Strategic Management & Business

Policy Notes
Strategic Management and Business Policy 13th Edition - Wheelen, Thomas L. and J. David Hunger

Table of Contents

Ch: 1 - : Introduction to Strategic Management & Business Policy........................................................................ 9

What is Strategy? ............................................................................................................................................... 9
What Do We Mean By Strategy? ........................................................................................................................ 9
What Is Strategy About?..................................................................................................................................... 9
What is NOT Strategy ......................................................................................................................................... 9
Fallacy of Forecasting ................................................................................................................................... 10
Fallacy of Detachment .................................................................................................................................. 10
Fallacy of Formalization ................................................................................................................................ 11
Alternative Views of Strategy ........................................................................................................................... 11
Identifying a Company’s Strategy – What to Look For ..................................................................................... 12
A Hierarchy of Company Statement ................................................................................................................. 13
Illustration ........................................................................................................................................................ 13
Mind of the Strategist....................................................................................................................................... 13
Strategic Vision & Learning .............................................................................................................................. 14
Strategic Thinking ............................................................................................................................................. 14
Setting the Stage .......................................................................................................................................... 15
Next Phase .................................................................................................................................................... 15
Crafting Strategy ............................................................................................................................................... 15
Patterns in Action ............................................................................................................................................. 15
Cycles of Change ............................................................................................................................................... 15
Industry-Product Cycles: S ................................................................................................................................ 16
Mainframe to minicomputers ...................................................................................................................... 16

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 Behavioural Strategy ........................................................................................................................................ 17
Porter’s Strategy Model ................................................................................................................................... 18
Basic Model of Strategic Management ............................................................................................................ 18
Strategic Management Framework .................................................................................................................. 19
Elements of Strategic Formulation ............................................................................................................... 19
Three Types of Strategy ................................................................................................................................ 20
Crafting Strategy-Henry Mintzberg .............................................................................................................. 20
4 P Strategy by Mintzberg ............................................................................................................................ 20
Types of Strategy by Mintzberg .................................................................................................................... 21
Crafting Strategy ........................................................................................................................................... 21
Strategic Plan .................................................................................................................................................... 21
Strategy Statement....................................................................................................................................... 22
Strategic Objective ....................................................................................................................................... 22
Priority Actions ............................................................................................................................................. 22
Vision & Values ............................................................................................................................................. 22
Values & Culture ........................................................................................................................................... 23
Illustration: Southwest Airlines (1993) ......................................................................................................... 23
Competitive Advantage .................................................................................................................................... 24
Positioning .................................................................................................................................................... 24
Capability ...................................................................................................................................................... 24
Ch: 4 - Environmental Scanning and Industry Analysis ........................................................................................ 25
Environmental Scanning ................................................................................................................................... 25
Strategy Formulation ........................................................................................................................................ 25
Environmental Variables .................................................................................................................................. 26
Scanning Societal Environment ........................................................................................................................ 26
Important Variables in Societal Environment .............................................................................................. 27
Socio-cultural trends .................................................................................................................................... 27
Scanning the Task Environment ................................................................................................................... 28
Industry Environment ....................................................................................................................................... 28
Porter’s Approach to Industry Analysis ........................................................................................................ 28
Threat of New Entrants .................................................................................................................................... 29
Rivalry among Existing Firms ............................................................................................................................ 29

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 Threat of Substitute Products or Services ........................................................................................................ 30
Bargaining Power of Buyers ............................................................................................................................. 30
Sixth Force (Relative Power of Complementors) ............................................................................................. 30
Competitive forces that shape the strategy ..................................................................................................... 31
Preparing Porter’s Five Forces Model Analysis ................................................................................................ 31
Low-cost Carriers in India ................................................................................................................................. 31
Case Discussion................................................................................................................................................. 32
What factors encouraged the growth of LCC in India? ................................................................................ 32
Carry out Industry analysis of LCC. ............................................................................................................... 32
Current Status-LCC in India (2016) ............................................................................................................... 32
How industries Change? ................................................................................................................................... 33
Strategic Groups ............................................................................................................................................... 34
Mapping of Strategic Groups........................................................................................................................ 34
Strategic Types ................................................................................................................................................. 34
External Factors Analysis Summary .................................................................................................................. 35
EFAS (Steps) .................................................................................................................................................. 35
Ch: 5 - Organizational Analysis - Internal Environmental Scanning ..................................................................... 36
Resource-based Approach................................................................................................................................ 36
A Resource-based approach for organizational analysis .............................................................................. 36
Core Competence ......................................................................................................................................... 36
VRIO Framework........................................................................................................................................... 37
Sustainability of firm’s distinctive competencies ......................................................................................... 38
Paradox of Core competency: ...................................................................................................................... 38
Continuum of Resource Sustainability ......................................................................................................... 38
Value-Chain Analysis ........................................................................................................................................ 39
Porter Value-Chain analysis .......................................................................................................................... 39
Corporate Value Chain Analysis.................................................................................................................... 39
Organization Design ......................................................................................................................................... 40
Organizational Analysis .................................................................................................................................... 40
Scanning Functional resources and capabilities ........................................................................................... 40
Basic Organizational Structures .................................................................................................................... 41
Routines ........................................................................................................................................................ 42

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 Values & Culture ........................................................................................................................................... 42
Assessing Corporate culture – The company way ........................................................................................ 43
Strategic R&D Issues ..................................................................................................................................... 43
Strategic Operations issues .......................................................................................................................... 44
Internal Factor Analysis Summary ................................................................................................................ 44
Ch: 6 - Strategy Formulation: Situation Analysis and Business Strategy .............................................................. 46
Strategy Types .................................................................................................................................................. 46
Resource based Strategy .................................................................................................................................. 46
Strategic Management Process ........................................................................................................................ 46
Situation Analysis ............................................................................................................................................. 47
SWOT Analysis .................................................................................................................................................. 47
Strategic Factors Analysis Summary (SFAS) Matrix ...................................................................................... 47
Alternative Strategies- TOWS Matrix ............................................................................................................... 48
Business Strategies ........................................................................................................................................... 48
Porter’s Competitive Strategies ................................................................................................................... 48
Porter’s Generic Strategies ........................................................................................................................... 49
Few Examples ............................................................................................................................................... 50
There are still only two ways to compete? .................................................................................................. 50
Risks in Competitive Strategies .................................................................................................................... 51
Issues in Competitive Strategies....................................................................................................................... 51
Industry Structure and Competitive Strategy............................................................................................... 51
Amul and Competitive Strategies ................................................................................................................. 52
Competitive Tactics ...................................................................................................................................... 52
Puma: Good Run In India .............................................................................................................................. 52
Half-Truth of First-Mover Advantage ........................................................................................................... 53
Is a First-Mover Advantage Likely? ............................................................................................................... 53
Market Location: Where to Compete .......................................................................................................... 54
Cooperative strategies.................................................................................................................................. 54
Collusion ....................................................................................................................................................... 54
Strategic Alliances......................................................................................................................................... 54
Growth of Mahindra & Mahindra ................................................................................................................ 54
Types of Cooperative Agreements ............................................................................................................... 55

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Ch: 7 - Strategy Formulation: Corporate Strategy ................................................................................................ 56
Directional Strategy .......................................................................................................................................... 56
Directional Strategy (Grand Strategy) .......................................................................................................... 56
Growth Strategies ......................................................................................................................................... 56
Diversification Strategies .............................................................................................................................. 60
Grand Strategies ........................................................................................................................................... 61
Stability Strategies ............................................................................................................................................ 62
Retrenchment strategies .................................................................................................................................. 62
Turnaround strategy ..................................................................................................................................... 62
Retrenchment strategies .............................................................................................................................. 64
Portfolio analysis .............................................................................................................................................. 65
BCG Growth-Share Matrix ............................................................................................................................ 65
BCG Matrix of FMCG Companies .................................................................................................................. 66
BCG Matrix—Limitations .............................................................................................................................. 66
GE Business Screen ....................................................................................................................................... 66
GE Business Screen—Limitations ................................................................................................................. 67
Corporate Parenting ..................................................................................................................................... 67
Developing a Corporate Parenting Strategy ................................................................................................. 67
Ch: 8 - Strategy Formulation: Functional Strategy and Strategic Choice ............................................................. 68
Functional Strategy........................................................................................................................................... 68
Marketing Strategy ....................................................................................................................................... 68
Ansoff Matrix ................................................................................................................................................ 69
Financial Strategy ......................................................................................................................................... 70
Research and Development Strategy ........................................................................................................... 70
Operations Strategy...................................................................................................................................... 71
Purchasing Strategy ...................................................................................................................................... 72
Logistics Strategy .......................................................................................................................................... 73
Human Resource Strategy ............................................................................................................................ 73
Information Technology Strategy ................................................................................................................. 74
The Sourcing Decision ...................................................................................................................................... 75
Disadvantages of Outsourcing and Offshoring ............................................................................................. 75
Errors in Outsourcing Efforts ........................................................................................................................ 75

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 Outsourcing Matrix....................................................................................................................................... 76
IT cost-arbitrage sourcing ............................................................................................................................. 76
Philippines: Choice for New Sourcing Decisions........................................................................................... 76
Ch: 9 – Strategy Implementation: Organizing for Action ..................................................................................... 78
What is Strategy Implementation? .................................................................................................................. 78
Implementation Challenges.......................................................................................................................... 78
The 10 Basic Tasks of the Strategy Execution Process ................................................................................. 79
The Principal Components of the Strategy Execution Process..................................................................... 79
Developing Programs, Budgets and Procedures .......................................................................................... 80
Achieving Synergy......................................................................................................................................... 80
Structure Follows Strategy ........................................................................................................................... 80
Tata Motors- Moves to flat five-level hierarchy ..................................................................................... 80
500 executives offered VRS ...................................................................................................................... 80
Stages of Corporate Development ............................................................................................................... 80
Advanced Types of Organizational Structure ............................................................................................... 81
Staffing.............................................................................................................................................................. 84
Staffing: Role of an Integration Manager ..................................................................................................... 84
Staffing follows Strategy ............................................................................................................................... 84
Selection and Management Development................................................................................................... 85
Problems in Retrenchment........................................................................................................................... 87
Leading ............................................................................................................................................................. 88
Managing Corporate Culture ........................................................................................................................ 88
Accessing Strategy-Culture Compatibility .................................................................................................... 89
Managing Cultural Change Through Communication ................................................................................. 89
Managing Diverse Cultures Following an Acquisition .................................................................................. 90
Ch 11 - Evaluation & Control ................................................................................................................................ 91
Evaluation & Control in Strategic Management............................................................................................... 91
Types of Controls .......................................................................................................................................... 91
Activity-based Costing .................................................................................................................................. 91
Measuring Performance ............................................................................................................................... 92
Problems in Measuring Performance ............................................................................................................... 94

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 Negative Side effects of measuring performance: ....................................................................................... 94
Goal Displacement........................................................................................................................................ 95
Why to go global? ......................................................................................................................................... 95
Global strategy: ............................................................................................................................................ 97
International strategy : ................................................................................................................................. 97
Multidomestic strategy ................................................................................................................................ 97
Global strategy ............................................................................................................................................. 97
Transnational strategy .................................................................................................................................. 97
International Strategy................................................................................................................................... 98
Defending against global giants ................................................................................................................... 98
Technology Strategy ..................................................................................................................................... 98
The Technology S-Curve ............................................................................................................................... 99
The S-Shaped Market Diffusion Curve.......................................................................................................... 99
Technology Strategy Issues for Innovators ................................................................................................ 100
Commercialization Strategies ..................................................................................................................... 100
The Technology S-Curve and Technology Transitions ................................................................................ 101
Strategies to Become a Platform Leader: Coring and Tipping ....................................................................... 101
Categories of Innovation ............................................................................................................................ 102
Innovation Adoption Curve ........................................................................................................................ 102
Internal Scanning: Organizational Analysis ........................................................................................................ 103
Business Models ............................................................................................................................................. 103
Types of business models ........................................................................................................................... 103
Business Model Canvas .............................................................................................................................. 104
Alibaba-Business Model ............................................................................................................................. 104
Blue Ocean Strategy ....................................................................................................................................... 105
IMPACT of Blue Oceans .............................................................................................................................. 106
Red Ocean V/S Blue Ocean ......................................................................................................................... 107
Red Ocean Traps ......................................................................................................................................... 107
BLUE OCEAN PRINCIPLES ............................................................................................................................ 108
Blue Ocean Tools ........................................................................................................................................ 108
Value Innovation ........................................................................................................................................ 109
Strategy Canvas .......................................................................................................................................... 109

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 Four Actions Framework ............................................................................................................................ 110
Three Characteristics of Blue Ocean Strategy ............................................................................................ 111
Strategy Canvas of SWA ............................................................................................................................. 111
Design Thinking .......................................................................................................................................... 113
MINDSETS ................................................................................................................................................... 114
HOW TO BRAINSTORM: RULES................................................................................................................... 118
Role of Board of Directors .......................................................................................................................... 122
Role of the Board in Strategic Management .............................................................................................. 123
Members of a Board of Directors ............................................................................................................... 123
Inside V/S Outside Directors....................................................................................................................... 124
Impact of the Sarbanes-Oxley Act on Corporate Governance ................................................................... 124
Responsibilities of Top Management ......................................................................................................... 124
Social responsibilities of Strategic Decision Makers .................................................................................. 125
Carroll’s four responsibilities of Business ................................................................................................... 125
Characteristics of Sustainability ................................................................................................................. 126
Corporate Stakeholders.............................................................................................................................. 126
Ethical Decision Making .............................................................................................................................. 126
Encouraging Ethical Behavior ..................................................................................................................... 127
Social Responsibility in Practice: ITC e-Choupal ......................................................................................... 128
EC – 1 Quiz 1 ....................................................................................................................................................... 130
EC – 1 Quiz 2 ....................................................................................................................................................... 135

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Ch: 1 - : Introduction to Strategic Management & Business Policy

What is Strategy?
• Dictionary: Strategy is a plan, method, or a series of maneuvers or stratagems for obtaining a
specific goal or result.
• Strategy is about understanding what you do, looking out over the long-term future to
determine what you want to become, and—most importantly—focusing on how you plan to
get there.
• Military: Strategy is concerned with “drafting the plan of war, shaping the individual
campaigns and within these, deciding on the individual engagements”. (On War by
Clausewitz) (See Book- The Art of War)
• Management: Strategy is a plan or pattern that integrates an organization’s major goals,
policies and action sequences into a cohesive whole.
• To Drucker “Strategy is a purposeful action”.

What Do We Mean By Strategy?

• What is our present situation?
– Business environment and industry conditions
– Firm’s financial and competitive capabilities
• Where do we want to go from here?
– Creating a vision for the firm’s future direction
• How are we going to get there?
– Crafting an action plan for heading the firm in the intended direction, staking out a
market position, attracting customers, achieving the targeted financial and market
performance, and getting the firm where it wants to go is its strategy.

What Is Strategy About?

• Strategy is all about How:
– How to attract and please customers.
– How to compete against rivals.
– How to position the firm in the marketplace.
– How best to respond to changing economic and market conditions.
– How to capitalize on attractive opportunities to grow the business.
– How to achieve the firm’s performance targets.
• Strategy is about creating Value
• Strategy is the creation of a unique and valuable Position, involving a different set of
activities.
• Differentiation arises from both the choice of activities and how they are performed.
• Strategic positioning means performing similar activities in different ways or
performing different activities from rivals.

What is NOT Strategy

• Strategy is Not Operational Effectiveness/Excellence (Necessary but not sufficient)

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 Operational effectiveness means performing similar activities better than rivals, the
–
quest for improving cost, quality
& speed.
– The productivity frontier is
constantly shifting outward as
new technologies, tools and
techniques are developed
Note: Japanese companies rarely have
strategies
• Strategy is Not about Planning &
Budgeting. Planning represent
calculating style of management, not a
committing style which engages people.
• Thinking and Acting are most obviously
separated in the dichotomy between formulation and implementation-
Fallacy of strategic planning (Refer the courseware):
1. The fallacy of prediction: Planning stresses the importance of accurate forecasting, ex:
by extrapolating past performance.
2. The fallacy of detachment: Detachment of strategy from operations.
3. The fallacy of formalization: Formalization is achieved through decomposition that is
essentially analytical.
Strategic Positioning- Southwest Airlines, IKEA (Mapping Activity-System)

Fallacy of Forecasting
• Extrapolation i.e. projecting past
performance patterns into future works
in conditions of stability.
• Hockey stick forecasts: Downward
trends were extrapolated for a short
time, followed by sharp upward
predictions.
• Changes rarely occur abruptly or
without supporting context.

Fallacy of Detachment
• The belief that strategic managers and their planning systems can be detached from
operations is predicated on one fundamental assumption: that they can be informed in a
formal way.

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 • The messy world of random noise, gossip, inference, impression and fact must thus be
reduced to firm data, hardened and aggregated so that they can be supplied regularly in a
formal way.
• Hard data is limited in scope, aggregated and sometimes unreliable.

