Strategic Management- The Competitive Edge Prof. R.SrinivasanDept of Management StudiesIndian Institute of ScienceBangaloreTopicsSessions* 1.Introduction to Strategic Management Concept of Corporate Strategy Strategic Management Process The 7-S Framework Corporate Policy and Planning in India 1-5 2.Board of Directors-Role and Functions Top Management-Role and skills Board Functioning-Indian Context 6-8 3.Environment Scanning Industry Analysis Synthesis of External Factors External factors Analysis Summary (EFAS) Internal Scanning Value Chain Analysis Synthesis of Internal Factors External factors Analysis Summary (IFAS) Case Study 1 9-14 15 CONTINUED 4.Strategy Formulation Strategic factors Analysis Summary (SFAS) Business Strategy Corporate Strategy Functional Strategy Strategic Choice Case Study 2 16-19 20 5.Strategy Implementation Organization Structure Corporate Culture Diversification Mergers and Acquisition Case Study 3 16-19 24 6.Evaluation and Control Strategic Information Systems 25-26 CONTINUED 7.Other Strategic Issues Small and Medium Enterprises Non-Profit Organizations 27-28 * Each session is approximately for 1.5 hoursBooks and References R.Srinivasan, Strategic Management -The Indian Context, 4th Edition, Prentice Hall of India, 2012 R.Srinivasan, Case Studies in Marketing The Indian Context,5th Edition, Prentice Hall of India, 2012 STRATEGIC MANAGEMENT LONG RANGE PLG / STRATEGIC PLANNING:MGT PROCESSES IN ORGNS THRO WHICH THE FUTURE IMPACT OF CHANGE IS DETD AND CURRENT DECISIONS TO REACH A DESIGNED FUTURE ARE MADE :INCLUDE ENTIRE PROCESS OF MAJ OUTSIDE INTEREST GRPS AND THEIR STAKES; EXPECTATIONS OF DOMINANT INSIDE STOCK HOLDERS INFN - PAST, PRESENT & PROJD PERF; EVALN OF CO. STRENGTHS & WEAKNESSES; FORMLN OF ORGNL PURPOSE, MISSION, OBJS, POLICIES AND STRATEGIES STRATEGY:LONG - TERM DECISIONS - INCLUDES OBJS, GOALS & COURSES OF ACTION Ex: (ANSOFF: CORP. STRATEGY., 65) OBJS: ROI: THRESHOLD 10%, GOALS 15% SALES GROWTH: THRESHOLD 5%, GOALS 10% RATE STRATEGY:PROD-MKT: BASIC CHEMICALS & SCOPEPHARMACEUTICALS COURSES OF GROWTH: PROD DEVPT & CONCENTRIC DIVSFN ACTION VECTOR COMPETITIVE: PATENT PROTECTN, SUPERIORADVANTAGERES COMPETENCE SYNERGY: USE OF FIRMS RES CAPABILITIES & PRODN TECHNOLOGY PURPOSE & MISSION:USED INTERCHANGEABLY Mission statement! A strategically revealing missionstatement incorporates three elements! What customer need is being satisfied! Who is being satisfied! How value is created and delivered tocustomers satisfying their needsMission statement to strategicvision! Questions that must be answered! What changes are occurring in markets and what are theimplicati ons for the direction we need to move! What new or different customer needs should we movesati sfy! What new or different buyer segments should weconcentrate on! What new geographic or product markets should we bepursuing! What should the companys business makeup look like infive years! What kind of company should we be trying to become GOALS: LEGITIMISE ORGN; IDENTIFY INTER ORGNL RELNSHIPS; HAVE PR VALUE;IMAGE BLDG WITH SUPPLIERS, CUST, PUBLIC POLICY MAKERS AND THE GOVT; COORDN OF MULTIPLICITY OF TASKS, MANAGING OF CONFLICTS; STDS OF PERF; MOTIVATORS GOALS:OFFICIAL (DESCRIBED IN MOA, CHARTER, ANN. REPORT) OPERATIVE - WHAT ORGN IS REALLY ATTEMPTING TO DO CAN BEINFERRED FROM ORGNL POLICIES; HELP FOCUS ATTN, REDUCE UNCERTAINTY, CHOOSE ORGNL DESIGN ALTVES OPERATIONAL - USED BY SUP. PERSONNEL OR MGRS TO INFLUENCE THE BEHVR OF SUBORDINATES AND MEASURE THEIR PERFORMANCE OFFICIAL - ABSTRACT, IDEALISTIC; OPERATIVE - ACTUAL GOALS BUT NOT ARTICULATED; OPERATIONAL - DETAILED, MEASURABLE POLICIES: GUIDE TO ACTION MAJ POLICY (LINE OF BUS) (CODE OF ETHICS) SECY POLICIES (GEOGR. AREA, MAJ COST, PROD)FNL POLICIES (MKTG,PRODN,RES,FIN,..) PROCEDURES & STD OPTG PLANS (CUST ORDERS, SERVICING,.)RULES (DELAY OF PAYMENTOF CHEQUES, SECURITY,.) PYRAMID OF BUSINESS POLICIES (FROM STEINER, TOP MGT PLG, P.268) STRATEGIES:GROWTH STRATEGIES

I.HOLD RELATIVE POSN IN HIGH GROWTH PROD/MKT AREA II.MKT SHARE IN HIGH GROWTH MKT III. MKT SHARE IN MATURE MKTS IV. HOLD STRONG RELATIVE POSITION IN MATURE MKT, USE EXCESS CASH FLOW, FUNDS, TO EFFECT PENTN WITH EXISTING PRODUCT LINE - MULTI NATL MKT V.AS IN (IV) -WRT NEW PROD/MKTS DOMESTICALLY VI. HOLD STRONG RELATIVE POSN IN DIVERSIFIED PROD. LINEDOMESTICALLY, AND USE EXCESS CASH FLOW, FUNDS CAPABILITY AND OTHER RESOURCES TO DIVERSIFY MKTS DEPENDANCY REDN STRATEGIES I. MAINTAINING ALTERNATIVES II.BLDG POSITIVE IMAGE III. DIRECT CONFRONTATION IV. CONTRACTING - TO REDUCE UNCERTAINTIES V.CO-OPTATION - TO INVOLVE REPS OF OTHER ORGNS INTO POLICY- MAKING POSITIONS TO ACHIEVE CERTAINTY OF FUTURE VI. COALITIONS - TO ACHIEVE COMMON GOALS LIKE OPPOSINGA COMMON ENEMY VERTL. INTEGN. STRATEGIES - BACKWARD; FORWARD RISK: LOSS OF FLEXIBILITY GENERIC:I. OVERALL COST LEADERSHIP II.DIFFERENTIATION III. FOCUS MERGERS AND JOINT VENTURES

TURNAROUND STRATEGIES - ENTREPRENEURIAL AND EFFICIENCY

BUS. UNIT STRATEGY AND CORP. STRATEGY Tests of a winning strategy!Goodness of fit test!Match to industry andcompetitive condition,opportunities and threat!Tailored to companysstrengths and weakness,competencies, andcapabilities!Competitive advantage test!Leads to sustainablecompetitive advantage!Performance test!Boosts profitability andcompetitive strength andlong term position STRATEGIC - INTERFACE BETWEEN OPEN & EXTL. ENVNT -MGT. DECISIONS OPERATING ALLOCATION OF TOT. RES- INFREQUENT. - RES. CONVN ADMNVE - FACILITATIVE ORGNS SUCCESS OR FAILURE IN THE LONG-RUN DEPENDS UPON STRATEGIC DECISION MAKING i.e. UPON DOING THE RIGHT THINGS THAN UPON DOING THINGS RIGHT Table 1.1: Comparison Of Operating and Strategic Decisions How What STRATEGIC DECISIONS ClearUnclear OPERATINGDECI S IONS Ef f ec ti ve In effe ct iv e IClear strategy and effective operations have contributed to success in the past and will contribute to success in the future. IIUnclear strategy but effective operations have contributed to success in the past but success in the future is doubtful. IIIClear strategy but ineffective operations have sometimes worked in the past in the short-run, but increasing competition makes success doubtful in the future. IVUnclear strategy and ineffective operations have meant failure in the past and will be so in the future. Source: Tragoe B. and J Zimmerman ,1980, Top Management Strategy, John Martin: London, pp.20 Important Definitions Strategic Management Process The full set of commitments, decisions, and actions required for a firm to achieve strategic competitiveness and earn above-average returns Strategic Competitiveness Achieved when a firm successfully formulates and implements a value-creating strategy Occurs when a firm develops a strategy that competitors are not simultaneously implementing Provides benefits which current and potential competitors are unable to duplicate Above-Average Returns Important Definitions Risk An investors uncertainty about the economic gains or losses that will result from a particular investment Returns that are equal to those an investor expects to earn from other investments with a similar amount of risk Average Returns Strategic Flexibility A set of capabilities used to respond to various demands and opportunities existing in a dynamic and uncertain competitive environment It involves coping with uncertainty and the accompanying risks 1 DETERMINATION OFMISSION ORPURPOSE 