BUSINESS ENVT & S M

Dr Archana Sharma
The Basic Framework of Strategy According to
Grant

The Firm The Industry

•Goals and values
Environment
•Resources and
STRATEGY •Competitors
capabilities
•Customers
•Structure and
•Suppliers
Systems

INTERNAL EXTERNAL

STRATEGY IS A LINK BETWEEN THE FIRM & ITS ENVIRONMENT

 Why is Strategy Needed?

• Strategy, which can be applied at any level or for any size of

company, is needed to answer the following question:
“What actions are most likely to achieve the organisation’s
goals given its internal and external context? And how can
these be implemented to maximise company performance ”

Examples of Strategies:
• • Business Strategy
• • Technology-Innovation Strategy
• • Customer Relationship Strategy
• • Human Resources Strategy
• • Military strategy
 contd
• INTERNAL ENVIRONMENT
• • Areas of technical expertise (e.g. IT, design, R & D, manufacturing,
• materials engineering, innovation, JIT, logistics)
• • Corporate culture (e.g. diversity, operating excellence, customer
• focus, training) - vision and mission statement
• • Brand awareness (e.g. brand communication)
• • Company organisation (e.g. pyramid, flat, global, cross-regional)

• EXTERNAL ENVIRONMENT

• • Industrial context (e.g. military and civil marine engineering)

• • Legislation (e.g. environmental legislation)
• • Social and Demographic trends
• • Customer (needs and preferences)
 Business Strategy

• Business Strategy is the framework of a

company in which it intends to compete and
obtain revenues.
• It is the link between the internal and external
• contexts.
• It can take a front seat or a back seat depending
on internal and external conditions.
• Business strategy is a management tool.
 The role of Business Strategy

• The primary role of business strategy is to ensure that

the internal context of a company matches the external
context so as to guarantee (sustainable) performance.

INTERNAL
CONTEXT

PERFORMANCE
EXTERNAL
CONTEXT
 Strategic management process
(cont’d
􀁺 Conducting an internal analysis
􀂁 Assessing organisational resources, capabilities, activities,
and culture:
􀂄 Strengths (core competencies) create value for the customer
and strengthen the competitive position of the firm.

􀂄 Weaknesses (things done poorly or not at all) can place the

firm at a competitive disadvantage.

􀁺 Steps 2 and 3 combined are called a SWOT

analysis. (Strengths, Weaknesses, Opportunities,
and Threats)
Identifying Opportunities

Orgn Opportunity
resource Orgn
In
capabilities opportunity
envt
Levels of organisational strategy

Corporate Multi
Business

Business
SBU 1 SBU 2 SBU 3

Functional
Human
R&D Manufacturing marketing Finance
Resource
 Types of Corporate strategy
• Corporate-level strategies
􀂁 Top management’s overall plan for the entire
organisation and its strategic business units
􀁺 Types of corporate strategies
􀂁 Growth: expansion into new products and
markets
􀂁 Stability: maintenance of the status quo
􀂁 Renewal: redirection of the firm into new
markets
 contd
• Growth strategy
􀂁 Seeking to increase the organisation’s business
by
expansion into new products and markets.
􀁺 Types of growth strategies
• Concentration
Focusing on a primary line of business and
increasing the number of products offered or
markets served.
•
􀂁Vertical integration
􀂁Backward vertical integration: attempting
to gain control of inputs (become a self-
supplier).
􀂁 Forward vertical integration: attempting to
gain control of output through control of
the distribution channel and/or provide
customer service activities (eliminating
intermediatries)
• Horizontal integration
Combining operations with another competitor in the
same industry to increase competitive strengths and
lower competition among industry rivals.

DIVERSIFICATION
􀁺 Related diversification
Expanding by merging with or acquiring firms in different,
but related industries that are “strategic fits”.
􀁺 Unrelated diversification
Growing by merging with or acquiring firms in unrelated
industries where higher financial returns are possible.
 contd
• Stability strategy
• 􀂁 A strategy that seeks to maintain the
status quo to deal with the uncertainty of a
dynamic environment, when the industry is
experiencing slow- or no-growth
conditions, or if the owners of the firm
elect not to grow for personal reasons.
 contd
• Renewal strategies
􀂁 Developing strategies to counter organisation
weaknesses that are leading to performance declines.
􀂄 Retrenchment: focusing of eliminating non-critical
weaknesses and restoring strengths to overcome current
performance problems.
􀂄 Turnaround: addressing critical long-term performance
problems through the use of strong cost elimination
measures and large-scale organisational restructuring
Solutions.
 Strategic Planning Model
Where we are ABCDE Where we want to be How we will do it How are we doing

