To decide on credit limits of particular customer.

To be a price leader or a price follower.

To decide on type of warranty i.e. limited or full warranty and duration.
To reward sales people based on straight ".alary, straight commission, or a combination
salary/commission.

Marketing Process:
The marketing process is to analyze market opportunities, select target markets, develop the
marketing mix, etc. Services to customers are the central focus of the marketing process.
Following are the key components of Marketing Process:
I.
Connecting to Customers
2
Developing the marketing mix:
Marketing Mix:
The marketing mix consists of everything that the firm can do to influence the demand for its product.
These variables are often referred to as the "four Ps."

Product
Price
Place
Promotion

Product: stands for the "goods-and-service" combination the company offers to the target market.
Strategic decisions must also be made regarding branding, packaging and other product features such
as warrantees.
Price: stands for the amount of money customers have to pay to obtain the product. Pricing strategies
for entering a market, specially with a new product, must be designed.
Place: stands for location of company activities that make the product available to target consumers.
Strategies should be taken for the management of distribution to goods to customers
Promotion: stands for activities that communicate the merits of the product and persuade target
consumers to buy it. Strategies are needed to combine individual methods such as advertising,
personal selling, and sales promotion, etc.
TheA Ps described above are then further expanded into 4 Cs for to take buyer views because 4 Ps are
considered as seller's views.

4 Cs are linked with 4 Ps as:

Product = Customer Solution.
Price = Customer Cost.
Place = Convenience
Promotion = Communication.

I Some

Other Keys Marketing Strategic Elements:

Expanded
Marketing Mix

Marketing
Planning

Marketing
Analysis

Marketing
Strategic
Technique

Dealing with
Marketing
Environment

1.0 Expanded Marketing Mix:

In addition to the traditional four Ps the new marketing mix are:

People: all human actors who playa part in delivery of the market offeringand thus influence the
buyer's perception, namely the firm's personnel and the customer.
Physical evidence: the environment in which the market offering is delivered and where the firm
and customer interact.
Process: the actual procedures, mechanisms and flow of activities by which the product / service is
delivered.

Marketing analysis involves a complete analysis of the company's situation. The company performs
analysis by:
Identifying environmental opportunities and threats.
Analyzing company strengths and weaknesses to determine which
Opportunities the company can best pursue.

3.0 Marketing

Planning

Marketing planning involves deciding on marketing strategies that will help the company attains its
overall strategic objectives. A detailed plan is needed for each business, product, or brand.
A plan may include the following for a new product or brand to be marketed:

Executive summary of plan in terms goals

The current marketing situation of similar products

Target Market description.

Product overview

Analysis of the competition.

II

A section on distribution.

Threats and Opportunities

Marketing Budget

4.0 Dealing with t~e Marketing

Environment

The company mu,st carefully analyze its environment In order to avoid the threats and take
advantage of the opportunities. Areas to be analyzed are:

customers,

other company departments,

competitors

economic forces,

political and legal forces,

technological and ecological forces,

and social and cultural forces.

5.0 Marketing strategy techniques:

companies can follow:

There are various marketing strategies or techniques,

which

Social Marketing: To increase the acceptability of a social ideas. For instance, the
publicity campaign for prohibition of smoking in Delhi.

Augmented Marketing. It is provision of additional customer services and benefits like

on-line computer repair services,

Direct Marketing: Marketing through various advertising media that interact directly with
consumers like telemarketing, door to door sale.

Relationship.
AMWAY.

Marketing:

The process of creating a network marketing

chain like

Services Marketing: Marketing of Services or activities like banking, savings, retailing,

educational or utilities.

Person Marketing: For example, politicians, sports stars, film stars, professional i.e.,
market themselves to get votes, or to promote their careers and income.

Organization Marketing: Both profit and nonprofit organizations practice organization

marketing, like TAT A market its trust and reliable image

Place Marketing:

Differential Marketing: For example. Hindustan Lever Limited has Lifebuoy, Lux and
Rexona in popular segment and Liril and Pears in premium segment. '

Synchro-Marketing:
Marketing as per seasonal or particular segment requirement. For
example woolens or coolers.

Concentrated Marketing: To cover particular set of customers like RADO watch market
only for premium segm~nt.

like tourism marketing.

(; De-marketing: Marketing strategies to reduce demand temporarily For example, buses are
overloaded in the morning and evening. Here de-marketing can be applied to regulate
demand.

12.0

FINANCIAL STRATEGY FORMULATION

The financial strategy is another most important strategy with marketing. Finance is considered as
blood to body. Finance and Accounts is considered to be central to any strategy implementation. Some
of the key strategies of finance are for:

acquiring needed capital/sources of fund,

developing projected finanCial statementslbudgets,

management! usage of funds,

and establishing valuation of business.

Strategists need to formulate strategies in these areas so that they are implemented. Some examples of
decisions that may require finance/accounting policies are:

To raise capital with short-term debt, long-term debt, preferred stock, or common stock.

To lease or buy fixed assets.

To determine an appropriate dividend payout ratio.

To extend the time of accounts receivable.

To establish a certain percentage discount on accounts within a specified period oftime.

To determine the amount of cash that should be kept on hand.

Projected Financial
Statements and
Budgets

Management/
Usage of Funds

Evaluating
Worth of
Business

1,0 Acquiring capital to implement strategies / sources of funds

Successful strategy implementation often requires additional capital. Besides net profit from
operations and the sale of assets, two basic sources of capital for an organization are debt and equity.
Determining an appropriate mix of debt and equity in a firm's capital structure can be vital to
successful strategy implementation. Theoretically, an enterprise should have enough debt in its capital
structure to boost its return on investment, but too much debt in the capital structure of an organization
can endanger stockholders' return and jeopardize company survival.
The major factors regarding in this have to be made by strategists are:

Selecting right capital structure;

procurement of capital and working capital borrowings;

reserves and surplus as sources of funds;

and relationship with lenders, banks and financial institutions.

2.0 Projected financial statements / budgets

Projected financial statement analysis is a key to implement financial strategy because it allows an
organization to examine the expected results of various actions and approaches.

Projected financial statements

This type of analysis can be used to forecast the impact of various revenue and cost provisions on the
future cash flow. Normally some sort Decision Support System (DSS) are created in Excel
spreadsheets to prepare projected financial statements. Nearly all financial institutions require a
projected financial statements whenever a business seeks capital. A projected (or pro forma) income
statement and balance sheet allow an organization to compute projected financial ratios under various
strategy-implementation scenarios. Primarily as a result of the Enron collapse and accounting scandal,
companies today are being much more diligent in preparing projected financial statements

( 33 )

Projected financial budgets

A financial budget is also a document that details how funds will be obtained and spent for a specified
period of time. Annual budgets are most common, although the period of time for a budget can range
from one day to more than ten years. Fundamentally, financial budgeting is a method for specifying
what must be done to complete strategy implementation successfully. Financial budgets can be viewed
as the planned allocation of a.firm's resources based on forecasts of the future.
There are almost as many different types of financial budgets as:

cash budgets,

operating budgets,

sales budgets,

profit budgets,

factory budgets,

capital budgets,

expense budgets,

divisional budgets,

variable budgets,

flexible budgets, and

fixed budgets.

When an organization is experiencing financial difficulties, budgets are especially important m

guiding strategy implementation.
Financial budgets have some limitations.

First, budgetary programs can become so detailed that they are cumbersome and overly
expensive. Over budgeting or under budgeting can cause problems.

Second, financial budgets can become a substitute for objectives, A budget is a tool and not an
end in itself.

Third, budgets can hide inefficiencies if based solely on precedent rather than on periodic
evaluation of circumstances and standards.

Finally, budgets are sometimes used as instruments of dictatorship in which some senior
objective prepare everything. To minimize the effect of this last concern, managers should
increase the participation of subordinates in preparing budgets.

3.0 Management I usage of funds

Plans and policies for the usage of funds deal with investment or asset-mix decisions i.e. which asset
to be purchased and which 1:0 dispose off, etc. Some key decisions included in this are:

investment;

fixed asset acquisition;

current assets;

loans and advances;

dividend decisions; and

relationship with shareholders.

Usage of funds is important since it relates to the efficiency and effectiveness of resource utilization in
the process of strategy implementation.
Implementation of projects under the expansion and diversifications strategies results in increase in
capital expenditures. If planning is not done properly then capital expenditure can be inefficient
leading to less than an optimum utilization of resources. An example is of Modi Cement, which
followed a deliberate policy of generous capital investment in setting up its plant based on the latest
technology. As compared to its competitor Jaypee Rewa's plant, \vhich cost Rs 120 crore, Modi's plant
had an investment of Rs 153 crore. The result was high interest liability and depreciation, causing a
serious dent in profitability in the initial years. Similarly, payout policies for dividends and bonus
distribution play an important role in the usage of funds.
The management of funds is an important area of financial strategies. It basically deals with decisions
related to capital expenditures, dividend policy, investment, cost control and tax planning, etc.
The management of funds can playa pivotal role in strategy implementation. For instance, Gujarat
Ambuja Cements, currently a highly profitable cement company in the country, has achieved
tremendous financial success primarily on the basis of its policies of cost control. This company has
been particularly successful in maintaining a low cost for power, which is a major input in cement
manufacturing.

4.0 Evaluating the worth of a business

Evaluating the worth of a business is also important financial strategy implementation because
company may acquire another firm under diversification, or divest under retrench strategy. Thousands
of transactions occur each year in which businesses are bought or sold in the United States. In an these
cases, it is necessary to establish the financial worth or cash value of a business to successfully
implement strategies.
All the methods of evaluating a business's worth can be grouped into three main approaches:
In the first approach, the worth of a business is determined through net worth or stockholders' equity.
Net worth represents the sum of common stock, additional paid-in capital, and retained earnings. After
calculating net worth, add or subtract an appropriate amount for goodwill and overvalued or
undervalued assets. This total provides a reasonable estimate of a firm's monetary value. If a firm has
goodwill, it will be listed on the balance sheet, perhaps as "intangibles".
The second approach is based on largely the future benefits business owners may derive through net
profits. A conservative rule of thumb is to establish a business's worth as five to ten times the firm's
current annual profit.
In the third approach, the market dctennined a business's worth through three popular methods.

First, base the firm's worth on the selling price of a similar company per unit of its capacity, if
similar transaction happened recently.

The second approach is called the price-earnings ratio method. To use this method, divide the
market price of the firm's common stock by the annual earnings per share and multiply this
number by the firm's average net income for the past five years.

The third approach can be called the outstanding shares method. To use this method, simply
multiply the number of shares outstanding by the market price per share and add a premium.
The premium is simply a per-share amount that a person or firm is willing to pay to control
(acquire) the other company.

13.0 PRODUCTION

STRATEGY FORMULATION

The strategies for production are related to the production system, production planning and control,
and research and development (R&D). All these collectively influence the operations system structure
and objectives of company. The operations system structure, which is concerned with the
manufacturing! service and supply/delivery system, and operations system objectives, which are
related to customer service and resource utilization, both determine what operations, plans and policies
are set.

1.0 Production System

The production system is concerned with the production capacity, location of manufacturing, layout of
shop-floor, product or service design, degree of automation and extent of vertical integration.
Strategies related to production system are significant as they involve decisions which are long-term in
nature and influence not only the operations capability of an or~anization but also its ability to
implement other strategies and achieve objectives. For example, Reliance Industries has successfully
done backward integration of its production system under a long-term planning to achieve substantial
success in its financial and marketing strategy.

2.0 Production / Operations Planning and Control

Strategies related to operations planning and control are concerned with aggregate production
planning; materials supply; inventory, cost, and quality management; and maintenance of plant and
equipment. Here, the aim of strategy implementation is to see how efficiently resources are utilized
and in what manner the day-to-day operations can be managed in the light of long-term objectives.

14.0

LOGISTICS STRATEGY

Logistic means flow of material/goods

from source to destination i.e. from supplier to customers.
Effective and efficient sourcing of materials from suppliers and distributions of goods to customers
plays a very important role in the profitability of organization.
Effective logistic strategy ensures that the right materials are available at the right place, at the right
time, of the right quality, and at the right cost; similarly, goods are available to customers. Supply
chain management helps in implementation of logistics strategies. For a business organization
effective logistic strategy will involve raising and finding solutions to the foHowing questions:
\Vhich sources of raw materials and components are available?
How many manufacturing locations are there?

What products are being made at each manufacturing location?

What modes of transportation should be used for various products.

