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  1. 1. BPS(mid-term Exam SICSR) -DEEP SHAH
  2. 2. Related to Mission & Vision 1.Who are we? 2.What do we do? 3.Why are we here? 4.What kind of company are we? 5.What kind of company do we want to become? 6.What kind of company must we become? Related to Corporate Strategy 1.What is the current strategy, implicit or explicit? 2.What assumptions have to hold for the current strategy to be viable? 3.What is happening in the larger, social and educational environments? 4.What are our growth, size, and profitability goals? 5.In which markets will we compete? 6.In which businesses? 7.In which geographic areas? 2 2
  3. 3. Related to Competitive Strategy 1.What assumptions have to hold for the current strategy to be viable? 2.What is happening in the industry, with our competitors, and in general? 3.What is the current strategy, implicit or explicit? 4.What are our growth, size, and profitability goals? 5.What products and services will we offer? 6.To what customers or users? 7.How will the selling/buying decisions be made? 8.How will we distribute our products and services? 9.What technologies will we employ? 10.What capabilities and capacities will we require? 11.Which ones are core competencies? 12.What will we make, what will we buy, and what will we acquire through alliance? 13.What are our options? 14.On what basis will we compete? 3 3
  4. 4. 1. 2. 3. 4. 5. Some Concluding Remarks -1 Strategy has been borrowed from the military and adapted for business use. In truth, very little adaptation is required. Strategy is about means. It is about the attainment of ends, not their specification. The specification of ends is a matter of stating those future conditions and circumstances toward which effort is to be devoted until such time as those ends are obtained. Strategy is concerned with how you will achieve your aims, not with what those aims are or ought to be, or how they are established. If strategy has any meaning at all, it is only in relation to some aim or end in view. Strategy is one element in a four- part structure. First are the ends to be obtained. Second are the strategies for obtaining them, the ways in which resources will be deployed. Third are tactics, the ways in which resources that have been deployed are actually used or employed. Fourth and last are the resources themselves, the means at our disposal. Thus it is that strategy and tactics bridge the gap between ends and means. Establishing the aims or ends of an enterprise is a matter of policy and the root words there are both Greek: politeia and polites—the state and the people. Determining the ends of an enterprise is mainly a matter of governance not management and, conversely, achieving them is mostly a 4 matter of management not governance. 4
  5. 5. Some Concluding Remarks -2 6. Those who govern are responsible for seeing to it that the ends of the enterprise are clear to the people who manages that enterprise and that these ends are legitimate, ethical and that they benefit the enterprise and its members. 7. Strategy is the joint province of those who govern and those who manage. Tactics belong to those who manage. Means or resources are jointly controlled. Those who govern and manage are jointly responsible for the deployment of resources. Those who manage are responsible for the employment of those resources—but always in the context of the ends sought and the strategy for their achievement. 8 Over the time, the employment of resources yields actual results and these, in light of intended results, shape the future deployment of resources. Thus it is that "realized" strategy emerges from the pattern of actions and decisions. And thus it is that strategy is an adaptive, evolving view of what is required to obtain the ends in view. 5 5
  6. 6. Strategy FormulationVision, Mission and Purpose, • A vision is more dreamt of than it is. Vision Statement is permanent statement of a company. Vision is future aspirations that lead to an inspiration. It defines the very purpose of existence of a company. • The vision of a company is a direction for action for employees. The essence of a vision is forward looking view of what an organisation wishes to become. • Kotter(1990) defines Vision as “ a description of an enterprise. (an organisation, corporate culture, a business, a technology, an activity) in future”. • El-namaki(1992) defines vision as a “mental perception of the kind of environment an individual, or an organisation, aspires to create within a broad time horizon and underlying conditions for the actualisation of this perception” • Miller and Dess(1996) defines vision as “category of intentions that are broad, all inclusive, and forward thinking” 6
  7. 7. Characteristics of a Vision Statement • • • • • • • • • • • Inspiring and exhilarating. It represents, a discontinuity, a step, a jump ahead to dream what it is to be. Creation of common identity and share sense of purpose. Competitive, original and unique and practical. Foster risk taking and experimentation. Foster long term thinking. A vision is a statement about what your organization wants to become. It should resonate with all members of the organization and help them feel proud, excited, and part of something much bigger than themselves. A vision should stretch the organization’s capabilities and image of itself. It gives shape and direction to the organization’s future. Visions range in length from a couple of words to several pages. Shorter vision statements is recommended because people will tend to remember their shorter organizational vision. 7
  8. 8. Vision Statement • Vision Statement Samples: • "Year after year, Westin and its people will be regarded as the best and most sought after hotel and resort management group in North America." (Westin Hotels) • "To be recognized and respected as one of the premier associations of HR Professionals." (HR Association of Greater Detroit) • Vision Statement of “TATA STEEL” “TATA Steel enters the new millennium with the confidence of learning, knowledge based and happy organisation. We will establish ourselves as a supplier of choice by delighting our customers with our service and products. In the coming decade, we will become the most cost competitive steel plant and so serve the community and the nation”. • Vision Statement of Farm Fresh Produce • “We help the families of Main Town live happier and healthier lives by providing the freshest, tastiest and most nutritious local produce: From local farms to your table in under 24 hours.” 8
  9. 9. Developing a Vision Statement • The vision statement includes vivid description of the organization as it effectively carries out its operations. • Developing a vision statement can be quick culture-specific, i.e., participants may use methods ranging from highly analytical and rational to highly creative and divergent, e.g., focused discussions, divergent experiences around daydreams, sharing stories, etc. Therefore, visit with the participants how they might like to arrive at description of their organizational vision. • Developing the vision can be the most enjoyable part of planning, but the part where time easily gets away from you • Note that originally, the vision was a compelling description of the state and function of the organization once it had implemented the strategic plan, i.e., a very attractive image toward which the organization was attracted and guided by the strategic plan. Recently, the vision has become more of a motivational tool, too often including highly idealistic phrasing and activities which the organization cannot realistically aspire. 9
  10. 10. Strategic Vision • Strategic Vision is a road map showing the route a company intends to take in developing and strengthening the business. It defines Company’s destination and provides rational for going there. It culminates in to a Mission Statement. Strategic Vision points an Organisation in a particular direction, charts a strategic path to follow for future and moulds the organisation’s identity. • Strategic Vision is different from Mission Statement: Strategic Vision deals with where we are going, where as Mission Statement deals with Company’s present business scope and purpose. • A company Mission is guided by the buyer’s needs it seeks to satisfy, the customer groups and market segments it is endeavouring to serve, and the resources and technologies that it is deploying in trying to please customers and achieve a Market and Industry position. 10
