CHP 1 - Strategy

SBL Notes – DEC 2019 Attempt
Sir Hasan Dossani – VIFHE
Chapter 1 -
Strategy
Terminologies
The terminologies relating Strategic Management have multiple definitions which sometimes differ significantly
from each other, depending on the Authors and their School of Thoughts. Following are the most general
descriptions
• Vision (or strategic intent):

Is the desired future state in which the Organization wishes to see it self. Vision is achieved through Mission
• Mission:
Mission is Organization’s overriding purpose of existence and reflects stakeholders’ expectation from the
business. It deals with the question “why” do we exist?
Core Values defines how the organization wishes to operate and guides the organization’ actions, i.e. its
principles. E.g. includes integrity, equal opportunity employer, diversity, etc.
Core Values should be explicitly stated either within the mission statement or through a separate subsidiary
statement.
• Goals:
Goals are smaller targets to achieve the Mission. Goals are generally qualitative in nature. E.g. increase sales,
reduce costs, increase customer satisfaction, new products, etc.
• Objectives:
Objectives are more specific targets to achieve the Mission, i.e. quantitative in nature.
Objectives should be S-M-A-R-T (Specific, Measurable, Achievable, Result-Oriented, Time-Bound). E.g.

increase sales quantity by 10% p.a., reduce production costs by 5% p.a.
Goals and Objectives are developed at the highest level, then filtered down to divisions, departments,
functions, till it reaches down to an individual’s work target level. This cascading concept, known as
Management by Objectives (MbO), was given by Peter Drucker.
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• Strategy:
Strategies are developed in order to achieve the goals, objectives and hence the Mission of the Organization
• Strategic Management:
How an organization manages its strategies i.e. creating strategies, implementing them, monitoring them and
revising them if strategies are not getting the desired results
Strategic Management - Rational Model by JS&W

3 stages involved in Strategic Management:
1. Strategic Position / Analysis

Review strategic position in light of:
▪ Current position
▪ External environment, e.g.
• Country (PESTEL)
• Industry (Porter 5 Forces: customers, suppliers, competition)
▪ Internal resources, e.g.
• Human resource / Expertise
• Financial resources
• IT resources Strength / Weakness
• Brand / corporate image

• Any unique tangible asset
▪ Mission
▪ Expectation of key stake holders
▪ Clarity of mission or future course of direction
Techniques includes Porter’s 5 Forces Model, PESTEL Analysis, SWOT Analysis, Value Chain Analysis,
Stakeholder Mapping Model, etc.
2. Strategic Choice
▪ Generate all possible options to reach mission
▪ Analyze pros and cons of all options
▪ Select the strategy that best suits you (see strategy selection criteria under next heading)
3. Strategy into Action

▪ Implement selected strategies
▪ Monitor the results
▪ Amend strategies if desired results are not being achieved

External Environment
External Environment
Environment means external factors that surrounds or affects the business. E.g. Economy, laws, customers,
competitors, etc.
Types of External Environment

▪ General (macro) environment: pertains to the entire country
▪ Immediate (micro) environment: pertains to the industry in which we operate
Prediction
▪ As environment is uncertain, prediction is required in order to plan ahead
▪ The better the prediction, the more successful the strategy will be
▪ Tools used in predictions:
▪ Forecasting
Forecasting is based on historic trend, e.g. average sales growth for last 5 years. However, it is not
necessary that historic trend will also continue in future.
▪ Scenario building
Various scenarios are prepared based on key assumptions, i.e. what-if scenarios are build, e.g. US$
rate, petrol price, economic growth %, customer demand, etc. Key assumptions are called drivers
for change.
Scenarios can be built at macro / country level (known macro scenarios) as well as can be built at
micro / industry level (knows as micro scenarios).
Multiple scenarios are built in conditions of high uncertainties, so that all possible outcomes are
reviewed.

Environmental Analysis
Every business has to analyze its environment, in order to prepare strategies. As there are two types of
environment, BOTH environments have to be analyzed. Following two models are used to analyze the
environment:
▪ General environment: PESTEL
▪ Immediate environment: PORTER’S 5 FORCES
PESTEL (Macro Environment)

PESTEL:
P: Political T: Technology
E: Economic E: Ecological
S: Social L: Legal
• Political
▪ Stable business environment ▪ Law and order situation

▪ Government policies (e.g. liberal, investment friendly) ▪ Political situation
Example: Government is supporting Professional Education industry through tax incentives.
• Economic
▪ Disposable income (necessity vs luxury) ▪ Rate of returns
▪ Economic growth / recession ▪ Exchange rates
▪ Inflation ▪ Interest rates

▪ Tax implications ▪ Financing options
Example: The economy is going through recession.
• Social
▪ Demographics (study of population) ▪ Age / gender groups
▪ Believes / Religious systems ▪ Literacy levels
▪ Standard of living ▪ Unemployment
Example: A lot of people go for higher Professional Education, i.e. highly educated society

• Technology
▪ Availability of technology ▪ Internet / online
▪ Tech Infrastructure of the country ▪ Availability / shortage of skilled labour

