UNIT I

The word “strategy” is derived from the Greek word “stratçgos”; stratus (meaning army) and “ago”
(meaning leading/moving).

Strategy is an action that managers take to attain one or more of the organization’s goals. 

Features of Strategy

 FUTURE UNCERTAIN--- Strategy is significant because it is not possible to foresee the

future. Without a perfect foresight, the firms must be ready to deal with the uncertain events
which constitute the business environment.

 LONG TERM---Strategy deals with long term developments rather than routine operations, i.e.
it deals with probability of innovations or new products, new methods of productions, or new
markets to be developed in future.

 BEHAVIOURAL---Strategy is created to take into account the probable behavior of customers

and competitors.

 ENVIRONMENT SCANNING--- A strategy should provide the right combination of internal

and external factors. For this purpose, the sense and weaknesses of the organization and also
the influence of external factors should be considered when making a strategy that can be
adopted by the organization.

 DYNAMIC--- A strategy can never be static. Therefore, a strategy may have to be changed or
modified in view of the particular needs of the changing times.

 CONTRADICTORY --- In some cases, searches may also involve contradictory action. Due to
reason that a strategy depends on several different factors, a manager may have to take action
immediately or may result in such action for a later date, depending on the situation.

 TOP LEVEL ---Strategies are made by the top-level management of the company. On the other
hand, the managers at the low level are expected to implement the strategies that have been
decided by the top management of the organization

Strategy is a well defined roadmap of an organization. It defines the overall mission, vision and
direction of an organization. The objective of a strategy is to maximize an organization’s strengths and
to minimize the strengths of the competitors.

Strategy, in short, bridges the gap between “where we are” and “where we want to be”.
he first level of strategy in the business world is corporate strategy, which sits at the ‘top of the heap’.
Before you dive into deeper, more specific strategy, you need to outline a general strategy that is going
to oversee everything else that you do. At a most basic level, corporate strategy will outline exactly
what businesses you are going to engage in, and how you plan to enter and win in those markets.

Business Strategy

It is best to think of this level of strategy as a ‘step down’ from the corporate strategy level. In other
words, the strategies that you outline at this level are slightly more specific and they usually relate to
the smaller businesses within the larger organization.

Functional Strategy

This is the day-to-day strategy that is going to keep your organization moving in the right direction.
Just as some businesses fail to plan from a top-level perspective, other businesses fail to plan at this
bottom-level. This level of strategy is perhaps the most important of all, as without a daily plan you
are going to be stuck in neutral while your competition continues to drive forward. As you work on
putting together your functional strategies, remember to keep in mind your higher level goals so that
everything is coordinated and working toward the same end.
PROCESS OF STRATEGIC MANAGEMENT

Strategic management process has following four steps:

1. Environmental Scanning- Environmental scanning refers to a process of collecting, scrutinizing

and providing information for strategic purposes. It helps in analyzing the internal and external
factors influencing an organization. After executing the environmental analysis process,
management should evaluate it on a continuous basis and strive to improve it.
2. Strategy Formulation- Strategy formulation is the process of deciding best course of action for
accomplishing organizational objectives and hence achieving organizational purpose. After
conducting environment scanning, managers formulate corporate, business and functional
strategies.
3. Strategy Implementation- Strategy implementation implies making the strategy work as
intended or putting the organization’s chosen strategy into action. Strategy implementation
includes designing the organization’s structure, distributing resources, developing decision
making process, and managing human resources.
4. Strategy Evaluation- Strategy evaluation is the final step of strategy management process. The
key strategy evaluation activities are: appraising internal and external factors that are the root
of present strategies, measuring performance, and taking remedial / corrective actions.
Evaluation makes sure that the organizational strategy as well as it’s implementation meets the
organizational objectives.

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.

ADVANTAGES/IMPORTANCE/BENEFITS
Following are the benefits of strategic management process which allows the organizations to adopt it
for the long term success.

1. Strategic management is the process of formulating, implementing and evaluating strategies to

achieve its organization objectives.

2. Organization acts proactively rather than reactive to any situation.

3. Communicates the mission, vision, objectives and policies to all the employees to understand the
purpose of organization

4. Gathers information from external and internal environment assists in formulating strategies for the
future success of an organization.

DISADVANTAGES
1.Complex process: The strategic management includes various types of continuous process which
checks all type of major critical components. This includes the internal and external environments,
long term and short term goals, strategic control of the company’s resources and last but not the least it
also has to check the organizational structure. This is a lengthy process because a change in one
component can affect all the factors.
2. Time consuming process: In order to implement the strategic management it is necessary that
the top management spends proper quality time in order to get the process right. The managers
have to spend lot of time researching, preparing and informing the employees about this new
management. This type of long term and time consuming training and orientation would
hamper the regular activities of the company.

3. Tough implementation: When we speak the word strategic management then it seems to be a
huge and large word. But it is also a fact that the implementation of this management system is
difficult as compared to other management techniques. The implementation process calls for
perfect communication among the employees and employer.

4. Proper planning: When we say management systems then it calls for perfect planning. You
just cannot write things on paper and leave them. This calls for proper practical planning. This
is not possible by just one person but it is a team effort. When these types of processes are to be
implemented then you need to sideline various regular decision making activities which would
adversely affect the business in the long run.

TYPES OF FUNCTIONAL STRATEGY

Functional level strategy in marketing

Focuses on promotional techniques and their application, and on the price level optimization,
problem of distribution (decisions about choosing distribution channels), structure of
production, image of the company, public relations. Marketing strategies focus also on the
product range optimization. Important part is taking action to achieve the intended market
position. Managers promote sales, determine the advertising budget and the size of the sales
staff.

Marketing strategy also deals with public policies (elimination of legal, cultural and organizational
obstacles). Summing up marketing strategy is the most important element of the functional
structure, for the company trying to gain a loyal customer.

Functional strategy in finance

Forms the capital structure of the organization through choice of share structure, debt and bonds)
by optimizing financial costs. Debt policy deals with decision-making about the size of the loan
and its forms.
The financial structure involves is also the enterprise asset management. In order to generate
optimal revenues, the company establishes the structure of the investments of previously
accumulated cash. It also provides access to resources. Dividend policy deals with the allocation
of income between the shareholders and for development of the company.

Functional strategy of manufacturing

Strategic management in production deals with the development of manufacturing methods and
improving performance of people and machines. It is essential for the production planning
(determine the place, production volume and production methods). It has a direct relationship
with the quality of the manufactured products, costs incurred during production does not play a
significant role (are considered secondary).

Worth noting is other area of interest: automation, robotization and flexible manufacturing
systems. In a situation of continuous technical progress, selection of appropriate manufacturing
techniques provide a significant decision problem for managers. Managers must also take into
account various government regulations. i.e. Environmental Protection Agency requirements)

Functional strategies in strategic human resources

management
Human resource policy focuses on such aspects as: salaries, workforce selection
and evaluation of the results of the work. Employee relations is another dimension of human
resource policy. Also government regulations are taken into account (e.g. the Act on the rights of
the citizens). Typing the respective managers, who will soon be included in the composition of
the executives also apply in this strategy. This is directly related to the planning of vocational
training.

Research and development strategy

Mainly deals with product development. Involves decisions regarding the modification of the
existing products and where necessary needed to manufacture new ones on the basis of the
available techniques. Research and development strategy is also focused on the licensing and
conduct of the patent policy for the prevention of the use of the developed models or
generate revenue from their sale. Strong commitment in research and development are used for
the introduction on the market disruptive innovations and new products.

Advantages and disadvantages of functional strategies

Advantages:

 they are usually a complex of several operational level plans,

 by concentrating on one functional area employees and resources can be efficiently
assigned to the tasks about which they have most knowledge and experience,
 employees feel that their abilities are used effectively,

Disadvantages:

 they are not effective in small businesses, because they require additional resources and
staff,
 there may be conflict between overall corporate strategy and several specific functional
strategies,
 functional managers can lose sight of the main objective of the company

reThe 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.

tion.

1. FunctiMission Statement
Mission statement is the statement of the role by which an organization intends to serve it’s
stakeholders. It describes why an organization is operating and thus provides a framework within which
strategies are formulated. It describes what the 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 behaviour of the employees, and a statement of
the goals and objectives.

Features of a Mission

a. Mission must be feasible and attainable. It should be possible to achieve it.

b. Mission should be clear enough so that any action can be taken.
c. It should be inspiring for the management, staff and society at large.
d. It should be precise enough, i.e., it should be neither too broad nor too narrow.
e. It should be unique and distinctive to leave an impact in everyone’s mind.
f. It should be analytical,i.e., it should analyze the key components of the strategy.
g. It should be credible, i.e., all stakeholders should be able to believe it.
2. 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.

A vision is the potential to view things ahead of themselves. It answers the question “where we want to
be”. It gives us a reminder about what we attempt to develop. A vision statement is for the organization
and it’s members, unlike the mission statement which is for the customers/clients. It contributes in
effective decision making as well as effective business planning. It incorporates a shared understanding
about the nature and aim of the organization and utilizes this understanding to direct and guide the
organization towards a better purpose. It describes that on achieving the mission, how the
organizational future would appear to be.

An effective vision statement must have following features-

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.

3. Goals and Objectives

A goal is a desired future state or objective that an organization tries to achieve. Goals specify in particular what
must be done if an organization is to attain mission or vision. Goals make mission more prominent and
concrete. They co-ordinate and integrate various functional and departmental areas in an organization. Well
made goals have following features-

a. These are precise and measurable.

b. These look after critical and significant issues.
c. These are realistic and challenging.
 d. These must be achieved within a specific time frame.
e. These include both financial as well as non-financial components.

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-

a. These are not single for an organization, but multiple.

b. Objectives should be both short-term as well as long-term.
c. Objectives must respond and react to changes in environment, i.e., they must be flexible.
d. These must be feasible, realistic and operational.

FEATURES OF BUSINESS ENVIRONMENT onal strategies desmain feature

The main features of business environment are:

1. All the external forces:

Business Environment includes all the forces, institutions and factors which directly or indirectly

affect the Business Organizations.

2. Specific and general forces:

Business environment includes specific forces such as investors, customers, competitors and

suppliers. Non-human or general forces are Social, Legal, Technological, Political, etc. which affect

the Business indirectly.

3. Inter-relation:

All the forces and factors of Business Environment are inter-related to each other. For
example with inclination of youth towards western culture, the demand for fast food is
increasing.

4. Uncertainty:

It is very difficult to predict the changes of Business Environment. As environment is

changing very fast for example in IT, fashion industry frequent and fast changes are taking
place.

5. Dynamic:

Business environment is highly flexible and keep changing. It is not static or rigid that is why
it is essential to monitor and scan the business environment continuously.
6. Complex:

It is very difficult to understand the impact of Business environment on the companies.

Although it is easy to scan the environment but it is very difficult to know how these changes
will influence Business decisions. Some-time change may be minor but it might have large
impact. For example, a change in government policy to increase the tax rate by 5% may affect
the income of company by large amount.

7. Relativity:

The impact of Business environment may differ from company to company or country to country. For

example, when consumer organisation CES published the report of finding pesticides in cold drinks,

resulted in decrease in sale of cold drinks, on the other hand it increased the sale of juice and other

drinks.

BUSINESS ENVIRONMENT

The definition of business environment means all of the internal and external factors
that affect how the company functions including employees, customers,
management, supply and demand and business regulations.

An example of a part of a business environment is how well customers' expectations are met.

Environment which lies within the origin is known as internal environment. Internal factors
are generally regarded as controllable factors.
Factors of Internal Environment:

Internal environment includes internal factors of the business. It includes plans and policies,
human resource, financial resource, corporate image, plant and machinery, labour-
management relationship, promoter’s vision etc. The components of internal environment
are controllable.

1.PLANS AND POLICIES

The plans and policies of the firm should be properly framed taking into consideration the
objectives and resources of the firm. Proper plans and policies help the firm to accomplish its
objectives.

The higher authority must analyse the internal environment to foresee the changes and frame
appropriate policies well in time.

For example: the personnel policy in respect of promotion should be based on merit rather
than seniority.

