Strategy

What is Strategy?
• Story of Kodak
– $16 billion company in 1996, with 65% share of
film, 5th most powerful brand in the world
employing 1,45,000 people with a market cap of
$31 billion.
– Invented digital camera in 1975. Commercialised it
in 1996, first in world, with DC 20
 – Never made profit after 2004
– Filed for bankruptcy in 2012 and got delisted form NY
exchange
• Fuji, the perennial no 2 , made changes and is still
surviving with quick acquisition/ diversification,
cost slashing, closers of labs/ factories etc.
• Stories of Fiat, Ideal Jawa, Anil Ambani, IL&FS,
Deewan Housing
• Learning????
What is Strategy?
 What is Strategy?
• It is a high level plan to achieve one or more goals
under conditions of uncertainty.
• The term came into use in the 6th century in Roman
terminology, and was translated into Western
vernacular languages only in the 18th century. From
then until the 20th century, the word "strategy" came
to denote "a comprehensive way to try to pursue
political ends, including the threat or actual use of
force, in a dialectic of wills" in a military conflict, in
which both adversaries interact.
• ?
 What is Strategy?
• It is not a quest for achieving operational
effectiveness by using tools such as TQM,
Benchmarking, Outsourcing, Partnering,
Reengineering, Change management.
• It is not even positioning. According to new
dogma, rivals can quickly copy any market
position. Strategic positioning means
performing different activities from rivals or
performing similar activities in different ways.
 What is Strategy?
• Strategy is the creation of a unique and valuable position,
involving a different set of activities, e.g., serving few needs
of many customers or subset of an industry product
(Variety- based positioning e.g, Castrol lube- any machine
that needs lubrication), broad needs of few customers
(Need – based positioning e.g, Ikea & Citi Bank HNI reach),
broad needs of many customers (Access- based positioning
e.g, ITC Choupal, Carmike Cinemas)
• It requires you to make trade-offs in competing-to choose
what not to do. Straddling is not a good options.
• It involves creating ‘fit’ among company’s activities
 What is Strategy?
• The essence of strategic positioning is to
choose activities that are different from rivals.
(Southwest airline, IKEA)
 What is Strategy?
• A sustainable strategic position requires Trade-
offs (Jet Airways with Jet lite V/S Indigo)
• Strategy is making trade-offs when competing.
Without trade –offs , their would be no need for
choices and thus no need for strategy.
• Strategy is creating fit among company’s
activities.
• Fit between positioning of company and its
activities drives both competitive advantage and
sustainability.
 Types of Fit
• First- order fit: Consistency between each
activity (e.g. low cost)
• Second- order fit: When activities are
reinforcing (Indigo- using one type of aircraft)
• Third- order fit: Optimisation of efforts
(turnaround time of aircraft)
• The more a company’s positioning rests on
activity systems with second and third order
fit, the more sustainable its advantage will be.
7. Strategic fit: Ryanair’s activity system

• They’ve had to compromise

 Alternative Views on Strategy
• The implicit strategy model of the past
decade:
– One ideal competitive position in the industry.
– Benchmarking of all activities.
– Aggressive outsourcing.
– Advantages rest on a few key success factors,
critical resource, core competence.
– Flexibility and rapid response to all competitive
and market changes
 Alternative Views on Strategy
• Sustainable competitive advantage:
– Unique competitive position for the company.
– Activities tailored to strategy.
– Clear trade-offs and choices vis-a vis competitors.
– Competitive advantage arises rom fit across
activities.
– Sustainability comes from the activity system, not
the parts.
– Operational effectiveness is given.
 Difference Between Strategy and
Planning
• Strategy is about understanding your
environment and making choices about what
you will do. Planning is about making choices
about how to use the resources you have and
the actions you will take to achieve the
choices made in your strategy. (Innovation
leadership is a strategic choice- investment in
R&D is planning)
• A strategy describes a global path to pursue a
formal goal. E.g.: We want to conquer x% of
the market in order to reach a sustainable
level of profitability.
A plan, on the other hand, allocates in detail
resources that are necessary to accomplish
the strategy, e.g.: hiring of sales people,
launching an advertising campaign etc.
Thus, the strategy is more abstract, the plan
more concrete.
Elements of Strategy
Corporate Culture
 Corporate Culture
• The beliefs and values shared by people who
work in an organisation
– How people behave with each other
– How people behave with customers/clients
– How people view their relationship with stakeholders
– People’s responses to energy use, community
involvement, absence, work ethic, etc.
– How the organisation behaves to its employees –
training, professional development, etc.
 Corporate Culture
• May be driven by:
• Vision – where the organisation wants to go in
the future. It has two major elements: Core Ideology (core
value and core purpose) and envisioned future
• Mission Statement – summary
of the beliefs of the organisation and where it
is now. It is second level in hierarchy of strategic intent.
Should explain why it exists (consultancy), the nature of
business it is in (merger and acquisition, and the customer it
seeks to serve (big ticket companies)
 Vision
• A well conceived vision consists of two major
components: Core Ideology and Envisioned future
• Core Ideology has two parts- Core values (handful of
guiding principles by which a company navigates. For
Sony it is “elevation of Japanese culture and national
status, being a pioneer, doing impossible and
encouraging individual ability and creativity”) and Core
Purpose (For Sony it is “to experience the joy of
advancing and applying technology for the benefit of
the public”)
 Vision
• Envisioned Future: For Sony it is “We will create
products that become pervasive around the
world….We will be the first Japanese company to go to
the US market and distribute directly…Made in Japan
will mean something fine, not something shoddy”
• Beware of “we have arrived syndrome” (NASA after
moon landing, Ford after democratizing automobile,
apple after Macintosh).
• Building a visionary company requires 1% vision and
99% alignment of activities around that vision.
 The Ideal Mission Statement
• Identifies the firm’s product or services.
• Specifies the buyer needs it seeks to satisfy.
• Identifies the customer groups or markets it is
endeavoring to serve.
• Specifies its approach to pleasing customers.
• Sets the firm apart from its rivals.
• Clarifies the firm’s business to stakeholders.
 Difference between Vision and Mission

