Friday, April 20, 2007

Do You have the Right Strategy?

I like the word "strategy". Sounds good, no! Whenever I'm doing nothing at office and want to feel smart, I start "strategising on my options to leverage the resources at hand". Roughly translated it means, "I'm taking a nap".

Jokes apart, this is what I read in dailies:
  • The total value of M&A involving Indian companies was about $37 billion (Rs 160000 crore) in two months of 2007 as against $20 billion (Rs 86000 crore) in the whole of 2006. Is there some grand strategy there?

  • LIC, the Insurance behemoth, is in the process of carving two separate entities for its "Credit Card venture" and "pension business". Why is LIC diversifying into credit cards?

  • Jet and Sahara have finally decided to merge after 10 month of battle. Is there value in the deal?

  • Tata outbids CSN in the Corus deal? Did they pay too much?

I often wonder at the strategy behind the decisions. Unfortunately, I don't learn much from the media. Maybe because they are much more focussed on the strategy to cover the Aishwarya Abhishek marriage to the max detail rather than covering such mundane topics.

I start from the basics. What is strategy? Wiki says, A strategy is a long term plan of action designed to achieve a particular goal, most often "winning". Isn't this simply means what is good for me on the long run should be my strategy. Only handicap is we don't know what's good for us!! For example, we may try to maximise sales without looking at the profitability of sales and thereby hurt the bottomline of our Company.

Let's take a look at an overview of the Strategic management process. The process of Strategic Management exercise starts with the Company's Mission statement where the business of the company is identified. Defining the business would mean figuring out the product/service, the segment of customers and also the delivery channel.

After we identify where we want to reach, we should also be able to assess our situation and decide whether we are capable of reaching our goals and that our goals are not just wishful thinking. In management parlance, you need to do a SWOT analysis or do the Company Profiling. As part of the profiling, we should also try to figure out the PESTs ( Political, Economics, Social, Technological environment), also known as External Environment.

Once you are done with the above three ( Mission, Company profiling and External environment), you may be feeling that you are through. But it gets murkier when the Management Gurus shout over each other selling you there ready made Dosa mixes, err,.. their matrices. Three popular matrices that comes to our help with strategic analysis and choice are:

  1. BCG Matrix: This matrix created by the Boston Consulting group base their strategies on the basis of market growth and market share where we can categorize its business units as "Stars", "Cash Cows", "Question Marks", and "Dogs", and then allocate cash accordingly

  2. GE Matrix: It is amore complex version of BCG matrix where one axis comprises industry attractiveness measures, such as Market Profitability, Fit with Core Skills etc. and the other axis comprises business strength measures, such as Price, Service Levels etc.

  3. Ansoff's Matrix: The Ansoff Product-Market Growth Matrix is a marketing tool which allows marketers to consider ways to grow the business on the basis of four possible product/market combinations. The matrix consists of four strategies which are market penetration, product development, market development and diversification.

Armed with the jargons, I feel smug and confident. Untill my missus called up to enquire what I was doing at office. "Strategy session going on", I tried to sound important and busy. "Then you can come early, and please buy some भाजी on your way back".Unfortunately my wife does not fathom "strategy" (but uses a lot of them, eh)

I'll go now and strategise on buying the best भाजी (value for money, guys!) .I'll come back with more bhaaji sessions, oops.., strategy sessions. I will simplify the meaning of long term objectives, operating strategies, institutionalisation of strategy, et al. Stay tuned.

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