Strategic Management Strategy Choices I (Corporate Level)

Learning objectives: Corporate level strategy- the corporate portfolio-growth share matrix-BCG, GE,
Arthur D Little, Diversification.
Three Levels of Strategy
1. Corporate level
2. Business level
3. Functional level
Strategic choices
• Strategic choices are concerned with decisions about an organization’s structure and the way in
which it needs to respond to many pressure and influences.
• The considerations of future strategy must be mindful of the realities of translating strategy in to the
action which, themselves can be significant constraint on strategic choice.
• At the different level of strategy and strategic decisions executives are faced with choices and to how
to meet the expectations of users, often in competition with another organization. Example-
investment analyst, business level executives.
• In turn , these executives face decision about how they will develop these strategies in terms of
products and markets they might develop; does it make sense to launch new product. Enter new,
markets and should this be done through organic development, alliances and M & A.?
Strategic
Choices

Corporate Business or Directions and

Strategy competitive
methods of
strategy
1.The corporate development
parent 1. Bases of
competitive strategy. 1.Protect and build
2.Corporate
parenting rationales 2. Market
2.Sustainability of
Development
3.Portfolio Decisions competitive
advantage. 3.Product
4. Extent of diversity
3.Competition or co- Development
5.Management of
operation. 4.Diversification
Control and
7-7
through internal

Value creation

Corporate Portfolio
parenting management

Penetration
Diversification Consolidation
Development

Scope decisions

Co rp ora te/
b u sine ss le vel

P O M/R& D Fin a n cia l/ Ma rke ting Hu m an

stra te g ies a cco u nting stra te g ies re la tio ns
stra te g ies stra te g ies

8
 Corporate
strategies

Business 1 Business 2 Business 3

Type title here Type title here Type title here

POM/R&D Financial/ Marketing Hum an

strategies accounting strategies relations
strategies strategies

Behavioral Considerations Affecting Strategic Choice

Role of current strategy

Degree of firm’s external dependence

Attitudes toward risk

Managerial priorities different from stockholder interests

Internal political considerations

Competitive reaction
Evaluation
Regardless of the process used to generate strategic alternatives, each resulting alternative must be
rigorously evaluated in terms of its ability to meet four criteria:
1. Mutual Exclusivity: Doing any one preclude doing any another.
2. Success: It must be doable and have a good probability of success.
3. Completeness: It must take in to account all the key strategic issues.
4. Internal Consistency: it must make sense on its own as a strategic decisions for the entire firm and
contradict key goals, policies, and strategies currently being pursued by the firm or its units.

Original
conception of
the business

Refined through
experience
Satisfying
stakeholders
Building Providing
Competences Investment

Which And take

advantage of Yielding Providing new
satisfy
environmental Profits opportunities
customers
forces
And which
achieve
competitive
advantage
Corporate level Strategy
• The central concern here is the strategic decision at the corporate level of organisation; decisions
which may affect many business units manager at this level are acting on behalf of shareholders. Or
other stake holders to provide services and , quite possibly, strategic guidance to business units,
which themselves seek to generate value by interacting with customers
• The fig. represents a simplified multi-business company structure. It shows a number of business
units grouped within divisions and corporate center providing, perhaps, legal services and financial
services and the staff of the chief executive. The levels of management above that of business units
and therefore without direct interaction with buyers and competitors are often referred to as the
corporate parent.
 The Multi Business Company
Corporate
Parent

Centre

Division

Businesse
s

1) What is the strategic role of the corporate center?

(How does it seek to add value to the business?)

3) What is the 2) What is the nature

logic of the and extent of
portfolio? diversification?

4) Is the corporate
control style
appropriate?

What is a Corporate Parent

The corporate parent refers to the levels of management above that of the business units, and therefore
without direct interaction with buyers and competitors.
DIVERSIFICATION
What is Market Development
Market development refers to a strategy by which an organisation offers existing products to new markets.
What is Product Development?
Product development refers to a strategy by which an organisation delivers modified or new products to
existing markets.
What is Market Penetration?
Market penetration refers to a strategy by which an organisation takes increased share of its existing
markets with its existing product range.
7-21

Efficiency gains

Stretching corporate parenting capabilities

Increasing market power

 23

BCG Growth-
Share Matrix

Industry Attractiveness-
Business Strength BCG’s Strategic
Matrix Environments Matrix

Life Cycle-
Competitive
Strength Matrix

24

Nature of Competitive Bargaining Power of Threat of

Rivalry Suppliers/Customers Substitutes/New
Entrants
•Number of •Relative size of •Technological
competitors typical players maturity/stability
•Size of competitors •Numbers of each •Diversity of the
•Strength of •Importance of market
competitors’ corporate purchases from or sales •Barriers to entry
parents to •Flexibility of
•Price wars •Ability to vertically distribution system
•Competition on integrate
multiple dimensions

25

Industry Attractiveness
High Medium Low
Description of
Dimensions
High Invest- Selective Grow or Industry Attractiveness:
ment Growth Let Go Subjective assessment
based on broadest
possible range of
external opportunities
Selective Grow Harvest and threats beyond the
Medium Growth or strict control of
Let Go management
Business Strength:
Subjective assessment
Low Grow Harvest Divest of how strong a
or competitive advantage
is created by a broad
Let Go range of the firm’s
internal strengths and
weaknesses

BCG Matrix
• In early 1970’s the Boston Consulting Group developed a model for managing a portfolio of different
business units (or major product lines).
• BCG growth share matrix is widely used in corporate strategic analysis. Organizations have to take
decisions regarding the allocation of resources between competing business units.
• This matrix takes into consideration, the growth rate of the market and the relative market share of
the business unit. The market growth rate demands attention because it is important factor that
indicates whether the organization should stay in a particular industry or not.
• The BCG growth-share matrix displays the positions of business units on a graph of the market
growth rate against their market share relative to competitors.
 • Resources can be allocated to business units on the basis of their classification into categories.
Business units are classified into four categories, namely Cash Cows , Stars ,Question Marks , and
Dogs.
The Growth Matrix (or BCG)
Relative Position (Market Share)

HIGH LOW

HIGH
Market Growth

LOW

The Growth Matrix (or BCG)

• A STAR is a business unit which has a market share in a growing market. The business unit may be
spending heavily to gain that share, but experience curve benefits should mean that costs are
reducing over time and, it is to be hoped, at a rate faster than that of competitors.
• A Question Mark( or problem child) is a business unit in a growing market, but without a high
market share. It may be necessary to spend heavily to increase market share ,but if so, it is unlikely
that the business unit is achieving sufficient cost reduction benefits to offset such investments.
• A Cash Cow is a business unit with a high market share in a mature market. Because growth is low
and market conditions are more stable ,the need for heavy marketing investment is less. But high
market share means that the business unit should be able to maintain unit cost levels below those of
competitors. The cash cow should then be a cash provider (e.g. to finance question mark)
• Dogs are business units with a low share in static or declining markets and are thus the worst of all
combinations. They may be a cash drain and use up a disproportionate amount of company time and
resources.
WEAKNESSES IN THE BCG GROWTH-SHARE MATRIX
TOO SIMPLISTIC—IT ONLY HAS A FOUR-CELL MATRIX
WHERE DO “AVERAGE” BUSINESSES BELONG?
PREJUDICIAL CLASSIFICATION SCHEME
DOGS & PROBLEM CHILDREN v. STARS & COWS…VERY BIASED TERMS
THE TRENDS & MOVEMENTS OF THESE UNITS SEEM MORE IMPORTANT
IS HIGH INDUSTRY GROWTH ALWAYS GOOD?
DOES HIGH MARKET SHARE ALWAYS MEAN HIGH PROFITABILITY?
FIRMS CAN LOSE MONEY WHILE HOLDING A LARGE MARKET SHARE
LOW-SHARE BUSINESSES CAN ALSO BE PROFITABLE
ONLY CONSIDERS RELATIONSHIP TO THE MARKET LEADER—WHILE OTHERS ARE IGNORED
WHAT ABOUT SMALL COMPETITORS WITH FAST-GROWING MARKET SHARES?
GROWTH RATE IS ONLY ONE ASPECT OF INDUSTRY ATTRACTIVENESS
MARKET SHARE IS ONLY ONE ASPECT OF OVERALL COMPETITIVE POSITION
Major Corporate Level Strategies

Single Business

Dominant Business

Related Diversification

Unrelated Diversification
Examples of Related Diversification?
Proctor and Gamble (distribution/marketing)

Provides branded consumer goods products worldwide

3 GBUs
◦ Beauty GBU

Beauty segment

Grooming segment
 ◦ Health and Well-Being GBU

Health Care segment

Snacks, Coffee, and Pet Care segment
◦ Household Care GBU

Fabric Care and Home Care segment

Baby Care and Family Care segment
Diversification and Shareholder Value

Related Diversification
◦ A strategy-driven approach to creating shareholder value

Unrelated Diversification
◦ A finance-driven approach to creating shareholder value
Combination Related-Unrelated Diversification Strategies

Dominant-business firms
◦ One major core business accounting for 50 - 80 percent of revenues, with several small
related or unrelated businesses accounting for remainder

Narrowly diversified firms
◦ Diversification includes a few (2 - 5) related or unrelated businesses

Broadly diversified firms
◦ Diversification includes a wide collection of either related or unrelated businesses or a
mixture

Multibusiness firms
◦ Diversification portfolio includes several unrelated groups of related businesses
2) Review- Strategic Choice at Business Level
Learning Objectives
• Business level strategy – forces influencing business strategy – bases of competitive advantage –
price based strategies – added value or differentiation strategies – hybrid strategy – focused
differentiation – failure strategies – differentiation versus legitimacy.
• Sustaining competitive advantage – sustaining low price advantage – sustaining differentiation based
advantage – the delta model and lock in

