EVOLUTION OF THE CONCEPT

• STRATEGY –
 Strategia -General or Military Commander

1.Igor Ansoff’s: Strategic Success Paradigm

2.Mintzberg’s : Strategy as Craft
3.Peter Drucker’s MBO
4.Michael Porter : Strategy & Competitive
Advantage
• Vision Components of SM
• Company Mission
• Company profile
• External Environment
• Strategic Analysis & Choice
• Annual Objectives
• Long term Objectives
• Grand Strategy
• Functional or Operational Strategy
• Policies
• Institutionalizing the strategy
• Control & Evaluation
 Need or importance of SM
Ends
Means

Plan
Policies Strategic Intent, Vision, Mission, Goals , Objectives

Intended
Strategy

Action Taken
Result Oriented

Realised Strategy
 Levels of Strategic Planning
• Corporate Level
Ex: Ford- “Profit Centers”, PSU-1956,Integrated companies in

Europe


• Business Level
Ex: ABB (Asea Brown Boveri)- Economies of Scale @ Power

Transformer Production Centers.

Operating Revenue- from $316mn in1997 to $374million- ’98

• Functional Level
Ex: Canon’s – “any product on any line”, “stop & fix it” -system
 MAKING STRATEGIC
DECISIONS
1. Formulating mission and(Critical
goals. Tasks)
2. Developing company profile.
3. Assessing environment
4. Matching resources with environment needs
5. Identifying suitable options – company’s mission
6. Selecting long-term & Grand Strategies
7. Developing annual & Short term strategies
8. Resource allocation & Strategy implementation
9. Evaluating the Success & feed back as i/p.
•
Characteristics of strategic Decisions

• Strategic Management integrates Various

functions
• Considers a broad range of stake holders
• Entails multiple time horizons
• Concerned with both efficiency and
effectiveness
•
 Vision
• What a firm wants to be.
• Ideal description of an organization and
gives shape to its intended future.
• It reflects the firms values and aspirations.
• It tends to be short and concise making it
easily remembered
• It is the foundation for mission

 Vision - Examples
 “ To be the World’s Best quick service
restaurant” – Mc Donald’s

 Mission
• Specifies the business in which the firm
intends to compete and the customers in
intends to serve.
• It should establish a firm’s individuality and
should be inspiring and relevant to all its
stakeholders.
•
 Mission - Examples
• Be the best employer for our people in each
community around the world and deliver
operational excellence to our customers in
each of our restaurants
 -Mc Donald’s

 Stake holders
• Individuals and groups who can affect, and
are affected by the strategic outcomes
achieved and who have enforceable
claims on a firm’s performance.
 Stake holders - classification
holders- People who are affected by firm’s performance and who have claims on its perform

Organizational
Stakeholders
1.Employees
2.Managers
3.Non Managers
 Challenges / Issues :
• Lack of awareness with in the top management
about the original real operating situations
• Kidding themselves Syndrome
• Manager’s personal interest to maintain position &
power
• Excessive involvement in operational problems
• Top management’s complacent after initial success
• Change in direction is misinterpreted.
• Inability to locate competitive advantage.
•
Need for Learning Organizations
• To cope up competition
• To develop competitive advantage
• Quick change adoption
• Strategic Flexibility
• Knowledge creation & transfer
• Behavioral modifications as per KM
•
Activities of Learning Organizations

• Systematic Problem Solving

• Experimentation with new approach
• Learning from other’s new experiences
• Efficient & Quick Transfer of knowledge
 Corporate Governance
• Relationship among the three groups i.e, BOD,
Shareholders and top management in
determining the direction and performance
of the organization.
•
• It enables them to monitor the firm’s strategies
to ensure effective managerial response.
 Board Of Directors
• Collective responsibility for organization's
performance.
• Exercise authority as per MOA & AOA.
• Selects CEO, Mission & organizational goals.
• No of BODs – Min-3 & Max.20
• Max directorship for an individual is 20


•
•
 Roles & Responsibilities of BODs
• Tasks for SM:
– Monitor
– Evaluate
– Initiate & Determine
• Duties specified in Sec291 of Companies Act
1956.
• Make regulations
•
Chief Executive Officers (CEO)- Roles

• Figure Head
• Leader
• Liason
• Recipient
• Disseminator
• Spoke person
• Entrepreneur
• Disturbance handler
• Negotiator
• Resource Allocator
 CONCEPT OF ENVIRONMENT

1.EXTERNAL ENVIRONEMNT :


i. Opportunity : A favorable situation, which enables

an organization to strengthen its present
position. Ex: Access to new market
ii.
iii. Threats : Unfavorable situation results in risk and
damage. Ex: Entry of MNCs.

 CONCEPT OF ENVIRONMENT

2.INTERNAL ENVIRONEMNT :


• Strength: Inherent capacity which can be used for

developing strategic advantage. Ex: R&D-
Biocon
•
• Weakness: Inherent constraint, which creates
disadvantage for firms. Ex: Supply of materials
to govt as a single buyer
•
 EXTERNAL ENVIRONMENT
Meaning:
“ The aggregate of all conditions, events and
influences that surround and affect it”
Nature :

• Complex
• Dynamic
• Factors arise from different sources
• Changing continuously
• Impact on organization is deep & far reaching
 Societal Environment
Socio cultural
Economic forces
Factors Task
Environment
Share Holders (industry)
Suppliers
Government
Special Interest Internal Envt Employee/
Groups -Structures Labour unions
-Culture
-Resources
Customers Competitors
Creditors
Trade
Communities Associations
Political –Legal Technological
Forces Forces
 ENVIRONMENTAL FACTORS

1.Macro environmental 2. Task Environment

Factors Factors (those directly
affect the environment)
• Demographic
• Socio cultural •Market
• Economic •Industry
• Political
• Natural •Competition
• Technology •Supplier
• Legal •Consumer
ENVIRONMENTAL FACTORS
3. International Environment


• Globalisation
• Global Economic Forces
• Global Trade
• Global financial Systems, Legal Systems,
HR, Tech Standards.
• Global Demographic Patterns, Market
Competitiveness, Information System.

Firm’s External Environment
Remote Environment
Economic, Social, Political, Technological, Ecological
Industry Environment
1.Entry Barriers
2.Suppliers Power
3.Buyer Power
4.Substitute availability
5.Competitive Rivalry Operating Environment
(Global & Domestic)
• Competitors
•Creditors
•Customers
•Labour THE
•Suppliers FIRM
 Environmental Scanning
 “ Monitoring, Evaluating and disseminating
of information from external and internal
environments to managers in organisations
so that long tern health of the organization
will be ensured and strategic shocks can be
avoided”.
 Scanning the external Environment
Analysis of Societal Environment
Economic, Sociocultural, Technological, Political –
Legal factors

Market
Community Analysis
Competitor
Analysis Analysis

Supplier
Analysis

Selection of
Interest Group Strategic Factors
Analysis -Opportunities Government
-Threats Analysis
Sources of Environmental Scanning

1.Internal Sources
a. World Development Report
b.World Economic Survey
c. Statistical Year Book
d.Year Book of International Trade Statistics
 Sources of Environmental Scanning
2. Government Sources
a. Census of India
b. % Year Plan Reports
c. India Year Book
d. Economic Survey
e. Annual Survey of Industries
f. Centre for monitoring Indian Economy Reports
g. Monthly Bulletins of RBI
h. Indian Trade journal
i. Reports of Tariff Commission, CII, FICCIetc
 Sources of Environmental Scanning
3. Other Sorces
b. Bombay Stock Exchange Directory
c. Kothari’s Industrial Directory
d. Economic Times
e. Financial Express
f. Business- Line, Standards, Today, India, World
g. ICICI Portfolio Studies, CRISIL Reports
h. MC Kinsey Quarterly
i. HBR
j. Fortune, Economic & Political Weekly
 Identifying External Strategic
Factors
Issues :


• Strategic Myopia: Personal Values of a

corporation’s managers and the success of
current strategies are likely to bias managers
perception of what is important to monitor in
the external environment as well as their
interpretations of what they perceive.
• The willingness to reject unfamiliar as well as
negative information

