Strategic Management PDF

[Characteristics of different levels of planning] **Corporate level**:  the strategies are more conceptual, non-measurable, and is having a longer time horizon. it is more innovative in nature and the degree of risk is very high. Profitability and cost for corporate-level strategies are also very h...

[Characteristics of different levels of planning] **Corporate level**:  the strategies are more conceptual, non-measurable, and is having a longer time horizon. it is more innovative in nature and the degree of risk is very high. Profitability and cost for corporate-level strategies are also very high. So, the cooperation required from the different stakeholders is also very high for the corporate-level strategy. **Business level**: some part is conceptual, but others are the business part, which is operational. So, it is a mixture of conceptual and operational. These are moderately measurable and moderately non-measurable. Some parts that are conceptual are non-measurable, but the operational parts are measurable and it happens periodically. The business level strategy basically tries to keep your organization's product or business in a competitive position. It is periodic in nature and is action-oriented. Again, the risk, profit and cost are moderate between the corporate level and functional level. **functional level**: they are purely operational and are measurable. It is measured annually, i.e., it has an annual plan, annual target, annual incentives and all these are based on this functional level and operational level strategy. This is action-oriented, and the risk, profitability and cost are lower than the business level and corporate level. The cooperation required is also lower than the corporate level and business level. This functional level or operations level is the basic building block for the business level and corporate level strategy.  [Kinds of strategy] 1.stability strategy 2.Growth strategy- merger and acquisition, joint ventures, growth through expansion like Greenfield expansion or brownfield expansion, growth through outsourcing, franchising or vertical integration. 3.retracement strategy -it is reducing your activity. It may be turnaround strategies, divestiture and liquidation strategies. 4.generic strategy- they are of five types. Then there may be a dependency reduction strategy. Suppose you have only one (single) vendor, who supplies a very strategic material for your organization, and depending on one (unreliable) vendor is very risky for your organization, for this dependency reduction strategy is adopted. 5\. blue ocean strategy and red ocean strategy- The Blue Ocean strategy is you go to an unexplored market or the unexplored segment or you create a product which is innovative. So, you have your new market, new segment, and new product. The red ocean strategy is that you are in the fiercely competitive, existing market and your market share and profitability are at the cost of the competitors.  [What is vision] A vision is, what an organization or a company aspires to be in the distant future, what an organization wants to be in the distant future, what is its dream, and what it aspires for. [What is mission] A mission statement is one which tells you why the company exist, how it fits in society, how it contributes to society, how it contributes to the country\'s welfare, what business is it in, and is this business compatible with the societal needs or not. A mission statement must address all these issues and a mission statement usually should be very precise, very terse, and unambiguous and should be distinct. The mission statement should be very simple and understandable by all concerned (persons). [What is a strategic objective] the strategic objective is to operationalize the mission statement. [ ]  [LESSON -3] Classification of firms environment [EXTERNAL ENVIRONMENT ANALYSIS] This is done because no organization operates in a vacuum, every organization exists within the external environment and its survival depends on the external environment. Therefore, to make a strategic plan, strategic objective or mission statement for an organization everything is dependent on this environment. Therefore, environmental analysis is required to identify the opportunities and the threats - organizations may face. So, if there is an opportunity, you try to grab that opportunity to get a competitive advantage and if there is a threat, you guard yourself against the threat i.e., from the risk. It is done in order to face an uncertain future in a better manner. So, this is why we need to identify opportunities and threats in the organization (and that's why we require environmental analysis). [what is the mega environment?] External mega environments are such as, say, political environment of the country or of the region, the economic environment, the social environment, the technological environment, and the regulatory environment, all of these affect organizations and this mega environment is generally required for long run. This trend of mega environments is particularly important to the corporate strategists to know the long-term implications of their business and their industry.So, these are the constituents of the mega environment i.e., economic, political, social, technological and regulatory [What is micro environment]? It as industry environment, it also has many constituents, those constituents are the suppliers, your marketing intermediaries, market types, market demand, competition,availability of skilled manpower, industrial relations, industrial relation climate, regulatory provision, financial institution. We will discuss it in detail after some time. These micro environments are usually the industry environment like it may be automobile industry, steel industry, chemical industry, software industry, banking industry, then chemical industry, oil and gas industry, or textile industry. So, these have a specific environment. The micro environment deals considerably with the current situation, and current business positions. So, the micro environment attracts most of the top management time because it is the current businesses and all. So, it attracts much attention from the top management. [What is relevant environment?] Relevant environment is like a company is a part of this mega environment which is huge, and no single firm, no single organization is affected by all the components of the mega environment. It may happen, they will take particular issues, one company cannot take the opportunities or threats for the entire mega environment or entire micro environment. So, they will pick up their particular specific issues or a specific part. relevant environment is a part of the mega environment which is specific to that organization. Similarly, the relevant environment is part of some micro environments of their industry. [Constituents of mega environment] 1. **Technological**-you can find that technology moves very fast, very rapid and its impact is very deep. Technology can provide new businesses and new opportunities. It has a very powerful impact on generating new opportunities for organizations. Also at the same time, it reduces opportunities i.e., if you cannot modernize or adapt to itself. If a country does not have the technological infrastructure, say, internet connectivity, transportation, communication and the computer infrastructure, capable people. So, if these things are not there, then you cannot expect your business climate to improve that way. You have seen in the recent past like in 80s the computerization took place in many sectors, before that it was all manual system. So, when computer came if you see the banking industry has changed from manual to computerized Nowadays, you do not have to visit the bank, you can get your money transferred, you can take your money sitting at home with Internet Banking. 2. **Social-** social things move very slowly, it cannot change overnight or within a year or two, it takes time. The components of social trends are the population, belief, culture, attitude, ethical standards, demographic population, and demography. If there are a greater number of young people it can lead to an increase in products and opportunities. 3. **Economic -**his economic constituent is the country's economic robustness, and strength, which is measured. What is the GDP growth rate of the country, purchasing power, per capita income of the population, growth rate of per capita income, monetary system Whether it is an export or import-oriented economy, balance of payment, wholesale price index How it is moving, What is the consume price index How it is moving, inflation rate? All these things determine the economic trends of the country, which is a part of the mega environment. 4. **Poltical**- every business grows in a stable political system. A country does not have political stability, no one would prefer to invest there, because when people are investing in a business, they want stability, they want long-term growth, long-term return on their investment. So, they first look at political stability and if it is a democratic country likelihood of stability increases. Whereas if the country is run by a dictator or with some vested interest the likelihood of revolution or instability may be higher So, businessmen will be shaky to invest there. So, it also shows political stability determines industries' long-term trends and implications. 5. **Regulatory**- regulatory is like what are the rules, regulations, laws, and employment. What is the employment law? Some countries prefer that you have to give the job to the son of the soil. What is the pollution law Whether it is very stringent or not, What are the labor laws, How are financial institutions like SEBI and all those organizations act. [PESTEL MATRIX]   many of these factors may be overlapping like socio-political, economic-legal, environmental-legal, and social-economic. So, whichever is appropriate, you do it accordingly, as per the need of your organization or the industry because this mega trend will help you to have a long-term strategic direction. **[CONSTITUENTS OF MICRO ENVIRONMENT]** **Suppliers-** Suppliers are the raw material suppliers, component suppliers, spare parts suppliers, specialized services, supply of the expert, supply of fuel, electricity, utility and others. You also know the importance of suppliers in an industry. When you are working, you will be knowing whether there are too many suppliers or few suppliers, too many suppliers mean you can have better choices and can have an upper hand, whereas if you have only few suppliers or sole supplier, then you are vulnerable and cannot dictate terms, quality or the price and all. So, this is the importance of suppliers. **Marketing intermediaries**- Marketing intermediaries are actually the distribution channels. It includes transporters or logistics providers or it may be an advertising agency, market research agencies, or market intelligence agencies. These are the market intermediaries or the middlemen. With the improvement of technology and B2B business, the roles of intermediaries are shrinking day-by-day. So, nowadays an organization directly can outsource or can contact other businesses-providers or other organizations. So, the role of these marketing intermediaries is shrinking nowadays. The research firms are now also the marketing intermediaries. **Market types**- Different market types are the consumer market, industrial market, institutional market, foreign or international market, or reseller's market. \* consumer market- The consumer market is the individual buyers and household buyers. So, these are the consumer market i.e., B2C. \* industrial market- like organizations buying products from some other organizations. Those are the industrial market like Maruti, Honda car making companies may buy tires from the tire making company say JK tire, Apollo tire, MRF. So, his business from organization to organization is called an industrial type market. \* institutional market - like some organizational buyers can buy for their own use, as well can also sell it to others. So, these other companies or parties are