Fallacy of Formalization
• Formalization is achieved through decomposition, -process is reduced to a procedure, a series
of steps i.e. essentially analytical.
• Planning by it’s very nature defines & preserves categories. Creativity, by it’s very nature,
creates categories and re-arranges established ones.
• Strategy formation, needs both
• Creativity to function beyond boxes, i.e. to create new perspectives & new
combinations, AND
• Analysis for planning & decision making.

Alternative Views of Strategy

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Identifying a Company’s Strategy – What to Look For

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A Hierarchy of Company Statement

Illustration
• McDonald’s strategy in Quick-service Restaurant Industry
• Plan-to-Win strategy focus-”Being better, not just bigger” (2011)
• Key initiatives of the Plan-to-Win strategy:
– Improved restaurant operations (employee training program, leadership institute,
close monitoring food and utility costs)
– Affordable pricing (Scrutinizing operating costs)
– Wide menu variety and beverage choices (McCafe, Mcbreakfast)
– Convenience and expansion of dining opportunities (Dining outlets, drive-thru)
– Ongoing restaurant reinvestment and international expansion (emerging markets)

Mind of the Strategist

Mind of the Strategist- Kenichi Ohmae

Phenomena and events in the real world do not always fit a linear model.

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A breakthrough to the best possible solution can come only from a combination of rational
analysis, based on the real nature of things, and imaginative reintegration of all the different
items into a new pattern, using nonlinear brainpower

Strategic Vision & Learning

• If Managers have to see the BIG PICTURE and create STRATEGIC VISION – It is SYNTHESIS
that moulds various perceptions of the reality – i.e. images as well as discrete facts into an
integrated Strategic Vision.
• Strategic Vision also needs to be translated to Implementable Plan & measurable Goals.
• Strategic Learning is an inductive process that feeds-back to the Vision/Plan based on the
intimate knowledge of the situation.
• Analysis may precede & support Synthesis, by defining parts that can be combined into
wholes. Analysis may follow & elaborate Synthesis, by decomposing and formalizing its
consequences.

Strategic Thinking
• Strategic thinking is about analyzing opportunities and problems from a broad perspective and
understanding the potential impact of your actions.
• Strategic thinkers visualize what might or could be, and take a holistic approach to day-to-day
issues and challenges.
• Seven Strategic Thinking skills
1. Seeing the big picture
2. Clarifying strategic objectives
3. Identifying relationships, patterns, and trends
4. Thinking creatively
5. Analyzing information
6. Prioritizing your actions
7. Making trade-offs.

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Setting the Stage
• Seeing the big picture
– Understanding the Broader business environment in which you operate.
• Clarifying strategic objectives
– Determining Smart Goals & Metrics
– Questioning the assumptions

Next Phase
• Once you've set the stage, you put your Strategic thinking skills to use in order to generate
results. This phase includes:
– Identifying patterns & relationships —Spotting patterns across seemingly unrelated
events, and categorizing related information.
– Thinking creatively —Generating alternatives, visualizing new possibilities, challenging
your assumptions, and opening yourself to new information
– Analyzing information —Listing critical information while making a decision, use of
tools like pareto chart, fish bone diagram for RCA…
– Prioritizing your actions —Staying focused on your objectives while handling multiple
demands and competing priorities
– Making trade-offs —Recognizing the potential advantages and disadvantages, making
choices, balancing short- and long-term

Crafting Strategy
• Strategy, is one of those words that people define in one way and often use in another way
(patterns in action) without realizing the difference.
• One of the main reason why strategies fail is “because of the assumption that thought must
be independent of action”.
• The key for Crafting Strategies is establishing intimate connection between Thought & Action.

Patterns in Action
• All Strategy making walks on two feet, one deliberate, the other emergent.
• Organizations adopt two distinct modes of behavior at different times -
• Patterns of stability
• Patterns of change
• Long period of evolutionary change is sometimes punctuated by a brief bout of revolutionary
turmoil…
• Organizations can turn its own emerging patterns to find it’s new strategic orientation.

Cycles of Change
• Many strategic failures can be attributed to either mixing of change & stability or being
obsessed with one of these forces.
• Managing stability is about pursuing Strategies for Growth. Example –perfecting a retail
formula.
• The real challenge in Crafting strategy lies in detecting the subtle discontinuities.

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 • Discontinuities are irregular, they can be detected if one is attuned to existing patterns and
able to sense any breaks in them…
• It requires intimate knowledge of one’s business similar to a craftsman’s feel of the clay.

Industry-Product Cycles: S
• Creation-Growth-Maturity-Decline.
• Corporations are built on the assumption of continuity.

Mainframe to minicomputers

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Behavioural Strategy

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Porter’s Strategy Model
• Strategy is the creation of a unique and valuable positioning, involving a different set of
activities.
• Strategic positioning means performing different activities from rivals or performing similar
activities in different ways. . .
• Strategic Position emerges from three specific needs-
• Serving few needs of many customers
• Serving broad needs of few customers
• Serving broad needs of many customers in a narrow market
• Differentiation:
• Deliver greater Value at a high Cost
• Comparable Value at a low cost or do Both

Basic Model of Strategic Management

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 • Strategic Management is a set of managerial decisions and actions that determines the long
term performance of the corporation.
• The Goal of Strategic Management is to provide the conceptual framework that will help a
Manager understand the key relationships among actions, context and performance.

Strategic Management Framework

Elements of Strategic Formulation

• Vision- What core to preserve and what
future to stimulate progress towards; Core
ideology what we preserve and envisioned
future is what we Inspire to become
IKEA: To create a better everyday life for
many people
• Mission- Purpose or reason for the
organization’s Existence. Mission statement
defines the fundamental, unique purpose that
sets a company apart from other firms and
identifies scope or domain of company’s
operations.
• Objectives: End results of planned activity;
specifies what is to be accomplished by when
and quantified, if possible.
• Strategies: form a comprehensive master

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 plan that states how the corporation will achieve its mission and objectives
• Policies: Broad guideline for decision making that links the formulation of a strategy with its
implementation.
• Eg: 3M says researchers should spend 15% of their time working on something other than
their primary project

Three Types of Strategy

• Corporate Strategy- Company's overall direction in

terms of its general attitude toward growth and the
management of its various business and product
lines. Three main categories-Growth, Stability,
Retrenchment
• Business Strategy-Occurs at the business unit or
product level, it emphasizes improvement of the
competitive position of corporation’s products or
services in specific industry or market segment
• Functional Strategy- Approach taken by functional
area to achieve corporate and business unit
objectives and strategies by maximizing resource
productivity

Crafting Strategy-Henry Mintzberg

• Manager-Craftsman, Strategies-Clay
• Strategies are both plans for future and patterns from the past
• Strategies need not to be deliberate, they can also emerge
• There is no one best way to make strategy
• To manage strategy is to craft thought and action, control and learning, stability and
change.

4 P Strategy by Mintzberg
• Perspective describes the Vision & direction.
• Plan is often referred to an Intended Strategy; it is the deliberate course of action charting
path towards strategic objectives.
• Positioning becomes the mediating force between the Organization and the environment i.e.
between internal & external context.
• Patterns describe a series of consistent decisions and actions over time. They are the basis
for Emergent Strategies.

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Types of Strategy by Mintzberg

Crafting Strategy
• The key for Crafting Strategies is establishing intimate connection between Thought & Action.
• 4P Strategy merges formulation and implementation in to a fluid process of Learning through
which creative strategies evolve.

Strategic Plan
• While strategic plans vary, they generally contain the following components:

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 – Strategy statement
– Strategic objectives
– Priority actions
– Action plans

Strategy Statement
• Strategy Statement of a Organization typically comprises of :
– Mission: the organization's purpose
– Vision: the organization's deeply desired future
– Values: the driving beliefs that define a company's culture and that support the
organization's future competitive advantage
– Business definition: the firm's existing & envisioned products, services, geographic
distribution, technology, customers, and markets
– Competitive advantages: the customer needs that the organization plans to meet
better than competitors do
– Core competencies: the tangible and intangible assets the company will leverage to
gain competitive advantage

Strategic Objective
• Strategic objectives allow a company to measure how it is performing in key result areas —
areas where the company must achieve superior results to achieve its long-term strategy.
• Key result areas often come directly from a company's direction statement.
• For example, if a company's vision is global expansion, then it will want to measure success in
that area. Areas for which a company might set strategic objectives are market position,
customer loyalty, quality, service, innovation, & human capital.

Priority Actions
• Priority actions are a company's primary instruments of action. These are the key issues that
surface during the strategic planning process —for example, a weakness to be addressed or
an opportunity to be seized.
• Priority actions typically relate to competitive concerns:
– Products & services to create and add value for its customers
– Internal process changes needed to support a company's strategy, and the skills &
resources needed to accomplish value creation and process change.
– Common priority actions RELATE TO products, services, costs, new markets,
geographic expansion, acquisitions, organizational structure, core competencies,
processes, new technologies, training & IS.

Vision & Values

• Vision represents desire, dreams, hopes and the Big Picture.
• Vision is seeing a future state with the minds eye, it is applied imagination. They are not
fantasies but reality not yet brought into physical sphere.
• Values are our beliefs and rules by which we make decisions about right and wrong, should &
shouldn't, good & bad.

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 • Values are the True North reference points and act like moral compass guiding our life
journey.

Values & Culture

• Vision & Values, Connect People to both the long term
Goals of the organization and the daily Routine.
• What is Culture: The way of life, especially the general
customs and beliefs, of a particular group of people at a
particular time. (Cambridge dictionary)
• Expression of our Values.
• Reflected in our Behaviors
• Routines, Rituals, Stories, Symbols…

Illustration: Southwest Airlines (1993)

• 1993-Southwest airlines the seventh-largest airlines, strong financial performance

• Focused, point-to-point airlines model, low cost-high frequency, quick turnaround, high
productivity, equipment usage, clear target market, customer services
• Southwest Model-
– Southwest Service-Family fun
– Operations-No booking through agents, point-to-point route system, flying into
uncongested airports of small cities, only drinks and snacks, 84% unionized workforce,
using only Boeing 737 jets, turned in time was 15 min as compared to industry
average was 55 min
• Cost control- Great services at low cost-buying fuel from variety of vendors depending on the
best price; gate cost and landing fees lower at small airports; optimizing number of departure
from each airport
• Marketing- ‘we have a lot of ambassadors out there-our customers’

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 • People- hiring process-customers part of selection process, peer hiring, turnover averaged
7%, training at Southwest’s People University, profit-sharing plans
• Corporate Culture- unwritten rules: You have to compassionate to internal and external
customers; You have to have a positive attitude; You have to want to work and use common
sense; You have to have a great sense of humor

Competitive Advantage
• Value Creation is at the heart of any successful strategy. The firm must also be able to
capture the Value it creates; increase in Value must translate into an increase in profit.
• A firm can capture the Value other firms create, like in case of CT scanner which was invented
by EMI, GE was able to capture the Value and take lead.
• Two main routes to competitive advantage are firm’s Position and firm’s Capability.

Positioning
• The Positioning of the firm relates to the opportunities & challenges posed by the external
context.
– Brand name: A strong brand lets the firm command premium shelf space, wider
customer attention, and profitable growth.
– Customer relationship: Reputation for fair dealing and product quality has a positional
advantage over competition.
– Distribution & Geographic advantages: Well established distribution channels &
locations provide dominant position.
– Installed base & de-facto standards: Markets where product compatibility is important,
firms with large installed base have a positional advantage.

Capability
• The Capability relates to the internal context on how a firm can acquire and organize tangible
and intangible assets to outperform competition.
– Capability is an attribute of the organization; it is not possible to separate it from the
firm.
– Expertise is dispersed through many parts of the firm, and organization has routines
that access and coordinates this information.
– Major threat to sustainable competitive advantage is the possibility that a rival can
diagnose and duplicate the firm’s capability.

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Ch: 4 - Environmental Scanning and Industry Analysis

Environmental Scanning
• Its purpose is to identify strategic factors—those external and internal elements that will
determine the future of the corporation, using SWOT analysis.
• The external environment comprises of Opportunities and Threats and these strategic factors
form the context within which the corporation exists.
• The monitoring, evaluation and dissemination of information from the external and internal
environments to key people within the corporation
• Positive correlation between Environmental Scanning and Profit
• The internal environment of a corporation consists of factors relating to Strengths and
Weaknesses within the organization.
• These variables form the context in which work is done. They include the corporation’s
structure, culture, and resources.
• 75 % executives state-Global, social, environmental, business trends are increasingly
important to corporate strategy (McKinsey & Company, 2008)

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
(SWOT).
• It includes defining the corporate mission, specifying achievable objectives, developing
strategies, and setting policy guidelines.

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Environmental Variables

Scanning Societal Environment

• The societal environment is mankind’s social system that includes general forces that
influence organization’s long-run decisions-
• STEEP Analysis
– Socio-cultural forces that regulate the values and customs of society.
– Technological forces that generate problem-solving inventions.
– Economic forces that regulate the exchange of materials, money, energy, and
information.
– Ecological
– Political-legal forces that allocate power and provide constraining and protecting laws
and regulations.
Also known as PESTEL analysis (Political, Economic, Sociocultural, Technological, Ecological, Legal
Factors)

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Important Variables in Societal Environment

Read: Life and death in Apple’s forbidden city

https://www.theguardian.com/technology/2017/jun/18/foxconn-life-death-forbidden-city-longhua-
suicide-apple-iphone-brian-merchant-one-device-extract

Socio-cultural trends
• Eight current socio-cultural trends are transforming North America and the rest of the world:
– Increasing environmental awareness:
– Growing health consciousness:
– Expanding seniors market:
– Declining mass market:
– Changing pace and location of life:
– Changing household composition:
– Increasing diversity of workforce and markets:

Illustration: Indian Retail Industry Analysis

• Fourth most attractive nation for retail investment among 30 emerging markets
• Transition from traditional retail sector to organized retail
• Political Environment- FDI in multi-brand retailing, make-in India
• Technological Environment- Relatively stable
• Social and Demographic Environment- Fast growing middle class, changing consumption
pattern
• Economic Environment- Increasing growth rate, high consumers’ capacity to shop

http://economictimes.indiatimes.com/small-biz/startups/government-approves-amazons-
proposal-for-fdi-in-food/articleshow/59533012.cms

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Scanning the Task Environment

Industry Environment
• The Industry environment includes those elements or groups that directly affect a corporation
and, in turn, are affected by it. These are-
– Competitors
– Customers
– Buyers & Suppliers
– Employees/labour unions, special-interest groups, and trade associations, local
communities, creditors…

Porter’s Approach to Industry Analysis

• Michael Porter, an authority on competitive strategy, contends that a corporation is most
concerned with the intensity of competition within its industry.
• The level of this intensity is determined by the 6 competitive forces: rivalry among existing
firms, threat of new entrants & substitute products or services, bargaining power of buyers &
suppliers, & relative power of stakeholders.
• The stronger each of these forces, more limited is the companies in their ability to raise prices
& earn profits.

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 A strategist can analyze any industry
High force can be regarded as a by rating each competitive force as
threat because it is likely to reduce high, medium, or low in strength..
profits. A low force, in contrast, can
be viewed as an opportunity because
it may allow the company to earn
greater profits its industry.

Threat of New Entrants

• Entry barrier-obstruction that makes it difficult for a company to enter an industry.
– Economies of scale (Ex: Microprocessors)
– Product differentiation
– Capital requirements
– Switching costs (Ex: ERP Systems; Bloomberg Terminal)
– Access to distribution channels
– Cost disadvantages independent of size
– Government policy (IPR rules; Subsidies)

Rivalry among Existing Firms

• Number of competitors
• Rate of industry growth
• Product or service characteristics
• Amount of fixed costs
• Capacity
• Height of exit barriers
• Diversity of rivals

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Threat of Substitute Products or Services
• Substitute Product- Products that appear different but can satisfy the same need as
another product
• Tea & coffee
• Any other example? (Video conferencing to Travel)
• Many substitute products
– Are a threat and limit the price that companies in one industry can charge for their
product, and thus industry profitability
• Few or weak close substitutes
– Gives the industry the opportunity to raise prices and earn additional profits

Bargaining Power of Buyers

Ability of buyers to force prices down, bargain for higher quality, play competitors against each other.
– Large purchases
– Backward integration
– Alternative suppliers
– Low cost to change suppliers
– Product represents a high percentage of buyer’s cost
– Buyer earns low profits
– Product is unimportant to buyer
Ability of suppliers to raise prices or reduce quality.
– Industry is dominated by a few companies (Microsoft’s near monopoly in operating
system)
– Unique product or service
– Substitutes are not readily available
– Ability to forward integrate
– Unimportance of product or service to the industry

Sixth Force (Relative Power of Complementors)

• Complementors-companies that produce closely related products or services
• When complementors are important and their number is increasing
– Demand and profits in the industry are boosted
• When complementors are weak
– Industry growth can slow and profits can be limited

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Competitive forces that shape the strategy
• By analyzing the competitive forces, the
firm gains a complete picture of what is
influencing profitability in your industry

• Reshape the forces in your favor

Source: HBR, 2008

Preparing Porter’s Five Forces Model Analysis

• Movie Theatre Industry in India:
– Threat of New Entrants
– Rivalry amongst existing players-
– Threat of Substitutes
– Bargaining power of Buyers
– Bargaining power of Suppliers

Low-cost Carriers in India

• Pre-liberalization: Air Corporation Act 1953; 2 nationalized entities: IA (Domestic services), AI
(International services), restricted private players from operating across India
• Post-liberalization: six private airlines
• 2003-Two survived-Jet Airways and Sahara Airlines
• 2003-Entry of Air Deccan
• 2003-04 to 2007-08-CAGR 19.14% air passenger traffic; entry of new players
• 2011-passenger demand grew only by 5.9 %

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 • Growth of the industry was threatened by- mounting losses, rising aviation fuel prices, high
taxation and airport charges, shortage of qualified pilots and technical manpower, congestion
at airports, upgrading of airport security

Case Discussion
What factors encouraged the growth of LCC in India?
– Growing corporate demand for official trips coupled with severe cost-cutting
– Rising income and growing propensity to spend on leisure among the vast middle
class, especially from Tier-II and III cities;
– Comparable fares with higher class ticket categories of Railways;
– Corporate tie-up, bundling of travel tickets, bulk booking
– Connectivity to Tier-II and III cities

Carry out Industry analysis of LCC.

