Strategic Management

Presented by: Abhishek Dishant Hans Mayank Jain Nikhil Reddy Ravi Pratap Singh

Alice : Would you tell me please, which way I ought to go from here? Cheshire Cat: That depends a good deal on where you want to get to - Lewis Carroll (Alice in Wonderland)

Market Capitalization
Figures in Rs Crores.

Company
Tata AB Birla Ambanis Mahindra Godrej

1991
14,000 3,100 2,300 1,030 1,000

2010
3,46,000 1,35,000 2,60,000 56,000 14,800

Source Business World (11 july 2011 edition)

Airbus 380 vs. Boeing 787

Airbus developed 380, a jumbo jet offering 550 seats, only capable of flying from 35 airports, costing more than $14b.

Airbus 380

Boeing developed long range, 250 passenger 787 dream liner capable of flying from large number of airports, costing only $8b. Boeing 787

Why Strat gy?

Profit and profitability Prod ct/S rvic Pr f r nc ov r rival S stainabl Comp titiv Advantag Cor comp t nci s Strat gy

What do we mean by Strategy ?

Consists of competitive moves and business approaches used by managers to run the company Integrated and coordinated set of commitments and actions designed to exploit core competencies and gain a competitive advantage. Management s action plan to
Grow the business Attract and please customers Compete successfully Conduct operations Achieve target levels of organizational performance

Thinking Strategically:
The Three Big Strategic Questions
1. What s the company s present situation? 2. Where does the company need to go from here?
Business(es) to be in and market positions to stake out Buyer needs and groups to serve Direction to head

3. How should it get there?

A company s answer to how will we get there? is its strategy

Porter on Strategy

What is Strategic Management?

The strategic management process is
full set of commitments, decisions and actions required to achieve strategic competitiveness and earn above average returns.

Definitions
Risk
An investor s uncertainty about the economic gains or losses that will result from a particular investment

Average Returns
Returns equal to those an investor expects to earn from other investments with a similar amount of risk

Above-average Returns
Returns in excess of what an investor expects to earn from other investments with a similar amount of risk

Definitions (cont d)
Strategic Competitiveness
When a firm successfully formulates and implements a value-creating strategy

Sustainable Competitive Advantage

When competitors are unable to duplicate a company s value-creating strategy

Characteristics of all Firm decisions

Nature Scope Level Time Span Assets Used Reversibility Riskiness Visionary Frequency Uniqueness Strategic Firm wide Highest Many Years Fixed Difficult High Yes Rare Yes Somewhere In Between Administrative Operational Departmental Lower Short Run Current Reversibility Low No Frequent Repetitive

Recent Strategic Decisions

Scope - Whole Firm: Tata Sons Level Highest Level: The iPhone Time Span Long Run: Tata Sons Assets Used Large and Fixed: Airbus 380 Reversibility Difficult: Airbus 380 Riskiness Bet the Firm: Boeing Visionary Apple computing through music Frequency Rare Takeover: Oracle and Sun Uniqueness Yes: Toyota Lexus

Characteristics of Strategy
Partly Proactive partly reactive. Makes organization purposeful and Gives the organization a sense of direction Strategy is continual and dynamic process Top Down exercise Provide managers with a reference point to Make strategic decisions Translate the vision into hard-edged objectives and strategies Prepare the company for the future

Micromax's Strategy
Innovating to meet local needs Dual sim/ Aspirational QWERTY keypad handsets Go To Market Strategy Concentrated on rural markets with USP 30 days battery standby time Distribution Strategy Managed to make dealers pay in advance by offering higher margins Product Strategy Products were towards lower end of pricing spectrum

The Competitive Landscape

Relentless and accelerating pace of the competition. Blurring boundaries between the industries.
E.g. Interactive computer networks, music, media and telecommunications.

Economies of scale and huge advertising budgets not effective any more. Flexibility, speed, innovation, integration, and constant change are the mantras. Huge global scale investments and severe consequences of failure. Dynamic strategy prime element of success in this environment.