Example: IT and communication infrastructure are available, hence E or Distance Learning programs can be
offered through internet and website
• Ecological
▪ Protection of Earth and its environment
▪ Talks about pollution, global warming, ozone layer, harmful waste material, carbon footprint, green
products, etc.
▪ Ecological factors are getting important and more and more customers are becoming ‘green’
conscious
▪ Several Green Groups or Pressure Groups have been formed (e.g. Green Cross, Green Peace, Earth
First, etc.)
▪ Environment audits are now being conducted (e.g. Valdez Principles Framework)
▪ Ecological issues covers:
• Products: Your product should not harm the environment, it should be recyclable
• Manufacturing process: Eco friendly machineries are used, waste materials / chemicals are
properly disposed off, no smoke or noise pollutions, etc.
• Office / Buildings: Environmentally friendly buildings, e.g. solar powered, energy
preservation, etc.
Example: Reduce use of papers in educational institutes and move to paperless environment, as paper is
manufactured by cutting trees.
• Legal
▪ Company Law ▪ Employment / Labour Laws
▪ Health and Safety Law ▪ Data Protection Act
▪ Environmental laws ▪ Tax Law
▪ Competition / monopoly Acts ▪ Marketing and Sales (warranty, damage)

Example: Student’s personal and educational data is to be kept confidential (data privacy / protection)

Porter 5 Forces (Micro Environment)
1. The bargaining powers of Customers

Customers want to buy high quality product at low price. On the other hand, business wants to sell low
quality product at high price. This “tug of war” directly affects the profitability of the business.
Now, who will win, the customer or the business? This depends on the following factors:
▪ How critical is the product to the customer (e.g. medicine vs chocolates)
▪ Size of customer vs size of business
▪ Number of vendors of the same product available in the market
▪ Whether the product is standard or unique/branded/customized
▪ Is there any switching cost
▪ Customer affordability
▪ Customer’s own knowledge and bargaining skills
2. The bargaining powers of Suppliers

Suppliers want to sell low quality product at high price. On the other hand, you (business) wants to buy high
quality product at low price. This “tug of war” directly affects the profitability of the business.
Now, who will win, the supplier or you (business)? This depends on the following factors:
▪ {Principally the same factors mentioned above under bargaining powers of Customers but with opposite
angle}
3. Threats of new- entrants (and barriers)

New entrants directly reduce the market share of existing companies and hence the profits. That is why it is
important that some ‘entry’ barriers are created so that new companies do not enter the industry.
How can we create barriers to entry in any industry? Examples to barriers are:
▪ License / Government approval required

▪ Trademarks / patents
▪ High capital or investment required
▪ Strong brand, corporate image or goodwill
▪ Switching cost involved (e.g. customized product)

4. Current competition / rivalry

Competition directly affects market share and profitability. The more the number of competitors, the more
intense the level of competition will be. Intense competition has several forms, such as price cutting,
advertising battles, sales promotions / deals, introducing new products, improving after sales service,
guarantees / warranties, etc.
Factors affecting intensity of competition:

▪ Number of competitors
▪ Market share %
▪ Lifecycle stage of the industry (growth, maturity or decline phase?)
5. Threats of substitute products

(A substitute product is manufactured by another industry, but satisfies the same customer needs, e.g. petrol
vs CNG, planes vs trains, etc.).
The availability of substitute produces directly affects the profitability of the Organization. Options to deal
with substitute products includes:
▪ Start dealing with substitute products yourself (e.g. petrol pumps now offer CNG as well)
▪ Innovation of cheaper or better products, so that the customer does not have to look for cheaper or
better ‘substitute’ products
Strategic Drift
• Strategic drift occurs when
▪ Changes to the external environment of the organization is faster and
▪ Changes in organization’s strategies are slower
• Due to this, organization’s strategies become misaligned with the external environment
• E.g. includes Apple (1980s), IBM (1990s), Nokia (2000s)
• Strategic drift should be tackled quickly before the gap increases
• Strategic drift normally happens in those organizations where employees are not willing to change and adopt
the changing environment
• In a “Learning Organization”, chances of strategic drift is lower as all employees are continuously acquiring
new knowledge and skills and updating themselves with the changes in the environment

Porter Diamond Model

Germany is famous for car production. France is famous for wine. Japan is famous for electronic items. How
countries achieve international reputation in particular fields?
Michael Porter identified four principal determinants of national competitive advantage (drawn in a diamond
shape). Its primary purpose is to analyze the competitiveness of a nation:
1. Factor Conditions
Factor conditions means the resources which are required to do business in that country are easily available,
such as skilled labour, land, machinery, raw materials, roads, infrastructure, communication/internet,
technical expertise, etc.
For e.g. Germany has abundant supply of iron. France has best climate and soil for grapes.
2. Demand Condition
Demand condition means that there is a large demand for the products in which you plan to operate.
For e.g. people of Germany likes to drive luxurious cars, people of France likes to drink a lot of wine.
3. Related and Supporting Industries

The main industry always benefits if related and supporting industries are present nearby. This leads to
specialization and cost efficiencies.
For e.g. in Germany, tyres, paint and leather industries are also present around the car manufacturing
factories. Also auto engineering universities and institutes are present.
4. Firm Strategy, Structure and Rivalry

It includes:
• Government’s role / attitude towards your industry (political factors)
• Existing level of competition in your industry
• How companies are incorporated, capital markets, corporate structures, nationalized / privatized
structure, etc.
Example, German Govt is supporting auto mobile industry and encouraging healthy competition.

