Strategic Management11 PDF

Strategic management unit 1
STRATEGIC MANAGEMENT
STRATEGY: strategy is a plan or course of action or a set of decision rules

making a pattern that create a common threat.
Or
The pattern or common threat related to organization’s activities which are
derived from the policies, objectives and goals.
STRATEGIC MANAGEMENT DEFINITION:

The term strategic management refers to the managerial process of forming a
strategic vision, setting objectives, crafting a strategy, implementing and executing
the strategy, and then overtimes initiating whatever corrective adjustments in the
vision, objectives, strategy, and execution are deemed appropriate. It is a dynamic
process of formulation, implementation, evaluation and control of strategies to
realize the organization’s strategic intent. Strategic management involves the
formulation and implementation of strategic decisions and initiatives taken by a
company’s top management on behalf of owners, based on allocation and proper
utilization of resources and an assessment of internal and external environments in
which the organization competes.
Strategic management starts with developing a company mission (to give it
direction), objectives and goals (to give it means and methods for accomplishing
its mission), business portfolio (to allow management to utilize all facets of the
organization), and functional plans (plans to carry out daily operations from the
different functional disciplines). The overall objective of strategic management is
two-fold:
♦To create competitive advantage, so that the company can outperform the
competitors in order to have dominance over the market.
♦To guide the company successfully through all changes in the environment.
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NATURE:
1. Pervasive process: it is a widely spread or a broad process, highly coordinated
process which helps in organization’s planning and actions on such plan.
2. Ends and means: it is concerned with the goals of an organization i.e. ends and
a process of reaching such goals through means.
3. Distinctive management process: a good strategic plan has to work in different
environments depending upon different situations having different marketing
conditions feasible or not feasible and in different activities of competitors
favorable or unfavorable for the organizations.
4. Dynamic process: strategic management is created because of dynamic
environmental conditions, if the environment had been static always then,
there was no need for a strategies to develop but because of change in
environmental factor, it has led to the formation of new policies and
strategies.
5. Continuous process: strategic management is a continuous process and it is
evaluated continuously for its strength and weakness.
6. Iterative process: by being iterative, an activity may not be required to be
performed only once but repeated over time as the situation demands.
SIGNIFICANCE:
1. It guides the company to move in a specific direction. It defines organization’s
goals and fixes realistic objectives, which are in alignment with the company’s
vision.
2. It assists the firm in becoming proactive, rather than reactive, to make it
analyze the actions of the competitors and take necessary steps to compete in
the market, instead of becoming spectators.
3. It acts as a foundation for all key decisions of the firm.
4. It attempts to prepare the organization for future challenges and play the role of
pioneer in exploring opportunities and also help in identifying ways to reach
those opportunities.
5. It ensures the long term survival of the firm while coping with competition and
surviving the dynamic environment.
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6. It assists in the development of core competencies and competitive advantage

that helps in the business survival and growth.
Process:
1. Defining the levels of strategic intent of the business:
Strategic intent is a design for creating a desirable future. Strategic intent is what
an organization plans to strive for in future, and it can be expressed in broad terms
as well as in specific terms. Vision and mission of an organization expresses the
strategic intent of an organization in broad terms, and business definition, goals,
objectives expresses the strategic intent of an organization in relatively specific
terms.
 Vision: what an organization wishes to achieve in the long run.
 Mission: it states the role an organization plays in the society.
 Business definition: it explains the business in terms of customer group,
customer function and alternative technologies.
 Business model: it clarifies how the business will make revenue.
 Objectives: it states what is to be achieved in a given time period. It serves
as a yardstick for measuring performance.
2. Strategy formulation: it involves organizational appraisal and environmental

appraisal to identify strengths, weakness, opportunity and threat of the
organization. SWOT analysis is conducted to capitalize on strength and
opportunities, minimize weakness and neutralize threats.
Formulation of strategy takes place at four levels. At corporate level it deals with
decisions regarding management of portfolio of business. At business level it aims
at developing competitive advantage in individual business units, then decisions at
functional and operational level are taken.
Strategic alternatives and choice---alternative plans are required to select the best
strategy out of many possible options, the most appropriate strategy in the light
of SWOT is selected which leads to a strategic plan.
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3. Strategy implementation: a strategic plan is put to action by six sub-processes.

They are:
 Project implementation: it deals with setting up of an organization
 Procedural implementation: it deals with different aspects of regulatory
framework within which the organization operates.
 Resource allocation: it refers to procurement and commitment of resources
for implementation.
 Structural implementation: it refers to design of appropriate organization
structure and systems, and reorganizing to meet the needs of strategy.
 Functional implementation: it includes policies to be formulated in different
functional areas.
 Operational implementation: it involves plans regarding productivity,
process, people and pace.
 Behavioral implementation: it refers to leadership styles for
implementation of strategy and issues like corporate culture, politics, and
use of power, personal values, and ethics.
4. Strategic evaluation and control: it involves measurement of organizational

performance. A feedback system is setup and key performance indicators are
determined. Feedback from strategic evaluation helps in exercising control
over the strategy and reformulate strategies as and when necessary.
Business strategy:
Business strategy is the course of action adopted by an organization for each of its
business separately, to serve identified customer groups and provide value to the
customer by satisfaction of their needs. In the process, the organization uses its
competencies to gain, sustain and enhance its strategic or competitive advantage.
The source of competitive advantage for any business operating in an industry
arises from the skillful use of its core competencies. These competencies are used
to gain competitive advantage against rivals in an industry. Businesses need a set
of strategies to secure its competitive advantage.
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Different forms of strategy:

1. Corporate level strategy: it is long-range, action-oriented, integrated and
comprehensive plan formulated by the top management. It is used to
ascertain business lines, expansion and growth, takeovers and mergers,
diversification, integration and so forth. The corporate strategy is concerned
with what types of business the organization as a whole should be in and
therefore, it deals with the decision of scope. In fact, such a strategy not
only mentions how the activities of an organization’s business will be
coordinated to strengthen its competitive position but also describes how the
resources will be allocated to the business. Specifically, with the help of a
corporate strategy firms attempt to find reply to the fundamental question –
‘what business or set of business should we be in?’ Since corporate strategy
defines a firm’s mission statement, therefore, the responsibility of devising
such a strategy lies with top management. However, top management must
examine the below mentioned factors before formulating a corporate
strategy:
 Firm’s business definition
 Intended outcome of the strategy
 Resource allocation to the business
 Programs for future growth
2. Business level strategy: the strategies that relate to a particular business are
known as business level strategies. . It deals with a firm’s single strategic
business unit (SBU) – ‘a distinct business, with its own set of customers
and competitors that can be managed relatively independently of other
businesses within the organization’. Business strategy helps a firm to find
answer to the questions like – ‘which of our competencies meet the needs
and expectations of the customers in its target market?’ Before formulating
a business strategy, a firm has to decide how to divide itself into SBU’s.
once the SBU’s are created, the next step in the formulation of business
strategy is to decide about:
 The SBU’s objectives and scope
 How resources should be allocated to its product-market entities and
functional departments
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 Which broad competitive strategy to pursue to build a sustainable

competitive advantage in its product-markets.
3. Functional level strategy: developed by the first line managers or

supervisors, functional level strategy involves decision making at the
operational level concerning particular functional areas like marketing,
production, human resource, finance and so on.
Characteristics of strategic management decisions at different levels
Characteristics Corporate level Business level Functional level

Type Conceptual Mixed Operational
Measurability Value Semi Usually
judgements quantifiable quantifiable
dominant
Frequency Periodic or Periodic or Periodic
sporadic sporadic
Relation to Innovative Mixed Supplementary
present activities
Risk Wide range Moderate Low
Profit potential Large Medium Small
Cost Major Medium Modest
Time horizon Long range Medium range Short range
Flexibility High Medium Low
Cooperation Considerable Moderate Little
required
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Difference between strategy and tactics:
Basis for Strategy Tactics

comparison
Meaning A long-range A carefully
blueprint of an planned action
organization’s made to achieve a
expected image and specific objective
destination is known is tactics.
as strategy.
Concept An organized set of Determining how

activities that can the strategy be
lead the company to executed.
differentiation.
Length of time Long period of time Short period of time
Nature Competitive Preventive

