Strategy action

Strategy action
Module 3
• Strategy in action is concerned with ensuring
that
– strategies are working in practice
• pursues are typically a mixture of the
intended and the emergent-bottom-up
initiatives, rapid responses to unanticipated
opportunities and threats, and sheer chance
Strategic Alternatives
Generic strategies- gain competitive
advantage
CA- Defend its position in the industry.
•Overall cost leadership
• Differentiation, and
• Focus
Relative to other industries-up or below
Industry standards
Up= competitive advantage.
CA is again two types low cost or differentiation.
Cost Leadership:
• where a business produces the same quality of
the product as of the competitors’ but sells it at a
lower price.
• HOW? is achieved
– by continuously improving the operational efficiency
(using less but more efficient workers or outsourcing
to places where the costs are less), and
– getting the advantage of economies of scale
– Reliance became number one company of India
because of its cost leadership strategy.
Cost Leadership requirements
• Management OPs
•
•
• Tight cost control
• Frequent, detailed
control reports
•
• Structured organization
•
and responsibilities
•
• Incentives based on
meeting strict
•
quantitative targets
Resources Rqd.
Sustained capital
investment and access to
capital
Process engineering skills
Intense supervision of labor
Products designed for ease
in manufacture
Low-cost distribution
system
Differentiation:
• when the product or service offered by the business deliver different
benefits than the products offered by the competitors.
• HOW?
– defining the offering’s unique position in the market by explaining the unique
benefit it provides to the target group.
• high quality, better delivery, more features, or any other specific attribute of the product
or service
• -unique brand images (Levi’s jeans), unique technology (MacIntosh stereo
components), unique featues (Jenn – Air electric ranges), unique channels
(Tupperware), unique customer service (IBM), or the like
– achieved by innovation and big innovation result in disruption of the industry
and creating a sustainable competitive advantage for the business.
•
An example of the creation of differential advantage through disruption
is Uber. It differentiated the service it was offering by providing it on
demand.
• Titan and its sister company Timex
Differentiation requirements
• Management Ops
• Strong marketing abilities
• Product engineering
• Creative flair
• Strong capability in basic
research
• Corporate reputation for quality
or technological leadership
• Long tradition in the industry or
unique combination of skills
drawn from other businesses
• Strong cooperation from
channels
• Resources Rqd.
• Strong coordination among
functions in R&D,
• product development, and
marketing
• Subjective measurement
and incentive instead of
quantitative measures
• Amenities to attract highly
skilled labor, scientists, or
creative people
Focus:
• called the segmentation strategy, the focus strategy involves
targeting a pre-defined segment rather than everyone.
• HOW?
– understanding the target market better than everyone else and
– use the data for better offering crafted according to the target
market’s needs.
• used by small businesses to compete with the big companies,
• but with the advent of the internet and the introduction of micro
targeting, even big businesses use this.
• Brand: Big Pockets : Network Effect: Barriers to Entry &
Competition:
• Rolls – Royce automobiles, Cross pens, and Hartmann luggage
Focus requirements
• Management Ops
• Combination of
both
• Resources Rqd.
• Combination of Both
Grand Strategies
• master or business strategies,
• are intended to provide basic direction for
strategic actions.
• How the long-range objectives will be achieved
• Grand strategies fall under four categories.
–
–
–
–
1. Growth
2. Stability
3. Retrenchment
4. Portfolio restructuring
Growth strategies
• in sales, profits, market share, or some other
measure as a primary objective
– Concentration---- most common
– Integration
– Diversification
– Mergers and acquisitions
– Joint Ventures
Concentration---- most common
• focuses on a single line of business
• profitable growth of a single product, in a single
market, and with a single technology
• Eg. Mc Donald’s
• HOW-a firm can gain competitive advantages
over its more diversified competitors in
production skill, marketing know-how, customer
sensitivity, and reputation in the marketplace.
• WHY-lowest in risk,LOW in additional resources
required , known competencies of the firm
Integration
• Integration may take two forms:
– vertical and
– horizontal integration.
• Vertical integration - growth through acquisition of other
organizations in a channel of distribution-SCM CHAIN
• When an organization purchases other companies that
supply it, it engages in backward integration-UPSTREAM
• The organization that purchases other firms that are closer
to the end users of the product (such as wholesalers and
retailers) engages in forward integration. DOWNSTREAM
• WHY- GREATER CONTROL- INCREASE PROFITS THROUGH
GREATER EFFICIENCY OR BETTER SELLING EFFORTS.
