Crafting & Executing Strategy
- 1. Harsh J. Parekh MBA (HR) Self-reading material for Examination (Brief Content) Email Id- harsh.parekh32@gmail.com UNIT - 1 1.1 What Do We Mean By “Strategy” Strategy consists of competitive moves and business approaches that managers are employing to Grow the business Attract and please customers Compete successfully Conduct operations Achieve target levels of organizational performance 1.2 What makes a strategy winner, Importance of Crafting & Executing strategy 1. Tests of a Winning Strategy 1. GOODNESS OF FIT TEST How well does strategy fit the firm’s situation? 2. COMPETITIVE ADVANTAGE TEST Does strategy lead to sustainable competitive advantage? 3. PERFORMANCE TEST Does strategy boost firm performance? Why Crafting and Executing strategy are important tasks? - It provides A prescription for doing business. - A road map to competitive advantage. - A game plan for pleasing customers. - A formula for attaining long-term standout marketplace performance. Good Strategy + Good Strategy Execution = Good Management 1.3 Managerial process of Crafting & Executing strategy The Strategy-Making, Strategy-Executing Process Who Is Involved in Strategy Making? - CEO, Senior Executive, Managers of subsidiaries, Division.
- 2. A Company’s Strategy-Making Hierarchy UNIT- 2 2.1 PESTEL Model The Components of a Company’s Macro-Environment
- 3. 2.2 Five Force Model of Competition 2.3 Driving Forces and Key Success Factors 1. Changes in the long-term industry growth rate 2. Increasing globalization 3. Changes in who buys the product and how they use it 4. Technological change 5. Emerging new Internet capabilities and applications 6. Product and marketing innovation 7. Entry or exit of major firms 2.4 Strategic Group Mapping and Framework for Competitor A Strategic Group Is a cluster of industry rivals that have similar competitive approaches and market positions. Identify the competitive characteristics that differentiate firms in the industry. Plot the firms on a two-variable map using pairs of differentiating competitive characteristics. Assign firms occupying about the same map location to the same strategic group. Draw circles around each strategic group, making the circles proportional to the size of the group’s share of total industry sales revenues.
- 4. UNIT - 3 3.1: HOW WELL IS THE COMPANY’S PRESENT STRATEGYWORKING? The company is achieving its stated financial and strategic objectives. The company is an above-average industry performer. Growth in firm’s sales and market share Acquisition and retention of customers Increasing profit margins Growing financial strength and credit rating Positively viewed by shareholders and customers Leadership in factors relevant to marketindustry success Continuing improvement in operating performance Resources and Capabilities A Resource Is a productive input or competitive asset that is owned or controlled by a company (e.g.,a fleet of oil tankers). A Capability Is the capacity of a firm to perform some activity proficiently (e.g.,superior skills in marketing, Apple’s product innovation capability, Nordstrom's superior incentive management, PepsiCo’s marketing and brand management). Types of Company Resources Tangible Resources Intangible Resources Physical resources Human assets and intellectual capital Financial resources Brands Technological assets External relationships Organizational resources Company culture and incentive system 3.2 SWOT Analysis A Competence Is an activity that a firm has learned to perform with proficiency—a capability. A Core Competence Is a proficiently performed internal activity that is central to a firm’s strategy and competitiveness. A Distinctive Competence Is a competitively valuable activity that a firm performs better than its rivals. Examples: Distinctive Competencies Toyota Low-cost, high-quality manufacturing of motor vehicles Starbucks Innovative coffee drinks and store ambience
- 5. 3.3 The Value Chain Activity and benchmarking Identifies the primary internal activities that create customer value and the related support activities. Permits a deep look at the firm’s cost structure and ability to offer low prices. Reveals the emphasis that a firm places on activities that enhance differentiation and support higher prices. Representative Value Chain System for an Entire Industry
- 6. Benchmarking: Involves improving a firm’s internal activities based on learning other companies’ “best practices.” (Xerox, Toyota) Assesses whether the cost competitiveness and effectiveness of a firm’s value chain activities are in line with its competitors’ activities. Sources of Benchmarking Information Reports, trade groups, analysts and customers Visits to benchmark companies Data from consulting firms (The Benchmarking Exchange, Best Practices, Strategic Planning Institute’s Council on Benchmarking) Translating Company Performance of Value Chain Activities into Competitive Advantage 3.4 A Representative WeightedCompetitive Strength Assessment 3.4 Competitive StrengthAssessment The Competitive Strength Assessment Process Step 1 Make a list of the industry’s key success factors and measures of competitive strength or weakness (6 to 10 measures usually suffice). Step 2 Assign a weight to each competitive strength measure based on its perceived importance. Step 3 Rate the firm and its rivals on each competitive strength measure and multiply by each measure by its corresponding weight. Step 4 Sum individual ratings to get an overall measure of competitive strength for each rival Step 5 Based on overall strength ratings, determine overall competitive position of firm
