BUSINESS POLICY AND STRATEGIC ANALYSIS

Paper code: 2.31/5.91/3.31

Unit-I
Business policy as a fiel of stuy! natu"e an o#$ecti%es of #usiness policy!
st"ate&ic 'ana&e'ent p"ocess-%ision( 'ission( esta#lis)'ent of o"&anisational
i"ection( co"po"ate st"ate&y( st"ate&ic acti%ation*
+u* , Is t)e"e any istinction #et-een #usiness policy an St"ate&ic .ana&e'ent/ Discuss t)e
co'p"e)ensi%e 'oel of st"ate&ic 'ana&e'ent p"ocess*
Ans A distinction between policy and strategic management is made on following basis :
(a) Guidelines Vs Direction : Policy is a guide line to the thinking and action of those whose finally take
decision. hile the strategic concerns with the direction in which human and physical resources are
deployed and applied in order to ma!imi"e the chances of achie#ing organi"ational ob$ecti#es in the face
of en#ironmental #ariables.
(b) Directions and %ules for taking Decisions & Ausff makes differences between policy and strategy by
arguing that policy is contingent decision whereas strategy is a rule for taking decisions. A contingent
e#ent is repetiti#e but at the time of its stipulated occurrence cannot be specified. 't is not worthwhile to
decide e#ery time what to do when such contingencies arises. 't is better to decide in ad#ance what will
be done in such contingent e#ents.
(c) Delegation Vs 'mplementations : Another distinction between policy and strategy is made on basis of
delegation and implementation. (ince the policy pro#ides guidelines for decision) it can be delegated
downwards in the organisation. 'n fact) the policy id prescribed for the people what they are e!pected to
do in certain cases. *hus its implementation is through subordinate managers. (trategy can not be
delegated downwards since it may re+uire last minute e!ecuti#e decision.
Co'p"e)ensi%e 'oel of St"ate&ic .ana&e'ent : *he process of strategic management is depicted
through model) which consist of different phases) each ha#ing a number of elements. ,ur purpose in
gi#ing a working model) de#oid of comple!ity obser#ed in the comprehensi#e model is to assist you in
remembering and recalling it with ease. Various elements in strategic management process are as
under:
(a) *he -ierarchy ,f (trategic 'ntent : 't lays foundation for the strategic management of any organisation.
'n this hierarchy) the #ision business definition) mission and ob$ecti#es are established. *he strategic
intent makes clear what an organisation stand for. *he element of #ision in hierarchy of strategic ser#es
the purpose of stating what an organisation wishes to achie#e in the long run. *he ob$ecti#es of an
organisation state what is to be achie#ed in a gi#en time period. *hese ob$ecti#es ser#e as yardsticks
and benchmark for measuring oranisational performance
(b) .n#ironmental and ,rganisational appraisal: 't helps to find out the opportunities and threats
operating in the en#ironment and the strength and weaknesses of an organisation in order to create a
match between them. 'n such a manner opportunities could be a#ailed of and the impact of threats
neturalised to capitali"e on the organisation strength and minimise the weaknesses.
(c) (trategic Alternati#es and /hoice: *hese are re+uired for e#ol#ing alternati#e strategies out of many
possible options and choosing the most appropriate strategy or strategies in the light of en#ironmental
opportunities) threats) corporate strength and weaknesses. (trategies are chosen at corporate and
business le#el.
(d) (trategic Plan : 0or implementation of a strategy) the strategic plan is put into action through si! sub
process such as:
(i) Pro$ect 'mplementation: 't deals with setting up the organisation.
(ii) Procedural 'mplementation: 't deals with different aspects of regulatory framework within
which 'ndian organisations ha#e to operate.
(iii) %esources Allocation: 't relates to the procurement and commitment of resources for
implementation.
(i#) (tructural 'mplementation: 't deals with the designing of appropriate organi"ational structures and
systems and reorgani"ing to match the structure to the needs of the strategy.
(#) 1eha#ioral: 't is considered as the leadership style for implementation strategies and other issues
like corporate culture) politics and use of power impersonal #alues) business ethics and social
responsibilities.
(#i) 0unctional and ,perational: *his aspect relates to the policies to be formulated in different
functional areas. *he operational aspect deals with the producti#ity) process) people and ace of
implementing the strategies.
(e) (trategic .#aluation : 't appraises the implementation of strategies and measures organi"ational
performance. *he feedback from strategic management e#aluation is meant to e!ercise
strategic control o#er the strategic management process.
+u* 0 1)y o fi"'s )a%e o#$ecti%es/ Ela#o"ate )o- 'ission an o#$ecti%es a"e
fo"'ulate/
Ans. O#$ecti%es : *he ob$ecti#es of a business firm are as under:
(a) 1usiness /oncepts: *he learners of business policies ha#e to understand the #arious concepts
in#ol#ed. 2any of these concepts) like strategy) policies) plans and programmes are encountered in the
functional are courses too. 't is imperati#e to understand these concepts especially in the conte!t of
business policy.
(b) .n#ironmental 3nowledge: A knowledge of e!ternal and internal en#ironment and how it affects
functioning of business is #ital. *hrough the tools of analysis and diagnosis a lerner can understand the
en#ironment in which a firm operates.
(c) 'mplementation of (trategy: 't is a comple! issue and is in#ariably the most difficult part of strategic
management. *hrough the knowledge gained from business policy) the lerner would able to #isuali"e
how the implementation of strategic management can take place.
(d) Generalised Approach: *he problem in real business life is uni+ue and so are the solution is an
enlightened e!perience. *he knowledge component of such e!perience stress the general approach to
adapt in problem sol#ing and decision making.
(e) 'nformation: *he information about en#ironment helps in determination of the mission) ob$ecti#es
and strategies of a firm.
(f) %esearch: *o learn about the research taking place in the field of business policy is also an important
knowledge ob$ecti#e.
.ission an O#$ecti%es 2o"'ulation: *he mission and ob$ecti#es are formulated by the corporate le#el
strategists. 1ut these e!ecuti#es do not make choices in #acuum. *heir choices are affected by se#eral
factors such as&
(a) .!ternal .n#ironment and Power %elationship: *he realities) and past strategy and de#elopment of
the enterprise. *he stockholder with whom the organisation has an e!change relationship will present
demand or claims.
(uppose a manager want to choose sales ma!imi"ation as an ob$ecti#e. -e may ha#e to modified
these ob$ecti#es because of go#ernmental regulations regarding e!cess profit) consumer labeling and so
on. *rade union may re+uire higher wages than market) which leads to higher costs. /ompetitors may
sell their products at low price and spend e!cessi#e amount on ad#ertisements. (uppliers may become
monopoli"ed and charge outrageous prices. 'f the organisation is more dependent on suppliers than any
other stakeholder the operational ob$ecti#es may be limited by the a#ailability and cost of supplies.
(b) .nterprise %esources and 'nternal Power %elationship: *he second factor affecting the formulation of
mission and ob$ecti#es is the realities of the enterprise resources and internal power relationship. 4arger
and more profitable firms ha#e more resources with which to respond to forces in en#ironment than do
smaller or poorer firms. 2ission and ob$ecti#es are also affected by the power relationship among
strategies either as indi#idual or representations of units within the organisation. *hus if there is a
difference of opinion on which ob$ecti#es to seek or the trade offs among them power relationship may
help settle the difference.
(c) Goal of the *op .!ecuti#es: *he #alue system of top e!ecuti#es affects the formulation of mission
and ob$ecti#es. .nterprises with strong #alue system or ideologies will attract and regain managers
whose #alues are similar. *hese #alues are essentially a set of attitudes about what is good or bad)
desirable or undesirable.
+u 3* Define o#$ecti%es of #usiness policy/
Ans *he ob$ecti#es of business policy ha#e been stated by #arious authors in terms of knowledge) skill
and attitudes. *hese ob$ecti#es could be deri#ed from purpose of business policy:
3nowledge:
3nowledge of e!ternal and internal en#ironment is #ital to understanding of business policy.
*he information about en#ironment helps in determination of the mission) ob$ecti#es and
strategies of a firm.
*he implementation of strategy is a comple! issue and is in#ariably the most difficult part of
strategic management
*o sur#ey the literature and learn about the research taking place in the field of business policy is
also an important knowledge ob$ecti#e.
(kills:
*he study of business policy should enable a student to de#elop analytical ability and use it to
understand the situation in a gi#en case or incident.
*he study of business policy should lead to the skill of identifying the factors rele#ant in decision
making. *he analysis of strengths and weakness of an organisation) the threats and
opportunities present in the en#ironment.
*he abo#e ob$ecti#es in terms of skill increase the mental ability of the lerners and enable them to
link theory with practice.
As a part of business policy study case analysis leads to the de#elopment of oral as well as
written communication skills.
Attitudes:
*he attainment of the knowledge and skill ob$ecti#es should lead to the inculcation of an
appropriate attitude among the learners.
1y acting in an comprehensi#e manner) a generalist is able to function under conditions of partial
ignorance by using his or her $udgment and intuition.
0or a general manager information and suggestions are important to pose a liberal attitude and
be recepti#e to new ideas.
't is important to ha#e the attitudes to go beyond and think when faced with a problematic
situation. De#eloping a creati#e attitude is the hallmark of general manager who refuses to be
board by precedents and stereo typed decision.
C)a"acte"istics of #usiness policy: *he following are the main features of business policies:
(a) Policies are always in writing: *he policies in general are written procedures which specify limits or
guidelines for perfection of work to be undertaken in future.
(b) Directions towards goal achie#ements: A policy is formulated in conte!t of organisational ob$ecti#es.
*herefore) the policy tries to contribute towards the achie#ements of organisational achie#ements by
specifying limits.
(c) Persuasi#e 0unction: 0ormulation of policy is a function of all managers whether manager of
marketing) personnel) finance department etc.
(d) Policy Differs from (trategy: A layman may think) there is no difference between policy and strategy)
so at times people use these words interchangeably. Policies are identified as guides to thinking in
decision making while strategies de#ote a general program of action and a commitment of emphasis and
resources towards the attainment of comprehensi#e ob$ecti#es.
(e) .!pressed in 5ualitati#e and General ay: Policies are generally e!pressed in a +ualitati#e)
conditional and general way. *he #erbs most often used in setting up policies are to maintain to continue)
to follow) to adhere) to pro#ide) to assist) to assure) to employ etc.
(f) 't 'n#ol#es /hoice of Purpose: Policies in#ol#es a choice of purpose and defining what needs to be
done in order to mould the character and identify of organisation.
(g) Policies 2ust be 4ong %ange: 'n general a policy is a written decision by top management for
achie#ing certain results.
(h) /larity of *hought: A policy should be clear and self e!planatory thus there will be no change for
wrongdoing.
($) Policies are reflection of management philosophy: a policy is a written and effecti#e e!pression of
management thought and action.
Unit-II
Top 'ana&e'ent 4 Constituents- #oa" of i"ecto"s( su#-co''ittee( c)ief
e5ecuti%e office"! tas6( "esponsi#ilities an s6ills of top 'ana&e'ent*
+u* 3 E5plain t)e %a"ious le%el at -)ic) st"ate&y is fo"'ulate/
Ans. *he definition of strategy #aried in nature) depth and co#erage) offers us a glimpses of the
comple!ity in#ol#ed in understanding this daunting yet interesting and challenging concept. *he different
le#els at which strategy can be formulated are as under:
(a) /orporate 4e#el strategy: (trategy at corporate le#el is designated as corporate strategy. 't is the top
management plan to direct and run the enterprises as a whole. /orporate le#el strategy represents the
pattern of interest in different business) di#isions) product6lines) customer groups and technology etc.
/orporate strategy emphasi"es upon the fact that how one should manage the scope) mi! and emphasis
of #arious acti#ities and how the resources should be allocated o#er the different priorities of the
corporation.
(b) 1usiness 4e#el (trategy: 0or many companies that are dealing in number of product mi!) dealing
with different types of buyers and types of markets) for them a single strategy is not only inade+uate but
also inappropriate. *he need is for multiple strategies at different le#els. 'n order to segregate different
units or segments each performing a separate function) a seprate strategy is re+uired.