Focus on Purpose Task
Formulated at Top level Middle level
Risk involved High Low
Approach Proactive Reactive
Flexibility Comparatively less High
Orientation Future oriented Towards the
present conditions
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Competitive advantages as focal point of strategy
The main challenge for business strategy is to find a way of achieving a

sustainable competitive advantage over the other competing products and firms
in a market.
A competitive advantage is an advantage over competitors gained by offering
consumers greater value, either by means of lower prices, or by providing greater
benefits and services that justifies higher prices.
Porter suggested four generic business strategies that could be adopted in order to
gain competitive advantage.
1. Cost leadership strategy: it aims to achieve the overall lowest cost structure in
an industry. This can be accomplished by having efficient business system. In
fact, an efficient business system calls for economy of scale and cost
efficiencies to enable a firm to become the lowest cost producer. Generally it is
believed that the cost of producing or distributing a product or service
decreases with an increase in accumulated experience of a firm in producing or
distributing such a product or service. Cost leadership not only helps a firm to
undercut competitors but also gain market share along with better profit
margins.
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2. Differentiation strategy: porter advocates, marketers cannot achieve success in

the present competitive business unless they hold some sort of competitive
differential advantage over their rivals. In recent years, much attention has
been devoted by the marketers to maintain distinctive competencies – a
strength that is unique and that makes an organization superior to its
competitors in the eyes of customers. Therefore, distinctive competencies can
be exploited in gaining a competitive advantage. Thus, a firm needs to use
different sources of differentiation at different times to make this strategy
meaningful to its customers. The marketers have been using different sources
of competencies at different times. For example, better quality, efficient
distribution, research and development, better customer services and brand
image.
3. Focus strategy: focus strategy as suggested by porter is based upon the choice
of a narrow competitive scope within an industry. By pursuing this strategy, a
firm decides to focus on a particular market segment and tries to achieve its
objectives by emerging the market leader in a niche market. The segment may
be a group of customers, a geographical area, or a part of product or service
line. Thus, the focus strategy calls for the selection of a segment or groups of
segments of a market followed by formulation of strategy for the segments.
Accordingly, this strategy aims to engage either cost leadership strategy or
differentiation strategy to a part or segment of a market.
A cost focus strategy aims to lowering the prices by controlling costs in a narrow
target market. For example, a firm may seek to be the low-cost producer in only
one product line or in a limited geographic market.
A differentiation focus strategy strives to tailor products to the specialized needs of
the market segment. Thus such a strategy exploits some elements of difference of a
firms market offering to a narrow target market. For example, a firm may exploit
its distinctive competencies to focus on one or a few market segments.
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Strategic intent:
By strategic intent we refer to the purposes the organization strives for. These may
be expressed in terms of a hierarchy of strategic intent. Broadly stated, these could
be in the form of a vision and mission statement for the organization as a corporate
whole. At the business level of firms, these could be expressed as the business
definition and business model. When stated in precise terms, as an expression of
aims to be achieved operationally, these may be the goals and objectives.
Vision: the vision encapsulates the basic strategic intent. It articulates the
position that a firm would like to attain in the distant future. It is what ultimately
the firm or a person would like to become. Kotter defines it as a “description of
something (an organization, a corporate culture, a business, a technology, an
activity) in the future.
Features of a good vision

 It should be idealistic (should be realistic)
 Good visions are inspiring and exhilarating
 Good visions help in the creation of a common identity and a shared
sense of purpose
 Good visions are competitive, original and unique
 Good vision foster risk-taking and experimentation
Example: Tata tea – to be India’s foremost tea based Beverage

Company.
Mission: mission is what an organization is and why it exists. It is the purpose or

reason for the organization’s existence. Thompson defines mission as the
“essential purpose of the organization, concerning particularly why it is in
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existence the nature of the businesses it is in and the customers it seeks to serve
and satisfy”.
Characteristics of a mission statement
 It should be feasible: a mission statement should always aim high but it should
not be an impossible statement. It should be realistic and achievable.
 It should be precise: it should not be so narrow as to restrict the organization’s
activities, nor should it be too broad to make itself meaningless.
 It should be clear: it should be clear enough to lead to action.
 It should be motivating: it should be motivating for members of the
organization and of the society and they should feel it worthwhile working for
such an organization or being its customers.
 It should indicate the major components of strategy: a mission statement,
along with the organizational purpose should indicate the major components
of the strategy to be adopted.
 It should indicate how objectives are to be accomplished.
Example: Tata tea – drive long term profitable growth,

Make Tata tea a great place for work.
Business definition: it explains the business in terms of customer group, customer

function and alternative technologies. In business definition, customer groups are
created according to the identity of customers, customer functions are based on
provision of goods/services to customers and alternative technologies describe
different ways in which a particular function can be performed for a customer. A
clear business definition is helpful in identifying several strategic choices. The
choices regarding various customer groups, various customer functions and
alternative technologies give the strategists various strategic alternatives.
Business model: it implies a strategy for the effective operation of the business,
ascertaining sources of income, desired customer base and financing details. Rival
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firms, operating in the same industry relies on the different business model due to
their strategic choice.
Goals and objectives: goals denote what an organization hopes to accomplish in a

future period of time. They represent the future state or outcome of effort put in
now. A broad category of financial and non-financial issues are addressed by the
goals that a firm sets.
Objectives are the ends that state specifically how the goals shall be achieved.
They are concrete and specific in contrast to goals that are generalized. In this
manner, objectives make the goals operational. While goals may be qualitative,
objectives tend to be mainly quantitative in specification.
Role of objectives
1. Objectives define the organization’s relationship with its environment
2. Objectives help an organization pursue its vision and mission
3. Objectives provide the basis for strategic decision-making
4. Objectives provide the standards for performance appraisal
Characteristics of objectives
1. Objectives should be understandable

2. Objectives should be concrete and specific
3. Objectives should be related to a time frame
4. Objectives should be measurable and controllable
5. Objectives should be challenging
6. Different objectives should correlate with each other
7. Objectives should be set within constraints
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Dimensions of strategic decisions
Decision making is a managerial process. It is the function of choosing a particular

course of action out of several alternative courses for the purpose of
accomplishment of the organizational goals. Decisions may relate to general day
to day operations. They may be major or minor. They may be strategic, tactical or
operational in nature.
The major dimensions of strategic decisions are:
1. Strategic issues require top-management decisions: strategic issues involve
thinking in totality of the organization’s objectives in which a considerable
amount of risk is involved. Hence, problems calling for strategic decisions require
to be considered by the top management.
2. Strategic issues involve the allocation of large amounts of company resources:
it may require either a huge financial investment to venture into a new area of
business or the organization may require a huge amount of manpower with new
skill sets.
3. Strategic issues are likely to have a significant impact on the long term
prosperity of the firm: generally the results of strategic implementation are seen
on a long term basis and not on immediate terms.
4. Strategic issues are future-oriented: strategic thinking involves predicting the
future environmental conditions and how to orient for the changed conditions.
5. Strategic issues usually have major multi-functional or multi-business
consequences: as they involve organization in totality they affect different
sections of the organizations with varying degree.
6. Strategic issues necessitate consideration of factors in the firm’s external
environment: strategic focus in an organization involves orienting its internal
environment to the changes of external environment.
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Corporate level and business level strategists and their role in

strategic management
1. Board of directors: are the owners of an organization such as shareholders,

