Comprehensive Model of Strategic Management Process

Establishing Strategic Intent

Vision , Mission, Business Definition and objectives
S
C
T
O
R
N Formulation of strategies
A Environment Appraisal, Organizational Appraisal
T SWOT Analysis , Corporate Level Strategies
T
R Business level Strategies , Strategic Choice
E
G O

I L Strategy Implementation
Project, Procedural, Resource Allocation
C Structural, Behavioral, Functional and operational

Strategic Evaluation
 Corporate- Level Strategies
• Are basically about decisions related to allocating
resources among the different businesses of a firm ,
transferring resources from one set of businesses to others
and managing and nurturing a portfolio of businesses in
such a way that the overall corporate objectives are
achieved.
 Corporate- Level Strategies
• There are 4 Grand Strategies

1) Stability Strategies
2) Expansion Strategies
3) Retrenchment Strategies
4) Combination Strategies
 Grand Strategies
• 1) Stability Strategies
a) No- change Strategy
b) Pause/proceed with caution
c) Profit Strategies
• 2) Expansion Strategies
a) Intensive
b) Integrative
c) Diversification
d) Cooperation (M&A, JV/Foreign Collaboration)
e) Internationalization
• 3) Retrenchment Strategies
a) Turnaround
b) Divestment
c) Liquidation
• 4) Combination
 Stability Strategies
• Refer to attempts made by a company at incremental
improvement of functional performance.
• Strategy relevant for a firm operating in a reasonably
certain and predictable environment.
• Followed by small and medium –sized firms .
 Stability Strategy
Reasons for stability strategy
• The company is doing fairly well and will continue to do
so.
• The feeling that sticking to the known business is better
and safe.
• Expansion may lead to dilution in stake or non effective
supervision by family members.
• The company may not have the resources /capabilities
• May be risk averse
• Stick to core competencies.
 Stability Strategy
• No-change Strategy :
When faced with a predictable and certain external
environment , a firm decides to continue with its present
strategy.
e.g --- Monopoly sectors like railways, Power etc.
Also small and medium companies operating in familiar
markets --- e.g Nirula in delhi , Natural Icecreams in
Mumbai,
 Stability Strategy
• Profit Strategy:
In situations when profits are dipping, firms undertake measures like
1) Reduce investments
2) Cut costs
3) Raise prices
4) Increase productivity etc--- to tide over what are supposed to be
temporary difficulties.
e.g – companies sell assets like land in commercial location and move out to
the suburbs.. Or companies sell non-core business to stay afloat.
 Stability Strategy
• Pause /proceed with caution strategy:
is employed by firms that wish to test the ground before
moving ahead with a full – fledged grand strategy or by
firms that have had a blistering pace of expansion and wish
to rest a while before moving ahead.
 Growth/Expansion Strategy

• Growth strategy amounts to redefining the business by

adding new products/services or new markets or expanding
current business
• A company can pursue internal or external growth strategies
or both.
The different expansion strategies are :
• Expansion Strategies a) Intensive
b) Integrative
c) Diversification
d) Cooperation (M&A,
JV/Foreign Collaboration) e) Internationalization
 Expansion Strategy

Reasons for growth

• Natural urge
• Survival
• Market share
• Competition
• Diversification of risk
• Opportunities
• Better utilization of resources
• Motivation
• profits
 Expansion Strategy

• Expansion through Concentration/Intensive strategy:

• Concentration is a simple , first –level type of expansion strategy. I t
involves converging resources in one or more of a firm’s
businesses.
• Concentration strategies are also known as intensification, focus or
specialization strategies.

e.g – Nokia , Infosys, Bose

Concentration strategies can be of the following types—
1) Product development
2) Market development
3) Market penetration.
Igor Ansoff has presented the matrix for intensive growth.
 IGOR ANSOFF’S PRODUCT/MARKET
EXPANSION GRID
Current Product New Product

Current
Market Product
Market
Penetration Development

New Market Diversification

Market Development
 IGOR ANSOFF’S PRODUCT/MARKET
EXPANSION GRID
• Current Market –Current Product

