Strategic Management

Prof. Amol Ankush

 Module I
Introduction to Strategy
Understanding Strategy
• The Concept of Strategy- is central to understanding the process of
Strategic Management.

• The term “strategy” is derived from a Greek word strategos, which

means generalship- the actual direction of military force, as distinct
from the policy governing its deployment.
Strategy
A strategy could be :
• A plan of action or a set of decision rules making a pattern or creating
a common thread
• The pattern related to the organisation’s activities, which are derived
from the activities and goals
• Related to pursing those activities, which move an organisation from
its current position to a desired state
• Concerned with the resources necessary for implementing a plan or
following a course of action.
 Levels at which strategy Operates
• Its very common now a days companies working with different business lines with regard
to either product services, markets or technology. Here are few illustrations:
1. Balmer Lawrie- A PSU, has a diversified portfolio of business s organised into
strategic business units in mfg. and service sectors. Mfg.- Industrial Packaging, greases and
lubricants, leather chemicals. Service- Travel, vacations, Logistics.
2. Finolex Group- is a business conglomerates with interests in diverse areas such as
telecom, petrochemicals, education
3. TVS Group has 43 companies that operate in two-wheeler and automotive dealerships,
finance and electronics
 Any part of a business organisation which is treated separately for strategic management purpose

Perform Customer
needs assessment

Define Determine overhead

Opportunity and cost structure

Strategic
Define Market
Business Define gross profit and
Size
Unit (SBU) net profit
 Different Levels of Strategy
Levels of Management Levels of Strategy

Corporate
Corporate Office Corporate Level

SBU SBU SBU SBU Business Level

A B C

Marketin
Functional Finance Operations HRM Information Functional Level
g
Roadmap to Strategic Management
Definition-
• Dynamic process of formulation, implementation, evaluation and
control of strategies to realise the organisation’s strategic intent.
• Set of managerial decisions and actions that determines the long-run
performance of a firm.
• Strategic management is the management of an organization’s
resources to achieve its goals and objectives.
• Strategic management involves setting objectives, analysing the
competitive environment, analysing the internal organization,
evaluating strategies, and ensuring that management rolls out the
strategies across the organization.
• It’s a dynamic Process. Its not a one-time, static or mechanistic
process.
Strategic Management

Highly Rated Benefits:

• Clearer sense of strategic vision for the firm

• Sharper focus on what is strategically important

• Improved understanding of a rapidly changing environment

Challenges to Strategic Management

Globalization
• Internationalization of markets and corporations
• Global (worldwide) markets rather than national markets

Electronic Commerce
• Use of the Internet to conduct business transactions
• Basis for competition on a more strategic level rather than traditional focus on product
features and costs
 Trends
• Internet forcing companies to transform themselves
• Balance of power shifting to the consumer
• Competition is changing and Pace of business increasing
drastically
• Internet purchasing corporations out of their traditional boundaries
• Knowledge becoming a key asset and source of competitive
advantage
Strategic Management
Not always a formal process:

• Where is the organization now? (Not where do we

hope it is!)

• If no changes are made, where will the organization

be in 1 year, 2 years, 5 years, 10 years?

• What specific actions should management undertake?

What are the risks and payoffs involved?
Basic Model of Strategic Management

Four Basic Elements

 Strategic Management Model

Environmental
Strategy Strategy Evaluation
and Control
Scanning Formulation Implementation and Control

External Mission
Reason for
Societal
existence
Environment Objectives
General Forces
What results
to
Task Strategies
accomplish
Environment
by when Plan to
Industry Analysis
achieve the
Policies
mission &
Internal objectives Broad
guidelines for Programs
Structure decision Process
Chain of Command making Activities to monitor
needed to performance
Culture Budgets and take
accomplish
Beliefs, Expectations, a plan corrective
Cost of the
Values action
programs
Procedures
Resources
Sequence
Assets, Skills
of steps
Competencies,
needed to
Knowledge do the job Performance

Feedback/Learning
Vision Business Aspiration

Mission Why the company exists and the

founders envisioned

Result that company aims to

Objectives achieve

Long Term Plan designed to

Strategy achieve objectives

Methodology for executing the

Approach long-term plan

Smaller, focused action plans that

Tactics
support the overall strategy
Environmental Scanning

Defined:
The monitoring, evaluating, and disseminating of information from the external
and internal environments to key people within the firm.
Environmental Scanning
 Stages of Strategic Management

Environmental Scanning
Identify strategic factors
• SWOT Analysis
• Strengths, Weaknesses
• Opportunities, Threats
• Internal Environment
• Strengths & Weaknesses
• Within the organization but not subject to short-run control of
management
• External Environment
• Opportunities & Threats
• External to the organization but not subject to short-run control
of management
Stages of Strategic Management
• Strategy formulation
includes developing a vision and mission, identifying an
organization’s external opportunities and threats, determining
internal strengths and weaknesses, establishing long-term
objectives, generating alternative strategies, and choosing
particular strategies to pursue
Strategy Formulation
• Deciding what new businesses to enter,
• What businesses to abandon,
• How to allocate resources,
• Whether to expand operations or diversify,
• Whether to enter international markets,
• Whether to merge or form a joint venture,
• How to avoid a hostile takeover.
Stages of Strategic Management
• Strategy implementation

• requires a firm to establish annual objectives, devise policies, motivate

employees, and allocate resources so that formulated strategies can be
executed

• often called the action stage

Stages of Strategic Management
• Strategy evaluation
• reviewing external and internal factors that are the bases for current
strategies, measuring performance, and taking corrective actions
 Example #1

• Dave intends to extend his constrained furniture business by introducing a new product
category, i.e., all home decor goods.
• However, he is unsure how his brand would perform as it took years for him to establish
his furniture business due to a delay in identifying negative factors.
• Thus, to avoid any risk this time, Dave conducts SWOT (Strengths, Weaknesses,
Opportunities, and Threats) analysis as part of the strategic management.
Example #1
• He identifies the strong and weak points of business.
• He also analyzes potential opportunities and threats based on the current market
trend.
• Accordingly, Dave strategizes and plans the processes, starting from
manufacturing to advertising, ensuring that he allocates the right resources at the
right places.
Adapting to Change
• The second-largest bookstore chain in the United States, Borders
Group, declared bankruptcy in 2011 as the firm had not adapted well
to changes in book retailing from traditional bookstore shopping to
customers buying online, preferring digital books to hard copies
• Borders was on the brink of financial collapse before being acquired in
July 2011 by Direct Brands
Key Terms in Strategic Management
• Vision statement
• answers the question “What do we want to become?”
• often considered the first step in strategic planning
Key Terms in Strategic Management
• Mission statements
• enduring statements of purpose that distinguish one business from other
similar firms
• identifies the scope of a firm’s operations in product and market terms
• addresses the basic question that faces all strategists: “What is our business?”
Key Terms in Strategic Management
• External opportunities and external threats
• refer to economic, social, cultural, demographic, environmental, political,
legal, governmental, technological, and competitive trends and events that
could significantly benefit or harm an organization in the future
Some Opportunities and Threats
• Computer hacker problems are increasing.
• Intense price competition is plaguing most firms.
• Unemployment and underemployment rates remain high.
• Interest rates are rising.
• Product life cycles are becoming shorter.
• State and local governments are financially weak.
Key Terms in Strategic Management
• Internal strengths and internal weaknesses
• an organization’s controllable activities that are performed
especially well or poorly
• determined relative to competitors
Key Terms in Strategic Management
• Objectives
• specific results that an organization seeks to achieve in pursuing its basic
mission
• long-term means more than one year
• should be challenging, measurable, consistent, reasonable, and clear
Key Terms in Strategic Management
• Strategies
• the means by which long-term objectives will be achieved

• may include geographic expansion, diversification, acquisition, product

development, market pénétration, retrenchment, divestiture, liquidation, and
joint ventures
Key Terms in Strategic Management
• Annual objectives
• short-term milestones that organizations must achieve to reach long-term
objectives
• should be measurable, quantitative, challenging, realistic, consistent, and
prioritized
• should be established at the corporate, divisional, and functional levels in a
large organization
 1-35

Sample Strategies in Action in 2011

Adaptation to Changing Environmental
Conditions

Strategic flexibility:

