-
8/8/2019 Bs1 Sec a 09bshyd0099
1/16
STRATEGIC CONCEPTS
AS APPLIED IN
PRACTICE
TERM PAPER : BUSINESS
STRATEGY I
ASSIGNMENT
SUBMITTED TO : -
Prof. GK Srikanth
SUBMITTED BY :-
Anindya
(09BSHYD0099)
-
8/8/2019 Bs1 Sec a 09bshyd0099
2/16
2 | P a g e
AUTHORIZATION
This report is submitted in partial fulfillment of the
requirement of the MBA program of ICFAIBusiness School,
Hyderabad.
JULY 19, 2010 Author
-
8/8/2019 Bs1 Sec a 09bshyd0099
3/16
3 | P a g e
1.EXECUTIVE SUMMARY42.INTRODUCTION..53.CONCEPTS AND
EXAMPLES6
a. SWOT Analysisb.Porters Five Forcesc. Levels of Strategy
4.CONCLUSION155.REFERENCES.16
CONTENTS
-
8/8/2019 Bs1 Sec a 09bshyd0099
4/16
4 | P a g e
Strategy, a word of military origin, refers to a plan of action
designed to achieve a particular goal.
Strategic management is the conduct of drafting, implementing
and evaluating cross functional
decisions that will enable an organization to achieve its long
term objectives. It is the process of
specifying the organizations mission, vision and objectives and
then allocating resources to
implement the policies and plans, projects and programs.
In this assignment I am required to include three concepts and
elucidate the same with examples. As a
source of examples I have chosen the Indian chemical industry
and BASF the chemical company.
EXECUTIVE SUMMARY
-
8/8/2019 Bs1 Sec a 09bshyd0099
5/16
5 | P a g e
What is business strategy?
Strategy is the direction and scope of an organization over the
long term, which achieves advantage in
a changing environment through its configuration of resources
and competences with the aim of
fulfilling stakeholder expectations.
y Strategy is likely to be concerned with long-term direction of
an organizationy Strategic decisions are likely to be concerned
with the scope of an organizations activities.y Strategic decisions
are normally about trying to achieve some advantage for the
organization
over competition.
y Strategy can be seen as the search for strategic fit with the
business environmenty Strategy can also be seen as creating
opportunities by building on an organizations resources
and competences
y The strategy of an organization is affected not only by
environmental forces and strategiccapability, but also by the
values and expectations of those who have power in and around
the
organization.
Characteristics of strategic decisions
y Strategic decisions are likely to be complex in naturey
Strategic decisions may also have to be made in situations of
uncertainty about the futurey Strategic decisions are likely to
affect operational decisionsy Strategic decisions demand an
integrated approach to managing the organizationy Managers amy have
to sustain relationships outside the organization e.g. suppliers,
distributors
and customers
y Strategic decisions usually involve change in organizations
which may prove difficult becauseof the heritage of resources and
because of culture
INTRODUCTION
-
8/8/2019 Bs1 Sec a 09bshyd0099
6/16
6 | P a g e
SWOT ANALYSIS
SWOT analysis is a strategic planning method used to evaluate
the Strengths, Weaknesses,
Opportunities, and Threats involved in a project or in a
business venture. It involves specifying the
objective of the business venture or project and identifying the
internal and external factors that are
favorable and unfavorable to achieve that objective. The
technique is credited to Albert Humphrey,
who led a convention at Stanford University in the 1960s and
1970s using data from Fortune 500
companies. A SWOT analysis must first start with defining a
desired end state or objective. A SWOT
analysis may be incorporated into the strategic planning
model.
y Strengths: attributes of the company that are helpful to
achieving the objective(s).y Weaknesses: attributes of the company
that are harmful to achieving the objective(s).y Opportunities:
external conditions that are helpful to achieving the
objective(s).y Threats: external conditions which could do damage
to the objective(s).
SWOT ANALYSIS OF INDIAN CHEMICAL INDUSTRY
STRENGTHS
y A diversified manufacturing base having a capacity to produce
quality chemicals from Worldclass plants.
y Vibrant downstream industries in different segments.y
Competitive Core Industries essential for the development of
chemical industries.y Capability to produce World class end
products.y Strong presence in the export market in sub segments
such as Dyes, Pharma and
agrochemicals.
y Large domestic market.y Major raw material component sources
within the countryy Good R&D base and quality human
resources
CONCEPTS AND EXAMPLES
-
8/8/2019 Bs1 Sec a 09bshyd0099
7/16
7 | P a g e
WEAKNESSES
y General handicapo Cost of Power: Very high cost of power,
unreliability of supply and frequent
interruption. Transmission and distribution losses are very
high.
o Cost of Finance: Chemical Industry is highly capital
intensive, cost of finance in Indiais very high, interest rates are
14% - 15% p.a. as compared to 2% to 6% prevailing in
developed countries.
o Infrastructure: India ranked 55th in infrastructure
development in the globalcompetitiveness report 1999.
