Stategic management 1

8/7/2019 Stategic management 1

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STRATEGIC MANAGEMENT

IME PGDM IV SEMESTER1

Strategic management


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The concept of strategy

y Strategy is the great work of organisation. In situations of life ordeath it is the tao of survival or extinction. Its study cannot beneglected.----SUN TZU, The Art of War.2500 B.C

y Stategy is about winning.

y Stratey is not a detailed plan or program of instructions,it is aunifying theme that gives coherance and direction to the actions anddecisions of an individual or an organisation.


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Characteristic of a winning strategy

Goals that are simple, consistent, and long term.

Profound understanding of the competitive environment.

Objective appraisal of resources.

Effective implimentation.

ExamplesBharti Airel

L.N.Mittal

GeneralGiap

Dheerubhai Ambani


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Origin of the word

y Strategia means generalship in Greek.Stratos means army . Ag means to lead .

y The concept of strategy was first given in the ART OF WAR by SUN TZU inChina 500 BC

y There are 13 chapters in the book. Laying plans

On waging war

The sheathed sword

Tactics

Energy

Weak points and strong points

Maneuvering

Variations of tactics (cont..)


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The army on the march

Terrain

The nine situations

Attack by fire

The use of spies.

What is there in these chapters that can be adopted to Business ?


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Sun Tzu says

If you know the enemy and yourself, you need not fear the result of a hundred

battles.

If you know yourself but not the enemy, for every victory gained you will also

suffer a defeat.

If you know neither the enemy nor yourself , you will succumb in every battle


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Some definitions of strategy

y The art of war, especially the planning of movements of troops and ships etc, intofavourable positions ; plan of action or policy in business or politics etc.( oxforddic.)

y The determination of the long-run goals and objectives of an enterprise, and theadoption of courses of action and the allocation of resources necessary forcarrying out these goals.( Alfred Chandler )

y A stategy is the pattern or plan that integrates an organisations major goals,policies, and action sequences into a cohesive whole.A well formulated stategyhelps marshal and allocate an organisations resouces into a unique and viableposture based upon its relative internal competencies and shortcomings,anticipated changes in the environment, and contingent moves by intelligentopponents


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Definitions. ( cont.)

y Strategy is the pattern of objectives, purposes, or goals, stated insuch a way as to define what business the company is in or is to be inand the kind of company it is or is to be.( Kenneth Andrews.)

y What business stategy is all about is, in a word, competitive

advantage.The sole purpose of stategic planning is to enable acompany to gain , as efficiently, a sustainable edge over itscompetitors. Corporate strategy thus implies an attempt to alter acompanys stength relative to that of its competitors in the mostefficient way.( KENICHI OHMAE. )


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Definitions ( cont.)

y The functions and resposibilities of choice of objectives,

mobilisation of resouces , allocation of such resources, continuous

monitoring of performance. It is the highest function of

management .

y The supervision of the continuous process of deciding the nature of

the enterprise and setting, revising and attempting to achieve its

goals. (KENNETH ANDREWS )


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Fundamental issues in SM.

y Purpose and missions

y Corporate objectives

y Choice of businesses

y Courses of action for achieving the objectives.


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Nature & scope of SM

y Route map for the organisation

y Decision guide

y Lays down growth objectives

y

What to do how to do where to reachy Look forward and far ahead

y Monitor environment anticipate change and prepare for theunexpected

y Build competitive advantage and build core competencies

y Not only anticipate future but shape future.

y Influence the environment.


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Concerns of SM

y Future.

y Growth.

y Environment.

y Portfolios of business

y Strategy.

y Integration.

y Creating competitive advantage and core competency

y Corporate strategy.


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Evolution of stategic mgt.

1950s. Budgetry planning & control.Financial control through operational and capitalbudgeting.Investment planning through project appraisal ,ROI, DCF. Financialplanning was the key.

1960s. Corporate planning.Preparation of short medium and long term plans.businessforecasting and investment planning models.Rise of corporate planning departments.

1970s. Corporate strategy, diversification, and portfolio planningmatrices.multidivisional structure.Quest for global market share.

Late 70s & early 80s.Analysis of industry and competition. Choice of industries,markets, and segments and positioning with in them. Competitor analysis and PIMS(profit impact of market stategy ).market selectivity , industry restructuring .activeasset management.


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Evolution of st. mg ( cont.)

