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Corporate Strategy

Prof Mintzberg during 1990 summarized TEN different schools of thoughts about strategy. All these schools of thoughts are grouped into 3 categories. 1 Prescriptive 2 Descriptive 3Configurational 1Prescriptive 1.1Strategy as Grand Design This is the classical and oldest view of strategy. Strategy is the result of a conscious and deliberate thought process. The CEO controls the process, reviews goals and objectives in terms of SWOT analyses. Alternatives are evaluated and the strategy is chosen. This still happens in many smaller and simpler organizations. The weakness o f this approach are 1) it assumes that the chief executive and the other top executive can understand and evaluate everything; 2) the model of how to evaluate things is very loose and subjective; 3) it separates thinking from doing; 4) it is exclusively top down model; and5) it allows little or no role for experimentation and market feedback. 1.2 Strategy as Plan The plan is built up from a huge number of separate analyses which are then integrated to produce the answer. (AnsoffsModel) During 1970s these dream models turned out to be nightmares. This school has grave weaknesses: 1) it based on old fashioned machinelike view of the world, a production line mindset; 2) it assumes that events can be predicted; 3) it detaches planning firmly from the operating management; 4) it is far too prescriptive giving little room for experimentation; and 5) it gives a very minor role to the ideal of competitive advantage. This approach is now rightly unpopular, and lives on only in primitive quarters. 1.3Strategy as Position This is basically micro-economic approach. This is advocated by Michel Porter during 1980s. It prescribes what approach is likely to work best in which circumstances. In this model certain variables such as market share, market growth and industry attractiveness are examined, quantified and analyzed. It describes two or three generic strategies such as cost leadership, focus and differentiation. MP also advocated adoption of these general strategies to business situation. Mintzberg dislikes position strategies for a number of reasons: 1)it requires lot of historical data; 2) it separates thinking from doing; 3) it places too much emphasis on analysis and calculation; 4) it is too much paint by numbers and does not lead to unique solutions; 5)it drives out creativity since the numbers dominate rather than assist the process of strategy formulation. I view all the above objections as warnings rather than fatal flaws. The positioning approach is so strong and useful. The positioning approach can be used in a way that is much more contingent, experimental, intuitive, creative, participative and respectful of the idiosyncrasies of each organization and market. 2 Descriptive Schools The descriptive schools are 2.1 Strategy as Vision This is Entrepreneurial school, but it is more easily understood as vision or visionary. Here strategy is a black box, put together mysteriously in the mind of the entrepreneur or leader. Strategy here may be innovative and coherent, and there

will be no gap between thinking and doing. As a visionary there may be an opportunity of taking insufficient notice of business reality. 2.2Strategy as Thinking This is only Cognitive School and not a full fledged school. How experience can play a major part in building up a strategy. 2.3 Strategy as learning Strategy formulation is an emergent process in this model. We learn over a period of time and we keep adding value in increments. Strategy here is a product of thought ,action and external events. In this model strategic initiatives can emerge from any level of the organization. Leaders do not prescribe, but sponsor and catalyze the process of organizational learning. 2.4 Strategy as politics and power This has two aspects 1) the internal politicking, when ambitious young Turks use a policy as the route to more power for themselves and 2) when an organization uses political lobbying to achieve its ends such as weaker regulation or subsidy. These things happen regularly but may note create and generate wealth. 2.5 Strategy as Culture and Ideology Develop internal consensus and culture that can drive progress. The strategy works if the culture is functional from the markets view point. Strategy fails because market changes but the company does not. 2.6 Strategy as imposed from the outside. The strategy of the company is determined from the environment. Here, markets evolve via natural selection . Market chooses the natural winner often at random. 3 Configurational School 3.1 Strategy as defined by time place and context. Strategy is determined by time or circumstances. There is no one way to develop strategy any of the above approaches may be appropriate in different circumstances. Over its life a company may use several schools. Revolutionary change can occur when there is a sea change in strategy, structure and power. Two important schools came into prominence during 1990s and new millennium. They are 1) Strategy as strategic intent, core competencies and stretch. 2) Corporate Strategy as parenting. Strategy as strategic intent, core competencies and stretch. Building of a few strong and specific core competencies throughout the organization is intrinsic to this approach. An organization should have strategic intent to achieve the objectives at all costs. Corporate Strategy as parenting. Goold, Alexander and Campbell advocated the philosophy of parental advantage to be provided by the Corporate office or Central office to SBUS. This strategy looks at value destruction and break up if the Central office is not in a position to provide parental advises to other divisions.

