The Strategic Management Process

Strategy Management
The Strategic Management Process
YCOM-YMT College -Prof.
Jameel

Scan Ext. Identify

Envment Str.factors
- National - Opports.
- Global - Threats
IMPLEMENT
EVALUATE Define Strategy via
FORMULATE
Current New: Changes in
Strategy
Mission - Mission -Leadership/
SWOT - Goals
-Corporate
Culture
Goal - Business
Strategy - Grand - Structure
- Functional
Strategy - Human Res.
- Info/Control
Scan Int. Identify systems
Envment Str.factors
-Core comp. -Strengths
- Synergy -Weak-
- Value nesses
Creation

Top management in an enterprise plays a very important role in the formal

Strategic Planning process which has the following main steps. These steps
need to be followed sequentially:
The Strategic Management Model YCOM-YMT College -Prof.
Jameel

MAIN STEPS IN STRATEGIC PLANNING:

1. EVALUATE/SELECT the corporate mission and corporate goals.
• Scan/analyze the organization's external competitive
environment to identify opportunities and threats.
• Scan/analyze the organization’s internal operating environment
and identify the organization’s strengths and weaknesses.
• If necessary, define the new mission, goal and grand strategy.
2. FORMULATE strategies at the Corporate, Business and
Functional levels that
- build on the organization’s strengths, and
- correct its weaknesses, in order to take advantage of
external opportunities and counter external threats.
3. IMPLEMENT the strategy through changes in organizational
leadership or culture, corporate performance, structure, human
resources or ethics.
Strategy Evaluation - The TOWS Matrix
Internal Internal Strengths (S)
Factors eg, stregths in Mfg, R&D,
External Engg/Tech., Marketing,
Factors Finance, HR, etc.
External SO Strategy: Maxi-Maxi
Opportunities (O) Utilizing organization’s strengths
to take advantage of
opportunities – potentially most
successful strategy
Eg.,RELIANCE ,(KELLOGGS)
ST Strategy: Maxi-Mini
External Threats (T)
Use of strengths to cope with/
avoid threats.
eg., MANGOLA
Heinz Weihrich: “TOWS Matrix – A Tool for Situational Analysis”, 1982
Internal Weaknesses (W)
Weaknesses in
areas shown
WO Strategy: Mini-Maxi
Developmental strategy to
overcome weaknesses and
take advantage of
opportunities
eg., RASNA v/s TANG
WT Strategy: Mini-Mini
Retrenchment, Liquidation or
Joint Venture to minimize both
weaknesses and threats.
eg., GOLD SPOT
 Strategy Formulation - The Ansoff Matrix YCOM-YMT College -Prof.
Jameel

1. Market 3. Product
Existing
Penetration Development
Strategy Strategy

MARKETS

2. Market
New 4. Diversification
Development
Strategy
Strategy

Existing PRODUCTS New

H.Igor Ansoff’s ‘Product – Market Expansion Matrix, HBR, 1957
Review of opportunities for improving the existing businesses’ performance.
 Hierarchy of Organizational Strategy YCOM-YMT College -Prof.
Jameel

Multibusiness
Corporate level Corporation PepsiCo Inc.

Business
SBU-1 SBU-2 SBU-3 SBU-4 SBU-5
level
Soft Drinks Quaker Oats Snacks Other Beverages Sports Drinks
Pepsi, Mountain Dew, Slice Kurkure Lay, Tropicana, Aquafina RED Bull
Lipton Tea

Functional
R&D Mfg Marketing HRD Finance
level
PepsiCo were also into the Restaurants business(Taco Bell, Pizza Hut, KFC) but have now divested.
FORMULATING STRATEGIES: Corporate level
Multi-business corporations have to consciously decide as to what lines of
businesses they would like to be in. If, at the same time, they are Multi-
national corporations then they have to also decide which countries they
would like to do business in. These decisions are of crucial importance
which have a direct bearing on the fortunes of the enterprise and are made
at the Corporate level.
 Corporate level Strategies YCOM-YMT College -Prof.
Jameel

PORTFOLIO STRATEGY
• The firm decides on a mix of business units and product-lines that fit
together in a logical way to provide synergy and competitive
advantage for the corporation.
• Such a balanced mix of business divisions are called Strategic
Business Units (SBUs).
• Each SBU may have a unique business mission, product-lines,
competitors and markets relative to the other SBUs (eg. SBUs of
Hindustan Uni Lever are Soaps & Detergents; Personal products; Fats
& culinary items; Animal feeds; Beverages; Frozen foods; Speciality
chemicals; Agribusiness; and Exports.)
Bruce Henderson, President, The BOSTON CONSULTING GROUP
(BCG) and his team in 1970, evaluated SBUs with respect to two
dimensions, namely
- Business growth rate, i.e., how rapidly is the entire industry
increasing, and
- Market share, showing whether a business unit has larger or smaller
share than its competitors.
• The combinations of Growth and Share provide four categories of
SBUs for a Corporate portfolio.
The BCG Matrix YCOM-YMT College -Prof.
Jameel

High Low
Market Share

STARS QUESTION MARKS

Rapid Growth New ventures, Risky –
And Expansion 6 a few go on to become Stars,
others divested
Business Growth Rate

