Developing a strategic vision – where company needs to head.
2. Setting objectives and using them as yardsticks for measuring
company’s performance and progress.
3. Crafting a strategy to achieve the desired outcomes and move the
company along the strategic course.
4. Implementing and executing the chosen strategy efficiently and
effectively.
5. Monitoring developments and initiating corrective adjustments in the
company’s long term direction, objectives, strategy, or execution in light
of company actual performance, changing conditions, new ideas and
new opportunities.

Strategy-Making, Strategy-Executing Process

Crafting a Monitoring
Developing Setting Strategy to Implementing developments,
A Strategic Achieve the and executing evaluating
Objectives
vision Objectives the strategy performance &
And vision making
corrective
adjustments

Revise as needed in light of actual performance,
changing conditions

Basis for Good Strategic Decisions

Analysis + Intuition

Effective Strategic Decisions

Keys to Formulating Strategies

Business Mission

External Internal
Opportunities Strengths and
and Threats Weaknesses

Strategy Formulation

Partly Proactive and Partly Reactive
Strategies
(Based on Internal & External Factors)

Ten Key External Forces
Competitive

Economic Technological

Social Governmental

Cultural Political

Demographic Environmental
Legal

External Analysis
Identifying strategic opportunities and
threats in the operating environment.

Immediate (Industry)

Macroenvironment National

Opportunities and Threats (External)
Beyond the control of a single organization

Basic tenet of strategic management
Strategy formulation to:

 Take advantage of external opportunities

 Avoid or reduce impact of external threats

Fourteen Key Internal Forces
Management

Marketing Manufacturing

Research & Production/
Development Operations

Purchasing Distribution

Key Internal Forces (cont.)
Finance/Accounting

Packaging Promotion

Human Employee/
Resource Manager
Management Relations

Computer
Vendor Information
Relations Systems

Internal Analysis
•Identify Strengths
– Quality and quantity of resources available
– Distinctive competencies
•Identify Weaknesses
– Inadequate resources
– Managerial and
organizational deficiencies

Strengths and Weaknesses (Internal)
Controllable activities

Arise in functional areas of the business:

• Management
• Marketing
• Finance/accounting
• Production/operations
• Research & development
• Computer Information Systems

A Company’s Strategy-Making Hierarchy
The companywide CORPORATE
game plan for managing a set of STRATEGY
businesses

Two-way influence

BUSINESS
One for each business the company has
STRATEGY
diversified into

Two-way influence

Functional-area
FUNCTIONAL
strategies within
STRATEGY
each business

Two-way influence

Operating strategies within OPERATING
each business STRATEGY

Corporate-Level Strategies
•Vertical integration
•Diversification
•Strategic alliances
•Acquisitions
•New ventures
•Business portfolio
restructuring

Corporate Level Issues
Scope Decisions

International
Product Diversity Diversity

Corporate Parenting Managing the
Roles Portfolio

Value Creation

Business-Level Strategies
•Cost leadership
– Attaining, then using the lowest total cost basis as
a competitive advantage.
•Differentiation
– Using product features or services to distinguish
the firm’s offerings from its competitors.
•Market niche focus
– Concentrating competitively on
a specific market segment.

Functional-Level Strategies
Focus is on improving the effectiveness of
operations within a company.
– Manufacturing
– Marketing
– Materials management
– Research and development
– Human resources

Global-Level Strategies
– Multi-domestic
– International
– Global
– Transnational

Evaluating Company Resources
Tangible Resources Intangible Resources
Financial  The firm’s borrowing Human  Knowledge
capacity  Trust
 Ability to generate internal  Managerial capabilit
funds  Organizational routin

Organizational  Firm’s reporting structure Innovation  Ideas
and formal planning ,  Scientific capabilitie
controlling systems  Capability to innova

Physical  Location of a firm’s plant Reputational  Brand name
& equipment  Reputation with
 Access to raw materials customers / suppliers
 Perceptions about
product quality,
durability & reliabilit
Technological  Stock of technology such
as patents, trademarks,
copyrights and trade secrets

Evaluating the Company's Current
Strengths / Weaknesses
 Firm's sales growing faster / slower / same pace as the market ?
 Acquiring new customers as well as retaining existing customers ?
 Profit margins increasing / decreasing ?
 Trends in the firm's net profits / ROI ?
 Overall financial strength / credit rating improving / declining ?
 Continuous improvement in internal measures ?
 Shareholders' view of the company ?
 Image / reputation with customers ?
 Company vis-a-vis rivals with respect to technology , product innovation etc. ?

