Strategic Management NM – 2 Nov 2008 N.Krishnamoorthy

1. Strategic ManagementNM – 2 Nov 2008N.Krishnamoorthy

2. THE FLOW OF PRESENTATION • Good Morning, Introduction • Business Scenario today – what strategy you will adopt? As individual, and as Company? • Is it recession? - “mindset” ? • Cs – Margins - P/Pr/Q/D/S/Diff. • Business Process – • Plan – Buy – Make – Sell – Service? • contd

3. THE FLOW OF PRESENTATION • Qualities required of a Manager for Strategic thinking • Elements, Process of Strategic Management • The Five Tasks of Strategic Management • The SM evolution in India – post LPG • Porter’s 5 forces model & External environment factors • STRATEGIC PLANNING IN ACTION • An exercise by you. Executive Summary • Major Presentation leading through SM aspects • Some Key Models • Strategies e.g. Global, JV, M&A, SAlliances, etc. • Why some companies fail? • What a few companies do to society as a Strategy.

4. Qualities required of a MANAGER for Strategic Management • A. Internal (To firm) • Exceptional skills on current function / responsibility handled • DTRFTAT • Purposeful, confident, ability to interact with other functional processes, a broad knowledge of these processes a minimum must • Understanding processes, and creativity to “doing things differently” (Seeking alternates / routes / solutions) • Challenging status quo • Creativity in VA • An ability to eliminate NVA activities / processes • Control (vigilance) on operations / Critical information • Alertness to happening around • Knowledge – and managing knowledge (KM) • Seeking improvements in procedures / system • Relationship management / Team building capacity .. Contd…

5. Qualities required for Strategic Management • Art of delegating • Increasing use of IT / Network / Data management • Creating a culture where people enjoy working – returning to work next day • Internal customer focus – • Cross functional skills, mobility for instantaneity and flexibility • Technology (iPod, mobile) to compress time (retrieval of info and its feedback and consequent coordinating efforts • Learn and unlearn – re-relearn basics • Managing Internal organization to ensure strategy execution, modification, review, revision, if any • To be aware of best practices in a cross – section of industries • To incorporate flexibility in the design strategies to understand variables • Innovation – novelties creativity –making them a habit- A vision • Any problems or issues – Ask WHY 5 times – R C A • BALANCED LIFE.

6. Qualities required for Strategic Management • B. External (to Firm) • A nose for the right news • Events affecting business horizon • Events, impacting way of life • Affecting Supply / Demand equation • To create your own impact on the External environment for business in general • Alertness in scenting opportunities • First / Quick to respond (better your internal capabilities the easier it is) • Be able to adapt to changes … contd …

7. Qualities required for Strategic Management • Be able to move fast to mitigate or nullify adverse impact / stop any further loss • KM • Ability to create alternate models for different contingencies • An established BCP which meets the test of time – and adverse circumstances • A perception to discern and verify the veracity of information • An inane ability to anticipate “moves” of competitors and create your own move • AN ABILITY TO CREATE A BIG PICTURE AND MESSAGE ABSORBED BY THE ENTIRE VALUE CHAIN OF THE FIRM. • YOU CAN ADD MANY MORE

8. STRATEGIC PLANNING – DERIVING THE BIG PICTURE (Questions to Ask) • Planning : Why – Purpose • The Drivers : Why, What, When, Where, Who, & HOW - 5W & 1 H • WHAT ARE • You aiming / Gain expected • The products / services • Your strengths / Weaknesses • Your competitors – HOW are you different • What value different competitors offer • Where is your competitor located • Who is your customer • Why are they different and how? v/v competitors • Which market does your customer have • Where does he operate • What is your CC v/v others • What is happening around you? • Is there any perceptible change in the breeze • Is that an opportunity or a threat

9. STRATEGIC PLANNING – DERIVING THE BIG PICTURE (Questions to Ask) • Scope How much money is needed to implement new plans / strategies Concerns When do you wish to act What processes I should strengthen How am I going to go about Where can I value innovate v/v Products change v/v competition What mechanism to achieve the TASK The RICE principle (reduce, improve, create, eliminate)

