STRATEGIC MANAGEMENT

Module 1
Introduction to Strategic Management
Introduction to Strategy – Concept of Strategy -Strategic
Management Process –Vision & Mission – Characteristics of
good mission statements - Objectives and Goals – 7S
Framework – External Environmental Analysis –Macro
Environment and Industry Analysis – Porter’s Five Forces
Analysis –Internal Analysis - SWOT Analysis –Resource
Based View – Value Chain Analysis - Strategic Analysis
The Evolution of the concept of Strategy
• The word Strategy comes from the Greek word
Strategia, which means a General or Military
Commander.
• War and Strategy are inseparable. Wherever
there has been a war, there has been a strategy
to wage it.
• War and Strategy are not new concepts. What is
new is the increased emphasis on strategy in
the business context.
 Impact of War on business strategies
• Today's successful business strategies can be traced back to
military strategies that have been used effectively from ancient
Greek to the 21st century. For example, the following strategic
principles continue to be relevant across changes in time and
context.
1. Attack Strength
2. Attack Weakness
3. Concentrate Your forces- coordinate the resources and
concentrate the areas where the competition is most- intense.
4. Forge a Strategic Alliance.
 The concept of strategy
• Strategy is the overall plan of a firm deploying
its resources to establish a favourable position
and compete successfully against its rivals.
Strategy describes a framework for charting a
course of action.
• It is basically intended to help firms achieve
competitive advantage. Competitive
advantage allows firms to gain an edge over
rivals when competing.
 Features of strategy
1. Strategy is all about wining: it is about
matching the strengths and distinctive
competencies of a firm with the terrain in such
a way that one’s own business enjoys an edge
over its rivals.
2. Strategy offers broad guidelines: A strategy
does not indicate what is to be done in detail, it
only provides a general programme of action,
outlining the deployment of resources with a
view to improve the chances of achieving
selected objectives.
3. Strategy is forward looking: It takes the long range
view.
4. strategy’s life span is limited: It is a single – use plan.
It is designed to fit a specific situation and is ‘used
up’ when the goal is achieved.
5. Strategy is a dynamic and flexible programme of
action: Changes in the environment bring about
changes in strategic planning.
6. Strategy is an inherently creative process: Once one
understands the firms current situation and has a
view of the future, improving the performance
requires thinking up new opportunities for creating
and capturing value by leveraging its strategic assets.
 Strategic Management
• Strategic Management can be defined as a rational
and intuitive process through which a firm
streamlines and leverages its resources on a
continuous basis to position itself distinctly from its
competitors.
• It involves defining the vision and the mission of the
firm which clearly define what the firm aspires to
become and the reason for its existence. It deals
with how a firm utilizes its resources and capabilities
to counter or pre-empt competitive moves and
succeed in the dynamic market place.
 Definition Contd.
• Strategic Management can be defined as a
management activity that involves making
decisions based on various analyses and taking
relevant action aimed at achieving long-term
competitive advantages.
 Introduction to strategic management
Once the vision and mission are defined, an
internal and external environment analysis is
carried out to identify opportunities and
threats emerging in the firms environment
and firm’s strengths and weaknesses.
The strengths of the firm leveraged upon to
build competitive advantages and core
competencies and capabilities to outperform
competition.
 Strategic management process
The strategic management process encompasses
four phases which together involve a number of
systematic steps. The four phases are
• Environmental Scanning
• Strategy formulation
• Strategy implementation
• Evaluation and control of strategy
Strategic management process
 Environmental Scanning
• Environmental Scanning involves monitoring the environment,
and evaluating and disseminating information obtained from the
internal and external environments. The aim of environmental
scanning is to identify the strategic factors that may determine
the future of the firm.
Benefits of Environmental Scanning
-Identification of Strength and Weakness.
-An understanding of trends and conditions.
- Optimum utilization of external and internal information.

Techniques such as secondary research, surveys,

questionnaires, focus groups, etc. employed in environmental
scanning.
 Sources of Information for Environmental
Scanning
External Sources of Information
• Personal Contact
• Journals,Magazines,Books
• Radio, T.V and Internet
• Customers
• Professional Conferences &
Meeting
Internal Sources of Information
• Personal Contact
• Internal Reports &
Conference Papers
• Meetings/Committees
• Sales Staff, other employees
& Managers
• Internal Audits Board of
Director
 Strategy Formulation
Strategy formulation involves four important
steps, viz, determination of mission and
objectives, analysis of strengths and weaknesses
of the firm and the environmental opportunities
and threats (SWOT), generation of alternative
strategies and choosing the most appropriate
strategy.
Determination of vision/mission and objectives

Strategy is a means to achieve the objectives.

