Module 1

Strategic Management
 What is Strategy?

• Large-scale, future-oriented plan for

interacting with the competitive
environment to achieve objectives
• Company’s “game plan”
• Framework for managerial decisions
• It is all about – where (direction), which &
what (scope), how (advantage)
• What resources?
 Is strategy same as operational efficiency?

• Operational efficiency or effectiveness is

doing similar activities better than rivals.
Viz reducing defects in products or
develop better products, but strategy is
performing different activities or
outperforming the rivals in doing similar
activities differently.
LETS LOOK AT FEW
STRATEGY
What is toyota’s strategy?

What is MTR’s strategy?

What is the strategy of Big Bazaar?

Strategy Vs Long term planning
Strategy has Four Components

First, strategy should include a clear set of long term goals.

Second components are that it should define the scope of

the firm i.e. the types of products the firm will serve etc.

Thirdly, a strategy should have a clear statement of what

competitive advantage it will achieve and sustain.

Finally, the strategy must represent the firms’ internal

contest that will allow it to achieve a competitive advantage
in the environment in which it has chosen to compete.
 Strategy vs tactics
• Level of Conduct.
• Time Horizon
• Periodicity.
• Uncertainty
• Information Needs
• Subjective Values
 What is Strategic Management?

The set of decisions and actions that result

in the formulation and implementation of
plans designed to achieve a company’s
objectives.
 Dimensions of Strategic Decisions

• Strategic issues
• Require top-management decisions
• Require large amounts of the firm’s resources
• Often affect the firm’s long-term prosperity
• Are future oriented
• Usually have multifunctional or multibusiness
consequences
• Require considering the firm’s external environment
 The Strategy Makers

• The ideal strategic management team includes

• Chief executive officer (CEO)
• Product managers
• Heads of functional areas
• The strategic management team obtains input from
• Planning staff
• Lower-level management and supervisors
• Role of CEO
• Provides long-term direction
• Assumes ultimate responsibility for firm’s success
• Solicits guidance from Board of Directors
 Characteristics of strategic Decision

• 1. Rare
Strategic decisions are not common and have no
precedents.
• 2. Consequential
Strategic decisions involve committing substantial
resources of the company and hence a high degree of
commitment from persons at all levels.
• 3. Directive
Strategic decisions can serve as precedents from less
important decisions and future actions of the
Organisations.
Mintzberg Model - the modes of strategic decisions

1. Entrepreneurial Mode
Formulation of strategy is done by a single person in this mode. The focus is on
opportunities. Strategy is guided by the founder’s vision and is characterized by
bold decisions. Wipro Infotech .

2. Adaptive Mode
This mode of decisions making is referred to as “muddling through”. It is
characterized by reactive solutions rather than a proactive search for new
opportunities.
Wipro Infotech introducing the sale of customized Personal Computers in
response to Dell Computers .

3. Planning Mode
This mode of decision-making involves systematic information gathering for
situational
analysis, generating alternate strategies and selection of the appropriate strategy.
For Eg. Entry of MNCs into the automotive markets forced maruti to introduce
new brands
 Strategic Intent

Strategic intents, refers to the intention of a business to

coordinate and drive the whole of the organisation.

A strategic intent is deliberately sharing an intension to

achieve that future state through a particular strategy.

Eg. strategic intent of Tata’s is acquisition and mergers of

other businesses globally.
• Yamaha Motor India when announced the
launch of the Yamaha FZ-S priced at Rs
67,000 which is a 150cc segment, said
• “Our strategic intent is to provide
customers with stylish variant to suit his
fashion statement and personality”.
                                                                    
 Three Levels of Strategy in Organizations
Corporate-Level Strategy:
What business are we in?
Corporation

Business-Level Strategy:
How do we compete?

Textiles Unit Chemicals Unit Auto Parts Unit

Functional-Level Strategy:
How do we support the business-level
strategy?

Finance R&D Manufacturing Marketing

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Strategic management process
What is the strategic management
process?
– The process by which managers choose,
implement, and adapt a set of strategies for the
enterprise to pursue its vision.

– Distinguish between strategic (what to do?),

tactical (how and when to do it?) and operational
(do it now!) decisions.
Strategy Formulation

Vision & Mission

External Opportunities & Threats

Internal Strengths & Weaknesses

Long-Term Objectives

Alternative Strategies

Strategy Selection
Strategy Implementation

Annual Objectives

Policies

Employee Motivation

Resource Allocation
Strategy Evaluation

Internal Review

External Review

Performance Metrics

Corrective Actions
                                                                    
 Benefits of Strategic Management

Enhances the firm’s ability to prevent problems

Emphasizes group-based strategic decisions likely to be based on
best available alternatives
Improves employees’ understanding of the productivity-reward
relationship
Reduces gaps/overlaps in activities among employees as their
participation clarifies differences in roles

Resistance to change is reduced

 Risks of Strategic Management

• Time involved may negatively impact operational

responsibilities of managers
• Lack of involvement of strategy makers in
strategy implementation may result in shirking of
responsibility for strategic decisions
• Potential disappointment of employees over
unattained expectations requires managerial
time and training
 Implications of the Strategic
Management Process
 Changes in any one component will affect other
components
 Strategy formulation and implementation are
sequential
 Necessity of feedback from institutionalization,
review, and evaluation to early stages of
process
 Need to regard it as dynamic, involving constant
changes in interdependent strategic activities
                                                                    
Core Competencies - Core competencies are those capabilities that are
critical to a business achieving competitive advantage.

Valuable
Valuable Rare
Rare

Core
Core
Competencies
Competencies

Nonsubstitutable
Nonsubstitutable Costly
Costlyto
toImitate
Imitate
Sony's core competencies in miniaturisation led to the development of the
revolutionary Sony Walkman from radios and now iPod;

Honda's core competencies in engine building shifted their focus from just
cars to marine engines, generators and lawn mowers.