10. STRATEGIC PLANNING – DERIVING THE BIG PICTURE (Questions to Ask) • Vision What is the horizon – 5 – 10 - 15 yrs?? Ahead Does the customer wants a change • Follow up How do I ensure plans are monitored to meet targets Quick midstream course changes A to B straight line /– Min. resources / function/value – Customer expectations / Compression of cycle time & cost • Processes – • systems under control / well tested system for scanning - an established and proven MIS

11. THE STRATEGIC MANAGEMENT PROCESS– An overview • 1. Basic Concept: • A Co’s Strategy consists of the combination of competitive moves and business approaches that managers employ to please customers, compete successfully, and achieve organizational objectives. • A strategy thus entails managerial choices among alternatives and signals organizational commitment to specific markets, competitive approaches, and ways of operating. • Business models, therefore, are Plans for making money in a particular business. Deals with Revenue-Cost-Profit cycle. A bus. Model is whether a given strategy makes sense from a money-making perspective. So, strategy demonstrates the viability of the enterprise as a whole.

12. THE STRATEGIC MANAGEMENT PROCESS– An overview • 2. The most trustworthy signs of Good Management • Don’t deserve a Gold Star just designing a potentially brilliant strategy, but to carry it out in high-caliber fashion. Weak implementation paves the way for shortfalls in Customer Satisfn. And Co. performance. SO, EXCELLENT EXECUTION. • Linux: Zero product development costs. So Operating System free who wish to download it, (make the Source Code open & make their own customized version), but charge money to users who prefer to buy the CD-RO, (a bit of hand holding – so make money on technical support services) • Ooh, MS Window- Source code hidden from consumer, so sell the OS to PC makers and users at relatively attractive prices. Costs fixed, variable costs (producing and packaging the CDs only a couple of dollars per copy. Provide technical support to users at no cost. ) • WHAT DO YOU THINK – WHICH MODEL IS GOOD?

13. Strategic Management – the elements & Process • NOW LET’S UNDERSTAND THE STRATEGIC MANAGEMENT ELEMENTS AND PROCESSES • AUTHORS HAVE THEIR OWN VERSIONS BUT ARGUABLY MOST INCLUDE WHAT IS GIVEN IN THE NEXT PAGE • SO LET US NOT SPLIT HAIR OVER IT BUT UNDERSTAND NUANCES OF EACH OF THE ELEMENTS & PROCESSES ON ITS MERIT.

14. Strategic Management – the elements & Process • 1. Defining Vision, Mission & Business definition – • 2. Environmental Analysis – External – Social Responsibility • 3. Internal Appraisal / Analysis – • Analyzing Industry & Competition • Competitive Advantage & Core Competencies • 4. Strategy formulation • Setting objectives and goals, business definition • 5. Identifying Alternative Strategies • Generic, Expansion (Intensification, Diversn, Divestment, etc.) ) • 6. Choice of Strategy • SWOT Analysis • 7. Implementation of Strategy • Strategic Structure, Routes (M&A, JV, T/O, St.All, Globalization, etc.) • 8. Strategy Evaluation & Control • Monitoring, assigning responsibilities, etc • 9. Feedback • RESET REFORMULATE AND REIMPLEMENT IF?? WHEN REQUIRED • NEXT – THE 5 TASKS OF STRATEGIC MANAGEMENT

15. Strategic Management – the elements & Process LET US NOW UNDERSTAND THE 5 TASKS ASSOCIATED WITH THESE ELEMENTS

16. The 5 Tasks of Strategic Management (A bird’s eye view of the subject) - These tasks are inter-related • 1. Forming a Strategic Vision of where the organization is headed. • 2. Setting objectives – converting Str. Vision into specific performance outcome. • 3. Crafting a strategy to achieve the desired outcomes • 4. Implementing and executing the chosen strategy efficient and effectively. • 5. Evaluating performance and initiating corrective adjustments in vision, long-term direction, objectives, strategy, or execution in the light of actual experience, changing conditions, new ideas and new opportunities. • LET’S LOOK INTO EACH OF THESE 5 TASKS.