Determining the mission and objectives is the
first step in strategy formulation.
The mission defines the broad social purpose
and scope of the organisation whereas objectives
more specifically define the direction to achieve
the mission. While objectives may be generic in
their expression, goals set specific targets to be
achieved within a time frame.
  SWOT ANALYSIS

The strength and weakness of the firm and opportunities and

threats in the environment will indicate the portfolio strategy
and other strategies it should pursue.
An organization should address questions such as what are the
changes, including possible future changes, in the environment
which have implications for us and how should we respond to
them? What are the opportunities in the environment which can
be exploited utilising our strength? What are the threats and do
we have the strength to combat the threats? How can we mass
up our strength? What are our weaknesses? Can we overcome
or minimise the weaknesses?
The economic liberalisation in India has opened up enormous
new opportunities. The liberalization at the same time has posed
severe threats to many existing firms because of the severe
competition.
 Strategic alternatives
Given the mission and objectives and having analyzed
the strengths and weaknesses of the firm and the
environmental opportunities and threats the
strategists should proceed to generate possible
alternative strategies. There may be different strategic
options for accomplishing a particular objective.
Ex. Growth in business may be achieved by increasing
the share in the existing markets or by entering new
markets, by horizontal integration. M&A, Joint Venture
or Acquisition etc.
 Strategy Evaluation and Choice

The purpose of considering different strategic options is to adopt

the most appropriate strategy. This necessitates the evaluation of
the strategic alternatives with reference to certain criteria. They
are suitability, feasibility, and acceptability are commonly
employed to evaluate the strategic options.
 Suitability
For assessing the suitability of the strategy, questions such as the
following may be posed:
1. Is the strategy in conformity with the corporate philosophy.?
2. Does the strategy help accomplish the mission and objectives?
3. Does the strategy appropriately exploit the organisational
strength and environmental opportunities?
4. Is the strategy capable of combating the environmental
threats and overcoming the internal weaknesses?
  Feasibility
The criteria of feasibility examines whether the strategy is realistic
and workable. A strategy may outwardly appear to be good but if it
is beyond the capability of the company, it is unrealistic and
unworkable, i.e, it is not feasible. Questions to be answered include.
1. Can the required resources (finance,human,technology etc.) be
obtaines?
2. Is the technology appropriate?
3. Can the necessary inputs (power, raw materials etc. ) be
arranged?
4. Can the essential sales be generated and market position
attained?
  Acceptability
• There are several factors to be considered to
evaluate the acceptability of the strategy. They
include.
 What will be the impact of the strategy on the
cash flow an profitability?
 How does it affect the relationships with
stockholders?
 How does it affect present employees?
 How does it affect the corporate image?
 Implementation
• The process by which strategies are put into action is called
Strategy Execution or Strategy Implementation. Programs,
budgets, and procedures are developed for this purpose.
• Operationalising the strategy requires transcending the various
components of the strategy to different levels; mobilisation and
allocation of resources; structuring authority; responsibility,
tasks and information flows and establishing policies.
• In a multi – SBU enterprise, strategies for the SBU’s, based on
the corporate strategy, will also have to be formulated.
• Implementation of strategy involves a number of administrative
and operational decisions.
 Evaluation and Control
Evaluation and control is the last phase of the
strategic management process. The objective is
to examine whether the strategy is implemented
is meeting its objectives and if not to take
corrective measures.
Continuous monitoring of the environment and
implementation of the strategy is essential.
 Vision and Mission
VISION:
The company’s vision is a description of what
the organisation is trying to do and to
become. It gives a view of an organisations
future direction and course of business
activity. Above all, the vision is a powerful
motivator and keeps an organisation moving
forward in the intended direction
 Mission
• The mission statement is an enduring statement
of purpose for an organization; it refers to the
philosophy of the business and serves to build
the image of the firm interms of activities
currently being pursued by the organization, and
its future plans
• The mission identifies the scope of the company’s
operations,desribes the company’s product,
market and technological areas of thrust, and
reflects the values and priorities of its strategic
decision makers and the reason for its existence.
 Mission
The firms mission plays a crucial role in its survival. The
absence of a mission often results in the failure of a firm
since its short run actions can be counterproductive to the
firms long-run purpose.
The mission statement is an enduring statement of purpose
for an organization; it refers to the philosophy of the
business and serves to build the image of the firm interms
of activities currently being pursued by the organization,
and its future plans. This philosophy establishes the
values, beliefs,and guidelines for business plans and
business operations.
The term mission is defined as the fundamental and
enduring purpose of an organization that sets it apart
from other organizations of a similar nature.
 Contd..