called the institutional market. \* international market- an international market is where buyers are foreigners i.e., foreign buyers. So, these are the international market. \* resellers markets- under the resellers market, the organizations may buy and can resell those products. **Market demand- **involves demand fluctuations, how to forecast the correct demand, how to regulate or smoothen the fluctuations of demand etc. there are 3 aspects, one is the quantum of the demand. It is your total aggregated demand, into (multiply) the unit price that gives - volume into (multiply) the price. Then another one is the behavior of the demand. The behavior of the demand is the trend of the demand. The demand may be cyclic demand, seasonal demand, and steady demand. Different products and industries have different types of demand. **Availability of skilled labor-** Certain types of industries prosper in certain areas due to the availability of skilled manpower. Take the case of Jaipur, Jaipur is very famous for its handicrafts, fabrics, jewelry, and paintings. All these things are possible because they have the skilled manpower to do this. That is why those (handicrafts) are thriving there. Similarly in Bangalore, Pune, and Hyderabad, software industries are thriving, because they have skilled technological staff, skilled manpower, and English-speaking people who can be absorbed in the software industries, are readily available there. In Agra, it is skilled manpower for shoes and upper soles. So, these are the different types of skilled manpower available in different regions and have prospered for it. ** Industrial relations climate** -- these climates make or break a business. Like in Gujarat, Tamil Nadu, and Karnataka, the growth rate of industrial businesses is thriving since they have conducive industrial relations climate. On the contrary, some of the states like West Bengal and Kerala, industries are not thriving that much because of it is poor industrial relations climate. In the late 1960s, West Bengal was one of the leading industrial states, but hostile industrial relations have contributed to the flight of industries, flight of capital from that state. It has a declining state of affairs as far as industry is concerned. So, industrial relations can make or break industries' growth. **Regulatory provisions**- these regulatory provisions are said Special Economic Zone (SEZ). There are SEZs in different parts of the country. So, it boosts the business and investment in those areas. The government sometimes encourage giving tax holiday in certain remote areas so as to improve the industries' presence there. So, some areas are tax haven. In order to attract investments, many regulatory provisions can be introduced. **Financial climate or financial institution** -This is like some government or local government or the country\'s government may give easy provision for an easy term loan, and financial assistance for working capital. The provision may take other forms like tax incentives and all. So, these are the role played by the government in giving a conducive or encouraging financial climate. **[ASSESSING THE IMPACT OF THREATS AND OPPURTUNITIES]** EX.if the probability is high and impact is high there is a major threat if the probability is low and impact is high there is a moderate threat  **Some useful sources of information For business environment** 1. ***information related to a company*** -- the annual reports of the company, chairman's speech, company's advertisement appearing in the media, company's house journal, company\'s executives, national stock exchange, Bombay stock exchange, and various reports. So, you can go for the relevant volumes pertaining to those industries and companies. 2. ***Related to environment-*** you can go to the annual issues of leading commercial periodicals, Competition Act and related publications, articles published in leading newspapers, journals related to the industry of the company,Hindu annual review. 3. ***environmental information-*** can be sourced from the Times of India which also brings out some directory, Reserve bank's Annual Report, publications of the different chamber of commerce, trade associations, export councils, commerce annual on public sector undertaking, economics published by the government of India, data India, Business India, the business world. There are some powerful sources - journals like commerce, economic and political weekly, Journal of Industry and Trade industrial times. Information can also be sourced from guidelines to industries, leading financial newspapers like Economic Times, Financial Express, etc. **MARKETING VIEW OF COMPETETION** Phillips Kotler says desire competitors are ubiquitous and any competition starts with the desire, then it goes to the generic competitors, then product form of competitors and it terminates in the brand competitors. These are the four forms of competitors - desire competitors, generic competitors, product form of competitors, and brand competitors.  **Five forces of competition** Basically, in any industry, how severe the competition is determined by these five forces. Basically, the intensity of competition and the state of competition in any industry is measured collectively with these five forces. These five forces are the rivalry among competing firms, the potential entry of new competitors, the potential development of substitute products, the bargaining powers of consumers or buyers and the bargaining power of suppliers, these five forces collectively determine the intensity and the state of competition. The ultimate profit potential that can be obtained from a particular industry. So, this is called Porter\'s framework to analyze industry structure. ***The industry competitors degree of rivalry*** 1\) **number of competitors in that industry.** if the number of competitors increases, The degree of rivalry increases with the number of competitors in the market. 2\) **industry growth** if the growth of the industry is high that time you will find the competition is also more because if the growth rate is high more and more competitors come into the market and competition intensify. 3. **asset intensity** Asset intensity is like if the capital investment is more, some industries, you will find, require huge capital investment such as steel plant, cement plant, chemical plants, refineries and huge automobiles plant; it requires huge capital investment. So, asset intensity is high and what happens if there is stagnation or if demand is not growing? Then it goes for a price war among the competitors to garner market share.It leads to a price war. **4 ) product differentiation** if product differentiation increases, then the degree of rivalry increases or decreases? Product differentiation, in fact, dampens the rivalry, if you have a differentiated product people will come to you because of that differentiation. So, it dampens the degree of rivalry. It increases rivalry, because, if a competitor cannot go out, competitors have to be within the system. So, the number of competitors remains the same. So, it increases the degree of rivalry. ***Threat of new entrants*** **1)economies of scale, absolute cost advantage , brand identity, switching cost, access to distribution** You get economies of scale by putting a big plant and big volumes of production, i.e., through high margin. So, that unit cost of production comes down When the unit cost of production comes down, you can earn more profit, the profit margin is more. So, in this stage, new entrants can come into the matured market through economies of scale in that they get the cost advantage and also, they may come with a brand identity. If the brand identity is strong, they also have to be dependent on access to distribution like you saw a mature market say ITC or Unilever, they are having very deep distribution network in India. So, now, if new entrants come to those areas, they also need to have such degree of distribution networks, otherwise, it will be very difficult to compete with them. So, one should have the access to distribution, then the switching cost, why the buyers will go for buying that? If the switching cost is low, then it is easier for the new entrants to come in, but if the switching cost is high, it will be difficult for the new entrants to come in. I will talk about the switching costs just after a few minutes. Furthermore, threat of substitution, buyer's bargaining power, and supplier's bargaining power. **2)The government policy** The potential new entrants will also depend on the government policy. Government policy sometimes encourages or discourages. Encourage in the sense suppose, the government are now taking a policy to encourage the SMEs (small and medium enterprise) sectors. So, take the case of material handling that uses conveyor belts to transport coal, minerals, iron ores etc. If Government policy changes and manufacturing of rollers and idlers is opened up to SMEs (small and medium enterprises). As the SMEs start production of rollers and idlers, the established players those who had monopoly are threatened as their profit margin was squeezed. So, this way government policy can encourage new entrants or also may discourage them. ***Threat of substitutes*** Substitutes are those products or services, which give similar functionalities. So, if the product is replaced by a substitute, that is a threat, just take the case of say, bottled water, there are different types of bottled water one can find in the market. Each one is competing with the other, say, tea and coffee, if the coffee prices go high tea price can keep a check on it because he coffee drinkers will shift to tea if the price goes high. Therefore, tea keeps a check on the coffee price. These are the substitutes. What is switching cost here? Suppose say,Electric vehicle and IC engine vehicle. So, why electric vehicles being far superior in terms of being environmental friendliness than IC engine cannot penetrate the market. Why? This is because of the switching cost; the switching cost to electric vehicle is much higher. ***Bargaining power of customers*** That depends on the buyer concentration, the number of suppliers, switching costs, substitute products, and the threat of backward integrations. Say, if the number of suppliers is more than buyers' then the bargaining power of buyer's increases, and if the switching cost is high, then buyers' power of bargaining decreases. **If switching cost is low,** then only buyers' bargaining power increases, if there are no substitute products, then buyers' bargaining power decreases and also buyer concentrations increase the buyer bargaining power. Like if few buyers buy a bulk of your material say one buyer may take 70% of your product. So, naturally, they can exert more bargaining power on you. If you see McDonald, McDonald has many franchises, so, they can bargain for the price of the chicken and the price of the meat. Similarly, Marriott hotel can bargain for the mattresses. So, these are the buyers' concentrations. **threat of backward integration**- Buyers sometimes may go for the backward, suppose say, steel plant - depend on coal, they depend on iron ore. These input materials are very strategic supplies to them, if they get these from somewhere else. They would like to get it from reliable suppliers or produce themselves. They can get it through backward integration. ***Bargaining power of suppliers*** Bargaining power of suppliers depends on supplier concentration, the number of buyers, switching cost, substitute of raw materials, and threat of forward integration. **Suppliers' concentration means**, that if there are very few suppliers, then suppliers' bargaining power increases. If there are more buyers, then suppliers' bargaining power increases. **If switching cost is** high, supplier bargaining power increases. If there is no **substitute for raw materials** then the bargaining power of suppliers increases and also the **threat of forward integration**. Suppliers may go for forward integration for controlling of price, take the case of Intel - it produces chips, which are basic inputs to all PC manufacturers. Now, if Intel wants to make a venture in the PC market i.e., desktop or any other computer manufacturing segment. This is a threat of forward integrations **[WEEK 2]** *[**Analysis of** **five forces of competition**]* ***[Medium]*** ***[high]*** ***[high]*** ---------------------------- ---------------------------- ---------------------------- ***[low]*** ***[medium]*** ***[high]*** ***[low]*** ***[low]*** ***[medium]*** [ ] **Automobile industry** In the automobile industry, The degree of rivalry is very strong. Now you will see there is an oligopoly market. So, there are very few consolidated firms, say, Maruti Suzuki, Toyota, or Honda. the threat of new entrants to automobiles is low. The threat of a substitute for the automobile is low.The bargaining powers of buyers in the automobile is high because, for individual buyers, it may not be that high, but for organizational buyers, say a company or the government, they buy in bulk, and also give repeat orders every year. The bargaining power of sellers of automobile is low. **IT Industry or the software industry** The degree of rivalry in the software industry is high. The threat of new entrants in IT software is also high. The threat of substitutes is also high. The bargaining power of buyers in the software industry moves from medium to high, it starts with medium, but it goes high in course of time. The bargaining power of suppliers in the software industry moves from medium to low.  **[Complementors and value net]** **1) Complementors and competitors** A company s complementor is the one who adds value to your products or services. Complementors enable the customers to value your product or services more than their products or services. When the customers look at both the products, they value your products or services more than the complementor product or services, and the competitors are just the opposite. customers view competitor s product or services and value them more than your products or services. when you go to the market, or you go to the restaurant area, or you go to the food court, you choose which one to go then they become the competitors. So, these competitors include your substitute, (substitutes are also included in competitors) and the potential new entrants, they are also part of the competitors and complementors. 2\) **Suppliers and customers** Typically, the sub-customers are the focal company\'s prime aim. If a customer pressurizes, the company will pressurize the supplier. If a buyer request 100,000 products (units) but they demand 150,000 units. Customers are therefore seeking higher quantity as well as faster delivery of the product. So Company pressurizes the supplier. So, suppliers are squeezed. you will find that suppliers are squeezed by the pressure of the customer. The company passes the pressure on to the supplier, but the value net says that this cannot go on for long. It does not add value to the net. So, as a whole, you have to increase the value of all these four entities, which is called the value net. To increase the value of the net, you have to increase the value for both the suppliers and the customers and this has to go hand in hand **[ROUTES TO COMPETETIVE ADVANTAGE (BY OHMAE)]** **Intensify functional differentiation** Functional differentiation is - you focus on key success factors,; every industry has some key success factors. A corporation may be resource-constrained, or experiencing a capability restriction or may not be very large. In that situation, you should concentrate on one thing rather than aiming for everything. You concentrate on a select few important success elements, which determine your competitive advantage. Your competitive advantage may come from those essential success criteria. So, instead of focusing on the entire gamut of organization (activities), you are focusing on a few key success factors because you have operational constraints, resource constraints, and personnel constraints. **Build on relative supremacy** It means you exploit the weakness of your competitor by carrying out operational teardown. Generally, the products that are assembled are torn down. You take the competitor s product, you tear it down to each component, then you compare each component of competitor\'s product with your product and find out whether it is a strength or weakness. This is called operational teardown. **Pursue aggressive initiatives** It means always ask why. Here Ohmae gave the example of the Japanese Camera industry. Prior to that time, the camera lacked a built-in flash. So, the corporation started thinking they had to do this, why it cannot be done, why, keep asking why unless you have a breakthrough innovation. And this was the cause, this was the reason why they got the breakthrough. So, there was no built-in flash at that time. wherever you want to go, you go with an attachment, an electrical fixture attachment, you just look for an electrical point or fixture and put it there for the flash. So, pursuing these, why-why they built a built-in flash. So, it was a huge success in the Japanese market and other parts of the world. And it came as an aggressive initiative by asking why. So, you do not take anything for granted, do not take status quo, as your business will go like this, you always challenge the status quo, you always challenge what is granted in the business, then only you can go for breakthrough innovation. **Maximizing the user benefit.** That is exploiting strategic degree of freedom which means maximize, sometimes you will find that you have operational constraint, resource-constraint and may have something like your key success factor then you go for the key success factors and concentrate on that. Suppose you find your key success factors also have some constraints and you cannot go. It is not always possible to go beyond that key success factor and may face some blockage In such cases You try to exploit that strategic degree of freedom. Here Ohmae suggested one more thing. For example, supposing the hardness of the water is under the control of the manufacturer, and if you put a filter and remove the hardness and other doable, your coffee tastes better. So, you try to control those which are under the manufacturer\'s control to exploit the degree of freedom, but you can always go backwards to increase the variables, to increase the degree of freedom for your control. **[COMPETETION A MARKETING WARFARE VIEW POINT]** 1) **Defensive warfare** They argue that defensive warfare is appropriate for market leaders. The market leaders will follow defensive warfare because market leaders have numerous entities they are fighting against; they must look after the regulators. Then consider government policies and reforms, environmental rules, SEBI, and all other restrictions. There are pressure groups also when a firm becomes extremely successful (number one), you know there are many competitors, you know who is number two, you can anticipate their move, but (say) government policy changes, then regulators, then society, pressure group etc. So, in general, this is referred to as defensive warfare, and it is carried out in one of the two ways: attacking itself is a good option, and obstructing competitors is the other option. **2) Offensive warfare** It is just the opposite of defensive warfare. It is followed by number two in the industry. It is the mirror image of defensive warfare.You find the strength of the leader, then concentrate on that area of that strength, then find the weakness within that strength and you attack that weakness in a narrow front and gain the market. for example, you may have seen recently that Reliance Jio entered the market; before that Airtel, Vodafone, Idea, and a slew of other players dominated the market. As a result, it chose offensive warfare. Jio arrived with offensive tactics. **3) flanking warfare** flanking warfare is the most innovative form of marketing. Most of the successful products have come into the market - that have been established in the market came through flanking. Flanking is similar to niche marketing. you cannot fight with the number one, number two in the market. So, you have limited resources. So, you go for an uncontested area. You go for a product or service in an uncontested area, and you grab that market. For example, you can find nowadays that Sensodyne toothpaste, is flanking warfare, it is a niche market. The first thing to understand about flanking is that you go for an uncontested area and the methods you use are highly critical for flanking. So, flanking should take place in an uncontested area, and tactical surprises should be an integral part of flanking. Pursuit is just as crucial as an attack. **4) Guerilla warfare**  Guerilla warfare, like flanking warfare, has many players, and these players are very small, small players and in different regions, it may be guerilla like flanking, geographical guerilla, demographic guerilla, product form guerilla, so distributions, anything it can be, and the main thing is small players. They should look for a market niche that is small enough to defend. Smaller companies can be successful as long as they do not emulate the leader, if leaders come on after you, you should be prepared to leave the market in guerilla. Example of guerilla-. Regional guerilla, you will find it in many areas small companies producing your luggage items, suitcases etc. You can find these compact, unbranded luggage as opposed to the larger, branded suitcases such as VIP and American Tourister. Similarly, you will find locally made rubber slippers (chappals) as opposed to branded company chapels. So, this guerilla might be a high-end, cheap price, and high price, and you can buy specialized high-end shoes and high-end clothes in some locations. **[MODULE 4-INTERNAL CORPORATE ANALYSIS]** **why do we do the internal corporate analysis?** This is done to know the strength and weaknesses of an organization because unless you know the strength of the organization you cannot take that competitive advantage. Competitive advantage comes through your strength, through your distinctive competencies and also you must know what are your weaknesses. This is because your competitors will attack you on that weaknesses to get the competitive advantage. So, you have to identify the weaknesses and try to overcome those weaknesses and this is the internal corporate analysis. **Criteria for determining the strength and weaknesses of an organization** 1. **Historical criteria** compare your decision variables, (decision variables) with your past performance i.e., historical performance such as your sales volume, revenue generated, profit, net worth, capacity utilization, etc. Decision variables, you measure it with your past years performance and if your performance is better than the past performance, then you can say it is your strength, in contrast, if it is below the past performance, then it is a weakness of the organization. But (here), there is a cautionary, while measuring against the past performance, you must find out the relevancy, the applicability, and the replicability. **2)normative criteria** Normative criteria are based on the theory, experts opinions, industry practices, and personal opinions. In fact, what ought to be the level of performance, and what ought to be the norms, are the normative criteria. For example, suppose in a power plant, the average industry load factor is 95 per cent, then anything above 95 per cent is a strength, and anything below 95 per cent is a weakness. So, these are the normative criteria - generally fixed**. ** **3)** ** competition parity criteria** This is - you compare yourself (Co.) with your leading competitors or the potential competitors or the successful competitors, or your direct competitors, whichever is applicable. You take those competitors, whom you wanted to fight with and follow the minimum attainable criteria as set up or achieved by them. For example, suppose your direct competitors, are giving a credit policy of say, 45 days. So, anything below 45 days credit policy will be considered a weakness for you. So,anything above that will be a strength for you. So, you measure these against