STRATEGIC PLANNING

&
MANAGEMENT
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MEANING & DEFINITION

Strategic Management can be defined as “the art and
science of formulating, implementing and
evaluating cross-functional decisions that enable
an organization to achieve its objective.”

• Definition:
“The on-going process of formulating,
implementing and controlling broad plans guide
the organization in achieving the strategic goods
given its internal and external environment”.

2
 STRATEGIC 0

MANAGEMENT
• Globalization: The survival for business

• E-Commerce: A business tool

• Earth environment has become a major

strategic issue

• Strategic management – A route to success

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 MODEL FOR STRATEGY FORMULATION

Scenario’s

Visions, Missions,Values

External Analysis Internal Analysis

Functional Level Strategies

Business Level Strategies

Strategy Implementation

Structure Match Structure & Controls Controls

Manage Strategic Change

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INTERPRETATION

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STAGES OF SM
• The strategic management process
consists of three stages:
• Strategy Formulation (strategy planning)
• Strategy Implementations
• Strategy Evaluation

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THREE ASPECTS OF STRATEGIC
FORMULATION

• Corporate Level Strategy: In this aspect of

strategy, we are concerned with broad decisions
about the total organization's scope and direction.
• It is useful to think of three components of
corporate level strategy:
(a) growth or directional strategy
(b) portfolio strategy
(c) parenting strategy

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Global Corporate Strategies

High
Transnational
Globalization Strategy
Strategy • Seeks to balance global
• Treats world as a
efficiencies and local
single global market
responsiveness
Need for Global Integration

• Standardizes global
• Combines
products/advertising
standardization and
strategies
customization for
product/advertising
strategies
Export
Strategy Multi-domestic Strategy
•Domestically focused • Handles markets
independently for each
•Exports a few country
domestically • Adapts
produced products to
selected countries product/advertising to
local tastes and needs
Low
Low Need for National Responsiveness High
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Global Strategy
• Globalization = product design and
advertising strategies are standardized
around the world
• Multi-domestic = adapt product and
promotion for each country
• Transnational = combine both
globalization and national
responsiveness

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• Competitive Strategy (often called Business Level

Strategy): This involves deciding how the company
will compete within each line of business (LOB) or
strategic business unit (SBU).

• Functional Strategy: These more localized and

shorter-horizon strategies deal with how each
functional area and unit will carry out its functional
activities to be effective and maximize resource
productivity.

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 Tools for Putting Strategy 0

into Action
Environment
Organization
Leadership
 Persuasion

Motivation

Structural Design Culture/values
 Organization Chart Human Resources
Strategy

 Teams 
 Recruitment/selection Performance
Centralization 
Decentralization, Transfers/promotions
 Facilities, task design  Training
Layoffs/recalls
 Systems
Information and Control

 Pay, reward system

 Budget allocations

Information systems
 Rules/procedures
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Portfolio Strategy
• Mix of business units
and product lines that Exhibit 8.5
BCG Matrix
fit together in a logical
way to provide
synergy and
competitive
advantage

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 Strategic Management 0

Process

Scan External Identify Strategic

Environment – Factors –
National, Opportunities,
Global Threats Implement
Strategy via
Evaluate Formulate Changes in:
Current Define new Strategy – Leadership
SWOT Mission culture,
Mission, Goals, Corporate,
Strategies Goals, Grand Business, Structure, HR,
Strategy Functional Information &
control
Scan Internal systems
Identify Strategic
Environment – Core
Factors –
Competence,
Strengths,
Synergy, Value
Weaknesses
Creation

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conclusion
• In order to formulate Business functions
strategy is to be formulated as well as
implemented with the right approach
• Management is basically managing the
strategies and making them function.
• Strategic management of an
organization leads to the benefits as well
as growth of the organization.

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 Strategic Planning:
• Strategic planning is concerned with the growth and
future of a business enterprise.
• It consists of a stream of decisions and actions that lead
to effective strategies and which, in turn, help the firm
achieve its growth objectives.
• The process involves a thorough self-appraisal by the
corporation, including an appraisal of the business it is
engaged in and the environment in which it operates.
• Marketing environment keeps changing fast. Practically
everything outside the four walls of the firm is changing
fast, resulting in a discontinuity with the past.
• Strategic planning provides the road map and ensures
that the enterprise keeps moving in the right direction.
 Strategic Planning (contd.)
Starting from the corporation’s mission and philosophy, down to choice
of businesses and strategies, all vital aspects in the governance of
business are chartered through strategic planning.
It is through strategic planning that the corporation takes decisions
concerning its mission, the business it will pursue and the markets it
will serve; it is through strategic planning that it lays down its growth
objectives and formulates its strategies.
In other words, all decisions of high significance and consequence to a
corporation are taken through the strategic planning process.

Strategic planning ensures that these resources are put to optimum

and best possible use.
Strategic planning helps the firm acquire the best of a lead time for all
its crucial decisions and actions, as it helps the firm anticipate
trends.
Strategic planning has the burden of equipping a corporation with the
relevant competitive advantages in its fight for survival and growth.
Objectives of Strategic Planning:
Strategic Planning is concerned with the

a) Future or long-term dynamics of the firm; not day-to-day tasks.

b) Growth – direction, extent, pace and timing of growth.
c) Environment, the fit between the enterprise and its environment.
d) Business portfolio - Basket of businesses the firm should have –
changes/additions/deletions to the firm’s product-market posture.
e) Its concern is strategy – not routine operational activities – growth
priorities, choice of corporate strategy and choice of business
level/competitive strategy are its concern.
f) Creation of core competencies and competitive advantages, is its
concern. This equips the organization with capabilities needed to
face uncertainties.
g) Integration of all management functions – not a particular function. It
views the organization/business in its totality.
h) Corporate strategy – creating long-term, sustainable organizational
capability.
 Components of Strategic Planning:

1. Clarifying the mission of the corporation

2. Defining the business
3. Surveying the environment
4. Internal appraisal of the firm
5. Setting the corporate objectives
6. Formulating the corporate strategy.
 1. Clarifying the mission of the corporation
• The mission is the expression of the corporate intent telling insiders and
outsiders what the corporation stands for.

• The mission carries the grand design of the firm and communicates what it
wants to be. It subtly indicates the business the firm will pursue and the
customer needs it will seek to satisfy.

• The mission is shaped by the capabilities and vision of the corporation’s

leaders.

• The business philosophy of the founder and present leaders of the

corporation gets expressed through the mission statement.

• The mission directs the entire planning endeavour of a corporation.

• The mission is a reference point and the guiding spirit for the growth plan of
a firm.

• It brings the corporate purpose or the long-term objective of the firm into
focus.
 2. Defining the business
• A business definition is a pithy, clear-cut statement of the business
or businesses the firm is engaged in or is planning to purse. It
prescribes the boundaries of the firm’s business.

• Defining the business correctly is the pre-requisite for selecting the

right opportunities and steering the firm on the correct path. Even to
understand what constitutes its relevant environment and to make
the environmental search effective, the firm must have a proper
definition of the business it is in.

• Defining one’s business has become an exacting exercise today

because of the fast changes taking place in the areas of technology,
products and customer preference.
• When product-market boundaries get extended, when different
product categories of yesteryears blend and merge, and when new
and substitute products keep invading the market altering existing
business boundaries, understanding and defining one’s business
becomes very difficult.
 3. Surveying the environment
• Today strategic planning occupies the central stage in management
purely because a great deal of change is taking place in the
environment.
• In environmental survey, basically a firm gathers all relevant
information and analyses it in detail. It analyses the macro
environmental factors as well as the environmental factors that are
specific to the business concerned. Under the macro factors, the
firm studies the demographic, socio-cultural and economic scene. It
also studies the political environment, the legal environment and the
government policies covering various areas.
• As for the environmental factors that are more specific to the
business, the firm studies the emerging trends in the industry, the
structure of the industry and the nature of the competition. It also
studies the market and the customer closely. It examines alternative
technologies that are emerging, their relative cost-effectiveness, and
the scope for invasion by substitutes.
• The significant point is that under environmental study, the firm does
not confine the study to the existing business but looks beyond it,
because both opportunities and threats can emerge from many
difference sources.
 4. Internal appraisal of the firm
• While environmental survey helps to identify
areas of opportunities and threats in the areas of
interest, in order to tap these opportunities, it is
necessary to find out whether the firm has the
requisite capabilities. For this an internal
appraisal is undertaken.
• Internal appraisal has three distinct parts:
– assessment of the strengths and weaknesses of the
firm in different functional areas;
– appraisal of the health of individual businesses;
– assessment of the firm’s competitive advantage and
core competence.
 5. Setting the corporate objectives
• The main task here is to decide the extent of business
growth, the firm wants to achieve. The firm examines the
present level of performance, its achievable level over
the planning period, and its aspirational level. Balancing
the opportunities with the organization’s capabilities and
ambitions, the firm figures out its growth objective.
Usually, firms set objectives in all key areas, like, sales,
profits, asset formation, productivity, market share, and
corporate image.
• Objectives have to be stated clear-cut in a measurable
time-bound manner. In setting objectives, the firm
integrates its growth ambition with the findings it has
made with its environment survey and internal appraisal.
 6. Formulating the corporate strategy
Product-market scope, growth vector, competitive
advantage and synergy are the constituents of corporate
strategy. Findings from the environment
survey/opportunity-threat profile, the competitive
advantages and synergies enjoyed, and the resources
available for growth, are the other major parameters in
deciding the basket of businesses and the product-
market posture. Corporate strategy has to specify
through which businesses and through what kind of
product-market posture is the growth objective going to
be achieved. And it is from this statement that each
business of the corporation –existing and new ones –
derives its growth targets, direction and priority.
 Formulating the corporate strategy (contd.)

• Business appraisal and choice of strategy go hand in

hand. The firm decides which businesses are to be
cultivated through fresh investment and care, which ones
are to be given mere maintenance, without committing
much further investment and which businesses it should
phase out. Standard analytical models can be of help to
the strategic planner, in the matter of bringing to the fore
what needs to be done with the different businesses.
• Most large companies consist of four organizational
levels – the corporate level, the Division level, the
business unit level and the product level.
 Formulating the corporate strategy (contd.)

