Chapter 1

STRATEGY
 TERMINOLOGIES

THE TERMINOLOGIES RELATING STRATEGIC

MANAGEMENT HAVE MULTIPLE DEFINITIONS WHICH
SOMETIMES DIFFER SIGNIFICANTLY FROM EACH
OTHER, DEPENDING ON THE AUTHORS AND THEIR
SCHOOL OF THOUGHTS.

2
• Following are the most general descriptions.

Vision (or strategic intent):

• Is the desired future state in which the Organization
wishes to see itself. Vision is achieved through Mission.

Mission:
• Mission is Organization’s overriding purpose of existence
and reflects stakeholders’ expectation from the business. It
deals with the question “why” do we exist?
Core Values:
• defines how the organization wishes to operate and
guides the organization’ actions, i.e, its principles. E.g.,
includes integrity, equal opportunity employer, diversity,
etc.
• Core Values should be explicitly stated either within the
mission statement or through a separate subsidiary
statement.
 Goals & Objectives

Goals:
 Goals are smaller targets to achieve the Mission. Goals are
generally qualitative in nature.
 E.g., increase sales, reduce costs, increase customer
satisfaction, new products, etc.
Goals & Objectives

Objectives:
 Objectives are more specific targets to achieve the Mission,
i.e, quantitative in nature.
 Objectives should be S-M-A-R-T (Specific, Measurable,
Achievable, Result-Oriented, Time-Bound).
 E.g., increase sales quantity by 10% p.a., reduce production
costs by 5% p.a.
 Goals and Objectives are developed at the highest level, then
filtered down to divisions, departments, functions, till it reaches
down to an individual’s work target level. This cascading
concept, known as Management by Objectives (MbO), was
given by Peter Drucker.
Strategy and Strategic Management

How an organization manages its strategies i.e.,

creating strategies, implementing them,
Strategy: monitoring them and revising them if strategies
are not getting the desired results

Strategies are developed in order to achieve the

Strategic Management: goals, objectives and hence the Mission of the
Organization
Strategic
Management –
Rational Model
by JS&W
Stages Of Strategic Management

Strategic Strategic Strategy

Position/ Choice Into Action
Analysis
 1. Strategic Position / Analysis
Review strategic position in light of:

Current position Mission

▪ Expectation of key stake holders
1.External environment
▪ Country (PESTEL) ▪ Clarity of mission or future course
▪ Industry (Porter 5 Forces: of direction
customers, suppliers, competition)

2.Internal resources
▪ Human resource / Expertise
▪ Financial resources
▪ IT resources
▪ Brand / corporate image
▪ Any unique tangible asset
 1. Strategic Position / Analysis
Review strategic position in light of:

Current position Mission

▪ Expectation of key stake holders
1.External environment
▪ Country (PESTEL) ▪ Clarity of mission or future course
▪ Industry (Porter 5 Forces: of direction
customers, suppliers, competition)

2.Internal resources
▪ Human resource / Expertise
▪ Financial resources
▪ IT resources
▪ Brand / corporate image
▪ Any unique tangible asset
Techniques for Strategic Analysis

Porter’s 5 Forces Model, PESTEL Analysis, SWOT Analysis,

Stakeholder Mapping
Value Chain Analysis,
Model, etc.
2. Strategic Choice

 Generate all possible

options to reach mission
 Analyze pros and cons of all
options
 Select the strategy that best
suits you (see strategy
selection criteria under next
heading)

13
This Photo by Unknown Author is licensed under CC BY-SA
 3. Strategy into Action

 Implement selected strategies

 Monitor the results
 Amend strategies if desired results are
not being achieved

14
EXTERNAL
ENVIRONMENT

15
16

External Environment means

external factors that surrounds or
affects the business.

 E.g., Economy, laws, customers,

competitors, etc.
17 Types of External Environment

General (macro) Immediate (micro)

environment: environment:
❖ pertains to the entire country ❖ pertains to the industry in which
we operate

Prediction
▪ As environment is uncertain, prediction is required in order to plan ahead
▪ The better the prediction, the more successful the strategy will be.
18 Tools used in Predictions

Forecasting
 Forecasting is based on historic trend, e.g., average sales growth for last 5
years.
 However, it is not necessary that historic trend will also continue in future.
19 Tools used in Predictions

Scenario building
 Various scenarios are prepared based on key assumptions, i.e., what-if scenarios
are built,
e.g., US$ rate, petrol price, economic growth %, customer demand, etc.
 Key assumptions are called drivers for change.
 Scenarios can be built at macro / country level (known macro scenarios) as well as
micro /industry level (knows as micro scenarios).
 Multiple scenarios are built in conditions of high uncertainties, so that all possible
outcomes are reviewed.
20 Tools used in Predictions
Environmental Analysis
 Every business has to analyze its environment, in order to prepare strategies.
 As there are two types of environment, BOTH environments have to be analyzed.
Following two models are used to analyze the environment:
 ▪ General environment: PESTEL
 ▪ Immédiate environment: PORTER’S 5 FORCES
PESTEL
(Macro
Environment)

21
22
Political
• • Stable business environment
• • Law and order situation
• • Government policies (e.g., liberal, investment friendly)
• • Political situation
Economic
• • Disposable income (necessity vs luxury)
• • Economic growth / recession
• • Rate of returns
• • Exchange rates
• • Inflation
• • Interest rates
• • Tax implications
• • Financing options
23
Social
• Demographics (study of population)
• Age / gender groups
• Believes / Religious systems
• Literacy levels
• Standard of living
• Unemployment