your successful or immediate competitors. **4)** **critical success factor** if you do not have many operational resources or other resources you concentrate on the critical success factor and with those critical success factors, you must have a minimum performance standard compared to your competitors. So, you must reach that minimum standard of performance for the critical success factor. For example, say electronics consumable industries or the FMCG industry. One of the critical success factors is say, TV advertisement which is part of promotion and sales. So, suppose a company cannot afford to go for TV advertisement, because they do not have that much cash or the resources. So, it may be considered a weakness. ( Which criteria are to be used and when? Naturally, the question arises. So, it is said that a single criterion is seldom used because when you are finding out an organization\'s strengths and weaknesses, one criterion or two criteria are insufficient. You may require all the criteria, for example, historical criteria may be more appropriate for finance, and production. Because here the historical criteria and the competition priority criteria, may be relevant for the finance, and operations. But for marketing, it may not be that suitable. In marketing competition parity criteria and critical success factor criteria may be more appropriate. Suppose, the management functions or organization as a whole, then you go for normative criteria. ) ***FOR READING ONLY*** **MEASURING STRENGTH AND WEAKNESS CRITERIAS** **1)Attributes** You identify and measure certain characteristics of your organization, without attaching a unit of measurement. For example, suppose, you say, you have a very motivated workforce. Or, you say our biggest strength is - our workforce has high morale and is highly motivated. You are identifying some characteristics, without attaching any measurement of unit. Similarly, you can say, our weaknesses is, that we have a decentralized controlling system; these are called attributes measures. 2. **Effectiveness measurement.** Here, you identify the capabilities of an organization, which helps you to accomplish certain tasks or certain objectives. For example, you say that we have introduced a new fitness plan for our managers and in this fitness plan, within the office, they can do some treadmill and gym-like workouts. It has resulted in, executives putting an average of one-hour extra time in the office. So, it is effectiveness, it is measuring certain capability. This is called effectiveness measurement criteria. 3. **Efficiency measurement**. It is a measurement of functional efficiency that can be measured directly. In fact, efficiency is measured for functional activities. So, it is a part of measuring the productivity of the organization. Suppose you say, our wastage of material, rate of wastage of material is 5 per cent. So, you are signifying it is a weakness. So, we have to improve it, we plan to improve it to 1 per cent wastage of material. So, you are measuring the efficiency which is linked to your measurement of productivity. **which measure to be used and how?** ** **Attribute measures are done for the higher level. You know, those soft variables like shared values, management functions, and strategic planning process come in the attribute. Say, organization culture, organization values, these are the attributes and some of these overlap in effectiveness. Effectiveness is also at a macro level, it takes the organization as a whole, it does not talk about the functional level, but organizations as a whole at that top management. So, these are for the higher levels and for functional things. Generally, the efficiency which can be measured easily is used for efficiency and functional support. **IDENTIFYING STRENGTH AND WEAKNESS** ***1)Asking questions*** You are questioning the people. you fix the people who are the important stakeholders who have a strong interest in the organizations such as executives. You ask executives, experts in the field, experts within and outside the organization, suppliers, and customers. They (supplier and customers) are from the outside and will give you more reliable information. So, you ask questions through a survey; you have to do some survey. This survey can be structured and unstructured. And preferably you do the structured surveys when you are dealing with top executives or experts. Suppliers and customers are also surveyed either through the structured survey or informal interviewing and informal discussion. These are also the potential routes for identifying strengths and weaknesses, this is by questioning people. ***2) Observations*** Like an analyst, an analyst observes the working of the organizations. You observe the work culture of the organization, how is the leadership\'s style, How the decisions are made in a meeting, Who talks more in the meeting, How do they arrive at a decision, Whether it is a participative decision or is thrust down from the top. So, all these things, if you observe, you can find the leadership style. Then the participation of the people, if you go to an organization, different organizations have different cultures. So, even with a simple handshake, you can make out the organization\'s culture. Again, in some organizations, you will find people in the morning who shake hands and you can make out whether it is a warm handshake or a lukewarm handshake. This can be identified through only two-three finger touches (handshake). So, you can make out through observations, the organization\'s characteristics and strengths and weaknesses. 4. ***Examining the reports*** These are also a very potential way for functional activities. Like if you have the past performance data, usually say sales performance, marketing performance, capacity utilization, or the rejection rate of the materials. You can examine that and find out what is your inherent strength and weakness in the organization. Examining records is a very powerful strategy for your functional activities. **[Conceptual approach to analyzing strengths and weaknesses]** Bates and Eldredge suggested three dimensions : ***\* analysis of management dimension- ***management dimensions, as I told you it is higher levels of things, say Resource deployment which is the critical success factor. Then it may be the organization\'s culture, organization s management style, or organization climate, or it may be strategic planning process. So, these are all management dimensions you analyze and add many more. ***\* analysis of financial dimension- ***financial dimensions - you do is the analysis of sales, revenue, profit, net worth, employee, capital structure, capital budgeting, then what is your debt policy, dividend policy, credit policy, and working capital policy. So, all these are the financial dimensions and you analyze those to find out your strengths or weaknesses. ***\* analysis of operations dimensions-***operations dimensions are basically the functional areas like conversions or transformations of raw material to the final product - that is the operation. Similarly, there may be engineering operations, R&D operations, supply chain management operations, marketing operations etc***.*** The ranking is, you do the relative importance of these factors, you know, relative importance like you put rank 1, 2, to all the factors. So, this gives you the relative importance of the factor say, the number one ranking will be your critical factor followed by the number two ranking (say) that will be the next critical factor. Then existing, what is existing? Existing is nothing but brief descriptions of the current affairs. Then you find out the strengths and weaknesses. Generally, the strength and weaknesses are written in a code, say, code 0 is neutral - the factor is neutral. Also, you can put it plus, plus means it s a strength, then if it is another plus, it implies a very strong plus or stronger strength. Similarly, minus is your weakness, minus minus is very weak. This way, these codes denote your strength and weaknesses. ** McKinsey 7 S framework** It includes 7 factors, namely, strategy, structure, system, shared value, skill, style, and staff. These are the factors that you find out as a diagnostic tool to identify an organization s strengths and weaknesses. In fact, this was developed by McKinsey consulting firm in the late 1970s. it can be used as a diagnostic tool to find out the internal strength and weaknesses of the organization so that you can take appropriate measures to gain competitive advantage. **Concept of synergy** A and B are done separately, Product A s contribution, say, is x and product B s contribution is y if it is done separately. Now, if you do that combinedly A plus B then it will be, your value-added will be more than x plus y and it may be x plus y plus z. So, this z is your synergic effect. So, that is why you must have heard 1 plus 1 is greater than 2. We always say, 1 plus 1 say greater than 2, maybe 3, maybe 4. So, this is the synergy and this is if z is positive, it is called positive synergy and if z is negative, then it is called a negative synergy. Negative synergy you can often find, suppose in a merger and acquisitions, generally when you go for the acquisitions, you study the synergic effect. So, production synergy, operation synergy, financial synergy, if all those are there you go for it. Even then, if you find it is a failure that may be a negative synergy which may be due to cultural differences of both companies A and B. It has resulted even if you have production or financial Synergy, but the cultural synergy has failed your acquisitions and the profitability has not gone up that well. So, it may be a negative synergy. **Matching strength and weaknesses** Suppose, if you have the strength you have to take the competitive advantage for it and weakness is your threat, you have to guard against it. Now, all strengths may not be strengths, and all weaknesses may not be a weakness, Competitive advantage, the formulation of corporate strategy is matching your environmental opportunities and the internal resource capabilities of the organization. To capture those capabilities. Suppose, if you have strong cash positions, that is a strength for the organization, but if you do not invest it wisely for the growth of the organization, then it may not be a strength to you. So, having strong cash strength, you are not utilizing it. Similarly for weakness, suppose you do not have adequate transport fleet for the distribution of your product. So, it is a weakness to you, a weakness for the company. Suppose, the fleets are available outside at an economical rental rate. So, it is not a weakness for you, you are outsourcing, getting it at an economical rate. So, your weakness is not actually a weakness. So, you have to match your strength and weakness for getting competitive advantage. **To analyze strengths and weaknesses there is checklist method, developed by Pearce and Robinson.**  **what is the situational analysis?** That is the SWOT analysis we call it strength, weakness, opportunity and threat. We have done internal analysis to find out your own strengths and weaknesses in order to get competitive advantage and we have done external environment analysis to get to know the opportunities and threats this is called situational analysis. SWOT assessment gives clear direction for the necessary future strategic objectives and change initiatives **why we do this situational analysis?** We did the internal corporate analysis to arrive at your organization strengths and weaknesses. We did the external environmental analysis, and competitors analysis to know opportunities and threats. These four combined give you the picture for getting the competitive advantage because the competitive advantage is for a sustainable manner for the long term. It is not for the temporary measures; a temporary competitive advantage does not last long. So, we go for sustainable competitive advantage, we have to go in a plan-by-plan manner. So, this is why we do this situational analysis. **what is Porter's value chain analysis, and why is it used?