Strategic Management

CONTENTS
Unit Contents Page No.
1 Introduction to Strategic Management 1-27
2. External and Internal Resource Analysis 28-60
3. Strategy Formulation 61-84
4 Implementation of Strategy 85-111
5. Strategic Control 112-118
6. Contemporary Strategic Management 119-136

Strategy Management
Unit – 1 INTRODUCTION TO STRATEGIC
MANAGEMENT
Structure:
1.1 Introduction to the chapter
1.2 Strategic Management
1.2.1 Concept
1.2.2 Definition
1.2.3 Nature
1.2.4 Scope
1.2.5 Significance
1.3 Levels at which Strategy Operates
1.4 Process of Strategic Management
1.5 Strategic Intent
1.5.1 Vision
1.5.2 Mission
1.5.3 Business Purpose
1.5.4 Objectives
1.5.5 Goals
1.6 Summary
1.7 Self-Assessment Questions
Objectives
After going through this unit, we will be able to:
ü Explain the concept of strategic management
ü Describe the nature, scope and significance of strategic management
ü Identify the different levels at which strategy operates
ü Discuss the strategic management process
ü Understanding the role of Vision, Mission, Objectives and Goals in an
organization

This chapter gives a detailed insight about the word “Strategy” and its
importance in business. This chapter also gives a brief overview of the rest Introduction To Strategic
Management
of the chapters of this book. Strategic management is about understanding
each and every aspect of the business, setting priorities and achieve as per 1
“Only for Private Circulation”

Strategy Management the timeline set. It is about creating an organization’s vision. The culture
intended by the top level management can be understood by the mission
statement of the firm. It is also about how objectives and goals help in
systematic completion of firms’ expectations. Understanding the resources
available on the requirement in the future to achieve the set goals. In short, it
helps in creating harmony of various tunes of business by putting forth
various sets of policies and helping each and every member related to the
company to work in synchronization to proceed one step further to the
vision set.
1.2 Strategic Management

A strategy is an action plan built to achieve a specific goal or set of goals
within a definite time, while operating in an organizational framework. It is
all about identification and description of the strategies that can be carried
out so as to achieve better performance and have a competitive advantage
for their organization. They must have a thorough knowledge and analysis
of the general and competitive organizational environment so as to take
right decisions. A strategy is all about integrating organizational activities
and utilizing and allocating the scarce resources within the organizational
environment so as to meet the present objectives. While planning a strategy,
it is essential to consider that decisions are not taken in a vacuum and that
any act taken by a firm is likely to be met by a reaction from those affected,
competitors, customers, employees or suppliers.
Rumelt’s definition of strategy includes the following steps -

· Diagnosis - What problem needs to be addressed? How do the vision,
mission and objectives of a firm imply its actions?
· Guiding Policy - What according to the firm’s approach will be the
framework to solve the problems?
· Action Plans - How would the operations look like (in detail)? How can
the processes be enacted to be in sync with the policy guidelines and to
address the issues available in the diagnosis?
Strategic management is nothing but planning for both predictable as well
as unfeasible contingencies. It is applicable to both small as well as large
organizations as even the smallest organization face competition and, by
formulating and implementing appropriate strategies, they can attain
sustainable competitive advantage. It is a way in which strategists set the
objectives and proceed about attaining them. It deals with making and
implementing decisions about the future direction of an organization. It
helps us to identify the direction in which an organization is moving.
Strategic management is a continuous process that evaluates and controls
Introduction To Strategic the business and the industries in which an organization is involved. It
Management evaluates its competitors and sets goals and strategies to meet all existing
2 and potential competitors and then evaluates strategies on a regular basis to
determine how it has been implemented and whether it was successful or Strategy Management
does it needs replacement. Strategic Management gives a broader
perspective to the employees of an organization and they can better
understand how their job fits into the entire organizational plan and how it is
co-related to other organizational members. It is nothing but the art of
managing employees in a manner which maximizes the ability of achieving
business objectives. The employees become more trustworthy, more
committed and more satisfied as they can co-relate themselves very well
with each organizational task. They can understand the reaction of
environmental changes on the organization and the probable response of the
organization with the help of strategic management. Thus the employees
can judge the impact of such changes on their own job and can effectively
face the changes. The managers and employees must do appropriate things
in appropriate manner. They need to be both effective as well as efficient.
One of the major role of strategic management is to incorporate various
functional areas of the organization completely, as well as, to ensure these
functional areas harmonize and get together well. Another role of strategic
management is to keep a continuous eye on the goals and objectives of the
organization.
1.2.1 Concept
Strategic management not only relates to single specialization but covers
cross-functional or overall organization.
• Strategic management is a comprehensive area that covers almost all
the functional areas of the organization. It is an umbrella concept of
management that comprises all such functional areas as marketing,
finance and account, human resource, and production and operation
into a top level management discipline. Therefore, strategic
management has an importance in the organizational success and
failure than any specific functional areas.
• Strategic management deals with organizational level and top level
issues whereas functional or operational level management deals
with the specific areas of the business.
• Top-level managers such as Chairman, Managing Director, and
corporate level planners involve more in strategic management
process.
• Strategic management relates to setting vision, mission, objectives,
and strategies that can be the guideline to design functional strategies
in other functional areas
Therefore, it is top-level management that paves the way for other
functional or operational management in an organization
Introduction To Strategic
Management
3
Strategy Management 1.2.2 Definition of Strategic Management
The word “strategy” is derived from the Greek word “stratçgos”; stratus
(meaning army) and “ago” (meaning leading/moving). According to
Chandler strategic management is about the determination of the basic
long-term goals and objectives of an enterprise and the adoption of the
course of action and the allocation of resources necessary for carrying out
these goals.
“Strategic management is concerned with the determination of the basic
long-term goals and the objectives of an enterprise, and the adoption of
courses of action and allocation of resources necessary for carrying out
these goals”.
– Alfred Chandler, 1962
“Strategic management is a stream of decisions and actions which lead to
the development of an effective strategy or strategies to help achieve
corporate objectives”.
– Glueck and Jauch, 1984
“Strategic management is the process of managing the pursuit of
organizational mission while managing the relationship of the organization
to its environment”
-James M. Higgins
“Strategic management is a process of formulating, implementing and
evaluating cross-functional decisions that enable an organisation to
achieve its objective”.
– Fed R David, 1997
“Strategic management is the set of decisions and actions resulting in the
formulation and implementation of plans designed to achieve a company’s
objectives.”
– Pearce and Robinson, 1988
“Strategic management is the process of building capabilities that allow a
firm to create value for customers, shareholders, and society while
operating in competitive markets.”
-Rajiv Nag, Donald Hambrick and Ming-Jer Chen
“Strategic management is defined as the set of decisions and actions
resulting in the formulation and implementation of strategies designed to
achieve the objectives of the organization”
-John A. Pearce II and Richard B. Robinson, Jr.
“Strategic management is the process of examining both present and future
environments, formulating the organization's objectives, and making,
implementing, and controlling decisions focused on achieving these
Introduction To Strategic objectives in the present and future environments”
Management
4 -Garry D. Smith, Danny R. Arnold, Bobby G. Bizzell

“Strategic management is a continuous process that involves attempts to Strategy Management
match or fit the organization with its changing environment in the most
advantageous way possible”
-Lester A. Digman
Strategy can also be defined as knowledge of the goals, the uncertainty of
events and the need to take into consideration the likely or actual behaviour
of others. Strategy is the blueprint of
decisions in an organization that shows its objectives and goals, reduces the
key policies, and plans for achieving these goals, and defines the business
the company is to carry on, the type of economic and human organization it
wants to be, and the contribution it plans to make to its shareholders,
customers and society at large.
1.2.3 Nature and Scope of Strategic Management

Strategic management is a process which determine whether an
organization excels, survives, or dies. All organizations engage in the
strategic management process either formally or informally. Strategic
management is equally applicable to public, private, non-profit and
religious organizations. It is both an art and science of formulating,
implementing and evaluating cross functional decisions that facilitate
decision-making in the organization for attaining its objectives. Its purpose
is to use and create new opportunities for future. The nature of strategic
management is dissimilar from other facets of management as it demands
awareness to the "big picture" and a rational assessment of the future
options. It offers a strategic direction endorsed by the team and
stakeholders, a clear business strategy and vision for the future, a method
for accountability, and a structure for governance at the different levels, a
logical framework to handle risk in order to guarantee business continuity,
the capability to exploit opportunities and react to external change by taking
ongoing strategic decisions.
Strategic management process encompasses of the following phases.
1. Establishing the hierarchy of strategic intent
2. Strategic formulation.
3. Implementation
4. Evaluation and control.
The brief explanation of the above category can be found further in the
chapter under the process of strategic management.
As we all know organizations are made up of people, and their behaviour in
turn makes up organizational behaviour. Managers are people, strategies
address the organization, and strategies require operational execution. For
the purpose of understanding how to strategically manage an organization, Introduction To Strategic
Management
these are not separable disciplines which can be addressed separately. They
5
Strategy Management are interwoven into one discipline - herein titled strategic management.
Ultimately there
is nothing associated with a business organization outside the survey of
strategic management, as such, it is one perspective of the overall collective
management of the organization.
Activity
With reference to a day's work, what steps do you take to organise and
prioritize your tasks
1.2.4 Importance of Strategic Management

Strategic Management involves a great deal of risk and resource
assessment, understanding the risk involved, finding out ways to counter
those risks, and effective utilization of resources are done effectively to
achieve the objective of the organization. Every organization has its own
specific vision which defines its purpose of existence. All of the work
carried out by the organization revolves around this particular goal, and it
has to align its internal resources and external environment in a way that the
goal is achieved in rational expected time. The following points give a brief
picture of its importance.
§ It guides the company to move in a specific direction. It defines
organization’s goals and fixes realistic objectives, which are in
alignment with the company’s vision.
§ It assists the firm in becoming proactive, rather than reactive, to make
it analyse the actions of the competitors and take necessary steps to
compete in the market, instead of becoming spectators.
§ It acts as a foundation for all key decisions of the firm.
§ It attempts to prepare the organization for future challenges and play
the role of pioneer in exploring opportunities and also helps in
identifying ways to reach those opportunities.
§ It ensures the long-term survival of the firm while coping with
competition and surviving the dynamic environment.
§ It assists in the development of core competencies and competitive
advantage, which helps in the business survival and growth.
The basic purpose of strategic management is to gain sustained-strategic
competitiveness of the firm. It is possible by developing and implementing
such strategies that create value for the
company. It focuses on assessing the opportunities and threats, keeping in
mind firm’s strengths and weaknesses and developing strategies for its
survival, growth and expansion.
Management
6

1.3 Levels at which Strategy Operates Strategy Management
Strategy is the determination of the long-term goals and objectives of an

enterprise and the adoption of the courses of action and the allocation of
resources necessary for carrying out these goals. Strategy is management’s
game plan for strengthening the organization’s position, pleasing
customers, and achieving performance targets.
Strategy can be formulated on three different levels:
· Corporate level
· Business unit level
· Functional or departmental level.
Ø Corporate Level Strategy

Corporate level strategy fundamentally is concerned with the selection of
businesses in which the company should compete and with the
development and coordination of that portfolio of businesses.
Corporate level strategy is concerned with:
· Reach - defining the issues that are corporate responsibilities; these
might include identifying the overall goals of the corporation, the
types of businesses in which the corporation should be involved, and
the way in which businesses will be integrated and managed.
· Competitive Contact - defining where in the corporation
competition is to be localized. Take the case of insurance: In the mid-
1990's, Aetna as a corporation was clearly identified with its
commercial and property casualty insurance products. The
conglomerate Textron was not. For Textron, competition in the
insurance markets took place specifically at the business unit level,
through its subsidiary, Paul Revere. (Textron divested itself of The
Paul Revere Corporation in 1997.)
· Managing Activities and Business Interrelationships - Corporate
strategy seeks to develop synergies by sharing and coordinating staff
and other resources across business units, investing financial
resources across business units, and using business units to
complement other corporate business activities. Igor Ansoff Introduction To Strategic
introduced the concept of synergy to corporate strategy. Management
7
Strategy Management · Management Practices - Corporations decide how business units
are to be governed: through direct corporate intervention
(centralization) or through more or less autonomous government
(decentralization) that relies on persuasion and rewards.
Corporations are responsible for creating value through their businesses.
They do so by managing their portfolio of businesses, ensuring that the
businesses are successful over the long-term, developing business units,
and sometimes ensuring that each business is compatible with others in the
portfolio.
Ø Business Unit Level Strategy

A strategic business unit may be a division, product line, or other profit
centre that can be planned independently from the other business units of
the firm.
At the business unit level, the strategic issues are less about the coordination
of operating units and more about developing and sustaining a competitive
advantage for the goods and services that are produced. At the business
level, the strategy formulation phase deals with:
· Positioning the business against rivals
· Anticipating changes in demand and technologies and adjusting the
strategy to accommodate them
· Influencing the nature of competition through strategic actions such
as vertical integration and through political actions such as lobbying.
Michael Porter identified three generic strategies (cost leadership,
differentiation, and focus) that can be implemented at the business unit level
to create a competitive advantage and defend against the adverse effects of
the five forces.
Ø Functional Level Strategy
Functional level strategies are the day today strategies that keep the
organization moving in the direct direction. This level of strategy is perhaps
the most important of all, as without a daily plan the organization is stuck in
neutral whereas the completion continues to drive forward. The strategic
issues at the functional level are related to business processes and the value
chain. Functional level strategies in marketing, finance, operations, human
resources, and Research and development involve the development and
coordination of resources through which business unit level strategies can
be executed efficiently and effectively.
Functional units of an organization are involved in higher level strategies by
providing input into the business unit level and corporate level strategy,
such as providing information on resources and capabilities on which the
Introduction To Strategic higher level strategies can be based. Once the higher-level strategy is
Management developed, the functional units translate it into discrete action-plans that
8 each department or division accomplishes the strategy to succeed.

1.4 Process of Strategic Management Strategy Management
In today's highly competitive business environment, budget-oriented

planning or forecast-based planning methods are insufficient for a large
corporation to survive and prosper. Strategic management process consists
of a number of elements which are discrete and identifiable activities
performed in logical and sequential steps. The firm must engage in Strategic
planning that clearly defines objectives and assesses both the internal and
external situation to formulate strategy, implement the strategy, evaluate the
progress, and make adjustments as necessary to stay on track.
A simplified view of the strategic planning process is shown by the
following diagram:
a) STRATEGIC INTENT
Strategic intent takes the form of a number of corporate challenges and
opportunities, specified as short term projects. The strategic intent must
convey a significant stretch for the company, a sense of direction, which can
be communicated to all employees. It should not focus so much on today's
problems, but rather on tomorrow's opportunities. Strategic intent should
specify the competitive factors, the factors critical to success in the future.
Strategic intent gives a picture about what an organization must get into
immediately in order to use the opportunity. 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.
b) Environmental Scan
The environmental scan includes the following components:
· Analysis of the firm (Internal environment) Management
9
Strategy Management · Analysis of the firm's industry (micro or task environment)
· Analysis of the External macro environment (PEST analysis)
The internal analysis can identify the firm's strengths and weaknesses and
the external analysis reveals opportunities and threats. A profile of the
strengths, weaknesses, opportunities, and threats is generated by means of a
SWOT analysis
An industry analysis can be performed using a framework developed by
Michael Porter known as Porter's five forces. This framework evaluates
entry barriers, suppliers, customers, substitute products, and industry
rivalry.
c) Strategy Formulation
Strategy Formulation is the development of long-range plans for the
effective management of environmental opportunities and threats, in light
of corporate strengths and weakness. It includes defining the corporate
mission, specifying achievable objectives, developing strategy and setting
policy guidelines.
i) Mission
Mission is the purpose or reason for the organization’s existence. It
tells what the company is providing to society, either a service like
housekeeping or a product like automobiles.
ii) Objectives
Objectives are the end results of planned activity. They state what is
to be accomplished by when and should be quantified, if possible.
The achievement of corporate objectives should result in the
fulfilment of a corporation’s mission.
iii) Strategies
Strategy is the complex plan for bringing the organization from a
given posture to a desired position in a future period of time.
iv) Policies
A policy is a broad guide line for decision-making that links the
formulation of strategy with its implementation. Companies use
policies to make sure that employees throughout the firm make
decisions and take actions that support the corporation’s mission,
objectives and strategy.
d) Strategy Implementation
It is the process by which strategy and policies are put into actions through
the development of programs, budgets and procedures. This process might
involve changes within the overall culture, structure and/or management
system of the entire organization.
Management
10

i) Programs: Strategy Management
It is a statement of the activities or steps needed to accomplish a

single-use plan. It makes the strategy action oriented. It may involve
restructuring the corporation, changing the company’s internal
culture or beginning a new research effort.
ii) Budgets:
A budget is a statement of a corporations program in terms of dollars.
Used in planning and control, a budget lists the detailed cost of each
program. The budget thus not only serves as a detailed plan of the
new strategy in action, but also specifies through proforma financial
statements the expected impact on the firm’s financial future
iii) Procedures:
Procedures, sometimes termed Standard Operating Procedures
(SOP) are a system of sequential steps or techniques that describe in
detail how a particular task or job is to be done. They typically detail
the various activities that must be carried out in order to complete.
e) Evaluation and Control

After the strategy is implemented it is vital to continually measure and
evaluate progress so that changes can be made if needed to keep the overall
plan on track. This is known as the control phase of the strategic planning
process. While it may be necessary to develop systems to allow for
monitoring progress, it is well worth the effort. This is also where
performance standards should be set so that performance may be measured
and leadership can make adjustments as needed to ensure success.
Evaluation and control consists of the following steps:
i) Define parameters to be measured
ii) Define target values for those parameters
iii) Perform measurements
iv) Compare measured results to the pre-defined standard
v) Make necessary changes
1.5 Strategic Intent

Strategic Intent can be understood as the philosophical base of strategic
management process. It implies the purpose, which an organization
endeavour of achieving. It is a statement that provides a perspective of the
means, which will lead the organization, reach the vision in the long run.
Strategic intent gives an idea of what the organization desires to attain in
future. It answers the question what the organization strives or stands for? It
indicates the long-term market position, which the organization desires to Management
create or occupy and the opportunity for exploring new possibilities. 11
Strategy Management HAMED AND PRAHALAD coined the term strategic intent. A few
aspects about strategic intent are as follows:
· It is an obsession with an organization.
· This obsession may even be out of proportion to their resources and
capabilities.
· It envisions a derived leadership position and establishes the
criterion; the organization will use to chart its progress.
It involves the following:

o Creating and Communicating a vision
o Designing a mission statement
o Defining the business
o Setting objectives
Vision serves the purpose of stating what an organization wishes to achieve
in the long run.
Mission relates an organization to society.
Business explains the business of an organization in terms of customer
needs, customer groups and alternative technologies.
Objectives state what is to be achieved in a given time period.
https://www.clearpointstrategy.com/vrio-framework/
1.5.1 Vision
It is at the top in the hierarchy of strategic intent. It is what the firm would
ultimately like to become. A few definitions are as follows:
Management KOTTER description of something (an organization, corporate culture, a
12

business, a technology, an activity) in the future. The definition itself is Strategy Management
comprehensive and states clearly the futuristic position.
MILLER and DESS defined vision as the “category of intentions that are
broad, all-inclusive and forward thinking”
The definition lays stress on the following:
(1) broad and all inclusion intentions
(2) vision is forward thinking process.
A few important aspects regarding vision are as follows:
· It is more of a dream than articulated idea
· It is an aspiration of organization. Organization has to strive and exhert to
achieve it.
· It is powerful motivator to action.
· Vision articulates the position of an organization which it may attain in
distant future.
According Jim Collins and Jerry Porras in their book “Built to Last”
provides guidance about what core to preserve and what future to progress
toward. Made up of core ideology and envisioned future.
It thus provides direction and inspiration to the firm for setting goal. It helps
in understanding where the firm wants to see itself at the end of the horizon.
It is a difficult and complex task. A well-conceived vision must have
· Core Ideology
· Envisioned Future
Core ideology rests on core values and core purpose. It will remain
unchanged. It has the enduring character. It consists of core values and core
purpose. Core values are essential tenets of an organization. Core purpose is
related to the reasoning of the existence of organization. Management
Core Values are the essential and enduring tenants of an organization. They 13
Strategy Management may be beliefs of top management regarding employee’s welfare,
customer’s interest and shareholder’s wealth. The beliefs may have
economic orientation or social orientation. Evidences clearly indicate that
the core values of Tata’s are different from core values of Birla’s or
Reliance. The entire organization structure revolves around the philosophy
coming out of core values.
Core Purpose is the reason for existence of the organization. Its reasoning
needs to be spelt.
A few characteristics of core purpose as follows:
(i) It is the overall reason for the existence of organization.
(ii) It is why of organization.
(iii) This mainly addresses to the issue which organization desires to
achieve internally.
(iv) It is the broad philosophical long term rationale.
(v) It is the linkage of organization with its own people. Envisioned
Future has two elements, The Big Hairy Audacious Goal (BHAG)
and a vivid description of what it will look like when you achieve
your BHAG. The former should never change, while the latter may,
once you have accomplished your long term 10-20 year goal. These
should be your guiding purpose to go above and beyond the status
quo.
· The long term objectives of the organization.
· Clear description of articulated future.
Advantages of Having a Vision
A few benefits accruing to an organization having a vision are as follows:
· They foster experimentation.
· Vision promotes long term thinking
· Visions foster risk taking.
· They can be used for the benefit of people.
· They make organizations competitive, original and unique.
· Good vision represent integrity.
· They are inspiring and motivating to people working in organization.
Examples of Some Vision Statement are

Vision of Google : “To provide access to the world’s information in one
click”.
Vision of ITC, “Sustain ITC's position as one of India's most valuable
Introduction To Strategic corporations through world class performance, creating growing value for
Management
the Indian economy and the Company's stakeholders”.
14

Vision of Bajaj Auto Ltd, “To attain world class excellency by Strategy Management
demonstrating value added products to customers”.
Vision of Etihad Airways, “We seek to reflect the best of Arabian hospitality
in everything that we do.”
Vision of Toyota, “Toyota will lead the way to the future of mobility,
enriching lives around the world with the safest and most responsible ways
of moving people.”
Vision of Harvard University, “To develop leaders who will one day make a
global difference.”
Vision of Disney, “To make people happy.”
Vision of PayPal,“The web’s most convenient, secure and cost-effective
payments solution.”
Vision of McDonalds,“To be the world’s best quick service restaurant
experience.”
Vision of Nestle,“To bring consumers safe, high quality foods that provide
optimal nutrition.”
1.5.2 Mission
The mission of the organization is the purpose for which the organization is.
Mission in one way is the road to achieve the vision.
The mission statements stage the role that organization plays in society. It is
one of the popular philosophical issue which is being looked into business
mangers since last two decades.
Definition
A few definitions of mission are as follows:
Hynger and Wheelen “Purpose or reason for the organization’s existence”.
David F. Harvey states “A mission provides the basis of awareness of a
sense of purpose, the competitive environment, degree to which the firm’s
mission fits its capabilities and the opportunities which the government
offers”.
Thompson states mission as the “Essential purpose of the organization,
concerning particularly why it is in existence, the nature of the business it is
in, and the customers it seeks to serve and satisfy”.
The above definition reveals the following:
(i) It is the essential purpose of organization
(ii) It answers “why the organization is in existence”.
(iii) It is the basis of awareness of a sense of purpose.
(iv) It fits its capabilities and the opportunities which government offers. Introduction To Strategic
Management
15
Strategy Management Ø Nature of Mission Statement
A few points regarding nature of mission statement are as follows.
· It gives social reasoning. It specifies the role which the organization
plays in society. It is the basic reason for existence.
· It is philosophical and visionary. It relates to top management values.
It has long term perspective.
· It legitimises societal existence.
· It is stylistic objectives. It reflects corporate philosophy, identify,
character and image of organization.
Ø Characteristics of Mission Statement

In order to be effective, a mission statement should possess the following
characteristics.
(i) A mission statement should be realistic and achievable. Impossible
statements do not motivate people. Aims should be developed in
such a way so that may become feasible.
(ii) It should neither be too broad not be too narrow. If it is broad, it will
become meaningless. A narrower mission statement restricts the
activities of organization. The mission statement should be precise.
(iii) A mission statement should not be ambiguous. It must be clear for
action. Highly philosophical statements do not give clarity.
(iv) A mission statement should be distinct. If it is not distinct, it will not
have any impact. Copied mission statements do not create any
impression.
(v) It should have societal linkage. Linking the organization to society
will build long term perspective in a better way.
(vi) It should not be static. To cope up with ever changing environment,
dynamic aspects be looked into.
(vii) It should be motivating for members of the organization and of
society. The employees of the organization may enthuse themselves
with mission statement.
(viii) The mission statement should indicate the process of accomplishing
objectives. The clues to achieve the mission will be guiding force.
Examples of Mission Statement
Mission of Bajaj Auto, “Value for Money for Years”
Mission of Google, to organize the world‘s information and make it
universally accessible and useful.
Mission of HCL, “To be a world class Competitor”
Management Mission of ITC, “To enhance the wealth generating capability of the
16 enterprise in a global environment, delivering superior and sustainable
stakeholder value”. Strategy Management
Mission of Ranbaxy Industries, “To become a research based international

Pharmaceuticals Company”.
Mission of Eicher Consultancy, “To make India an economic power in the
lifetime, about 10 to 15 years, of its founding senior managers”.
Mission of Skype, “To be the fabric of real-time communication on the
web”.
Mission of Mckinsey and Co: “To help business corporation and
governments to be more successful”.
Mission of Cadbury India: “To attain leadership position in the
confectionary market and achieve a strong presence in the food drinks
sector”.
Mission of Reliance Industries: “To become a major player in the global
chemicals business and simultaneously grow in other growth industries like
infrastructure”.
Mission of Unilever: “The mission of our company, as William Hasketh
Lever saw it, is to make cleanliness commonplace, to lessen work for
women, to foster health, and to contribute to personal attractiveness that
life may be more enjoyable for the people who use our products”.
Ø Formulation of Mission Statements

The mission statements are formulated from the following sources:
(i) National Priorities projected in plan documents and industrial policy
statements.
(ii) Corporate philosophy as developed over the years.
(iii) Major strategists have vision to develop mission statements.
(iv) The services of consultants may be hired.
Identify any company of your choice that went down due to poor strategic
management. Discuss what went wrong with them.
1.5.3 Business Purpose

