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BUSINESS POLICY
Business policy is the study of the function and responsibilities of senior
management, the crucial problems that affect success in the total enterprise, and
the decisions that determine the direction of the organization and shape its future.
This comprehensive definition covers many aspects of business policy.
It deals with the determination of the future courses of actions that an organization
has to adopt.
It involves a choosing the purpose and defining what needs to be done in order to
mould the character and identify of an organizations.
Business policy is the study of the roles and responsibilities of top- level
management, the significant issues affecting organizational success and the
decisions affecting organization in the long-run.
Business Policy defines the scope or spheres within which decisions can be taken
by the subordinates in an organization.
It permits the lower level management to deal with the problems and issues
without consulting top level management every time for decisions.
Business Policy defines the scope or spheres within which decisions can be taken
by the subordinates in an organization. It permits the lower level management to
deal with the problems and issues without consulting top level management every
time for decisions.
Business policies are the guidelines developed by an organization to govern its
actions. They define the limits within which decisions must be made. Business
policy also deals with acquisition of resources with which organizational goals can
be achieved. Business policy is the study of the roles and responsibilities of top
level management, the significant issues affecting organizational success and the
decisions affecting organization in long-run.
Policies are guides to decision making and address repetitive or recurring
situations. So, Policy defines the area in which decisions are to be made, but it
does not give the decision. A policy is a verbal, written, or implied overall guide,
setting up boundaries that supply the general limits and direction in which
managerial action will take place.
1. HR Policy
i. Hiring-Firing
ii. Employee profile
iii. Training
iv. Transfers
v. Promotions
vi. Wages
vii. Incentives & Bonus
2. Materials Policy
i. Quality-Quantity
ii. Vendors
iii. Payment terms •
iv. Stores & Handling
v. Documentation
The term “policy” should not be considered as synonymous to the term “strategy”.
The difference between policy and strategy can be summarized as follows-
3. Policy deals with routine/daily activities essential for effective and efficient
running of an organization. While strategy deals with strategic decisions.
4. Policy is concerned with both thought and actions. While strategy is
concerned mostly with action.
5. A policy is what is, or what is not done. While a strategy is the methodology
used to achieve a target as prescribed by a policy.
It deals with the determination of the future course of action that an organization
has to adopt.
In choosing the purpose and defining what needs to be done in order to mould the
character and identity of an organization.
The senior management consists of those managers who are primarily responsible
for long term decisions and who carry designations such as CEO, President, GM
or Executive Director.
Deciding a future course of action, the senior mgt are confronted with a wide array
of decisions and actions that could possibly be taken. By moving in a pre-
determined direction, an organization can attain its planned identity and character.
Features of Strategy
It is a way in which strategists set the objectives and proceed about attaining them.
It deals with making and implementing decisions about future direction of an
organization. It helps us to identify the direction in which an organization is
moving.
Strategic management is a continuous process that evaluates and controls the
business and the industries in which an organization is involved; evaluates its
competitors and sets goals and strategies to meet all existing and potential
competitors; and then reevaluates strategies on a regular basis to determine how it
has been implemented and whether it was successful or does it needs replacement.
Strategic Management gives a broader perspective to the employees of an
organization and they can better understand how their job fits into the entire
organizational plan and how it is co-related to other organizational members.
It is nothing but the art of managing employees in a manner which maximizes the
ability of achieving business objectives.
The strategy statement of a firm sets the firm’s long-term strategic direction
and broad policy directions. It gives the firm a clear sense of direction and a
blueprint for the firm’s activities for the upcoming years. The main
constituents of a strategic statement are as follows:
1. Strategic Intent
An organization’s strategic intent is the purpose that it exists and why it will
continue to exist, providing it maintains a competitive advantage. Strategic intent
gives a picture about what an organization must get into immediately in order to
achieve the company’s vision. It motivates the people. It clarifies the vision of the
vision of the company.
Strategic intent helps management to emphasize and concentrate on the priorities.
Strategic intent is nothing but, the influencing of an organization’s resource
potential and core competencies to achieve what at first may seem to be
unachievable goals in the competitive environment. A well expressed strategic
intent should guide/steer the development of strategic intent or the setting of goals
and objectives that require that all of organization’s competencies be controlled to
maximum value.
Strategic intent includes directing organization’s attention on the need of winning;
inspiring people by telling them that the targets are valuable; encouraging
individual and team participation as well as contribution; and utilizing intent to
direct allocation of resources.
Strategic intent differs from strategic fit in a way that while strategic fit deals with
harmonizing available resources and potentials to the external environment,
strategic intent emphasizes on building new resources and potentials so as to create
and exploit future opportunities.
2. Mission Statement
organization does (i.e., present capabilities), who all it serves (i.e., stakeholders)
and what makes an organization unique (i.e., reason for existence).
A mission statement differentiates an organization from others by explaining its
broad scope of activities, its products, and technologies it uses to achieve its goals
and objectives. It talks about an organization’s present (i.e., “about where we are”).
For instance, Microsoft’s mission is to help people and businesses throughout the
world to realize their full potential. Wal-Mart’s mission is “To give ordinary folk
the chance to buy the same thing as rich people.” Mission statements always exist
at top level of an organization, but may also be made for various organizational
levels. Chief executive plays a significant role in formulation of mission statement.
Once the mission statement is formulated, it serves the organization in long run,
but it may become ambiguous with organizational growth and innovations.
In today’s dynamic and competitive environment, mission may need to be
redefined. However, care must be taken that the redefined mission statement
should have original fundamentals/components. Mission statement has three main
components-a statement of mission or vision of the company, a statement of the
core values that shape the acts and behavior of the employees, and a statement of
the goals and objectives.
