d7e97upload Stt Mngmnt Module III

7/30/2019 d7e97upload Stt Mngmnt Module III

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Amity Business School

STRATEGIC

MANAGEMENT

Module III

Strategic Choice

Ramesh Bagla


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Strategic Choice

Re-visit the Mission Revise, create, or maintain mission

Set Long-Term Objectives Generate feasible alternatives

Evaluate alternatives

Choose the best strategic option


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The Strategy Formulation Framework

Stage 1: The Input StageSWOT Analysis

External Analysis Internal Analysis

Stage 2: The Matching Stage

Re-visit Mission and Set Long Term ObjectivesGenerate feasible alternative Corporate Strategies

Stage 3: The Decision Stage

Evaluate and Choose Corporate Strategies


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Alternatives for Growth

Alternatives

for Growth

Expansion

of existing

Businesses

Diversification

into new

Businesses

Market Penetration

Market DevelopmentProduct Development

VerticalIntegration -

Forward & Backward

Related

Unrelated


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Modes of Growth Internal development

Acquiring firms/businesses

Collaborative arrangements

Strategic Alliances

Joint Ventures

Licensing


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Key Questions in Strategic Choice Strategic choices need to take into account

the environmentand build on corecompetences

Strategic choices need to take into accountthe expectations and influence ofstakeholders

Strategic directionand methodsshould buildon broad strategic choices

Resourcesand competencesshould bedeveloped to deliver and sustain the chosen

strategies


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Tools

for Formulating and ChoosingCorporate Strategies

1. Portfolio Analysis


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The BCG MatrixBOSTON CONSULTING GROUP (BCG)

MATRIX was developed by BRUCEHENDERSON of the BOSTON CONSULTINGGROUP IN THE EARLY 1970s.

It is also known as Growth Share Matrix

According to this technique, businesses or

products are classified as low or high performersdepending upon their market growth rate andrelative market share.


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The BCG Matrix

Relative Market Share Position in the Industry

IndustrySalesGrowth Rate(Percent)

High +20

Medium 0

Low - 20

High Medium Low

1.0 .50 0.0

Question Marks (I)

Dogs (IV)

Stars (II)

Cash Cows (III)

?


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QUESTION MARKSHigh growth, Low market share

Most businesses start of as question marks.

They will absorb great amounts of cash if themarket share remains unchanged, (low).

Why question marks?

Question marks have potential to become

star and eventually cash cow but can also

become a dog.

Investments should be high for question

marks.


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STARS

High growth, High market share

Stars are leaders in business.

They also require heavy investment, tomaintain its large market share.

It leads to large amount of cashconsumption and cash generation.

Attempts should be made to hold themarket share otherwise the star willbecome a CASH COW.


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CASH COWSLow growth , High market share

They are foundation of the company andoften the stars of yesterday.

They generate more cash than theinvestment required.

They extract the profits by investing as littlecash as possible

They are located in an industry that ismature, not growing or declining.


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DOGS

Low growth, Low market share

Dogs are the cash traps.

Dogs do not have potential to bring inmuch cash.

Number of dogs in the company should

be minimized.

Business is situated at a declining stage.


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Strategic Perspectives of Products

in Different Quadrants

Four different strategic perspectives

Investment

Earnings

Cash-flow, and

Strategy Implications


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Question Marks Investmentheavy initial capacity

expenditures and high R&D costs

Earningsnegative to low Cash-flownegative (net cash user)


If possible to dominate segment, go aftershare. If not, redefine the business orwithdraw


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Stars Investmentcontinue to invest for

capacity expansion

EarningsLow to high earnings Cash-flowNegative (net cash user)


Continue to increase market shareeven

at the expense of short-term earnings


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Cows InvestmentCapacity maintenance

EarningsHigh

Cash-flowPositive (net cashcontributor)


Maintain market share and cost leadership

until further investment becomes marginal


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Dogs

Investment

Gradually reduce capacity

EarningsHigh to low Cash-flow

Positive (net cash contributor) ifdeliberately reducing capacity


Plan an orderly withdrawal to maximizecash flow


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The BCG Matrix for ITC Ltd.

Hotels

Paperboards/

Packaging.

Agri business.

FMCG- Others

FMCG-Cigarettes Maybe ITCInfotech.


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BCG Matrix - Three Paths to Success

Continuously generate cash cows and usethe cash throw-up by the cash cowsto investin the question marks that are not self-

sustaining Starsneed a lot of reinvestments and as the

market matures, stars will turn into cashcows and the process will be repeated.

As fordogs, segment the markets and nursethe dogs to health or manage for cash


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BCG Matrix - Three Paths to Failure

Over invest in cash cows and under

invest in question marks

Trade future opportunities for present cashflow

Under invest in the stars

Allow competitors to gain share in a highgrowth market

Over milk the cash cows


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WHY BCG MATRIX ?

To assess :

Profiles of products/businesses

The cash demands of products

The development cycles of products

Resource allocation and divestmentdecisions


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MAIN STEPS OF BCG MATRIX

Identifying and dividing a company intoSBUs.

Assessing and comparing the prospects of

each SBU according to two criteria :1. SBUS relative market share.

2. Growth rate OF SBUS industry.

Classifying the SBUS on the basis of BCG

matrix. Developing strategic objectives for each

SBU.


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BENEFITS BCG MATRIX is simple and easy tounderstand.

It helps you to quickly and simply screenthe opportunities open to you, and helpsyou think about how you can make themost of them.

It is used to identify how corporate cashresources can best be used to maximize acompanys future growth and profitability.


