L789 Strategy Formulation

Strategic formulation allows organizations to v Clearly define the purpose of the organization and establish realistic goals and objectives consistent with that mission in a defined time frame within the organizations capacity for implementation v Find the best approaches to implementing its mission v Build on its assets, recognize its weaknesses v Ensure the most effective use is made of the organizations resources by focusing the resources on the key priorities. v Provides guidance and direction for the staff v Is a tool for the board to hold the organization accountable to fulfilling its mission v Communicates goals and objectives to the organizations constituents v Ensures that the most effective use is made of the organizations resources by focusing the resources on key priorities v Provides a base from which progress can be measured and establishes a mechanism for informed change when needed v Brings together everyones best and most reasoned efforts in building consensus about where the organization is going

Notes by Gautam Chitanis

Pg 1

The Concept of a Company Value Chain Developed by Michael Porter. v A companys business consists of all activities undertaken in designing, producing, marketing, delivering, and supporting its product or service v A companys value chain consists of a linked set of value-creating activities performed internally v The value chain contains two types of activities o Primary activities where most of the value for customers is created o Support activities facilitate performance of the primary activities

Notes by Gautam Chitanis

Pg 2

Notes by Gautam Chitanis

Pg 3

Why is a Strategic Vision Important? A managerial imperative exists to look beyond today and think strategically about v Impact of new technologies v How customer needs and expectations are changing v What it will take to outrun competitors v Which promising market opportunities ought to be aggressively pursued v External and internal factors driving what a company needs to do to prepare for the future

Notes by Gautam Chitanis

Pg 4

Developing a Vision v Vision an expression of what an entrepreneur stands for and believes in. v Vision is based on an entrepreneurs values. v A clearly defined vision: o Provides direction o Determines decisions o Motivates people v Charts a companys future strategic course v Defines the business makeup for 5 years (or more) v Specifies future technology-product-customer focus

The Case of a Visionary Dhirubhai Ambani The story may be miraculous but has never been denied. During the 1950s, the Yemeni administration discovered that some denominations of its currency, the rial, were disappearing from the market. The administration traced the shortage to Aden, a port in Yemen, and found to its surprise that a young man in his 20s had placed an unlimited buy order for the rial. The rial was a solid silver coin. The young man simply bought the rials, melted them into silver ingots and sold them to bullion dealers in London at a much higher price because of the exchange rate arbitrage. The name of the young man: Dhirajlal Hirachand Ambani, or Dhirubhai Ambani. Here were the early signs of the making of an iconic entrepreneur who was always looking for a business opportunity and to make a quick buck on the side. Years later, Dhirubhai told an interviewer: "The margins were small but it was money for jam. After three months, it was stopped. But I made a few lakh of rupees. I dont believe in not taking opportunities. Even in a world overflowing with rags-to-riches stories, there is only one Dhirubhai. A man who rose from the position of a petrol pump attendant to set up the largest grassroot oil refinery in the world; from borrowing Rs 100 to buy clothes in order to go to Aden for a job, to set up the most modern textile mill in the country; from being the one who was asked to wait for his paltry bills outside the cabins of purchase officers and cashiers in mills to become the greatest industrialist in the country and from being a member of a lower middle class Indian family to become a member of the Forbes list of richest men in the world. And in this long, eventful journey spanning four-odd decades, not only did he convert his fledging businesshe started with about Rs 13,000 as seed capital for his first
Notes by Gautam Chitanis Pg 5

