Msr Strategic Management - 8 (2)

8/8/2019 Msr Strategic Management - 8 (2)

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STRATEGIC MANAGEMENT

AA

CONCEPT ON STRATEGIC THINKING

AND MODUS OPERANDI FOR SURVIVALIN 21st CENTURY

By

Dr. JANAK V. SHELAT



22

WHY STRATEGIC THINKING?WHY STRATEGIC THINKING?

Companies are operating in age of discontinuing change - an age of creative & constructivedestruction.

Business, technology and product life is shrinking. Demographic shift in terms of consumer preference and requirements. A direct promotion from Agricultural economy to service or Hi-tech economy in the new growth

economy. A concept from liberalization, privatization & Globalization (LPG) to regionalization. Shift from controlled economy to market driven economy. Rich countries adopt deindustrialization. Emergence of new Global Socio – economic system and world orders. Self-leadership is in, command and control out Networks are replacing hierarchies Wanted - employees with Emotional Intelligence. Forcing company transformationForcing company transformation Market access & branding changing – disintermediation of traditional distribution channelsMarket access & branding changing – disintermediation of traditional distribution channels Balance of power shift to consumerBalance of power shift to consumer Competition changingCompetition changing Pace of business increasingPace of business increasing Internet purchasing beyond traditional boundariesInternet purchasing beyond traditional boundaries Knowledge key asset – source of competitive advantage. ItKnowledge key asset – source of competitive advantage. It is replacing Infrastructure

Other Current Trends –Other Current Trends –

Increasing environmental awarenessIncreasing environmental awareness Growing health consciousnessGrowing health consciousness Expanding seniors marketExpanding seniors market Impact of the Generation Y boom letImpact of the Generation Y boom let Declining mass marketDeclining mass market Changing pace and location of lifeChanging pace and location of life Changing household compositionChanging household composition Increasing diversity of workforce & marketIncreasing diversity of workforce & market



33

BASIC CONCEPTS

STRATEGY : It is Unified, Comprehensive, and Integratedlong term plan that relates to the strategic advantages of the firm to the challenges of the environment.

STRATEGIC MANAGEMENT: It is a stream of decisionsand actions which leads to the development of an

effective strategy to help achieve the corporateobjective. It is a continuous, iterative, & Cross functionalprocess of matching firm with its environment.

COMPETITIVE ADVANTAGE: is delivering superiorvalue advantage to your target customers relative to

your competitors. Or delivering equivalent customervalue to your target customers relative to yourcompetitors , but at a lower cost.



44

Sustained Competitive AdvantageSustained Competitive Advantage

Above-Average ReturnsAbove-Average ReturnsReturns in excess of what an investor expects toReturns in excess of what an investor expects to

earn from other investments with similar risk earn from other investments with similar risk

Occurs when a firm develops a strategy thatOccurs when a firm develops a strategy thatcompetitors are not simultaneously implementingcompetitors are not simultaneously implementing

Provides benefits which current and potentialProvides benefits which current and potentialcompetitors are unable to duplicatecompetitors are unable to duplicate

Strategic CompetitivenessStrategic CompetitivenessAchieved when a firm successfully formulatesAchieved when a firm successfully formulates

and implements a value-creating strategyand implements a value-creating strategy



55

PRODUCT

MARKET FUNCTION

What Business the Firm is in?Why the Firm is in the Business?What should be Firm’s Business?

WHAT IS BUSINESS?



66

FIRM/BUSINESS

GAP OUT PUT

VALUE SYSTEMVISION

MISSION

PURPOSE

OBJECTIVES

BASIC IN FRASTRUCTURE AN D FRAME WORK OF A FIRM



77

MISSION & GOALS OF A COMPANY VISION: It is a vividly descriptive image of what you

what to be or what you want to be known for. Vision is

an art for seeing invisibles.

MISSION : It a statement of intent of “what a firm wants to

create and through which line of Business”. It is a process of

legitimization of corporate existence of business. It defines

the culture, philosophy and grand design of the firm. To

pursue the Creation of Value to all Stakeholders in the

Business. It is an answer to question – “What business are

we in?”

GOALS / OBJECTIVES : End to be achieved. It is To make Profit for today and forever

To satisfy Customers today and forever

To satisfy Employees today and forever



88

StrategicStrategic

PlanningPlanning



99

Competitive success is transient...unless care is

taken to preserve competitive position

Competitive success is transient...unless care is

taken to preserve competitive position

Only 16 of the 100 largest U.S. companies atthe start of the 20th century are still

identifiable today!

Only 16 of the 100 largest U.S. companies atthe start of the 20th century are still

identifiable today!

In a recent year, 44,367 businesses filed for

bankruptcy and many more U.S. businesses failed

In a recent year, 44,367 businesses filed for

bankruptcy and many more U.S. businesses failed

Challenge of Strategic ManagementChallenge of Strategic Management



1010

Three Big Strategic Three Big Strategic

QuestionsQuestions Where Are We Now?Where Are We Now?

Where Do we WantWhere Do we Wantto Go?to Go?

How Will We GetHow Will We Get

There? There?



1111

Crafting a StrategyCrafting a Strategy

HOW to out compete rivals and win aHOW to out compete rivals and win a

competitive advantage.competitive advantage.

HOW to respond to changing industryHOW to respond to changing industryand competitive conditionsand competitive conditions

HOW to defend against threats to theHOW to defend against threats to the

company’s well-beingcompany’s well-being HOW to pursue attractive opportunitiesHOW to pursue attractive opportunities



1212

What is a Strategic Plan?What is a Strategic Plan?

A strategic planA strategic plan

specifies where aspecifies where a

company iscompany isheaded and HOWheaded and HOW

managementmanagement

intends to achieveintends to achieve

the targetedthe targetedlevels of levels of

performanceperformance..



1313

Characteristics of Strategic ManagementDecisions

..

Corporate-level

decisions

Greater risk,cost,

and profit potential

Greater need for

flexibility

Longer time horizons



1414

Characteristics of StrategicManagement Decisions (contd.)

..

Functional-

level

decisions

Functional-

level

decisions

Implement overall strategy

Involve action-oriented

operational issues

Are relatively short range

and low risk

Incur only modest costs



1515

Characteristics of StrategicManagement

Decisions (contd.)

