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Managing Strategy

& Strategic Planning

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Strategy
A plan for accomplishing organizations goals.

Strategic Management
A management process aimed at formulating and implementing effective strategies.

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The Nature of Strategic Management


Component of Strategy

Distinctive Competence

Scope

Resource Deployment

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Ansoff Growth Matrix. Product


Existing New

Existing

Market Penetration

New Product Development

Market
New Market Extension Diversification

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The Nature of Strategic Management

Types of Strategic Alternatives


1 Business-Level Strategy
The set of strategic alternatives that an organization chooses from as it conducts business in a particular industry or a particular market.

2 Corporate-Level Strategy
The set of strategic alternatives that an organization chooses from as it manages its operations simultaneously across several industries and several markets.
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The Nature of Strategic Management


Strategy Formulation and Implementation
1 Strategy Formulation
The set of processes involved in creating or determining the organizations strategies.

2 Strategy Implementation
The methods by which strategies are operationalized or executed within the organization.

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Using SWOT Analysis to Formulate Strategy

Strengths Weaknesses Opportunities Threats

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Using SWOT Analysis to Formulate Strategy Evaluating Organizations Strength Organizational Strength Skills and abilities enabling an organization to conceive of and implement strategies.
1 Common Organizational Strengths A skill or capability held by numerous competing firms 2 Distinctive Competencies Useful for competitive advantage and superior performance. 3 Sustained Competitive Advantage Occurs when a distinctive competence cannot be easily duplicated and is what remains after all attempts at strategic imitations have ceased. Copyright 2002 by South-Western 28

Using SWOT Analysis to Formulate Strategy


Evaluating Organizations Weakness A skills and capabilities that do not enable an organization to choose and implement strategies that support its mission. Way to overcome: 1 Investments to obtain the strengths needed.
e.g. Asian Paints TINTING Machines at Retailer Locations

2 Modification of the organizations mission


e.g. IBM from Hardware to Software

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Using SWOT Analysis to Formulate Strategy Evaluating Organizations Opportunities Areas in the organizations environment that may generate high performance.

Evaluating Organizations Threats Areas in the organizations environment that make it difficult for the organization to achieve high performance

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Formulating Business-Level Strategies


Porters Generic Strategies
Strategy Type Differentiation Definition Distinguish product or services Reduce manufacturing and other costs Concentration on specific regional market, product market, or group of buyers Examples Rolex (watches) Mercedes-Benz (automobiles) Sonata Maruti Ashok Masale, Bagh-Bakri Chai Chandrika Soap

Overall cost leadership Focus

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Formulating Business-Level Strategies

The Miles and Snow Typology Strategy Type Definition Prospector Innovative and growth oriented Defender Protect current market, maintains stable growth Analyzer Maintains current markets and customer satisfaction Reactor Reacts to changes in the environment
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Example Amazon.com eBay.com

IBM Yahoo

HMT watches Ambassador


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Formulating Business-Level Strategies Strategies Based on the Product Life Cycle


High Introduction Sales Volume Growth Stages Maturity Decline

Low

Introduction

Growth Time

Maturity

Decline

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Implementing Business Level Strategies Implementing Porters Generic Strategies


Differentiation Strategy
Marketing and sales emphasize high quality. (Sony) Accounting and finance control the flow of money.

Overall Cost Leadership Strategy


Marketing and sales focus on simple product attributes and how they meet customer needs. Accounting and finance control the flow of money. Management for reducing cost. (Big Bazaar) Manufacturing for standard product. (Cello pens)

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Implementing Business Level Strategies


Implementing Miles and Snows strategies
Prospector Strategy
Encouraging creativity. (Apple) Encouraging flexibility. (3M)

Defender Strategy
Attempts to protect market from new competitors. (Maruti & LIC) Focus on reducing cost. Focus on improving performance of products.

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Implementing Business Level Strategies


Implementing Miles and Snows strategies
Analyzer Strategy
Maintain current business. (Mother Dairy) Focus on innovation. Strong accounting and financial control. Provide high flexibility. Provide high creativity and low cost.

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Formulating Corporate-level Strategies Diversification


Describes number of different business and relation among business. (ITC)

Single-Product Strategy
Organization manufactures one product and sells it in single geographic market. (Harvest Gold)

Disadvantage: If the product is not accepted then company will suffer.


