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BPSM: Module 4
Fortis abandons its S$3.5 billion offer As Khazana ups its offer to S$ 3.95 per share, topping S$ 3.8 offer by Fortis
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Stage 1:
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Major weakness = 1
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Market Share
0.2
0.60
0.40
0.40
0.3
1.20
0.60
0.30
0.1
0.40
0.20
0.20
Product Quality
Consumer Loyalty Total
0.2
0.2 1.0
2
2
0.40
0.40 3.00
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2
0.40
0.40 2.00
3
2
0.60
0.40 1.90
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Cognizant:Q1, 2010: Net profit Rs 792 crores TCS: Q1 net profit slips 4.5% to Rs 1906 crores Infosys: Q1, 2010, Net profit dips to Rs 1488 crores Cognizant growth attributed to strength of Business Model and operational strategy Key Management and workforce located in US which facilitates capturing clients who consider Cognizant as a local American firm See also The scale-up begins
External Dimensions
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Competitive Pressures Ease of exit from market Price elasticity of demand Risk involved in business
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Customer loyalty Competitions capacity utilisation Technological know-how (Note that this figures as Industry Strength also but the context vary!) Control over suppliers & BPSM: Module 4 distributors
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Competitive
Horizontal integration, joint ventures
Defensive
Retrenchment (reduction of assets), liquidation
Conservative
Staying close to basic competencies & not risking Market development, product development
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Deal Value ($ Million) 12,000 5,982 729 597 565 500 324 293 290 239
Industry Steel Aluminium Electronics Pharma Energy Oil & Gas Pharma Steel Electronics Telecom
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Examples of strategies
Competitive Strategies
Horizontal integration, when funds (resources) are available
Seeking ownership or increased control over its competitors
Vodafone taking over Essar Hutchison
Related diversification
Adding new but related products
SBI entering into Life Insurance
Unrelated diversification
Adding new, unrelated product
WIPRO, Western India Palmolive Refinery Organisation foraying into IT
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Examples of strategies
Defensive Strategies
Retrenchment
Regrouping through cost & asset reduction to reverse declining sales & profits Binny Mills selling off a part of its lands in Bangalore
Divestiture
Selling a division or part of an organisation
Eli-Lilly
Liquidation
The process by which a company is brought to an end, and the assets and property of the company redistributed. Sometimes referred to as winding-up or dissolution
Golden Forest India Liquidated
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Examples of Strategies
Examples Conservative Strategies
Staying close to basic competencies & not risking
Market development
Introducing present products in a new geographic area
AT&T, Verizon bidding for 3G (Third Generation) mobile services in India See page 119 & page 109, Strategic Management by Hill & Jones, Case Verizon Wireless
Product development
Seeking increased sales by improving present product or introducing a new product
Handset majors like Nokia will now introduce new highended sets to suit 3G mobile service like high speed internet, gaming, instant downloading of movies
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SPACE Matrix
Financial strength (FS) FS Conservative Aggressive
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Conservative
FS
Aggressive
Plot the ( X,Y) coordinate point Draw a Directional vector from the origin of the SPACE Matrix through the ( X,Y) coordinate
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CA
Defensive
ES
Competitive
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Rating*
6.0 5.0 4.0 15.0
Three factors are considered and the total rating is 15.0 Therefore, FS average = 15.0 / 3 = 5.0
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Deregulation provides geographic & product freedom Asian markets opening up Rising consumerism Total
*Ratings are assigned in comparison to other industries
6.0
6.0
6.0 18.0
E.g., Deregulation provides greater industry strength to retail in FMCG as compared to say, industrial goods
A value of + 6 has been assigned as Industry Strength is considered Best
Numerical value ranging from + 1 (worst) to + 6 (Best)
Rating
-3.0 -2.0
The prices offered by WalMart are unbeatable Total Ratings are wrt competitors in the retail industry
Best competitive advantage: -1.0 Worst competitive advantage : -6.0
-1.0
-6.0
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CA
IS
Defensive
ES
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Competitive
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Quantitative Strategic Planning Matrix (QSPM) is a tool that helps in evaluating the alternatives
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If a factor is not relevant to the alternatives do not assign any Attractiveness Score Do not assign same AS to various alternatives Multiply the weights with AS to get Total Attractive Score (TAS)
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Quantitative Strategic Planning Matrix (QSPM) Strategic Alternatives Key Internal Factors Weight Build additional Improve Sam's Club Supercentres nationwide operations & worldwide AS TAS AS TAS Strength 0.20 Consumer oriented Sam's club consumers buy in bulk 0.20 1.00 0.20 4.00 0.80 0.05 Customer goodwill Good relation with local buyers 0.15 0.05 2.00 0.10 3.00 0.15 Leads industry in IT Ongoing development of its 0.10 2.00 0.20 1.00 0.10 employees Weakness Business only with Sam's club 0.15 1.00 0.15 2.00 0.30 members Keep poor performing employees 0.05 1.00 0.05 2.00 0.10 on hand Few women & minorities in top management 0.05 1.00 0.05 2.00 0.10 1.00 0.75 1.55 Subtotal
Quantitative Strategic Planning Matrix (QSPM) (Contd.) Strategic Alternatives Weight Key External Factors Build additional Improve Sam's Club operations Supercentres nationwide & worldwide
Opportunities Consumer want ease of shopping Internet shopping growing Dollar value increasing
AS
TAS
AS
TAS
2.00 3.00
1.00 1.00
QSPM Concluded
Choose that alternative which has the highest TAS In this case, the alternative, Building additional Supercentres nationwide and worldwide has a higher score of 4.1 (>3.8)
The magnitude of difference between the Grand Total Attractiveness Score indicates the relative desirability of one alternative over another
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Matching Stage
Tool: Strategic Position ACtion Evaluation Matrix (SPACE)
Decision Stage
Quantitative Strategic Planning Matrix (QSPM)
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Summary of module
Strategic depends upon the Internal and External Dimensions Internal Dimensions
Competitive Advantage Financial Strength
External Dimension
Industry Strength Environmental Stability
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Summary of module
Decision is based is assigning Attractive scores to each of the variables under SWOT and finding the Total Attractive Score The alternative with the highest TAS is the strategy of choice But these choices are tempered by cultural and political consideration After all, strategy is taking subjective decisions based on objective information
End of module
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