Strat Mgmt NM PP 0908.ppt

Strategic Management

NM – 2 Nov 2008

N.Krishnamoorthy

THE FLOW OF PRESENTATION

Good Morning, Introduction Business Scenario today – what strategy you

will adopt? As individual, and as Company? Is it recession? - “mindset” ? Cs – Margins - P/Pr/Q/D/S/Diff. Business Process –

Plan – Buy – Make – Sell – Service? contd

THE FLOW OF PRESENTATION

Qualities required of a Manager for Strategic thinking Elements, Process of Strategic Management The Five Tasks of Strategic Management The SM evolution in India – post LPG Porter’s 5 forces model & External environment factors STRATEGIC PLANNING IN ACTION An exercise by you. Executive Summary Major Presentation leading through SM aspects Some Key Models Strategies e.g. Global, JV, M&A, SAlliances, etc. Why some companies fail? What a few companies do to society as a Strategy.

Qualities required of a MANAGER for Strategic Management

A. Internal (To firm) Exceptional skills on current function / responsibility handled DTRFTAT Purposeful, confident, ability to interact with other functional

processes, a broad knowledge of these processes a minimum must

Understanding processes, and creativity to “doing things differently” (Seeking alternates / routes / solutions)

Challenging status quo Creativity in VA An ability to eliminate NVA activities / processes Control (vigilance) on operations / Critical information Alertness to happening around Knowledge – and managing knowledge (KM) Seeking improvements in procedures / system Relationship management / Team building capacity .. Contd…

Qualities required for Strategic Management

Art of delegating Increasing use of IT / Network / Data management Creating a culture where people enjoy working – returning to work

next day Internal customer focus – Cross functional skills, mobility for instantaneity and flexibility Technology (iPod, mobile) to compress time (retrieval of info and

its feedback and consequent coordinating efforts Learn and unlearn – re-relearn basics Managing Internal organization to ensure strategy execution,

modification, review, revision, if any To be aware of best practices in a cross – section of industries To incorporate flexibility in the design strategies to understand

variables Innovation – novelties creativity –making them a habit- A vision Any problems or issues – Ask WHY 5 times – R C A BALANCED LIFE.


B. External (to Firm) A nose for the right news Events affecting business horizon Events, impacting way of life Affecting Supply / Demand equation To create your own impact on the External

environment for business in general Alertness in scenting opportunities First / Quick to respond (better your internal

capabilities the easier it is) Be able to adapt to changes … contd …


Be able to move fast to mitigate or nullify adverse impact / stop any further loss

KM Ability to create alternate models for different

contingencies An established BCP which meets the test of time – and

adverse circumstances A perception to discern and verify the veracity of

information An inane ability to anticipate “moves” of competitors and

create your own move AN ABILITY TO CREATE A BIG PICTURE AND MESSAGE

ABSORBED BY THE ENTIRE VALUE CHAIN OF THE FIRM. YOU CAN ADD MANY MORE

STRATEGIC PLANNING – DERIVING THE BIG PICTURE

(Questions to Ask)

Planning : Why – Purpose The Drivers : Why, What, When, Where, Who, & HOW - 5W & 1 H WHAT ARE

You aiming / Gain expected The products / services Your strengths / Weaknesses Your competitors – HOW are you different

What value different competitors offer Where is your competitor located Who is your customer Why are they different and how? v/v competitors Which market does your customer have Where does he operate What is your CC v/v others What is happening around you? Is there any perceptible change in the breeze Is that an opportunity or a threat


(Questions to Ask)

ScopeHow much money is needed to implement new plans / strategies

ConcernsWhen do you wish to actWhat processes I should strengthenHow am I going to go aboutWhere can I value innovate v/v Products change v/v competitionWhat mechanism to achieve the TASK

The RICE principle (reduce, improve, create, eliminate)


(Questions to Ask)

VisionWhat is the horizon – 5 – 10 - 15 yrs??

AheadDoes the customer wants a change

Follow up How do I ensure plans are monitored to

meet targetsQuick midstream course changes

A to B straight line /– Min. resources / function/value – Customer expectations / Compression of cycle time & cost

Processes – systems under control / well tested system for

scanning - an established and proven MIS

THE STRATEGIC MANAGEMENT PROCESS – An overview

1. Basic Concept: A Co’s Strategy consists of the combination of competitive

moves and business approaches that managers employ to please customers, compete successfully, and achieve organizational objectives.

A strategy thus entails managerial choices among alternatives and signals organizational commitment to specific markets, competitive approaches, and ways of operating.

Business models, therefore, are Plans for making money in a particular business. Deals with Revenue-Cost-Profit cycle. A bus. Model is whether a given strategy makes sense from a money-making perspective. So, strategy demonstrates the viability of the enterprise as a whole.

THE STRATEGIC MANAGEMENT PROCESS – An overview

2. The most trustworthy signs of Good Management Don’t deserve a Gold Star just designing a potentially brilliant

strategy, but to carry it out in high-caliber fashion. Weak implementation paves the way for shortfalls in Customer Satisfn. And Co. performance. SO, EXCELLENT EXECUTION.

Linux: Zero product development costs. So Operating System free who wish to download it, (make the Source Code open & make their own customized version), but charge money to users who prefer to buy the CD-RO, (a bit of hand holding – so make money on technical support services)

Ooh, MS Window- Source code hidden from consumer, so sell the OS to PC makers and users at relatively attractive prices. Costs fixed, variable costs (producing and packaging the CDs only a couple of dollars per copy. Provide technical support to users at no cost. )

WHAT DO YOU THINK – WHICH MODEL IS GOOD?

Strategic Management – the elements & Process

NOW LET’S UNDERSTAND THE STRATEGIC MANAGEMENT ELEMENTS AND PROCESSES

AUTHORS HAVE THEIR OWN VERSIONS BUT ARGUABLY MOST INCLUDE WHAT IS GIVEN IN THE NEXT PAGE

SO LET US NOT SPLIT HAIR OVER IT BUT UNDERSTAND NUANCES OF EACH OF THE ELEMENTS & PROCESSES ON ITS MERIT.


1. Defining Vision, Mission & Business definition – 2. Environmental Analysis – External – Social Responsibility 3. Internal Appraisal / Analysis –

Analyzing Industry & Competition Competitive Advantage & Core Competencies

4. Strategy formulation Setting objectives and goals, business definition

5. Identifying Alternative Strategies Generic, Expansion (Intensification, Diversn, Divestment, etc.) )

6. Choice of Strategy SWOT Analysis

7. Implementation of Strategy Strategic Structure, Routes (M&A, JV, T/O, St.All, Globalization, etc.)

8. Strategy Evaluation & Control Monitoring, assigning responsibilities, etc 9. Feedback RESET REFORMULATE AND REIMPLEMENT IF?? WHEN REQUIRED NEXT – THE 5 TASKS OF STRATEGIC MANAGEMENT


LET US NOW UNDERSTAND THE 5 TASKS

ASSOCIATED WITH THESE ELEMENTS

The 5 Tasks of Strategic Management (A bird’s eye view of the subject) - These tasks are inter-related

1. Forming a Strategic Vision of where the organization is headed.

2. Setting objectives – converting Str. Vision into specific performance outcome.

3. Crafting a strategy to achieve the desired outcomes 4. Implementing and executing the chosen strategy

efficient and effectively. 5. Evaluating performance and initiating corrective

adjustments in vision, long-term direction, objectives, strategy, or execution in the light of actual experience, changing conditions, new ideas and new opportunities.