Unit-III
2o"'ation of st"ate&y 4 Natu"e of co'pany7s en%i"on'ent an its analysis! S1OT analysis!
e%aluatin& 'ultinational en%i"on'ent! ientifyin& co"po"ate co'petence an "esou"ces!
p"inciples an "ules of co"po"ate st"ate&y 4 st"ate&ic e5cellence positions
+u* 8 1)at o you une"stan #y S1OT analysis/ 9o- t)is tec)ni:ue is use in
t)e fo"'ation of co"po"ate st"ate&ies/
Ans. A scan of the internal and e!ternal en#ironment is an important part of the strategic planning
process. .n#ironmental factors internal to the firm usually can be classified as strength (() or weakness
()) and those e!ternal to the firm can be classified as opportunities (,) or threats (*). (uch an analysis
of the strategic en#ironment is referred to as a (,* analysis. *he (,* analysis pro#ides information
that is helpful in matching the firm7s resources and capabilities to the competiti#e en#ironmental in
strategy formulation and selection. *he following shows how (,* analysis fits into en#ironmental scan:
(trengths ((): A firm7s strength are its resources and capabilities that can be used as a basis for
de#eloping its competiti#e ad#antage profile.
Patents
(trong brand names
Good reputation among customer
/ost ad#antages from proprietary know how
.!clusi#e access to high grade natural resources
0a#ourable access to distribution network
eaknesses (): *he absence of certain strengths may be #iewed as a weakness. 0or e!ample) each
of the following may be considered weaknesses:
4ack of patent protection
A weak brand name
Poor reputation among customers
-igh cost structure
4ack of access to best natural resources
4ack of access to key distribution channels in some cases) a weakness may be the flip side of the
strength. *ake the case in which a firm has a large amount of manufacturing capacity. hile this
capacity may be considered a strength that competitors do not share) it may be also considered
as a weakness if the large in#estment in manufacturing capacity pre#ents the firm from reacting
+uickly to change in the strategic en#ironment.
,pportunities(,): *he e!ternal en#ironmental analysis may re#el certain new opportunities for profit and
growth. (ome e!amples of such opportunities includes:
An unfulfilled customer need
Arri#al of new technologies
4oosening of regulations
%emo#al of international trade barriers
*hreats (*): /hanges in e!ternal en#ironment also may present threats to the firm. (ome e!amples of
such threats are:
(hift in consumer tastes away from firm7s products
.mergence of substitutes products
8ew regulations
'ncreased trade barriers
*he basic ob$ecti#es of (,* analysis is to pro#ide a frame work to reflect on the firm7s ability to
o#ercome barriers and a#ail of opportunities emerging in the en#ironment) indeed the dimension of
internal capabilities ha#e rele#ance in so far they relate to the en#ironmental conditions. -ence the
analysis of comparati#e strengths and weaknesses re+uire linking competencies with characteristic of
e!ternal en#ironment.
An organisation that had pioneered computer education and training in 'ndia in the early 9:s) found its
position threatened in the mid ;:s by competitors. Analysis of changing en#ironment and its own
weakness led to the outlining of organi"ation7s (,* as follows:
(trengths:
Value for money programmes
Pool of trained faculty
ide choice of courses offering
8ationals network of well6e+uipped training centuries
eaknesses:
8ot aggressi#e in selling
/ourse differentials not sharp
/ounselors enthusiasm inade+uate
/ustomer ser#ices not focused enough
,pportunities:
Growing demand for computer education
/omputer library becoming necessity
Growth of niche training needs
8eeds for customisied training modules
*hreats:
%ise in competitors
-igh rate of technological obsolescence
/ommodities of training
<ndercutting of fees
2atching strengths and weakness with opportunities and threats re+uires that a firm should direct its
strength towards e!ploiting opportunities and blocking threats while minimi"ing e!posure of its
weaknesses at the same time. *hus strategies which are based on the matching of strengths and
weaknesses may be regarded as e!ploitati#e or de#elopmental strategy. 'f strengths are used to repair
weaknesses) one may call it remedial strategy. (,* analysis may pro#ide the basis of a
comprehensi#e approach to strategy.
<ses of (,* Analysis: 't can be used formulation of corporate strategy in many ways:
(a) *o pro#ide a logical framework to be used for systematic discussion of #arious issue bearing on the
business situation alternati#es strategies and finally the choice of strategy. Differences in managerial
perceptions of threats and opportunities) weakness and strength lead to different assessment reflecting
intra organisational power relations and differing factual perspecti#es.
(b) Another uses of (,* analysis is the structured approach where key e!ternal threats and
opportunities may be systematically compared with internal strengths and weakness. *hus the firm
internal and e!ternal situations can be matched so as to form distinct pattern and the strategy chosen on
the basis of the situation reflected in pattern.
(c) A business may ha#e se#eral opportunities but also face some serious threats in the en#ironment. 't
may ha#e likewise se#eral weaknesses along with one or two ma$or strengths. 'n such situations the
(,* analysis guides the strategist to #isuali"e the o#erall position of firm and helps to identify the ma$or
UNIT I
BUSINESS POLICY
Christensen and others, it is the study of the function and responsibilities of senior management, the crucial
problems that affect success in the total enterprise, and the decision that determine the direction of the organization
and shape its future. The problem of policy in business, like those of policy in public affairs, have to do with the
choice of purposes, the moulding of organizational identity and character, the continuous definition of what needs to
be done, and the mobilization of resources for the attainment of goals in the face of competition or adverse
circumstances.
This comprehensive definition covers many aspects:
it considered as the study of the functions and responsibilities of the senior management related to those
organizational problems which affects the success of the enterprise
it deals with the determination of future course of action that an organization has to adopt
it involves a choosing the purpose and defining what needs to be done in order to mould the character and identity
of an organization
lastly, it is also concerned with the mobilization of resources, which will help the organization to achieve its goals
BUSINESS POLICY AS A FIELD OF STUDY/ IPO!TANCE OF BUSINESS POLICY
Business olicy is important as a course in the management curriculum and as a component of e!ecutive
development programmes for middle"level managers who are preparing to move up to the senior management level.
# study of business policy fulfills the needs of management students as well as those of middle"level managers. To
highlight the importance of business policy, we shall consider four areas where this course proves to be beneficial.
$earning the course
%t seeks to integrate the knowledge and experience gained in various functional areas of management. %t enables the
learner to understand and make sense of the comple! interaction that takes place between different functional areas.
%t deals with the constraints and complexities of real-life businesses.
%n contrast, the functional area courses are based on a structured, specialized and well"developed body of
knowledge, resulting from a simplification of the comple! overall tasks and responsibilities of the management.
business policy cuts across the narrow functional boundaries and draws upon a variety of sources"other courses in
the management curriculum and a wide variety of disciplines, like economics, sociology, psychology, political
science, and so on. %n so doing, business policy offers a very broad perspective to its students.
%t makes the study and practice of management more meaningful as one can view business decision"making in its
proper perspective.
&or 'nderstanding the Business (nvironment
)egardless of the level of management a person belongs to, business policy helps to create an understanding of how
policies are formulated. This helps in creating an appr*ciation of the comple!ities of the environment that the senior
management faces in policy formulation.
By gaining an understanding of the business environment, managers become more receptive to the ideas and
suggestions of the senior management. +uch an attitude on the part of the management makes the task of policy
implementation simpler.
,hen they become capable of relating environmental changes to policy changes within an organization managers
feel themselves to be a part of a greater design.
&or 'nderstanding the -rganization
Business policy presents a basic framework for understanding strategic decision making while a person is at the
middle level of management. +uch a framework, combined with the e!perience gained while working in a
specialized functional area, enables a person to make preparations for handling general management responsibilities.
Business policy, like most other areas of management, brings the benefit of years of distilled experience in strategic
decision-making to the organization and also to its managers. .ase study"which is the most common pedagogical
tool in business policy"provides illustrations of real"life business strategy formulation and implementation.
#n understanding of business policy may also lead to an improvement in job performance. #s a middle"level
manager, a person is enabled to understand the linkage between the different subunits of an organization and how a
particular subunit fits into the overall picture. This has far"reaching implications for managerial functions like
coordination and communication, and also for the avoidance of inter"departmental conflicts.
&or ersonal /evelopment
Business policy offers a unique perspective to executives to understand the senior management's viewpoint. ,ith
such an understanding the chances that a proposal made by or an action taken by an e!ecutive will be appreciated by
senior managers is decidedly better.
#n interesting by"product of the business policy course is the theoretical framework provided in the form of the
strategic management model. The applicability of this model is not limited to businesses alone. %t can be applied to
organizations like, services, educational institutions, family, government, public administration, and too many other
areas. %n fact, the model provides powerful insights for dealing with policy"making at the macro level as well as at
an individual level through self analysis.
The importance of business policy stems from the fact that it offers advantages to an e!ecutive from multiple
sources. #part from the intangible benefits, an e!ecutive gains an understanding of the business environment and the
organization he or she works in. +uch an understanding can help considerably in career planning and development.
NATU!E AND OB"ECTI#E OF BUSINESS POLICY
These ob0ectives could be derived from the purpose of business policy.
%n Terms of 1nowledge
2. The learners of business policy have to understand the various concepts involved. 3any of these concepts, like,
strategy, policies, plans, and programmes are encountered in the functional area courses too. %t is imperative to
understand these concepts specifically in the conte!t of business policy.
4. 1nowledge of the e!ternal and internal environment and how it affects the functioning of an organization is vital
to an understanding of business policy. Through the tools of analysis and diagnosis a learner can understand the
environment in which a firm operates.
5. %nformation about the environment helps in the determination of the mission, ob0ectives and strategies of a firm.
The learner appreciates the manner in which strategy is formulated.
6. The implementation of strategy is a comple! issue and is invariably the most difficult part of strategic
management. Through the knowledge gained from business policy, the learner will be able to visualize how the
implementation of strategic management can take place.
7. To learn that the problems in real"life business are uni8ue and so are the solutions is an enlightening e!perience
for the learners. The knowledge component of such an e!perience stresses the general approach to be adopted in
problem solving and decision"making. ,ith a generalized approach, it is possible to deal with a wide variety of
situations. The development of this approach is an important ob0ective to be achieved in terms of knowledge.
*. To survey the literature and learn about the research taking place in the field of business policy is also an
important knowledge ob0ective
%n Terms of +kills
9. The attainment of knowledge should lead to the development of skills so as to be able to apply that which has
been learnt. +uch an application can take place by an analysis of case studies and their interpretation, and by an
analysis of the business events taking place around us.
:. The study of business policy should enable a student to develop analytical ability and use it to understand the
situation in a given case or incident.
;. &urther, the study of business policy should lead to the skill of identifying the factors relevant in decision"making.
The analysis of the strengths and weaknesses of an organization, the threats and opportunities present in the
environment, and the suggestion of appropriate strategies and policies form the core content of general
management decision"making.
2<. The above ob0ectives, in terms of skills, increase the mental ability of the learners and enable them to link
theory with practice. +uch ability is important in managerial decision"making where a large number of factors
have to be considered at once to suggest appropriate action.
22. #s a part of business policy study, case analysis leads to the development of oral as well as written
communication skills.
%n Terms of #ttitude
24. The attainment of the knowledge and skill ob0ectives should lead to the inculcation of an appropriate attitude
among the learners. The most important attitude developed through this course is that of a generalist. The
generalist attitude enables the learners to approach and assess a situation from all possible angles.
25. By acting in a comprehensive manner, a generalist is able to function under conditions partial ignorance by
using his or her 0udgment and intuition.
26. &or a general manager information and suggestions are important to possess a liberal attitude and be receptive
to new ideas. /ogmatism with regard to techni8ues should to be replaced with a practical approach to decision"
making for problem"solving. %n this way, a general manager can act like a professional manager.
27. %t is important to have the attitude to =go beyond and think= when faced with a problematic situation. /eveloping
a creative and innovative attitude is the hallmark of a general manager who refuses to be bound by precedents and
stereotyped decisions.
