20MBT52 CORPORATE STRATEGY

[Link]
School of Management Studies
Kongu Engineering College
“Without a strategy the
organization is like a ship
without a rudder.”

Joel Ross and Michael Kami

 What Is Strategy?
• Consists of the combination of competitive moves
and business approaches used by managers to run
the company
• Management’s “game plan” to
– Attract and please customers
– Stake out a market position
– Compete successfully
– Grow the business
– Achieve targeted objectives
 Why Do Strategies Evolve?
• A company’s strategy is a work in progress

• Changes may be necessary to react to

– Fresh moves of competitors

– Evolving customer preferences

– Technological breakthroughs

– Shifting market conditions

– Crisis situations
 Strategy-Meaning and Definitions
• Means by which long term objectives will be
achieved
• Ways and means of achieving organisation
goals
• An integrated and coordinated set of
commitments and actions designed to exploit
core competencies and gain a competitive
advantage
 Core competencies
• Core competencies are the defining
capabilities or advantages that a business may
have that distinguish it from the competition.
 Competitive advantage
• Competitive advantage refers to factors that
allow a company to produce goods or services
better or more cheaply than its rivals.
• In business, a competitive advantage is the
attribute that allows an organization to
outperform its competitors.
 Strategic Management-Definition
• Ansoff Defines, “a systematic approach to a
major and increasingly important
responsibility of general management to
position and relate the firm to its environment
in a way that will assure its continued success
and make it secure from surprises”
Strategic Management Process
Strategic Management Process
 Dimensions of Strategic Management
• External Environment
• Future Orientation
• Allocation of large resources
• Impact on profitability of the firm
• Top management involvement
 Benefits of Strategic Management
Greenley Suggests,
• Facilitates identification, prioritization and
exploitation of opportunities
• Framework for improved communication,
coordination and control
• Minimise the impact of adverse situations
• Provide better allocation of resources
• Futuristic thinking
• Encourages favourable attitude towards change
The Strategy-Making, Strategy-Executing
Process
 Developing a Strategic Vision

• Involves thinking strategically about

– Future direction of company
– Changes in company’s product-market-
customer-technology to improve
• Current market position
• Future prospects
A strategic vision is a road map showing the route a
company intends to take in developing and
strengthening its business. It paints a picture of a
company’s destination and provides a rationale for
going there.
 Key Elements of a Strategic Vision
• Delineates management’s aspirations for the business –
• Charts a strategic path for the future
“Where are we going?”
• Steers energies of employees
in a common direction
• Molds organizational identity
• Is distinctive and specific to
a particular organization
• Avoids use of generic language
• Triggers strong emotions
• Is challenging, uncomfortable, nail biting
 Strategic Vision vs. Mission
• A strategic vision concerns a • The mission statement of
firm’s future business path - most companies focuses on
“where we are going” current business activities -
– Markets to be pursued “who we are and what we
– Future technology-product- do”
customer focus – Current product and
– Kind of company service offerings
management is – Customer needs being
trying to create served
– Technological
and business
capabilities
Characteristics of a Mission Statement
• Defines current business activities,
highlighting boundaries of current business
– Present products and services
– Types of customers served
• Conveys
– Who we are,
– What we do, and
– Why we mission
A company’s are here
is not to make a profit! Its true mission
is its answer to “What will we do to make a profit?”
Making is profit is an objective or intended outcome!
 Key Elements of a Mission Statement

• Three factors to consider

– Customer needs –
What is being satisfied

– Customer groups –
Who is being satisfied

– Technologies/resources/business approaches used

and activities performed –
How customer needs are satisfied
• Core Ideology-is made up of core values and
purpose
• Core Value- are an organisation’s essential and
enduring tenets which will not be
compromised for financial expediency and
short term gain.
Eg: J &J
 The Theory of Business or Understanding
Organisation
• Understanding Business
• Define Business (eg) Wrist Watch-Objective is
time display. But at Present?
 Levels of Strategy
• Corporate Level-What industries the
organisation wants to compete in
• Business Level-How organisation is going to
compete within a particular industry or
market
• Functional Level-Decisions according to
functional lines
 Types of Strategy
• Intended Strategy
• Emergent Strategy
• Unrealised strategy
• Realized Strategy
• Intended strategies are usually described in
detail within an organization's strategic plan.
• An emergent strategy is an
unplanned strategy that arises in response to
unexpected opportunities and challenges.
• Intended strategies that are fully realised are
referred to as deliberate strategies and those
that are not realised are called unrealised
strategies or abandoned strategies.
• Realized strategies are a product of a
firm's intended strategy (i.e., what the firm
planned to do), the firm's
deliberate strategy (i.e., the parts of
the intended strategy that the firm continues
to pursue over time), and its
emergent strategy (i.e., what the firm did in
reaction to unexpected opportunities
 Strategic Analysis
• External Environment/General Env/Macro Envi
• Internal environment/ Micro Env.
 Strategic Analysis-