controlling agencies, government, financial institutions, etc. They are responsible
for governance of an organization, technology collaboration, new product
development and senior management appointments. They guide the senior
management in setting and accomplishing objectives, review and evaluate
organization performance.
2. Chief executive officer: is answerable for all aspects of strategic management
from the formulation to the evaluation of the strategy. They play a major role in
strategic decision making and provide the direction for the organization so that it
can achieve its purpose. They assist in setting the mission of the organization.
They are responsible for deciding the objectives, formulating and implementing
the strategy.
3. Senior management: or top management consists of managers at highest level
managerial hierarchy. They look after renovation, technology up progression,
diversification and expansion and also focus on new product development. They
assist the board and chief executives in formulating, implementing and evaluating
the strategy.
4. Corporate planning staff: plays a supporting role. They put in order and
communicate the strategic plans. They make available administrative support and
fulfill the function of assisting the introduction, working and maintenance of
strategic management system.
5. Consultants: may be individuals, academicians or consultancy companies who
are specialized in strategic management activities. They will advise and assist
managers to improve the performance and effectiveness of an organization. They
provide services of corporate strategy and planning.
6. Middle level managers: look after operational matters, so they rarely play an
active role in strategic management. They are the implementers of decision taken
by top level and followers of policy guidelines. They contribute to generation of
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ideas and in development of strategic alternative. They also help in setting

objectives at departmental level.
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Strategic management
Business environment
The sum total of all individuals, institutions and other forces that are outside the
control of a business enterprise but the business still depends upon them as they
affect the overall performance and sustainability of the business.
Characteristics of business environment
Business environment exhibits many characteristics. Some of the important – and
obvious – characteristics are briefly described here.
♦ Environment is complex: the environment consists of a number of factors,
events, conditions and influences arising from different sources. It is difficult to
comprehend at once what factors constitute a given environment. All in all,
environment is a complex that is somewhat easier to understand in parts but
difficult to grasp in totality.
♦ Environment is dynamic: the environment is constantly changing in nature. Due
to the many and varied influences operating, there is dynamism in the environment
causing it to continuously change its shape and character.
♦ Environment is multi-faceted: What shape and character an environment
assumes depends on the perception of the observer. A particular change in the
environment, or a new development, may be viewed differently by different
observers. This is frequently seen when the same development is welcomed as an
opportunity by one company while another company perceives it as a threat.
♦ Environment has a far reaching impact: The environment has a far reaching
impact on organizations. The growth and profitability of an organization depends
critically on the environment in which it exists. Any environment change has an
impact on the organization in several different ways.
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Components of business environment

The environment in which an organization exists could be broadly divided into
two parts the external and the internal environment. The external environment
(Macro Environment) includes all the factors outside the organization which
provide opportunity or pose threats to the organization. The internal environment
(Micro Environment) refers to all the factors within an organization which impart
strengths or cause weaknesses of a strategic nature.
The environment in which an organization exists can, therefore, be described in
terms of the opportunities and threats operating in the external environment
apart from the strengths and weaknesses existing in the internal environment.
The four environmental influences could be described as follows:
♦ an opportunity is a favorable condition in the organization's environment which
enables it to consolidate and strengthen its position. An example of an opportunity
is growing demand for the products or services that a company provides.
♦ a threat is an unfavorable condition in the organization's environment which
creates a risk for, or causes damage to, the organization. An example of a threat is
the emergence of strong new competitors who are likely to offer stiff competition
to the existing companies in an industry.
♦ a strength is an inherent capacity which an organization can use to gain strategic
advantage over its competitors. An example of a strength is superior research and
development skills which can be used for new product development so that the
company gains competitive advantage.
♦ a weakness is an inherent limitation or constraint which creates a strategic
disadvantage. An example of a weakness is over dependence on a single product
line, which is potentially risky for a company in times of crisis.
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The external environmental analysis – the general environment and

competitive environment
The external environment facing the organization consists of both a general
environment and a competitive environment. The competitive environment
consists of the industry and markets in which an organization competes. The
general environment, in contrast, is often referred to as the macro-environment.
This is because changes that occur here will have an effect that transcends firms
and specific industries.
The above figure shows the relationship between the general environment,
competitive environment and the organization.
A. General environment: there are eight sectors in general environment. These
are:
1. Economic environment: it consists of macro-level factors related to the means
of production and distribution of wealth that have an impact on the business of
an organization. Some of the important factors and influences operating in the
economic environment are:
 The economic stage in which a country exists at a given point of time.
 The economic structure adopted such as capitalistic, socialistic, or mixed
economy.
 Economic policies such as industrial, monetary and fiscal policies.
 Economic indices like national income, distribution of income, rate and growth
of GNP, per capita income, rate of savings and investments etc.
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 Infrastructural factors such as financial institutions, banks, modes of

transportation and communication facilities, etc.
2. International environment: the international (or global) environment consists of

all those factors that operate at the transnational, cross-cultural and across- the-
border level, having an impact on the business of an organization. Some of the
important factors and influences operating in the international environment are:
 Globalization, its process, content, and direction
 Global economic forces, organizations, blocks and forums
 Global trade and commerce, its process and trends
 Global human resource: institutions, availability, nature and quality of skills
and expertise, mobility of labor and other skilled personnel
 Global markets and competitiveness
3. Market environment: the market environment consists of factors related to the

groups and other organizations that compete with and have an impact on an
organization’s markets and business. Some of the important factors and
influences operating in the market environment are as follows:
 Customer or client factors such as the needs, preferences, perceptions,
attitudes, values, bargaining power, buying behavior and satisfaction of
customers.
 Product factors such as the demand, image, features, utility, function, design,
life cycle, price, promotion, distribution, differentiation, and availability of
substitutes of products or services.
 Marketing intermediary factors such as levels and quality of customer service,
middlemen, distribution channels, logistics, costs, delivery systems and
financial intermediaries.
 Competitor related factors such as the different types of competitors, entry
and exit of major competitors, nature of competition and relative strategic
position of major competitors.
4. Political environment: the political environment consists of factors related to

management of public affairs and their impact on the business of an
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organization. Some of the important factors and influences operating in the

political environment are:
 The political system and its features like nature of the political system,
ideological forces, political parties and centers of power.
 The political structure, its goals and stability.
 Political processes like operation of the party system, elections, funding of
elections and legislation with respect to economic and industrial promotion
and regulation.
 Political philosophy, government’s role in business, its policies
and interventions in economic and business development.
5. Regulatory environment: the regulatory environment consists of factors

related to planning, promotion and regulation of economic activities by the
government that have an impact on the business of an organization. Some of
the important factors and influences operating in the regulatory environment
are as follows:
 The constitutional framework, directive principles, fundamental rights and
division of legislative powers between the central, state and local
governments.
 Policies related to licensing, monopolies, foreign investment and financing of
industries.
 Policies related to distribution and pricing and their control.
 Policies related to imports and exports.
 Other policies related to the public sector, small-scale industries, sick
industries, development of backward areas, control of environmental pollution
and consumer protection.
B. Competitive environment – Porter’s five forces model: it is the dynamic

external system in which a business competes and functions. The competitive
environment is perhaps the major force that shapes the marketing approach
and strategies of the firms within an industry. On the basis of structures,
markets can be conveniently divided into four major classes:
Perfect competition refers to a market situation that comprises large number of
buyers and sellers in the market selling a homogeneous product.
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Monopoly is a market situation where entire market is controlled by a single

seller.
Monopolistic competition is a market situation in which there is a keen
competition among a group of a large number of small sellers having some degree
of monopoly because of the differentiation of their products.
Oligopoly refers to a market that consists of a few sellers and interdependence in
decision-making, therefore, becomes a dominant consideration in such a market.
Price competition is used for a market situation where price alone may provide a
basis for differentiation. This is true mostly in the case of prestige products such
as art objects.
One of the most useful frameworks for analyzing the nature and intensity of
competition in a given industry has been developed by Michael E. Porter. To
determine the state of competition in a market, Porter (1980) argues that
managers need to identify the structure of the market in terms of five basic
competitive forces.
1. Threat of new entrants: it is the extent to which new firms can join the
industry. New entrants can serve to increase the degree of competition in
an industry. It is essential for existing firms to create high barriers in order
to deter new entrants. Some key factors affecting these entry barriers
include:
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 Capital investment: high barriers to entry exit when large capital