Strategy Evaluation Criteria - SFA Framework by J&S
SFA Framework is used to evaluate a “proposed” strategy
1. Suitability
▪ Evaluates whether the proposed strategy will solve the current problem or achieve the objectives
▪ In other words, it means whether the proposed strategy makes ‘sense’ keeping in mind the current
issues
▪ Normally it covers advantages and disadvantages (opportunity and threats)
2. Feasibility
▪ Evaluates whether the organization has the internal resources and competencies to implement the
proposed strategy
▪ Internal resources include:
▪ Human resource / expertise
▪ Financial resource
• Ratio analysis of “our existing” company to be done if financial data is provided
▪ IT resources
▪ Brand / corporate image
▪ Any unique tangible asset
3. Acceptability
▪ Evaluates whether the proposed strategy will be acceptable by our shareholders, particularly from
risk and return point of view (risk averse vs risk seeker shareholders)
▪ If it is a private limited / family company with shareholders directly managing the company, then the
proposed strategy will be normally acceptable
▪ In case of proposed acquisition, the ratio analysis of the “target” company is to be done in this section
if financial data is provided
▪ Also covers culture differences

SWOT / TOWS Model

▪ SWOT: Strength, Weakness, Opportunities, Threats
▪ S and W pertains to INTERNAL factors (e.g. motivated staff, weak accounting software)
▪ O and T pertains to EXTERNAL factors (e.g. growing industry, tough competition)
▪ SWOT Analysis combines results of:
▪ Environment (Opportunity and Threat)
▪ Strategic Capability (Strength and Weakness)
TOWS Model
Threat S-T W-T
Opportunities S-O W-O

Strength Weakness
▪ SO: Use Your Strength To Avail Opportunities

- Example 1: You have inhouse IT expertise. -You use your inhouse IT dept to develop a fully functional
website to take advantage of increasing E-Business
- Example 2: You already have a successful eco-friendly product. You aggressively advertise your existing
eco-friendly product to take advantage of eco conscious customer segment
▪ WO: Overcome Your Weakness To Avail Opportunities

- Example 1: you have old machineries. Get rid of the old machineries and replace it with latest energy
efficient machineries and also take advantage of tax rebates on new investments recently announced
by Govt
- Example 2: You don’t have a R&D Dept. Create a R&D department in order to innovate an eco-friendly
product to take advantage of eco conscious customer segment

▪ ST: Use your Strength To Avoid or Counter Threats

- Example: you have a R&D Dept. Increase your R&D to innovate new products in order to minimize threat
of competitive products or substitute products
▪ WT: Minimizes Weaknesses and Avoid Threats

- Example: In case your cost of production is very high as compared importers from cheap labour
countries, then you choose those customer segments who are willing to pay premium pricing by
adopting a niche strategy
Market Segmentation
Market Segmentation
• Break the market into smaller sections, based on similar needs,
• e.g. in commerce teaching, you can further segment into ACCA, MBA, CA, BCOM, etc.
• e.g. in TV channels, you can further segment into news, sports, dramas, cooking, documentary
• Reasons for segmentation:

▪ Each customer segment has different needs, though being in the same industry
▪ You can design specific marketing mix for each segment
Target Market
• Target segment means selecting segments in which you want to operate
• Target segment is selected based on:
▪ Segment size
▪ Segment growth potential
▪ Customers, suppliers, competitors, etc. (i.e. Porter 5 forces)
▪ Your own expertise and resources

Marketing
• Marketing?
Marketing aims to satisfy customer needs profitably through an appropriate Marketing Mix
• Marketing Mix (4 P plus 3 Extended P for services)

Whenever a new product is launched, FIRST we have to decide the 4Ps of that product. These are also
referred to as marketing strategies.
1. Product (means satisfying customer needs):

▪ Core design / features of the product
▪ Quality aspects
▪ Availability of choices e.g. colours, sizes, flavours, timings, etc.
▪ After sale services
Branding:
▪ Branding means to give the product a brand name
▪ Advantages / importance of Branding:
▪ distinguishes the product from competitors’ products
▪ makes customer feel familiar, confidence in quality, association
▪ helps in recurring purchases
2. Promotion (means marketing):

▪ Advertising: mass marketing to general public (TV, newspapers, billboards, internet, radio, fliers)
▪ Direct marketing: one to one marketing (e.g. tele-sales, emails, SMS)
▪ Sales promotion: activities to convert customer’s interest into sales (e.g. discounts, loyalty schemes,
free trials, free gifts, twin packs, buy 1 get 1 free, group discount, free demo)
3. Place (means how the product reaches the customers):

▪ Channel: sales outlets (e.g. supermarkets, pan wala)
▪ Logistics: location of warehouse (speed of delivery, damages, cost of transportation)
▪ Distribution system (self, wholesaler, distributor, agent)

4. Pricing (means setting the right price for the product):

▪ Costs
▪ Required profit margin
▪ Premium for any uniqueness, brand or goodwill
▪ Competitors’ price
▪ Value for money (from customer’s point of view)
▪ Customer affordability
EXTENDED Ps FOR SERVICES:

5. Processes: efficient and fast processing directly affects the quality of service, e.g. long and slow moving
line in a bank for utility bills
6. People: front line staff interacting with the customer plays a very important part, e.g. rude staff at the
bank for utility bills
7. Physical evidence: as money has been spent on a non-physical item, having physical symbols helps,
e.g. a training certificate after completion of training, receipts

Pricing Process & Strategies

Determining the ‘right’ price for the product is a complex decision. You cannot charge an abnormally high price
as it would discourage or scare-off the customers. Similarly, you cannot charge abnormally low price as it would
give wrong signal to the customer regarding the quality of the product as well as it will reduce your profit levels,
which you could have earned easily.
Below are certain steps involved to help determine the right price for the product, known as PRICING PROCESS.
The sequence of these steps are inter changeable:
1. Pricing Objectives
Pricing objectives should be consistent with the overall competitive strategy of the organization, such as:
▪ Cost leadership strategy
▪ Differentiation strategy
▪ Other possible objectives: volume increase, market share increase, cash flow generation, etc.
2. Costing and Profitability Analysis