Technology

• Availability of technology
• ▪ Internet / online
• Tech Infrastructure of the country ▪
• Availability / shortage of skilled labour
• Example: IT and communication infrastructure are available, hence E or
Distance Learning programs can be offered through internet and
website
Ecological
 Protection of Earth and its environment
 Talks about pollution, global warming, ozone layer, harmful waste material, carbon
footprint, green products, etc.
 Ecological factors are getting importance and more and more customers are
becoming ‘green’ conscious.
 Several Green Groups or Pressure Groups have been formed (e.g., Green Cross,
Green Peace, Earth First, etc.) 24
 Environment audits are now being conducted (e.g., Valdez Principles Framework)
 Ecological issues cover:
• Products: Your product should not harm the environment, it should be recyclable
• Manufacturing process: Eco friendly machineries are used, waste materials / chemicals
are properly disposed off, no smoke or noise pollutions, etc.
• Office / Buildings: Environmentally friendly buildings, e.g. solar powered, energy
preservation, etc.
 Example: Reduce use of papers in educational institutes and move to paperless
environment, as paper is manufactured by cutting trees.
25 Legal

 Company Law
 Employment / Labor Laws
 Health and Safety Law
 Data Protection Act
 Environmental laws
 Tax Law
 Competition / monopoly Acts
 Marketing and Sales (warranty, damage)
 Example: Student’s personal and educational data is to be
kept confidential (data privacy ) protection)
 The bargaining powers of
Customers
Porter’s
Five Forces The bargaining powers of
Suppliers

Threats of new- entrants

(and barriers)

Current competition /
rivalry

Threats of substitute
products
  Customers want to buy high quality product at low price.
1. The On the other hand, business wants to sell low quality
product at high price.

bargaining  This “tug of war” directly affects the profitability of the

business.
powers of  Now, who will win, the customer or the business? This

Customers depends on the following factors:

 How critical is the product to the customer
27 (e.g., medicine vs chocolates)
 Size of customer vs size of business
 Number of vendors of the same product available in the
market
 Whether the product is standard or
unique/branded/customized
 Is there any switching cost
#Customer is the King
 Customer affordability
 Customer’s own knowledge and bargaining skills
28

2. The
bargaining  Suppliers want to sell low quality product at high price. On
the other hand, you (business) wants to buy high quality
product at low price.
powers of  This “tug of war” directly affects the profitability of the
business.
Suppliers  Now, who will win, the supplier or you (business)? This
depends on the following factors:
 How critical is the product to the Business(Customer) .
 Size of Business vs size of Supplier
 Number of vendors of the same product available in the
market
 Whether the product is standard or
unique/branded/customized
 Is there any switching cost
 Customer affordability
 Customer’s own knowledge and bargaining skills
#The Supplier is the King,
 {Principally the same factors mentioned above under
If he is the only one. bargaining powers of Customers but with opposite angle}
 3. Threats of
new- entrants  New entrants directly reduce the market share of existing companies
and hence the profits.
(and barriers)  That is why it is important that some ‘entry’ barriers are created so
that new companies do not enter the industry.
 How can we create barriers to entry in any industry? Examples to
barriers are:

29  ▪ License / Government approval required

 ▪ Trademarks / patents
 ▪ High capital or investment required
 ▪ Strong brand, corporate image or goodwill
 ▪ Switching cost involved (e.g., customized product
 4. Current  Competition directly affects market share and
profitability.
competition /  The more the number of competitors, the more
rivalry intense the level of competition will be.
 Intense competition has several forms, such as
price cutting, advertising battles, sales promotions
/ deals, introducing new products, improving after
30 sales service, guarantees / warranties, etc.
 Factors affecting intensity of competition:
 ▪ Number of competitors
 ▪ Market share %
 ▪ Lifecycle stage of the industry (growth, maturity
or decline phase?)
 5. Threats of  (A substitute product is manufactured by
substitute another industry, but satisfies the same
customer needs, e.g., petrol vs CNG, planes vs
products trains, etc.).
 The availability of substitute produces directly
affects the profitability of the Organization.
 Options to deal with substitute products
31 includes:
 ▪ Start dealing with substitute products
Petrol Car Electric Car yourself (e.g., petrol pumps now offer CNG as
well)
 ▪ Innovation of cheaper or better products, so
that the customer does not have to look for
cheaper or better ‘substitute’ products.
 Strategic Drift 32

 Strategic drift occurs when Changes to the external environment of the

organization is faster and Changes in organization’s strategies are
slower.
 Due to this, organization’s strategies become misaligned with the
external environment
 E.g., includes Apple (1980s), IBM (1990s), Nokia (2000s)
 Strategic drift should be tackled quickly before the gap increases
 Strategic drift normally happens in those organizations where
employees are not willing to change and adopt the changing
environment
 In a “Learning Organization”, chances of strategic drift is lower as all
employees are continuously acquiring new knowledge and skills and
updating themselves with the changes in the environment.
Porter Diamond Model

 Germany is famous for car production. France

is famous for wine. Japan is famous for
electronic items. How countries achieve
international reputation in particular fields? 33

 Michael Porter identified four principal

determinants of national competitive
advantage (drawn in a diamond shape). Its
primary purpose is to analyze the
competitiveness of a nation:
34 Porter Diamond Model

