Strategic Management - 8 (2)

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

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STRATEGIC MANAGEMENT

AA

CONCEPT ON STRATEGIC THINKING

ANDMODUS OPERANDIFOR SURVIVALIN 21st CENTURY

By

Dr. JANAK V. SHELAT


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WHY STRATEGIC THINKING?WHY STRATEGIC THINKING?

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

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

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

Other Current Trends Other Current Trends

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


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BASIC CONCEPTS

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

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

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

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

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


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Sustained Competitive AdvantageSustained Competitive Advantage

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

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

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

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

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

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


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PRODUCT

MARKET FUNCTION

What Business the Firm is in?Why the Firm is in the Business?What should be Firms Business?

WHAT IS BUSINESS?


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FIRM/BUSINESS

GAP OUT PUT

VALUE SYSTEMVISION

MISSION

PURPOSE

OBJECTIVES

BASIC IN FRASTRUCTURE AN D FRAME WORK OF A FIRM


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

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

an art for seeing invisibles.

MISSION : It a statement of intent ofwhat a firm wants tocreate and through which line of Business. It is a process of

legitimization of corporate existence of business. It defines

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

pursue the Creation of Value to all Stakeholders in the

Business. It is an answer to question What business are

we in?

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

To satisfy Customers today and forever

To satisfy Employees today and forever


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StrategicStrategic

PlanningPlanning


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Competitive success is transient...unless care is

taken to preserve competitive position

Competitive success is transient...unless care is

taken to preserve competitive position

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

identifiable today!

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

identifiable today!

In a recent year, 44,367 businesses filed for

bankruptcy and many more U.S. businesses failed

In a recent year, 44,367 businesses filed for

bankruptcy and many more U.S. businesses failed

Challenge of Strategic ManagementChallenge of Strategic Management


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Three Big StrategicThree Big Strategic

QuestionsQuestions Where Are We Now?Where Are We Now?

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

How Will We GetHow Will We Get

There?There?


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Crafting a StrategyCrafting a Strategy

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

competitive advantage.competitive advantage.

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

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

companys well-beingcompanys well-being HOW to pursue attractive opportunitiesHOW to pursue attractive opportunities


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

A strategic planA strategic plan

specifies where aspecifies where a

company iscompany isheaded and HOWheaded and HOW

managementmanagement

intends to achieveintends to achieve

the targetedthe targetedlevels oflevels of

performanceperformance..


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Characteristics of Strategic ManagementDecisions

..

Corporate-level

decisions

Greater risk,cost,

and profit potential

Greater need for

flexibility

Longer time horizons


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Characteristics of StrategicManagement Decisions (contd.)

..

Functional-

level

decisions

Functional-

level

decisions

Implement overall strategy

Involve action-oriented

operational issues

Are relatively short range

and low risk

Incur only modest costs


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Characteristics of StrategicManagement

Decisions (contd.)

..

Business-level

decisions

Bridge decisions at

corporate and functional

levels

Are less costly, risky, and

potentially profitable than

corporate-level decisions

Are more costly, risky, and

potentially profitable than

functional-level decisions


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Strategic Management Basic model

Four Basic ElementsFour Basic Elements

Strategic management is the process of moving where you are

to where you want to be in future through

sustainable competitive advantages

Options on

Competitive

Positioning

Learning

points from

deviations


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FIRM

MACRO ENVIROAPPRAISAL

MICRO ENVIROAPPRAISAL OF

INDUSTRIES

MICRO ENVIRO

APPRAISAL OFFIRM

BASICSTRATEGIES

STRATEGICALTERNATIVES

BUSINESS LEVELSTRATEGIES

STRATEGICSELECTION

STRATEGICIMPLEMEMTATION

ORGANISATIONDESIGN

FUNCTIONALLEVELSTRATEGIES &

RESOURCESALLOCATION

DEVELOPMENTOF

CONTROL

IsStrategyWorking?

STRATEGIC PLANNING DESIGN AND IMPLEMENTATION PROCESS

GAPVISION

MISSION

VALUE

GOAL


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The Five Task of StrategicThe Five Task of Strategic

PlanningPlanning Developing a Vision and a MissionDeveloping a Vision and a Mission Setting ObjectivesSetting Objectives

Crafting a StrategyCrafting a Strategy

Implementing and Executing StrategyImplementing and Executing Strategy

Evaluating Performance, Reviewing theEvaluating Performance, Reviewing the

Situation and Initiating Corrective ActionSituation and Initiating Corrective Action


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Characteristic of theCharacteristic of the

Strategic ManagementStrategic Management

ProcessProcess An ongoing exerciseAn ongoing exercise

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

clear-cutclear-cut

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

responsibilities and activities.responsibilities and activities.

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

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

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

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

current strategy.current strategy.


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ENVIRONMENTAL APPRAISAL

ENVIRONMENTALANALYSIS

ENVIRONMENTAL DIAGNOSIS

O

T

S

WETOPSAP

OFPP

ALUATION PROCESS OF SWOT ANALYS


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Political/

Legal

Political/

Legal

EconomicEconomic

TechnologicalTechnological

GlobalGlobal

DemographicDemographic SocioculturalSociocultural

CompetitiveCompetitive

EnvironmentEnvironment

IndustryEnvironment

IndustryEnvironment

Components of the General EnvironmentComponents of the General Environment


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ENVIRONMENTAL FACTORSENVIRONMENTAL FACTORS

ECONOMICAL

TECHNOLOGICALPOLITICAL /LEGAL

GLOBAL

SOCIOCULTURAL

DEMOGRAPHIC

FIRM/BUSINESS

GOVERNMENTAL


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Components of the General EnvironmentComponents of the General Environment

Variables in Societal Environment


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Variables in Societal Environment

International Societal Environments


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International Societal Environments


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Industry AnalysisIndustry Analysis

Porters Approach to Industry Analysis


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Porter s Approach to Industry Analysis

Threat of Substitute Products or Services

Bargaining Power of Buyers

Bargaining Power of Suppliers

Relative Power of Other Stakeholders

Rivalry Among Firm in an Industry


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DETERMINENT OF BUYERSDETERMINENT OF BUYERS

POWERPOWER

Bargaining LeverageBargaining Leverage(a) Buyers Concentration(a) Buyers Concentration

(b) Buyers Volume(b) Buyers Volume

(c) Buyers Switching Cost(c) Buyers Switching Cost

Price SensitivityPrice Sensitivity

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

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

(c) Buyers Profit.(c) Buyers Profit.



