STRATEGIC MANAGEMENT

It is action oriented long-term planning system that positions an organization within its external environment. It is concerned with achieving an overall integration of an organizations internal divisions while simultaneously integrating it with its external environment. It involves formulation & implementation of strategic plans.

Strategic Management Process

S/M as a Process
Environment Scanning
SWOT Analysis Strategy Formulation Strategy Implementation Evaluation & Control

Requirements
for Strategy Implementation

Organization Processes Planning & Control, MIS etc. Programs Activities

(e.g. Restructuring, changing Internal Culture, beginning New Research)

Budgets Procedures -

Statement of programs in Monetary Terms. SOPs

Some Jargon

Mission Co. Profile Strategies

Corporate Strategies Business Strategies Functional Strategies

Policies External Environment

Operating & Industry Environs Remote environments

( What exactly these terms mean ?)

Mission:
Unique purpose of Co., identifying Scope of Operations (Mission describes - Products, Market, Technological area of thrust, reflecting Values and Priorities for the Strategic Decision Makers)

Co. Profile:

Depicts quality & quantity of companys Financial, Human and Physical Resources (Also assesses the Strength and Weaknesses of Management & Organization Structure)

Strategies: Comprehensive Master Plan stating

how the company will achieve its mission and objective

1. Corporate Strategy:
Overall Direction in terms of Growth, Attitude towards managing various businesses
(C/S may fall under Stability, Growth or Retrenchment)

2. Business Strategy

lays emphasis on improving competitive position of product, or market share

3. Functional Strategy

approach taken to achieve Corporate Obj. or SBU Obj. by maximizing resource productivity

Policies

Directives ( consistent with strategic objectives) given to managers, to guide their thoughts, decisions & actions. Also called as SOPs ( Standard Operating Procedures)

e.g. No purchase to be done without inviting 3 quotations

 External EnvironmentAll conditions and forces that affect organizations strategic options and competitive situations. 3 Segments of Ext. Environs Operating, Industry & Remote.

Operating & Industry Environment: ( i.e. immediate ones)

Competitors Suppliers Resources ( scarcity) Govt. agencies & their regulations Customers (their shifting preferences)

Remote environments Economic & Social Conditions Political Priorities Technological Developments

Why Environment Analysis ?

One must anticipate, incorporate, asses and monitor the challenges faced by external environment.

Generic Strategies
Low cost Differentiation Focus

Grand Strategies (Corporate)

Concentration Market development Product Development Innovation Horizontal integration Vertical integration Divestiture Liquidation

Joint Ventures Strategic Alliances Consortia Concentric Diversification Conglomerate Diversification Turnaround

Views of S/M Process

1. Rational Planning / Formal Planning
Identify gaps between Goals & Present Status Identify Resources needed to close the gap. Resource Distribution. Monitoring Resource Utilization.

Views of S/M Process

2. Incrementalism (Flexible Planning): Sometimes predictions turn out to be laughably wrong. Thus, strict adherence to plans becomes difficult. Hence, constantly re-adjust the plans & strategies skillfully as they are overtaken by developments outside the managements ability to predict or control.

Views of S/M Process

3. Organizational Learning(Combination of both):
Presumption Even most detailed rational plan offers only guidelines, still leaving too many unknowns to be handled. Hence S/M is an ON-GOING PROCESS of Continually Re-thinking & Adjusting the plans. Managers to make incremental adjustments to Rational Plans, by way of small steps of progress.

Practical Limitations of S/M Model

Model is Holistic (Not Tactical)

Model is more Analytical Its Non-Political

It is Evolutionary

Practical Limitations of S/M Model

1. Model is Holistic ( and not Tactical):

Holistic Approach- Business is studied as a whole ( at TOP level ) overlooking the operational difficulties in implementation (they eventually may become critical) Tactical Approach Concentrates more on improving current capabilities, rather than satisfying anticipated needs Strategic planning is intended to be Future-Oriented

2.

Model is more Analytical (than Prescriptive or Procedural) It gives General Approach towards Strategic Planning , and not a sure way to success

3. Its Non-Political (i.e. its truly a

Management Process) Model is devoid of Political Activities like - Subjective Assessment, Intuitive Decision Making, Favoritism etc.

4. It is Evolutionary- S/M process

undergoes Continual Assessment & Subtle Updating

Modes of Strategic Decision Making

Entrepreneurial Mode

Adaptive Mode
Planning Mode

Modes of Strategic Decision Making Entrepreneurial Mode

Strategies are framed by one powerful individual. Focus is on exploiting opportunities. Decisions are bold and Speedy. Problems are given secondary preference. Example Apple Computers

Modes of Strategic Decision Making

Adaptive Mode
Decision making is Reactive, Focus on Finding Solutions. Strategies are Fragmented and developed Incrementally. Example Government Agencies.

Modes of Strategic Decision Making

Planning Mode (more formal & systematic)

Appropriate Info. for situational analysis is gathered. Feasible Alternatives developed, Most favorable selected. It encompasses both Proactive Search of Opportunities & Reactive Solution for Existing Problem. This helps company remain prepared for Environmental Uncertainties.

Top Management Perspective

what we do in the present Mahatma Gandhi

The future depends on

Strategy Formulation 5 Tasks

1) Articulating Vision
2) 3) 4) 5)

(Where the organization need to be headed) Translating Vision into Mission Converting Mission into Performance Objective. (i.e. Plans & Policies) Detailing each objective into Specific Goals. Formulating Strategies & Tactics to achieve the goals.

Organizational Direction

Vision MISSION
OBJECTIVES

Stakeholders / Founder Top Management Unit together with Top Management Unit Managers with Approval of Superior
Each Organizational Level, in Conformity with Other Unit Policies

PLANS
POLICIES
GOALS
STRATEGIE S AND TACTICS

Individuals Managers, in Conformity with Unit Policies Individual Managers, in Conformity with Unit Goals

VISION
It defines : Why are we here? What do we stand for? It provides fundamental & enduring reasons for a companys existence.
Sony : Walt Disney Wal- Mart To experience the Joy of advancing and applying technology for the benefit of public To make people happy. To give ordinary folk the chance to buy the same things as rich people.

Nike Merck-

To experience the emotion of competition, wining, and crushing competitors.

To preserve and improve human life.

MISSION & VISION

MS-VISIONTo enable people and businesses throughout the world to realize their full potential.

MS-MISSIONEmpowering people through great software- any time, any place, and on any device.

A visionary company keeps relentlessly moving towards its purpose but never fully achieves it.
Disney can never outgrow the core task of brining happiness to millions. through it has pioneered several innovations in the field of entertainment.

Founder Walt Disney commented Disneyland will never be completed, as long as there is Imagination left in the world.

Similarly, Sony in spite of its blazing track record in new product development can never exhaust the sheer joy of advancing and applying technology for the benefit of public.
The vision / corporate purpose of a company need not necessarily be unique. It is possible that two companies could have a very similar purpose. The primary role of corporate purpose is to guide and inspire .

Vision and Mission

Some Companies use the terms Vision and Mission interchangeability. However Vision / Corporate purpose of a company goes far beyond its mission. To illustrate this : Sonys mission is To establish an ideal company that stresses a spirit of a freedom and openmindedness, and where engineers, with sincere motivation can exercise their technological skills to the highest level.

Sonys Vision is To experience the joy advancing and applying for the benefit of public.
Essentially, Mission can be considered as a mean to achieve the Corporate Purpose.

A visionary company can, and often does venture into exciting new areas but yet remains firmly wedded to its corporate purpose.
One should understand how the corporate purpose guides the evolution of a successful company and helps its grow from strength to strength. Also appreciate the various strategies, a company needs to put in place to achieve the corporate purpose.