It explains the business of an organization in terms of customer needs,
customer groups and alternative technologies.
Oerik Abell suggests defining business along the three dimension of
customer groups. Customer functions and alternative technologies. They
are developed as follows:
(i) Customer groups are created according to the identity of the
customers. Introduction To Strategic
(ii) Customer functions are based on provision of goods/services to Management
customers. 17
Strategy Management (iii) Alternative Technologies describe the manner in which a particular
function can be performed for a customer.
For a watch making business, these dimensions may be outlined as follows:
· Customer groups are individual customers, commercial
organizations, sports organization, educational institutions etc.
· Customer functions are record time, finding time, alarm service etc.
It may be a gift item also.
· Alternative technologies are manual, mechanical and automatic.
A clear business definition is helpful in identifying several strategic
choices. The choices regarding various customer groups, various customer
functions and alternative technologies give the strategists various strategic
alternatives. The diversification, mergers and turnaround depend upon the
business definition. Customer oriented approach of business makes the
organization competitive. On the same lines, product/ service concept could
also give strategic alternatives from a different angle. Business can be
defined at the corporate or SBU levels. At the corporate level, it will concern
itself with the wider meaning of customer groups, customer functions and
alternative technologies. If strategic alternatives are linked through a
business definition, it results in considerable amount of synergic advantage.
1.5.4 Objectives
Objectives are organizations performance targets – the results and
outcomes it wants to achieve. They function as yardstick for tracking an
organizations performance and progress.
Objectives are open-ended attributes that denote the future states or
outcomes. Goals are close-ended attributes which are precise and expressed
in specific terms.
Objectives with strategic focus relate to outcomes that strengthen an
organizations overall business position and competitive vitality. Objective
to be meaningful to serve the intended role must possess following
characteristics:
? Objectives should define the organization’s relationship with its
environment.
? They should be facilitative towards achievement of mission and
purpose.
? They should provide the basis for strategic decision-making
? They should provide standards for performance appraisal.
? Objectives should be understandable.
? Objectives should be concrete and specific
Management ? Objectives should be related to a time frame
18 ? Objectives should be measurable and controllable

? Objectives should be challenging Strategy Management
? Different objectives should correlate with each other

? Objectives should be set within constraints
Ø Need for Establishing Objectives

The following points specifically emphasize the need for establishing
objectives:
· To provide a yardstick to measure performance of a department or
SBU or organization.
· To serve as a motivating force. All people work to achieve the
objectives.
· To help the organization to pursue its vision and mission. Long-term
perspective is translated in short-term goals.
· To define the relationship of organization with internal and external
environment.
· To provide a basis for decision-making.
· All decisions taken at all levels of management are oriented towards
accomplishment of objectives.
Ø Levels of Objective Formulation
The objectives are set at the three levels of strategy development in an
enterprise, i.e.;
1. Corporate level
2. Business unit level
3. Functional or departmental level
Corporate objectives are those that relate to the business as a whole. The top
management of the business usually sets them and they provide the focus
for setting more detailed objectives for the main functional activities of the
business. They tend to focus on the desired performance and results of the
business. It is important that corporate objectives cover a range of key areas
where the business wants to achieve results rather than focusing on a single
objective.
Peter Drucker has suggested that corporate objectives should cover eight
key areas:
According to Peter Druker, objectives be set in the area of market standing
,innovation productivity, physical and financial resources, profitability,
manager performance and development, worker performance and attitude
and public responsibility. Researchers have identified the following areas
for setting objectives:
Profit Objective – It is the most important objective for any business Management
enterprise. In order to earn a profit, an enterprise has to set multiple 19
Strategy Management objectives in key result areas such as market share, new product
development, quality of service etc.
Marketing Objective may be expressed as: to increase market share to 20
percent within five years or to increase total sales by 10 percent annually.
They are related to a functional area.
Productivity Objective may be expressed in terms of ratio of input to
output. This objective may also be stated in terms of cost per unit of
production.
Product Objective may be expressed in terms of product development,
product diversification, branding etc.
Social Objective may be described in terms of social orientation. It may be
tree plantation or provision of drinking water or development of parks or
setting up of community centres.
Financial Objective relate to cash flow, debt equity ratio, working capital,
new issues, stock exchange operations, collection periods, debt instruments
etc. For example a company may state to decrease the collection period to
30 days by the end of this year.
Human resources objective may be described in terms of absenteeism,
turnover, number of grievances, strikes and lockouts etc. An example may
be “to reduce absenteeism to less than 10 percent by the end of six months.
Ø Characteristics of Objectives
The following are the characteristic of corporate objectives:
(i) They form a hierarchy. It begins with broad statement of vision and
mission and ends with key specific goals. These objectives are made
achievable at the lower level.
(ii) It is impossible to identify even one major objective that could cover
all possible relationships and needs. Organizational problems and
relationship cover a multiplicity of variables and cannot be
integrated into one objectives. They may be economic objectives,
social objectives, political objectives etc. Hence, multiplicity of
objectives forces the strategists to balance those diverse interests.
(iii) A specific time horizon must be laid for effective objectives. This
timeframe helps the strategists to fix targets.
(iv) Objectives must be within reach and is also challenging for the
employees. If objectives set are beyond the reach of managers, they
will adopt a defeatist attitude. Attainable objectives act as a
motivator in the organization.
(v) Objectives should be understandable. Clarity and simple language
should be the hallmarks vague and ambiguous objectives may lead to
Management wrong course of action.
20 (vi) Objectives must be concrete. For that they need to be quantified.

Measurable objectives helps the strategists to monitor the Strategy Management
performance in a better way.
(vii) There are many constraints internal as well as external which have to
be considered in objective setting. As different objectives compete
for scarce resources, objectives should be set within constraints.
Ø PROCESS OF SETTING OBJECTIVES

Glueek identifies four factors that should be considered for objective
setting. These factors are the forces in the environment, realities of an
enterprise’s resources and internal power relations, the value system of top
executives and awareness by the management of the past objectives. They
are briefly narrated below:
(i) Environmental forces, both internal and external, may influence the
interests of various stake holders. Further, these forces are dynamic
by nature. Hence objective setting must consider their influence on
its process.
(ii) As objectives should be realistic, the efforts be made to set the
objectives in such a way so that objectives may become attainable.
For that, existing resources of enterprise and internal power structure
be examined carefully.
(iii) The values of the top management influence the choice of objectives.
A philanthropic attitude may lead to setting of socially oriented
objectives while economic orientation of top management may force
them to go for profitability objective.
(iv) Past is important for strategic reasons. Organizations cannot deviate
much from the past. Unnecessary deviations will bring problems
relating to resistance to change. Management must understand the
past so that it may integrate its objectives in an effective way.
1.5.5 Goals
It is where the business wants to go in the future, its aims. It is a statement of
purpose. It denotes a broad category of financial and non-financial issues
that a firm sets for itself.
Difference between objectives and goals.
The points of difference between the two are as follows:
· The goals are broad while objectives are specific.
· The goals are set for a relatively longer period of time.
· Goals are more influenced by external environment.
· Goals are not quantified while objectives are quantified.
. "Goals are general in nature while objectives are specific". Discuss Management
using suitable example 21
Strategy Management 1.6 Summary
v Strategy is basically a plan / course of action / decision rules which
are leading to particular direction.
v The above is related to the company’s activities.
v It depends on the vision / mission of the company, where it would like
to reach from its current position.
v It deals with the future, which has uncertainties.
v It is concerned with the resources available today and those that will
be necessary in the future for implementing a plan or following a
course of action.
v It is connected to the strategic positioning of a firm.
v It is about making trade0offs between its different activities, and
creating a fit among these activities.
v Strategy operates at various levels. The corporate level, business
level and functional level.
v The process of strategic management has four main phases of
establishing the hierarchy of strategic intent, formulation of
strategies, implementation of strategies and performance of strategic
evaluation and control.
v Strategic intent refers to the purpose the organization strives for.
These may be expressed in terms of a hierarchy of strategic intent.
The framework, within which the firm operates, adopts a
predetermined direction and the attempt to achieve their goal is
provided by strategic intent.
v The strategic intent covers vision, mission, business definition and
goals and objectives.
v Vision: is what the firm wants to become
v Mission: is what the company is and why it exists
v Core Ideology: is the unchanging part of the organization, its
character
v Core Values: are central to the firm, reflects deeply held values of the
firm and are independent of the current industry environment and
management fads.
v Core Purpose: reason that the firm exists. This is expressed in a
carefully formulated mission statement.
v Envisioned Future: is a goal to be reached.
v Audacious Goals: what the company would like to achieve, they are
tough, need extraordinary commitment and effort, need a bit of luck
Introduction To Strategic and are ambitious.
Management
22 v Vivid Description: Putting the goals into words that evoke a picture
of what it would be like to achieve your audacious goals.
v Business definition involves defining a business along the three Strategy Management
dimensions of customer groups, customer functions and alternative
technologies. Customer group refers to “who” is being satisfied,
customer needs describe “what” is being satisfied and alternative
technology mean “how” the need is being satisfied.
v Goals denote what an organization hopes to accomplish in a period of
time. They represent the future state or the outcome of an effort put in
now.
v Objectives are the ends that state specifically how the goals shall be
achieved.
Self Assessment Questions

1. Define term “Strategic Management?. What are the important
features/Characteristics? Discuss its nature and scope.
2. "Strategic management process is the way in which strategists determine
objectives and strategic decisions". Discuss. 3. Explain the conceptual
framework of Strategic Management Process. 4. How do the terms mission,
objectives, strategies, programs, budgets, procedures differ in the true
sense? – Explain.
5. Depict the model of strategic management and explain its components.
6. "Employees have a greater role to play in formulating strategy". Comment.
7. "Small business' success solely depends upon its strategy formulation
approach". To what extent does this statement hold good?
8. Find out the competitive strategies followed by Vivo Mobile
9. "Mission describes the present and vision the future". With this statement in
mind compare mission and vision statements.
10. Suppose you are going to open a new mobile device manufacturing
company. Prepare a mission statement for your company. (Try and include
as many elements mentioned in the unit as possible)
Case Study of Apple: Competitive Advantage through Innovation Apple

Inc. is an American consumer electronic company which designs, develops
manufactures and supports the well-known hardware products such as
Macintosh computers, the iPod, the iPhone and the iPad. Most of Apple’s
products seem to be a trigger of revolution in electronic market and this
reason contribute Apple as a market leader. The main strategy to run its
business is not only creating new innovation product but also incremental
improvement. The strength of Apple is “think different”. With innovative
ideas and aesthetic designs, Apple has changed how people listen to music
and communicate. One of the success products of Apple is iPhone which is a
revolutionary device. It combined the feature of music device (iPod) and Management
mobile phone technology with the key feature on this product that is “multi- 23
Strategy Management touch” and “multi-tasking” on the graphic user interface. The phone
supports a camera, a multimedia player, a blue tooth, web browsing and
internet connectivity. However, the price of iPhone is higher than other
mobiles in the market and the aim is targeting a niche market. From this
reason, iPhone faced with various challenge to get market share and
compete with existing player in the mobile market. With innovation and
unique features that is the selling point, iPhone sustains this competitive
advantage by continue development and create the new innovation with its
best. Apple is one of the success innovation companies by the evidence with
the first rank of ‘the 50 Most Innovative Companies’ in 2009. From the
success innovation product with $9.87 billion profit for 2009, it seems to be
motivator for other companies to aware of innovation factor. Moreover,
Apple emphasizes its successful innovation device with “iPad” which is
touch-screen device to use the Internet for research applications, listen to
music, movies and games. A lot of buzz occurred and attract attention from
consumer immediately when product launch in the first quarter 2010. This
is another evident that shows the success innovative product of Apple. The
question of how Apple success in innovation product be concerned from
others. Key Drivers for Innovation for Apple The first key Apple’s
innovation driver is consumers’ needs. It is not only to put new technology
into its products, but also the great new design that focuses on needs of user.
Introduce high technology within the products that easy to use is what
Apple always successfully done. The Macintosh computer, one of the core
products of Apple, comes with
“mouse’ that is easy to navigate around the whole screen for user. The iPod
introduces itself as a music player with the way to transfer and organize
music is simple enough for anyone to use which is how the perfect product
should be. Its click wheel simple the way user can make a quick scan
through thousands of songs. As well as for the iPhone, even though it is not
the first smartphone which integrated by music player, camera, web
browser and email. It removes the tiny buttoned keyboards with the button-
less touch screen and put almost everything in fingertips. Significantly, it
ensures that the customer needs not to be smart to use a smartphone. The
concepts of innovative user interface with easy to use is what Apple put as
one of the most important features for its user. It is a key driver for
innovation within electronic consumer. Moreover, Apple has own retail
stores that is easier to access customer and get direct feedback. That is the
Apple strategy to understand actual consumers’ needs and apply them for
the new innovation product. The next innovation driver that makes iPhone
getting more attractive from user than others is the competitive
environment. From the intense competitive environment in mobile market,
it drives Apple to develop the better product continuously. Moreover, the
high expectation of customer motivates Apple to create the next best thing
in order to keep the customers’ loyalty that get from previous products and
Introduction To Strategic attract to the new customers. When iPhone launch to the market, it received
Management the great response from customers with the average number of selling
24

20,000 units per days in the first 200 days. Furthermore, Apple got 19.5% of Strategy Management
market share in the first quarter, RIM got the most. Finally, economic is the
key innovation driver. The performance of people in corporations is higher
and productivities of products are quite similar. Economy factor pushes
companies to have more innovation. For example, fast growth economy
likes United State, there is the country where a half of companies in ‘the 50
most innovation companies ranking’, have the headquarters in. Companies
try to hire employee who has more creativity and imagination that seem to
be the core competency to generate high growth revenue. Business week
said “Apple CEO Steve Jobs has turned Apple into the paragon of the
creative corporation, and with the evolution of the economy toward
creativity underway, companies throughout the world are de-constructing
Apple’s success in design and innovation”. Moreover, capability of
consumers’ purchasing in economy nowadays is higher. Consumers be able
to accept on expensive innovative product that it is easier for company to
invest money on Research and
development and apply higher technology for the innovation product with
less concerned on cost. Strategic Enablers within Apple The first enabler is
the leader, Steve Jobs who is CEO of Apple and co-founded in 1976. He said
“Innovation distinguishes between a leader and a follower”. From this idea,
he thought that the innovation is the key to get competitive advantage. Jobs
said that the best work always come from the best people working. He
realized that the only way to do great work is to love what you do. This
human resources strategy forms the basis for innovation idea. Finding and
fostering people who is the talent in innovation is one of the four principles
that drives innovation. The CEO is the key involvement in determining
direction and goal of company. In 1997, Jobs became CEO of Apple and
bring technologies from NeXT that was purchased by Apple into Apple
products especially NeXTSTEP technology that was evolved in Mac OS X.
He was the first to see the potential of Graphical User Interface and apply
graphic into computer interface. Since then, appealing designs and
powerful branding have worked. After that, Apple has been operated by
Jobs as CEO. Jobs started his responsibility in CEO position by
reorganizing company. He focused on small group of products such as
desktop and portable Macintoshes and eliminated 15 from 19 company’s
products (such as printer, scanner and portable digital assistants). Then, he
laid off a thousand of worker, closed plant and receiving cash $150 million
by exchange stock. He focused on creating popular computer that retailed
with the price less than $2,000 and then iMac was created. iMac is unique
style desktop computer. This became the first success of Jobs after moving
back to the company. Jobs noted “during first 139 days, an iMac was sold
every 15 seconds of every minute of every hour of every day and every
week”. From this result, it effect to company to get a profit once again with
number of selling 800,000 units in the first five months. The organisation
culture was changed within Apple, it geared towards more creativity. Introduction To Strategic
Apple’s success cannot be measured by revenue or award but that is Management
25
Strategy Management company’s culture of innovation which exists as an incubator for a long
term impact. Jobs said that his job is pull thing together from different part
of company and get the great resource for the key project. Although Jobs
configure the company direction, employee team in Apple is also important
equally. They play in a role of delivering innovation successful and human
resource department must ensure that workers are active and understand the
company direction. Spurring employees to think different and motivating
their idea by atmosphere can encourage more creativity. Technology
Business Research (TBR) supported that culture innovation allows Apple
to outstanding perform then lead to increase market share and stay
profitable. The second enabler is intangible resource base including process
and structure in organization. That is one of the root causes why Apple’s
products are differentiated from others competitors. The tangible resources
of Apple are quite similar with general IT companies but apply it to new
innovation such as raw material of product, office layout and company
location. Apple does not build the first computer or the first phone but Apple
try to create the best at all of those. It is seen to be copying but if spending
more time to research and apply it with new innovation in design or
combining technology, it can come out with strong products. It can be able
to convince consumers that this is the best thing out there like what Apple
did. The tangible resource of Apple is intellectual of development team who
is the smartest people and the best talent. The main success of it is unlocking
innovation and dreaming ability of research and development team. iSuppli
disclosed that from analysis, the bill of material (BOM) cost of 3GS iPhone
is estimated $178.96 for 16 GB. The price of this model in the market is
more than twice (£450 in UK.). The selling price need to be included the
cost of intellectual and innovation from development team that is the reason
why consumer are acceptable in this price. Another evidence, that reflect
the Apple’s capability translating great idea to product, is return of equity
(ROE) by 20.9%. However, capability of workforce in Apple is not specific
only creating innovation computer but also break into entertainment
product as iPod in 2001 and then communication product as iPhone in 2007.
Apple enables intangible and tangible resource to the products and services
through an innovation process in order to develop capability. Strategic
Blockages within Apple Obstacles to sustain innovation of Apple have been
avoided except LISA project. Apple developed Local Integrated Software
Architecture or “LISA” to be a personal computer in 1983. It was a more
advanced and far more expensive system ($9,995 in 1983). It was created
too complex that its inclusion of protected memory, sophisticated hard disk,
cooperative multitasking and so on. From this reason, LISA turned to be a
commercial failure. LISA is
a mistake of Apple that LISA was complex product with unnecessary extras
and without understanding actual consumers’ needs. However, Apple
develops other products by avoiding this pitfall and avoids developing
Management products which out of the line with core value. Its core products are iPod,
26 iPhone, Mac laptop and Mac desktop and get its best-ever performance in

last quarter with net quarterly profit of $3.38 billion. From enormous Strategy Management
success of these core products, it may be the maturity phase in product life
cycle (the highest selling period) especially iPhone because it launched the
first model since 2007 and it was developed in many versions. From this
reason, it seems to be obstacle if Apple will develop a new innovation
model that better than iPhone and create by keeping the key concept of
‘easy to use’ and ‘customer needs’. If the new product is not success, it may
impact on its financial because iPhone created big revenue with selling
8.7M units in the last year quarter. The next obstacle is core competency of
resource. The intellectual of development teams do not focus and develop
on high performance product. Therefore, target consumer is limited in
niche market that satisfies in this kind of product. Another obstacle is
product limitation. For instance, Mac laptop/desktop is less flexibility than
other products in the market (with the same kind). Consumer cannot
change hardware which is more suitable with their work. Moreover,
consumers may have some problem with software that need compatible
with Macintosh operation system.
Question
“Sustainable competitive advantage gives a company the edge that keep
the competitors at bay and reap extraordinary profit and growth”. Discuss
Discuss the innovative factors used by Apple for gaining competitive
advantage
Identify the key drivers for innovation in Apple.
https://www.mbaknol.com/management-case-studies/case-study-of-apple-competitive-
advantage-through-innovation/
Management
27
Strategy Management
Unit – 2 : EXTERNAL AND INTERNAL
RESOURCE ANALYSIS
Structure:
2.1 Introduction to the Chapter
2.2 Business Environment
2.2.1 Internal environment
2.2.2 External environment
2.2.3 SWOT Analysis
2.2.4 Industry Analysis
2.3 Porters Five Force Model
2.4 Resource based view
2.4.1 Resources
2.4.2 Capabilities
2.4.3 Competencies
2.5 Competitive Advantage
2.6 Value Chain Analysis
2.7 Strategic Analysis and Choice
2.7.1 BCG Matrix
2.7.2 Ansoff Matrix
2.7.3 GE 9 Cell Matrix
2.7.4 Business Portfolio Analysis
2.8 Summary
Objectives
ü Understand the concept of Environment
ü State the importance of internal and external analysis
ü Discuss SWOT Analysis
ü Discuss Porters five force model
ü How strategic analysis and choice is done
External and Internal 2.1 Introduction

Resource Analysis
A business can be established, but to successfully sustain in real time
28
situation it has to have a clear understanding of the environment and its
various internal and external factors that influence the decision of the firm. Strategy Management
This chapter will help us in getting a clear insight of the various factors
internal and external that influence a business. This chapter will also help in
getting a clear insight of various strategic analysis technique available and
will help in having a better choice of decision to satisfy its vision.
2.2 Business Environment

Environment means the surrounding, circumstances under which the frim
exists. The various factors that influence the business environment are its
suppliers, competitors, consumer groups, media, government, customers,
economic conditions, market conditions, investors, technologies, trends,
and multiple other institutions working externally of a business constitute
its business environment. These forces influence the business even though
they are outside the business boundaries. All the above stated factors are
categorized in to two broad group internal factors and external factors
Company’s internal or micro-environment: are the forces within the
organization i.e. its functional areas of management, competencies,
capabilities, resource strengths, weaknesses and competitiveness.
Company’s external or macro-environment: pertains to the external forces
that affects the firm’s decision. Political environment, remote,
industry/competitive conditions and working environment etc.
2.2.1 Internal environment

The internal environmental analysis refers to all the tangible and intangible
aspects that are within the organization’s control. These factors can be
organizations strength or weakness. For example any aspect that’s brings
positive effects to the company will be considered the strength of the firm
and the factor that create problem or hinder the developmental works
become the weakness of the company.
The firm’s value system and ethical beliefs has a great role in mouldings the
entire organization. Which in turn determines the behaviour towards
employees, customers and society at large. The mission and the impact of
firm’s vision accomplishment has a great impact on the internal
environment of the organization. The motivation level, the talent and
hardworking nature of the employees are some internal factors that can
create a positive or negative working environment in the organization. The
various internal factors that can make or break the growth of the company
are discussed below.
Ø Human Resource
Human resource is said to be the most important element that has a
great impact on the growth of the organization. The employees can
either be strength or weakness depending on the level, skill, attitude,
External and Internal
honesty and trustworthiness. Resource Analysis
29
Strategy Management Ø Financial Resources
Finance is said to be the life blood of any business. No company can
survive without having capital resources. Once the company
procures the needed funds it can easily launch their projects and
expand it.
Ø Operational Efficiency
The operational efficiency can be obtained by thorough
understanding of the manufacturing process of the product. The
concerned authority has to have a complete knowledge of how the
product is manufactured so as to understand the improvements
needed to be made. This in turn will help in improving the efficiency
of the employees. Thus the way enterprise operates directly affects
the success of the firm.
Ø Infrastructure
The firm who is always ready to accept the new technology coming
on its way is always a step ahead of competitors. The use of modern
and high quality equipment helps the company to accept the forth
coming opportunities and perform successfully.
Ø Innovation
Every company needs to innovate themselves, firstly to keep up with
the pace of the changes that occur in the world and to stand different
as compared to their competitors. Innovation can be done in any
form like the way marketing, production, R&D, Human Resources
etc are performed differently. Lack of innovation can create a serious
risk to a growing business. No innovation will cause a company to
remain boring. The company will become dull, stagnant and
irrelevant.
2.2.2 External Environment

External elements are the factors that are prevalent in the outside world and
has no control towards the working of the company. Considering the outside
environment the businessmen takes suitable steps to various decisions in
the organization. There are numerous external factors like current economic
situation, laws, surrounding infrastructure, and customer demands.
Businesses are greatly influenced by the external environment. The
business must constantly focus of external factors to have smooth impact on
day to day circumstances of the organization.
There are many strategic analysis tools that a firm can use, but some are
more common. The most used detailed analysis of the environment is the
PESTLE analysis. This is a bird’s eye view of the business conduct. It us an
External and Internal effective business tool that discuss six factors i.e. Political, Economic,
Resource Analysis Social, Technological, Legal and Environmental factors. Managers and
30 strategy builders use this analysis to find where their market currently is. It

also helps in foreseeing where the organization will be in near future. These Strategy Management
factors can affect every industry directly or indirectly.
The letters in PESTLE, also called PESTEL, denote the following things:
· Political factors
· Economic factors
· Social factors
· Technological factors
· Legal factors
· Environmental factor
https://www.business-to-you.com/scanning-the-environment-pestel-analysis/
Often, managers choose to learn about political, economic, social and
technological factors only. In that case, they conduct the PEST analysis.
PEST is also an environmental analysis. It is a shorter version of PESTLE
analysis. STEP, STEEP, STEEPLE, STEEPLED, STEPJE and LEPEST:
All of these are acronyms for the same set of factors. Some of them gauge
additional factors like ethical and demographical factors.
Ø P for Political factors

The political factors take the country’s current political situation. It also
reads the global political condition’s effect on the country and business.
When conducting this step, ask questions like “What kind of government
leadership is impacting decisions of the firm?” External and Internal
Resource Analysis
31
Strategy Management Some political factors are:
· Government policies
· Taxes laws and tariff
· Stability of government
· Entry mode regulations
· Trade restrictions and tariffs
· Political stability
· Employment laws
Ø E for Economic factors

Economy of a country is one of the most determining factor got success of
an organization. There are various factors that can conclude the direction in
which the economy might move. They are crisis, fluctuation of interest rates
which has an impact on consumption behavior of the buyers and thus on the
profits of the organization.
Some Economic factors are
· The inflation rate
· The interest rate
· Disposable income of buyers
· Credit accessibility
· Unemployment rates
· The monetary or fiscal policies
· The foreign exchange rate
Ø S for Social factors

It is change in sociocultural environment that illustrates customer needs and
wants. Countries vary from each other. Every country has a distinctive
mind-set. These attitudes have an impact on the businesses. The social
factors might ultimately affect the sales of products and services.
Some of the social factors are:
· The cultural implications
· Demographics
· The social lifestyles
· The domestic structures
· Educational levels
External and Internal · Distribution of Wealth
Resource Analysis
32 · Age distribution

· Career attitudes Strategy Management
· Emphasis on Safety
Ø T for Technological factors

