Business policy & Strategic Management

Outlines

Business Policy Definition Guideline for governance: Business policies are the guidelines developed by an organization to govern its actions. They define the limits within which decisions must be made. Business Policy defines the scope or spheres within which decisions can be taken by the subordinates in an organization without consulting top level management every time for decisions.

Limits of subordinates decision making:-

Choosing internal route or acquisitions:

Business policy deals with acquisition of resources to achieve organizational goals.

Steps to transform: The steps that need to be taken to mould the character and identity of the organization.

Defining Sr. Management role: Business policy is the study of the roles and responsibilities of top level management, the significant issues affecting organizational success and the decisions affecting organization in long-run.

Features of Business Policy

Specific should be specific/ definite.

Clear should be unambiguous .

Uniform/Reliable can be uniformly applied throughout the organization and clear to follow.

Simple should be simple and easily understood

Comprehensive/Inclusive policy must be comprehensive to address overall scope.

Appropriate should be appropriate to the organizational goal.

Flexible It should be capable to address changes in the environment.

Stable On the other hand should not be unstable to bring uncertainty.

 "Strategy is the direction and scope of an organization over the long-term:

Strategy provides the necessary edge to the organization by planning its resources well in time to meet the challenge of the changing environment, so that it can meet the needs of markets better and faster than competition and can fulfill stakeholder expectations". In other words, Business Strategy is about: Direction Where is the business trying to get to in the long-term. Markets & Scope Which markets should a business compete in and what kind of activities are involved in such markets? Advantage How can the business perform better than the competition in those markets? Resources What resources (skills, assets, finance, relationships, technical competence, facilities) are required in order to be able to compete? Environment What external environmental factors affect the businesses' ability to compete? Stakeholders What are the values and expectations of the Stakeholders which need to be satisfied?

Business Strategy

Difference between Business Policy & considered as synonymous to the The term policy should not beStrategy
term strategy.
The difference between policy and strategy can be summarized as follows Policy is a blueprint of the organizational activities which are repetitive/routine in nature.
While strategy is concerned with those organizational decisions which have not been dealt/faced before in same form.

Broad Policy formulation is responsibility of top level management.

While strategy formulation is basically done by Senior to middle level management.

Policy deals with routine/daily activities essential for effective and efficient running of an organization.
While strategy deals with externally oriented strategic decisions.

Policy is concerned with both thought and actions.

While strategy is concerned mostly with action.

A policy is what is, or what is not to be done.

While a strategy is the methodology used to achieve a target as prescribed by a policy.

Strategic Management Process

Strategic management process has three main components, shown in the figure below: Strate
gy Analysi s

Strateg ic Choice

Strateg y Implem entatio n

The Process Strategic Analysis

This is all about the analyzing the strength of businesses' position and understanding the important external factors that may influence that position. The process of Strategic Analysis can be assisted by a number of tools, including: PESTEL Analysis, SWOT Analysis etc. This process involves understanding and selecting the best suited strategic options for the organization based on the stakeholders expectations. The process begins with identifications of the alternatives and then providing clear set of recommendations, with supporting justifications to create "sustainable" competitive advantages -- although most competitive advantages are eroded steadily by the efforts of competitors.

Strategic Choice

Strategy Implementation
This third and final stage in the strategic management process involves developing an implementation plan and then doing whatever it takes to make the new strategy operational and effective in achieving the organization's objectives. Often the hardest part.

PESTEL Analysis
PESTEL Analysis
It is a strategic planning technique that provides a useful framework for analyzing the environmental pressures on a team or an organization.

PESTEL stands for

Political, Economic, Social, Technical, Environment and Legislative.

Application
A PESTEL Analysis can be particularly useful for groups who have become too inward-looking. They may be in danger of forgetting the power and effect of external pressures for change because they are focused on internal pressures

 SWOT analysis is a Strategic planning method used to evaluate the

Strengths, Weaknesses, Opportunities, and Threats

SWOT Analysis

involved in a business venture. SWOT analysis may be used in any decision-making situation when a desired end-state (objective) has been defined. The aim of any SWOT analysis is to identify the key internal and external factors that are important to achieving the objective. These come from within the company's unique value chain. SWOT analysis groups key pieces of information into two main categories: Internal factors The strengths and weaknesses internal to the organization. External factors The opportunities and threats presented by the external environment to the organization.