3. Vision
a. It must be unambiguous.
b. It must be clear.
c. It must harmonize with organization’s culture and values.
d. The dreams and aspirations must be rational/realistic.
e. Vision statements should be shorter so that they are easier to memorize.
In order to realize the vision, it must be deeply instilled in the organization, being
owned and shared by everyone involved in the organization.
4. Goals and Objectives
Objectives are defined as goals that organization wants to achieve over a period of
time. These are the foundation of planning. Policies are developed in an
organization so as to achieve these objectives. Formulation of objectives is the task
of top level management. Effective objectives have following features-
These components are steps that are carried, in chronological order, when creating
a new strategic management plan. Present businesses that have already created a
strategic management plan will revert to these steps as per the situation’s
requirement, so as to make essential changes.
Strategic management process has following four steps:
LEVELS OF STRATEGY
Strategy may operate at different levels of an organization – corporate level,
business level, and functional level. The strategy changes based on the levels of
strategy.
Top management of the organization makes such decisions. The nature of strategic
decisions tends to be value-oriented, conceptual and less concrete than decisions at
the business or functional level.
1. Corporate level strategies are formulated by the top management with inputs
from middle level management and lower level management in the formulation
process and designing of sub strategies
4. Corporate level strategies are mapped out around the goal and objectives of an
organization. They seek to translate these goals and objectives to reality. Typical
examples of decisions made are decisions on products and markets
2. Stability Strategy
1. No change Strategy: When a company adopts this strategy, it indicates that the
company is very much happy with the current operations, and would like to
continue with the present strategy. This strategy is utilized by companies who are
“comfortable” with their competitive position in its industry, and sees little or no
growth opportunities within the said industry.
2. Profit Strategy: In using this strategy, the company tries to sustain its
profitability through artificial means which may include aggressive cost cutting
and raising sales prices, selling of investments or assets, and removing non-core
businesses. The profit strategy is useful in two instances:
1. Concentric diversification
Concentric diversification involves adding similar products or services to the
existing business. For example, when a computer company that primarily produces
computers starts manufacturing laptops, it is pursuing a concentric diversification
strategy.
2. Horizontal diversification
Horizontal diversification involves providing new and unrelated products or
services to existing consumers. For example, a notebook manufacturer that enters
the pen market is pursuing a horizontal diversification strategy.
3. Conglomerate diversification
Conglomerate diversification involves adding new products or services that are
significantly unrelated and with no technological or commercial similarities. For
example, if a computer company decides to produce notebooks, the company is
pursuing a conglomerate diversification strategy.
5. Growth - Strategy aimed at winning larger market share, even at the expense of
short-term earnings. growth strategy is one under which management plans to
advance further and achieve growth of the enterprise, in fields of manufacturing,
marketing, financial resources etc.
1. Internal growth strategies- Internal growth strategies are those in which a firm
plans to grow on its own, without the support of others.
2. External growth strategies- external growth strategies are those in which a firm
plans to grow by combining with others.
3. Joint Ventures:
Joint venture is a growth strategy in which two or more companies, establish a new
enterprise (or organisation) by participating in the equity capital of the new
organisation and by agreeing to participate in its management in an agreed manner.
4. Mergers:
Merger, as a growth strategy, implies combination (or integration) of two or more
companies into one. Merger may take place with a co-operative approach or it may
take place with a hostile approach. In the latter case, a merger is known as a
takeover.
5. Horizontal combinations:
In this type of combinations, different business units which have been competing
with one another in the same business line join together and form a combination.
6. Vertical combinations:
A strategy used by corporations to reduce the diversity or the overall size of the
operations of the company. This strategy is often used in order to cut expenses with
the goal of becoming a more financial stable business.
2. down scoping-involves restructuring or selling off units that are less related to
the main business, but without layoffs or work force reductions. Down scoping
may be used when the organization must focus on its core strengths, to gain
competitive advantage.
2. Business-Level Strategy
Business level strategy is – applicable in those organizations, which have different
businesses-and each business is treated as strategic business unit (SBU). The
fundamental concept in SBU is to identify the discrete independent product /
market segments served by an organization.
Therefore, it requires different strategies for its different product groups. Thus,
where SBU concept is applied, each SBU sets its own strategies to make the best
use of its resources (its strategic advantages) given the environment it faces. At
Corporate strategy is not the sum total of business strategies of the corporation but
it deals with different subject matter. While the corporation is concerned with and
has impact on business strategy, the former is concerned with the shape and
balancing of growth and renewal rather than in market execution.
Purpose:
3. Functional-Level Strategy
Functional strategy deals with relatively restricted plan providing objectives for
specific function, allocation of resources among different operations within that
functional area and co-ordination between them for optimal contribution to the
achievement of the SBU and corporate-level objectives.
MISSION
A written declaration of an organization's core purpose and focus that
normally remains unchanged over time. Properly crafted mission statements
(1) serve as filters to separate what is important from what is not, (2) clearly
state which markets will be served and how, and (3) communicate a sense of
intended direction to the entire organization.
A mission is different from a vision in that the former is the cause and the latter is
the effect; a mission is something to be accomplished whereas a vision is
something to be pursued for that accomplishment. Also called company mission,
corporate mission, or corporate purpose.
Features of a Mission
The best mission statements are clear, concise, and memorable. Here are a few
examples:
Once your list is complete, see if you can narrow your values down to around five
or six of the most important values. Finally, see if you can choose the one value
that is most important to you.
the world in general | your family | your employer or future employers | your
friends | your community
Make a list of your personal goals, perhaps in the short-term (up to three years) and
the long-term (beyond three years).
Prepared By: Prof. Parita Davda Page 24
SHRI V J MODHA COLLEGE -PORBANDAR
6. It shapes strategy
Every business and business owner needs a strategy. But strategies must not be
created in a vacuum. Instead of looking at what’s new or what competitors are
doing and trying to copy them, wise business owners create the most effective
strategies possible to accomplish the mission their company is set out to
accomplish.