Company Competencies and Capabilities

A competence is something an organization is good at doing;
it is the product of learning and experience.

A core competence is a competitively important activity that
a company performs better than other internal activities.

A distinctive competence is a competitively valuable activity
that a company performs better than its rivals.

Examples: Strategies Based
on Distinctive Capabilities
• Sophisticated distribution systems – Wal-Mart
• Product innovation capabilities – 3M Corporation
• Complex technological process – Michelin
• Defect-free manufacturing – Toyota and Honda
• Specialized marketing and merchandising know-how – Coca-
Cola
• Global sales and distribution capability – Black & Decker
• Superior e-commerce capabilities – Dell Computer
• Personalized customer service – Ritz Carlton hotels

SWOT Analysis
Tool for auditing an organization and its environment.
It is a way to analyze competitive position of a company / business.

Environmental Scan

Internal Analysis External Analysis

Strengths Weaknesses Opportunities Threats

SWOT Matrix

SWOT Matrix
A graphical representation of the SWOT framework.

TOWS Matrix
TOWS analysis is similar to the SWOT.
It looks at the negative factors first in order to turn them into positive factors.

Strengths Weaknesses

Opportunities S – O strategies W – O strategies

Threats S – T strategies W – T strategies

S – O strategies : pursue opportunities that are good fit to the company’s strengths

W- O strategies : overcome weaknesses to pursue opportunities

S – T strategies : identify ways to use strengths to reduce vulnerability to external
threats

W – T strategies : establish a defensive plan to prevent the firm’s weaknesses from
making it highly susceptible to external threats

Strategic Environmental Opportunity
Options
Turnaround-
Aggressive
Oriented
Strategy
Strategy

Critical Internal Critical Internal
Weakness Strength

Defensive Diversification
Strategy Strategy

Environmental Threat

BCG Growth – Share Matrix
A model for managing a portfolio of different business units (or
major product lines), The matrix displays the various business units
on a graph of the market growth vs. market share relative to
competitors.

Developed by
Boston Consulting
Group In 1970

BCG Growth – Share Matrix (Contd.)
BCG matrix provides a framework for allocating resources among different business units
according to their position on the grid as follows:

Cash Cow – A business unit that has large market share in a mature, slow growing industry.
Cash caws require little investment and generate cash that can be used to invest in other
business units. (Products generate high amounts of cash for the company, but growth rate is
slowing).

Star - A business unit that has large market share in fast growing industry. Star may generate
cash, but because the market is growing rapidly they require investment to maintain their
lead.

Question Mark (or Problem Child) - A business unit that has a small market share in high
growth market. These require resources to grow market share, but whether they will succeed
and become stars is unknown.

Dogs - A business unit that has a small market share in a mature industry. May not require
substantial cash, but it ties up capital that could better be deployed elsewhere. Unless a dog
has some other strategic purpose, it should be liquidated if there is little prospect for it to
gain market share.

GE / McKinsey Matrix
GE Matrix, attempts to improve upon BCG Matrix. It maps SBUs on a
grid of industry and SBU position in the industry. It has nine cells vs.
Four cells in the BCG matrix.

Developed by McKinsey
& Co as a tool for
screening GE large
portfolio of SBUs In
1970

GE / McKinsey Matrix (Cont.)
Industry Attractiveness Factors: Market Growth Rate, Market Size, Demand
Variability, Industry Profitability, Industry Rivalry, Global Opportunities, Macro-
environmental Factors

Business Unit Strength
Factors:
Market Share,
Growth in Market
Share,
Brand Equity,
Distribution Channel
Access,
Production Capacity,
Profit Margin Relative
to Competitors

Ansoff's Matrix - Planning for Growth
Diversification is part of the four main growth strategies defined by the Product /
Market Ansoff matrix:

Diversification
usually requires
a company to
acquire new
skills, new
techniques and
new facilities.

