Strategic MGT 1 PDF

Strategic Management
Preface
The development, evaluation, and implementation of business strategies are
essential to successful management. The key is a management system that will
help managers
Provide vision to their business.
Monitor and understand a dynamic environment.
Generate visionary and creative strategy options that will be responsive
to changes facing a business.
Develop strategies based on sustainable competitive advantages.
The concept of strategic management is an aid to the top management to deal
with the problems and intricacies being posed by an increasingly complex and
competitive environment. Strategic management may be viewed as a set of
managerial decisions and actions that determine the long term performance of a
company. It includes environmental scanning both external and internal,
strategy formulation, strategy implementation, and evaluation and control.
Therefore, the study of strategic management emphasizes the monitoring and
evaluation of opportunities and threats in light of organizations strengths and
weaknesses.
To be very precise strategic management is concerned with making and
implementing decisions about organizations future direction. It is the
conscious and rational management exercise which involves defining and
achieving organizations objectives and implementing its missions. It can also
be viewed as the pattern of organizations response to its external environment
over time. Strategic manager cannot afford to forget business opportunities that
ultimately decide the future prospects of the organization. Strategic planning is
necessary to see that there is maximum output at minimum cost.
This book is concerned with helping managers identify, select, and implement
strategies. The intent is to provide decision makers with concepts, methods, and
procedures by which they can improve the quality of their decision making.
This book is divided into five parts/modules. The first part structures the book
by introducing concepts, method, and strategies and by providing an overview
of strategic management based on comprehensive model. The second part,
drawing heavily from marketing and economics, covers strategic analysis.
Strategic analysis involves both external analysis (the analysis of the customer,
market, and environment). The third part discusses various models like
portfolio analysis and generic strategies differentiation strategies, strategies
based on low cost, focus, or preemptive move. The fourth part focuses on
1
global competition, and competition in hostile and declining industries. The

final part contains a chapter on strategic implementation with focus on Strategic
control, balanced scorecard.
Thus, first chapter provides an overview of the strategic management process
and explains what students will find as they use this book. The remaining 4
chapters cover each part of the strategic management process and techniques
that aid strategic analysis, decision making, implementation, and control.
Finally, in order to have better understanding of the subject, I have included
following three case studies:
ITC Limited: BCG Matrix
ICICI Bank: Balanced Scorecard
Berger Paints Limited: Competitive Advantage
Wal-Mart: Sustainable competitive advantage
For students to attempt case study, I have included steps for solving the
case study.
The Audience
This book is suitable for any management or business school course that
focuses on the management of strategies.
Module I: Introduction - The Basics of Planning and Strategic
Management
Concept of Planning ,Definition and meaning of strategy, Evolution of
Strategic Management, Corporate Strategy, Patterns of Strategy Development,
Levels of Strategy, Competitive scope and value chain
Module II: Strategic Analysis
Mission, Vision and Business Definition, Environmental Threat and
Opportunity Profile (ETOP), Industry Analysis, Strategic Advantage Profile
(SAP), Competitor analysis, market analysis, environmental analysis and
dealing with uncertainty, scenario analysis and SWOT Analysis.
Module III: Strategic Choice
Traditional Approach - Strategic Alternatives, Various models like BCG, GE
Nine Cell Matrix, Hofers Model, Stricklands Grand Strategy Selection
Matrix, Basis of Choice; Michael Porters Approach Generic competitive
strategies, Cost advantage, differentiation, technology and competitive
advantage, substitution, competitor, complementary products and competitive
advantage, strategic vision vs. strategic opportunism, Coevolving and Patching.
Module IV: Offensive and Defensive Competitive Strategies
Industry Scenarios, Advantages and disadvantages of defensive strategies,
Advantages and disadvantages of offensive strategies
Module V: Strategic Implementation
Strategic control, Balanced Scorecard- concepts and application in strategy
implementation, case studies
Index
Chapter
no.
Particulars
Page no.
Introduction
Strategic Analysis
63
Strategic Choice
111
Offensive and Defensive

Competitive Strategies
150
Strategic Implementation and case

Studies:
156
ITC (BCG Matrix)

ICICI Bank (Balanced Score Card)
Berger Paints (Competitive
Advantage)
Wal- Mart
Contents in Brief
Part I: Introduction
1.
2.
3.
4.
5.
6.
7.
Evolution of Strategic Management

Concept of Planning
Levels of Strategy
Corporate Strategy
Patterns of Strategy Development
Competitive Scope
Value chain Analysis
6
24
32
36
42
46
50
Module II: Strategic Analysis

1.
2.
3.
4.
5.
6.
7.
8.
9.
Mission, Vision and Business Definition

Environmental Threat and Opportunity Profile (ETOP)
Strategic Advantage Profile (SAP)
Industry Analysis
Competitor analysis
Market analysis
Environmental analysis and dealing with uncertainty
Scenario analysis
SWOT Analysis
63
80
85
87
92
96
98
100
102
Part III: Strategic Choice

1.
2.
3.
4.
5.
6.
7.
8.
9.
Michael Porters Approach Generic Competitive Strategies, Cost Advantage,

Differentiation
111
Hofers Model, Stricklands Grand Strategy Selection Matrix
116
Various Models like BCG
117
GE Nine Cell Matrix
124
Porters Five Force Model
129
Technology and Competitive Advantage, Substitution
137
Competitor, Complementary Products and Competitive Advantage
139
Strategic vision vs. strategic opportunism
144
Coevolving and patching
146
Part IV: Offensive and Defensive Competitive Strategies

1.
2.
Advantages and Disadvantages of Offensive Strategies

Operationalizing Strategy / Institutionalizing Strategy
150
150
Part V: Strategic Implementation

1.
2.
3.
4.
Strategic Control
Balanced Scorecard Concepts and applications in strategy implementation
Industry Scenarios
Case Studies
156
162
169
174
MODULE I
1.1 Evolution of Strategic Management
1.2 Concept of Planning
1.3 Levels of Strategy
1.4 Corporate Strategy
1.5 Patterns of Strategy Development
1.6 Competitive Scope
1.7 Value chain Analysis
Chapter 1 Introduction to Strategic Management

1.0 Introduction
Learning Outcomes
Upon Completion of this chapter, you will be able to answer the following
questions:
1.
What is strategy and why it is important.
2.
The elements of strategic management.
3.
The process of strategic management.
4.
Important aspects of strategic management.
5.
Understand the elements of strategic management process and apply them

successfully in a business venture
1.1 EVOLUTION OF STRATEGIC MANAGEMENT

Without a strategy the organization is like a ship without a rudder.
Joel Ross and Michael Kami
Challenge of Strategic Management

Why do some firms succeed while others fail?
Only 16 of the 100 largest U.S. companies at the start of the 20th century are
still identifiable today!
In a recent year, 44,367 businesses filed for bankruptcy and many more U.S.
businesses failed. Competitive success is transient...unless care is taken to
preserve competitive position. The goals of achieving strategic competitiveness
and earning above-average returns are challenging. The performance of some

companies more than meets strategic management's challenge.
21st Century Competitive Landscape: Fundamental nature of competition
is changing
Rapid technological changes
Rapid technology diffusions
Dramatic changes in information and communication technologies
Increasing importance of knowledge
The pace of change is relentless.... and increasing. Traditional industry

boundaries are blurring, such as Computers, Telecommunications. The global
economy is changing. People, goods, services and ideas move freely across
geographic boundaries. New opportunities emerge in multiple global markets.
Markets and industries become more internationalized.
Traditional sources of competitive advantage no longer guarantee success. New
keys to success include:
Flexibility
Innovation
Speed
Integration
In order for the organizations to survive under the scenario described above,
companies with sound Strategic Management practices will survive in future.
A central objective of strategic management is to learn why organizations are
finding it tough to survive is to think strategically the three big strategic
questions:
1. Whats the companys present situation?
2. Where does the company need to go from here?
3. How should it get there?
In this chapter, we shall focus on strategy and strategic management process so
that we are better prepared to face the challenges.
Why is strategy important?
A compelling need exists for managers to proactively shape how a firms
business will be conducted. A strategy-focused firm is more likely to be a
strong bottom-line performer than one that views strategy as secondary.
7
What is a business Strategy?

Before discussing the process of developing sound business strategies, it is fair
to ask what a business strategy is in the first place.
A business strategy, sometimes termed competitive strategy or simply strategy,
is here defined by six elements or dimensions.
A business strategy specification includes a determination of:
Business Strategy specifications:
1. The product market in which the business is to compete.
The scope of business is defined by the products it offers, by the market it seeks
to serve, by the competitors it chooses to compete with to avoid, and by level of
its vertical integration
2. The level of investment.
Although there are obvious variations and refinements, it is useful to
conceptualize the alternatives as
Invest to grow(or enter the product market)
Invest only to maintain its existing position
Milk the business by minimizing investment
Recover assets by liquidating/divesting business
3. The functional area strategies needed to compete in the selected
product market.
Product line strategy
Communication messaging strategy
Pricing strategy
Distribution strategy
Manufacturing strategy
4. The strategic assets or competencies that underlie the strategy and
provide the sustainable competitive advantage (SCA).
Strategic competency such as manufacturing or promotion, that has
strategic importance to the business
Strategic asset is a resource such as brand name or installed customer
base that is strong relative to the competitor.
5. The allocation of resources over the business units
Allocation of:
Financial resources generated internally or externally
Nonfinancial resources such as plant, equipment, and people
6. The development of synergistic effects across the businesses the
creation of value having business units that support and complement
each other.
It is clear that the organizations that can achieve synergistic effects will
have an advantage will have an advantage over those that ignore or fail
to achieve synergy.
WHAT IS STRATEGY?
What do we mean by Strategy?
Consists of competitive moves and business approaches used by
managers to run the company
Managements action plan to Grow the business
Attract and please customers
Compete successfully
Conduct operations
Achieve target levels of organizational performance
The hows that define a firm's strategy
How to grow the business
How to please customers
How to outcompete rivals
How to manage each functional piece of the business (R&D,
production, marketing, HR, finance, and so on)
How to respond to changing market conditions
How to achieve targeted levels of performance
Definition of Strategy - Alfred Chandler

The concept of strategy is an aid to top management to deal with problems and
intricacies being posed by an increasingly complex and competitive
environment.
Figure 1.1 Definition of strategy Alfred Chandler

9
Definition of Strategy - Henry Mintzberg 1987

A pattern in a stream of decisions and actions
Strategy is a plan, a "how," a means of getting from here to there.
Henry Mintzberg, in his 1994 book, The Rise and Fall of Strategic Planning
,points out that people use "strategy" in several different ways, the most
common being these four:
Strategy is a pattern in actions over time; for example, a company that regularly
markets very expensive products is using a "high end" strategy.
A pattern in a stream of decisions and actions
Strategy is a plan, a "how," a means of getting from here to there
Strategy is position; that is, it reflects decisions to offer particular
products or services in particular markets.
Strategy is perspective, that is, vision and direction.
Definition of Strategy - Strategy Igor Ansoff (1965)

The common thread among the organizations activities and product-markets
that defines the essential nature of business that the organization was or planned
to be in future
Definition of Strategy - Johnson, Scholes and Whittington

Strategy is the direction and scope of an organisation over the long term, which
achieves advantage in a changing environment through its configuration of
resources and competences with the aim of fulfilling stakeholder expectations.
Johnson, Scholes and Whittington - Exploring Corporate Strategy, 2008
o
o
o
o
o
o
sate
10
Long-term direction
Scope of an organisations activities
Advantage over competition
Strategic fit with the business environment
Resources and competencies
Values and expectations
2)
Working Definition of Strategy - What is strategy about?

Strategy consists of competitive moves and approaches made by the managers
who run the company. Managements action plan to:
Start/grow the business
Attract and please customers
Compete successfully
Structure and conduct operations
Achieve target levels of organizational performance
Why is strategy important?
A compelling need exists for managers to proactively shape how a firms
business will be conducted.
A strategy-focused firm is more likely to be strong bottom-line
performer than one that views strategy as secondary.
Key elements of a successful strategy
Developing a successful strategy hinges on making competitive moves aimed at
Appealing to buyers in ways to set the enterprise apart from rivals and Carving
out its own market position.
It involves developing a distinct aha element to attract customers and Produce
a competitive edge.
WHAT IS STRATEGIC MANAGEMENT?

Strategic management may be viewed as a set of managerial decisions and
actions that determine the long term performance of a company. It includes:
Environmental Scanning both external and internal
Strategy Formulation
Strategy Implementation
Evaluation and Control.
Therefore, study of strategic management emphasizes the monitoring and
evaluating of external opportunities and threats in light of organizations
11
strengths and weaknesses.

To be very precise strategic management is concerned with making and
implementing decisions about organizations future direction. It is conscious
rational management exercise which involves defining and achieving
organizations objectives and implementing its missions.
It can also be viewed as the organizations responses to its external environment
over a period of time. Strategic planner cannot afford to forget business
opportunities that ultimately decide the future prospects of the organization.
Strategic planning is necessary to see that there is maximum output at minimum
cost.
The question is not if strategic management makes a difference but rather what
the impact of proper strategic management for the business is. There are as
many definitions of strategy as there are authors writing about it. In the box
below there are three definitions of strategic management developed over years
by key management experts to help understand what it is all about.
Definition of Strategic Management

Strategic management refers to the managerial process forming strategic
vision, setting objectives, crafting a strategy, implementing and executing the
strategy, and then over time initiating whatever corrective adjustments in the
vision, objectives, strategy and execution is deemed appropriate.
Thompson & Strickland
Strategic management is defined as a set of decisions and actions that result in

formulation and implementation of plans to achieve the companys objectives.
Pearce & Robbins
Strategic management is the analysis, decisions and actions an organization

undertakes in order to create sustain competitive advantage.
Dess & Lumpkin
Figure 1.2 Definition of Strategic Management

From the above one could determine the essentials of strategy. The main aim is
not to give a definition of strategic management in this chapter but only to
elaborate on the construct and its related concepts.
As per definition strategic management has to do with:
Ensuring long term survival of the business in a changing environment
Growing the business as the ultimate business goal
An ongoing and sometimes messy process of analysis, evaluation,
planning, implementation and reviewing. Many of these things happen
simultaneously and interactively
12
Choices and decision-making

Leading and motivating people to pursue the vision by
o Allocating resources to support strategic goals
o Implementing the decisions and executing the choices
o Changing and adapting to changes which result from the decisions.
BASIC MODEL OF STRATEGIC MANAGEMENT

Strategic management consists of four basic elements:
Environmental Scanning
Strategy Formulation
Strategy Implementation
Evaluation and Control
Key Elements to the Strategic Management Process
As will be clear at the end of this chapter, it shows that strategic management
has to do with three main areas - namely:
Strategy formulation (planning)
Strategy implementation (doing or execution)
Review of implementation (evaluation or control)
Before one can start formulating a strategy, one has to use strategic thinking in
finding the important events, patterns and trends that will influence the future
of the small business as well as the industry in which the small business
operates. Awareness of ones environment is important.
One of the key things to be good at strategic management is to ensure that all
people involved are strategically oriented. This requires that they should
converse about strategic issues all the time. Strategic conversation must
therefore become part of the culture (the way you do things) of the
organization. An important part of strategic conversation is to challenge choices
and decisions all the time.
In the figure below Basic Model of Strategic Management is illustrated.
13
Basic Model of
Four Basic Elements
Ronaldo Parente
Chapter 1
Wheelen & Hunger 10ed
Figure 1.3 Basic Model of Strategic Management
STEP ONE: ENVIRONMENTAL ANALYSIS AND SCANNING

Organization exists within the environment. ENVIRONMENTAL THREATChallenges posed by an unfortunate trend -lead to erosion of companys
position. ENVIRONMENTAL OPPORTUNITY -an attractive arena -that
company enjoys a competitive advantage.
There is environmental uncertainty due to lack of information needed to
understand or predict the future. Uncertainty arises from two related factors
complexity - the number of issues to which a manager must attend as well as
their interconnectedness
As uncertainty increases, techniques must be developed to collect, sort, and
interpret information about the environment.
We shall discus Environmental Analysis and Environmental Scanning.
14
Environmental Analysis
2 - 16
Environmental Analysis
Environmental
Scanning
Scenario
Development
Benchmarking
Forecasting
McGraw-Hill
2003 The McGraw-Hill Companies, Inc. All rights reserved.
Figure 1.4 Environmental analysis

Environmental Scanning
Environmental Scanning PESTEL Framework - Macro environment
The PESTEL framework is designed to provide managers with an analytical
tool to identify different macro-environmental factors that may affect business
strategies, and to assess how different environmental factors may influence
business performance now and in the future.
PESTEL
I t is describing the external factors of
Political
Economic
Socio-cultural
Technological
Environmental and
Legal
15
We need to be aware of external factors affecting our organization and how

they might change IS developments
Political Factors
Stability of government
Social policies: (e.g. social welfare etc.)
Trade regulations: (e.g. the EU & NAFTA)
Tax policies
Entry mode regulations
Government attitudes towards private and state-owned enterprises,

international politics (price of oil, supply of raw materials).
The Components of a Companys Macro-environment
Figure 1.5 Environmental Scanning

Economic Factors
16
Disposable income of buyers
Credit accessibility
Unemployment rates
Interest rates
Inflation
Interest rates, currency, exchange, inflation, market share etc.
Socio-cultural Factors
Population demographics: (e.g. aging population)
Distribution of Wealth
Changes in lifestyles and trends
Educational levels
Changes in demography, life style, working condit ions, education etc.

Technological factors
New innovations and discoveries
Pace of technological innovations and advances
Pace of technological obsolescence
New technological platforms (e.g. VHS and DVD)
New ways of delivering a service through the use of technology, exploit

marketing information and extend choices by internet etc.
Environmental factors
Environmental protection laws
Waste disposal laws
Energy consumption regulation
Popular attitude towards the environment
Climate change, impact of pollution, raw material supplies, use of energy

etc.
Legal factors
Employment regulations
Competitive regulations
17
Product regulations
Health and safety regulation
Ant i- t rust and monopoly legislation, laws against pollution, specific taxation
legislations etc.
STEP TWO : ENVIRONMENTAL ANALYSIS AND
SCANNING
Second step is concerned with the long-term plans for effective management of
nvironmental opportunities and threats, in the light of the organizational
strengths and weaknesses. It defines corporate mission, specify achievable
objectives, developing strategies and formulating policies. It is the process by
which strategies and policies are put to action through the development
programs, budgets, and procedures. Implementation requires changes in the
culture, structure and management.
The outcome of the formulation process is a plan with broad goals and detailed
steps to achieve the vision of the small business. Formulation, however, implies
that a number of things happen before the plan is formulated. This entails
thinking and conversing about the environment, the industry, and key drivers of
the industry.
2. Strategy Formulation
Selecting Strategy
Corporate strategy (Stability, Growth,
Retrenchment)
Business strategy (Competitive,
Cooperative)
Functional strategy (Technological
Leadership, Technological Followership)
Defining Policies
Guidelines for decision making that links
formulation to implementation
Ronaldo Parente
18
Chapter 1
Figure 1.6 Strategy Formulations

Economic Factors
STRATEGY FORMULATION
Mission
Reason for
existence
Objectives
What results
to accomplish
when
Strategies
Plan to achieve
the mission &
objective
Policies
Broad
guidelines BACK
for decision
making
Figure 1.7 Strategy Formulations

Economic Factors
STEP THREE: STRATEGY IMPLEMENTATION
Once the plan is created it needs to be implemented or else it will remain a plan
only. It therefore requires the execution of the steps described in the plan.
Figure 1.8 Strategy Implementation
19
STRATEGY IMPLEMENTATION
Programs
Activities needed
to accomplish a
plan
Budgets
Cost of the
Program
Procedures
Sequence of
steps needed
to do the job
3. Strategy Implementation
Programs
Strategy
Implementation
Budgets
Procedures
4. Evaluation & Control

- Continuous process
Ronaldo Parente
Chapter 1
Figure 1.8 Strategy Implementation

STEP FOUR: MONITORING, EVALUATION &
CONTROL
Control refers to measurement of how well the small business is doing in
executing the plan. It therefore implies that the objectives must be measurable
and some milestones must be set to measure progress. If the execution does
not go according to the plan, then new plans must be made or adaptations to the
original plan must be made.
STRATEGIC MANAGEMENT PROCESS

20
Develop a clear vision and translate it into meaningful vision statement

Define the firms core competencies and the market segment
Assess the companys strengths and weaknesses
Investigate environmental threats and opportunities in other words
conduct SWOT analysis
Identify key factors for success in the business
Analyze the competition
Create company goals and objectives
Formulate strategic options
Translate strategic plans into action plan
Establish accurate controls
Strategic management is a process (steps/events that follow a sequence), which
is elaborated extensively in the chapters that follow. The process is iterative
(steps repeat itself through the feedback loop). The discussion that follows here
is more to set the scene to understand the thinking behind the process.
STRATEGIC MANAGEMENT PROCESS

ENVIRONMENTA STRATEGY
L SCANNING
FORMULATIO
N
External
Internal
Missions
Objectives
Strategies
policies
STRATEGY
IMPLEMENTATIO
N
Programs
Budgets
Procedures
EVALUATION
CONTROL
Performance
Feedback / Learning
Figure 1.9 Strategic Management Process
21
Strategic Management Process
4 - 15
Analysis of
internal
strengths and
weaknesses
Establishment
of mission,
vision, and
goals
SWOT analysis
and strategy
formulation
Strategy
implementation
Strategic
control
Analysis of
external
opportunities
and threats
McGraw-Hill
Figure 1.9 Strategic Management Process

S
STRATEGIC MANAGEMENT MODEL
Figure 1.10 Strategic Management Model

SUMMARY
Doing strategic management correctly:
Leads to better guidance for the business
22
Leads to making managers more alert to new opportunities and threats It

helps to align all members to pursue the same goals
It helps to make management become more proactive rather than
reactive
it challenges the economic model of the business to ensure sustained
profits It facilitates the decision-making process of allocating resources
Strategic management is an ongoing process of planning (formulation),
executing (doing) and reviewing (control).
There is a lot of analysis to be done as homework before one can
formulate the right strategies.
It should not be done once off but regularly.
There is a lot of analysis to be done as homework before one can
formulate the right strategies.
It should not be done once off but regularly.
Key elements of a successful strategy
Developing a successful strategy hinges on making competitive moves aimed at
appealing to buyers in ways to set the enterprise apart from rivals and Carving
out its own market position.
Involves developing a distinctive aha element to attract customers and
produce a competitive edge.
CHECK AGAINST LEARNING OUTCOMES
I completely understand the following outcomes and will be able to apply
them in the work environment:
No.
Outcome
1.
The elements of strategic management
2.
The process of strategic management
3.
Important aspects of strategic management
Yes
No
23
1.2 CONCEPT OF PLANNING

Chapter 1 Introduction to Strategic Management
1.2 Introduction
Learning Outcomes
questions:
how to proceed through the basic steps in any planning
process
how strategic planning integrates with tactical and
operational planning
Planning
Plans are nothing, planning is everything - Dwight S. Eisenhower
The conscious, systematic process of making decisions about goals

and activities to be pursued in the future. Importance of formal
planning has grown dramatically
All organizations plan, but not in the same fashion.
All planning occurs within an environmental context.
All goals require plans to guide in their achievement.
All goals are tied higher goals and plans
Strategic Planning
Strategic planning the emergence of which is associated with the 1960s,
1970s, and 1980s is concerned with changing strategic thrusts and
capabilities. The basic assumption is that the past extrapolations are important
are inadequate and discontinuities from past projections and new trends will
require strategic adjustments. An adjustment is strategic thrust or direction
could involve moving into a new product market. The enhancement of research
and development could represent an adjustment in strategic capability.
Strategic planning focuses on market environment facing the firm. Thus,
emphasis is not only on an in-depth understanding of the market environment,
particularly the competitors and customers. The hope is not only to gain insight
into current conditions, but also to be able to anticipate changes that have
strategic implications.
24
One characteristic that strategic planning shares with budgeting and long range
planning management system is that it is largely based on periodic planning
system, usually an annual system. Typically, an organization will develop a
strategic plan in the spring and summer and then, during fall, will use that plan
as a base for developing the annual operating plans and budgets for the next
year. The periodic planning cycle does provide a time in which managers must
address strategic questions. Without such device, artificial though it may be,
even managers who realize the importance of strategic thinking might find their
time absorbed by day-to-day operations and crises.
The difficulty with the periodic planning process is that the need for strategic
analysis and decision making does not always occur on an annual basis. The
environment and technology may change so rapidly that environmental shocks
may occur so unexpectedly that being tied to planning cycle can be
disadvantageous or even disastrous. If the planning process is allowed to
suppress strategic response outside the planning cycle, performance can suffer,
particularly in dynamic industries.
Setting goals & objectives
Example: Meet demand within the limits of available resources at the
least cost
Determining steps to achieve goals
Example: Hire more workers setting start & completion dates Example:
Begin hiring in January; finish, March.
Basic planning process

Step one: situational analysis
o a process planners use, within time and resource constraints, to gather,
interpret, and summarize all information relevant to the planning issue
under consideration
o study past and current conditions, and forecast future trends
o focuses on internal forces and influences from the external environment
Step two: alternative goals and plans
o generate alternative future goals and plans to achieve them
o goals - targets or ends the manager wants to reach
should be specific, challenging, and realistic
should be acceptable to those charged with achieving them
o plans - the actions or means intended to achieve goals, identify
alternative actions, needed resources, and potential obstacles
single use plans - designed to achieve goals that are unlikely to be
repeated in the future
standing plans - designed to achieve an enduring set of goals
25
contingency plans - actions to be taken when initial plans fail or if

events in the external environment require a sudden change
4-9
Decision-Making Stages And Formal

Planning Steps
Generating alternative
solutions
Alternative
goals and plans
Evaluating
alternatives
Goal and
plan evaluation
Making the
choice
Goal and
plan selection
Implementing
Implementation
Evaluation
Monitor and
control
General decisionmaking stages
Situational
analysis
McGraw-Hill
Specific formal
planning steps
Identifying and
diagnosing the problem
Figure 1.2.1 Planning Tasks/Responsibility

Time Frames for Planning
Planning Horizons
Short-range plans
Job assignments
Ordering
Job scheduling
Dispatching
Responsible:
Operations
managers,
supervisors,
foremen
Today
Responsible:
Operations
managers
Intermediate-range plans
Sales planning
Production planning and
budgeting
Setting employment, inventory,
subcontracting levels
Analyzing operating plans
3 Months
Responsible:
Top executives
Long-range plans
R&D
New product plans
Capital expenses
Facility location, expansion
1 year
5 years
Planning Horizon
PowerPoint presentation to accompany Operations
Management, 6E (Heizer & Render)
13-9
2001 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458
Figure 1.2.2 Planning Horizons
26
The Time Dimension of Planning

Planning must provide sufficient time to fulfill the managerial commitments
involved.
Short-range Plans
Generally cover up to one year
Meet a particular objective in the near future
Answer the question: Are we doing things right?
Should fit well within and contribute to long-range plans
Are action plans and reaction (contingency) plans that have a time frame of
one year or less.
Intermediate Plans
Cover from 1 to 5 years and parallel tactical plans.
Are the principal focuses of organizational planning efforts.
Long-range Plans
Generally cover up to five year
Meet a particular objective in the near future
Answer the question: Are we doing things right?
Should fit well within and contribute to long-range plans
Cover present and future strategic issues extending beyond five years in the
future.
This concept was developed by Igor Ansoff, long a leading strategy theorist in
1950s and 1960s. Its focus is on anticipating growth and managing
complexity. The basic assumption is that the past trends will continue in the
future. The planning process typically involves projecting sales, costs,
technology, and so on into the future using data and experience from the past.
The planning task is then to develop human resources and facilities to
accommodate the anticipated growth or contraction. The time frame is not
necessarily as limited as the budgeting system and can anticipate two, five, ten,
or twenty years depending on the context. Included under long-range planning
is gap analysis. A gap occurs if the projected sales and profits do not meet the
organizational goals. Changes in operations, such as increasing the sales force
and/or plant capacity, are then considered to remove gap.
TYPES OF PLANS
Strategic planning
Analogous to top-level, long-range planning.
Covers a relatively long period.
Applied at the highest levels of the organization and affecting many parts of
the organization.
Strategic
Operations or tactical planning
27
Short-range planning.
Done primarily by middle- to lower-level managers.
Concentrates on the formulation of functional plans.
Contingency plans
Address the what-ifs of the managers job.
Gets the manager in the habit of being prepared and knowing what to do if
something does go wrong.
Most needed in rapidly changing environments.
STRATEGIC PLANNING PROCESS
Figure 1.2.3 Strategic Planning Process
Figure 7.1: The

Planning Process
Copyright Houghton Mifflin Company. All rights reserved.
28
74
Main Components of Strategic Planning
The Main
Components of
the Strategic
Planning Process
FIGURE 1.1
Pl
Copyright 2001 Houghton Mifflin Company. All rights reserved.
1-4
Figure 1.2.4 Components of Planning Process
Responsibilities for Planning

We try to explain the planning concept with the help of its application in
marketing management.
How would you define a strategic business plan and a strategic marketing plan?
A strategic business plan describes the overall direction an organization will
pursue within its environment and also guides the allocation of resources. It
provides the logic that integrates the perspectives of functional departments and
operating units, and points them all in the same direction.
A strategic marketing plan outlines the actions necessary, which is responsible,
when and where they will be completed, and how they will be coordinated. A
marketing plan is carried out within the context of a firms broader strategic
business plan.
29
In most large corporations, strategic planning takes place at four levels.

