1.

Strategic groups, strategic

dimensions
2. Importance of Strategic
Management; The I/O Model of
Above-Average Returns and The
Resource-Based Model of Above-
Average Returns
 The I/O Model of Above-Average
Returns
• This model explains the external environment’s
dominant influence on a firm’s strategic actions. This
model specifies that the industry in which a company
chooses to compete has a stronger influence on
performance that do the choices managers make inside
their organizations.
• The firm’s performance is believed to be determined
by a range of industry properties including economies
of scale, barriers to market entry, diversification,
product differentiation and the degree of
concentration of firms in the industry.
 The I/O Model of Above-Average
Returns
• This model has four underlying assumptions:
• 1. The external environment is assumed to impose
pressures and constraints that determine the strategies
that would result in above-average returns.
• 2. Most firms competing within an industry or within a
certain segment of that industry are assumed to control
similarly strategically relevant resources and to pursue
similar strategies in light of those resources.
• 3. Resources used to implement strategies are assumed to
be highly mobile across firms, so any resource differences
that might develop between firms will be short lived.
• 4. Organizational decision makers are assumed to be
rational and committed to acting in the firm’s best
interests.
 Resource-Based Model of Above-
Average Returns
• This model assumes that each organization is a
collection of unique resources and capabilities.
The uniqueness of its resources and capabilities
is the basis for a firm’s strategy and its ability to
earn above-average returns.
• Resources are inputs into a firm’s production
process such as capital, equipments, employees,
patents. In general, a firm’s resources are
classified into three categories: physical, human
and organizational capital. Resources are either
tangible or intangible in nature.
 Resource-Based Model of Above-
Average Returns
• Capability is the capacity for a set of resources
to perform a task or an activity in an
integrative manner. Capabilities evolve over
time and must be managed dynamically in
pursuit of above-average returns.
• Core competencies are resources and
capabilities that serve as a source of
competitive advantage for a firm over its
rivals.
 Resource-Based Model of Above-
Average Returns
• Resources are
• Valuable, when they allow a firm to take
advantage of opportunities or neutralize threats
in external environment.
• Rare, when possessed by few.
• Costly to imitate, when other firms cannot obtain
them.
• Nonsubstitutable, when they have no structural
equivalents.
• When these four criteria are met, resources and
capabilities become core competencies.
 Conclusion
• Both these models complement each other.
• The I/O Model of Above-Average Returns
focuses outside the firm while The Resource-
Based Model of Above-Average Returns
focuses inside the firm.
 3. Strategic Focus: Effective Vision and
Mission Statements: Characteristics of
good Vision and Mission statements,
Setting objectives- Strategic Objectives
and Financial Objectives, hierarchy of
objectives.
4. Stakeholders, Stakeholder Analysis
Classifications of Stakeholders,
Stakeholder Management, The Strategic
Management Process
 Strategic Intent
• Strategic Intent: ‘’A long term goal that
captures employees’ imaginations and clarifies
criteria for success’’ – Hamel, G. & Prahalad,
C.K. (2011) Harvard Business Press: Boston,
MA
 Strategic Intent

• Strategic intent implies a sizeable stretch for

an organization. Current capabilities and
resources will not suffice. This forces the
organization to be more inventive, to make
the most of limited resources.
– Hamel, G. & Prahalad, C.K.
 Attributes of strategic intent

• GaryHamelandC.K.Prahaladarguethatstrategicintenth
asthreeattributesasfollows:
• “SenseofDirection”:Strategicintentisa“viewofthefutu
reconveyingaunifyingandpersonalizingsenseofdirectio
n.”
• “SenseofDiscovery”:“Astrategicintentisdifferentiated
;itimpliesacompetitivelyuniquepointofviewaboutthefu
ture.”
• “SenseofDestiny”:“Strategicintenthasanemotionaled
getoit;itisagoalthatemployeesperceiveasinherentlywo
rthwhile.”
 Strategic Intent