• Demands a long-term commitment to the development and

nurturing of critical resources

• Demands that the firm become a learning organization

Strategy Formulation

Defined:
Development of long-range plans for the effective management
of environmental opportunities and threats in light of corporate
strengths and weaknesses.
Strategy Formulation
Mission Statement
• Purpose or reason for the organization’s existence
• Promotes shared expectations among employees
• Communicates public image important to stakeholders
• Who we are, what we do, what we’d like to become
Strategy Formulation
Maytag Corporation
Mission Statement

To improve the quality of home life by designing, building,

marketing, and servicing the best appliances in the world.
Strategy Formulation

Objectives

• The end results of planned activity

• What is to be accomplished
• Time in which to accomplish it
• Quantified when possible
Strategy Formulation
Goals vs. Objectives

A goal is an open-ended statement of what

one wants to accomplish with no
quantification of what is to be achieved and
no time criteria for completion.
Goals & Objectives

Corporate goals and objectives include:

• Profitability (net profits)
• Growth (increase in total assets, etc.)
• Utilization of resources (ROI)
• Market leadership (market share)
Strategies
Defined:
A strategy of a corporation forms a comprehensive master plan
stating how the corporation will achieve its mission and
objectives. It maximizes competitive advantage and minimizes
competitive disadvantage.
Company Strategy - a plan that helps a company achieve its goals
Types-
• Organizational (Corporate) Strategy - a long-term strategic plan that roadmaps the
route towards a company's goals and visions
• Business (Competitive) Strategy - all the decisions taken, and actions undertaken by a
business for achieving the larger vision
• Functional Strategy- the approach a business functional takes to achieve corporate and
business unit objectives and strategies by maximizing resource productivity
• Operating Strategy - the system an organization implements to achieve its long-term
goals and mission
Business model and company strategy
• Business model refers to the logic of the firm, the way it operates and how it
creates value for its stakeholders. Strategy refers to the choice of business model
through which the firm will compete in the marketplace.
Types of business models:
• Business -To- Business Models (B2B)
• Business -To-Consumer Models (B2C)
• Subscription Based Models - service to receive monthly or yearly
recurring subscription revenue.
• On-DEMAND BUSINESS MODEL - easy to access,
 Strategic thinking
• Strategic thinking is a mental or thinking process applied by an individual in the context
of achieving a goal or set of goals. As a cognitive activity, it produces thought.
Strategies

3 Types/ Levels of Strategy

•Corporate strategy

•Business strategy

•Functional strategy
Porter’s Generic Strategies
Porter’s Generic Strategies
• Porter’s Generic Strategies is an answer to one of two central
questions underlying the choices companies have with regard to
competitive strategy.
• The first question is about the attractiveness of industries for long-term
profitability and how to choose which industry to enter as a company.
• The second question is about the determinants of a company’s relative
competitive position in an industry after a certain industry is chosen to
enter.
Differentiation Strategy
• Differentiation is a type of competitive strategy with which a company
seeks to distinguish its products or services from that of competitors:
the goal is to be unique. A company may use creative advertising,
distinctive product features, higher quality, better performance,
exceptional service or new technology.
• Examples are: Apple, Harley-Davidson, Nike and Starbucks.
Cost Leadership Strategy
• Cost Leadership is a type of competitive strategy with which a company
aggressively seeks efficient large-scale production facilities, cuts costs,
uses economies of scale, gains production experience and employs tight cost
controls to be more efficient in the production of products or the offering of
services than competitors.
• Examples of companies with cost leadership positions are: Wal-Mart,
McDonald’s, Costco and Amazon.
Focus
• Focus is a type of competitive strategy that emphasizes concentration on a specific
regional market or buyer group: a niche,
• only for a narrow target market rather than offering it industry-wide
• the focus strategy has two variants: Differentiation Focus and Cost Focus
• Examples of companies with a differentiation focus strategy are: Rolls Royce,
Omega, Prada and Razer.
• Examples of companies with a cost focus strategy are: Claire’s, Home Depot and
Smart.
 Stuck in the Middle
• A company that tries to engage in each generic strategy but fails to achieve any of
them, is considered ‘stuck in the middle’.
• Such a company has no competitive advantage regardless of the industry it is in.
• Such a company will compete at a disadvantage because the ‘cost leader’.
• however, that a company that is stuck in the middle still earns interesting profits
simply because it is operating in a highly attractive industry or because its competitors
are stuck in the middle as well.
Approaches of strategy formulation
Intended strategies vs Emergent strategies

• Intended strategies are the strategies that an organization hopes to

execute.
• Emergent strategies are strategies implemented by identifying
unforeseen outcomes from the execution of strategy and learning to
incorporate those unexpected outcomes into future corporate plans.
Module II
Corporate and Environmental Analyses
PESTEL analysis
• Political: local, national and international political developments – how
will they affect the organisation and in what way/s ?
• Economic: what are the main economic issues – both nationally and
internationally – that might affect the organisation?
• Social: what are the developing social trends that may impact on how
the organisation operates and what will they mean for future planning?
• Technological: changing technology can impact on competitive
advantage very quickly!
• Legal and Environmental : These are the legal aspects affect
businesses. Have little to do with actual business, including climate,
population, weather
Examples: PESTEL
Growth of China and India as manufacturing centres-
• Concern over treatment of workers and the environment in less
developed countries who may be suppliers
• The future direction of the interest rate, consumer spending, etc.
• The changing age structure of the population
• The popularity of ‘fads’ like the Atkins Diet
• The move towards greater political regulation of business
• The effect of more bureaucracy in the labour market
Analysis of functional areas
• six functional areas of business management involve strategy,
marketing, finance, human resources, technology and equipment,
and operations.
• There are three main categories of functional assessment
approaches—indirect (e.g., questionnaires, rating scales),
observational, and experimental/functional analysis
• Functional strategies help enhance focus only on those value-adding
portfolio of activities that are strategically important to the
company.
 Strategic Advantage Profile (SAP)
A tool for making a systematic evaluation of the enterprises internal factors
which are significant for the company in its environment.
The SAP shows the strengths and weakness of an organization in different
functional areas.
Every firm has strategic advantages and disadvantages. For example,
large firms have financial strength but they tend to move slowly, compared to
smaller firms, and often cannot react to changes quickly.
No firm is equally strong in all its functions. In other words, every firm has
strengths as well as weaknesses.
Matching SAP with ETOP