LET’S LOOK INTO EACH OF THESE 5 TASKS.

The 5 TofSM - Strategic Vision: (Task 1)

A Roadmap to future Providing specifics about technology and

customer focus The geographic and product markets to be

pursued The capabilities it plans to develop The kind of company the management is

trying to create.

TASK 1 – contd.

Mission Statement It is typically focused on its present business scope –

“Who we are and what we do” – describes present capabilities, customer focus, activities, and business make up.

In practice, however, because the big majority of company mission statements say more about “what our business is now” than “what our business will be later” the distinction between Co. mission and strategic vision has pragmatic relevance.

Vision – greater direction-setting and strategy making value – i.e. looking beyond today, the impact of “changing environment”.

Lesson – Think strategically, do not drift aimlessly and thus lose any claim to being an industry leader.

Setting objectives (2nd Task)

If u want to have “Oh-hum” results, have “ho-hum” objectives. Performance targets – yardsticks for tracking perf. And progress. Constant “improving competitive strength” – if not so, it is less inspiring. Financial objectives: Earnings growth, an acceptable RoI, dividend

growth, stock price appreciation Overall business position, and competitive vitality. E.g. Safely deliver hot pizza in 28 minutes – fair price and

reasonable profit. Providing quality cars, trucks… reducing time (design to

commercial), building on team (stakeholders) Focus globally on those businesses in health & personal care,

where we will be no. 1 or 2 through delivering superior value to the customer.

To be one of the top 3 banking companies in terms of MS…” To be the lowest cost producer of aluminum and get mentioned in

S&P ratings. Return on Stockholders’ equity of 20-25%..

Crafting a Strategy (3rd task)

Critical managerial issue of how to achieve the targeted results in light of organizations situation and prospects. Objectives – “ends” / strategies – “ means”

The means or “hows” – blend of deliberate actions and as-needed reactions to unanticipated developments, and collective learning of organization over time. Capable of taking a “new face” responding to changes -

SO BOTH PROACTI VE AND REACTIVE (deliberate and adaptive)

SM are partly visible and partly hidden to outside view. (those who watch from outside can only speculate about – the as-yet-unrevealed strategic actions co. is intending to launch.


Being the best – i.e. consistently satisfying customers better than rivals thru o/standing Q, service, cleanliness and value. Strategic priorities : continued growth, exceptional customer care, quality producer, developing people at every level of the organization, sharing best practices across all units wwide, re-invent FF concept by innovation in menu, marketing, operation and technology.


Growth Strategy of Mc Donald: Penetrate – 1750 new outlets annually – 1 every 5

hours (some owned, some franchised – 90% outside US – establish leading market position ahead of competitors.

Promote > frequent customer visits – addl. Attractive menu, low-price specials, Extra Value meals, children’s play areas.

Exploit Global CC of supplier infrastructure and multi-unit Rest. Management, site location, unit construction, and product marketing.


Franchising strategy: Only to highly motivated, talented

entrepreneurs with integrity, bus. Experience, -- train them to be active, on-premise owners. NO FRANCHISES WERE GRANTED TO COPORATIONS, PARTNERHSIPS OR PASSIVE INVESTORS)


Store Location & Construction Strategy: Sites convenient to customers – (research all visitors “on

the spur” customers (e.g. Rly Stations). US – Co. supplemented its traditional suburban and urban locations with satellite outlets in food courts, airports, hospitals, universities, large shopping establishment. (Wal Mart, Home Depot), and service stations. Outside US – initial presence in center cities, then open freestanding units with drive-thrus outside center cities.

Reduce site costs & bldg. costs by using standardized, cost-efficient store designs and by consolidating purchases of equipment and materials via a global-sourcing system.

Make sure Res. R attractive and pleasant


Product Line strategy; Limited menu, improve taste appeal

(sandwiches), expand product offerings into new categories of FF (chicken, Mexican, pizza, adult-oriented s/w) and items for health conscious customers.

Roll out new, potentially appealing ones quickly, and as quickly drop those that fail. (a departure from past practice of extensive testing to ensure consistent high quality before rolling out new menu – 7 years to develop Chicken McNuggets).


Store Operations: Stringent standards – food quality, store &

equip. cleanliness, R.Op.procedures, friendly courteous counter service.

“Made for YOU” concept – involved installation of advanced equip. sophisticated computer technology, and new preparation methods – to allow items to be prepared to customer order.


Sales promotion, marketing and merchandising:

Above image through heavy media advtsg and in-store merchandise promotions funded with fees tied to a percentage of sales revenues at each restaurant.

Mc prefix to reinforce connection of items to Company.

Project an attitude of happiness and interest in children.


Human resource and training: Equitable wage rates – non discriminatory –

teach job skills, reward individual and team performance, career opportunities, flexible work hours for student employees.

Crews with good work habits/courteous – train – promote promising.

Training on delivering customer satisfaction (World Wide selected instructors)

Promote a global mind set—good & new ideas shared ax all chains.


Social Responsibility and Community Citizenship Active community role – local charities, create

neighbourhood spirit, promote educational excellence. Sponsor Ronald McDonald Houses – a home away from

home for families of seriously ill children receiving treatment at nearby hospitals.

Promote workforce diversity, voluntary affirmative action, and minority-owned franchises.

Student scholarships, teacher awards, and free instructional resources.

Adopt environment friendly practices. Nutritional info. To Customers. THE ITC EXAMPLE IN INDIA


Please note that Co. Strategies evolve, matching external and internal developments – so it is an ongoing process, not a one-time event.

COMPANY APPROACHESFUTURE MARKET CONDITIONS

I am adding a new element here before we go to the 4th task.

RAPID REVOLUTIONARY CHANGE REACTIVE / FOLLOWER Rushing to catch up to keep from being swamped by

the waves PROACTIVE / LEADER Aggressively altering strategy to make waves and drive Change GRADUAL REVOLUTIONARY CHANGE REACTIVE / FOLLOWER Revising strategy (hopefully in time) to catch the waves PROACTIVE / LEADER Anticipating change and initiating strategic actions To ride the crest of the waves. Since strategy life cycles are growing shorter, not longer – more updates

may be necessary – than being satisfied with an annual event).

Implementing and Executing the Strategy: (4 task)

This is primarily a hands-on close-to-the-scene administrative task, and includes following aspects: Bldg. an orgn. Capable of carrying out strategy successfully Allocating Co. resources – sufficient funds and people Establish strategy supporting policies & operating procedures Putting a freshly chosen strategy into place. Motivating people, if needed, modifying their duties & job behavior

– as a strategic fit for successful execution. Reward system – Create a conducive Co. culture / work climate. Installing info. Communication and operating systems – no

obstacles while carrying out strategies Exerting internal leadership to drive implementation. In short a “strategic fit” between how things are done internally

and what it will take for the strategy to succeed. St. execution – an action oriented, make it happen process,

interplay of competencies and capabilities, budgeting, policy making, motivating, culture building and leadership.