3 ORGANISATIONAL ANALYSIS(STRENGTHS &WEAKNESSES) 2 ENVIRONMENTAL ASSESSMENT (THREATS & OPPORTUNITIES) REDETERMINE AS NEEDED REDEFINE & REVISE AS NEEDED 4 SPECIFICATION OF OBJECTIVES REFORMULATE AS NEEDED 5 FORMULATION OF STRATEGY ORSTRATEGIC PLAN (TO ACHIEVE OBJECTIVES AND GOALS) REWORK ASNEEDED 6 IMPLEMENTATION OR EXECUTION OF STRATEGIC PLAN RECYCLE TO PHASES 1,4,5 & 6 AS NEEDED 7 MONITORING, REVIEWING & EVALUATION FIG.2 Strategic Management Decision Making Process INTERNAL Structure Culture Resources (Strengths & Weaknesses) Environmental Analysis EXTERNAL Social Environment Task Environment (Opportunities &Threats) Strategy Formulation Implementation of Strategy Evaluation& ControlMission Objectives Strategies Policies Programs Budgets Procedures Performance Feedback & Control Strategic Management Process LEARNING ORGANISATION FOUR MAIN ACTIVITIES Solving Problems Systematically Experimenting with New Approaches Learning from their own past experiences and past history as well as from the experiences of others Transferring knowledge quickly and efficientlythroughout the Organisation Mintzbergs Modes of Strategic Decision Making *Entrepreneurial Mode: by one powerful individual. Focus is on Opportunities ; problems are secondary; guided by founders own vision of direction; exemplified by large, bold decisions. Ex. AOL (founder STEVE CASE) (though clear growth strategy is an advantage of the entrepreneurial mode, tendency to mkt products before being able to support them is certainly a disadvantage) *Adaptive Mode: Muddling through; characterised by reactive solutions to existing problems - Much bargaining goes on concerning priorities of objectives - Strategy is fragmented and is developed to move the company forward incrementally. Ex. Typical of our Universities, Edn System, Govt agencies (Encyclopedia Britannica Inc. has moved away from this approach to Telvn Advtg & Internet mktg from 1996 after acquisition by the dual career couples) *Planning Mode: Systematic gathering of appropriate information for situation analysis, generation of feasible alternative strategiesandrationalselectionofthemostappropriatestrategy-includesproactivesearchfornewopportunitiesandrelativesolutionsof existing problems. Ex.J.C.PennyCo.-aftercarefulstudyofshoppingtrendsin 1980smovedoutofhardware,appliances,automotiveitems&electronicstoapparelandhomefurnishings.Lowerpersonal incomes in 1990s led J.C. Penny to emphasise private brands; could offer high quality of goods at lower prices in dept stores. *LogicalIncrementalization-synthesesofplanning,adaptiveandtoa lesser extent entrepreneurial mode of decision making. Organisationlearnsthroughaninteractiveprocessofprobingintothefuture, experimenting and learning from a series of incremental commitmentsratherthanthroughglobalformulationsoftotalstrategies.Useful when the environment is changing rapidly and it is important to buildconsensusanddevelopneededresourcesbeforecommittingthe organisation to a specific strategy.CORP. PLAN-CHANGES IN THE OVERALL SHAPE OF AN ORGN - TAKES YRS TO FRUCTIFY i.e. LONG-RANGE HOWEVER CORP. PLAN & LRP DO NOT MEAN THE SAME. LRP ASSUMES CURRENT ENVNT TO REMAIN INFUTURE AS WELL - BUILT FROM LOWER LEVELS IN ORGN. STRATEGY MAKING STARTS AT THE TOP MGT - DENOTES PLG. FOR FUTURE OF THE ORGN AS A WHOLE; CONSIDERS ALL ASPECTS OF ORGN ACTIVITIES - INTEGRATES STRATEGIC PLG WITH SHORT RANGE OPNL PLANS CORP PLG & SYSTEMS APPROACH - COMPUTER MODELS CAN BE USED AS AN ADJUNCT OF SYSTEMS APPROACH; USEFUL FOR LARGE ENTERPRISES FOR FINL EVALN - HOWEVER, SH. NOT CREATE MGRL PBLMS; DATA HAS TO BE REGULARLY UPDATED BENEFITS OF C.P. - ANTICIPATE TECHGL. CHANGES & ACHIEVE STRATEGIC OBJS & GOALS RATIONAL RES. ALLOCATION IMPROVED COORDINATION EMPHASIS ON MANPOWER DEVPT NEW PROD. DEVPT & LONG TERM NVESTMENTS NEW SENSE OF DIRECTION STUDIES IN US - 38 TO 40% IN SALES 64% IN EPS 56% IN SHARE PRICES WITH C.P. Figure 3.1A Conceptual Model of Corporate Planning INFORMATION FLOWSDECISION & EVALUATION RULESTHE PLAN TO PLANEVALUATIONS OF Environment: Opportunities Threats Company: Strengths Weakness THE DATA BASE Past Performance Current situation Forecasts EXPECTATIONS OF MAJOR INSIDE INTERESTS Top Managers Other Managers Workers/Staff EXPECTATIONS OF MAJOR OUTSIDE INTERESTS Society Community (local) Stockholders Customers Suppliers Creditors MASTER STRATEGIES Mission Purposes Objectives Policies PROGRAM STRATEGIES MEDIUM-RANGEPROGRAMMING & PROGRAMSSHORT-RANGE PLANNING & PLANSIMPLEMEN-TATION OF PLANSREVIEW & EVALUA-TION OF PLANSTECHNICAL PLANNINGSTRATEGIC PLANNINGSource: 1. George A. Steiner, et. Al:, Management Policy and Strategy: Text, Readings and Cases, p.18 2. John D.C. Roach and Michael G. Allen, Strengthening the Strategic Planning Process in The Strategic Management Handbook, Kenneth J. Albert (ed.), pp.7-10 ORGNL CHANGE - COMPLEX RELATIONSHIP BETWEEN STRATEGY, STRUCTURE, SYSTEMS, STYLE, SKILL, STAFF AND SUPER ORDINATE GOALS - SHOWN BY McKINSEY 7S FRAMEWORK IN FIG. 3 STRUCTURE SYSTEMS STYLE STAFF SKILLS STRATEGY SUPER ORDINATE GOALS FIG. 3 SUPER ORDINATE GOALS: SET OF VALUES AND ASPIRATIONS THAT GOES BEYOND THE THE CONVENTIONAL FORMAL STATEMENT OF CORP. OBJECTIVES; ARE FUNDAMENTAL IDEAS AROUND WHICH A BUSINESS ISBUILT - ITS MAIN VALUES E.g.: IBM's MKTG: CUSTOMER SERVICE GE's: PROGRESS IS OUR MOST IMPORTANT MOTTO HEWLETT - PACKARD: INNOVATIVE PEOPLE AT ALL LEVELS IN ORGN ASCI: WE TRAIN OUR MANAGERS MAY NOT MEAN MUCH TO OUTSIDERS BUT HAVE TREMENDOUS SIGNIFICANCE FOR THOSE INSIDE STRUCTURE: PRESCRIBES FORMAL RELNSHIPS AMONG VARIOUS POSITIONS AND ACTIVITIES

- REDUCES EXTERNAL UNCERTAINTY THRO FORECASTING, RES & PLG IN THE ORGN - REDUCES INTL UNCERTAINTY ARISING OUT OF VARIABLE, UNPREDICTABLE, RANDOM HUM. BEHAVR WITHIN THE ORGN. THRO CONTROL MECHANISM - UNDERTAKES WIDE VARIETY OF ACTIVITIES THRO DEVICES SUCH AS DEPARTMENTALISATION, SPECLN, DIVN. OF LABR, AND DELEGATION OF AUTHORITY - ENABLES COORDN OF ORGNS ACTIVITIES & TO HAVE FOCUS ACCING TO McKINSEY (7S FRAMEWORK) - RELNSHIP BETWEEN STRATEGY AND STRUCTURE RARELY PROVIDES UNIQUE STRUCTURAL SOLNS - EXECUTION PROBLEMSSYSTEMS-RULES, REGLNS AND PROCEDURES - FORMAL & INFORMAL THAT COMPLEMENT THE ORGN STRUCTURE (INFRASTRUCTURE) STYLE-LEVER TO BRING ABOUT ORGNL CHANGE - PATTERN OF ACTION TAKEN BY TOP MGT TEAM OVER A PERIOD OF TIME STAFFING-SELECTION, PLACEMENT, TRG & DEVPT OF APPROPRIATELY QUALIFIED EMPLOYEES EG: HIND. LEVER SKILLS-ONE OF THE MOST CRUCIAL ATTRIBUTES OR CAPABILITIES OF AN ORGN - DISTINCTIVE COMPETENCE EG: HIND. LEVER - MKTG SKILLS TELCO - ENGG. SKILLS 7-S FRAMEWORK-THE REAL TASK OF IMPLEMENTING STRATEGY IS ONE OF BRINGING ALL 7-Ss INTO HARMONY - HELPS BY PROVIDING A CHECKLIST FOR JUDGING WHETHER ORGN IS RIPE FOR IMPLEMENTING STRATEGY - POWERFUL EXPOSITORY TOOL Global Issues for the 21st Century *Nations are forming Trading Associations- makes trading within regions easy but between regions difficult Ex. EU, NAFTA, Mercosur (Argentina, Brazil, Paraguay, Uruguay), ASEAN. Firms have to decide if they will do better as a regional or a global competitor. *World: 3 dominant trading blocks : Europe, Asia, Americas - firms will need to have meaningful manufacturing and trading activities in every trading block. *Globalisaton: Creates opportunities but also threats to Cos. not able to adapt quickly *More people at all levels in an organisation are involved in Strategic Decision making - greater need for more access to info, but greater difficulty in dealing with it*Increasing pressure on organisations for quick response to changing conditions may make it difficult to engage in planning mode; even with its faults, may have to go in for entrepreneurial mode. BOD- Oversees the running of the enterprise by C.E. DIRECTORS- Individually have no power; collective body of directors has superior total power over C.E. BODs- Make calls on shareholders in respect of money unpaid on their shares (powers-Sec.292)- Issue debentures - Borrow money otherwise than Thro debentures - Invest funds of the Co. - To make loans BODs- Expected to meet once in a quarter; (Quorum 1/3 of total strength or 2 directors whichever is higher) BODs- Marginally derived expectations - To remain effective on technology - Market growth - Divestment and diversification on sound lines - Long-term productivity & quality not sacrificed for short-term profitability - Judicious earnings retention policy - Sound human values and exalted corporate culture Strategic Management - Role of BODs - To initiate and determine - To evaluate and influence - To Monitor BODs- 2 or 3 in small private companies to 20 in large public companies - Structure: Ratio of WTDs to TDs is high in multinational companies like Hindusthan Lever, ITC, IEL : When PTDs Proportion of WTDs to TDs; in case of L&T & TISCO ratio is 1:1 : One MD, few WTDs, besides PTDs MD managed company : WTDs & PTDs have complementary roles to play - Two tier BDs (Policy BD and Executive BD) not favoured by Sachar Committee (1978) - Japanese Cos: Most directors are whole time employees - Part-time outside Chairman Plus WT MD; whole time-inside Chairman, plus whole time inside MD; WT inside C-cum-MD Remuneration:# S*0GA0*9%#5e#64#9/%#4A9A)%#%*)'-'C,#64#9/%#%QH06"%%,># .%%H,#9/%#%QH06"%%,#Q6F&*9%(>##!)*'(#e*0A*F6'# @%9/6(606C"#46)#&*0A-'C#9/%#3)*'(#-,#*,#46006E,># $%9%)Q-'%#9/%#3)*'(#H)679,#3"#%0-Q-'*F'C#9/%#'6'#3)*'(#H)679,># ?%,9*9%#/-,96)-G*0#H)679,#*9#H)%,%'9#(*"#&*0A%,># 5)6&-(%#46)#)%QA'%)*F6'#64#G*H-9*0#96#3%#A,%(#46)#HA)H6,%#69/%)#9/*'#H)6Q6F6'#64#3)*'(># +(cA,9#46)#9*B%,># $%9%)Q-'%#3)*'(#,9)%'C9/#6)#3)*'(#%*)'-'C,#QA0FH0%>##N/A),(*"#KK#@*)G/#KM:K# Kf#_e+# _e+#-,#9/%#,A)H0A,#C%'%)*9%(#*V%)#Q%%F'C#*'#%2A-9*30%#G/*)C%#96E*)(,#H)6&-(%),#64#G*H-9*0># X-&%,#*#(-)%G9#)%4%)%'G%#96#-'&%,96),#46)#%BG%,,#)%9A)',#9/%"#G*'#%BH%G9># S*'#3%#A,%(#96#G*0GA0*9%#9/%#%'9%)H)-,%#&*0A%#966>#X063*0#$%0-&%)"#@6(%0#X063*0#$%0-&%)"#@6(%0###5)6c%G9,#*)%#(-&-(%(#-'96#############G6QH6'%'9,###_B%GA9%(#-'(%H%'(%'90"#######*'(#G6'GA))%'90"###5*)90"#*9#9/%#G0-%'9#,-9%#*'(#####9/%#)%,9#*9#9/%############################(%&%06HQ%'9#G%'9%),###S6QH6'%'9,#*)%#9/%'######-'9%C)*9%(#-'96#/-C/#2A*0-9"#######)63A,9#,60AF6'###!"#A,-'C#X$@D#1'46,",######(%0-&%)%(#9/%#/-C/%,9#######H)6G%,,#*'(#2A*0-9"#######,9*'(*)(,D#E/-0%#0%&%)*C-'C#######(-U%)%'G%,#-'#G6,9D#2A*0-9"######*'(#,\-00#,%9,#64#Q*'H6E%)######-'#(-U%)%'9#C063*0#06G*F6',>#lnfosys: Wln ln Lhe aL world 1he world ls gemng auened by forces of globallzauon, changlng demographlcs, ublqulLy of Lechnology and regulaLory compllance. lnfosys has Laken Clobal uellvery Model Lo Lhe nexL level wlLh Modular Clobal Sourclng. *0/58$#):80;$8)!05#('+&)2)lL ls a seL of declslon frameworks and plannlng acuvlues deslgned Lo help you make sound sLraLeglc sourclng declslons and achleve hlgh reLurns on your l1 and buslness process lnvesLmenLs. lnfosys have a worldwlde presence Lo ensure LhaL Lhe rlghL skllls are avallable ln Lhe rlghL locauons aL Lhe rlghL cosL. Source: lnfosys whlLe paper 1hlnk llaL *0/58$#):80;$8)!05#('+& 1radluonally companles focused on opumlzlng Lhelr sourclng beneLs around cosL savlng and emclencles MCS lnvolves deconsLrucung buslness processes, supporung appllcauons and lnfrasLrucLure, and Lhe execuuon llfe-cycle phases lnLo modules. l1 and buslness process poruollo of an enLerprlse can be sllced along a Lhree dlmenslonal grld 1'46,",#3%0-%&%,#9/*9#46A)#4A'(*Q%'9*0#,/-V#-'#6H%)*F6'*0#H)-6)-F%,#E-00#3%#)%2A-)%(#96#G6QH%9%#-'#g*9#E6)0(#86A)G%W#1'46,",#E/-9%#H*H%)#N/-'\#Z0*9#8%)&-G%,#6U%)%(#3"#1'46,",# S6',A0F'C# +HH0-G*F6'#(%&%06HQ%'9# _P3A,-'%,,#H)*GFG%,# bU,/6)%#Q*-'9%'*'G%# S6QQA'-G*F6'#,60AF6'# ?%P%'C-'%%)-'C# _'9%)H)-,%#,60AF6',# 8",9%Q#-'9%C)*F6'# 5)6(AG9#%'C-'%%)-'C# _'9%)H)-,%#3*'\-'C#,60AF6',# _'C-'%%)-'C#,%)&-G%,# S6)H6)*9%#H%)46)Q*'G%#Q*'*C%Q%'9# _'9%)H)-,%#2A*0-9"#,%)&-G%,# 1'4)*,9)AG9A)%#,%)&-G%,# 5*G\*C%(#*HH0-G*F6'#,%)&-G%,##1'(A,9)-%,#S*9%)%(#3"#1'46,",# +%)6,H*G%#`#$%4%'G%# +A96Q6F&%## !*'\-'C#*'(#S*H-9*0#@*)\%9,## S6QQA'-G*F6'#8%)&-G%,## S6',AQ%)#5*G\*C%(#X66(,## $-,G)%9%#@*'A4*G9A)-'C## _'%)C"## a%*09/G*)%## a-C/#N%G/'606C"######a6,H-9*0-9"#`#]%-,A)%######1',A)*'G%#####]-4%#8G-%'G%,#####@%(-*#`#_'9%)9*-'Q%'9#####?%,6A)G%,#####?%9*-0#####N)*',H6)9*F6'#8%)&-G%,#####IF0-9"###@*c6)#G0-%'9,# [*&%G6Q# =6)9/#89*)# =-,,*'#=6)9/#+Q%)-G*# kA)-G/#!*'\-'C# N)-AQH/#X)6AH# =6)(,9)6Q# ?%%36\# +6'# e-,*###!%00#S*'*(*###!)-F,/#N%0%G6Q###e%)-^6'##PredictabilitySustainability ProfitabilityDe-risking Maintenance Higher value services Increase revenue productivity Offshore model - Global Delivery Upsell to existing customers Iterative Model of Development Translating clients to partners Offshore Software Development Centers Quality People Transparency Exposure limits for client concentration Exposure limit for dotcom businesses Exposure limit for opportunity businesses (like Y2K) Geographical diversification Long-term relationship Growth 5(#585$#@6(%0#Su Model (ConL..) redlcLablllLy: Pas had long-Lerm relauonshlps wlLh lLs key cllenLs Pelped ln a beuer undersLandlng of Lhe fuLure Lrends ln Lhe global Lechnology markeLplace. lnfosys' repeaL buslness levels (aL 93+ levels) are among Lhe hlghesL ln Lhe lndusLry. SusLalnablllLy: Company over Lhe years Lransformed a large number of lLs cusLomers lnLo parLners, wlLh whom Lhe company has bulld on lnnovauve processes and Lechnologles. 1hls has provlded Lhe much-requlred susLalnablllLy Lo Lhe company's growLh.Su Model (ConL..) roLablllLy: lnfosys has been gradually movlng up Lhe value chaln. 8lslng conLrlbuuon of hlgh-value servlces. 8educe cycle ume ue-rlsklng: Cradually shllng lLs revenues from Lhe uS reglon Lo oLher large markeLs llke Lhe Lu and Asla aclc Also reduced lLs exposure from a few cllenLs and now has one of Lhe largesL cllenL bases ln Lhe lndusLry. lssue 1: CommenL on Lhe approprlaLeness of Lhe models used by lnfosys for markeL dellvery. Are Lhey llkely Lo be valld ln Lhe nexL ve years? Anu lssue 2: WhaL shl ln Lechnologlcal buslness should lnfosys be looklng aL? WhaL changes ln sLraLegy would you advocaLe? 0#10#$"%)8%?%8)-"#$"%&'%-2)>0#%)!"#$"%&'%-2)) :80;$8)@%8'?%#A)*0/%8)- roduclng where lL ls mosL cosL eecuve Lo produce & selllng where lL ls mosL proLable Lo sell. *0?'+&)51)"B%)C$85%)>B$'+)- Cemng lnvolved ln a soware developmenL pro[ecL aL Lhe earllesL sLage of lLs llfe cycle. D!D@)*0/%8)- redlcLablllLy of 8evenues, SusLalnablllLy of 8evenues, roLablllLy, ue-rlsklng" for rlsk managemenL.lssue 1 & 2 (ConL..) .(E0+-)F$G%+2))1. 1o malnLaln low-cosL advanLage Lhey have opened omces ln Czech 8epubllc, Maurluus, oland, hlllpplnes, 1halland and Mexlco.2. lnvesLed ln developlng Lralnlng cenLers 3. lmproved quallLy capablllues - CMM level 3l company.4. lnfosys ConsulLancy esLabllshed Lo provlde hlgh end servlces ln value chaln. 