- 7. UNIT -4 4.1 Types of Growth Strategy 1. Integration Strategy 2. Diversification Strategy 3. Cooperation Strategy 1. Integration Strategies Strategic integration is an important element in the process of improving organizational performance because it facilitates the continuous alignment of business strategies within the ever changing business environment. What is vertical integration? Vertical integration is a competitive strategy by which a company takes complete control over one or more stages in the production or distribution of a product. A company opts for vertical integration to ensure full control over the supply of the raw materials to manufacture its products. It may also employ vertical integration to take over the reins of distribution of its products. A supermarket may acquire control of farms to ensure supply of fresh vegetables (backward integration) or may buy vehicles to smoothen the distribution of its products (forward integration). Advantages of vertical integration smoothen its supply chain (by ensuring ready supply of tyres and electrical components in the exact specifications that it requires) make its distribution and after-sales service more efficient (by opening its own showrooms) invest in specific functions such as tyre-making and develop its core competencies Disadvantages of vertical integration The quality of goods supplied earlier by external sources may fall because of a lack of competition. It may be difficult for the company to sustain core competencies as it focuses on the integration of the new units. What is horizontal integration? Horizontal integration is another competitive strategy that companies use. An academic definition is that horizontal integration is the acquisition of business activities that are at the same level of the value chain in similar or different industries. In simpler terms, horizontal integration is the acquisition of a related business: a fast-food restaurant chain merging with a similar business in another country to gain a foothold in foreign markets.
- 8. Horizontal Integration in Strategic Management Horizontal integration, as we have seen, is a company’s acquisition of a similar or a competitive business—it may acquire, but it may also merge with or takeover, another company to strengthen itself—to grow in size or capacity, to achieve economies of scale or product uniqueness, to reduce competition and risks, to increase markets, or to enter new markets. Quick examples of horizontal expansion are Standard Oil’s acquisition of about 40 other refineries and the acquisition of Arcelor by Mittal Steel and that of Compaq by HP. When is horizontal integration attractive for a business? When the industry is growing When rivals lack the expertise that the company has already achieved When economies of scale can be achieved Advantages of horizontal integration Economies of scale: The bigger, horizontally integrated company can achieve a higher production than the companies merged, at a lower cost. Increased differentiation: The company will be able to offer more product features to customers. Disadvantages of horizontal integration strategy As touched upon earlier, the management of a company should be able to handle the bigger organisation efficiently if the advantages of horizontal integration are to be realised. 2. Diversification Strategy Broadening the current scope of diversification by entering additional industries. Reasons for Diversification 1. Value Creating Diversification Economies of scope (related diversification) Market Power (related diversification) Financial economies (unrelated diversification) 2. Value Neutral Diversification ● Antitrust regulations ● Tax laws ● Uncertain future cash flows ● Tangible resources ● Low performance ● Risk reduction for firm ● Intangible resources 3. Value reducing diversification ● Diversifying managerial employment risk ● increasing managerial compensation
- 9. 3.CooperationStrategy Cooperative Strategy. A large number of firms today engage in co-operative strategies. A cooperative strategy is an attempt by a firm to realize its objectives through cooperation with other firms, in strategic alliances and partnerships (typically joint ventures), rather than through competition with them. Following cooperative strategies 1. Mergers - A merger is a combination of two or more organizations in which one acquires the assets and liabilities of the other in exchange for shares or cash, or both the organizations are dissolved, and the assets and liabilities are combined and new stock is issued. 2. Takeovers (or Acquisitions) - The attempt of one firm to acquire ownership or control over another firm against the wishes of the latter’s management. It may be hostile takeover (which are against the wishes of the acquired firm), friendly takeover (mutual consent) Reasons : 1. Quick growth, 2. Diversification, 3. Establishing-industrialist, 4. Reducing competition, 5. Increasing market share, 3. Joint ventures - It is a special case of consolidation where ‘two or more companies from a temporary for a specified purpose. 4. Strategic Alliances - “A strategic alliance is a formal agreement between two or more separate companies in which they agree upon to work cooperatively towards some common objective” FACTORS THAT MAKE AN ALLIANCE “STRATEGIC” 1. It facilitates achievement of an important business objective. 2. It helps build, sustain, or enhance a core competence or competitive advantage. 3. It helps block a competitive threat. 4. It helps remedy an important resource deficiency or competitive weakness. 5. It increases the bargaining power of alliance members over suppliers or buyers. 6. It helps open up important new market opportunities. 7. It mitigates a significant risk to a firm’s business. 4.2StabilityStrategy Definition: The Stability Strategy is adopted when the organization attempts to maintain its current position and focuses only on the incremental improvement by merely changing one or more of its business operations in the perspective of customer groups, customer functions and technology alternatives, either individually or collectively. 1.No-Change Strategy No-Change Strategy, as the name itself suggests, is the stability strategy followed when an organization aims at maintaining the present business definition. Simply, the decision of not doing anything new and continuing with the existing business operations and the practices referred to as a no-change strategy. 2. Profit Strategy The Profit Strategy is followed when an organization aims to Maintain the profit by whatever means possible. Due to lower profitability, the firm may cut costs, reduce investments, raise prices, increase productivity or adopt any methods to overcome the temporary difficulties.