Evaluating Performance, Monitoring new Developments and initiating corrective adjustments.

(5th Task) Instituting best practices for continuous

improvement. A monitoring apparatus alert to internal and

external changes. Above will require corrective actions and

adjustments Revising budgets, changing policies,

organizational restructure, revamping activities, work processes, bldg. new competencies and capabilities, efforts to change work culture, compensation packages, hasten implementation. Progress reviews, ongoing searches, corrections.

IN SUMMARY, THEN

Nature and scope of strategic planning

Serves as a route map for the corporation Lends a framework for systematic handling of corporate decisions

Lays down growth objectives of the firm and also provides strategies needed for achieving them / Ensures the firm remains a prepared organization / Ensures that the firm’s business, products and markets are chosen wisely

Ensures best utilization of the firm’s resources among the product-market opportunities / Serves as a hedge against uncertainty arising from environmental turbulence

Helps the firm understand trends in advance and provides the benefit of a lead time for taking crucial decisions and actions

Helps avoid haphazard response to environment / Provides the best possible fit between the firm and the external environment

Helps build competitive advantages and core competencies Draws from both intuition and logic / Prepares the firm to not only face the

future but even shape the future in its favorSeeks to influence the firm’s mega environs in its favor, working into the

environs and shaping it.

In summary then, Concerns of Strategic Planning

Future - long-term dynamics is its concern; not day-to-day tasks

Growth - direction, extent, pace and timing of growth Environment - the fit between the business and its

environment Portfolios of business – product-market scope and

postures Strategy - strategy is its concern; not the operational

activities Integration - integration is its concern; not a particular

function Creating core competencies/competitive advantages creating long-term, sustainable organizational capability is

its concern in one word, corporate strategy is its concern

In summary, then, 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 strategy Monitoring the strategy

The strategic planning process Clarifying the mission of the corporation Defining the business

In summary, Tasks (contd)

Surveying the environment Marco environmental factors

Demographic Socio-cultural Economic Political Natural Technological Legal Govt. Policies

Environmental factors specific to the business concerned Industry & Competition / Market/Customer / Technology Supplier Factors / Govt. Policies Spotting the opportunities & threats Checking the attractiveness and probability position of these

opportunities Highlighting those opportunities the pursuit of which will help

the firm bridge its strategic planning gap Developing the opportunities-threats profile (OTP)


Internal appraisal of the firm Assessing the firm’s capabilities/strengths &

weaknesses in the various areas: Finance / Marketing/ Human Resources / Operations/ R & D /

General Management Developing the strength-weakness profile Appraising the individual businesses/strategic business units

(SBUs) of the firm Identifying the competitive advantages and core competencies

and developing the competitive advantage profile (CAP) Examining the capability gap (gap between existing capabilities

and the ones needed for pursuing the spotted opportunities)


Setting the corporate objectives Framing the broad aims of the corporation, using the

corporate mission as the guide Examining the strategic planning gap and checking the

growth-scope Fixing the growth objective Setting specific objectives in all major areas:

Growth in Assets, Sales, Profits, Market Shares Profitability Competitive Position Technology Productivity R&D and Innovation Human

Resources Corporate Image Social Responsibilities Prescribing the hierarchy/rank/priorities of the objectives


Formulating the Corporate strategy: exploring generic alternatives Examining which generic strategy the firm should opt

for: Stability? Expansion? Divestment? Combination? Understanding the effect of the alternatives in terms

of changes/additions/deletions to the firms existing product-market posture

Clarifying the competitive advantage and synergy which each alternative would require/use


Formulating the corporate strategy: strategy choice Evaluating the strategy alternatives Keeping the O-T profile, the growth objective and CAP as the reference

frame, examining what strategy would be the best Reviewing the existing businesses

Assessing the prospects of each SBU Examining what to do with each SBU Build? Maintain? Harvest? Divest? To what extent? At what pace? Examining which new businesses are to be taken up Examining the resource requirement of the different strategy options and

checking the resource availability Making the final choice of the strategy/strategy spectrum Translating the strategy in terms of what is to be done with each SBU Assigning the priorities to the SBUs, existing as well as new ones Clarifying what is expected of each SBU Allocating resources to the SBUs Monitoring the strategy

THE FIVE TASKS – NOT ISOLATED, COMPLEMENTARY

THE 5 TASKS ARE A TIGHTLY KNIT

PROCESS, THE BOUNDARIES BETWEEN

THEM ARE CONCEPTUAL, NOT FENCES

THAT PREVENT SOME OR ALL OF THEM

BEING DONE TOGETHER.

STRATEGIC PLANNING –

THE INDIA

EVOLUTION OF STRATEGIC

MANAGEMENT

CONSEQUENCES OF LPG

Environmental changes which forced firms to adopt a strategic perspectives

Changes in technology / Proliferation of new products Faster commercialization of new product ideas and patents Business boundaries getting blurred due to the overarching technology / Socio-political changes Governments becoming bargainers in the conduct of businesses Emergence of global markets / Emergence of global firms Emergence of global brands / The new affluence of the consumer / The changing tastes and

preferences of the consumer. New demands the firms had to face, consequent to the environmental

changes To be strategically alert To be future-oriented To be able to take risks in tapping opportunities To be insulated against environmental threats To develop the competence for assimilating changes faster To respond effectively and more economically To grow big To be able to generate large resources To gain expertise in technology, marketing and decision support systems.

THE NEW ECONOMIC POLICIES

Liberalisation Measures New Industrial Policy

Liberalisation of industrial licensing / FERA liberalization / MRTP liberalization / Curtailment of public sector

1. Macro-Economic Reforms & Structural Adjustments Lowering of import tariffs Abolition of import license A more open exim regime Convertibility of rupee Encouragement to foreign investment Integrating India’s economy with the global economy Fiscal and monetary reforms Banking sector reforms Capital market reforms Phasing out subsidies Dismantling of price controls and introduction of market driven price environment Public sector restructure disinvestments Exit policy


The new industrial policy The Main Components Liberalization of Industrial Licensing Deli censing Abolition of registration Decontrol Broad banding Deregulation


FERA Liberalization Liberalization of foreign of technology

investment / Liberalization import No MRTP clearance Abolition of threshold assets needed for

expansions, mergers Curtailment of Public Sector – Only eight core Several industries hitherto reserved for public

sector extended to private sector

The sea change in the environment

Entrepreneurial freedom release the growth impulse and alters the industrial scene

Rush of entrepreneurs Spate of mergers and acquisitions/takeovers The diversification rush Multinationals consolidate their position MNCs acquire majority equity in their Indian enterprises and JVs Many MNCs enter India afresh through new JVs MNC entry and investment alters even core sectors like power,

oil and telecom Imports go out of government domain and become

entrepreneurial activity Companies import materials free of licensing hassles and

bypassing the canalizing agencies Import trade emerges as a separate business opportunity


