http://smehro.wordpress.com/6-industry-life-cycle/ http://nptel.iitm.ac.in/courses/IIT-MADRAS/Management_Science_I/Pdfs/9_1.

pdf
STRATEGIC MANAGEMENT Course Code: MBA 301 Module I: Purpose of Strategy Formulation Evolution and Introduction of strategic management. Concept and Classification of Corporate and Business Strategy with Hierarchy definition; Purpose of Strategy Formulation: Concept of Vision, Mission and Business Definition. Module II: Strategic Analysis PESTLE Analysis, Environmental Threat and Opportunity Profile (ETOP), Strategic Advantage Profile (SAP), Porters Value Chain Analysis, Resource Based View of the Firm-VRIO Framework; Market analysis-David Aaker Model,Competitor Analysis, Industry Analysis using Porters five forces Model; Sce nario analysis and SWOT Analysis. Strategic implications of company decisions and Strategic response to changes in business environment. Module III: Strategic Choice Traditional Approach Portfolio Analysis using BCG, GE Nine Cell Matrix, Hofers Model, Making Strategic Choices using Stricklands Grand Strategy Selection Matrix; Ansoffs Product Market Grid; Choosing Generic Strategies using Porters Model of competitive advantage. Module IV: Industry Structures and Competitive Strategies Industry Structures and Lifecycle stages, Marketing Warfare and Dominance Strategies: Advantages and Disadvantages of Defensive and Offensive strategies; Innovation as Blue Ocean Strategy. Credit Units: 03

Module I: Purpose of Strategy Formulation Evolution and Introduction of strategic management. Concept and Classification of Corporate and Business Strategy with Hierarchy definition; Purpose of Strategy Formulation: Concept of Vision, Mission and Business Definition. Evolution and Introduction of strategic management : Strategic management analyzes the major initiatives taken by general managers on behalf of owners, involving resources and performance in external environments. It entails specifying the organization's mission, vision and objectives, developing policies and plans, often in terms of projects and programs, which are designed to achieve these objectives, and then allocating resources to implement the policies and plans, projects and programs. Evolution of Strategic management: In the previous days, talking about the 1920s till 1930s, the managers used to work outthe day -to-day planning method. Till this time they do not concentrate about the futurework. However after this period, managers have tried to anticipate and predict about thefuture happenings. They started using tools like preparation of Budgets and controlsystem like capital budgeting. However these techniques and tools also failed toemphasize the role of future adequately.Then long-range planning came into picture, giving the idea of planning for the long-termfuture. But it was soon replaced by Strategic planning and later by Strategic management-a term that is currently being used to describe the process of Strategic decision-making.The first phase of the planning can be tracked in the mid of 1930s. The planning at that period was done on the premises of Ad Hoc policy making. The reason why the need for planning arose at that period was that, many businesses had just about started operationsand were mostly in a single product line and the ranges of operation were in a limitedarea. As these companies grew they expanded their products and also increased their geographical coverage. The method of using informal control and coordination was notenough and became irrelevant as these companies expanded. Thus arose a need tointegrate functional areas. Framing policies to guide managerial actions covered this task of integration. Policies helped to have predefined set of actions, which helped themanager to make decisions. Policy-making became the way owners managed their business and it was considered their prime responsibility.Thus, the increasing environment changes in the 1930s and 1940s planned policyformation replaced Ad Hoc policy makin g, which led to the shifting of emphasis to theintegration of the functional areas in a policy changing environment, showing anindication of the evolution of Strategic management. Importance: Strategic management is a wide concept and encompasses all functions and thus itseeks to integrate the knowledge and experience gained in various functional areas of management. It enables one to understand and make sense of the complex interaction that takes place between different functional areas. There are many constraints and complexities, which the Strategic management dealswith. In order to develop a theoretical structure of its own, Strategic management cutsacross the narrow functional boundaries. This in turn helps to create an understandingof how policies are formulated and also creating a solution of the complexities of theenvironment that the senior management faces in policy formulation.

Process: Mission and Objectives: The mission statement describes the company's business vision, including theunchanging values and purpose of the firm and forward-looking visionary goals thatguide the pursuit of future opportunities.Guided by the business vision, the firm's leaders can define measurable financial andstrategic objectives. Financial objectives involve measures

such as sales targets andearnings growth. Strategic objectives are related to the firm's business position, andmay include measures such as market share and reputation. Environmental Scan The environmental scan includes the following components: Internal analysis of the firm Analysis of the firm's industry (task environment) External microenvironment (PEST analysis)

The internal analysis can identify the firm's strengths and weaknesses and theexternal analysis reveals opportunities and threats. A profile of the strengths,weaknesses, opportunities, and threats is generated by means of a SWOT analysis. An industry analysis can be performed using a framework developed by MichaelPorter known as Porter's five forces. This framework evaluates entry barriers,suppliers, customers, substitute products and industry rivalry. Strategy Formulation Given the information from the environmental scan, the firm should match itsstrengths to the opportunities that it has identified, while addressing its weaknessesand external threats.To attain superior profitability, the firm seeks to develop a competitive advantageover its rivals. A competitive advantage can be based on cost or differentiation.Michael Porter identified three industry-independent generic strategies from whichthe firm can choose. Strategy Implementation The selected strategy is implemented by means of programs, budgets, and procedures. Implementation involves orga nization of the firm's resources andmotivation of the staff to achieve objectives. The way in which the strategy is implemented can have a significant impact onwhether it will be successful. In a large company, those who implement the strategylikely will be different people from those who formulated it. For this reason, caremust be taken to communicate the strategy and the reasoning behind it. Otherwise,the implementation might not succeed if the strategy is misunderstood or if lower-level managers resist its implementation because they do not understand why the particular strategy was selected. Evaluation & Control The implementation of the strategy must be monitored and adjustments made asneeded. Evaluation and control consists of the following steps: Define parameters to be measured Define target values for those parameters Perform measurements Compare measured results to the pre-defined standard Make necessary changes

Classification of Corporate and Business Strategy with Hierarchy definition Levels of Strategy: Corporate Business Functional

Hierarchy Def: Common, pyramid-like organization where one person is in charge of a functional area (engineering, finance, marketing) with one or more subordinates handling the sub-functions. In a hierarchical organization (whether business, military, political, or religious) higher levels imply greater superiority and domination than the lower ones and the chain of command extends straight from the top to thebottom.

