By

Sreenath B.
 Strategy
• Strategy :- the specific pattern of decisions and actions
that mangers take to sue core competences to achieve a
competitive advantage and outperform competitors.
An organization develops a strategy to increase the value it
can create for stakeholders.
Through strategy, organization try to develop core
competences to gain competitive advantage

• Core Competences :- the skills and abilities in value creation

activities that allow a company to achieve superior efficiency,
quality, innovation, or customer responsiveness.
Eg: McDonald’s : CC of fast food for new line of breakfast
food,
GILLETTE : CC to sell razor blades in selling men products.
 VALUE CREATION CYCLE

1. Ability to 2. An
allows an
obtain scarce organizational
resources organization strategy
to create

Ample resources, a well-thought-

out strategy, and distinctive and invest
competences give an organization
which a competitive advantage, which resources to
increases its facilitates the acquisition of still develop
more resources.

which enable
4. A the organization 3.Core
competitive to create competence
advantage
Sources of Core Competences
• Specialized Resources :-
– Functional resources :- the skills possessed by
an organization’s functional personnel
– Organizational Resources :- the attributes that
give an organization a competitive advantage
such as the skills of the top-management team
or possession of valuable and scare resources.

• Coordination Ability :- an organization’s ability to

coordinate its functional and organizational
resources to create maximal value.
Global expansion & core competences
Expanding globally into overseas markets can be
an important facilitator of the development of an
organization’s core competences.

1. Transfer of core 2. Establishment of a

competences abroad global network

4. Use of global 3. Gaining access to

learning to enhance global skills and
core competences resources
 Global expansion and core competences

• Transferring Core Competences Abroad- value

creation at the global level begins when an orgz
transfers a CC in one or more of its functions to an
overseas market to produce cheaper or improved
products that will give the orgz a low-cost or
differentiation advantage over its competitors in that
market.

Eg:- Microsoft took its CC of advance software

production tech to produce tailored software for
customers abroad.
 Global expansion & core competences
• Establishing a Global Network- while going global, the firm locates its
value-creation activities in countries where economic, political and cultural
conditions are likes to enhance its low-cost or differentiation advantage.
– It establishes a global network- sets of task and reporting
relationships among managers, functions, and divisions that link an
organization’s value-creation activities globally.
– Low factor costs- to lower costs, value-creation functions are located
in countries having low factor costs; cost of raw materials, unskilled or
skilled labor, land & tax.
Eg:-Nintendo – HQ in one country, assembly operations in another
country, design operation in yet another country, buying inputs and raw
materials from another country.
 Global expansion and core competences

• Gaining Access to Global Resources and Skills:- an

organization with a global network has access to resources
and skills throughout the world. Because each country has
unique eco, political and cultural conditions, different
countries have different resources and skills that give them
a competitive advantages.

Eg:- Japan has skills in ‘lean’ production and

T.Q.Manufacturing, Kodak, IBM, Ford has established
divisions in Japan to learn these skills.

Eg:- Toys “R”U’s, has network of stores throughout Europe

using its CC distribution & retailing . They took German and
Swiss new & high-quality toys and sold to US thus
enhancing its differentiation advantage, creating more
value.
 Global expansion and core competences
• Using Global Learning to Enhance Core
Competences:-
organizations set up their global activities to gain
access to knowledge that will allow them to improve
their CC. The global exposure gives new ways to
improve and its brought back to the domestic base to
enhance the CC and then transfer its enhanced
competencies back to its overseas operations to
increase its competitive advantage.

Eg:- After WWII, Toyota, Panasonic and other Japanese

co, studied US based production and marketing
methods and took it back to base. They improved on
it, compared it with top co’s like GM and adapted it for
home country. By this Japan obtained competitive
advantage over US co’s who made no attempt to
improve present techniques.
 Dangers associated with outsourcing
competencies to abroad
• Company risks losing control of its
technology, partner may improve it and end
up as a competitor.
• If outsourced, that functional activity will no
longer be having resource invested to
improve it, so it is giving away a potential
source of competitive advantage in future.
• So, co’s must be careful in which skill and
competencies they should nurture and
protect and which they should allow other
companies to perform to reduce their costs.
Functional Level Strategy
 Functional level strategy

• A plan of action to strengthen an

organization’s functional & organizational
resources, as well as its coordination
abilities, in order to create core
competencies.
 Cont’d

• The strategic goal of each function is to

create a core competence that gives the
organization a competitive advantage.