Capital markets undergo radical change Capital markets gain a new buoyancy FIIs enter Indian capital markets in a big way Foreign brokers follow the FIIs NBFCs register rapid growth and strike alliances with global finance companies Entry and growth of private mutual funds Indian firms raise global capital and strike alliances with global financial firms India’s capital markets getting integrated with global capital markets Banking sector comes under a competitive environment Deregulation of interest rates leads to competition in deposits Disinvestments of government equity in nationalized banks New private banks with new technology, new products and aggressive

marketing usher in new competition Banks face new competition from capital markets, FIs, MFs & NBFCs Banking services get marketed as branded consumer products Banks have to now operate as viable, commercial institutions


Financial services emerges as a major new business Funding options multiply as capital can be raised in many ways A large basket of financial instruments Emergence of many new financial services Firms not only start utilizing financial services but also recognize

the scope of financial services as a separate business and float financial services companies of their own

Ascendancy of the private sector Private sector enters all core industries Oil, mining,telecom Road building, railways, ports, civil aviation EPZ, SEZ now etc

Many MNCs enter India afresh through new JVs

General Motors enters through a JV with HM Ford enters through a JV with M&M Honda enters through a JV with SIEL GE Appliances enters through a JV with Godrej GE Capital promotes a consumer finance JV with Godrej GE Capital promotes another consumer finance JV with HDFC GE Capital promotes a third JV in consumer finance in which GE-HDFC and Maruti are the

partners GE Plastics enters through a JV with IPCL GE India promotes a JV with Fanuc Ltd and Voltas GE Medical Systems (GEMS) enters with Wipro as partner GE Medical Systems (GEMS) promotes another JV with Eipro JP Morgan enters through a tie-up with ICICI Orix Corporation enters in alliance with IL&Fs Merrill Lynch enters with DSP Financial as partner Rothschld sets up a JV with Prime Securities Reebok enters in collaboration with Phoneix IBM enters with Tatas as partner Mobil enters through a tie-up with IOC Caltex enters through a tie-up with IBP Shell enters through a tie-up with BPCL


List of MNCs who have entered Indian telecom market through JVs Radio Paging Motorola enters through a JV with Page Point Services Korea Mobile Telecom enters with DSS Paging Services NTT International enters through a JV with RPG Paging Services Korea Telecom enters through a JV with Modi Paging Shinawatra enters through a JV with HFCL (Microwave)

Cellular Phones Motorola enters with Essar Cellphone Hutchison Telecom enters with Max India Telstra enters with BK Modi group Telstra promotes another JV with SPIC Bellsouth promots ‘Skycell’ in alliance with Crompton Greaves Cellular Corporation International enters with Sterling/Essar US-WEST enters through

a JV with BPL Basic Services AT&T enters through a JV with Tatas AT&T promotes another JV with Aditya Birla group NTT enters through a JV with RPG group Telstra enters through a JV with SPIC Northern Telecom and GTE enter through a JV with Escorts Nynex enters through a JV with Reliance Deutsche Telekom enters through a JV with PCL/Punwire Sprint International enters through a JV with RPG Telecom Qualcomm enters through a JV with Modi Telecom


Switching Systems Alcatel enters through a JV with the BK Modi

group AT&T enters through a JV with the Tatas GEC-Plessey Telecom (GPT) enters through

a JV with Vam Organic Fujitsu enters through a JV with Punjab State

EDC

Business challenges of the liberalized economy

The destabilization arising from entrepreneurial freedom Cocoon of protection enjoyed so far by existing players

disappear Existing notions on “economic size” are challenged Industry structure too alters radically in many businesses,

forcing players to change gear Economic Darwinism becomes the order

The MNC onslaught With majority equity stake for the parent MNCs, their Indian

subsidies gain a new strategic advantage MNCs also gain majority equity stake in their JVs with Indian

firms and start controlling the show The takeover threat The overall unequal battle


The all-pervasive competition Competition from Indian players Competition from MNCs Competition from imports Competition on account of easier access to technology Competition is now global in character The exacting demands of buyer’s market From shortage to surplus; the challenge of being price

competitive Buyer’s market causes sharp change in business style From shoddy products to excellent products; the quality

challenge


Challenges on the technology front Competitive advantage and core competence become technology

based Investment in R&D and innovation becomes inescapable Corporate vulnerability A variety of factors led to vulnerability Vulnerability due to capital inadequacy Lack of product clout and brand power PSUs become vulnerable due to a combination of factors Problem of “one product syndrome” Vulnerability due to loss of monopoly The challenge of discontinuity Past ceases to be an indication of the future It is no longer business as usual; management at the crossroads Problem of managing mega change; need for new approaches, new

systems and structures, new leadership

Challenges the public sector banks had to face in the open regime

Competitive existence forced by deregulation Competition in deposits due to deregulation of interest rates Loss of business due to disintermediation Loss of pre-eminence in merchant banking Competition from the capital markets, the Fis, NBFCs and MFs II The onslaught from New Private Sector Banks (NPSBs) A chain of NPSBs enter the scene NPSBs bring in competition and differentiation Niche marketing Innovative banking products and solutions Collaboration with the world’s leading financial firms III The compulsion to fashion many new financial products / banking

services and to market them as branded consumer products Convenience banking IV The compulsion to absorb state-the art banking technology V The compulsion to change and become viable banking institutions The compulsion to go through painful internal reforms

FIIs and global investment banks who entered India in the post-reform period

Fidelity / Templeton / Soros / Tiger and Schroder / Morgan Stanley / Jardine Fleming / Barclays (BZW) / Kleinwort Benson / JP Morgan / Smith New Court / Lazard Brothers

The foreign brokers who followed suit James Capel / Klein Benson / Credit Lyonaise

Securities / Marlin Partners / Citicorp/ Lehman Brothers / Crosby Securities / Jardine Fleming / Baring Securities

Alliances of Indian NBFCs with global finance companies

Indian NBFC Global Partner Unit Trust of India Alliance Capital of the US IDBI Asian Capital Partners, HKong ICICI Prudential of the UK IFCI ABN Amro Bank NV Credircapital Finance Corp Lazard Brothers of UK ILFS Orix Corporation of Japan 20th Century Finance Kemper Corporation of the Us Rajan Raheja’s Hathway Investments Templeton Worldwide

Inc

Alliances of Indian mutual funds with global AMCs

Indian Mutual funds Global AMC Investment Trust of Ind The Pioneer group of USA Credit Capital International Finance

Corporation, Edinburgh Fund Managers, UK

20th Century Finance Kemper Corporation of USA

CRB Keystone of USA ICICI Prudential of UK Birla Growth Fund Capital International of USA

Funding options multiply

With Foreign currency For capital - GDR- ADR Foreign Partners in JVs Foreign private investors Foreign institutional investors For debt - External commercial borrowing For working capital - Suppliers credit, long and short term FCNR(B) loans Yankee bonds / Floating rate notes Alpine bonds- Euro bonds / Exim bank loans- With Indian Rupee For capital - Equity share -

Preference shares. For debt Term loans Asset credit NCDs For working capital Structured obligation Trade credit CP Floating rate notes -Leasing and hire purchase

PORTER’S 5 FORCES MODEL & ANAL. EXT. ENVIRONMENT

For this we will go to a new PPP

Strategic Management - Globalization

NEW SECTION

Globalization

Strategic Management – Globalization - AGENDA

1. Globalization

2. Why companies expand into foreign markets?

3. Cross country differences

4. Multi country and Global competition.

5. Strategic options for entering and competing in Foreign markets

6. Pursuing CA by competing multinationally

7. Profit Sanctuaries and cross market subsidization8 Competing in Emerging Foreign Markets

Strategic Management – Globalization

You have no choice but to operate in a world shaped by globalization and the Information revolution. There are only two options: Adapt or Die Andrew Grove, Chairman, Intel Corp.