• Internal areas are recorded in Strategic Advantages Profile

(SAP) and external areas are recorded in Environmental
Threat and Opportunity Profile (ETOP).
• Strength, Weakness, Opportunity, and Threat (SWOT) profile can be
designed combining both of these two profiles into one.
• These both are reporting formats
 Strategic issues Management
• Strategic issues are those fundamental policy choices or
critical challenges that must be addressed in order for a
community to achieve its vision.
• When addressing “strategic” issues, a community is being
proactive in positioning itself for the future, rather than
simply reacting to problems.
• Strategic Issues Management is appropriate for courses in
Corporate/Strategic Communications, Public Relations
Management, Crisis/Risk Communication, Strategic
Management, Public Relations Management, Organizational
Communication, and Public Policy and Administration.
Strategic Issues Management
• Strategic Issues Management explores the strategic planning options
that organizations can employ to address crucial public policy issues,
engage in collaborative decision making, get the organization's
"house" in order, engage in tough defence and smart offense, and
monitor opinion changes that affect public policy.
Features of Strategic Issues Management
• Explores ways public relations, risk communication, and crisis
communication can be used to address crucial public policy options
• Advises managers on ways to lessen the chance of a crisis becoming an
issue through an examination of crisis preparation and responses
• Addresses the topic of reputation management by exploring the connection
between issues management and brand equity.
• Challenges managers to engage in collaborative decision making with
community leaders and residents to reduce the chance that undue fear will
translate into unnecessary regulation or legislation
• Gap 1: The Knowledge Gap - difference between customer
expectations and management's understanding of those expectations
• Gap 2: Policy Gap - Expected service and Management Perception of
customer expectation
• GAP 3: Performance Gap - Gap between Service Quality
Specification and Service Delivery
• Gap 4 : The Communication Gap – It is the difference between what
the company communicates and what is actually delivered to the
customers.
• Gap 5 : The Perception Gap – It is the difference between what is
actually delivered to the customers, and their perception of the service
that is actually delivered.
fishbone-gap analysis tool in sap
Mckinsey-gap analysis tool in sap
 The McKinsey 7-S Model
• is a change framework based on a company’s organizational design. It aims to depict how
change leaders can effectively manage organizational change by strategizing around the
interactions of seven key elements: structure, strategy, system, shared values, skill, style,
and staff.
• The model highlights that there exists a domino effect when any one element is
transformed to restore effective balance. The central placement of shared values
emphasizes that a strong change culture impact
• Hard elements that are easily identifiable and influenced by leadership and
management. Soft elements are those that are intangible and culture-driven.
Action items to consider before applying the
7-S model:
1. Identify the Gaps and Unaligned Processes
2. Determine the Ideal Organizational Design
3. Create an Effective Action Plan
4. Implement the Change
5. Maintain the Momentum with Continuous Review Processes
 McDonald’s
• Here’s how the fast-food giant leverages McKinsey’s 7-S model for
driving organizational change:
• Strategy: McDonald’s gained a significant market share through its cost-leadership
approach. Additionally, it sets clear SMART goals to achieve the long-term and
short-term vision.
• Structure: Unlike other multinational corporations (MNCs) with complex
hierarchical structures, McDonald’s has a flat structure where a store manager
manages its employees. Employees work as a close-knit team and have easy
access to the senior management if required.
• Systems: McDonald’s is known for constantly innovating to reduce the wait time
and make its entire production and supply chain more efficient – such as its new
McDonalds app and self-ordering kiosks.
• Shared Values: McDonald’s aims to have a high level of integrity, serve a wide range of
customers, hire employees from different backgrounds, encourage teamwork, and
finally, give some profits back to the community with its core values: Serve, Inclusion,
Integrity, Community, and Family.
• Style: McDonald’s leverages a participative leadership style where seniors engage with
employees at different levels to seek their feedback to improve operations and resolve
conflicts.
• Staff: With over 210,000 employees, McDonald’s is one of the largest employers in the
world. It believes in the concept of diversity and works towards employee satisfaction.
• Skills: McDonald’s regularly trains its employees to provide an unparalleled customer
experience and handle objections.
 Module III
Positioning /Competitive Advantage and
Strategy
 The Concept of Industries Driving factor
• Driving forces are forces outside the firm (external factors) that trigger the
change of strategy in an organization.
• Industry conditions change because important forces (the most dominant
ones that have the biggest influence on what kinds of changes will take place
in the industry’s structure and competitive environment) are driving industry
participants (competitors, customers, or suppliers) to alter their actions, and
thus the driving forces in an industry are the major underlying causes of
changing industry and competitive conditions.
• Driving forces analysis has 3 steps: identifying what the driving forces are,
assessing the impact they will have on the industry, determining what
strategy changes are needed to prepare for the impacts of the driving forces.
14 the most common driving forces
• Changing in an industry’s long-term growth rate
• Increasing globalization
• Emerging new internet capabilities and applications
• Changes in who buys a product and how they use it
• Product innovation
• Technological change and manufacturing process innovation
• Marketing innovation
• Entry or exit of major firms
• Diffusion of technical know-how across more companies and more countries
• Changes in cost and efficiency
• Growing buyer preferences for differentiated products instead of strongly commodity product
• Reductions in uncertainty and business risk
• Regulatory influences and government policy changes
• Changing in societal concerns, attitudes and lifestyles
Increasing Globalization
• Increasing world markets mean increasing world competition and
world standardization. This global world brings new opportunities but
plenty of new risks and threats as businesses choose how to adapt – or
not.
Restaurant Industry

• Global chains of restaurants such as fast food joints like KFC and Mc
Donald’s have existed since a very long time now. The aspect of a global
chain leaves a positive impression on the minds of the people since they tend
to believe that the product is of quality and hygiene.
• More and more restaurants are following this trend and opening up their
chains worldwide. This does affect the restaurant industry on a whole.
McDonalds entered Russian market in 1988. Now you can find Jollibee
(Filipinos), Teremok (Russia), Nando’s (South Africa), Ippudo (Japan), and a
lot of others.
Technological change and
Manufacturing process innovation
• Technological change is the invention of a technology (or a process),
the continuous process of improving a technology and its diffusion
throughout industry or society. In short, technological change is based
on both better and more technology.
Changing in societal concerns, attitudes and
lifestyles
• A lifestyle typically reflects an individual's attitudes, values or world
view. Lifestyle may include views on politics, religion, health,
intimacy, and more. All of these aspects play a role in shaping
someone's lifestyle.
electric automobiles

• As more automakers offer electric vehicles the impact these cars and trucks have
becomes increasingly visible. Besides reducing the demand for fossil fuel, electric
vehicles bring with them changing driving habits, new sectors of automotive
technology and a cleaner environment.
• The first electric car was built in 1884. As of September 2012, series production
highway-capable models available in some countries include the Tesla Roadster,
REVAi, Buddy, Mitsubishi i MiEV, Nissan Leaf, Smart ED, Wheego Whip LiFe,
Mia electric, BYD e6, Bolloré Bluecar, Renault Fluence Z.E., Ford Focus Electric,
BMW ActiveE, Coda, Tesla Model S, and Honda Fit EV. Electric Automobiles
Regulatory influences and government
policy changes
• Government policies and investments are a pervasive, important, and
often positive influence on the business environment and economic
development of any industrialized nation.
 free trade pacts
• In its first tenure (2014-2019), the Modi government was reluctant on clinching
FTAs even as it sought foreign direct investment (FDI) by opening up all the
UPA-era trade pacts for a review to increase its exports. The existing pacts, the
government believed, only encouraged more imports.

• But, with increasing strategic alignment with some partner countries,

particularly Australia, France and the UK, India is now focused on enhancing
economic ties too, which has also been a demand of the partner countries
Role of Govt. in Business
Marketing innovation

• When firms are successful in introducing new ways to market their

products, they can spark a burst of buyer interest, widen industry demand,
increase product differentiation, and lower unit costs- any or all of which
can alter the competitive positions of rival firms and force strategy
revisions.
• Burn Energy Drink was originally a brand from the Coca-Cola Company,
but at some point became a part of Energy Beverages LLC (a Monster
Energy subsidiary). The drink can be found in various regions in the world,
however availability is uncertain (particularly in the US).
Porter’s model
• Michael Porter’s “Five Forces of Competition” framework describes
how the structural features of an industry influence the distribution of
value created by firms within that industry.
▪ Ideally, firms in an industry would like to capture most or all of the economic
value that they create.
▪ However, competitive forces operate to push that value “forward” to
customers (in the form of lower prices), or in some cases, “backward” to
suppliers
 Porter's Five Forces of Competitive Position Analysis

• Porter's Five Forces is a model that identifies and analyses five competitive
forces that shape every industry and helps determine an industry's
weaknesses and strengths. Five Forces analysis is frequently used to identify
an industry's structure to determine corporate strategy.
• Porter's model can be applied to any segment of the economy to understand
the level of competition within the industry and enhance a company's
long-term profitability. The Five Forces model is named after Harvard
Business School professor, Michael E. Porter.
 five forces are:

1. Supplier power- when there are many suppliers or low switching costs
between rival suppliers, a company can keep its input costs lower and
enhance its profits.
2. Buyer power - An assessment of how easy it is for buyers to drive prices
down. This is driven by the: number of buyers in the market; importance of
each individual buyer to the organisation; and cost to the buyer of switching
from one supplier to another. If a business has just a few powerful buyers,
they are often able to dictate terms.
3. Competitive rivalry- when competitive rivalry is low, a company has
greater power to charge higher prices and set the terms of deals to achieve
higher sales and profits.
 five forces are:
4. Threat of substitution. Companies that produce goods or services for which
there are no close substitutes will have more power to increase prices and lock
in favourable terms.
5. Threat of new entry -An industry with strong barriers to entry is ideal for
existing companies within that industry since the company would be able to
charge higher prices and negotiate better terms.
Arguably, regulation, taxation and trade policies make by government is a sixth
force for many industries.
What benefits does Porter’s Five Forces
analysis provide?
• Five forces analysis helps organisations to understand the factors
affecting profitability in a specific industry, and can help to inform
decisions relating to :
whether to enter a specific industry;
whether to increase capacity in a specific industry;
developing competitive strategies.
Critical success factor (CSF)
• Critical Success Factors (also known as Key Results Areas or KRAs)
are the areas of your business or project that are vital to its success
• examples include increasing market share, attracting new customers,
or launching new products.
• Once you've determined your CSFs, you can set key performance
indicators (KPIs), which will establish deliverables and specific
criteria to measure project performance.
Competitor Analysis
• is the process of identifying competitors in your industry and
researching their different marketing strategies.
• can use this information as a point of comparison to identify
company's strengths and weaknesses relative to each competitor.
• This analysis provides both an offensive and defensive strategic
context to identify opportunities and threats.
• Defining a market, knowing your relative performance on the
competitive landscape and driving healthy, repeatable customer
experiences are all vital elements of competitor analysis.
 Key Factors of Competitive Success
• Competitive elements most affecting every industry
member’s ability to prosper

• Specific strategy elements

• Product attributes

• Resources

• Competencies

• Competitive capabilities

• Competitive Success Factor spell the difference between

• Profit and loss

• Competitive success or failure

 Identifying Co. Strongest / Weakest Points

• One technique for revealing the different competitive positions of industry rivals is strategic group mapping. A
strategic group consists of those rivals with similar competitive approaches in an industry.