• Whereas the traditional view of strategy

focuses on the degree of fit between existing
resources and current opportunities,
• ‘strategic intent’ creates an extreme misfit
between resources and ambitions.
• Hamel, G. & Prahalad, C.K.
Broader perspective of strategic intent

• Purposes the organization strives for

• Hierarchy of intentions ranging from a broad

vision, through mission and business
definition, down to specific goals and
objectives
- Kazmi
Hierarchy of strategic intent

Vision

Mission

Strategic objectives
 Vision

• Articulates the position that a firm would like to

attain in the distant future
• Encapsulates the basic strategic intent
• Vision is dreamt of more than it is articulated
• (Ford, Disney, J N Tata, NarayanMurthy, Dr.
Burman…)
• Vision of Dabur: Dedicated to the health and well
being of every household.
 Benefits of having a vision

• Good visions ….
• Are inspiring & exhilarating
• Help in creating a common identity & shared
sense of purpose
• Are competitive, original, and unique
• Foster risk taking and experimentation
• Foster long term thinking
• Represent integrity
 Vision statement
• Amazon. com’s vision statement
• ‘’Our vision is to be earth's most customer
centric company; to build a place where
people can come to find and discover
anything they might want to buy online.’’
• Microsoft’s vision statement
• ‘’Empower people through great software
anytime, anyplace, and on any device.’’
 Mission

• A mission statement is a declaration of what

an organization is and why it exists.
• The statement is: the business' reason for
being,
• a proclamation of why it exists,
• a clarification of who it serves, and an
expression of what it hopes to achieve in the
future.
 Mission

• Include the purpose of the organization, its

scope of operations, and the basis of its
competitive advantage
• Has the greatest impact when it reflects an
organization’s enduring, overarching
strategic priorities and competitive
positioning
 Mission
• A carefully crafted mission statement
accurately describes the business and
inspires the people who contribute to its
success.
 Mission statement
• Apple ‘s mission statement
• "Apple is committed to bringing the best
personal computing experience to students,
educators, creative professionals and
consumers around the world through its
innovative hardware, software and Internet
offerings."
 Mission statement
• Toys r us mission statement
• “To be the world’s greatest kids’ brand.”
 Characteristics of Mission statement

• It should be Visionary:
• Avisionarymissionstatementhelpspeopleund
erstandwhatthebusinessisaboutandhowtheyca
ncontributetotheachievementofthevision.

• Missionstatementsfrequentlycontainwordings
uchas"tobethebest","thehighestquality",and"i
ntheworld".
 Characteristics of Mission statement

• It should be Broad
• Amissionstatementshouldnotlimitacompany's
areaofserviceorexpertisetoonarrowly.
• Amissionstatementshouldbebroadenoughtoall
owthecompanytomeetthoseneedswithoutann
ualrevisionsofthestatement.
 Characteristics of Mission statement

• It should be Realistic
• Thebroadvisionneedstobetemperedwithreali
sm,tobebothpracticalandworkable.
• Alofty,unrealisticmissionstatementwillnothave
greatcredibilityandwillnotgiveaclearindication
ofwhatthebusinessisabout.
• Goodmissionstatementsaredirectandpowerful
 Characteristics of Mission statement

• It should be Motivational
• Thestatementshouldbewritteninsuchawaythat
itinspirescommitmentamongemployees,custo
mers,partners,andfundingagenciesaboutwhatt
hiscompanywilldoorproduce.
• Someorganizationsemphasizetheinspirationalv
alueoftheirmissionstatement
 Characteristics of Mission statement

• It should be Short and Concise

• Themissionstatementshouldbenolongerthan25w
ords.
• Shouldbeshortenoughthatanemployeecaneasilyre
memberitandreadilyrepeatit.
• ManagementguruPeterDruckersuggests

• itshouldbeabletofitonat-shirt.
 Characteristics of Mission statement

• It should be Easily understood

• The statement should use plain language that is
convincing and easy to understand.