Generic Business Level

Strategies(Porter’s)
Source of Competitive Advantage

Cost Uniqueness

Broad Cost Differen-

Target
Market Leadership tiation
Breadth of
Competitive
Scope
Focused
Narrow Focused
Target Differen-
Market Low Cost
tiation
STRATEGIC CHOICES AT BUSINESS LEVEL
• It is the focus of what business – level strategy is about: how to compete effectively in a market.
• It is the core issue of how value is realized in a business; after all, value is realized only when a buyer
is prepared to pay for goods or services.
• The extent to which they are prepared to pay a price which provides profits superior to those of
competitors will therefore determine the extent to which that business is highly regarded by its
owners and ultimately investors.
• A key question therefore, is the extent to which it is possible to achieve bases of competitive
advantage which are sustainable; or are managers faced with the need continually to rethink how
such advantage is to be achieved?
STRATEGIC CHOICES AT BUSINESS LEVEL
• In the end the extent to which that multi – business corporation is well regarded by those who invest
in it is dependent on the extent to which value is created by its constituent business units. Of course,
there is a corollary to this: the choices at the corporate level may or may not enhance value created at
the SBU level.
• How might it be possible to provide best value services in ways which demonstrably and sustainably
meet the expectations of users, compete effectively for scarce resources and meet the ever – growing
pressures for better value for money from the providers of those resources, such as government?
Forces influencing business strategy
• As the earlier discussion on the ‘business idea’ in the introduction makes clear, these influences are
not necessarily compatible; indeed are likely to be conflicting.
• Shareholders may desire maximum long – term returns on their investment, whilst bankers are
concerned with shorter – term cash flow; competitive pressures may be forcing price cuts and
reduced margins whilst at the same time greater levels of investment are needed to develop new
products or reinforce developing organizational capabilities
• Focus on some important issues. One of these is to what extent, and how, it might be possible to
achieve competitive advantage. This question focuses the strategist’s attention on a number of key
questions:
Forces influencing business strategy
What is the nature of the competitive environment? Is it stable and mature or fast changing and
uncertain. How competitively intense is it?
• For achieving super profits the question, is then, whether there is a strategy which will be valued
more by the buyer or user than which is on offer by a competitor such that the buyer is prepared to
pay a price above that of competitors.er to consider if there is a strategy which might achieve
competitive advantage, it is important to begin by asking what is especially valued by customers or
users
• Does the business unit have competences which allow it to deliver the desired competitive strategy;
and are these competences likely to provide a sustainable advantage or might competitors quickly be
able to imitate, or improve on them.
• Are there constraints placed upon the choice of competitive strategy; for example, in terms of
stakeholders expectations?
 Bases of Competitive Advantage: The ‘Strategy Clock
• We will see different ways in which managers in a business might think about competitive strategy,
the bases on which a business unit might achieve competitive advantage in its market.
• Assuming that the products or services of different businesses are more – or – less equally available,
customers may choose to purchase from one source rather than another because either (a) the price
of the product or service is lower than a competitor’s or (b) the product or service is perceived by the
customer to provide better ‘added value’ or benefits than that available elsewhere.
Price – based strategies (routes 1 and 2)
• Route 1 may seem unattractive, but there are successful organizations following it. It is the ‘no
frills’ strategy which combines a low price, low perceived added value and a focus on a price –
sensitive market segment. It can be viable because there may well exist a segment of the market
which, whilst recognizing
• Route 2, the low price strategy, seeks to achieve a lower price than competitors whilst trying to
maintain similar value of product or service to that offered by competitors.
If a business unit aims to achieve competitive advantage through a low price strategy it has
two basic choices in trying to achieve sustainability. The first is to try to identify and focus on a
market segment which is unattractive to competitors ; and in this way avoid competitive pressures to
erode price below levels which would achieve acceptable returns. In effect this is route 1 described
above.
Added value, or differentiation strategies (route 4)
• The next option is a broad differentiation strategy which seeks to provide products or
services unique or different from those of competitors in terms of dimensions widely valued
by buyers. The aim is to achieve higher market share than competitors (which in turn would yield
cost benefits) by offering better products or services at the same price; or enhanced margins by
pricing slightly higher.

Uniqueness or improvements in products: for example, by investment in R & D, design expertise or
building on the innovatory capabilities in the organization. This is often the basis upon which
manufacturing firms such as those in the car industry seek to compete, by investing in technology or
design to achieve greater reliability, product life or performance. However, it should be noted that
such improvements are often not durable: competitors are able to catch up
Added value, or differentiation strategies (route 4)

Marketing – based approaches – in effect, demonstrating better than the competition how the
product or service meets customer needs. Here the strategy is likely to be built on the power of the
brand or by powerful promotional approaches.

Competence – based approaches in which an organization tries to build differentiation on the
basis of its competences. If these really are competences which are peculiar to the organization
then it may well be very difficult for competitors to imitate them. However, identifying core
competences as a basis for building a differentiation strategy is a challenging task
The hybrid strategy (route 3)
• A hybrid strategy seeks simultaneously to achieve differentiation and a price lower than that of
competitors.
• This is the position that Japanese saloon car manufacturers were able to occupy for much of the
1980s and 1990s.
• Here the success of the strategy depends on the ability both to understand and to deliver enhanced
value in terms of customer needs, whilst also having a cost base that permits low prices and is
sufficient for reinvestment to maintain and develop bases of differentiation. This should not be
confused with just trying to keep costs down in general whilst seeking to achieve differentiation;
after all, presumably managers should always be trying to operate at the lowest cost commensurate
with the strategy they are following
• It might be argued that, if differentiation can be achieved, there should be no need to have a
lower price, since it should be possible to obtain prices at least equal to competition, if not
higher. However, the hybrid strategy could be advantageous in the following circumstances:
If much greater volumes than the competition can be achieved, and margins still kept attractive
because of a low cost base.

It is possible to be clear about the core competences on which differentiation can be built, and then
reduce costs on other activities. IKEA recognized that it could achieve a high standard of production,
but at a low cost, whilst concentrating on building differentiation on the bases of its marketing, range,
logistics and store operations.

If there is a market segment with particular needs which also facilitates a low – price approach. IKEA
offers good quality but to a market segment that is prepared to build and transport its product.

As an entry strategy in a market with established competitors. This is a strategic approach to new
market development that Japanese firms have used in the past on a global basis.
Summary – Strategic Alternatives or choices – Generic Strategies
I. Integration Strategies
i. Forward Integration – Gaining ownership or increased control over distribution or retailing
paradigms
ii. Backward Integration – Seeking ownership or increased control of a firm’s suppliers;
iii. Horizontal Integration – Seeking ownership or increased control over competitors
Intensive Strategies
i. Market Penetration – Seeking increased market share for present products or services in the existing
markets through greater marketing efforts;
ii. Market Development – Introducing present products or services into two geographic areas;
iii. Product Development – Seeking increased sales by improving or modifying present products and
services.
Summary – Strategic Alternatives or choices – Generic Strategies
III. Diversification Strategies
i. Concentric Diversification – Adding new, but related, products or services;
ii. Conglomerate Diversification – Adding new, unrelated, products or services:
iii. Horizontal Diversification – Adding new, unrelated products or services for present customers.
Other Strategies
i. Joint Ventures – Two or more sponsoring firms forming a separate organization for cooperative
purposes;
ii. Retrenchment – Regrouping through cost and asset reduction or reverse declining sale and profits;
iii. Divestiture – Selling a division or a part of organization;
iv. Liquidation – Selling all of a company’s assets, in parts, for their tangible worth;
v. Combination – Pursuing two or more strategies simultaneously
 Summary – Strategic Alternatives or choices – Generic Strategies
V. Other Pursuing Strategies
i. Acquisition – One large company purchases (acquires) a smaller firm or vice – versa;
ii. Mergers – When two Companies merge and form a new Company, e.g. Boroughs and Sperry merged
to form Unisys.
iii. Takeover or Hostile Takeover – When one company buys stocks of another company, it is a hostile
takeover. Many companies buy back their own shares to avoid hostile takeover;
iv. Leveraged Buyouts (LBOs) – Corporation’s shareholders are bought out (hence “buyout”) by the
Company’s management and other private investors using borrowed funds (hence “leveraged”)
Focused differentiation (route 5)
• A focused differentiation strategy seeks to provide high perceived value justifying a substantial price
premium, usually to a selected market segment. In the market for saloon cars, Ford, Rover, Peugeot,
Renault, Volkswagen and Japanese competitors are all competing within the one market, trying, often
with some difficulty, to convince customers that their product is differentiated from their
competitors. A Lexus is also a saloon car, but it is not seeking to compete directly with these other
manufacturers. It is offering a product with higher perceived value at a substantially higher price
than in the saloon car market. It is therefore trying to attract different sorts of customers; a different
market segment. However, this strategy raises some important issues:
The choice may have to be made between broad differentiation across a market or a more focused
strategy. This may take on global proportions, as managers have to decide between a broad
approach in increasingly global markets, or more selective focus strategies
 Because an organization choosing to follow a focus strategy is likely to be targeting a particular
market segment, it is important to realize that, within that segment itself, the strategy clock is just as
relevant so mangers face further choices. Lexus competes in the luxury car segment, but within that
segment it is following a strategy distinct from other luxury car companies.
 It is again important to be clear about which market segment (or segments) is being targeted, defined
in terms of a coherent set of customers needs; and this needs to be translated into action which
satisfies those customers.
 Focus strategies may conflict with stakeholder expectations. For example, a public library service
could probably be run more cost efficiently if it were to pull out of low – demand market niches and
put more resources into its popular branch libraries.
 New ventures often start in very focused ways – for example, new ‘leading – edge’ medical services in
hospitals.
The advantages of the focused approach have to be carefully monitored because the market situation
may change. Differences between segments may be eroded, leaving the organization open to much
wider competition
Failure strategies (routes 6, 7 and 8)
• The strategies suggested by routes 6, 7 and 8 are probably destined for failure.
 Route 6 suggests increasing price without increasing value to the customer. This is of course, the
very strategy that monopoly organizations are accused of following. However, unless the
organization is protected by legislation, or high economic barriers to entry, competition is likely to
erode market share.
 Route 7 is an even more disastrous extension of route 6, involving the reduction in value of a product
or service, whilst increasing relative price.
 Route 8, reduction in value whilst maintaining price, is also dangerous, though firms have tried to
follow it. There is a high risk that competitors will increase their share substantially.
 Arguably there is another basis of failure, which is for a business to be unclear as to its fundamental
generic strategy such that it ends up being ‘stuck in the middle’ – a recipe for failure.
 The strategy clock is, them, a market – based model of generic strategy options rooted in the
question: what is of value in the product or service to the customer, user or provider of funding? It
does not deny that the cost base of an organization is crucially important, but it sees this as a means
of developing generic strategies, and not as a basis for competitive advantage in itself.
Differentiation versus legitimacy
• The considerations discussed so far in this section have had a major impact on the debates about
competitive strategy which take place in organizations. It is common to hear discussions in
 businesses about ‘competitive advantage’ and ‘bases of differentiation’, for example: and they are
terms which have found their way into an increasingly market - driven public sector.
• It is not differences of strategy but similarity of strategies which often describes competitors.
Accountancy firms offer similar services, seek to enhance those services in similar ways, build
relationships with clients in particular ways and so on. The airlines who compete on long – haul
flights or car manufacturers tend to follow similar strategies and imitate each other when one
introduces new features or services.
• There is, moreover, evidence that such conformity and mimicry may make sense in terms of
enhancing performance in atleast two respects:
 In the long term, organizations that conform to the strategic norms of the organizational field tend to
stand more chance of survival. For those that choose the path of differentiation, some may
outperform others, but for some it will be their demise. So imitation and conformity may be a safe
bet.
 Other organizations, for example suppliers, or financiers, or potential employees, may also see such
organizations as safe bets too. So the organizations may benefit in terms of cost of supplies or
finance or calibre of staff, for example.
 It has been argued that strategic balance – balance between differentiation and similarity with others
– may be a sensible approach and there is some evidence that it does result in higher levels of return
for firms than those that follow more extreme differentiation or imitation strategies.
Sustaining Competitive Advantage
• If the lessons of searching for competitive advantage are to be taken seriously, the issue of
sustainability is important. It is possible to achieve competitive advantage in such a way that it can
be preserved overtime?
• A good deal of what follows builds on the earlier discussion on the robustness of core competences.
• Sustaining low price advantage
It was said earlier that achieving and sustaining advantage through low price is dependent
on low cost but that it is difficult to sustain. So, how might it be achieved and what are the problems?