▪ Analyze cost of the product
▪ Add appropriate profit margin
▪ Contribution Margin & Breakeven analysis
3. Analyzing Customer Demand and Affordability

▪ How much customers are willing to pay
▪ Are customers price sensitive or quality sensitive
▪ Assess the demand of the product with relation to various price range
4. Evaluate Competitors’ Price

▪ Benchmark proposed price with competitor’s price
▪ However, there might be ‘qualitative’ differences between our product and competitor’s product, which
will have to be considered in the pricing

5. Selecting Pricing Strategies

▪ Price Penetration:
Charge lower price in order to enter market and increase market share. Initial focus is to get sales volume
and not profit margin
▪ Price Skimming:
Charge a higher price as premium for a unique or a new product. Focus is on earning high profit margin
and not sales volume. In order to do price skimming, it is important that your product must have some
brand image or uniqueness.
▪ Discriminate Pricing:
Charge different price to different customer groups. Options include different timings (e.g. day and
night), different country, different age, different currency, early bird discounts, etc.

CSF & KPI

Customers’ Critical Success Factors
▪ Customers’ CSF are those features of your product due to which the customer buys your product (and
leaves the competitors’ product)
▪ E.g. what do you expect from a good airline?
▪ Punctuality
▪ Safety
▪ Comfort
▪ Organization should understand customers’ CSFs and then excel in those areas to beat competition
Key Performance Indicators (KPI)

▪ CSF are measured through KPI
▪ KPIs are quantifiable targets that organization has to achieve in order to excel
▪ E.g. what can be the KPI to measure the above mentioned CSFs of a good airline?
▪ Punctuality: % of flights departing on time
▪ Safety: # of accidents in a year
▪ Comfort: # of complaints

Product Lifecycle (PLC)

PLC is based on the sales volume of a product over time and has got 5 stages:
1. Development:
▪ R&D
▪ Product designing
▪ Cost will be very high with no immediate revenue
2. Introduction:
▪ Launch
▪ Advertising and marketing
▪ Losses (due to low volumes and high marketing costs)
▪ Few competitors
▪ Cost will be high mainly due to marketing expenses with minor sale revenue
3. Growth:
▪ Sharp growth
▪ More competitors
▪ Sale revenue will start increasing and product will first break even and then start making profit
4. Maturity:
▪ Growth slow down / saturation
▪ Competition at peak
▪ Cost will be low due to economies of scale and expertise with maximum sale revenue
5. Decline:
▪ Falling sales
▪ Consider exit
▪ Revenue will decrease and exit / long-tail costs will be incurred, including servicing, spare parts,
warranties, etc.

Innovation
▪ Innovation: designing new products
▪ High revenue but also high cost / risk
▪ Advantages of innovation:
▪ High revenue / market share (first-mover advantage)
▪ Price skimming strategy
▪ Disadvantages of innovation:
▪ Uncertainty
▪ High R&D costs
▪ Followers learns from your mistake
▪ Two strategies for new product development
▪ Leader strategy (earns early rewards but high risks / costs)
▪ Follower strategy (sacrifices early rewards but avoids risks)

Competition Dynamics
Industry Life Cycle for Competition
Industry lifecycle Nature of Competition
1. Inception None to few
2. Growth Many new entrants, competition is increasing
3. Maturity Competition is at its peak, weak players exit
4. Decline Few left, majority exits
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Strategic Group Analysis
▪ Competitors can be analyzed industry wide, but it is too broad
▪ Strategic group analysis reduces the list to organizations having similar strategic characteristics
▪ Strategic characteristics could be based on range of product, geographical coverage, quality levels, branding,
customer segment, etc.
Purpose of Competitor Analysis

▪ Insight into competitors’ strategies
▪ Compare your competitive position with competitor
▪ Assist in developing your competitive strategies
Areas Covered under Competitor Analysis:

Understand / assess competitor’s:
▪ Objectives / Profile
▪ Strengths
▪ Weaknesses
▪ Strategies
▪ Response to your strategies

Strategic Capability
• Strategic Capability:
Adequacy of resources AND competence for the Organization, i.e. deals with internal factors
• Resources:
Tangible and non-tangible assets of the Organization
• Competence:
How effectively the organization uses its resources
• Threshold resources and competence:

The minimum quantity of resources and competence required to ‘survive’
• Unique resources and competence:

Resources and competences which are better than the competitors and hence give comp edge. These are
difficult for competitors to imitate or obtain. E.g. can include:
 Highly loyal / motivated staff
 Goodwill
 Innovations
 IT / technology
• Limiting Factors:
▪ Every Organization operates under resource constraints
▪ A limiting factor means that a shortage of a particular resource is limiting the business activity of the
Organization
▪ Examples of limiting factors:
 Production capacity
 Skilled / technical staff
 Restricted distribution network
 Limited finances / budgets

Knowledge Management
• Data and Information:
Data are simple facts which are organized in a way to produce information
• Knowledge:
Pattern resulting from information, which is strategically used
• Explicit knowledge:
Information already known to the Organization
• Tacit knowledge:
Information not yet know to the Organization, i.e. still in people’s mind
• Knowledge management:
The entire process of collecting, storing and using knowledge in the Organization
• Knowledge Management Systems:

Software specializing in knowledge management
Knowledge Management Systems

• Office Automation Systems:
Automates routine manual tasks, e.g. MS Word, Excel, Emails
• Groupware:
▪ For working of teams
▪ Features include email, conferencing, scheduling, document / project management
▪ E.g. MS Outlook, Lotus Notes
• Intranet / Extranet:
▪ Internal website of an organization, which only employees can use
▪ Used for sharing information, policies and procedures, company news, etc.
▪ Extranet is intranet plus few authorized outsiders, e.g. key suppliers or customers