Most corporate mission statements are built

around three main elements.
1. History of the organization- The critical
characteristics and events of the past must
be considered while formulating and
developing a mission statement.
2. Distinct competencies of the organization-
the key goals that reflect the distinct
competencies of the organization where it
offers an advantage over other organizations
should be expressed.
 Contd..
3. The environment of the organisation- the management
should identify the oppurtunities provided and threats or
challenges posed by the environment before formulating a
mission statement.
Eg: HCL Infosystem’s mission statement is: To provide world-
class information technology solutions and services to
enable our customers to serve their customers better.
• Mission of
• Develop value oriented, socially responsible and globally
competent leaders and entrepreneurs for the dynamic
business environment through quality education.
 Characteristics of mission statement

In order to be effective, a mission statement should posses 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.
• 
 The characteristics of a good mission
statement
1. It differentiates the firm from its competitiors
2. It is inspiring
3. It defines the business that the firm wants to be in, not
necessarily the one it is in.
4. It seeks to clarify the purpose of the organisation-why
it exists.
5. It attempts to ensure that the organisation behaves in
the way that it promises it will by defining the purpose
for which the firm exists.
6. It is relevant to all the stakeholders in the firm, not just
shareholders and managers.
Mission statement usually attempts to answer
1. What is our reason for being?what is our basic purpose?
2. What is unique or distinctive about our organization?
3. Who are, or should be, our principal customers, clients?
4. What customer need should we satisfy?
5. What are our principal products at present and what will
they be in the future?
6. What are, or should be, our principal economic
concerns?
7. how do we create and deliver value?
8. What it likely to be different (from its existing state)
about our business three to five years in the future?
9. What are the basic beliefs, values, aspirations, and
philosophical priorities of the firm?
 Objective
• The goals, aims and purposes the organisation
wishes to achieve over varying period of time.
• Objectives may be defined as the long-term results
that an organisation seeks to achieve in pursuing its
basic mission.
• A desired state of affairs which the organization
attempts to realize.
 Eg. The company will obtain 50% share of its
products in the market.
 The company will ensure 35% rate of return on
investment.
 The company will enter into the foreign market
within 3 years.
 Importance of objectives
• Objectives form the basis for the functionning of an organisation.
1. Justify the organisation – The objectives indicates the purpose
and aims and thereby the social justification for the existence of
an organisation.
2. Provide Direction – objectives provide direction for the
functioning of an organisation. When objectives are clear the
aims of the activities of different people in the organisation
converge for the achievement for the common purpose.
3. Help coordination – objectives help coordinate decisions and
decision – makers by directing the attention of employees to
desirable standards of behaviour.
4. Provide standards for assessment and control – objectives, by
making clear what the results should be, provide the basis for
control and assessment of organisational performance.
5. Objectives serves as motivators
Objectives encourage workers to put forth their
best efforts to achieve the end goals. Ex.
Employees who understand the objectives of
profitability and their role in generating profits
may be motivated to work harder or more
efficiently under a bonus or other profit
sharing program.
Hierarchy of objectives
 Hierarchy of objectives
Objectives state end results and overall objectives need to
be supported by sub-objectives. Thus, objectives form a
hierarchy. Hierarchy of objectives ranging from broad aim
to specific individual aims. The table also depicts the
corresponding levels in the organizational hierarchy.
At the zenith of the hierarchy are the socio economic
objectives, such as requiring the organisation to contribute
to the welfare of the people by providing goods and
services at reasonable cost. The next level consists of the
mission of the organisation. At the third level are the
overall objectives and strategies (such as designing,
producing, and marketing reliable, low-cost products).
The next level of the hierarchy contains more specific
objectives called Key Result Areas(KRAs). These are
the areas in which performance is essential for the
success of the enterprise. Ex. To obtain 10% return
on investment by the end of calender year 2020.
the objectives have to be further translated into
division, department, and unit objectives down to
the lowest level of the organisation.
The objectives at the lower level of hierarchy require
fewer resources, involve commitment from fewer
organisational members, and are more readily
measurable.
 Classification of objectives

1. ECONOMIC OBJECTIVE-The following may be regarded as

the important economic objectives of the business.
a) Resurvival- the primary objective of the every business is
to stay in business is often quoted statement.
b) turn on investment – a return on investment is
undoubtedly, an important economic objective not only
for private enterprises but also for many public sector
enterprises.
c) Growth – growth over time is an economic objective of
most of the enterprises.
d) Innovation – according to drucker “ it is not enough for
the business to provide just any economic goods and
services; it must provide better and more economic ones.
2. Social objective

Social objectives of business may be grouped

into three broad categories, namely
1. Objectives which protect consumer interests
2. Objectives which protect the interest of
workers
3. Objectives which protect the interest of the
society.
3.Primary and secondary objectives
Some companies establish two sets of objectives-
primary and secondary.
According to George Goyder Primary objectives of
responsible company are
a. The extension, development and improvement of
the company’s business and the building up of its
financial independence.
b. The payment of fair and regular dividends to the
shareholders.
c. The payment of fair wages under the best possible
conditions to the workers.
d. The reduction of prices to consumers.
Secondary objectives of the business are
a. To provide bonus for the workers
b. To assist in promoting the amenities of the
locality
c. To assist in developing the industry of which
the firm is a member.
d. To promote education, research and
development in the technique of the industry
or any other purpose approved by the
directors and members in general meeting.
 Short- run and long-run objectives
The short run objectives may be a means to
achieve long-run objectives. For eg. The short
run objective of market penetration may be a
strategy to help achieve the long run
objective of market dominance or profit.
Long run objectives are profit
 Goals

Goals are desired outcomes or targets.