The most ambitious aim is for an organization to seek to sustain reduced prices over competition on
the basis of having the lowest cost base such that competitors cannot hope to emulate it – or being a
cost leader – and being prepared to sustain and win a price battle if necessary.

Instead they tend to benefit from low cost positions by reinvesting profits into bases of
differentiation. For example, Kelloggs or Mars may well be the lowest cost operators in their
markets, but they invest their profits into branding and product and service differentiation.

In developing strategy, it is in any case dangerous to assume a direct link between relative market
share advantage and sustainable advantage in the market because there is little evidence of
sustainability; dominant firms lose market share and others overtake them.
Sustaining low price advantage
• Porter actually defines cost leadership as ‘ the low – cost producer in its industry… a low cost
producer must find and exploit all sources of cost advantage’. So there the concern is with cost
advantages through organizationally specific competences driving down cost throughout the value
chain.
• There are dangers here, however. The single – minded focus on cost reduction in all these different
ways may result in the customer perceiving a lower added value product or service and an intended
route 2 strategy slipping to route 1 by default.
• It may also be possible to achieve competitively advantageous low costs by careful examination of
capabilities and competences in parts of the value chain. Suppose it is possible to identify which
capabilities and competences are needed to compete effectively at low price.
• There are, however, risks here too. Competitors may be able to do the same, so no advantage is
gained.
• It may be feasible to follow a strategy of low price to achieve competitive advantage within a market
segment in which (a) low price is important; and (b) a business has cost advantage over competitors
operating in that segment
• However, whilst all of these are potential advantages, if low cost is the basis of a strategy of low price,
managers need to be sure that competitors cannot easily imitate or catch up with their cost
advantages.
• The main points that need to be emphasized are, then, that:

sustaining competitive advantage through low price based on lower costs than competitors is
difficult.

in so far as it is possible to achieve, it is likely to require the management of low cost across multiple
points in the value chain and continual attention to finding new ways to reduce those costs.
Sustaining differentiation – based advantage
• Differentiation is often espoused by managers as central to the strategy of their organization; but too
often they simply mean ‘being different’. This may not be enough. If the aim is sustainable
differentiation, there is little point in striving to be different if others can imitate readily.
• For example, the investment in state – of – the –art production equipment by the biscuit
manufacturer even if it were really meeting an important customer need, and therefore providing for
a meaningfully different product, could be imitated readily by a competitor who could make the same
investment. Sustainable differentiation needs to be based on less imitable aspects of competitive
advantage. For example, for the accountants it is more likely that differentiation can be achieved on
the basis of the extent to which those involved in the firm understand the needs of their clients, build
relationships with individuals within the client base, and can ensure that their own services are
integrated to meet clients needs. And for the biscuit manufacturer a combination of strong branding
to the consumer and high levels of service to the retailer with assured delivery on time, up – to – date
information on the progress of orders and rapid and flexible response to their needs will be a more
likely basis of sustainable advantage.
• Difficulties of imitation based on core competences. The reasons for this include:

Complexity: the competences upon which successful strategy is based are too complex for
competitors to comprehend.

Causal ambiguity: associated with complexity might be the difficulty of competitors understanding
cause and effect.

And these may be especially difficult to imitate when competences are culturally embedded deep
down in the organization.
• Imperfect mobility is another reason why sustainability may be possible: this is concerned with
whether or nor the capabilities and competences of an organization could be traded. If they can be
traded, then differentiation may not be sustainable.
• A combination of the difficulties of imitation and imperfect mobility is of course especially helpful. In
its most effective form it can give rise to the possibility of ‘lock in’, explained in the next section.
The delta model and lock – in
• Another approach to thinking about sustainability, whether it be for price – based strategies or
differentiation strategies, is the idea of ‘lock – in’. Here an organization has achieved a proprietary
position in its industry; it has become an industry standard. For example, IBM was an industry
standard; Microsoft became an industry standard, as did the Pentium processor from Intel. In the
university sector, Oxford and Cambridge universities occupy this position. For example, software
applications by other businesses were written around the Microsoft standard for Pentium
processors, making it very difficult for their organizations to break into the market.
The delta model and lock – in
• The achievement of lock – in is likely to be dependent on a number of factors:
 The first is likely to be size or market dominance. It is unlikely that other organizations seek to
conform to such standards unless they perceive the organization that promotes it to be dominant in
its market.
 However, it is more likely that such standards will be set earlier rather than later in life cycles of
markets . In the volatility of growth markets it is more likely that the single – minded pursuit of lock
– in will be achieved than when the market is mature. This was the case for Microsoft and Intel.
Similarly, it was the same for the dominance of Sky over its rivals. Sky, with the financial support of
the News Corporation, was able to undercut and invest heavily in technology, sustaining substantial
losses over many years, in order to achieve that target. This is not to say it had, inherently, a better
product; what it had was management and investors with a more single – minded drive and
commitment to get to market fast and achieve dominance.
 Once this position is achieved, it may be self – reinforcing and escalating. When one or more firms
support the standard, then more come on board; then others are obliged to; and so on.
 There is likely to be rigorous insistence on the preservation of that lock – in position. Rivals will be
seen off fiercely; insistence on conformity to the standard will be strict.
* One company set out to achieve a lock – in position in its industry in some of these ways, and
by building barriers to imitation and the sorts of switching cost and co – specialization with
customers.
3) Introduction to Corporate Restructuring
Introduction to Corporate Restructuring
Restructuring can be defined as a strategy by which a company changes its business or financial
structure.
Restructuring also involves making radical changes in the composition of the business. GE
witnessed tremendous growth during the tenure of Jack Welch (1981 – 2001).
Many analysts attribute GE’s success to its effective use of restructuring strategies. As a CEO,
Jack Welch sold 350 businesses for a total of $23.8 billion and acquired some 900 businesses worth
$105.5 billion. Firms use restructuring strategies in response to the
changes in the external and internal environment.
Need for Corporate Restructuring
(Difficulties created by over diversification)
Between 1960s and 1990s, diversification became a common phenomenon.
Many firms diversified to an unmanageable extent. Over diversification led to an increase in
bureaucratic inefficiencies and the performance of these companies are adversely affected.
The stock prices of these companies fell drastically, making them soft targets for hostile
takeovers. (Threat of Acquisition)
To minimize such risks, firms had to undertake restructuring activities.

The Need to Restructure is the result of failure to recognise

COMPANY CRISIS early enough
(Development Of CRISIS -Symptoms & Recognosition)

The Restructuring concept must be aimed at achieving a fast and sustainable effect
o The restructuring concept must pursue two essential objectives:
o * Ensure short – term survival
o * Sustained reestablishment of competitiveness
o * To achieve these two objectives, a double – track restructuring concept is required. In the
short – term a quick solution to the acute liquidity problems must be found as part of an operative
restructuring plan. In the long – term the company must make far-reaching internal and market –
related changes in order to ensure its long – lasting survival. This can be done by means of strategic
restructuring.
 Operative restructuring safeguards the short –
term survival of the company
Production of personnel costs

Improvemen
Reduction of materials
t of results costs
Reduction of
Operative miscellaneous expenses
restructuring
Short – term increase of
turnover
Reduction of accounts
receivable

Safeguarding Reduction of stocks

liquidity
Reduction of investments

Sale of non – essential assets

Strategic restructuring ensures long – term

competitiveness

Strategic positioning

Business Strategic Formulation of

field analysis reorientation detailed area
concepts

Adjustment of structures

Optimisation of the Overall organisational Organisational

company / reorganisation structuring of
participation portfolio individual areas

Adjustment of processes

Optimisation of Optimisation of sub- Establishment

core processes processes of MIS & EWS

Strategic restructuring ensures sustained competitiveness

• Strategic restructuring begins with an analysis which examines and redefines the position of the
company in relation to the competition.
• In many cases it turns out that the company :
• has diversified into uncontrollable business fields
• has been forced into a niche and is thus under the critical size
• is offering products that are mostly in the mature phase
• has failed to realise new developments
• has not formed a clear strategy.
• The “course adjustment” based on the results of the analysis forms the framework for the
adjustment of structures and processes. In this context no holds may be barred, which may well
mean a cultural revolution or causing a break with many fondly held traditions.
A catalogue of indicators permits early recognition of crisis symptoms
• Finance
• Turnover
• Materials Management
Personnel
 Forms of Restructuring
Expansion Sell Offs Corporate Changes in
Control Ownership
Structure
* Mergers * Spin Offs * Premium Buy – * Exchange
and Backs Offers
Acquisitions
* Tender * Split – Offs * Standstill * Share
Offers Agreements Repurchases