 Environmental Scanning &
Monitoring-
• Techniques
SWOT

PEST Technique ETOP

s

Competitor
Industry Analysis Analysis
What is “PEST”?
 PEST Analysis – The
Meaning
• A PEST analysis is an analysis of the external
macro-environment that affects all firms.
• P.E.S.T. is an acronym for the Political, Economic,
Social, and Technological factors of the external
macro-environment.
• Such external factors usually are beyond the firm's
control and sometimes present themselves as
threats.
• However, changes in the external environment also
create new opportunities.
 Strengths and Weakness form a
basis for INTERNAL analysis

 By examining strengths, you can discover

untapped potential or identify distinct
competencies that helped you succeed in the
past.
 By examining weaknesses, you can identify
gaps in performance, vulnerabilities, and
erroneous assumptions about existing
strategies.
 Industry analysis
• Industry is a group of firms producing a
similar Products or services.
•
• Industry Analysis is an examination of the
important stakeholder groups in the task
environment of a particular corporation.
 Issue Priority Matrix
Probable Impact on Corporation
- Boulden
High Medium
• Identifies the Low
likely Critical High Medium
emerging Priority Priority
trends Probability of occurrence
• Assess the
Medium High Medium Low
probability of High Priority Priority Priority
trends
• Attempt to
ascertain their Medium Low Low
Priority Priority Priority
Low

impact.
 Michael Porter’s Model- Industry Analysis
Potential
entrants
Other
Threat of
stakeholders New
entrants
Bargaining
Power of
Relative power of Industry Buyers
unions, competitors
governments etc.
Buyers
Rivalry among
Suppliers Existing firms
Threat of
Bargaining
Substitute
Power of
Products or
Suppliers
Services
Substitutes
 Threat of new entrance
“An obstruction that makes it difficult for a company to


enter in to an industry “


• Economies of scale (Innova)

• Product differentiation (Branded wardrobe)
• Capital requirements (Reliance Petro)
• Switching costs (MS-Excel to Tally)
• Access to Distribution Channels (FMCG @ Big
Bazar)
• Cost disadvantages Independent of size
• Government policy (Quota- Garment Export)
 Rivalry among existing firms
“Amount of Direct competition in an Industry”


• Number of competitors ( Automobile Industry)

• Rate of industry growth ( Air Line Industry)
• Product or service characteristics (Electronic Goods)
• Amount of fixed costs ( Seasonal Air Fairs)
• Capacity (Manufacturing industries)
• Height of exit barriers (Brewing Industries)
• Diversity of rivals (Retailing)
 Threat of Substitute Products/Services
 Products that appear to be different but can satisfy
the same need as another product.


• Limits the potential returns

• Places a ceiling on pricing
 Bargaining Power of Buyers
“Buyers ability to forced own prices, bargain for high quality


or more services and play competitors against each other. “



• Purchases a large proportion of products/ services (Auto

spares)
• Has the potential for backward integration (News paper
chain could make its own paper)
• Changing supplier cost very little (Grocery)
• Availability of alternatives / Substitutes (Stationery)
• Buyers are sensitive to cost and service difference
(Retailing)
 Bargaining power of suppliers

“ Suppliers got the ability to raise prices or reduce the quality



of purchased goods / services”.



• The supplier industry is dominated by a few companies.

(Petrol)
• It product or service is unique (Softwares)
• Substitutes or not readily available (Electricity)
• Suppliers are able to do forward integration. (PC)
•
 EFAS/IFAS (External/Internal
Factors Analysis Summary)

Steps Involved
• List 8 to 10 Important O & Ts (S & W)
• Assign Weightage to each factors (1.0-0.0)
• Assign rating to each factor from 5-1
• Calculate weighted Score
• Design the comments as per the ratings
•
•
 EFAS/ IFAS
External/ Internal weights Ratings Weighted Comments
Internal Score
Factors
Factors
Opportuniti Strength
Quality culture .15 .5 .75 Quality key to Success
es / Experienced top management

Vertical Integration

Strengths Employee relations

’s International orientation

Threats/ Weakness
Distribution Channels .05 .2 .10 Super store replacing
Weakness Financial Positions

Global Positioning
small dealers

Manufacturing Facilities
 Fore Casting

Developing projections of anticipated outcomes



based on monitored changes and trends.


 Techniques for Environmental
Analysis
• Verbal & Written Information
• Search & Scanning
• Spying
• Forecasting
 Forecasting Techniques
• Time Series Analysis – Extrapolation
• Judgmental Forecasting
• Brain storming
• Statistical modeling
• Delphi Technique
• Multiple Scenario – Scenarios, industry Scenario
Others

• Expert Opinion
• Dynamic Modeling
• Cross-impact analysis
• Demand / Hazard Forecasting
•
•
 Conducting the Corporate Audit
Approaches:
• Seek Verbal information more than source
• Spying to get more information
• Collecting Past Information through Company Records.
Process:

• Matching Strengths & Weaknesses

• ETOP
 - List Environmental Factors
 - Assess Importance of Environmental Factors
 = Assessing the impact
 = Combine to get a big picture
•
 Organizational Analysis

• Internal Environmental Scanning is also

known as “Organizational Analysis”, and
it is concerned with developing and
identifying an organization's resources.
 The Value Chain
• A framework for identifying core
competencies
– Inside the firm
– In the supply chain
• Can be used to
– Identify strengths and weaknesses
– Identify sources of competitive advantage
– Identify market opportunities
The Value Chain
Firm Infrastructure

Human Resource Management

MA
Supporting

RG
Activities

Technological Development

IN
Procurement

Inbound Outbound Marketing Service

Operations
Logistics Logistics & Sales

IN
Activities
Primary

RG
MA
Relationship with Suppliers Relationship with Buyers

Elapsed Time - Value added time cost

 Primary Activities in the Value Chain

1. Inbound Logistics
– Materials handling, warehousing, inventory control used to receive,
store and disseminate inputs to a product
– Ex: Fertilizer and chemical storage, delivery of inputs, application of
inputs
2. Operations
– Take inputs from inbound logistics and convert to final products
– Ex : Plowing, planting, spraying, harvesting, feeding, medicating,
weighing,etc.
3. Outbound Logistics
– Collecting, Storing, and physical distribution of the final product.
– Crop storage, finished hog handling, Processing and determining
delivery dates, delivery to the packer or elevator etc.
 Primary Activities in the Value Chain
4.Marketing and Sales
– Provide means through which customers can purchase
products and to induce them to do so
– Advertising, communicating with buyers, developing
customer relationships, pricing products (futures,
hedging, forward contracting, etc.), delivery scheduling
5.Service

– Activities designed to enhance or maintain a product’s

value
– Timely delivery, identity preservation, ISO9000, certifying
as organic, etc.
 Supporting Activities in the
Value Chain
1. Procurement
– Activities to purchase the inputs needed to produce products
– Negotiating with suppliers, standard timing of replenishing parts and tools,
setting up buying groups, etc.
2. Technological Development
– Activities that improve the firm’s products and/or processes
– Volunteering for test plots, being a part of feeding trials, attending
technology seminars/field days, designing equipment to make specific
production tasks more efficient, etc.
3. Human Resources
– Recruiting, hiring, training, developing, and compensating all personnel
 Supporting Activities in the
Value Chain
4.Firm Infrastructure


– General Management, planning, finance, accounting, legal

support, governmental relations, etc.
– Establishment of accounting practices, management
information systems, compliance with environmental
regulations, tracking and reporting for government
programs, etc.
– Where strategy development takes place identifying
opportunities and threats, resources and capabilities,
and support of core competencies
Primary Activities for a
Grain Farm

Outboun Service
d Marketin On-time
Inbound
Operations Logistic g
delivery
Logistics & Sales Forward
s contract
Storage
Fertilizer Planning Grain Fwd. Tracing
and Fertilizing transport contracts
chemical Spraying to elevator Futures
storage, Cultivate or buyer Options
custom Harvest IP grain
application Grain Value added
of inputs transport grain
to storage
Relationship with Suppliers Relationship with Buyers
Supporting Activities for a
Grain Farm

Infrastructure: management, planning, finance,

accounting, government compliance, quality control

Human Resource: motivation tools, compensation,

training, and directing farm employees, including
family, management, and laborers

Technological Development: research and adoption

practices for things like GPS, VRT, GMO’s, No-Till, the
Internet, IP storage facilities

Procurement: Purchasing inputs: seed, fertilizer,

chemicals, fuel, land, Machinery, storage equipment, office
supplies, parts, tools, insurance etc. with focus on
negotiating capabilities
Example: Key Value Chain
Activities
PULP & PAPER INDUSTRY

 Timber farming
 Logging

 Pulp mills

 Papermaking

 Printing & publishing

 Value Chain Analysis (VCA)
• A firm’s value chain must be compared to
competitors’ value chains to determine where
competitive advantages exist.


