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Main Text: Strategic Management & Business Policy: Wheelen , Hunger & Rangarajan
(Prentice Hall)
Dec 2010
Strategic Management:
11
Strategic Management
Case Studies:
1. Encyclopaedia Britannica (A, B & C) Case 2-1, 2-2,2-3 Management Control System 12 edn 2. The Road Ahead for Shanghai VW International Case: Pg.116+117, Essentials of Management 7 edn. (Tata McGraw Hill) 3. T.I. & H.P.
Case 13-3; Management Control Systems 12 edn Strategic Management: 22
Dec 2010
Who am I ?
Joined Philips India as a Management Trainee (1969) w After O-J-T of 18 months, became a Section Incharge in a factory w 18 months later, become Shop In-charge w 24 months later, took over as I/C Engineering & Customer Support w 18 months later, Project 2nd I/C for new Factory w 18 months later, Manager Quality Control w 42months later, Manager Innovation Group w 42 months later seconded to Philips Germany w 24 months later returned as Factory Manager, Luminaire Centre/Calcutta w 36 months later took over as Plant Manager, Kalwa Lamp Factories/ Thane the largest Philips Production complex first Indian Manager w 54 months later took over as SBU head- Professional Lighting/India w 36 months later took over as Head, Corporate Purchasing/India for 12 months; w Started (1998) up a joint-venture between Tata Dec 2010 Strategic Management: 33
w
Basic Concepts:
Strategic Management & Business Policy
Syllabus Topic: 1) Introduction to Strategic Management
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Strategic Management:
44
Strategic Management
Defined: Set of managerial decisions and actions that determines the long-run performance of a firm.
The primary role of corporate management is finding the future ... Strategic Management: Al Reis 55 Strategic Management:
Dec 2010
B S Guha
Business Policy
Defined: General management orientation that looks inward for properly integrating the firms functional activities.
Dec 2010
66
Dec 2010
Strategic Management
Highly Rated Benefits:
Clearer sense of strategic vision for the firm Sharper focus on what is strategically important Improved understanding of a rapidly changing
environment
Where is the organization now? (Not where do we hope it is!) If no changes are made, where will the organization be in 1 year, 2 years, 5 years, 10 years? What specific actions should management undertake? What are the risks and payoffs involved?
Strategic Management: Strategic B S Guha Management: 88
Dec 2010
Strategic Management
H
Strategic grid
High Intuitive based strategy High Logic , High Intuition strategy
Intuiti on
Compromis e strategy
Negligible strategy
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99
national markets
Electronic Commerce
Use
Dec 2010
E-Commerce
7 Trends:
forcing companies to transform themselves Market access and branding are changing, causing disintermediation of traditional distribution channels Balance of power shifting to the increasingly savvy consumer Competition is changing (convergence!) Pace of business increasing drastically Internet purchasing corporations out of their traditional boundaries Knowledge becoming a key asset and Strategic Management: 1111 source ofStrategic Management: competitive advantage B S Guha Dec 2010
Internet
Strategic flexibility:
Demands
Demands
Dec 2010
Defined: An organization skilled at creating, acquiring, and transferring knowledge and at modifying its behavior to reflect Four Main Activities: insights. new knowledge and
Learning Organizations
Solving problems systematically Experimenting with new approaches Learning from their won experiences and that of others Transferring knowledge quickly and efficiently throughout the organization
Dec 2010
1313
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1414
Environmental Scanning
Defined: The monitoring, evaluating, and disseminating of information from the external and internal environments to key people within the firm.
Dec 2010
1515
Environmental Scanning
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1616
Environmental Scanning
Identify strategic factors
SWOT Analysis Strengths, Weaknesses Opportunities, Threats Internal Environment
Strengths & Weaknesses Within the organization but not subject to shortrun control of management
External
Environment
Opportunities & Threats External to the organization but not subject to short-run control of management
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1717
Strategy Formulation
Defined: Development of long-range plans for the effective management of environmental opportunities and threats in light of corporate strengths and weaknesses.
Dec 2010
1818
Strategy Formulation
Mission Statement
Purpose
or reason for the organizations existence Promotes shared expectations among employees Communicates public image important to stakeholders Who we are, what we do, what wed like to become
Dec 2010
1919
Strategy Formulation
A goal is an open-ended The end results of planned activity of statement What is to be accomplished what one wants Time in which to accomplish to accomplish it with no Quantified when possible quantification of Corporate goals and objectives be what is to achieved and no include: time criteria for Profitability (net profits) completion.
Objectives
Growth
(increase in total assets, etc.) Utilization of resources (ROE or ROI) Market leadership (market share)
Dec 2010
2020
Strategies
Defined: A strategy of a corporation forms a comprehensive master plan stating how the corporation will achieve its mission and objectives. It maximizes competitive advantage and minimizes competitive disadvantage.
Dec 2010 Strategic Management: B S Guha Strategic Management: 2121
Policies
Defined: Broad guidelines for decision making that link the formulation of strategy with its implementation.
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2222
Strategy Implementation
Procedu res
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2323
Dec 2010
Strategic Management:
2424
Initiation of Strategy
New CEO
External intervention
Performance gap
Dec 2010
Business Life-cycle
The four phases of Business:
Starts with the introduction of a product/service, Obtains a market position through R&D/ Range extensions/
Improvements, Establishes dominance through Customer Satisfaction/ Technology/ positioning strategies, Shrinks with influx of innovations/changing Customer needs/ environmental conditions. Dynamics of Strategy
Steel Automotive Telecom. Bio-Tech.
Point of Inflection
+ Clothing
Textile
Dec 2010
Introduction
Strategic Management:
Growth
Maturity
Decline
2626
Initiation/ Start-up
TELCO
Tata Motors
Tim e Tata
Motors
2727
Dec 2010
2828
Dec 2010
3030
Dec 2010
3131
Dec 2010
3232
Dec 2010
Strategic Management:
3333
Strategic Management
Birth of strategic management
Strategic management as a discipline originated in the 1950s and 60s; the most influential pioneers were Alfred D. Chandler, Philip Selznick, Igor Ansoff, and Peter Drucker.
Chandler showed that a long-term coordinated strategy was
necessary to give a company structure, direction, and focus. He says it concisely, structure follows strategy. In 1957, Selznick introduced the idea of matching the organization's internal factors with external environmental circumstances. This core idea was developed into what we now call SWOT analysis. Ansoff added a range of strategic concepts and invented a whole new vocabulary! He developed the gap analysis still used today in which we must understand the gap between where we are currently and where we would like to be, then develop what he called gap reducing actions.
