Strategic Management in India and Global Context

Unit I
Corporate Strategic Planning

What is Strategy?

Strategy derived from the Greek word Strat Agos the art of the general Strategy, a word of military origin, refers to a plan of action designed to achieve a particular goal. Strategy is differentiated from tactics, or immediate actions. Strategies are used to make the problem easier to understand and solve.

A companys strategy consists of the set of competitive moves and business approaches that management is employing to run the company Strategy is managements game plan to

Attract and please customers Stake out a market position Conduct operations Compete successfully Achieve organizational objectives

What is strategic management? -Definition

Strategies are those decisions which have high medium-term to long-term impact on the activities of the organisation, including the implementation of these decisions, to create value for customers and key stakeholders and to outperform competitors (Graham,2004). Art & science of formulating, implementing, and evaluating, cross-functional decisions that enable an organization to achieve its objectives (David 2005)

Chandler definition is typical: "... the determination of the basic long-term goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals"

The Importance of Strategic Management

What is strategic management? The set of managerial decisions and actions that determines the long-run performance of an organization.

Why strategic management is important? Providing direction & momentum Encouraging new ideas Developing a sustainable competitive advantage
Does strategic management work for small as well as large firms?

The Strategic Management Process

1. Establish the mission and vision 2. Establish the grand strategy 3. Formulate the strategic plans 4. Carry out the strategic plan 5. Maintain strategic control

Feedback: Revise actions, if necessary, based on feedback

The Five-steps of Strategic-Management Process

1.

Establish the mission and the vision

A mission statement is a brief statement of the purpose of a company, organization, or group. Companies sometimes use their mission statement as an advertising slogan, but the intention of a mission statement is to keep members and users aware of the organization's purpose. In the case of public commercial companies, the primary purpose must always be to uphold the interests of shareholders, whatever the mission statement.

Mission
It is defined as the fundamental unique purpose that sets it apart from other firms of its type. It indicates the nature and scope of business operations in terns of product, market and technology. Example:

"To enable people and businesses throughout the world to realize their full potential - Microsoft

To offer the customer fast food prepared in the same high quality worldwide, tasty and reasonably priced, delivered in a consistent low key dcor and friendly manner. McDonald
To stimulate, continue and accelerate efforts to develop and maximize the contribution of the energy sector to the economy of the country. - ONGC

To help people save money so they can live better. - Wall Mart

Purpose and Uses of Mission

To ensure Unanimity Motivating the usage of organisational Resources Developing standard for allocating resources To establish organisational climate To serve as a focus point To transfer objective and goals to a work To specify the organisational purpose

Elements of Mission

Clearly articulated Relevant Current Written in a positive tune Unique Adopted to the target

VISION
A vision are strategic intend is the desired future state of the organisation, it is the aspiration around which a strategist perhaps see to focus the energies of measures of the organisation.

Characteristics of Vision
1.

2.
3. 4.

Keeps the organisation moving forward Motivator in an organisation Guide to implement strategy Reflects the core values

Example: Our vision is to meet the everyday needs of the people everywhere HUL To become the worlds leading consumer company for automobiles products and services - FORD

Why is a Strategic Vision Important?

A managerial imperative exists to look beyond today and think strategically about

Impact of new technologies

How customer needs and expectations are changing?

What it will take to outrun competitors? Which promising market opportunities ought to be aggressively pursued? External and internal factors driving - what a company needs to do to prepare for the future?

VISION vs. MISSION

A strategic vision concerns a firms future business path -- where we are going
Markets
Future Kind

A mission statement focuses on current business activities -- who we are and what we do
Current product and

to be pursued

technologyproduct-customer focus of company that management is trying to create

service offerings
Customer

needs being

served
Technological and

business capabilities

2. Establish the grand strategy (using SWOT & forecasting)

Explains

how the organizations mission is to be accomplished

Purpose of setting objectives

Converts vision into specific performance targets Creates yardsticks to track performance

Well-stated objectives are

Quantifiable

Measurable
Contain a deadline for achievement

Spell-out how much of what kind of performance by when

Types of Objectives Required

Financial Objectives Strategic Objectives

Outcomes focused on improving financial performance

Outcomes focused on improving competitive vitality and future business position

Short-Term vs. Long-Term Objectives

Short-term objectives

Targets to be achieved soon

Milestones or stair steps for reaching long-range performance

Long-term objectives

Targets to be achieved within 3 to 5 years Prompt actions now that will permit reaching targeted long-range performance later