• Firms in same strategic group have two or more competitive characteristics in common
• Sell in same price/quality range
• Cover same geographic areas
• Be vertically integrated to same degree
• Have comparable product line breadth
• Emphasize same types of distribution Channels
• Offer buyers similar services
• Use identical technological approaches
 Procedure for Constructing a Strategic Group
Map
• STEP 1: Identify competitive characteristics that differentiate firms in an industry from one
another

• STEP 2: Plot firms on a two-variable map using pairs of these differentiating characteristics

• STEP 3: Assign firms that fall in about the same strategy space to same strategic group

• STEP 4: Draw circles around each group, making circles proportional to size of group’s
respective share of total industry sales

Guidelines for Strategic group Maps

• Variables selected as axes should not be highly correlated, and should expose big
differences in how rivals compete

• Variables do not have to be either quantitative or continuous

• Drawing sizes of circles proportional to combined sales of firms in each strategic group
allows map to reflect relative sizes of each strategic group

• If more than two good competitive variables can be used, several maps can be drawn
 Likely Strategic Moves of Rivals

• A firm’s own best strategic moves are affected by

• Current strategies of competitors

• Future actions of competitors

• Profiling key rivals involves gathering competitive intelligence about their

• Current strategies

• Most recent moves

• Resource strengths and weaknesses

• Announced plans
Module IV
Competency Analysis and Strategy
Some Definitions
• Strategic Competitiveness
When firm successfully formulates and implements a value-creating
strategy
• Sustainable Competitive Advantage
When competitors are unable to duplicate a company’s value creating
strategy
• Strategic Management Process
The full set of commitments, decisions and actions required for a firm
to achieve strategic competitiveness and earn above-average returns.
Competitive Advantage
• Firms achieve strategic competitiveness and earn above-average
returns when their core competencies are effectively:
• Acquired.
• Bundled.
• Leveraged.
• Over time, the benefits of any value-creating strategy can be
duplicated by competitors.
Competitive Advantage (cont’d)
• Sustainability of a competitive advantage is a function of:
• The rate of core competence obsolescence due to environmental changes.
• The availability of substitutes for the core competence.
• The difficulty competitors have in duplicating or imitating the core
competence.
External Analyses’ Outcomes

Opportunities
and threats

By studying the external environment, firms identify

what they might choose to do.
Internal Analyses’ Outcomes

Unique resources,
capabilities, and
competencies
(required for sustainable
competitive advantage)

By studying the internal environment, firms

identify what they can do

3–114
The Context of Internal Analysis
• Global Economy
• Traditional sources of advantages can be overcome by competitors’
international strategies and by the flow of resources throughout the global
economy.
• Global Mind-Set
• The ability to study an internal environment in ways that are not dependent on
the assumptions of a single country, culture, or context.
• Analysis Outcome
• Understanding how to leverage the firm’s bundle of heterogeneous resources
and capabilities.
FIGURE 3.1 Components of Internal Analysis Leading to Competitive
Advantage and Strategic Competitiveness
Creating Value
• By exploiting their core competencies or competitive advantages,
firms create value.
• Value is measured by:
• Product performance characteristics
• Product attributes for which customers are willing to pay
• Firms create value by innovatively bundling and leveraging their
resources and capabilities.
• Superior value Above-average returns
Creating Competitive Advantage
• Core competencies are the defining products, services, skills and
capabilities that give a business advantages over its competitors
• Core competencies, in combination with product-market positions, are
the firm’s most important sources of competitive advantage.
• Core competencies of a firm, in addition to its analysis of its general,
industry, and competitor environments, should drive its selection of
strategies.
The Challenge of Internal Analysis
• Strategic decisions in terms of the firm’s resources, capabilities, and
core competencies:
• Are non-routine.
• Have ethical implications.
• Significantly influence the firm’s ability to earn above-average returns.
The Challenge of Internal Analysis
(cont’d)
• To develop and use core competencies, managers must have:
• Courage
• Self-confidence
• Integrity
• The capacity to deal with uncertainty and complexity
• A willingness to hold people (and themselves) accountable for their work
FIGURE 3.2 Conditions Affecting Managerial Decisions about
Resources, Capabilities, and Core Competencies
Resources, Capabilities and Core Competencies
• Resources
Discovering • Are the source of a firm’s
Core capabilities.
Competencies
• Are broad in scope.
• Cover a spectrum of
Core individual, social and
Competencies organizational phenomena.
• Alone, do not yield a
Capabilities
competitive advantage.

Resources
•Tangible
•Intangible

3–123
Resources
• Resources • Types of Resources
• Are a firm’s assets, including • Tangible resources
people and the value of its brand • Financial resources
name. • Physical resources
• Represent inputs into a firm’s • Technological resources
production process, such as: • Organizational resources
• Capital equipment • Intangible resources
• Skills of employees
• Human resources
• Brand names
• Innovation resources
• Financial resources
• Reputation resources
• Talented managers
TABLE 3.1 Tangible Resources

Financial Resources • The firm’s borrowing capacity

• The firm’s ability to generate internal
funds
Organizational Resources • The firm’s formal reporting structure
and its formal planning, controlling, and
coordinating systems
Physical Resources • Sophistication and location of a firm’s
plant and equipment
• Access to raw materials
Technological Resources • Stock of technology, such as patents,
trademarks, copyrights, and trade
secrets
TABLE 3.2 Intangible Resources

Human Resources • Knowledge

• Trust
• Managerial capabilities
• Organizational routines
Innovation Resources • Ideas
• Scientific capabilities
• Capacity to innovate
Reputational Resources • Reputation with customers
• Brand name
• Perceptions of product quality,
durability, and reliability
• Reputation with suppliers
• For efficient, effective, supportive, and
mutually beneficial interactions and
relationships
Resources, Capabilities and Core Competencies
• Capabilities
Discovering • Represent the capacity to deploy
Core resources that have been purposely
Competencies integrated to achieve a desired end state
• Emerge over time through complex
interactions among tangible and
Core
intangible resources
Competencies
• Often are based on developing, carrying
and exchanging information and
Capabilities knowledge through the firm’s human
capital
Resources
•Tangible
•Intangible
Resources, Capabilities and Core Competencies
• Capabilities (cont’d)
Discovering • The foundation of many
Core capabilities lies in:
Competencies • The unique skills and knowledge
of a firm’s employees
Core
• The functional expertise of those
Competencies
employees
• Capabilities are often
Capabilities
developed in specific functional
areas or as part of a functional
area.
Resources
•Tangible
•Intangible
TABLE 3.3 Examples of Firms’ Capabilities

Functional Areas Capabilities

Distribution Effective use of logistics management techniques
Human resources Motivating, empowering, and retaining employees
Management Effective and efficient control of inventories through
information systems point-of-purchase data collection methods
Marketing Effective promotion of brand-name products
Effective customer service
Innovative merchandising
Management Ability to envision the future of clothing
Effective organizational structure
Manufacturing Design and production skills yielding reliable products
Product and design quality
Miniaturization of components and products
Research & Innovative technology
development Development of sophisticated elevator control solutions
Rapid transformation of technology into new products and
processes
Digital technology
Resources, Capabilities and Core Competencies
• Four criteria for determining
Discovering strategic capabilities:
Core
Competencies • Value
• Rarity
Core • Costly-to-imitate
Competencies
• Nonsubstitutability
Capabilities

Resources
•Tangible
•Intangible
Resources, Capabilities and Core Competencies
• Core Competencies
Discovering • Resources and capabilities that are
Core
the sources of a firm’s competitive
Competencies
advantage:
• Distinguish a company
Core competitively and reflect its
Competencies
personality.
Capabilities
• Emerge over time through an
organizational process of
accumulating and learning how to
Resources deploy different resources and
•Tangible
•Intangible capabilities.
Resources, Capabilities and Core Competencies
• Core Competencies
Discovering • Activities that a firm performs
Core
especially well compared to
Competencies
competitors.
• Activities through which the firm
Core adds unique value to its goods or
Competencies
services over a long period of time.
Capabilities

