International Business Strategy

International Business Strategy
Strategic Management: Basic Concepts

Prof. Upendra Kachru
WELCOME TO INTERNATIONAL BUSINESS STRATEGY (IBS)
Why study Strategic Management?

Tata Steel National Rayon Bombay Burmah Bombay Dyeing Century Rayon Kohinoor Mills Indian Iron Scindia Shipping Indian Oil Corporation Reliance Industries Bharat Petroleum Hindustan Petroleum State Bank of India Tata Motors ONGC Tata Steel
ACC
JK Group
Essar Oil
Coal India
Where have they gone?

All companies need a strategy
Upendra Kachru
What is Strategy for a Business?

An organization can not operate effectively without a strategy,
Large-scale, future-oriented plan Used to interact within competitive environment to achieve company goals Provides a framework for managerial decisions Reflects a companys awareness of the main elements of competition
1-5
An organizations can be either developed explicitly through a planning process or evolved implicitly.
What business are we in? What products and services will we offer? To whom? At what prices? On what terms? Against which competitors? On what basis will we compete?
If the organization asks these key questions and it has the answers, then there is a strategy in place.
Some Definitions
Strategic Management is a continuous activity of setting and maintaining the strategic direction of the organization and its business, and making decisions on a day-to-day basis to deal with changing circumstances and the challenges of the business environment.
Some Definitions
Strategic Management is a dynamic process of aligning strategies, performance and business results; it is all about people, leadership, technology and processes.
Strategic Management
Firm
Competitive Advantage Shareholder Value
Strategy
Profit
Strategic Management: goal and set of policies designed to achieve competitive advantage in a particular marketplace Competitive Advantage: ability to transform inputs into goods and services at a maximum profit on a sustained basis, better than competitors
The Goal of Strategy: Imperfect Competition

Perfect Competition
Numerous sellers and buyers (no monopolies) Perfect Information Homogenous products No Barriers to entry or exit
Imperfect Competition
Few competitors, numerous suppliers and buyers Asymmetric Information Heterogeneous Products Barriers to entry
Normal/Average Profits Monopoly
Supernormal Profits
Only one player and no competition. Creates absolute competitive advantage. Prof. Upendra Kachru
Characteristics of Strategy
Strategy is a comprehensive master plan stating HOW the firm will achieve competitive advantage and meet its objectives. Strategy has a number of dimensions to it that need to be considered in devloping the master plan.
Dimensions of Strategic Decisions

Strategic issues are future-oriented
They are based on what managers forecast, rather than what they know Emphasis is on the development of solid projections that will enable a firm to seek the most promising strategic options A firm will succeed only if it takes a proactive (anticipatory) stance toward change
1-11
Dimensions of Strategic Decisions (contd.)
Strategic issues often affect the firms long-term prosperity

Strategic decisions commit the firm for a long time, typically 5 years; however the impact lasts much longer Once a firm has committed itself to a strategy, its image and competitive advantages are usually tied to that strategy Firms become known for what they do and where they compete. Shifting away from that can jeopardize their previous gains.
1-12
Strategic issues usually have multifunctional or multibusiness consequences.

Strategic decisions have complex implications for most areas of the firm Decisions about customer mix, competitive emphasis, or organizational structure involve a number of the firms SBUs, divisions, or program units
1-13
Strategic issues require considering the firms external environment

All businesses exist in an open system. They affect and are affected by external conditions that are largely beyond their control Successful positioning requires that strategic managers look beyond operations and consider what relevant others are likely to do
1-14
Strategic issues require large amounts of the firms resources

They involve substantial allocations of people, physical assets, and money Strategic decisions commit the firm to actions over an extended period In highly competitive firms, achieving and maintaining customer satisfaction frequently involves commitment from every facet of the firm
1-15

Strategic issues require topmanagement decisions
Strategic decisions overarch several areas of a firms operations Usually only top management has the perspective needed to understand their broad implications Usually only top managers have the power to authorize necessary resource allocations
1-16
Evolution of Strategic Management

Budgeting (1) 2
Strategic Planning (4)

Historical Evolution
The dominant theme, main issues, principal concepts and implications of strategy have evolved over time.
Period Dominant Theme 1950s Budgetary Planning & Control 1960s Long term Planning & Environmental Scanning 1970s Environment Scanning & Strategic Planning 1980s Strategic Planning Systems Approach 1990s The quest for Competitive Advantage
Main Issues
Financial Control through annual budgets
Financial Control through medium term projections
Portfolio Planning
Positioning Approach with focus on Value Chain Analysis

Organizational Synergy, Industry Structure & Competitor Analysis
Competitive Advantage, & Resource Based Approach

Resource Analysis & Analysis of Core Competencies
Principal Concepts & Techniques
Budgeting, Investment Planning & Project Appraisal
Forecasting Investment Planning Models
Portfolio Planning, Experience Curves
Organizational Implications
Strategic Planning Structures, Functional Designs
Strategic Planning Structures, Multidivisional Organization
Financial Control Organizations
Strategic Control Organizational Structures
Alliances & Network Structures, IT controls
Levels of Strategies
There are three levels at which strategy is enacted:
Corporate - a corporations overall direction and the management of its businesses. Business - emphasizes improving the competitive position of a corporations products or services in a specific industry or market segment. Functional - concerned with developing a distinctive competence to provide a company or business unit with a competitive advantage.
Hierarchy of Strategy
Corporate Headquarters Corporate Strategy
Strategic Business Unit
Business (Division Level) Strategy
Manufacturing
Finance
Marketing
Research and Development
Human Resources
Functional Strategy
Corporate Strategy
Corporate Strategy Vertical Integration
Corporate Strategy Horizontal Strategy
Corporate Strategy Strategic Posture
Business Strategy
Three Key Strategic Questions