General Environment/External

External Environment
• Task/Competitive-Industry and Markets
• General/Macro-Environment
 Scanning, Monitoring and Forecasting
Changes in the Environment
• Scanning: Two certainties in Life-Death and
taxes, 3rd certainty can be change.
• Scanning is costly activity
• To detect weak signals(Minor Changes)
• Monitoring: How the trends will impact on its
competitive environment.
Eg: Monitor the Competitor (Pepsi Vs Coke)
• Forecasting: Rebust strategies, Forecast future
trends
 Scenario Planning
• Disciplined method for imaging possible futures
• Scenario can be seen as a challenging, and internally
consistent view of what the future might turnout to
be.
Process-
• Define the scope
• Identify the major Stakeholder
• Identify basic trend
• Identify key uncertainties
• Construct initial scenario themes
• Check consistency
 PEST Analysis
• A useful tools when scanning the general
environment is PEST. This refers to Political,
Economic, Social, and technological factors.
• Legal and Environmental include, it is PESTLE.
• PEST or STEP or PESTLE
• Shaping the environment
• Provide link between the general and
competitive environment.
Political Factors
• Govt. Policy, [Link], [Link],
Taxation Policy
Economical Factors
• Interest Rates, disposable Income, Unemployment
rates, Retail price Index, GDP, Exchange rates
Social Factors
• Cultural changes within the environment, Socio-
cultural. Eg. Social Trends.
Technological Factors
• Competitive environment, technology innovation.
Eg. Nano Technolgy
The Competitive Environment
 Background to Porter Five Forces
Framework
• Analytical tool used in SM.
• Used at the level of an organization strategic business
unit(SBUs)
• To assess the attractiveness of an industry based on the
strengths of five competitive forces.
Five Forces
• Threat of New Entrants
• Bargaining power of Buyers
• Bargaining power of suppliers
• Threat of substitute products or services
• Intensity of rivalry among firms in an Industry.
 Threat of New Entrants(Entry)
• Economies of Scale-Result in Reducing Cost
• Product Differentiation-existing firm have an
acceptance of the market place
Eg. Two Wheeler, Car Industry
• Capital requirement
• Switching cost
• Cost disadvantage
• Access of distribution channels
• [Link]
 The Bargaining power of Buyer
• The capacity of customers to bargain with the
suppliers depends upon:
• Existence of fewer buyers
• Standardised or commoditized products
• Absence of switching cost
• Possibility of backward integration
• Availability of full information to buyers
 Bargaining power of suppliers
• The capacity of the suppliers to bargain
depend upon:
• Few suppliers
• Differentiated or unique product
• Existence of switching cost
• Supplier product is an important input to the
buyer’s business.
 Threat of substitute products and service