** Michael Porter is a management expert, he was of Harvard Business School, where he developed this value chain; this value chain is nothing but a league set of activities that create values[. It is a diagnostic tool to find out your strengths and weaknesses in order to determine core competency and get a competitive advantage.] So, this link setup activity starts from the supplier of raw materials, which is called inbound logistics and then moves over to the operations that are transformations of these raw materials into the product. This product then goes to the outbound logistics, i.e., for the distribution channel, then it goes to marketing and sales and service (after-sales service). He has divided this value system of an organization into primary activities and support activities. Primary activities are divided into 5 categories. These are inbound logistics, operations, outbound logistics, marketing, and sales and service. So, from suppliers, it moves to the customers, but this work cannot be done without some supporting activity of the organization.  ** What are the supporting activities of an organization?** There are four supporting activities that is:- ***Firm infrastructure***- It consist of general management, legal, planning, finance and accounting ***Human resource management***- these are recruitment and selection, training and development, carrier advancement, carrier progression, and succession planning. These are done through resource management, skill upliftment etc ***Technological development*** -- it is basically is R&D design, product and process design, product and process development, and product engineering. ***Procurement***- it includes purchasing, materials management, supply chain management, and inventory management. When a company starts, it comes with some distinctive competencies, which are called core competencies. Now, in physics, it is called the center of gravity which is similar to those core competencies. When the organization grows, it grows forward and backward activities. You link forward activities and backward activities to that core competencies. Suppose your core competencies are operations; for operations, you grow, then you have to get your inbound logistics that is, the suppliers; you have to develop reliable suppliers. Then you grow forward, you have to develop your outbound logistics. **Inbound logistics** means the suppliers, there are many stages in it, it may be the receiving of your materials for a large organization, maybe receiving thousands of materials, then you check the quality of the material and the inspection. Then you make a schedule to give those materials to different operations because those materials will go to the operation. So, these are all inbound logistics work. **Operations** are the transformations. So, here you make out your operational plan, you have to look out the maintenance plan of your machineries, then you have to plan accordingly if there are any breakdowns, then you have to do the packaging, then you have to finish product and have to do the quality control. So, all these operations have so many sub-works in them. In **outbound logistics** you have to warehouse, you have to dispatch, you have to deliver, the logistics arrangement, invoicing etc. So, these are the many works associated with outbound logistics. Then marketing and sales, so, you have to do your promotions, sales, advertisement, customer relationships management (CRM) and then invoicing. So, after all these, you look for servicing this is after-sales service. So, what you look for, you look for the warranty management, you look for educating the consumers, educating your own people. **Why is it called value chain analysis?** Like in each activity area, you find out your strength, and you add value. You add value from inbound logistics, operations etc. So, in each area you try to add value, then only you will get the profit margin. **What is margin ?** Margin is nothing but profit margin, margin is value added minus cost of production. Now, you try to add value to each and every activity so, that your margin at each activity increases, which in turn will increase this margin. Margin= value added-cost **What is value?** Value is nothing but what a consumer wants to pay, it is the perceived value. It is what the customer feels that he has got the value of his money.  **[WEEK 3]** **[Resource-based View of Firm and Sustainability]** You scan the external environment for opportunities and you identify the opportunities and take advantage of those opportunities, and try to get the competitive advantage. This is called **environmental school**. So, in fact, in 1970s and 1980s, all through that this environmental school was predominant. They used to scan continuously the external environment and identify opportunities and take competitive advantage to it. But in late 1980s and early 1990s, this resource-based view has emerged. And in fact, C. K. Prahalad and Gary Hamel, in their landmark paper in Harvard Business Review, the "core competence of corporations", there they emphasized this resource-based view.   **What is this resource-based view?** Resource-based view relies on resources. That says, the internal resources of the organizations. The resources of an organization can be divided in two types of resources. One, it is tangible resource, intangible resource or the asset, tangible asset, intangible assets. **Tangible assets -**Tangibles assets are those assets which can be touched, which has a physical form. Say, land, building, plant, machineries, equipment, computer, capital, all these are the tangible resources. This can be bought from the market. they give you the short-term competitive advantage because your competitors are also closely observing you. **Intangible resources / assets** -Intangible assets are brand reputations, trademark, patent, goodwill, then the culture, then the skillsets, then organizations acquire knowledge, all these are intangible resources. These intangible resources cannot be transferred easily. The resource-based view assumes that the resources must be - there are two assumptions. One is all resources in an organization, it is heterogeneous in nature, these are not homogeneous - heterogeneous, and resources are immobile. What is this heterogeneous resource? That is, no two companies are having identical resources, it is not possible. Say, for tangible resources, you might get a short term advantage but for the long term that your those immobile resources, those the brand, intangible resources that cannot be obtained or cannot be bought by the your competitors. And also, it says that these heterogeneous resources means that even if you have the same machine, same environment, same market environment but your resources like -- your skill level that no two organizations are the same. Skill levels, knowledge and all others are different that cannot be at the same level. The resources - internal resources and capabilities - based on that strategy is far more stable and you can take competitive advantage based on that. That is one part of (this) resource-based view. heterogeneous, immobile resources, it says, that for resource-based view, for getting competitive or sustainable competitive advantage, the resources must have VIRO compatibility. **What is VIRO?** VIRO is, your resources must be Valuable Rare, Inimmitable and Organized - it must be organized to capture those capabilities. That is, VIRO; having VIRO features (then only you) will get that sustainable competitive advantage. If your resources are heterogeneous and immobile, you may get competitive advantage but that is not enough to keep your competitive advantage in a sustainable manner **[Four characteristics of VITR]** VALUE-That your resources must be valuable, (must be valuable) that if you have a valuable resource, then only you will get competitive advantage, otherwise these will not be having any competitive advantage, it will have competitive disadvantage. It will have only competitive disadvantage. You make your resource valuable by say, by employing differentiation strategy. So, by another way of making your product valuable is decreasing the cost of production that means that will add value to your customers. Customers should perceive it the product as valuable to them. So, these are the ways you can make your product valuable. ***RARE-*** You have to make the resources rare. Resources got to be rare then only you get competitive advantage, otherwise (no competitive advantage). Rare means like only one or few organizations may have those resources, not all. If many companies have the same resources, it gives you a competitive parity. So, it is a competitive parity. ***COSTLY TO IMITATE***- resources should be costly to imitate. And it cannot be substituted easily - non-substitutable. So, if you have this, then only you get some sustainable competitive advantage and otherwise you will get only temporary competitive advantage. So, to get sustainable competitive advantage your resources must be valuable, then it must be rare and it is costly to imitate. And this is not enough. Furthermore, your organization must have the capability to capture all this, capture that valuable, rare, costly to imitate, and should be organized to develop all these, then only you can unleash the competitive advantage in a sustainable manner. So, all these will give you a sustainable competitive advantage. So, what we saw from here? resource-based view we have seen - resources are two types, tangible and intangible. Resources must be heterogeneous and immobile. So, each company is having a bundle of resources, internal resources and capabilities - those always vary. These will not be the same. And to get the competitive advantage, the resource characteristics must have the VIRO features. So, these will give you the competitive advantage. ***ORGANISED-*** competitive advantage is time dependent. It is, suppose you have a competitive advantage now, sustainable competitive advantage, but do not think that it is there for a long-term, because your competitors are also (breathing), following you, breathing on your neck. So, they will soon catch up. So, it is time dependent.   **[MODULE-5]** **[STRATEGY FORMULATION]** **How does an organization identify alternative courses of action?** It depends on organizational size, it depends on management style, it depends on work ethos of the organizations, it depends on industry characteristics. So, all these influences the organizations to decide how to derive strategic alternatives. Examples of how it works:- ***Small organizations*** -The strategic alternatives making and all are not done in a systematic and planned way, it is rather done mostly in an intuitive way. It needs that gut feeling, and the owners or the strategy makers, CEOs, or may be influenced by some external personality, maybe a bureaucrat, maybe an industrialist, maybe an icon. So, they may be get influenced by that ***Big or large, or the medium size organizations***- these are done in a planned manner. Firstly, they hold brainstorming sessions to develop the strategy and strategic alternatives. Brainstorming sessions may consist of different groups of organizations. Then it may be through the special meeting, organizing special meetings where all the representatives of the different stakeholders are present, even the internal and external stakeholders may be present, and you hold a special meeting for strategic alternatives generations. Another way to do this is, you engage outside consultants i.e., management consultants. They may help you to develop strategic alternatives or strategic decisions making. Also, you may hold a joint meeting between the consultant and the top management, their things are concretized. **Classification of strategic alternatives** Generally, organizations classify strategic alternatives in terms of risk. Say, it may be a high-risk strategy, it may be a medium-risk strategy, or it may be a low-risk strategy. - Niche strategy - Vertical integration strategy - it may be a forward integration; it may be a backward integration as you are going down, your risk increases. - Horizontal integration strategy. - Diversification