* Joint Ventures * Split – Ups * Anti – takeover * Going Private

Amendments

•Divestitures * Proxy Contests * Leveraged Buy

- outs

* Equity Carve -
outs

Forms of Corporate Restructuring-Mergers and Acquisitions

I. Expansion:
Expansion includes mergers, tender offers and joint ventures . Mergers are like a marriage in the
romantic tradition. Usually there is a period of courtship leading to the joining of two or more separate
entities in to one. After which the parties hope to live happily even after several alternative forms of mergers
have been distinguished. A horizontal merger involves two firms operating in the same kind of business. A
vertical merger involves different stages of production operations. Conglomerate mergers involve firms
engaged in unrelated types of business activity.
In a tender offer, one party – generally a corporation seeking a controlling interest in another
corporation asks the stock holders of the firm it is seeking to control to submit, or tender their shares of stock
in the firm.
Joint ventures involve the inter section of only a small fraction of the activities of the companies
involved and usually for a limited duration of ten to fifteen years or less.
Forms of Corporate Restructuring
II. Sell – Offs:
The two major types are spin – offs and divestitures. A spin – off creates a separate new legal entity;
its shares are distributed on a pro rata basis to existing share – holders of the parent company.
A variation of a spin-off is the split-off, in Which a portion of existing shareholders receives stock in a
subsidiary in exchange for parent company stock. Still a different variation of the spin-off is a split – up, in
which the entire firm is broken – up in a series of spin – offs, so that the parent no longer exists and only the
new off spring revive.
In Contrast to the class of spin-off in which only shares are transferred or exchanged is another
group of transactions in which cash comes into firm divestitures basically, a divestiture involves the sale of a
portion of the firm to an outside third party.
A variation on divestiture is the equity carve – out.
III. Corporate Controls:
Corporate control includes premium buy– back which represent the repurchase of a substantial stock
holder’s ownership interest at a premium above the market price. This represent a voluntary contract in
which the stock holder who is bought out, agrees not to make further attempts to take over the company in
the future. Anti takeover amendments by laws to make an acquisition of the company more difficult or more
expensive.
IV. Changes in ownership Structure
Changes in ownership structure represent the fourth group of restructuring activities, one form is
through exchange offers, Which may be the exchange of debt or preferred stock for common stock for the
more senior claims. A second form is share repurchase, which simply means that the corporation buys back
some fraction of its outstanding shares of common stock. When the transaction is indicated by the incumbent
management, it is referred to as a management buy-out (MBO). When financing from third parties involves
substantial borrowing by private company, such transaction are referred to as leveraged buy – outs (LBO’s)
 These Structural reforms had its impact on the quantity and quality of employment. The
pessimists feared that there would be increase in unemployment and also deterioration in the quality of
employment.
Theory of the Firm and Corporate Activity
To understand mergers and acquisitions, corporate restructuring and the various issues in corporate control,
one has to study the reasons for the existence of the firms and why they engage in different activities. The
theory of the firm can be studied under the following heads: rationale for existence of the firm,
organizational forms, and organizational behaviour.
Rationale for Existence of the Firm
The rationale for existence of firms involves transaction cost efficiency, production cost efficiency and nexus
of contracts.
1. Transaction cost efficiency
Transfer of goods or services across technologically separable interfaces is known as transaction.
Sometimes the costs of coordinating and managing transactions within the organization may offset the
benefits of a smooth transaction. It is advisable to replace firms or markets only if the cost of transacting
across markets is more than the cost of managing the firm.
The rationale for existence of firms involves transaction cost efficiency, production cost efficiency and nexus
of contracts.
1. Transaction cost efficiency
Transfer of goods or services across technologically separable interfaces is known as transaction.
Sometimes the costs of coordinating and managing transactions within the organization may offset the
benefits of a smooth transaction. It is advisable to replace firms or markets only if the cost of transacting
across markets is more than the cost of managing the firm.
Some of these factors have been discussed below:
a. Bounded rationality
Bounded rationality can be either computational or language related. Bounded rationality due to
language limitations refers to the inability of the transactors to successfully communicate the nature of the
transaction through the use of words and symbols.
b. Computational capacity
Computational capacity along with language limitations can make a complete contingent claim
contract economically unviable. To reduce the impact of opportunism, the organization’s internal review and
monitoring process should be made more efficient and transparent.
c. Opportunism
If refers to shirking, cheating and other suboptimal behaviour. Distortion of data or making
unrealistic promises can also be referred to as opportunism. The hierarchical structure of the firm helps curb
opportunism to a certain extent.
2. Production cost efficiency
Firms can manufacture their products independently, and transact across markets to ensure cost
effectiveness. However, it is advisable for a firm to produce its inputs in house even if the transaction costs
are zero and management costs are positive.
Team production is said to be the central characteristic of a firm. The output resulting from team
production is greater than the total output produced by the team members working independently. This can
be reduced to a great extent by efficient monitoring. However, firms continue monitoring activity as long as
the marginal benefits of monitoring are equal to the marginal costs of monitoring
The efficiency and survival of firms also depend on their informational advantage.
Organization capital primarily comprises of three types of information i.e. information used to assign
employees tasks that they can fulfill efficiently, information used to match employees so that an efficient team
can be formed, and finally, the information that employees acquire about other employees and the
organization.
Organization capital is bonded to the firm, which signifies the existence of an implicit long – term
contract between the employee and the firm.
3. The firm as a nexus of contracts
The subsequent developments in the theory of firm throw light on the institutional aspect of the firm.
A firm can be seen as a nexus of long –term, contracts that restrain the behaviour of transactors. Here the
emphasis is not on teamwork but on the ‘nexus of contracts’ though it is an accepted fact that teamwork
always involves contractual restraints. The nexus of contracts which include relations among people and
physical assets which form the team is based on the form of organizations – franchises, mutuals, partnerships,
joint ventures etc. Some strategic management thinkers argue that it is not necessary to set the boundary of
the firm and define the firm as any particular form
Organizational Forms
Organizational Structure refers to the firm’s formal role configuration, procedures, governance, control
mechanisms and authority, and decision making processes. The structure of an organization is influenced by
factors such as the size and age of the company. Strategic management thinkers have emphasized two types
of organizational structures – vertical and horizontal structures.
Types of Organizational Structures
• Vertical Structure
The theory of firm gives importance to both vertical relationships within the firm and parallel
horizontal structures. There is ample evidence to support both forward and backward integration. Forward
integration emphasizes control distribution quality to avoid product adulteration at the lower levels of the
distribution chain. Suppose a manufacturer develops a product that is of better quality when compared to its
competitors, but the product requires better servicing during the distribution process. To avoid this practice,
the manufacturer can take up the distribution as well. This would not only result in extra profits but would
also help the firm to enhance its goodwill and reputation.
Backward integration gained prominence when firms started giving importance to the quality of the
components used in the manufacturing of a product.
This resulted in the firms manufacturing the key components themselves and thereby, increasing
organizational learning. The best example of forward and backward integration can be seen in the oil
industry. A firm engaged in the production of oil may go for exploration i.e. integrate backward and at the
same time, it can enter into the marketing of oil i.e. forward integration

• Horizontal Structure
Multidivisional corporations (M-Form organizations) came into existence in the twentieth century.
M – form organizations can be explained using the transaction cost approach. Growing firms which use a
unitary (U-Form) structure began to experience communications overload (bounded rationality) and the
problems of functional areas within the firm pursuing sub – goals (opportunism). M-form organizations can
also help in effective allocation of resources, and thus, strategic planning, monitoring and control become
easy.
From the point of view of production cost efficiency, the multidivisional organizational structure can be used
to draw maximum benefits of large fixed investments and this can be utilized over a number of individual
decentralized operations. The multidivisional form was adopted by General Motors when its activities were
confined only to the manufacturing of automobiles. Later on, General Motors ventured into transportation ,
manufacturing of household equipment and defense related products. In other firms, the multidivisional
form was adopted by General Motors when its activities were confined only to the manufacturing of
automobiles. Later on, General Motors ventured into transportation, manufacturing of household equipment
and defense related products. In other firms, the multidivisional form involved more diverse activities. To be
successful in diversified activities, there should be some relationship between the different activities such as
research, marketing or production.
Numerator and Denominator Management
• Most large organizations are now implementing contingency plans to face the business downturn.
CEOs have two alternatives for maintaining profitability levels. First, to reduce head count and
investment and sell assets under a “denominator – driven,” belt – tightening program. This type of
approach is called denominator management. Second, to increase profitability by improving
productivity. This approach is referred to as “numerator” – focused management. CEOs can increase
profitability by maximizing the components of the numerators, and minimizing, the components of
the denominators. Reducing manpower and expenditure is relatively easy to do.
• Gary Hamel and C.K.Prahalad, authors of the book, “Competing for the Future” say, “Regardless of
business cycle, talented CEOs are devoted to adopting numerator – driven business strategy, namely
seeking ways of increasing revenues and net profit, rather than the denominator – oriented
management of cutting investment and head count.” Prahalad and Hamel prefer reengineering to
restructuring because reengineering offers at least the hope of getting better as well as getting
 smaller. Whereas, a company successfully restructuring itself will find itself getting smaller faster
than getting better

4) Review-COMMUNICATING ORGANIZATIONAL PURPOSES

LEARNING OBJECTIVES
Expectation & purposes – Corporate Governance, stakeholders expectations, business ethics & culture.
Organizational Purposes – the corporate governance – framework, stakeholder relationships, ethical
standards & culture.
Communicating organizational purpose through mission , vision, intent and objectives.