Corporate Parent

Centre

Divisions

Business
The corporate parent refers to the levels of management above that of the business
units, and therefore without direct interaction with buyers and competitors. There are
three styles of corporate parenting: financial control, strategic planning and strategic
control.

Parenting
The role of corporate headquarters (parent) to share wisdom, insight and
guide multi-businesses (children) to help to excel.

 Helping large businesses to dismantle their hierarchical structures.
 Ensuring businesses are led by managers with specialized skills.
 Providing a clear vision to the business unit managers.
 Monitor and attempt to avoid predictable errors.
 Link different businesses to improve market position/efficiency.
 Share capabilities across businesses.
 Share specialized / rare expertise with businesses
(scale economies)
 Maintain external relationships with stakeholders
 Assist business units in taking difficult/major decisions.
 Assist business units to revamp their processes / businesses.

 Hierarchies delay decisions.
 Buffer the executives in business so that they are not answerable for performance of
their business.
 Diversity and size of corporations might inhibit from having a clear vision.

Porter’s Five Forces Model of Competition
(A Model for Industry Analysis)

Attractiveness:
Overall Industry
Profitability

Unattractive:
Low Overall
Profitability or
Intense
Competition

Combination of five forces determines the competitive
intensity or attractiveness of a market in which an
industry operates

Competitive Strategy
3 Questions
 Who are the customers ?
 What are their needs ?
 How to satisfy those needs ?
-------------------
 Customers are the foundation for business level
strategy.
 Aim of every firm to deliver maximum value to
the customers.
 And establish long term relationship with them.
Customer is the King

Porter’s Generic Strategies
According to Michael Porter a firm’s strengths ultimately fall into two headings: Cost
Advantage and Differentiation. Called generic – as not dependent on firm or industry.
Applied at the business unit (SBU) level.

Generic
Strategies:

Cost Leadership

Differentiation

Focused

Generic Competitive Strategies
• Cost Leadership Strategy: This usually targets broad markets by cutting costs and
selling at average industrial prices or lower. Firms acquire low cost advantages by
improving process efficiencies, gaining access to bulk lower cost materials,
optimizing outsourcing, technology upgrade and vertical integration or avoiding
some costs altogether.

• Differentiation Strategy: By developing and offering unique product or service those
customers perceive to be better than or different from competitor’s product.
Products are sold at premium price that covers extra cost for product uniqueness
and additional profit. Require leading scientific research and creative product
development capabilities, strong sales team and corporate reputation for quality
and innovation.

• Focused Strategy: Concentrate on a narrow segment and within the segment
attempts to achieve either a cost advantage or differentiation. Enjoys customer
loyalty with lower volumes.

• Combination of Generic Strategies: Focused Low Cost, Focused Differentiation,
Best Cost Provider

Strategic Business Unit (SBU)
SBU is a business unit within the overall corporate identity which is
distinguishable from other business because it serves a defined external
market where management can conduct strategic planning in relation to
products and markets.

SBU has its own business strategy, objectives and competitors and these will
often be different from those of the parent company.

SBUs are self contained divisions formed within an organization for dealing
with specific business concerns with full profit and loss responsibility invested
in the top management of the unit.

Purpose behind the formation of strategic business units is to serve a clear
and defined market segment along with a clear and defined strategy.

When companies become really large, they are best managed as an
organization of a number of businesses (or SBUs).