Assessment Baseline Components Down to Specifics Evaluate

• Environmental Scan • Situation – Past, • Mission & Vision • Performance • Performance

Present and Future Measurement Management
• Background • Significant Issues • Values / Guiding • Targets / Standards of • Review Progress –
Information Principles Performance Balanced Scorecard
• Situational Analysis • Align / Fit with • Major Goals • Initiatives and • Take Corrective
Capabilities Projects Actions
• SWOT – Strength’s, • Gaps • Specific Objectives • Action Plans • Feedback upstream –
Weaknesses, revise plans
Opportunities,
Threats
Assessment
 Assessment Model: Assessment

SWOT
Internal
InternalAssessment:
Assessment:Organizational
Organizationalassets,
assets,
resources,
resources,people,
people,culture,
culture,systems,
systems,partnerships,
partnerships,
suppliers, . . .
suppliers, . . .

External
ExternalAssessment:
Assessment:Marketplace,
Marketplace,
competitor’s,
competitor’s, social trends,technology,
social trends, technology,
regulatory
regulatory environment, economiccycles
environment, economic cycles. .
 Assessment
Strength’s
• Strength’s – Those things that you do well, the
high value or performance points
• Strengths can be tangible: Loyal customers,
efficient distribution channels, very high quality
products, excellent financial condition
• Strengths can be intangible: Good leadership,
strategic insights, customer intelligence, solid
reputation, high skilled workforce
• Often considered “Core Competencies” – Best
leverage points for growth without draining your
resources
 Assessment
Weaknesses
• Weaknesses – Those things that prevent you from
doing what you really need to do
• Since weaknesses are internal, they are within
your control
• Weaknesses include: Bad leadership, unskilled
workforce, insufficient resources, poor product
quality, slow distribution and delivery channels,
outdated technologies, lack of planning, . . .
 Assessment
Opportunities
• Opportunities – Potential areas for growth and
higher performance
• External in nature – marketplace, unhappy
customers with competitor’s, better economic
conditions, more open trading policies, . .
• Internal opportunities should be classified as
Strength’s
• Timing may be important for capitalizing on
opportunities
 Assessment
Threats
• Threats – Challenges confronting the organization,
external in nature
• Threats can take a wide range – bad press
coverage, shifts in consumer behavior, substitute
products, new regulations, . . .
• May be useful to classify or assign probabilities to
threats
• The more accurate you are in identifying threats,
the better position you are for dealing with the
“sudden ripples” of change
Baseline
 Baseline
Why create a baseline?
• Puts everything about the organization into a
single context for comparability and planning
• Descriptive about the company as well as the
overall environment
• Include information about relationships –
customers, suppliers, partners, . . .
• Preferred format is the Organizational Profile
 Organizational Profile B aseline

1. Operating Environment
• Products and Services – Suppliers, Delivery
Channels, Contracts, Arrangements, . . .
• Organizational Culture – Barriers, Leadership,
Communication, Cohesiveness . . . .
• Workforce Productivity – Skill levels, diversity,
contractor’s, aging workforce, . . .
• Infrastructure – Systems, technology, facilities, . .
• Regulatory – Product / Service Regulation, ISO
Quality Standards, Safety, Environmental, . . .
 Organizational Profile B aseline

2. Business Relationships
• Organizational Structure – Business Units,
Functions, Board, Management Layers, . . .
• Customer Relationships – Requirements,
Satisfaction, Loyalty, Expectations, . . .
• Value Chain – Relationship between everyone in
the value chain . . . .
• Partner Relationships – Alliances, long-term
suppliers, customer partnerships, . . .
 Organizational Profile B aseline

3. Key Performance Categories

• Customer
• Products and Services
• Financial
• Human Capital
• Operational
• External (Regulatory Compliance, Social
Responsibility, . . . )
 Baseline
Gap Analysis
Baseline / Org Profile Challenges / SWOT

Gap
Gap == Basis
Basis for
for Long-Term
Long-Term
Strategic
Strategic Plan
Plan
Components
 Components
Developing Goals
• Cascade from the top of the Strategic Plan –
Mission, Vision, Guiding Principles.
• Look at your strategic analysis – SWOT,
Environmental Scan, Past Performance, Gaps . .
• Limit to a critical few – such as five to eight goals.
• Broad participation in the development of goals:
Consensus from above – buy-in at the execution
level.
• Should drive higher levels of performance and
close a critical performance gap.
 Components
Examples of Goals
Reorganize
Reorganizethe
theentire
entireorganization
organizationfor
forbetter
betterresponsiveness
responsivenessto
tocustomers
customers

We
Wewill
willpartner
partnerwith
withother
otherbusinesses,
businesses,industry
industryleaders,
leaders,and
andgovernment
government agencies
agenciesin
in
order
orderto
tobetter
bettermeet
meetthe
theneeds
needsof
ofstakeholders
stakeholdersacross
acrossthe
theentire
entirevalue
valuestream.
stream.