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Threat of New Entrants Economies of scaleProprietary Product differentiationCapital requirements

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



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Rivalry Among Existing Firms

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

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



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Threat of Substitute Products or Services

Bargaining Power of Buyers

Bargaining Power of Suppliers

Relative Power of Other Stakeholders



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Threat of New Entrants

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

Stage in Learning Curve



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Rivalry Among Existing Firms

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

Diversity of rivals


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Pressure from SubstitutePressure from Substitute

ProductsProductsThe threat from substitute products is highThe threat from substitute products is high

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

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

are minimal.are minimal.

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


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Bargaining Power BuyersBargaining Power Buyers

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

is high when:is high when:

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

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

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


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Bargaining Power SuppliersBargaining Power Suppliers

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

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

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

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

products supplied.products supplied.

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

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

IFAS


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EFAS


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SFAS Matrix


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SWOT analysis of strengths,SWOT analysis of strengths,weaknesses, opportunities,and threats.weaknesses, opportunities,and threats.

TOWS M iTOWS M t i


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TOWS MatrixTOWS Matrix


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CREATING STRATEGICCREATING STRATEGIC

MIND SETMIND SET

C t St t


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Corporate Strategy

Three Key Issues: Firms directional (CORPORATE)

strategy Firms portfolio (BUSINESS LEVEL)

strategy

Firms parenting (FUNCTIONAL LEVEL)strategy


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Initiation of StrategyInitiation of Strategy

Triggering

event

New CEO

External intervention

Threat of change inownership

Performance gap

Strategic inflection point

Stimulusfor change

in

strategy

Corporate Strategy


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Directional Strategy

Orientation toward growthExpansion, contraction, status quoConcentration or diversificationInternal development or acquisitions,mergers, or alliances

3 Grand StrategiesGrowth strategiesStability strategiesRetrenchment strategies


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Corporate Directional StrategiesCorporate Directional Strategies

COMBINATION STRATEGIES

DERIVED STRATEGIES

STRATEGIC VARIATIONS -STRATEGIC VARIATIONS -


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STRATEGIC VARIATIONS -STRATEGIC VARIATIONS

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

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

RELATED : Synergic diversification.

UNRELATED:Non synergic diversification. HORIZONTAL: Supplementary/ Complementary

Expansion.

VERTICAL: Integration.

ACTIVE: R & D, Entrepreneurial development.

PASSIVE: Imitation, adoption & adaptation.


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IGOR ANSOFFS BUSINESS GROWTH MODELIGOR ANSOFFS BUSINESS GROWTH MODEL

PRODUCTS

EXISTING NEW

M

ARKE

TS/CUS

TOM

ERS

EXISTIN

G

NEW

ExistingShare of Business

EXISTING PRODUCTSIN EXISTING MARKETS

Increase

Market Share

SALESMGMT.

NEW PRODUCTS FOREXISTING CUSTOMERS

NEW PRODUCTDEVELOPMENT, UPGRADES

NEW CUSTOMERSFOR EXISTING LINESOF PRODUCTS

MARKET DEVELOPMENT

BUSINESSDEVELOPMENT

RelatedBusinesses

CORPORATEPLANNING

UnrelatedBusinesses

New products /New Markets

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

Corporate Strategy


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Growth Strategies --

External mechanisms

Mergers

Acquisitions

Strategic alliances


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EXTERNAL GROWTHEXTERNAL GROWTH

STRATEGIESSTRATEGIES

TAKE OVER, AQUISION &MERGER

BUYING FIRM SELLING FIRM

Acquire Controlling interest}

Acquire Assets and liabilities}of selling Firm}

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

TAKE OVERACQUISION

MERGER


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WHY THE FIRM PURSURE EXTERNALWHY THE FIRM PURSURE EXTERNAL

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

To diversified the product line in mature state. To reduce the competition. To acquire the needed resources. For Tax purpose.

To increase the efficiency and profitability. To diversify the owners holding. To deal with top management problems..

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


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

It relates to the commonality of strategic interest. Strength of onefirm may be weakness of the other firm and vice versa. The firms

can create Synergy and complementing business situation. FINANCIAL ISSUES:

These are related to (a) Valuation of selling firms based on assets,market standing, share prices, earning potential etc. (b) Sources offinancing for merger.

MANAGERIAL ISSUES:It relates to professional compatibility and acceptance of

managerial system of selling company. LEGAL ISSUES:

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

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

market etc. LABOUR ISSUES: It relates to continuation of old staff and

subsequent relations. SOCIETAL ISSUES: It relates to the benefits of society and Social

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

factors.

REASONS FOR FAILUR OFREASONS FOR FAILUR OF


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REASONS FOR FAILUR OFREASONS FOR FAILUR OF

EXTERNAL GROWTHEXTERNAL GROWTH

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

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

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

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

an excessively large debt.an excessively large debt. Trying to merge disparate corporateTrying to merge disparate corporate

cultures.cultures. Counting on key personnel staying afterCounting on key personnel staying after

the merger.the merger.

Corporate Strategy


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Growth Strategies - Related

2 Basic forms

Concentration

Diversification

Corporate Strategy


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Basic Concentration Strategies --

Vertical growth

Horizontal growth

Corporate Strategy


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Vertical Growth --Vertical integration

Full integrationTaper integrationQuasi-integrationLong-term contract

Backward integration

Forward integration

Corporate Strategy


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Concentration --

Horizontal GrowthHorizontal integration

Corporate Strategy


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Basic Diversification Strategies --

Concentric Diversification

Conglomerate Diversification

Corporate Strategy


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Concentric Diversification --

Growth into related industrySearch for synergies

Corporate Strategy


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Conglomerate diversification --

Growth into unrelated industryConcern with financial considerations

DERIVED BUSINESS STRATEGIES


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OFFENSIVE DEFFENSIVE CO-OPERATIVE

DERIVEDBUSINESS STRATEGIES

FRONTAL ASSAULTFLANKING MANEUVERBYPASS ATTACK

ENCIRCLEMENTGUERRILLA WARFARE

RAISE STRUCTURALBARRIER

INCREASE EXPECTEDRETALIATION

LOWER INDUCEMENT FORATTACK

SYNDICATING (COLLUSIOSTRATEGIC ALLIANCESMUTUAL CONSORTIA

JOINT VENTURELICENSING ARRANGEMENVALUE CHAIN PARTNERS

STRATEGIC ALLIANCESTRATEGIC ALLIANCE


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

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

The reasons for alliance are:

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

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

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

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

challenges of technological revolution.