Johnson & Johnson Credo

We believe our first responsibility is to the doctors, nurses and patients, to mothers and fathers and all others who use our products and service. In meeting their needs everything we do must be of high quality. We must constantly strive to reduce our costs in order to maintain reasonable prices. Customers order must be serviced promptly and accurately. Our suppliers and distributors must have an opportunity to make a fair profit.

Johnson & Johnson Credo

We are responsible to our employees, the men woman who work with us throughout the world. Everyone must be considered as an individual. We must respect their dignity and recognize their merit. They must have a sense of security in their jobs. Compensation must be fair and adequate, and working condition clean, orderly and safe. We must be mindful of ways to help our employees fulfill their family responsibility. Employees must feel free to make suggestion and complaints. There must be equal opportunity for employment, development and advancement for those qualified. We must provide competent management, and their actions must be just and ethical.

We are responsible to the communities in which we live and work and to the world community as well. We must be good citizen support good works and charities and bear our fair share of taxes. We must encourage civic improvements and better health and education. We must maintain in good order the property we are privileged to use, protecting the environment and natural resources. Our final responsibility is to out stockholders. Business must make a sound profit. We must experiment with new ideas. Research must be carried on, innovative programs developed and mistakes paid for. New equipment must be purchased, new facilities provided and new products launched. Reserves must be created to provide for adverse times. When we operate according to these principles, the stockholders should realize a fair return.

Warren, the Wizard

Warren Buffet, second richest man (donated $31 billion to charity)
Bought his first share at age 11 and now regrets he started too late! Bought a small farm at age 14 with savings from delivering newspapers. Still lives in the same small 3-bedroom house in mid-town Omaha , that he bought after he got married 50 years ago. He says that he has everything he needs in that house. His house does not have a wall or a fence. Drives his own car everywhere and does not have a driver or security around Never travels by private jet, although he owns the world's largest private jet company. His company, Berkshire Hathaway, owns 63 companies. He writes only one letter each year to the CEOs of these companies, giving them goals for the year.

Warren, the Wizard

Never holds meetings or calls them on a regular basis.
He has given his CEO's only two rules. Rule #1 : Do not lose any of your share holder's money. Rule #2 : Do not forget rule # 1. Does not socialize with the high society crowd. His past time - to make himself some pop corn and watch TV. Bill Gates met him first time only 5 years ago. Bill felt he had nothing in common with Warren Buffet. So he scheduled his meeting only for half hour. But the meeting lasted for ten hours and Bill became a devotee of Warren Buffet. Buffet does not carry a cell phone, nor has a computer on his desk.

Warren, the wizard

His advice to young people :
"Stay away from credit cards and invest in yourself and remember:
1. Money doesn't create man but it is the man who created
money. 2. Live your life as simple as you are. 3. Don't do what others say, just listen them, but do what you feel good. 4. Don't go on brand name; just wear those things in which u feel comfortable. 5. Don't waste your money on unnecessary things; just spend on them who really are in need rather. 6. After all it's your life, then why give chance to others to rule our life."

Competing for the Future

Traditional v/s Visionary Firms

The Difference between Good & Great

Good firms attained flexibility in operations

from
Speed Advantages Supplier-management advantages, Substantial improvements in quality.

The Difference between Good & Great

All these accomplishments do come under

traditional form of achieving competitive advantage, also known as incremental approach (A method of improving performance by following strategies such as Reengineering and Restructuring.)

Business sans limits

Beyond Incrementalism.
Some challengers, even if they lack resources (required for strategic actions), do not set limits on their ambitions and accomplishments.

Writing on the Wall

1. In an increasingly unstable environment, experience
gets devalued rapidly, and familiar land-posts no longer serve as guides. 2. Disorderliness in marketplace (also called Entropy) undermines organizational efforts. Even robust strategies become victims to entropy. 3. High levels of employee anxiety and disenchantment that follow exercises of restructuring & reengineering.

Writing on the Wall

Reducing cost can no longer give a firm a

sustainable competitive advantage. Similarly, bringing a product early to the market will not substantially enhance the comp. position of the firm in any remarkable way. Hence, the need for reinventing existing competitive space or creating entirely new competitive scope.

Samurai Story
ALTERNATIVE VIEW OF CORPORATE

STRATEGY In the past, small cos. from Japan with meager resources challenged much larger & richer US cos. successfully.

How could these firms challenge

corporate giants? What prevented the existing leaders from sidelining the newcomers?

What lies beneath

Research by Gary Hamel and C. K.

Prahalad: The differences were not due to incremental operational efficiency, or institutional factors (e.g. cost of labor or capital.) These firms had the ability to find new ways to accomplish more with less. The challengers (i.e. smaller firms) were driven by something more beyond short-term financial goals.

New rules of engagement

Managers were driven by amazingly

ambitious goals that go beyond typical strategic plans. These challengers continue to create new forms of competitive advantage, and rewrite the rules of engagement. What distinguishes these firms from others is - the process by which they create competitive advantage.

New rules of engagement

Then the next question arises

Why are only these companies, and not

others, continuously in search of new advantages? What dynamic forces are at work in these companies?

New rules of engagement

Researchers found that - Such cos. made

substantial commitments to particular skill areas (such as optical media, financial engg., and miniaturization), far before the markets for these end-products emerged. Their Senior management viewed competition as a race, to build competencies, rather than a necessary evil to gain market share.

New rules of engagement

On what rational basis, are they
committing their resources? Why they are so emotionally and intellectually committed to these goals? How do these firms choose capabilities to build in the future?

New rules of engagement

One can only conclude that some management
teams are more "foresightful." These teams are capable of imagining products, services, and entire industries that belong only to the future. Managers in these firms spend less time thinking about how to position the firm in the existing competitive space and more time on how to create fundamentally new competitive space.

New rules of engagement

In contrast, laggards spend their entire time
protecting the legacies of the past rather than creating the future. Laggards take the industry structure as it is bestowed to them, and seldom challenge or change it.

How do the revolutionaries, and not

the laggards, gain exclusive foresight? How is it possible to imagine markets when the products don't exist?

Is RESTRUCTURING enough?
The industry leaders failed to give enough attention to winds of change in industry : Sears, General Motors, IBM, Westinghouse, and Volkswagen have been victims of this perilous change.

Sears expected that successive generations of rural

Americans would find its catalog the best way to fulfill their needs. Similarly, GM felt that with rising incomes, young customers would continue to buy its products as their parents did. IBM too expected that its revenues would sprout continually as big companies added more to their central data-processing departments.

Is RESTRUCTURING enough?

These cos. were characterized by steadiness

and were devoid of dynamism. Hence, such cos. (which started as leaders in the 1980s) ended the century with their positions barely intact. In the last decade of the 20th century, IBM, Philips, T I, Xerox, Boeing, DB, Citicorp, BoA, Sears, Digital Eqpt., Du Pont and many other cos. suffered from falling profits.

Is RESTRUCTURING enough?
Why they suffered? The tides of technological, demographic and

regulatory change, (besides the quality gains made by non-traditional competitors), blunted their competitive edge. But the industrial terrain changed faster than they could remodel their basic beliefs and assumptions about markets, technologies, customers, and even employees.

Their top managers were not averse to change.

Is RESTRUCTURING enough?
The result: these cos. ended up as
bystanders, (without realizing that their structure, values and skills are becoming slowly irrelevant). They continued reacting in the traditional methodology of strategy planning such as : downsizing, overhead reduction, employee empowerment, process redesign, and portfolio rationalization.

RE-ENGINEERING
After going through the process of restructuring, some companies begin to reengineer their processes. Reengineering cuts down needless work, and directs every process in the company towards customer satisfaction, reduced cycle time, and total quality. Here, the focus is on doing things faster and with less waste. The stated aim of reengineering is to focus on customer satisfaction. But it is the prospect of cost reduction rather than customer satisfaction that motivates the top management in a firm to go in for reengineering, in the majority of cases.