textile plant in Naroda, near Ahmedabadinto a Rs 60,000-crore powerhouse but also enlisted the support of four million Indians weaned on socialism, in an adventure in can-do capitalism, convincing them to ride the Reliance story. Not for nothing that Dhirubhai is dubbed the high priest of the equity cult, that began in 1977 when Reliance Industries first went public with 58,000 shareholders, and continues even today under his two sons, Mukesh and Anil, with over four million shareholders. A fact that has been acknowledged even by the Wharton School of Business in 1998 while describing "his path-breaking contribution towards the concept of equity investing in India by creating wealth and value for millions of shareholders. The financial acumen of a poor school teachers son can also be gauged from the fact that Reliance Industries did not pay a paisa in taxes on its corporate earnings till 1996, when Finance Minister P Chidambaram introduced the Minimum Alternate Tax. His other innovations ranged from raising funds through the global depository route, introducing convertible debentures and issuing 100-year bonds in the US market. Beginnings Of A Business Genius But for a true analysis of his genius, we have to travel back a few decades and trace Dhirubhais journey from Aden, where he worked as an attendant in a Shell outlet and then returned to India in 1956 to begin his new journey. With the money earned from the silver content of Adens coinage, he started a trading house called Reliance Commercial Corporation in Mumbai, importing polyester yarn and exporting spices. Sensing an opportunity in polyester fibre, Dhirubhai opened his first textile mill in Naroda, near Ahmedabad, in 1966 and concentrated on building up his business, giving birth to the Vimal brand. In 1982, India saw another first from Dhirubhai Ambani, the beginning of the concept of backward integration with Reliance Industries setting up a 10,000-million tonne polyester plant in Patalganga, some 80 km from Mumbai for polyester yarn and fibre intermediates and finally to the basic raw material, oil, by setting up a 27-million tonne refinery in Jamnagar, Gujarat, in 1998. He subsequently diversified into chemicals, gas, petrochemicals, plastics, power and telecommunications. Yet his success always had a whiff of controversy to it. Rivals alleged that his "His biggest plus point was his ability to align the goal of his enterprise to the needs of the pass on the benefits to the shareholders"success had as much to do with his business acumen as his ability to get official rules and regulations tweaked to undercut his rivals and push his own business interests. His fight-to-the-finish battle with the fiery proprietor of Indian Express, Ramnath Goenka, the war with industrialist Nusli Wadia, the allegations against some Ambani staffers over a plot to murder Wadia and his travails during the VP Singh government, controversies over licenced capacities, export manipulation and share switching are part of the Ambani plot. As Gita Piramal wrote in her book Business Maharajas: "The corporate world is sharply divided between those who feel he is a visionary and those who consider him a manipulator." Mukesh Ambani, Chairman of Reliance Industries, qualifies it: "What galled Dhirubhais critics was his success in outwitting them at every turn. Not only
Notes by Gautam Chitanis Pg 6

did he dream bigger but he also found novel methods to realise them. One such way was to ensure that even ordinary citizen shared in the wealth he created. Thinking Big So what was it that makes Dhirubhai a respected as well as reviled figure? For R Ravimohan, Managing Director of Standard and Poors South Asia operations, his success could be attributed to his penchant for global benchmarking, using state-ofthe-art technology while cutting costs, pursuing ambitious goals, flawless implementation and a willingness to take calculated risks. "But his biggest plus point was his ability to align the goal of his enterprise to the needs of the market and pass on that vision to every member of the Reliance family," he says. His ambitious goals could leave others shell-shocked. For instance, in the early 1980s, when Dhirubhai told Ravimohan, then a project officer with ICICI, that he planned to sell polyester yarn at less than the price of groundnut, his jaw nearly fell. But within just three to four years, Dhirubhai brought down its prices from Rs 180 to Rs 17 per kg. Ravimohan says Dhirubhai was responsible for the telecom revolution in India. When the call rates were Rs 16 per minute and consultants told him to keep it at Rs 6 a minute, Dhirubhai talked of bringing it down to 40 paisa a minute. "It was Reliance Infocomm which slashed prices, and the whole industry followed," he adds. Soft Spots But there are certain softer aspects of Dhirubhais life, too. For instance, his ability to strike up conversation with anybody, his willingness to reward talented people and give them a free hand, his open-handed generosity, the skillful blend of head and heart and his legendary management techniques, which AG Krishnamurthy, founder Chairman and former MD of Mudra Communications, the advertising arm of Reliance, calls "Dhirubhaism." So, how will history judge Dhirubhai Ambani? Will he be talked in the same breath as Henry Ford or Bill Gates when the economic history of India is written. Possibly yes, because unlike others in the West he had to contend with red tapism, serious credit crunch, an abysmal infrastructure and a poorly developed capital market to build a formidable, globally competitive industrial empire. And thats quite an achievement.

