STRATEGIC MANAGEMENT

A
CONCEPT ON STRATEGIC THINKING
AND MODUS OPERANDI FOR SURVIVAL
IN 21st CENTURY
By
Dr. JANAK V. SHELAT

1
 WHY STRATEGIC THINKING?
 Companies are operating in age of discontinuing change - an age of creative & constructive
destruction.
 Business, technology and product life is shrinking.
 Demographic shift in terms of consumer preference and requirements.
 A direct promotion from Agricultural economy to service or Hi-tech economy in the new growth
economy.
 A concept from liberalization, privatization & Globalization (LPG) to regionalization.
 Shift from controlled economy to market driven economy.
 Rich countries adopt deindustrialization.
 Emergence of new Global Socio – economic system and world orders.
 Self-leadership is in, command and control out
 Networks are replacing hierarchies
 Wanted - employees with Emotional Intelligence.
 Forcing company transformation
 Market access & branding changing – disintermediation of traditional distribution channels
 Balance of power shift to consumer
 Competition changing
 Pace of business increasing
 Internet purchasing beyond traditional boundaries
 Knowledge key asset – source of competitive advantage. It is replacing Infrastructure

 Other Current Trends –

 Increasing environmental awareness
 Growing health consciousness
 Expanding seniors market
 Impact of the Generation Y boom let
 Declining mass market
 Changing pace and location of life
 Changing household composition
 Increasing diversity of workforce & market
2
 BASIC CONCEPTS
 STRATEGY: It is Unified, Comprehensive, and Integrated
long term plan that relates to the strategic advantages of
the firm to the challenges of the environment.
 STRATEGIC MANAGEMENT: It is a stream of decisions
and actions which leads to the development of an
effective strategy to help achieve the corporate
objective. It is a continuous, iterative, & Cross functional
process of matching firm with its environment.
 COMPETITIVE ADVANTAGE: is delivering superior
value advantage to your target customers relative to
your competitors. Or delivering equivalent customer
value to your target customers relative to your
competitors , but at a lower cost.

3
Strategic Competitiveness
Achieved when a firm successfully formulates
and implements a value-creating strategy

Sustained Competitive Advantage

Occurs when a firm develops a strategy that
competitors are not simultaneously implementing
Provides benefits which current and potential
competitors are unable to duplicate

Above-Average Returns
Returns in excess of what an investor expects to
earn from other investments with similar risk
4
 WHAT IS BUSINESS?

PRODUCT

MARKET FUNCTION

What Business the Firm is in?

Why the Firm is in the Business?
What should be Firm’s Business?

5
 GAP OUT PUT

VISION VALUE SYSTEM

FIRM/BUSINESS
MISSION
OBJECTIVES

PURPOSE

BASIC INFRASTRUCTURE AND FRAME WORK OF A FIRM

6
 MISSION & GOALS OF A COMPANY
 VISION: It is a vividly descriptive image of what you
what to be or what you want to be known for. Vision is
an art for seeing invisibles.
 MISSION : It a statement of intent of “what a firm wants to
create and through which line of Business”. It is a process of
legitimization of corporate existence of business. It defines
the culture, philosophy and grand design of the firm. To
pursue the Creation of Value to all Stakeholders in the
Business. It is an answer to question – “What business are
we in?”
 GOALS / OBJECTIVES : End to be achieved. It is
 To make Profit for today and forever
 To satisfy Customers today and forever
 To satisfy Employees today and forever
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Strategic
Planning

8
Challenge of Strategic Management

Only 16 of the 100 largest U.S. companies at

the start of the 20th century are still
identifiable today!

In a recent year, 44,367 businesses filed for

bankruptcy and many more U.S. businesses failed

Competitive success is transient...unless care is

taken to preserve competitive position 9
 Three Big Strategic
Questions
 Where Are We Now?

 Where Do we Want
to Go?

 How Will We Get

There?

10
 Crafting a Strategy
 HOW to out compete rivals and win a
competitive advantage.
 HOW to respond to changing industry
and competitive conditions
 HOW to defend against threats to the
company’s well-being
 HOW to pursue attractive opportunities

11
What is a Strategic Plan?
 A strategic plan
specifies where a
company is
headed and HOW
management
intends to achieve
the targeted
levels of
performance.

12
 Strategic Management Basic model
Options on
Learning
Competitive
points from
Positioning
deviations
Four Basic Elements

Strategic management is the process of moving where you are

to where you want to be in future – through
sustainable competitive advantages
13
 VISION GAP
VALUE
STRATEGIC
IMPLEMEMTATION
BASIC
MISSION FIRM STRATEGIES
GOAL ORGANISATION
DESIGN
MACRO ENVIRO STRATEGIC
APPRAISAL ALTERNATIVES
FUNCTIONALLEVEL
STRATEGIES &
RESOURCES
MICRO ENVIRO ALLOCATION
APPRAISAL OF BUSINESS LEVEL
INDUSTRIES STRATEGIES
DEVELOPMENT
OF
MICRO ENVIRO CONTROL
APPRAISAL OF STRATEGIC
FIRM SELECTION
Is
Strategy
Working?

STRATEGIC PLANNING DESIGN AND IMPLEMENTATION PROCESS 14

 The Five Task of Strategic
Planning
 Developing a Vision and a Mission
 Setting Objectives
 Crafting a Strategy
 Implementing and Executing Strategy
 Evaluating Performance, Reviewing the
Situation and Initiating Corrective Action

15
 Characteristic of the
Strategic Management
Process
 An ongoing exercise
 Boundaries among the tasks are blurry rather than
clear-cut
 Doing the 5 task is not isolated from other managerial
responsibilities and activities.
 The time required to do the tasks of strategic
management comes in lumps and spurts rather than
being constant and regular.
 Involves pushing to get the best strategy supportive
performance from each employee, perfecting the
current strategy.