Late 80s & early 90s. The quest for competitive advantage .Sources ofcompetitive advantage with in the firm. Resource analysis of corecompetencies.corporate restructuring and business processreengineering.Re focusing and outsourcing

Late 90s & early 2000. stategic innovation and the neweconomy.Competitive advantage through stategicinnovation.Competing on knowledge adopting to the new digitalnetworked economy.Organisational flexibility and speed ofresponse.Knowledge management and organisationallearning.Competing for standards .Early mover advantage. The virtual

organisation. The knowledge based firm.Alliances and networks. Thequest for critical mass.


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Corporate & business stategy

y Focus of strategic management shifted from planning process to quest for profit.

y The fundamental goal of business is to earn a return on its capital that exceed the cost of capital.thereare two ways to attain this.

y the firm may locate in an industry where favourable conditions result in the industry earning a rate ofreturn above the competitive level.

y Second , the firm may attain a position of advantage vis-a vis its competitors with in an

industry,allowing it to earn a return in excess of the industry average.y Corporate stategy defines the scope of the firm in terms of the industries and markets in which it

compets.corporate stategy decisions include, Investment in diversification

Vertical integration

Acquisition

New ventures

Allocation of resources between the different business of the firm.

Divestment.


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Business stategy.

y Business stategy is concerned with how the firm compets within a

particular industry or market. This is also referred as competitive

stategy.

y

The questions ?how can the firm make money ? This leads to

What business or businesses should we be in?

How should we compete ?

Answer to the first question describes corporate strategy and the second

describes business ( competitive stategy )


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Strategic management

y Strategic management is the study of such set of managerial

decisions and actions that determines the long run performance of a

firm. The major steps in the strategic management process are :

Environmental analysis

Strategy formulation

Strategy implementation

Strategy evaluation and control


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Why strategic planning ?

y It gives a clear vision of internal and external environment of a

business firm

y Focus on what is most important and how it is to be managed for

success of business.y Understanding of problem, its nature ,its threats, its controls and

implications.

y Appropriate decisions to implement the strategies evolved to

achieve the desirable objectives.

y A continuous monitaring and evaluation of the progress through the

path to the goals


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The strategic planning process

The tasks in strategic planning,

Clarifying the mission of the corporation

Defining the business

Surveying the environment

Internal appraisal of the firm

Setting the corporate objectives

Formulating the corporate stategy

Monitoring the strategy.


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STRATEGIC PLANNING PROCESS

1. Clarifying the mission of corporation

2. Defining the business

3. Surveying the environment

y

Macro environmental factors

y

Environmental factors specific to business concerned

Demographic Socio-cultural Economic Political

Natural Technological Legal Govt Policies

Industry & Competition Market/Customer Technology

Supplier Factors Govt. Policies


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y Spotting the opportunities & threats

y Checking the attractiveness and probability position of these

opportunities

y Highlighting those opportunities the pursuit of which will help the firm

bridge its strategic planning gapy Developing the opportunities-threats profiles (OTP)

4. Internal appraisal of the firm

y Assessing the firms capabilities/strengths & weakness in the various

areas:

Finance Marketing Human Resources

Operations R&D General Management


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y Developing the strength-weakness profiley Appraising the individual business/strategic business units (SBUs) of the

firm

y Identifying the competitive advantages and core competencies anddeveloping the competitive advantage profile (CAP)

y Examining the capability gap (gap between existing capabilities and theones needed for pursuing the spotted opportunities)

5. Setting the corporate objectivesy Framing the broad aims of the corporation, using the corporate mission

as the guide


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y Examining the strategic planning gap and checking the growth-scopey Fixing the growth objective

y Setting specific objectives in all major areas:

y Prescribing the hierarchy/rank/priorities of the objectives

Profitability Competitive Position Technology

Productivity R&D and Innovation Human Resources

Corporate Image Social Responsibilites


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6. Formulating the corporate strategy: exploring generic alternatives

y Examining which generic strategy the firm should opt for:

y Stability ?

y Expansion ?

yDivestment ?

y Combination ?

y Understanding the effect of the alternatives in terms of changes/additions/deletions to

the firms existing product-market posture

y Clarifying the competitive advantage and synergy which each alternative would

require/use


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7. Formulating the corporate strategy: strategy choicey Evaluating the strategy alternatives

y Keeping the O-T profile, the growth objective and CAP as the referenceframe, examining what strategy would be the best

y Reviewing the exisiting businessesAssessing the prospects of each SBU

Examining what to do with each SBU

Build? Maintain ? Harvest ? Divest ? To what extent ? At what pace ?