Hyper Competition
The term for the current competitive landscape Results from the dynamics of strategic maneuvering among global and innovative combatants. Signifies inherent instability and change. A condition of rapidly escalating competition.

Primary drivers of Hyper Competition

The Global Economy
Is the one in which goods, services, skills, people, and ideas move freely across geographic borders. It generally refers to the economy, which is based on economies of all of the world's countries.

Technology &Technological Changes

Technology is the making, usage and knowledge of tools, techniques, crafts, systems or methods of organization in order to solve a problem or serve some purpose.

The Global Economy

Highly complicates a firm s competitive environment. Comes with both opportunities and challenges.
Europe is world s single largest market with 700 million potential customers. China and India are heading towards impressive development on roads paved by globalization. Though headquartered in USA, GE expects its 60% revenue from emerging economies like India and China.

The march of Globalization

Led to increase in the interdependence among countries and their organizations.
National Market 1 National Market 2

Financial capital

Raw Material

Global Organization

National Market 3

National Market 4

Manufacturing equipment

Production

The march of Globalization (Contd.)

Complexities rise in understanding culture, design, production, distribution and servicing of goods and services.
E.g. Milk distribution in USA versus India

Results in higher quality goods and services. High performance standards in competitive dimensions like quality, cost, productivity, product introduction time and operational efficiency. Propels domestic firms to produce superior goods.

The march of Globalization (Contd.)

In global world the best people will come from anywhere. Need above average returns? Then meet global standards! Thinking of global markets? Huge risk is on the way! Firms may struggle if they over diversify, and may stay put if they don t diversify. Not even giants like Toyota and GE can enter into global markets without proper strategic management process. Can t be globally competitive if focus on local markets is lost.

Technology and Technological changes

Technology is significantly altering the nature of competition and is contributing to unstable competitive environments. Trends and conditions of technology can be categorized as Technology diffusion and disruptive technologies Information Age Increasing knowledge intensity.

Technology Diffusion
Rate of Technology diffusion (speed at which new technologies become available and are used) is shifting to higher gears. To get into 25% of all homes in US,

Telephone took 35 years Television took 26 years Radio took 22 years Personal computers took 16 years Internet took 7 years

12 to 18 months to gather information about competitors R&D and product decisions. Patents may be an effective way of protecting proprietary technology.
However, electronics industry doesn t apply for patents to prevent competitors gaining access to technological knowledge.

Disruptive Technology
Destroys the value of an existing technology.
iPod, PDA, Wi-Fi, Internet

Very frequent in today s markets. Can create a new market (competitors follow the disrupter in this case) or harm industry incumbents.
For instance, Samsung followed Apple with its Galaxy tablet to compete against iPad.

Apple has been seeking to create disruptive trends in the industry through its new product strategy. It introduced to the world
The first personal computer, Computers with color monitors, GUI (graphical user interface); Uni-body product designs with aluminum, steel and glass; The first tablet device Super sensitive touch and gesture enabled products

The Information Age

Drastic changes in Information Technology lately. Advent of personal computers, cellular phones, artificial intelligence, virtual reality and massive databases. Ability to effectively and efficiently store, access and use information for strategic decisions a competitive advantage. Internet the most evolutionary technological phenomenon ever

Increasing Knowledge Intensity

Knowledge amalgamation of information, intelligence, and expertise That firm which realizes that importance of the ability to capture intelligence, transform it into usable knowledge, and diffuse it rapidly throughout the company, will have strategic competitiveness. Knowledge can be

Developed through training programs Acquired through hiring educated and experienced employees Integrated into organization to create capabilities Applied to gain competitive advantage

Strategic flexibility is a set of capabilities used to respond to various demands and opportunities existing in a dynamic and uncertain competitive environment.