They guide management decisions and
form the criterion against which work
results are measured.
All organizations have multiple goals. For
instance, businesses may want to increase
market share, keep employees enthused about
working for the organization, and work toward
more environmentally sustainable practices.
Strategic Goals and Financial Goals
We can classify most company’s goals as either strategic or
financial. Financial goals are related to the financial
performance of the organization, while strategic goals are
related to all other areas of an organization’s performance.
For instance, Volkswagen states that its financial target (to
be achieved by 2019) is to sell 10 million cars and trucks
annually with a pretax profit margin over 8 percent.
An example of a strategic goal from Uniqlo, ie,Asia’s
biggest apparel chain: It wants to be the number-one
apparel retailer in the United States.
 Stated goals and Real Goals
• Stated goals are official statements of what an
organization says and what it wants its various
stakeholders to believe its goals are. However,
stated goals—which can be found in an
organization’s charter, annual report, public
relations announcements, or in public
statements made by managers—are often
conflicting and influenced by what various
stakeholders think organizations should do.
Real goals are those that an organization
actually pursue, as defined by the actions of its
members.
Actions define priorities. For example,
universities may say their goal is limiting class
sizes, facilitating close student-faculty relations,
and actively involving students in the learning
process etc.
Mc Kinsey’s 7S Model
 Mc Kinsey’s 7S Model

Mc Kinsey’s 7-s framework proposes that there are

number of factors which influence the capability
of the organisation to change and achieve its
objectives.In the 1970s, the 7s framework was
developed by Mc Kinsey company which is a
reputed management consultancy firm of USA.
The 7s framework is a diagnostic tool which
measures the strategic degree of fit between the
organisations current and intended strategies. It is
a tool which can be used to bring about change in
the organisation.
The 7s consists of seven interdependent factors
which govern the performance of the organisation.
Mc Kinsey has divided the 7s into hard and soft
elements.
The hard elements are named as strategy,
structure, and systems which are all tangible
factors and can be directly controlled by the
organisation. The soft factors are style, staff, skills
and shared values which are less tangible in nature,
uncontrollable and are of shared culture in the
group. The seven elements of the MC Kinsey 7s
frame work are:
 1. Strategy
The strategy concept includes the purpose, mission,
goals, objectives, action plans and policies framed by
the organisation. The 7s frame work regonises the fact
that it is easier to frame a strategy than to execute it.
2. Structure
The structure denotes the organizational chart. In
other words, it signifies the whole business
organisation in a systematic way. It also allocates
various roles and responsibilities to each unit. This is
the most visible and easiest to change element in the
7s frme work.
 3. system
System determine the rules, regulations and procedures
which govern the functioning of the organisation. These
systems are made by the organisation and govern the way of
doing business in the organisation. It is considered as the
main agenda of managers during any process of
organisational change.
4. Staff
It is concerned with recruitment of individuals for different
department and evolve them as managers of tomorrow.
Recruitment, selection, motivation, and reward giving is a
comprehensive process of organisation . It also denotes the
kind of culture in the organisation and whether new recruits
are able to assimilate in the organisation.
 5. Skills

Skills are the unique competencies which redirects

the organisational abilities. These skills can be in the
form of engineering skills, new product
development, market research, analytics, customer
care and delight, quality etc.
6. Style
Style is a variable which determine the effectiveness
of the management to successfully implement the
organisational changes. It is a way the managers
handle the clients, top-level management, several
action plans etc.
 7.Shared value