Porter’s Five Forces Analysis-

– Threat of New Entrants- High
– Rivalry amongst existing players-High
– Threat of Substitutes: Moderate
– Bargaining power of Buyers: Moderate
– Bargaining power of Suppliers: High

Current Status-LCC in India (2016)

(Source: http://www.financialexpress.com/industry/indigo-tops-in-market-share-spicejet-leads-the-
plf-tally/139955/) Data-Aug 2016

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How industries Change?

(Source: McGhan, “How industries change?” Harvard Business Review, 2004)

Fair share of change?

(Source: McGhan, “How industries change?” Harvard Business Review, 2004)

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Strategic Groups
• Strategic group: A set of business units or firms that pursue similar strategies with similar
resources
• Some strategic groups in same industry are more profitable than others.
• Mapping of strategic groups:
• Select two broad categories that differentiate companies in an industry
• Plot the firms on these two dimensions.
• Draw a circle around those companies that are closest to one another.

Mapping of Strategic Groups

Source: Strategic Management, Hills & Jones

Strategic Types
Definition: A category of firms based on a common strategic orientation and a combination of
structure, culture and processes consistent with strategy.
General types (Miles and Snow):
• Defenders: Focus on improving efficiency of their existing operations
• Prospectors: Focus on product innovation and market opportunities
• Analyzers: Operate in at-least two different product-market areas, stable and variable.
• Reactors: Lack a consistent strategy-structure-culture relationship.

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External Factors Analysis Summary

EFAS (Steps)
S-1: List Opportunities and Threats in Column 1
S-2: Weight each factor from 1.0 (most important) to 0 (not important). The total weight must sum
to 1.0 (Column 2)
S-3: Rate each factor from 5.0 (outstanding) to 1.0 (Poor) based on the company’s response on that
factor (Column 3).
S-4: Multiply each factor’s weight with its rating to obtain each factor’s weighted score (column 4).
S-5: Use column 5 for rationale used for each factor.
S-6: Add individual weighted scores (in column 4) to obtain total weighted score for company. This
tells how well the company is responding to factors in its external environment.

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Ch: 5 - Organizational Analysis - Internal Environmental Scanning
• Organizational analysis is
concerned with identifying and
developing an organization’s
resources and competencies
• To identify internal strategic
factors-critical strengths and
weaknesses.
• Different Approaches:
• Resource-Based
Approach
• Value-chain analysis
• Scanning Functional
resources and capabilities

Resource-based Approach
• Resources-Organization’s assets and basic building blocks
– Tangible Assets: Plant, Equipment, Finances, Human Assets
– Intangible Assets: Technology, Culture, Reputation
• Capabilities - corporation’s ability to integrate its resources to achieve the Goals.
Corporation’s ability to exploit its resources.
– Consist of business processes & routines that manage the interaction among resources
to turn inputs into outputs. Marketing capabilities, HRM capabilities
• Dynamic Capabilities- Capabilities that are constantly being changed and reconfigure to
make them more adaptive to uncertain environment.
• Competency- A cross-functional integration and coordination of capabilities
• Core competency- A collection of competencies that cross divisional boundaries, is
wide-spread throughout the corporation and is something the corporation does exceedingly
well
Distinctive competencies- The core competencies those are superior to those of the competition

A Resource-based approach for organizational analysis

Ways to gain access to a Distinctive Competency:

1. Asset endowment: such as key patent, coming from the founding of the company (Xerox).
2. Acquired from someone else: through acquisition of other firm
3. Shared with another business unit or strategic partner
4. Built and accumulated over time within the company (Eg: Honda)

Core Competence
• Prahalad and Hamel- Core competencies are collective learning in the organization,
especially how to coordinate diverse production skills, and integrate multiple streams of
technologies.

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 • Eg: Sony-Miniaturization
• Philips- Optical-media
• Honda-Engines
Unlike physical assets, competencies do not deteriorate as they are applied and shared, they grow
Three tests can be applied to identify core competence:
1. It provides potential access to wide variety of markets
2. It makes a significant contribution to the perceived customer benefits of the end product
3. Core competence should be difficult for competitors to imitate

Source: Prahalad and Hamel, The Core Competence of Corporation, Harvard Business Review: 1990

VRIO Framework
• VRIO framework (Barney)- To evaluate firm’s competencies:
– Value: Does it provide customer value and competitive advantage?
– Rareness: Do no other competitors possess it?
– Imitability: Is it costly for others to imitate?
– Organization: Is the firm organized to exploit the resources?
Barney (1991): Firm resources and sustained competitive advantage
https://business.illinois.edu/josephm/BA545_Fall%202011/S10/Barney%20(1991).pdf

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Sustainability of firm’s distinctive competencies
Two characteristics determine the sustainability of firm’s distinctive competencies:
Durability- the rate at which a firm’s underlying resources, capabilities, or core competencies
depreciate or become obsolete.
Imitability- the rate at which a firm’s underlying resources, capabilities, or core competencies can be
duplicated by others.

A core competency can be easily imitated to the extent that it is transparent, transferable and
replicable.
Transparency- the speed at which other firms can understand the relationship of resources and
capabilities supporting a successful firm’s strategy.
Transferability- the ability of competitors to gather the resources and capabilities necessary to
support a competitive challenge.
Replicability- the ability of competitors to use duplicate resources and capabilities to imitate the other
firm’s success.

Paradox of Core competency:

• Explicit Knowledge: It can be easily articulated & communicated. Easy to learn and imitate
another company’s core competency.
• Tacit knowledge: Not easily communicated because it is complex, deeply rooted in employee
experience or in a corporation’s culture.

Continuum of Resource Sustainability

Sustainability of an Advantage
It is relatively easy to learn and imitate another company’s core competency or capability if it comes
from explicit knowledge than tacit knowledge.
Explicit knowledge- knowledge that can be easily articulated and communicated
Tacit knowledge- knowledge that is not easily communicated because it is deeply rooted in
employee experience or in the company’s culture

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Value-Chain Analysis
A linked set of value creating activities that begin with basic raw materials coming from suppliers,
moving on to a series of value-added activities involved in producing and marking a product or
service, and ending with distributors getting the final goods into the hands of the ultimate consumer

Porter Value-Chain analysis

Corporate Value Chain Analysis

Corporate value chain analysis involves the following three steps:
1. Examine each product line’s value chain in terms of the various activities involved in
producing that product or service: Which activities can be considered strengths (core
competencies) or weaknesses (core deficiencies)? Do any of the strengths provide competitive
advantage and can they thus be labeled distinctive competencies?
2. Examine the “linkages” within each product line’s value chain: Linkages are the
connections between the way one value activity (for example, marketing) is performed and the cost
of performance of another activity (for example, quality control). In seeking ways for a corporation to
gain competitive advantage in the marketplace, the same function can be performed in different
ways with different results. For example, quality inspection of 100% of output by the workers
themselves instead of the usual 10% by quality control inspectors might increase production costs,
but that increase could be more than offset by the savings obtained from reducing the number of
repair people needed to fix defective products and increasing the amount of salespeople’s time
devoted to selling instead of exchanging already-sold but defective products.
3. Examine the potential synergies among the value chains of different product lines or
business units: Each value element, such as advertising or manufacturing, has an inherent

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economy of scale in which activities are conducted at their lowest possible cost per unit of output. If
a particular product is not being produced at a high enough level to reach economies of scale in
distribution, another product could be used to share the same distribution channel. This is an
example of economies of scope, which result when the value chains of two separate products or
services share activities, such as the same marketing channels or manufacturing facilities. The cost of
joint production of multiple products can be lower than the cost of separate production.

• Forward Integration & Backward Integration

Organization Design
• Resources are an organization’s assets and the basic building blocks of the organization.
• Achieving the Competitive advantage hinges on how the organization is designed to deploy &
leverage the resources.
• Organizations have both structures & processes; they are made up of ways of doing things
and the rewards for doing them. They have formal rules and informal routines.

Organizational Analysis
• Organizations face two main classes of problems: the coordination problem and the incentive
problem.
• Three levers that help in addressing the challenges of coordination & incentive: Architecture,
Routines & Culture.

Scanning Functional resources and capabilities

• Basic Organizational Structures
• Corporate Culture

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 • Strategic Marketing issues
• Strategic Financial issues
• Strategic R&D issues
• Strategic Operations issues
• Strategic HRM issues
• Strategic Technology issues

Basic Organizational Structures

• Simple
• Functional
• Divisional
• Strategic Business Units
• Conglomerate

• The Organization chart depicts the architectural structure that groups people into different
teams and organizes them into governing hierarchy through reporting relationships.
• The architecture also includes compensation & information systems a firm uses to evaluate
individuals and groups.
• Functional structure, Divisional structure, Matrix structure + Cross functional links

Tata Motors is shrinking structure of its white-collar workforce to five layers from the existing 14,
in what is seen as the biggest organizational restructuring in the company’s history. Under the
new structure, the top two levels of managers will be responsible for execution of strategies
formulated by an executive committee, comprising the managing director and function and
business heads. Tata Motors has already picked more than 100 high-performers for the L1and L2
positions. (Source: Economic Times)

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Routines
• Much of the day to day activity and decision making within a firm are accomplished through
the exercise of routines.
• Routine for designing, repairing, shipping products, formal & informal meetings/huddle,
rewards & recognitions…
• Routines embody established interfaces among the teams that must interact in the
performance of a process.
– What routines exist for resource allocation?
– What routines exist for sharing of information?
– What routines exist for coordinating between sub units?
– What routines help senior management get visibility into frontline?
– What routines exist for rewards & recognition?

Values & Culture

• What is Culture: Culture is a shared system of meaning, ideas, and thought that guides a
group’s perception and understanding of the world and that shapes group member’s
behaviour.
– Culture is the Expression of our Values.
– Culture is Reflected in our Behaviors
– Symbols , Stories, Routines, Rituals, …

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Assessing Corporate culture – The company way
Corporate culture- the collection of beliefs, expectations and values learned and shared by a
corporation’s members and transmitted from one generation of employees to another.
Functions of Corporate Culture
• Conveys a sense of identity for employees
• Generates employee commitment
• Adds to the stability of the organization as a social system
• Serves as a frame of reference for employees to understand organizational activities
and as a guide for behavior

3M’s Innovation Culture

• Employing the Thirty Percent Rule, 30% of each division’s revenues must come from products
introduced in the last four years. This is tracked rigorously, and employee bonuses are based
on successful achievement of this goal.
3M has a rich set of structures and systems to encourage resourcefulness:
• Seed Capital
• New Venture Formation
• Dual-career ladder

Strategic R&D Issues

• Impact of technological discontinuity on strategy-

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Impact of Technology Discontinuity on Strategy
• Innovator’s Dilemma- The established market leaders are typically reluctant to move in a
timely manner to a new technology (Christensen)
• Eg: Computer Disk Drive Manufacturer-Moserbear
• http://www.forbesindia.com/printcontent/33432 Copyright @Forbes India

Strategic Operations issues

• Experience Curve (Learning curve)-Unit production costs decline by some fixed
percentage each time the total accumulated volume of production units doubles
• (The more experience a firm has in producing a particular product, the lower its costs)

• "Building Strategy on the Experience Curve," by Pankaj Ghemawat (March-

April 1985), Harvard business review.
• (https://hbr.org/1985/03/building-strategy-on-the-experience-curve)
• The Experience Curve (http://www.economist.com/node/14298944)

Experience Curve

Internal Factor Analysis Summary

1. List 8 to 10 most important strengths and weaknesses of the company
2. Assign a weight to each factor from 1.0 (Most important) to 0.0 (Not Important) based on
that factor’s probable impact on particular company’s current strategic position. All weights must
sum to 1.0 regardless the number of factors.
3. Assign a rating to each factor from 5 (outstanding) to 1 (poor) based on management’s
specific response to that factor.
4. Multiply the weight in column 2 for each factor times its rating in Column 3 to obtain that
factor’s weighted score
5. Add the weighted score of all items in column 4 to determine the total weighted score for that
particular company. The total weighted score indicates how well a particular company is responding

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to current and expected factors in its internal environment. The total weighted score for an
average firm in an industry is always 3.0

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Ch: 6 - Strategy Formulation: Situation Analysis and Business Strategy

Strategy Types
• Business strategy usually occurs at the business unit or product level, and it emphasizes
improvement of the competitive position of a corporation’s products or services.
• Functional strategy is the approach taken by a functional area to achieve corporate and
business unit objectives and strategies by maximizing resource productivity.
• Business strategy usually occurs at the business unit or product level, and it emphasizes
improvement of the competitive position of a corporation’s products or services.

Resource based Strategy

• Grant proposes a five-step, resource-based approach to strategy analysis-
1. Identify and classify the firm’s resources in terms of strengths and weaknesses.
2. Combine the firm’s strengths into specific capabilities and core competencies.
3. Appraise the profit potential of these capabilities and competencies in terms of their
potential for sustainable competitive advantage.
4. Select the strategy that best exploits the firm’s capabilities and competencies relative
to external opportunities.
5. Identify resource gaps and invest in upgrading weaknesses

Strategic Management Process

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Situation Analysis
• Strategy formulation concerns developing a corporation’s mission, objectives, strategies
and policies
• Situation analysis: The process of finding a strategic fit between external opportunities and
internal strengths while working around external threats and internal weaknesses
– SWOT analysis
– SFAS matrix

SWOT Analysis
• Survey says- 82.7% firms used
Criticisms of SWOT analysis
• Generates lengthy lists
• Uses no weights to reflect priorities
• Uses ambiguous words and phrases
• Same factor can be in two categories
• No obligation to verify opinion with data or analysis
• Requires only a single level of analysis
• No logical link to strategy implementation

Strategic Factors Analysis Summary (SFAS) Matrix

*The most important external and internal factors are identified in the EFAS and IFAS tables as shown here by shading these factors.

• S1: List the most important EFAS, IFAS.

• S2: Assign weights as per importance, total weight 1.00

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 • S3: Rating 5 (outstanding) 1(poor)
• S4: Weighted score-multiply weight and rating
• S5: Duration-Short-term (<1 yr), intermediate-term (1-3 yrs), long-term (3 and beyond)
• S6: Comments

Alternative Strategies- TOWS Matrix

• TOWS matrix illustrates how the external opportunities and threats can be matched with
internal strengths and weaknesses to result in four possible strategic alternatives: (SO
strategies, ST strategies, WO strategies, WT strategies)
Provides a means to brainstorm alternative strategies
Forces managers to create various kinds of growth and retrenchment strategies
Used to generate corporate as well as business strategies

Business Strategies
• Business strategy focuses on improving the competitive position of a company’s or business
unit’s products or services within the specific industry or market segment it serves.
• Business strategy is comprised of:
– Competitive strategy
– Cooperative strategy

Porter’s Competitive Strategies

• Competitive Strategy raises the following questions:
– Should we compete on the basis of lower cost, or should we differentiate our products
or services on some basis other than cost, such as quality, or service?
– Should we compete head to head with our major competitors for the biggest but most
sought-after share of the market, or should we focus on a niche in which we can
satisfy a less sought-after but also profitable segment of the market?

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 • Lower cost strategy: The ability of a company or a business unit to design, produce and
market a comparable product more efficiently than its competitors.
• Differentiation strategy: The ability of a company or a business unit to provide a unique or
superior value to the buyer in terms of product quality, special features, or after sale service.

Porter’s Generic Strategies

• Cost leadership: A lower-cost competitive strategy that aims at the broad mass market and
requires efficient scale facilities, cost reductions, cost and overhead control; avoids marginal
customers, cost minimization in R&D, service, sales force and advertising
Provides a defense against competitors
Provides a barrier to entry
Generates increased market share
• Differentiation involves the creation of a product or service that is perceived throughout the
industry as unique. Can be associated with design, brand image, technology, features, dealer
network, or customer service
Lowers customers sensitivity to price
Increases buyer loyalty
Barrier to entry
Can generate higher profits
• Cost focus: Low-cost competitive strategy that focuses on a particular buyer group or
geographic market and attempts to serve only this niche to the exclusion of others
• Differentiation focus: It concentrates on a particular buyer group, product line segment, or
geographic market to serve the needs of a narrow strategic market more effectively than its
competitors

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Few Examples

There are still only two ways to compete?

