It
is especially important for managers and executives in any organization to
agree on the basic vision that the firm strives to achieve in the long term.A
vision statement should answer the basic question, “What do we want to
become?”A clear vision provides the foundation for developing a
comprehensive mission statement.A business mission is the foundation for
priorities, strategies, plans, and work assignments.The defining
characteristics of a strategic vision is what is says about the company’s future
strategic course- “the direction we are headed and our aspirations for the
future.”
In
contrast, a mission statement describes the enterprise’s current
business and purpose- “who we are, what we do, and why we are here’”
The
mission statements that one finds in company annual reports or posted on
company Web sites are typically quite brief; some do a better job than others
of conveying what the enterprise is all about.
Developing
a Strategic Vision
•
Top management’s views and conclusions about
the company’s long-term direction and what product-customer-market-technology
mix seems optimal for the road ahead constitute a strategic vision for
the company.
•
A strategic vision delineates (defines)
management’s aspirations for the business, providing a panoramic view of “where
we are going” and a convincing rationale for why this makes good business sense
for the company.
•
A strategic vision thus points an
organization in a particular direction, charts a strategic path for it to
follow in preparing for the future, and builds commitment to the future course
of action.
•
A clearly articulated strategic vision
communicates management’s aspirations to stakeholders and helps steer (direct)
the energies of company personnel in a common direction.
•
Well-conceived visions are distinctive and
specific to a particular organization; they avoid generic (universal),
feel-good statements like “We will become a global leader and the first choice
of customers in every market we serve”—which could apply to hundreds of
organizations.
•
They are not the product of a committee
charged with coming up with an innocuous but well-meaning one-sentence vision
that wins consensus approval from various stakeholders.
•
Nicely worded vision statements with no
specifics about the company’s product-market-customer-technology focus fall
well short of what it takes for a vision to measure up.
Communicating
the Strategic Vision
•
An effectively communicated vision is a
tool foe enlisting the commitment of company personnel to actions that move the
company forward in the intended direction.
•
Effectively communicating the strategic
vision down the line to lower-level managers and employees is as important as
the strategic soundness of the long term
direction top management has chosen.
•
Company personnel can’t be expected to
unite behind managerial efforts to get the organization moving in the intended
(future) direction until they understand why the strategic course that
management has charted is reasonable and beneficial.
•
When company personnel don’t understand or
accept the need for redirecting organizational efforts, they are prone
(inclined) to resist change.
“ Strategic visions
become real only when the vision statement is imprinted in the minds of
organization members and then translated into hard objectives and strategies.”
Long
Term Objectives
•
Objectives should be quantitative,
measurable, realistic, understandable, challenging, hierarchical, obtainable,
and congruent (consistent) among organizational units.
•
Each objectives should also be associated
with a timeline.
•
Objectives are commonly stated in terms
such as growth in assets, growth in sales, profitability, market share, earning
per share, and social responsibility.
•
Clearly established objectives offer many
benefits.
•
They provide direction, allow synergy aid
in evaluation, establish priorities, reduce uncertainty, minimize conflicts,
stimulate exertion (effort), and aid in both the allocation of resources and
the design of jobs.
Financial
Vs. Strategic Objectives
•
Two types of objectives are especially
common in organizations: financial and strategic objectives.
•
Financial objectives include those
associated with growth in revenues, growth in earnings, higher dividends,
larger profit margins, greater return on investment, higher earnings per share,
a rising stock price, improved cash flow, and so on.
•
Strategic objectives include things such
as a larger market share, quicker on time delivery than rivals, shorter design
to market times than rivals, lower costs than rivals, higher product quality
than rivals, wider geographic coverage than rivals, achieving technological
leadership, consistently getting new or improved products to market ahead of
rivals, and so on.
•
Although financial objectives are
especially important in firms, oftentimes there is a trade-off (balance)
between financial and strategic objectives such that crucial decisions have to
be made.
•
For e.g., a firm can do certain things to
maximize short-term financial objectives that would harm long-term objectives.
•
To improve financial position in the short
run through higher prices may, for example, jeopardize (threaten) long term
market share.
Strategic
Intent
•
Strategic intent (committed) refers to the
purposes the organization strives for. These may be expressed in terms of a hierarchy
of strategic intent. The framework within which firms operate, adopt a
predetermined direction and attempt to achieve their goal is provided by a
strategic intent.
•
The hierarchy of strategic intent covers
the vision, mission, business definition, business model and the goals and
objectives.
•
Vision points the way to the future and
strategic intent provides clarity of what a company must get after immediately
in order to realize the vision.
•
In other words strategic intent of a
company describes how a company is going to realize its vision.
•
Strategic intent provides a particular
point of view about the long term vision or aspiration of the company.
•
Strategic
Making Pyramid
- Corporate- level
strategy
•
It is organization-wide. It provides
overall direction and scope to the organization. It is concerned with adding
value to the organization.
•
For a company that has not diversified
(differentiated) beyond its core business, corporate and
business strategies are inseparable. For example, the
Bacardi Corporation has been in the rum business since its founding, and, with
the exception of a local beer in one small market, it manufactured no other
spirits besides rum. Bacardi’s corporate strategy was to be in the "light
spirits" business. Its business strategy focused on becoming the
number-one-selling spirits brand in the world. It manufactured no vodka,
scotch, or bourbon (keeping its focus on differentiated, premium
rum).
•
Its corporate strategy was simply to
locate its production facilities in a few strategic locations (close to sugar
cane or close to markets) and to allocate its rum distillate and marketing
talent to the most promising markets around the world.
ii)
Business level strategy
•
It is about how to compete successfully in
a particular market.
•
It aims to achieve advantage over
competitors.
•
It is concerned with identifying
competitive advantage at business unit level.
iii)
Functional strategy
•
It is function-specific for marketing,
finance, research and development.
•
It is concerned with resources, processes
and people.
iv.
Operational Strategy
•
A plan of action implemented by a
firm that describes how they will employ their resources in
the production of a product or service. An operational strategy
is a necessary element for a business and supports the
firm's corporate strategy.
•
In some ways the very term ‘operation
strategy’ sounds like a contradiction in terms. Operations is, after all, about
the day-to-day creation and delivery of products and services.
•
So how can it be strategic?
•
In
fact, the issue is one of distinguishing between two words which are similar
but have different meanings.
•
These are operations and operational.
•
Operations refers
to those parts of the business which are concerned with producing products and
services.
•
Operational is
the opposite of strategic in the sense that it means ‘short-term’ and ‘limited
in its influence’.
•
Other functions of the business such as
marketing or finance have both strategic and operational activities.
•
For example, marketing strategy covers the
overall long-term approach to how the organization wants to position itself in
its markets.
•
The operational side of marketing refers
to the day by day tactics of how to manage things like advertising, pricing,
and so on.
•
It is just the same with operations.
Operations strategy looks at the long-term issues of how to manage the
resources which produce products and services.
Uniting
the Strategy Making Effort
Uniting the
Strategy-Making Effort
•
A company’s strategic plan is a collection
of strategies devised by different managers at different levels in the
organizational hierarchy. Management’s direction setting effort is not complete
until the separate layers of strategy are unified into a coherent, supportive
pattern.
Level 1
Responsibility of corporate-level
managers
•
Overall Corporate Scope and Strategic
Vision
•
Corporate-Level Objectives
•
Corporate-Level Strategy
Level 2
Responsibility of business-level
general managers
•
Business-Level Strategic Vision and
Mission
•
Business Level Objectives
•
Business-Level Strategy
Level 3
Responsibility of heads of major
functional activities within a business unit or division
•
Functional Area Missions
•
Functional Objectives
•
Functional Strategies
Level 4
Responsibility of plant managers,
geographic unit managers, and managers of frontline operating units
•
Operating Unit Missions
•
Operating Unit Objectives
•
Operating Strategies
Unit
4. Industry and Competitive Analysis
Industry and Competitive
Analysis
Questions
involved:
What
are the boundaries of the industry?
What is the structure of the industry?
Which
firms are our competitors?
What
are the major determinants of competition?
Sources of Difficulty in
Defining Industry Boundaries
Evolution
of industries over time creates new opportunities and threats
Industry
evolution creates industries within industries
Industries
are becoming global in scope
Common Mistakes in
Identifying Competitors
• Overemphasizing
current and known competitors while ignoring potential entrants
• Overemphasizing
large competitors while ignoring small ones
• Overlooking
potential international competitors
• Assuming
competitors will continue to behave in same way
• Misreading
signals indicating a shift in focus of competitors
• Overemphasizing
competitors’ financial resources, market position, and strategies while
ignoring their intangible assets
• Assuming
all firms in industry are subject to same constraints or are open to same
opportunities
• Believing
purpose of strategy is to outsmart competition, rather than satisfy
customer needs
Competitive
Forces
Porter’s
Five Competitive Forces
• Threat
of new entrants into the market
• Competitive
rivalry among present competitors
• Threat
of substitute products
• Power
of buyers
• Power
of suppliers
Threat of new entrants into the market
New entrants to a market bring new
production capacity, the desire to establish a secure place in the market, and
sometimes substantial resources.
Just how serious the competitive threat of
entry is in a particular market depends on two classes of factors: barriers
to entry and the expected reaction of incumbent (current) firms to new
entry.
2. Competitive rivalry among present
competitors
• The
strongest of the five competitive forces is usually the jockeying (gaining an advantage) for position and buyer
favor that goes on among rivals firms.
• The
intensity of rivalry among competing sellers is a function of how vigorously
(strongly) they employee such tactics as lower prices, snazzier (modern) features, expanded customer services, longer
warranties, special promotion, and
new product introduction.
3 Threat of substitute products
• Firms
in one industry are, quite often, in close competition with firms in another
industry because their products are good substitutes.
• Just
how strong the competitive pressures are from substitute products depends on
three factors:
v Whether
attractively priced substitutes are available
v How
satisfactory the substitutes are in terms of quality, performance and other
relevant attributes
v The
ease with which buyers can switch to substitutes
4. Power of buyers
·
Buyers have substantial bargaining
leverage in a number of situations.
·
The most obvious is when buyers are large
and purchase much of the industry’s output.
·
Typically, purchasing in large quantities
gives a buyer enough leverage to obtain price concessions and other favorable
terms.
5. Power of suppliers
• Whether
the suppliers to an industry are a weak or strong competitive force, depends on
market conditions in the supplier industry and the significance of the item
they supply.
• Supplier-related
competitive pressures tend to be minimal whenever the items supplied are
standard commodities available on the open market from a large number of
suppliers with ample capability.
• Suppliers
also tend to have less leverage to bargain over price and other terms of sale
when the industry they are supplying is a major customer.
• In such cases, the well-being of suppliers is
closely tied to the well-being of their
major customers.
• Suppliers
are also more powerful when they can supply a component more cheaply than
industry members can make it themselves.
• In
such situations, the bargaining position of suppliers is strong until the
volume of parts a user needs becomes
large enough for the user to justify backward integration into self-manufacture
of the component.
Scanning Methods/Techniques
- Identify
Forces in the Environment
• External
environment forces can be political-legal, economic, socio-cultural and
technological. They should be identified carefully
• Internal
environment forces can be goals, policies, strategies and resources, personal
values and past decisions.
• They
should be identified carefully.
• Resources
can be physical, financial, human and information.
2. Determine sources for observation
• Newspapers,
journals, reports, books
• Meetings,
conferences, committees
• Colleagues,
employees, friends
• Experts,
consultants, researchers
• Personal
experience
• Competitors’
ads and activities
• Other
sources
3. Select Scanning Methods
a) Extrapolation
Methods
b) Historical
Analogy
c) Intuitive
Reasoning
d) Scenario
Building
e) Cross-
impact Matrix
f) Network
Methods
g) Model
Building
h) Delphi
Technique
a) Extrapolation
Methods:
• These
techniques require information from the past to explore the future.
• The
future is assumed to be some function of the past.
b) Historical Analogy (similarity):
• When
past data cannot be effectively used to analyze an environmental trend, the
trend is studied by establishing historical parallels with other trends.
• This
method assumes that sufficient information is available from other trend.
c) Intuitive (sensitive/insightful) Reasoning:
• This
technique calls for a rational (balanced) intuition by the scanner.
• Intuitive
thinking requires freethinking unconstrained (free) by past experience and
personal biases.
• Such
intuitive reasoning could be fruitful to predict the business environment.
d) Scenario (situation) Building:
• A
scenario is a composite picture of the future.
• This
gives an account of the events that would contribute to the situation.
• Multiple
scenarios are usually developed.
• This
procedure involves constructing a time-ordered sequence of events that have
logical cause-and- effect relationship to one another.
e) Cross-impact matrix:
• Forecasts
(estimation) derived by various methods may be combined into a well-integrated
and internally consistent (regular) description of the future.
• This
means various methods that determine the future or forecast the future are
combined (studied) together for the description of future.
f) Network Methods:
• Two
types of network methods are popular: contingency trees and relevance
trees.
• A
contingency tree is a graphical display of different relationships between
different environmental trends.
• A
relevance tree is a logical network similar to contingency tree, which means it
is also a graphical representation but it shows which environmental trend is
important and what would be its outcome.
• This
means relevance tree shows the importance to different environmental trends and
what will be its outcomes, it is taken observed.
g) Model building:
• This
approach is similar to network methods but relies more on developing
mathematical representations of the environmental phenomena in question.
• Different
regression equations are so used in
model building method for scanning the environment.
h) Delphi technique:
• The
Delphi technique is the systematic collection of export opinion in varying
stages, using feedback to develop new forecasts.
4. Scan and Respond to Data
Data is collected from the environment. It
is interpreted, correlated, extrapolated and understood.
The crucial developments concerning the
following are pinpointed:
a) Events
: They are important and specific occurrences in the
environment
b) Trends
: They are general tendencies along which events take
place
c) Issues
: They are current concerns arising from events and
trends
d) Expectations
:They are demands made by interested groups
(stakeholders) arising from issues.
5. SWOT Analysis
• The
firm identifies its S= strength, W=weakness, O=opportunities, T=threats through
the process of environmental scanning.
• Environmental
scanning provides data about markets, regulatory issues’, competitors’ actions,
production costs, and labor productivity.
• External
environment pose both opportunities and threats and internal environment
consists of both opportunities and weakness which is revealed only by scanning
both types of environment respectively.
Driving Forces of Change in the Industry
• The
most dominant forces are called driving forces because they have the biggest
influence on what kinds of changes will take place in the industry’s structure
and environment.
• Driving forces analysis has two steps:
identifying what the driving forces are and assessing the impact they will have
on the industry.
The Most Common Driving Forces
- Changes
in the long-term industry growth rate
- Changes
in who buys the product and how they use it
- Product
innovation
- Technological
change
- Marketing
innovation
- Entry
or exit of major firms
- Diffusion
(Distribution) of technical know-how
- Increasing
globalization of the industry
- Changes
in cost and efficiency
- Emerging
buyer preferences for differentiated products instead of a commodity
product (or for a more standardized product instead of strongly
differentiated products).
- Regulatory
influences and government policy changes
- Changing
societal concerns, attitudes and lifestyles
- Reductions
in uncertainty and business risk
Strategic Group Maps
• While
analyzing the competing environment, the idea of ‘industry’ may not be always
helpful unless the analyst understands boundaries or scope of a particular
firm.
• There
might be the same product that two firms are producing but their market may
differ.
• In
this case they are not competing or they are not strategic groups.
• Since
competing companies commonly sell in different price/quality ranges, emphasize
different distribution channels, incorporate product features that appeal to
different types of buyers, have different geographic coverage, and so on, it
stands to reason that some companies enjoy stronger or more attractive market
positions than other companies.
• Understanding
which companies are strongly positioned and which are weakly positioned is an
integral part of analyzing an industry’s competitive structure.
• The
best technique for revealing the market positions of industry competitors is strategic
group mapping
• Strategic
group mapping is a technique for looking at your position in your sector, field
or market. Hunt coined the term ‘strategic group’ in 1972 when he noticed
sub-groups of businesses with similar characteristics in the same market.
Michael Porter then expanded the concept in the 1980s.
• There
are a number of benefits to strategic group mapping:
• It
can help you identify who your direct and indirect competitors (or possible
partners) are
• It
can illustrate how easy it might be to move from one strategic group to another
• It
may help identify future opportunities or strategic problems
• It
ensures you take your customers’ or beneficiaries’ views into account when
developing or assessing your strategy
Purpose
• The
purpose of strategic group mapping is to make sure you take the needs or wants
of your customers/beneficiaries into account. It encourages you to ask
different questions about your future strategy, relationships with other
businesses in your sector and your understanding of the people who ultimately
benefit from your products or services.
• The
dimension of similar strategic groups are as follows:
- Products
or Services
- Market
segment served
- Marketing
effort
- Product
or service quality
- Geographic
coverage
- Distribution
channel used
- Vertical
integration
- 8.
Technological leadership
- 9. R & D capability
- 10.
Utilization of capacity
- 11.
Level of gearing
- 12.
Size of organization
- 13.
Cost position
- 14.Pricing
policy
- 15.Ownership
structure
• Here,
in the figure, 10 strategic groups. Wall Martand K Mart are in
one group where as company ‘Target’ is single.
• It
is because Wall-Mart and K- Mart have same strategy so they are grouped
where asTarget has different strategy so it is grouped as a single. No
other companies have similar strategy matching to Target, so it is
single circled.
• Wall-Mart
and K-Mart are head to head closest rival who have similar strategy, followed
by ‘Target’.
• The
size of the circle determines the share of the strategic group in the total industry sales revenue.
Common Types of Key Success Factors
Technology Related KSFs
·
Scientific research expertise (important in such
fields as pharmaceuticals, medicine, space exploration, other “high-tech”
industries.
·
Technical capability to make innovative
improvements in production processes
·
Product innovation capability
·
Expertise in a given technology
·
Capability to use the Internet to disseminate
information, take orders, deliver products or services
Manufacturing Related KSFs
·
Low-cost production efficiency (achieve scale
economies, capture experience curve effects)
·
Quality of manufacturer (fewer defects, less
need for repairs)
·
High utilization of fixed assets (important in
capital intensive/high fixed-cost industries)
·
Low-cost plant locations
·
Access to adequate supplies of skilled labor
·
High labor productivity (important for items
with high labor content)
·
Low-cost product design and engineering (reduces
manufacturing costs)
·
Flexibility to manufacture a range of models and
sizes/take care of custom orders
Distribution Related KSFs
·
A strong network of wholesale
distributors/dealers (or electronic distribution capability via the Internet)
·
Gaining ample space on retailer shelves
·
Having company owned retail outlets
·
Low distribution costs
·
Fast delivery
Marketing Related KSFs
·
Fast, accurate technical assistance
·
Courteous customer service
·
Accurate filling of buyer orders (few back
orders or mistakes)
·
Breadth of product line and product selection
·
Merchandising skills
·
Attractive styling/packaging
·
Customer guarantees and warranties (important in
mail-order retailing, big-ticket purchases, new product intros)
·
Clever advertising
Skills Related KSFs
·
Superior workforce talent (important in
professional services like accounting and investment banking)
·
Quality control know how
·
Design expertise (important in fashion and
apparel industries and often of the keys to low-cost manufacture)
·
Expertise in a particular technology
·
An ability to develop innovative products and
product improvements
·
An ability to get newly conceived products past
the R&D phase and out into the market very quickly
Organizational Capability
·
Superior information systems (important in
airline travel, car rental, credit card and lodging industries)
·
Ability to respond quickly to shifting market
conditions (streamlined decision making, short lead times to bring new products
to market)
·
Superior ability to employ the Internet and
other aspects of electronic commerce to conduct business
·
More experience and managerial know how
Other Types of KSFs
·
Favorable image/reputation with buyers
·
Overall low cost (not just in manufacturing)
·
Convenient locations (important in many
retailing businesses)
·
Pleasant, courteous employees in all customer
contact positions
·
Access to financial capital (important in newly
emerging industries with high degrees of business risk and in capital-intensive
industries)
·
Patent protection
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