Executive PG Diploma in International Business
Session 1 Business Strategy
K. Rangarajan Coverage at a Glance
Module I Strategic Management – Basics Strategic Management Process Crafting a Strategy Levels of Strategy Module II External & Industry Environment Constituents of External Environment Framework for Environmental Scanning Industry Analysis Module III Internal Resources & Capabilities Capabilities, core competencies & competitive advantage Value Chain Analysis SWOT Analysis Resources & competencies Coverage at a Glance
Module IV Business Level Strategies - I Cost & Differentiation Strategies BCG & GE MATRIX Functional Strategies & alignment Module V Business Level Strategies – II SWOT & Strategic Options Strategic Groups & Stgy Clock Module VI Corporate & Competitive Strategies Integration & Outsourcing Diversification & M&A strategies Offensive & Defensive Strategies First, second & late mover strategies Challenges of Internationalisation Evaluation Components
Time bound Post module Before ET As Scheduled
Term End Quiz Case Paper Term A Few Points to ponder
India is rated as the second preferred destination for FDIs in the coming years. Excess Capacity especially in the wake of WTO is becoming a strategic issue of top priority (Steel, Textile, Polyester etc.) Greenfield Investments is the preferred form for investment in developing countries. The No. of Parent Cos of TNCs operating in economy is around 82k (India-815) Only 2 coys from India are ranked in the top 100 non- financial TNCs by Foreign Assets from the Developing Countries. The R & D expenditure by Indian Business firms is around 0.32% of Sales The downslide of Traditional business houses (Great Indian Churn) Growing interdependence of global economies Growing Economic Turbulence across the world Crash of TNCs like Standard Oil, Union Carbide, Enron, Lehman ……… India’s Most Admired Companies
2010 2009 2006 2010 2009 2006
1. RIL 1. RIL 1. RIL 1. ONGC 1. ONGC 1. ONGC 2. Infosys 2. Airtel 2. TCS 2. NTPC 2. NTPC 2. NTPC 3. TCS 3. Infosys 3. Infosys 3. SBI 3. MMTC 3. IOC 4. Airtel 4. TCS 4. Airtel 4. MMTC 4. NMDC 4. BHEL 5. ITC 5. L&T 5. WIPRO 5. BHEL 5. SBI 5. SBI 6. L&T 6. ITC 6. ITC 6. NMDC 6. BHEL 6. NMDC 7. ICICI 7. ICICI 7. HLL 7. IOC 7. IOC 7. SAIL 8. WIPRO 8. HDFC 8. ICICI 8. SAIL 8. SAIL 8. GAIL 9. HDFC 9. WIPRO 9. Rel Info 9. GAIL 9. Power G 9. NALCO Bank 10. HDFC 10. L&T 10. Power G 10. GAIL 10. MTNL 10. HDFC Bank
PRIVATE SECTOR PUBLIC SECTOR
BT ranking of most valuable companies: 2006, 2009 & 2010 Business Strategy questions
Who are the Why is it that some stakeholders relative What firms perform well to firm performance drives business over time relative to (e.g., managers, performance ( competitors, while owners, investors, value )? other firms fail? employees, creation customers, suppliers, …)?
We will learn to apply strategic management “toolkits” to identify issues, evaluate alternatives, and choose & implement actions.
7 Why performance differences among firms?
Concentration of market power, monopoly positions ? (Bain) Opportunistic innovation? (Schumpeter)
Efficiency through vertical integration? Efficiency through control of transaction costs? (Williamson) Capability to learn & adapt continuously
8 Drivers of performance (brief version)
• Desire - some firms seek dominance (e.g. WalMart, Canon, Dell, Sony, RIL, SBI) – National competition - firms may be protected from the forces of competition (‘HAL’ for example) • Ability – To identify a valuable opportunity. – To innovate & protect the innovation (others see it and are attracted by first mover success). – To leverage firm-specific capabilities and resources.
9 Strategy Formulation
The Environment “Threats & Opportunities Management’s Organization’s values & capabilities - attitude toward “Strengths & risk Weaknesses”
Strategy
Goals
10 Strategic Management Process
The Environment - Execution/ GOAL “Threats & Opportunities” Implementation
Management’s values & STRATEGY attitude toward risk Control
Organization’s capabilities - “Strengths & Weaknesses” Performance
Formulation Implementation
11 More specifically …
Strategy consists of organization-wide commitments and actions required for a firm to exploit its competencies, gain competitive advantage, and earn above-average returns
*commitments - long term (irreversible) commitments *actions - involving substantial creation, acquisition, or redeployment of resources *competitive advantage(s) – competitors are unable to copy/imitate •Average (or “accounting”) returns •Returns equal to those an investor expects to earn from other investments with a similar amount of risk •Above-Average (or “economic”) returns •Returns from firm-specific strategies that competitors are not simultaneously implementing
12 Limited sources of value creation
Strategies
Structures/business models
Products/processes
Resource/capability creation
Resource/capability combination
New markets
But …good business ideas are hard to find!
