Strategic Management model

Strategic Management

Prepared by S.Sangeetha, Faculty, KCTBS

6 Ps Prepared by S.Sangeetha, Faculty, KCTBS

Prior Proper Planning Prevents Poor Performance Prepared by S.Sangeetha, Faculty, KCTBS

Prepare a chart describing a business environment Prepared by S.Sangeetha, Faculty, KCTBS

Environment Change Opportunities Strengths ORGN

Market Industry

Threats competition

Govt Generic Public Shareholders NGOs

Competitor

Culture Structure CEO Managers Employees

Supplier Distributors Customers Prepared by S.Sangeetha, Faculty, KCTBS

Strategy • An unified, comprehensive and integrated plan that relates to the strategic adv of the firm to the challenges of the envt. • the basic objective of the enterprise • are achieved thro’ proper execution by the orgn. Prepared by S.Sangeetha, Faculty, KCTBS

Is defined as the set of • decisions & actions • resulting in formulation & • implementation of strategies designed to achieve the objectives of the orgn. Prepared by S.Sangeetha, Faculty, KCTBS

Could you mention the different levels of management?


Levels of strategy • Corporate

• Business • Functional


Levels of strategy Corporate level Business level

Functional level

Corporate

Business 1

PDN

Business 2

MKTG


FIN

Business 3

RESEARCH

Strategic Management model Contributed by Pearce and Robinson


Strategic Management Model Company Mission What is Company profile (Internal Analysis) f e e d b a c k

What is

possible desired

External environment (PEST analysis)

Strategic Analysis & Choice LT Objectives

Annual Objectives

Grand Strategy

Operating strategies

Institutionalisation of strategy

Control & Evaluation


Policies

f e e d b a c k

"Management's job is to see the company not as it is ...

but as it can become." Prepared by S.Sangeetha, Faculty, KCTBS

Japanese proverb "Vision without action is a daydream. Action without vision is a nightmare." Prepared by S.Sangeetha, Faculty, KCTBS

Company Mission •Enduring statement •The image the company seeks to project •The promise to satisfy the needs and wants •Values & priorities Prepared by S.Sangeetha, Faculty, KCTBS

Company Profile

Firms Internal Analysis

determines its Performance Capabilities based on 2 things

•Existing Resources •Accessible Resources Prepared by S.Sangeetha, Faculty, KCTBS

Company Profile • Depicts Quality & Quantity of Financial Resources Human Resources Physical Resources • Strengths & Weaknesses of the firm’s management & organisational structure

• Current Capabilities; • Future Capabilities Prepared by S.Sangeetha, Faculty, KCTBS

External Environment/ Environment Scanning

Classification: •Operating Environment •Remote Environment Prepared by S.Sangeetha, Faculty, KCTBS

Economy Industry

Firm Operating Envt Remote Envt


Operating Environment ( Within the Specific Industry)

•Within the Specific Industry Changes result from: Strategic actions •firm •firm’s competitors •Consumers, Users, Suppliers or Creditors Prepared by S.Sangeetha, Faculty, KCTBS

Remote Environment (Beyond the Operating environment) (PEST Analysis) •Political - Import Restrictions on Raw Materials •Economic- Spiraling Inflation •Social- Demographic swings of population in the geographic areas •Technological- Innovations make existing Technology obsolete Prepared by S.Sangeetha, Faculty, KCTBS

Strategic Analysis & Choice

Assessment External Envt

Company profile

Opportunities


Decision Making process


Decision Making process 1. Developing Criteria 2. Creating no.of Alternatives 3. Comparing one set of alternatives with all others 4. Evaluating the alternatives – wholly acceptable/unacceptable 5. Selection of Best Solution Prepared by S.Sangeetha, Faculty, KCTBS

What do you think is the long term goals of your corporate? Prepared by S.Sangeetha, Faculty, KCTBS

Long Term Objectives

1. 2. 3. 4. 5. 6. 7. 8.

Profitability ROI Competitive Position Technological Leadership Productivity Public Responsibility Employee Relations Employee Development Prepared by S.Sangeetha, Faculty, KCTBS

Objectives should be

•Specific •Measurable •Achievable •Consistent with other objectives of the firm Prepared by S.Sangeetha, Faculty, KCTBS

My Company is small in size. There is large scope for my business in aboard. What can I do? As a consultant Give your suggestions?