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


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

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

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

Financial Alliance:Financial Alliance: Companies joint together in order toCompanies joint together in order toreduce financial risks associated with the activities & sharereduce financial risks associated with the activities & share

the profit in proportion to financial contribution.the profit in proportion to financial contribution. Research & Development Alliances:Research & Development Alliances: Fast changingFast changing

technology, high cost of R & D and need of being ahead oftechnology, high cost of R & D and need of being ahead ofchanges, force companies to form alliance in R & D area.changes, force companies to form alliance in R & D area.

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


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BREAK UP OF ALLIANCE:BREAK UP OF ALLIANCE:

Incompatibility between/among partners

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

Access to information.

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

companies over a period of alliance,

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

STRATEGIC JOINT VENTURESTRATEGIC J

OINT VENTURE


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STRATEGIC JOINT VENTURESTRATEGIC JOINT VENTURE Joint ventures (JV) are partnership in which two or

more firms carry out a specific project or business in a

selected area of industry in a form of new venture.Ownership of the original firms remains unchanged.Actually, corporate partnership are formed withspecific and time bound objectives which, onceachieved, leaves little reasons for the alliance tocontinue. Joint venture can be temporary or it can be

long term. JV that last longer do so because theirobjectives have been redesigned.Every JV:

1. Has a scheduled life cycle, which will end sooner or later (5 to 10years)

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

3. Change in environment forces joint venture to be redesignedregularly

4. Translations seek to absorb their partners competencies.

5. It is a contractual obligation on fragile platform.

Corporate Strategy


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Stability Strategies --

Pause/proceed with caution

No change

Profit strategies

Corporate Strategy


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Retrenchment Strategies --

TurnaroundCaptive Company StrategySelling outBankruptcyLiquidation

RETRENCHMENT STRATEGY


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RETRENCHMENT STRATEGYCommon Retrenchment Strategies: Turnaround, restructuring,

Divesting, Bankruptcy, Liquidation

WHY FIRM GO FOR RETRENCHMENT:

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

operations.

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

from shareholders, customers, or others to improveperformance.

The external environment poses threats and internal strengths

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

where were firms strength can be utilized. Inability to implement latest technology cause by tech.

revolution.


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Business Level Strategy

Value-Chain Analysis


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Linked set of value-creating activities

beginning with basic raw material andending with distributors getting finalgoods into hands of customers

Value-Chain Analysis


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Typical Value Chain for a Manufactured Product

Corporate Value Chain


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Corporate Value Chain

Porters Generic Competitive Strategies


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Porter s Generic Competitive Strategies


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What is a Business level strategyWhat is a Business level strategy

Business level strategies are firm-specific business modelBusiness level strategies are firm-specific business modelthat will allow a company to gain a competitivethat will allow a company to gain a competitive

advantage over its rivals in a market or industry.advantage over its rivals in a market or industry.

It aims at improving the effectiveness of a companysIt aims at improving the effectiveness of a companys

operations and thus its ability to attend superioroperations and thus its ability to attend superiorefficiency, quality, innovation and customerefficiency, quality, innovation and customer

responsiveness .responsiveness .

Its ability to improve companys operations helps inIts ability to improve companys operations helps in

achieving cost leadership or helps the company inachieving cost leadership or helps the company in

differentiating its product from the rival company.differentiating its product from the rival company.

i i i C iDi i i C

i


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Distinctive CompetenciesDistinctive Competencies

They are firm specific strengths that allow aThey are firm specific strengths that allow acompany tocompany to differentiatedifferentiate its products and/orits products and/orachieve substantiallyachieve substantially lower costslower costs than its rivalsthan its rivals

and thus gain a competitive advantage.and thus gain a competitive advantage.

E.g. ToyotaE.g. Toyota

They arise from two sources:They arise from two sources:

1)1) ResourcesResources2)2) CapabilitiesCapabilities

C t L d hiCost Leadership


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Cost LeadershipCost Leadership

It is based on the intent to outperform competitors byIt is based on the intent to outperform competitors by

doing every thing to establish a cost structure that allows itdoing every thing to establish a cost structure that allows it

to produce or provide goods or services at a lower unitto produce or provide goods or services at a lower unit

cost.cost. Cost leader chooses a low to moderate level of productCost leader chooses a low to moderate level of product

differentiation relative to its competitors.differentiation relative to its competitors.

Aims for a differentiation not markedly inferior to that ofAims for a differentiation not markedly inferior to that of

the differentiator but a level obtainable at a low cost.the differentiator but a level obtainable at a low cost. Frequently ignores the many different market segments inFrequently ignores the many different market segments in

industry to appeal the average customers.industry to appeal the average customers.

Advantages and DisadvantagesAdvantag

es and Disadvantages


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Advantages and DisadvantagesAdvantages and Disadvantages

AdvantagesAdvantages DisadvantagesDisadvantages

Protected from industryProtected from industry

competitorscompetitors

Less affected by competitorsLess affected by competitors

price changeprice change Requires a big market shareRequires a big market share

so they purchases inso they purchases in

relatively large quantitiesrelatively large quantities

Barrier to entry.Barrier to entry.