2. Simple
When it comes to mission statements, too much detail can dilute the overall
meaning. As you write, try to capture the essence of your company in as few
words as possible; too much detail will make it vague. Use simple, clear and
concise language. Distilling the goals, character and values of your company
into one or two sentences is not an easy process and often takes a significant
amount of time and discussion.
3. Memorable
A mission statement can help guide the actions of employees and decision makers
but not if it is impossible to remember. To help make your mission statement
memorable, use descriptive words that can inspire action. A green engineering firm
might keep it to one sentence with a mission statement that says, "To provide
innovative, sustainable engineering solutions." Employees can use the statement as
a guiding principle in developing creative, environmentally friendly engineering,
while clients will understand the basic services and moral underpinnings of the
company.
4. Achievable
Although it can be tempting to write a grand mission statement, it is usually better
to create one that is achievable. A strong mission statement gives staff something
concrete to work on and a larger goal to work toward. It creates a balance between
what you do and what you can do.
5. “Who” Customers are.
Who is being satisfied? A company should define the type of
customers it wishes to serve. Which customer groups it is targeting.
Customer groups are relevant because they indicate the market to be
served, the geographic domain to be covered, and the types of buyers the
firm is going after.
VISION
A vision statement identifies where the organization wants or intends to be in
future or where it should be to best meet the needs of the stakeholders. It describes
dreams and aspirations for future. For instance, Microsoft’s vision is “to empower
people through great software, any time, any place, or any device.” Wal-Mart’s
vision is to become worldwide leader in retailing.
In order to realize the vision, it must be deeply instilled in the organization, being
owned and shared by everyone involved in the organization.
Peter Drucker believed that the survival of the company was at risk when managers
emphasized only the profit objective because this single objective emphasis
encourage managers to take action that will make money today with little regard
for how a profit will be made tomorrow.
8 key areas by Peter Drucker in which managers should set management system
objectives are:
1. MARKET STANDING: Management should set objectives indicating where
it would like to be in relation to its
competitors.
2. INNOVATION: Management should set objectives outlining its commitment
to the development of new methods of
operation.
3. PRODUCTIVITY: Management should set objectives outlining the target
levels of
production.
possess.
Clear vision endowed with purpose is definitely an area in which those involved in
human betterment have the advantage. Such a strong belief in vision leads to
alignment to the extent in which people take ownership and are internally rewarded by
the mission statement of the organization.
In his work with DaVita, a provider of kidney dialysis, Bennis noted that the simple,
direct mission ” to give life” became the best rallying point for those who deal with
patients day in and day out. What Bennis calls “The Big A” – alignment – is easily
created when people share a collective vision of success.
The idea of getting others behind the mission is key to organizational success. You
must keep reminding people of what is important; people really can forget what they
are there for. For leaders this is easier than others because leaders are in the business
of helping people live better lives; that is your trump card. Part of engagement is
recognizing people. No matter how brilliant you are, you need to remember the
people.
Bennis called trust the emotional glue that no leader can do without. It is important to
create a culture of candor. Every culture gives people license to talk truth – or it
doesn’t. Bennis describes integrity as a tripod with ambition, competence, and a moral
compass forming its three legs. However, when ambition surpasses competence or
surpasses the moral compass, you are in trouble. To the extent to which these qualities
are in balance, integrity can be achieved. However, when ambition surpasses
competence or surpasses the moral compass, you are in trouble.
5. Develop Leaders.
Abandoning your ego and developing others by drawing out their leadership qualities
is the way of the true leader, said Bennis. Some winning ways to create the necessary
intellectual and human capital include coaching and mentoring, developing the sense
of self, and acknowledging the ideas and accomplishments of others.
6. Get results.
In the end, you must get the products out of the door. Bennis recalled an interview
with Jack Welch, then-CEO of General Electric, in which he said, “Getting results
truly depends on customer satisfaction, employee satisfaction, and cash flow. If I have
those three measurements, I can win.”
ENVIRONMENTAL SCANNING
Organizational environment consists of both external and internal factors.
Environment must be scanned so as to determine development and forecasts
of factors that will influence organizational success. Environmental
scanning refers to possession and utilization of information about
occasions, patterns, trends, and relationships within an organization’s
internal and external environment. It helps the managers to decide the
future path of the organization. Scanning must identify the threats and
opportunities existing in the environment. While strategy formulation, an
organization must take advantage of the opportunities and minimize the
threats. A threat for one organization may be an opportunity for another.
For instance - Monitoring might indicate that an original forecast of the prices of
the raw materials that are involved in the product are no more credible, which
could imply the requirement for more focused scanning, forecasting and analysis to
create a more trustworthy prediction about the input costs. In a similar manner,
there can be changes in factors such as competitor’s activities, technology, market
tastes and preferences.
The external environment constitutes factors and forces which are external to the
business and on which the marketer has little or no control. The external
environment is of two types:
1. Micro Environment
The micro component of the external environment is also known as the task
environment. It comprises of external forces and factors that are directly related to
the business. These include suppliers, market intermediaries, customers, partners,
competitors and the public
1. Competitors:
The competitive environment consists of certain basic things which
every firm has to take note of. No company, howsoever large it may be,
enjoys monopoly. In the original business world a company
encounters various forms of competition. The most common
competition which a company’s product now faces is from
differentiated products of other companies.
without gear, 100 cc or more than that, self starter or kick starter, etc.
This type is otherwise known as ‘Product form competition’.
Philip Kotler is of the opinion that the best way for a company to grasp
the full range of its competition is to take the viewpoint of a buyer.
What does a buyer thinks about that which eventually leads to
purchasing something? So, tracing of the consumer mind set will help
to retain the market share for all the firms.