2. Human Resource:

The survival and success of the firm largely depends on the quality of human
resources. The social behaviour of the employees greatly affects the working of
the business. The characteristics of human resource like skill, quality, morale,
commitment can contribute to the success of the organisation.

If the employees of the organisation are skillful and committed, it can take the
firm to a great height. Neglecting the human resource by the management can
hamper the success of the organisation.

3. Financial Resources:

Capital is the lifeblood of every business. Finance relates to money. A firm needs
adequate funds to meet its working capital and fixed capital requirements.
There is a need to have proper management of working capital and fixed capital.
Financial factors like financial policies, financial status (position) and capital structure ‘a/so
influence the internal environment of a firm affecting its performance- If the firm enjoys
sufficient financial resource, it can spend on research and promotional activities.

4. Corporate Image:

A firm should develop, maintain and enhance a good corporate image in the minds of
employees, investors, customers etc. Poor corporate image is a weakness of the firm.

Constant research and development activities should be undertaken by the firm to enhance
the quality of the brand. This helps in creating a corporate image and strengthens the
standard of the firm in the market.

5. Plant and Machinery:

Plant and machinery is the internal part of the business firm. If the machines are obsolete or
outdated, they should be replaced by a new one, or that adversely affects the business firm.

6. Labour and Management Relationship:

There should be smooth labour and management relationship. The management should
understand the problems of their workers and gain confidence in them. The labours should
be motivated by providing with monetary and non-monetary incentives (benefits).

External Environment:

To run the business successfully, it is necessary to understand the environment with in which
the business operates. Business environment j is a set of external factors that affects the
business decisions.

The environment, which lies outside the organisation, is known as external | environment.
External factors are unpredictable and uncontrollable. They are beyond the control of the
company.

Definition of external environment:

According to William Glueck and Jauck, “In environment there are several factors which
constantly bring opportunities and threats to the business firm. It includes social, economic,
technological and political conditions”.

External environment is further classified as:

I. Micro Environment

II. Macro Environment

II. Macro Environment

I. Micro Environment:

Micro environment is also known as operating environment. It consists’ of company’s

immediate environment that affect its performance. It includes customers, suppliers,
intermediaries, competitors etc. The micro environment consist the elements that directly
affects the company.

According to Philip Kotler, “Micro environment consist of the factors in the company’s
immediate environment which affects the performance of the business unit. These include
suppliers, market intermediaries, competitors, customers and the public”.

1. The customers:

Consumer is the king of the market. They are the centers of the business. They are one of the
most important factors in the external environment. Customer satisfaction has become more
challenging due to globalisation.

Nowadays, consumer expectations are high. Therefore the firm must keep in mind the
customer’s expectations, their requirements and accordingly make market decisions. The
success of the business depends upon identifying the needs, wants, likes and dislikes of the
customers and meeting with their satisfaction.

Businesses have different classes of customers like wholesale customers, retail customers,
industrial customer’s foreign customers etc. To enhance growth, it is necessary for the
business firm to identify the needs of these customers and should undertake research and
developmental activities.

2. The competitors:

The company has to identify its competitor’s activities. Information must be collected about
competitors in respect of their prices, products, and promotion and distribution strategies.
World is becoming a global market.
Business firm has to face tremendous competition not only from Indian business firm but
also from foreign firms. To achieve growth and success they have to monitor various activities
of their competitors.

Liberalisation, privatisation and globalisation have promoted competition that has created
threats to domestic units. The business must understand the strategies framed by the
competitors to respond in an effective manner.

3. The Suppliers:

Suppliers supply raw material, machines, equipment’s and other supplies. The company has
to keep a watch over prices and quality of materials and machines supplied. It also has to
maintain good relations with the suppliers.

It is necessary to have reliable source of supply for the smooth working of the firm. Uncertain
supplies compel the firm to maintain high inventories resulting into increase in the cost. The
business should not only rely on the single supplier but also have relations with multiple
suppliers.

4. Society:

Society affects company’s decisions. The expectation of the society from the business is
increasing. Therefore the business firm maintains public relations department to handle
complaints, grievances and suggestions from general public. The members of the society
include:

i. Financial institutions

ii. Shareholders

iii. Government

iv. Employees

v. General public

5. Marketing intermediaries:

Market intermediaries include agents and brokers who help the business firm to find the
customers. They help the firm to promote and distribute the goods to the final consumers.

They are the link between the firm and the final customers. Market intermediaries include
wholesalers, retailers, advertising firm, media, transport agencies, banks, financial
institutions etc. They assist the company in promoting and targeting its product to the right
market.

II. Macro Environment:

The macro environment consists of the larger societal factors that affect the working of a
firm. Macro environment is also known as general environment. The macro factors are
generally uncontrollable.

The macro environment factors are briefly discussed as follows:

Definition of Macro Environment:

According to Philip Kotler, “Macro environment create forces that creates opportunities and
pose threats to the business unit. It includes economic, demographic, natural, technological,
political, political and cultural environments.”

Macro Factor:

Demographic Economic Technological Cultural Political Natural Legal

1. Demographic Environment:

Demographic Environment relates to the human population with

reference to its size, education, sex ratio, age, occupation, income, status
etc. Business deals with people so they have to study in detail the various
components of demographic environment.

Demographic environment differs from country to country. Demographic

factors like size of the population, age composition, density of population,
rural-urban distribution, family size, income level, status etc. have
significant implications on business.

For example: If the population is large, then the demand for goods and
services will be more. It will have favourable effect on the business. In the
same way educational level is also an important factor affecting business.

2. Economic Environment:

i. Economic environment consists of economic factors that influence the functioning of

a business unit. These factors include economic system, economic policies, trade cycle,
economic resources, gross national product, corporate profits, inflation rate,
employment, balance of payments, interest rates, consumer income etc. Economic
environment is dynamic and complex in nature
 A business firm closely interacts with economic environment that consist of:

a. Economic conditions in the market i.e. demand and supply factors

b. Economic policies of the government: monetary policy, fiscal policy, industrial

policy, trade policy, foreign investment policy etc.

ii. Economic system prevailing in the country also affects the business growth. Every
country has different economic system. The economic system includes capitalism,
socialism, and mixed economy. Business depends upon economic environment for
their inputs and also for market. Changes in the economic factors can adversely affect
the working of a business firm.

3. Technological Environment:

Technology has brought about far reaching changes in the methods of production, quality of
goods, productivity, and packaging. There is a constant technological development-taking
place.

The business firm must constantly monitor the changes in the technological environment,
which may have a considerable impact on the working of a business. It also indicates the pace
of research and development and progress made in introducing modern technology in
production.

Technology provides capital intensive but cost effective alternative to traditional labour-
intensive methods. In a competitive business environment technology is the key to
development. Technology helps to run the business better and faster.

4. Cultural Environment:

Culture involves knowledge, values, belief, morals, laws, customs, traditions etc. Culture
passes from one generation to another through institutions like family, schools, and colleges.
Business is an integral part of the social system.

Society is largely influenced by the culture and in turn culture influence the business firm.
Culture shapes the attitude and behaviour of the society. Any change in the cultural factor
affects the business in large. Business should be organised and governed, taking into
consideration various values and norms of the society.

5. Political Environment:

The political environment in a country influences the legislations and government rules and
regulations under which a firm operates.
Political environment means influence exerted by:

a. Legislature:

This includes parliament, legislative assemblies. They are the law making bodies that frame
rules and regulations.

b. Executives:

They include government beurocracy who implements the decision.

c. The Judiciary:

It includes Supreme Court, High Court who sees whether the decisions taken and
implemented by the executive are within the constitutional framework. They are also known
as dispute settlement bodies.

Legislature, executives and judiciary are the important pillars of political environment. A
stable progressive and healthy political environment is very necessary for the growth and
development of business.

6. Natural Environment:

Resource availability like land, water and mineral is the fundamental factor in the
development of business organisation. It includes natural resources, weather, climatic
conditions, port facilities, topographical factors such as soil, sea, rivers, rainfall etc.

Every business unit must look for these factors before choosing the location for their
business.

The natural environment largely determines the functioning of a business firm. Natural
environment has a great influence on the working of a business. The business organisation
should consider the natural factors before starting their operations.

Natural calamities like flood, drought, cyclone, Tsunami etc. can also affect the business
environment.

7. Legal Environment:

The state sets the formal rules, laws and regulations for the country’s operational system. It
creates a framework of rules and regulations within which a business has to operate. The
business should have complete knowledge of laws and policies to run the business effectively.
Some of the laws are:

a. Consumer protection Act-1986

b. Factories Act-1948

c. Workers compensation Act-1923

d. FEMA Act-1999

e. The Companies Act-1956

f. The Environment protection Act-1986

Environmental scanning is necessary because there are rapid changes taking place in the environment
that has a great impact on the working of the business firm. Analysis of business environment helps to
identify strength weakness, opportunities and threats. SWOT analysis is necessary for the survival and
growth of every business enterprise.

The following is the need and importance of environmental scanning:

1. Identification of strength:

Strength of the business firm means capacity of the firm to gain advantage over its competitors.
Analysis of internal business environment helps to identify strength of the firm. After identifying the
strength, the firm must try to consolidate or maximise its strength by further improvement in its
existing plans, policies and resources.

2. Identification of weakness:

Weakness of the firm means limitations of the firm. Monitoring internal environment helps
to identify not only the strength but also the weakness of the firm. A firm may be strong in
certain areas but may be weak in some other areas. For further growth and expansion, the
weakness should be identified so as to correct them as soon as possible.

3. Identification of opportunities:

Environmental analyses helps to identify the opportunities in the market. The firm should
make every possible effort to grab the opportunities as and when they come.

4. Identification of threat:

Business is subject to threat from competitors and various factors. Environmental analyses
help them to identify threat from the external environment. Early identification of threat is
always beneficial as it helps to diffuse off some threat.

5. Optimum use of resources:

Proper environmental assessment helps to make optimum utilisation of scare human, natural
and capital resources. Systematic analyses of business environment helps the firm to reduce
wastage and make optimum use of available resources, without understanding the internal
and external environment resources cannot be used in an effective manner.

6. Survival and growth:

Systematic analyses of business environment help the firm to maximise their strength,
minimise the weakness, grab the opportunities and diffuse threats. This enables the firm to
survive and grow in the competitive business world.

7. To plan long-term business strategy:

A business organisation has short term and long-term objectives. Proper analyses of
environmental factors help the business firm to frame plans and policies that could help in
easy accomplishment of those organisational objectives. Without undertaking environmental
scanning, the firm cannot develop a strategy for business success.

8. Environmental scanning aids decision-making:

Decision-making is a process of selecting the best alternative from among various available
alternatives. An environmental analysis is an extremely important tool in understanding and
decision making in all situation of the business. Success of the firm depends upon the precise
decision making ability. Study of environmental analyses enables the firm to select the best
option for the success and growth of the firm.

TOOLS AND TECHNIQUES OF ENVIRONMENT ANALYSIS

Technique # 1. SWOT Analysis:

S stands for strengths,

W for weaknesses,

O for opportunities, and

T for threats.

SWOT analysis is the starting point to formulate a strategy.

It is a technique of environment analysis which evaluates organisation’s

strengths and weaknesses, environmental opportunities and threats and helps
to formulate strategies and achieve objectives by:

1. Exploiting organisational strengths,

2. Exploiting environmental opportunities,

3. Minimising and correcting the weaknesses, and

4. Minimising environmental threats.

SWOT analysis compares organisation’s strengths and weaknesses (company profile) with
external threats and opportunities (environmental analysis). “A company profile depicts the
quantity and quality of a company’s principal resources and skills. It seeks to determine the
firm’s performance capabilities on the basis of its existing and accessible resources and skills”
and “environmental analysis is the systematic assessment of information about the firm’s
external environment during the strategic planning process to identify strategic opportunities
for the company as well as major threats, problems, or other possible impediments.”

Objectives of SWOT analysis:

1. To compare company’s profile (strengths and weaknesses) with threats and opportunities
in the product or market areas where it wants to compete. It highlights company’s strengths
on which strategies will be based (to exploit environmental opportunities) and weaknesses
that must be overcome.