• Martin (2015) https://hbr.org/2015/04/there-are-still-only-two-ways-to-compete
• Cost-leadership: customers see the value to them of the firm’s offering as indistinguishable
from those of other competitors and hence the firm is simply a price taker, at whatever level
the market sets. In such a market there was, is, and always will be only one generic way to
gain competitive advantage and that is to have the low-cost position among those making
offers to customers in that market.
• Differentiation: Customers think to varying degrees that there is something about the firm’s
offering that is distinct from other offerings; to them, it is not “the same” as those of
competitors. In making a purchase decision, therefore, they make a trade-off between the
perceived value of the distinctiveness and the price. Those who value the distinctiveness more
are prepared to pay a higher price.
• But has anything changed since 1980 to fundamentally alter the implication of those
economics?
• Let’s look at the main features that distinguish competition today from previous decades:
• Increased Ferocity
• New Business Models
• The Rise of the Ecosystem

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Risks in Competitive Strategies

Issues in Competitive Strategies

• Stuck in the middle: When a company has no competitive advantage and is doomed to
below-average performance.
• K-Mart- Imitating both Wal-Mart’s low-cost strategy and Target’s quality differentiation
strategy
• Toyota and Honda Auto companies (High quality products at lower costs thus achieving
higher market share)
• Entrepreneurial firms follow focus strategies where they focus their product or service on
customer needs in a market segment and differentiate based on quality and service

Industry Structure and Competitive Strategy

• Fragmented industry: Many small- and medium-sized companies compete for relatively
small shares of the total market
Products are typically in early stages of product life cycle
Focus strategies are used
• Consolidated industry: Domination by a few large companies
Emphasis on cost and service
Economies of scale
Regional and national brands
Slower growth over capacity
Knowledgeable buyers

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Amul and Competitive Strategies
• Media Campaign: Educating customers on difference between ice-creams and frozen desserts
(https://www.youtube.com/watch?v=zPoxF9sxgnw)
HUL filed case against Amul. How do you see HUL’s concern to Amul’s media campaign?
-It is to create awareness regarding the fundamental difference between the two
-The campaign does not say that other companies are making a false representation on their product
labelling
-the ice-cream and frozen dessert industry has been growing in India at an average of 15-17 per
cent.

Competitive Tactics
• Tactic: A specific operating plan that details how a strategy is going to be implemented in
terms of when and where it is to be put into action
Narrower in scope and shorter in time horizon than strategies

Timing Tactics: When to Compete

• Timing tactics: When a company implements a strategy
First movers
Late movers
• (Netscape V/S Microsoft)

Puma: Good Run In India

Puma-2006
2014- sales of Rs. 766.75 Cr
inching closer to Adidas and Nike
This allowed Puma to fill the gap
in the market created by Reebok's
absence. It also won the trust of
Reebok's vendors by utilising their
capacity.
"In terms of franchisee
management, we focused on
long-term sustenance of our
stores and never opened multiple
stores in the same location. We
have always believed in quality
distribution and not in over
distribution. In some ways, we
had the late-mover's
advantage and we learnt what not to do. So while others focused on just opening stores, we put
our energies in improving our customers' experience in our stores."

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Half-Truth of First-Mover Advantage
• Two factors that powerfully influence a first mover’s fate:
– The pace at which the technology of the product in question is evolving
– The pace at which the market for the product is expanding.

(Source: Harvard Business Publishing, 2005)

Is a First-Mover Advantage Likely?

(Source: Harvard Business Publishing, 2005)

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Market Location: Where to Compete
• Market location tactics where a company implements a strategy:
Offensive tactics
Frontal assault
Flanking maneuver
Bypass attack
Encirclement
Guerrilla warfare
Defensive tactics
Raise structural barriers
Increase expected retaliation
Lower the inducement for attack

Cooperative strategies
• Cooperative strategies are used to gain a competitive advantage within an industry by
working with other firms
• Collusion: The active cooperation of firms within an industry to reduce output and raise
prices to avoid economic law of supply and demand
• Strategic Alliances

Collusion
• Explicit: Firms cooperate through direct communication and negotiation
• Tacit: Firms cooperate indirectly through an informal system of signals
• CCI (Competition Commission of India)
• Section 3 anti-competitive agreements

Strategic Alliances
• Strategic Alliances: A long-term cooperative arrangement between two or more
independent firms or business units that engage in business activities for mutual economic
gain.
• Strategic alliance is used to
Obtain or learn new capabilities
Obtain access to specific markets
Reduce financial risk
Reduce political risk

Growth of Mahindra & Mahindra

Mahindra and Mahindra and Ford
 To explore cooperation in the sphere of products, technologies and distribution including
future mobility program, connected vehicle projects, electrification of cars amongst other
areas.

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  The scope of the agreement will allow
Ford and Mahindra to look beyond
mobility programs, connected vehicle
projects, electrification to product
development, sourcing and
commercial efficiencies, distribution
within India; improving Ford’s reach
within India and global emerging
markets and thereby helping
Mahindra’s reach outside of India.

Read more at:

//economictimes.indiatimes.com/articleshow/60731811.cms?utm_source=contentofinterest&u
tm_medium=text&utm_campaign=cppst

Types of Cooperative Agreements

• Mutual service consortia
• Joint venture
• Licensing arrangements
• Value-chain partnerships

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Ch: 7 - Strategy Formulation: Corporate Strategy
Corporate strategy: The choice of direction of the firm as a whole and the management of its
business or product portfolio and concerns:
 Directional strategy: The firm’s overall orientation toward growth, stability, or
retrenchment.
 Portfolio analysis: Industries or markets in which the firm competes through its products
and business units.
 Parenting strategy: The manner in which management coordinates activities and transfers
resources and cultivates capabilities among product lines and business units.

Directional Strategy
• 1. Should we expand, cut back, or continue our operations unchanged?
• 2. Should we concentrate our activities within our current industry, or should we diversify into
other industries?
• 3. If we want to grow and expand nationally/and/or globally, should we do so through
internal development or through external acquisitions, mergers, or strategic alliance?

Directional Strategy (Grand Strategy)

Growth Strategies
• Concentration Growth
Vertical growth
Horizontal growth
• Diversification
Concentric Diversification
Conglomerate Diversification

Concentration Strategy
• Companies that do business in expanding industries must grow to survive.

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 • Continuing growths means increasing sales and take advantage of the experience curve to
reduce the per-unit cost of products sold, thereby increasing profits.
• If a company’s current product lines have real growth potential, concentration of resources on
those product lines makes sense as a strategy for growth.

Vertical Growth
• Taking over the function previously provided by a supplier or by a distributor
Vertical integration: The degree to which a firm operates vertically in multiple locations on
an industry’s value chain from extracting raw materials to manufacturing to retailing

Backward integration is assuming a function previously provided by a supplier

Forward integration is assuming a function previously provided by a distributor

Reliance Textiles-Integration
• Reliance Textiles-1966
• Manufacturer of Polyester Textile
• Backward integration-Petrochemical and plastic business
• Forward integration-Only Vimal Brand Retailing

ABCTL-Forward Integration as Café Coffee Day

• Amalgamated Bean Coffee Trading (ABCTL)
• Largest exporters of green coffee from India since 1999
• Entered into Retailing as CCD
• ABCTL is an arm of Coffee Day Group that runs the flagship coffee retailing chain, Café Coffee
Day.
• Different businesses in the coffee value chain-
– Coffee exports, production, procurement and
exports
– CCD, CCD square, CCD lounge
– Coffee Day Express
– Vending Division
– Packaging Division

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Vertical Integration Continuum

Vertical Integration
• Full integration: A firm internally makes 100 per cent of its key suppliers and completely
controls its distributors
• Taper integration: A firm internally produces less than half of its own requirements and
buys the rest from outside suppliers (Concurrent Sourcing)
• Quasi-integration: A company does not make any of its key supplies but purchases most of
its requirements from outside suppliers that are under its partial control.
• Long-term contracts: Agreements between two firms to provide agreed-upon goods and
services to each other for a specific period of time (Captive Company)

Horizontal Growth
• Horizontal growth: Expansion of operations into other geographic locations and/or
increasing the range of products and services offered to current markets. Horizontal growth is
achieved through:
• Research indicates that firms that grow horizontally by broadening their product lines have
high survival rates.
• Horizontal growth can be achieved through internal development or externally through
acquisitions and strategic alliances with other firms in the same industry

Horizontal integration:
• The degree to which a firm operates in multiple geographic locations at the same point on an
industry’s value chain

International Entry Options for Horizontal Growth

Exporting
Licensing
Franchising
Joint venture
Acquisitions
Greenfield development

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Production sharing
Turn-key operations
BOT concept (Build-Operate-Transfer)
Management contracts

Motivation of the joint venture

• Formed in 2001, as a result of a 50:50 joint venture between Sony
Corporation Japan and the Swedish telecommunications company Ericsson.
• The alliance aimed at combining Sony’s consumer electronics expertise
with Ericsson's technical wireless expertise and large market share in
mobile communications.

SE’s first successful product was Sony Ericssion’s first integrated camera phone T 610
Image source: mobile gazzete.com

Problems with the venture

• SE’s model line-up mostly consisted of high-end models and with
few products in the discount segment.
• Uneven product line-up, violent competition, and the difficulty of unifying
two product lines.
• Reliance on too many different technology partners caused delay in release
of new products.
• Cultural deviation, saturated markets, brand portfolio,
product delays, logistic issues, supply chain management
problems and rational
model difficulty finally lead to their separation in 2011.
Further details: http://www.bbc.com/news/business-15285258

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Airtel in South Africa
• Bharti Airtel had bought Kuwait-based
Zain Telecom's African assets for $10.7
billion in 2010, after which the carrier
had operations in 17 African countries.
• Airtel had big plans for Africa—a target
of 100 million subscribers, up from 42
million at the time of acquisition, $5
billion in revenue, up from $3.6 billion,
and $2 billion of Ebitda, by March 2013,
less than three years after the
acquisition.
• Their strategy at the time of entering was
wrong. The understanding of the market
was lacking. Costs were high and they
were experimenting with tariff cuts. The
minute factory model works when the
volumes (of calls) are already there,
which they did not have. Then there was
the fact that India, the core market, was
still drawing too many management
resources of the company. They got a very poor asset. Zain had not invested much in key
things such as brand and network, which made integration more difficult. They seem to be
doing some of the right things now, but it’s a case of whether it’s too little too late.
Read full story on Bharti Airtel’s overseas operations: https://www.business-
standard.com/article/companies/bangladesh-goes-africa-way-for-bharti-airtel-114110400936_1.html

Diversification Strategies
• According to strategist Richard Rumelt, companies begin thinking about diversification when
their growth has plateaued and opportunities for growth depleted.
• Unless the companies are able to expand internationally into less mature markets, they may
have no choice but to diversify into different industries, for continued growth.
• Diversification strategies are concentric & conglomerate
• Concentric (Related) diversification: Growth into a related industry when a
firm has a strong competitive position but attractiveness is low Synergy: When
two businesses will generate more profits together than they could separately
• Conglomerate (Unrelated) diversification: Growth into an unrelated industry.
Management realizes that the current industry is unattractive. Firm lacks
outstanding abilities or skills that it could easily transfer to related products or
services in other industries. Strategic managers who adopt this strategy are
primarily concerned with financial considerations of cash flow or risk reduction.

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 This is also a good strategy for a firm that is able to transfer its own excellent
management system into less-well-managed acquired firms.

To Diversify or Not To Diversify

1. What can our company do better than any of its competitors in its current market?
2. What strategic assets do we need in order to succeed in the new market? (Coca-Cola in wine
business)
3. Can we catch up to or leapfrog competitors at their own game? (Walt Disney; Canon in
photocopier)
4. Will diversification break up strategic assets that need to be kept together?
5. Will we be simply a player in the new market or will we emerge a winner? (3M, DELL)
6. What can our company learn by diversifying, and are we sufficiently organized to learn it?
The executives were asked to decide which new business McDonald’s should enter: frozen
foods, theme parks, or photo processing.

Forty percent of the executives suggested that because the company’s main competencies were
finding good real-estate locations and offering family entertainment, it should enter the theme
park business

Thirty percent singled McDonald’s out for its management of distribution outlets and its skill in
making products of consistent quality, and suggested that the photo-processing business would
be an appropriate diversification move.

The remaining 30% pointed to competencies in distribution, food retailing, and relationships with
suppliers, and concluded that the frozen-food business made the most sense.

Controversies in directional strategies

Is vertical growth better than horizontal growth?
Is concentration better than diversification?
Is concentric diversification better than conglomerate diversification?

Grand Strategies

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Stability Strategies
• A corporation may choose stability over growth by continuing its current activities without any
significant change in direction.
• Stability strategies can be very useful in the short run, but they can be dangerous if followed
for too long
- Pause/Proceed with caution strategy: An opportunity to rest before continuing a
growth or retrenchment strategy
- No change strategy: Continuance of current operations and policies
- Profit strategies: To do nothing new in a worsening situation but instead to act as
though the company’s problems are only temporary

Retrenchment strategies
• Used when the firm has a weak competitive position in some or all of its product lines from
poor performance.
– Turnaround Strategy
– Captive Company Strategy
– Sell-out/Divestment Strategy
– Liquidation Strategy

Turnaround strategy
• Turnaround strategy emphasizes the improvement of operational efficiency when the
corporation’s problems are pervasive but not critical
Contraction: Effort to quickly “stop the bleeding” across the board but in size and
costs
Consolidation: Stabilization of the new leaner corporation

Indian Railways Turnaround

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Jet Airways Turnaround (2016)

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Havells Turnaround

Retrenchment strategies
• Captive company strategy: Company gives up independence in exchange for security
• Sell-out strategy: Management can still obtain a good price for its shareholders and the
employees can keep their jobs by selling the company to another firm
• Divestment: Sale of a division with low growth potential
• Bankruptcy: Company gives up management of the firm to the courts in return for some
settlement of the corporation’s obligations
• Liquidation: Management terminates the firm

Divestment Strategy
• If the corporation has multiple business lines and it chooses to sell off a division with low
growth potential, this is called divestment.
• If no one is interested in buying a weak company in an unattractive industry, the firm must
pursue a bankruptcy or liquidation strategy.

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Divestment Plans of GOI

Portfolio analysis
• Management views its product lines and business units as a series of investments from which
it expects a profitable return.
• Popular portfolio analysis techniques include:
BCG Matrix
GE Business Screen

BCG Growth-Share Matrix

• Question marks: New products with the potential for success but require a lot of cash for
development
• Stars: Market leaders at the peak of their product cycle and are able to generate enough
cash to maintain their high market share and usually contribute to the company’s profits

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 • Cash cows: Products that bring in far more money than is needed to maintain their market
share.
• Dogs: Products with low market share and do not have the potential to bring in much cash.

BCG Matrix of FMCG Companies

BCG Matrix—Limitations
• Use of highs and lows to form categories is too simplistic
• Link between market share and profitability is questionable
• Growth rate is only one aspect of industry attractiveness
• Product lines or business units are considered only in relation to one competitor
• Market share is only one aspect of overall competitive position

GE Business Screen
• Nine cells-Industry attractiveness (Market growth rate, industry profitability, size, pricing
practices) & Business strength (market share, technological position, profitability, size)
• Four steps:
– Assess industry attractiveness for each product line on a scale from 1(very
unattractive) to 5 (very attractive)
– Assess business strength for each product line on a scale of 1 (very weak) to 5 (very
strong)
– Plot each product line’s current position on a matrix
– Plot firm’s future portfolio and examine whether there is a gap between projected or
desired portfolio?

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GE Business Screen—Limitations
• Complex and cumbersome
• Numerical estimates of industry attractiveness and business strength/competitive position give
the appearance of objective, but are actually subjective judgments that can vary from person
to person.
• Cannot effectively depict the positions of new products and business units in developing
industries.