Corporate Level
Division Level
Business Level
Product Level
Responsible for planning are:
Planning Staff
Planning Task Force
Created when the organization wants a special circumstance

addressed.
Board of Directors
Establishes corporate mission and strategy.
May engage in strategic planning.
Chief Executive Officer
Gather information, coordinate planning activities, and take a

broader view than individual managers.
May serve as president or board chair; has a major role in

planning and implementing the strategy.
Executive Committee
Composed of top executives.
Meets regularly with the CEO to review strategic plans.
Line Management
Have formal authority and responsibility for management of the

organization.
Help to formulate strategy by providing information.
Responsible for executing the plans of top management.
Now, can any of you try to guess what would be the steps in the strategic
planning process?
The strategic planning process consists of the seven interrelated steps shown in
Figure and described below.
This process is applicable for small and large firms, consumer and industrial
firms, goods and services-based firms, domestic and international firms, and
profit-oriented and non-profit-oriented organizations.
Kinds of Organizational Plans

Strategic Plans
30
o A general plan set by and for top management that outlines

resource allocation, priorities, and action steps to achieve
strategic goals.
Tactical Plans
o A plan aimed at achieving the tactical goals set by and for
middle management.
Operational Plans
Short-term focus plans

lower-level managers.
that
are
set
by
and
for
SUMMARY
Doing strategic planning correctly:
Leads to better guidance/management for the business
Sets parameters for measurement.
Make communication across the company easier.
Leads to systematic and purposeful work on attaining objectives to be
performed.
31
1.3 THE LEVELS OF STRATEGY

1.3 Introduction
Learning Outcomes
questions:
Different levels of the organization at which level the strategic
management takes place.
Communicate Strategies at different levels.
LEVELS OF STRATEGY MAKING
In most organizations, strategic management takes place at three levels.
They are:
1. Corporate Strategy
2. Business Strategy
3. Functional Strategy
1. Corporate Strategy
Corporate strategy is the top management plan to direct and run the organization
as a whole. Corporate strategy is a long-term strategy encompassing the entire
organization. Corporate strategy addresses fundamental questions such as what
is the purpose of the organization, how to establish/expand it.
What business or businesses the firm should be in?
It relates to the future formula and structure of the company, and affects the
rationale of the company and the business in which it intends to compete.
Example: Racal Electronics' decision to float off Vodaphone as a separate
company.
Corporate Level strategic decisions are concerned with:
overall purpose and scope
adding value to shareholder investment
portfolio issues
Tasks of Corporate Strategy
Moves to achieve diversification
Actions to boost performance of individual businesses
Capturing valuable cross-business synergies to provide 1 + 1 = 3
effects!
Establishing investment priorities and steering corporate resources into
the most attractive businesses
32
Levels of Strategy Making in a diversified Company
Levels of Strategy-Making
in a Diversified Company
Corporate-Level
Managers
Corporate
Strategy
Two-Way Influence
Business-Level
Managers
Business Strategies
Two-Way Influence
Functional
Managers
Functional Strategies
Two-Way Influence
Operating
Managers
Operating Strategies
2-65
Figure 1.3.1 Levels of Strategy Making
2. Business-Level Strategy
Business strategy is called competitive strategy. Business strategy occurs at the
business unit or product level. It emphasizes improvement of competitive
position of the enterprise. While corporate strategy decides the type of business,
the business strategy decides the strategies to succeed in chosen business.
Business strategy deals with the allocation of resources within the business unit.
SBU strategy has to conform to the corporate philosophy and strategy. In short,
SBU level strategic management is the management of SBUs effort to compete
effectively in a particular line of business and to contribute to overall
organizational purpose.
How each business attempts to achieve its mission within its chosen area of
activity?
Business Unit strategy is concerned with:
o competitive strategy
o developing market opportunities
o developing new products/services
o resource allocation within the SBU
o structure and control of the SBU
33
Tasks of Business Strategy

Initiating approaches to produce successful performance in a specific
business
Crafting competitive moves to build sustainable competitive advantage
Developing competitively valuable competencies and capabilities
Uniting strategic activities of functional areas
Gaining approval of business strategies by corporate-level officers and
directors
Levels of Strategy-Making in
a Single-Business Company
Business-Level
Managers
Business
Strategy
Two-Way Influence
Functional
Managers
Functional Strategies
Two-Way Influence
Operating
Managers
Operating Strategies
2-66
Figure 1.3.2 Level of Strategies in a Single-Business company

Here strategy is about which products or services should be developed and
offered to which markets and the extent to which the customer needs are met
whilst achieving the objectives of the organisation. A term that is often used in
relation to business strategy is SBU, or strategic business unit. SBU means a
unit within the overall corporate entity for which there is an external market for
its goods and services, which is distinct from that of another SBU
Example: Ford's Motor Cos car division an SBU - launched its Mondeo
model, aimed at fleet car buyers, who had not favoured the Sierra, its
predecessor.
3. Functional-Level Strategy
How the different functions of the business support the corporate and business
34
strategies. They are concerned with how the various functions of the
organisation contribute to the achievement of strategy.
It examines how the different functions of the business (marketing, production,
finance etc) support the corporate and business strategies. Such corporate
planning at the operational level is means oriented and most activities are
concerned only with the ability to undertake directions.
Example: revising delivery schedules and drivers' hours to improve customer
service or recruiting a German-speaking sales person to assist a UK company's
sales drive in Europe.
Tasks of Functional Strategies
Game plan for a strategically-relevant function, activity, or business
process
Detail how key activities will be managed
Provide support for business strategy
Specify how functional objectives are to be achieved
However, the boundaries between the three categories are very indistinct and
much depends upon the circumstances prevailing and the kind of organisation.
Overall, corporate planning is concerned with the scope of an organisation's
activities and the matching of these to the organisation's environment, its
resource capabilities and the values and expectations of its various
stakeholders.
4. Operating Strategies
Operational Strategies are concerned with:
o the integration of resources, processes, people and skills
o to implement strategy
Tasks of Operating Strategies
Concern narrow strategic approaches to manage key operating units and
strategically-relevant operating activities
Add detail to business and functional strategies
Delegation of responsibility to frontline managers
35
1.4 CORPORATE STRATEGY

1.4 Introduction
Learning Outcomes
questions:
6.
What is Corporate strategy and why it is important.
7.
The elements of strategic management.
8.
The process of strategic management.
9.
10.
Understand the elements of strategic management process and apply

them successfully in a business venture
CORPORATE-LEVEL STRATEGIES
Corporate level strategies (or simply, corporate strategies) are basically about
decisions related to:
allocating resources among the different businesses of a firm
transferring resources from one set of businesses to others and
managing and nurturing a portfolio of businesses
Corporate Level strategic decisions are concerned with:

o
o
o
o
o
o
adding value to shareholder investment

Overall purpose and scope
portfolio issues
resource allocation between SBUs
structure and control of SBUs
corporate financial strategy
Highest level and is concerned with the scope of an organizations strategies

and adding value through its relationship with the separate parts of the business
and synergies created between these parts.
Organizations are established to serve some purpose. The purpose may be
manufacturing or rendering service. Before commencement of the organization,
basic objectives must be made clear. Selection of objectives is done through a
decision making process.
Decision making consists of setting objectives, generating and evaluating
alternatives, choosing the most suitable alternative and implement the chosen
alternative. This is a continuous phenomenon.
Once the organization is established with some objectives, there is always
scope for modification and addition. As business organization grows, it
acquires capabilities and core competencies. Its strength increases, resource
base widens. Based on the internal and external analysis the organization can
36
improve continuously using their influence resource and skills to gain

competitive advantage. Corporate strategy is basically concerned with choice of
business, products and markets. This strategy tries to answer the following
questions:
1. What is our business?
2. Should we stay in the same business with a similar level of effort?
(Stability Strategy)
3. Should we come out of the business completely or some part of it?
(Retrenchment Strategy)
4. Should we expand our business by adding new functions, products
and markets? (Expansion Strategy)
5. Should we carry out combination of 2, 3, and 4? (Combination
Strategy)
From the above, it is clear that corporate strategy decides the course of action to
be undertaken to take the organization to new heights. The choice of strategies
is vital and this choice would depend on how organization foresees its future
opportunities and threats; and use internal potential and competitiveness to
exploit these opportunities and combat threats. Corporate level strategy
basically is the choice of direction that an organization adopts in order to
achieve its objectives. Various corporate level strategies are discussed as under:
Types of corporate strategies
Growth: expansion into new products and markets
Stability: maintenance of the status quo
Renewal: redirection of the firm into new markets
Multibusiness Corporation
Figure 1.4.1 Multi Business Corporation Levels

37
Types of Grand Strategies

Concentrated Growth
Conglomerate Diversification
Market Development
Turnaround
Product Development
Divestiture
Innovation
Liquidation
Horizontal Integration
Bankruptcy
Vertical Integration
Joint Ventures
Concentric Diversification
Strategic Alliances
Copyright Amity University
Types of Grand Strategies

Concentrated Growth
Market Development
Product Development
Innovation
Horizontal Integration
Concentric Diversification
Conglomerate Diversification
Turnaround
Divestiture
Liquidation
Bankruptcy
Joint Ventures
Strategic Alliances
Consortia
38
Growth strategy
Growth strategy seeks to increase the organisations business by expansion into
new products and markets.
Concentration
Vertical integration
Horizontal integration
Diversification
Characteristics of a Concentrated Growth Strategy
Involves focusing resources on the profitable growth of a single product, in a
single market, with a single dominant technology
Rationale - Firm develops and exploits its expertise in a delimited competitive
arena
Determinants of competitive market success
Ability to assess market needs
Knowledge of buyer behavior
Customer price sensitivity
Effectiveness of promotion
Conditions Favoring a Concentrated Growth Strategy
Firms industry is resistant to major technological advancements
Firms targeted markets are not product saturated
Firms markets are sufficiently distinctive to dissuade competitors in adjacent
markets from entering firms segment
Firms inputs are stable in price and quantity and available in amounts and at
times needed
Firms industry is stable
Firms competitive advantages are based on efficient production or distribution
channels
Success of market generalists
Strategies of Horizontal and Vertical Integration
Horizontal integration
Based on growth via acquisition of one or more similar firms operating
at the same stage of the production-marketing chain
Involves eliminating competitors, providing acquiring firm with access
to new markets.
39
Vertical integration
Involves acquiring firms
To supply acquiring firm with inputs - backward integration or
Are customers for firms outputs - forward integration
Vertical and Horizontal Integrations

Textile producer
Textile producer
Shirt manufacturer
Shirt manufacturer
Clothing store
Clothing store
Acquisitions or mergers of suppliers or customer

businesses are vertical integrations
Acquisitions or mergers of competing
businessesProf.Sushil\IITD\Session-VI
are horizontal integrations
Figure 1.4.2 Vertical and Horizontal integrations

Vertical Integration: Advantages
Reduces costs
Adds to technological or competitive strengths
Helps differentiate products
Vertical Integration: Disadvantages
High capital requirements
Reduces flexibility in accommodating demand
Need to balance capacity at each stage
40
25
Reduces manufacturing flexibility

Different skills are needed to manage different businesses
Diversification Strategies
Concentric diversification
Involves acquisition of businesses related to acquiring firm in terms of
technology, markets, or products
Conglomerate diversification
Involves acquisition of a business because it represents a promising
investment opportunity
Primary motivation is profit pattern of venture
Difference between the approaches
Concentric diversification emphasizes commonality whereas
conglomerate diversification emphasizes profits for each individual unit
When to Diversify
There are organizational, managerial and strategic advantages to focusing on a
single business. Consider diversification when firm begins to run out of
opportunities in its main business. Risk is putting all your eggs in one basket.
Diminishing growth prospects in current business
Opportunities to
Add value to customers
Gain competitive advantage
Transfer existing competencies
Cost saving opportunities
Have financial and organizational resources
Justifiable only if it builds shareholder wealth
The 3 tests to judge
Industry attractiveness
Cost-of-entry
Better-off
Related Diversification
Strategic fits along the value chain
Upstream
Company
R & D and technology
Sales and marketing
Manufacturing
41
Managerial and support
Downstream
Economies of scope
Unrelated Diversification
Acquisition of good companies
Targets are usually judged on their ability to provide financial gain
Companies with undervalued assets
Companies in financial distress
No synergies are produced
Exceptional managerial talent is required to enhance shareholder wealth
Consistent success is difficult to achieve
Historically most have failed
1.5 PATTERNS OF STRATEGY DEVELOPMENT

HOW STRATEGY DEVELOPS
Since strategy is about the long-term direction of an organisation, it is typically
thought of in terms of major decisions about the future. However, it would be a
mistake to conceive of organisational strategy as necessarily developing
through one-off major changes. The strategic development of organisations is
better described and understood in terms of continuity. There is a tendency
towards momentum of strategy: once as organisation has adopted a particular
strategy then it tends to develop from and within that strategy, rather than
fundamentally changing direction.
Incremental strategy development
Henry Mintzbergs historical studies of organisations over many decades
showed that global or transformational change did take place but was
infrequent. More typically, organisations changed incrementally, during which
times strategies formed gradually; or though piecemeal change, during which
times some strategies changed and others remained constant; there were periods
of continuity, in which established strategy remained unchanged; and also
periods of flux, in which strategies did change but in no very clear direction.
Mintzbergs work seems to suggest that this is so: transformational change
tends to occur at times of crisis in organisations, typically when performance
has declined significantly.
Intended and realised strategies
Conceiving of organizations strategies in terms of such patterns of change
means it is important to be careful about just what is meant by strategy.
Typically, strategy is written about as though it is developed by managers in an
42
intended, planned fashion. Strategy is conceived of as being formulated,

perhaps through some planning process, resulting in a clear expression of
strategic direction, the implementation of which is also planned in terms of
resource allocation, structure, and so on. The strategy then comes about, or is
realised in actuality. In this way, strategy is conceived of as a deliberate,
systematic process of development and implementation (route 1 in Figure 1).
This is broadly the framework adopted in this book because it is a convenient
way of thinking through the issues relating to strategy. However, it does not
necessarily explain how strategies are actually realized. It has said such
evidence as exists about the effectiveness of planning systems suggests that in
many organisations that have them, and which attempt to formulate strategies
in such systematic ways, the intended strategies do not become realised; or only
part of what is intended comes about.
In effect, much of what is intended follows route 2 in Figure 1 and becomes
unrealised: that is, statements of strategy which do not come about in practice.
Figure 1.5.1 Patterns of Strategy Development
STRATEGY DEVELOPMENT DIMENSIONS (1)

The Planning Dimension
strategies are the outcome of rational, sequential, planned and
methodical procedures
43
definite and precise strategic objectives are set

the organisation and environment are analysed
potential strategic options are generated and the optimum solution
chosen
defined procedures for implementation and the achievement of the
strategic objectives are developed
the strategy is made explicit in the form of detailed plans
The Incremental Dimension
evolutionary but purposeful strategy development
strategy is developed as issues arise
strategy is continually adjusted to match changes in the operating
environment
early commitment to a strategy is tentative and subject to review
strategic options are continually assessed for fit
successful options gain additional resources
strategic options are developed from existing strategies by
experimentation and through gradual implementation
44

The Cultural Dimension
a way of doing things in the organization guides strategic direction
strategies evolve in terms of core set of shared assumptions based on
past experience, values and beliefs held by organizations members
the shared assumptions guide
the selection of goals and objectives
the identification of strategic issues
the selection of information
the selection of strategies
The Political Dimension
strategies are developed by negotiation and bargaining between
interest groups
the interest groups seek to realise their own desired objectives
their influence on strategy development increases with power
power comes from the ability to create or control the flow of scarce
resources and the control and provision of information
a strategy acceptable to powerful interest groups is achieved by a
process of accommodation and mutual adjustment
The Command Dimension
an individual is the driving force behind the organisations strategy.
strategy is primarily associated with the institutionalised power of an
individual or small group.
the strategy represents the aspirations for the organisations future of
this individual.
the strategic direction may be related to a vision based on rational
understanding and intuition, or experience and intuition.
Individual becomes the representation of the strategy for the
organisation.
The Enforced Choice Dimension
Strategic choice is prescribed or limited by external forces which
the organisation is unable to control or influence.
45
Organisations respond to environmental imperatives.

Strategic change is instigated from outside the organisation.
Barriers in the environment severely restrict strategic mobility.
1.6 COMPETITIVE SCOPE

INTRODUCTION
Business strategies are the courses of action adopted by an organization for
each of its businesses separately, to serve identified customer groups and
provide value to the customer by satisfaction of their needs. In the process, the
organization uses its competencies to gain, sustain and enhance its strategic or
competitive advantage.
Michael E. Porter is credited with extensive pioneering work in the area of
business strategies, what he calls competitive strategies. His writings are
focused on industry analysis, competitive dynamics and competitive strategies.
The dynamic factors that determine the choice of a competitive strategy,
according to Porter, are two, namely, the industry structure and the positioning
of the firm in the industry.
Industry Structure
According to Michael E. Porter industry structure is determined by the
competitive forces. These forces are five in number: The threat of new entrants;
bargaining power of supplier; bargaining power of buyer; threat of substitutes;
rivalry among the existing competition in the industry.
Positioning of Firm Industry
The second factor that determines the choice of competitive strategy of a firm is
its positioning within the industry. Porter considers positioning as the overall
approach of the firm towards competing. It is designed to gain a sustainable
competitive advantage (SCA) and it is based on two variables:
Competitive Advantage
Cooperative Scope
Competitive Advantage can arise due to two factors: lower cost and
differentiation.
Cooperative Scope can be in terms of two factors: broad and narrow target.
In order to understand competitive positioning, we can visualize situation in
which affirm has to compete in the market with other rival firms. One type of
positioning approach may be of offering mass-produced products, distributed
through mass-marketing, thereby resulting in lower cost per unit. The other
type of positioning approach could be relatively higher-priced products of a
limited variety, but intensely focused on identified customer groups who are
willing to pay the higher price. These are produced through batch production
and marketed through a specialized distribution channels. What the firm does is
to differentiate its products or services on some tangible basis from what its
46
rivals have to offer so that the customer purchases the product even at a
premium.
What these above approaches show is that there is an overall approach to
competing within an industry, adopted consciously by an organization. These
approaches are termed as the two generic type s of competitive advantage that
an organization could plan for: the lower-cost approach and the differentiation
approach. According to Porter, lower-cost is based on the competence of an
organization to design, produce and market a comparable product, more
efficiently than its competitors. Differentiation is the competence of the firm to
provide unique and superior value to the buyer in terms of product quality,
special features or after-sale service.
Other Characteristics of Competitive Advantage
Substantiality
Is it substantial enough to make a difference?
Sustainability
Can it be neutralized by competitors quickly?
Ability to be leveraged into visible business attributes that will
influence customers
(Source: Strategic Marketing Management, Aakers)
Strategy and the quest for achieving competitive advantage
The heart and soul of any strategy are the actions and moves in the marketplace
that a company makes to strengthen its competitive position and gain a
competitive advantage over its competitors.
A creative distinctive strategy that sets a company apart from rivals and yields a
competitive advantage is a companys most reliable ticket to above average
profitability
Competing with a competitive advantage is more profitable than competing
with no advantage. Competing with a competitive disadvantage nearly always
results in below-average profitability.
A powerful strategy leads to Sustainable competitive advantage
A company achieves sustainable competitive advantage when an attractive
number or buyers prefer its products/services over those of rivals and when the
basis for this preference can be maintained over time
What separates a powerful strategy from an ordinary strategy is managements
ability to forge a series of moves, both in the marketplace and internally, that
produces sustainable competitive advantage.
Four Best Strategic Approaches to Building Sustainable Competitive
Advantage
Use Porters Generic strategies- cost leadership, differentiation and, focus
strategies to build sustainable advantage:
47
Being the industrys low-cost provider (a cost-based competitive

advantage)
Incorporate differentiating features (a superior product type of
competitive advantage keyed to higher quality, better performance,
wider selection, value-added services, or some other attribute)
Focusing on a narrow market niche (winning a competitive edge by
doing a better job than rivals of serving the needs and preferences of
buyers comprising the niche)
Developing expertise and resource strengths not easily imitated or
matched by rivals
(a capabilities-based competitive advantage)
Competitive advantage examples: Strive to be the industrys low-cost
provider
Wal-Mart
Southwest Airlines
Outcompete rivals on a key differentiating feature
Johnson & Johnson Reliability in baby products
Harley-Davidson King-of-the-road styling
Rolex Top-of-the-line prestige
Mercedes-Benz Engineering design and performance
L.L. Bean Good value
Amazon.com Wide selection and convenience
Focus on a narrow market niche
Jiffy Lube International Quick oil changes
McAfee Virus protection auctions
Starbucks Premium coffees and coffee drinks
The Weather Channel Cable TV
Develop expertise, resource strengths, and capabilities not easily imitated
by rivals
FedEx Next-day delivery of small packages
Walt Disney Theme park management and family entertainment
Toyota Sophisticated production system
Ritz-Carlton Personalized customer service
Competitive Scope
Apart from competitive advantage, the other factor competitive Scope which
Porter defines as the breadth of an organizations target within its industry. By
48
the breadth of an organizations target is meant the range of the products,

distribution channels, types of buyers, the geographic areas served and the array
of related industries in which the firm would also compete. The basic reason
why competitive scope is important is that industries are segmented, have
differing needs and that require different sets of competencies and strategies to
satisfy the needs of the customers.
In order to understand competitive scope, again one could visualise an
organization competing in a market with other rival firms. Here the firm can
choose a range of products to offer, the customers groups to cater to, the
distribution channels to employ and the geographical areas to serve. Depending
on the scale of an organizations operations, we could say that the firm can
either adopt abroad target approach or a narrow target approach. Under broad
targeting, the firm can offer a full range of products/ services to a wide range of
customer groups located in widely-scattered geographical area. Under narrow
targeting, the firm can choose to offer a limited range of products/ services to a
few customer groups.
Competitive Scope Matrix
49
Competitive Scope Matrix- Examples
PORTERS GENERIC STRATEGIES:
COMPETITIVE SCOPE
Lower Cost
Broad
Target
1. Cost Leadership
WALMART Market
Leader
Differentiation
2. Differentiation Dell
Market Challenger
Competitive Scope
Narrow
Target
3 A. Cost Focus
Nano
Market Nicher
3 B. Differentiation
Focus Cherry QQ
Market Follower
1. Market Leader: Wal-Mart

2. Market Challenger: Dell
3. Market Nicher: Nano
4. Market Follower: Cherry QQ
1.7 CORPORATE VALUE CHAIN ANALYSIS

LEARNING OUTCOMES
Outsourcing is becoming a standard business practice in every facet of business
operations. This trend enhances the usefulness of the value chain approach in
strategic analysis.
We have simplified our treatment of this useful conceptual framework and
added several contemporary examples to enable students to quickly incorporate
the value chain perspective into their strategic thinking process.
Assessing whether a firms costs are competitive with those of rivals is a
crucial part of company situation analysis. Key analytical tools are Value chain
analysis and benchmarking.
50
INTRODUCTION
How a firm can actually create and sustain competitive advantage in its
industry?
Two basic types: Cost Leadership, Differentiation
Value Chain Analysis

Identify which activities contributing to
differentiation
cost
leadership and
Analyze the source of competitive advantage

Importance
of
value-chain
analysis
it provides a framework for identifying or
distinctive competence
is
that
developing a
Each corporation has its own internal value chain of activities. See figure 1.7.1
for an example of its corporate value chain.
Porter proposes that a manufacturing firms primary activities usually begins
with inbound logistics (raw materials handling and warehousing), go through
an operations process in which a product is manufactured, and continue on to
outbound logistics (warehousing and distribution), marketing and sales, and
finally to serve (installation, repair, and sale of parts).
Primary activities
Inbound Logistic
Operations
Outbound Logistics
Marketing and Sales
Service
51
Several support activities, such as procurement (purchase), technology

development (R&D), human resource management, and firm infrastructure
(accounting, finance, strategic planning), ensure that the primary value-chain
activities operate effectively and efficiently. Each of companys product lines
has its own distinctive value chain. Because most corporations make several
different products or services, an internal analysis of the firm involves
analyzing a series of different value chains.
Support activities
Infrastructure
Technology
Human Resources
Procurement
Internal Analysis
1.7.1 Introduction and Definition of Porters Value Chain
Internal organisation can affect the cost and even the feasibility of some
strategies. There must be a 'fit' between a strategy and the elements of an
organisation. If the strategy does not fit well, it might be expensive, or even
impossible, to make it work. This related to the Resource-Based view of the
firm supported by Grant 1995.
52
Figure 3
98
Figure 3
Primary Activities
53

S
U
P
P
O
R
T
A
C
T
I
V
I
T
I
E
S
Procurement
Human Resource Management
Technology Development
Procurement
Primary Activities
Corporate Value Chain
Figure 1.7.1 Corporate Value Chain

54
1.7.2 The value chain can be defined as a framework to differentiate the valueadding activities in an organisation. It comprises primary and support
activities.
1.7.3 Importance of value chain analysis is that it provides a frame-work for
identifying or developing a distinctive competence.
1.7.4 Explanation
Two Basic Strategies:
To be a lower-cost producer than competitors
To differentiate products and services from competitors
Each of the activities can be considered as adding value to an
organisations products.
For example: the activity of operations in a car assembly plant. While the
separate components do have a value in that they can be sold and bought as
individual items, as engines, wheels, etc., but when they are assembled into a
complete vehicle then they have added value to customers far in excess of the
individual parts.
Concept: Company Value Chain
A companys business consists of all activities undertaken in designing,
producing, and marketing, delivering, and supporting its product or service
All these activities that a company performs internally combine to form a value
chainso-called because the underlying intent of a companys activities is to
do things that ultimately create value for buyers
The value chain contains two types of activities
Primary activities (where most of the value for customers is created)
Support activities that facilitate performance of the primary activities.
Primary activities:
Inbound logistics: - these deal with the delivery, movement and handling of
raw materials from suppliers;
Operations: - transformational activities which create end products from raw
materials, inputs and
Outbound logistics: - refers to the processes which transfer products to
distribution channels;
Marketing/sales: - includes such activities as advertising, promotion, product
mix, pricing, working with buyers and wholesalers, and sales force issues;
Service: - customer service issues include warranty, repair, installation,
customer support, product adjustment and modification.
Primary activities are directly related to the flow of product to the customer and
include five sub-activities as listed above.
55
Figure 1.7.2 the Value Chain
The Value Chain

Primary Activities
Inbound
Logistics: receiving and
Storing materials for
Distribution to
production
Marketing
and Sales:
Include promoting
and selling the firms
products
Operations: Transforms
Inputs into finished
products
Outbound
Logistics:
Storing and
Distributing finished
products
Service: Maintenance and

Repairs of the firms
products
Support activities:
The four support activities in the value chain make it possible for the primary
activities to be performed efficiently and effectively. Support activities are
provided to sustain primary activities. These consist of:
Firm infrastructure: - accounting, finance, planning, general management,
legal support and managing government relations.
Human resource management: - recruitment, selection and training,
developing, appraising and compensating employees.
Technology development: - research & development, product design, process
design, equipment design and servicing procedures.
Procurement: - purchasing fixed assets such as machinery and equipments etc.
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The Value Chain

Support Activities
Infrastructure
Technology
Human
Resources
Purchasing
Figure 1.7.3 Value Chain Support Activities

The concept of value chain is explained with practical examples
1. Value Chain activities for a bakery
2. Value Chain activities for Departmental retail store
3. Value Chain activities for a Home appliance industry
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Example: Value Chain Activities

for a Bakery Goods Maker
Primary Activities
Support Activities
Supply chain management
Quality control
Recipe development and

testing
Human resource
management
Mixing and baking
Administration
Packaging
Sales and marketing
Distribution
4-32
Figure 1.7.4 Examples of Value Chain Activities

for a Department Store Retailer
Primary Activities
Support Activities
Merchandise selection and

purchasing
Site selection
Hiring and training
Store layout and product

display
Store maintenance
Advertising
Administrative activities
Customer service
4-33
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Home Appliance Industry
Parts and components manufacture