3. Pas hedged currency for more predlcLablllLy of revenues (rlsk managemenL). !"#$%&%'(%')*+',-.(-/-*'("'5'2%#'9"'$451%4/"3#B%''lssue 1 & 2 (ConL..) 2. :HIHJ9>)!FJ.FH:9H!2)) Low cosL Clobal dellvery 24/7 Model. Llule dlerenuauon ln low-end servlces of value chaln, hlgh dlerenuauon ln hlgh end servlces of value chaln llke soware producLs and package soluuons. locus on quallLy, cusLomer relauonshlp managemenL, umely-dellvery.1,,A%#:#`#K#lS6'9>>m#O>#:J.I@)!FJ.FH:9H!2)).+-0KL-)*$"#'M2)))#lssue 1 & 2 (ConL..) MA8kL1 LnL18A1lCn S18A1LC?: >5##%+")*$#G%"-2 uSA and Lurope >5##%+")D#0/5("-2 AuM, 8C, kC, consulLancy servlces (ln 8lSl, manufacLurlng and reLall) and soware producLs (nanclal producLs). J%(0,,%+/$E0+2)As mosL large cllenLs ln uS and Lurope are cumng cosLs, lnfosys needs Lo be more aggresslve on cosL and quallLy fronL. J%-58")04)-"#$"%&A2)unllkely Lo yleld good resulLslssue 1 & 2 (ConL..) MA8kL1 uLvLLCMLn1 S18A1LC?: I%7)*$#G%"2)lndla, Mlddle-easL and AusLralla >5##%+")D#0/5("2)AuM, 8C, kC, consulLancy servlces (ln 8lSl, manufacLurlng and reLall) and soware producLs (nanclal producLs). J%(0,,%+/$E0+2)Slnce Lhese are fasL developlng l1 markeL, lnfosys needs a paradlgm shl ln focus from uS and Lu markeLs Lo Lhese markeLs. J%-58")04)-"#$"%&A2)Llkely Lo yleld good resulL.lssue 1 & 2 (ConL..) 8CuuC1 uLvLLCMLn1 S18A1LC?: >5##%+")*$#G%"2)uSA and Lurope I%7)D#0/5("2)ConsulLancy and package lmplemenLauon servlces ln relauvely growlng secLors esp. healLhcare, llfe sclences and avlauon secLor, and kC servlces. J%(0,,%+/$E0+2 ConcenLraLe on bulldlng experuse ln Lhese domalns by sLraLeglc acqulsluons. J%-58")04)!"#$"%&A2)Llkely Lo have good resulL. (beuer Lhe company acqulred, Lhe beuer Lhe resulL).lssue 1 & 2 (ConL..) ulvL8SlllCA1lCn: I%7)*$#G%"2)lndla, Mlddle-easL and AusLralla I%7)1#0/5("2)ConsulLancy and package lmplemenLauon servlces ln relauvely growlng secLors esp. healLhcare, llfe sclences and avlauon secLor, and kC servlces. J%(0,,%+/$E0+2 Changlng 8rand lmage from low value servlce provlder Lo hlgh value servlce provlder. J%-58")04)!"#$"%&A2)ulmculL Lo achleve overnlghL (posslble ln long Lerm)lssue 1 & 2 (ConL..) 4.3FNHJ)!FJ.FH:9H!2))

>3I>HIFJ.F93I2 90 of lnfosys revenues from Amerlcan and Luropean nauons. CHJF9>.O)9IFH:J.F93I2)lnfosys made a bld Lo acqulre a Luropean ma[or - Axon consulLancy Lo lmprove lLs buslness ln Luropean markeLs, buL nally called o Lhe deal due Lo hlgh valuauon. CLherwlse, lnfosys has always belleved ln organlc growLh. 9II3C.F93I2)1he Soware Lnglneerlng and 1echnology Labs (SL1Labs) aL lnfosys ls Lhe cenLer for applled Lechnology research ln soware englneerlng and enLerprlse Lechnology. SL1Labs conducLed 24 lnnovauon Workshops wlLh cusLomers from Lhe uS and AusLralla, Lo ldenufy research collaborauon posslblllues. lnfosys promoLes a favorable work envlronmenL LhaL encourages lnnovauon and merlLocracy.!FJ.FH:P)!Q>>H!!6QO)3J)I3FRSS)#86A)G%W#1'46,",#360(#C063*0#*Q3-F6',D#3"#?+aI]#8+Sa1N+=+=$D#!A,-'%,,##N6(*"#Z%3#KMM;#lssue 3: 1he ma[or revenues of lnfosys come from Lhe uSA. 1he slowdown of Lhe Amerlcan economy has led Lo Lhe presslng of panlc buuons. WhaL markeung sLraLegles would you prescrlbe for Lhe lnfosys Lo come ouL unscaLhed? 9I63!P!)T>:)*.FJ9U)#volume vS Margln 1he company's buslness chley comprlses of shorL Lerm conLracLs LhaL are smaller ln volume, buL wlLh hlgher marglns. lndusLry waLchers say Lhe company wlll have Lo revamp lLs buslness model ln order Lo scale up Lo Lhe blg leagues. 1hey can do so by shllng Lhelr focus Lo long-Lerm annulLy conLracLs whlch are hlgh volume buL wlLh lower marglns, ln addluon Lo bemng on blg acqulsluons Lo grow. llg. ln bn $, l8M and P numbers are only for Lhelr servlces buslness lssue 4: Should lnfosys go ln for branded producLs? lf yes, whaL are Lhe sLeps LhaL you would suggesL? roducL kluy should be enhanced (Cnly producL: llnacle) lnorganlc growLh Lhrough Mergers & Acqulsluons should be consldered SecLors wlLh hlgh growLh (1elecommunlcauon, lnsurance, eLc.) should be Lapped lmmedlaLely lor soware producL developmenL, lnfosys should employ a process LhaL ls based on Lhe besL pracuces of Aglle MeLhodology and CMM Level 3 quallLy lor mechanlcal producLs, Lean MeLhodology based soluuons ln knowledge-based englneerlng should be developed Lo shorLen ume Lo markeL lssue 3: Should lnfosys alm for dlsuncuve compeLence? lf yes, whaL sLeps would you suggesL Lo achleve Lhls goal? lnfosys operaLes ln a hlghly compeuuve and rapldly changlng markeL and compeLes wlLh a number of Consulung, l1 ouLsourclng and 8C rms aL home Lurf and globally. ln near fuLure, compeuuon ls expecLed Lo grow from rms esLabllshlng and bulldlng Lhelr oshore presence and rms ln counLrles wlLh lower personnel cosL Lhan lndla. Powever, prlce alone cannoL consuLuLe a susLalnable compeuuve advanLage. rlnclple facLors where lnfosys can have a compeuuve advanLage are as follows:- Lecuvely lnLegraLe onslLe and oshore execuuon capablllues. lncrease scale and breadLh of servlce oerlngs Lo provlde one-sLop soluuon. rovlde lndusLry experuse Lo cllenLs buslness soluuons. AuracL and reLaln hlgh quallLy Lechnology professlonals. MalnLaln nanclal sLrengLh Lo make sLraLeglc lnvesLmenLs ln human resources and physlcal lnfrasLrucLure Lhrough buslness cycles. ?6*(#*/%*(# lor lnfosys Lo emerge as a global leader ln Lhe eld of l1, lL has Lo shake o Lhe Lag of belng a suppller of low cosL l1 servlces/8C/soware developmenL, all of whlch are commodluzed buslnesses, a sLereoLype whlch ls assoclaLed wlLh Lhe lndlan l1 lndusLry ln general. Whlle low margln servlces conLrlbuLe Lo bulk up Lhe bouom-llne, allowlng lL Lo achleve global economles of scale, Lhe hlgh margln producLs add Lo lLs Lop llne, Lhls ls useful ln wardlng o Lhe rlsks of compeuuon, cycllclLy or proL eroslon ln any parucular segmenL. Business StrategyA company can make use of its business strategy to improve thecompetitivepositionofitsbusinessunitsandproducts/serviceswithin the specific market segment or industry ThegenericstrategiessuggestedbyPorteri.e.,costleadership,differentiationandfocus,couldhelpthecompanyindrawingupthe business strategy Whereasthecorporatestrategyaskswhatindustry/industries,shouldthecompanybein,thebusinessstrategyaskshowthecompany should compete or co-operate in each industry Cost Dynamics Cost Levels in India: TextilesFor comparable pre-tax RET. On invest, a typical Indian Plant with cap of 6,000 tons/yr polyester production has 84% higher selling price than a typical polyester plant with 30,000 tons/yr cap in USA. Even with same cap, India: 24% higher selling prices Similar trends are obtained in tyre and tube, Al, Steel CausesExcise, Customs, Sales Tax Levies, Etc, Uneco, Production levels, Obsolete technology, high B/E points, excess dependence on import of semi=finished goods High costs narrowed Dom. Cons. Markets & competition in International markets Larger size plants not only save on initial invest. Cost but also on operational costs (cost v/s size of production) Cost v/s MarketSellers Market Products Price= Intl. Cost + desired profit margin Buyers market Profit Margin= Permissible price intl. Cost OR Tolerable Cost = Permissible price acceptable profit Experience Curve: Unit Manufacturing CostWhen Production Quantity When Production Quantityof time of Dir. Lab components for each item 80%ExperienceCurve Accumulated ProductionCost/Unit (RS) 2100 4 (100*0.80)=80 8 (80*0.80)=64 16(64*0.80)=51 Plot give 