Types of strategy: The typical business firm considers three types of strategy: Corporate strategy: It describes a company's overall direction in terms of its general attitude towards growth and management of its various business and product lines. Corporate strategy deals with three key issues facing the corporation as a whole. 1. Directional strategy the firms overall orientation towards growth, stability and retrenchment. The two basic growth strategies are concentration and diversification. The growth of a company could be achieved through merger, acquisition, takeover, joint ventures and strategic alliances. Turnaround, divestment and liquidation are the various types of retrenchment strategy. 2. Portfolio analysis The industries or markets in which the firm competes through its products and business units. In portfolio analysis, top management views its product lines and business units as a series of portfolio investment and constantly keeps analyzing for a profitable return. 3. Parenting strategy the manner in which the management coordinates activities and transfers resources and cultivate capabilities among product lines and business units. Business strategy: It usually occurs at the business unit or product level and it emphasizes improvement of the competitive position of a corporation's products or services in the specific industry or marketing segment served by that business unit. It may fit within two overall categories of competitive or corporate strategies. Competitive strategy is the strategy battle against all competitors for advantage. Michael Porter developed three competitive strategies called Generic strategies. They are cost leadership, differentiation and focus. Cooperative strategy is to work with one or more competitors to gain advantage against other competitors. Functional strategy: It is the approach taken by a functional area to achieve corporate and business unit objectives and strategies by maximizing resource productivity. It is concerned with developing nurturing a distinctive competence to provide a company or business unit with a competitive advantage. A hierarchy of strategy is the grouping of strategy types by levels in the organization. This hierarchy of strategy is a nesting of one strategy within another so that they complement and support one another. Functional strategies support business strategies that in turn support the corporate strategy.

Purpose of Strategy Formulation: Strategy formulation is the development of long range plans for the effective management of environmental opportunities and threats in light of corporate strengths and weaknesses. It includes defining the corporate mission, specifying achievable objectives, developing strategies and setting policy guidelines. It begins with situational analysis. The simplest way is to analyze through is SWOT analysis. This is the method to analyze the strengths and weakness in order to utilize the threat and to overcome the threat. SWOT is the acronym for Strength, Weakness, Opportunities and Threats. The TOWS illustrates how the external opportunities and threats facing a particular corporation can be matched with that companys internal strengths and weaknesses to result in four sets of possible strategic alternatives. Mission: An organizations mission is the purpose or the reason for the organization existence. A well-conceived mission statement defines the fundamental, unique purpose that sets a company apart from other firms of its type and identifies the scope of the company's operation in terms of the products offered and markets served. A mission statement may be defined narrowly or broadly in scope. A broadly defined mission statement keeps the company from restricting itself to one field or product line, but it fails to clearly identify what it makes or which product/market it plans to emphasize. A narrow mission very clearly states the organizations primary business, but it may limit the scope of the firm's activities in terms of product or service offered, the technology used and the market served. Vision: A vision statement is sometimes called a picture of your company in the future but its so much more than that. Your vision statement is your inspiration, the framework for all your strategic planning.A vision statement may apply to an entire company or to a single division of that company. Whether for all or part of an organization, the vision statement answers the question, "Where do we want to go?What you are doing when creating a vision statement is articulating your dreams and hopes for your business. It reminds you of what you are trying to build. While a vision statement doesn't tell you how you're going to get there, it does set the direction for your business planning. That's why it's important when crafting a vision statement to let your imagination go and dare to dream and why its important that a vision statement captures your passion. Goals: It is the target or destination of each performance.-Is an attempt to make a mission statement moretangible and more concrete.-It reflects the firms intention to secure survivalthrough growth and profitability. Business: Business Policy defines the scope or spheres within which decisions can be taken by the subordinates in an organization. It permits the lower level management to deal with the problems and issues without consulting top level management every time for decisions. Business policies are the guidelines developed by an organization to govern its actions. They define the limits within which decisions must be made. Business policy also deals with acquisition of resources with which organizational goals can be achieved. Business policy is the study of the roles and responsibilities of top level management, the significant issues affecting organizational success and the decisions affecting organization in long-run.

Module II: Strategic Analysis PESTLE Analysis,Environmental Threat and Opportunity Profile (ETOP),Strategic Advantage Profile (SAP),Porters Value Chain Analysis, Resource Based View of the Firm-VRIO Framework; Market analysis-David Aaker Model,Competitor Analysis, Industry Analysis using Porters five forces Model; Scenario analysis and SWOT Analysis. Strategic implications of company decisions and Strategic response to changes in business environment. PESTLE Analysis: PEST analysis stands for "Political, Economic, Social, and Technological analysis" and describes a framework of macro-environmental factors used in the environmental scanning component of strategic management. Some analysts added Legal and rearranged the mnemonic to SLEPT; inserting Environmental factors expanded it to PESTEL or PESTLE, which is popular in the United Kingdom. The model has recently been further extended to STEEPLE and STEEPLED, adding Ethics and demographic factors. It is a part of the external analysis when conducting a strategic analysis or doing market research, and gives an overview of the different macroenvironmental factors that the company has to take into consideration. It is a useful strategic tool for understanding market growth or decline, business position, potential and direction for operations. Political factors are how and to what degree a government intervenes in the economy. Specifically, political factors include areas such as tax policy, labour law, environmental law, trade restrictions, tariffs, and political stability. Political factors may also include goods and services which the government wants to provide or be provided (merit goods) and those that the government does not want to be provided (demerit goods or merit bads). Furthermore, governments have great influence on the health, education, and infrastructure of a nation Economic factors include economic growth, interest rates, exchange rates and the inflation rate. These factors have major impacts on how businesses operate and make decisions. For example, interest rates affect a firm's cost of capital and therefore to what extent a business grows and expands. Exchange rates affect the costs of exporting goods and the supply and price of imported goods in an economy Social factors include the cultural aspects and include health consciousness, population growth rate, age distribution, career attitudes and emphasis on safety. Trends in social factors affect the demand for a company's products and how that company operates. For example, an aging population may imply a smaller and less-willing workforce (thus increasing the cost of labor). Furthermore, companies may change various management strategies to adapt to these social trends (such as recruiting older workers). Technological factors include technological aspects such as R&D activity, automation, technology incentives and the rate of technological change. They can determine barriers to entry, minimum efficient production level and influence outsourcing decisions. Furthermore, technological shifts can affect costs, quality, and lead to innovation. Environmental factors include ecological and environmental aspects such as weather, climate, and climate change, which may especially affect industries such as tourism, farming, and insurance. Furthermore, growing awareness of the potential impacts of climate change is affecting how companies operate and the products they offer, both creating new markets and diminishing or destroying existing ones. Legal factors include discrimination law, consumer law, antitrust law, employment law, and health and safety law. These factors can affect how a company operates, its costs, and the demand for its products. Environmental Threat and Opportunity Profile (ETOP) Environment analysis results in a mass of information related to forces in the environment.They deal with events,trends,issues,and expectations.Structuring of environmental issues is necessary to make them meaning full for strategy formulation.ETOP(Environmental Threat and Opportunity Profile) is a technique to structure environmental issues.ETOP involves:

Dividing the environment into different sectors.Each sector can be subdivided into sub sectors.Analyzingthe impact of each sector and subsector on the organization.Describe the impact in the form of a statement. Advantage of ETOP It provides a clear of which sector and sub sectors have favorable impact on the organization.It helps interpret the result of environment analysis. The organization can assess its competitive position. Appropriate strategies can be formulated to take advantage of opportunities and counter the threat. SWOT analysis (Strategic weakness,opportunities and threats)

Strategic Advantage Profile (SAP) Every firm has strategic advantages and disadvantages. For example, large firms have financialstrength but they tend to move slowly, compared to smaller firms, and often cannot react tochanges quickly. No firm is equally strong in all its functions. In other words, every firm hasstrengths as well as weaknesses Strategists must be aware of the strategic advantages or strengths of the firm to be able to choosethe best opportunity for the firm. On the other hand they must regularly analyze their strategicdisadvantages or weaknesses in order to face environmental threats effectively. Strategic Advantage Factors: Marketing and Distribution Competitive structure and market share: To what extent has the firm established a strongmark share in the total market or its key sub markets? Efficient and effective market research system. The product-service mix: quality of products and services. Product-service line: completeness of product-service line and product-service mix; phaseof life-cycle the main products and services are in. Strong new-product and new-service leadership. Patent protection (or equivalent legal protection for services). Positive feelings about the firm and its products and services on the part of the ultimateconsumer. Efficient and effective packaging of products (or the equivalent for services). Effective pricing strategy for products and services. Efficient and effective sales force: close ties with key customers. How vulnerable are we in terms of concentrating on sales to a few customers? Effective advertising: Has it established the company's product or brand image to develoployal customers? Efficient and effective marketing promotion activities other than advertising. Efficient and effective service after purchase. Efficient and effective channels of distribution and geographic coverage, includinginternal efforts

Strategic Advantage Factors: R&D and Engineering Basic research capabilities within the firm Development capability for product engineering Excellence in product design Excellence in process design and improvements Superior packaging developments being created Improvements in the use of old or new materials Ability to meet design goals and customer requirements Well-equipped laboratories and testing facilities

Trained and experienced technicians and scientists Work environment suited to creativity and innovation Managers who can explain goals to researchers and research results to higher managers Ability of unit to perform effective technological forecasting

Porters Value Chain Analysis: The value chain is a concept from business management that was first described and popularized by Michael Porter in his 1985 best-seller, Competitive Advantage: Creating and Sustaining Superior Performance. A value chain is a chain of activities for a firm operating in a specific industry. The business unit is the appropriate level for construction of a value chain, not the divisional level or corporate level. Products pass through all activities of the chain in order, and at each activity the product gains some value. The chain of activities gives the products more added value than the sum of the independent activities' values. Significance The value chain framework quickly made its way to the forefront of management thought as a powerful analysis tool for strategic planning. The simpler concept of value streams, a cross-functional process which was developed over the next decade, had some success in the early 1990s. The value-chain concept has been extended beyond individual firms. It can apply to whole supply chains and distribution networks. The delivery of a mix of products and services to the end customer will mobilize different economic factors, each managing its own value chain. The industry wide synchronized interactions of those local value chains create an extended value chain, sometimes global in extent. Porter terms this larger interconnected system of value chains the "value system." A value system includes the value chains of a firm's supplier (and their suppliers all the way back), the firm itself, the firm distribution channels, and the firm's buyers (and presumably extended to the buyers of their products, and so on). Capturing the value generated along the chain is the new approach taken by many management strategists. For example, a manufacturer might require its parts suppliers to be located nearby its assembly plant to minimize the cost of transportation. By exploiting the upstream and downstream information flowing along the value chain, the firms may try to bypass the intermediaries creating new business models, or in other ways create improvements in its value system. Value chain analysis has also been successfully used in large Petrochemical Plant Maintenance Organizations to show how Work Selection, Work Planning, Work Scheduling and finally Work Execution can (when considered as elements of chains) help drive Lean approaches to Maintenance. The Maintenance Value Chain approach is particularly successful when used as a tool for helping Change Management as it is seen as more user friendly than other business process tools. Value chain approach could also offer a meaningful alternative to evaluate private or public companies when there is a lack of publically known data from direct competition, where the subject company is compared with, for example, a known downstream industry to have a good feel of its value by building useful correlations with its downstream companies. Six business functions of the Value Chain: Research and Development Design of Products, Services, or Processes Production

Marketing & Sales Distribution Customer Service

VRIO: The VRIO framework, in a wider scope, is part of a much larger strategic scheme of a firm. The basic strategic process that any firm goes through begins with a vision statement, and continues on through objectives, internal & external analysis, strategic choices (both business-level and corporate-level), and strategic implementation. The firm will hope that this process results in a competitive advantage in the marketplace they operate in. VRIO falls into the internal analysis step of these procedures, but is used as a framework in evaluating just about all resources and capabilities of a firm, regardless of what phase of the strategic model it falls under. VRIO is an acronym for the four question framework you ask about a resource or capability to determine its competitive potential: the question of Value, the question of Rarity, the question of Imitability (Ease/Difficulty to Imitate), and the question of Organization (ability to exploit the resource or capability). The Question of Value: "Is the firm able to exploit an opportunity or neutralize an external threat with the resource/capability?" The Question of Rarity: "Is control of the resource/capability in the hands of a relative few?" The Question of Imitability: "Is it difficult to imitate, and will there be significant cost disadvantage to a firm trying to obtain, develop, or duplicate the resource/capability?" The Question of Organization:"Is the firm organized, ready, and able to exploit the resource/capability?"

