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Advanced Strategic Business Management: Prof. Shashank Divekar Pune, India
Advanced Strategic Business Management: Prof. Shashank Divekar Pune, India
Management
shashankd@yahoo.com
Strategic Business Management
By
An Overview
Definition : Corporate Strategy is the pattern of major
objectives, purposes or goals and essential policies or plans (for
achieving those goals), stated in such a way as to define what
business the company is in or is to be in and the kind of
company it is or is to be.
LEVELS OF
STRATEGY
LEVELS OF
STRATEGY
Operational strategy
Also called the ‘Go-to-Market Strategy’ or ‘Functional Strategy’,
it decides the operational methods to implement the tactics.
Are concerned with how the component parts of an
organisation deliver effectively the corporate and business-level
strategies in terms of resources, processes and people.
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External
Audit
Internal
Audit
Strategy
The selected options have to be implemented.
Implementation
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Strategy Analysis
Judgment about what strategy to pursue needs to flow
directly from solid analysis of the company’s external
environment and internal situation. The two most
important situational considerations are :
Strategy Implememtation
A technically imperfect plan that is implemented well, will achieve
more than the perfect plan that never gets off the paper on which
it is typed. Change comes through implementation and evaluation
and not through the plan.
Strategy Choice
SWOT Matrix
Matching Strategic Position & Action Evaluation (SPACE) Matrix
Stage BCG Matrix
Internal – External (IE) Matrix
Grand Strategy Matrix
Decision
Stage
Quantitative Strategic Planning (QSP) Matrix
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3. Differentiation
How corp. strategy links the organisation’s resources with its environment
Environment
Economy Growing Competitors Attacking
Opportunity
Threat
RESOURCES
Strategy needed
to direct Environment
Environment activities of its
people, finance,
factories etc.
Threat
Opportunity
Environment
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How corp. strategy links the organisation’s resources with its environment
Economy at large
Suppliers Substitutes
Legislation &
Technology Regulation
Firm
Rivals Buyers
New Entrants
Population
Societal Values & Lifestyle Demographics
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Mintzbetg’s 5 P’s of Strategy
Henry Mintzberg has described Strategy in different viewpoints. He
argued that it is difficult to give a specific and concise definition of
Strategy, since the word is used in different ways, by different people
in different circumstances.
Strategy is defined as
1. Plan
2. Ploy
3. Pattern
4. Position
5. Perspective.
Strategic Business Management
Mintzbetg’s 5 P’s of Strategy
Strategy as a PLAN : This is the most commonly understood concept
of strategy. This is the default, automatic approach.
Tata Steel recognizes that while honesty and integrity are the
essential ingredients of a strong and stable enterprise,
profitability provides the main spark for economic activity.
- Tata Steel
Strategic Business Management
- TVS Motors
Internal Audit
Performing an internal audit requires gathering, assimilating
and evaluating information about the firm’s operations.
COMMON OBJECTIVES :
• SURVIVAL
• STABILITY
• GROWTH
• EFFICIENCY
• PROFITABILITY
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Characteristics of Objectives :
• Objectives help an organization in pursuit of its vision and mission.
• Objectives provide the basis for strategic decision-making
ENVIRONMENTAL APPRAISAL
Environment is the sum of various external and some internal
forces that affect the functioning of business.
"The environment includes factors outside the firm which can lead
to opportunities for, or threats to the firm. Although there are
many factors, the most important of the sectors are socio-
economic, technological, supplier, competitors, and government. “
- Glueck & Jauch
ENVIRONMENTAL APPRAISAL
Objectives of Environmental Appraisal :
1. To understand the current and potential changes taking place
2. To obtain necessary inputs for strategic decision making.
3. To facilitate and foster strategic thinking in organisations
Micro Environment
Micro-environment is related to small area or immediate
periphery of the organisation. It influences the organisation
regularly and directly.
Decisions affected by Micro-Environment
• Employees, their characteristics, attitudes and profiles.
• The customer base
• Methods and sources of finance
• Vendors/ suppliers and the relationships
• The local community
• Direct competition
Strategic Business Management
Macro Environment
Macro Environment consists of broad, indirect factors which
affect the overall business environment in a country or region,
across all industries.
DEMOGRAPHIC
ECONOMIC
LEGAL / REGULATORY
GOVERNMENT
MACRO
ENVIRONMENT POLITICAL
CULTURAL
TECHNOLOGICAL
GLOBAL
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Types of strategies
Integration
Forward Integration : Gaining ownership/ increased control
over channel partners
Backward Integration : Ownership/ control over suppliers
Intensive
Market Penetration : Seeking increased market share in
existing markets through extra efforts.