..

Business-level

decisions

Bridge decisions at

corporate and functional

levels

Are less costly, risky, and

potentially profitable than

corporate-level decisions

Are more costly, risky, and

potentially profitable than

functional-level decisions



1616

Strategic Management Basic model

Four Basic ElementsFour Basic Elements

Strategic management is the process of moving where you are

to where you want to be in future – through

sustainable competitive advantages

Options on

Competitive

Positioning

Learning

points from

deviations



1717

FIRM

MACRO ENVIROAPPRAISAL

MICRO ENVIROAPPRAISAL OF

INDUSTRIES

MICRO ENVIRO

APPRAISAL OFFIRM

BASICSTRATEGIES

STRATEGICALTERNATIVES

BUSINESS LEVELSTRATEGIES

STRATEGICSELECTION

STRATEGICIMPLEMEMTATION

ORGANISATIONDESIGN

FUNCTIONALLEVELSTRATEGIES &

RESOURCESALLOCATION

DEVELOPMENTOF

CONTROL

IsStrategyWorking?

STRATEGIC PLANNING DESIGN AND IMPLEMENTATION PROCESS

GAPVISION

MISSION

VALUE

GOAL



1818

The Five Task of Strategic The Five Task of Strategic

PlanningPlanning Developing a Vision and a MissionDeveloping a Vision and a Mission

Setting ObjectivesSetting Objectives

Crafting a StrategyCrafting a Strategy

Implementing and Executing StrategyImplementing and Executing Strategy

Evaluating Performance, Reviewing theEvaluating Performance, Reviewing the

Situation and Initiating Corrective ActionSituation and Initiating Corrective Action



1919

Characteristic of theCharacteristic of the

Strategic ManagementStrategic Management

ProcessProcess An ongoing exerciseAn ongoing exercise

Boundaries among the tasks are blurry rather thanBoundaries among the tasks are blurry rather than

clear-cutclear-cut

Doing the 5 task is not isolated from other managerialDoing the 5 task is not isolated from other managerial

responsibilities and activities.responsibilities and activities.

The time required to do the tasks of strategic The time required to do the tasks of strategic

management comes in lumps and spurts rather thanmanagement comes in lumps and spurts rather than

being constant and regular.being constant and regular. Involves pushing to get the best strategy supportiveInvolves pushing to get the best strategy supportive

performance from each employee, perfecting theperformance from each employee, perfecting the

current strategy.current strategy.



2020

ENVIRONMENTAL APPRAISAL

ENVIRONMENTALANALYSIS

ENVIRONMENTAL DIAGNOSIS

O

T

S

WETOPSAP

OFPP

ALUATION PROCESS OF SWOT ANALYS



2121

Political/

Legal

Political/

Legal

EconomicEconomic

TechnologicalTechnological

GlobalGlobal

DemographicDemographic SocioculturalSociocultural

CompetitiveCompetitive

EnvironmentEnvironment

IndustryEnvironment

IndustryEnvironment

Components of the General EnvironmentComponents of the General Environment



2222

ENVIRONMENTAL FACTORSENVIRONMENTAL FACTORS

ECONOMICAL

TECHNOLOGICALPOLITICAL /LEGAL

GLOBAL

SOCIOCULTURAL

DEMOGRAPHIC

FIRM/BUSINESS

GOVERNMENTAL



2323

Components of the General EnvironmentComponents of the General Environment

Variables in Societal Environment



2424

Variables in Societal Environment

International Societal Environments



2525

International Societal Environments



2626

Industry AnalysisIndustry Analysis

Porter’s Approach to Industry Analysis



2727

Porter s Approach to Industry Analysis

Threat of Substitute Products or Services

Bargaining Power of Buyers

Bargaining Power of Suppliers

Relative Power of Other Stakeholders

Rivalry Among Firm in an Industry



2828

DETERMINENT OF BUYER’SDETERMINENT OF BUYER’S

POWERPOWER

Bargaining Leverage Barg aining Leverage(a) Buyer’s Concentration(a) Buyer’s Concentration

(b) Buyer’s Volume(b) Buyer’s Volume

(c) Buyer’s Switching Cost(c) Buyer’s Switching Cost

Price Sensitivity Price Sensitivity

(a) Price / Total Purchase(a) Price / Total Purchase

(b) Impact on Quantity/ Performance(b) Impact on Quantity/ Performance

(c) Buyer’s Profit.(c) Buyer’s Profit.




2929


Threat of New Entrants –Economies of scaleProprietary Product differentiationCapital requirements

Switching costsAccess to distribution channelsCost disadvantagesGovernment policyProprietary Low Cost DesignStage in Learning/ Experience Curve




3030


Rivalry Among Existing Firms –

Number of competitorsRate of industry growth (Slow)Product or service characteristics

Amount of fixed costsLack of differentiation or Switching CostCapacity augmentation in largeincreamentHeight of exit barriersDiversity of rivalsHigh strategic Stakes




3131


Threat of Substitute Products or Services

Bargaining Power of Buyers

Bargaining Power of Suppliers

Relative Power of Other Stakeholders




3232


Threat of New Entrants –

Economies of scaleProprietary Product differentiationCapital requirementsSwitching costsAccess to distribution channelsCost disadvantagesGovernment policy and Regulations

Stage in Learning Curve




3333


Rivalry Among Existing Firms –

Number of competitorsRate of industry growthProduct or service characteristicsAmount of fixed costsCapacityHeight of exit barriers

Diversity of rivals



3434

Pressure from SubstitutePressure from Substitute

ProductsProducts The threat from substitute products is high The threat from substitute products is high

when:when: The price-performance tradeoff offered by The price-performance tradeoff offered by

the substitute product is attracive.the substitute product is attracive. The switching costs for prospective buyers The switching costs for prospective buyers

are minimal.are minimal.

The substitute products are being produced The substitute products are being producedby industries earning superior profits.by industries earning superior profits.



3535

Bargaining Power BuyersBargaining Power Buyers

The bargaining power of a buyer group The bargaining power of a buyer group

is high when:is high when:

Its purchases are large relative to theIts purchases are large relative to thesales of the seller .sales of the seller .

Its switching costs are low.Its switching costs are low.