80% Exp. Curve Hyperbola Causes: Improved Lab. Productivity Incre4ased specialisation Innovation in production methods Value engineering & fine tuning Line balancing Rationalisation of methods & systems Exp. Curves- Simple approximations of extremely complex real-time relationships;extreme care is to be exercised to get rreliable results distinguish timefrom exp; unit exp; consider influence of time Sensitivity Analysis:Can be w.r.t., FC, VC, and/or price decrease in FC results in decrease in B-E-P. Profitability at a particular volume of production improves with lower FC in VC has marked effect on B-E-P & eats up profits in VC improves profitability in permissible price, B-E-Pand vice-versa. At a particular volume of production profitability improves. Price-most sensitive instrument followed by VC & FC Non-Linear B/E AnalysisWhen prices may be consciously reduced to gain additional sales vol. & market share or in response to computers action AssumptionsFC Fixed for all production volumes (often unrealistic)VC do not fall with increasing level of production TC && TR vary in linear relationship with output Maximise profit BEF int. & tax is the desirable BUS. objective Experience curve relationship- Good framework for marginal considerations for predicting industrial scenario w.r.t., future costs, profit margins and corresponding cash flows for own & competitors opns - Has done very well in segments such as PC mkt; implications a few large plants with standardised productions would be able to supply global market marketing efforts SH. Be fully coordinated with manufacturing plans; lowering prices SH. Not be inferior quality; more applicable when dem is elastic - Limitations: detn. of cost; data reg. competitors; a late market entrants has to operate at lower initial prices to survive B/E Analysis TC = FC + VC * Q(VC-Unit Var. Cost-R/M, electricity, fuel, packing etc) TR = P * Q At B/E point TR = TC p * QB = FC + VC * QBQB = FC/(P-VC) [P VC = Unit Contribution] Doom Loops !Self reinforcing processes. !Driveanorganizationintocyclicalsituationsfrom which an organization finds it difficult to extract itself. !Toavoidgettingintoadoomloop,itisrequiredto constantlyupgradetheproducts,servicesand efficiency of distribution channels. !Togetoutofadoomlooprefocusonthesmall business units and a change has to be brought about in the firms culture. Doom loop - Example Competitors innovate & develop better Pdt. at lower cost. Competitor matches price & yet is profitable. Firm cuts price to hold onto the market share. Firm has inadequate margins to reinvest. Employees become demoralized. Competitor gains mkt. Share at firms expense. Quality of Pdt. & services becomes poor. Corporate Strategy The important issues involved in Corporate Strategy are: ! Thecompanysorientationtowardsgrowth,stabilityorretrenchment. This is referred to as directional strategy. ! Themarketsinwhichthecompanycompetesthroughitsproducts or business units. This is referred to as Portfolio strategy. !Activityco-ordinationandtransferofresourcesforachievingcapabilities among product lines and business units. This is referredto As parenting strategy. Relative Cost advantage & Competitive Strategy Examples Modi Tyres- Initially entered largest product segment i.e., truck with latest technology & lower prices (good value for money). Subsequently matched market leaders price and displaced him by capturing higher market share Hero Cycles- Dropped irrelevant product attributes; subcontracted production of parts Portfolio Analysis and Display MatricesPortfolio Analysis - Corp. investments in different products or industries (SBUs) Balancing - w.r.t. net cash flow Stake of development Risk Display Matrices: BCG Matrix McKinsey Matrix Strategic Planning Institutes Matrix (Profit impact of Market Strategy PIMs) Arthur D.Little Cos Matrix Hofers Product/Market evaluations Matrix The Boston Consulting Groups Growth-Share Matrix 22% 20% 18% 14% 12% 10% 8% 6% 4% 2% 0 10x4x 2x1.5x1x 0.5x 0.4x 0.3x 0.2x 0.1x 5 6 4 1 2 3 7 8 Relative Market Share Market Growth Rate Source: B. Heldey, Strategy and the Business Portfolio, Long Range Planning, February 1977, p.12 Reprinted with permission from Long Range Planning, 1977, Pergamon Press Ltd. Stars Question Marks Cash CowDogs SBU Objectives: Build (For Question Marks) Hold (for strong Cash Cows) Harvest (for weak Cash Cows; can also be used with Question Marks and Dogs) Divest (for Question Marks and Dogs which are a drag on company profits) Strategic Planning Planning:Viablefitbetween organizationsobjectivesandits changing market opportunities Key:investmentportfolio,future profit potential, strategy BCG Matrix (New)!2*2 Matrix! Size of competitive advantage Vs. No. of approaches to competitive advantage. Fragmented Stalemate Specialization Volume No. of approaches to achieve comp. Adv. Size of the comp. Adv. Many Few BCG Matrix (Contd.) FragmentedSpecialization VolumeStalemate !Small and Regionalized. !Profitability not related to size. !Advantage gained by focus. !No premium on growth. !Ex. Specialty restaurants or designer labels. !Focused segments. !Steep learning curves. !Ex. Cray research in field of Super computers. !Where it is difficult to gain advantage. !CA often is the sheer sustaining power. !Ex. Kellogg's in India. !Where there are economies of scale and IRS operates. !Constrained by market segmentation and differentiation. !Ex. The car industry. GE Matrix High Protect Position Invest to grow at maximum digestible rate Concentrate effort on maintaining strength Invest to build Challenge for leadership Build selectively on strengths Reinforce vulnerable areas Build selectively Specialize around limited strengths Seek ways to overcome weaknesses Withdraw if indications of sustainable growth are lacking Medium Build Selectively Invest heavily in most attractive segments Build up ability to counter competition Emphasize profitability by raising productivity Selectivity/ manage for earnings Protect existing program Concentrate investments in segments where profitability is good And risk is relatively low Limited expansion or harvest Look for ways to expand without high risk; otherwise, minimize investment and rationalize operations Low Protect and refocus Manage for current earnings Concentrate on attractive segments Defend strengths Manage for earnings Protect position in most profitable segments Upgrade product line Minimize investment Divest Sell at time that will maximize cash value Cut fixed costs and avoid investment meanwhile StrongMediumWeak (b) StrategiesBUSINESS STRENGTH MARKET ATTRACTIVENESS Table 2-2Factors underlying market attractiveness and competitive position in GE Multifactor Portfolio Model: Hydraulic Pumps MarketWeightRating (1-5)Value Market AttractivenessOverall market size Annual market growth rate Historical profit margin Competitive intensity Technological requirements Inflationary vulnerability Energy requirements Environmental impact Social/political/legal 0.20 0.20 0.15 0.15 0.15 0.05 0.05 0.05 Must be acceptable 1.00 4.00 5.00 4.00 2.00 4.00 3.00 2.00 3.00 0.80 1.00 0.60 0.30 0.60 0.15 0.10 0.15 . 