- 10. 3. Pause/Proceed with Caution Strategy The Pause/Proceed with Caution Strategy is well understood by the name itself, is a stability strategy followed when an organization wait and look at the market conditions before launching the full-fledged grand strategy. To have a better understanding of Stability Strategy go through the following examples in the context of customer groups, customer functions and technology alternatives. 1. The publication house offers special services to the educational institutions apart from its consumer sale through the market intermediaries, with the intention to facilitate a bulk buying. 2. The electronics company provides better after-sales services to its customers to make the customer happy and improve its product image. 3. The biscuit manufacturing company improves its existing technology to have the efficient productivity. In all the above examples, the companies are not making any significant changes in their operations, they are serving the same customers with the same products using the same technology. 4.3 RetrenchmentStrategy This strategy is often used in order to cut expenses with the goal of becoming a more financial stable business. Typically the strategy involves withdrawing from certain markets or the discontinuation of selling certain products or service in order to make a beneficial turnaround. Retrenchment is a corporate level strategy that aims to reduce the size or diversity of an Symptoms of retrenchment strategy 1. Diminishing profitability, 2. dwindling cash flow, falling sales, 3. shrinking market shares, 4. increasing debt, etc. Examples: 1. Typewriters, Wooden toys, Normal mobile, landline telephone, Compact Disk (CD), floppy, etc. Turnaround Strategies It is done either internally or externally “Turnaround strategy means backing out, withdrawing or retreating from a decision wrongly taken earlier in order to reverse the process of decline.” Managing Turnaround ● The existing chief executive and management team handle the entire turnaround strategy with the advisory support of a specialist external consultant. ● The existing team withdraws temporarily and an executive consultant or turnaround specialist is employed to do the job. Approached to turnaround 1. Surgical-tough attitude about the pattern of action followed is roughly the same everywhere. 2. Human- understanding problem, eliciting opinions, adopting a conciliatory attitude and coming to negotiated settlements. UNIT-5 5.1 CustomerRelationshipwith BLS A number of firms are becoming skilled in managing its customer's relationship. For Example : Amazon.com Reach (For Ex. Amazon.com, Facebook) Richness (Information based exchange with customers) Affiliation (Facilitating useful interactions with customers)
- 11. 5.2. Generic Strategies Low-Cost Provider Striving to achieve lower overall costs than rivals on products that attract a broad spectrum of buyers. Broad Differentiation Differentiating the firm’s product offering from rivals’ with attributes that appeal to a broad spectrum of buyers Focused Low- Cost Concentrating on a narrow price-sensitive buyer segment and on costs to offer a lower-priced product. Focused Differentiation Concentrating on a narrow buyer segment by meeting specific tastes and requirements of niche members Best-Cost Provider Giving customers more value for the money by offering upscale product attributes at a lower cost than rivals 5.3. Offensive strategies andDefensive strategies CHOOSING WHICH RIVALS TO ATTACK Best Targets for Offensive Attacks BLUE-OCEAN STRATEGY—A SPECIAL KIND OF OFFENSIVE A ―blue ocean‖ market space, where the industry has not yet taken shape, with no rivals and wide- open long-term growth and profit potential for a firm that can create demand for new types of products. DEFENSIVE STRATEGIES—PROTECTING MARKET POSITION AND COMPETITIVE Purposes of Defensive Strategies 1. Lower the firm’s risk of being attacked 2. Weaken the impact of an attack that does occur 3. Influence challengers to aim their efforts at other rivals
- 12. 5.4. Timing a Company’s Offensive and Defensive Moves, Outsourcing Strategies TIMING A FIRM’S OFFENSIVE AND DEFENSIVE STRATEGIC MOVES CONDITIONS THAT LEAD TO FIRST-MOVER ADVANTAGES THE POTENTIAL FOR LATE-MOVER ADVANTAGES OR FIRST-MOVER DISADVANTAGES TO BE A FIRST MOVER OR NOT OUTSOURCING STRATEGIES: NARROWING THE SCOPE OF OPERATIONS 5.5. Porter’s Diamond of NationalCompetitive Advantages and Strategyoption for entering into foreign market WHY COMPETING ACROSS NATIONAL BORDERS MAKES STRATEGY-MAKING MORE COMPLEX 1 Different countries have different home-country advantages in different industries 2 Location-based value chain advantages for certain countries 3 Differences in government policies, tax rates, and economic conditions 4 Currency exchange rate risks 5 Differences in buyer tastes and preferences for products and services STRATEGIC OPTIONS FOR ENTERING AND COMPETING IN INTERNATIONAL MARKETS 1. Maintain a national (one-country) production base and export goods to foreign markets. 2. License foreign firms to produce and distribute the firm’s products abroad. 3. Employ an overseas franchising strategy. 4. Establish a wholly-owned subsidiary by either acquiring a foreign company or through a Greenfield venture. 5. Rely on strategic alliances or joint ventures with foreign companies. EXPORT STRATEGIES LICENSING AND FRANCHISING STRATEGIES FOREIGN SUBSIDIARY STRATEGIES