Involves coping with uncertainty and accompanying risks Firms should develop this in all the areas of operations Focus on past core competency may slow change To be strategically flexible learn and apply what is learned on a continuous basis

The Korean Conquest:

How LG and Samsung won over the Indian market
LG and Samsung's success is a function of what these two companies did, and also what their competitors didn't do. The super-premium price and positioning of technologically superior Japanese brands like Sony and Panasonic made them inaccessible to most of the Indian market. Lower-priced Indian brands offered old-generation products and they did not invest sufficiently in R&D. Product innovation and after-sales are key factors. LG's entry strategy was to establish its presence across the country, offering a range of affordable but feature-rich products. Samsung focused on creating a premium brand image by emphasizing the design and technology aspects.

Where is Videocon going wrong?

All the TVs more or less have similar technologies. Why is Videocon not able to capitalize on its strong infrastructure and human resource capabilities? They are focusing on pushing the sales. The after sales customer care is not up to the mark. This is where the trust and reliability trembles in the market. Also, product innovation and product leadership was never part of their core objectives. 360 degree approach has to be employed to keep the customer happy.

Barco vs. Sony

Till 1980s, Barco was perceived as leader in projection system products. In 1989, Sony introduced a better graphics projector. Barco used to follow market skimming strategy. Barco was investing on R&D for video projector, but it was perceived that it would be of lower quality than Sony s. So, Barco stopped working on that projector, even after spending a good amount of R&D. Barco introduced a new projector, which outperformed Sony s. Learnings:
Competitors have certain strengths and limitations. To succeed, a firm must leverage its own unique abilities. A firm should have a defense strategy before potential threat arrives. If competition surprises a firm with introduction of a superior product, the firm should resist the temptation to proceed with its mediocre product. The competition s probable response to a firm s actions should be considered.

I/O Model of Above-Average Returns

The industry in which a firm competes has a stronger influence on the firm s performance than do the choices managers make inside their organizations Industry properties include
economies of scale barriers to market entry diversification product differentiation degree of concentration of firms in the industry

F
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External environment imposes pressures and constraints that determine strategies leading to above-average returns

Most firms competing in an industry control similar strategically relevant resources and pursue similar strategies Resources used to implement strategies are highly mobile across firms Organizational decision makers are assumed to be rational and committed to acting in the firm s best interests (profitmaximizing)

I/O Model of Above-Average Returns

External Environments
General Environment

1. Strategy dictated by the external environment of the firm (what opportunities exist in these environments?) 2. Firm develops internal skills required by external environment (what can the firm do about the opportunities?)

The External Environment

The I/O Model of Above-Average Returns

1. Study the external environment, especially the industry environment

The general environment The industry environment The competitor environment

The External Environment An Attractive Industry

The I/O Model of Above-Average Returns

2. Locate an attractive industry with a high potential for aboveaboveaverage returns

An industry whose structural characteristics suggest above-average abovereturns

The External Environment An Attractive Industry

The I/O Model of Above-Average Returns

3. Identify the strategy called for by the attractive industry to earn aboveabove-average returns

Strategy Formulation

Selection of a strategy linked with aboveaboveaverage returns in a particular industry

The External Environment An Attractive Industry

The I/O Model of Above-Average Returns

4. Develop or acquire assets and skills needed to implement the strategy

Strategy Formulation

Assets and Skills

Assets and skills required to implement a chosen strategy

The External Environment An Attractive Industry

The I/O Model of Above-Average Returns

Strategy Formulation

5. Use the firm s strengths (its developed or acquired assets and skills) to implement the strategy

Assets and Skills Strategy Implementation

Selection of strategic actions linked with effective implementation of the chosen strategy

The External Environment An Attractive Industry

The I/O Model of Above-Average Returns

Strategy Formulation

Assets and Skills Strategy Implementation Superior Returns

Superior returns: earning of above-average returns above-

First Mover Advantage

Proctor & Gamble: Used technology leadership to propel its product (disposable diapers) in the US market. eBay: The first company to take the auction process online, kicking off operations in 1995. Coca-Cola: The first cola producer, and began selling its product to the public in 1886; it has been a perennial powerhouse in the industry ever since.