Grand Strategy

General plan of major actions thro’ which a firm intends to achieve its LT Objectives in a Dynamic Envt. Prepared by S.Sangeetha, Faculty, KCTBS

Classifications of Grand Strategy 1. 2. 3. 4. 5. 6.

Concentration Market Development Product Development Innovation Horizontal Integration Vertical Integration Prepared by S.Sangeetha, Faculty, KCTBS

7.Conglomerate Diversification 8.Concentric Diversification 9.Joint venture 10.Mergers & Acquisition 11.Retrenchment & Turnaround 12.Divestiture & Liquidation Prepared by S.Sangeetha, Faculty, KCTBS

• I want to become a market leader • Target Period 2025. • How can I become? • Which year would be the right time for execution? Prepared by S.Sangeetha, Faculty, KCTBS

• 2025- 100% achievement of my goals (market leader) • 2020- 75% achievement of my goals • 2015 – 50% achievement of my goals • 2010 – 25% achievement of my goals 2008- 5% achievement 2009- 10% achievement of my goals  2010 -10% achievement of my goals Prepared by S.Sangeetha, Faculty, KCTBS

Annual Objectives The results an organisation seeks to achieve within

one year. Greater possible

Specificity is Prepared by S.Sangeetha, Faculty, KCTBS

Functional Strategies

Each distinctive Business Function / Division needs a specific & integrative plan of action. Budgeting Process + Operating Strategies

to ensure Specificity Practicality Accountability

in the problem process


POLICIES

•They

are

Standard Operating procedures

•They serve to increase managerial effectiveness by standardising decisions Prepared by S.Sangeetha, Faculty, KCTBS

routine

Institutionalising the strategy

3 Organisational Elements Structure Leadership Culture Prepared by S.Sangeetha, Faculty, KCTBS

A good manager is a man who isn’t worried about his own career but rather the careers of those who work for him. H. S. M. Burns


Control & Evaluation Underlying & ultimate test of a strategy is ability to achieve

•Annual objectives •Long term objectives •Mission Prepared by S.Sangeetha, Faculty, KCTBS

• Strengths •Weaknesses •Opportunities •Threats Prepared by S.Sangeetha, Faculty, KCTBS

Strengths Those things that

you do well, the high value or performance points

Intangible:

Tangible:

•Loyal customers •Efficient distribution channels •Very high quality products •Excellent financial condition

•Good leadership •Strategic insights •Customer intelligence •Solid reputation •High skilled workforce


Best leverage points for

growth without draining your resources

Weaknesses

They are

Within •Bad leadership control •Unskilled workforce prevent •Insufficient resources you from •Poor product quality doing what •Slow distribution and you really need to do delivery channels •Outdated technologies Prepared by S.Sangeetha, Faculty, KCTBS •Lack of planning Those things that

Opportunities

Potential areas for growth and higher performance

•Marketplace •Unhappy customers with competitor’s •Better economic conditions •More open trading policies

Timing may be important for capitalizing on opportunities


Threats

Challenges confronting the organization, external in nature

•Bad press coverage •Shifts in consumer behavior •Substitute products •New regulations


Strengths

Opportunities

•Availability of high skilled labour •Cost effective •Deep mktg & dbtn network thro’ out country •High std R&D centres •Potential ground for clinical trials •Rich biodiversity •Growing middle and lower class population

•Ageing popn •Mktg Tie ups with fgn co’s •Global hub for clinical trials •Fgn co’s – research centers •Increasing partnerships & JVs •Hotspot for contract research

Weaknesses

Threats

•Less invt •Little innovation •Lack of commn & coodn •Large mkt for spurious drugs •Lack of implementation of policies •Rural mkt- yet untapped •Highly dependent on imports

•Drug price control order • unclear Regulatory policies •Complex regn •china govt


• • • •

Biocon- 3 partnerships Dr.Reddy’s Lab- 5 Partnerships Ranbaxy- 5 Partnerships Zydus Cadila- 1 Partnership


Actions of Indian govt • Regn of import, licensing, testing and mftre • Customs duty reduced from 10% - 5% • Direct invt in clinical researchservice tax exempt for 10 years • Protection for undisclosed data • Facility to avail patent Prepared by S.Sangeetha, Faculty, KCTBS

Benefits of Strategic Management


Benefits of strategic management

• Problem prevention • Group based strategic alternatives • Employee motivation • Gaps & overlaps – reduced • Resistance to change should be reduced Prepared by S.Sangeetha, Faculty, KCTBS