Resources
•Tangible
•Intangible
Building Core Competencies
Discovering • Four Criteria of Sustainable
Core
Competencies
Competitive Advantage
• Valuable capabilities
Four Criteria of • Rare capabilities
Sustainable
Advantages • Costly to imitate
• Non substituable

• Valuable
• Rare
• Costly to imitate
• Nonsubstitutable
TABLE 3.4 The Four Criteria of Sustainable Competitive Advantage

Valuable Capabilities •Help a firm neutralize threats or

exploit opportunities
Rare Capabilities •Are not possessed by many others
Costly-to-Imitate Capabilities •Historical: A unique and a valuable
organizational culture or brand
name
•Ambiguous cause: The causes and
uses of a competence are unclear
•Social complexity: Interpersonal
relationships, trust, and friendship
among managers, suppliers, and
customers
Nonsubstitutable Capabilities •No strategic equivalent
Building Sustainable Competitive Advantage

Discovering
Core
Competencies • Valuable capabilities
• Help a firm neutralize
threats or exploit
Four Criteria of
Sustainable
opportunities.
Advantages • Rare capabilities
• Are not possessed by many
others.
• Valuable
• Rare
• Costly to imitate
• Nonsubstitutable
Building Sustainable Competitive Advantage
Discovering • Costly-to-Imitate Capabilities
Core • Historical
Competencies • A unique and a valuable
organizational culture or brand name
Four Criteria of
• Ambiguous cause
Sustainable • The causes and uses of a competence
Advantages are unclear
• Social complexity
• Interpersonal relationships, trust, and
• Valuable friendship among managers, suppliers,
• Rare and customers
• Costly to Imitate
• Nonsubstitutable
Building Sustainable Competitive Advantage
Discovering
Core
• Non substitutable Capabilities
Competencies • No strategic equivalent
• Firm-specific knowledge
• Organizational culture
Four Criteria of
Sustainable • Superior execution of the chosen
Advantages business model

• Valuable
• Rare
• Costly to imitate
• Nonsubstitutable
Outcomes from Combinations of the Four
Criteria

e?
te

bl
ita

ta
Im

u
tit
?

to
le

bs
Competitive Performance

ly
b

su
e?
ua

t
os

on
ar
Consequences Implications
al

N
R
V

No No No No Competitive Below Average

Disadvantage Returns

Yes No No Yes/ Competitive Average Returns

No Parity

Yes Yes No Yes/ Temporary Com- Above Average to

No petitive Advantage Average Returns

Yes Yes Yes Yes Sustainable Com- Above Average

petitive Advantage Returns
Table 3.5 Outcomes from Combinations of the Criteria
for Sustainable Competitive Advantage
Value Chain Analysis
• Allows the firm to understand the parts of its operations that create
value and those that do not.
• A template that firms use to:
• Understand their cost position.
• Identify multiple means that might be used to facilitate implementation of a
chosen business-level strategy.
Value Chain Analysis (cont’d)
• Primary activities involved with:
• A product’s physical creation
• A product’s sale and distribution to buyers
• The product’s service after the sale
• Support Activities
• Provide the assistance necessary for the primary activities to take place.
Value Chain Analysis (cont’d)
• Value Chain
• Shows how a product moves from the raw-material stage to the final customer.
• To be a source of competitive advantage, a resource or capability must
allow the firm:
• To perform an activity in a manner that is superior to the way competitors
perform it, or
• To perform a value-creating activity that competitors cannot complete
FIGURE 3.3
The Basic Value
Chain
 Table 3.6 Examining the Value-Creating Potential of
Primary Activities

Inbound Logistics
Activities, such as materials handling, warehousing, and inventory control, used to receive, store, and disseminate inputs to a
product.
Operations
Activities necessary to convert the inputs provided by inbound logistics into final product form. Machining, packaging, assembly,
and equipment maintenance are examples of operations activities.
Outbound Logistics
Activities involved with collecting, storing, and physically distributing the final product to customers. Examples of these activities
include finished goods warehousing, materials handling, and order processing.
Marketing and Sales
Activities completed to provide means through which customers can purchase products and to induce them to do so. To effectively
market and sell products, firms develop advertising and promotional campaigns, select appropriate distribution channels, and select,
develop, and support their sales force.
Service
Activities designed to enhance or maintain a product’s value. Firms engage in a range of service-related activities, including
installation, repair, training, and adjustment.
Each activity should be examined relative to competitors’ abilities. Accordingly, firms rate each activity as superior, equivalent,
or inferior.
 Table 3.7 Examining the Value-Creating Potential of
Support Activities
Procurement
Activities completed to purchase the inputs needed to produce a firm’s products. Purchased inputs include items fully consumed
during the manufacture of products (e.g., raw materials and supplies, as well as fixed assets—machinery, laboratory equipment,
office equipment, and buildings).
Technological Development
Activities completed to improve a firm’s product and the processes used to manufacture it. Technological development takes many
forms, such as process equipment, basic research and product design, and servicing procedures.
Human Resource Management
Activities involved with recruiting, hiring, training, developing, and compensating all personnel.
Firm Infrastructure
Firm infrastructure includes activities such as general management, planning, finance, accounting, legal support, and governmental
relations that are required to support the work of the entire value chain. Through its infrastructure, the firm strives to effectively and
consistently identify external opportunities and threats, identify resources and capabilities, and support core competencies.

Each activity should be examined relative to competitors’ abilities. Accordingly, firms rate each activity as superior,
equivalent, or inferior.
Outsourcing
• The purchase of a value-creating activity from an external supplier
• Few organizations possess the resources and capabilities required to achieve
competitive superiority in all primary and support activities.
• By performing fewer capabilities:
• A firm can concentrate on those areas in which it can create value.
• Specialty suppliers can perform outsourced capabilities more efficiently.
Outsourcing Decisions
A firm may outsource
all or only part of one
M
or more primary and/or gin
ar
gin
ar
support activities. M

Technological Development
Human Resource Mgmt.
Service

Firm Infrastructure
Support Activities
Marketing and Sales

Procurement
Outbound Logistics

Operations

Inbound Logistics

Primary Activities
Strategic Rationales for Outsourcing
• Improving business focus
• Helps a company focus on broader business issues by having outside experts
handle various operational details.
• Providing access to world-class capabilities
• The specialized resources of outsourcing providers makes world-class
capabilities available to firms in a wide range of applications.
Strategic Rationales for Outsourcing
(cont’d)
• Accelerating re-engineering benefits
• Achieves re-engineering benefits more quickly by having outsiders—who
have already achieved world-class standards—take over process.
• Sharing risks
• Reduces investment requirements and makes firm more flexible, dynamic and
better able to adapt to changing opportunities.
• Freeing resources for other purposes
• Redirects efforts from non-core activities toward those that serve customers
more effectively.
Outsourcing Issues
• Seeking greatest value
• Outsource only to firms possessing a core competence in terms of performing
the primary or supporting the outsourced activity.
• Evaluating resources and capabilities
•Do not outsource activities in which the firm itself can create and capture
value.
• Environmental threats and ongoing tasks
•Do not outsource primary and support activities that are used to neutralize
environmental threats or to complete necessary ongoing organizational tasks.
Outsourcing Issues (cont’d)
• Nonstrategic team resources
•Do not outsource capabilities critical to the firm’s success, even though the
capabilities are not actual sources of competitive advantage.
• Firm’s knowledge base
•Do not outsource activities that stimulate the development of new
capabilities and 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—former core
competencies that now generate inertia and stifle innovation.
• Determining what the firm can do through continuous and effective analyses of its
internal environment will increase the likelihood of long-term competitive
success.
Focus strategy
• In a focus strategy the firm concentrates on one (or at most a limited number of)
segments of the market
• The premise behind this strategy is that the needs of the group can be bettered
served by focussing entirely on it
• The firm might feel more secure in the niche with greater insulation from
competition
• A focus strategy means that the firm’s efforts are not spread too thinly
• Focus strategies are
• Cost focus: cost leader in a particular segment
• Focus differentiation: differentiation in the chosen segment
Requirements of a focus strategy
A focus strategy requires…
• The identification of a suitable target customer group
• Identification of the specific needs of that group
• Confirmation that the market is sufficiently large to sustain the business
• Estimation of the extent of competition within the segment
• Production of products to meet the specific needs of that group
• A decision on whether to opt for cost leadership or differentiation within the
segment
Benefits of a focus strategy
• It involves lower investment in resources
• The firm benefits from specialisation
• It provides scope for greater knowledge of a segment of the market
• It makes entry to new markets easier and less costly
• Firms using a focus strategy often enjoy a high degree of customer
loyalty
Focused cost leadership
A strategy that aims…
• To attract one type of customer with a low cost product
• To be the lowest cost operator in one particular niche segment of the
market
Example :Hyundai
Focused differentiation
• A strategy that aims to attract one type of customer with a
differentiated product
• It involves distinctiveness in one segment
• Aims to exploit unique position in a niche segment of the market
• Not the cheapest but the best or most distinctive in that segment
• Example: BMW, Mercedes
The five forces and a focus strategy
Problems associated with focus
strategy
• Limited opportunities for growth
• Sacrifice of economies of scale that would be available from a larger market
• The firm could outgrow the market
• Danger of decline in the chose segment or niche
• A reputation for specialisation inhibits move into new sectors
• Risk of imitation
• Risk of changes in the target segment
Multiple strategies
• Firms that are able to succeed at multiple strategies create separate
business units for each strategy
• By separating the strategies into
• Different units
• Each with its own culture
• Each with its own brands
Summary
• Cost leadership
• Being the lowest cost producer in the industry as a whole
• Differentiation
• The exploitation of a product or service which is believed to be unique
• Focus
• Restricting activities to only part of the market through:
• Providing goods or services at lower cost to that segment (cost focus)
• Providing a differentiated product or service to that segment (differentiation
focus)
Cost Driver Analysis