16
 ENVIRONMENTAL APPRAISAL

ENVIRONMENTAL ENVIRONMENTA
ANALYSIS L DIAGNOSIS
O S

T W
ETOP
SAP
OFPP

VALUATION PROCESS OF SWOT ANALYSI

17
Components of the General Environment
Economic

Demographic Sociocultural

Industry
Environment
Competitive
Environment
Political/ Global
Legal

Technological
18
 ENVIRONMENTAL FACTORS

GOVERNMENTAL
ECONOMICAL

POLITICAL /LEGAL
TECHNOLOGICAL

FIRM/BUSINESS
GLOBAL
DEMOGRAPHIC

SOCIOCULTURAL

19
Components of the General Environment

20
Variables in Societal Environment

21
International Societal Environments

22
Industry Analysis

23
 Porter’s Approach to Industry Analysis

Threat of Substitute Products or Services

Bargaining Power of Buyers

Bargaining Power of Suppliers

Relative Power of Other Stakeholders

Rivalry Among Firm in an Industry

24
 DETERMINENT OF BUYER’S
POWER
 Bargaining Leverage
(a) Buyer’s Concentration
(b) Buyer’s Volume
(c) Buyer’s Switching Cost
 Price Sensitivity

(a) Price / Total Purchase

(b) Impact on Quantity/ Performance
(c) Buyer’s Profit.
25
 Porter’s Approach to Industry Analysis

Threat of New Entrants –

Economies of scale
Proprietary Product differentiation

Capital requirements

Switching costs

Access to distribution channels

Cost disadvantages

Government policy

Proprietary Low Cost Design

Stage in Learning/ Experience Curve

26
 Porter’s Approach to Industry Analysis

Rivalry Among Existing Firms –

Number of competitors
Rate of industry growth (Slow)

Product or service characteristics

Amount of fixed costs

Lack of differentiation or Switching Cost

Capacity augmentation in large

increament
Height of exit barriers

Diversity of rivals

High strategic Stakes

27
 IFAS

28
EFAS

29
SFAS Matrix

30
 SWOT analysis of strengths,
weaknesses, opportunities,and threats.

31
TOWS Matrix

32
CREATING STRATEGIC
MIND SET

33
 Corporate Strategy

Three Key Issues:

 Firm’s directional (CORPORATE)
strategy
 Firm’s portfolio (BUSINESS LEVEL)
strategy
 Firm’s parenting (FUNCTIONAL LEVEL)
strategy

34
 Initiation of Strategy

•New CEO

•External intervention Stimulus

for change
Triggering •Threat of change in
ownership
in
event
strategy
•Performance gap

•Strategic inflection point

35
 Corporate Strategy

Directional Strategy –

Orientation toward growth

Expansion, contraction, status quo
Concentration or diversification
Internal development or acquisitions,

mergers, or alliances
3 Grand Strategies
Growth strategies
Stability strategies
Retrenchment strategies

36
Corporate Directional Strategies

COMBINATION STRATEGIES

DERIVED STRATEGIES
37
 STRATEGIC VARIATIONS -
EXPANSION
 INTERNAL: Add new product, product line, market,
functions, redefine/ reposition of product – market.
 EXTERNAL : Take over, acquisition, merger.
 RELATED : Synergic diversification.
 UNRELATED: Non – synergic diversification.
 HORIZONTAL: Supplementary/ Complementary
Expansion.
 VERTICAL: Integration.
 ACTIVE: R & D, Entrepreneurial development.
 PASSIVE: Imitation, adoption & adaptation.

38
 IGOR ANSOFF’S BUSINESS GROWTH MODEL
New products /New Markets
CO Unrelated
NEW CUSTOMERS BU RP
FOR EXISTING LINES SIN ORA Businesses
ES T
OF PRODUCTS S D E PL
NEW

E A
Related VELO NNI
MARKETS / CUSTOMERS

N
MARKET DEVELOPMENT Businesses – PME G
NT

EXISTING PRODUCTS NEW PRODUCTS FOR

IN EXISTING MARKETS EXISTING CUSTOMERS
EXISTING

Increase
Market Share NEW PRODUCT
Existing
SALES DEVELOPMENT, UPGRADES
Share of Business
MGMT.
EXISTING NEW
Products
PRODUCTS
* Corporate Strategy, I. Ansoff, Jan 1965, McGraw Hill, USA
39
 Corporate Strategy

Growth Strategies --

External mechanisms

Mergers

Acquisitions

Strategic alliances

40
 EXTERNAL GROWTH
STRATEGIES

 TAKE OVER, AQUISION &

MERGER
BUYING FIRM SELLING FIRM

•Acquire Controlling interest} •TAKE OVER

•Acquire Assets and liabilities}
of selling Firm} •ACQUISION
•Acquire & merge of Assets }
liabilities of both the firms.} •MERGER

41
 WHY THE FIRM PURSURE EXTERNAL
EXPANSION
 To increase the firm’s stock..
 To increase the growth rate of the firm.
 To make good investments.
 To improve the firm’s earnings & stability.
 To balance or fill out the product line.
 To diversified the product line in mature state.
 To reduce the competition.
 To acquire the needed resources.
 For Tax purpose.
 To increase the efficiency and profitability.
 To diversify the owner’s holding.
 To deal with top management problems.

42
 CRITICAL ISSUES RELATED TO M & A
 STRATEGIC ISSUES:
It relates to the commonality of strategic interest. Strength of one
firm may be weakness of the other firm and vice versa. The firms
can create Synergy and complementing business situation.
 FINANCIAL ISSUES:
These are related to (a) Valuation of selling firms based on assets,
market standing, share prices, earning potential etc. (b) Sources of
financing for merger.
 MANAGERIAL ISSUES:
It relates to professional compatibility and acceptance of
managerial system of selling company.
 LEGAL ISSUES:
It is related to various issues of legal provisions such as Chapter V
of the Companies Act, the MRTP Act, and section 72A (I) of the
Income Tax Act OR Anti Trust Act, Sherman’s Act.
 CULTURAL ISSUES:
 It relates to the cultural compatibility of the organization, society,
market etc.
 LABOUR ISSUES: It relates to continuation of old staff and
subsequent relations.
 SOCIETAL ISSUES: It relates to the benefits of society and Social
compatibility.
 OTHER ISSUES: It relates to Political, Economic, Environmental
factors.

