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WHAT IS STRATEGIC MANAGEMENT? “Without a strategy, an organization is like a ship without a rudder, going around in circles. It’s like a tramp; it has no place to go.” Joel Ross & Michael Kami (Fred 2011) According to Wheelen and Hungers’ study (2006), STM is a set of managerial decisions and actions that determines the long-term performance of a corporation. It involves Environmental scanning (both external and internal), strategy formulation (strategic or Long range planning), strategy implementation, and evaluation and control. They Emphasize the analyzing and evaluating of external opportunities and threats in terms of an organization’s strengths and weaknesses. From the perspectives of Dess and Miller (1993), STM is a process that combines three major interrelated activities: 1 06/11/2022

description

strategic management

Transcript of Slides Stm

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WHAT IS STRATEGIC MANAGEMENT?

• “Without a strategy, an organization is like a ship without a rudder, going around in circles. It’s like a tramp; it has no place to go.” Joel Ross & Michael Kami (Fred 2011)

• According to Wheelen and Hungers’ study (2006), STM is a set of managerial decisions and actions that determines the long-term performance of a corporation. It involves– Environmental scanning (both external and internal), strategy formulation

(strategic or – Long range planning), strategy implementation, and evaluation and control. They – Emphasize the analyzing and evaluating of external opportunities and threats in

terms of an organization’s strengths and weaknesses.

• From the perspectives of Dess and Miller (1993), STM is a process

that combines three major interrelated activities: strategic analysis, strategy formulation and strategy implementation.

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STM – Defined

• In the other way, Lamb (1984) states that strategic management is an ongoing process that: – Evaluates and controls the business and the industries in

which the company is involved; – Assesses its competitors and sets goals and strategies to

meet all existing and potential competitors; and then – Reassesses each strategy annually or quarterly to determine

how it has been implemented and whether it has succeeded or needs replacement by a new strategy to meet changed circumstances, new technology, new competitors, a new economic environment, or a new social, financial, or political environment.”

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PURPOSE OF STRATEGIC MANAGEMENT.

• Regardless of the size, the scale, every

organization needs to adopt a well-

planned strategic management to survive

and compete in the market and try to

optimize for tomorrow following the trend

of today. 304/22/2023

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SUCCESSFUL STRAT MGMT

• An industry is composed of a set of firms that

produce similar products or services, sell to

similar customers, and use the similar methods

of production.

• Gathering industry information and

understanding competitive dynamics among the

different companies in an industry is key to

successful strategic management.04/22/2023

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5

LP-1 dt 7 & 8 Sep 15

• Ch-1 Strat. Mgmt – Creating Competitive Advantages

• Learning Objectives

– Definition and 4 key attributes of Strat. Mgmt

– The Strat. Mgmt Process and its 3 related principal

activities

– Corporate Governance

– Environmental Forces

– Vision, Mission and Objectives – Awareness of 04/22/2023

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STRATEGIC MANAGEMENT MODEL

6

1.Establish vision,Purpose, values, and

3-5 yrs scorecard

2. determine annual

Obj & Goals

3. Address implementation

Barriers

7. Identify drivers with Targets for annual

Objectives 6. Develop project action plans

For drivers

5. Charter improvement teams

And Create infrastructure

4. Design and execute communication

plan

8. Execute Project Action Plans

9. Review Project planIn a database

And systematic process

10. Sustain the Improvements

(Trg & Doc) Impr

ove

stra

tegi

c m

anag

emen

t pro

cess

Planning Development

Implementation

Do Proj

Mgmt

Study Performance Evaluat

ion

ActInstitutionalize

Annual strategic planning 04/22/2023

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STRAT MGMT & CEO

• All Org are run by the CEO’s• Role of CEOs

– CEOs are synonymous with the success and failure of the org– Strat Mgmt is based on participatory decision making techniques

with the CEO taking full responsibility for the outcome • Leadership roles:

– Romantic ---- Leader is the key to success or failure – External Factor ---- Focus is on the external factors for success

or failure of the Org • Recent examples:

– BP Oil Rig disaster in Florida Bay and its fallout – Corporate fines against BOA, SC Bank, Lehman Brothers etc – Downfall of BCCI– Recent economic downturn in USA / Euro Zone / DPW etc

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STRAT MGMT

• The Essence of STRAT MGMT is to focus on 2 fundamental

questions:

– How should we compete in order to create competitive advantages (CA) in the market place

– How can we create competitive advantage in the market place that are not only unique, sustainable and valuable but also difficult for competitors to copy or substitute.

• Important to note is:– Sustainable CA cannot be achieved without operational

effectiveness which means performing similar activities better than rivals.

• Operational Effectiveness includes concepts of TQM, just-in-time, benchmarking, business process reengineering, and outsourcing etc

• Strategy is all about being different from everyone else.04/22/2023

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STRAT MGMT DEFINITION

• What is Strat Mgmt?• Step further than incremental management – Taking

minor decisions in a stable, simple and unchanging industry.

• Does it happen always? No, therefore, need for Strat Mgmt which is defined as:

• “Analyzing, taking decisions, and initiating actions in order to create and sustain competitive advantage.”

• Biggest Question– How (and when) and why do some firms outperform

others?• Critical Answer

– The challenge to managers is to decide on strategies that provide advantages that can be sustained over time

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STRAT MGMT AND 4 KEY ATTRIBUTES

• Directed at overall organizational goals – Looking at the strategic issues rather than functional areas

– What to produce and at what cost • Involving multiple stakeholders

– Involve owners, employees, customers, suppliers, and the community at large

• Incorporating short term and long term perspectives – Keep an eye on the current production needs as well as

vision for the future ---- Creative Tension• Recognizing need for trade-offs between efficiency and

effectiveness– Using organizational resources wisely and optimally

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THE STRAT. MGMT PROCESS

• It involves 3 related principal activities:– Analysis

• Of strategic goals (V + M + Strat Obj)• Internal and External Environment of the Org

– Decisions (Strategic)• Based on Org’s domestic and international operations, the Org

should address 2 basic questions, i.e., 1. What industries should we compete in?

2. How should we compete in those industries?

– Actions• In order to achieve success as a result of decisions, the

necessary resources must be made available for a desirable outcome.

• It is a continuing process and seeks intimate involvement of CEO• Be able to differentiate between Intended Strategy and Realized

Strategy---------?

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Internal Environment Culture

Resources

Task Environment

Industry

Societal Environment

Sociocultural Focus

Politico-LegalForces Technological

Forces

Economic Forces

• Suppliers• Shareholders• Employees • Interest Groups• Customers• Creditors• Communities • Trade Associations • Competitors

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CORPORATE GOVERNANCE AND STAKEHOLDERS MANAGEMENT

• Management (CEO)– To run the Org to satisfy the interests and needs of

the shareholders under the guidelines prepared by BOD

• Shareholders (Owners) • BOD (Elected by the shareholders to represent their

interests)– To align the interests and motives of the

management with those of the owners

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ROLE OF CEO--- Electronic Data System since 1962

• In 1998 --- EDS earned $22Bn (Total market $140Bn) as Revenue with shares trading at $35.