• Nature: Vision is a view what an organisation

wants to become in distant future. Mission
states what an organisation is and why does it
exists.
• Focus: Vision focuses on long term concept
and high achievement level for the
organisation. Mission is what organisation
purposes to do for its stakeholders.
 Vision vs. Mission
VISION
• Future-oriented
• Inspirational

MISSION
• Present-oriented
• Informational
 OBJECTIVES

• The Purposes of Setting Objectives:

– To convert the vision and mission into specific,
measurable, timely performance targets.
– To focus efforts and align actions throughout the
organization.
– To serve as yardsticks for tracking a firm’s
performance and progress.
– To provide motivation and inspire employees to
greater levels of effort.
 THE TWO ESSENTIAL KINDS OF
OBJECTIVES TO SET
• Financial Objectives • Strategic Objectives
– Communicate top – Are related to a firm’s
management’s targets for marketing standing and
financial performance. competitive vitality.
– Are focused internally on – Are focused externally on
the firm’s operations and competition vis-à-vis the
activities. firm’s rivals.
 SETTING FINANCIAL OBJECTIVES
Examples of Financial Objectives
♦ An x percent increase in annual revenues
♦ Annual increases in after-tax profits of x percent
♦ Annual increases in earnings per share of x percent
♦ Annual dividend increases of x percent
♦ Profit margins of x percent
♦ An x percent return on capital employed (ROCE) or return on
shareholders’ equity investment (ROE)
♦ Increased shareholder value—in the form of an upward-trending stock
price
♦ Bond and credit ratings of x
♦ Internal cash flows of x dollars to fund new capital investment
 SETTING STRATEGIC OBJECTIVES
Examples of Strategic Objectives
♦ Winning an x percent market share
♦ Achieving lower overall costs than rivals
♦ Overtaking key competitors on product performance or quality
or customer service
♦ Deriving x percent of revenues from the sale of new products introduced
within the next five years
♦ Having broader or deeper technological capabilities than rivals
♦ Having a wider product line than rivals
♦ Having a better-known or more powerful brand name than rivals
♦ Having stronger national or global sales and distribution capabilities
than rivals
♦ Consistently getting new or improved products and services to market
ahead of rivals
Strategic Planning
 Strategic Planning
• First Stage of Strategic Planning
may involve:
• Futures Thinking
– Thinking about what the
business might need to do 10–
20 years ahead
• Strategic Intents
– Thinking about key strategic
themes
that will inform
decision making Taking time to think and reflect
may be more important than many
• “The thicker the planning document, businesses allow time for!
the more useless Copyright: Intuitives, http://www.sxc.hu
it will be”
– (Brent Davies: 1999)
 Strategic Planning
• Once the direction is identified:
Analyse position
Develop and introduce strategy
Evaluate:
– Evaluation is constant and the results of the
evaluation feed back
into the vision
Analysis
 SWOT
• Strengths – identifying existing organisational
strengths
• Weaknesses – identifying existing organisational
weaknesses
• Opportunities – what market opportunities might
there be
for the organisation to exploit?
• Threats – where might the threats
to the future success come from?
 PEST
• Political: local, national and international political developments –
how will they affect the organisation and in what way/s?(Huawei)
case in USA, Leather export from India post slaughter ban)
• Economic: what are the main economic issues – both nationally and
internationally – that might affect the organisation? (current liquidity
position - FPST is significantly down for most lifestyle products)
• Social: what are the developing social trends that may impact on how
the organisation operates and what will they mean for future
planning?(Uber/ Ola impact on car sale, TV contents)
• Technological: changing technology can impact on competitive
advantage very quickly!(Netflix on entertainment, on line shopping on
store sales)
 PEST
• Examples:
• Growth of China and India as manufacturing centres
• Concern over treatment of workers and the environment in less developed
countries who may be suppliers
• The future direction of the interest rate, consumer spending, etc.
• The changing age structure of the population