  11. 11. Example of Strategic Vision • “The San Antonio Express News” developed this Strategic Vision, • "EXPAND” our customer base and enhance the franchise by pursuing multimedia opportunities. • “DELIVER” an award-winning level of journalistic excellence, building public interest, trust and pride. • “PROVIDE” vigorous community leadership and support. • “INSTILL” an environment of internal and external excellence in customer service. • “EMPOWER” and recognize each employee's unique contribution. • “ACHIEVE” the highest standards of quality. • “IMPROVE” financial strength and profitability." 11
  12. 12. Mission • Thompson(1997) defines Mission as “the essential purpose of the organisation, concerning particularly, why it is in existence, the nature of businesses it is in, and the customers it seeks to serve and satisfy” • Hunger and Wheelen(1999) say that “mission is the purpose and reason for the organisation’s existence” • Mission statements could be formulated on the basis of vision that an entrepreneur decides on in the initial stages. • A business mission helps to evolve an executive action. • Mission of organisation is what it is and why it exists. It represents common purpose which the entire organisation shares and pursues. It is a guiding principle. 12
  13. 13. Mission Statement • Mission of a company is expressed it terms of products and geographical scope. It includes a methodology of attaining the desired goal in vision. It defines the competitive strength of a company and it emanates from corporate vision and strategic posture of a company. • Thus the mission of a business is a statement, a build-up philosophy of its current and future expected position with regards to its products, market leadership. • Mission is statement which defines the role of organisation plays in a society. • The corporate mission is growth ambition of the firm. 13
  14. 14. Mission Characteristics of a Mission Statement • It should be feasible & It should be precise. • It should be clear & It should be distinctive. • It should be motivating. • It should be indicative of major component of strategy • It should be indicative of how objectives are to be accomplished. 14
  15. 15. Mission Statement Creation • To create your mission statement, first identify your organization’s “winning idea”. This is the idea or approach that will make your organization stand out from its competitors, and is the reason that customers will come to you and not your competitors. • Next identify the key measures of your success. Make sure you choose the most important measures (and not too many of them!) • Combine your winning idea and success measures into a tangible and measurable goal. • Refine the words until you have a concise and precise statement of your mission, which expresses your ideas, measures and desired result. 15
  16. 16. Developing a Mission Statement 1. At is most basic; the mission statement describes the overall purpose of the organization. 2. If the organization elects to develop a vision statement before developing the mission statement, ask “Why does the image, the vision exist -- what is it’s purpose?” This purpose is often the same as the mission. 3. Developing a mission statement can be quick culture-specific, i.e., participants may use methods ranging from highly analytical and rational to highly creative and divergent, e.g., focused discussions, divergent experiences around daydreams, sharing stories, etc. Therefore, visit with the participants how they might like to arrive at description of their organizational mission. 4. When wording the mission statement, consider the organization's products, services, markets, values, and concern for public image, and maybe priorities of activities for survival. 16
  17. 17. Mission Statements 5. 6. 7. 8. Consider any changes that may be needed in wording of the mission statement because of any new suggested strategies during a recent strategic planning process. Ensure that wording of the mission is to the extent that management and employees can infer some order of priorities in how products and services are delivered. When refining the mission, a useful exercise is to add or delete a word from the mission to realize the change in scope of the mission statement and assess how concise is its wording. Does the mission statement include sufficient description that the statement clearly separates the mission of the organization from other organizations? 17
  18. 18. • Mission Statement of Ranabaxy • • • • “To become a $ 1 Billion research based global (International) company pharmaceutical company” Mission Statement of Graphite India Limited “To be within top three companies in the world by achieving 1,00,000 MT Production of Graphite Electrodes before 2012” The mission statement of Farm Fresh Produce is: “To become the number one produce store in Main Street by selling the highest quality, freshest farm produce, from farm to customer in under 24 hours on 75% of our range and with 98% customer satisfaction.” "Our goal is simply stated. We want to be the best service organization in the world." (IBM) "To give ordinary folk the chance to buy the same thing as rich people." (Wal-Mart) 18
  19. 19. Mission Statements • "FedEx is committed to our People-Service-Profit Philosophy. We will produce outstanding financial returns by providing totally reliable, competitively superior, global, air-ground transportation of high-priority goods and documents that require rapid, time-certain delivery." (Federal Express) • "Our mission is to earn the loyalty of Saturn owners and grow our family by developing and marketing U.S.-manufactured vehicles that are world leaders in quality, cost, and customer enthusiasm through the integration of people, technology, and business systems." (Saturn) • "In order to realize our Vision, our Mission must be to exceed the expectations of our customers, whom we define as guests, partners, and fellow employees. (mission) We will accomplish this by committing to our shared values and by achieving the highest levels of customer satisfaction, with extraordinary emphasis on the creation of value. (strategy) In this way we will ensure that our profit, quality and growth goals are met." (Westin Hotels and Resorts) 19
  20. 20. Values • Values are traits or qualities that are considered worthwhile; they represent an individual’s highest priorities and deeply held driving forces. (Values are also known as core values and as governing values; they all refer to the same sentiment.) • Value statements are grounded in values and define how people want to behave with each other in the organization. They are statements about how the organization will value customers, suppliers, and the internal community. Value statements describe actions which are the living enactment of the fundamental values held by most individuals within the organization. 20
  21. 21. Values • The values of each of the individuals in your workplace, along with their experience, upbringing, and so on, held together to form your corporate culture. The values of your senior leaders are especially important in the development of your culture. These leaders have a lot of power in your organization to set the course and environment and they have selected the staff for your workplace. • If you think about your own life, your values form the cornerstones for all you do and accomplish. They define where you spend your time, if you are truly living your values. Each of you makes choices in life according to your most important four – ten values. It is necessary to take the time to identify what is most important to you and to your organization. 21
  22. 22. Developing a Values Statement • Values represent the core priorities in the organization’s culture, including what drives members’ priorities and how they truly act in the organization, etc. Values are increasingly important in strategic planning. They often drive the intent and direction for “organic” planners. • Developing a values statement can be quick culture-specific, i.e., participants may use methods ranging from highly analytical and rational to highly creative and divergent, e.g., focused discussions, divergent experiences around daydreams, sharing stories, etc. Therefore, visit with the participants how they might like to arrive at description of their organizational values. • Establish four to six core values from which the organization would like to operate. Consider values of customers, shareholders, employees and the community. 22