Dec 2010 Strategic Management: 3434
two of management books, with a career spanning five decades. His contributions to strategic management were many but two are most important.
Firstly, he stressed the importance of objectives. As early as 1954 he gave the theory of management by objectives (MBO). His other contribution was in predicting the importance intellectual capital. He predicted the rise of what he called the knowledge worker and explained the consequences of this for management.
He said that knowledge work is non-hierarchical. Work would be carried out in teams with the person most knowledgeable in the task at hand being the temporary leader.
Dec 2010
Strategic Management:
3535
management involves adapting the organization to its business environment. Strategic management is fluid and complex. Change creates novel combinations of circumstances requiring unstructured non-repetitive responses. Strategic management affects the entire organization by providing direction; is done at several levels: overall corporate strategy, and individual business strategies. Strategic management is partially planned and partially unplanned; involves both conceptual and analytical thought processes. Strategic management is both strategy formation (content) and also strategy implementation (process).
Dec 2010 Strategic Management: 3636
Strategic Management
Dec 2010
Strategic Management:
3737
Environments
Environmental uncertainty: The degree of complexity plus the degree of change existing in an organizations external environment.
Dec 2010 Strategic Management: Strategic B S Guha Management: 3939
Environments
Environmental scanning: The monitoring, evaluating, and disseminating of information from the external and internal environments to key people within the corporation to avoid strategic surprise and ensure the long-term health of the firm.
Dec 2010
4040
Task environment: Those elements or groups that directly affect the corporation and, in turn, are affected by it. The task environment is the industry within which that firm operates.
Dec 2010
4141
External Environment
.T s .S s i .E y P al n A
Dec 2010
4242
External Environment
Issues Priority Matrix
Probable Impact on Corporation Hig h Mediu m Lo w Mediu m Priori ty
Hig h Priori ty
Hig h Priori ty
Probability of Occurrence
Hig h
Mediu m
Hig h Priori ty
Mediu m Priori ty
Lo Priori w ty
Mediu Priori m ty
Lo Priori w ty
Lo Priori w ty
Dec 2010
Strategic Management:
Lo w
4343
Somehow the management must determine the probability of their occurrence and the degree of impact (profitability/ market share etc..) of each event.
An Example: (Trends for a Telecom Company)
Dec 2010
1. Wireless communication technology will make networks based on fiber and conductor redundant. 2.Technology will enable storage and accessing of vast quantity of data at affordable cost; Strategic Management: 4444
Hig h
Lo w
Technology will Prices of large-screen provide cheap TVs will drop Lo data storage & Management: by 50% Dec 2010 Strategic 4545 handling.
Impac t
External Environment
External Strategic Factors
Defined: Key environmental trends that are judged to have both a medium to high probability of occurrence and a medium to high probability of impact on the corporation.
Dec 2010
4646
External Environment
Societal Environment Important Variables
Political-Legal
Antitrust regulations Environmental protection laws Tax laws Special incentives Foreign trade regulations Attitudes toward foreign companies
Economic
GDP trends Interest rates Money supply Inflation rates Unemployment levels Wage/price controls Devaluation/rev aluation Energy availability and cost Disposable and discretionary income Dec 2010
Technological
Total government spending for R&D Total industry spending for R&D Focus of technological efforts Patent protection New products
Socio-cultural
Lifestyle changes Career expectations Consumer activism Rate of family formation Growth rate of population Age distribution of population Regional shifts in population Life expectancies
Laws on hiring New and promotion developments Stability of in technology government transfer from Strategic Management: lab to
4747
External Environment
Societal Environment Strategists must monitor the major forces and their interactive effects, for their opportunity and threat potential:
Example of interactive effects: explosive population growth (demo-graphic) leads to more resource depletion and pollution (natural) which, in-turn, leads consumers to call for more preventive laws (political-legal). This could stimulate new solutions and products (technological), which if they are affordable (economic) may actually change attitudes and behaviours (socio-cultural).
Dec 2010 Strategic Management: 4848
External Environment
External Strategic Factors
Factors influencing the choice:
Personal values of managers Functional experience of managers Success of current strategies Strategic myopia
negative information
Dec 2010
4949
External Environment
Industry analysis: An in-depth examination of key factors within a corporations task environment.
Dec 2010
5050
Industry Analysis
Industry
A group of firms producing a similar product or service, such as soft drinks, Automobiles or financial services.
w
which the business unit operates? How should the business unit exploit the industry structure? What will be the basis of the business units competitive advantage? Dec 2010 Strategic Management: 5151
Industry Analysis
Porters approach: Assess the six forces - Threat of new entrants Rivalry among existing firms Threat of substitute products Bargaining power of buyers Bargaining power of suppliers Relative power of other stakeholders
Dec 2010
Strategic Management:
5252
Industry Analysis
Dec 2010
Strategic Management:
5353
Industry Analysis
Threat of New Entrants -Barriers to entry:
Economies of Scale Product Differentiation Capital Requirements Switching Costs Access to Distribution Channels Cost Disadvantages Independent of Size Government Policy
Dec 2010
5454
Industry Analysis
Rivalry Among Existing Firms -Intense rivalry related to:
Number of competitors Rate of Industry Growth Produce or Service Characteristics Amount of Fixed Costs Capacity Height of Exit Barriers Diversity of Rivals
Dec 2010
5555
Industry Analysis
Threat of Substitute Products/Services
Substitute Products: Those products that appear to be different but can satisfy the same need as another product. To the extent that switching costs are low, substitutes can have a strong effect on an industry. E.g. Entertainment Industry: T20 vs. Movies
Dec 2010
5656
Industry Analysis
Bargaining Power of Buyers -Buyer is powerful when:
Buyer purchases large proportion of sellers products Buyer has the potential to integrate backward Alternative suppliers are plentiful Changing suppliers costs very little Purchased product represents a high percentage of a
buyers costs Buyer earns low profits Purchased product is unimportant to the final quality or price of a buyers products
Dec 2010
5757
Industry Analysis
Bargaining Power of Suppliers -Supplier is powerful when:
Supplier industry is dominated by a few companies
but sells to many Its product is unique and/or has high switching costs Substitutes are not readily available Suppliers are able to integrate forward and compete directly with present customers Purchasing industry buys only a small portion of the suppliers goods.