Where is the organization now? If no changes are made, where will the organization be in one, two, five or ten years? Are the answers acceptable? If the answers are not acceptable, what specific actions should management undertake? What are the risks and payoffs involved?
The Big Picture

Strategic Management ultimately demands attention to the "big picture" and a rational assessment of the future options. It provides:
Strategic direction endorsed by the team and stakeholders Clear business strategy and vision for the future Mechanism for accountability Framework for governance at the various levels Framework for managing risk for ensuring business continuity. Ability to exploit opportunities and respond to external change by taking ongoing strategic decisions.
The Strategic Management process can also be described by a number of tasks.
Strategic Management Process
Evolve business goals; Set objectives that are achievable; Evolve and develop a competitive strategy; Create an effective organizational structure and arrange resources; and Evaluate performance so that necessary corrective measures can be taken.
Let us consider its three main elements:
1
Its aim is to form a view on the key factors that will have an affect on the future well being of the firm.
2
Making choices and decisions is at the heart of strategic management process.
3
It is concerned with the translation of strategy into action.
Strategic Analysis
Strategic Choice or Formulation Prof. Upendra Kachru
Strategy Implementation & Evaluation
Internal Scrutiny
Strategic Analysis
Macro Environment Business Environment Technological Environment
Firm & Stakeholders
Existing Strategy Strategic Choice
Market
You stay on the same course or not
Evaluation
Implementation
Strategic Management Framework

Strategic Management Process Strategic Analysis
Strategic Management Process Strategic Analysis
Strategic Management Process Strategy Formulation

Corporate Strategy & Business Strategy
Corporate determining the corporations boundaries and overall direction; the manner in which the company can act synergistically; diversification and disinvestment; and the strategic thrusts of its businesses. Business - determining the competitive position of a corporations products or services in a specific industry or market segment and how to compete in the market place.
Strategic Management Process

Implementation and Evaluation
Strategic Decision-Making Process

3(a) Scan and Assess External Environment: Societal Task 3(b) Analyze External Factors: Opportunities Threats
1(a)
1(b) Examine and Evaluate the Current: Mission Objectives Strategies Policies
2 Review Corporate Governance: Board of Directors Top Management
5(a) Select Strategic Factors (SWOT) in Light of Current Situation
5(b) Review and Revise as Necessary: Mission Objectives
6(a)
6(b) Select and Recommend Best Alternative
7 Implement Strategies: Programs Budgets Procedures
Evaluate Current Performance Results
Generate and Evaluate Strategic Alternatives
Evaluate and Control
4(a) Scan and Assess Internal Environment: Structure Culture Resources
4(b) Analyze Internal Factors: Strengths Weaknesses
Strategic Evaluation: Steps 1-4
Strategy Formulation: Steps 5 6
Evaluation Strategy and Implementation Control: Step 7 Step 8
Strategic Decision Making
SUMMING UP
Strategic Decisions have:
Long term direction Achieve advantage Change scope of activities Commit major resources Build or stretch resources Major Impact outside the organization Entails significant risks Major effect on operational decisions Complex and cross-cutting interactions Changes values and expectations
Characteristics of Strategic Management
Strategic Management co-ordinates and integrates business activities: It addresses the needs of the consumer, and provides greater efficiency and value for money to the stake holders. Strategic Management strengthens the competitive position: It helps develop and maintain meaningful assets and skills such that they form a sustainable competitive advantage. Strategic Management satisfies Customers: It sees how best the firm can satisfy the needs of the people that will use its services and products. Strategic Management works toward achieving Performance Targets: It evaluates the execution of activities related to strategic issues and goals. Strategic Management is adaptive: It keeps an organization relevant.
Strategic Decision Making

Strategies develop in different ways in different types of organizations.
In family controlled businesses, strategy decisions are made by an individual or a small group. The style is of an autocratic or a charismatic leader, who is seen as central to the strategy of the organization. Where the markets are stable or mature, and the environment is benign, strategic decisions are generally taken using standardized planning procedures with systematic data collection and analyses. Large manufacturing and service type organizations have formal Strategic Management processes. There is a strong vision or mission with definite and precise objectives and a system for analysis and evaluation of environments.
Concept of Strategic Management

Environmental Scanning External
Societal Environment General Forces Task Environment Industry Analysis
Strategy Formulation
Mission
Reason for existence
Strategy Implementation
Evaluation and Control
Objectives
What results to accomplish by when
Strategies
Plan to achieve the mission & objectives
Policies
Broad guidelines for decision making
Internal
Structure Chain of Command
Programs
Activities needed to accomplish a plan
Culture Beliefs, Expectations, Values Resources Assets, Skills Competencies, Knowledge
Budgets
Cost of the programs
Process to monitor performance and take corrective action
Procedures
Sequence of steps needed to do the job
Performance
Feedback/Learning
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International Business Strategy

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Strategic Management: Basic Concepts