2. To compare company’s profile with that of competitors. This highlight areas where
company has advantage or disadvantage over competitors in different product/market areas.

Strengths and weaknesses reflect internal environment of the organisation (company profile)
and opportunities and threats reflect its external environment (environmental analysis).

(i) Strength is a positive attribute of the organisation that enables it to accept environmental
challenges and improve its competitive position.

Organisational strengths can be:

1. Common strengths, and

2. Distinctive competencies.

Common strength is the organisational skill and capability possessed by other organisations
also, distinctive competencies the organisational skill and capability possessed by a small
number of competing firms. Such competence is not commonly possessed by all the firms.

Organisations that exploit their distinctive competence perform better than competitors and
attain high level of performance. SWOT analysis enables the organisation discover its
distinctive competence, make strategies to exploit its strengths, explore environmental
opportunities and improve performance.

Internal strength can be harmonious labour-management relations, optimum utilisation of

resources, high managerial skill, innovative ability, profitable functional areas, efficient R&D
department, huge financial resources, competent staff, updated technology, high quality
products etc.
(ii) Weakness is an attribute which restricts competitive strength of the organisation. It
restricts its ability to make effective strategies. Organisational weaknesses require change in
objectives which can be achieved through present skills and capabilities or investment in
capabilities to acquire organisational strengths. This enables the organisation implement
strategies that help to attain its objectives

Failure to overcome organisational weaknesses results in competitive disadvantages, that is,

“a situation in which an organisation is not implementing valuable strategies that are being
implemented by competing organisations”.

Internal weaknesses can be high cost of production, poor functioning of departments,

conflicts amongst superiors and subordinates, lack of managerial or innovative ability,
obsolete technology, low financial reserves, long delivery times, inadequate R&D facilities etc.

(iii) Opportunities are environmental challenges which improve organisation’s operational

efficiency. They are the favourable environmental conditions.

The external opportunities are: boom in the economy, development of new technology,
growing markets, liberal government policies, government subsidies, accelerating market
growth etc.

(iv) Threats are environmental challenges which weaken the organisation’s competitive
position. They are the unfavourable environmental conditions.

Some of the external threats are: recession in the economy, changing consumer preferences,
new technology adopted by competitors, substitute products with high brand image or low
cost, foreign competitors, increasing competition, political instability, economic downturn
etc.

The impact of four variables (S, W, O and T) on strategy formulation is depicted through a
matrix.
SO is the most desirable strategy where organisations use their strengths to exploit
environmental opportunities and convert environmental threats into opportunities. In the
worst situation, company’s weaknesses match the environmental threats. Organisations
follow WT strategy to minimise their weaknesses, convert them into strengths and convert
environmental threats to opportunities.

A brief description of four strategies is given below:

(a) SO strategy:

Company uses its strengths to take advantage of environmental opportunities. Weaknesses

are overcome and converted into strengths. Environmental threats are overpowered by
opportunities.

(b) WO strategy:

Company minimizes its weaknesses to maximise environmental opportunities by developing

internal strengths or acquire the needed strength from outside (for example, adopt a new
technology or seek the guidance of experts).

(c) ST strategy:

The company maximises its strengths (technological, financial, managerial etc.) to minimise
environmental threats. For example, company can use technological developments to face
competition in the market.

(d) WT strategy:
The company minimizes its weaknesses and environmental threats. It may require
restructuring of the firm.

Technique # 2. ETOP:

ETOP means environmental threat and opportunity profile. It is a technique of environment

analysis where organisations make a profile of their external environment. It analyses
information about environmental threats and opportunities and their impact on strategic
planning process.

It helps to identify strategic opportunities for the company. Environmental opportunities

indicate new lines of business and threats restrain them from entering into new business
lines. A firm that wants to manufacture shoes, for example, will prepare an ETOP to analyse
demand for shoes in the market, purchasing power of consumers, gender composition of
market (male-female ratio), government regulations, technology used etc. On analysing the
environment, if it finds there is demand for shoes, it will venture into this business.

Technique # 3. Forecasting:

Forecasting means predicting future events and analysing their impact on plans.
Organisations analyse the environment by applying various techniques to forecast
Government policies, sales, technological developments etc. and use that information to
formulate plans and strategies.

Technique # 4. Verbal and Written Information:

Verbal information is collected by hearing and written information is collected by reading

articles, journals, newspapers, newsletters etc. Common sources of verbal information are
radio, television, work force, outsiders (consumers, suppliers, bankers) etc. It informs
changes in the environment and prepares organisations to incorporate them in their plans
and strategies.

Technique # 5. Management Information System (MIS):

MIS is “a formal method of making available to management the accurate and timely
information necessary to facilitate the decision-making process and enable the organisation’s
planning, control and operational functions to be carried out effectively.”

MIS provides timely, accurate, concise, complete and relevant information based on
computer technology about present and future environmental changes. It facilitates decision-
making process and helps in making decisions based on future environment.

_____________________________
UNN______________________

UN TOOLS OF CORPORATE LEVEL STRATEGY

Stability strategy

Stability strategies are mostly utilized by successful organizations operating in a reasonably predictable
environment. It involves maintaining the current strategy that brought it success with little or no change.

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.

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:

To help a company through tough times or temporary difficulty; and

To artificially boost the value of a company in the case of an Initial Public Offering (IPO)

PAUSE/ PROCEED WITH CAUTION STRATEGY: This strategy is used to test the waters before continuing with a
full fledged strategy. It could be an intermediate strategy before proceeding with a growth strategy or
retrenchment strategy. The pause or proceed with caution strategy is seen as a temporary strategy to be used
until the environment becomes more hospitable or consolidate resources after prolonged rapid growth.
 Expansion Strategy

Definition: The Expansion Strategy is adopted by an organization when it attempts to achieve a high

growth as compared to its past achievements. In other words, when a firm aims to grow considerably
by broadening the scope of one of its business operations in the perspective of customer groups,
customer functions and technology alternatives, either individually or jointly, then it follows the
Expansion Strategy.

The reasons for the expansion could be survival, higher profits, increased prestige, economies of scale,
larger market share, social benefits, etc. The expansion strategy is adopted by those firms who have
managers with a high degree of achievement and recognition. Their aim is to grow, irrespective of the
risk and the hurdles coming in the way.

The firm can follow either of the five expansion strategies to accomplish its objectives:

Go through the examples below to further comprehend the understanding of the expansion strategy. These
are in the context of customer groups, customer functions and technology alternatives.

The baby diaper company expands its customer groups by offering the diaper to old aged persons along with
the babies.

The stockbroking company offers the personalized services to the small investors apart from its normal
dealings in shares and debentures with a view to having more business and a diversified risk.

The banks upgraded their data management system by recording the information on computers and reduced
huge paperwork. This was done to improve the efficiency of the banks.

In all the examples above, companies have made significant changes to their customer groups, products, and
the technology, so as to have a high growth.
A)Expansion through Concentration

Definition: The Expansion through Concentration is the first level form of Expansion Grand

strategy that involves the investment of resources in the product line, catering to the needs of the
identified market with the help of proven and tested technology.

Simply, the strategy followed when an organization coincides its resources into one or more of its
businesses in the context of customer needs, functions and technology alternatives, either individually
or collectively, is called as expansion through concentration.

The organization may follow any of the ways to practice Expansion through concentration:

1. Market penetration strategy: The firm focusing intensely on the existing market with its present product.

Market penetration occurs when a company penetrates a market in which current products already exist. This
strategy generally requires great competitive strength, a strong brand, or both, as most market penetrations
demand actively taking market share from current incumbents. It is an aggressive and often risky approach to
growth.

2. Market Development type of concentration: Attracting new customers for the existing product.

Market development strategy entails expanding the potential market through new users or new uses for a
product. The strategy is best accomplished through identifying unique niche needs in a specific type of user
and filling those needs. Market research is critical in development strategies. New users can be defined as new
geographic segments, new demographic segments, new institutional segments, or new psychographic
segments

3. Product Development type of Concentration: Introducing new products in the existing market.

In business and engineering, new product development (NPD) is the process of developing, researching, and
bringing a new product to market. A product is a set of benefits offered for exchange and can be tangible (that
is, something physical you can touch) or intangible (for example, a service, experience, or belief). Identifying
new needs or new ways of filling them and developing a new process or product that accomplishes this aim
are the goal of this growth strategy. NPD requires investment in research and development, usually over the
long term, and extensive trial and error.

The firms prefer expansion through concentration because they are required to do things what they are
already doing. Due to the familiarity with the industry the firm likes to invest in the known businesses rather
than a new one. Also, through concentration strategy, no major changes are made in the organizational
structure, and expertise is gained due to an in-depth knowledge about one or more businesses.

However, the expansion through concentration is risky since these strategies are highly dependent on the
industry, so any adverse conditions in the industry can affect the business drastically. Also, the huge
investments made in a particular business may suffer losses due the invention of new technology, market
fickleness, and product obsolescence.

B.) Expansion through Integration

Definition: 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 a value
chain.

The value chain comprises of interlinked activities performed by an organization right from the
procurement of raw materials to the marketing of finished goods. Thus, a firm may move up or down
the value chain to focus more comprehensively on the needs of the existing customers.

The expansion through integration widens the scope of the business and thus considered as the grand
expansion strategy. There are two ways of integration:

1.Vertical integration: The vertical integration is of two types: forward and backward. When
an organization moves close to the ultimate customers, 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. Example, the shoe company manufactures its own raw material such as leather through its
subsidiary firm.

2.Horizontal Integration: A firm is said to have made a horizontal integration when it takes
over the same kind of product with similar marketing and production levels. Example, the
pharmaceutical company takes over its rival pharmaceutical company.
C.) Expansion through Diversification

Definition: 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. A firm adopts the expansion through diversification strategy, to prepare
itself to overcome the economic downturns.

Generally, the diversification is made to set off the losses of one business with the profits of the other;
that may have got affected due to the adverse market conditions. There are mainly two types of
diversification strategies undertaken by the organization:

1. Concentric Diversification: When an organization acquires or develops a new product or service

that are closely related to the organization’s existing range of products and services is called as a
concentric diversification. For example, the shoe manufacturing company may acquire the leather
manufacturing company with a view to entering into the new consumer markets and escalate sales.

2.Conglomerate Diversification: When an organization expands itself into different areas, whether

related or unrelated to its core business is called as a conglomerate diversification. Simply,
conglomerate diversification is when the firm acquires or develops the product and services that may
or may not be related to the existing range of product and services.

Generally, the firm follows this type of diversification through a merger or takeover or if the company wants to
expand to cover the distinct market segments. ITC is the best example of conglomerate diversification.

D.)Expansion through Cooperation

Definition: The Expansion through Cooperation 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 as explained below:
Merger: The merger is the combination of two or more firms wherein one acquires the assets and liabilities of
the other in the exchange of cash or shares, or both the organizations get dissolved, and a new organization
came into the existence.

The firm that acquires another is said to have made an acquisition, whereas, for the other firm that gets
acquired, it is a merger.

Takeover: Takeover strategy is the other method of expansion through cooperation. In this, one firm acquires
the other in such a way, that it becomes responsible for all the acquired firm’s operations.

The takeovers can either be friendly or hostile. In the former, both the companies agree for a takeover and
feels it is beneficial for both. However, in the case of a hostile takeover, a firm try to take on the operations of
the other firm forcefully either known or unknown to the target firm.

Joint Venture: Under the joint venture, both the firms agree to combine and carry out the business operations
jointly. The joint venture is generally done, to capitalize the strengths of both the firms. The joint ventures are
usually temporary; that lasts till the particular task is accomplished.

Strategic Alliance: Under this strategy of expansion through cooperation, the firms unite or combine to
perform a set of business operations, but function independently and pursue the individualized goals.
Generally, the strategic alliance is formed to capitalize on the expertise in technology or manpower of either
of the firm.

Thus, a firm can adopt either of the cooperation strategies depending on the nature of business line it deals in
and the pursued objectives.