43
 REASONS FOR FAILUR OF
EXTERNAL GROWTH
 Paying too much for the acquired firm.
 Assuming that a growing market or
product will be out standing in market.
 Leaping into merger without carefully
studying the consequences.
 Diversifying in to areas in which the firm
had too little knowledge.
 Buying too large a firm and thus incurring
an excessively large debt.
 Trying to merge disparate corporate
cultures.
 Counting on key personnel staying after
the merger.
44
 Corporate Strategy

Growth Strategies - Related

2 Basic forms

Concentration

Diversification

45
 Corporate Strategy

Basic Concentration Strategies --

Vertical growth

Horizontal growth

46
 Corporate Strategy

Vertical Growth --
Vertical integration
Fullintegration
Taper integration
Quasi-integration
Long-term contract

Backward integration

Forward integration

47
 Corporate Strategy

Concentration --

Horizontal Growth
Horizontal integration

48
 Corporate Strategy

Basic Diversification Strategies --

Concentric Diversification

Conglomerate Diversification

49
 Corporate Strategy

Concentric Diversification --

Growth into related industry

Search for synergies

50
 Corporate Strategy

Conglomerate diversification --

Growth into unrelated industry

Concern with financial considerations

51
 DERIVED BUSINESS STRATEGIES

OFFENSIVE DEFFENSIVE CO-OPERATIVE

•RAISE STRUCTURAL •SYNDICATING (COLLUSION

•FRONTAL ASSAULT
BARRIER •STRATEGIC ALLIANCES
•FLANKING MANEUVER
•INCREASE EXPECTED •MUTUAL CONSORTIA
•BYPASS ATTACK
RETALIATION •JOINT VENTURE
•ENCIRCLEMENT
•LOWER INDUCEMENT FOR
•LICENSING ARRANGEMENT
•GUERRILLA WARFARE
ATTACK •VALUE CHAIN PARTNERSH

52
STRATEGIC ALLIANCE
(Partnering):
 It is a partnership of two or more corporations or business units to
achieve strategically significant objectives which can be mutually
beneficial. Some alliance are short term till the product is
established, while the others are longer lasting, resulting in merger.
The reasons for alliance are:

(a) To obtain technological, management and/or manufacturing capabilities.

(b) To enter into specific markets.
(c) To reduce financial risk.
(d) To reduce political and economic risk.
(e) To achieve or ensure competitive advantages in new businesses or markets
(f) It plays vital role in today’s market condition and environment to solve some
complicated issues.
(g) It provides vital role in providing the firms synergic strength.
(h) It helps to develop product, process, market & share the investment outlay
jointly.
(i) It facilitates the development of unique technological capabilities to meet the
challenges of technological revolution.
(j) It create a compulsion for alliance to enter in the local market through JV.
(k) Building brand image in local market is mostly possible through alliance.

53
SPECIFIC ALLIANCE
 Production Alliance: Two or more companies share the
common manufacturing facilities, existing or new facilities.
 Marketing Alliance: Two or more companies share
marketing services expertise and facilities.
 Financial Alliance: Companies joint together in order to
reduce financial risks associated with the activities & share
the profit in proportion to financial contribution.
 Research & Development Alliances: Fast changing
technology, high cost of R & D and need of being ahead of
changes, force companies to form alliance in R & D area.
 Human Resources Alliance: Alliance for outsourcing

54
BREAK – UP OF ALLIANCE:
 Incompatibility between/among partners
in management style, financial position,
culture, business interest.
 Access to information.
 Distribution of Income.
 Change in business environment.
 Acquiring the strength of partner: The
companies over a period of alliance,
acquire the strengths of the partner and
starts new operations in competitions.

55
STRATEGIC JOINT VENTURE
 Joint ventures (JV) are partnership in which two or
more firms carry out a specific project or business in a
selected area of industry in a form of new venture.
Ownership of the original firms remains unchanged.
Actually, corporate partnership are formed with
specific and time bound objectives which, once
achieved, leaves little reasons for the alliance to
continue. Joint venture can be temporary or it can be
long term. JV that last longer do so because their
objectives have been redesigned.
Every JV:
1. Has a scheduled life – cycle, which will end sooner or later (5 to 10
years)
2. Has to be dissolved when it has outlived its life – cycle.
3. Change in environment forces joint venture to be redesigned
regularly
4. Translations seek to absorb their partner’s competencies.
5. It is a contractual obligation on fragile platform.
56
 Corporate Strategy

Stability Strategies --

Pause/proceed with caution

No change

Profit strategies

57
 Corporate Strategy

Retrenchment Strategies --

Turnaround
Captive Company Strategy
Selling out
Bankruptcy
Liquidation

58
RETRENCHMENT STRATEGY
Common Retrenchment Strategies: Turnaround, restructuring,
Divesting, Bankruptcy, Liquidation
WHY FIRM GO FOR RETRENCHMENT:
 Prevalence of poor economic conditions.
 Competitive pressure may also cause firms to curtail their
operations.
 The comp. is not doing well or perceive itself as doing poorly.
 The comp. has not met its objectives and there is pressure
from shareholders, customers, or others to improve
performance.
 The external environment poses threats and internal strengths
are insufficient to face the threats.
 Better opportunities in the environments are perceived else
where were firms strength can be utilized.
 Inability to implement latest technology cause by tech.
revolution.
59
Strategic reasons for
Formation of JV
1. Foreign firms are allowed to operate only if they enter
into a JV with local partner.
2. Size of the project may be very large and one company
accomplish it.
3. Some projects require multidimensional technology
that no one firm possesses. Firm with different, but
compatible technology may join together.
4. One firm with technology competence and another with
managerial competence join together.
5. A foreign firm with technology competence joins with a
domestic firm with marketing competence.
6. While setting up of an organization requires
surmounting hurdles such as import quota, tariffs,
nationalistic political interest and cultural road block,
Government’s support for the JV.
7. JV are undertaken for a variety of reasons like political,
economic or technological

TYPES OF JV:
(A) SPIDER WEB
(B) GO-TOGATHER & SPLIT
(C) SUCCESSIVE INTEGRATION
60
Business Level Strategy

61
 Value-Chain Analysis

Linked set of value-creating activities

beginning with basic raw material and
ending with distributors getting final
goods into hands of customers

62
 Value-Chain Analysis

Typical Value Chain for a Manufactured Product

63
Corporate Value Chain

64
Porter’s Generic Competitive Strategies

65
 What is a Business level strategy
• Business level strategies are firm-specific business model
that will allow a company to gain a competitive
advantage over its rivals in a market or industry.
• It aims at improving the effectiveness of a company’s
operations and thus its ability to attend superior
efficiency, quality, innovation and customer
responsiveness .
• Its ability to improve company’s operations helps in
achieving cost leadership or helps the company in
differentiating its product from the rival company.

66
 Distinctive Competencies…

They are firm specific strengths that allow a

company to differentiate its products and/or
achieve substantially lower costs than its rivals
and thus gain a competitive advantage.
E.g. Toyota…
They arise from two sources:
1) Resources

2) Capabilities

67
 Cost Leadership
 It is based on the intent to outperform competitors by
doing every thing to establish a cost structure that allows it
to produce or provide goods or services at a lower unit
cost.
 Cost leader chooses a low to moderate level of product
differentiation relative to its competitors.
 Aims for a differentiation not markedly inferior to that of
the differentiator but a level obtainable at a low cost.
 Frequently ignores the many different market segments in
industry to appeal the average customers.
68
 Advantages and Disadvantages
Advantages
 Protected from industry
competitors
 Less affected by competitors
price change
 Requires a big market share
so they purchases in
relatively large quantities
 Barrier to entry.
Disadvantages
 Cost leadership approach
lurk in competitors’ ability
to find ways to lower their
cost structure
 Ability to imitate cost
leader’s methods easily
 The single minded desire
to reduce costs might
drastically affect the
demand
69
 Implications
 To pursue a full blown cost-leadership, strategic
managers need to devote enormous efforts to incorporate
all the latest information, materials, management, and
manufacturing technology into their operations to find
new ways to reduce costs.
 A differentiator cannot let a cost leader get too great a
cost advantage because the leader might then be able to
use its high profits to invest more in product
differentiation and beat leaders.
 Must respond to the strategic moves of its differential
competitors and increase the quality and features of its
products if it is to prosper in the long run
70
 Differentiation Strategy
 The objective of the differentiation strategy is to achieve a
competitive advantage by creating a product that consumers
perceive as different or distinct in some important way.
 Product differentiation can be achieved in three ways
 Quality
 Innovation
 Responsiveness to customers
 Generally, a differentiator chooses to segment its market into
many segments and niches
 A differentiated company concentrates on the organizational
functions that provide the source of its differentiation advantage.

71
 Advantages and Disadvantages
Advantages Disadvantages
 Differentiation safeguards a  Strategic manager’s long
company against competitors to term ability to maintain a
the degree that customers develop
brand loyalty for its product product’s perceived
 Suppliers are rarely a problem as distinctness in customers’
company’s strategy is geared eyes.
more toward the price it can  The ease with which
charge than toward costs
competitors imitate the
 Distinct product solves the
differentiator’s product
problem of strong buyers
 The threat of substitutes depends
on the ability of the competitors’
product.

72
 Focus Strategies
 Focus Strategies position a company to
compete for customers in a particular market
segment, which can be defined
geographically, by type of customers, or by
region or even by locality.

73
 Focus Strategies
 Focused Cost Leadership Strategy :
If a company uses a focused low – cost approach, it
competes against the cost leader in the market
segment in which it has no cost disadvantage.
 Focused Differentiation Strategy :
If a company uses a focused differentiation
approach, then all the means of differentiation that
are open to the differentiator are available to the
focused company.

74
 Advantages
 A focused company’s competitive advantage stem
from the source of its distinctive competency:
efficiency, quality, innovation, or responsiveness to
customers.
 The company is protected from rivals to the extent
that it can provide a product or service they cannot.
 This ability also gives the focuser power over its
buyers because they cannot get the same things
from anyone else.

75
 Disadvantages

 Powerful suppliers
 The focuser’s niche can suddenly disappear
because of technological change or change in
customer’s tastes.
 The focuser is vulnerable and has to defend its
niche constantly.

76
 Risks of Generic Strategies

Risks of Cost Leadership Risks of Differentiation Risks of Focus

Risks
Cost of CostisLeadership
leadership not Risks of Differentiation
Differentiation is not Risks
The focusofstrategy
Focus is
Cost leadership
sustained: is not Differentiation
sustained: is not The focus strategy is
imitated:
• sustained:
Competitors imitate. • sustained:
Competitors imitate. imitated:
The target segment becomes
• Competitors
• Technology imitate.
changes. • Competitors
• Bases imitate.
for differentiation The targetunattractive:
structurally segment becomes
• •Other
Technology
bases forchanges.
cost •become
Bases less
for differentiation
important to • structurally unattractive:
Structure erodes.
•leadership
Other baseserode. cost
for become
buyers. less important to • •Demand
Structure erodes.
disappears.
leadership
Proximity erode.
in differentiation is Costbuyers.
proximity is lost. • Demand
Broadly disappears.
targeted competitors
Proximity
lost. in differentiation is Cost proximity
Differentiation is lost.
focusers Broadly targeted
overwhelm the segment: competitors
lost.focusers achieve even
Cost Differentiation
achieve focusers
even greater • overwhelm
The segment’s the segment:
Costcost
lower focusers achieve even
in segments. achieve eveningreater
differentiation segments. •differences
The segment’s from other
lower cost in segments. differentiation in segments. differences
segments narrow. from other
• Thesegments
advantages narrow.
of a
•broad
The advantages
line increase. of a
Newbroad
focuserslinesubsegment
increase.
New
the focusers subsegment
industry.
the industry.

77
 Industry
Force
Cost Leadership
Ability to cut price in retaliation deters
Entry potential entrants.
Barriers
Ability to offer lower price to powerful
Buyer buyers. Large buyers have less power to
Power negotiate because of few close alternatives.
Large buyers have less power to negotiate
because of few alternatives.
Better insulated from powerful suppliers.
Supplier Better able to pass on supplier price
Power increases to customers. Suppliers have
power because of low volumes, but a
differentiation-focused firm is better able to volumes, but a differentiation-focused because of low volumes, but a
pass on supplier price increases.
Can use low price to defend against
Threat of substitutes. Customer's become attached to
Substitute differentiating attributes, reducing threat of
substitutes. Specialized products & core
s competency protect against substitutes.
Better able to compete on price.Brand
Rivalry loyalty to keep customers from rivals.Rivals
cannot meet differentiation-focused
customer needs.
Generic Strategies
Differentiation Focus
Customer loyalty can discourage Focusing develops core
potential entrants. competencies that can act as an
entry barrier.
Ability to offer lower price to powerful Ability to offer lower price to
buyers. Large buyers have less power powerful buyers. Large buyers have
to negotiate because of few close less power to negotiate because of
alternatives. Large buyers have less few close alternatives. Large
power to negotiate because of few buyers have less power to
alternatives. negotiate because of few
alternatives.
Better insulated from powerful Better insulated from powerful
suppliers. Better able to pass on suppliers. Better able to pass on
supplier price increases to customers. supplier price increases to
Suppliers have power because of low customers. Suppliers have power
firm is better able to pass on supplier differentiation-focused firm is
price increases. better able to pass on supplier
price increases.
Can use low price to defend against Can use low price to defend against
substitutes. Customer's become substitutes. Customer's become
attached to differentiating attributes, attached to differentiating
reducing threat of substitutes. attributes, reducing threat of
Specialized products & core substitutes. Specialized products &
competency protect against core competency protect against
substitutes. substitutes.
Better able to compete on price.BrandBetter able to compete on
loyalty to keep customers from price.Brand loyalty to keep
rivals.Rivals cannot meet customers from rivals.Rivals cannot
differentiation-focused customer meet differentiation-focused
needs. customer needs.
78
 Functional Strategy

The approach a functional area

takes to achieve corporate and
business unit objectives and
strategies by maximizing resource
productivity

79
Marketing Strategy – Functional Strategy

FRONTAL ASSAULT
FLANKING MANEUVER
BYPASS ATTACK
ENCIRCLEMENT
GUERRILLA WARFARE
Pricing
Skim pricing
Penetration pricing
Dynamic pricing
Selling
Distribution

Product development
Line extension

Advertising and promotion

Push strategy
Pull strategy
80
 Functional Strategy

Financial Strategy –

Leveraged buyout
Reversed stock split
Tracking stock

81
 Functional Strategy

R&D Strategy –

Technological leader
Technological follower
Open innovation

82
 Functional Strategy

Operations Strategy –

Job shop
Connected line batch flow
Flexible manufacturing systems
Dedicated transfer lines
Mass production
Continuous improvement system
Modular manufacturing

83
 Functional Strategy

Purchasing Strategy –

Multiple sourcing
Sole sourcing
Just-in-time (JIT)
Parallel sourcing

84
 Functional Strategy

Logistics Strategy –

Centralization
Outsourcing
Internet

85
 Functional Strategy

HRM Strategy –

360 degree appraisal

86
 Functional Strategy

Outsourcing errors –

Activities that should not be

outsourced
Wrong vendor selection
Writing poor contract
Overlooking personnel issues
Hidden costs of outsourcing
Failing to plan exit strategy

87
Proposed Outsourcing Matrix

88
 Functional Strategy

Strategies to Avoid –

3 Follow the leader

Hit another home run
Arms race
Do everything
Losing hand

89
 Functional Strategy

Subjective Factors Affecting

Decisions --

Management’s attitude toward risk

Pressures from stakeholders
Pressures from corporate culture
Needs and desires of key managers

90
 Strategic Choice

Evaluation of Strategic Alternatives

--

Mutual exclusivity
Success
Completeness
Internal consistency

91
PORTFOLIO
ANALYSIS

92
 Corporate Strategy

Portfolio Analysis --

Resource commitment on best

products to ensure continued success

Resource commitment on new costly

products high risk

93
Stages of the Industry Life Cycle

94
 PRODUCT LIFE CYCLE
 Most product sales observed over long periods can be portrayed
as bell shaped curves – Product life cycle curves which can be
typically divided into four stages: Introduction, Growth, Maturity
and Decline.
 Product Life Cycle asserts four things.
 1. Products have limited life.
 2. Product Sales pass through distinct stages, each posing
different challenges, opportunities and problems to the seller.
 3. Profits rise and fall through different stages of the life cycle.
 4. Products require different marketing, financial, manufacturing,
purchasing and H.R. strategies in each life cycle stage.
 Growth-Slump-Maturity pattern (small kitchen appliances)
 Cycle Recycle Pattern
 Scalloped Pattern (succession of PLC’s; eg: Nylon)

95
 INTRODUCTION - STRATEGIES
•Sales growth tends to be slow - Delays in production capacity
expansion /technical problems; Distribution/retail chains being put up;
sales expensive as conversion rates are lower (innovators).
•Promotion at the highest ratio to sales – inform customers, induce
trial and secure distribution in retail outlets.
•Prices tend to be high as costs are higher.

Hi
SLOW RAPID
SKIMMING SKIMMING
PRICE

SLOW RAPID
PENETRATION PENETRATION
Lo Hi
PROMOTION 96
 PLC - GROWTH STAGE
 Introduction is followed by a stage marked by rapid climb in
sales. Companies starts to eye for market share.
 Growth is a period of rapid market acceptance & substantial
profit improvement.
 Innovators, early adaptors like the product and continue to
buy the product while middle majority starts trying.
 New competition as sales and profits are growing. The stage
where we see entry of competition in large numbers.
 Prices remain where they are or fall slightly to allow better
penetration or for entry into other segments.
 Time noted for the introduction of variants/ brand extensions.
 Companies maintain promotion at same or higher level.
Profits increase even with higher promotion costs as it gets
spread over higher sales volume.
9797
 PLC - GROWTH STAGE
 MARKETING STRATEGIES
 Firm improves product quality and adds new features and
models.
 Enters new market segments.
 Enters new distribution channel.
 Advertising focus shifts from awareness / knowledge to
Interest/desire/conviction.
 Prices should be reduced (or low priced variants launched)
at the right time to attract the next level of price sensitive
customers.
 Faces tradeoff between high market share to high current
profit.
 Firm that pursues market expansion strategy will improve its
competitive position.
98
98
 PLC - MATURITY STAGE
 Many products which we see around us are in the maturity
stage of PLC.
 A stage characterized by the slow down in the growth rate.
 Most of practical Marketing management deals with a
mature product. Hence the most important phase in PLC.
 Three Phases
 1. Growth Maturity: Sales growth starts to fall due to
distribution saturation. Growth predominantly due to trial by
laggards.
 2. Stable Maturity: Most potential customers have tried the
product. Future sales governed by population growth and
replacement demand.
 3. Decaying Maturity: Absolute level of sales decline.
 Slow down in sales growth causes over-capacity -----
Intensified competition ----- price wars ---- profit Erosion----
weak exit. 99
 MATURITY STAGE STRATEGIES
 R&D spends are increased to find better versions.
 Increased advertising spends.
 More Consumer / Dealer cuts.
 Three types of interventions are taken up by Marketers.
 1. Market Modification:
 Company should not try to conserve but should try &
expand market for its Brand.
 Sales vol. = No. of users X usage rate.
 Try expand the no. of Brand Users by:
 Convert non users: Attempts to convert non coffee drinkers
to try coffee.
 Enter new market segments: Johnson & Johnson baby
shampoo for adults, Cerelac adapted for the senile.
 Win competitors customers: Pepsi/Coke, NIIT/Apple.
100
 MATURITY STAGE STRATEGIES
 Volume can also be increased by focusing on the Current
Users – convincing them to use more.
 More frequent use: Biscuits an all time snack, Coke instead
of coffee/tea, clinic shampoo, variety of SKU, vending
machines.
 More usage per Occasion: Shampoo giving better results in
two rinsing, more SKU’s.
 New more varied uses: Recipe route tried out by microwave
oven manufacturers, Sachets by shampoo manufacturers
for travelers, Arm & Hammer Baking soda as a refrigerator
deodorant.
 2. PRODUCT MODIFICATION
 Stimulate sales by modifying the product’s characteristics
by improvements in quality, feature and style.
101
 STRATEGIES FOR MATURE STAGE
 2. PRODUCT MODIFICATION
 Quality Improvement:
 Functional performance improved- for cars, TV, white
goods - New Improved eg: Santro Xing, Indica V2.
 Plus launch - from FMCG manufacturers --------- stronger,
bigger, better,– Lifebuoy Plus.
 Aimed at triggering Brand switching
 Style Improvement:
 Aimed at increasing aesthetic appeal.
 Periodic intro of color variants by auto manufacturers.
 Consumer/packaged food bringing packaging /color
variants.
 Advantages: Unique identity / can secure loyal customers.
 Major disadvantage arises from the fact that it is difficult to
judge customer preferences --- risk of losing those who
liked earlier version
102
 STRATEGIES FOR MATURE STAGE (contd.)
 Advantages of feature improvements
 Build progressive and leadership image for co. (Maruti)
 New features can be made optional (adapted or dropped
easily).
 Helps to win loyalty of some segments.
 Cost effective publicity.
 Can generate enthusiasm for sales force and dealers.
 Main disadvantage is that many of these can be easily
imitated.
 3. Marketing Mix Modifications:
 Product Manager should also try to stimulate sales by
modifying Mktg. Mix.
 Price: Decision whether a price cut will attract new
customers.
 Trying price specials, early bird discounts, easier credit
terms to retain loyal customers..
103
 MATURITY STAGE STRATEGIES
 3. Marketing Mix Modifications:
 Advertising: Change message- copy, media- vehicle mix,
timing/frequency, to target new audience.
 Build new brand identity / image.
 Direct comparison Ads about competition.
 Sales Promotion: Step up trade discount
 Price offs, Rebates, warranties, festival offers, gifts etc.
 Personal selling: should the quality of sales people or their
area of specialization need to be changed.
 Questions on territory revisions; incentive plans; planning of
sales call etc.
 Services: can the company speed up delivery. Extending
technical services.
 Disadvantages: can be easily copied. Mass distribution and
penetration efforts may not help – can lead to profit erosion.
104
 STRATEGIES FOR DECLINE STAGE
 Sales of most products/brands eventually decline –.
 1. Technological advancements in the product category.
 2. Consumer shifts in taste & perception.
 3. Increased domestic & foreign competition------
 price cutting/ over capacity/ profit erosion.

 Sales may plunge to zero or gradually fall for a long period.

 As sales decline, profits fall. Some of the weaker firms
withdraw.
 Those remaining drop smaller market segments & marginal
trade channels to conserve profits.
 They may cut their promotion budgets and may reduce prices
further.
 Unless strong reasons for retention exist, carrying a weak
product is very costly to the firm.
 It can delay aggressive search for alternatives/replacement.
105
 STRATEGIES FOR DECLINE STAGE
 MARKETING STRATEGIES:
 1. Increase firms investment (Dominate the market or to
strengthen its competitive position)
 2. Hold investment level until uncertainties about the
industry are resolved.
 3. Decreasing investment selectively. (Unprofitable target
groups/ markets/ products will have to be identified and
instead look for strong niche’s.)
 4. Harvesting: milking to recover cash quickly (Brands with
high loyalty can continue longer without any investments).
 5. Divest the business quickly by disposing off its assets
as advantageously as possible.
 Drop Decision:
 Sell/transfer to someone
 Should drop slowly or fast.
 Inventory/service level to be maintained.
106
 P.L.C WEAKNESSES
 No Uniform Shape:
 An ‘S’ shaped curve describes only shape of PLC while most
of them vary or are unique.
 Unpredictable Turning Points:
 While most products do peak and then fall there is no
specific turning point.
 Difficult to Decide the Stages:
 A dormant sales (flat) pattern may denote the product has
reached maturity while it may be just that the product has
touched a plateau before another growth period.
 Tendency to drop a product due to such readings can turn
out to be fatal due to the risks involved in new product
development.
107
 P.L.C WEAKNESSES
 Unclear Implications:
Growth phase may or may not be associated with
high profit margin.
 Rapid growth can be associated with low profits and
decline can be very profitable.

 Product Oriented:
 Fails to understand the changes in the requirement
of customers / strategies of competitors,
attractiveness of new market to competitors/
Emergence of technologies etc.
 Technologies, needs/ demands, product categories
have different driving forces.
108
 P.L.C WEAKNESSES
 No Uniform Shape: An s shaped curve describes only shape
of PLC while most of them vary or are unique.
 Unpredictable Turning Points: While most products do peak
and then fall there is no specific turning point.
 Difficult to Decide the Stages : A dormant sales (flat)
pattern may denote the product has reached maturity while
it may be just that the product has touched a plateau before
another growth period. Tendency to drop a product due to
such readings can turn out to be fatal due to the risks
involved in new product development
 Unclear Implications: Growth phase may or may not be
associated with high profit margin. Say rapid growth can be
associated with low profits and decline can be very
profitable.
 Product Oriented: Fails to understand the changing
requirement of customers / strategies of competitors,
attractiveness of new market to competitor-ors /
Emergence of technologies etc.
 Technologies, needs/ demands, product categories have
different driving forces.

109
 Boston Consulting Group
(BCG) Matrix
 When a firm’s divisions compete in different
industries, a separate strategy often must be
developed for each business.
 To enhance and formulate strategies.
 To manage its portfolio of businesses
 Focuses on relative market share position and
the industry growth rate.

110
 BCG Matrix
Relative Market Share Position
High Medium Low
1.0
High
Industry Sales Growth Rate

Stars Question Marks

IV III

Med

Cash Cows Dogs

I II
Low

111
 BCG Matrix
 Pie Chart corresponds to corporate
revenue generated by that business unit.
 The pie slice indicates the proportion of
division’s profit.
 Divisions located
 Quadrant I is called Cash Cows,
 Quadrant II is called Dogs.
 Quadrant III is called Question Marks,
 Quadrant IV is called Stars,

112
 BCG Portfolio Matrix
MARKET SHARE DOMINANCE
HIGH LOW
MARKET GROWTH RATE

High growth High growth

HIGH

Market leaders Low market share

Require cash Need cash
Large profits Poor profit margins

$$
LOW

Low growth Low growth

High market share Low market share
High cash flow Minimal cash flow

113
Cash Cows
 High relative market share but compete in a
low-growth industry
 Generate cash in excess of their needs
 Milked i.e. cash for other purposes
 Manages to maintain strong position as long
as possible
 Product development
 Concentric diversification
 Retrenchment or divestiture if the division
becomes weak

114
Dogs
 Low relative market share and
compete in a slow- or no-growth
industry
 Weak internal and external position
 Liquidation
 Divestiture
 Retrenchment

115
Question Marks
 Low relative market share—compete
in a high growth industry
 Cash needs are high
 Cash generation is low
 Decision: strengthen by pursuing an
intensive strategy, e.g. to sell them.

116
Stars
 High relative market share and a high
industry growth rate
 Represent the organization’s best
long-run opportunities for growth and
profitability.
 Substantial investment to maintain or
strengthen their dominant position.
 Integration strategies
 Intensive strategies
 Joint ventures
117
BCG Matrix

118
 BCG Portfolio Matrix
Example
MARKET SHARE DOMINANCE

HIGH LOW

Sub-Notebooks Integrated
MARKET GROWTH RATE

and Hand-Held phone/Palm

Computer devices
HIGH

PROBLEM
STAR CHILD

Laptop and Mainframe

Personal Computer
Computers
LOW

CASH
COW DOG

119
 BCG Matrix & Benefit
 Setting the path for growth
 Knowing dead investments
 Draws attention to the cash flow,
 Investment characteristics
 Needs of an organization’s various
divisions.
 To achieve a portfolio of divisions
that are Stars.

120
 BCG Matrix Limitations
 Viewing every business as a star, cash cow,
dog, or question mark is overly simplistic.
 Middle of the BCG matrix is not easily classified.
 The BCG matrix does not reflect whether or not
various divisions or their industries are growing
over time.
 Other variables besides relative market share
position and industry growth rate in sales are
important in making strategic decisions about
various divisions.

121
 Parenting-Fit Matrix

Low

Heartland
MISFIT between critical success

Ballast

Edge of
characteristics

Heartland
and parenting

Alien
Territory
factors

Value Trap
High
Low High
FIT between parenting opportunities
and parenting characteristics

122
 Corporate Strategy

Corporate Parenting Strategy --

Strategic factors
performance improvement
Analyze fit

123
 McKinsey’s 7 S Model

Strategy

Structure Systems
Super
Ordinate
Goals-
Shared
Values
Style Skills

Staff 124
125
Constructing Corporate Scenarios

126
Implementation of a
strategy

127
 Strategy Implementation
 Sum total of the activities
and choices required for
the execution of a
strategic plan.
 Process by which strategies
and policies are put into
action through programs,
budgets, and procedures.
 The toughest phase in
Strategy Management
128
 Strategy Implementation

•More time than planned

•Unanticipated problems
•Activities ineffectively coordinated
•Crises deferred attention away
Problems in
•Employees w/o capabilities
Implementing
•Inadequate employee training
Strategic plans
•Uncontrollable external factors
•Inadequate leadership
•Poorly defined tasks
•Inadequate information systems

129
 DESIGN OF OBJECTIVES
IS STRATEGY & COMMUNICATE TO
CONCERNED
FUNCTIONAL?

TASK BREAK DOWN

EVALUATION OF
OUT COME STRATEGIC ORGANISATION DESIGN
IMPLEMENTATION & DEVELOPMENT
TRAINING & &
DEVELOPMENT OF CONTROL
MANAGERS PROCESS DELEGATION OF TASK &
AUTHORITIES &
RESPOSIBILITIES
DESIGN OF SIS /MIS
RESOURCES
MOBILISATION &
DESIGN OF ALLOCATION
PERFORMANCE
STANDARD
130
 The Nature of Strategy Implementation

The greatest strategy will be failed if it’s

implemented badly.