• refers to the analysing of the various cost drivers involved in

production activity and explaining the cause-and-effect relationship
between the cost driver and the total cost incurred.
• There are 3 types of cost drivers: Volume Drivers, Unit Price
Drivers, and Fixed Cost Drivers (Overhead)
• Examples of cost drivers are direct labour hours worked, the number
of customer contacts made, the number of engineering change orders
issued, the number of machine hours used, and the number of product
returns from customers.
Strategic intent
• is the term used to describe the aspirational plans, overarching purpose
or intended direction of travel needed to reach an organisational
vision.
• Major attributes: Sense of Direction, sense of Discovery and sense of
Destiny
• It is internally focused, defining how the firm uses its resources,
capabilities and Core competencies.
• “We strive to use our leadership to be part of the solution to achieve
positive change in the world and to build a more sustainable future for
our planet.
- The Coca-Cola company
 VRIO Analysis
• The VRIO framework is an internal analysis that helps businesses identify the
advantages and resources that give them a competitive edge.
• Elements- value, rarity, imitability, and organization, the criteria used to evaluate
an organization's resources and capabilities.
• Steps to successfully use the VRIO analysis:
Step 1) Identify your resources. Before using the VRIO framework, you must first
classify your resources into their respective categories.
Step 2) Conduct a VRIO Analysis.
Step 3) Protect Resources.
Step 4) Bi-Annual Review.
Module V
Strategy Generation & Identification
Grand strategy
• Grand strategy is associated with actions that are normally considered
off-the-table.
• For example, a business grand strategy may include approaches such
as layoffs, divestiture, consolidation, mergers and liquidation that the
firm doesn't normally consider a strategic option
Grand Strategic Alternatives
• Are the decisions or choices of long term plans from available
alternatives.
• Also called as master or corporate strategy
• It is based on analysis of internal and external environment
• This direct the organisation towards achievement of overall long term
objectives (Strategic intent)
• They involve Expansion, Quality Improvement, Market Development,
Innovation, Liquidation etc.
• Usually they are selected by top level management such as directors,
executives etc.
Classification of Grand Strategy
It is classified into following:
- Stability Strategy
- Growth Strategy
- Retrenchment Strategy
- Combination Strategy
Stability Strategy
• A Strategy is stability strategy when a firm attempts to maintain its
status-quo with existing levels of efforts and it is satisfied with only
incremental growth/ improvement by marginally changing the business
and concentrates its resources where it has or can develop rapidly a
meaningful competitive advantages in the narrowest possible product
market scope.
• Absence of significant change
• i.e. continuing to serve the same clients by offering the same product,
maintaining market share, and sustaining the organization’s
return-on-investment.
When do organization follow
• When a firm serves defined market and its segments to fulfil its
mission
• When a firm can relate itself with the environment and environmental
factors do not show any appreciable change in short run
• When organization continues to pursue the same objectives by
adjusting to the same level of achievement about the same percentage.
• When there is scope for incremental improvement in the same line of
business to take fullest advantage of situation. Eg. Company with
initiation benefit.
Why do organisation follow
• When management perception about performance in the present
business is satisfactory, they tend to follow stability strategy
• This strategy involves low risk unless there is a major change in the
environment. So it provides safe business. So it is preferred by risk
avoiding managers.
• “Slow or resistant to change” organisations follow this strategy. As they
become more successful, they develop such tendency to prefer stability
• Organisations past history may be full of changes, so to reap the
advantages of such past, stability is preferred for some time, usually
after growth strategy.
Alternatives of Stability strategy
Incremental growth strategy-
• entails the little benefits businesses acquire from their activities within
a given period by applying strategies that.
• It being a less risky and the organisation does not go for higher risk
- The organisation is change resistant and prefers change only in
extraordinary times.
Alternatives of Stability strategy
Profit strategy/ End game strategy/ Harvesting strategy
• It is one in which organisation or its SBU aims at generating
profit/cash. Sometimes at the cost of market share also because-
- The product is not prestigious
- Its market share & also contribution to total sales are very small
- The product is in stable or declining market
- Here, company wants to encash as much profit as possible before
retrenchment
 Alternatives of Stability strategy
Sustainable growth strategy
• It is one in which a firm tries to maintain its existence in unfavourable critical
conditions like constraints on finance resources, raw material resources etc.
• Stability as a pause/ breathing spell/ proceed with caution strategy
• It is one in which organisation has followed growth strategy aggressively in recent
past and want a pause on growth to consolidate its position by allowing structural
changes to take place and system to adopt new strategies thereby it wants to take
full advantage of future growth opportunities and strong present factors.
• Thus this strategy becomes intermediate choice between past & future, for some
time
Growth strategy
• Growth strategies are means by which an organisation plans to achieve
the increased level of objective that is much higher than its past
achievement level
• Organisation may select a growth strategy
- to increase their profits, sales or market share
- to reduce cost of production per unit
- increase in performance objectives
Reason for following
• In the long run, growth is necessary for the very survival of the organisation.
The organisation does not grow may be pushed out of the business because
- of the new entrants in the field
- higher wages, higher costs of other inputs and lower level of efficiency
because of certain obsolescence in plant and machinery
Growth offers many economies because of large-scale operations
- Per unit cost of production can be very low
- with more people available to do the different kinds of work
 Alternatives of Growth Strategy
Concentric Expansion Strategy
• It means investing the resources in one or more of a firm’s business so as to expand
its present business
• i.e. doing more what we are already doing and where we are best at doing; when
potential for growth, attractiveness and maturity factors are favourable in the
industry of the firm
• It can be aimed at-
- Market penetration (Capture the market share in the existing product and expand its
business at rate higher than the industry growth)
- Market development (increase sales by developing new markets, geography-wise or
segment-wise)
- Product development (achieve growth through product innovation to penetrate in
new segment)
Alternatives of Growth Strategy
Vertical Integration Growth Strategy
• It represents a decision by an organisation to utilize internal transactions
rather than market transactions to accomplish its objectives.
• A firm starts undertaking & contributing activities, in addition to present
activities, along the line of value addition stages from raw material stage to
production and ultimately distribution of goods to customers, so as to gain
ownership or increased control and thereby expand the business
• Vertical integration can be achieved in two ways
- Forward integration – buying parts of Supply chain prior to mfg process
- Backward integration – buying parts after the mfg process
Alternatives of Growth Strategy
Diversification strategy
• It is the process of entry into a business which is new to an organisation
• Diversified organisation can be classified into following
- Concentric Diversification - Adding new product to its existing product(related
diversification)
• Market- wise
• Technology- wise
• Both
- Conglomerate Diversification - Company seeks to develop by adding totally unrelated
products and market to its existing business (Unrelated diversification)
External Strategy
Merger Strategy
• It means that two or more organisations merge together by formally
loosing their corporate identities and form another organisation for
mutual synergetic benefits.
• The new company is called holding company and the merging
companies are called subsidiary companies.
• According to the nature of business of merging companies, merger
may be
- Horizontal, Vertical, Concentric and Conglomerate
External Strategy
Acquisition or takeover
• It means the one company attempts to acquire ownership or control
over management of other co. either by mutual consent of or against
the wishes of latter’s (other co.) management or stock holders.
• It may be
- Friendly takeover (with the consent of the management)
- Hostile takeover (by going directly to the target companies
shareholders)
External Strategy
Joint venture
• It means that two or more companies to form a new company by
equity participation and sharing of resources like finance, managerial
talents, technology etc. so as to create new entity district from its
parents
• JV b/w Govt. and another company
• JV b/w tow or more private sector companies
• JV b/w Indian company and a foreign company
 Retrenchment Strategy
• A defensive strategy in which a firm having declining performance decides
to improve its performance through contraction in this activities i.e. reducing
the scope of its business by total or partial withdrawal from present
business.
- focusing on functional improvement with special emphasis on cost
reduction or
- reducing the number of functions it performs, by being captive firm or
- reducing the number of products, markets, customer functions etc. or
- liquidation of business (as a last alternative) or
- combinations of above
Reason for adopting
• When the organisation is not doing well and perceives that it may not do
better in future too in a particular line of business it is advisable to delete
that line of business. After deletion, the organisation can concentrate in
other areas, where it has some advantages.
• It the organisation is not meeting its objectives even after following other
alternative strategies it may go for retrenchment strategy.
• Also when the management is under pressure to improve the
performance, this strategy can be pursued as a last resort.
 Alternatives of Retrenchment Strategy
Turnaround Strategy
• It is also known as cutback strategy “hold the present business and cut the
costs”
• It is one in which a company tries to recover from its declining state by
improving internal efficiency
• Turnaround actions may include:
- Change in the product mix
- Selling of assets which are not useful for long time or in future also to
generate cash
- Closing down the plants & divisions which are not rewarding
Alternatives of Retrenchment Strategy
Divestment Strategy
• In this strategy the organisation decides to get out of certain business
and sells off units or divisions
• Divestment is done through:
- Outright sale of unit to another company for which the divested unit is
a strategic fit or
- Leveraged buyout- a company’s shareholder are bought out by company’s
management and other private investors using borrowed funds
 Alternatives of Retrenchment Strategy
Liquidation Strategy
• It is one in which a firm closes down & sells its entire business a fair price
on the basis of tangible assets, management goodwill & also intangible
assets and investments the realization somewhere else or distributes among
debtors and members when
- Business cant be revived and its retaining value is less than its selling
- Business is in peak form (value, but future is quite uncertain, having no
direction)
Combination strategy
• Is not an independent classification but it is a combination of different
strategies –
Stability, growth, retrenchment- in various forms
Thus the possible combinations of strategies may be:
- Stability in some businesses and growth in other businesses
- Stability in some businesses and retrenchment in other businesses
- Growth in some businesses and retrenchment in other businesses
- Stability, growth and retrenchment in different businesses
 Reasons for following
Different products in different product life cycle
- When different products of the organisation are at different product life
cycle stage, they require different types of investment
Business Cycle
- May affect the prospect of various businesses directly
Number of businesses
- When the number of businesses in an organisation has gone beyond the
optimum number, they are required to be reduced because some business may
not be that attractive from long term point of view.
 Blue Ocean Strategy:
Combining Differentiation and Cost Leadership