ST!ATE$IC ANA$EENT P!OCESS%#ISION& ISSION
Accd to amb! "#$% >+trategic management is an ongoing process that assesses the business and the industries in
which the company is involved? assesses its competitors and sets goals and strategies to meet all e!isting and
potential competitors? and then reassesses each strategy annually or 8uarterly @i.e. regularlyA to determine how it has
been implemented and whether it has succeeded or needs replacement by a new strategy to meet changed
circumstances, new technology, new competitors, a new economic environment., or a new social, financial, or
political environment.B
&luekc 'it is a stream of decisions and actions which leads to the development of an effective strategy or strategies
to help achieve corporate ob0ectives. The strategies management determines strategic ob0ectives and makes strategic
decisions.B
+3 is that set of managerial decisions and actions that determine the long run performance of a corporation. +3 is
defined as the set of decisions and actions resulting in formulation and implementation of strategic designer to
achieve the ob0ectives of an organization. +trategic management is the process of specifying an organization=s
ob0ectives, developing policies and plans to achieve these ob0ectives, and allocating resources to implement the
policies and plans to achieve the organization=s ob0ectives. %t is the highest level of managerial activity, usually
performed by an organization=s .hief (!ecutive -fficer (.(-) and e!ecutive team. +trategic management provides
overall direction to the enterprise.
%t focuses on the following critical areas:
/etermining the mission of the company, including broad statements about its purpose, philosophy and goals
(!ternal environment analysis of the company in terms of both competitive and conte!tual factors
.orporate appraisal and developing a company profile that reflects internal conditions and capabilities
#nalysis of possible strategic options available in light of company mission
(valuation of possible strategic alternatives and e!ercising strategic choice of a particular set of long term
ob0ectives and grand strategies needed to achieve the desired options
/etermining the strategic ob0ectives of the organization on the basis of mission formulated by the corporation and
compatible with grand strategy
%mplementing strategic choice decision based on budgeted resource allocation and emphasizing the matching of
tasks, people, structure, technologies and reward system
)eview and evaluation of the success of the strategic process to serve as a basic for control and as an input for
future decision making.
ST!ATE$IC ANA$EENT P!OCESS
E'(a)*+',-e.( o/ S(ra(e0+c I.(e.(: it refers to the purpose of the organization and ends it
pursues. eter & /ucker in mid ;<Cs: what is our business, what will our business be, what
should out business be. #nswer to these 8uestions re8uire and careful consideration of vision,
mission and ob0ectives of the organization. These 8uestions help in defining the nature of the
business, frame work for analysis, choice, and implementation and evaluation process.
Dision : see things which are invisible to others E +3, Dision refers to the category of
intention, that are broad, all inclusive and forward thinking Eit is what the firm ultimately like
to become E aspiration of future without specifying the means to achieve those desire ends E
3angers, they usually refers to mental image of some desired future state
3ission : vision is more tangible than mission, it is the fundamental uni8ue purpose that sets it
apart from other firms of its type and identifies the scope of its operations in product and
market terms E it is a genera enduring statement of companyCs intent E it embodies the
business philosophy of strategic decision makers, implies the image of the company and seeks
to pro0ect and reflects the firms self concept, indicates the principal product or service area and
primary customer need the company will attempt to satisfy.
%mp elements of mission statement: customer F market, product F service, geographic
domain, technology, concern for survival, companyCs philosophy, self concepts, concern for
public image.
# mission statement should be clear, feasible, precise, motivating, distinctive, and indicates
the ma0or components of strategy in order to attain the established ob0ectives.
3ission statement should answer the following 8uestions: what is our reason for beingG ,hat
is our basic purposeG E ,hat are the obligations to various stakeholdersG E what is the relative
emphasis we will place on meeting the needs of different stakeholders E what is uni8ue or
distinctive about our organization E what is likely to be difficult about our business 7 to 9
years in the future E who are, or who should be, our principal customers or key market
segments E what are the principal goods and services present and future E what are or should
have our principal economic concerns E what are the basic beliefs values aspiration, and
philosophical priorities of the firm
Hoals : as mission statement makes vision specific, goals attempt to improve organization
performance by making mission statement more concrete. Hoals denote what an organization
hopes to accomplish in future period of time. # broad category of financial and non"financial
issues is addressed in goals.
-b0ectives : ob0ective are the end results of planned activity. goals describes in fairy general
terms what he organization hopes to accomplish, but ob0ectives details in more precise terms
what need to be accomplished in order to reach goals. The achievement of corporate ob0ectives
should result in the fulfillment of corporate mission.
+ome of the areas in which the organization must establish goals and ob0ectives are:
rofitability, efficiency, growth (sales and assets), employees (industrial relations, welfare and
development), market leadership (share), social responsibility (communication welfare F rural
development)
S(ra(e01 For-2*a(+o. involves:
/oing a situation analysis, self"evaluation and competitor analysis: both internal and e!ternal? both micro"
environmental and macro"environmental.
.oncurrent with this assessment, ob0ectives are set. This involves crafting vision statements (long term view of a
possible future), mission statements (the role that the organization gives itself in society), overall corporate
ob0ectives (both financial and strategic), strategic business unit ob0ectives (both financial and strategic), and
tactical ob0ectives.
These ob0ectives should, in the light of the situation analysis, suggest a strategic plan. The plan provides the
details of how to achieve these ob0ectives.
This three"step strategy formulation process is sometimes referred to as determining where you are now,
determining where you want to go, and then determining how to get there. These three 8uestions are the essence of
strategic planning.
S(ra(e01 +-p*e-e.(a(+o. involves:
#llocation of sufficient resources (financial, personnel, time, technology support)
(stablishing a chain of command or some alternative structure (such as cross functional teams)
#ssigning responsibility of specific tasks or processes to specific individuals or groups
%t also involves managing the process. This includes monitoring results, comparing to benchmarks and best
practices, evaluating the efficacy and efficiency of the process, controlling for variances, and making ad0ustments
to the process as necessary.
,hen implementing specific programs, this involves ac8uiring the re8uisite resources, developing the process,
training, process testing, documentation, and integration with (andIor conversion from) legacy processes.
E3a*2a(+o. a.d Co.(ro*: it is the process in which corporate activities and performance results
are monitored so that actual performance can be compared with the desired standards. 3anagers
at all levels use the resulting information to take corrective action and resolve processing. They
must provide monitoring and controlling methods to ensure that their strategic plan is followed.
Based on the final performance management was need to make ad0ustment in the strategy
formulation, in implementation or in both.
CO!PO!ATE ST!ATE$Y
(very business concern, as a general rule has its own aims and ob0ectives and it is one of the foremost duties of the
management to fulfill them. (!ecutives formulate different policies and plans as guidelines not only for themselves
but for their subordinates as well. Jow to implement both policies and plans effectively, it is essential to have
further overall planning.
De/+.+(+o. o/ S(ra(e01:
Hlueck defines a strategy as >unified comprehensive and integrated plan designed to assure that the basic ob0ectives
of the enterprise are achievedB.
3cKichols defines strategy as >the science and art of employing the skills and resources of an enterprise to attain its
basic ob0ectives under the most advantageous conditions.B
.orporate strategy means strategy of corporate bodies. %t means the strategy of any enterprise, institution or
organization. Henerally strategy is inferred as e!ternal to the organization.
Need /or Corpora(e S(ra(e01
#ll corporate bodies have their corporation can survive without a strategy for itself. The need for corporate strategy
arises for the following reasons.
2. Dary fast change of business conditions.
4. To anticipate future problems and opportunities.
5. To provide all employees with clear goals and directions to the future of the enterprise.
6. to make the business more effective
7. To improve employee morale.
*. To capture, retain and win markets.
C,arac(er+'(+c' o/ S(ra(e0+e'
2. +trategies are deliberate attempts made by the management to win over its opponents. They are calculated
to counter act actions of opponents.
4. They are special plans that deal with opponents.
5. +trategies are overall plans that help management to implement general policies and plans effectively.
6. +trategies are grown out of policies and plans and thus they direct the activities in the most appropriate
manner.
7. +trategies include related decisions and actions meant for implementation of company ob0ectives and plans.
*. +trategies are devices to reduce business risk and insecurity that are e!pected an account of comple!ity of
business operations and other social and political contingencies.
9. +trategies are determined sufficiently in advance having considered companyCs policies and ob0ective so
that tactful decisions and actions can be taken to accomplish them.
T1pe' o/ S(ra(e01:
+trategy may be classified based on the purpose or ob0ective? on the nature or on time.
S(ra(e01 )a'ed o. p2rpo'e or o)4ec(+3e: Based on purpose or ob0ective, strategy can be classified into three types.
/efensive +trategies: /efensive strategies are followed by corporations as defense against e!ternal forces. &or e.g.
the strategy followed may be for the purpose of retaining the market by restricting the competitors from capturing
the market.
-ffensive +trategies: +teps taken by the corporation in launching a new venture, a new produce, advertisement
campaign etc. constitute offensive strategies. They mainly aim at e!pansion or capturing new markets.
+trategy for +urvival: +ometimes the corporation may find it desperate to win the competition. /uring such times
the measures undertaken for the very survival of the corporation constitute survival strategies. +urvival strategies not
only aim at strengthening the competition to withstand competition but are undertaken during periods of financial,
production and other crisis. Therefore, they are also called >.risis +trategiesB.
S(ra(e01 )a'ed o. (,e .a(2re: Based on nature, strategy can be classified into five types.
)oot +trategy: )oot strategy aims at providing basic guidelines in terms of nature and scope of its business
commitment and the conte!t of its skill and resource development and allocation.
-peration +trategy: -peration strategy flows from the root strategy and guides the enterprise in its action
commitment in the market place. The blueprint for market penetration, coping with environmental changes and
directing day to day operations are part of a firms operating strategy.
-rganization +trategy: #t the implementation phase the management has a decision choice of alternative
organizational strategies to provide the guidelines, framework and communication network to complete and put into
effect the operating strategy.
.ontrol +trategy: %n order to determine the effectiveness of the organizations performance in relation to the
predetermined ob0ectives developed in the formation and implementation phases.
)ecovery +trategy: )ecovery strategy is developed for reformulating and recycling the policy making process with
the help of the data obtained through the control strategy.
S(ra(e01 )a'ed o. T+-e e*e-e.(: Based on the time, strategy may be classified into two types.
+hort term +trategy: +hort term strategy concerns itself with the immediate goals.
$ong Term +trategy: $ong term strategy generally involves foresight on the e!pansion and development of the
organization.
Le3e*' o/ S(ra(e0+e':
The levels of strategy offer you a glimpse of the comple!ity about different levels at which
strategy is formulated. The business strategy must contain well coordinated action programs
aimed at securing a long"term competitive edge and which the company should sustain. $ets take
an e!ample of Jindustan $evers, a multinational subsidiary, is in several businesses such as
animal seeds, beverages, oils and dairy fat , soaps and detergents. Three types of level are
depicted in the e!hibit. The first level is the corporate strategy which is an overarching plan of
action covering the various functions performed by different +B'C+
Corpora(e Le3e*
Take an e!ample of any organization, there are basically three levels. The top level of the
organization consists of chief e!ecutive office of the company, the board of directors, and
administrative officers. The responsibility of the top management is to keep the organization
healthy. Their responsibility is to achieve the planned financial performance of the company in
addition to meeting the non"financial goals viz. social responsibility and the organizational
image. The issues pertaining to business ethics, integrity, and social commitment are dealt with,
at this level of strategic decisions. The corporate level strategies translates the orientation of the
stakeholders and the society into the forms of strategies for functional or business levels.
Business strategy is a comprehensive plan providing ob0ectives for +B'C+, allocation of
resources among functional areas, coordination between them for optimal contribution to the
achievement to the achievement of corporate level ob0ectives. This is the level where vision
statement of the companies emerges. (!hibit shows typical levels of strategy making in an
organization. %n the given e!hibit you will see that various companies are organized on the basis
of operating divisions. These divisions are known as profit centers or strategic business units.
Henerally +B's are involved in a single line of business
B2'+.e'' Le3e*
This level consists of primarily the business managers or managers of +trategic Business units.
Jere strategies are about how to meet the competition in a particular product market and
strategies have to be related to a unit within an organization. The managers at this level translate
the general statements of direction and intent churned out at corporate level. The managers
identify the most profitable market segment, where they can e!cel, keeping in focus the vision of
the company. The corporate values, managerial capabilities, organizational responsibilities, and
administrative systems that link strategic and operational decision making level at all the levels
of hierarchy, encompassing all business and functional lines of authority in a company are dealt
with at this level of strategy formulation. The managerial style, beliefs, values, ethics, and
accepted forms of behaviour must be congruent with the organizational culture and at this level,
these aspects are diligently taken care of by strategic managers. Lust think for a while how does
business strategy make the study and practice of management more meaningfulG
Opera(+o.a* Le3e*
lanning alone cannot create massive mobilization of resources and people and can never
generate high 8uality of strategic thinking re8uired in comple! organizational conte!t. &or this to
happen, the planning should be carefully dovetailed and integrated with significant
administrative systems viz. management control, communication, information management,
motivation, rewards etc. %t is also vital that all these systems are supported by organizational
structure that defines various authority and responsibility relationships, among various members
of the company and specifically at operational level. The culture of the organization should be
accounted for, and these systems should find adaptability with the culture of the organization.
