Part 1: Strategic Analysis

Chapter 1
Strategic Management: Creating Competitive Advantage

Strategic Management: creating

competitive advantages
 Vision
What organization want to become in future.
 Mission
What is the purpose of the existence of the
organization.
 Objectives
Objectives are the targets towards which
management is directed.
 Strategy
The process of determining appropriate courses of
action for achieving organizational objectives
Infosys‘-VISION-MISSION
 Infosys' Vision:
"To be a globally respected corporation that
provides best-of-breed business solutions,
leveraging technology, delivered by best-in-class
people."
Infosys' Mission Statement :
"To achieve our objectives in an environment of
fairness, honesty, and courtesy towards our clients,
employees, vendors and society at large."
Three Components of the mission
statement
 * the needs to be served by the
company
 * the targeted customer group

 * how the company will provide

the product/service
Reason for Being

This is the soul-searching activity, where the

organisation tries to answer the critical
questions like `why are we here' and 'where
are we today'?
 A mission statement concerns what an
organization is all about.
 A vision statement is what the
organization wants to become.
A mission statement answers three key
questions:
 What do we do?
 For whom do we do it?
 What is the benefit?
Centers for Disease Control

Mission To promote health and quality of life by

preventing and controlling disease,
injury, and disability
Vision Healthy People in a Healthy World
Centers for Disease Control
Mission To protect, maintain and improve the
health of all Minnesotans
Vision Keeping All Minnesotans Healthy
 A vision statement, on the other hand,
describes how the future will look if the
organization achieves its mission.
 A mission statement gives the overall
purpose of an organization,
 while a vision statement describes a picture
of the "preferred future."
 A mission statement explains what the
organization does, for whom and the benefit.
 A vision statement, on the other hand,
describes how the future will look if the
organization achieves its mission.
VISION, MISSION,VALUES AND
OBJECTIVES- BEL
   VISION
   - To be a world-class enterprise in professional
electronics.
          
   MISSION

 - To be a customer focused, globally competitive

company in defence electronics and in other
chosen areas of professional electronics, through
quality, technology and innovation.
VALUES 

   - Putting customers first. 

   - Working with transparency, honesty & integrity. 
   - Trusting and respecting individuals. 
   - Fostering team work. 
   - Striving to achieve high employee satisfaction. 
   - Encouraging flexibility & innovation. 
   - Endeavouring to fulfill social responsibilities. 
   - Proud of being a part of the organization.
OBJECTIVES 
    - To be a customer focussed company providing
state-of-the-art products & solutions at competitive
prices, meeting the demands of quality, delivery &
service. 
   - To generate internal resources for profitable
growth. 
   - To attain technological leadership in defence
electronics through in-house R&D, partnership with
defence/research laboratories &
     
 academic institutions. 
   - To give thrust to exports. 
   - To create a facilitating environment for people to
realise their full potential through continuous
 learning & team work. 
   - To give value for money to customers & create
wealth for shareholders. 
   - To constantly benchmark company’s
performance with best-in-class internationally. 
   - To raise marketing abilities to global standards. 
   - To strive for self-reliance through indigenisation
BSNL-VISION  
 To become the largest telecom Service Provider
in  Asia.  

 MISSION   
 To provide world class State-of-art technology
telecom services to its customers on demand at
competitive prices.
 
 To Provide world class telecom infrastructure in its
area of operation and to contribute to the growth
of the country's economy.
OBJECTIVES  
 
 To be the Lead Telecom Services Provider.
 
 To provide quality and reliable fixed telecom service
to our customer and there by increase customer's
confidence.
 