Strategic Business Unit Structure
SBUs are also referred to as independent business units or strategic planning
units to gain competitive advantage in the populated marketplace.
SBUs might be based on product lines, geographic markets, or other
differentiating factors.
SBU Structure based on geographic areas

A Company’s Menu of Strategy Options
1. Collaborative Strategies: Alliances and Partnerships
2. Merger and Acquisition Strategies
3. Vertical Integration Strategies: Operating Across More Stages of the Industry
Value Chain
4. Outsourcing Strategies: Narrowing the Boundaries of the Business
5. Offensive Strategies: Improving Market Position and Building Competitive
Advantage
6. Defensive Strategies: Protecting Market Position and Competitive Advantage
7. Web Site Strategies
8. Choosing Appropriate Functional-Area Strategies
9. First-Mover Advantages and Disadvantages
(Also Known as CooperativeStrategies)

Collaborative Strategies:
Alliances and Partnerships
• Companies sometimes use strategic alliances
or collaborative partnerships to complement
their own strategic initiatives and strengthen
their competitiveness.

• Such cooperative strategies go beyond
normal company-to-company dealings but fall
short of merger or full joint venture
partnership.

Alliances Can Enhance a Firm’s
Competitiveness
Alliances and partnerships can help companies
cope with two demanding competitive challenges

 Racing against rivals to build a market presence in many
different national markets

 Racing against rivals to seize opportunities on the
frontiers of advancing technology

Collaborative arrangements can help a company
Lower its costs and/or gain access to needed
Expertise and capabilities

Characteristics of a Strategic Alliance
Strategic alliance – A formal agreement between two or more separate
companies where there is

 Strategically relevant collaboration of some sort
 Joint contribution of resources
 Shared risk
 Shared control
 Mutual dependence

Alliances often involve

 Joint marketing
 Joint sales or distribution
 Joint production
 Design collaboration
 Joint research
 Projects to jointly develop new technologies or products

Joint Venture –Financial Partnership / Sharing Control / Sharing Profit & Loss

Potential Benefits of Alliances to Achieve
Global and Industry Leadership
 Get into critical country markets quickly to accelerate process of
building a global presence
 Gain inside knowledge about unfamiliar markets and cultures
 Access valuable skills and competencies concentrated in particular
geographic locations
 Establish a beachhead (base) to participate in target industry
 Master new technologies and build new expertise faster than would
be possible internally
 Open up expanded opportunities in target industry by combining
firm’s capabilities with resources of partners

Benefits of Strategic Alliances

Guidelines in Forming Strategic Alliances

Joint Ventures
Going with a partner in foreign country:

• JV is a useful strategy in competitive markets
• Control exercised with shared risk
• JV agreement with a company from the target country market is an entry strategy

• Types of JVs:
 Contractual Joint Ventures (for projects with time frame)
 Equity Joint Ventures (long term)

• JV may be necessary due to legal restrictions on foreign investment
• Reduces the investment required by a foreign firm, besides reducing risk
• Foreign partner stands to gain from local expertise
• Foreign investor may find the local partner redundant after some time
• Local partner may become a competitor after the end of the agreement
Example: Hero Honda Motors Ltd.,

Merger and Acquisition Strategies
M&A refers to the corporate strategy dealing with the buying, selling and
combining of different companies that can aid, finance, or rapid growth of
company without having to create another business entity.

A merger happens when two firms agree (mutually consented) to go forward
as a single new company rather than remain separately owned and
operated. When firms are of about the same size called "merger of equals”.

In the 1999 merger of Glaxo Wellcome and SmithKline Beecham, both firms
ceased to exist when they merged, and a new company, GlaxoSmithKline,
was created.

An acquisition (takeover) is the purchase of one company by another
company. It may be friendly or hostile.

When the deal is unfriendly (that is, when the target company does not want
to be purchased) it is always regarded as an acquisition.

Merger and Acquisition Strategies
 Merger – Combination and pooling of equals, with newly created
firm often taking on a new name
 Acquisition – One firm, the acquirer, purchases and absorbs
operations of another, the acquired
 Merger-acquisition strategy
 Much-used strategic option
 Especially suited for situations where alliances do not provide a
firm with needed capabilities or cost-reducing opportunities
 Ownership allows for tightly integrated operations, creating more
control and autonomy than alliances

Objectives of Mergers and Acquisitions
 To create a more cost-efficient operation
 To expand a firm’s geographic coverage
 To extend a firm’s business into new product categories or
international markets
 To gain quick access to new technologies or competitive
capabilities
 To invent a new industry and lead the convergence of industries
whose boundaries are blurred by changing technologies and
new market opportunities

Rationales for M&A
Acquiring firms seek improved financial performance or growth by:

• Economy of Scale: reduction in fixed cost and increasing profit margins.