&urther, put down at least five reasons how business strategy serves the need of 3anagement
students, 3iddle"level e!ecutives.
The managers at this level of product, geographic, and functional areas develop annual ob0ective
and shortterm strategies. The strategies are designed in each area of research and development,
finance and accounting, marketing and human relations etc. The responsibilities also include
integrating among administrative systems and organizational structure and strategic and
operational modes and seek for congruency between managerial infrastructure and the corporate
culture. Thus (!hibit shows the interaction of various functions for deciding strategies at the
operational level.
UNIT II
BOA!D OF DI!ECTO!S
%n relation to a company, a director is an officer (that is, someone who works for the company)
charged with the conduct and management of its affairs. # director may be an inside director (a
director who is also an officer) or an outside, or independent, director. The directors collectively
are referred to as a board of directors. +ometimes the board will appoint one of its members to be
the chair of the board of directors.
The control of a company is divided between two bodies: the board of directors, and the
shareholders in general meeting. %n practice, the amount of power e!ercised by the board varies
with the type of company. %n small private companies, the directors and the shareholders will
normally be the same people, and thus there is no real division of power. %n large public
companies, the board tends to e!ercise more of a supervisory role, and individual responsibility
and management tends to be delegated downward to individual professional e!ecutive directors
(such as a finance director or a marketing director) who deal with particular areas of the
company=s affairs.
The Board of /irectors is responsible for supervising the management of the .orporationCs business and its affairs.
%t has the statutory authority and obligation to protect and enhance the assets of the .orporation in the interest of all
of its shareholders.
The Board operates by delegating certain of its responsibilities and authority, including spending authorization, to
management and reserving certain powers to itself. %ts principal duties fall into seven (9) categories.
ANA$EENT SELECTION& !ETENTION AND SUCCESSION
+ub0ect to the #rticles and By"$aws of the .orporation, the Board manages its own affairs, including planning its
composition, selecting its .hairman, who shall not be the .(-, nominating candidates for election to the Board,
appointing the members of its committees, establishing the terms of reference and duties of its committees, and
determining Board compensation.
The Board has responsibility for the appointment and replacement of the .(-, for monitoring .(- performance,
and for determining .(- compensation. The Board has responsibility for approving the appointment and
remuneration of all corporate officers, acting upon the advice of the .(-, and for ensuring that ade8uate
provision has been made for management succession.
The Board shall provide an orientation and induction program for new /irectors and shall encourage and provide
opportunities for all /irectors to continually update their skills as well as their knowledge of the .orporation, its
business and its senior management.
ST!ATE$Y DETE!INATION
The Board has the responsibility to participate directly or through its committees, in developing and approving the
mission of the .orporationCs business, its ob0ectives and goals, and the strategy for their achievement. The Board
shall, among other assessment processes, evaluate managementCs analysis of the strategies of the .orporationCs
competitors or of companies of a scale similar to that of the .orporation.
The Board has responsibility to ensure congruence between shareholdersC e!pectations, the .orporationCs plans
and management performance.
The Board has the responsibility to review the .orporationCs annual strategic plan with senior management prior
to the commencement of each year and approve the plan. The plan shall take into account, among other things, the
opportunities and risks of the .orporationCs business.
!IS5 E#ALUATION
The Board has the responsibility to identify the principal risks of the .orporationCs business and ensure the
implementation of appropriate systems to manage such risks.
ONITO!IN$ AND ACTIN$
The Board has responsibility to monitor the .orporationCs progress towards its goals, and to revise and alter its
direction in light of changing circumstances. #t every regularly scheduled meeting, the Board shall review recent
developments, if any, that impact upon the .orporationCs growth strategy. The Board shall, as part of its annual
strategic planning process, conduct a review of human, technological and capital resources re8uired to implement
the .orporationCs growth strategy and of the regulatory, cultural or governmental constraints on the .orporationCs
business.
The Board has responsibility to provide advice and counsel to the .(-, and to take action when performance falls
short of its goals or other special circumstances warrant.
POLICIES AND P!OCEDU!ES
The Board has responsibility to approve and monitor compliance with all significant policies and procedures by
which the .orporation is operated, including the .orporationCs (nvironmental olicy and its -ccupational Jealth
and +afety olicy. %n particular, the (nvironmental .ommittee and the -ccupational Jealth and +afety
.ommittee, which have been established by management, shall report to the Jealth, +afety and (nvironment
.ommittee of the Board of /irectors on their respective activities once a year.
The Board has particular responsibility to ensure that the .orporation operates at all times within applicable laws
and regulations, and ethical and moral standards.
The Board has responsibility for monitoring compliance with the .orporationCs written .ode of (thics, granting
any waivers from compliance for /irectors and officers and causing disclosure of any such waivers to be made in
the .orporationCs ne!t 8uarterly report, including the circumstances and rationale for granting the waiver.
DISCLOSU!E TO S6A!E6OLDE!S AND OT6E!S
The Board has responsibility for ensuring that the performance of the .orporation is ade8uately reported to its
shareholders, its other security holders, the investment community, the relevant regulators and the public on a
timely and regular basis.
The Board has responsibility for (i) reviewing and approving the .orporationCs un"audited 8uarterly financial
statements and accompanying notes and the related 3anagementCs /iscussion and #nalysis and press release (ii)
ensuring that the .orporationCs audited annual financial statements are presented fairly and in accordance with
generally accepted accounting standards and reviewing and approving such financial statements and
accompanying notes and the related
3anagementCs /iscussion and #nalysis and press release (iii) reviewing and approving the .orporationCs
3anagement ro!y .ircular and (iv) reviewing and approving the .orporationCs #nnual %nformation &orms.
The Board has responsibility for ensuring that timely disclosure is made by press release of any development that
results in, or may reasonably be e!pected to result in, a significant change in the value or market price of the
.orporationCs listed securities.
$ENE!AL LE$AL OBLI$ATIONS
To supervise the management of the business and affairs of the .orporation.
To act honestly and in good faith with a view to the best interests of the .orporation.
To e!ercise the care, diligence and skill that a reasonably prudent person would e!ercise in comparable
circumstances.
To act in accordance with the Canada (usiness .orporations Act, securities, environmental and other relevant
legislation and the .orporationCs #rticles and By"$aws.
To consider as the full Board and not delegate to a committee:
#ny submission to the shareholders of a 8uestion or matter re8uiring the approval of the shareholders? The filling
of a vacancy among the /irectors? The manner and the terms of the issuance of securities? The declaration of
dividends? The purchase, redemption or any other form of ac8uisition of shares issued by the .orporation?
The approval of a management pro!y circular? The approval of any take"over bid circular or /irectorsC circular?
The approval of the annual financial statements of the .orporation? or The adoption, amendment or repeal of By"
$aws of the .orporation.
CEO !ESPONSIBILITIES
The .(- is the singular organizational position that is primarily responsible to carry out the strategic plans and
policies as established by the board of directors. The chief e!ecutive officer reports to the board of directors.
The /ictionary of Business Terms defines it as follows: ')he Chief *xecutive +fficer ,C*+- is the officer who has
ultimate management responsibility for an organi.ation. )he C*+ reports directly to the (oard of /irectors 0and1
appoints other managers2to assist in carrying out the responsibilities of the organi.ation.3
3uch of the current writings around non"profit governance and board roles refer to the chief staff officer as .(-,
such as >The Board is responsible to hire or appoint the .(-B. That usage can be attributed somewhat to
consistency (gets beyond the variety of titles in use) and e!pediency (8uick and easy), however it also no doubt
reflects current trends in practice and governance models.
This is a great list for both taking on a new .(- position and getting up to speed, as well as to develop a proactive
development and learning program for any .(- or senior e!ecutive wishing to improve their e!ecutive management
skills. %t lays out well all the thing you need to 0uggle when you have both the privilege and responsibilities of the
top spot in any organization.
$e.era* Opera(+o.'
2. (stablish primary goals of the Board "" maintenance of status 8uo, evaluation and recommendations or take
charge through implementation of new game plan.
4. 3eet all first"reports, introduce game plan and initiate implementation of action items on this list.
5. Jave all first"reports complete the #genda for the &uture.
6. /iscuss the dozen biggest problems and opportunities from perspective of all first"reports.
7. %f survival mode is re8uired, cut costs immediately where necessary and prudent and in accordance with the
Board=s short and intermediate term goals.
*. %dentify and implement top si! action items that could measurably increase short term revenues.
9. %n addition to this action list, formulate short"term game plan for company, get board approval and
communicate plan to key personnel, suppliers, lenders, etc.
:. rioritize top ten action items for the whole company and begin implementation.
;. %dentify top goals for the company for the current month, 8uarter and year.
F+.a.c+a* I''2e'
2<. ,ithin the first week, get current detailed financial statements, itemized payroll, payables and receivables
list.
22. )eview budgets of all departments or divisions for reasonableness of assumptions, 8uality of pro0ections
and relevancy in light of recent corporate changes and goals.
24. (valuate obvious, and not so obvious, problems and strengths revealed by the financial statements.
25. /o realistic cash forecast for the ne!t ;< and 2:< day periods.
26. (valuate asset utilization and re"deploy if appropriate and prudent in the short term.
L+a)+*+(+e' / !+'7' / T+-e Bo-)'
27. /eal with the si! largest crises within the first three weeks.
2*. )eview banking and debt obligations for ne!t ;<, 2:< and 5*7 day periods and ensure no technical or ma0or
defaults, if possible. %f in default, develop game plan andIor negotiate workout.
29. /etermine which critical suppliers have suspended support due to lack of payment, or other problems.
2:. %dentify and take steps to immediately defuse all visible, or suspected, ticking time bombs.
!e02*a(or1 / Le0a* / L+(+0a(+o.
2;. (nsure all payroll ta!es are paid and properly reported.
4<. /etermine what, if any, problems e!ist with the %)+ and state agencies.
42. (nsure the company is in compliance with all re8uired regulatory and licensing agencies, etc. and if not,
take action to resolve these issues.
44. %dentity all outstanding legal issues and litigation risks along with probable, and possible, associated costs.
45. (nsure no securities law violations have occurred "" and if they have, take immediate steps to remedy them,
or mitigate their impact.
46. (nsure any patents, trade secrets, trademarks and copyrights are properly filed and appropriate protections
are in place.
Prod2c( *+.e' / ar7e(+.0 / Sa*e' / D+'(r+)2(+o.
47. #nalyze product delivery schedules and takes steps to improve meeting commitment dates.
4*. (valuate product development timetables, budget forecasts and 8uality of pro0ect management systems,
procedures and controls.
49. (valuate sales, marketing, distribution, forecasts and trend lines for improvement opportunities in all areas,
so as to generate more cash in the short"term.
4:. %dentify both the best customers and the most unhappy customers, as well as the company=s image in the
marketplace.
4;. .omplete competitive analysis for each product line.
5<. (valuate pricing models for each product line and ad0ust accordingly.
52. %dentify product line strengths and weaknesses and develop short"term action plan to solve the most glaring
problems.
54. %dentify potential products "" *, 24 and 46 months into the future "" and their possible impact on revenue
and e!penses.
55. (stablish I update I e!pand web presence.
56. (valuate e!penditures and effectiveness of marketing and advertising for media, trade shows, market
research, focus groups and public relations and ad0ust accordingly.
57. (valuate sales force, sales"related incentives, sales targets, sales personnel training, special offers,
dealerships, telemarketing and sales support.
5*. (valuate and optimize short"term inventory.
59. (valuate customer I technical support, warranties, guarantees and after"sales service.
Per'o..e* I''2e'
5:. 'pon arrival, candidly communicate with all company personnel for introduction and conveyance of
immediate game plan.
5;. +et up suggestion bo!es, and invite anonymous email, to gain insight into less obvious underlying
problems.