investment are required to start a business.
 Economies of scale: when economies of scale is difficult for a new entrant
to start small and gradually build up volume.
 Product differentiation: product differentiation and brand identity which
give existing firms customer’s loyalty, can act as barrier to entry for the
entrants.
 Absolute cost advantage: when cost of existing firms is lower than the new
entrants, then the cost serves as an entry barrier.
 Access to distribution channel: in certain industries, an access to
established channel for the new entrants is difficult which in turn becomes a
barrier to entry.
2. Bargaining power of customers: is defined as the ability of the customers to

compete for their interests in the market. This ability enables them to get
better value for their investments by bringing the prices down, getting higher
quality, making the competitors to play against one another. Powerful
buyers mean that a firm has to keep its prices low, therefore, the greater the
bargaining power of customers, the lower the profit potential in the industry.
The bargaining power of the customers is highly influenced by the following
factors:
 Many sellers: the customers bargaining power is bound to be high if there
are many suppliers of the product they intend to buy.
 Size of buyers purchase: generally bargaining power of customers is high
if their purchase order size represents a larger proportion of the sellers total
sales brand loyalty and differentiation.
 Backward integration: the customers bargaining power is more when they
are purchasing a product or service that they have to use as a component
for something they themselves are producing.
 Standard product: customers tend to be more powerful when the items
needed are of standard quality in the supplier industry.
3. Bargaining power of suppliers: represents the power that the suppliers can
exert over the businesses that constitute the industry by threatening to
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raise their prices or reduce the quality of their goods and services. Suppliers
tend to be powerful when they are few in number. The greater the bargaining
power of suppliers, the lower the profit potential for businesses operating in
the industry. The bargaining power of suppliers is highly influenced by a
number of factors that include:
 Availability of substitute suppliers: the bargaining power of the supplier is
generally low if substitutes are available in the industry. For example, if the
fuel used can be changed from petrol to gas.
 Supplier concentration: the bargaining power of suppliers will be higher if
the supply is dominated by a few firms in the industry and they are more
concentrated than the industry they sell to.
 Switching cost of changing to an alternative supplier: the suppliers tend to
have higher bargaining power if the buyers switching cost of defection to
an alternative supplier is high.
 The threat of backward integration by buyers: the bargaining power of
supplier is bound to go up if buyers do not threaten to integrate backwards
into supply.
4. Threat of substitute products or services: is the extent to which business

houses in other industries offer substitute products for an established
product line. The more the substitutes, the more it will be threat to an
industry because customer can easily move from one product to another
product if it satisfied their basic needs. The threat of substitute products
depends on the following factors:
 The price and performance of substitute: when the price of the substitute
products with the same core and utility is lower than the threat is high.
However, this threat would be low if substitutes are either more costly or
less.
 Switching costs for customers: if the cost of switching to substitutes is high,
the threat is low. In case such a cost is low, threat is high.
 Buyer’s willingness to substitute: the threat is very low in case of satisfied
and loyal customers who generally do not defect. However this threat is
high in case of dissatisfied ones.
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5. Rivalry among existing competitors: is the extent to which the firms within
an industry passively or aggressively compete with one another. In fact, it
refers to how the competing firms continually attempt to improve their
positions in the industry by using such market measures like better
customer services, higher advertising campaign, and introduction of
improved products. The major factors that contribute towards rivalry
between competitors are:
 Rate of market growth: a decline in market growth generally increases the
rivalry among the competitors. However, such rivalry remains low in a
rapidly growing market.
 Switching costs: a high switching costs discourages customer defection,
therefore, rivalry is low. Conversely a low switching cost not only
encourages customer defection but also increases the rivalry.
 Exit cost: a high exit cost results in a high rivalry but rivalry will be low
in such industries where such a cost will be low.
 Diversity of competitors: a higher degree of similarity between the different
firms in the industry generally results in the low rivalry. In contrast, an
industry with structurally, culturally and geographically diverse firms finds
intense rivalry.
Internal environmental analysis

A. Resource based view
Resource-based view emphasizes that a firm can create competitive advantage if

it succeeds in creating superior value for the customers in comparison to its
competitors by making use of its internal resources and capabilities rather than
external forces and industry variables. In order to assess the capabilities and
resources for the strategic growth an organization needs a systematic process
which is as follows:
Understanding corporate resources and capabilities

Establishing and sustaining competitive advantage
Value chain analysis
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Resource audit and utilization

Business process reengineering
1. Understanding corporate resources and capabilities: generally, resources

represent anything that a firm possesses. From a strategic perspective, resources
are the reflections of a firm’s strengths and weaknesses in comparison to its
competitors. However, the term resources in resource-based view refers to a set
of assets, capabilities, processes, skills, information and knowledge that help a
firm to compete with its competitors. Resources of a firm can be classified into
two major classes:
Tangible resources: they include such assets that can be seen, touched and
quantifies. Example financial assets (debtors, cash in hand, cash at bank), physical
assets (land, building) etc.
Intangible resources: assets that does not have any physical existence. Example
human resources (traits, abilities of a firms employee), innovation and technology
(patents, copyright) etc.
To identify the strategic options, to compete in a heavily competitive market,

every organization needs to identify and analyze its capabilities. Such capability
may allow a firm to achieve superior performance in comparison to its
competitors. Thus, capabilities may be referred as “the ability of a firm to
integrate and utilize its resources in order to get competitive advantage over
competitors.
2. Establishing and sustaining competitive advantage: a firm’s superior
performance is highly dependent on its resources and capabilities. To develop any
kind of competitive advantage in the market, a firm must possesses a unique
collection of resources and capabilities technically referred as “core competencies”
that would help a firm to do better than its competitors over a long period of time.
To determine a sustainability of a firms core competencies, a firm can use one or
more of the following tests.
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 Test of inimitability: this test measures the extent to which a firm’s resources
and capabilities can be duplicated by the competitors.
 Test of durability: this test enables a company to know how long it can
maintain its distinctive competency.
 Test of appropriability: this test measures the extent a company shall enjoy
the benefits created by its distinctive competencies.
 Test of substitutability: it measures whether a unique competence used by a
firm as a competitive advantage can be surpassed by a different resource.
Generally it happens when a firm achieves success by using a specific
competence as competitive advantage whereas its competitors uses totally
different source of competitive advantage & succeeds.
 Test of competitive superiority: it aims to assess the worth of a firms
competencies in comparison to its competitors. Therefore, such a test
reveals whose competencies are really better in the industry.
3. The value chain analysis: value chain analysis is a process where a firm
identifies its primary and support activities that add value to its final product
and analyze these activities to reduce costs or increase differentiation. It
represents the internal activities a firm engages in when transforming inputs
into outputs.
4. Resource audit & utilization: once core competencies and sources of
competitive advantage have been identified, a firm then needs to conduct an
audit not only to identify the resources but can also use to meet the
expectations of customers and challenges of the competitors and also to
understand their nature and competitive strength.
5. Business process reengineering: to meet the growing demands of intense
competition, the organizations have to focus both on resources generation and
on their efficient utilization. Every effort has to be made to maintain a higher
productivity through a high level of efficiency. To attain this goal, even
organizations might have to go for radical changes in their processes
technically known as “business process Reengineering”. Reengineering
involves the fundamental rethinking and radical design of business processes
to achieve improvements in the organization.
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The value chain analysis