• To be a source of competitive advantage a

resource or capability must allow a firm to:
– Perform an activity in a manner that is superior
to competitor’s performances
– Perform a value-creating activity that
competitors cannot complete
 Steps in VCA

• Identify Activities
• Allocate Costs
• Identify activities that differentiate the firm
• Examine the value chain
 Components of Value Chain &
Functional Sources
It can be studied by Scanning the following


functional sources.
1.Organization Structure
2.Culture & Various functions
3.Finance
4.Marketing
5.Operations
6.HR
7.Information Systems
 Types of Organization Structure
• Simple Structure
• Functional Structure
• Divisional Structure
• Strategic Business Units (SBUs): Acts as independent
business units with its own mission, own set of competitors and
unique business environment.
 Ex: Asian Paints-SBUs on the basis of consumer segments
• Conglomerate Structures: For large organizations with
many product lines in several unrelated industries.
Ex: GE ‘s Cross Functional teams
 Organization Culture
“It refers to the shared- values, beliefs &


expectation of Employees”.


• It reflects the value of the founder

• Stability to organization as a social system
• Integrates the employees
• Serves as a competitive advantage
• If compatible with new strategy , becomes
strength
 Strategic Financial Issues
“ Availability, usage &management of funds
decides the firm’s financial capability”
Significant Factors:

• Factors related to source of funds: Capital

Structure, reserves & Surplus, bank relation.
• Usage of Funds: Fixed & Current assets, loans &
Advances, Dividends.
• Management of Funds: Tax planning, cost
reduction, risk &returns, budgeting.
•
 Strengths that develops Financial
Capability
• Access to financial resources
• High rate of credit worthiness
• Availability of low cost capital compared to
competitors
• Favorable tax positions given by
government
• High level of share holders confidence
• Cordial relationship with bankers
•
 Strategic Marketing Issues
• Marketing capability factors with respect to
product, price, place & promotion have
direct impact on strategy implementation.


• Strengths: Wide Variety, Quality, low price,

advertisements, brand building, effective
distribution, Strong R&D for new product
development.
 Strategic Operations Management
Issues
Issues involved in it are manufacturing
process mass customization and R&D mix.
Significant Factors:

Related to production system

Related to operations & control system

Related to R&D system


 Strengths that builds Operations
Capability
• High Capacity Utilization
• Suitable plant location
• Good inventory control system like JIT
• High profile technocrats
• Technical Collaborations with world class
R&D firms
 Strategic HR Issues
“ Concentrate on labour cost, keeping
employee satisfied to have competitive
advantage”.
Significant Factors:

Related to personnel system

Related to employee characteristics

Related to Industrial Relation

 Strategic Information Management
Issues
• Usage of information management in corporate
performance decides its strength.


 Significant factors are related to : Acquisition and

Retention of information, Processing &
Synthesis of information, Retrieval & usage,
dissemination & transmission, integrative,
systemic and supportive factors.
 Strengths that supports IM
Capability
• Availability of state of art equipments
• Presence of fool proof information security
systems
• Widespread use of computerized info
system
• Internet for marketing
• Top management support for IT
applications
• Positive mind set
 Merits - VC
• Provides a generic framework to analyse both the behaviour of costs
as well as the existing and potential sources of differentiation.


• Emphasis on the importance of (re)grouping functions into

activities.,


• The Value Chain model was intended as a quantitative analysis.

•
• It can also be used as a quick scan to describe the strengths and
weaknesses of an organisation in qualitative terms.


• Identifies synergies or shared activities between Strategic Business

Units and to provide a tool to focus on the whole rather than on
the parts.
 Demerits - VC
• The quantitative analysis is time consuming.
• It often requires recalibrating the accounting system to
allocate costs to individual activities.
• The Value Chain Analysis should be accompanied with a
customer segmentation analysis to mix the internal and
external view.
• Customer value chains need to be analyzed to determine
where value is created.
• Assumes rivalry drives profitability.
• The Value Chain Analysis was developed to analyse
physical assets in product environments only.
 Strategic Audit
• The process of ensuring that the
organizational resources and
competencies are understood and
evaluated so as to meet the external
threats.
 Stages of Strategic Audit
(1)Resource Audit : identifies the resources available to a
business
(2)Value Chain Analysis : Relate the business activities with its
competitive strength.
(3)Core Competence Analysis: Identifying capabilities that are
critical to a business achieving competitive advantage.
(4)Performance Analysis: evaluate the overall performance of
the business
(5)Portfolio Analysis : the overall balance of the strategic
business units of a business
(6)SWOT Analysis: auditing the overall strategic position of a
business and its environment
 Generating Alternative Strategies
From SWOT
• SWOT analysis is a tool for helping assess the current
situation for the firm.
• However, we need to be able to combine the
information in the SWOT analysis in a meaningful
way to generate alternative strategies that we might
pursue.
• The TOWS matrix is a tool designed to match external
opportunities and threats with our internal strengths
and weaknesses
 SWOT Analysis
 Strengths
 Weaknesses
 Opportunities
 Threats

 The purpose of SWOT
Analysis
 It is an easy-to-use tool for developing an
overview of a company’s strategic
situation
– It forms a basis for matching your
company’s strategy to its situation
 Strengths
 A STRENGTH is something a company is
good at doing or a characteristic that
gives it an important capability.
 Possible Strengths:
– Name recognition
– Proprietary technology
– Cost advantages
– Skilled employees
– Loyal Customers
 Weaknesses
 A WEAKNESS is something a company
lacks or does poorly (in comparison to
others) or a condition that places it at a
disadvantage
 Possible Weaknesses:
– Poor market image
– Obsolete facilities
– Internal operating problems
– Poor marketing skills
–
 Strengths and Weakness form
a basis for INTERNAL
analysis
 By examining strengths, you can discover
untapped potential or identify distinct
competencies that helped you succeed in the
past.
 By examining weaknesses, you can identify
gaps in performance, vulnerabilities, and
erroneous assumptions about existing
strategies.
 SWOT – Modi Xerox
• Strengths:
– Strong Brand Name
– Strong market Presence
– Access to technology
– Trained & Skilled manpower
– Motivated sales force
•
 SWOT – Modi Xerox
• Weakness
– Expensive than competitors
– Small Product Range
– Low productivity.
– Inadequate investments
–
 SWOT – Modi Xerox
• Opportunity
– Large & Growing Market
– Easy access to technology
– Advantage of Synergie’s in the product
range


–
 SWOT – Modi Xerox
• Threats
– International competition
– Prices down
– Costs Up
– High Attrition
 Internal TOWS Matrix
Internal Factors
Factors
Internal Strength Internal Weakness
External
Factors (S) (R&D,HR) (W)
(Functional areas)

External SO Strategy WO Strategy

Opportunities (O) (Maxi- Maxi) (Mini- Maxi)
(Economic, Maximize Strengths &
Opportunities
Maximize Opportunities &
Minimize Weaknesses
political, social)
External Threats ST Strategy WT Strategy
(T) (Maxi- Mini) (Mini- Mini)
(Competition, govt) Maximize
Threats
Strengths & Minimize Minimize Weaknesses & Minimize
Threats
 TOWS - STRATEGY MIX
• WT- Retrenchment, joint ventures&
liquidations
• WO- Acquire needed competencies based
on weaknesses to meet external
opportunities
• ST – use functional strengths to overcome
competition
• SO- use strengths to take advantage of
opportunities.
 Competitive Advantage -
Definition
•
• A competitive advantage is an advantage
over competitors gained by offering
consumers greater value, either by means
of lower prices or by providing greater
benefits and service that justifies higher
prices.
 Competitive Strategy
• Strategies to succeed in the chosen business


