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Concept of strategy

Sheela Rosalyn

DEFINING STRATEGY

SHEELA ROSALYN

Derived from the Greek word stratgos; stratus (meaning army) and ago (meaning leading/moving). Bundle of Decisions that affect firms performance. Refers to ideas , plans and support that firms employ to compete successfully against their rivals. Primarily to give you a competitive edge.

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Steps in a Strategic Management Process.


Analysis: External environment opportunities, threats Internal environment - strengths, weakness. Formulation: Mission customers to be served Capabilities to be developed. Policies Goals, guidelines for major activities. Implementation: - Organizational structure, culture Adjustment or evaluation: back to earlier steps.

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BASIC MODEL OF STRATEGIC MANAGEMENT


Four Basic Elements

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1. ENVIRONMENTAL SCANNING

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2. STRATEGY FORMULATION
Mission Statement
Setting Objectives & Goals A statement of purpose (strategic intent) committing the organization to ambitious overarching (stretch) objectives. Provides a sense of direction and purpose. Drives strategic decision making and resource allocations. Forces the seeking of significant performance improvements to attain objectives
Customer Orientation and Business Definition Abells Framework for Defining the business Consumer-oriented versus Product-oriented business definition

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2. STRATEGY FORMULATION
Selecting Strategy
Corporate strategy (Stability, Growth, Retrenchment) Business strategy (Competitive, Cooperative) Functional strategy (Technological Leadership, Technological Followership)

Defining Policies
Guidelines for decision making that links formulation to implementation

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3. STRATEGY IMPLEMENTATION
Programs Strategy Implementation

Budgets
Procedures

4. Evaluation & Control


- Continuous process
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STRATEGIC DECISION MAKING MODEL

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STRATEGIC DECISION MAKING

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Strategic Planning
is the managerial process of developing and maintaining a strategic fit between the organization's objectives and resources and its changing market opportunities.
Org Objectives Strategic Fit
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Resources

Changing Environment

LEVELS OF STRATEGY

Corporate level Determine overall scope of the organisation

Add value to the different business units


Meet expectations of stakeholders

Business level (SBU)

How to compete successfully in particular markets

Operational How different parts of organisation deliver strategy


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Three levels of the strategy


1. level: The corporate level At this level the fundamental task is to develop a balanced portfolio of businesses which will achieve the goals of the corporation and satisfy its stakeholders. 2. level: The strategic business unit level (SBU) At this level the business, or set of activities is given and the major task for strategic planner at this level is for business to succeed against competitors and also satisfy corporate success criteria. 3. level: The functional level: At this level the major task is to provide an appropriate functional strategies ( finance and accounting, marketing, R+D, production, personnel) for SBU Sheela Rosalyn or corporate level strategy.

Corporate Mission

Broad purposes of the organization General criteria for assessing the

long-term organizational effectiveness Driven by heritage & environment Mission statements are increasingly being developed at the SBU level as well
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An Example of Corporate Mission


SINGAPORE AIRLINES is engaged in air transportation and related businesses. It operates world-wide as the flag carrier of the Republic of Singapore, aiming to provide services of the highest quality at reasonable prices for customers and a profit for the company
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Corporate Objectives & Goals

An objective is a long-range purpose A goal is a measurable objective of the


business
Attainable at some specific future date through
planned actions E.g. 10% growth in the next two years
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Not quantified and not limited to a time period E.g. increasing the return on shareholders equity

Strategic Business Unit (SBU)

A strategic business unit (SBU) is a part of an organisation for which there is a distinct external market for goods or services that is different from another SBU

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What is a Strategic Business Unit? (SBU)

A set of products or product lines


With clear independence from other
products or product lines for which a business or marketing strategy should be designed

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Definition of strategic business units


The SBUs are the natural grouping of part of a corporation. The SBU has a range of related products/services which has similar technologies and production processes. The products/services are sold in similar or related market segments. The production/services are sold against a welldefined set of competitors. An SBU is managed by an SBU manager, largely as an independent unit. The SBU has its own set of goals and strategies. Each SBU in a particular organization should be able to operate independently of any other SBU.
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Characteristics of a viable SBU


Unique business mission Definable set of competitors Integrative planning done independently Responsible for resource management in all

areas Large enough but not so large as to become bureaucratic


(Source: Subhash Jain, Marketing Planning & Strategy, 6th Sheela Rosalyn Ed.)