6<. )eview ma0or Juman )esource department aspects of company for legal compliance, competitiveness of
benefits package, diversity, clarity of policies and potential costs savings.
62. (valuate strengths and weaknesses of all first reports.
64. /evelop 5<I*<I;< day performance plans for all first reports.
65. (valuate organizational structure and effectiveness "" and reorganize if appropriate, ad0usting total payroll
if necessary.
66. %dentify best and worst five percent of employees in the company "" probably replacing worst five percent
and ensuring the best five percent are motivated enough to stay.
67. #nalyze employee turnover rates to identify fundamental problem areas.
6*. %dentify key personnel and unfilled 0ob functions, define criteria and initiate search, within budget
constraints.
69. %dentify personality issues I company policies that may be creating negative impact on company morale and
productivity.
6:. )eview I modify written delegation of authority for all first reports.
6;. )eview all employment contracts or agreements, oral or written, including any severance or termination
compensation agreements with salaried, hourly, or collective bargaining employees.
7<. )eview all bonus, deferred compensation, stock option, profit sharing, retirement programs or plans
covering salaried, hourly, or collective bargaining employees.
IPO / er0er / Ac82+'+(+o. / D+'po'+(+o. / D+''o*2(+o.
72. %dentify which mergers, ac8uisitions, dispositions and investments make the most sense for the company.
74. %dentify the growth issues regarding ac8uisitions, spin offs, e!pansion, downsizing, establishing new,
andIor closing e!isting branches and stores.
75. %f decision is to sell the company, establish price and terms, sub0ect to Board approval, prepare sales
summary and develop game plan and methodology for sale.
76. .omplete three year pro forma, based on realistic assumptions, to determine future valuation potential of
company and likelihood of %- or mergerIac8uisition potential.
77. %f Board decision is to dissolve company, develop game plan for li8uidation of assets andIor follow up on
bankruptcy filing.
$e.era* / Ad-+.+'(ra(+3e
7*. (valuate and control travel, entertainment and all discretionary e!penditures and implement new written
policies for these issues.
79. )eview facilities and real estate issues, including a review of current lease re8uirements.
7:. )eview all e8uipment leases for cost cutting I improved technology opportunities.
7;. .reate I update business plan for current internal clarity and banking or capital formation needs.
*<. M3anage by roaming aroundM "" gaining insights into attitudes and problem areas from within all levels of
the organization.
*2. (valuate in"place systems and procedures and streamline where appropriate.
*4. (valuate technology implementation and optimize within budget constraints.
*5. Disit all branch offices and evaluate their needs, performance, personnel and cost"effectiveness.
S(oc7,o*der S(a(2' / I.3e'(or !e*a(+o.'
*6. (valuate investor and stockholder relations and communication status and initiate appropriate action.
*7. Henerate updated lists of all current shareholders and percentage ownership of each.
**. )eview stock options or purchase plans and agreements, as well as lists of outstanding warrants and
options, including date of grant, e!ercise price, number of shares sub0ect to option, and date of e!ercise.
T,e Ne9( S(ep'
*9. )eport to the Board: the ob0ective status, evaluation, recommended modifications to the short"term game
plan and any cash needs.
*:. ick up sword again, and implement updated and approved game plan.
EN#I!ONENT:
$ayman: +urrounding, influences, circumstances, forces and e!ternal ob0ects which affects someone under which
something e!ists
-rg: conditions, variables, factors, events, influences that surround and affect it.
Kature:
#s a source of resources : it views that every org depends on the environment for its resources and these resources
are scare and valued. There is a competing situation in the industry to obtain and control their resources. %t is
crucial to mange and control effectively and efficiently and also it is necessary to understand environment before
making efforts to impact it.
#s a source of information : it views it as a source of information. -rganization becomes aware about the
information and the level of uncertainness associated with the various information. (nvironment uncertainty,
degree of comple!ity and degree of change e!isting in an organization e!ternal environment. Thus the more
comple! and dynamic the environment the more uncertain it is. #s the market becomes global the comple!ity and
unpredictability increases and number of factors a firm considers increases.
The following are the nature of environment
%nfluences the availability of resources, provides opportunities and holding threats, is comple!, is dynamic, is having
a far reachable impact, is multi dimensional, is multi faceted.
COPONENTS OF EN#I!ONENT
2*(+.a(+o.a*/ e0a E.3+ro.-e.(: is composed of elements in the border society that can be indirectly
influencing an industry and the companies within an industry. The constituents are:
olitical and legal environment: the directions direction and stability of political factors is a ma0or consideration for
managers in formulating company strategy. oliticalIlegal forces that allocate power and provide constraining and
protecting laws and regulations. olitical constraints are places in each company through fair trade decision,
programs, anti"trust laws, labour legislation, environmental protection laws and many other actions aimed at
protecting the consumer and environment. The important factors which determine the politicalIlegal environment,
are, political system, political structure, political processed, government philosophy, role of the government in
business and government attitude towards business and foreign investment etc. +ome of the important variables are
given below:
Hoverning regulations or deregulations, (nvironmental rotection $aws Ta! $aws, &oreign Trade )egulations
%ntellectual roperty )ights #nti trust legislations, $evel of government subsidies, #ttitude towards foreign
companies, &oreign (!change $aws, +tability of the government, +pecial %ncentives, $evel of defense e!penditures,
$ocation and severity of terrorist activities, +ize of government budget
taking an e!ample of 2;99 the Lanta govt. has followed a strict poling with regard to
multinationals, #s a result .oca".ola and %B3 were forced to move out of %ndia causing a far"
reaching impact on the business environment of the country.
(conomic (nvironment: it refers to the nature and direction f the economy in which a business
organization operates. (conomic environment is by far the most important environmental factor
which the business organizations take into account. %n fact, a business organization is an
economic unit of operation. +ince the measurement of organizational performance is mostly in
the form of financial terms, often managers concentrate more on economic factors. The
economic environment is also important for non"business organizations too because such
organizations depend on the environment for their resource procurement which is greatly
determined by the economic factors. #s such, the understanding of economic environment is of
crucial importance to strategic management. (conomic environment covers those factors, which
give shape and form to the development of economic activities and may include factors like
nature of economic system, general economic conditions, various economic policies, and various
production factors. &rom analytical point of view, various economic factors can be divided into
two broad categories: general economic conditions and factor market. The discussion of these
factors will bring out the nature of total economic environment.
1ey economic Dariables: H/ trends, %nterest rates, money supply, inflation rate, shift to
service economy, ta! rate, unemployment level, wageI price control, devaluation and
revaluation, money market rates, monetary fiscal policy, unemployment trends.
Technological (nvironment: it is key driver of the new competitive landscape technologies?
developments are fast and have far reaching impact on the firmCs strategy. The technology
segment includes institutions and activities involved with creating new knowledge and
translating the knowledge into new output, new product and process and materials. # firm must
be aware about the technological changes that might influence the industry. The strategic
implications of technological changes accd to Boris etrov are three: "" it can change relative
competitive cost of position within a business E it can create new markets and new business
segments E it can collapse or merge previously independent business by reducing or eliminating
their segment cost barriers.
%n fact technology has changed the way in which business in conducted. e.g. the growth of %T
sector has acted as a catalyst in this direction. #ccess to internet, enable large number of
employees to work from home, providing strategy with access to richer resources of information,
business to business transactions, on line shopping through internet and ,,,.
1ey technology factors: total govt spending for )F/, total industry spending for )F/, focus of technological
efforts, patent protection, new products, new development in technology transfer from lab to market place,
productivity improvement though automation, internet availability, telecommunication infrastructure.
+ocio".ultural (nvironment: this segment involves beliefs, values, attitudes, opinions and life styles of those in a
firmCs e!ternal environment, as developed from their cultures, ecological, demographic, religion, educational and
ethnic conditioning. +ocio cultural changes occur gradually unlike technological changes. it is not easy to predict the
timing of their changes. #reas where socio cultural changes may have strong implication for organization are:
""changes in life style E work force composition E changes in attitudes about the 8uality of work life E rate of family
formation and growth of population E age distribution E ethical standards E shift in product F service preferences.
%n %ndia, the most profound social changes in recent years is the emergence of middle class as a ma0or and important
element of total population, increase in the number of women entering in the labour market, changes in consumer
and employees interest, 8uality of life issues etc. 1ey social cultural variables:
$ife style change, career e!pectations, consumer activism, rate of family formation, birth rate, growth rate of
population, age distribution of population, regional shift in population, life e!pectancies, level of education
T,e +cro E.3+ro.-e.(: the micro environment has a substantial impact on the organizationCs current business. %t
constitutes the following:
.ompetitors: no. of competitorCs entry and e!it barriers, nature of completion and relative strategic position of ma0or
competitors
+uppliers: consists of factors related to cost and availability of the factors of production and service that have an
impact on business of an organization
.ustomers: factors such as the need and preference perceptions bargaining power buying behavior and satisfaction
level of customers
3arket %ntermediaries: factors such as level and 8uality of customerCs service, middlemen, changes of distribution
logistic, cost and delivery system
S:OT ANALYSIS
+,-T is an acronym that stands for +trengths, ,eaknesses, -pportunities, and Threats. +,-T analysis is a basic,
straightforward model that provides direction and serves as a basis for the development and management of self.
P2rpo'e The purpose of +,-T analysis is to gather, analyze, and evaluate information and identify strategic
options facing a community, organization, or individual at a given time. +,-T #nalysis is a very effective way of
identifying strengths and weaknesses, and of e!amining the opportunities and threats one tends to face. .arrying out
an analysis using the +,-T framework helps to focus activities into areas where one is strong and where the
greatest opportunities lie. This knowledge is then used to develop a plan of action.
The analysis can be performed on a product, on a service, a company or even on an individual. /one properly,
+,-T will give the big picture of the most important factors that influence survival and prosperity as well as a plan
to act on. +trengths and weaknesses are internal while opportunities and threats are e!ternal. +trengths and
weaknesses have to be matched with the opportunities in the e!ternal environment and also to counter any threats
that might pose a danger to plans. +,-T #nalysis is generally considered a 3arketing tool but although it has its
origins in 3arketing field and is predominantly used by 3arketing people, and it can also be done for self. +,-T
#nalysis is a tool which guides one to see where one stand in terms of 0ob prospects and career growth.
Nou should do a personal +,-T analysis because it will tell you what are your strong points and how can you
further brush them up to e!ploit them to get a good 0ob. %t will also show you your negative character traits that can
hinder your chances of getting a good 0ob. Nou can then work towards overcoming those shortcomings and
minimizing their effects. Nour strengths will tell you the 0obs and the kind of work you are best for hence making it
easier to avail the right opportunities. Threats will show you the skills, courses and training you need in order to
remain competitive.
S:OT a.a*1'+' ,a' (;o -a+. co-po.e.('
O %ssues those are internal to the organization (+trengths and ,eaknesses)
O %ssues those are e!ternal to the organization (-pportunities and Threats).
&ollow these rules when developing a +,-T analysis
2. 5eep *+'(' ',or( % 2< items per list ensures only important factors are considered.
4. Op+.+o.' -2'( )e '2ppor(ed ;+(, /ac(' " -ne person=s idea of strength may be another=s idea of a weakness.
Javing the facts to back up an argument gives it credibility.
5. S,o; co-pe(+(+3e /ac(or' % erhaps you don=t have a direct competitor in your category, but every organization
competes for dollars so competition should not be dismissed.
<. Pr+or+(+=e a.d ;e+0, (,e /ac(or' +. (,e *+'('
7. U'e *a.02a0e (,a( +' c*ear a.d re*e3a.( (o (,e (a'7 " .onfusing or obscure language may complicate your
ability to e!ecute the strategy.
S(re.0(,' a.d :ea7.e''e'
# >strengthB is a positive characteristic that gives a company an important capability. %t is an important
organizational resource which enhances a company, competitive position. +ome of the internal strengths of an
organization are:
/istinctive competence in key areas
3anufacturing efficiency
+killed workforce #de8uate financial resources +uperior image and reputation
(conomies of scale
+uperior technological skills
%nsulation from strong competitive pressures
roduct or service differentiation
roprietary technology.
# >weakness3 is a condition or a characteristic which puts the company at disadvantage. ,eaknesses make the
organization vulnerable to competitive pressures. These are competitive liabilities and strategic managers must
evaluate their impact on the organizationCs strategic position when formulating strategic policies and plans.