Assembly
Wholesale distribution
Retail sales
4-40
Benchmarking costs of key value chain activities

Focuses on cross-company comparisons of how certain activities are
performed and costs associated with these activities Purchase of materials
Payment of suppliers
Management of inventories
Getting new products to market
Performance of quality control
Filling and shipping of customer orders
Training of employees
Processing of payrolls
Benchmarking key value chain activities helps company to optimize the costs
and thus attain competitive advantage against competition.
What determines if a company is cost competitive?
Cost competitiveness depends on how well a company manages its value chain
relative to how well competitors manage their value chains.
When a companys costs are out-of-line, the activities responsible for the
higher costs may be due to any of three parts of industry value chain
1. Activities performed by suppliers
2. A companys own internal activities
3. Activities performed by forward channel allies
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Options to correct internal cost disadvantages

Implement use of best practices throughout company
Eliminate some cost-producing activities altogether by revamping value
chain system
Relocate high-cost activities to lower-cost geographic areas
See if high-cost activities can be performed
cheaper by outside vendors/suppliers
Invest in cost-saving technology
Innovate around troublesome cost components
Simplify product design
Make up difference by achieving savings in backward or forward
portions of value chain system
Wal-Marts Approach to Managing Its Value Chain
Institute extensive information sharing with vendors via online systems
Pursue global procurement of some items and centralize most purchasing
activities
Invest in state-of-the-art automation at its distribution centers
Strive to optimize the product mix and achieve greater sales turnover
Install security systems and store operating procedures that lower shrinkage
rates
Negotiate preferred real estate rental and leasing rates with real estate
developers and owners of its store sites
Manage and compensate its workforce in a manner to yield lower labor costs
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Chapter I: Introduction to Strategic Management

Multiple Choice Quiz:
Q1. Which one of them is not dealt in the topic Introduction to
strategic management?
(a) Strategic Decision-Making
(b) Value System
(c) Igor Ansoffs definition of strategy
(d) Strategic Management Process
Q.2 The value chain is subdivided into two main headings.
These are primary activities and:
(a) Peripheral activities
(b) Support activities
(c) Secondary activities
(d) Outsourced activities
Q.3 In the value chain, primary activities are:
(a) Directly involved in the production, marketing and delivery of the product
or service
(b) Those activities those are all undertaken in-house.
(c) Those activities that support the production, marketing and delivery of the
product or service
(d) Directly involved in the production and delivery of the product or service
Q.4 The 'operations' in a passenger airline service would be:
(a) The manufacture of the aircraft
(b) Getting passengers and baggage from A to B by means of flying in an
aircraft
(c) The design of the price structure and yield plan
(d) Selling the tickets to passengers
Q.5 In the case where an organization acquires its supplier,
this is an example of:
(a) Horizontal integration
(b) Forwards vertical integration
(c) Backwards vertical integration
(d) Downstream vertical integration
Q.6 Typically profits are highest in which stage of the industry
life-cycle?
(a) Introduction
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(b) Growth
(c) Maturity
(d) Decline
Q.7 Strategy implementation and formulation is a challenging,
on-going process. To be effective, it should involve
(a) The board of directors, CEO, and CFO.
(b) Line and staff managers
(c) The CEO and the board of directors.
(d) All of the above.
Q.8 An independent group of suppliers, such as farmers,
gather to form a cooperative in order to sell their products to
buyers directly, replacing their previous distributor. This is an
example of
(a) Forward integration.
(b) Backward integration.
(c) Threat of substitute products.
(d) Threat of entry.
Q.9 When a firm's corporate office helps subsidiaries make
wise choices in their own acquisitions, divestures, and new
ventures, it is called___________
(a) Restructuring
(b) Leveraging core competencies
(c) Uncreasing market power
(d) Parenting
Q.10 Value chain analysis is an effective tool for ________
(a) External Analysis
(b) Internal Analysis
(c) Near shore Analysis
(d) Out shore Analysis
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MODULE II
2.1 Vision, Mission and Business Definition
2.2 Environmental Threat and Opportunity Profile (ETOP)
2.3 Strategic Advantage Profile (SAP)
2.4 Industry Analysis
2.5 Competitor Analysis
2.6 Market Analysis
2.7 Environmental Analysis and Dealing with Uncertainty
2.8 Scenario Analysis
2.9 SWOT Analysis
Chapter 2: STRATEGIC ANALYSIS

2.0
Introduction
Learning Outcomes
questions: How do business environment in view of uncertainties impact our
daily lives?
1.
How external analysis influences strategy?
2.
What are the key components Competitor analyses?
3.
Competitors should be analyzed along several dimensions, including

their size, growth and profitability, image, objectives, business
strategies, organizational culture, cost structure, and strengths and
weaknesses.
4.
Market analysis should assess attractiveness of a market, as well as its

structure and dynamics.
5.
Market trends will affect both the profitability of strategies and key
success factors.
6.
Role of Vision and Mission in defining purpose of the organization.
2.1.1 VISION
2.1.2 MISSION
2.1.3 BUSINESS DEFINITION
LEARNING OUTCOMES
By the end of this learning unit you will be able to apply your
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understanding of the following concepts:

The definitions of a vision, mission and
strategic intent
The roles of vision and mission for the venture
How each influences the strategies chosen
2.1 What Is A Vision?
Vision refers to the picture (in the mind) of the future state of affairs of the
venture. It answers the question of what results should be there in say 5 years
from now.
Vision helps to guide the venture as it gives direction for where to go. It could
include hard issues (like an automated production line) or soft issues (like well
trained artisans) for the company. Vision should be results oriented. Vision is
also sometimes referred to as the end goal of the venture as it gives direction
to where the focus must be.
VISION
Mental picture of a
A strategic vision is a
future state of affairs
companys future business path:

-
Where we are going
Markets to be pursued
Future product, market,

customer, technology focus
Kind of company
management is trying to
create
Figure 2.1.1 Vision

Vision is:
Broad category of long term intentions
All inclusive, and futuristic
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Aspirations that the organisation holds for future

NTPC To be one of the worlds largest and best power utilities,
powering Indias growth
Hamal and Prahalad on Vision
A broader strategic intent might drive organisations and people to
seek/deploy additional resources to achieve stated intent, which would
have been otherwise dismissed as beyond the capabilities of the
organisation
Strategic intent top management is specific about the ends but leaves
room for the employees with respect to the means
Good vision statement is a dream that is shared across the entire
organisation
Vision defines the desired or intended future state of an organization or
enterprise in terms of its fundamental objective and/or strategic direction.
Vision is a long term view, sometimes describing how the organization would
like the world in which it operates to be.
For example a charity working with the poor might have a vision statement
which read "A world without poverty"
It is sometimes used to set out a 'picture' of the organization in the future. A
vision statement provides inspiration, the basis for all the organization's
planning. It could answer the question: "Where do we want to go?"
Aspirations, expressed as strategic intent, should lead to tangible results;
otherwise they would be just castles in the air. Those results are the realization
of vision of an organization or individual. It is what ultimately the firm or a
person would like to become. For instance, some of you, say in 10 years may
be even earlier, would like to become general managers of managing a SBU in
a large , diversified multinational corporation. Or some others among you
would like to believe that you can be entrepreneur owning your own company
dealing with IT services, employing cutting-edge technology to serve global
clientele in 10 15 years. A firm thinks like that too. Vision, therefore,
articulates the positions that a firm would like to attain in the distant future.
Seen from this perspective, the vision encapsulates the basic strategic intent.
CORPORATE VISION
Corporate vision is a short, succinct, and inspiring statement of what the
organization intends to become and to achieve at some point in the future, often
stated in competitive terms. Vision refers to the category of intentions that are
broad, all-inclusive and forward-thinking. It is the image that a business must
have of its goals before it sets out to reach them. It describes aspirations for the
future, without specifying the means that will be used to achieve those desired
65
ends. Warren Bennis, a noted writer on leadership, says: "To choose a

direction, an executive must have developed a mental image of the possible and
desirable future state of the organization.
This image, which we call a vision, may be as vague as a dream or as precise as
a goal or a mission statement."
Broad category of long term intentions
All inclusive, and futuristic
Aspirations that the organisation holds for future
THE NATURE OF VISION
Vision is dreamt of more than it is articulated. This is the reason why it is
difficult to say what vision an organization has unless it is stated explicitly.
Sometimes, it is not even evident to the entrepreneur who usually thinks of the
vision. By nature it could be hazy and vague, like a dream that one experienced
the previous night and is not able to perfectly recall in a broad daylight. Yet it is
a powerful motivator to action.
Often, it is from the actions that the vision could be derived. Henry Ford
wished to democratize the automobile when he visualised that affordable
vehicle must be available for the masses. Jamshetji Tata dreamt of a self-reliant
India in steel making. Narayana Murthy wants to demonstrate that running a
business is legally and ethically possible in India through entrepreneurship.
The first step to be accomplished following the profile phase is to articulate the
Vision or dream for a company. Questions to be addressed include:
What kind of company do we want to be?
What culture and values do we want to foster?
What share of the market and industry position should we achieve?
Developing a strategic vision
Phase 1 of the strategy-making process
Involves thinking strategically about future direction of company, changes in
companys product/market/customer technology to improve current market
position and future prospects.
A strategic vision describes the route a company intends to take in developing
and strengthening its business. It lays out the companys strategic course in
preparing for the future.
Vision or strategic intent
Desired future state the aspiration of the organization.
Define your aspirations and describe the type of organization you wish
to become.
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Developing a Strategic Vision

preparing for the future. It involves thinking strategically about future direction
of company, changes in companys product/market/customer technology to
improve current market position and future prospects.
Key Elements of a Strategic Vision
Delineates managements aspirations for the business, it provides a panoramic
view of where we are going, charts a strategic path. It is distinctive and
specific to
a particular organization. Avoids use of generic language that is dull and boring
and that could apply to almost any company and captures the emotions of
employees and steers them in a common direction. It is challenging and a bit
beyond a companys immediate reach.
Role of a Strategic Vision
A strategic vision exists only as words and has no organizational impact unless
and until it wins the commitment of company personnel and energizes them to
act in ways that move the company along the intended strategic path!
A well-conceived and well-communicated vision functions as a valuable
managerial tool to
Give the organization a sense of direction, mould organizational
identity, and create a committed enterprise
Inform company personnel and other stakeholders what management
wants its business to look like and where we are going
Spur company personnel to action
Provide managers with a reference point to make strategic decisions,
translate the vision into hard-edged objectives and strategies and,
prepare the company for the future
What a vision should be and shouldnt be
A vision should be:
An organizational charter of core values and principles.
The ultimate source of our priorities
The puller (not pusher) into the future
A determination and publication of what makes us unique
A declaration of independence
A vision shouldnt be:
A high concept statement, motto, or literature or an advertising solution
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A strategy or plan and view from the top

A history of our proud past
A soft business issue
Passionless
Vision Statement
Defines the organizations purpose and values
For employees: Gives direction how they are to behave and inspires
them to give their best.
For customers: Shapes understanding of organization, Provides a reason
to interact.
Examples of Strategic Visions
Red Hat
To extend our position as the most trusted Linux and open source provider to
the enterprise. We intend to grow the market for Linux through a complete
range of enterprise Red Hat Linux software, a powerful Internet management
platform, and associated support and services.
Wells Fargo
We want to satisfy all of our customers financial needs, help them success
financially, be the premier provider of financial services in every one of our
markets, and
be known as one of Americas great companies.
Hilton Hotels Corporation
Our vision is to be the first choice of the worlds travelers. Hilton intends to
build on the rich heritage and strength of our brands by:
Consistently delighting our customers
Investing in our team members
Delivering innovative products and services
Continuously improving performance
Increasing shareholder value
Creating a culture of pride
Strengthening the loyalty of our constituents.
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Dental Products Division of 3M Corporation

Become THE supplier of choice to the global dental professional markets,
providing world-class quality and innovative products. [All employees of the
division wear badges bearing these words, and when- ever a new product or
business procedure is being considered, management asks Is this
representative of THE leading dental company?]
H. J. Heinz Company
Be the worlds premier food company, offering nutritious, superior tasting
foods to people everywhere. Being the premier food company does not mean
being the biggest but it does
mean being the best in terms of consumer value, customer service, employee
talent, and
consistent and predictable growth.
eBay
Provide a global trading platform where practically anyone can trade practically
anything.
Caterpillar
Be the global leader in customer value.
Examples: Vision Slogans
Levi Strauss & Company
We will clothe the world by marketing the most appealing and widely worn
casual clothing in the world.
Nike
To bring innovation and inspiration to every athlete in the world
Scotland Yard
To make London the safest major city in the world
Samsung
To become a leader of the digital convergence revolution
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Strategic vision vs. mission

Before we go to the next topic Mission, there is a need to differentiate
between mission and vision.
A strategic vision concerns a firms future business path-where are we
going- markets to be perused, future product/market/customers/technology
focus, kind of company management is trying to create.
The mission statement of a firm focuses on its present business purpose -who
we are and what we do- current products and service offerings, customer
needs being served and technological and business capabilities.
What Is A Mission?
Mission is a part of strategy formulation.
Mission answers the question to why you are pursuing the business. To
make a profit is not good enough reason (as a mission statement) as all
ventures have it as a goal and therefore it does not distinguish your venture
from that of the competition.
Mission is overriding purpose in line with the values or expectations of
stakeholders
What business am I in?
Why we are here?
Where we are going?
Why an organization is, why it exists?
Can anyone describe the business mission?
A mission statement is a formal description of the mission of a business.
Organizational mission refers to a long-term commitment to a type of business
and a place in the market.
1. It can be expressed in terms of the customer group(s) served, the goods
and services offered, the functions performed, and/or the technologies
utilized.
2. It is considered implicitly when a company seeks a new customer group
or abandons an existing one, introduces a new product category or
deletes an old one, acquires another company or sells one of its own
businesses, performs more (or fewer) marketing functions, or shifts its
technological focus.
Definition of the organizational mission refers to a long-term commitment to a
type of business and a place in the market. It describes the scope of the firm
and its dominant emphasis and values, based on a firms history, current
management preferences, resources, and distinctive competence, and on
environmental factors.
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DEFINING MISSION
Thomson essential purpose of the organization, concerning particularly why it
is in existence, the nature of business (es) it is in and the customers it seeks to
serve and satisfy
Hunger and Wheelen: is the purpose or reason for the organizations
existence
Mintzberg defines Mission: A mission describes the organizations basic
function in society, in terms
MISSION
Why are we doing
The mission statement of a
What we do?
company focuses on its present

business purpose who we are
Reasons for
and what we do.
existence
(purpose)
Current product and service

offerings
Customer needs being

served
Technological and business

capabilities
Figure 1.1.4 Definition of Mission

Elements of Mission:
A Purpose
A Strategy and Strategic Scope
Policies and Standards of Behavior
Values and Culture
71
Mission is at the top of goal hierarchy. Mission is the organizations reason for
existence and often reveals corporate philosophy and purpose. Mission
describes organizational values, aspirations and is the basis for development for
subsequent goals and plans. A formal mission statement is a broadly stated
definition of basic business scope and operations that distinguishes the
organization from others. Mission statement often focuses on customers,
market and business.
Mission is shaped by History
Resources determine possibilities
Mission should be based on distinctive competencies
Broad purposes of the organization
General criteria for assessing the long-term organizational effectiveness
Driven by heritage & environment
Mission statements are increasingly being developed at the SBU level
as well Defines scope of corporate activity in terms of culture, vision
and values
An organizations mission is the purpose or reason for the organizations
existence. It tells what the company is providing to society service or a
product. Mission statement clearly specifies the purpose of the organization.
Mission statement describes what the organization is now and what it would
like to become. It tells who we are and what we do as well as what we would
like to become. Therefore, mission of business provides statement to insiders
and outsiders of what the company stands for.
While the essence of a vision is forward looking view of what an organization
wishes to become, mission is what an organization is and why it exists. Several
years ago, Peter F. Drucker raised important philosophical questions related to
business:
What is our business?
What will it be?
What it should be?
These three questions though simply worded, are in reality, the most
fundamental questions that any organization can put it to itself. The answers are
based on an analysis of the underlying need of the society that any organization
strives to fulfill. The satisfaction of that need is, then the business of the
organization.
Mission statement expresses their purpose and can therefore be a brief
statement. It also links with the idea of Vision
What is the basic purpose of your organization?
What is unique about your organization?
What is likely to be different about your business five years down the
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line?
What is in your company that will make it stand in a crowd?
Who are, and who should be, your customers?
What are the basic beliefs, values and philosophical priorities of your
organization?
A companys mission is not to make a profit! Its true mission is its answer to
What will we do to make a profit? Making is profit is an objective or
intended outcome!
Three factors need to be identified for completeness
Customer needs being met: What is being satisfied
Customer groups or markets being served: Who is being satisfied
What the organization does (in terms of business approaches, technologies
used, and activities performed) to satisfy the target needs of the target customer
groups, How customer needs are satisfied.
o Basic beliefs and values
o Target customers
o Basic products and services
o Better satisfy
o Constitute value
o Competitive advantages
o Market segments
o Key stakeholders
UNDERSTANDING MISSION
Organizations relate their existence to satisfying a particular need of the
society. They do so in terms of their mission. Mission is a statement which
defines the role that an organization plays in the society. It refers to the
particular needs of the society, for instance, its information needs. A book
publisher and a magazine editor are both engaged in satisfying the information
needs of the society, but they do it through different means. A book publisher
may aim at producing excellent reading material while a magazine editor may
strive to present news analysis in a balanced and unbiased manner. Both have
different objectives but an identical mission.
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MISSION STATEMENTS
Makes vision more tangible and comprehensible
Why the organisation exists and what differentiates it from others?
Mission statement also explains the anticipated state of external
environment for the firm namely macroeconomic environment,
regulation, market dynamics, competitive forces, and changes in the
customer tastes and preferences.
To write a powerful mission statement
o Keep it short
o Keep it simple
o Get everyone involved
o Keep it current
o Reflect the values
o Reflects concern for the future
o Positive and upbeat
o Other companys mission statement use it
Older Mission Statements
o Beat Coke- PEPSI
o "We will crush, squash, and slaughter Yamaha" -HONDA
o "Crush Reebok-NIKE
o "To give ordinary folk the chance to buy the same thing as rich peopleWAL-MART
o "To give unlimited opportunity to women- MARY KAY
COSMETICS
o "To solve unsolved problems innovatively-3M
Modern Mission Statements
To preserve and improve human life."
Corporate social responsibility
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Unequivocal excellence in all aspects of the company

Science-based innovation
Honesty & integrity
Profit, but profit from work that benefits humanity MERCK
"We are a dynamic, enterprising, and creative university committed to
providing an excellent education enriched by our focus on applied research." Coventry University
"To contribute to society through the pursuit of education, learning, and
research at the highest international levels of excellence - University of
Cambridge
To create superior products and services - Samsung Corporation
Sainsburys: To be the consumer's first choice for food, delivering products of
outstanding quality and great service at a competitive cost through working
'faster, simpler and together
Morrisons: To always deliver the very best for less.
Asda: To be the UK's best value retailer exceeding customer needs. Always.
Lands End: A leading international direct merchant of traditionally styled,
casual clothing for men, women, and children, as well as soft luggage and
products for the home, offers products through regular mailings of its primary
and specialty catalogs and via the Internet. It is known for providing products
of exceptional quality at prices representing honest value, enhanced by a
commitment to excellence in customer service.
Coca-Cola:
Coca-Colas mission is to maximize shareholder value over time. It
creates value by a strategy guided by six beliefs:
Consumer demand drives everything it does.
Brand Coca-Cola is the core of its business
It will serve consumers a broad selection of non-alcoholic ready-todrink beverages
It will do excellent job marketing
It will think and act locally
It will lead as a model corporate citizen.
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Holiday break plc:

Holiday break is the UKs leading operator of specialist holiday businesses.
Group companies retain a distinctive identity whilst sharing expertise and
exploiting opportunities in areas of common interest. Our aim is to achieve
continuing profitable growth by developing our existing businesses and market
leading brands in the UK and European holiday markets and through
acquisitions within the travel sector.
Motorola:
The purpose of our Motorola is to honourably serve the needs of the
community by providing products and services of superior quality at a fair price
to our customers; to do this so as to earn an adequate profit which is required
for the total enterprise to grow; and by so doing provide the opportunity for our
employees and shareholders to achieve their reasonable personal objectives
Avis car hire mission was simply we try harder
Mission of ONGC Ltd to be a world-class Oil and Gas company integrated
in energy business with dominant Indian leadership and global presence.
Mission of Nirma Ltd Indian FMCG Company Nirma is customer-focused
company, committed to consistently offer better quality products and services
that maximize value to the customer.
Mission of Maytag Corporation To improve the quality of home life by
designing, building, marketing, and servicing the best appliances in the world.
NOTE:
Over time the mission may change, to take advantage of new opportunities or
to respond to new market conditions. Example: Amazon.com changed its
mission from being the worlds largest online bookstore to become worlds
largest online store. eBay changed its mission from running online auctions for
collectors to running online auctions covering all kinds of goods.
GOOD MISSION HARACTERISTICS
Three major characteristics:
First Focus on limited number of Goals.
The statement: We want to produce the highest quality products, offer the
most service, achieve the widest distribution, and sell at the lowest prices
claims too much.
Second Mission statements stresses the companys major policies and values.
They narrow the range of individual discretion so that the employees act
consistently on important issues.
Third They define the major competitive spheres within which company will
operate. Industry:
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The range of industries in which company will operate

DuPont prefers to operate in the industrial market
Dow Chemicals in industrial and consumer market
3M will get into almost any industry where it can make money
Products and Applications:
The range of products and Applications Company will supply.
St. Jude Medical claims to Serve Physicians world-wide with high-quality
products for cardiovascular care
SUMMARY
Organizations develop mission statements to share with managers, employees,
and (in many cases) customers. A clear thoughtful mission statement provides
employees with a shared sense of purpose, direction, and opportunity. The
statement guides geographically dispersed employees to work independently
yet collectively towards realizing the organizational goals.
Mission statements are at their best when they reflect a vision an almost
impossible dream that provides a direction for the company for the next 10 to
20 years.
Sonys former President, Akio Morita wanted everyone to have access to
personal portable sound, so his company created the Walkman and portable
CD player. Fred smith wanted to deliver mail anywhere in the United States
before 10:20 am the next day so he created FedEx built core competencies in
computing, communications and, components to support production of laptop
computers, television receivers, and handheld telephones.
Once you understand the environment you have to:
Create a vision of where you want to go
Understand why you would like to go there (purpose)
Find the key things you must do right to successfully reach your vision
2.1.3 Business Definition

Business Definition
Companies often define their businesses in terms of products:
They are in auto business or the clothing business
But according to Levitt argues that market definitions of business are superior
to product definitions.
A business must be viewed as customer - satisfying process, and not a goodsproducing process.
Products are transient hence we look for something else to define business
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On the basis of Basic needs

Basic needs and customer groups endure forever.
Transportation is a need: horse and carriage, the automobile, the railroad, the
airline, and the truck are products that meet that need.
Levitt encouraged companies to redefine their businesses in terms of needs and
not products.
IBM redefined itself as from hardware and software manufacture to a builder
of networks
Peter Drucker &Theodore Levitt were the first to agitate this issue and
emphasized need to clarify issues like
Ultimate purpose and what do we want to become?
What kind and what pace of growth?
Need to understand current business in its broadest connotation
Who is our customer?
Whom do we intend to serve? What human needs?
What brings us to this business?
What is the nature of the business in future?
In what business would we like to be in future?
Defining the Business
Examples highlight the difference between target market definition and
strategic market definition
A target market definition tends to focus on selling product or service
Pepsi could define its target market as anyone who drinks a cola beverage and
competitors could therefore be other cola companies
A strategic market definition could be anyone who might drink
something to quench his or thirst. Suddenly, Pepsis competition would
then include non-cola soft drinks, bottled water, fruit juices, tea, and
coffee. To better compete, Pepsi might decide to sell additional
beverages whose growth rate appears to be promising.
Business can be defined in terms of three dimensions:
Customer groups
Customer needs and,
Technology
Consider a small company that defines its business as designing incandescent
lighting systems for television studios.
Its customer Groups Television studios
Customer need Lighting
Technology - Incandescent lighting
78
The company would like to expand.

It could make lighting for other customer groups Homes, factories,
and offices:
Or it could supply other services needed by television studios, such as
heating, ventilation, or air-conditioning.
It could design other lighting technologies for television studios, such as
infrared or ultraviolet lighting.
Dimensions of Business Definition

by Derek Abell to Define the Business Along 3 Dimensions
Customer Functions
What need is
being satisfied?
Two Companies in the

Time keeping Business
Customer Groups
Who is being satisfied?
Group
Lady
Function Fashionable
Alternate Technologies
Accessory
How the need
Alt. Tech Quartz
Is krishnamoorthy
satisfied?
Digital
Bala
Management Practice MBA 2007Shreekant Limaye
Industrial
Recording
Time
Mechanical
2009
Figure 2.1.5 Dimensions of Business definition

Summary
Once you understand the environment you have to:
Create a vision of where you want to go
Understand why you would like to go there (purpose)
Find the key things you must do right to successfully reach your vision
I completely understand the following outcomes and will be able to apply
them in the work environment:
No.
Outcome
1.
The definitions of a vision, mission and strategic intent
2.
The roles of vision and mission for the venture
3.
How each influences the strategies chosen
Yes
No
2.2 ENVIRONMENT ANALYSIS

79
2.2ENVIRONMENT THREAT AND OPPORTUNITY PROFILE (ETOP)

2.3 STRATEGIC ADVANTAGE PROFILE (SAP)
2.2 Business Environment Analysis & ETOP
BACKGROUND
Environmental analysis is a systematic process that starts from identification of
environmental factors, assessing their nature and impact, auditing them to find
their impact to the business, and making various profiles for positioning.
A common process of environmental analysis or scanning is discussed in
the following section.
Environmental Analysis Process
A business manager should be able to analyze the environment to grasp
opportunities or face the threats. Organizations need to build strength and
repair their weakness available in the business environment. Therefore, this
process consists not only a single steps but a process of various steps.
Environmental analysis comprises scanning, monitoring, analyzing, and
forecasting the business situation.
Scanning is to get the relevant information from the information overload. It is
to focus on the most relevant information.
Monitoring is to check the nature of the environmental factors.
Analyzing requires data collection and use of different required tools and
techniques.
Forecasting is to find the future possibilities based on the past results and
present scenario.
Environmental analysis process is not static but a dynamic process. It may
differ depending on the situation. However, a general process with few
common steps can be identified as the process of environmental analysis
these are:
a) Monitoring or identifying environmental factors, b) Scanning and
selecting the relevant factors and grouping them, c) Defining variables for
analysis, d) Using different methods, tools, and techniques for analysis, e)
Analyzing environmental factors and forecasting, f) Designing profiles, and g)
Strategic positioning and writing a report. Brief discussion is made on each of
the step of this environmental analysis process.
Identifying environmental factors
First of all a strategist should identify all the relevant factors that might
affect his or her business. In this process, one should first know what the
internal areas of the business are. This includes all the systems, internal
structure, strategies followed, and culture of the organization.
80
HOW DO YOU DO AN EXTERNAL ANALYSIS?