Technology is advancing continuously. The advancement is greatly
influencing businesses. Performing environmental analysis on these factors
will help the firm stay up to date with the changes. Technology alters every
minute. This is why companies must stay connected all the time. Firms
should integrate when needed. Technological factors will help in
understanding how the consumers react to various trends.
Some of the Technological factors are
· New discoveries
· Rate of technological obsolescence
· Rate of technological advances
· Innovative technological platforms
Ø L for Legal factors

Legislative changes take place from time to time. Many of these changes
affect the business environment. If a regulatory body sets up a regulation for
industries, for example, that law would impact industries and business in
that economy. So, businesses should also analyse the legal developments in
respective environments.
Some Legal Factors are
· Product regulations
· Employment regulations
· Competitive regulations
· Patent infringements
· Health and safety regulations
Ø E for Environmental factors

The location influences business trades. Changes in climatic changes can
affect the trade. The consumer reactions to particular offering can also be an
issue. This most often affects agri-businesses.
· Geographical location
· The climate and weather
· Waste disposal laws
· Energy consumption regulation External and Internal
Resource Analysis
· People’s attitude towards the environment 33
Strategy Management There are many external factors other than the ones mentioned above. None
of these factors are independent. They rely on each other.
Conduct an industry analysis for the Indian telecommunication industry
2.2.3 SWOT Analysis

It is a strategic business tool that enables the organization to scan its internal
and external environment. It is an important part of the strategic planning
process. Environmental factors internal to the firm usually can be classified
as strength (S) or Weakness (W) and those external to the firm can be
classified as Opportunities (O) or Threats (T). This analysis of the strategic
environment is referred to as a SWOT analysis.
The SWOT analysis provides information that is helpful in matching the
firm’s resources and capabilities to the competitive environment in which it
operates. As such, it is instrumental in strategy formulation and selection.
Existing business uses SWOT analysis, at any time, to assess a changing
environment and respond proactively. New businesses use SWOT analysis
as a part of their planning process. There is no “one size fits all” based on the
uniqueness of the firm SWOT analysis can be applied to understand the
need of the business at that point of time.
https://en.wikipedia.org/wiki/SWOT_analysis#/media/File:SWOT_en.svg
· Strength
Strengths is the positive attributes, tangible and intangible aspects of the
External and Internal company, which are used to overcome weakness and capitalize to take
Resource Analysis
34 advantage of the external opportunities available in the industry. Strength is

an inherent capacity which an organization can use to gain strategic Strategy Management
advantage over it competitors. Internal resources like employee,
knowledge, education, credentials, network, reputation, skills are some
positive attributes of strength and tangible assets like capital, credit,
customer, distribution channel, patents and technology become the strength
of the organization.
What advantages does your organization have?
What do you do better than anyone else?
What unique or lowest-cost resources can you draw upon that others can't?
What do people in your market see as your strengths?
What factors mean that you "get the sale"?
What is your organization's Unique Selling Proposition (USP)?
· Weaknesses
Weakness are the negative factors that take away the strength of the firm.
The weakness need be tackled appropriately to improve the incapability,
limitation and deficiency in resources such as technical, financial,
manpower, skills, brand image and distribution pattern. Thus it refers to the
constraints an organization face.
What could you improve?
What should you avoid?
What are people in your market likely to see as weaknesses?
What factors lose you sales?
· Opportunities
Opportunities are external factors in a business environment that are likely
to contribute to the success. An opportunity is a major favourable advantage
to a company. Proper analysis of the environment and identification of new
market, new and improved customer group with better product substitutes
or supplier’s relationship could represent opportunities for the company.
What good opportunities can you spot?
What interesting trends are you aware of?
Useful opportunities can come from such things as:
Changes in technology and markets on both a broad and narrow scale.
Changes in government policy related to your field.
Changes in social patterns, population profiles, lifestyle changes, and so on.
Local events.
Resource Analysis
35
Strategy Management · Threats
Threats are the external factors that are beyond ones control. These are the
challenges posed by the unavoidable trend or development that would lead,
in the absence of purposeful action to the erosion of the company’s position.
Slow market growth, entry of resourceful multinational companies,
increase bargaining power of the buyers or sellers because of a large number
of options, quick rate of obsolescence due to major technological change
and adverse situation because of change of government policy rules and
regulation is disadvantageous to any company and may pose a serious threat
to business operation.
What obstacles do you face?
What are your competitors doing?
Are quality standards or specifications for your job, products or services
changing?
Is changing technology threatening your position?
Do you have bad debt or cash-flow problems?
Could any of your weaknesses seriously threaten your business?
SWOT analysis of McDonalds
https://www.pinterest.co.uk/pin/858850591408255361/
Conduct SWOT analysis of any company a) Automobile Industry b) Online

External and Internal shopping Industry
Resource Analysis
36

2.2.4 Industry Analysis Strategy Management
Industry analysis is the crucial factor for understanding the external

environment. The seven factors to be considered for effective industry
analysis are as follows.
• General features and basic conditions of the industry:
General features/basic conditions of the industry include factors such
as current size of the industry, product categories/sub categories,
their relative volumes, performance of the industry in recent years,
etc.
• Industry environment:
Industries can be classified based on their settings/environment.
Porter classified industries as fragmented, emerging, matured,
declining and global industries.
• Industry structure:
Industry structure essentially means the underlying fundamental
economic and technical forces of an industry. Each company will
have its own key structural features such as number of players,
market size, relative shares of the player, nature of the competition,
differentiation practiced by the various players in the industry, cost
structure of the players etc. These features determine the strength of
competitive forces operating in the industry and thereby serve as
direct indicators to the attractiveness or profitability of the industry.
• Industry attractiveness:
The various determinants of industry attractiveness are industry
potential, industry growth, industry profitability, future pattern of the
industry barriers and forces shaping the competition in the industry.
• Industry performance:
Industry performance entails looking at production, sales,
profitability and technological development.
• Industry practices:
Industry practices refer to what a majority of the players do in the
industry with respect to essential aspects of the business such as
distribution, pricing, promotion, methods of selling, service field
support, R&D and legal tactics.
• Emerging trends and likely future:
The emerging trends/likely future pattern of the industry can be
discerned by analysing issues such as the product life cycle, stage of
the industry, rate of growth, changes of buyer needs, innovation in
product/process, entry and exit of firms and emerging changes in the
regulatory environment governing the industry. External and Internal
Resource Analysis
37
Strategy Management As a corporate planner of a large scale MNC unit, how would you analyse
the environment for the different units of the MNC located at different
places and in different countries.
2.3 Porters Five Force Model

Micheal Porters five force model is a tool used for analysing competition in
a business, which was published in Harward Business Review in 1979.
Usually competition analysis is done along with the industry analysis as
competition and competitive forces are a part and parcel of any industry
structure. As a part of strategy formulation every firm should analyse and
size up all the forces that shape competition in the industry. These consists
of those forces of the company that affect its ability to serve its customers
and make a profit. It was Michael Porter who gave a new thrust to the ideas
associated with the competition.
Porter argues that there are five forces that determine the profitability of an
industry which includes three forces from 'horizontal' competition--the
threat of substitute products or services, the threat of established rivals, and
the threat of new entrants--and two others from 'vertical' competition--the
bargaining power of suppliers and the bargaining power of customers.
Micheal Porters 5 Force Model
Ø Threat of new entrants,
Ø Threat of substitute products
Ø Bargaining power of suppliers,
Ø Bargaining power of buyers,
Ø Rivalry among existing players and
Porter assert that "The collective strengths of these forces determines the
ultimate profit potential in the industry, where profit potential is measured
in terms of long run return on investment capital".

Resource Analysis https://i2.wp.com/www.business-to-you.com/wp-content/uploads/2017/04/Five-Forces-Model-
38 Porter.png

Ø Threat of New Entrants Strategy Management
The market share of an existing firm starts decreasing as more and more
new entrants are attracted towards that business. Profitable industries
attract new firms, which in turn brings new capacity and the desire to gain
market share. This results in decrease the profitability of the existing firm.
The seriousness of the threat depends on the barriers to enter a certain
industry. The higher these barriers to entry, the smaller the threat for the
existing players.
The following factors can have an effect on how much of a threat new
entrants may pose:
· The existence of barriers to entry (patents, rights, etc.). The most
attractive segment is one in which entry barriers are high and exit
barriers are low. It's worth noting, however, that high barriers to entry
almost make exit more difficult.
· Government policy such as sanctioned monopolies or legal franchise
requirements.
· Capital requirements - clearly the Internet has influenced this factor
dramatically. Web sites and apps can be launched cheaply and easily
as opposed to the brick and mortar industries of the past.
· Absolute cost
· Cost disadvantages independent of size
· Economies of scale
· Product differentiation
· Brand equity
· Switching costs are well illustrated by structural market
characteristics such as supply chain integration but also can be
created by firms. Airline frequent flyer programs are an example.
· Expected retaliation - For example, a specific characteristics of
oligopoly markets is that prices generally settle at an equilibrium
because any price rises or cuts are easily matched by the competition.
· Access to distribution channels
· Customer loyalty to established brands. This can be accompanied by
large brand advertising expenditures or similar mechanisms of
maintained brand equity.
· Industry profitability (the more profitable the industry, the more
attractive it will be to new competitors)
· Network effect which is particularly influential in internet based
social networks such as Facebook

Resource Analysis
39
Strategy Management Ø Threat of Substitute Products
A substitute product uses a different technology to try to solve the same
economic need. It is the existence of products outside the boundary whose
tendency pushes the customers to switch to alternative product. This type of
products can be easily identified with the help of similarity of the product or
differently branded by the competitors. Examples of substitutes are meat,
poultry, and fish; landlines and cellular telephones; airlines, automobiles,
trains, and ships and so on. For example, tap water is a substitute for Coke,
but Pepsi is a product that uses the same technology to compete head-to-
head with Coke, so it is not a substitute. Increased marketing for drinking
tap water might "shrink the pie" for both Coke and Pepsi, whereas increased
Pepsi
advertising would likely "grow the pie" (increase consumption of all soft
drinks), while giving Pepsi a larger market share at Coke's expense.
The following factors can have an effect on how much of a threat of
substitute products may pose:
· Buyer propensity to substitute. This aspect incorporated both
tangible and intangible factors. Brand loyalty can be very important
as in the Coke and Pepsi example above; however contractual and
legal barriers are also effective.
· Relative price performance of substitute
· Buyer's switching costs. This factor is well illustrated by the mobility
industry. Uber and its many competitors took advantage of the
incumbent taxi industry's dependence on legal barriers to entry and
when those fell away, it was trivial for customers to switch. There
were no costs as every transaction was atomic, with no incentive for
customers not to try another product.
· Perceived level of product differentiation which is classic Michael
Porter in the sense that there are only two basic mechanisms for
competition - lowest price or differentiation. Developing multiple
products for niche markets is one way to mitigate this factor.
· Number of substitute products available in the market
· Ease of substitution
· Availability of close substitute
Ø Bargaining Power of Suppliers

The concentration of suppliers and the availability of substitute suppliers
are important factors in determining supplier power. The bargaining power
of suppliers identifies the power and controls the company’s supplier, has
over the potential raise in price or quality etc. It is also described as the
External and Internal market of inputs. The fewer the suppliers are, the more power they possess.
Resource Analysis Businesses are in a better position when there are multitude of suppliers.
40

Sources of supplier power also includes the switching cost of companies in Strategy Management
the industry, the presence of available substitutes, the strength of their
distribution channels and the uniqueness or level of differentiation in the
product or service the supplier is delivering. Suppliers of raw materials,
components, labour, and services to the firm can be a source of power over
the firm when there are few substitutes. If one is making biscuits and there is
only one person who sells flour, there is no alternative available but to buy it
from that one seller. Suppliers may refuse to work with the firm or charge
excessively high prices for unique resources.
The following factors can have an effect on how much of a bargaining
power a supplier may pose:
· Supplier switching costs relative to firm switching costs
· Degree of differentiation of inputs
· Impact of inputs on cost and differentiation
· Presence of substitute inputs
· Strength of distribution channel
· Supplier concentration to firm concentration ratio
· Employee solidarity (e.g. labor unions)
· Supplier competition: the ability to forward vertically integrate and
cut out the buyer.
Ø Bargaining Power of Buyers

The customers have a lot of power when they are less in number and when
they have many alternatives to buy from. The bargaining power of
customers is also described as the market of outputs: the ability of
customers to put the firm under pressure, which also affects the customer's
sensitivity to price changes. Moreover, it should be easy for them to switch
from one company to another. The internet has allowed customers to
become more informed and therefore more empowered. Customers can
easily compare prices online, get information about a wide variety of
products and get access to offers from other companies instantly.
Companies can take measures to reduce buyer power for example
implementing loyalty programs or by differentiating their products and
services.
The following factors can have an effect on how much of a bargaining
power a buyer may pose:
· Buyer concentration to firm concentration ratio
· Degree of dependency upon existing channels of distribution
· Bargaining leverage, particularly in industries with high fixed costs
· Buyer switching costs External and Internal
Resource Analysis
· Buyer information availability 41
Strategy Management · Availability of existing substitute products
· Buyer price sensitivity
· Differential advantage (uniqueness) of industry products
· RFM (customer value) Analysis
Ø Rivalry among Existing Players

Having an understanding of industry rivals it becomes vital to successfully
market a product. It is the intense current competition which examines the
number of existing competitors and their capacity to create a change.
Positioning pertains to how the public perceives a product and distinguishes
it from its competitors. A business must be aware of its competitors'
marketing strategies and pricing and also be reactive to any changes made.
Rivalry is high when there are a lot of competitors that are roughly equal in
size and power, when the industry is growing slowly and when consumers
can easily switch to a competitors offering for little cost. When rivalry is
high, competitors are likely to actively engage in advertising and price
wars, which can hurt a business’s bottom line. In addition, rivalry will be
more intense when barriers to exit are high, forcing companies to remain in
the industry even though profit margins are declining. These barriers to exit
can for example be long-term loan agreements and high fixed costs.
The following factors can have an effect on how much of a rivalry exist
among the competitors may pose:
· Sustainable competitive advantage through innovation
· Competition between online and offline companies
· Level of advertising expense
· Powerful competitive strategy which could potentially be realized by
adhering to Porter‘s work on low cost versus differentiation.
· Firm concentration ratio.
2.4 Resource Based View

The resource-based view (RBV) is a model that considers resources as vital
factor for effective firm’s performance. This concept emerged in 1980s and
1990s. It’s a management device used to assess the available amount of a
business' strategic assets. In essence, the resource-based view is based on
the idea that the effective and efficient application of all useful resources
that the company can muster helps determine its competitive advantage.
The supporters of this view
argue that organizations should look inside the company to find the sources
of competitive advantage instead of looking at competitive environment for
External and Internal it.
Resource Analysis
42

The following model explains RBV and emphasizes the key points of it. Strategy Management
https://theintactone.com/2018/12/27/sm-u2-topic-9-resource-based-view-rbw-analysis/
According to RBV proponents, it is much more feasible to exploit external
opportunities using existing resources in a new way rather than trying to
acquire new skills for each different opportunity. In RBV model, resources
are given the major role in helping companies to achieve higher
organizational performance. There are two types of resources: tangible and
intangible.
Tangible assets are physical things. Land, buildings, machinery, equipment
and capital – all these assets are tangible. Physical resources can easily be
bought in the market so they confer little advantage to the companies in the
long run because rivals can soon acquire the identical assets.
Intangible assets are everything else that has no physical presence but can
still be owned by the company. Brand reputation, trademarks, intellectual
property are all intangible assets. Unlike physical resources, brand
reputation is built over a long time and is something that other companies
cannot buy from the market. Intangible resources usually stay within a
company and are the main source of sustainable competitive advantage.
The two critical assumptions of RBV are that resources must also be
heterogeneous and immobile. External and Internal
Resource Analysis
43
Strategy Management Heterogeneous. The first assumption is that skills, capabilities and other
resources that organizations possess differ from one company to another. If
organizations would have the same amount and mix of resources, they
could not employ different strategies to outcompete each other. What one
company would do, the other could simply follow and no competitive
advantage could be achieved. This is the scenario of perfect competition,
yet real world markets are far from perfectly competitive and some
companies, which are exposed to the same external and competitive forces
(same external conditions), are able to implement different strategies and
outperform each other. Therefore, RBV assumes that companies achieve
competitive advantage by using their different bundles of resources.
The competition between Apple Inc. and Samsung Electronics is a good
example of how two companies that operate in the same industry and thus,
are exposed to the same external forces, can achieve different
organizational performance due to the difference in resources. Apple
competes with Samsung in tablets and smartphones markets, where Apple
sells its products at much higher prices and, as a result, reaps higher profit
margins. Why Samsung does not follow the same strategy? Simply because
Samsung does not have the same brand reputation or is capable to design
user-friendly products like Apple does. (Heterogeneous resources)
Immobile. The second assumption of RBV is that resources are not mobile
and do not move from company to company, at least in short-run. Due to this
immobility, companies cannot replicate rivals’ resources and implement the
same strategies. Intangible resources, such as brand equity, processes,
knowledge or intellectual property are usually immobile.
Ø VRIO framework
Although, having heterogeneous and
immobile resources is critical in
achieving competitive advantage, it is
not enough alone if the firm wants to
sustain it. Barney (1991) has identified
VRIN framework that examines if
resources are valuable, rare, costly to
imitate and non-substitutable. The
resources and capabilities that answer
yes to all the questions are the
sustained competitive advantages. The
framework was later improved from
VRIN to VRIO by adding the
following question: “Is a company
organized to exploit these resources?”
https://www.strategicmanagementinsi
Resource Analysis ght.com/tools/vrio.html
44

Question of Value. Resources are valuable if they help organizations to Strategy Management
increase the value offered to the customers. This is done by increasing
differentiation or/and decreasing the costs of the production. The resources
that cannot meet this condition, lead to competitive disadvantage.
Question of Rarity. Resources that can only be acquired by one or few
companies are considered rare. When more than few companies have the
same resource or capability, it results in competitive parity.
Question of Imitability. A company that has valuable and rare resource can
achieve at least temporary competitive advantage. However, the resource
must also be costly to imitate or to substitute for a rival, if a company wants
to achieve sustained competitive advantage.
Question of Organization. The resources itself do not confer any
advantage for a company if it’s not organized to capture the value from
them. Only the firm that is capable to exploit the valuable, rare and imitable
resources can achieve sustained competitive advantage.
https://extraessay.top/?sub_id=2mrtjhein4dfid92utr
2.5 Competitive Advantage

Competitive advantages are conditions that allow a company or country to
produce a good or service of equal value at a lower price or in a more
desirable fashion. These conditions allow the productive entity to generate
more sales or superior margins compared to its market rivals. Competitive
advantages are attributed to a variety of factors including cost structure,
branding and the quality of product offerings, the distribution network,
intellectual property and customer service.
Micheal porter put forth two types of competitive advantage Resource Analysis
45
Strategy Management Ø Cost Advantage
Ø Differentiation advantage
A competitive advantage exists when the firm is able to deliver the similar
benefit at a lower cost or deliver benefits that exceed those of the competing
products. Thus competitive advantage helps in providing superior value to
its customers and good profits for self.
A model of competitive advantage
(Source: https://www.civilserviceindia.com/subject/Management/notes/competitive-advantage-
of-a-firm-of-a-firm.html)
Conduct a Competitive analysis of the television industry in India.
There are four factors that allow a business to gain and sustain competitive
advantage:
1. Efficiency: It is defined as the ability to achieve a high level of
output from minimal input. An efficient business will save on
resources such as materials, labour, time and so forth, while
producing a high level of outputs such as products or services. This
allows the business to decrease costs, and ultimately, gain a
competitive advantage over competitors.
2. Quality: Customers are more attracted to products and services that
are of excellent quality. The products and services offered to
customer must exhibit attributes that satisfy the customers' needs
and wants over those of competitors. High quality products and
services will provide business with a point of differentiation, and
therefore gaining competitive advantage.
3. Innovation: This process involves creating or enhancing products,
services or processes. The development of new products, services
External and Internal and processes stem from new ideas, creativity and it has objective to
Resource Analysis
46

provide unique product that fulfil the needs and wants of customers. Strategy Management
Innovative products and processes enable the firm to gain significant
competitive advantage as it provides business with a position to
sheen and stand out from rivals.
4. Customer Responsiveness: This attribute is related to customer
satisfaction through meeting the needs and wants of the business'
target customers. Customers seek products and services of a high
calibre, at the lowest possible price to meet their needs, or solve a
problem etc. Customer responsiveness relates to an understanding of
the customers' needs and wants, and providing products and services
that meets such needs in a superior way over competitors. It involves
offering exclusive products and services at a low cost and of superior
quality. Therefore, achieving efficiency, quality, and innovation will
lead to customer responsiveness, and finally company gain
competitive advantage.
Suppose you are the Managing Director of an organisation. Your
organisation is facing heavy losses due to poor management and decision
making. How will you analyse the situation and help the organisation to
come out of it?
2.6 Value Chain Analysis (VCA)

Value Chain Analysis is a process where a firm identifies its primary and
support activities that add value to its final product and then analyses these
activities to reduce costs or increase differentiation.
Value chain represents the internal activities a firm which engages in
transforming inputs into outputs. Value chain analysis is a strategic tool
used to analyse the internal firm activities. Its goal is to recognize, which
activities are the most valuable to the firm and which ones could be
improved to provide competitive advantage. In other words, by looking into
internal activities, the analysis reveals where a firm’s competitive
advantages or disadvantages are. The firm that competes through
differentiation advantage will try to perform its activities better than
competitors would do. If it competes through cost advantage, it tries to
perform internal activities at lower costs than competitors would do. When
a company is capable of producing goods at lower costs than the market
price or to provide superior products, it earns profits.
Micheal Porter introduced the generic value chain model in 1985. Value
chain model represents all the internal activities a firm that engages in to
manufacturing and services. Value chain is formed of primary activities that
add value to the final product directly and support activities that add value
indirectly.

Resource Analysis
47
Strategy Management
https://businessjargons.com/value-chain-analysis.html
Michael Porter classified the entire value chain into nine activities which
are interrelated to one another. While primary activities include the
activities that are performed to satisfy external demand, secondary
activities are those which are performed to satisfy internal requirements.
Ø Classification of Value Chain Analysis

Value Chain Analysis is grouped into primary or line activities, and support
activities discussed as under:
1. Primary Activities: The functions which are directly concerned with the
conversion of input into output and distribution activities are called primary
activities. It includes:
§ Inbound Logistics: It includes a range of activities like receiving,
storing, distributing, etc. which make available goods and services
for operational processes. Some of those activities are material
handling, transportation, stock control, etc.
§ Operations: The activity of transforming input raw material to final
product ready for sale, is termed as operation. Machining,
assembling, packaging are the activities covered under operations.
§ Outbound Logistics: As the name suggests, the activities that help
in collecting, storage and delivering the product to the customer is
outbound logistics.
§ Marketing and Sales: All the activities like advertising, promotion,
sales, marketing research, public relations, etc. performed to make
the customer aware of the product or service and create demand for it,
comes under marketing.
External and Internal § Service: Service means service provided to the customer so as to
Resource Analysis improve or maintain the value of the product. It includes financing
48 service, after-sales service and so on.

§ Support Activities: Those activities which assist primary activities Strategy Management
in accomplishment, are support activities. These are:
§ Procurement: This activity serves the organization, by supplying all
the necessary inputs like material, machinery or other consumable
items, that required by the organization for performing primary
activities.
§ Technology Development: At present, technology development
requires heavy investment, which takes years for research and
development. However, its benefits can be enjoyed for several years
and by a multitude of users in the organization.
§ Human Resource Management: It is the most common plus
important activity which excel all primary activities of the
organization. It encompasses overseeing the selection, retention,
promotion, transfer, appraisal and dismissal of staff.
§ Infrastructure: This is the management system, which provides, its
services to the whole organization and includes planning, finance,
information management, quality control, legal, government affairs,
etc.
In the fast paced world, the main focus of the organization is customer
satisfaction, and value chain analysis is the technique that helps to attain
that level. Under this, each business activity is considered as essential,
which contributes value and is constantly analysed, to increase value as
regards the cost incurred.
Activity
Have a group discussion in class on “FedEx Core Competencies and Dynamic
Capabilities”
2.7 Strategic Analysis and Choice
Strategy analysis and choice focuses on generating and evaluating
alternative strategies, as well as on selecting strategies to pursue. Strategic
analysis and choice seeks to determine alternative courses of action that
could best enable the firm to achieve its mission and objectives.
The firm’s present strategies, objectives, and mission together with the
external and internal audit information, provide a basis for generating and
evaluating feasible alternative strategies. The alternative strategies
represent incremental steps that move the firm from its current position to a
desired future state.
Alternative strategies are derived from the firm’s vision, mission,
objectives, external audit, and internal audit and are consistent with past
strategies that have worked well. The strategic analysis discusses the
analytical techniques in two stages i.e. techniques applicable at corporate
level and then techniques used for business-level strategies.
The techniques that have been discussed for the corporate level include Resource Analysis
BCG matrix, GE nine-cell planning grid, Hofer’s matrix and Shell 49
Strategy Management Directional Policy Matrix and the techniques for business- level include
SWOT analysis, experience curve analysis, grand strategy selection matrix,
grand strategy clusters.
The judgmental factors constitute the other aspect on the basis of which
strategic choice is made. We discuss the several factors that guide the
strategists in strategic choice. The selection of strategies in three ways i.e.
selection against objectives, referral to a higher authority and by
partial implementation has been discussed. Contingency strategies in order
to face various situations that may arise in the course of strategy
implementation.
2.7.1 BCG Matrix

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.
https://www.smartdraw.com/growth-share-matrix/
Ø 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. BCG matrix is a
framework created by Boston Consulting Group to evaluate the strategic
position of the business brand portfolio and it’s potential. It classifies
External and Internal business portfolio into four categories based on industry attractiveness
Resource Analysis (growth
50

rate of that industry) and competitive position (relative market share). Strategy Management
These two dimensions reveal likely profitability of the business portfolio in
terms of cash needed to support that unit and cash generated by it. The
general purpose of the analysis is to help understand, which brands the firm
should invest in and which ones should be divested.
Ø Relative market share. One of the dimensions used to evaluate business
portfolio is relative market share. Higher corporate’s market share results in
higher cash returns. This is because a firm that produces more, benefits from
higher economies of scale and experience curve, which results in higher
profits. Nonetheless, it is worth to note that some firms may experience the
same benefits with lower production outputs and lower market share.
Ø Market growth rate. High market growth rate means higher earnings and
sometimes profits but it also consumes lots of cash, which is used as
investment to stimulate further growth. Therefore, business units that
operate in rapid growth industries are cash users and are worth investing in
only when they are expected to grow or maintain market share in the future.
There are four quadrants into which firms brands are classified:
Dogs. Dogs hold low market share compared to competitors and operate in
a slowly growing market. In general, they are not worth investing in
because they generate low or negative cash returns. But this is not always
the truth. Some dogs may be profitable for long period of time, they may
provide synergies for other brands or SBUs or simple act as a defense to
counter competitors moves. Therefore, it is always important to perform
deeper analysis of each brand or SBU to make sure they are not worth
investing in or have to be divested.
Strategic choices: Retrenchment, divestiture, liquidation.