Manage
Manageour
ourresources
resourceswith
withfiscal
fiscalresponsibility
responsibilityand
andefficiency
efficiencythrough
throughaasingle
single
comprehensive
comprehensiveprocess
processthat
thatisisaligned
alignedto
toour
ourstrategic
strategicplan.
plan.

Improve
Improvethethequality
qualityand
andaccuracy
accuracyof
ofservice
servicesupport
supportinformation
informationprovided
providedto
toour
our
internal customers.
internal customers.

Establish
Establishaameans
meansby
bywhich
whichour
ourdecision
decisionmaking
makingprocess
processisismarket
marketand
andcustomer
customer
focus.
focus.

Maintain
Maintainand
andenhance
enhancethe
thephysical
physicalconditions
conditionsof
ofour
ourpublic
publicfacilities.
facilities.
 Components
Objectives

• Relevant - directly supports the goal

• Compels the organization into action
• Specific enough so we can quantify and
measure the results
• Simple and easy to understand
• Realistic and attainable
• Conveys responsibility and ownership
• Acceptable to those who must execute
• May need several objectives to meet a goal
 Components
Goals vs. Objectives

GOALS OBJECTIVES
Very short statement, few Longer statement, more
words descriptive
Broad in scope Narrow in scope
Directly relates to the Indirectly relates to the Mission
Mission Statement Statement
Covers long time period Covers short time period (such
(such as 10 years) 1 year budget cycle)
 P.E.S.T. elements
• Political aspects: What are the political implications,
• connections, actions needed etc.? e.g. Gulf war
• Economical aspects : Is it viable, does it make
economic sense (short or long-term), how much??
• Social aspects : What are the social consequences of
• the idea, strategy, changes etc. e.g. how will eBanking
• affect the customers?
• Technological aspects: What technology is needed,
• available, is this a quantum leap for the
consumer/supplier?
• BCG Matrix
􀂁 Developed by the Boston Consulting Group
􀂁 Considers market share and industry growth rate
• 􀂁 Classifies firms as:
• 􀂄 Cash cows: low growth rate, high market share
• 􀂄 Stars: high growth rate, high market share
• 􀂄 Question marks: high growth rate, low market share
• 􀂄 Dogs: low growth rate, low market share
BCG MATRIX
Forces in the industry analysis
 Five competitive forces
• 􀁺 Threat of new entrants
• 􀂁 The ease or difficulty with which new competitors can
• enter an industry.
• 􀁺 Threat of substitutes
• 􀂁 The extent to which switching costs and brand loyalty
• affect the likelihood of customers adopting substitutes
• products and services.
• 􀁺 Bargaining power of buyers
• 􀂁 The degree to which buyers have the market strength
to
• hold sway over and influence competitors in an industry.
• Bargaining power of suppliers
• 􀂁 The relative number of buyers to
suppliers and threats from substitutes and
new entrants affect the buyersupplier
relationship.
• 􀁺 Current rivalry
• 􀂁 Intensity among rivals increases when
industry growth rates slow, demand falls,
and product prices descend.
 Competitive strategies
• Cost leadership strategy
• 􀂁 Seeking to attain the lowest total overall costs relative
to
• other industry competitors.
• 􀁺 Differentiation strategy
• 􀂁 Attempting to create a unique and distinctive product
or
• service for which customers will pay a premium.
• 􀁺 Focus strategy
• 􀂁 Using a cost or differentiation advantage to exploit a
• particular market segment rather a larger market.
• The rule of three
• 􀂁 The competitive forces in an industry, if
unfettered, will inevitably create a situation
where three companies (fullline
generalists) will dominate any given
market
• 􀂁 Some firms in the same market become
super niche players and while others end
up as “stuck-in-the-ditch
 Innovation strategies
• 􀁺 Possible events
• 􀂁 Radical breakthroughs in products.
• 􀂁 Application of existing technology to new uses.
• 􀁺 Strategic decisions about innovation
• 􀂁 Basic research
• 􀂁 Product development
• 􀂁 Process innovation
• 􀁺 First mover
• 􀂁 An organisation that brings a product innovation to
• market or use a new process innovations