,eaknesses re8uire a close scrutiny because some of them can prove to be fatal. +ome of the weaknesses to be
reviewed are:
Ko clear strategic direction
-utdated facilities
$ack of innovation is .omplacency
oor research and developmental programmes
$ack of management vision, depth and skills
%nability to raise capital
,eaker distribution network
-bsolete technology
$ow employee morale
oor track record in implementing strategy
Too narrow a product line
oor market image
Jigher overall unit costs relative to competition.
Oppor(2.+(+e' a.d T,rea('
#n >opportunityB is considered as a favourable circumstance which can be utilised for beneficial purposes. it is
offered by outside environment and the management can decide as to how to make the best use of it. +uch an
opportunity may be the result of a favourable change in any one or more of the elements that constitute the e!ternal
environment. %t may also be created by a proactive approach by the management in moulding the environment to its
own benefit. +ome of the opportunities are:
+trong economy
ossible new markets
(merging new technologies
.omplacency among competing organizations
Dertical or horizontal integration
(!pansion of product line to meet broader range of customer needs
&alling trade barriers in attractive foreign markets
# >threatB is a characteristic of the e!ternal environment which is hostile to the organization. 3anagement should
anticipate such possible threats and prepare its strategies in such a manner that any such threat is neutralized. +ome
of the elements that can pose a threat are:
(ntry of lower cost foreign competitors .heaper technology adopted by rivals
)ising sales of substitute products
+hortages of resources
.hanging buyer needs and preferences
)ecession in economy
#dverse shifts in trade policies of foreign governments
#dverse demographic changes
45+) analysis involves evaluating a companyCs internal environment in terms -f strengths and weaknesses and the
e!ternal environment in terms of opportunities and threats and formulating strategies that take advantage of all these
factors. +uch analysis is an essential component of thinking strategically about a companyCs situation.
UNIT I#
ST!ATE$IC ANALYSIS AND C6OICE
BC$ AT!I>
$ro;(,%',are -a(r+9
The BOSTON -a(r+9 (aka B...H. analysis, B...H."matri!, Boston .onsulting Hroup analysis) is a chart that had
been created by Bruce Jenderson for the Boston .onsulting Hroup in 2;9< to help corporations with analyzing their
business units or product lines. This helps the company allocate resources and is used as an analytical tool in brand
marketing, product management, strategic management and portfolio"analysis.

To use the chart, analysts plot a scatter graph to rank the business units (or products) on the basis of their relative
market shares and growth rates.
Cash cows are units with high market share in a slow"growing industry. These units typically generate cash
in e!cess of the amount of cash needed to maintain the business. They are regarded as staid and boring, in a
MmatureM market, and every corporation would be thrilled to own as many as possible. They are to be
MmilkedM continuously with as little investment as possible, since such investment would be wasted in an
industry with low growth.
/ogs, or more charitably called pets, are units with low market share in a mature, slow"growing industry.
These units typically Mbreak evenM, generating barely enough cash to maintain the business=s market share.
Though owning a break"even unit provides the social benefit of providing 0obs and possible synergies that
assist other business units, from an accounting point of view such a unit is worthless, not generating cash
for the company. They depress a profitable company=s return on assets ratio, used by many investors to
0udge how well a company is being managed. /ogs, it is thought, should be sold off.
6uestion marks are growing rapidly and thus consume large amounts of cash, but because they have low
market shares they do .o( 0e.era(e -2c, ca',. The result is a large net cash consumption. # 8uestion
mark (also known as a Mproblem childM) has the potential to gain market share and become a star, and
eventually a cash cow when the market growth slows. %f the 8uestion mark does not succeed in becoming
the market leader, then after perhaps years of cash consumption it will degenerate into a dog when the
market growth declines. Puestion marks must be analyzed carefully in order to determine whether they are
worth the investment re8uired to grow market share.
4tars are units with a high market share in a fast"growing industry. The hope is that stars become the ne!t
cash cows. +ustaining the business unit=s market leadership may re8uire e!tra cash, but this is worthwhile if
that=s what it takes for the unit to remain a leader. ,hen growth slows, stars become cash cows if they have
been able to maintain their category leadership, or they move from brief stardom to dogdom.
#s a particular industry matures and its growth slows, all business units become either cash cows or dogs.
The overall goal of this ranking was to help corporate analysts decide which of their business units to fund, and how
much? and which units to sell. 3anagers were supposed to gain perspective from this analysis that allowed them to
plan with confidence to use money generated by the cash cows to fund the stars and, possibly, the question marks.
#s the B.H stated in 2;9<:
+nly a diversified company with a balanced portfolio can use its strengths to truly capitali.e
on its growth opportunities. )he balanced portfolio has7
stars whose high share and high growth assure the future8
cash cows that supply funds for that future growth8 and
question marks to be converted into stars with the added funds.
Prac(+ca* U'e o/ (,e Bo'(o. a(r+9
&or each product or service the =area= of the circle represents the value of its sales. The Boston 3atri! thus offers a
very useful =map= of the organization=s product (or service) strengths and weaknesses (at least in terms of current
profitability) as well as the likely cashflows.
The need which prompted this idea was, indeed, that of managing cash"flow. %t was reasoned that one of the main
indicators of cash generation was relative market share, and one which pointed to cash usage was that of market
growth rate.
!e*a(+3e -ar7e( ',are
This indicates likely cash generation, because the higher the share the more cash will be generated. #s a result of
=economies of scale= (a basic assumption of the Boston 3atri!), it is assumed that these earnings will grow faster the
higher the share. The e!act measure is the brand=s share relative to its largest competitor. Thus, if the brand had a
share of 4< percent, and the largest competitor had the same, the ratio would be 2:2. %f the largest competitor had a
share of *< percent, however, the ratio would be 2:5, implying that the organization=s brand was in a relatively weak
position. %f the largest competitor only had a share of 7 percent, the ratio would be 6:2, implying that the brand
owned was in a relatively strong position, which might be reflected in profits and cashflow. %f this techni8ue is used
in practice, this scale is logarithmic, not linear.
-n the other hand, e!actly what is a high relative share is a matter of some debate. The best evidence is that the most
stable position (at least in &3.H markets) is for the brand leader to have a share double that of the second brand,
and triple that of the third. Brand leaders in this position tend to be very stable " and profitable? the )ule of 245.
The reason for choosing relative market share, rather than 0ust profits, is that it carries more information than 0ust
cashflow. %t shows where the brand is positioned against its main competitors, and indicates where it might be likely
to go in the future. %t can also show what type of marketing activities might be e!pected to be effective.
ar7e( 0ro;(, ra(e
)apidly growing brands, in rapidly growing markets, are what organizations strive for? but, as we have seen, the
penalty is that they are usually net cash users " they re8uire investment. The reason for this is often because the
growth is being =bought= by the high investment, in the reasonable e!pectation that a high market share will
eventually turn into a sound investment in future profits. The theory behind the matri! assumes, therefore, that a
higher growth rate is indicative of accompanying demands on investment. The cut"off point is usually chosen as 2<
per cent per annum. /etermining this cut"off point, the rate above which the growth is deemed to be significant (and
likely to lead to e!tra demands on cash) is a critical re8uirement of the techni8ue? and one that, again, makes the use
of the Boston 3atri! problematical in some product areas. ,hat is more, the evidence, from &3.H markets at least,
is that the most typical pattern is of very low growth, less than 2 per cent per annum. This is outside the range
normally considered in Boston 3atri! work, which may make application of this form of analysis unworkable in
many markets.
,here it can be applied, however, the market growth rate says more about the brand position than 0ust its cashflow.
%t is a good indicator of that market=s strength, of its future potential (of its =maturity= in terms of the market life"
cycle), and also of its attractiveness to future competitors. %t can also be used in growth analysis.
!+'7' a.d cr+(+c+'-'
The B.H growth"share matri! ranks only market share and industry growth rate, and only implies actual
profitability, the purpose of any business. (%t is certainly possible that a particular dog can be profitable without cash
infusions re8uired, and therefore should be retained and not sold.) The matri! also overlooks other elements of
industry attractiveness and competitive advantages. #nother matri! evaluation scheme that attempts to mend these
problems has been the H.(. multi factoral analysis (also known as the H( 3c1insey 3atri!).
,ith this or any other such analytical tool, ranking business units has a sub0ective element involving guesswork
about the future, particularly with respect to growth rates. 'nless the rankings are approached with rigor and
skepticism, optimistic evaluations can lead to a dot com mentality in which even the most dubious businesses are
classified as M8uestion marksM with good prospects? enthusiastic managers may claim that cash must be thrown at
these businesses immediately in order to turn them into stars, before growth rates slow and it=s too late. oor
definition of a business=s market will lead to some dogs being misclassified as cash bulls.
#s originally practiced by the Boston .onsulting Hroup, the matri! was undoubtedly a useful tool, in those few
situations where it could be applied, for graphically illustrating cashflows. %f used with this degree of sophistication
its use would still be valid.
Jowever, later practitioners have tended to over"simplify its messages. %n particular, the later application of the
names (problem children, stars, cash cows and dogs) has tended to overshadow all else " and is often what most
students, and practitioners, remember.
This is unfortunate, since such simplistic use contains at least two ma0or problems:
=3inority applicability=. The cashflow techni8ues are only applicable to a very limited number of markets (where
growth is relatively high, and a definite pattern of product life"cycles can be observed, such as that of ethical
pharmaceuticals). %n the ma0ority of markets, use may give misleading results.
=3ilking cash bulls=. erhaps the worst implication of the later developments is that the (brand leader) cash bulls
should be milked to fund new brands. This is not what research into the &3.H markets has shown to be the case.
The brand leader=s position is the one, above all, to be defended, not least since brands in this position will probably
outperform any number of newly launched brands. +uch brand leaders will, of course, generate large cash flows? but
they should not be Qmilked= to such an e!tent that their position is 0eopardized. %n any case, the chance of the new
brands achieving similar brand leadership may be slim " certainly far less than the popular perception of the Boston
3atri! would imply.
erhaps the most important danger is, however, that the apparent implication of its four"8uadrant form is that there
should be balance of products or services across all four 8uadrants? and that is, indeed, the main message that it is
intended to convey. Thus, money must be diverted from Qcash cows= to fund the Qstars= of the future, since Qcash
cows= will inevitably decline to become Qdogs=. There is an almost mesmeric inevitability about the whole process. %t
focuses attention, and funding, on to the Qstars=. %t presumes, and almost demands, that Qcash bulls= will turn into
Qdogs=.
The reality is that it is only the Qcash bulls= that are really important " all the other elements are supporting actors. %t
is a foolish vendor who diverts funds from a Qcash cow= when these are needed to e!tend the life of that Qproduct=.
#lthough it is necessary to recognize a Qdog= when it appears (at least before it bites you) it would be foolish in the
e!treme to create one in order to balance up the picture. The vendor, who has most of his (or her) products in the
Qcash cow= 8uadrant, should consider himself (or herself) fortunate indeed, and an e!cellent marketer? although he or
she might also consider creating a few stars as an insurance policy against une!pected future developments and,
perhaps, to add some e!tra growth.
A*(er.a(+3e'
#s with most marketing techni8ues there are a number of alternative offerings vying with the Boston 3atri!?
although this appears to be the most widely used (or at least most widely taught " and then probably =not= used). The
ne!t most widely reported techni8ue is that developed by 3c1insey and Heneral (lectric? which is a three"cell by
three"cell matri! " using the dimensions of Qindustry attractiveness= and Qbusiness strengths=. This approaches some
of the same issues as the Boston 3atri!, but from a different direction and in a more comple! way (which may be
why it is used less, or is at least less widely taught). erhaps the most practical approach is that of the Boston
.onsulting Hroup=s #dvantage 3atri!, which the consultancy reportedly used itself? though it is little known
amongst the wider population.
O(,er 2'e'
The initial intent of the growth"share matri! was to evaluate business units, but the same evaluation can be made for
product lines or any other cash"generating entities. This should only be attempted for real lines that have a sufficient
history to allow some prediction? if the corporation has made only a few products and called them a product line, the
sample variance will be too high for this sort of analysis to be meaningful.