and diversification strategy- Under this there is merger and accusations. So, As you are going down, you can see your risk increases. The least risk is in the niche strategy. Then the vertical integrations, then the horizontal integration, then the diversifications. Diversifications are riskier than the horizontal, and vertical, niches. So, this is one way of classifying your strategic alternatives based on risk. **Managerial factors that moderate or influence your organization\'s strategy**. **1**) **Managers' attitude toward risks** - is a potential factor that influences strategic alternatives generations and choosing of strategic alternatives. Every person has a somewhat risk-taking attitude or risk aversion ability, and all things are there. Some managers may be risk averse, and some managers may be high-risk-prone like they want to take high risks and all. ***Stability strategy-*** If a manager is risk aversion, then he will probably follow the stability strategy. It is that you maintain your activity level as it is. You maintain the status quo. Your activity level and your operations level remain the same. That is what a risk-averse manager will try to do. ***Growth strategy***- If a manager is risk-taking, he always wants challenging jobs. So, naturaly he will follow a growth strategy. A growth strategy is the expansion of work and the expansion of activities. ***Combination strategy***- if the manager is a balanced manager he will probably follow a combination strategy. **2) Past experience and strategy** Past experience has an enormous value, it provides you value. If those managers who have developed and implemented a strategy previously, are much more experienced and they will be knowing while formulating the next strategy, they will be knowing what are the bottlenecks, and what are obstacles, they will face during the implementation. Because strategy formulation is one thing, but implementation is the success of the strategy, it depends on its effective implementation. If that cannot be implemented, your strategy formulations will not give you any advantage. So, if a manager has past experience in implementing a strategy, that experience is invaluable. **3)External dependence on technology** Suppose, you employ technology, and that technology has a great bearing on your strategy. Suppose, you deploy a conventional technology, then your strategy may be something. If you deploy state-of-the-art technology then your strategy might be different. where are you getting the technology from? If you develop your own technology, you are confident, and you do not depend on outsiders. So, your strategy will be a very bold strategy. But if you are dependent on the technology from someone else, say, your partners, joint venture having the technology, state of the art technology which you do not possess, then you have to depend on him. So, your strategy cannot be that demanding, your strategy cannot be that bold. This also depends on the dependence on technology. **4)strategy selection process** The strategy selection process varies from rational to political. Rational is what we are doing, the formulations and all, it is mostly the rational processes they follow. But in real-life organizations, there are always organizational dynamics and organisational politics that are cutters which cannot be done away with. So, if some powerful managers or directors think, this strategy should not be taken and all, this strategy should not be implemented or taken as granted. So, they may have some political angle. Also, these may influence the selection process of the strategy. 5. **Managers' perceptions of the ability to improve** Suppose, key managers, who will be implementing that strategy, if those key managers are not comfortable with it, they do not want to do that perception then the strategy will not be successful. This is the perception of the ability to implement by the managers. 6. **Credit policy** Suppose, the credit policy is very favourable, then you can easily do the fund availability, borrowing funds etc. available, and then you may follow an aggressive strategy. But if the availability of the fund is not there or is very constrained and the credit policy is also unfavourable, then you cannot, your strategy cannot be that aggressive. Your strategy has to be some moderately or low-key profile. When you develop a strategy, what do you do? A strategy is a long-term plan for your organization. So, say 10 years. So, your strategy is you increase your production output by 10 times in the next 10 years. So, in your strategy, you also develop a target performance level. Suppose, those strategies' target performance level is this line, it is going on. So, now, once you are implementing the strategy, you are constantly monitoring the strategy. Suppose, after one or two years, you find your strategy is following this red line, what should you do? You project it for the rest of the years, the rest of the period of your project. And you can find the performance versus time, there is a gap between your target performance levels when you have made the strategy, you have given this target performance level and actual. Actual happens up to two years then you are projecting it, projecting strategy will give outcomes. So, this is a strategic gap. So, if this gap is narrow, what strategy will you follow? If the gap is narrow, you will follow a stability strategy, like it is going on and this gap is narrow, you do not have to worry, you follow a stability strategy. That is, you follow the activity level, the operations level what it is going on. If you see that your gap is supposed to go here, so, it is a large positive gap. What does it mean? If the gap goes positive, in a positive way, but it is a large gap,what does it mean? What strategy you will follow in such a case? You will follow, as it is a positive gap, which means you will follow a growth strategy. And why did it happen? Why did it have positive things? It might happen because an environmental opportunity might have come, and this is due to environmental opportunity. Now, so, you follow a growth strategy. Now, if the gap goes, say negative, large negative gap, if it comes a large negative gap, say, what strategy will you follow? Then you will follow a retrenchment strategy. This means you will reduce your activity level because your activity is going to shrink. Because it may happen only because in the environment you are facing a threat. Like, for say, when Reliance JIO came, then Airtel, Vodafone, and Idea, they felt that threat, and their profit came down. So, they had to take a retrenchment strategy. So, when the gap is large and negative, you follow the retracement strategy and vice versa **PRODUCT LIFE CYCLE MANAGEMENT** ** Growth stage**- Your need is a huge investment. Like at the growth stage, you require the plant, and machinery, huge advertising and the marketing investment are required. But in the maturity stage of the business or the product, the growth rate is not there, growth rate is stabilized. So, the main strategy will be the low-cost efficient process. **Maturity stage**- generally the only cost you may be requiring is the advertisement cost and you operate on low cost-efficient processes. And it is a cash producer or generates cash. Maturity stage generates cash and that cash you pump in to the other businesses for growth of other businesses. The point of this is that at different stages of the business, your strategies will require different attention, different types of strategy, strategic alternatives you have to deploy. **TOWS matrix** It is nothing but that inverse of the SWOT matrix. The management consultants, management authors and all, they are very fond of jargons and all. So, they have coined this one. It is just the inverse of the SWOT analysis. So, it is called TOWS matrix. The internal factors analysis are strength and weaknesses. The opportunities and threats are the external factor analysis. So, based on this, we can find out, strength and opportunity. This is called "SO". Some strategy you deploy based on your strength and opportunity. That is to use your strength to take advantage of environmental opportunities. It is called "SO" strategy. Now comes "WO" strategy. Like you try to overcome your weakness by taking advantage of the environmental opportunity. Now, say "ST" strategy. That is strength and threats. You use your strength to avoid the threats. Then "WT" strategy, it is you minimize your weakness and avoid the threat. So, these are the various combinations you can make your strategy.   **Strategic alternatives and choices** **Porters generic competitive strategies** 1. **overall cost leadership strategy** The cost leadership strategy is aimed at garnering or increasing the market share of the organization. For that, you go for the cost-effective way. So, that you reduce the cost of your product and it will have more customers and market share. You can gain this cost leadership strategy by improving efficiency of the organizations in all spheres of the work. It is not only the efficiency of the operations or the production, it is the efficiency of the entire organization, efficiency of the supply chain management, efficiency of the marketing, efficiency of the HR, efficiency of the finance, the efficiency of the logistic, and engineering. So, all-encompassing will give you the cost advantage**.** The unit cost may come down with all these efficiency improvement; if your organization is all-around efficient, and you get it. In fact, overall cost leadership also depends on the set of functions that culminates in experience curve effect that will give you the cost advantage. Also, another way of getting cost leadership, generally is through economies of scale. Economies of scale are the cost economics by increasing the output. Thus, as the production volume increases, the unit cost of production decreases. So, you get a cost advantage over your rival. 2. **Differentiation strategy** You achieve class leadership through some distinctive competence, which is perceived as unique by the customer. Customers think that the product is unique. This uniqueness may be in any form of product design feature, novel technology, uniqueness in customer services, or dealer network. As I have already mentioned, it can be that perceived uniqueness can be of any feature. So, you achieve class leadership from that. For example, Harley Davidson, there are many motorcycles, but Harley Davidson is a differentiated product. Apple(smartphone) iPhone is a (follows) differentiation, whereas Samsung is the (follows) cost leadership strategy. Then, your Otis Elevator (follows) is a differentiation product; Bata shoes follow differentiation. So, the customers perceive, these products as unique. So, these are the differences. For this differentiation, what do you need? You need to have decentralized decision-making. You empower the employees to take decisions at their work centers or wherever it is possible. So, you empower them(people) and delegate to them. So, it is decentralized decision-making, that is, generally followed for differentiation strategy. 