• Economy of Scope: Increasing the scope of marketing and distribution, of
different types of products.

• Vertical Integration: Merger of an upstream and downstream firm.

• Increasing revenue or market share: Merged identity increases market
power (market share of competitor) to set prices.

• Synergy: Increased opportunities of specialization and managerial and
purchasing economics.

• Taxation: Reducing tax liability by acquiring assets of a non-performing
company.

Vertical Integration Strategies
 The degree to which a firm owns its upstream suppliers and its downstream
buyers is referred to as vertical integration.

 Extend a firm’s competitive scope with in same industry

 Can aim at either full or partial integration

 Deciding issues for vertical integration are: Cost & Control

• Forward Integration: downstream expansion of activities (towards end-users
of final product)

• Backward Integration: upstream expansion of activities (into sources of
supply)

Improve supply–chain efficiency, better control over inputs/outputs, expansion
of core competencies, capturing upstream / downstream profit margins

Overview of an Enterprise
upstream downstream

Backward Integration Forward Integration

Example of Backward & Forward Integrations

Pros and Cons of
Integration vs. De-Integration
 Whether vertical integration is a viable strategic option depends on
its
 Ability to lower cost, build expertise, increase differentiation, or
enhance performance of strategy-critical activities
 Impact on investment cost, flexibility, and administrative overhead
 Contribution to enhancing a firm’s competitiveness

Many companies are finding that de-integrating value chain activities
is a more flexible, economic strategic option!

Outsourcing Strategies
Outsourcing involves withdrawing from certain value chain
activities and relying on outsiders to supply needed
products, support services, or functional activities
Internally
Performed
Activities Functional
Suppliers Activities

Support Distributors
Services or Retailers

Involves farming out certain value chain activities to outside vendors

When Does Outsourcing Make
Strategic Sense?
• Activity can be performed better or more cheaply by outside specialists

• Activity is not crucial to achieve a sustainable competitive advantage

• Risk exposure to changing technology and/or changing buyer preferences is reduced

• It improves firm’s ability to innovate

• Operations are streamlined to
 Improve flexibility
 Cut time to get new products into the market
• It increases firm’s ability to assemble diverse kinds of expertise speedily and

efficiently

• Firm can concentrate on “core” value chain activities that best suit its resource

strengths
Risk: Losing touch with activities and expertise that determine overall long-term
success

Offensive and Defensive Strategies
Type of marketing warfare strategy designed to obtain an objective, usually market
share, from a target competitor.
In addition to market share, an offensive strategy could be designed to obtain key
customers, high margin market segments, or high loyalty market segments.

Offensive Strategies Defensive Strategies

Used to build: Used to protect:
new or stronger market competitive advantage
position (rarely lead to creating
and / or advantage)
create competitive
advantage

Low-cost Country Sourcing (LCCS) Strategy
Common examples:

• Labor - intensive manufacturing: products
produced using low-cost Chinese labor,

• Call centres staffed with low-cost English
speaking workers in the Philippines and India,

• IT work performed by low-cost programmers in
India and Eastern Europe.

Just- in-Time Strategy
Requires cooperation, coordination, and information sharing to
eliminate inventory across the supply chain. Strategic features:

• Commitment to zero defects by seller and buyer.
• Frequent shipments of small lot sizes according to strict quality and
delivery performance standards.
• Closer, even collaborative, buyer-seller relationship.
• Stable production schedule sent to suppliers on a regular basis.
• Extensive information sharing electronically between supply chain
members.
• Electronic data interchange capability with suppliers.