Resource-Based Model of Above-Average Returns

Each organization is a collection of unique resources and capabilities that provides the basis for its strategy and that is the primary source of its returns Capabilities evolve and must be managed dynamically Differences in firms performances are due primarily to their unique resources and capabilities rather than structural characteristics of the industry Firms acquire different resources and develop unique capabilities

Resource-Based Model of Above-Average Returns (cont d)

Firm s Resources

1. Strategy dictated by the firm s unique resources and capabilities 2. Find an environment in which to exploit these assets (where are the best opportunities?)

Res
Res
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a a ilities
Capabilities
Capacity of a set of resources to perform in an integrative manner A capability should not be So simple that it is highly imitable So complex that it defies internal steering and control

rces
ts i t a firm s r cti r cess Capital equipment Skills of individual employees Patents Finances Talented managers

The Resource-Based Model of AboveAverage Returns

Resources 1. Identify the firm s resources. Study its strengths and weaknesses compared with those of competitors

Inputs into a firm s production process

The Resource-Based Model of AboveAverage Returns

Resources 2. Determine the firm s capabilities. What do the capabilities allow the firm to do better than its competitors.

Capability

Capacity of an integrated set of resources to integratively perform a task or activity

The Resource-Based Model of AboveAverage Returns

Resources 3. Determine the potential of the firm s resources and capabilities in terms of a competitive advantage.

Capability Competitive Advantage

Ability of a firm to outperform its rivals

The Resource-Based Model of AboveAverage Returns

Resources 4. Locate an attractive industry.

Capability Competitive Advantage An Attractive Industry

An industry with opportunities that can be exploited by the firm s resources and capabilities

The Resource-Based Model of AboveAverage Returns

Resources 5. Select a strategy that best allow the firm to utilize its resources and capabilities relative to opportunities in the external environment.

Capability Competitive Advantage An Attractive Industry Strategy Implementation

Strategic actions taken to earn above-average abovereturns

The Resource-Based Model of AboveAverage Returns

Resources

Capability Competitive Advantage An Attractive Industry Strategy Implementation Superior Returns

Superior returns: earning of above-average returns above-

How Resources and Capabilities Provide Competitive Advantage

Valuable Allow the firm to exploit opportunities or Rare Possessed by few, if any, current and
potential competitors

neutralize threats in its external environment

Costly to imitate When other firms cannot obtain them or

must obtain them at a much higher cost

Nonsubstitutable The firm is organized appropriately to obtain

the full benefits of the resources in order to realize a competitive advantage

Resources and Capabilities, Core Competencies, and Outcomes

Core Competencies Competitive Advantage

Valuable

Rare

Costly to Imitate

Value Creation

Nonsubstitutable

Above Average Returns

Stakehol ers
In ivi uals an groups who can affect, an are affected by, the strategic outcomes achieved and who have enforceable claims on a firm s performance Claims are enforced by the stakeholder s ability to withhold essential participation

The Three Stakeholder Groups

Ca ital

arket Stakeholders

Shareholders and lenders ex ect the firm to reserve and enhance the wealth they have entrusted to it Returns should be commensurate with the degree of risk to the shareholder

Product Market Stakeholders

Customers
Demand reliable products at low prices

Suppliers
Seek loyal customers willing to pay highest sustainable prices for goods and services

Host communities
Want companies willing to be long-term employers and providers of tax revenues while minimizing demands on public support services

Union officials
Want secure jobs and desirable working conditions

Orga izational Stakeholders

Employees
Expect a dynamic, stimulating and rewarding work environment Are satisfied by a company that is growing and actively developing their skills

Stakeholder Involvement
Two issues affect the extent of stakeholder involvement in the firm
How to divide returns to keep stakeholders involved?
Organizational Capital Market

 How to increase returns so everyone has more to share?

Product Market

The

Strategic Competitive Landscape Management Process

The Strategy Management Process

Vision

Phase 1 : Developing a Strategic Vision

A big picture of what the firm wants to be. Points the direction of where it would eventually like to be in the years to come. Reflects firm s values and aspirations. Requires Top-management commitment. Tied to the conditions of firm s external and internal environment. McDonald s : Our Vision is to be the world s best quick service restaurant.