3. Formulate the strategic plans

Choose among different strategies

Strategy-making involves entrepreneurship

Actively searching for opportunities to do new things or Actively searching for opportunities to do existing things in new or better ways

Strategizing involves

Developing timely responses to happenings in the external environment and Steering company activities in new directions dictated by shifting market conditions

Levels of Strategy-Making in a Diversified Company

Corporate-Level Managers

Corporate Strategy
Two-Way Influence

Business-Level Managers

Business Strategies
Two-Way Influence

Functional Managers

Functional Strategies
Two-Way Influence

Operating Managers

Operating Strategies

Levels of Strategy-Making in a Single-Business Company

Executive-Level Managers

Business Strategy
Two-Way Influence

Functional Managers

Functional Strategies

Two-Way Influence

Operating Managers

Operating Strategies

Tasks of Corporate Strategy

Moves to achieve diversification

Actions to boost performance of individual businesses Capturing valuable cross-business synergies to provide 1 + 1 = 3 effects! Establishing investment priorities and steering corporate resources into the most attractive businesses

Tasks of Business Strategy

Initiating approaches to produce successful performance in a specific business Crafting competitive moves to build sustainable competitive advantage Developing competitively valuable competencies and capabilities Uniting strategic activities of functional areas Gaining approval of business strategies by corporate-level officers and directors

Tasks of Functional Strategies

Game plan for a strategically-relevant function, activity, or business process

Detail how key activities will be managed Provide support for business strategy
Specify how functional objectives are to be achieved

Tasks of Operating Strategies

Concern narrow strategic approaches to manage key operating units and strategically-relevant operating activities Add detail to business and functional strategies Delegation of responsibility to frontline managers

4. Carry out the strategic plans

Putting strategic plans into effect

What Is a Strategic Plan?

Its strategic vision and business mission

A Companys Strategic Plan Consists of

Its strategy Its strategic and financial objectives

Implementing and Executing Strategy

Operations-oriented activity aimed at performing core business activities in a strategy-supportive manner Tougher and more than crafting strategy Key tasks include

time-consuming

Improving efficiency of strategy being executed Showing measurable progress in achieving targeted results

What Does Strategy Implementation Involve?

Building a capable organization

Allocating resources to strategy-critical activities Establishing strategy -supportive policies Instituting best practices and programs for continuous improvement Installing information, communication, and operating systems Motivating people to pursue the target objectives Tying rewards to achievement of results Creating a strategy - supportive corporate culture Exerting the leadership necessary to drive the process forward and keep improving

5. Maintain strategic control

Consists of monitoring the execution of strategy and making adjustments, if necessary.

Evaluating Performance and Making Corrective Adjustments

Tasks of crafting and implementing the strategy are not a one-time exercise

Customer needs and competitive conditions change New opportunities appear; technology advances; any number of other outside developments occur One or more aspects of executing the strategy may not be going well New managers with different ideas take over Organizational learning occurs

All these trigger a need for corrective actions and adjustments on an as-needed basis

Development, Maintenance and Role of a Leader

1. Envisioning Dreaming for future by Manager 2. Enabling Senior Manager play the role of change agent - Build Strategy, Restructure - Maximize Market Structure 3. Enacting - Chief Executive will enact the subordinates - Building a workable team - Efforts to retain employees - Developing favourable organisational climate - Motivating workers

- Team leadership rather command - Formulate, implement, evaluate &

control Role Transformational New Concepts - Transactional old concepts

Strategic Planning Process Mission and Objectives Environmental Scanning

Strategy Formulation

Strategy Implementation
Evaluation and Control

I. Mission and Objectives Mission statement describes company's vision, including unchanging value and purpose of the firm and forward looking visionary goals that guide the pursuit of future opportunities.

The firms leaders can define measurable financial and strategic objectives. Financial objectives Sales target & earnings Strategic Objectives - Position, Market share & reputation
II. Environmental Scanning
1.
2.

3.

