STRATEGY FORMULATION

STRATEGY FORMULATION
Mission Objectives Strategies Policies

Strategy formulation consists of Mission, Objectives, Strategies & Policies. Mission: Reason for Existence Objectives: What results to accomplish by When Strategies: Plan to achieve the Mission & Objectives Policies: Broad guidelines for decision making.

SWOT Analysis
SWOT analysis is used for Environmental Scanning. List of Factors:
Strength:
Strong brand image High quality products Excellent distribution network Good inventory management Strong R & D Economies of scale Latest technology Comfortable debt-equity ratio Good credit rating Motivated employees Cordial industrial relations. Good after sales service Motivated sales personnel Breadth of product line Locational facilities Out sourcing support Effective cost control Tax concessions Firms record of achieving Objectives Top management skill, interest & capabilities. Poor reserves Highly leveraged Low credit rating Poor receivable management Excess manpower Hostile industrial relations, Climate. Poor morale Inefficient board Inaccessible location

Opportunities:
Price decontrol Delicensing Dereservations Import relaxations FDI norms Capital market reforms Large, growing market Growing urban income & Population Growth of consumerism

Weaknesses:
Poor brand image Narrow product mix Weak distribution Poor product quality Uneconomical size of Operation Outdated technology Poor inventory management Weak R & D skills

Threats:
Recession Political instability Religious battles Terrorist attacks Social activism Consumerism Import liberalization

Corporate Strategy
Corporate Strategy Strategy for Change Stability Strategy Expansion Strategy

Penetration Diversification Integration

Restructuring

Turnaround

Divestment Liquidation

Vertical Horizontal

Merger

Takeover

Joint Vent Stra Alliance

Stability Strategy

No-Change Strategy

Profit Strategy

Proceed with caution

Corporate Strategy
Corporate Strategy:
Strategy for Change
Restructuring Turnaround Divestment Liquidation

Stability Strategy: Expansion Strategy: Penetration Diversification : Merger Takeover Joint Venture Strategic Alliance Integration: Vertical Horizontal

Expansion Strategy:
Expansion Strategy: Expansion strategies are always worked out in terms of products or businesses- existing or new, and markets existing or new. Penetration: Diversification : External Expansion Strategic Alliance : Defined as cooperation between two or more organizations with a common objective, shared control and contributions (resources, skills and capabilities) by the partner for mutual benefit. Joint Venture : In which two or more independent companies join together, contribute to equity capital in equal or agreed proportion and establish a new company. Takeover / Acquisition: One company takes over another organization. (resources, management and control. Merger: Is a combination of two or more organization, in which one acquires the assets and liabilities of the other in exchange for shares or cash or the or the organization are dissolved, and a new company is formed, which takes over the assets and liabilities of the dissolved organizations and new shares are issued.

Mergers
A Merger is a combination of two or more organizations, in which one acquires the assets and liabilities of other in exchange for shares or cash or the companies are dissolved, and a new company is formed and new shares are issued. So merger takes place, either through Acquisition or Amalgamation or Consolidation. If both companies dissolve themselves and form a new organization, it is amalgamation or Consolidation. Types of Mergers:
Horizontal Merger- Cement company combines with another cement co. Vertical Merger Refrigerator manufacturing co combines with compressor manufacturing co. Concentric Merger Leather shoe manufacturing co combines with leather goods co manufacturing purse, handbags jackets, etc. Conglomerate Merger. A Shoe manufacturing co merges with a pharmaceutical or an FMCG company

Major objective of Merger is to obtain SYNERGY

Take Over or Acquisition

Selected Acquisitions by Indian and Foreign Companies
Acquiring Company Hindustan Unilever Tata Tea TISCO (Tata Steel) Acquired Company TOMCO Asian Coffee Metal Box (Bearing Unit)

ICICI
India Cement Hewlett-Packard Pepsico BMW Tata Steel Volvo Mittal Steel

Anagram Finance
Visaka Cement Compaq Computer Quaker Oats Rolls Royce (Car Division) Corus Renault (Truck Division) Arcelor

Strategic Alliance

Integration: Vertical &Horizontal Objectives of Strategic Alliance:

Development of new product Development of new technology Reducing manufacturing cost Entering new markets Marketing and sales Distribution

Forms of Strategic Alliance

Forms of Strategic Alliance
Competitive Pre-Competitive Pro-Competitive Non-Competitive

Interaction

High High
Conflict

Low Pre-competitive Pro-competitive

Competitive Non-competitive

Low

Competitive Alliance brings two rival companies (high conflict) together in a cooperative arrangement in which interaction is required to fulfill the alliance objective. Such alliance may be intra or inter-industry. In Pre- competitive alliance, two companies from different, often unrelated industries, join together to work on clearly defined projects like technology development, new product, etc. Pro- competitive alliances are generally inter-industry, vertical value-chain relationships Between manufacturers and suppliers of components, spares etc. Non-competitive alliances are intra- industry partnership among non-competitive companies. The companies, because of their relative market positions, are not direct competitors or rivals. High level of interaction is necessary for alliance successful.

ANSOFF MATRIX
Ansoffs product-market expansion matrix has been the basis for research and development in Growth strategies.

Existing Products Existing Markets Market Penetration Strategy Consolidation Market Penetration

New Products Product Development Strategy On existing Strategy With New Competencies Beyond Current Expectations Diversification Strategy On existing Competencies With new Competencies Beyond Current Expectations

New Markets

Market Development New Segments New Territories New Uses With New Competencies Beyond Current Expectations

ANSOFF MATRIX
Market Penetration Strategy: Takes place when an organization gains market share. Product Development Strategy: Means that an organization supplies modified or new products to existing markets. Market Development: This occurs when existing products are offered in new markets. Diversification Strategy: Means entering in to new product and /or new markets which may also require new resources and competence. Integration Strategy: Takes place when a company enters into an upstream or downstream or parallel activity in the same product line/flow.

Strategic Audit Worksheet

ANALYSIS

Strategic Audit Heading(+) Factors (-) Factors Comments

I Current situation
A. Past corporate Performance Indexes B. Strategic Postures: Current Mission Current Objectives Current Strategies Current Policies

Strategic Audit Worksheet

Strategic Audit Heading SWOT Analysis Begins (+) Factors (-) Factors Comments II Corporate Governance A. Board of Directors B. Top Management III External Environment (EFAS) Opportunities & Threats (SWOT) A. Social Environment B. Task Environment (Industry Analysis)

Strategic Audit Worksheet

Internal Environment (IFAS) Strengths & Weaknesses (SWOT) A. Corporate Structures B. Corporate Culture C. Corporate Resources 1. Marketing 2. Finance 3. Research & Development 4. Operation & Logistics 5. Human Resources 6. Information Systems

Strategic Audit Worksheet

Strategic Audit Heading V. Analysis of Strategic (SFAS) (+) Factors (-) Factors Comments Factors A. Key Internal & External Strategic Factors (SWOT) B. Review of Mission & Objectives SWOT Analysis Ends. Recommendations Begins: VI. Alternatives & Recommendations A. Strategic Alternative- pros & cons B. Recommended Strategy VII. Implementation VIII. Evaluation & Control

Internal Factors Analysis Summary IFAS

IFAS Matrix
Internal strategic Factors Strength S1 Experienced Top management. S2 Vertical integration Weight 0.05 Rating 2.5 Weighted score 0.13

Comments
Know the paint industry In-house manufacturing of Raw materials

0.05

2.0

0.10

Weaknesses W1` Global positioning

0.15

3.5

0.53

Name of Asian out side Asian markets

Total

1.0

3.27

Internal Factors Analysis Summary IFAS

IFAS Asian Paints Selection pf Strategic Factors International Strategic Factors Comments Strength:
S1-Experienced top management S2-Vertical Integration S3-Current asset management S4-Distribution Network S5-International Orientation Know the paint industry In-house manufacturing of key raw material. Good automated inventory control system Strong distribution capabilities Steady international expansion

Weaknesses W1-Global Positioning W2-Product portfolio W3-Employee relations W4-Manufacturing facilities W5-Process oriented R & D

Name of Asian in outside Asian market Concentration on decorative segment Nature of job & hygienically unsafe industry Low investment in other than decorative segment Slow in new products.