General
Environment
Technological
An
Organizations
External
Environment
Substitute
Products
Figure 3-4
Political-Legal
Economic
Specific Environment
Industry-Competitors
Organization
Bargaining
Power of
Suppliers
Bargaining
Power of
Buyers
Current
Rivalry
Potential
Entrants
Demographic
Sociocultural
Prentice Hall, 2002
End Show
3 - 10
Figure 2.2.1 External Analysis

All these areas can be covered into the five functional areas in classical
approach. Similarly, a business daily interacts with the close environmental
components outside the business such as customer, competitor, and supplier. It
might cover all other stakeholders such as trade union, media, and pressure
group. Furthermore, general such business environment factors as politicallegal, economic, sociocultural, and technological factors are to be identified.
Scanning and selecting relevant and key factors
Out of all the business environmental factors, a strategist should focus only on
the relevant factors for further analysis. All the factors are not equally important
and affecting to the business. In this context, a strategist has to scan the
environmental trend to select only the most affecting environmental factors from
the information overload. This step paves the way of environment analysis and
forecasting.
Defining Variables for Analysis
Selected environmental factors are to be further specified into the variables. A
concept can be interpreted into different variables. For example, political
situation can be measured using few variables such as instability,
reliability, and long-term effect. Economic environment might cover many
variables such as Per Capita, GDP, and Economic policies that can be further
classified into many other variables. Variables are the basis of measurement in
environmental analysis process. Variables can be compared, grouped,
correlated, and predicted to find the clearer picture of the broader concept. It is,
therefore, necessary to define the variables first in any kind of analysis
including the environmental analysis.
Using Different Methods, Techniques, and Tools
Different types of methods, tools, and techniques are used for analysis. Some
of the major methods of analysis can be Scenario Building, Benchmarking, and
Network methods. Scenario presents overall picture of its total system with
affecting factors. Benchmarking is to find the best standard in an industry and
to compare the ones strengths and weakness with the standard. Network
81
method is to assess organizational systems and its outside environment to find

the strength and weakness, opportunity and threats of an organization.
Some of the techniques of primary information collection can be Delphi,
Brainstorming, Survey, and Historical enquiry.
Analysis tools can be statistical such general descriptive tools as mean, median,
mode, frequency. Tools can be inferential as ANOVA, correlation, regression,
factor, cluster, and multiple regression analysis. There are many tools of
analyzing functional areas. Finance and accounting use mostly profitability,
leverage, fund flow and other similar accounting and financial tools for
analysis.
Forecasting Environmental Factors
Collecting relevant information from the selected areas and to identify
the variables in such areas are the basics of analysis. Analyzing the past
information to predict the future is the main objective of this step. As discussed
earlier, use of different methods, techniques, and tools comes under the
analysis process. It is, therefore, a comprehensive process that analyzes
collected information using different tools and techniques.
Designing Profiles
After analyzing the environmental factors they are recorded into the profiles.
Such profiles record each component or variables into left side and their
positive, negative, or neutral indicators including their statement in the
right side. Internal areas are recorded in Strategic Advantages Profile (SAP)
and external areas are recorded in Environmental Threat and Opportunity
Profile (ETOP). Strength, Weakness, Opportunity, and Threat (SWOT) profile
can be designed combining both of these two profiles into one.
There are varieties of reporting formats or profiles used for external and
internal business environment analysis. Environmental Threat and Opportunity
Profile (ETOP) is commonly used to report the external environmental situation
whereas Strategic Advantages Profile (SAP) to report the internal
environmental situation.
Both of these profiles can be merged into Strength- Weakness-OpportunityThreat (SWOT) profile.
David used External Factor Evaluation (EFE) Matrix to present weighted score
of external environmental factors.
Similarly, he used Internal Factor
Evaluation (IFE) Matrix to make the reporting of internal environmental audit.
(See: annex-...). Wheelen & Hunger used External Factors Analysis Summary
(EFA S) and Internal Factors Analysis Summary (IFAS).
Environmental threats and opportunities profile (ETOP) is a commonly
used profile related to external business environment. Strategic advantages
profile (SAP) is related to internal business environment. Nowadays, strength
& weakness and opportunities & threats (SWOT) profile has become very
popular. Present writing pursued the approach of reporting external and
internal business environment using the same approach.
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2.2 Preparing ETOP

Environmental threat and opportunity profile is referred as ETOP profile. It
identifies the relevant environmental factors. Such factors might be general
environmental factors and task environment factors. Thereafter, it is necessary
to identify their nature. Some factors are positive to the organization whereas
others are negative. Therefore, it is necessary to find out their impact to the
organization. Positive, neutral, and negative sign in ETOP denotes the relevant
impact of environmental factors.
CASE STUDY: ETOP PROFILE BY A PASSENGER CAR FIRM IN INDIA
1. MACROENVIRONMENT
POLITICAL:
Country remains a democracy; era of coalition government
Fair amount of political stability despite the absence of single party rule
Political consensus on higher target of growth of the economy
Political consensus on economic reforms
SOCIAL ENVIRONMENT:
Burgeoning middle class
Major changes in life style
Increased urbanization
More & more consumption orientation
Double income & nuclear family on rise
Living on credit become trend
Boom in leisure activities
Upwardly mobile social class on the rise
ECONOMIC ENVIRONMENT:
Labour situation attractive -Abundance of skilled workers, passenger car
industry and auto ancillaries well endowed with skilled workforce, wages
on the increase now, but by global standards low
TECHNOLOGICAL ENVIRONMENT:
More liberal approach to technology import
Significant efforts at internal technology development
2. MICRO ENVIRONMENT
CONSUMER / DEMAND
Increasing affluence of urban consumers
83
Larger consumer base

Increasing purchasing power
Changes in lifestyle support products
Changes in buying behaviour -more choosy -cars e.g. Style, comfort apart
from fuel efficiency
COMPETITION
Total change in competitive scenario
Intense competition
SUPPLIER
India -major producer of steel -raw material -no problem
LEGAL
Perceived sound by world players, hence no Foreign Direct investment
(FDI)
TECHNOLOGY
Major changes
It is in hands of world majors in the industry
Very few players have technology for small cars
THE INDUSTRY
Passenger car industry -Growth Industry (short term & medium term)
Industry structure changing -Delicensing & Opening up of industries for
foreign investment
Gaining an expert orientation
Industry attractiveness -reasonably good in short term & medium term
OPPORTUNITY & THREAT MATRIX
OPPORTUNITY & THREAT MATRIX
Figure 2.2.2 OPPORTUNITY & THREAT MATRIX
84
IDENTIFYING THE ENVIRONMENTAL FACTORS

Environmental scanning results in mass of information related to different
sectors of the environment. Without the technique to deal with this information,
a strategist would be at a loss to comprehend and analyze the environmental
influences. A feasible approach to identify the environmental factors is to test
each factor with regard to its impact on the business of the organization and
the probability of such an impact.
Exhibit provides a matrix which can help a strategist to identify the high
priority environmental factors (termed as issues by Boulton). This is called
Impact Analysis
Environmental scanning leads to the identification of many issues that affect
the organization. These issues could be judged on the basis of the intensity of
their impact on the business of the organization and the relative probability of
such an impact.
In such a manner, environmental issues (and all the factors) could be distributed
among nine cells of the matrix. The issues which are likely to have a high level
of impact on the organizations are critical issues and need immediate attention
of the strategists. High priority issues are those which have a medium to high
probability of impact, while those currently having a high of impact but a low
probability of occurrence need to be kept under watch. All the other issues
could be considered as being of low priority but still requiring continuous
monitoring as conditions may change later. In this way, strategists could narrow
the range of environment their attention upon. These issues help in structuring
of the environmental appraisal, when divided into opportunities and threats and
allocated to different sectors of the environment.
2.3 PREPARING SAP
Strategic advantage profile is known as SAP. It shows strength and weakness of
an organization. Preparation of SAP is very similar process to the ETOP.
There are generally five functional areas in most of the organizations. These
areas are Production or Operation, Finance or Accounting, Marketing or
Distribution, Human Resource & Corporate Planning, and Research &
Development. These functional areas are listed to identify their relative
strength and weakness in SAP. Very similar to the ETOP, positive, neutral,
and negative signs are denoted and brief description is written in SAP profile.
Each functional area is very broad having many components inside.
All these above described profiles provide a clear picture to understand
the strategic position of an organization.
85
Figure 2.2.3 Strategic Advantage Profile
Strategic Position and Report Writing

After analysis of business environment a strategist knows the actual situation
and can make some future forecasting based on the environmental analysis.
After preparing the profiles strategists prepare formal report that describes the
business environment. The report might present issues and best strengths of
business environment in a systematic process. One can draw future strategies
based on the strategic analysis followed.
In conclusion, a strategist or a manager first identifies the relevant
environmental factors then analyzes using different tools and techniques
to find out the actual situation. This overall process is sometimes known
as SWOT analysis, environmental scanning, environmental analysis, or
monitoring-forecasting. This process is very important for a manager to make
86
his or her organization success by choosing the best available alternative

strategy.
2.4. INDUSTRY ANALYSIS

Conducting Industry Analysis
Seven Questions for Industry Analysis
1.
What are the industry dominant economic traits?
2.
What competitive forces are at work in the industry and how strong are
they?
3.
What are the forces of change in the industry and what impact will they
have?
4.
Which companies are in the strongest/weakest competitive position?
5.
Who is likely to make what competitive moves next?
6.
What key factors will determine success or failure?
7.
How attractive is the industry in terms of its prospects for above

average profitability?
Q1. What are the industry dominant economic traits?

Market size (Small markets dont attract big fish)
Scope of competitive rivalry
Market/industry growth rate (life cycle)
Fast growth breeds new entry; slowdowns lead to increased

competition.
Number of rivals and their size

Number of buyers and their size
Level of backward and forward integration
Technological change (rate and scope)
Level of differentiation between firms products
Opportunities for economies of scale
Ease of entry and exit
Capital requirements
Q1: Industrys Dominant Economic Traits
Market
Size
Scope
87
Growth rate
Growth cycle
# & size of competitors
Distribution channels
Structure
Forward Integration
Backward Integration
Product
Differentiation
Potential for economies of scale
Learning effects
Entry / exit costs
Technological change
Q2. What competitive forces are at work in the industry and how strong
are they?
Porters Five Forces.
advantage:
Forces influencing industry and competitive
Competitive Intensity (Rivalry Among Sellers)
Barriers to Entry (Potential for New Entrants)
Bargaining Power of Suppliers
Bargaining Power of Customers
Threat of Substitute Products
are they?
The rivalry among sellers
Greater the rivalry, lower the avg. profitability
What causes rivalry to be strong or weak?

# of competitors
Size / capability of competitors
Financial status of competitors
Slow growth
Cost of exit barriers
Switching costs for customers
Variability in demand
88
are they?
Potential new entrants
Barriers to entry
Economies of scale
Learning curve effects
Customer loyalty / brand preferences
Resource / investment
Access to distribution
Regulation
Patents, proprietary technology
Level of industry profits
are they?
The relative power of suppliers
Importance of component
Switching costs
Backward integration threats
Substitutes
The relative power of buyers
Switching costs
% market share / size
# of suppliers
Product standardization
Potential for backward integration
are they?
Substitute products
Place a ceiling on prices and profits of industry
Invite comparison shopping

89
E.g., eyeglasses vs. contact lenses
E.g., sugar vs. artificial sweeteners
Q3. What are the forces of change in the industry and what impact will
they have?
The most dominant forces the cause the industry to change are called
driving forces
Task 1 - identify the driving forces
Task 2 - assessing their impact on the industry (few are important,
generally)
Common Driving Forces
Changes in long term industry growth rate
Changes in who buy the products and for what reason
Product innovation
Technological change
Marketing innovation
Increasing globalization
Regulatory changes
Changing societal concerns, attitudes and lifestyles
Environmental scanning
Q4. Which companies are in the strongest/weakest competitive position?
Using the strategic group mapping: two dimensional representation
according to the competitive characteristics of the competitors in the
industry
Axes should not be correlated
Size of circles proportional to combined sales
The closer the circles, the stronger the rivalry
See http://i.i.com.com/cnwk.1d/html/b/305,1,Competitive
and http://www.quickmba.com/strategy/pest/ for more information.
Q5. Whos likely to make what competitive moves next?
In order to outmaneuver your competition you have to evaluate the
90
competitors future moves.

Identify competitors strategies
Evaluate who are the major players-- now
Who will be the major players
Evaluate what the major players are going to do
Q6. What key factors will determine success or failure?
Key success factors (KSF) are crucial elements that lead to success.
What are they now? What will they be?
In beer production KSF can be brewing skills
In retail apparel KSF can be low cost, superior service, superior design
In your industry, KSF=????
Q7. How attractive is the industry in terms of its prospects for above
Growth potential
Driving forces
Entry/exit
Stability of demand
Competitive forces
Risk and uncertainty
Competition and its impact on the industrys future
7 Questions
1. What are the industry dominant economic traits?
2. What competitive forces are at work in the industry and how strong
are they?
3. What are the forces of change in the industry and what impact will
they have?
4. Which companies are in the strongest/weakest competitive position?
5. Who is likely to make what competitive moves next?
6. What key factors will determine success or failure?
7. How attractive is the industry in terms of its prospects for above
91
2.5 COMPETITOR ANALYSIS

COMPETITOR ANALYSIS
Update your knowledge of competitors:
Major competitors
Cost structure
New competitors
Competitors key strategies
Strengths and weaknesses
Customers view
Read trade publications/analysis
Ask customers and suppliers
Talk to employees
Attend trade shows
Buy the products
Website www.
COMPETITOR PROFILE MATRIX

A tool that enables a business owner to evaluate his company against major
competitors on key success factor (KSF) for that market.
92
Competitive analysis is the practice of analyzing the competitive

environment in which your business operates (or wishes to operate),
including strengths and weaknesses of the businesses with which you
compete, strengths and weaknesses of your own company,
demographics and desires of marketplace customers, strategies that can
improve your position in the marketplace, impediments that prevent
you from entering new markets, and barriers that you can erect to
prevent others from eroding your own place in the market.
While industry analysis and strategic group analysis focus on the industry as a
whole or on subsets of firms within an industry, competitor analysis focuses on
each company with which a firm competes directly.
Competitor analysis, therefore deals with actions and reactions of individual
firms within an industry of strategic group. It becomes especially important in
the oligopolistic industries where there are a few powerful competitors and
each needs to keep track of strategic move of others.
According to Porter, the purpose of conducting competitor analysis:
Determine each competitors probable reaction to the industry and
environmental changes
Anticipate responses of each competitor to the likely strategic moves by
other firms; and
Develop a profile of the nature and success of the possible strategic
changes each competitor might undertake.
Competitive analysis starts with the identification of competitors, current and
potential. Some competitors compete more in tensely than others.
PowerBar makes an energy bar that competes most intensely with other energy
snacks (for example, Balance). However, it also competes with energy drinks
and other snacks such as candy. Although intense competitors should be
examined most closely, all competitors are usually relevant to strategy
development.
Especially when there are many competitors, it is helpful to combine those with
similar characteristics (e.g., size and resources), strengths (e.g., brand name,
distribution), and strategies (e.g., high quality) into strategic groups. The luxury
hotel industry may be divided into hotels that offer business-oriented amenities
and hotels that are ultra plush and prestigious. These two groups might be
further divided into those that are members of chains with central reservation
systems and those that are autonomous. To develop strategy, it is important to
understand the competitors
Performance
Image and personality
Objectives
Current and past strategy
93
Culture
Cost structure
Strengths and weaknesses
Of special interest are the competitors strengths and weaknesses. Strategy
development often focuses on exploiting competitors weaknesses or
neutralizing or bypassing a competitors strength.
Components of Competitor Analysis
Elements of Competitive Analysis
There are several important elements of competitive analysis, each of which
need to be carefully studied if one hopes to transform competitive analysis
activities into business profitability. Major aspects of competitive analysis
include the following:
Future goals of competitor deals with question such as these: how do our goals
compare to our competitors goals? Where will emphasis be placed in the
future? What is attitude towards risk?
Current strategy of competitor deals with questions such as these: How are we
currently competing? Does this strategy support changes in the competitive
structure?
Key assumptions made by competitor deal with questions such as these: Do we
assume - The future will be volatile? Are we operating under status quo? What
assumptions does our competitor hold about the industry and about themselves?
Capabilities of competitor deal with questions such as these: What are our
strengths and weaknesses? How do we rate compared to our competitors?
Based on thorough analysis of these components, a response profile can be
prepared for each competitor that can help predict their likely strategic moves,
which can be on the offensive or defensive type. The response profile can be
based on a firm asking questions such as these:
What will our competitor do in the future?
Where do we hold an advantage over our competitors?
How will this change our relationship with our competitors?
The response collected in the response profile is a vital input for the purpose of
business formulation by an organization.
Some examples: The case of two-wheeler and four-wheeler industry is
illustrative of changing scenario of competitiveness. Waiting lists for scooters
and cars were a common phenomenon prior to the 1990s, but now these
markets have become highly competitive. Another case is of the FMCG
industry, in general, where competitiveness in several sub-sectors such as soaps
and detergents, cosmetics, bakery and confectionery products, etc., has
increased by leaps and bounds. It is in such a scenario that competitor analysis
becomes relevant.
94
Refer back to Porter five forces analysis of the Indian paint industry and note
that the level of competition has increased. Looking at the moves and
countermoves of the two top companies, it is observed that Asian Pains
dominated the decorative pants segment of the paints industry in India with a
market share of 44 percent. Kansai Nerolac retained its market leadership in the
industrial paints segment with a 45 percent market share.
Generally companies in the Indian paints industry were attempting to create a
balance among the two segments so that they did not face extreme demand
fluctuations of either of the two segments. Kansai Nerolacs change of business
strategy of refocusing on the decorative paints segment in order to take
advantage of its brand value can be seen in this context This move constituted a
competitive threat to others, especially Asian Paints.
Among the two Asian Paints was stronger in terms of cost reduction,
marketing and, distribution infrastructure and global reach. Competitive
situation has created a situation where branding, distribution and product
quality have become significant. In their effort to avoid that the paint becomes
commodity, the companies are positioning themselves as FMCG companies
trying to build brands and fulfil the role of painting solutions consultants.
There is very less information available regarding the means adopted by
companies to keep track of their competitors. But many executives do admit
that they rely on their marketing intelligence system to collect information
regarding the probable moves by their strategic competitors. Some other
analysis undertaken by companies:
ANALYSIS OF COMPETITOR STRENGTHS AND WEAKNESSES
Once a company's universe of competitors has been defined and identified, it
can start on the process of identifying the strengths and weaknesses of those
competitors. Abrams cautioned that many small business owners are tempted to
place undue weight on the quality of the product or service they offer (or plan
to offer, in the case of new businesses). This may be a comforting thought,
admitted Abrams, but it betrays a fundamental misunderstanding of how
business works: "The objective features of your product or service may be a
relatively small part of the competitive picture.
In fact, all the components of customer preference, including price, service,
and location, are only half of the competitive analysis. The other half of the
equation is examining the internal strength of your competitors' companies. In
the long run, companies with significant financial resources, highly motivated
or creative personnel, and other operational assets will prove to be tough,
enduring competition."
There are two main questions that cut to the heart of this element of
competitive analysis: What key advantages do the competing businesses
possess in the realms of production management, marketing, service reputation,
and other aspects of business operation? What key vulnerabilities or
weaknesses do the competing firms have in these same areas?
95
Of course, examination of a competitor's strengths and weaknesses also

requires separating important advantages (intense customer loyalty, for
instance) and disadvantages (reputation as a polluter) from less important
advantages (a larger parking lot, perhaps) and disadvantages (older forklift
machinery). Writing in his book Developing Business Strategies, David Aaker
suggested that business owners should concentrate their analysis efforts in four
major areas:
Studying the reasons behind the successesand failuresof competitive firms
Major issues that motivate customers
Major component costs
Barriers to mobility within the industry
ANALYSIS OF INTERNAL STRENGTHS AND WEAKNESSESS
Another important element of competitive analysis is determining what your
own company's strengths and weaknesses are. What aspects of the company's
operation convey an advantage in the marketplace? Is your sales force
composed of bright, ambitious individuals? Does your company have an
advanced inventory management system in place? Do you have an employee
with a talent for advertising and/or marketing? Once a company has determined
its strengths, it can go about the process of utilizing those strengths to improve
its position in the marketplace. Conversely, an examination of internal
weaknesses (uninspired product presentation, recalcitrant work force, bad
physical location, etc.) should spur initiatives designed to address those
shortcomings
2.6 Market Analysis

The goal of a market analysis is to determine the attractiveness of a market and
to understand its evolving opportunities and threats as they relate to the
strengths and weaknesses of the firm.
David A. Aaker outlined the following dimensions of a market analysis:
Market size (current and future)
Market growth rate
Market profitability
Industry cost structure
Market trends
Key success factors
Market Size
The size of the market can be evaluated based on present sales and on potential
96
sales if the use of the product were expanded. The following are some
information sources for determining market size:
government data
trade associations
financial data from major players
customer surveys
Market Growth Rate
A simple means of forecasting the market growth rate is to extrapolate
historical data into the future. While this method may provide a first-order
estimate, it does not predict important turning points. A better method is to
study growth drivers such as demographic information and sales growth in
complementary products. Such drivers serve as leading indicators that are more
accurate than simply extrapolating historical data.
Important inflection points in the market growth rate sometimes can be
predicted by constructing a product diffusion curve. The shape of the curve can
be estimated by studying the characteristics of the adoption rate of a similar
product in the past.
Ultimately, the maturity and decline stages of the product life cycle will be
reached. Some leading indicators of the decline phase include price pressure
caused by competition, a decrease in brand loyalty, and the emergence of
substitute products, market saturation, and the lack of growth drivers.
Market Profitability
While different firms in a market will have different levels of profitability, the
average profit potential for a market can be used as a guideline for knowing
how difficult it is to make money in the market. Michael Porter devised a useful
framework for evaluating the attractiveness of an industry or market. This
framework, known as Porter's five forces, identifies five factors that influence
the market profitability:
Buyer power
Supplier power
Barriers to entry
Threat of substitute products
Rivalry among firms in the industry
Industry Cost Structure
The cost structure is important for identifying key factors for success. To this
end, Porter's value chain model is useful for determining where value is added
and for isolating the costs.
Distribution Channels
The following aspects of the distribution system are useful in a market
97
analysis:
Existing distribution channels - can be described by how direct they are to the
customer.
Trends and emerging channels - new channels can offer the opportunity to
develop a competitive advantage.
Access to essential unique resources
Ability to achieve economies of scale
Access to distribution channels
Technological progress
It is important to consider that key success factors may change over time,
especially as the product progresses through its life cycle.
Market Trends
Trends within the market can affect current or future strategies and assessments
of market profitability. For example, an important trend in luxury hotels is
business suites that include host of amenities, such as living room/den with a
library of books and VCR movies, internet access, well-stocked refrigerator,
and elegant furnishings.
2.7
ENVIRONMENTAL
UNCERTAINTY
ANALYSIS
AND
DEALING
WITH
Learning Outcomes:
Impact analysis involves assessing systematically the impact and
immediacy of the trends and events that underlie each strategy
uncertainty.
Scenario analysis, a vehicle to explore different assumptions about the
future, involves the creation of two to three plausible scenarios, the
development of strategy appropriate to each, the assessment of scenario
probabilities, and the evaluation of the resulting strategies across the
scenarios.
Environmental analysis and dealing with uncertainty
Strategic uncertainty, uncertainty that has strategic implications, is a key
construct in external analysis. A typical external analysis will emerge with
dozen uncertainties. To be manageable, they need to be grouped into logical
clusters or themes. It is then useful to to assess the importance of each cluster in
order to set priorities with respect to information gathering and analysis. Impact
analysis, is described which is designed to accomplish that assessment.
Sometimes the strategic uncertainty is represented by future trend or event that
has inherent unpredictability. Information gathering and additional analysis will
not be able to reduce the uncertainty. In that case, scenario analysis can be
employed.
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Scenario analysis basically accepts that the uncertainty as given and uses it to
drive a description of two or more future scenarios. Strategies are then
developed for each. One outcome could be a decision to create organizational
and flexibility so that as the business context changes the strategy will adapt.
Scenario analysis will be detailed in the next section of this chapter.
IMPACT ANALYSIS ASSESSING THE IMPACT OF STRATEGIC
UNCERTAINTY
An important objective of objective external analysis is to rank the strategic
Sometimes the strategic uncertainties and decide how they are to be managed
over time. Which uncertainties merit intensive investment in information
gathering and in-depth analysis, and which merit only a low-key monitoring
effort?
The problem is that dozens of strategic uncertainties are often generated. These
strategic uncertainties can lead to an endless process of information gathering
and analysis that can absorb resources indefinitely.
A publishing company may be concerned about cable TV, lifestyle patterns,
educational trends, geographic population shifts, and printing technology. Any
one of these issues involves a host of subfields and could easily spur limitless
research. For example, cable TV might involve a variety of pay-TV concepts,
suppliers, technologies, and viewer reactions. Unless distinct priorities are
established external analysis can become descriptive, ill focused, and
inefficient.
The extent to which a strategic uncertainty should be monitored and analyzed
depends on its impact and immediacy.
1. The impact of a strategic uncertainty is related to
o The extent to which involves trends or events that will impact
existing or potential SBUs.
o The importance of involved SBUs.
o The number of involved SBUs.
2. The immediacy of a strategic uncertainty is related to
o The probability that the involved trends or events will occur.
o The time frame of the trends or events.
o The reaction time likely to be available compared with the time
required to develop and implement appropriate strategy.
Impact of a Strategic Uncertainty
Each strategic uncertainty involves potential trends or events that could have an
impact on present, proposed, and even potential strategic SBUs.
For example, a strategic uncertainty for a beer firm could be based on the
future prospects of the microbrewery market. If the beer firm has both a
proposed microbrewery entry and an imported beer positioned in the same area,
trends in the microbrewery market could have a high impact on the firm. The
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trend toward natural foods may present sparkling water product line for the
same firm on the basis of strategic uncertainty.
The impact of strategic uncertainty will depend on the importance of the
impacted SBU to a firm. Some SBUs are more important than others. The
importance of the established SBUs may be indicated by their associated sales,
profits, or costs. However, such measures might need to be supplemented for
proposed or for growth SBUs for which present sales, profits, or costs may not
reflect the true value to a firm. Finally, because an information-need area may
affect several SBUs, the number of involved SBUs can also be relevant to
strategic uncertainty.
Immediacy of Strategic Uncertainties
Trends or events associated with strategic uncertainties may have a high impact
but such a low probability of occurrence that it is not worthy actively
expending resources to gather or analyze information. Similarly, if occurrence
is far in the future relative to the strategic-decision horizon, then it may not be
of little concern. Thus, the harnessing of tide energy may be so unlikely or may
occur so far in the future that it is of no concern to a utility.
2.8 SCENARIO ANALYSIS

The essence of strategy development is to be creative; to surface new, effective
strategies; and to view existing strategies from different perspectives. Most
strategic planning efforts are constrained by an existing mental model of the
business and its environment. Strategies that emerge tend to be extrapolations
of the past. How can new perspectives be introduced so that new alternatives
are generated and old ones challenged? One answer is scenario analysis, an
underused but powerful methodology. Consider the following examples:
A pharmaceutical company developed and examined scenarios based on
competitive new products. The conclusion that their investment plan
was risky led to one of the largest mergers in U.S. history.
The marketing organization of a bank analyzed scenarios based on the
future of U.S. interest rates and concluded that major geographic areas
needed to be managed differentially in order to meet goals.
An innovative European chemicals processor used alternative product
and process R&D scenario to identify contradictions in the long-range
planning assumptions. As a result, $100million in new investment was
deferred until several competing R&D projects had played out.
A software and services company developed three possible competitor
scenarios with strategies for each. The result was the acceptance of a
strategy that was a major departure from the past.
Scenarios provide a way to deal with complex environments in which many
relevant trend and events interact with and affect one another. When a set of
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micro trends and events are aggregated into one, two, or, three total scenarios
of the future environment, the analysis is more manageable.
Scenarios also help deal with uncertainty. Instead of investing in information to
reduce uncertainty, the possibility as, opposed to the certainty, of a scenario
will be accepted.
One key to scenario analysis is to have line managers conduct the analysis. The
process of developing scenarios and using those scenarios to consider new
strategies and test existing ones will change mind-sets, challenge assumptions,
create innovation options, and legitimize new directions.
For a business, scenario analysis is very helpful when it comes to making plans
for launching a new product or cultivating a new market of consumers. By
identifying various factors that could have an impact on the success of the
project, it is possible to begin creating scenarios that can help project what
could happen if certain factors were addressed in specific ways. The exercise
can often lead to anticipating and resolving issues before they ever have the
chance to undermine the project, thus enhancing the chances for success.
Investors can also make use of scenario analysis when considering various
types of investment transactions. For example, considering what would happen
to the value of a given stock if key officers left the company issuing the
options, natural disasters, or even political changes may influence the investors
course of action. If the scenarios indicate that events with a high probability of
occurring will cause the shares to increase in value, while also indicating that
less likely events would have minimal impact on the stock, there is a good
chance that the investor will move forward with the purchase.
The process of scenario analysis can be used for short-term projects as well as
long-term situations. Investors who are seeking a quick return on an investment
can utilize the strategy just as efficiently as someone who is looking for ways to
build a financial portfolio that will generate a modest but consistent return over
the years, thus creating a nest egg for retirement. The key to making the
strategy effective is making sure to consider all variables that can be reasonably
identified and follow each of the resulting scenarios to their likely conclusion.
Once that has taken place, it is possible to make an informed position in terms
of how to proceed.
As with many types of financial strategies, the value of scenario analysis is
only as good as the information that goes into the process. Failing to take into
account certain probable events increases the risk of making poor decisions,
and ultimately losing money or other resources as a result of the course chosen.
At the same time, pursuing scenario analysis with a great deal of verifiable
detail can help make it possible to accurately project future market yields,
increase profits, and make the total returns from the project higher than they
would have been otherwise.
STEPS IN SCENARIO ANALYSIS
Identify Scenarios
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It is useful to generate scenarios based on probable outcomes; optimistic,

pessimistic, and most likely.
Develop Scenarios strategies
After scenarios have been identified, the next step is to relate them to strategies
both existing strategies and new options.
Estimate Scenario Probabilities
To evaluate alternative strategies, it is useful to determine the scenario
probabilities.
Perform Regret Analysis
The final step is to compare the expected outcomes of each strategy if the
wrong scenario emerges. The expected value of each scenario can be
determined simply multiply each scenario outcome by the probability and
then add up the result.
2.9 SWOT Strength, Weakness, Opportunity, Threat

Analysis
LEARNING OUTCOMES
By the end of this learning unit, you will be able to apply your
The elements of SWOT Analysis
How to apply basic SWOT Analysis
How to derive three Core strategies from the outcome
Introduction
SWOT analysis is used to formulate Strategy. One has to Evaluating
Organizational Strengths.
Organizational strengths - skills and abilities enabling an organization to
conceive of and implement strategies.
Common organizational strengths possessed by numerous competing firms.
organizational
capabilities
Distinctive competencies - useful for competitive advantage and

superior performance.
Imitation of distinctive competencies - duplicating another firms
distinctive competence.
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What are the companys Strengths, Weaknesses, Opportunities and Threats ?