13 Competitive Landscape
Dynamics of strategic maneuvering among global and innovative combatants
Hyper Competition Price-quality positioning, new know-how, first mover
Protect or invade established product or geographic markets
Fundamental nature of competition is changing
14 Competitive Landscape
Hyper Competition
Emergence of Global Economy Goods, services, people, skills, and ideas move freely across geographic borders.
Spread of economic innovations around the world.
Political and cultural adjustments are required.
Fundamental nature of competition is changing
15 Competitive Landscape
Hyper Competition
Emergence of Global Economy Increasing rate of technological change and diffusion Rapid Tech Change
The information age
Increasing knowledge intensity
Fundamental nature of competition is changing
16 Strategic flexibility?
How can a firm develop dynamic capabilities in response to perpetually turbulent and uncertain competitive environments? Can firms change? (i.e., success breeds failure)?
17 Strategic Flexibility
Organizational slack
Strategic Strategic reorientation Flexibilityflexibility
Capacity to learn
18 I/O Model of Above-Average Returns
1. Strategy dictated by the external
Demographic environments of the firm (what opportunities exist in these environments?) Poliitical/Leg Technologcal al Industry 2. Firm develops Environment internal skills required by Competitor external Environment environment (what can the firm
Socio do about the Economic Cultural opportunities?)
19 Resource-based Model of Above Average Returns
1.Strategy dictated by Firm’s unique resources Resources and capabilities of the firm (what can the firm do best?)
2.Find an environment in which to exploit these assets (where are the best opportunities?)
20 Strategic Intent
The resources required to realize the strategy may not be available initially Intent is about seeing the end state and deciding how to leverage internal resources, capabilities, and core competencies in a “staged” approach
21 Strategic Management & Strategy
Strategic Management Art & science of formulating, implementing, and evaluating, cross-functional decisions that enable an organization to achieve its objectives.
Strategy
Means by which long-term objectives are achieved Other Views of Strategy
Strategy as Plan: Consciously intended course of action which may be in the form of guidelines/report guiding decision making. Strategy as Ploy: Short-term tactic or a maneuver, intended to outwit a competitor. Strategy as Pattern: It is after-the-fact view which emerges over a period of time. Other Views of Strategy
Strategy as Position: Managers see their firm as occupying a space within an environment in terms of Market share, Profits, Assets etc. Strategy as Perspective: This is a way of perceiving the world, and individuals in an organization are united by common thinking and behaviour. Eg.: Lucent Tech. claims that it makes the things that make communications work. Levels of Strategy
Levels of Strategy: •Corporate Level – Choice of business, dividend policies, sources of long term financing and priorities for growth •Business Level – Plant location, marketing segmentation and geographic coverage, and distribution channels •Functional Level – Levels of Inventory, degree of supervision, selection of production equipment etc. The Strategy-Making Pyramid
A Single-Business Company
Responsibility of corporate-level managers
Business Strategy Responsibility of heads of Two-Way influence major functional activities within a business Functional Strategies (R&D, manufacturing, marketing, finance, human resources, etc.) Two-Way influence Responsibility of plant managers, geographic unit managers, and lower-level Operating Strategies supervisors (regions and districts, plants, departments within functional areas) The Strategy-Making Pyramid
A Diversified Company
Responsibility of corporate-level Corporate managers Strategy Two-Way influence Responsibility of business-level Business Strategies general managers Two-Way influence Responsibility of heads of major functional Functional Strategies (R&D, activities within a manufacturing, marketing, business unit finance, human resources, etc.) or division Two-Way influence Responsibility of plant managers, geographic Operating Strategies unit managers, (regions and districts, plants, departments and lower-level within functional areas) supervisors A Company’s Actual Strategy Is Partly Planned and Partly Reactive
Company Experiences, Know-how, Resource Actual Strengths and Company Weaknesses, and Strategy Competitive Capabilities Cases
Describe actual situations . Forces you to choose among different options and plan implementation actions Cases include background events and supporting materials . Financial statements . Operational data . Product lists . Transcripts of interviews with employees
29 Case Skills
Evaluate . multiple aspects of a business situation . differentiate significant factors . deal with uncertainty, missing information Envision . explanations not readily apparent . outcomes of decisions Integrate/Synthesize . understand firm-level effects . interdependencies
30 Case Analysis