Infrastructure facilities are not of world class. Transport
and communications are complex resulting in delays and slow
movement of goods. In-
adequate port facilities result in high demurrage costs. For
example turn around time
for Vessels is an average of eight days in India as against one
or two days in Singapore.
y Legacy of Past Policies of Industrializationo Scale of
production: Due to earlier policy of import substitution and
industrial
licensing, Chemical plants in India were built to cater to the
domestic requirements.
The per-capita consumption in India is less as compared to other
countries and hence
plant sizes are not comparable to World scale operations. Major
Competitors abroad
enjoy economies of scale advantage.
o Technology: In the days of sheltered economy, up-gradation of
technology was notcritical. Bulk of the Pharmaceutical Industry has
grown by concentrating on processes
modification rather than basic research. Investment in R&D
with a view to generating
intellectual property is absent. A change of mind set is needed
to invest in R&D to be
able to sell value added product and compete in developed
countries.
o Cost Disadvantages: Industrialization was spread throughout
the country to redressregional imbalances as also for the
development of backward areas. However, this has
created locational disadvantages, such as extra transport cost
for raw materials as well
as finished products. Cost of raw materials and catalysts in
India is also high as
compared to international levels.
y Tax/Legal regimeo Multiplicity of Taxes: Indian exporters at
present are placed at a considerable
disadvantage vis-a-vis their foreign competitors on account of
multiple levies (various
taxes and duties like sales tax, turnover tax, Octroi, service
tax, electricity duty and
-
8/8/2019 Bs1 Sec a 09bshyd0099
8/16
8 | P a g e
cross subsidies, etc.). Value Added Tax (VAT) must replace
multiple taxes to create a
level playing field.
o Labour Laws: Labour & Industrial relation laws at present
do not allow flexibility indeployment of labour. This discourages
modernization and investment in technological
changes and eventually leads to industrial sickness thus
adversely affecting workers as
well.
OPPORTUNITIES
y A decade of economic reforms has tested the resilience of the
Indian Chemical Industry.Individual enterprises have realised their
weaknesses and are gearing up to face the new
challenges. Success stories in dyes and Agrochemicals have
boosted the confidence to take on
global competition squarely.
y On WTO front, India should seek greater market access. The
markets in the developedcountries are opening up and India can take
advantage of this. The signing of the IPR protocol
gives an opportunity to create Intellectual capital by
investment in as well as R&D
collaboration with national laboratories. A large number of
products are going off Patent. India
can pursue the possibility of producing these on a more economic
scale as compared to other
countries.
y In certain categories of chemicals, we do have advantage for
exports (Dyes, Pharma,Agrochemicals). By creating strategic
alliances with countries like Russia and CIS countries.
With the know how available in the country, there is a
tremendous potential to grow andincrease exports in dyestuff and
Agrochemical market.
y India has the capacity for major value addition being close to
middle East. This is a cheap andabundant source for Petrochemicals
feedstock.
y Availability in abundance of raw materials for Titanium
Dioxide (TiO2) and Agro based products like castor oil offer an
opportunity to generate significant value addition. This
however would require substituting their exports in raw form by
manufacturing higher value
derivatives.
-
8/8/2019 Bs1 Sec a 09bshyd0099
9/16
9 | P a g e
THREATS
As per the WTO agreements, peak customs duty has been brought
down. Quantitative restrictions for
imports have been removed already. Most of the chemicals are now
in the Open General List (OGL)
of imports. As a result imports of chemicals, intermediates and
end products is freely allowed in the
country. Even at these reduced levels of import duty tariff
levels in India for most chemicals are
significantly higher than other countries manufacturing the
chemicals. There would certainly be
pressure on the Government to reduce these tariffs levels. In
case these levels are reduced competition
in the Indian Chemical Industry would become more intense. The
users would buy their requirements
from the most competitive source. Unless the Indian industry
acquires competitiveness, it may face
extinction.
As a result of the SWOT analysis it can be concluded that the
competitive advantage for Indian
chemical industry lies in the following areas:-
(a) One of the largest resources of scientific and technical
manpower in the world.
(b) Large Domestic Market for various sectors of chemicals.
(c) Long coast Line and abundant availability of salt.
(d) Tropical Region - sunlight for 9 months in most part of the
country facilitating open storage for
bulk chemicals.
(e) A developed financial market comprising regulated stock
exchanges, all types of money
instruments and capable of transacting business at a very fast
speed.
(f) Largest English Speaking population in the World and rapid
growth in Information Technology can
provide competitive access to the rich European and American
market.
-
8/8/2019 Bs1 Sec a 09bshyd0099
10/16
10 |P a g e
PORTER FIVE FOR ES FRAMEWORK
Port rs fi forces framework hel s i entify the sources of
competition in an industry or sector. When
using this framework, itis essentialto bearthe following in
mind:
y It must be used at the level of strategic business units and
not at the level of the wholeorgani ation
y Understanding the connections between competitive forces and
the key drivers in the macro-environmentis essential
y The five forces are notindependent of each othery Competitive
behavior may be concerned with disrupting these forces and not
simply
accommodating them.