Dec 2010
5858
Industry Analysis
Industry Evolution
Fragmented Industry
No firm has large market share and each firm serves only a small piece of the total market in competition with others.
Consolidated Industry
Dominated by a few large firms, each of which struggles to differentiate its products from the competition.
Multi-domestic/International Global
Dec 2010 Strategic Management: 5959
Dec 2010
Strategic Management:
6060
Strategic Types
Defined: Category of firms based on a common strategic orientation and a combination of structure, culture, and processes consistent with that strategy.
Dec 2010
Strategic Management:
6161
Industry Analysis
Strategic groups
Can be mapped by selecting broad characteristics that differentiate companies in an industry and plotting them on two lowly correlated dimensions to understand strategic Hig Restaura (competitive) issues and in 5business models. Another h nts
Pric e
star Hotels Speciali ty Restaur ant Multicusine Restaur ant
Lo w
dimension e.g. Service quality can be added to convert this into a 3-D plot.
Larg e
Dec 2010
6262
Industry Analysis
Strategic Types
Defenders: Companies with a limited product line; focus on improving efficiency of current operations Prospectors: Companies with fairly broad product lines; focus on product innovation and market opportunities. Analyzers: Corporations that operate in at least two different product-market areas one stable/ other variable. Reactors: Corporations that lack a consistent strategy-structure-culture relationship.
Dec 2010 Strategic Management: 6363
Custo mer
Relation ship
Compa ny
Bmark ing Partner ing
Competi tor
Suppli er
- Key Success Factors (of Competitors) Strategic Management: - leverage-able strengths of suppliers
6464
Industry Analysis
Industry Matrix: Understanding Key Success Factors
Key Success Factors 1 Weig ht 2 Company A Rating 3 Company A Weighted Score 4 Company B Rating 5 Company B Weighted Score 6
Competitive Intelligence!
Tot al
1.0 0
Source:T. L. Wheelen and J. D. Hunger, Industry Matrix. Copyright 2001 by Wheelen and Hunger Dec Reprinted by permission. Strategic Management: 6565 Associates. 2010
Industry Analysis
Forecasting Techniques:
Dec 2010
6666
Ranke d Max: 5 on how well the company is currently dealing with factor
1.0 0
Notes: 1. List opportunities and threats (510) in column 1. 2. Weight each factor from 1.0 (Most Important) to 0.0 (Not Important) in Column 2 based on that factors probable impact on the companys strategic position. The total weights must sum to 1.00. 3. Rate each factor from 5 (Outstanding) to 1 (Poor) in Column 3 based on the companys response to that factor. 4. Multiply each factors weight times its rating to obtain each factors weighted score in Column 4. 5. Use Column 5 (comments) for rationale used for each factor. 6. Add the weighted scores to obtain the total weighted score for the company in Column 4. This tells how well the company is responding to the strategic factors in its external environment. Source:T.2010 Dec L. Wheelen and J. D. Hunger, External Strategic Factors Analysis Summary (EFAS). Copyright Strategic Management: 6767 1991 by Wheelen and Hunger Associates. Reprinted by permission.
Weig ht
.20 .10 .05 .05 .10 .10 .10 .15 .05 .10 1.0
Ratin g
4 5 1 2 2 4 4 3 1 2
Weighte d Score
.80 .50 .05 .10 .20 .40 .40 .45 .05 .20 3.1
Commen ts
Acquisition of Hoover Maytag quality
Low Maytag presence Will take time Maytag weak in this channel Well positioned Well positioned Hoover weak globally Questionable Only Asian presence is Australia
Total Scores
Dec 2010
6868
a strength if it provides a firm with competitive advantage; a weakness if it is something the company is not sufficiently endowed with respect to the competitors
Strategic Management: 6969
Dec 2010
3. 4. 5.
Identification & classification of a firms resources as strengths & weaknesses; Combining the firms strengths into specific capabilities. Corp. capabilities (Competencies) are things that the firm does exceedingly well. Appraisal of the Profit Potential, in terms of sustainable competitive advantage, of these resources. Selection of the strategy that best exploits the firms capabilities in relation to the (external) opportunities. Identification of resource-gaps and investment in upgrading weaknesses
Strategic Management: 7171
Dec 2010
the rate at which the firms capabilities (competencies) depreciate or become obsolete; Imitabilty: the rate at which the firms capabilities (competencies) can be duplicated by others. The Corp. Competencies can be imitated to the extent that they are:
Transparent: the speed with which other firms can understand
the relationship between resources and capabilities and their exploitation; Transferable: the ability of the competitors to gather the resources and generate capability; Replicable: the ability of competitors to use the duplicated resources to imitate the champions success.
Dec 2010
Strategic Management:
7272
business sees as being central to the way it, or its employees work. It fulfils three key criteria: It provides consumer benefits It is not easy for competitors to imitate It can be leveraged widely to many Dec 2010 productsStrategic Management: 7373 and markets.
Since readily articulated and communicated, this knowledge is easily acquired by commercial intelligence;
easily communicated or imitable since they come from shared knowledge i.e. deeply rooted in experiences and corporations culture; Often they are not very formalized or are derived from a complex web of elements which cannot be distinctly defined by the management; Top management are very reluctant to intervene! (dont fix it if it aint broke)
Dec 2010 Strategic Management: 7474
Core Competence
Prahalad & Hamel introduced this term in their paper The Core Competence of the Corporation (HBR, 1990). In highlight:
CC
represents the collective learning and coordination capabilities/skills behind the firms manifest product lines CC leads to the development of core products which in turn spawn a host of end-user products/services The core products are not traded and thus lead to sustainable competitive advantage. Business Units tap into the core to deliver the market-beating end products The intersection of market opportunities with the CC forms the basis of launching new products Without CC, a corporation is just a collection of discreet businesses It is not necessarily expensive to develop CC since it is more about coordination rather than elaborate R&D, vertical integration etc.
Dec 2010 Strategic Management: 7575
To be world-class, a company must identify and build on a few core competencies, precisely, what is it?
Honda, for example, has a core competence in small engine design and manufacturing (core product): manifest in multiple products; Sony has a core competence in miniaturization (core process), leading to many firsts e.g. Transistor Radio; Walmart has a core competence in logistics & SCM (core service) leading to outstanding variety on offer at lowest cost. Typically, a core competence refers to a set of skills or experience in some activity, rather than physical or financial assets.