1.Factor Conditions 2.Demand Condition

➢ Factor conditions means the  Demand condition means that
resources which are required to there is a large demand for the
do business in that country are products in which you plan to
easily available, such as skilled operate.
labour, land, machinery, raw
materials, roads, infrastructure,  For e.g., people of Germany likes
communication/internet, to drive luxurious cars, people of
technical expertise, etc. France likes to drink a lot of wine
 For e.g., Germany has abundant
supply of iron. France has best
climate and soil for grapes.
35 Porter Diamond Model

3. Related and Supporting Industries

 The main industry always benefits if related and supporting

industries are present nearby.
 This leads to specialization and cost efficiencies.
 For e.g., in Germany, tyres, paint and leather industries are also
present around the car manufacturing factories. Also auto
engineering universities and institutes are present.
36 Porter Diamond Model

4. Firm Strategy, Structure and Rivalry

 It includes:
 Government’s role / attitude towards your industry (political factors)
 Existing level of competition in your industry
 How companies are incorporated, capital markets, corporate
structures, nationalized privatized structure, etc.
 Example, German Govt is supporting auto mobile industry and
encouraging healthy competition.
 Strategy Evaluation Criteria - SFA
Framework
by J&S
37
SFA Framework is used to evaluate a “proposed” strategy
Suitability

 ▪ Evaluates whether the proposed strategy will solve the current

problem or achieve the objectives
 ▪ In other words, it means whether the proposed strategy
makes ‘sense’ keeping in mind the current issues
38
 ▪ Normally it covers advantages and disadvantages
(opportunity and threats)
Feasibility

 Evaluates whether the organization has the internal resources

and competencies to implement the proposed strategy.
Internal resources include:
▪ Human resource / expertise
39
▪ Financial resource
▪ Ratio analysis of “our existing” company to be done if
financial data is provided
▪ IT resources
▪ Brand / corporate image
▪ Any unique tangible asset
Acceptability

Evaluates whether the proposed strategy will be acceptable by

our shareholders, particularly from risk and return point of view
(risk averse vs risk seeker shareholders)
If it is a private limited / family company with shareholders
directly managing the company, then the proposed strategy will
40
be normally acceptable
In case of proposed acquisition, the ratio analysis of the “target”
company is to be done in this section if financial data is provided
Also covers culture differences
 SWOT ANALYSIS
INTERNAL FACTORS

STRENGTH WEAKNESS 41

OPPORTUNITIES THREATS
EXTERNAL FACTORS
 SWOT ANALYSIS
 SWOT: Strength, Weakness, Opportunities, Threats
 ▪ S and W pertains to INTERNAL factors (e.g., motivated
staff, weak accounting software)
42
 ▪ O and T pertains to EXTERNAL factors (e.g., growing
industry, tough competition)
 ▪ SWOT Analysis combines results of:
➢ Environment (Opportunity and Threat)
➢ Strategic Capability (Strength and Weakness)
 SO: Use Your Strength To Avail Opportunities
 Example 1: You have inhouse IT expertise. -You use your inhouse IT
dept. to develop a fully functional website to take advantage of
increasing E-Business.
 Example 2: You already have a successful eco-friendly product. You
aggressively advertise your existing eco-friendly product to take
advantage of eco conscious customer segment

WO: Overcome Your Weakness To Avail Opportunities 43

Example 1: You have old machineries. Get rid of the old machineries and
replace it with latest energy efficient machineries and also take advantage
of tax rebates on new investments recently announced by Govt.

Example 2: You don’t have a R&D Dept. Create a R&D department in

order to innovate an eco-friendly product that is new to the market.
ST: Use your Strength To Avoid or Counter Threats
Example: you have a R&D Dept. Increase your R&D to innovate new
products in order to minimize threat of competitive products or substitute
products

WT: Minimizes Weaknesses and Avoid Threats

Example: In case your cost of production is very high as compared to 44
importers from cheap labour countries, then you choose those
customer segments who are willing to pay premium pricing by
adopting a niche strategy
 Market Segmentation

 Break the market into smaller

sections, based on similar needs.
• e.g., in commerce teaching, you can
further segment into ACCA, MBA, CA,
BCOM, etc.
• e.g., in TV channels, you can further
segment into news, sports, dramas,
cooking, documentary
 Reasons for segmentation:
▪ Each customer segment has different
needs, though being in the same
industry
▪ You can design specific marketing
mix for each segment

45
46 Target Market

 Target segment means selecting segments in which

you want to operate
 Target segment is selected based on:
▪ Segment size
▪ Segment growth potential
▪ Customers, suppliers, competitors, etc. (i.e., Porter 5
forces)
▪ Your own expertise and resources
 Marketing
What is Marketing ?
 Marketing aims to satisfy customer
needs profitably through an
appropriate Marketing Mix

Marketing Mix
(4 P plus 3 Extended P for services)
 Whenever a new product is
launched, FIRST we have to decide
the 4Ps of that product.
 These are also referred to as
marketing strategies.