Value chain analysis is a process where a firm identifies its primary and support
activities that add value to its final product and analyze these activities to reduce
costs or increase differentiation. It represents the internal activities a firm engages
in when transforming inputs into outputs.
M. Porter introduces the generic value chain model in 1985. Value chain (VC) is
formed of primary activities that add value to the final product directly and
support activities that add value indirectly. According to Porter, an organizations
activities can be categorized into two types: primary activities and support
activities.
Primary activities covers the following set of activities:

a) Inbound logistics: it include activities which are concerned with the
reception, storing and internal distribution of the inputs required for the output.
Example; procurement of raw materials, material handling, inventory control and
transport.
b) Operations: it include activities that transform the various inputs of
inbound logistics into final product.
c) Outbound logistics: it is a set of activities consisting of collection, storage
and distribution of the product or service to customers. Example; warehousing,
material handling and transportation.
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d) Marketing and sales: it attempt to keep customers informed about the

product or service and enable them to purchase the same. Example; marketing
communication and sales management.
e) Service activities: service activities are carried out to enhance the value of a
firm’s product or service. It includes installation, repair and training.
The supporting activities can be categorized as:
a) Procurement: it refers to the procedure used by a firm to acquire the raw
materials.
b) Technology development: it describes different ways in which a particular
function can be performed. It includes value activities concerning technology.
They key technologies may be concerned with the improvements in a firm’s
product, business process and raw materials.
c) Human resource management: it includes such activities which fall within the
scope of recruitment, training, development and rewarding of employees.
d) Infrastructure: it includes a firm’s structures systems, routines and managerial
culture. Example; financial control, quality control & strategic planning.
SWOT Analysis
SWOT analysis, evolved during the 1960s at Stanford Research Institute, is a
very popular strategic planning technique having applications in many areas
including management. Organizations perform SWOT analysis to understand
their internal and external environments. SWOT, which is the acronym for a
strengths, weaknesses, opportunities and threats, is also known as WOTS-UP or
TOWS analysis.
A simple application of the SWOT analysis technique involves these steps:
1. Setting the objectives of the organization or its unit.
2. Identifying its strengths, weaknesses, opportunities and threats
3. Asking four questions
 How do we maximize our strengths?
 How do we minimize our weaknesses?
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 How do we capitalize on the opportunities in our external environment?

 How do we protect ourselves from threats in our external environment?
4. Recommending strategies that will optimize the answers from the four
questions.
The SWOT analysis is usually done with the help of a template in the form of
a four cell matrix, each cell of the matrix representing the strengths,
weaknesses, opportunities and threats. A typical SWOT analysis matrix for a
hypothetical organization is as shown as below.
STRENGTHS WEAKNESSES
 Favorable location  Uncertain cash flow
 Excellent distribution network  Weak management information
 ISO 9000 quality certification system
 Established R&D center  Absence of strong USP
 Good management reputation for major product lines
 Low worker commitment
OPPORTUNITIES THREATS
 Favorable industry trends  Unfavorable
 Low technology options political
available environment
 Possibility of niche  Obstacles in licensing
target market new business
 Availability of reliable  Uncertain competitor’s
business partners intentions
 Lack of sustainable
financial backing
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Corporate level strategies: Corporate level strategies are basically about

decisions related to:
 Allocating resources among the different businesses of a firm
 Transferring resources from one set of businesses to others
 Managing and nurturing a portfolio of businesses.
These decisions are taken so that the overall corporate objectives are achieved.
Corporate strategies help to exercise the choice of direction that an organization
adopts. It is concerned with what types of business the organization as a whole
should be in and therefore, it deals with the decision of scope. There could be a
small business firm involved in a single business or a large, complex and
diversified conglomerate with several different businesses. The corporate strategy
in both these cases would be about the basic direction of the firm as a whole. In the
case of the small firm having a single business, it could mean the adoption of
courses of action that yield better profitability for the firm. In the case of the large,
multi-business firm, the corporate strategy would also be about managing the
various businesses for maximizing their contribution to the overall corporate
objectives and transferring resources from one set of businesses to others.
According to Glueck, there are four strategic alternatives: expansion, stability,
retrenchment and any combination of these three.
Expansion strategies: the corporate strategy of expansion is followed when an

organization aims at high growth by substantially broadening the scope of one or
more of its businesses in terms of their respective customer groups, customer
functions and alternative technologies – singly or jointly – in order to improve its
overall performance. The reasons for the expansion could be survival, higher
profits, increased prestige, economies of scale, larger market share etc. Expansion
strategies are also often known as growth or intensification strategies.
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Example: a chocolate manufacturer expands its customer group to include

middle-aged and old persons to its existing customers comprising children and
adolescents.
The firm can follow either of the five expansion strategies to accomplish its
objectives:
a) Expansion through concentration: when an organization focuses on
intensifying its core businesses with a view on expanding through either
acquiring a new customer base or diversifying its product portfolio, it is
having a concentration strategy. The organization may follow any of the
ways to practice expansion through concentration:
 Market penetration strategy: the firm focusing intensely on the
existing market with its present product.
 Market development type of concentration: attracting new
customers for the existing product.
 Product development type of concentration: introducing new
products in the existing market.
b) Expansion through diversification: the expansion through diversification is
followed when an organization aims at changing the business definition i.e.
either developing a new product or expanding into a new market, either
individually or jointly. Generally, the diversification is made to set off the
losses of one business with the profits of the other. There are mainly two
types of diversification strategies:
 Concentric diversification: when an organization develops or acquires
a new product or service that are closely related to the organizations
existing range of products and services is called concentric
diversification.
 Conglomerate diversification: when an organization expands itself
into different areas, whether related or unrelated to its core business is
called as a conglomerate diversification.
c) Expansion through integration: the expansion through integration means
combining one or more present operation of the business with no change in
the customer groups. This combination can be done through value chain.
The value chain comprises of interlinked activities performed by an
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organization right from the procurement of raw materials to the marketing

of finished goods. There are two ways of integration:
 Vertical integration: the vertical integration is of two types: forward
and backward. When an organization moves close to the ultimate
customer i.e. facilitate the sale of the finished goods, is said to have
made a forward integration. Example, the manufacturing firm open
up its retail outlet.
Whereas, if the organization retreats to the source of raw materials,
is said to have made a backward integration e.g. the shoe company
manufactures its own raw material such as leather through its
subsidiary firm.
 Horizontal integration: a firm is said to have made a horizontal
integration when it takes over the same kind of a product with
similar marketing and production levels. Example, the
pharmaceutical company takes over its rival pharmaceutical
company.
d) Expansion through cooperation: it is a strategy followed when an
organization enters into a mutual agreement with the competitor to carry
out the business operations and compete with one another at the same time,
with the objective to expand the market potential. The expansion through
cooperation can be done by following any of the strategies below:
 Takeover: in this, one firm acquires the other in such a way, that it
becomes responsible for all the acquired firms operations.
 Joint venture: under joint venture, both the firms agree to combine
and carry out the business operations jointly. The joint ventures are
usually temporary; that lasts till the particular task is accomplished.
 Strategic alliance: under this strategy, the firms unite or combine to
perform a set of business operations, but function independently and
pursue the individualized goals.
e) Expansion through internationalization: it is a strategy followed by an
organization when it aims to expand beyond the national market. The
expansion through internationalization could be done by adopting either of
the following strategies:
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 International strategy: the firm adopt international strategy to create

value by offering those products and services to the foreign markets
where these are not available. This can be done by providing the
standardized products with little or no differentiation.
 Multi – domestic strategy: under this strategy, the multi-domestic
firms offer the customized products/service that match the local
conditions operating in the foreign markets.
 Global strategy: the global firms rely on low – cost structure and offer
those products and services to the selected foreign markets in which
they have the expertise. Thus, standardized product / service is offered
to the selected countries around the world.
Retrenchment strategies: the retrenchment strategy is followed when an

organization aims at contraction of its activities through a substantial reduction or
elimination of the scope of one or more of its businesses in terms of their
respective customer groups, customer functions or alternative technologies – either
singly or jointly – in order to improve its overall performance.
There are three types of retrenchment strategies:
a) Turnaround strategy: it is a strategy followed by an organization when it
feels that the decision made earlier is wrong and needs to be undone before
it damages the profitability of the company. There are some certain
indicators which make it mandatory for a firm to adopt this strategy for its
survival. These are:
 Continuous losses
 Poor management
 Wrong corporate strategies
 Poor quality of functional management
 Declining market share.
Also, the need for a turnaround strategy arises because of the changes in
external environment i.e., change in the govt. policies, a threat from the substitute
products, changes in the tastes and preferences of the customers, etc.
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b) Divestment strategy: the firm is said to have followed divestment strategy

