Strategic management

1. Strategy Management
The Strategic Management Process

2. The Strategic Management Process
Top management in an enterprise plays a very important role in the formal
Strategic Planning process which has the following main steps. These steps
need to be followed sequentially:
Dr. B. K. Mukherjee 2
EVALUATE
Current
Mission
Goal
Strategy
Scan Int.
Envment
-Core comp.
- Synergy
- Value
Creation
Identify
Str.factors
-Strengths
-Weak-nesses
FORMULATE
Strategy
-Corporate
- Business
- Functional
SWOT
Scan Ext.
Envment
- National
- Global
Identify
Str.factors
- Opports.
- Threats
Define
New:
- Mission
- Goals
- Grand
Strategy
IMPLEMENT
Strategy via
Changes in
-Leadership/
Culture
- Structure
- Human Res.
- Info/Control
systems

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

5. Strategy Formulation - The Ansoff Matrix
Review of opportunities for improving the existing businesses’ performance
Existing Products New Products
H.Igor Ansoff’s ‘Product - Market Expansion Matrix, HBR, 1957 [Ref: Aaker David, Ch.11]
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MARKETS
PRODUCTS
Existing
Markets
New
Markets
Market Penetration Strategy
Market Development Strategy
Product Development Strategy
Diversification Strategy
• Increase Market share by
- creating a SCA (Sustainable
Competitive Advantage) with
enhanced customer value.
• Increase product usage through
- increase in frequency of use,
- increase in quantity of use, and
- new applications for current users.
• Add product features, product
refinement
• Develop a new-generation product
• Develop new (related) products for
the same market (through brand
extension).
• Expand geographically
• Target new segments
• Related
• Unrelated

6. Hierarchy of Organizational Strategy
Corporate level
Business
level
SBU-3
Snacks
Frito Lay,
Rolled Gold Pretzels
SBU-2
Quaker Oats
FORMULATING STRATEGIES: Corporate level
Multi-business corporations have to consciously decide as to what lines of
businesses they would like to be in. If, at the same time, they are Multi-national
corporations then they have to also decide which countries they
would like to do business in. These decisions are of crucial importance
which have a direct bearing on the fortunes of the enterprise and are made
at the Corporate level.
Dr. B. K. Mukherjee 6
Functional
level
Multibusiness
Corporation PepsiCo Inc.
SBU-5
Sports Drinks
Dole juices
Lipton Tea
SBU-4
Other Beverages
Tropicana, Aquafina
SBU-1
Soft Drinks
Pepsi, Mountain Dew, Slice
R&D Mfg Marketing HRD Finance
PepsiCo were also into the Restaurants business(Taco Bell, Pizza Hut, KFC) but have now divested.

7. Corporate level Strategies
PORTFOLIO STRATEGY
 The firm decides on a mix of business units and product-lines that fit
together in a logical way to provide synergy and competitive advantage
for the corporation.
 Such a balanced mix of business divisions are called Strategic
Business Units (SBUs).
 Each SBU may have a unique business mission, product-lines,
competitors and markets relative to the other SBUs (eg. SBUs of
Hindustan Lever are Soaps & Detergents; Personal products; Fats &
culinary items; Animal feeds; Beverages; Frozen foods; Speciality
chemicals; Agribusiness; and Exports.)
Bruce Henderson, President, The BOSTON CONSULTING GROUP
(BCG) and his team in 1970, evaluated SBUs with respect to two
dimensions, namely
- Business growth rate, i.e., how rapidly is the entire industry
increasing, and
- Market share, showing whether a business unit has larger or smaller
share than its competitors.
 The combinations of Growth and Share provide four categories of
SBUs for a Corporate portfolio.
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8. The BCG Matrix
High Market Share Low
3
The BCG Growth-Share Matrix, 1970
Dr. B. K. Mukherjee 8
Low
7
1
2
5
Business Growth Rate
STARS
Rapid Growth
And Expansion
QUESTION MARKS
New ventures, Risky –
a few go on to become Stars,
others divested
CASH COWS
Milk to finance
Question Marks
and Stars
DOGS
No further investment,
Keep if profitable.
Consider divestment
4
6

