11. Strategy.ppt

Copyright © 2002 by South-WesternCopyright © 2002 by South-Western 2–2–11

Managing Strategy Managing Strategy

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Strategic PlanningStrategic Planning


StrategyStrategy A plan for accomplishing organization’s goals. A plan for accomplishing organization’s goals.

Strategic ManagementStrategic Management A management process aimed at formulating and A management process aimed at formulating and

implementing effective strategies. implementing effective strategies.

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The Nature of Strategic ManagementThe Nature of Strategic Management

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Component of StrategyComponent of Strategy

Distinctive Distinctive CompetenceCompetence

ScopeScope Resource Resource DeploymentDeployment


Ansoff Growth Matrix….Ansoff Growth Matrix….

Existing

New

Existing NewProduct

Market

MarketPenetration

New ProductDevelopment

MarketExtension

Diversification



Types of Strategic AlternativesTypes of Strategic Alternatives11 Business-Level StrategyBusiness-Level Strategy The set of strategic alternatives that an organization chooses from as it conducts The set of strategic alternatives that an organization chooses from as it conducts

business in a particular industry or a particular market.business in a particular industry or a particular market.

22 Corporate-Level StrategyCorporate-Level Strategy The set of strategic alternatives that an organization chooses from as it manages its The set of strategic alternatives that an organization chooses from as it manages its

operations simultaneously across several industries and several markets.operations simultaneously across several industries and several markets.

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Strategy Formulation and ImplementationStrategy Formulation and Implementation11 Strategy FormulationStrategy Formulation The set of processes involved in creating or determining the The set of processes involved in creating or determining the

organization’s strategies.organization’s strategies.

22 Strategy ImplementationStrategy Implementation The methods by which strategies are operationalized or The methods by which strategies are operationalized or

executed within the organization.executed within the organization.


Using SWOT Analysis to Formulate StrategyUsing SWOT Analysis to Formulate Strategy

• StrengthsStrengths• WeaknessesWeaknesses• OpportunitiesOpportunities• ThreatsThreats

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Evaluating Organization’s StrengthEvaluating Organization’s StrengthOrganizational StrengthOrganizational Strength Skills and abilities enabling an organization to Skills and abilities enabling an organization to

conceive of and implement strategiesconceive of and implement strategies..11 Common Organizational StrengthsCommon Organizational Strengths

A skill or capability held by numerous competing firmsA skill or capability held by numerous competing firms22 Distinctive CompetenciesDistinctive Competencies Useful for competitive advantage and superior Useful for competitive advantage and superior

performance.performance.33 Sustained Competitive AdvantageSustained Competitive Advantage Occurs when a distinctive competence cannot be easily Occurs when a distinctive competence cannot be easily

duplicated and is what remains after all attempts at duplicated and is what remains after all attempts at strategic imitations have ceased.strategic imitations have ceased.



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Evaluating Organization’s WeaknessEvaluating Organization’s Weakness A skills and capabilities that do not enable an A skills and capabilities that do not enable an

organization to choose and implement strategies that organization to choose and implement strategies that support its mission.support its mission.

Way to overcome:Way to overcome: 11 Investments to obtain the strengths needed.Investments to obtain the strengths needed.

e.g. Asian Paints TINTING Machines at Retailer e.g. Asian Paints TINTING Machines at Retailer LocationsLocations

22 Modification of the organization’s mission Modification of the organization’s mission e.g. IBM from Hardware to Softwaree.g. IBM from Hardware to Software



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Evaluating Organization’s OpportunitiesEvaluating Organization’s Opportunities Areas in the organization’s environment that may Areas in the organization’s environment that may

generate high performance.generate high performance.

Evaluating Organization’s ThreatsEvaluating Organization’s Threats Areas in the organization’s environment that Areas in the organization’s environment that

make it difficult for the organization to achieve make it difficult for the organization to achieve high performancehigh performance


Formulating Business-Level StrategiesFormulating Business-Level Strategies

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Porter’s Generic StrategiesPorter’s Generic Strategies

Strategy TypeStrategy Type DefinitionDefinition ExamplesExamplesDifferentiationDifferentiation Distinguish Distinguish

product or product or servicesservices

Rolex (watches)Rolex (watches)Mercedes-BenzMercedes-Benz(automobiles)(automobiles)

Overall cost Overall cost leadershipleadership

Reduce Reduce manufacturing manufacturing and other costsand other costs

SonataSonataMarutiMaruti

FocusFocus Concentration Concentration on specific on specific regional market, regional market, product market, product market, or group of or group of buyersbuyers

Ashok Masale, Ashok Masale, Bagh-Bakri ChaiBagh-Bakri ChaiChandrika SoapChandrika Soap



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The Miles and Snow TypologyThe Miles and Snow Typology