  23. 23. Developing a Values Statement • Notice any differences between the organization’s preferred values and its true values (the values actually reflected by members’ behaviours in the organization). Record each preferred value on a flash card, then have each member “rank” the values with 1, 2, or 3 in terms of the priority needed by the organization with 3 indicating the value is very important to the organization and 1 is least important. Then go through the cards again to rank how people think the values are actually being enacted in the organization with 3 indicating the values are fully enacted and 1 indicating the value is hardly reflected at all. Then address discrepancies where a value is highly preferred (ranked with a 3), but hardly enacted (ranked with a 1). • Incorporate into the strategic plan, actions to align actual behaviours with preferred behaviours. 23
  24. 24. Samples of Values and Value Statements • "To preserve and improve human life." (Merck) • At Merck, "corporate conduct is inseparable from the conduct of individual employees in the performance of their work. Every Merck employee is responsible for adhering to business practices that are in accordance with the letter and spirit of the applicable laws and with ethical principles that reflect the highest standards of corporate and individual behaviour... • "At Merck, we are committed to the highest standards of ethics and integrity. We are responsible to our customers, to Merck employees and their families, to the environments we inhabit, and to the societies we serve worldwide. In discharging our responsibilities, we do not take professional or ethical shortcuts. Our interactions with all segments of society must reflect the high standards we profess." • Patriot Ledger ( "We have a total commitment to these values, shaping the way we do business for our employees, our customers and our company. • Our employees are the most valued assets of our company, essential participants with a shared responsibility in fulfilling our mission. • We recognize that the quality, motivation and performance of our employees are the key factors in achieving our success. 24
  25. 25. Goals and Action Plans • After you have developed the key strategies, turn your attention to developing several goals that will enable you to accomplish each of your strategies. Goals should be SMART: Specific, Measurable, Achievable, Realistic and Time-based. • Once you have enabled strategy accomplishment through setting SMART goals, you will want to develop action plans to accomplish each goal. You will need to follow an action plan: • Establish a cross section of professionals as a committee and meet to plan the sessions. • Determine budget. • Select topics based on member needs assessment. • Plan advertising strategies, and so forth. • Make action plans as detailed as you need them to be and integrate the individual steps into your planning system. An effective planning system, whether it uses a personal computer, a paper and pen system, a handheld computer or a Palm, will keep your goals and action plans on track and on target. 25
  26. 26. Objectives of Business Policy: • Understand various concepts, like. Strategy, policies, plans, programmes. • Knowledge of internal and external environment and how it affects the functioning of the organisation. • Application of generalised approach to deal with wide variety of situations. • Development of analytical ability to understand situation. Identify factors relevant to decision making. Analyse strength, weakness, opportunities and threats to organisation. Development of attitude of generalist and asses a situation from all angles. 26
  27. 27. Benefits of Business Policy • Business Policy seeks to integrate the knowledge and experience gained in various functional areas of Management. Normally functional areas are aloof of complexities of real life business situations. Business Policy cuts across the narrow functional boundaries. Business Policy helps us to create an understanding of how policies are formulated. • Managers become more receptive to the ideas and suggestions of senior Management. Managers feel themselves to be a part of a greater design. • Understanding Business Policy provides a basic framework for understanding strategic decision making and Improvement in Job Performance. • Study of business policy leads to personal development. Managers understand the impact of policy shifts on the status of one’s department and on the positions one occupies. • Understanding Business Policy enables manger to avail the an opportunity or avoid a risk to career planning and development • Understand senior management’s view point. 27
  28. 28. Porter’s Five Forces Model, Source: Porter, Michael E, - Competitive Strategies -1985 Potential Entrants Threat of new Entrants Industry Competitors Suppliers Bargaining Power of Suppliers Rivalry among existing firms Buyers Bargaining Power of Buyers Threat of substitute products or suppliers Substitutes 28
  29. 29. Forces Shaping Competition in an industry - 1 • According to Porter, a firm develops its business strategies in order to obtain competitive advantage (i.e., increase profits) over its competitors. It does this by responding to five primary forces: 1. Rivalry amongst existing firms and jockeying for position - i.e. competition 2. Threat of new entrants 3. Bargaining power of buyers / customers 4. Threat form substitute products and 5. Bargaining power of suppliers 29
  30. 30. Forces Shaping Competition in an industry - 2 • These five factors shape competition and determine Attractiveness / Profitability in an industry. • Sizing up competition within factory is not enough; all forces shaping competition and survival of industry must be sized up. We should know which of these forces are strong and how they work in its industry, how will they affect the firm in particular and how to adjust one’s position to defend or overcome or take advantage of these forces. • The company positions itself so as to be least vulnerable to competitive forces while exploiting its unique advantage (cost leadership). A company can also achieve competitive advantage by altering the competitive forces. 30
  31. 31. Forces Shaping Competition in an industry - 3 • These five forces of competition influence the firm’s strategy. The five competitive forces model provides a solid base for developing business strategies that generate strategic opportunities In fact the strategy should be formed in such a way to influence all these forces in favour of the firm. Strategy should be formed to build defence against these forces and finding a position in industry where the influence of these forces is weakest. • In his recent study, Porter (2001) reemphasized the importance of analyzing the five competitive forces in developing strategies for competitive advantage: • Analyzing the forces illuminates an industry’s fundamental attractiveness, exposes the underlying drivers of average industry profitability, and provides insight into how profitability will evolve in the future. 31
  32. 32. Rivalry amongst existing firms and jockeying for position - i.e. competition • Industry members undertake more aggressive and more frequent actions to boost their market standing & performance. This makes rivalry stronger. • Rivalry is stronger in slow growing markets. • More nos. of competitors and competitors who are equal in size and capability makes rivalry stronger. • Rivalry increases as products of rival competitor becomes more standardised giving good reliability. • Rivalry increases as it becomes less costly for buyers to switch the brand. • Rivalry increases as competitors play a price war and other competitive weapons to boost their market share. • Rivalry is strong when nos. of competitors are less than five. 32
  33. 33. • Rivalry increases when strong companies outside the industry acquire weak firm in the industry and launch wellfunded, aggressive moves to transform the acquired company in to a major contender. • Rivalry is weak in fast growing markets. • Rivalry is weak when, there are so many rivals, that impact of one’s action is thin on spread over span. Typical weapons to combat rivalry are: • 1. Lower Prices. • 2. More or different features. • 3. Better product performance with higher Quality. • 4. Stronger Brand image & appeal. • 5. Wider selection to customers to choose from Models & styles. • 6. Better & bigger dealer network. • 7. Better Customer service capabilities. 33
  34. 34. 2. Threat of new entrants Entry threats are stronger when: • Candidates have resources that make them a formidable contender. • Entry barriers are low. • Newcomers can expect good returns. • Buyer demand is growing rapidly. • Industry is unwilling / unable to stop new entrants. Entry Threats are weaker when: • Entry candidates are small in nos. • Entry barriers are high. • Existing industry is itself struggling for profits. • Industry outlook is uncertain and risky. • Buyer demand is stagnant or slow. • Existing industry members strong contest and does not allow new comer to settle. 34