Cost leadership approachCost leadership approach

lurk in competitors abilitylurk in competitors ability

to find ways to lower theirto find ways to lower their

cost structurecost structure Ability to imitate costAbility to imitate cost

leaders methods easilyleaders methods easily

The single minded desireThe single minded desire

to reduce costs mightto reduce costs might

drastically affect thedrastically affect the

demanddemand

ImplicationsImp

lications


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ImplicationsImplications

To pursue a full blown cost-leadership, strategicTo pursue a full blown cost-leadership, strategic

managers need to devote enormous efforts to incorporatemanagers need to devote enormous efforts to incorporate

all the latest information, materials, management, andall the latest information, materials, management, and

manufacturing technology into their operations to findmanufacturing technology into their operations to find

new ways to reduce costs.new ways to reduce costs. A differentiator cannot let a cost leader get too great aA differentiator cannot let a cost leader get too great a

cost advantage because the leader might then be able tocost advantage because the leader might then be able to

use its high profits to invest more in productuse its high profits to invest more in product

differentiation and beat leaders.differentiation and beat leaders. Must respond to the strategic moves of its differentialMust respond to the strategic moves of its differential

competitors and increase the quality and features of itscompetitors and increase the quality and features of its

products if it is to prosper in the long runproducts if it is to prosper in the long run

Differentiation StrategyDifferentiation Strateg

y


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gygy

The objective of the differentiation strategy is to achieve aThe objective of the differentiation strategy is to achieve a

competitive advantage by creating a product that consumerscompetitive advantage by creating a product that consumers

perceive as different or distinct in some important way.perceive as different or distinct in some important way.

Product differentiation can be achieved in three waysProduct differentiation can be achieved in three ways QualityQuality

InnovationInnovation

Responsiveness to customersResponsiveness to customers

Generally, a differentiator chooses to segment its market intoGenerally, a differentiator chooses to segment its market into

many segments and nichesmany segments and niches A differentiated company concentrates on the organizationalA differentiated company concentrates on the organizational

functions that provide the source of its differentiation advantage.functions that provide the source of its differentiation advantage.

Advantages and DisadvantagesAdvantag

es and Disadvantages


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Advantages and DisadvantagesAdvantages and DisadvantagesAdvantagesAdvantages

Differentiation safeguards aDifferentiation safeguards acompany against competitors tocompany against competitors tothe degree that customers developthe degree that customers develop

brand loyalty for its productbrand loyalty for its product Suppliers are rarely a problem asSuppliers are rarely a problem as

companys strategy is gearedcompanys strategy is gearedmore toward the price it canmore toward the price it cancharge than toward costscharge than toward costs

Distinct product solves theDistinct product solves theproblem of strong buyersproblem of strong buyers

The threat of substitutes dependsThe threat of substitutes dependson the ability of the competitorson the ability of the competitors

product.product.

DisadvantagesDisadvantages

Strategic managers longStrategic managers long

term ability to maintain aterm ability to maintain a

products pe products pe

distinctness in customersdistinctness in customers

eyes.eyes. The ease with whichThe ease with which

competitors imitate thecompetitors imitate the

differentiators productdifferentiators product

S iF S i


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Focus StrategiesFocus Strategies

Focus Strategies position a company toFocus Strategies position a company to

compete for customers in a particular marketcompete for customers in a particular market

segment, which can be definedsegment, which can be definedgeographically, by type of customers, or bygeographically, by type of customers, or by

region or even by locality.region or even by locality.

F S iF S i


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Focus StrategiesFocus Strategies

Focused Cost Leadership Strategy :Focused Cost Leadership Strategy :

If a company uses a focused low cost approach, itIf a company uses a focused low cost approach, it

competes against the cost leader in the marketcompetes against the cost leader in the market

segment in which it has no cost disadvantage.segment in which it has no cost disadvantage.

Focused Differentiation Strategy :Focused Differentiation Strategy :

If a company uses a focused differentiationIf a company uses a focused differentiation

approach, then all the means of differentiation thatapproach, then all the means of differentiation that

are open to the differentiator are available to theare open to the differentiator are available to thefocused company.focused company.

Ad tAd antage

s


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AdvantagesAdvantages A focused companys competitive advantage stemA focused companys competitive advantage stem

from the source of its distinctive competency:from the source of its distinctive competency:efficiency, quality, innovation, or responsiveness toefficiency, quality, innovation, or responsiveness tocustomers.customers.

The company is protected from rivals to the extentThe company is protected from rivals to the extent

that it can provide a product or service they cannot.that it can provide a product or service they cannot. This ability also gives the focuser power over itsThis ability also gives the focuser power over its

buyers because they cannot get the same thingsbuyers because they cannot get the same thingsfrom anyone else.from anyone else.

Di d tDi d t


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DisadvantagesDisadvantages

Powerful suppliersPowerful suppliers

The focusers niche can suddenly disappearThe focusers niche can suddenly disappear

because of technological change or change inbecause of technological change or change incustomers tastes.customers tastes.

The focuser is vulnerable and has to defend itsThe focuser is vulnerable and has to defend its

niche constantly.niche constantly.

Risks of Generic Strategies


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Risks of Cost Leadership

Cost leadership is notsustained:

Competitors imitate.

Technology changes.

Other bases for cost

leadership erode.

Proximity in differentiation is

lost.Cost focusers achieve even

lower cost in segments.

Risks of Differentiation

Differentiation is notsustained:


Bases for differentiation

become less important to

buyers.

Cost proximity is lost.

Differentiation focusersachieve even greater

differentiation in segments.

Risks of Focus

The focus strategy isimitated:

The target segment becomes

structurally unattractive:

Structure erodes.

Demand disappears.

Broadly targeted competitors

overwhelm the segment: The segments

differences from other

segments narrow.

The advantages of a

broad line increase.

New focusers subsegment

the industry.

Risks of Cost LeadershipCost leadership is notsustained:


Technology changes.

Other bases for cost

leadership erode.

Proximity in differentiation is

lost.

Cost focusers achieve even

lower cost in segments.

Risks of DifferentiationDifferentiation is not

sustained:


Bases for differentiation

become less important to

buyers.

Cost proximity is lost.

Differentiation focusers

achieve even greater

differentiation in segments.

Risks of FocusThe focus strategy is

imitated:

The target segment becomes

structurally unattractive:

Structure erodes.

Demand disappears.

Broadly targeted competitors

overwhelm the segment:

The segments

differences from other

segments narrow.

The advantages of a

broad line increase.

New focusers subsegment

the industry.

IndustryForce

Generic Strategies

Cost Leadership Differentiation Focus


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Cost Leadership Differentiation Focus

EntryBarriers

Ability to cut price in retaliation deterspotential entrants.