3. **Focus strategy** The focused strategy is - you concentrate on a particular buyer or a particular segment of a product line or a geographic market. For example you will find the shampoo pouch, hair oil pouch, and toiletry soaps which are generally used by travelars. So, it is a focused buyer group or the hotel industry. They use it to focus on some buyer groups or those bought by the marginal labourers who cannot buy a bottle of shampoo that will cost around 500 rupees. They buy a pouch for two rupees. So, it is focused, say, low cost for them, either for those marginal labourers or the travelers. The toiletry soaps and all for the hotel industry, these are the focused low cost, focused high cost, differentiation. **Grand Strategy** **1)Growth strategy** ***The concentration strategy*** It is one of the most favourable and popular growth strategies followed by organizations. Concentration strategy is actually if an organization has a single line of business or a single line of product, then these concentration strategies work well there. For example, say, Kellogg's makes what? Kellogg's makes those cornflakes and all. There is a single line of products and a single line of business using the single technology and having uniform single segments of the market. So, there these are very useful, like KFC, McDonald\'s, Kellogg's, Compac, and Coca-Cola, these are the single business using a similar single technology and single market. So, they do it, and here, by doing this single product, single business and all, they acquired huge experience, huge knowledge about the market and understand the behaviour of the consumer. They can analyze how the behaviour is changing or how the customers will behave and all, which gives them the competitive advantage and distinct competence they have developed over the years with that. So now, if new entrants come to that industry will be very difficult for them to acquire that competence **2) Stability strategy** Stability strategy maintains the status quo like the same level of operations, the same level of activities organizations carries on, that is stability. Then sustainability, growth, Pause/proceed with caution. You look and take a decision. **3)Retrenchment strategy** It is your shrinking of activity level. So, you are decreasing your operations, it may be the ***turnaround*** strategy. A turnaround strategy is an internal retrenchment strategy like your performance is coming down for successive years. You make a strategy in which your sliding stops, and it starts making a profit. That is a turnaround strategy. It is done through an ***internal retrenchment strategy***. There is also an external retrenchment strategy which is called the disinvestment strategy and liquidation strategy. ***Disinvestment*** is you have unprofitable units or unprofitable assets, and you are selling them off, or you are closing them down. And another was that liquidations mean you sell off the entire business, not the part and all. Disinvestment is a part of your assets or business, but in liquidation as a whole, you sell off, or you dispose of that line of business. That is ***the liquidation retrenchment strategy.*** **4) Portfolio strategy** It is to restructure the organization that is restructuring and a combination strategy, in a large organization follows not only one strategy at one time but a combination strategy. Suppose, say, any big organization, Tata Motors or L&T. L&T may be following the growth strategy. Say Reliance Jio may be following a growth strategy. Then maybe the oil and gas may follow a stability strategy. They have many small organizations, that may be following the retrenchment strategy. So, one organization may follow, at any one point in time, a combination of these strategies. Somewhere, they may follow a growth strategy, some segments, they may follow a stability strategy, and somewhere they want to follow the retrenchment strategy -- they want to give up the unprofitable businesses. So, it may be the portfolio, maybe the combination strategy.  **[Grand strategy selection matrix]** It is basically, a basic idea that underlines two variables **\**Principal purpose of grand strategy***- principal selection purpose is to maximize your strength and overcome weaknesses **\**Choice of internal or external emphasis for grand strategy***- It is for growth. Internal emphasis means internal resources within the organization (core competence). The external emphasis is that you acquire these capabilities through external acquisitions or mergers. So, you are increasing your resource capability through external emphasis. So, these are generally what you are doing to maximize your strengths and overcome your weaknesses.  **Quadrant 1** The emphasis here is you want to overcome your weakness through your external emphasis, that is, acquisitions or mergers, because you do not have that resource capability with you. So, your weakness and your external emphasis, what will be your strategy in such cases, your strategy will be, vertical acquisition. It will be basically merger and acquisitions and conglomerate diversification(it is unrelated diversification).So, your emphasis will be on your strategic directions to take strategic actions on these grand strategies now, if you overcome weaknesses with the help of internal resources with that. **Quadrant 2** You try to follow retrenchment strategy i.e., you are divesting or reducing the work activities (operations level). As I told you last time, there are two, one internal retrenchment (turnaround strategy), and external retrenchment you divest your loss-making unit's assets or liquidation (you sell off the entire business). So, these are the retrenchment strategies you will follow because you want to overcome your weaknesses with the help of your internal resources. **Quadrant 3** If you want your strategy, you have maximizing strength. Your strength is to emphasize internal resources for your growth with the help of internal capabilities (core competence). The strategies suitable for that are an aggressive strategy like concentrated growth, market development, product development, and new innovations. So, these are the preferred choices you should embark upon for choosing your grand strategy**.** **Quadrant 4** Similarly, if you are maximizing your strength, you are leveraging your strength with growth. If you want it through external growth, that is, mergers or acquisitions, then We follow horizontal integration, then concentric diversification. what is concentric diversification i.e., related diversification.The joint venture, these are you want if you need the growth very fast. These will give you the diversifications at a faster growth rate. So, in such circumstances maximizing strength with the external emphasis on growth. **[Model of grand strategy clusters]** The underlying idea behind this approach is that any business situation is defined (here in strategic clusters) in terms of the growth rate of the general market. what are the environment growth rate, general market growth rate and your organization\'s competitive position. So, here you can see that the market growth can be rapid, another may be slow market growth for a particular business or product. So, with respect to the market, what are your competitive position? What is the firm\'s or the organization\'s competitive position? It may be a strong competitive position, or it may be a weak competitive position. **Quadrant 1** Rapid market growth and strong competitive position suppose, the market is growing very fast because there are opportunities, the competitive positions in the market are very strong like you have good market shares and being in both positive-positive situation. What we will follow growth or aggressive strategy. The growth strategy here is concentrated growth, Concentrated growth includes product development, market development, innovation, and market penetration. Then vertical acquisition; concentric diversification means related diversification. So, these are the strategies generally available for when the market is growing very fast, and with respect to the market, you have a strong competitive position and strong market share if you follow these strategies. **Quadrant 2** another thing as the market is growing fast, but your organization\'s competitive position is weak, then what strategy you will follow? The strategies you follow like reformulations of concentrated growth, (this concentrated growth, you have to reformulate it) because it has changed again. Then you may go for horizontal acquisitions and divestiture, and liquidation (these are the retrenchment strategies). So, you follow these four strategies to overcome your weakness. **Quadrant 3** If your market growth rate is very slow, and your competitive position is weak, then what strategy will you follow? These both (slow growth and weak competitive position) are negative-negative, so, you follow a retrenchment strategy that is internal retrenchment as well as external retrenchment. So, you follow a turnaround strategy, then concentric diversification strategy, conglomerate diversification, then divesture and liquidation, and you try to get rid of those loss-making assets or the businesses. So, these are suitable strategies for slow market growth, and the firm is having weak competitive position. **Quadrant 4** If the market growth rate is slow and your competitive position is very high. What sort of strategy do you follow? You follow concentric diversification, conglomerate diversification and joint venture. **[SPACE matrix]** It stands for "Strategic Position and Action Evolution". What does this matrix say? This is also formulated in a similar way and is company specific. So, here is what they have done, they have taken financial strength and environmental stability, and the other side is the industrial strength and competitive advantage.  ***Financial strength***- each variable has been subdivided into a number of sub-factors such as return on investment, leverage, liquidity, working capital, and cash flow. So, as per the need of the organization, you can have your own sub-factors those summations of these will give you what is financial strength.  Suppose first you take the X axis, then we will take the Y axis. In the x-axis, say this is industry strength then you have to rate these factors within the rating of +1 to +6. +1 here signifies the worst, and + 6 is the best. So, now, what do you about industry strength? You rate each of the factors. When you rate its growth potential, suppose it is +6, profit potential +6, financial stability +4, technical know-how +5, resource utilization +3, ease of entry into the market+ 6, capacity utilization+ 4. After rating what you do? You find out that XISi is equal ∑XISi divided by n, n is the number of factors, here, n is 1, 2, 3, 4, 5, 6, 7. So, you get the average XIS. Suppose you get average Xis of 5.23. Similarly, you do it for the competitive advantage. Here -1 is the best and -6 is the worst. So, here also you rate it, say market share may be the -1, product quality may be -2, product lifecycle -3, likewise -1, -4, -1, -2 to other factors. So, you find out ∑XCAi divided by n, which is average XCA. So, now, how do you get the x-axis value? You will get the x-axis value by adding average XIS and average XCA. After adding, you get the X coordinate. Similarly, for the Y axis, the average YFS is equal to ∑YFSi divided by n. Similarly, you find out for environmental stability (ES) that you get average YES equal to ∑YESi divided by n. So, now, you add average YES plus average Fis (financial strength), and you get Y coordinate. This is x coordinate, y coordinate now, wherever it falls, this coordinate may fall in any quadrant. In this case, it is s (3.4, 2.9) and has fallen here. So, if it is falling here, like the "financial strength" of the company and the "industry strength" both, are positive, so you go for an aggressive strategy. If it falls here, then, that is, your competitive advantage and environmental stability, then if it falls here minus, you go for a defensive strategy. Retrenchment strategy is a defensive strategy which closes down your activities i.e., defensive strategy. If it falls here, that is, you take a competitive strategy, and if it falls in this quadrant, you take a conservative strategy. So, this way SPACE matrix guides you through selecting a grand strategy. **DIVERSIFICATION** Diversification is essentially a way a company wants to have opportunities for growth and reduction of risk, and utilization of its resources, facilities, equipment, and capabilities in the most efficient and effective manner. One of the main reasons for diversification is economies of scope.suppose an individual is having some surplus investable capital or cash. So, what will an investor do with that (surplus cash)? If you have some surplus cash, first, you want to put it in a fixed deposit, or real estate. You may want to invest in a fixed bond -government bond while looking for stability, and low risk. And if after investing there, you still have some funds, you will go for mutual fund, then even after that, you have the money, you go for stock or equity. So, you see, as