SWOT Analysis contd.

Factors affecting an organization : Internal factors
Strengths (S) Weaknesses (W) Strengths Weaknesses

External factors
Opportunities (O) Opportunities Threats (T) Threats

 External environment analysis is a key input into strategy formulation. PESTEL is an external environment analysis framework that helps guide companies to understand the impact on it by the political, economic, social, technological, environmental, and legal spheres of an organizations external environment. Porters five forces analysis considers
(1) barriers to entry and new entry threats, (2) buyer power, (3) supplier power, (4) threat from substitutes, and (5) rivalry

External Factor Analysis helps developing a Strategy

as key external environmental forces in developing strategy.

Steps in
Strategic Management Process
Establishment of strategic intent (i.e. hierarchy of objectives that an organization sets for itself).
Then to

Formulation of strategies (i.e. strategic planning, which is an analytical phase.)

Followed by

Implementation of strategies (i.e. putting into actions through series of administrative and managerial actions)
And finally

Strategic evaluation (i.e. to assess how appropriately the strategies were formulated and how effectively implemented)

Strategy Formulation Technique

Strategy formulation techniques can be integrated into a three-stage decision-making framework, consisting of
Input stage, Matching stage, and Decision stage

Techniques used
AT STAGE 1: THE INPUT STAGE External Factor Factor Evaluation (EFE) Evaluation (IFE) Matrix StrengthsGrand Weaknesses Strategy OpportunitiesMatrix Threats (SWOT)Matrix AT STAGE 3: THE DECISION STAGE Quantitative Strategic Planning Matrix (QSPM) AT STAGE 2: THE MATCHING STAGE Strategic Boston Position and Action Evaluation (SPACE) Matrix Consulting Group (BCG) Matrix InternalExternal (IE) Matrix Competitive Profile (CPM) Matrix Matrix Internal

At Stage 1: The Input Stage

Stage 1 summarizes basic input information needed to formulate strategies that includes
External Factor Evaluation (EFE) Matrix, Internal Factor Evaluation (IFE) Matrix, and Competitive Profile Matrix (CPM).
EFE Matrix summarizes and evaluates economic, social, cultural, demographic information. IFE Matrix evaluates the major strengths and weaknesses in the functional areas of a business CPM Matrix identifies firm's major competitors and their particular strengths and weaknesses

At Stage 2: The Matching Stage feasible alternative Stage 2 focuses on formulating

strategies by aligning key external and internal factors of The Input Stage. Techniques are
SWOT Analysis for the firm. This allows companies to use long range planning approach based on qualitative analysis rather than quantitative forecast Strategic Position and Action Evaluation (SPACE) Matrix uses strategic position of the Internal dimensions of Financial Strength (FS) and competitive Advantage (CA) of the firm and the External dimensions of Environmental Stability (ES) and Industry Strength (IS) of the entire industry. Boston Consulting Group (BCG) Matrix focuses on strategic thinking rather than long range planning and provided insights to the company managers about organizational learning, investment opportunities and cash flows. Internal-External (IE) Matrix is based on an analysis of internal and external business factors (in line with SWOT),which are combined into one suggestive model. Grand Strategy Matrix is based on two evaluative dimensions: competitive position and market growth with IV Quadrants.

At Stage 3: The Decision Stage The last stage of strategy formulation is The Decision

Stage. A QSPM provides objective basis for selecting specific strategies based on a firms internal strengths/ weaknesses and external opportunities/ threats In QSPM it uses input information from Stage 1 and then objectively evaluate feasible alternative strategies in Stage 2. Based on the above process of evaluation QSPM reveals the relative attractiveness of alternative strategies. The higher the Total Attractiveness Score, the more attractive the strategic alternative is and helps to chose as the most appropriate strategy.

Planning one of the five major Planning is traditionally considered to be

functions of management identified by Henry Fayol, namely
Planning Organizing Staffing Directing(Actuating) Controlling

Planning includes the ability to identify opportunities, analyze problems, establish priorities and needs, and allocate available resources. The planning process includes Analyse the external environment Analyse the internal environment Define the business and mission Set corporate objectives Formulate strategies Make tactical plans Build in procedures for monitoring and controlling

expected to be predictable through extrapolation of the historical growth. Short Term Planning or Tactics is detailing the action plans which can contribute to the strategy designed to achieve short term goals. Shortrange plans operate within the framework of longrange plans. Strategic Plan is where future is not necessarily expected to be an improvement over the past nor is assumed to be extrapolable. It is a broad approachto act today for a plan which will achieve tomorrows objectives in a mostly nonrepetitive environment.

