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1. TYPES OF STRATEGIES
GENERIC STRATEGIES
• COST LEADERSHIP STRATEGY(That allows the firm to excel
competitors by least cost)
• DIFFERENTIAL STRATEGY(that is making products & services more
valuable than competitors)
FOCUS STRATEGY(it is selecting of one or two segments in the total
market to meet the requirement of target group of customers)
Vertical Integration Strategies
• Forward integration
• Backward integration
• Horizontal integration
o Forward integration
• Gaining ownership or increased control over distributors or retailers
o Guidelines for Forward Integration
1. Present distributors are expensive, unreliable, or incapable of meeting
firm’s needs
2. Availability of quality distributors is limited.
3. When firm competes in an industry that is expected to grow markedly.
4. Present distributor have high profit margins.
Backward integration
• Seeking ownership or increased control of a firm’s suppliers
When present suppliers are expensive, unreliable, or incapable of
meeting needs
Number of suppliers is small and number of competitors large
High growth in industry sector
Firm has both capital and human resources to manage new business
Advantages of stable prices are important
Horizontal Integration:-
Seeking ownership or increased control over competitors
Guidelines for Horizontal Integration
Firm can gain monopolistic characteristics without being challenged by
federal government
Guidelines for Backward Integration
Competes in growing industry
Increased economies of scale provide major competitive advantages
Faltering due to lack of managerial expertise or need for particular
resources
2. Intensive Strategies
• Market penetration
• Market development
• Product development
Market penetration (Seeking increased market share for present
products or services in present markets through greater marketing
efforts)
GUIDELINES
Current markets not saturated.
Usage rate of present customers can be increased significantly.
Market shares of competitors declining while total industry sales
increasing.
Market Development
(Introducing present products or services into new geographic area)
GUIDELINES:
New channels of distribution that are reliable, inexpensive, and of
good quality.
Firm is very successful at what it does.
Untapped or unsaturated markets.
Capital and human resources necessary to manage expanded
operations.
Excess production capacity.
• Product Development ( Seeking increased sales by improving present
products or services or developing new ones)
• GUIDELINES:
Products in maturity stage of life cycle
Major competitors offer better-quality products at comparable prices
Compete in high-growth industry
Strong research and development capabilities.
Diversification Strategies
Concentric diversification
Conglomerate diversification
Horizontal diversification
Concentric Diversification ( Adding new, but related, products or
services) .Guidelines:
o Competes in no- or slow-growth industry
o Adding new & related products increases sales of current products
o New & related products offered at competitive prices
o Current products are in decline stage of the product life cycle
o Strong management team
Conglomerate Diversification
(Adding new, unrelated products or services)
GUIDELINES:
o Declining annual sales and profits
o Capital and managerial talent to compete successfully in a new
industry
o Exiting markets for present products are saturated.
Horizontal Diversification:- ( Adding new, unrelated products or services
for present customers)
Guidelines
o Revenues from current products/services would increase significantly
by adding the new unrelated products
o Highly competitive
o Present distribution channels can be used to market new products to
current customers
Defensive Strategies
1. Joint venture
2. Retrenchment
3. Divestiture
4. Liquidation
1. Joint Venture ( Two or more sponsoring firms forming a separate
organization for cooperative purposes)
a. Domestic forms joint venture with foreign firm, can obtain local
management to reduce certain risks
b. Overwhelming resources and risks where project is potentially
very profitable
c. Two or more smaller firms have trouble competing with larger
firm
d. A need exists to introduce a new technology quickly
2. Retrenchment ( Regrouping through cost and asset reduction to reverse
declining sales and profit .
a. Firm has failed to meet its objectives and goals consistently over
time
b. Firm is one of the weaker competitors
c. Inefficiency, low profitability, poor employee morale, and pressure
from stockholders to improve performance.
d. When an organization’s strategic managers have failed
3. Divestiture ( Selling a division or part of an organization)
a. When firm has pursued retrenchment but failed to attain needed
improvements
b. When a division needs more resources than the firm can provide
c. When a division is responsible for the firm’s overall poor
performance
d. When a large amount of cash is needed and cannot be obtained
from other sources.