3.70 Competitive PositionMarket share Share growth Product quality Brand reputation Distribution network Promotional effectiveness Productive effectiveness Productive efficiency Unit costs Material supplies R&D performance Managerial personnel 0.10 0.15 0.10 0.10 0.05 0.05 0.05 0.05 0.15 0.05 0.10 0.05 1.00 4.00 2.00 4.00 5.00 4.00 3.00 3.00 2.00 3.00 5.00 3.00 4.00 0.40 0.30 0.40 0.50 0.20 0.15 0.15 0.10 0.45 0.25 0.30 0.20 3.40 Source: La Rue T. Hormer, Strategic Management, Englewood Cliffs, N.J.: Prentice Hall, 1982, p.310 McKinsey MatrixUsed for GE: Factors determining industry (Market) attractiveness Weightage (typical) 1. Size of the market10%SBUs rated on a scale of 1-10 2. Growth rate (sales) 15% 3. Nature of Competition15% 4. Technology Requirements10% 5. Entry conditions & Social factors10% 6. Profitability40% 100% Factors Determining Competitive Position WeightageRating (1-10)Score 1. Market Share20%71.4 2. Growth rate10%70.7 3. Location & Distribution10%50.5 4. Mgt. Skills15%60.9 5. Work force harmony20%71.4 6. Technical excellence20%81.6 7. Company image5%80.4 100%6.9 Shall Matrix :Similar to GE approach identifies differentstrategies for each grid sector PIMS Model:Profit impact of market strategy (PIMS) started at GE used later by strategic planning institute develops industry CH/C, bus avg. profitability using cross- sectional regrn. Of more than 2000 industries Shells Directional Policy MatrixSECTORAL PROSPECTS AttractiveLeaderTry HarderDouble or quit Average Leader Growth Custodial Phased withdrawal UnattractiveCash Generation Phased Withdrawal Disinvest StrongAverageWeak UNITS COMPETITIVE POSITION StrategyBusiness Prospects Competitive Capability Recommended Strategy 1. LeaderHighStrongHigh priority with all necessary resources to hold high market position 2. Try HarderHighMediumAllocate more resources to move to leader position 3. Double or Quit HighWeakPick products likely to be future high flyers for doubling and abandon others 4. Growth AverageAvg. strongMay have some strong competition with no one company as leader. Allocate enough resources to grow with market 5. CustodialAverageAverageMay have many competitors, so maximise cash generation with minimal new resources 6. Phase withdrawal LowAverageSlowly withdraw to recover most of investment 7. Cash generation LowStrongSpend little cash for further expansion, and use this as a cash source for faster growing businesses 8. DisinvestLowWeakAssets should be liquidated as soon as possible and invested elsewhere. Heartland Edge of Heartland Ballast Value trap AlienTerritory High HighLow Low Fit between Parenting Opportunities and Parenting characteristicsMisfit between Critical Success Factors and Parenting characteristics Arthur DLittle Companys Matrix The Matrix considers the different stages of the PLC with the business strength. The businesses are classified according to business strength as weak, tenable, favorable, strong or dominant. The Horizontal axis has the four stages of the PLC: Embryonic, Growth, Mature and Decline. B U S I N E S S S T R E N G T H Dominant Strong Favorable Tenable Weak

Unacceptable Build Hold Harvest The Strategy recommended in the growth and embryonic stage is to build the business except when the business strength is weak. For Businesses in the mature stage, with dominant to favorable business strength, hold strategy is recommended. For Businesses with strong and dominant position in the declining stage, harvest strategy is recommended. For Businesses which are weak and in the mature/decline stage, the return-on-investment is unacceptable. Hofers Product/Market Evolution Matrix It is a 3x5 matrix, where businesses are plotted in terms of the product/market evolution and competitive position. The circles show the relative size of the industry, and the shaded portion depicts the market share. According to the matrix, Businesses in the Development or the Growth stage have the Potential to become Stars. !If the market share is large, additional resources must be invested, to develop competitive position. ! If the market share is low, a strategy to improve should be developed. Businesses in Shake out/Maturity stages can be Cash Cows. These may require some Investments. Businesses in the Decline stage with a low Market share are in the category of Dogs and should be considered for Divestment or Liquidation. Intenational Portfolio Analysis Portfolio analysis can be applied to international markets to help in the international strategic planning. The matrix makes use of countrys attractiveness, which comprises market size, market growth rate, extent and type of government regulation, economic and political factors. It also makes use of the products competitive strength, which consists of Market share, product fit, contribution margin and market support. Depending on how the product fits in the matrix, funding or harvesting can be decided upon. INVEST/GROW HARVEST/DIVEST COMBINE/LICENSE DOMINANT/DIVEST JOINT VENTURE SELECTIVE STRATEGIES C O U N T R Y A T T R A C T I V E N E S S L O W HIGHMEDIUM LOW H I G H M E D I U M Functional Strategy The approach followed by a functional area to achieve the objectives set by the corporate and business strategy by maximizing resource productivity is called FUNCTIONAL STRATEGY. It is concerned with the nurturing and development of distinctive competitiveness. Orientation of Functional Strategy is dictated by the Parents strategy. Utility of Display Matrices: Correlate industry growth or profitability with market share either as direct single variable or as an index based on multiple variables Facilitate graphic display of diversity of orgn; help raise critical questions; not provide precise answer; not applicable where mkt. share is not critical or capital cannot be easily withdrawn; if value added is low or cost can be decreased without experience, rapid technology transfer, seasonal/cyclic business, patent restrictions. Low economies of scale complicate their outcome Indian Situation: - Industrial development much behind Japan or USA - Huge dom. Potl. Mkt still untapped - Managers will & systematic approach with top management support can help make use of these matrices for developing competitive strength and corp. growth A distinctive Competency must meet the following three tests: 1. Customer Value 2. Competitor Unique 3. Extendability For a Functional Strategy to be successful, it should be built on a distinctive competency within a Functional Area, else should consider outsourcing. Outsourcing Outsourcing refers to purchasing a product or service which the company was previously producing. The key to Outsourcing lies in the purchasing from outside only those activities that are not key to companys distinctive competencies. Marketing Strategy Marketing strategy deals with the pricing, selling and distribution of a product. Using this strategy, a business unit can improve its market share for current products through market saturation and penetration,or develop new products for existing markets. Financial Strategy Financial strategy examines the financial implications at corporate and business levels to identify the best financial course of action. This can provide competitive advantage through lower cost of funds and flexibility to raise capital. This strategy normally helps in maximizing the financial value. R&D Strategy The R&D strategy determines the R&D mix that a company has to follow. It determines the mix of basic research, product development and process R&D. This strategy also influences the decisions in the areas of development of new technologies, acquisition of technology