Customer loyalty can discouragepotential entrants.

Focusing develops corecompetencies that can act as anentry barrier.

BuyerPower

Ability to offer lower price to powerfulbuyers. Large buyers have less power tonegotiate because of few close alternatives.Large buyers have less power to negotiatebecause of few alternatives.

Ability to offer lower price to powerfulbuyers. Large buyers have less powerto negotiate because of few closealternatives. Large buyers have lesspower to negotiate because of fewalternatives.

Ability to offer lower price topowerful buyers. Large buyers haveless power to negotiate because offew close alternatives. Largebuyers have less power tonegotiate because of fewalternatives.

Supplier

Power

Better insulated from powerful suppliers.Better able to pass on supplier price

increases to customers. Suppliers havepower because of low volumes, but adifferentiation-focused firm is better able topass on supplier price increases.

Better insulated from powerfulsuppliers. Better able to pass on

supplier price increases to customers.Suppliers have power because of lowvolumes, but a differentiation-focusedfirm is better able to pass on supplierprice increases.

Better insulated from powerfulsuppliers. Better able to pass on

supplier price increases tocustomers. Suppliers have powerbecause of low volumes, but adifferentiation-focused firm isbetter able to pass on supplierprice increases.

Threat ofSubstitute

s

Can use low price to defend againstsubstitutes. Customer's become attached todifferentiating attributes, reducing threat of

substitutes. Specialized products & corecompetency protect against substitutes.

Can use low price to defend againstsubstitutes. Customer's becomeattached to differentiating attributes,

reducing threat of substitutes.Specialized products & corecompetency protect againstsubstitutes.

Can use low price to defend againstsubstitutes. Customer's becomeattached to differentiating

attributes, reducing threat ofsubstitutes. Specialized products &core competency protect againstsubstitutes.

Rivalry Better able to compete on price.Brandloyalty to keep customers from rivals.Rivalscannot meet differentiation-focusedcustomer needs.

Better able to compete on price.Brandloyalty to keep customers fromrivals.Rivals cannot meetdifferentiation-focused customerneeds.

Better able to compete onprice.Brand loyalty to keepcustomers from rivals.Rivals cannotmeet differentiation-focusedcustomer needs.

Functional Strategy


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The approach a functional areatakes to achieve corporate andbusiness unit objectives andstrategies by maximizing resourceproductivity

Functional StrategyMarketing Strategy


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FRONTAL ASSAULT

FLANKING MANEUVER

BYPASS ATTACKENCIRCLEMENT

GUERRILLA WARFARE

PricingSkim pricingPenetration pricingDynamic pricing

SellingDistribution

Product developmentLine extensionAdvertising and promotionPush strategy

Pull strategy

Functional Strategy


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Financial Strategy

Leveraged buyoutReversed stock splitTracking stock

Functional Strategy


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R&D Strategy

Technological leaderTechnological followerOpen innovation

Functional Strategy


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Operations Strategy

Job shopConnected line batch flow

Flexible manufacturing systemsDedicated transfer linesMass productionContinuous improvement system

Modular manufacturing

Functional Strategy


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Purchasing Strategy

Multiple sourcingSole sourcingJust-in-time (JIT)Parallel sourcing

Functional Strategy


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Logistics Strategy

CentralizationOutsourcingInternet

Functional Strategy


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HRM Strategy

360 degree appraisal

Functional Strategy


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Outsourcing errors

Activities that should not beoutsourcedWrong vendor selectionWriting poor contractOverlooking personnel issuesHidden costs of outsourcingFailing to plan exit strategy

Proposed Outsourcing Matrix


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Functional Strategy


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Strategies to Avoid

3 Follow the leaderHit another home runArms raceDo everythingLosing hand

Functional Strategy


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Subjective Factors AffectingDecisions --

Managements attitude toward riskPressures from stakeholdersPressures from corporate cultureNeeds and desires of key managers

Strategic Choice


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Evaluation of Strategic Alternatives--

Mutual exclusivitySuccessCompletenessInternal consistency


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PORTFOLIOPORTFOLIO

ANALYSISANALYSIS

Corporate Strategy


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Portfolio Analysis --

Resource commitment on bestproducts to ensure continued success

Resource commitment on new costlyproducts high risk

Stages of the Industry Life CycleStages of the Industry Life Cycle


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PRODUCT LIFE CYCLEPRODUCT LIFE CYCLE


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Most product sales observed over long periods can be portrayedas bell shaped curves Product life cycle curves which can betypically divided into four stages: Introduction, Growth, Maturityand Decline.

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

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

purchasing and H.R. strategies in each life cycle stage. Growth-Slump-Maturity pattern (small kitchen appliances)

Cycle Recycle Pattern Scalloped Pattern (succession of PLCs; eg: Nylon)

INTRODUCTIONINTRODUCTION - STRATEGIES- STRATEGIES


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PRIC

E

Hi

Lo

PROMOTION

Hi

SLOW

SKIMMING

SLOW

PENETRATION

RAPID

SKIMMING

RAPID

PENETRATION

Sales growth tends to be slow - Delays in production capacity

expansion /technical problems; Distribution/retail chains being put up;

sales expensive as conversion rates are lower (innovators).

Promotion at the highest ratio to sales inform customers, induce

trial and secure distribution in retail outlets.

Prices tend to be high as costs are higher.

PLC - GROWTH STAGEPLC - GROWTH STAGE


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

sales. Companies starts to eye for market share.sales. Companies starts to eye for market share.

Growth is a period of rapid market acceptance &Growth is a period of rapid market acceptance & substantialsubstantial

profit improvement.profit improvement.

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

buy the product whilebuy the product while middle majoritymiddle majority starts trying.starts trying.

New competitionNew competition as sales and profits are growing. The stageas sales and profits are growing. The stage

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

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

penetration or for entry into other segments.penetration or for entry into other segments.

Time noted for theTime noted for the introduction of variants/ brand extensionsintroduction of variants/ brand extensions..

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

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

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

PLC - GROWTH STAGEPLC - GROWTH STAGE


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MARKETING STRATEGIESMARKETING STRATEGIES

FirmFirm improves product quality and adds new features andimproves product quality and adds new features and

models.models. EntersEnters new market segmentsnew market segments..