Corporate Parenting
• Corporate parenting views a corporation in terms of resources and capabilities that can be
used to build business unit value as well as generate synergies across business units
• Corporate parenting generates corporate strategy by focusing on the core competencies of
the parent corporation and the value created from the relationship between the parent and its
businesses

Developing a Corporate Parenting Strategy

• Examine each business unit in terms of its strategic factors
• Examine each business unit in terms of areas in which performance can be improved
• Analyze how well the parent corporation fits with the business unit

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Ch: 8 - Strategy Formulation: Functional Strategy and Strategic Choice

Functional Strategy
• The approach a functional area takes to achieve corporate and business unit objectives and
strategies by maximizing resource productivity
• It is concerned with developing and nurturing a distinctive competence to provide a company
or business unit with a competitive advantage.
– Marketing Strategy
– Financial Strategy
– R&D Strategy
– Operations Strategy
– Purchasing Strategy
– Logistics Strategy
– HRM Strategy
– Information Technology strategy

Marketing Strategy
• Marketing strategy deals with pricing, selling and distributing a product.
• 4Ps of Marketing- Product, Price, Place, and Promotion
• Market development strategy provides the ability to:
– Capture a larger market share for current products (Market Saturation & Market
Penetration)
– Develop new uses and/or markets for current products
• (Nestle- Market development strategy - Milkmaid)

Product Development Strategy

• Developing new products for existing markets;
• Developing new products for new markets.
(Lakme India Fashion Week introduced latest season looks, makeup and fashion trends)
ITC extended other product category as cosmetics, staples, hotels
Detto l- selling shaving creams, soaps etc
Push Marketing - Discounts, in-store special offers
Pull Marketing - Advertising to build brand awareness so that shoppers will ask for the products

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Ansoff Matrix

Pricing Strategy
Penetration Pricing attempts to hasten market development and offers pioneer the opportunity to
use the experience curve to gain market share with a low price and then dominant the industry
Skim Pricing offers the opportunity to “skim the cream” from the top of the demand curve with a
high price while the product is novel and competitors are few

Paytm Karo
• Paytm allocated Rs.600 crore for
branding and marketing in 2016-
17, to milk the demonetization
opportunity.
• Released full-page print ad on 8th
November congratulating the Prime
Minister, with a word play on its
tagline ‘Ab ATM nahin, #Paytm
karo.’
• Within 12 days, Paytm had
witnessed over 7 million
transactions worth Rs 120 crore a
day.
• Paytm has over 150 million
mobile wallet users currently.

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Financial Strategy
• Financial strategy examines the financial implications of corporate and business-level
strategic options and identifies the best financial course of action
• Financial strategy usually attempts to maximize the financial value of a firm.
• Trade-off between achieving the desired debt-to-equity ratio and relying on internal long-term
financing via cash flow
• Small-and medium sized family owned companies try to avoid all external sources of funds
• Financial strategy is influenced by its corporate diversification strategy
– Equity financing is preferred for related diversification
– Debt financing is preferred for un-related diversification
The management of dividends and stock price is an important part of corporation’s financial strategy
Decision of buy back of shares

Research and Development Strategy

• Research and development strategy deals with product and process innovation and
improvement
Technological leader - pioneers innovation

Technological follower - imitates the products of competitors

Open innovation - use of alliances and connections with corporate, government, academic labs
and consumers to develop new products and processes

Indian Pharmaceutical Industry: Recent Trends

• Third largest in terms of volume and thirteenth largest in terms of value*.
• Indian generics accounts for 20 per cent of global exports in terms of volume. (largest)

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 • The UN-backed Medicines Patent
Pool has signed six sub-licences with
Aurobindo, Cipla, Desano,
Emcure, Hetero Labs and Laurus
Labs, allowing them to make generic
anti-AIDS medicine
TenofovirAlafenamide (TAF) for 112
developing countries.

Operations Strategy
• Operations strategy determines how and where a product or service is to be manufactured,
the level of vertical integration in the production process, the deployment of physical
resources and relationships with suppliers.
• Manufacturing strategies include:
 Job shops- one-of-a kind production using skilled labor through connected line batch
flow- components are standardized, lot size 100000
 Flexible manufacturing systems (parts are grouped into manufacturing families to
produce a wide variety of mass produced items)
 Dedicated transfer lines- highly automated assembly lines
 Mass production systems- produce large number of low-cost standards goods or
services
 Continuous improvement- constantly improve production process
 Modular manufacturing- Just in time
 Mass customization- requires that people, processes, units, & technology reconfigure
themselves to give customers what they want

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Examples of Operations Strategy

Purchasing Strategy
Purchasing strategy deals with obtaining raw materials, parts and supplies needed to perform the
operations functions.
• Purchasing options include:
Multiple sourcing (order from several vendors)

Sole suppliers (only one supplier for a particular part)

Just-in-time (No inventory)

Parallel sourcing (two suppliers sole suppliers of two different parts but they are also
back-up suppliers for each other parts)

Examples of Purchasing strategy

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Logistics Strategy
Logistics strategy deals with the flow of products into and out of the manufacturing process.
• Logistics trends include:
Centralization

Outsourcing

Internet usage

Examples of Logistics Strategy

Human Resource Strategy

• Self managing work teams : MNCs are increasingly using these in foreign affiliates and in
home country operations. Results are improved productivity, quality and higher employee
satisfaction.
• 360 degree appraisal : More than 90% of the Fortune 500 companies are using this technique
for transparent and fair evaluation.
• Diverse workforce : High degree of diversity among employees leads to better productivity
that in turn can act as a competitive advantage for the respective companies.
• Virtual teams : Employees work together from different geographic locations and rely on
communication technology such as email, fax, video-conferencing. This saves cost, leverages
global talent, reduces time to market and thus boosts productivity.

Examples of HRM Strategy

• 3M, Federal Express, Valve Corporation, Zappos have implemented the concept of self
managing work teams.
• Maruti, Pepsico, HCL Technologies have been using 360 degree appraisal method.

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 • DuPont, McDonald, Avon have benefited from the practice of diverse workforce.
• IT giants like IBM, Dell; Balsamiq, Zapier, Groove and many more have reaped the
advantages of virtual teams.

Information Technology Strategy

• Intranet : Development of instant translation software enables workers to bridge the
language barriers working in different geographies.
• Follow-the-sun management : Originally developed to provide round-the-clock customer
service. A type of global workflow in which issues can be handled by and passed between
offices in different time zones to increase responsiveness.
• Big Data : Capability that allows companies to extract value from large volumes of data. Has
changed the landscape of IT Industry ever since its inception and drives enormous
opportunity for business improvement.
• Automated Back Office : Involves usage of software robots that are trained and deployed to
automate repetitive, rules-driven tasks in the back office. Reduced human dependency results
in resource optimization and improved performance.

Automated Back Office: Process

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IT Strategy examples
• FedEx was the first to provide PowerShip software to store address, print shipping labels
and track package locations. United Parcel Service (UPS) soon followed with its own
MaxiShips software to match up to it.
• Mattel was able to reduce product development time by 10% by efficient use of Intranet to
collaborate on design. IBM leverages intranet to bridge the physical gap between its
distributed workforce.
• Lockheed Martin, General Electric, Whirlpool have successfully used the power of IT to
strengthen relationship with customers and suppliers.
• The worldwide big data and analytics market will be worth $18.3 billion by the end of 2017.
IBM, HP, Teradata, SAP, Oracle, Amazon, EMC are some of the key players.

The Sourcing Decision

• Outsourcing: Purchasing from someone else a product or service that had been previously
provided internally.
Avoid outsourcing distinctive competencies.
• Offshoring: The outsourcing of an activity or a function to a wholly-owned company or an
independent provider in another country

Disadvantages of Outsourcing and Offshoring

Customer complaints
Long-term contracts
Ability to learn new skills and develop new core competencies
Lack of cost savings
Poor product quality
Increased transportation costs

Errors in Outsourcing Efforts

• Outsourcing the wrong activities
• Selecting the wrong vendor
• Poor contracts
• Personnel issues
• Lack of control

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 • Hidden costs
• Lack of an exit strategy
• The key is to purchase from outside only those activities that are not key to company’s
distinctive competencies.
• In determining functional strategy, the strategist must:
• Identify the company’s or business units core competencies;
• Ensure that the competencies are continually being strengthened;
• Manage the competencies in such a way that best preserves the competitive
advantage they create

Outsourcing Matrix

IT cost-arbitrage sourcing
IT outsourcing is the use of external service providers
to effectively deliver IT-enabled business process,
application service and infrastructure solutions for
business outcomes.

Cisco is one of US companies that have outsourced its

operations to India. It has invested over $150 million in
structuring and expanding its technology development
enterprise in India. It has set up its 2nd largest research
and development facility in Bangalore, India, which
houses more than 1500 Indian technical professional.

Other examples are Microsoft, AMEX, ATT Wireless,

and HP.

Philippines: Choice for New Sourcing Decisions

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77 | P a g e
Ch: 9 – Strategy Implementation: Organizing for Action

What is Strategy Implementation?

• The sum total of all activities and choices required for the execution of a strategic plan.
• Process by which objectives, strategies and policies are put into action through the
development of programs and tactics, budgets and procedures.
Most mentioned problems reported in post-merger integration: poor communication, unrealistic
synergy expectations, structural problems, missing master plans, lost momentum, lack of top
management commitment and unclear strategic fit.
Questions to be asked before start of implementation process:
• Who are the people to carry out the strategic plan?
• What must be done to align company operations in the
intended
direction?
• How is everyone going to work together to do what is
needed?

Implementation Challenges
A survey of 93 Fortune 500 firms revealed that more than more than half of corporations experienced
the following problems:
• Took more time than planned.
• Unanticipated major problems.
• Poor coordination.
• Competing activities and crises created distractions.
• Employees with insufficient capabilities.
• Poor subordinate training.
• Uncontrollable external environmental factors.
• Poor departmental leadership and direction.
• Inadequately defined implementation tasks and
activities.
• Inefficient information system to monitor activities.

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The 10 Basic Tasks of the Strategy Execution Process

The Principal Components of the Strategy Execution Process

• Staff the organization with managers and employees capable of executing the
strategy well.
• Build the organization’s capabilities required for successful strategy execution.
• Create a strategy-supportive organizational structure.
• Allocate sufficient budgetary (and other) resources to the strategy execution effort.
• Institute policies and procedures that facilitate strategy execution.
• Adopt best practices and business processes that drive continuous improvement of execution
activities.
• Install information and operating systems that enable personnel to carry out their strategic
roles proficiently.
• Tie rewards and incentives directly to the achievement of strategic and financial targets.
• Instill a corporate culture that promotes good strategy execution.
• Exercise the internal leadership needed to propel strategy implementation forward.

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Developing Programs, Budgets and Procedures
• Strategy implementation involves establishing programs to create a series of new
organizational activities, budgets to allocate funds/resources to the new activities and
procedures to handle the day-to-day details.
• The purpose of a program is to make a strategy action oriented, after programs have been
developed, the budget process begins.
• Standard Operating Procedures (SOPs): Detail the various activities that must be carried out
to complete a corporation’s programs

Achieving Synergy
• One of the goals to be achieved in strategy implementation is synergy between and among
functions and business units.
• Combined units often benefit from sharing knowledge or skills. This is a leveraging of core
competencies.
• Aligning the business strategies of two or more business units may provide a corporation
significant advantage by reducing inter-unit competition and developing a coordinated
response to common competitors.
• Economies of scale or scope: Coordinating the flow of products or services of one unit with
that of another unit can reduce inventory, increase capacity utilization, and improve market
access.

Structure Follows Strategy

• In a classic study of large U.S. corporations such as DuPont, General Motors, Sears, and
Standard Oil, Alfred Chandler concluded that structure follows strategy—that is, changes in
corporate strategy lead to changes in organizational structure.
• Today’s business organizations are becoming less centralized with a greater use of cross-
functional teams.
• In matrix structures, functional and product forms are combined simultaneously at the same
level of the organization.
• Employees have two superiors, a product or project manager and a functional manager.

Tata Motors- Moves to flat five-level hierarchy

500 executives offered VRS
http://www.business-standard.com/article/companies/restructuring-tata-motors-rolls-out-vrs-moves-
to-a-flat-five-level-hierarchy-117031401193_1.html

Stages of Corporate Development

Stage I: Simple Structure

• Typified by entrepreneur or a small team who founds a
company to promote an idea.
• The entrepreneur/team tend to make all important
decisions and is involved in every detail and phase of
organization.

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 • This type of company has little formal structure that allows entrepreneur to directly supervise
the activities of every employee.
• Planning is usually short range or reactive.
• Greatest strength of Stage I corporation: its flexibility and dynamism.
• Greatest weakness is extreme reliance on the entrepreneur to decide
general strategies as well as detailed procedures.

Stage II: Functional Structure

• This is the stage when entrepreneur is replaced by a team of managers who have functional
specializations.
• The transition to this stage requires a substantial managerial style change for the chief officer
of the company especially if he was the Stage I entrepreneur.
• Unless the entrepreneur learns to delegate, having additional staff members yields no benefits
to the organization.
• In this stage, corporate strategy favors protectionism through
dominance of the industry, often through vertical and horizontal growth.
• Greatest strength : Its concentration and specialization
• Greatest weakness: All its eggs are in one basket.

Stage III: Divisional Structure

• Typified by the corporation’s managing diverse product lines in numerous industries: it
decentralises the decision making authority.
• Grow by diversifying their product lines and expanding to cover wider geographical areas.
• Move to a divisional structure with a central HQ and decentralised operating divisions.
• May also use a conglomerate structure if top management
chooses to keep its collection of Stage II subsidiaries operating
autonomously.
• HQs attempt to coordinate the activities of its SBUs through
performance, result oriented control and reporting systems and
by stressing corporate planning techniques.
• Greatest strength: almost unlimited resources
• Greatest Weakness : Being so large and complex, tens to become inflexible.

Advanced Types of Organizational Structure

Matrix Structure

• Functional and product forms are combined simultaneously at the same level of organisation.
• Employees have two superiors: product/project manager and a functional manager

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 • Pioneered in the aerospace industry, this was
developed to combine the stability
of the functional structure with
the flexibility of the product form.
• Useful when external environment
is highly complex and changeable.

Network Structure-The Virtual Organization

• Composed of a series of project groups or
collaborations linked by constantly changing
non-hierarchical, cobweb like network.
• Is more radical in design because of its virtual
elimination of in-house business functions.
• Useful when the environment of a firm is
unstable and is expected to remain so.
• There is a strong need for innovation and quick
response.
• Organization's business functions are scattered
worldwide.
• In ultimate form, a N/W organisation is a series
of independent firms or business units linked
together by computers in
an information system.
Reebok, UCB, NIKE use Network structure

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Modular Organization: A New Type of Structure !!
• Composed of cells (self managing team, autonomous business units) that can operate alone
but can interact with other cells to produce more potent and competent business mechanism.
• This combination of interdependence and independence allows the cellular/modular form to
generate and share the knowledge and expertise needed to produce continuous innovation.
• This form includes the dispersed entrepreneurship of the divisional structure, customer
responsiveness of the matrix and self organizing knowledge and asset sharing of the network.
• Similar to a current trend in industry of using internal joint ventures to temporarily combine
specialized expertise and skills within a corporation to accomplish a task which individual units
alone could not accomplish.
• Impetus for this structure is the pressure for a continuous process of innovation in all
industries. Each cell has an entrepreneurial responsibility to the larger organisation.

Modular Organisation in practice

• Under this, all the nonessential functions are outsourced. The idea is to retain only the value-
generating and strategic functions in-house, while the rest of the operations are outsourced to
many suppliers.
For example: Bombardier, broke up the design of its
continental business jet into 12 parts provided by internal
divisions and external contractors. Cockpit, center and forward
fuselage were produced in-house but other major parts were
outsourced from global suppliers.
Thus cellular structure is used when it is possible to break
up a company’s products into self contained modules/cells and
where interfaces can be specified such that the cells/modules work when they are joined together.

Toyota has used a project-based, modular structure for its production design.

Costco: Leading from the Front

• Found in 1983, Costco Wholesale Corporation trading as Costco, is the largest American
membership-only warehouse club.
• One of the major reason of its astounding success is way
Costco handles the staffing and leading elements of its
business.
• Employees made an average salary of US$20.89/hour (national avg: $11.39) and 88% of
them enjoyed health care benefits despite half of them being part time employees.
• During recession of 2008-11, there were no layoffs. As a result, Costco has lowest employee
turnover in its industry (5%)
• Compensation package of former CEO, James Sinegal was $2.2 million while average for
Fortune 500 CEOs in 2012 was $9.6 million. This shows their “all in for the good company
approach.”

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 • All these factors made Costco’s staffing model a perfect example of
“leading-from-the-front-approach”

Staffing
• Implementation of new strategy and policies calls for new human resource management
priorities and different use of personnel.
• Staffing issues involve hiring new people with new skills, firing people with inappropriate or
substandard skills, and/or training existing employees to learn new skills.
• To implement growth strategy, new people may need to be hired and trained. Experienced
people with the necessary skills need to be found to promote to created managerial positions.
• When a corporation follows a growth through acquisition strategy, it may find that it needs to
replace several managers in the acquired company.
• After a merger, a company cannot afford to lose highly skilled resource who
is difficult to replace.
• To tackle such integration issues, companies appoint integration managers
who streamline the implementation process.

Staffing: Role of an Integration Manager

An Integration Manager essentially:

• Prepares a competitive profile of the company in terms of its strengths and weaknesses.
• Drafts a profile of what the ideal combined company should look like.
• Develops action plans to close the gap between actual and ideal.
• Establishes training programs for combined company and make it more competitive.

Requisites of a successful Integration Manager

• Deep knowledge of the acquiring company.
• Flexible management style.
• Ability to work in cross-functional teams.
• Willingness to work independently.
• Sufficient emotional and cultural intelligence to work in a diverse environment.

Staffing follows Strategy

• As in case of structure, staffing requirements should follow a change in strategy.
For e.g: promotions should be based on both current job performance and skillset of the
resource which would be needed for new strategy implementation.
• Training and Development is one way to implement a company’s business strategy, such
as overall low cost. As per study, those with training programs resulted in 19% higher
productivity. Also, doubling of formal training/employee lead to 7% scrap reduction.
Examples of Training and Development initiatives:
• Infosys has setup Global Education Center in Mysore to skill all its
prospective employees.
• Tata Consultancy Services runs a training & development program at its TCS L&D center.
It spends nearly 4% of its turnover on training and education initiatives annually.