Applying the VRIO Framework: The VRIO framework can be used to assess the future success of a firms current resources and capabilities as well as assessing the success of potential changes to the firm. The easiest way of applying the VRIO framework is go through each question in order to assess the competitive implications and economic implications.First off, if the resource is not valuable the company should abandon the process or stop using the resource because it is hurting the firm. Next, if the resource is valuable, but not rare, then the company is not being hurt by the resource, and is at a competitive parity. A competitive parity just means that the company is no better or worse off than its competitors. This option would leave the company at a normal economic level. Third, if a resource is valuable and rare, but not costly to imitate, a firm has achieved a competitive advantage and will temporarily achieve above normal economic returns. However, because the resource is not costly to imitate, other companies will soon copy their processes and the resource will likely become a source of competitive parity. Finally, the best case scenario is if a resource is valuable, rare, and costly to organize. This resource has become a source of a sustained competitive advantage because other companies cannot easily copy the resource. The final letter O of the VRIO framework is also important. Market Analysis David Aaker Model: Once the market and its respective segments have been identified, they need to be analyzed to determine their attractiveness to a company, as well as to understand how the company can best serve the market and how the market may develop in future. David A. Aaker stated that a market should be analyzed using the following dimensions: Market size, both in terms of value and number of units, and both current and future Market growth rate and factors which may influence that in future Profitability of firms currently in the market Cost structure of firms currently in the market

Distribution channels Major market trends The key success factors

The market size is generally evaluated based on the level of sales and the potential number of customers in the market. As such, whilst a market may currently be very small, it could expand rapidly if the right product was found to appeal to more customers. For example, the market for personal computers was quite small until Bill Gates developed an operating system which made it easy for individuals to use computers for work and play.
Competitor Analysis, Industry Analysis using Porters five forces Model:

Porter's five forces analysis is a framework for industry analysis and business strategy development formed by Michael E. Porter of Harvard Business School in 1979. It draws upon industrial organization (IO) economics to derive five forces that determine the competitive intensity and therefore attractiveness of a market. Attractiveness in this context refers to the overall industry profitability. An "unattractive" industry is one in which the combination of these five forces acts to drive down overall profitability. A very unattractive industry would be one approaching "pure competition", in which available profits for all firms are driven to normal profit. Five Forces: Analysis assumes that there are five important forces that determine competitive power in a business situation. These are: Supplier Power: Here you assess how easy it is for suppliers to drive up prices. This is driven by the number of suppliers of each key input, the uniqueness of their product or service, their strength and control over you, the cost of switching from one to another, and so on. The fewer the supplier choices you have, and the more you need suppliers' help, the more powerful your suppliers are. Buyer Power: Here you ask yourself how easy it is for buyers to drive prices down. Again, this is driven by the number of buyers, the importance of each individual buyer to your business, the cost to them of switching from your products and services to those of someone else, and so on. If you deal with few, powerful buyers, then they are often able to dictate terms to you. Competitive Rivalry: What is important here is the number and capability of your competitors. If you have many competitors, and they offer equally attractive products and services, then you'll most likely have little power in the situation, because suppliers and buyers will go elsewhere if they don't get a good deal from you. On the other hand, if no-one else can do what you do, then you can often have tremendous strength. Threat of Substitution: This is affected by the ability of your customers to find a different way of doing what you do for example, if you supply a unique software product that automates an important process, people may substitute by doing the process manually or by outsourcing it. If substitution is easy and substitution is viable, then this weakens your power. Threat of New Entry: Power is also affected by the ability of people to enter your market. If it costs little in time or money to enter your market and compete effectively, if there are few economies of scale in place, or if you have little protection for your key technologies, then new competitors can quickly enter your market and weaken your position. If you have strong and durable barriers to entry, then you can preserve a favorable position and take fair advantage of it. Scenario analysis Imagine that you're facing a really significant decision. Imagine that it could fundamentally affect your personal life, or that it will determine the future of your business. Perhaps you're thinking about "stretching your finances" to buy

a bigger house. Or maybe you're thinking of launching a new product which you know could "cannibalize" existing sales. Perhaps you've done the numbers, and these seem OK. But deep down, you dread what could go wrong. After all, no one has a foolproof vision of the future, and while you may have strong instincts as to how things may develop any single projection of the future is clearly vulnerable to disruption by a range of different factors. Scenario Analysis helps you bring these fears into the open and gives you a rational and professional framework for exploring them. Using it, you can make decisions in the context of the different futures that may come to pass. The act of creating scenarios forces you to challenge your assumptions about the future. By shaping your plans and decisions based on the most likely scenarios, you can ensure that your decisions are sound even if circumstances change. Define the Problem: Decide what you want to achieve, and think about the time horizon you want to look at. This will be driven by the scale of the plans you want to test.Barry Holtz was starting to plan a new business that focused on helping corporate clients implement a popular financial management software package. He wanted the business to grow to a reasonable size over the next five years. With this in mind, he decided to use scenario thinking to look at what the future might hold over this period. Gather Data: Identify the key factors, trends and uncertainties that may affect the plan. If your plan is a large-scale one, you may find it helpful to do a PEST Analysis of the context in which it will be implemented to identify political, economic, socio-cultural and technological factors that could impact it. Next, identify the key assumptions on which the plan depends. Amongst others, Barry identified the following factors as important: The state of the economy (people don't buy much new software in a recession) The ongoing importance of new software in increasing clients' productivity Whether the software package would maintain its market position Whether he could recruit enough skilled implementation consultants.