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y Examining which business are to be taken upy Examining the resource requirement of the different strategy options

and checking the resource availability

y Making the final choice of the strategy/strategy spectrum

y

Translating the strategy in terms of what is to be done with each SBUAssigning the priorities to the SBUs, exisiting as well as new ones

Clarifying what is expected of each SBU

Allocating resources to the SBUs

8. Monitoring the strategy


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FIRM INFRASTRUCTURE

HUMAN RESOURCE MANAGEMENT

TECHNOLOGY DEVELOPMENT

PROCUREMENT

INBOUND

LOGISTICS

OPERATIONS OUTBOUND

LOGISITCS

MARKETING

& SALES

SERVICE

Generic Value Chain

SUPPORT

ACTIVITIES

PRIMARY

ACTIVITIES


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Strategy Alternatives

Stability Expansion Divestment Combination

Intensification Diversification

Market

Penetration

Market

Development

Product

Development

Vertically

Integrated

Concentric

Diversification

Conglomerate

Diversification

BackwardForward


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Vision & mission

Vision is what the firm wants to be in future.such a view is often madeexplicit in a VISION statement of the company.a vision statement givesaspiration and motivation besides guiding the formulation of strategy.

Hamel and Prahalad , term it as stategic intent. Examples:y To put a man on the moon by the end of the decade Apollo program.

y Our vision is to dominate the global food service industry McDonald.

y Encircle Caterpillar Kamatsu.

y Project infinity Coca Cola


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Mission

y Mission statement contains the ultimate purpose of the firm.It also

is the vision of the founders.

y The corporate mission is an expression of the growth ambition of

the firm.

y It is the firms future visualised.


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How does mission helps the firm

y Lends direction

y Gives focus

y Objectives , targets and programs are formulated based on

mission.y Helps people at various levels in the corporation understand

in what direction they should move.

y Guiding the action at all levels.

y Helps prevent people falling into an activity trap.


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A few mission statements

y The mission of our company, is to make cleanliness commonplace,to lesson work for women, to foster health, and to contribute topersonal attractiveness that life may be more enjoyable for thepeople who use our products.--- Unilever

y

To preserve and improve human life---Mercky To help business corporations and governments to moresuccessful.McKinsey & Co.

y To become a major player in the global chemical business andsimultaneously grow in other growth industries like infrastructure ---RIL

y To become a $ 1 billion research based global pharmaceuticalcompany --- Ranbaxy


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Values & beliefs

y Organisational values are a major constituent of mission.It is values

that hold the mission in tact.It is the shared values that holds a firm

together.Values proclaim the qualities it will cherish and what it will

give to and expect from its people and society.

y The firms beliefs can also be found in the mission statement.


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y Macro environment. A ) socio cultural, politico- legal, socio-

economic, technological and economic factors acting on the

firm. B ) task environment comprising share holders,

suppliers, employees, competitors, creditors, debtors,customers, government etc.

y Micro environment. A) organisational structure b)

organisational culture and work .c) organisational resources.


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Macro environment variables

Societal environment consisting of :

Economic forces

Tecnological forces

Politico legal forces

Socio cultural forces

Socio economic forces.


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Task environment.

Task environment consists of all the work and people directly connected to

firms activities.major task environments are,

Buyer and seller groups.

Competitor groups.

Employees ( manpower groups ).Stock / owner groups

Crdit group

Debt group

Regulatory group.


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Analytical model

y SWOT model. Strength, weaknesses, opportunities and threats.O

& T are external or macro environment and S & W are internal or

micro environment factors.

y Swot is used to identify core competancy as well as lack of

appopriate resources.

y O is no O unless backed by resources.

SA = O / S-W or O / S T where SA strategic alternative. O is

opportunity, S is stength , T threat.

Swot is used to generate external factor analysis summery ( EFAS) andinternal factor analysis summery ( IFAS )


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SWOT -- HM

y Strength,

First motor car company in India,

Good product accepability,

Monopoly and protected market,

Built extensive dealer, repair and sevice networkThe

GP-CK Birla group,

First collaboration with GM.

Acceptance in government and taxi market,

Most suited for the then Indian roads.