Dec 2010 Strategic Management: 7676
well-organized special skills, technologies, processes, knowledge, expertise, or abilities. are typically achieved by long-term development processes and experiences. create customer value because they are considered by your customers to be unique and distinguishable, and they are not equally accessible to all competitors. are extremely difficult for other companies to imitate, if they can at all. can be transferred to other markets
Dec 2010 Strategic Management: 7777
companies recognizes the needs and wants of customers in new and future markets and develops the competencies necessary to meet those needs and wants.
Nokia, which started with paper & pulp went on to
rubber then Consumer Electronics, developed new core competencies, ventured out, and now produces mobile phones. SM Consulting, an IT consulting firm that has grown 625% in the past five years compared with an industry growth rate of only 31%. What is SM Consulting core competence?
Heinze, the President, says that it is the time invested in research. SM Consulting sales staff members are required to know as much as possible about a prospect before they even pick up the phone.
Dec 2010 Strategic Management: 7878
Support Activities
ar M n gi
Inboun d Logisti cs
Dec 2010
M a in rg
Operati ons
Outbou nd Logisti cs
Servi ce
7979
but make a dent in the budget allocation for technological development initiatives in e-marketing.
Finding
Dec 2010
8080
Activities in the value are formally grouped into departments in and arranged to show reporting relationships i.e. Organization Entreprene Structure. The most common types are: ur/Owner
w
Entrepreneur
Dec 2010
Dec 2010
8282
C.O.O Exports C.F.O Finance Manage Manager Fin r Control Manager Treasury
8484
Finance Manage r
Dec 2010
Strategic Management:
C o . Mkt. Logs
I.T.
(TelCo)
Logs.
Out Logs.
Sales
Serv.
Engg.
(India)
Customers
Serv*.
* O/sourced in major Mkts
Typical multi-domestic Organization: 20th Century Overseas operations characterized by rigid business systems with equity links. Dec 2010
Typical Global Organization: 21st Century Networked functions/activities, outsourced with key control levers in hand: partnerships/ service level agreements Strategic Management: 8585
Packagers Designers Corporate Headquarters (Broker) Manufacturers Promotion/ Advertising Agencies Distributors Suppliers
Dec 2010
Strategic Management:
8686
Definition is the collection of beliefs, expectations and values learned and shared its members, transmitted from one generation of employees to another
This is who we are, what we do and what we stand for
Has
acceptance of sub-cultures within each unit the depth of culture: leading to shared value e.g. Tata Motors Integration: commonality across the lines of business/units, manifest in an all-pervasive culture the breadth of culture: leading to consistent behaviours e.g. Army
Dec 2010 Strategic Management: 8787
greater than themselves Adds to the stability of the organization as a social system Serves as a frame of reference for employees to use to make sense out of organizational activities As a guide to appropriate behaviour
Culture strongly influences behaviour and can significantly affect a firms ability to shift its strategic direction.
Strategic Management: 8888
Dec 2010
4Ps to use to for gaining competitive advantage Links & leverages vis--vis costs Product Life-cycle considerations Strategic Management:
8989
Dec 2010
Capital Structure:
Leverage (debt/asset ratio)? High is good with
Budgeting:
Return on Capital: Shareholders value Hurdle rates for Project Pay-back and Profitability
Dec 2010
Strategic Management:
9090
Research & Development: apt technology to support Objectives & Mission i.e. short & long terms
R&D
R&D
Dec 2010
Strategic Management:
9191
& systems: geared to the nature of demand: High-volume/Low variety Or Low-volume/High variety Curve: Costs decrease with cumulative units made industry norms Customization: combining economies of scope and scale
CAD/CAM Flexible manufacturing systems Estimating/cost-projections for start-ups Guideline for target setting Intermittent systems, e.g. Job-shops Continuous systems, e.g. robotized assembly lines
Experience
Mass
Strategic Management:
9292
Developments
of organization
Flatter structures with increased coordination needs Increasing employee independence & participation in
Dec 2010
decision making
Strategic Management:
9494
Dec 2010
Strategic Management:
9595
Weig ht
Ratin g
Weighte d Score
Commen ts
Industry 0. Experienced top 2. 0. 05 management knowledge 5 13 Vertical Integration Component 0. 2. 0. Current Asset 05 manufacture 0 10 Inventory control 0. Management 4. 0. Distribution 15 system Weaknesses Network 0 60 0.5 Global 0. 3. International 0. Dedicated dealers Brand name 3. 0. 3 15 5 Growing supply Positioning 10 Orientation unattractive 5 35 0.6 Product 0. 4. Domestic segment 0. SE Asia 3. 0. 0 15 0 Portfolio 15 focus 5 52 0.1 Employee 0. 2. Health & safety 3 05 5 1.0 relations Total Weighted concerns 0.2 0 Manf. facilities 0. 2. Score 1. List strengths and weaknesses (510) in column 1. 2. Weight each factor from 1.0 (Most Important) to 0.0 (Not m/cs Old plant & Notes: 0 R&D Important) in Column 2 based on that factors probable impact on the companys strategic position. The total weights must sum to 1.00. 10 0 Speed 3. Rate each factor from 5 (Outstanding) to 1 (Poor) in Column 3 based on the companys response to that factor. 4. Multiply each 0.1 5 (comments) for rationale used for 0. 2. factors weight times its rating to obtain each factors weighted score in Column 4. 5. Use Column each factor. 6. Add the weighted scores to obtain the total weighted score for the company in Column 4. This tells how well the 0 0 company is responding to the strategic factors in05 its internal environment. Source:T. L. Wheelen and J. D. Hunger, Internal Strategic Factors Analysis Summary (IFAS). Copyright 1991 by Wheelen and 3.2 Hunger Associates. Reprinted by permission. Dec 2010 Strategic Management: 66 9696
Missio n
Strate Formulati gy on
Structur e Chain of Command Cultur e Beliefs, Expectations, Value s Resource s Assets, Skills Competencie s,Knowledg e
Intern al
Dec 2010
Strategic Management:
9797
Analysis
Strategic planning or long-range planning: develops mission, objectives, strategies and policies of finding a strategic fit between external opportunities and internal strengths while working around external threats and internal weaknesses.
Strategic Management: 9898
Situational Analysis:
Process
Dec 2010
S W O T analysis is the most common and enduring tool to determine the fit arising from the current situation.