from external sources, strategic alliances, product/process innovation and improvement. Operations Strategy Operations strategy answers vital questions of manufacturing, concerning where to produce, vertical integration, deployment of resources, relationship with suppliers, technology to be used and levels of quality to be acheieved. Purchasing Strategy Decisions regarding raw materials, parts and suppliers for the manufacturing function are influenced by the purchasing strategy. The company has the options of single, multiple or parallel sourcing. Single sourcing- It helps in reduction of both cost and time and in controlling quality. Parallel sourcing- It provides two suppliers for two different parts, with each of them backing up the others parts. Multiple Sourcing-It has an advantage in that it forces suppliers to compete, leading to reduction in costs and improvement in quality for the company. Logistics Strategy Logistics strategy deals with the flow of the product into and out of the manufacturing function. This requires synergies across business units and expertise in transportation modes. Two Important decisions on logistics strategy ! Centralization !Outsourcing Human Resource Management Strategy This strategy deals with the recruitment of skilled employees and their training to participate in self managed work teams. Information Systems Strategy Information systems make use of information technology to provide companies with competitive advantage Strategic Choice and Development of Policies .Strategic choice represents the evaluation of alternative strategies and selection of the best alternative. Assignment 4 What are the different types of Environments that a firm faces? For a Firm you are acquainted with, chart the relevant Environment. According to Porters Model, what determines the Competition Intensity in an Industry? With respect to a Firm that you know, identify the key Strategic factors in its External Environment. For the above Firm, develop the Industry Matrix and an EFAS. For the same Firm, compare and contrast different scenarios by using Trend Extrapolation. Assignment 5 What are the criteria used to determine the Corporate Strengths and Weaknesses? Use these criteria for a company you are familiar with to identify its Strengths and Weaknesses. Suggest Corrective Actions. How can Value Chain Analysis be used to Identify Corporate Strengths and Weaknesses? How can a Company make use of its Structure and Culture in Internal Corporate Analysis? What is VRIO Framework? How can this be used for gaining Sustainable Competitive Advantage? List the Strategic Marketing, Financial, R&D, Operational and HRM issues for a Company you are familiar with. How has Information Systems affected Strategic Decision- making? What are the issues that have surfaced in the light of rapid changes in Information Technology. Assignment 6 What is a Propitious niche? Which Industry forces can make it to disappear? When the Industry becomes Hypercompetitive, is it possible to have a sustainable Competitive Advantage? Give reasons. Strategic Alliances are temporary. Do you Agree? Justify. What is Doom Loop? Why do Industries find it difficult to get out of it? Discuss how Corporate Parenting is different from Portfolio Analysis. In what aspects are they similar? How could this be useful in Global Marketing? When should a company Outsource a Function or Activity? How does Policy relate to Strategy? Explain Strategy Implementation Strategyimplementationreferstothesumtotalofthe activities and choices required for execution of astrategicplan.Theimplementationprocesshastoanswer these questions: Who will carry out the strategic plan? Whatshouldbedonetoalignthecompanysoperations in the new direction? Whenandhoweveryoneconcerned,shouldrespond? FunctionStage IStage IIStage III 1. Sizing up: Major problems Survivalandgrowth dealingwithshort-term operating problems Growth,rationalization,and expansi onofresources, provi di ngf oradequat e a t t e n t i o nt op r o d u c t problems Trusteeshipinmanagementandinvestment andcontroloflarge,increasinganddiversified resources.Also,importanttodiagoniseand take action on problems at division level 2. ObjectivesPersonal and subjectiveP r o f i t sa n dme e t i n g functionallyorientedbudgets and performance targets ROI, profits EPS 3. StrategyImplicitandpersonal; exploration of immediate opportunitiesseenby owner-manager Functionallyorientedmoves tooneproductscope; exploitationofonebasic product or service field Growt handproductdi versi f i cat i on; exploitation of general business opportunities 4. Organisation: Major characteristic of structure Oneunit,one-man show Oneuni tf unc t i onal l y specialized group Multiunit general staff office and decentralised operating divisions 5. (a) Measurement and control Pe r s o n a l c r i t e r i a , relationships with owner, operat i ngef f i ci ency abilitytosolveoperating problems Functionalandinternal cri t eri as uchass al es , performancecomparedto budget,sizeofempire,status i ng r o u p , p e r s o n a l relationships, etc Moreinterpersonalapplicationofcomparisons suchasprofits,ROI,P/Eratio,sales,market share,productivity,productleadership, personaldevelopment,employeeattitudes, public responsibility 6. Reward punishment system I nf ormal ,pers onal , s ubj ect i ve;us edt o maintaincontroland dividesmallpoolof resourcestoprovide personalincentivesfor performers Morestructured;usually basedtoagreaterextenton agreedpoliciesasopposedto pe r s o na lo pi ni o na nd relationships Allotment by due process of a wide variety of different rewards and punishments on a formal andsystematicbasis.Companywidepolicies usuallyapplytomanydifferentclassesof managersandworkerswithfewmajor exceptions for individual cases Factors Differentiating Stage I, II and III Companies Source: O.H. Thain, Stages of Corporate Development, Business Quarterly, p.37, Winter 1969. Board of DirectorsChairman & Managing DirectorsR & D Corporate StaffOperating Companies (India)Operating Companies (SAARCCountries)Operating Companies (Africa)Operating Companies (Europe)Product GroupAProduct GroupBProduct GroupCProduct GroupDProduct GroupEGeographical Area Structure of an MNCClassificationAccording to Risk : Low Moderate High Courses of Action: Niche Vertical Integration Backward and Forward Horizontal expansion Diversification According to desired rate of growth: Alternatives are - Internal Expansion. (adding more capacity) - Internal Stability (by augmenting resources - Internal retrenchment or turnaround (eg: Hind. Photo-Films) - External Retrenchment or Divestiture (ITDC- decidedto close Hotel Akbar some years ago) - External expansion through mergers - Combination of the above strategies Selection of Strategy: Based on growth objects, resources, S&W, government policy & best method to close the gap between projected performance and desired performance; PL-C ofproduct/SBU could also be helpful; marginal factors (attitudes towards risk) also influence selection. Top ManagementManufacturing Marketing Finance Human ResourceManufacturing UnitMarketing UnitFinance UnitHuman Resource UnitManufacturing UnitMarketing UnitFinance UnitHuman Resource UnitManager: Project AManager: Project B(a) Matrix Structure Packers Suppliers DesignersManufacturers DistributorsCorporate Headquarters (Broker)Promotion/ Advertising Agencies(b) Network