• Corporate headquarters is responsible for designing a

corporate strategic plan to guide the whole enterprise; it
makes decisions on the amount of resources to allocate
to each division; as well as which business to start or
eliminate.
• Each Division establishes a plan covering the allocation
of funds to each business unit within the division.
• Each Business Unit develops a strategic plan to carry
that business unit into a profitable future.
• Each product level (product line, brand) within a
business unit develops a marketing plan for achieving its
objectives in its product market.
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STRATEGIC
MANAGEMENT
 0

MEANING & DEFINITION

• Strategic Management can be defined as “the art
and science of formulating, implementing and
evaluating cross-functional decisions that enable
an organization to achieve its objective.”
• Definition:
“The on-going process of formulating,
implementing and controlling broad plans guide
the organization in achieving the strategic goods
given its internal and external environment”.

28
 COMPARISON
STRATEGIC TACTICAL OPERATIONAL

Long range Intermediate Short range

3 or more yrs 2-3 yrs One yr

Top mgt Middle Lower

Broad objectives Integration of departments Day to day working

Focus on planning & On co-ordination On control

forecasting
 Benefits of Strategic Planning
• Roadmap to firms
• Utilization of resources
• Respond to environmental changes
• Minimizes chances of mistakes
• Creates framework of internal
communication.
 Levels of Strategic Planning
 Corporate –Level

 Business-Level

 Functional -Level
 Elements of a Strategy
Goals

Scope

Competitive Advantage

Logic
Various types of strategies

MASTER
STRATEGIES

PROGRAMME STRATEGIES

SUB-STRATEGIES

TACTICS
 BUSINESS POLICY
Business policy provides a basic framework defining
fundamental issues of a company, its purpose,
mission and broad business objectives and a set of
guideline governing the company's conduct of
business within its total perspective.

 Overall Guide

 Focus on strategic allocation of scarce resources

 Types of Policies
MAJOR POLICIES:
 Lines of business
 Code of ethics

SECONDARY POLICIES:
 Selection of geographic area
 Identification of major customers
 Major products
 Types of Policies
FUNCTIONAL POLICIES:
 Production
 Marketing
 Finance
 Personnel
 Research
RULES:
 Salary & wage Adm.
 Discipline& discharge
 Welfare Adm
 Safety & health
 Types of Policies
• PROCEDURES & STANDARD OP. PLANS:

 Handling & processing of orders

 Shipments of foreign locations
 Servicing customer complaints
 Strategy Vs Policy
STRATEGY POLICY

Strategic decisions Guidelines

Putting a policy into effect General course of action

Deals with crucial Once formulated can be

decisions, requires top delegated to lower levels
mgt involvement.
 STRATEGIC
MANAGEMENT PROCESS
 STRATEGIC MANAGEMENT PROCESS

(SMP)
1. Vision formulation which leads to the
statement of the Mission.
2. The mission is then converted into
performance Objectives
3. To achieve objectives you develop
Strategies
4. Strategy Implementation
5. Evaluation of performance
 Diagram
(Strategic mgt by VSP Rao and V Hari
Krishna)
 Purpose of SMP
• CORE COMPETENCE
• SYNERGY
• VALUE Creation
• CORE COMPETENCE:
An org’s core competence is something it
does exceptionally well in comparison to
its competitors. It reflects a distinct
competitive advantage like superior
research, development etc..
SYNERGY:

Two or more sub systems working together

to produce more than the total of what
might they produce working alone.
1+1=3
• VALUE CREATION:
Exploiting core competencies and
achieving synergy help organizations
create value for customers. Value is the
sum total of benefits received and cost
paid by the customer.
 Steps in SMP
• Vision,Mission,Objectives

• External Analysis

• Internal analysis
DETAILED IN (Strategic mgt by VSP
Rao and V Hari Krishna)
 STRATEGY FORMULATION
• CORPORATE LEVEL STRATEGIES:
 Growth/Expansion Strategy

 Stability Strategy

 Retrenchment Strategy

 Combination Strategy
• FUNCTIONAL LEVEL STRATEGY:
• R & D Strategy
• Operations Strategy
• Financial Strategy
• Marketing Strategy
• Human Resource Strategy
 STRATEGY FORMULATION &
IMPLEMENTATION
• Detail & Diagram :
(Strategic mgt by VSP Rao and V Hari
Krishna)
 Motivational Techniques To
Implement Strategy
• MBO
• Incentives
• Performance appraisal
• Salary Administration
• Recruiting & termination
• Security
• Power & Influence
STRATEGIC INTENT:
Vision,Mission,Objectives
• Strategic intent is
about clarity, focus VISION

and inspiration.
MISSION

OBJECTIVES

GOALS

PLANS
 VISION
• Corporate vision is a short and inspiring
statement of what the organization intends to
become and to achieve at some point in the
future, often stated in competitive terms. Vision
refers to the category of intentions that are
broad, all-inclusive and forward-thinking. It is
the image that a business must have of its goals
before it sets out to reach them. It describes
aspirations for the future, without specifying the
means that will be used to achieve those desired
ends .
 Mission
• Mission Statement describes what business you’re in
and who your customer is. As such, it captures the very
essence of your enterprise - its relationship with its
customer.
• Developing mission statement is the step which moves
your strategic planning process from the present to the
future. It depicts the mission statement connects “today”
with the “future.” Your mission statement must “work” not
only today but for the intended life of your strategic plan
of which your mission statement is a part. If you’re
developing a five year strategic plan, for example, you
develop a mission statement which you believe will
“work” for the next five years.
 Values
• For any statement, whether mission or vision, to
be embraced and acted upon, it must reflect the
values of your organization.
• Values describe what your management team
really cares about. What it holds dear. What
“makes ‘em tick.” How would your managers
respond to a trade-off between product quality
and profit? That’s really a question of value.
 Corporate Goals & Objectives
• Role of Objectives:
1. Legitimacy
2. Direction
3. Coordination
4. Benchmarks for success
5. motivation
 Characteristics of obj;
• Obj. form a HIRERACY
• Network
• Multiplicity of Obj
• Long and short-range obj
ENVIRONMENTAL ANALYSIS
• Env. may be defined as the set of external factors such
as economic, socio cultural, Govt. & legal, demographic,
which are uncontrollable in nature & affect the business
decisions of a firm or company.
1) Micro Environment 2) Macro Environment
• Micro Environment-
1) Supplier
2) Customers-industrial, retailers, wholesalers, Govt.,
foreigners
3) Market intermediates- middlemen, physical distribution
firms, marketing service agencies, and financial
intermediaries
• Competitors-
 Desire competitions – limited disposable income many
unsatisfied desires T.V./washing machine/ investment
 Generic competition-among alternatives which satisfied
particular category of desire- Investment in
U.T.I./P.O./Bank/Any other.
 Product form competition- Washing machine, semi/ automotive
 Brand competition- videocon/godrej
• Public –
 media
 citizen action public
 local public
• Macro Environment-uncontrollable

1. Economic Environment
 Eco. Conditions- business cycle, growth of economy, size of
domestic Market & its dynamic effect
 Eco. Policies- budgets, industrial regulations, eco planning,
import & export regulations, business laws, , industrial policy,
control on price & wages, trade & transport policy, size of
national income, demand & supply of various goods
 Economic System—of a country
 free enterprise i.e. capitalist
 socialist
 communist
 mixed
2. Political & Govt. Environment. -
• Legislature- decide particularly course
of action
• Executive -implementation
• Judiciary -to see above both working
public interest.
3. Socio Cultural Environment- people
attitude to work & health, role of family,
marriage, religion & education, ethical
issues, social responsibilities of business
4. Natural Environment- geographical &
ecological factors- natural resources
endowments, weather & climatic
conditions, topographical factors,
locational aspects, port facilities
5. Demographic Environment. - Size
growth age composition of population,
family size, economic stratification of
population, educational level, caste
religion etc.
6. Technological Environment-
marketing, innovation, R & D
7. International Environment-liberation
force of view global perspectives
• Environmental Scanning: helps every mgt in
attaining maximum profits and growth and the
same time helps in minimization of future threats.
Environment analysis has 3 basic objectives
• Under taking of current & potential changes
• Should provide inputs for strategic decision making
• Rich source of idea & understanding of the context,
bring fresh views
 Environmental Analysis-
Scanning – general supervision of all env. Factors & their interaction in order

1. to identify early signals of change,

2. Detect env. Changes underway
Monitoring -- tracking the env. Trends sequences of events or stream of
activities. Study of Indicators, assemble data to discern emerging
patterns. Three outcomes emerges in monitoring
1. A specific description of env. trends
2. Identification of trends
3. Identification of areas of further scans
Forecasting -scanning & monitoring provide a picture of what is
happening strategic decision Making requires future orientation.
Forecasting is developing future projections of changes
Assessment - outputs of above 3 steps are assessed to determine
implementation. Assessment involves identifying & evaluate how & why
current & projected env. Changes affect strategic Mgt. Of the
organization
 Techniques of Environment
Analysis
• SWOT Analysis, strengths, weakness, opportunities, & threats.
• Forecasting methods
• Time services analysis & projection-moving averages, exponential
smoothing book Jenkins, trend projection.
• Casual Methods- regression model, econometric model, anticipation
surveys, input output model, diffusion index, leading indicators, life cycle
analysis.
• Qualitative Method-Delphi method, market research, panel consensus,
visionary forecast, historical analogy.
• Scenario technique- preparation of background, selection of critical
indicators, establishing past behavior of indicators, verification of potential
future events, forecasting the indicators, writing of scenario.
• Preparation of ETOP-environmental threat & opportunity profile is a
summary of environmental factors. It is a structured way. Assessing
Importance of environmental factors, assessing impact factor combining
importance & impact factor.
 Environmental Scanning &
Monitoring