One out of the only two car companies in the country


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Weakness -- HM

y no mission, vision or goals.

y No shared values or beliefs.

y Conflict between labour and management.

y No corporate strategy.

y Failed to see the environmental changes

y

Did not anticipate competition,y Did nothing to counter the threat from Maruthi till it was too late

y Cling on the same product for 50 years without any major change,

y Can failed to see customer needs and what competitors offered

y High labour cost and low productivity

y Failed to follow up the initial success of Lancer,

y Truker was a flop.

y Deviated from core areas and core competencies.


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Opportunity

y GDP growth and boom in the car market,

y Opening of the economy,

y Globalisation and upsurge in peoples aspiration level

y Good road network

y Export possibility

y Low labour cost

y JV and collaboration with world class motor car companies.the


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In Threat

competition ?

any other ?


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BCG growth-share matrix

y BCG (Boston Consuting Group ) is a simple way to anayse a firmsportfolio of investments , products , or business units.

y The classification is most attractive, potentially attractive,moderately attractive, and least attractive based on growth rates and

market share.y They are also called CASH COWS, STARS, QUESTION MARKS,

DOGS to describe the above position.


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BCG matrix ( cont. )

y Stars and question marks are businesses that operate in high growth

industries.

y Cash cows and dogs are businesses that operate in low growth

industries.

y Stars are net users of resources but hold potential for

future.question marks are also net users of resources but are in high

risk categories.

y A cash cow brings lot of cash to the company. Dogs are weak in

market share and also in low growth market.they are a drag oncompany resources.


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GE multifactor portfolio planning matrix

Different businesses or products are rated based on the following two

parameters,

Industry attractiveness &

Companies business strength.

How attractive is the industry and how strong is the firm in the industry. If both are very strong such businesses needs more investment and

allowed to grow. Invest and develop such SUBs.

If they are medium the stategy should be selective.

If they are low the policy should be harvest / divest


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SBUs.

y It is a single business or collection of related businesses that can be plannedseparately from the rest of the company,

y It a scientific method of grouping the businesses of a multi business corporation tohelp planning.

y Products/ businesses that are related in the standpoint of function are formed

as a distinct SBU.y A SBU can be a separate corporation or adivision in a corporation.

y Each SBU will be under a separate CEO, and will be a profit centre

y SBU is for facilitating strategic planning and implimentation and will be havingtheir vision mission, goals, targets, programs,budgetsand SOPs.


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Competitive advantage & core

competence

y A competitive advantage is a position of superiority on the part ofthe firm in some function /factor/ activity/ in relation to itscompetition.It is this superiority that enables the firm to survive,grow and excel in a competitive market.

y The superiority can be in any function such as manufacturing,marketing, finance, HRM, or a combination.Intellectual property,knowledge, or any factor of production can give a competitiveadvantage.

y Thus competitive advantage is a superior position relative to

competition.


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Com. Adv ( cont.)

y CA is linked to strategy.both goes hand in hand.CA is a vital

component of strategy.

y For the strategy to work the firm should have competitive

advantage.

y CA is the back up of strategy.without relavent CA strategy will not

succeed.

y Strategy can be used to create and excel CA.


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Com. Adv.( con )

y Sources of CA :

MARKETING

FINANCE

PRODUCTION

R& D

HR

THE CEO & LEADERSHIP

LOCATION & Many more.


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CA & Strength

y Strength is different from CA.

y All strength are not CA.

y All CA are strength.

y A strength is a CA only if it can affect the competition in anadvantageous manner or bring in superiority in the market vis- a-

vis the competitor. Otherwise it will remain as astrength.


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BuildingCA

y By strategy

y By SWOT

y By bench marking

y

By value chain approach,y By analysing value chain of self and competitor


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Core competence

y A firm may loose the CA as competitors will catch up after sometime.There for to keep up the position the firm should developsome unique strenth . This is know as CORE COMPETENCE .

y An enduring competency that cannot be easily imitated.

y A competency that lies at the root of products.y ( VSR, Ch. 10 )


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mission, vision,

goal, objective, policy, SOP.

y Mission- is the purpose or reason for the firms existance.

y Vision is a statement of what a firm can do and what it wants to be.

y Goal is a statement of what a firm wants to achieve.Goals should be SMART.

y Objective is a statement of what firm wants to achieve with definitivecommitment on quantity and time frame.

y Policy is a broad guideline for decision making to link strategy strategyformulation and strategy implementation

y Standard operating procedures is developed to control activities .sops can be inthe form of simple conventions or in detailed written manuals.