Long and Short-range Planning Long-range planning is where future is

5 Basic Questions of Strategic planning

The Questions to be asked (1) (2) (3) (4) (5) Where are we now? (The Situation) How did we get here? (Our Momentum) Where are we going? (The Direction) How should we be going? (Desired Process) How will we get there? (The Strategic Plan)

The Steps in the Strategic Plan

Further questions are asked to convert the Strategic plan into an actionable document: What is to be done? How is to be done? By whom is it to be done? Who is responsible for making sure it is done? By when is it to be done?

Path to Strategic Management:

The Process of Evolution Strategic Management in a company appears to evolve through four sequential phases according to Gluck, Kaufman and Walleck.
Phase Phase Phase Phase I : Basic Financial planning II : Forecast-Based Planning III : Externally Oriented Planning IV : Strategic Management

Phase-I:Basic Financial Planning

Formal Planning system in its early stage started with Annual Budgeting process where only concern was to effect changes in its business strategy through Projected Sales and earning growth rate. The impact of companys products, markets and the knowledge of what major competitors are doing has not formed part of Financial Planning and its impact on the business could not be captured through its plan for product and marketing strategy change. Normally length of its time frame is One year

Phase II: Forecast Based Planning (Considerfor large companies more Environmental changes) With the increase in complexities

explicit documentation of the implicitly understood strategies of Phase I are required. Need arose to extrapolate the future changes in political, economic and social forces into the business. The above is the starting point for a second phase, Forecast Based Planning. No. of Forecasting tools (Trend Analysis, Regression Models etc) were used. In the process Phase II has improved the effectiveness of strategic decision-making. It forces management to confront the long-term implications of decisions and to give thought to the potential business impact of discernible current trends, well before the effects are visible in current financial statements.

Phase III: Externally Oriented Planning

In an environment of rapid change, an unforeseen event can render market forecast obsolete almost overnight. Need came for a new level of planning effectiveness, where resource allocation is both dynamic and creative. Process began to look for business opportunities to shift the dot in a portfolio matrix into a more attractive sector, either by developing business capabilities or by redefining the market to better fit their companies strength ( to choose from alternatives ). Diversified companies started making formal grouping of related business into Strategic Business Units (SBUs) or Organizational entities large and homogeneous enough to exercise effective control over most factors affecting their business.

(rapid changes needing dynamic and creative response)

Externally Oriented Planning- contd.

Approach:-weigh the alternatives
The most significant way in which Phase-III differs from Phase II is that Corporate planners are expected to offer a number of alternatives to top management. Each choice is usually characterized by a different risk/reward profile or gives priority to a different objective. The alternative strategy approach becomes both the strength and the weakness of Phase III planning. On the one hand it burdens the management in their decision making, on the other it brings an organizational culture to look for alternatives and optimize the opportunities for the organization.

Externally Oriented PlanningThe change begins The challenge in Phase III: It is at this phase the company is organized for planning purposes,
into strategic business units (SBUs), thorough analysis of competitors and the external environment and inventory of internal strengths and weaknesses are undertaken; formal business plans are written, reviewed and monitored for the first time.

It is also here that the organizational changes are most severe and that the planning process becomes most vulnerable to its natural enemies- inertia, entrenched interests, and risk aversity.

Phase IV: Strategic Management Strategic planning and management are joined together in a single

process Known as Strategic Management . It is not so much planning technique that makes Strategic Management different but rather the thoroughness with which management links strategic planning to operating decision making and resource allocation through out the company to make the organization effective becomes more important. A company cannot afford to follow intuitive strategies once it becomes large, his layers of management or its environment changes substantially. As the worlds environment becomes increasingly complex and changing, todays companies, as one way to make the environment more manageable , use Strategic Management.

Forecasting
Forecasting is the activity of predicting what will happen in the future. The important element is that it is based upon assumption that until any special action taken by the organization there will not be any change of the present trend. These assumptions may or (usually) may not be explicit.
The forecast is the basis for planning, and has to be as accurate and unbiased as possible.