• In March 2003 --- Shares shrunk to $16. Additionally, EDS’s reputation was tarnished due investigations by S&EC resulting in loss of competitive position.

• EDS CA -- technical competence, steady growth, old CEO’s conservative culture --- crisp white shirt and military cut hair style v/s new CEO’s culture --- gung-ho style to get rid of bureaucratic life style

• To spur growth the new CEO pushed for “megadeals” requiring outsourcing companies to make large investments. Resultantly, stocks were pushed up to $77. By 2001, CEO (Mr. Brown) received $52M in compensation.

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EDS- WHAT WENT WRONG • CEO’s Attitude --- Over ruling the managers• By 2002, Navy contract suffered loss of $1.9Bn due poor

calculation of margins – Megadeals / megarisks• In the same time frame, a contract with Worldcom signed

in 1998 incurred a loss of $118M due bankruptcy of Worldcom as a result of Internet Bubble Burst

• 2002 estimates were fudged and investors were assured of 13-14% growth despite recession

• Stocks plunged to $11.68• By 2003, EDS BOD lost patience and replaced CEO• Closing statement: Pay for performance, differentiate

performance- not organizational level….make difficult choices. Do as I say, not as I do.

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• Creating Symbiosis or Zero Sum • Two views

1. Zero Sum --- All the stakeholders are to be satisfied:• Employees want higher wages • Shareholders want higher profits • Zero sum concept gives rise to Unionism

2. Stakeholder symbiosis ---- Managers acknowledge

interdependence between employees, suppliers,

customers, shareholders and the community at

large

CORPORATE GOVERNANCE AND STAKEHOLDERS MANAGEMENT --CONTD

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Corporate Governance and Social Responsibility

• Social Responsibility is the expectation that businesses or individuals will strive to improve the overal welfare of the society. Companies have determined Triple Bottom Line which is:

1. Financial Measures / Capital

2. Ecological and material capital --- Renewable resources generated by living systems, such as wood or animal by-products

3. Human and Social Capital --- Human deals with peoples’ knowledge, skills, health, nutrition, safety, security, and fossil fuels, and Social includes assets of civil society, social cohesion, trust, reciprocity, equity and other values that provide mutual benefits

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THE STRAT. MGMT Perspective --- An imperative

• It requires managers to take an integrative view of the Org and assess how all of the functions and activities fit together to help an Org achieve its goals and objectives.

• Some Key Driving Forces are: 1. Globalization

– Global economy is NOT the flow of goods only but it is flow of capital, people, and information worldwide.

2. Technology– Innovative technology is having impact on our lives, trade,

services and products (Innovation, Invention and digitization)

3. Intellectual Capital – Creating and applying knowledge to deliver differentiated

products and services of superior value for customers require the acquisition of superior talent, as well as ability to develop and retain that talent 04/22/2023

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• Role of Leaders

• Thinking and Working groups can not be

different and separated (System Approach)

• Ideas must be encouraged, analyzed and

implemented

• Trg and Dev must move hand in glove

EMPLOYEES AND STRAT MGMT

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VISION, MISSION AND OBJECTIVES

• Vision tend to be quite broad, and can be inspiring, overarching and emotionally driven

• Org express priorities best through stated goals and objectives that form a hierarchy of goals

• Hierarchy of goals is the Company’s Vision • A vision may or may not succeed• Give examples of vision:

– GOP– BU– Unilever– Telenor– PTCL– Engro Foods

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MISSION

• It encompasses both the purpose of the company as well as the basis of competition and competitive advantage

• More specific and depict rationale for existence of org

• Effective mission statements incorporates the concept of stakeholder management, suggesting that org must respond to multiple constituencies if they are to survive and prosper.

• They also have the greatest impact when they reflect an org’s enduring, overarching strategic priorities and competitive positioning. 04/22/2023

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STRATEGIC OBJECTIVES

• Operationalization of Mission statement • Outlining Strategy how to achieve higher goals • Cover well defined time frame • Resources are identified and allocated • To be meaningful, Objectives must be:

– Measurable– Specific - clear and concise – Appropriate - Consistent with vision and mission– Timely – Have a time frame

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LP- 2 Wk 2 – 14-15 Sep 15

• Ch-2 Analyzing the External Environment of the Firm

• Learning Objectives– Importance of developing forecasts of the business

environments – Critical inputs to forecasting, i.e., scanning, monitoring

and collecting CI– Scenario Planning– why and how?– Impact of Competitive Environment on Profitability – Trends and Events of General environment– Strategic Grouping and its impact on business

Strategies

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CORPORATE WATCH

• Pakistan becomes 5th largest remittances recipient country

• Yamaha to invest $150m in Pakistan auto sector• Pakistan can become world's 18th largest economy by 2

050 and Now is the right time to invest in Pakistan startups----- How? Sit-in caused Rs. 547bn loss to national economy so far and visit by Chinese President was postponed and caused a delay in initiating plans for around $46Bn investment

• Pakistani businesses can export over 3,500 items to the US duty free

• Dollar hits six-month high against rupee (Sep 15)

• 04/22/2023 24

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EXAMPLES OF CA / CP• The Standard Chartered Bank. The bank`s clients can now print cheques

any time at their own premises, through its internet based global delivery channel.

• European Competition Commissioner is preparing to decide on the case after spending three years examining whether Google squeezes out rival services in online search results.

• Airbus and Boeing both topped 1,000 new jets orders in the first eight months of the year (2014) but Boeing is far ahead after adjusting for cancellations

• KASB Bank posts Rs171m profit The bank`s total assets amounted over Rs.69 billion. The bank is now defunct.

• July 2014 -----The Indus Motor Company (IMC) announced final cash dividend of Rs23.50 per share, in addition to an earlier interim dividend of Rs6 per share. IMC reported profit-after-tax of Rs3.87 billion during 2013-14, increase of 15 per cent over the previous year. However, the sales revenue decreased by 11pc to Rs. 57bn from Rs.64bn in 2012-13.

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WHY ANALYZE EXTERNAL ENVIRONMENT?