  35. 35. 3. Bargaining power of buyers / customers 1. When nos. of buyers is small and when a buyer is particularly important to seller. 2. When cost of switching brand is low to buyer. 3. When buyer demand is low and sellers are many 4. When buyers are well informed about product, prices & costs. 5. When buyer is capable of backward integrating and making product by themselves. 6. When buyers have discretion in whether & when to purchase the product.& When buyer is large and can demand concessions. Bargaining power of buyer is low when: • Infrequent and small purchases. • Buyers cost of switching to other brands is high. • It is a seller’s market & Brand reputation is important to buyer. 35
  36. 36. 4. Threat form substitute products • When substitutes are readily available & attractively priced. • When buyer view substitute products at par in terms of quality, performance & other attributes. • When costs are low to end users to switch to substitutes. 36
  37. 37. 5. Bargaining power of suppliers • Major suppliers can have sufficient bargaining power to influence the terms & conditions in their favour. • Item supplied is a commodity that is not readily available from other suppliers in market. • When few large suppliers are primary suppliers of a particular item. (Suppliers can have a cartel) • When it is costly or difficult for buyer to switch to new brand or alternate items. • When need items are in short supply. • When supplied item has a differentiation, which enhances performance of final product. • When certain supplier supplies item has possibilities of cost savings to industry members on account of its added quality feature or service. • Bargaining Power of Supplier is weak when: backward integration is possible, when buyer is a major customer, when there are many suppliers available. 37
  38. 38. SWOT Analysis: Identify Company Resource Strengths and Competitive capabilities. Identify Company Resource Weaknesses and Competitive deficiencies. Identify Company’s Market Opportunities. Identify External Threats to the Company’s future well being. • • • Next step will be to draw conclusions concerning the Company’s overall business situation. Rank all factors from exceptionally weak to exceptional strong scale and find out business attractiveness. Identify attractive and non-attractive aspects of the Company’s situation. 38
  39. 39. SWOT Analysis: • Third step will be to plan actions to improve Company Strategy. • Use Company’s Strengths & Capabilities to overcome weaknesses. • Pursue those opportunities that are suitable to Company’s Strengths and Competitiveness. • Correct weaknesses that affect our abilities to take advantage of market Opportunities. • Use Company’s Strengths & Capabilities to lessen the impacts of important external threats. 39
  40. 40. Factors to look for in SWOT analysis: • Potential Resource Strengths & Capabilities $ A powerful Strategy. $ Core competencies. $ Distinctive Competence. $ A strongly differentiated Product. $ Competencies & Capabilities matching with Key Success Factors of Industry. $ A strong financial condition providing ample resources. $ Strong brand image $ An attractive Customer base. $ Superior Technological skills / Product Quality/ Patents / intellectual Capital / Innovation capabilities. $ Cost advantage. $ Strong advertising & Promotion. $ Supply Chain Management Capabilities. $ Customer service capabilities. $ Wide geographical coverage / strong Global distribution capabilities. $ Alliances / joint ventures / collaborations. 40
  41. 41. Potential Resource Weaknesses & Competitive Deficiencies. • • • • • • • • • • • • • No clear Strategic Direction. Resources not matching KSFs Lack of Core & Distinctive competencies. Weak balance Sheet / heavy debt / low resources. Too narrow product line compared to rivals. Weak Brand image. Weaker dealer network. Low product Quality, lack of R&D and Technological know-how. Lack of Management depth. Loosing market share because……… Behind rivals in e-commerce capabilities. Internal operation problems / obsolete facilities. Underutilised Plant capacity. 41
  42. 42. Potential Market Opportunities • • • • • • • • • • Sharply rising buyer demand. Serving new market segments / new set of customers. Expanding to new geographic markets. Expanding product line & range of products to meet market demand. Online sales, e-business. Forward or backward integration. Overcoming Trade barriers and capturing new foreign markets. Acquire rival firms. Enter into alliances. Exploit new technologies. 42
  43. 43. Potential External Threats • Increasing intensity of competition among rivals. • Slowdown of market. • Entry of new potent rivals. • Loss of sales to substitute products. • Growing bargaining power of Customers / Suppliers. • A shift in buyer needs and tastes. • Adverse demographic change curtailing demand. • Restrictive trade policies on the part of foreign Governments. • Costly new regulatory requirements. 43
  44. 44. Internal Factors External Factors Strengths Technological Skills Leading Brands Distribution Channels Consumer Loyalty Production Quality Scale Management Weaknesses Absence of important skills Weak Brands Peer access to distribution Low Customer retention Unreliable Product / Service Sub-scale Management Opportunities Changing customer tastes Geographical Liberalisation Technological advances Government Policies changes Lower personal Taxes Population age structure New Distribution Channels Threats Changing customer tastes Geographical Closures Technological advances Government Policies changes Lower personal Taxes Population age structure New Distribution Channels Positive Negative 44
  45. 45. Syllabus • 5. Corporate Portfolio Analysis: • Business Portfolio Analysis – Synergy and Dysergy – • BCG Matrix – • GE 9 Cell Model – • Concept of Stretch, Leverage and fit (3) 45
  46. 46. Business Portfolio Analysis • Definition : Analyzing “Elements” of a firm's “Product Mix” to determine the “ Optimum Allocation” of its “Resources”. Two most “Common Measures” used in a “Portfolio Analysis” are “Market Growth” and “Relative Market Share”. • “The strategic units that make up the company and the attempts to evaluate current effectiveness and vulnerabilities” (McDonald et al, 1992) • “Business Portfolio Management” enable strategic planners to select the optimal strategies for the individual products whilst achieving overall corporate objectives” (McNamee, 1985) 46
  47. 47. • When a Business Portfolio comprises of Multi-business Units and / or operating at multi-location, then the Strategist often ask two questions to take a decision on Business Strategy. • How much of our time and money should we spend on our best products to ensure that they continue to be successful? • How much of our time and money should we spend developing new costly products, most of which will never be successful • Examples of Portfolios: • Unilever: ice cream, tea, spreads, • Proctor & Gamble: Detergents, nappies, • Gillette: batteries, Shaving products • Virgin : trains, planes, cola, music stores • Wipro : Computers, Vanaspati, Veg.Oils, Soaps, • ITC : Tobacco, Soaps, Biscuits 47
  48. 48. • • • • 1. 2. 3. Business Portfolio Analysis Portfolio Analysis is an analysis of the Corporation as a portfolio of different businesses with the objective of managing it for return on its resources. Portfolio analysis looks at the corporate investments in different products or industries under common corporate jurisdiction. It involves, analysing future implications of presents resource allocation and continuously deciding, adding, curtailing or disposing, operations or products, so that overall portfolio balance is maintained or improved. Portfolio analysis takes into considerations aspects such as “ Companies Competitive Strength”, “Resource Allocation Pattern” & “Industry Characteristics”. All businesses have to balance, three basic aspects of running the business : Net Cash Flow. State of Development. Risk. 48
  49. 49. Boston Consulting Group – BCG’s Growth – Share Matrix 49
  50. 50. BCG’s Growth – Share Matrix • 1. 2. • • • Different businesses which forms the Business Portfolio can be characterised by two parameters: Company’s Market share for the business, representing the firm’s competitive position and The overall growth rate of the business. For each activity in the portfolio, a separate strategy must be developed depending upon its position in 2 X 2 matrix. Higher Market share will mean, higher profits and higher cash flows. Relative market share is defined as the market share of the relevant business divided by the market share of its largest competitor. i.e. A = 10%, B = 20% & C = 60%, then, ‘A’s relative market share is 1/6 & ‘C’s share is 3. Higher Growth rate will mean profitable investment / expansion opportunities and easier to increase market share. Earned Cash can be ploughed back to enhance ROI. 50