It poses a strong threat of backwardIt poses a strong threat of backwardintegration.integration.



3636

Bargaining Power SuppliersBargaining Power Suppliers

Suppliers have strong bargaining power when :Suppliers have strong bargaining power when :

Few suppliers dominate and the supplier group isFew suppliers dominate and the supplier group is

more concentrated than the buyer group.more concentrated than the buyer group.

There are hardly any viable substitutes for the There are hardly any viable substitutes for the

products supplied.products supplied.

The switching costs for buyers are high. The switching costs for buyers are high.

Suppliers do present a real threat forwardSuppliers do present a real threat forwardintegration.integration.



3737

PORTFOLIOPORTFOLIO

ANALYSISANALYSIS

Corporate Strategy



3838

p gy

Portfolio Analysis --

Resource commitment on best products to ensure continued success

Resource commitment on new costly products high risk



3939

Stages of the Industry Life CycleStages of the Industry Life Cycle



4040



4141

PRODUCT LIFE CYCLEPRODUCT LIFE CYCLE Most product sales observed over long periods can be portrayed

as bell shaped curves – Product life cycle curves which can be

typically divided into four stages: Introduction, Growth, Maturityand Decline.

Product Life Cycle asserts four things. 1. Products have limited life. 2. Product Sales pass through distinct stages, each posing

different challenges, opportunities and problems to the seller. 3. Profits rise and fall through different stages of the life cycle. 4. Products require different marketing, financial, manufacturing,

purchasing and H.R. strategies in each life cycle stage. Growth-Slump-Maturity pattern (small kitchen appliances) Cycle Recycle Pattern Scalloped Pattern (succession of PLC’s; eg: Nylon)



4242

INTRODUCTIONINTRODUCTION - STRATEGIES- STRATEGIES

P R I C E

Hi

Lo

PROMOTION

Hi

SLOW

SKIMMING

SLOW

PENETRATION

RAPID

SKIMMING

RAPID

PENETRATION

•Sales growth tends to be slow - Delays in production capacity

expansion /technical problems; Distribution/retail chains being put up;sales expensive as conversion rates are lower (innovators).

•Promotion at the highest ratio to sales – inform customers, induce

trial and secure distribution in retail outlets.

•Prices tend to be high as costs are higher.



4343

PLC - GROWTH STAGEPLC - GROWTH STAGE

Introduction is followed by aIntroduction is followed by a stage marked by rapid climb instage marked by rapid climb in

sales. Companies starts to eye for market share.sales. Companies starts to eye for market share. Growth is a period of rapid market acceptance &Growth is a period of rapid market acceptance & substantialsubstantial

profit improvement.profit improvement.

Innovators, early adaptors like the product and continue toInnovators, early adaptors like the product and continue to

buy the product whilebuy the product while middle majoritymiddle majority starts trying.starts trying. New competitionNew competition as sales and profits are growing. The stageas sales and profits are growing. The stage

where we see entry of competition in large numbers.where we see entry of competition in large numbers.

Prices remain where they are or fall slightlyPrices remain where they are or fall slightly to allow better to allow better

penetration or for entry into other segments.penetration or for entry into other segments. Time noted for theTime noted for the introduction of variants/ brand extensionsintroduction of variants/ brand extensions..

Companies maintainCompanies maintain promotion at same or higher levelpromotion at same or higher level..

Profits increase even with higher promotion costs as it getsProfits increase even with higher promotion costs as it gets

spread over higher sales volume.spread over higher sales volume.

PLC GROWTH STAGEPLC GROWTH STAGE



4444

PLC - GROWTH STAGEPLC - GROWTH STAGE

MARKETING STRATEGIESMARKETING STRATEGIES

FirmFirm improves product quality and adds new features andimproves product quality and adds new features andmodels.models.

EntersEnters new market segmentsnew market segments..

EntersEnters new distribution channelnew distribution channel..

Advertising focus shifts from awareness / knowledgeAdvertising focus shifts from awareness / knowledge totoInterest/desire/conviction.Interest/desire/conviction.

Prices should be reduced (or low priced variants launched)Prices should be reduced (or low priced variants launched)

at the right timeat the right time to attract the next level of price sensitiveto attract the next level of price sensitive

customers.customers. FacesFaces tradeoff between high market share to high currenttradeoff between high market share to high current

profit.profit.

Firm that pursues market expansion strategy will improve itsFirm that pursues market expansion strategy will improve its

competitive positioncompetitive position..

PLC MATURITY STAGEPLC MATURITY STAGE



4545

PLC - MATURITY STAGEPLC - MATURITY STAGE Many products which we see around us are in the maturityMany products which we see around us are in the maturity

stage of PLC.stage of PLC.

A stage characterized by the slow down in the growth rate.A stage characterized by the slow down in the growth rate. Most of practical Marketing management deals with aMost of practical Marketing management deals with a

mature product. Hence themature product. Hence the most important phase in PLC.most important phase in PLC. Three PhasesThree Phases

1. Growth Maturity1. Growth Maturity:: Sales growth starts to fall due toSales growth starts to fall due todistribution saturation. Growth predominantly due to trial bydistribution saturation. Growth predominantly due to trial bylaggards.laggards.

2. Stable Maturity2. Stable Maturity:: Most potential customers have tried theMost potential customers have tried theproduct. Future sales governed by population growth andproduct. Future sales governed by population growth and

replacement demand.replacement demand. 3. Decaying Maturity3. Decaying Maturity:: Absolute level of sales decline.Absolute level of sales decline. Slow down in sales growth causes over-capacity -----Slow down in sales growth causes over-capacity -----

Intensified competition ----- price wars ---- profit Erosion----Intensified competition ----- price wars ---- profit Erosion----

weak exit.weak exit.

MATURITY STAGE STRATEGIESMATURITY STAGE STRATEGIES



4646


R&D spends are increased to find better versions.R&D spends are increased to find better versions.

