ETOP, SAP and Generic Strategic Alternatives

Presented By: Gopaldas Atasniya (20020) Keerthi Kumar (20026) Piyush Kumar (20040) Preethi Reddy(20043)

Introduction

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After environmental and internal analysis is completed, a strategist will prepare the following profiles. ETOP (Environmental Opportunity and Threat Profile) SAP (Strategic Advantage Profile)

Meaning of Environmental Scanning:

Environmental scanning can be defined as the process by which organizations monitor their relevant environment to identify opportunities and threats affecting their business for the purpose of taking strategic decisions.

Appraising the Environment:

In order to draw a clear picture of what opportunities and threats are faced by the organization at a given time. It is necessary to appraise the environment. This is done by being aware of the factors that affect environmental appraisal identifying the environmental factors and structuring the results of this environmental appraisal.

Environmental Threats and Opportunities Profile(ETOP) It is a process of dividing the environment into different sectors and then analyzing the impact of each sector on the organization. By the means of an ETOP, the organization knows where it stands with respect to its environment.

Environmental sectors Economic

Nature of impact

Impact of each sector

Growing affluence among ETOP FOR BICYCLE COMPANY urban consumers, rising disposable incomes & living standards. Organized sector a virtual oligopoly with 4 major manufacturers, buyers critical & better informed, overall industry growth rate not encouraging, growth rate for niche market like sports, trekking etc is high.

Market

International

Global imports growing but Indias share shrinking, major importers are the US & EU but India exports mainly to Africa.

Political

Bicycle principal mode of transport for low & middle income, Industry too small to draw attention.

Regulatory

Parts & components reserved for SSI, bicycle industry a thrust area for exports,

Social

Environment & health friendly transport option, wide usage, as recreation, convenient in traffic, customers preference

Supplier

Mostly ancillaries in smallscale sector supply parts & components, rising steel prices, industrial concentration in Punjab & Tamilnadu.

Technological

Up gradation in progress, import of machinery simple, product innovations ongoing like battery operated & lightweight foldable cycles

Up Arrow indicates Favorable Impact Down Arrow indicates unfavorable Impact Horizontal Arrow indicates Neutral Impact

Strategic Advantage Profile (SAP)

A SAP can also be prepared directly when students analyses cases during classroom learning, without making a detailed OCP (Organizational Capability Profile) . An SAP provides a picture of the more critical areas which can have a relationship with the strategic picture of the firm in the future.

Capability Factor

Nature of Impact

Competitive strengths or weaknesses

Finance

Down Arrow

High cost of capital, reserves and surplus position unsatisfactory

Fierce competition in industrys company Advanced Management information system in place, most traditional functions such as payroll and accounting computerized, company website has limited scope for ECommerce

Marketing

Horizontal Arrow

Information

Up Arrow

Up Arrow indicates Strength Down Arrow indicates Weaknesses Horizontal Arrow indicates Neutral

A match is made between ETOP AND SAP and basing on the results any of the following strategy alternatives are selected.
ETOP AND SAP matches well Growth Ex: HLL Shampoo market ETOP AND SAP does not match Retrenchment Ex: HLL TEA PLANTATIONS ETOP AND SAP does not match at present but situation may improve in future Stability Ex: TATA TEA ETOP AND SAP match for some products and not for some others Combination strategy EX: HLL NIHAR, HLL-GLUCOVITA, HLL-PURE IT, HLL-PERSONAL CARE PRODUCTS

Strategic Alternatives

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While dealing with corporate or business level strategy there are four generic ways in which alternatives can be considered. They are Stability Expansion Retrenchment Combination

Generic Strategy Alternatives

Expand Expand
Retrench Retrench

Stabilize

Stabilize

Combi nation
Definitio n/pace

Business Definition
Products Add new products
Find new territories

Pace

Business Definition
Drop old products
Drop Distribution channels

Pace

Business Definition
Maintain

Pace

Find new uses

Penetrate markets

Decrease product develop ment Reduce market share

Make package changes/ Protect market share/ focus on niche

Drop old, and add new products

Drop old customer s while finding new ones

Markets

Maintain

Functions

Forward vertical integration

Increase capacity

Become captive company

Decrease process, R&D

Maintain

Improve production efficiency

Increase capacity

Stability Strategies
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A stability strategy is a strategy that a firm pursues When it continues to serve the public in the same product/service, market and functions as defined in its business definition. Its main strategic decisions focus on incremental improvement of functional performance.