2. Customers:
According to Peter. F. Drucker, “There is only one valid definition of
business purpose, that is to create a customer.” The business
enterprises aim to earn profit through serving the customer demand.
It now thinks more in terms of profitable sale rather than more sales
volume for its sake. Today marketing of a firm begins and also ends
with the customers.
3. Suppliers:
Regarding the suppliers, the organisation can think of availing the
required material or labour according to its manufacturing
programme. It can adopt such a purchase policy which gives
bargaining power to the organisation.
4. Public:
Literally word ‘public’ refers to people in general. According to Philip
Kotler, “A public is any group that has an actual or potential interest in
or impact on a company’s ability to achieve its objectives.” The
environmentalists, consumer protection groups, media persons and
local people are some of the well-known examples of publics.
The company has a duty to satisfy the people at large along with
competitors and the consumers. It is an exercise which has a larger
impact on the well-being of the company for tomorrow s stay and
growth. Create goodwill among public, help to get a favourable
response for a company. Kotler in this regard has viewed that.
In the modern business public have assumed important role and their
presence in the micro environment of business.
5. Marketing Intermediaries:
Market intermediaries are either individuals or business houses who
come to the aid of the company in promoting, selling and distributing
the goods to the ultimate consumers. They are Middlemen
(wholesalers, retailers and agents), distributing agencies, market
(i) The company has also to constantly review the performance of both
middlemen and others helping its efforts periodically. If necessary, it
may take recourse to replacement of those who no longer perform at
the expected level.
2. Macro Environment
The macro component of the marketing environment is also known as the broad
environment. It constitutes the external factors and forces which affect the industry
as a whole but don’t have a direct effect on the business. The macro environment
can be divided into 6 parts.
1. Demographic Environment
The demographic environment is made up of the people who constitute the market.
It is characterized as the factual investigation and segregation of the population
according to their size, density, location, age, gender, race, and occupation.
2. Economic Environment
The economic environment constitutes factors which influence customers’
purchasing power and spending patterns. These factors include the GDP, GNP,
interest rates, inflation, income distribution, government funding and subsidies,
and other major economic variables.
3. Physical Environment
The physical environment includes the natural environment in which the business
operates. This includes the climatic conditions, environmental change, accessibility
to water and raw materials, natural disasters, pollution etc.
I. Better utilization of productive resources
4. Technological Environment
The technological environment constitutes innovation, research and development
in technology, technological alternatives, innovation inducements also
technological barriers to smooth operation. Technology is one of the biggest
sources of threats and opportunities for the organization and it is very dynamic.
I. Better utilization of resources
5. Political-Legal Environment
The political & Legal environment includes laws and government’s policies
prevailing in the country. It also includes other pressure groups and agencies which
influence or limit the working of industry and/or the business in the society.
1. political philosophy
2. political condition
3. quality of leadership
6. Social-Cultural Environment
The social-cultural aspect of the macro environment is made up of the lifestyle,
values, culture, prejudice and beliefs of the people. This differs in different
regions.
I. Social structure
II. Demography
7. International environment
made in an organization. As firms do not have any control over the external
environment, their success depends on how well they adapt to the external
environment. An important aspect of the international business environment is the
level, & acceptance, of technological innovation in different countries. The last
decades of the twentieth century saw major advances in technology, & this is
continuing in the twenty-first century. Technology often is seen as giving firms a
competitive advantage; hence, firms compete for access to the newest in
technology, & international firms transfer technology to be globally competitive. It
is easier than ever for even small business plan to have a global presence thanks to
the internet, which greatly grows their exposure, their market, & their potential
customer base. For the economic, political, & cultural reasons, some countries are
more accepting of technological innovations, others less accepting. In analyzing
the technological environment, the organization may consider the following
aspects:
4. Assistance in Planning
This is another aspect of the importance of business environment. Planning purely
means what is to be done in the future. When the Business Environment presents a
problem or an opportunity, it is up to the business to decide what plan would it have
to come up with in order to address the future and solve the problem or utilise the
opportunity. After analysing the changes presented, the business can incorporate
plans to counteract the changes for a secure future.
Economic factors in the remote environment are not within the control of a company, but its
management has to make decisions keeping them in mind such factors. They include economic
growth, inflation and unemployment.
Government policies
Taxes laws and tariff
Stability of government
Entry mode regulations
3. Social factors
Countries vary from each other. Every country has a distinctive mindset. These attitudes
have an impact on the businesses. The social factors might ultimately affect the sales of
products and services.
Distribution of Wealth
4. Technological factors
Technology is advancing continuously. The advancement is greatly influencing
businesses. Performing environmental analysis on these factors will help you stay up to
date with the changes. Technology alters every minute. This is why companies must stay
connected all the time. Firms should integrate when needed. Technological factors will
help you know how the consumers react to various trends.
New discoveries
Rate of technological obsolescence
Rate of technological advances
Innovative technological platforms
5. Legal factors
Legislative changes take place from time to time. Many of these changes affect the
business environment. If a regulatory body sets up a regulation for industries, for
example, that law would impact industries and business in that economy. So, businesses
should also analyze the legal developments in respective environments.
Product regulations
Employment regulations
Competitive regulations
Patent infringements
Health and safety regulations
6. Environmental factors
The location influences business trades. Changes in climatic changes can affect the trade.
The consumer reactions to particular offering can also be an issue. This most often affects
agri-businesses.
Geographical location
The climate and weather
Waste disposal laws
Energy consumption regulation
1. Competitors
Policies of the organization are often influenced by the competitors.
Competitive marketplace companies are always trying to stay and go
further ahead of the competitors. In the current world economy, the
competition and competitors in all respects have increased tremendously.
The positive effect of this is that the customers always have options and the
overall quality of products goes high.
