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