Strategy TypeStrategy Type DefinitionDefinition ExampleExampleProspectorProspector Innovative and Innovative and

growth orientedgrowth orientedAmazon.comAmazon.com

DefenderDefender Protect current Protect current market, maintains market, maintains stable growthstable growth

eBay.comeBay.com

AnalyzerAnalyzer Maintains current Maintains current markets and markets and customer customer satisfactionsatisfaction

IBMIBMYahooYahoo

ReactorReactor Reacts to changes Reacts to changes in the in the environmentenvironment

HMT watchesHMT watchesAmbassadorAmbassador



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Strategies Based on the Product Life Cycle

Introduction

Stages

Growth Maturity Decline

High

Low

Sale

s V

olum

e

Introduction Growth Maturity Decline

Time


Implementing Business –Level StrategiesImplementing Business –Level Strategies

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Implementing Porter’s Generic StrategiesImplementing Porter’s Generic StrategiesDifferentiation StrategyDifferentiation Strategy ● ● Marketing and sales emphasize high quality. Marketing and sales emphasize high quality. (Sony)(Sony) ● ● Accounting and finance control the flow of money.Accounting and finance control the flow of money.

Overall Cost Leadership StrategyOverall Cost Leadership Strategy ● ● Marketing and sales focus on simple product attributes Marketing and sales focus on simple product attributes

and how they meet customer needs.and how they meet customer needs. ● ● Accounting and finance control the flow of money.Accounting and finance control the flow of money. ● ● Management for reducing cost. Management for reducing cost. (Big Bazaar)(Big Bazaar) ● ● Manufacturing for standard product. Manufacturing for standard product. (Cello pens)(Cello pens)



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Implementing Miles and Snow’s strategiesImplementing Miles and Snow’s strategiesProspector StrategyProspector Strategy ● ● Encouraging creativity. Encouraging creativity. (Apple)(Apple) ● ● Encouraging flexibility. Encouraging flexibility. (3M)(3M)

Defender StrategyDefender Strategy ● ● Attempts to protect market from new competitors.Attempts to protect market from new competitors.

(Maruti & LIC)(Maruti & LIC) ● ● Focus on reducing cost.Focus on reducing cost. ● ● Focus on improving performance of products.Focus on improving performance of products.



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Implementing Miles and Snow’s strategies Implementing Miles and Snow’s strategies Analyzer StrategyAnalyzer Strategy ● ● Maintain current business. Maintain current business. (Mother Dairy)(Mother Dairy) ● ● Focus on innovation.Focus on innovation. ● ● Strong accounting and financial control.Strong accounting and financial control. ● ● Provide high flexibility.Provide high flexibility. ● ● Provide high creativity and low cost.Provide high creativity and low cost.


Formulating Corporate-level StrategiesFormulating Corporate-level Strategies

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DiversificationDiversification Describes number of different business and relation among Describes number of different business and relation among

business. business. (ITC)(ITC)

Single-Product StrategySingle-Product Strategy Organization manufactures one product and sells it in single Organization manufactures one product and sells it in single

geographic market. geographic market. (Harvest Gold)(Harvest Gold)

Disadvantage:Disadvantage: If the product is not accepted then company will suffer.If the product is not accepted then company will suffer.

Copyright © 2002 by South-WesternCopyright © 2002 by South-Western 2–2–1818 18

Related DiversificationRelated Diversification Organization operates in several different businesses, Organization operates in several different businesses,

industries, or markets that are somehow linked.industries, or markets that are somehow linked.

Bases of Relatedness for ImplementationBases of Relatedness for Implementation

Basis of RelatednessBasis of Relatedness ExamplesExamplesSimilar technologySimilar technology Phillips, BoeingPhillips, BoeingCommon distribution and Common distribution and marketing skillsmarketing skills

HUL, NestleHUL, Nestle

Common name brand and Common name brand and reputationreputation

AMUL, MaggiAMUL, Maggi

Common customersCommon customers AirtelAirtel


Formulating Corporate-Level StrategiesFormulating Corporate-Level Strategies

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Unrelated DiversificationUnrelated Diversification Organization operates multiple businesses that are not logically Organization operates multiple businesses that are not logically

associated with one another. associated with one another. (ITC)(ITC)

AdvantagesAdvantages ●●Stable corporate-level performance over time. Stable corporate-level performance over time. ● ● Resources can be allocated to areas with the highest return Resources can be allocated to areas with the highest return

potentials to maximize corporate performance.potentials to maximize corporate performance. DisadvantagesDisadvantages ●● Strategy does not usually lead to high performance.Strategy does not usually lead to high performance. ● ● Firms with unrelated strategies fail to exploit important Firms with unrelated strategies fail to exploit important

synergies, putting them at a competitive disadvantage to firms synergies, putting them at a competitive disadvantage to firms with related diversification strategies.with related diversification strategies.


Implementing Corporate-Level StrategiesImplementing Corporate-Level Strategies

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Becoming Diversified FirmBecoming Diversified Firm

3 ways:3 ways: 11. .

2.2.