EXPECTATIONS AND PURPOSES

Expectations and purposes are influenced by four main factors:
corporate governance, stakeholder expectations, business ethics and
culture.
Corporate governance Business ethics
•Whom should the •Which purposes should be
organization serve? prioritised?
•How should purposes be •Why?
determined?

Organizational purposes
•Mission
•Objectives

Cultural context
Stakeholders •Which purposes are
* Whom does the prioritised?
organization serve? •Why?

EXPECTATIONS AND PURPOSES

 The most fundamental questions are whom should the organization be there to serve and how
should the direction and purposes of an organization be determined? This is the province of
corporate governance and the regulatory framework within which organizations operate.
 Whom the organization does actually serve in practice is the second important issue. This will be
addressed through the concept of organizational stakeholders and the extent to which they are
interested in, or able to influence, an organization’s purposes
 Which purposes an organization should fulfil is influenced by ethical considerations. The ethical
agenda is also concerned with corporate social responsibility to the various stakeholders particularly
those with little formal power.
 Which purposes are actually prioritized above others is related to a variety, of factors in the cultural
context in which the organization is operating of cultural web will make us understood culture at
different levels
Communicating Organizational Purposes
 The previous sections have looked at the factors that influence organizational purposes – the
corporate governance framework, stakeholder relationships, ethical standards and culture.
 This section will look at ways in which organizations attempt to explicitly communicate purposes,
for example through statements of mission, vision, intent and objectives. In some instances such
statements may be a formal requirement of corporate governance.
 Despite this, it must be remembered that these statements may not be an accurate reflection of the
priorities within the organization, for the political and cultural reasons.
CHARACTERISTICS OF A MISSION STATEMENT
It should be feasible
2. It should be precise – neither too narrow nor too broad
3. It should be clear and actionable
4. It should be motivating
5. It should be distinctive
 6. It should indicate major components of strategy when seen with the Purpose Statement
7. It should indicate how objectives are to be accomplished
WHO FORMULATES THE MISSION STATEMENT ?
· The Founder (with or without help of Consultants)
· Chief Executive
GOALS
A goal is a closed-ended attribute which is precise and expressed in specific terms.
TARGETS
Short-term goals, expressed in very precise terms and used for time-bound programmes are known
as Targets.

Objectives / Goals / Targets are required to know

· The Direction in which Organization has to move
· Performance of Organization / Departments / Individual vis-à-vis
Standards.
Objectives
 Objectives are statements of specific outcomes that are to be achieved. Objectives – both at the
corporate and business unit level – are often expressed in financial terms. They could be the
expression of desired sales or profit levels, rates of growth, dividend levels or share valuations.
 ROLE OF OBJECTIVES/GOALS/ TARGETS
 1. Objectives define the organization’s relationship with the
 environment
 2. Objectives help the organization pursue its mission and purpose
 3. Objectives provide the basis for strategic decision-making
 4. Objectives provide the standards for performance appraisal
 CHARACTERISTICS OF OBJECTIVES
 1. Objectives should be Understandable
 2. Objectives should be Concrete and Specific
 3. Objectives should be related to a Time Frame
 4. Objectives should be Measurable and Controllable
 5. Objectives should be Challenging but Realistic
 6. Objectives should be Set within Constraints
 7. All objectives of the organization should correlate and not conflict

SOME EXAMPLES OF OBJECTIVES

Profit
· Return on Investment
· Return on Shareholders’ Capital
· % of Sales
Growth
· Production / Output
· Sales
· Investment
Marketing
· Increase in Sales
· Market Development for Existing Product
· Market Development for New Products
· Reduction in Unit Marketing Costs
· Improved Customer Service
Employees
· Industrial Relations
· Welfare
· Training and Development
Social Responsibility
 · Community Service
· Auxiliary Industry Development
· Family Welfare
Mission statements
 A mission statement is a generalized statement of the overriding purpose of an organization. It can
be thought of as an expression of its raison detre. .
Mission statements usually attempt to address some of the following issues:

A vision that is likely to persist as a ‘beacon in the distance’

Hamel and Prahalad prefer the term strategic intent to that of vision or mission; they see it as an
‘animating dream’. .

Describe the organization’s main activities and the position it wishes to attain in its industry. Many
statements talk about being ‘ the leader’ or ‘the best’

Be a statement of the key values of the organization, particularly regarding attitudes towards
stakeholder groups and the ethical agenda discussed earlier.
Good business leaders create a MISSION, articulate the MISSION, passionately own the MISSION, and
relentlessly drive it to completion."

Jack Welch, Chairman, Ex- General Electric onconcept of mission statement.

Questions For Forming A Mission Statement

Why are you in this
Who are your Customers?
Business?

What image you want to What role do you and the

convey? employees play?

How do you differ from What level of service you

your competitors? provide?

Questions For Forming A Mission Statement

Why are you in this
Who are your Customers?
Business?

What image you want to What role do you and the

convey? employees play?

How do you differ from What level of service you

your competitors? provide?

Lets have a look at a few illustrations

HCL Infosystems
VISION :
Together we will create the enterprise of tomorrow
MISSION :
To provide world class information technology solution and services to enable our customers to serve their
customers better.

Characteristics
∞ Elicits an emotional, motivational response in employees.
∞ Be easily understood and be transferred into individual action
∞ Is a measurable and tangible goal.
∞ Is rooted in the competitive environment
Good mission statements can improve an institution’s
 Mission promotes unity.
 Mission provides direction.
 Mission helps to move from ideas to action.
Mission establishes culture.
Techniques
¤ Administrative Mandate
¤ Survey Technique
¤ Delphi Technique
Production Unit Groups
How to write a mission statement ?
 Make it Short.
 Make it Memorarizable.
 Make it Audible.
 Make it Unique.
Polaris
Our mission is to be a reliable and responsive Techno-Business solutions provider in the areas of Banking,
Financial Services, Insurance, and Retail; will provide cost-effective and timely solutions, meeting customers
expectations through continuous process improvement and win- win relationships.
CAFÉ COFFEE DAY
To be the best café chain in the country by offering a world class coffee experience at affordable prices.
LIC Housing Finance
Provide Secure Housing Finance At An
Affordable Cost, Maximizing Shareholders
Value With Higher Customer Sensitivity.
ZEE TELEFILM
To establish the company as the creator of entertainment and infotainment products and services to feast the
viewers and advertisers. Through these sellers we intend to become an integral part of global market. As a
corporation, we will be profitable, productive, creative, trend setting and financially rugged with care and
concern for all stake holders.
STATE BANK OF INDIA
To retain the banks position as the premier Indian financial services group, with the world class standards and
significant global business, committed to excellence in the customer, shareholder and the employee satisfaction,
and to play a leading role in the expanding and diversifying financial services sector, while continuing emphasis
on its development banking role.

Google
Google's mission is to organize the world's information and make it universally
accessible and useful.
As a first step to fulfilling that mission, Google's founders Larry Page and Sergey Brin developed a new
approach to online search that took root in a Stanford University
dorm room and quickly spread to information seekers around the globe.
What's a Google?
"Googol" is the mathematical term for a 1 followed by 100 zeros.
Google's play on the term reflects the company's mission to organize the immense
amount of information available on the web
Google’s Philosophy
Ten things Google has found to be true –
 Focus on the user and all else will follow
 It's best to do one thing really, really well.
 Fast is better than slow
 Democracy on the web works
 You don't need to be at your desk to need an answer
 You can make money without doing evil
 There's always more information out there
 The need for information crosses all borders
 You can be serious without a suit
 Great just isn't good enough
Coke
Mission –
 To refresh the world...
 To inspire moments of optimism and happiness...
 To create value and make a difference
Vision –
 People: Be a great place to work where people are inspired to be the best they can be.
 Portfolio: Bring to the world a portfolio of quality beverage brands that anticipate and satisfy
people's desires and needs.
 Partners: Nurture a winning network of customers and suppliers, together we create mutual,
enduring value.
 Planet: Be a responsible citizen that makes a difference by helping build and support sustainable
communities.
 Profit: Maximize long-term return to shareowners while being mindful of our overall
responsibilities.
 Productivity: Be a highly effective, lean and fast-moving organization.
Toyota
To sustain profitable growth by providing the best customer experience and dealer support”
Yahoo
To connect people to their passions, communities, and the world’s knowledge
Percept Picture
Our objective is to combine proprietary technology and world-class creative talent to develop and distribute
feature length films, ad films and television shows. We aim to create inspiring stories and memorable
characters that appeal to audiences of all ages and nationalities
Vision and Mission of ITC
 Sustain ITC’s position as one of the India’s most valuable corporations through world class
performance, creating growing value for the Indian economy & Company’s stakeholder
 Mission: To enhance the wealth generating capability of the enterprise in a globalizing
environment, deliveries superior and sustainable stakeholders
 “The potential of an enterprise for wealth creation is set as per distinctive amalgamation of its
vision, value and vitaility
 Mix of constancy and change of a timeless core and constantly evolving strategy and process a
built around cores”
4) Review- Understanding Strategy Development
 Strategy Development process in organizations – strategic planning system – strategic leadership-
organizational politics-logical incrementalism-the learning organization-development-intended and
realized strategies-
WHAT IS STRATEGY
Strategy is the direction and scope of an organization over the long term
which achieves advantage for the organization through its configuration of
resources within a changing environment and to fulfill stake holders expectation
Johnson & Scholes
The role of strategy fundamentals
  Strategy fundamentals such as industry structure,competitive advantage ,relative buyer
value,relative cost,operational effectiveness ,and strategic positioning represent the inherent
underpinning of corporate performance.
Focus on the Ends of competition and not focussing on specific technologies or means of competing in
any point of time in particular field

CHECKLIST FOR ANALYZING

ORGANIZATIONAL STRENGTHS AND WEAKNESSES
Management and Organization Marketing Human Resources
Management quality Distribution channels Employee experience,
Staff quality Market share education
Degree of centralization Advertising efficiency Union status
Organization charts Customer satisfaction Turnover, absenteeism
Planning, information, Product quality
Work satisfaction
control systems Service reputation
Grievances
Sales force turnover
Finance Production Research and Development
Profit margin Plant location Basic applied research
Debt-equity ratio Machinery obsolescence Laboratory capabilities
Inventory ratio Purchasing system Research programs
Return on investment Quality control New-product innovations
Credit rating Productivity/efficiency Technology innovations
Sources: Based on Howard H. Stevenson, “ Defining Corporate Strengths and Weaknesses,” Sloan Management Review 17 (spring 1976), 51-68; and M.L.Kastens,
Long-Range Planning for Your Business (New York: American Management Association, 1976).