17. The 5 TofSM - Strategic Vision: (Task 1) • A Roadmap to future • Providing specifics about technology and customer focus • The geographic and product markets to be pursued • The capabilities it plans to develop • The kind of company the management is trying to create.

18. TASK 1 – contd. • Mission Statement • It is typically focused on its present business scope – “Who we are and what we do” – describes present capabilities, customer focus, activities, and business make up. • In practice, however, because the big majority of company mission statements say more about “what our business is now” than “what our business will be later” the distinction between Co. mission and strategic vision has pragmatic relevance. • Vision – greater direction-setting and strategy making value – i.e. looking beyond today, the impact of “changing environment”. • Lesson – Think strategically, do not drift aimlessly and thus lose any claim to being an industry leader.

19. Setting objectives (2nd Task) • If u want to have “Oh-hum” results, have “ho-hum” objectives. • Performance targets – yardsticks for tracking perf. And progress. • Constant “improving competitive strength” – if not so, it is less inspiring. • Financial objectives: Earnings growth, an acceptable RoI, dividend growth, stock price appreciation • Overall business position, and competitive vitality. • E.g. Safely deliver hot pizza in 28 minutes – fair price and reasonable profit. • Providing quality cars, trucks… reducing time (design to commercial), building on team (stakeholders) • Focus globally on those businesses in health & personal care, where we will be no. 1 or 2 through delivering superior value to the customer. • To be one of the top 3 banking companies in terms of MS…” • To be the lowest cost producer of aluminum and get mentioned in S&P ratings. • Return on Stockholders’ equity of 20-25%..

20. Crafting a Strategy (3rd task) • Critical managerial issue of how to achieve the targeted results in light of organizations situation and prospects. Objectives – “ends” / strategies – “ means” • The means or “hows” – blend of deliberate actions and as-needed reactions to unanticipated developments, and collective learning of organization over time. Capable of taking a “new face” responding to changes - • SO BOTH PROACTI VE AND REACTIVE (deliberate and adaptive) • SM are partly visible and partly hidden to outside view. (those who watch from outside can only speculate about – the as-yet-unrevealed strategic actions co. is intending to launch.

21. Crafting a Strategy (3rd task) • Being the best – i.e. consistently satisfying customers better than rivals thru o/standing Q, service, cleanliness and value. Strategic priorities : continued growth, exceptional customer care, quality producer, developing people at every level of the organization, sharing best practices across all units wwide, re-invent FF concept by innovation in menu, marketing, operation and technology.

22. Crafting a Strategy (3rd task) • Growth Strategy of Mc Donald: • Penetrate – 1750 new outlets annually – 1 every 5 hours (some owned, some franchised – 90% outside US – establish leading market position ahead of competitors. • Promote > frequent customer visits – addl. Attractive menu, low-price specials, Extra Value meals, children’s play areas. • Exploit Global CC of supplier infrastructure and multi-unit Rest. Management, site location, unit construction, and product marketing.

23. Crafting a Strategy (3rd task) • Franchising strategy: • Only to highly motivated, talented entrepreneurs with integrity, bus. Experience, -- train them to be active, on-premise owners. NO FRANCHISES WERE GRANTED TO COPORATIONS, PARTNERHSIPS OR PASSIVE INVESTORS)

24. Crafting a Strategy (3rd task) • Store Location & Construction Strategy: • Sites convenient to customers – (research all visitors “on the spur” customers (e.g. Rly Stations). US – Co. supplemented its traditional suburban and urban locations with satellite outlets in food courts, airports, hospitals, universities, large shopping establishment. (Wal Mart, Home Depot), and service stations. Outside US – initial presence in center cities, then open freestanding units with drive-thrus outside center cities. • Reduce site costs & bldg. costs by using standardized, cost-efficient store designs and by consolidating purchases of equipment and materials via a global-sourcing system. • Make sure Res. R attractive and pleasant

25. Crafting a Strategy (3rd task) • Product Line strategy; • Limited menu, improve taste appeal (sandwiches), expand product offerings into new categories of FF (chicken, Mexican, pizza, adult-oriented s/w) and items for health conscious customers. • Roll out new, potentially appealing ones quickly, and as quickly drop those that fail. (a departure from past practice of extensive testing to ensure consistent high quality before rolling out new menu – 7 years to develop Chicken McNuggets).