• “Taking offensive or defensive actions to

create a defendable position in an
industry, to cope successfully with the
five competitive forces and thereby yield
a superior return on investment for them”
Competitive Strategies
 Cost Leadership
• To become the lowest cost producer in the industry
through a set of functional policies aimed at these
basic objectives:-


– Aggressive construction of efficient scale facilities

– Vigorous pursuit of cost reduction from experience
– Tight cost and overhead control
– Avoidance of marginal customer accounts
– Cost minimization in areas like R&D, services, sales
force, advertising etc.
– Ex: Reliance, Ranbaxy, Arvind Mills, Bajaj Auto.
 Differentiation Strategy
• A firm seeks to be unique in its industry along
some dimensions that are viewed widely valued
by key buyers.
• It selects one or more attributes that many buyers
in an industry perceive as important, and
uniquely position itself to meet those needs.
• Rewarded fir its uniqueness with a premium price.
Ex : Arvind Mills – Basic Product is denim, but

stuffs with VAP like ring denim,stretch denim,

overdyed denim.
•
 Bases for Differentiation
• Product
• Delivery System
• Marketing approach
• Credit Facilities
• After – Sales Service
•
 Focus
• Cost Focus: a firm seeks a cost advantage in
its target segment
• Differentiation Focus: A firm seeks
differentiation in its target segment.
 Strategic Positioning
• The essence of strategy is in the activities –
Choosing to perform activities differently or
to perform different activities than rivals.
• Types:
– Variety Based
– Needs Based
– Access Based
–
Four Routes to Strategic Advantage

• Strategy based on KFS (Key Factors for

Success)
• Strategy Based on Relative Superiority
• Strategy Based on Aggressive Initiative
• Strategy Based on SDF (Strategic Degree of
Freedom).
 CORPORATE STRATEGY

ØTo identify the businesses in which a company

should participate
ØThe value creation activities it should perform
in those businesses
Øthe best means for expanding or concentrating
in different businesses, including mergers,
acquisitions.
 CORPORATE STRATEGY
• DEALS WITH THREE KEY ISSUES:


 -- The firm’s overall orientation toward growth

(directional strategy)
 -- The industries or markets in which the firm
competes through its products and business units
(portfolio strategy)
 -- The manner in which the management
coordinates activities and transfers resources and
cultivates capabilities among product lines and
business units (parenting strategy)
 DIRECTIONAL STRATEGY
 A corporation’s directional strategy is composed of
three general orientations toward growth. It is also
called as grand strategies:
1 . Growth strategies (expand the
business activities)
2 . Stability strategies (make no
change to the company’s current activities)
3 . Retrenchment strategies (reduce
the company’s level of activities
 1.GROWTH STRATEGIES
 The two basic corporate growth strategies:
I. Concentration within 1 product line or industry

II.Diversification into other products or industries.

I.CONCENTRATION STRATEGIES: (Horizontal & Vertical)

1.Horizontal integration is the process of acquiring or merging with

industry competitors in an effort to achieve the competitive
advantages that come with large scale and scope.

a. ACQUISITION: An acquisition occurs when one company uses its

capital resources such as stock, debt, or cash to purchase the other

b. MERGER: A merger is an agreement between equals to pool their

operations and create a new entity

EXAMPLE
The corporate strategy of WorldCom pursued between 1983
and 2001. WorldCom acquired over sixty companies over this period
in an effort to become one of the largest players in the
telecommunications service industry.
BENEFITS OF HORIZONTAL INTEGRATION:
ü Reducing costs
ü Increase the value of the company’s product offering
through diversification
ü Managing rivalry within the industry to reduce the risk
of price warfare
ü Increasing bargaining power.
DRAWBACKS OF HORIZONTAL

INTEGRATION:
ü Majority of merger and acquisitions destroy value.
ü Different company culture
ü High management turnover
ü Can bring company into conflict with the government
agency
2. VERTICAL INTEGRATION:
 It means the company is expanding its
operations either backward into an industry that
produces inputs for the company’s product or forward
into an industry that uses or distributes the company’s
products.
Example:

 -- A steel company that supplies its iron ore

needs from company-owned iron ore mines is
backward integration
 --- A personal computer maker that sells its PCs
through company-owned retail outlets is forward
integration. APPLE COMPUTER IN 2001, entered the
retail industry when it decided to set up a chain of
apple stores to sell its computers.
BENEFITS OF VERTICAL INTEGRATION:
ü Enables the company to build barriers to new
competition.
ü Facilitates investments in efficiency – enhancing
specialized assets
ü Protects product quality
ü Results in improved scheduling.
DRAWBACKS OF VERTICAL INTEGRATION:

ü Cost disadvantages
ü Technological change
ü Demand unpredictability
 II.DIVERSIFICATION STRATEGY
• Done ,if a company’s current product lines do not have
much growth potential.
• Concentric diversification is expansion into a related
industry. This strategy may be appropriate when a firm
has strong competitive position but current industry
attractiveness is low.
• Conglomerate diversification is expansion into an
unrelated industry. When a management realizes that the
current industry is unattractive and that firm lacks
outstanding abilities could easily transfer to related
products or services in other industries.
 III.STABILITY STRATEGIES
• A company may choose stability over growth
by continuing its current activities without
any significant change in direction
• It is appropriate for a successful company
operating in reasonably predictable
environment
• It can be useful for short run but dangerous if
followed for too long.
 IV.RETRENCHMENT STRATEGIES
CONDITIONS:


ØWhen the company has a weak competitive

position in some or all of product lines
ØWhen sales are down and occurs losses.
ØThis strategy generate a great deal of pressure
to improve performance.
ØIt helps to eliminate the weaknesses
• TURNAROUND STRATEGY:
 It emphasizes the improvement of
operational efficiency and is probably most
appropriate when a company’s problem are
pervasive but not critical. It includes
contraction and consolidation.
• CAPTIVE COMPANY STRATEGY:
 A Company with a weak
competitive position may offer to be a captive
company to one of its larger customer in order
to guarantee the company’s continued
existence with a long- term contract.


SELL OUT OR DIVESTMENT STRATEGY:

 - Under weak competitive position the firm can
sell the entire company
 - If it has multiple business lines, it can sell out
its business units. (Divestment)
BANKRUPTCY OR LIQUIDATION STRATEGY:
 - Giving up the management of the firm to
the courts in return for some settlement of the
corporation’s obligations.
 - Liquidation is piecemeal sale of all of the
firm’s assets.
 PORTFOLIO ANALYSIS
• Companies with multiple product lines or business units
• One of the most popular aids to developing corporate
strategy in multibusiness corporation
• Top management views its product lines as a series of
investments from which it expects a profitable return.
• Two of most popular approaches are the BCG growth-
share matrix and the GE Business Screen.
•
 History of the BCG Matrix

• 1960’s – diversification of businesses

• Need for universal management tool
• First implementation in 1969 by Boston
Consulting Group
•
 Portfolio Analysis
• Strategic Business Unit (SBU) Definition
– Single independent operation of a company
– Has its own competitors
– One manager responsible for performance
• Allocation of resources over all SBUs
• Goals
– Set benchmarks
– Create generalized descriptions of strategic
situations
–
 Basis of the BCG Portfolio
Matrix
Mature Phase “Cash
Cow”
Sales Volume

Growth Phase “Star” Decline Phase “Dog”

Introductory Phase “?”