External Factors Analysis Summary EFAS

EFAS Matrix
External strategic Factors Weight Rating Weighted score 0.60

Comments

Opportunities O1 Boom in construction industry

0.15

4.0

Consolidation in Decorative segment

O2 Demographics favour mass customization

0.05

3.5

0.18

End user awareness

Threats T1 Liberal government policy T2 Strong Chinese competition

0.05 0.15

2.5 4.0

0.13 0.60

Well positioned Well positioned

Total

1.0

3.27

External Factors Analysis Summary EFAS

EFAS Asian Paints Selection of Strategic Factors External Strategic Factors Comments
Opportunities O1-Boom in the construction industry O2-Demographics favour mass customization O3-Economic development of Asia & India O4-Growth in Indian rural market O5-Promising auto & white goods industry Consolidation in decorative segment End user awareness Low APL presence in Asia Exterior & economy segments Alliances required

Threats T1-Liberal government policies T2-Strong Chinese competition T3-ICI & Berger are strong globally T4-New product advances T5Strict environmental laws world over

Well positioned APL weak comparatively Questionable Non-tariff barriers

Strategic Factors Analysis Summary SFAS

SFAS Matrix
Strategic factors From EFAS & IFAS S3 Current assets management S5 International orientation W1Global positioning W2 Weight Rating Weighted score

Comments

O3
O5

T3
T4 TOTAL 3.01

Strategic Factors Analysis Summary SFAS

Strategic Factors (select most important opportunities/threats from EFAS, and most important strengths & weaknesses from IFAS. Sap used for inventory control expansion in Asia pacific Name of the Company Strong Only in decorative Growth of Interior segment Overall growth Weak in alliances Dominate Global industry More non-tariff S3 Current assets Management(s) S5 International Orientation (s) W1 Global Positioning (w) W2 Product Portfolio (w) O1 Boom in Construction industry (O) O3 Economic Development of Asia and India (O) O5 Promising auto and white goods industry (O) T3 ICI and Berger strong globally (T) T5 Strict Environmental Laws world over (T)

Alternative strategies: TOWS Matrix

TOWS Matrix for APL is formed with the help of IFAS & EFAS Internal factors Strength
Experienced Top Management. S1 Current Asset Management. S3 International Management. S5

Weakness
Global Positioning. w1 Product portfolio. w2 Employee Relations. w3 Manufacturing Facilities. w4 Process Oriented R&D. w5

External Factors Opportunities

Boom in Construction industry. 01 Economic Development of Asia and India.03 Growth in rural India Market. 04

SO STRATEGIES
Use Distribution Network to Cater. Find alliance for auto and white goods industry.

WO Strategies
Expand APL presence in Asia. Product Portfolio to Cover both Domestic and International markets.

Threats (T)
Liberal Government Policies. T1 Strong Chinese Competition. T2 New Product advances. T4 Strict Environmental laws

ST Strategies
Acquire Domestic Companies in the Niches for Domestic Market. Tie up with automobile and white goods MNCs for both local and international

WT Strategies
Source Chinese raw Material. Use Liberal government Polices for filling up the product portfolio gaps through expansion. Acquire established weak companies outside India for competing MNCs.

(ETOP) ENVIRONMENTAL THREAT & OPPORTUNITY PROFILE

ETOP is a technique in the hands of executives to diagnose the environment, which has opportunities and threats. On the basis of available data, they have to decide which set of data to be relied and ignored.

Environment
Socioeconomic Technological Supplier

Impact: + opportunity - Threats

+
+ High growth expected

Business Level Strategy

Business Strategy focuses on improving the competitive position of a companys products or services within the specific industry or market segment that the company serves. Business Strategy can be competitive (battling against all competitors for advantage) and/or cooperative (working with one or more competitors to gain advantage against other competitors) Just as corporate strategy asks what industry the company should be in, Business strategy asks how the company or its units should Compete or Cooperate in each industry. Business level strategy raises the following questions:
Should we compete on the basis of LOW cost? COST LEADERSHIP Should we differentiate our products? DIFFERENTIATION Should we focus on Niche Market? FOCUS

Business Level Strategy

According to Derek F Abell a company should define business along three dimensions to gain competitive advantage. Customer needs, what is to be satisfied?
Customer needs can be satisfied with products/service characteristics. Product differentiation involves in designing products/services to satisfy customer needs.