47
 MARKETING
MIX
48
1.Product 49
(means satisfying customer needs):

 Core design / features of the product

 Quality aspects
PRODUCT
 Availability of choices
e.g., colours, sizes, flavours, timings, etc.
 After sale services
Branding:
Branding means to give the product a brand name
 Advantages / importance of Branding:
▪ Distinguishes the product from competitors’ products
▪ Makes customer feel familiar, confidence in quality, association
▪ Helps in recurring purchases
2. Promotion 50
(means marketing):

 Advertising: mass marketing to general public (TV,

newspapers, billboards, internet, radio)
 Direct marketing: one to one marketing (e.g., tele-sales,
emails, SMS)
 Sales promotion: activities to convert customer’s interest
into sales (e.g., discounts, loyalty schemes, free trials,
free gifts, twin packs, buy 1 get 1 free, group discount,
free demo)
3. Place 51
(means how the product reaches the customers ):

 Channel: sales outlets (e.g., supermarkets, online shops)

 Logistics: location of warehouse (speed of delivery,
damages, cost of transportation)
 Distribution system (self, wholesaler, distributor, agent)
4. Pricing 52
(means setting the right price for the product):

 Costs
 Required profit margin
 Premium for any uniqueness, brand or goodwill
 Competitors’ price
 Value for money (from customer’s point of view)
 Customer affordability
 53
EXTENDED Ps FOR SERVICES:

 5. Processes: efficient and fast processing directly affects

the quality of service.
e.g., long and slow-moving line in a bank for utility bills

 6. People: front line staff interacting with the customer

plays a very important part.
 e.g., rude staff at the bank for utility bills

 7. Physical evidence: as money has been spent on a non-

physical item, having physical symbols helps.
 e.g., a training certificate after completion of training.
 Pricing
 Determining the ‘right’ price for the product is a complex
54 decision. You cannot charge an abnormally high price as

Process &
it would discourage or scare-off the customers.
 Similarly, you cannot charge abnormally low price as it
Strategies would give wrong signal to the customer regarding the
quality of the product as well as it will reduce your profit
levels, which you could have earned easily.
 Below are certain steps involved to help determine the
right price for the product, known as PRICING PROCESS.
The sequence of these steps are interchangeable.
  Pricing objectives should be consistent with the overall
55 1. Pricing competitive strategy of the organization, such as:
Objectives ▪ Cost leadership strategy
▪ Differentiation strategy
▪ Other possible objectives: volume increase, market share
increase, cash flow generation,etc..

2. Costing and  Analyze cost of the product

 Add appropriate profit margin
Profitability
 Contribution Margin & Breakeven analysis
Analysis
  How much does the customer is willing to pay?
56 3. Analyzing
 Are customers price sensitive or quality
Customer sensitive

Demand and  Assess the demand of the product with

relation to various price range
Affordability

4. Evaluate  Benchmark proposed price with competitor’s

price
Competitors’  However, there might be ‘qualitative’
Price differences between our product and
competitor’s product, which will have to be
considered in the pricing
 Price Penetration:
 Charge lower price in order to enter market and increase
57 5. Selecting market share. Initial focus is to get sales volume and not
Pricing profit margin

Strategies
Price Skimming
 Charge a higher price as premium for a unique or a new
product. Focus is on earning high profit margin and not
sales volume. In order to do price skimming, it is
important that your product must have some brand
image or uniqueness.
 Discriminate Pricing
58 5. Selecting
 Charge different price to different customer groups.
Pricing Options include different timings (e.g., day and night),
Strategies different country, different age, different currency, early
bird discounts, etc.
 CSF Customers’ Critical Success Factors
 Customers’ CSF are those features of your product due to
which the customer buys your product (and leaves the
competitors’ product)

&
 E.g., what do you expect from a good airline?
59 ▪ Punctuality ▪ Safety ▪ Comfort
 Organization should understand customers’ CSFs and then
excel in those areas to beat competition

KPI
 CSF Key Performance Indicators (KPI)
 CSF are measured through KPI

&
 KPIs are quantifiable targets that organization has to achieve
in order to excel
60
 E.g., what can be the KPI to measure the above-mentioned
CSFs of a good airline?
▪ Punctuality: % of flights departing on time

KPI
▪ Safety: # of accidents in a year
▪ Comfort: # of complaints
Innovation 61

 Designing new products

 High revenue but also high cost / risk
 Advantages of innovation:
▪ High revenue / market share (first-mover advantage)
▪ Price skimming strategy
 Disadvantages of innovation:
▪Uncertainty
▪ High R&D costs
▪ Followers learns from your mistake
 Two strategies for new product development
▪Leader strategy (earns early rewards but high risks / costs)
▪ Follower strategy (sacrifices early rewards but avoids risks)
 Product Lifecycle (PLC) 62

 PLC is based on the sales volume of a product over time and has
got 5 stages:

Development
▪ R&D
▪Product designing
▪ Cost will be very high with no immediate revenue

Introduction
▪ Launch
▪ Advertising and marketing
▪ Losses (due to low volumes and high marketing costs)
▪ Few competitors
▪ Cost will be high mainly due to marketing expenses with minor sale
revenue
 Growth
▪ Sharp growth
▪ More competitors
▪ Sale revenue will start increasing and product will first break even
and then start making profit.