Increased advertising spends.Increased advertising spends. More Consumer / Dealer cutsMore Consumer / Dealer cuts.. Three types of interventions are taken up by MarketersThree types of interventions are taken up by Marketers.. 1. Market Modification1. Market Modification::

Company should not try to conserve but should try &Company should not try to conserve but should try &expand market for its Brand.expand market for its Brand. Sales vol. = No. of users X usage rate.Sales vol. = No. of users X usage rate. Try expand the no. of Brand Users by:Try expand the no. of Brand Users by: Convert non usersConvert non users:: Attempts to convert non coffee drinkersAttempts to convert non coffee drinkers

to try coffee.to try coffee. Enter new market segmentsEnter new market segments: Johnson & Johnson baby: Johnson & Johnson baby

shampoo for adults, Cerelac adapted for the senile.shampoo for adults, Cerelac adapted for the senile. Win competitors customersWin competitors customers:: Pepsi/Coke, NIIT/Apple.Pepsi/Coke, NIIT/Apple.



4747


Volume can also be increased by focusing on the CurrentVolume can also be increased by focusing on the Current

Users –Users – convincing them to use moreconvincing them to use more.. More frequent useMore frequent use:: Biscuits an all time snack, Coke insteadBiscuits an all time snack, Coke instead

of coffee/tea, clinic shampoo, variety of SKU, vendingof coffee/tea, clinic shampoo, variety of SKU, vendingmachines.machines.

More usage per OccasionMore usage per Occasion:: Shampoo giving better results inShampoo giving better results intwo rinsing, more SKU’s.two rinsing, more SKU’s.

New more varied uses:New more varied uses: Recipe route tried out by microwaveRecipe route tried out by microwaveoven manufacturers, Sachets by shampoo manufacturersoven manufacturers, Sachets by shampoo manufacturersfor travelers, Arm & Hammer Baking soda as a refrigerator for travelers, Arm & Hammer Baking soda as a refrigerator

deodorant.deodorant. 2. PRODUCT MODIFICATION2. PRODUCT MODIFICATION Stimulate sales by modifying the product’s characteristicsStimulate sales by modifying the product’s characteristics

by improvements inby improvements in quality, feature and stylequality, feature and style..



4848

STRATEGIES FOR MATURE STAGETRATEGIES FOR MATURE STAGE

2. PRODUCT MODIFICATION2. PRODUCT MODIFICATION

Quality Improvement:Quality Improvement: Functional performance improved- for cars, TV, whiteFunctional performance improved- for cars, TV, whitegoods - New Improved eg: Santro Xing, Indica V2.goods - New Improved eg: Santro Xing, Indica V2.

Plus launch - from FMCG manufacturers --------- stronger,Plus launch - from FMCG manufacturers --------- stronger,bigger, better,– Lifebuoy Plus.bigger, better,– Lifebuoy Plus.

Aimed at triggering Brand switchingAimed at triggering Brand switching Style Improvement:Style Improvement: Aimed at increasing aesthetic appeal.Aimed at increasing aesthetic appeal. Periodic intro of color variants by auto manufacturers.Periodic intro of color variants by auto manufacturers. Consumer/packaged food bringing packaging /color Consumer/packaged food bringing packaging /color

variants.variants. Advantages: Unique identity / can secure loyal customers.Advantages: Unique identity / can secure loyal customers. Major disadvantage arises from the fact that it is difficult toMajor disadvantage arises from the fact that it is difficult to

judge customer preferences --- risk of losing those who judge customer preferences --- risk of losing those wholiked earlier versionliked earlier version



4949

STRATEGIES FOR MATURE STAGE (contd.)STRATEGIES FOR MATURE STAGE (contd.)

Advantages of feature improvementsAdvantages of feature improvements

Build progressive and leadership image for co. (Maruti)Build progressive and leadership image for co. (Maruti) New features can be made optional (adapted or droppedNew features can be made optional (adapted or droppedeasily).easily).

Helps to win loyalty of some segments.Helps to win loyalty of some segments. Cost effective publicity.Cost effective publicity.

Can generate enthusiasm for sales force and dealers.Can generate enthusiasm for sales force and dealers. Main disadvantage is that many of these can be easilyMain disadvantage is that many of these can be easily

imitated.imitated. 3. Marketing Mix Modifications:3. Marketing Mix Modifications: Product Manager should also try to stimulate sales byProduct Manager should also try to stimulate sales by

modifying Mktg. Mix.modifying Mktg. Mix. Price:Price: Decision whether a price cut will attract newDecision whether a price cut will attract new

customers.customers. Trying price specials, early bird discounts, easier creditTrying price specials, early bird discounts, easier credit

terms to retain loyal customers..terms to retain loyal customers..

S G S G SMATURITY STAGE STRATEGIES



5050


3. Marketing Mix Modifications:3. Marketing Mix Modifications:

Advertising:Advertising:

Change message- copy, media- vehicle mix,Change message- copy, media- vehicle mix,

timing/frequency, to target new audience.timing/frequency, to target new audience. Build new brand identity / image.Build new brand identity / image. Direct comparison Ads about competition.Direct comparison Ads about competition. Sales Promotion:Sales Promotion: Step up trade discountStep up trade discount Price offs, Rebates, warranties, festival offers, gifts etc.Price offs, Rebates, warranties, festival offers, gifts etc. Personal selling:Personal selling: should the quality of sales people or their should the quality of sales people or their

area of specialization need to be changed.area of specialization need to be changed. Questions on territory revisions; incentive plans; planning of Questions on territory revisions; incentive plans; planning of

sales call etc.sales call etc. Services:Services: can the company speed up delivery. Extendingcan the company speed up delivery. Extending

technical services.technical services. Disadvantages: can be easily copied. Mass distribution andDisadvantages: can be easily copied. Mass distribution and

penetration efforts may not help – can lead to profit erosion.penetration efforts may not help – can lead to profit erosion.

STRATEGIES FOR DECLINE STAGESTRATEGIES FOR DECLINE STAGE



5151

STRATEGIES FOR DECLINE STAGESTRATEGIES FOR DECLINE STAGE

Sales of most products/brands eventually decline –.Sales of most products/brands eventually decline –. 1. Technological advancements in the product category.1. Technological advancements in the product category. 2. Consumer shifts in taste & perception.2. Consumer shifts in taste & perception. 3. Increased domestic & foreign competition------3. Increased domestic & foreign competition------ price cutting/ over capacity/ profit erosion.price cutting/ over capacity/ profit erosion.