• Horizontal integration. This strategy involves growth
through the acquisition of competing firms in the same line
of business.
• WHY -to increase the size, sales, profits, and potential
market share of an organization.
• used by smaller firms in an industry dominated by one or a
few large competitors, such as the soft drink and computer
industries.
• BHEL had undertaken the path of backward integration for
the manufacture of assorted equipments such as,
switchgears and transformers, to the full-fledged
production of thermal, hydel, and nuclear power
generation equipment.
Diversification
• This strategy involves growth through the acquisition of firms in other
industries or lines of business
• WHY?• Firms in slow-growth industries may purchase firms in faster-growing
industries to increase their overall growth rate.
• firms with excess cash often find investment in another industry
(particularly a fast-growing one) a profitable strategy.
• Firms may diversify in order their risk to spread s across several industries.
• Firms may have management talent, financial and technical resources, or
marketing skills that it can apply to a weak firm in another industry in the
hope of making it highly profitable.
• Eg- General Electric
• Johnson and Johnson
Mergers and acquisitions
• In a merger, a company joins with
another company to form a new
organization.
• Ponds, Lakme, Lipton, Brooke bond
India,
Joint ventures
•an organization works with another company on a project
too large to handle by itself, -Eg. Metro, space program.
•Similarly, organizations in different countries may work
together to overcome trade barriers in the international
market or to share resources more efficiently.- Japan’s
Fanuc Ltd.
Stability Strategy
• focuses on its existing line or lines of business
and attempts to maintain them through one
of the following ways.
– Maintaining status quo- continue to do what it
has been doing
– Sustainability- reinforcing the organization with
more competencies to carry on things in a better
or innovative way.
• This is a useful strategy in several situations
Why and which uses Stability?
• An organization that is large and dominates its
market(s) may choose a stability strategy in an effort
to avoid government controls or penalties for
monopolizing the industry.
• Another organization may find that further growth
is too costly and could have detrimental effects on
profitability.
• Finally, an organization in a low- growth or nogrowth industry that has no other viable options
may be forced to select a stability strategy.
Related or concentric diversification
• Related - similar to those of the firm purchasing
it,- Production technology, products, channels of
distribution, and /or markets- McDONALD'S India
Pvt Ltd (MIPL), Coca-Cola, Heinz etc., Nestle,
specific to the KitKat
• or concentric diversification-un related or
conglomerate- in a completely different line of
business – BAJAJ, Marico Industries, TVSE
•
Retrenchment Strategies
• When an organization’s survival is threatened and it is
not competing effectively, retrenchment strategies are
often needed.
• The three basic types of retrenchment are
– Turnaround,- Turnaround strategy is used when an
organization is performing poorly but has not yet reached a
critical stage
– Divestment- when a particular business doesn’t fit well in the
organization or consistently fails to reach the objectives set for
it, and
– Liquidation- is no longer profitable. It may be technologically
obsolete or out of times with market trends.
Strategic directions and methods
Strategic Direction= defined in terms of
•a firm’s vision of where it is heading,
•The businesses in which it is involved and its purpose
SD is established and communicated to all concerned through various
tools such as
1.Mission
2.Vission
3.Value statements
4.Business definitions
5.Code of ethics.
6. Organizational identity
SD is impacted by
•Internal and external stakeholders,
•Broad environment.
•Firms history.
Structural Inertia
• All forces at work at once- this maintain status quo
• Can limit the ability of firm to learn from mistakesif successful in the past.
• Constantly questioning
– What is our business?
• Who Is being satisfied- the hotel Indigo- is for middle market consumers
trading up to higher levels of quality and taste but still seeking value
• What is being satisfied traveller's desire to experience affordable luxury
and style instead of a beige hotel- POSITIONED- an oasis where you can escape
the hectic pace of travel and think more clearly, work more productively, rest
more refreshingly-an environment that does not just shelter you but inspires and
reenergizes you.
• How are the customers needs satisfied?-use of a retail service
model that allows the hotel décor to be continually refreshed and flexible.
• What are our products and services?>
Arrangement of the business goals/purposes
• Whether in a strategic plan or business plan or marketing plan,
the generally accepted arrangement is as follows
• 1. Vision -Ambitious firms follow it with the strategic intent
• 2. Mission -Sometimes accompanied with the company’s
purpose/mandate, core values/shared values, and
product/service portfolio to be offered
• 3. Strategic goals or objectives -These are long-term(35years) objectives set by top management, are
broad/generalized/less detailed to allow flexibility at the
different parts and levels of the organization that they affect.