Strategic Framework for Supply Chain

Supply Chain Strategy or Design

Web Site Strategies
 Strategic Challenge – What use of the Internet should a company
make in staking out its position in the marketplace?
 Five Web site approaches
• Use to disseminate only product information (Catalogue website)
• Use as minor distribution channel to sell direct to customers
• Use as one of several important distribution channels to access
customers
• Use as primary distribution channel to access buyers
• Use as exclusive channel to transact sales with customers (E-
commerce website)

Using the Internet to
Disseminate Product Information
 Approach – Website used to provide product information of
manufacturers or wholesalers/dealers
-> Informs end-users of location of retail stores
-> Relies on click- through to websites of dealers for sales transactions

 Issues – Pursuing online sales may
-> Signal weak strategic commitment to dealers
-> Signal willingness to cannibalize dealers’ sales
-> Prompt dealers to aggressively market rivals’ brands

 Avoids channel conflict with dealers – Important where strong
support of dealer networks is essential

Effective Website Strategies
Having a website is one thing, but making it work
to produce enquiries and sales is quite another.
In simple terms your website should achieve 3
objectives:
• Attract visitors
• Engage them so they stay on your site
• Covert them from visitors to customers
‘Online marketing initiatives are cost effective’

Effective Website Strategies
1. Define your target audience (ideal visitors profile)
2. Content is king (appropriate & relevant to target audience)
3. Tell people about it (display widely)
4. Optimise it online (SEO & SMO)
5. Make sure you measure (web analytical tools for traffic,
transactions & customer satisfaction)
6. What will your website do? (either selling, or information or
both)
7. Differentiate your website (stand out from the crowd and easy
to navigate)

Advertisement will appear here
Advertisement will appear here

Private & Confidential

Website Traffic Measurement
May 8,2010 to June 7, 2010 (After the Campaign)

Google Analytics

First-Mover Advantages
 When to make a strategic move is often as crucial
as what move to make

 First-mover advantages arise when

 Pioneering helps build firm’s image and reputation

 Early commitments to new technologies, new-style
components, and distribution channels can produce cost
advantage

 Loyalty of first time buyers is high

 Moving first can be a preemptive strike

Choosing Appropriate
Functional-Area Strategies
Involves strategic choices about how functional
areas are managed to support competitive
strategy and other strategic moves

Functional strategies include:

 Research and development
 Production
 Human resources
 Sales and marketing
 Finance
Managing a particular activity in ways that support the overall business strategy.

Entering Strategy for Foreign Markets
Exporting (Indirect/Direct) >>> Joint Ventures >>> Direct investment

Indirect Exporting:
• Exporting through intermediary or distribution channel.
• Involve least risk and limited capital expenditure.
• Use merchants who sell the products of the company in international
markets or
• Use the distribution facilities of other firms in the international markets
• Export through merchant exporters or large trading houses who export
products on behalf of several small firms collectively

Distribution chains e.g. Wal-Mart, Malls, Stores

Products: FMCG, garments, handicrafts, processed food, medicines,
electronics, etc.

Exporters: Haldiram, MDH, LG, Samsung, Dell, HP, etc.

Entering Strategy for Foreign Markets
Direct Exporting:
• Company decides to export its products itself and Shipping goods directly to a
foreign buyer.
• Develops overseas contacts, undertakes marketing research, handles
documentation and transportation, and decides the marketing mix.
• Involve identification of foreign buyers and taking risk directly.
• May establish a sales and marketing office in the foreign market

Long term and repeated supplies to Original Equipment Manufacturers (OEMs),
spare part markets, large scale industries, projects, etc.
Products: Auto Parts, Hand Tools, Industrial Raw Materials, etc.
Exporters: like Sundram Fasteners, MRF Tyre, Sesa Goa, …………….

Motivation for Competing Internationally

Multinational Corporations (MNCs)
MNCs are firms that are incorporated in one country and have production
and sales operations in other countries. There are about 60,000 MNCs in
the world. Many MNCs obtain raw materials from one nation, financial
capital from another, produce goods with labor and capital equipment in
a third country and sell their output in various other national markets.