Strategic Leadership
Design

Lenses

Ideas Experience
 THE STRATEGY LENSES

 Most people make sense of complex situations in more than one way. Think
of everyday conversations or discussions. It is not unusual for people to
say: ‘But if you look at it this way….’

 It is useful to take more than one view of an issue, especially if it is

complex. Taking one view can lead to a partial and perhaps biased
understanding

RATIONAL & VARIETY &

ANALYTIC PEOPLE’S
DIVERSITY IN
DESIGN EXPERIENCES
IDEA

UNDERSTANDING STRATEGY DEVELOPMENT

How strategy development can be seen
THREE STRATEGY LENSES
Strategy as design
Strategy as experience
Strategy as ideas

How strategy development process can be understood

Strategic planning systems
Strategic leadership
Organizational politics
Logical incrementalism
The learning organization
Imposed strategy

Implications and strategy development

Intended and realised strategy
Strategic drift
Strategic management in uncertainty and complexity

THE STRATEGY LENSES

1) Strategy as design:
The design lens views strategy development as the deliberate positioning of the organization through
a rational, analytic, structured and directive process. The big question is whether this is an accurate or
sufficient portrayal of strategic management.This is deployed in Strategic Planning process.

Assumptions of this design:

 Organization are hierarchies.
 Organization are rational systems.
 Organizations are mechanisms to put strategy to work.
 Systems can be controlled in a rational way too.
2) Strategy as experience
 The experience lens views strategy development as the outcome of individual and collective
experience of individuals and the taken – for – granted assumptions most obviously represented by
cultural influences
EXPERIENCE AND BIAS
 Human beings are able to function effectively not least because they have the cognitive capability to
make sense of problems or issues they come across. They recognize and make sense of problems
and issues on the basis of past experience.
 Managers are no exception to this. When they face a problem they make sense of it in terms of the
mental models which are the basis of their experience. This has major advantages. It means they are
able to relate such problems to prior events and draw comparisons.
 Cognitive bias is inevitable.
 The future is likely to be made sense of in terms of the past
COLLECTIVE EXPERIENCE: ORGANIZATIONAL CULTURE AND STRATEGY DEVELOPMENT
 Organizational culture is the ‘basic assumptions and beliefs that are shared by members of an
organization, that operate unconsciously and define in a basic taken – for – granted fashion an
organization’s view of itself and its environment.
 The application of experience is rooted, not only in individual experience, as discussed above, but
also in collective (group and organizational) experience reflected in organizational routines
accumulated over time.
So strategies can be seen as the outcome of the collective taken – for – granted assumptions and routines of
organizations.
 It is therefore, important to recognize the significance of organizational culture in strategy
development.
 Overtime, similarities develops in terms of the way people in those organization see their
organizations and the environment in which the organization operates, including the nature of
customers, suppliers, competitors, and so on.
 Indeed, there develop organizational fields which are networks of related organizations which share
common assumptions, values and ways of doing things so taken for granted, so institutionalized that
it is difficult for people to question or change them.
PARADIGM
 A paradigm is the set of assumptions held relatively in common and taken for granted in an
organisation.

THE ROLE OF THE PARADIGM IN STRATEGY

FORMULATION

Opportunities Strengths and

and threat weaknesses

THE
PARADIGM

Strategy
Environmental Organizational
forces capabilities
Performance

THE STRATEGIC LENSES

3) Strategy as ideas
This lens emphasizes the importance of variety and diversity in and around organizations which can
potentially generate genuinely new ideas. Here strategy is not so much as planned from the top but as
emergent from within and around the organization as people cope with uncertain and changing environment
in day to day activities

STRATEGY AS IDEAS
 The ideas lens sees strategy as the emergence of order and innovation from the variety and diversity
which exists in and around organizations. New ideas and therefore innovation may come from
anywhere in an organization, or indeed from stimuli in the world around it.
 The evidence is that innovation comes, not from the top, but quite likely from low down in an
organization. There are links here to the experience lens. Sensing of an organization’s environment
takes place throughout an organization, not just at the top. People interpret issues in different ways
 according to their experience and may come up with different ideas based on personal experience.
Such ideas may not be well formed or well informed and, at the individual level, they may be diverse.
The greater the variety of experience, the more likely there will be innovation.

STRATEGY DEVELOPMENT PROCESS

Process of intended Processes of emergent
strateg y development strategy development
•Strategic Planning •Logical Instrumentalism
•Strategic workshops and •Resource allocation
project groups routines
•Strategy consultants •Cultural processes
•Externally imposed •Political processes
strategies

Challenges and
Implications
•Strategic Drift
•The learning organization
•Uncertain and complex
conditions
•Managing strategy
development process

Strategic planning
Strategic Planning may take a form of systematised, step-by-step chronological procedures to develop or co-
ordinate an organizations strategy

A strategic Planning Cycle

2.Draft 3.
1.Planning Business Discussion 4.Revised
Guidelines plan with business plan
forecasts corporate

5. Annual 6.
Capital & Corporate
Operating plan
Budgets

7. Approval
by board
8.Annual
9.Performance Performance
Appraisal Targets

STRATEGIC PLANNING IN SHELL

STRATEGIC PLANNING CYCLE

GROUP
GROUP FOCUSED STRATEGIC
STRATEGY
SCENARIOS SCENARIOS PLAN
REVIEW

BUSINESS PLANNING CYCLE

CHAIRMAN’S COUNTRY
APPRAISAL
LETTER GUIDLINES

COUNTRY GROUP
COUNTRY GROUP
BUISNESS RESOURCES
PROMISES PROMISES
PLAN REVIEW

HURDLES FACED BY STRATEGIC PLANNING SYSTEM

 Misunderstanding the purpose of planning system.
 Strategy v/s plan
  Budgetary plan v/s strategy
 Over obsessed.
 Design and implementation of strategic plan.
 Managers pre occupied with daily work.
 Cumbersome plans lead to part implementation.
 Over detailed.
 Ownership of strategy.
 Strategic plans restricted to the executive’s desk.
STRATEGY WORKGROUPS AND PROJECT GROUPS
Intensive working sessions of a few days, perhaps away from the office, by group of executives addressing the
strategy of the organization.
 Including the employees in the planning process.
 A strategy workshop may be for a top management team of the organization itself- perhaps the board
of directors.
 It could be for a different level of management perhaps the head of departments of functions in an
organization.
STRATEGIC WORKSHOP PURPOSE
 To reconsider or generate the intended strategy of the organization
 To challenge the assumptions underlying the existing strategy
 To plan a strategy implementation
 To examine blockages to strategic change and how to overcome them
 To undertake strategic analysis
 To monitor the progress of strategy
 To generate new ideas and solutions
STRATEGIC CONSULTANTS
Need for an external, more objective view of issues relating to the strategy of their organization
Consultants play different roles in strategy development in organization
 Analyzing prioritizing and generating options.
 Knowledge carrier.
 Promoting Strategic decisions.
 Implementing strategic change.
STRATEGIC LEADERSHIP
 The ideas lens provides additional insights to the role of the strategic leader:
1. Evolutionary theorists emphasize the way in which strategies develop from competing ideas, so tend
to diminish the role of so – called strategic leaders.
2. However, some complexity theorists would argue for the importance of recognizing the
importance of high intuitive capacity and would accept that strategic vision can be associated
with an executive with such a capacity, who sees what others do not see and espouses new ways of
working.
3. Other point out that new businesses or business activities are usually created by individual
entrepreneurs. They may be correct, but evolution suggests that for every successful entrepreneur
there are likely to be many who fail. The few that succeed will, indeed, be applauded as innovatory
and creative, but they were the product of a diverse population of ideas most
4. Strategy development may also be strongly associated with an individual. A strategic leader is an
individual upon whom strategy development and change are seen to be dependent. They are
individuals personally identified with and central to the strategy of their organization.
5. Again the three lenses help explain and raise questions about how such individuals develop their
ideas about strategy, and how they influence strategy development.
6. The design lens suggest that individuals have thought this all through analytically. Whilst a plan may
not exist as a written document, it exists in terms of analysis and evaluation carried out by that
individual.
7. The experience lens suggest that the strategy advanced by the individual is formed on the basis of
that individual’s experience, perhaps within the organization or perhaps from some other
organization. The strategy advanced by a long established chief executive may strongly reflect or be
 informed by his or her organization's paradigm; and the strategy advanced by a chief executive new
to an organization may be based on a successful strategy followed in a previous organization.
The strategy of an organization might also be associated more symbolically with an individual
LOGICAL INCREMENTALISM
 Managers have a view of where they want the organization to be in years to come and try to
move towards this position incrementally.
 There is also a reluctance to specify precise objectives too early, as this might stifle ideas and
prevent experimentation. Objectives may therefore be fairly general in nature, overall, logical
incrementalism can be thought of as the deliberate development of strategy by ‘learning through
doing’ or the ‘crafting’ of strategy.
 Generalized rather than specific view of the future of the organization.
 Effective managers try to be sensitive to the environmental signals through constant scanning.
 Commitment to strategic options may be tentative in early stage of strategic development.
 Experiments cannot be expected to be the sole responsibility of the top management.
 Top management may then utilize a mix of formal and informal social and political processes.
THE LEARNING ORGANIZATION
 It corresponds to the aspects of logical incrementalism described above, especially in so far as it
starts with the argument that the uncertainty and complexity of the world of organizations cannot
readily be understood purely analytically.
 The world to which organizations have to adapt appears to be so turbulent and unpredictable
that traditional approaches to strategic management are simply not appropriate.
 It is the characteristics of the experience and ideas lenses that more closely match those of the
learning organization.
 There is a need for the continual challenge of that which is taken for granted in the organization; so
there is no need to develop organizations which are pluralistic, in which different, even conflicting
ideas and views are welcomed; in which such differences are surfaced and become the basis of
debate.
 This is also a political process of bargaining and negotiation, so conflict and disagreement will occur;
but this is an inevitable outcome of diversity and variety in organizations and should not necessarily
be regarded as negative in the process of strategy development. The dangers are at the extremes;
 The learning organization is, then, one capable of continual regeneration from the variety of
knowledge, experience and skills of individuals within a culture which encourages mutual
questioning and challenge around a shared purpose or vision.
LEARNING ORGANIZATION
 Became Popularized from 1990
 Uncertainty and Complexity of the world
 Turbulent and Dynamic environment overrules the traditional approaches to strategic mgt.
 Characteristics
 Continuous Change
 Experimentation
 Informality through social networks
 Process of bargaining and negotiation
 The learning organization is capable of continual regeneration from
the variety of knowledge, experience and skills of individuals within
a culture that encourages mutual questioning and challenge around
a shared purpose or vision
Imposed strategy
 The imposed strategy is a way of overcoming the sort of strategic inertia that has arisen as a result of
strategies developing incrementally on the basis of history, experience, existing cultural norms or the
compromises that result from bargaining and negotiation of powerful groups in an organization.
 The argument may also be put forward that the imposition of a general strategic direction can
provide impetus for innovation and creativity.
 Multiple processes of strategy
development
There is no one right way in which strategies
are developed