Must identify the distinctive competencies that can be used to make best use of opportunities Also identify the lack of resources leading to under exploitation of the opportunities
Broadly speaking, Strategic Alternative is the ratio Opportunity divided by (Strength minus Weakness). Important issue: Should one invest more in strengths to make them more robust or improve on weaknesses to at least competitive levels?
Strategic Management: 9999
Dec 2010
can generate a lengthy list not assign priorities language which can be ambiguous or interpretative based difficult to substantiate or verify
Does Uses
Opinion The
same factor might show up two categories of supportive analysis for action plans is no logical link to strategy implementation
Strategic Management: 100
Lack
There
Dec 2010
Strategic Factors
(Select the most important opportunities/threats from EFAS Table & the most important strengths and weaknesses from IFAS Table )
Dura tion
SH OR T INTERMEDI ATE
Weig ht
Ratin g
Weighte d Score
Commen ts
Strategic Management:
L O N G
101
Strategic Factors
(Select the most important opportunities/threats from EFAS, Table and the most important strengths and weaknesses from IFAS, Table) S1 Quality Maytag culture (S) S3 Hoovers international orientation (S) W3 Financial position (W) W4 Global positioning (W) O1 Economic integration of European Community (O) O2 Demographics favor quality (O) O5 Trend to super stores (O + T) T3 Whirlpool and Electrolux (T) T5 Japanese appliance companies (T)
Weig ht
.10 .10 .10 .15
Ratin g 5
3 2 2
Weighte d Score
.50 . 30 . 20 . 30
X X X
Quality key to success Name recognition High debt Only in N.A., U.K., and Australia
Commen ts
4 5 2 3 2
X X Acquisition of Hoover Maytag quality Weak in this channel X Dominate industry Asian presence X
. 40 .50
1.0 0
.10
3.0 . 5 20
. 45 .
Total Score
Dec 2010
Strategic Management: X
L O N G
102
Dec 2010
Strategic Management:
103
Dec 2010
Strategic Management:
104
Business Strategy:
Dec 2010
Strategic Management:
Dec 2010
Strategic Management:
106
Dec 2010
Strategic Management:
107
Dec 2010
Strategic Management:
108
competitive strategy Aimed at broad mass market Aggressive construction of efficient-scale facilities Cost reductions Cost minimization
Dec 2010
Strategic Management:
109
mass market Unique product or service Charge premiums Lower customer sensitivity to price
Dec 2010
Strategic Management:
110
cost competitive strategy Focus on particular buyer group or market Niche focused Seek cost advantage in target market
Dec 2010
Strategic Management:
111
on particular group or geographic market Seek differentiation in targeted market segment Serve special needs of narrow target market
Dec 2010
Strategic Management:
112
Dec 2010
Strategic Management:
113
Organizational Requirements
Tight cost control Frequent, detailed reporting Structured organization & jobs Target based incentive plans
Differentiatio Strong Marketing High coordination within n skill depts. Product Subjective measurements Dec 2010 Strategic Management: 114
Consolidated Industry
Mature industry dominated by a few large companies Cost Leadership or Differentiation predominate
Dec 2010
Strategic Management:
operated firms Creates large firm with economies of scale & scope, brings in higher managerial proficeiency Differ from Conventional M &As
Dec 2010
Large number of firms Owner-operated firms Goal to reinvent entire industry Strategic Management:
117
Lowest Cost
Its a SONY
Differentiation
Customization 118
Dec 2010
Frequent entry of outsiders Repositioning by incumbents Redefinitions (tactical) of market boundaries 120 Strategic Management:
Competitive Tactics
Tactic: Specific operating plan detailing how a strategy is to be implemented in terms of when and where it is to be put into action.
Timing tactics Market location tactics
Dec 2010
Strategic Management:
121
Competitive Tactics
Timing Tactics: First mover (pioneer)
the industry Late mover
Reputation as industry leader High profits Sets standards for subsequent products in
advances of others
Dec 2010
Strategic Management:
122
Competitive Tactics
Market Location Tactics: Offensive Tactics
Frontal assault Flanking maneuver Bypass attack Encirclement Guerrilla warfare
Dec 2010
Strategic Management:
123
Competitive Tactics
Market Location Tactics: Defensive Tactics
Raise structural barriers Increase expected retaliation Lower the inducement for attack
Dec 2010
Strategic Management:
124
Cooperative Tactics
Used to gain competitive advantage within an industry by working with other firms e.g. Star Alliance (airlines) Friendly competition can raise the industry standard and provide a barrier for entry e.g. Japanese auto firms (70s & 80s)
Dec 2010 Strategic Management: 125
Cooperative Tactics
Collusion:
Partnership of two or more corporations or business units to achieve strategically significant objectives that are mutually beneficial.
Strategic Management: 126
Dec 2010
Cooperative Tactics
Obtain technology Access to markets Reduce financial risk Reduce political risk Achieve competitive advantage
Dec 2010 Strategic Management: 127
Cooperative Tactics
ValuePartnershi Chain p
Source:Suggested by R. M. Kanter, Collaborative Advantage: The Art of Alliances, Harvard Business Review (July-August 1994), pp. 96108.
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Is the classical business growth strategy, advocating the sticking to the knitting principle to grow profitably. It is more prescriptive, than analytical. Assumes growth is strategy driven and minimally, if at all, influenced by market forces and business cycles; Profitability is ensured by the learning curve principle. However:
Links
with the core-competence proposition, through core-product principle e.g. Honda For single-industry firms e.g. Coca-Cola, there is relevance in the concentration prescription.
Dec 2010 Strategic Management: 129
Existing
New
New
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Time
Dec 2010 Strategic Management: 131
Corporate Strategy
Syllabus Topics: Click to edit Master subtitle style 3) Corporate Strategy, 5) Recent advances, 7b) Analytical framework for strategy formulation: Matching stages
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Hierarchy of Strategy
Corporate Strategy
What mix of businesses should we be Corporate Strategy in?
Business (Division Level) Strategy
Functional Strategy
How do we ensure profitable growth? How do we support the Growth & Profit objectives?
133
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Corporate Strategy
Three Key Issues:
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134
134
diversify into other industries? Growth and expansion through internal development or acquisitions, mergers, or strategic alliances?
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Corporate Strategy
Growth Strategies:
Most
Acquisition
Purchase of a firm that is absorbed as an operating subsidiary of the acquiring firm.