4. Liquidation ( Selling all of a company’s assets, in parts, for their tangible
worth)
a. When both retrenchment and divestiture have been pursued
unsuccessfully
b. If the only alternative is bankruptcy, liquidation is an orderly
alternative
c. When stockholders can minimize their losses by selling the firm’s
assets
Environmental Threat & Opportunity Profile (ETOP)
• Environmental diagnosis is the assessment of environmental factors in terms
of opportunity or threat & the importance of their impact.
• Preparation of ETOP
1. Identification of different components of relevant environment.
2. Assessing Significance of environmental factors.
3. Assessing impact factors.
4. Combining significance & impact factors.
Organizational Capability Profile (OCP)
OCP is a summarized statement which provides an overview of strength &
weakness in key result areas likely to affect future of the organization. Information
may be in qualitative and quantitative. In qualitative terms, strengths & weaknesses
are described in the form of narration & in quantitative terms in the form of various
point scales (from 1 to 5 etc.)
Strategic Advantage Profile (SAP)
IT is the process by which strategists examine a firm’s resources &
capabilities in the key functional areas to determine where the firm has
significant strengths & weakness so that it can exploit the opportunities &
meet the threats in the environment.
The essential purpose of each analysis is to take advantage of the distinctive
competencies of the firm by way of :
A. developing different strategies & following a course of action different
from those of rival firms.
B. making it difficult for other firms to duplicate the strategies.
• Analysis of the following factors is must
1. marketing
2. finance
3. production
4. Personnel and labour relations
5. R& D
6. Management
CORPORATE PORTFOLIO ANALYSIS
• CPA is a set of techniques that help strategists in taking strategic decisions
with regard to individual product in a firm portfolio. The most common
technique in this is the Boston Consulting Group Matrix (BCG).
Competitive Analysis: Porter’s Five Forces
Rivalry among Competing firms
The central point lays the stress on rivalry of the competing firm. This
relates to the intensity of the rivalry.
How the firms compete with each other and to what extent? That should be
taken into account very carefully.
Potential entry of new competitors
Potential entry for new competitors shows a balance between
different firms competing in a market. It also refers whenever a new partner
enter into a market he may become threat for one and opportunity for other
competing partners. As all the new entries and existing firms are competing
with each other so the new entry will definitely make an effect on every one
transacting in the market.
Potential development of substitute products
A potential development of substitute products also develops an
environment of competition in the market among the competing partners. As
all firms want to compete in term of quality and substitute will lasts for
longer in the market if the quality of the substitute will be greater than the
existing alternate.
Collective bargaining power of suppliers and consumers
if vendors are less in the market and the organizations that have to
purchase from those vendors are more then the demand for those suppliers
will be more as the firms have to purchase from that less suppliers. The
reverse is the case if suppliers are more and buyers are less. Then the demand
for those suppliers will be less. Such circumstances create difficulties in
bargaining.
Mc Kinsey’s 7s Framework
The model is based on the theory that, for an organization to
perform well, these seven elements need to be aligned and mutually
reinforcing. So, the model can be used to help identify what needs to be
realigned to improve performance, or to maintain performance during other
types of change. Whatever the type of change – restructuring, new
processes, organizational merger, new systems, change of leadership, and so
on – the model can be used to understand how the organizational elements
are interrelated.
• Strategy: the plan devised to maintain and build competitive advantage over
the competition.
• Structure: the way the organization is structured and who reports to whom.
• Systems: the daily activities and procedures that staff members engage in to
get the job done.
• Shared Values:
• What is the corporate/team culture?
• How strong are the values?
What are the fundamental values that the company/team was built on?
• Style: the style of leadership adopted.
• Staff: the employees and their general capabilities.
• Skills: the actual skills and competencies of the employees working for the
company.