Environmental scanning is a concept from

business management by which businesses gather
information from the environment, to better achieve
a sustainable competitive advantage.
To sustain competitive advantage the company must
also respond to the information gathered from
environmental scanning by altering its strategies
and plans when the need arises.
 Environmental Scanning &
Monitoring- Techniques
SWOT

PEST Techniques QUEST

Competitor
Industry Analysis
Analysis
 SWOT
(Strength-Weakness-Opportunity-Threat)

Identification of threats and

Opportunities in the environment
(External) and strengths and
Weaknesses of the firm (Internal) is
the cornerstone of business policy
formulation; it is these factors which
determine the course of action to
ensure the survival and growth of the
firm.
What is “PEST”?
 PEST Analysis – The
Meaning
• A PEST analysis is an analysis of the external macro-
environment that affects all firms.
• P.E.S.T. is an acronym for the Political, Economic, Social,
and Technological factors of the external macro-
environment.
• Such external factors usually are beyond the firm's control
and sometimes present themselves as threats.
• However, changes in the external environment also create
new opportunities.
 Industry
Industry Analysis:
Analysis: Three
Three sections
sections

A. Industry Life Cycle Analysis

B. Study of the structure and
characteristics of an Industry
C. Profit Potential of Industry (Porter
Model)
A.
A. Industry
Industry Life
Life Cycle
Cycle Analysis
Analysis
Four Stages:
• Pioneering Stage
• Rapid Growth Stage
• Maturity and Stabilization Stage
• Decline Stage
B.
B. Study
Study of
of the
the structure
structure and
and
characteristics
characteristics of
of an
an Industry
Industry
1. Structure of the Industry and nature of
Competition
2. Nature and Prospectus of the demand
3. Cost, Efficiency and Profitability
4. Technology and Research
 3.
3. Profit
Profit Potential
Potential of
of Industry
Industry (Porter
(Porter
Model)
Model)
Michael Porter has argued that the profit
potential of an industry depends on the
combined strength of the:
1. Threat of new entrant
2. Rivalry among existing firms
3. Pressure from substitute products
4. Bargaining power of buyers
5. Bargaining power of sellers
INTERNAL ANALYSIS
• SWOT analysis
• Value chain Analysis
• Financial Analysis
• Key factor rating
• Functional area profile
• Strategic advantage profile
 Internal Analysis
Resource-Based View

 Firms have heterogeneous resources and capabilities.

creating
By exploiting core competencies, firms can develop value-
strategies superior to their competitors.

 Four criteria must be met for a sustained competitive

advantage.
Valuable
Costly to imitate
Rare
Non-substitutable
 Internal Analysis
Resources
• Tangible
• Intangible Components of the Resource-
• Brand Equity Based View

Capabilities

Core
Competencies

Competitive Above-Average
Advantage Returns
 Internal Analysis
Resources and Capabilities:

 Resources

• Represent what the firm has to work with.

• Resources must be combined to establish a capability.

• Types:

• Tangible
• Intangible
• Brand Equity
 Internal Analysis
Tangible Resources – Assets that can be seen, touched or
quantified.

- Financial resources (borrowing capacity)

- Physical Resources (facilities, locations)
- Organizational structure (reporting structures)
- Technological (patents)
Intangible Resources

- Human resources (experience, training)

- Resources for innovation (technical employees, facilities)
- Reputation

Brand Equity

- Brand name
- maintaining brand equity (Mercedes example –
value/performance
and Japanese automakers)
 VALUE CHAIN ANALYSIS
• A value chain identifies and isolates the
various economic value adding activities
that occur in every firm. It portrays
activities required to crate value for
customer for a given product.
 The Value Chain System

• A firm's value chain is part of a larger

system that includes the value chains of
upstream suppliers and downstream
channels and customers. Porter calls this
series of value chains the value system,
Porter's Generic Value Chain
Porter's Generic Value Chain
M

Inbound > Operations > Outbound > Marketing & > Service > A
Logistics Logistics Sales R

Firm Infrastructure

HR Management
Technology Development
Procurement
The primary value chain activities
are:
• Inbound Logistics: the receiving and
warehousing of raw materials, and their
distribution to manufacturing as they are
required.
• Operations: the processes of transforming
inputs into finished products and services.
• Outbound Logistics: the warehousing and
distribution of finished goods.
•
 The primary value chain
activities are:
• Marketing & Sales: the identification of
customer needs and the generation of
sales.
• Service: the support of customers after
the products and services are sold to
them.
 These primary activities are
supported by:

• The infrastructure of the firm:

organizational structure, control systems,
company culture, etc.
• Human resource management: employee
recruiting, hiring, training, development,
and compensation.
 These primary activities are
supported by:
• Technology development: technologies to
support value-creating activities.
• Procurement: purchasing inputs such as
materials, supplies, and equipment.
Cost Advantage and the Value
Chain
• Porter identified 10 cost drivers related to
value chain activities:
• Economies of scale
• Learning
• Capacity utilization
• Linkages among activities
• Interrelationships among business units
 10 cost drivers related to value
chain activities:
• Degree of vertical integration
• Timing of market entry
• Firm's policy of cost or differentiation
• Geographic location
• Institutional factors (regulation, union
activity, taxes, etc.)
Differentiation and the Value
Chain
• Policies and decisions
• Linkages among activities
• Timing
• Location
• Interrelationships
 Differentiation and the Value
Chain
• Learning
• Integration
• Scale (e.g. better service as a result of
large scale)
• Institutional factors
 Technology and the Value
Chain
• Inbound Logistics Technologies
• Transportation
• Material handling
• Material storage
• Communications
• Testing
• Information systems
 Operations Technologies

• Process
• Materials
• Machine tools
• Material handling
• Packaging
 Operations Technologies

• Maintenance
• Testing
• Building design & operation
• Information systems
 Outbound Logistics
Technologies
• Transportation
• Material handling
• Packaging
• Communications
• Information systems
 Marketing & Sales
Technologies
• Media
• Audio/video
• Communications
• Information systems
 Service Technologies

• Testing
• Communications
• Information systems
 Linkages Between Value Chain
Activities
• Value chain activities are not isolated
from one another. Rather, one value
chain activity often affects the cost or
performance of other ones. Linkages may
exist between primary activities and also
between primary and support activities.
 Linkages Between Value Chain
Activities
• Consider the case in which the design of a
product is changed in order to reduce
manufacturing costs. Suppose that
inadvertently the new product design
results increased service costs; the cost
reduction could be less than anticipated
and even worse, there could be a net cost
increase.
 Outsourcing Value Chain
Activities
• Whether the activity can be performed
cheaper or better by suppliers.
• Whether the activity is one of the firm's
core competencies from which stems a
cost advantage or product
differentiation.
 Outsourcing Value Chain
Activities
• The risk of performing the activity in-
house. If the activity relies on fast
changing technology or the product is
sold in a rapidly-changing market, it may
be advantageous to outsource the activity
in order to maintain flexibility and avoid
the risk of investing in specialized assets.
 Outsourcing Value Chain
Activities
• Whether the outsourcing of an activity
can result in business process
improvements such as reduced lead time,
higher flexibility, reduced inventory, etc.
 Financial Analysis
• Assessment of the firm’s past, present and
future financial conditions
• Done to find firm’s financial strengths and
weaknesses
• Primary Tools:
– Financial Statements
– Comparison of financial ratios to past,
industry, sector and all firms
 Types of Ratios
• Financial Ratios:
– Liquidity Ratios
• Assess ability to cover current obligations
– Leverage Ratios
• Assess ability to cover long term debt obligations
• Operational Ratios:
– Activity (Turnover) Ratios
• Assess amount of activity relative to amount of
resources used
– Profitability Ratios
• Assess profits relative to amount of resources used
• Valuation Ratios:
• Assess market price relative to assets or earnings
 LIQUIDITY RATIO:

Current Ratio= Current Assets/Current

Liabilities.

Quick Ratio= CA-Inventory/CL

 LEVERAGE RATIO
• Debt-Equity Ratio: Total long term debt/Shareholder’s
funds

• Interest coverage ratio: EBIT/shareholder’s funds

• Proprietary ratio: Shareholder’s funds/total assets

• Debt to assets ratio: Total Debts/total assets

 Activity Ratio
• Asset Turnover = Sales turnover / assets employed

• Stock turnover = Cost of goods sold / stock expressed as

times per year

• Working Capital ratio = Sales (net)/W.C.

• Fixed Assets TO ratio = Sales (Net)/Net fixed Assets

 Profitability ratio
• G.P.ratio=GP/Net Sales

• N.P.ratio=NP/Net sales

• Operating ratio = Op. Cost/Net sales

Operating Profitability Ratios
EBIT Sales EBIT
× =
Sales Total Assets Total Assets

EBIT Interest Expense Net Before Tax

− =
Total Assets Total Assets Total Assets
 KEY FACTOR RATING
• The key factors that affect org functioning.
Info regarding key factors is collected.
Answers are being closely examined with
respect to key factors. The impact of each
key factor is examined.
 FUNCTIONAL AREA PROFILE & RESOURCE
DEVELOPMENT MATRIX

• To make a comparative analysis of a firm’s

own resource deployment position and focus
of efforts with those of competitors.
• First, technique requires preparation of matrix
of functional area with common features.
• Secondly matrix is prepared showing
deployment and focus of efforts over a period of
time.
STRATEGIC ADVANTAGE PROFILE

• SAP tries to find out the org strengths and

weaknesses with relation to some CSF.
 Critical Success Factor Analysis
• Developed – John Rockart
• Satisfactory performance – required – for organization
– achieve goals
• Identify – tasks & requirements – for success
• CSFs – means to achieve goals
• Sources of CSF - industry, environment & temporal
factors
• Characteristics of CSF Analysis
– Internal
– External
– Monitor
– Develop
• Process of CSF Analysis – Identify
– CSF
– Critical information – internal & external
– Critical assumption set
– Critical decisions
• Benefits of CSF Analysis
– Results –needs – enterprise – clearly
– Measure success – prioritize goals
– Needs of end users & enterprise are met
 Long term Mission & Goals