2. Customers
“Satisfaction of customer”- the primary goal of every organization. The
customer is who pays money for the organization’s product or services.
They are the peoples who hand them the profit that the companies are
targeting.
Managers should pay close attention to the customers’ dimension of the
task environment because its customers purchase that keeps a company
alive and sound.
3. Suppliers
Suppliers are the providers of production or service materials. Dealing with
suppliers is an important task of management.
A good relationship between the organization and the suppliers is important
for an organization to keep a steady follow of quality input materials.
Prepared By: Prof. Parita Davda Page 47
SHRI V J MODHA COLLEGE -PORBANDAR
4. Regulators
Regulators are units in the task environment that have the authority to
control, regulate or influence an organization’s policies and practices.
Government agencies are the main player in the environment and interest
groups are created by its members to attempt to influence organizations as
well as government. Trade unions and chamber of commerce are the
common examples of an interest group.
5. Strategic Partners
They are the organization and individuals with whom the organization is to
an agreement or understanding for the benefit of the organization. These
strategic partners in some way influence the organization’s activities in
various ways.
The tool was created by Harvard Business School professor Michael Porter, to
analyze an industry's attractiveness and likely profitability. Since its publication in
1979, it has become one of the most popular and highly regarded business strategy
tools.
Porter recognized that organizations likely keep a close watch on their rivals, but
he encouraged them to look beyond the actions of their competitors and examine
what other factors could impact the business environment. He identified five forces
that make up the competitive environment, and which can erode your profitability.
These are:
Definition: The five forces model of analysis was developed by Michael Porter to
analyze the competitive environment in which a product or company works.
Description: There are five forces that act on any product/ brand/ company:
The five forces are:
2. Buyer power. An assessment of how easy it is for buyers to drive prices down.
This is driven by the: number of buyers in the market; importance of each
individual buyer to the organisation; and cost to the buyer of switching from one
supplier to another. If a business has just a few powerful buyers, they are often able
to dictate terms.
5. Threat of new entry. Profitable markets attract new entrants, which erodes
profitability. Unless incumbents have strong and durable barriers to entry, for
example, patents, economies of scale, capital requirements or government policies,
then profitability will decline to a competitive rate.
1. Strengths
In a SWOT analysis, strengths describe the core competencies of a business,
strategic factors that may make a certain project more likely to succeed and areas
where the business may have advantages over other similar businesses. For
example, if an established cereal company plans to launch a new product, brand
recognition might be listed as a strength. Businesses that are aware of their
strengths are better able to improve and exploit them to their advantage.
2. Weaknesses
Weaknesses are things that can make a certain project less likely to succeed and
areas where a company is particularly lacking. For instance, a brand new company
might be unknown to most consumers; low brand recognition and lack of customer
loyalty could be weaknesses. Once weaknesses are identified, a business takes
steps to lessen the impact or turn them into strengths.
3. Opportunities
Opportunities are things that have the potential to increase profits, productivity or
benefit a business in some other way . Opportunities include things like changes in
government regulations that make it easier for a business to make profit, unfulfilled
consumer need, new markets and new technology. Recognizing and taking
advantage of opportunities are important aspects of running a successful business.
4. Threats
Threats are the final element of a SWOT analysis; they have the potential to harm a
business. For instance, if you run the only pizza shop in town, the possibility that a
new competitor will open a shop and take some of your business is a threat.
Unfavorable changes to laws, higher taxes and changes in consumer preferences
other possible threats. Identifying a threat helps the business manager to limit its
impact.
Competitive Advantage is something that keeps you a step ahead than the
competitors. It can be attained due to some factors like product quality, brand, cost
structure, customer loyalty and so forth.
The three strategies by which a firm can gain competitive advantage, according to
Michael Porter, are:
Conclusion
Core competencies are the major source of attaining competitive advantage and
determines the areas, which a firm must focus. It helps the firms in identifying
prospective opportunities for adding value to customers. On the other hand,
competitive advantage helps a firm to get an edge over the competitors.
Value chain analysis (VCA) is a process where a firm identifies its primary
and support activities that add value to its final product and then analyze
these activities to reduce costs or increase differentiation.
Value chain represents the internal activities a firm engages in when
transforming inputs into outputs.
M. Porter introduced the generic value chain model in 1985. Value chain
represents all the internal activities a firm engages in to produce goods and
services. VC is formed of primary activities that add value to the final
product directly and support activities that add value indirectly.
1) Inbound logistics
Bring raw material from source to the company. The value chain can be enhanced
in this step by improving the quality of raw material as well as optimizing the cost
of inbound logistics.
2) Operations
Converting the raw material to finished goods is the job of Operations. The
customer value is increased majorly in this step if the operations are up to mark
and the product is manufactured in the right manner and meets quality standards.
You can take example of Television or Air conditioners to understand the
importance of Operations and manufacturing in the Value chain.
3) Outbound logistics
Sending finished goods from manufacturing point to distributors and retailers. The
value chain receives a boost if the out bound logistic activities are carried out in
time with optimal costs and the product is delivered to end customers with
minimum affect to the quality of the product. Food products can be an example of
how value can be added during outbound logistics by delivering product on time
with best quality.
5) Service
The post sales service is the most important because it directly affects the word of
mouth publicity of the product. If the service is not upto mark, no one will buy the
product and the brand will lose market share and may be taken out of the market
eventually. Thus service is very important in the Porter’s value chain.
6) Procurement
The management of vendors and the procurement of the raw material on a timely
basis is where procurement comes in.
7) Technology development
No product can survive if the company does not keep it updated as per the
latest technology.
9) Firm infrastructure
Without a proper infrastructure, and lack of government handling or legal support,
a firm might face a big hurdle. Similarly, administration department will help in
maintenance of the facilities in a firm.