Processes of strategy differ over time and in

different context

Perceptions of how strategies develop will be

seen differently by different people

No one process describes strategy

development

Strategy development routes

Cultural and
Learning and logical
political
incrementalism
processes

Emergency Imposed strategy

strategy

5
4 3

Intended
1 Realized strategy
strategy

Unrealized strategy

Implications for strategy development intended and realized strategies

o Typically, strategy has been written about as though it is developed by managers in an
intended, planned fashion.
o Intended strategy is an expression of desired strategic direction deliberately formulated or planned
by managers; or by a strategic leader.
It may be that the implementation of this intended strategy is also planned in terms of resource allocation,
control systems, organizational structure and so on.
o
Strategy is here conceived of as a deliberate, designed process of development and implementation.
(Route 1)
o The realized strategy is the strategy actually being followed by an organization in practice, actually
comes about.
o In many organizations that attempt to formulate detailed intended strategies, much of what is
intended follows route 2 in Exhibit below and is unrealized ; it does not come about in practice, or
only partially so.
 STRATEGIES COMPARING AN ORGANIZATION’S MOST FUNDAMENTAL ENDS
AND MEANS
Means Ends

Plan
Strategic Intent,
Policies Vision, Mission,
Goals,
Objectives

Intended Strategy

Action Taken Results

observed

Realized Strategy

Emergent strategy
Strategic direction may emerge from actions taken by middle management and organizational routines rather
than by strategy as designed by top management.
 Indeed, it is often a complaint of chief executives that the planning systems in their organization have
degenerated into little more than post – rationalizations of where the organization has come from.
 There are a number of important practical implications for managers here.
1)There may be a gap between what top managers think strategy is, or should be – the intended
strategy, perhaps as stated in a strategic plan – and what is actually going on in practice – the realised
strategy. Illustration Intel’s top management believed the organization was following one strategy in
the 1980s when it was infact developing another.
2. The organizational effort, in terms of systems and management time, may be going into designing the
intended strategy, when more efforts need to be spent on attending to the processes that give rise to
the realised strategy especially if significant strategic change is needed; and this may mean
understanding and addressing cultural and political processes. Managing strategy does not just
mean formulating intended strategy.
3. 3) It may be that the intentions of top management are not the best way forward. It could be that
the direction of strategy that emerges from lowest in the organization is more appropriate to the
needs of the organization. The strategic contribution of middle and lower – level management is, for
example, being increasingly recognized by researchers and there exist well – documented accounts of
significant changes in strategy occuring in this way.

The process…

Intended
strategy: Emergent
Strategy Challenges and
* Strategic Development implications
planning *Strategic Drift
*Logical
* Strategy Incrementalis *The leaning
workshops m Organization
and project
*Resource *Uncertain and
groups
Allocation complex
*strategy conditions
consultants *Cultural
Processes Managing
*externally Strategy
imposed *Political Development
strategies Processes
 Strategy Development Routes

Emergent
strategy
3
4
1
Intended Realised
strategy Process strategy

2 Unrealised
strategy

Strategic Drift
 Historical studies of the pattern of strategy development and change of organizations have
shown that, typically, organizations go through long periods of relative continuity during
which established strategy remains largely unchanged or changes only incrementally.
 This can go on for considerable periods of time in some organizations. This creates what is
known as strategic drift – where the strategies adopted progressively fail to address the strategic
position of the organization and with this the performance deteriorates.
 This is typically followed by a period of flux during which strategies change, but not in very
clear direction.

Strategic Drift

Environmental change
Strategic changes
^
| 3
|
Cum
change --------- Phase – 1 Incremental changes ------------------ < Phase–2 Flux > --Phase -3/4 ----

Transformational
changes or
demise

2 4
1

Time ----------

5)Review- Strategic Position-Analysis of Business Environment

Strategic Position Strategic-Analysis of Business Environment
Analysis of Business Environment
Macro External Environmental Analysis at various levels ‘PESTEL’ – Political, Economic, Social, Technology,
Environment and Legal.
Industry Analysis and Competitor Analysis– Porter’s 5 Forces Model and Concept of Complementarity
Understanding the Factors that Determine a Company’s Situation
• Diagnosing a company’s situation has two facets
 – Assessing the company’s external or
macro-environment
• Industry and competitive conditions
• Forces acting to reshape this environment
– Assessing the company’s internal or
micro-environment
• Market position and competitiveness
• Competencies, capabilities, resource strengths
and weaknesses, and competitiveness

From Thinking Strategically about the

Company’s Situation before Choosing a Strategy

The Components of a Company’s Macro-environment

Thinking Strategically about a Company’s Macro-environment

• A company’s macro-environment includes all relevant factors and influences outside its
boundaries
• Diagnosing a company’s external situation involves assessing strategically important factors
that have a bearing on the decisions a company’s makes about its
– Direction
– Objectives
– Strategy
– Business model
Requires that company managers scan the external environment to
– Identify potentially important external developments
– Assess their impact and influence
 – Adapt a company’s direction and strategy as needed
– Which are the factors and forces in a company’s macro environment having the biggest strategy-
shaping impact?
– The company’s immediate industry and competitive environment
INDUSTRY ANALYSIS
· First Define the Business
· Then Define the Industry
· Then Define the Market Segments
Definitions should not be Too Broad or Too Narrow
The Concept of Industry Life Cycle helps understand the dynamics of Industry and plan strategy.
4 Stages of the Life Cycle
1. Embryonic
2. Growth
3. Maturity
4. Aging

Life Cycles can be Rejuvenated or Extended !

Factors Depending on Industry Life Cycle

Embryonic Growth Mature Aging

Growth

Product Lines

No. of Competitors

Market Share

Customers

Ease of Entry

Technology

10

International Conference At IBS, HYDERABAD

Januar y 2009
• Mission:
To develop life time relationship with our customers by ensuring outstanding purchase experience and to
provide safe, reliable and responsive after sales services.
• Vision:
To achieve market leadership, to provide security to the company and its employees while maximizing return
on investments of our shareholders.
It is a strange world here. To remain where you are, you have to be constantly running. If you want to go ahead,
you need to run faster. If you relax, you fall behind.”
- Alice in the wonderland – Prof Lewis Carroll (1865)
Objectives of the Case
• Studying of the fast changing global and Indian business scenario & particularly small passenger car
segment in the automobile sector based on the secondary data available in public domain for
facilitating in-depth analysis of problems faced by Maruti Suzuki Ltd.
• Strategic analysis of Indian automobile industry using Porter‘s five forces model and identifying key
demand drivers for growth of Auto car industry using PESTEL analysis, with a view to develop
insight into challenges face by Maruti Suzuki‘s small car segment.
• Critically examining the existing competitive strategies of Maruti Suzuki Limited & identifying
strategic choices available to the company for competing for the future and retain its leadership in
the Indian automobile industry.
Research Methodology
Secondary data as available from public domain

Porters ―Five Forces Model

PESTEL Analysis
About Indian Passenger car industry
 • Passenger car industry in India mainly restricted to three small producers viz., Hindustan Motors
Limited-Kolkata, Premier Automobiles Ltd-Mumbai and Standard Motors-Chennai, from 1947
to1981
• Growth of the automobile industry in India accelerated only after the inception of Maruti Udyog Ltd.
in the year 1981, in collaboration with Japanese Suzuki Corporation of Japan.
• The power relationship between automobile companies, auto component dealers and Service/Spare
Parts Centers, and customers underwent substantial change after the birth of Maruti Udyog ltd, as the
automobile industry changed from ‗supply constrained sellers‘ market‘ to a demand driven buyers‘
market.‘
• The recent meltdown of Global and Indian economy has led to liquidity crisis in leading car
manufacturers such as GM, Ford, Chrysler and JLR (TATA Motors), Renault (France) etc. in the
advanced nations of the world.
• Tata Motors and Maruti-Suzuki had curtailed their production in view of drastic reduction in demand
of their cars in India recently.
• The ferocious terrorist attacks in Mumbai on November 26th 2008 and elsewhere in India earlier will
have repercussions on passenger car industry.
• The sales of popular passenger car model Maruti-800 have been continuously declining since last 2
years (2007 & 2008).
• Tata Nano‘ Rs. 100,000 ($2000) passenger car, will give rise to new ‘Ultra low cost segment‘. Maruti
has to enter & compete in this new emerging segment.
India is the eleventh largest
automobile industry globally

India's cost-competitive auto

components industry is the
second largest in the world.

Maruti Suzuki Ltd. has emerged

as the largest manufacturer of
passenger cars in India

MARUTI SUZUKI

Maruti Udyog Ltd. was started at Gurgaon in 1981 as a joint-venture between

the Government of India and Suzuki Motor Corporation of Japan

The Government of India has since divested its share and Maruti-Suzuki Ltd is
now a fully owned subsidiary of Suzuki Motor Corporation of Japan.