Customer groups, segments to be satisfied?

Market segmentation is defined as the process of grouping the customers, based on their needs & preferences in order to gain competitive advantage. Companies try to cater the needs of each market segment with different products or concentrate on One market segment or Niche.

Distinctive competencies, how the needs are to be satisfied?

Companies try to satisfy customer needs and customer groups and attain competitive advantage through superior Efficiency, Quality, Innovation and Customer Responsiveness.

Business Level Strategy

Strategic Choice
Cost Leadership Differentiation Focus

Product Differentiation Market Segmentation Distinctive competency

Low - price

High Uniqueness High many market segments

Low to High Price or uniqueness Low one or a few segments Any kind of distinctive competency

Low Mass Market

Manufacturing & R&D, sales & Material marketing Management

Business Level Strategy

Cost Leadership Strategy: In which large business produces at the lowest
cost possible, no frills products and services for a large market with relatively elastic demand. The cost leader can charge lower price than immediate competitors and achieve higher profit than competitors. Low price attracts customers. When rivalry increases with price competition, the cost leader can survive and with stand the competitive forces and make above average profits. Cost leader aims at low level of product differentiation and always focuses on average customer. Aims at limited amount of market segmentation. Cost leader increases efficiency by developing distinctive competencies in manufacturing and material management. Low cost strategy implies tight production controls and rigorous use of budgets to control production process.

Cost Leadership Strategy

The cost advantage arises from factor like:
Efficient scale economies Benefits of early entry A large market share Locational advantage Synergy between functions Experience curve effects Dropping unprofitable customers Minimum R&D expenses JIT inventory

Nirma, Air Decan, Timex, Anchor tooth paste cost leaders.

Differentiation Strategy
A large business firm produces and markets to the entire industry that can be readily distinguished from those of competitors. Customers perceive the products as unique. And they charge premium price, which is above industry average. Mercedes Benz cars, Rolex watches. Products sometimes appeals to psychological desires. Avenues of differentiation are:
Additional Features, Packaging Design Positioning

Brand image Channel clout Competent structure Unique process Advanced R&D SETUP Product innovation.

Differentiation Strategy
Differentiation Based on Opportunities in External Environment:
Government Policy Social Causes Economic conditions Threats of Potential Entrants Threats of Rivalry Threats of Substitutes Threats of Suppliers Threats of Buyers

Business Level Strategy

Customer Focus Strategy: This strategy is directed towards serving the need of a limited customer group or segment, focus on low cost strategy. Groups very rich, or poor, young, adventurous, etc. Concentrating only on a segment or a product line means focusing only on a particular item. A focused company may be a specialized differentiator or a cost leader. Or both. Cost leader company stays close to customers and responds to changing needs. A focused company has enormous opportunity to develop its own niche market and compete against low-cost and differentiated enterprise. (large) Cost focus It minimizes R&D and other overheads. They sell products to small manufacturer with out any frills. Differentiation Focus concentrate on a market segment, Anjali kitchen ware makes high quality products for middle class house holds.

Porters Competitive Strategies

Competitive Strategy raises the following questions
Should we compete on the basis of low cost/price, or should we differentiate our products or services on some basis such as quality or service. Should we compete head to head with our major competitors for the biggest share of the market, or should we focus on a niche/profitable segment of market.

Michael Porter proposes two generic competitive strategies:

Lower cost strategy: It is the ability of a company to design, produce, and market a comparable product more efficiently than its competitors. Differentiation strategy: Is the ability to provide unique & superior value to the buyer in terms of product quality, special features, or after sales service.

Before applying the two generic strategies, the firm must choose product varieties it will produce, the distribution channel it will employ, the types of buyers it will serve, the geographic area in which it will sell, & the industries it will compete with.

Porters Competitive Strategies

Cost Leadership: Differentiation: Cost Focus:
Competitive scope

Differentiation Focus:

Competitive scope

Business Strategy
Cost Focus & Differentiation Focus