3. 3.

Internal Development of New Products

(HONDA)Replacement of Suppliers and

Customers

Mergers and Acquisitions (Dabur

with Balsara)

Forward Vertical Integration (CCD)

Backward Vertical Integration (Reliance)


……helps fill the Strategic Planning Gaphelps fill the Strategic Planning Gap

Targetedsales

Diversification

New Markets

New Products

Do nothingscenario

Sales

Time (yearsTime (years)

Strategicplanning

gap

210

Market penetration1

2

3

4



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Managing DiversificationManaging Diversification 1.1. Organization StructureOrganization Structure 2.2. Portfolio Management TechniquesPortfolio Management Techniques Make decision aboutMake decision about ● ●What businesses to engage inWhat businesses to engage in ● ●How to manage these multiple businesses to maximize How to manage these multiple businesses to maximize

corporate performance.corporate performance.

Two important portfolio management techniquesTwo important portfolio management techniques● ● The BCG Matrix The BCG Matrix ● ● The GE Business ScreenThe GE Business Screen


BCG MatrixBCG Matrix

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Concept of Relative Market ShareConcept of Relative Market Share Let us suppose the size of the Paint Industry market is Let us suppose the size of the Paint Industry market is Rs. 10,000 crores.Rs. 10,000 crores.The share of the various companies is as follows:The share of the various companies is as follows:

CompanyCompany Revenue (Rs. Crores)Revenue (Rs. Crores) Market ShareMarket Share

Asian PaintsAsian Paints 50005000 50%50%

NerolacNerolac 25002500 25%25%

Rajdoot Rajdoot 15001500 15%15%

BergerBerger 10001000 10%10%

TotalTotal 10,00010,000 100%100%



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Concept of Relative Market Share and Market GrowthConcept of Relative Market Share and Market Growth

Market Share of Asian Paints = Market Share of Asian Paints = Revenue of AP/Total Revenue of the marketRevenue of AP/Total Revenue of the market

Market Share = Market Share = 5000/10000 = 50%5000/10000 = 50%

Relative Market Share = Relative Market Share = Revenue of AP/ Revenue of the biggest player (Nerolac in this case)Revenue of AP/ Revenue of the biggest player (Nerolac in this case)

= = 5000/2500 5000/2500 = = 22



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Market Share of Nerolac = Market Share of Nerolac = Revenue of Nerolac/Total Revenue of the marketRevenue of Nerolac/Total Revenue of the market

Market Share = Market Share = 2500/10000 = 25%2500/10000 = 25%

Relative Market Share = Relative Market Share = Revenue of Nerolac/ Revenue of the biggest player (Asian Paints in this case)Revenue of Nerolac/ Revenue of the biggest player (Asian Paints in this case)

= = 2500/5000 2500/5000 = = 0.50.5



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Market growth is the rate at which the market is growing:Market growth is the rate at which the market is growing:

e.g. Let us say the total market of bathing soaps was Rs. 5000 e.g. Let us say the total market of bathing soaps was Rs. 5000 crores in 2006 i.e In India all companies put together were crores in 2006 i.e In India all companies put together were able to sell Rs. 5000 crores worth of soaps.able to sell Rs. 5000 crores worth of soaps.

And in year 2007 the total market was Rs. 5500 crores which And in year 2007 the total market was Rs. 5500 crores which

means that the growth of the market is means that the growth of the market is 10% 10%



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The BCG MatrixThe BCG Matrix Evaluate businesses relative to the growth rate of their Evaluate businesses relative to the growth rate of their

market and the organization’s share of the market.market and the organization’s share of the market.

Relative market share

Cash cows Dogs

High

Low

Questionmarks

Stars

Mar

ket g

row

th r

ate

HighLow

10%10%

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The GE Business Screen Evaluate business in a diversified portfolio along two dimensions, each of

which contains multiple factors:● Industry attractiveness.● Competitive position (strength) of each firm in the portfolio.

Loser

Competitive Position

Low

Winner

Medium

High

Good PoorMedium

Winner

Profit producer

Winner

Average business

Questionmark

Loser

Loser

Indu

stry

gro

wth

ra

te

1.Market share2.Technological know-how3.Product quality4.Service network5.Price competitiveness

6.Operating costs

Industry Attractiveness1.Market Growth 2.Market Size3.Capital Requirements

4.Competitive Intensity

Competitive position

Loser



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The GE Business ScreenThe GE Business Screen

1.1. Market shareMarket share2. 2. Technological know-howTechnological know-how3. Product quality3. Product quality4. Service network4. Service network5. Price competitiveness5. Price competitiveness6. Price competitiveness6. Price competitiveness

1. Market growth1. Market growth2. 2. Market sizeMarket size3. Capital requirements3. Capital requirements4. Competitive intensity4. Competitive intensity

Competitive positionCompetitive position Industry attractivenessIndustry attractiveness

Documents

11. Strategy.ppt