Internal Analysis of the firm Strength & weakness Analysis of the firms Industry Entry Barrier, Supplier, Customer, Substitute products & Industry rivalry External Microenvironment opportunity and threat

III. Strategy Formulation After environmental scanning the firms should match its strength to the opportunities that it has identified To attain superior profitability the firm seeks to develop a competitive advantage over its rivals A competitive advantage can be based on cost or differentiation

IV. Strategy Implementation The selected strategy is implemented by means of programs, budgets and procedures. Implementation involves organisation of the firms resources and motivation of the staff to achieve objectives. V. Evaluation and Control The implementation of the strategy must be monitored and adjustments made as needed. Steps: 1. Define Parameters to be measured. 2. Define target values for those parameters 3. Perform Measurement 4. Compare Measured results to the pre-defined standard

Benefits of Strategic Management

Enhance the firms ability to prevent problems Group based strategic decisions are likely to be drawn from the best available alternatives Involvement of employees in strategy formulation improves their understanding on productivity Gaps and overlaps in activities among individuals and groups are reduced Resistance to change is reduced

Risks of Strategic Management

The time that managers spend on the strategic management process may have a negative impact on operational responsibilities If formulators not involved in implementation Strategic managers must be trained to anticipate and respond to the disappointment of participating subordinates over un attained expectations.

Competitive advantage of Nations and implication on Indian Business

A. Overview Porter is a famous Harvard business professor. He conducted a comprehensive study of 10 nations to learn what leads to success. Recently his company was commissioned to study Canada in a report called "Canada at the Crossroads". Porter believes standard classical theories on comparative advantage are inadequate (or even wrong). According to Porter, a nation attains a competitive advantage if its firms are competitive. Firms become competitive through innovation. Innovation can include technical improvements to the product or to the

Determinants of National Competitive Advantage: Porters Diamond

(1) Factor conditions

(4) Firm strategy, structure, & rivalry

(2) Demand conditions

(3) Related and supporting Industries

Source: Michael Porter, The Competitive Advantage of Nations, Harvard Business Review, March-April 1990.

45

1.Factor Conditions

Factor conditions refers to inputs used as factors of production - such as labour, land, natural resources, capital and infrastructure. Specialized factors of production are skilled labour, capital and infrastructure. "Non-key" factors or general use factors, such as unskilled labour and raw materials, can be obtained by any company and, hence, do not generate sustained competitive advantage. Porter argues that a lack of resources often actually helps countries to become competitive (call it selected factor disadvantage). Abundance generates waste and scarcity generates an innovative mindset. Such countries are forced to innovate to overcome their problem of scarce resources. How true is this?

Factor Conditions

Switzerland was the first country to experience labour shortages. They abandoned labour-intensive watches and concentrated on innovative/high-end watches. Japan has high priced land and so its factory space is at a premium. This lead to just-in-time inventory techniques (Japanese firms cant have a lot of stock taking up space, so to cope with the potential of not have goods around when they need it, they innovated traditional inventory techniques). Sweden has a short building season and high construction costs. These two things combined created a need for pre-fabricated houses.

2.Demand Conditions

Porter argues that a sophisticated domestic market is an important element to producing competitiveness. Firms that face a sophisticated domestic market are likely to sell superior products because the market demands high quality and a close proximity to such consumers enables the firm to better understand the needs and desires of the customers If the nations discriminating values spread to other countries, then the local firms will be competitive in the global market.

One example is the French wine industry. The French are sophisticated wine consumers. These consumers force and help French wineries to produce high quality wines. Can you think of other examples? Or counter-examples?

3.Related and Supporting Industries

Porter also argues that a set of strong related and supporting industries is important to the competitiveness of firms. This includes suppliers and related industries. This usually occurs at a regional level as opposed to a national level. Examples include Silicon valley in the U.S., Detroit (for the auto industry) and Italy (leather-shoes-other leather goods industry). The phenomenon of competitors (and upstream and/or downstream industries) locating in the same area is known as clustering or agglomeration. Some advantages to locating close to your rivals may be potential technology knowledge spillovers, an association of a region on the part of consumers with a product and high quality and therefore some market power, or an association of a region on the part of applicable labour force.

Related and Supporting Industries

Some disadvantages to locating close to your rivals are

potential poaching of your employees by rival companies and obvious increase in competition possibly decreasing mark-ups.

4.Firm Strategy, Structure and Rivalry

1. Strategy

(a) Capital Markets

Domestic capital markets affect the strategy of firms. Some countries capital markets have a long-run outlook, while others have a short-run outlook. Industries vary in how long the long-run is. Countries with a short-run outlook (like the U.S.) will tend to be more competitive in industries where investment is short-term (like the computer industry). Countries with a long run outlook (like Switzerland) will tend to be more competitive in industries where investment is long term (like the pharmaceutical industry).

