Why is Strategy important?

• Strategy is meant to shape future

• It helps reach future goals of individuals and organizations
• It has been found that firms which have strategy do better than those who
do not
• It helps learn to do trade off decisions, based on priorities
• It is future oriented and helps trade offs between present and future,
across functions
• Since strategy implementation is simultaneous rather than sequential to
formulation all levels of managers are involved
• It is about costs, revenues and profits and thus need everybody’s
contribution
• As one moves from functional to business responsibility, you need clear
strategies .
• Although realized strategies are combination of intended and emerging
strategies- some strategies are unrealized
 FORMS OF STRATEGY

Intended Deliberate Strategy Realized

Strategy Strategy

Emergent
Unrealized Strategy
Strategy
 Intended Strategy

Mission and
Goals

Strategic
External Internal
Choice
Analysis Analysis

Intended Strategy

Organization for
Implementation
 Emergent Strategy

External Mission and Internal

Analysis Goals Analysis

Strategic
Choice.
Does it Fit?

Emergent Strategy

Organizational
Grassroots
 Definitions of Strategy

Plan: a consciously intended course of action to deal with

a situation
Pattern: a pattern of actions that emerge, unintendedly,
over time
Position: the way a firm relates to its competitive
environment
Perspective: the way managers of a firm see themselves
and the world around them
Mintzeberg, Henry
 The following definition will be used

• A strategy is to gain and sustain

competitive advantage
 Strategy Process
Vision

Mission

Strategy Internal
External
Analysis Creation Analysis

Implementation

Performance
measurement
 Strategy Diamond: 5 elements
Where will we be active
• Which product categories
• Which market segments
• Which geographies
• Which core technologies
• Which value-creation stages

Arena
What will be our speed How will get there
and sequence? • Infernal development
• Speed of expansion Econo • Joint Ventures
• Sequence of initiatives Staging Aa • Licensing/ franchising
mic Vehicles • Acquisitions
Logic

What is the economic return logic? Differentiators

• Lowest cost through scale advantages (cost adv.)
• Economies of scope and replication
• Premium prices due to unmatched service
• Premium prices due to proprietary product features
How will we win?
• Image
• Customization
• Price
• Styling
• Product reliability
 Ikea Strategy Diamond
Where will we be active
• inexpensive contemporary furniture
• Young family, white collar customer
• Worldwide operations through backfill

Arena
What will be our speed
and sequence? How we will get there
• Rapid international expansion by region Econo • Organic expansion
• Early foothold in a country, backfill later • Wholly-owned stores
Staging Aa
mic Vehicles
Logic

What is the economic return logic? Differentiators

• Economies of scale (global, regional, and individual
store Scale
• Efficiencies from replication
• Generating volumes in each geography
How will we win?
• Very reliable quality
• Low Price
• Fun, no-threatening shipping experience
• Instant order fulfilment
 Strategic Analysis

External Analysis Internal Analysis

Specific Goals
•Current
•Customers Performance
•Pricing constraints •Brand Power
•Competitors •Cost structure
•Distribution issues •Product portfolio
•Technology •R$D Pipelines
•Macro economy •Technical mastery
•Regulation •Employee skills
•Work style trends •Company culture
•Regulation
•Major uncertainties
•Suppliers
•Potential partners Strengths &
Weaknesses
Threats &
Opportunities

Strategy
 INDUSTRY CONTEXT
Profitability Difference Along Selected Industries

Tyre 0.66

Synthetic Rayon 3.31

Dairy 4.90

Com. Veh. 6.47

Cement 7.10

Bank 7.18

Con. Elec. 7.97

Oil and Gas 8.73

Cars 8.78

Two Wheeler 12.87

0.00 2.00 4.00 6.00 8.00 10.00 12.00 14.00

Operating income/Total Assets, 2000-2004 (%)

 CONTEXT OF COMPANY RESOURCES & STRATEGIES

Profitability Difference Within the Tyre Industry

India Rubber Ltd.

-4.4

Dunlop
-2.6India Ltd.

