Strategy Formulation Tools: MICHAEL PORTER Model for Industry Analysis Thursday, Jun 10 2010 

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.

STRATEGY IMPLEMENTATION & STRATEGIC CONTROL Wednesday, Dec 10 2008 

Strategy Implementation, the 4th step of the strategy management process, is putting formulated strategies into action.

Without successive implementation, valuable strategies deeloped by managers are virtually worthless.

The successful implementation of strategy required 4 basic skills:

  1. INTERACTING SKILL
  2. ALLOCATING SKILL
  3. MONITORING SKILL
  4. ORGANIZING SKILL

INTERACTING SKILL:

Interacting Skill is the ability to manager people during implementation. Managers who are able to understand the fears and frustrations others feel during the implementation of a new strategy tend to be the best implementers. These managers empathize with organization members and bargain for the best way to put a strategy into action.

ALLOCATING SKILL :

Allocating skill is the ability to provide the organizational resources necessary to implementing a strategy. 

Successful implementers are talented at scheduling jobs, budgeting time and money, allocating other resources that are critical for implementation.

MONITORING SKILL:

Monitoring skill is the ability to use information to determine whether a problem has arisen that is blocking implementation.

Good Strategy Implementers set up feedback systems that continually tell them about the status of strategy implementation.

ORGANIZING SKILL :

Organizing skill is the ability to create throughout the organization a network of people who can help solve implementation problems as they occur.

Good implementers customize this network to include individuals who can handle the special types of  problems anticipated in the implementation of a particular strategy.

Overall , the successful implementation of a strategy requires handling people appropriately, allocating resources necessary for implementation, monitoring and implementing progress, and solving implementation problems as they occur.

Perhaps the most important requirements are knowing which people can solve specific implementation problems and being able to involve them when those problems arise.

 

STRATEGIC CONTROL:

Strategic Control, the last step of the Strategy Management Process, consists of monitoring and evaluating the strategy management process as a whole to ensure that it is operating properly.

Strategic Control focuses on the activities involved in environmental analysis, organizational direction, strategy formulation, strategy implementation, and strategy control itself – checking that all steps of the strategy management process are appropriate, compatible and functioning properly.

Strategy Forumulation: GE Multifactor Portfolio Matrix Wednesday, Dec 10 2008 

GE Multifactor Portfolio Matrix:

GE Multifactor Portfolio Matrix is a tools that helps managers develop organizational strategy that is based primarily on market attractiveness and business strengths.

The GE Multifactor Portfolio was deliberately designed to be more complete than the BCG Growth Share Matrix.

Each of the organization’s SBUs are plotted on a 2 dimensional matrix of Industry Attractiveness and Business Strength.

Each of these 2 dimensions are a composite of  a variety of factors that each firm must determine for itself, given its own unique situation.

As examples, Industry Attractiveness might be determined by such factors as:

  • No. of Competitors in the Industry
  • Rate of Industry Growth
  • Weakness of Competitors within an Industry

Business Strengths might be determined by such factors as:

  • Company’s Financial Solid Position
  • Its Good Bargaining Position over Suppliers
  • Its high level of Technology Use.

Specific strategies for a company are implied by where their businesses fall on the matrix.

STRATEGY PLANNING – ENVIRONMENTAL ANALYSIS Tuesday, Dec 9 2008 

The 1st step of the strategy management process is environmental analysis. An organization can only be successful if it is appropriately matched to its environment.

ENVIRONMENT ANALYSIS is the study of the organizational environment to pinpoint environmental factors that can significantly influence organizational operations.

MANAGERS commonly perform environmental analyses to help them understand what is happening both inside and outside their organizations and to increase the probability that the organizational strategies they develop will appropriately reflect the organizational environment.

In order to perform an environmental analysis efficiently and effectively, a manager must thoroughly understand how organizational environments are structured.

For purposes of environmental analysis, the environment of an organization is generally divided into 3 distinct levels:

  1. General Environment
  2. Operating Environment
  3. Internal Environment

Managers must be well aware of these 3 organizational environmental levels, understand how each level affects organizational performance and then formulate organizational strategies in response to this understanding.

THE GENERAL ENVIRONMENT:

The components normally considered part of the general environment are:

  • Economic
  • Social: Including Demographics and Social Values
  • Political
  • Legal
  • Technological

THE OPERATING ENVIRONMENT:

The operating Environment includes various components like:

  • Customer
  • Competition
  • Labour
  • Supplier
  • International Issues.