Sales may plunge to zero or gradually fall for a long period.Sales may plunge to zero or gradually fall for a long period. As sales decline, profits fall. Some of the weaker firmsAs sales decline, profits fall. Some of the weaker firms

withdraw.withdraw. Those remaining drop smaller market segments & marginalThose remaining drop smaller market segments & marginal

trade channels to conserve profits.trade channels to conserve profits.

They may cut their promotion budgets and may reduce pricesThey may cut their promotion budgets and may reduce pricesfurther.further.

Unless strong reasons for retention exist, carrying a weakUnless strong reasons for retention exist, carrying a weakproduct is very costly to the firm.product is very costly to the firm.

It can delay aggressive search for alternatives/replacement.It can delay aggressive search for alternatives/replacement.



5252

STRATEGIES FOR DECLINE STAGETRATEGIES FOR DECLINE STAGE

MARKETING STRATEGIESMARKETING STRATEGIES::

1. Increase firms investment (Dominate the market or to1. Increase firms investment (Dominate the market or tostrengthen its competitive position)strengthen its competitive position)

2. Hold investment level until uncertainties about the2. Hold investment level until uncertainties about theindustry are resolved.industry are resolved.

3. Decreasing investment selectively. (Unprofitable target3. Decreasing investment selectively. (Unprofitable target

groups/ markets/ products will have to be identified andgroups/ markets/ products will have to be identified andinstead look for strong niche’s.)instead look for strong niche’s.) 4. Harvesting: milking to recover cash quickly (Brands with4. Harvesting: milking to recover cash quickly (Brands with

high loyalty can continue longer without any investments).high loyalty can continue longer without any investments). 5. Divest the business quickly by disposing off its assets5. Divest the business quickly by disposing off its assets

as advantageously as possibleas advantageously as possible..

Drop DecisionDrop Decision:: Sell/transfer to someoneSell/transfer to someone Should drop slowly or fast.Should drop slowly or fast. Inventory/service level to be maintained.Inventory/service level to be maintained.



5353

P.L.C WEAKNESSES.L.C WEAKNESSES

No Uniform ShapeNo Uniform Shape::

An ‘S’ shaped curve describes only shape of PLC while mostAn ‘S’ shaped curve describes only shape of PLC while mostof them vary or are unique.of them vary or are unique.

Unpredictable Turning Points:Unpredictable Turning Points:

While most products do peak and then fall there is noWhile most products do peak and then fall there is no

specific turning point.specific turning point. Difficult to Decide the StagesDifficult to Decide the Stages::

A dormant sales (flat) pattern may denote the product hasA dormant sales (flat) pattern may denote the product has

reached maturity while it may be just that the product hasreached maturity while it may be just that the product has

touched a plateau before another growth period.touched a plateau before another growth period. Tendency to drop a product due to such readings can turnTendency to drop a product due to such readings can turn

out to be fatal due to the risks involved in new productout to be fatal due to the risks involved in new product

development.development.



5454

P.L.C WEAKNESSES.L.C WEAKNESSES

Unclear ImplicationsUnclear Implications::

Growth phase may or may not be associated withGrowth phase may or may not be associated withhigh profit margin.high profit margin.

Rapid growth can be associated with low profits andRapid growth can be associated with low profits anddecline can be very profitable.decline can be very profitable.

Product OrientedProduct Oriented:: Fails to understand the changes in the requirementFails to understand the changes in the requirement

of customers / strategies of competitors,of customers / strategies of competitors,

attractiveness of new market to competitors/attractiveness of new market to competitors/Emergence of technologies etc.Emergence of technologies etc. Technologies, needs/ demands, product categoriesTechnologies, needs/ demands, product categories

have different driving forces.have different driving forces.



5555

P.L.C WEAKNESSES.L.C WEAKNESSES No Uniform ShapeNo Uniform Shape: An s shaped curve describes only shape: An s shaped curve describes only shape

of PLC while most of them vary or are unique.of PLC while most of them vary or are unique.

Unpredictable Turning Points:Unpredictable Turning Points: While most products do peak While most products do peakand then fall there is no specific turning point.and then fall there is no specific turning point.

Difficult to Decide the Stagesifficult to Decide the Stages : A dormant sales (flat): A dormant sales (flat)pattern may denote the product has reached maturity whilepattern may denote the product has reached maturity whileit may be just that the product has touched a plateau beforeit may be just that the product has touched a plateau beforeanother growth period. Tendency to drop a product due toanother growth period. Tendency to drop a product due to

such readings can turn out to be fatal due to the riskssuch readings can turn out to be fatal due to the risksinvolved in new product developmentinvolved in new product development Unclear ImplicationsUnclear Implications: Growth phase may or may not be: Growth phase may or may not be

associated with high profit margin. Say rapid growth can beassociated with high profit margin. Say rapid growth can beassociated with low profits and decline can be veryassociated with low profits and decline can be veryprofitable.profitable.

Product OrientedProduct Oriented: Fails to understand the changing: Fails to understand the changing

requirement of customers / strategies of competitors,requirement of customers / strategies of competitors,attractiveness of new market to competitor-ors /attractiveness of new market to competitor-ors /Emergence of technologies etc.Emergence of technologies etc.

Technologies, needs/ demands, product categories haveTechnologies, needs/ demands, product categories havedifferent driving forces.different driving forces.



5656

Boston Consulting GroupBoston Consulting Group

(BCG) Matrix(BCG) Matrix

When a firm’s divisions compete in differentWhen a firm’s divisions compete in different

industries, a separate strategy often must beindustries, a separate strategy often must be

developed for each business.developed for each business.

To enhance and formulate strategies. To enhance and formulate strategies.

To manage its portfolio of businesses To manage its portfolio of businesses

Focuses onFocuses on relative market sharerelative market share position andposition and

thethe industry growth rateindustry growth rate..



5757

BCG MatrixBCG MatrixRelative Market Share Position

Indu

strySales

Grow

thRate

High

1.0

Medium

Low

High

Low

Med

StarsIV

Question MarksIII

Cash CowsI

DogsII



5858

BCG MatrixBCG Matrix

Pie Chart corresponds to corporatePie Chart corresponds to corporaterevenue generated by that business unit.revenue generated by that business unit.

The pie slice indicates the proportion of The pie slice indicates the proportion of division’s profit.division’s profit.