• Mission – short /long term activity – to achieve vision

• Mission statement – statement that communicates –
total essence – organization
• Gives – what an organization is today and what it
should be
• Focus and guide - internal decision making
• Characteristics of mission statement
– Feasible,
– Precise
– Clear
– Motivating
– Should give the means to achieve objectives
• Characteristics of successful strategic
planning
– Will lead to action
– Builds a shared vision which is value based
– Will be a participative process
– Accepts accountability
– Externally focused to organization’s
environment
– Will be relying on quality data
– Will require openness to questioning
 Contingency Planning

• Contingency planning – approach – identify –

what if – something wrong happens
• Planning – strategies – cope up – contingency
events
• Objective – make – to think – possible
contingencies and its responses
• Process of contingency planning
– Identifying - Identify events when plan is to be invoked and
who will be responsible for implementing it
– Assessing - Assess the value of the resources and correlate
them with their functions to identify the critical elements
– Prevention - Preventative measures for critical resources
– Developing – build the plan – simple & straight forward – step
by step workflows an checklists
– Communicate and rehearse
• Benefits of contingency planning
– Strengthens the organization – cope up with unexpected
developments
– Reduces stress – reduce delay & indecisiveness
– Respond sensibly & wisely
– Focus on issues and identify constraints
– Clarifies roles and responsibilities
• Barriers
– Maintaining commitment & participation
– Keeping the process on going
– Updating and reviewing the process
BALANCED SCORECARD
FRAMEWORK
 BALANCED SCORECARD
FRAMEWORK
Financial
perspective

Vision & Internal

Customer’s Business
Strategy process
Perspective

Learning &
growth
 Translate Strategy to Operational terms

The Strategy

Financial Perspective
“If we succeed, how will we look A Strat
egy Is
to our shareholders A
Set of o
f
Hypoth
eses
Customer Perspective About C
ause &
“To achieve my vision, how Effect
must we look to our customers?

Internal Perspective
“To satisfy my customer, at
which processes must I excel?”

Organization Learning
“To achieve my vision, how must my
organization learn and improve?’’
 STRATEGY 85% of
60% of
management
organization
Strategic teams spend less
s Learning Loop than
don’t link
one hour per
strategy &
month on strategy
budgets BALANCED
SCORECAR issues
D
A good Balanced scorecard describes the
Organizational Strategy

Strategy

Balanced
Scorecard
 Measures are Balanced between

• Outcome measures ( results from past efforts)and

the measures that drive performance
•Objective, easily quantified outcome measures and
subjective, somewhat judgmental performance
drivers
•Lagging and leading indicators
•Short-term and long-term objectives
•Stakeholders
•BSC ‘s are more than just a somewhat adhoc
collection of financial & non-financial
performance measures

•BSC is a Top –down process driven by the

mission and strategy
 What does BSC do?

•Clarify and translate vision and strategy

•Communicate and link strategic objectives and

measures

•Plan ,set targets, and align strategic initiatives

•Enhance strategic feedback and learning

 What does BSC do?

•Clarify and gain consensus about strategy

•Communicate strategy throughout the organization

•Align departmental and personal goals to strategy

•Link strategic objectives to long term targets and

annual budgets

•Perform periodic and systematic strategic reviews

•Obtain feedback to learn about and improve strategy

 Financial perspective

Indicate whether company’s strategy implementation and

execution are contributing to bottom-line improvement
•Profitability
t ive e
c ll w
•Operating income, r sp
e
wi ers
l Pe how old
ia ed, reh
•Return-on-capital employed (ROCE) an cce sha
c
n
Fi su our
e to
•EVA w
“If look

•Growth
•Cash flow
 t ive e
Financial perspective p ec ill w
ers w w ers
l P ho old
cia ed, reh
a n ce ha
n c s
Increase EVA to +2% Fi su our
f w e k to
“I loo

Revenue Growth Strategy Productivity Strategy

New Products High end products Cost Productivity

 Customer Perspective

Customer & Market segment in which the unit is

competing e
c tiv how
•Performance in the targeted markets s pe on, r
e r si u
r P vi o o
e my k t
•Customer satisfaction t o ve loo rs?
m
us ie e e
h
C c t w to m
•Customer retention o
a us us
c
“T m
•New customer acquisition
•Customer profitability
•Specific measures of value propositions- short lead
time or on-time delivery
•New approaches to satisfy emerging needs
 Customer Perspective

Win-win Relations with

Differentiators Channel partners

On time Relation Technical Survey Assistance

delivery ship support

•Basic Requirement
•Clean
•Quality
•Variability within
specified limits
 Internal –Business-process perspective

Critical internal process in which organization must

excel
Deliver value Satisfy shareholders
proposition expectations e a t
ctiv er, I
s pe tom ust
r
Pe c us s m
n al my se
t er sfy ces l?”
In ati pro xce
s h e
o i c
“T wh
Internal – Process
Identify entirely new process at which organization must
excel to meet customer & financial objectives
Internal –Business-process perspective

Customer Value lowest cost producer

Proposition

e a t
ctiv er, I
Achieve Operational s pe tom ust
r
Pe c us s m
excellence n al my se
t er sfy ces l?”
In ati pro xce
s h e
o i c
“T wh
 Learning and growth perspective

Infrastructure that organization must build to create

long-term growth and improvement

e? y
•People based measures

ov t m
’’
pr us
an , ho ning
im m
ar on ar
d w
•ESI

le visi Le
n
tio my tio
a
•Competencies

ni ve niz

n
ga hie a
or ac Org

n
•Skill Mix

za
o
“T
•Systems (Technology)
Learning and growth perspective

Motivated and prepared

workforce

Climate for Competencies IT Technology

action
•ESI
Cause and Effect Relationship

ROCE

Customer
Loyalty

On-line
delivery

Process Process
Quality Cycle Time

Employee
Competency
 Four perspectives: Are they sufficient

•Community perspective - Social responsibility

•Suppliers perspective

Question : Is it vital for success of business unit’s

strategy?
 The Balanced Scorecard Effectively
Communicates
How Well the MSO Is Achieving Their
Massachusetts Special Olympics Mission Statement
Mission
Objectives Measures Objectives Measures
Positive Image  # of new programs / # Training & Competition  # athlete
athletes
Financial

Customer /
able to find a team

Donor

Community Volunteer

Athlete
Controlled Cost  Cities wit
retention / recruitment registered athletes
Involvement  New donors Quality Programs  Fee incre
Athlete Outreach /  Donor Community For  Family
feedback feedback
Program Expansion  # athletes in Athletes  # of acti
outreach program outside of competit

Objectives Measures
Operations

Organization and Administration  % Plans

Internal

distributed team
Public Relations meetings  # area management
team
 $ raised
Training  # training classes
offered outreach  # first time athletes
Objectives Measures
Knowledge of MSO  Volunteers trained in MSO
Operations

and sports
Internal

Management  Registration forms in one

time
 Program guide distribution
Database Management  Volunteers in database
Recognition  Advanced coaches’ training/
coaches’/ meetings
 Balanced Scorecard -
Example
Vision
To provide patients, families and primary care physicians with
the best, most compassionate care possible and to excel at
communications
Customer Financial
Patient Primary Care • Operating Margin
Physician
• Cost per Case • Revenue from
• % Satisfied • % Satisfied with
Neonatal Care
• % would Recommend Communication
• % Parents Could • % Parents Could
Articulate Care Plan Identify DCH Physician
• Discharge Timeliness

Internal Processes
Wait Time Quality Productivity
• Admissions • Infection Rates • Length of Stay
• Discharge • Blood Culture • Readmission Rate
Contaminate Rate • Daily Staffing vs.
• Use of Clinical Occupancy
Pathways (Top 10)

Learning & Growth

• Incentive Plan • Strategic Database
- Awareness - Availability
- Implementation - Use
A successful Balanced
Scorecard program starts
with a recognition that it is
not a metrics” project, it’s a
“change” process.
 A Good Balanced Scorecard
Describes the Organization
Strategy.
Financially Strong Strategic Objectives Strategic Measures

Financially Strong F1 Return on Capital  ROCE

Employed  Cash Flow
 Net Margin Rank (vs.
Financial

F2 Existing Asset Competition)

Utilization  Full Cost per Gallon
F3 Profitablity Delivered (Vs.
Competition)
F4 Industry Cost  Volume Growth Rate
Leader vs. Industry
F5 Profitable Growth  Premium Ratio
 Non-Gasoline Revenue
and Margin

Delight the Customer C1 Continually Delight  Share of Segment in

Customer

the Targeted Selected Key Markets

Consumer  Mystery Shopper
Win-Win Dealer Rating
C2 Build Win-Win 
Relationship Dealer Gross Profit
Relations with
Growth
Dealer  Dealer Survey
 A Good Balanced Scorecard
Describes the Organization
Strategy.
Build the Franchise I1 Innovative products  New Product ROI
and services  New Product
Acceptance Rate
I2 Best-in-class 
Increase Customer Dealer Quality Score
Franchise Teams 
Value Yield Gap
I3 Refinery  Unplanned Downtime
Internal

Performance  Inventory Levels

 Run-out Rate
Operational Excellence I4 Inventory  Activity Cost. vs.
Management Competition
I5 Industry Cost  Perfect Orders
Good Neighbor
Leader  Number of
Environmental
I6 On Spec-On Time Incidents
 Days Away from Work
I7 Improve EHS
Rate
Motivated and L1 Climate for Action  Employee Survey

Learning &

Prepared Workforce Personal BSC (%)

L2 Core Competencies
growth

 Strategic Competency
and Skills
Availability
L3 Access to Strategic  Strategic Information
Information Availability
 MAKE STRATEGY EVERYONE’S JOB

CORP
SBU
Top-Down “Bridging
Process” To Share the • EDUCATION Bottom-Up Process
Strategy & Align the to Internalize &
Workforce • PERSONAL GOAL Execute the Strategy
ALIGNMENT