• An organization creates its value by

applying its functional skills and knowledge
to inputs and transforming them to outputs
of finished goods and services.
To gain competitive advantage,
an organization should :-

1. Perform functional activities at a cost

lower than that of its rivals, or

2. Perform funl activities in a way that

clearly differentiates its goods and
services from those of its rivals-by
giving its pdts unique qualities that
customers greatly desire.
Strategies that Lower Costs Or
Differentiate Products
• Any fun that can lower the cost at which a
pdt is prdced or that can differentiate a pdt
adds value to the pdt and the orgzn.
Value Creating Source of low cost Source of differentiation
Function advantage advantage

Manufacturing Development of skills in Increase in product quality &

flexible manufacturing reliability
technology

HR mgmt Reduction of turnover & •Hiring of highly skilled

absenteeism personnel
•Development of innovative
training programs
 Value Creating Source of low cost Source of differentiation
Function advantage advantage

Materials • Use of JIT inventory •Use of company reputation &

management system/ computerized
warehousing
• Development of long term
relationships with suppliers
& customers
long term relationships with
suppliers & customers to
provide high quality inputs &
efficient distribution & disposal
of ops

Sales & marketing •Increased demand & lower •Targeting of customer groups
production costs •Tailoring products to
customers
•Promoting brand names

Research & Improved efficiency of •Creation of new products

development manufacturing technology •Improvement of existing
products
Functional Level Strategy And
Structure
• The strength of a function’s core
competence depends not only on the
function’s resources but also its ability to
coordinate the use of resources.

• In effective orgzns, the pdtn, sales and the

R&D deptmts develop an orientation
specific to its functional tasks and develops
its own ways of responding to its particular
funl envimt.
 CONTINGENCY THEORY

• According to contingency theory, an

organization’s design should permit
each fun to develop a structure that
suits its human and technical
resources.
 Structural characteristics associated with the development
of core competences in Production, Sales & R&D

Manufacturing Sales R&D

Organic
Mechanistic
Structure
Structure` Manufacturing Sales R&D
Tall Flat
organization organizatio
n
Manufacturing Sales R&D
Decentralized
Centralized
decision
decision making
making
Manufacturing Sales R&D
Mutual
Standardization adjustment
• Successful research and development reflects
the ability of R&D experts to apply their skills &
knowledge in innovative ways and to combine
their activities with technical resources to
produce new pdts.

• The structure most conductive to the

development of funl abilities in R&D is a flat,
decentralized structure in which mutual
adjustments among teams is the main means of
coordinating human & technical resources.
• The manufacturing function has used a tall
hierarchy in which decision making is centralized
& the speed of the production line controls the
pace of work.

• Standardization is achieved through the use of

extensive rules and procedures, & the result of
these design choices is a mechanistic structure.

• Japanese companies has always had a more

organic structure than US. It is flatter, more
decentralized and relies more on mutual
adjustments.
• The sales fun uses a flat, decentralized structure
to coordinate its activities because incentive pay
systems rather than direct supervision by mgrs
are primary control mechanism in sales settings.

• Sales people are paid on the basis of how much

they sell, and the information about customer
needs the changing customer requirements is
relayed to the sales people’s superiors through a
standardized reporting system.

• Because sales people work alone, mutual

adjustments are unimportant
 Cont’d

• Thus the structure of sales function is likely to be

mechanistic compared to that used by the R&D
function, but not as mechanistic as that used by
manufacturing.
Functional Level Strategy &culture
• Organization culture is a set of shared values that
organizational members use when they interact
with one another and with other stakeholders.
• It is very difficult to imitate orgn culture by a
competitor, so it is a competitive advantage.
• Orgn culture can be used to reinforce orgn norms
and values.
• Coordination abilities of manufacturing function
are also affected by the culture. In US a
mechanistic approach is used while in Japan
more organic structure is followed
Importance of organizational culture
• A competitor can easily imitate another
organization’s structure, but it is very difficult
for a competitor to imitate the culture, for
culture is embedded in the day to day
interactions of functional personnel.

• Organization’s culture emerge gradually and

are a product of many factors: an
organization’s property right system, its
structure, its ethics, and the characteristics
of its top management team.
Functional Level Strategy

1. As members or mgrs of a fun, identify

the functional resources or
coordination abilities that give your fun
a core competence. Having identified
the sources of your fun’s core
competence, establish a plan to
improve or strengthen them and
create a set of goals to measure your
progress.
 Cont’d
2. Study your competitors and the methods and the
practices they use to control their funl activities. Pick
your most effective competitor, study its methods and
use them as a benchmark for what you wish t achieve
in your fun.