Cash cows. Cash cows are the most profitable brands and should be
“milked” to provide as much cash as possible. The cash gained from “cows”
should be invested into stars to support their further growth. According to
growth-share matrix, corporates should not invest into cash cows to induce
growth but only to support them so they can maintain their current market
share. Again, this is not always the truth. Cash cows are usually large
corporations or SBUs that are
capable of innovating new products or processes, which may become new
stars. If there would be no support for cash cows, they would not be capable
of such innovations.
Strategic choices: Product development, diversification, divestiture,
retrenchment.
Stars. Stars operate in high growth industries and maintain high market
share. Stars are both cash generators and cash users. They are the primary External and Internal
Resource Analysis
units in which the company should invest its money, because stars are 51
Strategy Management expected to become cash cows and generate positive cash flows. Yet, not all
stars become cash flows. This is especially true in rapidly changing
industries, where new innovative products can soon be outcompeted by
new technological advancements, so a star instead of becoming a cash cow,
becomes a dog.
Strategic choices: Vertical integration, horizontal integration, market
penetration, market development, product development.
Question marks. Question marks are the brands that require much closer
consideration. They hold low market share in fast growing markets
consuming large amount of cash and incurring losses. It has potential to
gain market share and become a star, which would later become cash cow.
Question marks do not always succeed and even after large amount of
investments they struggle to gain market share and eventually become
dogs. Therefore, they require very close consideration to decide if they are
worth investing in or not.
Strategic choices: Market penetration, market development, product
development, divestiture.
https://themarketingagenda.files.wordpress.com/2014/09/unilever-bcg-matrix.png
2.7.2 Ansoff Matrix

The Ansoff Matrix was developed by H. Igor Ansoff and first published in
the Harvard Business Review in 1957, in an article titled "Strategies for
Diversification". It has given generations of marketers and business leaders
a quick and simple way to think about the risks of growth. Sometimes called
the Product/Market Expansion Grid, the Matrix shows four strategies that
can be used to grow. It also helps in analysing the risks associated with each
one. The idea is that each time it move into a new quadrant (horizontally or
vertically), risk increases.
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Strategy Management
https://www.mindtools.com/pages/article/newTMC_90.htm
Ø About the Ansoff Matrix

The Ansoff Matrix also known as the Ansoff product and market growth
matrix is a marketing planning tool which usually aids a business in
determining its product and market growth. This is usually determined by
focusing on whether the products are new or existing and whether the
market is new or existing.
The model was invented by H. Igor Ansoff. Ansoff was primarily a
mathematician with an expert insight into business management. It is
believed that the concept of strategic management is widely attributed to the
great man.
The Ansoff Matrix has four alternatives of marketing strategies; Market
Penetration, product development, market development and
diversification.
· Market Penetration
When we look at market penetration, it usually covers products that are
existence and that are also existent in an existing market. In this strategy,
there can be further exploitation of the products without necessarily
changing the product or the outlook of the product. This will be possible
through the use of promotional methods, putting various pricing policies
that may attract more clientele, or one can make the distribution more
extensive.
In Market Penetration, the risk involved in its marketing strategies is
usually the least since the products are already familiar to the consumers
and so is the established market. Another way in which market penetration
can be increased is by coming up with various initiatives that will encourage External and Internal
increased usage of the product. A good example is the usage of toothpaste. Resource Analysis
Research has shown that the toothbrush head influences the amount of 53
Strategy Management toothpaste that one will use. Thus if the head of the toothbrush is bigger it
will mean that more toothpaste will be used thus promoting the usage of the
toothpaste and eventually leading to more purchase of the toothpaste.
In product development growth strategy, new products are introduced into
existing markets. Product development can differ from the introduction of a
new product in an existing market or it can involve the modification of an
existing product. By modifying the product one would probably change its
outlook or presentation, increase the products performance or quality. By
doing so, it can appeal more to the already existing market. A good example
is car manufacturers who offer a range of car parts so as to target the car
owners in purchasing a replica of the models, clothing and pens.
· Market Development
The third marketing strategy is Market Development. It may also be known
as market extension. In this strategy, the business sells its existing products
to new markets. This can be made possible through further market
segmentation to aid in identifying a new clientele base. This strategy
assumes that the existing markets have been fully exploited thus the need to
venture into new markets. There are various approaches to this strategy,
which include: New geographical markets, new distribution channels, new
product packaging, and different pricing policies. In New geographical
markets, the business can expound by exporting their products to other new
countries. It would also mean setting up other branches of the business in
other areas that the business had not ventured yet. Various businesses have
adopted the franchise method as a way of setting up other branches in new
markets.
A good example is Guinness. This beer had originally been made to be sold
in countries that have a colder climate, but now it is also being sold in
African countries. The other method is via new distribution channels. This
would entail selling the products via e-commerce or mail order. Selling
through e-commerce will capture a larger clientele base since we are in a
digital era where most people access the internet often. In New Product
packaging, it means repacking the product in another method or dimension.
That way it
may attract a different customer base. In Different pricing policies, the
business could change its prices so as to attract a different customer base or
so create a new market segment. Market Development is a far much risky
strategy as compared to Market Penetration. This is so as it is targeting a
new market and one may not quit tell how the outcome may be.
· Diversification
The last strategy is Diversification. This growth strategy involves an
Resource Analysis organization marketing or selling new products to new markets at the same
54 time. It is the most risky strategy among the others as it involves two

unknowns, new products being created and the business does not know the Strategy Management
development problems that may occur in the process. There is also the fact
that there is a new market being targeted, which will bring the problem of
having unknown characteristics. For a business to take a step into
diversification, they need to have their facts right regarding what it expects
to gain from the strategy and have a clear assessment of the risks involved.
There are two types of diversification. There is related diversification and
unrelated diversification. In related diversification, this means that the
business remains in the same industry in which it is familiar with. For
example, a cake manufacturer diversifies into a fresh juice manufacturer.
This diversification is in the same industry which is the food industry. In
unrelated diversification, there are usually no previous industry relations or
market experiences. One can diversify from a food industry to a mechanical
industry for instance.
A good example of the unrelated diversification is Richard Branson. He
took advantage of the virgin brand and diversified into various fields such as
entertainment, air and rail travel foods etc. Another example is the easy jet
which has diversified into car rentals, gyms, fast foods and hotels. Though
diversification may be risky, with an equal balance between risk and
reward, then the strategy can be highly rewarding. Another advantage of
diversification is that in case one business suffers from adverse
circumstances the other line of businesses may not be affected.
Analysis Paralysis
Some schools of thought believe that the use of strategic management tools
such as the Ansoff Matrix can result in an overuse of analysis. In fact, Ansoff
himself thought about this and it was he who first mentioned the now
famous phrase “paralysis by analysis”.
Make sure that the firm does not fall victim to procrastination caused by
excessive planning.
2.7.3 GE 9 Cell Matrix

The GE matrix was developed by Mckinsey and Company consultancy
group in the 1970s. The nine cell grid measures business unit strength
against industry attractiveness and this is the key difference. Whereas BCG
is limited to products, business units can be products, whole product lines, a
service or even a brand. Plotting these chosen units on the grid will help to
determine which strategy to apply.

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Strategy Management
https://www.professionalacademy.com/blogs-and-advice/marketing-theories---ge-matrix
Ø Industry Attractiveness
Industry attractiveness indicates how hard or easy it will be for a company
to compete in the market and earn profits. The more profitable the industry
is the more attractive it becomes. When evaluating the industry
attractiveness, analysts should look how an industry will change
in the long run rather than in the near future, because the investments
needed for the product usually require long lasting commitment.
Industry attractiveness consists of many factors that collectively determine
the competition level in it. There’s no definite list of which factors should be
included to determine industry attractiveness, but the following are the
most common:
· Long run growth rate
· Industry size
· Industry profitability: entry barriers, exit barriers, supplier power,
buyer power, threat of substitutes and available complements
· Industry structure
· Product life cycle changes
· Changes in demand
· Trend of prices
External and Internal · Macro environment factors (use PEST or PESTEL for this)
Resource Analysis
56 · Seasonality

· Availability of labor Strategy Management
· Market segmentation
Competitive strength of a business unit or a product
Along the X axis, the matrix measures how strong, in terms of competition,
a particular business unit is against its rivals. In other words, managers try to
determine whether a business unit has a sustainable competitive advantage
(or at least temporary competitive advantage) or not. If the company has a
sustainable competitive advantage, the next question is: “For how long it
will be sustained?”
The following factors determine the competitive strength of a business unit:
· Total market share
· Market share growth compared to rivals
· Brand strength (use brand value for this)
· Profitability of the company
· Customer loyalty
· VRIO resources or capabilities (use VRIO framework to determine
this)
· Your business unit strength in meeting industry’s critical success
factors (use Competitive Profile Matrix to determine this)
· Strength of a value chain (use Value Chain Analysis and
Benchmarking to determine this)
· Level of product differentiation
· Production flexibility
Advantages
· Helps to prioritize the limited resources in order to achieve the best
returns.
· Managers become more aware of how their products or business
units perform.
· It’s more sophisticated business portfolio framework than the BCG
matrix.
· Identifies the strategic steps the company needs to make to improve
the performance of its business portfolio.
Disadvantages
· Requires a consultant or a highly experienced person to determine
industry’s attractiveness and business unit strength as accurately as
possible.
· It is costly to conduct. Resource Analysis
57
Strategy Management · It doesn’t take into account the synergies that could exist between
two or more business units.
Difference between GE McKinsey and BCG Matrices

GE McKinsey matrix is a very similar portfolio evaluation framework to
BCG matrix. Both matrices are used to analyse company’s product or
business unit portfolio and facilitate the investment decisions.
The main differences:
Visual difference. BCG is only a four cell matrix, while GE McKinsey is a
nine cell matrix. Nine cells provide better visual portrait of where business
units stand in the matrix. It also separates the invest/grow cells from
harvest/divest cells that are much closer to each other in the BCG matrix and
may confuse others of what investment decisions to make.
2.7.4 Business Portfolio Analysis

Business Portfolio Analysis is an organizational strategy formulation
technique that is based on the philosophy that Organizations should develop
strategy much as they handle investment portfolios. Portfolio analysis is a
systematic way to analyse the products and services that make up an
association's business portfolio. In the way, in which the sound financial
investments should be supported and unsound ones discarded, sound
organizational activities should be emphasized and unsound ones
deemphasized.
Purpose of Portfolio Analysis: A viable strategy need for product-market
scopes in determining how strategic objectives will be attained. In a
diversified company, one well-accepted concept of product-market scope is
the portfolio approach to an organization's overall strategy. The optimal
business portfolio is one that fits perfectly to the company's strengths and
helps to exploit the most attractive industries or markets. An SBU can either
be an entire mid-size company or a division of a large corporation. It
normally formulates its own business level strategy and often has separate
objectives from the parent company.
The aim of a portfolio analysis is:
1) To Analyse: Analyse its current business portfolio and decide which
SBUs should receive more or less investment.
2) To Develop Growth Strategies: Develop growth strategies for adding
new products and business to the portfolio.
3) To Take Decisions Regarding Product Retention: Decide which
business or products should no longer be retained.

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2.8 Summary Strategy Management
v Understand all the environmental factors before moving to the next step.
v Collect all the relevant information.
v Identify the opportunities for the organization.
v Recognize the threats a company may faces.
v The final step is to take action.
v It is true that industry factors have an impact on the company performance.
Environmental analysis is essential to determine what role certain factors
play in the business. PEST or PESTLE analysis allows businesses to take a
look at the external factors. Many organizations use these tools to project
the growth of their company effectively.
v The analyses provide a good look at factors like revenue, profitability, and
corporate success. If one wants to take the right decisions for the firm,
employ environmental analysis. The analysis conducted depends on the
nature of the company.
v Internal factors — the strengths and weaknesses internal to the organization
v External factors — the opportunities and threats presented by the
environment external to the organization
v Environmental Scanning – It is the monitoring, evaluating and
disseminating of information from the external and internal environments
to key people within the corporation.
v Strength – It is an inherent capacity which an organization can use to gain
strategic advantage over it competitors.
v Weakness – It is an inherent limitation or constraint which creates a
strategic disadvantage.
v Opportunity – It is a favourable condition in the organization’s
environment which enables it to consolidate and strengthen its position.
v Threat – It is an unfavourable condition in organization’s environment
which creates a risk or causes damage to the organization.
v ST – ST strategy uses a firm’s strengths to avoid or reduce the impact of
external threats.
v SO – SO strategy uses a firm’s internal strengths to take advantage of
external opportunities.
v WT – WT strategy involves defensive tactics directed at reducing internal
weaknesses and avoiding external threats.
v WO – WO strategy aims at improving internal weaknesses by taking
advantage of external opportunities.
v SAP – It presents a collection of the organizations competitive advantages.
v BCG is a technique to classify the product or business as low or high Resource Analysis
performers depending upon their market share and growth rate. 59
Strategy Management v GE matrix identifies the optimum business portfolio as one that can
companys core strengths and help to identify the most attractive industry.

1. "The five forces model provides the rationale for increasing or decreasing
resources commitment". Comment.
2. Suppose you are newly appointed CEO of a retail major. How would you
perform the internal analysis to identify the resources and capabilities of the
firm?
3. Analyses the role of internal analysis in strategy formulation.
4. "SWOT Analysis portrays the essence of strategy formulation". Comment.
5. Is it not enough for a company to analyse its own strengths and weaknesses?
Justify your answer
6. You are the CEO of a purse manufacturing company. The designs of the
purse has not changed over the years. Your purses had a very good market in
early 2000s but now the sales have declined heavily. Analyse the situation
and suggest appropriate solutions to get the company back on track.
7. Do you think, BCG Matrix has limited application? Justify your answer.
8. Suppose you are the head of a suitcase making firm that has just started its
operations in India. Discuss the process of strategic choice that you are most
likely to follow.

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Strategy Management
Unit – 3 : STRATEGY FORMULATION
Structure:
3.2 Strategic Formulation
3.2.1 Steps of Strategy Formulation
3.2.2 Levels of strategy formulation
3.3 Generic Strategies
3.4 Corporate Level Strategy
3.4.1 Stability Strategy
3.4.2 Expansion Strategy
3.4.3 Retrenchment Strategy
3.4.4 Combination Strategy
3.5 Functional Level Strategy
3.6 Summary
Objectives
ü Understand Strategic Formulation
ü Steps in Strategic in strategic Formulation
ü Various Corporate level Strategies
ü Functional Level Strategies

This chapter will help in understanding the grand strategies and how it helps
in attaining growth, profitability. Business is full of uncertainty and risk and
the most difficult part is to take right decision at right time. These grand
strategy help in understanding the environment
and helps the corporate level and functional level to adopt strategy to take
appropriate decision. Thus this chapter involves taking decision of
choosing the long term plans from the set of available alternatives.
Strategy Formulation
61
Strategy Management 3.2 Strategic Formulation
Strategic Formulation is an analytical process to choose the most
appropriate course of action to meet the organizations objectives and vision.
It is one of the essential steps of the strategic management process as it
provides the frame work for the actions that will lead to the anticipated
results. The strategic plan allows an organization to examine its resources,
provides a financial plan and establishes the most appropriate action plan
for determining the most effective plan for maximizing ROI (return on
investment).
A company that is not thinking of developing the strategic plan will not be
able to provide its employees with direction or focus. Rather than being
proactive in the face of business conditions, an organization that does not
have a set strategy will find that it is being reactive; the organization will be
addressing unanticipated pressures as they arise; and the organization will
be at a competitive disadvantage.
3.2.1 Steps of Strategy Formulation

Strategy formulation requires a defined set of six steps for effective
implementation.
62
· Establishing Organizational Objectives: The key component of Strategy Management
any strategy involves establishing long-term goals of an
organization. Strategic decisions are taken once the organizational
objectives are determined. Objectives stress the state of being there
whereas Strategy stresses upon the process of reaching there.
Strategy includes both the fixation of objectives as well the medium
to be used to realize those objectives. While fixing the organizational
objectives, it is essential to understand the factors which influence
the selection of objectives. It must be analysed before the selection of
the objectives. Once the objectives and the factors influencing
strategic decisions are determined, it becomes easy to take strategic
decisions.
· Analysis of Organizational Environment: The second step is to
analyse the economic and industrial environment in which the
business operates. This involves SWOT analysis, meaning
identifying the company’s strengths and weaknesses and keeping
vigilance over competitors’ actions to understand opportunities and
threats. Strengths and weaknesses are internal factors which the
company has control over. Opportunities and threats, on the other
hand, are external factors over which the company has no control. A
successful organization builds on its strengths, overcomes its
weakness, identifies new opportunities and protects against external
threats. The purpose of such a review is to make sure that the factors
important for competitive success in the market can be discovered
and necessary steps are taken.
· Forming quantitative goals: In this step, an organization defines
the targets so as to meet the company’s short-term and long-term
objectives. The idea behind forming quantitative goal is to compare
the expectations of customers in long run, and to evaluate the
contribution made by various product zones or operating
departments.
· Objectives in context with divisional plans: This step involves
setting up targets for each department or division or product
category, so that they work in coherence with the organization as a
whole. This requires a careful analysis of macroeconomic trends.
· Performance Analysis: Performance analysis is done to estimate
the degree of variation between the actual and the standard
performance of an organization. A critical evaluation of the
organizations past performance, present condition and and the
desired future conditions must be done by the organization. This
critical analysis identifies the degree of gap that persists between the
actual reality and the long-term aspirations of the organization. Thus
an attempt is made by the organization to estimate its probable future
condition based on the current condition of the organization. ? Strategy Formulation
Selection of Strategy: This is the final step of strategy formulation.
63
Strategy Management The best course of action is actually chosen after considering
organizational goals, organizational strengths, potential and
limitations as well as the external opportunities. As selection of
strategy helps in framing effective strategies for the organization, to
survive and growin the dynamic business environment.
3.2.2 Levels of Strategy Formulation

There are three levels of strategy formulation used in an organization:
§ Corporate level strategy: This level outlines what the firm wants to
achieve: growth, stability, acquisition or retrenchment. It focuses on which
industry to enter.
§ Business level strategy: This level answers the question of how the firm
are going to compete. It plays a role in those organization which have
smaller units of business and each is considered as the strategic business
unit (SBU).
§ Functional level strategy: This level concentrates on how an organization
is going to grow. It defines daily actions including allocation of resources to
deliver corporate and business level strategies.
Hence, all organisations have competitors, and it is the strategy that enables
one business to become more successful and established than the other.
3.3 Generic Strategy

A strategic business unit may be a division, product line, or other profit
centre that can be planned independently from the other business units of
the firm.
At the business unit level, the strategic issues are less about the coordination
of operating units and more about developing and sustaining a competitive
advantage for the goods and services that are produced. At the business
level, the strategy formulation phase deals with:
Strategy Formulation § Positioning the business against rivals
64 · Anticipating changes in demand and technologies and adjusting the

strategy to accommodate them
· Influencing the nature of competition through strategic actions such Strategy Management
as vertical integration and through political actions such as lobbying.
Michael Porter identified three generic strategies (cost leadership,
differentiation and focus) that can be implemented at the business unit level
to create a competitive advantage and defend against the adverse effects of
the five forces. Porter's generic strategies framework constitutes a major
contribution to the development of the strategic management literature.
Generic strategies were first presented in two books by Professor Michael
Porter of the Harvard Business School (Porter, 1980). Porter suggested that
some of the most basic choices faced by companies are essentially the scope
of the markets that the company would serve and how the company would
compete in the selected markets. Competitive strategies focus on ways in
which a company can achieve the most advantageous position that it
possibly can in its industry . The profit of a company is essentially the
difference between its revenues and costs. Therefore high profitability can
be achieved through achieving the lowest costs or the highest prices facing
the competition. Porter used the terms ‘cost leadership' and
‘differentiation', wherein the latter is the way in which companies can earn a
price premium.
· Important aspects of Porter's Generic Strategies Analysis
According to Porter, there are three generic strategies that a company can
undertake to attain competitive advantage: cost leadership, differentiation,
and focus.
i) Low-Cost Strategy: It is the ability of a company or a business unit

to design, produce and market a comparable product more efficiently
than its competitors. It is a competitive strategy based on the firm’s
ability to provide products or services at lower cost than its rivals. It is
formulated to acquire a substantial cost advantage over other
competitors that can be passed on to consumers to gain a large market
share. As a result the firm can earn a higher profit margin that result
from selling products at current market prices.
Eg: Whirlpool has successfully used a low-cost leadership strategy to
build competitive advantage. 65
Strategy Management ii) Differentiation Strategy: It is the ability to provide unique and
superior value to the buyer in terms of product quality, special
features or after-sale service. It is a competitive strategy based on
providing buyers with something special or unique that makes the
firm’s product or service distinctive. The customers are willing to pay
a higher price for a product that is distinct in some special way.
Superior value is created because the product is of higher quality and
technically superior which builds competitive advantage by making
customers more loyal and less-price sensitive to a given firm’s
product or service
Eg: Mercedes and BMW have successfully pursued differentiation
strategies.
iii) Focus Strategy: It is designed to help a firm target a specific niche
within an industry. Unlike both low-cost leadership and
differentiation strategies that are designed to target a broader or
industry-wide market, focus strategies aim at a specific and typically
small niche. These niches could be a particular buyer group, a narrow
segment of a given product line, a geographic or regional market, or a
niche with distinctive special tastes and preferences.
Eg: Solectron is a highly specialized manufacturer of circuit boards
used in PCs and other electronic devices which has adopted a well-
defined focus strategy.
iv) Combination (Stuck in the middle)
According to Porter, a company's failure to make a choice between
cost leadership and differentiation essentially implies that the
company is stuck in the middle. There is no competitive advantage
for a company that is stuck in the middle and the result is often poor
financial performance. However, there is disagreement between
scholars on this aspect of the analysis. Kay (1993) and Miller (1992)
have cited empirical examples of successful companies like Toyota
and Benetton, which have adopted more than one generic strategy.
Both these companies used the generic strategies of differentiation
and low cost simultaneously, which led to the success of the
companies.
3.4 Corporate Level Strategy

Ø Stability
Ø Expansion
Ø Retrenchment
Ø Combination
Corporate level strategy fundamentally is concerned with the selection of
businesses in which the company should compete and with the
66 development and coordination of that portfolio of businesses. It primarily

tells us about the choice of direction for the firm as a whole. In a large multi Strategy Management
business company, however, corporate strategy is also about managing
various product lines and business units for maximum value. Even though
each product line or business unit has its own competitive or cooperative
strategy that it uses to obtain its own competitive advantage in the market
place, the corporation must coordinate these difference business strategies
so that the corporation as a whole succeeds.
Corporate strategy includes decision regarding the flow of financial and
other resources to and from a company’s product line and business units.
Through a series of coordinating devices, a
company transfers skills and capabilities developed in one unit to other
units that need such resources.
A corporates strategy is composed of three general orientations which is
also called grand strategies.
A) Growth strategies expand the company’s activities.
B) Stability strategies make no change to the company’s current
activities.
C) Retrenchment strategies reduce the company’s level of activities.
D) Combination strategies is the combination of the above three
strategies.
Having chosen the general orientation a company’s managers can select
from more specific corporate strategies such as concentration within one
product line/industry or diversification into other products/industries.
These strategies are useful to corporations operating in only one product
line and to those operating in many industries with many product lines.
The most widely used corporate directional strategies are those designed to
achieve growth in sales, assets, profits or some combination. Companies
that do business in expanding industries must grow to survive. Continuing
growth means increasing sales and a chance to take advantage of the
experience curve to reduce per unit cost of products sold, thereby increasing
profits. This cost reduction becomes extremely important if a corporation’s
industry is growing quickly and competitors are engaging in price wars in
attempts to increase their shares of the market. Firms that have not reached
“critical mass” (that is, gained the necessary economy of large scale
productions) will face large losses unless they can find and fill a small, but
profitable, niche where higher prices can be offset by special product or
service features. That is why Motorola Inc., continues to spend large sum on
the product development of cellular phones, pagers, and two-way radios,
despite a serious drop in market share and profits. According to Motorola’s
Chairman George Fisher, “what’s at stake here is leadership”. Even though
the industry was changing quickly, the company was working to avoid the
erosion of its market share by jumping into new wireless markets as quickly
as possible. Being one of the market leaders in this industry would almost
guarantee Motorola enormous future returns. 67
Strategy Management A Corporation can grow internally by expanding its operations both
globally and domestically, or it can grow externally through mergers,
acquisition and strategic alliances. A merger is a
transaction involving two or more corporations in which stock is
exchanged, but from which only one corporation survives. Mergers usually
occur between firms of somewhat similar size and are usually “friendly”.
The resulting firm is likely to have a name derived from its composite firms.
One example in the Pharma Industry is the merging of Glaxo and
Smithkline Williams to form Glaxo Smithkline. An Acquisition is the
purchase of a company that is completely absorbed as an operating
subsidiary or division of the acquiring corporation. Examples are Procter &
Gamble’s acquisition of Richardson-Vicks, known for its Oil of Olay and
Vicks Brands, and Gillette, known for shaving products.
Ø Corporate level strategy is concerned with:

· Reach - defining the issues that are corporate responsibilities; these
might include identifying the overall goals of the corporation, the
types of businesses in which the corporation should be involved, and
the way in which businesses will be integrated and managed.
· Competitive Contact - defining where in the corporation
competition is to be localized.
· Managing Activities and Business Interrelationships - Corporate
strategy seeks to develop synergies by sharing and coordinating staff
and other resources across business units, investing financial
resources across business units, and using business units to
complement other corporate business activities. Igor Ansoff
introduced the concept of synergy to corporate strategy.
· Management Practices - Corporations decide how business units
are to be governed: through direct corporate intervention
(centralization) or through more or less autonomous government
(decentralization) that relies on persuasion and rewards.
Corporations are responsible for creating value through their businesses.
They do so by managing their portfolio of businesses, ensuring that the
businesses are successful over the long-term, developing business units,
and sometimes ensuring that each business is compatible with others in the
portfolio. The corporate level strategies are designed to identify the firm’s
choice with respect to the direction it follows to accomplish its set
objectives. It involves decision of choosing the long term plans from the set
of available alternatives. The Grand Strategies are also called as Master
Strategies or Corporate Strategies.
There are four grand strategic alternatives that can be followed by the
organization to realize its long-term objectives:
68
Strategy Management
The grand strategies are concerned with the decisions about the allocation
and transfer of resources from one business to the other and managing the
business portfolio efficiently, such that the overall objective of the
organization is achieved. In doing so, a set of alternatives are available to
the firm and to decide which one to choose, the grand strategies help to find
an answer to it.
Business can be defined along three dimensions: customer groups,
customer functions and alternative technology. Customer group comprises
of a particular category of people to whom goods and services are offered,
and the customer functions mean the particular service that is being offered.
And the technology alternatives covers any technological changes made in
the operations of the business to improve its efficiency.
3.4.1 Stability Strategy

The Stability Strategy is adopted when the organization attempts to
maintain its current position and focuses on the incremental improvement
by merely changing one or more of its business operations in the
perspective of customer groups, customer functions and alternative
technology, either individually or collectively.
Generally, the stability strategy is adopted by the firms that are risk averse,
usually the small scale businesses or if the market conditions are not
favourable, and the firm is satisfied with its performance, then it will not
make any significant changes in its business operations. Also, the firms,
which are slow and reluctant to change finds the stability strategy safe and
do not look for any other options.
69
Strategy Management Stability Strategies could be of three types:
Ø No Change Strategy
No-Change Strategy is a strategy adopted when an organization aims at
maintaining the present business definition. Simply, the decision of not
doing anything new and continuing with the existing business operations
and the practices referred to as no-change strategy.
When the environment seems to be stable, i.e. no threats from the
competitors, no economic disturbances, no change in the strengths and
weaknesses, a firm may decide to continue with its present position.
Therefore, by analysing both the internal and external environment, a firm
may decide to continue with its present strategy.
The no-change strategy does not imply that no decision has been taken by
the firm, however, taking no decision can sometimes be a decision itself.
There should be a clear distinction between the firms which are inactive and
do not want to make changes in their strategies and the ones which
consciously decides to continue with their present business definition by
scrutinizing both the internal and external conditions.
Generally, the small or mid-sized firms catering to the needs of a niche
market, which is limited in scope, rely on the no-change strategy. This
stability strategy is suitable till no new threats emerge in the market, and the
firm feels the need to alter its present position.
Ø Profit Strategy
The profit strategy is followed when an organization aims to maintain the
profit by whatever means possible. Due to lower profitability, the firm may
cut costs, reduce investments, raise prices, increase productivity or adopt
any methods to overcome the temporary difficulties.
The profit strategy can be followed when the problems are temporary or
short-lived and will go away with time. The problems could be the
economic recession or inflation, industry downturn, worst market
conditions, competitive pressure, government policies and the like. Till
then, the firm adopts the artificial measures to tackle these problems and
sustain the profitability of the firm.
If the problem persists for long, then profit strategy would only deteriorate
70 the firm’s overall financial position. In the crisis, the companies may
overcome the temporary difficulties by selling the assets such as land or Strategy Management
building or setting off the losses of one division against the profits of
another division. Also, the firms may offer the outsourcing facilities to
those firms who are in need of it and can realize the temporary cash.
The profit strategy focuses on capitalizing the situation when the obsolete
technology or the old technology is to be replaced with the new one. Here no
new investment is made; the same technology is followed, at least partially
with new technological domains.
Ø Pause and Proceed with Caution

The pause and proceed with caution strategy is a type of stability strategy
followed when an organization prefers to wait and look at the market
conditions before launching the full-fledged grand strategy. Also, the firm
that has intensely followed the expansion strategy would wait till the time
the new strategies seeps down the organizational levels and look at the
changes in the organizational structure before taking further steps.
Like the profit strategy, the pause and proceed with caution strategy is also a
temporary strategy followed by the firms. But however, these both differ
significantly; the profit strategy focuses on sustaining profitability until the
temporary difficulties or the conditions become more hospitable. Whereas
the pause and proceed with caution strategy is a deliberate action taken by
the firm to postpone the strategic action till the best opportunity knocks at
the door. Thus, waiting for the right strategy for the right time.
The pause/proceed with caution strategy is often followed by the
manufacturing companies who study the market conditions thoroughly and
then launch their new products into the market. It is more prevalent in the
army attacks; wherein the reconnaissance party moves ahead to examine
the situation before the troops, who comes in full strength to ultimately
attack the enemies.
3.4.2 Expansion Strategy

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 alternative technology, 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. Strategy Formulation
The firm can follow either of the five expansion strategies to accomplish its
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objectives:
Strategy Management
https://businessjargons.com/expansion-strategy.html
1. Expansion through Concentration
2. Expansion through Diversification
3. Expansion through Integration
4. Expansion through Cooperation
5. Expansion through Internationalization
Ø Expansion through Concentration

The Expansion through Concentration is a 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 alternative technology, either individually or
collectively, is called as expansion through concentration.
The organization may follow any of the ways to practice expansion through
concentration:
§ Market penetration strategy: The firm focusing intensely on the
existing market with its present product.
§ Market development type of concentration: Attracting new
customers for the existing product.
§ Product development type of concentration: Introducing new
products in the existing market.
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 firms 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
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strategies are highly dependent on the industry, so any adverse conditions in Strategy Management
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.
Ø Expansion through Diversification

The expansion through diversification is followed when an organization
aims at changing the business definition, i.e. either developing a new
product or expanding into a new market, either individually or jointly. 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.
Ø Expansion through Integration

The expansion through integration means combining one or more present
operation of the business with no change in the customer groups. This
combination can be done through 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: Strategy Formulation
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Strategy Management
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.
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.
Ø Expansion through Cooperation

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:
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1. Merger: The merger is the combination of two or more firms Strategy Management
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.
2. 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.
3. 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.
4. 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.
Ø Expansion through Internationalization

The expansion through internationalization is the strategy followed by an
organization when it aims to expand beyond the national market. The need
for the Expansion through Internationalization arises when an organization
has explored all the potential to expand domestically and look for the
expansion opportunities beyond the national boundaries.
But however, going global is not an easy task, the organization has to
comply with the stringent benchmarks of price, quality and timely delivery
of goods and services, that may vary from country to country.
The expansion through internationalization could be done by adopting
either of the following strategies:
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Strategy Management
1. International Strategy: The firms adopt an international strategy to

create value by offering those products and services to the foreign
markets where these are not available. This can be done, by
practicing a tight control over the operations in the overseas and
providing the standardized products with little or no differentiation.
2. Multi domestic Strategy: Under this strategy, the multi-domestic
firms offer the customized products and services that match the local
conditions operating in the foreign markets. Obviously, this could be
a costly affair because the research and development, production and
marketing are to be done keeping in mind the local conditions
prevailing in different countries.
3. Global Strategy: The global firms rely on low-cost structure and
offer those products and services to the selected foreign markets in
which they have the expertise. Thus, a standardized product or
service is offered to the selected countries around the world.
4. Transnational Strategy: Under this strategy, the firms adopt the
combined approach of multi-domestic and global strategy. The firms
rely on both the low-cost structure and the local responsiveness i.e.
according to the local conditions. Thus, a firm offers its standardized
products and services and at the same time makes sure that it is in line
with the local conditions prevailing in the country, where it is
operating.
So, in order to globalize, the firm should assess the international
environment first, and then should evaluate its own capabilities and plan the
strategies accordingly to enter into the foreign markets.
3.4.3 Retrenchment Strategy

The Retrenchment Strategy is adopted when an organization aims at
Strategy Formulation reducing its one or more business operations with the view to cut expenses
and reach to a more stable financial position.
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In other words, the strategy followed, when a firm decides to eliminate its Strategy Management
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:
Ø Turnaround Strategy
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. It is
backing out or retreating from the decision wrongly made earlier and
transforming from a loss making company to a profit making company.
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.
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 77
Strategy Management outlets and today it is the second largest computer retailer in the world.
Ø Divestment Strategy
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 up gradations due to non-affordability
§ Market share is too small
§ Legal pressures
Tata Communications is the best example of divestment strategy. It has
started the process of selling its data centre business to reduce its debt
burden.
Ø Liquidation Strategy
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
Strategy Formulation indicators that necessitate a firm to follow this strategy:
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§ Failure of corporate strategy Strategy Management
§ 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.
3.5 Functional level Strategy

Functional level strategy can be defined as the day to day strategy which is
formulated to assist in the execution of corporate and business level
strategies. These strategies are framed as per the guidelines given by the top
level management. It is concerned with operational level decision making,
called tactical decisions, for various functional areas such as production,
marketing, research and development, finance, personnel and so on. As
these decisions are taken within the framework of business strategy,
strategists provide proper direction and suggestions to the functional level
managers relating to the plans and policies to be opted by the business, for
successful implementation.
Ø Role of Functional Strategy
§ It assists in the overall business strategy, by providing
information concerning the management of business
activities.
§ It explains the way in which functional managers should work,
so as to achieve better results.
Functional Strategy states what is to be done, how is to be done and when is
to be done are the functional level, which ultimately acts as a guide to the
functional staff. And to do so, strategies are to be divided into achievable
plans and policies which work in tandem with each other. Hence, the
functional managers can implement the strategy.
Ø Functional Areas of Business

There are several functional areas of business which require strategic
decision making, discussed as under:
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Strategy Management
1. Marketing Strategy: Marketing involves all the activities concerned with

the identification of customer needs and making efforts to satisfy those
needs with the product and services they require, in return for
consideration. The most important part of marketing strategy is the
marketing mix, which covers all the steps a firm can take to increase the
demand for its product. It includes product, price, place, promotion, people,
process and physical evidence.
For implementing a marketing strategy, first of all, the company’s situation
is analysed thoroughly by SWOT analysis. It has three main elements, i.e.
planning, implementation and control. There are a number of strategic
marketing techniques, such as social marketing, augmented marketing,
direct marketing, person marketing, place marketing, relationship
marketing, Synchro marketing, concentrated marketing, service marketing,
differential marketing and demarketing.
Marketing Strategy also focuses on
1) Satisfying the existing customers
2) Attracting New Customers
3) Is for attaining the marketing objectives of a firm
4) To sustain the competitive position
5) Distribution channel
6) Pricing Policy
7) Positioning Strategy
8) Promotion Strategy
2. Financial Strategy: All the areas of financial management, i.e. planning,

acquiring, utilizing and controlling the financial resources of the company
Strategy Formulation are covered under financial strategy. This includes raising capital, creating
budgets, sources and application of funds, investments to be made, assets to
80 be acquired, working capital management, dividend payment, calculating
net worth of the business and so forth. The success of business depends Strategy Management
upon sufficient finance and its effective management.
Finance strategies may be for deciding the following requirements.
· Finance Decision
1. Fixed Assets (Plant and machinery, Furniture and Fixtures, Land and
Buildings, Other fixed Assets)
2. Current Assets (Cash balance, Book debts and bills and acceptance,
Stock)
3. Promotion Expenses
4. Operating Expenses
5. Cost of Financing
6. Sources of Working Capital (Internal and External Sources)
· Investment Decisions
· Dividend Decision
3. Human Resource Strategy: HR Strategy deals with one of the most

precious resources-human resources in the organization. It is the people
who decide the organizational strategies, and carry out its various functions
and implement them. Thus Human resource strategy covers how an
organization works for the development of employees and provides them
with the opportunities and working conditions so that
they will contribute to the organization as well. This also means to select the
best employee for performing a particular task or job. It strategizes all the
HR activities like recruitment, training, developing disciplinary systems,
motivation, retention of employees, compensating, and industrial relations.
An organization can only be successful if it can obtain the necessary talent.
The cost of acquiring, retaining, developing and motivating the needed
talent should be economically feasible. In developing an effective human
resource strategy an organization should;
· Identify what human resources are needed and how they should be
allocated.
· Develop and implement human resource practices that select, reward
and develop employees who best contribute to accomplishment of
objectives.
· Use resources to compete for or retain employees who are needed to
reach its objectives.
· Develop mechanisms that match employees’ competencies to the
organization’s present and future needs. Strategy Formulation
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Strategy Management 4. Production Strategy: Production strategy is concerned with selecting,
designing and up-dating the systems that produce the organization’s
products. Production/operating systems consist of the activities and
processes necessary to transform in-puts into products. Thus it focuses on
the overall manufacturing system, operational planning and control,
logistics and supply chain management. The primary objective of
production strategy is to enhance the quality, increase the quantity and
reduce the overall cost of production. The strategy is also concerned with
bringing in a regulation in day-to-day activities of department to have easy
handling of all the necessary tasks.
Various Production strategy are,
1. Manufacture of a product
2. Production process
3. Deployment of physical resources
4. Level of technology. New Revolutionary changes
i. Diversification of business activities
ii. Use of computer-integrated design and manufacturing
iii. Computer system
iv. Automation
v. Robotics
vi. Just in time system
5. Infrastructure decisions
6. Performance measurement
7. New product development
5. Research and Development Strategy: The research and development

strategy focuses on innovating and developing new products and improving
the old one, so as to implement an effective strategy and lead the market.
Product development, concentric diversification and market penetration
are such business strategies which require the introduction of new products
and significant changes in the old one.
For implementing strategies, there are three Research and Development
approaches:
1. To be the first company to market a new technological product.
2. To be an innovative follower of a successful product.
3. To be a low-cost producer of products.
Functional level strategies focus on appointing specialists and combining
activities within the functional area.
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3.6 Summary Strategy Management
v Strategy formulation is the course of action companies take to achieve their

defined goals.
v All employees of an organization should be aware of the company’s
objectives, mission, and purpose.
v A strategic plan enables a company to evaluate resources, allocate budgets,
and maximize ROI (return on investment).
v The lack of a strategic plan will result in an organization being without
direction or focus. The company will be reactive rather than proactive.
v Strategies must be evaluated and revised on a regular basis in order to meet
the changing needs and challenges of the marketplace and business
environment.
v Grand strategies are major, overarching strategies that shape the course of a
business.
v Running your own business means pondering grand strategies involving
everything from product development to liquidation.
v Strategies achieve advantages for the organisation through its configuration
of resources within a challenging environment, to meet the needs of markets
and to fulfill stakeholder expectations.
v Strategies exist at several levels in any organisation – ranging from the
overall business through to individuals working in it.
v Growth strategies are the most widely pursued corporate strategies.
v There are three important intensive strategies, viz. Market penetration,
Market development and Product development.
v Integration basically means combining activities relating to the present
activity of a firm.
v Integration is basically of two types, viz. vertical integration and horizontal
integration.
v Diversification is the process of adding new businesses to the existing
businesses of the company.
v A company may pursue defence strategies when it has a weak competitive
position in some or all of its product lines resulting in poor performance.
v Retrenchment strategies are last resort strategies.
v Companies can use any retrenchment strategies- turnaround, divestment
and liquidation.
v Firms can take the international route by exporting a part of their produce to
other nations or by outsourcing a small chunk of their work outside.
v Cooperative strategies such as strategic alliance and joint ventures are a
logical and timely response to intense and rapid changes in economic Strategy Formulation
activity, technology and globalisation.
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Strategy Management 3.7 Self-Assessment Question
1. Explain Various Corporate Level Strategies
2. As a manager, in which situations would you apply vertical
integration and why?
3. "Horizontal integration eliminates or reduces competition".
Comment
4. Can cost leadership strategy allow a firm to earn above-average
returns despite strong competitive forces? Discuss.
5. Conceptually, strategy of a firm consists of two inseparable parts:
business strategy and corporate strategy. (a) Distinguish between
business strategy and corporate strategy.
(b) Identify the key elements considered to develop and formulate
such master strategy.
6. Suppose you are the manager of a hotel which is in deep financial
trouble and is losing customers because of lack of proper services. In
such a situation, what will you do to improve the situation and how
would you justify your actions?
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Strategy Management
Unit – 4 IMPLEMENTATION OF STRATEGY
Structure:
4.2 Strategic Implementation
4.3 Implementation of strategy issues
4.4 Strategy Structure Relationship
4.5 Implementing changes in structure
4.6 Restructuring and Re-engineering
4.7 Resource Allocation
4.8 Behavioural Issues in Strategic Implementation
4.9 Organizational Culture and Change
4.10 Mc Kinsey’s 7s framework
4.11 Summary
Objectives
ü Understand how strategies are activated
ü Discuss the model of strategy implementation
ü Relationship between strategy and structure
ü Restructuring and Re-engineering
ü Describe the concept of resource allocation
ü Organizational Culture and Change
ü Mc Kinsey’s 7s framework

This chapter gives an insight about putting various strategies into action as
best strategy formulated can be unless if not implemented properly. This
chapter will enhance the understanding in implementation aspect and will
give a clear picture of how various strategies are put into action by setting
annual, short term objectives, policies, structures, resource allocation etc.
4.2 Strategic Implementation Implementation of Strategy
Implementation is the process that turns strategies and plans into actions in
85
Strategy Management order to accomplish strategic objectives and goals. It is the process by which
strategy and policies are put into actions through the development of
programs, budgets and procedures. This process might involve changes
within the overall culture, structure and/or management system of the entire
organization.
iv) Programs:
It is a statement of the activities or steps needed to accomplish a
single-use plan. It makes the strategy action oriented. It may involve
restructuring the corporation, changing the company’s internal
culture or beginning a new research effort.
v) Budgets:
A budget is a statement of a corporations program in terms of dollars.
Used in planning and control, a budget lists the detailed cost of each
program. The budget thus not only serves as a detailed plan of the
new strategy in action, but also specifies through proforma financial
statements the expected impact on the firm’s financial future
vi) Procedures:
Procedures, sometimes termed Standard Operating Procedures
(SOP) are a system of sequential steps or techniques that describe in
detail how a particular task or job is to be done. They typically detail
the various activities that must be carried out in order to complete
Following are the main steps in implementing a strategy:
ü Developing an organization having potential of carrying out strategy
successfully.
ü Disbursement of abundant resources to strategy-essential activities.
ü Creating strategy-encouraging policies.
ü Employing best policies and programs for constant improvement.
ü Linking reward structure to accomplishment of results.
ü Making use of strategic leadership.
Excellently formulated strategies will fail if they are not properly
implemented. Also, it is essential to note that strategy implementation is not
possible unless there is stability between strategy and each organizational
dimension such as organizational structure, reward structure, resource-
allocation process, etc.
Strategy implementation poses a threat to many managers and employees in
an organization. New power relationships are predicted and achieved. New
groups (formal as well as informal) are formed whose values, attitudes,
beliefs and concerns may not be known. With the change in power and
status roles, the managers and employees may employ confrontation
Implementation of Strategy behaviour. Simply put, strategy implementation is the technique through
which the firm develops, utilises and integrates its structure, culture,
86
resources, people and control system to follow the strategies to have the Strategy Management
edge over other competitors in the market.
https://businessjargons.com/wp-content/uploads/2018/09/strategy-
implementation-model.jpg Strategy Implementation is the fourth stage of
the Strategic Management process, the other three being a determination of
strategic mission, vision and objectives, environmental and organisational
analysis, and formulating the strategy. It is followed by Strategic Evaluation
and Control.
Prerequisites of Strategy Implementation

§ Institutionalization of Strategy: First of all the strategy is to be
institutionalized, in the sense that the one who framed it should promote or
defend it in front of the members, because it may be undermined.
§ Developing proper organizational climate: Organizational climate
implies the components of the internal environment, that includes the
cooperation, development of personnel, the degree of commitment and
determination, efficiency, etc., which converts the purpose into results.
§ Formulation of operating plans: Operating plans refers to the action
plans, decisions and the programs, that take place regularly, in different
parts of the company. If they are framed to indicate the proposed strategic
results, they assist in attaining the objectives of the organization by
concentrating on the factors which are significant.
§ Developing proper organizational structure: Organization structure
implies the way in which different parts of the organization are linked
together. It highlights the relationships between various designations,
positions and roles. To implement a strategy, the structure is to be designed
as per the requirements of the strategy.
§ Periodic Review of Strategy: Review of the strategy is to be taken at
regular intervals so as to identify whether the strategy so implemented is
relevant to the purpose of the organization. As the organization operates in a Implementation of Strategy
dynamic environment, which may change anytime, so it is essential to take
a review, to know if it can fulfil the needs of the organization.
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Strategy Management Even the best-formulated strategies fail if they are not implemented in an
appropriate manner. Further, it should be kept in mind that, if there is an
alignment between strategy and other
elements like resource allocation, organizational structure, work climate,
culture, process and reward structure, then only the effective
implementation is possible.
Aspects of Strategy Implementation

§ Creating budgets which provide sufficient resources to those activities
which are relevant to the strategic success of the business.
§ Supplying the organization with skilled and experienced staff.
§ Conforming that the policies and procedures of the organisation assist in the
successful execution of the strategies.
§ Leading practices are to be employed for carrying out key business
functions.
§ Setting up an information and communication system, that facilitate the
workforce of the organisation, to perform their roles effectively.
§ Developing a favourable work climate and culture, for proper
implementation of the strategy.
Strategy implementation is the time-taking part of the overall process, as it
puts the formulated plans into actions and desired results.
4.3 Implementation of strategy issues

Every company needs a strategic plan which helps them in making profit,
develop and innovate to reach to its vision. These plan help in getting a
better focus on the things that they are good at. A strategic plan also lays the
groundwork for improving those things that need focus. The right vision
helps in identifying where to dedicate time, human capital and budgetary
resources. According to Harvard Business School, 90% of the companies
fail to effectively execute their strategic plans. Which may lead to lack of
focus, directionless working of employees, poor decision making, improper
use of resources, lack of structure and lack of communication. So it’s
important to get it right. So it becomes vital to understand how companies
implement the strategic plan to ensure no mistakes are done or rectified well
before time if needed. The reasons for failed strategies are varied, but most
hinge on the fact that strategy implementation is resource intensive and
challenging. Understanding the biggest challenges to strategy
implementation will help in avoiding the most common pitfalls and better
set up company for success.
The implementation of Strategy Issues are as follows
Implementation of Strategy
Weak or inappropriate Strategy
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Framing Strategy is an opportunity to create a roadmap with broad buy in Strategy Management
and narrowed focus. There should be distinct milestones, clear timelines,
and precise roles for employees. If the strategy framed is weak or
inappropriate, the whole process may struggle to comply its objectives and
will passively or actively interfere with the implementation process. This
happens due to over aspirational or unrealistic firm leaders or partners who
adopt an ill-fitting strategy with respect to the firm's current position or
market competition. Without a viable strategy, firms struggle to take actions
to effectively implement the plan identified.
Resistance to change:
Another issue that may arise during implementation process is acceptance
and working whole heartedly to the change that is expected. While
executing a strategy, there has to be a willingness in adopting the change
needed in the approach and always there should be a room to accept new
ways of doing things. By developing an awareness towards need of change,
the hurdles and traps which lead to failure in implementation can be tackled
effectively.
Ineffective Training
Without proper training no new strategy can be successful. Company
should take appropriate steps for providing learning opportunities for
employees. Finding the right training option saves money by preventing too
much down time, strengthens skills or teaches new skills, and provides
follow up to ensure employees execute those lessons in their daily
workflows.
Ineffective Leadership
Strategy implementation frequently fails due to weak leadership, evidenced
by firm leaders unable or unwilling to carry out the difficult decisions
agreed upon in the plan. To compound the problem, partners within the firm
often fail to hold leaders accountable for driving implementation, which
ultimately leads to a loss of both the firm's investment in the strategy
development process as well as the opportunities associated with
establishing differentiation in the market and gaining a competitive
advantage.
Lack of communication
Communication is key in the execution of any new strategy. An effective
communication plan must be initiated from the top down. Transparent,
honest communication is not only the quality of an effective organization,
but it is a necessary step for any new roll out. Lack of communication results
in disjointed teams and widespread uncertainty. 89
Strategy Management Lack of follow through
Truly, the execution of any new strategy is never over. There should be
regularly scheduled formal reviews of the new strategy to review processes,
ensure the plan is performing as designed, and make any necessary tweaks.
Training should be included as part of this perpetual process review.
4.4 Strategy Structure Relationship

Structure is not simply an organization chart. It is all about people,
positions, procedures, processes, culture, technology and related elements
that comprise the organization. It defines how all the pieces, parts and
processes work together (or don’t in some cases). This structure must be
totally aligned with strategy for the organization to achieve its mission and
goals.
Structure supports strategy.

When an organization changes its strategy, it must change its structure to
support the new strategy. When it doesn’t, the structure acts like a bungee
cord and pulls the organization back to its old strategy. Structure supports
strategy. What the organization does defines the strategy. Changing strategy
means changing what everyone in the organization does.
When an organization changes its structure and not its strategy, the strategy
will change to fit the new structure.
Strategy follows structure. Suddenly management realizes the
organization’s strategy has shifted in an undesirable way. It appears to have
done it on its own. In reality, an organization’s
structure is a powerful force. One cannot direct it to do something for any
length of time unless the structure is capable of supporting that strategy.
4.5 Implementing changes in structure

Implementing changes in structure requires careful analysis of the present
state of who reports to whom, how departments are set up and operated,
costs associated with doing business and all. The various driving forces for
change are change in the competition's products, the economic conditions,
the return on investment etc. Regardless of the reasons, certain things need
to be in place to implement the changes successfully.
Management Support for Change
Employees develop a comfort level when they see management supporting
the process. It is critical that management shows support for changes and
demonstrates that support when communicating and interacting with staff.
Implementation of Strategy There is nothing worse than sending a mixed message to employees. If one
can’t support the change 100% don’t even think about making it.
90 Employees will know it and it will self-destruct.