when it sells or liquidates a portion of a business or one or more of its
strategic business units or a major division, with the objective to revive its
financial position. Following are the indicators that mandate the firm to
adopt this strategy:
 Unable to meet the competition
 Huge divisional losses
 Difficulty in integrating the business within the company
 Market share is too small
 Lack of technological upgradations due to non – affordability
c) Liquidation strategy: this strategy is the most unpleasant strategy adopted
by the organization that includes selling off its assets and the final closure
or winding up of the business operations. Following are the indicators that
mandate the firm to adopt this strategy:
 Failure of corporate strategy
 Continuous loss
 Obsolete technology
 Outdated products/processes
 Business becoming unprofitable
 Poor management
Generic Business Level Strategies: According to Porter’s Generic Strategies

model, there are three basic strategic options available to organizations for
gaining competitive advantage. These are: Cost, Leadership, Differentiation
and Focus.
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The cost leadership strategy: when the competitive advantage of an organization

lies in its lower cost of products or services relative to what the competitors have
to offer, it is termed as cost leadership. The organization outperforms its
competitors by offering products or services at a lower cost than they can.
Customers prefer a low cost product, particularly if it offers the same utility to
them as comparable products available in the market do. Cost leadership offers a
margin of flexibility to the organization to lower the price if the competition
becomes stiff and yet earn more or less the same level of profit.
Several actions could be taken to achieve cost leadership:
 Accurate demand forecasting and high capacity utilization is essential to
realize cost advantages.
 Attaining economies of scale leads to lower per unit cost of
product/service.
 High level of standardization of products and offering uniform service
packages using mass production techniques, yield lower per unit costs.
The differentiation strategy: when the competitive advantage of an
organization lies in special features incorporated into the product or service
which is demanded by the customers, who are willing to pay for it, then the
strategy adopted is the differentiation strategy. The organization outperforms its
competitors who are not able or willing to offer the special features that it can
and does. Customers prefer a differentiated product/service when it offers
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them utility that they value and thus are willing to pay more for getting such a
utility. A differentiated product or service stands apart in the market and is
distinguishable by the customers for its special features and attributes.
Several actions could be taken to achieve differentiated strategy:
 An organization can incorporate features that offer utility for the
customer and match her tastes and preferences.
 An organization can incorporate features that can offer the promise of a
high quality of product/service.
 An organization can incorporate features that increase the buyer
satisfaction in tangible or non-tangible ways.
The focus strategy: focus strategy essentially rely on either cost leadership or
differentiation, but cater to a narrow segment of the total market. In terms of the
market, focus strategies are niche strategies. The more commonly used bases for
identifying customer groups are the demographic characteristics (age, gender,
income, occupation etc.), geographic segmentation (rural/urban or Northern India
or Southern India) or lifestyle (traditional/modern). For the identified market
segment, a focused organization uses either the lower cost or differentiated
strategy.
Several actions could be taken to achieve focus strategy:
 Choosing specific niches by identifying gaps not covered by cost leaders and
differentiators.
 Creating superior skills for catering to such niche markets.
 Achieving lower cost/differentiation as compared to competitors in serving
such niche markets.
Strategic analysis and choice:
Strategic choice: strategic choice could be defined as ‘the decision to select from
among the grand strategies considered, the strategy which will best meet the
enterprises objectives. The decision involves focusing on a few alternatives,
considering the selection factors, evaluating the alternatives against these criteria
and making the actual choice.
There are four steps in the process of strategic choice:
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1. Focusing on strategic alternatives: the aim of focusing on a few strategic

alternatives is to narrow down a choice to manageable number of feasible
strategies. Theoretically, it is possible to consider all the alternatives. On
the other hand, a decision maker would, in practice, limit the choice to a
few alternatives. The strategist examines what the organization wants to
achieve (desired performance) and what it has really achieved (actual
performance). The gap between the two positions constitutes the
background for various alternatives and diagnosis. This is gap analysis.
The gap between what is desired and what is achieved widens as the time
passes if no strategy is adopted.
2. Analyzing the strategic alternatives: narrowing down the strategic choice
should lead to a few feasible alternatives. These alternatives have to be
subjected to a thorough analysis. Such an analysis has to rely on certain
factors. These factors are termed as selection factors. The selection factors
can be broadly divided into two groups: the objective and the subjective
factors.
 Objective factors: objective factors are based on analytical
techniques and are hard facts or data used to facilitate a strategic
choice. They could also be termed as rational, normative or
prescriptive factors.
 Subjective factors: subjective factors are based on one’s personal
judgement, collective or descriptive factors.
3. Evaluating the strategic alternatives: evaluation of strategic alternatives
basically involves bringing together the analysis done on the basis of the
objective and subjective factors. Each factor is evaluated for its capability to
help the organization to achieve its objectives.
4. Choosing from among the strategic alternatives: the evaluation of strategic
choice should lead to a clear assessment of which alternative is the most
suitable under the existing conditions. The final step is, therefore, of
making the strategic choice. One or more strategies have to be chosen for
implementation. A blueprint has to be made that will describe the strategies
and the conditions under which they would operate.
Strategic analysis: strategic analysis is the investigation of the objective factors
being considered in the process of strategic choice. Questions such as which
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industries to enter and which industries to leave, which businesses to

create/acquire/divest, which products and markets to retain/grow/divest face the
strategists of organizations during strategic analysis. Strategic analysis is meant to
help answer these questions.
BCG Matrix: one of the earliest portfolio approaches to gain extensive use is the
four-cell matrix developed by Bruce Henderson of the Boston Consulting Group
(BCG) back in 1960. The BCG growth share matrix, a product portfolio analysis
provides a means of classifying products in the portfolio according to their market
share and the growth rate of the market in which they are competing.
The horizontal indicator, relative market share, indicates the ratio of
firm’s market shares in units sold (not rupees) to the market share of the
largest competitors.
The vertical indicator, market growth rate, refers to the annual rate of growth of
the market in which the product is sold.
According to the BCG model the separation between high and low market growth
rate of the products on the vertical indicator is made at 10 percent, and the
separation between high and low relative market share is at 1.00. Accordingly
anything under 10 percent on vertical indicator is typically considered a low
growth rate and anything above 10 percent a high growth rate. In the same way
anything less than 1.00 on horizontal indicator is considered a low market share
and anything above 1.00 a high market share.
The growth share matrix has four cells, which reflect the four possible
combinations of high and low growth with high and low market share. These cells
represent particular types of products, each of which has a particular role to play
in the overall product portfolio.
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 Star: a star is a product that holds a major market share in a rapidly growing
market. Laptop computers and mobiles are the best examples of stars. Since
such products have a high market share, therefore, they generate large
amount of cash for a firm. At the same time the high degree of market
growth attracts competitors. Such products initially require large amount of
resources to maintain high market share and later on they are able to earn
themselves. When the industry growth slows, a star becomes a cash cow.
 Cash Cow: cash cows are low growth, high market share products. Because
of that high market share, they have low costs and generate more cash than
required. They extract the profits by investing as little cash as possible. They
are located in an industry that is mature, not growing or declining. For
example desktop computers.
 Dog: dogs are low growth, low market share products. The electronic
typewriter and room heaters are best example of dog products. Such
products may show a profit, but these profits are likely to be constantly
reinvested to retain even a low market share. Their poor competitive
position puts them in a poor profitable position. The appropriate strategies
for dogs are harvest, divest or liquidate depending on which alternative
provides the most attractive cash flow.
 Question marks: question mark products have a low share of a high growth
market. They are called question marks because it is uncertain whether
management should invest more cash in them to get a larger share of the
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market or should eliminate them altogether because such an investment