Notes by Gautam Chitanis

Pg 7

Communicating the Vision An exciting, inspirational vision v Challenges and motivates workforce v Arouses strong sense of organizational purpose v Induces employee buy-in v Galvanizes people to live the business Mission Statement. v Mission - addresses question: "What business are we in? v A written expression of how the company will reflect the owners values, beliefs, and vision. v Sets the tone for the entire company and guides the decisions people make. v Defines the institutions purpose and direction Characteristics of a Mission Statement v Defines current business activities v Highlights boundaries of current business v Conveys o Who we are, o What we do, and o Where we are now v Company specific, not generic so as to give a company its own identity v A companys mission is not to make a profit ! v The real mission is always What will we do to make a profit?

Notes by Gautam Chitanis

Pg 8

CASE I

Vision : We pledge to provide the finest personal service and facilities for our guests who will always enjoy a warm, relaxed yet refined ambiance. The Ritz-Carlton experience enlivens the senses, instills well-being, and fulfills even the unexpressed wishes and needs of our guests. Mission : The Ritz-Carlton Hotel is a place where the genuine care and comfort of our guests is our highest priority.

Notes by Gautam Chitanis

Pg 9

CASE II

Notes by Gautam Chitanis

Pg 10

Goals & Objectives .. v Converts strategic vision and mission into specific performance targets v Creates yardsticks to track performance v Pushes firm to be inventive and focused on results v Helps prevent complacency v Goals specify what the organization hopes to fulfill in the medium to long term. o Precise and measurable o Address important issues o Challenging but realistic o Specify a time period The Goal-Setting Process Steps: 1. Review the organizational vision and mission(s) 2. Evaluate available resources 3. Determine broad, long-term, organization-wide goals 4. Write down the organization-wide goals 5. Determine specific, short-term operational goals 6. Write down the operational goals 7. Review results Some Strategic Goals . v Increase firms market share v Overtake key rivals on quality or customer service or product performance v Attain lower overall costs than rivals v Boost firms reputation with customers v Attain stronger foothold in international markets v Achieve technological superiority v Become leader in new product introductions v Capture attractive growth opportunities

Notes by Gautam Chitanis

Pg 11

Objectives. v Objectives are the specific, measurable steps that will help you achieve your mission. v Develop objectives that are SMART+C: specific, measurable, achievable (eventually), relevant to your mission, and timed (with a date for completion.) v An example of an objective would be: "By the year (x), the university will develop and implement a university-wide plan to recruit students with high potential for success. v The +C reminds you to adds another important quality to your goals: make them challenging. v Stretch your team to make improvements that are significant to members of the faculty. Basis of Strategic Formulation.. v Goals-based strategic formulation is probably the most common and starts with a focus on the organization's mission (and vision and/or values), goals to work toward the mission, strategies to achieve the goals, and action planning (who will do what and by when). v Issues-based strategic formulation often starts by examining issues facing the organization, strategies to address those issues, and action plans. Organic strategic planning might start by articulating the organization's vision and values and then action plans to achieve the vision while adhering to those values. v Organic-based strategic formulation might start by articulating the organization's vision and values and then action plans to achieve the vision while adhering to those values.