Entry-level Maruti 800 car (powered by 796cc 3 cylinder petrol engine), when
launched in 1983 at a cost of Rs.40,000.

Many foreign automobile manufacturers have lined up and expanded their base
in India after liberalization of economy commencing 1991

The Government of India has since divested its share and Maruti-Suzuki Ltd is
now a fully owned subsidiary of Suzuki Motor Corporation of Japan.

MARUTI SUZUK I’S VALUES

Growth oriented organization re ady to change to
me et custome r’s demand at short notice .

Value for mone y for the customers.

Stakeholde r’s involvement and sa tisfac tion.

Responsible Corporate Organization

STP in Indian Car Industry

• No Fixed or widely accepted method of segmenting the passenger car market in India
• Segmentation has mostly been done on product type or price ranges
• Government of India has segmented the cars for taxation purposes on basis of engine
displacement volume and on length of cars
 • segmentation not based on psychographic or behavioral parameters as seen in the developed
markets

Strategic Capability
Learning Outcomes
 What is meant by strategic capabilities and how this contributes to the competitive advantage of the
organizations.
 The strategic importance of resources, competences, core competences and dynamic capabilities.
The importance of continual improvement in cost efficiency.
What is Strategic Capability?
Strategic capability is the adequacy and suitability of the resources and competences of an organization
for it to survive and prosper.”
Resources and Competences
• Tangible resources- They are the physical assets of an organization such as plant labor and finance.
• Intangible resources- They are the non physical assets such as information reputation and
knowledge.
Categories of Resources
• Physical resources- such as the number of machines, buildings or the production capacity of the
organization. The nature of these resources such as age, condition, capacity and location of each
resource determine the usefulness of resources.
• Financial resources- such as capital, cash, debtors and creditors and suppliers of money
(shareholders, bankers etc)
• Human resources- including the number and mix (example demographic profile) of people in an
organization. The intangible resources of their skills and knowledge is also likely to be important.
This applies both to employees an other people in an organizations network.
• Intellectual capital- is an important aspect of the intangible resources of an organization. This
includes patents, brands, business systems and customer databases. In a knowledge based economy,
intellectual capital is likely to be a major asset of many organizations.
Such resources are certainly important but what an organization does that is to say how it employs
and deploys it resources matters at least as much as what resources it has.
What Do We Mean By Competences
“Competences are the activities and processes through which an organization deploys its resources
effectively.”
In understanding strategic capability, the emphasis is , then , not just on what resources
exist but on how they are used
Capabilities
• Capabilities is the combination of resources and competences.
• An important distinction here is between capabilities that are at a threshold level and those that
might help the organization achieve competitive advantage.
Critical Success Factors(CSF
Critical Success Factor (CSF) is a business advocate term for an element which is necessary for an
organization or project to achieve its mission. They are the critical factors or activities required for ensuring
the success of your business.
Example Of CSF
Maruti Suzuki
• World Class manufacturing and quality
• Extensive service network- a core competency of Maruti.
• Suzuki’s advanced technology.
• High productivity
• Economies of scale.
• Large range of models
• Strong dealer network
• Quality program ‘Kaizen’.
• Brand equity
• Hire purchase scheme.
• Design Expertise
• Excellent advertizing and mass communication effort.
Cost Efficiency
An important strategic capability in an organization is to ensure attention is paid to achieving and continually
improving cost efficiency. This will involve having both appropriate resources and the competences to
manage cost.
Customer can benefit from cost efficiency in terms of lower prices or more product features for the same
price.

Sources Of Cost Efficiency

Economies of
Scale Experience

Cost
efficiency

Product/process
Supply costs
design

Cost Drivers Of Cost Efficiency

Economies of scale may be an important source of cost advantage in manufacturing organizations, since the
high capital costs of plant need to be recovered over a high volume of output. Traditionally manufacturing
sectors in which this has been a specially important have been
Supply costs influence an organizations overall cost position. Location may influence supply costs, which is
why , historically, steel or glass manufacturing was close to raw material or energy sources
Product or process design also influences the cost position. Efficiency gains in production processes have
been achieved by many organizations over a number of years through improvements in capacity- fill, labour
productivity, yield or working capital utilization.
• Experience can be a source of cost efficiency and there is some evidence that it might provide
competitive advantage.
• The important relationship between the cumulative experience gained by an organization and its
unit costs is described as the experience curve.
• The experience curve suggests that an organization undertaking any activity learns to do it more
efficiently over time and hence develops core competences in this activity.
 Experience Learning Curve
More the volume company produce
more the price of product /unit they
will able to reduce
This can be done through experience of
company in same production

Unit Cost

Total Units Produced over

Time

Capabilities For Sustainable Competitive Advantage

• If the capabilities of an organization do not meet customer needs, at least to a threshold level, the
organization can not survive. If it can not manage its costs efficiently and continue to improve on this,
it will be vulnerable to those who can. However if the aim is to achieve competitive advantage then
this itself is not enough.

Criteria For Robustness Of Strategic

Capability
Complexity Culture and History
•Internal linkages •Taken for granted
•External activities
linkages •Path dependency
Cost
efficiency

Causal ambiguit y
•Characteristic
ambiguity
•Linkage ambiguity

Complexity- Internal linkages

The core competences of an organization are unlikely to be won clearly discernible activity. Core
competences are more likely to be the linked set of activities and processes that, together, deliver customer
value. These may be within the organization or between the organization and customers, suppliers or other
key stake holders managers may refer to such linked activities with a short hand explanation.
External linkages
Firms can make it difficult for others to imitate or obtain their bases of competitive advantage by developing
competitive advantage together with the customer. In this way they build an intimate relationship on some
aspect of the customers business on which the customer is dependent on them. This is sometimes referred to
as co-specialisation
Culture and History
• In most organizations such competences are likely to become embedded in their culture.

• Linked to this cultural embeddedness, therefore, is the likelihood that such competences have
developed overtime and in a particular way. This historic path by which competences have arisen in
an organization is difficult to discern and imitate. This is referred to as path dependency.
Relationship Of Organizational Knowledge to Strategic Capability
• Organizational knowledge is the collective and shared experience accumulated through systems,
routines and activities of sharing across the organization. Knowledge is captured by formal
organization systems, processes and day to day activities which draw of people’s experiences
It is also concerned with the capacity of an organization to learn and is therefore central to the dynamic
capability of an organization to adapt to changing conditions
 Ways of Diagnosing Strategic
Capability
The value chain and value network

The Value Chain

The value chain describes the activities within and around an organization which together create a product or
service. It is the cost of these value activities and the value that they deliver that determines whether or not
best value products or services are developed.
• Primary activities are directly concerned with the creation or delivery of a product or a service and
can be grouped into 5 main areas.
Primary Activities- example
• Manufacturing unit
– Inbound logistics- These are the activities concerned with receiving storing and distributing
the inputs to the product or service. They include materials handling, stock control,
transport etc.
• Manufacturing unit
– Outbound Logistics- They collect, store and distribute the product to customers. For tangible
products this would be warehousing materials hadling, distribution etc. Incase of services
they may be more concerned with arrangements for bringing customers to the service if it is
a fixed location. Examples sport events.
• Manufacturing unit
Marketing and sales : They provide the means whereby consumers/users are made aware of the product and
services and are able to purchase it. This would include sales administration, advertising ,selling and so on
• Manufacturing unit
– Services : They include all those activities which enhance or maintain the value of a product
or service such as installation , repair, training and spares.
Support Activities
Support activities help to improve the efficiency and effectiveness of primary activities. They can be
divided into four areas:
• Procurement: This refers to the process of acquiring the various resource inputs to the primary
activities. As such it occurs in many parts of the organization.
• Technology development: all value activites have a technology even if it is just know how.
• The key technologies may be concerned directly with the product (Example R&D, product design) or
with process(Example process development) or with a particular resource(Example raw material
improvements)
• Human Resource Management: This is a particularly important area which transcends all primary
activities. It is concerned with those activities involved in recruiting, managing, training, developing
and rewarding people within the organization.
• Infrastructure: The systems of planning, finance, quality control, information management etc
important to an organizations performance in its primary activities. Infrastructure also consists of
the structures and routines of the organization which are part of its culture.
Benchmarking
An organization’s strategic capability has to be assessed in relative terms since it concerns the ability to meet
and beat the performance of competitors. There are different ways in which relative performance might be
understood
• Industry /sector benchmarking :Insights about performance standards can be gleaned by looking at
the comparative performance of other organizations in the same industry sector or between similar
public service providers..
• Benchmarking can also be usefully regarded as a process for gaining momentum for improvement
and change.
Stretching Competences
Managers may also see the opportunity to build new products or services out of existing competences. For
example, a chemical business that undertook an activity mapping exercise to identify its basis of competitive
advantage learnt that it was not its expertise in chemicals that mattered so much as its competences in
meeting and servicing varied and specific customer needs
Competencies and core competencies
Competence :-
Competence is ability to do a work on particular point of time.
 possess instinct to know what is needed, when is needed , where to act, how efficiently we
achieve.
 It should also answer “Is basic value coming from given resource? ”
 It should able to take organization to anticipatory learning.
Core Competencies
• Core competencies is an activity or process that underpin competitive advantage.
 it must be relate to fundamental activity or process of business.
 It should leads increase in level of performance and create benchmark.
 It should be robust, none of competitors can imitate.
Example:- technology used by Mercedes Benz car.
Where the core competencies resides
Some time manager often find difficult to specify difference between competencies , core competencies and
CSF (critical success factor) .
• CC support to achieve CSF.
• It is likely to be in generic level, embedded through operational level as routine work of organization.
• It hidden Strength
some time difficult to find core competencies.
•Financial recourses Weakness
•Goodwill and brand •Brand and goodwill
•Skill manpower •Financial resource
•Advance in technology •Management
capabilities
•Good Relationship in •Relation with buyer’s &
market suppliers
SWOT
Analysis Threats
•Slow market growth
Opportunities
• Identification of new •Entry of big companies
market •Increase in bargaining
•Technological change power of supplier and
•Regulatory environment buyer
•Improve buyer and •Adverse change in
supplier relationship government policies