Demand Forecasting Techniques

Broad Classifications Informal methods, such as Educated Guess, may be through collecting experts opinion or by conducting interviews with consumers about the likely purchase behavior. Quantitative Methods, such as the use of historical sales data or the use of current data from test markets and projecting the future trend by using statistical techniques.

Popular Terminologies in the Quantitative Models

Average An Average is a single value which is used to represent all of the values in the series. It is sometimes called as a measure of central tendency. Moving Average Method
Moving Averages are series of consecutive arithmetic means obtained by averaging the group of successive observations in a time series (e.g., 3 months,3 years etc.

Problem Sum
Calculate the Moving average
Year 1993 1994 1995 1996 1997 Sales (Rs) 200 120 280 240 160 Year 1998 1999 2000 2001 2002 Sales (Rs) 320 360 400 320 360

Problem solution-Moving average

Year Sales 3 Yearly Total 3 Yearly Moving Average 200 213.3 226.7 240 280 360 360 360 Short term fluctuations 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 200 120 280 240 160 320 360 400 320 360 600 640 680 720 840 1080 1080 1080 120-200=-80 66.7 13.3 -80 40 0 40 -40

Factor Analysis
This is a Data-Reduction technique designed to represent a wide range of attributes on a smaller number of dimensions. FA and PCA (principal components analysis) are methods of data reduction
Take many variables and explain them with a few factors (FA) or components (PCA) Correlated variables are grouped together and separated from other variables with low or no correlation

Advantages of Factor Analysis Reduction of number of variables, by combining two or

more variables into a single factor.
For example, performance at running, ball throwing, batting, jumping and weight lifting could be combined into a single factor such as general athletic ability. Usually, in an item by people matrix, factors are selected by grouping related items.

Identification of groups of inter-related variables, to see how they are related to each other.
"broad visual perception" relates to how good an individual is at visual tasks "broad auditory perception" factor, relating to auditory task capability

A global factor, called "g" or general intelligence, that relates to both "broad visual perception" and "broad auditory perception". This means someone with a high "g" is likely to have both a high "visual perception" capability and a high "auditory perception" capability, and that "g" therefore explains a good part of why someone is good or bad in both of those domains.

Factor Analysis -Example

Suppose that a bank asked a large number of questions about a given branch. Consider how the following characteristics might be more parsimoniously (extreme caution) represented by just a few constructs (factors). Service Friendliness of the staff Time spent in line up Assistance via telephone Convenience Distance of bank from home Hours of operation Availability of parking Proximity to other business points Cost Fixed deposit rates Savings Bank Interest Rates Minimum deposit for Current Account opening Loan Interest rates

Significance Test
Hypothesis Hypothesis is an assumption about a population parameter. Hypothesis Testing is a process of making a decision on whether to accept or reject an assumption about the population parameter on the basis of sample information at a given level of significance. A significance test uses data to evaluate a hypothesis by comparing sample point estimates of parameters to values predicted by the hypothesis. Level of Significance Level of Significance is the maximum probability of rejecting the Null Hypothesis when it is true. Customarily, 5% or 1% level of significance is taken. Unless otherwise stated, 5% should be taken.

Null & Alternative Hypothesis

Null Hypothesis Null hypothesis is the assumption which we wish to test and whose validity is tested for possible rejection on the basis of sample information. It asserts that there is no significant difference between
The sample statistic (e.g. Mean (), Standard Deviation (S), Proportion of Sample (p)) and The Population Parameter (e.g. Mean (), Standard Deviation (), Proportion of Population (P)) and the difference if any, is due to chance and has arisen out of sampling fluctuations.

It is denoted by Ho Alternative Hypothesis Alternative Hypothesis is the hypothesis which differs from the null hypothesis. It is not tested. It is denoted by H1. Its acceptance depends on the rejection of null hypothesis.