The secondary activities like Technology and the right people are the elements
which add differentiation for the company. Samsung proved that Technology can
destroy a big competitor like Nokia.
1. When the company plans to consolidate its position in the industry in which
company is operating.
3. When company has too much debt in the balance sheet than also company
stops or postpones their expansion plans because if company takes more debt
for expansion than it would not able to pay interest rate on such debt and it may
create liquidity crunch for the company.
5. When the gains from expansion plans are less than the costs involved for such
expansion than company follows the stability strategy.
In this type of diversification, synergy can result through the application of management expertise or
financial resources, but the primary purpose of conglomerate diversification is improved profitability of the
organization. In this type of diversification there is little or no concern that is given to achieve marketing or
production synergy.
One of the most common reasons for pursuing a conglomerate diversification strategy is that
opportunities in the organizational current line of business are limited. Finding an attractive investment
opportunity requires the organization to consider alternatives in other types of business.
Organizations may also pursue a conglomerate diversification strategy as a means of increasing the
growth rate. Growth in sales can make the organization more attractive to investors.
The disadvantage of a conglomerate diversification strategy is the increase in administrative problems
associated with operating unrelated businesses.
3. Horizontal diversification
Horizontal integration occurs when an organization enters a new business (either related or unrelated) at
the same stage of production as its current operations. It involves acquiring or developing new products
or offering new services that could appeal to the organization´s current customer groups. In this case the
organization relies on sales and technological relations to the existing product lines.
Horizontal diversification is desirable if the present customers are loyal to the current products and if the
new products have a good quality and are well promoted and priced. Moreover, the new products are
marketed to the same economic environment as the existing products, which may lead to rigidity or
instability.
4. Vertical diversification
Vertical diversification occurs when an organization goes back to previous stages of its production
cycle (backward integration) or moves forward to subsequent stages of the same cycle (forward
integration). This means that the organization goes into production of raw materials, distribution of its
products, or further processing of the present end product.
Backward integration allows the diversifying organization to exercise more control over the quality of the
supplies being purchased. Backward integration can be undertaken to provide a more dependable source
of needed raw materials. Forward integration allows the organization to assure itself of an outlet for its
products. Forward integration also allows the organization better control over how its products are sold
and serviced. Furthermore, the organization may be better able to differentiate its products from those of
its competitors by forward integration.
of various local markets and tailor their entry into those markets based
on the demographics of that area.
ii. franchising- Arrangement where one party (the franchiser) grants another
party (the franchisee) the right to use its trademark or trade-name as well as
certain business systems and processes, to produce and market a good or
service according to certain specifications. The franchisee usually pays a
one-time franchise fee plus a percentage of sales revenue as royalty, and
gains (1) immediate name recognition, (2) tried and tested products, (3)
standard building design and décor, (4) detailed techniques in running and
promoting the business, (5) training of employees, and (6) ongoing help in
promoting and upgrading of the products.
iii. Licensing- Licensing a product means you allow someone else to use
your intellectual property, logo or design in exchange for fees. Those fees
can include a lump sum, ongoing royalties or a percentage of the licensee’s
sales. Companies strive to create brands, characters and celebrities they can
license to other businesses. Licensing helps them increase their market
share, drives consumer preference and loyalty for their artists and brands,
maximizes exposure and increases sales revenue.
The firm can either restructure its business operations or discontinue it, so as to
revitalize its financial position.
The first step of the turnaround strategy is to assess the root cause of problem for decreasing the sales
and cash flow of the company. To find out the reasons for the problem, management has to evaluate
the whole organisation structure from internally as well as from externally so that the appropriate '
reasons behind the retrenchment or turnaround is caused in the business organisation. When once the
problems would be found out, some efficient steps to rectify the same can be taken.
Strategic Plan:
After evaluating the main reason for the declining phaseof the business activity in the organisation, a
strategic plan should be formulated to face the situation appropriately so that the organisation can
come out of the poor situation of the present time period. For this one should look for the viable core
businesses, adequate bridge financing and available organizational resources. Even the business has to
undertake SWOT analysis before it makes any action plan to let the business Out of it critical condition.
If the organisation is passing through the critical stage, an appropriate action plan must be develop to
stop the damaging condition of the business for its survival. This plan typically includes human
resources, financial, marketing and operations actions to restructure debts, improve working capita1,
reduce costs, improve budgeting practices, prune product lines and accelerate high potential products.
If the business organisation is passing through the teething trouble, it has to formulate the strategy of
restructuring the business unit as a whole to keep their existence continuous in the market. During the
turnaround, the product mix may be changed, requiring the organization to do some repositioning. Core
products neglected over time may require immediate attention to remain competitive. Some facilities
might be closed; the organisation may even withdraw from certain markets to make organisation target
its products towards a diff cut direction.
This is the final stage of turnaround strategy After accomplishing the above four step solution
appropriately there are chances that the firm would establish itself at the normal condition.
The above all step would give a new strength to the business organisation to combat with the current
situation and would survive comfortably.
Thus, the renewal strategy of the business organisation would help the business to get themselves
established again and make their business profitable again.
Why use it? - take advantage of the path of least resistance to achieve your
goal.
When to use it? - When you are planning to make a change in your
organization, and you need to determine the best path to take.
Strategic analysis and choice are two important components of the implementation
stage of the strategic management plan. These two components are crucial links in
the strategic management implementation procedure.
Strategic analysis is all about analyzing the strength of businesses’ position and understanding
the important external factors that may influence that position.
At the time of performing strategic analysis and arriving at strategic choices, long
term goals are fixed and different types of strategies are chosen that are most
appropriate for the mission of the company and the variable conditions.
Gap Analysis refers to the comparison between what the performance was
(actual) and what the performance should has been (potential). The results of
this analysis help identify the errors in resource allocation and what steps need
to be taken further to help improve performance through better utilization of the
input resources.
