Foundation to Business Strategy
Topic-3
Porter's Five Forces Analysis
Topic-1
Strategy & Strategic Management Process
Topic-8
Vision and Mission Statements
Topic-6
Sources of Competitive Advantage
Topic-5
Resource Audit
Topic-2
PEST Analysis
Topic-4
SWOT Analysis
Topic-7
Stakeholder Analysis
Topic-9
Change Management
- What is Strategy?
1.Strategy Evolution
- Levels of Strategy
Functional Strategy
Competitive Strategy
Corporate Strategy
Overall vision, mission
Kinds of business, portfolio management
What product and/or service to offer
How to manufacture, how to get to market, etc.
Functional/Operational
Focused domain
4.Key Driving Factors
Globalisation
Technology
Intellectual Capital
5.Process of Strategic Management
Strategy implementation
Strategy development and choice
Strategic analysis
Micro environmental analysis
Macro environmental Analysis
Porters five force analysis- Unit-3
PEST-Unit 2
SWOT Unit-4
The determination of the basic long-term goals and objectives of an enterprise and the adoption of courses of actions and the allocation of resources necessary for carrying out these goals”. (Chandler, 1962)
Difficulties in analysing the environment
Environmental uncertain.
Globalisation and technological developments.
Unpredictable.
PEST Factors.
Political
Economic
Socio-Cultural
Technological
Government Stability
Foreign Trade regulations
Taxation Policies
Employment laws
Environment protection laws
Deregulation
Monopolies act
Business Cycles
Interest Rates
Inflation
Disposable Income
Unemployment
Energy Availability and Cost
Population Demographics
Income Distribution
Lifestyle Changes
Levels of Education
Attitudes to Work and Leisure
Consumerism
New Discoveries and Developments
Government spending on Research
Rate of Obsolescence
industry’s competitiveness
Profitability level
Intensity of competition
Threat of New Entrants.
Threat of Substitutes.
Bargaining power of Buyers.
Bargaining power of Suppliers.
The extent of Industry Rivalry.
There are many competitors
Exit barriers are high
Industry growth is slow or negative
Products are not differentiated and can be easily substituted
Competitors are of equal size
Low customer loyalty
There are few suppliers but many buyers
Suppliers are large and threaten to forward integrate
Few substitute raw materials exist
Suppliers hold scarce resources
Cost of switching raw materials is especially high.
Buying in large quantities or control many customer.
Only few customers exist
Switching costs to other supplier are low
They threaten to backward integrate
There are many substitutes
Customers are price sensitive
Low amount of capital is required to enter a market
Existing companies can do little to retaliate
Existing firms do not possess patents, trademarks or do not have established brand reputation
There is no government regulation
There is low customer loyalty
Products are nearly identical
Economies of scale can be easily achieved
First, if the consumer’s switching costs are low
Second, if the substitute product is cheaper than the industry’s product
Third, if the substitute product is of equal or superior quality compared to the industry’s product, the threat of substitutes is high
Fourth, if the functions, attributes, or performance of the substitute product are
equal or superior to the industry’s product
.
Strengths
A STRENGTH is something a company is good at doing or a characteristic that gives it an important capability.
Weaknesses
A WEAKNESS is something a company lacks or does poorly (in comparison to others) or a condition that places it at a disadvantage
Opportunities
An OPPORTUNITY is a chance for firm growth or progress due to a favorable juncture of circumstances in the business environment.
Threats
A THREAT is a factor in company’s external environment that poses a danger to its well-being.
Good brand image
Well-known name
Good reputation
Cost advantage in production
High market share
Confidence in the market
Customer loyalty or repeat business
More advanced technology and R & D
Ineffective in production
Falling profit
Falling sales of the product
Declining age of the life cycle of a product
Poor reputation
Lack of innovation and change
Lack of adequate capital or having some financial problems
Customers’ losing confidence or increasing complaints on the business
Poor management or inefficient organizational structure
Possible development of new products
Expansion into new markets
Development of a global brand
Joint –development with other companies
Possible growing demand for a product in the market
Possible government policies encouraging the growth of the business and its certain products
New sources of profit or income
Changes in law or regulation which may prohibit or affect the production of a business
Growing competition from local companies
Increasing competition from foreign competitors
New products developed by other companies which may replace the product of the business
Marketing activities or strategies which will be implemented by competitors
Elements of SWOT Analysis
Leverage
Leverage is when a strength allows you to take advantage of an opportunity.