Test Statistic
Test Statistic
Test Statistic refers to a function of sample observations (i.e. statistic), whose computed value determines the final decision regarding acceptance or rejection of null Test hypothesis (Ho) Used for Statistic Z-test t- test For test of hypothesis involving large sample, i.e. >30 For test of hypothesis involving small sample, i.e. < 30, and if Population Std. Deviation, is unknown. For testing the discrepancy between observed frequencies and expected frequencies, without any reference to population parameter. There is also a significance level for the model as a whole. This is the Significance F value in Excel. As with the p-value, the lower the significance F value, the greater the chance that the relationships in the model are real.

x-test

F-test

Type I & Type II Error

Type I Error- This is the error committed by the test in rejecting a true null hypothesis. The probability of committing Type I error is denoted by , the level of significance. Type II Error- This is the error committed by the test in accepting a false null hypothesis. The probability of committing Type II Error is denoted by . Standard Error- The standard error arises due to the use of sampling (which is based on some items of the population) as against the complete enumeration censes enquiry (which is based on all items of the population). Use of Standard Error in the test of hypothesis- The Standard Error measures only the sampling fluctuations errors. Sampling fluctuation errors arise when the unknown population parameter is estimated on the basis of sample statistic.

Z-test
Standard Error of Mean is as follows SE = /n, where, =Population SD., and n= sample Size Or, = S/n, when Population SD., is unknown Value of Z = (-)/SE , where is the sample mean and is the Population Mean
When the Computed value of lZl is less than the table value, we accept Ho and conclude the difference is not significant.

t-Test
t-test is used when:
The sample size is 30 or less The variance of the population is unknown The sample is random sample The population is normal and selection of items is independent

The t-statistics is defined as

t= (-)/S Xn, where, S = (x-)/(n-1)
= X/n= the mean of the sample = the actual/ hypothetical mean of the population n= sample size S= the standard deviation of the sample

Strategic Intent & Mission

Leveraging of a firms resources, capabilities and core competencies to accomplish Strategic Intent what at first may appear to be unattainable goals in the competitive environment

Strategic Vision

Strategic Mission

A statement of the firms Where the company intends to be in the future or where it unique purpose and the should be to best meet the scope of its operations in needs of stakeholders. Product market terms.

Strategic Intent
A Companys strategic intent is the reason that it exists, and why it will continue to exist, providing it maintains a competitive advantage. The strategic intent of a large company may be industry leadership on a national or global scale. The strategic intent of a small company may be to dominate a niche market. The strategic intent of an up-and-upcoming enterprise may be to overtake the market leader.
Komatsu strategic intent was to encircle Caterpillar with a broader product line and then compete Caterpillar globally and beat them Canons strategic intent in copying equipment was to beat Xerox

Thus, a companys strategic intent is the dominant theme, the glue that holds a company together, whether it is one unit or number of business.

Strategic Vision
A strategic vision provides a big picture perspective of who we are , what we do, and where we are headed. It leaves no doubt about the companys long-term direction and where management intends to take the company. Responding to what Microsoft perceives as serious threats, the company changed its PC centric vision statement to one that embraces the impact of the internet on technology. Specifically the shift from
a computer on every desk and in every home to empower people through great software any time, any place and on any device

Defining Corporate Mission

The Mission Statement contributes to the creation of Firm Identity, i.e. How the company wants to be perceived in the market
place by its customers, competitors and general public. Cultural Glue that enables an organization to as a collective entity Core Values Goals function

All or some of the followings: Customers- who are the companys customers? Products & Services- What are the companys major products & services? Location- Geographically where does the company compete? Philosophy- Values, aspirations and ethics etc Technology- Is the company technologically up-to-date? Self-concept- What is the companys distinctive competence or major competitive advantage? Concern with survival, growth and profitability- refers to growth and financial soundness Concern with employees- Approach to nurture human assets Concern with public image- Concerns for social, community, and environmental concerns

Mission Statement includes

Mission Statement should be flexible

The march of new events and altered circumstances make the need to review the companys position and deciding the time to steer a new course and adjust the mission. Repositioning an enterprise in light of emerging developments and changes on the horizon lessens the chances of getting trapped in a stagnant or declining core business or letting new growth opportunities slip away because of inaction. It is the strategy makers job to evaluate the risks and prospects created by the customer-market-technology opportunities and make direction setting decisions to position the enterprise. A Mission statement is an expression of this intent to prepare a company for future.

Mission Statements
Google Mission Statement: Apple Mission Statement
"To organize the worlds information and make it universally accessible and useful." ( From FAQs)
Apple ignited the personal computer revolution in the 1970s with the Apple II and reinvented the personal computer in the 1980s with the Macintosh. Apple is committed to bringing the best personal computing experience to students, educators, creative professionals and consumers around the world through its innovative hardware, software and Internet offerings. Apple will be a leader in providing simple, powerful, high-quality information products and services for people who learn, Our mission is to bring inspiration and innovation to every athlete* in the world. *If you have a body, you are an athlete.