What is the nature of distribution facilities?
What is the nature of materials handling equipment possessed? Is it ideal?
What is the method for deploying inventory in the logistics network?
Should the business organization own the transport vehicles?
Improvement in logistics can results in savings in cost of doing business. These savings can also
reveal in the profits of the company. Effective logistics strategy can help a business in:
+ Cost savings

+ Reduced inventory
+ Improved delivery time
+ Customer satisfaction

+ Competitive advantage

I Supply

Chain Management:

Supply chain represents a link of entitIes involved for the movement and management of
materials/goods. It includes a link from origination of raw materials, from supplier, to distribution of
finished goods to customers. Managing supply chain is a very important aspect for organization to
satisfy their customers' needs efficiently.
'What is Supply Chain Management?
Supply Chain Management (SCM) includes the movement and management of storage of raw
materials inventory, work in progress inventory, finish goods inventory and distribution of finish
goods to customers. It is also defined as planning, implementing and controlling the supply chain

"\

( 31 )

operations. The organizations need to manage their supply chain efficiently to gain competitive
advantage over their competitors.

lli10gistic

Management same as Supply Chain Management

Supply chain management is an extension of Logistics management. Logistics management includes

management of inbound and outbound goods/materials, transportation, warehousing, handling of
material, order planning and inventory management, etc. These activities are also part of Supply Chain
Management. The Supply Chain Management includes more aspects of business management and it
helps in effective implementation of logistics strategy to deliver the right product, at right place, at the
right time and at right price.

I Implementing

Supply Chain Management

It involves a great amount of coordination with buyers, supplier, and setting up a joint product
development and common shared infom1ation system. A key requirement of implementing Supply
Chain Management is use of a network (internet, ED!, software etc) system for sharing information.
A successful implementation and operation of Supply Chain Management includes the following:
Product Development: Organization should coordinate with customers and suppliers to
develop the right product.
Procurement: This requires careful resources planning, identifying sources, order placement,
transportation and storage management.
Manufacturing: There should be a dynamic manufacturing process to respond to market
changes quickly.

Physical Distribution: This involves the distribution of goods to customers at right time and
at right place.

Outsourcing: This involves outsourcing of operations which organization believe can be

better managed by others:
Customer Services. This includes developing a customer relationship platform to provide an
interface to customers for mutually satisfying the goals.
Performance Measurement: This includes setting up a system of feedback for performance
measurement on cost, customer services, productivity and quality etc. This helps in continuous
improvement of system.

15.0 RESEARCH

AND DEVELOPMENT

Research and development (R&D) can play an integral part in overall company's strategy
implementation. R&D employees and managers perform tasks that include transferring complex
technology, adjusting processes to local raw materials, adapting processes to local markets, and
altering products to particular tastes and specifications. Strategies such as product development,
market penetration, and concentric diversification require that new products be successfully developed
and that old products be significantly improved. But the level of management support for R&D is
often constrained by resource availability.
Several past surveys suggest that the most successful organizations use an effective R&D strategy to
achieve .its objectives. Well formulated R&D policies match market opportunities with internal
capabilities. R&D policies can include efforts to:

 Emphasize product or process improvements.

Stress on basic or applied research.
Be leaders or followers in R&D.

+ Develop robotics or manual-type processes.

+ Spend a high, average, or low amount of money on R&D.

+ Perform R&D within the firm or to contract R&D to outside

firms.

+ Use university researchers or private sector researchers.

There must be effective interactions between R&D departments and other functional departments in
implementing different types of generic business strategies. Conflicts between marketing,
finance/accounting, R&D, and information systems departments can be minimized with clear policjes
and objectives.
Many finns wrestle with the decision to acquire R&D expertise from external firms and develop R&D
expertise internally. There are at least three major R&D approaches for implementing strategies. The
first strategy is to be the first firm to market new technological products. This is a glamorous and
exciting strategy but also a dangerous one. Finns such as 3M and General Electric have been
successful with this approach.
A second R&D approach is to be an innovative imitator of successful products, thus minimizing the
risks and costs of start up, for example, LG and Samsung.
A third R&D strategy is to be a low-cost producer by mass-producing products similar to but less
expensive than products recently introduced. For example, China made products.

16.0. HUMAN

RESOURCE STRATEGY FORMULATION

Human resources are considered as biggest assets to any organization success. Strategic
responsibilities of the human resource manager include assessing the staffing needs and developing a
staffing plan for effectively implementing the other formulated strategies. This plan must consider
how best to manage employee costs and also include how to motivate employees and managers.
The human resource department must develop performance incentives that clearly link performance
with pay. The process of empowering managers and employees through their involvement yields the
greatest benefits to organizations. A well-designed strategic-management system can fail if
insufficient attention is given to the human resource dimension.
In a large number of organizations, human resources are now viewed as a source of competitive
advantage. There is greater recognition that different competencies are obtained through highly
developed employee skills.

The role of human resources in enabling the organization to effectively deal with the external
environmental challenges is well known. Organization should have effective human resource
planning, employment, training, appraisal and rewarding system. An organization's recruitment,
selection, training, perfonnance appraisal, and compensation practices can have a strong influence on
employee competence is very important. The following points should be kept in mind:

-'.'.'
........- 1

Recruitment and selection: The workforce will be more competent if a firm can succes;:;fully
identify, attracts, and select the most competent applicants.

Training. The workforce will be more competent if employees are well trained to perform their
jobs property.
.
.

Appraisal of Performance. The performance appraisal is to identify any performance

deficiencies experienced by employees due to lack of competence. Such deficiencies, once
identified, can often be solved through counseling, coaching or training.

Compensation. A firm can usually increase the competency of its. workforce by offering pay
and benefit packages that are more attractive than those of there competitors. This practice
enables organizations to attract and retain the most capable people.

Strategy and Human Resource Management

The effective human resource strategy of business supports the overall corporate strategy. An effective
human resource strategy includes the way in which the organization plans to develop its employees
and provide them suitable opportunities and better. working conditions so that their optional
contribution is ensured. This implies selecting the best available personnel, ensuring a 'fit' between
the employee and the job and retaining, motivating and empowering employees to perform well in
direction of corporate objectives.
Strategic human resource management may be defined as the linking of human resource management
with strategic goals and objectives to improve business performance. The success of an organization
depends on its human resources. This means how they are acquired, developed, motivated and retained
play an important role in organizational success.
Strategic Role of Human Resource Management
The prominent areas where the human resource manager can play strategic role are as follows:
Providing purposeful direction
Creating competitive atmosphere
Facilitation of change
Diversified workforce
Empowering human resources
Building rore competency
Developing ethical work culture

Providing purposeful direction: The human resource management must be able to lead
people and the organization towards the desired direction. The management have to ensure that
the objectives of an organization becomes the objectives of each person working in the
organization.

Creating competitive
through opportunities.

Facilitation of change: The Human resources are more concerned with substance rather than
form, accomplishments rather than activities, and practice rather than theory. The human
resources should be provided enough opportunities for the same.

Diversified workforce: In the modem organization management of diverse workforce is a

great challenge. Workforce diversity can be observed in terms of male and female workers,
young and old workers, educated and uneducated workers, unskilled and professional
employee, etc. creating a great culture or non-financial incentives also plays an important role
in motivating the workforce.

"

Empowering human resources: Empowerment means authorizing every number of a society

or organization to take of his/her own dstiny realizing hislher full potential.

Building core competency: The human resource manager has a great role to play in
developing core competency by the firm. A core competence is a unique strength of an
organization which may not be shared by others in the form marketing and technical capability.

Developing ethical work culture: A vibrant work culture should be developed in the
organizations to create an atmosphere of trust among people and to encourage creative ideas by
the people.

atmosphere:

By creating committed and competitive

atmosphere

Q.

What is a SWOT Analysis?

Discuss advantages of SWOT Ana!ysis.

OR

Discuss the organizations

internal appraisal with the help of SWOT Analysis

SWOT analysis is the primary step in strategic management. SWOT analysis refers to analysis of
strengths, weakness opportunities and threats. The analysis of internal environment reveals
strength and weakness of the organization and the analysis of external environment reveals
opportunities and threats to the organization.
Different authors called SWOT analysis by different name example SCOT strength , contains,
opportunities, threats or they call it ETOP Environment threats and opportunities Profile.
1. Strength are positive competencies of firm as compare to its competitors in the
areas of marketing, finance, HR, management operation, production. Every, firm
tries to consolidate its strength.
2. Weaknesses are negative competencies of a firm as compare to its competitors in
all the functional areas of the organization. Every firm should make efforts to
minimize its weakness.
3. Opportunities are favourable circumstances or situation which external environment
offers or provides to organization. Every firm should make an attempt to grab the
right opportunity at right time.
4. Threats are the unfavourable situations which the external environment provides to
the organization. Every firm must make efforts to overcome or minimize the effect of
the threats.

a.
b.
c.
d.
e.
f.
g.
h.

It consolidates strengths
Minimises the weaknesses
Helps to graph opportunities
Minimizes threats
Facilitates planning
Facilitates alternative choices
Its helps to innovate
Ensures survival with success of the organization.

Example: Paint Industry, Asian Paints

In India paint industry is 100 years old. Shalimar paints is the 1st industry which was set up in
1902. Railway paint was the famous paint manufacturer and sold by Shalimar paint.
Asian paint has 44 - 45 %.
category :1) Industry
2) Domestic Sector
3) Commercial organization
StrategicManagement- 13

Market share in industry.

Consumers are divided into following

Strength
1) 44 - 45% market share in the industry nearest competitors has only 15% market-share
2) Brand image is excellent, specially decorative paint
3) It has variety of shades
4) Quality is good
5) Distribution network is excellent
6) Financially very strong
7) Prices are very competitive
8) In house research is possible, they have their own R&D so they can concentrate on new
product, new shade
Weakness
1) There are few suppliers of key raw material vendors, suppliers choice is weak.
2) Plant capacity not fUlly utilized, machinery old.
3) Most of the plant, factories are situated in western India

due the transportation

cost

increases
4) Market share in the Industrial paint is not satisfactory, market share is only 15%. Whereas
other competitors has over 40% market share in industrial paint.
5) Seasonal demands effects the cash-flow

Opportunities
1) There is a scope for high quality paints no immediat~ threat of entry by any superior
company, competitor in the market. Already existing competitors are facing internal
problems.
Threats
1) Government does not pay attention to paint industry. Taxes are very high.
2) Growth in industry is not very promising
3) Un-organized sector paint offer paint at lower prices.
4) Some key raw material needs to be imported.

Every organization has its own strength and weakness some organizations may be strong in
respect of finance, others may be in respect of marketing and some other in the area like
production with an organization. Each functional department has its own strength and weakness.
A firm or the organization must find out its strength and weakness so that it could minimize its
weakness and consolidate its strength.

1) Market and distribution factors - Marketing is a process of planning and executing the
conception pricing, promotion and services to create exchanges that satisfy individual and
organizational objective. The following factors need to be appraised in respect of
marketing.

b.
c.
d.
e.
f.
g.
h.

Product mix
Product Iifecycle
Sales
Pricing policy
Promotional efforts
Distribution channels
Market research

The following could be the strength and weakness in the marketing area.
Strengths:
Good brand or company's image, high market share, efficient channels of
distribution motivated sales force, promotional efforts market research, growth or maturity
stage and pricing strategy
Weaknesses: Poor brand or company's image, low market share, in effective distribution
channel, inefficient sales force, no promotional efforts, no market research, declining stage
of product.
Defective pricing strategies and single or limited products. E.g. Reliance
Insurance Company.
2) Financial Operations: There are various financial factors that need to be appraised. E.g.
allocation and use of fund and accounting practice. The organizational financial strength and
weakness would be as follows.
Strength: Proper debt equity ratio, low cost funds, proper availability of fixed capital, working
capital, proper allocation of funds, good accounting practices.
Weaknesses: Defective capital structure, high cost of funds, problem of working capital and
fixed capital of funds and defective accounting practices.
1) Production or Operations: There are 'jarious operational factors that need to be
appraised. E.g. availability of raw material, inventory control, research and development
(R&D), location, allocation of resources, operation procedures, cost structure, production
schedules, plant maintenance etc.

Strengths
Availability of raw material inventory control, adequate and effective raw
material, location of plant, proper use of production capability, proper and efficient use of
resources, efficient operational procedures, lower cost production, proper production
schedule and efficient maintenance policy.
Weakness Problems n raw material, poor inventory control, lack of R&D, underutilization
of plant and machinery, inefficient operational procedures, high cost production, problems
in production schedule and defective maintenance policy.
2) Personnel or Human Resource (HR) Factor: HR is the most important factor in the
organization. The success or strategy formulation and implementation largely depends on
human resource in the organization. Organization need to spend good amount in HR
through training and development and by motivating the employees.
Some of the important aspects of Human Resource are:
a) Human Resource policies
b) Good employer and employee relation
c) Employees facilities
Strategic Management

- 13

d) Motivational factors
e) Skilled and capabilities and labour productivity.
Strengths
Proper personnel policies , good employer and employee relation, good
employee facilities, high level of motivation, good skill labour high labour productivity.
Weakness
Defective H. R. policies, bad labour management relations lower labour
motivation, low level of production, poor employee skills.
Q. Explain the concept of business objectives and what are the main ingredients of.the
same.