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 • General Electric and Zappos use training to implement retrenchment strategies so as to
maintain their market share.

P&G: Build from within approach

• Proctor & Gamble follows a systematic approach to management development with its “Build
From Within” program: a mutually reinforcing set of policies and practices designed to nurture
home-grown managerial talent.
• Ninety-Five Percent of its managers (including its past 12 past and present CEOs) first joined
the company at the entry level.
• This promote-from-within-approach has paid off and P&G regularly tops lists of “Best
Companies for Leaders” and is called breeding ground for future general managers. To ensure
this pipeline of high quality committed leaders P&G has:
1. Rigorous recruiting process 2.Extensive on-the-job & formal training opportunities 3. Detailed
development and career planning 4. Clear Leadership Path
5. An Actively Managed Succession Planning.

“BUILD FROM WITHIN”: P&G’S Approach To Management Development

Questions:

• Why would you want to work as a manager for Proctor &

Gamble?
• What long-term organizational problems could result
from a heavy reliance on promote-from-within?

Matching the Manager to the Strategy

Based on desired strategy direction of a firm, a particular type of top executive may be appointed:
• One following a concentration strategy emphasizing vertical or horizontal growth would
probably want an aggressive new chief executive with a great experience in that particular
industry— a dynamic industry expert.
• A diversification strategy, might need an analytical mind who is highly knowledgeable in
other industries and can manage diverse product lines—an analytical portfolio manager
• One following a stability strategy would prefer its CEO as a cautious profit planner,
having a conservative style, a production or engineering background, and experience with
controlling budgets, capital expenditures, inventories, and standardization procedures.
• Weak companies in a relatively attractive industry tend to turn to a type of challenge oriented
executive known as a turnaround specialist to save the company.
• If a company cannot be saved, a professional liquidator might be called on by a
bankruptcy court to close the firm and liquidate its assets.

Selection and Management Development

• Selection and development ensures that people with right mix of skills and experiences are
initially hired and also helps them grow on the job preparing them for future promotions.

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Executive succession
• It is the process of replacing a key top manager and is important for a company that usually
promotes from within to prepare its current managers for promotion.
• CEOs of small and medium-sized family business no longer hold onto their position till their
death/disability. In stead, they take pragmatic steps to lay out a succession plan.
• Best practices for top management succession encourage boards to assist CEO craft a
succession plan, identify succession candidates below the succession layer, measure internal
candidates against outside candidates and provide appropriate financial incentives.
• Based on the availability, firms may choose to go for either Insiders or Outsiders.
L & T - One of the first to lay out succession planning

Insiders vs. Outsiders

• Firms tend to look outside for CEO candidates only if they have no obvious internal ones.
• 78% of the CEOs selected to run S&P 500
companies in 2011 were insiders*.
• Outsiders as CEOs tend to introduce significant
change and
high turnover among current top management.
They tend to perform
slightly worse than insiders but had high
performance variation.
• Outsiders performed much better in terms of
shareholder returns than insiders in first half of
their tenure but did much worse in their second
half.
• Outsiders however are the first choice of firms
that are in trouble. Boards realize that the best
way to force a change in strategy is to hire a CEO
having no connections to the current strategy.

Ratan Tata-Cyrus Mistry tussle: A clear case of the need for Succession Planning
• Back in 2002, when Ratan Tata was set to
retire at 65, the Tata Sons board re-
designated him as non-executive chairman
so that he could continue for another five
years.
• In 2005, the board increased the
retirement age of non-executive directors
to 75, ensuring that Tata would be in office
till 2012.

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 • In Dec 2012, Cyrus Mistry took charge as the head of Tata Group but was removed in 2016.
• Growing trust deficit and repeated departures from the culture and ethos of the Tata group
was the reason behind the removal of Mistry.
• Consequently, shares of several listed companies of Tata Group plummeted. Tata Global
Beverages and Indian Hotels have shed near 13% and 17% respectively. Tata Motors, Tata
Power, Tata Comm., TCS and Tata Steel declined by 4-10%.
After a short head hunt, Natarajan Chandrasekaran was named the new chairman in
Jan, 2017.

Identifying Abilities and Potential

A company can identify and prepare its people for important positions in several ways. Some of them
are:
Performance appraisal system identifies good performers with promotion potential. Example:
General Electric spends more than US$1bn/year for employee training at its Leadership
Development Center.
Assessment centers are used to evaluates a person’s suitability for an advanced position.
Companies like AT&T, Standard Oil, IBM, Sears makes us of these. They use special interviews,
management games, in-basket games, leaderless group discussions and similar exercises to assess
potential of employees for specific positions.
Job rotation - moving people from one job to another- ensures employees are gaining a mix of
experience to prepare them for future responsibilities. General Electric routinely rotates its
executives between different sectors to learn inter-departmental skills.

Problems in Retrenchment
• If a corporation adopts a retrenchment strategy, a large number of people may need to be
laid off or fired (in many instances, being laid off is the same as being fired)
• Top management, as well as the divisional managers, needs to specify the criteria to be used
in making these personnel decisions.
So question to be asked !!
• Should employees be fired on the basis of low seniority or on the basis of poor performance?
Sometimes corporations find it easier to close or sell off an entire division than to choose which
individuals to fire.
Downsizing refers to the planned elimination of position or jobs, often used to implement
retrenchment strategy.

Guidelines for Successful Downsizing

• Eliminate unnecessary work instead of making across the board cuts
• Contract out work that others can do cheaper
• Plan for long-run efficiencies
• Communicate the reasons for actions

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 • Invest in the remaining employees
• Develop value added jobs to balance out job elimination
Research say that companies undertaking cost-cutting programs are four times more likely than
others to cut costs again, typically by reducing staff. This has been prevalent in Sears, Gannet, RIM,
HSBC and Borders, which eventually went into bankruptcy.

Leading
• Strategic implementation of any kind of new company policy or program requires participation
from all of the departments that will be affected.
• It is the company’s leadership team that identifies what those departments are and create an
implementation team that consists of representatives from each affected group.
• The above implementation a corporate strategy or change is often done in phases. The
company leadership's task is to identify when each phase of a strategic implementation is
complete and be ready to transition the company to the next phase.
• Leading is achieved through coaching people to use their abilities and skills in the most
effective and efficient manner to achieve organizational objectives.
• A company can lead by radical change in its business model and its way of staffing. Other
action planning programs like Management by Objectives and Total Quality Management may
also assist in the accomplishment of change.

Managing Corporate Culture

• Organizational culture has been described as the shared values, principles, traditions, and way
of doing things that influence the way organizational members act.
• An organization’s culture can exert a powerful influence on the behavior of all employees and
hence it can strongly affect a company’s ability to shift its
strategic direction.
• An optimal corporate culture is one that best supports the
strategy
and strategy of the company of which it is a part.
• Strategy should be in complete agreement with the culture.
• It is management’s job to manage corporate culture. Steps
to do so:
Evaluate what a particular change in strategy would mean

to the corporate culture
 Assess whether a change is needed and decide whether
an attempt to change the culture is worth the likely costs.
Robert Nardelli’s case at The Home Depot is an example of change in organisational culture going
wrong

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Accessing Strategy-Culture Compatibility

Managing Cultural Change Through Communication

• Communication is key to the effective management of change.
• It is imperative that rationale for strategic changes should be communicated to workers not
just through newsletters but also in training and development programs.
• This communication is especially important in decentralized firms employing large number of
employees in far-flung business units.
Companies in which major cultural changes have
successfully taken place had the following characteristics
in common:
• CEO and top management communicated the
strategic vision throughout the organization.
• Current performance was compared to competition
and constantly updated.
• Vision was translated into key elements needed to
accomplish the vision.
Yum! Brands (PepsiCo) formulated “How We Work Together”
to manage its cultural change after purchasing Pizza Hut, Taco Bell, KFC

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Managing Diverse Cultures Following an Acquisition

Apollo Tyres: Increasing Efficiency through IT systems

• 150 Locations
• 1st Indian Multinational Tyre Company

Deploys

• High End IT
systems,
• Comprehensive
Business-process
automation, and
• smart network
Solutions

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Ch 11 - Evaluation & Control

Evaluation & Control in Strategic Management

• Performance Data and Activity reports gathered
• If undesired performance results because of in appropriate Strategic Management process,
Operational Managers must Know it
• If undesired performance results because of the process, Top Managers as well as
Operational Managers must Know it
• Corrective Action

Types of Controls
Controls can be established to focus on

1. Actual Performance Results(Output Controls)

2. Activities that generate performance(Behavior Control)
3. Resources that are used in performance(Input Control)

Eg: Sales Quotas, Specific Cost Reduction, Customer Satisfaction Survey

ISO 9000 Standards Series(Quality Operations)
ISO 14000 Standards Series (Environmental assurance)

Activity-based Costing
• Method of allocating indirect costs and fixed costs to
individual products or product lines on the basis of
value added activities going into that product
• Helpful in doing value chain analysis of firm’s
activities for making outsourcing decisions
• It allocates overhead far more precisely

Eg. When Chrysler used ABC it discovered that true

costs of some parts in making cars was 30 times
what company had previously estimated

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Measuring Performance

Traditional Financial Measures

• ROI- it’s the ratio of Net income before tax to the total amount invested in the company
(Total Assets)
• EPS- Ratio of Net Earnings to the common stock
• ROE- ratio of net income to total equity
• Operating Cash Flow- amount of money generated by a company before the cost of
financing and taxes
• Because of their Limitations many corporations use SHAREHOLDER VALUE as a better
measure of corporate performance and strategic management effectiveness
• Shareholder value can be defined as the present value of the anticipated future stream of
cash flows from the business plus the value of the company if liquidated.
• Two popular shareholder value measures are Economic Value Added and Market Value
Added

EVA and MVA

• EVA measures the difference between pre-strategy and post-strategy values for business (
after tax operating income minus the total annual cost of capital)
• MVA is difference between the market value of a corporation and the capital contributed by
shareholders and lenders
• Well known companies use either MVA or EVA

Balanced Scorecard Approach

• Kaplan& Norton
• It combines financial measures that tell the results of actions already taken with operational
measures on customer satisfaction. Internal process, and the corporation’s innovation and
improvement activities- the drivers of future financial performance. Thus steering controls are
combined with output controls.
• In BS approach, Management develops goals or objectives in each of four key performance
measures areas:
1. Financial: How do we appear to shareholders?
2. Customer: How do customers view us ?
3. Internal Business Perspective: What must we excel at?
4. Innovation and Learning: Can we continue to improve and create value?

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Strategy Map
A strategy map is a diagram that shows your organization's strategy on a single page. It’s
great for quickly communicating big-picture objectives to everyone in the company.

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Benchmarking
• It is the continual process of measuring products, services, and practices against the toughest
competitors or those companies recognized as industry leaders
• Manco Inc. Producer of Duct Tape Regularly benchmarks itself against Wal mart, rubber maid
and Pepsico to enable it to better compete with giant 3M.

Problems in Measuring Performance

• Lack of quantifiable objectives or performance standards and the inability of the information
system to provide timely and valid information are two obvious control problems

Negative Side effects of measuring performance:

• Short term orientation: In many situations Top executives are unable to realize the long term
implications of current operations on the strategy they have adopted. They don’t have time
for long term considerations due to pressure from the top.
• Goal displacement: It is the confusion of means with ends and occurs when activities
originally intended to help managers attain corporate objectives become ends in themselves.

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Goal Displacement
Behavior substitution: refers to the phenomenon of when people substitute activities that do not
lead to goal accomplishment for activities that lead to goal accomplishment because wrong activities
are being rewarded
E.g. Sears thought that it could improve employee productivity by tying performance to rewards. It
paid commissions to employees as a percentage of repair bill which lead
to over-billed customers, charges for work never done and a scandal.

Sub-optimization: refers to the phenomenon of a unit optimizing its goal accomplishment to the
detriment of the organization as a whole
E.g. Marketing department approves an early shipment overtime production for that one order.
Production costs are raised, which reduces manufacturing departments overall efficiency.

Why to go global?
1. To gain access to new customers: E.g.. Honda Cub a 50 cc motorcycle is still being sold in
developing markets even after its 50 years
of inception in Japan.
2. To achieve lower costs through economies of scale, experience, and
increased purchasing power : E.g. Small size of country markets in Europe
and limited domestic volume explains why Michelin , BMW and Nestle long ago
began selling their products across Europe and then moved onto North America
& Latin America
3. To further exploit its core competencies: E.g.. Walmart is capitalizing on its considerable

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 expertise in discount retailing into china, Latin America, japan, South Korea
4. To gain access to resources and capabilities located in foreign markets: E.g.
companies in industries based on natural resources (oil & gas, minerals, rubber, lumber) find
it necessary to operate in the international arena because attractive raw material supplies are
located in many different parts of the world.
5. To spread its business risk across a wider market base: E.g. Apple,
Samsung, Mercedes, Volkswagon cater a wider market base throughout
the world.

Porter’s diamond of national competitive advantage

Strategic options to enter into international markets

1. Maintain a national production base and export goods to foreign markets
2. Licensing Foreign firms to produce and distribute the company's products abroad
3. Employ a franchising strategy: E.g. McDonald’s, Yum! Brands, Holton
hotels have all used franchising to build presence in foreign markets.

4. Establish a subsidiary in a foreign market via acquisition or internal

development
5. Rely on strategic alliances or joint ventures with foreign companies: E.g. Solazyme, a
California based company that produces oils for nutritional, cosmetic and biofuel products
from algae made alliances with Unilever, Sephora, Qantas and Roquette to become America’s
fastest growing manufacturing company in 2011

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Competing Internationally
Bartlett Ghoshal Framework

Multi domestic Strategy:

Think Local, Act local approach
Transnational strategy :
Think Global, Act Local approach

Global strategy:
Think global, act-global approach
International strategy : It is a strategy for
competing in two or more countries
simultaneously

Multidomestic strategy

• Aims to maximize benefits of meeting local market needs

through extensive customization
• Decision making decentralized
• Local business treated as separate business
• Strategies for each country

Global strategy
• Highly centralized

• Focus on efficiency(Economies of scale)

• Little sharing of local expertise

• Standardized products

Transnational strategy
• Complex to achieve

• Aims to maximize local responsiveness but

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 also gain benefits from global integration

• Wide sharing of expertise

• ( technology, staff etc.)

International Strategy
• Aims to achieve efficiency by focusing on domestic
activities

• International operations are largely managed centrally

• Relative little adaption of product to local needs

Defending against global giants

• Develop business models that exploit
shortcomings in local distribution networks or
infrastructure
• Utilize keen understanding of local customer
needs and preferences to create customized
products or services
• Take advantage of aspects of local workforce
with which large MNCs may be unfamiliar
• Use acquisition and rapid growth strategies to
better defend against expansion minded
internationals
• Transfer company expertise to cross border
markets and intimate actins to contend on an
international level

Technology Strategy
• How to use new technology to compete successfully
• It describes how innovators can develop strategies to manage technology risks, identify
market needs, commercialize new technologies, and compete successfully in the product
market.
-Technology strategy for innovators
- To lead or to follow?

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 - Strategies for new markets
- Strategies for existing markets

The Technology S-Curve

The S-Shaped Market Diffusion Curve

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Technology Strategy Issues for Innovators

Example: Introduction of e-retailing of books by Amazon

Commercialization Strategies
All innovators face
a fundamental
strategic issue:
How do I make
money from this
idea?
Innovator can
choose between
cooperation and
competition with
incumbent
The choice
depends on two
factors-the
robustness of
market for idea
and the ownership of valuable or specialized complementary assets
• Attacker’s advantages
• Idea Factories
• Reputation-based Ideas trading
• Greenfield competition

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The Technology S-Curve and Technology Transitions

Strategies to Become a Platform Leader: Coring and Tipping

A technology that is essential for coordinating suppliers and buyers to deliver consumer value.
Two principle strategies:
1. Coring: Transforming a product into a platform (Qualcomm developed a communication
technology for mobile phones called CDMA)
2. Tipping: Process of building market momentum so that the industry tips toward wide
adoption of the platform technology. (LINUX)

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Categories of Innovation

Innovation Adoption Curve

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Internal Scanning: Organizational Analysis

Business Models
• Business Model is a company’s method for making money in the current business
environment.
• Includes the key structural and operational
characteristics of a firm- How it earns revenue and
makes profit.
• Composed of five elements:
 Who it serves?
 What it provides
 How it makes money?
 How it differentiates and sustains competitive advantage ?
 How it provides its product/service?