Retrenchment Strategy

Definition: The Retrenchment Strategy is
adopted when an organization aims at reducing its one or more
business operations with the view to cut expenses and reach to a more stable financial position.

In other words, the strategy followed, when a firm decides to eliminate its activities through a considerable
reduction in its business operations, in the perspective of customer groups, customer functions and
technology alternatives, either individually or collectively is called as Retrenchment Strategy.

The firm can either restructure its business operations or discontinue it, so as to revitalize its financial position.
There are three types of Retrenchment Strategies:
Turnaround Strategy

Definition: The Turnaround Strategy is a retrenchment 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.

Simply, turnaround strategy is backing out or retreating from the decision wrongly made earlier and
transforming from a loss making company to a profit making company.

Now the question arises, when the firm should adopt the turnaround strategy? Following are 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

Persistent negative cash flows

High employee attrition rate

Poor quality of functional management

Declining market share

Uncompetitive products and services

Also, the need for a turnaround strategy arises because of the changes in the external environment Viz,
change in the government policies, saturated demand for the product, a threat from the substitute
products, changes in the tastes and preferences of the customers, etc.

Example: Dell is the best example of a turnaround strategy. In 2006. Dell announced the cost-
cutting measures and to do so; it started selling its products directly, but unfortunately, it suffered huge
losses. Then in 2007, Dell withdrew its direct selling strategy and started selling its computers through
the retail outlets and today it is the second largest computer retailer in the world.

2.Liquidation Strategy

Definition: The Liquidation 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.

It is the most crucial and the last resort to retrenchment since it involves serious consequences such as a sense
of failure, loss of future opportunities, spoiled market image, loss of employment for employees, etc.
The firm adopting the liquidation strategy may find it difficult to sell its assets because of the non-availability
of buyers and also may not get adequate compensation for most of its assets. The following are the indicators
that necessitate a firm to follow this strategy:

Failure of corporate strategy

Continuous losses

Obsolete technology

Outdated products/processes

Business becoming unprofitable

Poor management

Lack of integration between the divisions

Generally, small sized firms, proprietorship firms and the partnership firms follow the liquidation strategy
more often than a company. The liquidation strategy is unpleasant, but closing a venture that is in losses is an
optimum decision rather than continuing with its operations and suffering heaps of losses.

3.Divestment Strategy

Definition: The Divestment Strategy is another form of retrenchment that includes the downsizing of

the scope of the business. The firm is said to have followed the 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.

The divestment is the opposite of investment; wherein the firm sells the portion of the business to realize cash
and pay off its debt. Also, the firms follow the divestment strategy to shut down its less profitable division and
allocate its resources to a more profitable one.

An organization adopts the divestment strategy only when the turnaround strategy proved to be
unsatisfactory or was ignored by the firm. Following are the indicators that mandate the firm to adopt this
strategy:

Continuous negative cash flows from a particular division

Unable to meet the competition

Huge divisional losses

Difficulty in integrating the business within the company

Better alternatives of investment

Lack of integration between the divisions

Lack of technological upgradations due to non-affordability

Market share is too small

Legal pressures

Example: Tata Communications is the best example of divestment strategy. It has started the process of selling
its data center business to reduce its debt burden.

Combination Strategy

Definition:

 The Combination Strategy means making the use of other grand strategies (stability, expansion or
retrenchment) simultaneously. Simply, the combination of any grand strategy used by an organization in
different businesses at the same time or in the same business at different times with an aim to improve its
efficiency is called as a combination strategy.

Such strategy is followed when an organization is large and complex and consists of several
businesses that lie in different industries, serving different purposes. Go through the following
example to have a better understanding of the combination strategy:

A baby diaper manufacturing company augments its offering of diapers for the babies to have a wide
range of its products (Stability)and

at the same time, it also manufactures the diapers for old age people, thereby covering the other market
segment (Expansion).

In order to focus more on the diapers division, the company plans to shut down its baby wipes division
and allocate its resources to the most profitable division (Retrenchment).

In the above example, the company is following all the three grand strategies with the objective of
improving its performance. The strategist has to be very careful while selecting the combination
strategy because it includes the scrutiny of the environment and the challenges each business operation
faces. The Combination strategy can be followed either simultaneously or in the sequence.

EXAMPLES

a. Steel Authority of India has adopted stability strategy because of overcapacity in steel sector.
Instead it has concentrated on increasing operational efficiency of its various plants rather than going
for expansion.

• b. NTPC and ONGC have also adopted stability strategy instead of expansion.
c. Bata also comes under stable strategy following company

• Retrenchment

• a. The Industry Standard has announced that it will cut about 7 percent of its work force and
The New York Times Company sold almost its entire stake in TheStreet.com, the financial
news and analysis site.

• b. Vijay Mallya-promoted Kingfisher Airlines slashed salaries of its 50 trainee co-pilots as it

charted ways to overcome the ongoing financial turbulence in the aviation industry.

• c. Cutting down around 15000 employes by Air India is an example of retrenchment strategy.

• d. The Times Company sold about 92 percent of its stake in TheStreet.com, the financial news
and analysis site, for $3.2 million. The sale of 1,425,000 shares comes 23 months after the
initial investment of $15.6 million in the news site -- $3.6 million in cash and $12 million in
advertising credits, according to Catherine Mathis, a company spokeswoman

• e. Companies like General Motors, Bajaj Auto Mahindra and Mahindra have pursued
retrenchment strategy.

STRATEGIC ANALYSIS AND CHOICE

• Strategy formulation is the process by which an organization chooses the most appropriate courses of
action to achieve its defined goals.

• This process is essential to an organization’s success, because it provides a framework for the actions
that will lead to the anticipated results.

FACTORS INFLUENCING STRATEGIC CHOICE

• Considering decision factors:

• (i) Objective factors:-
• ¨       Environmental factors
• –          Volatility of environment
• –          Input supply from environment
• –          Powerful stakeholders
• ¨       Organizational factors
• –          Organization’s mission
• –          Strategic intent
 • –          Business definition
• –          Strengths and weaknesses
• (ii) Subjective factors:-
• –    Strategies adopted in the previous period;
• –    Personal preferences of decision- makers 
• –    Management’s attitude toward risk;
• –    Pressure from stakeholders;
• –    Pressure from corporate culture; and
• –    Needs and desires of key managers.

STAGE 1: INPUT STAGE The input tools require strategists to quantify subjectivity during early stages of the
strategy formulation process.
Making small decisions in the input matrices

Good intuitive judgment is always needed.

Consist of 3 techniques which is EFE Matrix, IFE Matrix and CPM.

1. EFE Matrix
External Factor Evaluation  matrix
• Allows strategists to summarize and evaluate economics, social, cultural, demographic, environmental,
political, governmental, legal, technological and competitive information.

• The analysis helps in formulating new strategies and policies on the basis of existing position of the
company.

Some of the important opportunities which can be included in the analysis are new geographic markets,
online sales, forward or backward integration, expanding the company’s product line, increasing demand for
the industry’s products etc.

• Threats include: slow down in market growth, increasing competition, shift in buyer needs and taste, loss of
sales to substitute products, likely entry of potent new competitors etc.

EFE Matrix can be developed in 5 steps:

1. List key external factors as identified in the external audit process.

• Include a total 15 to 20 factors, including both opportunities and threats that affect the firm and its industry.
• List the opportunities first and then the threats.
• Be as specific as possible, using percentages, ratios and comparative numbers whenever possible.

2.  Assign to each factor a weight that ranges from 0.0 (not important) to 1.0 (v ery
      important).
• The weight indicates the relative importance of that factor to being successful in the firm industry.
• Opportunities often receive higher weights than threats, but threats can receive high weights if they are
especially severe or threatening.
• Appropriate weights can be determined by comparing successful with unsuccessful competitors or by
discussing the factor and reaching a group consensus.
• Then sum of all weights assigned to the factors must equal 1.0.

3. Assign a rating between 1 and 4 to each key external factor to indicate how  effectively the firm’s current
strategies respond to the factor.
• Where 4 = the response is superior, 3 = the response is above average, 2 = the response is average and 1 =
the response is poor.
 • Ratings are based on effectiveness of the firm’s strategies.
• Ratings are thus company-based, whereas the weights in step 2 are industry-based.

• It is important to note that both threats and opportunities can receive a 1, 2, 3, or 4.

4. Multiply each factor’s weight by its rating to determine a weighted score.

5. Sum the weighted scores for each variable to determine the total weighted score for
     the organization.

2. IFE Matrix (INTERNAL FACTOR EVALUATION) MATRIX

Summarize and evaluates the major strengths and weaknesses in the functional areas of business

Intuitive judgments are required in developing

A thorough understanding of the factors included is more important than the actual numbers.

Similar to the EFE Matrix and CPM, An

IFE Matrix can be developed in five steps:

1. List key internal factors as identified in the internal-audit process.

• Use a total of from 10 to 20 internal factors, including both strengths and weaknesses.
• List strengths first and then weaknesses.
• Be as specific as possible, using percentages, ratios and comparative numbers
2. Assign a weight that ranges from 0.0 (not important) to 1.0 (all-important) to each factor.
• The weight assigned to a given factor indicates the relative importance of the factor to being successful in
the firm’s industry.
• Regardless of whether a key factor is an internal strength or weakness, factors considered to have the
greatest effect on organizational performance should be assigned the highest weights.
• The sum of all weights must equal to 1.0.

3. Assign a 1 to 4 rating each factor indicate whether that factor represents a major weaknesses (rating =1), a
minor weaknesses (rating = 2), a minor strength (rating = 3), or a major strength (rating = 4).
• Note that strengths must receive a 3 or 4 rating and the weaknesses must receive a 1 or 2 rating.
• Ratings are thus company-based, whereas the weights in step 2 are industry-based.

4. Multiply each factors weight by its rating to determine a weighted score for each variable.

5. Sum the weighted scores for each variable to determine the total weighted score for the organization.

Competitive Profile Matrix (CPM)

• • Is a strategic management tool which is use to Identifies a firm’s major competitors and its particular
strengths and weaknesses.

• On the basis of this comparison, the firm can design wise offensive or defensive strategies.

• 2 types of systems can be used for the construction of CPM

i.e. weighted rating system (each measure of critical success factor is assigned a weight based on its perceived
importance) and
unweighted (each critical success factor measured is assumed to be equally important) rating system.

• It is important to note that the meaning of weights and total scores is same in both EFE and CPM.

Differences between EFE and CPM

1. In CPM, critical success factors include both internal and external issues

2. In EFE, critical success factors are grouped into opportunities and threats whereas such grouping does not
exist in CPM.

3. In EFE, total weighted scores of a firm cannot be compared to the total weighted score of rival firms such
comparison is possible in CPM.

Steps in the construction of CPM:

1. Lists down all the key success factors of industry (usually from 6 to 10)

2. Assign weights to each factor ranging from 0.0 (not important) to 1 (most important).

• Greater weights should be given to those factors which have greater influence on the organizational
performance.
• The sum of all weights must equal 1.

3. Rate each factor ranging from 1 to 4 for all the firms in analysis.
• Here, rating 1 represents major weakness, rating 2 shows minor weakness.
• Similarly, rating 3 indicates minor strength whereas rating 4 shows major strength.
• It means that weakness must receive 1 or 2 rating while strength must get 3 or 4 rating.

4. Calculate weighted score by multiplying each factor’s score by its rating

5. Find the total weighted score of all the firms by adding the weighted scores for each variable.

Differences between EFE and CPM

1. In CPM, critical success factors include both internal and external issues

2. In EFE, critical success factors are grouped into opportunities and threats whereas such grouping
does not exist in CPM.

3. In EFE, total weighted scores of a firm cannot be compared to the total weighted score of rival firms
such comparison is possible in CPM.
Steps in the construction of CPM:

1. Lists down all the key success factors of industry (usually from 6 to 10)

2. Assign weights to each factor ranging from 0.0 (not important) to 1 (most important).

• Greater weights should be given to those factors which have greater influence on the
organizational performance.
• The sum of all weights must equal 1.