• Purpose: Forecasting • Highlight with examples:

– Motorola – case study – Lehman Brothers – MECO & NTR in Pakistan – Bicycle Industry in Pakistan – Privatization of PTCL – Power Generation in Pakistan– Auto industry in Pakistan – Tractor Industry in Pakistan

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04/22/2023 Where has the money gone? 27

SECTOR Sale proceeds   1991 to August 4,  2014

  No.Amount

(Rs. in million)Banking 7          41,023

Capital Market Transaction 24          186,689Energy 14          51,756Telecom 4           187,024Automobile 7            1,102Cement 17          16,177Chemical 16 1,643Engineering 7               182Fertilizers 7 40,281Ghee Mills 24               842Rice 8 236Roti Plants 15 91Textile 4               370Newspapers 5               270Tourism 4             1,805Others 6               159

Total 169 529, 650

Privatization Measures in Pakistan

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Results of Failure to ANALYZE EXTERNAL ENVIRONMENT

• Motorola • Founded in 1930 as maker of radios, and consumer

electronics• Color TV business sold in 1970 and intensified high tech

for commercial, industrial and governments sectors• 1980 – became leading supplier of cellular telephones• 1994 – Fortune magazine rated as the most loved

company• What went wrong?• Failed to notice changes in trends – switching from

analog to digital tech and arrival of competitors (Nokia and Ericsson)

04/22/2023 28

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Eastman KODAK

• George Eastman (a High School drop out) started operations in 1880

• 1928 - 1st colored movie • 1975 – 1st Digital camera • 2000 – Patents worth $2.2Bn - $2.6Bn • 2003 – 64000 employees• 2012 – 17000 employees and filed for bankruptcy

• 2011 – Share price $1 (only) down from a top price of $94

04/22/2023 29

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Questions?

1. Why has Kodak and some other retail outlets in

USA & UK filed for Bankruptcy?

2. Do we have Bankruptcy Laws in Pakistan?

3. How many firms and Orgs have filed for

bankruptcy in Pakistan in last 10 years?

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WHY DO WE DO THAT?

• We undertake External analysis by Scanning, Monitoring and obtaining Competitive Intelligence / Information (CI) so as to

Forecast

events and trends.• The trends and events are product of:

– Globalization – Time to Market – Innovating technologies – Shifting roles and responsibilities ---- Economic conditions

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CREATING ENVIRONMENTALLY AWARE ORG

• 3 Steps:

1. Institute measures for and inculcate the habit of: – Undertaking Environmental Scanning – Uninterrupted Monitoring of business activities and – Obtain Competitive Intelligence (CI) in order to pre-empt the

changing trends and events

2. Be aware of the General Environment arising out of:– Demography, Social, Politico-legal, Technology, Economic and

Global environment (slide-13)

3. Remain abreast of Competitive Environment– Porter’s Five-Forces (Buyers, Suppliers, Substitutes, Potential

Entrants and Mutual rivalry

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Ist Step ENVIRONMENTAL SCANNING

• Definition– The process of conducting surveillance of firm’s

external environment to predict environmental changes to come and detect changes already underway.

• Purpose – To become aware of changing trends – To adopt pro-active strategies rather than resorting to

reactive strategies / measures to correct the changing trends and events

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ENVIRONMENTAL MONITORING

• Definition

– It is to track the evolution of environmental trends,

sequence of events, or streams of activities

• Purpose

– To undertake closer scrutiny to become fully

cognizant of impact of changing trends and events

– It enables the firms to evaluate how dramatically

environmental trends are changing the CI.

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COMPETITIVE INTELLIGENCE (CI)

• Definition– It is an activity which helps firms define and

understand their industry and identify their rivals’ strengths and weaknesses.

• Purpose – To collect data for managerial decision making– If done properly, it avoids surprises for the firms and

companies

• Is it an ethical issue? Refer to page 41 Exh 2.2

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04/22/2023 36

ENVIRONMENTAL FORECASTING

• Definition – Based on Scanning, Monitoring and CI, the process

involves the development of plausible projections about the direction, scope, speed, and intensity of environmental changes.

• Purpose – To predict change – It answers the questions:

• How long would it take to for a new technology to reach the market place ?

• Will the present social concern about an issue result in new legislation?

• Are current lifestyles trends likely to continue?

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SCENARIO PLANNING

• Definition: A military borrowed concept: – As a result of environmental scanning, monitoring and

competitive intelligence, plan a range of scenarios – An in-depth analysis based on range of disciplines,

interests, tangible and intangible impacts and effects emerging out of various conditions of economic, local and international laws and changing geo-political and

politico-military situations • Purpose

– Not to miss out any factor – To develop range of options (Opportunities)

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SCENARIO PLANNING AT SHELL OIL COMPANY

• Process involves following steps:– Extensive interviews through open ended

questionnaires – Analyzing of interviews and making agenda

points – Synthesizing agenda points – Holding series of workshops and deliberating on

agenda points and formulating Scenarios that may occur in 10 -15 years time

– Testing of Strategic Options (Policy Options/ Strategy) to ascertain robustness of each scenario

04/22/2023 Specially formed teams may do this job on continuous basis 38

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2nd Step THE GENERAL ENVIRONMENT

• Definition– It is composed of 6 factors that can have dramatic

affects on the firm’s adopted strategy.

• It includes1. Demographic Segmentation

2. Socio-cultural aspect of life

3. Politico / Legal Environment

4. Technological Innovations

5. Economic Conditions

6. Global Environment • Discuss Exh 2.3 page 46 and Exh 2.4 page 54

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3rd Step THE COMPETITIVE ENVIRONMENT

• Definition. Termed as Task or Industry environment, it includes

factors that have direct relationship with the industry or the firm.

However, it may not generate as much strategic advantage as the

Value net analysis, (S-19)

• They are Porter’s Five Forces:

1. Threat of new entrants (Competitors)

2. Bargaining powers of buyers

3. Rivalry among existing firms

4. Bargaining powers of suppliers

5. Threat of introduction of substitute products or services

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Porter’s Five Forces

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Industry Competitors

Rivalry among Existing Firms

Potential Entrants

Buyers

Substitutes

Suppliers

Threat of new Entrants

Bargaining powers of buyers

Threat of substitute

products or services

Bargaining powers of Suppliers

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THREAT OF NEW ENTRANTS (COMPETITORS)

• The Measures that reduce threat of new entrants:

• Economies of Scale • Product Differentiations• Capital Requirements• Switching Costs • Access to Distribution Channels• Cost Disadvantages Independent of Scale

– Proprietary product– Favorable access to raw materials – Government subsidies– Favorable government policies

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BARGAINING POWERS OF BUYERS

• Purchasing large volumes • Products – Standard or undifferentiated • Few switching costs• Earns low profits• Buyers pose credible threat of backward

integration• Product v/s quality unimportant

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RIVALRY AMONG EXISTING FIRMS

• Numerous or equally balanced competitors • Slow industry growth• High fixed or storage costs • Lack of differentiation or switching costs• Capacity augmented in large increments –

economies of scale • High Exit Barriers – economic, strategic and

emotional factors that keep firms competing though they may be earning low or negative returns on their investments

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INDUSTRY ANALYSIS- FEW caveats

04/22/2023 Value Net 45

Company

Customers

Complements(Nintendo)

suppliers

Substitutes

Transactions

Interactions

Transactions

Interactions

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Bargaining Power of Suppliers

• Threat to raise prices or reduce quality of purchased goods and

services is omnipotent. The profitability can always be squeezed.