You do not choose to become global. The market chooses for you; it forces your hand

Alain Gomez , CEO, Thomson. S.A.

There is no purely domestic industry anymore.Morgan Stanley


Growing economic interdependence of countries worldwide through increasing volumes and variety of cross border transactions in goods and services and of International capital flows and also through a more rapid and widespread diffusion of technology.

…… IMF DEFINiTION

Shift towards more integrated and interdependent world economy


Adopting a global outlook for the business and business strategies aimed at enhancing Global competitiveness.

Stop thinking of National boundaries or markets.The whole world is market.

Transform into worldwide manufacturing facilities, marketing, financial flows and logistical systems.

To develop genuine equidistance of perspective. (All customers are equidistant from the

corporate centre and there is nothing like “overseas”)

Why companies expand into foreign markets?

To gain access to new customers e.g. Toyota To capitalize on its core competencies e.g.

Nokia To achieve lower costs And Enhance firm’s

competitiveness e.g. Nestle’ moving to Asia To spread its business risk across a wider

market base

Cross country differences

Cultural, Demographic and Market conditions Product Strategy Potential for locational advantages stemming

from country to country cost variations Fluctuating FX rates Host country restrictions


Competing in foreign markets where there are significant cross country variations in cultural, demographic and market conditions poses a much bigger strategy making challenge than competing at home.

Market demographics and customer tastes : Washing machines : French prefer Top loading and Europeans prefer Front loading.

USA appliances run at 110 V and Europeans at 240 V Refrigerators : Indians prefer brighter colours. Korea has 4’ high

as the top is used as something else. Hong Kong prefers compact, European style appliances but

Taiwan prefers large American style appliances.


India has efficient and well developed national channels for distribution through about 3 million retailers. By contrast, China distribution is primarily, local and provincial.

The biggest concern of firms competing in foreign markets is whether to customize their offerings in each country market to match the tastes and preferences of local buyers or whether to offer standardized products worldwide.

Product Strategy

Technically consistent ( 250 V & 50 Hz.) Compliance to Safety and Efficacy norms Use conditions (tropicalized) Propensity to buy. (Amino acid and fat

combination) Education levels Customers’ taste and preferences ( Barbie in

Japan)

Different countries Different ways

Orient Make a point but do not let the adversary loose face Italy Argue to win and thus be taken seriously UK Soft sell Germany Hard sell Mexico Emphasize on the price Switzerland Speak precisely and therefore be taken literally

Potential for locational advantages stemming from country to country cost variations

A company’s potential for gaining CA based on where it locates its foreign activities or being at a disadvantage because the rivals have lower cost locations is a matter of serious strategic concern.

Wage rates, inflation, energy costs, tax rates, Govt. regulations, unique natural resources (Malaysia) for manufacturing locations.

Ireland, world’s most pro business environment and hence Intel’s largest chip plant with investment of US $ 2.5 bn and employs 4000 personnel.

Short delivery times and low shipping costs (Singapore) for Distribution centres.

Fluctuating FX rates and host country restrictions

Volatility of FX rates complicates the issue of geographical cost advantages.

Restrictions may be in the form of Local RM content Tariffs and quotas on imports Restrict exports to ensure adequacy to meet

domestic needs. Ownership pattern Interest and tax rates for domestic and foreign

companies

Multi country Global competition

Multi country or multi domestic competition where each country market is self sustained with buyers having different expectations and like different styling and features and each national market is independent. E.g. Banking industry with competitive battles being fought in each country independent of other countries.

Each country market is separate. And hence reputation, customer base and competitive position in one country has little relevance on the other country.

Hence power of a firm’s strategy in a nation and CA gained remains confined to that nation.

Beer, Life Insurance, metal fabrication, food products


Global competition exists when competitive conditions across national markets are linked strongly enough to form a true international market and when leading competitors compete head on in many different countries.

Company’s competitive position in one country both affects and gets affected by its position in the other country.

In global competition, a firm’s overall CA grows out of its’ worldwide operations.

Automobiles, TV, Copiers, watches, commercial aircrafts etc.


Multi country competition, rivals vie for national market shares /leadership positions

Global competition the rivalry is attain global leadership.

An industry may have some segments which are globally competitive and some segments are country to country competition. E.g. Hotels.

Lubricants for marine are globally competitive and for automotives, it is country to country. Hence Pennzoil is the leader in USA & Castrol in the UK

NEXT SECTION WHY GOOD COMPANIES GO BAD?

This section will deal with some of the best companies languishing when market conditions change despite creating best strategic planning.

They plummet from the pinnacle of success, because they are paralyzed?

On the contrary, they engage in too much activity – of the wrong kind. Suffering from ACTIVE INERTIA.

Because they insist on doing only what has worked in the past.

WHY GOOD COMPANIES GO BAD?

THEY GET STRUCK IN THEIR TRIED AND TRUE ACTIVITIES, EVEN IN THE FACE OF DRAMATIC SHIFTS IN THE ENVIRONMENT.

INSTEAD OF DIGGING THEMSELVES OUT OF THE HOLE, THEY DIG THEMSELVES IN DEEPER.

Such companies are victims of their own success. They have been so successful, they assume they’ve found the winning formulae.

But these same formulas become rigid and no longer work when the market changes significantly.

Instead of asking “what they should do”, they should ask “what hinders us?”

They shd look deeply on the assumptions they make about their business and industry. Pay particular attention to hall marks of active inertia;

Strategic frames becoming blinders, processes hardening into routines, relationships becoming shackles, and values hardening into dogmas.

LET US SEE SOME EXAMPLES

WHY GOOD COMPANIES GO BAD?Strategic frames become blinders.

Strategic frames shape how managers view their business; they help managers stay focused. But these frames can also blind managers to new options and opportunities.

Example:

After 7 decades of uninterrupted growth Firestone reigned supreme in the US tire industry in the 1970s. Then Michlein introduced the safer and more economical radial tire. FS competed with M h-h in Europe, but was blind to the threat to its core US market, and so continued to produce conventional tires only. FS lost significant market share and was acquired a decade later

WHY GOOD COMPANIES GO BAD?Processes harden into routines.