Strategic Alliance
Partnership of two or more firms to achieve strategically significant objectives that are mutually beneficial. Strategic Management: 137
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Corporate Strategy
2 Basic Growth Strategies:
Concentration
Current product line in one industry Vertical Growth Horizontal Growth
Diversification
industries
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integration
Expansion to other geographical locations and/or increasing range of Dec 2010 offerings
139
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Degree of Relatedne ss
Conglomerates: (Tata, GE, Mitsubishi)
Extent of Diversification
Dec 2010 Strategic Management: 142
Corporate Strategy
Exporting Licensing Franchising Joint Ventures Acquisitions Green-Field Production Sharing Turnkey Operations BOT Concept Management
143
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Strategic Management:
Corporate Strategy
Stability Strategies: Pause/proceed with caution
Period of stabilization following (rapid) growth Consolidating before the next wave of meaningful opportunities
No change A stable period in the business cycle with the firm having found a comfortable niche. No threats from new entrants Profit strategies Restructuring generate profit by sweeping (often harsh) internal changes; temporary oneshot in nature Reengineering a new approach (even sectored) Dec 2010 to business; temporary and may be in sequenced Strategic Management: 144
Corporate Strategy
Retrenchment Strategies:
Turnaround Characterized by rapid return to profitability, usually in contraction (i.e. cutback in size and costs), followed by consolidation (i.e. stabilization of leaner organization )phases. Usually not sustainable nor desirable for along period of time. Sets the tone for a more radical change e.g. Restructuring and/or Reengineering. Captive Company Strategy is giving up independence for security; become a supplier to a more dominant company. Usually resorted by poorly competitive and fund-strapped firms. Allows for cost cutting (activity) and better cash Dec 2010 flows Strategic Management: 145
Corporate Strategy
Selling out Resorted to under uncompetitive and no-fund conditions, but with a buyer in place e.g. Sellout of Tata Oil Mills (TOMCo) to Hindustan Levers (HLL). In selling out lines of businesses with poor fit or low growth potential, this act is termed Divestment e.g. sell out of Dalda and related brands worldwide (hydrogenated Oil) by Unilever to American Bunge Co. Bankruptcy/Liquidation Bankruptcy means giving up management of the firm to court appointed receivers for settling obligations and extend the life of the firm e.g. General Motors Liquidation implies the termination of a firms the Dec 2010 activity, wherein assets are sold off to meet 146 Strategic Management:
Corporate Strategy
An approach to work out an appropriate strategic intent (choice) Strategic Position & ACtion Evaluation Analysis (SPACE):
Market Share Product Quality Product Life Cycle(position) Customer Loyalty Competitions capacity utilizn. Technology, know-how Industry Strength Vertical Integration Growth potential
Competitive Advantage
Return on Investment Leverage Liquidity Capital required/ capital available Cash flow Ease of exit from market Risk involved in business
Financial Strength
Technology Changes Profit potential Rate of Inflation Financial stability Demand variability Resource Utilization Price range of competing Capacity Intensity products Ease of entry into the Barriers to entry into market market Competitive pressure Productivity, capacity Price elasticity of demand Dec 2010 Strategic Management: 147 utilzation
Environmental Stability
Corporate Strategy
Leading to the Strategic Postures in a matrix:
Financial 6 Strength
Industrial Strength
GAMESMANSHIP Defensive
DIFFERENTIATION Competitive
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Environmental 6
148
Corporate Strategy
And associated actions:
Status Quo
Diversification
Industrial Strength
Competitive advantage
Vertical Integration
Divestment
Competitive
Dec 2010
Advantage
Depressed condition of maj. customer industries 5 Destabilization of banking indus. due deregulation -4 +10 - 13 ES average is 13/3 = -4.33; IS average is +10/3 = 3.33; CA average is 9/3 = -3.00; FS average is + 9/4 = 2.25 & directional vector coordinate are X-axis: -3.00 + 3.33 = + 0.33 Y-axis: -4.33 + Dec 2010 Strategic Management: 2.25 = - 2.08 150
Primary Capital Ratio 7.23%, >6% avg. +1 RoA 0.77, <+0.7 avg. +1 Net Inc. $190B, -9%L.yr +3 Rev. increase 7%, $3.5B +4 Environmental Stability +9 U/Dev country situation -4
Industrial Strength
GAMESMANSHIP Defensive
DIFFERENTIATION X Competitive
Directional Vector
151
Corporate Strategy
Portfolio Analysis
How much of our time and money should we spend on our best products to ensure that they continue to be successful? much of our time and money should we spend developing new costly products, most of which may never be successful?
How
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Corporate Strategy
Portfolio Analysis
GE
Question marks Stars Long-term industry attractiveness Cash cows Business Screen Business strength/competitive position Dogs
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BCG Matrix
Demarcat es Dominanc e Identifies businesses and their relative size
Demarcat es Leaders
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BCG Matrix
H i
L o
H i
Hold
Cash Use
DOGS Divest
L o
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H i
L o
L o
155
BCG Matrix
An increase of market share, a possible decrease in short-term earnings & cash-flows. e.g. Tata Motors
Protection of Market Share Retain competitive position under aggressive challenge. e.g. HLL Detergents
Maximizing short-term earnings & cash-flow, Possible market-share sacrifice, e.g. Tata Steel
Withdraw from the business through sale or slow liquidation. e.g. HLL Vanaspati Business (Dalda).
Dec 2010 Strategic Management: 156
BCG Matrix
BCG matrix singles out Market Share as the primary strategy variable:
Based on the experience curve i.e. cost per unit decrease predictably with the number of units produced (cumulative)
The Market-share leader would have the greatest
accumulated experience; Thus they should have the lowest cost; resulting in highest profit in the industry. Empirically supported by PIMS (Profit Impact of Marketing Strategies) data base.
Concept
applies well to relatively mature and lowly differentiated products. For these products, becoming a low cost player is critical.
Strategic Management: 157
Dec 2010
BCG Matrix
Firms
pursuing uniqueness (niche players) could have high profits with low overall market share e.g. Harley Davidson, Porsche. could be many drivers of cost, apart from experience e.g. Technology breakthroughs can provide significant reduction in per unit costs, not available through cumulative experience, e.g. Internet marketing vis--vis direct selling via salesmen. focus/dependence on experience curve leads to loss of flexibility in the Market: with shifts in wants/ demands (emerging technologies and/or lifestyles) e.g. Bajaj Scooters.