• It defines the values beyond the set goals and

objectives of the organisation. These are the
norms and manners which govern the working
of the organisation and which guide the
behaviour of the members of the organisation.
The shared values are also called super
ordinate goals.
 Environmental Analysis ---
External Environment
Environmental scanning involves capturing information
about the firms external environment interms of
opportunities and threats.
1. Remote Environment(Macro Environment)
The remote environment consists of a set of forces that
originate beyond a firms operating situation. These
comprise political, economic, social, technological,
and legal factors which create opportunities, threats,
and constraints for the firm. This is known as PESTEL
framework.
 a) Political Environment
• Government rules and regulations of a country are deeply
influenced by political forces. All firms operating in a country
adhere to these government rules and regulations which are
formed to protect consumers and the local environment.
• These regulations and political constraints for the firms
come in the form of pricing policies, tax programmes,
pollution policies, fair-trade decisions, administrative
activities etc.
• However there are political actions, such as patent laws,
government subsidies and product research grants that
support business activities. Thus, political forces have a
positive as well as a negative influence on an organisation.
 b) Economic Environment
• Economic environment forces have a direct bearing on a
firms performance. The growth rate of the economy,
interest rates, currency exchange rates, and inflation rates
are the important forces which need careful monitoring
and responding to.
• The economic growth rate is important as a surge in it
leads to increased customer expenditure and to
competitive pressures being eased.
• On the other hand, when the economic growth starts
declining, it translates into less spending by customers and
leads to increased competition.
 c) Social Environment
• Social environment of a business refers to the
values, beliefs, attitudes, opinions and lifestyles in
a society. Its impact on the business is immense.
• The changes in the social forces create new
opportunities for business firms and provide them
with opportunities to grow.
• The cultural, demographic, religious, educational
and ethnic conditioning of individuals in society
affects the social environment.
 d) Technological Environment
• All factors related to material and machines
used in manufacturing goods and services are
categorized as technology.
• A very important consideration in technology –
intensive business is the expenditure on
technology.
• Similarly, the rate of change of technology
influences the decision in various organisations.
 e) Legal Environment
• The law of the country in which a firm
operates affects the strategies and functioning
of the firm. Legal changes can affect a firms
cost and demand.
 2. The Operating Environment
The operating environment which has a direct
impact on the operations of a firm, includes all
factors which a firm faces while sourcing its
input and while marketing and selling its
output. The competitors, customers,
suppliers, and the labour market constitute
the operating environment. It is also known as
competitive environment.
a. Competitive Position
The competitive position of a firm provides an
insight on the firms performance and its
competitors.
It is determined in terms of a wide range of
parameters which includes market share
enjoyed by the firm, the breadth of the product
line, relative product quality, and price
competitiveness. The factors to be taken into
account will vary from industry to industry,
depending on the specific attributes of the being
considered.
b.Customer profile
The customer profile is built based on the information relating
to the demographic, geographic, psychographic, and the
buying profiles of the customer. The ability of the firm to
survive depends on how well it is able to address the
customer profile with its products and services.
Geographic profile- Where the firms customers are located
and the firm accordingly manages its reach to serve the
customers.
Demographic profile- In terms of age, sex, marital status,
income and occupation.
Psychographic profile – values, attitudes and lifestyle of
customers.
The objective of developing a customer profile is to ensure
that the customers stay loyal to the firms products and do
not switch to competitors products.
c. Suppliers and creditors
Suppliers and creditors play a crucial role in the ability
of the firm to operate in the industry. A firm depends
on its suppliers for its inputs. The quality of inputs,
the timeliness of the delivery of the inputs, the credit
terms and the replacement policy of the suppliers
have a direct impact on the firms performance.
The creditors lend money to the firm to meet its
working capital needs and long-term funding needs
in the form of plant and machinery etc. The terms of
credit offered by the creditors in terms of interest
rates to be charged and the period of credit offered
will have a direct impact on the firms profitability.
d. Nature of the labour market
The nature of the labor market will has a direct
bearing on the firm in terms of the quality of
manpower available to the firm.
The firm should evoke a good image in the mind
of the employees as well as the talent pool in
the labour market.
 Internal Environment Analysis
• An internal analysis provides the means to
identify the strengths to build on and the
weaknesses to overcome when formulating
strategies.
• The internal analysis process considers the
firms resources, the business the firm is in, its
objectives, policies and plans and how well
they were achieved.
Analyzing Departments and Functions
All organizations irrespective of their size, nature and scope
of business perform the functions of marketing, production
and operations, finance and accounting, research and
development and human resource management.
For efficient strategic management, careful planning,
execution, and coordination of these function is highly
essential. Each of the functional area has strengths or
weakness depending on how the function is managed.
The different departments of a firm are like the different
organs of the human body. The various departments and
functions of a firm are discussed in the context of internal
environment analysis for strategy formulation.
1.Marketing
• The marketing function is the interface point
between the firm and its customers. The
strength of the firm in terms of its ability to
outperform its competitors is reflected in the
marketing function.
• Marketing includes selling products/services
pricing, marketing research, distribution,
customer analysis, product and service
planning, and opportunity analysis.
 2.Production and Operations