The powerful groups can always assert in the following manner:

• Dominated by few companies

• Not obliged to contend with substitute products for sale to industry

• Industry is not an important customer of the supplier group

• Suppliers’ product is an important input to the buyers’ business

• Products are differentiated or switching costs have been built up

• Threat of forward integration is persistent

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THREAT OF INTRODUCTION OF SUBSTITUTE PRODUCTS OR SERVICES

• Substitutes limit the profitability of industry by placing a

ceiling on the prices (price war)

• More attractive the price/performance ratio ---- tighter the

lid on profitability of industry

• Travel by executives v/s teleconferencing is one example

causing losses to airline, hotelling and automobile

industry

• Discussion forums – Twitter, Bloggers etc

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STRATEGIC GROUPS WITHIN INDUSTRY

• No two firms are totally different

• No two firms are exactly the same

• What value is the strategic group concept?

• Strategic groupings help a firm identify barriers to mobility that

protects a group by other groups

• It helps a firm identify groups whose competitive position may be

marginal.

• It helps chart future directions of firm’s strategies.

• Strategic groupings is helpful in thinking through implications of

each industry trend for the strategic group as a whole

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World Automobile Industry

04/22/2023 Prepare Pakistani Model ------- 49

Toyota Ford, GM,

Honda, Nissan

BMW,Mercedes

Ferrari,Lexus

Hyundai, Kia,

Suzuki

High

Price

LowHigh Breadth of product Line

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Thank you

• Quiz-1 ----- next week • Assignment -1 issued separately

04/22/2023 Wk-2 last slide of LP-2 50

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LP-3 –Wk 428 Sep 15

•Chap – 3 ----- Internal Analysis•Learning Objectives:

•How does a firm achieve CA over its rival (2nd part)•Why one firm outperforms than the other •What is value chain analysis ---- its importance and impact on business strategy • How best we can achieve results from resources available to the firm •What is balanced scorecard ?

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HOW CAN WE DO INTERNAL ANALYSIS?

1. Strengths may not necessarily lead to an advantage

2. Focus on external environment is too narrow 3. One-shot view4. Undue emphasis on single attribute of a

product or service. 5. Therefore, we move on to the next stage of our

answer: the alternative

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Most common technique is SWOT. But it has certain limitations like:

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INTERNAL ANALYSIS

• Value Chain Analysis --- Better than SWOT– Resource Based View – Inter-relationship between the Firm, Suppliers and

Customers gets established

• Making meaningful comparisons – With past performances– With success factors in the industry – With competitors (Benchmarking)

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VALUE CHAIN DEFINED • Value chain

– A perspective in which business is seen as a chain of activities that transforms inputs into outputs that customers value

• Value chain analysis• An analysis that attempts to understand how a business

creates customer value by examining the contributions of different activities within the business to that value, and:

• The actions include: – Eliminating wasteful activities – Combining duplicated activities – Minimizing bottlenecks – Enhancing market responsiveness – Enhancing productivity by reducing throughput variety

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VALUE CHAIN ANALYSIS• Views the org as a sequential process of value-

creating activities for the purposes of CA (Competitive Advantage)

• Value is the amount that buyers are willing to pay for what a firm provides them.

• Value is measured by total revenue, a reflection of the price a firm’s product commands and the quantity it can sell.

• A firm is profitable to the extent that the value it receives exceeds the costs involved in creating its product or service.

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THE VALUE CHAIN

04/22/2023

For details Refer to Exhibit 3.2 & 3.3 of your book 56

General Admin

HRM

Technological Development

Procurement

Support Activities

Inbound Logistics

OperationsOutbound Logistics

Marketing and sales

Service

Primary Activities

Margins

Mar

gins

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1. Inbound Logistics: It is associated with receiving, storing, and distributing inputs to the products incl material handling, warehousing, inventory control, vehicle scheduling, and return to suppliers.

• JIT is one such example. (JIT – Toyota 5 days).

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VALUE CHAIN ANALYSIS - 5 PRIMARY ACTIVITIES

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2. Operations• It includes all activities associated with

transforming inputs into the final product form, such as machining, packaging, assembly, testing, printing, and facility operations. The factors for success are:

– Efficiency of plants in cost minimization– Level of automation– QA/QC Systems and procedures

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VALUE CHAIN ANALYSIS - 5 PRIMARY ACTIVITIES

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3. Outbound logistics: Activities associated with collecting, storing, and distributing the product or service to buyers through wholesalers, retailers or directly. It includes: • Shipping procedures and how to reduce freight

charges • Finished goods warehousing, processing and

handling of products incl Insurances etc

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VALUE CHAIN ANALYSIS - 5 PRIMARY ACTIVITIES

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4. Marketing and Sales: Activities associated with purchases of products and services by end users and the inducements used to get them to make purchases. • Level of motivation and competence of Sales

Force• Innovative approaches to promotion and

advertising • Selection of efficient distribution channels • Segmentation of Customers and their needs • Effectiveness of Pricing strategy

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VALUE CHAIN ANALYSIS - 5 PRIMARY ACTIVITIES

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5. Services: Activities associated with providing services to enhance or maintain the value of the product such as installation, repair, training, parts supply and product adjustment. • Procedure to receive customer feedback and further

action • Warranty and Guarantee policies • Level of response to customer • Ability to furnish replacement parts and their

inventory• Quality of service personnel• Use of Internet and e commerce etc

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VALUE CHAIN ANALYSIS - 5 PRIMARY ACTIVITIES

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• Support Activities: Defined as competing in any industry and can be divided into four categories:

1. General Admin: It includes activities like management, planning, finance, accounting, legal, government affairs, QA/QC, and information systems.• Effective planning systems• Ability to obtain funds at the lowest rates• Visibility due Org culture, reputation, and values

2. HR Mgmt: It includes activities like recruiting, hiring, training, development, and compensation of all types incl industrial relations. • Reward and incentive programs to motivate all employees • Environment to maximize overall employee performance• Relations with trade unions

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VALUE CHAIN ANALYSIS – 4 SUPPORT ACTIVITIES

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3. Technology Dev: Technology development related to the product and its features that support the entire value chain. • Effective R&D• Culture to enhance creativity and innovation• State of the art facilities and equipment

4. Procurement : It is a function of purchasing inputs used in the firm’s value chain.• Activities to minimize costs• Development of collaboration with suppliers (win-win)• Effective procedures to purchase advertising and media services• Search for alternate sources • Ability to make proper lease v/s buy decisions

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Value Chain Analysis – 4 Support Activities - Contd

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RBV A method of analyzing and identifying a firm’s strategic advantages based on examining its distinct combination of skills, assets, capabilities, and intangibles as an organization.