• BALANCED PAYCHECKS

The Strategy Focused Workforce

Build STRATEGY-FOCUSED ORGANIZATIONS

1 Mobilize Change
through Executive
Leadership
• Mobilization
• Governance Processes 5
• Strategic Management Make Strategy
2 Translate the a Continual
Strategy to process
Operational Terms
• Link Budgets & Strategy
• Strategy Mape • Strategic Learning
• Balanced Scorecards STRATEG • Analysis & Information System
Y

4
Make Strategy
3 Align the Everyone’s Job
Organization to
the Strategy • Strategic Awareness
• Personal Scorecard
• Corporate Role • Balanced Paychecks
• Business Unit Synergic
• Support Unit Synergic
 Describing Strategy : Strategy Is a Step in a
Continuum
MISSION
Why we exist
VALUES
What we believe In
VISION
What we want to be
STRATEGY
Our game plan
BALANCED SOCRECARD
Implementation & Focus
STRATEGIC INITIATIVES
What we need to do
PERSONAL OBJECTIVES
What I need to do

STRATEGIC OUTCOMES

Satisfied Delighted Satisfied Motivated & Prepared

SHAREHOLDERS CUSTOMERS PROCESSES WORKFORCE
What Is A Good Balanced Scorecard?
#1. Executive Involvement
Strategic decision makers must validate
the strategy and related measures

#2 Cause-and-Effect Relationships
Every objective selected should be part
of a chain of cause and effect that
represents the strategy

#3 Performance Drivers
A balance of outcome measures and
leading measures facilitates anticipatory
management

#4 Linked to Budget/Financials
Every measure selected can ultimately
be supported/enabled by Budgetary
Funds

#5 Change Initiatives
Aligned Strategic Initiatives that change
the behavior of the organization
CORPORATE LEVEL
STRATEGIES
 Types of CLS
• Growth/expansion
• Stability
• Retrenchment
• combination
 Growth/Expansion

A) INTENSIFICATION
 Market penetration
 Market development
 Product development
 Innovation

B) DIVERSIFICATION
 Concentric
 Conglomerate
 Forward
 Backward
 Concentric Diversification(RELATED)

• When an org diversifies into a related but

distinct business. With concentric
diversification, new businesses can be
related to existing businesses through
products, markets or technology.
Example: Philips into Cellular phones,etc
CONGLOMERATE(UNRELATED)
• An org diversifies into an area that are
unrelated to its business. The decision is
taken due to technological change.
 STABILITY STRATEGY
• When firms are satisfied with their current rate of growth
and profits, they may decide to use a stability strategy.
This strategy is essentially a continuation of existing
strategies. Such strategies are typically found in
industries having relatively stable environments. The firm
is often making a comfortable income operating a
business that they know, and see no need to make the
psychological and financial investment that would be
required to undertake a growth strategy.
RETRENCHMENT STRATEGIES
• Retrenchment strategies involve a reduction in
the scope of a corporation's activities, which
also generally necessitates a reduction in
number of employees, sale of assets associated
with discontinued product or service lines,
possible restructuring of debt through
bankruptcy proceedings, and in the most
extreme cases, liquidation of the firm.
 DIVESTMENT STRATEGY
• A divestment decision occurs when a firm
elects to sell one or more of the
businesses in its corporate portfolio.
Typically, a poorly performing unit is sold
to another company and the money is
reinvested in another business within the
portfolio that has greater potential.
BUSINESS-LEVEL STRATEGIES
• Business-level strategies are similar to
corporate-strategies in that they focus on
overall performance. In contrast to
corporate-level strategy, however, they
focus on only one rather than a portfolio of
businesses. Business units represent
individual entities oriented toward a
particular industry, product, or market
• A common focus of business-level
strategies are sometimes on a particular
product or service line and business-level
strategies commonly involve decisions
regarding individual products within this
product or service line. There are also
strategies regarding relationships between
products.
 ANALYSIS OF BUSINESS-LEVEL
STRATEGIES
• PORTER'S GENERIC STRATEGIES.:
Cost leadership Strategy

Differentiation Strategy

Focus Strategy
 COST LEADERSHIP
• Cost-leadership strategies require firms to
develop policies aimed at becoming and
remaining the lowest cost producer and/or
distributor in the industry. Note here that the
focus is on cost leadership, not price leadership.
This may at first appear to be only a semantic
difference, but consider how this fine-grained
definition places emphases on controlling costs
while giving firms alternatives when it comes to
pricing (thus ultimately influencing total
revenues).
 DIFFERENTIATION STRATEGY
• Differentiation strategies require a firm to create something
about its product that is perceived as unique within its market.
Whether the features are real, or just in the mind of the
customer, customers must perceive the product as having
desirable features not commonly found in competing products.
The customers also must be relatively price-insensitive.
Adding product features means that the production or
distribution costs of a differentiated product will be somewhat
higher than the price of a generic, non-differentiated product.
Customers must be willing to pay more than the marginal cost
of adding the differentiating feature if a differentiation strategy
is to succeed.
 FOCUS STRATEGY
• Focus, the third generic strategy, involves concentrating on a
particular customer, product line, geographical area, channel
of distribution, stage in the production process, or market
niche. The underlying premise of the focus strategy is that the
firm is better able to serve its limited segment than
competitors serving a broader range of customers. Firms using
a focus strategy simply apply a cost-leader or differentiation
strategy to a segment of the larger market. Firms may thus be
able to differentiate themselves based on meeting customer
needs through differentiation or through low costs and
competitive pricing for specialty goods.
•
 COMPETITIVE ADVANTAGE
• Competitive advantage occurs when a organization
acquires or develops an attribute or combination of
attributes that allows it to outperform its competitors.
These attributes can include access to natural
resources, such as high grade ores or inexpensive
power, or access to highly trained and skilled personnel
human resources. New technologies such as robotics
and information technology either to be included as a
part of the product, or to assist making it. The term
competitive advantage is the ability gained through
attributes and resources to perform at a higher level than
others in the same industry or market
 How to build/acquire CA?
• Innovation
• Integration
• Alliances/mergers/acquisitions
• R&D
• Entry Barriers
• Benchmarking
• Value chain approach
 How to build/acquire CORE
COMPETENCE?
• Focus on two or more skills
• Low cost strategies
• Benefits of cost leadership
STRATEGIC ANALYSIS AND CHOICE
 STRATEGY CHOICE
• How effective has the existing strategy
been?
• How effective will that strategy be in the
future?
• What will be the effectiveness of selected
strategies?
 STRATEGY CHOICE
• Strategists collect and evaluate information to assess strengths and
weaknesses of the internal environment and opportunities and
threats of the external environment. Such an assessment presents a
list of possible strategic alternatives.From among those alternatives,
choices are made.
• It determines the characteristics and forms of an organization's
strategic direction.

“the decision to select among the grand strategies

considered, the strategy which will best meet the
enterprise’s objectives”.
 GAP Analysis
• Gap analysis is a tool that helps a company to compare
its actual performance with its potential performance.

• It simply answer two questions - where are we now?

and where do we want to be? .

• The difference between the two is the GAP - this is how

you are going to get there.
 Tools of Determining Strategic Choice

• BCG Portfolio
• GE Multifactor Portfolio Matrix
• Hofer’s Product-Market Evolution Matrix
• Shell Direction Policy
• Industry’s level policy
• Porter’s five forces model
Portfolio Analysis
And
BCG Matrix
 The Growth Share Matrix

• It evaluates the strength of a firm from the portfolio of

businesses or products the firm has in different stages of PLC,
which are required for future growth.

• It analyses the impact of investing resources in different SBUs

on the corporate’s future earnings and cash flow.
 SBUs are evaluated from two ways

1. Industry attractiveness
(market growth)

And

2. Competitive strength
(relative market share)
 The Growth Share Matrix

A Matrix is created considering the market

growth and relative market share of all the
businesses in their respective industries
and businesses are placed in that matrix for
analysis and evaluation.
 The Growth Share Matrix

• The market growth rate on the vertical axis is

the proxy measure for the industry
Attractiveness.

• The relative market share is proxy for its

competitive strength in the industry.
 BCG Growth-Share Matrix
In BCG approach, the company classifies all its SBUs into
4 types as
“star”,
“cash cow”,
“question mark”
and
“dog”
according to their market growth and relative market
share.
 The BCG Matrix
High

Question
Market growth rate

Stars
marks

Cash cows Dogs

Low
High Relative market share Low

Source: Perspectives, No. 66, “The Product Portfolio,” Adapted by permission from The Boston Consulting Group, Inc., 1970.
 BCG Matrix

Stars Problem Child

?
Market growth rate

$
Cash Cows Dogs

Relative market share

 BCG Matrix

Stars Problem Child

Market growth rate

Revenue +++ Revenue +

+ Expenses ___
Expenses _ _ _ _
Net + Net ___

Revenue + + + Revenue + +
++ Expenses _ _ _ _
Expenses _ Net ___
Net +++
+ Cows
Cash Dogs

Relative market share

BCG Market Share/Market Growth Matrix
 BCG Matrix
• Dogs are businesses that have a very small
share of a market that is not expected to grow.
• Cash cows are businesses that have a large
share of a market that is not expected to grow
substantially.
• Question marks are businesses that have only a
small share of a quickly growing market.
• Stars are businesses that have the largest share
of a rapidly growing market.
 Stars

are high-growth, high-share businesses or

products. They often need heavy investment
to finance their rapid growth. Therefore,
they may not be producing a positive cash
flow. The business strategy will generally be
for growth fueled by externally acquired
capital. Eventually, their growth will slow,
and they will turn into cash cows.
 Cash cows

are low-growth, high-share businesses or

products. These established and successful SBUs
need less investment to keep their market share.
They produce a lot of cash to be used for other
business units of the company. They are either
milked for investment in stars or question marks or
harvested if there is little optimism for a stable
future.
 Question marks

sometimes called problem children, are low-

share business units in high-growth markets.
They need a lot of cash to keep and increase
their share; they can not generate enough
cash themselves. Management must decide
which question mark it should build into stars
and which should phase out.
 Dogs

are low-growth, low-share businesses and

products. They often have poor
profitability. Therefore, the business
strategy for a dog is most often to divest,
but occasionally to hold for possible
strategic repositioning as a question mark
or cash cow.
 Portfolio Strategies
BUILD
Does the SBU have the potential to be a star?