  51. 51. BCG’s Growth – Share Matrix - Methodology • Step-by-step procedure to develop the business portfolio matrix and identify appropriate strategies for different businesses: 1. Classify various activities of the Company into different business segments or SBUs. (Strategic Business Units) 2. For each business segment, determine the growth rate of the market. Plot it on linear scale. 3. Compile assets employed for each business segment and determine the relative size of the business within the company. 4. 5. Estimate the relative market shares for the different business segments. This is done on logarithmic scale. Plot the position of each business on a matrix of business growth rate and relative market share. 51
  52. 52. BCG’s Growth – Share Matrix - illustration Relative market Share 20 STARS CASH COWS 18 QUESTION MARKS DOGS 16 Business Growth rate % 14 12 10 8 6 4 2 2 10 X 4X 1.5 X 1X 0.5 X 0.1 X 52
  53. 53. Product Life Cycle 53
  54. 54. Strategies as per Product Life Cycle-1 • Expansion Strategy : Stars – are the businesses which have high growth rate & high market share. At times they are not self sufficient in cash flow, but need to be supported in view of their potential. This is ‘Growth’ phase of “Product Life Cycle” (PLC). Such businesses generate as well as use large amount of cash. The Star generate high profits and represent the best investment opportunities for growth. We need to reaffirm the Company’s Competitive Edge at this phase by sufficient doses of resources for expansion. The best strategy regarding stars is to make necessary investments and consolidate the company’s high relative competitive position. e.g. Tiles, Electronics & Communications, Pharmaceuticals, are “Star” industries. 54
  55. 55. Strategies as per Product Life Cycle-2 • Hold Strategy - Cash Cows are the businesses with low growth rate and high market share. High market share leads to high generation of cash and profits. Cash Cow is a business that generates cash flows over & above its internal needs. Cows can be milked to provide a corporate parent with funds for investing in star / cash dog businesses, financing new acquisitions or paying dividends. Cash cows provide the financial base for the company. A strong cash flow resulting out of relatively high market share / low market growth rate ‘Cash Cow’ opportunities should be able to maintain market share at or around existing levels. In this state of business, Corporate can adopt mainly Stability Strategies. Expansions & investments can be thought only if the long term prospects are exceptionally bright. These are generally mature businesses reaping benefits of experience and expertise. Funds generated are to be used for “Question Mark” or “Star” businesses as “Cash Cow's are destined to slow down. A phased retirement need to be planned. 55
  56. 56. Strategies as per Product Life Cycle- 3 • Build Strategy – Question Mark : The Businesses with high industry growth but low market share are “Question Marks”. In the business. These ‘Question Mark’ opportunities need investment in order to grow and gain market share. Because of their high growth, the cash requirement is high, but due to their low market share cash generation is low. These are sometimes known as “Problem Child” as someone with huge potential, but not clicking. Here, a large amount of Cash inflow is required to stabilise and enter into “Star” phase. Companies must obtain early lead to strengthen the business and capture growth opportunities. A question Mark business can either become a Star or can go to Dogs depending upon funds & competitive edge. 56
  57. 57. • • • • • Strategies as per Product Life Cycle - 4 The business is called Dogs, if business growth rate is low and the company’s relative market share is also low. The lower market share means poor profits and as market growth is low, any investment is prohibitive as cash demanded will exceed the cash generation, causing negative cash flow. Under such circumstances, the Strategic solution is to either liquidate, or if possible harvest or divest the DOG business. Harvest Strategy : To develop short term cash flow irrespective of the long term damaging effect to the product or business. This strategy is appropriate for any weak products where disposal in the form of a sale is unavailable or not preferred due to high exit barriers Divest Strategy : To change the capital of the business and allow resources to be used elsewhere of industries that have a very slow or negative market growth rate and where a company has low market share. These are products in late maturity or declining stage as mostly substitute’s start taking over these products. They stop generating large amount of Cash and face a cost disadvantage owing to low market share. Sometimes to reduce the high costs involved, a Retrenchment Strategy is also adopted. 57
  58. 58. Cash Positions of Various Businesses Business Type Cash Cash Source Use Net Cash Balance COW More Less Funds available, so milk and deploy STAR More More Build competitive position and grow DOG Less More Divest and re-deploy proceeds. QUESTION Less More Funds needed to invest selectively to improve competitive position. 58
  59. 59. Limitation of BCG Matrix • Predicting Profitability from Growth and Market Share:- BCG assumes that profit depends on growth & market share. This may not be 100% true. Industry attractiveness may be different from simple growth rate and the firm’s competitive position may not be reflected in its market share. • Difficulty in determining Market Share:- BCG has heavy dependence on market Share as indicator of its competitive strength. The calculation of market share depends upon how we decide, what is total market. Sometimes, we may have to consider “niche’ market for analysis. • No consideration for experience curve synergy :- In BCG each quadrant is viewed independently. Low costs due to expertise of employees can prolong Dog, star or cash cow stages. • Disregard for Human aspect:- BCG does not recognise human aspect of business. Cash generated in one business in one business get associated with the power of concerned manager. Cash Cow unit may be reluctant to part away with its cash to other businesses in the house. Strategic options given by BCG may not be easy to implement. 59
  60. 60. Synergy v/s Dysergy -1 • • • • The whole is greater or lesser than sum of its parts. 1 + 1 could be 2 or 11 or 111. This effect is known as Synergy. In any organisation, Resources, Strengths, Weaknesses, behaviours do not exist independently but they act together. If these strengths, and resources and behaviour in the Organisation are directed properly, then a Synergistic Effect could be seen. The Organisation should cultivate “Win-Win” and open communication with philosophy of “Seek to understand first and then to be understood”. • In such an atmosphere, two or more strong points add up to something more than its arithmetic sum. This is Synergy. Similarly, two or more weaknesses acting in tandem can damage more than its arithmetic sum. This is Dysergy. 60
  61. 61. Synergy v/s Dysergy -2 • In practice if functions like Product, Pricing, Distribution and Promotion, work in harmony and support each other, then, synergistic effect could be seen in Marketing. Similarly, if Marketing and Production areas support each other, then synergistic effect could be seen in Operating Efficiency. Marketing inefficiencies could result in reduction of operating efficiency as dysergistic effect. • Synergistic Effects are results of quality and type of internal environment existing within organisation. These effects will only lead the organisations to develop competencies and ward off external threats. 61
  62. 62. General Electric’s ( or McKinsey) 9 point Multifactor Portfolio Planning Matrix • Different businesses in the organisation as SBUs can be rated for purpose of strategic planning. • Two parameters are considered based on internal appraisal of all the SBUs done individually. • 1. Industry Attractiveness: How attractive is the industry? The attractiveness index depends upon business strengths. It is a product of several factors like Industry potential, the current size of industry, the rate of growth of industry, structure and profitability of the industry. This is generally highly profitable, productive arena, where firm would like to deploy best of everything. Similarly least attractive business is kept with little attention or is for grabs i.e. for divestment. • 2. Company business strength: Company business strengths is a product of several factors like company’s current market share, growth rate, differentiation strength, brand image, corporate image. 62