RBV of the firm combines 2 perspectives: 1. The internal analysis of phenomena within a company

and 2. An external analysis of the industry and its competitive

environment • It is important to note that resources by themselves

typically do not yield CA unless integrated with other value creating activities.

04/22/2023 64

RESOURCE BASED VIEW (RBV) OF THE FIRM

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VCA – Linkages within and outside Firms

• Utilization of HR --- do not dump them but reposition them

• Manage inventory • Continue to Create customer value by remaining

competitive (invention, innovation, digitization, revisiting processes and procedures) --- TQM---and repositioning your products, and better still backing up your products with after sales support, and in corporate terms keep up your promises.

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TYPES OF valuable RESOURCES

1. Tangible:• Financial: Firm’s ability to raise cash, cash

equivalent, equity, and borrowing capacity etc• Physical: Plant and facilities, locations, and

machinery and equipment etc • Technological: Trade secrets, innovative

production processes, Patents, Copyrights, and trademarks etc

• Organizational: Strategic planning processes, evaluation and control systems

04/22/2023 Refer to Exhibit 3.5 66

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2. Intangible:• Human: Resources indicating experiences, skills,

practices and procedures

• Innovation and Creativity: Technical and scientific skills and capacity for innovation

• Reputation: Brand name, reputation with customers for quality and reliability, and reputation with suppliers for fairness, non-zero-sum relations

04/22/2023 67

TYPES OF RESOURCES – Contd

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3. Organizational Capabilities:• Firm’s competences or skills the firm employs to transfer inputs to outputs• Capacity to combine tangible and intangible resources, using organizational processes to attain desired end

• Standard of Customer’s services • Product development capabilities • Ability to hire, motivate and retain human capital

04/22/2023 Refer to Ex 3.5 pg 85 68

RESOURCE BASED VIEW OF THE FIRM

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GENERATION AND DISTRIBUTION OF FIRM’S PROFITS

• An extension of resource based view of the firm• 4 factors that would determine share taking of the profit:

• Employee bargaining power ---- Clients move with the managers and professionals, consultants , experts etc• Employee Replacement Cost ---- Employee with rare expertise demand more salaries• Employee Exit Costs ---- An individual may face high costs when leaving the org• Manager Bargaining Power ---- The power would depend as to how best they create resource based advantage

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EVALUATING FIRM’S PERFORMANCE2 Approaches

1. Financial Ratio Analysis Approach: How a firm is operating according to its balance sheet, and income statement.

• Short term solvency or liquidity • Long term solvency measures• Asset management• Profitability • Market Value

04/22/2023 Next slide 70

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RATIO ANALYSIS – Factors depending upon

• The financial worth of the firm must not be worked out in isolation. Comparison must be carried out in Historical perspective, with industry and its key competitors.– Historical Comparisons ---- at least last 10 years – Comparison with Industry Norms ---- Reputation

with lending agencies etc – Comparison with Key Competitors ---- Sales v/s

R&D budget is one example

04/22/2023Refer to Appendix to Chap 3 page

102-11271

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• Stakeholders’ perspective

• Customers’ perspective --- top priority for the Firm

• Internal business perspective --- Processes, actions and decisions that occur throughout the Org

• Innovation and Learning perspective --- The parameters company considers most critical to success

• Financial perspective --- Typical goals include profitability, growth and shareholders’ value.

04/22/2023 Balanced Score Card 72

EVALUATING FIRM’S PERFORMANCE – 2nd Approach

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SUSTAINABLE CA ---- HOW

04/22/2023 73

Resources CA in -----------------

Tangible Ownership costs %age allocated to ownership v/s Industry costs

Intangible • Brand reputation• Employee Loyalty

• Minimum promotional costs

• Lower labor costs V/s Industry

Capabilities • Supplier chain • Managerial Judgment

• Lower costs and higher quality of goods sold

• Fewer layers of hirerachy

Give examples out of Pakistani Industry and Products ------------

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The Balanced Scorecard

• The Managers do not need to look at their job as primarily balancing stakeholder demands. They need to avoid the mindset, i.e.,

• “How many units in employee satisfaction do I have to give up to get some additional units of customer satisfaction or profits.”

• Balanced scorecard provides a Win-Win approach. It is the combination of Financial Ratio Analysis and four key business perspectives discussed earlier (S- 25”& 26)

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LP - 5 5/6 Oct 2015

• Ch – 4 • Recognizing a Firm’s Intellectual Assets • Learning Objectives

– Why Management of Knowledge professionals and knowledge itself are critical in today’s Org

– How leveraging human capital is critical to strategy formulation – “Hiring for attitude, training for skill”

– Key role of social capital in leveraging Human capital– Vital role of technology in leveraging knowledge and

human capital

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Basic Concepts • Knowledge is the primary means of wealth generation in today’s economy• Human capital - being a resource is the foundation of intellectual capital. Therefore, while attracting human capital, issues such as “hiring for attitude, training for skills” must be addressed.•Social Capital – networks relationships among a firm’s members play a pivotal role in achieving value.• Technology is dominant in leveraging human capital• Finally, Leveraging human capital is vital to formulation of strategy

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Leveraging Human Capital

• Strong human capital often leads to useful relationships among others, within the firm, promoting a social infrastructure that is often vital for gaining consensus on major decisions, integrating multiple administrative levels, promoting cooperation, and sharing information across departmental boundaries. • XEROX is not such a company. Why?

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XEROX – Human Leveraging at the lowest

• In 1990, Paul Allaire becomes CEO with a mission --- To ensure XEROX to be major Technology Player. In 1997, Rick Thoman joins ex IBM as COO.

• By 1999, the stocks soared to all-time high - $64. The BOD appointed Paul Allaire Chairman and Thoman the CEO. Together they launched millennium goals. However, the plan failed due poor management of human and social capital inherent in XEROX’s executive ranks.

• In 1999, The CFO (Barry Romeril) faired badly causing huge losses to XEROX. There was plethora of law suits, penalties by S & E Commission for falsification of profits, and loan write offs etc. However, CFO could not be fired being a close friend of Chairman.

• Thomas Dolan, president of global sales and her sister a director prevailed upon Chairman not to restructure XEROX despite stiff competition by Japanese firms. The move adversely affected morale of sales force.