Payoffs of a Clear Strategic Vision

Crystallizes an organization s long-term direction Reduces risk of rudderless decision-making Creates a committed enterprise where organizational members enthusiastically pursue efforts to make the vision a reality Provides a beacon to keep strategy-related actions of all managers on common path Helps an organization prepare for the future

Mission
The vision is the foundation for the firm s mission. Specifies the business in which firm intends to compete and the customers it intends to serve. More concrete than vision. Should be inspiring and relevant to all stakeholders.

Mission (Contd.)
Deals directly with product markets and customers, and the middle-level managers and the markets. Above-average returns are the fruits of the firm s efforts to achieve its vision and mission. McDonald s : Be the best employer for our people in each community around the world and deliver operational excellence to our customers in each of our restaurants.

Infosys
Vision
We will be a globally respected corporation.

Mission
To achieve our objectives in an environment of fairness, honesty, and courtesy towards our clients, employees, vendors and society at large.

Patni Computer Systems s. Infosys

Infosys was founded by 7 Patni employees. Infosys leadership is committed to their vision to be globally respected company. Leadership at Patni had internal conflict and lost focus on their vision to be trusted partner, powered by passionate minds, creating innovative options to excel.

Phase 2 :Setting objective

Purpose of setting objectives
Converts vision into specific performance targets Creates yardsticks to track performance

Well-stated objectives are

Quantifiable Measurable Contain a deadline for achievement

Spell-out how much of what kind of performance by when

Types of Objectives Required

Financial Objectives
Outcomes focused on improving financial performance

Strategic Objectives
Outcomes focused on improving competitive vitality and future business position

Examples : Financial Objective

X % increase in annual revenues X % increase annually in after-tax profits X % increase annually in earnings per share Annual dividend increases of X % Profit margins of X % X % return on capital employed (ROCE) Increased shareholder value Strong bond and credit ratings Sufficient internal cash flows to fund 100% of new capital investment Stable earnings during periods of recession

Examples : Strategic Objective

Winning an X % market share Achieving lower overall costs than rivals Overtaking key competitors on product performance or quality or customer service Deriving X % of revenues from sale of new products introduced in past 5 years Achieving technological leadership Having better product selection than rivals Strengthening company s brand name appeal Having stronger national or global sales and distribution capabilities than rivals Consistently getting new or improved products to market ahead of rivals

Strategic Intent
Relentlessly pursues an ambitious strategic objective Involves establishing a stretch performance target out of proportion to immediate capabilities and market position Devoting a firm s full resources and energies to achieving the target Achieve quantum gains in competing against key rivals and to establishing itself as a winner in the marketplace Signals relentless commitment to achieving a particular market position and competitive standing

Male vs Female

Phase 3: Crafting the Strategy

Objectives at All Management Levels
Corporate Strategy Business Strategy Functional Strategy Operating Strategy

Uniting the Strategy Making Effort Top-down Process

What Strategy Consists of?

Grow Business Manage Business Please customer

OW
Achieve target Respond to Change Outcompete rivals

Levels of Strategy-Making
Corporate-Level Managers
Corporate Strategy
Two-Way Influence

Business-Level Managers

Business Strategies
Two-Way Influence

Functional Managers

Functional Strategies
Two-Way Influence

Operating Managers

Operating Strategies

Bharti roup of Companies

Crafting strategy : pproach

The Chief rchitect pproach The Delegation pproach The Collaborative pproach The corporate Intrapreneur pproach

Phase 4 : Implementing and Executing Strategy

Operations-oriented activity aimed at performing core business activities in a strategy-supportive manner Tougher and more time-consuming than crafting strategy Key tasks include
Improving efficiency of strategy being executed Showing measurable progress in achieving targeted results

Strategy Implementation Involves

Creating a strategy-supportive corporate culture Allocating resources to strategy-critical activities Establishing strategy-supportive policies Motivating people to pursue the target objectives Tying rewards to achievement of results

Strategy Implementation Involves

Installing information, communication, and operating systems Exerting the leadership necessary to drive the process forward and keep improving Instituting best practices and programs for continuous improvement