S W O T represents the first letter in
S trengths
W eaknesses
O pportunities
T hreats
For a companys strategy to be well-conceived, it must be matched to its
resource strengths and weaknesses and aimed at capturing its best market
opportunities and erecting defenses against external threats to its well-being
A SWOT analysis is a simple but powerful tool for sizing up a companys
resource capabilities and deficiencies, its market opportunities and the external
threats to its future well-being. A first-rate SWOT analysis provides the basis
for crafting a strategy that capitalizes on the companys resources, aims
squarely at a capturing the companys best opportunities, and defends against
the threats to its well-being.
It is a tool that is applied to the analysis process and helps to clarify the
complexities of the results of all the different analyses. SWOT analysis
graphically plots the results of the external and internal analyses for a venture.
It requires a lot of research and asking questions but its benefit is that it assists
to improve understanding of where we are. It considers 4 elements namely:
Opportunities found in the external environment, are positive and
benefit the venture if pursued correctly
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Threats also found externally but the may have negative effects on
the venture
Strengths are found within the venture and gives the venture a
platform to operate from
Weakness are found within the venture and are those elements that
hamper progress and pursuing opportunities.
When you are planning strategically with any companyonline or offlineit is
useful to complete an analysis that takes into account not only your own
business, but your competitors businesses and the current business environment
as well. A SWOT is one such analysis.
Completing a SWOT analysis helps you identify ways to minimize the effect of
weaknesses in your business while maximizing your strengths. Ideally, you will
match your strengths against market opportunities that result from your
competitors weaknesses or voids.
Figure 2.9.1 Environmental scan - SWOT

PERFORMING SWOT OR SITUATION ANALYSIS
In situation analysis, also known as SWOT analysis, an organization identifies
internal strengths and weaknesses, as well as external opportunities and threats.
It seeks to answer two general questions:
Where is the firm now?
In what direction is it headed?
Situation analysis accomplishes the following:
It recognizes strengths and weaknesses relative to competitors.
It searches the environment for opportunities and threats.
It assesses an organizations ability to capitalize on opportunities
and to minimize threats.
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It anticipates competitors responses to company strategies.

Situation analysis can, and should be, conducted at any point in an
organizations life. Several examples of situation analyses are provided.
Figure 2.9.2 SWOT Matrix

Strengths & Weaknesses
The analysis of the internal environment of the firm reveals its strengths and its
weaknesses which helps the firm to analyse how to turn its weaknesses in to
strengths. Firms strengths consist of its resources and capabilities that can be
useful in developing its competitive advantage over its competitors. Some of the
examples of firms strengths are Its access to high grade natural resources,
strong brand name, strong distribution network, brand name, patents, strong
information network, etc.
Firms weaknesses are absence of certain strengths which is the necessity for its
business to fight competition. Some of the examples of it are poor reputation
among customers, lack of access to natural resources, lack of coordination with
the suppliers and distributors, dissatisfied employees, demotivated marketing
staff, etc.
Opportunities & Threats
The analysis of the external environment reveals to the firm the opportunities
available for it in the market and what are the threats it is facing, which helps it
analyse the various strategies what to select. Some of the examples of
opportunities are arrival of new technology, removal of some trade barriers or
government regulations, an unfulfilled customer need, etc.
The changes that take place regularly in the external environment gives rise to
certain threats to the business like shift in consumer tastes, new regulations,
increased trade barriers.
Now the firm has to identify the best fit between its strengths and the
opportunities available and try to overcome its weaknesses and ready to face the
challenges / threats.
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Strength Opportunities strategies: pursue those opportunities which best fit

Companies strengths
Weaknesses opportunities strategies: pursue opportunities to overcome
weaknesses
Strengths Threats strategies: identify ways through which firm can use its
strength to reduce the degree of external threats
Weaknesses Threats: Establish a defensive plan to prevent the firms
weaknesses from making it highly susceptible to external threats
Basic SWOT
You can develop a basic SWOT analysis in a brainstorming session with
members of your company, or by yourself if you are a one-person shop. To
begin a basic SWOT analysis, create a four-cell grid or four lists, one for each
SWOT component:
Then, begin filling in the lists.
Strengths - Think about what your company does well. What makes you stand
out from your competitors?
What advantages do you have over other businesses?
Weaknesses - List the areas that are a struggle. What do your customers
complain about? What are the unmet needs of your sales force?
Opportunities - Try to uncover areas where your strengths are not being fully
utilized. Are there emerging trends that fit with your companys strengths? Is
there a product/service area that you could do well in but are not yet competing?
Threats - Look both inside and outside of your company for things that could
damage your business. Internally, do you have financial, development, or other
problems? Externally, are your competitors becoming stronger, are there
emerging trends that amplify one of your weaknesses, or do you see other
threats to your companys success?
Advanced SWOT
A more in-depth SWOT analysis can help you better understand your
companys competitive situation. One way to improve upon the basic SWOT is
to include more detailed competitor information in the analysis.
You can note the internet-related activities such as trade organization
participation, search engine inclusion, and outside links to the sites. This will
better help you spot opportunities for and threats to your company.
You can also take a closer look at the business environment. Often,
opportunities arise as a result of a changing business environment.
Some examples are:
A new trend develops for which demand outstrips the supply of quality options.
For example, early on, the trend toward healthy eating coupled with an
insistence on good-tasting food produced a shortage of acceptable natural food
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alternatives. Tetra pack fruit juices like Real and Onus captured on a nutritional
drink opportunity.
A customer segment is becoming more predominant, but their specific needs are
not being fully met by your competitors. The Indian rural markets have been
experiencing this phenomenon in the recent years for many product categories.
A customer, competitor, or supplier goes out of business or merges with another
company. With the demise of many pure-play dot-coms, examples of this
abound. As each went out of business, opportunities arise to gain the defunct
businesscustomers. Customers of bpl.net were ready customers for a company
called Data Access which was operating under the NOW brand.
You can also enhance a SWOT analysis through surveys. You can learn more
about your own as well as competitor sites and businesses. Areas you can
research include 1) customer awareness, interest, trial, and usage levels; 2)
brand, site, and/or company image; 3) importance of different site or product
attributes to your customers; and 4) product and/or site performance.
Whether using a basic or more advanced approach to SWOT analysis, you are
sure to come away with newfound insights. Use these to increase your
companys effectiveness and as input into your business or marketing plan.
The extent to which each part of the above process needs to be carried out
depends on the size and complexity of the business.
Strength is something a firm does well or an attribute that enhances its
competitiveness. Given below are some examples of strengths:
Valuable skills, competencies, or capabilities
Valuable physical assets
Valuable human assets
Valuable organizational assets
Valuable intangible assets
Important competitive capabilities
An attribute placing a company in a position of market
advantage
Alliances or cooperative ventures with partners
A weakness is something a firm lacks, does poorly, or a condition placing it at a
disadvantage. Resource weaknesses relate to
Inferior or unproven skills,
expertise, or intellectual capital
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Lack of important physical,

organizational, or intangible assets
Missing capabilities in key areas
Opportunities most relevant to a company are those offering
Good match with its financial and
organizational resource capabilities
Best prospects for profitable
long-term growth
Potential for competitive advantage
Threats - external are:
Emergence of cheaper/better technologies
Introduction of better products by rivals
Entry of lower-cost foreign competitors
Onerous regulations
Rise in interest rates
Potential of a hostile takeover
Unfavorable demographic shifts
Adverse shifts in foreign exchange rates
Political upheaval in a country
SUMMARY
The SWOT analysis is purely a tool to help one understand the current
situation of the venture.
The SWOT is as good as the research and information used in it.
It cannot do anything for the venture unless there are some strategies
formulated based on the outcome thereof.
I completely understand the following outcomes and will be able to
apply them in the work environment:
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No.
Outcome
1.
The elements of a SWOT analysis
2.
How to apply a basic SWOT analysis
3.
How to derive the three core strategies from the outcome
Yes
No
Chapter-II: Strategic Analysis

Multiple Choice Quizzes
Q1. Which one of them is not component of mission statement
communication?
(a) Visionary goals
(b) Competence
(c) Core purpose
(d) Core value
Q.2 The Vision defines:
(a) Where the organization wants to be in the future .It reflects the optimistic
view of the organizations future
(b) Where the organization is going now, basically describing the purpose, why
the organization exists.
(c) Action plan of the organization
(d) Tactics of the organization
Q.3 SWOT analysis is a tool for:
(a) Tool for auditing the organization and its environment
(b) Tool for forecasting.
(c) Tool for quality measurement of service
(d) Tool for strategic control
Q.4 SAP stands for:
(a) Systems Application, Products
(b) Strategic Advantage Profile
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(c) Strategic Audit Process

(d) Strategic Analysis Profile
Q.5 Expanded form of ETOP is:
(a) Environmental threat and opportunity profile
(b) Evaluation of technology, opportunity, process
(c) Economic threat and opportunity profile
(d) Environmental technological opportunity profile
Q.6 Environmental analysis does not involve analysis of
following factor:
(a) Technological
(b) Regulatory
(c) Economic
(d) All of above
Q.7 Competitors should be evaluated along several dimensions
mentioned below.
(a) Size.
(b) Growth
(c) Profitability
(d) All of the above.
Q.8 Market analysis will NOT include the following dimensions
(a) Market growth.
(b) Trends and development.
(c) Cost structure.
(d) Internal analysis.
Q.9 In SWOT analysis opportunity and threats are factors
of___________
(a) Internal analysis
(b) Evaluation analysis
(c) External analysis
(d) Resources analysis
Q.10 In SWOT analysis internal factors are ________
(a) Opportunity and Threats
(b) Strengths and weakness
(c) Strengths and opportunity
(d) Threats and opportunity
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MODULE III
Chapter 3: STRATEGIC CHOICE
3.0 Introduction
1. Michael Porters Approach Generic Strategies
2. Hofers Model, Stricklands Grand Strategy Selection Matrix
3. BCG Matrix
4. GE Nine Cell Matrix
5. Porters Five Force Model
6. Technology and Competitive Advantage, Substitution, Competitor,
Complementary Products and Competitive Advantage
7. Traditional Approach - Strategic Alternatives
8. Strategic vision vs. strategic opportunism
9. Coevolving and patching
Learning Outcomes
questions:
1. What is the role of Strategic Choice leading to selection of best strategy?
2. What are the Over all cost leadership, differentiation, focus strategies?
3. What are the various business strategies like GE, Hofer etc.?
4. What are the characteristics of Porters five forces model?
3.1
PORTERS GENERIC BUSINESS STRATEGY
Michael Porter has proposed three generic strategies that provide good starting
point for strategic thinking:
Overall-cost leadership
Differentiation
Focus
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Figure 3.1.1 Generic Strategies

Although many types of marketing strategies are available, Michael Porter has
condensed them into three generic types that provide a good starting point for
strategic thinking: overall cost leadership, differentiation, or focus.
Business-Level Strategies: Generic Strategies
Overall cost leadership: Attaining, then using the lowest total cost
basis as a competitive advantage.
Here the business works to achieve the lowest production and distribution
costs so that it can price lower than competitors and win more market share.
Firms pursuing this strategy must be good at engineering, purchasing,
manufacturing, and physical distribution; they need less skill in marketing.
Texas Instruments uses this strategy. The problem is that rivals may emerge
with still lower costs, hurting a firm that has rested its whole future on cost
leadership.
Figure 3.1.2 Best - Cost Provider Strategy

HOW TO ACHIEVE COST LEADERSHIP:
Reduce unit costs (e.g. generic designs).
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Use cheaper materials.

No frills products.
Increase productivity.
Achieve economies of scale.
Achieve learning curves.
Low-cost Provider Strategy
Achieve a cost advantage through:
Manage internal costs better than rivals
Eliminate cost-producing activities
Controlling the Cost Drivers
Economies or diseconomies of scale
Learning and experience curve effects
Key resources inputs
Union vs. nonunion labor
Bargaining power and suppliers
Location variables
Supply chain management expertise
Link with other activities
Share opportunities with other business units
Vertical integration vs. outsourcing
Timing and first-mover advantage
Capacity utilization
Managerial decisions:
Services to buyers
Product features
Wages and benefits
Delivery times
Incentive compensation
Specifications to suppliers
Revamping the Value Chain
Shift to e-business technologies
Direct to end-user sales and marketing
Simplify product design
Get rid of the extras
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Reengineer processes
Cheaper
Simpler
More flexible
Eliminate high-cost materials and components
Relocate facilities
Focus on limited products and services
Consolidate work steps
Eliminate low value-added activities
When the Strategy Works Best
Vigorous price competition
Standardized or commodity product
Differentiation has little value to buyers
Buyers use the product in the same way
Low buyer switching costs
Buyers have bargaining power
New entrants slash prices
HOW TO ACHIEVE DIFFERENTIATION:
Objective: Incorporate differentiating features that cause buyers to prefer
firms product or service over brands of rivals. Keys to success to find ways to
differentiate that create value for buyers and are not easily matched or cheaply
copied by rivals and not spending more to achieve differentiation than the price
premium that can be charged. A product /service with unique, appealing
attributes allow a firm to command a premium price and/or increase unit sales
and/or build brand loyalty. This will lead to competitive advantage.
Create products/services superior to competitors (e.g. design, performance,
reliability).
Offer superior after-sales service.
Create superior supply chain.
Create a strong brand.
Offer superior product/service packaging
Differentiation Strategy
Successful implementation allows company to command a premium price,
improve sales and market share and develop brand loyalty. Where to Create the
Difference
Purchasing and procurement
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Product design
Process design
Quality control
Marketing, sales and customer service
When the Strategy Works Best
When there are many ways to differentiate and buyers perceive value
Buyer needs and uses are diverse
Few rivals follow similar approach
Frequent technological change and innovation
Focus: Concentrating competitively on a specific market segment.
Here the business focuses on one or more narrow market segments, getting to
know these segments intimately and pursuing either cost leadership or
differentiation within the target segment. Airwalk shoes, for instance, came to
fame by focusing on the very narrow extreme-sports segment.
Focus strategy uses a cost or differentiation advantage to exploit a particular
market segment rather a larger market. In e-business - Chat rooms and
discussion boards, targeted web sites.
HOW TO ACHIEVE NARROW/BROAD FOCUS:
Identify a suitable distribution channels across markets such as internet,
chain stores, mail order catalogues.
Identify the specific needs, requirements and expectations of those
channels.
Identify a suitable market customer group and its niche market
(segment).
Identify the specific needs, requirements and expectations of that group.
Establish that the specific market niche (segment) is large enough to
sustain the business.
Analyse competition of the niche market.
Produce products/services that meet the specific customer requirements.
Decide whether to go for a differentiation of cost leadership within this
market niche (segment).
Example:
ONLINE air travel industry provides a good example of these three strategies:
Travelocity is pursuing differentiation strategy by offering most
comprehensive range of services to the traveler.
Lowestfare is pursuing lowest-cost strategy
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Lastminute is pursuing niche strategy in focusing on travelers who

have the flexibility to travel on very short notice
3.2 SCHENDEL AND HOFER STRATEGIC MANAGEMENT MODEL
& THE THOMPSON AND STRICKLAND MODEL
3.2.1 Schendel and Hofer Strategic Management Model

Dan Schendel and Charles developed strategic management model,
incorporating both planning and control functions.
Their model consists of several basic steps:
1. Goal Formulation
2. Environmental Analysis
3. Strategy Formulation
4. Strategy evaluation
5. Strategy implementation and,
6. Strategic control
According to Schendel and Hofer, the formulation portion of strategic
management consists of at least three sub-processes.
Environmental analysis
Resource Analysis
Value Analysis
Resource and value analysis are part of strategy formulation
3.2.2 The Thompson and Strickland Model

Thomson and Strickland developed several models of strategic management.
According to Thompson and Strickland strategic management is an ongoing
process: "nothing is final and all prior actions and decisions are subject to
future modification."
This process consists of five major five ever-present tasks:
1. Developing a concept of the business and forming a vision of where the
organization needs to be headed.
2. Converting the mission into specific performance objectives.
3. Crafting a strategy to achieve the targeted performance.
4. Implementing and executing the chosen strategy efficiently and effectively.
5. Evaluating performance, reviewing the situation, and initiating corrective
adjustments in mission, objectives, strategy, or implementation in light of
actual experience, changing conditions, new ideas, and new opportunities.
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Thompson and Strickland suggest that the firm's mission and objectives
combine to define "What is our business and what will it be?" and "what to
do now" to achieve organization's goals. How the objectives will be achieved
refers to the strategy of firm. In general, this model highlights the relationships
between the organization's mission, its long- and short-range objectives, and its
strategy.
3.3 Boston Consulting Group (BCG) Matrix

The BCG Matrix, named after the Boston Consulting Group (BCG), is perhaps
the most famous 2x2 matrix. The matrix measures a companys relative market
share on the horizontal axis and its growth rate on the vertical axis.
Figure 3.3.1 BCG

Managing Diversification - Portfolio management techniques - Methods that
diversified organizations use to make decisions about what businesses to
engage in and how to manage these multiple businesses to maximize corporate
performance are BCG Matrix and GE Business Screen.
BCG Matrix is a method of evaluating businesses relative to the growth rate of
their market and the organizations share of the market. The matrix classifies
the types of businesses that a diversified organization can engage as:
Dogs have small market shares and no growth

prospects.
Cash cows have large shares of mature markets.
Question marks have small market shares in quickly

growing markets.
Stars have large shares of rapidly growing markets.
The BCG matrix helps managers develop a better understanding of how

different strategic business units contribute to the overall organization. By
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assessing each SBU on the basis of its market growth rate and relative market
share, managers can make decisions about whether to commit further financial
resources to the SBU or to sell or liquidate it.S
Source: Perspective no.66 The Product Portfolio

Boston Consulting Group Inc, 1970
BCG Matrix is also known as THE GROWTH SHARE MATRIX- the market
growth rate on the vertical axis indicates the annual growth rate of the market
in which the business operates. It ranges from 0 to 20 percent. A market growth
rate above 10 percent is considered high. Relative market share, which is
measured on the horizontal axis, refers to the SBUs market share relative to
that of its largest competitor in the segment.
A relative market share of 0.1 means that the companys sales volume is only
10 percent of the leaders; a relative share of 10 means that the companys SBU
is the leader and has 10 times the sales of the next-strongest competitor in the
market.
The growth share matrix is divided into four cells, each indicating a different
type of business:
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Market Growth Rate
The Boston Consulting Groups

Growth-Share Matrix
20%18%16%14%12%10%8%6%4%2%0
Stars
Question marks
?2
Dogs
Cash cow
6
10x
7
4x
2x 1.5x
1x
.5x .4x .3x .2x .1x
Relative Market Share

Figure 3.3.2 Boston consulting Groups Growth-Share Matrix
1. Question Mark (Problem Child) Businesses that operate in high-growth
markets but have low relative market shares. A question mark requires a lot of
cash because the company has to spend money on plant, equipment and
personnel to keep up with the fast-growing market, and because it wants to
overtake the market leader. The company has to decide whether to keep
pouring money into the business or not.
2. Stars The market leaders in the high growth market. A star does not
necessarily produce a positive cash flow for the company. The company must
spend substantial funds to keep up with the high market growth and to fight off
competitors attacks.
3. Cash Cows Stars with falling growth rates that still has the largest relative
market share and produce a lot of cash for the company. The company does not
have to finance expansion because the markets growth rate has slowed.
Because the business is the market leader, it enjoys economies of scale and
higher profit margins. The company uses its cash cows to pay bills and support
other businesses. If the cash cow starts losing relative market share, the
company will have to pump money back into it to maintain market leadership.
4. Dogs Businesses that have weak market share in low growth markets. A
dog may not require substantial cash, but it ties up capital that could better be
deployed elsewhere. The company should consider whether it is holding on to
these businesses for good reasons or not.
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STRATEGIC BUSINESS UNITS STRATEGIES
Figure 3.3.3 Boston Matrix - Product Portfolio Decisions

Like Ansoffs matrix, the Boston Matrix is a well-known tool for the marketing
manager. It was developed by the large US consulting group and is an approach
to product portfolio planning. It has two controlling aspect namely relative
market share (meaning relative to your competition) and market growth.
You would look at each individual product in your range (or portfolio) and
place it onto the matrix. You would do this for every product in the range. You
can then plot the products of your rivals to give relative market share.
This is simplistic in many ways and the matrix has some understandable
limitations that will be considered later. Each cell has its own name as follows.
FOR YOU, SIMPLE WAYS TO REMEMBER ABOUT EACH CELL IN THE
MATRIX IS GIVEN BELOW.
Dogs
These are products with a low share of a low growth market. These are the
canine version of real turkeys! They do not generate cash for the company
rather they tend to absorb it. Get rid of these products.
Cash Cows
These are products with a high share of a slow growth market. Cash Cows
generate more than is invested in them. So keep them in your portfolio of
products for the time being.
Problem Children
These are products with a low share of a high growth market. They consume
resources and generate little in return. They absorb most money as you attempt
to increase market share.
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Stars
These are products that are in high growth markets with a relatively high share
of that market. Stars tend to generate high amounts of income. Keep and build
your stars.
Figure 3.3.4 The Boston Matrix

What do you think are the features of BCG matrix?
The Boston Consulting Group matrix lets a firm classify each SBU in terms of
market share relative to key competitors and annual industry growth.
With the matrix, it can be determined which SBUs are dominant and
whether their industries are growing, stable, or declining.
The matrixs major assumption is that the higher an SBUs market
share, the lower its per-unit costs and the higher its profitability.
A star is a leading SBU in an expanding industry. The major goal is to
sustain differential advantages in the face of rising competition. It
generates substantial profits but requires large amounts of resources to
finance growth.
A cash cow is a leading SBU in a mature or declining industry. It
generates funds that can be used for other SBUs.
A question mark is an SBU that has had little impact (low market
share) in an expanding industry (high growth). It needs substantial cash
to improve its position.
A dog is an SBU with limited sales (low market share) in a mature or
declining industry (low growth). It has cost disadvantages and few
growth opportunities.
Can you suggest some ways to manage your businesses based on the BCG
matrix?
Look for some kind of balance within your portfolio. Try not to have any Dogs.
Cash Cows, Problem Children and Stars need to be kept in a kind of
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equilibrium. The funds generated by your Cash Cows are used to turn problem
children into Stars, which may eventually become Cash Cows. Some of the
Problem Children will become Dogs, and this means that you will need a larger
contribution from the successful products to compensate for the failures.
What according to you may be the problems with the Boston Matrix?
There is an assumption that higher rates of profit are directly related to
high rates of market share. This may not always be the case. When
Boeing launches a new jet, it may gain a high market share quickly but
it still has to cover very high development costs.
It is normally applied to Strategic Business Units (SBUs). These are
areas of the business rather than products. For example, for LG in India,
IT products have a separate focus and hence are an SBU and not just a
basket of products.
There is another assumption that SBUs will cooperate. This is not
always the case.
The main problem is that it oversimplifies a complex set of decision. Be
careful. Use the Matrix as a planning tool and always rely on your gut
feeling.
What do you think are the strategies, which companies can make, based on
BCG matrix?
STRATEGIC BUSINESS UNITS STRATEGIES
Figure 3.3.5 strategic Business Units Strategies

1) Build this strategy is appropriate for question marks whose market
shares must grow if they are to become stars. As they are in a growing
market, an inflow of resources would work wonders for them. But if the
company is doubtful about its growth even in a growing market then it
divesting it would be a better decision. An early decision to divest is
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likely to produce fairly good bids if the business is in relatively good

shape now.
2) Hold this strategy is appropriate for stars. As they are the market
leaders with highest relative market share and in a rapidly growing
market, it is important for the firm to hold on to its current position for
long. In this stage the firm would be required to pump in resources in
order to maintain its position as a star. In order to reap the benefits from
this star the firm would be required to continuously support it with
resources.
3) Harvest this strategy is appropriate for cash cows. The objective of
harvest strategy is to increase short term cash flow regardless of long
term effect. In other words it involves milking the businesses. In this
position the firm does not spend money on R&D activities, reduces
advertising expenditure and undertakes other cost cutting measures for
the concerned SBU. Harvesting can be also used for weak cows,
question marks and dogs which show some promise for future potential.
4) Divest the objective is to sell or liquidate the business because
resources can be better used elsewhere. This strategy is appropriate for
dogs and question marks that are acting as a drag on the companys
profits. In this strategy the firm does not plough resources into the
business but just try to sell it off at a good price.
A
c
t
2
Market attractiveness & Competitive

strength is also important.
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The BCG Matrix for ITC

Ltd.
Stars
Hotels
Paperboards/
Packaging.
Agri business.
Cows
FMCG-Cigarettes
?
FMCG- Others
Dogs
Maybe ITC
Infotech.
SUMMARY
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. To ensure long-term value creation, a company should have a
portfolio of products that contains both high-growth products in need of cash
inputs and low-growth products that generate a lot of cash. It has 2 dimensions:
market share and market growth. The basic idea behind it is that the bigger the
market share a product has or the faster the product's market grows the better it
is for the company
3.4 GE PORTFOLIO MATRIX

GE Business Screen
A method of evaluating business in a diversified portfolio along

two dimensions, each of which contains multiple factors:
Industry attractiveness
Companys business strengths/Competitive position
In general, the more attractive the industry and the more competitive a business
is, the more resources an organization should invest in that business.
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An SBUs appropriate objective cannot be determined solely by its position in

the growth-share matrix. If additional factors are considered, the growth-share
matrix can be seen as a special cae of multifactor matrix.
General Electric (GE) pioneered. In this model, each business is rated in terms
of two major dimensions market attractiveness and business strength
These two factors make excellent marketing sense for rating a business.
Companies are successful to the extent that they enter attractive markets and
possess the required business strengths to succeed in those markets. If one of
these factors is missing, the business will not produce outstanding results.
Neither a strong company operating in an unattractive market nor a weak
company operating in an attractive market will do ll. Using these two
dimensions, the GE matrix is divided into nine cells, as shown in the Figure
3.3.6
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MARKET ATTRACTIVENESS
Low Medium High
Market Attractiveness: CompetitivePosition Portfolio Classification

Strong
BUSINESS STRENGTH
Medium
5.00
5.00
3.67
2.33
Weak
Joints
Aerospace
fittings
Hydraulic
pumps
3.67
Clutches
2.33
Flexible
diaphragms
Fuel
pumps
Relief
valve
1.00
Invest/grow
Selectivity/earnings
Harvest/divest
2000 Prentice Hall
Figure 3.3.7 Market Attractiveness Matrix
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1.00
Figure 3.3.8 GE Portfolio Matrix