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• The Uncertainty prevailed throughout the firm resulting into loss of Sales Reps and with that: – Loss of product knowledge and – Valuable social relationship with the clients

• In May 2001, inevitable happened: – Thoman (CEO) was fired – Dolan’s (President Global Sales) sister (Business Director) made COO– Romeril (CFO) retained the job

• By 2003, XEROX was facing bankruptcy and:

– Experienced problems leveraging its talent and technologies into successful products and services

– Human and social capital eroded due dysfunctional organizational politics at the top

04/22/2023 79

XEROX – Human Leveraging at the lowest

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THE ROLE OF KNOWLEDGE IN TODAY’S ECONOMY

• Until yesterday, most Managers directed maximum efforts towards 2 traditional factors of production, -- Labor and Capital – and were duly interested in:

• Tangible resources – Land, Machinery, Finance and

• Intangible resources – Brand names, Image of the firm, and Customer loyalty etc

04/22/2023 80

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WHY AND HOW DO ORG GROW? • Decisions made by its Executives (HR) based on Knowledge

• People don’t buy Microsoft’s stock because of its software factories; it doesn’t own any. Rather, the value of Microsoft is bid up because it sets standards for personal-computing software, exploits the value of its name, and forges alliances with other companies.

• Similarly, Merck didn’t become the “Most Admired” company, for seven consecutive years in Fortune ’s annual survey, because it can manufacture pills, but because its scientists can discover medicines. P. Roy Vagelos, former CEO of Merck, the $47 billion pharmaceutical giant, during its long run atop the “Most Admired” survey, said, “A low-value product can be made by anyone anywhere. When you have knowledge no one else has access to—that’s dynamite.

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COMPANY” WORTH • Start with the “big three”

– financial statements: income statement, balance sheet, and statement of cash flow. If these statements tell a story that investors find useful, then a company’s market value * should roughly (but not precisely, because the market looks forward and the books look backward) be the same as the value that accountants ascribe to it—the book value of the firm. However, this is not the case.

• A study compared the market value with the book value of 3,500 U.S. companies over a period of two decades. – In 1978 the two were similar: Book value was 95 percent of market value.

However, market values and book values have diverged significantly. Within 20 years, the S&P industrials were—on average—trading at 2.2 times book value. Robert A. Howell, an expert on the changing role of finance and accounting, muses, “The big three financial statements . . . are about as useful as an 80-year-old Los Angeles road map.”

• The gap between a firm’s market value and book value is far greater for knowledge intensive corporations than for firms with strategies based primarily on tangible assets.

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Ratio of Market Value to Book Value for Selected Companies

Company Ratio of

Annual Sales ($ billions)

Market Value($ billions)

Book Value($ billions)

Market toBook Value

Apple 157 510 17 4.4

Google 47.3 237 58 4

Oracle 37 162 44 3.7

Microsoft 73 229 66 3.5

Intel 54 106 46 2.3

Nucor 20 14 7.5 1.9

Southwest Airlines

17 7.9 6.9 1.1

04/22/2023 As of January 2013--- Source: finance.yahoo.com . 83

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COMPARISON OF MACHINE V/S KNOWLEDGE BASED ECONOMIES

Machine age • Physical world • It consisted of things• Companies made and

distributed things (Products)• Management allocated

things (capital budgets) • Management invested in

things (Plant and equipment)

• Peoples ancillary and things central.

Knowledge / Information age • Things are ancillary • Knowledge is central• Company’s values derive

from knowledge, know-how, intellectual assets, and competencies ---- all imbedded in people.

• Wealth is created through the management of knowledge workers

04/22/2023 84

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INTELLECTUAL CAPITAL

• The difference between the market value of the firm and the book value of the firm, including assets such as:– reputation, – employee loyalty and commitment,– customer relationships, – company values, – brand names, and – the experience and skills of employees

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• Times have changed and with that the emphasis:– 50% of GDP in developed economies is due to

Knowledge based economy --- Intellectual assets as well as intangible peoples’ skills.

– In USA, 76% of GDP is from the services. R & D plays a pivotal role in Manufacturing sector

– A comparison of machine v/s knowledge based economies is on the next slide:

04/22/2023 86

THE ROLE OF KNOWLEDGE IN TODAY’S ECONOMY -

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HOW TO CREATE VALUE IN KNOWLEDGE – INTENSIVE ECONOMIES

1. Consider Human Capital --- individual capabilities, knowledge, skills, and experiences of employees and managers

2. Social capital is critical in sharing and leveraging knowledge and in acquiring resources

3. The Concept of knowledge --- 1. Explicit --- codified, documented, easily reproduced and widely

distributed (Drawings, software etc)2. Tacit --- That rests in the minds of employees and is based on

experience and backgrounds shared only through consent

4. The new knowledge is constantly being created through a mix of Explicit and Tacit knowledge .

5. Knowledge management is being stressed upon by Org

04/22/2023 87

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INTELLECTUAL CAPITAL --- MARKET VALUE OF FIRM---- BOOK VALUE OF THE FIRM

• Human capital is the “ individual capabilities, knowledge, skills, and experience of the company’s employees and managers.”

• Social capital is “the network of relationships that individuals have throughout the organization.” Third is the concept of “knowledge,” which comes in two different forms. First, there is

• Explicit knowledge that is codified, documented, easily reproduced, and widely distributed,

• such as engineering drawings, software code, and patents. 18 The other type of knowledge is

• Tacit knowledge . It’s the knowledge acquired and held by the employees.

04/22/2023 88

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• In today’s world, talent is so critical to the success of what you’re doing—their

• core competencies and how well they fit into your office culture. The combination

• can be, well, extraordinary. But only if you bring in the right people. 35

• Mindy Grossman, CEO of HSN (Home Shopping Network)• The knowledge worker (KW) has risen to prominence in recent times. It is a source

of CA and is changing the balance of power in today’s org. • The KW places professional development and personal enrichment above

company loyalty.• Attracting, recruiting and hiring the “best and the brightest” is a critical first step in

the process of building intellectual capital. The other two equally critical steps are Developing and Retaining human capital.

04/22/2023 89

Human Capital – Foundation for Intellectual Capital

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ATTRACTING HUMAN CAPITAL

• Hiring for Attitude, Training for Skills ---- Due emphasis on general knowledge, experience, social skills, values, beliefs and attitude of employees

• Sound recruiting approaches and Networking ---- – Best and the brightest out of thousands of

applications. – The other best practice could be recruiting the

one proposed by a current employee

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DEVELOPING HUMAN CAPITAL

• A $ spent on training is worth $30 in terms of productivity gains.

• The Org must not lose in terms of morale, values turnover and productivity.

• Therefore: – Ensure adequate Training to maintain High growth and

high quality of product– Encourage widespread involvement of leaders at all levels

of the Org– Mentoring and Sponsoring --- Monitor progress and track

development – Evaluate Human Capital

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• Employees must identify with the Org Mission and Values ----

Your Satisfaction is our pride or duty before self

• Provide challenging work and Stimulating Environment ---

Create internal market for employees by lowering barriers to

mobility

• Ensure timely availability of due financial and nonfinancial

rewards --- criterion must be known and well publicized

• Sound Recruiting Approaches and Networking

04/22/2023 92

RETAINING HUMAN CAPITAL

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What are some of the “best practices” to attract Millennia's and keep them engaged?