HOLD
Can you maintain and preserve market share?

HARVEST
.
Increase the short-term return without
Four impacting long-run prospects.
Portfolio
Strategies DIVEST
Is it appropriate to dump SBU’s
with low-growth potential?
 Limitations of the BCG Matrix
1. Market Growth rate is an inadequate descriptor of
overall industry attractiveness.

2. Relative market share is inadequate as a descriptor of

overall competitive strength.

3. The analysis is highly sensitive to how growth and

share are measured.

4. It provide little guidance on how best to implement the

investment strategies.

5. The model implicitly assumes that business units are

independent or one another except for the flow of cash.
 How to Identify SBUs?
• It is the basic competitive unit of a company.
• It has a specific and identifiable group of customers.
• It has specific and identifiable competitors.
• It can be measured as an independent entity in
terms of profit and loss.
• Therefore, it may require a separate marketing
strategy.
 GE / McKinsey Matrix
• In consulting engagements with General Electric
in the 1970's, McKinsey & Company developed
a nine-cell portfolio matrix as a tool for screening
GE's large portfolio of strategic business units
(SBU). This business screen became known as
the GE/McKinsey Matrix and is shown below:
• The GE matrix has nine cells vs. four cells in
the BCG matrix. •
• The GE / McKinsey matrix is similar to the
BCG growth-share matrix in that it maps strategic business
units on a grid of the industry and the SBU's position in the
industry. The GE matrix however, attempts to improve upon
the BCG matrix in the following two ways:
∀• The GE matrix generalizes the axes as "Industry
Attractiveness" and "Business Unit Strength" whereas the
BCG matrix uses the market growth rate as a proxy for
industry attractiveness and relative market share as a proxy
for the strength of the business unit.
 Industry Attractiveness

• The vertical axis of the GE / McKinsey matrix is industry

attractiveness, which is determined by factors such as
the following:
 Market growth rate
 Market size
 Demand variability
 Industry profitability
 Industry rivalry
 Global opportunities
 Macroenvironmental factors (PEST)
Each factor is assigned a weighting
that is appropriate for the industry.
The industry attractiveness then is
calculated as follows:
 Business Unit Strength
The horizontal axis of the GE / McKinsey matrix is the strength of
the business unit. Some factors that can be used to determine
business unit strength include:
Market share
Growth in market share
Brand equity
Distribution channel access
Production capacity
Profit margins relative to competitors
The business unit strength index can be calculated by multiplying the estimated
value of each factor by the factor's weighting, as done for industry attractiveness.
 GE MATRIX contd..

Industry attractiveness and business unit

strength are calculated by first identifying
criteria for each, determining the value of
each parameter in the criteria, and
multiplying that value by a weighting factor.
The result is a quantitative measure of
industry attractiveness and the business
unit's relative performance in that industry
Industry attractiveness =
factor value1 x factor weighting1
+ factor value x factor weighting +…
 Plotting the Information
Each business unit can be portrayed as a circle
plotted on the matrix, with the information
conveyed as follows:
Market size is represented by the size of
the circle.
Market share is shown by using the circle
as a pie chart.
The expected future position of the circle is
portrayed by means of an arrow.
 The following is an example of such a representation:

The shading of the above circle indicates a 38%

market share for the strategic business unit. The
arrow in the upward left direction indicates that
the business unit is projected to gain strength
relative to competitors, and that the business unit
is in an industry that is projected to become more
attractive. The tip of the arrow indicates the
future position of the center point of the circle.
 Strategic Implications

Resource allocation recommendations can be made to

grow, hold, or harvest a strategic business unit based on
its position on the matrix as follows:
• Grow strong business units in attractive industries,
average business units in attractive industries, and
strong business units in average industries.
• Hold average businesses in average industries,
strong businesses in weak industries, and weak
business in attractive industries.
 Harvest weak business units in unattractive
industries, average business units in unattractive
industries, and weak business units in average
industries.
There are strategy variations within these three
groups. For example, within the harvest group
the firm would be inclined to quickly divest itself
of a weak business in an unattractive industry,
whereas it might perform a phased harvest of an
average business unit in the same industry.
 LIMITATION GE
• While the GE business screen represents an
improvement over the more simple BCG growth-
share matrix, it still presents a somewhat limited
view by not considering interactions among the
business units and by neglecting to address the
core competencies leading to value creation.
Rather than serving as the primary tool for
resource allocation, portfolio matrices are better
suited to displaying a quick synopsis of the
strategic business units.
 GE Mckinsey Matrix

Bus STR AVERA WEAK

Str Ind at - ONG GE

High
GROW

AVERAGE
HOLD

Low HOLD HARVEST

 Hofer’s product Market evolution
• According to Hofer and Schendel, "The
Principal difficulty with GE Business
Screen is that it does not depict as
affectively at it might the positions of
new businesses that are just starting to
grow in new industries.
• Major changes in basic competitive
position occur in the stages of
development, shakeout and decline
because in these stages the basic nature
of competition changes. It is more difficult
to make changes to competitive position in
the other stages of growth, maturation and
saturation as the bases for competition are
usually well established.
• Market shifts during these stages of the market evolution
do happen however and can be caused by:
 a major blunder by the industry leader
 a major investment program by a well positioned follower
 through the acquisition and effective integration of another firm
within the industry
 through a sustained effort to produce small, consistent
incremental advantages over a long period of time .
Stages of Product-market evolution
 Direction Policy Matrix
• It uses two dimensions-business sector prospects and company’s
competitive capabilities-in order to choose appropriate strategies.

• Each dimension is further divided into three degress:business

sector prospects into attratctive,unattractive and average
and company's competitive capabilities into strong, average
and weak. The combination of two dimensions further sliced into
three compartments gives a nine cell matrix.
• Leader – Top position; major resources are focused upon the SBU.

• Try harder – Average capabilities but operating in attractive prospects. New additional
resources top strengthen their position.

• Double or quit – Business prospects are attractive but company’s own resources are
weak. Two possibilities either INVEST MORE or QUIT

• Growth - grow the market by focusing on R&D,innovations.

• Custodial – Average position in both the cases bear with the situation with little help
from other product divisions.

• Cash Generator – strong capabilities but unattractive prospects .May continue for
satisfactory profits.

• Phased withdrawal – Average to weak position, little chance of generating cash..

• Divest – Business Capabilities are weak here.SBU;s running in losses with uncertain
cash flows. Not likely o improve in future..
 Business-Level Strategic Analysis
• Industry analysis
• Strategic Group analysis
• Competitor analysis
• Life cycle analysis
• SWOT Analysis
 Subjective Factors influencing
Strategic Choice
• Commitment of past strategies
• Attitudes towards risk
• Degree of firms’ external dependence
• Internal political considerations
• Time constraints
• Competitive reactions
• Corporate culture.
 STRATEGIC
IMPLEMENTATION
• “Implementation of strategies is concerned
with the design and management of
systems to achieve the best integration of
people,structures,processes and
resources in reaching organizational
purpose”.
 RESOURCE ALLOCATION
• While implementing strategies, the scarce
resources (financial,physical,human,etc)
resources need to be allocated carefully. In this
regard, one can follow, top-down and bottom-up
approach.
• In top -down approach resources are
allocated through a process of segregation
down to operating levels.
• In the bottom-up approach resources are
distributed after a process of aggregation
from the operating level
.
 Means of resource allocation
• Strategic Budget
• Capital budget
• Performance budget
• ZBB
• Decision package
• Ranking
• Resource allocation
 Structural Issues
• FUNCTIONAL STRUCTURE:A company
organized with a functional structure
groups people together into functional
departments such as purchasing,
accounts, production, sales, marketing.
These departments would normally have
functional heads who may be called
managers or directors depending on
whether the function is represented at
board level.
 Advantages
• Clarity
• Economies of scale
• Specialization
• Coordination
• In-depth skill development
• Suitability
 Limitations
• Effort Focus

• Poor decision-making

• Sub-unit conflicts

• Managerial vacuum
 PRODUCT DEPARTMENTATION
• The purpose of product departmentation is that every product is
handled by separate management team and the problems faced in
the development of a product are carried out by single group of
employees working in that unit.

• The disadvantage is that the product managers need to coordinate

each other for the resource sharing which becomes a difficult
process because of lesser communication between the product
divisions.

• Sometimes, products of the same company start competing with

each other which results in snatching one's division profit from other
division leaving behind net profit for the company zero. However this
kind of structure works best in the big organizations which have lots
of products in their product portfolio.
PRODUCT DEPARTMENTATION
• Advantage: The manager can aware about their
particular activity in the firm about the activities
which are related to the manufacturing a
product.
Disadvantage: Sometimes the managers and
employees do not meet the requirement of other
department which is somewhere related to their
particular department because they are working
in their department and there is no more
communication between the other departments
GEOGRAPHIC DEPARTMENTATION
 MATRIX ORGNAISATION
STRUCTURE
• A Matrix structure organisation contains
teams of people created from various
sections of the business. These teams will
be created for the purposes of variety of
projects rather than a specific project and
will be led by a project manager. Often the
team will only exist for the duration of the
projects and matrix structures are usually
deployed to develop new products and
services .
The advantages of a matrix include
• Individuals can be chosen according to the
needs of the project.
• The use of a project team which is dynamic
and able to view problems in a different way
as specialists have been brought together in a
new environment.
• Project managers are directly responsible for
completing the project within a specific
deadline and budget.
 the disadvantages include
• A conflict of loyalty between line managers
and project managers over the allocation
of resources.
• If teams have a lot of independence can
be difficult to monitor.
• Costs can be increased if more managers
(ie project managers) are created through
the use of project teams
 Factors affecting Organizational
structure
• Size

• Technology

• Environment

• People
 PROJECT MANAGEMENT

• Project management is a carefully planned and

organized effort to accomplish a specific (and usually)
one-time objective.
• for example, construct a building or implement a major
new computer system.