The basic objective of the production and operation

function is to ensure that the outputs produced have a
value that exceeds the combined costs of the inputs and
the transformation process.
An analysis of the production function will determine the
speed of the production cycle, that is the time taken to
convert inputs into finished goods. It will also determine
the wastages and spoilages that take place during the
production process. The ability to ensure a smooth flow
of inputs in the production chain reflects the operations
capability of the firm.
3. Finance and Accounting
The finance function deals with scanning of funds,
securing funds, and using funds. The accounting
function reports all financial transactions and
their consequent results to stakeholders.
The financial information of a firm provides an
insight into its strengths and weaknesses. The
balance sheet of the firm provides details on the
wealth position of the firm at a given point of
time while the profit and loss account provides
details of the results of operations over a period
of time.
Research and Development
• A major functional area of any organization is
research and development. The importance of
R&D varies with the nature of the
organization.
• The two areas of R&D are product R&D and
process R&D. Product R&D is concerned with
innovations in the firm’s products. Process
R&D attempts to reduce the costs of
operations and seeks constant improvement
in quality through more efficient processes.
 Human Resource Management
The human resources are the most important resources an
organization processes. The human resource function of an
organization deals with designing and analyzing jobs, handling
recruitment, and selecting and employing people. The function also
deals with training the employees and managing their
compensation and benefits.
Integrating the functional areas
Though an organisation is divided into different functional areas, each
with its own focus, it is essential that all of them act in an integrated
and cohesive manner. When all the functional areas are aligned and
are working synchronously, the following benefits will occur.
1. Superior product design and quality
2. Superior customer service
3. Superior speed
 Analyzing Management
• Within a strategic framework, the internal
analysis of an organization begins and end
with the management of the organizations.
The management can be evaluated on the
basis of the organizational profile of strengths
and weaknesses in light of what it has or has
not done, or what it has or has not achieved.
 SWOT ANALYSIS
Strategic management involves an analysis of the
organisational factors (i.e the strengths and weakness of
the organisation) and the environmental factors (i.e the
threats and opportunities in the business environment)
SWOT Analysis
Several other terms and respective acronyms related to
SWOT analysis are in use. Terms such as
• SCOT- Stength, Constraints, Opportunities and Threats
• Internal and External Analysis
• ETOP – Environmental Threats and Opportunities Profile.
• PESTEL Analysis – external environmental factors
 What are S,W,O and T

Strengths are internal competencies of a firm,

particularly in comparison with those of its
competitors. Weaknesses are those factors which
tend to decrease the competitiveness of the firm,
particularly in comparison with its competitors.
Weakness and strengths are invariably factors
internal to the organisation, i.e they are
organisation specific. Threats and opportunities are
essentially external to the organisation(external
environmental factors) but are factors which affect
the organisation.
 SW OT
internal(organisational) External (Environmental
Strength, weakness Opportunities and Threats

the weakness and strengths of an organisation need to be evaluated at two levels, i.e. a
comparative level and an absolute level.

Comparative analysis is evaluation of the strengths and weaknesses of an organisation in

comparison with other organisations. However an organisation will be proactive and
forward looking only if it makes an evaluation of the strengths and weakness at the
absolute level also.
When the weaknesses are evaluated at the absolute level, in addition to the
comparative evaluation, the gap between the existing and the best possible is measured.
For ex. An organisation may be strong on a factor in comparison with competitors. But if
we make an absolute analysis, i.e. measure the gap between the present level and the
best possible level, it may be revealed that there is a lot of scope for improvement .this
means that even if an organisation appears to be strong on some factor in comparison
with competitors, the organisation is really weak on this factor in absolute terms.
The company shall endeavor to close this gap and
keep improving. Such an approach will help the
company to achieve sustainable development.
Strengths may encompass the company image,
brand image, business synergies and functional
areas such as marketing, finance, production and
R&D.
Weakness may include poor product quality,
obsolete technology, high production costs, lack
of R&D backup, poor distribution infrastructure,
poor financial position, weak management etc.
 Strengths and Weaknesses
Marketing
Strengths Weaknesses
Strong brand image Poor brand image
Strong distribution network Weak distribution
Deep product mix Narrow product mix
Efficient and motivated sales Poor salesforce
force
High quality product Poor product quality
Production
Economies of scale High cost due to small size
State of the art technology Obsolete technology
Efficient inventory Inefficient input sourcing
management
Strong R&D Support Poor inventory management
Efficient input sourcing No R&D support
 Finance
Comfortable debt- equity ratio Lop- sided capital structure
Large internal accruals Very high interest payments
High dividends market capitalization Poor reserves
High credit rating Low credit rating
Poor receivable management
Human resources
Qualified and experienced human resource Redundant human resource

