Implementing Yin-Yang - 1 -

WELCOME To ALL OF YOU – (Strategy) RAHUL JAIN (Striving for excellence) BCOM (H), PGPM, FCS

- 3 - Strategy formulation... u An organization must select any of innumerable ways of seeking to attain its objectives. u Strategies define how organizations should use their resources to meet their objectives. u Hence, … strategies put constraints on employees to focus activities on what the organization does best or areas where it has an advantage over competitors.

Mission – Basic reason for existence Mission: How do we intend to win in this business? Factors influencing Mission u Stakeholders u Internal resources and Power u Values of top management u Past development of firm Business definition u Products u Markets u Function (Technology and Processes) - 4 -

Vision- Yin Yang u Core Ideology (Core values and Purposes) u Envisioned Future (BHAG and vivid description) A vision, is more encompassing. It answers the question, "What will success look like?" It is the pursuit of this image of success that really motivates people to work together

Starbucks’ Mission and Vision Starbucks’ Mission Starbucks’ mission is to “establish Starbucks as the premier purveyor of the finest coffee in the world while maintaining our uncompromising principles as we grow” (Starbucks Website, 2006, p.1). Starbucks strategic plan to make its mission a reality is evidence by the company’s rapid expansion worldwide. Starbucks has locations in all 50 States in the US, plus the District of Columbia and Puerto Rico (Starbucks Company Fact Sheet, 2006). Starbucks can also be found in 36 countries outside the US (Starbucks Company fact Sheet, 2006). Starbucks is committed to buying only certified coffee in pursuit of selling the finest coffee. Starbucks’ Vision According to the company’s profile, (2006) its vision is to make Starbucks coffee the most recognized and respected brand in the world by using high quality roast beans to make coffee beverages along with other products. The company wants to develop enthusiastically satisfied customers at all times. They want to make positive contributions to their communities and their environment

How to create value for the corporation as a whole 2. Corporate-Level Strategy (Companywide Strategy) - low cost - differentiation - integrated low cost/differentiation - focused low cost - focused differentiation How to create competitive advantage in each business in which the company competes 1. Business-Level Strategy (Competitive Strategy) A Diversified Company Has Two Levels of Strategy

Cost Leadership Strategy Key Criteria u Standard Product u Compete Based on Price: –Low costs –High volume –Low margins Achieving Low Costs u Controlling Cost Drivers u Reconfiguring Value Chain u Characteristics of Cost Leader

Controlling Cost Drivers u Economies of Scale / Capacity Utilization u Learning Curve Effects u Reduce Input Costs (monitor suppliers) u Economies of Scope u Consider Vertical Integration & Outsourcing u Process Engineering / Simplification u Minimize Overhead

2 2 How to obtain a Cost Advantage 1 1 Control Cost Drivers Alter production process Change in automation New distribution channel Direct sales in place of indirect sales New raw material New advertising media Backward integration Forward integration Change location relative to suppliers or buyers Reconfigure the as needed Value Chain

The Major Risks involved with a Cost Leadership Business Level Strategy The Major Risks involved with a Cost Leadership Business Level Strategy Technological changes Focus on efficiency causes Cost Leader to overlook changes in customer preferences Competitors imitate Value Chain Competitors imitate Value Chain

Examples of Cost Leadership u Nissan; Wal-Mart; Dell Computers

Value provided by unique features and value characteristics Command premium price Superior quality Key Criteria Differentiation Business Level Strategy Rapid innovation Prestige or exclusivity High customer service

Differentiation Business Level Strategy Requirements Constant effort to differ- entiate products through: * Developing new systems and processes * * Maximize Human Resource contributions through low turnover and high motivation Product R&D capabilities * Shaping perceptions through advertising Value provided by unique features and value characteristics Command premium price Superior quality Rapid innovation Prestige or exclusivity High customer service

Differentiation Business Level Strategy Differentiation Value Chain activities Effectiveness with Differentiation grows out of Value Chain activities Heineken beer Raw materials Caterpillar tractors Service buyers’ needs quickly anywhere in the world Steinway pianos Raw materials & Workmanship Examples: Intel microprocessors Technological superiority Mercedes Benz autos Technology and Workmanship

Direct resources to certain value chain activities to build competitive advantage Serve narrow market segment more effectively than industry-wide competitors Firm lacks resources to compete industry-wide Large firms overlook small niches Opportunities exist because: * * * * * * * * Focused Business Level Strategies Focused Business Level Strategies involve the same basic approach as Broad Market Strategies

The Major Risks involved with a Focused Differentiation Business Level Strategy The Major Risks involved with a Focused Differentiation Business Level Strategy “Outfocused” Preferences of niche market change to those of broad market Large competitors enter niche market

Focus u Examples of Differentiation Focus: any successful niche retailers; (e.g. The Perfume Shop); or specialist holiday operator (e.g. Carrier) u Strategy - Cost Focus Here a business seeks a lower-cost advantage in just on or a small number of market segments. The product will be basic - perhaps a similar product to the higher-priced and featured market leader, but acceptable to sufficient consumers. Such products are often called "me-too's". Examples of Cost Focus: Many smaller retailers featuring own-label or discounted label products

Flexible Manufacturing Systems Firms using an Integrated Strategy: Dual Strategic Emphasis: Upscale product Competitive pricing (“best value”) Dual Strategic Emphasis: Upscale product Competitive pricing (“best value”) Information Networks across multiple business units Integrated Low Cost/Differentiation Strategy Total Quality Management (TQM)

1. What businesses should the corporation be in? 2. How should the corporate office manage the array of business units? Corporate Strategy is what makes the corporate whole add up to more than the sum of its business unit parts Key Questions of Corporate Strategy

Levels and Types of Diversification Low Levels of Diversification Moderate to High Levels of Diversification Very High Levels of Diversification Related linked (mixed) < 70% of revenues from dominant business, and only limited links exist AABBCC Single business > 95% of revenues from a single business unit AA Dominant business Between 70% and 95% of revenues from a single business unit BB AA Unrelated-Diversified Business units not closely related AABBCC < 70% of revenues from dominant business; all businesses share product, technological and distribution linkages Related constrained AA BBCC

BCG Matrix – Product Portfolio strategy u BCG MATRIX helps in determining the product portfolio strategy of the organization. It leverages the knowledge of the corporation to optimally utilize the resources. Resources are channelized in the right direction by appropriate product strategy. u The BCG matrix method is based on the product life cycle theory that can be used to determine what priorities should be given in the product portfolio of a business unit. It involves rating products according to their market share and market growth rate

BCG Matrix – Product Portfolio strategy

Threat of Substitute Products Products with similar function limit the prices firms can charge Keys to evaluate substitute products: Products with improving price/performance tradeoffs relative to present industry products Example: Electronic security systems in place of security guards Fax machines in place of overnight mail delivery