Market Development : Introducing existing product (s) into new
geographic areas
Product Development : Improving existing products or developing
new products
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Types of strategies
Diversification
Related Diversification : Adding new but related products or services
Unrelated
Diversification : Adding new, unrelated products or services
Defensive
Retrenchment : Regrouping through cost and asset reduction to
reverse declining sales/ profits
Liquidation : Selling all the assets, in parts, for their tangible worth
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Competitive Analysis : Porter’s Five-Forces Model
1. Rivalry among competing firms
2. Potential entry of new competitors
3. Potential development of substitute products
4. Bargaining power of suppliers
5. Bargaining power of consumers
Strategic Analysis
Strategy Implementation
Strategy Implementation
Strategy formulation is fundamentally different from strategy implementation :
Strategy formulation concepts and tools do not differ greatly for small,
large, for-profit or non-profit organisations. However, strategy
implementation varies substantially among different types.
Strategic Business Management
ENVIRONMENTAL APPRAISAL
Environment is the sum of various external and some internal
forces that affect the functioning of business.
"The environment includes factors outside the firm which can lead
to opportunities for, or threats to the firm. Although there are
many factors, the most important of the sectors are socio-
economic, technological, supplier, competitors, and government. “
- Glueck & Jauch
ENVIRONMENTAL APPRAISAL
Objectives of Environmental Appraisal :
1. To understand the current and potential changes taking place
2. To obtain necessary inputs for strategic decision making.
3. To facilitate and foster strategic thinking in organisations
Micro Environment
Micro-environment is related to small area or immediate
periphery of the organisation. It influences the organisation
regularly and directly.
Decisions affected by Micro-Environment
• Employees, their characteristics, attitudes and profiles.
• The customer base
• Methods and sources of finance
• Vendors/ suppliers and the relationships
• The local community
• Direct competition
Strategic Business Management
Macro Environment
Macro Environment consists of broad, indirect factors which
affect the overall business environment in a country or region,
across all industries.
DEMOGRAPHIC
ECONOMIC
LEGAL / REGULATORY
GOVERNMENT
MACRO
ENVIRONMENT POLITICAL
CULTURAL
TECHNOLOGICAL
GLOBAL
Strategic Business Management
Types of strategies
Integration
Forward Integration : Gaining ownership/ increased control
over channel partners
Backward Integration : Ownership/ control over suppliers
Intensive
Market Penetration : Seeking increased market share in
existing markets through extra efforts.
Market Development : Introducing existing product (s) into new
geographic areas
Product Development : Improving existing products or developing
new products
Strategic Business Management
Types of strategies
Diversification
Related Diversification : Adding new but related products or services
Unrelated
Diversification : Adding new, unrelated products or services
Defensive
Retrenchment : Regrouping through cost and asset reduction to
reverse declining sales/ profits
Liquidation : Selling all the assets, in parts, for their tangible worth
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3. Differentiation
Strategy Alternatives
Intensification Diversification
Forward Backward
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PORTER’S VALUE CHAIN
One of the primary tasks of top management in any business
organisation is to create a strong and sustainable competitive
advantage.
The term ‘Value Chain’ was used by Michael Porter in his book
"Competitive Advantage: Creating and Sustaining superior
Performance" (1985).
Contd..
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PORTER’S VALUE CHAIN
Infrastructure
Primary Activities
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Organisation’s
Value Chain
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Environmental Threat & Opportunity Profile (ETOP)
Every business needs to conduct continuous environmental analysis
for strategic business decisions. This results into a mass of information
related to trends, events, issues and market expectations.
ETOP involves :
1. Dividing the environment into various sectors and further into
sub-sectors.
2. Analysing the impact of each sector and sub-sector on the
organisation
3. Describe the impact in the form of a statement (Favourable,
unfavourable or neutral).
Strategic Business Management
ENVIRONMENTAL
NATURE OF IMPACT IMPACT OF THE SECTOR
SECTOR
ENVIRONMENTAL
NATURE OF IMPACT IMPACT OF THE SECTOR
SECTOR
ENVIRONMENTAL
NATURE OF IMPACT IMPACT OF THE SECTOR
SECTOR
Cheaper technology
TECHNOLOGY development, skilled and
trained indigenous talent.
BCG Matrix
The BCG Growth-Share Matrix is a portfolio planning model was
developed by Bruce Henderson of Boston Consulting Grup in the
early 1970’s. It displays the various business units on a graph of the
market growth rate vs. market share relative to competitors.