Reengineering, for many companies, is aimed at catching up with rivals rather than moving out in front. In the 1970s, many firms aimed to operate at a global scale. But when this was attained, they were left with tremendous overcapacity, and vicious price-cutting came into play. In the 1980s, firms began to pursue quality, and later, the speeding up of operations, in order to address their lack of competitiveness. Firms were, thus, making efforts to catch up rather than to lead.

Nearly 80% of U.S managers polled said that quality was their
most important priority. In contrast, only 50% of Japanese managers held this view, though 82% believed that better quality was the reason for existing competitive advantage. Japanese managers rated the ability to create fundamentally new products and businesses as their most important competitive advantage. This does not mean that Japanese companies ignore quality; rather they believe that quality is a

minimum requirement for entry into a market.

Sustainable Competitive Advantage

The processes and positions that engender such a position (CA) is not necessarily non-duplicable or inimitable. A key difference between CA and SCA is that the processes and positions a firm may hold are nonduplicable and inimitable when a firm possesses a SCA.

Hence a sustainable competitive advantage is one that can be maintained for a significant amount of time even in the presence of competition.

This brings us to the question what is a "significant amount of time". A CA becomes SCA when all duplication and imitation efforts have ceased and the rival firms have not been able to create the same value that the said firm is creating.

SWOT Analysis

S Strength W Weakness O Opportunities T Threats Remember - SW are internal, OT are external

Strengths/Weaknesses
1. 2. 3. 4.
5.
Marketing: Company reputation Market share Product/service quality Pricing/distribution/promotion/sales force effectiveness Geographical coverage
Core competencies

Finance
1. Deep pockets 2. Cash flow 3. Financial stability
1. 2. 3.
Manufacturing: Economies of scale Latest technology Dedicated work force

Organization

1. 2. 3. 4.

Visionary capable leadership Dedicated employees Entrepreneurial orientation Flexible/responsive

Core Competencies
are the essence of what makes an organization unique in its ability to provide value to customers.

McKinsey & Co. recommends identifying three to four competencies to use in framing strategic actions.

For a strategic capability to be a Core Competency, it must be:

Valuable
Rare Costly to Imitate Nonsubstitutable

Valuable
Capabilities that either help a firm to exploit opportunities to create value for customers or to neutralize threats in the environment

Capabilities that are possessed by few, if any, current or potential competitors

Rare

Costly to Imitate
Capabilities that other firms cannot develop easily, usually due to unique historical conditions, causal ambiguity or social complexity

Nonsubstitutable
Capabilities that do not have strategic equivalents, such as firm-specific knowledge or trust-based relationships

Defining a core competency

A bundle of skills that enables an organization to provide

a particular benefit to customers. It is not product or service specific. It contributes to the development of a range of products and services.

Examples: Sony- customer benefit is pocket ability and core competence is miniaturization. Federal Express- benefit is on time parcel delivery and core competence is logistics management.

Tests for core competency

Organizational competencies must pass three tests to be considered core competencies:

It must make a significant contribution to

customer perceived value or to the financial health of the organization. It must be unique or performed in a way that is substantially superior to its peers. It must be capable of being applied to new products and services.

Opportunities
A marketing opportunity is an area of buyer
need in which a company can perform profitably. Opportunities can be classified according to attractiveness & success probability. Companys success probability depends on whether its business strengths not only match key success requirements for operating in target market but also exceed those of competitors.

Threats
A challenge posed by an unfavorable trend or

development that would lead, in the absence of defensive marketing action, to deterioration in sales or profit. Threats should be classified according to their seriousness & probability of occurrence.

TOWS Strategies
SO Use strengths to utilize opportunities WO Take advantage of opportunities by

overcoming weaknesses ST Use strengths to avoid threats WT Minimize weaknesses and avoid threats

TOWS Matrix
Strengths Weaknesses

Opportunities

S-O strategies:
Build on strengths Exploit opportunities

W-O strategies:
Use opportunities to address weaknesses

Threats

S-T strategies:
Use strengths to minimize threats

W-T strategies:
Defensive actions vs. susceptible areas

PEST analysis is a useful strategic tool for understanding market growth or decline, business position, potential and direction for operations.
The main problem with these external PESTLE factors is that they are continuously changing.

PESTLE Analysis
P Political - Current and potential influences from political pressures
E - Economic - The local, national and world economy impact S - Sociological - The ways in which changes in society affect us T - Technological How new & emerging tech. affects our business? L - Legal - How local, national and world legislation affects us

E - Environmental - The local, national and world environ. issues

The PESTLE factors may be applied - to the whole of the organization, - or to specific business areas, - or to a specific parts of business areas, in order to contemplate the likely effects. Business Areas could include: Customers Technology The industry/marketplace Intermediaries Competitors Other stakeholders

PEST Analysis
Analysis of macro-environment, of external
factors usually beyond firms control (sometimes threats). Usually performed for countries. Lets try for India! Political Analysis Political stability Risk of invasion Legal framework for contract enforcement

1.

PEST Analysis

IPR protection Trade regulations & tariffs Anti-trust laws Pricing regulations Taxation policy Wage legislation Mandatory employee benefits Industrial safety regulations

Political Environment
Direction & Stability of political factors to be considered, since company has to operate within legal laws, Govt. rules & regulations.

Negative Impact : Anti trust laws, Fare trade decisions, Tax policies, Pollution, Pricing policies. Positive Impact : Patent laws, Govt. subsidy, Project research grants.

Political Environment
3 Govt. Fns. get influenced by political activities: Supplier Function- Private business dependent on govt. owned resources and national stockpiles. Customer Function- Govt. demand for Product can create or eliminate market opportunities. Competitor Function- Government protects its consumers and local industries.
Thus govt. decisions greatly affect the business. Hence every firm should analyze the govt. strategies and develop their own plans.

PEST Analysis
2.
Economic Analysis Economic system Govt. intervention Comparative advantages Exchange rate & stability of currency Infrastructure quality Workforce skill level

PEST Analysis

Labor costs Economic growth rate Discretionary income Unemployment rate Inflation rate Interest rates Business cycle stage (prosperity, recession etc.)

Economic Environment (Direction of Economy) Consumption pattern changes along with the wealth of the consumers in various market segments.

Indicators of Economic Trend Prime Interest Rate, Inflation Rates, GNP Growth, Availability of Credit, Level of Disposable Income Focus of Economic Environment - changed by new power brokers EEC, OPEC,

PEST Analysis
3.
Social Analysis Demographics Class structure Education Culture Attitudes Leisure interests

Social Environment -- based on social changes in

Values, Beliefs, Attitudes, Opinions , Lifestyle
e.g. Large No. of Working Women affected not only HR Policies, also created wide range of products like ready foods, microwave ovens, day care centers

Quality of Life - Increased salaries, flexible workers, Vacation plans, Advanced training Social Values & Attitudes- Youth oriented goods have made shift in long range marketing strategies

PEST Analysis
4.
Technological Analysis Recent techno development Technology impact Impact on cost structure Rate of techno diffusion (spread of technology)

5. Legal Environment Firm to consider legal factors before stepping into a new business, another country.

e.g. Deregulation & Liberalization have minimized entry barriers, leading to enormous competition. This resulted in turmoil in the last decade.

Environmental
1. Global Warming 2. Ozone layer 3. Carbon credits 4. Recycling 5. Biodegradable technologies

Use of PESTLE analysis with SWOT strategies-

SWOT strategies can be made on all these PESTLE individual factors.