Time
 BCG Matrix Construction
• Internal measure: Relative market share
– Firm’s sales of the SBU .
Total market’s average sales
– Firm’s Sales of the SBU .
Strongest Competitor’s Sales

• External measure: Market growth

– Match strategy with market stage
–

 The BCG Matrix
Relative Market Share
High Low
Stars

High

Product Sales
Growth Rate

Low

Cash Cows
 Strategy Recommendations
• Investment
– Further Growth
– Maintain Market Position
• Cash flow
– Self-sustaining: Fund their own growth
– Require funds from other SBUs (Cash
Cows)
• Assure the future of the company
• Grow into Cash Cows
•
 Strategy Recommendations
• Investment
– Increase market share
– Selectively develop into Stars
• Cash Flow
– Require funds from other SBUs (Cash
Cows)
• Unrealized future opportunities
 Strategy Recommendations
• Investment
– Maintain market share
– Maintain capacity
• Cash Flow
– Positive cash flow
– Provides funding to support Stars and “?”
• No potential for profit growth
–
–
 Strategy Recommendations
• Investment
– Divestiture strategy
– Reduce capacity to free up resources
• Cash Flow
– Goal of Positive Cash Flow
– Negative Cash Flow = Divestment
• No real growth opportunities
–
 Evaluation of BCG Matrix: Cons
• Oversimplifies complex decisions
• Only 2 factors considered & creates risk
• Uncertainty in market and SBU definition
• Only considers current businesses no
dynamics
• Does not recognize possible synergies
between SBUs
• Can fall prey to the “GIGO” syndrome
Evaluation of BCG Matrix: Pros
• Simple and rapid
• Solid basis for decision-making
• Good measurability of market share and
growth
• Provides information about efficient
resource allocation within the
organization
• Generator for strategic options
–
•

ITC – An example
 Vision & Mission statements
• Vision: Sustain ITC’s position as one of India’s
most valuable corporations through world class
performance, creating growing value for the
Indian economy and the Company’s stakeholders.


• Mission: To enhance the wealth generating

capability of the enterprise in a globalizing
environment, delivering superior and sustainable
stakeholder value.
•
 Business Mix of ITC Ltd.
FMCG


 • Cigarettes
• Foods
• Lifestyle Retailing
• Greeting, Gifting & Stationery
• Safety Matches
• Agarbattis

Paperboards & Packaging

• Paperboards & Specialty Papers
• Packaging
 Business Mix (Cont’d)
 Agri – Business
• Agri -Exports
• e-Choupal
• Leaf Tobacco
 Hotels
 Group Companies
• ITC Info tech; etc.
 Business wise Sales data
Business/ Year Growth Value (Rs in Crore)
%
2005 2004
FMCG-Cigarettes 8.4 10002.54 9230.27
FMCG-Others 85.2 563.39 304.16
Hotels 124.1 577.25 257.53

Agribusiness 4.2 1780.07 1708.77

Paper & pkg. 24.9 1565.31 1253.29
Net revenue 12.99 13349.58 11815.04
 CAGR during FY 2005-2008
Category CAGR Growth parameters
Cigarettes 10.9 % Pricing power
Hotels 22.7% Inward traffic, occupancy
Paper 17.2 % Capacity utilization, value
added products
Agri 34.3 % E-choupal, choupal sagar,
business
FMCG- 60.2 % Fast track, decent share.
Others
 Market share of ITC Ltd.
 Outstanding market leader
• Cigarettes, Hotels, Paperboards,
Packaging and Agri-Exports.
 Gaining market share

• Nascent businesses of Packaged

Foods & Confectionery, Branded
Apparel and Greeting Cards.
•

Market attractiveness & Competitive
strength is also important.
 The BCG Matrix for ITC Ltd.
Stars ?
Hotels FMCG- Others

Paperboards/ Packaging.
Agri business.

Cows Dogs
FMCG-Cigarettes Maybe ITC InfoTech.


 Figure 10.2: The McKinsey / GE Matrix
Competitive Position
Good Medium Poor
High Winner Winner Question
Industry Attractiveness

Mark

Medium Winner Average Loser

Business

Low Profit Loser Loser

Producer
ADVANTAGES OF PORTFOLIO ANALYSIS:
Ø It encourages top management to evaluate each of the
company’s business
Ø To set objectives
Ø To allocate resources
Ø It raises the issue of cash flow availability for use in
expansion and growth.
LIMITATIONS OF PORTFOLIO ANALYSIS:

Ø It is not easy to define market segments

Ø It suggests the use of standard strategies that can miss
opportunities or be impractical
Ø It is not always clear
 CORPORATE PARENTING
• It views the company in terms of resources and
capabilities that can be used to build business unit
value as well as generate synergies across business
units.


• According to CAMPBELL, GOOLD AND

ALEXANDER: Multi-business companies create
value by influencing or parenting the businesses thy
own. The best parent companies create more value
than of their rivals would if they own same
businesses. Those companies have what we call
parenting advantage.
 FUNCTIONAL STRATEGY
• It is the approach a functional area takes to achieve
corporate and business unit objectives and strategies
by maximizing resource productivity.


• It is concerned with developing and nurturing a

distinctive competence to provide a company or
business unit with a competitive advantage.


• EXAMPLE: A multidivisional corporation has several

business units, each with its own business strategy,
each set of departments , own functional strategy.
 MARKETING STRATEGY
(Deals with pricing, selling and distribution of products)

• MARKET DEVELOPMENT STRATEGY , a company or business

unit can capture large share of an existing market for current
products and develops new markets for current products


• PRODUCT DEVELOPMENT STRATEGY, a company can

develop the products for existing markets or develop new products
for new markets


• PUSH STRATEGY: It means spending a large amount of money on

trade promotion in order to hold space in retail outlets. It includes
discounts in-store special offers to “push” products.


• PULL STRATEGY: In which advertising pulls the products through

distribution channels.
• PRICING STRATEGIES: skim pricing or penetration pricing.
 FINANCIAL STRATEGIES:
Ø Financial strategy examines the financial implications of
corporate and business-level strategic options and identifies
the best financial course of action


EXAMPLE: equity financing, is preferred for related



diversification while debt financing is preferred for unrelated

diversification


Ø A popular financial strategy is the leveraged layout. In a

leveraged strategy a company is acquired in a transaction
financed largely by debt, usually obtained from a third party
such as insurance company.

 RESEARCH AND DEVELOPMENT
STRATEGY
• It deals with product and process innovation and
improvement
• One of the R&D choices is to be either a technological
leader that pioneers an innovation
• May be of technological follower that imitates the product
of competitors.
• EXAMPLE: NIKE spends more on R&D in order to
differentiate its athletic shoes from its competitors in
terms of performance. As a result, its products have
become the favorite of the serious athlete.
 HUMAN RESOURCE STRATEGY
Human resource attempts to find the best fit between
people and the organization
A company or business should hire a large number of

low-skilled employees who receive low pay, perform

repetitive jobs, and most likely quit after a short time.
Example: The McDonald’s restaurant strategy

üHire skilled employees who receive relatively

high pay and are cross-trained to participate in
self-managed work teams.
üHire leasing employees
ü360 degree appraisals

INFORMATION SYSTEM
STRATEGY
Discovering Core Competitive
Advantage
Competencies Gained through
Core Competencies

Strategic
Competitiveness
Discovering Above-Average
Core Returns
Core Competencies
Competencies
Sources of
Competitive
Advantage

Capabilities Criteria of Value

Sustainable Chain
Teams of
Resources Advantages Analysis

Resources * Valuable * Outsource

* Tangible * Rare
* Intangible * Costly to Imitate
* Non substitutable
Resources What a firm Has...

What a firm has to work with:

its assets, including its people and
the value of its brand name

Resources represent inputs into a

firm’s production process...

such as capital equipment, skills of employees,

brand names, finances and talented managers
Resources

Tangible Resources
* Financial
* Physical
* Human Resources
* Organizational

Intangible Resources
* Technological
* Innovation
* Reputation
Capabilities What a firm Does...

Capabilities represent:
the firm’s capacity or ability to integrate
individual firm resources to achieve a desired
objective.