Notes by Gautam Chitanis

Pg 12

Seven pointers to note for setting long term objectives 1.Demographic Change v most obvious change is the aging population; impact of seniors, boomers and their kids v smaller families; more single-person households v smaller, non-traditional households v more part-time workers, dual-income households v changing patterns of immigration; ethnic mix 2.Economic Conditions v consider the effect on consumers and on businesses of: o recession (business cycle) o changes in interest rates o inflation o unemployment v how are consumers likely to respond? v they often shop around more; store and brand loyalty suffer when consumers are uncertain about the future. 3.Competition competition takes place at three levels: o directly at the brand or store level o at the level of substitute products/services o other demands upon our buying power o could be from international (e.g. outsourcing). 4.Social and Cultural Forces v lifestyles, values and beliefs v greater emphasis on quality of life v immigration brings changing values v rapidly changing gender roles v different attitudes toward physical activity, exercise, and diet among certain segments v increased emphasis on service quality and value 5.Technology v launches entirely new industries, such as multimedia, digital communications and electronic commerce v alters or virtually destroys existing industries, such as the effect of e-mail on regular mail and even fax v stimulates other markets and industries, such as Internet shopping has expanded the credit card industry

Notes by Gautam Chitanis

Pg 13

6.Political and Legal Forces v government and laws affect marketing at many levels v legislation often has implications for marketing; some more direct than others v many industries are directly affected by legislation; packaging, labeling, advertising 7.Controllable Environmental Forces v the companys market, its suppliers, and other businesses involved in distribution channels v external to the firm, but part of its marketing system because of its close relationship v these can be influenced by the firm to greater or lesser degrees; they are not entirely uncontrollable v these forces may be considered relationship-sensitive, as it is of considerable importance for the firm to establish solid relationships with these partners in its success

Notes by Gautam Chitanis

Pg 14

The 3 Big Questions in Strategy Formulation 1. Where are we now? 2. Where do we want to go? 3. How do we get there? The Situation & SWOT Analysis Answers the 1st Question: Where are we now Organization goals & objectives encapsulated in Mission & Vision Statement Answers 2nd Question: 2. Where do we want to go? Sub questions .. v What business(es) should be in v Market positions to stake out? v Consumer needs & segments serve? v Outcomes to achieve? Final Question answered by Strategic Planning: Growth, Competitive & Functional Strategies

Notes by Gautam Chitanis

Pg 15

Notes by Gautam Chitanis

Pg 16

Notes by Gautam Chitanis

Pg 17

View From The Window (Sept 30, 2011 Corporate Dossier ET) The secret to successful management is to marry the short term with the long term says Microsofts BHASKAR PRAMANIK Jetlagged and bleary-eyed after a long haul from the Microsoft headquarters in Redmond, Bhaskar Pramanik still manages to radiate energy as he sit in his 9th floor office in Gurgaons DLF Cyber Greens. The Chairman of Microsoft India has worked with companies ranging from DCM and NELCO, to Sun Microsystems and Oracle. In a candid chat with CD, the 60-year-old veteran flits back and forth, as if on a time machine, to let some light in through his Windows. Excerpts: Whats your solace in times of trouble? My recourse is primarily reflection, followed by a discussion with my wife.

Notes by Gautam Chitanis

Pg 18

Do you carry work home? I wouldnt say I carry the entire office home. But there are times when you want to hear something and get a completely unbiased view. My experience has been that my spouse is the best person for that. How do you achieve buy-in? A lot of it is by consensus. I paint the picture. I get views. I take mine. And then I try to put together what I think would be the consensus. What surprised you about Bill Gates? I met him very briefly at the Microsoft CEOs Summit a few months back. What I found remarkable was his knowledge about some very serious problems that humanity is facing, whether it has to do with education or health or alternative sources of energy. Hes extremely well read, well informed and well invested. Did he talk to you about his investments in India through the Bill & Melinda Gates Foundation? No, we didnt talk about the foundation at all. But we did talk about nuclear power as an alternative source of energy. He believes that despite what happened in Japan, it still is the most viable form of power into the future. He has, in fact, invested in a company that has come up with some revolutionary designs. The challenge with nuclear power is that if you look at the power stations around the world, most of them were built many years ago. The technology, which they are using, is actually very outdated. Hes talking about a technology that can triple or quadruple the amount of power you draw. Does scale become a hindrance in IT after some time? Doesnt it limit innovation, agility and the ability to respond to a fast changing world? Its not necessarily related to IT companies. Size is always a challenge from an agility perspective. Legacy is always the biggest challenge for most organisations. Legacy is not necessarily defined in terms of technology or whether its new or old. It is about the business practices and processes and the way companies are doing business. The challenge is to overcome older beliefs, older business models and come up something which is completely new. How do you do that? The best way to do that is to come up with a completely separate organisation, which is not hampered by the rest of the organisation. The only thing it should perhaps get from the older part of the company is financing. Treat it as a separate division, perhaps treat it as a separate company. I can think of ITC as an example. Look at e-choupal and how it has redefined their agri-business. It began as a startup and was completely unfettered. Or, for that matter, Apple, which has redefined itself from the same company.