Case for Change Strategy Management
No one wants to change for change sake, so it is important to create a case

for change. A case for change can come from different sources. It can be a
result of data collected on defect rates, customer satisfaction survey,
employee satisfaction survey, customer comment cards, business goals as a
result of a strategic planning session or budget pressures.
Employee Involvement
All change efforts should involve employees at some level. Organizational
change, whether large or small, needs to be explained and communicated,
specifically changes that affect how employees perform their jobs. Whether
it is changing a work process, improving customer satisfaction or finding
ways to reduce costs, employees have experiences that can benefit the
change planning and implementation process. Since employees are
typically closest to the process, it is important that they understand the why
behind a change and participate in creating the new process.
Communicating the Change

Communicating change should be structured and systematic. Employees
are at the mercy of management to inform them of changes. When there is
poor communication, and the rumour will starts spreading rumours about
change which can create resistance to the change. Being proactive in
communications can minimize resistance and make employees feel like
they are part of the process.
Implementation
Once a change is planned, it is important to have good communication
about the roll-out and implementation of the change. A timeline should be
made for the implementation and changes should be made in the order of its
impact on the process and the employees who manage that process. For
instance, if the organization is upgrading its software program, employee
training should be done before the software is installed on their computers.
An effective timeline will allow for all new equipment, supplies or training
to take place before fully implemented. Implementing without a logical
order can create frustration for those responsible for the work process.
Follow-up
Whenever a change is made it is always good to have follow-up after
implementation and assess how the change is working and check if the
change delivered the results that were intended. Sometimes changes exceed
target expectations but there are occasions that changes just don’t work as
planned. When this is the case, management should acknowledge that it Implementation of Strategy
didn’t work and make adjustments until the desired result is achieved.
91
Strategy Management Removing Barriers
Sometimes employees encounter barriers when implementing changes. It
can be with other employees, other departments, inadequate training,
lacking equipment or supply needs. Sometimes management also needs to
deal with resistant or difficult employees. It is
management’s responsibility to ensure that employees can implement
change without obstacles and resistance. It is unfortunate but there are times
when employees simply can’t accept a change. In these rare cases
employees simply need to move on in order to successfully implement a
needed change. These are difficult but necessary decisions.
Celebrate
It is important to celebrate successes along the way as changes are
implemented. Celebrating the small change and building momentum for
bigger changes are what makes employees want to participate in the
process.
When the employees are involved in decision making process, this gives a
sense of responsibility of being a part of process. This bonding allows better
chance for successful implementation.
4.6 Restructuring and Re-engineering

Corporate restructuring involves expansion or contraction of the portfolio
or changes in the nature and volume of business. Change in the business
conditions may necessitate restructuring of the business. Restructuring
strategies involve divesting some businesses and acquiring other so as to
put a whole new face on the company’s business line up.
Corporate Restructuring implies activities related to –
Expansion / Contraction of a firms operations or
Changes in its assets or financial ownership
Changes in corporate control
Forms of Corporate Restructuring
Mergers and Amalgamation
Acquisitions
Tender Offers
Joint Ventures
Divestitures
Spin-Offs
Corporate Control
Changes in Ownership Structure
Implementation of Strategy Exchange Offers
Share Repurchases
92 Leveraged Buy-outs
Strategy Management
Ø Mergers and Amalgamation

An organization can expand through mergers and amalgamations. A
merger is a combination of two or more companies into one. One
company joins with the other company to form a new organization.
This may be done for increasing the assets or to attain benefits such
as economics of scale, tax benefits, synergy and diversification etc.
mergers can be of various types horizontal merger, vertical merger,
conglomerate merger, concentric merger.
Amalgamation is an arrangement where assets and liabilities of two
or more companies are vested in amalgamated company without
giving proportional ownership to the shareholders of the acquired
company.
Ø Acquisition / Takeovers
Acquisitions implies to controlling done by one firm on another. For
example Nestle acquired Richardson Vicks (both in Consumer
Products). The acquiring firm not only obtains new product and
markets but also confronts legal problems, structural deficiencies
and diverse values. Acquisition does not lead to dissolution of
company whose shares are acquired. The various forms in which
acquisition can happen are negotiated friendly, hostile, bail out
takeover.
Ø Tender offers
Intender offer is made to the shareholders for purchase of shares.
These are easy occurred only when the shareholding by the
management and directors is comparatively very low. In many
Indian companies such shareholding is comparatively very low and,
they are easily vulnerable to hostile takeovers.
Ø Joint ventures
Joint ventures occur when an independent firm is created by at least
two other firms. In an era of globalization, joint ventures have proved
to be an invaluable strategy for companies looking for expansion
opportunities globally.
Ø Divestitures
It is a form of restructuring which involves sale of a portion of
business for cash or securities. Divestment is usually a part of Implementation of Strategy
restructuring plan and is adopted when an unsuccessful turnaround
has been attempted. It involves sale of only some assets of the firm. 93
Strategy Management These assets may be plant, division and product line, subsidiary and
so on.
Spin off – It is the division of company into wholly owned subsidiary
of parent company by distribution of all its shares of the subsidiary
company on a pro rate bas
Split up – Split or division of a company
Sell off – Selling of assets of a company in a declining market is.
Ø Changes in Ownership Structure

The ownership structure of a firm may be changed due to various
reasons. As a firm grows the ownership structure may undergo
change. For example, a sole proprietorship may be converted into a
partnership, when a partnership firm grows and when more
ownership capital needs to be brought in a private limited company
may be formed.
Ø Exchange Offers
Exchange offer may involve exchange of debt or preferred stock for
common stock, or conversely, of common stock for more senior
claims. Several cases of turnaround involve exchange of debt for
equity. For example, the government loan to a public or joint sector
unit maybe converted into equity. Such a measure helps to reduce the
interest burden and reduces cash outflow by loan repayment also.
Ø Share Repurchase
Buy-back of shares by a company help tilt the management control. If
the company buys back shares from those who hold substantial
shares it could tilt the control in favour of the promoters, although the
percentage of shares they hold does not increase. Buy back of shares
can also guard against take-overs to some extent. It can also help
stabilize the share prices. A major objection to the buyback of shares
is that it provides scope for manipulation of share prices by the
management.
Ø Buy-Outs
The management Buy outs involves the sale of the existing firm to the
management. The management may be from the same firm, or from
outside. It involves the purchase of a division of a company or even a
whole company by a new entity formed specifically for this purpose.
Implementation of Strategy When such a purchase is financed by large debt (i.e.,highly
leveraged) it is referred to as Leveraged buy-out(LBO). LBOs are
94 very risky because of the high interest burden and loan repayment

obligation. A default in repayment would aggravate the interest Strategy Management
burden and cash flow problem. LBOs have landed many companies
is serious crisis.
Types of Restructuring
1. Portfolio restructuring
2. Organizational restructuring
3. Functional restructuring
4. Financial restructuring
Ø Portfolio Restructuring
It refers to the change in the portfolio of businesses of the company.
This has become widespread since the liberalization in 1991. The
increase in competition has provoked many companies to divest
businesses in which they are not competitive and to concentrate on
their core businesses in which they tend to grow by setting up new
capacity and/or by acquisition. The dismantling of the entry barriers
(de-licensing, de-reservation, liberalization of policy towards
foreign technology and capital participation, etc.) has opened up
enormous new opportunities for expanding the business.
Ø Organizational Restructuring
Decentralization, de-layering or flattering and regrouping of
activities are important organizational restructuring measures.
Changes in corporate strategy, such as portfolio strategy, sometimes
call for organizational restructuring. Often, structure follows
strategy. Increase or decrease in activity levels, expansion or
contraction of portfolio or functions etc. may cause modification of
organizational structure.
Ø Functional Restructuring
The AMA survey reveals that restructuring of corporate functions
(marketing operations, personnel and finance) has been very
significant both in the public and private sectors.
1. Marketing Function: The survey results show that the revamping of
the marketing function meant the creating of a product management
team, building up sales force, restructuring distribution system, and
creating marketing research cell.
2. Financial Function: As far as the modifying of the financial
function was concerned the emphasis was on improving the financial
reporting system.
3. Operations: Restructuring of operations has been very significant.
Re-engineering has become very popular. Technological up Implementation of Strategy
gradation has been an important concern. The acceptance of total
quality management and the requirements of ISO 9000 certification 95
etc. have had significant influence on operational restructuring.
Strategy Management 4. Personnel Function: Personnel function was found to receive high
priority in restructuring. The emphasis in both public and private
sectors was on training and succession planning. The private sector
also gave the creation of appropriate rewards and punishments for
performance high priority. This was, however, not so in the case of
the public sector.
Ø Financial Restructuring
Financial restructuring is the process of reshuffling or reorganizing
the financial structure, which primarily comprises of equity capital
and debt capital. Financial restructuring can be done because of
either compulsion or as part of the financial strategy of the company.
This financial restructuring can be either from the assets side or the
liabilities side of the balance sheet. If one is changed, accordingly the
other will be adjusted.
The two components of financial restructuring are;
· Debt Restructuring
· Equity Restructuring
Debt restructuring is the process of reorganizing the whole debt capital of
the company. It involves reshuffling of the balance sheet items as it contains
the debt obligations of the company. Debt restructuring is more commonly
used as a financial tool than compared to equity restructuring. This is
because a company’s financial manager needs to always look at the options
to minimize the cost of capital and improving the efficiency of the company
as a whole which will in turn call for the continuous review of the debt part
and recycling it to maximize efficiency.
Equity restructuring is the process of reorganizing the equity capital. It
includes reshuffling of the shareholders capital and the reserves that are
appearing in the balance sheet. Restructuring of equity and preference
capital becomes a complex process involving a process of law and is a
highly regulated area. Equity restructuring mainly deals with the concept of
capital reduction.
Process and Barriers of Restructuring
According to the American Management Association (AMA) survey, the
common process adopted by a majority of the responding units was
decentralization of decision making. Retraining and redeployment of staff
was the second most important process of corporate restructuring in the
private sector. Flattering of organizational hierarchies was found to be the
next important restructuring process adopted by companies. This was of
greater importance in the private than in the public sector. The public sector
has, because of rigidities due to its ownership, far less flexibility in this
Implementation of Strategy action. Along with these were measures to improve quality, creating
strategic business units, and creating representation in more market
96 segments. These processes are giving importance. Considered to be of even
less importance in the public sector. Other factors revealed by the survey Strategy Management
include going for joint ventures, overseas expansion, acquisition of
synergistic businesses etc.
The major barrier to restructuring has been the cost of doing it. In private
sector lack of accountability for key performance indicators is also one
reason. Some top managements lacked entrepreneurial skills. Salary
structures based on seniority, which need to be changed to performance,
related structures are the next immediate barriers.
Reengineering
Business process re-engineering (BPR) is a business management strategy,
originally pioneered in the early 1990s, focusing on the analysis and design
of workflows and business processes within an organization. It is the act of
recreating a core business process with the goal of improving product
output, quality, or reducing costs. BPR seeks to help companies radically
restructure their organizations by focusing on the ground-up design of their
business processes. According to early BPR proponent Thomas H.
Davenport (1990), a business process is a set of logically related tasks
performed to achieve a defined business outcome. Re-engineering
emphasized a holistic focus on business objectives and how processes
related to them, encouraging full-scale recreation of processes rather than
iterative optimization of sub-processes. Business process reengineering is
also known as business process redesign, business transformation, or
business process change management.
Proper execution of Business Process Reengineering can be a game-
changer to any business. If properly handled, it can perform miracles on a
failing or stagnating company, increasing the profits and driving growth.
OBJECTIVES OF BUSINESS PROCESS RE-ENGINEERING:
1. To obtain quantum gains in the performance of the process in terms of time,
cost, output, quality, and responsiveness to customers.
2. To simplify and streamline the process by –
a) Eliminating all redundant steps, activities.
b) Reducing drastically the no. of stages.
c) Speeding up the work-flow.
3. To obtain dramatic improvement in operational effectiveness, by re-
designing core business processes and supporting business systems.
The business process reengineering involves a series of steps. These
are:
Step 1: Define Objectives and Framework
Step 2: Identify Customer Needs
Step 3: Study the existing business process Implementation of Strategy
Step 4: Formulate a redesign business plan
97
Strategy Management Step 5: Implement the Redesign Plan
The business process is required to be reengineered because of the
following reasons:
§ The processes the company is using might have become outdated or holds
no relevance in the current market scenario.
§ Often, the sub-divisions in the organization aims at improving their
respective division performance and overlook the resultant effects on the
other departments. This might lead to the underperformance of the firm as a
whole.
§ Due to the departmentalization, each employee focuses on the performance
of his respective department and may overlook the critical issues emerging
in other areas of the firm, and therefore, the need for re-engineering arises so
that the role of the employees could be broadened and shall be made more
responsible towards the firm.
§ The existing business process could be lengthy, time-consuming, costly,
obsolete, therefore, is required to be redesigned to match it with the current
business requirements.
§ The technology keeps on updating and in order to catch up with it,
reengineering is a must.
Thus, the business process reengineering focuses on obtaining the quantum
gains in terms of cost, time, output, quality and responsiveness towards
customers. Also, it emphasizes on simplifying and streamlining the
business process by eliminating the unnecessary or time-consuming
business activities and speeding up the workflow by making the use of high-
tech systems.
Business Process Reengineering Examples
The past decade has been very big on change. With new technology being
developed at such a breakneck pace, a lot of companies started carrying out
business process reengineering
initiatives. There are a lot of both successful and catastrophic business
process reengineering examples in history, one of the most famous being
that of Ford.
BPR Examples: Ford Motors

One of the most referenced business process reengineering examples is the
case of Ford, an automobile manufacturing company.
In the 1980s, the American automobile industry was in a depression, and in
an attempt to cut costs, Ford decided to scrutinize some of their departments
in an attempt to find inefficient processes.
Implementation of Strategy One of their findings was that the accounts payable department was not as
efficient as it could be. Their accounts payable division consisted of 500
98 people, as opposed to Mazda’s (their partner) 5.

While Mazda was a smaller company, Ford estimated that their department Strategy Management
was still 5 times bigger than it should have been.
Accordingly, Ford management set themselves a quantifiable goal: to
reduce the number of clerks working in accounts payable by a couple of
hundred employees. Then, they launched a business process reengineering
initiative to figure out why was the department so overstaffed.
They analysed the current system, and found out that it worked as follows:
1. When the purchasing department would write a purchase order, they
sent a copy to accounts payable.
2. Then, the material control would receive the goods, and send a copy
of the related document to accounts payable.
3. At the same time, the vendor would send a receipt for the goods to
accounts payable.
Then, the clerk at the accounts payable department would have to match the
three orders, and if they matched, he or she would issue the payment. This,
of course, took a lot of manpower in the department.
Old Payable Process

https://tallyfy.com/business-process-reengineering/
So, as is the case with BPR, Ford completely recreated the process digitally.
1. Purchasing issues an order and inputs it into an online database.
2. Material control receives the goods and cross-references with the database
to make sure it matches an order.
3. If there’s a match, material control accepts the order on the computer.
99
Strategy Management
New payable process

https://tallyfy.com/business-process-reengineering/
This way, the need for accounts payable clerks to match the orders was
completely eliminated.
4.7 Resource Allocation

Resource allocation is a process and strategy involving a company deciding
where scarce resources should be used in the production of goods or
services. A resource can be considered any factor of production, which is
something used to produce goods or services. Resources include such
things as labour, real estate, machinery, tools and equipment, technology,
and natural resources, as well as financial resources, such as money.
Most strategies need resources to be allocated to them if they are to be
implemented successfully. Let us examine some special circumstances that
may affect the allocation of resources. Resource allocation deals with the
procurement and commitment of financial, physical and human resources
to strategic tasks for achievement of organisational objectives. This
involves the process of providing resources to particular business units,
divisions, functions etc for the purpose of implementing strategies. All
organisations have at least five types of resources: Physical Resources,
Financial Resources, Human Resources, Technological Resources and
Intellectual Resources These resources may already exist in the
organisation or may have to be acquired. Resource allocation decisions are
very critical in that they set the operative strategy for the firm. Resource
allocation decisions about how much to invest in which areas of business
reinforce the strategy and commit the organisation to the chosen strategy.
Importance of Resource Allocation A company’s ability to acquire
sufficient resources needed to support new strategic initiatives and steer
Implementation of Strategy them to the appropriate organisational units has a major impact on the
strategy implementation process. Too little funding arising from
100
constrained financial resources or from sluggish management action slows Strategy Management
progress and impedes the efforts of organisational units to execute their part
of the strategic plan effectively. At the same time, too much funding wastes
organisational resources and reduces financial performance. Both these
extremes emphasize the need for managers to be careful about resource
allocation. Resource allocation becomes a critically important exercise
when there are major shifts from the past strategies in terms of
product/market scope. For example, if the firm’s strategy is expansion in
one line, withdrawal from another and stability in the rest of the products,
then greater resources will have to flow to the first and lesser to the second
and the third. Similarly, if the strategy is to develop competitive edge
through product development, greater resources will have to be committed
to R&D. Resource allocation is a powerful means of communicating the
strategy in the organisation as it gives the signals to all concerned. It will
demonstrate what strategy is really in operation. Resource allocation
decisions should be taken judiciously because using a formula approach
(i.e. allocating funds as a percentage of sales or profits), may be
inappropriate and counterproductive. Care should be taken to see that the
resources are not allocated or withdrawn because of easy availability or
paucity.
The resource allocation decisions are generally linked to the objectives. For
example, decision about dividend payment is linked to the ability of the
company to attract capital. How to distribute the expected profits among
investors, employees and the company’s own needs is an important
resource allocation decision from the viewpoint of long-term implications
of the strategy.
4.8 Behavioural Issues in Strategic Implementation

It is vital to bear in mind that organizational change is not an intellectual
process concerned with the design of ever-more-complex and elegant
organization structures. It is to do with the human side of enterprise and is
essentially about changing people’s attitudes, feelings and – above all else –
their behaviour. The behavioural of the employees affect the success of the
organization. Strategic implementation requires support, discipline,
motivation and hard work from all manager and employees.
Influence Tactics: The organizational leaders have to successfully
implement the strategies and achieve the objectives. Therefore the leader
has to change the behaviour of superiors, peers or subordinates. For this
they must develop and communicate the vision of the future and motivate
organizational members to move into that direction.
Power: it is the potential ability to influence the behaviour of others.
Leaders often use their power to influence others and implement strategy.
Formal authority that comes through leaders position in the organization Implementation of Strategy
(He cannot use the power to influence customers and government officials)
101
Strategy Management the leaders have to exercise something more than that of the formal
authority (Expertise, charisma, reward power, information power,
legitimate power, coercive power).
Empowerment as a way of Influencing Behaviour: The top executives
have to empower lower level employees. Training, self-managed work
groups eliminating whole levels of management in organization and
aggressive use of automation are some of the ways to empower people at
various places.
Political Implications of Power: Organization politics is defined as those
set of activities engaged in by people in order to acquire, enhance and
employ power and other resources to achieve preferred outcomes in
organizational setting characterized by uncertainties. Organization must try
to manage political behaviour while implementing strategies. They should;
· Define job duties clearly.
· Design job properly.
· Demonstrate proper behaviours.
· Promote understanding.
· Allocate resources judiciously.
Leadership Style and Culture Change: Culture is the set of values,
beliefs, behaviours that help its members understand what the organization
stands for, how it does things and what it considers important. Firm’s
culture must be appropriate and support their firm. The culture should have
some value in it. To change the corporate culture involves persuading
people to abandon many of their existing beliefs and values, and the
behaviours that stem from them, and to adopt new ones. The first difficulty
that arises in practice is to identify the principal characteristics of the
existing culture. The process of understanding and gaining insight into the
existing culture can be aided by using one of the standard and properly
validated inventories or questionnaires that a number of consultants have
developed to measure characteristics of corporate culture. These offer the
advantage of being able to benchmark the culture against those of other,
comparable firms that have used the same instruments. The weakness of
this approach is that the information thus obtained tends to be more
superficial and less rich than material from other sources such as interviews
and group discussions and from study of the company’s history. In carrying
out this diagnostic exercise, such instruments can be supplemented by
surveys of employee opinions and attitudes and complementary
information from surveys of customers and suppliers or the public at large.
Values and Culture: Value is something that has worth and importance to
an individual. People should have shared values. This value keeps everyone
from the top management down to factory persons on the factory floor
Implementation of Strategy pulling in the same direction.
Ethics and Strategy: Ethics are contemporary standards and a principle or
102
conducts that govern the action and behaviour of individuals within the Strategy Management
organization. In order that the business system function successfully the
organization has to avoid certain unethical practices and the organization
has to bind by legal laws and government rules and regulations.
Managing Resistance to Change: To change is almost always
unavoidable, but its strength can be minimized by careful advance. Top
management tends to see change in its strategic context. Rank-and-file
employees are most likely to be aware of its impact on important aspects of
their working lives. Some resistance planning, which involves thinking
about such issues as: Who will be affected by the proposed changes, both
directly and indirectly? From their point of view, what aspects of their
working lives will be affected? Who should communicate information
about change, when and by what means? What management style is to be
used?
Managing Conflict: Conflict is a process in which an effort is purposefully
made by one person or unit to block another that results in frustrating the
attainment of the others goals or the furthering of his interests. The
organization has to resolve the conflicts.
L inking Performance and Pay to Strategies: In order to implement the
strategies effectively the organization has to align salary increases,
promotions, merit pay, bonuses etc., more closely to support the long term
objectives of the organization.
4.9 Organizational Culture and Change

Organization culture has been defined, by scholars in varied ways and
numerous definition of culture have been proposed. A few of these insights
are:
Porter, Lawler and Hackman (1975) identify organization culture as:
“A set of customs and typical patterns of ways of doing things. The force,
pervasiveness and nature of such model, beliefs and values vary
considerably from organization to organization. Yet it is assumed that an
organization that has any history at all has developed some sort of culture
and that this will have a vital impact on the degree of success of any effort to
improve or alter the organization.”
Edgar H. Schein (1984) defines organization culture as:
“A set of basic assumptions that a given group has invented, discovered or
developed in learning to cope with its problems of external adaptations and
internal integration that have worked well enough to be considered valid,
and therefore, to be taught to new members as a correct way to perceive,
think and feel in relation to these problems.”
According to Daniel R. Denison (1990):
“Organization culture refers to the underlying values, beliefs and principles
that serve as a foundation for organization’s management systems, as well 103
Strategy Management as the set of management practices and behaviours that both exemplify and
reinforce those basic principles.”
Thus, though organization culture is defined by different people in different
ways, most of the definitions stress on the importance of shared norms and
values in the study of culture. The core of the culture is formed by values
which are not visible but shared by people even when membership in the
group changes. Organization culture has many characteristics. Based on the
varied definitions of culture, Amarchand (1992) identified the following
seven distinct characteristics of organization culture. Culture is
· Learned
· Rooted in the traditions of the organization
· Shared by the people of the organization
· Transgenerational
· Cumulative
· Symbolic in nature
· Multifaceted (i.e. it is composed of several elements put together)
A critical examination of the deliberations presented above seems to
suggest that culture determines the important issues within the
organization. It identifies the principal goals, work methods and
behaviours, work rules, individual interaction patters in which they address
each other and the ways in which personal relationships are conducted.
Sinha (1980) identified that in complex organizations there may be
subcultures, which may be different from each other. Different units of a
corporate body may develop different cultures. In the same organization,
finance, production, marketing, personnel and maintenance groups may
hold different values and world-views and hence, while sharing parts of the
organization culture, these may have different specific patterns.
J. Chatman and Caldwell has suggested the following seven primary
characteristics that capture the essence of an organization’s culture:
1. Innovation and Risk Taking -The degree to which employees
are encouraged to be innovative and take risks.
2. Attention to detail -The degree to which employees are
expected to exhibit precision, analysis, and attention to detail.
3. Outcome Orientation -The degree to which management
focuses on results or outcomes rather than on the techniques
and processes used to achieve these outcomes.
4. People Orientation -The degree to which management
decisions take into consideration the effect of outcomes on
people within the organization.
Implementation of Strategy 5. Team Orientation -The degree to which work activities are
organized around teams rather than individuals.
104
6. Aggressiveness -The degree to which people are aggressive Strategy Management
and competitive rather than easy going.
7. Stability -The degree to which organizational activities
emphasize maintaining the status quo in contrast to growth.
According to Wharton work, university of Pennsylvania “Don’t leave
culture change to chance — create and manage it”. As companies adapt to
changes in markets, consumer expectations, and varied and new
regulations, they are being forced to develop new strategies and change
their structures. However, for those changes to be successful the
organization’s culture needs to be in alignment with its strategy and its
structure — a process that often requires a culture change.
Some leaders believe that cultural change is too complex to be managed —
or that it takes too long to yield measurable results to make it worth dealing
with. This can be good news for wiser leaders who understand that cultural
change can be planned and managed: they can gain an advantage over their
competition.
To manage culture change, the first step is to observe and understand the
organization’s culture as it is now, and to determine which values will best
align with the strategy and structure. Once it’s decided how values need to
be, design a cultural change plan using the action steps below.
Five Steps for Managing Cultural change

Driving cultural change requires active and intentional leadership. Whether
they are changing the culture of a team, a division, or an entire enterprise,
use these five steps to manage the process:
1. Quantitatively measure the current cultural values. The first step to
culture change is knowing where the current culture stands; that is,
what employees believe their organization’s current values are. This
will allow to get a good idea of how much change is needed and
enable accountability and the ability to track the culture change more
precisely over time.
2. Intentionally align culture, strategy, and structure. Be sure that the
culture change fits with the firm’s or group’s business strategy and
that both fit with the organization’s structure (its formal systems and
policies). Reconsider formal reporting relationships, job
descriptions, selection and recruiting practices, performance
appraisal, reward or compensation structures, and training and
development. Supporting change and innovation both structurally
and culturally have been found to be critical to the success of culture
change initiatives. Make changes where appropriate to support the
new culture.
3. Ensure staff and stakeholder participation. Change can’t succeed Implementation of Strategy
without the meaningful involvement of many people throughout the
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Strategy Management organization. Participation can range from individually offering
ideas, solutions, and reactions to concepts, to taking part in team
meetings to design and build the new culture and organizational
structure. Use a balanced approach, keeping in mind that input from a
wide range of people can generate excitement and motivation to
change, but make sure that it has a separate change structure in place
(e.g., change sponsor, change committee) that can make timely and
clear decisions to prevent an ambiguous vision or delay key actions.
4. Communicate and demonstrate the change, again and again and
again and then … again. Frequent, redundant, and copious
communication — both upward and downward — is necessary
during the change process. Use words and actions to convey the
vision of the desired future, and repeat the message much more often
than it is necessary. Most leaders greatly underestimate how many
repetitions it takes for a message to sink in. Role model appropriate
behaviours by demonstrating the constant commitment to the future
state and provide a vivid image of what it will look and feel like. Use
new language or metaphors to create memorable images (one long-
term care organization described its facilities as a collection of
neighbourhoods or houses rather than an institution). Leaders clearly
and visibly dedicated to change have been found to be one of the
singular success factors of culture change.
5. Manage the emotional response —Leadership effectiveness in times
of change has been found to be critically related to the use of
emotional intelligence. Employee emotions have a strong influence
on how they approach change, and leaders need to be as analytical
and strategize as much about their emotional messages as their
cognitive ones. Pay attention to and read others’ emotions, and
empathize and engage in perspective-taking to better predict how
employees will respond to the change. Manage the anxiety, periods
of anger, and need for emotional regulation that can naturally arise at
critical points in a culture change.
HOW COMPANIES USE IT:

When Ford took over the Jaguar Company, they implemented a culture change to
better compete given the changes in the car industry. Specifically, they wanted an
organizational culture that moved from traditional manufacturing techniques and
values to new values of flexibility, initiative, and responsibility. To engage in this
culture change, Jaguar first assessed the employees’ current beliefs and attitudes
to know where things stood. They then engaged in an extensive set of multiple
communication and participation strategies, including three-day management
workshops about the change; union workshops; participation of both management
and union together to best implement the change; supervisor workshops; selection
Implementation of Strategy and training of a cadre of internal facilitators to cascade the culture change through
the organization; and a two-day workshop for all 3000 employees, led by the
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internal facilitators, to understand the new culture needed to match the new Strategy Management
strategy, and the structural supports for this culture.
Through extensive communication and participation, employees were able to
more effectively understand and accept the culture change.
The importance of leader role modelling can be seen by the head of a department
in a public sector organization in which there was poor morale, no mutual trust,
and a strong desire to leave the organization. The leader wanted to change the
culture to one with an aggressive work ethic, increased teamwork, and positive
emotions and enthusiasm. For his first seven months, he personally demonstrated
these values frequently and consistently. He also built in structural supports,
including a team identity, awards, celebrations, integration of teamwork in
performance appraisal criteria, and changes in the physical structure of the
department to better support interaction as a team. Within a year, the department
went from people leaving the department, to more people trying to transfer in than
there were positions available.
4.10 Mc Kinsey’s 7s framework

Mc Kinsey’s 7s framework is a model developed by McKinsey & Company
in the 1980s. It was developed by Robert H. Waterman, Jr. and Tom Peters.
It is a strategic planning tool designed to help an organization understand its
set-up in a way that allows it to achieve its objectives. Before this model was
introduced the managers thought about organizational design, they
focussed on structure and strategy. They thought about who is responsible
for what, who reports to whom, how many layers of management there
should be, and how to beat the competition. However, as organizations got
larger and more complex, coordination became just as important, if not
more important, than structure.
The model is most widely used to assist with:
· Organizational change.
· Mergers and acquisitions.
· Implementation of a new strategy.
· Understanding the weaknesses (blind spots) of an organization.
The McKinsey 7S Framework represented by the following diagram
https://expertprogrammanagement.com/2018/11/mckinsey-7s-framework/
There are many things to note from this diagram:
· All the areas are interconnected. This means that a change to one area
will have implications for all other areas.
· There is no hierarchy and all areas are the same size. This indicates
that all areas are considered to be equally important.
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Strategy Management
· The areas are divided into hard and soft areas. Hard areas are easy for
management to influence and change. Soft areas are more woolly and
influenced by the culture of the organization.
· Positioning Shared Values in the centre of the 7Ss indicates that the
organization’s values are central to all elements.
Let’s examine each area of the McKinsey 7S Framework in turn.
1. Strategy
Making effective strategy is an important aspect that impacts
managerial excellence of a firm. It means determination of
objectives and allocation of resources to achieve those objectives. It
is a single-use plan made to achieve the objective, for example,
strategy to adopt a low cost technology in order to be competitive in
the environment. Strategies provide useful guide to managerial
planning and excellence. They are useful means of integrating the
organisation’s internal environment with its external environment.
Strategic planning refers to planning for long-run survival and
growth of the firm. It helps in adopting courses of action that
enhance managerial effectiveness in adjusting the organisations to
changes in the external environment.
2. Structure
Structure refers to assignment of work among members of the
organisation by instilling responsibility and authority to perform the
assigned tasks. It provides foundation to the organisation.
Implementation of Strategy Organisation structure represents a formal pattern of interaction and
coordination amongst various people and departments that gear the
108 activities towards organisational goals.
The structure consists of division of work, departments, authority, Strategy Management
responsibility relationships, delegation, decentralisation,
communication etc. Organisation structure affects managerial
effectiveness by coordinating internal activities with the external
environment. A well designed organisation structure increases
managerial effectiveness.
3. Systems
System refers to processes and daily activities that are undertaken by
the people who work in the organization, and the tools they use to
help them with those processes. The various processes like
management information systems, performance evaluation systems,
technology systems, manufacturing processes, control processes
etc. help in smooth conduct of business
enterprises. Companies develop well-designed systems and
processes to increase managerial effectiveness.
4. Style
It is the way of managing the organisation. It is the way management
interacts with members. Understanding of human factors, suitable
motivators, leadership styles, committee formation, group decision-
making, communication networks and media etc. affect the style of
management.
More and more companies are managed by professional managers
who adopt entrepreneurial, innovative and creative management
styles. They use a style that can adapt to environmental changes.
People are the most important asset of business organisations and
management styles must correspond to satisfaction of their needs
and desires.
Amongst the management styles ranging between task-oriented to
people-oriented, the most suitable style is the one that corresponds to
the situation. Not one style can be described as the best. How well a
management style is adopted determines how effective managers are
in developing the organisation culture in terms of values, beliefs,
customs, perceptions, norms etc.
5. Staff
Staff represents the human resource. Human resource management,
accounting and appraisal are important areas of human resource. The
staff should be satisfied, young, dynamic, innovative and creative.
This pre-supposes a well-designed staffing procedure that helps in
appointing people most appropriate to fulfilment of the
organizational goals. There should be proper balance between job
description and job specification and people should be placed at the
jobs most suitable for them. A well designed staffing procedure, with Implementation of Strategy
policies related to requirement, selection, placement, training,
development, compensation etc. affects effectiveness of an 109
Strategy Management organization. Most satisfied staff will be most effective staff. People
are part of the organization culture and there should be complete
harmony between organizational and individual goals.
6. Skills
Skills are distinctive capabilities of an enterprise. Every organization
has common strengths and distinctive competence. While common
strengths are possessed by all organizations alike, distinctive
competence is possessed by a small number of firms. Every
organization should enhance its distinctive competence by
enhancing its organizational skills – technological, managerial,
marketing, human skills etc. Organization with high level of
distinctive skills is an effective organization. Increasing the skills to
meet the future requirements makes the organization successful and
effective.
7. Shared Values
Shared values refer to superordinate goals and values commonly
shared by members of the organisation. They represent the culture
and system with specific set of goals and direction. They result in
optimum allocation of resources keeping in mind values, beliefs,
attitudes and aspirations.
An organisation whose members share common values about its
objectives and plans is an effective organisation. Shared values
represent organisation climate, structure, culture and dynamics.
Management styles, strategy, systems, skills etc. are largely
determined by its shared values.
4.11 Summary
v A successful strategy formulation does not guarantee successful
strategy implementation.
v Strategy Implementation involves all those means related to
executing the strategic plans.
v Strategy Implementation is managing forces during the action.
v Strategic Implementation is mainly an Administrative Task based on
strategic and operational decisions.
v Strategy Implementation emphasizes on efficiency and requires co-
ordination among many individuals.
v Turnaround is the most appropriate way of reviving sick units.
v Structure allows the responsibilities for different functions and
processes to be clearly allocated to different departments and
employees.
v The wrong organisation structure will hinder the success of the
110
business. Organisational structures should aim to maximize the Strategy Management
efficiency and success of the organisation.
v Restructuring is another means by which the corporate office can add
substantial value to a business. Restructuring can involve changes in
assets, capital structure or management.
v Corporate restructuring strategies involve divesting some businesses
and acquiring other so as to put a whole new face on the company’s
business line up.
v Four types of restructuring are found: portfolio restructuring,
organizational restructuring, functional restructuring and financial
restructuring.
v The forms of restructuring are: Mergers and Acquisitions, Tender
Offers, Joint Ventures, Divestitures, Spin-Offs, Corporate Control,
Changes in Ownership Structure, Exchange Offers, Share
Repurchases and Leveraged Buy-outs.
v Mc Kinsey’s 7-S model is good at capturing the importance of all
these elements in the implementation of strategy

1. What are the various indicators of industrial sickness?
2. What is Corporate Restructuring? Discuss the different forms of
Restructuring.
3. Examine the different types of restructuring with examples
4. Does a successful strategy formulation guarantee a successful
implementation? Why/ why not?
5. Discuss the relevance of McKinsey’s 7-S model in modern business
organisations. 8. Critically evaluate the McKinsey’s 7-S Model.
6. Explain the term Reengineering?
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Strategy Management
Unit – 5 : STRATEGIC CONTROL
Structure:
5.1 Introduction
5.2 Strategic Control
5.3 Purpose and Components of Strategic control
5.4 Evaluation Techniques
5.5 Control Process and System
5.6 Summary
Unit Objectives
ü Discuss the concept of strategic evaluation and control
ü Evaluation techniques of Strategic Management
ü Understand the Control process
5.1 Learning outcomes

At the end of this chapter we will be able to understand the importance of
evaluation and control to the strategic management process. It will also help
in comparing and contrasting different control techniques in terms of their
advantages and disadvantages. It also helps in deciding which control
technique (or combination of techniques) would be most suitable for a
given context for evaluating strategies.
5.2 Strategic Control

Strategic control is the process by which managers monitor the ongoing
activities of an organization and its members to evaluate whether activities
are being performed efficiently and effectively and to take corrective action
to improve performance if they are not” -Sam Walton
Managers exercise strategic control when they work with the part of the
organisation they have influence over to ensure that it achieves the strategic
aims that have been set for it. To do this
effectively, the managers need some decision making freedom: either to
Strategic Control decide what needs to be achieved or how best to go about achieving the
strategic aims. Such decision making freedom is one of the characteristics
112
that differentiate strategic control from other forms of control exercised by Strategy Management
managers (e.g. Operational control – the management of operational
processes).
Strategic controls take into account the changing assumptions that
determine a strategy, continually evaluate the strategy as it is being
implemented, and take the necessary steps to adjust the strategy to the new
requirements. In this manner, strategic controls are early warning systems
and differ from post-action controls which evaluate only after the
implementation has been completed.
Benefits of strategic evaluation and control

• They provide direction. They enable management to make sure that the
organisation is heading in the right direction and that corrective action is
taken where needed.
• They provide guidance to everybody. Everyone within the organisation,
both managers and workers alike, learn what is happening, how their
performance compares with what is expected, and what needs to be done to
keep up the good work or improve performance.
• They inspire confidence. Information about good performance inspires
confidence in everybody. Those within the organisation are likely to be
more motivated to maintain and achieve better performance in order to keep
up their track record. Those outside – customers, government authorities,
shareholders – are likely to be impressed with the good performance.
5.3 Purpose and Components of Strategic Control
https://www.clearpointstrategy.com/strategic-control-process/
Premise Control: It is necessary to identify the key assumptions, and keep

track of any change in them. This is done to understand its impact on
strategy and its implementation. It serves the purpose of continually testing
Strategic Control
the assumptions to find out whether they are still valid or not. This enables
the strategists to take corrective action at the right time rather than 113
Strategy Management continuing with a strategy which is based on erroneous assumptions. The
responsibility for premise control can be assigned to the corporate planning
staff who can identify key assumptions and keep a regular check on their
validity.
Implementation Control: Implementation control is put into practice
through the identification and monitoring of strategic thrusts such as an
assessment of the marketing success of a new product after pre-testing, or
checking the feasibility of a diversification programme after making initial
attempts at seeking technological collaboration.
Strategic Surveillance: Strategic surveillance is done through general
monitoring on the basis of selected information sources to identify the
events that are likely to affect the strategy of an organisation.
Special Alert Control: Special alert control is based on trigger mechanism
for rapid response and immediate reassessment of strategy in the light of
sudden and unexpected events called crises. Crises are critical situations
that occur unexpectedly and threaten the course of a strategy. Organisations
that hope for the best and prepare for the worst are in a vantage position to
handle any crisis.
5.4 Evaluation Technique

Strategic Evaluation is defined as the process of determining the
effectiveness of a given strategy in achieving the organizational objectives
and taking corrective action wherever required. 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 its
implementation meets the organizational objectives.
Nature of the strategic evaluation and control process is to test the
effectiveness of strategy. During the strategic management process, the
strategists formulate the strategy to achieve a set of objectives and then
implement the strategy. There has to be a way of finding out whether the
strategy being implemented will guide the organization towards its
intended objectives. Strategic evaluation and control, therefore, performs
the crucial task of keeping the organization on the right track. In the absence
of such a mechanism, there would be no means for strategists to find out
whether or not the strategy is producing the desired effect
Through the process of strategic evaluation and control the strategist
attempt to answer the set of questions as below.
· Are the premises made during strategy formulation proving to be

Strategic Control correct?
114
· Is the strategy guiding the organization towards its intended Strategy Management
objectives?
· Are the organization and its managers doing things which ought to be
done?
· Is there a need to change and reformulate the strategy?
· How is the organization performing?
· Are the time schedules being adhered to?
· Are the resources being utilized properly?
· What needs to be done to ensure that resources are utilized
· Properly and objectives met?
Ø Participants in Strategic Evaluation
· Shareholders
· Board of Directors
· Chief executives
· Profit-center heads
· Financial controllers
· Company secretaries
· External and Internal Auditors
· Audit and Executive Committees
· Corporate Planning Staff or Department
5.5 Process of Strategic Control

Strategic control processes ensure that the actions required to achieve
strategic goals are carried out, and checks to ensure that these actions are
having the required impact on the organisation. An effective strategic
control process should by implication help an organisation ensure that is
setting out to achieve the right things, and that the methods being used to
achieve these things are working.
Regardless of the type or levels of strategic control systems an organization
needs, control may be depicted as a six-step feedback model.
https://slideplayer.com/slide/9579154
1. Determine What to Control: The first step in the strategic control process
Strategic Control
is determining the major areas to control. Managers usually base their major
controls on the organizational mission, goals and objectives developed
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Strategy Management during the planning process. Managers must make choices because it is
expensive and virtually impossible to control every aspect of the
organizations.
2. Set Control Standards: The second step in the strategic control process is
establishing standards. A control standard is a target against which
subsequent performance will be compared. Standards are the criteria that
enable managers to evaluate future, current, or past actions. They are
measured in a variety of ways, including physical, quantitative, and
qualitative terms. Five aspects of the performance can be managed and
controlled are quantity, quality, time cost and behaviour.
Standards reflect specific activities or behaviours that are necessary to
achieve organizational goals. Goals are translated into performance
standards by making them measurable. An organizational goal to increase
market share, for example, may be translated into a top-management
performance standard to increase market share by 10 percent within a
twelve-month period. Helpful measures of strategic performance include:
sales (total, and by division, product category, and region), sales growth, net
profits, return on sales, assets, equity, and investment cost of sales, cash
flow, market share, product quality, valued added, and employees
productivity.
Quantification of the objective standard is sometimes difficult. For
example, consider the goal of product leadership. An organization
compares its product with those of competitors and determines the extent to
which it pioneers in the introduction of basis product and product
improvements. Such standards may exist even though they are not formally
and explicitly stated.
Setting the timing associated with the standards is also a problem for many
organizations. It is not unusual for short-term objectives to be met at the
expense of long-term objectives. Management must develop standards in
all performance areas touched on by established organizational goals. The
various forms standards are depend on what is being measured and on the
managerial level responsible for taking corrective action.
3. Measure Performance: Once standards are determined, the next step is
measuring performance. The actual performance must be compared to the
standards. Many types of measurements taken for control purposes are
based on some form of historical standard. These standards can be based on
data derived from the PIMS (profit impact of market strategy) program,
published information that is publicly available, ratings of product / service
quality, innovation rates, and relative market shares standings.
Strategic control standards are based on the practice of competitive
benchmarking – the process of measuring a firm’s performance against that
of the top performance in its industry. The proliferation of computers tied
Strategic Control into networks has made it possible for managers to obtain up-to-minute
status reports on a variety of quantitative performance measures. Managers
116 should be careful to observe and measure in accurately before taking

corrective action. Strategy Management
4. Compare Performance to Standards: The comparing step determines the

degree of variation between actual performance and standard. If the first
two phases have been done well, the third phase of the controlling process
comparing performance with standards should be straightforward.
However, sometimes it is difficult to make the required comparisons (e.g.,
behavioural standards). Some deviations from the standard may be justified
because of changes in environmental conditions, or other reasons.
5. Determine the Reasons for the Deviations: The fifth step of the strategic
control process involves finding out: “why performance has deviated from
the standards?” Causes of deviation can range from selected achieve
organizational objectives. Particularly, the organization needs to ask if the
deviations are due to internal shortcomings or external changes beyond the
control of the organization. A general checklist such as following can be
helpful:
· Are the standards appropriate for the stated objective and strategies?
· Are the objectives and corresponding still appropriate in light of the
current environmental situation?
· Are the strategies for achieving the objectives still appropriate in
light of the current environmental situation?
· Are the firm’s organizational structure, systems (e.g., information),
and resource support adequate for successfully implementing the
strategies and therefore achieving the objectives?
· Are the activities being executed appropriate for achieving standard?
6. Take Corrective Action: The final step in the strategic control process is
determining the need for corrective action. Managers can choose among
three courses of action:
(1) Do nothing
(2) Correct the actual performance
(3) Revise the standard
When standards are not met, managers must carefully assess the reasons
why and take corrective action. Moreover, the need to check standards
periodically to ensure that the standards and the associated performance
measures are still relevant for the future.
The final phase of controlling process occurs when managers must decide
action to take to correct performance when deviations occur. Corrective
action depends on the discovery of deviations and the ability to take
necessary action. Often the real cause of deviation must be found before
corrective action can be taken. Causes of deviations can range from
unrealistic objectives to the wrong strategy being selected achieve
organizational objectives. Each cause requires a different corrective action. Strategic Control
Not all deviations from external environmental threats or opportunities
117
Strategy Management have progressed to the point a particular outcome is likely, corrective action
may be necessary.
To conclude, strategic control is an integral part of strategy. Without
properly placed controls the strategy of the company is bound to fail.
Strategic control is a tool by which companies check their internal business
process and environment and ascertain their progress towards their goal.
5.6 Summary
v Strategic evaluation and control is the final phase in the process of
strategic management.
v Strategic evaluation generally operates at two levels – strategic and
operational level.
v At the strategic level, managers try to examine the consistency of
strategy with environment.
v At the operational level, the focus is on finding how a given strategy
is effectively pursued by the organization.
v Organizations use different techniques for strategic control.
v Some of the important mechanisms are management Information
systems, benchmarking, balanced scorecard, key factor rating,
responsibility centers, network technique, Management by
Objectives (MBO), Memorandum of Understanding.
v There are three fundamental strategy evaluation activities, viz.
reviewing external and internal factors that are the bases for current
strategies; measuring performance and taking corrective actions.
5.7 Self- Assessment Questions

1. Comment on the nature of strategic control and evaluation.
2. Comment on, what should be the criteria for an effective evaluation
system?
3. If you were a strategist making evaluation, what would you do if you
find something wrong though nothing is wrong with the
performance?
4. Suggest some corrective actions that you would undertake if the
performance is being affected adversely by inadequate resource
allocation and ineffective systems.
Strategic Control
118
Strategy Management
Unit – 6 : Contemporary Strategic Management
Structure:
6.2 Business Model Innovation
6.3 Disruptive Innovation
6.4 Blue Ocean Strategy
6.5 Global Issues in Strategic Management
6.5.1 The global Challenges
6.5.2 Strategies for competing in global markets
6.6 Summary
Objectives
ü Understand the concept Business Model Innovation
ü Get a clear picture of Disruptive innovation
ü Understanding Blue ocean strategy
ü Identify various issues in Global Strategic Management
ü Discuss various strategies for competing in global markets

This chapter gives a detail insight about how a company generates value for
its customers by bringing in changes in business model. In this chapter we
will also understand how disruptive innovation works and its strategies to
maintain customers in the midst of tough competition. This chapter also
teaches us about blue ocean strategy, a means of setting up a business that
doesn’t grab or harm other business and places itself in a unique business.
Here we will also discuss various issues that one has to face while going
global and also various strategies to compete.
6.2 Business Model Innovation

A business model is a holistic description of the logical contexts of how a Contemporary Strategic
company generates value for its customers and itself. It is an analytical unit Management
to systematically identify the starting point for innovation, which means
119
Strategy Management that companies can change parts of their business model and thus create an
advantage over their competitors.
A business model innovation is thus the conscious change of an existing
business model or the creation of a new business model that better satisfies
the needs of the customer than existing business models.
10 Key Facts about Business Model Innovation

1. Each working company has a business model.
2. The business model of a company has to change in order to ensure its
success and, ultimately, its survival.
3. The business model is to be seen as a separate, new analysis unit, on the one
hand the focus being on value generation for the customer and on the other
hand on the value recording for the company.
4. Business model innovation is the process, as well as the result, a change of
business model and can be different radically. Even minor changes can be of
great benefit to customers and businesses.
5. New business models are not created on the drawing board. The business
model development should follow the "Trial and Error Principle": Design
Prototype Test.
6. Business model innovations do not necessarily require the development of
completely new concepts. According to the University of St. Gallen, 90
percent of all business model innovations are new combinations from parts
of "old" or "other" business models. Innovation is therefore usually a
combination of already existing ideas.
7. Business model innovation does not have to be in connection with a new
technology or a new product. Business model innovation, however, is often
necessary to generate value from a radical product innovation.
8. A company can operate several business models at the same time. Similarly,
several business models can be successful simultaneously in one industry.
9. Business model innovations have the potential to revolutionize an entire
industry.
Business model innovation needs a clear concept

For the successful work on the business model, a concept that facilitates the
description and discussion is essential. It has the task of grasping and
mediating the basic principle by which a company creates value.
Depending on the desired level of detail and abstraction, different concepts
are possible.
Contemporary Strategic
Management
120
Apple - The product as an experience Strategy Management
At the end of the 1990s, it became apparent that Apple's original business
strategy lost ground. The approach to offer both hardware and software
pushed Apple into a niche position that made it difficult to compete on the
market.
In 2001, Apple responded to this development with the launch of the new
iPod, iTunes and 2007 product line then the iPhone. Hand in hand was a
groundbreaking business model innovation, which revolutionized music
downloads from the Internet and catapulted the company to the top of the
industry within a very short time.
Decisive for the rise of Apple was not only the product innovation. The
success was mainly due to the fact that the iTunes platform was a viable
business model for the download of music as well as applications for iPod
and iPad to establish - something that caused the music industry to sell
individual songs and not just albums.
With these services, Apple not only generates revenue of $ 5bn / quarter (Q4
/ 2015) worldwide, but also secures business for the iPad and iPhone with a
total value of $ 36bn / quarter (Q4 / 2015). As a very positive "side effect" of
this business model innovation, the interest in the computer line of Apples
also rose, which could be described as a very lucrative result with sales of
6.8 billion $ in the fourth quarter of 2015.
Apple has thus shown very vividly that business model innovation is much
more than a product, technology or process innovation.
Using the 4-dimension concept, the business model innovation of Apple
can thus be summarized as follows:
· The benefit of the customer (WHAT?) Was extended in the sense of
"the product as an experience".
· The introduction of iTunes has resulted in a radical change in the way
in which customer benefits are generated (HOW?).
· Apple found new sources of revenue through new products and
services as well as downloads of music and applications (HOW?).
Business model innovation is one of the most effective ways for companies
to stand out from the competition and thus secure the existence of the
company, especially in instable times. Ultimately, it is a matter of breaking
down a company into its building blocks, analysing it and evaluating it, re-
inventing them, and, in combination with other, new building blocks, to set
them back together systematically.
6.3 Disruptive Innovation

Disruptive Innovation is a powerful way of thinking about innovation Contemporary Strategic
driven growth. It is said to be like a guiding star as it guides smaller Management
company with fewer resources is able to successfully challenge established
121
Strategy Management business. Well established company while they work in improving the
product or service quality as per their needs of their most valuable
customers, they sometimes tend to ignore some. Entrants that prove
disruptive begin by successfully targeting those overlooked segments,
gaining a foothold by delivering more-suitable functionality at a lower
price. Incumbents, chasing higher profitability in more-demanding
segments, tend not to respond vigorously. Entrants then move upmarket,
delivering the performance that incumbents mainstream customers require,
while preserving the advantages that drove their early success. When
mainstream customers start adopting the entrants’ offerings in volume,
disruption has occurred.
https://hbr.org/2015/12/what-is-disruptive-innovation
Disruptive innovations originate in low-end or new-market footholds.