• The popularity of ‘fads’ like the Atkins Diet
• The move towards greater political regulation of business(Harle-
Devidson, Huawei)
• The effect of more bureaucracy in the labour market
Evaluation
 Evaluation
• Data from sales,
profit, etc. used to
evaluate the progress
and success of the
strategy and to inform
of changes to the
strategy in the light of
that data Information from a wide variety of sources
can help to measure and inform the impact
and direction of the strategy.
Copyright: Mad7986, http://www.sxc.hu
Types of Strategy
 What is Strategic Management
• Strategic management is the continuous process
of creating, implementing and evaluating
decisions that enable an organization to achieve
its objectives.
• The strategic management process involves
analyzing cross-functional business decisions
prior to implementing them. Strategic
management typically involves:
• Analyzing internal and external strengths and
weaknesses.
• Formulating action plans.
• Executing action plans.
• Evaluating to what degree action plans have been
successful and making changes when desired
results are not being produced.
• Strategic management necessitates a
commitment to strategic planning, which
represents an organization's ability to set
goals to determine the decisions and actions
that need to be taken to produce those
results.
• The strategic management discipline
originated in the 1950s and 1960s. Among the
numerous early contributors, the most
influential were Peter Drucker, Philip Selznick,
Alfred Chandler, Igor Ansoff, and Bruce
Henderson.
• Drucker (1954) "...the first responsibility of top
management is to ask the question 'what is our business?'
and to make sure it is carefully studied and correctly
answered." (Is it business of Govt to be in business?)
• Philip Selznick (1957) used the term "distinctive
competence" He also formalized the idea of matching the
organization's internal factors with external environmental
circumstances.(A key issue in M&A, creating desert park in
Vidhyadhar nagar)
• Chandler (1962) showed that a long-term coordinated
strategy was necessary to give a company structure,
direction and focus. He says it concisely, “Structure follows
strategy.” (decentralise/ centralise/ flat organisation)
• Ansoff (1965)developed a grid that compared
strategies for market penetration, product
development, market development
and diversification.
• Bruce Henderson (1968), founder of the Boston
Consulting Group, proposed the concept of
the experience curve. This supported the
argument for achieving higher market share
and economies of scale.
• Porter’s work (1980’s)
• The direction of strategic research also paralleled
a major paradigm shift in how companies
competed, specifically a shift from the production
focus to market focus. (Ford- you can buy any
colour of car as long as it is black)
• Jim Collins (1997) recommended that
organizations define themselves based on three
key questions:
– What are we passionate about?
– What can we be best in the world at?
– What drives our economic engine?
2. What is competitive strategy?
Distinguishing competitive strategy
from corporate strategy
2. What is competitive strategy? (cont.)
Describing strategy

Strategy as positioning Strategy as direction

• Where are we • What do we want to become?
competing? − Vision statement
− Product market scope • What do we want to achieve?
− Geographical scope − Mission statement
− Vertical scope − Performance goals
• How are we competing? • How will we get there?
− What is the basis of our − Guidelines for development
competitive advantage? − Priorities for resource
allocation
(capex, R&D)
− Growth modes
(organic, M&A, alliances)
Conclusions

• Strategy making is based upon:

− Intuition
− Common sense
• The value is in the application
Each student be asked to read one of the
cases: e.g Sun Pharma, Anil Ambani, IPL.)
As you review your case, think about the
following questions:
- What are the sources of competitive
advantage for your firm?
- Are they largely structural or organizational?
- If they exist, identify the structural sources of
advantage in detail. Do they stem from first
mover advantage? From economies of scale or
scope? From network effects?
- If they exist, identify the organizational
sources of competitive advantage in detail. Can
they be imitated? Why or why not?