THE INTERNAL ENVIRONMENT:

The level of an organization’s environment that exists inside the organization and normally has immediate and specific implications for managing the organization is the internal environment.

It includes marketing, finance and accounting,planning,organizing, influencing and controlling within the organization.

FUNDAMENTALS OF STRATEGIC PLANNING Tuesday, Dec 9 2008 

STRATEGIC PLANNING:

Strategic Planning is  the long range planning that focuses on the organization as a whole. In doing strategic planning, managers consider the organization as a total unit and ask themselves what must be done in the long term( 3 to 5 years) to attain organizational goals.

In strategic planning, managers try to determine what their organization should do to be successful 3 – 5 years from now. The most successful managers tend to be those who are capable of encouraging innovative strategic thinking within their organization.

STRATEGY:

Strategy is defined as a broad and general plan developed to reach long term objectives.Organizational strategy can and generally does focus on many different organizational areas such as Finance, Sales,Marketing,Production, Research and Development and PR.

It gives broad direction to the organization.

Strategy is actually the end result of strategic planning. Although larger organizations tend to be more precise in  developing organizational strategy than smaller organization, every organization must have a strategy.

For a strategy to be worthwhile, it must be consistent with organizational objectives, which, in turn, must be consistent with organizational purpose.

STRATEGY MANAGEMENT:

Strategy management is the process of ensuring that an organization possesses and benefits from the use of an appropriate organization strategy. An appropriate strategy is one best suited to the needs of an organization at a particular time.

The strategy management process is generally thought to consist of 5 sequential and continuing steps:

  1. Environmental Analysis
  2. Establishment of an Organizational Direction.
  3. Strategy Formulation
  4. Strategy Implementation
  5. Strategic Control

ETHICS IN THE MARKET – Theories and Definitions Tuesday, Dec 2 2008 

PERFECT COMPETITION:

A free market in which no buyer or seller has the power to significantly affect the prices at which goods are being exchanged.

PURE MONOPOLY:

A market in which a single firm is the only seller in the market and which new sellers are barred from entering.

OLIGOPOLY:

A market shared by a relatively small number of large firms that together can exercise some influence on process.

MARKET:

Any forum in which people come together for the purpose of exchanging ownership of goods or money.

EQUILIBRIUM POINT:

The point at which the amount of goods buyers want to buy exactly equals the amount of goods sellers want to sell, and at which the highest price buyers are willing to pay exactly equals the lowest prices sellers are willing to take.

DEMAND CURVE:

A line on a graph indicating the most that customers would be willing to pay for a unit of some product when they buy different quantities of those products.

SUPPLY CURVE:

A line on a graph indicating the prices producers must charge to cover the average costs to supplying a given amount of a commodity.

PRINCIPLE OF DIMINISHING MARGINAL UTILITY:

Each additional item a person consumes is less satisfying than each of the earlier items the person consumed.

PRINCIPLE OF INCREASING MARGINAL COSTS:

After a certain point, each additional item a seller produces costs more to produce than earlier items.

POINT OF EQUILIBRIUM:

The point at which the supply and demand curves meet, so amount buyers want to buy equals amount suppliers want to sell and price buyers are willing to pay equals price sellers are willing to take.

Perfectly Competitive Free Markets are characterized by the following 7 features:

  1. There are numerous buyers and sellers, none of whom has a substantial share of the market.
  2. All buyers and sellers can freely and immediately enter or leave the market.
  3. Every buyer and seller has full and perfect knowledge of what every other buyer and seller is doing, including knowledge of prices, quantities, and quality of all goods being bought and sold.
  4. The goods being sold in the market are so similar to each other that no one cares from which each buys or sells.
  5. The costs and benefits of producing or using the goods being exchanged are borne entirely by those buying or selling the goods and not by any other external parties.
  6. All buyers and sellers are utility maximizers. Each tries to get as much as possible for as little as possible.
  7. No external parties(such as government) regulate the price, quantity, or quality of any of the goods being bought and sold in the market.

MORAL OUTCOMES OF PERFECTLY COMPETITIVE MARKETS:

  • Achieve a certain kind of justice.
  • Satisfy a certain version of utilitarianism.
  • Respect certain kinds of moral rights.

MONOPOLY MARKET CHARACTERISTICS:

  • One Seller
  • High Entry Barriers
  • Quantity below Equilibrium
  • Prices above equilibrium and Supply Curve
  • Can extract monopoly profit.

OLIGOPOLISTIC COMPETITION:

IMPERFECTLY COMPETITIVE MARKETS:

Markets that lie somewhere between the two extremes of the perfectly competitive market with innumerable sellers and the pure monopoly market with only one seller.