 To provide mobile telephone service of high quality
and become no. 1 GSM operator in its area of
operation.
 To provide point of interconnection to other service
provider as per their requirement promptly.
 To facilitate R & D activity in the country.
 Contribute towards:
 National Plan Target of 500 million subscriber base
for India by 2010.
 Broadband customers base of 20 million in India by
2010 as per Broadband Policy 2004.
 Providing telephone connection in villages as per
government policy.
 Implementation of Triple play as a regular
commercial proposition.
 Corporate vision is a short, inspiring
statement of what the organization intends to
become and to achieve at some point in the
future,
 often stated in competitive terms.
 Vision refers to the category of intentions that
are broad, all-inclusive and forward-thinking.
 It is the image that a business must have of
its goals before it sets out to reach them.
 It describes aspirations for the future, without
specifying the means that will be used to
achieve those desired ends.
 The Ford Motor Company vision is 'to
become the world's leading
consumer company for automotive
products and services'.
 A five-component approach to promote
successful organizational performance

 1. Vision formulation which leads to the

statement of the Mission.
 2. The mission is then converted into
performance Objectives
 3. To achieve objectives you develop
Strategies
 4. Strategy Implementation
 5. Evaluation of performance  
Mission Statement & its Purpose

 Sense of Purpose & Aspiration

 Company Image
 Statement of Company Values, Culture and
Ethics
 Role as a Guide for the Strategy Process
Model of Strategic Management:

 Mission & goals

 Environmental analysis

 Strategic formulation

 Strategy implementation

 Strategy evaluation
Strategic Management
 Strategic management is the study of why
some firms outperform others
 How to compete in order to create competitive
advantages in the marketplace
 How to create competitive advantages in the
market place
 Unique and valuable
 Difficult for competitors to copy or substitute
Strategic Management
 Analysis
 Strategic goals (vision, mission, strategic objectives)
 Internal and external environment of the firm
 Strategic decisions
 What industries should we compete in?
 How should we compete in those industries?
 Actions
 Allocate necessary resources
 Design the organization to bring intended strategies to
reality
Mission Statement

 Business Definition
 Major Goals of the Firm
 Philosophies
 Guiding Principles
 Considerations of stakeholders
1.The vision formulation which leads to the
statement of the Mission

 Mission  
 * what is business?
 * what will be the business?
 * it established long-term direction
 * it needs to use simple terminology
 * it needs to be inspirational buy in
 * recognition of threats & opportunities
 * entrepreneurial spirit
2. The mission is then converted into performance
objectives
 * measurable statements
 * specified performance
 * specified time
 * short-range objectives
 * long-range objectives
 * top-down rather than bottom-up
Strategic Management:

 A continuous activity that requires a

constant adjustment of three major
interdependent poles:

 the values of senior management,

 the environment,

 the resources available.

Strategic Management
Strategic Management Concepts
Definition: Strategic management consists of the analysis,
decisions, and actions an organization undertakes in order to
create and sustain competitive advantages.

Key attributes of strategic management

 Directs the organization toward overall goals and objectives.

 Includes multiple stakeholders in decision making

 Needs to incorporate short-term and long-term perspectives

 Recognizes trade-offs between efficiency and effectiveness

Strategy:
A specific pattern of
decisions and actions
undertaken by the upper
echelon of the organization
in order to accomplish
performance goals.
Dimensions of Strategic decisions

 Strategic issues require top management

decisions-anticipating broader perspective
 Strategic issues involve the allocation of large
amounts of company resources-deployment
or commit for longer time
 Strategic issues are likely to have a
significant impact on the long term prosperity
of the firm.(5 yrs)
Dimensions of Strategic decisions

 Strategic issues are future oriented

(proactive-anticipatory)
 Strategic issues usually have major
multifunctional or multi business
consequences-SBU-customer mix –
competitor-reallocation of resources
 Strategic issues necessitate considering
factors in the firm’s external environment-
(largely impacted by E E beyond their control)
Corporate level Strategy

 Tend to be value oriented, conceptual and

less concrete than functional & business
level strategy.
 CLS are also characterized by greater risk,
cost, and profit potential as well as long
time horizon
 Ex-choice of business, dividend policies,
sources of LT financing and priorities of
growth.
Business level Strategy

 BLS are less costly, risky, and potentially

profitable than CLS.
 Common BLS plant location, market
segmentation, geographic coverage and
distribution channels.
Functional level Strategy

 Principally involve action oriented operational

issues.
 Relatively short range and involve less risk.
 Requires company wide cooperation.
 Relatively concrete & quantifiable
 They receive critical attention
 Brand name labeling, R&D,inventory level
Corporate Strategy:

 Describes a corporation’s overall

direction in terms of its general
philosophy towards growth and the
management of its various business units.