Successful strategy formulation does not guarantee

successful strategy implementation.

Less than 10% of strategies formulated are

successfully implemented!

131
The Nature of Strategy Implementation
Strategy Implementation can have a low success rate

• Implementation may fail due to:

 Failing to segment markets
appropriately
 Paying too much for a new acquisition
 Falling behind competition in R&D
 Not recognizing benefit of computers
in managing information

132
The Nature of Strategy
Implementation
Successful Strategy Implementation

 Market goods & services well

 Raise needed working capital
 Produce technologically sound goods
 Sound information systems

133
Formulation vs. Implementation
 Formulation focuses on effectiveness
 Implementation focuses on efficiency
• Formulation is primarily an intellectual process
• Implementation is primarily an operational process
• Formulation requires good intuitive & analytical skills
• Implementation requires special motivational &
leadership skills
• Formulation requires coordination among a few
individuals
• Implementation requires coordination among many
individuals

134
Nature of Strategy
Implementation
Strategy Implementation

 Varies among different types & sizes of

organizations

135
Nature of Strategy
Implementation
Implementation Activities

 Altering sales territories

 Adding new departments
 Hiring new employees
 Cost-control procedures
 Modifying advertising strategies
 Building new facilities

136
Nature of Strategy
Implementation
Management Perspectives

 Shift in responsibility
Division or
Strategists Functional
Managers

137
 Management Issues
Annual Objectives

Resources
Management
Issues Organizational structure

Restructuring

138
 Management Issues (cont’d)

Resistance to Change

Management
Issues Production/Operations

139
Management Issues
Purpose of Annual Objectives --

Basis for resource allocation

Mechanism for management (e.g. IT
management) evaluation
Metric for gauging progress on long-term
objectives
Establish priorities (organizational, division,
& departmental)

140
Management Issues

-- Central management activity that

allows for the execution of strategy

Resource Allocation
enables resources to be allocated
according to priorities established by
annual objectives.

141
Management Issues

4 Types of Resources

1. Financial resources
2. Physical resources
3. Human resources
4. Technological resources

142
Management Issues

Matching Structure with Strategy

-- Changes in strategy = Changes in

structure
 Structure dictates how objectives &
policies will be established and how
resources will be allocated; e.g. is
structure based on location or based
on the product…

143
Structure should be designed to
facilitate the strategic pursuit of a firm

Organizational
New strategy New administrative
performance
Is formulated problems emerge
declines

Organizational
New organizational
performance
structure is established
improves

144
Management Issues

Restructuring

-- Reducing the size of the firm – # of

employees, divisions and/or units, # of
hierarchical levels; e.g. The Internet is
ushering in a new wave of business
transformations…

145
Management Issues
Reengineering
In reengineering, a firm uses
information technology to break down
functional barriers and create a work
system based on business
processes… Reconfiguring or
redesigning work, jobs, & processes to
improve cost, quality… (alteration of
Scott Morton’s value chain) Think of
an example.
146
Management Issues
Resistance to Change -- Single
greatest threat to successful strategy
implementation
Raises anxiety; fear concerning:
economic loss, Inconvenience or Uncertainty

Force Change Strategy

Educative Change Strategy
Rational or Self-Interest Change Strategy
147
Management Issues
Production/Operations Concerns
Production processes typically
constitute more than 70% of firm’s total
assets
Decisions concern e.g. :
Plant size
Quality control
Technological innovation

148
Marketing Issues

Marketing variables affect

success/failure of strategy
implementation

1. Market segmentation

2. Product positioning

149
Marketing Issues
Market Segmentation: Subdividing of a
market into distinct subsets of customers
according to needs and buying habits

 Market segmentation variables:

 Product
 Place
 Promotion
 Price

150
 Marketing Mix – Component Factors
Product Place Promotion Price

Distribution
Quality Advertising Level
channels
Distribution Discounts &
Features Personal selling
coverage allowances

Style Outlet location Sales promotion Payment terms

Brand name Sales territories Publicity

Inventory
Packaging
levels/locations
Transportation
Product line
carriers

Warranty

Service level

151
151
Marketing Issues

Product Positioning

Schematic representations that reflect how

products/services compare to competitors’ on dimensions
most important to success in the industry; I.e. according to
customer wants and customer needs

152
Finance/Accounting Issues

Essential for implementation

 Acquiring needed capital

 Developing projected financial statements
 Preparing financial budgets
 Evaluating worth of a business

153
Research & Development
Issues

New products and improvement of

existing products that allow for
effective strategy implementation
 Use an R&D strategy that ties
external opportunities to internal
strengths and is linked with
objectives.

154
 Research & Development
Issues

3 Major R&D approaches to implementing

strategies

1. 1st firm to market new technological

products
2. Innovative imitator of successful
products
3. Low-cost producer of similar but less
expensive products

155
 Management Information
Systems (MIS) Issues

Information is the basis for understanding

the firm. One of the most important
factors differentiating successful from
unsuccessful firms

• MIS used to :
• Information collection, retrieval, & storage
• Keeping managers informed
• Coordination of activities among divisions
• Allow firm to reduce costs
156
 Evaluation and Control

Return on
Investment
(ROI)

Earnings per
Traditional
Share
Financial (EPS)
Measures
Return on
Equity
(ROE)

157
THANK YOU.

ANY QUESTIONS?

…….JANAK V. SHELAT
158