4. Why Strategy?
It’s about how businesses compete.
How to earn above average returns.
Selection of industries
Selection of segments
Choice of tactics
How to IMPLEMENT!
Rajesh Shende- DMIMS 4
5. Strategic Management: The set of managerial
decisions and actions that determines the
long-run performance of an organisation.
Strategic Planning: The process of
determining a company's long-term goals
and then identifying the best approach for
achieving those goals
Rajesh Shende- DMIMS 5
6. Four aspects that set strategic management
is important
Interdisciplinary
▪ Capstone of the Business degree
External focus
▪ Competition
Internal focus
Future direction
Rajesh Shende- DMIMS 6
8. STRATEGIC DECISION MAKING
Strategic Decision Making is the basic thrust
of Strategic Management.
Strategy formulation rests on decision
making.
Rajesh Shende- DMIMS 8
12. Objective to be achieved are determined.
Alternative ways of achieving obj.
Each alternative is evaluated on ability.
Best alternative is chosen.
Rajesh Shende- DMIMS 12
13. Establishing Hierarchy of strategic Intent
1. Creating & Communicating a Vision
2. Designing a Mission statement
3. Defining the Business
4. Adopting the Business Model
5. Setting Objectives
Rajesh Shende- DMIMS 13
14. Formulation of strategies
1. Performing external analysis
2. Performing internal analysis
3. Formulating Corporate & Business Level strategies
4. Preparing Strategic Plan
Implementation of Strategies
1. Activating Strategies
2. Designing Structure, System & Process
3. Managing Functional & Behavioral Implementation
4. Operationalising Strategies
Rajesh Shende- DMIMS 14
16. Strategy is a plan, or method of approach developed by an
individual, group, or organization, in an effort to successfully
achieve an overall goal or objective.
Policy refers to a definite course of action adopted by an
individual, group, or organization in an effort to promote the
best practice particular to desired results.
Tactics involves the detail, the procedure, and the order of how
to achieve the desired results particular to the strategy.
Rajesh Shende- DMIMS 16
18. Strategic Intent Like individuals, organizations must define what
they want to do and why they want to do this, this end result is
referred to as strategic intent.
Strategic intent is defined as “Strategic intent envisions a
desired leadership position and establishes the criterion the
organization will use to chart its progress.”
Rajesh Shende- DMIMS 18
19. Strategic Intent has a hierarchy
– Vision,
Mission,
Goals & Objectives.
Rajesh Shende- DMIMS 19
20. Sense of Direction : Strategic Intent implies a particular view about
long-term market or competitive position that an organization
hopes to build in future. It should be a view of the future –
conveying a sense of direction.
Sense of Discovery : Strategic intent is differential as each
organization differs from others; it implies a competitively unique
point of view about the future.
Sense of Destiny : Strategic intent has an emotional edge to it. It is an
end result that employees perceive as inherently worthwhile.
Rajesh Shende- DMIMS 20
21. IOC is the largest Indian company engaged in the business of
crude oil refining and offers a variety of products related to
oil sector.
Vision : IOC aims to achieve international standards of excellence in
all aspects of energy and diversified business with focus on
customer delight through quality products and services.
Mission : Maintaining national leadership in oil
refining, marketing, and pipeline transportation.
Objectives : Focusing on cost, quality, customer care, value
addition, and risk management.
Rajesh Shende- DMIMS 21
23. A good vision is idealistic.
A good vision inspires organizational
members.
A good vision reflects the uniqueness.
A good vision is well articulated and easily
understood.
Rajesh Shende- DMIMS 23
24. Mission Statement Mission statement is the
description of organizational mission.
The company mission is defined as the fundamental
unique purpose that sets a business apart from
other firms of its type and identifies its scope of its
operations in product and market terms.
Rajesh Shende- DMIMS 24
25. Following points should be considered while
preparing the mission statement:
Clear
Achievable
Feasible
Distinctive
Explanatory
Rajesh Shende- DMIMS 25
26. Tata Tea:
Achieve market and thought leadership for branded
tea in India.
Be recognized as the foremost innovator in tea and
tea based beverage solutions.
Drive long-term profitable growth.
Co-create enhanced value for all stakeholders.
Make Tata Tea a great place to work
Rajesh Shende- DMIMS 26
28. Goals and objectives are the end results which an
organization strives for.
There may be different ways in expressing end results
like market leadership, a certain percentage
increase in sales in a particular year etc.