Separate Certainties from Uncertainties: You may be confident in some of your assumptions, and you may be sure that certain trends will work through in a particular way. After challenging them appropriately, adopt these trends as your "certainties." Separate these from the "uncertainties"-trends that may or may not be important, and underlying factors that may or may not change. List these uncertainties in priority order, with the largest, most significant uncertainties at the top of the list. Develop Scenarios: Starting with your top uncertainty, take a moderately good outcome and a moderately bad outcome, and develop a story of the future around each that fuses your certainties with the outcome you've chosen. Then, do the same for your second most serious uncertainty. (Don't do too many scenarios, or you may find yourself quickly hitting "diminishing returns.")

Barry decided to prepare the following scenarios: "All's going well": The economy grows steadily over the five-year period with only minor slowdowns, and he's "backed the right horse." The software vendor consolidates itself in the market and moves into a position of market leadership.

"Economic slowdown": Toward the end of the period, a commodity price shock pushes the economy into mild recession. While some new software implementations do go ahead, many clients decide to defer implementation until things pick up. "Intensifying competition": The global giant enters the market. While it takes time to get its products established, toward the end of the period, it is starting to squeeze the current supplier. Use the Scenarios in Your Planning: Having looked at the scenarios, Barry's aware that there's some risk to the business in the medium term. SWOT analysis SWOT analysis (alternately SWOT Matrix) is a strategic planning method used to evaluate the Strengths, Weaknesses/Limitations, Opportunities, and Threats involved in a project or in a business venture. It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieve that objective. The technique is credited to Albert Humphrey, who led a convention at the Stanford Research Institute (now SRI International) in the 1960s and 1970s using data from Fortune 500 companies. Setting the objective should be done after the SWOT analysis has been performed. This would allow achievable goals or objectives to be set for the organization. Strengths: characteristics of the business, or project team that give it an advantage over others Weaknesses (or Limitations): are characteristics that place the team at a disadvantage relative to others Opportunities: external chances to improve performance (e.g. make greater profits) in the environment Threats: external elements in the environment that could cause trouble for the business or project

Identification of SWOTs is essential because subsequent steps in the process of planning for achievement of the selected objective may be derived from the SWOTs.First, the decision makers have to determine whether the objective is attainable, given the SWOTs. If the objective is NOT attainable a different objective must be selected and the process repeated. This one analysis allows you, once you take a look at the attributes, skills, pieces of your organization, to choose whether you want an aggressive strategy, a turnaround strategy, a defensive strategy or a lets just get rid of it strategy. But there are some limitations of SWOT. Its a moment in time. It does not talk about dynamism. And one of the things Ive seen over the years of doing strategic planning is we pay attention to our strengths and not necessarily consider exactly whats happening in the external environment. It would be what I would call hand or head in the sand strategic planning. We can over emphasize one part and not pay attention to another. In some organizations we tend to get quite defensive. Well be looking at all of those weaknesses, not paying attention to the strengths, thinking that they are strengths, we can just keep them on the back burner instead of realizing that those strengths actually contributed so much to the organization and that you need to have a strategy to make sure those strengths dont weaken. And another thing to consider, strengths not necessarily a source of competitive advantage. Strength might not be something unique.

Module III: Strategic Choice Traditional Approach Portfolio Analysis using BCG, GE Nine Cell Matrix, Hofers Model, Making Strategic Choices using Stricklands Grand Strategy Selection Matrix; Ansoffs Product Market Grid; Choosing Generic Strategies using Porters Model of competitive advantage. Portfolio Analysis using BCG
Methods of Portfolio Planning

The two best-known portfolio planning methods are from the Boston Consulting Group and by General Electric/Shell. In each method, the first step is to identify the various Strategic Business Units ("SBU's") in a company portfolio. An SBU is a unit of the company that has a separate mission and objectives and that can be planned independently from the other businesses. An SBU can be a company division, a product line or even individual brands - it all depends on how the company is organized. The Boston Consulting Group Box ("BCG Box")

Using the BCG Box (an example is illustrated above) a company classifies all its SBU's according to two dimensions: On the horizontal axis: relative market share - this serves as a measure of SBU strength in the market. On the vertical axis: market growth rate - this provides a measure of market attractiveness By dividing the matrix into four areas, four types of SBU can be distinguished: Stars - Stars are high growth businesses or products competing in markets where they are relatively strong compared with the competition. Often they need heavy investment to sustain their growth. Eventually their growth will slow and, assuming they maintain their relative market share, will become cash cows. Cash Cows - Cash cows are low-growth businesses or products with a relatively high market share. These are mature, successful businesses with relatively little need for investment. They need to be managed for continued profit - so that they continue to generate the strong cash flows that the company needs for its Stars. Question marks - Question marks are businesses or products with low market share but which operate in higher growth markets. This suggests that they have potential, but may require substantial investment in order to grow market share at the expense of more powerful competitors. Management have to think hard about "question marks" which ones should they invest in? Which ones should they allow to fail or shrink?

Dogs - Unsurprisingly, the term "dogs" refers to businesses or products that have low relative share in unattractive, low-growth markets. Dogs may generate enough cash to break-even, but they are rarely, if ever, worth investing in.

Using the BCG Box to determine strategy Once a company has classified its SBU's, it must decide what to do with them. In the diagram above, the company has one large cash cow (the size of the circle is proportional to the SBU's sales), a large dog and two, smaller stars and question marks.Conventional strategic thinking suggests there are four possible strategies for each SBU: (1) Build Share: here the company can invest to increase market share (for example turning a "question mark" into a star) (2) Hold: here the company invests just enough to keep the SBU in its present position (3) Harvest: here the company reduces the amount of investment in order to maximise the short-term cash flows and profits from the SBU. This may have the effect of turning Stars into Cash Cows. (4) Divest: the company can divest the SBU by phasing it out or selling it - in order to use the resources elsewhere (e.g. investing in the more promising "question marks"). GE Nine Cell Matrix GE Matrix or McKinsey Matrix is a strategic tool for portfolio analysis. It is similar to the BCG Matrix and actually the GE / McKinsey Matrix is an extension of the BCG Matrix - multifactor portfolio analysis tool. This tool compares different businesses on "Business Strength" and "Market Attractiveness" variables, plus the size of the bubbles represents the market size instead of business sales used in the BCG Matrix, and the share of the market or business sales vs. market size is represented as pie chart inside the bubbles. This allows the business user to compare business strength, market attractiveness, market size, and market share for different strategic business units (SBUs) or different product offerings.This strategic portfolio analysis tool has been initially developed by GE and McKinsey. GE Matrix Positions and Strategy The GE / McKinsey Matrix divided into nine cells - nine alternatives for positioning of any SBU or product offering. Based on the strength of the business and its market attractiveness each SBU will have a different position in the matrix. Further, the market size and the current sales will distinguish each SBU. Based on clear understanding

of all of these factors decision makers are able to develop effective strategies.The nine cells in the matrix can be grouped into three major segments:

Segment 1: This is the best segment. The business is strong and the market is attractive. The company should allocate resources in this business and focus on growing the business and increase market share.

