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S.Mgt-unit-2.pdf

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Saraswathi S. Asst Professor, JSS College for Women, Kollegal 1
NAME & DEPT SARASWATHI, ASST . PROFESSOR
PG DEPT, JSS COLL...
Saraswathi S. Asst Professor, JSS College for Women, Kollegal 2
STRATEGIC ANALYSIS AND CHOICE
As environment changes, comp...
Saraswathi S. Asst Professor, JSS College for Women, Kollegal 3
3. It offers you the internal components that add value or...
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S.Mgt-unit-2.pdf

  1. 1. Saraswathi S. Asst Professor, JSS College for Women, Kollegal 1 NAME & DEPT SARASWATHI, ASST . PROFESSOR PG DEPT, JSS COLLEGE FOR WOMEN, KOLLEGALA SUBJECT COMMERCE PAPER TITLE STRATEGIC MANAGEMENT MODULE NO & TITLE 2 - STRATEGIC ANALYSIS AND CHOICE CONTENTS ➢ Environmental Threat and Opportunity Profile (ETOP) ➢ Organizational Capability Profile ➢ Strategic Advantage Profile ➢ Corporate Portfolio Analysis ➢ SWOT Analysis ➢ Synergy and Dysergy ➢ GAP Analysis ➢ Porter's Five Forces Model of competition ➢ Mc Kinsey's 7s Framework ➢ GE 9 Cell Model ➢ Distinctive competitiveness ➢ Selection of matrix.
  2. 2. Saraswathi S. Asst Professor, JSS College for Women, Kollegal 2 STRATEGIC ANALYSIS AND CHOICE As environment changes, companies need to change their strategies to adapt to the environment not only to prosper but also to survive. Based on the multiple strategic choices, each choice is analyze and the best one is selected and implemented. Strategic analysis and choice largely involve making subjective decisions based on objective information. Strategies are to be chosen at the corporate level, business level and functional level. A strategic choice has to be made from among these alternatives. Strategic choice is a decision making process. Strategic analysis and choice are two important components of the implementation stage of the strategic management plan. These two components are crucial links in the strategic management implementation procedure. This report introduces important concepts that can help strategists generate feasible alternatives, evaluate those alternatives, and choose a specific course of action. The strategic management process has three main components as shown below STRATEGIC ANALYSIS It is all about analyzing the strength of businesses’ position and understanding the important external factors that may influence that position. Strategic analysis refers to the process of conducting research on a company and its operating environment to formulate a strategy. Strategic analysis is essential to formulate strategic planning for decision making and smooth working of that organization. With the help of strategic planning, the objective or goals that are set by the organization can be fulfilled. The definition of strategic analysis may differ from an academic or business perspective, but the process involves several common factors: 1. Identifying and evaluating data relevant to the company’s strategy 2. Defining the internal and external environments to be analyzed 3. Using several analytic methods Strengths of Strategic Analysis 1. It allows you to have clarity of the internal positive attributes of the organization that are under control. 2. It helps identify strength of both internal as well as external resources, such that it leads to an increasing competitive advantage.
  3. 3. Saraswathi S. Asst Professor, JSS College for Women, Kollegal 3 3. It offers you the internal components that add value or offer a competitive advantage to your business. Weaknesses of Strategic Analysis 1. Strategic analysis can generate too many ideas, but doesn’t help to choose which one is the best. 2. Sometimes too much time is spent on existential problem solving, such that there is little or no time left for innovating new products or making service level changes at the organizational level. STRATEGIC CHOICE It involves understanding the nature of stakeholder’s expectations, identifying the strategic option and evaluating and selecting the best/optimal choice amongst all. Strategic choice is a systemic theory of strategy. This theory is built on a notion of interaction in which organizations adapt to their environment in a self- regulating, negative-feedback (cybernetic) manner so as to achieve their goals. Strategic choice is a part of the strategic process and involves elements like the identification and evaluation of alternatives which then leads to a choice. Once you have conducted the external and internal analyses the different alternatives available to you should be clear. Competition is seen as the main factor that influences strategic choices. However, other factors like organization structure, leadership, culture, pressure from donors, slow economic growth, increased diversification and technological advances influence choices made by organizations. Process of strategic choice There are four steps in the process of strategic choice as enumerated below: ✓ Focusing on strategic alternatives ✓ Analyzing the strategic alternatives ✓ Evaluating the strategic alternatives ✓ Choosing from among the strategic alternatives STRATEGIC IMPLEMENTATION It is the penultimate stage of strategic management and strategic analysis and choice are two significant constituents of that process. Characteristics of Strategic Analysis and Choice Following are the features of strategic analysis and choice: ✓ Establishment of long term goals ✓ Producing strategy options ✓ Choosing strategies to act on ✓ Selecting the best option and accomplishing mission and goals. At the time of performing strategic analysis and arriving at strategic choices, long term goals are fixed and different types of strategies are chosen that are most appropriate for the mission of the company and the variable conditions. Factors taken into consideration for Strategic Analysis and Choice Key Internal Factors ✓ Marketing ✓ Management ✓ Operations/Production ✓ Accounting/Finance
  4. 4. Saraswathi S. Asst Professor, JSS College for Women, Kollegal 4 ✓ Computer Information Systems ✓ Research and Development Key External Factors ✓ Political/Governmental/Legal ✓ Economy ✓ Technological ✓ Social/Demographic/Cultural/Environmental ✓ Competitive ✓ Techniques Used in Strategic Analysis THE FOLLOWING DEVICES OR TECHNIQUES ARE USED IN THE PROCEDURE OF STRATEGIC ANALYSIS & CHOICE, THEY ARE – Strategic analysis and choice of strategies are done with the help of a number of techniques. If the appropriate strategy is chosen, a company would become more efficient to establish sustainability in competitive advantage and maximize firm valuation. They are - ENVIRONMENTAL THREAT AND OPPORTUNITY PROFILE [ETOP] There are many techniques available for environmental appraisal (assessment), one such technique suggested by Glueck is ETOP the preparation of ETOP involves dividing the environment into different sectors & then analyzing the impact of each sector on the organization. The preparation of an ETOP provides a clear picture to the strategists about which sectors & the different factors in each sector have a favorable impact on the organization. By the means of an ETOP, the organization knows where it ne stands with respect to its environment. Obviously, such an understanding can be of a great help to an organizations in formulating strategies to take advantage of the opportunities & counter the threats in its environment. MEANING ETOP is a device that considers environmental information & determines the relative impact of threats & opportunities for the systematic evaluation of environmental scanning. ETOP is an environmental analysis results in a mass of information expectations. Structuring of environmental issues is necessary to make them meaning full of strategy related to forces in the environment. They deal with events, trends, issues & formulation. In short, it is a technique to structure environmental issues. It is the process by which organizations monitor their relevant environment to identify opportunities & threats affecting their business for p purpose of taking strategic decision. WHY ETOP? ✓ Helps organization to identify O-T ✓ To consolidate and strengthen organization’s position ✓ Provides the strategists of which sectors have a favorable impact on the organization. ✓ Helps organization knows where its stands with respect to its environment. ✓ Helps in formulating appropriate strategy. ✓ Helps in formulating SWOT analysis. PREPARING ETOP ✓ Dividing the environment in different sector.
  5. 5. Saraswathi S. Asst Professor, JSS College for Women, Kollegal 5 ✓ Analyzing the impact of each sector on the organization. ✓ Subdividing each environmental sector into sub factor. ✓ Impact of each sub sector on organization in form of a statement. ETOP, PROFILE INVOLVES:- The profile is a technique of environment analysis was organizations make of profile of their external environment. ETOP analysis provides information about environment threats & opportunities & their impact on strategic opportunities for the company. The profile contains mainly 3 issues, they are- 1] Forecasting:- Forecasting means predicting the future events & analyzing their impact on present plans business organizations analyze the environment but applying various techniques to forecast government is used to formulate business plans & strategies. 2] Verbal Written information:- Verbal information is collected but hearing & written information is collected by reading articles, journals, newspaper, newsletters etc.., common sources of information are radio, television, workforce, outsiders. It informs changes in the environment & prepares business organization to incorporate than in their business plans & strategies. 3] Management Information System [MIS]:- It is a formal method of making available to management to management the accurate & timely information necessary to facilitate the decision making proceeds & enable the organization planning, control & operational functions to be carried out effectively. It helps in making decisions based on future environment. The profile involves,- Environment, Threats & Opportunities Profile A] ENVIRONMENTAL FACTORS It presents the impact of each environmental factor like economic, political & social on the organization. The important factors are as follows,- 1] Economic factors: ✓ General economic condition. ✓ Rate of inflation. ✓ Interest rate/Exchange rate 2] Technological factors: ✓ Source of technology. ✓ Technological development. ✓ Impact of technology 3] Socio cultural factors: ✓ Demographic characteristics. ✓ Social attitudes. ✓ Education level, awareness, and consciousness of rights. 4] Environmental factors: ✓ Weather change ✓ Climatic change. ✓ Demand related factors. ✓ Suppliers related factors. 5] Political factors: ✓ Political system. ✓ Political structure, its goals and stability. ✓ Government policies , degree of intervention 6] Legal factors: ✓ Policies related to licensing , monopolies. ✓ Policies related to export and import. ✓ Policies related to distribution and pricing.
  6. 6. Saraswathi S. Asst Professor, JSS College for Women, Kollegal 6 Sl.No FACTORS COULD INVLOVE 1 Political international trade taxation policy 2 Economic interest rates, exchange rates, national income, inflation, unemployment, Stock Market 3 Social ageing population, attitudes to work, income distribution 4 Technological innovation, new product development, rate of technological obsolescence 5 Environmental global warming, environmental issues 6 Legal competition law, health and safety, employment law B] THREAT MATRIX The threats restrain them from entering into new business lines. C] OPPURINITY MATRIX The opportunity of the firm indicates new lines of the business. HIGH LOW HIGH LOW ATTRACTIVENESS PROBABILITY OF OCCURRENCE ATTRACTIVENESS HIGH HIGH LOW LOW PROBABILITY OF OCCURRENCE
  7. 7. Saraswathi S. Asst Professor, JSS College for Women, Kollegal 7 ETOP: PROS AND CONS or ADVANTAGES / DISADVANTAGES Pros ✓ Help to determine the key factor of threats and opportunities. ✓ Good tool to qualify the factors related to company’s strategy. ✓ Can consider many factors for each special case. ✓ It provides a clear of which sector & subsectors have favorable impact on the organization. ✓ It helps to interpret the result of environmental analysis. ✓ The organization can assess its competitive position. ✓ Appropriate strategies can be formulated to take advantage of opportunities & counter the threat. Cons ✓ It doesn’t show the interaction between the factors. ✓ It can’t reflect the dynamic environment. ✓ It’s a subjective analysis tool EXAMPLE : MILLIPORE COMPANY LTD, India ABOUT MILLIPORE Millipore is a multinational company, high technology, Bioscience Company that provides technologies, tools and services for the development and production of new therapeutic drugs. The company, headquartered in Bedford, England. It serves the worldwide life science research, biotechnology and pharmaceutical industries. In India its subsidiary company was located in Bangalore. MILLIPORE PRODUCT LINE Life science, Drug discovery, Sample preparations, Lab water, Process development, Bio production, & Process monitoring. ETOP – Profile of the company A] Environmental factor Sl.no Factors Nature of Impact Impact of each sector 1 Economic •Fluctuation in exchange rate •Increasing rate of inflation •Worsening economic conditions 2 Technological •Market Leaders Strong R&D program •Better solution providers •New “ Intergral”-2008 3 Political No significant change. 4 Legal Following FCPA (Foreign corrupt practices act). Strict IPR laws – No poaching 5 Socio cultural No significance change
  8. 8. Saraswathi S. Asst Professor, JSS College for Women, Kollegal 8 6 Competitive Competition particularly from low priced products. 7 Demand related Downfall in demand due to low priced products. Containment of rising healthcare cost. 8 Governmental policies No excise duty, only vat for product manufactured in India - up arrows indicate favorable impact - horizontal arrows indicate a neutral impact - Down arrows indicate unfavorable impacts B] Threat Matrix 1} Competition particularly from low priced products. 2} Concentration majorly on big Fishes. 1} IPR laws are not so strong in INDIA. 2} Switching over form process patent to product patent 3} Patent law not well defined 1} Expensive products. 2} Bad rapport with customers (unsatisfied customer). 1} Lack of geographical division (remote areas). 2} Poor dealer network. 3} Low investment in marketing. C] Opportunity Matrix 1} Market leaders – brand value and brand awareness. 2} Special offers with OEM’s. (Agilent). 1} Provide customized protocol support. 2} Dedicated service team. (Toll Free numbers). 1} Large installation base. 2} New low budget product lines. 1} Saturation point of market is far away 2} New markets are opening ORGANIZATIONAL CAPABILITY PROFILE [OCP] Organizational capacity is the inherent capacity or potential of an organization to use its strength and overcome its weakness in order to exploit opportunities and face threats its external environment. It is a potential or capacity to perform better without capabilities resources are of no value. Organizational capacity factors are strategic strengths and weaknesses existing in different functional areas within an organization, which are of crucial importance to strategy formulation and implementation. Any advantage a company has over its competitor - it can do something which they cannot or can do better Opportunity for an organization to capitalize - low cost, Superior Quality, R&D skills etc
  9. 9. Saraswathi S. Asst Professor, JSS College for Women, Kollegal 9 The OCP describes the skills, knowledge & resources that enable your company to an provide quality products or services to customers. The profile provides useful background information for your marketing & corporate communications you can also use it as part of a formal bid document to win conterentiate. Organization capability: ✓ Capacity & ability to use unique competencies to excel in a particular field. ✓ Ability to use its ‘S’ & ‘W’ to exploit ‘O’ & face ‘T’ in its external environment. ✓ Organsational capabilities produces strategic advantage ✓ Strength & Weakness provides organizational competencies, S & W depends upon 2 factors:- (a) Organization resources • The resources are tangible & intangible resources • Physical & human cost, availability - strength / weakness (b) Organization behavior: Identity & character of an organization leadership, Mgt. Philosophy, values, culture, Quality of work environment, Organization climate, organization politics etc. Resource Behavior Distinctive competence The organization into six largely accepted and commonly understood functional areas. These are: i. Finance ii. Marketing iii. Operations iv. Personnel v. Information and vi. General management Strategic advantage Organizational Resources Organizational capability Competencies Synergistic effects Strength & Weakness Organizational Behaviors
  10. 10. Saraswathi S. Asst Professor, JSS College for Women, Kollegal 10 1] Financial capacity: The factors relate to the availability, usages & management of funds & all allied aspects that have a bearing on an organization’s capacity to implement its strategies. (a) Sources of funds (b) Usage of funds (c) Management of funds Some of important factors which influence the financial capacity of any organization are as follow: ✓ Factors related to usage of funds capital structure, procurement of capital, controllership, financing and relationship with leaders, bankers and financial institutions. ✓ Factors related to management of funds financial, accounting and budgeting systems; management control system, state of financial health, cash, inflation, credit, return and risk management; cost reduction and control and tax planning and advantages 2] Marketing capacity Marketing capability factors relate to the pricing, promotion and distribution of products or services, and all the allied aspects that have a bearing on an organization's capacity and ability to implement its strategies. (a) Product related (b) Price related (c) Promotion related (d) Integrative & Systematic Some of the important factors which influence the marketing capacity of any organization are as follows. ✓ Product related factors: Variety, lit differentiation, mix quality, positioning, advantages, etc.. ✓ Price related factors: pricing objective, policies, changes, protection, advantages, etc.. ✓ Place related factors: distribution, transportation ad logistics, marketing channels , marketing intermediaries, etc.. ✓ Promotion related factors: Promotional tools, sales promotion, advertising public relations, etc. ✓ Integrative and systemic factors: marketing mix, market standing, company image, marketing organization, marketing system, marketing management information system etc.. 3] Operation capacity: Operations capacity factors relate to the production of products or services, use of material resources and all allied aspects that have a bearing on an organization's capacity and ability to implement its strategies. (a) Production system (b) Operation & Control system (c) R&D system Some of the important factors which influence the operations capacity of an organization are as follows: ✓ Production system: capacity, location, layout product or service design, work systems, degree of automation, extent of vertical integration, etc.. ✓ Operations and control system: aggregate production planning, material supply, inventory, cost and quality control, maintenance systems and procedures etc.. 4] Personal capacity: Personal capacity factors relate to the existence and use of human resources and skill, and all organization’s capacity and ability to implement its strategies. (a) Personnel system (b) Organization & employee characteristics
  11. 11. Saraswathi S. Asst Professor, JSS College for Women, Kollegal 11 (c) Industrial Relations Some of the important factors which influence the personal capacity of any organization are as follows. ✓ The personal system: systems for manpower planning, selection, development, compensation, communication and appraisal, position of the personnel department within the organization, procedures and standards etc.. ✓ Organizational and employees characteristics: Corporate image, quality of managers, staff and workers perception about and image of the organization as an employer, availability of developmental opportunities for employees, working conditions, etc.. ✓ Industrial relations: union management relationship, collective bargaining, safety, welfare and security, employee satisfaction and morale, etc.. 5] Information management capacity: Information management capacity factor relate to the design and management of the flow of information from outside into, and within an organization for the purpose of decision-making and all allied aspects that have a hearing on an organizations capacity and ability to compliment its strategies. (a) General Management Systems (b) External Relations (c) Organization climate Some of the important factors which influence the Information management capacity of any organization are as follows. ✓ Acquisition and retention of information ✓ Processing and synthesis of information ✓ Retrieval and usage of information ✓ Transmission and dissemination 6] General Management capacity: General management capacity relates to the integration, coordination and direction of the functional capabilities towards common goals and all allied aspects that have a bearing on an organization capacity and ability to implement its strategies. Some of the important factors which influence the general management capacity of any organization are as follows. ✓ General management system ✓ General managers ✓ External relationship PROFILE OF OCP The OCP is drawn in the form of a chart, the strategists are required to systematically assess the various functional areas & subjectively assign values to different functional capacity factored & sub factor as long a scale ranging from values of -5 to +5. You to draft the profile, 1st identify the capability that are important to your customer & that differentiates you from competitors & then incorporate them in a presentation or document. 1] Customer focus:- Your capability profile must incorporate the information customers & prospects need, when they are evaluating your company as a potential supplier or business partnered customers need to know about your current capability current capability & your future direction. They want to know that you have the technical expertise & market understanding to supply quality products that meet their performance requirement.
  12. 12. Saraswathi S. Asst Professor, JSS College for Women, Kollegal 12 2] People:- The skills & knowledge of your people represent an important part of your organizational capability. Describe the qualifications & experience of key staff, together with any outstanding achievement such as awards for innovation, involvement with industry associations or leadership in a particular discipline, the skills of your business partners also contribute to your capability. 3] Resources:- Many other assets contribute to your organizational capability, including patents, products manufacturing facilities, information systems & distribution network. Those assets differentiate you from competitors, particularly if they are hard to match, customize the assets to your customers needs a customer with sites in a number of different countries. 4] Stability:- Stability is an important aspect of organizational capacity, you can build confidence in your customers by demonstrating that you have a stable management team capable of managing your business effectively. METHODS & TECHNIQUES Inclusive, long term: ✓ Financial Analysis - Ratio Analysis, EVA, ABC ✓ Key factor rating - Rating of different factors through different questions ✓ Value chain analysis ✓ VRIO framework ✓ BCG, GE Matrix , PIMS, McKinsey7S ✓ Balanced Scorecard ✓ Competitive Advantage Profile ✓ Strategic Advantage profile ✓ Internal Factor Analysis Summary [A] FINANCIAL ANALYSIS ✓ Ratio Analysis ✓ Economic value added[ EVA] o NOPAT (Net Operating Profit After Tax) o WACC (Weighted Average Cost Of Capital ) ✓ Activity Based Costing[ABC] o activity in Value chain o specific activities [B] VRIO FRAMEWORK A resource is an asset, skill, competency or knowledge controlled by the corporation. A resource is strength if it provides competitive advantage e.g. patents, brand name, economies of scale, idea-driven, standardized mass production. It is an analytical technique brilliant for the evaluation of company’s resources & thus the competitive advantage. e.g. patents, brand name, ✓ Value: Does it provide competitive advantage? ✓ Rarity: Do other competitors possess it? ✓ Imitability: Is it costly for others to reproduce? ✓ Organization: Is the firm organized to exploit the resource?
  13. 13. Saraswathi S. Asst Professor, JSS College for Women, Kollegal 13 VRIO - STEPS 1. Identify: firms resources- S&W. 2. Combine: firm’s strength into specific capabilities. 3. Appraise- profit potential, sustainable competitive advantage, ability to convert it to a profitable proposition 4. Select strategy - firm’s resources& capability relative to external opportunity. 5. Identify: resource gaps and invest in upgrading weaknesses [C] PIMS {BCG, GE Matrix, McKinsey7S – Refer below} The Profit Impact of Market Strategies (PIMS) is a comprehensive, long-term study of the performance of strategic business units (SBUs) in thousands of companies in all major industries. The PIMS project began at General Electric in the mid-1960s. It was continued at Harvard University in the early 1970s, and then was taken over by the Strategic Planning Institute (SPI) in 1975. Since then, SPI researchers and consultants have continued working on the development and application of PIMS data. According to the SPI, the PIMS database is- "a collection of statistically documented experiences drawn from thousands of businesses, designed to help understand what kinds of strategies (e.g. quality, pricing, vertical integration, innovation, advertising) work best in what kinds of business environments. The data constitute a key resource for such critical management tasks as evaluating business performance, analyzing new business opportunities, evaluating and reality testing new strategies, and screening business portfolios.” The main function of PIMS is to highlight the relationship between a business's key strategic decisions and its results. Analyzed correctly, the data can help managers gain a better understanding of their business environment, identify critical factors in improving the position of their company, and develop strategies that will enable them to create a sustainable advantage. PIMS principles are taught in business schools, and the data are widely used in academic research. As a result, PIMS has influenced business strategy in companies around the world TOWS Matrix or Analysis A TOWS analysis involves the same basic process of listing strengths, weaknesses, opportunities and threats as a SWOT analysis, but with a TOWS analysis, threats and opportunities are examined first and weaknesses and strengths are examined last. After creating a list of threats, opportunistic, weaknesses and strengths, managers examine ways the company can take advantage of opportunities and minimize threats by exploiting strengths and overcoming weaknesses. [D] BALANCED SCORECARD It has been proposed & popularized by Robert. S. Kaplan & David. P. Norton. It is a performance tool which “provides executives with a comprehensive framework that translates a company’s strategic objectives into a coherent set of performance measures” The scorecard consists of 4 different perspective performance measures such as,- ✓ Financial perspective ✓ Customer perspective ✓ Internal business perspective ✓ Innovation & learning perspective
  14. 14. Saraswathi S. Asst Professor, JSS College for Women, Kollegal 14 (1) Financial perspective ✓ Return on capital employed ✓ Cash flow ✓ Project profitability ✓ Profit forecast reliability ✓ Sales backlog (2) Customer perspective ✓ Pricing index ✓ Customer satisfaction index ✓ Customer ranking survey ✓ Market share (3) Internal business perspective ✓ Hours with customers on tender success rate ✓ Rework ✓ Safety incident index ✓ Project performance index ✓ Project close out cycle (4) Innovation & learning perspective ✓ % revenue from new services ✓ Rate of improvement index ✓ Staff attitude survey ✓ Employee suggestions ✓ Revenue per employee PROBLEMS OF BALANCED SCORE CARD SOLVES ✓ Unclarified vision & strategy ✓ Non – alignment of long term & short term goals ✓ Measurement issues ✓ Communication gap ✓ Excessive focus on financial parameters ✓ Non availability of feedback [E] COMPETITIVE ADVANTAGE PROFILE The competitive profile matrix is a strategic analysis that allows you to compare your company to your competitors, in such a way as to reveal your relative strengths & weaknesses. Inform your strategic decision making. It compares a company & its rivals. The matrix reveals strengths & weaknesses for each company, & critical success factors show areas of success or areas for improvement. A superiority gained by an organization when it can provide the same value as its competitors but at a lower price, or can charge higher prices by providing greater value through differentiation. Competitive advantage results from matching core competencies to the opportunities. It is the reason behind loyalty, & why you prefer one product or service over another. There are 3 different types of competitive advantages that companies can actually use. ✓ Cost differentiation ✓ Product/Service differentiation ✓ Niche strategies Advantages Disadvantages ✓ Forces organization to look ahead ✓ Improved fit with the environment ✓ Better use of resources ✓ Provides a direction/ vision ✓ Helps monitor progress ✓ Ensures goal congruence ✓ It can be time consuming & expensive ✓ It may be difficult in rapidly changing markets ✓ It can become a straight jacket ✓ Some unplanned for opportunities maybe missed ✓ It can become bureaucratic ✓ It is less relevant in a crisis. [F] STRATEGIC ADVANTAGE PROFILE {Refer below}
  15. 15. Saraswathi S. Asst Professor, JSS College for Women, Kollegal 15 [G] INTERNAL FACTOR ANALYSIS SUMMARY It means Internal Factor Evaluation matrix, is a popular strategic management tool for auditing or evaluating major internal strengths & internal weaknesses in functional areas of an organization or a business. It also provides a basis for identifying or evaluating relationships among those areas. An internal analysis is an exploration of your organizations competency, cost position & competitive viability in the market place. Conducting an internal analysis often incorporates measures that provide useful information about your organizations a SWOT analysis. EXAMPLES OF ORGANIZATIONAL CAPABILITY PROFILE 1] Financial Capability Bajaj - Cash Management LIC - Centralized payment, decentralized collection Reliance - high investor confidence Escorts - Amicable relation with FIS (world's top-ranked technology provider to the banking industry) 2] Marketing Capability Hindustan Lever - Distribution Channel IDBI/ICICI Bank -Wide variety of products Tata - Company / Product Image 3] Operations Capability Lakshmi machine works - absorb imported technology Balmer & Lawrie - R&D - New specialty chemicals 4] Personnel Capability Apollo tyres - Industrial relations problem 5] General management capability Malayalam Manaroma - largest selling newspaper Unchallenged leadership - Unified, stable Best edited & most professionally produced STRATEGIC ADVANTAGE PROFILE [SAP] It is also known as SAP. It shows strength & weaknesses of an organization. Preparation of SAP is very similar process to the ETOP. SAP is a summary statement which provides an overview of the advantages & disadvantages in key areas likely to affect future operations of a firm. It is a total for making systematic evaluation of strategic advantage factors which are significant for the company in its environment. SAP is the technique of analyzing the internal factor of the organization by preparing a critical picture of different capacity factors. It is a relative strength of the company over its competitors. Every firm has strategic advantage and disadvantages for, Example Large firm have financial strength but they tent to move slowly, compared to smaller firms, and often cannot react to change quickly. No firm is equally strong in all its functions. In other words, every firm has strength as well as weakness. The strategists must be aware of the strategic advantages or strengths of the firm to be able to choose of the best opportunity for the firm. On the other hand they must regularly analyze their strategic disadvantages or weaknesses in order to face environmental threats effectively. Example
  16. 16. Saraswathi S. Asst Professor, JSS College for Women, Kollegal 16 The strategist should look to see if the firm is stronger in these factors than its competitors. When a firm is strong in the market, it has a strategic advantage in launching new products or services & increasing market share of present products & services. There are generally 5 functional areas in most of the organizations. These areas are:- ✓ Marketing and Distribution ✓ R & D and Engineering ✓ Production and Operations management ✓ Corporate resources and personnel ✓ Finance and Accounting 1] Strategic advantage factors: Marketing and Distribution 1. Efficient and effective market research system 2. The product service mix: quality of product and service and service 3. Strong new - product and new- service leadership 4. Patent protection (or equivalent legal protection for life) 5. Positive feeling about the firm and its products and services on the part of the ultimate consumer 6. Efficient and effective packaging of products (or the equivalent for service) 7. Effective pricing strategy for products and services 8. Efficient and effective marketing promotion activities other than advertising 9. Efficient and effective service after purchase 10. Efficient and effective channel of distribution and geographical coverage, including internal efforts. 2] Strategic advantage factors: R & D and Engineering 1. Basic research capabilities within the firm 2. Excellence in product design 3. Excellence in process design and improvement 4. Superior packaging development being created 5. Improvement in the use of old or new materials 6. Ability to meet design goals and customer requirements 7. Trained and experienced technicians and scientists 8. Work environment suited to creativity and innovation 9. Well – equipped laboratories and testing facilities 3] Production and Operations management 4] Corporate resources and personnel [ 3, 4 & 5 refer OCP] 5] Finance and Accounting DIFFERENT APPROACHES The different approaches are there to develop as competitive advantage. In each of these approaches the principal point is to avoid doing the same thing as the competition on the same bottle ground. So the analyst needs to decide which of these approaches might be pursued to develop a sustainable distinctive competence. 1] Key Success Factors (KFS):- It is to compete based on existing strengths. The form can gain strategic advantage if it focuses resources on one crucial point.
  17. 17. Saraswathi S. Asst Professor, JSS College for Women, Kollegal 17 2] Avoids head – on competition:- The 2nd approach is still based on existing strengths but avoids head on competition. The firm must look at its own strength which are different or superior to that of the competition & exploit this relative superiority to the fullest. Ex- makes use of the technology; sales network & so on of those of its products which are not directly competing with the products of competitors. 3] Unconventional Approach:- To compute directly with a competitor, it is used for well established, stagnant industry. It may be needed to upset the key factors for success that the competitor has used to build on advantage. The starting point is to challenge accepted assumption about the way business is done & gain a novel advantage by creating new success factors. 4] Means of Innovations:- It can obtain by means of innovation which open new markets or result in new products. This approach avoids head on competition but requires the firm to find new & creative strengths. Innovation often involves market segmentation & finding new ways of satisfying the customer’s utility function. PROFILE OF SAP It shows in way of chart of each organizations strength & weaknesses on the basis of its different factors. Here we prepare a profile about hoe our company is superior in comparison to other companies. Here we are looking at the environmental aspects & preparing the strategy which can relate our strengths to our opportunities. It enables us to focus on our competencies (strengths) & how to use them. FUNCTIONAL AREA CORE FACTORS ( + ) or ( - ) Production & operation Good production facilities Old plant & machinery ( + ) ( - ) Personal factors Young & motivated force Poor union relation ( + ) ( - ) Finance & Accounting Tax holiday Costly finance ( + ) ( - ) Marketing operations Effective communication mix Costly employees Rich experiences in market ( + ) ( - ) ( + ) R & D & Engineering No design protection Well developed laboratory Highly qualified research staff ( - ) ( + ) ( + ) Organization system High tech MIS Effective delegation & decentralization No. MBE ( + ) ( + ) ( - ) EXAMPLE OF SAP A picture of the more critical areas which can have a relationship of the strategic posture of the firm in future of TATA DOCOMO CAPABILITY FACTORS NATURE OF IMPACT COMPETITIVE STRENGTH / WEAKNESS Marketing 1st to launch 1paise/per second & applicable for both postpaid & prepaid. Leveraging Tata indicom’s distribution channels. Launched popular advertisement campaign “Keep it Simple Silly” & hired Ranbir Kapoor as brand mascot.
  18. 18. Saraswathi S. Asst Professor, JSS College for Women, Kollegal 18 Operations Rated congestion free, Innovative tariff plans, first to introduce 3G, bilateral agreement with different operators to share network. Personal Set up an institute in record 6 years, PMS was designed, won various HR awards for its HR policies General High quality experienced top management take proactive Finance 11% market share, 4th largest in India. EBITDA for each customer was around R.75 which was much less than industry average of 110-120. Recently increased its tariff rates. R & D Invested about 9700 crore in the past two years for GSM network rollout across the country. NTT Docomo is planning to add a R&D centre in India to produce value added services. A M&A’s could also be on the cards for Tata Docomo. Business line reported it may choose inorganic growth. First to launch 3G & 1st to Conduct physical 4G trails in India. CORPORATE PORTFOLIO ANALYSIS When the company is in more than one business, it can select more than one strategic alternative depending upon demand of the situation prevailing in the different portfolios. It is necessary to analyze the position of different business of the business house which is done by corporate portfolio analysis. Portfolio Analysis:- Harry Markoulifz 1st developed portfolio analysis in his 1952, in article “portfolio selection” published in “The Journal of Finance”. Subsequently, his ideas were further developed by researchers throughout the latter half of the 20th century. Portfolio analysis is an analytical tool which views a corporation as a basket or portfolio of products or business units to be managed for the best possible returns. When an organization has a number of products in its portfolio, it is quite likely that they will be in different stages of development. Some will be relatively new & some much older. Many organizations will not wish to risk having all their products at the same stage of development. It is useful to have some products with limited growth but producing profits steadily, & some products with real growth potential but may still be in the introductory stage. Indeed, the products that are earning steadily may be used to fund the development of those that will provide the growth & profits in the future. So the key strategy is to produce a balanced portfolio of products, some with low risk but dull growth & some with high risk but great potential for growth & profits. This is what we call as portfolio analysis. Set of techniques that help strategists in taking strategic decisions with regard to individual products or businesses in a firm’s portfolio. It is primarily used for competitive analysis and strategic planning in multi- product and multi business firms. Adopting a portfolio analysis, resources could be targeted at the corporate level to those business that posses the greatest potential for creating competitive advantage. AIM OF PORTFOLIO ANALYSIS ✓ To analyze its current business portfolio & decide which businesses should receive more or less investment. ✓ To develop growth strategies, for adding new businesses to the portfolio. ✓ To decide which business should not longer be retained
  19. 19. Saraswathi S. Asst Professor, JSS College for Women, Kollegal 19 BALANCING THE PORTFOLIO Balancing the portfolio means that he different products or businesses in the portfolio have to be balanced with respect to 4 basic aspects- ✓ Profitability ✓ Cash flow ✓ Growth ✓ Risk This analysis can be done by any of the following technologies, they are – 1] BCG MATRIX 2] GE 9 CELL MATRIX [A] BCG MATRIX [BOSTON CONSULTING GROUP] BCG means Boston Consulting Group, Matrix is developed by Bruce Henderson of the Boston Consulting Group in the early 1970’s. It is also called as the “Growth Share Matrix”. This is the most popular & simplest matrix to describe the corporation’s portfolio of businesses or products. According to this technique, business or products are classified as low or high performance depending upon their market growth rate & relative market share. The BCG matrix helps to determine priorities in a portfolio in a product portfolio. Its basic purpose is to invest where there is growth from which the firm can benefit, & divest those businesses that have low market & low growth prospects. ✓ Enhances multi-divisional firm in formulating strategies ✓ Autonomous divisions = business portfolio ✓ Divisions may compete in different industries ✓ Focus on market-share position & industry growth rate To understand the Boston Matrix you need to understand how market share & market growth interrelated. Each of the products or business units is plotted on a two dimensional matrix consisting of - ✓ Relative Market Share (RMS) ✓ Market Growth Rate (MGR) 1] Market Share Market share is the percentage of the total market that is being serviced by your company measured either in the revenue terms or unit volume terms. It is ratio of the market share of the concerned product or business unit in the industry divided by the share of the market leader. The higher your market share, the higher proportion of the market you control. Business Unit Sales this year RMS = -------------------------------------- Leading rival sales this year 2] Market Growth Rate Market Growth is used as a measure of a market’s attractiveness. It is the percentage of market growth, by which sales of a particular product or business unit has increased. Markets experiencing high growth are ones where the total market share available is expanding & there is plenty of opportunity for everyone to make money.
  20. 20. Saraswathi S. Asst Professor, JSS College for Women, Kollegal 20 Individual Sales this year – Individual sales last year MGR = ------------------------------------------------------------------- Individual Sales last year WHY BCG MATRIX To asses ✓ Profile of product /business ✓ Cash demands of products ✓ The development cycle of product ✓ Resource allocation & divestment decisions MAIN STEPS OF BCG MATRIX ✓ Identifying & dividing a company into SBU ✓ Assessing & comparing the prospects of each SBU according to two criteria 1) SBU’s relative market share 2) Growth rate of SBU’s industry ✓ Classifying the SBU’s on the basis of BCG matrix ✓ Developing strategic objective for each SBU ANALYSIS OF THE BCG MATRIX It is portfolio planning model which is based on the observation that company’s business unit can be classified in to four categories. It is based on the combination of market growth & market share relative to the next based competitor. BCG matrix is thus a snapshot of an organization at a given point of time & does not reflect businesses growing over time. The matrix reflects the contribution of the products or business units to its cash flow. Based on this analysis, the products or business units are classified as - ✓ Stars ✓ Cash cows ✓ Question Marks ✓ Dogs
  21. 21. Saraswathi S. Asst Professor, JSS College for Women, Kollegal 21 1) STARS (HIGH MARKET GROWTH, HIGH MARKET SHARE) Stars are products that enjoy a relatively high market share in a strongly growing market. They are potentially profitable & may grow further to become an important product or category for the company. The firm should focus on & invest in these products or business units. ✓ High market growth rate means they need heavy investment ✓ High market share means they have economics of scale & generate large amount of cash but they need more cash than they generate The general features of stars are – ✓ Stars are leader in business ✓ They also require heavy investment to maintain its large market share. ✓ It leads to large amount of cash consumption & cash generation. ✓ Attempts should be made to hold the market share otherwise the star will become a cash cow. STRATEGIC CHOICES: Vertical integration, horizontal integration, market penetration, market development, product development 2) CASH COWS ( LOW MARKET GROWTH, HIGH MARKET SHARE) These are the product areas that have high relative market share but exist in low growth markets. The business is mature & it is assumed that lower levels of investment will be required. On this basis, it is therefore likely that they will be able to generate both cash & profits. Such profits could then be transferred to support the stars. If it lose market share it may become as dogs ✓ Low market growth rate means market is no longer growing, no efforts or investments are necessary to maintain the status quo. ✓ High market share means may have a relatively high market share & bring in healthy profits. The general features of cash cows are - ✓ They are foundation of the company & often the stars of yesterday.
  22. 22. Saraswathi S. Asst Professor, JSS College for Women, Kollegal 22 ✓ They generate more cash & profits than required ✓ The business is mature & needs lower levels of investment. ✓ Profits are transferred to support stars/ question marks. ✓ They extract the profits by investing as little cash as possible ✓ They are located in an industry that is mature not growing or declining ✓ The danger is that cash cows may become under supported & begin to lose their market. STRATEGIC CHOICES: Product development, diversification, divestiture, retrenchment 3) QUESTION MARKS (HIGH MARKET GROWTH, LOW MARKET SHARE) It is also called as Problem Children or Wild Cats. These are products with low relative market share in high growth markets. These businesses are called question marks because the organization must decide whether to strengthen them or to sell them. ✓ High market growth rate means that considerable investment may still be required. ✓ The low market share will mean that such products will have difficulty in generating substantial cash & compete in high growth industry. The decision to strengthen (intensive strategies) or divest. The general features of Question Marks are - ✓ Cash needs are high ✓ Cash generation is low ✓ Most business start of as question marks ✓ They will absorb great amount of cash if the market share remains unchanged (low) ✓ Question marks have potential to become star & evenly cash cow but can also become dog. ✓ Investment should be high for question marks. STRATEGIC CHOICES: Market penetration, market development, product development, divestiture 4) DOGS (LOW MARKET GROWTH, LOW MARKET SHARE) These products are that have low market shares in low growth businesses. These products will need low investment but they are unlikely to be major profit earners. In practice, they may actually absorb cash required to hold their position. They are often regarded as unattractive for the long term & recommended for disposal. Turnaround can be one of the strategies to pursue because many dogs have bounced back & become viable & profitable after asset & cost reduction. The suggested strategy is to drop or divest the dogs when they are not profitable. ✓ Low market growth rate means market is no longer growth & regarded as unattractive for the long term disposal & they tries to absorb cash. ✓ The low market share means products will have decline in generating substantial cash. The general features of Dogs are - ✓ Dogs are the cash traps ✓ Dogs do not have potential to bring ✓ High cost – Low quality ✓ Business is situated at a declining stage ✓ They are not profit earners STRATEGIC CHOICES: Retrenchment, liquidation, divestiture BENEFITS ✓ BCG matrix is simple, easy to perform & easy to understand
  23. 23. Saraswathi S. Asst Professor, JSS College for Women, Kollegal 23 ✓ It is quantifiable ✓ It draws attention to the cash flows ✓ It draws attention to the investment needs ✓ It helps to quickly & simply screen the opportunity open to you, & help you think about how you can make the most of them. ✓ It is used to identify how corporate cash resources can best be used to maximize company’s future growth & profitability. ✓ Helps to understand the strategic positions of business portfolio. ✓ It’s a good starting point for further more thorough analysis. LIMITATION ✓ BCG matrix uses only two dimensions relative market share & market growth rate. ✓ It is too simplistic ✓ Problem of getting data on market share & market growth is not strong ✓ High market share does not mean profits all time. ✓ Business with market share can be profitable too. ✓ Business can only be classified to four quadrants; ✓ Does not include other external factors that may change the situation completely. ✓ It denies that synergies between different units exist. EXAMPLE : Hindustan Uni Lever Ltd
  24. 24. Saraswathi S. Asst Professor, JSS College for Women, Kollegal 24 [B] GE 9 CELL MODEL GE means General Electric nine cell matrix. This matrix was developed in 1970’s by General Electric Company with the assistance of the consulting firm, Mckinsey & Co, USA. This is also called GE multifactor portfolio matrix or Directional policy matrix. The GE matrix has been developed to overcome the obvious limitations of BCG matrix. It is a tool used in brand marketing & product management to decide what products to add to the portfolio. It identifies the optimum business portfolio as one that fits perfectly to the company’s strengths & helps to explore the most attractive industry sectors or markets. It identifies the optimum business portfolio as one that fits perfectly to the company’s strengths & helps to explore the most attractive industry sectors or markets. The objective of the analysis is to position each SBU on the chart depending on the SBU’s strength & the attractiveness of the industry sector or market on which it is focused. This matrix consists of nine cells [3*3] matrix used to perform business portfolio analysis as a step in the strategic planning process & is based on 2 key variables: ✓ Business strength ✓ Industry attractiveness 1] Business strength:- It is a competitive strength replaces market share as the dimension by which the competitive position of each SBU is assessed. The business strength is measured by considering such factors as: Relative market share, Profit margins, Ability to compete on price & quality, Knowledge of customer & market, Competitive strengths & weaknesses, Technological capacity, Caliber of management, Brand image, Corporate image, Production capacity, R&D performance, Promotional effectiveness etc., 2] Industry attractiveness:- It replaces market growth as the dimension of industry attractiveness & includes a boarder range of factor other than just the market growth rate. The business strength is measured by considering such factors as: Market size & growth rate, Industry profit margin, Competitive intensity, Economics of scale, Technology, Social, environment, legal & human aspects, Current size of market, Market structure & market rivalry, Demand variability, Global opportunities etc., SPOTLIGHT STRATEGY The 9 cells of the GE matrix represent various degrees of industry attractiveness (high, medium & low) & business strength (strong, average & weak). After plotting each product line or business unit on the nine cell matrix, strategic choices are made depending on their position in the matrix. GE matrix is also called “Spotlight” strategy matrix because the 3 zones are like Green, Yellow & red of Traffic lights.
  25. 25. Saraswathi S. Asst Professor, JSS College for Women, Kollegal 25 1] Green – Grow It indicates invest / expand. If the product falls in green zone, the business strength is strong & industry is at least medium in attractiveness, the strategic decision should be to expand, to invest & to grow. 2] Yellow – Hold It indicates select / earn. If the product falls in yellow zone, the business strength is low but industry attractiveness is high, it needs caution & managerial discretion for making the strategic choice. 3] Red – Harvest It indicates divest / harvest. If the product falls in the red zone, the business strength is average or weak & attractiveness is also low or medium, the appropriate strategy should be divestment. High Medium Low LEADER TRY HARDER DOUBLE OR QUIT GROWTH PROCEED WITH CARE PHASED WITHDRAWAL CASH GENERATOR PHASED WITHDRAWAL DIVESTMENT BUSINESS STRENGTH
  26. 26. Saraswathi S. Asst Professor, JSS College for Women, Kollegal 26 The horizontal axis represents business strength & the vertical axis represents industry attractiveness. Thus products or business units in the green zone are almost equivalent to stars or cash cows, yellow zone are like question marks & red zone are similar to dogs. ADVANTAGES ✓It used 9 cells instead of 4 cells of BCG ✓It considers many variables & does not lead to simplistic conclusions ✓High/Medium/Low & Strong/ Average/ Low classification enables a finer distinction among business portfolio ✓It uses multiple factors to assess industry attractiveness & business strength, which aloe users to select criteria appropriate to their situation. ✓It allows intermediate ratings between high & low & b/w strong & weak ✓It helps in channeling the corporate resources to business & achieving competitive advantage & superior performance. ✓It helps in better strategic decision making & better understanding of business scope. DISADVANTAGES ✓It can get quite complicated & cumbersome with the increase in businesses ✓Though industry attractiveness & business strength appear to be objective, they are in reality subjective judgments that may vary from one person to another. ✓ It cannot effectively depict the position of new business units in developing industry ✓It only provides broad strategic prescriptions rather than specifies of business policy. ✓It tends to obscure business that are become to winners because their industries are entering at exist stage ✓Assessment of business in terms of two factors is not fair. DIFFERENCE BETWEEN BCG & GE MATRIX BCG GE MATRIX ✓ It consists of 4 cells ✓ Business unit is rated against relative market share & industry growth rate ✓ The matrix uses single measure to assess growth & market share ✓ The matrix uses 2 types of classification i,e high & low ✓ Has many limitations ✓ It involves multi products ✓ It is primary tools ✓ It consists of 9 cells ✓ Business unit is rated against business strength & industry attractiveness ✓ The matrix used multiple measures to assess business strength & attractiveness ✓ The matrix uses 3 types of classification i,e high/medium/low & strong/ average / weak ✓ Overcomes many limitations of BCG & is an improvement over it. ✓ It involves multi business units ✓ It is secondary tools EXAMPLE – MARUTI SUZUKI COMPANY ✓Founded in 1981. ✓Maruti 800, Omni, Alto, SX4, Swift desire, Swift, A-star, GPSY, Wagon R, Ritz, etc
  27. 27. Saraswathi S. Asst Professor, JSS College for Women, Kollegal 27 MARKET ATTRACTIVENESS HIGH MEDIUM LOW COMPETITIVE STRENGTH HIGH MEDIUM LOW SWIFT OMNI BALENO A - STAR ALTO SWIFT DEZIRE WAGAN R VERSA SX4 MARKET ATTRACTIVENESS BUSINESS STRENGTH ✓ Size ✓ Growth ✓ Competitive rivalry ✓ Profit levels ✓ Ability to differentiate ✓ Cyclicality ✓ Market diversity ✓ Structure ✓ Market share ✓ Size/ scale ✓ Quality ✓ Technology ✓ Cost base ✓ Brand strength ✓ Customer loyalty ✓ Image, people SWOT ANALYSIS INTRODUCTION A scan of the internal & external environment is an important part of strategic planning process. Environmental factors internal to the firm usually can be classified as strengths [S] or weakness [W] & those external to the firm can be classified as opportunities [O] or threats [T]. Such analysis of the strategic environment is referred to as a SWOT analysis. It involves the collection & portrayal of information about internal & external factors which have or may be have, an impact on business. MEANING SWOT analysis is a strategic planning method used to evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in a business. It involves specifying the objective of the business and identifying the internal and external factors that are favorable and unfavorable to achieve that objective.
  28. 28. Saraswathi S. Asst Professor, JSS College for Women, Kollegal 28 Technique is credited to Albert Humphrey, who lends a research project at Stanford University in 1960’s & 1970’s. It is a non-financial planning tool. It links the analysis in terms of advantages and disadvantages; and the internal and external business environment (in a matrix format). The Strengths and Weaknesses are defined by measures such as market share, loyal customers, level of customer satisfaction and product quality. Opportunities are new potential areas for business in the future, such as new markets, or new conditions in existing markets. Threats describe how the competition, new technology, or other factors in the business environment may affect the business's development. A technique that enables a group or individual to move from everyday problems and traditional strategies to a fresh prospective. SWOT analysis looks at your strengths and weaknesses, and the opportunities and threats your business faces. The SWOT Analysis framework is a very important and useful tool to use in marketing Management and other business applications. As a basic tool its mastery is a fundamental requirement for the marketer, entrepreneur or business person. A clear understanding of SWOT is required for business majors. It is used as framework for organizing & using data & information gained from situation analysis of internal & external environment. AIM OF SWOT ANALYSIS ✓ To help decision makers share & compare ideas ✓ To bring a clearer common purpose & understanding of factors for success ✓ To organize important factors linked to success & failure in the business world ✓ To provide linearity to decision making process allowing complex ideas to be presented systematically. WHO NEEDS SWOT ANALYSIS? They are - 1] JOB HOLDER ✓ When supervisor has issues with work output ✓ Assigned to a new job ✓ New financial year – fresh targets ✓ Job holder seeks to improve performance on the job 2] BUSINESS ✓ When the team has not met its targets ✓ Customer service can be better ✓ Launching a new business unit to pursue a new business ✓ New team leader is appointed 3] COMPANY ✓ When revenue, cost & expense targets are not being achieved ✓ Market share is declining ✓ Industry conditions are unfavorable ✓ Launching a new business venture THREE STAGES OF A SWOT ANALYSIS 1. Identify. 2. Draw conclusions. 3. Translate into strategic action.
  29. 29. Saraswathi S. Asst Professor, JSS College for Women, Kollegal 29 HOW TO USE THE TOOL To carry out a SWOT analysis, write down answers to the following questions where appropriate, use similar questions & whenever possible, consider your answers from your own point of view & from the point of view of the people you deal with. Strengths: ✓ What advantages does your company have? ✓ What do you do better than anyone else? ✓ What unique or lowest-cost resources do you have access to? ✓ What do people in your market see as your strengths? ✓ What factors mean that you "get the sale"? Weaknesses: ✓ What could you improve? ✓ What should you avoid? ✓ What are people in your market likely to see as weaknesses? ✓ What factors lose you sales? Opportunities: ✓ Where are the good opportunities facing you? ✓ What are the interesting trends you are aware of? Useful opportunities can come from such things as: ✓ Changes in technology and markets on both a broad and narrow scale. ✓ Changes in government policy related to your field. ✓ Changes in social patterns, population profiles, lifestyle changes. ✓ Local events. Threats: ✓ What obstacles do you face? ✓ What is your competition doing that you should be worried about? ✓ Are the required specifications for your job, products or services changing? ✓ Is changing technology threatening your position? ✓ Do you have bad debt or cash-flow problems? ✓ Could any of your weaknesses seriously threaten your business? Therefore, finally carrying out this analysis will often be illuminating both in terms of pointing out what needs to be done & in putting what we might see as a problem into perspective. You can then use a simple matrix. FACTORS POSITIVE NEGATIVE INTERNAL EXTERNAL STRENGTH WEAKNESS OPPOTUNITIES THREATS
  30. 30. Saraswathi S. Asst Professor, JSS College for Women, Kollegal 30 SWOT MATRIX 1] STRENGTH The factors that give an edge for the company over it’s competition. It may contribute includes the availability of resources & their performance ability. It maintenance of persistent market growth & the ability to produce or enter new markets. 2] WEAKNESSES The factors that can be harmful if used against the firm by its competitors. The organization weaknesses are established through failures, losses & the incapability to respond to market changes. Analysis of weaknesses will determine the management strategy to develop & implement the remedial measures. 3] OPPORTUNITIES The favorable situations which an bring a competitive advantage opportunities are normally ample. However, a plan needs to be developed to use these opportunities efficiently & at the appropriate time. 4] THREATS The unfavorable situations which can negatively affect the business. The threats occur from economic, social, political or technological reasons. Technological advancements may render the organization technology as obsolete. The SWOT matrix identifies the Strength, Weaknesses, Threats & Opportunities of a business firm. This formation can be used by the company in many ways in evolving its options for the future. In genral, the company should attempt to:- ✓ Build its strength ✓ Reverse its weaknesses
  31. 31. Saraswathi S. Asst Professor, JSS College for Women, Kollegal 31 ✓ Maximize its response to opportunities ✓ Overcome to its threats. FACTORS POSITIVE NEGATIVE INTERNAL EXTERNAL STRENGTH ✓ Patents, Good reputation ✓ Strong brandname ✓ Cost advantages from proprietary, know – how ✓ Exclusive access to high grade natural resources ✓ Favourable access to distribution networks. WEAKNESS ✓ Lack of patent protection ✓ A weak brand name ✓ Poor reputation among customers ✓ High cost structure ✓ Lack of access to the best natural resources ✓ Lack of access to key distribution channels. OPPOTUNITIES ✓ An unfulfilled customer needs ✓ Arrival of new technologies ✓ Loosering of regulations ✓ Removal of international trade barriers. THREATS ✓ Shifts in consumer tastes away from the firms product ✓ Emergences of substitute products ✓ New regulation ✓ Increased trade business. ADVANTAGES ✓ Consolidate strengths ✓ Minimizes Weaknesses ✓ Helps to Grab Opportunities ✓ Minimizes Threats ✓ Facilitates Planning ✓ Facilitates Alternative Choices ✓ Helps to Innovate ✓ Ensure Survival & Success DISADVANTAGES ✓ It does not show has to achieve a competitive advantage ✓ Provides a static assessment in time ✓ May lead the firm to over emphasize single internal or external factors in formulating strategies. EXAMPLE OF APPLE, Inc. It is a computer company founded in 1976. Its main headquarter is located at 1 infinite Loop, Silicon Valley, California. FACTORS POSITIVE NEGATIVE INTERNAL STRENGTH ✓ Retail store ✓ Products / Branding ✓ Steve jobs ✓ Marketing / advertising WEAKNESS ✓ Non compatibility ✓ Price ✓ proprietary
  32. 32. Saraswathi S. Asst Professor, JSS College for Women, Kollegal 32 EXTERNAL ✓ Innovation OPPOTUNITIES ✓ Stock investments ✓ Jobs moving up THREATS ✓ Copy cat products ✓ Market share – PC’s ✓ Too board ✓ Steve jobs health SYNERGY AND DYSERGY SYNERGISTIC EFFECTS Synergistic effects may be negative or positive we can say it either synergy or dysergy based on its effect an idea that is greater or lesser or lesser than that sum common parts. It helps to develop competencies. Synergistic effects – 2+ 2 = 5 (or 3?) 2 or more strengths –Synergy 2 or more weaknesses – Dysergy Ex: Samsung mobiles – good product range, reasonable price, good promotion & good distribution Ambassador – poor product range & substandard promotion. SYNERGY [ 2 + 2 = 5 ] According to American Heritage Dictionary, the Term “Synergy” is derived from the Greek word “SUNERGOS”, meaning “Working together” or “joint work” Synergy is the creation of a greater than simple than simple sum of its parts. A dynamic state in which combined action is formed over the difference of individual component actions. It also called as “positive synergy”. Synergy means behavior of whole system unpredicted by the behavior of heir parts taken separately”. It is a concept that the whole is greater than the sum of the parts. Synergy is the interaction of multiple elements in a system to produce an effect different from or greater than the sum of their individual’s effects. Synergy definition: Interaction of elements that when combined produce a total effect that is greater than the sum of the individual elements This equation is showing us that if you combine something with another factor the final outcome will be much bigger & more significant. EX: Working together Combined action + Operation = Greater advantage This assumes that the collective advantage to be gained by joining forces is greater than the separate existence of each organization. The basic concept of synergy can be explained through this mathematical formula; 2+2=5 The 2+2=5 effect means that operating independently; each subsystem can produce only 2 units of output. However, by combining their efforts & working together effectively, the 2 subsystems can produce 5 units of output.
  33. 33. Saraswathi S. Asst Professor, JSS College for Women, Kollegal 33 It refers to the combined effects produced by 2 or more parts, elements or individuals. Simply, synergy results when the whole is greater than the sum parts of the parts. It is an advantage to a firm gained by having existing resources which are compatible with new products or markets that the company is developing. If the firm is broken into smaller units performing the same function, this would lead to a reduced output or ultimately increase the costs. Example: Suppose there are 2 persons in the company to carry some load, if each person carries 10kg of material easily from one place to another but unable to carry 15 kg of material. If we combine these both persons working together & effectively, they can carry more than 20 kgs of material from one place to another. This is the synergistic effect where the sum of two is greater than the individuals. WHOM TO COMMUNICATE YOUR SYNERGIES? ✓Employees ✓Shareholders ✓Suppliers and distributors ✓Creditors FEATURES OF SYNERGY ✓Greater capability for organization by combining resources properly (as compared to individual work) ✓Synergy can help organization to work in team to achieve goal effectively with reduction in cost. ✓There will be an optimization of resources which can lead to increased productivity. ✓The whole organization would be greater in capability than the sum of its individual parts. ✓Individual parts may consists of people & units of the organization ✓It will help the firms to work as a team to achieve their goals with increase in their output & reduction in the cost. TYPES OF SYNERGY ✓ Market synergy: Extending products to new markets. Mutually advantageous collaboration of forces to create an enhanced combined result. ✓ Cost synergy: Savings from combinations of common base operations, resources, and facilities ✓ Technological synergy: The transfer and application of technologies to new markets ✓ Management synergy: Complementary skills that make for more effective overall management. It is advantage to be gained where management skills concerning current operations are easily transferred to new operations because of the similarity of same problems in the 2 industries. ✓ Sales synergy: it is used for a product which is obtained through use of common marketing facilities such as distribution channels, sales staff & administration & warehousing. ✓ Operating synergy: it arises from the better use of operational facilities & personnel, bulk, purchasing, a greater spread of fixed costs & the advantages of common learning where the experience gained by employees in making one product can be transferred to making new products. ✓ Investment Synergy: it can be achieved from the joint use of plant, common raw materials stocks, transfer of R & D from one product to another, I .e from the wider use of a common investments in a fixed assets or working capital or research. SYNERGY IS AN IMPORTANT CONCEPT FOR MANAGERS ✓ Reinforces the need to work together in a co operative manner ✓ Organizational units tend to be more successful working together than working alone.
  34. 34. Saraswathi S. Asst Professor, JSS College for Women, Kollegal 34 ✓ Synergy is applied to marketing for measuring overall effectiveness through the coordinated operation of many implements ✓ Greater the synergy a firm can manage to achieve through its selection of products & markets, the more flexible will be its competitive position. DIFFERENT ELEMENTS OF SYSTEMS ✓ Drug synergy ✓ Biological science synergy ✓ Pest synergy ✓ Toxicological synergy ✓ Human synergy ADVANTAGES OF SYNERGY ✓ Increase in market share ✓ Gain efficiency ✓ Political stability ✓ Competitive advantage to firm ✓ Risk reduction ✓ Economics of scale ✓ Greater outcomes ✓ Cooperation by M & A’s or any other strategy ✓ It is created when the combination of buyer & seller eliminations. ✓ Financial benefits – cah stack, debt capacity , tax benefit. DISADVANTAGES OF SYNERGY ✓ Easy theory, practically difficult ✓ Thinking problems due to different groups ✓ Sometimes cost may high ✓ Lack of clarity of roles and responsibilities may lead ambiguity and conflicts ✓ Loss in jobs ✓ Increased number of persons or authorities, longer decision time, increased work EXAMPLE WALT DISNEY COMPANY The Walt Disney Company, benefits greatly from synergy. The company’s movies, theme parks, television programs & merchandising licensing programs all benefit from one another. Its famous movie the Lion King earned over $300 million in box office revenues. In addition Disney earned hundreds of millions more from the sale of licensed Lion King Toys, Clothing & video games. The Lion King stage show at Disney world attracts more guests to the park and the video sold $20 million copies during the 1st week of its release in India. SIMPLE LIST OF SYNERGY CRITERIA CRITERIA YARDSTICK/ MEASURMENT TOOLS ✓ Start up synergy ✓ Skills critical to success, common management skills, common organizational capacities, common equipments & factory timing advantage.
  35. 35. Saraswathi S. Asst Professor, JSS College for Women, Kollegal 35 ✓ Operating synergy ✓ Potential for new joint products. DYSERGY [ 2 + 2 = 3] It is also called as negative synergy & it is opposite of synergy. These are the combined negative attitude or results. These are the combined negative attitude or results. The idea that combined parts have properties that are more or less than the sum of the parts it is called called as dysergy, learning synergy to mean only beneficial effects. 2+2=3 (two plus two is equal to three) less than the sum of the parts, the negative sum of version & leaving synergy to mean only beneficial effects. Not all synergy is positive. The combined negative attitudes & argue over small things of dissatisfied group members can add up to greater trouble than any of the members could have caused individually in any organizations. Mostly sick companies suffer from this negative synergy. Negative synergy It means the combination of efforts results in less output; it can result from due to following reasons, ✓ Inefficient committees ✓ Business units that lack strategic fit & ✓ From other poorly functioning joint efforts. Negative synergy occurs in groups, committees, & other joint efforts for a number of reasons. Groups commonly experience negative synergy because group decisions are often reached more than individual decisions. Negative synergy can also occur in group decisions if an individual is allowed to dominate & control the group decision. The combination of people or business does not necessarily that it will lead to better outcomes, it can also resulting lack of harmony or coordination which can lead to negative synergy. Downsizing & the divestment / cutback of businesses are the part of negative synergy. GAP ANALYSIS The evaluation of the difference between a desired outcome and an actual outcome, this difference is called a gap. In the management literature “GAP Analysis is the comparison of actual performance with potential performance”. Thus it identifies gap b/w the optimized allocation & integration of the inputs (resources) & the current allocation level. GAP analysis in a formal study of what a business is doing currently and where it wants to go in the future. This reveals areas that can be improved. Gap analysis involves determining, documenting & approving the variance b/w business requirements & current capabilities. It is a technique of determining the steps taken to move from the current state to desired future state. Strategic gap analysis attempts to determine what a company should do differently to achieve a particular goal by looking at the time frame, management, budget and other factors to determine where shortcomings lay. After conducting this analysis, the company should develop an implementation plan to eliminate the gaps. GAP analysis provides foundation for measuring investment of time, money and Human resources required to achieve particular outcome. Gap analysis naturally flow from Benchmarking & form other assessment. Once the general expectation of performance in the industry in understand it is possible to compare that expectation with the company’s current level of performance. This comparison becomes the gap analysis. Such analysis can be performed at strategic or operational level of an organization.
  36. 36. Saraswathi S. Asst Professor, JSS College for Women, Kollegal 36 Gap Analysis has also been used as means of classifying how well a product or solution meets a targeted need or set of requirements. In this case, “GAP” can be used as a ranking of “Good”, “Average” & “Poor”. GAP Analysis. Good, Average & Poor GAP analysis can identify gaps in the market. Thus comparing forecast to desired profits to reveals the planning Gap. This represents a goal for new activities in general & new products in particular. The planning Gap can be divided into 3 main elements- 1] Usage Gap: It is the gap b/w the total potential for the market & actual current usage by all consumer in the market. It is most important for brand leaders. 2]Existing Usage: It makes up the total current market from which market shares, for examples are calculated. It usually derives from marketing research most accurately from panel research, but also from adhoc work. Usage Gap = Market potential – Existing usage. 3]Product Gap: It also called as segment or positioning gap. It is the part of the market a particular origination is excluded from because of the product or service characteristics. This may be because the market is segmented & the organization does not have offerings in some segments, in a way that effectively excludes certain potential consumer because competitive offerings are much better placed for these consumers. The product gap may be the main element of the planning gap where an organization can be product inputs hence the emphasis on the importance of correct positioning.
  37. 37. Saraswathi S. Asst Professor, JSS College for Women, Kollegal 37 FUNDAMENTALS OF GAP ANALYSIS 1.Identifying the Current and Future States ✓Current State: The current or present state of an organization be it the total production of organization, resources of the organization etc. ✓Desired future State: The expected state where the organization as reached optimum output and has maximum resources. 2.Describing the GAP: ✓First analyze whether there is a GAP between the current state and desired future state. ✓If there is any GAP found identify the constituents of GAP and the factors contributing for it. ✓Describe the reasons which are actually causing the GAP, by looking at the company’s objectives and strategies. 3.Bridging the GAP: ✓It should list all the possible solutions that can be implemented to fill the GAP between current state and desired future state. ✓The solutions with respect to GAP should be specific and also reflect the objectives of the organization. HOW TO CONDUCT GAP ANALYSIS? There are 10 steps to analysis the gap analysis, they are 1st Step: Establish specific target objectives by looking at the company’s mission statement, strategic goals and objectives. 2nd Step: Analyze the current business process by collecting the relevant data, this includes the basic performance at all levels. 3rd Step: Describe the existing business process. This includes all process of the organization 4th Step: Define the desired future performance position. 5th Step: Measure current performance. 6th Step: Recognize the GAP between current state and desired future state. 7th Step: Design the strategies and methods that are required to attain the desired future state by keeping company’s objectives and mission in mind. 8th Step: Execute the strategies and methods mentioned in the 7th step.
  38. 38. Saraswathi S. Asst Professor, JSS College for Women, Kollegal 38 9th Step: Accept the feedback of the GAP analysis process. As, this helps in proper reviewing of additional GAP’s if any. 10th Step: Monitor and report the progress achieved. ADVANTAGES ✓It is a diagnostic tool, to improve the performance of the organization. ✓This can also be used to compare the results of the past and future states. DISADVANTAGES ✓The desired state becomes unrealistic at certain times. ✓The external environment is overlooked. DIFFERENT METHODS TO CONDUCT GAP ANALYSIS There are mainly 4 types, they are:- ✓ SERVQUAL ✓ ISO 9001:2000 ✓ SAGA(Self Assessment Gap Analysis) ✓ Two Dimensional Analysis 1] SERVQUAL This Method of GAP Analysis consists of set of Questions Divided in Five categories. WHAT DO WE DO WITH THIS SURVEY? Administer the survey to customer and the company. The results will show difference in perceptions between ✓Customers ✓Employees ✓Management Assurance Empathy
  39. 39. Saraswathi S. Asst Professor, JSS College for Women, Kollegal 39 2] ISO 9001:2000 ISO (International Organization for Standardization) is the world's largest developer and publisher of International Standards. Identifying the GAPS with reference to the Standards provided by ISO and Finding out solutions To Fill them. The ISO 9000 family of standards relate to quality management systems. 3] SAGA(Self Assessment Gap Analysis) Rather than sending out a survey as in SERVQUAL, SAGA is a process used to take a close look at an organization’s operations. In SAGA a Company/Process/Approach is Analysed using the Baldrige criteria and the Gaps are found out. What is Baldrige Criteria? Recipients are selected based on achievement & improvement in 7 areas, known as the Baldrige criteria for performance excellence. Leadership: how upper management leads the organisation, & how the organization leads within the community. 4] Two Dimensional Gap Analysis The maintenance of biodiversity requires a wise combination of protection, management, and restoration of habitats at several scales. The solution lies in integration of natural and social sciences in the form of two-dimensional gap analysis, as an efficient tool for biodiversity policies. APPLICATIONS WHERE THE GAP ANALYSIS ARE USED It is used in many areas such as., ✓Production Industry ✓Sales Forecast ✓Fiscal policies ✓Performance of an individual & HRM ✓Quality assurance & Cost control ✓Financial performance ✓Market competitiveness & Management skills EXAMPLE FOR GAP ANALYSIS A] If a small mom and pop restaurant wanted to become a top tourist destination but currently only served locals, a strategic gap analysis would look at the changes required for the restaurant to meet its goals. These changes might include relocating to an area with more tourists, altering the menu to appeal to out-of- town visitors, hiring more staff so the restaurant's hours become more convenient for travelers, and so on. The analysis would also determine how to make these changes happen. If a business doesn't know where it stands in relation to its goals, it is not likely to achieve them. B] A telecom company performs a gap analysis to understand why a number of orders have been delivered late to customers. They map out the current process and identify manual steps, redundant work, overly complex dependences, bottlenecks, technology pain points and process risk and document them as gaps, The Gap analysis also produces an optimized target state process that cuts days from order provisioning time, reduces cost and mitigates risks.
  40. 40. Saraswathi S. Asst Professor, JSS College for Women, Kollegal 40 PORTER'S FIVE FORCES MODEL OF COMPETITION Michael E. Porter. Born in 1947. He is the Professors in Harvard Business School. Porter's introduced the 5 Forces Model. He has Written 18 books & over 125 Articles. He is called as “Guru of modern day business strategy”. The Five Forces model of Porter is an outside-in business unit strategy tool that is used to make an analysis of the attractiveness (value...) of an industry structure. It captures the key elements of industry competition. It is one of the most recognized frameworks for the analysis of business strategy. It is used as theoretical framework derived from Industrial Organization [IO] economics to derive five forces which determine the competitive intensity & therefore attractiveness of a market. This theoretical framework is based on 5 forces, describes the attributes of an attractive industry & thus suggests when opportunities will be greater & threats are less, in these of industries. ✓ Attractiveness in this context refers to overall industry profitability & also reflects upon the profitability of the firm under analysis. ✓ An “Unattractive” industry is one where the combination of forces acts to drive down overall profitability. ✓ A “Very Unattractive” industry would be one approaching “pure competition”, from the perspective of pure industrial economics theory. Porter’s model is based on the insight that a corporate strategy should meet the opportunities & threats in the organizations external environment. This model supports analysis of the driving forces in an industry. It helps to decide how to influence or to exploit particular characteristics of their industry. IMPORTANCE OF 5 FORCES ✓ What strategy to use? ✓ Basic knowledge of business strategy & forces that influence the decision making ✓ Industry analysis [Industry relevance, Industry players, Industry structure, Future changes] ✓ Strategize [Competitive advantage, Cost advantage, Market dominance, New product development, Contraction / Diversification, Price leadership, Global, Re-engineering, Downsizing, De-layering, Restructuring. ✓ Measure and monitor strategy effectiveness The purpose of Five-Forces Analysis The five forces are environmental forces that impact on a company’s ability to compete in a given market. The purpose of five-force analysis is to diagnose the principal competitive pressures in a market and assess how strong and important each one is.
  41. 41. Saraswathi S. Asst Professor, JSS College for Women, Kollegal 41 [1] Threat of New Entrants This force determines how easy it is to enter a particular industry. If an industry it is a profitable are few barriers to enter, rivalry soon intensifies. When more organization compete for same market shares, profit start to fall. It is essential existing organization to create high barriers to enter to deter new entrants. The easier it is for new companies to enter the industry, the more cutthroat competition there will be. Factors that can limit the threat of new entrants are: ✓ Economies of Scale ✓ Product Differentiation ✓ Capital Requirements ✓ Customer Switching Costs ✓ Access to Distribution Channels ✓ Government Policy ✓ Expected Retaliation [2] Bargaining Power of Suppliers The term suppliers comprise all sources for inputs that are needed in order to provide goods & services. The bargaining power of supplier is also described as the market of inputs. Suppliers of raw material, components, labor, and services to the firm can be a source of power over the firm when there are few substitutes. If you’re making biscuits and there is only one person who sells flour, you have no alternative but to buy it from them. Supplier may refuse to work with the firm or charge excessively high prices for unique resources. Suppliers are likely to be powerful if: ✓ Supplier industry is dominated by a few firms ✓ Suppliers’ products have few substitutes ✓ Buyer is not an important customer to supplier ✓ Suppliers’ product is an important input to buyers’ product ✓ Suppliers’ products are differentiated ✓ Suppliers’ products have high switching costs
  42. 42. Saraswathi S. Asst Professor, JSS College for Women, Kollegal 42 [3] Bargaining Power of Buyers The bargaining power of customers determines how much customers can impose pressure on margins & volumes. The bargaining power of customer of is also described as the market of outputs. The ability of customer to put them firm under pressure, which also affects the customer’s sensitivity to price changes. Firms can take to measures to reduce buyer power, such as implementing a loyalty program. The buyer power is high if the buyer has many alternatives. The buyer power is low if they act independently. Their power is likely to be high. Buyer groups are likely to be powerful if: ✓ Buyers are concentrated Purchase accounts for a significant fraction of supplier’s sales ✓ Products are undifferentiated ✓ Buyers face few switching costs ✓ Buyer presents a credible threat of backward integration ✓ Buyer has full information [4] Threat of Substitute Products Threats of Substitute in the Porter’s theory actually mean goods and services that do similar functions. When there is one product successful, it also leads to the creation of other products that can perform the same functions as the product of the same industry. The existence of product outside of the realm of the common product boundaries increase the propensity of customer to switch to attractiveness. ✓ Keys to evaluate substitute products: ✓ Products with improving ✓ price/performance tradeoffs ✓ relative to present industry products [5] Rivalry Among Existing Competitors For most industries the intensity of competitive rivalry is the major determinant of the competitiveness of the industry. Intense rivalry often plays out in the following ways: ✓ Using price competition ✓ Staging advertising battles ✓ Making new product introductions ✓ Increasing consumer warranties or service Occurs when a firm is pressured or sees an opportunity ✓ Price competition often leaves the entire industry worse off ✓ Advertising battles may increase total industry demand, but may be costly to smaller competitors ADVANTAGES ✓ To create a defendable position in an industry, in order to cope successfully with competitive forces. ✓ It provides as Cost leadership (low cost advantage) ✓ It creates differentiation in market or product ✓ The model is strong tool for competitive analysis at industry level. ✓ It provides useful input for performing a SWOT analysis. DISADVANTAGES ✓ Inside-out strategy is ignored (core competence) ✓ It does not cope with synergies and interdependencies of large corporations
  43. 43. Saraswathi S. Asst Professor, JSS College for Women, Kollegal 43 ✓ The environments which are characterized by rapid, it requires more flexible, dynamic or emergent approaches ✓ Sometimes it may be possible to create completely new markets instead of selecting from existing ones (blue ocean strategy) [blue ocean strategy: - it refers to a market for a product where there is no competition or very less competition. EXAMPLE COCO COLA [1] New entrants: New “look-a-like” manufacturers [2] Substitute products: Fashionable new drinks, milk drinks, coffee, beer, . [3] Suppliers: Price and availability of ingredients on world market, Quality speed safety, traceability, flexibility of supply chain. [4] Buyers/consumers: High as a result of intense competition both among branded and unbranded products. Combined purchase power of shops, bars, supermarkets, soda shop, vending machine, restaurants & food stores, convenience store. [5] Traditional competition: Prices of Pepsi, local brands, Market share, Promotional actions of competition MC KINSEY'S 7’S FRAMEWORK It was first mentioned in “The Art of Japanese Management” by Richard Pascal & Anthony Athos in 1981. They have been investigating how Japanese Industry has been so successful. At around the same time that Tom Peters & Robert Waterman were exploring what made a company excellent. The 7s model was born at a meeting of these four authors. It was introduced in Mckinsey’s company HOW TO USE THE MODEL ✓ 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. The 7-s framework of McKinney’s is the value based management model that describes 7 factors to organize a company in a holistic and effective way. Together these factors determine the way in which the corporation operates. Large or small, the strategies are all interdependent, so if you fail to pay proper attention to one of them, this may affect all others as well. The most common uses of the frame work are: ✓ To facilitate organizational framework ✓ Examine the likely effects of structure of future changes within a company ✓ To identify how each area may change in future ✓ To facilitate the merger of an organisation. ✓ Organizational Analysis Tool ✓ Monitor Changes in the Internal Situation of the Organization ✓ It’s a management model that describes 7 factors to organize a company in an holistic & effective way. ✓ Together these factors determine the way in which a corporation operates.
  44. 44. Saraswathi S. Asst Professor, JSS College for Women, Kollegal 44 ✓ Managers should take into account all 7 of these factors, to be sure of successful implementation of a strategy. ✓ It is used b/w each of the S’s one can identify strengths & weaknesses of an organisation. REASONS WHY TO USE THE 7S FRAMEWORK The model is most often used as a tool to assess and monitor changes in the internal situation of an organization. THE 7S ELEMENTS The seven interdependent factors are categorized as either "hard" or "soft" elements. A] Hard Elements: "Hard" elements are easier to define or identify Management can directly influence them. These are,- ✓ Strategy ✓ Structure & ✓ Systems B] Soft Elements: "Soft" elements, on the other hand, can be more difficult to describe. They are less tangible and more influenced by culture. These soft elements are as important as the hard elements if the organization is going to be successful. These are,- ✓ Shared Values, ✓ Skills, ✓ Style & ✓ Staff
  45. 45. Saraswathi S. Asst Professor, JSS College for Women, Kollegal 45 [1] Strategy: Purpose of the business and the way the organization seeks to enhance its competitive advantage. The plan devised to maintain and build competitive advantage over the competition. [2] Systems: The daily activities and procedures that staff members engage in to get the job done. [3] Structure: The way the organization is structured and its units related to each other and who reports to whom. [4] Shared Values: These are also called as "super ordinate goals" when the model was first developed. These are the core values of the company that are evidenced in the corporate culture and the general work ethic. Values and beliefs of the company what an organization wants to achieve, what its purpose, vision, mission, central beliefs & attitude. [5] Skills: The actual skills and competencies of the employees working for the company [6] Style: The style of leadership adopted. [7] Staff: The company's people resources and how they are developed, trained and motivated OBJECTIVES / ADVANTAGES ✓ Improve the performance of A company ✓ Examine the likely effects of future changes within A company
  46. 46. Saraswathi S. Asst Professor, JSS College for Women, Kollegal 46 ✓ Align departments and processes during A merger or acquisition ✓ Determine how best to implement A proposed strategy DISADVANTAGES ✓ What type of analysis is this? Or what is the action triggered after putting your organization into this drill? ✓ Does this give you real guidelines as to how to proceed further, after the analysis is completed? ✓ Do we treat this as a guideline or checklist and proceed with using other techniques to formulate further steps? ✓ There are been other techniques in vogue which have to be used arrive at actionable points. ✓ The above seems abstract list of generic elements in any organization, to improve the each business process, such as marketing, finance, manufacturing etc. EXAMPLE : INFOSYS It Was Co-founded In 1981. It is an Indian Multinational Corporation that provides Business Consulting, information Technology, software Engineering and Outsourcing Services. It is the Third Largest India Based It Services Company By 2014 Revenues and The Fifth Largest Employer. The Market Capitalization Is $31.11 Billion Making It India’s Fifth Largest Publicly Traded Company. The 7’s elements are:- [1] STRATEGY: ✓ What is the strategy? ✓ How to intend to achieve the objectives? ✓ How to deal with competitive pressure? ✓ How are changes in customer demands dealt with? ✓ How is strategy adjusted for environmental issues? STRATEGY FOLLOWED BY INFOSYS: ✓ Client focused strategy to achieve growth ✓ Increase business from existing and new clients ✓ Expand geographically ✓ Enhance solution set ✓ Develop deep industry knowledge ✓ Enhance brand visibility ✓ Pursue alliances and strategic acquisitions [2] ORGANISATION STRUCTURE: ✓ How is the company/team divided? ✓ What is the hierarchy? ✓ How do various departments coordinate activities? ✓ How do the team members organize and align themselves? ✓ Is decision making and controlling centralized or decentralized? ORGANISATION STRUCTURE AT INFOSYS: ✓ Adopted a free organization devoid of hierarchies. ✓ Everyone is known as associates of his position in the company. ✓ Software development is undertaken through teams and the constitution of teams is based on the principle of flexibility.

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