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Strategic management process

Environmental analysis-

Stategy formulation

Stategy implementation

Evaluation and control


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y Understanding, analyssing the external and internal environment of

a firm.models like SWOT,GE spot light can be used for

this.Foercasting methods can also be used for finding the future

trends and possible developments.

y This includes external ( society and task ) & internal (structure,

culture, & resources )


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Strategy formulation

(strategic planning )

y This is the planning stage.The firm will decide the the vission,

mission, objectives, goals, strategies, policies.the major decisions

will be,

What business shuold we be in?

Where should we locate ?

What product /service ?

How much capital & from where ?

What is the organisation structure ?

Who should be the key personnel ?

Basically these are the entrepreneurial decisions and these are taken buy

the investors/ promoters.


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Strategic planning ( cont. )

y Stategy for stability

y Stategy for growth

y Strategy for retrenchment

y

Competitive stategyy Cooperative strategy.


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Generic competitive strategy

( Michael Porter )

y 1 ) overall cost leadership.a firm can achieve competitive advantageif it can supply its prodcts / srevice at a lower cost than thecompetitors. How can one achieve this overall cost leadership ?

y 2) differentiation strategy . Offer something unique or

different.through brand creation and and positioning .

3 ) focused stategy.concetrate on specific products, customers,segments where it is good or superior.the concept of corecompetency came out of this.


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Strategy implementation

y Strategy is translated into action so that the objective of the strategy

is achieved.In doing so,

Progamms are drawn,

Budgets are made,

Policies, procedures,rules, are formulated.


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Strategic mgt. process

( summery )

y Environmental analysis: task environment factors & internal

factors.

y Strategy planning : objectives, strategiies,tactics, policies.

y Strategy implementation: programmes, budgets, procedures.y Evaluation & control: evaluation, assesment and control.


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Types of strategies

y Competitive strategy. Aimed at improving competitive position. Thisis achieved through cost leadership or differentiation strategy.

y Cooperative strategy.they are, Collusion, Strategic alliances,

Mutual service consortia Joint ventureLicencing agreementValue-chain partnership ( inboud logistic, operations, outbound logistics,

marketing and sales, services. Supporting activities, procurement,technology development, HRM,& firm infrastructure.)firm

infrastructure includes, planning, finance, acconting, legal, govt & PR


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IME PGDM IV SEMESTER

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Common features of competitive

and cooperative strategies

y They are made by board of directors or managers

y Both are based on common principle of competitive position of afirm against competitors.

y They may be formed for entire company, or a business unit or aparticular product/ service or a particular market segment.


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Major corporate strategies

y Directional : the firms overall orientation towards growth,

stability, or retrnchment.

y Portfolio : the industry or markets in which firm compets

through its products and servicesy Pareting : the manner in which the top management

coordinates actvities, transfers resources and cultivates

capabilities among its product lines and business units


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Distinction between cooperative

and competitive strategy

y Coop. stgy may modify organisational structure. But

compet. Stgy will not alter the organisation structure.

y Both have opposite direction to face competition.in coop.

they nullify competition but in compet. they face each other.y Cooperative strategy involve sharing, synergetic ,friendly

but competitive is unfriendly nonsharing and hostile.


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Directional strategy

y Growth strategies:

Mergers ,

Acquisitions ,or takeovers,

Strategic alliances

Two types of growth strategies can be seen.

Concentration stategies. ( vertical growth,forward integration, backwardintegration,a firm builds on its value chain.)

Vertical integration can be full ownership of value chain to no ownership atall.Example Indian Oil and RIL. As against this some companies outsources theentire value chain and have minimum vertical integration.

Horizontal growth results in horizontal integration.It refers expansion of forms

products to larger geographical areas or by increasing range of products orservices.


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Directional strategy ( cont.)

y Diversification strategies: continuous growth may not be possible

with vertical, horizontal strategies alone.Then the firm goes for

diversification. Diversification can be concentric or conglumerate.

Concentric diversification refers to growth into a related industry.the search in

concentric diversification is SYNERGY. The concept is that two will generatemore profits together than they could separately.

Conglumerate strategy.It refers to growth by diversification into an industry

not related to its current line of business.


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Stability strategy.

y Pause / proceed strategy.

y No change strategy.

y Profit strategy.


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Retrenchment strategies

y Turnaround strategy.it is an important retrenchment strategy incorporate world. Its focus is on operational efficiency.turnaroundstrategy involve , Cuts in profit, sales, production.