Strategic Management: 158
There
Over
Dec 2010
Portfolio Analysis
General Electrics Business Screen
Business Unit Identity Industry/
Winner s A Winner s B C Questio nMark s D Hig h
Winner s E Mediu m
Lo w
Prof Producer it s
Loser s
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Portfolio Analysis
The GE Business Screen is an improvement over the BCG Matrix:
Based
determined by: Market Share, distribution strengths, engineering capabilities and other factors giving competitive edge.
But
suffers from lacking hard measures many judgemental elements for assessing the major parameters.
Strategic Management: 160
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Countrys attractiveness
Competitive strength
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161
Invest/Gro w
Country Attractiveness
Hig h
Selective Strategies
Lo w
Harvest/Divest Combine/License
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Portfolio Analysis
Advantages:
Top
Disadvantages:
Difficult
management evaluates each of firms businesses individually Use of externallyoriented data to supplement management judgment Raises issue of cash flow availability Facilitates communication
Dec 2010
to define product/market segments strategies can miss opportunities of scientific rigor though subjective terms
163
Standard
Illusion
Value-laden
Strategic Management:
Corporate Strategy
Corporate Parenting:
Views the corporation in terms of resources and capabilities that can be used to build business unit value as well as generate synergies across business units.
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Corporate Strategy
Corporate Parenting: Strategic factors
Those
elements of a company that determine its Strategic success or failure Performance improvement
the various judgments regarding corporate/business unit fit for the corporation as a whole. 2 Dimensions Positive contributions parent can make Negative effects parent can have Dec 2010 Strategic Management: 165
Ballas t
d
Alie n Territor y
Hig h Lo w
Value Trap
Hig h
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166
Corporate Strategy
Horizontal Strategy: Corporate strategy that cuts across business unit boundaries to build synergy across business units to improve the competitive position of one or more business units
Dec 2010 Strategic Management: 167
Corporate Strategy
Horizontal Strategy: When used to leverage synergy, e.g. distribution strength of Unilever, this is Corporate Parenting;
When
used to improve the competitive position of a business with the support of others, it is forms a part of the Corporate competitive strategy
Dec 2010
Multipoint Competition when large conglomerates compete in different businesses in different markets using corporate assistance, e.g. Pricing (subsidised) for new products, crossholding for investment purposes etc. Strategic Management: 168
Strategic Management
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169
Corporate Strategy
Recent Advances
Sustainability
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Corporate Strategy
Blue Ocean Strategy
Mauborgne, the approach suggests that Competition be made redundant by sidestepping it!
You will never ever see competition in quite the same light. Kim & Mauborgne present a compelling case for pursuing strategy with a creative, not combative, approach. Carlos Ghosn, CEO: Nissan
Motor Co.
Our research confirms that there are no permanently excellent companies just as there are no permanently excellent industries. And we have found, we all, like corporations do smart things and not-so-smart things. To improve the quality of our success, we must study what made the difference Dec 2010 Strategic Management: 171 and how to replicate it. Kim & Mauborgne
Corporate Strategy
Blue Ocean Strategy: Basic premises
Red Oceans
Represents
all the industries in existence today: this is the known market space; boundaries are defined and competitive rules of are known; Companies try to outperform their rivals in this space: cut-throat competition turns ocean Red.
Blue Oceans.
Are
defined by the untapped market space, demand creation and highly profitable growth Created beyond existing industry boundaries as well as from within the Red Oceans by expanding the existing boundary.
Dec 2010 Strategic Management: 172
Corporate Strategy
Blue Ocean Strategy: Basic premises
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Corporate Strategy
Blue Ocean Strategy: Quick Comparison
Red Ocean Strategy Compete in existing markets Beat the Competition Blue Ocean Strategy
Create uncontested markets Make the competition irrelevant Exploit existing demand Create & Capture new demand Make the value-cost Break the valuecost trade-off trade-off Align firm to Align systems to both differentiation or Low differentiation and cost low Cost
Dec 2010 Strategic Management: 174
Corporate Strategy
Blue Ocean Strategy: Case Study
o
Dec 2010
Case in point Strategy Canvas for Southwest Airlines: n Line of business: short-haul passenger transport n Customers trade-offs: speed of airplanes vis--vis the economy and flexibility of cars n Rules of airline business: hub and spoke model, connectivity (un)certainties, multiple flights, schedules with built-in wait , lounges, meals etc. provided, cost high. n Southwests offer: Speed of air-travel, flexibility of schedules via point-to-point routing, friendly but austere service, low cost = unprecedented utility for air travelers and a leap in value for a lowcost model.
Strategic Management: 175
Corporate Strategy
The Strategy canvas
+
o X
o o o
Normal Airlines
+ X
+ + +
X X
+ Hub connect
X
Low Price
Meals
Lounge
Seat choice
Friendly Service
Speed
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Corporate Strategy
Blue Ocean Strategy: Prognosis
Red Oceans will always be a fact of Business. But with Supply outstripping Demand, operating strategies for this while necessary, will not be sufficient for sustainedIf I listened to customers, I high performance; To seize new profit and growth opportunities, Blue Oceans need to be created. Though the term Blue Oceans is new, their existence is not. Business launch profiling (108 companies):
would try to make a faster horse! Henry Ford.
86% were line extensions; accounting for 62% of revenue and 39% of profits; 14% were in blue oceans; 38% of revenues and 61% of profits. Dec 2010 Strategic Management: 177
Corporate Strategy
Sustainability
Earths resources are exhaustible they will run out some day:
How will we run our power-plants, cars and stoves? There are just about 1400 tigers left in India! Human Life expectancies are rising so are newer, deadlier diseases !
Recent survey in US, post economic meltdown, shows that >80% wealth is with < 20% people:
Is the World and Life-style that we take for granted be there forever i.e. Sustain?
Strategic Management: 178
Dec 2010
Corporate Strategy
Sustainability: viewpoints
Sustainability Sustain: DICTIONARY To endure without The most widely yielding: withstand quoted definition is sustainable To keep up or development is maintain development that Synonyms: Aid, meets the needs of Carry, Endure, the present without Keep, Preserve, compromising the Support ability of future Is being used more generations to meet Dec in the sense of 2010 Strategic Management: 179
Corporate Strategy
Sustainability: viewpoints
a business enterprise, sustainable development means adopting strategies and activities that meet the needs of the firm and its stakeholders today while protecting, sustaining and enhancing the human and natural resources needed for the future.