• Market Penetration:
Encourage current customers to buy more.
Attract competitors customers to switch to its brand
Convince non users who resemble current users to
start using the company’s product.
e.g --- Pepsodent, Colgate
• Market Development

Geographical expansion: Opening retail outlets in

other areas.
e.g --- Mc-Donalds, Shoppers’ Stop

Channel expansion : If only present in consumer

market, then look at institutional sales also.
 IGOR ANSOFF’S PRODUCT/MARKET
EXPANSION GRID

• Product development Strategy :

Introduce products with new features
Introduce different quality versions
Alternative product forms
e.g – LG in colour TVs– Flat TVs, Plasma TVs,
LCD TVs, Projection TVs.
• Diversification Strategy
 Expansion Through Integration

• Vertical Integration (V I) : When an organization starts making new

products that serve its own needs , vertical integration takes place.
• V I are of two types--- Forward and Backward integration
• Backward integration : When a company starts making some or all of
its material requirements (Inputs ) it is backward integration.
• Forward Integration : moves the company nearer to the ultimate
consumer.
• E.g If Tata Indica starts making tyres --- backward integration
• If Sona Steering starts making cars--- its forward integration
 Expansion Through Integration

• Backward Integration: -- Benefits

1) It ensures smooth supply of materials
2) Better control on quantity and quantity.
3) Results in economies of scale
Disadvantages
1) The cost of making may be higher then the cost of
buying
2) Exiting the business in future may be more difficult
 Expansion Through Integration

• Forward Integration : Benefits:

1) It creates a captive demand for the product
2) It generates additional profits .
e.g Raymond’s getting into ready made shirts –(Park Avenue,
Parx)
Disadvantages of FI :
1) The new business may not succeed
 Expansion Through Integration

• Horizontal Integration : Integration at the

same level of business –
sister concerns of the same company can be
combined into one entity.
 Expansion Though Diversification
• Diversification :
Companies diversify for the following reasons
1) Saturation or decline of current business
2) Additional/Better opportunities
3) Risk Minimization
4) Better utilization of Resources and strength
5) Consolidation
6) Inspiration and motivation to employees
Risks of Diversification
1) No guarantee of success
2) Competition may retaliate in old business
3) May lead to neglect of old business.
 Expansion Though Diversification

• Three types of diversification:--

1) Concentric Diversification Strategy : company makes
products that have technological and / or marketing
synergies with existing product lines , even though the
product may appeal to a new class of customers
e.g---
A washing machine company starts making dishwasher.
 Expansion Though Diversification

• Horizontal Diversification strategy : Company searches for

new products that serve the same customer though
technologically unrelated to its current product .
e.g – A cassette manufacturing company starts making tray to
hold the cassette.
A CD company starts making CD boxes
 Expansion Though Diversification

• Conglomerate Diversification : When an organization

seeks new businesses that have no relationship to the
company’s current technology, products or markets its
known as Conglomerate diversification.

• e..g : ITC ( Cigarettes, Hotels, Paper )

TATA ( Steel, salt, cement, power, tea, retail,
hotels,coffee chain, software)
TTK ( Pressure cookers, chemicals, contraceptives,
pharmaceuticals)
Anchor (consumer electronics, Toothpaste, talcum powder,
electrical switches)
 MERGERS AND ACQUISITIONS

• ACQUISITIONS

• When one company takes over another entity, and establishes itself as
the new owner, the purchase is called an acquisition.
• From a legal point of view, the target company,, ceases to exist, the
buyer absorbs the business, and the buyer's stock continues to be
traded, while the target company’s stock ceases to trade.
• Merger
• Merger describes two firms of approximately the
same size, who join forces to move forward as a
single new entity, rather than remain separately
owned and operated.
• This action is known as a "merger of equals." Both
companies' stocks are surrendered and new
company stock is issued in its place. Case in point:
both Daimler-Benz and Chrysler ceased to exist
when the two firms merged, and a new company,
Daimler Chrysler, was created.
• GLAXO WELLCOME and SMITHKLINE BEECHAM
merged to become GSK
• ASTRA , Swedish drug maker merged with ZENECA
(UK) to become ASTRA ZENECA.
• Unfriendly (hostile takeover ) deals, where target
companies do not wish to be purchased, are always
regarded as acquisitions.
• A deal is can thus be classified as a merger or an
acquisition, based on whether the acquisition is
friendly or hostile and how it is announced.
 Mergers & Acquisitions
• Reasons for Mergers
• Why Buyer wishes to merge
• To increase value of the organization's stock
• To increase growth rate and make a good investment
• To improve stability of earning and sales
• To balance , complete or diversify product line
• To reduce competition
• To avail tax concessions /tax benefits.
• To take advantage of synergy.
 Important criteria before acquisition