Cut in cost

Identify and stabilise at new level of profit / salse / production.

Improvement of operational efficiency.

Adopt growth strategies from new stabilised level.

Turnaround strategies are adopted in two steps

1 contraction

2 consolidation and growth at opportune time.


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Turnaround strategy ( cont. )

y Entrepreneurial turnarond strategy.

y Efficiency turnaround strategy.

y Captive company strategy.

y

Disinvestment strategy.


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Generation of strategic alternatives

y Generation of strategic alternatives

y Shortlisting the feasible strategies

y Comparative evaluation of feasible strategies

y Selection of best strategy.

S i l d i i


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Steps involved in generating

strategic alternatives.

y Among various models , TOWS matrix model is used most widely.

SO stategy . Use of stregth to take advantage of opportunities.

ST strategy. Use stength to face threats.

WO strategy .overcome weakness to to take advantage of opportunities.

WT strategy. Minimise weakness and avoid threats ( defensive strategies )


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Forecasting techniques.

Forecasting is very crucial for all planning as all plannigs are for

future. Some of the more important techniques are.

Brain storming

Consultancy

Delphi technique.


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Organisational strategies

y Organisational strategies are such strategies that are made at boardlevel.this is the top most level and is headed by CMD.they arecorporate strategies and hence decide the direction of the firm.Theydecide :

The objective The overall goals and targets

The product and service mix

The capital and financial requirements

Total sequence of how a firm has to perform.

They also govern all functional strategies such as for marketing, production,transportation etc.

They are regarded as MASTER STRATEGIES.


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Important org. strategies

y Organisation modification strategy:they modify the organisationstructure including the heirarchy, staffing, objective and capital ofthe company.

y Functional modification strategy :they may or maynot alter the

organisational structure. They bring functional modificationswith or without capital restructuring.


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Organisation modification strgs.

y Organisation life cycle.

Stage 1 simple.

Stage ii functional,

Stage iii divisional.

Stage iv declining.

Stage v mortality. Organisation modification can be brought in one of the followingways.

They push the organisation from stage I to stage ii or stage ii to stage iii

They may require the restructuring of the objective

They may alter the method and persons making strategic decisionsthey maybring about capital restructuring

They change the staffing patterns They may alter the ownership pattern


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Mergers .

y Merger is a process involving establishment of a single corporate

body by merging resources and technologies of two different bodies

performing competitive or cooperative business in the same

industry.It requiers situations like,

Equal size

Competitive firms ,merger nullify competition

Two firms cooperative and merger will consolidate their cooperation

Two companies are from the same industries

Same or partially same board of directors

Synergic or complementary.( HP- Compaq )

F ti l & g i ti l


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Functional & organisational

modifications on mergers

y instead of two boards only one board .

y A new company is formed with new name .shares of old companies are collected andcancelled and new shares of the new company is issued

y Restructuring of the organisation is carried out including shifting of personal

y Work duplication is avoided.

y The new company will adopt itown policiesy Staff relocation is carried out as needed

y Physical shifting of fixed assets or manpower is normally not done.

y Merger involves MOU statement and declaration that earlier entities are no more inexistence and the shares ,assets liabilities ,technologies, and all other resources oftwo companies stand merged into a new legal entity.


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Advantages & disadvantages.

y Advantages are ; consolidation, increased market , moreresources,good will , synergy, nullification of competition.

y Disadvantages are : liabilities and bad debts are tranfered to newcompany.staffing can create problems.

yUsually there is a droppage of share prices in the stock market

y Frequent mergers lead to inconsistencies in strategy formulationand implementation


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Joint ventures

y Joint venture is a cooperative business activity formed by two or more separateorganisations for strategic purposes crating an independent entity.the ownership,the operational resposibility, the risk and rewards are shared in agreed mannerthrough a promotional agreement.

y In a JV the respective stengths are shared to overcome a weakness or exploit a

new opportunityy In international business JV is one of the most popular forms of organisations

because it has the least financial, political and legal constraints as a mode of entry.

y Advantages are flexibility, less legal and statutory constraints, synergy and bringsgrowth for both parties.

y Disadvantages are conflicts, loss of control operations from the respective JV

parties, and in technology transfers less advantages to stronger party.