Constraint
Constraint is when a weakness prevents you from taking advantage of an opportunity.
Vulnerability
Vulnerability is when a threat attacks a strength.
Problem
Problem is when a threat attacks a weakness.
Internal Resource Analysis
The internal analysis of the organisation's resources is done to identify the strengths and weaknesses of the organisation around which strategies can be made.
The Resource Audit
The quantity of resources available.
The nature of resources
The extent the resources are unique
Types of resources
Intangible resources
Ownership of brands, Company image, Trademarks
Tangible resources
Physical resource
Financial resource
Human resource
Four important questions about
their resources and capabilities.
VALUE: Do a firm’s resource and capabilities add value by enabling it to exploit opportunities and/or neutralise threats?
Rare: How Many competing firms posses valuable resources and Capabilities?
Are the resources Imitable?
Non-Substitutable : Is the firm’s resources/competencies a substitutable one?
Competitive Advantage
A firm's relative position within its industry determines whether a firm's profitability is above or below the industry average.
Competitive source
.
Competitive Scope.
Differentiation
Lower Cost
Broad Target
Narrow Target
Broadly Targeted Differentiation
Production emphasis: “Nobody makes it better.”
Marketing emphasis: “Ours is better than theirs.”
Many frills – different models, options, features, and services.
One or more points of difference.
Frequent innovation.
Premium pricing to cover the cost of differentiation.
Intensive advertising and sales efforts.
Overall Cost Leadership
Focus
Production emphasis: “Made especially for you.”
Marketing emphasis: “Ours meets your needs better.”
Specialization for buyer segments, geographic areas or end-use applications.
Competitive advantage depends on being the low-cost leader in the target segment, or doing something particularly appealing to the targeted customers.
Cost
Differentiation
Overall Cost Leadership
Production emphasis: “Nobody does it cheaper.
Marketing emphasis: “Budget Prices and Good Value.”
Standardized products – only a few models and limited optional features.
No Frills operating culture – lean and mean reputation.
Higher productivity per employee.
Cost-cutting innovations.
Accept low profit margins in return for high volume
Any group or individual that can affect, or is affected by, the performance of the organisation” (Freeman 1984)
Individuals or groups who depend on the organisation to fulfil their own goals and on whom, in turn, the organisation depends” (Johnson & Scholes 1999)
Types of Stakeholders
Primary & Secondary Stakeholders
Primary: a firm cannot exist without their continuing participation
Primary stakeholders include: shareholders & investors, employees, contractors, customers & suppliers
Secondary: those who influence or affect or are influenced/affected by, the corporation, but they are not engaged in transactions with the corporation or essential for its survival
Secondary stakeholders include: media, action groups, government agencies, trade unions, regulatory authorities
Internal & External Stakeholders
Differing stakeholder expectations
Owners Financial Return/Added Value
Customers Quality Products/Additional Services
Employees Pay & Benefits/Work Satisfaction
Creditors Creditworthiness/Timely repayment
Government Compliance/Improved Competitiveness
Community Welfare/Safety & Security
Suppliers Payment/Long term Relationships
Competitors Fair Competition/play
The Stakeholder Theory of the Firm
Stakeholder Theory of the Firm
Stakeholder Analysis
Stakeholder analysis is the process of identifying the individuals or groups that are likely to affect or be affected by a proposed action, and sorting them according to their impact on the action and the impact the action will have on them.
Ownership Theory of the Firm
Stakeholder Mapping
Stakeholder mapping refers to the process of generating a stakeholder map by which the stakeholders of a particular organization can be identified and understood appropriately.