3. Rate each factor ranging from 1 to 4 for all the firms in analysis.
• Here, rating 1 represents major weakness, rating 2 shows minor weakness.
• Similarly, rating 3 indicates minor strength whereas rating 4 shows major strength.
• It means that weakness must receive 1 or 2 rating while strength must get 3 or 4 rating.

4. Calculate weighted score by multiplying each factor’s score by its rating

5. Find the total weighted score of all the firms by adding the weighted scores for each variable.

STAGE 2: MATCHING STAGE

Match between organization’s internal resources & skill and the opportunities & risk created by its
external factors.
It is consisting of 5 techniques that can be used in any sequence: the SWOT Matrix, The SPACE Matrix,
the BCG Matrix, the IE Matrix and the Grand Strategy Matrix.
 These tools rely upon information derived from the input stage to match external opportunities and
threats with internal strength and weaknesses. Matching external and internal critical success factors
is the key to effectively generating feasible alternative strategies.

THE STRENGTHS-WEAKNESSES-OPPORTUNITIES-THREATS MATRIX (SWOT Matrix)

• 1. THE STRENGTHS-WEAKNESSES-OPPORTUNITIES-THREATS MATRIX (SWOT Matrix)
• Gives sets of strategies by analyzing internal capacity of the company and external environment of
the industry.
• Is composed of 9 cells.
• There are 4 key factor cells, 4 strategy cells and 1 cell that always left blank (the upper left cell).

• 4 key factor cells labeled S, W, O, T.

• It is an important matching tools that helps managers develop and constructing 4 types of strategies
which are: SO, WO, ST and WT.

SO strategies
Firms use such strategies to grab the external opportunities by using the internal strengths.
For example: a firm has a strong financial position but it is losing its market share; now with the help
of strong financial position it can introduce innovative products by investing in research and
development sector.
Organizations always try to overcome major weaknesses and make them strengths. Similarly,
organizations try to avoid threats and concentrate on opportunities.

• WO strategies
These strategies are used for the purpose of improving internal weaknesses by using external
opportunities.
It is possible that a firm has good external opportunity but can avail it due to internal weakness.
For example, a firm may find an opportunity of increasing its production by introducing new
technology but the firm may lack the skilled workers required for the production.
In such case, possible WO strategies would be to hire and train people with the essential technical
skills.

ST strategies
Such strategies are used by the organization for the purpose of reducing the impact of external threats
by using its internal strengths.
For example: a firm with strong legal department (strength) can avoid external threats such as copying
ideas, innovations and patented products.
Similarly, an organization with strong line of quality products may face the threat of low priced
products of rivals.
In such case, the organization can apply ST strategy of mass production to reduce the unit cost of
production.
• WT strategies
WT strategies are mainly used by those firms which are not in a good and stable position.
Basically, these strategies are defensive because organizations try to reduce internal weaknesses while
avoiding the external threats.
For example, if an organization has weak financial position (weakness) and the demand for its
products is reducing (threat) then the possible WT strategies would be retrench or merge.

There are 8 Steps involved in constructing SWOT Matrix:

1. LiSt the firm key external opportunities

2. List the firm key external threats
3. List the firm key internal strengths
4. List the firm key internal weaknesses
5. Match internal strengths with external opportunities and record the resultant SO strategies in
appropriate cell.
6. Match internal weaknesses with external opportunities and record the resultant WO strategies.
7. Match internal strength with external threats and record the resultant ST strategies.
8. Match internal weaknesses with external threats and record the resultant WT strategies.

Limitations of SWOT Matrix

1. SWOT Matrix does not reveal the steps which need to be followed in order to achieve
competitive advantage. The matrix does not show how to implement the strategies
successfully. (does not show how to achieve a competitive advantage)

2. Organizations always face challenging competitive environment. Due to continuous

improvements, it becomes difficult for the organizations to reveal the dynamic of a
competitive environment in a single matrix. (provide a static assessment in time)

3. TWOS matrix does not show interrelationships among the key internal and external factors.
Organizations may emphasize a single internal or external factor in formulating strategies.
Whereas, interrelationship among the factors also impact the strategies. (may lead the firm to
overemphasize a single internal and external factor in formulating strategies)
STRATEGIC POSITION & ACTION EVALUATION MATRIX (SPACE Matrix)
• Is an important strategic management tool used for the purpose of determining the type of a
strategy a company should undertake.

• The top management of an organization could easily identify the most appropriate strategy for a
given enterprise. It is four-quadrant framework indicates whether aggressive, conservative, defensive
or competitive strategies are most appropriate for a given organization.

• The axes of the SPACE Matrix represent

2 internal dimensions (financial position-FP and competitive position- CP) and
2 external dimensions (stability position-SP and industry position-IP)
.
• Depending on the type of organization, numerous variables could make up each of the dimensions
represented on the axes of the SPACE Matrix.

• Factors that were included earlier in the firms EFE and IFE matches should be considered in
developing a SPACE Matrix.

• Other variables commonly such as ROI, leverage, liquidity, working capital and cash flows are
commonly considered to be determining factors of an organizations financial strength..

The steps required to develop a SPACE Matrix are as follows:

1. Select a set of variables to define financial position (FP), competitive position (CP), stability position
(SP) and industry position (IP).

2. Assign a numerical value ranging from +1 (worst) to +7 (best) to each of the variables that make up
the FP and IP dimension. Assign a numerical value ranging from -1 (best) to -7 (worst) to each of the
variables that make up the SP and CP dimensions. On the FP and CP axes, make comparison to
competitors. On the IP and SP axes, makes comparison to other industries.

3. Compute an average score for FP, CP, IP and SP by summing the value given to the variables of each
dimension and then by dividing by the number of variables included in the respective dimension.

4. Plot the average score for FP, IP, SP and CP on the appropriate axis in the space matrix.

5. Add the 2 scores on the x-axis and plot the resultant point on x.
add the 2 scores on the y-axis and plot the resultant point on y. plot the intersection of the new xy
point.

6. Draw a directional vector from the origin of the SPACE matrix through the new intersection point.
This vector reveals the type of strategies recommended for the organization: aggressive, competitive,
defensive or conservative.

BOSTON CONSULTING GROUP MATRIX (BCG Matrix)

Definition
BCG matrix
 
(or growth-share matrix) is a corporate planning tool, which is used to portray firm’s brand portfolio or
SBUs on a quadrant along relative market share axis (horizontal axis) and speed of market growth
(vertical axis) axis.
Growth-share matrix
 
is a business tool, which uses relative market share and industry growth rate factors to evaluate the
potential of business brand portfolio and suggest further investment strategies.
.

• Autonomous divisions = business portfolio

• Divisions may compete in different industries
 • Focus on relative market-share position & industry growth rate
• Relative market share position is defined as the ratio of a division’s own market share (or revenues)
in a particular industry to the market share (revenues) held by the largest rival firm in that industry.

• Divisions located in Quadrant I of the BCG Matrix are called “Question Marks”,
• those located in Quadrant II are called “Stars”.
• Those located in Quadrant III are called “cash cow”,
those divisions located in Quadrant IV are called “Dogs”.

Question Marks – Quadrant I

Products with low market share but in a growth market are classified as Question Marks. Due to the
growth, these SBUs need plenty of cash to grasp their market share. If no measures are taken to
increase the market share, it will soak up huge sum of cash in the short run and afterward, as growth
slowdown, turn into a dog.

Divisions in Quadrant I have a low relative market share position, yet they compete in a high-growth
industry. Generally these firms cash needs are high and their cash generation is low. These business
are called question marks because the organization must decide whether to strengthen them by
pursuing an intensive strategy (market penetration, market development, or product development or
to sell them).

Stars ¬¬– Quadrant II

Products having high market share of growth market are known as star. These products/markets or
SBUs are net consumer of cash because they always need huge investment to sustain market share
and sponsorship rapid growth. When the product approaches to maturity phase, then the growth
become low and its converted into cash cow.
Quadrant II businesses (stars) represent the organizations best long run opportunities for growth and
profitability. Divisions with a high relative market share and a high industry growth rate should receive
substantial investment to maintain or strengthen their dominant positions. Forward, backward and
horizontal integration, market penetration, market development and product development are
appropriate strategies for these divisions to consider

Cash Cow – Quadrant III

Cash cows have high market share but low growth products or businesses. Their elevated earnings
attached with their decline, signify superior cash inflows and they require very small amount of
reinvestment. Therefore, they are the good source of cash to support the other products or SBUs.
Extra cash inflows are used for R&D for the introduction of innovative and competitive products.

Divisions positioned in Quadrant III have a high relative market share position but compete in a low-
growth industry. Called cash cow because they generate cash in excess of their needs, they are often
milked. Many of today’s cash cow were yesterdays stars. Cash cow divisions should be managed to
maintain their strong position for as long as possible. Product development or diversification may be
attractive strategies for strong cash cows. However, as a cash cow division becomes weak,
retrenchment or divestiture can become more appropriate.

Dogs – Quadrant IV
Dog has low market share and low growth product or SBU. It may produce sufficient cash to preserve
themselves, but do not assure to be a big source of cash. Although dog does not require huge amount
of cash but it holds considerable amount of cash which could be utilized somewhere else. Every
organization must avoid and minimize the number of dogs

Quadrant IV divisions of the organization have a low relative market share position and compete in a
slow- or –no market-growth industry: they are Dogs in the firm’s portfolio. Because of their weak
internal and external position, these businesses are often liquidated, divested or trimmed down
through retrenchment. When a division first becomes a Dog, retrenchment can be the best strategy to
pursue because many Dogs have bounced back, after strenuous asset and cost reduction, to become
viable, profitable divisions.

THE INTERNAL-EXTERNAL MATRIX (IE Matrix)

The similarity between IE matrix & BCG Matrix
• The IE Matrix is similar to BCG Matrix in that both tools involve plotting organization divisions in a
schematic diagram; this is way they are both called “portfolio matrices”.

• Also the size of each circle represents the percentage sales contribution of each division, and pie
slices reveal the percentage profit contribution of each division in both the BCG and IE Matrix.
   The differences between IE matrix & BCG Matrix
• The axis are different.
• IE Matrix requires more information about the divisions than the BCG Matrix
• The strategic implications of each matrix are different.

• The IE Matrix is based on 2 key dimensions:

1. The IFE total weighted scores on the x-axis
2. The EFE total weighted scores on the y-axis

• The IE Matrix can be divided into 3 major regions that have strategy implications.
1. Grow and build – Cells I, II or IV
First, the prescription for divisions that fall into cell I, II or IV can be described as grow and build.
Intensive (market penetration, market development and product development) or integrative
(backward integration, forward integration and horizontal integration) strategies can be most
appropriate for these divisions.

2. Hold and maintain – Cells III, V or VII

Second, divisions that fall into cells III, V or VII can be managed best with hold and maintain strategies:
market penetration and product development are two commonly employed strategies for these types
of divisions.

3. Harvest and divest – Cells VI, VII or IX

Third, a common prescription for divisions that fall into cells VI, VIII, or IX is harvest or divest.
Successful organizations are able to achieve a portfolio of businesses positioned in or around cell I in
the IE Matrix.
GRAND STRATEGY MATRIX (GSM)

• GSM is famous tools for alternative strategies in addition to SPACE Matrix, BCG Matrix, IE Matrix and
SWOT Matrix.

•  All the firms can fall in one of the GSM’s four strategy quadrants.

• GSM evaluation is based on 2 dimensions i.e. market growth and competitive position.

• Each quadrant provides the set of possible strategies in which company falls such as quadrant 2 contains
market development, market penetration, product development, horizontal integration, divestiture and
liquidation strategies.

• Quadrant 3 contains the set of retrenchment, related diversification, divestiture, unrelated

diversification and liquidation strategies.

• Quadrant 4 contains the set of diversification, joint venture and unrelated diversification strategies.
Quadrant I
Companies positioned in this quadrant have very strong strategic management position. These firms focus
on their established competitive advantage (CA) and take advantage of it’s as long as it allows them. These
companies must concentrate on the existing market by adopting the set of product development, market
development and market penetration strategies. Organizations that falls in quadrant I have focus on a
single product and can go for related diversification strategy to minimize the risk related to limited
product line. If these organizations have higher resources they can go for horizontal, backward and
forward set of strategies. These firms can take risks being an aggressive and can afford to obtain
advantage of opportunities in numerous ways.