• Don’t fudge the sales pitch. High-tech sales presentations and one-on-one attention may be attractive to undergrads.

• Let them have a life. Typically, they are unenthusiastic about their parents’ 70-• or 80-hour workweeks. Millennia's strive for more work-life balance, so liberal• vacations become very important. At KPMG, 80 percent of employees used 40

hours of paid time off in the first six months of a recent year.• No time clocks, please. Recent graduates don’t mind long hours—if they can work

them on their own schedule. As noted by its CEO, Dan Rosensweig, “If you provide them with the right environment, they’ll work forever.”

• Give them responsibility. A chance to work on fulfilling projects and develop new ones on their own is important. Google urges entry-level employees to spend 20 percent of their time developing new ideas.

• Feedback and more feedback. Career planning advice and frequent performance appraisals are keys to holding on to young hires.

• Giving back matters. Today’s altruistic young graduates expect to have opportunities for community service. Wells Fargo encourages its employees to teach financial literacy classes in the community.

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THE SOCIAL CAPITAL – VITAL ROLE

• Social capital is defined as friendships, and working relationships among talented individuals

• Notwithstanding the critical roles of recruiting, developing and retaining Human Capital, the development of social capital has gained importance, because it ties KW to a given firm.

• An indulgent, mutually acceptable, and tolerant attitude helps in retainer ship of employees

• The downside of Social capital is Group Think and is equally dangerous and needs to be curtailed

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Enhancing Human Capital: The Role of Diversity in the Workforce

• The effective management of diversity can enhance the social responsibility goals of an organization.

• However, there are many other benefits as well. Six other areas where sound management of diverse workforces can improve an organization’s effectiveness and competitive advantages are:

• Cost • Resource acquisition• Marketing• Creativity,• Problem-solving, and • Organizational flexibility.04/22/2023 95

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TECHNOLOGY AND LEVERAGING HUMAN CAPITAL AND KNOWLEDGE

• Modern Tech is helping dissemination of information within and outside the Org in the most speedier and effective way

• The Tech has given rise to Virtual World and Virtual Teams• In order to make gains and ensure CA, the knowledge has

been codified – an expensive preposition • It is becoming exceedingly difficult to retain knowledge once

the employee leaves the org. The reverse is also true in cases where the information is available on net.

• Wikileaks -------- ?

04/22/2023 96

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Protecting the Intellectual Assets of the Organization: Intellectual Property and Dynamic Capabilities

• Protecting a firm’s intellectual property requires a concerted effort on the part of the company. After all, employees become disgruntled and patents expire.

• The management of intellectual property (IP) involves, besides patents, contracts with confidentiality and non competing clauses, copyrights, and the development of trademarks.

• Dynamic capabilities entail the capacity to build and protect a competitive advantage. This rests on knowledge, assets, competencies, and complementary assets and technologies as well as the ability to sense and seize new opportunities, generate new knowledge, and reconfigure existing assets and capabilities.

04/22/2023 97

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LEVERAGING HUMAN CAPITAL AND STRATEGY FORMULATION

• Business-Level Strategy --- Managers must integrate the primary and support activities in their firms’ value chain. (External Analysis)

• Corporate Level Strategy --- Managers must determine what important relationships (products, markets, technologies) exist across businesses and how they can be leveraged. (Internal Analysis)

• International - Level Strategy --- How to achieve economies of scale and how to adopt to local market demands

• Internet Strategies --- Internet based technologies create CA by relaying information, enhancing speed of decision making and resolution of ideas.

04/22/2023 98

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04/22/2023 99

• Ch – 5• Creating and Sustaining CA through Business-

Level Strategies

• The three generic strategies are:• Overall cost leadership• Differentiation• Focus

• Industry Life Cycle– Understanding and developing strategies

• Turn around Strategies ----- Why and How?

LP- 5 12-13 Oct 15

04/22/2023 99

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04/22/2023 100

Case Study ---- Food Lion

• Few Corporations have rewarded their (100) original backers as much as Food Lion has done.

• A share bought for $10 in 1957 was split into more than 12,000 shares by 1991 with a value of over $200,000. But,

• In 1967, The CEO lowered the prices of all its products 3,000 in number and had its sales increased by 50%.

• In 1990, Food Lion opened 100 stores. • The first blow came in 1992.

04/22/2023 100

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04/22/2023 101

• Bad publicity – a real one --- a compromise on quality --- a misadventure based on lack of control

• By 1993, over 1,000 violations registered and being countered

• Problem– Management team out of touch with operations– Continued traditional methods and missed the message ---

for CA one should have greater product variety and a high level of customer services (Outbound Logistics)

• Net Results– In 1994, forced to retreat and closed down more than half

the stores it had opened in 1991. • Solution

– Generate business strategies in line with the market forces

04/22/2023 101

Case Study ---- Food Lion

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THE THREE GENERIC BUSINESS STRATEGIES

04/22/2023 102

Differentiation Overall cost Leadership

Focus

Competitive Advantage

Uniqueness perceived By the customer Low cost position

Str

ateg

ic T

arg

et

ParticularSegment only

Industry wide

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04/22/2023 103

THE THREE GENERIC BUSINESS STRATEGIES

1. Overall Cost Leadership --- is based on creating a low-cost position relative to a firm’s peers.

2. The firm must maintain the relationship throughout its value chain and be devoted to lowering costs throughout the entire chain.

3. Differentiation --- requires a firm to create products /services that are valued and unique

4. Focus --- a firm must direct its attention toward:1. Narrow product lines, 2. Buyer segments, and / or 3. Targeted geographic markets. 4. And simultaneously, it must take advantage of Overall

cost leadership and Differentiation strategies. 5. Refer Ex 5.1 Pg 150.

04/22/2023 103

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THE VALUE CHAIN

04/22/2023 104

General Admin

HRM

Technological Development

Procurement

Support Activities

Inbound Logistics

OperationsOutbound Logistics

Marketing and sales

Service

Primary Activities

Margins

Mar

gins

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04/22/2023 105

1. OVERALL COST LEADERSHIP (OCL)• Definition --- is based on creating a low-cost position relative to a

firm’s peers. The firm must maintain the relationship throughout its value chain and be devoted to lowering costs throughout the entire chain.

Interrelated Tactics to achieve OCL1. Highly efficient economy of scale facilities2. Vigorous pursuit of cost reductions from experience3. Tight cost and O/H controls4. Avoidance of marginal customer accounts5. Cost minimization in all the activities in the value-chain of

the firm --- 6. Consult Exhibit 5.3, which provides sufficient details in each segment of

value chain

04/22/2023 105

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04/22/2023 106

POTENTIAL PITFALLS IN OVERALL COST LEADERSHIP STRATEGIES

• Too much focus on one or few aspects of value-chain activities ---- Exhibit 5.3 Pg 152

• All rivals share a common input or raw material --- vulnerable to price fluctuations and quantities vis-à-vis availability (Example--?)