– -They are usually not SMART enough.
– -Are sometimes accompanied by SBU/Divisional/branch objectives
especially for already existing large organizations or firms
formulating a consistent organizational
strategy
• organizations commonly use a number of these
strategies in combination
• an organization may simultaneously seek growth
through
– the acquisition of new businesses,
– employ a stability strategy for some of its existing businesses,
and
– divest itself of other businesses.
• Business portfolio models are designed to help
managers deal with the need to be coordinated to
achieve overall organizational objectives.
Business portfolio models
• are tools for analyzing
• (1) the relative position of each of an
organization’s businesses in its industry (2) the
relationships among all the of the organization’s
businesses.
• Two well-known approaches to developing
business portfolios include:
– Boston Consulting Group (BCG) growth – share
matrix
– General Electric’s (GE’s) multi-factor portfolio matrix.
• 4. Tactical goals and/or objectives -Mid-term
3years)objectives usually set at the departmental level
(2-
– -Not so generalized, they more SMART compared to strategic goals
– -The decisions and actions (strategies) to achieve them are semistructured
• 5. Operational objectives -Short –term( up to 1year)objectives
set by low level/line managers such as supervisors and affect
day-to-day activities
• -Must strictly be SMART because they are for implementing the above
objectives
• -Are achieve through structured decisions and actions (strategies and
tactics)
why we need them in business
• 1. All these goals (vision, mission, and objectives) are desired
end results that an organization wants to achieve
• 2. They should be clearly understood/shared, accepted, and
seen as beneficial to the relevant-key stakeholders especially the
employees
• 3. Are needed to provide the company/organization with
competitive sense of direction towards which all
management/staff activities and efforts should be focused or
committed
• Use tools to achieve these goals, participatory approaches like
MBO are recommended.
• MANAGEMENT BY BUSINESS OBJECTIVES
Student’s Activity
• Mission, Vision, Goals, objectives, value statement of SJCC
• Characteristics of generally good objectives1. several objectives.
2. Should be clearly understood and accepted by key stakeholders
3. Should be set in line with the company’s mission statement, strategic intent,
and core competence
4. Should be relevant to the firm’s external and internal environment
5. Especially the operational level objectives should be SMART
6. Set through and managed by MBO
7. Be hierarchical, measurable, relevant, and consistent
• Benefits of having good objectives
• Organizational members become goal focused/ focused to the right objectives
(specific aims)
• They give a sense of achievement of common desired ends towards which all
management and staff functions/activities should be directed.
To set the right mission/objectives
1. Past company history-Past mission and
objectives ,and past performance
2. Values/briefs of top management to establish
a vertical fit with them
3. The relevant opportunities and threats
4. The relevant strengths and weaknesses
5. The companies core competence, mission
statement, and strategic vision or intent
Tows maTRIX
• A model to generate and evaluate options in terms of directions
a)Strength-Opportunity (SO) – Use strengths to capitalise on
opportunities
b)Strength-Threat (ST) – Use strengths to mitigate threats
c)Weakness-Opportunity (WO) – Improve weaknesses to exploit
opportunities
d)Weakness-Threat (WT) – Minimise weaknesses to mitigate threats
Ansoff’s product/market matrixIGOR ANSOFF
• An alternative model to generate and evaluate
options in terms of directions
• An alternative growth strategies-present and
potential products and markets-existing and
new- 4 POSSIBLE COMBINATIONS.
4 COMBINATIONS
• Mkt Penetration-> achieve growth with existing products in current
market to increase market share. Least risky- simply maintain
• Mkt Development-> achieve growth with existing products but in
new markets/segments. More risk- core competencies in productsexisting
• Product Development-> Achieve growth by developing new
products in existing markets/ More risk- core competencies in
customers- existing
• Diversifications-> new products/new business in new
markets/segments. KNOWN AS SUICIDE CELL-OUTSIDE THE CORE
COMPETENCIES-IF HIGH RISK IS ACCOMPANIED BY HIGH RETURNS
Methods of growth
A. Internal development
B. Acquisition and mergers
C. Strategic alliances
Business change –
• Strategic alternatives revolve around the
question of
– whether to continue or change the business an
enterprise is currently in ?
– improve the efficiency and effectiveness of its
current and future operations?
– how do these companies make the choices?
– What factors influence their decisions?
Business Process
• organisations can achieve significant improvements in their
competitiveness by successfully redesigning their business
processes.