EntersEnters new distribution channelnew distribution channel..

Advertising focus shifts from awareness / knowledgeAdvertising focus shifts from awareness / knowledge toto

Interest/desire/conviction.Interest/desire/conviction.

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

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

customers.customers.

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

profit.profit.

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

competitive positioncompetitive position..

PLC - MATURITY STAGEPLC - MATURITY STAGE M d t hi h d i th t itMany products which we see around us are in the maturity


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Many products which we see around us are in the maturityMany products which we see around us are in the maturitystage of PLC.stage of PLC.

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

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

1. Growth Maturity1. Growth Maturity

::

Sales growth starts to fall due toSales growth starts to fall due to

distribution saturation. Growth predominantly due to trial bydistribution saturation. Growth predominantly due to trial bylaggards.laggards.

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

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

Intensified competition ----- price wars ---- profit Erosion----Intensified competition ----- price wars ---- profit Erosion----weak exit.weak exit.


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MATURITY STAGE STRATEGIESMATURITY STAGE STRATEGIES


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Volume can also be increased by focusing on the CurrentVolume can also be increased by focusing on the CurrentUsers Users convincing them to use moreconvincing them to use more..

More frequent useMore frequent use:: Biscuits an all time snack, Coke insteadBiscuits an all time snack, Coke insteadof coffee/tea, clinic shampoo, variety of SKU, vendingof coffee/tea, clinic shampoo, variety of SKU, vendingmachines.machines.

More usage per OccasionMore usage per Occasion:: Shampoo giving better results inShampoo giving better results in

two rinsing, more SKUs.two rinsing, more SKUs. New more varied uses:New more varied uses: Recipe route tried out by microwaveRecipe route tried out by microwave

oven manufacturers, Sachets by shampoo manufacturersoven manufacturers, Sachets by shampoo manufacturersfor travelers, Arm & Hammer Baking soda as a refrigeratorfor travelers, Arm & Hammer Baking soda as a refrigeratordeodorant.deodorant.

2. PRODUCT MODIFICATION2. PRODUCT MODIFICATION Stimulate sales by modifying the products characteristicsStimulate sales by modifying the products characteristics

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

STRATEGIES FOR MATURE STAGETRATEGIES FOR MATURE STAGE


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2. PRODUCT MODIFICATION2. PRODUCT MODIFICATION Quality Improvement:Quality Improvement: Functional performance improved- for cars, TV, whiteFunctional performance improved- for cars, TV, white

goods - New Improved eg: Santro Xing, Indica V2.goods - New Improved eg: Santro Xing, Indica V2. Plus launch - from FMCG manufacturers --------- stronger,Plus launch - from FMCG manufacturers --------- stronger,

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

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

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

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

contd.)


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Advantages of feature improvementsAdvantages of feature improvements Build progressive and leadership image for co. (Maruti)Build progressive and leadership image for co. (Maruti) New features can be made optional (adapted or droppedNew features can be made optional (adapted or dropped

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

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

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

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

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

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

MATURITY STAGE STRATEGIESMATURITY STAGE STRATEGIES


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3. Marketing Mix Modifications:3. Marketing Mix Modifications: Advertising:Advertising: Change message- copy, media- vehicle mix,Change message- copy, media- vehicle mix,

timing/frequency, to target new audience.timing/frequency, to target new audience. Build new brand identity / image.Build new brand identity / image. Direct comparison Ads about competition.Direct comparison Ads about competition. Sales Promotion:Sales Promotion: Step up trade discountStep up trade discount

Price offs, Rebates, warranties, festival offers, gifts etc.Price offs, Rebates, warranties, festival offers, gifts etc. Personal selling:Personal selling: should the quality of sales people or theirshould the quality of sales people or their

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

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

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

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

STRATEGIES FOR DECLINE STAGESTRATEGIES FOR DECLINE STAGE


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

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

Those remaining drop smaller market segments & marginalThose remaining drop smaller market segments & marginaltrade channels to conserve profits.trade channels to conserve profits.

They may cut their promotion budgets and may reduce pricesThey may cut their promotion budgets and may reduce pricesfurther.further. Unless strong reasons for retention exist, carrying a weakUnless strong reasons for retention exist, carrying a weak

product is very costly to the firm.product is very costly to the firm. It can delay aggressive search for alternatives/replacement.It can delay aggressive search for alternatives/replacement.

STRATEGIES FOR DECLINE STAGETRATEGIES FOR DECLINE STAGE


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MARKETING STRATEGIESMARKETING STRATEGIES:: 1. Increase firms investment (Dominate the market or to1. Increase firms investment (Dominate the market or to

strengthen its competitive position)strengthen its competitive position) 2. Hold investment level until uncertainties about the2. Hold investment level until uncertainties about the

industry are resolved.industry are resolved. 3. Decreasing investment selectively. (Unprofitable target3. Decreasing investment selectively. (Unprofitable target

groups/ markets/ products will have to be identified andgroups/ markets/ products will have to be identified and

instead look for strong niches.)instead look for strong niches.) 4. Harvesting: milking to recover cash quickly (Brands with4. Harvesting: milking to recover cash quickly (Brands with

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

as advantageously as possibleas advantageously as possible..

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

P.L.C WEAKNESSES.L.C WEAKNESSESN U if Sh


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No Uniform ShapeNo Uniform Shape::

An S shaped curve describes only shape of PLC while mostAn S shaped curve describes only shape of PLC while most

of them vary or are unique.of them vary or are unique. Unpredictable Turning Points:Unpredictable Turning Points:

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

specific turning point.specific turning point.

Difficult to Decide the StagesDifficult to Decide the Stages:: A dormant sales (flat) pattern may denote the product hasA dormant sales (flat) pattern may denote the product has

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

touched a plateau before another growth period.touched a plateau before another growth period.

Tendency to drop a product due to such readings can turnTendency to drop a product due to such readings can turn

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

development.development.

P.L.C WEAKNESSES.L.C WEAKNESSES


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Unclear ImplicationsUnclear Implications::

Growth phase may or may not be associated withGrowth phase may or may not be associated withhigh profit margin.high profit margin. Rapid growth can be associated with low profits andRapid growth can be associated with low profits and

decline can be very profitable.decline can be very profitable.