Industry attractiveness-market growth rate, industry profitability, size, pricing
practices, opportunities/threats scale 1 -5 Very unattractive to very attractive
Business strengths-Market share, technological position, profitability, size,
strengths & weakness scale 1-5, 1-very weak, 5 -very strong
Product line-a letter, circle -area - (size -scales) pie -market share
Identify performance group -current & projected portfolio without any change
in strategy.
The three cells in the upper-left corner indicate strong SBUs suitable for
investment or growth. The diagonal cells stretching from the lower left to the
upper right indicate SBUs of medium attractiveness; these should be pursued
selectively and managed for earnings. The three cells in the lower-right corner
indicate SBUs low in overall attractiveness, which the company may want to
harvest or divest.
In addition to identifying each SBUs current position on the matrix,
management should also forecast its expected position over the next 3 to 5
years. Making this determination involves analyzing product life cycle,
expected competitor strategies, new technologies, economic events, and so on.
Again, the purpose is to see where SBUs are as well as where they appear to be
headed.
The General Electric Approach
The second model to analyze the SBUs has been given by General Electric and
it is even known as Market attractiveness and Company strength matrix. Both
axes are divided into three segments, yielding nine cells. The nine cells are
grouped into three zones:
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The block with the Lateral Zone consists of the three cells in the upper left
corner. If the enterprise falls in this zone the business is in a favorable position
with relatively attractive growth opportunities. This indicates a green light to
invest in this product/service.
The blocks with plain Zone consists of the three diagonal cells from the lower
left to the upper right. A position in the yellow zone is viewed as having
medium attractiveness. Organisation must therefore exercise caution when
making additional investments in this product/service. The suggested strategy is
to seek to maintain share rather than growing or reducing share.
The blocks with a Diagonal Zone consist of the three cells in the lower right
corner. A position in the red zone is not attractive. The suggested strategy is
that management should begin to make plans to exit the industry.
FACTORS UNDERLYING MARKET ATTRACTIVENESS AND BUSINESS
STRENGTH IN GE MULTIFACTOR PORTFOLIO MODEL
1. MARKET ATTRACTIVENESS
Overall market size
Annual market growth rate
Historical profit margin
Competitive intensity
Technological requirements
Inflationary vulnerability
Energy requirements
Environmental impact
Social-political legal
2. BUSINESS STRENGTH
Market share
Share growth
Product quality
Brand reputation
Distribution network
Promotional effectiveness
Productive capacity
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Productive efficiency
Unit costs
Material supplies
R & D performance
Managerial personnel
The GE matrix is divided into nine cells. The three cells in the upper-left corner
indicate strong SBUs in which the company should invest or grow. The
diagonal cells stretching from the lower left to the upper right indicate SBUs
that are medium in overall attractiveness. The three cells in the lower-right
corner indicate SBUs that are low in overall attractiveness.
3.5 PORTERS Five Forces - Competitor Analysis
Michael Porter's Five Forces
What is it?
Porters model is model to help understand the competitive environment in
which a company operates.
Michael Porter's five forces is a model used to explore the environment in
which a product or company operates.
Five forces analysis looks at five key areas mainly the threat of entry, the power
of buyers, the power of suppliers, the threat of substitutes, and competitive
rivalry.
Figure 3.5.1 Porters Model
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New Entrants
Industry
Suppliers competitors and Buyers
extent of rivalry
Substitutes
Introduction
The model of the Five Competitive Forces was developed by Michael E. Porter
in his book Competitive Strategy: Techniques for Analysing Industries and
Competitors in 1980. Since that time the 'five forces tool' has become an
important method for analysing an organizations industry structure in strategic
processes.
Porters model is based on the insight that a corporate strategy should meet the
opportunities and threats in the organizations external environment. Especially,
competitive strategy should base on an understanding of industry structures and
the way they change.
Porter has identified five competitive forces that shape every industry and every
market. These forces determine the intensity of competition and hence the
profitability and attractiveness of an industry. The objective of corporate
strategy should be to modify these competitive forces in a way that improves
the position of the organization. Porters model supports analysis of the driving
forces in an industry. Based on the information derived from the Five Forces
Analysis, management can decide how to influence or to exploit particular
characteristics of their industry.
The Original Five Factor:
Threat of New Entrants
The easier it is for new companies to enter the industry, the more cut-throat
competition there will be. Factors that can limit the threat of new entrants are
known as barriers to entry. Some examples include:
Existing loyalty to major brands
Incentives for using a particular buyer (such as frequent shopper
programs)
High fixed costs
Scarcity of resources
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Government restrictions or legislation

Entry protection (patents, rights, etc.)
Economies of product differences
Brand equity
Switching costs or sunk costs
Capital requirements
Access to distribution
Absolute cost advantages
Learning curve advantages
Expected retaliation by incumbents
Power of Suppliers
This is how much pressure suppliers can place on a business. If one supplier
has a large enough impact to affect a company's margins and volumes, then
they hold substantial power. Here are a few reasons that suppliers might have
power:
There are very few suppliers of a particular product
There are no substitutes
The product is extremely important to the buyer, they cannot do without
it
The supplying industry has a higher profitability than the buying
industry
Supplier switching costs relative to firm switching costs
Degree of differentiation of inputs
Presence of substitute inputs
Supplier concentration to firm concentration ratio
Threat of forward integration by suppliers relative to the threat of
backward integration by firms
Cost of inputs relative to selling price of the product
Power of Buyers/ Customers
This is how much pressure customers can place on a business. If one customer
has a large enough impact to affect a company's margins and volumes, then
they hold substantial power. Here are a few reasons that customers might have
power
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Small number of buyers

Purchases of large volumes
Switching to another (competitive) product is simple
The product is not extremely important to the buyer, they can do
without it for a period of time.
Customers are price sensitive
Buyer concentration to firm concentration ratio
Bargaining leverage
Buyer volume
Buyer switching costs relative to firm switching costs
Buyer information availability
Ability to backward integrate
Availability of existing substitute products
Buyer price sensitivity
Price of total purchase
Availability of Substitutes
What is the likelihood that someone will switch to a competitive product or
service? If the cost of switching is low, then this poses to be a serious threat.
Here are a few factors that can affect the threat of substitutes:
Buyer propensity to substitute
Relative price performance of substitutes
Buyer switching costs
Perceived level of product differentiation
Fad and fashion
Technology change and product innovation
The main issue is the similarity of substitutes. For example, if the price of
coffee rises substantially, a coffee drinker is likely to switch over to a beverage
like tea because the products are so similar.
If substitutes are similar, then it can be viewed in the same light as a
new entrant.
Consider technology substitutes (who would have thought that MP3
technology would replace tape & CD's?)
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Competitive Rivalry
And last but not least, this describes the intensity of competition between
existing firms in an industry. Highly competitive industries generally earn low
returns because the cost of competition is high. A highly competitive market
might result from:
Many players of about the same size, no dominant firm.
Little differentiation between competitors products and services.
A mature industry with very little growth.
Companies can only grow by stealing customers away from competitors
For many industries, this is the major determinant of the competitiveness of the
industry. Sometimes rivals compete aggressively and sometimes rivals compete
in non-price dimensions such as innovation, marketing, etc.
Number of competitors
Rate of industry growth
Intermittent industry overcapacity
Exit barriers
Diversity of competitors
Informational complexity and asymmetry
Fixed cost allocation per value added
Level of advertising expense
Use of the Information from Five Forces Analysis:
Five Forces Analysis can provide valuable information for three aspects of
corporate planning:
Statistical Analysis:
The Five Forces Analysis allows determining the attractiveness of an
industry.
Dynamical Analysis:
In combination with a PESTLE Analysis, which reveals drivers for
change in an industry, Five Forces Analysis can reveal insights about
the potential future attractiveness of the industry. Expected Political,
Economical, Socio-demographical, Technological, Legal and
Environmental changes can influence the five competitive forces and
thus have impact on industry structures.
133
Useful tools to determine potential changes of competitive forces are

scenarios.
Analysis of Options:
With the knowledge about intensity and power of competitive forces,
organizations can develop options to influence them in a way that
improves their own competitive position. The result could be a new
strategic direction, e.g. a new positioning, differentiation for
competitive products of strategic partnerships.
Influencing the Power of Five Forces
After the analysis of current and potential future state of the five competitive
forces, managers can search for options to influence these forces in their
organizations interest. Although industry-specific business models will limit
options, the own strategy can change the impact of competitive forces on the
organisation. The objective is to reduce the power of competitive forces.
The following provides some examples. They are of general nature. Hence,
they have to be adjusted to each organizations specific situation. The options
of an organization are determined not only by the external market environment,
but also by its own internal resources, competences and objectives.
Reducing the Bargaining Power of Suppliers
Partnering
Supply chain training
Increase dependency
Build knowledge of supplier costs and methods
Take over a supplier
Reducing the Treat of New Entrants
Increase minimum efficient scales of operations
Create a marketing / brand image (loyalty as a barrier)
Patents, protection of intellectual property
Alliances with linked products / services
Tie up with suppliers
Tie up with distributors
Retaliation tactics
Reducing the Competitive Rivalry between Existing Players
Avoid price competition
134
Differentiate your product

Buy out competition
Reduce industry over-capacity
Focus on different segments
Communicate with competitors
Reducing the Bargaining Power of Customers
Partnering
Increase loyalty
Increase incentives and value added
Move purchase decision away from price
Cut put powerful intermediaries (go directly to customer)
Reducing the Threat of Substitutes
Legal actions
Increase switching costs
Alliances
Customer surveys to learn about their preferences
Enter substitute market and influence from within
Accentuate differences (real or perceived)
135
Figure 3.5.2 Usefulness of Porter Model
SUMMARY
Use of the Five Forces model
The Five Forces tool is a simple but powerful tool for understanding where
power lies in a given business situation. This is important, as it helps you
understand both the strength of your current competitive position, and the
strength of a position youre looking to move into.
136
With a clear understanding of where power lies, you can take fair advantage of
a situation of strength, improve a situation of weakness, and avoid taking
wrong steps. This makes it an important part of your business planning toolkit.
3.6 Competitor, Complementary Products and competitive Advantage
Technology and Competitive Advantage, Substitution
These subjects are dealt with in Porters five forces Model. However, we
shall deal with Competitive Advantage in the below Section.
3.6 COMPETITIVE ADVANTAGE

LEARNING OUTCOMES
By the end of this learning unit, you will apply your understanding of the
following concepts in order to apply it to ones own venture.
The positioning of a venture in the market
Competitive advantage
1. What Is Positioning?
Very few people seem to grasp the notion of positioning. Positioning, like
competitive advantage, originates from the key success factors.
Perhaps we should start by looking at an example to introduce the idea of
concept positioning. Take three well-known food franchises in SA that all sell
chicken as their main line namely KFC, Nandos and Chicken Licken. How do
they position their concept offerings? Studying their advertisements, set-ups,
pricing strategies, apparent target groups and what their managers say. We can
learn the following about each ones positioning. The concept of KFC seems to
be positioned as convenience that is also fun while being priced for the
average family or individual with medium income. They even have drive
through facilities for more convenience. The pieces make it ideal for feeding
the family of the busy parent. They focus on take-away but sometimes also
have some very basic sit-down facilities. Their marketing often involves
promotions with toys and user-coupons.
Nandos, on the other hand, focus on giving people a lasting experience for
which they will come back time after time. Their product is higher priced larger
portions prepared more healthy for the higher income groups. The taste of
Portugal and open fire preparation brings an added experience component.
They have better sit-down facilities as part of the experience.
Chicken Licken on the other hand positions their product as a basically good
food that makes up a fair sized meal at a cheap price. They normally have no
sit-down but only take away facilities. Nothing that can increase costs is
tolerated. They focus on the lower income group.
As you will now realise, positioning takes place in the mind of the consumer. It
137
is how they see your product (their perception). It is what you believe the
customers will value. Think how differently a normal loaf of bread and garlic
bread is positioned. Bread is widely distributed, low priced, never advertised
(basic food) while garlic bread is highly priced, exclusively distributed and
promoted (upper class luxury item). Obviously they are aimed at different
target markets.
As you will now realise, positioning takes place in the mind of the consumer. It
is how they see your product (their perception). It is what you believe the
customers will value. Think how differently a normal loaf of bread and garlic
bread is positioned. Bread is widely distributed, low priced, never advertised
(basic food) while garlic bread is highly priced, exclusively distributed and
promoted (upper class luxury item). Obviously they are aimed at different
target markets.
2. What Is Competitive Advantage?
Competitive advantage is a key concept for business. If you can answer the
question of why people will buy from you and not your competition, and you
can find a significant reason, then you are on the way to competitive advantage.
Competitive advantage refers to a benefit that exists when a company has a
product or service that is seen by its target market as better than those of the
competitors. It is found in the resources or can be a capacity / competency that
allow it to be perceived as having an advantage.
Low price can never be seen a competitive advantage as it is not sustainable
and any competitor can beat your price (even at a loss). To be a competitive
advantage it must be sustainable and hard to imitate. There are several places
to seek for a competitive advantage. Remember is not automatic to have a
competitive advantage. One spends a lot of resources to create and maintain
competitive advantage. Think about some brand images (names) that have
become competitive advantages like Coke, BMW, Vodacom and others.
Competitive advantage examples:
Strive to be the industrys low-cost provider
Wal-Mart
Southwest Airlines
Outcompete rivals on a key differentiating feature
Johnson & Johnson Reliability in baby products
Harley-Davidson King-of-the-road styling
Rolex Top-of-the-line prestige
Mercedes-Benz Engineering design and performance
L.L. Bean Good value
Amazon.com Wide selection and convenience
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Focus on a narrow market niche

Jiffy Lube International Quick oil changes
McAfee Virus protection auctions
Starbucks Premium coffees and coffee drinks
The Weather Channel Cable TV
Develop expertise, resource strengths, and capabilities not easily
imitated by rivals
FedEx Next-day delivery of small packages
Walt Disney Theme park management and family entertainment
Toyota Sophisticated production system
Ritz-Carlton Personalized customer service
Summary
Competitive advantage is key for long-term survival. If you cannot find a
competitive advantage that differentiates you from the competition, you may
survive for a short time only.
3.7 STRATEGIC ALTERNATIVES

There are three ways to identify strategic alternatives. The first is selecting the
product markets in which the firm will operate and deciding how much
investment should be allocated to each; the second is developing the functional
area strategies; and the third is determining the basis of sustainable competitive
advantage in those product markets.
Types of Strategic Alternatives
Corporate-Level Strategy
The set of strategic alternatives that an organization chooses

from as it manages its operations simultaneously across several
industries and several markets.
Identifies the set of businesses, markets, or industries in which

the organization competes and the distribution of resources among
those businesses
Formulating Corporate-Level Strategies

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Strategic Business Units
Diversification
The number of businesses an organization is engaged in and the

extent to which these businesses are related to one another
Single-Product Strategy
Each business or group of businesses within an organization is

engaged in serving the same markets, customers, or products.
An organization manufactures one product or service and sells it

in a single geographic market.
Related Diversification
A strategy in which an organization operates in several different

businesses, industries, or markets that are somehow linked.
Avoids the disadvantages and risks of a single-product strategy.
Unrelated Diversification
An organization operates multiple businesses that are not

logically associated with one another.
Vertical integration - expands the domain of the organization into

supply or distribution channels.
Concentric diversification - moving into businesses that are related to

the companys original core business.
Conglomerate diversification - expands into unrelated businesses
Business-Level Strategy
The set of strategic alternatives that an organization chooses

from as it conducts business in a particular industry or a
particular market.
Formulating Business-Level Strategies

Porters Generic Strategies
Differentiation strategy
140
Overall cost leadership strategy
An organization seeks to distinguish itself from

competitors through the quality of its products or
services.
An organization attempts to gain competitive

advantage by reducing its costs below the costs of
competing firms.
Focus strategy
An organization concentrates on a specific regional

market, product line, or group of buyers.
Implementing Business-Level Strategies

Implementing Porters Generic Strategies
Differentiation
Overall Cost Leadership
Marketing and sales must emphasize high-quality,

high-value image of the organizations products or
services.
Marketing and sales focus on simple product attributes

and how these products attributes meet customer needs
in a low-cost and effective manner.
Focus
Either differentiation or cost leadership, depending on

which one is the proper basis for competing in or for a
specific market segment, product category, or group
buyers.
Selecting Strategic Alternatives

IDENTIFICATION OF STRATEGIC ALTERNATIVES
Product-market investment strategies:
Product-market scope
Growth directions
Investment strategies
141
Functional Area strategies

Bases of competitive advantage
CRITERIA FOR STRATEGY SELECTION
Consider scenarios suggested by strategic uncertainties and environmental
opportunities and threats.
Pursue sustainable competitive advantage.
Exploit organizational strengths or competitor weaknesses.
Neutralize organizational weaknesses or competitor strengths.
Be consistent with organizational vision/objectives.
Achieve a long -term return on investment.
Be compatible with vision/objectives.
Be feasible.
Need only available resources.
Be compatible with internal organization.
Consider the relationship to other strategies within the firm.
Foster product portfolio balance.
Consider flexibility
Exploit synergy.
142
Figure 3.7.1 Strategic Alternatives
143
3.8 STRATEGIC
OPPORTUNISM
VISION
VS
STRATEGIC
There are two very different approaches to the development of successful

strategies and sustainable advantages. Each can work, but may require very
different systems, people, and culture. Strategic vision takes a long-term
perspective; the focus is on future in both strategy development and the
supporting analysis.
Strategic opportunism emphasizes strategies that make sense today. The
implicit belief is that the best way to have the right strategy in place tomorrow
is to have it right today.
Strategic Vision
To manage a strategic vision successfully, a firm should have four
characteristics.
Four Characteristics a Firm Needs to Manage a Strategic Vision:
1. A clear future strategy with a core driving idea and specification of
the competitive arena, functional area strategies, and competitive
advantage that will support the business.
144
2. Buy-in throughout the organization. There should be belief in the

correctness of strategy, an acceptance that the vision is achievable and
worthwhile, and a real commitment to making that the vision would
happen.
3. Assets, competencies, and resources to implement the strategy should
be in place, or a plan to obtain them should be underway.
4. Patience. There should be willingness to stick to strategy in the face of
competitive threats or enticing opportunities that would divert resources
from the vision.
Strategic Vision
Is forward looking with long-term perspective.
Provides a sense of purpose.
Provides the rationale for investment that may require years to payoff.
Requires a top-down centralized structure.
Needs strong, charismatic leader.
Developing a strategic vision

preparing for the future. It involves thinking strategically about future direction
of company - changes in companys product/market/customer technology to
improve its Current market position and future prospects
Strategic Opportunism
Driven by a focus on the present.
Premise that environment is so dynamic and uncertain that it is not

feasible to aim at a future target.
Strategic flexibility and willingness to respond to opportunities is

necessary. Change is the norm.
Minimizes risk of missing emerging opportunities.
Reduces risk of strategic stubbornness.
Requires decentralized structure.
Needs entrepreneurial personnel.
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3.9 Patching and Co-Evolving

Patching and Co-Evolving-Elements of Strategic Process of Re-Structuring of
Business portfolio
ELEMENTS OF STRATEGIC PROCESS OF RESTRUCTURING
BUSINESS PORTFOLIO
Restructuring business portfolio, as one of the key strategic processes which are
in focus of new corporate strategy, means the frequent remapping or patching
structure of enterprise in order to fit changing market opportunities namely,
new technologies which mostly include developing the existing and introducing
novel products and services, and market development create new, fresh
opportunities requiring change in corporate repertoire as a prerequisite for
enhancing business efficiency. As a result, individual parts and even the whole
enterprise are closed, the new ones are established, have a growth or they are
closed again. Those continuous fluxes require from corporate management to
continually remap their businesses according to market opportunities.
Patching is the best way to tackle this crucial task. Restitching business
portfolio according to changes in market requirements allows corporate
managers to focus on the best market opportunities. By dynamically adjusted
businesses in order to match changing market opportunities, managers are
directed toward high-potential businesses, activities or products, uncovering the
profit levers that drive effective strategy of those businesses, and creating
economic value for the corporate enterprise.
Restructuring can take the form of combining, adding, splitting, exiting, or
transferring the businesses (but, also, business activities, and elements of
product assortment). One of the efficient form is to split the enterprise into
several parts (segments, units), focusing on target markets and occasionally
make new splitting, according to the changes on target markets. An efficient
form could be addition of new units to the existing portfolio, taking welldefined market of products in assortment of enterprise. An efficient way is,
also, to create a flexible mix of related products, on the basis of core products,
knowledge, and experience. Internal transfer of knowledge and products from
one unit to another enables better use of knowledge and capabilities of
enterprise and optimal scale of product. Combining products inside the product
assortment leads to creation of their critical mass and increase cash flow in
order to drive new growth.
DETERMINANTS OF STRATEGIC PROCESS OF COEVOLVING
Creating cross-business synergy in corporate enterprise is at the heart of
corporate strategy and a prime rationale for the existence of the multibusiness
corporation. As the ability of two or more business units to generate greater
value working together than they could working apart, synergy has its sources
in shared resources, knowledge and skills, coordinated strategies, vertical
integration or establishing internal alliances in enterprise The right choice of
146
source of corporate synergy enables efficient structuring business portfolio and

creating corporate advantage on target markets. An efficient way of achieving
corporate synergy is creating the web of collaborative links and relationships
among the enterprise and business units everything starting from exchanging
information on shared assets to creating the corporate strategy. It is realized
through managing a corporate strategic process called coevolving, based on the
principle of natural laws of shared survival and development of individual
related species.
Coevolving is a subtle strategic process in successful corporate enterprises,
including creation of flexible business portfolio with both collaborative and
competitive units and a superior corporate strategy based on cross-business
synergies in performing business activities. The process of coevolving turns the
corporate enterprise into an ecosystem with corporate strategy in the hands of
business-unit managers.
It emphasizes the importance of multibusiness teams at the corporate level the
group of business-unit managers that oversees synergies among the units. The
teams primary task is to manage the shifting collaborative web among the
units. The multi-businesses team is powerful because it can add significant
value to the corporate enterprise beyond the sum of the units. Coevolving leads
to corporate advantage and greater efficiency of enterprise.
SUMMARY
Patching consists of small scale alterations to businesses to further optimize
them or fulfill their potentials through the meeting of growth opportunities.
Coevolution involves the mixing of collaboration and competition in multibusinesses in order to attain synergies.
147
Chapter III: Strategic Choice

Multiple Choice Quizzes
Q.1 Buyers can exercise high bargaining power over their
suppliers under which one of the following conditions?
a. There are few buyers in the market
b. When there are many good substitutes
c. They have few suppliers to choose from
d. There is a high concentration of suppliers
Q.2 Factors that affect market attractiveness. Tick the odd one
out:
(a) Promotional activities
(b) Market size.
(c) Environmental factors
(d) Market growth.
Q.3 In GE Matrix Market attractiveness is plotted on:
(a) X-axis
(b) Y-axis.
Q.4 BCG Matrix relative position (Market share) is plotted on:
(a) Y-axis.
(b) X-axis
Q.5 In BCG Matrix four quadrants are:
(a) Stars
(b) .
(c) Cash cows
(d) Dogs
Q.6 GE Matrix Market size is represented by:
(a) Square
(b) Rectangle
(c) Circle
(d) Triangle
(d) Decline
Q.7 Porters five force Model comprises of.
(a) Bargaining power of buyers
(b) Competitive rivalry
(c) Bargaining power of suppliers
148
(d) Threat of entry

(e)..
Q.8 Expand PEST analysis
(a) P.
(b) E.
(c) S..
(d) T..
Q.9 Fourth strategies in Growth share Model is___________
(a) Hold
(b) Build
(c) .
(d) Divest
Q.10 Michael porters generic strategies are: ________,
________, ________
(a).
(b).
(c)..
149
MODULE IV
4.0 Offensive and Defensive Competitive Strategies
4.1 Advantages and disadvantages of offensive strategies
4.2 Advantages and disadvantages of defensive strategies
4.3 Industry scenarios
LEARNING OUTCOMES
Upon Completion of this chapter, you will be able to apply your understanding
of the following concepts: Strategies in declining/hostile markets.
Offensive and Defensive Strategies
There are therefore two broad strategies to be considered:
Offensive strategies where opportunities are vigorously pursued.
Defensive strategies where the venture identifies the threats and defends
itself against them.
Offensive and Defensive Strategies

Offensive Strategies
Defensive Strategies
Used to build new or

stronger market position
and/or create competitive
advantage
Used to protect competitive

advantage (rarely used to
create advantage)
6-10
Figure 4.1.1 Offensive and Defensive Strategies
Offensive Strategies:
Used to build new or stronger market position and/or create competitive
advantage
150
Meet or exceed competitor strengths

Capitalize on competitor weaknesses
Simultaneous initiatives
End-run offensives
Guerilla offensives
Preemptive strikes
Whom to Attack
Market leaders
Runner-up firms
Struggling firms
Small regional and local firms
Defensive Strategies:
Used to protect competitive advantage (rarely used to create advantage)
Build obstacles to challengers
Signal that retaliation is likely
Public announcements
Match competitor offerings
Occasional counter response
Maintain a war chest
151
4.1 Types of Offensive Strategies
Types of Offensive Strategies

1. Initiatives to match or exceed competitor strengths
2. Initiatives to capitalize on competitor weaknesses
3. Simultaneous initiatives on many fronts
4. End-run offensives
5. Guerrilla offensives
6. Preemptive strikes
6-11
Figure 4.1.2 Types of Offensive Strategies

1. Attacking Competitor Strengths Objectives
Whittle away at a rivals competitive advantage
Gain market share by out-matching strengths of weaker rivals
Challenging strong competitors will only be successful in the long-run if you

can truly out-compete a rival at what they do best
2. Attacking Competitor Weaknesses Objectives
Utilize company strengths to exploit a rivals weaknesses
Weaknesses to Attack
Customers that a rival is least equipped to serve
Rivals providing sub-par customer service
Rivals with weaker marketing skills
Geographic regions where rival is weak
Market segments a rival is neglecting
3. Launching Simultaneous Offensives on Many Fronts Objectives
Launch several major initiatives to
152
Throw rivals off-balance
Splinter their attention
Force
them
resources to defend their position
to
use
substantial
A challenger with superior resources can overpower weaker rivals by outcompeting them across-the-board long enough to become a market leader!
4. End-Run Offensives Objectives
Maneuver around strong competitors
Capture unoccupied or less contested markets
This is useful for firms that have difficulty competing head-to-head against
rivals
5. Guerrilla Offenses Approach
Use principles of surprise and hit-and-run to attack in locations and at times
where conditions are most favorable to initiator
Appeal: Well-suited to small challengers with limited resources and market
visibility
6. Preemptive Strikes Approach
Involves moving first to secure an advantageous position that rivals are
foreclosed or discouraged from duplicating!
Defensive or Retaliatory Strategy Objectives
Firms that are threatened by a potential or actual move into their market may
retaliate. Thus, Microsoft has made several moves (including into the internet
space) in part to protect its software position.
Lessen risk of being attacked
Blunt impact of any attack that occurs
Influence challengers to aim attacks at other rivals
Approaches: Block avenues open to challengers Signal challengers vigorous

retaliation is likely
First-Mover Advantages
When to make a strategic move is often as crucial as what move to

make
First-mover advantages arise when
Pioneering helps build firms image and reputation
Early commitments to new technologies and distribution

channels can produce cost advantage
Loyalty of first time buyers is high

153
Moving first can be a preemptive strike
First-Mover Disadvantages
Moving early can be a disadvantage (or fail to produce an advantage)

when
Costs
of
pioneering
loyalty of first time buyers is weak
Innovators
products
not living up to buyer expectations
Rapid
technological
followers to leapfrog pioneers.
are
sizable
are
change
and
primitive,
allows
Chapter IV Offensive and Defensive Competitive Strategies

Chapter V strategy implementation
Multiple Choice Quiz:
Q1. Declining market can create hostile markets, markets usually

associated with
(a) Overcapacity
(b) Low margins
(c) Intense competition
(d) All of above
Q2. What term best describes the use of both financial and nonfinancial measures in assessing whether an entity has achieved its
objectives?
(a) Balanced scorecard
(b) Performance measurement
(c) Benchmarking
(d) Target setting
Q.3 Balanced Scorecards tell you the knowledge, skills and systems
that your employees will need (learning and growth) to innovate and
build the right strategic capabilities and efficiencies (internal
processes) that deliver specific value to the market (customer)
which will eventually lead to higher shareholder value (.).
154
Q.4 _________ is the process of taking the actions that put the
strategy into effect and ensuring that organizational decisions are
consistent with it.
(a) Strategy Implementation
(b) Strategic control
(c) Strategy Formulation
(d) Strategy Objectives
Q.5 Balanced Scorecards are a means of control through:
(a) Performance targets
(b) Portfolio management
(c) Qualitative measures
(d) Quantitative measures
Q.6 Balanced scorecards Translates the vision and strategy of a
business unit into objectives and measures in 4 distinct areas:
(a) Financial
(b) Customer
(c) Internal Business process

(d) L....... and g............
Q.7 Controls should be involving only minimum amount of
information. Controls should monitor only meaningful activities and
results. Controls should be conducted as and when. Controls should
aim at pinpointing everything observed.
(a) True.
(b) False
Q.8 Four special types of controls are:
(a) Premise control.
(b) Implementation control
(c) Strategic surveillance
(d) Special alert control.
(i) True
(ii) False
155
Q.9 Control Cycle

(a) Establish standards
(b) Measure actual performance
(c) Evaluate performance against standards
(d) Correct performance, if needed.
(i) True
(ii) False
Q.10 how does strategic controls and operational controls differ?
(a)Strategic control: Are we moving in the right direction?
(b) Operational control: how are we performing?
(i) True
(ii) False
Module V
5.0 Strategic Implementation
5.1 Strategic Control
5.2 Balanced Scorecard Concepts and applications in strategy implementation
5.3 Industry Scenarios
5.4 Case Study
5.1 STRATEGIC CONTROL