  63. 63. GE’s 9 Point Model. • The weighted factors for both these areas are plotted in Company business Strength/Industry attractiveness Company Business Strength I n d u s t r y A t t r a c t i v e n e s s Strong Medium Weak Invest / Grow Selectivity Harvest / /Earnings Divest High Medium Low 63
  64. 64. General Electric’s Business Screen I n d u s t r y A t t r a c ti v e n e s s Winners High Winners A B C Question Marks D Winners E Average Businesses F Medium Losers Losers H G Low Profit Producers Strong Losers Average Weak Business Strength / Competitive position Circle denotes the size of Industry , while blue colour portion corresponds to Market Share. 64
  65. 65. General Electric’s Business Screen • The vertical axis represents Industry Attractiveness. This is weighted composite rating based on eight different factors. These factors are: 1. Size of Market 10% 2. Rate of Growth of Sales & Cyclicality 10% 3. Industry Profit Margin. 40% 4. Competitive intensity including vulnerability to foreign competition. 15% 5. Seasonality. 5% 6. Economics of Scale. 5% 7. Susceptibility to Technological obsolesce 5% 8. Entry conditions, Social, legal, environmental & human impacts. 10% Against each of these factors, the concerned business is rated on a scale of 1 to 10 and then the weighted score is determined from maximum of 10. This gives the Industry Attractiveness Index. 65
  66. 66. General Electric’s Business Screen • The horizontal axis represents business strength competitive position. This is a weighted composite rating based on seven factors. These factors are: 1. Relative market Share. 2. Profit margins. 3. Ability to compete on Price & Quality. 4. Knowledge of Customer & Market. 5. Competitive Strengths & Weaknesses. 6. Technological Capability 7. Calibre of Management. • The two composite values for ‘Industry Attractiveness’ and ‘Business Strength’ are plotted for each business in a Company’s Portfolio. The pie charts denote the proportional size of the industry – white colour & blue segment represent company share. 66
  67. 67. General Electric’s Business Screen • The horizontal axis represents business strength competitive position. This is a weighted composite rating based on seven factors. A typical scoring of Company’s Competitive position Factor Weightage Rating Score (1 to 10) Market Share and Capacity 20% 7 1.4 Growth Rate 10% 7 0.7 Location and Distribution 10% 5 0.5 Management Skill 15% 6 0.9 Work force Harmony 20% 7 1.4 Technical Excellence including Product and Process Engineering 20% 8 1.6 Company Image 5% 8 0.4 67
  68. 68. Gap Analysis Desired Performance Gap Performance Achieved Performance Time -1 Time -2 68
  69. 69. Gap analysis -2 • Gap analysis is done for focussing on strategic alternatives. • On dimension of time various alternatives are evaluated in different phases to get a clear picture for selection of strategies. • What is the result of the present strategy? • What should be new strategy? • What should be methodology of implementation? • If the gap is narrow, policy is to stabilise the strategies. • If the gap is due to consistent past bad performance; which is also expected in future, then retrenchment / withdrawal strategies may be more suitable. 69
  70. 70. Gap Analysis - 3 • First step is to identify alternatives. Companies find it difficult to change their strategies because strategic thinking is not the core competency of managers. Hence lot of brain storming, situational analysis need to be done. • A correct definition of the problem is the Second step. A hypothesis is developed after brain storming and situation analysis. This hypothesis must be tested to developing clear understanding of the forces that actually work. • Next step is to formulate the strategy and address the driving forces in a “cause and effect” relationship. Find the 80:20 Pareto Principle and attack the most important one. • Prioritise the strategies and a plan for the projects to implement strategies on time scale is created for future guidance and analysis. 70
  71. 71. • --------------------------------------------------------• Syllabus 6. Generic Competitive Strategies: • Low cost, • Differentiation, • Focus (3) • --------------------------------------------------------- 71
  72. 72. Competitive Strategy • Competitive Strategy is about being different. It means deliberately choosing to perform activities differently or to perform different activities than rivals to deliver unique mix of value – Michael F Porter. • Competitive Strategy is about analysing and then experimenting, trying, learning, and experimenting some more. – Ian C. McMillan & Rita Gunther Mcgrath. • The essence of Competitive Strategy lies in creating tomorrow’s competitive advantages faster than the competitors mimic the one you posses today. – Gary Hammel & C K Prahalad. • A Competitive Strategy concerns the specifics of management game plan for competing successfully and achieving a competitive edge over rivals. 72
  73. 73. Generic Competitive Strategies 1. 2. 3. 4. 5. A low-cost provider Strategy : Appealing to a broad spectrum of customers by being the overall Low Cost Provider of a Product or Service. A broad-differentiation strategy : Seeking to differentiate the company’s Product/service by offering different from Rivals to broad spectrum of Customers. A best-cost provider strategy : Giving customers more value for money by incorporating good to excellent product attributes at lower cost than rivals. A focussed or market niche strategy based on Lower Cost : Concentrating on Narrow buyer segment and out competing rivals by offering at lowest cost than rivals A focussed or market niche strategy based on differentiation : Concentrating on Narrow buyer segment and out competing rivals by offering customised attributes to niche member at lowest cost than rivals • The basis of competitive strategy lies in Low-cost or Differentiation and finding out our own focus on market niche. 73
  74. 74. Revamp Value Chain • • 1. 2. 3. 4. 5. 6. 7. A Low-cost advantage can be achieved by re-vamping the “Value Chain” activities and controlling all factors that drive the costs. Re–vamping of “Value Chain” is aimed at increasing efficiencies to out-manage rivals on costs. Revamping of value Chain is also done by examining the elements of value chain eliminating or bypassing the activities which are adding costs but not value to the product. (Waste elimination) Re-vamping the value Chain: Use of internet Technology applications. Approaching direct to end user in Sales & Marketing. Purchasing directly from manufacturer. Simplifying product design. Using simpler, less capital intensive, flexible technologies. Using CADs. Substituting high cost/imported raw materials with indigenous ones (Value Engineering) Relocation of facilities. 8. Dropping the dead weight. 74
  75. 75. The value chain • The value chain is a systematic approach to examining the development of competitive advantage. It was created by M. E. Porter in his book, Competitive Advantage (1980). The chain consists of a series of activities that create and build value. They culminate in the total value delivered by an organisation. The 'margin' depicted in the diagram is the same as added value. The organisation is split into 'primary activities' and 'support activities.' 75
  76. 76. 76
  77. 77. • • • • • Primary Activities. Inbound Logistics: Here goods are received from a company's suppliers. They are stored until they are needed on the production/assembly line. Goods are moved around the organisation. Operations: This is where goods are manufactured or assembled. Individual operations could include room service in a hotel, packing of books/videos/games by an online retailer, or the final tune for a new car's engine. Outbound Logistics: The goods are now finished, and they need to be sent along the supply chain to wholesalers, retailers or the final consumer. Marketing and Sales: In true customer orientated fashion, at this stage the organisation prepares the offering to meet the needs of targeted customers. This area focuses strongly upon marketing communications and the promotions mix. Service: This includes all areas of service such as installation, aftersales service, complaints handling, training and so on. 77
  78. 78. Support Activities -1. • Procurement: This function is responsible for all purchasing of goods, services and materials. The aim is to secure the lowest possible price for purchases of the highest possible quality. They will be responsible for outsourcing (components or operations that would normally be done in-house are done by other organisations), and e-Purchasing (using IT and webbased technologies to achieve procurement aims). • Technology Development: Technology is an important source of competitive advantage. Companies need to innovate to reduce costs and to protect and sustain competitive advantage. This could include production technology, Internet marketing activities, lean manufacturing, Customer Relationship Management (CRM), and many other technological developments. 78