 WHAT BUSINESS ARE WE IN?

Corporate Strategy:

 Establishing investment priorities and

steering resources into the most attractive
business units
 Initiating actions to improve combined
performance of business units
 Improving synergy between related
business units to increase performance
 Making decisions re diversification
Business-Level Strategy
 Business-Level Strategy
Low-cost leadership:
To increase market-share by having the lowest unit-
cost and price compared with competitors.

Differentiation strategy:

Distinguishing products from competitors by providing

distinctive levels of service or quality - the customer is
prepared to pay a premium price.
 The set of decisions and actions that result in
the formulation and implementation of plans
designed to achieve a company’s objectives.
Characteristics of Strategic Management

Characteristic Level of Strategy

Corporate Business Functional
Type Conceptual Mixed Operational

Measurability Value Semi Usually

judgments quantifiable quantifiable
dominants
Frequency Periodic or Periodic or Periodic
sporadic- sporadic-
irregular irregular
Characteristics of Strategic Management

Characteristic Level of Strategy

Corporate Business Functional
Adaptability Low Medium High

Relation to Innovative Mixed Supplement

present ary
activities

Risk Wide range Moderate Low

Characteristics of Strategic Management

Characteristic Level of Strategy

Corporate Business Functional
Profit Large Medium Small
potential
Cost Major Medium Modest

Time Long range Medium Short range

horizon range
Characteristics of Strategic Management

Characteristic Level of Strategy

Corporate Business Functional
Flexibility High Medium Low

Cooperation Considerable Moderate little

required
Formality in Strategic Management

 Definition
• Degree to which participants, responsibilities, authority, and
discretion in decision making are specified (entrepreneurial)
 Forces affecting degree of formality
• Size of organization
• Predominant management styles
• Complexity of environment
• Production process
• Problems
• Purpose of planning system
• Large-scale, future-oriented plan for
interacting with the competitive environment
to achieve objectives
• Company’s “game plan”
• Framework for managerial decisions
Benefits of Strategic Management
 Enhances the firm’s ability to prevent problems
 Emphasizes group-based strategic decisions likely
to be based on best available alternatives
 Improves employees’ understanding of the
productivity-reward relationship
 Reduces gaps/overlaps in activities among
employees as their participation clarifies differences
in roles
 Resistance to change is reduced
Risks of Strategic Management

 Time involved may negatively impact

operational responsibilities of managers
 Lack of involvement of strategy makers in
strategy implementation may result in
shirking of responsibility for strategic
decisions
 Potential disappointment of employees over
unattained expectations requires managerial
time and training
Strategic Management Process
Components of the Strategic Management Model

 Company Mission
• Specifies unique purpose of company
• Identifies scope of operations
• Describes product, market, and technological
areas of emphasis
• Reflects values and priorities of decision makers
• Expresses approach to social responsibility efforts
 Internal Analysis
• Depicts quantity and quality of company’s
financial, human, and physical resources
• Assesses company’s strengths and weaknesses
• Contrasts past successes and concerns with
current capabilities to identify future capabilities
 External Environment
• Consists of all conditions and forces affecting
firm’s strategic options and define its competitive
situation
• Includes three interactive segments – remote,
industry, and operating environments
 Strategic Analysis and Choice
• Involves simultaneous assessment of external
environment and company profile
• Incorporates screening process based on mission
to generate possible and desired opportunities
• Results in selection of options from which a
strategic choice is made
 Long-term Objectives
 Profitability
 Return on investment
 Competitive position
 Technological leadership
 Productivity
 Employee relations
 Public responsibility
 Employee development
 Generic Strategies
• Low cost
• Differentiation
• Focus
 Grand Strategies
• Comprehensive, general plan of major actions
through which the firm intends to achieve its long-
term objectives in a dynamic environment
 Action Plans and Short-Term Objectives
• Translate generic and grand strategies into
“action”
 Identify specific functional tactics to be taken in the near
term
 Establish a clear time frame for completion
 Creates accountability
 Specify one or more immediate objectives as outcomes
of the action
 Functional Tactics
• Involve identifying activities unique to the function to help
build competitive advantage
• Specify detailed statements of “means” to be used to
achieve short-term objectives
 Policies that Empower Action
• Include broad, precedent-setting decisions that substitute
for repetitive or time-sensitive decision making
• Often increase managerial effectiveness by empowering
discretion of subordinates in implementing strategies
 Restructuring, Reengineering, and
Refocusing the Organization
• Involves an internal focus – getting work done
efficiently and effectively to make the strategy
work
• Downsizing, restructuring and reengineering
reflect the critical stage in strategy implementation
wherein managers attempt to recast their
organization.
 Strategic Control and Continuous
Improvement
• Control
 Tracks a strategy during implementation
 Detects problems
 Involves making necessary adjustments
• Continuous improvement
 Provides another approach to strategic control
 Allows an organization to respond more proactively and
timely to rapid developments
Strategic Analysis
 Starting point in the
strategic management
process
 Precedes effective
formulation and
implementation of
strategies
Strategic Analysis (cont.)
 Clear goals and
objectives permit
effective allocation of
resources
 Hierarchy of goals
 Vision
 Mission
 Strategic objectives
Strategic Analysis (cont.)
 Managers
 Scan the environment
 Analyze competitors
 General environment
 Industry environment
Strategic Analysis (cont.)
 Frameworks for
analyzing a firm’s internal
environment
 Strengths
 Weaknesses
 Analyzing strengths can
uncover potential sources
of competitive advantage
Strategic Analysis (cont.)
 Intellectual assets are
drivers of
 Competitive advantages
 Wealth creation
 Networks and
relationships among
 Employees
 Customers
 Suppliers
 Alliance partners
Strategic Formulation
 Successful firms develop
bases for competitive
advantage
 Cost leadership
 Differentiation
 Focusing on narrow or
industry-wide market
segments
 Sustainability
 Industry life cycle
Strategic Formulation (cont.)
 Firm’s portfolio or group
of businesses
 What business(es) should
we be in?
 How can we create
synergies among the
businesses?
 Diversification
 Related
 Unrelated
Strategic Formulation (cont.)
 Appropriate entry
strategies
 Sustain competitive
advantage in global
markets
Strategic Formulation (cont.)
 Digital technologies
change the way business
is conducted
 Added value
 Impact on performance
 Digital technologies can
enhance
 Cost leadership
 Differentiation
Strategic Implementation
 Informational control
 Monitor and scan the
environment
 Respond effectively to
threats and opportunities
 Behavioral control
 Effective corporate
governance
 Interests of managers and
owners of the firm
Strategic Implementation (cont.)
 Organizational structure
and design
 Organizational
boundaries
 Flexible
 Permeable
 Strategic Alliances
Strategic Implementation (cont.)
 Develop organization that
is committed to
 Excellence
 Ethical behavior
 Learning organization
responsive to
 Rapid and unpredictable
change in today’s
competitive environments
Strategic Implementation (cont.)
 Corporate
entrepreneurship and
innovation
 New opportunities
 Enhance innovative
capacity
 Autonomous
entrepreneurial behavior
 Product champions
Strategic Implementation (cont.)
 New ventures and small
businesses
 Major engine of economic
growth
 Recognize viable
opportunities
 Entrepreneurial leadership
skills
 Corporate Governance and Stakeholder
Management

 Corporate governance: the relationship

among various participants in determining the
direction and performance of corporations
 Shareholders
 Management (led by the CEO)
 Board of directors
Corporate Governance and Stakeholder
Management
 Board of directors The Key Elements of Corporate
Governance
 Elected representatives
of the owners
 Ensure interests and
motives of management
are aligned with those of
the owners
 Effective and engaged
board of directors
 Shareholder activism
 Proper managerial
rewards and incentives
Stakeholder Management

 Two views of stakeholder management

 Zero sum
 Stakeholders compete for attention and resources of the
organization
 Gain of one is a loss to the other
 Symbiosis
 Stakeholders are dependent upon each other
 Mutual benefits
Social Responsibility

 Social responsibility: the expectation that

businesses or individuals will strive to
improve the overall welfare of society
 Managers must take active steps to make society
better
 Socially responsible behavior changes over time
 Triple bottom line
 Strategic Management Perspective

 Integrative view of the organization

 Assess how functional areas and activities “fit
together” to achieve goals and objectives
 All managers and employees must take and
integrative, strategic perspective of issues
facing the organization
 Strategic Management Perspective
 Key driving forces increasing the need for
strategic perspective and involvement
 Globalization
 Technology
 Intellectual capital
 These forces are
 Interrelated
 Accelerating the rate of change and uncertainty
Crafting Strategy Is an
Exercise in Entrepreneurship
 Strategy-making is a market-driven activity that
involves
 Studying market trends and competitors’ actions
 Keen observation of customer needs
 Scrutinizing business possibilities based on new
technologies
 Building firm’s market position via acquisitions or new
product introductions
 Pursuing ways to strengthen firm’s competitive capabilities
 Proactively searching out opportunities to
 Do new things or
 Do existing things in new or better ways
Linking Strategy With Ethics
 Ethical and moral standards go beyond
 Prohibitions of law and the language of “thou shalt not”

to issues of
 Duty and “right” vs. “wrong”
 Ethical and moral standards address
“What is the right thing to do?”
 Two criteria of an ethical strategy:
 Does not entail actions and behaviors that cross the line from
“can do” to “should not do’ and “unsavory” or “shady” and
 Allows management to fulfill its ethical duties to all stakeholders
A Firm’s Ethical Responsibilities
to Its Stakeholders
Owners/shareholders
Owners/shareholders––Rightfully
Rightfullyexpect
expectsome
someform
formof
of
return
returnon
ontheir
theirinvestment
investment
Employees
Employees--Rightfully
Rightfullyexpect
expectto
tobe
betreated
treatedwith
withdignity
dignity
and
andrespect
respectfor
fordevoting
devotingtheir
theirenergies
energiesto
tothe
theenterprise
enterprise
Customers
Customers--Rightfully
Rightfullyexpect
expectaaseller
sellerto
toprovide
providethem
them
with
withaareliable,
reliable,safe
safeproduct
productor
orservice
service
Suppliers
Suppliers--Rightfully
Rightfullyexpect
expectto
tohave
havean
anequitable
equitable
relationship
relationshipwith
withfirms
firmsthey
theysupply
supplyand
andbe
betreated
treatedfairly
fairly
Community
Community--Rightfully
Rightfullyexpect
expectbusinesses
businessesto
tobe
begood
good
citizens
citizensin
intheir
theircommunity
community
Enhancing Employee Involvement
Local Line  Have significant profit and
Leaders
loss responsibility
Enhancing Employee Involvement
Local Line  Champion and guide ideas
Leaders
 Create a learning
infrastructure
Executive
Leaders  Establish a domain for taking
action
Enhancing Employee Involvement
Local Line  Have little positional power
Leaders
and formal authority
 Generate their power
Executive
Leaders through the conviction and
clarity of their ideas
Internal
Networkers
Coherence in Strategic Direction
Company vision
 Massively inspiring
 Overarching Company vision
 Long-term
 Driven by and evokes passion
 Fundamental statement of the
organization’s
 Values

 Aspiration

 Goals Hierarchy of Goals

Coherence in Strategic Direction

Mission statements
 Purpose of the company Company vision
 Basis of competition and
competitive advantages Mission statements
 More specific than vision
 Focused on the means by
which the firm will compete
Hierarchy of Goals
Coherence in Strategic Direction
Strategic objectives
 Operationalize the mission
statement Company vision
 Provide guidance on how
the organization can fulfill Mission statements
or move toward the “higher
goals” Strategic objectives
 More specific
Hierarchy of Goals
 Cover a more well-defined
time frame
Coherence in Strategic Direction
Strategic objectives
 Measurable
 Specific Company vision
 Appropriate
 Realistic Mission statements
 Timely
 Challenging Strategic objectives
 Resolve conflicts that arise
 Yardstick for rewards and incentives Hierarchy of Goals