- 13. Greenfield Venture A Greenfield venture is a subsidiary business that is established by setting up the entire operation from the ground up. BENEFITS OF ALLIANCE AND JOINT VENTURE STRATEGIES THE RISKS OF STRATEGIC ALLIANCES WITH FOREIGN PARTNERS UNIT-6 6.1 Corporate Portfolio analysis CPA is defined as a set of techniques that help the strategists in taking strategic decisions with regard to individual products or businesses in a firm’s portfolio. BCG Matrix 1. Stars: Products in high growth markets with high market share. 2. Question marks or Problem Child: Products in high growth markets with low market share. 3. Cash cows: Products in low growth markets with high market share 4. Dogs: These are products with low growth or market share. GE Nine Cell Matrix - GE nine-box matrix is a strategy tool that offers a systematic approach for the multi business enterprises to prioritize their investments among the various business units. It is a framework that evaluates business portfolio and provides further strategic implications. The green zone suggests you to ‘go ahead’, to grow and build, pushing you through expansion strategies. Businesses in the green zone attract major investment. Yellow cautions you to ‘wait and see’ indicating hold and maintain type of strategies aimed at stability. Red indicates that you have to adopt turnover strategies of divestment and liquidation or rebuilding approach.
- 14. 6.2 Building an Organization Capable of GoodStrategyExecution A grand strategy can lead the way to small business success, but companies must be structured in such a way as to encourage good strategy execution to achieve real results. To accomplish this, a company culture must be instilled with adaptability and innovation, and work processes structured to accommodate operational changes or shifts in focus. 1. Build your departments around dynamic work teams and encourage within each department. 2. Encourage competition between departments and teams for rewards and other incentives. 3. Be the first to adapt to new strategic objectives, and actively motivate others to get on board by using personal encouragement. 4. Tie incentives and reward systems to strategic goals. Use contests and award programs to motivate employees about specific objectives. 5. Involve managers and employees at all levels of your company in strategic discussion and decision-making. 6. Communicate strategic needs effectively to garner buy-in at all levels of the organization, and let employees know how strategic changes will enhance their individual job roles. 7. Allow employees to give their input freely, and let your actions speak louder than your word s when it comes to giving real consideration to employee's concerns and ideas. 8. Translate corporate-level strategies into business unit, departmental and personal strategies to make objectives relevant at all levels. 9. Employ strategic management tools such as SWOT (Strengths, Weaknesses, Opportunities, Threats) and Gap analysis to identify areas of potential improvement in your operations at least once per year. 6.3 Managing InternalOperations - Tools for promoting operating excellence 1. Business process Reengineering - involves radically redesigning and streamlining how an activity is performed, with the intent of achieving quantum improvements in performance. 2. Total Quality Management - entails creating a total quality culture, involving managers and employees at all levels, bent on continuously improving the performance of every value chain activity. 3. Six Sigma Quality Control Programs - utilize advanced statistical methods to improve quality by reducing defects and variability in the performance of business processes. 4. Installing Information and operating systems 5. Instituting Adequate Information Systems, Performance Tracking and Controls 6.4 EthicalStandards, Drivers of Unethical Strategies Drivers of Unethical Strategies & Business Behavior Faulty oversight, enabling the pursuit of personal gain & self-interest Self-dealing Heavy pressure to meet or beat short-term performance targets Short-termism Company culture that puts profitability & business performance ahead of ethical behavior Why Should Company Strategies Be Ethical? 1. Unethical strategies are morally wrong and will reflect badly on the company. 2. Ethical strategies can be good business and serve the self-interest of the shareholders.