• Earning Potential
• Value of company: The commonly used methods of evaluation are
• 1) Valuations based primarily on assets and liabilities
• 2) valuation based on the projected earnings of the company
Thumb rule to buy an consumer product company is to offer 2.5 TO 3 times the
turnover
COKE PAID 170 crores to Parle to acquire Thumsup

Whirlpool paid 300 crores for 51 % stake in Kelvinator

Williamson Magor paid 290 crores to Get Eveready brand
name from UCIL
• Condition of Plant and Machinery
• Quality of Management team and other staff.
• Market position.
• TATA paid FORD $2.3 billion to acquire
JLR
• TATA paid $12 billion to acquire CORUS
• TATA acquired TETLEY for $450 million
 Joint Ventures
• Any form of association which implies collaboration for more than a
transitory period is a JV. Such a broad definition encompasses many
diverse types of joint overseas operations

• Sharing of ownership and management in an enterprise

• Licensing/franchising agreements
• Contract manufacturing
• Management contracts

• As per most experts JV encompasses joint ownership venture .

 Joint Ventures
• The essential feature of a joint ownership venture is
that the ownership and management are shared
between a foreign firm and a local firm.
• In some cases more than two parties are involved. For
e.g Pepsi’s Indian joint venture involved Voltas and
Punjab Agro Industries Corporation.
• other e.g in India were
• Maruti Suzuki and Hero Honda.
• CURRENT EXAMPLES= STARBUCKS INDI AND
VISTARA AIRLINES
 Joint Venture Strategies
Two or more companies form a partnership for a specified purpose.
Conditions for JV
• When an activity is uneconomical for a company to do alone.
• When the distinctive competence of two or more organizations can be
brought together.
• When the risk of business has to be shared.
Types of JV
• Between two firms in one industry
• Between two firms across different industries
• Between an Indian firm and a foreign firm in India
• Between an Indian firm and a foreign firm in that foreign country
• Between an Indian firm and a foreign firm in a third country.
 Turnaround Management & Restructuring

Danger Signals
• Deteriorating performance Indicators:
1) Decreasing Market share
2) Decreasing constant rupee sales:
3) Decreasing Profitability
• Deteriorating Financing Problems:
1) Increasing reliance on debt: A substantial rise in the amount of debt , a
lopsided debt-to-equity ratio and a lowered credit rating may cause
banks and other lenders to apply restrictions which would further
compound the financial problems.
2) restrictive dividend policy: to conserve cash is a danger signal.
 Danger Signals

• Investment Policies:
1) Inadequate Reinvestment in Business: Adequate reinvestment in plants,
machinery and maintenance is necessary for a company to stay
competitive.
2) Proliferation of New ventures at the expense of the priority business:
A common policy in troubled companies is to ignore the basic business
and rely on new ventures.
• Lack of Planning :
• Problems at Top Management Levels:
1) Lack of receptiveness of CEO
2) Management succession problem
3) Ineffective directors/management team
 TURNAROUND MANAGEMENT

• Turnaround Management refers to the management

measures that reverse the negative trends in the
performance indicators of the company.