LEARNING OUTCOMES
In this learning unit, you will be able to understand the following concepts
Purpose of Strategic Controls:
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To provide managers with a means to motivate employees towards

organizational performance;
Solicit data on how well the organization is performing
Control
any process that directs the activities of individuals toward the
achievement of organizational goals
planning and controlling are interdependent
effective planning facilitates control
control facilitates planning
three broad strategies for organizational control
bureaucratic - use of rules, regulations, and formal

authority
market - use of pricing mechanisms to regulate

activities
clan - employees share organizational values and act

in accordance with them
16 - 4
The Control Process

Set
performance
standards
Measure
performance
Compare
Determine
deviation
Standards
Within
limits
Take
corrective
action
No
Yes
Continue
work
progress
McGraw-Hill
What is Strategic control?

it is the process by which managers monitor the ongoing activities of an
organization and its members to evaluate whether activities are being
performed efficiently and effectively and to take corrective action to improve
performance if they are not
157
The importance of Strategic Control

The success of a chosen strategy
The implementation compass
Organizational performance
Ensuring competitive advantage
Strategic Control:
Requires more than re-acting on past performance
Keeps the organization on track
Anticipating events that might occur in future
Allows the organization to respond to new opportunities that may
present itself
The control cycle

Step 1: setting performance standards
Standard - expected performance for a given goal
target that establishes a desired performance
level, motivates performance, and serves as a
benchmark against which actual performance is
assessed
can be set for any activity
should be specific, measurable, challenging, and
established to improve performance
typically is derived from job requirements
set with respect to quantity, quality, time, and
cost
Step 2: measuring performance
Performance data obtained from three sources
written reports
oral reports
158
personal observation
Step 3: comparing performance with the standard
evaluation of the performance
for some activities, small deviations from the
standard are acceptable
for other activities, a slight deviation may be
serious
Step 4: taking corrective action
ensures that operations are adjusted where
necessary to achieve the initially planned results
type of corrective action depends on the nature of
the problem
higher-ups can take corrective action
operator at the point of the problem can take
corrective action
Control & efficiency:
Efficiency measures how many units of inputs are being used to
produce a single unit of output
Must also measure how many units are produced
The control system should contain these measures
Control & quality:
Organizational control is important because it determine the quality of
goods & services
Can make continuous improvements to quality over time and this gives
them a competitive advantage
Customer complaints is the basis for determining the quality of a
product or service
Total Quality Management can be regarded as control system
Control & Innovation:
159
Managers must create an environment in which people feel free to

experiment and take risks
Managers are challenged to build control systems that encourage risk
taking
Measures cost reduction, process improvement and improved quality
measures.
Control and Innovation
Problem: Time wasted due to unavailable parts from central store.
Electrical workshop not close to central store (Witbank Municipality)
Electricians designed a innovative solution through simple measures
(trips to stores per electrician per day
Applied 80/20 principle Established decentralized store
Major savings
Control & Innovation
Problem: Time delays at in house filling station of Jhb Municipality
Solution:
Extend petrol hoses
More attendants
Limit filling to half a tank
Ensure all pumps were kept in functional order at all times
Strategic Control Systems
are the formal target setting, measurement and feedback systems
that allow strategic managers to evaluate whether the company is
achieving on the four building blocks of a competitive advantage..
Types of Control systems
Financial controls
Output controls
Behavior controls
Organization culture
Kinds of measures
Efficiency: Level of production costs, number of hours needed to
produce an item, cost of raw materials
160
Quality: Number of rejects, number of customer returns, level of

product reliability
Innovation: number of new products introduced, time taken to market;
cost of product development
Responsiveness to customers: number of repeat customers; level of
on-time delivery to customers, level of customer service
We consider financial controls as an example:
Financial controls
Balance sheet - a report that shows the financial picture of a company at a
given time.
It itemizes: assets - the values of various items the corporation owns, liabilities
- the amounts the corporation owes to various creditors, stockholders equity amount accruing the corporations owners.
Assets = Liabilities + Stockholders equity
Balance sheet shows trends over time, gives managers insight into overall
performance and, identifies areas which require adjustments.
Profit and loss statement - itemized financial statement of the income and
expenses of a companys operations: comparisons of profits and losses can
identify trouble areas, a common control for the enterprise as a whole and may
be used at the division and department level.
Financial ratios - indicate possible strengths and weaknesses calculated from
selected items on the profit and loss statement and the balance sheet. liquidity
ratios - indicate the ability to pay short-term debts, current ratio - indicates the
extent to which short-term assets can decline and still be adequate to pay shortterm liabilities, leverage ratios - show the relative amount of funds in the
business supplied by creditors and shareholders and debt-equity ratio indicates the companys ability to meet its long-term financial obligations,
Profitability ratios - indicate managements ability to generate a financial
return on sales or investment. Return on investment (ROI) - ratio of profit to
capital used to rate of return from capital.
MARKET CONTROLS
Market control involves the use of economic forces - and the pricing
mechanisms that accompany them - to regulate performance where output from
any organizational unit has value to others, a price can be negotiated for its
exchange as a market for these transactions becomes established: price
becomes an indicator of the value of the product or service, price competition
effectively controls performance.
161
Market controls at the corporate level used to regulate independent business

units, business units treated as competing profit centers, profit and loss data
used to evaluate performance.
5.2 BALANCED SCORECARD

LEARNING OUTCOMES
In this learning unit, you will be able to understand the following concepts
Define the measurement of progress
Understand the Balanced Score Card
Balanced Scorecards
When balanced scorecards were first introduced, it seems that everyone
rushed to put a whole new set of measurements in place. However, this is not
how to build a balanced scorecard. Strategizing is critically important to
building a good balanced scorecard. In fact, it is so important that the authors
of the book, The Balanced Scorecard, Robert S. Kaplan and David P. Norton,
released a follow-up book titled: The Strategy Focused Organization.
Basic Concepts
Accountants communicate with financial statements. Engineers communicate
with as built drawings. Architects communicate with physical models. It seems
that almost every profession has some means of communicating clearly to the
end user. However, for people engaged in strategic planning there has been an
on-going dilemma. The finished product, the strategic plan, has not
communicated and reached the end user. Sure strategic plans are nice to look at,
full of bar charts, nice covers, well written, and professionally prepared; but
they simply have not impacted the people who must execute the strategic plan.
The end result has been poor execution of the strategic plan throughout the
entire organization. And the sad fact of the matter is that execution of the
strategic plan is everybodys business, not just upper level management. Upper
level management creates the strategy, but execution takes place from the
bottom up.
Vision Barrier
People Barrier
Resource Barrier
Management Barrier
162
Therefore, we need a new way of communicating strategy to the end-user.

Enter the Balanced Scorecard. At long last, strategic planners now have a crisp
and clear way of communicating strategy. With balanced scorecards, strategy
reaches everyone in a language that makes sense. When strategy is expressed in
terms of measurements and targets, the employee can relate to what must
happen. This leads to much better execution of strategy. Measurement: There is
nothing worse than having a strategy but not knowing whether it is working or
not. Every success factor must therefore be converted into several objectives to
be achieved. The word objective suggests that it is able to measure whether it
has been achieved or not.
How do we know the strategy is a good one?
GOODNESS OF FIT TEST
- How well does the strategy fit the companys situation? Judgment
COMPETITIVE ADVANTAGE TEST
- Does strategy lead to sustainable competitive advantage?
PERFORMANCE TEST
- Does strategy boost company performance? Balanced scorecard
One of the ways to do this measurement (developed by Kaplan) is the balanced
163
scorecard.
5.2 Balanced Score Card- Kaplan & Norton
Adapted from Robert S. Kaplan and David P. Norton, Using the Balanced
Scorecard as a Strategic Management System, Harvard Business Review
(January-February 1996): 76.
Balanced Scorecard Basics
The balanced scorecard is a strategic planning and management system that is
used extensively in business and industry, government, and nonprofit
organizations worldwide to align business activities to the vision and strategy
of the organization, improve internal and external communications, and
monitor organization performance against strategic goals. It was originated by
Drs. Robert Kaplan (Harvard Business School) and David Norton as a
performance measurement framework that added strategic non-financial
performance measures to traditional financial metrics to give managers and
executives a more 'balanced' view of organizational performance. While the
phrase balanced scorecard was coined in the early 1990s, the roots of the this
type of approach are deep, and include the pioneering work of General Electric
on performance measurement reporting in the 1950s and the work of French
process engineers (who created the Tableau de Bord literally, a "dashboard"
of performance measures) in the early part of the 20th century.
A balanced scorecard for measuring company performance is optimal; it
entails:
-
Setting financial and strategic objectives
Placing balanced emphasis on achieving both types of objectives.
(However, if a companys financial performance is dismal or if its very survival

164
is in doubt because of poor financial results, then stressing the achievement of

the financial objectives and temporarily de-emphasizing the strategic objectives
may have merit)
Just tracking financial performance overlooks the importance of measuring
whether a company is strengthening its competitiveness and market position.
The balanced scored exist of matrices that one uses to keep score on. The four
broad elements/perspectives that encompass everything are:
Customer
Internal Business Process
Learning and growth
Financial
The Customer Perspective
Recent management philosophy has shown an increasing realization of the
importance of customer focus and customer satisfaction in any business. These
are leading indicators: if customers are not satisfied, they will eventually find
other suppliers that will meet their needs. Poor performance from this
perspective is thus a leading indicator of future decline, even though the current
financial picture may look good.
In developing metrics for satisfaction, customers should be analyzed in terms of
kinds of customers and the kinds of processes for which we are providing a
product or service to those customer groups.
The Business Process Perspective
This perspective refers to internal business processes. Metrics based on this
perspective allow the managers to know how well their business is running, and
whether its products and services conform to customer requirements (the
mission). These metrics have to be carefully designed by those who know these
processes most intimately; with our unique missions these are not something
that can be developed by outside consultants.
The Financial Perspective
Kaplan and Norton do not disregard the traditional need for financial data.
Timely and accurate funding data will always be a priority, and managers will
do whatever necessary to provide it. In fact, often there is more than enough
handling and processing of financial data. With the implementation of a
corporate database, it is hoped that more of the processing can be centralized
and automated. But the point is that the current emphasis on financials leads to
the "unbalanced" situation with regard to other perspectives. There is perhaps a
need to include additional financial-related data, such as risk assessment and
cost-benefit data, in this category.
165
The Learning & Growth Perspective

This perspective includes employee training and corporate cultural attitudes
related to both individual and corporate self-improvement. In a knowledgeworker organization, people -- the only repository of knowledge -- are the main
resource. In the current climate of rapid technological change, it is becoming
necessary for knowledge workers to be in a continuous learning mode. Metrics
can be put into place to guide managers in focusing training funds where they
can help the most. In any case, learning and growth constitute the essential
foundation for success of any knowledge-worker organization.
Purpose of Balanced Scorecard:
A method of implementing a business strategy by translating it into a set of
performance measures derived from strategic goals that allocate rewards to
executives and managers based on their success at meeting or exceeding the
performance measures.
Reasons for the Need of a Balanced Scorecard
Focus on traditional financial accounting measures such as ROA, ROE, EPS
gives misleading signals to executives with regards to quality and innovation. It
is important to look at the means used to achieve outcomes such as ROA, not
just focus on the outcomes themselves.
1. Executive performance needs to be judged on success at meeting a mix
of both financial and non-financial measures to effectively operate a
business.
2. Some non-financial measures are drivers of financial outcome measures
which give managers more control to take corrective actions quickly.
Example: Controls in jet cockpit for pilot
3. Too many measures, such as hundreds of possible cost accounting index
measures, can confuse and distract an executive from focusing on
important strategic priorities. The balanced scorecard disciplines an
executive to focus on several important measures that drive the strategy.
166
167
Example Balanced Score Card
Summary
Key to everything is the fact that you can only see progress if you measure
regularly. The balanced scorecard is a tool for that.
I completely understand the following outcomes and will be able to
apply them in the work environment:
No.
Outcome
1.
Define the measurement of progress
2.
Understand the Balanced Score card
168
Yes
No
Applying The Balanced Scorecard For

Starbucks
4 - 13
Financial
$1 billion company (market value)
$100 million annual profits
800% stock appreciation
2000+ stores
Customer
Striving to be 3rd place
Repeat business
30-40% annual expansion
Only 5% of all U.S. consumption
Brand extension
Vision
And
Strategy
Process
Brewing the perfect cup
Brewing the perfect cup at home
Retail skills and customer service
Coffee knowledge
Empowerment
People/Learning
Commitment/trust (low turnover)
Training
Beanstock program
Opinion surveys
Flexible schedules
McGraw-Hill
5.4 INDUSTRY SCENARIOS
SCENARIOS are perceptions about the likely environment a firm could face in
future. Scenario writing is one of the techniques for analyzing environment.
Its use could be extended to evaluation by enabling organizations to focus their
strategies on the forthcoming developments in the environment.
For several of the above techniques for strategic control - except with the
possible exception of responsibility centres not much evidence is available
about their applications. The fact that these techniques are proposed is an
evidence of expanding body of knowledge in strategic management and
business policy available for applications by organizations.
SCENARIO WRITING FOR ENVIRONMENTAL SCANNING
Foresight and futurology require looking into the future by intelligent
discerning of influences in the present environment and projecting them into
the future. We are interested in foresight and future so as to know what to
expect and not to be overtaken by nasty surprises. Knowing what to expect
prepares us better to face the future. This is the simple principle behind
scenario writing - one of the techniques, other being extrapolation Delphi
surveys for developing foresight and peeping into the future.
We present industry scenario by using the BCG case study.
169
Envisioning an Uncertain Future Boston Consulting Group
INDUSTRY SCENARIO:
An industry scenario is forecasted description of a particular industrys
likely future. Such a scenario is developed by analyzing the probable
impact of the future societal forces on key groups in a particular industry.
The process may operate as follows:
1. Examine the possible shifts in the societal variables globally.
2. Identify uncertainties in each of the six forces of the task
environment (for example, potential entrants, competitors, likely
substitutes, buyers, suppliers, and other key stakeholders).
3. Make a range of plausible assumptions about future trends.
4. Combine assumptions about individual trends into internally
consistent scenarios.
5. Analyze the industry situation that will prevail under each
scenario.
170
6. Determine the source of competitive advantage under each
scenario.
7. Predict competitors behaviour under each scenario.
8. Select the scenarios that are either most likely to occur or most
likely to have strong impact on the future of the company. Use
these scenarios in strategy formulation.

Scenarios for Passenger Car Markets in 2020
New markets, new product segments, and new players are rewriting the rules
of the passenger car industry and threatening to upend the traditional order.
However, there is considerable uncertainty about the con-tinuing pace of
these disruptive developments and their eventual outcomes. Will sluggish
investment in road infrastructure stymie the growth of demand in emerging
markets? What effect will spiraling oil prices have on demand for small, fuelefficient cars and on efforts to develop alternative technologies? Will new
players in emerging markets be able to defend their domestic positions
against competitors that have global presence and economies of scale? How
will the pressure for tighter emission regulations affect growth and alter the
competitive landscape?
To explore possible directions for the world's passenger- car markets and
identify strategies that will separate industry winners from losers, we adopted
a scenario- based approach. Traditional forecasting and planning methods,
which tend to rest on deterministic thinking, generally cannot accommodate
high degrees of uncertainty. Scenario-based approaches, in contrast, can
provide a robust platform to support effective decision making through
tumultuous change. To develop our scenarios for passenger car markets, we
first identified the key forces that are likely to shape the future of the industry,
then assessed their probable strength, impact, and mutual interactions. Finally,
we envisioned three primary pathways along which markets may evolve.
On the basis of this research, we identified six broad categories of forces that
will play a significant role in shaping the passenger car landscape:
urbanization, shifting lifestyles and consumer choices, evolving market
characteristics, globalization, patterns of growth in emerging markets, and
environmental impacts and actions.
171
Clearly, these six forces are subject to considerable uncertainty in terms of

the pace and direction of their development, as well as their potential impact
on the future of the passenger car industry.
Envisioning the Future

Our analysis suggests that two of the six forcespatterns of growth in
emerging markets, and environmental impacts and actionsrepresent a
particularly potent mix of high possible impact and high uncertainty, and
therefore will play the strongest role in shaping alternative scenarios for
passenger car markets. For each force, we have envisioned a pair of possible
outcomes.
Patterns of Growth in Emerging Markets
In a number of emerging markets, rapid overall economic growth masks
stark internal disparities in growth patterns. In India, according to the
Economist Intelligence Unit's 2008 Market Indicators and Forecasts, median
household income grew by about 89 percent from 2002 to 2007but less
than 5 percent of households in 2007 accounted for almost 60 percent of total
household income. In China, which has been very successful in reducing the
overall level of poverty, there continues to be wide regional disparity in
development, with the top five coastal provinces accounting for more than 42
percent of the country's GDP in 2007. If patterns of growth in emerging
markets remain so disparate among economic strata and regions, most of the
demand and spending power will be concentrated in a few large cities, where
product needs and buying behavior will mir- ror those in developed markets.
In addition, the populations in these cities will continue to swell as migrants
flock there in search of better economic prospects.
Environmental Impacts and Actions
Global warming is already affecting lives. Atmospheric concentration of
carbon dioxide has risen by about 30 percent since the late 1800s. Road
transportation has been estimated to account for almost 15 percent of
greenhouse gas emissions, making it one of the largest polluters.
Governments around the world are experimenting with ways to tackle the
interlinked challenges of greenhouse gas emissions and fossil fuel
dependence. The European Union has systematically tightened emission
standards for all OEMs. Since 2006, Japan has been on a course toward
adopting standards that will make it, in 2015, the country with the lowest
average fleet wide greenhouse-gas emissions from new passenger cars, at less
than 125 grams of carbon dioxide per kilometer.
These two forcespatterns of growth in emerging markets, and
environmental impacts and actionsshould significantly affect the pace and
direction of growth in the global passenger-car market over the next dozen
years.
Sales in RDEs, which were 15 million units in 2007, representing
approximately 27 percent of global sales, may increase to 31 million to 40
million units in 2020, representing 40 to 47 percent of global sales. Much of
this growth will consist of sales of smaller cars. The global market for small
172
cars may amount to 24 million to 38 million units, up from 15 million units in

2007. The size of the various marketsand the breakdown between the
numbers of small and large cars sold in each of themwill depend on which
scenarios are realized in which markets. It is important to note that these
numbers reflect generalized outcomes in which a particular scenario plays out
across different markets. In reality, of course, different scenarios may play
out in different markets, moderating the global sales figures.
Three Scenarios for 2020

The two hypothetical outcomes for each of the two forces discussed above
will intersect to create three plausible scenarios for the year 2020, which we
have named Green Freeway, Temporary Utopia, and Stranded Masses.
Green Freeway
In this scenario, income and wealth are more broadly distributed, making
cars affordable for many more households. Worldwide demand for passenger
cars reaches 86 million units in 2020, with emerging markets accounting for
40 million units. However, increasing concerns about air pollution, oil prices,
and other environmental impacts, together with growing health concerns,
have prompted consumers to show a marked preference for "green" products.
Temporary Utopia
Here, too, the benefits of economic growth are being shared by all sectors of
society, reflecting the success of strong economic-policy initiatives. In this
scenario, however, environmental movements remain fragmented and elitist.
Because there is little popular support for protection of the environment,
industrial lobbies have been able to dilute legislative initiatives and push back
development of green technologies. As in the Green Freeway scenario, global
demand for passenger cars in 2020 is 86 million units and passenger car sales
in RDEs exceed those in the Tri- ad markets by 5 million units, with sales of
small cars again driving much of the growth. At 33 million units, however,
the small-car segment represents only 38 percent of the global market.
Stranded Masses
In this scenario, economic activity has remained concentrated and population
migration has continued apace. Rapid economic development has led to
increased congestion and rising pollution in major cities, with haphazard
urban growth proceeding unchecked. As in the Temporary Utopia scenario,
green legislation has found no popular support and remains ineffective.
Lacking alternatives, large population segments endure difficult living and
working conditions. This is the most pessimistic scenario for worldwide
demand for passenger cars, which we estimate at 77 million unitswith
small cars accounting for only 24 million units, or approximately 31 percent
of global sales.
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CASE STUDY
BCG Matrix for ITC Limited
ITC Limited
ITC is one of India's foremost private sector companies with a market
capitalization of over US $ 22 billion and a turnover of US $ 6 billion.* ITC is
rated among the World's Best Big Companies, Asia's 'Fab 50' and the World's
Most Reputable Companies by Forbes magazine, among India's Most
Respected Companies by Business World and among India's Most Valuable
Companies by Business Today. ITC ranks among India's `10 Most Valuable
(Company) Brands', in a study conducted by Brand Finance and published by
174
the Economic Times. ITC also ranks among Asia's 50 best performing
companies compiled by Business Week.
ITC has a diversified presence in Cigarettes, Hotels, Paperboards & Specialty
Papers, Packaging, Agri-Business, Packaged Foods & Confectionery,
Information Technology, Branded Apparel, Personal Care, Stationery, Safety
Matches and other FMCG products. While ITC is an outstanding market leader
in its traditional businesses of Cigarettes, Hotels, Paperboards, Packaging and
Agri-Exports, it is rapidly gaining market share even in its nascent businesses
of Packaged Foods & Confectionery, Branded Apparel, Personal Care and
Stationery.
ITC's diversified status originates from its corporate strategy aimed at creating
multiple drivers of growth anchored on its time-tested core competencies:
unmatched distribution reach, superior brand-building capabilities, effective
supply chain management and acknowledged service skills in hoteliering. Over
time, the strategic forays into new businesses are expected to garner a
significant share of these emerging high-growth markets in India.
ITC's Agri-Business is one of India's largest exporters of agricultural products.
ITC is one of the country's biggest foreign exchange earners (US $ 3.2 billion
in the last decade). The Company's 'e-Choupal' initiative is enabling Indian
agriculture significantly enhance its competitiveness by empowering Indian
farmers through the power of the Internet. This transformational strategy,
which has already become the subject matter of a case study at Harvard
Business School, is expected to progressively create for ITC a huge rural
distribution infrastructure, significantly enhancing the Company's marketing
reach.
Governance structure
Strategic supervision
Strategic management
Executive management
Core values
Nation Orientation; Trusteeship; Excellence;
Customer focus; respect for people; Innovation
Vision & Mission statements

Vision: Sustain ITCs position as one of Indias most valuable
corporations through world class performance, creating growing
value for the Indian economy and the Companys stakeholders.
175
Mission: to enhance the wealth generating capability of the enterprise

in a globalizing environment, delivering superior and sustainable
stakeholder value.
Business Mix of ITC Ltd.
FMCG
Cigarettes
Foods
Lifestyle Retailing
Greeting, Gifting & Stationery
Safety Matches
Agarbattis
Paperboards & Packaging
Paperboards & Specialty Papers
Packaging
Agri - Business
Agri-Exports
e-Choupal
Leaf Tobacco
Hotels
Group Companies
ITC InfoTech; etc.
ITC's wholly owned Information Technology subsidiary, ITC Infotech India
Ltd, provides IT services and solutions to leading global customers. ITC
Infotech has carved a niche for itself by addressing customer challenges
through innovative IT solutions.
Business Data
176
Business wise Sales data

Business/ Year
Growth Value (Rs in Crore)

%
2005
2004
FMCG-Cigarettes 8.4
10002.54 9230.27
FMCG-Others
85.2
563.39
304.16
Hotels
124.1
577.25
257.53
Agribusiness
4.2
1780.07
1708.77
Paper & pkg.
24.9
1565.31
1253.29
Net revenue
12.99
13349.58 11815.04
CAGR during FY 2005-2008

Category
CAGR
Growth parameters
Cigarettes 10.9 %
Pricing power
Hotels
22.7%
Inward traffic, occupancy
Paper
17.2 %
Agri
business
FMCGOthers
34.3 %
Capacity utilization, value

added products
E-choupal, choupal sagar,
60.2 %
Fast track, decent share.
177
Market share of ITC Ltd.

Outstanding market leader
Cigarettes, Hotels, Paperboards, Packaging and Agri-Exports.
Gaining market share
Nascent businesses of Packaged Foods & Confectionery, Branded
Apparel and Greeting Cards.
Segment
Dominance
Cigarettes
70% share
Paper &
Packg.
Packaging board No.

1 in Asia
Contribution %
Revenue
PBIT
77.0%
87.7%
7.3%
10.7%
Agri
1of the largest xporters
business
from India
7.0%
3.7%
Hotels
ITC Group ranks No.2
4.3%
5.4%
FMCG
(Others)
20% share of greeting

cards market,
'Aashirvaad' atta is
No.1 in branded
segment
4.4%
-7.5%
A
c
t
2
Market attractiveness & Competitive

strength is also important.
178
Limitations
Assumes market growth rate. A firm may grow the market.
A Dog may be helping other products.
High market share/Growth is not the only success factor.
Linkage between market share and profitability is questionable.
4 - 28
The BCG Matrix

Question
Marks
High
Market
growth
Stars
Cash
Cows
Dogs
Low
Strong
Weak
Relative
competitive position
McGraw-Hill
BCG matrix - used to analyze and communicate corporate strategy each

business in the corporation is plotted on the growth rate of its market and the
relative strength of its competitive position in that market (market share)
question marks - require substantial investment to improve their

position
o otherwise divestiture is recommended
stars - require heavy investment, but generate needed revenues
cash cows - generate revenues in excess of their investment needs
o used to fund other businesses
dogs - remaining revenues are realized, and then firms are divested
179
The BCG Matrix for ITC

Ltd.
Stars
Hotels
Paperboards/
Packaging.
Agri business.
Cows
FMCG-Cigarettes
?
FMCG- Others
Dogs
Maybe ITC
Infotech.
Action- Learning points and conclusions

? - To be handled with care.
Strategic forays into emerging high growth markets.
E-Choupal is a transformational strategy.
Strong brand building capability will be tested.
Corporate strategy of creating multiple drivers of growth anchored on
its core competencies and distribution reach.
Embracing difficult and challenging corporate strategy. (Ex:
Paperboards).
EHS philosophy: Contribution to the triple bottom line- Economic,
Environment and social capital.
180
CASE STUDY 2
Balanced Scorecard:
An Experience of ICICI BANK
ICICI BANK - A PROFILE
Established in 1994, ICICI Bank is today the second largest bank in India and
among the top 150 in the world. In less than a decade, the bank has become a
universal bank offering a well-diversified portfolio of financial services. It
currently has assets of over USD 79 billion, and provides services through a
network of about 950 branches, 3300 ATMs and a 3200-seat call center (as of
2007). The hallmark of this exponential growth is ICICI Banks unwavering
focus on technology.
Key challenges
Rapid growth in employee base fresh and lateral recruits
Building knowledge and skill base
Ensuring adequate focus on multiple perspectives
- Growth, profitability, service levels, building talent
Ensuring consistent implementation of strategy across the organisation
Aligning organisational, business-level and individual goals
Incentivising achievement of the goals set
We (ICICI) were seeking a strategic framework that would enable
this..
Earlier performance management framework
Primarily focused on financial aspect
Other perspectives covered qualitatively
Input rather than output based: focus on work done rather than goals
achieved
Did not meet the need for additional perspectives
Retail strategy required service focus
Wholesale banking required focus on transaction capabilities and quality of
credit origination
We (ICICI) decided to use modern analytical tool Balanced Scorecard
Approach:
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Why the Balanced Scorecard?

Important to have a plan, set goals, and measure your success
Having a plan is more important than the specific tool you
use
Holistic approach that extends beyond financial measures
and incorporates other priorities
Linking strategic institutional plans and priorities
Why the Balanced Scorecard?