Risks • Costlier • Time consuming • Formulators & implementers are different • Managers must be  trained to anticipate, minimise or constructively respond Prepared by S.Sangeetha, Faculty, KCTBS

To Summarise • Strategy has been defined as "that which has to do with determining the basic objectives of an organization and allocating resources to their accomplishment." • A strategy determines the direction in which an organization needs to move to fulfill its mission. • A strategic plan acts as a road map for carrying out the strategy and achieving long-term results. Prepared by S.Sangeetha, Faculty, KCTBS

Difference between Long Range Planning & Strategy Long-range planning

Strategic planning

builds on current goals and practices and proposes modifications for the future.

considers changes or anticipated changes in the environment that suggest more radical moves away from current practices.


Grand Strategies

Quite expensive LT impact Prepared by S.Sangeetha, Faculty, KCTBS

Grand Strategies

Stability strategy Growth Strategies Retrenchment Strategies Prepared by S.Sangeetha, Faculty, KCTBS

Why do companies adopt Stability Strategy? Prepared by S.Sangeetha, Faculty, KCTBS

Stability Strategy Firm continues to serve its client in the same fashion as in the past. Reasons

•Focus Incremental improvement of financial performance Sticking to known business May not have the resources & capabilities for expansion May not want to take the risks of growth & expansion Prepared by S.Sangeetha, Faculty, KCTBS

Is this stability strategy a profitable one? Prepared by S.Sangeetha, Faculty, KCTBS

Dangers? Prepared by S.Sangeetha, Faculty, KCTBS

Dangers in adopting Stability Strategy

The environment changes Product line becomes obsolete May not allow the development & advancement of key employees Prepared by S.Sangeetha, Faculty, KCTBS

Growth Strategy Redefining the business

•by adding new products / services or

•new markets or •by substantially increasing the current business Prepared by S.Sangeetha, Faculty, KCTBS

Reasons for adopting Growth Strategy Prepared by S.Sangeetha, Faculty, KCTBS

Reasons for adopting Growth Strategy •No future •Volatile/unstable •Under utilisation of resources & capabilities.

•Spreading the risks. •Imitating competitors’ strategies •Urge to grow

growth

•Increase Market share/ gain Dominance.

•Environmental opportunities Prepared by S.Sangeetha, Faculty, KCTBS

Retrenchment Strategies

Contraction of scope Level of Business function Drop product line, market, market segmentation


Why adopt retrenchment Strategy?


Reasons for adopting Retrenchment Strategy

•Certain divisions /product lines / product /market segments are not profitable •Actual Profits < target level •Focus on Core business •The company is too diversified Prepared by S.Sangeetha, Faculty, KCTBS

Grand Strategies

(i) Concentration Strategy Concentrating in Current business •Single Market •Single Technology •Single Product (large share of few markets than few share of large mkts) Prepared by S.Sangeetha, Faculty, KCTBS

Characteristics of Concentration Strategy

•Low risk •Lowest additional resource •Slow growth , Profitability •Successful in case of small business Prepared by S.Sangeetha, Faculty, KCTBS

Advantages of concentration strategy

Specialisation Distinctive Competence & reputation Can identify new developments & trends within the industry & respond to them


How can you make this strategy a successful one? Prepared by S.Sangeetha, Faculty, KCTBS

Alternatives Available

Increasing present customers rate of usage Attracting competitors customers Attracting non users to buy the product Prepared by S.Sangeetha, Faculty, KCTBS


Increasing present customers rate of usage Paste, Mobile phone service providers;



Attracting competitors customers Eg: Tide Vs Rin



Attracting non users to buy the product Eg: free sim


Why do companies move from Concentration Strategy in present scenario?


• Your are renowned Jeweler in Coimbatore. • Explain the scope for development


•Ganapathy silks •Chennai silks


Market Development


Alternatives available to Market Development Strategies

•Regional expansion •National Expansion •International Expansion


Alternatives available to Market Development Strategies

•Regional expansion- Nellai lala sweets- Gandhipuram, goundampalayam, Kuniamuthur, Thudiayalur, Bharathiyar road, Avinashi road.

•National Expansion-112 Kendras in India.