Notes by Gautam Chitanis

Pg 19

Is Microsoft going the Apple way? Microsoft has been transforming itself. It started off as a company that was focused on the IT consumer. Before you knew it, Microsoft became a company which was selling into corporate IT and enabling businesses. But it started off with the IT consumer. The challenge that Microsoft now has is to go back to its roots, which is serving the individual consumer. If you look at the consumerisation of IT, Microsoft is the only one which can have technology that spans across multiple kinds of devices and can serve content, either for business or the consumer. We have the whole thing. We have the PC, the phone, the slate, the TV. We also have all the different kinds of cloud format, whether it or public or private or hybrid. So Microsoft is uniquely positioned from that perspective. How has your education influenced the way you manage? Im an engineer from IIT Kanpur. What I liked about IIT was that it made you a good problem-solver. While it doesnt make you an expert, it really hones your mind to identify what the problem is and look at the alternatives and figure out the best solution, whether it is a technical problem or a business problem or a change problem What keeps you awake at night? These days, its change. When I started my career, there was talk of economic cycles, which were 7-10 years. Then it was 3-5 years. And now you cant even stay still for year or even six months. Even before your fiscal is completed, youll most probably see a rise or a dip and youve got to respond quickly to tackle that. Anticipating the future, to me, is the biggest challenge. What do you like to read? I used to read everything I could lay my hands on. My favourite at one point was action, mystery and science fiction. These days I like reading historical novels, particularly the ones by Alex Rutherford. Niall Ferguson is another favourite. Ive read his Civilization. I also read the usual management books and the Freakonomics variety. I read a lot of Ram Charan because hes implementable. Who have been the biggest influences in your life? Its been different people as I grew up. My parents have instilled a very good sense of discipline, competition and tolerance from very early on. My first boss in DCM when I was a management trainee, VK Manchanda, took a college student like me and placed me as a manager. I learnt a lot from him in terms of the very basics of being a manager. One other person who has had a very big impact on me is Ratan Tata. I worked for him for nearly 10 years at NELCO. It wasnt a company that was doing well. I was a trouble-shooter in many different areas and I enjoyed my stint. He taught me about how to build relationships with other companies, how to ensure that both sides made money and ensure any kind of alliance is a win-win.

Notes by Gautam Chitanis

Pg 20

Whats the Bhaskar Pramanik principle of management? While youre managing the day-to-day, come up with a shared vision, make sure people get inspired by it and then look at what are you going to do three years from now. Youve got to marry the short term with the long term.

Any quotable quote you use very often? Well, the one Ive always enjoyed in my previous companies may not be very appropriate for Microsoft In shallow waters, shrimps make fools of dragons. Unfortunately, Microsoft is a dragon here but Im always worried about the next shrimp. In my previous companies, it was interesting because you could always figure out who the dragons were and the enjoyment was sending them into the shallow waters. At Microsoft, you have to do exactly the reverse.

Assignment No.4 Fame to flame as discussed in the class..

Notes by Gautam Chitanis

Pg 21