Strategic Management Plan

Gaining Competitive Advantage through: * Differentiation * Cost Leadership * Quick Response * Market Focus * Market Life Cycle

Strategic Management Plan

Addressing Financial Performance through: * Economic Value Addition * Profitability * Growth * Managing Financial Risk * Ability to arrange low cost funds

Strategic Management Plan

Process Plan Evaluation through:

* Product Development * Demand Management * Order Fulfillment

Strategic Management Plan

Competitive Strength through:

* Rivalry amongst Existing Players * Threat of New Entrants * Threat of Substitute Products * Bargaining Power of the Buyers * Bargaining Power of the Suppliers

Strategic Management Plan

Firms Strength through: * Core Competencies * Market Share * Infrastructure

* Cash Flow

Strategic Management Plan

Firms Capacities: * Strategic Plans * Organizational Learning * Structure and Culture * Systems * Motivating Actions

The General Environment

Consists of factors external to the Industry

Includes: * Demographic * Socio-cultural * Political / Legal * Technological * Macro-economic * Global

Successful Strategic Adjustments to the General Environment:

Holds both opportunities for and threats to expansion

Example: Telecommunications / Changing Interest Rates

Developments change competitive battle lines

Example: Deregulation of Airlines Sector

Same trends can have different effects on different industries

Example: Increasing Health Awareness

Successful Strategic Adjustments to the General Environment:

Impact differs for different firms within the same industry

Example: Rising ATF prices and Low Cost Airlines

Not all developments predictable with accuracy

Example: Interest Rate Changes, Inflation, etc.

Impact differs from country to country

Example: MNCs strategies for different countries

Components of General Environment

Demographic: * Ethnic Composition * Aging of Population

* Maturing of Baby Boom Generation

* Changes in Population Growth and Decline

Components .

Socio- Cultural: * Changing Composition of Workforce * Health and Fitness Awareness * Erosion of Educational Standards * Spread of Drug Addictiveness

* Increasing Environmental Concern

Components .

Macro Economic: * Interest Rate Changes * Fluctuation in Exchange Rates * Budget / Trade Deficit and Surplus * Inflation Rates

* Savings Rates

Components .

Political / Legal:

* Deregulation
* Alliance Governments * Enactment of Laws

Components .

Technological: * Process Innovations Robotics * Changes in IT

* Biotechnology Development
* Industrial Disasters

Components .

Global: * Consumer tastes and preferences * Trade Blocs * Global Debt * Global Terrorism

* Increasing economic dependence

Michael Porter's Five Forces Model

Bargaining Power of Suppliers

Potential Entrants

Threat of New Entrants

Industry Competitiveness

Suppliers
Rivalry among Existing firms

Buyers

Threat of Substitute Products

Bargaining Power of Buyers

Substitutes

Source: Michael Porter - Competitive Strategy: Techniques for Analyzing Industries and Competitors, New York

The Threat of New Entrants

Implications of New Entrants

* Add to existing production capacity

* Erode market share of existing firms

* Bring substantial resources such as huge advertising budget, willingness to spend heavily on R & D

The Threat..

Barriers to Entry:

* Other advantages patents, favourable access to raw materials, favourable location, government subsidies, etc. * Capital Requirements * Customers switching costs psychological or financial

* Access to distribution channels

The Bargaining Power of Suppliers

* Supplies a big chunk of total cost * Impact Company profits in a big way * Cost increase can get passed * Quality deterioration may occur * Suppliers powerful in sectors such as soft drink concentrates, sophisticated weapon systems, mainframe computers, etc.

What makes Suppliers powerful?

Dominance by few suppliers Absence of substitutes Greater concentration among suppliers Size of the customer Importance of Suppliers product to buyers
Example: Coke to McDonalds

High switching costs High product differentiation

Threat of Forward Integration

The Bargaining Power of Customers

Can force prices down

Cut quantity purchased

Demand better quality for the same price

What makes Buyer powerful?

Undifferentiated supplies Threat of Backward Integration

Accurate information about the cost structure of the supplier

Price sensitivity of the buyer:
* Supplies are significant portion of total cost * Product unimportant to overall quality or cost * Buyer already earns low profits

Greater concentration in buyers industry

Threat of Substitute Products

Places upper price limit on the product Encourages switching amongst customers Number increasing due to deregulation and technological advancements Example: Growth in Banking industry Example: CD- ROMs replacing Books

The Intensity of Rivalry among Competitors

Ever increasing competition Implications include: * Intense price competition * Product Differentiation * Product Innovation * Increased Advertising spend

Factors resulting in Intense Rivalry

Well-matched rivals Slow Industry growth encouraging retaliation High fixed costs desire to increase sales Lack of differentiation encourage switching Large increases in manufacturing capacity High profit earning opportunities

High exit barriers

Application of Five Forces Framework

Industry v/s Strategic Groups

What are Strategic Groups?

Cluster of competitors that share similar strategies and therefore compete more directly Are grouped together for the purpose of improving analysis and understanding competition within their industry Do not necessarily belong to an real group such as Industry Trade Association or Strategic Alliance .

Strategic Groups may be Homogeneous or Heterogeneous Homogenous similarity in terms of Strategies, Product, marketing efforts, R & D expenditure, Capital Intensity, etc. For Example: Paper Mills Heterogeneous Group with multiple strategies For Example: Automobile Manufacturers

Classification of Strategic Groups:

Breadth of Market: Niche or Otherwise Product and Service Quality: Standard, Premium or Luxury

Geographical Distribution: Regional, National or Global

Level of Vertical Integration: Own Production unit or Job Order Production Profit or Non-Profit:

Processes for Analyzing External Environment:

Environmental Scanning: - Done to collect information relevant to strategy formulation. - Also known as Gathering Intelligence

- Uses include: a. Information on competitive environment b. Challenging common assumptions about competitive environment

Processes for Analyzing..

c. Forecasting future developments
d. Identifying and compensating for exposed competitive weaknesses e. Determining when a strategy is no longer viable or sustainable f. Indicating when and how strategy be adjusted to changing environment.

Sources of Information:

Information collected by Sales force from market

Local Newspaper
Databases

Governmental Agencies
Customers and Suppliers Competitors

Processes for Analyzing..

Scenario Planning: Scenarios are future environmental events and the firms response Based on assumptions that it is inappropriate to simply identify an outcome and reasonable highs and lows around it Attempt to identify a set of diverse alternative futures Highlights forces that shape the future

Guidelines for Developing Scenarios:

Avoid focusing exclusively on controllable issues

Actively seek out contrarian views

Do reality checks as scenarios begin to form Dont get bogged down in too many scenarios or too may details

Mckinseys 7 S Model:

Structure

Strategy
Shared Vision Skills Staff

Systems

Style

Mckinseys 7 S Model:

Shared Vision A set of values aspirations often unwritten that go beyond profit, ROI, Growth, etc.

Strategy Set of actions, plans and policies aimed at attaining sustainable competitive advantage.

Mckinseys 7 S Model:

Structure Firm's reporting line up, the organization chart, functional divisions and their integration

System Provides flow chart of operations, the processes, quality control systems, manufacturing process and information system.

Mckinseys 7 S Model:

Style Working philosophy, time management and interpersonal behaviour, peer group, leading by example

Staff Career growth of the employees, training patterns and honing intrinsic values

Mckinseys 7 S Model:

Skills Capabilities of the combined set of people in the firm