• The strategy is imitated too easily by competitors (Example ---?)

• A lack of parity on differentiation (Example --?)• Erosion of cost advantage v/s informed customer

(Example --?)

04/22/2023 106

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04/22/2023 107

2. DIFFERENTIATION

• Definition --- Creating differences in the firm’s product or services by creating something that is perceived industry-wide as unique and valued by customers. (Example) The --- (Ex 5.5 Pg157)

• Creativity may include:• Prestige or brand image • Use of innovative Technology• Innovation coupled with Technology• Features ---- • Customer Services• Dealer Network • Handling of Mistakes / Technical anomalies (Toyota in Jun

15 and VW in Sep 15) 04/22/2023 107

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TOYOTA AND VW ----- Creating Value?

04/22/2023 108

Toyota: • As of January 28, 2010, Toyota had announced recalls of

approximately 5.2 million vehicles for the pedal entrapment/floor mat problem, and an additional 2.3 million vehicles for the accelerator pedal problem.

• Sales of multiple recalled models were suspended for several weeks as a result of the accelerator pedal recall with the vehicles awaiting replacement parts.

VW• Volkswagen is poised to recall up to 11m vehicles as the

carmaker prepares its response to the emissions scandal that has rocked the automotive industry.

• Out of these affected, 5m are Volkswagen-branded cars, including the sixth-generation Golf, the seventh-generation Passat and the first-generation Tiguan. The other vehicles include 2.1m Audis, 1.2m Skodas, 700,000 Seats, and 1.8m light commercial vehicles.

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04/22/2023 109

• Uniqueness that is not valuable to customers

• Too much differentiation ---- Software Languages

• Too high a price premium for a comparable worth

• Easily imitable differentiation techniques / features

• Losing CA (Brand Name) by adding new low cost

products

• Varying of perceptions between buyers and sellers

04/22/2023 109

POTENTIAL PITFALLS IN DIFFERENTIATION STRATEGIES

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THE use of VALUE CHAIN – Low cost & Differentiation strategies

04/22/2023 110

Reduce Mgmt levels ---- General Admin ---- Knowledge based activities

Low turnover --- HRM ---- enhance tech competence

Pursue process innovation ----Technological Development ---Use Cutting Edge Tech

Long term contracts ----Procurement----- TQM

Support Activities

Inbound Logistics

Operations Outbound Logistics

Marketing and sales

Service

Margins

Mar

gins

Online suppliers

Economy Of scale

Computerizedrouting

CooperativeActivities

Subcontracting

Cost Leadership

Purchase superior quality

Material

High level of TQM

Coord JIT

BuildBrand Image

Allow discretion to service people

Differentiation strategy

Cost Ldrship

Diffstrat

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3. FOCUS STRATEGIES

• Definition: A firm must direct its attention toward narrow product lines, buyer segments, or targeted geographic markets.

• Strategies• It could be done by improving CA and CP by applying Porters’

Five Forces. It requires:– Low cost position with a strategic target or the exploitation

of a particular market niche that is different from the rest of the industry

– High differentiation, i.e., Achieve CA by dedicating itself exclusively to the segmented market

04/22/2023 111

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04/22/2023 112

• Erosion of cost advantage within the narrow segment

• Competition / Threat to Strategies• Focusers can become too focused to satisfy

buyer needs

04/22/2023 112

POTENTIAL PITFALLS IN FOCUS STRATEGIES

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04/22/2023 113

COMBINATION STRATEGIES*

• Integrated strategy is the best strategy • Remain Innovative• Adopt modern day automated and

manufacturing systems• Continue to REVISE Processes and Procedures • Exploit the profit pool concept across the

industry

04/22/2023 113

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04/22/2023 114

COMBINATION STRATEGIES

• Ideal Solution: Integrating Overall Low Cost and Differentiation Strategies

• The successful combination is harder for the competitors to imitate.

• An integrated strategy enables a firm to provide two types of value to customers:– Differentiated attributes like quality, features etc– Lower Prices due firms’ Overall Low Cost strategy

• How can we achieve the above ---- next slide

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04/22/2023 115

OPTIONS TO ACHIEVE CA THROUGH INTEGRATED BUSINESS STRATEGIES

• Adopt Automatic and Flexible Manufacturing Systems

• Exploit the Profit Pool concept • Exploit full benefits of Information Technology • Make use of Porters’ Five Forces

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04/22/2023 116

• Get stuck in the middle. • Understand challenges and expenses associated with

coordinating activities in the extended value chain • Miscalculating sources of revenue and profit pools in

the firm’s industry • What did J C Penny did between 1998 - 2000?

– Improved Store presentations– Radically re-thought of merchandise – Marketed the company brand items more effectively– Slashed costs, closed down 44 stores, and cut 5,000 jobs

POTENTIAL PITFALLS IN ADOPTING INTEGRATED STRATEGIES

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04/22/2023 117

INDUSTRY LIFE CYCLE STAGES --- STRATEGIC IMPLICATIONS

• Introduction Stage – Developing the product and finding a way to get the

customers to try it– Generating enough exposure so the product emerges as

the standard by which all other competitors’ products are evaluated

• Growth Stage – Strong increase in sales – Primary concern is to build consumer preferences fro

specific brands – Revenues increase at an accelerated rate – Competitors attempt to manipulate the business situation

by brining in substitute and alternative products » Contd

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04/22/2023 118

• Maturity Stage – Demands begin to slow down– Innovative measures are required to re-coup the

sales • Decline Stage

– Maintain the product – Harvest the profits from the firm’s portfolios– Consider Exiting from the market – Consolidate with other firms

INDUSTRY LIFE CYCLE STAGES --- STRATEGIC IMPLICATIONS --- Contd

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INDUSTRY LIFE CYCLE STAGES & STRATEGIES

04/22/2023 119

Stage / Factor Introduction Growth Maturity Decline

Generic Strategies

Differentiation Differentiation DifferentiationOverall cost leadership

Overall cost leadershipFocus

Mkt Growth rate Low Very large Low to moderate Negative

Number of segments

Very few Some Many Few

Intensity of competition

Low Increasing Very intense Changing

Emphasis on product design

Very high High Low to moderate Low

Emphasis on process design

Low Low to moderate High Low

Major areas of concern

R&D Sales & Marketing

Production General management & finance

Overall objective Increase market awareness

Create consumer demand

Demand Mkt share & extend product Life cycle

Consolidate, maintain, harvest or exit

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04/22/2023 120

TURNAROUND STRATEGIES

• Carefully analyze internal and external environment

• Generalized Strategies – Asset and Cost surgery to raise cash – Undertake selective product and market pruning – Consider Piecemeal productivity improvements – Business strategies

• Re-engineering• Divestment • Outsourcing • Privatization etc etc