Firms located in quadrant I of the GSM are in an excellent strategic position. For these firms, continued
concentration on current markets and product, it is unwise for a quadrant I firm to shift notably from its
established competitive advantages. When quadrant I organization has excessive resources, then
backward, forward or horizontal integration may be effective strategies. When quadrant I firm is too
heavily committed to a single product, then related diversification may reduce the risk associated with a
narrow product line. Quadrant I firms can afford to take advantage of external opportunities in several
areas. They can take risks aggressively when necessary.

Ø Quadrant II

Firms laying in this quadrant have the rapid growing industry but cannot fight competently. They must
evaluate their existing approach in the market place, need to know why they are in effective in the market
and must come up with a strategy as a first strategic option. If companies do not have competitive
advantage, horizontal integration is more advantageous option. Last but not the least option is the
liquidation which provides fund needed for other Strategic Business Unit (SBU) or to acquire other
businesses.

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 they need to determine
why the firm’s current approach is ineffective and how the company can best change to improve its
competitiveness. Because quadrant II firms are in a rapid-market-growth industry, an intensive strategy
(as opposed to integrative or diversification) is usually the firm option that should be considered.
However, if the firm is lacking a distinctive competence or competitive advantage, then horizontal
integration is often a desirable alternative. As a last resort, divestiture or liquidation should be considered.
Divestiture can provide funds needed to acquire other businesses or buy back shares of stock.

Quadrant III

All those firms fall in this quadrant have slow growth market and have relatively weak position. Firms have
to make noticeable modifications to sustain their position. Retrenchment strategy has priority in this
quadrant followed by diversification to transfer resource to another growing business. Last strategic
option available for the firms positioned in this quadrant is liquidation and divestiture of the business.

Quadrant III organizations compete in slow –growth industries and have weak competitive positions.
These firms must make some drastic changes quickly to avoid further decline 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 (diversify). If all else fails, the final
options for quadrant III business are divestiture or liquidation.
• Ø Quadrant IV

Companies competing in this quadrant have slow growth industry but have a strong competitive
position. These firms can diversify into different untapped businesses by utilizing their existing
resource. These firms face restricted internal growth and have high cash flow intensity which allows
them to practice related and unrelated diversifications effectively. Finally, these firms can go for joint
ventures to fulfill their internal growth needs.

Finally, quadrant IV businesses have a strong competitive position but are in a slow growth industry.
These firms 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 related or unrelated diversification successfully. Quadrant IV firms also may pursue
joint ventures

UNIT III
POLICIES IN FUNCTIONAL AREAS

o Policies are designed to guide the behaviour of managers in relation to the pursuit and
achievement of strategies and objectives.
o Policies are instrument for strategy implementation.

 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
Features of Business Policy
An effective business policy must have following features-
 Specific- Policy should be specific/definite. If it is uncertain, then the implementation will become
difficult.
 Clear- Policy must be unambiguous. It should avoid use of jargons and connotations. There should be
no misunderstandings in following the policy.
 Reliable/Uniform- Policy must be uniform enough so that it can be efficiently followed by the
subordinates.
 Appropriate- Policy should be appropriate to the present organizational goal.
 Simple- A policy should be simple and easily understood by all in the organization.
 Inclusive/Comprehensive- In order to have a wide scope, a policy must be comprehensive.
 Flexible- Policy should be flexible in operation/application. This does not imply that a policy should be
altered always, but it should be wide in scope so as to ensure that the line managers use them in
repetitive/routine scenarios.
 Stable- Policy should be stable else it will lead to indecisiveness and uncertainty in minds of those who
look into it for guidance.

Difference between Policy and Strategy

The term “policy” should not be considered as synonymous to the term “strategy”. The difference
between policy and strategy can be summarized as follows-
 Policy is a blueprint of the organizational activities which are repetitive/routine in nature. While
strategy is concerned with those organizational decisions which have not been dealt/faced before in
same form.
 Policy formulation is responsibility of top level management. While strategy formulation is basically
done by middle level management.
 Policy deals with routine/daily activities essential for effective and efficient running of an
organization. While strategy deals with strategic decisions.
 Policy is concerned with both thought and actions. While strategy is concerned mostly with action.
 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.

PERSONNEL POLICIES
 The development of competent and motivated employees
 Employment facilities- package, compensation, regulations
 Administration policies- recruitment, selection, orientation, career development
 Feedback policies- discipline, control and valuation Human capital- performance evaluation,
training and development
 Human resource development Welfare- pubic relation, protection, care, feelings Reducing turnover
Working environment Future growth Work study Time and motion study

MARKETING POLICIES
Marketing takes care of product, place, price and promotion and service that look into package, physical
evidence, process & people.
 Production policies/ product operation management policies must be coordinated with marketing
policies for the firm to succeed.
 Careful integration with financial components such as capital budgeting and investments prove much
better.
 Operation decision areas are:
 Low cost provider of goods and services,
 Quality provider,
 Stress customer service,
 Rapid and frequent introduction of policies,
 Strive for absolute growth,
 Seek vertical integration,
 Maintain revenue capacity

PRODUCT POLICIES

 production operation management-

 Operating policies must be in coordination with marketing policies to succeed.
 Careful integration with financial policy components such as capital budgeting, investment decision is
essential.
 It considers: Low cost provisions Providers of goods and services- quality, quantity, cost and
convenience,
 Stress Customer services,
 Provide rapid and frequent introduction of policies,
 Strive for absolute growth,
 Seek vertical integration,
 Maintain revenue capacity,
 Guide marketing managers- decision, product lines,
 packaging, accessories,
 quality and product development,
 elements of marketing
Public relation policies
 Corporate social responsibility
 Public Image Background Advertisement and publicity
 Relation with leaving employees
 Response of employees working in other organization

Financial policies
 Growth in resources
 Growth in earnings
 Higher dividends
 High return on invested capital
 Bigger profit margins
 Attractive economic value added (EVA)- cost advantage- economies and diseconomies of scale,
 learning and experience curve effects,
 cost of key resource inputs, link, sharing, integration, time, first movers, outsourcing)
 Strong bond and Credit rating Market value added (MVA)
 Bigger cash flows Recognition as a blue chip company Substantial rising in stock price
 More diversified revenue base

 McKinsey 7S Framework 

The McKinsey 7S Framework is a management model developed by well-known business

consultants Robert H. Waterman, Jr. and Tom Peters in the 1980s.
 This was a strategic vision for groups, to include businesses, business units, and teams. The 7 Ss are
structure, strategy, systems, skills, style, staff and shared values.
 The model is most often used as an organizational analysis tool to assess and monitor changes in the
internal situation of an organization.

 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.

 Strategy is a plan developed by a firm to achieve sustained competitive advantage and successfully
compete in the market.
The concept of strategy includes purposes, missions, objectives, goals, and major action plans and policies.
In general, a sound strategy is the one that’s clearly articulated, is long-term, helps to achieve competitive
advantage and is reinforced by strong vision, mission and values.
But it’s hard to tell if such strategy is well-aligned with other elements when analyzed alone.

For example, short-term strategy is usually a poor choice for a company but if its aligned with other 6
elements, then it may provide strong results.
 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.

STRUCTURE is organization chart and the associated information that flows how the jobs are integrated-
who, whom, when and why. Basically organizational structure prescribes the formed relationship among
various position and activities. Arrangements for reporting relationship and what rules and procedure
exist to guide the various activities performed by members are all part of the organizational structure
 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.
System- is a flow of activities involved in daily operations of the business including core process. It refers
to all regulations and procedures – formal and informal those compliment the organization structure/
infrastructure. Systems include all those procedures and methodologies which are framed by the
organization and followed by the operating personnel in the respective functional area, e.g., financial
accounting system, recruitment, training and development system, production planning and control
system, quality management (TQM) computerization etc. In all these functional areas some traditional
system may be in existence which needs to be reviewed and changed as per requirements in view of
advanced technology and processes developed.
 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.
Skills- signify organization‘s dominant capacity- capability and competencies. If the system is to be
changed for the better it demands
 improvement of the skills and aptitude of the concerned personnel for higher productivity. They must be
imparted necessary training and exposure for orientation, updating and development of their own
potentialities
 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.
Staffing is the process of acquiring human resources for the organization assuring that they have the
potential to contribute to the achievement of the organizational goals. Staffing involves placement of the
right man in the right job. But since the job profile is getting changed day by day because of radical
changes and developments in science and technology, continuous improvements and updating of
knowledge and skills of all category of staff is very essential to achieve the desired output and results
 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.
Style- is how managers collectively spend their time and attention and how they use symbolic behavior,
how management act is more important than what management says. Culture needs to strengthen and
conveyed through rites, rituals, myths, legends and actions.
 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.
Shared values/super ordinate goals- (organization climate) Super ordinate goals are the fundamental ideas
around which a business is built. They are its main values. They are the broad notions of future direction.
That is why the top management as a team wants to express itself which may be considered as
organizational objectives, According to McKinsey framework, super ordinate goals refers to a set of values
and aspirations that goes beyond the conventional formal statement of corporate objectives.
LEADERSHIP AND MANAGEMENT STYLE
Strategic leadership refers to a manager’s potential to express a strategic vision for the organization, or a
part of the organization, and to motivate and persuade others to acquire that vision.
Strategic leadership can also be defined as utilizing strategy in the management of employees
Leadership is the relationship in which one person (the leader) influences the others work together on a
related task to attain goals devised by the leader and/ or the groups.

Leaders require and use three skills in influencing and interacting with people: technical skills, human
relation skill and conceptual skill.

Manager exhibits leadership when he or she secures the cooperation of others in accomplishing
objectives. Organizational leadership plays a significant role in the changing and competitive 41
business environment. It provides pace and energy to the work and empowers employees and employers.
However the appropriate style of leader helps for successful implementation of strategy.
Characteristics/ Functions of Leadership
Consider Environmental changes- Internationalization Deregulation Maturation of markets Technological
development Competitive intensity High level of performance
Taking care of Organizational changes- Growth of firms Product diversification Sophisticated technology
International expansion Increasing complexity Effective guidelines
Transformational and transactional Strategic This includes chief entrepreneur, crisis solver, task master,
figurehead, spokesperson, persons responsible for resource allocation, negotiator, motivator, advisor,
inspiriting person, consensus builder, policy maker, mentor and head cheer anchor. They stay on top to
observe what is happening and well thing are going, promoting a culture in which a organization is
energized to accomplish strategy and perform a high level Keep the organization responsive to changing
conditions, alert for new opportunities and bubbling with innovative ideas.
Dealing with company politics
Entering ethical behavior Leading the process of making corrective adjustments
Leadership implementation
Managing walking around Fostering a strategy supportive climate and culture .Keeping the internal
organization responsive and innovative and Empowering champions.

Different leadership and management styles

AUTOCRATIC LEADERSHIP
allows autocratic leader to take the ultimate control of taking decisions without consulting others.
An autocratic leader possess high level of power and authority and imposes its will on its employees. This
type of leadership proves to be useful where close level of supervision is required
Creative employees morale goes down because their output is not given importance and is often detest
by employees. Since they are unable to take any part in decision making, this results in job satisfaction and
staff turnover.
Strict autocrat- allows complete autocratic where the method of influencing subordinate is completely
negative.
Benevolent autocrat- typically gives awards to subordinates and motivates to achieve the goal.
Incompetent autocrat- adopts this style to hide his incompetence.
LAISSEZ-FAIRE LEADERSHIP
Under this type of leadership, a laissez-faire leader do not exercise control on its employees directly.
Since employees are highly experienced and need little supervision, a laissez-faire leader fails to provide
continuous feedback to employees under his or her supervision.
This type of leadership is also associated with leaders that do not supervise their team members, failed to
provide continuous feedback resulting in high costs, bad service, failure to meet deadlines, lack of control
and poor production.