-
8/8/2019 Bs1 Sec a 09bshyd0099
11/16
11 | P a g e
PORTERS FIVE FORCES FRAMEWORK AS APPLIED TO THE INDIAN
CHEMICAL
INDUSTRY
The industry is characterized by low product differentiation,
high exit costs and a focus on maximum
capacity utilization. This, in turn, has intensified competition
among players.
The Indian government is undertaking several policy initiatives,
such as fiscal incentives to R&D units
in the knowledge chemical segment, to encourage the R&D and
export focus of the industry.
The industry will have to overcome challenges in the form of
still high taxes, high cost of finance and
an unfavorable import duty structure. Again, high costs of raw
materials, utilities and capital have
further escalated manufacturing costs. Moreover, as a signatory
to the evolving global trade regime, it
has become mandatory for the Indian chemical industry to develop
patent laws in accordance with
global practices.
-
8/8/2019 Bs1 Sec a 09bshyd0099
12/16
12 | P a g e
LEVELS OF STRATEGY
The first, corporate-level strategy is concerned with the
overall scope of an organization and how
value will be added to the different parts (SBU) of the
organization. The second level can be thought
of in terms ofbusiness-level strategy, which is about how to
compete successfully in a particular
market or how to provide best value services in the public
services.
A SBU is a part of an organization for which there is a distinct
external market for goods or services
that is different from another SBU.
The third level of strategy is at the operating end of an
organization. Here there are operational
strategies which are concerned with how the component parts o an
organization deliver effectively the
corporate and business level strategies in terms of resources,
processes and people.
A mission is a general expression of the overall purpose of the
organization, which ideally, is in line
with the values and expectations of major stakeholders are
concerned with the scope and boundaries of
the organization.
A vision or strategic intent is the desired future state of the
organization.
Goal usually means a general aim in line with the mission
An objective is a precise aim in line with the goal.
-
8/8/2019 Bs1 Sec a 09bshyd0099
13/16
13 | P a g e
STRATEGY LEVELS AT BASF
The corporate level comprises of the Board of Executive
Directors and the Supervisory Board.
The Board of Executive Directors and Supervisory Board are
jointly responsible for the direction of
the company. The Board of Executive Directors manages company
operations and the Supervisory
Board oversees and advises Board of Executive Directors. They
decide the vision, values and
principles for the company.
MISSION, VISION, VALUES AND PRINCIPLES OF BASF
As the worlds leading chemical company, BASFs mission to create
assets that benefit all: customers,
shareholders, employees, the company and the countries in which
they operate.
BASFs vision describes the path that the company will take in
the coming years. It clearly defines the
goals that need to be achieved by 2015. BASFs values describe
the approach and the manner in which
the goals are to be achieved. BASFs principles state how
business shall be conducted on a day to day
basis.
VISION
y To successfully operate in all major marketsy To partner with
customers and be their preferred choicey To be the most competent
worldwide supplier of chemicalsy To generate high return on
assets
-
8/8/2019 Bs1 Sec a 09bshyd0099
14/16
14 | P a g e
y To strive for sustainable developmenty To welcome change as an
opportunity
VALUES
y Sustainable profitable performancey Innovation for the success
of the customery Safety, Health and Environmental responsibilityy
Personal and professional competency Mutual respect and open
dialoguey Integrity
At the strategic level, BASF has aligned its activities with
four strategic guidelines:-
y Premium on Cost of Capitaly Making Customers More Successfuly
Form the Best Team in the Industryy Ensure Sustainable
Development
This strategy is adopted by all the six SBUs of BASF viz.:-
y Chemicalsy Plasticsy Performance Productsy Functional
Solutionsy Agricultural Solutionsy Oil and Gas
Lastly, at the operational level, BASF has the following
objectives:-
1. Economic object ive EBITDA margin of 18% by 20102. Employees
and society 70% increase in the proportion of senior executives
with international
experiences
3. Environment and safety 70% reduction in transportation
accidents
-
8/8/2019 Bs1 Sec a 09bshyd0099
15/16
15 | P a g e
Strategy can be applied to nations, industries, sectors or
organizations. However, it is the
implementation stage of strategy that determines the worth of
the same. Any deviation from the
proposed strategy is called strategic drift and the prime
objective of any organization, industry or
nation should always be to minimize the same. Strategy is a
function of time. Hence what is a threat
today may eventually be an opportunity tomorrow and strength the
day after. Needless to say, strategy
should be continually revised from time to time. However,
strategies should be made with a long-term
perspective in mind in order to minimize the number of
revisions. The work of a strategist is pivotal
for the development of any organization, industry or nation and
hence must be performed diligently
and ethically.
CONCLUSION
-
8/8/2019 Bs1 Sec a 09bshyd0099
16/16
16 | P a g e
1. Exploring Corporate Strategy: Text and Cases Gerry Johnson,
Kevan Scholes, Richard Whittington
2. Competitive Advantage Creating and Sustaining Superior
Performance Michael E. Porter
3. www.basf.com
REFERENCES
