STRATEGIES, POLICIES AND PLANNING PREMISES 4/27/2017

Today most of enterprises engage in strategic planning although the degree of sophistication and formality varies considerably. Conceptually strategic planning deceptively simple- Analyse the current and expected future situation ,determine the direction of firm, and develop means for achieving the mission 4/27/2017

The nature and purpose of strategies and policies. The term strategy is derived from the greek word “strategos” meaning “general”. Strategy refers to the determination of the mission and the basic long term objectives of an enterprise followed by the adoption of of the courses of action and allocation of resources necessary to achieve these aims 4/27/2017

Policies are general statements of understandings that guide managers’ thinking in decision making. They ensure decision fall within certain boundaries. They usualy do not require action but intended to guide managers in their commitment to the decision they ultimately make. 4/27/2017

THE STRATEGIC PLANNING PROCESS Inputs to the organization Industry analysis Enterprise profile Orientation, values, vision of executives Mission ,major objectives and strategic intent The present and future external environment Internal environment Development of alternative strategies Evaluation and choice of strategies 4/27/2017

Industry analysis Executive Orientation Values vision Mission INPUTS People Capital Managerial skills Technical skills Others Goals of stake Employes Consumers Suppliers Government Stock holders Community others Executive Orientation Values vision Present and future external threats and oppurtunities Industry analysis Enterprise profile Development of alternative strategies Mission Major objectives Strategic intent Internal weakness and strengths 4/27/2017

Medium and short range planning Development of alternative strategies Evaluation Leadership control Implementation Reengineering organisational Consistenvy testing contingency planning 4/27/2017

THE TOWS MATRIX A MODERN TOOL FOR ANALYSIS OF THE SITUATION T- Threats O- Oppurtunities W- Weakness S-Strengths 4/27/2017

interiiiiii Internal strengths Internal weakness Internal factors Strengths in management, operations, Finance, marketing, R& D Internal weakness Weaknesses in areas shown in “strengths”box Exeternal factors Internal factors External oppurtunities Current and future economic conditions, political and social changes, new products,services SO Strategy: Maxi-Maxi Potentially the most successfull strategy, utilizing the organisazation’s strengths . WO strategy” Mini-Maxi Developmental strategies to overcome weakness in order to take advantage of opportunities External threats(T) Energy shortage,competition ST strategy: Maxi-Mini Use of strengths to cope with threats or to avoid threats WT strategy: Mini- Mini Retrenchment, liquidation, or joint venture to minimize both weaknesses and threats 4/27/2017

Application of the TOWS merger matrix for mergers, acquisitions, joint Ventures, and Alliances TOWS Concept has been introduced for planning mergers, acquisitions, joint ventures and alliances. whenever two partners. When two partners consider joint activities , it is prudent to analyze strengths and weakness. 4/27/2017

Blue ocean strategy: in pursuit of oppurtunities in an uncontested market It is prudent to use the enterprise strengths and to take advantage of opportunities. The blue ocean strategy focuses on uncontested market by offering a product or service that is unique in a market space where there is no competitor, thus making competition irrelevant. Instead of competing in an existing demand situation, the blue ocean strategy attempts and suggests to create new demand for its products or services. Value innovation is motive rather than simply innovation. 4/27/2017

For company aiming at blue ocean strategy four actions to be considered: Identify and eliminate those factors that may be unimportant to the buyer If elimination is not an option try to reduce those factors. Raise or strengthen those factors that are unique Create new or the unique feature that is may be required by the customers 4/27/2017

BCG MATRIX 4/27/2017

Major kinds of strategies and policies Products or services What is our business? Who are our customers? What do our customer want? how much will our customer buy? Do we wish to be a product leader? What is our competitive advantage? Do we wish to develop our new product? What advantage do we have in serving our customer? How should we respond to existing and potential customer? Marketing strategies 4/27/2017

Generic Business Level Strategies 4/27/2017

Generic Business Level Strategies Cost Uniqueness Source of Competitive Advantage Breadth of Competitive Scope Broad Target Market Narrow Cost Leadership Focused Differen- tiation Cost Leadership Differen- Focused Low Cost 8

Cost Leadership Business Level Strategy Key Criteria: Relatively standardized products Features acceptable to many customers Lowest competitive price 14

Cost Leadership Business Level Strategy Requirements: Constant effort to reduce costs through: Building efficient scale facilities State of the art manufacturing facilities Simplification of processes Minimizing costs of sales, R&D and service Monitoring costs of activities provided by outsiders Tight control of production costs and overhead 20

Human Resource Management Technological Development Value Creating Activities Common to a Cost Leadership Business Level Strategy Firm Infrastructure Human Resource Management Support Activities MARGIN Technological Development Procurement Service Inbound Logistics Outbound Logistics Marketing & Sales Operations MARGIN Primary Activities

Technological Development Human Resource Management Value Creating Activities Common to a Cost Leadership Business Level Strategy Cost Effective MIS Systems Relatively Few Management Layers to Reduce Overhead Simplified Planning Practices to Reduce Planning Costs Consistent Policies to Reduce Turnover Costs Effective Training Programs to Improve Worker Efficiency and Effectiveness Highly Efficient Systems to Link Suppliers’ Products with the Firm’s Production Processes Timing of Asset Purchases Efficient Plant Scale to Minimize Manufacturing Costs Selection of Low Cost Transport Carriers Delivery Schedule that Reduces Costs National Scale Advertising Products Priced to Generate Sales Volume Small, Highly Trained Sales Force Effective Product Installations to Reduce Frequency and Severity of Recalls Easy-to-Use Manufacturing Technologies Investments in Technology in order to Reduce Costs Associated with Manufacturing Processes Systems and Procedures to find the Lowest Cost Products to Purchase Raw Materials Frequent Evaluation Processes to Monitor Suppliers’ Performances Located in Close Proximity with Suppliers Policy Choice of Plant Technology Organizational Learning Efficient Order Sizes Interrelationships with Sister Units Technological Development Human Resource Management Firm Infrastructure Procurement Inbound Logistics Operations Outbound Marketing & Sales Service MARGIN Support Activities Primary Activities

How to Obtain a Cost Advantage 1. Determine and Control Cost Drivers 2. Reconfigure the Value Chain as needed Alter production process Change in automation New distribution channel Direct sales in place of indirect sales New advertising media New raw material Backward integration Forward integration Change location relative to suppliers or buyers 36

Choices That Drive Costs Economies of scale Asset utilization Capacity utilization pattern Value chain linkages - Advertising & Sales - Logistics & Operations - Seasonal, cyclical Product features Performance Mix & variety of products Service levels Small vs. large buyers Process technology Wage levels Hiring, training, motivation 41

Three Key Questions 1. How can an activity be performed differently or even eliminated? 2. How can a group of linked value activities be regrouped or reordered? 3. How might coalitions with other firms lower or eliminate costs? 44

Effective Cost Leaders can remain profitable even when the Comment Effective Cost Leaders can remain profitable even when the Five Forces appear unattractive ! 45

Major Risks of Cost Leadership Business Level Strategy Dramatic technological change could take away your cost advantage Competitors may learn how to imitate Value Chain Focus on efficiency could cause Cost Leader to overlook changes in customer preferences 51

Generic Business Level Strategies Breadth of Competitive Scope Source of Competitive Advantage Cost Uniqueness Cost Leadership Broad Target Market Breadth of Competitive Scope Narrow Target Market 52

Generic Business Level Strategies Breadth of Competitive Scope Source of Competitive Advantage Cost Uniqueness Cost Leadership Differen- tiation Broad Target Market Breadth of Competitive Scope Narrow Target Market 53

Differentiation Business Level Strategy Key Criteria: Value provided by unique features and value characteristics Command premium price Superior quality Rapid innovation Prestige or exclusivity High customer service 59

Differentiation Business Level Strategy Requirements: Constant effort to differentiate products through: Developing new systems and processes Quality focus Maximize Human Resource contributions through low turnover and high motivation Capability in R&D Shaping perceptions through advertising 59

Differentiation Business Level Strategy Effectiveness with Differentiation grows out of Value Chain activities Examples: Heineken beer Raw materials Caterpillar tractors Service buyers’ needs quickly anywhere in the world Intel microprocessors Technological superiority Steinway pianos Raw materials & Workmanship Mercedes Benz autos Technology and Workmanship 76

Create Value with Differentiation by: Lowering Buyers’ Costs Raising Buyers’ Performance Creating Sustainability through: Creating barriers by perceptions of uniqueness Creating switching costs through differentiation 79

Drivers of Differentiation Unique product features Unique product performance Exceptional services Quality of inputs New technologies Exceptional skill or experience Detailed information Examples: 80

Major Risks of a Differentiation Business Level Strategy Customers may decide that the cost of “uniqueness” is too great The means of uniqueness may no longer be valued by customers Competitors may learn how to imitate Value Chain 87

Generic Business Level Strategies Breadth of Competitive Scope Source of Competitive Advantage Cost Uniqueness Cost Leadership Differen- tiation Broad Target Market Breadth of Competitive Scope Narrow Target Market 88

Generic Business Level Strategies Breadth of Competitive Scope Source of Competitive Advantage Cost Uniqueness Cost Leadership Differen- tiation Broad Target Market Breadth of Competitive Scope Focused Differen- tiation Focused Low Cost Narrow Target Market 89

Focused Business Level Strategies Focused Business Level Strategies involve the same basic approach as Broad Market Strategies. However, opportunities may exist because: Large firms may overlook small niches Firm may lack resources to compete industry-wide May be able to serve a narrow market segment more effectively than industrywide competitors Focus can allow you to direct resources to certain value chain activities to build competitive advantage 94

Focused Business Level Strategies Focused Business Level Strategies involve the same basic approach as Broad Market Strategies. However, opportunities may exist because: May be able to retrofit old factories to keep costs down Minimize R&D costs by copying innovators Examples: 97

Major Risks Involved With a Focused Differentiation Business Level Strategy Firm may be “outfocused” by competitors Large competitor may set its sights on your niche market Preferences of niche market may change to match those of broad market 100

Generic Business Level Strategies Breadth of Competitive Scope Source of Competitive Advantage Cost Uniqueness Integrated Low Cost/ Differentiation Cost Leadership Differen- tiation Broad Target Market Breadth of Competitive Scope Focused Differen- tiation Focused Low Cost Narrow Target Market 102

Integrated Low Cost/Differentiation Strategy Firms using an Integrated Strategy may: Utilize Flexible Manufacturing Systems to create differentiated products at low costs Adapt more quickly Learn new skills and technologies Leverage core competencies through Information Networks across multiple business units Utilize Total Quality Management (TQM) to create high quality differentiated products which simultaneously driving down costs 103

Integrated Low Cost/Differentiation Strategy Recognize that the Integrated Low Cost/ Differentiation business level strategy involves a Compromise The risk is that the firm may become “Stuck in the Middle” lacking a strong commitment to or expertise with either type of generic strategy 104

Integrated Low Cost/Differentiation Strategy Southwest Airlines Use a single aircraft model (Boeing 737) Use secondary airports Fly short routes 15 minute turnaround time No meals No reserved seats No travel agent reservations Low Cost Focus on customer satisfaction New flight services for business travelers (phones and faxes) High level of employee dedication Differentiation 107

4/27/2017