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

of customers / strategies of competitors,of customers / strategies of competitors,attractiveness of new market to competitors/attractiveness of new market to competitors/

Emergence of technologies etc.Emergence of technologies etc. Technologies, needs/ demands, product categoriesTechnologies, needs/ demands, product categories

have different driving forces.have different driving forces.

P.L.C WEAKNESSES.L.C WEAKNESSES


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No Uniform ShapeNo Uniform Shape: An s shaped curve describes only shape: An s shaped curve describes only shapeof PLC while most of them vary or are unique.of PLC while most of them vary or are unique.

Unpredictable Turning Points:Unpredictable Turning Points:While most products do peakWhile most products do peakand then fall there is no specific turning point.and then fall there is no specific turning point. Difficult to Decide the Stagesifficult to Decide the Stages : A dormant sales (flat): A dormant sales (flat)

pattern may denote the product has reached maturity whilepattern may denote the product has reached maturity whileit may be just that the product has touched a plateau beforeit may be just that the product has touched a plateau beforeanother growth period. Tendency to drop a product due toanother growth period. Tendency to drop a product due tosuch readings can turn out to be fatal due to the riskssuch readings can turn out to be fatal due to the risks

involved in new product developmentinvolved in new product development Unclear ImplicationsUnclear Implications: Growth phase may or may not be: Growth phase may or may not be

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

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

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

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

Boston Consulting GroupBoston Consulting Group


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g pg p

(BCG) Matrix(BCG) Matrix

When a firms divisions compete in differentWhen a firms divisions compete in different

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

developed for each business.developed for each business.

To enhance and formulate strategies.To enhance and formulate strategies. To manage its portfolio of businessesTo manage its portfolio of businesses

Focuses onFocuses on relative market sharerelative market share position andposition and

thethe industry growth rateindustry growth rate..

BCG MatrixBCG Matrix


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BCG MatrixBCG MatrixRelative Market Share Position

Ind

ustrySales

Gro

wth

Rate

High

1.0

Medium

Low

High

Low

Med

StarsIV

Question MarksIII

Cash CowsI

DogsII



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

The pie slice indicates the proportion ofThe pie slice indicates the proportion of

divisions profit.divisions profit. Divisions locatedDivisions located Quadrant I is calledQuadrant I is called Cash CowsCash Cows,, Quadrant II is calledQuadrant II is called DogsDogs.. Quadrant III is calledQuadrant III is called Question MarksQuestion Marks,, Quadrant IV is calledQuadrant IV is called StarsStars,,

BCG Portfolio MatrixBCG Portfolio Matrix


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MARKET SHARE DOMINANCE

HIGH LOW

MARK

ETG

ROWT

HRATE

LOW

HIGH

High growth

Market leadersRequire cashLarge profits

Low growth

High market shareHigh cash flow

Low growthLow market shareMinimal cash flow

High growth

Low market shareNeed cash

Poor profit margins

$$$$

BCG Portfolio MatrixBCG Portfolio Matrix

Cash CowsCash Cows


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Cash CowsCash Cows

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

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

as possibleas possible Product developmentProduct development

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

becomes weakbecomes weak

DogsDogs


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DogsDogs

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

industryindustry

Weak internal and external positionWeak internal and external position LiquidationLiquidation DivestitureDivestiture

RetrenchmentRetrenchment

Question MarksQuestion Marks


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Question MarksQuestion Marks

Low relative market sharecompeteLow relative market sharecompetein a high growth industryin a high growth industry Cash needs are highCash needs are high

Cash generation is lowCash generation is low Decision: strengthen by pursuing anDecision: strengthen by pursuing an

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

StarsStars


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StarsStars

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

Represent the organizations bestRepresent the organizations bestlong-run opportunities for growth andlong-run opportunities for growth andprofitability.profitability.

Substantial investment to maintain orSubstantial investment to maintain orstrengthen their dominant position.strengthen their dominant position.

Integration strategiesIntegration strategies Intensive strategiesIntensive strategies Joint venturesJoint ventures



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or o o a r xor o o a r xExampleExample



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pp

Sub-Notebooksand Hand-Held

Computer

Integratedphone/Palm

devices

Laptop andPersonal

Computers

MainframeComputer

MAR

KETG

ROW

THRA

TE

LOW

H

IGH


HIGH LOW

STAR PROBLEMCHILD

CASHCOW DOG

BCG Matrix & BenefitBCG Matrix & Benefit


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BCG Matrix & BenefitBCG Matrix & Benefit

Setting the path for growthSetting the path for growth Knowing dead investmentsKnowing dead investments Draws attention to the cash flow,Draws attention to the cash flow,

Investment characteristicsInvestment characteristics Needs of an organizations variousNeeds of an organizations various

divisions.divisions.

To achieve a portfolio of divisionsTo achieve a portfolio of divisionsthat are Stars.that are Stars.

BCG Matrix LimitationsBCG Matrix Limitations


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BCG Matrix LimitationsBCG Matrix Limitations

Viewing every business as a star, cash cow,Viewing every business as a star, cash cow,dog, or question mark is overly simplistic.dog, or question mark is overly simplistic. Middle of the BCG matrix is not easily classified.Middle of the BCG matrix is not easily classified. The BCG matrix does not reflect whether or notThe BCG matrix does not reflect whether or not

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

Other variables besides relative market shareOther variables besides relative market shareposition and industry growth rate in sales areposition and industry growth rate in sales areimportant in making strategic decisions aboutimportant in making strategic decisions about

various divisions.various divisions.

G.E Strategic Planning Model

Strong Average Weak Business StrengthBusiness Strength

I


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Indu

stryAttractiv

eness

High

Medium

Low

Business Strength Index Industry Attractiveness Index

* Market Share * Market size

* Price Competitiveness * Market Growth

* Product Quality * Industry Profit Margin

* Customer Knowledge * Amount of Competition

* Sales Force and Effectiveness * Seasonality

* Geographic Advantage * Cost Structure

* Others * Etc.