The current performance is extrapolated back and compared with the desired
performance level to get the results.
Strategic Gap Analysis helps identify performance gap with respect to the
strategy the company follows to achieve its goals, whether the performance is
aligned with the mission and vision of the company. This leads to resource
optimization through the sages of determination, writing and application.
Strategic Gap = what the firm is doing - what the firm must do
The variance between the current and desired performance is an indicator of the
gap in this case. The outcome is the identification of means to fill the gap.
Strategic gap analysis is an evaluation of the difference between desired outcome
and actual outcome, and what must be done to achieve a desired goal. Strategic gap
analysis attempts to determine what a company should do differently to achieve a
particular goal by looking at the time frame, management, budget and other factors
to determine where shortcomings lie.
Definition
BCG Matrix helps business to analyze growth opportunities by reviewing
the market growth and market share of products and further help in deciding
where to invest, to discontinue or develop products. BCG Model puts each
of a firm’s businesses into one of four categories. The categories were all
given remarkable names- Cash Cows, Stars, Dogs, and Question Marks.
The four categories are explained below with BCG Matrix diagram:
market share and to support further growth, otherwise, a star will become a cash
cow.
1. Easy to perform;
2. Helps to understand the strategic positions of business portfolio;
3. It’s a good starting point for further more thorough analysis.
conclusion
The BCG model helps in strategic planning, but like any other marketing model, it
works in some situation and in others. It helps companies to assess which products
need to be promoted to generate revenue and which one needs to be discontinued.
In short, BCG Model gives a true picture of how marketing efforts will affect
business’s overall cash flow.
2. The GE Matrix
In consulting engagements with General Electric in the 1970’s, McKinsey & Company developed nine-
cell portfolio matrix as a tool for screening GE’s large portfolio of strategic business unit. The GE matrix
is similar to the BCG growth share matrix in that it maps strategic business unit on a grid of the industry
and the SBU’s position in the industry. The GE matrix however, attempts to improve upon the ECG
matrix. Industry attractiveness and business unit strength are calculated by first identifying criteria for
each, determine the value of each parameter in the criteria, and multiplying that value by a weighting
factor.
This model is also known as Business Planning Matrix, GE Nine-Cell Matrix and GE Model. The strategic
planning approach in this model has been inspired from traffic control lights. The lights that are used at
crossings to manage traffic are; green for go, amber or yellow for caution and red for stop. This model
uses two factors while taking strategic decisions; Business Strength and Market Attractiveness. The
vertical axis indicates market attractiveness and the horizontal axis shows the business strength in the
industry.
Size of the market: For market attractiveness the size of the market plays important role. Here
the management needs to think about expanding market share from what market share they
possess at present.
Market growth rate: The business having certain level of market share and how and what ways
it can be enhanced can be determined by the analysis of the GE matrix so that the volume of the
business for the future can be enhanced expectedly.
Industry Profitability: For a strategic business unit, it must be considered about the overall
profitability of the industry. If it is more it would inspire the business unit more to take some
step to increase the market share. Competitive intensity: The market attractiveness can also be
measured effectively with the help of the competitive intensity in the market which keep the
business unit alert all the time to combat the competitive intensity by improving their
performance as much as they can with the changing competitor’ s outcome.
Availability of Technology-Strategic business unit needs to get updated with the changing
modernization 1n the business concerns. Technological availability play very important role for
the determination of the market share for the business unit.
Pricing Trends: The price trends in the economy are also one of the important factors that can
be determined by the business unit for the portfolio analysis. If the pricing are much volatile in
the market then the strategic planning should be changed accordingly so that the business can
sustain even in the volatile market situation.
Overall risk of returns in the industry: Portfolio analysis also analyses the risk of return in the
industry. With the changing time, the risk of return changes then it must be focused by the
business unit whether it is increasing or decreasing
Opportunities for differentiation of products and services: It is also very important factor for
market attractiveness that the business unit needs to continuously observe the opportunities
for differentiation of products and services in the market or not so that the development and
growth strategy can be designed by increasing the product range by the business.
The horizontal axis shows market strength and it is measured by considering various factors which can
he explained as follows:
Market share: The strength of the market can be analyzed with the total market share the
business unit is having at present. It is very important to analyze the market share because the
strategy that a business unit is determining is depending on the market share it possess.
Market share growth rate: after knowing the market share, the growth of the same is equally
important to know for the business unit for the determination of portfolio analysis of the
strategic business unit.
Profit Margin: There are various factors which are meeting the business unit to determine the
profit margin If it is decreasing then the strategy would be to increase maxket share so that the
profit can be maintain with the past or if it is increasing then the strategy would be to
accumulate maximum profit to combat uncertainty of the future.
Distribution Efficiency: If the distribution efficiency of the business unit is good it would be
considered as one of the biggest strength because with this strength the growth potential of the
business can be enhanced remarkably.
Brand Image: The business unit which is having very good brand image in the market is always
capable enough to make some innovative changes and for that the strategy can be formulated
as people would definitely put trust of such business which has good public image in the market.
Ability to compete on price and quality: It is strength of the business unit if it can compete on
price and quality with the changing situation in the market due to internal as well as external
factors with which business is continuously affecting. It can formulate better strategy as they
have ability to compete on price as well as on quality.
Thus, the above market attractiveness and business strength are two important sides that determine
the GE matrix.
If a product falls in the green section, the business 15 at advantageous position. To reap the benefits,
the strategic decision can be to expand, to invest and grow. If a product is in the amber or yellow zone,
it needs caution and managerial discretion is called for making the strategic choices. If a product is in the
red zone, it will eventually lead to losses that would make things difficult for organizations.