Established processes can become ends in themselves, even when they’re no longer effective. People overlook better ways of working.

Example:

McDonald’s built its success on standardized processes, all dictated by HQ. By rigidly following these procedures into the 90’s Mac lost MS to Burger King and Taco Bell, who were much quicker to meet customers’ changing desires for healthier foods.

WHY GOOD COMPANIES GO BAD?Relationships become shackles

Every Company needs strong relationships with its constituencies – customers, suppliers, employees, society, etc. When conditions change, however, these relationships can restrict flexibility.

Example:

Apple vision of technically elegant computers and its freewheeling culture attracted the world’s most creative engineers. Once computers became commodities, however, the Co’s health depended on cutting costs and speeding up production time. But Apple’s engineers refused to change, and the co’s relationship with the “star” employees soured, and damaged its ability to respond to market changes.

WHY GOOD COMPANIES GO BAD?Values harden into dogmas

A company’s vibrant values unify and inspire its people. Over time, however, they can harden into rigid, self-defeating rules and regulations.

Example:

Polaroid placed very high value on cutting-edge research – to the point of defining itself by that research. Eventfully, that value turned into dogmatic disdain for marketing, finance and even customer preferences. The Co’s single-mindedness nearly destroyed it.


Royal Dutch/Shell is another co. whose values became a hindrance. Dominated by a Nazi sympathizer, a strong leader, a strong imprint on the co. for central control. When he was forced out, the distaste for central control was replaced by fiercely independent country managers. But when oil prices fell during the 1990’s the belief in decentralized authority prevented the company from quickly rationalizing its operations and cutting costs.


The women’s apparel maker Laura Ashley also fell victim to active inertia. She spent her youth in Wales she tried to recreate the mood of the British Countryside, and introduced designs to evoke a romantic vision of English ladies.

They also established close relationships with franchises, and generous benefits to employees, avoiding labor unrest which crippled England at those times.

Hwr, as more women entered the workforce, they felt the “womanly garb” was too uncomfortable, and better suited to 1980 milkmaids than CEOs in the 1990s. At the same time apparel mfg. was undergoing a transformation with trade barriers falling. Fashion houses were rushing to move production offshore (outsourcing), but old values were too difficult for LAshley and its group and suffered a deep fall.

The Dynamic of Failure

ALL WERE VICTIMS OF ACTIVE INERTIA The fresh thinking that led to a company’s initial success is

often replaced by a rigid devotion to the status quo. Leading cos can become stuck in the modes of thinking

and working that brought them their initial success. When business conditions change, their once winning formulas instead bring failure.

LET US AGAIN GO THROUGH THE 4 DYNAMICS OF FAILURE.

The Dynamic of Failure

STRATEGIC FRAMES Blinders The set of assumptions that determine how managers view

the business

PROCESSES Routines The way things are done

RELATIONSHIPS Shackles

The ties to employees, Stake Holders

VALUES Dogmas

The act of shared beliefs that determine corporate culture.

Examples of Core Competencies

SHARP – LCDs (flat panel display tech); Toyoto-Honda – low cost, high quality mfg, design-to-mkt

short cycles for new models Intel – semi-conductor chips development Starbucks – store ambience and innovative coffee drinks Motorla – 6-sigma defect free manufacture Rubbermaid – innovative rubber and plastic products HP – three in one Printer – technology Vodofone / Reliance / Mittal – leaders / MS / Funds / Clout Parke Davis – R&D on ethical drugs Capsugel – Exceptional tech in high quality capsule

manufacture

VERTICAL INTEGRATION STRATEGIES – A PLUS OR A MINUS:

Backward into sources of supply and/or forward towards end users of the final product.

Make or Buy or Outsourcing decisions. – discuss Appeals only if it provides Competitive adv. (RIL) Backward – to achieve greater competencies, and Forward to enhance competitiveness. Depends on product lines – Specs, capacity, skills,

price factors, etc. also product lines – logistics costs.

The disadvantage mainly is: if it locks a firm deeply into its VC, and unless this is proven to be effective (C/B analysis), it is not worthwhile.

Strategies based on M&A, SA, JV et al

Last decade many have felt the need to collaborate – and formed Strategic alliances, partnerships thru SPV, JVs etc. basically to strengthen domestic and global markets

They are therefore in the midst of 2 demanding competitive races:

The global race to find a market world wide The technology race to capitalize on today’s

IT age. To build a strong global presence.


The Increasingly pervasive use of Alliances: Tata-Corus, RIl-DOW, Mittal-Ancelor,

Vodafone-Essar, Wal-Mart-Bharati, Tata-Fiat, FIs, Stock Exchanges (BSE-Deutsche), M&M-Ford-Renault, Pharma Dr.Reddy, Glenmark, Pfizer-J&J, IT Cos.,

This has shifted competition to groups of

companies against groups of companies.


Why and How Strategic Alliances are Advantageous: Bundle competencies and resources that are more

valuable in a joint effort than hen kept separate Very beneficial in racing against rivals for global market

leadership To build the expertise and market position needed to

win a strong position in the industries of the future. A Co. That is racing for global market leadership needs

alliances to help it do what it cannot do alone: For example:

Get into critical country markets quickly and build a potent global market presence

Gain inside knowledge about unfamiliar markets and cultures

Access valuable skills and competencies that are concentrated in particular geographic locations (S/W)


A Co. wanting this has to ally: To establish a beach head for participating in the

target industry Master new tech. and build new expertise and

comp. faster than through internal efforts Open up expanded opportunities in the target

industry by melding the firm’s own capabilities with the expertise and resources of partners. Example:

Joint Research, Tech know-how, collaborate or complement new tech., products, ally with parts and component suppliers (SCM) – Volvo, Renault, distribution synergy (p176 – Ill.cap.24, some SA)


Why many alliances are unstable or Break Apart Stands the test of time depends on Frictions and

conflicts Partners should value the R / C / Skills etc. each

one brings. P&G – HLL – many “divorce rates” Ongoing commitment, mutual learning, and

continued close collaboration are essential to keeping alliances

No-confidence on “secrecy” clauses So relying heavily on SA is also bad. A firm has

to create its own strength and competitive capabilities.


MERGERS & ACQUISITION STRATEGIES No company can ignore this avenue of new

opportunity Combining operations offer considerable

cost-saving. The advantages can be more or less the

same as outlined above in JVs etc.


UNBUNDLING & OUTSOURCING STRATEGIES – NARROWING THE BOUNDARIES OF BUSINESS

This is Vertical Disintegration, or Unbundling. Q. asked is which activity should be brought “within the fold” and

which “outsourced” O/S makes strategic sense if:

An activity can be performed better or cheaply O/S Activity is not crucial to the firm, and don’t hollow out competency Reduces the co’s risk exposure to changing technology and/or

changing buyer preferences Enables organizational flexibility, cut cycle time, speed decision-

making and reduce coordination costs Allows to concentrate on its core business and do what it does

best. Socially complex organizational considerations can be avoided. Well, it can be disadvantages to roll back an arrangement, or it can

pose a legal problem. Sometimes an alliance or o/s could be better than acquisition.