Transformational leadership
The Transformational leadership highlights a leader as a facilitator of change occurring, when one or more
persons engage with others in such a way that leaders and followers raise one another to higher levels of
motivation and morality.
The process of transformational leadership aims at influencing changes in attitudes and assumptions held
by organizational members and building commitment for organizational goals and objectives.
High level of communication exits between managers and employees and it is under the guidance of
leaders that employees meet their goals and enhance productivity and efficiency.
Transactional Leadership
Transactional Leadership contrast, involves management –by- exception, intervention, and punishing
those who made errors. This can lead to negative emotions and performance on the part of the
subordinates. This approach would also require close monitoring of the subordinates, who would surely
not like it, and if they felt constrained, their performance might not be best.
Additionally, some of their voluntary behaviors, like citizenship behaviors would be reduced. A manger
lead a group of highly motivated individuals who follow his leadership and achieve their goals. Employees
are trained or rewarded such as bonuses depending upon their performance.

BUREAUCRATIC LEADERSHIP
Under bureaucratic leadership,  a leader believes in structured procedures and ensure that his or her
employees follow procedures exactly.
This type of leadership leaves no space to explore new ways to solve issues and in fact work by book.
This type of leadership is normally followed in hospitals, universities, banks (where large amount of
money is involved) and government organizations to reduce corruption and increase security.
Self motivated individuals who are highly energetic often feel frustrated due to because of organization
inability to adapt to changing environment.

PARTICIPATIVE LEADERSHIP
Also known as democratic leadership style, participative leadership consults employees and seriously
considers their ideas when making decisions.
When a company makes changes within the organization, the participative leadership style helps
employees accept changes easily because they had given a big role in the process.
Participative Leadership may be required for tasks that are non routine or unstructured, where
relationships are non-authoritarian and the subordinate‘s locus of control is internal.
The Blake Mouton Managerial Grid
Also known as the Managerial Grid, or Leadership Grid, it was developed in the early 1960s by
management theorists Robert Blake and Jane Mouton.
It plots a manager's or leader's degree of task-centeredness versus her person-centeredness, and
identifies five different combinations of the two and the leadership styles they produce.
Understanding the Model
The Blake Mouton Managerial Grid is based on two behavioral dimensions:
 Concern for People: this is the degree to which a leader considers team members' needs, interests
and areas of personal development when deciding how best to accomplish a task.
 Concern for Results/Production : this is the degree to which a leader emphasizes concrete objectives,
organizational efficiency and high productivity when deciding how best to accomplish a task.
Impoverished Management – Low Results/Low People
The Impoverished or "indifferent" manager is mostly ineffective. With a low regard for creating systems
that get the job done, and with little interest in creating a satisfying or motivating team environment, his
results are inevitably disorganization, dissatisfaction and disharmony.

Produce-or-Perish Management – High Results/Low People

Also known as "authoritarian" or "authority-compliance" managers, people in this category believe that
their team members are simply a means to an end. The team's needs are always secondary to its
productivity.
This type of manager is autocratic, has strict work rules, policies and procedures, and can view
punishment as an effective way of motivating team members. This approach can drive impressive
production results at first, but low team morale and motivation will ultimately affect people's
performance, and this type of leader will struggle to retain high performers.
She probably adheres to the Theory X approach to motivation, which assumes that employees are
naturally unmotivated and dislike working. A manager who believes people are self-motivated and happy
to work is said to follow Theory Y. You can learn more about these theories in our article, Theory X and
Theory Y.
Middle-of-the-Road Management
A Middle-of-the-Road or "status quo" manager tries to balance results and people, but this strategy is not
as effective as it may sound. Through continual compromise, he fails to inspire high performance and also
fails to meet people's needs fully. The result is that his team will likely deliver only mediocre performance
This style seems to be a balance of the two competing concerns. It may at first appear to be an ideal
compromise. Therein lays the problems, though when you compromise, you necessarily give away a bit of
each concern so that neither the production nor people needs are fully met. Leaders who use this style
settle for average performance and often believe that this is most anyone can expect.

Country Club Management – High People/Low Results

The Country Club or "accommodating" style of manager is most concerned about her team members'
needs and feelings. She assumes that, as long as they are happy  and secure, they will work hard.
What tends to be the result is a work environment that is very relaxed and fun, but where productivity
suffers because there is a lack of direction and control.
Team Management – High Production/High People
According to the Blake Mouton model, Team management is the most effective leadership style. It reflects
a leader who is passionate about his work and who does the best he can for the people he works with.
Team or "sound" managers commit to their organization's goals and mission, motivate the people who
report to them, and work hard to get people to stretch themselves to deliver great results. But, at the
same time, they're inspiring figures who look after their teams. Someone led by a Team manager feels
respected and empowered, and is committed to achieving her goals.
Team managers prioritize both the organization's production needs and their people's needs. They do this
by making sure that their team members understand the organization's purpose, and by involving them in
determining production needs.
When people are committed to, and have a stake in, the organization's success, their needs and
production needs coincide. This creates an environment based on trust and respect, which leads to high
satisfaction, motivation and excellent results. Team managers likely adopt the Theory Y approach to
motivation, as we mentioned above.
Likert’s Management Style
Rensis Likert and his associates studied the patterns and styles of managers for three decades at the
University of Michigan, USA, and identified a four-fold model of management systems.
The model was developed on the basis of a questionnaire administered to managers in over 200
organizations and research into the performance characteristics of different types of organizations.
Four systems of management system or the four leadership styles

Exploitative Authoritative: 
Responsibility lies in the hands of the people at the upper levels of the hierarchy.
The superior has no trust and confidence in subordinates.
The decisions are imposed on subordinates and they do not feel free at all to discuss things about the job
with their superior.
The teamwork or communication is very little and the motivation is based on threats.
Benevolent Authoritative
The responsibility lies at the managerial levels but not at the lower levels of the organizational hierarchy.
The superior has condescending confidence and trust in subordinates (master-servant relationship).
Here again, the subordinates do not feel free to discuss things about the job with their superior. The
teamwork or communication is very little and motivation is based on a system of rewards.
Consultative
Responsibility is spread widely through the organizational hierarchy.
The superior has substantial but not complete confidence in subordinates.
Some amount of discussion about job related things takes place between the superior and subordinates.
There is a fair amount of teamwork, and communication takes place vertically and horizontally. The
motivation is based on rewards and involvement in the job.
Participative
Responsibility for achieving the organizational goals is widespread throughout the organizational
hierarchy.
There is a high level of confidence that the superior has in his subordinates.
There is a high level of teamwork, communication, and participation.
Lewin‘s leadership styles-
In 1939, a group of researchers led by psychologist Kurt Lewin set out to identify different styles of
leadership.
While further research has identified more specific styles of leadership, this early study was very
significant, influential and established three major leadership styles.
Schoolchildren were assigned to one of three groups with an authoritarian, democratic or laissez- fair
leader.
The children were then led in an arts and craft project while researchers observed the behavior of children
to the different styles of leadership

Authoritarian leadership- (autocratic)

Authoritarian leaders provide clear expectations for what needs to be done, when it should be done and
how it should be done.
There is also a clear division between the leader and the followers. They make decisions independently
with little or no input from the rest of the group.
Researchers found that the decision making is best applied to situations where there is little time for
decision making or where the leader is the most knowledgeable person of the group.
Participative leadership- (democratic)
Lewin‘s study found that participative leadership is generally the most effective.
Leaders offer guidance to group members, participate in the group and allow input from other group
members.
Children in this group were less productive than the members of the authoritarian group but their
contributions were of much a higher quality.
Participative leaders encourage group members to participate, but retain the final say over the decision
making process. Group members feel engaged in the process and are more motivated and creative.
Delegate (laissez- faire) leadership-
Researchers found that children under delegate leadership were the least productive of all three groups.
The children in this group also made more demands on the leader, showed little co-operation and were
unable to work independently.

STRATEGIC EVALUATION AND CONTROL

It is important to know who the participants are and what role they will play in strategic evaluation and
control. Theoretically all the members of the organization are responsible to the shareholders. Investors
and government are concerned about the security and return rather than the long term assessment of
strategic success. The board of directors enact a general formal role of reviewing and screening the
executive decision in the light of environmental conditions, business and organization implication. In this
way the BOD performance is more generalized forming the strategic evaluation. Chief executives are
ultimately responsible for all aspects of strategic evaluation and control. Normally the CEOs should not set
over the judgment of organization‘s performance and should be evaluated on the basis of own
performance. This leads to the question what should be done in a group in a group and each individual
should know to whom to report.
Strategic implementation, review and evaluation:
To review underlying bases of strategy the 5 generic competitive advantages:
The factors are
 target,
 product line,
 production emphasis,
 marketing emphasis and
 sustaining capacity utilization

Methods:
to review again and again
to bring to expectation level with the help of Strategic choice and
operating decisions

Strategic level-
consistency of the strategy with the environment
Operation level-
How well the organization is pursuing the strategy.
There can be four phases of strategic control.
Formulation Implementation Strategic
Implementation
Strategic surveillance
Special alert control

The purpose of the strategic evaluation is to evaluate the effectiveness of the strategy in achieving the
organizational objective. Thus the strategic evaluation and control can be defined as the process of
determining the effectiveness of a given strategy in achieving the organizational objectives and taking the
corrective action where ever necessary. In having such frames and basic mind set the following two
questions can be raised: Is there any need to change? If yes, then how? Are the basic nature of strategy
formulation is correct? Are the organization and the managers doing things what ought to be done? Is
there a need to change and reformulate the strategy? How the organization is performing? Is the time
schedule being maintained? Are the resources are being utilized properly? What needs to be done to
ensure that to meet the objectives?
Effective strategy evaluation allows an organization
a) to capitalize on internal strength
b) To expeditiously exploit external opportunities
c) To recognize and defend against environmental threats
d) To improve internal weakness before it becomes detrimental
e) To deliberately and systematically formulate, implement and evaluate strategies.

The strategy evaluation process consists of three activities:

a) Revising underlying internal and external factors that represent the bases of current strategies
b) Measuring organizational performance
c) Taking corrective action.

These activities review the conclusion reached during strategy formulation, examine the actions taken
during strategy implementation. Compare results expected and actual result and make needed changes to
continue operation.

Benchmarking- In defining what to measure some companies used benchmarking to review the practices
of the best class and compare these to their own. The aim of benchmarking is to compare
measures of such performance indicators as defects per million. The comparison is usually carried out in
industry basis. The system is well established in automatic industry resulting in clear standard, what is
mint by world class performance. Initially it can be compared with the performance of key process with
other companies. Then it is followed up comparing with world class levels in the similar industries. The
measurement process is followed by the programs to implement so as to attain the comparability with the
best practice.
The best practice the benchmarking can be broken down to following stages:
Deciding which processes to benchmark.
Deciding which measures to measures to employ in respect of these processes Choosing o companies
against which to benchmark
Obtaining relevant comparable data from other companies
Measuring the competitive gap between the company‘s current performance level and
best practice Implementation of measures to close the gap.

Profit centers may be involved in performance evaluation

A profit center is a branch or division of a company that is accounted for on a standalone basis for the
purposes of profit calculation. A profit center is responsible for generating its own results and  earnings,
and as such, its managers generally have decision-making authority related to product pricing and
operating expenses. Profit centers are crucial in determining which units are the most and least profitable
within an organization..

Responsibility Centres
A responsibility centre is an organizational subsystem charged with a well-defined mission and headed
by a manager accountable for the performance of the centre. "Responsibility centres constitute the
primary building blocks for management control." It is also the fundamental unit of analysis of a budget
control system. A responsibility centreis an organization unit headed by a responsible manager.
There are four major types of responsibility centres: cost centres, revenues centres, profit
centres and investment centres.
Cost Centre
A cost centre is a responsibility centre in which manager is held responsible for controlling cost inputs.
There are two general types of cost centres: engineered expense centres and discretionary expense
centres. Engineered costs are usually expressed as standard costs. A discretionary expense centre is a
responsibility centre whose budgetary performance is based on achieving its goals by operating within
predetermined expense constraints set through managerial judgement or discretion.
Revenue Centre
A revenue centre is a responsibility centre whose budgetary performance is measured primarily by its
ability to generate a specified level of revenue.
Profit Centre
In a profit centre, the budget measures the difference between revenues and costs.
Investment Centre
An investment centre is a responsibility centre whose budgetary performance is based on return on
investment. The uses of responsibility centres depend to a great extent on the type of organization
structure involved. Engineered cost centres, discretionary expense centre, and revenue centres are more
often used with functional organization designsand with the function units in a matrix design.
In contrast, with a divisional organization designs, it is possible use profit centres because the large
divisions in such a structure usually have control over both the expenses and the revenues associated with
profits. 