Firm Strategy, Structure and Rivalry

(b)

Individuals Career Choices Individuals base their career decisions on opportunities and prestige. A country will be competitive in an industry whose key personnel hold positions that are considered prestigious.

2. Structure
Porter

argues that the best management styles vary among industries. Some countries may be oriented toward a particular style of management. Those countries will tend to be more competitive in industries for which that style of management is suited. For example, Germany tends to have hierarchical management structures composed of managers with strong technical backgrounds and Italy has smaller, family-run firms.

Firm Strategy, Structure and Rivalry

3. Rivalry Porter argues that intense competition spurs innovation. Competition is particularly fierce in Japan, where many companies compete vigorously in most industries. International competition is not as intense and motivating. With international competition, there are enough differences between companies and their environments to provide handy excuses to managers who were outperformed by their competitors.

India- Past & Present

The 70s, 80s and early 90s

India post 1995 and counting

Dominance of Public Sector across industry Sellers market with limited competition. Closed Economy with negligible presence of multinationals. GDP growth below 4% (Hindu rate of growth) primarily agriculture based.

100% FDI in most sectors has seen Pepsi, Coke, Shell, Ford, GM, Suzuki., Toyota, Amex, Citibank, GE, Microsoft, Pfizer, Novartis, Merck operation in India (availability of world class products) A new India is transiting from a third world country status to a league of developed nations

India has transformed from a land of snake charmers, elephants and an inward looking society to a progressive and forward looking nation of 1 Billion has the second largest community of science and technology professionals The worlds third-largest repository for foreign direct investment (FDI), after China and America. India is one of the three countries that makes supercomputers, one of the six countries that builds and launches satellites.

India Land of Opportunities

Fourth largest Economy (PPP) A safe place to do business

Largest democracy political stability & consensus on reforms

Second Largest Emerging Market

Largest reservoir of skilled/semiskilled manpower Liberal & transparent investment policies

Long-term sustainable Competitive advantage - High growth rate economy

Highest returns on investment; India 19.33%, China 14.25%, Thailand 13.3%

Developing an International presence is the key strategy for business growth

Market overview and Approach

Market Overview Population of 1.09 Billion 12th largest economy in the world in 2005 by GDP and 4th largest by PPP 170-200 million people with growing purchasing power 7-8% GDP growth rate Over 45% of the Indian population is under the age of 20 Key factors for success Reliable local partners Good planning Due diligence and follow-up Patience and commitment Indian consumers are price-conscious Adapt products for local conditions Have an efficient distribution network Consider a local/regional approach

India Competitiveness
India is emerging as the preferred global destination due to a number of significant advantages over other countries

Location Attractiveness Infrastructure Communications International connectivity Ever improving highways and ports infrastructure Communications Low Country Risks/ FDI Incentives Stable political environment Independent judiciary Low entry barriers Attractive Incentives

Immense labour pool High on qualification/capabilities Low on cost Language skills Work ethics WTO accession & commitments Mature financial market IP Protection Laws Favourable labour laws Capitalist work ethic Mature management talent Breadth and scalability of services

The India Advantage

Potential of huge domestic market provided by the country's 1bn-plus population Manufacturing Industry in India is growing by 9.4% Cost of employing engineers essential to manufacturing services is one-third to one-fifth lower in India than in industrialized nations such as the UK and the US India has an edge in the service aspects of manufacturing, these areas including design, development, links with suppliers and the ability to customize output to meet changes in demand patterns High level of technology combined with Service that ensures India is in a good position to develop a new source of products that mix innovation with low costs Better control of intellectual property unlike China Foreign companies can broaden access to a supply of

Fastest growing sectors

Automotive

The Indian automobile sector currently generates revenues of $34 billion a year; Auto sector could grow to $145 billion by 2016 India has gradually become a sourcing hub for auto companies worldwide. Among the companies outsourcing from India are General Motors, Ford, Daimler Chrysler, Hyundai, Fiat, Toyota, Delphi, Navistar, Visteon, Cummins and Caterpillar. The size of the auto component industry has grown from US$ 2.4 billion in 1997 to US$ 12 billion in 2005-2006 India has emerged as a significant exporter of auto parts. From US$ 578 million in 2001-02, overseas sales of Indian companies have jumped to US$ 2.2 billion in 2005-06