The most desirable SBU’s are those located in the highly attractive industries where the company has
high business strength. One difference is that the GE approach considers more than just market growth
rate and relative market share in order to determine market attractiveness and business strength.
The Product Market Evolution Matrix is another tool for business portfolio analysis. The business
portfolio is the collection of businesses and products that make up the company. The best business
portfolio is one that fits the company’s strengths and helps exploit the most attractive opportunities.
Business portfolio analysis as an organizational strategy formulation technique is based on the
philosophy that organizations should develop strategy much as they handle investment portfolios. Just
as sound financial investments should be supported and unsound ones discarded, sound organizational
activities should be emphasized and unsound ones deemphasized.
Hofers Product Market Evolution Matrix displays the matrix where strategic business units are
graphically represented according to two basic indicators: Competitive position on the market stage
corresponding to the product or market evolution,
Charles W. Hofer described seven stages of the life cycle, each with certain characteristics by which the
position of the market can be identified. These seven stages can be explained as follows;
Business Unit A: It would be for a developing winner. Its relatively large share of the market
combined with its being at the development stage of product. Market evolution and its potential
for being in a strong competitive position make it good candidate for receiving more corporate
resources.
Business Unit B: It is somewhat similar to business unit A. However, it has a relatively small
share of the market given its strong competitive position. A strategy would have to be
developed to overcome this low market share in order to justify more investments.
Business Unit C: It might be classified as a potential loser. A strategy must be developed to
overcome the low market share and weak competitive position in order to justify future
investments.
Business Unit D: It is in a shakeout period, has a relatively large share of the market, and is in a
relatively strong position. Investment should be made to maintain that position.
Business Unit E & F: They have relatively large market share and has strong competitive
position. It should be used for cash generation.
Business Unit G: It has low market share and weak competitive position. It should be managed
to generate cash in the short-run, if possible, however, the long-run strategy will more likely to
be divestment or liquidation.
Thus, the Product Market Evolution Matrix presented by Hofers explains in different seven stages that
can be opted by the business unit for the determination of the portfolio analysis Of the business to
combat the emerging situation in the market and keep the survival and profitability for the business
unit.
In broad terms, the DPM is a framework and process to review the performance
and relative potential of each product/SBU/market and to decide which
products/SBUs/markets to:
Most companies understand the different product life cycle stages, and that the products they sell all have a limited
lifespan, the majority of them will invest heavily in new product development in order to make sure that their
businesses continue to grow.
The product life cycle has 4 very clearly defined stages, each with its own characteristics that mean different things
for business that are trying to manage the life cycle of their particular products.
Introduction Stage – This stage of the cycle could be the most expensive for a company launching a new
product. The size of the market for the product is small, which means sales are low, although they will be
increasing. On the other hand, the cost of things like research and development, consumer testing, and the
marketing needed to launch the product can be very high, especially if it’s a competitive sector.
Growth Stage – The growth stage is typically characterized by a strong growth in sales and profits, and
because the company can start to benefit from economies of scale in production, the profit margins, as well
as the overall amount of profit, will increase. This makes it possible for businesses to invest more money in
the promotional activity to maximize the potential of this growth stage.
Maturity Stage – During the maturity stage, the product is established and the aim for the manufacturer is
now to maintain the market share they have built up. This is probably the most competitive time for most
products and businesses need to invest wisely in any marketing they undertake. They also need to consider
The Grand strategy matrix is based on two dimensions; competitive position and market growth. Data
needed for positioning SBUs in the matrix is derived from the portfolio analysis. This matrix offers
feasible strategies for a company to consider which are listed in sequential order of attractiveness in
each quadrant of the matrix.
Quadrant I: (Strong Competitive Position and Rapid Market Growth): Firms located in Quadrant
[of the Grand Strategy Matrix are in an excellent strategic position. The first quadrant refers to
the firms or divisions with strong competitive base and operating in fast moving growth
markets. Such firms or divisions are better to adopt and pursue strategies such as market
development, market penetration, product deve10pment etc. The idea behind is to focus and
make the current competitive base stronger.
Quadrant II: (Weak Competitive Position and Rapid Market Growth): Firms positioned in
Quadrant II need to evaluate their present approach to the market place seriously. Although
their industry is growing, they are unable to compete effectively, and the}? need to determine
why the firms current approach is ineffectual and how the company can best change to improve
its competitiveness. The suitable strategies for such firms are to develop the products, markets
and to penetrate into the markets.
Quadrant III: (Weak Competitive Position and Slow Market Growth): The films fall in this
quadrant compete in slow-growth industries and have weak competitive positions. These firms
must make some drastic changes quickly to avoid further demise and possible liquidation.
Extensive cost and asset reduction should be pursued first. An alternative strategy is to shift
resources away from the current business into different areas.
Quadrant IV: (Strong Competitive Position and Slow Market Growth): Finally, Quadrant IV
businesses have a strong competitive position but are in a slow-growth industry. Such firms are
better to go into related or unrelated integration in order to create a vast market for products
and services. These firms also have the strength to launch diversified programs into more
promising growth areas.
In general, strategies listed in the first quadrant of Grand Strategy Matrix are intended to maintain a
firm’s competitive edge and boost rapid growth, while the other three quadrants represent appropriate
actions to take to reach the best position, which is the first quadrant. Increasing market share,
expanding to new markets and creating new products are common strategies.
Advantages of Grand Strategy Matrix are that, this model allows better implementation of strategy
because 'of the intensified focus and objectivity. It conveys a lot of information about corporate plans in
a simplified format.
However, Grand Strategy Matrix may not be as simple as it seems, upon application to real life due to
the unforeseen factors and also complication in the business world. In addition, the relationship
between market share and profitability differs in different industries.
f. Competitive reaction
Probable impact of competitor response must be considered during
strategy design process
Competitor response can alter strategy success