26. Crafting a Strategy (3rd task) • Store Operations: • Stringent standards – food quality, store & equip. cleanliness, R.Op.procedures, friendly courteous counter service. • “Made for YOU” concept – involved installation of advanced equip. sophisticated computer technology, and new preparation methods – to allow items to be prepared to customer order.

27. Crafting a Strategy (3rd task) • Sales promotion, marketing and merchandising: • Above image through heavy media advtsg and in-store merchandise promotions funded with fees tied to a percentage of sales revenues at each restaurant. • Mc prefix to reinforce connection of items to Company. • Project an attitude of happiness and interest in children.

28. Crafting a Strategy (3rd task) • Human resource and training: • Equitable wage rates – non discriminatory – teach job skills, reward individual and team performance, career opportunities, flexible work hours for student employees. • Crews with good work habits/courteous – train – promote promising. • Training on delivering customer satisfaction (World Wide selected instructors) • Promote a global mind set—good & new ideas shared ax all chains.

29. Crafting a Strategy (3rd task) • Social Responsibility and Community Citizenship • Active community role – local charities, create neighbourhood spirit, promote educational excellence. • Sponsor Ronald McDonald Houses – a home away from home for families of seriously ill children receiving treatment at nearby hospitals. • Promote workforce diversity, voluntary affirmative action, and minority-owned franchises. • Student scholarships, teacher awards, and free instructional resources. • Adopt environment friendly practices. • Nutritional info. To Customers. • THE ITC EXAMPLE IN INDIA

30. Crafting a Strategy (3rd task) • Please note that Co. Strategies evolve, matching external and internal developments – so it is an ongoing process, not a one-time event.

31. COMPANY APPROACHESFUTURE MARKET CONDITIONS • I am adding a new element here before we go to the 4th task. • RAPID REVOLUTIONARY CHANGE • REACTIVE / FOLLOWER • Rushing to catch up to keep from being swamped by the waves • PROACTIVE / LEADER • Aggressively altering strategy to make waves and drive • Change • GRADUAL REVOLUTIONARY CHANGE • REACTIVE / FOLLOWER • Revising strategy (hopefully in time) to catch the waves • PROACTIVE / LEADER • Anticipating change and initiating strategic actions • To ride the crest of the waves. • Since strategy life cycles are growing shorter, not longer – more updates may be necessary – than being satisfied with an annual event).

32. Implementing and Executing the Strategy: (4 task) • This is primarily a hands-on close-to-the-scene administrative task, and includes following aspects: • Bldg. an orgn. Capable of carrying out strategy successfully • Allocating Co. resources – sufficient funds and people • Establish strategy supporting policies & operating procedures • Putting a freshly chosen strategy into place. • Motivating people, if needed, modifying their duties & job behavior – as a strategic fit for successful execution. • Reward system – • Create a conducive Co. culture / work climate. • Installing info. Communication and operating systems – no obstacles while carrying out strategies • Exerting internal leadership to drive implementation. • In short a “strategic fit” between how things are done internally and what it will take for the strategy to succeed. • St. execution – an action oriented, make it happen process, interplay of competencies and capabilities, budgeting, policy making, motivating, culture building and leadership.

33. Evaluating Performance, Monitoring new Developments and initiating corrective adjustments. (5th Task) • Instituting best practices for continuous improvement. • A monitoring apparatus alert to internal and external changes. • Above will require corrective actions and adjustments • Revising budgets, changing policies, organizational restructure, revamping activities, work processes, bldg. new competencies and capabilities, efforts to change work culture, compensation packages, hasten implementation. Progress reviews, ongoing searches, corrections.