Total Quality Management

The quality of Japanese product was revolutionized by technique introduced in Japan by US Consultancy
Company. Notably Advert Deming advocated a mix of statistical technique and the adoption of total
quality philosophy. Xerox Company is one of the first western companies to adopt the quality approach
and won Deming price Award in 1980. The total quality management involves the combination of
techniques including the adoption of business model statistical quality control certification by ISO
(International Standard Organization) setting quality terms in short term level. .
Total Quality Management (TQM) is an approach that organizations use to improve their internal
processes and increase customer satisfaction. When it is properly implemented, this style of management
can lead to decreased costs related to corrective or preventative maintenance, better overall
performance, and an increased number of happy and loyal customers.
However, TQM is not something that happens overnight. While there are a number of software solutions
that will help organizations quickly start to implement a quality management system, there are some
underlying philosophies that the company must integrate throughout every department of the company
and at every level of management. Whatever other resources you use, you should adopt these seven
important principles of Total Quality Management as a foundation for all your activities.
1. Quality can and must be managed
Many companies have wallowed in a repetitive cycle of chaos and customer complaints. They believe that
their operations are simply too large to effectively manage the level of quality. The first step in the TQM
process, then, is to realize there is a problem and that it can be controlled.
2. Processes, not people, are the problem
If your process is causing problems, it won’t matter how many times you hire new employees or how
many training sessions you put them through. Correct the process and then train your people on these
new procedures.
3. Don’t treat symptoms, look for the cure
If you just patch over the underlying problems in the process, you will never be able to fully reach your
potential. If, for example, your shipping department is falling behind, you may find that it is because of
holdups in manufacturing. Go for the source to correct the problem.
4. Every employee is responsible for quality
Everyone in the company, from the workers on the line to the upper management, must realize that they
have an important part to play in ensuring high levels of quality in their products and services. Everyone
has a customer to delight, and they must all step up and take responsibility for them.
5. Quality must be measurable
A quality management system is only effective when you can quantify the results. You need to see how
the process is implemented and if it is having the desired effect. This will help you set your goals for the
future and ensure that every department is working toward the same result.
6. Quality improvements must be continuous
Total Quality Management is not something that can be done once and then forgotten. It’s not a
management “phase” that will end after a problem has been corrected. Real improvements must occur
frequently and continually in order to increase customer satisfaction and loyalty.
7. Quality is a long-term investment
Quality management is not a quick fix. You can purchase QMS software that will help you get things
started, but you should understand that real results won’t occur immediately. TQM is a long-term
investment, and it is designed to help you find long-term success.
Before you start looking for any kind of quality management software, it is important to make sure you are
capable of implementing these fundamental principles throughout the company. This kind of management
style can be a huge culture change in some companies, and sometimes the shift can come with some
growing pains, but if you build on a foundation of quality principles, you will be equipped to make this
change and start working toward real long-term success.

Take corrective actions.

The external and internal environments in which the organization operates today are more complex and
dynamic than ever before. They threaten people at work and organizations with future shock.
Future shock occurs when the nature, type and speed of changes overpower an individual or
organization‘s ability and capability to adopt.
Strategic evaluation enhances an organization‘s ability to adopt successfully with changing circumstances
which Brown and Agnew refers as, ―Corporate Agility‖.
Taking corrective action raises employees and manager‘s anxieties.
Research suggests that participation in strategy evaluation of activities is one of the best way to overcome
individuals‘ resistance to change. Individuals accept change best, when they have a cognitive
understanding of the changes, a sense of control over the situation and the awareness that necessary
actions will be taken to implement the changes.
Strategic evaluation can lead to strategy formulation changes, strategy implementation changes or both.
Top managers cannot escape from revised strategy and implementation approaches.
Corrective action should place an organization in a better position:
o To get correct decisions,
o To get right information in right time (awareness)
o To think and enact with preventive and remedial measures,
o To capitalize on internal strength, consistent, socially responsible
o To take advantage of external opportunities,
o To avoid, reduce and mitigate external threats,
o To overcome the internal weakness and
o To cope with changes to happen (corporate agility, future shock).
o To reduce anxieties
STAGE 3: DECISION STAGE
• Analysis and intuition provide a basis for making strategy formulation decisions.
• The matching techniques reveal feasible alternative strategies.
• Many of these strategies will likely have been proposed by managers and employees participating in
the strategy analysis and choice activity.
• Any additional strategies resulting from the matching analyses could be discussed and added to the
list of feasible alternative options.
• Participant could rate these strategies on a 1 to 4 scale so that a prioritized list of the best strategies
could be achieved.

THE QUANTITATIVE STRATEGIC PLANNING MATRIX (QSPM)

Technique designed to determine the relative attractiveness of feasible alternative actions.

Six steps required to develop a QSPM:

1. Make list of the firm’s key external opportunities/ threats and internal strengths/weaknesses in the left
column of the QSPM.
• This information should be taken directly from the EFE Matrix and IFE Matrix. A minimum of 10 external
key success factors should be included in QSPM.

2. Assign weights to each key external and internal factor.

• These weights are identical to those in the EFE Matrix and IFE Matrix. The weights are presented in a
straight column just to the right of the external and internal critical success factors.

3. Examine the stage 2 (matching) matrices and identify alternative strategies that the organization should
consider implementing.
• Record these strategies in the top row of the QSPM. Group the strategies into mutually exclusive sets if
possible.

• 4. Determine the Attractiveness Scores (AS)

• Defined as numerical values that indicate the relative attractiveness of each strategy in agiven set of
alternative.
• Attractiveness Scores (AS) are determined by examining each key external or internal factor, one at a
time, and asking the question “Does this factor affect the choice of strategies being made?”

• If the answer to this question is yes, then the strategies should be compared relative to that key factor.
Specifically, Attractiveness Scores should be assigned to each strategy to indicate the relative
attractiveness of one strategy over others, considering the particular factor. The range for Attractiveness
Score is 1= not attractive, 2=somewhat attractive, 3=reasonably attractive and 4=highly attractive. By
attractive, we mean the extent that one strategy, compared to others, enables the firm to either capitalize
on the strength, improve on the weakness, exploit the opportunity, or avoid the threat. Work row by row
in developing a QSPM.

• If the answer to the previous question is no, indicating that the respective key factor has no effect upon
the specific choice beinmade, then do not assign Attractiveness Scores to the strategies in that set. Use a
dash to indicate that they key factor does not affect the choice being made. Note: if you assign an AS score
to one strategy, then assign AS scores to the other. In the other words, if one strategy receives a dash,
then all others must receive a dash in a given row.
• 5. Compute the Total Attractiveness Scores

• Total Attractiveness Scores (TAS) are defined as the product of multiplying the weights (step 2) by the
Attractiveness Scores (step 4) in each row.
• The Total Attractiveness Scores indicate the relative attractiveness of each alternative strategy,
considering only the impact of the adjacent external or internal critical success factor.
• The higher the Total Attractiveness Score, the more attractive the strategic alternative (considering only
the adjacent critical success factor).

6. Compute the sum Total Attractiveness Score

• Add Total Attractiveness Scores in each strategy column of the QSPM.

• The sums Total Attractiveness Scores (STAS) reveal which strategy is most attractive in each set of
alternative.
• Higher scores indicate more attractive strategies, considering all the relevant external and internal
factors that could be affect the strategic decisions.
• The magnitude of the difference between the sum Total Attractiveness Scores in the given set of
strategic alternative indicates the relative desirability of one strategy over another.
U

UUUUUU

to the suitable employee and handle the conflict.

Ii. Shareholders:

Management deals with many shareholders. Shareholders have the right of

ownership, power of management and voting right. The actual management
of organization is carried out by elected representative of shareholders
jointly known as boar of directors. Boards of directors have the
responsibility of overseeing the management of organization. It plays the
major role in formation of objectives, policies, strategies of the organization
as well as their implementation.

Iii. Organization structure:

It is located inside the organization. The arrangement of various facilities,

pattern of relationships among the various department, responsibility,
authority and communication is the organization structure. It also included
specialization and span of control.

Iv. Organization culture:

The sets of values that help the members to understand what organization
stand for how it does work, what it considers, cultural values of business
forces of business and so on. It helps in direction of activities.

2. External environment (PEST)

All the forces and condition that cannot be controlled by the business is
called external environment. . It is also known as uncontrollable factors
because business can’t control them. It is located outside the business. It
affects on organizational performance.

It includes:

I. Economic environment.

It indicates the condition of economy in which business organization

operates. It has continuous and great impact on business. It includes
national income, production, inflation, savings, investment, price,
government activities. Business person must have constant watch on this
factor.

Ii. Political or legal environment

It is defined as rules and regulations determined by the government.

Business must fulfill demand of government. There should be non violation
of rules and regulation of government. Business should avoid unfair trade
and should provide essential information to the government.

l forces:

Business Environment includes all the forces, institutions and factors which directly
or indirectly affect the Business Organizations.

2. Specific and general forces:

Business environment includes specific forces such as investors, customers,
competitors and suppliers. Non-human or general forces are Social, Legal,
Technological, Political, etc. which affect the Business indirectly.

rea of the organization in carrying out the corporate-level or business unit strategy.
The functional areas of organizations normally include: product/ operations,
marketing, finance, human resources, research and development, and information
systems management.

Production/operations management (POM) is the basic function in the business

firm. This function of a business consists of all those activities that transform inputs
into goods and services. POM must guide decisions regarding: the technical core,
quality, capacity, facilities, technology and production planning and control. The
need for consistency among these six decisions is highlighted.

Marketing can be described as the process of defining, anticipating, creating, and

fulfilling customers' needs and wants for products and services. The major
decisions in marketing strategy concern the product/service, price,
place/distribution, and promotion/advertising. The key is to strive for consistency
among these elements.

Financial management is primarily concerned with two functions: (1) acquiring

funds to meet the organization's current and future needs; (2) recording,
monitoring, and controlling the financial results of an organization's operations.
Therefore, the major decisions in financial strategy concern objectives, profitability,
liquidity and cash management, leverage and capital management, asset
management, investment ratios, and financial planning and control.

Human resource strategies concern human resource planning, recruitment and

selection, training and development, compensation and rewards, employment
security, and labor relations. Functional strategies in human resource
management should guide the effective utilization of human resources to achieve
both the objectives of the firm and the satisfaction and development of employees.

e in the respective function.

Functional strategies describe the means or methods to be used by each

functional area of the organization in carrying out the corporate-level or business
unit strategy. The functional areas of organizations normally include: product/
operations, marketing, finance, human resources, research and development, and
information systems management.
Production/operations management (POM) is the basic function in the business
firm. This function of a business consists of all those activities that transform inputs
into goods and services. POM must guide decisions regarding: the technical core,
quality, capacity, facilities, technology and production planning and control. The
need for consistency among these six decisions is highlighted.

Marketing can be described as the process of defining, anticipating, creating, and

fulfilling customers' needs and wants for products and services. The major
decisions in marketing strategy concern the product/service, price,
place/distribution, and promotion/advertising. The key is to strive for consistency
among these elements.

Financial management is primarily concerned with two functions: (1) acquiring

funds to meet the organization's current and future needs; (2) recording,
monitoring, and controlling the financial results of an organization's operations.
Therefore, the major decisions in financial strategy concern objectives, profitability,
liquidity and cash management, leverage and capital management, asset
management, investment ratios, and financial planning and control.

Human resource strategies concern human resource planning, recruitment and

selection, training and development, compensation and rewards, employment
security, and labor relations. Functional strategies in human resource
management should guide the effective utilization of human resources to achieve
both the objectives of the firm and the satisfaction and development of employees.