• Project management includes developing a project plan,

which includes defining and confirming the project goals
and objectives, identifying tasks and how goals will be
achieved, quantifying the resources needed, and
determining budgets and timelines for completion..
• It also includes managing the implementation of
the project plan, along with operating regular
'controls' to ensure that there is accurate and
objective information on 'performance' relative to
the plan, and the mechanisms to implement
recovery actions where necessary. Projects
usually follow major phases or stages (with
various titles for these), including feasibility,
definition, project planning, implementation,
evaluation and support/maintenance.
 Benefits of Project Mgt.
• Better efficiency in delivering services
• Improved/increased/enhanced customer satisfaction
• Enhanced effectiveness in delivering services
• Improved growth and development within your team
• Greater standing and competitive edge
• Opportunities to expand your services:.
• Better Flexibility:
• Increased risk assessment:.
• Increase in Quality:
 BUSINESS ETHICS
AND
SOCIAL RESPONSILBILTY
 VALUES
Values are those things that really matter to
each of us ... the ideas and beliefs we hold
as special. Caring for others, for example,
is a value; so is the freedom to express
our opinions.
 CULTURE
• The totality of socially transmitted behavior
patterns, arts, beliefs, institutions, and all other
products of human work and thought.
• These patterns, traits, and products considered
as the expression of a particular period, class,
community, or population:
• These patterns, traits, and products considered
with respect to a particular category, such as a
field, subject, or mode of expression:
 ETHICS
• a system of moral principles
• the rules of conduct recognized in respect to a
particular class of human actions or a particular
group, culture, etc.:
• .(usually used with a singular verb ) that
branch of philosophy dealing with values relating
to human conduct, with respect to the rightness
and wrongness of certain actions and to the
goodness and badness of the motives and ends
of such actions.
 BUSINESS ETHICS
• Business ethics (also known as Corporate
ethics) is a form of applied ethics that examines
ethical principles and moral or ethical problems
that arise in a business environment. It applies
to all aspects of business conduct and is
relevant to the conduct of individuals and
business organizations as a whole. Applied
ethics is a field of ethics that deals with ethical
questions in many fields such as medical,
technical, legal and business ethics.
Factors influencing business ethics
• Legislation

• Government rules & regulations

• Social pressures

• Conflicts between personal values and

needs of the firms.
 SOCIAL RESPONSIBILITY
• Social responsibility is an ethical or
ideological theory that an entity whether it
is a government, corporation, organization
or individual has a responsibility to society
at large. This responsibility can be
"negative", meaning there is exemption
from blame or liability, or it can be
"positive," meaning there is a
responsibility to act beneficently”.
• corporate responsibility is a form of corporate
self-regulation integrated into a business model.
Ideally, CSR policy would function as a built-in,
self-regulating mechanism whereby business
would monitor and ensure their adherence to
law, ethical standards, and international norms.
Business would embrace responsibility for the
impact of their activities on the environment,
consumers, employees, communities,
stockholders and all other members of the public
sphere.
• Corporate social responsibility (CSR) isn't just
about doing the right thing. It means behaving
responsibly, and also dealing with suppliers who
do the same. It also offers direct business
benefits.
 BENEFITS OF CSR
• A good reputation makes it easier to recruit
employees.
• Employees may stay longer, reducing the costs and
disruption of recruitment and retraining.
• Employees are better motivated and more
productive.
• CSR helps ensure you comply with regulatory
requirements.
• Activities such as involvement with the local
community are ideal opportunities to generate
positive press coverage.
• Good relationships with local authorities
make doing business easier. See the page in
this guide on how to
work with the local community.
• Understanding the wider impact of your
business can help you develop new products
and services.
• CSR can make you more competitive and
reduces the risk of sudden damage to your
reputation (and sales). Investors recognize
this and are more willing
LEADERSHIP
&
It’s STYLE
 Leadership

The ability to influence a group toward the

achievement of goals
 Principles of Leadership
• Know yourself and seek self-improvement - In order to know
yourself, you have to understand your be, know, and do, attributes.
Seeking self-improvement means continually strengthening your
attributes. This can be accomplished through self-study, formal
classes, reflection, and interacting with others.

• Be technically proficient - As a leader, you must know your job

and have a solid familiarity with your employees' tasks
.
• Seek responsibility and take responsibility for your actions -
Search for ways to guide your organization to new heights. And
when things go wrong, they always do sooner or later -- do not
blame others. Analyze the situation, take corrective action, and
move on to the next challenge
 Principles of Leadership
• Make sound and timely decisions - Use good problem
solving, decision making, and planning tools.
• Set the example - Be a good role model for your
employees. They must not only hear what they are
expected to do, but also see. We must become the
change we want to see - Mahatma Gandhi
• Know your people and look out for their well-being -
Know human nature and the importance of sincerely
caring for your workers.
• Keep your workers informed - Know how to
communicate with not only them, but also seniors and
other key people.
 Principles of Leadership
• Develop a sense of responsibility in your workers -.
• Ensure that tasks are understood, supervised, and
accomplished - Communication is the key to this
responsibility.
• Train as a team - Although many so called leaders call
their organization, department, section, etc. a team; they
are not really teams...they are just a group of people
doing their jobs.
• Use the full capabilities of your organization - By
developing a team spirit, you will be able to employ your
organization, department, section, etc. to its fullest
capabilities
Factors of leadership
 Factors of leadership
• Follower

• Leader

• Situation

• communication
 types of leaders
• Authoritarian
• Team Leader
• Country Club
• Impoverished
• Authoritarian Leader (high task, low relationship)
:
• People who get this rating are very much task oriented
and are hard on their workers (autocratic). There is little
or no allowance for cooperation or collaboration. Heavily
task oriented people display these characteristics: they
are very strong on schedules; they expect people to do
what they are told without question or debate; when
something goes wrong they tend to focus on who is to
blame rather than concentrate on exactly what is wrong
and how to prevent it; they are intolerant of what they
see as dissent (it may just be someone's creativity),
• Team Leader (high task, high relationship)

This type of person leads by positive example and

endeavors to foster a team environment in which
all team members can reach their highest
potential, both as team members and as people.
They encourage the team to reach team goals
as effectively as possible, while also working
tirelessly to strengthen the bonds among the
various members. They normally form and lead
some of the most productive teams.
• Country Club Leader (low task, high
relationship)
This person uses predominantly reward power to
maintain discipline and to encourage the team to
accomplish its goals. Conversely, they are
almost incapable of employing the more punitive
coercive and legitimate powers. This inability
results from fear that using such powers could
jeopardize relationships with the other team
members.
• Impoverished Leader (low task, low
relationship)
A leader who uses a "delegate and disappear"
management style. Since they are not
committed to either task accomplishment or
maintenance; they essentially allow their team to
do whatever it wishes and prefer to detach
themselves from the team process by allowing
the team to suffer from a series of power
struggles
The Process of Great Leadership

• Challenge the process - First, find a process that you

believe needs to be improved the most.
• Inspire a shared vision - Next, share your vision in
words that can be understood by your followers.
• Enable others to act - Give them the tools and methods
to solve the problem.
• Model the way - When the process gets tough, get your
hands dirty. A boss tells others what to do, a leader
shows that it can be done.
• Encourage the heart - Share the glory with your
followers' hearts, while keeping the pains within your
own.
 Managers Vs Leaders

Manager Characteristics Leader Characteristics

• Administers • Innovates
• A copy • An original
• Maintains • Develops
• Focuses on systems and structures • Focuses on people
• Relies on control • Inspires trust
• Short range view • Long range perspective
• Asks what and why
• Asks how and when
• Eye on horizon
• Eye on bottom line
• Originates
• Imitates • Challenges the status quo
• Accepts the status quo • Own person
• Classic good soldiers • Does the right thing
• Does things right
 Charismatic Leadership

Key Characteristics of Charismatic leaders

1. Self Confidence- They have complete confidence in their judgment and ability.

2. A vision- This is an idealized goal that proposes a future better than the status quo. The greater the disparity between
idealized goal and the status quo, the more likely that followers will attribute extraordinary vision to the leader.

3. Ability to articulate the vision- They are able to clarify and state the vision in terms that are understandable to others.
This articulation demonstrates an understanding of the followers’ needs and, hence acts as a motivating force.

4. Strong convictions about vision- Charismatic leaders are perceived as being strongly committed, and willing to take
on high personal risk, incur high costs, and engage in self-sacrifice to achieve their vision.

5. Behavior that is out of the ordinary- Those with charisma engage in behavior that is perceived as being novel,
unconventional, and counter to norms. When successful , these behaviors evoke surprise and admiration in followers.

6. Perceived as being a change agent- Charismatic leaders are perceived as agents of radical change rather than as
caretakers of the status quo.

7. Environmental sensitivity- These leaders are able to make realistic assessments of the environmental constraints
and resources needed to bring about change.
 Transactional vs Transformational leaders

Characteristics of Transactional and transformational leaders

Transactional Leaders
• Contingent Reward: Contracts exchange of rewards for effort, promises rewards for good
performance, recognizes accomplishment
• Management by exception (active): Watches and searches for deviations from rules and standards,
takes corrective action.
• Management by exception (passive): Intervenes only if standards are not met
• Laissez faire: Abdicates responsibilities, avoids making decisions

Transformational Leaders
• Charisma : Provides vision and sense of mission, instills pride, gains respect trust.
• Inspiration: Communicates high expectations, uses symbols to focus efforts, expresses important
purposes in simple ways.
• Intellectual Stimulations: Promotes intelligence, rationality, and careful problem solving.
• Individualized consideration: Gives personal attention, treats each employee individually, coaches,
advises.
 The Activities of Successful & Effective leaders

Description categories
Type of Activity
Derived from free Observation

Exchange Information
Routine Communication
Handling paperwork

Planning
Traditional Management Decision Making
Controlling

Interacting with outsiders

Networking
Socializing /Politicking

Motivating/Reinforcing
Disciplining/Punishing
Human Resource Management
Managing conflict
staffing
Training/Developing
What skills do leaders need?