SWOT strategies PESTLE analysis

S-O S-T W-O W-T strategies strategies strategies strategies
Political Economic Sociological Technological Legal Environment

Some Other Strategic Models

McKinseys 7-S Framework
GE/McKinsey Model PIMS

MCKINSEYS 7S FRAMEWORK

THE HARD Ss
Strategy: the direction and scope of the company over the long term. Strategy: the direction and scope of the company over the long term. Structure: the basic organization of the company, its departments, reporting lines, areas of expertise and responsibility (and how they inter-relate).

Systems: formal and informal procedures that govern everyday activity, covering everything from management information systems, through to the systems at the point of contact with the customer (retail systems, call center systems, online systems, etc).

Structure: the basic organization of the company, its departments, reporting lines, areas of expertise and responsibility (and how they inter-relate).

THE SOFT Ss
Skills: the capabilities and competencies that exist within the company. What it does best.

Shared values: the values and beliefs of the company. Ultimately they guide employees towards 'valued' behavior.
Staff: the company's people resources and how the are developed, trained and motivated.

Style: the leadership approach of top management and the company's overall operating approach.

GE /McKinsey Approach
GE and McKinsey management consultants worked
together to develop the GE business screen, a multifactor assessment based on an analysis of factors relating to profitability Approach is an extension of the BCG approach Rates each SBU (not only products within firms), on the basis of factors, for industry attractiveness and business strength Each factor is given a certain weight A procedure of aggregating various executives opinions on these weights results in high, medium, or low attractiveness and business strength ratings

GE Screen uses these factors to evaluate SBUs

Industry Attractiveness
Market size Market growth Market diversity Profit margins Competitive structure Technical role Cyclicality Environment Legal and social environment

GE Screen uses these factors to evaluate SBUs

Business Strength
Relative market share Price competitiveness Size, growth Product quality Profitability Technological position Strengths and weaknesses Knowledge of customers and the market Image, pollution, people

GEs Business Screen for Evaluating SBUs

GE-McKinsey Matrix(Limitations)
Core competencies are not represented

Interactions between Strategic Business Units are not

considered

Profit Impact of Marketing Strategy (PIMS)

Started by General Electric and refined by Harvard Business

School and others PIMS model database includes history and performance of over 450 companies and 3,000 businesses Model includes computer-based regression model that utilizes the experience of the database to determine what explains (or drives) profitability Each business is described in terms of 37 factors such as growth rate, market share, product quality, and investment intensity PIMS model uses multivariate regression equations to establish relationships among these different factors and also uses two separate measures of performance: ROI and cash flow

Profit Impact of Marketing Strategy (PIMS)

PIMS research indicates that these performance measures are
explained by general factors such as: Market growth rate Market share of business Market share divided by the share of the three largest competitors Degree of vertical integration Working capital requirements per dollar of sales Plant and equipment requirements per dollar of sales Relative product quality The PIMS model explains 80% of the observed model variation in profitability of the 3,000 businesses in the database

ANSOFF MATRIX
To portray alternative corporate growth strategies, Igor

Ansoff presented a matrix that focused on the firm's present and potential products and markets (customers). By considering ways to grow via existing products and new products, and in existing markets and new markets, there are four possible product-market combinations.

Existing Existing

New

PRODUCTS INCREASING RISK PRODUCT DEVELOPMENT Sell new products in existing markets INCREASING RISK

MARKET PENETRATION Sell more in existing Markets

MARKET

MARKET EXTENSION Achieve higher sales/market share of existing products in new markets

DIVERSIFICATION Sell new products in new markets

New

Ansoff Matrix

Ansoff's matrix provides four different growth strategies:

Market Penetration - the firm seeks to achieve growth
with existing products in their current market segments, aiming to increase its market share. Market Development - the firm seeks growth by targeting its existing products to new market segments. Product Development - the firms develops new products targeted to its existing market segments. Diversification - the firm grows by diversifying into new businesses by developing new products for new markets.

Ansoff Matrix
Selecting a Product-Market Growth Strategy

The market penetration strategy is the least risky since it

leverages many of the firm's existing resources and capabilities. In a growing market, simply maintaining market share will result in growth, and there may exist opportunities to increase market share if competitors reach capacity limits. However, market penetration has limits, and once the market approaches saturation another strategy must be pursued if the firm is to continue to grow. Market development options include the pursuit of additional market segments or geographical regions. The development of new markets for the product may be a good strategy if the firm's core competencies are related more to the specific product than to its experience with a specific market segment. Because the firm is expanding into a new market, a market development strategy typically has more risk than a market penetration strategy.

Ansoff Matrix
A product development strategy may be appropriate
if the firm's strengths are related to its specific customers rather than to the specific product itself. In this situation, it can leverage its strengths by developing a new product targeted to its existing customers. Similar to the case of new market development, new product development carries more risk than simply attempting to increase market share. Diversification is the most risky of the four growth strategies since it requires both product and market development and may be outside the core competencies of the firm. In fact, this quadrant of the matrix has been referred to by some as the "suicide cell". However, diversification may be a reasonable choice if the high risk is compensated by the chance of a high rate of return. Other advantages of diversification include the potential to gain a foothold in an attractive industry and the reduction of overall business portfolio risk.

Concentric Diversification
This means that there is a technological similarity between the industries, i.e. the firm is able to leverage its technical know-how to gain some advantage. For example, a company that manufactures industrial adhesives might decide to diversify into adhesives to be sold via retailers. The technology would be the same but the marketing effort would need to change. It also seems to increase its market share to launch a new product which helps the particular company to earn profit.

Horizontal Diversification
The company adds new products or services that are technologically or commercially unrelated (but not always) to current products, but which may appeal to current customers. In a competitive environment, this form of diversification is desirable if the present customers are loyal to the current products and if the new products have good quality and are well promoted and priced.

Conglomerate Diversification
The company markets new products or services that have no technological or commercial synergies with current products, but which may appeal to new groups of customers. Conglomerate diversification has very little relationship with the firm's current business; the main reasons of adopting such a strategy are to improve the profitability and the flexibility of the company, and to get a better reception in capital markets as the company gets bigger. Even if this strategy is very risky, it could also, if successful, provide increased growth and profitability.

ADL MATRIX INDUSTRY LIFE CYCLE STAGE Embryonic/Intro Growth Dominant Push for share, hold position. Hold position, hold share. Mature Hold position grow with the industry. Aging/Decline Hold position.

Strong

Attempt to improve position, push for share.

Attempt to improve position, push for share.

Hold position grow Hold position, with the industry harvest.

Favorable COMPETITIVE POSITION

Selectively attempt to improve position.

Attempt to improve position, selectively push for share.

Custodial, find a niche & protect it.

Harvest, phased out withdrawal.

Tenable

Selectively push for position.

Find niche & protect it.

Find niche, hang on, withdrawal.

Phased out withdrawal, abandon. Abandon

Weak

Turnaround or abandon.

Turnaround or abandon.

Turnaround or orphaned out.

Blue Ocean Strategy

Tomorrows leading companies will succeed: Not by battling competitors But by creating blue oceans of uncontested market space, ripe for growth.

Red oceans are all the industries in existence today and the known market space. In the red oceans, industry boundaries are defined and accepted, and the competitive rules of the game are known. Here companies try to outperform their rivals to grab a greater share of existing demand.

As the market space gets crowded Prospects for profits and growth are reduced. Products become commodities, and Cut-throat competition turns the red ocean bloody. Hence, the term RED oceans. Here, grabbing a bigger share of a finite market is seen as a zero-sum game in which one companys gain is achieved at another companys loss.

Blue oceans, in contrast, denote all the industries not in existence today, the unknown market space, untainted by competition. In blue oceans Demand is created rather than fought over. There is ample opportunity for growth that is both profitable and rapid. In blue oceans, competition is irrelevant. It is vast, deep, powerful, in terms of profitable growth, and infinite.