Strategic Management: 180
Dec 2010
Corporate Strategy
Sustainability: viewpoints
Shifting Priorities
Economy
Society
Envmental
Strategic Management:
New Age
181
Corporate Strategy
Sustainability: viewpoints
A universally accepted definition of sustainability is difficult because it is expected to achieve many things:
factual and scientific: a clear statement of a specific destination. The simple definition "sustainability is improving the quality of human life while living within the carrying capacity of supporting eco-systems conveys the idea of sustainability having quantifiable limits. call to action: a task in progress or journey, therefore a political process, so some definitions set out common goals and values e.g.The Earth Charter.
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Corporate Strategy
The idea of sustainability is age-old; societies over time have learnt to balance social, environmental and economic concerns. At its core, sustainable development is about creating an interactive and appropriate balance between:
Social Equity: i.e. Human rights, peace, justice, gender equity, cultural diversity etc. Environmental protection: referring to natural environment i.e. Air, water, biodiversity, forests, energy etc. Economic development: understanding the limits and potential of economic growth factoring in poverty reduction, responsible consumption, corporate responsibility, employment and allied themes.
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183 183
Corporate Strategy
The triple bottom line (abbreviated as "TBL" or "3BL", and also known as "people, planet, profit") captures an expanded spectrum of values and criteria for measuring organizational (and societal) The concept of TBL success. demands that a
company's responsibility lies with Stakeholders not Shareholders. Here, "stakeholders" refers to anyone who is influenced, directly or indirectly, by the actions of the firm. Accordingly, the business entity should be used as a vehicle for coordinating Management: Dec 2010 Strategic
TBL contd
Triple bottom line score-card means expanding the traditional reporting framework to take into account ecological and social performance in addition to financial performance. "People, planet and profit" clearly describes the triple bottom lines and the goal:
"People"
(human capital) pertains to fair and beneficial business practices toward labour and the community and region in which a corporation conducts its business. (natural capital) refers to sustainable environmental practices. A TBL endeavor reduces the ecological footprint.
"Planet"
organisation after deducting the cost of all inputs, including the cost of the capital tied up.
Strategic Management: 185
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Strategic Management
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186
Strategy Implementation
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Strategy Implementation
Strategy Implementation:
Sum total of the activities and choices required for the execution of a strategic plan. by which strategies and policies are put into action through programs, budgets, and procedures.
Process
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Strategy Implementation
Implementation Process Questions:
Who
are the people to carry out the strategic plan? must be done to align operations with new direction? is work going to be coordinated?
What
How
Dec 2010
Strategic Management:
189
Strategy Implementation
McKinsey, in 1977, commissioned task forces to find out answers , with particular concern with the nature of the relationship between Strategy, structure and management effectiveness. Tom Peters and Robert Waterman led the team for management effectiveness ( = implementation). Their research let them to define 7 S Framework for management, addressing the crucial problem of execution and adaptation.
Strategic Management: 190
Dec 2010
SKILLS
STYLE
be felt or sensed but difficult to define or put down on paper. Thus management is more difficult: soft is hard! Explains better why things work (or dont!) in a company.
Dec 2010
Led to the investigation on management excellence why some (American)companies are so:
Excellent
companies are brilliant on basics Tools do not substitute for thinking Intellect did not overpower wisdom Analysis did not impede action. They listened to people (customers & employees ) They allowed some chaos in return for quick action and regular experimentation Worked hard to keep things simple in a complex world
Dec 2010
Dec 2010
Strategic Choice
Selecting the Best Strategy:
Most
the
Important criteria
ability of a proposed strategy to deal with the strategic factors developed in the SWOT analysis the ability of each alternative to meet agreed-on objectives with least sacrifice of resources and negative side effects.
Corporate Scenarios Pro forma balance sheets and income
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195
Strategic Choice
statements for each alternative: Best Case (Optimistic) Worst Case (Pessimistic} Probable case (Most likely)
Dec 2010
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196
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/ Net Assets
6.233
Total Assets
11.497
RONA
12.9% 14.8%
Sales
12.793
Operating expenses
11.690 11.573
Other Costs
5.854
+
Financial Income
-294
+
Purchased materials
5.854 5.728
% Sales
12.793
Dec 2010
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198
Strategic Choice
Dec 2010
Strategic Choice
NPV
200 600 900
Prob.
0.3 0.5 0.2
The weighted NPV works out to: 3 E(NPV) = pi NPVi i=1 = 0.3x200 + 0.5x600 + 0.2x900 = 540
Strategic Choice
The higher the spread the more the variability and
risk
Standard Deviation () of the NPV distribution
Dec 2010
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201
Strategic Choice
Consensus ? Discussion, disagreement Vision Contradictions Solution Programmed conflict (to avoid consensus trap) Devils Advocate: Identify potential pitfalls and problems with a proposed alternative strategy in a formal presentation. Dec 2010 Dialectic Enquiry: two proposals are 202 Strategic Management:
Strategic Choice
Evaluating strategic alternatives:
the other, Success: S.M.A.R.T i.e. must be doable Completeness: taking into account all the foreseen strategic factors Internal consistency: must make sense on its own without contradicting or unduly compromising any key objective/mission/ policy
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Strategic Choice
Organizational Life Cycle:
Generic
Growth
Maturity
Decline
204
Strategic Management:
Strategic Choice
Stage I Phase Popular Strategies Likely Structure
Birth
Stage II
Growth
Stage III1
Maturity
Stage IV
Decline
Stage V
Death
Concentration Horizontal Concentric & in a niche and vertical conglomerate growth diversification retrenchment
Entrepreneur Functional Decentralization Structural dominated management into profit or surgery emphasized investment centers
Note: 1. An organization may enter a Revival Phase either during the Maturity or Decline Stages and thus extend the organizations life.
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Strategic Choice
Structural Characteristics of Modern Corporation
Old Organizational Design One large corporation Vertical communication Centralized top-down decision making Vertical integration Work/quality teams Functional work teams Minimal training Specialized job design focused on individual New Organizational Design Mini-business units & cooperative relationships Horizontal communication Decentralized participative decision making Outsourcing & virtual organizations Autonomous work teams Cross-functional work teams Extensive training Value-chain team-focused job design
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Matrix Structure:
3 Distinct Phases Temporary cross-functional task forces Product/brand management Mature matrix
Strategic Choice
Network Structure:
non structure elimination of in-house business functions Termed virtual organization Useful in unstable environments Need for innovation and quick response
Cellular Organization:
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