would be ineffective. If question mark products cannot be turned into stars
within an acceptable time period, the model recommends divesting these
products. Many times such products require high amount of resources just
to achieve a profitable market share level in rapidly growing markets.
GE-Nine Cell Matrix: the GE matrix was developed by Mckinsey and company
consultancy group in the 1970’s. This matrix consists of nine cells with long term
product/market attractiveness on vertical indicator and business
strength/competitive position on horizontal indicator. The product/market
attractiveness is a composition of factors like market size, growth of market
segment, competition, government regulation, profitability, economies of scale,
technology and social/legal environment. Business strength or competitive
position can be a combination of market share, sales volume and growth, price
competitiveness, experience curve effects, product quality and distribution
effectiveness.
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Grow: business units that fall under grow attract high investment. Firms may go
for product differentiation or cost leadership. Huge cash is generated in this
phase. Market leaders exist in this phase.
Hold: business units that fall under hold phase attract moderate investment.
Market segmentation, market penetration, imitation strategies are adopted in
this phase. Followers exist in this phase.
Harvest: business units that fall under this phase are unattractive. Low priority is
given in these business units. Strategies like divestment, diversification, mergers
are adopted in this phase.
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Grand Strategy Selection Matrix: grand strategy matrix is very useful

instrument for creating different and alternative strategies for an organization.
Grand matrix has four quadrants; each quadrant contains different sets of strategies
and the entire firms along with their respective divisions must fall in one of the
quadrant. This matrix has two dimensions (competitive position and market
growth).
Suitable set of strategies for each quadrant are:
Quadrant I (Strong Competitive Position and Rapid Market Growth) –
Firms located in Quadrant I 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 development etc. The idea behind is to focus and
make the current competitive base stronger. In case such firms possess readily
available resources they can move on to integration strategies but should never be
at the cost of diverting attention from current strong competitive base.
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Quadrant II (Weak Competitive Position and Rapid Market Growth) – Firms

positioned in Quadrant II need to evaluate their present approach to the
marketplace seriously. Although their industry is growing, they are unable to
compete effectively, and they need to determine why the firm’s 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. Because Quadrant II firms are in a rapid-market-growth
industry, an intensive strategy (as opposed to integrative or diversification) is
usually the first option that should be considered. To achieve the competitive
advantage or becoming market leader Quadrant II firms can go into horizontal
integration subject to availability of resources.
However if these firms foresee a tough competitive environment and faster
market growth than the growth of the firm, the better option is to go into
divestiture of some divisions or liquidation altogether and change the business.
Quadrant III (Weak Competitive Position and Slow Market Growth) – The
firms 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
(retrenchment) should be pursued first. An alternative strategy is to shift resources
away from the current business into different areas. If all else fails, the final
options for Quadrant III businesses are divestiture or liquidation.
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.
Quadrant IV firms have characteristically high cash flow levels and limited
internal growth needs and often can pursue concentric, horizontal, or conglomerate
diversification successfully. Quadrant IV firms also may pursue joint ventures.
Advantages of Grand Strategy Matrix is 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.
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In the above figure each quadrant shows the different strategic options available
for the firms which are positioned in different quadrants.
Model of Grand Strategy Clusters: strategies that may be more advantageous

for firms to choose under one of four sets of conditions defined by market growth
rate and the strength of the firms competitive position.
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Market penetration: the main task here is to increase sales by encouraging wider
usage of existing products by existing customers.
Market development: the entering of new markets could involve expansion into
new geographic areas, both local and foreign, a shift from consumer to industrial
markets or, possibly, marketing the product or service to new segments or
demographic groups.
Product development: this is sometimes referred to as a continuous innovation
strategy, the intention of which is to protect or develop market share by the use
of product modifications and enhancement.
Diversification: diversification has the primary objective of reducing risk by
moving into new areas that afford good growth opportunities, better profit
prospects and greater levels of certainty. Such a strategy is commonly adopted in a
‘cash cow’ situation when there is reason to believe that the golden days of
profitability are gone for good.
 Product/concentric diversification: product diversification may sometimes
be referred to as concentric diversification. This requires a firm to develop,
or acquire new products which have market or technological synergies with
current products. These products may, or may not, be intended for sale to
the company’s present markets.
 Horizontal diversification: the firm adds new products that could appeal to
existing clients, e.g. a producer of sunglasses distributing tanning lotion.
 Conglomerate diversification: the adding of products or businesses that
have no relation to current technologies, products or markets.
Integration: commonly confused with diversification, integration relates more
precisely to the vertical aspects of manufacturing and distribution logistics.
 Backward integration: if a company were to undertake a strategy of
backward integration, investment would result in the acquisition of
vendors—for example, 7-Up purchasing their flavor supplier.
 Forward integration: this strategy usually involves the movement into
logistical, distributive, or retailing activities.
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 Horizontal integration: a pure form of growth, horizontal integration

encourages ownership or control of other firms in the industry.
Retrenchment: retrenchment is a common strategic response in markets that
are subject to adverse economic pressures, uncertainty, or cheap foreign
competition. Retrenchment can be differentiated from divestment, in that the
former is a reaction to temporary hardships whereas divestment has the
element of permanency about it.
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Strategy implementation: strategy implementation refers to the execution of the
plans and strategies, so as to accomplish the long term goals of the organization.
Simply, it is the technique through which the firm develops, utilizes and integrates
its structure, culture, resources, people and control system to follow the strategies
to have the edge over other competitors in the market.
Strategy implementation is the fourth stage of the strategic management process,
the other three being a determination of strategic mission, vision, and objectives,
environmental and organizational analysis, and formulating the strategy. It is
followed by strategic evaluation and control.
McKinsey 7s Model: it is a tool that analyzes firm’s organizational design by
looking at 7 key internal elements: strategy, structure, systems, shared values,
style, staff and skills, in order to identify if they are effectively aligned and allow
organization to achieve its objectives.
McKinsey 7s model was developed in 1980s by McKinsey consultants Tom
Peters, Robert Waterman and Julien Philips with a help from Richard Pascale and
Anthony G.
1
The model can be applied to many situations and is a valuable tool when
organizational design is at question. The most common uses of the framework
are:
 To facilitate organizational change.

 Improve the performance of the company.
 Examine the likely effects of future changes within a company.
 To help implement new strategy.
 To identify how each area may change in a future.
 Align departments and processes during a merger or acquisition.
In McKinsey model, the seven areas of organization are divided into the ‘soft’ and
‘hard’ areas. Strategy, structure and systems are hard elements that are much
easier to identify and manage when compared to soft elements. On the other hand,
soft areas, although harder to manage, are the foundation of the organization and
are more likely to create the sustained competitive advantage.
7 s Factors
Hard S Soft S
Strategy Style
Structure Staff
Systems Skills
Shared Values
 Strategy purpose of the business and the way the organization seeks to
enhance its competitive advantage.
 Structure represents the way business divisions and units are organized
and includes the information of who is accountable to whom. In other
words, structure is the organizational chart of the firm. It is also one of the
most visible and easy to change elements of the framework.
 Systems are the processes and procedures of the company, which reveal
business’ daily activities and how decisions are made. Systems are the area
of the firm that determines how business is done and it should be the main
focus for managers during organizational change.
2
 Skills are the abilities that firm’s employees perform very well. They
also include capabilities and competences. During organizational change,
the question often arises of what skills the company will really need to
reinforce its new strategy or new structure.
 Staff element is concerned with what type and how many employees an
organization will need and how they will be recruited, trained, motivated
and rewarded.
 Style represents the way the company is managed by top-level managers,
how they interact, what actions do they take and their symbolic value. In
other words, it is the management style of company’s leaders.
 Shared Values are at the core of McKinsey 7s model. They are the
norms and standards that guide employee behavior and company actions
and thus, are the foundation of every organization.
Organizational learning: Organizational learning is the process of creating,
retaining, and transferring knowledge within an organization. An organization
improves over time as it gains experience. From this experience, it is able to
create knowledge. This knowledge is broad, covering any topic that could
better an organization. Examples may include ways to increase production
efficiency or to develop beneficial investor relations. Knowledge is created at
four different units: individual, group, organizational, and inter organizational.
 Individual learning is the smallest community at which learning can occur.
An individual learns new skills or ideas, and their productivity at work may
increase as they gain expertise. The individual can decide whether or not to
share their knowledge with the rest of the group.
 Group learning is the next largest community. Reagans, Argote, and
Brooks (2005) studied group learning by examining joint-replacement
surgery in teaching hospitals. They concluded that "increased experience
working together in a team promoted better coordination and teamwork”.
Working together in a team also allowed members to share their knowledge
with others and learn from other members.
 Organizational learning is the way in which an organization creates and
organizes knowledge relating to their functions and culture. Organizational
learning happens in all of the organization's activities, and it happens in
different speeds. The goal of organizational learning is to successfully adapt
3
to changing environments, to adjust under uncertain conditions, and to