Structure Matrix and Network StructureDiversificationRelated: Eg. JK- from textiles to synthetic fibres unrelated Related:Constrained or Controlled Linked- Closely related to main product line - Weak linkas well as to teach other - Bus reln. Eg: Nirlon from nylon filament yarn for Eg: Indiato nylon tyre cord for industrial Shaving products.applications to conveyor belts, V-belts,. all based on industrial grade nylon yarn (Blades to toiletries and writing products) Qns. Co. SH. Ask: Do the common skills & Res. Really exist? Will the economies/benefits resulting from sharing of skills and res. be substantial? Will the related diversification improve overall results? Will the related diversification lead to any difficulties or problems and does the Co. have cap. To overcome these? Unrelated diversificationBy setting up new projects, Through mergers, take overs off-running business. Eg: Hyderabad Allwun: Bus body Building to refrigerators to deep freezeders, water coolers, Acs, Watches,. Planned diversification Options to Management- Status Quo - Sail with the wind - Go on moving in the direction - Move in new direction in a planned manner Diversification in an ongoing process - Define your bus - SWOT analysis - GAP Analysis - Competition & Risk analysis Corporate diversification in India Now actively pursued due to - Liberalisation - Indian Entrepreneur willing to think big andgrow big - higher risk bearing attitude by financialinstitutions - Middle class confidence in equity market - shrinking demand for Indian consumablesabroad; so joint ventures in India; NRIscheme for technology & finance flow - Massive market expansion (largely middleclass domestic market IntegrationHorizontal Owning (or controlling) a number of similar but separate activities in the same industry of business Vertical Backward Diversifying into R/M & other supplies for the companys products may enable a co. to improve the quality of final product Eg: Vimal Forward Div ersification further down the line to final consumer direct control on distribution and logistic channel Eg: Nirlon Diversification & Synergy Production Synergy: Co. mfg coolers, refrigerator,s ACs, getting into roomheaters, ovens Marketing Synergy:Cricket balls & bats; tennis balls and rackets Financial Synergy:Fan manufacturers offering discount in winter Organisation Synergy: Manufacturing organisation starting consulting services Diversification V/s Expansion:Before diversifying company can & SH. Consider expansion in existing product line Mergers and Acquisitions: Merger- Takes place when two or more Cos roughly of equal size or strength formally submerge their corporate identities into a single one in a friendly atmosphere; a holding Co. may be formed and its shares are exchanged for shares held by theshare-holders of the merging Cos Acquisition When a Co. offers cash or securities in exchange for the or take over the majority shares of another co. happens when merger is not agreed upon when the battle is severe, tgt pricemay be 100% above market price Merger - Improving Economies of scale, gaining managerial expertise, motivationsmarket supremacy, acquiring a new product or brand name, diversifying the portfolio, reducing risk and borrowing costs taxation or investment incentives Screening Process: - Identify industries Medium scale investment/large scale investment - Select sectors: based on data w.r.t., sales T/O, ROI, market shares, competition, asset turn over, etc - Choose Cos by sales turnover & asset level- determines acqn. Cost - Cost of acquisition & returns: Compare candidates - Ranking: Concept of Fit - Identifying good ones:High market share Growing market Good management system Diversified portfolio ROI above bench mark level Assembling suitability of a proposal - Funds availability - Likely positive synergies - Negative synergies & Weaknesses - Is timing appropriate - Is required management style available Valuation for mergers and acquisitions: Market price per share P/E Ratio:-------------------------------------------- Net earnings after tax per share -P/E Ratio & EPS (Market price of Share / P/E ratio) SH. Be compared with balance sheet & P&L A/C Acquirer should - Divest loss making opns - Use ratio analysis (to compare with ind. Avg) - current ratio (reduce C.L.) Stocks - Stock Level=* 12 months (reduced stock level)Cost of Goods sold Debtors - Avg. Age of debtors (in days)=------------* 365 (Reduce ave age of Debtors) Sales - Revise B/S & P&L A/c - Incorporate growth & expectation rates age of assets - Calculate replacement value of assets = 1 ------------------ Tot. Eco. Lifeof asset Managing after merger: Indian scene- NRI status is helping in mergers (to get out of FERA) - Likely to become more dominant in future * current cost ofasset Evaluation and Control Process can be viewed as afive-step model: Todeterminewhattomeasurethismeansthattheprocesses and results must be capable of being measured in anobjective and consistent manner. Toestablishperformancestandards=thesespecifythemeasures & acceptable results i.e., provide a tolerance range. Actual performance measurement Comparison of actual with standard Takingcorrectiveactionthisbecomesnecessarywhentheactualresultsareoutsidetolerancerange.Beforeacting,themanager has to ensure whether the deviation is due to chancefluctuationandwhethertheprocessiscorrectandappropriate. Problems in Measurement of PerformanceShortterm orientation (high ROI in short-term) Goal displacement refers to the confusion of means with end. It occurswhenactivitiesintendedtohelpmanagersachievecorporateobjectivesbecome ends in themselves or are adapted to meet ends other than thosefor which they are intended. GoaldisplacementcanbeoftwotypesBehaviourSubstitutionandSub-optimisation. Behaviour Substitution: refers to a phenomenon where activities that donotleadtogoalaccomplishmentaresubstitutedforactivitiesthatdoleadtogoalaccomplishment.Inotherwords,thewrongactivitiesandpeople who focused on these activities are being rewarded. Sub-optimisation: is a situation where optimisation occurs for a unit or afunctional area to the detriment of an organisation as a whole. Strategy AuditTheideaofstrategyauditistodevelopbenchmarks.Thisprocess involves the following steps: Identificationofareaorprocesstobeexaminedusuallyanactivity which can give competitive advantage to a business unit. Determinationofmeasuresofperformanceoftheareaorprocess. Competitorsagainstwhomthecompanyhastobenchmarkthese have to be generally the best among the industry. Differenceinperformancemeasurementofthecompanyandthe best in class. To develop tactical program for bridging performance gap. Implementation of programs and comparing the results of newmeasures with those of best-in-class. Thefollowingguidelinescanbemadeuseofforpropercontrol of strategic planning implementation exercise: Focus should be on critical success factors i.e., 20% thatdetermine 80% of the results. Controlshouldbedirectedtowardsmonitoringmeaningfulactivitiesandresultsandshouldbetimely.Controls can be both long term and short term. Controls should help in pinpointing exceptions. Thereshouldbeemphasisonrewardsonmeetingorexceeding standards of performance. AsslgnmenL 7 Powwouldacompanyachlevesynergyamong dlerenL funcuons and buslness unlLs? lsre-englneerlnganoLherfadordoeslLoer someLhlng of lasung value? 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