3. Analyze the way your functional structure and culture

affect functional resources and abilities. Experiment to
see whether changing a component of structure or
culture can enhance your fun’s core competence.
Business Level Strategy
 Business Level Strategy
• It’s a plan to combine functional core
competencies in order to position the
organization so that it has a competitive
advantage in the domain.
• It is the responsibility of top management team
and decide how to position the organization to
compete for resources in its environment.
• Eg:-
1. Coca-Cola’s marketing skills to defend against
Pepsi.
2. Mercedes-Benz skills in R&D and positions itself in
luxury segment of car market.
 Business Level Strategy
3. Core competencies in marketing, manufacturing,
materials management gives McDonalds
competitive advantage over Burger King.

• Success of Business Level Strategy depends

on the following:-

1. Select the domain organization will compete.

2. Position organization to use resources and abilities
to manage its specific and general environment in
order to protect and enlarge the domain.
 Strategies to Lower costs or
Differentiate products
• Value creation can be done through reducing
cost of value creation and by giving products a
differentiated appeal.
• Low cost business level strategy:-
– It’s a plan where by an organization produces a low
priced goods and services for all customer groups.
– Eg :- Wal-Mart & Target specializes in selling low
price clothing.
• Differentiated business level strategy:-
– It’s a plan where by an organization produces a
high priced quality products aimed at particular
market segments.
 Cont’d
– Eg :- Neiman-Marcus specializes in selling high
priced clothing made by exclusive designers.

• Focus Strategy:- it specializes in one segment

of market and focusing all of the
organization’s resources on that segment.
– Eg :- KFC, Rolls Royce.
Business Level Strategy & Structure

Types of business level strategy

No of market No of market segments
segments served served

STRATEGY MANY FEW

Low cost YES

Focused Low cost YES

Differentiation YES

Focused Differentiation YES

 Characteristics of Organizational structure
associated with business level differentiation
and low cost strategies

Differentiation Strategy Low Cost Strategy

Complex structure Simple Structure

Decentralized decision making Centralized decision making

High Differentiation Low Differentiation

High Integration Low Integration

Organic Structure Mechanic Structure

 Choice of organizational structure
from strategy perspective
• As an organization produces a wider range of
products, it will need greater control over the
development, marketing production of these
products.
• As an organization seeks to find new customer
groups for its products, it will need a structure
that allows it to serve needs of its customers.
• As the pace of new product development in an
industry increases, an organization will need a
structure that increases coordination among its
functions.
 Business Level Strategy & Culture
• Organizational Culture plays determinant role in use of
functional and organizational resources effectively.

• Challenge is to develop values, norms, rules which allow

organization to use functional resources at the best
advantage.

• Low-cost organizations
– Develop functions that reflect organization’s value for economy.
– Eg:- Nucor, a leading low-cost steel manufacturer. The ceo Ken
Iverson operated the company in a frugal way. Top managers
followed the same path and spend less on luxury.
 Cont’d

• Differentiator Organizations:-
– Product development or marketing is at the centre stage.
– Innovation, quality, excellence and uniqueness are the
cultural values that are given importance.
– Eg:- Jet and Sahara encountered cultural clashes when they
where about to merger.

• Organizational culture is another factor as

important as organizational structure in
shaping organizational strategy for improving
its value creation.
Corporate - Level Strategy
Vertical Integration

A strategy in which an organization takes over

and owns its suppliers or its distributors
 Input Related
Domain Domain
Backward
Related
vertical
diversification
Integration

Core Domain

Forward
Vertical Unrelated
integration diversification

Output Unrelated
Domains Domains
 Input Domains Related Domains
(eg:- sugar plantations, (eg:- Snack foods, Candy
bottle makers) maker )

Core Domain
Soft Drinks

Output domains
Unrelated domains
(eg:- bottling and trucking
(eg:- Department stores,
companies that distributes
financial networks, cable
soft drinks; fast food
companies)
restaurants)
 Related Diversification
 The entry into a new domain that is related in some way
to an organization’s domain

 The entry into a new domain that is not related in any

way to an organization's core domain.

 The appropriate organizational structure must be chosen

at the corporate level in order to realize the value
associated with vertical integration and related and
unrelated diversification.
 Corporate-level Strategy & Structure
• Conglomerate structure:- a structure in which each
business is placed in a self-contained division and there is
no contact between divisions.