Ans. Objectives play an important role in strategic management. We could identify the various
facets of such a role as shown below:
Objectives define the organisation's relationship with its environment. By stating its
objectives, an organization commits itself to what it has to achieve for its employees,
customers and society at large.
Objectives helps an organization to pursue its vision and mission. By defining the longterm position that an organization wishes to attain and the short-term targets to be
achieved objectives help an organization in pursing its vision and mission.
Objectives provide the basis for strategic decision making. By directing the attention of
strategists to those areas where strategic decisions need to be taken, objectives lead to
desirable standards of behavior and in this manner, help to objectives lead to desirable
standards of behavioure and in this manner, help to coordinate strategic decision making.
Objectives provide the standards for performance appraisal. By stating the targets to be
achieved in a given time period, and the measures to be adopted to achieve them,
objectives lay down the standards against which organizational as well as individual
performance could be judged. In the absence of objectives, an organization would have
no clear and definite basis for evaluating its performance.
c

Objectives, as measures of organizational bahaviour and performance, should possess certain

desirable characteristics in order to be effective. Given below are seven such characteristics.
1. Objectives should be understandable. Because objectives play an important role in strategic
management and are put to use in a variety of ways, they should be understandable to those who
have to achieve them. A chief executive who says that "something ought to be done to set things
right' is not likely to be understood by his managers. Subsequently, no action will be taken , or
even a wrong action might be taken.
2. Objectives should be concrete and specific. To say that 'our company plans to achieve a 12
percent increase its sales' is certainly better than stating that 'our company seeks to increase its
sales. The first statement implies a concrete and specific objective and is more likely to lead and
motivate the managers.
3. Objectives should be related to a time frame. If the first statement given above is restated as
'our company plans to increase its sales by 12 percent by the end of two years', it enhances the
specificity of the objective. If objectives are related to a time frame, then managers know the
duration within which they have to be achieved.
StrategicManagement- 13
45

4.0bjectives should be measurable and controllable. Many organizations perceive themselves as

companies which are attractive to work for. If measures like the number and quality of job
applications received, average emoluments offered, or staff turnover per year could be devised, it
would be possible to measure and control the achievement of this objective with respect to
comparable companies in a particular industry and in general.
5. Objectives should be challenging. Objectives that are too high or too low are both demotivating
and therefore, should be set at challenging but not unrealistic levels. To set a high sales targets in
a declining market does not lead to success. Conversely a low sales target in a burgeoning
market is easily achievable and therefore leads to a suboptimal performance.
6. Different objectives should correlate with each other. Organsations set many objectives in
different areas. If objectives are set in one area disregarding the other areas such an action is
likely to lead to problems. A classic dilemma in organizations and a source of interdepartmental
conflicts, is setting sales and production objectives. Marketing departments typically insist on a
wider variety of products to cater to a variety of market segments while production departments
generally prefer to have greater product uniformity in order to have economies of scale.
Obviously, trade-offs are required to be made so that different objectives correlate with each
other, are mutually supportive and result in synergistic advantages. This is specially true for
organizations which are organized on a profit-centre basis.
7. Objectives should be set without constraints. There are many constraints - internal as well as
external -which have to be considered in objective setting. For example, resource availability is
an internal constraint which affects objective setting. Different objectives compete for scarce
resources and trade offs are necessary for optimum resource utilization. Organizations face many
external constraints like legal requirements, consumer activism and environmental protection. All
these limit the organization's ability to set and achieve objectives.

1. Specificity. Objectives may be stated at different levels of specificity. At one extreme, they
might be very broadly stated as goals while at the other they might be specifically stated as
targets. Many organizations state corporate as well as general . specific ,functional
and
operational objectives. Note that specificity is related to the organizational levels for which a set of
objectives has been stated. Indian Airlines stated corporate, general, as well as particular
objectives. One of its corporate objectives was to meet the demand for reliable, economic and
efficient air transport through high standards of service. One of the general objectives was to
provide safe, economic and reliable air transportation. One of its particular objectives, in the
financial area, was to generate a specific amount of resources every year not only for meeting
existing requirements but also to provide for growth. The issue of specificity is resolved through
stating objectives at different levels, and prefixing terms such as corporate, general and particular
so that they serve the needs for performance and its evaluation.
Since objectives deal with a number of performance areas, a variety of them have
to be formulated to cover all aspects of the functioning of an organization. No organization
operates on the basis of a single or a few objectives. The issue of multiplicity deals with different
types of objectives with respect to organizational levels (e.g. higher or lower levels), importance
(e.g. primary or secondary), ends (e.g. survival or growth), functions (e.g. marketing or finance),
and nature (e.g. organizational or personal). Another issue related to multiplicity, is the number
and types of objectives to be set. Too few or too many objectives are both unrealistic.

2. Multiplicity.

Organisations need to set adequate and appropriate objectives so as to cover all the major
performance areas.
3. Periodicity.
Objectives are formulated for different time periods. It is possible to set longterm, medium-term and short-term objectives. Generally organizations determine objectives for
the long and short-term. Whenever this is done objectives for different time periods have to be
integrated with each other. Long-term objectives are, by nature , less certain and are therefore
stated in general terms. Short term objectives, on the other hand are relatively more certain,
specific and comprehensive. One long-term objective may result in several short-term objectives,
on the other hand, are relatively more certain, specific and comprehensive. One long-term
objective may result in several short-term objectives, many short-term 'objectives coverage to form
a long term objective. For example, a long term objective may be continual profitability. Short
term objective which support continual profitability may be the return on investment, profit margin,
return on net worth, and so on, computed on an yearly basis.
4. Verifiability. Each objective has to be tested on the basis of its verifiability. In other words, it
should be possible for a manager to state the basis on which to decide whether an objective has
been met or not. Only verifiable objectives can be meaningfully used in strategic management.
Related to verifiability is the question of quantification. A definite way to measure any objective is
to quantify it. But it ma be neither possible nor desirable to quantify each and every objective. In
such cases, qualitative objectives have to be set. These objectives could also be verified but not
to the degree of accuracy possible for quantitative objectives. For example, a qualitative objective
may be stated as to create a congenial working environment within the factory. In order to make
such an objective verifiable, the value judgment of informed experts - both insiders and outsiders
- could be used. A few quantitative measures could also be devised which can serve as
indicators of a congenial working environment.
Some of these could be staff turnover,
absenteeism, accident rates, productivity figures and so forth. In sum, it can be said that the
issue of verifiability could be resolved through a judicious use of a combination of quantitative and
qualitative objectives.
5. Reality. It is common observation that org'anizations tend to have two sets of objectives official and operative. Official objectives are those which organizations profess to attain while
operative objectives are those which the seek to attain in reality. Probably no one would be in a
better position to appreciate the difference between these two objectives than a harried client of a
public sector bank who, on being maltreated by an arrogant bank employee, looks up to find a
poster of a smiling and beautiful girl with folded hands looking down at him. The poster carries the
caption: 'Customer service with a smile'! May organizations state one of their official objectives as
the development of human resource. But whether it is also an operative objective depends on the
amount of resources allocated to human resource development.
6. Quality.

Objectives may be both good and bad. The quality of an objective can be judged on

the basis of its capability to provide a specific direction and a tangible basis for evaluating
performance.

An example of a bad objective is: 'to be the market leader in our industry', 'It is

insufficient with respect to its measurability. To restate the same objective as:

'To increase

market share to a minimum of 40 percent of the total with respect to Product A over the period of
the next two years and to maintain it thereafter' turns it into a good objective since it is specific,
relates to performance, is measurable and prov,ides a definite direction.

Objectives have to be set in all those performance areas which are of strategic importance to an
organization. In general, according to Druckere, objectives need to be set in the eight vital areas
of market standing, innovation. productivity. physical and financial resources. profitability,
manager performance and development. worker performance and attitude and public
responsibility. A prescriptive approach, such as the one suggested by Drucker. is based on those
strategic factors which are supposedly vital for all types of organizations. But in practice
organizations differ widely with regard to the objectives that they choose to set.

Organizations need to set objectives at different levels. of various types and for different time
periods, and that such objectives should possess certain desirable characteristics and should
resolve certain issues before being used.
Glueck identifies four factors that should be considered for objective setting. These factors are:
the forces in the environment, realities of an enterprise's resource and internal power
relationships, the value system of top executives and awareness by management of the past
objectives of the firm. Here is a description of each of these factors.
1. The forces in the environment.
These take into account all the interests some times
coinciding but often conflicting - of the different stakeholders in an organization. Each group of
stakeholders, whether they are company employees, customers or the government put forward a
set of claims or have expectations that have to be considered in setting objectives. It is important
to note that the interests of various stakeholders may change from time to time, necessitating a
corresponding shift in the importance attached to different objectives.
2. Realities of enterprise's resources and internal power relationships.
This means that
objectives are dependent on the resourced capability of a company as well as the relative
decisional power that different groups of strategists wield with respect to each other in sharing
those resources. Resource both material and human, place restrictions on the objective achieving capability of the organization and these have to be considered in order to set realistic.
objectives. Internal power relationships have an impact on objectives in different ways. A
dominant group of strategists, such as, the board of directors, or an individual strategist, such as a
chief executive. may wield considerable power to set objectives in consonance with their
respective views. Again, since power configurations within a firm are continually changing, the
relative importance attached to different objectives may also vary over a period of time.
3. The value of system of the top executive. This has an impact on the corporate philosophy
that organizations adopt with regard to strategic management in general and objectives in
particular. Values, as an enduring set of beliefs, shape perceptions about what is good or bad,
desirable or undesirable.
This applies to the choice of objectives too.
For example,
entrepreneurial values may result in prominence being given to profit objectives while a
philanthropic attitude and values of social responsibility may lead to the setting of socially oriented
objectives.
4. Awareness by management. Awareness of the past objectives and development of a firm
leads to a choice of objectives that had been emphasized in the past due to different reasons.
For instance. a dominant chief executive lays down a set of objectives and the organization
continues to follow it, or deviates marginally from it in the future. This happens because
Strategic Management - 13

48

organizations do not depart radically from the paths that they had been following in the recent
past. Whatever changes occur in their choice of objectives take place incrementally in an
adaptive manner.
Q. Diversification is inevitable to remain in business. Companies have adopted different
forms of diversification to achieve their objectives. What parameters can be used to judge
the quality of diversification?

Ans. Diversification is a much used and much-talked about set of strategies. These strategies
involve all the dimensions of strategies alternatives. Diversification may involve internal or
external, related or unrelated, horizontal or vertical and active or passive dimensions -either singly
or collectively. Essentially, diversification involves a substantial change in the business definition
- single or jointly - in terms of customer functions, customer groups, or alternative technologies or
one or more of a firm's business.
Diversification strategies, being one of the most important type of strategies for expansion will be
discussed in detail in this section. Basic diversification strategies are:
Concentric diversification:
When an organization takes up an activity in such a manner that it
is related to the existing business definition of one or more of a firm's businesses, either in terms
of customer groups, customers functions or alternative technologies, it is called concentric
diversification.

1. Marketing - related concentric diversification: When a similar type of product is offered with
the help of unrelated technology for example a company in the sewing machine business
diversifies into kitchen'l/are and household appliances, which are sold to housewives through a
chain of retail stores.
2. Technology-related concentric diversification:
When a neW type of product or service is
provided with the help of related technology, for example, a leasing firm offering hire-purchase
services to institutional customers also starts consumer financing for the purchase of durables to
individual customers.
3. Marketing - and technology - related concentric diversification:
When a similar type of
product (or service) is provided with the help of related technology, for example, a raincoat
manufacturer makes other rubber - based items, such as, waterproof shoes and rubber gloves,
sold through the same retail outlets.

When an organization adopts a strategy which requires taking up those activities which are
unrelated to the existing business definition of one or more of its business, either in terms f their
respective customer groups, customer functions or alternative technologies, it is called
conglomerate diversification. ITe a cigarette company diversifying into a hotel industry. Some
other examples are those of the Essar Group (shipping, marine construction, oil support services
and iron and steel), Shriram Fibers Ltd. (nylon industrial yarn, synthetic industrial fabrics, nylon
tyres cords, f1uoro-chemicals, fluorocarbon refrigerant gases ball and needle bearings, auto electrical, hire-purchase and leasing and financial services

1. Diversification strategies are adopted to minimize risk by spreading it over several businesses.
2. Diversification may be used to capitalize on organizational strengths or minimize weaknesses.
3. Diversification may be the only way out if growth in existing businesses is blocked due to
environmental and regulatory factors.
Diversification strategies have their own advantages and disadvantages.
Concentric
diversification enables a firm to attain synergy by exchange of resources and skills, and to avail
economies of scale and tax benefits. On the other hand, the disadvantage of concentric
diversification lies in the increase in risk and commitment, and a reduction in flexibility .
Conglomerate diversification offers the advantage of better management and allocation of cash
flows, realizing a higher return on investments, and the reduction of risk by spreading investment
in different businesses and industries. It has the disadvantages of diversion of resources and
attention to other areas leading to a lack of concentration and facing the risks of managing
entirely new businesses.
Pattern of diversification
It is widely accepted that the post - 1984 and particularly the post 1991 period has seen a gradual liberalization of the Indian economy. The relaxation of controls
has generally made a positive impact on the business policies of firms. Many companies have
taken the various and advantages offered by the liberalization measures and diversified into
related and unrelated areas.
The ideas whether diversification is an effective strategy has assumed significance in view of the
fact that ideas of core competence and focus (what we call concentration here) have gained
greater acceptability among companies, investors, consultants
and So :ademicians in the
developed countries. Diversifications, specially unrelated ones, seem to be out of favour. But
there is a divergent and interesting view of which strategies could e better for companies in
developing countries like India. The fact is that several Indian business groups have been
attempting concentration in lien with the thinking on core competence. But this is being done in a
unique Indian way of adopting a middle path

Ans. Mergers refer to a combination of two or more companies into one company and may be
possible in two ways: absorption and consolidation. Absorption takes place in mergers and
acquisitions where the company acquires an other company. Consolidation takes place when two
or more companies combine to form a new company. Joint ventures are a special case of
consolidation where "two or more companies form a temporary partnership for a specified
purpose.
Conditions for joint ventures
mainly under four conditions.