In an effective stability strategy a company will concentrate its resources where it presently has or can rapidly develop a meaningful competitive advantage in the narrowest possible product/market/function scope consistent with its resources.

Note that a stability approach is not a do nothing approach nor does it mean that goal such as profitable

growth are abandoned.

The business definition may be stable but the pace of activity may be changed in combination with this stable definition. (Refer earlier table)

Why do companies pursue a stability strategy

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The firm is doing well or perceives itself as successful A stability strategy is less risky Managers prefer action to thought It is easier and more comfortable for all concerned to pursue a stability strategy No disruptions in routines take place. The environment is perceived to be relatively stable with few threats and opportunities. Too much expansion can lead to inefficiencies

A firms executives may also believe that resources or other environmental changes prohibit the continuation of expansion in the business definition that may have occurred in the past. Ex: HLL, Videocon.

Expansion Strategy

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A firm pursues this strategy when It serves the public in additional product or service sectors or adds markets or functions to its definition It focuses its strategic decisions on major increases in the pace of activity within its present business definition. Ex: Refer to the earlier table

Why do companies pursue expansion strategies

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In volatile environment a stability strategy can mean short run success and long run death. Hence, expansion may be necessary for survival Many executives equate expansion with effectiveness. Some believe that society benefits from expansion. Ex: TATA sons Managerial motivation. Belief in the experience curve Belief that growth will yield monopoly power External pressure from stockholders or security analysts.

Retrenchment Strategy

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The company pursues this When it sees the desirability of reducing its products or service lines, markets or functions. When it focuses its strategic decisions on functional improvement through the reduction of activities in units with negative cash flows.

Methods of Retrenchment
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Divesting itself of a major product line Abandon some market territories Divest from some functions i.e., outsourcing. Retrenching in pace a firm could use lay offs, reduce R&D or marketing of other outlays, increase the collection of receivables, selling profitable assets to gain resources to be invested elsewhere.

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Why do companies pursue Retrenchment strategy

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The firm is not doing well or perceives itself as doing poorly The firm has not met its objectives by following one of the other generic strategies and there is a pressure from stockholders, customers and others to improve performance. The environment seem to be so threatening that internal strengths are insufficient to meet the problems. Better opportunities in the environment are perceived elsewhere. To gain Anergy effect.

It is the hardest strategy to be followed and implies that some one has failed and no one wants to be labeled as failure.

Combination

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This strategy is pursued when Its main strategic decisions are focused on the conscious use of several grand strategies at the same time in several SBUs of the company. It plans to use several brand strategies at different future times.

Methods
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Stability in some areas and expansion in others Stability in some areas and retrenchment in others Expansion in some areas and retrenchment in others

Why do companies pursue a Combination strategy

When a company faces many environments and these environments are changing at different rates. Ex: Economy may be in growth stage or recession stage. 2. The companys products are in different stages of the life cycle. It is easy to visualize conditions under which a combination strategy makes sense.
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A combination strategy is mostly likely to be effective for larger multiple SBU firms in periods of economic transition or period of transition of product or service life cycle. Expansion, stability or Retrenchment can be applied to products, markets or functions.

Conclusion
Any alternative or combination has the potential to improve the performance. One is not necessarily superior to another in all circumstances. If substantial growth in size is the objective expansion is a more likely alternative. Growth profits could be enhanced by a retrenchment.