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scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
 What Is Blue Ocean Strategy?

• Successfully combining differentiation and

cost-leadership activities

• Uses value innovation to reconcile trade-offs

• The metaphor of blue ocean means:

• Untapped market space
• The creation of additional demand
• The opportunity for highly
profitable growth
 Example of a Successful Blue Ocean Strategy:
Trader Joe’s

• A regional grocer

• Offers high value and health conscious foods

• Offers much lower costs than Whole Foods

 Successful Blue Ocean Strategy
• Changes the competitive landscape
• Opens up new areas of competition
• Requires the firm to:
• Reconcile tradeoffs
• Increasing value
• Lowering production costs
• Pursue both business strategies simultaneously
• Example: Toyota
• Introduced lean manufacturing
• Delivered higher quality cars at lower cost
 Blue Ocean: How IKEA Did It

• Eliminate
• Sales people
• After sales service
• Reduce
• Warranties
• Raise
• Offers tens of thousands of home furnishing items
• Create
• New way to shop for furniture
Value Innovation

• Accomplished through the simultaneously pursuing

differentiation (V ↑) and low cost (C ↓)

Exhibit 6.8
SOURCE: Adapted from C.W. Kim and R. Mauborgne (2005), Blue Ocean Strategy: How to Create Uncontested Market Space and
Make Competition Irrelevant (Boston, MA: Harvard Business School Publishing).
 To Achieve Successful Value Innovation,
Answer These Questions

• Lowering costs
• Eliminate: Which of the factors that the industry takes for granted should be
eliminated?
• Reduce: Which of the factors should be reduced well below the industry’s
standard?
• Increasing perceived consumer benefits
• Raise: Which of the factors should be raised well above the industry’s
standard?
• Create: Which factors should be created that the
industry has never offered?
Adjacency moves
• a company's continual moves into related segments or businesses that
utilizes and, usually, reinforce the strength of the profitable core.
• a strategy that works well for brands that can take what they are
best at into markets where that facet is lacking.
• Doing so means the brand continues to work from within a skill set
where it has marked superiority, and to apply it, with advantage, to
unprecedented places.
• According to a Bain & Company study on adjacency growth, only one
in four adjacency moves is successful. That's right—just 25%.
Module VI

Evaluation & Choice of Strategy

Strategy Analysis Choice
• Strategic analysis and choice largely involves making subjective
decisions based on objective information.
The Nature of Strategy Analysis and Choice
• Establishing long-term objectives
• Generating alternative strategies
• Selecting strategies to pursue
• Best alternative to achieve mission and
objectives
Introduction
•Organisations continually face the challenge of exercising
choice among alternatives. Strategic choice is an inalienable
part of the decision making process.
•The process of strategic choice is essentially a decision
making process.
Process on Strategic alternative

Focusing on strategic alternative

Analysing the strategic alternative

Evaluating the strategic alternative

Choosing from the strategic alternative

Focusing on Strategic alternatives
• Focusing on alternative could be done by visualising the future state
and working backwards. This can be done through Gap Analysis
• Gap Analysis = Projected Performance – Desired Performance
Strategic Alternative
• At the corporate Level:
1. Expansion Strategy
2. Stability Strategy
3. Retrenchment Strategy
4. Combination Strategy
Expansion Strategy
• If the performance GAP is large due to expected environmental
opportunity, then expansion strategy would be seem to be a feasible
alternative.
• Stability Strategy:
If the “Performance Gap” is narrow then Stability Strategy would be
a feasible alternative.
• Retrenchment Strategy:
If the performance GAP is large due to Past and expected bad
performance then Retrenchment strategy would be feasible
alternative.
• Combination Strategy :
In the complex scenario, where the multiple reason for the
performance Gap then combination strategy would be feasible
alternative.
Strategic Alternatives
At the Business level:
•Organisations need to think alternative ways of competing.
•Choice is essentially between positioning the business as
being low-cost, differentiated or focused.
Strategic Alternatives

At the Business Level:

• It needs to understand the conditions of the industry risk and benefit of
each competitive positioning before making a choice.
• By referring 3 dimensions
- Customer group
- Customer functions
- Alternative technologies
Analysing the Strategic Alternatives
An analysis has to rely on certain factors.
•These factors are termed as selection factors.
•Objective Factors – Based on analytical techniques and hard
facts or data
•Subjective Factors – Based on one’s personal judgment,
collective or descriptive factors
Evaluating the strategic Alternatives
•Evaluation of strategic alternatives basically involves
bringing together the analysis done on the basis of the
objective and subjective factors.
•To observe what is important, both the factors have to be
consider together
Choosing from among the strategic
Alternative
•This is the final step of making the strategic choice. One or
more strategies have to be chosen for implementation.
•Also a blue print has to be made that will describe the
strategy and the condition under which they operates.
Strategy Analysis Choice
Alternative strategies derive from
• Vision
• Mission
• Objectives
• External audit
• Internal audit
• Past successful strategies
Strategy-Formulation Analytical Framework