As per Harvard Business Review disruptive innovation are made possible
because they get started in two types of markets that incumbents overlook.
Low-end footholds exist because incumbents typically try to provide their
most profitable and demanding customers with ever-improving products
and services, and they pay less attention to less-demanding customers. In
fact, incumbents’ offerings often overshoot the performance requirements
of the latter. This opens the door to a disrupter focused (at first) on providing
those low-end customers with a “good enough” product.
In the case of new-market footholds, disrupters create a market where none
existed. Put simply, they find a way to turn no consumers into consumers.
For example, in the early days of photocopying technology, Xerox targeted
large corporations and charged high prices in order to provide the
performance that those customers required. School librarians, bowling-
Contemporary Strategic league operators, and other small customers, priced out of the market, made
Management
do with carbon paper or mimeograph machines. Then in the late 1970s, new
challengers introduced personal copiers, offering an affordable solution to
122
individuals and small organizations—and a new market was created. From Strategy Management
this relatively modest beginning, personal photocopier makers gradually
built a major position in the mainstream photocopier market that Xerox
valued.
6.4 Blue Ocean Strategy

Blue ocean strategy is the simultaneous pursuit of differentiation and low
cost to open up a new market space and create new demand. It has been
pioneered by INSEAD Professors, W. Chan Kim, and Renee Mauborgne.
This strategy, is based on extensive research of hundreds of companies
spanning across decades and including several industries, proclaims that
instead of battling with the present competitors, a new business can be
created for themselves. In other words, as opposed to Red Oceans that are
saturated markets where differentiation or cost competition is prevalent,
companies can instead create Blue Oceans or entirely new markets for
themselves through value innovation, which would create value for its
entire stakeholder chain including employees, customers, and suppliers.
The key premise of the Blue Ocean strategy is that companies must unlock
new demand and make the competition irrelevant instead of going down the
beaten track and focusing on saturated markets.
Blue Ocean vs. Red Ocean

If we compare the Blue Ocean with the Red Ocean we find that whereas the
former denotes all the industries not in existence now and hence, are
potential opportunities for companies to enter and unlock demand, the latter
denotes the existing industries and the known market space, which is
characterized by reduced profits and growth because of saturation. This
results in the intensive brand wars between the competitors in the existing
markets which turns them bloody, or makes the ocean red. On the other
hand, Blue Oceans represent many opportunities for growth and where the
irrelevance of competition is the norm because the markets are yet to be
saturated.
Further, Blue Oceans represent markets where demand is large and unmet
and where growth and profits can be actualized through value innovation,
which is the simultaneous pursuit of low differentiation and low cost.
Indeed, the cornerstone of the Blue Ocean Strategy is the creation of new
playing fields and which entails opening up entirely new markets as
opposed to the Red Ocean where the existing market conditions are such
that companies must pursue either differentiation or low cost strategies. In
other words, Blue Ocean strategy represents a game changing idea of
creating new markets and unlocking the inherent demand in these markets.
Whereas Red Oceans are all about battling the competition, Blue Oceans Contemporary Strategic
are all about making the competition irrelevant. Management
Examples of Blue Ocean Strategy in Practice

123
Strategy Management As per the management study guide the Blue Ocean concept insist that their
strategy is different from Porter’s Five Forces, which they reckon is all
about battling the sharks in the red oceans. Further, they point to the fact that
Red Ocean competition is characterized by merciless competition whereas
Blue Ocean represents the redefinition of the terms of competition where
one can have the ocean all to oneself and therefore, the waters are blue.
For instance, the authors provide the example of the Canadian Circus
Company, Cirque du Soleil which came up with a game changing business
model in the 1980s and which resulted in the altering of the dynamics of the
circus industry. The Five Forces model when applied to the circus industry
predicted that it was doomed to failure because of high power of suppliers,
and the increase in the alternative forms of entertainment that were eating
into the market share of the circus industry. Further, concerns and pressure
from animal rights groups and increased awareness of the customers about
the consequences of conventional circuses were beginning to spell trouble
for the circus industry. Therefore, the Five Forces model of Porter when
applied to this industry predicted a slow death for it.
However, Cirque du Soleil followed what can be called a Blue Ocean
strategy wherein it replaced the animals and reduced the importance of
individual stars and created an entirely new business model based on a
combination of music, dance, and athletic shows to innovate and
create value for itself. In other words, what this means is that instead of
tweaking the existing strategies, Cirque du Soleil went in for an entirely
new strategy of creating a new market altogether by redefining its core
competencies and taking “Four Actions” which would be described in the
next section.
Blue Ocean Strategy Formulation and Execution

The Four Actions that Cirque du Soleil followed were the following:
§ Eliminating the factors that the industry takes for granted which in
the case of Cirque du Soleil was to eliminate the animals, the three
separate rings, and the star performers.
§ Reducing the factors below the industry standard, which meant that
the company ensured that much of the danger and thrill that
characterizes conventional circuses was reduced and this resulted in
the company creating a new market for itself that was different from
the conventional market for circuses.
§ Increasing the factors which should be raised well above the industry
standard meant that Cirque du Soleil pioneered original and unique
approaches such as developing its own tents and by moving out of the
confines of existing venues which meant that it was able to create
Management demand for its product from scratch.
§ Finally, by introducing aspects of novelty such as dramatic themes,
124
music and dance combined with artistic renditions, and an Strategy Management
environment that was geared to be more upscale and niche meant that
Cirque du Soleil ensured that it combined differentiation with value
creation.
The example of the Blue Ocean strategy described above is clearly
indicates that Cirque du Soleil did not try to battle the competition
but instead, created an entirely new market for itself. In short, this is
the essence of the Blue Ocean Strategy that hinges on creating value
and taking it to the next level by a game changing approach to
competition. In conclusion, once a company actualizes the Blue
Ocean Strategy, it usually results in opening up new markets instead
of stagnating in the existing markets.
· Another example of blue ocean strategy is Backroads, This Company
turned travel into something more challenging and engaging than the
typical relaxing itinerary of an all-inclusive cruise or beach vacation.
Backroads expanded the industry to offer something novel: luxury
active travel. These meticulously designed, fitness-based trips
include guides who take guests hiking, biking, camping, and more.
Backroads’ Blue Ocean Strategy appealed to a much different
audience than vacationers looking to relax, and has played a major
role in expanding the industry to include travellers who want to feel
fulfilled and accomplished at the conclusion of a trip.
· iTunes a wonderful blue ocean strategy which solved the recording
industry’s problem of consumers illegally downloading music while
simultaneously addressing the demand for digital, a la carte songs.
iTunes Blue Ocean Strategy created an entirely new category of
music sales that allowed artists to profit and consumers to buy single
songs versus entire albums. ITunes has dominated this market space
for years and is largely credited with driving the growth of digital
music.
6.5 Global Issues in Strategic Management

Global strategic management is a blend of strategic management and
international business that develops worldwide strategies for global
corporations. It helps in increasing sales and profit to a great extent. Going
global generates economies of scale in production and paves way to a larger
and lucrative markets. It helps in creating job, wealth and enlarges potential
investors. Above all it helps in gaining knowledge from learning the ropes
of international business and gives a wide exposure to new ideas, new
approaches, new marketing techniques, new customers and new confidence
in enhancing the business potential.
Global Strategic Management can create various issues if not understood Contemporary Strategic
properly. Management
The mixed set of economies – Global strategic management demands

125
Strategy Management companies operating in a mixed set of economies to design a business
strategy that encompasses all of them. That means the business goals will
need to reflect the growth rates and market potential that these economies
have, but at the same time be aligned to overall corporate vision.
1. Diverse talent pool – A global strategy needs to incorporate a varied
and diverse pool of talent. All markets are showing the influx of new
talent in the form of returnee mothers, re-employment of older
workers, millennials and so on. The management of such talent is
what will need to be defined the global strategy so that it comprises of
approaches which harness the potential as well as leverage the
strengths that arise from such different sets of people working
together.
2. Bigger and better competitors – With globalization and open
markets comes the threat of competition from across the global. That
is one of the biggest challenges facing firms that are
defining their global strategies and how to implement them. Earlier
competitors were usually those who are in the same phase of growth within
the country or economic regions. Today the competitors could be anyone
who has a strong or growing market presence in their own economies but
with a potential to scale up. Understanding the nuances of such complex
range of competition and working a strategy that deals with all of them is
part of global strategic management.
3. Technology and digitization wave – A huge wave of technological
disruption and digitization has impacted our world. It has shattered
our traditional beliefs of what technology can do and given us a
glimpse of where we are moving. Global strategies need to utilize
this wave and ensure that they are updated. All processes are
undergoing a change and new tools are entering the corporate space.
Our global strategy management rests on this core trend as it gets into
the next decade. 2020 global business goals are being defined as
those which are linked to rapid digitization. Working on combining it
into our traditional global strategy from a future perspective, is
important.
4. Integrating management styles – Different countries and leaders
have different management styles. This is personality as well as
culture linked. To achieve overall business goals, there is a need to
combine the styles or provide a conducive environment where each
can be fostered, so that leaders can perform well. That will also result
in positive teams and high performing individuals. The management
of employees is the biggest concern and therefore providing enabling
tools, developmental interventions and even feedback sessions to
leaders across the global should be part of the strategy.
Management 5. Process efficiencies – A lot of core processes are usually centralized
without clarity on whether those will work at the local levels or not. A
126 global strategy cannot be managed if it fails to recognize the country

or regional level requirements and applicability of processes and Strategy Management
practices. Maintaining global standards of excellence, quality levels
and efficiencies are absolutely important. But alongside that,
understanding which aspects need to be reassessed and decentralized
for it to yield better results is also a part of global strategic
management. Balancing between actual delegation of process
implementation and maintaining control to ensure quality is what the
strategy comprises of.
6. Cost effectiveness – With a shift in overall business strategy, many
organizations have used the opportunity to increase cost
effectiveness of their businesses. Their strategies have worked on
allowing for better opportunities of talent mobility, office
relocations, factory or manufacturing set-ups and back-office
operations, to locations that are more affordable. There has also been
a reverse shift into the developed markets, for talent, because many
equal opportunity global entities are now recognizing diverse talent
that can be groomed for bigger corporate roles. The concept of cost
effectiveness, through global strategy management has therefore
now turned into a larger reality than ever before.
Nations and industries have explored and defined their global strategies to
ensure that they can create and sustain a competitive advantage that works
for them. The horizons have broaden and the challenges have also increased
multi-fold. That is how the concept of global strategic management has
actually emerged in a much stronger and more relevant manner in the recent
times. All objectives from a business perspectives have been revisited and
while there has been a dip for some industries due to globalization, most
others have benefits from it.
6.5.1 The global challenges

Ø Cross-Country Differences in Culture, Demography and Market
Conditions
Small firms are now trying for entering foreign markets where there is
considerable variation in market conditions. It poses a much bigger
challenge than doing business at home.
Small firms enter into foreign market initially to know the responsiveness to
cross-country difference in culture, demography and market conditions. It
complicates the task of competing with other players. This is the difficult
and challenging task for small firms entering into foreign markets. One
objective is to balance pressures and be responsive to local situations of
each country. Also there is varied pressure for lower costs and prices of the
products and services offered.
Management
Ø The Potential for Locational Advantages Stemming from Country to
127
Strategy Management Country
Company’s potential for gaining competitive advantage also depends on
the foreign city it decides to setup its production centre or any other
infrastructure. This is a major area of concern. Rivals may have lower-cost
locations and is a matter of considerable strategic concern.
Ø Fluctuating Exchange Rate
The volatility of exchange rates greatly complicates the issue of geographic
cost advantages currency exchange rates often to fluctuate as much as 20 to
40 percent annually, changes of this magnitude can totally wipe out a
country’s low-cost advantage or transform a former high-cost location into
a competitive cost location.
Ø Domestic Government Restrictions and Requirements
Domestic government enacts all kinds of measures affecting business
conditions and the operation of foreign countries in their markets. Domestic
government may set local content requirements of outputs made inside their
borders by foreign-based companies, impose tariffs or quotas on imports,
put conditions and restrictions on export to ensure adequate local suppliers,
and regulate the prices of imported and locally-produced goods. In addition,
outsiders may face a rules and regulations regarding technical standards and
product certification. Some government, anxious to obtain new plants and
jobs, offer foreign companies a helping hand in the forms of subsidies,
privileged market access, and technical assistance.
Ø Multi-Country Competition or Global Competition
Multi-country or multi-domestic competitions exist when competence in
one national market is independent of a different national market. There is
no such thing as ‘international market’, only a collection of country
markets.
International competition exists when competitiveness across national
markets are linked strongly to form a truly international market where
leading competitors compete head-to-head in different countries.
In multi-country competition, rival firms compete for national leadership.
In globally competitive industries, rival firms compete for worldwide
supremacy.
For a company to be fruitful in new markets, its business plan must be
different from one country to another. Business and competitive
environment must be taken into account.
6.5.2 Strategies for competing in global markets

Strategic options for a company entering and competing in foreign market
Contemporary Strategic that decides to expand outside its domestic market and compete
Management internationally or globally. Important strategic options for a company
competing in international market are listed below:
128
Ø Export strategies Strategy Management
Ø Licensing strategies
Ø Franchising strategies
Ø A multi-country strategy vs. global strategy
Ø Pursuing competitive advantage by competing in a multinational
Ø Strategic alliances and joint ventures
Ø Export Strategy
Company is manufacturing products and service for exporting to foreign
markets. It is an excellent Initial strategy for pursuing international sales. It
minimizes both the risk and capital requirements. With an export strategy, a
manufacturer can limit its involvement in foreign markets by contracting
with foreign wholesalers who are experienced in importing to handle the
entire distribution and marketing of outputs and marketing function in their
countries regions of the world. If it has more advantages to Company and
has to domination to the control over these functions. In this case, a
manufactures can establish its own distribution and sales organization in
some or all of the target foreign markets. Either Way, a firm minimizes its
direct investments in foreign countries because of its home-based
production and export strategy.
Whether an export strategy can be pursued successfully over the long run
depends on the relative Cost competitiveness of a home country production
base. In some countries, firms gain additional sale economies and firm
centralizing production on several giant plants whose output capability
exceeds demand in any country market. An export strategy is open for firms
when the manufacturing costs in the home country are substantially higher
than in foreign countries where rivals have plants or when it has relatively
high-shipping costs. Unless an exporter can keep its production and
shipping costs competitive with rivals having low-costs plants in location
close to end user markets, its success will be limited.
Ø Licensing Strategy
Licensing foreign companies to use the company’s technology or giving
permission to produce and distribute the company’s products and service,
Licensing mode carries low financial risk to the licensor. Licensing presents
considerable economic uncertainty and is politically volatile. By licensing
the technology or the production rights to foreign-based firm, the firm does
not have to bear any risk. The licensee is freed from the risk of product
failure and at the same time is able to generate income from royalties.
Advantages of Licensing Strategy
· Licensing mode carries low financial risk to the licensor.
· Licenser can investigate the foreign market without many efforts on Contemporary Strategic
Management
his part.
· Licenser gets all the benefits with minimal investment on R and D. 129
Strategy Management · Licensee is free from the risk of product failure.
· Disadvantages of Licensing Strategy
· Licensing agreements reduce the market opportunities for both the
licenser and licensee.
· Both parties have responsibility of maintaining the product quality
and also in promoting the product. Therefore, one party’s actions can
affect the other.
· Costly and tedious litigation may crop up and hurt both the parties
and the market.
· There is scope for misunderstanding between the parties despite the
effectiveness of the agreement.
· There is a problem of leakage of the trade secrets of the licensor.
· The licensee may develop his reputation.
· The licensee could sell the product outside the agreed market
territory and/or after the expiry of contract.
Ø Franchising Strategies
Franchising strategies is better suited to the firm that entered to global
business and expanded its products and service to international market.
Franchising is a form of licensing. The franchising can exercise more
control over the franchised compared to licensing. In franchising, a separate
organization called the franchisee operates the business with the name of
another company called the franchiser. Under this agreement, the
franchisee pays fees to the franchiser. The franchiser provides the following
service to the franchisee:
o Trade mark
o Operating Systems
o Continuous support systems like advertisement, Human-Resource
development, reservation services and quality assurance
programmes.
Ø Franchising Agreements
The franchising agreement should contain important items as listed below:
Franchisee has to pay a fixed amount and royalty based on the sales to the
franchiser. Franchisee should agree to adhere to follow the franchiser’s
requirements like appearance, financial reporting and operation procedures
and customer services etc.
Contemporary Strategic Franchiser helps the franchisee in establishing the manufacturing facilities,
Management service facilities, provide expertise, advertising and corporate image etc.
130
Franchiser allows the franchisee some degree of flexibility in order to meet Strategy Management
the local tastes and preference.
For example, in India NIIT have the franchised computer training centres in
entire India.
Advantages of Franchising
· Franchiser can enter global markets with low investment and low risks.
· Franchiser can get free knowledge regarding markets, different cultural
aspects of the new market and the environment in general of the host city or
nation.
· Franchiser learns more lessons from the experiences of the franchisees,
which he could not experience from the home country’s market.
· Franchisee can early start a business with low risk as he selects an
established and proven product and operating system.
· Franchisee gets the benefits of Research and Development at a low cost.
· Franchisee is free from the risk of product failure.
Disadvantages of Franchising
· International franchising can become more complicated than domestic
franchising.
· It is difficult to have full control over an international franchisee.
· Franchising agents reduce the market opportunities for both the franchiser
and franchisee.
· Both parties have equal responsibility of maintaining the quality of the
product and also in promotion of the product.
· There is scope for misunderstanding between the parties. There can be
leakage of trade techniques and other secrets.
Ø A Multi-country Strategy vs. A Global Strategy

A multi-country strategy is suitable for industries where multi-country
competition has high dominance. Domestic responsiveness is very essential
in such a scenario.A global strategy works best in markets; therefore it is
globally competitive or beginning to globalize.
Difference between Multi-Country and Global Strategies
· Multi-country strategy
· Global strategy
· Strategic arena
· Selected target countries and trading areas of business Management
· Countries where the demand for goods and services is high.
131
Strategy Management Business strategy
Business strategies to fit the conditions of each domestic country situation;
there is little or no strategy coordination across countries.
Business basic strategies are the same worldwide and it fluctuates from one
country to another country: it is the basic requirement.
Product-line strategy
It adapted to local culture and the particular desire and expectations of local
buyers.
Mostly standardized quality products and service sold worldwide.
Production strategy
Plants widespread across many home countries, each producing products
and service are suitable for the surrounding local
Plants located on the basis of maximum competitive advantage for the
products and service for the firm.
Source of supply of raw materials
Supplier in domestic country preferred (local sources required by home
government) Attractive supplier from anywhere in the world.
Marketing and distribution
It adapted to practices and culture of each home country Much more
worldwide coordination minor adoption to home country situations if
required for the business
Cross-country strategy connections
It helps to transfer ideas, technologies. Competencies and capabilities that
work successfully in one country whenever such a transfer appears
advantages
It helps to use much the same technologies. Competences and capabilities
in all country markets, but new strategic initiatives and competitive
capabilities that prove successful in one country are transferred to other
country markets
Company organization
From subsidiary companies to handle operations in each home country.
Each subsidiary operates more or less autonomously to fit home country
All major strategic decisions are closely coordinated at global
headquarters: a global organizational structure is used to unify the
operations in each country
Achieving Locational Advantage
Building and achieving location advantage, a company must consider two
Management issues. Whether to concentrate each activity it performs in a few selected
Countries or disperse performance of the activity to many nations. And the
132 second one is in which countries to locate particular activities. Companies
tend to concentrate their business in a limited number of cities.
When the costs of manufacturing or other activities are significantly lower Strategy Management
in particular geographic locations than in others.
When there are significant scale economies in performing the activities –
the presence of significant economies of scale in components production or
final assembly means that a company can gain major cost savings from
operating a few super-efficient plants as opposed to a host of small plants
scattered across the world.
Transferring Competencies and Capabilities across Borders
Domestic companies who run successfully enter to outside market after
completing their targets of host Country markets and growing sales and
profits in the process. Transferring competencies capabilities and resources
strengths from country to country contributes to the development of broader
or deeper Competencies and capabilities. It is ideally helping a company
achieve dominating depth in a competitively valuable capability or resource
or value chain. There are strong basis for sustainable competitive
advantages over other multinational or global competitors and especially so
over small domestic competitors in host countries. Domestic companies are
usually not able to achieve dominating depth because a one country
customer base is too small to support a resource build-up, therefore, their
market is just emerging and sophisticated resources have not been required.
Coordinating Cross-Border Activities
Coordinating company activities located in different country. It contributes
to sustainable competitive advantages to companies in several different
ways. Companies can compete in multiple locations across the world, can
select where and how to challenge competitors. Multinational or global
competitor may decide rival, may decide to retaliate against an aggressive
rival in the country market, where the rivals financial resources for
competing in other country markets, capturing greater market share,
subsidizing greater market share and subsidizing any short-term losses with
profit earned in other country.
Profit Sanctuaries
It refers to company earning huge profits from host country because of its
strong market position. Multi-country or global companies may also enjoy
huge profit position in other nations where they have a strong competitive
position like big sales volume, capture market share and attractive profit
margins.
Cross-Market Subsidization
Global company has the flexibility of low prices for products and service in
domestic market and capture market share at the domestic company’s
expenses subsidizing razor-thin margins or losses with healthy profits
earned in its sanctuaries, this practice called as cross market subsidization. Contemporary Strategic
Alliances with Foreign Partners Management
Strategic alliances can help multinational firms in globally-competitive

133
Strategy Management industries to strengthen their competitive positions while at the same time
preserving their independence. Alliance refers to agreement between
companies to do business in host country market and international market.
Companies will make strategic alliance and cooperative agreement towards
another company to enter foreign market. It increases strength of the
strategic partner in the world markets. More recently, companies from
different parts of the world have formed strategic alliances and partnership
arrangements to strengthen their mental ability and partnership
arrangements to serve whole continents and move toward more global
market. Strategic alliances are very useful in helping establish new
opportunity in world markets
A company realizes the potential strategic alliance with collaborative
partnerships with foreign enterprises. It seems to be six factors as functions
as listed below:
· Picking a good partner in global market.
· Being sensitive to cultural differences in local market.
· Strategic alliance must be benefiting and sharing the information
both parties.
· Ensuring that both parties live tip to their commitments and gets
benefits from the business.
· To make decisions process very fast and actions can be taken
immediately when technological changes in business.
· Both parties can be managing the learning process and then adjusting
the alliance agreement.
Competing in Emerging Foreign Markets
Companies fighting for global leadership today have to consider competing
in emerging countries like Brazil, India and China. Firms that enter into
global markets grab this opportunity for economic growth and increases
standard of life of the employees of the global firm.
Emerging foreign markets earn huge profits quickly and easily. Therefore,
newcomers have to be very responsive to local conditions. They will be
willing to invest resources for the development of market for their products
and services over long periods and be patient in earning a profit.
Strategies for Local Companies in Emerging Markets
Local companies are seeking resources and opportunity. However, rich
companies are looking to enter the markets of emerging countries. What are
the options for local companies in upcoming markets and wishing to
survive against the incoming global giants? An important strategy for local
Companies in competing against global challenges are as listed below:
Contemporary Strategic Defending against global competitors by using home field advantage
Management
Transferring the company’s expertise to cross border markets
134
Dodging global entrants by shifting to a newer business model Strategy Management
Contending on a global level
6.6 Summary
v A business model describes the rationale of how an organization creates,
delivers, and captures value, in economic, social, cultural or other contexts.
v A business model is a simplified representation of how the business makes
money.
v It consists of two models. The value proposition and the operating model.
v Business model has the potential to provide companies a way to break out of
intense competition, under which product or process innovations are easily
imitated.
v Blue ocean strategy is the simultaneous pursuit of differentiation and low
cost to open up a new market space and create new demand.
It consists of two models. The value proposition and the operating model.
v Business model has the potential to provide companies a way to break out of
intense competition, under which product or process innovations are easily
imitated.
v Blue ocean strategy is the simultaneous pursuit of differentiation and low
cost to open up a new market space and create new demand.
v It is about creating and capturing uncontested market space, thereby
making the competition irrelevant.
v A blue ocean is an analogy to describe the wider, deeper potential to be
found in unexplored market space. A blue ocean is vast, deep, and powerful
in terms of profitable growth.
v As a contemporary issue in strategic management, corporate governance
involves the management of companies in the most efficient way to achieve
its objectives.
Management
135
Strategy Management 6.7 Self-Assessment Questions
1. What is blue ocean strategy? How blue ocean strategy can give a
competitive advantage to the company?
2. Explain Business model innovation? State various key facts about business
model innovation?
3. State various issues in strategic management?
4. List down various strategies to compete in global markets. 5. Explain
Disruptive Innovation? What feature can you create that’s missing in some
competitor’s product of your choice?
References
Business Policy and Strategic Management – Azar Kazmi
https://businessjargons.com/expansion-through-integration.html
http://www.businessdictionary.com/definition/resource-based-view.html
http://www.businessmanagementideas.com/notes/management-
notes/notes-on-mckinsey-7s-framework/4719
h t t p s : / / t a l l y f y. c o m / b u s i n e s s - p r o c e s s - r e e n g i n e e r i n g /
https://www.mbaknol.com/strategic-management/behavioural-issues-in-
strategy-implementation/
https://www.mbaknol.com/financial-management/what-is-financial-
restructuring/
https://www.lead-innovation.com/english-blog/what-is-a-business-
model-innovation
https://www.ukessays.com/essays/economics/competing-in-globalizing-
markets-economics-essay.php
https://talentedge.in/blog/concept-global-strategic-management/
https://www.slideshare.net/djsexxx/strategic-management-case-studies-
mg
https://www.clearpointstrategy.com/strategic-control-process/
https://www.mbaknol.com/management-case-studies/case-study-
kelloggs-business-strategy/
Management
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Strategic Management

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CONTENTS

Unit Contents Page No.

1 Introduction to Strategic Management 1-27

2. External and Internal Resource Analysis 28-60

3. Strategy Formulation 61-84

4 Implementation of Strategy 85-111

5. Strategic Control 112-118

6. Contemporary Strategic Management 119-136

1.1 Introduction to the chapter

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1.2 Strategic Management

Rumelt’s definition of strategy includes the following steps -

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1.2.3 Nature and Scope of Strategic Management

1.2.4 Importance of Strategic Management

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Strategy is the determination of the long-term goals and objectives of an

Ø Corporate Level Strategy

Ø Business Unit Level Strategy

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In today's highly competitive business environment, budget-oriented

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It is a statement of the activities or steps needed to accomplish a

e) Evaluation and Control

1.5 Strategic Intent

It involves the following:

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Examples of Some Vision Statement are

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Ø Characteristics of Mission Statement

Mission of Ranbaxy Industries, “To become a research based international

Ø Formulation of Mission Statements

1.5.3 Business Purpose

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? Different objectives should correlate with each other

Ø Need for Establishing Objectives

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Ø PROCESS OF SETTING OBJECTIVES

Self Assessment Questions

Case Study of Apple: Competitive Advantage through Innovation Apple

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External and Internal 2.1 Introduction

2.2 Business Environment

2.2.1 Internal environment

2.2.2 External Environment

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Ø P for Political factors

Ø E for Economic factors

Ø S for Social factors

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Ø T for Technological factors

Ø L for Legal factors

Ø E for Environmental factors

2.2.3 SWOT Analysis

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Conduct SWOT analysis of any company a) Automobile Industry b) Online

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Industry analysis is the crucial factor for understanding the external

2.3 Porters Five Force Model

External and Internal

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External and Internal

Ø Bargaining Power of Suppliers