  79. 79. Support Activities -2. Human Resource Management (HRM). • Employees are an expensive and vital resource. An organisation would manage recruitment and selection, training and development, and rewards and remuneration. The mission and objectives of the organisation would be driving force behind the HRM strategy. Firm Infrastructure. • This activity includes and is driven by corporate or strategic planning. It includes the Management Information System (MIS), and other mechanisms for planning and control such as the accounting department. 79
  80. 80. Five Generic Competitive Strategies Type of Competitive Advantage Desired Lower Cost Differentiation M a r k e t S h a r e A Broad Cross Section of Buyers Overall Low Cost Provider Strategy Broad Differentiation Strategy Best Cost Provider Strategy A narrow Buyer segment for Market Niche Focussed Low Cost Strategy Focussed Differentiation Strategy 80
  81. 81. Drivers for Low-Cost Strategy -1 Low-Cost Strategy makers generally attend to following cost drivers: a) Economies or diseconomies of scale: - Larger volumes can reduce the costs as fixed costs get spread over large volume. At the same time larger volume means larger inventories and higher inventory carrying costs. Manufacturing economies can be achieved by simplifying product line, longer production runs, reducing varieties of models, standardising designs and using common parts, use of modular designs etc. b) Learning Curve effects: A new product, new plant is full of innumerable problems. Faster we de-bug, master the technology, improve plant layout & work flow, improve design, will bring economies of learning curve. Aggressively managed companies who capture benefits of learning are the one who can offer low costs. 81
  82. 82. Drivers for Low-Cost Strategy -2 c) d) e) f) Cost of key resource inputs: use of innovative incentive schemes for unionised labour, use of non –unionised labours, out sourcing, large scale purchasing with effective use of bargaining power, variables due to locations, Effective “Supply chain Management” Use of industry value Chain by linking other activities for other products in the company. Also warranty claims can be linked with suppliers, there by diverting the warranty costs, sharing opportunities with other businesses in the organisations. Using vertical integration v/s outsourcing: backward or forward integration can reduce the reliance on outsourcing and can reduce the costs. Capacity utilisation has direct relation on spread of fixed costs in the product cost. Low cost leader has to find ways to operate at close to full capacity year round. 82
  83. 83. Drivers for Low-Cost Strategy -3 g) Strategic Choices & Operating decisions such as: • Adding / Cutting services offered to Buyers. • Incorporating more / fewer performance & quality features into product. • Increasing / decreasing distribution channels. • Lengthening / Shortening delivery times to customers. • Putting more emphasis on wages, incentives & fringe benefits to motivate employees. • Rising / Lowering the specifications for purchased materials. • Example : Wall Mart.- The Low Cost Leader : 83
  84. 84. Factors for Low Cost Strategy • Price competition is very high. • Products are identical and are easily available. • Product differentiation is low & cannot be achieved. • Most buyers use the product in the same way. • Cost of switching brand is low for customer. • Buyers are large and have power to bargain. • Newcomers can come with low price and attract buyers. However, a Low Cost provider must always contain enough attributes to be attractive to prospective buyers. Low price by itself, is not appealing to buyers. 84
  85. 85. Aspects of industry for Differentiation Strategy-1 • The essence of broad differentiation strategy is to be unique in ways that are valuable to a wide range of customers. and at the same it should be noted that • Easy to copy differentiators cannot provide sustainable competitive advantages. As a rule, • Differentiation yields a longer lasting effect and more profitable competitive edge, when it is based on: 1. Product innovation by R&D, 2. Technical superiority, 3. Product quality with superior manufacturing abilities. 4. Reliability. 5. Comprehensive customer service, 6. Unique competitive capability 7. Superior supply-chain activities. 8. Maintaining the cost of differentiation in line. 85
  86. 86. Aspects of industry for Differentiation Strategy-2 Such differentiation should result into: • Perceived & actual delivered value for customers • Command a premium price for its products • Increase unit sales & Gain buyer Brand loyalty Approaches for achieving Cost Differentiation 1. Incorporate product attributes & user Features that lowers the buyers overall costs of using the company’s product. 2. Incorporate features that raise product performance like quality, reliability, durability etc. 3. Incorporate features that enhance buyer satisfaction in noneconomic or intangible ways. 4. To deliver value to customers via competitive capabilities that rivals do not have or cannot afford to match. 86
  87. 87. • • • • • • • • • Factors of Differentiation Strategy The Product can be differentiated in many ways and buyers perceive these differences as having value. Buyers needs and uses are diverse. There is less head to head competition. Few rival firms are following differentiation approach. Technological change is fast paced and competition revolves around evolving product features. Any differentiation that works well gets imitated and there is need for constant up gradation. Differentiating something that does not lower buyer’s cost or improves perceived value is a mistake. Over differentiating increasing service needs or usage constraints is a mistake. Trying to charge a too high a premium price. Being timid & not striving to open up about competitors defect and differentiating that is not visible to buyers is a pitfall. 87
  88. 88. Best Cost Provider Strategies • Best Cost Provider Strategies are for giving customer ‘more value for money'. • It is middle path between pursuing a low cost advantage and differentiation strategy. • Best Cost Provider Strategies are ‘hybrid’ Strategies balancing emphasis on Low Cost & Differentiation. • Target market is Price & Value conscious buyer, with diversity of products, where differentiation is a norm. • To be successful, Best Cost Strategy must offer, buyers significantly better product attributes, so that they can justify higher price above Low – Cost leaders and with sufficient differentiation can win over high-end Differentiation Leaders. 88
  89. 89. Focussed or Market Niche Strategies Focussed Strategies have concentrated attention on a narrow piece of the total Market. Target market segment is called as ‘niche’. e.g. Rolls Royce- a status symbol, Porsche for sports cars, e-Bay for e-auctions. Focussed Low Cost Strategy: • Serving buyers in the target market niche at lower cost & lower price than rivals. • Producing ‘Private-Label’ imitating Brand name merchandise & selling directly to retail chains. Focussed Differentiation Strategy: • Serving a buyer segment that is looking for special product attributes or seller capabilities. • By offering niche members a product perceive as well suited for their own unique tastes & preferences and be at top of Market pyramid due to their strength of differentiation. • e.g. Gucci, Rolls Royce, Armani, Rolex, Reliance Fresh, Kesari Tours 89
  90. 90. Low Cost Provider Strategic Target A broad cross section of the market Basis of competitive advantage Lower overall costs than competitors. Product Line A good basic product with acceptable quality & few frills. Production emphasis Continuous cost reduction without sacrificing attributes Marketing emphasis Make virtue of product features with low cost Keys to sustain strategy Economical prices, good value, low cost year after year. 90
  91. 91. Broad Differentiation Strategic Target A broad cross section of the market Basis of competitive advantage Ability to offer something attractively different. Product Line Many Product, wide selection, with differentiating features. Production emphasis Production superiority with differentiating features buyers are willing to pay Marketing emphasis Advertise features, charge a premium for differentiation Keys to sustain strategy Constant innovation to stay ahead, Few key differentiators. 91