The BCG Matrix uses two dimensions : Market Share and Market
Growth. The position of a business unit on the growth-share matrix
provides an indication of the cash generation and its cash
consumption.
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BCG Matrix
Placing products or businesses in the BCG Matrix results in 4
categories in a portfolio of a company :
BCG Matrix
STARS (High Growth, High Market Share)
They consume large amounts of cash and are market leaders in a
high-growth market. Stars generate cash but on the other hand,
in order to maintain its market leadership, they also require large
infusion or investment.
The basic premise of the model is that there are seven internal aspects
of an organization that need to be aligned if it is to be successful.
• Shared values – These are the core values of the company that
connect all the other 6 factors. These are the fundamental ideas or
guiding principles that lay the foundation of businesses.
• Style – This spans the core beliefs, norms and management style in
the organization.
SYNERGY
Besides growth needs, acquisitions and mergers are done for the
purpose of achieving a measure of synergy between the parent and
the acquired entity.
STRATEGIC FIT
Synergy and Strategic Fit are two important factors which determine
the strategic business decisions and their outcomes.
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Under ‘fit’, the strategic intent is seen as more realistic, while under
‘stretch’ and ‘leverage’, it is seen as idealistic.
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Strategic Leverage
Financial
Customer
Internal Processes
Learning & Growth.
b. Corporate Culture
c. Employee Turnover
d. Job Satisfaction & Motivation
e. Innovation
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Strategy and Organisation Structure
An organisation's strategy is its plan for the whole business that sets
out how the organisation will use its major resources.
The organisation structure defines how all the pieces, parts and
processes work together. This structure must be totally integrated with
strategy for the organization to achieve its mission and goals. Structure
supports strategy.
Strategic Business Management
Matching Structure with Strategy
When a firm changes its strategy, the existing organisational
structure may become ineffective.
Changes in structure can facilitate strategy-implementation efforts,
but changes in structure should not be expected to make a bad
strategy good, to make bad managers good, or to make bad
products sell.
Chandler found a particular structure sequence to be often
repeated as organisations grow and change strategy over time.
New Strategy is New administrative Organisational
formulated problems performance declines
Improved
New Organisational
Organisational
Structure
Performance
Kim & Mauborgne assert that these strategic moves create a leap
in value for the company, its buyers, and its employees, while
unlocking new demand and making the competition irrelevant.
Under this theory, markets are divided into two distinct types :
• Red Ocean
• Blue Ocean
Strategic Business Management
Red ocean represents all the industries in existence today - the known
market space. Here companies try to outperform their rivals to grab a
greater share of product or service demand. As the market space gets
crowded, prospects for profits and growth are reduced. and cutthroat
competition turns the ocean bloody; hence, the term red oceans.
Blue oceans, denote all the industries not in existence today - the
unknown market space, untainted by competition. In blue oceans,
demand is created rather than fought over. There is ample opportunity
for growth that is both profitable and rapid.
Mr. Kim and Ms. Mauborgne argue that businesses should focus
less on their competitors and more on alternatives; they also
should focus less on their customers, and more on non-customers,
or potential new customers.
1. Which of the factors that the industry takes for granted should be
eliminated ?
4. Which factors can be created, that the industry has never offered ?
Strategic Business Management
Red Ocean V/s Blue Ocean :
5. Under Red ocean, the firms tries to make the strategic choice
between differentiation or low cost. Under blue ocean, it
seeks differentiation and low cost.
Strategic Business Management
Managing Conflict
Conflict is disagreement between two or more parties on one or
more issues.
Establishing annual objectives can lead to conflict because individuals
have different expectations and perceptions , schedules create
pressures, personalities are incompatible, and misunderstandings
between line managers and staff managers may occur.
Conflict is unavoidable in organisations , so it is important that
conflict be managed and resolved before dysfunctional
consequences affect organisational performance.
Various approaches to managing conflicts can be classified into
three categories :
a. Avoidance
b. Defusion
c. Confrontation
Strategic Business Management
Conflicts in Organisations :
Conflicts may be cognitive or affective.
While the past has been about positioning the firm in its external
environment, today it is more about harnessing internal resources
aimed at providing superior benefits to customers. Discuss.
Model Question Bank
When it comes down to strategic management, the issues in
traditional brick and mortar businesses and the new economy e-
businesses are one and the same – same problems and same
strategic tools to solve them. Do you agree? Discuss with proper
justification.
Critically analyse the difference between the BCG Matrix and the GE
9-Cell Matrix for portfolio analysis.