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Related Diversification
Organization operates in several different businesses, industries, or markets that are somehow linked. Bases of Relatedness for Implementation Basis of Relatedness Similar technology Common distribution and marketing skills Common name brand and reputation Common customers Examples Phillips, Boeing HUL, Nestle AMUL, Maggi

Airtel

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Formulating Corporate-Level Strategies


Unrelated Diversification
Organization operates multiple businesses that are not logically associated with one another. (ITC) Advantages Stable corporate-level performance over time. Resources can be allocated to areas with the highest return potentials to maximize corporate performance. Disadvantages Strategy does not usually lead to high performance. Firms with unrelated strategies fail to exploit important synergies, putting them at a competitive disadvantage to firms with related diversification strategies.
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Implementing Corporate-Level Strategies


Becoming Diversified Firm

3 ways:
1.
Internal Development of New Products (HONDA) Replacement of Suppliers and Customers Mergers and Acquisitions (Dabur with Balsara) Backward Vertical Integration (Reliance)

2. 3.

Forward Vertical Integration (CCD)

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helps fill the Strategic Planning Gap

Targeted sales
4 3 2 Diversification

New Markets New Products Market penetration


Do nothing scenario

Strategic planning gap

Sales

0
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Time (years)

Implementing Corporate-Level Strategies


Managing Diversification 1. Organization Structure 2. Portfolio Management Techniques
Make decision about What businesses to engage in How to manage these multiple businesses to maximize corporate performance.

Two important portfolio management techniques The BCG Matrix The GE Business Screen
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BCG Matrix

Concept of Relative Market Share


Let us suppose the size of the Paint Industry market is Rs. 10,000 crores. The share of the various companies is as follows:
Company Revenue (Rs. Crores) Market Share

Asian Paints
Nerolac Rajdoot Berger Total
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5000
2500 1500 1000 10,000

50%
25% 15% 10% 100%
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BCG Matrix
Concept of Relative Market Share and Market Growth

Market Share of Asian Paints =


Revenue of AP/Total Revenue of the market

Market Share = 5000/10000 = 50% Relative Market Share =


Revenue of AP/ Revenue of the biggest player (Nerolac in this case)

= 5000/2500 =

2
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BCG Matrix
Concept of Relative Market Share and Market Growth

Market Share of Nerolac =


Revenue of Nerolac/Total Revenue of the market

Market Share = 2500/10000 = 25% Relative Market Share =


Revenue of Nerolac/ Revenue of the biggest player (Asian Paints in this case)

= 2500/5000 = 0.5

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BCG Matrix
Concept of Relative Market Share and Market Growth

Market growth is the rate at which the market is growing:


e.g. Let us say the total market of bathing soaps was Rs. 5000 crores in 2006 i.e In India all companies put together were able to sell Rs. 5000 crores worth of soaps. And in year 2007 the total market was Rs. 5500 crores which

means that the growth of the market is

10%
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Implementing Corporate-Level Strategies


The BCG Matrix Evaluate businesses relative to the growth rate of their market and the organizations share of the market.
High

Market growth rate

Stars

Question marks

10%

Cash cows

Dogs

Low High

1
Relative market share

Low

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Implementing Corporate-Level Strategies


The GE Business Screen
Evaluate business in a diversified portfolio along two dimensions, each of which contains multiple factors: Industry attractiveness. Competitive position (strength) of each firm in the portfolio.
High Medium Winner Winner Profit producer Good Winner Average business Loser Loser Medium Question mark Loser Loser Poor

Industry growth rate

Low

Competitive Position
Industry Attractiveness 1.Market Growth 2.Market Size 3.Capital Requirements 4.Competitive Intensity Competitive position
1.Market share

2.Technological know-how 3.Product quality 4.Service network 5.Price competitiveness


6.Operating costs

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Implementing Corporate-Level Strategies

The GE Business Screen


Competitive position 1. Market share 2. Technological know-how 3. Product quality 4. Service network 5. Price competitiveness 6. Price competitiveness
Industry attractiveness 1. Market growth 2. Market size 3. Capital requirements 4. Competitive intensity

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