  92. 92. Best Cost Provider Strategic Target Value oriented buyers Basis of competitive advantage More value for money Product Line Items with appealing & assorted upscale attributes. Production emphasis Items with appealing & assorted upscale attributes with lower costs Marketing emphasis Advertise best value, comparable features with lower value. Keys to sustain strategy Unique expertise in managing costs while offering upscale features & attributes. 92
  93. 93. Focussed Low Cost Provider Strategic Target Basis of competitive advantage Narrow market niche satisfying distinctively different buyers needs & preferences. Lower overall costs than competitors in niche market. Product Line A product tailored to tastes & requirements of niche market. Production emphasis Continuous cost reduction without sacrificing attributes Marketing emphasis Communicate budget priced product features that fits niche market requirements. Keys to sustain strategy Stay committed to serving niche at lowest over all cost . Do not loose focus by entering other markets.. 93
  94. 94. Focussed Differentiation Provider Narrow market niche satisfying Strategic Target distinctively different buyers needs & preferences. Basis of competitive advantage Product Line Attributes that appeal specifically to niche members. A product tailored to tastes & requirements of niche market. Production emphasis Custom made products that match the tastes & requirements of niche market. Marketing emphasis Communicate how product features does the best of meeting niche market requirements. Keys to sustain strategy Stay committed to serving niche market at better differentiation. Do not loose focus by entering other markets Economical prices, good value, low cost year after year. 94
  95. 95. Description of the 7-S Frame work of MC Kinsey 95
  96. 96. Description of the 7-S Frame work of MC Kinsey • The 7-S framework of McKinsey is a Value Based Management (VBM) model. Together these factors determine the way in which a corporation operates. • Shared Value: The interconnecting centre of McKinsey's model is: Shared Values. What does the organization stands for and what it believes in. These are Central beliefs and attitudes. • Strategy: Strategy is a Plan for the allocation of a firm’s scarce resources, over a time to reach identified goals. Strategy considers Environment, Competition and Customers. • Structure: The way the organization's units relate to each other: centralized, functional divisions (top-down); decentralized (the trend in larger organizations); matrix, network, holding, etc. • System: The procedures, processes and routines that characterize how important work are to be done: financial systems; hiring, promotion and performance appraisal systems; information systems. • Staff: Numbers and types of personnel within the organization. • Style: Cultural style of the organization and how key managers behave in achieving the organization’s goals. • Skill: Distinctive capabilities of personnel or of the organization as a whole. (Core Competencies). 96
  97. 97. The McKinsey 7S Framework • Ensuring that all parts of your organization work in harmony • McKinsey 7S framework Developed in the early 1980s by Tom Peters and Robert Waterman, two consultants working at the McKinsey & Company consulting firm. • The McKinsey 7S model can be applied to elements of a team or a project as well. The alignment issues apply, regardless of how you decide to define the scope of the areas you study The 7S model can be used in a wide variety of situations where an alignment perspective is useful, for example: • Improve the performance of a company; • Examine the likely effects of future changes within a company; • Align departments and processes during a merger or acquisition; 97
  98. 98. The Seven Elements Hard Elements Soft Elements Strategy Structure Systems Shared Values Skills Style Staff •"Hard" elements are easier to define or identify and management can directly influence them: These are strategy statements; organization charts and reporting lines; and formal processes and IT systems. •"Soft" elements, on the other hand, can be more difficult to describe, and are less tangible and more influenced by culture. However, these soft elements are as important as the hard elements if the organization is going to be successful. 98
  99. 99. • The way the model is presented in Figure depicts the interdependency of the elements and indicates how a change in one affects all the others. • Placing Shared Values in the middle of the model emphasizes that these values are central to the development of all the other critical elements. The company's structure, strategy, systems, style, staff and skills all stem from why the organization was originally created, and what it stands for. The original vision of the company was formed from the values of the creators. As the values change, so do all the other elements 99
  100. 100. How to Use the Model • The model is based on the theory that, for an organization to perform well, these seven elements need to be aligned and mutually reinforcing. So, the model can be used to help identify what needs to be realigned to improve performance, or to maintain alignment (and performance) during other types of change. • Whatever the type of change - restructuring, new processes, organizational merger, new systems, change of leadership, and so on - the model can be used to understand how the organizational elements are interrelated, and so ensure that the wider impact of changes made in one area is taken into consideration. • You can use the 7S model to help analyze the current situation (Point A), a proposed future situation (Point B) and to identify gaps and inconsistencies between them. It's then a question of adjusting and tuning the elements of the 7S model to ensure that your organization works effectively and well once you reach the desired endpoint. 100
  101. 101. • However, it is not simple. Changing your organization probably will not be simple at all! Whole books and methodologies are dedicated to analyzing organizational strategy, improving performance and managing change. The 7S model is a good framework to help you ask the right questions - but it won't give you all the answers. For that you'll need to bring together the right knowledge, skills and experience. • When it comes to asking the right questions, we've developed a Mind Tools checklist and a matrix to keep track of how the seven elements align with each other. Supplement these with your own questions, based on your organization's specific circumstances and accumulated wisdom. 101
  102. 102. 7S Checklist Questions • Here are some of the questions that you'll need to explore to help you understand your situation in terms of the 7S framework. Use them to analyze your current (Point A) situation first, and then repeat the exercise for your proposed situation (Point B). • Strategy: • What is our strategy? • How to we intend to achieve our objectives? • How do we deal with competitive pressure? • How are changes in customer demands dealt with? • How is strategy adjusted for environmental issues? • Structure: • How is the company/team divided? • What is the hierarchy? • How do the various departments coordinate activities? • How do the team members organize and align themselves? • Is decision making and controlling centralized or decentralized? Is this as it should be, given what we're doing? • Where are the lines of communication? Explicit and implicit? 102
  103. 103. • Systems: • What are the main systems that run the organization? Consider financial and HR systems as well as communications and document storage. • Where are the controls and how are they monitored and evaluated? • What internal rules and processes does the team use to keep on track? • Shared Values: • What are the core values? • What is the corporate/team culture? • How strong are the values? • What are the fundamental values that the company/team was built on? • Style: • How participative is the management/leadership style? • How effective is that leadership? • Do employees/team members tend to be competitive or cooperative? • Are there real teams functioning within the organization or are they just nominal groups? 103
  104. 104. • Staff: • What positions or specializations are represented within the team? • What positions need to be filled? • Are there gaps in required competencies? • Skills: • What are the strongest skills represented within the company/team? • Are there any skills gaps? • What is the company/team known for doing well? • Do the current employees/team members have the ability to do the job? • How are skills monitored and assessed? 104