Capabilities become important when they are combined

in unique combinations which create core competencies
which have strategic value and can lead to competitive
advantage.
Core Competencies What a firm Does...
that is Strategically
Valuable

“…are the essence of what makes an organization

unique in its ability to provide value to
customers.”
Leonard-Barton, Bowen, Clark, Holloway & Wheelwright

McKinsey & Co. recommends identifying three to four

competencies to use in framing strategic actions.
Core Competencies What a firm Does...
that is Strategically
For a strategic capability to be a Valuable
Core Competency, it must be:

Valuable

Rare

Costly to Imitate

Non substitutable
Core Competencies What a firm Does...
Core Competencies must be: that is Strategically
Valuable
Valuable
Capabilities that either help a firm to exploit opportunities to
create value for customers or to neutralize threats in the
environment
Rare
Capabilities that are possessed by few, if any, current or potential
competitors

Costly to Imitate
Capabilities that other firms cannot develop easily, usually due to
unique historical conditions, causal ambiguity or social complexity

Non Substitutable
Capabilities that do not have strategic equivalents, such as firm-
specific knowledge or trust-based relationships
Examples: Distinctive Competencies
• Sharp Corporation
– Expertise in flat-panel display technology
• Toyota, Honda, Nissan
– Low-cost, high-quality manufacturing capability
and short design-to-market cycles
• Intel
– Ability to design and manufacture ever more
powerful microprocessors for PCs
• Motorola
– Defect-free manufacture (six-sigma quality) of cell
phones
 Core Competencies
• Resources and capabilities serve as a source
of competitive advantage for a firm over
its rival.
• Not all resources and capabilities are core
competencies.
• Many suggest that firms should identify and
concentrate on only 3 or 4 core
competencies.
 Identifying and Building Core
Competencies
• Core competencies must be distinctive.
– Capabilities that are done better than
competitors
• Identifying core competencies is key to
development of sound strategy.
• We use the value chain to help identify core
competencies.
Core Competencies--Cautions and Reminders
Never take for granted that core competencies will
continue to provide a source of competitive advantage

All core competencies have the potential to become

Core Rigidities
Core Rigidities are former core competencies that sow
the seeds of organizational inertia and prevent the firm
from responding appropriately to changes in the
external environment
Strategic myopia and inflexibility can strangle the firm’s
ability to grow and adapt to environmental change or
competitive threats
 Outsourcing
Strategic Choice to Purchase Some Activities From Outside Suppliers

Firm Infrastructure
Human Resource Management M
Support A
Activities
RG
Technological Development IN
Procurement

Service
Operations

Marketing
Outbound
Logistics
Inbound

& Sales
Logistics

N
GI
R
A
M
Primary Activities
 Outsourcing
Strategic Choice to Purchase Some Activities From Outside Suppliers

Firm Infrastructure
Human Resource Management
Human Resource Management

Human Resource Management M

Support A a portion
Firms often purchase
Activities
Technological Development RG activities
of their value-creating
Technological Development IN suppliers
from specialty external
Procurement who can perform these functions
Procurement more efficiently

Service
Operations

Outbound
Service

Marketing
Logistics
Inbound

Logistics

& Sales

N
GI
Outbound

R
Inbound Operations Logistics Marketing

A
& Sales

M
Logistics

Primary Activities
 OUTSOURCING
• OUTSOURCING involves purchasing a product or service,
previously provided internally, from someone else.
• It is opposite of vertical integration
• One study found that outsourcing resulted in 9- percent average
reduction in costs.15-percent increase in the capacity and quality.
• According to American Management Association Survey of member
companies, 94% of the firms outsource atleast one activity
• An outsourcing decision depends on the fraction of total value added
by the activity under consideration and by the amount of
competitive advantage in that activity for the company or business
unit
 STRATEGIC ANALYSIS &
CHOICE
• SAC determines alternative course of
actions to achieve its mission


• “SC is the decision to select among the

grand strategies considered, the strategy
which will best meet the enterprise’s
objectives”
 STRATEGIC CHOICE
•
Steps Involved:

1.Focus on a few alternatives

2.Determining the selection Factors

3.Evaluating Alternatives

4.Making the strategic choice

 PROCESS OF STRATEGIC CHOICE
• Strategic choice is the evaluation of alternative
strategies and the selection of the best alternative
• DEVIL’S APPROACH: A person assigned to identify
pitfalls and problems
• One GROUP to present the advantages of a particular
alternative
• Second group to present the disadvantages of the same
alternative in debate
• CRITERIA:
 -- Mutual exclusivity
 -- success
 --completeness
 -- internal consistency
 DEVELOPMENT OF POLICIES
• The selection of best strategic alternative is not an end of strategic
formulation
• It should establish policies that define the rules for implementation
• Policies provide guidance for decision making and action in
organization
• Effective policy comprises:
 -- It forces of trade-offs
 -- It tests the strategic soundness of a particular action
 -- It sets clear boundaries within which employees must operate
• Managing policy is one way to manage the corporate culture

 STRATEGY IMPLEMENTATION
• It is the sum total of the activities and choices
required for the execution of a strategic plan.


• Three things should be taken for consideration

while implementing
 -Annual objectives
 -Functional strategies
 -Polices
 Activates involved
• Developing the Following:-
– Programs : a statement of the activities or steps
needed to accomplish a single use plan.
– Budget : a statement of a corporation’s program in
monetary terms.
– Procedures/Standard Operating Procedure (SOPs):a
system of sequential steps or techniques that
describes in detail how a particular task or job is to
be done.
 Steps in Strategy Implementation

• Formulation of SBU Strategy

• Leadership Implementation
• Communicating the strategies
• Annual Objectives
• Functional strategies
• Resource Allocation
• Development of Policies
• Organisational Implementation
 Approaches to Strategy
Implementation

• Commander Approach
• Organisational change / Change Approach
• Collaborative approach
• Cultural approach(3rd Order Control
Technique)
• Crescive Approach( Increasing / Growing)
•
 Developing Budget
• BUDGET – it is a plan shows how much money is
earned by the firm and how much they can able to
spend
• In simple words resource allocation plan
Two approaches

• Top down approach-

 Top mgt will design budget plan and allocate it to
lower level
• Bottom up approach
 various departments will submit preliminary budget
proposal to budget committee ,they will select final
budget

 ORGANISATION
STRUCTURE
• An organization structure is the way in which
the task & subtasks required to implement a
strategy are arranged.


• Good structure allows the organization to

improve its ability to create value and
competitive advantage
 TYPES OF STRUCTURE


• ENTREPRENEURIAL STRUCTURE


• FUNCTIONAL STRUCTURE
•
• DIVISIONAL STRUCTURE
•
• STRATEGIC BUSINESS UNIT
•
• MATRIX STRUCTURE
•
• NETWORK STRUCTURE
•
• CELLULAR (MATRIX + NETWORK)

 ENTREPRENEURIAL STRUCTURE
• The entrepreneurial structure, is the most elementary form of
structure & is appropriate for an organization that owned and
managed by one person.


• These organizations are single- business, product /service firms

that serve local market

OWNER-MANAGER

EMPLOYEES
 FUNCTIONAL STRUCTURE
• The most widely used structure is the functional/centralized type.
• The functional group & activities by business function, such as
production/operations, marketing, finance / accounting, R &
D,MIS.


CEO

MANUFACTURING FINANCE HR MARKETING

v
DIVISIONAL STRUCTURE
The divisional or decentralized structure is the second
most common type.


v It has more difficulty managing different products

&services in different market.


v The divisional structure can be organized in four ways:

 By geographic area

 By product or service

 By customer

 By process
 STRATEGIC BUSINESS UNIT
• As the number, size and diversity of divisions in an
organization increase, controlling and evaluating
divisional operations become increasingly
difficult for strategists.
• CEO
•
•
 Group Head SBU1 Group Head SBU2 Group Head SBU3
• Provide
MATRIX STRUCTURE
dual channels of authority, performance responsibility,
evaluation and control
Functional Manager



Marketing Finance R&D Purchase
Project A
Project managers

Project B
 NETWORK STRUCTURE

Project group M

REGION A Function X

Corporate head quarters

Region B Function Y

Project group N
 Mc Kinsey 7-S Framework
1.Structure
2.Systems
3.Style
4.Staff
5.Skills
6.Strategy
7.Shared Value
Corporate culture
 IMPACT OF CULTURE ON CORPORATE LIFE
 Culture affects the decision making capacity of
organisation and its relationship with its environment
& strategy


 It contains both strengths &weakness.

 STRENGTH - It can facilitate communication, decision
making & control.
 WEAKNESS -It may obstruct the smooth implementation
of strategy by creating resistance to change



Methods of Managing the culture of
anHowAcquired Firm
much members of the Acquired Firm value
preservation of their own Culture
Very much Not at All
Very Attractive
Perception of the Attractiveness of the

Integration Assimilation
Acquirer

Not at all Attractive

Separation Deculturation
 STAFFING FOLLOWS STRATEGY
HIRING&TRAINING REQUIREMENTS CHANGE
• A corporation may find that it needs to either hire different
people or restrain current employees to implement the new
strategy
• Employee selection & training are crucial to the success of their
new growth strategy
MATCHING THE MANAGER TO THE STRATEGY

• The most type of general manager needed to effectively

implement a new corporate or business strategy
• Executives with a particular mix of skills and experiences may
be classified as executive type & paired with a specific
corporate strategy
•
 Sources of Power

At functional and divisional level



• Ability to cope with uncertainty

• Centrality
• Control Over information
• Non sustainability
• Control Over contingencies
• Control over resources
•
 Organizational Conflict

 “ A situation when the goal directed behaviour of

one group blocks the goal directed behaviour of
another.”


•
Sources of Organizational Conflict
 CONFLICT AND NEGOTIATION

Dealing With Conflict

• Conflict
– a disagreement over issues of substance and/or an emotional
antagonism.
• Substantive Conflict
– disagreement over goals, resources, rewards, policies, procedures,
and job assignments.
• Emotional Conflict
– results from feelings of anger, distrust, dislike, fear, and resentment,
as well as relationship problems.
• Functional Conflict
– stimulates us toward greater work efforts, more creativity in
problem solving, and even to cooperate more with others.
• Dysfunctional Conflict
– Is destructive and hurts task performance
 CONFLICT AND NEGOTIATION

Dealing With Conflict

 CONFLICT AND NEGOTIATION

Dealing With Conflict

  Conflict Management Styles

Dealing With Conflict

 Conflict Resolution Strategies
• Changing the task relationship
• Changing controls
• Implementing Strategic Change
• Changing Leadership
• Changing the Strategy
• Changing the organisation
 STRATEGY EVALUATION &
CONTROL(SEC)
• Final Phase of SM


 Includes the following Activities:



1. Examining the underlying bases of a firm’s strategy

2. Comparing expected results with actual results
3. Taking Corrective actions to ensure that performance
conforms to plans
4.


•

 SEC- Definition

• It is the process of determining the

effectiveness of a given strategy in
achieving the organisational objectives
and taking corrective actions whenever
required.
 Importance of SEC

• Feed Back
• Reward
• Future Planning
 Barriers of SEC
• The limits of Control


• Difficulties in Measurement
 (Validity & Reliability)


• Motivational Problems
 Evaluation Criteria

I .Quantitative Factors:


• Return on Investment (ROI) : the result of

dividing net income before taxes by total
assets.
• Earnings Per Share (EPS) : dividing net
earnings by the amount of common stock.
• Return on Equity (ROE) : dividing net
income by equity.
• Operating Cash flow : the amount of money
generated by a company before the cost of
financing and taxes.
Stakeholders Measures


(Impact of corporate activities on stakeholders interest)



• Sales & Sales growth – customers

• Cost & Delivery time - Suppliers
• Stock & Buy lists - Financial community
• Turnover & Grievances – Employees
• Negative Legislations & Financial
 incentives- Government
• Legal Actions & Hostile Encounters -
 Consumer & Environmental
advocates
• Share Holders Value : the present value of the
anticipated future stream of cash flows from the
business, plus the value of the company if
liquidated.


• Economic Value Added (EVA): after –tax operating

profit minus the total annual cost of the capital. i.e.,
difference between the pre-strategy and post-
strategy value of the business. Can be achieved
through :
• Earning more profit without using more
capital
• Using less capital
• Investing capital in high return projects


• Market Value added (MVA): Measures the stock

market’s estimate of the net present value of a
 Strategic Control
• “SC is concerned with tracking a strategy
as it is being implemented, detecting
problems or changes in its underlying
premises, and making necessary
adjustments”
 Types of Strategic control
1.Premise control
2.Implementation Control
3.Strategic Surveillance
4.Strategic Alert Control
 Operational Control
• Provides post-action evaluation and control over short
periods.
• Steps involved:
– Establishing Criteria and Standards
– Measuring & Comparing Performance
– Performance Gap analysis
– Taking Corrective Measures
Types / Techniques:

1. Value Chain Analysis

2. Quantitative Performance Measurement
3. Bench Marking
4. Balance Score Card
5. Key Factor Rating
6.
 CONTROL PROCESS
1.
Determine
what to
measure

No Take
2.Establish 3. Measure Corrective
standards of Does
Actual Performance match with standards
Action
performance Performance
Yes

1.Quantitative Standards Stop

1.Completeness
-Time Standards 2.Objectivity
- Cost Standards 3.Responsivenes
2.Qualitative Standards s
 STRATEGIC CONTROL AS A
MEDIATOR
Mission, goals, and objectives of the

Macroenvironment

Strategic control Strategy formulation

Industry Environment
Strategy implementation

Qualitative and quantitative results

 Characteristics of an Effective Control System
• Suitable
• Simple
• Selective
• Sound & Economical
• Flexible
• Forward Looking
• Reasonable
• Objective
• Responsibility for failure
• Acceptable
 Strategic Audit

 “ An examination and evaluation of areas

affected by the operation of a strategic
management process within an
organization”.


 BALANCED SCORECARD
 FRAMEWORK
 Balance Score Card Approach
• Combines financial measures that tell the results of actions
already taken with operational measures on customer
satisfaction, internal processes& innovations, the drivers of
future financial performance.
• Done through Key Performance Measures (KPM): essential
for achieving a desired strategic options.
• It evaluates Based on the following areas:-
– Financial
– Customer
– Internal Business Perspective
– Innovation & Learning
•
 BALANCED SCORECARD
FRAMEWORK
Financial
perspective

Vision & Internal

Customer’s Business
Strategy process
Perspective

Learning &
growth
 Translate Strategy to Operational terms

The Strategy

Financial Perspective
A Strate
“If we succeed, how will we look to gy Is A
our shareholders Set of o
Hypoth f
eses
Customer Perspective About C
ause
“To achieve my vision, how must Effect &
we look to our customers?

Internal Perspective
“To satisfy my customer, at which
processes must I excel?”

Organization Learning
“To achieve my vision, how must my
organization learn and improve?’’
 STRATEGY
60% of 85% of management
organizations teams spend less
don’t link Strategic than
Learning Loop one hour per month
strategy &
budgets on strategy issues

BALANCED
SCORECARD
A good Balanced scorecard describes the
Organizational Strategy

Strategy

Balanced
Scorecard
 Measures are Balanced between

•Outcome measures ( results from past efforts)and

the measures that drive performance
•Objective, easily quantified outcome measures
and subjective, somewhat judgmental performance
drivers
•Lagging and leading indicators
•Short-term and long-term objectives
•Stakeholders
•BSC ‘s are more than just a somewhat adhoc
collection of financial & non-financial
performance measures
•BSC is a Top –down process driven by the
mission and strategy
 What does BSC do?

•Clarify and translate vision and strategy

•Communicate and link strategic objectives and

measures

•Plan ,set targets, and align strategic initiatives

•Enhance strategic feedback and learning

 What does BSC do?

•Clarify and gain consensus about strategy

•Communicate strategy throughout the organization

•Align departmental and personal goals to strategy

•Link strategic objectives to long term targets and
annual budgets

•Perform periodic and systematic strategic reviews

•Obtain feedback to learn about and improve strategy

 Financial perspective

Indicate whether company’s strategy implementation and

execution are contributing to bottom-line improvement
•Profitability
i ve
•Operating income, e ct w
rs p ho
Pe d, our
•Return-on-capital employed (ROCE) ial cee to
nc suc ok ers
na e lo l d
•EVA i
F If w we eho
“ ill ar
w s h
•Growth
•Cash flow
 i ve
Financial perspective e ct w
rs p ho
e d , u r
l P ee o
ia cc k t s o
c
n su oo der
Increase EVA to +2% i a
n we e l ol
F I f w eh
“ i l l ar
w sh

Revenue Growth Strategy Productivity Strategy

New Products High end products Cost Productivity

 Customer Perspective

Customer & Market segment in which the unit is

competing v e
c t on,
i
•Performance in the targeted markets pe si o
rs vi t
P e y ok
•Customer satisfaction er ve m e lo rs?
o m ie w e
t
s ch ust tom
•Customer retention u
C o a m us
“ T ow ur c
•New customer acquisition h o
•Customer profitability
•Specific measures of value propositions- short lead
time or on-time delivery
•New approaches to satisfy emerging needs
 Customer Perspective