Joint ventures may be useful to gain access to a new business

1. When an activity is uneconomical for an organization to do alone.

2. When the risk of business has to be shared and, therefore, is reduced for the participating firms.
3. When the distinctive competence of two or more organizations can be brought together.

4. When setting up an organization requires surmounting hurdles, such as, import quotas, tariffs,
nationalistic political interests and cultural roadblocks.
Types of ventures Joint ventures are common within industries and in various countries. But
they are specially useful for entering international markets. Form the point of view of Indian
organizations, the following types of joint ventures are possible.
1. Between two firms in one industry.
2. Between two firms across different industries.
3. Between an Indian firm and a foreign company in India.
4. Between an Indian firm and a foreign company in that foreign country.
5. Between an Indian firm and a foreign company in a third country.

Joint ventures offer the advantages of achieving objectives mutually by the participating firms.
Eliminating, controlling, or reducing competition may be of strategic importance and can be
brought about through joint ventures. An increase in the market share can also be achieved.
Diversification strategies may be adopted by the participating firms if a joint venture is planned
across different industries. If technology is a critical variable in strategy, then joint venture with
foreign companies can be feasible. If legal and regulatory hurdles come in the way of external
expansions, they could be subverted through a joint venture strategy of combining with a foreign
firm in that foreign country or in a third country. Environmental threats within the country or
opportunities abroad may cause firms to undertake joint ventures.
Benefits and drawbacks in joint ventures The major benefits that are likely to accrue from joint
ventures include: minimizing risk, reducing an individual company's investment, having access to
foreign technology, broad-based equity participation, access to governmental and political
support, entering new fields of business and synergistic advantages. The disadvantages that may
arise in joint ventures are problems in equity participation, foreign exchange regulations, lack of
proper coordination among participating firms, cultural and behavioural differences and the
possibility of conflict among the partners.
Strategic alliances Yoshino and Rangan define strategic alliances in terms of three necessary
and sufficient characteristics.

Two or more firms unite to pursue a set of agreed upon goals but remain independent
subsequent to the formation of the alliance.
The partner firms share the benefits of the alliance and control over the performance of
assigned tasks - perhaps the most distinctive characteristic of alliances and the one that
makes them so difficult to manage.
The partner firms contribute on a continuing basis in one or more key strategic area, for
example, technology, product and so forth.

Strategic alliances are a "cooperation between two or more independent firms involving shared
control and continuing contributions by all partners for mutual benefit.
Liberalization has led to a situation where Indian companies have had to look for growth
opportunities. In order to capitalize on the opportunities, firms could either depend on their own
resources or look for cooperative partnerships outside. Since developing own resources is a time
consuming and costly process, firms have often looked for outside help. Apart from the options in
StrategicManagement- 13
51

cooperative strategies that we have already seen strategic alliances offer a growth route in which
merging one's entity, acquiring or being acquired, or creating a joint venture may not be required.
These reasons make strategic alliances an attractive proposition.
Apart from liberalization, globalization has spurred the growth of strategic alliances. Typically,
Indian firms have shortcomings that can be offset by relying on strategic alliances. Global
partners can help local firms by developing global quality consciousness, creating adherence to
international quality standards, providing access to state of the art technology, gaining entry to
world wide mass markets and making funds available for expansion. Besides these, other
reasons which lead to strategic alliances are the availability of professional management
expertise, international reputation, global brand name and brand equity and confidence to gain a
foot hold in the international markets.
Types of strategic alliances Several typologies of strategic alliances are available in business
policy literature. Here we give one classification, given by Yoshino and Rangan, based on two
dimensions of the extent of organizational interaction and conflict potential between alliance
partners. This is an apt illustration of the concept of co-opetition where cooperation and
competition co-exist.
Corporate objectives are
multi-dimensional
and often mutually
contradictory. Strategic partners need to take into account the extent to which interaction is
necessary for the alliance to work. Then the potential for conflict arising out of being competitors
in the market has to be considered. When the values of these dimensions are high or low then
four types of strategic alliances emerge.
1. Pro-competitive alliances (Low interaction . Low conflict):
These are generally interindustry, vertical
value-chain relationships between manufacturers and their suppliers or
distributors. Such alliances offer the benefits of vertical integration without firms actually investing
in resources for manufacturing inputs or distributing semi-finished or finished goods. Supplier and
buyer firms centering upon long-term contracts constitute precompetitive alliances.
2. Noncompetitive alliances (High interaction I Low conflict):
These are intra-industry
partnerships between noncompetitive firms. Such alliances can be entered upon by firms that
operate in the same industry yet do not perceive each others as rivals. Their areas of activity do
not coincide and they are sufficiently dissimilar to prevent feelings of competitiveness arising.
Firms that have carved out distinct areas in the industry - geographically or otherwise adopt the
noncompetitive alliances.
3. Competitive alliance (High interaction I High conflict): These are partnerships that bring
two rival firms in a cooperative arrangement where intense interaction is necessary. These
. alliances may be intra - or inter - industry. Several foreign companies operating independently in
India and also entering into a cooperative arrangement with local rival companies for spedfic
purposes have taken the competitive alliances route.
4. Precompetitive alliance (Low interaction I high conflict):
These partnerships bring two
firms from different, often unrelated industries to work on well defined activities, such as, new
technology development, new product development or creating awareness about new products or
ideas for acceptance among the potential customers. Joint research and development activities
and mass awareness campaigns are examples of precompetitive alliance activities.
Reasons for strategic alliances The primary reason why firms enter into strategic alliances is to
enhance their organizational capabilities and thereby gain competitive or strategic advantage. For
this they continually strive to gain access to new markets and new supply sources. They also
StrategicManagement- 13
52

wish to become more profitable by using the latest technology and making optimum utilization of
resources. When the firms find that it is not feasible to either create resources internally or to
acquire them, they rely on strategic alliances to create a network of beneficial relationships.
1. Entering new markets: a company that has a successful product or service may wish to look
for new markets. Doing so on one's own capabilities may seem to be difficult. This is specially
true in case a company wishes to explore foreign markets. Here it is better to enter into a
partnership with a local firm which understands the markets better and is more culturally attended
to them. This is one of the reasons why multinational corporations have entered into strategic
alliances with Indian firms.
2. Reducing manufacturing costs: Strategic alliances are used to pool resources to gain
economies of scale or make better utilization of resources in order to reduce manufacturing costs.
This is specially true of precompetitive alliances where a long term relationship is developed with
suppliers and buyers.
3. Developing and diffusing technology:
Strategic alliances may be used to develop
technological capability by leveraging the technical expertise of two or more firms - an act which
may be difficult to perform if these firms act independently.
Managing strategic alliances Four principles of manage alliances successfully.
1. Clearly define a strategy and assign responsibilities.
2. Phase in the relationship between the partners.
3. Blend the cultures of the partners.
4. Provide for an exit strategy.
A good start to a strategic alliance is to clearly define the strategy to be adopted. This strategy
should be consistent with the corporate strategies of the partners. The operational responsibilities
of the partners also need to be defined clearly. A well written alliance agreement can serve these
purposes well. Yet trust and commitment cannot be written in a legal document. Trust is a
necessary prerequisite for any cooperative strategy to work and to be sustained. Then there has
to be a continual and consistent commitment to shared goals.
Phasing in the relationship means giving adequate time and opportunity to the partners to know
each other well. Once two firms have worked in a partnership successfully it is easier for them to
work in subsequent projects.
When two unknown firms come together in a partnership it is absolutely important to blend their
cultures. When looked at from a realistic perspective, a partnership between two firms is actually
a joint effort of the people involved.
Generic strategy is a combination of competitive strategy and competitive scope in
Broad and Narrow segments. Explain the salient features of the same. Wh~n should a
company employ 'STUCK IN THE MIDDLE' strategy?
Q.

Ans. We could classify business strategies into the following three types.:
1. Cost leadership (lower cost I broad target).
2. Differentiation (differentiation I broad target)
3. Focus (lower cost or differentiation I narrow target)

w
a..

Broad

Cost

en
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target

leadership

i=

Narrow

Focused

Focused

w
a..

target

cost leadership

differentiation

Differentiation

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I-

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Low cost
Products I services

Differentiated
products I services

Cost Leadership Business Strategy When the competitive advantage of a firm lies in a lower
cost of products or services relative to what the competitors have to offer, it is termed as cost
leadership. The firm outperforms its competitors by offering products or services at a lower cost
then they can. Customers prefer a lower cost product particularly if it offers the same utility to
them as the comparable products available in the market have to offer.. When all firms offer
products at a comparable price, then the cost leader firm earns a higher profit owing to the low
cost of its products. Cost leadership offers a margin of flexibility to the firm to lower price if the
competition becomes stiff and yet earn more or less the same level of profit.
Achieving cost leadership
Central to the objective of achieving cost leadership is an
understanding of the value chain for a product I service of a firm. Costs are spread over the entire
value chain in activities that contribute to the making of the product. The basic objective in
achieving cost leadership is to ensure that the cumulative cost across the value chain is lower
than that of its competitors.
Several actions could be taken for achieving cost leadership. An illustrative list of such actions is
as below:
1. Accurate demand forecasting and high capacity utilization is essential to realize cost
advantages.
2. Attaining economies of scale leads to lower per unit cost of product I service.
3. High level of standardization of products and offering uniform service packages using mass
production techniques yields lower per unit costs.
4. Aiming at the average customer makes it possible to offer a generalized set of utilities in a
product I service to cover a greater number of customers.
5. Investments in cost saving technologies can help a firm to squeeze every extra paisa out of the
cost making the product service competitive in the market.
6. Withholding differentiation till it becomes absolutely necessary is another way to realize costbased competitiveness.
Not every condition under which markets operate is conducive to the use of the cost leadership
business strategies. There are certain conditions that make such usage meaningful. Some such
conditions are mentioned below:

1. The markets for the products /service operate in such a way that price based competition is
vigorous making costs an important factor.
2. the product / service is standardized and its consumption takes place in such a manner that
differentiation is superfluous.
3. The buyers may be numerous and possess a significant bargaining power to negotiate a price
reduction from the supplying firm.
4. There is lesser customer loyalty and the cost of switching from one seller to another is low.
This is often seen in the case of commodities or products that are highly standardized.
5. There might be few ways available for differentiation to take place. Alternatively, whatever
ways for differentiation are possible do not matter much to the customers.
There are benefits as well as risks associated with a cost leadership business strategy. First, let
us see the benefits that arise out of a cost -leadership strategy. As you will note, the benefits are
discussed in the context of Porter's five - forces model.
1. Cost advantage is possibly the best insurance against industry competition. A firm is protected
against the ill effects of competition if it has a lower cost structure for its products and services.
2. Powerful suppliers possess a higher bargaining power to negotiate price increase for inputs.
Firms that posses cost advantage are less affected in such a scenario as they can absorb the
price increases to some extent.
3. Powerful buyers possess cost advantage can offer price reduction to some extent in such a
case.

5. Cost advantage acts as an effective entry barrier for potential entrants who cannot offer the
product / service at a lower price.

1. Cost advantage is ephemeral. It does not remain for long as competitors can imitate the cost
reduction techniques easily. The duplication of cost reduction techniques makes the position of
the cost leader vulnerable from competitive threats.
2. Cost leadership is obviously not a market - friendly approach. Often, severe cost reduction can
dilute customer focus and limit experimentation with product attributes. This may create a
situation where cost reduction is done for its own sake and the interests of the customers are
ignored.
3. Depending on the industry structure, sometimes less efficient producers may not choose to
remain in the market owing to the competitive dominance of the cost leader. In such a situation
the scope for product / service may get reduced, affecting even the cost leader adversely.

4. Technological shifts are great threat to a cost leader as these may change the ground rules on .
which an industry operates. For instance, technological development may lead to the creation of
a cheaper process or product which may be adopted by newer competitors. The older players in
the industry may be left with a obsolete technology that now proves to be costlier. In this way,
technological breakthroughs can upset cost leadership strategies.