The advantages of Outsourcing: obtaining higher quality or cheaper components

than internal sources can provide Inter-acting ability with “best-in-world” suppliers Enhance strategic flexibility should customer

needs and market conditions suddenly shift – seeking out outside suppliers having this capabilities is much easier

Increasing the firm’s ability to assemble diverse kinds of expertise speedily and efficiently

Allowing the Co. to do better what it does best, and within its own strategic control.


The pitfalls of Outsourcing: Possibility of farming out too many wrong

types of activities Hollow out its own capabilities, CC Loses sometimes with key activities over

which it had expertise and determines its success

III Party – Pharma -- NK discuss.

Strategy– The ITC way – business models focused on Rural India

The vocal of the SH of the land and the growing marginalization of poor rural people (Single) will not be an isolated incident.

While urban India shines in terms of best amenities.. rural India is bound to impugn them for a slice of the cake or some modest improvement in their dreary existence.

It’s no wonder therefore that ITC (TO $19 bn. Market capitalization, and $5 bn. Turnover with a diversified portfolio ranging from FMCG, hotels, paperboards, packaging, agri business, has forged unique business models that focuses on rural India and attracted universal approval.

Let’s see what they are doing.


e-choupal initiative is designed to enhance farm productivity and provide

market linkages Social forestry scheme Has greened over 80000 hectares R&D projects Have evolved high-yielding, site specific, disease-resistant

clones Comprehensive package of plantation mgmt practices Watershed development Projects which benefit 333111 farmers in 24 districts


Renewable energy 96% energy required by Co. planned out

internally with > 24% generated from renewable resources.

ITC has been a water positive firm and today the co. generates three times more freshwater harvesting potential than it consumes and sequesters almost twice the amount of carbon its plants emit.


Recycling solid waste In 2007-08 the co. also compassed he

100% benchmark in recycling solid waste in several of its operations.

Also A total of 2178 water harvesting structures

have been created, providing critical irrigation to 18,482 hectares of farmland.


ITC’s “Mission Sunehra kal” encompassing its sustainable development initiatives would continue to provide thrust to identified triple interventions viz. natural resource management (wasteland, watershed and agri. Development), sustainable livelihoods comprising genetic improvement in livestock and econ. Empowerment of women and community development with focus on primary education, health and sanitation.


Social policy analysts contend that if corporate social responsibility (CSR) is taken by all companies earnestly with a view to building PPP for sustainable and inclusive growth, the simmering tensions and resistance to industrial development through setting up economic enclave (SEZ) or big project would gradually fade as rural people would hopefully find a decent way out of their dire predicament of penury.

Hyderabad Metro Rail/Bus project

Gets US authority boost from FTA US – Bus Rapid transit system, and Metro Rail.

“Outstanding, especially for the concession agreement under the PPP.Really the way America was build over the last 100 years. The US govt. granted land for taking up infrastructure development by the private parties and now we see it here”.A/g to him, it was outstanding to have private sector’s dollars to spend for public service without casting any burden on the tax payers’ money.The AP govt. would enter into a MoU with the FTA on public transport, which would involve strengthening and sharing of knowledge, science and technology in the sector.

Hyderabad Metro Rail/Bus project

Other opportunities for business: Head-hardened rails, high speed rails, metro

rail technology, manufacture and supply of coaches, automatic fare collection points, etc.

z

NEXT SECTION

STRATEGIC PLANNING IN ACTION

GO TO WLG PRESENTATION

a

The next few are BLOCKS NM Started with Ch 1.

Z

BLOCK 1

UNIT 1

CONCEPT OF STRATEGY

1.1. INTRODUCTION

Overall plan to move towards a desired, set objective.

Involves program of action, deployment of resources, coordination between strategies and objectives.

Without an appropriate strategy the future is unclear (dark), and hence more the chances of failure.

1.2. Meaning of Strategy

Associated with military services. “Strategos” greek word (generalship) Glueck “ Strategy is the unified, comprehensive and integrated plan tha

relates the strategic advantage of the firm to the challenges of environmen and is designed to ensure that basic objectives of the enterprise are achieved through proper implementation process”

Definition lays stress on Unified comprehensive and integrated plan Strategic advantage related to challenges of environment Proper implementation ensuring achievement of basic obj. “Strategy is organization’s pattern of response to its environment over a

period of time to achieve its goals and mission”

Again here it is the same stress as per earlier definition

Strategy as action, inclusive of objective setting: Chandler 60 “ the determination of basic long term

goals and objectives of an enterprise and the adoption of the courses of action and allocation of resources necessary for carrying out these goals.

3 types of action – (a) determination of LT g/0, (b) adoption of courses of action, and allocation of resources.

“the Co is strategically positioned performs different activities from rivals or performs similar activities in different ways.” So, a unified comprehensive and integrated plan. Involves, thinking of “alternate plans” and eventually take the best choice.”

1.3 NATURE OF STRATEGY

A major course of action – relates to environment, (spec. Ext Factors) to facilitate actions

Blend of internal and external factors to meet O’T Aimed to meet a particular condition, o solve, or meet a desired

end. Actions diff. for diff. situations. Due dependence on environmental variables, may involved a

contradictory action – either immediately or with a gap of time. (closing down same time, expanding)

Future oriented, requiring actions for new situations and require systems and norms.

Provides overall framework for guiding employees thinking and action. Well defined, guides managerial action and thought.

Integrated approach meeting challenges posed by environment.

1.4 Essence of Strategy

Evaluation of alternative paths to an established mission – has 4 important aspects

Long term objectives Future oriented, LT perspective

Competitive Advantage While working out plans competition may be ignore, but in

making strategies, competitors are given due importance. Vector

Series of decisions are directed to a same objective. Clarity provides the momentum,

Synergy Associated benefits due to certain positive factors of the

organization.

1.5 Strategy vs. Policies

Not a synonym. Both are means towards end. Policy: o/all guidance, commonly accepted u/s of decision

making. Course of action chosen, written or implied. Clear and

consistent. Policies need to be integrated for success of strategy E.g. Buy wisely, quality & economic considerations Str: concerned with direction in which human efforts and

resources are deployed. Action oriented and everyone empowered. Cannot be delegated downwards.

Strategy is a rule for making decision while policy is contingent decision.

Strategy vs. Tactics

1.6 V Programs V Procedures Rules

1.7 Levels of Strategy

Corporate Level Business Level Functional Level E.G. Distinct Business Areas (DBAs) GEC – SBU, Ashok Leyland – Reliance Tatas

1.7 Levels of Strategy (contd)

Strategic decisions at different levels: Dimensions: Corp./Business & functional lvls: Impact – significant, major, insignificant Risk involved – high, medium and low Profit Potential – high, medium and low Time horizon – long, medium and low Flexibility – high, medium and low Adaptability – insignificant, med., significant.