Motivational human resource Excess manpower

Good industrial relations Poor morale
Good human resource management Poor industrial relations
Poor human resource management
Management
Efficient Board of Directors Inefficient Board of Directors
Efficient and motivated managers Unhealthy conflict between members of
Board
Conflict between members of Board and top
managers and inefficient managers
 Opportunities and threats
Opportunities Threats
Regulatory/ Political
Delicensing Delicensing
Dereservations Dereservations
Import liberlisation Import liberlisation
Liberalization of foreign investment and Liberalization of foreign investment and
technology technology and political instability
Economic
Economic boom Recession
Steady and fast increase in income Economic instability
Social / Demographic
Favourable change in consumer attitude Unfavourable change in consumer
attitude
Increasing poulation Change in age composition of population
Change in age composition of population Growth of consumerism
Some clarification regarding the opportunities and
threats listed under the regulatory/political
environment. The same factors/developments are
listed under both opportunities and threats. Take for
ex. Delicensing. It is an opportunity for those firms
which could not enter an industry or expand its
business because of licensing regulation, it can now
enter that industry or expand its business in that
industry, if any.
At the same time, it is a threat to the established
firms in the industries which were controlled by
licensing earlier. New firms can now enter these
industries and the incumbents have to face
increasing competition from new entrants. Eg . Two
wheeler industry.
Benefits And Pitfalls Of Swot Analysis
1. It gives an in depth understanding of the strengths and weaknesses of the
organisation. It will indicate measures to be taken overcome/minimise the
weaknesses.
2. Similarly, analysis of strengths will sometimes reveal that an organiation is
underutilising the resources/strengths.
3. SWOT is very helpful in determining the portfolio strategy which involves
decisions regarding:
• Whether the company should continue with all the existing businesses or
should it exit any of the business?
• Whether the company should enter any new business?
If the decision is to continue an existing business,SWOT is helpful in
determining whether the company should follow a :
• Stability strategy
• Growth strategy
• Retrenchment strategy or
• Combination strategy
If the decision is to enter a new business,SWOT
helps the decision as to:
• Which specific segments/ space of the
business to enter?
• What should be the entry strategy(e.g
acquisition or joint venture etc.)
• What business functions should the company
carry out.
 Limitations/pitfalls

1. SWOT profile reflects the position at the time

it is done. The situation some time changes
quickly and drastically.
2. There are chances of subjectivity in the
SWOT analysis. There could be differences in
the perception of a particular thing by
different people.
3. SWOT analysis has tremendous strategic
implications. An improper SWOT analysis can
land an organization in very serious trouble.
 Role of SWOT Analysis in strategic
Management
 
• SWOT refers to strengths, weaknesses, opportunities and threats.
SWOT analysis is a process where the management team
identifies the internal and external factors that will affect the
company’s future performance.
• The company’s strengths and weaknesses are the internal factors.
Opportunities and threats deal with factors external to the
company--environmental factors.
• SWOT analysis is done as part of the overall corporate planning
process in which financial and operational goals are set for the
upcoming year and strategies are created to accomplish these
goals.
 Using Resources Efficiently

• Every company--even the largest ones that

dominate their markets--has a finite supply of
manpower, production capacity and capital.
• Evaluating the company’s strengths helps it
determine how to allocate these resources in
a manner that will result in the highest
possible potential for revenue growth and
profitability.
 Improving Operations

• When the management team looks at the company’s

weaknesses, it is not to assign blame for past shortfalls
in performance. It is to identify the most critical areas
that need to be improved in order for the business to
more effectively compete.
• A realistic assessment of weaknesses also prevents
strategic blunders like entering a market with products
that are clearly inferior to what well-entrenched
competitors are offering.
• Continuous improvement in all areas of a company’s
operations is an important aspect of staying ahead of
competitors. Current weaknesses can--and must--be
turned into future strengths
 Discovering Opportunities
• Growth in business requires seeking out new
opportunities, including new potential customer
groups, broader product distribution, developing
new categories of products and services and
geographic expansion.
• In SWOT analysis the management team identifies
emerging opportunities to take advantage of right
now and tries to forecast longer term
opportunities so advance planning can be made to
be ready to enter the market when the time is
right.
 Dealing with Risks
• A threat in SWOT analysis is another term for risk--an
occurrence outside the company’s control that could
have a negative impact on performance.
• Companies face many threats beyond those caused by
direct competitors. Changes in the regulatory
environment can have an adverse impact on
performance. Consumer tastes can abruptly change
such as when a recession causes consumers to cut back
on purchasing luxury goods and services.
• SWOT analysis helps a company be better prepared for
whatever it will encounter in the external environment.
 Competitive Positioning