• Personal Skills

•Coping with stressors

2.Managing
•Managing time
stress
•Delegating

1.Developing 3. Solving
Self-awareness Problems
creatively
•Using the rational approach
•Determining values •Using the creative approach
and priorities •Fostering innovation in others
•Identifying cognitive style
•Assessing attitude toward change
•Interpersonal Skills

•Gaining power
•Coaching •Exercise influence
•Counseling •Empowering others
•Listening 5. Gaining power
and influences

4. Communication 6. Motivating others

supportively

7. Management
conflict

•Diagnosing poor performance

•Identifying causes •Creating a motivating environment
•Selecting appropriate strategies •Rewarding accomplishment
•Resolving confrontations
 STRATEGIC LEADERSHIP
• Strategic leaders are generally responsible for
large organizations and may influence several
thousand to hundreds of thousands of people.
They establish organizational structure, allocate
resources, and communicate strategic vision.
• Strategic leaders work in an uncertain
environment on highly complex problems that
affect and are affected by events and
organizations outside their own.
• Strategic leaders apply many of the same leadership
skills and actions they mastered as direct and
organizational leaders; however, strategic leadership
requires others that are more complex and indirectly
applied.
• Strategic leaders, like direct and organizational leaders,
process information quickly, assess alternatives based
on incomplete data, make decisions, and generate
support. However, strategic leaders’ decisions affect
more people, commit more resources, and have wider-
ranging consequences in both space and time than do
decisions of organizational and direct leaders..
 Features of Strategic Leaders
• Strategic vision
• Managing change
• Governance and management
• Culture
• Structure and policies
• Communications & network
Strategic Evaluation and
Control
Nature of Strategic Evaluation
Evaluate effectiveness of organisational
strategy in achieving organisational
objectives

Perform the task of keeping organisation

on track
Importance of Strategic Evaluation

The need for feedback

Appraisal and reward
Check on the validity of strategic choice
Congruence between decisions and intended
strategy
Successful culmination of the strategic
management process
Creating inputs for new strategic planning
Ability to coordinate the tasks performed
 Barriers in Evaluation

Limits of Controls
Difficulties in measurement
Resistance to evaluation
Short-termism
Relying on efficiency versus effectiveness
Requirements of Effective Evaluation

Control should involve only the minimum amount

of information
Control should monitor only managerial activities
and results
Control should be timely
Long term and short term control should be used
Control should aim at pinpointing exceptions
Rewards for meeting or exceeding standards
should be emphasized
Evaluation Criteria for a Strategy

• Qualitative Factors

• Quantative Factors
 Quantitative Factors
• Company’s performance over a period of time,

• Company’s performance with the competitor’s

• Company’s performance to industry averages.

• Ratio’s play an important role in evaluating the strategy in
quantitative terms:
 ROI
ROE
 Employee turnover
 Employee satisfaction index
 Return on capital employed
 Profit margin
 Debt to equity
 EPS
 Asset growth
Qualitative Factors
Consistency

Feasibility

Advantage
Strategic Control
Four Types of Strategic Controls
Premise Control

Implementation Control

Strategic Surveillance

Special alert control

 Premise Control
Premises control is necessary to identify the
key assumptions and its implementation.
Premises control serves the purpose of
continually testing 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 continuing
with a strategy which is based on erroneous
assumptions.
 Implementation Control

Implementation control is aimed at evaluating

whether the plans, programmes, and projects
are actually guiding the organization towards
its predetermined objectives or not.
 Strategic Surveillance

Strategic surveillance aimed at a more

generalized and overarching control
“designed to monitor a broad range of events
inside and outside the company that are likely
to threaten the course of a firm’s strategy”.
 Special Alert Control

Special alert control, which is based on a

trigger mechanism for rapid response and
immediate reassessment of strategy in the
light of sudden and unexpected events
 Operational Control

Aimed at the allocation and use of

organisational resources

Concerned with action or performance

 How do Strategic Control and
Operational Control Differ

Attribute Strategic Control Operational Control

1. Basic question Are we moving in the right How are we performing?

direction?
2. Aim Proactive, continuous Allocation and use of
questioning of the basic organisational resources
direction of strategy
3. Main Concern Steering the organization’s Action control
future direction

4. Focus External environment Internal organization

5. Time Horizon Long- term Short- term

6. Main Techniques Environmental scanning, Budgets, schedules, and

information gathering, MBO
questioning and review
 Process of Evaluation
• Setting standards of performance

• Measurement of performance

• Analyzing variances

• Taking corrective action

 Setting of Standards
Quantitative Criteria
 It has performed as compared to its past
achievements
 Its performance with the industry average or
that of major competitors
Qualitative Criteria

There has to be a special set of qualitative criteria for a

subjective assessment of the factors like capabilities,
core competencies, risk- bearing capacity, strategic
clarity, flexibility, and workability
Measurement of Performance
The evaluation process operates at the
performance level as action takes place.
Standards of performance act as the
benchmark against which the actual
performance is to be compared. It is
important, however, to understand how
the measurement of performance can take
place.
 Analyzing Variances
The measurement of actual performance and its
comparison with standard or budgeted
performance leads to an analysis of variances.
Broadly, the following three situations may arise:
The actual performance matches the budgeted
performance
The actual performance deviates positively over
the budget performance
The actual performance deviates negatively from
the budgeted
 Taking Corrective Actions

There are three courses for corrective

action: checking of performance, checking
of standards, and reformulating strategies,
plans, and objectives.
 Techniques of Strategic
Evaluation and Control

Evaluation Techniques for Strategic Control

Evaluation Techniques for Operational Control

Evaluation Techniques for Strategic
Control

Techniques for strategic control could be

classified into two groups on the basis of the
type of environment faced by the organisation.
The organisation that operate in a relative stable
environment may use strategic momentum
control, while those which face a relatively
turbulent environment may find strategic leap
control more appropriate.
 Evaluation Techniques for
Operational Control
Operational control is aimed at the
allocation and use of organisational
resources
The evaluation techniques are classified
into three parts:
Internal analysis
Comparative analysis
Comprehensive analysis.
 What is Strategic control?
“…it is the process by which managers
monitor the ongoing activities of an
organization and it’s members to evaluate
whether activities are being performed
efficiently and effectively and to take
corrective action to improve performance if
they are not…”
The importance of Strategic Control
• The success of a chosen strategy
• The implementation compass
• Organizational performance
• Ensuring competitive advantage
Strategic Control:
• Requires more than re-acting on past
performance
• Keeps the organization on track
• Anticipating events that might occur in
future
• Allows the organization to respond to new
opportunities that may present itself
 The importance of Strategic Control
& quality:

:
• Efficiency measures how many units of inputs
are being used to produce a single unit of output
• Must also measure how many units are
produced
• The control system should contain these
measures
 The importance of Strategic Control
& quality:

• Organizational control is important because it determine

the quality of goods & services
• Can make continuous improvements to quality over time
and this gives them a competitive advantage
• Customer complaints is the basis for determining the
quality of a product or service
• Total Quality Management can be regarded as control
system
 The importance of Strategic Control
& Innovation:

:
• Managers must create an environment in
which people feel free to experiment and
take risks
• Managers are challenged to build control
systems that encourage risk taking
• Measures cost reduction, process
improvement and improved quality
measures.
Control and Innovation
• Problem: Time wasted due to unavailable parts
from central store. Electrical workshop not close to
central store (Witbank Municipality)
• Electricians designed a innovative solution through
simple measures (trips to stores per electrician per
day
• Applied 80/20 principle Established decentralized
store
• Major savings
 STRATEGIC CONTROL
Strategic Control Systems
“… are the formal target setting ,
measurement and feedback systems that
allow strategic managers to evaluate
whether the company is achieving on the
four building blocks of a competitive
advantage..”
Types of Control systems
• Financial controls
• Output controls
• Behavior controls
• Organization culture
 STRATEGIC CONTROL
Financial controls
• Growth
• Profitability
• ROCE
• Share prices( Private sector)
Is a favorite control because it is objective
 STRATEGIC CONTROL
Types of Control systems
• Output controls: It is a system of control in which
managers estimate or forecast appropriate performance
goals for each division, department and employee and
measure achievement against these goals
• Divisional Goals
• Functional Goals
• Individual Goals
 STRATEGIC CONTROL
Types of Control systems
Divisional Goal
Goal: “To be the number 1 or 2 in the
industry in terms of market share”
 STRATEGIC CONTROL
Types of Control systems
Behavior controls: “ happens through the
establishment of a comprehensive systems of
rules and procedures to direct the actions of
divisions, functions and individuals
• Operating budgets
• HR rules & regulations
• Standardization
 STRATEGIC CONTROL
Strategic Control Systems
Characteristics
• Be flexible to allow managers to respond as
necessary to unexpected events;
• Should provide accurate information, giving a
true picture of organizational performance;
• Should provide information in a timely manner
 STRATEGIC CONTROL PROCESS

Four steps to design an effective control system:

1. Establish the standards & targets against which
performance is to be evaluated;
2. Create the measuring & monitoring systems that
indicate whether the standards & targets are being
reached;
3. Compare actual performance against established
targets
4. Initiate corrective action when it is decided that the
standards & targets are not being achieved
 STRATEGIC CONTROL
Kinds of measures
Efficiency: Level of production costs, number of hours needed to
produce an item, cost of raw materials

Quality: Number of rejects, number of customer returns, level of product

reliability

Innovation: number of new products introduced, time taken to market;

cost of product development

Responsiveness to customers: number of repeat

customers; level of on-time delivery to customers, level of customer service