Nike

communicate, and create.

Corporation Definition
Corporation is a Firm which has a legal existence as an entity separate and distinct from its owners and can meet all necessary legal requirements of the Firm to discharge its business. Corporations are owned by their share holders who share the profits and losses generated through the firm operations, and have three distinct distinguishing feature or attribute
Legal existence: a firm can (like a person) buy, sell, own, enter into a contract and sue other persons and firms, and be sued by them. Limited Liability: Legal protection is available to the share holders of the corporation where financial liability of the shareholders is limited to the par value of his and her fully paid up shares, unless the owners give personal-guaranties. Continuity of existence: a firm can live beyond the life spans and capacity of its owners

Customer
Peter Drucker made the point that making profit very often mentioned as the purpose of a firm is not only false, it is irrelevant and may even be harmful Profit-making is not the purpose, but the test if the purpose of the business works. For Drucker there is only valid definition of business purpose: to create a customer And company gets its customers only if they do a job that customers need and they fulfill a want the customers have.

Ansoffs Matrix
The Ansoff matrix provides the basis for an organisation's objective setting process and sets the foundation of directional policy for its future. The Ansoff matrix entails four possible product/market combinations:
Market penetration, Product development, Market development and Diversification. The four strategies entailed in the matrix are elaborated below.

Ansoffs Matrix
Existing Products New Existing

Markets

New

Market penetration
Market penetration occurs when a company penetrates a market with its current products. It is important to note that the market penetration strategy begins with the existing customers of the organization. This strategy is used by companies in order to increase sales without drifting from the original product-market strategy, by improving product quality or improving customer communications through advertising, etc.

Product development
Another strategic option for an organization is to develop new products. Product development occurs when a company develops new products catering to the same market. Note that product development refers to significant new product developments and not minor changes in an existing product of the firm.

Market development
When a company follows the market development strategy, it moves beyond its immediate customer base towards attracting new customers for its existing products. This strategy often involves the sale of existing products in new international markets.

Diversification
Diversification strategy is distinct in the sense that when a company diversifies,
it essentially moves out of its current products and markets into new areas. It is important to note that diversification may be into related and unrelated areas. While diversified businesses seem to grow faster in cases where diversification is unrelated, it is crucial to note that the track record of diversification remains poor as in many cases diversifications have failed to successfully take off. This makes diversification a high-risk strategy as it involves taking a step into a territory where the parameters are unknown to the company.

Conclusion
No one strategic option for growth is appropriate for all types of companies at all times.
Market penetration, for example, may prove to be a wise strategy only when the overall market is growing. However, it is more difficult to reap benefits of market penetration strategy in a declining market.

Most big businesses today pursue multiple strategies for growth at the same time in order to achieve their strategic objectives.

Limitations of Ansoff Analysis

By itself, the matrix can tell one part of the strategy story but it is imperative to look at other strategic models like SWOT analysis and PESTEL in order to view how the strategy of an organization is formulating and might change in the course of its future.

Gap Analysis
Gap Analysis It starts and ends with two questions - where are we now? and -where do we want to be?
The difference between the two is the GAP - this is how you are going to get there. The diagram below is self explanatory. The lower line is where the firm will be if they do nothing. The upper line is where they want to be.

Gap Analysis
What is Gap Analysis?

Organizations next step is to close the gap. Firstly to decide, whether it is viewed from a strategic or an operational/tactical perspective. The diagram below has used Ansoffs matrix to bridge the gap using strategies:

Ansoffs Strategy Gap

Three Variables used for Gap Analysis

Gap analysis is one of the most fundamental techniques of strategic management. The three variables to consider are:
Future performance given a 'do nothing' state of business. Future performance given current plans. Future objectives (Hamel and Prahalad - 'Strategy and Stretch')

The central issue to focus on here is that new (breakthrough) strategies should be created to fill the gap.

Disadvantages of Gap Analysis

The disadvantages of gap analysis are that:
It can provoke panic to find things to throw into the gap - unless managers have a grounding in how to be strategically creative and how to appraise these potential breakthroughs. It can limit managers aspirations - to those objectives dictated by medium term financial objectives, rather than by the 'art of the possible'

Strategy and learning

by Chris Argyris
Argyris highlighted the importance of learning in teams - and of its anti-thesis, defensive behavior.
He described the process involved here as 'double loop learning'.