• In other words TM refers to the management measures

which turn a sick company back to a healthy one or those
measures which reverse the deteriorating trends of the
performance indicators such as falling market share , sales
or worsening debt-equity ratio.
 Turnaround Management
The important factors employed in turnaround management are as
follows:
• Management factor: appoint a new CEO (Motorola)
• Human Resource factor: shed surplus manpower, recruit competent
people
• Production Facilities: Modernize the plants which improves
efficiencies at the shop floor.
• Financial Management:Arranging cheaper finance, cost cutting etc.
• Product Mix modification : Unprofitable products needs to be
dropped, some current products need quality improvements, new
models need to be introduced.
• Marketing Strategy: enter new markets/segments etc.
• Miscellaneous : liquidation in assets, close down some divisions,
restraints on emoluments of employees, better raw material
procurement etc.
 Elements in Turnaround Management
Khandwalla’s ten elements of a successful turnaround
strategy.
• Change in top management
• Initial credibility building actions.
• Neutralizing external pressures.
• Initial control
• Identifying quick payoff activities.
• Quick cost reductions
• Revenue generation.
• Asset Liquidation for generating cash
• Mobilization of the organization
• Better internal co-ordination.
 BCG matrix- Growth/share matrix

20
Market
STARS Question
Marks
Growth
10
Dogs
Rate (%) Cash
cow
0 x
10x 0.1 x
Relative Market share
 Business Strength M
GE MODEL
A
Protect Position Invest to build Build Selectively R
Specialize around
limited strengths K
Invest to grow Challenge for
Seeks ways to E
Concentrate effort leadership
overcome weakness
High on maintaining Build selectively Withdraw if
T
strength Reinforce indications of sustain A
vulnerable areas growth is lacking T

Build Selectively Selectivity/Manage Limited Expansion T

for earnings or Harvest R
Medium Invest heavily in most
A
attractive segments Protect existing program Look for ways to expand
Build up ability to Concentrate investments without high C
counter competition in segments where risk ,Otherwise
Emphasize profitability profitability is good and minimize investment and T
by raising productivity risks are relatively low rationalize operations I
Low Protect and Refocus Manage for Divest V
earnings E
Manage for current Sell at time that will
earnings Protect position in most maximize value N
Concentrate on profitable segments Cut fixed costs and
E
attractive segments Upgrade product line avoid investment
Defend strengths Minimize investment meanwhile S
S

Strong Medium Weak

 GE Model
• Market Attractiveness:
Overall Market size
Annual Market growth rate
Historical profit margin
Competitive intensity
Technological requirements
Energy requirements
Inflationary vulnerability
Social/ political / legal
 G E MODEL

Business Strength
• Market share
• Share growth
• Product quality
• Brand reputation
• Distribution network
• Promotional effectiveness
• Productive capacity
• Productive efficiency
• Unit costs
• R & D performance
• Managerial personnel
 Porter’s 5 Forces- Determining Segment
Structural Attractiveness

Potential Entrants

Suppliers Buyers
(Supplier Power) Industry (Buyer Power)
Competitors
Substitutes
(Threat of
substitutes)
 Threat of Entry
• Barriers To Entry :

• )Economies of scale

• )Product Differentiation of existing firms

• )Huge capital requirements

• )Switching costs

• )Access to distribution channels

• )Govt. Policy
 Bargaining Power of Buyers
• Buyers compete with the industry by forcing down prices , bargaining
for higher quality or more services and playing competition against
each other

• Buyer group is powerful under the following conditions

• )It is concentrated or purchases large volumes relative to seller
sales
• )The product it purchases from the industry represent a
significant fraction of the buyer’s costs
• )The product it purchases from the industry are standard or
undifferentiated: Buyers, sure that they can find alternate
suppliers , may play one company against other to extract
maximum mileage.
Bargaining Power of Buyers
• )Faces few switching costs: switching costs, lock the
buyer to particular sellers. Lower the cost better for
buyer to bargain
• )Buyers pose a credible threat of backward
integration---- if buyers are partially integrated or
pose a credible threat of backward integration, they
are in a position to demand bargaining concessions.
• )The industry’s product is unimportant to the quality
of the buyer’s product
• The buyer has full information
 Bargaining power of suppliers