CEO

Corporate
Headquarters
Staff

A B C D E F G H I
DivisionDivisionDivisionDivisionDivisionDivisionDivisionDivisionDivision
Corporate-level Strategy and
Structure
• Structures for Related Diversification:-
An organization pursuing a strategy of related
diversification tries to obtain value by sharing
resources or by transferring functional skills
from one division to another—processes that
require a great amount of coordination and
integration.
 Corporate-level Strategy and
Culture
• Cultural values and the common norms, rules
and goals that reflect those values can
greatly facilitate the management of a
corporate strategy.

• An organization has to create a culture that

reinforces and builds on the strategy it
purses and the structure it adopts.

• Inter organizational strategies increase value

by allowing the organization to avoid the
bureaucratic costs often associated with
managing a new organization.
 Managerial implications of
Corporate-Level Strategy
• To protect the organization’s existing domains and to
exploit the organization’s core competences to create
value for stakeholders.

• To distinguish between a value-creation opportunity

and a value-losing opportunity, cost benefit analysis.

• No matter which corporate strategy managers pursue,

as the organization grows, a mangers must be careful
to match organizations’ structure and climate to the
strategy.
Implementing Strategy Across Countries
Imlementing strategy across countries

Global strategy play a crucial role in strengthening a

company’s control over its environment.
Four principal strategies that companies can use as they
begin to market their products and establish production
facilities abroad.

 a multi domestic strategy

 an international strategy
 a global strategy
 a transnational strategy
 The choice of structure & control systems for
managing a global business is a function of 3 factors:

• The decision how to distribute and allocate

responsibility and authority b/w managers at home and
abroad so that effective control over a company’s
global operations is maintained.

• The selection of the organizational structure that

groups divisions both at home and in a way that allows
the best use of resources and serves the needs of
foreign customers most effectively.

• The selection of the right kinds of integration and

control mechanisms and organizational culture to make
the overall global structure function effectively.
Implementing a multi domestic strategy
 A company decentralizes control to subsidiaries and divisions in each
country in which it operates to produce and customize products to local
markets.
 Generally operates with a global geographic structure ,where the
company duplicates all value –creation activities and establishes an
overseas division in every country or world area in which it operates.
eg. Car companies such as DaimlerChrysler , GM and Ford used global
area structures to manage their overseas operations.

 A company that makes and sells the same products in many different
countries often groups its overseas divisions into world regions to
simplify the coordination of products across countries.
 Strategy-Structure Relationships in the
International Environment
Vertical Differentiation Low Need for Coordination High
Choices`

Levels in the hierarchy Relatively flat Relatively tall Relatively tall Relatively flat
Centralization of authority Decentralized Core competences Centralized Simultaneously
centralize, others centralized and
decentralized decentralized

Horizontal Differentiation Global geographic Global product Global product Global matrix or
structure group structure group structure “matrix in the mind”

Integration
Need for integrating Low Medium High
Medium
mechanisms such as task
forces and integrating roles

Need for electronic

integration and management Medium` High High Very High
networks

Need for integration by Low Medium` Very High

High
international organizational
culture

Low Bureaucratic Costs High

 GLOBAL GEOGRAPHIC STRUCTURE

Corporate
Headquarters
(Located in Sweden)

Canadian United British French Japanese South

Division States Division American
Division Division Division
Division

Functional Activities
 Implementing international
strategy
• International strategy, based on R&D and
marketing being centralized at home and
all the other value-creation functions to be
decentralized to national unit.
• For coordinating the flow of different
products across different countries, many
companies use a global product group
structure and create product group
headquarters.
 Implementing international strategy
Corporate
Headquarters
(located in the U.S)

Worldwide Chemicals Worldwide Consumer Worldwide

Product Group Goods Product Automotive
Headquarters Headquarters Product Group
Headquarters

Canadian British US French Japanese

Division Division Division Division Division

Product Groups
Domestic & Foreign Division
Implementing global strategy

• Global strategy, oriented toward cost reduction, with

all the principle value-creation functions centralized
at the lowest cost global location.

• The companies locates its manufacturing and other

value- chain activities at the global location for
increasing efficiency and quality.
Eg: philips
 Implementing transnational
strategy

• A transnational strategy, focused so that it

can achieve both local responsiveness and
cost reduction.
Thank You