Ceat Ltd. 3.8

Modi Rubber Ltd. 6.4

J K Industries Ltd. 7.8

Goodyear India Ltd. 10.0

Vikrant Tyres Ltd. 11.0

Apollo Tyres Ltd. 13.8

M R F Ltd. 16.4

T V S Srichakra Ltd. 18.0

-10.0 -5.0 0.0 5.0 10.0 15.0 20.0

Operating Inc/Total Assets, 2000-2004 (%)

 CONTEXT OF COMPANY RESOURCES & STRATEGIES

Profitability Differences Within 2/3 Wheeler Industry

Maharashtra Scooters Ltd. 3.2

Majestic Auto Ltd. 3.6

Scooters India Ltd. 7.8

Kinetic Motor Co. Ltd. 8.2

Kinetic Engineering Ltd. 8.4

Atul Auto Ltd. 9.8

L M L Ltd. 11.8

Bajaj Auto Ltd. 12.2

T V S Suzuki Ltd. 21.2

Hero Honda Motors Ltd. 23.8

0 5 10 15 20 25
Operating Inc/Total Assets, 2000 -2004(%)
COMPETITIVE ADVANTAGE: FOCAL POINT OF STRATEGY

Competitiveness Financial Performance

Differentiation

Competitive Economic Market Value

Cost Leadership Advantage Value Added Added

Quick Response

Value Created for Value Captured for

Customers Investors
 Differentiation
• In pursuing CA based on differentiation , firms attempt to
create unique bundles of products/ services that will be highly
valued by customer . The activity focus is on R&D, higher
quality material, advertising, Quality systems
• They are willing to pay premium price for the differentiated
products and services as given below:
• Product features: A Product’s physical characteristics or
capabilities may be an important form of differentiation e.g.
Philips TV can display two channels on one screen
• After-sales service: Convenience and quality of service may
be a critical factor in deciding among alternative products, e.g.
Maruti’s after-sales service given through extensive network
• Desirable Image: This is obviously the basis of virtually all
fashion products, e.g. Tanishq Jewelry
 Differentiation……….
• Technological Innovation: Technological innovation provides
the basis of competitive advantage for broad range of firms.
Bose’s speakers which provide quality of sound better than
giant loudspeakers, but small enough to fit in any apartment
• Reputation: Tata’s image of providing affordable price a good
quality product as compared to its competitors
• Manufacturing consistency : This is achieved through
Statistical Process Control (SPC)and TQC. MacDolad’s produts
are found the same across the globe
• Status symbol: They satisfy status and psychological needs
.e,g. Mercedes or BMW cars or Harley Davidson motorcycle
•
Cost Leadership
A company which follows cost leadership strategy focuses on
reducing its cost below those of its competitors. P&G ‘s Ivory
soap follows this strategy by using ingredients that are not
expensive, low cost packaging and limited advertising
• This strategy is implemented through employing economies of
scale by producing large volumes so that fixed cost is spread
across large volumes
• The cost leader uses specialized machines
• Use plant and equipment whose fixed cost per unit is lower
• Use employee specialization who do more repetitive roles
• They keep Overhead costs low
• They enjoy steep experience curve
• They put less money in advertisement and R&D
• Maruti, Nirma soaps, Tata Motors use cost leadership
 Quick Response Strategy
• The customer took value from cost leadership and
differentiation for granted, they shifted their focus to quick
response
• Which essentially means providing value to customers faster
than rivals.
• The slow response to customer expectations can make
customer choose other suppliers
• Only a flexible firm can respond to the customers need for
quick response
• Speed can improve the value of cost leadership and
differentiation
• In fact customer value is added only .05 to 5% time but cost is
continuously incurred- e.g. suite stitching
 Quick Response
• The product value deteriorate if not supplied in time:
inventory cost, parts rust or get damaged, become obsolete,
and are lost, customer wait destroys value. Atlas Door is able
to add value to use quick response to improve cost leadership
and differentiation
• It fills orders in weeks instead of months. It charges premium
for on its products through quick response
• It takes order on phone , the engineer takes the specifications
and immediately goes to work and produces the product in
record time
• The strategy essentially manages order fulfillment, operations
and delivery and service in quick time