Put yourself “inside” the case . Strategic decision maker . Board member . Outside consultant Purpose is to diagnose problems and find solutions. Unravel the case material. . Background/Problem Statement 10-20% . Strategic Analysis/Options 60-75 % . Recommendations/Action Plan 10-20%
31 With best wishes - Rangarajan An organization’s Mission
Reflects Management’s vision of what the organization seeks to do and to become
Sets forth a meaningful direction for the organization
Indicates an intent to stake out a particular business position
Outline “Who we are, What we do, and Where we are headed”. Importance of Mission
Benefits from a strong mission
Unanimity of Purpose
Resource Allocation Mission Organizational Climate
Focal point for work structure Mission Statement
Enduring Statements of Purpose that distinguish one organisation from other similar enterprises. . Insure unanimity of purpose . Arouse positive feelings about the firm . Provide direction . Provide a basis for objectives and strategies . Serve as a focal point . Resolve divergent views among managers. Components of Mission Statement
Customers (the target market) Products/Services (offerings and value provided to customers) Geographic Markets (where the firm seeks customers) Technology (the technology used to produce and market products) Concern for Survival/Growth/Profits (the firm’s concern for financial soundness) Philosophy (the firm’s values, ethics, beliefs) Public Image (contributions the firm makes to communities) Employees (the importance of managers and employees) Distinctive Competence (how the firm is different or better than competitors) Examples: Mission and Vision Statements
Microsoft Corporation
our mission is to enable people and Empower people through businesses throughout the world to realize their full potential. We consider our great software anytime, mission statement a promise to our anyplace, and on any customers. We deliver on that promise by striving to create technology that is device. accessible to everyone—regardless of age or ability.. Microsoft - Values
As a company, and as individuals, we value integrity, honesty, openness, personal excellence, constructive self-criticism, continual self-improvement, and mutual respect. We are committed to our customers and partners and have a passion for technology. We take on big challenges, and pride ourselves on seeing them through. We hold ourselves accountable to our customers, shareholders, partners, and employees by honoring our commitments, providing results, and striving for the highest quality. Examples: Mission and Vision Statements
Intel
Our vision: Getting to a billion connected computers worldwide, millions of servers, and trillions of dollars of e- commerce. Intel’s core mission is being the building block supplier to the Internet economy and spurring efforts to make the Internet more useful. Being connected is now at the center of people’s computing experience. We are helping to expand the capabilities of the PC platform and the Internet. Fresh Look at Intel
Our mission Delight our customers, employees, and shareholders by relentlessly delivering the platform and technology advancements that become essential to the way we work and live.
Our values Customer orientation Results orientation Risk taking Great place to work Quality Discipline
Our objectives Extend our silicon technology and manufacturing leadership Deliver unrivaled microprocessors and platforms Grow profitability worldwide Excel in customer orientation Examples: Mission and Vision Statements
Mission Statement of Jet Airways
Jet Airways will be the most preferred domestic airline in India. It will be the automatic first choice carrier for the travelling public and set standards, which other competing airlines will seek to match.
Jet Airways will achieve this pre-eminent position by offering a high quality of service and reliable, comfortable and efficient operations.
Jet Airways will be an airline which is going to upgrade the concept of domestic airline travel - be a world class domestic airline.
Jet Airways will achieve these objectives whilst simultaneously ensuring consistent profitability, achieving healthy, long-term returns for the investors and providing its employees with an environment for excellence and growth. Examples: Mission and Vision Statements
Mission Statement of Videocon
Vision & Mission
Videocon’s mission: a reflection of continuity and change
Videocon’s mission expression has been crafted to envelope both extant and emerging realities:
“To delight and deliver beyond expectation through ingenious strategy, intrepid entrepreneurship, improved technology, innovative products, insightful marketing and inspired thinking about the future.” Mission of L&T
The L&T vision reflects the collective goal of the company. It was drafted through a large scale interactive process which engaged employees at every level, worldwide. Mission Statement Evaluation Matrix
COMPONENTS
Concern for Survival, Products Growth, Organization Customers Services Markets Profitability Technology
Videocon Partial No No Yes Yes
L & T Yes No Yes Yes Yes Mission Statement Evaluation Matrix
COMPONENTS
Self- Concern for Concern for Organization Philosophy Concept Public Image Employees
Videocon Yes Yes No No
L & T Yes Yes Yes Yes