• Availability of substitute limits the potential

returns.
• Eg: Steel ind. Faces threat of substitutes from
aluminium, plastics, fibreglass etc,.
 Eyeglasses and contact lens
vs. laser surgery
 Sugar vs. artificial sweeteners
 Newspapers vs. TV vs. Internet
The intensity of rivalry among competitor in
an industry
• It occurs one or more competitors
• Number of competitors
• Slow industry growth-LIC HL
• Lack of differentiation or switching cost
Eg: Electrical Motor, Bearing products.
• High strategic staked
• High exit barriers-Specialized assets
• Augmented capacity.
Criticism of PORTER 5 Forces
 The Value Net
• The Value Net or Coopetition framework is an
alternative to Porter’s Five Forces framework. It was
developed by Adam Brandenburger and Gary Nalebuff
in 1996, combining strategy and game theory, in order
to describe and analyze the behavior of multiple
players within a given industry or market.
• This represents a map of the competitive game, the
players in the game, and their relationship to each
other.
• WIN-WIN Solutions. The Players are Customers,
suppliers and competitors. Nalebuff introduces
Complementor.
• Eg: Microsoft and Intel- One is supplier and
one of complementary
• A complementary sixth force-Along with Five
forces of Michael porter Model
Value Net
 Strategic Groups
• The industry is a group of organizations producing a similar
products or services.
• Group of firms in an industry following the same or a similar
strategy.
• Firms in same strategic group have two or more competitive
characteristics in common
– Have comparable product line breadth
– Sell in same price/quality range
– Emphasize same distribution channels
– Use same product attributes to appeal
to similar types of buyers
– Use identical technological approaches
– Offer buyers similar services
– Cover same geographic areas
• Strategic groups of firms within an industry
constitute cluster.
• Eg. In USA, Ford, GM & Daimler Chrysler
occupy the same strategic group within the
automobile industry. They are clearly
competition for the same consumer.
• PRICE & PRODUCT RANGE
Example: Strategic Group Map
of Selected Retail Chains
 Internal Environment
• This consists of factors within an organisation
and has immediate and specific implications
for the firm.
• The factors included the functional
management.
 Vale Chain Analysis
• Devised by PORTER(1985)-assess the
organisations resources and in so doing
determine its strength and possible weakness.
• Value Chain: describes the activities within an
organisation that go to make up a product or
service.
• Value or Margin: is the difference between the
total value received by the firm from the
consumer for its product or service and the
total cost of creating the product or service.
Value Chain
 Primary Activities
• Which are directly involved in the creation of a
product or service.
• Inbound-Receiving, storing, distributing inputs
(eg.)warehousing
• Operations-inputs into final products such as
machining, packaging
• Outbound-collecting, storing, distributing to buyers
• Marketing & Sales-ad, promotion, sales force,
channels
• Service-maintain the value of products
 Support activities
• Which ensure that the primary activities are
carried out efficiently and effectively.
• Procurement-process of purchasing
• Technology development-organisation know-
how
• HRM-selection, recruitment, training &
development of employees
• Firm Infrastructure -General Management,
Planning, Finance, accounting & quality
 SWOT Analysis
• Swot analysis can usefully be conducted once
an audit of the external environment and the
firm’s own internal environment has been
completed.
• SW-organisation’s internal environment
• Strength-Organisation Excel, Weakness-
Disadvantage
• OT-External environment, much less control
 The internal environment: A resource-based
view of strategy
• The resource-based view emphasizes the internal
capabilities of the organisation in formulating
strategy to achieve a sustainable competitive
advantage in its markets and industries.
• Internal capabilities determine the strategic
choices it makes in competing in its external
environment.
• Organisation may actually allow it to create new
markets and add value for the consumer, such as
Apple i-pod and Toyota’s Hybrid Cars.
 Resources
• Can be thought of as inputs that enable an
organisation to carry out its activities.
• Tangible and intangible.
• Tangible-refers to physical assets that an
organisation possesses and include plant and
machinery, finance and human capital
• Physical-Building, machinery, productive capacity
• Financial-capital employed, cash, debtors, creditors
• Human-Workforce employed.
• Knowledge based economy
• Intangible-embedded in routines and practices
that have developed overtime within the
organisation. They include an organisation’s
reputation, its culture, knowledge and its
brands
 Competencies
• Can be defined as the attributes that firms require
in order to be able to compete in the market
place.
• All firms possess competencies
• (Eg)Automobile industry org. must posses
knowledge about design and engine and body
manufacture for compete.
• Distinctive capabilities-are important in providing
an organisation with competitive advantage.
• i) an organisation’s architecture, ii)innovation,
iii)Reputation
 Core Competencies
• Derive from the collective learning of individual
members within an organisation.
• Or Strategic capability
• A cluster of attributes that an organisation
possesses which turn allows it to achieve
competitive advantage.
• (Eg)Dell and Benetton Clothing.
• (Eg)Toyoto of Japan achieved a core competence
in the production of petrol and electric hybrid cars.
[Link]
• Dell’s Core Competencies
• Value-added customer services
• Market segmentation capabilities and skills

• Dell’s Distinctive Competencies

• Just-in-time inventory practices and supply chain
management (no one in the PC industry does it better
—or even comes close to matching what Dell can do)
• Build-to-order manufacturing and mass
customization—a world-class manufacturing innovator
• Direct sales capabilities (no rival can yet match
Dell)—and the capabilities are global
• Leadership in use of the Internet and e-
commerce technologies
• A core competency is a concept in management theory
originally advocated by C. K. Prahalad and Gary Hamel,
two business authors. In their view a core competency is
a specific factor that abusiness sees as central to the way
the company or its employees work. It fulfills three key
criteria:
• It is not easy for competitors to imitate.
• It can be reused widely for many products and markets.
• It must contribute to the end consumer's experienced
benefits and the value of the product/service to its
customers.
• For example, Microsoft has expertise in many IT based
innovations where, for a variety of reasons, it is difficult
for competitors to replicate or compete with Microsoft's
core competences.
• Should provide access to a wide variety of
markets.
• (Eg)Honda Engine-Cars, lawn movers, power
boats
• Distinctive capabilities-of an organisation’s
resources that are important in providing it
with competitive advantage.
Dell’s Core Competencies
• Value-added customer services
• Market segmentation capabilities and skills

Dell’s Distinctive Competencies

• Just-in-time inventory practices and supply chain
management (no one in the PC industry does it better
—or even comes close to matching what Dell can do)
• Build-to-order manufacturing and mass
customization—a world-class manufacturing innovator
• Direct sales capabilities (no rival can yet match
Dell)—and the capabilities are global
• Leadership in use of the Internet and e-
commerce technologies
 Organisational Capability
• Company skills at coordinating its resources
and putting them to productive use.
 Factors

Factors

Breakdown Porters
into functions value chain

Informati
Operation on Primary Support
Marketing Finance HR GM
s Managem activities activities
ent
 Identifying sustainable competitive
advantage
Four Attributes
• It must be valuable-value resources
• It must be rare-rare resources
• It must be difficult to imitate
• Strategic substitute-substitutability
Knowledge Management
• Refers to processes and practices through which
organisation generate value from knowledge.