Segment 2: The business is either strong but the market is not attractive or the market is strong and the business is not strong enough to pursue potential opportunities. Decision makers should make judgment on how to further deal with these SBUs. Some of them may consume toomany resources and are not promising while others may need additional resources and better strategy for growth.

Segment 3: This is the worst segment. Businesses in this segment are weak and their market is not attractive. Decision makers should consider either repositioning these SBUs into a different market segment, develop better cost-effective offering, or get rid of these SBUs and invest the resources into more promising and attractive SBUs.

Hofers Model Dan Schendel and Charles Hofer developed a strategic management model, incorporating both planning and control functions.Their model consists of several basic steps: goal formulation, environmental analysis, strategy formulation, strategy evaluation, strategy implementation, and strategic control.

According to Schendel and Hofer, the formulation portion of strategic management consists of at least three subprocesses: environmental analysis, resources analysis, and value analysis.

Resource and value analyses are not specifically shown, but are considered to be included under other items (strategy formulation). Making Strategic Choices using Stricklands Grand Strategy Selection Matrix The Grand Strategy Selection Matrix developed by Strickland is one helpful tool inthe development of talent that is likely toovercome weaknesses, build on existingstrengths, avert future threats&seize future opportunities. It is used in strategicbusiness planning.It focuses on two key issues: 1)Should strategists devote attention to overcoming present weaknessor to building on present strengths? 2)Or it should strategists concentrate efforts inside the organizationor outside it? Each Alternative Grand strategy can be translated into talent developmentterminology. The basic idea underlying the matrix is that two variables are of central concern inthe strategy selection process: 1. The principal purpose of the grand strategy 2. The choice of an internal or external emphasis for growth and/or profitability. It is valuable to note, that even early approaches to strategy selection were basedon matching a concern for internal versus external growth with a principal desire toovercome weakness or maximize strength. The same concerns led to thedevelopment of the Grand Strategy Selection Matrix.

A firm inQuadrant Ioften views itself as overly committed to a particularbusiness with limited growth opportunities or involving high risks becausethe company has all its eggs in one basket. One reasonable solution isvertical integration, which enables the firm to reduce risk by reducinguncertainty either about inputs or about access to customers. Alternatively, afirm can chooseconglomerate diversification, which provides profitablealternatives for investment without diverting management attention fromthe original business. However, the external orientation to overcomingweaknesses usually results in the most costly grand strategies. The decisionto acquire a second business

demands both large initial time investmentsand sizable financial resources. Thus, strategic managers considering theseOvercome Weakness(Meet learning needs)Maximize Strengths(Build on talent &competencies)Vertical integrationConglomeratediversificationHorizontal integrationConcentricdiversificationJoint venture Turnaround or retrenchmentDivestureLiquidationConcentrated growthMarket developmentProduct developmentInnovationInternal(redirectedresourceswithin thefirm)External (acquisitionor merger for resourcecapability)approaches must guard against exchanging one set of weaknesses foranother. A more conservative approach to overcoming the weakness is found in Quadrant II. Firms often choose to redirect resources from one businessactivity to another within the company. While this approach does not reducethe companys commitment to its basic mission, it does reward success andenables further development of proven competitive advantages. The leastdisruptive of the Quadrant II strategies is retrenchment, the pruning of thecurrent business activities. If weaknesses arose from inefficiencies,retrenchment can actually serve as a turnaround strategy, meaning thebusiness gains new strength by streamlining its operations and eliminatingwaste. However, when the weaknesses are a major obstruction to success inthe industry, and when the costs of overcoming the weaknesses areunaffordable or are not justified by a cost benefit analysis, then eliminatingthe business must be considered. Divestiture offers the best possibility forrecouping the companys investment, but even Liquidation can be anattractive option when the alternatives are an unwarranted drain onorganizational resources or bankruptcy.A common business adage states that a company should build from strength. The premise is that growth and survival depend on an ability to capture amarket share that is large enough for essential economies of scale. If a firmbelieves profitability will derive from this approach and prefers an internalemphasis for maximizing strengths, four alternative grand strategies holdconsiderable promise. As shown inQuadrant III, the most commonapproach is concentration on the business, that is, market penetration. Thebusiness then selects this strategy is strongly committed to its currentproducts and markets. It will strive to solidify its position by reinvestingresources to fortify its strength. Two alternative approaches are marketdevelopment and product development. With either of these strategies thebusiness attempts to broaden its operations. Market development is chosenif strategic managers feel that existing products would be well received bynew customer groups. Product development is preferred when existingcustomers are believed to have an interest in products related to the firmscurrent lines. This approach may also be based on special technological orother competitive advantages. A final alternative for Quadrant III firms isinnovation. When the business strengths are in creative product design orunique production technologies, sales can be stimulated by acceleratingperceived obsolescence. This is the principle underlying an innovative grandstrategy.Maximizing a businesss strength by aggressively expanding its basis of operations usually requires an emphasis in selecting grand strategy.Preferred options here are shown inQuadrant IV.Horizontal integration isattractive because it enables a firm to quickly increase output capability. Theskills of the original businesss managers are often critical in converting newfacilities into profitable contributors to the parent company; this expands afundamental competitive advantage of the firm-management. Concentricdiversification is a good second choice for similar reasons. Because theoriginal and newly acquired businesses are related, the distinctivecompetencies of the diversifying firm are likely to facilitate a smooth,synergistic, and profitable expansion. The final option for increasing resourcecapability through external emphasis is a joint venture. This alternativeallows a business to extend its strengths into competitive arenas that itwould be hesitant to enter alone. A partners production, technological,financial, or marketing capabilities can significantly reduce financialinvestment and increase the profitability of success to the point thatformidable ventures become attractive growth alternatives. Ansoffs Product Market Grid To portray alternative corporate growth strategies, Igor Ansoff presented a matrix that focused on the firm's present and potential products and markets (customers). By considering ways to grow via existing products and new products, and in existing markets and new markets, there are four possible product-market combinations. Ansoff's matrix is shown below:

Ansoff's matrix provides four different growth strategies: Market Penetration - the firm seeks to achieve growth with existing products in their current market segments, aiming to increase its market share. Market Development - the firm seeks growth by targeting its existing products to new market segments. Product Development - the firms develops new products targeted to its existing market segments. Diversification - the firm grows by diversifying into new businesses by developing new products for new markets. Selecting a Product-Market Growth Strategy The market penetration strategy is the least risky since it leverages many of the firm's existing resources and capabilities. In a growing market, simply maintaining market share will result in growth, and there may exist opportunities to increase market share if competitors reach capacity limits. However, market penetration has limits, and once the market approaches saturation another strategy must be pursued if the firm is to continue to grow. Market development options include the pursuit of additional market segments or geographical regions. The development of new markets for the product may be a good strategy if the firm's core competencies are related more to the specific product than to its experience with a specific market segment. Because the firm is expanding into a new market, a market development strategy typically has more risk than a market penetration strategy. A product development strategy may be appropriate if the firm's strengths are related to its specific customers rather than to the specific product itself. In this situation, it can leverage its strengths by developing a new product targeted to its existing customers. Similar to the case of new market development, new product development carries more risk than simply attempting to increase market share. Diversification is the most risky of the four growth strategies since it requires both product and market development and may be outside the core competencies of the firm. In fact, this quadrant of the matrix has been referred to by some as the "suicide cell". However, diversification may be a reasonable choice if the high risk is compensated by the chance of a high rate of return. Other advantages of diversification include the potential to gain a foothold in an attractive industry and the reduction of overall business portfolio risk. The product/market grid of Ansoff is a model that has proven to be very useful in business unit strategy processes to determine business growth opportunities. The product/market grid has two dimensions: products and markets. Choosing Generic Strategies using Porters Model of competitive advantage

Michael Porter has described a category scheme consisting of three general types of strategies that are commonly used by businesses to achieve and maintain competitive advantage. These three generic strategies are defined along two dimensions: strategic scope and strategic strength. Strategic scope is a demand-side dimension (Michael E. Porter was originally an engineer, then an economist before he specialized in strategy) and looks at the size and composition of the market you intend to target. Strategic strength is a supply-side dimension and looks at the strength or core competency of the firm. In particular he identified two competencies that he felt were most important: product differentiation and product cost (efficiency). He originally ranked each of the three dimensions (level of differentiation, relative product cost, and scope of target market) as either low, medium, or high, and juxtaposed them in a three dimensional matrix. That is, the category scheme was displayed as a 3 by 3 by 3 cube. But most of the 27 combinations were not viable. In his 1980 classic Competitive Strategy: Techniques for Analysing Industries and Competitors, Porter simplifies the scheme by reducing it down to the three best strategies. They are cost leadership, differentiation, and market segmentation (or focus). Market segmentation is narrow in scope while both cost leadership and differentiation are relatively broad in market scope. Empirical research on the profit impact of marketing strategy indicated that firms with a high market share were often quite profitable, but so were many firms with low market share. The least profitable firms were those with moderate market share. This was sometimes referred to as the hole in the middle problem. Porters explanation of this is that firms with high market share were successful because they pursued a cost leadership strategy and firms with low market share were successful because they used market segmentation to focus on a small but profitable market niche. Firms in the middle were less profitable because they did not have a viable generic strategy. Porter suggested combining multiple strategies is successful in only one case. Combining a market segmentation strategy with a product differentiation strategy was seen as an effective way of matching a firms product strategy (supply side) to the characteristics of your target market segments (demand side). But combinations like cost leadership with product differentiation were seen as hard (but not impossible) to implement due to the potential for conflict between cost minimization and the additional cost of value-added differentiation

Module IV: Industry Structures and Competitive Strategies Industry Structures and Lifecycle stages,Marketing Warfare and Dominance Strategies:Advantages and Disadvantages of Defensive and Offensive strategies; Innovation as Blue Ocean Strategy. Industry Structures and Life cycle stages A concept relating to the different stages an industry will go through, from the first product entry to its eventual decline. There are typically five stages in the industry lifecycle. They are defined as: i. Early Stages Phase - alternative product design and positioning, establishing the range and boundaries of the industry itself. ii. Innovation Phase - Product innovation declines, process innovation begins and a "dominant design" will arrive. iii. Cost or Shakeout Phase - Companies settle on the "dominant design"; economies of scale are achieved, forcing smaller players to be acquired or exit altogether. Barriers to entry become very high, as large-scale consolidation occurs. iv. Maturity - Growth is no longer the main focus, market share and cash flow become the primary goals of the companies left in the space. v. Decline - Revenues declining; the industry as a whole may be supplanted by a new one. Marketing Warfare and Dominance Strategies Marketing warfare strategies are a type of strategies, used in business and marketing, that try to draw parallels between business and warfare, and then apply the principles of military strategy to business situations, with competing firms considered as analogous to sides in a military conflict, and market share considered as analogous to the territory which is being fought over. It is argued that, in mature, low-growth markets, and when real GDP growth is negative or low, business operates as a zero-sum game. One persons gain is possible only at another persons expense. Success depends on battling competitors for market share. Marketing Warfare Strategies Offensive marketing warfare strategies - are used to secure competitive advantages; market leaders, runner-ups or struggling competitors are usually attacked Defensive marketing warfare strategies - are used to defend competitive advantages; lessen risk of being attacked, decrease effects of attacks, strengthen position Flanking marketing warfare strategies - Operate in areas of little importance to the competitor. Guerrilla marketing warfare strategies - Attack, retreat, hide, then do it again, and again, until the competitor moves on to other markets. Deterrence Strategies - Deterrence is a battle won in the minds of the enemy. You convince the competitor that it would be prudent to keep out of your markets. Pre-emptive strike - Attack before you are attacked. Frontal Attack - A direct head-on confrontation.