This requires a shift of attention from

Supply to Demand Focus on competing to a focus on creating innovative value to unlock new demand.
This is achieved via the simultaneous pursuit of differentiation and low-cost.

Blue ocean strategists recognize that market boundaries exist only in managers minds, and they do not let existing market structures limit their thinking. Extra demand is there, largely untapped. The crux of the problem is how to create it.

Blue Ocean Strategy

The three key conceptual building blocks of BOS are: Value Innovation Tipping Point Leadership* Fair process

Tipping Point Leadership

The idea that once belief and energies of a critical mass of people are engaged, conversion to new ideas will spread quickly, bringing about rapid fundamental change to the execution of a particular type of innovation, namely, Blue Ocean strategy. Kim and Mauborgne go on to state that a number of organizational hurdles would need to be overcome in order to facilitate the impetus for change and reduce resistance. These are namely, cognitive, resource, motivational and political hurdles, which need to be overcome in a timely fashion, using existing resources. Further, the change process is premised on a principle of fairness and the three E principles: engagement, explanation and expectancy.

Concept of Complementarities - Pankaj Ghemawat

The basic idea is that business is a game where an organization is sometimes competing and sometimes cooperating with other players in industry. Cooperation generally leads to an expansion of the business pie Competition leads to a slicing up of the pie

Though both are necessary & desirable aspects of a business enterprise, an exclusive focus on competition largely ignores the potential for changing the nature of business relationships, and thus the potential for expanding the market or creating new profitable forms of enterprise. A 'cooperative mindset actively looks for ways to change and expand the business, as well as newer and better ways to compete.

Central to the concept of complements is the notion of added value, which is essentially the incremental benefit that an organization brings to the game (the industry or situation).

Complementors: Firms from which customers buy complementary products or services, or to which suppliers sell complementary resources. e.g. : Computer Hardware and Computer Software ( Intel processor & MS Windows together complement to increase demand) Car industry and Auto loan industry TV Channels and Content Production Houses

With competitors and complementors, the company interacts but not transact.
Complementors can produce something that makes organizations product much more valuable. Hollywood studios initially saw VCR as a competitive

threat, imagining that people wouldn't go out to movies as

often. They moved to the Supreme Court. But, eventually, VCRs created the market for movie rentals, which is now a several billion business, and have effectively tripled the potential revenue sources for the Hollywood.

Complementors are the mirror image of competitors (including the new entrants and substitutes as well as existing rivals). On the demand side, they increase buyers willingness to pay for the products; on the supply side, they decrease the price that suppliers require for their inputs.

In Pharmaceutical Industry

Doctors greatly influence the success of drug manufacturers through their prescription, but they cannot be considered buyers. Money does not flow from doctors to manufacturers. Thus they are thought of as complementors who increases buyers willingness to

pay for a particular product.

Porters generic strategies

3 game plans

Porters Competitive Strategies

Competitive Strategy:
Low cost? Differentiation? Compete head to head in large market? Focus on niche?

Porters Competitive Strategies

Generic Competitive Strategies:
Lower cost strategy Design, produce, market more efficiently
than competitors

Differentiation strategy Unique and superior value in terms of

product quality, features, service

Porters Competitive Strategies

Competitive Advantage:
Determined by Competitive Scope
Breadth of the companys target market

Porters Generic Competitive Strategies

Porters Competitive Strategies

Cost Leadership:
Low-cost competitive strategy Aimed at broad mass market Aggressive construction of efficientscale facilities Cost reductions Cost minimization

Porters Competitive Strategies

Differentiation:
Broad mass market Unique product or service Charge premiums Lower customer sensitivity to price

Porters Competitive Strategies

Cost focus:
Low cost competitive strategy Focus on particular buyer group or market Niche focused Seek cost advantage in target market

Porters Competitive Strategies

Differentiation focus:
Focus on particular group or geographic market Seek differentiation in targeted market segment Serve special needs of narrow target market

Porters Competitive Strategies

Stuck in the middle:

No competitive advantage Below-average performance

Risks of Generic Competitive Strategies

Risks of Cost Leadership Cost leadership is not sustained: Competitors imitate. Technology changes. Other bases for cost leadership erode. Proximity in differentiation is lost. Cost focusers achieve even lower cost in segments. Risks of Differentiation Differentiation is not sustained: Competitors imitate. Bases for differentiation become less important to buyers. Cost proximity is lost. Differentiation focusers achieve even greater differentiation in segments. Risks of Focus The focus strategy is imitated: The target segment becomes structurally unattractive: Structure erodes. Demand disappears. Broadly targeted competitors overwhelm the segment: The segments differences from other segments narrow. The advantages of a broad line increase. New focusers subsegment the industry.

Porters generic strategies

1. Overall cost leadership business works
hard to achieve lowest production & distribution costs so that it can price lower than competition & win a large market share. Firms pursuing this strategy must be good at engineering, purchasing, manufacturing & physical distribution (they need less marketing skills). Problem is competition operating with even lower costs. Parity in price & proximity in value.

Porters generic strategies

## Examples of cost leadership:

1. The Chinese Dragon (due to the MTBF 2. 3. 4. 5.

principle) Nirma Parle Cambridge shirts Tips & Toes (cosmetics)

Porters generic strategies

2. Differentiation business concentrates on
achieving superior performance in an important customer benefit area valued by a large part of the market. So the firm seeking quality leadership must make products with best components, put them together expertly etc. The product must be desiredly different, by generating uniqueness in features through special & specific benefit which is valued by customer (& thus fetches a premium).

Porters generic strategies

## Examples:

1. 2. 3. 4.

Its a Sony Meswak Pepsodent Germicheck Rahejas

Porters generic strategies

3. Focus business focuses on 1 or more narrow
market segments, gets to know these segments intimately & pursues either cost leadership or differentiation within the target segment (niche marketing).

Porters generic strategies

## Examples: Cost focus: 1. Sterling Holiday Resorts 2. Vada Pav 3. Anjali kitchenware Differentiation focus: 1. Jumbo King vada pav 2. Club Mahindra

Porters generic strategies

4. Stuck in the middle - Firm that engages in
each generic strategy but fails to achieve any competitive advantage is stuck in the middle. ## Conditions under which a firm can simultaneously achieve both cost leadership & differentiation by pursuing 1 or more generic strategy: Competitors are stuck in the middle Firm pioneers a major innovation (DuPont)

Porters generic strategies

Risks associated with: Cost Leadership imitation, technology change,
proximity in differentiation is lost, cost focusers achieve even lower cost etc. Differentiation imitation, bases for differentiation become less important, differentiation focusers achieve even greater differentiation in segments etc. Focus imitation, niche becomes unattractive, new focusers sub-segment industry etc.

Porter
6 Forces

Porters approach:

Industry Analysis
Assess the six forces - Threat of new entrants Rivalry among existing firms Threat of substitute products Bargaining power of buyers Bargaining power of suppliers Relative power of other stakeholders

Industry Analysis
Threat of New Entrants -Barriers to entry: Economies of Scale Product Differentiation Capital Requirements Switching Costs Access to Distribution Channels Cost Disadvantages Independent of Size Government Policy

Industry Analysis
Rivalry Among Existing Firms -Intense rivalry related to: Number of competitors Rate of Industry Growth Produce or Service Characteristics Amount of Fixed Costs Capacity Height of Exit Barriers Diversity of Rivals

Industry Analysis
Threat of Substitute Products/Services
Substitute Products: Those products that appear to be different but can satisfy the same need as another product. To the extent that switching costs are low, substitutes can have a strong effect on an industry.