Divisions locatedDivisions located Quadrant I is calledQuadrant I is called Cash CowsCash Cows,,

Quadrant II is calledQuadrant II is called DogsDogs.. Quadrant III is calledQuadrant III is called Question MarksQuestion Marks,, Quadrant IV is calledQuadrant IV is called StarsStars,,



5959

MARKET SHARE DOMINANCE

HIGH LOW

MARKETG

ROWT H

RATE

LOW

HIGH

High growthMarket leadersRequire cashLarge profits

Low growth

High market shareHigh cash flow

Low growthLow market shareMinimal cash flow

High growthLow market shareNeed cash

Poor profit margins

$$$$

BCG Portfolio MatrixBCG Portfolio Matrix



6060

Cash CowsCash Cows

High relative market share but compete in aHigh relative market share but compete in alow-growth industrylow-growth industry Generate cash in excess of their needsGenerate cash in excess of their needs

Milked i.e. cash for other purposesMilked i.e. cash for other purposes Manages to maintain strong position as longManages to maintain strong position as long

as possibleas possible Product developmentProduct development

Concentric diversificationConcentric diversification Retrenchment or divestiture if the divisionRetrenchment or divestiture if the division

becomes weakbecomes weak



6161

DogsDogs

Low relative market share andLow relative market share andcompete in a slow- or no-growthcompete in a slow- or no-growth

industryindustry

Weak internal and external positionWeak internal and external position LiquidationLiquidation

DivestitureDivestiture

RetrenchmentRetrenchment



6262

Question MarksQuestion Marks

Low relative market share—competeLow relative market share—compete

in a high growth industryin a high growth industry Cash needs are highCash needs are high

Cash generation is lowCash generation is low

Decision: strengthen by pursuing anDecision: strengthen by pursuing an

intensive strategy, e.g. to sell them.intensive strategy, e.g. to sell them.



6363

StarsStars

High relative market share and a highHigh relative market share and a highindustry growth rateindustry growth rate

Represent the organization’s bestRepresent the organization’s best

long-run opportunities for growth andlong-run opportunities for growth andprofitability.profitability. Substantial investment to maintain orSubstantial investment to maintain or

strengthen their dominant position.strengthen their dominant position. Integration strategiesIntegration strategies Intensive strategiesIntensive strategies Joint ventures Joint ventures

BCG MatrixBCG Matrix



6464

BCG MatrixCG

or o o a r xor o o a r x



6565

or o o a r xor o o a r xExampleExample

Sub-Notebooksand Hand-Held

Computer

Integratedphone/Palm

devices

Laptop andPersonal

Computers

MainframeComputer

MARKETG

ROWT

HRA

TE

LOW

HIGH

MARKET SHARE DOMINANCE

HIGH LOW

STARPROBLEM

CHILD

CASHCOW DOG



6666

BCG Matrix & BenefitBCG Matrix & Benefit

Setting the path for growthSetting the path for growth Knowing dead investmentsKnowing dead investments Draws attention to the cash flow,Draws attention to the cash flow, Investment characteristicsInvestment characteristics Needs of an organization’s variousNeeds of an organization’s various

divisions.divisions. To achieve a portfolio of divisions To achieve a portfolio of divisions

that are Stars.that are Stars.



6767

BCG Matrix LimitationsBCG Matrix Limitations Viewing every business as a star, cash cow,Viewing every business as a star, cash cow,

dog, or question mark is overly simplistic.dog, or question mark is overly simplistic. Middle of the BCG matrix is not easily classified.Middle of the BCG matrix is not easily classified. The BCG matrix does not reflect whether or not The BCG matrix does not reflect whether or not

various divisions or their industries are growingvarious divisions or their industries are growingover time.over time.

Other variables besides relative market shareOther variables besides relative market shareposition and industry growth rate in sales areposition and industry growth rate in sales areimportant in making strategic decisions aboutimportant in making strategic decisions aboutvarious divisions.various divisions.

G.E Strategic Planning Model

B i S hB i St th



6868

Strong Average Weak Business Strength Business Strength

I n d u s t r yA t t r a c t i

v e n e s s

High

Medium

Low

Business Strength Index Industry Attractiveness Index

* Market Share * Market size

* Price Competitiveness * Market Growth

* Product Quality * Industry Profit Margin

* Customer Knowledge * Amount of Competition

* Sales Force and Effectiveness * Seasonality

* Geographic Advantage * Cost Structure

* Others * Etc.

GE Business Screen (Portfolio Analysis)



6969

A

Winners Winners

B

C

QuestionMarks

D

F

AverageBusinesses

EWinners

Losers

G

LosersH

Losers

ProfitProducers

Strong Average Weak

Low

Medium

High

Business Strength/Competitive Position

I nd u s t r y A t t r

a c t i v e n

e s s



7070



7171



7272

LeaderLeader - major resources are focused upon the- major resources are focused upon theSBU.SBU.

Try harderTry harder - could be vulnerable over a longer- could be vulnerable over a longerperiod of time, but fine for now.period of time, but fine for now. Double or quitDouble or quit - gamble on potential major SBU's- gamble on potential major SBU's

for the future.for the future. GrowthGrowth - grow the market by focusing just enough- grow the market by focusing just enough

resources here.resources here. CustodialCustodial - just like a cash cow, milk it and do not- just like a cash cow, milk it and do notcommit any more resources.commit any more resources.

Cash GeneratorCash Generator - Even more like a cash cow, milk- Even more like a cash cow, milkhere for expansion elsewhere.here for expansion elsewhere.

Phased withdrawalPhased withdrawal - move cash to SBU's with- move cash to SBU's withgreater potential.greater potential. DivestDivest - liquidate or move these assets on a fast as- liquidate or move these assets on a fast as

you can.you can.

McKinsey’s 7 S ModelMcKinsey’s 7 S Model



7373

McKinsey’s 7 S ModelMcKinsey’s 7 S Model

Strategy

Structure Systems

Style

Staff

Skills

SuperOrdinate

Goals-

Shared

Values



7474

Constructing Corporate Scenarios



7575

IFAS



7676

EFAS



7777

SFAS Matrix



7878

SWOT analysis of strengths,SWOT analysis of strengths,



7979

SWOT analysis of strengths,SWOT analysis of strengths,

weaknesses, opportunities,and threats.weaknesses, opportunities,and threats.

