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.