Industry Analysis
Bargaining Power of Buyers -Buyer is powerful when:

Buyer purchases large proportion of sellers products Buyer has the potential to integrate backward Alternative suppliers are plentiful Changing suppliers costs very little Purchased product represents a high percentage of a buyers costs Buyer earns low profits Purchased product is unimportant to the final quality or price of a buyers products

Industry Analysis
Bargaining Power of Suppliers -Supplier is powerful when: Supplier industry is dominated by a few companies

but sells to many Its product is unique and/or has high switching costs Substitutes are not readily available Suppliers are able to integrate forward and compete directly with present customers Purchasing industry buys only a small portion of the suppliers goods.

Porters 5 Forces Model (Industry Competition)

1. Threat of intense segment rivalry segment

unattractive if it contains numerous strong & aggressive competitors. Extent of competition would depend on market growth rate, product differentiation, technology, extent of branding, switching cost, diversity of competitors, exit barriers etc. Maruti vs. Ambassador/Fiat & Now Santro vs. Maruti!

Porters 5 Forces Model

2. Threat of new entrants most attractive

segment has high entry & low exit barriers. New entrants are always a threat because they are quick on the learning curve, come with a USP & can plug holes (cherchez le creneau). Entry barriers include capital cost, distribution network (esp. for MNCs), technology, legislation etc. Eg: LG taking over the durables market, Captain Cook threatening Tata salt!

Porters 5 Forces Model

3. Threat of substitute products segment
unattractive when there are actual/potential substitutes for product (placing limit on prices). Technology too plays a major role in rendering products obsolete & eventually wiping out firms/industries altogether! E.g. VCD/DVD players have virtually wiped out VCP/VCR Computers have played havoc with typewriters Oval TV is losing out to the Flat version

Porters 5 Forces Model

4. Threat of buyers growing bargaining power
segment unattractive if buyers possess strong bargaining power. Buyers bargaining leverages are volume of purchase, ability to integrate backwards, substitute products, switching cost etc. E.g. Reliance group has successfully integrated backwards.

Porters 5 Forces Model

5. Threat of suppliers growing bargaining power
depends primarily on criticality of material being procured, volumes required, presence of substitutes, threat of forward integration by supplier relative to backward integration by buyer, cost of switching of supplier etc. Can critically impact ICC, hence supplier relationship is as important as CRM (since supplier is now your business partner).

6th Force
Relative power of other
stakeholders 1. Govt. 2. Society

Industry Analysis
Strategic Types Categorized by one of four general strategic orientations:

Defenders Companies with a limited product line; focus on improving efficiency of current operations

Industry Analysis
Strategic Types (continued)

Prospectors:
Companies with fairly broad product lines; focus on product innovation and market opportunities.

Industry Analysis
Strategic Types (continued)

Analyzers:
Corporations that operate in at least two different product-market areas one stable and one variable.

Industry Analysis
Strategic Types (concluded)

Reactors:
Corporations that lack a consistent strategy-structure-culture relationship.

Value Chain Analysis

Traditional Concept of VALUE

USE/FUNCTIONAL/WORTH ESTEEM COST EXCHANGE TIME PLACE

GAINING AND SUSTAINING COMPETITIVE ADVANTAGE DEPENDS ON UNDERSTANDING NOT ONLY THE FIRMS VC BUT HOW THE FIRM FITS IN THE OVERALL VS.

VALUE

VALUE,
in COMPETITIVE TERMS,
is the amount that buyers are willing to pay for what a firm provides them.

Value Chain Analysis

A systematic way of examining all the activities a firm performs and how they interact. The Value Chain disaggregates a firm into its strategically relevant activities in order to understand the behaviour of cost and the existing and potential sources of differentiation.

VALUE CHAIN
Every firm is a collection of activities that are performed to design, produce, market, deliver and support its product. All these activities are represented using a value chain..

VALUE ACTIVITIES

TYPES OF VALUE ACTIVITIES

DIRECT activities directly involved in creating value

INDIRECT activities which enable performing direct activities on a continuing basis.

QUALITY ASSURANCE activities ensuring quality of other activities

THE VALUE CHAIN METHODOLOGY

IDENTIFYING THE VALUE CHAIN DIAGNOSE COST DRIVERS DEVELOP SUSTAINABLE COST
ADVANTAGE

IDENTIFYING THE VALUE CHAIN

* SIGNIFICANT % OF OPERATING COSTS * COST BEHAVIOR IS DIFFERENT * PERFORMED BY COMPETITORS DIFFERENTLY * HAVE HIGH POTENTIAL FOR CREATING DIFFERENTIATION

DIAGNOSE COST DRIVERS

STRUCTURAL COST DRIVERS scale, scope, experience, technology,

complexity. EXECUTIONAL COST DRIVERS Work force motivation, TQM, capacity utilization, plant layout efficiency, product configuration, exploiting VC linkages with firms suppliers and/or customers.

Structural Cost Drivers

Scale : How big an investment to make in

strategic process [Degree of horizontal integration] Scope : Degree of vertical integration Experience : Proven experience of having done the same/similar thing Technology : Process technologies across the value chain Complexity : Width of product line offered to customers

Executional Cost Drivers

Work Force Involvement : Commitment to continuous
Total Quality Management : Beliefs and
improvement Achievements towards product and process quality Capacity Utilization : Given - the scale choices on plant construction Plant Layout efficiency :Efficiency of current norms against the layout Product Configuration : Effectiveness of design or the formulation Exploiting Value Chain Linkages : Linkages with suppliers and/or customers, as per the firms value chain

DEVELOP SUSTAINABLE COMPETITIVE ADVANTAGE

1. Control Cost Drivers Better Than

The COMPETITORS. A Reduce costs, holding revenues constant. B Increase revenues, holding costs constant. C Reduce Assets, holding revenues and costs constant.

Cost Drivers
Costs are driven by many factors that are
interrelated in complex ways. Understanding cost behaviour means understanding the complex interplay of the set of cost drivers at work in any given situation. In SCM, `OUTPUT VOLUME is seen to capture very little of the richness of cost behaviour.

DEVELOP SUSTAINABLE COMPETITIVE ADVANTAGE

2. Reconfigure the VALUE CHAIN

SUPPLIERS SUPPLIER

SUPPLIER

FIRM

FIRM

CUSTOMER

CUSTOMERS CUSTOMER

Bus.unit # 1

Bus.unit # 2

Bus.unit # 3

RELIANCES COMPETITIVE VALUE CHAIN

IL
OP

OL

MS

Economies Vertical Clustering of scale Integration of plants guarantee eliminates ensures supplier control competitive uncertainties over costs disbn.

Large product range prevents buyers from defecting

Doorstep delivery provides edge over rivals

SUNDARAM FASTENERS COMPETITIVE VC

IL
OP

OL

MS

Global Meeting US Purchasing General warehouse enables Motors enables lowest Stringent supplies cost Standards to JIT of raises companies supplies QUALITY

Full range Collaboration of with fasteners buyers meets ensures every customised customer solutions need

Marketing Strategy
Marketing strategy

Involved with pricing, selling, and distributing a product.

Marketing Strategy
Market development strategy
Capture a larger share of existing market through market saturation and market penetration Develop new markets for current products

Marketing Strategy
Product development strategy
Develop new products for existing markets Develop new products for new markets

Stages of New Product Development

Idea generation Concept evaluation Preliminary design Prototype build and test Final design and pilot production New business development

Marketing Strategy
Advertising or Promotion strategy
Push marketing strategy Investing in trade promotion to gain or
hold share

Pull marketing strategy Investing in consumer advertising to

build brand awareness

Financial Strategy
Financial strategy
Examines the financial implications of corporate and business-level strategic options and identifies the best financial course of action. Maximizes financial value of the firm

Financial Strategy..example
Leveraged buy out (LBO)
Company is acquired financed largely by debt (from a third party). Debt paid by acquired companys
operations or sale of assets

Financial Strategy..example
Tracking stock
Highlighting a high-growth business unit in a popular sector of the stock market. Keeping subsidiarys common stock
separately identified

R&D Strategy
R&D Strategy Deals with product and process innovation and improvement
Choice:
Technological leader Technological follower

Research and Development Strategy and Competitive Advantage

Technological Leadership Technological Followership Lower the cost of the product or value activities by learning from the leaders experience. Avoid R&D costs through imitation.

Cost Advantage

Pioneer the lowest cost product design. Be the first firm down the learning curve. Create low-cost ways of performing value activities.

Differentiation Pioneer a unique product that increases buyer value. Innovate in other activities to increase buyer value. Adapt the product or delivery system more closely to buyer needs by learning from the leaders experience.

Operations Strategy
Operations strategy
Determines: How and where product is

manufactured Level of vertical integration in process Deployment of physical resources Relationships with suppliers

Operations Strategy
Manufacturing strategy
Affected by product life cycle Job shop Connected line batch flow Flexible manufacturing system Dedicated transfer lines

Operations Strategy
Manufacturing strategy
Movement from mass production to: Continuous improvement Modular manufacturing Mass customization

Purchasing Strategy
Purchasing strategy
Obtaining raw materials, parts and supplies Basic Purchasing Choices:
Multiple sourcing Sole sourcing Parallel sourcing

Logistics Strategy
Logistics strategy
Flow of products into and out of the process Three current trends:
Centralization Outsourcing Use of the Internet

HRM Strategy
HRM strategy
Addresses issues of: Low-skilled employees
Low pay Repetitive tasks High turnover

Skilled employees
High pay Cross trained Self-managing teams

Information Systems Strategy

Information systems strategy

Technology to provide business units with competitive advantage

STRATEGIC AUDIT

How will you audit an organization in terms of key activities/functions?

Strategic Audit of a Corporation

I. Current Situation A. Current Performance
How did the corporation perform the past year overall in terms of return on investment, market share, and profitability?

B. Strategic Posture
What are the corporations current mission, objectives, strategies, and policies? Are they clearly stated or are they merely implied from performance? Mission: What business(es) is the corporation in? Why? Objectives: What are the corporate, business, and functional objectives? Are they consistent with each other, with the mission, and with the internal and external environments?

Strategic Audit of a Corporation

Strategies: What strategy or mix of strategies is the corporation following? Are they consistent with each other, with the mission and objectives, and with the internal and external environments? Policies: What are they? Are they consistent with each other, with the mission and objectives, with the strategies, and with the internal and external environments? Do the current mission, objectives, strategies, and policies reflect the corporations international operations whether global or multi-domestic?

II. Corporate Governance A. Board of Directors

Who are they? Are they internal or external? Do they own significant shares of stock?

Strategic Audit of a Corporation

Is the stock privately held or publicly traded? Are there different classes of stock with different voting rights? What do they contribute to the corporation in terms of knowledge, skills, background, and connections? If the corporation has international operations, do board members have international experience? How long have they served on the board? What is their level of involvement in strategic management? Do they merely rubber-stamp top managements proposals or do they actively participate and suggest future directions?

Strategic Audit of a Corporation

B. Top Management
What person or group constitutes top management? What are top managements chief characteristics in terms of knowledge, skills, background, and style? If the corporation has international operations, does top management have international experience? Are executives from acquired companies considered part of the top management team? Has top management been responsible for the corporations performance over the past few years? How many managers have been in their current position for less than 3 years? Were they internal promotions or external hires? Has it established a systematic approach to strategic management? What is its level of involvement in the strategic management process? How well does top management interact with lower level managers and with the board of directors?

Strategic Audit of a Corporation

Are strategic decisions made ethically in a responsible manner? Is top management sufficiently skilled to cope with likely future challenges?

III. External Environment: Opportunities and Threats (SWOT) A. Societal Environment

What general environmental forces are currently affecting both the corporation and the industries in which it competes? Which present current or future threats? Opportunities? See Table 3.1 on page 55. a) Economic b) Technological c) Political-legal d) Socio-cultural Are these forces different in other regions of the world?

Strategic Audit of a Corporation

B. Task Environment
What forces drive industry competition? Are these forces the same globally or do they vary from country to country? a) Threat of new entrants b) Bargaining power of buyers c) Threat of substitute products or services d) Bargaining power of suppliers e) Rivalry among competing firms f) Relative power of unions, governments, special interest groups, etc. What key factors in the immediate environment (that is, customers, competitors, suppliers, creditors, labor unions, governments, trade associations, interest groups, local communities, and shareholders) are currently affecting the corporation? Which are current or future threats? Opportunities?

Strategic Audit of a Corporation

C. Summary of External Factors
Which of these forces and factors are the most important to the corporation and to the industries in which it competes at the present time? Which will be important in the future?

IV. Internal Environment: Strengths and Weaknesses (SWOT) A. Corporate Structure

How is the corporation structured at present? a) Is the decision-making authority centralized around one group or decentralized to many units? b) Is it organized on the basis of functions, projects, geography, or some combination of these? Is the structure clearly understood by everyone in the corporation?

Strategic Audit of a Corporation

Is the present structure consistent with corporate objectives, strategies, policies, and programs as well as with the firms international operations?

In what ways does it compare with similar corporations?

B. Corporate Culture
Is there a well-defined or emerging culture composed of shared beliefs, expectations, and values? Is the culture consistent with the current objectives, strategies, policies, and programs? What is the cultures position on important issues facing the corporation (that is, on productivity, quality of performance, adaptability to changing conditions, and internationalization)? Is the culture compatible with the employees diversity of backgrounds? Does the company take into consideration the values of each nations culture in which the firm operates?

Strategic Audit of a Corporation

C. Corporate Resources
Marketing a) What are the corporations current marketing objectives, strategies, policies, and programs? i) Are they clearly stated, or merely implied from performance and/or budgets? ii) Are they consistent with the corporations mission, objectives, strategies, policies, and with internal and external environments? b) How well is the corporation performing in terms of analysis of market position and marketing mix (that is, product, price, place, and promotion) in both domestic and international markets? What percentage of sales comes from foreign operations? i) What trends emerge from this analysis?

Strategic Audit of a Corporation

ii) What impact have these trends had on past performance and how will they probably affect future performance? iii) Does this analysis support the corporations past and pending strategic decisions? iv) Does marketing provide the company with a competitive advantage? c) How well does this corporations marketing performance compare with that of similar corporations? d) Are marketing managers using accepted marketing concepts and techniques to evaluate and improve product performance? (Consider product life cycle, market segmentation, market research, and product portfolios.) e) Does marketing adjust to the conditions in each country in which it operates?

Strategic Audit of a Corporation

Finance
a) What are the corporations current financial objectives, strategies, policies, and programs? i) Are they clearly stated or merely implied? ii) Are they consistent with the corporations mission, objectives, strategies, policies, and with internal and external environments? b) How well is the corporation performing in terms of financial analysis? i) What trends emerge from this analysis? ii) Are there any significant differences when statements are calculated in constant versus reported dollars? iii) What impact have these trends had on past performance and how will they probably affect future performance?

Strategic Audit of a Corporation

iv) Does this analysis support the corporations past and pending strategic decisions? v) Does finance provide the company with a competitive advantage? c) How well does this corporations financial performance compare with that of similar corporations? d) Are financial managers using accepted financial concepts and techniques to evaluate and improve current corporate and divisional performance? (Consider financial leverage, capital budgeting, ratio analysis, and managing foreign currencies.) e) Does finance adjust to the conditions in each country in which the company operates? f) What is the role of the financial manager in the strategic management process?

Strategic Audit of a Corporation

Research and Development (R&D)
a) What are the corporations current R&D objectives, strategies, policies, and programs? i) Are they clearly stated, or merely implied from performance and/or budgets? ii) Are they consistent with the corporations mission, objectives, strategies, policies, and with internal and external environments? iii) What is the role of technology in corporate performance? iv) Is the mix of basic, applied, and engineering research appropriate given the corporate mission and strategies? v) Does R&D provide the company with an advantage?