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LIMITATIONS

BCG MATRIX uses only two dimensions,Relative market share and market growthrate.

Problems of getting data on market shareand market growth.

High market share does not mean profits allthe time.

Business with low market share can beprofitable too.


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CONCLUSION

Though BCG MATRIX has its limitations it is one

of the most FAMOUS AND SIMPLEST portfolioplanning matrix ,used by large companieshaving multi-products. M&M and HLL are usingthe BCG MATRIX.


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Foundations of Technology Strategy

Technology

Dynamics

TechnologicalCompetition

Organising for

Innovation


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Turning innovation into the basis of

sustainable advantage depends on two keytypes of factors.

Organisational- ability to createvalue throughtechnological innovation

Strategic- ability to capturevalue from technologicalinnovation

.both require an understanding of the dynamics oftechnology-driven markets


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Developing and Implementing an Effective Technology

Strategy Requires Understanding Three Key Questions

What technologiescan decisively

affect overallcustomer value?

Can we capture

this value in theface ofcompetition?

Do we have the

organizationalcapabilitiesnecessary todeliver it?


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Technology Strategy

Technology and innovation

Innovation and information Economics and strategy

Prices and markets

Financial Implications


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Photocopiers

Many firms were offered the photocopying patent

but turned it down

At that time, copying seemed a waste because

typing on carbon paper was a substitute

But main value of copier was to make copies of

copies and so on

Required a change in office management and workpractices


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Xeroxs Strategy

Enabled a marketing innovation

Stopped trying to sell copiers but instead

sold copies: earned fees based on usage removed customer risk

put machines in offices to evolve changing

practices


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Key Thoughts

For emerging technologies, a key source of strategicadvantage arises from the qualityof information

Competitive Intelligence is difficult to assess

In the absence of experience, near-term market evaluation is

very sensitive to ad-hoc assumptions Technological innovation does not give a company a

birthright to downstream commercialisation

Independent development invites competition, creating awedge between the overall diffusion of technology and the

ability of the innovator to appropriate returns Licensing or joint venture strategies can provide key

advantages in information, distribution, and amortising largefixed commercialisation costs


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Coevolving Creating cross-business synergy in corporate

enterprise is at the heart of corporate strategyand a prime rationale for the existence of themulti-business corporation.

Two or more businesses can generate greatervalue working together than they could workingapart.

Shared resources, knowledge and skills create

synergy which facilitates coordinated strategies,vertical integration or establishing internalalliances in the enterprise.

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Coevolving

An efficient way of achieving corporatesynergy is creating a web of collaborativelinks and relationships among the enterprise

and business units - everything starting fromexchanging information on shared assets tocreating the corporate strategy.

It is realized through managing a corporatestrategic process called coevolving, based ontheprinciple of natural laws of shared survivaland development of individual species.

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Coevolving

Laws of biological co-evolution are consistent withthe notion that multi-business corporate enterpriseare coevolving ecosystems, with flexible andtemporary links among the units.

Besides the quantity of links, the quality is alsoimportant for efficiency of corporate enterprise.

In essence, the multi-business corporateenterprises need to emulate the principle of

functioning from nature and approach cross-business synergies with a very different mindsetthan that of the traditional corporate managers.

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Coevolving Coevolving is a subtle strategic process in successful

corporate enterprises, including creation of flexiblebusiness portfolio with both collaborative andcompetitive units

It ensures a superior corporate strategy based oncross-business synergies in performing businessactivities.

The process of coevolving turns the corporateenterprise into an ecosystem with corporate strategy inthe hands of business-unit managers.

The multi-business team is powerful because it canadd significant value to the corporate enterprisebeyond the sum of the units.

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Coevolving

The process of transition results in growth anddevelopment of enterprises, which requires flexibleand adaptive forms of organizational structure andmanagement system.

This implies making complex corporate businessarrangement. At the same time, there is theprocess of creating dynamic and unpredictablemarkets, immanent to developed market economy.

These markets always change opportunities andcapabilities for creating competitive andcorporative advantage and business success ofenterprise.

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Coevolving

Adjustment to market possibilities for

performing efficient business activities changes

the corporate "repertoire" of corporate strategy. The new corporate strategy focuses on

corporate strategic processes of restructuring or

"remapping" business portfolios as well as on

coevoluting its elements for performing

business activities in a more efficient way.


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.

Strategic Opportunism

Driven by a focus on the present

Based on the premise that environment is sodynamic and uncertain that it is not feasible to aim

at a future target Strategic flexibility and willingness to respond to

opportunities is necessary. Change is the norm

Minimizes risk of missing emerging opportunities

Reduces risk of strategic stubbornness Requires decentralized structure

Needs entrepreneurial skills and abilities


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Patching Patching is the strategic process by which

corporate executives routinely remap their

business to match with rapidly changing market

opportunities adding, splitting transferring,exiting or combining chunks of businesses

When markets are turbulent and rapidly

changing patching is seen as critical to the

creation of economic value in a multinationalcompany.

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Patching In volatile markets, patchers strategic analysis

focuses on making quick, small, frequent

changes in parts of businesses and

organizational processes that enable dynamicstrategic repositioning rather than long term

defensible positions.

Managers should flexibly seize opportunities

as long as that flexibility is disciplined. Effectivecorporate strategies focus on key processes and

simple rules.

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Patching

The fundamental argument in favour of Patching

is that no one can predict how long a competitive

advantage will last, particularly in turbulent,

rapidly changing markets; hence strategy mustbe simple, responsive and dynamic to exploit the

advantage for significant growth and wealth

creation.

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d7e97upload Stt Mngmnt Module III