Measuring and reporting success
Recording baseline data
Tracking over time
Offering flexibility
Using existing tools
Balanced Scorecard objectives

Consistently deliver superb customer experience
Optimize resource utilization and be accountable and
financial stewards
Achieve operational excellence in our internal processes
Our organization must consistently strive for learning and
growth
Balanced Scorecard Perspectives
Financial Perspective
Traditional need for financial data
Processing can be centralized and automated
Additional financial-related data, such as risk assessment and
cost-benefit data
182
Customer Perspective
Customer focus
Customer satisfaction
Changing customer demands and needs
Internal Process Perspective
Internal business processes
How well are processes running?
Are there appropriate ties to institutional mission?
Innovation & Learning Perspective
Employee training
Individual and institutional improvement
Continuous learning mode
Focusing training funds on results
Learning' is more than 'training'
Stage one
Re-defined and expanded financial perspective
Growth, market share, profitability and credit costs
Introduced customer perspective: concept of service levels as
an area of performance evaluation
183
Customer satisfaction scores

Introduced process perspective: focus on building a process
orientation in the organisation
Learning perspective: focus on re-skilling for existing
employees and speed-to-job for new recruits
Stage Two
Further development and detailing of customer service and process
perspectives
Specific measures of performance introduced

Branch service quality scores
Turn around time (TAT) benchmarks
Good order index for client bankers
5S achievement
Focused measures served as enablers for meeting

Stage Three
Learning and development perspective

So far focused primarily on business skills
Commenced activity on building leadership pool
Reducing the number of scorecard templates

Already reduced from 750 to 230 in two years
Planned reduction to about 150
New challenges
Scorecards for operations in new geographies outside India
Lessons from ICICI Bank experience
Performance measures should be output rather than input based

People should be assessed on goals not on transactionsRemoves
ambiguity from performance management. Scorecard need not be
balanced for individuals but for business unit as wholeAll
perspectives may not apply to all people. Need for scorecard
templatesEnsures consistencyNumber of templates should be
rationalised based on number of different job descriptions
Banks, like other business organisations, are operating in an
increasingly complex environment
In this competitive paradigm, optimally directing all resources towards
organizational goals in a focused manner is the key to access
Having a strategy is not good enough
184
The strategy must be

Articulated
Understood
Executed
The balanced scorecard is a tool that helps communicate strategy and
goals across the organisation
The balanced scorecard at ICICI Bank has helped achieve:

Rapid business growth
Strategic consistency despite growing scale and diversity
Systematic and objective performance evaluation
The balanced scorecard can help to build a platform for sustained

future growth and value creation
185
CASE STUDY 3
BERGER PAINTS
PROFILE:
BERGER PAINTS is the culmination of over seven-decade process of
evolution and growth that began in 1923. Its growth has been closely linked
with the business and industrial development of modern India.
BERGER'S performance is anchored today in a wide variety of Decorative and
Industrial paints which continue to gain an increasing share of the highly
competitive Indian paint market. Being an ISO 9001 company its quality
products have attained instant recognition, worldwide, and continues to meet
quality requirements that are demanded today even in the domestic market.
The Country's second largest decorative paint player, Berger is headquartered
in Calcutta and services the market through a distribution network comprising
of 82 stock points and 12,000+ paint retailers.
New technical tie-ups were forged. Currently the Company has Technical
License Agreements with (1) DuPont Performance Coatings in the area of
automotive coatings, (2) Nippon Paint Co Ltd for new generation of automotive
coatings, (3) Orica Australia Pty. Ltd.
In the area of protective coatings:
(4) TIGERWERK Lack-u.Farbenfabrik GmbH & Co. KG, Austria for specialized
powder coatings and (5) Nippon Bee Chemical Co. Ltd for coating on plastic
auto parts and mobile phones.
Marketing Factors
Market leader -35% share in organized sector
Closest competitor -less than half of APs market share
More than 20 yrs leader
Widest product range -product shades, pack sizes
40 different decorative paints -150 shades, 8 different sizes in packing, no. of
brands -all segments
186
Brands - quite powerful, high quality MR & MIS, 90% accuracy in forecasting,
100 fastest moving Stock Keeping Units monitored daily
Countrywide distribution -13000 dealers (comp-<8000) -large network-regional
offices, company depots
Physical distribution far superior to competitors
Strong in inventory control (28 days) of sales (industry avg. 51 days, service
level -high, credit o/s -<25 days (comp 40 days)
Manufacturing & Operational factors
Size advantage in relation to competitors
Finesse in production planning, scheduling, and matching with marketing
requirements
In house production -no outsourcing -high reliability suppliers -superior
quality assurance
Four production location -spread benefits
Human Resources
Higher calibre HR
MBAs and highly qualified technical and production staff
Finance Factors
Leader in profits and operating margins
ROI = 40%; rest of the industry = 22%
Net worth = 20.4 million Rs; Nerolac = 5.8 million Rs and Berger Paints = 4.1
million Rs
Cash rich, high liquidity
Corporate Factors
Awards
High profile corporate image
187
Enviable track record in breaking away the position of MNCs in the Indian
paint Industry
Berger Strategy and the Quest for Competitive Advantage
The heart and soul of any strategy are the actions and moves in the marketplace
that a company makes to strengthen its competitive position and gain a
competitive advantage over rivals.
Berger follows a creative distinctive strategy that sets a company apart from
rivals and yields a competitive advantage is a companys most reliable ticket to
above average profitability.
Competing with a competitive advantage is more profitable than competing
with no advantage
Competing with a competitive disadvantage nearly always results in belowaverage profitability.
A Powerful Strategy by Berger Leads to Sustainable Competitive
Advantage
What separates a powerful strategy of Berger from an ordinary strategy is
managements ability to forge a series of moves, both in the marketplace and
internally, that produces sustainable competitive advantage!
Berger achieves sustainable competitive advantage when an attractive number
or buyers prefer its products/services over those of rivals and when the basis for
this preference can be maintained over time.
It is nice when a strategy produces a temporary competitive edge but a durable
edge over rivals greatly enhances a companys prospects for winning in the
marketplace and realizing above-average profits.
Berger proves winner all the way. Finally, to sum up, remember Four Best strategic approaches to building sustainable competitive
advantage:
Being the industrys low-cost provider (a cost-based competitive
advantage)
Incorporate differentiating features (a superior product type of
competitive advantage keyed to higher quality, better performance,
wider selection, value-added services, or some other attribute)
Focusing on a narrow market niche (winning a competitive edge by
doing a better job than rivals
of serving the needs and preferences of
buyers comprising the niche)
Developing expertise and resource
strengths not easily imitated or matched by rivals
(a capabilities-based competitive advantage)
188
CASE STUDY 4
INDIAN BUSINESS HOUSES - TATA GROUP
Group Overview
Indias largest business house
More than 85 companies
39 listed
8% of Indias market capitalization
2.6 Million shareholders
2,70,000 employees
Turnover Rs 343 billion (1996-1997)
Businesses
Metals
Automobiles
Energy
Engineering
Chemicals
Pharmaceuticals
Consumer Products
Services
Agro Industries
IT and Communication
Exports
Finance
Tata Heritage
Jamshetji Tata
o Started textile mill in 1877
o Inspired steel and power industry
o Technical education and philanthropy
JRD Tata
o Pioneered civil aviation
o Funded Homi Bhabhas nuclear programme
o Guided the Tata group for over half a century
Ratan Tata
Present Chairman since 1991
Holding Companies
Tata Sons
o Founded by Jamsetji Tata
o Promoted many of the present Tata companies
o 63% held by Tata philanthropic trusts
Tata Industries
o 100% subsidiary of Tata Sons founded in 1945
o Managing agency till 1970
189
o Promoted new Tata companies in technology based businesses

Cross holdings among other Tata companies
STRATEGIES:
Restructuring
Prompted by post 1991 changing environment
Need to identify and focus on core businesses
Resistance from satraps
o Russi Mody, Darbari Seth, Ajit Kerkar
Shrink number of companies
o From over 85 to about 30
Shrink number of core businesses
o From about 25 to around 10 or 12
Mergers and divestments
McKinsey hired as a consultants
Keep and grow
Power, watches, metals, chemicals, telecom, hospitality, financial
services, infotech, emerging services, infrastructure, automobiles
Forge strategic tie ups
Tea and beverages, retailing
Remain only as strategic investors
Luxury cars, infotech, printing, cosmetics
Sell
Refrigeration, paints, textiles, trading, electronics, oil drilling,
petrochemicals, pharma, specialty chemicals
Recent Developments
Voltas focus on air conditioning and engineering business
o Hive off pesticides business to Ralchem Pesticides (wholly
owned subsidiary of Rallis - largest integrated agrochemical
company in India)
Electrolux Voltas - JV between Voltas and AB Electrolux
o Refrigerators
o Washing machines
o Compressors for refrigerators
Tata Tea focusing on global agro business
o Manages 32 tea gardens in Sri Lanka
o Adding tea gardens inTurkey
o Acquired a 9.5% stake in Asian Coffee
Overseas Operations
Automobile assembly in Bangladesh
Instant tea operations in the US
Chain of hotels across the world
Precision tooling operations in Singapore
190
A case study of Wal-Mart

Introduction
Porter (2002) states that root of the problem lies in the lack of distinguishing
between operation effectiveness and strategy. The expedition for productivity,
quality and speed has resulted in management tools and techniques, total
quality management benchmarking, time based competition, outsourcing,
partnering, reengineering, change management. In any organization, strategy
management is the key to its success. There are many theories based on this
assumption that without a proper strategy and planning, it is difficult for any
industry to survive irrespective of its size. It is necessary to understand here
that all the major corporate organizations have established themselves, thanks
to superior strategic planning and implementation. The retail industry is making
news everywhere with not only the traditional industries increasing their outlets
but some major corporate industries also intruding into this industry like Fresh
@ Reliance of Reliance Industries, More of Aditya Birla Group in India. WalMart, a US based retail industry, which is known as the giant in the retail
industry has survived and is still the huge enterprise in the world which deals
with almost all the F&B products, apparels, etc. It is not only the largest
company in world but also the largest company in the history of
world.(Fishman, 2006) The present paper is divided into four sections to
understand and answer as what makes Wal-Mart the best in the industry, 1)
retailing industry at the time of Wal-Mart's innings, 2) Wal-Mart's Competitive
advantage and key components, 3) Wal-Mart's Strategy and 4) Sustainable
growth of Wal-Mart.
I. Retail Industry Wal-Mart says Hello!
Strategic decisions are ones that are aimed at differentiating an organization
from its competitors in a way that is sustainable in the future. (Porter, 2002)
Porter strongly advocates that decisions in business can be classified as
strategic if they involve some innovation and difference that results in
sustainable advantage. According to Patrick Hayden et al (2002) the retailing
industry adopted the style of discounting on its merchandise after the Second
World War. It is learnt that discount retailing was not the strategy at the time
Kmart, Target and Wal-Mart first started operating their business. Frank (2006)
states that when Sam Walton was franchising for Ben Franklin's variety store,
invented an idea of passing on the savings to his customers and earning his
profits through volume. Prior to Wal-Mart's entry into the market, Sidney and
Hebert from Harrison founded Two Guys discount store in the year 1946 which
dealt in hardware, automotive parts and later on groceries. Two Guys was the
forerunner as compared to today's retailers like Super Target, Wal-Mart which
succumbed to the economic recession. Another discount store set up by Eugene
as E.J. Korvette, which is often cited as first discount store which did not raise
from 5 & 10 cents roots and eventually declared bankruptcy due to inability to
compete with the new entrants.
191
Porter (2002) states that combination of operational effectiveness and strategy

is essential for superior performance which is the primary goal of any
organization. He also says that a company can perform its rivals only if it can
operate in different ways which are not in practice. Much emphasis had been
laid on strategic positioning like variety based positioning, needs based
positioning and access based positioning.
Along with Wal-Mart, other stores that started operating were Target,
Woolworth (Woolco) and K-Mart. However, Target has been functioning
successfully, courtesy Wal-Mart, but other two failed in their operations and
filed bankruptcy.( Michael Bergdahl, 2004) Porters five forces model explains
what strategic decisions should be made and on what basis. The model
explains the basic strategies to be considered while starting a business like
bargaining power of suppliers. While franchising of Franklin he always looked
for cheaper deals and thought of passing his savings to the customers and
earning through the margin on volume of bulk purchases. Through the way of
discount stores, shoppers were given the cheapest price as compared to any
other store. In regard to threats of new entrants, Wal-Mart has been constantly
in the news for acquisition of other small retail shops in view of its expansion.
But nevertheless it has stiff competition from likes of Super Target, Tesco, etc.
it is the world's biggest retail industry.
II. Key Components of Wal-Mart Business Model
Wal-Mart is the leader in retailing industry with fiscal revenue of $244.52
billion in 2003 making it the world's largest corporation. Mike reports that WalMart as of 2002 had 1,283,000 employees growing at 11.2%. The above data
explains that strategy of Wal-Mart is extraordinary which manages and
operates over 4150 retail facilities globally. The key components of Wal-Mart
(The Value Chain), which offers cheap prices than its competitors includes firm
infrastructure like frugal culture, no regional offices and pleasant environment
to work. Managements take lots of visits and it is learnt there are no rehearsals
before any meeting which is usually scheduled on every Saturday. In any
organization, human resource is the key to development and Wal-Mart
efficiently manages its sources. Wal-Mart terms its employees as associates.
Manager compensation is linked to the profit of store operated by him, within
promotions, compensation offered to associates depending on company's
profits and also offered some incentives on their performances. The workforce
at Wal-Mart is not unionized as the company takes all the measures of their
benefits and provides them training on related issues. Technology plays a vital
role in development of the organization and Wal-Mart is well equipped with
technological innovations like POS, store performance tracking, real time
market research, satellite system and UPC. Wal-Mart procurement measures
like hard-nosed negotiations, partnerships with some vendors, centralized
buying, planning packets, etc. helps at large the cause of providing the goods
and services on cheap prices. The other factors that increase the margin of
192
profit for Wal-Mart are inbound logistics with frequent replenishment,

automated DCs cross docking, pick to flight, EDI, hub and spoke system. WalMart strategy of operation is innovative with big stores in small towns with
monopoly in the market at low rental costs, local prices, concentric expansion,
merchandising in brand name, private labels, little space for inventory, store
within store, etc. In relation to marketing and sales, merchandising is tailored
from locals, spent less on advertising and the prices are fixed low and it
depends on the store manager to fix the latitude of pricing. All the above factors
combined together form the key components of Wal-Mart which not only
increase the margin of profits through bulk sales but also boost the confidence
of the customers with services like point of sale information system and
everyday low prices.
III. Wal-Mart Strategy
Wal-Mart dominates the American retailing industry due to number of factors
like its business model which is still a mystery and its effectiveness in not
letting the rivals let know about the weaknesses. Wal-Mart made strategic
attempts in the its formulation to dominate the retail market where it has its
presence, growth by expansion in the US and Internationally, create widespread
name recognition and customer satisfaction in relation to brand name Wal-Mart
and branching into new sectors of retailing.
It is learnt that Wal-Mart strives on three generic strategies consisting of Focus
Strategy, the Differentiation Strategy and overall cost leadership. Managers
strive hard to make their organizations unique, distinctive and identify key
success factors that will drive the customers to buy their products. Thus, firm
specific resources and capabilities are crucial in explaining the firm's
performance. The Resource Based View (RBV) explains competitive
heterogeneity based on the premise that close competitors differ in their
resources and capabilities in important and durable ways. The company's
capability can be found through its functionality, reliable performance, like
Wal-Mart superior logistics. (Helfat, 2002) Wal-Mart has firm infrastructure,
well equipped in human resource with management professionals and
technologically too.
Any organizations thrive hard to be successful for which it needs to have better
resources and superior capabilities. Wal-Mart has strong RBV with
economically and financially very strong enough to stand still in the time of
crisis. Pereira states that dominating the retail market is its key strategy. WalMart operates on low price strategy which is operated as everyday low prices
(EDLP) which builds trust among the customers.(Brunn, 2006)The strategy lies
in purchasing the goods at lower prices and selling the goods to customer at
much lower prices, cutting the price as far as possible and increasing the profit
by increasing the number of sales. This ferociously increases the competition in
the market and Wal-Mart competes with all its competitors till it is dominant it
the market.
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Wal-Mart is expanding seriously and rapidly which is also its strategic goal.
Wal-Mart employs over 1.3 associates, owns over 4000 stores out of which
3000 are in US and serves around 100 million customers weekly. Wal-Mart has
acquired many international stores and merged with some super stores like
ASDA in UK. Wal-Mart far flung network of retail outlets has ensured that
Wal-Mart interacts with and has impact on virtually every locality within US.
(Helfat, 2002) The expanded strategy has led the hunger of Wal-Mart to many
European Countries. It is learnt that three countries with no Wal-Mart stores
became part of corporation's international presence wherein the domestic retail
chains were taken over by Wal-Mart including 122 Woolco stores in Canada,
21 Wertkauf stores in Germany and 229 ASDA units in United Kingdom. The
takeover strategy by Wal-Mart keeps the company at forefront when entering
into the new market and the number of competitors is also minimized. The
strategies have helped the Wal-Mart to rein in number one position in
international countries making it the largest retailer in the world.
It is seen that Wal-Mart has significantly the Porters five force model wherein
through proper strategic planning and strategic implementation has led to
removal of barrier entry, rivalry from competitors and pricing norms. In regard
to substitutes, Wal-Mart in order to achieve its aim of customer satisfaction has
selling goods under its own legal brand. Wal-Mart's big box phenomenon has
changed the retailing industry in the United States which is often considered as
discount stores and makes profit through high volume of purchases and low
markup on profits.(Parnell, 2008)Wal-Mart with its low cost and ever
expanding strategy has made a dramatic impact since 1962 when Sam Walton
first started his business. With this strategy, Wal-Mart has now over 4000
stores and outlets in US and other countries through acquisition and mergers.
IV. Sustainability in Discount Retailing Wal-Mart
According to Porter, (2002) operational effectiveness and efficiency are the key
elements of success in any organization. A company can outperform its rivals
or competitors in the market only with superior management and efficient
control creating a difference from the others which eventually attracts
customers. Porter defines operational effectiveness as performance of similar
activities as its rivals but better than them. In a study, it is stated the Wal-Mart
is expert in manipulating perceptions. It is termed that low price is not the
strategy of Wal-Mart but the advertisement manipulates the consumer
perceptions by making them think that its prices are lower than its competitors'
price using price spin'. Wal-Mart makes the consumer addicted coming to its
stores by convincing them the prices are lower than in the other stores by
selling itself cheaper by advertising that we have lower prices than anyone
else' and placing a opening price point'. The opening price point' is the lowest
price in the store which is kept at high visibility which makes consumer
believes that the products in this store are really cheaper. (Race Cowgill, 2005)
194
The SWOT analysis of Wal-Mart reveals that it is most powerful retail brand,
reputation for money, value, commitment, and provides wide range of products.
It is growing at a brisk pace with expanding its horizon to other parts of world
through acquisition and merger. Wal-Mart has good opportunities in markets of
Europe and China and focuses on acquiring the market through acquisition of
smaller stores and merger with leaders in the specific markets. Wal-Mart is
always under threat to sustain its top position in market nationally and
internationally. Global leader in the industry leaves the organization vulnerable
to many socioeconomic and political problems of the country.
Sustainability at the top place is the most important job that makes its managers
strives hard to frame the policies and strategy to compete with its rivals in the
market. Slack, Imitation, Substitution and Hold-up are some of the threats to
any organization in retail industry. However, Wal-Mart with its visionary goal
of attaining zero waste status and reaching 100% renewable energy has planned
to launch number of sustainability initiatives. (GreenBiz, 2008) Imitation
increase profits by increasing the supply. But imitation puts reputation,
relationship at stake. James Hall reports that Wal-Mart is planning to open
convenience stores as Tesco has started and operating in US called Fresh &
Easy Neighborhood Markets. (James, 2008) Such tactics will create mixed
response among the consumers while degrading the reputation of the leader in
market. Substitution reduces the demand for what a firm uniquely provides by
shifting the demand elsewhere due to changes in technology. The threats of
substitution can be subtle and unexpected like minimizing expenses through
videoconferencing instead of air flights to long distance meetings with its
managers of other stores, etc. Therefore, substation is an especially effective
way of attacking dominant rivals in the market. Substitution offers mixed
responses after identifying and understanding the threats. The organization
should fight the threat and merging with them, switching to different options of
substitution to be in the market. Hold-up diverts the value to customers,
suppliers or complementors who have some bargaining leverage which results
in tough negotiations, contractual agreements and vertical integration.
Wal-Mart is having great network with almost over 7800 stores
and Sam's
Club locations in 16 markets worldwide. It employs more than 2 million
associates and serves more than 100 million customers every year. According
to Fishman (2006) Americans spend $26 million every hour at Wal-Mart which
makes it believable that Wal-Mart is financially very strong and is capable of
combating any threat from its rivals in the market. Wal-Mart is ever expanding
its boundaries by way of acquisition and mergers. Thus Wal-Mart with such a
vast network of stores and alliances in the forms of ASDA, Target and many
other stores is well protected enough to sustain its top position in the retail
industry. WAL-MART
"To give unlimited opportunity to women.
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195
CASE STUDY ANALYSIS & CASE STUDY METHOD

CASE STUDY: Analysis of real life problem of which he or she has
experience or been able to observe
What is case study?
A case study presents an account of what happened to a business or industry
over a number of years. It chronicles the events that manager had to deal
with, such as changes in the competitive environment, and charts managers
response, which usually involved changing the business or corporate level
strategy.
Writing a Case Study
Steps to Take:
Establish the broad case to investigate
Establish and define the research questions
Select the precise case(s) to be used
Determine data gathering and analysis techniques
Prepare to collect data
Collect data in the field
Evaluate and analyse the data
Prepare the report
What to Include?
The history, development and growth of the company over time
The identification of the companys internal strength and weakness
The nature of the external environment surrounding the company
A SWOT Analysis(or another kind of analysis)
The kind of corporate level strategy pursued by the company
The nature of companys business level strategy
The companys structure and control systems and how they match its
strategy
Recommendations and Implementation plan
Structure of Case Analysis
1. Problem Identification and Analysis
In this section, one should identify all the major problems in the case in
behavioural terms (i.e. if one is studying a management subject, in
management/organizational behaviour terms)
Try to get underlying causes of problems, not just symptoms
One should link each problem identified with the relevant theory and also
to actual evidence from the case
One must integrate theory and reference all non original work
2. Statement of Major Problems
In most case studies, one will identify a number of problems- too many
students attempt to actually solve the problems.
It is crucial to make it very clear which are the major two or three
problems or key issues, which must be solved first
196
This section should consist of a short concise statement of the problems,

one is going to solve in the remainder of the case
Approximately half a page is adequate
Check back to ensure that one is actually attempting to solve them, rather
than focusing on other minor problems that may have been identified
This section is crucial to a good case report
3. Generation of Solutions
Identify and evaluate a number of the more appropriate solutions (at least
two or three for all the major problems identified)
Each alternative solution should be briefly outlined and then evaluated in
terms of its advantages and disadvantages(strong and weak ponts)
It is not necessary to make a statement in this section as to which
alternative is considered best-this is stated in the next section
Do not integrate or recommend theory in this section. Practical solutions to
problems are required.
4. Recommendations
State which of the alternative solutions (either singly or in combination)
identified in the previous section are recommended
Justify your choice, explaining how it will solve the major problems
identified
Recommend precise course of action that the company needs to take
5. Implementation
Write your recommendations in the form of an action plan. It is good to
include a timetable of what should be done
Explain how you will implement the recommended solutions
What should be done
By whom
When
In what sequence
What will it cost (rough estimates) and other such issues
If a recommended solution cannot be realistically implemented, then it is
no solution at all
197
Summarizing Strategic Management

Strategic Management Tasks
Form a Strategic Vision
Convert to Measurable Objectives
Craft a Strategic Plan
Implement the Plan
Evaluate the Results
The development, evaluation, and implementation of business strategies are
essential to successful management. The key is management system that will
help managers
Provide vision to their business.
Monitor and understand a dynamic environment.
Generate visionary and creative strategic options that will be
responsive to changes facing business.
Develop strategies based on sustainable competitive advantage.
198
REFERENCE BOOKS/ E-BOOKSOURCE /LINKS FOR REFERENCE

Text:
Azhar Kazmi, Business Policy and Strategic Management, Tata McGraw Hill
Kaplan Robert & Norton David P, Strategic Focused Organization, Harvard
Business School Press.
Appannaiah, Reddy, Ramanath, Strategic Management, Himalaya Publishing
House
Thomas L.Wheelen, J.David Hunger,Krish Rangarajan, Strategic Management
& Business Policy,9th Ed., published by Pearson education, Inc.,2006
References:
Pearce John A & Robinson R B, Strategic Management: Strategy Formulation
and Implementation, 3rd Ed, A.I.T.B.S. Publishers & Distributors.
Aaker David, Strategic Market Management, 8th Ed., John Wiley and Sons
Gregory G. Dess & G.T.Lumpkin, Strategic Management - creating
competitive advantage, The McGraw-Hill Companies
Strategic Management Workshop - The Institute of Bankers in South Africa
BCG Matrix for ITC Case Study by Ranjan Varma
Business Strategic Management, Barfield
Dr.M.Thenmozhi, Professor, IIT Chennai, Organizational Capability Analysis
Franzv Heerden, Strategic Control and Enhancing Organizational Performance
Philip Kotler, Marketing Management, Millenium Ed. (e-book source)
Bala krishnamoorthy Shreekant Limaye, Management Theory and Practice,
2007-09
Ashok Kaka, Strategic Marketing Planning Thesis for M.S submitted to BITS,
Pilani
Dr. Sushil, Professor IIT Delhi, Strategy Formulation PORTERs GENERIC
STRATEGIES
Neil Ritson, Strategic Management, 2008 Neil Ritson & Ventus Publishing
ApS
Michael E. Porter, Competitive Strategy, New York: The Free Press, 1980
chapter 2.
Crafting and Executing Strategy by Arthur A. Thompson Jr., A J. Strickland
and John E. Gamble, Tata McGraw Hill 16th Ed. 2008
Management by Griffin, 9th Ed. University of Alabama
199
Management the new competitive landscape by Bateman & Snell, 6th Ed.
Regular reading of all latest Business Journals: HBR, Strategist, Business

World, Business India, Business Today.
Read
more:
http://www.articlesbase.com/strategic-planningarticles/strategic-management-a-case-study-of-walmart-inc945260.html#ixzz0x7tdnkwp
http://www.oup.com/uk/orc/bin/9780199216468/01student/mcqs/
http://www.mhhe.com/business/management/dess1e/student/quiz_mult/ch0
1.mhtml
Video and Power Point Presentations. Strategy Club Strategic Planning
Software ... Dr. Fred R. David is the author of three mainstream strategic
management
www.strategyclub.com/
Other sources of Information: Documentary or secondary sources
- Magazines, newspaper, journals, books, trade &industry Assn. publication,
Govt. Publication, Annual report of Competitor Company
- Mass media
- Internal sources employees, files, documents and MIS
200

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Strategic Management

global competition, and competition in hostile and declining industries. The

Offensive and Defensive

Strategic Implementation and case

ITC (BCG Matrix)

Evolution of Strategic Management

Module II: Strategic Analysis

Mission, Vision and Business Definition

Part III: Strategic Choice

Michael Porters Approach Generic Competitive Strategies, Cost Advantage,

Part IV: Offensive and Defensive Competitive Strategies

Advantages and Disadvantages of Offensive Strategies

Part V: Strategic Implementation

Chapter 1 Introduction to Strategic Management

What is strategy and why it is important.

The elements of strategic management.

The process of strategic management.

Important aspects of strategic management.

Understand the elements of strategic management process and apply them

1.1 EVOLUTION OF STRATEGIC MANAGEMENT

Challenge of Strategic Management

and earning above-average returns are challenging. The performance of some

Rapid technological changes

Rapid technology diffusions

Dramatic changes in information and communication technologies

Increasing importance of knowledge

The pace of change is relentless.... and increasing. Traditional industry

What is a business Strategy?

Definition of Strategy - Alfred Chandler

Figure 1.1 Definition of strategy Alfred Chandler

Definition of Strategy - Henry Mintzberg 1987

Definition of Strategy - Strategy Igor Ansoff (1965)

Definition of Strategy - Johnson, Scholes and Whittington

Working Definition of Strategy - What is strategy about?

WHAT IS STRATEGIC MANAGEMENT?

strengths and weaknesses.

Definition of Strategic Management

Strategic management is defined as a set of decisions and actions that result in

Strategic management is the analysis, decisions and actions an organization

Figure 1.2 Definition of Strategic Management

Choices and decision-making

BASIC MODEL OF STRATEGIC MANAGEMENT

Figure 1.3 Basic Model of Strategic Management

STEP ONE: ENVIRONMENTAL ANALYSIS AND SCANNING

2003 The McGraw-Hill Companies, Inc. All rights reserved.

Figure 1.4 Environmental analysis

We need to be aware of external factors affecting our organization and how

Social policies: (e.g. social welfare etc.)

Trade regulations: (e.g. the EU & NAFTA)

Entry mode regulations

Government attitudes towards private and state-owned enterprises,

The Components of a Companys Macro-environment

Figure 1.5 Environmental Scanning

Disposable income of buyers

Population demographics: (e.g. aging population)

Changes in lifestyles and trends

Changes in demography, life style, working condit ions, education etc.

New innovations and discoveries

Pace of technological innovations and advances

Pace of technological obsolescence

New technological platforms (e.g. VHS and DVD)

New ways of delivering a service through the use of technology, exploit