Types of business models

• Customer solutions model: IBM uses this consulting model to make
money not by selling its products but by selling its expertise to improve its
customers’ operations.
• Profit pyramid model: Under this, companies sell lower- and middle-quality goods and
services at cost or at a loss, then sell premium goods in the same category at a significant
margin, covering the losses incurred by the other brands. General Motors uses this model.
• Multi-component system/installed base model: Gillette invented this
model to sell razors at break-even pricing in order to make money on higher-
margin razor blades. HP also does the same with printers and printer cartridges.
• Advertising Model: This model offers its basic product free in order to make money on
advertising. Having originated in the newspaper industry, this model is used
heavily in commercial radio and television. Internet giant, Google uses this
model.
• Switchboard Model: Used by eBay and Amazon.com. Here, a firm acts
as an intermediary to connect multiple sellers to multiple buyers.
• Time Model: Product R&D and speed are the keys to success in this model. Sony constantly
follows new innovation and this allows it to earn high margins in the
market.
• Efficiency Model: In this, a company waits until a product becomes standardized and then
enters the market with a low priced, low-margin product that appeals the mass.eg: Wal-
Mart.
• Blockbuster model: In industries like Pharma and motion picture studios, a few key
products drive profitability. Focus is on high investment in a few products with huge potential
payoffs.
• Profit multiplier model: was invented by Walt Disney. Here the idea is developing a
concept that may/may not make money on its own, but by synergy

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 can spin off many profitable products.
• Entrepreneurial Model: Under this, a company offers specialized products/services to
market niches that are too small to be worthwhile to large companies competitors but have
potential to grow quickly. Extensively used by small high-tech firms aiming to be taken over
by bigger ones.
• De Facto industry model: Here, a company offers free or at a very low price in order to
saturate the market and become the industry standard. e.g.:
Microsoft packaging IE free with Windows

Business Model Canvas

It is a strategic management and lean startup template for developing new or documenting existing
business models. Business Model Canvas was initially proposed by Alexander Osterwalde

Alibaba-Business Model
• Alibaba has a two-sided market: The first is a customer facing retail and financial services
side, the second is a business facing wholesale, logistics and cloud computing services side.
Value is created when it creates/mediates interaction between the two.

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 • Initially, Alibaba focused on platform only
strategy and served as an online
marketplace to connect global buyers with
Chinese suppliers
• Eventually, Alibaba grew and forayed into
multiple business lines Media, Healthcare,
Financial Services and even created and
offered its own set of products such as
media content.
• Alibaba uses Platform-Product Hybrid
Approach

Opportunities and Challenges in Alibaba’s Business Model

The scenario can be categorized under the following:
• Internalization: After becoming a global force, the question is how it can internalize while
differentiating from other platform companies such as eBay, Amazon or even Chinese
companies like Tencent and Baidu.
• Investment: Given the influx of capital from the 2014 IPO and from sales during major
promotional days, the question is how can Alibaba stay focused while preserving the strength
of its diversified model and also how to choose the best investment option.
• Innovation: Alibaba is constantly confronted with the challenge of continuously innovating
and self-disrupting in an ecosystem that is full of cut throat competition.

Blue Ocean Strategy

• Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition
Irrelevant
• By W Chan Kim & Renee Mauborgne (2004)

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 • Strategically Divergent method of Positioning & Visualizing
strategy-
• Competition is irrelevant, DIVERGENCE from competition
• Look at the BIG PICTURE, Not numbers
• RECONSTRUCT the Market Boundaries
• VALUE INNOVATION

• https://www.youtube.com/watch?v=7SQDGBSjty4 (By Blue Ocean

Strategy)
• Blue Ocean Strategy provides a systematic approach to making the competition “irrelevant.”
• The only way to beat the competition is to stop trying to beat the competition.
• Red oceans represent all the industries in existence today. This is the known market space.
• Blue oceans denote all the industries not in existence today. This is the unknown market
space.
• It will always be critical to swim successfully in the red ocean by outperforming rivals.
• Red oceans will always matter and will continue to be a fact of business life.
• Blue oceans denote all the industries not in existence today. This is the unknown market
space.

IMPACT of Blue Oceans

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Red Ocean V/S Blue Ocean

Red Ocean Traps

• Seeing Market-creating strategies as Customer
oriented approaches
• Treating Market-creating strategies as Niche
strategies
• Confusing Market-creating strategies as
Technology Innovation
• Equating Market-creating strategies with Creative
Destruction
• Equating Market-creating strategies with
Differentiation and Low-cost strategies

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BLUE OCEAN PRINCIPLES

1. The first blue ocean principle – reconstruct market boundaries – addresses the search
risk of how to successfully, out of the haystack of possibilities that exist, commercially
compelling blue ocean opportunities.
2. The second principle – focus on the big picture; not the numbers – tackles how to
mitigate the planning risk of investing lots of effort and lots of time but generating only red
ocean type moves.
3. The third principle – reach beyond existing demand – addresses the scope risk of
aggregating the greatest demand for the new offering.
4. The fourth principle – get the strategic sequence right – addresses how to build a robust
business model to ensure that you make a healthy profit on your blue ocean idea thereby
mitigating business model risk.
5. The fifth principle – overcome key organizational hurdles – addresses how to knock over
organizational hurdles in executing a blue ocean strategy addressing organizational risk.
6. The sixth principle – build execution into strategy – tackles how to motivate people to
execute blue ocean strategy to the best of their abilities, overcoming management risk.

Blue Ocean Tools

• https://www.blueoceanstrategy.com/tools/
• W. Chan Kim and Renée Mauborgne created a comprehensive set
of analytic tools and frameworks to create blue oceans of new
market space (2017)

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Value Innovation
• The creators of blue oceans, surprisingly, didn’t use
the competition as their benchmark.
• Instead, they followed a different strategic logic that
we will call value innovation.
• Value innovation is the cornerstone of blue ocean
strategy.
• It is called value innovation because we focus on
making our competition irrelevant as opposed to
focusing on beating our competition. We can make
the competition irrelevant by creating a leap in value
for buyers and your firm thereby opening up new and
uncontested market space.
• Many technological innovations’ failure
• Importantly, value innovation defies one of the most
commonly accepted dogmas of competition-based strategy: the value-cost trade-off.
• It is conventionally believed that firms can either create greater value to customers at a
higher cost or create reasonable value at a lower cost.
• At this point, strategy is seen as making a choice between differentiation and low cost.
• In contrast, those who seek to create blue oceans pursue differentiation and low cost
simultaneously.

Strategy Canvas
• Strategy Canvas-The strategy canvas
is a central diagnostic tool and an
action framework for getting clear on
the current state of play and making
your blue ocean move. It graphically
captures, in one simple picture, the
current strategic landscape and the
future prospects for an organization.

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Four Actions Framework
• The Four Actions Framework is used to reconstruct buyer value elements in crafting a new
value curve or strategic profile. To break the trade-off between differentiation and low cost in
creating a new value curve, the framework poses four key questions, shown in the diagram,
to challenge an industry’s strategic logic.

ERRC Grid

• The Eliminate-
Reduce-Raise-Create
(ERRC) Grid is a simple
matrix like tool that
drives companies to
focus simultaneously on
eliminating and
reducing, as well as
raising and creating
while unlocking a new
blue ocean.

PMS Map
• A useful exercise for a corporate management team pursuing profitable growth is to plot the
company’s current and planned portfolios on the Pioneer-Migrator-Settler Map
• Settlers are defined as me-too businesses, migrators are business offerings better than most
in the marketplace, and a company’s pioneers are the businesses that offer unprecedented
value. These are a company’s blue ocean strategic moves, and are the most powerful sources
of profitable growth. They are the only ones with a mass following of customers.

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Three Characteristics of Blue Ocean Strategy
1. Focus
2. Divergence
3. Compelling tagline

FOCUS: Every great Strategy has focus and companies’ strategic profile or Value curve
should clearly show it.

DIVERGENCE: When companies strategy is formed reactively as it tries to keep up with

the competition, it loses it’s uniqueness. They all tend to share the same strategic profile.

• The Value curves of Blue Ocean strategies always stand apart and diverges from other
players as a result of NOT benchmarking but instead looking at alternatives.

COMPELLING TAGLINE: The final test of a good strategy picture is how well it lends itself
to the tagline. “The speed of the plane at the price of the Car” (SWA).

Strategy Canvas of SWA

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Patanjali Ayurveda

Patanjali Ayurveda- A Local player posing threat to multi-nationals

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Design Thinking
• https://www.hbrascend.in/video/the-explainer-design-thinking/

• A design (noun) has form and function; it is the outcome of the process of designing.
• To design (verb) is to plan, to create or to devise. It is a process, a practice and a way of
thinking.
• Design thinking is an approach to problem solving that allows us to combine right-brain
creative thinking with left-brain analytical thinking. -Professor Jeanne Liedtka.
• Design thinking is an iterative, exploratory process involving visualizing, experimenting,
creating and prototyping of models and gathering feedback.

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Human centered Design Thinking
• Design Thinking draws upon logic & imagination, intuition & systemic reasoning, to explore
possibilities of what could be, and to create desired outcomes that benefit the end user
(customer).
• Design Thinking is a way of finding human needs and creating new solutions using the
MINDSETS and TOOLS of Design practitioners.
• A design mindset is
• Not problem-focused; its solution focused,
• iterative and action oriented.
• It involves both analysis and imagination.

1st STEP: FINDING THE SWEET SPOT

• Do we deeply understand (Empathize) the Customer needs?

Is this the simplest solution that gets the job done?
• Is it elegant?
• Is it useful?
• Can we afford it?
• Does it make me more profitable?
• Do we have the skills?
• What is my ROI?
• How quickly can I implement the solution to suit the
needs?
• Is the solution tested/stability?
• Is it consistent with my current system landscape?
• Can the solution be easily supported?

MINDSETS
Tim Brown: https://www.ted.com/talks/tim_brown_urges_designers_to_think_big?language=en#t-251375

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MINDSETS: EMPATHY
• Empathy: Empathy is the capacity to step into other
people's shoes, to understand their lives, and start to solve
problems from their perspectives.
• Imagine the world from multiple perspectives: By taking a
"people first"
approach, design thinkers can imagine solutions that are
inherently desirable and meet explicit or latent needs.
• Great design thinkers observe the world in minute detail.
They notice things that others do not and use their insights
to inspire innovation.

MINDSETS: INTEGRATIVE THINKING

• Integrative thinking: They not only rely on analytical
processes (those that produce either/ or choices) but
also exhibit the ability to see all of the salient and
sometimes contradictory aspects of a complex problem
and create novel solutions
• Human-centered designers always start from the place
of Not knowing the answer to the problem they're
looking to solve.
• Although not particularly comfortable, it allows us
to open up the SPACE for Creativity, to pursue
lots of different ideas, and to arrive at
unexpected solutions

MINDSETS: OPTIMISM
• Optimism: No matter how challenging the constraints of a given
problem, at least one potential solution is better than the existing
alternatives.
• Failure is an incredibly powerful tool for Learning. Designing
experiments, prototypes, and interactions and testing them is at the
heart of human-centered design.
• As we seek to solve big problems, we're bound to fail. But if we adopt
the right mindset of OPTIMISM, we'll inevitably learn something from
that failure.

MINDSETS: EXPERIMENTING

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 • Experimenting: Significant innovations don't come from incremental tweaks. Design thinkers
pose questions and explore constraints in creative ways that
proceed in entirely new directions.
• As human-centered designers, WE MAKE because we believe
in the power of tangibility, Making an idea real is a fantastic
way to think it through.
• Human-centered design is an inherently Iterative approach to
solving problems because it makes feedback from the people
we're designing for a critical part of how a solution evolves.

MINDSETS: COLLABORATION
• Collaboration: The increasing complexity of products,
services, and experiences has replaced the myth of the
lone creative genius with the reality of enthusiastic
interdisciplinary collaborator.
• The best design thinkers don’t simply work alongside
other disciplines; many of them have
significant experience in more than one.

Design Thinking
Process & Tools

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 1. Empathize

• Empathy is the center-piece of a human-centered design process. It is the work you do to

understand people, within the context of your design challenge.
• Observing what people do and how they interact with their environment gives you clues about
what they think and feel. It also helps you learn about what they need.
• Some of the most powerful realizations come from noticing a disconnect between what
someone says and what he does.
• Others come from a work-around someone has created which may be very surprising to you
as the designer, but she may not even think to mention in conversation.

2. Define

• Define the challenge you are taking on, based on what you have learned about your user and
about the context.
• The goal of the Define mode is to craft a meaningful and actionable problem statement - also
called a point-of- view.
• Articulate a point-of-view by combining the three elements - user, need and insight.
• Insights emerge from a process of synthesizing information to discover connections and
patterns.

3. Ideate

Ideate is the mode of the design process in which you concentrate on idea generation. Mentally it
represents a process of “going wide” in terms of concepts and outcomes.

• You ideate in order to transition from identifying problems to creating solutions for your users.
• Ideation is your chance to combine the understanding you have of the problem space and
people you are designing for with your imagination to generate solution concepts.

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 • You ideate by combining your conscious and unconscious mind, and rational thoughts with
imagination.
• Ideation techniques: Brain-storming, mind-mapping, and sketching. One theme throughout all
of them is deferring judgment – that is, separating the generation of ideas from the
evaluation of ideas

HOW TO BRAINSTORM: RULES

4. Prototype
The Prototype mode is the iterative generation of artifacts intended to answer questions that get
you closer to your final solution.

• A prototype can be anything that a user can interact with –post-it notes, a gadget you put
together, role-playing activity, or a storyboard.
• HOW TO PROTOTYPE?
• Start building: Even if you aren’t sure what you’re doing, the act of picking up some materials
(post-its, tape, and found objects are a good way to start!)
• Don’t spend too long on one prototype. Let go before you find yourself getting too
emotionally attached to any one prototype.
• ID a variable: Identify what’s being tested with each prototype. A prototype should answer a
particular question when tested.
• Build with the user in mind: What do you hope to test with the user? What sorts of behavior
do you expect?

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 Using paper prototype- post it notes

5. Test
The Test mode is when you solicit feedback, about the prototypes you have created, from your users
and have another opportunity to gain empathy for the people you are designing for.
• A rule of thumb: Always prototype as if you know you’re right, but test as if you know you’re
wrong.
• Show don’t tell: Put your prototype in the user’s hands – or your user within an experience.

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 • Create your prototypes and test them in a way that feels like an experience that your user is
reacting to, rather than an explanation that your user is evaluating.
• Bringing multiple prototypes to the field to test gives users a basis for comparison, and
comparisons often reveal latent needs.
• Iteration is a fundamental of good design. Iterate both by cycling through the process
multiple times, and also by iterating within a STEP.

Test: Feedback
Use a feedback capture grid to facilitate real-
time capture, or post-mortem unpacking of
feedback.
Fill the four quadrants with your or a user’s
feedback. Things one likes or finds notable,
place in the upper left; constructive criticism
goes in the upper right; questions that the
experience raised go in the lower left; and ideas
that the experience spurred to the lower right

IDEO
https://www.ideo.com/about

IDEO Design Thinking

• Tim Brown on Design Thinking-https://www.youtube.com/watch?v=RRFKDdRsvjk
• Design thinking to integrate opposing ideas to create opposing solutions.
• Change is the new word
• New choices- World is not the same now
• Start asking right questions
• Diversion approach to discover new ideas, new solutions
• Design thinking can create new ideas, new innovations

Video Case Discussion

Aravind Eye Care- How Low-cost eye care can be world-class

(available at:
https://www.ted.com/talks/thulasiraj_ravilla_how_low_cost_eye_care_can_be_world_class)

Aravind Eye Care

• 1976-life savings put by Dr. G. Venaktaswamy to start this eye care system

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 • 33 prime eye care centers- Hub and spoke model
• 3.5 million surgeries till 2009
• Three key pillars-
– Value System
– Delivery System
– Innovation
• Value system-Ethical and patient centric organization
• Delivery System-Highly efficient system which can be replicated using franchise model like
MacDee’s with same quality everywhere
• Innovation-creating sense of community ownership
• Primary eye care and vision centers opened up when they found out through scientific studies
that they are just reaching 7 percent of population who needed eye care
• Use of Van equipped with VSAT technology to reach to remote areas
• Using technology for tele-consultation with doctor
• 40 % market penetration (in 1st year)
• 75% Market penetration (in 2nd year)
• Quadruple productivity- Use of Woman Power (300+ village girls)
• Quality Assurance systems
• Over 55 percent of patients- given free care
• Helped by market inefficiency (Volume)
• Income:$ 22 M; Expenses: $13 M; EBITA: 39% (2008-09)

How is Aravind Eye care using Design thinking?

Case Discussion

IDEO: Human-centered Service Design

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Satyam Scam, 2009
• Satyam, one of India's IT industry's pioneer story came into unwanted limelight when its
chairman and founding member Ramalinga Raju resigned and confessed that he has
manipulated accounts by $ 1.47 bn
• It cost its stakeholders a loss of around Rs.14,162 crore.
• The Rs 7800 crore fraud got the stocks to crash by 66.5% to Rs 60 from a high of Rs 188.70.
This scam turned brought home the failure of the corporate governance practices at Satyam:
• Non- fulfillment of obligation of company towards its stakeholders.
• Lack of clear definition of roles of the board and management.
• No clear separation of the roles of CEO and chairman.
Irregularities in appointment of the board & compensation of execs.