• Expert Systems:
▪ Artificially intelligent systems, in which knowledge and human expertise are fed, due to which it is able
to suggest decisions.
▪ E.g. normally used in investment decisions, law, medicine
• Data Warehouse:
▪ A large data base in which data from various operating databases are stored over a long period of time
▪ Data warehouse helps in analyzing data trends over time as well as helps in data mining
• Data Mining:
▪ Specialized software which looks for ‘hidden’ pattern / relationships in a large pool of data, such as data
warehouse
▪ The hidden relationship / pattern is knowledge which is can be used for marketing strategies, pricing
strategies, etc.
▪ E.g. Nappies and beer in Wallmart Store
Porter Value Chain

• Value:
An feature for which the customer is willing to pay the price
• Value Activity:
An activity which adds “value” to the product
• Value Chain:
Entire chain of value activities which collectively adds value to the product
• 5 Primary Activities:
1. Inbound Logistics
2. Operations
3. Outbound Logistics
4. Marketing
5. Sales, After Sales Service

• 4 Support Activities:
1. Procurement
2. Technology Development
3. Human Resource
4. Firm Infrastructure
▪ Definitions of each value activity

▪ Inbound logistics:
▪ Physical transportation of raw materials from suppliers premises to your premises
▪ Warehousing of raw materials in your premises
▪ E.g. of IT system includes inventory management softwares, JIT concept, etc.
▪ Operations:
▪ Manufacturing process, i.e. converting raw materials into finished goods
▪ Includes manufacturing, packing, testing, etc.
▪ E.g. of IT system includes Computer Aided Manufacturing software (CAMs), Robotics, etc.

▪ Outbound logistics:
▪ Warehousing of finished goods in your premises
▪ Physical transportation of finished goods from your premises to final consumer
▪ Order placing process (e.g. telephone, website, etc)
▪ E.g. of IT system includes inventory management systems, Electronic Point of Sale (EPOS)/
barcoding, delivery scheduling systems, route planning systems for delivery vans, etc
▪ Marketing and Sales:

▪ Marketing activities to increase demand of your products
▪ E.g. of IT system includes E-Marketing, Customer Relationship Management software (CRMs),
Cookies, etc.
▪ After Sales Service:

▪ Includes activities such as repairs, warranties, guaranties, etc.
▪ E.g. of IT system includes complaints management software, etc.
▪ Procurement:
▪ Purchasing activities, such as inviting quotations from various vendors, evaluation, negotiation
and then placing firm orders with the vendors
▪ E.g. of IT system includes E-procurement, E-auction, Supplier Databases, Extranets, integrated
procurement systems through extranet, emails, etc.
▪ Technology:
▪ Use of technology in all areas of business
▪ E.g. of IT systems include programming software, CADs (computer aided designing software),
R&D software
▪ HR:
▪ Finding the right people for the right job
▪ E.g. of IT system includes Intranet, Human Resource Management Systems, E- Training, E
Attendance, etc.

▪ Firm Infrastructure:
▪ Includes senior management / governance of the organization who makes strategies and
decisions
▪ Plus all other departments which are not directly covered above e.g. finance, audit, legal, health
& safety, security, etc.
▪ E.g. of IT system includes Groupware, MIS, expert systems, data warehousing and mining
• Upstream / Downstream Supply Chain

▪ Upstream: flow of materials from suppliers into the organization (purchasing, inbound logistics,
operations)
▪ Downstream: flow of materials from organization to customers (outbound logistics, marketing & sales,
after sales service)
Corporate Parenting &Portfolio
Corporate Parenting means how corporate parent manages its business units
Factors to look at when comparing SBUs performance with one another

1. Industry growth status
2. Your market share trend
3. Net profit margin trend
4. BCG assessment
5. Strength / weakness / primary reason for acquisition

BOSTON CONSULTATIVE GROUP: BCG MATRIX (Also known as BOSTON BOX)

BCG Matrix / Boston Box is used to analyze the current position of the various business units within the Group
and what future course of action should be taken for each business unit
Potential cash inflow / outflow are plotted
Question Marks Stars

Industry High
(Harvest) (Build)
Growth
Dogs Cash Cows
Low
(Divest) (Hold)
Low High
Market Share
1. Star: Star business unit has a high market share in a growing industry, which means that there
is still a lot of growth potential in future. ‘Build’ strategy is used for Stars, i.e. more money is
invested now in order to seek long term gain
2. Cash Cow: Cash Cow business unit has a high market share in a declining industry, which means
that there is limited growth potential in future. The industry has reached the maturity stage
now. ‘Hold’ strategy is used for Cash Cows, i.e. maintain or extend the current position as much
as possible
3. Dog: Dog business unit has a low market share in a declining industry, which means that there
is no growth potential in future. The industry has reached the maturity stage or decline stage.
‘Divest’ strategy is used for Dogs, i.e. close down the business unit and use resources
somewhere else
4. Question Mark: Question Mark business unit has a low market share in a growing industry,
which means that there is growth potential in future. However it is a decision point as the Parent
needs to decide whether it is willing to take the risk and invest for future gains? ‘Harvest’
strategy is used for Question Marks, i.e. whether some money should be invested or not?