Strategic Audit of a Corporation

b) What return is the corporation receiving from its investment in R&D? c) Is the corporation competent in technology transfer? Does it use concurrent engineering and cross-functional work teams in product and process design? d) What role does technological discontinuity play in the companys products? e) How well does the corporations investment in R&D compare with the investments of similar corporations? f) Does R&D adjust to the conditions in each country in which the company operates? g) What is the role of the R&D manager in the strategic management process?

Strategic Audit of a Corporation

Operations and Logistics
a) What are the corporations current manufacturing/service objectives, strategies, policies, and programs? i) Are they clearly stated, or merely implied from performance and/or budgets? ii) Are they consistent with the corporations mission, objectives, strategies, policies, and environments? b) What is the type and extent of operations capabilities of the corporation? How much is done domestically versus internationally? Is the amount of outsourcing appropriate to be competitive? Is purchasing being handled appropriately? i) If product-oriented, consider plant facilities, type of manufacturing system, age and type of equipment, degree and role of automation and/or robots, plant capacities and utilization, productivity ratings, availability and type of transportation.

Strategic Audit of a Corporation

ii) If service-oriented, consider service facilities (hospital, theater, or school buildings), type of operations systems (continuous service over time to same clientele or intermittent service over time to varied clientele), age and type of supporting equipment, degree and role of automation and/or use of mass communication devices (diagnostic machinery, video-tape machines), facility capacities and utilization rates, efficiency ratings of professional/ service personnel, availability service personnel, and availability and type of transportation to bring service staff and clientele together. c) Are manufacturing or service facilities vulnerable to natural disasters, local or national strikes, reduction or limitation of resources from suppliers, substantial cost increases of materials, or nationalization by governments?

Strategic Audit of a Corporation

d) Is there an appropriate mix of people and machines in manufacturing firms, or of support staff to professionals in service firms? e) How well does the corporation perform relative to the competition? Is it balancing inventory costs (warehousing) with logistical costs (just-in-time)? Consider costs per unit of labor, material, and overhead; downtime; inventory control management and/or scheduling of service staff; production ratings; facility utilization percentages; and number of clients successfully treated by category (if service firm) or percentage of orders shipped on time (if product firm). i) What trends emerge from this analysis? ii) What impact have these trends had on past performance and how will they probably affect future performance? iii) Does this analysis support the corporations past and pending strategic decisions?

Strategic Audit of a Corporation

iv) Does operations provide the company with a competitive advantage? f) Are operations managers using appropriate concepts and techniques to evaluate and improve current performance? Consider cost systems, quality control, reliability systems, inventory control management, personnel scheduling, TQM, learning curves, safety programs, and engineering programs that can improve efficiency of manufacturing or of service. g) Does operations adjust to the conditions in each country in which it has facilities? h) What is the role of the operations manager in the strategic management process?

Human Resources Management (HRM)

a) What are the corporations current HRM objectives, strategies, policies, and programs?

Strategic Audit of a Corporation

i) Are they clearly stated, or merely implied from performance and/or budgets? ii) Are they consistent with the corporations mission, objectives, strategies, policies, and with internal and external environments? b) How well is the corporations HRM performing in terms of improving the fit between the individual employee and the job? Consider turnover, grievances, strikes, layoffs, employee training, and quality of work life. i) What trends emerge from this analysis? ii) What impact have these trends had on past performance and how will they probably affect future performance? iii) Does this analysis support the corporations past and pending strategic decisions? iv) Does HRM provide the company with a competitive advantage?

Strategic Audit of a Corporation

c) How does this corporations HRM performance compare with that of similar corporations? d) Are HRM managers using appropriate concepts and techniques to evaluate and improve corporate performance? Consider the job analysis program, performance appraisal system, up-to-date job descriptions, training and development programs, attitude surveys, job design programs, quality of relationship with unions, and use of autonomous work teams. e) How well is the company managing the diversity of its workforce? f) Does HRM adjust to the conditions in each country in which the company operates? Does the company have a code of conduct for HRM in developing nations? Are employees receiving international assignments to prepare them for managerial positions? g) What is the role of the HRM manager in the strategic management process?

Strategic Audit of a Corporation

Information Systems (IS)
a) What are the corporations current IS objectives, strategies, policies, and programs? i) Are they clearly stated, or merely implied from performance and/or budgets? ii) Are they consistent with the corporations mission, objectives, strategies, policies, and with internal and external environments? b) How well is the corporations IS performing in terms of providing a useful database, automating routine clerical operations, assisting managers in making routine decisions, and providing information necessary for strategic decisions? i) What trends emerge from this analysis? ii) What impact have these trends had on past performance and how will they probably affect future performance?

Strategic Audit of a Corporation

ii) What impact have these trends had on past performance and how will they probably affect future performance? iii) Does this analysis support the corporations past and pending strategic decisions? iv) Does IS provide the company with a competitive advantage? c) How does this corporations IS performance and stage of development compare with that of similar corporations? d) Are IS managers using appropriate concepts and techniques to evaluate and improve corporate performance? Do they know how to build and manage a complex database, conduct system analyses, and implement interactive decision-support systems? e) Does the company have a global IS? Does it have difficulty with getting data across national boundaries? f) What is the role of the IS manager in the strategic management process?

Strategic Audit of a Corporation

D. Summary of Internal Factors
Which of these factors are the most important to the corporation and to the industries in which it competes at the present time? Which will be important in the future?

V. Analysis of Strategic Factors (SWOT) A. Situational Analysis

What are the most important internal and external factors (Strengths, Weaknesses, Opportunities, Threats) that strongly affect the corporations present and future performance? List five to ten strategic factors.

B. Review of Mission and Objectives

Are the current mission and objectives appropriate in light of the key strategic factors and problems?

Strategic Audit of a Corporation

Should the mission and objectives be changed? If so, how? If changed, what will the effects on the firm be?

VI. Strategic Alternatives and Recommended Strategy A. Strategic Alternatives

Can the current or revised objectives be met by the simple, more careful implementing of those strategies presently in use (for example, fine-tuning the strategies)? What are the major feasible alternative strategies available to this corporation? What are the pros and cons of each? Can corporate scenarios be developed and agreed upon? a) Consider cost leadership and differentiation as business strategies.

Strategic Audit of a Corporation

b) Consider stability, growth, and retrenchment as corporate strategies. c) Consider any functional strategic alternatives that might be needed for reinforcement of an important corporate or business strategic alternative.

B. Recommended Strategy
Specify which of the strategic alternatives you are recommending for the corporate, business, and functional levels of the corporation. Do you recommend different business or functional strategies for different units of the corporation? Justify your recommendation in terms of its ability to resolve both long- and short-term problems and effectively deal with the strategic factors. What policies should be developed or revised to guide effective implementation?

Strategic Audit of a Corporation

VII. Implementation A. What kinds of programs (for example, restructuring the corporation or instituting TQM) should be developed to implement the recommended strategy?
Who should develop these programs? Who should be in charge of these programs?

B. Are the programs financially feasible? Can pro forma budgets be developed and agreed upon? Are priorities and timetables appropriate to individual programs? C. Will new standard operating procedures need to be developed?

Strategic Audit of a Corporation

VIII. Evaluation and Control A. Is the current information system capable of providing sufficient feedback on implementation activities and performance? Can it measure critical success factors?
Can performance results be pinpointed by area, unit, project, or function? Is the information timely?

B. Are adequate control measures in place to ensure conformance with the recommended strategic plan?
Are appropriate standards and measures being used? Are reward systems capable of recognizing and rewarding good performance?