•International Expansionkritilal kalidas; jewel one Prepared by S.Sangeetha, Faculty, KCTBS

Market Development •Present markets

products


in

new

Market Development •Present markets

products

in

new

•Adding different channels of distribution •Changing the content of advertising / promotional media Prepared by S.Sangeetha, Faculty, KCTBS

Attracting other market segments


Attracting other market segments

Developing product versions to appeal to other segments. Attracting other channels of distribution. Advertising in other media. Eg: Low priced Wheel , Nirma Prepared by S.Sangeetha, Faculty, KCTBS

MAGGI 2-MINUTE Noodles MAGGI Vegetable Atta Noodles MAGGI CUPPA MANIA MAGGI Healthy Soups MAGGI Masala-ae-Magic MAGGI Sauces MAGGI Pichkoo MAGGI Pizza Mazza MAGGI MAGIC Cubes MAGGI Vegetable Multigrainz Noodles MAGGI Bhuna Masala MAGGI Coconut Milk Powder MAGGI Pazzta MAGGI Sanjeevni Cup Soup


Nestle:

•Baby foods •Bottled water •Cereals •Chocolate & confectionery •Coffee •Culinary, chilled & frozen food •Dairy •Drinks •Food service •Healthcare nutrition •Ice cream •Petcare •Sports nutrition Prepared by S.Sangeetha, Faculty, KCTBS

Suguna poultry farm ltd. 9 states across India • Tamil Nadu, • Andhra Pradesh, • Karnataka, • Maharashtra, • Gujarat, • Orissa, • West Bengal, • Punjab and Prepared by S.Sangeetha, • Haryana. Faculty, KCTBS

Your company’s product is swept away by new innovation . What will be your remedial action?


Product Development •Substantial modification of existing products / Creation of new but related items. •Adopted to Prolong the PLC. Take advantage of favourable reputation & brand name Prepared by S.Sangeetha, Faculty, KCTBS

Variants Developing new product features Calorie free Sugar Developing quality variations Developing additional Models & Sizes Hamam Soaps available in different sizes. Liquid soaps, Cleansing soaps, Antibiotic, herbal, moisturiser soaps etc. Prepared by S.Sangeetha, Faculty, KCTBS

Rs.3200 crore turnover


• Apple – develops Iphone for China mobile


Risks •The process of creating a broad product line if they are expensive, risky & potentially unprofitable •Only few product ideas reach the mkt. Eg: Shampoos, Books, Godrej Hi Care –Good Knight Prepared by S.Sangeetha, Faculty, KCTBS

How can you create new market? Prepared by S.Sangeetha, Faculty, KCTBS

Innovation

•Producing new products

•New technology•Electronic gadgets • Eg: Massager Apple’s ipad Prepared by S.Sangeetha, Faculty, KCTBS

Markets

Products Existing New

Existing

Mkt penetration

Pdt dvlpt

New

Mkt dvplt

Diversification


Your are a market follower . Think how you can become market leader. Strategies to beat your competitor. Prepared by S.Sangeetha, Faculty, KCTBS

Horizontal / Vertical Integration Prepared by S.Sangeetha, Faculty, KCTBS

Horizontal Integration •Acquires one / similar business operating at the same stage of the production – marketing Chain. •The process to enter new markets by hiring firms. •(similar pdts/ substitutes / competitors)


Vertical Integration • Acquisition of business that either supply the firm with inputs or serve as a customer for the firm’s output Benefits: • Elimination /reduction of buying & Selling • Improved Coordination • In-house efficiency. Prepared by S.Sangeetha, Faculty, KCTBS

• Coal mines and power stations • Sugar cane cultivation and sugar mills • Spare parts and automobile manufacturers


• COAL MINING: CIL & NTPC • Suguna Poultry Farm Ltd. • Suguna Chicken

• Domino’s pizza • Reliance Prepared by S.Sangeetha, Faculty, KCTBS

• Hindalco Industries Limited is a global leader in aluminium and copper • vertical integration through access to captive copper concentrates


Suppliers

Horizontal Integration

Backward Vertical Integration

Manufacturers

Backward Vertical Integration


Forward Vertical Integration

Dealers/ Customers

Suppliers

Manufacturers Forward Vertical Integration



Dealers/ Customers

Fortune company is earning huge profits. What shall it do? Suggest. Prepared by S.Sangeetha, Faculty, KCTBS

Diversification

Represents distinctive departures from a firm’s existing base of reputation.