increase efficiency.
 Inter-organizational learning is the way in which different organizations
in an alliance collaborate, share knowledge, and learn from one another. An
organization is able to improve its "processes and products by integrating
new insights and knowledge" from another organization. By learning from
another organization, an organization is able to cut time costs, decrease the
risks associated with problem solving, and learn faster.
The most common way to measure organizational learning is a learning curve.
Learning curves are a relationship showing how as an organization produces
more of a product or service, it increases its productivity, efficiency, reliability
and/or quality of production with diminishing returns. Learning curves vary
due to organizational learning rates. Organizational learning rates are affected
by individual proficiency, improvements in an organization's technology, and
improvements in the structures, routines and methods of coordination.
Strategic Evaluation and Control: strategic evaluation and control is the

process of determining the effectiveness of a given strategy in achieving the
organizational objectives and taking corrective actions whenever required.
Strategic control: is a term used to describe the process used by organizations
to control the formation and execution of strategic plans. There are four types
of strategic control:
1. Premise control: it is designed to check systematically and continuously
whether or not the premises set during the planning and implementation
process are still valid.
2. Implementation control: it is designed to assess whether the results of
overall strategy associate with incremental steps and actions.
3. Strategic surveillance: it is designed to monitor a broad range of events
inside and outside the company that are likely to threaten the course of
the firm’s strategy.
4
4. Special alert control: it is the need to thoroughly, and often rapidly,

reconsiders the firm’s basic strategy based on a sudden and unexpected
event.
Strategic evaluation: it is the assessment process that provide executives and
managers performance information about program, projects, and activities
designed to meet business goals and objectives. Strategic evaluation operates
at two levels:
 Strategic level: wherein we are concerned more with the consistency of
strategy with the environment.
 Operational level: wherein the effort is directed at assessing how well
the organization is pursuing a given strategy.
Process of Evaluation:
1. Setting standards of performance: it must focus on questions like:
 What standards should be set?
 How should the standards be set?
 In what terms should these standards be expressed?
The firm must identify the areas of operational efficiency in terms of people,
processes, productivity and pace. Standards set must be related to key management
tasks. The criteria for setting standards may be qualitative or quantitative.
Therefore standards can be set keeping in mind past achievements, compare
performance with industry average or major competitors. Factors such as
capabilities of a firm, core competencies, risk bearing ability, flexibility and
workability must also be considered.
2. Measurement of performance: standards of performance act as a
benchmark in evaluating the actual performance. Operationally it is done
through accounting, reporting and communication system. They key areas
which must be kept in mind are---difficulty in measurement, timing of
measurement (critical points) and periodicity in measurement (task
schedule).
3. Analyzing variances: the measurement of actual performance and
comparing it with the standard or budgeted performance leads to an
5
analysis of variances. The two main tasks are noting deviations and finding
the cause of deviations.
 When actual performance is equal to budgeted performance
tolerance limits must be set.
 When actual performance is greater than budgeted performance one
must check the validity of standards and efficiency of management.
 When actual performance is less than budgeted performance we
must pinpoint the areas where performance is low and take
corrective actions.
4. Taking corrective actions: it consists of the following:
 Checking of performance: it includes in-depth analysis and diagnosis
of the factors that might be responsible for bad performance.
 Checking standards: it results in lowering or elevation of standards
according to the conditions.
 Reformulate strategies, plans, objectives: giving a fresh start to the
strategic management process.
Importance of Strategic Evaluation:
1. Strategic evaluation can help to assess whether the decisions match the
intended strategy requirements.
2. It helps to keep a check on the validity of a strategic choice.
3. Strategic evaluation, through its process of control, feedback, rewards and
review helps in a successful culmination of the strategic management
process.
4. The process of strategic evaluation provides a considerable amount of
information and experience to strategists that can be useful for new
strategic planning.

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Strategic management unit 1

STRATEGY: strategy is a plan or course of action or a set of decision rules

STRATEGIC MANAGEMENT DEFINITION:

6. It assists in the development of core competencies and competitive advantage

2. Strategy formulation: it involves organizational appraisal and environmental

3. Strategy implementation: a strategic plan is put to action by six sub-processes.

4. Strategic evaluation and control: it involves measurement of organizational

Different forms of strategy:

 Which broad competitive strategy to pursue to build a sustainable

3. Functional level strategy: developed by the first line managers or

Characteristics of strategic management decisions at different levels

Characteristics Corporate level Business level Functional level

Difference between strategy and tactics:

Basis for Strategy Tactics

Concept An organized set of Determining how

Length of time Long period of time Short period of time

Nature Competitive Preventive

Competitive advantages as focal point of strategy

The main challenge for business strategy is to find a way of achieving a

2. Differentiation strategy: porter advocates, marketers cannot achieve success in

Features of a good vision

Example: Tata tea – to be India’s foremost tea based Beverage

Mission: mission is what an organization is and why it exists. It is the purpose or

Example: Tata tea – drive long term profitable growth,

Business definition: it explains the business in terms of customer group, customer

Goals and objectives: goals denote what an organization hopes to accomplish in a

1. Objectives should be understandable

Dimensions of strategic decisions

Decision making is a managerial process. It is the function of choosing a particular

Corporate level and business level strategists and their role in

1. Board of directors: are the owners of an organization such as shareholders,

ideas and in development of strategic alternative. They also help in setting

Components of business environment

The external environmental analysis – the general environment and

 Infrastructural factors such as financial institutions, banks, modes of

2. International environment: the international (or global) environment consists of

3. Market environment: the market environment consists of factors related to the

4. Political environment: the political environment consists of factors related to

organization. Some of the important factors and influences operating in the

5. Regulatory environment: the regulatory environment consists of factors

B. Competitive environment – Porter’s five forces model: it is the dynamic

Monopoly is a market situation where entire market is controlled by a single

 Capital investment: high barriers to entry exit when large capital

2. Bargaining power of customers: is defined as the ability of the customers to

4. Threat of substitute products or services: is the extent to which business

Internal environmental analysis

Resource-based view emphasizes that a firm can create competitive advantage if

Understanding corporate resources and capabilities

Resource audit and utilization

1. Understanding corporate resources and capabilities: generally, resources

To identify the strategic options, to compete in a heavily competitive market,

The value chain analysis

Primary activities covers the following set of activities:

d) Marketing and sales: it attempt to keep customers informed about the

 How do we capitalize on the opportunities in our external environment?

Corporate level strategies: Corporate level strategies are basically about

Expansion strategies: the corporate strategy of expansion is followed when an

Example: a chocolate manufacturer expands its customer group to include

organization right from the procurement of raw materials to the marketing

 International strategy: the firm adopt international strategy to create

Retrenchment strategies: the retrenchment strategy is followed when an

b) Divestment strategy: the firm is said to have followed divestment strategy

Generic Business Level Strategies: According to Porter’s Generic Strategies