Top 10 MNCs
1 General Electric United States
2 Ford Motor Company United States
3 Royal Dutch/Shell Group Netherlands/ UK
4 General Motors United States
5 Exxon Corporation United States
6 Toyota Japan
7 IBM United States
8 Volkswagen Group Germany
9 Nestlé SA Switzerland
10 Daimler-Benz AG Germany

Strategy Options for Competing in
Foreign Markets

International Vs. Global Competition

Multi-Country Vs. Global Strategy

McDonalds - Customized Products IBM – Standardized Products

International Corporate-Level Strategies

Characteristics of Multi-Country Competition

Characteristics of Global Competition

Cross-country Differences in Cultural,
Demographic, & Market Conditions

Market Differs Country to Country

Different Countries – Different Conditions

Fluctuating Exchange Rates – Affects
Company’s Competitiveness

Strategic Framework of Foreign
Exchange Risk Management
 Forecasts
 Risk Estimation
 Benchmarking
 Hedging
 Stop Loss
 Reporting and Review

Corporate Governance (CG)
CG is defined as the general set of customs, procedures,
policies, regulations, habits, and laws that determine the
way a corporation (or company) is directed, administrated
or controlled.
CG is most explicitly define as:
a) making sure that boards and managers don’t lie, cheat
and steal, or
b) clarifying that shareholders are the “real owners” of the
firm (a legal stance that appears to be untrue)

CG relates to the nature and extent of accountability of
particular individuals in the organization.

Corporate Governance

Corporate Governance reflects and enforces the company’s values!

Corporate Governance:
Strategic Role of Board of Directors

Obligations of Board of Directors

CG at Infosys
Corporate governance is a reflection of our culture,
policies, our relationship with stakeholders, and our
commitment to values. Infosys has been a pioneer in
benchmarking its corporate governance practices
with the best in the world.

The primary purpose of corporate leadership is to
create wealth legally and ethically. This translates to
bringing a high level of satisfaction to five
constituencies - customers, employees, investors,
vendors and the society-at-large.

N.R. Narayana Murthy (Chairman of the Board and Chief
Mentor)

Strategy Implementation:
Why Strategic Plans Often Fails
Poor prioritization – highest level of strategy is selection of
priorities.
Lack of detailed planning to support plan goal
achievement – planning is road map while communication and
feedback are essence of execution.
Strategy and culture misalignment – plans to match
the existing culture, human system and operating procedures.
Accountability missing from plan goals – defining
clear responsibilities and authority for rewards and sanctions.
Poor planning governance – high-level leadership for
overall plan performance.
Ill-defined strategic goals – ambiguity avoidance

Strategy Implementation:
Link to Execution
 Top-Down, Bottom-Up – seeking active participation from the
lower levels
 Understanding of Acceleration - reality check on the planning
process
 Accountability, Performance and Reward

 Energy and Focus - first mobilize organization energy, then

focus it

 Communication

 Governance

Balanced Scorecard (BSC)
A strategic approach and performance
management system that enables
organizations to translate company’s vision and
strategy into implementation from four
perspectives:
 Financial (How do we appear to shareholders?)
 Customer (How do customer view us?)
 International Business Perspective (What must we
excel at?)
 Learning and Growth (Can we continue to improve
and create value?)

Balanced Scorecard Approach -
Strategic & Financial Objectives

Strategy Evaluation and Control

Measures of Corporate Performance

Strategic Audit
Type of management audit that is extremely useful
as a diagnostic tool to pinpoint corporate-wide
problem areas and to highlight organization
strength and weakness.

Thank You,

Sunil Garg
B. Tech. M. Tech. MBA
Industry Consultant & Management Professor (IB, SCM & Strategy)

Advisory Board Member - ISCEA, USA – www.iscea.com
Country Head (India) - BRASI, Canada - www.brasi.org
Director – IKN, Canada - www.iknownetwork.org
Ph: +91 98688 77774 / 98716 58884, USA: +1 815 349 6142

http://in.linkedin.com/in/skgarg

Strategic Planning & Management

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