• •

• • • •

Why do firms diversify Growth ambition Need to provide flexibility to portfolio opportunities serve as attraction for diversification Increase profit Availability of surplus resources Congruence of existing synergies & emerging opportunities Recasting of mission leads to diversification Prepared by S.Sangeetha, Faculty, KCTBS

Does all diversification land up with success?


All diversification will not lead to profitability


Reasons why the diversification strategies fail

• No proper preparation • Diversification requires resource • Managerial competence • Screening of Diversification proposals


Problems • Managers are hired to act as an agents to represent the interests of stockholders • Agency theory states – managers will not always place stockholders interests above the own.


Concentric Diversification • When diversification involves the addition of a business related to the firm in terms of Technology Markets Products


Reasons for adopting concentric Diversification

• Excess Cash flow • Saturation of Pdt / mkt/ demand in the industry • Managerial Expertise • Combining the related activities of separate businesses into single operation to achieve lower costs • Exploiting common use of brand name For example: • breweries have been able to convert grain, a byproduct of the fermentation process, into feed for livestock. • Knit co’s producing mats out of the waste Prepared by S.Sangeetha, Faculty, KCTBS

Examples • Eureka Forbes • Usha International

–

home appliances Juicer, Mixer , geyser , room cooler,fans, Washing machines ,Sewing Machines etc


Conglomerate Diversification

Entering into unrelated field of business


Reasons • Acquiring a business which is promising • Concern is profit pattern only Examples: Ponds India Limited • Skin Care-Core business • Leather-shoe, garments • Thermometer • Mushrooms Prepared by S.Sangeetha, Faculty, KCTBS

Joint Venture • Two or More companies lacking a component of success in a particular competitive environment join together • It is a cooperative arrangement • It limits discretion, control & profit potential but demands higher attention from manager and more resources. Ex: Maruti & Suzuki, Dabur with Osem of israel (food) and Bongrain of France (Cheese) Prepared by S.Sangeetha, Faculty, KCTBS

• Birla Art International- a joint venture between the Yash Birla Group and the lesser-known J&K-based textile group • Boeing, Tata JV to make aerospace parts • Fiat Group Automobiles and Tata Motors - industrial Joint Venture • For the Godrej group, - with the US-based Selviac Nederland BV (Pillsbury- part of the $21-billion global food and drinks giant Diageo). • Joint venture Toyota -Kirloskar Motor Pvt Ltd

• Coke's new joint venture with Procter & Gamble will incorporate Coke's Minute Maid and Fruitopia plus P&G's Sunny Delight juice drink and Pringles salty snacks. Coke and P&G say focus will be "developing and marketing innovative juices, juice-based beverages and snacks on a global basis. Prepared by S.Sangeetha, Faculty, KCTBS

Conditions to make JV a Success • Carefully Selecting a right partner • Both of them should get mutual benefits • One cannot dominate other.


Strategic Alliance

•An agreement between two or more organizations to cooperate in a specific business activity •So that each benefits from the strengths of the other, and gains competitive advantage.

•Formed–due to - globalization, increasing uncertainty , complexity in the business environment. •Strategic alliances  sharing of knowledge , expertise between partners , the reduction of risk and costs  relationships with suppliers and the development of new products and technologies. A strategic alliance is sometimes = joint venture, but an alliance may involve competitors, and generally has a shorter life span. Strategic partnering is a closely related concept. Prepared by S.Sangeetha, Faculty, KCTBS

Example • HP and Apple Partner to Deliver Digital Music Player and iTunes to HP Customers • Microsoft and Infosys strikes world wide Strategic alliance. Companies to work jointly to deliver world class ebusiness solutions.


M&A Prepared by S.Sangeetha, Faculty, KCTBS

Mergers and Acquisitions

 Merger • When two or more companies combine into one company • Indian Iron and Steel Company (IISCO), with Steel Authority of India Ltd (SAIL)

 Acquisition • An act of acquiring effective control by one company over the assets or management of another company without any combination of companies (they remain independent but control in one hands)

• Eg:

Jet Airways acquired Air Sahara in a Rs 2,300-crore all-cash deal. • Dabur acquired Balsara Prepared by S.Sangeetha, Faculty, KCTBS

• • • • •

Philips India and Preethi mixie Turnover -? Dealers -? Market share -? Volume of sale -?


Strategic Myopia


Strategic Management model

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