you go down, your risk may increase, but the gain also increases as you take more and more risk. Generally, no one invests all their money in one or two shares, they broaden their scope of the risk and spread their risk by investing in a number of shares. ** Drivers for diversification** - ***Economies of scope*** Economies of scope are the use of common resources for more than one business or more than one product so that you get the cost advantage, instead. Suppose (say) two separate products or two or three separate businesses, if you use your resources independently and separately, you will consume more resources, but if you share those resources, you get economies of scope. As the output increases, you get the cost advantage. So, by diversifying, you are achieving economies of scope. - ***Greater market share*** You want to have supremacy over the market, that is another driver for diversification - ***Risk reduction*** You diversify in different products or businesses because all businesses have a cycle of growth, cycle of maturity, and decline. You spread your risk or hedge your risk so that you reduce your risk vulnerability, that is why no individual invests in one stock they invest in many stocks. That is how you are spreading or reducing the risk. - ***Utilizing existing managerial and operational talent*** Many good companies have good talents of managers and operational people. If they have limited businesses or limited products, these people will be stagnated. For the growth of the company, you diversify, and your talented managerial and operational people can have their career advancement. you can see the performance is highest when you have limited and related that is concentric diversification - concentric. Limited diversification will give you the highest performance, and if you do not diversify in unrelated areas, these your performances are not that good. This answers whether too little or too much diversification is good or not. ** Types of diversification** - **Concentric diversification** Those are actually related diversification like when two or more products or businesses use the same available manufacturing facilities and processes, R&D efforts, human resources, distribution channel or sales and administrative works etc., then it is called concentric or related diversifications. Like take the case of Apple, starting with the PC desktop, then it diversified to mp3 players, then notebook, smartphones, iPad, and other gadgets. But these are all related to their core competence, and these are called concentric diversification. Reliance also has concentric diversification. - **Conglomerate diversification.** These are basically done for investment purposes. Here these products or the businesses are not related to each other, or they are not related to the existing business or the existing products. Again, those are not related to a common technology or by a common market. So, these are called conglomerate or unrelated diversification. ITC is in tobacco company, hotel or hospitality industry, paper and pulp industry, and food and consumer products. So, these are the conglomerate diversification. **Constrained Concentric diversification** Concentric diversification is also of two types, one is called controlled or constrained diversification here, new products or new businesses coming from a new core business are related to the new core businesses, and this new core is related to the base business. Take the case of Apple, and Google there, you have seen that they are in the constraint concentric diversification. Similarly, Honda Motor, Honda motors is the world\'s largest motorcycle producer. They are also the suppliers of automobile engines and many related products. They have been doing it for the last 7 decades, and have distinct competence. So, they have gone through those constrained concentric diversification. **Linked concentric diversification** The new products or businesses are linked to each other, but these are not linked to their core or the base businesses, these are different from the base businesses. But these links to each other are rather very weak, it is not a very strong link, and it is just a business relationship link. So, such linked concentric diversification is applicable when you have foreign collaborators, and they are supplying you the know-how or with the capital or with their own products. **Horizontal integration** It is owning or controlling a number of similar but separate activities in the same kind of business. Suppose car manufacturer Maruti Suzuki, they are producing car now, if they want to diversify to bus manufacturing or track manufacturing, this is called horizontal diversification or horizontal integrations Now, if the Maruti Suzuki goes for car retailing, means they are going forward integration. If you are going closer to your customer, you are going nearer to your clients or the end users **Backward integration** Now, if Suzuki wants to develop the components of the car, i.e., the engine or the tire or the radiator, if they want it to produce themselves, that is the backward integration i.e., you go towards the supplier's end. Say Tata Motors, first, they were in truck and bus manufacturing, then they went for light commercial vehicle (LCVs) i.e., car manufacturing these are called horizontal integrations.  **[Advantages of backward and forward integration]** - ***Backward integrations*** you have the overall control of the supplies of your inputs, and as a result, your quality check and control are at your hand. So, your finished products, will have better quality, and when do you go for it? You go for it when your supplier margin is very high, or else you go for strategic reason, suppose those inputs are very strategic in nature, outsourcing sometimes may be threatening for your positions. So, you go for then backward integration. If you see the Steel Authority of India, Tata iron and steel (Tisco), they have their own captive iron ore mines, they have their own coal mines, those are the very important strategic inputs for their (iron-making) steel plant. While having their own (iron ore), they also get it through outsourcing from others for strategic reasons. when it is very strategic in nature, then you go for these backward - ***Forward integrations*** Advantage is that you are closer to your customer. So, you have control over your distribution channel, you have control of your logistics, and then you have the inventory build-up for the dealer. And also, when do you go for it? When the dealer\'s margin is lucrative, then only you go for that. So, when the markup is very high for the dealers, you go for this forward integration. You have control over the warranty management, and after-sales services because you are not dependent on the dealer. **Disadvantages for both forward and backward integrations** They are similar. Your capital is locked up, and you lose your flexibility, because outsourcing- if you go for outsourcing, it is cheaper, also, if you outsource, you are free, your resources are free, and will give you more time to concentrate - more on the core businesses. **[WEEK -4]** **Synergy** What is a synergetic effect- if two or more products you are producing separately, it consumes more resources. Now, these two or more products, if you are producing at the same manufacturing facility using the same manufacturing facilities and processes, same resources and all, you have a synergistic effect. So, this is called the synergic effect. There are four types of synergy effects for the diversifications they are production, marketing, financial and organizational synergy. 1. ***Production synergy*** 2. ***marketing strategy*** Marketing synergy is a new product, you are using your existing sales and distribution channel for its marketing. So, there is a synergy in it, and this sales and distribution marketing synergy is most visible. So, I will give you an example, like say badminton, racquet and the shuttlecock these are the two products, these use different technology, but they can be when they are related products, they can be marketed together using the same distribution channel even they can be marketed under the same brand name also if it requires tennis ball similarly, and tennis racket is the same. ***3)Financial synergy*** Financial strategy is, suppose a company may identify its product based on its cash flow and working capital requirement. For example, say AC manufacturer or fan manufacturer, their demand is very high during summer. So, capacity utilization during that period is very high, but what happens when they are in winter or some other time. So, their capacity utilization is not high. So, their sales also drop down during winter. So, to avoid those financial crunches They give discounts for selling those fans, ACs. So, that there is some cash flow is there alternatively, some organizations go for some businesses or products, which have shorter cyclic periods. Shorter cyclic period and gives a quick return. They go for such products and businesses. ***4)Organizational synergy*** Some organizations have existing skills, those skills they have acquired over the years suppose a manufacturing company they have acquired some manufacturing skill, oil and gas industry professionals, have acquired some skill those skills company can take leverage for say a manufacturing company, though they can go for consultancy, they can go for trading. So, they can utilize those skills in a different business consultancy business and all. So, these are the organizational synergy. Take some companies, those are in having R&D some chemical companies are there, there have strong R&D. Those are actually in R&D centres, they are utilizing twin purposes. One is they hold those R&D and all in house product development in house improvement of the products and all say 60 per cent to 70 per cent of their time they use it for the R&D for in house research and another 40 to 30 per cent they may go for the open contract for the market. **[Diversification versus Expansion]** *Factors to be considered while making a decision of diversification or expansion* - **Likely return**-ROI return on investment for both diversifications and expansion. You find out the ROI for both for a long-term ROI, not the short term. So, that will indicate which - **Market growth rate**- whether the new products that you want to diversify that growth rate vis - a - vis is your, the products for the expansion business, that growth rate, you compare these two growth rates, then the market size, what will be the total market size that will give you the how many years you will be the sustaining and all. So, market size is also for both you determine then marketing capability for a product, which you are doing it is the similar product, you know you have may have the marketing capability. For a new product, you have to develop that marketing capability, you keep that thing in mind also, when you are doing for the likely return you consider for both the cases the taxation part, the depreciation part the fiscal deficit part that invests the incentives given by the government for the new product or new businesses. All those things also you take into account while you find out. - **Supply and demand gap** -look them for both newly diversified products, what are the supply and demand gaps today and, in the future, how they will go and for the expansion markets, what is the demand-supply gap, you compare both and then take a decision. - **Experience curve advantage**- that you get for the expansion is your same or similar product. So, if you have been handling it for a long, you have the experience for that. So, your unit cost may be less. So, the experience curve advantage is mostly found in expansion, not diversification. - **Brand image**- if the new product has a better brand image than your existing product or similar products or more brand image you compare and take a decision on this.  - ***status quo-*** it is like you do not you try to maintain where are you in your try to - ***sail with the wind***- means everybody is going to that some craze said that industry. So, the company is also going for