Implementing Yin-Yang -1- WELCOME To ALL OF YOU – (Strategy) RAHUL JAIN (Striving for excellence) BCOM (H), PGPM, FCS Strategy formulation ...  An organization must select any of innumerable ways of seeking to attain its objectives.  Strategies define how organizations should use their resources to meet their objectives.  Hence, … strategies put constraints on employees to focus activities on what the organization does best or areas where it has an advantage over competitors. -3- Mission – Basic reason for existence Mission: How do we intend to win in this business? Factors influencing Mission  Stakeholders  Internal resources and Power  Values of top management  Past development of firm Business definition  Products  Markets  Function (Technology and Processes) -4- Vision- Yin Yang   Core Ideology (Core values and Purposes) 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. -5- 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. -6- A Diversified Company Has Two Levels of Strategy 1. Business-Level Strategy (Competitive Strategy) How to create competitive advantage in each business in which the company competes - low cost - focused low cost - differentiation - focused differentiation - integrated low cost/differentiation 2. Corporate-Level Strategy (Companywide Strategy) How to create value for the corporation as a whole Cost Leadership Strategy Key Criteria  Standard Product  Compete Based on Price: – Low costs – High volume – Low margins Achieving Low Costs  Controlling Cost Drivers  Reconfiguring Value Chain  Characteristics of Cost Leader Controlling Cost Drivers        Economies of Scale / Capacity Utilization Learning Curve Effects Reduce Input Costs (monitor suppliers) Economies of Scope Consider Vertical Integration & Outsourcing Process Engineering / Simplification Minimize Overhead How to obtain a Cost Advantage 1 Control Cost Drivers 2 Reconfigure the Value Chain as needed Alter production process Change in automation New distribution channel New advertising media Direct sales in place of indirect sales New raw material Forward integration Backward integration Change location relative to suppliers or buyers Technological changes The Major Risks involved with a Cost Leadership Business Level Strategy Competitors imitate Value Chain Focus on efficiency causes Cost Leader to overlook changes in customer preferences Examples of Cost Leadership  Nissan; Wal-Mart; Dell Computers - 12 - Differentiation Business Level Strategy Key Criteria Value provided by unique features and value characteristics Command premium price High customer service Superior quality Prestige or exclusivity Rapid innovation Differentiation Business Level Strategy Requirements Value provided by unique features and value characteristics Command premium price * Constant effort to differentiate products through: Developing new systems and processes High customer service Superior quality * Shaping perceptions through advertising Prestige or exclusivity * Product R&D capabilities * Maximize Human Resource contributions through low turnover and high motivation Rapid innovation Differentiation Business Level Strategy Effectiveness with Differentiation grows out of Value Chain activities Examples: Heineken beer Raw materials Steinway pianos Raw materials & Workmanship Mercedes Benz autos Technology and Workmanship Intel microprocessors Technological superiority Caterpillar tractors Service buyers’ needs quickly anywhere in the world Focused Business Level Strategies Focused Business Level Strategies involve the same basic approach as Broad Market Strategies Opportunities exist because: * Large firms overlook small niches * Firm lacks resources to compete industry-wide * Serve narrow market segment more effectively than industry-wide competitors * Direct resources to certain value chain activities to build competitive advantage “Outfocused” The Major Risks involved with a Focused Differentiation Business Level Strategy Large competitors enter niche market Preferences of niche market change to those of broad market Focus Examples of Differentiation Focus: any successful niche retailers; (e.g. The Perfume Shop); or specialist holiday operator (e.g. Carrier)  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.  - 18 - Integrated Low Cost/Differentiation Strategy Firms using an Integrated Strategy: Dual Strategic Emphasis: •Upscale product •Competitive pricing (“best value”) Flexible Manufacturing Systems Information Networks across multiple business units Total Quality Management (TQM) Key Questions of Corporate Strategy 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 Levels and Types of Diversification Low Levels of Diversification Single business > 95% of revenues from a single business unit Dominant business Between 70% and 95% of revenues from a single business unit A A B Moderate to High Levels of Diversification Related constrained Related linked (mixed) < 70% of revenues from dominant business, and only limited links exist Very High Levels of Diversification Unrelated-Diversified A < 70% of revenues from dominant business; all businesses share product, technological and distribution linkages Business units not closely related B A B C A B C C BCG Matrix – Product Portfolio strategy   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. 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. - 22 - BCG Matrix – Product Portfolio strategy - 23 - Threat of Substitute Products Keys to evaluate substitute products: Products with similar function limit the prices firms can charge 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