• Many companies do a form of SWOT analysis on their key

competitors. Combined with the information from the
company’s SWOT analysis of itself, the management team
begins to get a picture of how the company should position
itself against competitors.
• The company wants to attack competitors’ weaknesses with
its own strengths. It is much like game planning in football--
trying to locate where the opposing team is vulnerable.
Conversely, it does not want to meet a competitor’s strengths
head on if the competitor has an overwhelming advantage.
• SWOT analysis shows a company that even its most powerful
competitors have weaknesses that can be exploited.
 Porters Five Forces Model
This is known as competitive forces
Or
Structural Analysis of industries
 Michael Porter: Strategy and Sustainable
Competitive Advantage
• Michael Porter is leading authority on competitive
strategy, and on the competitiveness and economic
development -of nations, states and regions. In his
book
-Competitive Strategy(1980)-Addressed the issue of how
firms analyze industries and competitors and develop
their strategies accordingly.
- Competitive Advantage(1985)- He addressed the issue
of how firms create and sustain superior performance
that is build a sustainable competitive advantage.
• Michael Porter recommended the use of his
Five Forces Model to study the different
elements that comprised strategic
management, such as the environment in
which the company operates .
• Generic strategies such as cost leadership,
focus and cost differentiation, were
introduced by Michael Porter with an aim to
reduce the uncertainties of the competitive
environment.
• Porters Five Forces Model states that in an
industry, competition is dependent on the
following forces;
1. The threat posed by new entrants
2. The suppliers bargaining power
3. The threat posed by substitute products
4. The existing rivalry between the current players
5. The buyers or customers bargaining power.
These five forces constitute the micro environment
of the firm and any change in them directly
affects the firm and its performance.
 1.Threat of New Entrants
Firms operating outside an industry are lured by the
attractiveness of an industry to enter that industry.
When they enter the industry, new production capacity is
created and competitive pressures are built up to
capture market share. This leads to creating more supply
and in price wars which result in falling returns for all the
players in the industry. The threat of new entrants is a
factor of six barriers to entry which are
a. Economics of scale- Economics of scale emerge from
large-scale production. Firms already present in an
industry enjoy this advantage as they are able to
manufacture at a lower average cost as compared to the
new entrants.
b.Product differentiation

New firms also evaluate the amount of money required

for product differentiation. The amount of money
required to build differentiation acts as a deterrent to
a new firm planning to enter a market.
c. Capital requirements – the capital requirements of a
new entrant also acts as a barrier to its entry into an
industry. A firm needs capital for research and
development, inventories, customer credit etc. and
this limits the number of firms which can enter the
industry. Ex. Ship building industry, the capital
requirements are high, and hence the threat of new
entrants is low.
d. Cost disadvantages independent of size

The learning curve and the experience curve

effects provide advantages to the existing firms
in the market place which are not available to
the new entrants. As and when the firm gains
experience in the field, its efficiency increases.
Access to the best source of raw material,
assets purchased at lower prices, government
subsidiaries, and favorable locations serve as
advantages to the existing firms.
 e.Access to distribution channel
• Existing firms may have access to distribution channels,
which may have exclusive in nature and therefore the
new entrants will face difficulties in distributing their
products. Ex. Bata in the foot wear industry.
F. Government policy – the govt. Policy can create barriers
to entry for a new firm by imposing controls, licensing
requirements, and limiting access to raw materials.
Similarly, when the government impose pollution
standards and product safety and efficiency norms, it is
increasing the barriers to entry for a new firm as the
capital requirements might be high for such technology
and equipment.
 2. Intensity of Rivalry among existing
Competitors
The rivalry among existing competitors has a direct bearing
on the ability of the firm to survive in the market place.
Rivalry is considered to be intense when there is a price
war among the existing players and one or more players
are trying to increase their market share.
Competitors may also engage in launching new products,
advertising battles, and increased customer services and
warranties. The intensity of rivalry will make an industry
attractive or unattractive.
Rivalry is usually intense when the competitors are similar
size and there is not much of differentiation between the
products and services they offer.
 3.The bargaining Power of Buyers
A firm manufactures its products for its buyers. Its
relationship with the buyer can be strong or weak. When
the firm is in a strong position, it is able to dominate and
dictate terms to the buyer. For ex. the price at which the
product will be sold, the replacement terms, the credit
terms etc. are all set by the firm. On the other hand, when
the firm is in a weak position, the buyer will dominate the
terms set for sale. According to Porter, buyers would be
powerful under the following circumstances:
• When the suppliers are many and the buyers are few and
large.
• When the buyers purchase in large quantities
• When the suppliers industry depends on the buyers for a
large percentage of its total orders.
 4.The bargaining power of Suppliers
Suppliers are an important component of a firms
competitive environment. The quality of the suppliers in
terms of their reliability to supply inputs of appropriate
specifications at the right time determines the ability of
the firm to compete in the market. According to Porter,
suppliers are powerful under the following circumstances:
• When the product that they sell has few substitutes and is
important to the purchasing firm or buyer.
• When no single industry is a major customer for the
suppliers.
• When products in the industry are differentiated to such
an extent that they are not easily substitutable and it is
costly for a buyer to switch from on e supplier to another.
5. The threat of substitute products
Substitute products that can perform the same
function impose limits on the price that a firm
can charge for its products. The degree of
similarity to which the function can be
performed by the substitute will determine
the threat of the substitute. The greater the
similarity, the higher will be the threat and
vice versa.
Eg. Cofee and tea
 The Resource-Based View (RBV)
The resource-based view (RBV) is a model that sees
resources as key to superior firm performance.
• RBV is an approach to achieving 
competitive advantage that emerged in 1980s and
1990s. 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 it.
• The following model explains RBV andemphasizes
the key points of it. 
Resource based View
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. 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.
• 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.
• 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. 
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.