A differentiated product I service stands apart in the market and is distinguishable by the
customers for its special features and attributes.
A differentiation firm can charge a premium price for its products I services, gain additional
customers who value the differentiation and command customer loyalty. Profits for the
differentiator firm come from the difference in the premium price charged and the additional cost
incurred in providing the differentiation. To the extent the firm is able to offer differentiation by
maintaining a balance between its price and costs, it succeeds. But it may fail if the customers
are not longer interested in the differentiated features, or are not willing to pay extra for such
features.
Achieving differentiation The key to achieVing differentiation is to create value for the customer
that is unmatched by the competitors at the price at which the differentiator firm offers its products
I services. This is done through incorporating features and attributes in the products I services
valued by the customers. These features and attributes could be created at any point on the
value chain. For instance, a firm could use high quality raw material inputs, superior process
technology, speedy and reliable distribution or better after sale support. It may offer the backing
of the solid reputation of the producer or the strength of a brand name.
Conditions under which differentiation is used A differentiation business strategy is suitable
for special conditions, primarily related to the markets and customers. Normally, one would
expect customers to go for products I services that have a lower price and offer comparable utility.
But normally, markets and customers are not homogenous - there are several market niches and
customer groups the demand special treatment by the firms.
The major conditions under which differentiation business strategies could be employed are given
below:

2. The customer needs and preferences are too diversified to be satisfied by a standardized
product I service.
3. It is possible for the firm to charge a premium price for differentiation that is valued by the
customer.
4. The nature of the product I service is such that brand loyalty is possible to generate and
sustain.
5. There is ample scope for increasing sales for the product I service on the basis of differentiated
features and premium pricing.

1. Firms distinguish themselves successfully on the basis of differentiation thereby lessening

competitive rivalry. Customer brand loyalty too acts as a safeguard against competitors. Brand
loyal customers are also generally less price sensitive.
2. Powerful suppliers can negotiate price increases that the firm can absorb to some extent as it
has brand loyal customer typically less sensitive to price increase.
3. Powerful buyers do not usually negotiate price decrease as they have fewer options with regard
to suppliers and generally have no cause for complain as they get the special features and
attributes demanded. Owing to its nature, differentiation is a market and customer focused
strategy.
4. Differentiation is an expensive proposition. Newer entrants are not normally in a position to
offer similar differentiation at a comparable price. In this manner, differentiation acts are a
formidable entry barrier to new entrants.
5. for similar reasons as in the case of newer entrants, substitute product / service supplies too
pose a negligible threat to established differentiator firms.

Focus business strategies essentially rely on either cost leadership or differentiation but cater to a
narrow segment of the total market. In terms of the market, therefore focus strategies are niche
strategies.
Achieving focus - Focus is essentially concerned with identifying a narrow target in terms of
markets and customers. The firm seeking to adopt a focus strategy has to locate a niche in the
market where the cost leaders and differentiators are not operating.
There might be several reasons why are there niches. One of the major reasons is that cost
leaders and differentiators, in an attempt to cover a broad target, tend to leave out segments of
the market which require very special attention. In doing so, cost leaders and differentiators may
not be able to generalize their product I service to serve a broader segment. So they feel it is
more profitable to neglect niches.

1. Choosing specific niches by identifying gaps not covered by cost leaders and differentiators.
2. Creating superior skills for catering to such niche markets.
3. Creating superior efficiency for serving such niche markets.
4. Achieving lower cost I differentiation as compared to the competitors while serving such niche
markets.
5. Developing innovative ways to manage the value chain which are different from the ways
prevalent in an industry.

Certain conditions are ripe for the adoption of a focus strategy either in terms of lower cost or
differentiation. Some of the major conditions are mentioned below:
1. There is some type of uniqueness in the segment, which could either be geographical,
demographic, or based on lifestyle. Only specialized attributes and features could satisfy the
requirements of such a segment.
2. There are specialized requirements for using the products or services that the common
customers cannot be expected to fulfill.

5. The major players in the industry are not interested in the niche as it may not be crucial to their
own success.

7. The focused firm can guard its turf from other predator firm on the basis of customer relations
and the loyalty it has developed and its acknowledged superiority in serving the niche segments.

1. A focused firm is protected from competition to the extent that the other firms which have a
broader target do not possess the competitive ability to cater to the niche markets. In other words,
a focused firm provides products I services that the other firms cannot provide or would not find it
profitable to provide.
2. Focused firms buy in small quantities, so powerful suppliers may not evince much interest. But
price increments until a certain limit can be absorbed and passed on to the loyal customers.
3. Powerful buyers are less likely to shift loyalties as they might not find others willing to cater to
the niche markets as the focused firm do.
4. The specialization that focused firms are able to achieve in serving a niche market acts as a
powerful barrier to substitute products I services that might be available in the market.
5. For the same reason as above, the competence of the focused firm acts as an effective entry
barrier to potential entrants into the niche markets.

1. First of all, serving niche markets requires the development of distinctive competencies to serve
those markets. The development of such distinctive competencies may be a long drawn and
difficult process.
2. Being focused means commitment to a narrow market segment. Typically, the costs for the
focused firm are higher as the markets are limited and the volume of production and sales small.
Strategic Management - 13

58

3. A major risk for the focused firm lies in the cost configuration. Typically, the costs for the
focused firm are higher as the markets are limited and the volume of production and sales small.
4. Niches are often transient. They may disappear owing to technology or market factors. For
instance, a new technology may make the process of making the niche products easier. Or there
might be a shift in the customers' needs and preferences causing them to move to other products.
Sometimes the rising costs of niche products may cause the customers to move to the lower
priced products of cost leaders.
5. Niches may sometimes become attractive enough for the bigger players to shift attention to
them. The rising competition in the market may cause cost leaders and differentiator firms to look
at niche markets with greater interest thereby passing a threat to the focused firms.
6. finally, rivals in the market may sometimes out focus the focused firm by devising ways to serve
the niche markets in a better manner.

I. Operational skills
II. Privilege skills
III. Growth skills
IV. Special Relationship
I. Operation Skills:- Operation skills are the core competencies that a business has which
can provide the foundation for a growth strategy. E.g. the business may have strong
competencies in customer service, distribution and technology.
e.g. Maruti Car Ltd. Core competency in technology improvement and after sales service.
The core competency of Bajaj is automobiles, based on this bajaj can develop advanced
models of motorbikes. Today Bajaj has got more models than Hero Honda.
II. Privilege Assets:- are those assets held by the business and Which are difficult to be
replaced by the competitors e.g. a large customer database or a well established brand
e.g. reliance, Nokia phone, Tata Trucks & ICICI Bank.
III. Growth Skills: are the skills that business need to manage successfully the growth
strategy.
These include the skills of new product development or negotiating and
integrating acquisition e.g. Tata Motors, Tata Engineering Service Development new
products.
IV. Special Relationship: are those that can open up new options e.g. the business may have
special relationship with any association or trade bodies that can make a process of
growing in export market easier than the competition e.g. Infosys, WIPRO - National
Company becoming international.
I

I.
II.
III.

Existing product to existing customer i.e. low risk option.

Existing products to new customer i.e. expansion or future growth.
New products and services i.e. taking risk by developing and making new product.

IV.
V.
VI.

New d~veloping approaches i.e. adopting new channels to boost the sales e.g.
electric items.
New geographic i.e. geographical expansion for growth
New competitive arenas i.e. new areas new skills, new products, new opportunities

VII.

New industry structure.

Acquisition Joint Venture Minority

Stakes Strategic Alliance Marketing
Partnership Organic Investment

Downsizing
It is a retrenchment strategy reducing the manpower to make the organization
economically viable. Reduction in labour cost to remove industrial sickness
VRS (Voluntary Retirement Scheme) is closely related to retrenchment policy. Downsizing also
means VRS, restructuring the organizations golden hand shake scheme. It is also called right
sizing

I. Increasing in labour cost

II. Product becoming outdated (e.g. Fiat Cars)
III. Change in consumer choice I taste (e.g. Plastic)
IV. Technology obsolesce e.g. innovation in electronic items
V. Industrial sickness e.g. edible oil industry.
Reasons for downsizing organizations were to:
I. Cuts the labor cost.
II. Reduce unnecessary expenses
III. Develop new strategies for marketing their products.
IV. It was an exercise for survival.
Strategic Management

- 13

Values In the words of James March and Herbeyd Simon said "Values are deeply rooted feeling
about ideas, philosophy, desire, emotions and beliefs which influence the individual reactions and
responses to any situation. The personal values are given to us by parents, elders and teachers.
As individual grows values are adapted and refined in the right of knowledge and experience. In
an organization values are given by founder members or by a dominant personality mostly the
chief executives. The values remain for a long time even if the founder members are not there in
the organization.

I. Theoretical Values: Le. personal, intellection, capacity and systematic development of

knowledge
II. Economic Values:- i.e. orientation towards maximization of profits and wealth everybody
cannot be entrepreneur.
III. Social Values: Orientation towards known welfare.
IV. Aesthetic Values:- i.e. interest in art symmetry, harmony and experience for its own sake.
V. Political Values:- i.e. orientation towards power, influence and recognition.
VI. Religious Values:- i.e. orientation towards entity and creation of satisfying and meaningful
relationship with the universal.

Ethics specify what is good, bad, right or wrong.

actions of the operations relating to business.

Business ethics relates to the behavior and

Robert Gwenner defines Business ethics as "Those principles, practices and philosophies that
are concerned with moral judgment and good conduct as they are applicable to business
situations."

I. It is necessary for survival of business. (Colgate, Tata, Lakme)

II. Protection of consumers right.
III. It considers society's interest at large. (Many companies are developing Eco-friendly
products these days. E.g. Sundaram Eco-friendly Books)
IV. Business ethics safeguards the interest of small scale business firms.
V. Better relations with the members of the society through development of same social
programs. E.g. corporate social responsibilities.

H. R. Bowen - "social responsibility of business refers to the obligation of business to pursue

these policies to make decision which are desirable in terms of objectives and values of our
society."
Business is basically an economic activity. In modern world it cannot concentrate only on
profits. There are persons and participants who are interest with the business houses,

workers, customer, shareholders,

Govt.
responsibility towards various groups.

and

general

public,

i.e.

corporate

has

some

1. Responsibility
Towards Employee:Job security, proper health, proper salary, good
working conditions and good human relations.
2. Responsibility
Towards Shareholders:Maximum utilization of funds, fair returns on their
investment, fair practices at stock exchanges, proper development of company.
3. Responsibility
Towards Customers:Quality goods, fair prices, honest advertisement
and information, good after sales service, listening to the complaints of customers.
4. Responsibility
Towards
Society:Maintaining
good environment,
no pollution
development of back word areas, donations to eradicate poverty and illiteracy.
5. Responsibility
Towards
Government:To pay the taxes, observe Govt. rules and
regulation, working
for political stability in the country, helping Govt. during natural
calamities.
6. Responsibility
Towards Suppliers:The company should maintain good relations with
the suppliers, payment of credit amount must be done on time. The company should work
for their growth and survival and should not disclose any secrete information of their
suppliers to the others. E.g. Amul Co,..Operative suppliers share excellent relations with the
manufacturing organizations which they belief in developing strongly.
Tata Motors also believes in their suppliers and their developmental welfare.
7. Responsibility
Towards Financial Institutions:
The first and foremost responsibility of
the company is to repay the loan with interest.
The company should not engage itself in
ethical practices like denying the bank officials for loans or conceiting the bank loan into
bad debts. Proper utilization of loan is essential.
8. Responsibility
Towards Competitors:It is necessary for any company to avoid unfair
trade practices such as duplicating the products of the competitors, blocking their entry into
the market etc.
9. What is a Business Policy?:- Business is a desire of a person to fulfill the wishes and
wants of a consumer at a society.
Definition of business policy by Edwin Filippo"
A business policy is a man made or
predetermined course of action that is established to gUide the performance of work
towards the organizational objectives. It is a type of standing plan that refers to guide the
subordinates in the execution of task"
Essential I Characteristics
of Good Business
clear, simple and suitable to the organization:
I.
II.
III.
IV.
V.
VI.

Policy:- A good business policy should be

Objective oriented:- The policies must clearly define the organizational objectives
and how to achieve the objectives.
Policy must be flexible
Policy must be simple and suitable
Policy must be stable and comprehensive
Policy must be fair, reasonable and ethical.
Time range policy - policies could be threat earnings, medium range for 1, 2 & 3
years and long range policies for more than three years.

I. In every organizational business policy need to cover all the functional areas of business.
E.g. the organization can have policies for production e.g. low cost production.
II. Marketing policy e.g. to satisfy the customer needs.
III. Finance: policy for proper finance or tight strict financial control
IV. Policy for personnel! H. R. skilled labour at low cost.

I.
II.
III.
IV.

It helps the organization in decision making

For better communication and co-ordination
For optimum utilization of resources, proper planning and for control policies are necessary.
Business policies motivate the policies enhance the corporate in age and help to achieve
the objectives and reduce the disputes.