Flanking Attack - Attack the competitors flank. Sequential Strategies - A strategy that consists of a series of sub-strategies that must all be successfully carried out in the right order. Alliance Strategies - The use of alliances and partnerships to build strength and stabilize situations. Position Defense - The erection of fortifications. Mobile defense - Constantly changing positions. Encirclement strategy - Envelop the opponents position. Cumulative strategies - A collection of seemingly random operations that, when complete, obtain your objective. Counter-offensive - When you are under attack, launch a counter-offensive at the attackers weak point. Strategic withdrawal - Retreat and regroup so you can live to fight another day. Flank positioning - Strengthen your flank. Leapfrog strategy - Avoid confrontation by bypassing enemy or competitive forces. Companies typically use many strategies concurrently, some defensive, some offensive, and always some deterrents. According to the business literature of the period, offensive strategies were more important that defensive one. Defensive strategies were used when needed, but an offensive strategy was requisite. Only by offensive strategies, were market gains made. Defensive strategies could at best keep you from falling too far behind. The marketing warfare literature also examined leadership and motivation, intelligence gathering, types of marketing weapons, logistics, and communications. In game theory, dominant strategy (commonly called simply dominance) occurs when one strategy is better than another strategy for one player, no matter how that player's opponents may play. Many simple games can be solved using dominance. The opposite, intransitivity, occurs in games where one strategy may be better or worse than another strategy for one player, depending on how the player's opponents may play. When a player tries to choose the "best" strategy among a multitude of options, that player may compare two strategies A and B to see which one is better. The result of the comparison is one of: B dominates A: choosing B always gives as good as or a better outcome than choosing A. There are 2 possibilities: B strictly dominates A: choosing B always gives a better outcome than choosing A, no matter what the other player(s) do. B weakly dominates A: There is at least one set of opponents' action for which B is superior, and all other

sets of opponents' actions give B at least the same payoff as A. B and A are intransitive: B neither dominates, nor is dominated by, A. Choosing A is better in some cases, while choosing B is better in other cases, depending on exactly how the opponent chooses to play. For example, B is "throw rock" while A is "throw scissors" in Rock, Paper, Scissors. B is dominated by A: choosing B never gives a better outcome than choosing A, no matter what the other player(s) do. There are 2 possibilities:

B is weakly dominated by A: There is at least one set of opponents' actions for which B gives a worse outcome than A, while all other sets of opponents' actions give A at least the same payoff as B. (Strategy A weakly dominates B).

B is strictly dominated by A: choosing B always gives a worse outcome than choosing A, no matter what the other player(s) do. (Strategy A strictly dominates B).

This notion can be generalized beyond the comparison of two strategies. Strategy B is strictly dominant if strategy B strictly dominates every other possible strategy. Strategy B is weakly dominant if strategy B dominates all other strategies, but some are only weakly dominated. Strategy B is strictly dominated if some other strategy exists that strictly dominates B. Strategy B is weakly dominated if some other strategy exists that weakly dominates B. Defensive strategies

The purpose of a defensive strategy is to protect a preexisting competitive advantage. The goal of a firm using defensive strategies is to maintain a current position and to fend off threats from other businesses. The purpose of a defensive strategy is not to create a new competitive advantage or to develop the business further. The purpose of a defensive strategy is not to make progress put to simply maintain the status quo. Benefits: The major benefit of a defensive strategy is that it is considerably less risky than an offensive strategy and requires fewer resources. A defensive strategy can help a firm to dominate its existing market and to maintain its current success. Drawbacks: The single largest drawback of a defensive strategy is that it does not allow for development. A company that uses only defensive strategies may be able to hang on to its current position and present competitive advantage, but it is unable to grow beyond that stage. Offensive strategies

Innovation as Blue Ocean Strategy Blue Ocean Strategy is a business strategy book first published in 2005 and written by W. Chan Kim and Rene Mauborgne of The Blue Ocean Strategy Institute at INSEAD. The book illustrates what the authors believe is the high growth and profits an organization can generate by creating new demand in an uncontested market space, or a "Blue Ocean", rather than by competing head-to-head with other suppliers for known customers in an existing industry. BOS is the result of a decade-long study of 150 strategic moves spanning more than 30 industries over 100 years (1880-2000). BOS is the simultaneous pursuit of differentiation and low cost.

The aim of BOS is not to out-perform the competition in the existing industry, but to create new market space or a blue ocean, thereby making the competition irrelevant. While innovation has been seen as a random/experimental process where entrepreneurs and spin-offs are the primary drivers as argued by Schumpeter and his followers BOS offers systematic and reproducible methodologies and processes in pursuit of blue oceans by both new and existing firms. BOS frameworks and tools include: strategy canvas, value curve, four actions framework, six paths, buyer experience cycle, buyer utility map, and blue ocean idea index. These frameworks and tools are designed to be visual in order to not only effectively build the collective wisdom of the company but also allow for effective strategy execution through easy communication. BOS covers both strategy formulation and strategy execution. The three key conceptual building blocks of BOS are: value innovation, tipping point leadership, and fair process. While competitive strategy is a structuralist theory of strategy where structure shapes strategy, BOS is a reconstructionist theory of strategy where strategy shapes structure. As an integrated approach to strategy at the system level, BOS requires organizations to develop and align the three strategy propositions: value proposition, profit proposition and people proposition.

Value Innovation is the strategic logic underpinning blue ocean strategy. Value innovation is the simultaneous pursuit of differentiation and low cost. Value innovation focuses on making the competition irrelevant by creating a leap of value for buyers and for the company, thereby opening up new and uncontested market space. Because value to buyers comes from the offering's utility minus its price, and because value to the company is generated from the offering's price minus its cost, value innovation is achieved only when the whole system of utility, price and cost is aligned. In the Blue Ocean Strategy methodology, the Four Actions Framework and ERRC grid assist managers in breaking the value-cost trade-off by answering the following questions: What factors can be eliminated that the industry has taken for granted? What factors can be reduced well below the industry's standard? What factors can be raised well above the industry's standard? What factors can be created that the industry has never offered?