Canon defined itself as a specialist in optics, not cameras, which opened the
way for its branching into photocopiers and scanners.

Disney – new characters and stories.

Competitive advantage???? Sustained
competitive advantage…..
 When strategy can be sustainable

• Distinctive capabilities • Reproducible capabilities

• Technical
• Tangible • Financial
• - Intellectual property right • Marketing
• Licences
• Statutory monopolies

• Intangibles
• Straong brands
• Leadership
• Business process
 examples
• Wal -mart • Distribution – effective use of
logistics management techniques

• Procter & gamble • Marketing – Effective promotion of

brand name products.

• • Minaturisation of components and

Sony
products
 Can you answer these?
• 3M corporation • Product innovation capabilities

• Toyota • Defect free manufacturing

• Coca cola • specialised marketing and

mechandising know-how

• Dell • Superior e-commerce capabilities.

Strategies that failed
Sustainable Competitive Advantage

Brand Imprint
Maintaining Technological Superiority
Targeting niche market.
Why TIDE When There is ARIEL ??????
• Is strategy static or dynamic???????

• Look at this story…………………….

Washing powder Nirma, Washing powder
Nirma Doodh si safedi, Nirma se aaye
Rangeen kapde bhi khil khil jaaye
The nirma success story of how an Indian Entrepreneur took on the big MNCs
and rewrote the rules of business :

It was in 1969 that Dr. Karsanbhai Patel started Nirma and went on to create a
whole new segment in the Indian domestic detergent market. During that time
the domestic detergent market only had the premium segment and there were
very few companies , mainly the MNCs , which were into this business.

Karsanbhai Patel used to make detergent powder in the backyard of his house in
Ahmedabad and then carry out door to door selling of his hand made
product.He gave a money back guarantee with every pack that was sold.

Karsanbhai Patel managed to offer his detergent powder for Rs. 3 per kg when
the cheapest detergent at that time was Rs.13 per kg and so he was able to
successfully target the middle and lower middle income segment.
In the 1980s nirma moved ahead of Surf , a detergent by HLL , to caputre a
large market share.Later, Nirma successfully entered in the premium segment
of soaps and detergents. Nirma went on to become the largest detergent and
the second largest soap company in India. Nirma had more than 35% market
share in the detergent segment and around 20 % market share in the toilet
soap segment.The company got listed on the stock exchanges in the year
1994.
Nirma adopted backward integration strategy for the regular supply of raw
materials,90 % of which they manufacture themselves. Nirma also gave due
importance to modernization ,expansion and upgradation of the production
facilities.The company also made sure that it uses the latest technology and
infrastructure.
Sabki Pasand Nirma…

Nirma became a huge success and all this was a result of Karsanbhai Patel’s
entrepreneurial skills. Karsanbhai Patel had good knowledge of chemicals
and he came up with Nirma detergent which was a result of innovative
combination of the important ingredients.i ndigenous method was used ,and
also the detergent was more environment friendly. Consumers now had a
quality detergent powder , having an affordable price tag.

The process of detergent production was labour intensive and this gave
employment to a large number of people.Nirma focused on cost reduction
strategies to make a place for itself in the market.Nirma has always been
known for offering quality products at afforbable prices and thus creating
good value for the consumer’s money.
• The Implicit Strategy Model of the Past • Alternative Views of Strategy
Decade
• One ideal competitive position in the • Sustainable Competitive
industry Advantage
• Benchmarking of all activities and • Unique competitive position for the
achieving best company
• practice • Activities tailored to strategy
• Aggressive outsourcing and partnering to
gain • Clear trade-offs and choices vis-à-
• efficiencies vis competitors
• Advantages rest on a few key success • Competitive advantage arises
factors, from fit across
• critical resources, core competencies • activities
• Flexibility and rapid responses to all
competitive • Sustainability comes from the
• and market changes activity system,
• not the parts
• Operational effectiveness a given
 Business model

Business model is how and why the company’s product offerings and competitive approaches
will generate a revenue stream and have an associated cost structure that produces attractive
earnings and return on investments.

Company’s strategy relates broadly to its competitive initiatives and business approaches, while
a company’s business model deals with whether the revenues and cost flowing from the strategy
demonstrates business viability.

A business model describes the rationale of how an organization creates, delivers,

and captures –value economic, social, or other forms of value.
 The bait and hook business model (also referred to as the "razor and
blades business model" or the "tied products business model")

• This involves offering a basic product at a very low cost, often at a loss
(the "bait"), then charging compensatory recurring amounts for refills or
associated products or services (the "hook").
• King Gillette practically gave razors (bait) away & made money on
the blades (hook).
• Cell phones (bait) and air time (hook); computer printers (bait) and
ink cartridge refills (hook); and cameras (bait) and prints (hook).

Today’s version
of the
Razor & Blade
Model
=
Keep the source code hidden, sell the OS and software package to PC makers at
attractive price, provide technical support at no cost.

LINUX makes own version of open source linux os,

Rely on collabrative effort - gets programme hel from all over
How do Business Models
Differ from Strategies?
 Porter notes 3 main differences between
business models and strategies:

1. Business models address a series of broad

functions that create value for the customer,
rather than activities;
2. Business models do not show how an
organization’s activities are related, but the
strategic value chain does;
3. Unlike the strategic value chain, business
models do not address competitive
advantage.
© 2009 by J.
Self service super market model – cost is lowered by replacing full service retail
format with self service format and providing a wider selection of products that
are sold in a large foot print store that contains minimum fixtures and fittings.
These saving can be passed on to customers in the form of lower prices which
in turn grow revenues and help the company to achieve further cost reductions
from economies of scale.