TOWS MatrixTOWS Matrix



8080



8181

CREATING STRATEGICCREATING STRATEGIC

MIND SETMIND SET

Corporate Strategy



8282

p gy

Three Key Issues: Firm’s directional (CORPORATE)

strategy

Firm’s portfolio (BUSINESS LEVEL)

strategy

Firm’s parenting (FUNCTIONAL LEVEL)strategy

I i i i f SI iti ti f St t



8383

Initiation of StrategyInitiation of Strategy

Triggering

event

•New CEO

•External intervention

•Threat of change inownership

•Performance gap

•Strategic inflection point

Stimulusfor change

in

strategy

Corporate Strategy



8484

Directional Strategy –

Orientation toward growthExpansion, contraction, status quoConcentration or diversification

Internal development or acquisitions,mergers, or alliances

3 Grand StrategiesGrowth strategiesStability strategies

Retrenchment strategies

Corporate Directional StrategiesCorporate Directional Strategies



8585

Corporate Directional StrategiesCorporate Directional Strategies

COMBINATION STRATEGIES

DERIVED STRATEGIES

STRATEGIC VARIATIONS -STRATEGIC VARIATIONS -EXPANSIONEXPANSION



8686

EXPANSIONEXPANSION INTERNAL: Add new product, product line, market,

functions, redefine/ reposition of product – market. EXTERNAL : Take over, acquisition, merger.

RELATED : Synergic diversification.

UNRELATED: Non – synergic diversification.

HORIZONTAL: Supplementary/ Complementary

Expansion.

VERTICAL: Integration.

ACTIVE: R & D, Entrepreneurial development.

PASSIVE: Imitation, adoption & adaptation.

IGOR ANSOFF’S BUSINESS GROWTH MODELIGOR ANSOFF’S BUSINESS GROWTH MODEL



8787PRODUCTS

EXISTING NEW

M

ARKE

TS/CUSTOM

ERS

EXISTIN

G

NEW

ExistingShare of Business

EXISTING PRODUCTSIN EXISTING MARKETS

IncreaseMarket Share

SALESMGMT.

NEW PRODUCTS FOREXISTING CUSTOMERS

NEW PRODUCTDEVELOPMENT, UPGRADES

NEW CUSTOMERSFOR EXISTING LINESOF PRODUCTS

MARKET DEVELOPMENT

B U S I N E S S D E V E L O P M E N T

RelatedBusinesses –

C O R P O R A T E P L A N N I N G

UnrelatedBusinesses

New products /New Markets

Products* Corporate Strategy, I. Ansoff, Jan 1965, McGraw Hill, USA

Corporate Strategy



8888

Growth Strategies --

External mechanisms

Mergers

Acquisitions

Strategic alliances

EXTERNAL GROWTHEXTERNAL GROWTH



8989


STRATEGIESSTRATEGIES

TAKE OVER, AQUISION &MERGER

BUYING FIRM SELLING FIRM

•Acquire Controlling interest}

•Acquire Assets and liabilities}of selling Firm}

•Acquire & merge of Assets }liabilities of both the firms.}

•TAKE OVER

•ACQUISION

•MERGER

WHY THE FIRM PURSURE EXTERNALWHY THE FIRM PURSURE EXTERNAL



9090

WHY THE FIRM PURSURE EXTERNALWHY THE FIRM PURSURE EXTERNAL

EXPANSIONEXPANSION To increase the firm’s stock.. To increase the growth rate of the firm. To make good investments. To improve the firm’s earnings & stability. To balance or fill out the product line.

To diversified the product line in mature state. To reduce the competition. To acquire the needed resources. For Tax purpose. To increase the efficiency and profitability. To diversify the owner’s holding. To deal with top management problems..

CRITICAL ISSUES RELATED TO M & ACRITICAL ISSUES RELATED TO M & A



9191

STRATEGIC ISSUES:It relates to the commonality of strategic interest. Strength of one

firm may be weakness of the other firm and vice versa. The firmscan create Synergy and complementing business situation.

FINANCIAL ISSUES:These are related to (a) Valuation of selling firms based on assets,

market standing, share prices, earning potential etc. (b) Sources of financing for merger.

MANAGERIAL ISSUES:It relates to professional compatibility and acceptance of

managerial system of selling company. LEGAL ISSUES:

It is related to various issues of legal provisions such as Chapter Vof the Companies Act, the MRTP Act, and section 72A (I) of theIncome Tax Act OR Anti Trust Act, Sherman’s Act.

CULTURAL ISSUES: It relates to the cultural compatibility of the organization, society,

market etc.

LABOUR ISSUES: It relates to continuation of old staff andsubsequent relations. SOCIETAL ISSUES: It relates to the benefits of society and Social

compatibility. OTHER ISSUES: It relates to Political, Economic, Environmental

factors.

REASONS FOR FAILUR OFREASONS FOR FAILUR OF




9292


Paying too much for the acquired firm.Paying too much for the acquired firm. Assuming that a growing market orAssuming that a growing market or

product will be out standing in market.product will be out standing in market. Leaping into merger without carefullyLeaping into merger without carefully

studying the consequences.studying the consequences. Diversifying in to areas in which the firmDiversifying in to areas in which the firm

had too little knowledge.had too little knowledge. Buying too large a firm and thus incurringBuying too large a firm and thus incurring

an excessively large debt.an excessively large debt.

Trying to merge disparate corporateTrying to merge disparate corporatecultures.cultures.

Counting on key personnel staying afterCounting on key personnel staying afterthe merger.the merger.