Product-Market Strategies
Ansoff’s Growth Vector Matrix:
Market
New Diversification
Market Development
Market Product
Existing
Penetration Development
Existing New
Product
▪ Market penetration: Increase market share

▪ Product Development: Heavy R&D, customer needs, marketing
▪ Market development: New geographical markets, distribution channels
▪ Diversification: New product and new market simultaneously
Diversification
Diversification means going for new products and markets
Diversification
Related Unrelated
Horizontal Vertical
Advantages of diversification:
▪ Higher profits
▪ Risk spreading
▪ Economies of Scale
▪ Synergies with sister companies

Disadvantages of diversification:
▪ Lack of experience
▪ High risk
▪ Management problems (time, resources, lack of concentration)
Related Diversification
▪ Developing new products and markets but within the existing capabilities and supply chain
International Diversification (Globalization)

Market Selection Criteria
▪ Market attractiveness (size, growth, culture,)
▪ Competitive advantage (Organization’s own experience in similar products/markets)
▪ Risks (e.g. political, govt policies, currency risks)
Reasons (and advantages) for Globalization

▪ More customers
▪ Higher profits
▪ Economies of scale
▪ Cheap resources and labour (country advantage)
▪ Favorable laws and government policies (e.g. low taxes)
▪ Risk spreading
Problems of Globalization
▪ Managing issues (vast operations, lack of local experience)
▪ Legal differences / complexities
▪ Cultural issues

Growth Strategies
ORGANIC GROWTH / INTERNAL DEVELOPMENT
▪ Grow by building or expanding your own products and markets with your own efforts
▪ Advantages:
▪ Less funds required than acquisition
▪ Less risky than acquisition (no hidden issues)
▪ No management or cultural issues
▪ Slow but ‘steady’ strategy
▪ Problems:
▪ Growth is slow – time consuming
▪ Slow economies of scale

ACQUISITIONS & MERGERS

▪ Acquisition is the purchase of a controlling interest in another company
▪ Merger is joining of two separate companies to form one single company
▪ Advantages:
▪ Quick growth
▪ Quick economies of scale
▪ Increase in market share by elimination competition
▪ Good strategy to enter foreign countries
▪ May gain access to new customer segment, new geographical areas, new distribution channels or any
proprietary asset or trade mark / brands of the target company
▪ Synergies in marketing, technology, financial resources
▪ Problems:
▪ Costly – high funds required as compared to organic growth
▪ Risky
▪ expected results not achieved post M&A
▪ hidden issues not identified at the time of M&A
▪ Difference in management style or culture between the two companies
▪ Duplication of departments, processes and human resources which needs to be sorted out
▪ M&A activity is also a time consuming exercise
▪ No seller / right company available for sale
JOINT VENTURES
▪ Company ‘A’ and Company ‘B’ forms a new Company ‘C’ under partnership, sharing equity as well as
management
▪ Advantages:
▪ Advantages of acquisition / merger PLUS
▪ Sharing of expertise
▪ Sharing of costs
▪ Sharing of risks
▪ Sharing of learning and research
▪ Sharing costs of expensive activities / investments

▪ Problems:
▪ Disadvantages of acquisition / merger PLUS
▪ Conflict of interest
▪ Chances of disputes
STRATEGIC ALLIANCES
▪ Two or more firms agree to work together to exploit common advantages, without forming a separate
company.
▪ Examples:
▪ ATM machines shared between all banks globally
▪ Easy Paisa (telecom industry with banking industry)
▪ Mobile companies giving ‘international’ roaming options
▪ Alliances can be with suppliers or customers (e.g. JIT) or with competitors (e.g. to create barriers to entry)
▪ Advantages:
▪ Advantages of acquisition / merger PLUS
▪ Sharing of expertise
▪ Sharing of costs and risk
▪ Sharing of learning and research
▪ Sharing costs of expensive activities / investments
▪ Additional advantages of international alliances:
▪ Access to international market
▪ Getting new ideas and technology from international markets
▪ Less risky strategy to pursue a globalization strategy
▪ Problems:
▪ Non-availability of appropriate strategic partner
▪ Alliances may not be ‘equally’ beneficial for both partners
▪ Conflict of interest
▪ Chances of disputes

FRANCHISE / LICENSES
▪ Company ‘A’ (Franchisor) gives license to Company ‘B’ (Franchisee) to use the brand name of the Franchisor
and conduct business according to the process and techniques instructed by the Franchisor
▪ Franchisor defines core products, qualities, manufacturing processes, recipes and provides guidance
▪ Franchisee responsible for initial capital investment and day to day operations of the business
▪ Advantages to Franchisor:
▪ Quick geographical growth without having any local experience
▪ Less capital requirement
▪ Availability of local expertise
▪ Low risk
▪ No local cultural issues
▪ High motivation / interest for Franchisee as he invests capital
▪ Disadvantage to Franchisor:
▪ High dependence on Franchisee
▪ Loses direct control over product and quality
▪ Limited control over Franchisee for operating matters
▪ Has to share secret / recipe with the franchisee
▪ Reputational risk if franchisee does not manage properly
▪ Conflict of interest / disputes
▪ Franchisee may eventually set-up his own product and become competitor
▪ Advantages to Franchisee:
▪ Association with a well know brand / product from first day
▪ Investment in a proven business format / product which eliminates risk of establishing a completely
new business / product
▪ Guidance and technical expertise is provided by the Franchisor
▪ Initial management, training and strategic planning is provided by the Franchisor
▪ Can take advantage of global / regional synergies, such as advertising campaigns, group purchases,
research, staff training, etc
▪ Disadvantage to Franchisee:
▪ All investment to be made by franchisee, i.e. all risk is taken by franchisee
▪ Has to follow strict procedures and rules, i.e. no flexibility or room for innovation
▪ Restricted geographical territory
▪ Has to pay high royalty which is normally based on sales revenue and not profit