Whilst single loop learning involved doing existing things better; Double loop' learning meant doing existing things in new ways or inventing new things.
Effectively, double loop learning involves reframing problems and sopping outside of existing mindsets.

Strategic Group
A strategic group is a concept used in Strategic Management that groups companies within an industry that have similar Business Models or similar combinations of strategies. Within a Strategic Group there is a higher degree of competitive rivalry than suggested by industry concentration ratios. Michel Porter explained strategic groups in terms of what he called "mobility barriers". These are similar to the entry barriers that exist in industries, except they apply to groups within an industry. Because of these mobility barriers a company can get drawn into one strategic group or another.

For example,
The restaurant industry can be divided into several strategic groups including fast-food and fine-dining based on variables such as preparation time, pricing, and presentation.

Key Strategic Variables

Key strategic dimensions
specialization brand identification channel selection product quality technological leadership vertical integration cost position service price policy financial leverage relationship to parent company, if any

Firms cluster into groups based on their commonality in strategic approach

market changes Entire strategic groups can emerge or disappear over time

Trends in Strategic Groups Strategic groups can shift over time as

Industry consolidation alters strategic groups Distinctiveness enhances firms sustainable competitive advantage
Copyright 2006 by South-Western, a division of Thomson Learning. All Slide 2-68

Strategic Maps of the United States Airline Industry

The Late 1970s
International
Laker World Braniff North west TWA Pan Am

The Early 1990s

International United American

Eastern United

Conti- Northwest nental TWA USAir National

Delta

Geographic Scope

National

Delta American

Continental Western Republic Ozark Piedmont AirCal PSA Southwest

USAir Southwest

Frontier

Kiwi Regional Full Service

Reno Air

America West

Regional

Texas Intl

Others

No Frills

No Frills

Quality of Service

Quality of Service

Full Service

Lessons
Industries or landscapes are neither created equal nor stay equal A firms strategy can increase or decrease its exposure to competitive forces Other things being equal, a firm should seek to trigger actions that improve structural attractiveness But it isnt enough to look at just structural attractiveness: competitive position must also be considered

Mobility Barrier
Mobility Barrier Is Structural barrier that blocks ones mobility among strategic groups A firm which belongs to a strategic group with a high mobility barrier is possible to sustain a greater profitability as compared to another belonging to the one with a lower mobility barrier
Concept having a resemblance to the entry barrier in the industry level

Difference between Entry Barrier and Mobility Barrier Analysis Unit Sources of Competitive Advantage Variance in Profitability among Industries Variance among

Industry Entry Barrier Variance Mobility Barrier Strategic Group Groups in Industry

Constituent Elements of Mobility Barrier

Economic Mobility Barrier a) Scope of product line: Vast amount of investment, burden of model change b) Vertical integration: Capital quantity required Organizational Mobility Barrier
Some structure or peculiarity per se of a corporate organization may constitute a mobility barrier.

Strategic Groups and Mobility Barriers

The height of entry barriers depends on the particular strategic group that the entrant seeks to join Mobility barriers are group-specific entry barriers that restrict shifting strategic position from one strategic group to another Mobility barriers prevent quick imitation of successful strategies The most important aspect of any strategic group analysis is identifying the mobility barriers that impede movement between groups There is no exhaustive list of mobility barriers

Joint Venture & Strategic Alliance

A joint venture is an entity formed between two or more parties to undertake economic activity together. It is a legal Arrangement where ownership and management of an organization are shared by more then one organization. The parties agree to create a new entity. The venture can be for one specific project only, or a continuing business relationship Strategic Alliance- It covers a variety of flexible cooperative arrangement between organizations, from fluid short term cooperation to long term formal agreements. In strategic alliance partners remain independent even after forming the alliance, both share alliance management and benefits and both contribute to the alliance on continuing basis.

Difference
Joint venture is a legal relationship between the businesses often forming a new business, Where as Strategic alliance is the recognition that things will work better from a combining of resources or information, it is not legally binding.
Often two competing businesses will form a temporary alliance with the strategy of gaining assets and learning the others secrets. Strategic alliances, like all alliances can be broken and have fewer legal ramifications.