4
5
3

CASH COWS DOGS

Milk to finance No further investment,
Question Marks Keep if profitable.
and Stars Consider divestment 2
7
1

Low
The BCG Growth-Share Matrix, 1970
Analysis of the BCG Matrix YCOM-YMT College -Prof.
Jameel

The combinations of Growth and Share, as seen in the BCG Matrix,

provide four categories of SBUs for a Corporate Portfolio:
1. The ‘STAR’ enjoys large market share in a rapidly growing industry
– important because of additional growth potential. Profits should
be ploughed back into the business for future growth and profits.
Stars are visible and attractive, hence to be nurtured and developed.
2. The ‘CASH COW’ is a dominant business in a mature, slow-growth
industry with a large market share, hence heavy investments in
advertising and expansion are no longer required. Profits to be
invested in other riskier businesses.
3. The ‘QUESTION MARK’ exists in a new, rapidly growing industry
but has only a small market share. Hence risky, could become a Star
or could fail. Profits from Cash Cows may be invested in QMs in
order to nurture them into future Stars.
4. The ‘DOG’ is a poor performer, enjoys small share of a slow-growth
market and brings in little profit to the company. May be divested.
Most corporations have businesses in more than one quadrant, where
circle size represents the relative size of each business.
 Business level Strategies YCOM-YMT College -Prof.
Jameel

POTENTIAL
NEW ENTRANTS

Threat of New entrants

Bargaining power
of Suppliers INDUSTRY
SUPPLIERS COMPETITORS BUYERS
Rivalry among Bargaining power
existing firms of Buyers

Threat of substitute products PORTER’S FIVE FORCES MODEL

from other industry Competitive Forces that determine
SUBSTITUTES Industry Profitability

Prof. Michael E. Porter of the Harvard Business School studied a number of

business organizations and proposed that business level strategies are a result
of five competitive forces in the company’s environment which help determine a
company’s position vis-à-vis competitors.
Porter’s Five Forces Model YCOM-YMT College -Prof.
Jameel

1. Threat of Potential new entrants: Capital requirements and

economies of scale are examples of two potential “barriers to entry”,
eg,Automobile industry v/s small mail-order business, Times of
India v/s Hindustan Times and DNA.
2. Bargaining power of buyers: ‘Informed’ customers become
empowered customers because they now have a range of options at
the market-place, eg, Eco-labeling. This situation is more
pronounced if there are one or two large, powerful customers.
3. Bargaining power of Suppliers: Concentration of suppliers and
availability of substitute suppliers are significant factors – whether
supplier can survive without a particular purchaser or whether
purchaser can threaten to self-manufacture the product.
4. Threat of substitute products: If the industry has a few close
substitutes (eg, Coffee industry v/s Tea, Soft drinks or Fruit juices,
all serving the customer needs for non-alcoholic drinks), then the
customer may switch preferences due to cost changes, increased
health-consciousness or any other such reason.
5. Rivalry among competitors: Scrambling and jockeying for
position, eg, Pepsi v/s Coke ad campaigns.
 Functional level Strategies YCOM-YMT College -Prof.
Jameel

Porter’s Value Chain

Support Activities
Firm Infrastructure
Human Resources Management
Technology Development
Procurement

Operations
Service

Mktg. &
Outbound
Logistics
Logistics
Inbound

Sales
MFG.
Primary Activities
SCM CRM
The Porter’s Value Chain (“Competitive Advantage”, 1985)provides a valuable
tool for identifying ways to create more customer value. Every firm is a collection
of activities performed to design, produce, market, deliver and support its product.
The Value Chain identifies nine strategically relevant activities that create value
and cost in a business.
The Porter’s Value Chain YCOM-YMT College -Prof.
Jameel

PRIMARY ACTIVITIES
These comprise of the sequence of bringing materials into the
business (Inbound Logistics), converting them to final products
(Operations), shipping out final products (Outbound Logistics),
marketing them (Marketing & Sales), and servicing them
(Service). All these are Line functions.
SUPPORT ACTIVITIES
These are activities handled for the entire organization by certain
specialized departments, hence these are Staff functions.
• Infrastructure covers the costs of general management,
planning, finance, accounting, legal, and govt. affairs that are
borne by all the primary and support activities.
• Procurement involves the sourcing of various inputs for each
primary activity.
• Similarly, Human Resources Mgmt and Technology
Development are specialized activities covering all areas of the
firm’s business.
The Porter’s Value Chain (contd.) YCOM-YMT College -Prof.
Jameel

COMPETITIVE ADVANTAGE
The firm’s task is to examine its costs and performance in each value-
creating activity and look for ways to improve it.
This is done by estimating its competitor's costs and performance as
“benchmarks”. To the extent it can improve its performance vis-à-vis
competitors, it can achieve competitive advantage.

HOW TO LEVERAGE COMPETITIVE ADVANTAGE

Emphasis on close coordination and cooperation in areas involving cross-
functional inputs, eg, marketing and production.
Close monitoring and sustained improvements in core business
processes, such as:
• New product realization process
• Inventory management process
• Order-to-remittance process
• Customer service process.