Corporate Strategy



9494

Basic Concentration Strategies --

Vertical growth

Horizontal growth



Corporate Strategy



9696

Concentration --

Horizontal GrowthHorizontal integration

Corporate Strategy



9797

Basic Diversification Strategies --

Concentric Diversification

Conglomerate Diversification

Corporate Strategy



9898

Concentric Diversification --

Growth into related industry Search for synergies

Corporate Strategy



9999

Conglomerate diversification --

Growth into unrelated industry Concern with financial considerations

DERIVED BUSINESS STRATEGIES



100100

OFFENSIVE DEFFENSIVE CO-OPERATIVE

•FRONTAL ASSAULT•FLANKING MANEUVER•BYPASS ATTACK

•ENCIRCLEMENT•GUERRILLA WARFARE

•RAISE STRUCTURALBARRIER

•INCREASE EXPECTEDRETALIATION

•LOWER INDUCEMENT FORATTACK

•SY NDICATING (COLLUSIO•STRATEGIC ALLIANCES•MUTUAL CONSORTIA• JOINT VENTURE•LICENSING ARRANGEMEN•VALUE CHAIN PARTNERS

STRATEGIC ALLIANCESTRATEGIC ALLIANCE(Partnering):(Partnering

):



101101

(Partnering):(Partnering): It is a partnership of two or more corporations or business units to

achieve strategically significant objectives which can be mutuallybeneficial. Some alliance are short term till the product isestablished, while the others are longer lasting, resulting in merger.

The reasons for alliance are:

(a) To obtain technological, management and/or manufacturing capabilities.(b) To enter into specific markets.(c) To reduce financial risk.

(d) To reduce political and economic risk.(e) To achieve or ensure competitive advantages in new businesses or markets(f) It plays vital role in today’s market condition and environment to solve some

complicated issues.(g) It provides vital role in providing the firms synergic strength.(h) It helps to develop product, process, market & share the investment outlay

jointly.(i) It facilitates the development of unique technological capabilities to meet the

challenges of technological revolution.(j)

It create a compulsion for alliance to enter in the local market through JV.(k) Building brand image in local market is mostly possible through alliance.

SPECIFIC ALLIANCESPECIFIC ALLIANCE



102102

SPECIFIC ALLIANCESPECIFIC ALLIANCE Production Alliance:Production Alliance: Two or more companies share the Two or more companies share the

common manufacturing facilities, existing or new facilities.common manufacturing facilities, existing or new facilities.

Marketing Alliance:Marketing Alliance: Two or more companies share Two or more companies sharemarketing services expertise and facilities.marketing services expertise and facilities.

Financial Alliance:Financial Alliance: Companies joint together in order toCompanies joint together in order toreduce financial risks associated with the activities & sharereduce financial risks associated with the activities & sharethe profit in proportion to financial contribution.the profit in proportion to financial contribution.

Research & Development Alliances:Research & Development Alliances: Fast changingFast changingtechnology, high cost of R & D and need of being ahead of technology, high cost of R & D and need of being ahead of changes, force companies to form alliance in R & D area.changes, force companies to form alliance in R & D area.

Human Resources AllianceHuman Resources Alliance: Alliance for outsourcing: Alliance for outsourcing

BREAK – UP OF ALLIANCE:BREAK – UP OF ALLIANCE:



103103

BREAK UP OF ALLIANCE:BREAK UP OF ALLIANCE:

Incompatibility between/among partners

in management style, financial position,culture, business interest.

Access to information. Distribution of Income. Change in business environment. Acquiring the strength of partner: The

companies over a period of alliance,

acquire the strengths of the partner andstarts new operations in competitions.

Corporate Strategy



104104

Stability Strategies --

Pause/proceed with caution

No change

Profit strategies

Corporate Strategy



105105

Retrenchment Strategies --

Turnaround Captive Company Strategy Selling out Bankruptcy Liquidation

STRATEGIC JOINT VENTURESTRATEGIC J

OINT VENTURE



106106

Joint ventures (JV) are partnership in which two ormore firms carry out a specific project or business in a

selected area of industry in a form of new venture.Ownership of the original firms remains unchanged.Actually, corporate partnership are formed withspecific and time bound objectives which, onceachieved, leaves little reasons for the alliance tocontinue. Joint venture can be temporary or it can belong term. JV that last longer do so because theirobjectives have been redesigned.

Every JV:1. Has a scheduled life – cycle, which will end sooner or later (5 to 10

years)

2. Has to be dissolved when it has outlived its life – cycle.

3. Change in environment forces joint venture to be redesignedregularly

4. Translations seek to absorb their partner’s competencies.

5. It is a contractual obligation on fragile platform.

Strategic reasons forStrateg

ic reasons forFormation of JVFormation of JV



107107

Formation of JVFormation of JV1.1. Foreign firms are allowed to operate only if they enterForeign firms are allowed to operate only if they enter

into a JV with local partner.into a JV with local partner.

2.2. Size of the project may be very large and one companySize of the project may be very large and one companyaccomplish it.accomplish it.

3.3. Some projects require multidimensional technologySome projects require multidimensional technologythat no one firm possesses. Firm with different, butthat no one firm possesses. Firm with different, butcompatible technology may join together.compatible technology may join together.

4.4. One firm with technology competence and another withOne firm with technology competence and another withmanagerial competence join together.managerial competence join together.

5.5. A foreign firm with technology competence joins with aA foreign firm with technology competence joins with adomestic firm with marketing competence.domestic firm with marketing competence.

6.6. While setting up of an organization requiresWhile setting up of an organization requiressurmounting hurdles such as import quota, tariffs,surmounting hurdles such as import quota, tariffs,nationalistic political interest and cultural road block,nationalistic political interest and cultural road block,Government’s support for the JV.Government’s support for the JV.

7. JV are undertaken for a variety of reasons like political,economic or technological

TYPES OF JV:TYPES OF JV: ((A) SPIDER WEBA) SPIDER WEB

(B) GO-TOGATHER & SPLIT(B) GO-TOGATHER & SPLIT(C) SUCCESSIVE INTEGRATION(C) SUCCESSIVE INTEGRATION

RETRENCHMENT STRATEGY



Common Retrenchment Strategies: Turnaround, restructuring,

Divesting, Bankruptcy, Liquidation

WHY FIRM GO FOR RETRENCHMENT:

Prevalence of poor economic conditions. Competitive pressure may also cause firms to curtail their

operations.

The comp. is not doing well or perceive itself as doing poorly. The comp. has not met its objectives and there is pressure

from shareholders, customers, or others to improve performance.

The external environment poses threats and internal strengths

are insufficient to face the threats. Better opportunities in the environments are perceived else

where were firms strength can be utilized. I bilit t i l t l t t t h l b t h

Documents

Msr Strategic Management - 8 (2)