How competitive forces Shape Strategy The essence of strategy formulation is coping with competition. Customers, suppliers, potential entrants, and substitute products are all competitors that may be more or less prominent or active depending on the industry. The state of competition in an industry depends on five basic forces, which are 1) Threat of new entrants,2) Bargaining power of customers, 3) Bargaining power of suppliers, 4) Threat of substitute product or services and 5) the industry where jockeying for position among current competitors. The collective strength of these forces determines the ultimate profit potential of an industry. It ranges from intense in industries like tires, metal cans, and steel where no company earns spectacular returns on investment, to mild in industries like oil field services and equipment, soft drinks and toiletries, where there is room for quite high returns. The weaker the forces collectively the greater the opportunity for superior performance. Whatever their collective strength the corporate strategists goal is to find a position in the industry where his company can best defend itself against these forces or can influence them in its favor. Knowledge of these underlying sources of competitive pressure provides the ground work for a strategic agenda of action. They highlight the critical strengths and weaknesses of the company, animate the positioning of the company in its industry, clarify the areas where strategic changes may yield the greatest payoff, and highlight the places where industry trends promise to hold the greatest significance as either opportunities or threats. Understanding these sources also proves to be of help in considering areas for diversification. Contending forces The strongest competitive force or forces determine the profitability of an industry and so are of greatest importance in strategy formulation. For ex if a company with a strong position in an industry unthreatened by potential entrants will earn low returns if it faces a superior or lower cost substitute. Different forces take on prominence in shaping competition in each industry. Every industry has an underlying structure or a set of fundamental economic and technical characteristics that gives rise to these competitive forces. The strategist wanting to position his company to cope best with its industry environment or to influence that environment in the companys favor, must learn what makes the environment tick. Threat of Entry New entrants to an industry bring new capacity, the desire to gain market share, and often substantial resources. Companies diversifying through acquisition into the industry from other markets often leverage their resources to cause a shakeup. There are eight major sources of barriers to entry. They are 1 Economies of Scale 2Product differentiation 3 Capital requirements 4 Cost disadvantages independent of size

5 Access to distribution channels 6 Government Policy 7The experience curve 8Powerful suppliers and buyers Substitute Products They limit the potential of an industry. Unless it can upgrade the quality of the product or differentiate it somehow, the industry will suffer in earnings and possibly in growth. Jockeying for positions Rivalry among existing competitors takes the familiar form of jockeying for position, using tactics like price competition, product introduction and advertising slugfests. Intense rivalry is related to the presence of number of factors such as competitors are numerous, Industry growth is slow etc., The rivals are diverse in strategies, origins and personalities. Formulation of Strategy Once having assessed the forces affecting competition in an industry and their underlying causes, the corporate strategist can identify the companys strengths and weaknesses. The crucial strengths and weaknesses from a strategic standpoint are the companys posture vis a vis the underlying cause of each force. The strategist can devise an action plan that may include 1 Positioning the company so that its capabilities provide the best defense against the competitive forces, 2 influencing the balance of the forces through strategic moves, thereby improving the companys position 3 anticipating shifts in the factors underlying the forces and responding to them, with the hope of exploiting change by choosing a strategy appropriate for the new competitive balance before opponents recognize it.

Strategic Alliance Strategic alliances hope to learn and that are not availa
Taking the Mystery out of Investor Behavior. Your company knows its investors pretty well, right? But do you know how they will react to any particular strategic decision your company might make? Probably not. The consequences of not knowing can derail your strategy, leading you to miss out, for example, on acquisition opportunities. Very few investors i.e., less than 100 typically account for about 70% of the changes in a companys share price. They also claim that a new approach to investor relations, drawing on the one used to manage customer relations can help companies paint a more complete picture of their investors behaviors and motivations. Investor based finance first has you identify four groups of actual and potential key investors: large shareholders that suddenly become active, past shareholders that suddenly become active past shareholders that seem to be buying back in smaller shareholders you think are poised to increase their holdings and potential shareholders

that own shares in comparable companies but not yours. By analyzing the patterns in the buying and selling behaviors of investors in those groups, you can ascertain which investors have the power to move your share price. Once you have determined who your key investors are, compare their horizon of analysis (long, medium or short term) and the dominant content they analyze (information about organizational structure, strategy, or financials) In doing so, you will come to understand what is most important to those investors as they form valuation judgments, and you will be able to predict how they will likely react to different kinds of news and thus buy or sell shares in your company. In marketing, customer analysis of this type has long been a critical component in developing products and predicting demand. A similar approach to investor relations can be equally valuable.

CEO Superstar When struggling companies look for a new chief executive today the one quality they prize above all others is charisma. But once they have recruited a larger than life leader, they often find that their troubles only get worse. Indeed, as the authors new research painfully reveals, the widespread belief in the powers of charismatic CEOs can be problematic. Why? First, there is no conclusive evidence that charismatic leadership affects an organizations performance. And yet when a company is faltering boards feel compelled to oust the incumbent chief executive and bring in a corporate savior. Second, the insistence of finding a charismatic leader, combined with the UN definable nature of charisma, results in selection processes that are overly conservative and even irrational. Boards end up considering only candidates who have already achieved the rank of CEO or president at a high performing, high profile company, even if they are not right for the job. Third, charismatic leaders deliberately destabilize organizations. This can result in a more vibrant company, as it did at General Electric during Jack Welchs tenure, bu8t it can also leave a troubled legacy for the organization to overcome as GE Ford, and Enron have all found. Faith in a company, a product, or an idea can unleash tremendous innovation and productivity. But extravagant hopes invested in charismatic CEOs resemble not mature faith but a belief in magic. If we are willing to reconsider our notion of leadership this age of faith can be followed by an era of

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