SBU LevelStrategic Marketing (as an example)

Strategic Marketing requires

Detailed understanding of market needs, and Proactive use of competitive

Strategic Marketing

intelligence at the corporate as well as SBUs levels

Focuses on what the firm do best at the SBU level To secure and maintain a sustainable
Sheela Rosalyn competitive advantage

What is Competitive Advantage?

Competitive advantage is a
Philip Kotler

companys ability to perform in one or more ways that competitors cannot or will not match.

If you dont have a competitive


advantage, dont compete.
GE
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Jack Welch,

Other Characteristics of Competitive Advantage

Substantiality
Is it substantial enough to make a

Sustainability
Can it be neutralized by competitors

difference?

Ability to be leveraged into visible

quickly?

business attributes that will influence customers


Sheela Rosalyn (Source: Strategic Marketing Management, Aakers)

What is the portfolio stratregy?


From viewpoint of strategic management the corporations are collections of different productmarket-consumer-resource packages. These are the SBUs. We can describe the sum of SBUs, as portfolio. The portfolio analysis:

Combines the assessment of business position with market attractiveness evaluation, which emerges from external analysis in general and market analysis, in particular. Includes multiple SBUs in the same analysis and addresses the SBU investment decision - which organizational units should receive resources, which should have resource withheld , and which should be resource generators. Offers baseline recommendations concerning the investment strategies for each SBU based on an assessment of business position and market attractiveness.
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Indicators of SBU Strength and Market Attractiveness

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Bases of strategic choice


Corporate purpose and aspirations
Ownership Mission and strategic intent Scope and diversity The global dimension

Bases of SBU strategy


Achieving competitive advantage Price-based strategies Differentiation strategies Focus strategies

Enhancing SBU strategy: corporate parenting


Portfolio management Financial strategy The role of the corporate parent The parenting matrix
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Levels of Planning at GE
CEO Corporate Office
GE Aircraft GE Fin. Ser. GE Lighting GE Motors GE Plastics

------------------------------------------------------------------------------Manufacturing Marketing Accounting RD

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LEVELS OF PLANNING AT GENERAL ELECTRIC

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The Five Forces Model


Potential for Entry

Power of Buyer

Rivalry Among Organizations

Power of Supplier

Substitute Products
Irwin/McGraw-Hill
The McGraw-Hill Companies, Inc., 2000

The FIVE forces that determines your success


Competitive Forces
Level of Rivalry Potential for Entry Power of Suppliers Power of Customers Substitutes Increased competition results in lower profits. Easy entry leads to lower prices and profits. If there are only a few suppliers of important items, supply costs rise. If there are only a few large buyers, they can bargain down prices. More available substitutes tend to drive down prices and profits.

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Planning & Strategy Formulation


Corporate-level strategy develop a plan of action maximizing long-run value SWOT analysis identifies strengths & weaknesses inside the firm and opportunities & threats in the environment.

Business-level strategy a plan of action to take advantage of opportunities and minimize threats
Functional-level strategy a plan of action improving departments ability to create value

Irwin/McGraw-Hill

The McGraw-Hill Companies, Inc., 2000

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Corporate-Level Strategies
Concentrate

in single business: McDonalds focuses in the fast food business.


Can become very strong, but can be risky.

Diversification:

Organization moves into new businesses and services.


Related diversification: firm diversifies in similar areas to build upon existing divisions. Synergy: two divisions work together to obtain more than the sum of each separately. Unrelated diversification: buy business in new areas. Build a portfolio of unrelated firms to reduce risk or trouble in one industry. Very hard to manage.

Irwin/McGraw-Hill

The McGraw-Hill Companies, Inc., 2000

7-34

International Strategy
To

what extent do we customize products and marketing for different national conditions?
Global strategy: a single, standard product and marketing approach is used in all countries. Standardization provides for lower cost. Ignore national differences that others can address. Mulitdomestic strategy: products and marketing are customized for each country of operation. Customization provides for higher costs. Embraces national differences and depends on them for success.

Irwin/McGraw-Hill

The McGraw-Hill Companies, Inc., 2000

7-35

Vertical Integration
When

the firm is doing well, managers can add more value by producing its own inputs or distributing its products.
Backward vertical integration: the firm produces its own inputs. McDonalds grows its own potatoes. Can lower the cost of supplies. Backward vertical integration: the firm distributes its outputs or products. McDonalds owns the final restaurant. Firm can lower costs and ensure final quality.

Irwin/McGraw-Hill

The McGraw-Hill Companies, Inc., 2000

End of Module - I

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