Several factors influence the formulation of policies. The person who is formulating the policies
must consider both internal & external factors.
A) Internal Factors
I. Value System: The value system of the top management affects not only the business but
the mission objectives,. business policy and practices. E.g. organization which respects
their employees would have H. R. policy in interest employees as well as organization
or an organization that believes in social responsibility towards society would
incorporate social responsibility as one of the objectives. E.g. Tata, Godrej.
II. Physical Resources:- Physical resources means like plant and machinery that effects the
corporate policies. The responsibility of top management is to bring or make available
safe and better quality of technology for quality product and sale for operating.
III. Financial Resources:- The financial resources almost have an effect on all the policies in
the organization. E.g. The production, plans the marketing plan get effected due to non
availability of funds. Management has to develop financial resources to keep the
organization running.
IV. Corporate Image:-The corporate image of the firm effects policy formulation normality the
corporate frame such policies, where the image of the organization is enhanced and
goodwill in generated. E.g. A good corporate will place emphasis on R&D to develop
environmental friendly products. Therefore, the R&D policies of such firms would focus
on eco-friendly products and processes.
V. Labour Management Relations: Cordial relations between the union and the
management also effect the corporate policy formulation process. In order to improve
the labour relations the H. R. policies of the firm must be proper towards recruitment
and selection promotion and transfers and towards the organization.

I. Government Regulations : A firm must develop such policies in order to guide on

organizational employees in meeting the government regulations. E.g. i) Government
regulation towards the health and safety standards. ii) Government regulations
regarding manufacturing and selling of pharmaceutical and drugs by companies, iii)
Regulation and rules relating to the minimum wages to be paid to certain employees in
StrategicManagement- 13
63

certain industries. iv) Accounting practices and procedures and the regulations to pay
income tax, central excise and VAT.
II. Policies of the Competitors: The policies of the competitors influences an organizations
policies. This is especially true with the pricing policies, advertising policies, R&D
policies for H. R. policies e.g. A firm cannot charge more or higher price where a major
competitor charges low price.
III. Policies of the Suppliers: The policies relating to the supplies need to be considered as
suppliers is the person who supplies the necessary raw material to the firm for
production purpose for continuous supply of raw material the firm must have proper
policy towards the payment to the suppliers.
Certain suppliers require advance
payment their request has to be considered.
IV. Customers: Creating and maintaining customer is must for every business firms. It is said
that a business exist only because of its customers. A firm may have different policies
towards the customers in respect of pricing or sales promotion. It depends on individual
customer are the industrial buyers.
V. The Policy Towards the Shareholders: The share holders also influence the corporate
policies e.g. the policies of expansion and modernization requires the special approval
of the shareholders. Therefore any change in technology the business firm considers or
discuss with the shareholders in adopting any new technology which may effect the
business of the firm.
VI. International Environment and Technology Advancement: The international business
technology advancement, any changes in the international environment and the
changes in the technology put the process of on management to make changes in their
corporate policies. E.g. the new invention in IT industry forces the Indian firms to make
necessary changes in the export policies. The bio-technology which is making serious
advancement in compelling the Indian pharmacy companies to think about their future
products their market, etc,
VII.
Society: Society, media and general public also have an effect on the policies of the
firm specially with reference to corporate social responsibility. E.g. community
development.
Evaluation and Control Strategy evaluation is important because organization faces dynamic
environment on organization cannot afford to stick to its own old strategies but it has to change
and evaluate strategies and control system. E.g. L.I.C.
Financial Evaluation of Strategies Determining the organizations financial strengths and
weaknesses is essential to formulate strategies effectively. One of the key elements in the check
list is ratio analysis. The financial checklist consist of.
1.
2.
3.
4.

Does the company has ability to raise the short term capital.
Does the company has effective capital expensive that is budget
The position of fund flow and cash flow capital of the company.
Does the company pay dividends to its shareholders.

1. Return on Investment: This measures the firm's ability to perform i.e. it speaks about
operating profit.
2. DuPont Analysis: It is useful system of analysis which consider important relationship
based on information found on financial statement. The DuPont analysis helps to
determine the return on equity.
3. EPS: A company can forecast future profitability by force casting EPS which is a good
control measure to assess the financial performance of the company.
Strategic Management - 13

64

4. Price Earnings Multiple:

This is one of the most authenticated measure of financial
performance as it measures the market price of the company shares which is a reflection
[feedback] for the demand of companies share..

Budget It is an important document that details have funds will be obtained and spend for
a specific period of time. It is an integral part of strategy implementation and control where
the companies resources are allocated depending on their requirements and priority.
Budget serves and control mechanism as it compares the actual with the budget and
analysed variance.
Different Types of Budgets
1) Capital Expenditure Budget The funds are used for regarding the physical property or
assets of the company. E.g. industry building equipment or starting of new factory for
capital expenditure budgeting DCF (Direct Cost Factor) analysis in necessary.

2) Cash Budget Cash budget deal with the resources of cash receipts and cash payments of
the company. So as to honor the financial obligation following are the sources of
a. Cash sales
b. Payment by the debtors
c. Selling of any fixed assets
d. Issue of new share
e. Receipt of interest and dividends from investment

a.
b.
c.
d.

Purchase of stock
Salaries of employees
Purchase of any capital asset e.g. computer.
Payment of dividend, interest & taxation.

3) Sales Budget
4) Marketing Budget Expenses required for the marketing activities in the coming financial
year.
5) Advertisement
Budget Advertisement budget is
an estimate of expenses on
advertisement for promotion of companies products and business.
Advantages of Budget
1. It compels the management to think about future planning and gives the organization
purpose and direction.
2. It improves the allocation of scarce resources
3. It provides co-ordination and communication
4. BUdget is basically a yard stick against the actual performance and the expenditures
estimated. Any deviation or difference can be investigated.
5. It economies management time by using management by accept ion principle.

1. Budget is seen as a pressure imposed by management resulting in bad relations and bad
book keeping.
2. It increases the departmental conflicts.
3. There is a fight between responsibility vis controlling.

4. Manager may over estimate

overspending.

the cost so that they will not be blamed in future for their

Ans. According to porter, the business of a firm can best be described as a value chain, in which
total revenue minus total costs of all activities undertaken to develop & market a product or
services yields value. All firms in a given industry have a similar value chain, which includes
activities such as obtaining raw materials, designing products, building manufacturing facilities,
developing cooperative agreement & providing customer service. A firm will profit as long as total
revenues exceed the total costs incurred in creating & delivering the product or service firms
should strive to understand not only their own value chain, operations, but also their competitors,
suppliers & distributors value chains.
Value chain analysis
VCA refers to the
process whereby a firm determines the costs
associated with organizational activities from purchasing raw materials to manufacturing products
to marketing those products. VCA aims to identify where low - cost advantages or disadvantages
exist anywhere along the value chain from raw material to customer service activities.
VCA
enable a firm to better identify its own strengths and weaknesses, especially as compared to
competitors value chains analyses & their own data examined over time.
Substantial judgment may be required in performing a VCA because different items along the
value chain may impact other items positively or negatively, so their exist complex relationships
e.g. exceptional
customer service may be especially expensive yet may reduce the costs of
returns & increase revenues. Cost and price difference among rival firms can have their origins in
activities performed by suppliers, distributors, creditors or even shareholders.
Despite the
complicity of VCA, the initial step in implementing this procedure is to divide a firm's operations
into specific activitiE:3 on business process.
The analyst attempts to attach a cost to each
discrete activity & the costs could be in terms of both times money. Finally, the analyst converts
the cost data into information by looking for competitive cost strength & s weaknesses that may
yield competitive advantage or dis-advantage.
Conducting
VeA is supportive of the RBV's
examination of a firms assets and capabilities as sources of distinctive competence.
When a major competitor or new market entrant offers products or services at very low prices, this
may be because that firm has substantially

lower value chain costs or perhaps the rival firm is just

waging a desperate attempt to gain sales or market share.

Thus VCA can be critically important

for a firemen monitoring whether its prices and costs are competitive

(e.g. is given on the next

page).
Value chain differ immensely

across industries and firms.

Whereas a paper products company,

such as stone container, would include on its value chains timber farming ,logging, pulp mills and
papermaking,
peripherals,

a computer

company

such as Hewlett - Packard would include

programming,

software, hardware and laptops. A matel would include food, housekeeping

& check-out operations, website, reservations system etc.

check-in

Internet
Publicity
Promotion
Advertising
Transportation

& Lodging

Food

Customer Service Cost

Postage
Phone
Internet
Warranty
Management Costs

----

HR
Admn.
Employees benefits
Labour Relations
Managers
Employees
Finance Legal
All firms should use value - chain system (VCA) to develop & nurture core competence & convert
this competence into a distinctive competence.
A core competence evolves into a major
competitive advantages, then it is called a distinctive competence.
Illustration
Company
perform
activity in
its VC

"1

Competencies
& capabilities
gradually
emerge in
certain impt

V.C.
activities

Co, proficiency
in performing
&2VC
activities raises
to the level of a
core
competencies

Co - proficiency
in performing a
core
competencies
contd. To build
& evolve a
distinctive

Co - gains for
sustainable
competitive
advantage.

competencies

More and more companies are using VCA to gain and sustain competitive advantage by being
specially efficient and effective along various parts of the value chain e.g. Wal - Mart has built
powerful value advantages by focusing on exceptionally tight inventory control volume purchasing
of products, & offering exemplary customer service.

Supplier Costs
Raw material
Fuel
Energy
Transportation
Truck Drivers
Truck Maintenance
Component Parts
Inspection
Storing
Warehouse
Production Costs
Inventory
Plant Layout
Maintenance
Plant Location
Computer
R&D
Cost Accounting
Distribution Costs
Loading
Shipping
Budgeting
Personnel
Internet
Trucking
Railroads
Fuel
Maintenance
Sales & Marketing
Sales Persons
Website

P ~ Political

Like Swot analysis the PESTLE analysis

E ~ Economic

is simple, quick and use 4 key perspectives

S ~ Social Cultural
T ~ Technological
L ~ Legal
E ~ Environment
The advantage of this tool is that it encourages management
in its decision making.

into proactive and structured thinking

PESTLE analysis involves identifying the political economic, socia - cultural and technological
influences on an organization and providing a way of aUditing the environmental influences that
have impacted on an organization or policy in the past and how they might do so in future.
Increasingly when carrying out analysis of environmental
been separated out from political factors.
environmental

The increasing acknowledgement

factors has also led to environment

PESTLE analysis becoming

or external influences, legal factors have

an increasingly

of the significance

becoming a further general category,

used an recognized

of

hence

term, replacing the traditional

'PEST' analysis.

The first step is to

identify the issue remember

focus is very important.

Make up your own

PESTLE questions and prompts to suit the issue being analyzed and the situation.

shortlist those

that are important.

The PESTLE analysis can be converted into a more specific instrument by giving a weight age & a
score to the items in each of the sections for each of the identified options that the firm has to
consider
For each of the items in each segment of the PESTLE chart, we can give a score on a scale of 1
to 100. Some factors will be more important than the others.
to 100.

Make sure the total weights add up

In case we are looking at options, the next step is to list all the options that we are

considering.

Give marks to each specific option.

Economic

Political

Ecological/environmental
Future laws
Current laws
Govt polities
Regulatory bodies
Trading policies

issues

Economy situations trends

Taxation specific to products
Market & trade cycles
Customer. end user drivers
Interest & exchange rates

Technological

Social

Life style trends

Demographics
Consumer attitudes & opinion
Brand & co's technology
Consumer buying pattern
Ethinic religious factors

Legal

International law
Employment law
Competition law
Health safety law
ReQional leQislation

Replacement
technology
or
solution
Maturity of technology
Innovation potential
Technology
access
licensing,
patents.

Environmental
Environmental impact
Environmental legislation
Energy consumption
Waste disposal

[THE PESTLE MATRIX]

Multiple the marks with the weight age factoi and then add the total score for each option. "The
higher the score is the more attractive the option".
The PESTLE analysis is a useful business measurement tool for understanding the competitive
environment of the firm.
On completion of PESTEL analysis, the short listed options can be examined using a SWOT
analysis.
"PESTLE is useful before SWOT - not generally the other way round".
What is Restructuring, RE-engineering
managing resistance to change?

Q.

& E-Engineering

& change management

or

How to implement strategic change? Describe the steps in change

Or
Briefly discuss the organizational politics, power & conflict and its impact on change
management.
Ans. To change is to move from the present to the future, from known information to relatively
unknown information's. Therefore change can be defined as "to make or become different, give or
begin to have a different form"
Change also refers to dissatisfaction with the old values, beliefs and systems and hence adopts to
new values, beliefs and systems. The deficiency also reflects the inability of the system to
respond to environmental changes. Changes signifies a qualitatively different way of perceiving,
Strategic Management - 13

70

thinking & behaving to make improvement over the past & present trends of the business
management. Strategic change in organizations can be termed as a process of bringing about
relatively enduring alternation in the present status of an organization or its components or
interrelationships among the components & their differentiated & integrated functions in totality or
partially.