Role of Board of Directors

• A corporation is a mechanism established to allow different parties to contribute capital,
expertise, and labor for their mutual benefit.
• Investor/shareholders invest & participate in the profits of the enterprise without taking
responsibility for the operations.
• The involvement of shareholders in a corporation’s activities include
right to elect directors who have a legal duty to represent and protect the shareholders rights.
• Directors have both the authority and the responsibility to establish basic corporate policies
and to ensure that they are followed.
• The corporation is fundamentally governed by the board of directors, overseeing top
management, with the concurrence of the shareholder.
• The term corporate governance refers to the relationship among the three groups to
determine the corporation’s direction & performance.
• Over the past decade and half, shareholders and various interest groups have questioned the
role of board of directors in corporations.
• The general public has not only become more aware and more critical of many boards’
apparent lack of responsibility for corporate activities, it has begun to push government to
demand accountability.

Responsibilities of Board of Directors

• Sets corporate strategy, overall direction, mission, or
vision.
• Hires and fires the CEO and top management.
• Controls, monitors, or supervises top management.

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 • Reviews and approves the use of resources
• Cares for shareholders’ interests.
• Assures that the corporation is managed in accordance with state
laws, security regulations and conflict of interest situations.

A 2008 global survey of directors by McKinsey & Company revealed the average amount of time
boards spend on a given issue during their meetings:
• Strategy (development and analysis of strategies)—24%
• Execution (prioritizing programs and approving mergers and acquisitions)—24%
• Performance management (development of incentives and measuring performance)—20%
• Governance and compliance (nominations, compensation, audits)—17%
• Talent management—11%

Role of the Board in Strategic Management

The role of the board of the directors is to carry out three basic tasks:
• Monitor developments inside and outside the corporation, bringing to management’s
attention developments it might have overlooked. A board should at the minimum carry out
this task.
• Evaluate and Influence management proposals, decisions and actions; agree or disagree
with them; give advice and offer suggestions; and outline alternatives. More active boards
perform this task in addition to monitoring.
• Initiate and Determine the corporation’s mission and strategies. Only the most active
boards take on this task in addition to the two previous ones.

Members of a Board of Directors

The board of most public corporations is composed of inside and outside directors:

Inside Directors are officers or executives employed by the board’s corporation.

Outside Directors are executives of other firms but are not employees of the board’s
corporation.
The company law in India does not distinguish between styles and titles of directors. Various types
are:

1. Executive director: Also known as “inside director”. These are full time employees of
company who act as board members.

2. Non-executive director: These do not hold any management positions in the company and
have been chosen to sit exclusively in the board of the company.

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 3. Nominee Director: Typically appointed by a third party (government, foreign collaborators,
holding companies, financial institutions) to ensure the safety of their interests in the
organization.

4. Representative Director: Is appointed to represent the interest of a stakeholder group

such as consumers, employees, suppliers, so on.

5. Shadow Director: This is a person who is not named or appointed as director but gives
instructions to the board. They remain in the background, exercising their powers over the
board’s decisions.

6. Associate Director: This title is given to one of the senior managers even though they are
not on board. This is done as a token of appreciation and recognition for work.

Inside V/S Outside Directors

• Agency Theory- It suggests that a majority of a board needs to be from outside the firm so
that top management is prevented from acting selfishly to the detriment of the shareholders.

• Stewardship Theory- Proposes that outside directors are less effective than insiders
because outsiders are less likely to have the necessary interest, availability, or competency.
Insiders, because of their long tenure with the corporation, insiders tend to identify with the
corporation and its success.

Impact of the Sarbanes-Oxley Act on Corporate Governance

In response to the many corporate scandals uncovered since 2000, US Congress passed the
Sarbanes-Oxley Act in June 2002.

 This act was designed to protect shareholders from the excesses and failed oversight that
characterized criminal activities at Enron, Tyco, WorldCom, Adelphia Communications among
other prominent firms.
 Several key elements of this act were designed to formalize greater bond interdependence
and oversight.
 This act has also established formal procedures for individuals
(whistleblowers) to report incidents of questionable accounting
auditing.
 This act bans auditors from providing both external
& internal audit services to the same company.
 As for India, SOX does not apply directly.

Responsibilities of Top Management

Top management responsibilities, especially those of the CEO, involve getting things through and
with others so as to meet corporate objectives. Successful CEOs have
a clear strategic vision and have following characteristics of
transformational leaders:
• The CEO articulates a strategic vision for the corporation.

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 • The CEO presents a role for others to identify with and to follow.
• The CEO communicates high performance standards and also shows confidence in the
followers’ abilities to meet these standards.

Social responsibilities of Strategic Decision Makers

Social Responsibility proposes that a business organization has responsibilities to society that extend
beyond making a profit.
The responsibilities of a business firm can be viewed as follows :
Milton Friedman’s traditional view of a business firm:
• Friedman argues against the concept of social responsibility
 Primary goal of business is profit maximization not spending shareholder money for
the general social interest.
The Socioeconomic View:
 Management’s social responsibility goes
beyond making profits to include
protecting and improving society’s welfare.

Carroll’s four responsibilities of Business

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Characteristics of Sustainability
Environmental: This includes eco-design and efficiency, environmental management systems, &
executive commitment to environmental issues.
Economic: This includes codes of conduct and compliance, anti-corruption policies, corporate
governance, risk and crisis management, strategic planning, quality and knowledge management,
and supply chain management.
Social: This includes welfare of society, philanthropy, labor practices, human capital development,
talent attraction and retention, Stakeholder’s welfare etc.

Corporate Stakeholders
Stakeholder Analysis the identification of corporate stakeholders in three steps:
1. To identify primary stakeholders those having a direct connection with the corporation and
have sufficient bargaining power to directly affect corporate activities
2. To identify the secondary stakeholders that have an indirect stake in the corporation but are
also affected by corporate activities.
3. To estimate the effect on each stakeholder from a particular strategic decision.

Ethical Decision Making

Ethics is defined as the consensually accepted standards of behavior for an occupation, a trade, or a
profession.

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 These are the principles, values, and beliefs that define right and wrong decisions and
behavior.
Reasons for Unethical Behavior
• Lack of awareness that the given behavior is questionable.
• Lack of standards of conduct
• Different cultural norms and values
• Rule-based or relationship-based governance systems
• Different values between business people and stakeholders

Encouraging Ethical Behavior

• Code of Ethics specifies how an organization expects its employees to behave while on job.
• Indian companies like Tata Motors and IndusInd Bank have made extensive efforts to support
whistleblowers.
• Whistleblowers Bill, 2006 is an attempt to protect the whistleblower from criminal or civil
liability, departmental inquiry, demotion.
• Some companies having strong moral cultures* are Canon, HP, Johnson & Johnson, Levi
Strauss, Motorola, Shorebank and Sony.

Guidelines for ethical behavior

A starting point for developing code of ethics is to consider three basic approaches to ethical
behavior:
• Utilitarian approach: Proposes that people should behave
in a way that will produce greatest benefit to society and
produce the least harm or lowest cost.

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 • Individual rights approach: This takes care of fundamental rights of others. A particular
behavior should be avoided if it interferes with the right of others.
• Justice approach: Proposes that decision makers should be equitable, fair, and impartial in
the distribution of costs and benefits to individuals and groups.

Social Responsibility in Practice: ITC e-Choupal

• ITC's Agri-Business Division, one of India's largest exporters of agricultural commodities, has
conceived e-Choupal as a more efficient supply chain aimed at delivering value to its
customers around the world on a sustainable basis.
• The model is specifically designed to tackle the challenges posed by the unique features of
Indian agriculture: fragmented farms, weak infrastructure and the involvement of numerous
intermediaries, among others.

Fig: ITC’s e-choupal Value chain: This model unshackles the potential of Indian farmer who
has been trapped in a vicious cycle of low risk taking ability > low investment > low productivity
> weak market orientation > low value addition > low margin > low risk taking ability.

ITC e-Choupal: Model in action

• 'e-Choupal' leverages Information Technology to virtually cluster all the value chain
participants, delivering the same benefits as vertical integration does in mature agricultural
economies like the USA.
• Project covers over 35,000 villages in MP, UP, Maharashtra, Karnataka, Andhra Pradesh,
Rajasthan, Haryana and Uttaranchal providing millions of farmers with critical information on
farming. The Choupal services are being delivered by over 6,000 Sanchalaks and over 17,000
Upa Sanchalaks to these remotest areas.
• Real-time information and customised knowledge provided by 'e-Choupal' enhance the ability
of farmers to take decisions and align their farm output with market demand and secure
quality & productivity.

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ITC e-Choupal: Benefits to the company
• e-Choupal, today is more than a decade old and ITC is using an IT-driven marketing channel
to align farm output with market demand.
• The agri-business arm, which runs the e-Choupal network, serves as the back-end source of
raw materials that go into ITC's personal care products and packaged foods.
• ITC benefits from the lower net cost of procurement [despite offering better prices to the
farmers] having
eliminated costs in the
supply chain that do
not add value.
• The web-based e-
Choupal network has
now become a key
driver for the FMCG
business that
comprises brands like
Sunfeast, Aashirvaad,
Vivel and Fiama Di
Wills.

Unilever’s Sustainable Living Plan

• Refer the following report published by Unilever:

https://www.unilever.com/Images/2011-investor-seminar-2011-driving-growth-through-the-
sustainable-living-plan-keith-weed-chief-marketing---communications-officer_tcm244-
422755_1_en.pdf

Video

https://www.youtube.com/watch?v=utSYAkQi5hY

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EC – 1 Quiz 1

1. The concept that suggests that unit production costs decline by some fixed percent each time the
total accumulated volume of production in units doubles is referred to as

a. break-even analysis

b. the R & D mix.

c. technological competence

d. the experience curve.

2. ________ is more valuable because it can provide companies with a sustainable competitive
advantage that is harder for competitors to imitate.

a. Tacit knowledge

b. Explicit knowledge

c. Durable knowledge

d. Imitable knowledge

e. Transferable knowledge

3. A linked set of value-creating activities beginning with basic materials provided by suppliers and
ending with distributors getting the final product into the hands of the ultimate consumer is called
a(n)

a. strategic capability.

b. value chain.

c. fully integrated activity set.

d. continuum of sustainability.
4. A graph showing time plotted against the dollar sales of a product as it moves from introduction
through growth and maturity to decline is called the

a. product life cycle

b. market segmentation.

c. marketing mix.

d. marketing position.

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5. When a company's core competencies are superior to those of competitors, these are known as

a. distinctive competencies

b. resources

c. core competencies

d. critical success factors

6. In addition to Porter's Five Forces, another force added in the text is

a. threat of prospects.

b. other stakeholders

c. bargaining power of unions.

d. threat of shareholders.

7. Those critical strengths and weaknesses that are likely to determine if a firm will be able to take
advantage of opportunities while avoiding threats are called

a. SWOT

b. competitive forces

c. internal strategic factors

d. quality accounting

8. A relationship that illustrates the term complementor is

a. General Motors and Ford.

b. Hewlett Packard and Compaq

c. Gateway and Dell

d. Microsoft and Intel

9. The theory that proposes organizations can and do adapt to changing conditions by imitating other
successful organizations is known as

a. strategic theory.

b. population ecology.

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 c. citizenship theory.

d. institution theory.

10. Which of the following is NOT a primary activity of the value chain?

a. installation

b. raw materials handling

c. repair

d. purchasing

11. Strategic management is that set of managerial decisions and actions that determine the long-run
performance of a corporation. Which one of the following is NOT one of the basic elements of the
strategic management process?

a. strategy implementation

b. strategy formulation

c. evaluation and control

d. statistical process control

12. The theory that proposes organizations can and do adapt to changing conditions by imitating
other successful organizations is known as

a. strategic theory.

b. citizenship theory.

c. population ecology.

d. institution theory.

13. Which barrier to entry uses cost advantages associated with large size?

a. cost disadvantages independent of size

b. capital requirements

c. switching costs

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 d. economies of scale

14. The task environment

a. includes those elements or groups within an organization's industry.

b. is an advisory committee to top-management.

c. is an accounting of the many jobs within an organization.

d. encompasses the physical working areas of the organization.

15. When a company determines a competency's competitive advantage, Barney refers to this issue
as

a. organization

b. value

c. imitability

d. rareness

16. The type of strategy which achieves corporate and business unit objectives and strategies by
maximizing resource productivity is

a. product.

b. business.

c. functional.

d. operational

17. IBM under CEO Louis Gerstner and his strategic decision to invest in services in 1993, is an
example of which mode strategic decision-making?

a. adaptive

b. planning

c. entrepreneurial

d. logical incrementalism

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18. The monitoring, evaluating, and disseminating of information from the external and internal
environments to key people within the corporation is referred to as

a. environmental scanning.

b. internal scanning.

c. strategy formulation.

d. external scanning.

19. When the value chains of two separate products or services share activities, such as the same
marketing channels, in order to reduce costs, this is an example of

a. economies of integration.

b. economies of learning

c. economies of scope

d. economies of scale

20. When examining the corporate value chain of a particular product or service, which one of the
following is NOT one of the PRIMARY activities that usually occur?

a. inbound and outbound logistics

b. auditing and accounting

c. operations

d. marketing and sales

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EC – 1 Quiz 2

1. Timing tactics answer the question

a. where the strategy is implemented.

b. who in the company implements strategy.

c. when a company implements a strategy.

d. what strategy is implemented

2. When Intel opened four small-scale research facilities adjacent to universities to promote the
cross-pollination of ideas, they were using which approach to R&D?

a. continuous improvement

b. open innovation

c. technology scouts

d. differentiation

3. The growth-share matrix of the Boston Consulting Group suggests that the excess cash being
generated by "cash cows" should be used to fund

a. "dogs."

b. "white knights."

c. "stars."

d. "question marks."

4. As it relates to operations, AMT stands for

a. Asymptotic Manufacturing Technology.

b. Automated Manufacturing Technology.

c. Advanced Monotone Technology.

d. Advanced Manufacturing Technology.

5. Ford Motor Company's use of company resources to build its River Rouge Plant outside of Detroit
so that iron ore could enter into one end of the plant and a finished automobile could exit out of the
other end is called

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 a. vertical growth.

b. horizontal integration.

c. tapered integration.

d. external vertical integration.

6. Many companies have found that outsourcing logistics

a. helps the company differentiate themselves.

b. is an effective business-level strategy.

c. reduces costs and improves delivery time.

d. helps centralize logistics.

7. According to Porter, a business unit in a competitive marketplace with no generic competitive

strategy is

a. achieving synergy

b. practicing innovative leadership.

c. stuck in the middle

d. not goal directed.

8. According to Porter, strategies to raise structural barriers include all of the following EXCEPT

a. block channel access by signing exclusive agreements

b. avoid suppliers that also serve competitors.

c. tie up suppliers by obtaining exclusive contracts.

d. decrease scale economies.

9. When a company determines how and where a product or service is to be manufactured, the level
of vertical integration in the production process, the deployment of physical resources, and
relationships with suppliers, the company is developing its ________ strategy.

a. financial

b. marketing

c. R&D

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 d. operations

10. When Kimberly-Clark introduced Huggies disposable diapers against Procter & Gamble's market
leading Pampers, they were using the offensive tactic known as a(n)

a. encirclement.

b. flanking maneuver.

c. bypass attack.

d. frontal assault.

11. Which of the following is NOT defined by GE as one of the variables forming industry
attractiveness?

a. market size

b. market share

c. pricing practices

d. market growth rate

12. With conglomerate diversification, the focus is on

a. product-market synergy.

b. financial considerations.

c. employee satisfaction.

d. similar product offerings.

13. In international dealings, green-field development is

a. when a corporation chooses to build a facility from scratch allowing it the freedom to design
the plant, choose suppliers, and hire its work force.

b. a way in which an MNC may contract with a foreign government or local firm to trade raw
materials for certain resources belonging to the MNC.

c. when an MNC has a large amount of management talent available and chooses to use its
personnel to assist a firm in a host country for a specified fee and period of time.

d. a way in which an MNC can take total control of operations by acquiring a firm already
established in the host country.

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14. The pricing, selling, and distributing of a product is referred to as a(n) ________ strategy.

a. marketing

b. functional

c. financial

d. operations

15. When a company spends a large amount of money on trade promotion in order to gain or hold
shelf space in retail outlets, a company is using a ________ strategy.

a. knot

b. lengthening

c. pull

d. push

16. In many cases, ________ integration is more profitable than ________ integration.

a. forward, backward

b. backward, vertical

c. backward, forward

d. vertical, backward

17. Which of the following is NOT one of the advantages of portfolio analysis?

a. It encourages top management to evaluate each of the corporation's businesses individually.

b. The graphic depiction facilitates communication.

c. It provides the basis for impartial objectivity from which to make decisions.

d. It raises the issue of cash flow availability for use in expansion and growth.

18. Which of the following strategies was being used when Allied Corporation and Signal Companies
formed Allied Signal?

a. strategic alliances

b. acquisitions

c. mergers

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 d. diversification

19. Which strategy is most appropriate for a company in an industry in which the future is expected
to continue as an extension of the present?

a. horizontal integration strategy

b. pause/proceed with caution strategy

c. retrenchment strategy

d. no change strategy

20. As an industry matures while overcoming fragmentation and becomes dominated by a small
number of large companies, it tends to become a (n)

a. isolated industry.

b. united industry.

c. consolidated industry.

d. fragmented industry.

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