• Placing Shared Values in the middle of the model emphasizes that these
values are central to the development of all the other critical elements. The
company's structure, strategy, systems, style, staff and skills all stem from
why the organization was originally created, and what it stands for. The
original vision of the company was formed from the values of the creators.
As the values change, so do all the other elements
GAPS MODEL
Customer Gap
This is the focus of the model and in many respects the gap most
providers should address first. It represents the difference between 'expected
service' and 'perceived service‘. To close this gap, providers need to consider
closing the following four gaps.
GAP 1
It is that the service provider does not accurately know, understand or
appreciate what their customer expects. All service employees should be
charged with closing the resultant gap by changing or influencing service
policies and procedures. The gap can exist because there is insufficient or no
dialogue between providers and users. It can also exist because the
organization is unwilling to investigate expectations of the customer.
GAP 2
It is the difference between a service providers' perception of clients / users
expectations and the subsequent development of customer-driven designs
and standards. It is not enough to simply understand clients / users
perceptions, that knowledge must translate itself to meaningful service
offerings at an appropriate level or to an appropriate standard. The gap may
exist because the personnel responsible for determining and setting standards
are of the opinion that clients / users expectations are unrealistic or
unreasonable.
GAP 3
This is the gap between the service designs and standards and actual service
delivery. In other words having guidelines, manuals and well-communicated
standards is not enough to guarantee excellent service. Resources in the form
of people, systems and appropriate technology also need to be in place and
adequately monitored. Contact personnel must be properly trained,
motivated, measured and compensated according to service delivery
standards.
• Thus, successful implementation of service standards that adequately reflect
clients users expectations is meaningless if the quality of delivery falls
short. Ensuring that adequate resources are available is the only way the gap
can be narrowed.
GAP 4
The final gap exists when there is a difference between actual service
delivery and the external communications and promises made by the
provider. These can be in the form of leaflets, web pages, presentations and
any other promotional media.
Strategy implementation
• “The implementation of policies & strategies is concerned with the design
and management of systems to achieve the best integration of people,
structure, processes and resources, in reaching organizational purposes.”
• “strategy implementation may be said to consists of securing resources,
organizing these resources and directing the use of these resources within
and outside the organization.”
Issues in strategies implementation
1. Project implementation
2. Procedural implementation
3. Resource allocation
4. Structural implementation
5. Behavioural implementation
6. Functional & operational implementation
1. Project implementation
Phases of a project
1. Conception phase (idea generation)
2. Definition phase (priority arrangement of ideas)
3. Planning & organizing phase(creation of project team, arrangement of funds,
infrastructure)
4. Implementation phase
5. Clean phase (disbanding of project infrastructure & project is handed over to
those who run it.)
Use of PERT/CPM in Project Implementation
• It contributes in project implementation in the following ways:
1. It forces the managers to plan because it is impossible to make a time event
analysis without planning.
2. It focuses attention on critical activities because a delay in their performance
will delay the whole projects.
The process in preparation of PERT/CPM
1. Identification of activities.
2. Sequential arrangements of activities.
3. Time estimates of activities
4. Network construction
5. Critical path (where critical activities are determined)
2. Procedural implementation
Any organization which is planning to implement strategies must be aware
of the procedural framework within which the plans, programmes & projects
have to be approved by the government at the central, state & local levels.
The regulatory elements to be reviewed are as follows
1. Formation of company.
2. Licensing procedures.
3. SEBI requirements.
4. Monopolies & Restrictive Trade Practices (MRTP) requirements.
5. FEMA requirements.
6. Import & export requirements.
7. Patenting and trademarks requirements.
8. Labour legislation requirements.
9. Environmental protection & pollution control requirements.
10.Consumer protection requirements.
11.Incentives & facilities benefits.
Strategy formulation and implementation can be contrasted in the
following ways
1. Strategy formulation is positioning forces before the action.
2. Strategy implementation is managing forces during the action.
3. Strategy formulation focuses on effectiveness.
4. Strategy implementation focuses on efficiency.
5. Strategy formulation is primarily an intellectual process.
6. Strategy implementation is primarily an operational process
7. Strategy formulation requires good intuitive and analytical skills.
8. Strategy implementation requires special motivation and leadership skills.
9. Strategy formulation requires coordination among a few individuals.
10.Strategy implementation requires coordination among many persons.