Drivers for growth

The Indian automobile industry is likely to attract an investment of US$ 6.7 billion by 2007 India produces 8.46 Mn vehicles annually with exports of 0.62 Mn units Production has been growing at 12% CAGR Mercedes, BMW, Porsche, Audi, Bentley and Rolls Royce are already in India. Now, the Italian marquee Lamborghini is also planning to enter the country Apart from Ford and Hyundai, other international players like BMW, Toyota,

Continued

Healthcare & Pharma

Indias Pharma market ranks 4th in the world in volume and 13th in domestic consumption value India has the highest number of USFDA certified manufacturing facilities outside the United States Indian pharma market estimated at US$ 3.8 billion ranks 12th in value terms and accounts for around 1% of the global market Expected to grow at 12-14% p.a., as against the global average of 6-8% At the current pace of growth, medical tourism, currently pegged at US$ 350 million, has the potential to grow into a US$ 2 billion industry by 2012. With the expected increase in the pharmaceutical market, the total healthcare market could rise from US$ 22.2 billion currently (5.2 per cent of GDP) to US$ 50 billion - US$ 69 billion (6.2-8.5 per cent of GDP) by 2012

Drivers for growth

Highly fragmented market with over 20,000 companies with top 250 companies controlling around 70% of the market. Sourcing of active pharmaceutical ingredients (APIs) and contract manufacturing Conducting early-stage research and development (R&D). Highly skilled human capital and technology expertise.

Continued

Construction

The Indian construction industry grew by 5.5 % to reach a value of $35 billion in 2006 The sector will continue to grow at a CAGR of 6.5% to reach $38 billion by 2009 representing an increase of 35.4 % since 2004 India accounts for 4.7% of the Asia-Pacific construction and engineering market The Indian construction and engineering industry is expected to grow in the region of 75% between 2000 and 2009, behind only China in the Asia-Pacific region

Drivers for growth

The country's commercial and residential real estate market is valued at about $50 billion now, and is expected to grow 25% annually A report on real estate trends by Merrill Lynch said that the number of malls in major metropolitan cities across India is expected to grow to about 250 by 2010 as against 40 now. In terms of total area, there was 12.40 million square feet (mn sq ft) of mall space available in these cities Gurgaon (National Capital Region, New Delhi) is set to get the

Continued...

Retail

Indian retail industry ranked second most attractive retail destination by AT Kearney The total domestic retail market is currently estimated to be over US$ 330 billion and is growing at a rate of 4-6 % in real terms Organized sector accounts for just 2 % of the market (i.e. US$ 4 billion)expected to grow four-fold to US$ 15 billion by 2010 There are 12 million retail outlets in India out of which 9 lakh are in the organized sector. Retail will grow by 40% by 2008

Drivers for growth

Retail sales in India's consumer goods market are expected to grow to $400 billion by 2010, making it one of the world's five biggest India's emerging middle class is driving this rapid growth, and companies must target that segment if they aspire to make the country a key market By 2007 there would be as many as 350 malls built in India with a mall area of over 87.7 million square feet Major construction of malls taking place both in the Tier- I and Tier- II cities of India

Continued

Telecommunication

One of the fastest growing sectors in the country The telecom sector has witnessed the presence of many leading foreign companies including US companies: AT&T, Motorola, Nynex, US West, Hughes, Harris, Qualcomm, Sprint, Telstra, NTT, Singapore Telecom, Philippine Telecom, Bezeq, Siemens, Ericsson, Nokia, Fujitsu, Alcatel, and Bell Canada among others 2 million Cellular phones added every month - Among the lowest mobile tariff in the world

Drivers for growth

India offers an unprecedented opportunity for telecom service operators, infrastructure vendors, manufacturers and associated services companies Nortel, North America's biggest telecommunications equipment provider, has signed a five-year deal to provide call centre services for Bharti, which has a more than 22 per cent market share of the mobile phone market in India Investment Opportunities

Setting up manufacturing facilities Supply of hand sets and equipments Telecom & Value added service

Other leading sectors for US exports and Investment in India

Airport and Ground Handling Computers and Peripherals Electric Power Generation, Distribution, Transmission Equipment Food Processing & Cold Storage Equipment Machine Tools Medical Equipment Mining and Mineral Processing Equipment Pollution Control Equipment Safety and Security Equipment Oil & Gas/ Energy Textile Machinery Water

and

END OF UNIT - 1