S:OT ANALYSIS AT!I>
The T-,+ matri! illustrated systematically compares the e!ternal opportunities and internal strengths. the ob0ective
is identification as one of four distinct patterns in the match between the firms internal and e!ternal situations. The
matri! generates a series of possible strategies for the company or +B' under consideration bases on four sets of
combinations given in four cells. (internal factors, +tranght and weaknesses, (!ternal &actors -pportunity and
threats)
+- +trategies: the most favourable situations, the firm face numerous opportunities and have numerous strengths.
This situation suggests >growth oriented strategiesC? the firm should ma!imize the strength in order to capture the
available opportunities
,- +trategies: The firm faces impressive market opportunities but is constrained by the several internal
weaknesses. The focus of strategy for such firm is eliminating internal weaknesses to more effective pursue market
opportunities
,T +trategies: the most favourable situation with the firm facing ma0or environmental threats from a position of
relative weakness. The firm should act defensively in order to minimize weakness and avoid threat.
+T strategies: the firm faces unfavourable environment having key strengths. The strategies suggests building long
term opportunities in other productsI market.
+,-T analysis helps to resolve one fundamental concern in selecting strategy. ,hat will be the principle purpose
of grand strategyG is it to take advantage of a strong position or to overcome a weaknesses. +,-T analysis provides
a means as answering this fundamental 8uestion and give direction to grand strategy.
+,-T analysis can also be used to take a broader view of strategy though the following formula +#R-I (+",) i.e
strategic alternatives R opportunities divided strengths minus weaknesses.
SPACE ?S(ra(e0+c po'+(+o. a.d ac(+o. e3a*2a(+o.@
+#.( is an approach used to define different strategies alternative and strategic postures for a firm. it involves
consideration on four dimensions: "" companyCs competitive advantage E companyCs financial strength E industry
strength E environment stability
+# provides an idea about the companyCs competitive advantage and financial strengths and (T- and industry
analysis gives insight regarding the environment stability and industry strengths. These factors are assess
numerically constructed a scale from <"9. ,ith < reflecting the most unfavourable assessment and 9 most
favourable, then average numerical score is calculated. (&%H')(S&+ up, .# left, %+ right, (+ down)
+trategic alternative postures: +#.( matri! depicts 6 possible postures.
#ggressive osture: appropriate for company en0oys a competitive advantage and belongs to an attractive industry
that operates in a relatively stable environment. ossible strategies E full e!ploitation of resources, look for
ac8uisition possibilities, enhance market share though e!pansion, concentric diversification, vertical integration. (&+
%+ 9, .# (+ 4)
.ompetitive ostures: suitable for company en0oys a competitive advantage but has limited financial strengths and
belongs to an attractive industry operating unstable environment. ossible strategiesSmaintain F enhance
competitive advantage, improvement and differentiation, improve marketing effectiveness, concentric merger, turn
around (&+ 4 %+ * .# 9 (+ 4)
.onservative posture: appropriate for a company, which en0oys financial strength but has limited competitive
advantage and belongs to a non"attractive industry operating in a stable environment: possible strategiesSpursue
stability strategies, cut costs, improve productivity, diversification (&+ 9 %+ 5, .# 9 (+ 4)
/efensive posture: suitable for a company which lacks competitive advantage as well as financial strengths and
belongs to an unattractive industry operating in an unstable environment. (&+ 4 %+ 6, .# 9 (+ 9)
Thus +#.( provides a useful insight to different strategies alternate available to firm and guides in grand strategy
selection.
$E9 Ce** a(r+9
The H( .ompany of '+ is widely respected for the sophistication, maturity, and 8uality of its planning system. The
matri! developed by this company for guiding resources allocation is called Heneral (lectricCs ; .ell 3atri!. %t calls
for analyzing various products of the firm in terms of two issuesS
Business +trengths: Jow strong is the firm vis"T"vis its competitor, factor""3arket share, profit margin, ability to
compete, customer and market knowledge, competitive position, technology and management caliber etc.
%ndustry attractiveness: ,hat is the attractiveness or potential of the industry, &actorsS3arket growth, size and
industry profitability, competition, season ability and critical 8ualities, economic of scale, technology, socialI
environmentalI legalI human factors identified as enhancing industry attractiveness.
The H( uses multiple factors to assess industry attractiveness and business strength rather than single measurement
employed in B.H matri!. H( e!panded the matri! from four cells to nine cells, replacing the high low a!es with
high medium low a!es to make finer distinction between business portfolio positions. The matri! shows three basic
approaches Einvest, hold and divest. The resources resource allocation decision is 8uite similar to those in B.H
3atri!. Businessman which are classified are invest would be treated like the stars in B.H 3atri!. They re8uire
resource for their growth. Business classified in the divest category would be managed like dogs in B.H 3atri! and
business classified under hold are categorized as cash cows or as 8uestion mark.
%ndustry
#ttractiveness
Business strengths
+trong #verage ,eak
Jigh "U %nvest %nvest Jold
3edium "U %nvest Jold /ivest
$ow "U Jold /ivest /ivest
%n nutshell, the portfolio analysis is useful because it offers following benefits:
%t provides and comparative analysis of market share, industry attractiveness, market growth and competitive
position of each product or businesses
%t aids in generating good strategies on the basis of above analysis
%t promotes efficient and effective ways of resource allocation
%t facilitates in clarifying and determine broad strategic interest
DI!ECTIONAL POLICY AT!I>
The /irectional olicy 3atri! is another matri! similar to the B.H 3atri!. %t measures the health of the market and
the organization=s strengths to pursue it to indicate the direction for future investment. The vertical a!is is market
attractiveness (as opposed to business Hrowth rate in the B.H 3atri!) and the horizontal a!is is %ndustry
#ttractiveness (as opposed to 3arket +hare in the B.H 3atri!). The recommendations are similar to that of the
B.H 3atri!, i.e., invest, grow, harvest or divest.
B2'+.e'' S(re.0(,'
(!pert systems are used to determine the organizational strength of the organization. The
position of the enterprise on the chart based upon the assessment of the following factors:
+upplier Bargaining ower
Threat of +ubstitutes
)eputation
.ustomer $oyalty
+taying ower
(!perience
Threat of Kew (ntrants
.ompetitive )ivalry
Buyer Bargaining ower
roduct Puality
roduct Dalue
)elative 3arket +hare
There are eight steps involved in the analysis. The following steps are an e!ample that is based
on work carried out at in a multinational firm.
+tep 2. /etermine the products or services for markets that you intend to include in the matri!. "
This can be countries, companies, subsidiaries, regions, products, markets, segments, customers,
distributors or any other unit of analysis that may be considered important by the organization.
+tep 4. /efine the market attractiveness factors " The purpose for the vertical a!is is to
discriminate between more and less attractive markets. &actors can be summarized into three
headings
Hrowth rate
#ccessible market size " an attractive market is not only large but is also accessible
rofit potential " this varies considerable from industry to industry (orter=s &ive &orces
model can be used
to estimate the profit potential of a segment)
+tep 5. /etermine the scoring method and weightage criteria. ,eight and score the market
attractiveness for the relevant products or services for markets (weighting out of 2<< and score
out of 2< for e!ample)
+tep 6. /efine business strengths. These factors are usually a combination of the organizations
strengths in relation to the competitors= strengths in connection with the customer"facing needs
or those things that the customer re8uires. These can be grouped into the following factors as an
e!ample and each factor can be made up of numerous sub"factors:
roduct re8uirements
rice re8uirements
+ervice re8uirements
romotion re8uirements
+tep 7. ,eight and score the business strengths. ,eights of the factors should e8ual 2<<. +core the factor out of 2<
and multiply the score by the weighting. /ivide this score by 2<< and add it to the other factor scores to obtain an
overall score for the unit being analyzed. /ivide each score into the score of the biggest competitor to obtain a
relative score. The biggest competitor=s position is taken as 2 and the other units are plotted accordingly
CSF :e+0,( U' Co-p1 Co-p2
roduct 5< 9 42<R4.2 * 2:<R2.: 6 24<R2.4
rice 57 * 42<R4.2 * 42<R4.2 2< 57<R5.7
+ervice 47 9 297R2.97 ; 447R4.47 7 247R2.47
%mage 2< 6 6<R<.6 : :<R<.: 5 5<R<.5
Total 2<< *.57 *.;7 *.47
The !"a!is coordinates are therefore
's R *.57I*.;7R <.;2 "" .omplR*.;7I*.;7R 2.< (This %+ the biggest competitor) .omp4R
*.47I*.;7 R <.;<
+tep * roducing the directional policy matri! " These =!="co"ordinates along with their
corresponding market attractiveness co"ordinates must now be positioned on the matri!. The
market size is used to determine the size of the circle and the organizations share of this market
is depicted as a wedge in the circle.
+tep 9 " &orecasting (an optional step). The factors are rescored for the products Iservices in
three years time. (This can be any time frame that fits in with the organizations forecast period).
The circles are plotted on the same matri! as the original demonstrates the movement that will
have to take place to achieve forecast.
+tep :. +et strategies " +trategies are set to achieve the desired positions on the matri!
This matri! is a good one to use if the organization wishes to assess the competitors relative to themselves. The
/3 shows:
3arkets categorized based on a scale of attractiveness to the organization
The organization=s relative strengths in each of these markets
The relative importance of each market
%t allows for a good analysis of the strengths and weaknesses of the competitors from the customer=s point of view.
Jowever, this concept has limits to the analysis. %f more than ten +B'sIproducts are plotted onto one matri!, the
resultant picture can be confusing " one has to limit the number of circles on the matri!
Ad3a.(a0e' A D+'ad3a.(a0e' o/ a(r+9 ode*'
The degree of applicability of the portfolio model depends on the relative importance and the
manner in which the models are used. -ne has to be careful in the use of matri! analyses. The
advantages and disadvantages of using matri!es for decision making are given below:
#dvantages
1ey areas. These models highlight certain aspects of business that are considered essential to
success or failure
.ash flows. They focus on cash flow re8uirements of the +B'=s and help identify the different
cash flow implications and re8uirements of different business activities. This helps
management to carry out its resource allocation function.
Balance portfolio. They help identify strengths and weaknesses in the portfolio, the gaps that
need to be filled? when a new +B' needs to be added or when one needs to be removed? and
the duplicative businesses in the portfolio.
/iverse perspective. The diverse activities of a multi"business company are analyzed in a
systematic manner and enterprise diversity highlighted.
&le!ible comparisons. +ome matrices, like the 3c1insey 3atri!, are highly fle!ible in being
able to select different factors for different industries. This kind of analysis can provide
coverage of a wide number of strategically relevant variables.
D+'ad3a.(a0e' o/ a(r+9 od*e'
Too simple. 3atri! models are simplistic. The important factors are reduced to only two
dimensions (e.g., market share and business attractiveness) other factors are necessarily
e!cluded or lose their distinctiveness in the collapsed dimensions.
3arket share. 3arket share, though used widely, may not be the best measure of a company=s
success. &or e!ample, product differentiation for a particular market segment may have low
market share but produce high success within a market segment.
3arket share and cash flow mismatch. Jigh market share in a low"growth industry does not
necessarily result in large positive cash flow characteristics of a Mcash cowM business. &or
e!ample, the B.H would classify H3 auto operations as a cash cow, but the capital
investments needed to remain competitive are so substantial in the auto industry that the
reverse is likely true. $ow growth industries can be very competitive and staying ahead in such
environments can re8uire ma0or cash investments.
3arket share and cost savings mismatch. The connection between relative market share and
economies of scale may also not be a direct relationship. &or e!ample, in the steel industry low
market share companies using low share technology (mini mills) can have lower production
costs than high market share companies using high share technologies (integrated mills). ,hile
the B.H matri! would classify them as MdogsM, their performance would show them as MstarM
businesses.
+ub0ective numbers. The numerical format of some matrices may lead the user to place greater
confidence in them than is warranted. The numbers from most ratings are sub0ectively derived,
sub0ect to personal biases, political pressure, and budgetary needs.
+tatic pictures. The analyses most often provide a static picture of +B's. They are not
pro0ective, they do not account ade8uately for changes due industry evolution, technological
change, and other environmental forces, etc.
3ultiple +B's. There is a limit to the number of +B's that can be e!amined? otherwise the
resulting analysis becomes increasingly superficial. +uch problems can occur when the volume
e!ceeds 6<"7< +B's.
.onflict of interests. ,hen a +B' contains several different but related businesses conflicts of
interest can occur between the cash flow priorities of a +B' and the priorities of the company
as a whole.