9. Analysis of the BCG Matrix
The combinations of Growth and Share, as seen in the BCG Matrix,
provide four categories of SBUs for a Corporate Portfolio:
11.. TThhee ‘‘SSTTAARR’’ eennjjooyyss llaarrggee mmaarrkkeett sshhaarree iinn aa rraappiiddllyy ggrroowwiinngg iinndduussttrryy ––
iimmppoorrttaanntt bbeeccaauussee ooff aaddddiittiioonnaall ggrroowwtthh ppootteennttiiaall.. PPrrooffiittss sshhoouulldd bbee
pplloouugghheedd bbaacckk iinnttoo tthhee bbuussiinneessss ffoorr ffuuttuurree ggrroowwtthh aanndd pprrooffiittss.. SSttaarrss
aarree vviissiibbllee aanndd aattttrraaccttiivvee,, hheennccee ttoo bbee nnuurrttuurreedd aanndd ddeevveellooppeedd..
22.. TThhee ‘‘CCAASSHH CCOOWW’’ iiss aa ddoommiinnaanntt bbuussiinneessss iinn aa mmaattuurree,, ssllooww--ggrroowwtthh
iinndduussttrryy wwiitthh aa llaarrggee mmaarrkkeett sshhaarree,, hheennccee hheeaavvyy iinnvveessttmmeennttss iinn
aaddvveerrttiissiinngg aanndd eexxppaannssiioonn aarree nnoo lloonnggeerr rreeqquuiirreedd.. PPrrooffiittss ttoo bbee
iinnvveesstteedd iinn ootthheerr rriisskkiieerr bbuussiinneesssseess..
33.. TThhee ‘‘QQUUEESSTTIIOONN MMAARRKK’’ eexxiissttss iinn aa nneeww,, rraappiiddllyy ggrroowwiinngg iinndduussttrryy bbuutt
hhaass oonnllyy aa ssmmaallll mmaarrkkeett sshhaarree.. HHeennccee rriisskkyy,, ccoouulldd bbeeccoommee aa SSttaarr oorr
ccoouulldd ffaaiill.. PPrrooffiittss ffrroomm CCaasshh CCoowwss mmaayy bbee iinnvveesstteedd iinn QQMMss iinn oorrddeerr
ttoo nnuurrttuurree tthheemm iinnttoo ffuuttuurree SSttaarrss..
44.. TThhee ‘‘DDOOGG’’ iiss aa ppoooorr ppeerrffoorrmmeerr,, eennjjooyyss ssmmaallll sshhaarree ooff aa ssllooww--ggrroowwtthh
mmaarrkkeett aanndd bbrriinnggss iinn lliittttllee pprrooffiitt ttoo tthhee ccoommppaannyy.. MMaayy bbee ddiivveesstteedd..
MMoosstt ccoorrppoorraattiioonnss hhaavvee bbuussiinneesssseess iinn mmoorree tthhaann oonnee qquuaaddrraanntt,, wwhheerree
cciirrccllee ssiizzee rreepprreesseennttss tthhee rreellaattiivvee ssiizzee ooff eeaacchh bbuussiinneessss..
Dr. B. K. Mukherjee 9

10. Business level Strategies
POTENTIAL
NEW ENTRANTS
Threat of New entrants
INDUSTRY
COMPETITORS
Rivalry among
existing firms
Bargaining power
of Suppliers
SUPPLIERS BUYERS
Threat of substitute products
from other industry
SUBSTITUTES
Bargaining power
of Buyers
PORTER’S FIVE FORCES MODEL
Competitive Forces that determine
Industry Profitability
Prof. Michael E. Porter of the Harvard Business School studied a number of
business organizations and proposed that business level strategies are a result
of five competitive forces in the company’s environment which help determine a
company’s position vis-à-vis competitors.
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11. Porter’s Five Forces Model
1. Threat of Potential new entrants: Capital requirements and
economies of scale are examples of two potential “barriers to entry”,
eg,Automobile industry v/s small mail-order business, Times of India
v/s Hindustan Times and DNA.
2. Bargaining power of buyers: ‘Informed’ customers become
empowered customers because they now have a range of options at
the market-place, eg, Eco-labeling. This situation is more
pronounced if there are one or two large, powerful customers.
3. Bargaining power of Suppliers: Concentration of suppliers and
availability of substitute suppliers are significant factors – whether
supplier can survive without a particular purchaser or whether
purchaser can threaten to self-manufacture the product.
4. Threat of substitute products: If the industry has a few close
substitutes (eg, Coffee industry v/s Tea, Soft drinks or Fruit juices, all
serving the customer needs for non-alcoholic drinks), then the
customer may switch preferences due to cost changes, increased
health-consciousness or any other such reason.
5. Rivalry among competitors: Scrambling and jockeying for position,
eg, Pepsi v/s Coke ad campaigns.
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12. Functional level Strategies
Porter’s Value Chain
M A R G I N
Service
M A R G I N
Firm Infrastructure
Human Resources Management
Technology Development
Procurement
Inbound
Logistics
Operations
Outbound
Logistics
Mktg. &
Sales
Primary Activities
Dr. B. K. Mukherjee 12
Support Activities
MFG.
SCM CRM
The Porter’s Value Chain (“Competitive Advantage”, 1985)provides a valuable
tool for identifying ways to create more customer value. Every firm is a collection
of activities performed to design, produce, market, deliver and support its product.
The Value Chain identifies nine strategically relevant activities that create value
and cost in a business.

13. The Porter’s Value Chain
PRIMARY ACTIVITIES
These comprise of the sequence of bringing materials into the
business (Inbound Logistics), converting them to final products
(Operations), shipping out final products (Outbound Logistics),
marketing them (Marketing & Sales), and servicing them
(Service). All these are Line functions.
SUPPORT ACTIVITIES
These are activities handled for the entire organization by certain
specialized departments, hence these are Staff functions.
 Infrastructure covers the costs of general management,
planning, finance, accounting, legal, and govt. affairs that are
borne by all the primary and support activities.
 Procurement involves the sourcing of various inputs for each
primary activity.
 Similarly, Human Resources Mgmt and Technology
Development are specialized activities covering all areas of the
firm’s business.
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14. The Porter’s Value Chain (contd.)
COMPETITIVE ADVANTAGE
The firm’s task is to examine its costs and performance in each value-creating
activity and look for ways to improve it.
This is done by estimating its competitor's costs and performance as
“benchmarks”. To the extent it can improve its performance vis-à-vis
competitors, it can achieve competitive advantage.
HOW TO LEVERAGE COMPETITIVE ADVANTAGE
Emphasis on close coordination and cooperation in areas involving cross-functional
inputs, eg, marketing and production.
Close monitoring and sustained improvements in core business processes,
Dr. B. K. Mukherjee 14
such as:
 New product realization process
 Inventory management process
 Order-to-remittance process
 Customer service process.