HIGHLY CONCENTRATED MARKETS:

Oligopoly markets that are determined by a few large firms.

HORIZONTAL MERGER:

The unification of two or more companies that were formerly competing in the same line of Business.

PRICE FIXING:

An agreement between firms to set their prices at artificially high levels.

MANIPULATION OF SUPPLY:

When firms in an oligopoly industry agree to limit their production so that prices rise to levels higher than those that would result from free competition.

EXCLUSIVE DEALING ARRANGEMENTS:

When a firm sells to a retailer on condition that the retailer will not purchase any products from other companies and/or will not sell outside of a certain geographical area.

TYING ARRANGEMENTS:

When a firm sells a buyer a certain good only on condition that the buyer agrees to purchase certain other goods from the firm.

RETAIL PRICE MAINTENANCE AGREEMENTS:

A manufacturer sells to retailers only on condition that they agree to charge the same set retail prices for its goods.

PRICE DISCRIMINATION:

To charge different prices to different buyers for identical goods or services.

UNETHICAL PRACTICES IN OLIGOPOLY INDUSTRIES:

  • Price – Fixing
  • Manipulation of supply
  • Exclusive dealing arrangements
  • Tying Arrangements
  • Retail Price Maintenance Agreements
  • Price Discrimination

PRICE LEADER:

  • The firm recognized as the industry leader in oligopoly industries for the purpose of setting prices based on levels announced by that.

TRUST:

An alliance of previously competitive oligopolists formed to take advantages of monopoly powers.

MAIN VIEWS OF OLIGOPOLY POWER:

  • Do-Nothing View
  • Anti trust View
  • Regulation View

THINGS TO CHECK IN A BUSINESS PLAN Monday, Dec 1 2008 

We have been consulting an investor ( a strategic VC Operations) on investing in various projects.

Common findings:

  • The entrepreneurs who had approached the investors were operating more from their gut feelings than from data.
  • They are very optimistic about their future prospects, even though they have been facing tough times for a long time.
  • The data of the best possible scenario is generally referred to as the standard expected scenario, which is never even remotely close.
  • Expenditures are considered on a very loose levels and always underestimated.
  • Lot of challenges are discounted and overlooked till the time they become big and unconfrontable.
  • Competition is never given its dues in terms of considering market share, marketing, sales and talent retention challenges.
  • Sweeping generalities become the business plan instead of data oriented thought through strategies.
  • Cash Flow is expected to be taken care of, by the expected business revenue – which generally fail to be as per the expectations.
  • Challenges faced by the industry as a whole, are not fully considered and rarely brainstormed to create innovative solutions.
  • Scant respect for Financial Planning, strategy, HR, training and development are seen in many cases.
  • Employees are expected to be automatically aligned to the vision that is hidden in the mind of the promoters.

These are some of the observations, but definitely not applicable to everyone.

Many entreprenuers have demonstrated that they do not fall in the above pitfalls and they steer their organizations to great success and sustained performance standards by combining the entreprenuers fire in the belly, with the strategy and systems.

WHAT WORKS:

  1. Have accurate data of the past and realistic data about the future.
  2. Have all industry related information handy.
  3. Have your financial data impeccable and ready to discuss.
  4. Have your competition and various factors affecting your organization performance detailed out.
  5. Have a strong strategy and marketing plan.
  6. What are the Key requirements for success in your industry, is it technolgoy, manpower, skills, market converage? Have all the bases worked out.
  7. Realistic Growth Plans.
  8. Detailed SWOT Analysis or the reverse TOWS Analysis.
  9. Create a realistic picture of the Opportunites and Challenges and your plans for dealing with them.
  10. Clearly identify the areas where you have not yet sorted out things or you would like inputs or are working out external inputs.
  11. Have guidance from professionals like CAs, Management Consultants, Govt. liasoning officers etc., as required.
  12. Create 3 plans , worst scenario, best scenario and realistic scenario.

To discuss more, contact:

MANAGEMENT INNOVATIONS

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

CONSULTANCY SERVICES OFFERED Monday, Dec 1 2008 

MANAGEMENT 

  • Facilitating CREATION OF VISION, MISSION AND CORE VALUES
  • Guding in GETTING THE ORGANIZATION ALIGNED ON THE VISION,MISSION AND CORE VALUES
  • Supporting in POLICIES AND PROCESSES – REINTERPRETATION & REFINEMENT based on the Vision, Mission and Core Values.
  • Creating Operating guidelines for each and every role holder inside of the Vision,Mission and Core Values
  • Facilitating Creating Strategies for the short term and long term growth strategy. We recommend using the Blue Ocean Strategy along with TOWS (SWOT) as the starting point of planning.
  • Guiding in the Strategy Implementation. We recommend the BSC – Balanced Score Card given approach as the guiding principle for Strategy Implemenation.
  • Creating Systemic and Systematic Change Management disciplince.