34. IN SUMMARY, THENNature and scope of strategic planning • Serves as a route map for the corporation • Lends a framework for systematic handling of corporate decisions • Lays down growth objectives of the firm and also provides strategies needed for achieving them / Ensures the firm remains a prepared organization / Ensures that the firm’s business, products and markets are chosen wisely • Ensures best utilization of the firm’s resources among the product-market opportunities / Serves as a hedge against uncertainty arising from environmental turbulence • Helps the firm understand trends in advance and provides the benefit of a lead time for taking crucial decisions and actions • Helps avoid haphazard response to environment / Provides the best possible fit between the firm and the external environment • Helps build competitive advantages and core competencies • Draws from both intuition and logic / Prepares the firm to not only face the future but even shape the future in its favor Seeks to influence the firm’s mega environs in its favor, working into the environs and shaping it.

35. In summary then, Concerns of Strategic Planning • Future - long-term dynamics is its concern; not day-to-day tasks • Growth - direction, extent, pace and timing of growth • Environment - the fit between the business and its environment • Portfolios of business – product-market scope and postures • Strategy - strategy is its concern; not the operational activities • Integration - integration is its concern; not a particular function • Creating core competencies/competitive advantages • creating long-term, sustainable organizational capability is its concern • in one word, corporate strategy is its concern

36. In summary, then, The tasks in strategic planning • Clarifying the mission of the corporation • Defining the business • Surveying the environment • Internal appraisal of the firm • Setting the corporate objectives • Formulating the corporate strategy • Monitoring the strategy • The strategic planning process • Clarifying the mission of the corporation • Defining the business

37. Insummary, Tasks (contd) • Surveying the environment • Marco environmental factors • Demographic Socio-cultural Economic Political • Natural Technological Legal Govt. Policies • Environmental factors specific to the business concerned • Industry & Competition / Market/Customer / Technology • Supplier Factors / Govt. Policies • Spotting the opportunities & threats • Checking the attractiveness and probability position of these opportunities • Highlighting those opportunities the pursuit of which will help the firm bridge its strategic planning gap • Developing the opportunities-threats profile (OTP)

38. Insummary, Tasks (contd) • Internal appraisal of the firm • Assessing the firm’s capabilities/strengths & weaknesses in the various areas: • Finance / Marketing/ Human Resources / Operations/ R & D / General Management • Developing the strength-weakness profile • Appraising the individual businesses/strategic business units (SBUs) of the firm • Identifying the competitive advantages and core competencies and developing the competitive advantage profile (CAP) • Examining the capability gap (gap between existing capabilities and the ones needed for pursuing the spotted opportunities)

39. Insummary, Tasks (contd) • Setting the corporate objectives • Framing the broad aims of the corporation, using the corporate mission as the guide • Examining the strategic planning gap and checking the growth-scope • Fixing the growth objective • Setting specific objectives in all major areas: • Growth in Assets, Sales, Profits, Market Shares • Profitability Competitive Position Technology • Productivity R&D and Innovation Human Resources • Corporate Image Social Responsibilities • Prescribing the hierarchy/rank/priorities of the objectives

40. Insummary, Tasks (contd) • Formulating the Corporate strategy: exploring generic alternatives • Examining which generic strategy the firm should opt for: • Stability? • Expansion? • Divestment? • Combination? • Understanding the effect of the alternatives in terms of changes/additions/deletions to the firms existing product-market posture • Clarifying the competitive advantage and synergy which each alternative would require/use

41. Insummary, Tasks (contd) • Formulating the corporate strategy: strategy choice • Evaluating the strategy alternatives • Keeping the O-T profile, the growth objective and CAP as the reference frame, examining what strategy would be the best • Reviewing the existing businesses • Assessing the prospects of each SBU • Examining what to do with each SBU • Build? Maintain? Harvest? Divest? To what extent? At what pace? • Examining which new businesses are to be taken up • Examining the resource requirement of the different strategy options and checking the resource availability • Making the final choice of the strategy/strategy spectrum • Translating the strategy in terms of what is to be done with each SBU • Assigning the priorities to the SBUs, existing as well as new ones • Clarifying what is expected of each SBU • Allocating resources to the SBUs • Monitoring the strategy

42. THE FIVE TASKS – NOT ISOLATED, COMPLEMENTARY THE 5 TASKS ARE A TIGHTLY KNIT PROCESS, THE BOUNDARIES BETWEEN THEM ARE CONCEPTUAL, NOT FENCES THAT PREVENT SOME OR ALL OF THEM BEING DONE TOGETHER.