The management of strategic change involves serious steps that managers must follow if the.
Determine the need for change

(Stages in the change process)

Change process is to be succeeding. The major important steps are listed above :1) Determining the need for changes: By conducting SWOT analysis, finding
strengths, weaknesses.
2) Determine the obstacles:- To change, by analyzing obstacles related to corporate.
divisional or functional strategies preventing the company from reaching to ideal
future state
3) Implementing change:- i.e. top down change or Bottom - up change
4) Evaluating Change:- Evaluate the effects of the changes in strategy & structure on
organization performance.

Organizational politics defines as the tactics but interdependent individuals & groups seek to
obtain and use power to influence the goals & objectives of the organization to further their own
interests organizational politics process is listed as.
a) Sources of organizational politics (Individuals)
b) Source of power
c) Strategic change

Power: Power is defined as "the ability of one individual, functions, or division to cause another
individual, function or division to do something that it would not otherwise have done" Power is
different from authority, when stems from holding a formal position in the hierarchy.

Politics & power can strongly influence a company's choice of strategy and structure. Company
has to maintain organizational structure & is responsible for the various divisions functions &
managers need to change in the remote environment.
Companies have to face power problems
within the organizational
structure.
Therefore, changes of the environmental trends of the
organization
when environment
changes, companies
are not responding faster.
In this
circumstance excessive
politicizing and power struggles to reduce a company's flexibility.
It
cause inertia & erode competitive advantage.
Conflict
can be defined as situation that arises when the goal directed behaviour of one
organizational group blocks goal directed behaviour of another. Conflict can be good or bad,
sources of conflicts are employees, task relationship, scarcity of resources.
Good strategic
planning can prevent conflicts.
Restructuring
is also referred to as downsizing, rightsizing, or delaying - involves reducing the
size of the firm in terms of number of employees, no of divisions or units & no. of hierarchical
levels in the firms structure.
This reduction in size in intended to improve both efficiency &
effectiveness.
Restructuring is concerned primarily with share holder well being rather than
employee well - being recession in economies leads to retrenchment of employee and restricting
of organization.
In India Since 1990 a process of change is observed, due to Globalization,
industrial sickness
outdated skills. technology, customer choice of behaviour is responsible for
changes. resulting into VRS schemes, bv companies like PAL, Carona shoes, Blue star,
Crompton Greaves. Godrej etc.
1

Re-Engineering
is concerned more with employees and customer well being than share holder
well being re-engineering also called process management, process innovation, or process redesign - involves reconfiguring
or re-dressing work, jobs and processes for the purpose of
improving cost, quality service & speed. Re-engineering does not usually affect the organizational
structure or chart, nor does of imply job loss or employee pay offs. Whereas restructuring is
concerned with eliminating or establishing, shrinking or enlarging & moving organizational
departmental & divisions, the focus of re-engineering
is changing the way of work actually carried
out.
Re-engineering
is characterized
by many tactical (short-term, business function - specific)
divisions whereas restructuring is characterized by strategic (long term, affecting all business
functions)
decisions e.g. of re-engineering
are companies , Asian paints, Pepsico, Bajaj,
examples of restructuring are Bombay Dyeing, Fiat cars, Godrej, Pfizer India.
In re-engineering a firm uses information's technology to break division functional barriers &
create a work systems based on business processes, products, or outputs rather than on
functions
or inputs
, cornerstones
of re-engineering
are decentralization,
reciprocal
interdependence & information sharing.
Resistance
to change :- It is determined as single greatest threat to successful strategy
implementation,
resistance regularly occurs in organization in the form of sabotage production
machines, absenteeism, filing unfounded grievances and an unwillingness to cooperate.
People
Strategic Management - 13

72

after resist strategy implementation because they

changes are taking place. In that case employees
strategy implementation hinges upon managers
conducive to change.
Change must be viewed
managers & employees.

do not understand what is happening or why

simply need accurate information. Successful
ability to develop an organizational
climate
as an opportunity rather than as threat by

Resistance to change can emerge at any stage or level of the strategy implementation process.
Although there are various approaches for implementing changes, three commonly used
strategies are a force change strategy an educative change strategy and a rational or self interest
change strategy.

Forward integration, backward integration and horizontal integration are sometimes collectively
referred to as vertical integration strategies.
Vertical, integration strategies allow a firm to gain
control over distributors, suppliers and an competitors.

Forward integration involves gaining ownership or increased control over distributors or retailers,
increasing numbers of manufacturers (suppliers) today are pursuing a forward integration strategy
by establishing website to directly sell products to consumers. This strategy is causing turmoil in
some industries e.g. Dell computer recently began pursuing forward integrations by establishing
its own stores within a store in Sears, Roebuck. This strategy supplements Dells mall based
kiosks. Which enable customers to see & try dell computers before they purchase one. Neither
the Dell kiosks nor dell stores within a store will stock computers.. Customers still will order Dell
exclusively by phone or over the internet, which historically differentiated
Dell from other
computer firms. Size guidelines for when forward integration may be an especially effective
strategy are:
a) When an organizations present distribution are especially
expensive,
unreliable or un-capable of meeting the firms distribution needs.
b) When the availability
of quality distributors
is so limited as to offer
competitive advantage to these firms that integrate forward.
c) When an organization completes in an industry that is grooving &
expected to continue to grow markedly.
d) When an organization has both the capital and human resources needed
manage the new business of distributing its own products.

or
a
is
to

Both manufacturers
and retailers purchase needed
materials from suppliers.
Backward
integration is a strategy of seeking ownership or increased control of a firm's suppliers.
This
strategy can be especially appropriate when a firms current suppliers are unreliable, too costly or
cannot meet the firms needs.
e.g. when you buy a base of pampers diapers at wal - mart, a scanner at the stores checkout
counter instantly zaps an order to Procter & gamble company.

It refers to strategy of seeking ownership of or increased control over a firms competitors. One of
the most significant
trends in strategic management today is the increased use of horizontal
integration as a growth strategy. Mergers, acquisitions, and takeovers among competitors allow
for increased economies of scales & enhanced transfer of resources & competencies. Kenneth
Davidson makes the following observation about horizontal integration:"The trend towards horizontal integration seems to reflect strategists misgiving about their ability
to operate many unrelated business. Merger between direct competitors are more likely to create
efficiencies than mergers between unrelated businesses both because there is a greater potential
for eliminating duplicate facilities & because the management of the acquiring firm is more likely to
understand the business of the target".

There are 2 general types of diversification strategies, related & unrelated. Businesses are said to
be related when their value chain posses competitively valuable cross business strategic fits,
businesses are said to be unrelated when their value chains are so dissimitor that no competitively
valuable cross business relation-ships
exists.
Most companies favor related diversification
strategies in order to capitalize on synergies as follows.
-

Transferring competitively valuable expertise, technological

knowhow or
other capabilities from one business to another.
Combining the related activities of separate busines8 into a single operation
to achieve lower costs.
Exploiting common use of a well known brand name.
Cross business collaboration to create competitively valuable resource
strengths & capabilities.

Diversification strategies are becoming less popular as organization are finding it more difficult to
manage diverse business activities. In the 1960 & 1970s the trend was to diversity so as not be
dependent on any single industry, but in 1980s saw a general reversal of that thinking.
Diversification is now on the retreat Michael porter of the Howard Business school, school, says
"Management found it could not manage the beast", Hence, business are selling, or closing, less
profitable diversions in order to focus on core business.
A few companies today in India however, pride themselves on being conglomerates from small
firms to big ones, e.g. Reliance Industry (Ani! Ambani Group) from Reliance finance, to reliance
constructions or projects to well established Reliance communications etc.

Selling a division, or part of an organization is called divestiture. Divestiture often is used to raise
capital for further strategic
-acquisitions or investments.
Divestiture can be part of an overall
retrenchment strategy to rid an organization of business that are unprofitable, that require too
much capital, as that do not fit well with the firms other activities e.g. Morgan Stanley plans to
divest its discover credit card division to be purchased by a group of shareholders & former
executives who have convinced CEO Philips Pure well & Morgan Stanley's board that the division

should be divested Unliver recently sold its perfume division to including brands Calin Klein &
Vora Wang to Coty Inc for $800 million.
Define Mergers & Acquisition.
any strategy required for M&A ?

Q.

Why it is done? What are the benefits I limitations.

Is

Ans. Merger and Acquisition are two commonly used ways to pursue strategies. A .merger
occurs when two organizations of about equal size unite to form one enterprise. An acquisition
occurs when a large organization purchases (acquires) a smaller or vice - versa. When a merger
or acquisition is not desired by both parties, it can be called a take -over or hostile takeover.
Mergers and acquisitions are also methods of diversification. Takeovers and mergers have
sometimes been a dominant means of implementing strategies, there can be real advantages,
particularly if there is a good fit between the organizations. Synergy can occur although less
often then expected. the disadvantages of mergers are that they can result in operational &
psychological issues which can distr<3ctthe people. Who have to make them work.
In 1998 merger of ICICI and ICICI BANK was one that is reshaping the definition of lending
institutions in India. Another example of a merger is the case of Lockheed and martin - Marietta
corp. They merged to form Lockheed - Martin.
In recent years we have seen many hostile acquisitions in which the organization buying acquired
did not want to be bought. These are referred to as takeovers. It is natural for the target
organizations management to try to resist the take-over. Takeover or acquisition is popular
strategic alternative. Ispat International N. V. is a company that started as small \,vire rod
manufacturer in Indonesia & has grown into the world's largest steel maker through an acquisition
strategy. Where it focused on acquiring companies that use DRI process in the manufacture of
steel. Many Indian companies have adopted this route to grow e.g. the R. P. Goenka group of
companies have used this as a high growth strategy. Their net worth of has gone upon from 70
crores in 1979 to RS.5500 Cr. In 1994. In short period of '15years, he acquired CESC, Harrisons
Malayalam, Wiltech, & HMV.
Nicholas Piramal was formed when the Piramal group acquired Nicholas laboratories, a small
formulations Co. in 1988 from Sara Lee. Since then it followed a strategy of planned acquisitions
to develop & consolidate its strength in marketing to therapeutic niches. Ajay Piramal built
Nicholas Piramal unto one of the fastest growing companies in India through a string of
acquisitions that include Roche, Bochringer, Hochests' R & 0 facility, Lacto Calamines OTe
products & bulk drugs of Sumitra Pharmaceuticals & Chemicals. Nicholas Piramals consolidated
net sales turnover have gone upto Rs.19 crores in 1988 & RS.1418 Cr. In 2004. While profits
have grown from 80 Lacs to 200 crores, increasing about 220 times in a period of 16 years.
Acquisition can either be for value creation or for value creation. Many of the acquisitions that
took place in the 70's & 80's were based on the concept of value capture. The Chhabrias e.g.
were attracted to acquisitions because either they were buying cheap, or they were getting tax
incentives or credits from the Govt. or that they could sell the assets. On the other hand the sale
of TOMCO to Hindustan lever was based on a value creation concept to support & Strengthen its
core detergent business. The larger challenge of the acqUisition lay in integrating the operations
of the 2 companies for synergy.

Why do Mergers and Acquisitions Happen?

M &A are fast becoming one of the key drivers of growth in Indian Industry. The year 2004-2005
Saw M&A deals to the value of over Rs.2000 Cr. (20 bn.) an increase in activity from the previous
years. Since M&A are voluntary decisions by management, one would expect them to represent
positive net present value (NPV) strategies towards the goal of maximizing shareholders wealth.
Several principles form the basis for the value addition absorbed in M&A activity in some cases
the underlying cause in clear, in others it may be impossible to distinguish between 2 or more
possible sources. Trutwien summarizes the theories of merger motives into 5 major theories.
1. Efficiency Theory With the merger of 2 companies there is a possibility of lower unit
costs, stronger, purchasing power or gaining of management efficiencies. The differential
efficiency theory argues that there are differences in the efficiencies of management
between companies. Hence when firms merge the less efficient firm will be brought to the
level of the more efficient firm. Efficiency theories also provide the rationale for synergy in
mergers.
2. Monopoly or Market Power Theory A significant motive for M&A as is that it helps to
increase the firms market power through increase in size (market share) increase in market
shares leads to an increase in industry concentration, which provides firms with greater
growth opportunities through access to better technology, control over demand & supply of
intermediating products & services, or the power to set prices, establish industry norms
(dominant designs) in technology, or (best practices) customer service. The acquiring firm
can gain market power through collusive synergy or through competitor interrelationship.
3. Raider Theory Focus on how an acquirer with no strategic intent popularly known as
private equity funds (whose motive is to earn financial returns from investments) acquires a
concealing stake in a Target firm to transfer wealth from the target company stockholders
to the acquirer stockholders. The primary value that raiders add would be to acquire
distressed firms with inappropriate capital structures & restructure them to make them more
efficient.
4. Information or Valuation Theory Since there is an information asymmetry between
financial statements and the public information incorporated in the stock price new
information may be disclosed during a merger deal. Information theories refers to the
revaluation of the firm through disclosure of new information during the
merger
negotiations, the tender offer process, or planning for a strategic alliance I joint venture.
5. Empire Building or Agency Theory Jerrson's and MackJing formulated the implications
of agency problem , Agency problem occur when the separation of ownership &
management leads the management to work towards their personal benefit rather than the
benefit of owners. Agency problem also give rise to merger motives of the empire building
theory.