Maturity:
▪ Growth slow down / saturation
▪ Competition at peak

63 ▪ Cost will be low due to economies of scale and expertise with

maximum sale revenue
Decline:
▪ Falling sales
▪ Consider exit
▪ Revenue will decrease and exit / long-tail costs will be incurred,
including servicing, spare parts, warranties, etc.
Competition Dynamics 64

Industry Life Cycle for

Competition
 Competition Dynamics 65

Strategic Group Analysis

 Competitors can be analyzed industry wide, but it is too broad
 Strategic group analysis reduces the list to organizations having
similar strategic characteristics.
 Strategic characteristics could be based on range of product,
geographical coverage, quality levels, branding, customer segment,
etc.
 Competition Dynamics 66

Purpose of Competitor Analysis

 Insight into competitors’ strategies
 Compare your competitive position with competitor
 Assist in developing your competitive strategies

Areas Covered under Competitor Analysis:

Understand / assess competitor’s:
▪ Objectives / Profile ▪ Strengths ▪ Weaknesses
▪ Strategies ▪ Response to your strategies
67
Strategic Capability
Strategic Capability:
 Adequacy of resources and competence for the
Organization, i.e., deals with internal factors
Resources:
 Tangible and non-tangible assets of the Organization
Competence:
 How effectively the organization uses its resources
Threshold resources and competence:
 The minimum quantity of resources and competence
required to ‘survive’
68

Unique resources and competence:

Resources and competences which are better than the
competitors and hence give competitive edge.
These are difficult for competitors to imitate or obtain.
E.g., can include:
* Highly loyal / motivated staff
* Goodwill
* Innovations
* IT / technology
69

Limiting Factors:
▪ Every Organization operates under resource constraints
▪ A limiting factor means that a shortage of a particular
resource is limiting the business activity of the Organization
▪ Examples of limiting factors:
* Production capacity
* Skilled / technical staff
* Restricted distribution network
* Limited finances / budgets
70 Knowledge Management

 Data and Information

Data are simple facts which are organized in a way to produce information

 Knowledge
Pattern resulting from information, which is strategically used.

 Explicit knowledge
Information already known to the Organization
71 Knowledge Management

 Tacit knowledge
Information not yet know to the Organization, i.e., still in people’s mind

 Knowledge management
The entire process of collecting, storing and using knowledge in the Organization

 Knowledge Management Systems

Software specializing in knowledge management
72
Knowledge Management
Systems
 Office Automation Systems:
Automates routine manual tasks, e.g., MS Word,
Excel, Emails.

 Groupware:
▪ For working of teams
▪ Features include email, conferencing, scheduling,
document / project management
▪ E.g., MS Outlook, Lotus Notes
73
Knowledge Management
Systems
 Intranet / Extranet:
▪ Internal website of an organization, which only
employees can use
▪ Used for sharing information, policies and
procedures, company news, etc.
 Extranet is intranet plus few authorized
outsiders, e.g., key suppliers or customers
74
Knowledge Management Systems
 Expert Systems:
▪ Artificially intelligent systems, in which knowledge and human expertise
are fed, due to which it is able to suggest decisions.
▪ E.g., normally used in investment decisions, law, medicine

 Data Warehouse:
▪ A large data base in which data from various operating databases are
stored over a long period of time
▪ Data warehouse helps in analyzing data trends over time as well as helps
in data mining
75

Knowledge Management Systems

 Data Mining:
▪ Specialized software which looks for ‘hidden’ pattern / relationships in a
large pool of data, such as data warehouse
▪ The hidden relationship / pattern is knowledge which is can be used for
marketing strategies, pricing strategies, etc.
 E.g. ,Nappies and beer in Wallmart Store
76 PORTERS’S VALUE CHAIN
Porter Value Chain

 Value
A feature for which the customer is willing to pay the price
 Value Activity:
An activity which adds “value” to the product
77
 Value Chain:
Entire chain of value activities which collectively adds value to the
product
Porter Value Chain
 5 Primary Activities:
1. Inbound Logistics
2. Operations
3. Outbound Logistics
4. Marketing
78
5. Sales, After Sales Service

 4 Support Activities:
1. Procurement
2. Technology Development
3. Human Resource
4. Firm Infrastructure
79
Porter Value Chain
 Definitions of each value activity
 Inbound logistics:
▪ Physical transportation of raw materials from supplier’s premises to your
premises
▪ Warehousing of raw materials in your premises
80
▪ E.g., of IT system includes inventory management software, JIT concept, etc.
 Operations:
▪ Manufacturing process, i.e., converting raw materials into finished goods
▪ Includes manufacturing, packing, testing, etc.
▪ E.g., of IT system includes Computer Aided Manufacturing software (CAMs),
Robotics, etc.
Porter Value Chain
 Outbound logistics:
▪ Warehousing of finished goods in your premises
▪ Physical transportation of finished goods from your premises to final consumer
▪ Order placing process (e.g., telephone, website, etc)
▪ E.g., of IT system includes inventory management systems, Electronic Point of
Sale (EPOS)/ barcoding, delivery scheduling systems, route planning systems
81
for delivery vans, etc.
 Marketing and Sales:
▪ Marketing activities to increase demand of your products
▪ E.g., of IT system includes E-Marketing, Customer Relationship Management software
(CRMs), Cookies, etc.
 After Sales Service:
▪ Includes activities such as repairs, warranties, guaranties, etc.
▪ E.g., of IT system includes complaints management software, etc.
Porter Value Chain
 Procurement:
▪ Purchasing activities, such as inviting quotations from various vendors,
evaluation, negotiation and then placing firm orders with the vendors
▪ E.g., of IT system includes E-procurement, E-auction, Supplier Databases,
Extranets, integrated procurement systems through extranet, emails, etc.
 Technology:
82
Use of technology in all areas of business
▪ E.g., of IT systems include programming software, CADs (computer aided
designing software), R&D software
 HR:
▪ Finding the right people for the right job
▪ E.g., of IT system includes Intranet, Human Resource Management Systems,
E-Training, E Attendance, etc.
Porter Value Chain
 Firm Infrastructure:
▪ Includes senior management / governance of the organization who makes
strategies and decisions
▪ Plus, all other departments which are not directly covered above e.g.,
finance, audit, legal, health & safety, security, etc.
▪ E.g., of IT system includes Groupware, MIS, expert systems, data 83
warehousing and mining.
 Upstream / Downstream Supply Chain
▪ Upstream: flow of materials from suppliers into the organization
(purchasing, inbound logistics, operations)
▪ Downstream: flow of materials from organization to customers
(outbound-logistics, marketing & sales, after sales service)
84
Corporate Parenting
& Portfolio
 Corporate Parenting means how corporate
parent manages its business units.
 Factors to look at when comparing SBUs
performance with one another
1. Industry growth status
2. Your market share trend
3. Net profit margin trend
4. BCG assessment
5. Strength / weakness / primary reason for
acquisition.
85