Rajesh Shende- DMIMS 28
29. SMART DUMB
S – Specific D – Doable
M – Measurable U – Understandable
A – Attainable M – Manageable
R – Relevant B – Beneficial
T – Time-bound
Rajesh Shende- DMIMS 29
30. Direction
Clear Definition
Motivating force
Voluntary coordination
Performance Standard
Decentralization
Integration
Rajesh Shende- DMIMS 30
33. VISION
To seize future of tomorrow & create a future that will make economic value
added co.
To continue to improve quality of life of our employee & communities we serve.
Venture into new businesses that will own a share of our future .
MISSION & GOALS
Move from commodities to Brand.
Continue to lowest cost producer of steel.
Value creating partnership.
Enthused & happy employees.
Sustainable Growth.
STRATEGY
Manage knowledge.
Outsource strategically.
Invest in attractive new businesses.
Ensure safety & environmental sustainability
Rajesh Shende- DMIMS 33
35. Strategic Planning tool extremely useful for
Decision making.
Internal strength & Weakness of firm.
External Opportunities & Threats facing that firm.
Effective strategy Maximizes Strengths &
Opportunities, Minimizes Weaknesses & Threats.
SWOT analysis is used for business
planning, strategic planning, competitor
evaluation, marketing, business and product
development and research reports.
Rajesh Shende- DMIMS 35
37. Arises from Resources & Competencies
Experience, knowledge, data?
Marketing - reach, distribution, awareness?
Innovative aspects?
Location and geographical?
Price, value, quality?
Right products, quality and reliability.
Superior product performance v’s competitors.
Better product life and durability.
Spare manufacturing capacity.
Rajesh Shende- DMIMS 37
38. Limitation or Deficiency
Lack of competitive strength.
Reputation, presence and reach.
Rajesh Shende- DMIMS 38
39. Major Favorable situation in firm’s environment.
Improved buyer or supplier relations.
New technologies
Market developments
Could develop new products.
Local competitors have poor products.
Profit margins will be good.
End-users respond to new ideas.
Could extend to overseas.
New specialist applications.
Rajesh Shende- DMIMS 39
40. Major Unfavorable situation in firm’s
environment.
Entrance of new competitors,
Slow Market Growth,
New revised regulations,
Increased bargaining power
Rajesh Shende- DMIMS 40
41. Strengths (internal) Weaknesses (internal)
strengths/opportunities weaknesses/opportunities
obvious natural priorities potentially attractive options
Opportunities greatest ROI Potentially more exciting and
(external) Quickest and easiest to stimulating and rewarding due to
implement. change, challenge, surprise tactics,
Immediate action-planning. and benefits from addressing and
achieving improvements.
strengths/threats weaknesses/threats
easy to defend and counter Only potentially high risk
Threats basic awareness, planning, and Assessment of risk crucial.
(external) implementation required to meet Where risk is low then we must
these challenges. ignore these issues and not be
Investment in these issues is distracted by them.
generally safe and necessary. Defend/avert in very specific
controlled ways.
Rajesh Shende- DMIMS 41
42. Value Chain Analysis describes the activities
that take place in a business and relates them
to an analysis of the competitive strength of
the business.
Two types of activities
A)- PRIMARY ACTIVITIES
B)- SUPPORT ACTIVITIES
Rajesh Shende- DMIMS 42
47. Economies of Scale
Product Differentiation
Capital Requirements
Cost Disadvantages Independent of Size
Access to Distribution Channels
Government Policy
Rajesh Shende- DMIMS 47
48. A supplier group is powerful if:
It is dominated by a few companies and is more
concentrated than the industry it sells to
Its product is unique or at least
differentiated, or if it has built-up switching
costs
It is not obliged to contend with other products
for sale to the industry
It poses a credible threat of integrating forward
into the industry’s business
The industry is not an important customer of
the supplier group
Rajesh Shende- DMIMS 48
49. A buyer group is powerful if:
It is concentrated or purchases in large volumes
The products it purchases from the industry are
standard
The products it purchases from the industry
form a component of its product and represent
a significant fraction of its cost
It earns low profits
The industry’s product is unimportant to the
quality of the buyers’ products or services
The industry’s product does not save the buyer
money
The buyers pose a credible threat of integrating
backward
Rajesh Shende- DMIMS 49
50. By placing a ceiling on the prices it can
charge, substitute products or services limit the
potential of an industry
Substitutes not only limit profits in normal times
but also reduce the bonanza an industry can reap
in boom times
Substitute products that deserve the most
attention strategically are those that are
subject to trends improving their price-
performance trade-off with the industry’s
product or
produced by industries earning high profits
Rajesh Shende- DMIMS 50
51. Intense rivalry occurs when:
Tactics like price competition, advt., product diff.