Win-win Relations with

Differentiators Channel partners

On time Relation Technical Survey Assistance

delivery ship support

•Basic Requirement
•Clean
•Quality
•Variability within
specified limits
 Internal –Business-process perspective

Critical internal process in which organization must

excel
Deliver value Satisfy shareholders
proposition expectations v e
c ti
p e y h
s
r y m hic
e
P isf w t I
l
a at at us
n
ter o s er, s m
In “T om sse l?”
u st c e x c e
c ro e
Internal – Process p

Identify entirely new process at which organization must

excel to meet customer & financial objectives
Internal –Business-process perspective

Customer Value lowest cost producer

Proposition

v e
c ti
p e y h
Achieve Operational s
r y m hic
e
P isf w t I
excellence l
n a at at us
ter o s er, s m
In “T om sse l?”
u st c e x c e
c ro e
p
 Learning and growth perspective

Infrastructure that organization must build to create

long-term growth and improvement
•People based measures

’’ ea w
pr at on ng
e? n l ho
rn
m niz isi rni
•ESI

ov io ,
d i ga y v Lea
e m ion
•Competencies

t m iev at
us h iz
m o ac gan
•Skill Mix

an or
“T Or

y
•Systems (Technology)
•
Learning and growth perspective

Motivated and prepared

workforce

Climate for Competencies IT Technology

action
•ESI
Cause and Effect Relationship
ROCE

Customer
Loyalty

On-line
delivery

Process Process
Quality Cycle Time

Employee
Competency
 Four perspectives: Are they sufficient

•Community perspective - Social responsibility

•Suppliers perspective

Question : Is it vital for success of business unit’s

strategy?
 The Balanced Scorecard Effectively Communicates
How Well the MSO Is Achieving Their Mission
Massachusetts Special Olympics Mission Statement

Objectives Measures Objectives Measures

Financial Donor

Customer / Athlete
Training & Competition  # athletes not able to f
Positive Image  # of new programs / # athletes team
Community  Volunteer retention / Controlled Cost  Cities with no registere
recruitment athletes
Involvement  New donors Quality Programs  Fee increase
Athlete Outreach /  Donor feedback Community For  Family feedback
Program Expansion  # athletes in outreach program Athletes  # of activities outside
competition

Objectives Measures
Operations

Organization and Administration  % Plans distributed team

Internal

Public Relations meetings  # area management team

 $ raised
Training  # training classes offered
outreach  # first time athletes

Objectives Measures
Operations

Knowledge of MSO  Volunteers trained in MSO and

Internal

sports
Management  Registration forms in one time
 Program guide distribution
Database Management  Volunteers in database
Recognition  Advanced coaches’ training/
coaches’/ meetings
 Balanced Scorecard - Example

Vision
To provide patients, families and primary care physicians with the best,
most compassionate care possible and to excel at communications

Customer Financial
Patient Primary Care • Operating Margin
Physician
•% Satisfied • % Satisfied with •Cost per Case • Revenue from
• % would Recommend Communication Neonatal Care
•% Parents Could • % Parents Could
Articulate Care Plan Identify DCH Physician
•Discharge Timeliness

Internal Processes
Wait Time Quality Productivity

• Admissions • Infection Rates • Length of Stay

• Discharge • Blood Culture • Readmission Rate
Contaminate Rate • Daily Staffing vs.
• Use of Clinical Occupancy
Pathways (Top 10)

Learning & Growth

• Incentive Plan • Strategic Database
- Awareness - Availability
- Implementation - Use
A successful Balanced Scorecard
program starts with a recognition
that it is not a metrics” project, it’s
a “change” process.
 A Good Balanced Scorecard Describes the
Organization Strategy.
Financially Strong Strategic Objectives Strategic Measures

Financially Strong F1 Return on Capital oROCE

Employed oCash Flow
oNet Margin Rank (vs.
F2 Existing Asset
Financial

Competition)
Utilization oFull Cost per Gallon Delivered
(Vs. Competition)
F3 Profitablity oVolume Growth Rate vs.
F4 Industry Cost Leader Industry
oPremium Ratio
F5 Profitable Growth oNon-Gasoline Revenue and
Margin

Delight the Customer C1 Continually Delight oShare of Segment in Selected

Customer

the Targeted Key Markets

Consumer oMystery Shopper Rating
oDealer Gross Profit Growth
Win-Win Dealer C2 Build Win-Win oDealer Survey
Relationship Relations with Dealer
 A Good Balanced Scorecard Describes the
Organization Strategy.
Build the Franchise I1 Innovative products oNew Product ROI
and services oNew Product Acceptance Rate
oDealer Quality Score
I2 Best-in-class oYield Gap
Increase Customer Value Franchise Teams oUnplanned Downtime
oInventory Levels
I3 Refinery Performance
oRun-out Rate
Internal

Operational Excellence I4 Inventory oActivity Cost. vs. Competition

Management oPerfect Orders
oNumber of Environmental
I5 Industry Cost Leader Incidents
Good Neighbor
oDays Away from Work Rate
I6 On Spec-On Time
I7 Improve EHS

oEmployee Survey
Learning & growth

Motivated and Prepared L1 Climate for Action

Workforce oPersonal BSC (%)
L2 Core Competencies oStrategic Competency
and Skills Availability
oStrategic Information
L3 Access to Strategic
Availability
Information
 MAKE STRATEGY EVERYONE’S JOB

CORP
SBU
Top-Down “Bridging
Process” To Share the • EDUCATION Bottom-Up Process
Strategy & Align the to Internalize &
Workforce • PERSONAL GOAL Execute the Strategy
ALIGNMENT

• BALANCED PAYCHECKS

The Strategy Focused Workforce

Build STRATEGY-FOCUSED ORGANIZATIONS

1 Mobilize Change
through Executive
Leadership
•Mobilization
•Governance Processes 5
•Strategic Management Make Strategy
2 Translate the a Continual
Strategy to process

BA
Operational Terms •Link Budgets & Strategy
•Strategic Learning

SC
•Strategy Mape
•Balanced Scorecards STRATEGY •Analysis & Information
System

LA
OR 4
Make Strategy
3 Align the
NC Everyone’s Job
Organization to
the Strategy EC •Strategic Awareness

ED •Personal Scorecard

AR
•Corporate Role •Balanced Paychecks
•Business Unit Synergic
•Support Unit Synergic

D
 Describing Strategy : Strategy Is a Step in a Continuum

MISSION
Why we exist
VALUES
What we believe In
VISION
What we want to be
STRATEGY
Our game plan
BALANCED SOCRECARD
Implementation & Focus
STRATEGIC INITIATIVES
What we need to do
PERSONAL OBJECTIVES
What I need to do

STRATEGIC OUTCOMES

Satisfied Motivated &

Delighted Satisfied
SHAREHOLD Prepared
CUSTOMERS PROCESSES
ERS WORKFORCE
What Is A Good Balanced Scorecard?

#1. Executive Involvement

Strategic decision makers must validate the
strategy and related measures

#2 Cause-and-Effect Relationships
Every objective selected should be part of a
chain of cause and effect that represents the
strategy

#3 Performance Drivers
A balance of outcome measures and leading
measures facilitates anticipatory management

#4 Linked to Budget/Financials
Every measure selected can ultimately be
supported/enabled by Budgetary Funds

#5 Change Initiatives
Aligned Strategic Initiatives that change the
behavior of the organization
 Strategic Issues in Managing
Technology & Innovation
1.Environmental Scanning
a. External Scanning

b. Impact of Stakeholders on Innovation

c. Lead Users

d. Market Research

e. New Product Experimentation

f. Internal Scanning

g. Resource Allocation issues


 2. Time to Market Issues
3. Strategy formulation

 a. Technology Sourcing, b. Technology

Competence
 4. Strategic Implementation
5. Innovative culture

 a. Positive Attitude to Change

 b. Decentralized decision making
 c. Informal Structure
 d. Interconnectedness
 e. Complexity
 f. Slack Resources
 g. System Openness

 Corporate Entrepreneurship
( Intrapreneurship)

 “ A person who focuses on innovation and

creativity and who transforms and dreams
of an idea in to a profitable venture by
operating within the organisational
environment”