Corporate Parenting
& Portfolio
 BOSTON CONSULTATIVE GROUP: BCG MATRIX (Also
known as BOSTON BOX)
BCG Matrix / Boston Box is used to analyze the
current position of the various business units within the
Group and what future course of action should be
taken for each business unit.
 86 BCG MATRIX
(BOSTON BOX)
RELATIVE MARKET SHARE

 Star: Star business unit has a high market share in a growing

industry, which means that there is still a lot of growth potential
in future. ‘Build’ strategy is used for Stars, i.e., more money is
invested now in order to seek long term gain.
MARKET GROWTH

Question
Star
Mark
 Cash Cow: Cash Cow business unit has a high market share in a
declining industry, which means that there is limited growth
potential in future. The industry has reached the maturity stage
now. ‘Hold’ strategy is used for Cash Cows, i.e., maintain or
extend the current position as much as possible
Cash Cow Dog
 87
BCG MATRIX
(BOSTON BOX)
RELATIVE MARKET SHARE
 Dog: Dog business unit has a low market share in a declining
industry, which means that there is no growth potential in
future. The industry has reached the maturity stage or decline
stage. ‘Divest’ strategy is used for Dogs, i.e., close down the
business unit and use resources somewhere else.
MARKET GROWTH

Question
Star
Mark
 Question Mark: Question Mark business unit has a low market
share in a growing industry, which means that there is growth
potential in future. However, it is a decision point as the Parent
needs to decide whether it is willing to take the risk and invest
for future gains? ‘Harvest’ strategy is used for Question Marks,
i.e,. whether some money should be invested or not?
Cash Cow Dog
 Product-Market Strategies

EXISTING NEW
PRODUCTS PRODUCTS Market penetration: Increase market share.
MARKETS
EXISTING

INCREASING RISK
Product Development: Heavy R&D, customer
Market Product
Penetration Development
needs, marketing.
NEW MARKETS

Market development: New geographical

markets, distribution channels.

Market
development Diversification

INCREASING RISK
▪ Diversification: New product and new market
simultaneously.
ANSOFF’S GROWTH VECTOR
MATRIX
88
89 Diversification
 Diversification means going for new products or services
 Advantages of diversification:
▪ Higher profits
▪ Risk spreading
▪ Economies of Scale
▪ Synergies with sister companies
 Disadvantages of diversification:
▪ Lack of experience
▪ High risk
▪ Management problems (Time, resources, lack of concentration)
 Related Diversification
▪ Developing new products and markets but within the existing
capabilities and supply chain
90

International Diversification
(Globalization)
 Market Selection Criteria
▪ Market attractiveness (size, growth, culture,)
▪ Competitive advantage (Organization’s own
experience in similar products/markets)
▪ Risks (e.g., political, govt policies, currency risks)
91

International Diversification
(Globalization)
 Reasons (and advantages) for Globalization
▪ More customers
▪ Higher profits
▪ Economies of scale
▪ Cheap resources and labour (country advantage)
▪ Favorable laws and government policies
(e.g., low taxes)
▪ Risk spreading
92

International Diversification
(Globalization)
 Problems of Globalization
▪ Managing issues (vast operations, lack of local
experience)
▪ Legal differences / complexities
▪ Cultural issues
93

GROWTH
STRATEGIES
 1.ORGANIC
GROWTH /  Grow by building or expanding your own products and markets
INTERNAL with your own efforts
DEVELOPMENT  Advantages:
▪ Less funds required than acquisition
▪ Less risky than acquisition (no hidden issues)
94
▪ No management or cultural issues
▪ Slow but ‘steady’ strategy
 Problems:
▪ Growth is slow – time consuming
▪ Slow economies of scale
  Acquisition is the purchase of a controlling interest in another company

ACQUISITIONS  Merger is joining of two separate companies to form one single company

& MERGERS  Advantages:

▪ Quick growth
▪ Quick economies of scale
▪ Increase in market share by elimination competition
95 ▪ Good strategy to enter foreign countries
▪ May gain access to new customer segment, new geographical areas, new
distribution channels or any proprietary asset or trademark / brands of the
target company
▪ Synergies in marketing, technology, financial resources
  Problems:
▪ Costly – high funds required as compared to organic growth
▪ Risky
ACQUISITIONS ▪ Expected results not achieved post M&A
& MERGERS ▪ Hidden issues not identified at the time of M&A
▪ Difference in management style or culture between the two companies
▪ Duplication of departments, processes and human resources
▪ M&A activity is also a time-consuming exercise
96 ▪ No seller / right company available for sale
 JOINT  Company ‘A’ and Company ‘B’ forms a new
Company ‘C’ under partnership, sharing equity as
VENTURES well as management.
 Advantages:
▪ Advantages of acquisition / merger , along with
▪ Sharing of expertise
▪ Sharing of costs
▪ Sharing of risks
▪ Sharing of learning and research
▪ Sharing costs of expensive activities / investments
 Problems:
▪ Disadvantages of acquisition / merger PLUS
▪ Conflict of interest
▪ Chances of disputes
STRATEGIC  Two or more firms agree to work together to exploit common
advantages, without forming a separate company.
ALLIANCES  Examples:
▪ ATM machines shared between all banks globally
▪ Easy Paisa (telecom industry with banking industry)
▪ Mobile companies giving ‘international’ roaming options
▪ Alliances can be with suppliers or customers (e.g., JIT) or with
competitors (e.g., to create barriers to entry)
  Advantages:
▪ Advantages of acquisition / merger, PLUS
STRATEGIC ▪ Sharing of expertise
ALLIANCES ▪ Sharing of costs and risk
▪ Sharing of learning
▪ Sharing costs of expensive activities / investments
▪ Additional advantages of international alliances:
* Access to international market
* Getting new ideas and technology from international markets.
* Less risky strategy to pursue a globalization strategy.
STRATEGIC  Problems:
ALLIANCES ▪ Non-availability of appropriate strategic partner
▪ Alliances may not be ‘equally’ beneficial for both partners
▪ Conflict of interest
▪ Chances of disputes
FRANCHISE
/ LICENSES
 Company ‘A’ (Franchisor) gives license to Company ‘B’ (Franchisee)
to use the brand name of the Franchisor and conduct business
according to the process and techniques instructed by the
Franchisor.
 Franchisor defines core products, qualities, manufacturing processes,
recipes and provides guidance.
 Franchisee is responsible for initial capital investment and day to day
operations of the business
  Advantages to Franchisor:
▪ Quick geographical growth without having any local experience
▪ Less capital requirement
FRANCHISE ▪ Availability of local expertise
/ LICENSES ▪ Low risk
▪ No local cultural issues
▪ High motivation / interest for Franchisee as he invests capital
  Disadvantage to Franchisor:
▪ High dependence on Franchisee
▪ Loses direct control over product and quality

FRANCHISE ▪ Limited control over Franchisee for operating matters

▪ Has to share secret / recipe with the franchisee
/ LICENSES ▪ Reputational risk if franchisee does not manage properly
▪ Conflict of interest / disputes
▪ Franchisee may eventually set-up his own product and become
competitor
  Advantages to Franchisee:
▪ Association with a well know brand / product from first day
▪ Investment in a proven business format / product which eliminates risk
of

FRANCHISE establishing a completely new business / product

▪ Guidance and technical expertise is provided by the Franchisor
/ LICENSES ▪ Initial management, training and strategic planning is provided by the
Franchisor
▪ Can take advantage of global / regional synergies, such as advertising
campaigns, group purchases, research, staff training, etc.
  Disadvantage to Franchisee:
▪ All investment to be made by franchisee, i.e., all risk is taken by
franchisee
▪ Has to follow strict procedures and rules, i.e., no flexibility or room for
FRANCHISE innovation
▪ Restricted geographical territory.
/ LICENSES ▪ Franchisor may cancel the agreement and enter the market himself if
he sees that his brand is performing well.
▪ Lack of guidance and support from uninterested franchisors.
  Salient Contents of a Franchising Agreement:
▪ Details of product
▪ Business operating model
▪ Geographical area
▪ Sales targets with key strategies
▪ Marketing and Advertising activities
FRANCHISE ▪ Human resources support
/ LICENSES ▪ Financing / Investment details
▪ Technological support
▪ Tenure of the agreement
▪ Remuneration arrangement (royalty, fees, etc.)
▪ Roles and responsibilities of Franchisor and Franchisee
▪ Non-competition clause
▪ Dispute solving procedures
 License:
 Franchise is when the right includes product / trademark as well as
the business operating model.
 For e.g., MacDonald’s, Subway, Pizza Hut, Marriott, etc.
FRANCHISE
 Licensing is when the right includes the use of the product /
/ LICENSES trademark or intellectual property only and not the business
operating model. The word license is mostly used for software,
manufacturing process or technology, intellectual property, etc.
 For Microsoft User License, or a right to print Disney Cartoon
Characters on T-shirts'
Generic Competitive
Strategies

This Photo by Unknown Author is licensed under CC BY-SA-NC

 Porter’s  1. Cost leadership (across the industry, i.e., all
Generic segments)
 2. Differentiation (across the industry, i.e., all
109
Strategies for segments)

Competitive  3. Focused / Niche strategy (on a particular

segment):
Advantage
 Cost  Reduced cost in order to sell cheaper (targeting higher volumes)
 Options through which cost leadership could be achieved:
Leadership ▪ Control over raw material cost (bargaining power with suppliers)
▪ Economies of scale (high volumes)
▪ Design of products and process (value engineering)
110
▪ Experience / learning curve
▪ Automation / Technologies
▪ Continuous cost reductions initiatives
▪ Outsourcing
 Cost
 ‘No Frill’ cost strategy
Leadership ▪ Lowest price / minimum benefit
▪ Zero brand loyalty
 Appropriate where:
111
▪ Customers do not value differentiation / quality / service
▪ Customers are very price sensitive
 Differentiation  Focusing on quality or uniqueness.
 Reinvesting portion of profit into R&D and
product improvement
 Creating switching cost for the customers
112  Options through which differentiation could
be achieved:
▪ Continuous research and innovation
▪ Brand image / goodwill
▪ Heavy marketing
 Focus /  Concentrate on one segment of the entire
market.
Niche  Can adopt a “cost focus” strategy OR
“differentiation focus” strategy.
 Advantages of a niche strategy:
113 ▪ Specialization
▪ Identify segment too small to attract major
competitors
▪ Easier to create customer goodwill, loyalty and
barriers to entry
▪ Ability to charge higher prices
114 Benchmarking