▪ Franchisor may cancel the agreement and enter the market himself if he sees that his brand is
performing well
▪ Lack of guidance and support from uninterested franchisors
▪ All investment to be made by franchisee, i.e. all risk is taken by franchisee
▪ Salient Contents of a Franchising Agreement:

▪ Details of product
▪ Business operating model
▪ Geographical area
▪ Sales targets with key strategies
▪ Marketing and Advertising activities
▪ Human resources support
▪ Financing / Investment details
▪ Technological support
▪ Tenure of the agreement
▪ Remuneration arrangement (royalty, fees, etc.)
▪ Roles and responsibilities of Franchisor and Franchisee
▪ Non-competition clause
▪ Dispute solving procedures
▪ License:
Franchise is when the right includes product / trademark as well as the business operating model.
For e.g. MacDonald’s, Subway, Pizza Hut, Marriott, etc.
Licensing is when the right includes the use of the product / trade mark or intellectual property only and not
the business operating model. The word license is mostly used for software, manufacturing process or
technology, intellectual property, etc.
For Microsoft User License, or a right to print Disney Cartoon Characters on Tshirts

Generic Competitive Strategies

Porter’s four generic strategies for competitive advantage
1. Cost leadership (across the industry, i.e. all segments)
2. Differentiation (across the industry, i.e. all segments)
3. Focused / Niche strategy (on a particular segment):
Cost leadership
▪ Reduced cost in order to sell cheaper (targeting higher volumes)
▪ Options through which cost leadership could be achieved:
▪ Control over raw material cost (bargaining power with suppliers)
▪ Economies of scale (high volumes)
▪ Design of products and process (value engineering)
▪ Experience / learning curve
▪ Automation / Technologies
▪ Continuous cost reductions initiatives
▪ Outsourcing
▪ ‘No Frill’ cost strategy

▪ Lowest price / minimum benefit
▪ Zero brand loyalty
▪ Appropriate where:
▪ Customers do not value differentiation / quality / service
▪ Customers are very price sensitive

Differentiation
▪ Focusing on quality or uniqueness.
▪ Reinvesting portion of profit into R&D and product improvement
▪ Creating switching cost for the customers
▪ Options through which differentiation could be achieved:
▪ Continuous research and innovation
▪ Brand image / goodwill
▪ Heavy marketing
Focus / Niche
▪ Concentrate on one particular segment of the entire market
▪ Can adopt a “cost focus” strategy OR “differentiation focus” strategy
▪ Advantages of a niche strategy:
▪ Specialization
▪ Identify segment too small to attract major competitors
▪ Easier to create customer goodwill, loyalty and barriers to entry
▪ Ability to charge higher prices

Benchmarking
▪ Benchmarking is establishment of targets against which to compare our performance.
▪ Types of benchmarking:
▪ Internal (own historic performance)
▪ Industry (market leader or other comparable competitors)
▪ Best-in-class (global leader). Also means that you just benchmark certain function or activity instead
of benchmarking with the whole organization
▪ Benchmarking process:
1. Senior management commitment
2. Areas to be benchmarked
3. Select Organization to benchmark against
4. Compare key performance measures
5. Design and implement improvement plans
6. Monitor improvement plans
▪ Advantages / Reasons for benchmarking:
▪ Asses Organization’s existing position
▪ Focuses on improvement and best practices
▪ Improved performance
▪ Problems with benchmarking:
▪ Organization’s may not be comparable
▪ Organization may not share their information
▪ Requires time and cost
▪ Does not identify the root cause

Divestment Strategies
▪ Divestment: Selling off full or part of the business
▪ Reasons for divestment:
▪ Objectives not being achieved (e.g. losses)
▪ Concentrate on core activities (undo diversification)
▪ Need funds to finance more profitable option (liquidity)
▪ Exit barriers
▪ Factors that causes difficulties in exiting, such as:
▪ Lack of buyer / right offer price
▪ Low disposal value of assets
▪ Heavy redundancy payments
▪ Legal issues / contracts
▪ Methods of divestment:
▪ Sell as a running business to another entity (mostly competitor)
▪ Sell as a running entity to management/employee group
▪ Sell as a running entity to existing shareholders / partners
▪ Liquidation: wind up the business by selling all assets and paying liabilities
▪ Management / Employee Buyouts:
▪ Business is sold to the management or employee group as a running entity
▪ Reasons (and advantages):
▪ Expertise is retained internally
▪ Continuity of business (no management hiccups)
▪ Support available from ex-corporate / parent

Turnaround Strategies
▪ ‘Turnaround’ strategies are used when the business is continuously making major losses and if things are not
controlled immediately, business might close down
▪ Turn around strategies are implemented quickly as time and speed is important
▪ Steps for turnaround strategies:

▪ Change senior management (preferable those with turnaround expertise)
▪ Focus on short term cost reductions and revenue boost
▪ Focus on root cause of the problems and fix it urgently
▪ Gain support of key stake holders, such as key staff, financers, banks, customers
▪ Financial restructuring, e.g. reschedule loan repayment arrangements and markup rates
▪ Try to maximize synergies with other sister companies within the group
▪ Close down unprofitable branches / produces

Organizational Culture
Culture means the overall believes values, norms, attitude, etc. prevailing in a place.
Organizational Culture is the believes, values, norms, attitude, etc. prevailing within an Organization. In other
words, “the way we do things around here”. The culture prevailing in any organization is influenced by the
national culture and the founder / leader of the organization
Why is Organizational Culture Important?