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Acquisition

y This is a method of growth in which a strong company acquires allthe assets and liabilities of another company.

y Acquisitions are made for specific objectives like capital investment,corporate growth, market coverage, new products or technology

transfer.y Advantages are easy entry, synergy, fast growth, less risky especially

in international contest, least jestation period.

y Disadvantages are cultural conflicts, adjustment problems, erosionin market image if ownership change is frequent.


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Take over

Take over is a form of acquisition, and can be done by buying shares from

market and taking over the control with or with out the consent of the owners.

In a takeover the owners lose their ownership/ control of the company against

their wishes.

Against an attempt by a hostile takeover the owners may try to get a friendly

takeover or bring a white knight and handover control.


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Networking

y In recent years a new and radical type of organisations have emerged withnetwork structure . It is also called VIRTUAL ORGANISATION because it iscomposed of a series of functional ,project, supply groups or collaborations orpartnerships linked and constantly changing .the cobweb like networking isnonhierarchial in nature but each one doing its specified function in the valuechain.

y The organisation is only a shell electronically connected to some completelyowned division, partially owned subsidiaries,and other independent companies.

y Such organisations will outsource most of the functions .y For ex. Amason . Com. Most functions of DEL COMPUTERS is carried out

through a network organisation.y Virtual organisation is most dynamic, fexible, and easy to add, delete, disband and

relatively less costly.


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Consortia

y It is a loose partnership between companies in similar or allied

industries who pool their resources to undertake specific tasks.

y Typical consortia working can be seen in R & D activity, loans,

insurance, develpomental work of various types.


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Franchising

y It is an agreement under which a company grants right to other

company to open an establishment using the name , brand,

products, services and operating systems of the parent company.the

first company is called the franchiser company and the company that

uses the name of the franchiser is called the franchiseey Fast growth, least capital ,and mutual benefit..


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Subcontracting

Sub contracting is a form of outsourcing the work to outside organisation or

individuals.

Most companies do it in different degrees.

International subcontracting is a huge area in which business is developing very

fast.The BPO is mostly based on subcontracting .Various functions on the

value chain is subcontracted to take advantage of the cost difference in factors

of production in different locations in the world.


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Licencing

y Licencing is an arrangement, wherein a company licences other

companies to produce and or sell a product developed by it

y Licensing is based on copy right, patents, trademarks,which are

known as IPRs.


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Major reasons for failures.

y Managers are inadequately prepared for strategic planning.

y The information for preparing the plans is insufficient for planning foraction.

y The goals of the organisation are too vauge to be of value.

y The business units ( SBUs ) are not clearly identified.

y The reviews of the strategic plans of the business units are not doneeffectively.

y The link between strategic planning and control is insufficient.

Successful implimentation of strategies


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Successful implimentation of strategies.

y It is not enough to have strategic planning.It should be successfullyimplemented.the following are eight recommendations for successfulimplementation.

Communication of strategies to all key decision making managers.

Developing and communicating planning premises.

Action plans contributing to and reflecting major objectives and stategies. Regular reviews of strategies.

Development of contingency strategies and programs.

Making organisation structure fit planning needs.

Continuing emphasis on planning and implementing strategy.

Creating a company climate that forces planning.


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GAMETHEORY

y A game is a competitive activity in which players contend with each otheraccording to a set of rules.

y Can use game theory to illuminate economic, political, and biological phenomina.

y The theory of rational choice a decision maker chooses the best actionaccording to her preferences among all the actions available to her.

y The players in the game moves according to their perception of their bestadvantages.Based on this they can be ,

Competitive, or cooperative.

win lose,

Lose win,

Lose lose,

Win -- win


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G. T ( Cont )

y The theory of rational choice:

In any given situation the decision- maker chooses the best according to to her

preferences. If there are several equally attractive best actions , the theory is,

The action chosen by a decision maker is at least as good , according to her

preferences, as every other available action.


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Strategic games.

y A strategic game is a model of interacting decision makers.Because of the interaction we call them players. Each player has a setof possible actions. Each player has preferences about the actionprofile ie , the list of all the players actions.

y

A strategic game consists of, A set of players,

For each player a set of actions,

For each player, preferences over the set of action profiles.c


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The prisoners dilemma.

Two suspects Molly and Mottu are caught in a major crime

and put in separate cells. If both keep quite they will get

only one year each as evidence is only for a minor crime.

If molly confeses , she will be set free, but Mottu gets fouryears.and vice versa.

If both confesses , both will get three years. What will MOLLY and MOTTU DO?

Documents

Stategic management 1