 ▪ Benchmarking is establishment of targets

against which to compare our performance.
 Types of benchmarking:
▪ Internal (own historic performance)
▪ Industry (market leader or other comparable
competitors)
▪ Best-in-class (global leader). Also means that
you just benchmark certain function or activity
instead of benchmarking with the whole
organization
115 Benchmarking
 Benchmarking process:
1. Senior management commitment
2. Areas to be benchmarked
3. Select Organization to benchmark against
4. Compare key performance measures
5. Design and implement improvement plans
6. Monitor improvement plans
116
Benchmarking
 Advantages / Reasons for benchmarking:
▪ Assess Organization’s existing position
▪ Focuses on improvement and best practices
▪ Improved performance
 Problems with for benchmarking:
▪ Organization’s may not be comparable
▪ Organization may not share their information
▪ Requires time and cost
▪ Does not identify the root cause
117
Divestment Strategies
 Divestment: Selling off full or part of the business
 Reasons for divestment:
* Objectives not being achieved (e.g., losses)
* Concentrate on core activities (undo diversification)
* Need funds to finance more profitable option (liquidity)
 Exit barriers
Factors that causes difficulties in exiting, such as:
▪ Lack of buyer / right offer price
▪ Low disposal value of assets
▪ Heavy redundancy payments
▪ Legal issues / contracts
118
Divestment Strategies

 Methods of divestment:
* Sell as a running business to another entity (mostly competitor)
* Sell as a running entity to management/employee group
* Sell as a running entity to existing shareholders / partners
* Liquidation: wind up the business by selling all assets and paying liabilities
 Management / Employee Buyouts:
Business is sold to the management or employee group as a running entity.
Reasons (and advantages):
* Expertise is retained internally
*Continuity of business (no management hiccups)
*Support available from ex-corporate / parent

This Photo by Unknown Author is licensed under CC BY-ND

Turnaround Strategies 119

 ▪ ‘Turnaround’ strategies are used when the business is

continuously making major losses and if things are not
controlled immediately, business might close down
 ▪ Turn around strategies are implemented quickly as time
and speed is important
Turnaround Strategies 120

 Steps for turnaround strategies:

▪ Change Senior management (preferable those with turnaround
expertise)
▪ Focus on short term cost reductions and revenue boost
▪ Focus on root cause of the problems and fix it urgently
▪ Gain support of key stake holders, such as key staff, financers,
banks, customers
▪ Financial restructuring, e.g., reschedule loan repayment
arrangements and markup rates
▪ Try to maximize synergies with other sister companies within the
group
▪ Close down unprofitable branches / produces
121
Organizational Culture
  Culture means the overall believes values, norms,
attitude, etc. prevailing in a place.
 Organizational Culture is the believes, values,
norms, attitude, etc. prevailing within an
Organization. In other words, “the way we do
things around here”. The culture prevailing in any

122
Organizational organization is influenced by the national culture
and the founder / leader of the organization.
Culture  Why is Organizational Culture Important?
 ▪ It affects the way we do business
 ▪ It affects our strategies
 ▪ It affects our employees
 ▪ It affects our customers
  The Culture Web by Johnson & Scholes
 The Culture Web Model is used to gain an
understanding of Organization’s culture. The word
‘paradigm’ is used to mean culture and
summarizes the overall culture of an organization.

Organizational
Rituals &
Stories Routines
123
Culture
Control Org.
Symbols
Systems Structure

Power Org.
Structure Structure
 124 Organizational Culture

 Power Structures
▪ Study of the leader or the organization
▪ What is the leader like? His believes, attitude, approach, etc.
▪ Who has the real power and is it used / misused?
▪ Management style (e.g., strict or friendly)
 Organizatonal Structures
▪ Formal structure or informal structure ▪ Tall or flat structure
 Control systems
▪ Cost focus or quality focus
▪ Are employees controlled through reward style or punishment style?
▪ Look for words like ‘budgets’ or ‘overheads’
 125 Organizational Culture

 Rituals & Routines

▪ Daily routine in the organization
▪ Practice and norms
▪ E.g. office timings, punctuality, strictness, late sittng, long lunch hours, leaves, etc.
 Stories
▪ Past events or history of the organization
▪ Heroes and Villains
 Symbols
▪ External appearance of the organization
▪ Logos, staff titles, office premises, dress code, language, cars, etc.
  Role culture
▪ More focus on roles.
▪ Common in large / government organizations.

126
Other ▪ Leads to bureaucracies and inflexibility.

terminologies  Task culture

▪ Focus on getting tasks done.
▪ This is the modern type of environment.
▪ Encourages high teamwork, flexibility and motivation
  Financial culture
▪ All decisions based on cost-benefit analysis / financials /
ROI
▪ Tight budget and strict cost control
127
Other ▪ Accountants play a key role
terminologies  Excellence / Service culture
▪ All decisions based on customer need and satisfaction
▪ Focus on differentiation / innovation / quality
▪ Accountants don’t play a key role