Industry growth is slow, precipitating fights for
market share that involve expansion
The product or service lacks differentiation or
switching costs
Fixed costs are high or the product is
perishable, creating strong temptation to cut prices
Capacity normally is augmented in large increments
Exit barriers are high
Rivals are diverse in strategy, origin, and personality
Rajesh Shende- DMIMS 51
52. UNIT IV
EXTERNAL ANALYSIS-
ENVIRONMENT ANALYSIS
Rajesh Shende- DMIMS 52
53. Three tiers of environmental factors that affect
firm’s performance.
Five factors in the remote environment
The five forces model of industry analysis
The five factors in the operating environment
Rajesh Shende- DMIMS 53
54. Comprised of following Components:
Remote environment
Industry environment
Operating environment
Rajesh Shende- DMIMS 54
56. Economic Factors
Social Factors
Political Factors
Technological Factors
Ecological Factors
Rajesh Shende- DMIMS 56
57. Prime interest rates
Inflation rates
Trends in the growth of the gross national
product
Unemployment rates
Globalization of the economy
Outsourcing
Rajesh Shende- DMIMS 57
58. Present in the external environment:
Beliefs & Values
Attitudes & Opinions
Lifestyles
Developed from:
Cultural conditioning
Ecological conditioning
Demographic makeup
Religion
Education
Ethnic conditioning.
Rajesh Shende- DMIMS 58
59. Political constraints on firms:
Fair-trade Decisions
Antitrust Laws
Tax Programs
Minimum Wage Legislation
Pollution and Pricing Policies
Administrative jawboning
Rajesh Shende- DMIMS 59
60. Technological forecasting helps protect and
improve the profitability of firms in growing
industries.
It alerts strategic managers to impending
challenges and promising opportunities.
The key to beneficial forecasting of
technological advancement lies in accurately
predicting future technological capabilities and
their probable impacts.
Rajesh Shende- DMIMS 60
61. Ecology refers to the relationships among
human beings and other living things and the
air, soil, and water that supports them.
Threats to our life-supporting ecology caused
principally by human activities in an industrial
society are commonly referred to as pollution
Loss of habitat and biodiversity
Environmental legislation
Eco-efficiency
Rajesh Shende- DMIMS 61
62. Harvard professor Michael E. Porter propelled
the concept of industry environment into the
foreground of strategic thought and business
planning.
The cornerstone of Porter’s work first appeared
in the Harvard Business Review, in which he
explains the five forces that shape competition
in an industry.
Porter’s well-defined analytic framework helps
strategic managers to link remote factors to
their effects on a firm’s operating environment.
Rajesh Shende- DMIMS 62
63. The essence of strategy formulation is coping
with competition.
Intense competition in an industry is neither
coincidence nor bad luck.
Competition in an industry is rooted in its
underlying economics, and competitive forces
exist that go well beyond the established
combatants in a particular industry.
The corporate strategists’ goal is to find a
position in the industry where his or her
company can best defend itself against these
forces or can influence them in its favor.
Rajesh Shende- DMIMS 63
65. An industry is a collection of firms that offer
similar products or services.
Structural attributes are the enduring
characteristics that give an industry its
distinctive character.
Concentration refers to the extent to which
industry sales are dominated by only a few
firms.
Barriers to entry are the obstacles that a firm
must overcome to enter an industry.
Rajesh Shende- DMIMS 65
66. How do other firms define the scope of their
market?
How similar are the benefits the customers
derive from the products and services that
other firms offer? The more similar the
benefits of products or services, the higher
the level of substitutability between them.
How committed are other firms to the
industry?
Rajesh Shende- DMIMS 66
67. Also called competitive or task environment
Includes competitor positions and customer
profiling based on the following factors:
Geographic
Demographic
Psychographic
Buyer Behavior
Also includes suppliers & creditors and HRM
Rajesh Shende- DMIMS 67
68. Access to personnel is affected by 4 factors:
Firm’s reputation as an employer
Local employment rates
Availability of people with the needed skills
Its relationship with labor unions.
Rajesh Shende- DMIMS 68
69. Differing external elements affect different
strategies at different times and with varying
strengths
Only certainty is that the effect of the remote
and operating environments will be uncertain
until a strategy is implemented
Many managers, particularly in less powerful
firms, minimize long-term planning
Instead, they allow managers to adapt to new
pressures from the environment
Absence of strong resources and psychological
commitment to a proactive strategy effectively
bars a firm from assuming a leadership role in
its environment
Rajesh Shende- DMIMS 69
70. What is environmental scanning?
Environmental scanning refers to possession
and utilization of information about
occasions, patterns, trends, and relationships
within an organization’s internal and external
environment.