%nappropriate divesting. %mproper application of portfolio techni8ues may result in
inappropriate divesting of useful synergistic holdings. +ynergistic effects of linked +B's are
usually not reflected in matrices.
$ra.d S(ra(e01 C*2'(er' ode*
Hrand +trategy .lusters 3odel is an e!cellent framework to e!amine the strategies, we have
covered so far. The classification in this model is based upon the organization=s competencies
and markets. The a!es of the diagram are products and market characteristics. The product
includes services and any form of offering? and the market need can be any group of potential
customers whether defined by their needs, inclinations, or income bracket. The possible future
choices about products and markets can be represented as movements within or away from this
cell.
%n this approach, you first consider the industry. ,hat is the product sector growth rateG %s it
growing orV decliningG Nou then consider the organization=s competitive strengths within that
sector. .ompetitive +trength can be assessed on two levels: the size and trend of the market
share, whether it is moving up, static or going down, and the organization=s financial strength?
specifically either cash flow from operations, or access to capital. This will determine the
competitive position of the organization. ut simply, the competitive position can be
summarized as follows:
+trong marker share W strong finances R strong competitive position.
+trong market share and weak finances R average competitive position
$ow market share and strong finances R average competitive position.
Keither strong market share nor strong finances R weak competitive position.
S(ro.0 'ec(or& '(ro.0 co-pe(+(+3e po'+(+o..
This means that the organization is in a growing market. %t holds a good market position, and has
cash with which it can man oeuvre its position. The strategic choices, therefore, include:
3arket strategy to increase demand and sales for e!isting products and services, in e!isting
and new markets.
3arketing strategy to increase market penetration for e!isting products and services and
capture greater
share.
(nhance or e!tend e!isting products and services? add"ons, backbends, strategic Loint
ventures.
Hain control over distribution " bring e!ternal sales inside. Take sales from distributors.
Hain control over suppliers #c8uisition, merger, or 0oint"ventures with competitors
/evelop strategic partnerships to increase distribution, or gain new products.
/evelop related products and services for e!isting customer base "
backend strategies. S(ro.0 'ec(or& ;ea7 co-pe(+(+3e po'+(+o.
This is a difficult decision, because the sector is strong, but the organization has relatively small
market share, and limited or no cash. The choices include:
3ove into small, defined and profitable niche markets.
&ocus on increasing market penetration for e!isting products and services and capture
greater share using marketing as a strategy.
+eek strategic partnerships for productsIservices for e!isting customers
/evelop products and services for e!isting customer base " backend strategies.
Het out of the business: +ell your client base to a competitor? or reposition your e!isting
products to appeal to new customer types? or sell the product line and use cash to reposition
remaining assets
:ea7 'ec(or& '(ro.0 co-pe(+(+3e po'+(+o.
This is an ideal case for using the organization=s dominant position in a weak market for Hrowth.
#s the Prganization has cash, it is in a position to e!ploit its standing. The organization should:
#dd related products and services for e!isting customer base " backend strategies.
#dd un"related products and services for e!isting customer base " backend strategies.
#dd new products and services for new customer base
.reate 0oint ventures in unrelated markets
:ea7 'ec(or& ;ea7 co-pe(+(+3e po'+(+o.
This re8uires the organization to retreat. The different options are:
2 )educe costs if you can.
4 +ell product line
5 +ell company
)apid 3arket Hrowth
B2adra.( II
3arket development
3arket penetration
roduct development
Jorizontal integration
divestiture
B2adra.( I
3arket development
3arket penetration
roduct development
&orward integration
Backward integration
B2adra.( III
)etrenchment
.oncentric diversification
B2adra.( I#
.oncentric Jorizontal div
.onglomerate div
Jorizontal diversification
.onglomerate diversification
$i8uidity
Loint venture
%f you don=t want to li8uidate, look at the option of e!panding your markets using low"cost I no"
cost marketing strategies. Jowever, this may be a high risk proposition. #nother option could be
an attempt to create strategic partnerships and 0oint ventures. This will not be easy as it may be
difficult to attract partners to a market with poor fundamentals.
This framework is specific to a business unit with one ma0or industry andIor product focus. %f the
business is more comple!, the process will need to be repeated for each focus sector.
The model is shown in figure ;. This framework provides a form to the discussion and each of
the strategies that we have discussed. %t involves e!amining both the markets and competencies
of the organization. %t challenges us to think strategically. #s we go through the various strategic
options, it helps at identifying the strategic choices, keeping the re8uirements of competencies
and the marketplace in mind.
,e need to go back to .hris Xook. Based on his investigations, Xook identifies and e!plains
three key factors that differentiate strategies that succeed from those that fail:
2 strategies reaching full potential in the core business
4 strategies e!panding into logical ad0acent businesses surrounding that core
5 strategies preemptively redefining the core business in response to market turbulence
,e need to look at the strategic intent .of the organization and identify strategic issues, to
confirm that the strategy we have chosen ade8uately addresses the issues facing the organization
in these three areas. /oes the strategy facilitate the organization to reach its full potential in the
core business? orland effectively e!pand into logical ad0acent businesses surrounding that core?
or permit the organization to preemptively redefine the core business so as to maintain its
position in the marketplace. #n affirmative answer confirms the success of the strategy.
E>PLAIN T6E #A!IOUS LE#ELS AT :6IC6 ST!ATE$Y IS FO!ULATED.
DESC!IBE T6E !OLE OF BOA!D OF DI!ECTO!S IN ST!ATE$IC
ANA$EENT P!OCESS OPE!ATIN$ AT ALL LE#ELS.
+trategic management is the process of specifying the organization=s ob0ectives, developing
policies and plans to achieve these ob0ectives, and allocating resources to implement the policies
and plans to achieve the organization=s ob0ectives. %t is the highest level of managerial activity,
usually formulated by the Board of directors and performed by the organization=s .hief
(!ecutive -fficer (.(-) and e!ecutive team. +trategic management provides overall directionQ
to the enterprise and is closely related to the field of -rganization +tudies.
>+trategic management is an ongoing process that assesses the business and the industries in
which the company is involved? assesses its competitors and sets goals and strategies to meet all
e!isting and potential competitors? and then reassesses each strategy annually or 8uarterly @i.e.
regularlyA to determine how it has been implemented and whether it has succeeded or needs
replacement by a new strategy to meet changed circumstances, new technology, new
competitors, a new economic environment., or a new social, financial, or political environment.B
($amb, 2;:6:i!)
@2A
+trategic management is a combination of 2) strategy formulation and 4) strategy
implementation.
S(ra(e01 /or-2*a(+o. +.3o*3e':
Per/or-+.0 a '+(2a(+o. a.a*1'+'& 'e*/%e3a*2a(+o. a.d co-pe(+(or a.a*1'+': both internal and e!ternal?
both micro"environmental and macro"environmental.
Co.c2rre.( ;+(, (,+' a''e''-e.(& o)4ec(+3e' are 'e(. This involves crafting vision statements (long term
view of a possible future), mission statements (the role that the organization gives itself in society), overall
corporate ob0ectives (both financial and strategic), strategic business unit ob0ectives (both financial and
strategic), and tactical ob0ectives.
T,e'e o)4ec(+3e' ',o2*d& +. (,e *+0,( o/ (,e '+(2a(+o. a.a*1'+'& '200e'( a '(ra(e0+c p*a.. The plan
provides the details of how to achieve these ob0ectives.
This three"step strategy formulation process is sometimes referred to as determining where you
are now, determining where you want to go, and then determining how to get there. These three
8uestions are the essence of strategic planning. +,-T #nalysis: %I- (conomics for the e!ternal
factors and )BD for the internal factors.
The role of the board of directors in strategic formulation is to carry out three basic tasks:
o.+(or: By acting through its committees, a board can keep abreast of developments inside and outside
the corporation, bringing to managementCs attention developments it might have overlooked. # board
should at least carry out this task.
E3a*2a(e a.d +./*2e.ce: # board can e!amine managementCs proposals, decisions, and actions? agree or
disagree with them? give advice and offer suggestions? and outline alternatives. #ctive boards perform this
task in addition to the monitoring one
I.+(+a(e a.d de(er-+.e: # board can delineate a corporationCs mission and specify strategic options to its
management. -nly the most active boards take on this task in addition to the two previous ones.
Board o/ D+rec(or' Co.(+.22-
# board of directors is involved in strategic management to the e!tent that it carries out the three tasks of
monitoring, evaluating and influencing, and initiating and determining. The )oard o/ d+rec(or' co.(+.22- shown
in F+02re CAD shows the possible degree of involvements (from low to high ) in the strategic management process.
#s types, boards can range from phantom board with no real involvement to catalyst boards with very high degrees
of involvement. )esearch suggests that active board involvement in strategic management is positively related to
corporate financial performance.
F+02re CADBoard o/ D+rec(or' Co.(+.22-
DE$!EE OF IN#OL#EENT IN ST!ATE$IC FO!ULATION
Lo; Po'+(+3e
P,a.(o- !2))er
S(a-p
+.+-a*
!e3+e;
No-+.a*
Par(+c+pa(+o.
Ac(+3e
Par(+c+pa(+o.
Ca(a*1'(
Kever knows ermits &ormally %nvolved to a #pproves, Takes the
what to do, if
anything? no
degree of
involvement
officers to
make all
decisions. %t
votes as the
officers
recommend on
action issues.
reviews
selected
issues that
officers
bring to its
attention
limited degree
in the
performance or
review of
selected key
decisions,
indicators, or
programs of
management
8uestions, and
makes final
decisions on
mission, strategy,
policies, and
ob0ectives. Jas
active board
committees.
erforms fiscal
and management
audits
leading role in
establishing
and modifying
the mission,
ob0ectives,
strategy and
policies. %t has
a very active
strategy
committee.
Jighly involved boards tend to be very active. They take their tasks of monitoring,, evaluating, and influencing, plus
initiating and determining, very seriously? they provide advice when necessary and keep management alert. #s
depicted in F+02re CAD, their heavy involvement in the strategic management process places them in the active
participation or even catalyst positions. &ro e!ample, in a survey of directors of large '.+ corporations conducted by
1ornI&erry %nternational, more then *<Y indicated that they were deeply involved in the strategy"setting process. %n
the same survey, 76Yof the respondents indicated that their boards participate in annual retreats or special planning
sessions to discuss company strategy. Kevertheless, only slightly more than 54Y of the boards help develop the
strategy. 3ore than two E thirds of the boards review strategy only after it has been first developed by management.
#nother 2 admit playing no role at all in strategy. These and other studies suggest that most large publicly owned
corporations have boards that operate at some point between nominal and active participation. +ome corporations
that have boards that operate at some point between nominal and active participation. +ome corporations that have
actively participating boards are 3ead .orporation, )olm and Jaas, ,hirlpool, 5m, #pria Jealthcare, Heneral
(lectric fizer, and Te!as %nstruments.
#s a board becomes less involved in the affairs of the corporation, it moves farther to the left on the continuum
shown in F+02re.. -n the far left are passive phantom or rubber"stamp boards that typically do not initiate or
determine strategy (for e!ample, Tyco ) unless a crisis occurs. %n these situation, the .(- also serves as .hairman
of the Board, personally nominates all directors, and works to keep board members under this or the control by
giving them the >mushroom treatmentB throw manure on them and keep them in the darkZ
Henerally, the smaller the corporation, the less active its board of directors. %n an entrepreneurial venture, for
e!ample, the privately held corporation may be 2<<Y owned by the founders, who also manage the company. %n this
case, there is no need for and active board to protect the interests of the owner"manger shareholders E the interests of
the owners and the managers are identical. %n this instance, a board is really unnecessary and meets only to satisfy
legal re8uirements. %f stock is sold to outsiders to finance growth, however, the board becomes more active. 1ey
investors want seats on the board so they can oversee their investment. To the e!tent that they still control most of
the stock, however, the founders dominate the board acts primarily as a rubber stamp for any proposal put forward
by the owner"managers. This cozy relationship between the board and management should change, however, when
the corporation goes public and stock is more widely dispersed. The founders, who are still acting as management,
may sometimes make decisions that conflict with the needs of the other shareholders (especially if the founders own
less than 7<Y of the common stock). %n this instance, problems could occur if the board failed to become more
active in terms of its roles and responsibilities.
purpose of the gram strategy being considered.