▪ It affects the way we do business
▪ It affects our strategies
▪ It affects our employees
▪ It affects our customers
The Culture Web by Johnson & Scholes

The Culture Web Model is used to gain an understanding of Organization’s culture. The word ‘paradigm’ is used
to mean culture and summarizes the overall culture of an organization.
Symbols
Stories
(History) (Values)
Power
The Structures
Rituals & Paradigm
Routines
Org
Control Structures
(Mgt Style)
Systems
(Processes)
▪ Power Structures
▪ Study of the leader or the organization
▪ What is the leader like? His believes attitude, approach, etc.
▪ Who has the real power and is it used / misused
▪ Management style (e.g. strict or friendly)

▪ Organizational Structures
▪ Formal structure or informal structure
▪ Tall or flat structure
▪ Control systems
▪ Cost focus or quality focus
▪ Are employees controlled through reward style or punishment style?
▪ Look for words like ‘budgets’ or ‘overheads’
▪ Rituals & Routines

▪ Daily routine in the organization
▪ Practice and norms
▪ E.g. office timings, punctuality, strictness, late sitting, long lunch hours, leaves, etc.
▪ Stories
▪ Past events or history of the organization
▪ Heroes and Villains
▪ Symbols
▪ External appearance of the organization
▪ Logos, staff titles, office premises, dress code, language, cars, etc.
Ideal Steps to Bring a Major Cultural Change

▪ Understand the existing culture (using culture web model)
▪ Win confidence of Power Structure people
▪ Consult the proposed changes with Power Structure people and get their support
▪ Implement proposed changes slowly / step-by-step over a passage of time
Other terminologies
Financial culture
▪ All decisions based on cost-benefit analysis / financials / ROI
▪ Tight budget and strict cost control
▪ Accountants play a key role

Excellence / Service culture

▪ All decisions based on customer need and satisfaction
▪ Focus on differentiation / innovation / quality
▪ Accountants don’t play a key role
Role culture
▪ More focus on roles
▪ Common in large / government organizations
▪ Leads to bureaucracies and inflexibility
Task culture
▪ Focus on getting tasks done
▪ This is the modern type of environment
▪ Encourages high teamwork, flexibility and motivation
Practice Questions
P3 – Pilot Paper Q1: Pestel | Porter 5 Forces (NMS)
P3 – Dec 2009 Q2: Value Chain (Independent Living)
P3 – Jun 2010 Q2: SFA Framework | Porter Diamond Model (Swift)
P3 – Dec 2010 Q1: Corp Portfolio | Turnaround Strategy (Shoal plc)
P3 – Dec 2010 Q3A: Culture Web (Frigate)
P3 – Dec 2012 Q3: Franchise | Strategic Alliance | Financial Evaluation (Grafetti)
P3 – Jun 2014 Q2: Pricing Process | Marketing Mix (AQT)


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SBL Notes – DEC 2019 Attempt

Sir Hasan Dossani – VIFHE

• Vision (or strategic intent):

Objectives should be S-M-A-R-T (Specific, Measurable, Achievable, Result-Oriented, Time-Bound). E.g.

www.vifhe.com Chapter 1 – Strategy….. Page 1

Strategic Management - Rational Model by JS&W

1. Strategic Position / Analysis

• Brand / corporate image

3. Strategy into Action

www.vifhe.com Chapter 1 – Strategy….. Page 3

Types of External Environment

www.vifhe.com Chapter 1 – Strategy….. Page 4

PESTEL (Macro Environment)

▪ Stable business environment ▪ Law and order situation

Example: Government is supporting Professional Education industry through tax incentives.

▪ Inflation ▪ Interest rates

Example: The economy is going through recession.

▪ Believes / Religious systems ▪ Literacy levels

▪ Standard of living ▪ Unemployment

www.vifhe.com Chapter 1 – Strategy….. Page 5

▪ Tech Infrastructure of the country ▪ Availability / shortage of skilled labour

▪ Health and Safety Law ▪ Data Protection Act

▪ Environmental laws ▪ Tax Law

▪ Competition / monopoly Acts ▪ Marketing and Sales (warranty, damage)

www.vifhe.com Chapter 1 – Strategy….. Page 6

Porter 5 Forces (Micro Environment)

1. The bargaining powers of Customers

2. The bargaining powers of Suppliers

3. Threats of new- entrants (and barriers)

▪ License / Government approval required

www.vifhe.com Chapter 1 – Strategy….. Page 7

4. Current competition / rivalry

Factors affecting intensity of competition:

5. Threats of substitute products

www.vifhe.com Chapter 1 – Strategy….. Page 8

Porter Diamond Model

3. Related and Supporting Industries

4. Firm Strategy, Structure and Rivalry

www.vifhe.com Chapter 1 – Strategy….. Page 9

Strategy Evaluation Criteria - SFA Framework by J&S

SFA Framework is used to evaluate a “proposed” strategy

www.vifhe.com Chapter 1 – Strategy….. Page 10

SWOT / TOWS Model

Threat S-T W-T

Opportunities S-O W-O

▪ SO: Use Your Strength To Avail Opportunities

▪ WO: Overcome Your Weakness To Avail Opportunities

www.vifhe.com Chapter 1 – Strategy….. Page 11

▪ ST: Use your Strength To Avoid or Counter Threats

▪ WT: Minimizes Weaknesses and Avoid Threats

• Reasons for segmentation:

www.vifhe.com Chapter 1 – Strategy….. Page 12

• Marketing Mix (4 P plus 3 Extended P for services)

1. Product (means satisfying customer needs):

2. Promotion (means marketing):

3. Place (means how the product reaches the customers):

www.vifhe.com Chapter 1 – Strategy….. Page 13

4. Pricing (means setting the right price for the product):

EXTENDED Ps FOR SERVICES: