Strategy Formulation Tools: MICHAEL PORTER Model for Industry Analysis

PORTERS MODEL FOR INDUSTRY ANALYSIS:

Perhaps the best known tool for formulating strategy is the model developed by Michael E. Porter, an internationally acclaimed strategic management expert.

Essentially, Porter’s model outlines the primary forces that determine competitiveness within an industry and illustrates how those forces are related.

The model suggests that in order to develop effective organizational strategies, managers must understand and react to those forces within an industry that determine an organization’s level of competitiveness within that industry.

According to these model, competitiveness within an industry is determined by the following factors:

1. New Entrants or New Companies within the Industry
2. Substitute Products or Services – for goods or services that the companies within the industry produce/provide.
3. Supplier’s Ability to control issues like costs of material/ inputs that industry companies use to manufacture their products or provide their services.
4. Competition level among the firms in the industry.

According to the model, buyers, product substitutes, supplier and potential new companies within an Industry all contribute to the level or rivalry among industry firms.

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Strategy Formulation: BCG Growth-Share Matrix Model

BCG Growth-Share Matrix:

The Boston Consulting Group, a leading consulting firm, developed and popularized a portfoilo analysis tools that helps managers develop organizational strategy based on market share of businesses and the growth of markets in which businesses exist.

The 1st step in using this model is identifying the organization’s strategic business units (SBUs). A Strategic business Unit is a significant organization segment that is analysed to develop organizational strategy aimed at generating future business or revenue.

Exactly what constitutes as SBU varies from company to company. In bigger organizations, and SBU could be a company division, a single product or a complete Product Line.

In smaller organizations, it might be the entire company.

Eventhough they vary drastically in form each SBU has the following characteristics:

1. It is a single business or collection of related businesses.
2. It has its own competitors.
3. It has a manager who is accountable for its operation.
4. It is an area that can be independently planned for within the organization.

After identifying the SBUs, the next step is to categorize each SBU within one of the 4 Matrix Quadrants:

1. STARS – Star SBUs have a high share of a high growth market and typically need large amounts of cash to support their rapid and significant growth. Stars also generate large amounts of cash for the organization and are usually segments in which management can make additional investments and earn attractive returns.
2. CASH COWS: SBUs that are Cash Cows have a large share of a market that is growing only slightly. Naturally, these SBUs provide the organization with large amounts of Cash, but since their market is not growing significantly, the cash is generally used to meet the financial demands of the organization in other areas, such as the expansion of a STAR SBU.
3. QUESTION MARKS: These category of SBUs have a small share of a high growth market. These are “question marks” because it is uncertain whether management should invest more cash in them to gain a larger share of the market or deemphasize or eliminate them. Management will choose the 1st option when it believes it can turn the question mark into a star, and the 2nd option when it thinks that future investments would be fruitless.
4. DOGS : SBUs that are dogs have a relatively small share of a low-growth market. They may barely support themselves; in some cases, they actually drain off cash resources generated by other SBUs. These are the SBUs which are likely to be shortlisted for deemphasize or elimination.

PITFALLS of the BCG Growth Matrix Model:

The matrix does not consider factors like:

• Various types of Risk associated with product development
• Threats that inflation and other economic conditions can create in the future.
• Social,Political and Ecological Pressures.

A LEARNING ORGANIZATION

A LEARNING ORGANIZATION is an organization that does well in creating, acquiring and transferring knowledge, and in modifying behaviour to reflect the new knowledge.

Learning organizations emphasize systematic problem solving,experimenting with new ideas, learning form experience and past history, learning from the experience of others, and transferring knowledge rapidly throughout the organization.

According to Peter Senge, the 5 features of a learning organization are:

1.  SYSTEMS THINKING: Every organization member understands her own job and how the job fits together to provide final products to the customer.                                                        
2. SHARED VISION: All organization members have a common view of the purpose of the organization and a sincere commitment to accomplish the purpose.                                                       
3. CHALLENGING OF MENTAL MODELS: Organization members routinely challenge the way business is done and the thought processes people use to solve the organizational Problems.                 
4. TEAM LEARNING: Organization members work together, develop solutions to new problems together, and apply the solutions together. Working as teams rather than individuals will help organizations gather collective force to achieve organizational goals.                                                                                         
5. PERSONAL MASTERY: All organization members are committed to gaining a deep and rich understanding of their work. 

PRICING STRATEGY IN COMPETITIVE TIMES

Pricing has lot to do with the target audience that you are positioning your product and service offerings for?

Do you want to target the uber rich and super rich or you want to target the rich and the upper middle class?

These competitive times along with the recessionary pressures will force most of the organizations to relook at their pricing strategy?

What should be your strategy? What target market will fulfill the sustainable growth requirements for your organization? 

How would your budgets look with high pricing and low volumes vs little lower pricing or even half pricing and increased volumes?

What Volumes are you expecting at what price point?

What will be the increased sales and marketing costs required based on change of the target market segments and the pricing policy to ensure the successful implementation.

What is the scalability in your production capacity, especially if you are a service organization?

Service offerings may have more restriction on their capacities and hence more restrictions on how much they can play around with their pricing models.

What is your product or service packages? What pricing models are your exploring? What optional target market segments are you considering?

Contact: MANAGEMENT INNOVATIONS

managementinnovations2020@gmail.com, manojonkar@gmail.com; 919375970812

IIPM – Indian Institute of Planning & Management

Prof. Manoj Onkar has joined IIPM, Ahmedabad as a visiting Professor for conducting the HRS (Human Resource System).

Keep in touch for further updates.

MANAGEMENT INNOVATIONS

www.managementinnovations.wordpress.com

www.linkedin.com/manojonkar

managementinnovations2020@gmail.com

CHANGE & RELATED STRESS MANAGEMENT

CHANGE & STRESS

 

 

Whenever managers implement changes, they should be concerned about the stress they may be creating.

 

If the stress is significant enough, it may well cancel out the improvement that was anticipated from the change.

 

In fact, stress could result in the organization being less effective than it was before the change was attempted.

 

STRESS:

 

The bodily strain that an individual experiences as a result of coping wit some environmental factor is stress.

 

Hans Selye, an expert on this subject, said that Stress constitutes the factors affecting wear and tear on the body.

 

In organizations, this wear and tear is caused primarily by the body’s unconscious mobilization of energy when an individual is confronted with organizational or work demands.

 

Why Study Stress?

• Stress can have damaging psychological and physiological effects on employees’ health and on their contributions to organizational effectiveness. It can cause hear disease and it can prevent employees from concentrating or making decisions.

                                                                                                                                 

• Stress is a major cause of employee absenteeism and turnover. Certainly such factors severely limit the potential success of an organization.

 

• A stressed employee can affect the safety of other workers or even the public.

 

• Stress represents a very significant cost to organizations.

 

 

MANAGING STRESS IN ORGANIZATIONS:

 

Since stress is felt by all employees in the organizations, managers must do the following:

 

1. Understand how stress influences worker performance
2. Identify where unhealthy stress exists in organizations
3. Help Employees handle stress

 

Understand how Stress Influences Worker Performance:

To deal with stress among employees, managers must understand the relationship between the amount of stress felt by a worker and the impact on the worker’s performance.

 

Extremely high and extremely low levels of stress tend to have negative effects on production. While increasing stress tends to bolster performance up to some point, when the level of stress increases beyond that point, performance levels begin to deteriorate.

 

Certain amount of stress among employees is generally considered to be advantageous for the organization because it tends to increase productivity, however when the employees experience too much or too little stress, it is generally disadvantageous for the organization because it tends to decrease productivity.

 

 

SYMPTOMS OF UNHEALTHY STRESS IN ORGANIZATION:

 

Symptoms are as follows:

 

1.      Constant Fatigue

2.      Low Energy

3.      Moodiness

4.      Increased Aggression

5.      Excessive use of Alcohol

6.      Temper outbursts

7.      Compulsive Eating

8.      High Levels of Anxiety

9.      Chronic Worrying

 

A manager who observes one or more of these symptoms in employees should investigate to determine if those exhibiting the symptoms are indeed under too much stress. If so, the manager should try to help those employees handle their stress and/or should attempt to reduce stressors in the organization.

 

Helping Employees Handle Stress:

 

• Create an organization climate that is supportive of individuals.
• Make jobs interesting
• Decision and operate career counselling programs

Factors for Change Management

FACTORS TO CONSIDER WHEN CHANGING AN ORGANIZATION

 

The following factors should be considered whenever change is being contemplated:

 

1. The Change Agent
2. Determining What should be Changed
3. The kind of Change to Make
4. Individuals affected by the Change
5. Evaluation of the Change

 

THE CHANGE AGENT:

 

The change agent might be a self designated manager within the organization or an outside consultant hired because of a special expertise in a particular area.

 

This individual might be responsible for making very broad changes, like altering the culture of the whole organization; or more narrow ones, like designing and implementing a new safety program or a new quality program.

 

Special skills are necessary for success as a change agent. Among them are the ability to determine how a change should be made, the skill to solve change related problems, and facility in using behavioural science tools to influence people appropriately during the change process.

 

Perhaps the most overlooked skill of successful change agents, however, is the ability to determine how much change employees can withstand.

 

Managers should choose agents who have the most expertise in all these areas. A potentially beneficial change might not result in any advantages for the organization if a person without expertise in these areas is designated as a change agent.

 

 

DETERMINING WHAT SHOULD BE CHANGED:

 

Organizational effectiveness depends on 3 classes of factors:

1. People
2. Structure
3. Technology

 

People Factors are attitudes, leadership skills, communication skills, and all other characteristics of the human resources within the organization; Structural Factors are organizational controls, such as policies and procedures; and Technological Factors are any type of equipment or processes that assist organization members in the performance of their jobs.

 

For an organization to maximize its effectiveness, appropriate people must be matched with appropriate technology and appropriate structure.

 

 

THE KIND OF CHANGE TO MAKE:

Most changes can be categorized into one of the 3 kinds:

 

1. Technological
2. Structural
3. People

 

These 3 kinds of change correspond to the 3 main determinants of the organizational effectiveness – each change is named for the determinant it emphasizes.

 

STRUCTURAL CHANGE:

 

Structural change emphasizes increasing organizational effectiveness by changing controls that influence organization members during the performance of their jobs.

 

Structural change is aimed at increasing the organizational effectiveness through modifications to the existing organizational structure like:

 

1. Clarifying and Defining Jobs
2. Modifying Organizational Structure to fit the communication needs of the organization
3. Decentralizing the organization to reduce the cost of coordination, increase the controllability of subunits, increase motivation, and gain greater flexibility.

 

Although structural change must take account of people and technology to be successful, its primary focus is obviously on changing organization structure.

 

Managers choose to make structural changes within an organization if information they have gathered indicates that the present structure is the main cause of organizational ineffectiveness.

 

The precise structural changes they choose to make will vary from situation to situation, of course. After changes to organizational structure have been made, management should conduct periodic reviews to make sure the changes are accomplishing their intended purposes.

 

                        Matrix Organization:

 

Matrix Organizations is a traditional organization that is modified primarily for the purpose of completing some kind of special project.

 

Essentially, a matrix organization is one in which individuals from various functional departments are assigned to a project manager responsible for accomplishing some specific task.

 

The project itself may be either long term or short term, and the employees needed to complete it are borrowed from various organizational segments.

 

 

PEOPLE CHANGE:

 

Although successfully changing people factors necessarily involves some consideration of structure and technology, the primary emphasis is on people.

 

Organization Development (OD): People Change emphasizes increasing organizational effectiveness by changing certain aspects of organization members.

The focus of this kind of change is on such factors as employee’s attitudes and leadership skills.

The process of people change can be referred to as organization development (OD). Although OD focuses mainly on changing certain aspects of people, these changes are based on an overview of structure, technology, and all other organizational ingredients.

 

GRID OD:

 

One traditional used OD techniques for changing people in organizations is called Grid Organizational Development, or Grid OD.

 

The managerial grid, a basic model describing various managerial styles, is used as the foundation for grid OD. The managerial grid is based on the premise that various managerial styles can be described by means of two primary attitudes of the manager: concern for people and concern for production.

 

 

 

INDIVIDUAL AFFECTED BY THE CHANGE:

 

To increase the chances of employee support, one should be aware of the following factors:

 

1. The usual employee resistance to change
2. How this resistance can be reduced

 

Resistance to Change:

 

Resistance to change within an organization is as common as the need for change.

After managers decide to make some organizational change, they typically meet with employee resistance aimed at preventing that change from occurring.

 

Behind this resistance by organization members lies the fear of some personal loss, such as a reduction in personal prestige, a disturbance of established social and working relationships, and personal failure because of inability to carry out new job responsibilities.

 

Reducing Resistance to Change:

 

1.      Avoid Surprises

2.      Promote Real Understanding

3.      Set the Stage for Change

4.      Make tentative Change

 

 

EVALUATION OF THE CHANGE:

 

One must evaluate the change one makes. The purpose of this evaluation is not only to gain insight into how the change itself might be modified to further increase its organizational effectiveness, but to determine whether the steps taken to make the change should be modified to increase organizational effectiveness, next time around.

 

Evaluation of change often involves watching for symptoms that indicate that further change is necessary. But the decision to change must not be made only based on the symptoms. Additional Change is justified if it will accomplish any of the following goals:

 

1.      Further improve the means for satisfying someone’s economic wants

2.      Increase Profitability

3.      Promote human work for human beings

4.      Contribute to individual satisfaction and social well being.

CHANGE MANGEMENT BASICS

FUNDAMENTALS OF CHANGING AN ORGANIZATION

 

Changing an Organization is the process of modifying an existing organization to increase the overall organizational effectiveness.

 

These modifications can involve any organizational aspect, but typically it affects the lines of authority, the levels of responsibility held by various organization members, and the established lines of organizational communication.

 

IMPORTANCE OF CHANGE:

 

Most managers agree that if the organization is to thrive, it must change continually in response to significant developments in the environment, such as changing customer needs, technical breakthroughs, and new regulations.

 

Managers who can determine appropriate changes and then implement such changes successfully enable their organizations to be more flexible and innovative. Because change is such a fundamental part of the organizational existence, such managers are very valuable to organizations of all kinds.

 

Many managers consider change to be so critical to organizational success that they encourage employees to continually search for areas in which beneficial changes can be made.

 

CHANGE Vs. STABILITY:

 

Along with Change, some amount of stability is a prerequisite for long term organizational success.

 

The organization without enough stability to complement change is a definite challenge. When stability is low, the probability of organization survival and growth declines.

 

Change after Change without regard for the essential role of stability typically results in confusion and employee stress.

 

Performance Appraisals

PERFORMANCE APPRAISAL

 

Performance Appraisal is the process of reviewing individual’s past productive activity to evaluate the contribution they have made towards attaining the organization’s objectives.

 

Performance Appraisal is a continuous review that focuses on both established human resources within the organization and new comers.

 

Its main purpose is to furnish feedback to organization members about how they can become more productive and useful to the organization in its ambitions and growth plans.

 

Advantages of Appraisal Systems:

 

1. They provide systematic judgements to support salary increases, promotions, transfers, and sometimes even demotions & terminations.      

                                                                            

1. They are a means of telling subordinates how they are doing and of suggesting needed changes in behaviour, attitudes, skills or job knowledge; they let subordinates know where they stand with the boss.

 

 

1. They furnish a useful basis for the coaching and counselling of individuals by their seniors.

 

 Several Methods used for Performance Appraisals are:

 

• Rating Scale
• Employee Comparisons
• Free form Essay
• Critical form Essay

 

Guidelines for Handling Performance Appraisals:

 

• Performance Appraisals should stress both Performance in the Position the individual holds and the success with which the individual is attaining organizational objectives.

 

• Although conceptually separate, performance and objectives should be inseparable topics of discussion during performance appraisals.

 

 

• Appraisals should emphasize how well the individual is doing the job, not the evaluator’s impression of the individual’s work habits. The goal is an objective analysis of performance rather than a subjective evaluation of habits.

 

• Appraisals should be acceptable to both the appraiser and the appraisee, on the benefits for the individual as well as the organization.
• Performance appraisals should provide a base for improving individual’s productivity within the organization by making them better equipped to produce.

 

 

Pitfalls in Performance Appraisals:

 

1. Performance appraisals focus employees on short term rewards rather than on issues that are important to the long run success of the organization.
2. Individuals involved in the performance appraisal view them as reward- punishment situation.
3. The emphasis is wrongly placed on completing paper work, rather than really critiquing individual performance.
4. Individuals view the process as unfair or biased.
5. Subordinates react negatively when evaluators offer unfavourable comments.

Training – Need Analysis, Design, Deliver and Evaluat

TRAINING

 

After recruitment and selection, the next step in providing appropriate human resources to the organization is Training.

 

Training is the process of developing qualities in human resources that will enable them to be more productive and thus to contribute more to organizational goal attainment.

 

The purpose of training is to increase the productivity of employees by influencing their behaviour.

 

The training of individuals in an organization is essentially a 4 step process:

 

1. Determining the Training Needs
2. Designing the Training Program
3. Administering the Training Program
4. Evaluating the Training Program

 

DETERMINING THE TRAINING NEEDS:

 

The 1^st step of the training process is determining the organization’s training needs.

 

Training Needs are the information or skill areas of an individual or group that require further development to increase the productivity of that individual or group.

Only if the training focuses on these needs, it can be productive for the organization.

 

Training is a continuous activity. Even employees who have been with the organization for some time and who have undergone initial orientation and skills training need continued training to improve their skills.

 

            Determining the Needed Skills:

 

There are several methods of determining which skills to focus on with established human resources. One method calls for evaluating the production process within the organization. Factors like excessive rejections, missed deadlines, high labour costs are clues to deficiencies in the production related expertise. Similar activities for various departments can be carried out.

 

Another method for determining training needs includes getting direct feedback from employees on what they believe are the training needs of the organization. Organization members are often able to verbalize clearly and accurately exactly what types of training they require to do a better job.

 

A third way of determining training needs involves looking into the future. Future company plans and industry trends also provide inputs on likely training requirements.

 

 

DESIGNING OF THE TRAINING PROGRAM:

Designing a training program entails assembling various types of facts and activities designed to meet the identified training needs.

 

ADMINISTERING THE TRAINING PROGRAM:

 

Various techniques exist for both transmitting necessary information and developing needed skills in training programs like:

 

1. Lectures – for knowledge transfer
2. Programmed Learning – for knowledge transfer
3. On the Job Training  – for skill development
   1. Coaching
   2. Position rotation
   3. Special Project Teams

 

 

EVALUATING THE TRAINING PROGRAMS:

 

Training programs have various costs including materials, trainer time and production loss while employees are being trained rather than doing their jobs – a ROI  is essential.

 

Management should evaluate the training program to determine if it meets with the needs for which it is developed.

E.g.: Has the sales increased, Has the customer complaints reduced, Has production gone up etc.