• a process as ‘an arrangement of resources that transforms
inputs into outputs that satisfy (internal or external)
customer needs’.
• Business processes are fundamental to an organisation’s
success in producing its goods and services.
• Need =maximise its competitiveness
• Requirement=have processes-Well designed and which work
effectively.
Porter’s value chain model
• Any review of business processes lies in
Porter’s value chain model –
common ground between processes and
business strategy- customer satisfaction
The way in which the various activities of an organisation work
together to add value in the eyes of the customer
Contribution of Process is on 4
fronts.
• The process perspective contributes to the strategic impact of
a business in four ways:
• Cost control – keeping costs under control by ensuring process
efficiency.
• Revenue – enhancing a business’s ability to generate revenue
through the quality of the products and services it produces.
• Investment – maximising the return on investments by
ensuring that they operate as they are intended to.
• Capabilities – embedding the capabilities that will form the
basis of the business’s ongoing future competitiveness.
In Addition BP also
• also break down the barriers of structural
departments and try to avoid functional
‘silos’
• (that is, each department concentrating only
on its own function rather than understanding
how it contributes to overall value creation in
an organisation)
How to analyse BP?- Levels of
process
• 3 levels at which a process perspective can be used
to analyse a business:
• Strategic level – looking at the business, or its supply
chain, as a whole.
• Operational functions of the business – for example,
looking at purchasing, marketing, or manufacturing
operations.
• Sub-operational processes – looking at individual
processes within the operation’s functions; for
example, placing television advertising within the
marketing operation.
Where -Activity Level
• Business process analysis typically includes the mapping of individual
processes down to activity level.
• Bengaluru-based adtech unicorn InMobi has reported a net loss of INR 54
Cr for the fiscal year 2019, a 53% year-on-year (YoY) increase compared to
the previous financial year. The higher losses come at a time when the
company restructured its business with three subsidiaries under a holding
entity InMobi Group.
• Cab aggregators — Ola and Uber — could soon be asked by the
government to cap their commissions from drivers to 10% of the total
fare. In addition to this, the government is also considering a limit on the
surge price charges at twice or 2x the base fare as per demands from
customers. Consumers and drivers have been raising concerns regarding
the surge pricing and commissions in the past year.
• Ola could shift towards standardised driver commissions and drop its
incentive-driven model which seemed to have confused many drivers
about their potential earnings.
•
What to do ?- process change can
be considered:
• Process re-engineering – this is used at the strategic level, when
major threats or opportunities in the business’s external environment
prompt a fundamental re-think of the large-scale core processes
critical to the operation of the value chain. Linways, Shift system
• Process redesign – this is an intermediate scale of change operation,
appropriate for medium-sized processes that require extensive
improvement or change. Redesign efforts often result in changed job
descriptions and the introduction of some automation. reengineering-TLPS, simplify, value-add and connect gaps or
disconnects
• Process improvement – this is a tactical level, incremental technique
that is appropriate for developing smaller, stable, existing processes.
It can often be undertaken using a Six Sigma approach- CIAs changes
Value-added analysis
This pattern looks at the process (or sub-process) from
a customer’s perspective.
A process or activity is said to add value if it meets
three criteria:
1 the customer is willing to pay for the output
2 it physically changes the output in some way
3 it is performed correctly at the first attempt.
non-value-adding activities should be eliminated as far as
possible
Connects/Disconnects
• Many of the problems affecting process performance
result from a failure in communication between
functions or business departments.
• The focus of this redesign pattern is to ensure that
the appropriate checks and controls are in place so
that efforts are coordinated between functions and
departments.
• example, if the production department builds a
product and ships it to the customer, then the
finance department needs to be aware of this so
that they can raise an invoice to the customer.
Process improvement -Tools
• Tools help businesses understand their current
process capabilities, in order to develop a plan
to get where they want to be.
• Six Sigma, Agile/Scrum
• CMMI-Level 5 ( Capability Maturity Model
integration )
– Maturity Level 1 – Initial.
– Maturity Level 2 – Managed.
– Maturity Level 3 – Defined.
– Maturity Level 4 – Quantitatively Managed.
– Maturity Level 5 – Optimizing.
• Six Sigma is a methodology that can be used to
actually improve a process,
• using the five-stage DMAIC pattern:
– Define customer requirements for the process
– Measure existing performance and compare to customer
requirements
– Analyse existing process and assess causes for
performance falling short of requirements
– Improve process design and implement it
– Control the results, and maintain new performance levels.