MARKETING

  • Facilitate creation of the Marketing Strategy
  • Guiding on Shortlisting of the Target Market Segments
  • Advice on Creating Specific Strategies for each Specific Target Market Segment.
  • Support on Implementing the Marketing Strategies including using various medium including eStrategies
  • Guidelines for ongoing monitoring, feedback and updating the Marketing Strategies.
  • Continuous innovation and work on Branding and Positioning.
  • Inputs on Online Marketing

 

SALES

  • Training and coaching people on the World Best Consultative Sales Models ( We recommend Huthwaite’s SPIN Model as the foundation for learning Consultative Sales. There are some other good models which can also be used)
  • Guiding people on Key Account Management Strategies.
  • Guiding people on Relationship Marketing as building long term mutually rewarding and respecting relationships with clients.
  • Guiding in Channel Management and Market Coverage Strategies and Implementation
  • Facilitating a Sales and Marketing oriented culture in the organization.
  • Creating a result oriented culture with strong MIS and reporting systems with continuous updates, feedback, coaching, interventions.
  • Guiding on Online Sales, Web Stores, ECommerce, Online Business, Online Lead Generation

 

HR

  • Guide in Creating Performance Based Culture fostering leadership,initiative, ownership and result orientedness.
  • Facilitating KRA setting, performance management, performance appraisal, issue resolutions, teamwork, and growth orientation. 
  • Guide in Creating HR as a strong back bone enriching and supporting the vision, mission, core values and the strategy implementation.
  • Advise on Creating People Development and Talent Management as everyday responsibility of the Supervisors and Managers and integrating it with everyone’s KRAs and Performance Appraisals.

 

TRAINING:

  • Vision, Mission, Core Values – Consulting and Workshops.
  • Strategy Creation – Consulting and Workshops
  • Market Segmentation – Consulting and Workshops
  • Consultative Sales – Consulting, Workshops & Coaching Camps
  • Leadership, Managerial and Supervisory Development, Soft Skills, Attitude, TeamBuilding, Holistic Self Development – Consulting, Workshops and Coaching Camps

MANAGEMENT INNOVATIONS

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

TOWS – Threat, Opportunity, Weakness, Strengths Friday, Nov 14 2008 

SWOT has been the standard approach for any business analysis and personal analysis.

Now the trend is to look at the Threats first, and hence the reverse approach to start with T O W S.

SWOT can be said to be Inside out way of thinking and TOWS can be said to be the outside in way of thinking.

Today, in discussion with one of the clients, we were discussing THREATS of TOWS in further details.

THREATS:

  1. Threats can be to the current state as well as to the desired future state.
  2. Threats can be to current market share, customer base, revenue, profitability, manpower, resources, channel and other key factors.
  3. Mapping all possible threats may be a good starting point. One must map all possible threats including the ones, that you are currently able to manage successfully.
  4. Mapping all players, all key stake holders, all constituency will help you generate awareness.
  5. Mapping all possible direct and indirect competition and their strengths is difficult but very useful.

For further details contact us at

MANAGEMENT INNOVATIONS

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

http://www.linkedin.com/in/manojonkar

Recommended Readings for Recession Times Tuesday, Nov 11 2008 

If you have not read by now, or even if you have read it once, good time to re- read the extra ordinary book and concept by Management Guru – C.K. Prahlad – “The Fortune at the Bottom of the Pyramid”.

The biggest innovations in the management field have been the new, out of the box, revenue models and business models.

Fortune at the Bottom of the Pyramid concept gets companies access to markets, which were generally not even considered as potential markets ( and of course they are the bigger ocean).

Companies will have to rethink their business models, but those new business models created for tapping the bottom of the pyramid may alter the history of the enterprise as well as the industry and it has a parallel opportunity to make a big difference to the society, while taking care of the stake holders and the stock holders requirements.

Along with that we also recommend the book BLUE OCEAN STRATEGY.

Using both the books as reference points, one can create a unique strategy which will help the companies whether small or big, to emerge as WINNERS in the current times as well as in the future to come.

MANAGEMENT INNOVATIONS,

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

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