• Use the "grandmother test" on your mission

statement --would your grandmother understand
what your company is about if she reads your
mission statement?
 Characteristics of Mission statement

• It should be Distinctive
• The statement should be distinct, unique….create
an important distinction in people’s mind
• Bajaj Auto:“value for money, for years” (Earlier)
• “Inspiring Confidence” (Now)

• Unilever“reducing the chores of housewives”

• A strategic vision concerns a firm’s future
business path --“where we are
going”Markets to be pursued
• Future technology-product-customer focus
• Kind of company that management is trying
to create
• A mission statement focuses on current
business activities --“who we are and what
we do”Current product and service offerings
• Customer needs being served
• Technological and business capabilities
 Goals

• Goals denote what an organization hopes to

achieve in a future period of time
• Represent the future state or outcome of
effort put in now
• May be qualitative
 Objectives

• Objectives are the ends that state specifically

how the goals shall be achieved.
• Objectives make the goals operational
• Usually quantitative; measurable and
comparable
 Role of objectives

• •Converts strategic vision and mission into

specific performance targets
• •Creates yardsticks to track performance
• •Pushes firm to be inventive and focused on
results
• •Helps prevent complacency and coasting;
basis for strategic decision making
 Type of objectives required

• Financial objectives
• Outcomes focused on improving financial
performance
• Strategic objectives
• Outcomes focused on improving long-term,
competitive business position
 Examples of financial objectives

• Grow earnings per share 15% annually

• Boost annual return on investment (or EVA)
from 15% to 20% within three years
• Increase annual dividends per share to
stockholders by 5% each year
• Strive for stock price appreciation equal to or
above the S&P 500 average
• Maintain a positive cash flow every year
• Achieve and maintain a AA bond rating
 Examples of strategic objectives

• Increase firm’s market share

• •Overtake key rivals on quality or customer
service or product performance
• •Attain lower overall costs than rivals
• •Boost firm’s reputation with customers
• •Attain stronger foothold in international markets
• •Achieve technological superiority
• •Become leader in new product introductions
• •Capture attractive growth opportunities
 Characteristics of objectives

• Objectives should be -
• Understandable
• Concrete and specific
• Related to a time frame
• Measurable and Controllable
• Should be Challenging
• Correlate with each other
• Be set within constraints
 Issues in objective setting

• Specificity
• Multiplicity
• Periodicity
• Verifiability
• Reality
• Quality
 How are objectives formulated

• Four Factors considered for objective setting

• 1. Forces in the environment
• 2. Realities of enterprise resources and internal
power relationships
• 3. Value system of top executives
• 4. Awareness in management about past
objectives of the firm
- Glueck (1984)
Balanced Scorecard Approach to
objective setting
 Balanced Scorecard Approach to
objective setting
• Balanced Scorecard
• Framework used to verify that the firm has established both
strategic and financial controls to assess its performance
• Prevents overemphasis of financial controls at the expense of
strategic controls

• Four perspectives of Balanced Scorecard

• Financial
• Customer
• Internal business processes
• Learning and growth
Balanced Scorecard
 Stakeholders
• Stakeholders are the individuals and groups who
can affect and are affected by the strategic
outcomes achieved and have enforceable claims
on a firm’s performance.
• Stakeholders can be divided into three broad
categories:
• Capital market stakeholders: Shareholders,
Major suppliers of capital (banks etc)
• Product market stakeholders: Primary
customers, Suppliers, Unions
• Organizational stakeholders: Employees,
Managers, Nonmanagers
 Stakeholders
• Capital market stakeholders
• Shareholders and lenders both expect a firm
to preserve and enhance the wealth they have
entrusted to it. They expect lower returns on
low-risk investments and higher returns on
high-risk investments. Dissatisfied
shareholders may reflect their concerns
through several means such as selling their
stock.
 Stakeholders
• Product market stakeholders
• Customers demand reliable products at the
lowest possible prices. Suppliers seek loyal
customers who are willing to pay the highest
sustainable prices for the goods and services
they receive. Union officials are interested in
secure jobs, under highly desirable working
conditions, for employees they represent.