GE Business Screen (Portfolio Analysis)

Winners WinnersC


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AB

QuestionMarks

D

F

AverageBusinesses

EWinners

Losers

G

LosersH

LosersProfitProducers

Strong Average Weak

Low

Medium

High

Business Strength/Competitive Position

Ind u s try Attra c tive n

e s s


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Parenting-Fit Matrix


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Edge ofHeartland

Heartland

AlienTerritory

Low

High

HighLow

FIT between parenting opportunities and parenting characteristics

MISFITbe

tweenc

riticalsucc

ess

factors a

nd

pa re nt i n

g

c ha ra c t e ris t

ic s

Ballast

Value Trap

Corporate Strategy


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Corporate Parenting Strategy --

Strategic factorsperformance improvementAnalyze fit


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LeaderLeader - major resources are focused upon the- major resources are focused upon theSBUSBU


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SBU.SBU. Try harderTry harder - could be vulnerable over a longer- could be vulnerable over a longer

period of time, but fine for now.period of time, but fine for now. Double or quitDouble or quit - gamble on potential major SBU's- gamble on potential major SBU's

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

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

commit any more resources.commit any more resources. Cash GeneratorCash Generator - Even more like a cash cow, milk- Even more like a cash cow, milk

here for expansion elsewhere.here for expansion elsewhere. Phased withdrawalPhased withdrawal - move cash to SBU's with- move cash to SBU's with

greater potential.greater potential. DivestDivest - liquidate or move these assets on a fast as- liquidate or move these assets on a fast as

you can.you can.

McKinseys 7 S ModelMcKinseys 7 S Model


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Strategy

Structure Systems

Style

Staff

Skills

SuperOrdinate

Goals-

Shared

Values


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Constructing Corporate Scenarios


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Implementation of aImplementation of a

strategystrategy

Strategy ImplementationStrategy Implementation


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Sum total of the activities

and choices required forthe execution of astrategic plan.

Process by which strategiesand policies are put intoaction through programs,

budgets, and procedures. The toughest phase in

Strategy Management

Strategy ImplementationStrategy Implementation


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Problems in

ImplementingStrategic plans

More time than plannedUnanticipated problemsActivities ineffectively coordinatedCrises deferred attention away

Employees w/o capabilitiesInadequate employee trainingUncontrollable external factorsInadequate leadershipPoorly defined tasksInadequate information systems

DESIGN OF OBJECTIVES& COMMUNICATE TO

CONCERNEDIS STRATEGY

FUNCTIONAL?


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TASK BREAK DOWN

ORGANISATION DESIGN& DEVELOPMENT

DELEGATION OF TASK &AUTHORITIES &

RESPOSIBILITIES

RESOURCESMOBILISATION &

ALLOCATIONDESIGN OFPERFORMANCE

STANDARD

DESIGN OF SIS /MIS

TRAINING &DEVELOPMENT OF

MANAGERS

EVALUATION OFOUT COME

FUNCTIONAL?

STRATEGIC

IMPLEMENTATION

&CONTROL

PROCESS

The Nature of Strategy Implementation


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The greatest strategy will be failed if itsThe greatest strategy will be failed if itsimplemented badly.implemented badly.

Successful strategy formulation does not guaranteeSuccessful strategy formulation does not guarantee

successful strategy implementation.successful strategy implementation.

Less than 10% of strategies formulated areLess than 10% of strategies formulated aresuccessfully implemented!successfully implemented!

The Nature of Strategy Implementation

Strategy Implementation can have a low success rate


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Failing to segment marketsFailing to segment marketsappropriatelyappropriately

Paying too much for a new acquisitionPaying too much for a new acquisition Falling behind competition in R&DFalling behind competition in R&D Not recognizing benefit of computersNot recognizing benefit of computers

in managing informationin managing information

Strategy Implementation can have a low success rate

Implementation may fail due to:

The Nature of StrategyImplementation


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Market goods & services wellMarket goods & services well

Raise needed working capitalRaise needed working capital Produce technologically sound goodsProduce technologically sound goods Sound information systemsSound information systems

Implementation

Successful Strategy Implementation

Formulation vs. Implementation


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Formulation focuses on effectivenessFormulation focuses on effectiveness

Implementation focuses on efficiencyImplementation focuses on efficiency

Formulation is primarily an intellectual process Implementation is primarily an operational process

Formulation requires good intuitive & analytical skills Implementation requires special motivational &leadership skills

Formulation requires coordination among a fewindividuals

Implementation requires coordination among manyindividuals

Nature of StrategyImplementation


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Varies among different types & sizes ofVaries among different types & sizes oforganizationsorganizations

Implementation

Strategy Implementation



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Altering sales territoriesAltering sales territories

Adding new departmentsAdding new departments Hiring new employeesHiring new employees Cost-control proceduresCost-control procedures Modifying advertising strategiesModifying advertising strategies Building new facilitiesBuilding new facilities

Implementation

Implementation Activities



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Shift in responsibilityShift in responsibility

Implementation

Management Perspectives

Division orFunctionalManagers

Strategists

Management IssuesManagement Issues


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Management IssuesManagement Issues

ManagementIssues

ResourcesResources

Organizational structureOrganizational structure

RestructuringRestructuring

Annual ObjectivesAnnual Objectives

Management IssuesManagement Issues (contd)(contd)


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Management IssuesManagement Issues (cont d)(cont d)

ManagementIssues Production/OperationsProduction/Operations

Resistance to ChangeResistance to Change

Management Issues


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Purpose of Annual Objectives --

Basis for resource allocation

Mechanism for management (e.g. IT

management) evaluation

Metric for gauging progress on long-term

objectives

Establish priorities (organizational, division,

& departmental)

Management Issues


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Resource Allocation

-- Central management activity that

allows for the execution of strategy

enables resources to be allocated

according to priorities established by

annual objectives.

Management Issues


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1. Financial resources

2. Physical resources

3. Human resources

4. Technological resources

4 Types of Resources

Management Issues


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Matching Structure with Strategy

-- Changes in strategy= Changes in

structure

Structure dictates how objectives &

policies will be established and how

resources will be allocated; e.g. is

structure based on location or based

on the product

Structure should be designed to

facilitate the strategic pursuit of a firm


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New administrative

problems emerge

New strategy

Is formu

Documents

Strategic Management - 8 (2)