1.8 Importance of Strategy

Good companies have become extinct. Some new ones, are market leaders. Strategy provides various benefits to users:

Enables take decisions on long range fcsts. Allows meet new trends and competitions Becomes flexible to meet unanticipated changes. Financial benefits – increased profits Ognzl effectiveness – implementation Satisfaction to personnel – motivation, habit of thinking,

paves the way to shape their work in the context of shared goals

Enables mgmt to involve different levels of mgmt. Improves corp. communication, coordination and allocation

of resources. STRATEGY – LIFEBLOOD OF BUSINESS ACTIVIIES.

Unit 2

PROCESS OF STRATEGY

2.1 Process of Strategy

Structure – elements No unanimity among various authors about the elements and

their interaction. Also, their sequential arrangement.

2.2. Process of Strategy

It is cyclical in nature. Discussed say, in terms of: 4 phases: Identification,

Development, Implementation, Monitoring phases Pr. Of Str. Prahlad: comprises 5 Steps Strategic Intent Environmental Analysis Evaluation of strategic alternatives and choice Strategy implementation Strategy evaluation and control. In our Book, Str Intent / Env & Org. analysis / Identification of Str.

Alternatives / Choice of strategy / implementation of strategy / evaluation and control

2.3 Strategic Intent

Setting org. vision, mission, purpose, goals, target, objectives starting point – hierarchy of str. Intent is the foundation

Reflected through Vision, mission, business definition and objectives. Vision – serves the purpose of stating what an organization wishes to

achieve in long run. The process of assigning a part of a mission to a particular department

and then further sub dividing the assignment among sections and individuals creates a hierarchy of objectives, each sub unit contributing to the larger unit

From Spv – must define Why it exists, how it justifies that existence, and ‘when” it justifies the reason for its existence.

Ans. To these Q lies in the org. mission, bus. Defn, obj. and goals. P 18 – 19 Flow chart for Single SBU and multiple SBUs.

The next few are Adv. S M

Nature and Scope of Corporate Management

Adhocism Planned Policy Environment-Strategy Interface Corporate Planning Corporate Management

Corporate Planning

Corporate planning is a comprehensive planning process which involves continued formulation of objectives and the guidance of affairs towards their attainment. It is undertaken by top management for the company as a whole on a continuous basis.

According to Hussey “Corporate long range planning is not a technique. It is a complete way of keeping the company’s eyes open.

Reasons Attributed to the failure

Failure to keep the corporate planning system simple Failure to develop awareness about corporate planning

process Corporate planning tries to do all planning by itself Chief Executive gives planner a low status Failure to modify the corporate planning structure system

with the charging conditions Planner has only a part time interest in planning There is conflict between available soft database and

manager’s need for hard answers Top management engrossed in current problems spends

little time on corporate planning process

Need for corporate Management

Scarcity of resources Fast Technological Changes Changing Human Values Multiplicity of stake holders Growing Competition Liberalisation,Privatisation and globalization Growing scale of business operations Faster and Quicker Modes of Transportation and

communication Professionalism in management

Concept and Nature of corporate Strategy It is plan or course of action or a set of

decision rules It is derived from its policies, objectives and

goals It is related to pursue those activities which

move an organization from its current position to a desired future state

It is concerned with the requisite resources to implement a plan

Functions of corporate Strategy

Dual approach to problem solving Focuses attention upon changes in the

organizational set up, administration of organizational process

It offers a technique to manage changes. Gives equal importance to present and future

opportunities It provides the management with a

mechanism

Corporate policy

According to Koontz and O’Donnell “Policies are plans in that they are

general statement of principals which guide the thinking ,Decision making and action in an organization.”

Determinants of Corporate Policy

Corporate MissionCorporate objectivesThe ResourcesManagement Values

External determinants

Industry StructureEconomic EnvironmentPolitical EnvironmentSocial EnvironmentTechnology

Policy Formulation Process

Environmental Analysis Identification of Policy AlternativesEvaluation of AlternativesChoice of Policy

Introduction

The major players in the area of corporate governance, within the co-operation are corporation are corporate board, shareholders and employees.

Externally, the pace for corporate governance is set by the government as the regulator, customers and lenders of finance and social ethos of our times.

Role of Board of Directors

Oversee the management of the company’s assets

Establish or approve the company’s mission,objective,strategy and policies

Review management actions and financial performance of the company

Hire and fire the principal executive and officers of the company

Role Of A chairman

To manage the board and ensure that its policies are put into practice by management

To work closely with the company secretary to address legal issues

To act as a representative of the company To ensure that policies and practices are in place To act firmly in times of crisis To upgrade the competence of directors so as to

meet the current and future needs of the company

The role of CEO

Present the company to major investors Provide leadership and direction to all executive

directors Assist the executive directors in formulating

strategies and proposals that have to be endorsed by the board

Be a source of inspiration, leadership and direction to all employees, customers and suppliers

Take firm decision when situation demands

Reports Of Committees on Corporate Governance

Cadbury Committee ReportCII Committee ReportKumara Mangalam Birla Narayana Murthy Committee

Report

Strategic Choices In a Dynamic Environment Changing the orientation of its suppliers

and channel partners Exploiting the supply chain in the early

stages of the industry Exploiting their innovations and building

an enduring long run competitive advantage based on low cost differentiation

Appropriate Timing of Entry

Strategies in a stable industry environment Product Proliferation Rationalizing the product Mix Process Innovation Price cutting Excess capacity Buying cheap assets Competing internationally Market penetration Product Development Market development Product Proliferation

Strategic Choice

International StrategyMultidomestic strategyGlobal StrategyTransitional Strategy

Perfect competition

The product is homogeneous There is free entry and exit in the industry Every firm’s action is independent of the

other firm In this market there is perfectly mobility of

factors The sellers operate in conditions of

certainty having complete knowledge of costs demand price and quantities

Monopoly

There is only one firm selling the product The firm has no rivals or direct competitors. Substitutes may exist.However,close substitutes

are non existent. Difficult entry for no other firms The monopolist is the price maker and tries to

take the best of whatever demand and cost conditions

Monopoly is not a permanent situation

Duopoly and Oligopoly

Duopoly-the duopoly market structure has the following characteristics

Characteristics: The number of sellers in this market structure

is only two The decision of the sellers is not independent

of each other The change in price and output by one seller

affects the other seller who reacts to the change

The product can be homogeneous or differentiated

The decision variables include price,product differentiation, selling expenses,etc,selling expenses but the decisions depend upon the strategies of the competitor

Product differentiation is the entry barrier and also the firm dominating the market can pose as an entry barrier.

Oligopoly Oligopoly-is a situation where a few large firms compete

against one another and are independent with respect to decision making

Characteristics There are small number of large sellers. The product they sell can be differentiated or

homogeneous. The policies of each seller have a noticeable

impact due to the extent of influence of each seller.

The element of interdependence exists Cross elasticity of demand is very high due to the

close substitutes of the product. Existence of rigidity. The firms may enjoy some monopoly power.

Strategies available to an oligopolist include advertising, quality improvement etc.

Oligopoly can be classified as Perfect and imperfect

Open or closed Partial or Full

When the firms follow a common price policy, it is known as collusive oligopoly

Documents

Strat Mgmt NM PP 0908.ppt