MNC, use acquisition of domestic companies as an effective market entry strategy. Through
M&A, MNCs not only get access to the domestic market, they also gain significant local
capabilities to create and deliver their products & services.
Commenting on the Steel deal, B. Muthuraman, M. D. Tata Steel said, "The acquisition of the
steel business of Nasteel is an important step in Tata Steel's plans to build a global business.
Natsteel's business provide Tata Steel access to key Asian steel markets including China".
StrategicManagement- 13
76

.J

There
1.
2.
3.
4.
5.
6.

are many reasons for M&A including the following:To provide improved capacity utilization.
To make better use of existing sales force
To reduce Tax obligation
To gain new technology
To reduce managerial staff.
To gain access to new suppliers, distributors, customers products & creditors.

Q. A turnaround strategy is used for converting a failed company or a sick company into a
successful company? Discuss the action plan of a sick unit.
Ans. Many companies restructure their operations divesting themselves of their

diversified
activities, because they wish to focus more on their core business area. An integral part of
restructuring, therefore is the development of strategy for turning around the company's core or
remaining business areas. Following are the steps taken by the organizations.

1. Identifying the causes of the failure

2. Developing strategies for successful turn - around.
1. The cause of the failure can be identified either by evaluation & performance. i.e. evaluating
the process, performance measurement or Auditing the firms objectives, goals, strategies the
cause of failure could be.
a. Poor management: It involves many sins, like, neglect of core businesses, in sufficient
number of good manager, bad leadership.
b. Over Expansion: Rapid expansions or diversification & poor controls on finances.
c. Inadequate financial controls: Employing excess staff, spending beyond requirement.
d. High Costs: Inadequate financial control can lead to high costs. Causes could be low
labour productivity management's failure to introduce labour saving technology. High
salaries of employees, failure to realize economy of scale, low market share.
e. New Competition: Many companies have failure because of unable to face threats of
competitors. Therefore, new competition kills, idle companies in the business world.
f. Unforeseen Demand shifts: Environment threat like marketing, technology , political,
social, legal cultural environment can change open market opportunities for new products.
It consequence is the unforeseen demand shifts from old to new products. Therefore,
customer has preference to bUy new product at a low cost. When companies have failure
to fulfillment of the above fact then have a failure in the business world.
g. Organizational Inertia: The emergence of powerful new competition & unforeseen shifts in
demand might not be enough to cause corporate decline. Organization is slow to respond
to environmental changes.

1.
2.
3.
4.
5.

Changing leadership
Redefining strategic focus.
Asset sales & closures.
Acquisitions.
Improving Probability

Improving probability involves number of steps to improve efficiency, quality, innovation &
customer responsiveness. It involves.
Strategic Management

- 13

77

Lay - offs white & blue collar employee

Investment in labour saving equipment
Tightening financial control
Assessment of profit responsibility to individuals & subunits within the company
change of organizational structure of necessary.
e. Cutting back on marginal products.
f. Re-engineering business process to cut costs & boost productivity.
g. Introducing total quality management (TOM).

a.
b.
c.
d.

by a

Ans. Poters five forces model of competitive analysis is a widely used approach for developing
strategies in many industries.
The intensity of competition among firms varies widely across
industries. According to poter, the mature of competitiveness in a given industry can be viewed as
a composite of 5 forces.
1. Rivalry among competing
firms
Rivalry among competing firms is usually the most
powerful of the 5 competitive forces. The strategies pursued by one firm can be successful
only to the extent that they period competitive advantage over the strategies pursued by
rival firms changes in strategy by one firm may be met with retaliatory countermoves, such
as lowering praise, enchanting quality, adding features, providing services, extending
warranties & increasing advertisement.
Free flowing information on the internet in driving down prices and inflation worldwide.
The
internet coupled with common currency in Europe, enables consumers to easily make price
comparisons across countries. In India also use of internet to check the features and car
prices are becoming common.
The intensity of rivalry among competing firms tends to increase as the number of
competitions
increases, as competitors become more equal in size and capability,
as
demand for the industry's products declines, & as price cutting becomes common rivalrf
also increases when consumers can switch brands easily, when barriers to leaving the
market are high, when fixed cost are high when the product is perishable.
2. Potential entry of new competitors
Whenever new firms can easily enter a particular
industry, the intensity of competitiveness
among firms increases.
Barriers to entry,
however can include the need to gain economies of scale quickly, the need to gain
technology & specialized know-how, strong customer loyalty, strong brand preferences,
tariffs, lack of access to raw materials possession of patents.
Despite numerous barriers to entry, new firms sometimes enter business with higher quality products, lower prices, & substantial marketing resources.
The strategists job
therefore is to identify potential new firms entering the market, to monitor, the new rival
firms strategies, to counterattack as needed & to capitalize on existing strengths and
opportunities when the threat of new firms entering the market is strong, incumbent firms
generally fortify their positions and take actions to deter new entrants, such as lower prices,
extending warranties, adding features, or offering financing specials.
3. Potential Development
of Substitute
products
In many industries, firms are in close
competition with producers of substitute products in other industries e.g. Plastic container
producers competing with glass, paperboard & aluminum can producers and pain killers
Strategic Management - 13

78

competing with each other.

Competitive pressures arising from substitute products
increase as the relative price of substitute products declines & as consumers susitehing
costs decrease.
4. Bargaining Power & Suppliers The bargaining power of suppliers affect the intensity of
competition in an industry, especially when there is a large numbers of suppliers, when
there are only a few good substitute raw materials, or when the cost of switching raw
materials is especially costly. It is often in the best interest of both suppliers & producers to
assist each reasonable prices, improved quality, development of new services, just in-time
deliveries & reduced inventory costs, thus enchaining long term profitability for all
concerned few firms, pursue a backward integration strategy to gain control or ownership of
suppliers, when supplier are not reliable, too costly, not meeting the firms need. In many
industries it more economical to use outside supplier for small components than to self
manufacturing the items.
5. Bargaining Power of Consumers When customers are concentrated on large or buy in
volume, their bargaining power represents a major force affecting the intensity of
competition in an industry. Consumers gain increasing bargaining power under the
following circumstances.
a.
b.
c.
d.

If they can inexpensively switch to competing brands or substitutes

If they are particularly important to the seller
If sellers are struggling in the face of falling consumer demand.
If, they are informed about the sellers, products, prices, & costs.

Potential development of substitute products

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competing firms

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Potential entry of new competitors

1. What is Benchmarking?
Benchmarking is an analytical tool used to determine whether a
firm's value chain activities are competitive compared to rivals & thus conducive to winning in the
marketplace. Benchmarking entails measuring costs of value chain activities across an industry to
determine "best practices" among competing firms for the purpose of duplicating or improving
upon those best practices.
Benchmarking
enables a firm to take action to improve its
competitiveness
by identifying (improving upon) value chain activities where rival firms have
comparative
advantages in cost, service, reputation, or operations.
The hardest part of
benchmarking can be gaining access to other firms' value chain activities with associated costs,
Typical sources of benchmarking information however, include published reports, trade pUblication
suppliers, distributors, customers, partners creditors shareholders, Lobbyists & willing rival firms,
because of ifs popularity many consulting firms are using benchmarking e.g. Accentor.
2. Market Penetration
It seeks to increase
market share for present products or service in present market through
greater market efforts.
Market penetrations includes increasing the number of salespersons,
increasing advertising
expenditures, offering extensive sales promotion items on increasing
pUblicity efforts.
Japanese electronics giants Sony Corporation is spending over $140 million in a new advertising
& promotion drive to market it high definition television sets in the U.S.A.
Five guidelines for
when market penetration may be effective strategy.
1. When current market are not started with a particular product or service.
2. When the usage rate of present customers could be increased significantiy.
3. When the market share of major competitors have been declining while total industry sales
have been increasing.
4. When the correlation between dollar sales & dollar marketing expenditure historically has
been high.
5. When increased economics of scale provide major competitive advantages.
3. Market Development
It involves introducing present products or services into new geographic area e.g. Adidas in May
2005, had 1,500 stores in China & Stated that it would open another 40 stores every months in
china for the next 40 months. Already the number 2 sportswear company in the would behind
Nike, Adidas has been nominated as the official outfitter Of the National Olympic committee in
china in 2008.
6 guideline for when market development may be an especially effective strategy are :1. When new channels of distribution are available that are reliable, inexpensive and of good
quality.
2. When an organization is very successful at what it does.
3. When new untapped or unsaturated market sexists.
4. When an organization has the needed capital & HRS to manage expanded operations.
5. When an organization has excess production capacity.
6. When an organizations basic industry is becoming rapidly global in scope.
4. Product Development:is a strategy that seeks increased sales by improving or modifying
present products or services. Product development usually entails large research & development
expenditures.
Strategic Management - 13

80

Fast - Food chains from Arbys' to McDonaldsare pursuing product development testing gourmet
like sandwiches, because customers increasingly are willing to pay more for fast food crafted
with quality ingredients.
People more and more want food that not only tests good but that they
can feel good about eating. McDonald's now has design your own deli sandwiches & Arby's sells
chi-chi sandwiches, which is a chicken salad blended with pecans , apples & grapes subway is
testing a healthy kids pak & Windy's is testing fruit cups & milk as options in its kid meals.
Coca - Cola Co., based in Atlanta & Pepsi co based in purchase New York are introducing CocaCola zero & Pepsi co one, respectively
which underscore the grooving popularity of diet soft
drinks at the expenses of sugar drinks. Sales of sugary drinks such as Coca-Cola classic &
Pepsi, fell 3% & 2.5%. Last year diet drinks now have 29.1 % market shares that is growing many
teenagers young adults have ditched regular colas in favour of bottled water & diet drinks.
Five guideline for when product development may be an especially effective strategy to

pursue are :1. When an organization has successful products that are in the maturity stage of the product
life cycle the idea here is to attract satisfied customers to try new (improved) products as a
result of their positive experience with the organizations present products or services.
2. When organizations completes in an industry that is characterized by rapid technological
developments.
3. When major competitors offer better quality products at comparable prices.
4. When an organization competes in a high growth industry.

5) Core Competencies:-

Prahlad and Hemal through a series of articles in the Harvard business review followed
bestselling book, competing for the future, developed the concept of Core-Competencies.
Core competence can be seen as any combination
knowledge, skills and attitudes.

of specific, inherent integrated

by a

and applied

Core competencies are not fixed. Competencies are developed internally by the firm in its day by
day activity and by the use of acquired resource.
Therefore, competencies are accumulated
following firm specific knowledge patterns.
While the core competencies vary by industry and by company, following is a related list of skills,
processes or systems that might be considered as core competencies.
(a) Product development - Marketing
(b) Supply chain- Speed to market
(c) Sales force - Customer service
(d) Technology - Strategic Alliances
(e) Manufacturing practice - Engineering
(f) Service levels - Design
(g) Efficient Systems - Product innovation
Core competency analysis creates a realistic view of the skill sets, processes and systems the
company is uniquely good at performing e.g. reliance industries has grown to be the largest
private enterprise in India in the last 25 years.
The secret of its phenomenal success are its
Strategic Management - 13

81

competencies.
Its competencies are its project management skills, perhaps the best in the world, ~
its competence
to mobilize large quantities of low cost finance, manage the regularity
environment and speed. These competencies allowed Reliance to set - up world scale plants at
the lowest capital costs of any company in India and extend its activities to span exploration and
production (E & P) of oil & gas, refining & marketing, petrochemical (Polyester, polymers and
intermediates) textiles financial services and insurance, power telecom and infocom initiative.
In each industry there are different sets of core competencies that are important to the success of
the business. In most instances the list of important competencies is relatively short. However
this short list, when well selected
and developed
provides the opportunity
to leverage the
strategy of the company. Porter has identified some competencies that determine strategy .
These are given in table below

a.

Area
Products

b.

Dealer I Distributor

c.

Marketing & Selling

d.

Operations

Research & Engineering

Overall cost

Competent Requirements
Standing of products from the users point of view, in each
market segment breadth & depth of the product time.
Channel coverage & quality strength of channel relationships
ability to service the channels
Skills in each aspects of the marketing more skills in market
research & new product development training & skills of the
sales force.
Manufacturing
cost position economic of scales, learning
curve, age of equipment etc. Technological sophistication of
facilities and equipment, flexibi!ity of facilities and equipment
transportation cost, labor cost unionizations and cost of raw
material.
Patents, copyright in house capability in R&D etc.
Overall relative costs shared costs etc.