• A supplier group is powerful if the following apply

• )The supplier’s product is an important input to the buyer’s

business
• )The supplier’s products are differentiated or it has built in
switching costs
• )Supplier poses a serious threat of forward integration
• )The industry is not an important customer of the supplier
group.:== When a supplier sells to a number of industries and
a particular industry doesn't represent a significant fraction of
sales , suppliers are much more prone to exert power.
 Three Generic Strategies
Strategic Advantage
Uniqueness perceived Low cost position
by customer

Industry Overall cost

Differentiatio
wide leadership
n

Focus Focus cost

Particular
Differentiation
segment
• To cope with the 5 competitive forces---
there are 3 generic strategies

 1. Overall cost leadership

 2. Differentiation
 3. Focus
Overall Cost Leadership

 Requires construction of efficient – scale facilities

 Cost minimization in areas like R&D, ADVERTISING,
SERVICE, SALES FORCE ETC.
• How does low cost help fight the 5 forces

• )gives the firm a defense against rivalry from competitors ,

because its lower costs gives the company certain returns.
• )Defends against powerful buyers because buyers can exert
power only to drive down prices to the level of next most
efficient competitor.
• )Defends against powerful suppliers by providing more
flexibility to cope with input cost increases.
• )Defends against new entrants --- entry barriers in terms of
scale or cost advantages.
• To achieve cost leadership --- upfront capital investment in
state-of-the –art equipment/plant is required.
• e.g --- Texas instruments, DU PONT, Black & Decker,
Bic, Kodak etc.

• Timex has specialised in manufacturing simple low cost

watches for the mass market.
• Differentiation ---- creating something that is perceived industrywide
as unique.
• Differentiation can take many forms ----
 Design / brand image--- Mercedes
 Technology--- Bose -- speakers and sound system
 Service--- Maruti
 Dealer Network – caterpilar, Videocon
 Quality-- Maytag
 Rolex watches are handmade of gold and stainless steel and
are subjected to strenuous tests of quality and reliability
 Nikon , HP, Cross
• How does differentiation help fight the 5 forces

 Provides insulation against competitive rivalry because of

brand loyalty and resulting lower sensitivity to price
 Customer loyalty and need for the competitor to overcome
uniqueness provides entry barrier –for new entrants
 Yields higher margins with which to deal with supplier power
 Mitigates buyer power , since buyers lack comparable
alternatives and are therefore less price sensitive.
• Focus---
• Focusing on a particular buyer group , segment of the
product line,, or geographic market

• The strategy rests on the premise that the firm is able to

serve the narrow strategic target very well, more
effectively and efficiently then competitors who are
competing more broadly.
• Focus Differentiation --- Longines makes high jeweled
watches to wealthy female consumers
• Focus Cost – Fiat sells its automobiles only in Italy and
selected regions of Europe
• Focus differentiation- Alpha Romeo sells high –
performance cars in the same market (as above)
 Risks of Generic Strategies

• Overall Cost Leadership:

 Technological change that nullifies past investments

or learning--- e.g – cassettes- CD- VCD-DVD
 Low cost learning by industry newcomers through
imitation or through their ability to invest in state-of
–the art facilities
 Inability to see required product or marketing
change because of attention placed on cost.
• e.g--- Ford Motor company—1920s --- achieved
unchallenged cost leadership through limitation of
models and varieties (only black colour) , backward
integration and highly automated facilities
• As incomes rose, Americans wanted more style, colours,
--- GM (Sloan) gave them what they required.

• Ford faced enormous costs of strategic readjustment given

the rigidities created by heavy investments in cost
minimization of an obsolete model.
• Risks of Differentiation

 Cost differential between low-cost competitors and

the differentiated firm becomes too great for
differentiation to hold brand loyalty. Buyers thus
sacrifice some of the features, services or image
possessed by the differentiated firm for large cost
savings.
 Imitation narrows perceived differentiation, a
common occurrence as industries mature.
• Risks of Focus

 The cost differential between broad range competitors and the

focused firm widens to eliminate the cost advantages of
serving a narrow target or to offset the differentiation achieved
by focus.
 Differences in desired products or services between the
strategic target and the market as a whole narrows.
 Competitors find submarkets within strategic target and
outfocus the focuser.