3. RESOURCE ALLOCATION
• In strategic planning, a resource-allocation decision is a plan for using
available resources, especially human resources especially in the near term,
to achieve goals for the future. It is the process of allocating resources
among the various projects or business units.
Procurement of resources
1. Financial resources.
2. Physical resources.
3. Human resources.
4. Technological resources
Approaches to Resource Allocation
• Top down approach (top to operational level)
• Bottom up approach (starting from operational level)
• Mix of two above
Means of Resource Allocation
Strategic budgeting :
In this the Position papers on different aspects such as
environment , marketing , past performance and so on are prepared and presented
to the top management which uses them to formulate corporate policy guidelines
and stating long & short term goals.
The operating management meanwhile prepares operational plans and sets
targets which are coordinated with corporate objectives . Based on resources and
corporate guidelines, the strategic budget is prepared and presented to top
management for approval and then communicated down the line & task of
implementation taken up.
• BCG –based budgeting.
• PLC based budgeting.
• Zero based budgeting(in this the strategist justify resource allocation demand
, not on the basis of the previous years’ budget, but on “ ground zero”, which
is based on fresh calculation of costs each time a plan is to be implemented.)
Factors affecting Resource Allocation
• Preference of dominant strategists.
• Internal policies.
• External influences. (Government policies.)
Difficulties in Resource Allocation
• Resources are limited.
• There are competing organizational units with each trying to get more.
• Organization’s past commitments.
4. Structural implementation
• An organization structure is the way in which the tasks and subtasks
required to implement a strategy are arranged. the various structures :
• 1.Entrepreneurial structure.
• 2.Functional structure.
• 3. Divisional structure.
• 4. Strategic business unit.
• 5. Matrix structure.
Entrepreneurial Structure
• Organization that is owned & manage by one person. E.g SSI. These
organisations are, product or service based firms single-business that serve
local markets. The owner looks after all decisions , whether they are day to
day operational matters or strategic in nature.
Owner - Manager
Employees
Advantages
• Quick decision making.
• Timely response.
• Informal and simple organisation.
DISADVANTAGES:
• Excessive reliance on owner – manager.
• Inadequate for future requirements if volume of business expands.
Functional Structure
As the volume of business expands , the entrepreneurial structure outlives its
usefulness. The need arises for specialized skills & delegation of authority to
managers who can look after different functional areas.
General manager
Prod mgr. Mkt mgr. Fin mgr. Personnel mgr.
Advantages :
• Efficient distribution of work.
• Delegation of day to day operational function.
• Time for top mgt. to look for strategic decisions.
Disadvantages:
• Misuse of authority.
• Creates difficulty in coordination.
• Complicated
• No unity or command.
Divisional Structure
In this work is divided on the basis of product lines, types of
customers served, geographical area covered, and then separate divisions or groups
are created and placed under the divisional level management. The functional
structure still operates under divisional structures.
Advantages
• Generates quick response to environmental changes.
• Enables top mgt. to focus on strategic matters.
• The efficiency level is at its peak.
Disadvantages :
• Costly.
• Problem in allocation of resources.
• Problems of coordination.
• Competition between divisions.
Strategic business units
SBU has been defined by Sharplin as “any part of a business
organization which is treated separately for strategic management purposes.”
When the organization faces difficulty in managing divisional operations
due to an increasing size & number of divisions, it becomes difficult for the
top mgt. to exercise strategic control. Then the concept of SBU is
helpful .SBU is considers as a headquarter to control the divisions coming
under it.
CEO
GROUP HEAD SBU 1 GROUP HEAD SBU 2 GROUP HEAD SBU 3
Divisions Divisions Divisions
A , B, C D, E, F G, H, I
ADVANTAGES
• Better coordination .
• Better control.
• Assured accountability.