43. STRATEGIC PLANNING – THE INDIA EVOLUTION OF STRATEGIC MANAGEMENT

44. CONSEQUENCES OF LPG • Environmental changes which forced firms to adopt a strategic perspectives • Changes in technology / Proliferation of new products • Faster commercialization of new product ideas and patents • Business boundaries getting blurred due to the overarching technology / Socio-political changes • Governments becoming bargainers in the conduct of businesses • Emergence of global markets / Emergence of global firms • Emergence of global brands / The new affluence of the consumer / The changing tastes and preferences of the consumer. • New demands the firms had to face, consequent to the environmental changes • To be strategically alert • To be future-oriented • To be able to take risks in tapping opportunities • To be insulated against environmental threats • To develop the competence for assimilating changes faster • To respond effectively and more economically • To grow big • To be able to generate large resources • To gain expertise in technology, marketing and decision support systems.

45. THE NEW ECONOMIC POLICIES • Liberalisation Measures • New Industrial Policy • Liberalisation of industrial licensing / FERA liberalization / MRTP liberalization / Curtailment of public sector • Macro-Economic Reforms & Structural Adjustments • Lowering of import tariffs • Abolition of import license • A more open exim regime • Convertibility of rupee • Encouragement to foreign investment • Integrating India’s economy with the global economy • Fiscal and monetary reforms • Banking sector reforms • Capital market reforms • Phasing out subsidies • Dismantling of price controls and introduction of market driven price environment • Public sector restructure disinvestments • Exit policy

46. THE NEW ECONOMIC POLICIES • The new industrial policy • The Main Components • Liberalization of Industrial Licensing • Deli censing • Abolition of registration • Decontrol • Broad banding • Deregulation

47. THE NEW ECONOMIC POLICIES • FERA Liberalization • Liberalization of foreign of technology investment / Liberalization import • No MRTP clearance • Abolition of threshold assets needed for expansions, mergers • Curtailment of Public Sector – Only eight core • Several industries hitherto reserved for public sector extended to private sector

48. The sea change in the environment • Entrepreneurial freedom release the growth impulse and alters the industrial scene • Rush of entrepreneurs • Spate of mergers and acquisitions/takeovers • The diversification rush • Multinationals consolidate their position • MNCs acquire majority equity in their Indian enterprises and JVs • Many MNCs enter India afresh through new JVs • MNC entry and investment alters even core sectors like power, oil and telecom • Imports go out of government domain and become entrepreneurial activity • Companies import materials free of licensing hassles and bypassing the canalizing agencies • Import trade emerges as a separate business opportunity

49. The sea change in the environment • Capital markets undergo radical change • Capital markets gain a new buoyancy • FIIs enter Indian capital markets in a big way • Foreign brokers follow the FIIs • NBFCs register rapid growth and strike alliances with global finance companies • Entry and growth of private mutual funds • Indian firms raise global capital and strike alliances with global financial firms • India’s capital markets getting integrated with global capital markets • Banking sector comes under a competitive environment • Deregulation of interest rates leads to competition in deposits • Disinvestments of government equity in nationalized banks • New private banks with new technology, new products and aggressive marketing usher in new competition • Banks face new competition from capital markets, FIs, MFs & NBFCs • Banking services get marketed as branded consumer products • Banks have to now operate as viable, commercial institutions

50. The sea change in the environment • Financial services emerges as a major new business • Funding options multiply as capital can be raised in many ways • A large basket of financial instruments • Emergence of many new financial services • Firms not only start utilizing financial services but also recognize the scope of financial services as a separate business and float financial services companies of their own • Ascendancy of the private sector • Private sector enters all core industries • Oil, mining,telecom • Road building, railways, ports, civil aviation • EPZ, SEZ now etc