Rajesh Shende- DMIMS 70
78. Minimal organisational changes
Specialise in one business
Less problems to managers as known
situation
Decision making due to past experience
makes valuable
Rajesh Shende- DMIMS 78
79. Heavily dependent on industry
Product obsolescence
Less challenging
Cash flow problems
Rajesh Shende- DMIMS 79
80. Combining activities related to the present
activity of firm.
▪ Horizontal Integration Strategies
▪ Vertical Integration Strategies
Rajesh Shende- DMIMS 80
81. The process of acquiring or merging with industry
competitors
▪ Acquisition and merger
Rajesh Shende- DMIMS 81
82. Benefits of Horizontal Integration
Reducing costs
Increasing value
Product bundling
Cross selling
Managing industry rivalry
Increasing bargaining power
Market power (monopoly power)
Rajesh Shende- DMIMS 82
83. Expanding operations backward into an industry that
produces inputs for the company or forward into an industry
that distributes the company’s products
Two types
Forward Integration
Backward Integration
Rajesh Shende- DMIMS 83
84. Building barriers to entry
Facilitating investments in specialized assets
Protecting product quality
Improved scheduling
Rajesh Shende- DMIMS 84
85. Cost disadvantages
Company-owned suppliers that have higher costs
than external suppliers
Rapid technological change
Tying a company to an obsolescent technology
Demand unpredictability
Difficulty of achieving close coordination among
vertically integrated activities
Bureaucratic costs
Rajesh Shende- DMIMS 85
87. The process of adding new businesses to the company that
are distinct from its established operations
Types-
Concentric Diversification Strategies
Conglomerate Diversification Strategies
Rajesh Shende- DMIMS 87
88. When a company runs out of growth
opportunities in the core business and not
before!
When diversification results in creation of
value
Rajesh Shende- DMIMS 88
89. Entry into a new business activity in a different industry that is
related to a company’s existing business activity, or
activities, by commonalities between one or more
components of each activity’s value chain
It may be of three types-
1. Marketing-Related Concentric Diversification
2. Technology-Related Concentric Diversification
3. Marketing & Technology-Related Concentric Diversification
Rajesh Shende- DMIMS 89
90. Entry into industries that have no obvious connection
to any of a company’s value chain activities in its
present industry or industries
Rajesh Shende- DMIMS 90
92. MERGER
Combination of two or more organisation in which one acquire the
Assets & Liabilities of the other in exchange for shares or cash or both
the org. dissolved and assets & liabilities are combined and new stock is
issued.
Acquisition
The attempt of one firm to acquire the ownership or control over the
other firm.
Rajesh Shende- DMIMS 92
94. An entity resulting from a long term contractual
agreement between two or more parties to
undertake mutually beneficial economic activities.
Types of JV:
1. Within Industries
2. Across Industries
3. Across Countries
Rajesh Shende- DMIMS 94
95. Technology
Geography
Regulation
Sharing of risk & control
Intellectual exchange
Rajesh Shende- DMIMS 95
96. When two or more firms unite to pursue a set of agreed upon
goals, but remain independent subsequent to the formation of
alliance.
Cooperation between two or more independent firms involving
shared control & continuing contributions by all partners for
mutual benefit.
Rajesh Shende- DMIMS 96
101. Turnaround strategy means backing out, withdrawing or
retreating from a decision wrongly taken earlier in
order to reverse the process of decline.
a) Persistent negative cash flow
b) Continuous losses
c) Declining market share
d) Deterioration in physical facilities
e) Over-manpower, high turnover of employees, and low
morale
f) Uncompetitive products or services
g) Mismanagement
Rajesh Shende- DMIMS 101
102. Divestment strategy involves the sale or liquidation of a portion
of business, or a major division, profit centre or SBU.
Divestment is usually a restructuring plan and is adopted
when a turnaround has been attempted but has proved to be
unsuccessful or it was ignored.
a) A business cannot be integrated within the company.
b) Persistent negative cash flows from a particular business create
financial problems for the whole company.
c) Firm is unable to face competition
d) Technological up gradation is required if the business is to survive
which company cannot afford.
e) A better alternative may be available for investment
Rajesh Shende- DMIMS 102
103. Liquidation strategy means closing down the entire firm and selling its
assets. It is considered the most extreme and the last resort because
it leads to serious consequences such as loss of employment for
employees, termination of opportunities where a firm could pursue
any future activities, and the stigma of failure.
Reasons for Liquidation include:
(i) Business becoming unprofitable
(ii) Obsolescence of product/process
(iii) High competition
(iv) Industry overcapacity
(v) Failure of strategy
Rajesh Shende- DMIMS 103