Phase 5 : Evaluating Performance

Tasks of crafting and implementing the strategy are not a one-time exercise
Customer needs and competitive conditions change New opportunities appear; technology advances; any number of other outside developments occur One or more aspects of executing the strategy may not be going well New managers with different ideas take over Organizational learning occurs

Monitoring, Evaluating and Adjusting

Taking actions to adjust to the march of events tends to result in one or more of the following
Altering long-term direction and/or redefining the mission/vision Raising, lowering, or changing performance objectives Modifying the strategy Improving strategy execution

Factors that influence strategy

Beliefs and Ambitions of Managers Company Culture SWOT Competitive consideration and Industry Attractiveness Societal and Political Influences Regulatory and Legislative Actions

Case Study: Wal-Mart and Bharti

Trends in Retail
Indian Retail Market in USD
700 600 500 400 00 200 100 0 2006 2010 2015
Growing at healthy CAGR of 5% Contributing 14% to GDP and providing jobs to 7% of workforce. Organized retail constitutes 2% whereas Unorganized retail constitutes 98% of Indian total trade. Change in Indian consumer mentality from save and buy to buy and repay to shop til you drop Increased brand consciousness and demand for quality characterized Indian consumers.

Evolution of Indian Retail

Biggest Public Corporation in the World with Revenues of US$ 351.1 billion(2007). Corporate strategy of strengthening relations with employees, suppliers and customers.
Shifting of powers towards retailers and away from manufacturers

Wholly owned transportation capabilities.

Cost effective and 4 times faster to replenish its merchandise.

Always low Prices and elevated sales volume. Effective users of Technology for managing supply chain. Global Strategy, Local Focus

Providing mobile, telemedia and enterprise services. Among India s 10 biggest Companies Market capitalization of US$ 25 million+ Employing 30,000 people. Deep Knowledge of India s Fast growing consumer Market

Joint Venture
Indian Government allows a FDI of 51% in Multibrand Retail. Two separate Agreements
First, to manage establishment of 50-50 venture for back-end supply chain management and wholesale cash and carry operations. Second, Bharti managing the retail store operations and Walmart focusing on logistics capabilities and building supply chain.

External and Internal Environment

Competitors

Not an
Small Players feel they would be driven out

Stiff Opposition from Political Parties

Problems in adjusting to local cultures Ruin Livelihood of more than 40 million people dependant on retail Predatory Pricing Policy Squeezing Suppliers for low cost manufacturing without ensuring quality & safety

Supply Chain Management Challenges

Underdeveloped Physical Infrastructure
Quality of Roadway Infrastructure Quality of trucking Adoption of Modern Technology

Prominence of Middleman in Retail and Wholesale

Vision and Mission

Saving people money to help them live better. Offers the best quality merchandise at the lowest prices in all their stores, from school supplies, to household items and top quality groceries.

Five forces of Competition Model

Potential entrants to the industry

Suppliers

Product substitutes

Buyers

Competitive rivalry among firms currently in the industry

Strategy Choice
US Strategy
Shopping Mall on the highway Complete Retail Store Management

Indian Strategy
 Convenience Store 117 Easy Day stores, largely in North India and mostly small,neighbourhood stores  Manages Wholesale and Back-End Processes Walmart is looking to pick up stake in Big Bazaar s back-end ops & expand it to front-end biz as and when FDI rules are relaxed-The Economic Times Mumbai;Date: Mar 29, 2011

Strategy of Wal-mart

Same goods for less( charges 2-5%lower price) & still earns profit. Very good operational efficiency Use of IT in all verticals of business Effective use of logistics management Networked to HQ via private satellite. Bargaining power over suppliers Data used to profile each market Predicts demand, optimizes stock

Operations Strategy IT systems to manage it s warehouses and stores Choose locations without direct competitions from large chains(rural areas) Created a culture of supporting values, skills, technologies, supplier customer relationship, HR and approaches to motivation that could not be easily copied by other firms

Thank You