Stage 1 The Input Stage

Stage 2 The Matching Stage

Stage 3 The Decision Stage

Formulation Framework

Internal Factor Evaluation Matrix (IFE)

External Factor Evaluation Matrix (EFE)

Stage 1 The Input
Stage

Competitive Profile Matrix (compare your

strengths and weaknesses)
Input Stage
• Provides basic input information for the matching
and decision stage matrices
• Requires strategists to quantify subjectivity
early in the process
• Good intuitive judgment always needed
 TOWS Matrix

Space Matrix

Stage 2 : Matching
BCG Matrix
Stage

IE Matrix

Grand Strategy Matrix

Formulation Framework
Matching Stage

Match between organizations internal resources and skills and the

opportunities and risks created by its external factors.
 Matching Key Factors to Formulate Alternative Strategies

Key Internal Factor Key External Factor Resultant Strategy

Excess Working capacity + 20% annual growth in the cell = Acquire Cellfone.Inc
phone industry (opportunity)

Insufficient Capacity + Exit of two major foreign = Pursue horizontal integration by

(weakness) competitors from the industry buying competitors facilities
(Opportunity)

Strong R&D (strength) + Decreasing numbers of young = Develop new products for older
adults (threat) adults

Poor employee morale + Strong union activity (threat) = Develop a new employee benefits
(weakness) package
Matching Stage

TOWS Matrix Develop four types of strategies

• Threats • Strengths-Opportunities (SO)
• Opportunities strategy
• Strengths • Weaknesses-Opportunities (WO)
strategy
• Weaknesses
• Strengths-Threats (ST) strategy
• Weaknesses-Threats (WT)
strategy
Developing TOWS Matrix
Steps in developing the TOWS Matrix
• List the firms key external opportunities
• List the firms key external threats
• List the firms key internal strengths
• List the firms key internal weaknesses
Developing TOWS Matrix
• Match internal strengths with external opportunities and record the
resultant SO Strategies
• Match internal weaknesses with external opportunities and record the
resultant WO Strategies
• Match internal strengths with external threats and record the resultant
ST Strategies
• Match internal weaknesses with external threats and record the
resultant WT Strategies
SPACE Matrix
Strategic Position and Action Evaluation Matrix
• Four quadrant framework
Determines appropriate strategies -
• Aggressive
• Conservative
• Defensive
• Competitive
SPACE Matrix
Two Internal Dimensions -
• Financial Strength (FS)
• Competitive Advantage (CA)

Two External Dimensions -

• Environmental Stability (ES)
• Industry Strength (IS)
SPACE Matrix
Overall Strategic position determined by -
• Financial Strength (FS)
• Competitive Advantage (CA)
• Environmental Stability (ES)
• Industry Strength (IS)
SPACE Matrix
Developing the SPACE Matrix -
• External Factor Evaluation (EFE) Matrix
• External Factor Evaluation (IFE) Matrix
• Financial Strength
• Competitive Advantage
• Environmental Stability
• Industry Strength
SPACE Matrix
• Select variables to define FS, CA, ES, IS
• Assign numerical ranking from 1 (worst) to 6 (best) for FS and IS
Assign numerical ranking from 1 (best) to 6 (worst) for ES and CA.
• Compute average score for FS, CA, ES, IS
SPACE Matrix
• Plot the average scores on the Matrix
• Add the two scores on the x-axis and plot point on X. Add the scores
on the y-axis and plot Y. Plot the intersection of the new xy point.
• Draw a directional vector from origin through the
new intersection point.
Space Factors

Internal Strategic Position External Strategic Position

• Financial Strength (FS) • Technological Changes
• ROI • Rate of inflation
• Leverage • Demand variability
• Liquidity • Price range of competing
• Working Capital products
• Cash flow • Barriers to entry
• Ease of exit from market • Competitive pressure
Space Factors

Internal Strategic Position External Strategic Position

• Competitive Advantage (CA) • Industry Strength (IS)
• Market Share • Growth potential
• Product Quality • Profit potential
• Product life cycle • Financial stability
• Customer loyalty • Resource utilization
• Technology know-how • Productivity, capacity utilization
SPACE Matrix
Grand Strategy Matrix
• Popular tool for formulating alternative strategies

• All organizations (or divisions) can be positioned in one of four

quadrants

• Based on two evaluative dimensions -

- Competitive position
- Market growth
Grand Strategy Matrix
Formulation Framework

Stage 3 : The Quantitative Strategic Planning

Decision Stage Matrix (QSPM)
Decision Stage
It involves a single technique, the Quantitative Strategic Planning
Matrix-
• A QSPM reveals the relative attractiveness of alternative strategies
and, thus, provides an objective basis for selecting specific strategies.
• For eg., one set of strategies include concentric, horizontal and
conglomerate diversification, whereas another set may include issuing
stock and selling a division to raise needed capital, and the QSPM
evaluates strategies only within sets.
QSPM
Quantitative Strategic Planning Matrix

• Only technique designed to determine the relative attractiveness of

feasible alternative actions
• Tool for objective evaluation of alternative strategies
• Based on identified external and internal crucial
success factors
• Requires good intuitive judgment
QSPM Matrix
Cultural Aspects of Strategy Choice
Culture
• The set of shared values, beliefs, attitudes,
customs, norms, personalities, heroes, and
heroines that describe a firm
Cultural Aspects of Strategy Choice
• Successful strategies depend on degree of support
from a firms culture
Politics of Strategy Choice
Politics in Organisations –

• Management hierarchy
• Career Aspirations
• Allocation of scarce resources
Politics of Strategy Choice
Political tactics for Strategists –
• Equifinality
• Satisfying
• Generalization
• Focus on High – order issues
• Provide Political Access on Important issues
Role of Board of Directors
• Duties and Responsibilities –

1. Control and oversight over management

2. Adherence to legal prescriptions
3. Consideration of stakeholder interests
4. Advancement of stakeholders’ rights
Product life cycle strategies
• The product life cycle contains four distinct stages: introduction,
growth, maturity and decline. Each stage is associated with changes in
the product's marketing position. You can use various marketing
strategies in each stage to try to prolong the life cycle of your
products.
 Product introduction strategies
• Marketing strategies used in the introduction stages include:
• rapid skimming - launching the product at a high price and high
promotional level
• slow skimming - launching the product at a high price and low
promotional level
• rapid penetration - launching the product at a low price with significant
promotion
• slow penetration - launching the product at a low price and minimal
promotion
Product introduction strategies
During the introduction stage, you should aim to:
• establish a clear brand identity
• connect with the right partners to promote your product
• set up consumer tests, or provide samples or trials to key target
markets
• price the product or service as high as you believe you can sell it, and
to reflect the quality level you are providing
Product Growth Strategies

• improving product quality

• adding new product features or support services to grow your market
share
• entering new markets segments
• keeping pricing as high as is reasonable to keep demand and profits
high
• increasing distribution channels to cope with growing demand
Product Growth Strategies
• shifting marketing messages from product awareness to product
preference
• skimming product prices if your profits are too low
• The growth stage is when you should see rapidly rising sales, profits
and your market share. Your strategies should seek to maximise these
opportunities.
 Product maturity strategies
• When your sales peak, your product will enter the maturity stage. This
often means that your market will be saturated and you may find that you
need to change your marketing tactics to prolong the life cycle of your
product. Common strategies that can help during this stage fall under one of
two categories:
• market modification - this includes entering new market segments,
redefining target markets, winning over competitor's customers, converting
non-users
• product modification - for example, adjusting or improving your product's
features, quality, pricing and differentiating it from other products in the
marking
 Product decline strategies
• During the end stages of your product, you will see declining sales and profits.
This can be caused by changes in consumer preferences, technological advances
and alternatives on the market. At this stage, you will have to decide what
strategies to take. If you want to save money, you can:
• reduce your promotional expenditure on the products
• reduce the number of distribution outlets that sell them
• implement price cuts to get the customers to buy the product
• find another use for the product
• maintain the product and wait for competitors to withdraw from the market first
• harvest the product or service before discontinuing it
Product decline strategies
Another option is for your business to discontinue the product from your
offering. You may choose to:
• sell the brand to another business
• significantly reduce the price to get rid of all the inventory
• Many businesses find that the best strategy is to modify their product
in the maturity stage to avoid entering the decline stage.