Stakeholders Influence = Power x Interest
Category C
Category B
Category D
Category A
Interactive
Companies actively engage with stakeholders in an ongoing relationship of mutual respect, openness, and trust
Proactiv
Companies try to anticipate stakeholder concerns
e
Reactive
Companies act only when forced to do so
Inactive
Companies ignore stakeholder concerns
A vision statement
A vision is a mental picture of what an organization aspires to become.
A vision statement is concerned with the desired future state of the organisation; an aspiration that will enthuse, gain commitment and stretch performance.
Mission Statement
A mission statement should answer the question: ‘What business are we in?’
‘How do we make a difference?’
‘Why do we do this?’
Characteristics of a Vision Statement
Provides future directionExpresses a consumer benefitIs realisticIs motivatingMust be fully communicatedConsistently followed and measured
Characteristics of a Mission
Broad in scope; do not include monetary amounts, numbers, percentages, ratios, or objectivesLess than 250 words in lengthInspiringIdentify the utility of a firm's productsReveal that the firm is socially responsibleReveal that the firm is environmentally responsibleInclude nine components customers, products or services, markets, technology, concern for survival/growth/profits, philosophy, self-concept, concern for public image, concernReconciliatoryEnduring
Mission Statement Components
Customers—Who are the firm’s customers?Products or services—What are the firm’s major products or services?Markets—Geographically, where does the firm compete?Technology—Is the firm technologically current?Concern for survival, growth, and profitability—Is the firm committed to growth and financial soundness?Philosophy—What are the basic beliefs, values, aspirations, and ethical priorities of the firm?Philosophy—What are the basic beliefs, values, aspirations, and ethical priorities of the firm?Concern for public image—Is the firm responsive to social, community, and environmental concerns?Concern for employees—Are employees a valuable asset of the firm?
Benefits of Having a Clear Mission and Vision
-Achieve clarity of purpose among all managers and employees.
-Provide a basis for all other strategic planning activities, including the internal and external assessment, establishing objectives, developing strategies, choosing among alternative strategies, devising policies, establishing organizational structure, allocating resources, and evaluating performance.
-Provide direction.
-Provide a focal point for all stakeholders of the firm.
-Resolve divergent views among managers.
-Promote a sense of shared expectations among all managers and employees.
-Project a sense of worth and intent to all stakeholders.
-Project an organized, motivated organization worthy of support.
-Achieve higher organizational performance.
-Achieve synergy among all managers and employees.
Broad Concept of Change
Change is a permanent part of life. No matter who we are, where we live, how old or young, we all make changes in our lives. Most of us struggle with change…
Forces for Change
External Forces
Internal Forces
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Scope of Change
Incremental change - change of a relatively small scope, such as making small improvements
Transformational change - change in which the organization moves to a radically different, and sometimes unknown, future state
Organizational Change
Planned change
Change resulting from a deliberate decision to alter the organization
Kurt Lewin’s three-step change process
Unfreezing Status quo(1)ChangingRefreezing Status quo(2)
UnPlanned Change
Change that is imposed on the organization and is often unforeseen.
Kotter’s eight-step plan for implementing
1.Establish a sense of urgency.
2.Form a powerful coalition of managers.
- Create a vision to direct the change and the strategies for achieving that vision.
4.Communicate the vision throughout the organisation.
5.Empower others to act on the vision.
6.Plan for visible, short-term performance improvements and crate those improvements.
7.Consolidate improvements.
8.Articulate the relationship between new behaviors and organizational success.
Models for managing change
Managerialist approach to change
Change agent approach to change
Resistance to change
lack of trust
perception that change is not necessary
perception that change is not possible
relatively high cost
fear of personal failure
loss of status or power
threats to values and ideas
social, cultural or organizational disagreements
resentment of interference
Overcoming resistance to change using the managerialist approach.
1.Education
2.Negotiation and Participation
3.Culture and Communication and Teamwork
4.Support
5.Reward Systems
6.Leadership.
7.The use of force(coercion).